Contracts: basic questions Question/Answer

Remeasurement modified to Lump Sum

Question


The following query is in relation to a situation which has occurred in the context of the execution of a Lump Sum contract, regulated by a standard FIDIC (Red Book) terms and conditions. The Specifications call for "Cast Iron" pipes, while the BOQ calls for "UPVC" pipes. The Contractor and upon the approval of the Engineer, and without having any instructions to do so, executed the Works in UPVC. Does this entitle the Employer to request cost saving on this item? And on what basis? Your response to the above is highly appreciated.

Answer


 You say that you have a Lump Sum Contract. The FIDIC Construction Contract Book is a remeasurement contract so the payment provisions must have been changed to provide for the Lump Sum. The answer to your question will depend on the wording of these Lump Sum provisions. I regret that FIDIC can only comment on questions which on the interpretation of the FIDIC General Conditions, so we are unable to answer your question. We fear that this is an indication of what happens if General Conditions are modified by Special Provisions without due care.
 

Subcontrcator's experience

Question

I would like your advice on the definition of a subcontractor, and of the following tender criteria: "subcontractors' experience and resources shall not be taken into account in determining the bidder's compliance with qualifying criteria". In other words, does this mean that if a bidder has worked as a subcontractor, he is not permitted to add that experience as part of his qualification? I would like your clarification. 

Answer

The FIDIC definition of a subcontractor is given at Sub-Clause 1.1.2.8 of the 1999 Contract for Construction as: "Subcontractor" means any person named in the Contract as a subcontractor, or any person appointed as a subcontractor, for a part of the Works; and the legal successors in title to each of these persons. Different clients have different criteria when evaluating tenders. FIDIC would certainly expect that any client will want to ensure that the tenderer has adequate experience as a main contractor and has not just worked as a subcontractor. However, in FIDIC's opinion, this would normally be worded as "Experience as a subcontractor ....". FIDIC has also known clients to be concerned that tenderers have relied on a proposed subcontractor's experience and resources when preparing a tender and then the named subcontractor is withdrawn and another, less experienced, company is proposed after the tender has been accepted. However, for an international tender, some clients require that a certain percentage of the Works must be subcontracted to local companies. In this case the experience and resources of the proposed subcontractors will be an important part of the tender. The client's criteria when evaluating tenders depend on a number of different factors, including the past experience of the particular client. In order to ascertain the exact intentions for evaluating your particular tender you would need to raise the question with the client.

Free-issue materials

Question

I have a question regarding Clause 69.1 for Default of Employer. We are executing a Contract for a Project in Pakistan under FIDIC Fourth Edition, 1987. The Employer has assigned The Engineer and also an Employer's Representative. The Employer's Representative is form time-to-time acting like The Engineer and would like to physically check the works at site. They are also applying deductions on the certificates of The Engineer, such as retention money on escalation, and also Quantities, etc. The amount of the unauthorized deductions are around 5 % of the total amount certificates issued by The Engineer. We have served a notice under Clause 69.1 and 69.4, of the Conditions of Contract to reduce the rate of work and furthermore, clarify that the Clause 69.1 explains the default of the Employer, regardless of the quantum of amount in case of Employer's failure to pay to the Contractor total amount due under any certificate of the Engineer. Do you think that the above statement is true and it is a case of default of the Employer ?  

Answer

Depending on what is written in the Contract and the Particular Conditions, generally speaking you have a case against the Employer. The damages which the Contractor may claim would include interest and/or financing charges. However, you must check the provisions of the Sub-clause 2.1 Engineer's duties and authority ,to see what is mentioned there. It is not very clear what is this Employer's Representative and what are his duties under the Contract,. However, one would suspect that you have a case against the Employer.

Bogus claims

Question

I request to give me clarification about the correct interpretation of Clause 60.6 Final statement in the FIDIC Conditions of Contract 1987 revised in 1992. This is about submission by the Contractor of final statement containing the following (a) 'the value of all work done in accordance with the contract, and (b)any further sums which the contractor considers to be due to him under the contract or otherwise'. I want clarification with respect to (b) above. Does it include the Claims which the Contractor has never raised during the currency of contract according to provisions of the contract? I am confronted with a dispute In which the contractor for a value of total work of Rs 70 million has submitted final accounts of Rs 280 millon by including various type of claims which he never claimed during the contract period and now claims in the final statement and since the Engineer/Employer failed to respond, the Contractor claims that the final account has become final. I would request for an early response as to the true and intended purpose of the sub-clause (b) of Clause 60.6 of the General Conditions of the above mentioned FIDIC version for civil works construction. Should I include all bogus claims what I intend to include for the purpose that if I claim USD 100 I would at least get USD 1. How I can rebut this?  

Answer

The provisions of Sub-clause 60.6 have to be read together with the provisions of Sub-clause 60.5 and of course with the provisions of the Sub-clause 60.9. In order for the Contractor to maintain any claim, he must include it in his Statement at Completion, if it has arisen by then, and in his Final Statement. There are a number of incidences under the contract when the Employer gives to the Contractor indemnities or is otherwise responsible to the Contractor. Clauses in which this occurs and where the Contractor's resulting claims against the Employer could arise for the first time after the Statement at Completion or Final Statement have been submitted by the Contractor include the following: Clause 19.2 (Employer's responsibilities) in relation to safety; Clause 21.3 (Responsibility for amounts not recovered); Clause 22.3 (Indemnity by Employer); Clause 24.1 (Accident or injury to workmen); Clause 25.4 (Compliance with policy conditions); Clause 26.1 (Compliance with statutes, regulations); Clause 70.2 (Subsequent legislation); and Clause 71.1 (Currency restrictions). In each of the above cases, it is conceivable that the Contractor would wish to make a claim against the Employer after the date of the Final Statement. Further, if the Contractor was made liable under the applicable law to a third party in respect of design which had been carried out by the Engineer, the Contractor would wish to bring a claim against the Employer to recover any damages paid out. Sub-clause 60.9 in fact bars the claims not mentioned in the Statement at Completion and in the Final Statement. The purpose of the sub-clause is sensible, namely to enable the Employer to achieve a reasonable degree of certainty as to his ultimate liability.

Appointing an Engineer

Question

Is it recommended to have in a contract based on FIDIC's Electrical and Mechanical Works Contract an external expert acting as the Engineer? Or is there no problem in recruiting the Engineer from amongst the Beneficiary (in our case a "public" authority)? We are signing a contract shortly. The Engineer is according to the Red Book, Clause 2.4 Part I bound to act impartially. The question is if there is an internal incompatibility in the relationship to his Employer. 

Answer

The basis upon which the 1987 Yellow Book and Red Book is written is that the Engineer is appointed by the Employer, but that he is independent of both parties - i.e., he is an independent third party. In many cases he is required to give impartial decisions - in fact under Clause 2.4 of the Yellow Book he is required to act impartially at all times when exercising his discretion. If the Engineer is an employee of the Employer - e.g., someone from the Employer's Engineering Division - there is a big risk that he will not be in a position to act impartially. Although he may be very experienced and capable from a technical point of view, and able to handle all technical matters, he may not be free to make decisions which involve financial arrangements, etc. in a fair and impartial manner. It is not impossible, nor unknown, for the Employer to nominate himself or one of his own staff as Engineer, but it is rare and certainly causes problems. The text of any clauses referring to the impartiality of the Engineer will probably need revising at some stage, as will the provisions for handling claims and disputes (Clauses 2 and 50). The principle of using an employee of the Employer as Engineer would be more acceptable if a Dispute Adjudication Board (DAB) was introduced to replace the principal provisions of Clauses 2 and 50.1 to deal with claims and disputes.

Standard Letters

Question

I am a Civil Engineer, presently working as Contracts Manager. Foreign (non-British nationality) engineers usually have an understanding of the contract document and the associated entitlements/obligations, but always express difficulty in composing (or responding to, if they are on "the other side" , correctly worded "standard" letters to the RE, Engineer or Employer in compliance with the requirements of the various sub-clauses. Do you have such a publication? 

Answer

The only book which we can recollect is "Musterbriefe in Englisch" (ISBN 3-7625-2607-9) although its standard letters are not such as we would prefer to endorse. Although we will review the situation with regard to the new FIDIC Contracts Guide, FIDIC lack enthusiasm for the very concept of standard letters, which seems to be tied up with the concept of avoiding thinking about the situation. However, we do recognise the validity of concerns expressed by those whose first language is not English. Thus, "Musterbriefe in Englisch" has been republished as an electronic edition (it goes with the 1987 Red Book civil works contract). An updated version for use with the Construction Contract 1st Edition, 1999, the Red Book successor, will be published by FIDIC in 2009 (FIDIC has acquired the copyright of Musterbriefe in Englisch). It should be noted that Edward Corbett's book "FIDIC 4th "contains some standard letters. These have been incorporated with permission in the electronic version of "Musterbriefe in Englisch" published by FIDIC. 
 

