INTRODUCTION ............. ........................... ............................ ............................ ............................. ............................. ............................ ............................ .......................... ................. .......... ......... ....
3
GENERAL INDEX IN ALPHABETICAL ORDER.............. ............................. ............................. ............................ ............................ ........................ .......... 24 CLAUSE 1 : DEFINITION AND INTERPRETATION ........................................................................................................................................................................
33
CLAUSE 2 : OBLIGATIONS OF THE ENGINEER............. ............................ ............................. ............................ ............................ .................... ......... ... 44 CLAUSE 3 : ASSIGNMENT ............. ........................... ............................ ............................ ............................ ............................. ............................. ............................ ..................... ....... 52 CLAUSE 4 : SUB-CONTRACTING ............. ........................... ............................ ............................. ............................. ............................ ......................... ................ ........... ...... 53 CLAUSE 5 : LANGUAGE OF THE CONTRACT............. ............................ ............................. ............................ ............................ ........................... ............. 56 CLAUSE 6 : DRAWINGS TO THE CONTRACTOR............ ........................... ............................. ............................ ......................... ................ ........... ...... 60 CLAUSE 7 : DRAWINGS AND INSTRUCTIONS ............. ........................... ............................. ............................. ............................ ................... .......... ....... .. 63 CLAUSE 8 : GENERAL OBLIGATIONS OF THE CONTRACTOR.............. ........................... .................. .......... ........... ............ ........ 66 CLAUSE 9 : FORMAL CONTRACT AGREEMENT............. ........................... ............................. ............................. ............................ ..................... ....... 70 CLAUSE 10 : PERFORMANCE SECURITY............. ............................ ............................. ............................ ............................ ................... .......... .......... .......... ..... 72 CLAUSE 11 : INFORMATION REGARDING CONTRACT.............. ............................ ............................ ......................... ................ ........... ...... 75 CLAUSE 12 : TENDER AND RATES.............. ............................ ............................. ............................. ............................ ............................ ......................... ................. ........ 78 CLAUSE 13 : INSTRUCTIONS FROM THE ENGINEER.............. ............................ ............................ .......................... ................. .......... ......... .... 82 CLAUSE 14 : WORK PROGRAMME............. ........................... ............................. ............................. ............................ ............................ ........................ ............... ........ ... 86 CLAUSE 15 : CONTRACTOR’S SUPERINTENDENCE............... ............................. ............................ ....................... .............. ........... ............ ........ 89 CLAUSE 16 : CONTRACTOR’S EMPLOYEES............. ............................ ............................. ............................ ............................ ..................... ............ ........ ... 91 CLAUSE 17 : SETTING OUT.............. ............................ ............................ ............................. ............................. ............................ ............................ .................... ........... ........... ...... 92 CLAUSE 18 : BOREHOLES AND EXPLORATORY EXCAVATION.............. ............................ ................... .......... .......... .......... ..... 94 CLAUSE 19 : EMPLOYER’S RESPONSIBILITIES ............. ........................... ............................. ............................. .................... ........... .......... ........... ...... 95 CLAUSE 20 : CONTRACTOR’S RESPONSIBILITI RESPONSIBILITIES ES.............. ............................ ............................ ............................ ............................ ................. ... 96 CLAUSE 21 : INSURANCE OF WORKS............. ........................... ............................ ............................. ............................. ............................ .................... ........... ..... 100 CLAUSE 22 : INDEMNITY.............. ............................ ............................. ............................. ............................ ............................ ............................ ........................... ................... ...... 106 CLAUSE 23. : INSURANCE LIABILITIES............. ........................... ............................ ............................. ............................. ....................... ............... ............ ...... 107 CLAUSE 24 : ACCIDENT OR INJURY.............. ............................ ............................. ............................. ............................ .......................... ................. .......... ......... .... 108 CLAUSE 25 : TERMS OF INSURANCE............... ............................. ............................ ............................ ............................ ........................... .................. ........... ........ 110 CLAUSE 26 : LEGISLATIONS AND REGULATIONS.............. ............................ ............................. ............................ .................. .......... .......... ..... 111 CLAUSE 27 : FOSSILS ............. ........................... ............................. ............................. ............................ ............................ ............................ ........................... ................... ........... ........ ... 113 CLAUSE 28 : PATENT RIGHTS............ ........................... ............................. ............................ ............................ ............................ ............................ ...................... ............ .... 114 CLAUSE 29 : INTERFERENCE AT WORK SITE.............. ............................ ............................ ............................. .......................... ................ .......... ....... 115 CLAUSE 30 : DAMAGE AT WORK SITE.............. ............................ ............................ ............................ ............................ ............................. ....................... ........ 115 CLAUSE 31 : OPPORTUNITIES FOR OTHER CONTRACTORS............... ............................ .................. .......... ........... ............ ........ 117 CLAUSE 32 : KEEP SITE CLEAR OF OBSTRUCTIONS .............. ............................. ............................. ...................... ............. .......... .......... ..... 119 CLAUSE 33 : CLEARANCE OF SITE ON COMPLETION............... ............................. ............................ ............................ ................... ....... .. 120 CLAUSE 34 : ENGAGEMENT OF STAFF AND LABOUR............ ........................... ............................. ...................... ............. .......... .......... ..... 120 CLAUSE 35 : RETURNS OF LABOUR AND EQUIPMENT.............. ............................ .......................... ................. .......... .......... ........... ........ 121
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CLAUSE 36 : FACILITIES FOR TESTING............ ........................... ............................. ............................ ............................ ..................... ............ .......... ......... .... 121 CLAUSE 37 : INSPECTION AND TESTING............. ........................... ............................ ............................ ............................. ..................... ............ ............ ...... 124 CLAUSE 38 : INSPECTION OF PART OF WORKS............... ............................. ............................ .......................... ................. .......... .......... .......... ..... 127 CLAUSE 39 : REMOVAL / REPLACEMENT OF MATERIAL / PLANT.............. ........................ ............... .......... ........... ...... 129 CLAUSE 40 : SUSPENSION OF WORKS............... ............................. ............................ ............................ ............................ ............................. ....................... ........ 130 CLAUSE 41 : COMMENCEMENT OF WORKS............ ........................... ............................. ............................ ............................ .................... ............ ........ 134 CLAUSE 42 : HANDING OVER POSSESSI POSSESSION ON.............. ............................. ............................. ............................ ............................ .................... ............ ........ 135 CLAUSE 43 : COMPLETION OF WORK ON TIME.............. ............................ ............................ ........................ ............... .......... ........... ............ ...... 139 CLAUSE 44 : EXTENSION OF TIME............. ........................... ............................ ............................ ............................ ............................. ......................... ................ ...... 140 CLAUSE 45 : WORKING HOURS.............. ............................ ............................ ............................ ............................ ............................ ............................. ...................... ....... 149 CLAUSE 46 : RATE OF PROGRESS ............... ............................. ............................ ............................ ............................ ......................... ................ .......... .......... ......... .... 150 CLAUSE 47 : LIQUIDATED DAMAGES............... ............................. ............................ ............................ ............................ ..................... ............ .......... .......... ....... 153 CLAUSE 48 : TAKING OVER / SUBSTANTIAL COMPLETION ............. ........................... ............................ ........................ ............ .. 157 CLAUSE 49 : DEFECTS LIABILITY PERIOD............... ............................. ............................ ............................ ..................... ............. ............ ........... ........ ... 161 CLAUSE 50 : SEARCH FOR CAUSE OF DEFECT............. ........................... ............................. ............................. ....................... ............... ............ ...... 165 CLAUSE 51 : VARIATION / ADDITIONS / OMISSIONS ............ ........................... ............................. ............................ ........................ ............ .. 166 CLAUSE 52 : VALUE OF VARIATION VARIATIONS S .......... .................... .................... ..................... ..................... ..................... .......................................... ............................... 173 CLAUSE 53 : NOTICE FOR CLAIM............. ........................... ............................. ............................. ............................ ............................ ............................ .................. .... 178 CLAUSE 54 : CONTRACTOR’S EQUIPMENT.............. ............................ ............................ ............................ ..................... ............. ............ ........... ........ ... 182 CLAUSE 55 : BILL OF QUANTITIES ............. ........................... ............................ ............................ ............................ ......................... ................ .......... .......... ......... .... 185 CLAUSE 56 : MEASUREMENT OF WORKS............. ............................ ............................. ............................ ............................ ........................... ................. .... 187 CLAUSE 57 : NET MEASUREMENT OF WORKS............... ............................. ............................ .......................... ................. .......... .......... ........... ........ 188 CLAUSE 58 : PROVISIONAL SUM............... ............................. ............................ ............................ ............................ ......................... ................ .......... .......... .......... ....... 189 CLAUSE 59 : NOMINATED SUB-CONTRACTOR.............. ............................ ............................ ............................ ..................... ............ .......... ......... .... 191 CLAUSE 60 : CERTIFICATES & PAYMENTS OF THE CONTRACTOR ............. ........................... .................... ........... ..... 197 CLAUSE 61: DEFECTS LIABILITY CERTIFICATE .............. ............................. ............................. .......................... .................. ............ ............ ...... 216 CLAUSE 62 DEFECTS LIABILITY CERTIFICATE............. ........................... ............................ ............................ ............................ .................... ...... 218 CLAUSE 63 : TERMINATION .............. ............................ ............................ ............................. ............................. ............................ ............................ .................... ............ ........ 220 CLAUSE 64 : REMEDIES.............. ............................ ............................ ............................. ............................. ............................ ............................ ..................... ............ .......... ......... .... 232 CLAUSE 65 : SPECIAL RISKS............... ............................. ............................ ............................ ............................ ............................ ........................ ............... .......... ........... ...... 233 CLAUSE 66 : RELEASE FROM PERFORMANCE............. ........................... ............................ ............................ ....................... ............... ............ ........ 238 CLAUSE 67 : SETTLEMENT OF DISPUTES.............. ............................. ............................. ............................ ............................ ....................... ............... ........ 240 CLAUSE 68 : NOTICES.............. ............................ ............................ ............................ ............................. ............................. ............................ ............................ ......................... ........... 250 CLAUSE 69 : DEFAULTS OF EMPLOYER............. ........................... ............................ ............................. ............................. ............................ .................... ...... 252 CLAUSE 70: CHANGES OF COSTS AND LEGISLATION ............ ........................... ............................ .................. .......... ........... ............ ........ 260 CLAUSE 71: COMPENSATION TO CONTRACTOR.............. ............................ ............................ ............................. ......................... ................ ...... 262 CLAUSE 72: CURRENCY AND EXCHANGE RATES............... ............................. ............................ ............................ ............................ ................ 263 MISCELLANEOUS AMENDMENTS ............. ........................... ............................. ............................. ............................ ............................ ........................... ................. .... 264
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Introduction
PREFACE This book is intended intended for anybody having dealings dealings with FIDIC's FIDIC's "Red Book", the 4th 4th Edit Editio ion n of the the "Cond "Condititio ions ns of Cont Contra ract ct for for Work Workss of Civi Civill Engi Engine neer erin ing g Construction" published in 1987. Employers, engineers, contractors and their respe respect ctiv ive e advis advisor orss shoul should d all all find find some someth thin ing g in this this work work to help help them them to understand and make best use of these conditions of contract. For those not familiar with the contract, the commentary to each clause starts with a "plain English" paraphrase to enable the reader to understand the gist of the clause as quickly as possible. Except where the meaning of the clause is entirely obvious, each sub-clause is given a separate paragraph. The volume also includes a set of some 94 "suggested forms" which may be found useful by engineers, employers and contractors. These do not attempt to anticipate particular situations but rather to use the wording of the clause to produce a form of notice which would, it is hoped, leave no room for doubt or debate as to whether a notice had been given, under which clause it had been given or whether the notice was in a form which complies with the terms of the contr contract act.. At the the very very leas least, t, the the form formss sect sectio ion n will will prov provid ide e to the the part parties ies a reference against which to check that the notice that they are giving has been given and copied to the correct parties. There can be few types of disputes which are as fruitless and frustrating as disputes over ove r whether the correct form of notice has been given in particular circumstances. Whilst there are often good reasons for requiring notice to be given, it is rare that justice is done when an arbitrator is forced by the contract to rule out a claim on the grounds that no or no adequate adequate notice has been given. In short, it is in everybody's interest that notices are given properly. If parties wished to do so, they could agree at the outset that notices which conform to those set out in this volume would not be open to challenges as to form although they could of course be open to challenge in respect of their timing, their appropriateness or indeed the manner in which the blanks have been filled. Although the masculine pronouns "he" and "him" have been used from time to time as a shorthand shorthand for the Employer, Employer, the Contractor Contractor or the Engineer, Engineer, this is for convenience and is not based on any assumption that the parties involved with civil engineering contracts are necessarily male. The author is well aware that the contrary is increasingly true. The usage is also consistent with the language of the conditions. Readers may find it strange that references will be found in this work to both the ICE's 5th and 6th Edition. The ICE 5th Edition is referred to because the draftsman of FIDIC's 4th Edition was plainly heavily influenced by ICE's 5th Edition and the points of departure are interesting in themselves as well as being Page 3 of 264
useful to those readers familiar with the ICE Conditions. References to ICE 6th Edition are included because of the history of the FIDIC form following in the foot footst steps eps of ICE' ICE'ss draf draftiting: ng: it is ther theref efor ore e inter interes estiting ng to see see which which of the the innovations introduced by FIDIC in their 4th Edition have been adopted by the ICE in their 6th. Knowledge of the ICE conditions is by no means necessary for the user of this work, however. As a user of commentaries of this sort, I am well aware that all too often the particular practical problem, which a reader experiences is not, covered by the commentary. As a writer, it is impossible to imagine all problems that might occur even if time and the patience of the publisher would permit all problems to be addressed. I should add that even in cases where the problem experienced by a reader appears to have been addressed and an answer suggested, the reader should take great care and should avoid any assumption that their particular circumstances were being addressed. Discussion and submission in the absence of particular facts is necessarily limited and the reader is urged to give careful consideration and if necessary to take independent advice in relation to their particular circumstances. As this work is intended not only for lawyers but for the full dramatis personae of a civil engineering project, it was decided that footnotes would be avoided and references to legal cases given a firmly subordinate role. Given the range of legal systems systems in which the FIDIC conditions conditions are used, very often with the local law as the law of the contract, contract, an over-depende over-dependence nce on Commonwealt Commonwealth h case-law case-law would not necessarily be helpful. Recent decisions and decisions from jurisdictions other than England have been given priority. It should be confessed confessed at this early stage that the references to be found in Part II, the Conditions of Particular Application, to dredging and reclamation have not been the subject of any comment. Part II is however set out in full at the end of this work. Finally, the author wishes to thank FIDIC for permitting the reproduction of the Red Book for the purposes of this work. ECC - LONDON
1: INTRODUCTION Origins of FIDIC 4th Edition FIDI FIDIC C is the the Feder Federat ation ion Inte Intern rnat atio iona nall Des Inge Ingeni nieu eurs rs-C -Cons onseil eilss and and is an association of national associations of Consulting Engineers. They have been in
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existence since 1913 and have their headquarters and secretariat in Lausanne in Switzerland. FIDIC have produced standard forms of contract for civil engineering projects since 1957. The 2nd Edition was published in 1969 and the 3rd in 1977. As the obvious comparison is between these conditions and those produced by the Institute of Civil Engineers in the UK, known throughout this work as "ICE", it may be helpful to record that the ICE 1st Edition was published in 1945 and the 4th Edition in 1955. The 5th Edition was published in 1973 and it was upon this Edition Edition that the FIDIC 3rd Edition was closely closely modeled. modeled. FIDIC took the initiative initiative with their 4th Edition and it may be thought that ICE 6th Edition published in January 1991 shows that FIDIC has repaid some part of its debt to the ICE. In particular, FIDIC's ideas in relation to an express obligation upon the Engineer to be impartial, the deemed obligation upon the Employer to disclose all information concerning the ground conditions on site and the introduction of conciliation into the disputes procedure after the Engineer's decision and before arbitration, may well have influenced ICE's 6th Edition. To avoid confusion with FIDIC editions, the ICE conditions are referred to in the commentary as ICE 5th and ICE 6th. Nature of the Conditions For those who are unfamiliar with FIDIC's Standard Form, it may assist if the basic characteristics are set out: It is a for form ver very muc much in th the tra traditional Eng English mod mode wit with Bil Bills of Quantities and a named Engineer whose functions include making certification and other determinations independently of the Employer and indeed impartially as between the parties. It is a re-m re-mea easu surremen ementt cont contrract act wit with the the qua quantit ntitie iess in the the bil bill trea treatted as as approximate and the Contract Price having little relevance save as a means by which the competing tenders might be judged. The The Emp Emplo loyyer may may nom nomin inat ate e subc subcon ontr trac acttors ors and and has has the the pow power er to mak make e direct payment in the event that the Contractor fails to do so. The Employer is not made made liab liable le,, as in some ome Engl Engliish form forms, s, for del delays ays by the nomi nomina natted subcontractors. Risk Risk is divi divide ded d in in lin line e with with the the phil philos osop ophy hy tha thatt the the Em Empl ploy oyer er is bes bestt pla place ced d to take on those risks which experienced contractors could not reasonably be expected to foresee, which are outside the control of the parties and which are not readi readily ly capa capable ble of bein being g cover covered ed by insur insuran ance. ce. Unpr Unpred edic icta table ble grou ground nd conditions are at the risk of the Employer. The earlier editions of the FIDIC Conditions have been extensively used and the 4th Edition is rooted firmly in the tried and tested formula. The changes are generally generally sensible and conservative conservative and the 4th Edition will no doubt do equally well. Page 5 of 264
The changes made from the 3rd Edition are referred to at the beginning of the commentary under each clause. The principal changes are as follows:Clau Clause se 2.6 2.6 (En (Engi gine neer er to to Act im impar partia tialllly) y):: an expr expres esss obl obligat igatio ion n upon upon the the Engineer to act impartially as between the parties. The Engineer is required to consult with the parties under some 25 clauses prior to granting extensions of time, fixing rates or making an award of costs. This consultation obligation is discussed further below. Design by the the Con Contract actor or one one of his his sub subcont ontractors is cat catered for for in clause 7.2 (Permanent (Permanent works designed designed by Contractor) Contractor),, clause 8.1 (Contractor (Contractor's 's general responsibility) and clause 59.3 (Design requirements to be expressly stated). Clause 44.1 (Extension of time for completion) now provides for an extension for delays and prevention by the Employer. The amount of variation required to trigger an adjustment has been increased from 10% in clause 52.3 (Variations exceeding 15%). A proc proced edur ure e for for cla claim imss has has bee been n set set out out in in new new clau clause se 53 53 (Pr (Proc oced edur ure e for for claims). Clau Clause se 60 (Pay (Payme ment nt)) has has now now bee been n dra draft fted ed in full full wher wherea eass the the 3rd 3rd Edi Editi tion on left the matter entirely in the hands of the parties to deal with in Part II. Under clause 67 (Settlement of disputes) an "amicable settlement" procedure has been interposed between the Engineer's decision and arbitration. If the the Emp Emplo loye yerr fai fails ls to pay pay on on tim time, e, the the Con Contr trac acto torr is is now now give given n the the opti option on of suspe uspen nding ding wor work or redu reduci cing ng the rate ate of wor work as an alter lterna nattive ive to determination: clause 69.4 (Contractor's entitlement to suspend work). In addition, there are numerous other material amendments and some changes of vocabulary. Only 4 out of 185 sub-clauses escaped change altogether. Amendment of FIDIC's 4th Edition It is the author's experience and impression, quite unsupported by statistics, that the FIDIC Conditions are used in an amended form, perhaps in a majority of cases. Certainly, many of the major Employers in the Middle East adopt and refine their own standard sets of amendments. These amendments are generally aimed at adjusting the balance of risk in favour of the Employer rather than to remedy any ambiguities, anomalies or discrepancies in the drafting. Clauses, which it is suggested require attention in order to remove ambiguities, anomalies and discrepancies and thereby to reduce the scope for conflict, are as set out Page 6 of 264
below. For the detailed criticism, the reader is referred to the commentary under the particular clause referred to. -
Claus Clause e 2.1 2.1 (Engi (Enginee neer' r'ss dutie dutiess and and auth author oritity) y),, inabi inabilility ty to repl replace ace Engi Engine neer er..
-
Clau Clause se 2.5 2.5 (Ins (Instr truc ucti tion onss in in writ writin ing) g),, ano anoma maly ly as as to date date of inst instru ruct ctio ion. n.
-
Clau Clause se 2.6 2.6 (En (Engi gine neer er to act act impa impart rtia ialllly) y),, bre bread adth th of item item (d). (d).
Clau Clause se 7.1 7.1 (Sup (Suppl plem emen enta tary ry draw drawin ings gs and and ins instr truc ucti tion ons) s),, cla claus use e 13.1 13.1 (Wor (Workk to be in accor accorda dance nce with with Cont Contra ract ct)) and and claus clause e 51.1 51.1 (Var (Varia iatition ons) s):: clar clarififyy Engineer's power to instruct. Clause 37.4 (Rejection), clause 39.1 (Removal of improper work, materials or plant) and clause 63.1 (Default of Contractor) item (c): remove inconsistencies. Clau Clause se 42. 42.1 1 (Pos (Posse sess ssio ion n of site site and and acce access ss the there re to): to): clar clarif ifyy ref refer eren ence ce to to the clause 14 programme. -
Clau Clause se 44.1 44.1 (Ext (Exten ensi sion on of time time for for com compl plet etio ion) n):: cla clari rify fy item item (b). (b).
