AboutPeter M. Elliott Expertise 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.
Experience 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')
Question I work for a county owned public library. We recently were involved in a Capital Improvement Construction project and the contractor claims according to Mississippi Code 31-5-25(b), a contractor not paid in full within (60) calendar days shall be paid interest on the remaining balance at a rate of 1 % per month until fully paid...
The final application for payment with the approval of the architect dated 5/15/02 was received in my office 5/17/02. I did not send payment until 8/15/02 because: If MS Library Commission receives grant requests by the 15th they usually have your money back to you within 45 days assuming they have at least $25,000 worth of requests to send on to the Dept. of Finance and Administration. (It was after the 15th when I received the application therefore my grant request didn't go in until the 15th of June. I received funds on 7-22-02.) On May 24, 7 days after I received the final application for payment, I mailed a letter to the architect stating minor grievances concerning the project and explaining that I was mailing the next to last payment to the contractor on that date but could not turn in a request for final funding until June 15, & did not expect to receive funds until end of June or beginning of July at earliest. If at that time, all repairs had been made and Board of Trustees had made a walk through inspection & given approval for payment, I would issue it. Also, between the time I requested and received funding, a water leak was discovered- by the time someone came to make repairs, other damages had occurred. Repairs were completed on August 15 and I mailed payment for the final balance although we were still experiencing minor problems.
On August 22, 2002, I received a letter demanding interest.
Is there any way to avoid paying it and if not what course of action I can take against the contractor?
Answer Hi Angela
I do not have detailed knowledge of the Mississippi Code, and you do not state the form of contract used for the Works, but here are some general comments. This type of clause appears in many legislations in many countries and states. It is designed to protect a contractor against a bad client who delays payment wilfully and for long periods. It is probable that this liability for interest applies only if there is no specific clause in the conditions of contract stating otherwise.
I restate the timetable of events below:
15 May 02 Architect approves final application for payment
17 May 02 Application received in office
15 June 02 grant request submitted (It was after the 15th when I received the application)
22 July 02 funds received
15 August 02 Payment made after repairs completed and walk through by Board Of Directors
27 January 2003! – second opinion sought.
Firstly some background. A contractor prices his work and cash flow based on prompt payment in accordance with the form of contract or local law. If payment is delayed, he has to borrow money, to pay suppliers and employees, or slow down other work, because he cannot afford to pay suppliers or workers and thus does not have the resources to do the work. In either case he has extra costs or reduced profit. He can recover these extra costs from three sources, current client, future clients or his own finance (reserves or profit). It seems reasonable to me that the current client should reimburse the contractor for extra costs which were caused by that client. It seems that you have a good contractor in that he repaired leaks and consequential damage within a reasonable period.
Did your contract state that final payment was conditional on all repairs being done and a walk through by the Board of Directors? If not, you had no right to delay payment. Why did you not notify the Architect of you complaints before the final invoice was approved?
Knowing your bureaucratic procedures and the fixed dates for submission, you should have included a special clause in the conditions of contract, stating that payment would be made within 60 days if approved invoices were received before the 10th of the month and 90 days if received after the 10th of the month. If you paid within these periods, you would not have to pay interest. It would be normal for the contracts department of the donor to check your contract and advise on this requirement.
There may be a weasel clause in the Code which states that the contractor has to prove actual expense or loss, but this clause in unlikely as the percentage is fixed. Also, if you apply this requirement, you may find that the actual cost was higher.
It hurts me to give you advice, which may be unwelcome, but I am obliged to give honest advice. I sympathise with you in that events were outside your control, and that you were unwilling to authorise the final payment without approval of you Board. However a contract is a two edged sword; there to protect both parties. Experience is expensive. I suggest that you pay the accumulated interest without further delay and write off any expenses against experience. I definitely would not advise you to employ a lawyer for a further opinion, unless he give it for free nor would I advise you to go to court.