Appendix to Tender data mission (continued)

Question

I believe this case does not constitute a question of mistake in contract to be decided under the applicable law. The schedule of prices of labour and materials is a provision for the tenderer to indicate his price (cost plus profit) on which he had based his Contract Price, in order for the Engineer to ascertain the value of an item of work that had been executed (possibly under a variation order) and for which, or for a similar item of work of which, no price could be found in the Bill of Quantities (BOQ). Thus the schedule of prices of materials and labour only assists the Engineer to determine the overheads and profits of the Contractor, under the terms of the contract, that has to be added to the basic cost of executing an item of work, which the Engineer can always readily determine. If provison had been made in the contract for payment for price escalations, then such payments had to be determined by reference to price escalation indices, published by an accepted authority. As to which source or publication is to be used for this purpose, depends on what would have been reasonably expected to be in the minds of the two parties at the time of entering into contract. 

Answer

We assume that this inquiry is about FIDIC 1999 Conditions of Contract where in the 199 Red Book Sub-Clause 13.8 it says: "13.8 (Adjustments for Changes in Cost) - In this Sub-Clause, "table of adjustment data" means the completed table of adjustment data included in the Appendix to Tender. If there is no such table of adjustment data, this Sub-Clause shall not apply. If this Sub-Clause applies, the amounts payable to the Contractor shall be adjusted for rises or falls in the cost of labour. Goods and other inputs to the Works, by the addition or deduction of the amounts determined by the formulae prescribed in this Sub-Clause. To the extent that full compensation for any rise or fall in Costs is not covered by the provisions of this or other Clauses, the Accepted Contract Amount shall be deemed to have included amounts to cover the contingency of other rises and falls in costs. The adjustment to be applied to the amount otherwise payable to the Contractor, as valued in accordance with the appropriate Schedule and certified in Payment Certificates, shall be determined from formulae for each of the currencies in which the Contract Price is payable. No adjustment is to be applied to work valued on the basis of Cost or current prices. The formulae shall be of the following general type: Pn=a+bxLn/Lo+cxEn/Eo+dxMn/Mo where: "Pn" is the adjustment multiplier to be applied to the estimated contract value in the relevant currency of the work carried out in period "n", this period being a month unless otherwise stated in the Appendix to Tender; "a" is a fixed coefficient, stated in the relevant table of adjustment data, representing the non-adjustable portion in contractual payments; "b", "c", "d", ... are coefficients representing the estimated proportion of each cost element related to the execution of the Works, as stated in the relevant table of adjustment data; such tabulated cost elements may be indicative of resources such as labour, equipment and materials; "Ln", "En", "Mn",... are the current cost indices or reference prices for period "n", expressed in the relevant currency of payment, each of which is applicable to the relevant tabulated cost element on the date 49 days prior to the last day of the period (to which the particular Payment Certificate relates); and "Lo", "Eo", "Mo", ... are the base cost indices or reference prices, expressed in the relevant currency of payment, each of which is applicable to the relevant tabulated cost element on the Base Date. The cost indices or reference prices stated in the table of adjustment data shall be used. If their source is in doubt, it shall be determined by the Engineer. For this purpose, reference shall be made to the values of the indices at stated dates (quoted in the fourth and fifth columns respectively of the table) for the purposes of clarification of the source; although these dates (and thus these values) may not correspond to the base cost indices. In cases where the "currency of index" (stated in the table) is not the relevant currency of payment, each index shall be converted into the relevant currency of payment at the selling rate, established by the central bank of the Country, of this relevant currency on the above date for which the index is required to be applicable. Until such time as each current cost index is available, the Engineer shall determine a provisional index for the issue of Interim Payment Certificates. When a current cost index is available, the adjustment shall be recalculated accordingly. If the Contractor fails to complete the Works within the Time for Completion, adjustment of prices thereafter shall be made using either (i) each index or price applicable on the date 49 days prior to the expiry of the Time for Completion of the Works, or (ii) the current index or price: whichever is more favourable to the Employer. The weightings (coefficients) for each of the factors of cost stated in the table(s) of adjustment data shall only be adjusted if they have been rendered unreasonable, unbalanced or inapplicable, as a result of Variations." The clause is very clear and unfortunately the question raised is not related to an interpretation of a Sub-Slause.
 

Fairness of deductions

Question

As our project is a lump-sum contract, the client has reduced some of the items and is deducting suome of our payment amounts from the monthly certificate. Is it fair to deduct an amount? 

Answer

Although it is not for FIDIC to comment on the "fairness" of a particular circumstance, it is the FIDIC philosophy to publish Conditions of Contract that adopt an approach of fairness and balanced risk allocation between the parties as a primary focus. Further, FIDIC can only comment in general terms on the interpretation of a FIDIC clauses, and it should be noted that for the application of a clause to a particular problem situation, one should always consult a specialist. With that being said, in general, the Sub-Clause entitled Variations (Sub-Clause 52.1 in the 4th Edition or 13.1 in the 1999 Edition of the Construction Contract) does provide the right for the Engineer to vary the work downward; specifically the Engineer may decrease quantities or omit work, provided of course that this work is not carried out the Employer or another contract. Further, Sub-Clause 51.1 provides that such variations will be valued in accordance with the Clause 52, in the case of the 4th edition or Clause 12 in the case of the 1999 editions. Both of these clauses provide the rules for the valuation of these variations, which include the possibility of reduction in price. Please note that the above represents a general answer only, and specific advice to the particular facts surrounding your situation, we recommend you consult a specialist. 
 

Liquidated Damages

Question

I am working as a Resident Engineer for Highways with consultants. A brief detail of our project is as as follows: The project is a repair project and is divided in 3 sections. The sections are of varying lengths with 150m for the shortest one and 1.5 Km for the longest one. Completion date for the project has already elapsed early this year and no time extension has been granted to the contractor owing to delay on his own behalf. Two sections have already been completed (opened to traffic) and the 3rd section is near completion. No separate times for completion have been provided in the contract for either section. ·Clause 47.2 of FIDIC Conditions of Contract (4th edition) recommends the reduction in penalty subject to taking over of different sections. As sated above, none of the sections have been acquired by the client contractually. The referred clause also states that the provisions of the sub clause shall only apply to the rate of liquidated damages and shall not affect the limit thereof. What I infer from this part is that even after the reduction of penalty, it shall be applicable from the original date of expiry of the contract. Is this the right interpretation? My second query is regarding the reduction in liquidated damages. Under the above circumstances where the sections have not been acquired, but opened to traffic and general public, can the penalties be reduced contractually subject to mutual agreement with the client? Thirdly, during the currency of the project, some savings have been there (which couldn't be estimated at design stage due to repairing nature). The savings are less than 15% (considering Clause 52.3). If penalties are applied and reduced thereof, are they to be calculated on the original contract price or the revised one? 

Answer

If understood correctly, your first question relates to sub-clause 47.2, specifically the last sentence, which reads "The provisions of this Sub-Clause shall only apply to the rate of liquidated damages and shall not affect the limit thereof." The meaning of this sentence is that although this clause allows for the amount of liquidated damages to be reduced proportionately to the work being handed over, if the work is handed over in parts, the maximum limit of liquidated damages (as specified in the appendix to tender (see Sub-Clause 47.1)) is not affected. In regard to your second question, Clause 47 should be read in conjunction with Clause 48. In the background to your question, you stated that none of the sections have been 'acquired by the Client contractually', yet earlier you state that '2 sections have already been completed (opened to traffic)'. In this light, we would suggest that you may review both sub-clause 48.2 and 48.3, which, depending on the particular fact pattern surrounding your contract, may be applicable. In answer to your third question, liquated damages are not penalties. You are kindly referred to the verbiage contained in Sub-Clause 47.1, which reads, in part "... and not as a penalty ...". As explained in the Guide to the Red Book, Liquidated damages are an amount determined by the Employer, before tenders are invited, as a reasonable assessment of the actual damages which he would suffer in the event of delay in completion of the Works. Hence, in general, Liquadated Damages should be calculated from the vantage point that will result in a reasonable assessment of the actual damages.
 

Value Engineering sub-clause

Question

In terms of the FIDIC 1987 Red Book, is the Contractor entitled to a portion of the saving as provided for in the terms of Sub-Clause 13.2 (Value Engineering) in the 1999 Red Book? 

Answer

The FIDIC 1987 eRed Book does not have a similar provision as the one mentioned in the FIDIC 1999 edition Value Engineering, Sub-Clause 13.2 However you may find in the 1987 Red Book a so called bonus for early completion.
 