Clau Clause se 46. 46.1 1 (Rat (Rate e of prog progrress) ess) and and cla claus use e 63. 63.1 (Def (Defau ault lt of of Cont Contrract actor) or) item (b) (ii): resolve discrepancy Clau Clause se 49. 49.2 2 (Com (Compl plet etiion of of out outstan standi ding ng wor workk and and reme remedy dyiing def defec ectts): s): clarify Engineer's apparent discretion to instruct remedial works. Clau Clause se 51. 51.2 2 (Ins (Instr truc ucti tion onss for for vari variat atio ions ns): ): res resol olve ve fin final ally ly tha thatt an inc incre reas ase e or decrease in quantities amounts to "varied work". Clau Clause se 52. 52.3 3 (Var (Varia iati tion onss exc excee eedi ding ng 15% 15%): ): put put beyo beyond nd doub doubtt the the cal calcu cula lati tion on of the 15%. Resolve rela elationship hip bet between ween clau clausse 53.1 3.1 (Notice of Cla Claim) and other clauses with notice requirements. Clause use 59.1 9.1 (Definit nition of "nominated subcon contracto ctor"): "): this his def definition appears to be excessively wide. Clau Clause se 60.3 60.3 (Pa (Paym ymen entt of ret retent ention ion mone money) y):: clar clarif ifyy posit positiion aft after Tak TakiingngOver Certificate. SubSub-cl clau ause sess 60.5 60.5 to to 60.8 60.8:: esta establ blis ish h cons consis iste tent nt poli policy cy in in rela relati tion on to to brea breach ch of contract. SubSub-cl clau ause sess 60.7 60.7 and and 60. 60.9 9 and and clau clause se 62. 62.2 2 (Unf (Unful ulfi filllled ed obl oblig igat atio ions ns): ): cla clari rify fy relationship between these clauses. Page 7 of 264
Clause use 63.1 (Default ult of Con Contracto ctor): resol solve doubt oubt as to to timing of th the Engineer's certificate and the Employer's notice and termination. Clau Clause se 65. 65.3 3 (Da (Dama mage ge to to Wor Works ks by Spe Speci cial al Risk Risks) s):: cla clari rify fy the the Con Contr trac acto tor' r'ss apparent right to complete the works. Clau Clause se 67. 67.1 (Eng (Engiineer neer's 's dec decisio ision) n):: res resolve olve rela relati tion onsh shiip wit with clau clause se 63. 63.1 (Default of Contractor) and clause 69.1 (Default of Employer). This list represents the headline items but other amendments are suggested in the text and either party to the contract may wish to make further amendments in their own interest. There is a further species of amendment, which might be of benefit to both the parties such as amending clause 44 (Extension of time) and clause 46 (Rate of progress) to enable the Employer to order acceleration in lieu of extension of time or in circumstances where the Contractor's entitlement to extension of time is a matter of dispute. Generally, great care is needed when amending any standard form of contract. These FIDIC conditions are generally well balanced and, as with any contract, there are a great number of links and relationships between different clauses, not all of which are express or otherwise obvious. With any amendment, therefore, ther there e is the the dang danger er of upse upsett ttin ing g the the bala balanc nce e or of crea creati ting ng unin uninte tend nded ed consequential changes to related provisions. It is in the interests of all parties that changes should be kept to a minimum. 2: THE ROLE OF THE ENGINEER Clause 2.1 is entitled "Engineer's duties and authority" but it is necessary to look right through the conditions to understand the full scope of his role. In the absence of clause 2.6 (Engineer (Engineer to act impartiall impartially) y) it would be apparent that the Engineer has a number of different roles which may be enumerated as follows:1. 2. 3. 4.
Designer: clauses 6, 6, 7 and 51 51 Qual Qualit ityy Con Contr trol olle ler: r: clau clause sess 7.2, 7.2, 36-3 36-39, 9, 49 and and 50 Valu Value e and and Cert Certif ifie ier: r: espe especi cial ally ly unde underr cla claus uses es 48, 48, 52, 52, 60 and and 62 62 Adjudicator: clause 67 67.
From the above it is reasonably clear that the Engineer is intended to act both as agent for the Employer in the process of obtaining for the Employer the project required and as an independent person for the administration of the contract and for the settlement of disputes. Clause 2.6 (Engineer to act impartially) creates doubt over this dichotomy. The clause requires the Engineer when acting in an independent role to be impartial. This raises the difficult question as to when the Engineer is engaged in which role. The draftsman has sought to address the question by the use of the general Page 8 of 264
concept "wherever...the Engineer is required to exercise his discretion...” There is no other reference in the contract to the Engineer's discretion. There follows a list of actions, which the Engineer Engineer takes in his independent independent capacity. capacity. These actions would not, it is submitted, submitted, always be undertaken undertaken in an independent capacity: capacity: for examp example le,, conse consent ntin ing g to subc subcont ontra ract ctor orss under under claus clause e 4.1 4.1 or appr approv ovin ing g the the Cont Contra ract ctor or's 's desi design gn under under claus clause e 7.2 7.2 would would norm normal ally ly be consi conside dere red d to be functions undertaken as the Employer's agent. As suggested under clause 2.6, the presumed intention of the draftsman has, very arguably, not been achieved. It is difficult to find a function of the Engineer that does not involve discretion or does not "affect the rights and obligations" of the parties. The notice to commence under clause 41.1 (Commencement of Works) is to be given by the Engineer. Normally there would be little doubt that the notice would be given when the Employer wished within the prescribed period and is thus a clear example of an "agent" function. However, there is discretion as to when to give the notice within the period and the parties' rights are affected. Accordingly, it is certainly arguable that clause 2.6 applies unless it is made clear, "under the Contract" that the Engineer is not "required to exercise his discretion". In order to avoid such an argument, a solution similar to that adopted by ICE 6th may be required. Under ICE 6th the Engineer is required by clause 2(8) to act impartially in relation to all matters other than those "requiring the specific approval of the Employer" under the equivalent clause to 2.1 (Engineer's duty and authority) whereby any actions requiring the Employer's approval are to be set out in Part II. It will therefore be necessary for the parties under ICE 6th to list all those functions of the Engineer which are to be undertaken as the Employer's agent and in the Employer's interest. Exactly the same provision is not recommended: it would be unwieldy if the Engineer were obliged to obtain approval for every agent action. It would be better to list in Part II to clause 2.6 those functions in respect of which the Engineer is not to act impartially. Table 1 sets out the functions of the Engineer and should assist the parties to decide which decisions are to be taken as agent and listed in Part II. The table advances a view on whether any given function should be considered for the agency list or whether it is intended by the draftsman to be an independent function. The column indicating where consultation is called for demonstrates that consultation consultation forms part of the Engineer's Engineer's independent independent function function although not all the normal independent functions involve consultation. ENGINEER'S ROLE - AGENT OR INDEPENDENT? Clau Clause se No. No. Desc Descrript iption ion Agen Agentt Indep ndepen ende dent nt Cons Consul ulttatio ation n 2.2,.4 2.2,.4 Appoin Appointme tment nt of Ö Representative, assistants
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4.1
Consent to to su subcontractors Ö
5.2 5.2
Reso Resolv lvin ing g disc discre rep panci ancies es
Ö?
6.1
Consent to disclosure
Ö
6.4
Determination of time and cost
7.1
Drawings and instructions Ö
7.2
Approval of Contractor's Drawings
12.2
Determination of time And cost Instr struct uctions ons Ö
13.1 Satisfaction Instr struct uctions ons Ö?
Ö
Ö Ö
Ö?
14.1 Consent to programme
Ö
14.2,.3 Request for revised Ö Programme or cash flow Estimate 15.1 Approval of Ö Superintendence, Retention on site
Ö
16.2 16.2 Obje Object ctio ion/ n/co cons nsen entt to Employees
Ö
17. 17.1 Requ Reques estt to rect rectif ifyy set settinging- Ö Out error Determination of Ö Additional cost-Clause 52 18.1 Instructing boreholes
Ö
19.1 Requiring se security Ö 20. 20.2 Sat Satisf isfacti action on
Ö?
20.3 Requiring re rectification Ö Determination of costs Clause 52
Ö
Page 10 of 264
Ö
Ö
27.1 Instructions re fossils Ö Determination of time And cost 30.3 Determination of cost Payable by Contractor to Employer 31.1 31.1 Requ Requir irem emen ents ts on othe otherr Contractors
Ö Ö
Ö
Ö
Ö
31.2 Request for facilities Ö Determination of Ö Additional cost - Clause 52 33. 33.1 Sat Satisf isfacti action on
Ö?
35.1 Requiring labor return
Ö
36.1 36.1 Inst Instru ruct ctio ions ns and and test testss on Materials
Ö
36.4 Satisfaction
Ö?
36.5 Determination
Ö
37.2 Inspection and testing
Ö
37.4 37.4 Dete Determ rmin inat atio ion n that that Ö Materials defective Request for repeat test Determination of Employer's costs
Ö Ö
Ö
Ö
37.5
Delegation
Ö
38.1
Examination/approval of Ö Work to be covered up
38.2
Instructing work to be Opened up Determining additional Cost
39.1 39.1 Inst Instru ruct ctin ing g remo remova vall of Work etc, in his opinion, Non-compliant
Ö Ö
Ö?
Page 11 of 264
Ö
39.2 Determining Employer's Costs
Ö
40.1 Instruction to suspend Ö Opinion on necessity to Protect and secure work 40.2 Determination of time And cost
Ö
40.3 Permission to resume work
Ö
41.1 Notice to commence
Ö
Ö Ö
Ö
42.2 Determination of time And cost
Ö
Ö
44.1,2,3 Determination of Extension of time
Ö
Ö
45.1 45.1 Cons Consen entt to exte extend nded ed Working hours
Ö?
46.1 46.1 Exped Expedititio ion n notic notice/ e/opi opini nion on Ö? That work too slow Consent to extend Ö? Working Determination of Ö Employer's costs
Ö
48.1,.2 Instruction re outstanding Ö? Work Issue of Taking-Over Ö Certificate Sati atisfact action Ö? 48.3 48.3 Issu Issue e of Taki Taking ng-O -Ove verr Certificate 49.2 Satisfaction
Ö
Ö? Inst Instru ruct ctin ing g rem remed edia iall wor workk Ö?
49.3 Opinion re cause of defect Determination of cost Clause 52
Ö
49.4 49.4 Opin Opinio ion n re liab liabililit ityy for for
Ö
Ö
Page 12 of 264
Defect Determination of cost
Ö
50.1 Instruction to search Ö Determination of cost 51.1 51.1 Opin Opinio ion n as to nece necessi ssity ty or Ö? Appropriateness of Variation Instruction of variation 52.1 52.1 Valu Valuat ation ion of varia variatitions ons Ö? at rates and prices Valuation of variations Ö? Based on rates and prices Opinion as to applicability Ö Agreement of rates or Ö? Prices Fixing appropriate rates Ö And prices Determination of Provisional valuation 52.2
52.3 52.4
53.2
Opinion on Ö "Inappropriate or Inapplicable" Agreement of suitable Ö? Rates or prices Fixing appropriate rates And prices Determination of Ö Provisional valuation Ö Notice of intention to Ö? Vary rate or prices Determination of Adjustment
Ö
Ö
Ö
Ö
Ö Ö
Ö
Ö
Opinion/instruction re Ö? day work Approval of of qu quotations Ö? Signature/agreement of Ö? Day work schedule Satisfaction that value Reasonable Ö? Inspection of records
Ö
Ö?
Page 13 of 264
Ö
53.3
Requirement re intervals, Copies
Ö?
53.4
Assessment of claim
Ö
53.5
Satisfaction and Determination
Ö
54.1
Consent to removal of Equipment
Ö?
56.1
Measurement
Ö?
57.2
Approval of breakdown
Ö?
58.1,.2
Instructing provisional Sums Determination of value Clause 52
59.1 59.1 Nomi Nomina nati tion on,, sele select ctio ion, n, Approval of NSC
Ö
Ö Ö
Ö
59.4 Instructions Ö Determination of Entitlement - Clause 52
Ö
59. 59.5 Dem Demandi anding ng proo prooff of Ö Payment Satisfaction/proof/ Ö? Certificates Deduction from certificate
Ö?
60.1 Prescribing form of statement
Ö
60.2 Interim certificate
Ö
60. 60.3 Dete Deterrminat inatio ion n of Ö Proportion Certification/withholding Of retention/ 60.4 Correction of certificate 60. 60.5 Appr Approv oval al of form orm of Statement Certification
Ö Ö
Ö Ö
Page 14 of 264
60.6 60.6 Agre Agreem emen entt of Fina Finall Ö? Statement 60.8 Final Certificate
Ö
62.1 62.1 Defe Defect ctss Liab Liabililit ityy Certificate
Ö?
63.1 Certificate of default
Ö
63.2 Certificate of value
Ö
63.3 63.3 Cert Certifific icat ates es of Em Empl ploye oyer' r'ss Costs and balance
Ö
64.1 64.1 Opin Opinio ion n on need need for for and and Nature of urgent work Determination of cost
Ö? Ö
Ö
65.3 Requirement for repairs Ö Determination of cost Clause 52
Ö
65.5
Determination of cost
Ö
Ö
65.8
Determination of payment
Ö
Ö
67.1
Decision
69.4
Determination of time And cost
Ö
Ö
70.2
Determination of cost
Ö
Ö
Ö
Consultation by the Engineer A new feature of the 4th Edition is the obligation upon the Engineer to consult with the Employer and Contractor on some 25 occasions within the contract prior to making decisions as to time and money. The consequence, FIDIC indicated at the time of the launch of the Conditions, was to make the Employer "more visible visible". ". FIDIC FIDIC indica indicated ted that that the consul consultat tation ion obliga obligatio tion n reflect reflected ed existi existing ng pract practic ice. e. It may may be that that some some empl employe oyers rs will will welc welcom ome e a proce procedu dure re,, whic which h requires the Engineer to keep them more fully informed, and some contractors will be glad of any entitlement to discuss their views with the Engineer. This innovation raises three questions: (a) (a)
What hat doe doess "d "due cons consul ulttatio ation" n" mean mean? ? Page 15 of 264
(b) (b) How How does does this this oblig obligat ation ion rel relat ate e to the the Engin Engineer eer's 's obli obliga gatitions ons und under er claus clause e 2.6 (Engineer to act impartially)? (c) (c)
What What is is the the resu result lt ifif the the Engi Enginee neerr fail failss to com compl plyy with with thi thiss obli obligat gatio ion? n?
Each of these issues is now addressed in turn:(a) (a) The The phras phrase e "afte "afterr due due consu consultltat atio ion n with with the Emp Emplo loyer yer and the the Cont Contra ract ctor or"" recurs throughout the contract. No assistance is given, however as to the form that this consultation consultation should take. In particular, particular, the question is raised as to what is meant by "due". To "consult" is, according to the Concise Oxford Dictionary, to "take counsel... counsel... seek information information or advice from ... take into consideration” consideration”.. The concise concise Oxford Oxford Dictio Dictionar naryy define definess "due" "due" in the present present contex contextt as "right "rightful ful,, proper, and adequate". It must be probable that it also means in accordance with any relevant law. This raises the possibility that in those countries in which the law imposes certain bureaucratic procedures, which must be followed prior to the authorization of additional payment, for example, it is quite possible to envisage the Engineer being drawn into a round of discussions with a number of relevant ministries as part of his consultation with a government employer. This, it must be suspected, would be far removed from the intention of the draftsman, which was presumably to introduce an express element of openness and natural justice into into the the Engi Engine neer er's 's deci decisi sion on-m -mak akin ing. g. It was was not not inte intend nded ed to intr introd oduc uce e a procedure, which could cause long delays to important determinations under the contract. Accordingly, the parties may wish either to delete the term "due" or to set out in the contract a simple procedure allowing each party a meeting with the Engineer to put his case. As determination is to take place after the consultation, the question arises as to whether one party is able to delay or prevent the determination be refusing to take part in the consultation process. Plainly, it would be absurd if a party could sabotage the contract in this way. In this context, the word "due" is helpful, conveying the idea of giving the parties a fair opportunity for consultation so that if one one part partyy did did not not co-o co-ope pera rate te,, the the Engi Engine neer er woul would d be free free to make make his his deter determi minat natio ion n even even thoug though h cons consult ultat atio ion n had had not take taken n plac place. e. A fail failur ure e to participate in the consultation procedure by either party, bearing in mind that in some clauses such as clause 46.1 (Rate of progress) progress) the consultation consultation concerns a deduction from the Contractor and is thus not always a procedure leading to some benefit for the Contractor, Contractor, would probably amount to a breach of contract. If, as submitted, the Engineer is entitled to proceed to make his determination regardless of such refusal, it is unlikely that loss will arise other than from any delay caused by such refusal. Alternativ Alternative e wording wording to address address these potential difficulties difficulties would be: "after having having given given to the Employ Employer er and Contra Contracto ctorr a reason reasonable able opport opportunit unityy for consultation in accordance with the procedure set out in Part II".
Page 16 of 264
(b) Consultation is inte ntende nded to be an outw utward and visible sig sign of the the Engineer's impartiality. Plainly it is no guarantee. As shown by Table 1 above, consultation is firmly associated with those functions of the Engineer, which he undertakes undertakes as an independent person rather than as agent for the Employer. At the end of the day, impartiality depends upon the ability of the Engineer to exclude from that part of his mind, which is making a determination under the contract all considerations other than those, required achieving a fair decision in accordance with the spirit of the contract. (c) If the Engi nginee neer purpo urporrted to issue sue a dete etermination without out having cons consul ulte ted d with with the the part partie ies, s, the the ques questi tion on aris arises es as to the the vali validi dity ty of that that determination. This is an important question given the uncertainty surrounding the the prec precis ise e meani meaning ng of "due "due cons consult ultat atio ion" n".. A part partyy wish wishing ing to disr disrega egard rd a certificate or determination could seek to argue that the consultation undertaken by the the Engi Enginee neerr was was inade inadequ quat ate e or other otherwi wise se not not in accor accordan dance ce with with the the contract. The answer, it is submitted, lies in clause 67. In the event of a dispute, the Engineer is obliged to make a decision reopening the disputed determination without the need for any consultation. Furthermore, the Contractor is obliged to proceed with the works while a decision is pending. The current question must theref therefore ore be conside considered red against against the philoso philosophy phy of the contra contract ct procee proceedin ding g regardless of dispute. It is submitted that the pragmatic answer, at least, is that such determinations determinations would be valid and binding binding but that the Employer Employer would be in breach of contract for failing to procure that his Engineer conducted himself as required by the contract. Therefore, if the Employer sought to withhold or delay payment on the strength of a lack of consultation, the Contractor could claim as damag damages es any any loss losses es that that flow flowed ed from from the the nonnon-pa paym yment ent.. This This appr approac oach h is suppo support rted ed by the the diff diffic icul ulty ty of inte interp rpre retiting ng the the requi require reme ment nt as a condi conditition on precedent to the determination. If the consultation was intended to precede a deduction by the Employer from monies due to the Contractor, for example, under clause 64.1 (Urgent remedial work), the result, it is submitted, is the same. To the extent that the Contractor can show any loss flowing from the lack of consultation, that loss would be recoverable as damages from the Employer.
3: COMMENCEMENT AND THE FINAL STAGES Tables 2 and 3 illustrate the activities and time periods at the beginning and end of the project. Table 2 demonstrates the significance of the letter of acceptance as a trigger for time periods under five clauses. The discrepancy between the Contractor's responsibility for the works under clause 20.1 (Care of Works) and his obligation to insure those works under clause 21.2 (Scope of cover) is also demonstrated. Table 3 illustrates the complexity of the provisions governing the end of the project and also the need to distinguish between the date of issue of the TakingPage 17 of 264
Over Certificate which governs various matters and the date stated within the Certificate from which date the Defects Liability Period runs. 4: EXTENSION OF TIME, TIME, ADDITIONAL ADDITIONAL PAYMENT AND NOTICE DELAYING EVENTS - TIME, COST AND NOTICE PROVISIONS Clause
E.g.
