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Construction Law/FIDIC Design Build, Ater DFP, Performance Security and Cost of Fixing Defects


The Defects Notification Period for the Main Part of Works for a 198-room hotel expired with several defects still to be remedied. We have released the full amount of retention money for this part of the Works but have estimated the cost of having these defects fixed by a Third Party and deducted this from the Interim Payment Certificate. The Contractor claims that the deduction is so significant that it has affected his cash flow which in turn has affected is ability to effect the repairs. He suggests that the "cost of defects" (about US$2M) be covered by the existing Performance Security (PS) [about US$5M] so that the deduction may be returned to him. What is your advise?

Our view is that the Performance Security should (may?) not be used in this manner and that it be retained for other events which may arise since the entire works are not completed; delay damages have already been significantly reduced in proportion to the value of remaining permanent works.

Dear Paul,

A nice story from the Contractor.  He might be trying to avoid doing the remedial works or deny that they are his responsibility.  

Clause 4.2 c is the relevant clause, which would allow you to make s call upon his Performance Security, but only to the extent the money is needed to pay for the remedial works.  Perhaps the Contractor does not realise the affect, that any call on his PS, would have on his credit rating.  Perhaps, I am being cynical but, before taking any action, I would confirm that the PS is valid and that the issuer exists and is ready to release the money.  

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Peter M. Elliott


First response to queries regarding extensions of time, variations orders, site instructions and payment using FIDIC and other forms of Conditions of Contract, based on English Law, and derivatives only. Anyone who needs advice about EoT should download and study the SCL Delay & Disruption Protocol before submitting a question.


Value . . .
It's unwise to pay too much, but it's unwise to pay too little. When you pay too much you lose a little money, that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing you bought it to do.
The common law of business balance prohibits paying a little and getting a lot. It can't be done. If you deal with the lowest bidder, it's well to add something for the risk you run.
And if you do that, you will have enough to pay for something better.
. . . John Ruskin (1819 - 1900)
"We are too poor to buy something cheap"
.Romanian Proverb 2002
A lean compromise is better than a fat lawsuit. George Herbert (English poet 1593-1633)
I said it in Hebrew, I said it in Dutch,
I said it in German and Greek:
But I wholly forgot (and it vexes me much)
That English is what you speak!" Hunting of the Snark - Lewis Caroll
Match your presentation to the reader!
The joy of food lasts but an hour, of sleep but a day, of a woman, but a month, but the joy of a building lasts a lifetime. Syrian proverb.
Comments and observations leading to improvements in the translation of FIDIC Red & Yellow books into Romanian prior to approval by FIDIC (reference 'Preface to the Romanian edition')

Institution of Civil Engineers, Association of Chartered and Certified Accountants, Society of Construction Law, Dispute Resolution Board Foundation

B Sc(Hons) in Civil Engineering

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