Additional works

Question

Being a project manager from the client side, I would like to know as per FIDIC can I force a contractor to carry out additional works prior to approval of his financial claim?

Answer

The basic answer is YES, provided you follow the correct contract procedures. There are a number of Sub-Clauses which are relevant including, from the 1999 Construction Contract: a) S/Cl 3.1: The Employer may have imposed constraints on the Engineer's authority in the Particular Conditions. b) S/Cl 3.3: The Contractor shall comply with instructions given by the Engineer. c) S/Cl 13.1: The Contractor shall execute and be bound by each Variation initiated by the Engineer. Subject to exceptions as stated in the Sub-Clause. d) S/Cl 13.3: Procedures for the Engineer to value the Variation. The Engineer may have asked for and accepted a proposal, or he proceeds as Clause 12.
 

New rates

Question

In a civil marine work contract of FIDIC conditions, disputes quite often occurs on fixing of revision of rates. though clauses 51 and 52 of Fourth Edition - Red Book - clearly provide causes for variation and valuation of rates, ambiguity still persists with respect to adoption of revised rates for varied quantities only or for full quantity executed as long asthere are no major changes in deployment of workmen, equipment and materials. Leaving the decision to engineer may not give an appropriate solution as persons holding the post of engineer may have different views and their decisions may not exactly match with the views of FIDIC authors. Please clarify the situations when revised rates are applicable for the entire quantity or for increased quantities only.  

Answer

The decision whether a new rate applies to the total quantity of an item, or just to the Variation quantity, will depend on the reason why a new rate is necessary. This may depend on the reason and details of the change to the Contractor's cost. Sometimes the original quantity will already have been executed and paid at the BQ rate, before the Variation is ordered. However, sometimes the fact of the quantity being changed by the Variation will change the circumstances and costs and makes it reasonable to pay the total quantity at the new rate. The new rate may differ if it is being applied to the total quantity or just to the Variation quantity. The Engineer will, of course, take all these factors into account when calculating a new rate. You should also refer to the commentary on Clauses 51 and 52 in the FIDIC Guide to the Fourth Edition. The commentary emphasises the importance of consultation with both the parties.
 

Appendix to Tender data missing

Question

A contract was signed under the FIDIC Conditions of Contract which require that indices for the skilled and unskilled labour should be filled by the Contractor in the relevant Appendix while submitting the tender. This requirement including the source of the indices was however not fulfilled by the Contractor. This fact was noted but employer failed to get this requirement met and the contract was signed without this information. The dispute arose when the contractor submitted escalation claim due change in prices of the labour component according to relevant provision. The contractor insists the use source indices issued by the local government for calculation of adjustment which is near the place of the construction and because this condition is more profitable to contractor. The Client insists that he will use the indices issues by a gevernment office which are normally used in government contracts. I am the Arbitrator in one such case and need advice of FIDIC what will be the judicious coarse of action in this scenario. I however feel that entire responsibility of not providing this information cannot be placed on the Contractor and the Employer should have insured that Contractor provide this information before signing of the contract. omission was made and the contract was signed without this information (source of indices). I will be anxiously waiting for advice from your expert what reasonable coarse of action should be adapted in this dispute resolution as the Contractor has gone in dispute on this issue.  

Answer

It seems that the Contractor made a mistake by not adding the information to the Appendix to Tender. The Employer then accepted the Tender and the Parties signed a Contract which included the mistake. Unfortunately you say that they cannot agree on the information which should be added to the Appendix to Tender. To correct the mistake requires a change to the signed Contract to add this information. Correcting a mistake in a Contract is a legal question which must be studied under the applicable law. FIDIC cannot comment on such legal questions.

Engineer's decision

Question

Our firm has a contract for consulting services with the Government of El Salvador for the construction of major transportation infrastructure in the country. The project is divided into three packages that are governed by FIDIC Conditions of Contract for Works of Civil Engineering (Red book, 4th Ed. 1987). The construction of the first package of project, which included two 400-meter bridges over the most important river in El Salvador, was completed last April.The Contractor is a Joint Venture of firms that is now claiming additional payments based on the contract documents. In order to have a clear interpretation of the documents, we would like to clarify the following: Clause 67.1 Engineer's Decision - we would like to confirm if under this Clause the Contractor can claim for matters that happened during the construction period, even after the Take-Over Certificate has been issued and the Statement at Completion has been certified and paid. 

Answer

Regarding Clause 67.1: if the Contractor is dissatisfied with an Engineer's evaluation of a claim under Clause 53, he may refer the matter at any time (before or after completion) to the Engineer under Clause 67.1 for an "Engineer's Decision". He can do this any time up to his Final Statement and there is no time limit. The Engineer then has 84 days to respond. The Contractor cannot submit a "new'" claim for normal determination under this clause. The claim must first be processed under Clause 53, and only when a Clause 53 determination has been given which the Contractor finds to be unacceptable do we have a "dispute" situation which can be handled under Clause 67.1.

Calculation of claims

Question

I would like to know if you can help me find information regarding the procedure and calculation of claims (of any kind) arising out of a Civil Engineering Construction contract. 

Answer

FIDIC publishes guides to each of its forms of construction contract, which may provide the guidance you require on the procedures for claims. You would need to order the Guide for the use of whatever Conditions you are using. If your enquiry relates to October 2000. FIDIC's guides do not elaborate on the calculation of claims, so you might need to consult other publications. Personally, I am only aware of "Building and Civil Engineering Claims in Perspective" by Geoffrey Arthur Hughes, which was first published by Longman in 1983. It may have been republished and fulfil your needs.

Not in pre-handover list

Question

I have the following problem and I can not find a solution in the FIDIC Red Book Fourth Edition 1887. The problem is as follows: we have made a contract with a pre-hand over list made, with the Engineer, in April 2000. A new contract, given to another company in the same building was given in May 2000, it was an obligation for me to give the keys of the building. As the Engineer is in Zimbabwe and the Building is in Burundi, no engineer was there for the hand over of the inside of the building. Now, the Engineer asks us to repair some things which were not on the pre-hand over list. Can you please tell me what I have to do. 

Answer

FIDIC does not undertake to proffer advice relating to every situation which may arise under a FIDIC-based contract. However, it appears that the answer to your question depends upon whether a Taking Over Certificate has been issued. If so, the pre-hand over list presumably advised you of the work described in Sub-Clause 49.2(a), and the Engineer has asked you to repair some things as described in Sub-Clause 49.2(b). If not, the Engineer may be "specifying all the work which ... is required to be done ... before the issue of such Certificate" under Sub-Clause 48.1. In either case, you have not indicated any reason for not complying with the Engineer's instructions.

 

Additional payments

Question

Our firm has a contract for consulting services with the Government of El Salvador for the construction of major transportation infrastructure in the country. The project is divided into three packages that are governed by FIDIC Conditions of Contract for Works of Civil Engineering (Red book, 4th Ed. 1987). The construction of the first package of project, which included two 400-meter bridges over the most important river in El Salvador, was completed last April.The Contractor is a Joint Venture of firms that is now claiming additional payments based on the contract documents. In order to have a clear interpretation of the documents, we would like to clarify the following: Clause 53.1 Notice of Claims - it is important to confirm if the Contractor can invoke this Clause to claim for additional payment owing to construction works that were performed before the Take-Over Certificate, once this Certificate has been issued. In other words, if the Contractor can claim for matters that happened during the construction period even after the Take-Over Certificate has been issued. 

Answer

Regarding the application of Clause 53.1. This clause requires the Contractor to give Notice of a potential claim within 28 days of the event occurring. This establishes his right to claim and he should then proceed to substantiate the claim according to Clause 53.3. He can claim at any time - before or after Taking-over - if events occur (before or after taking-over) which he considers entitle him to claim. The intention of Clause 53.1 is to try to make sure claims are dealt with as and when they occur so that everyone is familiar with the circumstances (thus the 28 day provision) - and not to leave them to the end - when people have probably forgotten all the details. If he did this within the time limits, then the claim should be evaluated according to the Contractor's submissions. If he did not - as would appear to be the case - and has come in with a claim a considerable time after the event, then we would suggest that you have two courses of action. Firstly you should perhaps try to establish why he did not give notice within the 28 days. Either you can reject his claim on the ground that he did not submit it within 28 days as required by Clause 53.1, or, under Clause 53.4 you can make an assessment based on records which were kept at the time. Normally I would suggest it depends on the circumstances. If the claim appears to be frivolous and confused with no substantiation (possibly an event you knew nothing about) you may well decide to reject it. But if it concerns an event of which you were aware which you knew had disrupted the Contractor, then maybe you could consider it under Clause 53.4.