Cost Notice
Ö
in advance
12.2 Adverse physical Obstructions or Conditions
Ö
Ö
"forthwith"
X
17
X
Ö
-
X
20.3 Damage to Works Due to Employer's Risks
X
Ö
-
X
27
Ö
Ö
"immediately"
31.2 Facilities for other Contractors
X
Ö
-
X
36.5 Test not provided for
Ö
Ö
-
X
38.2 Uncovering - no Fault found
X
Ö
-
X
Ö
-
42.2 Failure to give possession
Ö
Ö
-
44.1 Extension of time for completion
Ö
X
28 days
49.3 Cost of remedying defects - no fault of Contractor
n/a
Ö
-
n/a
50.1 Search - no fault of Contractor
X
Ö
-
X
6.4
Event
Late drawing
Ö
Incorrect setting Out data
Fossils - discovery
40.2 Suspension
Ö
"Delay" Ö
Ö
X
Page 18 of 264
Ö Ö
51 &52
Variations
cl. 44 Ö
14 days
X
extra or add. work 58
Provisional sums
65.3 Damage to Works by special risks 69.4 Contractor's entitlement to suspend works
Ö
70.2 Change to law
X
Ö
-
X
X
Ö
-
X
Ö
in advance
X
Ö
Ö
-
X
OTHER EVENTS GIVING GIVING RISE TO CLAIM FOR 'ADDITIONAL PAYMENT' CLAUSE
TITLE
EVENT
NOTICE
4.2
Assignment of subcontractor 's obligations
X
6.1
Custody and supply of drawings and documents
9.1
Contract Agreement
execution
22.3
Indemnity by Employer
claim against Contractor
30.3
Transport of materials and indemnity for X Plant road damage
65.8
Payment if Contract terminated
70.1
Increase or decrease in costs
extra drawings
X
X X
X X
Tables 4 and 5 are intended to assist in providing answers to the following questions:(i) Is there ere a disce scernable policy in the conditions ons as to whic hich clause uses expressly require extension of time to be determined by the Engineer?
Page 19 of 264
(ii) (ii) Wher Where e there there is no no expre express ss righ rightt to exte extens nsio ion n of time time,, is the the Contr Contrac acto tor r entitled to an extension under clause 44.1 (Extension of time for completion)? (iii (iii)) What What does does clau clause se 44.1 44.1 ite item m (b) (b) "any "any cause cause of del delay ay refe referr rred ed to in in these these Conditions" refer to? (iv) (iv) How How does does clau clause se 53.1 53.1 (Not (Notic ice e of clai claim ms) relat elate e to noti notice ce prov provis isio ions ns contained in the clauses themselves? (v) (v) How How does does the Cont Contra ract ctor or reco recove verr his prol prolon onga gati tion on cost costss and othe otherr loss loss and expense resulting from delays to the progress of the works which were not his responsibility? Each of the above questions is now taken in turn:(i) Is there ere a disce scernable policy in the conditions ons as to whic hich clause uses expressly require extension of time to be determined by the Engineer? If there is a policy, it is very difficult to ascertain. There are occasions of consistency: for example, there is no express right to an extension of time at either clause 20.3 (Loss or damage due to Employer's Employe r's risks) or under clause 65.3 (Damage to Works by special risks). However, it is very difficult to see why an extension of time should be available under clause 36.5 (Tests not provided for), where the Engineer has required an extra test to be performed which has shown the the Cont Contra ract ctor or's 's mate materi rials als to comp comply ly with with the the cont contra ract ct,, wher wherea eass no such such extension is available under clause 38.2 (Uncovering and making openings), when the Engineer has ordered work to be reopened but no fault has been found. One hypothesis could be that the draftsman has not given an express right of extension of time where clause 44.1 obviously applies: the provision of incor incorre rect ct data data under under clau clause se 17.1 17.1 (Set (Settiting ng out) out) coul could d be an "imp "imped edim iment ent or prevention by the Employer" under clause 44.1 (d); the repair work under clauses 20.3 (Loss or damage due to Employer's risks) and 65.3 (Damage to Works by special risks) would be "extra or additional work" within 44.1 item (a). This hypothesis obviously does not explain the discrepancy between clause 36.5 and clause 38.2; and a late drawing under clause 6.4 (Delays and cost of delay of drawings) is as obviously an impediment by the Employer as incorrect data under clause 17.1 (Setting out). If the conclusion to question (ii) below is correct and all these causes of delay should give rise to extensions of time, one is forced to the conclusion that there was no policy guiding the draftsman as to whether to put an express extension of time entitlement into any given clause. (ii) (ii) Wher Where e there there is no no expre express ss righ rightt to exte extens nsio ion n of time time,, is the the Contr Contrac acto tor r entitled to an extension under clause 44.1 (Extension of time for completion)? If there were no provision giving the Contractor an entitlement to an extension of time where the Engineer Engineer had supplied supplied incorrect incorrect data under clause 17.1 (Setting (Setting out) or where the Engineer has ordered perfectly satisfactory work to be opened up, then, under English law at least, time would be set "at large" meaning that the Page 20 of 264
extension of time machinery of the contract would be treated as having broken down. This is because English courts would not permit the Employer to benefit by way of liquidated damages as a result of his own acts which have caused delay to the Contractor. Indeed, there cannot be many legal systems in the world which would permit an Employer to enrich himself in this way. There is, however, no objection to a contract stipulating that particular risks, whether within or beyond the control of the Employer, should be upon the Contractor. This is the effect of clause 20.1 (Care of Works), subject to the exceptions set out in clause 20.4 (Employer's risks) and 65.2 (Special risks). Alternatively, the conditions may cause the losses flowing from an event to lie where they fall. This is the case with exceptionally bad weather which is included in clau clause se 44.1 44.1 (Ext (Exten ensi sion on of time time for for compl complet etio ion) n) at item item (c) (c) but but whic which h is expressly excluded from any financial recovery under clause 12.2 (Adverse physical obstructions or conditions) and clause 40.1 (Suspension of work). There are therefore three principal categories of allocation of risk:(a)
Entire Entirely ly on on the the Emplo Employer yer:: Cont Contrac ractor tor receiv receives es exte extensi nsion on of of time time and costs; costs;
(b) and
Loss lies lies wher where e it falls: falls: Contra Contracto ctorr rece receives ives extensi extension on of time time but but no no costs costs;;
(c) (c) Enti Entire rely ly on the Cont Contra ract ctor or:: no prov provis isio ion n for for exten extensi sion on of time time or cost costs; s; liquidated damages deducted. On the basis of table 4, there is room for an argument for a fourth category, where the Contractor receives costs but no time. In fact, for most of the events dealt with in the clauses clauses which give cost but not time, an extension would in fact be available under one or other of the headings of clause 44.1. There may be argument however in relation to clause 31.2 (Facilities for other contractors) and in relation to clause 58 (Provisional sums). See the commentary under those clauses for discussion of those arguments. (iii (iii)) What What does does clau clause se 44.1 44.1 ite item m (b) (b) "any "any cause cause of del delay ay refe referr rred ed to in in these these Conditions" refer to. A restricted interpretation would limit these words either to those clauses in which the word "delay" features or to those clauses which provide for extension of time by reference to clause 44. Table 4 demonstrates that some four clauses other than clause 44 use the word "delay" and a total of seven clauses provide for extensions of time. A more liberal interpretation would treat the item as referring to any delaying event which is dealt with in the contract. As pointed out in the commentary under clause 44.1 item (b), this would cover defaults of the Contractor as well as those not his responsibility. This does not necessarily rule out such an interpretation as the Contractor's defaults would be filtered out by the phrase "being such as fairly to entitle the Contractor to an extension". Page 21 of 264
As there is no scope for an intermediate interpretation of the phrase, it is necessary to consider which of the two interpretations is correct. For the narrow interpretation, it might be argued that it was intended as a cross-reference to those clauses which refer to the clause 44 in the same manner as clause 52.1 (Valuation of variations) refers to matters "which are required to be determined in accordance with clause 52". If there had been no such item within clause 44.1, the Contractor might have been obliged both to demonstrate entitlement under, for example, clause 12.2 which allows him "any extension of time to which the Contractor is entitled under clause 44" and additionally to fit the delaying event within one of the other grounds under clause 44.1. An argum argumen entt in favou favourr of the the broa broader der inte interp rpre reta tatition on woul would d not disp disput ute e the the foregoing but would add that the need to cater for clauses such as clause 17.1 and other clauses shown by Table 4 not to provide expressly for extensions of time means that 44.1(b) was intended to sweep up these causes of delay as well. Otherwise, it is necessary to force them, perhaps artificially, into one of the other grounds if an argument for time at large is to be avoided. For example, unless there was express provision in the conditions, remedial works due to incorrect data from the Engineer is plainly something for which the Contractor should receive an extension of time as the Employer could not be entitled to liquidated damages in respect of a delay caused by his Engineer, under English law at least. Therefore, time would be set at large in the absence of a right to extension of time. As neither delay nor clause 44 are referred to in clause 17.1, the proponent of the narrow interpretation of item (b) would be obliged to bring such delay within one of the other grounds. Item (a) "Extra or additional additional work" seems inappropriate for work that was merely executed incorrectly and there is the objection to item (d) "any delay... by the Employer" that servants or agents are not included. This leaves the unsatisfactory "special circumstances" and the objection objection that something something catered for expressly expressly by the contract such as incorrect data supplied by the Engineer does not qualify as "special". It would therefore be argued that a broad interpretation was intended. It is submitted that as a matter of pragmatism, the broad interpretation must be adopted to prevent strained interpretations of the other grounds for extension of time and to prevent technical and unmeritorious claims that time has been set at large. (iv) (iv) How How does does clau clause se 53.1 53.1 (Not (Notic ice e of clai claim ms) relat elate e to noti notice ce prov provis isio ions ns contained in the clauses themselves? Table 4 sets out the notice requirements that are contained in the various clauses. Thus in clause 12.2 (Adverse physical obstructions and conditions) notice is required forthwith and under clause 27.1 (Fossils) the Contractor is to give immediate notice. Clause 53.1 requires notice within 28 days to be given to both Engineer and Employer if additional payment is to be claimed. It opens with the words "notwithstanding any other provision of the Contract...". As mentioned in the commentary under clause 53.1, this clause should probably be taken as an Page 22 of 264
additional requirement but not a substitute for notice provisions given in a clause. Thus, a failure to give notice forthwith under clause 12.2 to the Engineer and Employer will not be repaired by giving notice within 28 days under clause 53.1. Notice under clause 12.2 would however satisfy the requirements of clause 53.1. Clause 27.1 (Fossils) only requires notice to be given to the Engineer so that further notice under clause 53.1 copied to the Employer would be required. Clause 53.1 is also relevant to the contents of the clause as a notice merely indicating the presence of an obstruction or an article of interest would not necessarily satisfy the requirement of notice that the Contractor "intends to claim any additional payment". Where notice of intention to claim extra payment for varied work is required within 14 days under clause 52.2 (Power of Engineer to fix rates), a notice under clause 53.1 within 28 days would not suffice. The importance of complying with clause 53.1 is considerably reduced by the ability of the Engineer or arbitrator to deal with the claim in the absence of notice under clause 53.4 (Failure to comply). (v) (v) How How does does the Cont Contra ract ctor or reco recove verr his prol prolon onga gati tion on cost costss and othe otherr loss loss and expense resulting from delays to the progress of the works which were not his responsibility? Unlike some standard forms of building contract, there is no single clause which addresses the issue of the Contractor's loss and expense. The right to recover additional sums is scattered through the contract as illustrated by Tables 4 and 5. Clause 44.1 (Extension of time completion) is not linked to any clause giving a right to payment unlike the relationship between clause 51 (Variations) and clause 52 (Valuation (Valuation of variations) variations).. As can be seen from Table 4, all the clauses (other than clause 44) giving an entitlement to extension of time also give a right to payment of additional costs. It has been submitted that in most of the cases where the Engineer is obliged to determine additional costs for the Contractor, extension of time is in fact available. (The matters listed in Table 5 would not normally be delaying events.) As to the events set out in clause 44.1:(a) "the "the amount amount or natu nature re of of extr extra a or additi additiona onall work" work".. If the extra extra or or addit addition ional al work has been ordered as a variation, then the Contractor may be able to recover any resulting prolongation costs if he is able to demonstrate under clause 52 (Valuation of variations), either that there is no applicable rate or that the rate has been rendered inappropriate inappropriate by reason of the nature or amount of the extra or additional work. It is arguable, however, as commented under clause 51.2 that "extra" in clause 44.1 (a) includes "automatic" changes in quantities which result from any inaccuracy in the bills of quantities. To obtain additional costs the Contractor must either demonstrate under clause 52.3 (Variations exceeding 15%) that the "Effective Contract Price" has changed by 15%; or else must argue that such changes in quantities fall within the definition of "varied work" within Page 23 of 264
clause 52.2 (Power of Engineer to fix rates) with the result that the Engineer may adjust the rates to take into account any additional costs incurred. For more on this see under clause 51.2. (b) (b) "any "any cause cause of of dela delayy refer referre red d to in thes these e condi condititions ons". ". As As discus discusse sed d above above,, this effectively refers to events of delay for which provision is made so that the Contractor will recover his prolongation costs under the individual clauses. Thus for example, under clause 40.2 (Engineer's determination following suspension) the Contractor is granted an extension of time and "the amount...of the cost incurred by the Contractor by reason of such suspension". (c) (c) "exc "excep epti tion onal ally ly adv adverse erse clim climat atic ic cond condit itiions" ons".. Ther here is no prov provis isio ion n for payment of prolongation costs in the event of extremely bad weather. These conditions, in common with most standard forms, cause the risk to be shared between the parties so that the Employer recovers no liquidated damages and the Contractor recovers no prolongation costs. (d) (d) "any "any delay delay,, im imp pedim edime ent or prev preven enttion ion by the the Em Empl ploy oyer er". ". Ther There e is no express provision in the contract for reimbursement of prolongation costs flowing from the Employer's default. Various failures by the Engineer are catered for in clauses such as clause 6.4 (Delays and cost of delay of drawings) and 17.1 (Setting out). However as is mentioned in the commentary under clause 44.1 (d), it is arguable that the Engineer's defaults are not covered by the current grounds. To the extent that delays etc by the Employer are not covered by an express term, the Contractor is left to recover his prolongation costs as damages for breach of contract. The action of the Employer which invokes this ground for extension need not be a breach. The ordering of a substantial variation which delayed the works would be an example of a delay by the Employer if not also an impediment and a prevention. The Contractor's prolongation costs in this event are plainly covered by the variation clause. (e) (e) "othe "otherr speci special al circ circum umst stanc ances es". ". Gener General ally ly,, it is submi submitt tted, ed, thi thiss groun ground d will will not refer to matters dealt with in the contract so that recovery of prolongation costs will depend upon the Contractor's ability to demonstrate breach of contract by the Employer. GENERAL INDEX IN ALPHABETICAL ORDER Index Ind ex
Clause Cla use
Access to site Access to works, Engineer Access, Contractor to Satisfy Himself Accident or Injury to Workmen - Insurance Against Accident or Injury to Workmen - Liability for Address, Change of Adequacy of Insurance
42.1 37.1 11.1 24.2 24.1 68.3 25.2
Page 24 of 264
Adjust Adjustmen mentt of Contra Contract ct Price Price if Variat Variation ionss Exceed Exceed 15% of Tender Tender Sum 52.3 52.3 Agreement 9.1 Alterations, Additions and Omissions 51 & 52 Ambiguities in Contract Documents 5.2 Amicable Settlement of Disputes 67.2 Appointment of Assistants to Engineer 2.4 Approval by the Engineer 7.3 Approval of Materials not Implied 54.8 Approval Only by Defects Liability Certificate 61.1 Arbitration 67.3 Assignment of Contract 3.1 Avoidance of Damage to Roads 30.1 Bills of Quantities - Estimated Only Boreholes and Exploratory Excavation Breakdown of Lump Sum Items
55.1 18.1 57.2
Care of Works Cash Flow Estimate to be Submitted Certificate, Final Payment Certificates and Payment, Monthly Statements Certificates, Correction of Certificate, Taking over Certification of Completion of Works Certification of Completion of Sections or Parts Cessation of Employers Liability Change of Address, Notice of Claims, Contemporary Records Claims, Notice of Claims, Payment of Claims, Substantiation of Claims Under Performance Security Clearance of Site on Completion Commencement of Works Completion of Works, Time for Completion of Works, Time for, Extension of Completion, Statement at Compliance with Insurance Policy Conditions Compliance with Statutes and Regulations Contemporary Records for Claims Contract Agreement Contractor not Relieved of Duties or Responsibilities Contractor's Employees Contractor's Employees, Engineer at Liberty to Object Contrac Contractor tor's 's Entitl Entitlemen ementt to Susp Suspend end Work Work for for Emplo Employer yer's 's Defau Defaultlt Contractor's Equipment, Conditions of Hire Contractor's Equipment, Employer not Liable for Damage Contractor's Equipment, Insurance of
20.1 14.3 60.8 60.1 60.4 48.1 48.1 48.2 60.9 68.3 53.2 53.1 53.5 53.3 10.3 33.1 41.1 43.1 44.1 60.5 25.4 26.1 53.2 9.1 14.4 16.1 16.2 69.4 69.4 54.5 54.2 21.1
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Contractor's Equipment, Reference in Subcontracts 54.7 Contractor's Equipment, Temporary Works & Materials Exclusive Use for the Works 54.1 Contractor's Equipment, Transport of 30.2 Contractor's Failure to Carry Out Instructions 49.4 Contractor's Failure to Insure, Remedy 25.3 Contractor's General Responsibilities 8.1 Contractor's Superintendence 15.1 Contractor to Keep Site Clear 32.1 Contractor to Search 50.1 Correction of Certificates 60.4 Cost of Remedying Defects 49.3 Cost of Samples 36.2 Cost of Tests 36.3 Cost of Tests not Provided for 36.4 Covering up Work, Examination Before 38.1 Cross Liabilities 23.3 Currencies of Payment for Provisional Sums 72.3 Currencies, Rates of Exchange 72.1 Currency Restrictions 71.1 Custody and Supply of Drawings and Documents 6.1 Customs Clearance 54.3 Damage to Persons and Property 22.1 Damage to Roads, Avoidance of 30.1 Damage to Works, Special Risks 65.3 Damages, Liquidated 47.1 Dates for Inspection and Testing 37.3 Daywork 52.4 Decrease or Increase of Costs 70.1 Defaul Defaultt of Contr Contract actor or in Comp Complia liance nce with with Inst Instruc ructio tions ns on Impr Improper oper Work Work 39.2 39.2 Default of Contractor, Remedies for 63.1 Default of Employer 69.1 Defective Materials and Work 39.1 Defects, Contractor to Search for, if Required 50.1 Defects, Cost of Remedying 49.3 Defects Liability Certificate 62.1 Defects Liability Period 49.1 Defects, Remedying of 49.2 Definitions 1.1 Delay, Liquidated Damages for 47.1 Delays and Cost of Delay of Drawings 6.4 Design by Nominated Subcontractors 59.3 Discharge 60.7 Discrepancies in Documents 5.2 Dismissal of Contractor's Employees 16.2 Disorderly Conduct etc 34.1 Disputes, Engineer's Decision 67.1 Page 26 of 264
Disruption of Progress Documents Mutually Explanatory Drawings Drawings and Documents - Custody and Supply of Drawings and Instructions - Supplementary Drawings, Copy to be Kept on Site Drawings, Delays and Cost of Delay of Drawings Drawings, Failure by Contractor to Submit
6.3 5.2 6&7 6.1 7.1 6.2 6.4 6.5
Employ Empl oyer er not not Lia Liabl ble e for for Dama Damage ge to to Cont Contra ract ctor or's 's Equ Equip ipme ment nt etc etc 54.2 54.2 Employer's Liability, Cessation of 60.9 Employer's Responsibilities 19.2 Employer's Risks 20.4 Engagement of Staff and Labour 34.1 Engineer's Authority to Delegate 2.3 Engineer's Determination Where Tests not Provided for 36.5 Engineer's Duties and Authority 2.1 Engineer to Act Impartially 2.6 Environment - Protection of 19.1 Errors in Setting Out 17.1 Evidence and Terms of Insurance 25.1 Examination of Work before Covering Up 8.1 Exceptions 22.2 Exchange, Rates of 72.1 Exclusions 21.4 Extensi Extension on of Time, Time, due due to Employ Employer' er'ss Failur Failure e to give give Poss Possessi ession on of Site Site 42.2 42.2 Extension of Time for Completion 44.1 Extension of Time for Completion, Contractor's Claim 44.2 Ext Extensi ensio on of Time Time for Compl omplet etiion, on, Engi Engine neer er's 's Deter etermi mina nattion 44. 44.3 Extraordinary Traffic 30. Facilities for Other Contractors Facilities - Rights of Way and Failure by Contractor to Submit Drawings Failure to Comply with Claims Procedure Failure to Comply with Engineer's Decision Failure to Give Possession of Site Faulty Work, Removal of Fees and Notices Fencing, Watching, Lighting etc Final Payment Certificate Final Statement Foreign Currencies, Payment in Fossils Foundations, Examination of
