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QUESTION: Dear John Dowse

Lump Sum; Progress Payments

We are Main-con.   50m USD Contract Sum.  Today's date 11 Aug 2016.

My question is at what point in time are we entitled to 100% payment in regard to priced items in BQ Schedule.

Q1
At Substantial Completion (29 July 2016) outstanding work;
“re-instatement of yard” (1mUSD).

I believe that we may claim (as a “Progress Claim”) only when works are complete.

Correct?

Q2
But what if it was simply some kind of risk contingency item that we priced at say 30kUSD (for example “Insurance”)? The Employer (govt. entity) takes charge of all Insurances. No proof/evidence of Insurance to support 30k is available.

At what juncture are we entitled to 100% payment of the 30k?
1. At Substantial Completion (29 July 2016)?
2. Progressively, with last payment at Substantial Completion    (29 July 2016)?
3. Expiry of DLP (+18 months) ?
4. Final Account Cert (+18 months + say 6 months) ?

ANSWER: Dear Martin,

Thank you for this question.

Q1: There is nothing within the FIDIC contract to prevent the Contractor from making interim payment applications on a monthly basis throughput the Defects Notification Period. As such, it is my opinion that the Contractor can claim for payment even if only part of the work is done.

Q2: This will depend upon whether the Contractor or the Employer/Engineer is responsible for the contingency. If the contingency can only be expended at the direction of the Employer/Engineer the Contractor cannot claim. If, however, the Contractor can expend because it is his allowance, the question of whether he can recover the payment and when will depend upon the wording of the relevant documentation. You might never be entitled to payment!




I hope that this assists you.

Kind regards,
John Dowse

Follow me on Twitter: @CernoOrg
For my regular industry newsletter e-mail to info@cerno.org, stating SUBSCRIBE in the subject line; or visit www.cerno.org

Training and consulting services are available, bespoke to companies and individuals.
John Dowse can be contacted by e-mail to info@cerno.org (When e-mailing, please include “AllExperts” in the subject line.)


---------- FOLLOW-UP ----------

QUESTION: Q1 (Martin response): The assertion by my mgmt. is that because it is a lump sum contract the BQ items are only to facilitate Progress Payments.

At Handover / Practical Completion they assert that we are entitled to full Contract Sum incl. items of work not done. Note: there is no VO issued to omit the yard re-instatement.

My position is that we will not be entitled to payment until work is complete but at Final Account Cert stage, if no VO issued, then we will receive full payment. Conversely if a VO to omit is issued then, clearly, we receive nil payment for re-instatement of the yard.

Who is correct, me or my mgmt.?

Q2 (Martin response): Q1 is quite easy, I think. Q2 bit more tricky. I used the word “contingency” incorrectly, sorry. I meant the sum is simply an item that we as the Contractor priced in the BQ Schedule of Rates. It is not a physical entity as such so cannot be measured, in the normal sense.

Again, I maintain that in this circumstance we are entitled to full payment of 30k at Practical Completion (for the reason it’s a Lump Sum contract). This is contrary to my position viz. Q1 above.

Your opinion please.

ANSWER: Dear Martin,

Thank you for this question follow up.


Q1: My opinion is that you are correct. The Work safe not complete until the Performance Certificate is issued at the end of the DNP, when the Contractor is deemed to have completed all his obligations. After the PC is received by the Contractor, the Contractor and Engineer then engage to determine the Final Payment Certificate. If at that stage an element of work has not been completed the Contractor will not be entitled to payment for that element. If he did he would be unjustly enriched.

Ask you management this: If they are buying a car with a windshield price of $100,000 and it comes with only 3 wheels rather than four , would they have no objection to paying the full asking price? I agree that it is a nonsensical proposition; but  no less non-sensical than the proposition of your managers, who are suggesting that full payment is due for only partial performance. Where does this argument end?

Q2: The contingency item is a different issue. It forms a part of the Contractor's lump sum and, therefore, ought to be paid even if it is not attributed to any specific work element. Where, as in your case, it is a contingency for insurance which is known to be covered by the Employer, the question to be asked and answered is has there been a reallocation of the risk side the time of tender which essentially omitted the obligation to procure insurance from the Contractor's scope? If there has been no variation then why did the Contractor price it specifically for insurances? The contractor has created an ambiguous situation.



I hope that this assists you.

Kind regards,
John Dowse

Follow me on Twitter: @CernoOrg
For my regular industry newsletter e-mail to info@cerno.org, stating SUBSCRIBE in the subject line; or visit www.cerno.org

Training and consulting services are available, bespoke to companies and individuals.
John Dowse can be contacted by e-mail to info@cerno.org (When e-mailing, please include “AllExperts” in the subject line.)


---------- FOLLOW-UP ----------

QUESTION: Thanks John

Q1; closed

Q2:  I agree with you “It forms a part of the Contractor's lump sum and, therefore, ought to be paid“.   The question is when ?

( File Note: The Employer asked for “substantiation” but actually admits they do not know what documents are required. I opine Illogical.
My own TENDER and FINANCE dept. admit they also haven’t a clue as to the make-up of the item !      Can you believe that !? )

Answer
Dear Martin,

Thank you for this follow-up question.

Regarding Q2, and proceeding on the assumption that the $30,000 is payable the time for payment will depend upon an interpretation of the wording of the contract and contingency item. If it is to be interpreted such that it is insurance for the period of the Works then it should have been paid at Taking-Over at the latest. If, however, it is insurance for the Defects Notification Period, then it could be deemed payable either at the commencement of the DNP (commensurate with an obligation to prove that insurance was in place) or throughout the DNP (with a similar obligation to show insurance was effected and remains valid).

The difficulty I am having is ascertaining certainty that it must be paid at all, notwithstanding my prior comments. If you have included a contingency and labelled it for "insurances" knowing  that the Employer is meeting the obligation then, arguably, you are seeking to be paid for a risk that you declared as uncertain (evidenced by describing it as a contingency) but which you were not obliged got meet. Even thought it was a contractor stated contingency item, it can be argued that the contractor was making allowance for the Employer instructing, at the relevant time, whether or not you were required to procure the item.   


I hope that this assists you.

Kind regards,
John Dowse

Follow me on Twitter: @CernoOrg
For my regular industry newsletter e-mail to info@cerno.org, stating SUBSCRIBE in the subject line; or visit www.cerno.org

Training and consulting services are available, bespoke to companies and individuals.
John Dowse can be contacted by e-mail to info@cerno.org (When e-mailing, please include “AllExperts” in the subject line.)

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John Dowse

Expertise

Legal; contract interpretation; quantum; delay analysis. Practitioner in arbitration, adjudication and mediation.

Experience

Thirty-three (33) years experience in building and construction, at all levels both within contracting and consulting organisations. Practising arbitrator, adjudicator, and mediator. Faculty approved trainer for the Chartered Institute of Arbitrators. Lecturer on construction contract forms and dispute resolution practices.

Organizations
Chartered Institution of Civil Engineering Surveyors Chartered Institute of Arbitrators Institute of Directors Society of Construction Arbitrators

Publications
Various UK and International construction and legal publications.

Education/Credentials
LLB (Hons), Pg Dip (Legal Practice), MCInstCES MCIArb MIOD Barrister

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