 

New rates for remeasurement

Question

I have a question regarding adoption of FIDIC Red Book Fourth Edition reprinted 1992. The particular Contract contains Clause 51/52 "Variations" and also contains Clause 56 "Works to be Measured" and has BOQ. Design and Construct Services for Electrical and Mechanical were tendered as diagramatic designs and are to be developed to the Approval of Engineer as part of obligations under the Contract and have various BOQ items. This Design Development for Mechanical/Electrical services is his obligation under the Contract, and in this way would not seem to qualify as a Variation to the Contract. However new items to the original BOQ have been necessitated by DD. Under which Clause can new rates be established for the re-measure of these Works?

Answer

The Conditions of Contract for Works of Civil Engineering Construction (1992) do not contain express provision for new rates being established for the re-measurement of non-varied Contractor-design works, where new items to the original BoQ have been necessitated by Design Development. Typically, Contractor-design works are priced on a lump-sum basis, and are not subject to re-measurement after Design Development, so such express provision would be inappropriate in the Conditions of Contract which FIDIC intended to be suitable for Employer-design works.
 

Termination before completion

Question

Has Employer got an authority according to FIDIC to terminate the contract of Engineer before completion of project and appoint another engineering company or continue with its own resources? I know that that Employer cannot do this according to Red Book FIDIC Clause 1.1 Definitions by referring to Part II of the contract. What should we do as a contractor at this stage? 

Answer

You appear to understand FIDIC's provisions, as summarised at the top of page 41 of the Red Book Guide: "It should be noted that ... the effect of ... [1.1(a)(iv)] is to prevent the Employer from changing the Engineer without the consent of the Contractor." In effect, provided the legal person defined as "Engineer" continues to exist, such legal person continues to be the Engineer for the purposes of the Contract, and the Employer has no power to name someone else as Engineer. By "continues to exist", we mean does not (as a natural person) die, or is not (as a company) dissolved. FIDIC cannot give specific advice in respect to the actions a party should take, and only undertakes to clarify aspects of its own provisions. You do not seem to need such clarification, but may need to obtain advice from a lawyer with expert knowledge of construction law.

There is always a possibility that some aspect of the situation (which you have not mentioned) would entitle the Employer to replace the Engineer under the law governing the Contract. For FIDIC, it seems that you should first decide whether the replacement "Engineer" is acceptable as such because, if not, you could inform the Employer accordingly and seek to resolve the matter before it escalates into a major dispute.
 

Employer replaces the Contractor

Question

Regarding the correct application of the Red Book Contract, the Employer in compliance with sub-clause 63.1, after giving written notice to the Contractor upon his contravention of provision in sub-clause 4.1, enetered upon the site and the works, and terminated the employment of the Contractor. The Employer wants to employ another Contractor, which took second place in the initial, public tender, to complete the works. The further procedure will be in compliance with sub-clauses 63.2, 63.3, 63.4 and 64.1.The questions is: is this procedure in compliance with the General Conditions of the Red Book 4th Edition? 

Answer

We refer to your query whether a proposed procedure complies with the fourth edition of the General Conditions of Contract for Works of Civil Engineering Construction.
 
FIDIC cannot undertake to provide advice on actual circumstances, and is only prepared to clarify and explain the meaning and purpose of the provisions it publishes in its Conditions of Contract. In the case of serious matters such as termination, legal advice should be sought.
 
However, we would make the following observations, without concluding whether the Employer is entitled to proceed as you have described. For these purposes, we start by assuming that the Employer's termination was valid by reason of the Contractor's breach of sub-clause 4.1. Such validity may, of course, be challenged by the Contractor.
 
Following a valid termination, the Employer's options on employing another contractor would not appear to be constrained by the General Conditions, other than under Clause 63 (with which you state the further procedure will comply), although they may be constrained by the applicable law. You mention compliance with sub-clause 63.4, which relates to assignment of subcontracts. Applicable law may constrain the Employer's rights in respect of subcontracts which were associated with the Contractor's breach of sub-clause 4.1.
 
You mention compliance with sub-clause 64.1, which relates to urgent remedial work which the Contractor is unwilling or unable to do, prior to termination. After termination, his previous unwillingness or inability would not seem to entitle the Employer to invoke sub-clause 64.1. As regards employing a contractor which took "second place ... in the initial public tender", this is not a matter to be decided by the General Conditions of the Contract under which the termination was effected. The choice of replacement contractor is a matter to be decided by the law relevant to the procurement procedures and any constraints imposed by those providing funds for the project. 
 

Delayed payment

Question

I am an Architect registered with the RIBA in the UK since 1978 and the UAE Authorities in Abu Dhabi, UAE since 1981.
 
I have recently been Engineer under a FIDIC Red Book 4th Edition Building Contract between a UAE Government Agency and a local Contractor, and Employer's Representative/Adviser under a FIDIC Design and Build Contract, same Employer but different Contractor.
 
Clauses of Particular Application have been prepared by a third party advising the Employer direct in both cases, but largely ignored, the Employer paying late throughout, not paying the final Interim Certificates on Taking Over the Works in either case, threatening the imposition of Penalties by ignoring and/or rejecting the cases for Extensions of Time in both cases, and not paying at all until forced agreement to reduced amounts has been accepted by the Contractors through barter.
 
As you may know, there is very limited recourse to the law here, especially for foreigners. Both Contractors are likely to weigh the costs of Courts and further Delay against the benefit of any payment at all; one has already given in, but the other is still fighting, or perhaps more realistically, negotiating.
 
What should I do, please: indeed, is there anything that can be done ? This is the worst case of abuse of Contract I have come across in more than 20 years here, though the amounts are relatively small. 

Answer

Whilst we can sympathise with the situation described in the question, there is not a lot FIDIC can recommend or that he can do as Engineer in this case.
 
The situation described is, unfortunately, not all that uncommon in some Middle East countries and the ultimate decision of what to do lies with the Contractor. If he feels the situation warrants extreme measures, then he can terminate under Clause 69.1 (unless of course 69.1 has been changed - as it very often is in these countries). Otherwise there is not a lot you can do.
 
Being fair and impartial the Engineer could (and perhaps should) write to the Employer reminding him of the terms of the Contract - but he will probably bring down the wrath of the Employer on his shoulders, and that may not help anybody.
 
You should perhaps also bear in mind that Contractors who choose to work in these countries are usually (or should be) rather familiar with this situation and may well have allowed something in their price to cover this sort of thing - especially, as the person asking the question says, the amount is not very large.
 

Expiry of Defects Liability Period

Question

For the Red Book, can the Engineer issue instructions under Clause 13.1 after the expiry of the Defects Liability Period ? 

Answer

After the Defects Liability Period expires, the Engineer may issue instructions under Clause 49, and cannot rely upon Clause 13 as authority to issue other instructions.
 

Performance security

Question

Please inform us about the validity of the performance security if the duration of the contract is 90 days. 

Answer

These principles would probably apply whichever FIDIC document is being used.
 

Priority of tender documents

Question

The question refers to FIDIC Conditions of Contract for Works of Civil Engineering Construction (4th Edition 1987, reprinted 1988 with editorial amendments, reprinted 1992 with further amendments). I am an employer who is negotiating with the contractor now. I have a trouble in using the FIDIC conditions, and ask for your help urgently. Sub-Clause 1.1 (b)(v) "Tender" means the Contractor's priced offer to the Employer for the execution and completion of the Works and the remedying of any defects therein in accordance with the provision of the Contract, as accepted by the Letter of Acceptance." And Sub-Clause 5.2 specifies the priority of the contract document, of which the Tender is listed as third. Are those two "Tender" have the same meaning? Can we explain that the Tender only refer to the document entitled letter of tender (maybe 1 or 2 pages, very short and simple anyway), or all the documents submitted by the Contractor along with the letter of tender as response upon the Bidding Document (a lot of documents, such as appendix to tender, priced BOQ, technical proposal, evidence for construction experience and financial capacity)? 

Answer

The Tender at Sub-Clauses 1.1(b)(v) and 5.2(3) means the form of Tender which is given at the end of Part 1 of the Red Book. The form of Tender, at paragraph 2, confirms that the Appendix to Tender forms part of the Tender and Sub-Clause 1.1(b)(iv) confirms that the priced bill of quantities forms part of the Tender. If the Employer requires other documents to be included in the Contract as part of the Tender then he must state this clearly in the Instructions to Tenderers and in the form of Tender.
 

Obtaining Contract Data

Question

Sub-Clause 11.1 tell us that the hired contracting party is responsible for the data contained in his proposal based on the data supplied by the Contractor. Could you please tell me how I can obtain the data? 