31.2 42.3 6.5 53.4 67.4 42.2 39.1 26.1 19.1 60.8 60.6 72. 27.1 38.1
General Responsibilities of Contractor Giving of Notices - Payment of Fees
8.1 26.1
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Headings and Marginal Notes
1.2
Improper Work and Materials, Removal of Increase or Decrease of Costs Indemnity by Contractor 24.1 Indemnity by Employer Independent Inspection Injury to Persons - Damage to Property Injury to Workmen Inspection and Testing Inspection and Testing, Dates for Inspection of Foundations, etc Inspection of Operations Inspection of Site by Contractor Instructions for Variations Instructions in Writing Instructions, Supplementary Insurance, Adequacy of Insurance, Evidence and Terms of Insurance, Minimum Amount of Insurance of Works and Contractor's Equipment Insurance, Remedy on Failure to Insure Insurance, Responsibility for Amounts not Recovered Insurance, Scope of Cover Insurance, Third Party Insurance, Workmen Interference with Traffic and Adjoining Properties Interim Determination of Extension Interpretations
39.1 70.1 22.1 22.3 37.5 22.1 24.1 37.2 37.3 38.1 37.1 11.1 51.2 2.5 7.1 25.2 25.1 23.2 21.1 25.3 21.3 21.2 23.1 24.2 29.1 44.3 1.3
Labour, Engagement of Language/s and Law Law to which Contract Subject Legislation, Subsequent Lighting, Fencing, Watching, etc. Liquidated Damages for Delay Liquidated Damages, Reduction of Loss or Damage due to Employer's Risks Loss or Damage - Responsibility to Rectify Lump Sum Items - Breakdown of
34.1 5.1 5.1 70.2 19.1 47.1 47.2 20.3 20.2 57.2
Materials and Plant, Transport of Materials - Approval of, etc, not Implied Materials, Improper - Removal of Materials, Quality of Materials, Supply of
30.3 54.8 39.1 36.1 8.1
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and
Measurement by Engineer Measurement, Methods of Measurement, Quantities Estimated Only Methods of Construction Minimum Amount of Insurance Monthly Payments
56.1 57.1 55.1 8.2 23.2 60.2
Nominated Subcontractors, Certification of Payments to Nominated Subcontractors, Definition Nominated Subcontractors, Design by Nominated Subcontractors, Objection to Nomination Nominated Subcontractors, Payment to Not Foreseeable Physical Obstructions or Conditions Notice of Claims Notices and Fees, Payment of Notices, Consents and Approvals Notice to Contractor Notice to Employer and Engineer
59.5 59.1 59.3 59.2 59.4 12.2 53.1 26.1 1.5 68.1 68.2
Objections to Contractor's Employees Obstructions or Conditions - Not Foreseeable Physical Omissions, Alterations, and Additions Openings, Uncovering and Making Operations, Inspection of Order of Work, Contractor to Furnish Programme Other Contractors, Opportunities for
16.2 12.2 59. 38.2 37.1 14.1 31.1
Patent Rights Payment if Contract Terminated for Contractor's Default Payment if Contract Terminated for Employer's Default Payment of Claims Payment, Time for Performance Security Performance Security - Claims Under Performance Security - Period of Validity Period of Defects Liability Permanent Works Designed by Contractor Physical Obstructions or Conditions - Not Foreseeable Phys Physic ical al Obs Obstr truc ucti tion onss or Con Condi diti tion onss - Engin Enginee eers rs Det Deter ermi mina nati tion on Plant and Materials, Transport of Plant, Conditions of Hire Plant, Customs Clearance Plant, Employer not Liable for damage to Plant, etc - Exclusive Use for Works Plant, Quality of Plant, Re-export of Plant, Removal of Policy of Insurance - Compliance with Conditions
28.1 63.3 69.3 53.5 60.10 10.1 10.3 10.2 49.1 7.2 12.2 12.3 12.3 30.3 54.5 54.3 54.2 54.1 36.1 54.4 39.1 25.4
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Possession of Site Possession of Site, Failure to Give Power of Engineer to Fix Rates Priority of Contract Documents Programme to be Submitted Progress - Disruption of Progress - Rate of Protection of Environment Provision to Indemnify Contractor Provision to Indemnify Employer Provisional Sums, Currencies of Payment Provisional Sums, Definition Provisional Sums, Production of Vouchers Provisional Sums, Use of
42.1 42.2 52.2 5.2 14.1 6.3 46.1 19.1 22.3 22.2 72.3 58.1 58.3 58.2
Quality of Materials and Workmanship Quantities
36.1 55.1
Rate of Progress Rates of Exchange Rates, Power of Engineer to Fix Rectification of Loss or Damage Reduction of Liquidated Damages Re-export of Plant Regulations, Statutes, etc, Compliance with Rejection Release from Performance Remedies for Default of Contractor Remedying of Defects Remedying of Defects, Cost of Remedy on Contractor's Failure to Insure Removal of Contractor's Employees Removal of Contractor's Equipment Removal of Improper Work, Materials or Plant Removal of Plant, etc Responsibility to Rectify Loss or Damage Responsibility Unaffected by Approval Restriction on Working Hours Resumption of Work Retention Money, Payment of Returns of Labour and Contractor's Equipment Revised Programme Rights of Way and Facilities Risks, Employer's Risks, Special Roads, etc - Damage by Extraordinary Traffic Roads, Interference with Access to Royalties
46.1 72.1 52.2 20.2 47.2 54.4 26.1 37.4 66.1 63.1 49.2 49.3 25.3 16.2 69.2 39.1 65.7 20.2 7.3 45.1 69.5 60.3 35.1 14.2 42.3 20.4 65. 30.1 29.1 28.2
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Safety, Security and Protection of the Environment 19.1 Samples, Cost of 36.2 Security, Safety and Protection of the Environment 19.1 Setting-Out 17.1 Singular and Plural 1.4 Site, Clearance on Completion 33.1 Site, Contractor to Keep Clear 32.1 Site, Inspection of by Contractor 11.1 Site Operations and Methods of Construction 8.2 Site, Possession of 42.1 Special Risks 65. Staff, Engagement of 34.1 Statement at Completion 60.5 Statement, Final 60.6 Statutes, Regulations, etc, - Compliance with 26.1 Subcontracting 4.1 Subcontractors, Nominated 59. Subcont Subcontrac ractor tors, s, Respo Responsi nsibil bility ity of the the Cont Contrac ractor tor for Acts Acts and and Defau Defaultlt of 4.1 Subsequent Legislation 70.2 Substantial Completion of Sections or Parts 48.3 Sufficiency of Tender 12.1 Supply of Plant, Materials and Labour 8.1 Surfaces Requiring Reinstatement 48.4 Suspension, Engineer's Determination 40.2 Suspension lasting more than 84 days 40.3 Suspension of Work 40.1 Taking Over Certificate Taking Over of Sections or Parts Tender Documents Tender, Sufficiency of Termination of Contract by Employer Term ermination of of Co Contr ntract act by by Em Employe oyer, Ass Assiignment ent of of Ben Benef efiit Terms of Insurance Tests, Cost of Tests not Provided for - Cost of Third Party Insurance Time for Completion Time for Completion, Extension of Time for Payment Traffic, Extraordinary Traffic, Interference with Traffic, Waterborne Transpo sport of Cont ontractor's Equipment and and Tempo emporrary Work orks Transport of Materials and Plant
48.1 48.2 11.1 12.1 63.1 63. 63.4 25.1 36.3 36.4 23.1 43.1 44.1 60.10 30.1 29.1 30.4 30. 30.2 30.3
Uncovering Work and Making Openings
38.2
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Unfulfilled Obligations Urgent Remedial Work
62.2 64.1
Valuation at Date of Termination by the Employer Variations Variations, Daywork Basis Variations, Exceeding 15% Variations, Instructions for Variations, Power of the Engineer to Fix Rates Vouchers, Production of
63.2 51.1 52.4 52.3 51.2 52.2 58.3
War, Outbreak of Watching and Lighting etc Waterborne Traffic Work, Examination of Before Covering Up Work, Improper, Removal of Working Hours, Restriction of Workmanship, Quality of Workmen, Accident or Injury to Works, Care of Works, Completion of ( Defects Liability Certificate) Works, Commencement of Works, Insurance of Works, Remedying of Defects Works, Time for Completion of Works to be Measured Work, Suspension of Work to be in Accordance with the Contract
20.4 19.1 30.4 38.1 39.1 45.1 36.1 24.1 20.1 62.1 41.1 21.1 49.2 43.1 56.1 40.1 13.1
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CLAUSE 1 : Definition and Interpretation
This clause sets out the meanings of almost all the terms in the contract which are are give given n capit capital al lett letter ers. s. The The defi defini nititions ons of "Def "Defec ects ts Liab Liabililitityy Peri Period od"" and and "nominated Subcontractor" are to be found in clause 49.1 and clause 59.1 respectively. In addition, four terms terms which have not been given capital letters are also defined. The head heading ingss and and marg margin inal al note notess are are to be igno ignore red d when when inte interp rpre retiting ng the the Contract. The refe refere rence ncess to indi indivi vidu dual alss incl includ ude e firm firms, s, corp corpor orat atio ions ns and and othe otherr lega legall organizations. Singular words and plural words may be interchangeable where the context so requires. Notices, consents, approvals, certificates and determinations must be given in writing and, with the exception of notices, must not be unreasonably withheld or delayed. The foll follow owing ing defi defini nititions ons are are new to the the 4th 4th Edit Editio ion: n: Subco Subcont ntra ract ctor or,, Bill Bill of Quantit Quantities ies,, Tender Tender,, Letter Letter of Accept Acceptance ance,, Contrac Contractt Agreeme Agreement, nt, Append Appendix ix to Tender, Tender, Commenc Commenceme ement nt Date, Date, Time Time for Complet Completion ion,, Tests Tests on Comple Completio tion, n, Retention Money, Plant, Section, day, foreign currency currency and writing. What in the 3rd Edition was referred to (but not defined as) "Certificate of Completion", is now defined as the Taking-Over Certificate. Certificate. "Constructional Plant" has now become Contractor's Equipment. The only definition that that has not been repeated in the 4th Edition Edition is "Approved". This definition definition has essentially essentially been overtaken overtaken by clause 1.5 (Notices, Consents etc) which requires approvals to be in writing. It should be noted that all the definitions are subject to the opening words "except where the context otherwise requires". Sub-clauses 1.2 and 1.4 are taken from the 3rd Edition; sub-clauses 1.3 and 1.5 are new. 1.1 (a)(i) (a)(i) "Employer" "Employer" and and "Contract "Contractor" or" - If the the Contract Contract Agreement Agreement has has (a)(ii) (a)(ii) Been entered entered into, "Employe "Employer" r" and "Contractor "Contractor"" are already defined defined in that that Agreement and thus in these conditions. Naturally, the parties must ensure ensure that the entries in Part II and the Agreement are identical. The Contractor's ability to assign is restricted by clause 3.1 (Assignment of contract) whereby no part of the contract may be assigned without the prior consent of the Employer. Employer. Under that clause, clause, the consent consent "shall be at the sole Page 33 of 264
discret discretion ion of the Employer". Employer". Thus, Thus, the Employer Employer has the right to refuse refuse an assignme assignment nt on any grounds grounds.. The Contrac Contractor tor's 's consent consent to an assignme assignment nt is howev however er subj subjec ectt to clau clause se 1.5 1.5 (Not (Notic ices, es, cons consent entss etc) etc) wher whereb ebyy "any "any such such consent ... shall not be unreasonably withheld or delayed". Thus, the Employer's ability to assign is greater than that of a Contractor. It is submitted that bona fide concern over the financial standing of the Employer's proposed assignee would be reasonable reasonable grounds for refusing refusing consent. consent. It is undoubtedly undoubtedly right that having having carefully selected a Contractor to execute the works, the Employer should have a right of veto over any proposed assignment. An attempted assignment without the requisite consent would, in English law at least, be ineffectiv ineffective. e. Again under English English law, an assignment assignment by an Employer Employer with consent would not relieve that Employer of a primary obligation to pay the Contractor. The Engineer's contract of engagement would also also normally need to be assigned or novated to the new Employer. (a)(i (a)(iii) ii) "Subcon "Subcontra tracto ctor" r" - Under Under clause clause 4.1 (Subcontr (Subcontract acting) ing),, it should should be noted noted that the Contractor is not required to obtain consent for the provision of labour. Thus, a labour-only subcontractor does not fall within the definition. (a)(iv) (a)(iv) "Engineer" "Engineer" - By clause 1.3 (Interpre (Interpretatio tation), n), the Engineer may be a firm, a corporation corporation or other organisati organisation on having legal capacity. capacity. The Engineer Engineer must be named in Part II. It is a new feature of the 4th Edition that there is no ability in the Employer to replace the Engineer. In the 3rd Edition and ICE 5th and 6th, there there is defined defined the "Engin "Engineer eer appoint appointed ed from time to time by the Employe Employer". r". The present definition will not be a problem if the Engineer is named as a firm; however, the Engineer will will often be a named individual. According to the Guide Guide issued by FIDIC on the 4th Edition, the reason for this change from the 3rd Edition is that the identity of the Engineer (and his reputation) has been a factor in the calculation calculation of the Contractor's Contractor's tender. tender. This, it is submitted, submitted, is a mistake. mistake. Whilst it is certainly certainly true that a Contractor Contractor might well price work differently differently if the Engineer is a respected independent professional on the one hand rather than a government department's Chief Engineer on the other, the functioning of the contract is so dependent upon the existence of an Engineer there must be a substantial risk of the project falling apart if its survival is dependent upon the parties' ability to agree a replacement Engineer in the event that the named Engineer Engineer died or otherwise otherwise ceased to act. If the parties parties were in dispute dispute at the time, the prospects for agreement must be limited. In theory, a dispute over the replacement Engineer would be one capable of resolution under the arbitration arbitration clause. However, in the the absence of an Engineer, it is difficu difficult lt to see how the dispute disputess procedur procedure e can commence commence.. It may be possible to draw a distinction between situations where the Engineer has died and other circumstances where he is simply failing failing or refusing to act. In the latter circumstances, the Engineer is still in existence and the disputes procedure can advance by default. default. If he is dead, there there does not seem seem to be any way forward forward without agreement between the parties. The Employer is obliged to try to replace him and obtain the Contractor's agreement, it is submitted. For a case on the Page 34 of 264
more traditional position, see Croudace v Lambeth (1986) 33 BLR 20, where the Court of Appeal held the Employer liable in damages for failing to replace the certifier after the retirement of the named person. A similar distinction may be made with regard to the powers delegated to the Engineer's Representative under clause 2.3 (Engineer's authority to delegate). If the Engineer is alive, it is arguable arguable that the Engineer's Representativ Representative's e's powers are unimpaired. However, the Contractor's Contractor's ability to question any communication of the Engineer's Representative by reference to the Engineer under clause 2.3(b) could effectively bring the Engineer's Representative's powers to an end. If the Engineer died or otherwise ceased to act and the parties are unable to agree to a replacement, the effects, it is submitted, would be as follows:(1) (1) The The Empl Employ oyer er woul would d not not be in in breac breach h of his his obl oblig igat atio ion n to ens ensur ure e that that the the Engineer exercises his functions provided that he has taken reasonable steps to propose an alternative alternative Engineer and has not been unreasonable unreasonable in refusing refusing any nominee of the Contractor. Contractor. Compare clause 69.1 (Default of Employer) Employer) item (b) "interfering with or obstructing ...any such certificate". (2) (2) Nor Nor would would the the Emplo Employe yerr be in breac breach h for fail failin ing g to pay the the Contr Contrac acto torr in the absence of interim certificates. The obligation would probably be to pay when the works were complete. (3) (3) Clau Clause se 66.1 66.1 (Rele Releas ase e from rom Perf Perfor orm manc ance) is not not appr approp oprriate iate as any any impossibility is not "outside the control of both parties". Thus, it may be arguable that the fundamental obligations of the parties remain intact:(i) the Con Contracto ctor's obligation under clause 8.1 (Cont ontractor's general eral responsibilities) to execute and complete the works survives; and (ii) (ii) the obli obliga gati tion on of the the Em Empl ploy oyer er to pay pay for thos those e work workss as expr expres esse sed d in Article 4 of the Contract Agreement or as stated in the Letter of Acceptance or by implication will also survive. The Employer may, however, have no obligation to make any payment until the works are complete. (4) (4) In the the even eventt of any any delay delay whi which ch is is not the the res respon ponsi sibi bilility ty of the the Contr Contract actor or,, time time woul would d be at larg large e beca becaus use e of the the abse absenc nce e of the the Engi Engine neer er to gran grantt extensions of time. If all the delay was the Contractor's responsibility, it may be arguabl arguable e that that clause clause 47 (Liqui (Liquidat dated ed damages damages for delay) delay) would would contin continue ue to operate as it is not dependent upon the existence of the Engineer, who is not mentioned in the clause. However, substantial completion is certified by the Engineer. Engineer. The Contractor Contractor could be liable for breach of an obligation to complete within a reasonable time, once time was set at large. Thus it is just conceivable that a project could limp onwards without an Engineer. Plainly, Plainly, it is most unsatisfactory unsatisfactory and an Employer might be well advised, having exha exhaus uste ted d atte attemp mpts ts to agre agree e a new new Engi Engine neer er simp simply ly to appo appoin intt one one and and Page 35 of 264
thereafter argue, when the Contractor accepts interim payment as certified by the Engineer, that the Contractor has effectively consented to the new Engineer. For a discussion on when the Engineer's role comes to an end and he is functus officio, see under clause 2.1 (Engineer's duties and authority). See also the comments under clause 67.1 (Engineer's decision). (a)(v) (a)(v) "Engineer's "Engineer's Representat Representative" ive" - The Engineer's Engineer's Representati Representative ve is referred referred to in only three other clauses: clause 2 (Engineer and Engineer's Representative) which deals with the delegation of powers by the Engineer to his Representative; clause 13.1 (Work to be in accordance with contract) whereby the Contractor is obliged obliged to take instructions instructions from the Engineer's Engineer's Representative Representative and clause 15.1 (Contractor's superintendence) on the same subject. In view of the delegation provision, express mention of the Engineer's Representative is unnecessary. (b)(i) (b)(i) "Contr "Contract act"" - There There is no signifi significanc cance e in the order of contrac contractt document documentss given here. See clause 5.2 (Priorit (Priorityy of contract documents). documents). The The reference reference in earlier editions to a "Schedule of Rates and Prices, if any" has not been repeated in this edition. edition. It should be noted that the term "Contract" includes includes the Drawings Drawings and it is therefore arguable that the term includes future drawings. In order to make sense of expressions such as "increase or decrease the quantity of any work included in the Contract" in clause 51.1 (Variations), it is necessary to apply the exception in the opening words of the current sub-clause: "except where the context otherwise requires". (b)(i (b)(ii) i) "Specif "Specifica icatio tion" n" - As the specifi specificat cation ion includes includes any variatio variations ns and as the specificatio specification n is part of the contract, contract, the contract contract is itself variable. variable. Thus, strictly strictly speaking, the expression "increase or decrease the quantity of any work included in the Contract" Contract" in clause 51.1 (Variations) (Variations) is somewhat somewhat circular. circular. Equally, Equally, the definition of Works is defined by reference to the contract and thus incorporates variability. It must be doubted doubted that this point is ultimately of great significance. (b)(i (b)(iii) ii) "Drawi "Drawings" ngs" - The term is very very widely widely defined. defined. The inclus inclusion ion of samples samples,, patents and models is perhaps surprising and produces curious results if taken literally. For example, under clause 6.1 (Custody and supply of drawings and documents), the Contractor is to provide for copies. This is one of the occasions when the opening words of this sub-clause, "except where the context otherwise requ requir ires es", ", will will be most most rele releva vant nt.. It is also also impor importa tant nt to appr apprec ecia iate te that that this this definition is not limited to drawings etc in existence at the time time the Contract is entered into but refers to all future drawings. (b)(iv) (b)(iv) "Bill of Quantities" Quantities" - Surprisingly, Surprisingly, the only other reference reference to the prices in the Bill of Quantities is in clause 12.1 (Sufficiency of Tender): there is no express indication at all that the prices are to be used for valuation other than in relation to variations. See in particular clause 55 (Quantities) and clause 56 (Works to be measured). The 4th Edition no longer contains a reference to the Schedule of Rates.