Answer

The Contractor must have based his tender on information: 1) which was provided to all tenderers by the Employer from the investigations which had been carried out by the Employer; 2) which the Contractor obtained from his own inspection and examination of the Site and its surroundings. Where the Contractor obtained this information will depend on the circumstances but he must have satisfied himself that his tender was correct and sufficient to meet his obligations under the Contract.
 

Interim certificates

Question

Sub-Clause 60.4 stipulates that the Engineer may correct any error in an interim certificate in subsequent certificates. Are there any limitations in the application of this provision? 

Answer

You are referring to Sub-Clause 60.4 of the 1987 Contract for Civil Engineering Works. There is a similar provision at Sub-Clause 14.6 of the 1999 Contracts. The Contract does not put any limitation on this provision. However, under Sub-Clause 60.2 the Engineer has previously certified the amount which he considered to be due and payable. If he has now found an error and changed his mind he should explain the reasons for the change.
 

Refixing of rate

Question

I am interested in application of Clause 52.2 (Power of the Engineer to fix Rate). If circumstances allow a refixing of rate, would it apply to the varied quantity(increased/decreased) or to the entire quantity, i.e., quantities in the bid plus increase/decrease? 

Answer

You are referring to the 4th Edition 1987 of the Contract for Works of Civil Engineering, Sub-Clause 51.1 (a) allows the Engineer to issue an instruction to increase or decrease the quantity of any work included in the Contract. The rate which the Engineer agrees or fixes under Sub-Clause 52.2 would only apply to the varied quantity (increased or decreased). The original quantity is not part of the Variation and would be paid at the original rate.
 

Recovery of Costs

Question

Working with 1987, 4th Edition, reprinted in 1992 FIDIC form of contract on a project where Clause 70, whist being modified does permit the recovery of changes in the prices of labour and materials. Are there any legal precidents which reflect the provision reflected in the 1999 form of contract to allow the recovery of costs, post the stated contract completion where the contractor has failed to complete the works in the specified time? Or are there any precidents to reflect the recovery of costs per sec, post the contract completion date? If there are any precidents, if there are in electronic, format, could you forward them or, advise where they could be obtained.  

Answer

FIDIC is unable to provide legal guidance or information on legal precedents. However, to be helpful, the federation has asked an expert to comment so that your future research can guided in the approriate direction. You are correct that the 1987 4th Edition does not include specific provision for the recovery of price changes after the contract completion date when the Contractor has failed to complete the work in the specified time. Alternative clauses can be found in the FIDIC Guide to the 4th Edition and in the 1999 Contracts. The problem with legal precedents is that no two dispute situations are ever exactly the same and so need legal advice. Guidance and summaries of some arbitration awards can be found in the international legal journals, newsletters from law firms and the publications of the international arbitration centres such as the ICC Paris, the London Court of International Arbitration and other centres in different parts of the world.
 

Engineer's instructions

Question

A FIDIC standard Contract for civil engineering (Red Book 4th Edition 1987) is basis of a Contract for a Wharf and Approach Bridge Construction and Causeway Reclamation project (The Contrac). The Contract is a Lumpsum Agreement and the BOQ refers as follows: All works in this section except Provisional Quantities will be paid for as LumpSums. Quantities are estimates only. If the Contractor wishes, additional items may be added to the Bill or quantities amended. Rates nominated will be used only to assess variations (if any) to the Contract and to assess progress claims and payments. Provisional Quantities and Items will be paid for as described in the Conditions of Contract. One of the BoQ item was pertaining to Crane Rails to be provided by the Contractor. Later the Company organized the Rails on their own and the Contractor is not required to provide the Crane Rails as per the BoQ. In view of this the Crane Rail related Amount as stated in the BoQ is proposed to be deducted out of the BoQ. Please confirm that this is proper approach under Article 51 and 52 or any other conditions of FIDIC standard contract. 

Answer

Under a FIDIC Contract, any change to add or omit work must be made by an instruction from the Engineer under the appropriate sub-clause. You mention Sub-Clauses 51 and 52, which are from the 1987 4th Edition of the Contract for Civil Engineering Works. Sub-Clause 51.1, item (b) allows the Engineer to issue instructions to omit work, but this is qualified by the statement in brackets "(but not if the omitted work is to be carried out by the Employer or by another contractor)". Your proposal for the crane rails would appear to contravene this requirement. Hence the change and price adjustment may need to be negotiated between the Parties and would probably involve legal advice.
 

Variations exceeding 15 percent of the effective Contract Sum (Clause 52.3)

Question

We are in the process of preparing a claim under Clause 52.3 of the FIDIC Conditions of Contract for Works of Civil Engineering Construction and are seeking clarification on the application of the clause especially as regards to which amount do we apply the percentage which is in excess of the 15%. Do we apply it to: - The effective contract sum; or, - The difference between the amounts calculated using the actual percentage by which the effective contract sum shall have been exceed by and the 15%. Please note that In this particular contract, the majority of Preliminary and General Items were stated as provisional sums (as stated in the Bill of Quantities by the Engineer) it is not easy for us to accurately determine the contractor's on-costs. We have since acquired a copy of the "Guide to the Use of Fidlic Conditions of Contract for Works of Civil Engineering Construction" and the explanation given does not adequately cover us, refer page 117 of the guide. Please advise us on how this clause is to be applied.

Answer

The precise problem is not clear and we can only comment in general terms on the interpretation of Sub-Clause 52.3. The Sub-Clause allows the Contractor and Engineer to discuss and agree a lump sum addition or deduction to the Contract Price when the additions/deductions as described at (a) and (b) are more than 15% of the "Effective Contract Price". It will be up to the Contractor to prove the changes to his Site and general overhead costs. The details and calculation of the lump sum will dependant on the reasons for the increase or decrease to the Contract Price.
 

Unit rates

Question

1. The following addition has been made in Clause 52.2 (FIDIC 1987, Contract for Works of Civil Engineering) in our contract by the Employer: "..Provided further that no change in the Unit Rates or prices quoted shall be considered for any item in the Schedules to the Bill of Quantities, unless such item individually accounts for an amount of more than 2 percent of the sum named in the Letter of Acceptance, and the original billed quantity by more than 30 percent. Not withstanding above, for variation exceeding 10% in quantity of any item of BOQ with respect to original BOQ quantities, the following shall apply to the unit rate of that item: a) For rates quoted below CSR 2000 rates, no change in quoted unit rate shall be allowed. b) For rates quoted above CSR 2000 rates, the quantity exceeding 10% from original BOQ quantity of the items shall be paid to the contractor as per NHA CSR 2000 rates applicable in the relevant district. Provided further that for non BOQ items appearing in NHA’s CSR 2000, CSR 2000 rates shall apply whereas the rates of non CSR & non BOQ items shall be determined by the Engineer as stipulated in General Conditions of Contract." 2. The Situation BOQ Item No.108b(i) Formation of embankment from roadway excavation in Rock material (Hard Rock) and BOQ Item No. 106d(i) Excavate Surplus Rock material (Hard Rock) has increased up to 453 % and 77.8 % respectively from the Original Billed Quantity and these Items are individually accounting for more than 2.55% and 4.99 % respectively of the sum named in the Letter of Acceptance. Therefore, we desire to request the Employer/The Engineer that the Unit Rates for the said items as quoted in the BOQ for the entire quantity be changed and till the time new rates are fixed, the provisional rates or prices be determined in accordance with CSR-2005 with 25% Premium to enable on-account payment. 3.Questions a) Will the revision of rates be based on composite schedule of rates – 2005 (CSR- 2005) with 25% premium as requested by us? b) Are “sub- paragraphs a and b of the addition made in the said clause” (refer to para 1 above ) applicable to us as we consider that the said sub paragraphs are not relevant to us because our variation is over 30%. c) Will Revised Rates be applicable to the entire quantity or only on varied quantity? d) With so much variation, is it alright to ask for determination of Provisional rates? 

Answer

As a general principle, FIDIC expressly prohibits users of its contracts to add and adjust Clauses in the General Conditions. Any adjustments and changes should be made in the Particular Conditions. However, since your Organization may not be responsible for misuse and breach of copyright we shall attempt to help you. But here again, FIDIC is able to offer advice on interpreation of clauses, but of course only on the clause of the contracts General Conditions, not on someone else's clauses. This said, once again, we shall try to be helpful on the understanding that in future you try to impress on clients that they should use the GCs correctly, and not risk legal action and contract invalidity owing to breach of copyright. The changes to the GC mean that the interpretation of the FIDIC Sub-clause 52.2 may not be relevant to the amended contract. However the following may be helpful. a) Impossible to answer because of the changes to the GC. b) Impossible to answer because of the changes to the GC. c) Revised rates are normally only applicable to the additional quantity but this depends on the circumstances and the make up of the revised rates. In determining revised rates the Engineer should take all factors into consideration. d) The Contractor is entitled to be paid for work done in accordance with Sub-Clause 60.2. If the revised rates cannot be agreed in time for the next Interim Payment Certificate then the Engineer should determine provisional rates as the last sentence of the first paragraph of Sub-Clause 52.2. If the final rate is different to this provisional rate then Interim Payment Certificates can be corrected as Sub-Clause 60.4.
 

Additional sum for replacement cost

Question

We are requesting a clarification of the intention of Clause 21.1 (b) Insurance of Works and Contractor's Equipment of the FIDIC Civil Engineering Construction 1987 (4th Edition) Part1. There appears to be a mixed Insurance market view as to whether the additional sum of "15% of such replacement cost" for Professional Fees, Demolition and Removal of Debris applies to: (1) each of these costs individually, or (2) as a combined amount, and (3) whether this amount should be applied as a percentage of loss or a percentage of the sum insured (contract value). Our Contractors are keen to have clarification. 

Answer

The wording of Sub-Clause 21.1 (b) should be clear. The insurance shall cover the full replacement cost as (a), plus an additional 15% of that figure. This additional 15% is to cover any additional and incidental costs, INCLUDING professional fees etc. This figure may be changed in the Particular Conditions and you should also refer to the FIDIC Guide to the 4th Edition, at page 72.
 

Excess quantities of work (Sub-clause 52.3)

Question

I am "The Engineer" of Project and have recommended re-rating of certain items of work under the provisions of Clauses 52.2 of the Contract. I have however failed to understand from the given provision is that: a) The Engineer shall evaluate at the time of Taking Over, if the Contract Cost has increased or decreased (±) 15% of the original cost of contract, as a result of: i) all work executed & measured is in excess of BOQ qualities. b) Then the Engineer shall determine such further "Sum" that may be added or deducted from the contract price, taking into regard the Contractor's site and general overhead costs of the Contract based upon only the amount by which such additions/deductions will be in excess of 15% of the Effective Contract price. In my opinion the Excess quantities of work have been taken care of by re-rating under Clause 52.2 and no further Sum may be added to the Contract. Does the Clause 52.3 intend to apply the re-rating on quantities that are more than 15%of the BOQ quantities thus re-rated. I quote an example: let us assume the cost of Contract as USD 100000. A BOQ item costing USD 20000 is increased to value USD 50000 at contract rates. Hence re-rating under Clause 52.2 becomes applicable. On re-rating the value of (original + increased) qty of work becomes USD 55000. Now the total value of contract, i.e., USD 55000. The value of work beyond 15% of contract price is $ 40,000. Is the Contractor entitled to additional premium under Clause 52.3 for Executing work beyond 15% of Contract price. Is this what is meant by the provision of the Clause 52.3? 

Answer

Clause 52.2 refers to the re-rating of an individual variation. Clause 52.3 refers to the situation when the total effect of all variations, plus the remeasurement of the approximate quantities in the BoQ results in an increase or decrease of more than 15%. It is possible that each individual variation did not have a significant effect on the Contractor's overheads but the total effect of all variations and the remeasurement was significant. It is necessary to consider the actual effect of the additional quantities on the Contractor's overheads. For example, part of the allowance for overheads may be a fixed, or lump sum, figure which is not related to the quantity of work which has been carried out. A substantial increase in the total quantity of work may not increase this part of the overheads. Hence, the overheads per unit quantity would decrease. The allowance for overheads in the rates would need to be reconsidered. Any re-rating under Clause 52.2 would be taken into account when considering Clause 52.3. The Guide to the Fourth Edition published by FIDIC gives useful guidance and examples at pages 115 and 117.
 

Free haulage

Question

My inquiry is: are their any guidlines for maximum FREE HAULAGE distance ... for the TERM BORROW materials to be engaged in EMBANKMENT CONSTRUCTION .... sinilarly....what free distance limits are set/provided in FIDIC for any transportation of material .... from BORROW, from the site of e.g., asphalt mixing or concrete mixing plant to the site of accomodating the finished product in the road construction projects. 

Answer

The FIDIC Conditions of Contract give the legal rights and obligations of the Parties to the Contract. Matters such as the maximum free haulage distance will depend on the requirements and details of the project. They will vary for different projects and should be given in the technical specifications and/or bills of quantities.
 

Enforcing a claim

Question

I am requesting an interpretation of Clause 63.2 and 63.3 of the FIDIC Red Book, 4th Edition. a) When a Contractor has sums due to it arising out of a valuation under Clause 63.2 at the time of termination, and the Employer/ Engineer delays certification of possible claims under Clause 63.3, how does FIDIC envisage that the terminated Contractor may enforce its claim/obtain those sums certified by the Engineer as being due to it? b) Once a new contractor has been engaged, is the date scheduled for completion under the new contract relevant, and when is the new contractor liable for further delays to the completion date? c) Is there a duty on the Employer or Engineer to inform the first Contractor that the project has been completed? When the defects liability period is over? d) Is there a duty on the Employer/Engineer to issue a certificate in accordance with Clause 63.3 within a reasonable time? What may be considered a reasonable period for issuing such a certificate? e) What are the possibilities for a Contractor to obtain the monies due under Clause 63.2 if the Engineer fails to issue a certificate under Clause 63.3.? 

Answer

This is really a legal question, but the key seems to be that the first sentence of Clause 67.1 says that it continues after termination. A few additional comments may be helpful. One assumes the enquiry is referring to the Fourth Edition, amended 1992, without any significant amendments. Matters arising from termination under Clause 63.1 will depend on the provisions of the applicable law as well as FIDIC Contract Clauses. Most legal systems include requirements for the termination of a contract and also contain provisions based on the concept of "good faith" which may be applicable. Any comments based on the FIDIC Contract must be reviewed in relation to the applicable law, but some general comments may be helpful. a) Clause 67.1, first sentence, says that it continues after termination. b) Clause 63.1 enables the Employer to "terminate the employment of the Contractor". The Clause is clear that this does not release the Contractor from any of his obligations or liabilities. So does the law require that the Employer also is not released from his obligations? If so then other Clauses will also be relevant. c) The new contractor is presumably liable for delays which he causes and which are not attributable to the previous contractor. d) Clause 1.5, final sentence, requires that any consent, approval, certificate or determination shall not unreasonably be withheld or delayed. e) Clauses 60.6 and 60.8 give time periods for the Contractor's Final Statement and the Engineer's Final Payment Certificate. Clause 63.3 requires the Engineer to issue a certificate, without stating a time period. By reference to Clause 1.5, this must be issued in a reasonable time. Reasonable might be based on the Clause 60.6 and 60.8 time periods unless there are special circumstances. f) It certainly seems necessary for the Contractor to be informed, or his questions to be answered, in order that he knows when the construction and Defects Liability Periods are completed. g) The Contractor's rights and procedures for obtaining payment are covered by Clause 67 and the applicable law.
 

New rate or price

Question

We are a consulting firm providing Contract Administration Services to Contractors in Pakistan. While seeking assistance from the FIDIC website FAQ Section, we have come across the advice upon Sub-Clause 52.2 of Red Book 4th Edtion Conditions of Contract Part II stating therein that: the rate which the Engineer agrees or fixes under Sub-Clause 52.2 would only apply to the varied quantity (increased or decreased). The original quantity is not part of the Variation and would be paid at the original rate. The rationale being used in construing the Sub-Clause 52.2 in terms that the Revised Rates under Sub-Clause 52.2 will be applied to the varied quantity only has created much confusion in some of the on-going projects with the National Highway Authority, Pakistan. As per the advice of FIDIC Secretariat FAQ Section, if for instance, a Contractor's original BOQ work increases from 100m3 to 140m3 , then he shall be paid for 100m3 as per original rates and for the remaining 40m3, revised rates shall be applicable. If we apply the same logic in a case where the Contractor's original BOQ work decreases from 100m3 to 60m3, then he shall be paid for 100m3 as per original quantity of work. Whereas, for the decreased quantity, he should be paid at the revised rates (although he shall be actually executing 60m3 work.). The same is true for the case when total executed quantity exceeds by more than 30% and the new rate shall be applicable to the total executed quantity. The same Clause cannot be construed differently. If this does not happen, then it shall cause prejudice to the interest of the Contractor. 