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(b)( (b)(v) v) "Ten "Tender der"" - It is impo import rtan antt to note note that that the Tende Tenderr is a docu docume ment nt "as accepted accepted by the Letter of Acceptance". Acceptance". Thus, it is not necessarily necessarily the tender as submitted submitted by the Contractor Contractor but the result of any negotiation negotiation prior to the placing of the order. Any programme included in the tender will become part of the contract as the tender is a contract document: for diccussion of this see under clause 14.1 (Programme to be submitted). (b)( (b)(vi vi)) "Let "Lette terr of Accept Acceptanc ance" e" - Ther There e is no speci specifified ed form form for for the the Lett Letter er of Acceptance and careful attention must be paid to its contents, particularly in view of the priority given to the Letter of Acceptance by clause 5.2 (Priority of contract documents). documents). It is second only only to the Contract Contract Agreement Agreement which is an optional optional document. It is important to ensure that the Letter of Acceptance matches the tender or, if there have been subsequent negotiations, an amended version of that tender. Otherwise, the Letter of Acceptance would be no more than a counter counter-of -offer fer which which would would requir require e a furthe furtherr accept acceptanc ance e from from the Contra Contracto ctor r before a contract was formed. As "the Tender" is a contract document, conflict would result if the tender was not amended. It is also important to ensure that, if a Contract Agreement is used, the Letter of Acceptance and Contract Agreement also match. There are no terms in the contract which govern the Letter of Acceptance but it is used extensively as a trigger for periods of time by which certain activities have to be performed. These are as follows:Clause 10.1 (Performance security) - 28 days Clause 14.1 (Programme to be submitted) - period prescribed in Part II Clause 14.3 (Cashflow estimate to be submitted) - period prescibed in Part II Clause 41.1 (Commencement of Works) - period stated in the Appendix to Tender Clause 57.2 (Breakdown of lump sum item) - 28 days The importance of the Letter of Acceptance as a starting point in the conditions of contract reinforces the importance of ensuring that the Letter of Acceptance is an acceptance and not a counter-offer. It would make a nonsense of the various time periods if they were running before a contract had been entered into. (b)(vii) "Contract Agreement" - A form of Agreement is provided and referred to at clause 9.1 (Contract Agreement). Both the definition of Contract at clause 1.1(b) (i) and clause 5.2 (Priority of contract documents) allow for further documents to be incorporated incorporated as contract contract documents documents.. The Contract Contract Agreement Agreement should should be amended to record such further documents. (b)(viii) "Appendix to Tender" - As commented under the definition of Tender above, there may be negotiations which alter the contents of the Tender and the Appendix to Tender before before the contract contract is entered into. This definition definition therefore refers to the Appendix as amended. (c)(i) (c)(i) "Comme "Commencem ncement ent Date" Date" - This This definiti definition on determi determines nes the date upon upon which time begins begins to run on the project. The notice to commence commence is not in a specified form. See generally the commentary to clause 41 (Commencement of Works). Page 37 of 264
(c)(ii) (c)(ii) "Time for for Completio Completion" n" - This is is the contractua contractuall completion completion date date as set out in the contract subject to any extensions under clause 44. Substantial completion must be achieved under clause 48.1 (Taking-over certificate) by this date, failing whic which h liqu liquid idat ated ed dama damage gess will will be payab payable le under under claus clause e 47.1 47.1 (Liq (Liqui uida date ted d damages for delay). (d)(i) (d)(i) "Tests "Tests on Completi Completion" on" - These tests tests will often often includ include e commissi commissioni oning ng and are referred to in clause 48 (Taking-Over) as being a prerequisite to substantial completion and the issue of a Taking-over certificate for the whole or any part of the works for which such a test is prescribed. (d)(ii) (d)(ii) "Taking-Over "Taking-Over Certif Certificate" icate" - No form is prescrib prescribed ed for this certificat certificate: e: clause 48.1 (Taking-Over Certificate) only specifies that it should state the date on which, in the Engineer's opinion, the works were substantially completed. (e)(i) (e)(i) "Contr "Contract act Price" Price" - It is import important ant to appreci appreciate ate that that the Contrac Contractt Price is a fixed sum as stated in the Letter of Acceptance and the term does not include any adjustments adjustments to the contract contract price for variati variations ons etc. For more on this point, point, see the commentary under clause 69.4 (Contractor's entitlement to suspend work). (e)(i (e)(ii) i) "Reten "Retentio tion n Money" - For comment commentary ary on the uncerta uncertaint intyy of the retentio retention n provisions, see under clause 60.3 (Payment of Retention money). (f)( (f)(i) i) "Wor "Works ks"" - This This term term is given given an adju adjust sted ed mean meanin ing g unde underr clau clause se 49.1 49.1 (Defec (Defects ts Liabil Liability ity Period) Period).. The defini definitition on of Tempor Temporary ary Works Works is not withou withoutt diffi difficu cultltyy as set set out out under under (f)( (f)(iiiii) i) belo below. w. As ther there e are are dange dangers rs in incl includ uding ing Tempor Temporar aryy Work Workss in the the defin definititio ion n of Work Works, s, the the draf drafts tsma man n has has taken taken the the precaution of putting flexibility ahead of certainty with the words "or either of them as appropriate". This reinforces the opening words of the sub-clause "except where the context otherwise requires". (f)(ii (f)(ii)) "Perman "Permanent ent Works" Works" - This definit definition ion now includ includes es express express referen reference ce to Plant, a recognition of the growing amount of machinery etc. included in civil engineering projects. (f)( (f)(iiiii) i) "Tem "Tempo pora rary ry Work Works" s" - This This defi definit nitio ion n is circ circul ular ar with with the the defi defini nitition on of Cont Contrract actor's or's Equi Equipm pmen entt. As noted oted in the comm comme entar ntaryy to clau clause se 41 (Commencement of Works), this is unfortunate as the failure to commence the Works is a ground for determination under clause 63.1 (Default of Contractor). See clause 31.2 (Facilities for other contractors) for the obligation to make the temporary works available to other contractors and clause 32.1 (Contractor to keep site clear) and 33.1 (Clearance of site on completion) for the obligation to remove temporary work. It should be borne borne in mind that that temporary works are not always removed, for example temporary linings to tunnels or temporary roads. By clause 54 (Contractor's Equipment, Temporary Works and materials) there is
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an obligation upon the Contractor to provide temporary works exclusively for the project. (f)(iv) (f)(iv) "Plant" "Plant" - This is a new new definition definition not not found in in the 3rd Edition Edition or ICE 5th or or 6th. It might be confusing as plant is normally regarded as meaning Contractor's machinery. Instead, this means the plant to be installed as part of the permanent works. The Contractor's machinery is now defined as Contractor's Contractor's Equipment. (f)(v) (f)(v) "Contractor' "Contractor'ss Equipment" Equipment" - In the 3rd Edition Edition and and ICE 5th, 5th, the Contra Contractor's ctor's machinery is called "Constructional Plant". The current definition is circular with the definition definition of Temporary Temporary Works. Works. As noted in the commenta commentary ry to clause 41 (Commencement of Works), this is unfortunate as the failure to commence the Works is a ground for determination under clause 63.1 (Default of Contractor). ICE 6th has adopted the term Contractor's Equipment. (f)(vi) (f)(vi) "Section" "Section" - The The Works Works may be broken broken down down into into Sections Sections and and parts. parts. The difference is that a Section is specifically identified in the contract whereas a part, which is not defined, seems to be any other sub-division including a sub-division of a Section Section.. See this distinct distinction ion in operation operation in clause clause 47.2 47.2 (Reduc (Reductio tion n of liquidated damages), clause 48.2 (Taking over of sections or parts) and clause 48.3 (Substantial completion of parts). (f)(vi (f)(vii) i) "Si "Site" te" - This This definitio definition n is a varian variantt upon the form form used in the 3rd Edition Edition and ICE 5th. This definition falls into two parts:(a) (a) and
Plac Places es prov provid ided ed by the the Emplo Employe yerr where where the the Works Works are are to be execu execute ted; d;
(b) (b) Othe Otherr place placess which which are are speci specififical cally ly desi designa gnate ted d in the the contr contract act as as form formin ing g part of the site. Compare 3rd Edition and ICE 5th which break down as follows:(a) (a)
place placess on, on, unde underr in or thr throu ough gh whi which ch wor works ks are are to to be exec execut uted ed;; and and
(b) (b) place placess provi provide ded d by the Emp Emplo loye yerr or spec specifific ical ally ly desi design gnat ated ed in the the cont contra ract ct as forming part of the site. The essential essential difference difference is that (a) is qualified qualified by the words "provided "provided by the Employer" in this Edition but (b) contains those words in the 3rd Edition and ICE 5th. One significance significance of this is that the Employer Employer cannot cannot be in breach of clause 42.1 (Possession of site and access thereto) by failing to give possession of the site if the site is itself itself defined defined as places provided provided by the Employer. Employer. As the Site will normally be defined in the contract, this should not normally give rise to problems. Nor, it is submitted, submitted, should the omission of the words "on, under, in or through" through" create difficulti difficulties. es. If the failure failure to give possession possession is the failure of the Employer to organise the removal, for example, of an underground pipe or cable conduit, even though the possession of the surface has been given to the Page 39 of 264
Contractor, the Contractor's claim under clause 42.2 (Failure to give possession) shou should ld not not be hamp hamper ered ed by the the abse absenc nce e of thes these e word words. s. See See also also the the commentary under clause 42.1 (Possession of Site and access thereto). See the comments under clause 42.1 for further discussion of the term "Site". ICE 6th has added the "other places...designated" formula to the ICE 5th definition. (g)(i) (g)(i) "cost" "cost" - This This defini definitio tion n for the the first first time time expres expressly sly excl excludes udes prof profit. it. Thus, Thus, the only occasion on which the Contractor Contractor is allowed allowed his profit profit by the contract is under clause 69.3 (Payment on termination) where, upon the default of the Employer, he is entitled to claim "the amount of any loss or damage". This definition has been adopted with minor amendments by ICE 6th. However ICE 6th expressly permits profit on three occasions in the contract in relation to any additional temporary or permanent works. (g)( (g)(iiii)) "day" "day" - This This edit editio ion n has has adopt adopted ed a poli policy cy of giving giving period periodss of time time in multiples of seven days whereas the 3rd Edition used units of 30 days for longer periods. Compare, for example, clause 67 (Settlement of disputes) in the two editions. (g)(iii) (g)(iii) "foreign "foreign currency" currency" - It is important important to note that foreign foreign currency currency does not mean mean a curr curren ency cy othe otherr than than the the curr curren ency cy in whic which h the the Cont Contra ract ct Pric Price e is expressed expressed but any other currency currency than the the local currency. currency. Thus, the Contract Contract Price could could itself be expressed expressed in a foreign currency. currency. Part II provides provides various various amendments to clause 60 and clause 72.2 in relation to currencies. (g)(iv) (g)(iv) "writing" "writing" - This definition definition is of particular particular relevance relevance to clause 1.5 (Notices, (Notices, consents etc) which must be in writing. CLAUSE 1.1 (Definitions) The following definitions are new to the 1992 re-print:(e)(iii) (e)(iii) "Interim "Interim Payment Certificat Certificate" e" means any certificate certificate of payment issued by the Engineer other than the Final Payment Certificate. (iv) "Final Payment Certificate" Certificate" means the certificate of payment issued by the the Engineer pursuant to Sub-Clause 60.8. Whilst it is no doubt a good idea to have defined terms for interim and final certificates, the definition of Interim Payment Certificate raises the question as to which clauses other than clause 60.2 (Monthly payments) will give rise to interim payment certifi certificates. cates. The definition definition could and, it is submitted, submitted, should should simply have referred to certificates issued under sub-clause 60.2. Other Other certi certififica cate tess to be issu issued ed by the the Engi Enginee neerr incl include ude the the Taki Taking ng-O -Over ver Certificate under clause 48 for the whole or part of the works, a certificate of the Contractor's default under clause 63.1 (Default of Contractor) and the Defects Liability Liability Certificat Certificate e under clause 62.1. These all lead to payments payments being made Page 40 of 264
but are not not the the cert certifific icat ates es for for paym paymen entt them themse selv lves. es. Unde Underr claus clause e 59.5 59.5 (Certification of payments to nominated Subcontractors), the Engineer certifies payment to nominated subcontractors where the Contractor fails to supply proof that previous sums certified in relation to nominated subcontractors' work have been passed on. on. Such certific certificates ates fall fall within within the definiti definition on of Interim Interim Payment Payment Certificate Certificates. s. The certificate certificate under 63.2 (Valuatio (Valuation n at date of terminatio termination) n) is a certif certifica icate te of value value only and not a certifica certificate te for payment. payment. In contrast contrast,, the certificate under sub-clause 63.3 (Payment after termination) is a certificate of payment and falls within the definition of Interim Payment Certificate despite being final in nature. Curiously, a certificate under Sub-Clause 63.3 could show a balance in favour of the Employer. However, such a certificate is deemed to be a debt and is not strictly therefore a certificate for payment. Within Within clause 60 (Certificates (Certificates and payment) payment) there are certificat certificates es under subclause clause 60.3 60.3 (Pay (Payme ment nt of rete retent ntio ion n mone money) y),, sub-c sub-cla lause use 60.5 60.5 (Sta (State teme ment nt at completion) and under sub-clause 60.6 (Final statement) where part only of the Contractor's draft final statement is not in dispute. Clause 60.3(a) 60.3(a) has always raised raised the question whether whether the release release of the first half of the Retention Money following the issue of the taking-over certificate should be the subject of a special payment certificate or included in the next monthly monthly interim interim certific certificate ate.. Practi Practice ce varies but more often often than than not, not, the first first moiety moiety of retention is released released in the next interim certifi certificate. cate. The fact that the certification falls within the definition of Interim Payment Certificate, does not resolve the issue. In one respect respect,, Contract Contractors ors are ill-ser ill-served ved by this this amendm amendment ent.. Where Where the practice practice would otherwise otherwise have been to issue a special special certificate certificate for the release of retention, the Contractor was able to argue that he was entitled to immediate payme payment nt by the the Em Empl ploy oyer er.. Now, Now, such a certi certififica cate te is an Inte Interi rim m Paym Payment ent Certificate and the Employer is given 28 days under Clause 60.10 (Time for payment). The The entr entryy in the the Appe Append ndix ix for for the the "m "min inim imum um amou amount nt of inte interi rim m paym paymen entt certificates" applies only to clause 60.2 and does not therefore restrict small payments under other payment clauses despite the application of the definition. As is plain from the list of the amendments contained in the 1992 re-print, and the extracts set out later in this supplement, the definition has not been used wherever wherever it is applicab applicable. le. The term term is now used in sub-cla sub-clause usess 60.2, 60.4 (Correction of certificates) and 60.10 (Time for payment). Perhaps surprisingly, the result is that three interim payment certificates could be issued in the same month under clauses 60.2, 60.3 (Payment of Retention Money) and 59.5 (Certification of payments to nominated Subcontractors). Under clause 69.1 (Default of Employer), interference with the issuing of certain certif certifica icates tes is a ground ground for the Contrac Contractor tor to termin terminate ate his employm employment ent.. The Page 41 of 264
relevant relevant certificates certificates are those for which time-limit time-limitss for payment are given under clause 60.10 (Time for payment). The effect of the definition of Interim Payment Certificate and the application of that definition to a number of certificates other than monthly certificates under clause 60.2 (Monthly payments) has been the extention extention of the scope of the interference interference ground for terminati termination. on. For example, example, interference with a certificate under clause 59.5 (Certification of payment to nominated Subcontractors) would not have been a ground for determination hitherto. Whilst interference with with any form of certification certification is plainly contrary to the spirit of the contract, it is unlikely that the draftsman intended to enlarge the ground for termination to such an extent. 1.2: 1.2: This This rule rule of int inter erpr pret etat atio ion n will will on occas occasio ion n be sign signfifica cant nt.. For For exam exampl ple, e, clause 12.2 is entitled "Adverse physical obstructions or conditions" but the word "advers "adverse" e" does not feature feature in the clause. clause. Sim Simila ilarly rly,, the titles titles of clause clause 63 (Default of Contractor) and clause 69 (Default of Employer) both include the word "default" which is not found in either clause. This may be just as well given the fact that "default" is used as an alternative to breach of contract in clause 40.1 (Suspension of work), clause 44.1 (Extension of time for completion) and clause 51.1 (Variations). It is always questionable whether any tribunal is capable of entirely ignoring such clear evidence of the intentions of the draftsman. 1.3: 1.3: Clause Clause 1.1(a 1.1(a)( )(iv) iv) defi defines nes the the Engineer Engineer as "the "the person person appoi appointe nted.. d...". .". This This sub-clause is a reminder in relation to the Engineer that the Employer may name a firm of Engineer Engineerss as distin distinct ct from an indivi individua dual.l. In view of the lack of any provision for the replacement of an Engineer who dies or retires, this course may be adopted more often. 1.4: 1.4: 5th.
This This is a stand standar ard d clause clause and and was was conta contain ined ed in the the 3rd 3rd Editi Edition on and and ICE
1.5: 1.5: This This claus clause e is new and and puts puts beyon beyond d doubt doubt what what may may have have been been impli implicit cit from clause 68 (Notices) (Notices) that notices, consents etc must be in writing. Writing is also required by the following clauses:clause 2.3
Engineer's delegation to Engineer's Representative
clause 2.5
Engineer's instructions
clause 6.1
Engineer's requests for further drawings
clause 6.2
Authorisation of persons to inspect drawings
clause 14.1 Contractor's general description of methods etc clause 17.1 Setting out clause 31.2 Engineer's request request for facilities for other Contractors. Page 42 of 264
clause 48.1 Undertaking to finish outstanding work clause 54.5 Requests regarding hire of Contractor's Equipment clause 56.1 Request for Contractor to attend clause clause 59.5 59.5 Contra Contracto ctor's r's statem statement ent of cause cause for withhol withholdin ding g payment payment from from nomi nomina nate ted d Subc Subcon ontr trac acto torr and and noti notifi fica cati tion on by Cont Contra ract ctor or to nomi nomina nate ted d Subcontractor. clause 60.7 Contractor's discharge. clause 63.1 Warning to Contractor. clause 67.1 Reference of dispute to Engineer. There are additional references to written instructions but clause 2.5 (Instructions in writing) makes this plain. A comparison comparison of this clause with clause 2.6 (Engineer to act impartially) impartially),, clause 67.1 (Engineer's decision), clause 67.3 (Arbitration) and clause 68 (Notices) reveal revealss an incons inconsist istenc encyy in the use of terms terms such as notice notices, s, consents consents etc. Table 6 indicates the clauses in which the various terms appear.
"Any such consent, approval, certificate or determination shall not unreasonably be withheld withheld or delayed. delayed."" Notices Notices are excluded excluded from from this list. list. Notices Notices are given given under some 37 clauses clauses by the Employer, the Engineer and the Contractor. Most commonly, it is the Engineer notifying the Contractor of a determination of costs and/or extension of time. A determination is covered by this clause and thus may not not unre unreas ason onab ably ly be with withhe held ld or dela delaye yed. d. Neit Neithe herr the the noti notice cess nor nor the the determinations are directly covered by clause 2.6 (Engineer to act impartially) but they are plainly actions affecting the rights of the parties and are thus covered by clause 2.6(d). 2.6(d). Notices Notices by the Contractor Contractor or the Employer Employer are normally normally given in their own best interest, and if no time frame is specified, none is normally necessary. necessary. As this part of the the clause refers refers as much to the Employer Employer and the Contractor as to the Engineer, it is significant in relation to clauses such as clause 10.1 (Performance security) as the right of the Employer to withhold his approval is subject to the test of reasonableness. Under clause 3.1 (Assignment of contract), the Employer is given an absolute discretion to withhold his consent "notwithstanding the provisions of sub-clause 1.5".
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CLAUSE 2 : Obligations of the Engineer
This clause sets out the powers and obligations of the Engineer and his team. The Engineer will carry out his duties and exercise the authority given to him by the contract but is to obtain the prior approval of the Employer before exercising his authority authority in relation relation to the list of items in Part II. The Contractor Contractor does not have to check that the necessary approval has been given. The Engineer has no general authority to relieve the Contractor of any of his obligations. The Engineer may appoint and delegate duties and/or authority to the Engineer's Representative. Delegation to the Engineer's Representative must be in writing and must be copied to the Employer and the Contractor before it takes takes effect. Instructions, etc given by the Engineer's Representative after powers have been delegated will have the same effect effect as if given by the Engineer. Engineer. However, However, the Engineer Engineer may reject work work despite the failure failure of the Engineer's Engineer's Representat Representative ive to do so. The Contractor may query any action of the Engineer's Representative with the Engineer who may vary or overrule it. The Engineer and his representative may appoint assistants and inform the Cont Contra ract ctor or of thei theirr duti duties es and and auth author orititie ies. s. The The assi assist stant antss may may only only give give instruc instructio tions ns necessa necessaril rilyy within within the scope scope of their their duties duties and to record record their acceptance acceptance of work, material material etc. Such instructions instructions are treated treated as having been given by the Engineer's Representative. Instructions must be in writing unless the Engineer finds it necessary to give an instruction orally. Such an oral instruction instruction will only be treated as an instruction if either the Engineer confirms it in writing or the Contractor confirms it in writing within 7 days and the Engineer does not object within a further 7 days. The Engineer must act impartially in exercising his discretion. His decisions may be reviewed by an arbitrator. This clause has been substantially re-cast and reorganised. Sub-clauses 2.4 and 2.6 are wholly new to the 4th Edition. 2.1: 2.1: It is a nove novell feat featur ure e of the the 4th 4th Edit Editio ion n that that the the Em Empl ploy oyer er is unabl unable e to replace the Engineer should he die or for any other reason cease to carry out his duties. For a discussion of this, see the commentary commentary to clause 1.1(a)(iv). 1.1(a)(iv). (a) (a) As the the Engin Enginee eerr is not not a part partyy to the the contr contrac act, t, thi thiss claus clause e must must impos impose e upon the Employer an obligation to ensure that the Engineer duly performs. Under English law, this duty is taken to be to ensure that the Engineer certifies where the contract requires a certificate or makes decisions where the contract gives gives the Engineer Engineer a choice whethe whetherr to act or not. The Employer Employer is not held responsible for the contents of the decision i.e. he has no obligation to ensure Page 44 of 264
that the Engineer acts correctly. He must, however, ensure that the Engineer is free to act fairly and correctly. Thus there will not be a breach of contract on the the part of the Employer on every occasion where an arbitrator reverses a decision of the Engineer. Engineer. For a discussion discussion of one practical practical consequence consequence of this, see the commentary under clause 63.1 concerning the consequences if an Employer terminates on the strength of a certificate of default by the Contractor given by the Engineer where that certificate is found to be incorrect by an arbitrator. The express requirement in sub-clause 2.6 that the Engineer act impartially adds to the the Em Empl ploy oyer er's 's duty duty in rela relatition on to procu procuri ring ng prop proper er certi certififica catition on.. As the the Engineer is not a party to the contract, the clause must impose an obligation upon the Engineer's employer. It is therefore submitted that the Employer is given the additional responsibility of ensuring that the Engineer is not only free to act impartially but that he does so. A distinction has to be drawn between fairness or correctness and impartiality. Because so many of the Engineer's decisions are discretionary, there is often no objectively correct decision. A decision will ultimately be correct if it goes unchallenged or if an arbitrator does not feel it necessary to overturn that decision. Impartiality is more concerned with the means by which the Engineer arrives at his decision. He is obliged to approach the matter in an even-handed way, an obligation reinforced by the requirement for due consultation. He must weigh in his mind the interests both of the Contractor and the Employer without regard to the fact of engagement by the Employer and leaving out of account any pressure brought to bear either by the Employer directly or by the potential consequences of a particular decision under his terms of engagement. It is submitted that the Employer will be in breach of his obligation not only if he endeavours to cause the Engineer to favour his interests over those of the Contractor but also if the Engineer is obviously doing so and the the Em Empl ploye oyerr fail failss to take take step stepss to reme remedy dy the the posit positio ion. n. Tech Techni nica calllly, y, the the Employer would also be in breach if he failed to take steps if the Engineer was favouring the Contractor. Such a state of affairs would be very unlikely to last long and is equally unlikely to be the subject of complaint by the Contractor. The liability of a certifier such as the Engineer directly to the Contractor has been the subject of consideration by the Courts over the years. The House of Lords in Sutcliffe v Thackrah (1974) AC 727 held that a certifying Architect did not have the sort of immunity against a disgruntled contractor that a judge or arbitrator would enjoy. More recently, the Court of Appeal in Pacific Associates Inc v Baxter (1989) 3 WLR 1150 held that the Engineer under a much-amended much-amended form of FIDIC did not owe a duty of care to the contractor. Although that decision may have have been een inf influenc uenced ed by the the part partic icul ular ar word wordin ing g of the cont contra ract ct unde under r consideration, a Hong Kong court in Leon Engineering and Construction v Ka Duk Investment Co. Ltd (1989) 47 BLR 139 came to the same conclusion on a standard form with no unusual wording. In both cases, the court was influenced by the existence of an arbitration procedure, the purpose of which was to enable the contractor to obtain redress in the event that the certifier made a mistake. Leading cases relevant to the Employer's duty in relation to the Engineer include Perini Corporation v Commonwealth of Australia (1969) 12 BLR 82 when the Page 45 of 264
Supreme Court of New South Wales found implied terms that the Employer must not interfere with the proper performance by the certifier of the duties imposed upon him by the contract and that the Employer is bound to ensure that the certifier performs those duties. The English Court of Appeal came to similar decisions in Croudace v Lambeth (1986) 33 BLR 20 and Lubenham Fidelities v South Pembrokeshire District Council (1986) 33 BLR 39. In the latter case, the Court of Appeal expressed the opinion that a certifier acting in bad faith would probably make himself directly liable to the contractor. The Perini and Lubenham cases are also authority for the view that the Employer does not warrant the correctness of the certifier's decisions. (b) (b) It is righ rightt for for the Em Empl ploy oyer er to make make know known n to the the Cont Contrract actor from from the the outset any terms in the Engineer's terms of engagement which could impact upon the Contractor. Contractor. Thus, this this clause provides provides for disclosure disclosure in Part II of any prior approvals approvals that the the Engineer needs needs in order to act. This clause clause should not however be treated as an encouragement encouragement for such obstacles obstacles to be placed in the Engineer's way. These conditions do not encourage the requirement of prior approval as clause 69.1 (Default of Employer) makes a refusal of such an approval in relation to a certificate, a ground for termination by the Contractor. It is also also sensi sensibl ble e that that the the Cont Contra ract ctor or is not not obli oblige ged d to check check that that necess necessar aryy approval approvalss have been obtaine obtained d for any given action action by the Engineer. Engineer. If the Engineer acts without such prior approval, that will be a matter between the Engineer and the Employer and may well amount to a breach of the Engineer's terms of engagement. It is an innovation of these conditions that the Engineer is obliged to consult with the Employer and the Contractor under some 21 clauses: such consultation does not in any way relieve the Engineer of his obligation to act impartially under clause 2.6 (Engineer to act impartially). Part II provides an optional clause to deal with emergency situations allowing the Engineer to instruct without obtaining the prior approval of the Employer. This clause is not, it is submitted, submitted, necessary and indeed runs counter to the important principle that the Contractor need not concern himself with whether the Engineer has in fact obtained obtained approval. In this context, see clause 64.1 (Urgent remedial work). A question raised by this approvals procedure is whether the absence of a requ requir irem emen entt for for appr approv oval al may may be take taken n as eviden evidence ce that that the the Engi Engine neer er is authorised to act as agent for the Employer in all other respects. The answer, it is submitted, is in the negative. The purpose of the inclusion in Part II of any restraints upon the Engineer is by way of warning to the Contractor and is confined to limits upon "the authority specified in or necessarily to be implied from the Contract". Contract". The lack of any general general agency is emphasised emphasised by item (c) of this sub-clause. So, for example, the Engineer would not have authority to order acceleration by the Contractor other than in accordance with clause 46.1 (Rate of Progress). Accordingly, the Contractor must be careful to ensure that any action by the Engineer is either within the authority specified in or necessarily to be implied from the contract or expressly authorised by the Employer.
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This clause has been adapted by ICE 6th which has made the list of matters requiring approval determinative of the matters in respect of which the Engineer must must act act impa impart rtial ially ly.. Claus Clause e 2(8) 2(8) of ICE ICE 6th 6th requ requir ires es the the Engi Engine neer er to act act impartially in respect of all matters which are not so listed. (c) (c) As the the Eng Engin inee eerr is nor norma mallllyy cons consid ider ered ed to to have have a dua duall func functition on unde underr the the contract, to act as the Employer's agent in certain respects as well as certifier, potential potential problems may always arise as to the extent of the Engineer's Engineer's authority authority as agent. For example, example, if the Engineer Engineer were to ask or order order the Contractor Contractor to to accelerate other than in accordance with clause 46.1 (Rate of progress), the Cont Contra ract ctor or would would be unwi unwise se to comp comply ly with with such such orde orderr or requ request est with without out checking with the Employer that the Engineer was duly authorised to make such request on the Employer's Employer's behalf. behalf. Thus, in this clause, clause, it is made clear that the Engineer has no authority to waive any obligation of the Contractor. See also clause 7.3 (Responsibility unaffected by approval), clause 14.4 (Contractor not relieved of duties or responsibilities), clause 17.1 (Setting-out) and clause 54.8 (Approval (Approval of materials materials not implied) implied) for other examples. examples. See See also clause 61.1 61.1 (Approval only by Defects Liability Certificate). "Except as expressly stated in the Contract...". If the Engineer purports to waive strict compliance with the letter of the specification, for example under clause 17.1 (Setting-out) or clause 49.2 (Completion of outstanding work and remedying defect defects), s), the Contra Contracto ctorr has to decide decide whethe whether, r, by gratef gratefull ullyy accept accepting ing the offered short-cut, he remains exposed to a claim for breach of contract by the Employer, due to a lack of authority in the Engineer. The question is, therefore, whether any express right to waive is granted. Under clause 7.1 (Supplementary Drawings and Instructions) , the Engineer is given authority to issue instructions as necessary for the "proper and adequate execution and completion of the Works". Whilst Whilst the the use of the word word "adequate" "adequate" may lend some support support to an argument that an Engineer is intended to have a discretion to approve works which do not comply strictly with the specification, it is doubtful that a Contractor could demonstrate that any proposed short-cut was "necessary". The Contractor would, it is submitted, require a variation to be certain that the acceptance of substandard work could not be challenged later. The power to omit work is a clear example of an express exception: the Engineer is empowered to vary the work to set a lower standard than that set out in the specification and it is submitted that the Contractor may generally rely on such an instruction. See under clause 51.1 (Variations), however, for comment on the ability of the Employer to challenge variations. For further discussion on this subject, see under clause 13.1 (Work to be in acco accord rdan ance ce with with Cont Contra ract ct). ). See See also also the the clau clause sess deal dealin ing g with with the the rectification of defects and damage such as clause 17.1 (Setting-out), clause 20.3 (Loss or damage due to Employer's risks) and clause 49.2 (Completion of outstanding work and remedying defects). Under English law, there is a distinction to be drawn between obligations and liabilities. There comes a point in the degree of performance by the Contractor when when he has has suff suffic icie ient ntly ly fulf fulfilille led d the the requ requir irem ement entss of the the contr contract act that that the the "obligation" is replaced, in the event that 100% compliance does not occur, with a Page 47 of 264
secondary "liability" to pay damages for the shortfall. It may therefore be argued by a Contractor accused of breach of contract in respect of work approved by the Engine Engineer er that that,, in allow allowin ing g a shor shortt-cu cut, t, the the Engin Enginee eerr was was not not reli reliev evin ing g the the Contractor of any obligation. It must be recognised that this is a lawyer's point and one that would not necessarily find favour with arbitrators, even in England. Under all the standard forms of construction contract, it is difficult to determine at what point the Engineer or equivalent becomes "functus officio" or redundant. The answers answers may well be differe different nt for each of the Engineer' Engineer'ss roles. roles. As the Employer's agent, his power to issue instructions ceases at the latest when the Defects Liability Certificate is issued pursuant to clause 62.1 (Defect's liability certificate) certificate).. It is argued in the commentary commentary under under clause 13.1 (Work (Work to to be in accordance with the contract) that the Engineer's power to order variations should come to an end at substantial completion. As certifier, the Engineer's obligations continue through to the Final Certificate under clause 60.8 (Final certificate) which may not be issued for three months after the Defects Liability Certificate. As adjudi adjudicat cator, or, giving giving decisio decisions ns under under clause clause 67.1 67.1 (Engin (Engineer eer's 's decisi decision) on),, it seems that the Engineer has a role for as long as disputes may arise under the contract. This could mean for as long as any applicable law permits disputes to arise to the full extent extent of the relevant relevant limitation limitation periods. periods. Thus, for example, example, a defect arising in the works 5 years after completion could cause the Employer to seek to recover recover damages damages for breach breach of contra contract ct from the Contrac Contractor tor.. The Contractor could defend himself on the grounds that the defect arose from an error in design and the dispute should, according to clause 67.1, be referred to the Engineer Engineer for his decision. decision. If the Engineer Engineer refuses refuses to become involved, involved, the mechanism of clause 67 allows the dispute to go forward to arbitration by default. It is therefore submitted that there is no one moment in time at which the Engineer Engineer becomes functus functus but three three or more. Each function function of the Engineer Engineer must be considered individually. 2.2: 2.2: On many many proj projec ects ts,, part partic icul ular arly ly wher where e the the Em Empl ploy oyer er is a gove govern rnme ment nt department, it is the Engineer's Representative who is the real decision-maker and the effective Engineer under the project although he will report to and obtain signatures from the Engineer named in the contract, who may be a Government official official or employee. employee. The delegation delegation must be in writing. writing. Apart from from clause 1.1 1.1 (Defin (Definiti itions) ons),, the Engineer Engineer's 's Repres Represent entati ative ve is referr referred ed to in only only two two other other clause clauses: s: claus clause e 13 (Wor (Workk to be in accor accorda danc nce e with with cont contra ract ct)) wher whereb ebyy the the Contractor is obliged to take instructions from the Engineer's Representative and clause clause 15 (Cont (Contra ract ctor or's 's super superint inten endan dance ce)) on the the same same subj subject ect.. Thes These e references appear to be superfluous as the Engineer's Representative has no power without delegated authority under clause 2.3 and power thus delegated is not dependent upon an express mention in the relevant clause.
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It is implicit that the duty of impartiality under sub-clause 2.6 applies to the Engineer's Representative and that the powers to open up decisions contained in clause 67 (Disputes) apply to his decisions. These conclusions, it is submitted, follow from the nature of delegation: the actions of the Engineer's Representative are treated as being the actions of the Engineer. See also the right to query the Engineer's Representative's decisions under sub-clause 2.3. 2.3: 2.3: Normal Normally, ly, the the Engine Engineer er retain retainss powers powers to gran grantt extens extensions ions of of time, time, order order acceleration, value variations over a particular figure and issue certificates of default. default. He will also retain retain the power to make decisions decisions normally normally under clause 67.1 (Engineer's decision). Other items not usually delegated include the notice to commence, substantial completion, the Defects Liability Certificate, clause 60 (Payment) and clause 65 (Special Risks). A Contractor may be well advised to require a list of non-delegable powers to be included in Part II if he wishes to know that the crucial decisions will remain with the Engineer named in the tende tender. r. FIDI FIDIC' C'ss Guid Guide e sugge suggest stss that that any rest restri rict ctio ion n on dele delega gatition on in the the Engineer's terms of engagement should be disclosed. It is submitted that the Contractor Contractor is not entitled entitled to assume that authority authority has been delegated as notice to the Contractor is essential before a delegation takes effect. Contractors are therefore obliged to satisfy themselves on this point before acting on instructions from the Engineer's Representative. If the the Engi Engine neer er disa disagr gree eess with with a deci decisi sion on dele delega gate ted d to the the Engi Engine neer er's 's Repr Represe esent ntat ativ ive, e, ther there e is no power power under under the the contr contract act for for the the Engi Enginee neerr to countermand the decision unless the decision is questioned by the Contractor under item (b) of this sub-clause or either the Employer or Contractor requests a decisio decision n under clause clause 67.1 in which which case the matter matter may be reviewed. reviewed. The Engineer may, however, disapprove work etc which his representative did not disapprove. disapprove. The draftsman draftsman is at pains not to use the term term "approve" "approve" in clause 2.3(a) and thereby raises the question of whether an approval or expression of satisfaction by the Employer's Representative would disentitle the Engineer from instructing the Contractor to rectify work. In item (b), it is not clear to whom the word "he" refers i.e. whether it is the Cont Contra ract ctor or or the the Engi Engine neer er's 's Repr Repres esen enta tatitive ve who who has has the the power power to refe referr a decision of the Engineer's Representative to the Engineer for reconsideration. This is unfortunate as it is only this sub-clause and clause 67 (Settlement of disputes) which allow decisions to be altered, other perhaps than by variations or with the agreement of the the Contractor. The Engineer is obliged to respond but no time limit is given nor is such confirmation etc within the terms of clause 1.5 (Notic (Notices, es, Consents Consents etc) etc) which which prohib prohibitit unreasona unreasonable ble delay. As discuss discussed ed in clause 2.4 below, this could cause delay to the project for which there is no obvious category of extension of time under clause 44.1 (Extension of time for completion). Reference to the Engineer under this sub-clause will not amount to a request for a decision under clause 67.1 (Engineer's Decision) because a party requiring such a decision must make express reference to clause 67.1.
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Clause 61.1 (Approval only by Defects Liability Certificate) indicates that any approval by the Employer's Representative is not in in any event effective. Clause 13.1 (Work to be in accordance with contract) requires the Contractor to execute the the works works in stri strict ct accor accorda dance nce with with the the cont contra ract ct to the the satis satisfa fact ction ion of the the Eng Enginee ineer. r. If clau clause se 13. 13.1 has not been een del delegat egate ed to the the Engi Engine neer er's 's Representative, again his expression of satisfaction will will not be effective. If it has has been delegated, then the position position is unclear. It is submitted submitted that if the the work was demo demons nstr trab ably ly not not in acco accord rdan ance ce with with the the cont contra ract ct,, then then the the Engi Engine neer er's 's Representative would have no power to express such satisfaction as it would be relieving the Contractor of one of his obligations under the contract contrary to clause 2.1(c) above. 2.4: 2.4: There There is a perh perhaps aps inev inevita itable ble uncer uncertai tainty nty abou aboutt the scope scope of of the the power power of assis assista tant ntss to issue issue instru instruct ctio ions ns.. The The Cont Contra ract ctor or has has to deci decide de whet whethe her r instructions given by an assistant are "necessary to enable them to carry out their duties duties", ", or "nece "necess ssar aryy ... ... to secur secure e thei theirr accep accepta tanc nce e of mate materi rial alss ..." ...".. The The meaning of the second circumstance is particularly obscure. Thus, a Contractor will be well advised if in any doubt to seek the Engineer's confirmation confirmation pursuant pursuant to clause clause 2.3(b) 2.3(b).. The The Engi Engine neer er is oblige obliged d to respon respond d but but no time time lilimi mitt is specified. specified. This could could put the Contractor Contractor in the awkward awkward position of having having to decide between the risk of delay whilst an instruction is queried against the risk that the cost of complying with the instruction could be irrecoverable if the instruction is held to be unauthorised. An independent inspector nominated under clause 37.5 (Independent inspection) is to be considered as an assistant under this sub-clause. 2.5: 2.5: This This claus clause e supp supple leme ment ntss claus clause e 1.5 (Notic (Notices, es, cons consent entss etc) by addin adding g instruc instructio tions ns to the list of items items which must be in writin writing. g. There There is scope for confusi confusion on however however with regard regard to oral instruc instructio tions. ns. The Contrac Contractor tor has an obligation to comply with such oral instructions but they are not deemed by the sub-clause to be instructions until until confirmed. Whilst it is obviously necessary to have a regime which prevents unscrupulous Contractors claiming payment for oral instructions not given, this sub-clause requires the Contractor obeying the instructions to run the risk that confirmation will not be forthcoming or that his own confirmation will be contradicted by the Engineer. There is also an anomaly whereby confirmation given by the Engineer results in the written confirmation amounting to the instruction whereas an uncontradicted confirmation by the Cont Contra ract ctor or resu resultltss in the the orig origin inal al oral oral inst instru ruct ctio ion n bein being g "deem "deemed ed to be an instruction of the Engineer". This could be significant, significant, for example, in relation to the time limits in clause 52.2 (Power of Engineer to fix rates) or clause 53 (Procedure (Procedure for claims). claims). In the former former case, the failure failure to give notice notice of a claim within 14 days of an instruction varying the work could be fatal to the Contractor's claim. Under this clause, if an oral instruction is given varying the work and the Cont Contra ract ctor or writ writes es seeki seeking ng conf confir irma matition on of the the inst instru ruct ctio ion, n, but awai awaits ts that that confi confirm rmat atio ion n befo before re givi giving ng notic notice e of his clai claim, m, the the Engin Engineer eer coul could d put put the the Contractor into difficulties by failing to contradict the Contractor's confirmation of