Answer

Under Sub-Clause 52.2, the Engineer only fixes a new rate or price when the BOQ rate or price has become inappropriate or inapplicable for a particular Variation. In fixing the new rate or price he will consider the reasons why the original rate or price should be changed. He will not fix a new rate or price until he knows whether it involves an increase or decrease in quantity. The new rate or price will probably be different for a decrease to that for an increase. It may be different for a large increase to a small increase. The anomalies which you mention should not occur because the Engineer will have considered these situations before he fixes the new rate or price.
 

New BoQ rates

Question

A contract was drawn up for a specific length of highway. Re-alignment was required which increased the length by a few kilometers. Should this additional work be included in a variation order as per Clause 51 or should a seperate contract be floated. The contractor is asking for single variation order with two different refixed rates (for the same item of BoQ ), one for the variation in the original work and second for the additional work. I differ with his views. I feel that if one variation order is considered for the whole work then only only one refixed rate for varied quantity can be given. I require your advice on this issue. 

Answer

If both the change to the original work and the additional work came from the same change of requirement and instruction then it would be usual to issue a single variation order. However, it is also quite normal for the price calculations for a variation order to include different rates for the same BoQ item. The contractor's costs and the reasons why the BoQ rates are inappropriate may be different for the varied work and for the additional work. It is then fairer and more transparent, to the benefit of both parties, to negotiate different new rates.
 

New variation order

Question

A contract was drawn for a specific length of highway. Re-alignment was required which increased the length by few kilometers.should this additional work be included in a variation order as per Clause 51 or should a seperate contract be floated. The contractor is asking for single variation order with two different refixed rates (for same item of BoQ),one for the variation in the original work and second for the additional work. I differ with his views. I feel that if one variation order is considered for the whole work then only only one refixed rate for varied quantity can be given.irequire your advice on this issue.

Answer

If both the change to the original work and the additional work came from the same change of requirement and instruction then it would be usual to issue a single variation order. However, it is also quite normal for the price calculations for a variation order to include different rates for the same BoQ item. The contractor's costs and the reasons why the BoQ rates are inappropriate may be different for the varied work and for the additional work. It is then fairer and more transparent, to the benefit of both parties, to negotiate different new rates.
 

Instructions to vary the Works

Question

We are executing a construction works project (18-floor tower), now there is an addition of two more floors. I would like to know ... this addition would be dealt as a variation or separate contract required, where we will have the liberty to revise the price, since this two floor's addition is less than the 25 percent of the contract value, hence we dont have right to increase the price, incease if we deal it by variation. please clarify. 

Answer

Clause 51.1 allows the Engineer to issue instructions to vary the Works. Your question is whether the additional two floors are just a change to the quantity of the work which is included in the Contract, as Clause 51.1(a), or are outside the scope of the Works, which should be defined in the Contract. The answer to your question therefore depends on the exact wording of the Contract Agreement, the other contract documents and perhaps also the Tender Documents. It will also depend on the interpretation of this wording in accordance with the applicable law. This is not something which FIDIC can answer and you should obtain specialist advice.
 

Fixing of a new rate (Red4: 52.2)

Question

We requested for the clarification regarding replies to a couple of questions which appear at the FAQ Section of FIDIC website. Reply to the first question illustrates that under Sub Clause 52.2, Engineer may fix a new rate or a price if the BOQ rate becomes inappropriate or inapplicable for a particular variation, keeping in view the reasons for the change. In reply to the second question, FIDIC says that the original quantity is not a part of the variation and cannot be paid at the revised rate. Replies to the questions as noted above are contradictory to each other and we think that the matter should further be clarified. Our elaborate note, which was submitted to this effect constitutes of our understanding of the Clause 52.2 of the Red Book 4th Edition. The definition of the varied work trickles to the Clause 52.2 from the Clause 51.1, which gives the definition/scope of the varied work as following: (a) increase or decrease the quantity of any work included in the Contract, (b) omit any such work (but not if the omitted works is to be carried out by the Employer or by another contractor), (c) change the character or quality or kind of any such work, (d) change the levels, lines, position and dimensions of ay part of the Works, (e) execute additional work of any kind necessary for the completion of the Works, (f) change any specified sequence or timing of construction of any part of the Works. The given definition thus holds that the varied work may not essentially comprise of only the change in the quantity of certain item included in the contract. Varied work may also arise out of the virtue of other reasons as noted above. Hence, restricting the definition of variation only to the change in quantity may not be appropriate. The reply given at the FIDIC website to the first question, as has been referred above, seems to hold the same view by the virtue of which the decision to this effect has been left to the Engineer. However, the reply to the second question forwards rather a restrictive interpretation of the Clause 52.2 by saying that a new rate would apply only to the increased/decreased quantity. Such an interpretation falls in contradiction to the definition of the varied work as well as the open ended spirit of the FIDIC Document in general and that of the Clause 52.2, read in conjunction with the Clauses 51.1, 51.2 and 52.1 there-before, as well as that of the Clauses 52.3 and 52.4 thereafter. ..... FIDIC's initial reply: FIDIC can only comment in general terms on the interpretation of a FIDIC clause. If you require a more detailed opinion on the application of a clause to a particular problem situation then you should consult a specialist. The examples in your letter illustrate the wide range of situations which may arise on a project and result in the application of Clause 52.2. For this reason, the clause cannot restrict the Engineer in the way he calculates a new rate. The Engineer is aware of the exact situation and so can make the appropriate decision to suit the wording and application of the Variation. A Variation normally, but not always, only applies to work which has not yet been executed. If somew ork has already been carried out on the same basis as was envisaged for the original bill rate then that work would normally be valued at the bill rate. However a particular Variation, such as a decrease in quantity,may be worded in such a way as to require a different approach. ........ Your reply also narrates that our understanding of the issue falls closely to a certain project specific legal opinion. We believe that such a concurrence on the matter has become evident only because of the proper understanding of the rationale. This particularly holds when we also consider the possibility of variation because of the decrease in the quantity of certain items of work. No logic would allow that the decreased quantity which is not executed may be paid at some revised rate fixed by the Engineer. The revised rate would certainly apply to the quantity executed. The rationale thus demands the same treatment for fixing of the rate by the Engineer in case of variation in the quantity of certain items of the work because of an increase, giving an obvious reason of our understanding of the matter in line with the legal opinion in the similar context. Your reply dated 7th June 2007 further seems to acknowledge that the exact situation under such a case may only be determined by the Engineer through an appropriate decision, as has been provided under the spirit of the FIDIC Document. However, the comments thereafter, once again seem to restrict the definition of variation. So, to continue: regarding fixing of a new rate (Red4: 52.2) Regarding our query regarding re-rating of the varied quantity. We seek the clarification regarding the opinion of FIDIC on re-rating of the varied quantity, as shown in the FAQ Section of the FIDIC website. Our debate/discussion as appended with our query is only meant to express our understanding that the Sub-Clause 52.2 only talks of the "varied work" and not the "varied quantity", which, however, remains subservient to the definition of "varied work". The actual intention of our query thus remains to seek the clarification in light of the Sub-Clause 52.2 of Civil Works contract 4th Edition, 1987. To this effect, it may be deemed appropriate that the writers of this particular clause or the related backup material may be consulted so that the ambiguity or the confusion, as has arisen regarding the varied work through the opinion of FIDIC in the FAQ section, may be removed and the prestige of the organization like FIDIC, which is considered as an apex body in contract administration, would be maintained. 

Answer

Thank you for your more detailed explanation of your query. Our replies to previous questions were in response to particular questions, whereas your question is rather different. You are, of course, correct that Variations under Sub-Clause 52.1 can cover a wide range of situations, including changes to the nature as well as to the quantity of an item of work. For this reason, Sub-Clause 52.2 must be general to cover the wide range of potential situations. It is then for the Engineer to assess the particular situation and to agree or fix an appropriate rate. In deciding the quantum, and also the application, of this rate the Engineer would take into account the consequences of a change in nature as well as a change in quantity. You should also note the explanatory remarks in the FIDIC Guide to the use of the FIDIC Conditions of Contract for Works of Civil Engineering Construction. Sub-Clauses 52.1 and 52.2 are reviewed at pages 114 and 115 of the Guide and include the statement: If the nature or amount of the work involved differs so much from that included in the original Contract that the rates and prices are rendered inapplicable, it is the Engineer's task to agree appropriate rates and prices with the Contractor, or, if agreement cannot be reached, to fix the rates and prices. We trust this further explanation will answer your query. Any further comments would require details of the specific contract and problem, which FIDIC could not consider.
 

Undue delay for claims

Question

Can you please identify what is meant by "without undue delay" under Red Book 4th Edition clause 44.3 considering that the Contractor and the Engineer have mutually agreed, under cl. 44.2(b), to submit detailed particulars every first week of the month and noting that every month the contractor is submitting the same. What is the duration needed by engineer to provide his interim/final determination of extension of time claims under this clause?