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oral instruction with the result that the instruction will date back to the original oral instruction, possibly putting the Contractor out of time. For the other provisions dealing with instructions, see clause 7.1 (Supplementary drawings and instructions), clause 13.1 (Work to be in accordance with the contract) and clause 51.1 (Variations). 2.6: 2.6: This This clause, clause, which which is entire entirely ly new new to the the 4th 4th Editi Edition, on, makes makes express express what what is otherwise generally accepted as an implied term of the contract, namely that the Engine Engineer er must must act impart impartial ially ly when when perfor performin ming g his role role as indepe independen ndentt certif certifier ier.. The difficult difficultyy confro confronti nting ng the draftsma draftsman n was defining defining that role and distinguishing it from the Engineer's role as the Employer's agent. The table set out under clause 1.5 will demonstrate that all of the Engineer's functions are not specifically included in this list. In particular, notices, notices, certificates, determinations determinations (other (other than of value) value) and instru instructi ctions ons are not mentioned mentioned although although they they are undou undoubt bted edly ly cover covered ed by (d) (d) "tak "takin ing g acti action on whic which h may may affe affect ct the the righ rights ts and and obli obligat gatio ions ns of the Em Emplo ploye yerr or the Cont Contra ract ctor or". ". The The key key word word which which the the draftsman has used to distinguish between the Engineer's roles is "discretion". The draftsman appears to have assumed that the Engineer has no discretion whilst acting as the Employer's Employer's agent. This assumption may be incorrect. incorrect. "(a) giving his decision, opinion or consent". The term "decision" is reserved exclusively for the Engineer's role in the disputes procedure under clause 67.1 (Engineer's decision). The Engineer's opinion is used throughout the contract to decide whether a state of affairs exists, such as whether the Contractor has defaulted under, for example, clause 39.1 (Removal of improper work, materials or plant) or whether rates and prices are no longer applicable under clause 52.2 (Power of Engineer to fix rates). The most important consents required from the Engi Engine neer er are are requ requir ired ed unde underr clau clause se 4.1 4.1 (Sub (Sub-c -con ontr trac acti ting ng), ), clau clause se 14.1 14.1 (Programme to be submitted) and clause 46.1 (Rate of progress). "(b) expressing his satisfaction or approval". In relation to the term "satisfaction", see the commentary under clause 13.1 (Work to be in accordance with Contract). See clause 61.1 (Approval only by Defects Defects Liability Certificate) Certificate) in relation relation to the term "approval". "(c) determini determining ng value" value".. The Engine Engineer er is requir required ed to determ determine ine value value under under clause 52 (Valuation of variations), clause 56.1 (Works to be measured), clause 60 (Payment) and clause 63.2 (Valuation at date of termination). In addition a number of clauses such as clause 65.3 (Damage to Works by special risks) require the Engineer to value in accordance with clause 52. "Any such decision...may be opened up, reviewed or revised as provided in clause 67." As will be seen from from the table under clause clause 1.5 (Notices, (Notices, consents consents etc) there is a mismatch between this list and the lists given under clause 67. The The term termss "ope "open n up, up, revi review ew and and revis evise" e" are are to be foun found d in clau clause se 67.3 67.3 (Arbitration) but, it is submitted, the Engineer also has power to review his decisions when asked for a decision under clause clause 67.1 (Engineer's decision). As Page 51 of 264
decisions of assistants under clause 2.4 (Appointment of assistants) are deemed to have been given by the Engineer's Representative and communications by the Enginee Engineer's r's Repres Represent entati ative ve are stated stated in clause clause 2.3 (Engin (Engineer eer's 's author authority ity to delegate) to have the same effect as though given by the Engineer, this subclau clause se appl applie iess equa equallllyy to the the exer exerci cise se of disc discre reti tion on by the the Engi Engine neer er's 's Representative and assistants. The existence in the contract of an obligation that the Engineer be impartial may give rise to an argument that the Employer is thereby obliged to nominate as Engine Engineer er some someon one e who who is capab capable le of such such impa impart rtia ialility ty.. Accor Accordi ding ngly ly,, the the nomination of an employee of the Employer who was obliged to report proposed decisions to the Employer and take instructions would not be in accordance with the contract. The argument may be largely academic given that the Engineer will invariably be named in the tender documentation and in view of the absence of any power permitting the Employer to renominate in the event of an Engineer ceasing to act: see under clause 1.1 (a)(iv). If an Employer did fail to propose a repl replac acem emen entt candi candidat date e capab capable le of impa impart rtia ialility ty,, the the Cont Contra ract ctor or migh mightt have have grou ground ndss for for comp compla lain intt unde underr clau clause se 69.1 69.1 (Def (Defau ault lt of Em Empl ploy oyer er)) item item (b) (b) "interfering with or obstructing... the issue of any such certificate". For further comment on the effect of this clause on the duties of the Employer in relation relation to the Engineer, see under sub-clause 2.1 above. FIDIC's concept of an express obligation to be impartial has been adopted by ICE 6th at clause 2(8). However, instead of attempting a general definition of the Engineer's functions undertaken as an independent person, ICE 6th obliges him to be impartial in respect of all matters which are not listed as matters requiring the prior approval of the Employer under the clause equivalent to sub-clause 2.1(b) above. There is, however, no equivalent in ICE 6th to clause 69.1 item (b) permitting the Contractor to terminate in the event of the Employer "interfering with or obstructing... any such certificate". On the wording of this sub-clause, it is not difficult to mount an argument that every function of the Engineer under the contract involves a discretion and affects the rights and obligations of the parties. Accordingly, every function of the Engineer could be subject to the impartiality obligation with the result that the Engineer would not be able to function as agent for the Employer serving only the Employer's interest. The Employer would therefore be obliged to specify in the contract that the Engineer is not "required to exercise his discretion" in certain instances. This might be achieved by listing certain functions required to be agency functions in Part II. This then becomes similar to the ICE 6th. For further commentary on this subject, see the section on the role of the Engineer. CLAUSE 3 : Assignment
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The Contractor may not assign any part of its contract unless the Employer agrees. The Contractor Contractor may however, however, give give his bankers a charge over monies monies due under under the contra contract ct.. The The claus clause e does does not affe affect ct an insu insure rer' r'ss righ rightt of subrogation subrogation whereby the insurer insurer seeks to recover from another another party sums paid out to the Contractor. Item (b) is new to this edition, as is the reference to clause 1.5 (Notices, consents etc). The main thrust of the clause remains, however. Owin Owing g to the the gener general al requ requir irem emen entt in claus clause e 1.5 1.5 that that cons consent ent shal shalll not be unreasonably withheld or delayed, it is necessary in this clause to give the Employer Employer an unfettered unfettered right to withhold withhold his consent from an assignment. assignment. Any purported assignment would be invalid under English law and give the purported assig assigne nee e no rights rights withou withoutt the the prio priorr conse consent nt of the the Em Empl ploye oyer. r. The The two two exceptions recognise the realities of the Contractor's financing and insurance arrangements. For further commentary in relation to assignment by the Contractor, see the commentary under clause 1.1(a)(ii). CLAUSE 4 : Sub-Contracting
This clause prohibits the sub-contracting of the whole or any part of the Works unless the contract expressly permits it or specifies the name of a subcontractor or the Engineer gives gives his consent. The Contractor Contractor does not require require consent consent for labour and the purchase purchase of specified specified materials. materials. Regardless Regardless of any consent, the Contractor will be fully liable for the defaults of the subcontractor as if they were the defaults of the Contractor himself. The Em Empl ploy oyer er may may requ requir ire e and and pay for for the the assign assignme ment nt to hims himsel elff of any any guar guaran ante tee e or warr warran anty ty or othe otherr cont contin inui uing ng obli obliga gati tion on unde undert rtak aken en by a subcontractor to the Contractor which lasts beyond the Defects Liability Period. Sub-clause 4.1 is largely taken from the 3rd Edition but items (b) and (c) are new. Sub-clause 4.2 is derived from clause 59(6) of the 3rd Edition. 4.1: 4.1: This This sub-c sub-clau lause se is given given consi consider derab able le impor importa tanc nce e by the the fact fact that that clause clause 63.1(e) (Default (Default of Contractor) Contractor) makes contravention contravention a ground for termination termination by the the Em Empl ploy oyer er.. In cont contra rast st with with the the 3rd 3rd Edit Editio ion n and and ICE ICE 5th, 5th, there there is no require requiremen mentt in clause clause 63.1 63.1 that that unauth unauthori orised sed sub-le sub-lett tting ing should should be "to the detriment of good workmanship or in defiance of Engineer's instructions to the contrary" contrary" before before the Employer Employer may terminate. terminate. Thus, any technical technical breach breach of clause 4.1 could be disastrous. The consent of the Engineer is subject to clause 1.5 (Notices, consents etc) and may not be unreasonably withheld withheld or delayed. Under clause 2.6 (Engineer to act Page 53 of 264
impartially), the Engineer must make his decision impartially having regard to all the circumstances. "Any such consent shall not relieve the Contractor from any liability ...". This prov provis isio ion n is inte intende nded d to make make it plai plain n that that the the Engin Enginee eer' r'ss agre agreem ement ent to a particular subcontractor will be given without any responsibility being taken for the subcontr subcontract actor' or'ss compet competence ence and ability ability to perfor perform. m. It is made made plain plain that subcontractors will be treated as if they were part of the Contractor's organisation for the purposes of responsibility. No distinction with regard to responsiblity is made betwee between n subcont subcontrac ractor torss nomina nominated ted pursua pursuant nt to clause clause 59 (Nomin (Nominate ated d Subcontractors) and the Contractor's own subcontractors. Unlike some English standard forms, there is no extension of time available for the defaults of the nominated subcontractors unless the selection of the nominated subcontractor was so bad as to amount to "delay, impediment or prevention by the Employer" within clause 44.1 (Extension of time for completion) item (d). Similarly, if the nominated subcontractor has any design obligations under clause 59.3 (Design requirement requirementss to be expressly expressly stated), the Contractor Contractor is to be given an indemnity under under the nomina nominated ted sub-co sub-contr ntract act but remain remainss liable liable to the Employ Employer. er. The position in contract is to be contrasted with the position in tort under English law wher whereb ebyy a cont contra ract ctor or is only only liab liable le for for the the defa defaul ults ts of his his inde indepe pend nden entt subcontractors if the contractor was negligent in their appointment or, possibly, their supervision: see the decision of the House of Lords in D & F Estates v Church Commissioners (1988) 3 WLR 368. Becaus Because e of the the dang danger er impo imposed sed by claus clause e 63.1 63.1 (Def (Defau ault lt of Cont Contra ract ctor or), ), a Cont Contra ract ctor or shou should ld be sure sure of his his grou ground nd befo before re relyi elying ng upon upon one one of the the exceptions (a) to (c) for which no consent is needed. These exceptions are new to the 4th Edition save that "the provision of labour on a piecework basis" was an exception exception contained contained both in the 3rd Edition and ICE 5th. 5th. It is submitted submitted that a subco subcont ntra ract ctor or who who prov provid ides es noth nothing ing but but labou labourr fall fallss with within in except exceptio ion n (a). (a). Arguably, a subcontractor who provides labour and purchases materials which accord with the specification is also an exception. However, this would seem to go beyond the intention of the draftsman and it would be extremely dangerous for a Contractor Contractor to proceed on that basis. Equally Equally dangerous would would be to proceed proceed with the purchase of materials without the specific consent of the Engineer because if, through no fault of the Contractor or any subcontractor, the materials delivered did not comply with the specification, the exception would no longer apply and the Contractor would be in default. Exception (b) could apply equally to the purchase of materials directly from the manufacturer manufacturer by the the Contractor Contractor or to the purchase purchase through through a supplier. supplier. In the former case, the element of sub-contracting would be in the manufacture itself. Presumably, (a) should be read restrictively so that consent would be required for a subcont subcontrac ractor tor who supplie supplied d materi materials als and provid provided ed labour labour to instal installl such such materials. As to (c), the naming of such a subcontractor within the contract would entitle the Contrac Contractor tor to use that that subcont subcontrac ractor tor.. It is not apparent apparently ly necessary necessary for the Page 54 of 264
subcontractor to be a "nominated Subcontractor" as clause 59.1 (Definition of "nomi "nomina nate ted d Subc Subcont ontra ract ctor ors" s")) does does not incl includ ude e the the word word "nam "named ed". ". Thus, Thus, exception (c) may apply equally to the nominated Subcontractors and other subcontractors named in the contract. Contractors are often required to list in their tender their proposed subcontractors. If the Contractor Contractor receives no adverse comment and his tender is accepted, it is obviously obviously sensible that the Contractor Contractor shou should ld have have to seek seek no furth urther er cons consen entt. The The def definit initio ion n of nomi nomina natted Subcontractor is itself very wide: see the commentary under clause 59.1. In general, the Contractor will be well advised to obtain consent for his every action in connection with sub-contracting. 4.2: 4.2: This This sub-c sub-cla laus use e is inten intende ded d to secur secure e the the tran transf sfer er to the the Em Empl ploy oyer er of guarantees given to the Contractor Contractor by subcontractors. Thus, if there is a need to claim on the guarantee, the Employer can deal directly and is not dependent upon the survival or willing willing co-operation of the Contractor. Contractor. The difficulty with this sub-clause is that virtually every subcontractor has, by entering into his subcontract "undertaken ... [a] continuing obligation extending for a period exceeding that of the Defects Liability Period". Whilst the subcontractor's right or obligation to remedy defects in his works expires with the Defects Liability Period, he has a continuing obligation to pay damages for breach of contract for defects in his works works until the expiry expiry of the limitat limitation ion period. period. Thus, Thus, if the clause clause was taken taken literally, the Employer would be entitled to the assignment of all sub-contracts. Accordingly, a Contractor would be well advised to seek to amend this clause to limit the obligations obligations to be assigned to guarantees guarantees and obligations obligations other than the basic contractual obligations and/or to prohibit the Employer from pursuing the Contractor in relation to any defects emerging from the subcontractors' works. It may be important to appreciate the distinction, in English law at least, between assignment and other transfers of rights such as novations. An assignment will not give the Employer the same rights as if the contract was directly between the Employer and the subcontractor. The Employer will only have the same rights against the subcontractor as the Contractor would have had. Thus, if for any reason the Contractor has suffered no loss as a result of some breach by the subc subco ontr ntract actor, or, the Em Empl ploy oyer er woul would d be unabl nable e to recov ecover er agai agains nstt the subcontractor regardless of the loss which he had incurred. Assignments are also subject to any rights the Contractor may have against the subcontractor, for example, a defence of set-off. By contrast, under a novation, the original contract come comess to an end end and and a new new cont contra ract ct is form formed ed betw betwee een n Em Empl ploy oyer er and and subcont subcontrac ractor tor.. Novati Novations ons can be implie implied d but normal normally ly are agreed agreed express expressly ly between Employer, Contractor and subcontractor. This is necessary as, under a true novation, the Contractor is released by the subcontractor from any liability. Assignments can only transfer the benefit of the contract and not the burden. Novation can transfer the burden but this requires careful drafting. This clause should be read with clause 54.5 (Conditions of hire of Contractor's Equipment), clause 54.7 (Incorporation of clause in subcontracts) and clause 63.4 (Assignment of benefit of agreement) which seek to secure for the Employer Page 55 of 264
the benefit of subcontractor, hire and supply agreements in the event of the term termin inat atio ion n of the the Cont Contra ract ctor or's 's empl employm oyment ent under under clau clause se 63.1 63.1 (Def (Defau ault lt of Contractor). Terms for inclusion in nominated sub-contracts are specified by clause 59.2 (Nominated subcontractors; objection to nomination). In English law, the potential liability of subcontractors to the Employer in the absence of a contractual link is in a state of some uncertainty. The minimum requ requir irem emen entt seem seemss to be that that the the subco subcont ntra ract ctor or must must eith either er have have caus caused ed physical damage to some property of the Employer other than that upon which the subcontractor was working or have been in a special relationship with the Employer. This effectively means that the subcontractor should be a specialist subcontractor upon whom the Employer is relying for particular expertise or design. See the House of Lords in Junior Books v Veitchi (1983) 1 AC 520; 21 BLR 66 and the Court of Appeal's decision in Simaan General Contracting v Pilkington Glass (1988) 40 BLR 28. For an Australian view, in a case brought by a subcontractor against an Employer, see the Supreme Court of ACT decision in S.W. Neilsen (Canterbury) v PTC Constructions (1987) B&CL 387.
CLAUSE 5 : Language of the Contract
This clause requires the language or languages of the contract to be stated and, in the case of more than one language, it requires the Ruling Language to be agreed. The law of the the contract is also to to be set down. If, when all the contract documents are read together, there is any ambiguity or discrepancy, the Engineer is to issue an instruction explaining it and adjusting the documents documents as necessary. In reaching reaching such decision, he is to treat treat the contract documents as having priority in the order set out in the clause. Sub-clause 5.1 is essentially the same as the 3rd Edition but clause 5.2 has been substantially amended to provide a full priority listing for the contract documents. 5.1: 5.1: With With the the except exception ion of refe referen rences ces in Part Part II to to requir required ed langu language age abilit abilityy in clause clause 15.1 15.1 (Contr (Contract actor' or'ss superi superinte ntende ndence) nce) and clause clause 16.1 16.1 (Contr (Contract actor' or'ss employees), there are no references to language or the Ruling Language in any other part of of these conditions. conditions. Thus, a Ruling Ruling Language is establishe established d by the complet completion ion of Part II but but no use is made of it. There There is no require requiremen mentt that communication between the parties or at least notices, certificates etc should be in a particular language nor, significantly, is there any statement of the language in which any arbitration is to be conducted. Although there is room for for argument that the mere existence of a Ruling Language carries with it an implication that communications should be in that language, it is very difficult to identify the limits of the application of such a term. The silence of this clause could lead to consi conside dera rabl ble e conf confus usio ion n and, and, in a dispu dispute te,, coul could d be an impo import rtant ant fact factor or in complicating the appointment of arbitrators and greatly increasing the costs of Page 56 of 264
the procee proceedin dings. gs. Partie Partiess would would theref therefore ore be well well advised advised to spell spell out their their intentions. For example, they could agree that all communications between the parties and with the Engineer should be in the specified language as should certain categories of records which are likely to be scrutinised for purposes such as for valuation or in a dispute. Similarly, although the law of the contract is to be nominated in Part II, the law of the procedure of an arbitration is not specified. Thus, if an ICC ICC arbitration takes takes place in Paris, it will be French procedural law that will apply and would be enforced, enforced, if necessary, necessary, by the French French courts. The parties parties may wish to make a conscious decision and agree where arbitrations should take place and/or the procedural law to apply with an amendment either to this sub-clause or to clause 67 (Settlement of disputes). The nominated law of the contract does not exclude the local or other countries' laws entirely. The following lists are not not exhaustive:(a) Local laws may impinge in the following areas:Working days and hours Employment rules Import and export of plant, materials etc Taxes and duties Planning Clause 26 (Compliance with statutes, regulations) (b) The laws of other countries may impinge in these areas:Insurance, for example, decennial liability Performance security Arbitration procedural law Off-site manufacture Goods in transit In addition, rules adopted such as a Standard Method of Measurement or the ICC rules of arbitratio arbitration n will govern areas of the contract. In clause 63.1 (Default (Default of Cont Contrract actor) or), the expr expres essi sio on "dee "deeme med d by law" law" app appears ears.. The The abov above e demonstrates that such an expression is imprecise. Difficulties may be encountered if the specified law is not recognised by a country whose courts are being asked to enforce enforce a contractual contractual remedy or an arbitrator arbitrator's 's award. In DST v Raknoc (1988) (1988 ) 2 AllER 833, the English Court of Appeal refused to recognise the existence of lex mercatoria. A party had sought to persuade the court that there existed a transnational body of commercial law but the court remained remained sceptical. sceptical. Nevertheless, Nevertheless, the English English courts courts will normally enforce such an award. "...the law of which shall apply to the Contract...". The boundary between the law of the contract and other laws is made no easier to draw by these words. It
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appears to be intended that the influence of the named law should reach beyond the construction and interpretation of the contract. In countries with civil law systems such as France and a number of Middle Eastern countries which have modelled their systems on France, the civil code, a part of private law, will apply to many projects undertaken in those countries. If the the proj projec ectt is a publ public ic work workss proj projec ect, t, howe howeve ver, r, the the cont contra ract ct will will be an administrative contract and certain specific public law rules apply in the public interest, in many cases regardless of the terms of the contract. If the contract is a private law contract certain terms are also imposed or implied. In such a civil law country, country, a choice of the law of the contract contract other than the law of the country would be impracticable, even if legal. In many cases an arbitration award based on a foreign law might not be enforceable in the civil law country for reasons of public policy. In any event considerable difficulties would result from the application of two relevant laws to the whole of a single contract. All countries require that the local law or lex situs governs rights of property and many countries have extended this to matters such as employment law. Some civil code countries have extended this to personal obligations relating to property so that there would be virtually no scope for a different nominated law of the contract. Points of similarity and dissimilarity with civil code principles common to many countries are noted in the comments under the following clauses: clau clause se 12. 12.2 (Adv (Adver erse se phys physic ical al obs obstr truc ucttions ions or con condi dittions ions)) - Theo Theori rie e des des sujetions imprevues; clau clause se 20.4 20.4 (Emp (Emplo loye yerr's ris risks ks)) - The Theor orie ie de l'im l'impr prev evis isio ion; n; clau clause se 47. 47.1 1 (Li (Liqu quid idat ated ed dam damag ages es for for dela delay) y) - civ civilil and and admi admini nist stra rati tive ve law law treatment of penalties; clau clause se 51.1 51.1 (Var (Varia iati tion ons) s) - Pow Power er of Admi Admini nist stra rati tion on to vary vary cont contra ract ct or Fait du Prince; clau clause se 52. 52.1 1 (Val (Valua uattion ion of var variat iations ions)) - Powe Powerr of Adm Admin inis isttratio ation n to var vary contract or Fait du Prince; clau clause se 65 (Spec Speciial risks isks)) - Theo Theori rie e de l'imp 'impre revi visi sio on; clau clause se 70.1 70.1 (Inc (Incre reas ase e or or dec decre reas ase e of of cos cost) t) - The Theor orie ie de l'im l'impr prev evis isio ion; n; clau clause se 70.2 70.2 (Sub (Subse sequ quen entt leg legisla islattion) on) - Fait Fait du Pri Prince; nce; clau clause se 71.1 71.1 (Cur (Currrency ency rest estrict rictio ions ns)) - Fai Fait du du Pr Prince; nce; clau clause se 72.1 72.1 (Rat (Rates es of Exch Exchan ange ge)) - Theo Theorrie de l'im l'impr prev evis isio ion. n. Briefl Briefly, y, Theori Theorie e des sujeti sujetions ons imprev imprevues ues (lite (literal rally ly the theory theory of unfore unforesee seen n cons constr trai aint nts) s) perm permit itss comp compen ensa sati tion on of a Cont Contra ract ctor or who who enco encoun unte ters rs an exceptional physical constraint which is not due to any act of the administration and was not not fore foresee seen n at the the time time of the the cont contra ract ct.. Theo Theori rie e de l'im l'impr previ evisi sion on (literally, theory of want of foresight) compensates the Contractor in the event of unforeseeable financial, economic and political circumstances. Fait du Prince, meaning act of state, provides an opportunity for the Contractor to obtain full reimbursement where the administration has somehow intervened by changing the law or acting in a way that alters the economic balance of the contract. In this context, it is worthy of note that normally for the purposes of Fait du Prince, the Page 58 of 264