Answer

Your question refers to Sub-Clause 44.3 in the Red Book, Fourth Edition 1987. Sub-Clause 44.2 has imposed time limits for the submission of information by the Contractor, which you say have been agreed. FIDIC does not impose a time limit on the Engineer because the actual time needed for him to make his determination will depend on the circumstances and the details in the information provided by the Contractor. However the "without undue delay" emphasises the need for the determination to be made as soon as possible. Sub-Clause 1.5 also requires that any determination "shall not unreasonably be withheld or delayed". This gives the Contractor the opportunity to raise a query if he needs the determination in order to plan his work.
 

Payment on a Clause 63.2 valuation

Question

Concerning Clause 63.2 and 63.3 of the FIDIC Red Book 4th Edition . The Contract was terminated by the Employer pursuant to Clause 63.1 (this is undisputed). It was agreed that the additional costs to the Employer of executing the works by an alternative contractor has to be deducted from the value of the works executed by the first Contractor. The wording of Clauses 63.2 and 63.3 was not changed or amended. Contractor now requests a payment from the Employer calculated pursuant to a Clause 63.2 valuation. In addition Contractor states that the whole of the Works has not completed and, therefore, the Defects Liability Period has not expired, which is a precedent to any certification of Employer's costs under Clause 63.3. Therefore, an Employer's application for Clause 63.3 costs is premature, cannot be considered and Contractor is entitled to request a payment based on the calculated Clause 63.2 valuation without any deduction pursuant to Clause 63.3. a) Is a contractor entitled to ask for a payment based on a Clause 63.2 valuation, since an employer is not obliged to make any further payment until the expiration of the Defects Liability Period?   b) Is it correct to interpret that Contractor's request for payment based on Clause 63.2 is not (currently) justified also in cases, where a completion of the project was delayed due to circumstances caused by an alternative contractor or the employer, if the terminated and requesting Contractor itself has formally and explicit pleaded that the whole project is not completed without complaining the delay of completing the project caused by the alternative contractor or the employer? c) Can the Contractor simultaneously refer to and request a Clause 63.2 calculated claim and reject (alleged) unmatured Employer's Clause 63.3 costs, if both clauses were agreed?

Answer

This is a complex technical/legal question arising from a specific request by the Contractor on your project. FIDIC can only answer general questions of interpretation and cannot comment on specific requests or claims. The FIDIC Guide to the Fourth Edition states at page 146 for Sub-Clause 63.3: "If the Employer terminates the Contractor's employment, he is not liable to pay the Contractor any further amounts (including damages) until the expiration of the Defects Liability Period and the certification by the Engineer of the cost of execution and remedying of any defects, damages for delay in completion (if any) and other expenses incurred by the Employer as a result of the Contractor's default."
 

When is payment made

Question

We are seeking a defintion as to when payment is actually made by the employer to the contractor. Is it when the employer issues his payment instruction to his bank, or is payment deemed to be made once the monies are received in the contractor's bank account. Are there FIDIC guidelines on this matter?

Answer

your query is really a general legal question about when a payment is "made", rather than a question of interpretation of a FIDIC contract. The answer may be different under different jurisdictions. You should consult a lawyer with experience of the applicable law.
 

Statutory declaration

Question

My firm is executing a Contract with FIDIC terms and conditions and I require a Statutory Declaration document for international use (Project location is Madagascar). Can you please advise where I can find this in your documentation, or better yet can you e mail me the appropriate document.

Answer

Your Statutory Declaration would seem to conflict with the principles of the FIDIC Contracts. Progress payments are referred to as 'interim', which suggests that they are provisional and not final. EPCT Sub-Clause 14.6 allows the Employer to make corrections or modifications to previous amounts considered due, which suggests that the Contractor can request modifications to a previous valuation. It is only the requirement for the Application for the Final Payment, as Sub-Clause 14.11, which uses words indicating finality. The Contractor then confirms the finality by his Discharge, as Sub-Clause 14.12. The equivalent provision in the 1987 Red Book was Sub-Clause 60.7. The Standard Letter for that Sub-Clause merely repeated the wording of the Sub-Clause. However, this was a contractual letter and not a Statutory Declaration. A Statutory Declaration will presumably be issued by the Government and will depend on the requirements of the applicable law, which will vary for different countries.
 

Final and binding DAB decision

Question

In the 1992 reprinted version of the 1987 FIDIC Conditions as well as in the 1999 FIDIC Conditions it is, in the relevant DAB Clauses, stated that the Contractor, Employer and Engineer shall give effect forewith to every decision of the Board unless and until the decision is revised in an amicable settlement or an arbitrational award. On the other hand it is stated that a Board decision becomes FINAL and BINDING unless either party gives a notice of dissatisfaction within 28 days after receiving the Board decision. A very basic legal principle is that only final and binding decisions are enforceable. Are the FIDIC conditions really based on the very unusual principle that the Employer has, on basis of un unbinding Board decision, to pay to the Contractor a compensation with the consequence of running the risk of never being able to recover the paid amount from a foreign contractor when the revised arbitration award is issued (long) after the completion of the works. Please clarify whether the Employer has to pay a monetary compensation on basis of a Board decision, which is NOT FINAL AND BINDING. 

Answer

Sub-Clause 20.4 of the 1999 Contracts is clear that both parties shall promptly give effect to the DAB Decision. The Employer must pay any sum awarded to the Contractor although the sum to be paid may be changed by a later amicable settlement or arbitration. If a Notice of Dissatisfaction has been issued then the dispute, not the DAB decision, may be reopened and finally determined by the Arbitral Tribunal. The sum to be paid may then be increased, or decreased, and additional money may need to be paid, or money may need to be repaid. An Arbitral Award, including such further payment or repayment, would be Final and Binding and would be covered by arbitration law and the New York Convention. It is normal practice that a DAB or Adjudicator's Decision is Binding and so must be paid, but is not Final and so may be changed in this way. If no Notice of Dissatisfaction has been issued then the DAB Decision becomes Final as well as Binding and the dispute cannot be reopened.
 

Lump sum calculation

Question

Can you please advise how to calculate the lump sum to be added or dedcuted to the contract price when the effective contract price execceds 15%. In addition, please advise on when do we deduct, and when do we add such amount.  

Answer

Commentary at page 117 of the FIDIC Guide to the 4th Edition is recommended. The Guide explains that some of the Contractor's overhead costs are included in the rates for items of work and others are included in separate items in the Bill of Quantities. Changes to the actual quantities may mean that the overhead content of items which have paid is not appropriate to the actual overhead costs incurred by the Contractor. In order to calculate any adjustment the Engineer will need to obtain information from the Contractor, or would have to make his own assessment. Any calculation must take into account any adjustment which has already been made under another Sub-Clause and only applies to any increase or decrease in excess of 15% of the Effective Contract price. The Sub-Clause starts with a reference to the situation "on the issue of the Taking-Over Certificate for the whole of the Works". It is also necessary for the value of variations and other adjustments to have been agreed in order to make the Sub-Clause 52.3 calculations. Any additional payment or deduction would then be made in the next payment certificate after the figures have been agreed or determined.
 

New rate for an increased quantity

Question

I am "The Engineer" for a road construction project. A difference of opinion has arisen on the applicability of new rates fixed by the Engineer on the quantities, i.e whether the new rate will be applicable only on the enhanced quantity beyond the original BoQ quantity, Oor it shall apply on the entire quantity. To explain this further, the BoQ quantity for piles was 2000 cu m. The designer increased the number of piles so that the quantity became 3000 cu m. The Engineer fixed a new rate for pile work from X to Y. Will Y rate be applicable to enhanced quantity of 1000 cu m , or should it apply to 3000 cu m? 

Answer

FIDIC can only comment in general terms on the interpretation of a FIDIC clauses, and it should be noted that for the application of a clause to a particular problem situation, one should always consult a specialist. With that being said, in general, Sub-Clause 52.2 gives the power to the Engineer to fix new rates and states the conditions when such new rates may be fixed, but Sub-Clause 52.2 does not indicate a calculation method or the applicability for new rates. The reason for this is because Sub-Clause 52.2 must allow for covering a wide range of potential situations. So, although it is true that revised rates are normally only applicable to the additional quantity, it is for the Engineer to assess the particular situation and circumstances surrounding, and to take all factors into consideration in making his determination regarding the quantum and applicability of the new rates fixed under Sub-Clause52.2. For reference, see page 127-128 of the FIDIC Red Book Guide to the use of the FIDIC Conditions of Contract for Works of Civil Engineering Construction, and please note that the above represents a general answer only, and specific advice to the particular facts surrounding your situation, we recommend that you consult a specialist.