government is regarded as one and indivisible so that an action of one ministry which affected a Contractor Contractor in contract contract with another ministry ministry would be a ground upon which the Contractor would be entitled to rely to obtain compensation. See the comment under clause 26.1 (Compliance with statutes, regulations). An extreme expression of Fait du Prince is the power of the administration to terminate the contract unilaterally. This This clau clause se shou should ld be read read wit with clau clause se 26 (Com (Compl plia ianc nce e with with stat statut utes es,, regu regula lati tion ons) s) and and clau clause se 70.2 70.2 (Sub (Subse sequ quen entt legi legisl slat atio ion) n).. The The diff diffic icul ulty ty of distinguishi distinguishing ng the roles of arbitratio arbitration n and the administrative administrative courts is mentioned mentioned under clause 67.3 (Arbitration). 5.2: 5.2: Under Under the the 3rd Edit Edition ion,, the cond conditi itions ons Part Part I and and II were were give given n priori priority ty over over the remainder of the contract documents which were to be taken as mutually expla explanat nator ory. y. Reas Reason onabl ablyy unfor unfores esee een n costs costs flow flowin ing g from from the the Engin Engineer eer's 's instructions were recoverable but no time. In this edition, all the the documents are initially to be taken as mutually explanatory but the Engineer is given a full order of priorit priorityy to assist assist him in the resolut resolution ion of discrepa discrepancie ncies. s. Parts Parts I and II are substantially substantially demoted demoted in the order. There is no provision provision for time or costs and the Contractor would have to endeavour to bring any consequences of the Enginee Engineer's r's instru instructi ction on within within clause clause 44.1 44.1 (Exten (Extensio sion n of time time for comple completio tion) n) and/or clause 51.1 (Variations). The ICE, in their 5th and 6th Editions, decline to give a list of priority of the documents, requiring all the contract documents to be read as mutually explanatory. Although Although the prescribed prescribed order is consistent consistent with the principle principle of giving particular particular clauses precedence over general Standard Form clauses, there is a danger for the parties that the familiar and desired terms of these conditions could be overridden overridden by one or other of the four preceding preceding documents. documents. Thus, the parties parties must check the preceding documents documents very carefully carefully for anything anything which could be inconsistent with the conditions that they require. require. In particular, there there is a danger that documents intended to be subordinate to the conditions will be incorporated by reference reference into the documents documents having having priority. priority. For example, example, clause clause 2 of the Contract Agreement incorporates all of the particular documents listed in this sub-clause as well as the Specification, the Drawings and the bill of quantities. That incorporation is a necessary part of the Agreement which may be the only docu docume ment nt sign signed ed by the the part partie iess and and must must ther theref efor ore e be comp compre rehe hens nsiv ive. e. Nevertheless, if it is used, it does not assist in the interpretation of clause 5.2. It is submitted that the correct approach is to disregard that particular incorporation as it brings in all contract contract documents documents and does not advance the priorit priorityy issue. If however, the Letter of Acceptance, for example, was to incorporate by reference the Specification, then the Specification would have to be studied with extreme care to ensure that the conditions were not accidentally overruled. In the event of an ambiguity or discrepancy in the contract documents, the Engineer is obliged to issue issue an instruction. The clause does not specify who who may trigger this action nor, unusually for this this edition, is there any notice provision. It is submitted that either the Contractor or the Employer must have pointed out an Page 59 of 264
alle allege ged d ambi ambigu guitityy or disc discre repa panc ncyy and and that that the the Engi Engine neer er shou should ld not not issue issue instructions under this this clause uninvited. The existence or otherwise of ambiguity ambiguity or discrepancy will be of considerable significance as, in the absence of such a problem, problem, the documents are to be taken as mutually explanator explanatory. y. For example, example, the the Contr Contrac acto torr may may consi consider der that that word wordin ing g incl includ uded ed in his his tend tender er is more more advantageous to him than a condition in Part I: if he can demonstrate an ambiguity or discrepancy between the clauses, his tender would take priority. It seems clear that the Engineer is to instruct on matters of interpretation as well as discrepancies discrepancies in relation relation to the physical physical work. This is plainly plainly sensible sensible as a contract could otherwise run into difficulties in the absence of a decision on a point of interpretation. This is reinforced by the fact that the the Engineer is obliged by clause 67.1 (Engineer's decision) to settle matters of interpretation which are the subject of dispute between the parties. It is submitted that the Engineer is to instruct on ambiguities and discrepancies not only between the various contract documents but also within documents. Thus, it would be possible to ask the Engineer to instruct, for example, to resolve the discrepancy between the time limits for claims set out in clause 52.2 (Power of Engineer to fix rates) and clause 53.1 (Notice of claims). To achieve maximum clarity, any of the ambiguities referred to in this commentary which are not resolved resolved by amendment amendment to the contract, should be resolved resolved by instruction instruction of the Engineer at the outset. Often, however, the parties may decide it to be in their respective interests to maintain an element of ambiguity in the hope that it will give give them them eith either er flex flexib ibililitityy durin during g the the work work or room room for for negot negotia iatition on at the the conclusion of the works. The Engineer's instruction would not normally entitle the Contractor to additional payment directly as it is merely interpreting the existing contractual obligations between the parties and thus cannot itself itself amount to to a variation. The instruction may however mean that work executed or to be executed by the Contractor was not part of the original contract works and thus must be paid for as a variation. Part II provides alternative clauses, either prescribing an alternative order of priority or stating that the various documents are to be taken as mutually explanatory. CLAUSE 6 : Drawings to the Contractor
The Engineer is to provide two free copies of the drawings to the Contractor. The Contractor Contractor will have have to make any further copies copies himself. himself. The Contractor Contractor must keep the drawings and specification confidential and use them or show them them to a third party party only when strict strictly ly necessar necessaryy for the project. project. When When the proj projec ectt is compl complet ete, e, the the Cont Contra ract ctor or must must retu return rn all all such such docum document entss to the the Engineer. Engineer. The Contractor Contractor should should provide the Engineer Engineer with four copies copies of all drawings, specifications etc prepared by him and approved by the Engineer. Page 60 of 264
Furt Furthe herr copi copies es shou should ld be supp supplilied ed at the the requ reques estt of the the Engi Engine neer er at the the Employer's cost. The Contractor should keep one copy of the drawings on site and available for inspection and for use at any reasonable time by the Engineer or anyone with the Engineer's written authorisation. If the Works are likely to be delayed or disrupted unless a drawing or instruction is issued by the Engineer within a reasonable time, the Contractor must give a notice to the Engineer and a copy to the Employer, giving the details. If, despite the notice, the drawing or instruction is late and the Contractor suffers delay or incurs costs, the Engineer must consult the parties and grant time and costs. In considering a grant of time and costs to the Contractor, the Engineer must take into account any contributory delay by the Contractor in his production of drawings. The principles and much of the wording of the 3rd Edition have been retained for the 4th Edition but sub-clause 6.1 has been considerably expanded and subclause 6.5 is entirely new. 6.1: 6.1: When When read reading ing thi thiss claus clause e it is to be borne borne in mind mind that that the the defin definititio ion n of Draw Drawin ings gs at 1.1( 1.1(b) b)(i (iiiii)) is very very broa broad d and and incl includ udes es not not only only the the Engi Enginee neer' r'ss draw drawin ings, gs, calc calcul ulat ation ionss and and tech techni nica call infor informa matition on but but also also "all "all draw drawin ings gs,, calculations, samples, patterns, models, operation and maintenance manuals and other technical information" submitted by the Contractor and approved by the Engineer. The definition covers not only the documents in existence at the time of the contract but also documents brought into being during the course of the contract. contract. In addition, addition, it covers items items other than than documents documents such as samples, patt patter erns ns and and mode models ls whic which h are are obvi obviou ousl slyy not not capa capabl ble e of bein being g read readililyy reproduced. The first sentence seems to apply only to drawings supplied by the Engineer: where drawings are to be provided by the Contractor, it is the Contractor that provides provides copies. The obligation obligation to keep the Drawings confidenti confidential al is especially especially limited limited to those provided provided by the Employer or or Engineer. Engineer. As to the documents documents to be returned, it is submitted that this obligation is also limited to those provided by the Engineer as this clause uses the term "provided" "provided" for documents documents supplied by the Engineer to the Contractor and "supplied" "sup plied" for those from the Contractor to the Engineer. Contractors should have in mind that the confidentiality duty seems to include subcontractors by the reference to "a third party". Although the Employer would normally normally have difficulty difficulty demonstrat demonstrating ing loss from a breach of the clause, subcontractors should not be given more than they need without the Engineer's approval.
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"... "... four four copie copiess of all all Drawi Drawings ngs,, Speci Specififica catition on and and othe otherr docu docume ment nts". s". It is submitted that a reasonable reading of this obligation will be that the words "other documents" limit the obligation to provide four copies to those items within the defin definititio ion n of Draw Drawin ings gs whic which h are are them themse selv lves es docum document ents. s. Thus, Thus, it is not necessary to produce four copies of the models, samples etc. 6.2: 6.2: In view view of the the broad broad defini definitio tion n of the term term "Draw "Drawing ings" s" at claus clause e 1.1(b)( 1.1(b)(iii iii), ), this obligation is apparently not limited to documents but includes samples, patterns and models. 6.3 6.3 The The fail failur ure e by by the the Engi Enginee neerr to give give draw drawin ings gs or inst instru ruct ctio ions ns on and and tim time e is generally regarded as being a breach of contract by the 6.4 6.4 Empl Em ploye oyerr who has has an imp implilied ed duty duty to ens ensur ure e that that the the Engin Enginee eerr provi provides des such documents documents without causing causing delay. It is further generall generallyy accepted that in the absence of provision for such delays in the extension of time clause, late drawings drawings would set time at large. large. These sub-clauses sub-clauses provide provide for extension extension of time and costs to be given where a drawing or instruction is late despite the Contractor Contractor having having given notice of the potential potential delay. delay. In the event that no such notice was given, it would, it is submitted, be possible for the Contractor to compl complyy with with the the noti notice ce prov provis isio ion n under under clau clause se 44.2 44.2 (Cont (Contra ract ctor or to provi provide de notification and detailed particulars) and claim an extension of time under clause 44.1(d) for "any delay, impediment or prevention by the Employer", at least where the need for the drawing or instruction by a particular time was obvious. It is submitted that the Contractor's notice need not have specified the delay that in fact occurs. Sub-clause 6.4 does not refer the "delay and/or...costs" back to the "delay or disruption" in sub-clause 6.3, so the Engineer would be wrong to refu refuse se an exte extens nsio ion n on the the groun ground d that that the the fore foreca cast st cons conseq equen uence ce had not not materialised. There is scope for debate as to whether the requirements of clause 6.3 would be satisfied by a programme marked up with the critical dates for information and annotated annotated to provide the details details required required by the sub-clause. sub-clause. The programme programme under clause 14.1 (Programme to be submitted) is not normally sent to the Employer, but to comply with this sub-clause it must mus t be copied to the Employer in compliance compliance with clause 68 (Notices). (Notices). Whilst Whilst it is reasonably reasonably clear that this was not the intention of the draftsman, it is submitted that such suc h a programme could be capable capable of comply complying ing with the sub-claus sub-clause's e's requirem requirement ents. s. See L B Merton Merton v Leach (1985) 32 BLR 51 for the position on an English standard form of contract. "... within within a time reasonable reasonable in all the circumstances". circumstances". The draftsman draftsman has not created a direct tie between the reasonable time specified by the Contractor in sub-clause sub-clause 6.3 and the definition definition of a failure failure in sub-clause 6.4. 6.4. The function function of "within a reasonable time" in sub-clause 6.3 is presumably to ensure that the Contractor's notice is given a reasonable time in advance of the critical date. Howe Howeve ver, r, the the Engi Engine neer er or arbi arbitr trat ator or is enti entitl tled ed to take take into into acco accoun untt all all circumstance circumstancess in deciding whether whether or not a failure has occurred. occurred. The mere fact Page 62 of 264
that the Engineer has not complied with the Contractor's Contractor's notice is not enough to give the Contractor an entitlement to time and costs. These sub-clauses sub-clauses refer only to "any further further drawing or instruction". instruction". Thus, this does not refer to all the other items contained in the definition of Drawings but does refer to instructions which are not contained within that definition. 6.5 6.5: This sub-c b-claus ause has has bee been incl ncluded ded to forestall an argume ument by a Contractor Contractor that clause 6.4 gives the Contractor an entitlement entitlement to time and costs as a consequence of the late issue of drawings or instructions regardless of the cause of that late issue. issue. The delay, the Contractor would argue, would otherwise otherwise be caused by the "failure or inability" of the Engineer Enginee r to issue the drawing and the clause does not enquire enquire into the reasons for that failure failure or inability. inability. Faced with such an argument, the Engineer would otherwise have to fall back on clause 44.1 (Ext (Extens ensio ion n of time time for for comp comple letition on)) and and the the requ requir irem ement ent to gran grantt only only such such extensions extensions as the Contractor Contractor is "fairly" entitled entitled to. As to the costs, the Engineer Engineer would be in more difficulty. It is in the interests of avoiding such arguments that clause 6.5 puts the matter beyond doubt. CLAUSE 7 : Drawings and Instructions
The Engineer may issue further drawings and instructions necessary for the project. The Contractor is to comply comply with them. them. Where any part of the Works is to be designed by the Contractor, he shall submit his proposed design and back-up information for the Engineer's approval and after the Works have been constructed, all necessary operation and maintenance manuals, manuals, drawings etc. Substantial Substantial completion completion will not be achieved achieved until such manuals and drawings have been submitted and approved by the Engineer. The Engineer's approval does not relieve the Contractor of his design or other responsibilities. Sub-c Sub-cla lause use 7.1 7.1 is take taken n from from the the 3rd 3rd Edit Edition ion with with amen amendm dmen ents ts main mainly ly of vocabulary but sub-clauses 7.2 and 7.3 are entirely new and have been adopted in principle by ICE 6th as sub-clauses 7(6) and 7(7). 7.1 7.1 This This clau clausse is, wit with clau clause se 13. 13.1 (Wor (Workk to be in acco accorrdanc dance e wit with the contr contract act)) and and clau clause se 51.1 51.1 (Var (Varia iatitions ons), ), one one of the the most most impo import rtant ant clau clauses ses author authorisi ising ng the Engine Engineer er to issue issue instruc instructitions. ons. There There are some some 19 claus clauses es overall giving the Engineer power to instruct but the remainder are specific, such as the power to instruct in regard to ambiguities at clause 5.2 (Priority of contract documents). The power under this clause is limited to such instructions "as shall be neces necessar saryy for for the the purp purpose ose of the the prop proper er and and adequ adequat ate e exec execut utio ion n and and completion of the Works". Thus, there is no power to order variations variations unless they are necessary. Clause 51.1 (Variations) (Variations) provides the the power to instruct changes Page 63 of 264
that are only "appropriate". For a discussion of the Engineer's power to instruct variations, see under clause 51.1. "The Contractor Contractor shall shall carry out and be bound by the same." same." This is subject subject to review by the Engineer under clause 67.1 (Engineer's decision) and an arbitrator under clause 67.3 (Arbitration). If instructions are issued late, the provisions of clause 6.4 (Delays and cost of delay of drawings) may apply. For discussion on whether the Engineer may issue variation instructions after substantial completion, see the commentary under clause 13.1 (Work to be in accordance with the contract). The broad definition of Drawings in clause 1.1(b)(iii) should be noted as this inclu includes des matt matter erss othe otherr than than draw drawin ings gs and and inde indeed ed othe otherr than than docum document ents. s. Patterns, samples and models are included. 7.2: 7.2: This This is not not a design design and and build build form form of cont contra ract ct and, and, indee indeed, d, FIDI FIDIC C do not publish such a form for general civil engineering, (although the "Yellow Book", FIDIC's Conditions of Contract for Electrical and Mechanical Works assumes that the contract contractor or will usually usually accept accept design design respon responsib sibili ility) ty) . Nevert Neverthel heless ess it is recognised that a part of the Works may be designed by the Contractor or a subcontractor on his behalf in which case provision must be made for the submission of the design for the Engineer's approval. A Contractor will be well advised to scrutinise all the contract documents carefully to identify identify the exact extent of any design obligation obligation imposed imposed upon him. Whilst Whilst there is a general statement in clause 8.2 (Site operations and methods of construction) that "the Contractor shall not be responsible...for the design or specification of Permanent Works", a note on a drawing or a paragraph in an obscure corner of the specification could nevertheless "expressly provide" a design obligation. A Contractor wishing to protect the copyright or confidentiality in his drawings must make special provision. In this connection, see clause 28.1 (Patent rights) whic which h place placess respo respons nsib ibililitityy for for any infr infrin inge geme ment nt of pate patent nt righ rights ts,, desi design gn trademarks etc upon the Contractor regardless of whether infringement occurred by reason of the Contractor's design or that of the Engineer. The obligation to provide operation and maintenance manuals appears to be limited limited to circumstances circumstances in which the Contractor Contractor has a design responsibil responsibility. ity. It will often be necessary, wherever the contract includes plant and machinery, for the Contractor Contractor to be obliged to provide provide the operation operation and maintenance maintenance manuals for that plant and machinery regardless of who designed it. Whilst it is recognised that the obtaining of operation and maintenance manuals and as-built drawings is often difficult at the end of a project, the practicality of making the submission of such manuals and drawings a condition precedent to the grant of substantial completion completion is to be doubted. doubted. The Employer Employer will be keen keen to take over the works works and the Contr Contract actor or will be facing facing the possibil possibility ity of liquid liquidate ated d damage damages. s. One Page 64 of 264
questions whether the handing over of the entire project will really depend on these these manual manualss and and draw drawin ings gs.. It is subm submititte ted d that that the power powerss give given n to the Engineer and the Employer during the Defects Liability Period and with regard to the retention monies would prove sufficient to ensure that these matters are resolved. The Engineer is apparently given no discretion to dispense with this obligation and indeed clause 2.1(c) (Engineer's duties and/or authority), states that the Engineer has no authority to relieve the Contractor of any obligation. Only the Employer could do so. The requirement for manuals and drawings to be submitted prior to substantial completion completion appears to be referrable referrable to the whole of the Works and is not limi limited ted to the Section or part part which contains contains the Contractor's Contractor's design. design. Thus, it may be argued that there is no prohibition against the granting of taking-over certificates in respect of Sections or parts, only against certifying in respect of the whole of the the Work Works. s. If this this is corr correc ect, t, it is some somewh what at ilillo logi gica call but but miti mitiga gate tess the the impracticality referred to above. 7.3 7.3 This This subsub-cl claus ause e makes makes it clea clearr that, that, wher where e the desi design gn obli obliga gatition on is plac placed ed upon the Contractor, responsibility will not be affected by the procedure whereby the Engineer considers and approves such design. Whilst it is no doubt arguable that this clause is unnecessary, it helpfully removes a source of dispute. This theme is found throughout the contract, from clause 2.1 (Engineer's duties and responsibilities), which prohibits the Engineer from relieving the Contractor of any of his respo responsi nsibi bililitities, es, to claus clause e 61.1 61.1 (App (Appro roval val only only by Defe Defect ctss Liab Liabililitityy Certificate), which attempts to say that no action of the Engineer, or indeed of the Employer, will relieve the Contractor of any part of his full contractual burden. See also clause 14.4 (Contractor not relieved of duties or responsibilities), clause 17 (Setting-ou (Setting-out), t), clause 37.2 (Inspection (Inspection and testing) and clause 54.8 (Approval (Approval of materials materials not implied) implied) for examples. examples. The powers powers to order the opening opening up of work work and and the the remo removal val of anyth anythin ing g subsub-st stand andar ard d cont contai aine ned d in claus clause e 38.2 38.2 (Uncovering and making openings) and clause 39 (Removal of improper work, materials and plant) are very wide and a Contractor wishing to argue that the Engineer is not entitled to exercise them will need compelling evidence. A written instruction might suffice but, as discussed under clause 13, the Employer could challenge its validity in the light of clause 2.1. The written sanction of the Employer, amounting in effect to a variation of the contract, would give the Contractor the necessary security. The responsibility of the Contractor under the contract for design executed by him, it is submitted, is to be limited to a duty to carry out the design with due care and diligence. There are three relevant sub-clauses:sub-clause 7.2 which requires the subcontractor to submit "such drawings... as shall be necessary to satisfy the Engineer as to the suitability and adequacy of that design";
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clause 8.1 (Contractor's general responsibility) which requires the Contractor to design etc "with due care and diligence"; and clau clause se 8.2 8.2 (Sit (Site e oper operat atio ions ns and and met metho hods ds of cons constr truc ucti tion on)) whi which ch make makess the the Contractor Contractor "fully responsible" responsible" where the contract contract expressly expressly provides that part of the works are to be designed by him. It is submitted that references in sub-clause 7.2 to "suitability and adequacy" relate to the obligation to satisfy the Engineer and do not amount to an absolute obligat obligation ion to provide provide a suitab suitable le and adequate adequate design. design. As to clause 8.2, the responsibility must be read in the context of "the adequacy, stability and safety of all Site operations and methods of construction". A normal reading of that clause would not suggest that the responsibility was intended to go further. Accordingly, one is left with clause 8.1 and a due care and diligence obligation. Thus, if an element of design failed but the Contractor was able to demonstrate that he had used due care care and dilige diligence, nce, for exampl example e by having having statestate-ofof-the the-ar -artt design design techn techniq ique uess or spec specifific icat atio ions, ns, he woul would d not not be liliab able le.. In this this cont context ext,, see Eckersley v Binnie and Partners (1988) CILL 388 and the Court of Appeal's judgement in relation to the Abbeystead disaster. This level of responsibility conforms to the normal responsibility imposed on the Engineer by his terms of engagement. It might be thought peculiar if the Contractor's design duty was more onerous than that of the Engineer. In this context, it should be noted that the Contractor's liability for the selection of materials, which itself might properly be considered a design function, is an absolute one: see clause 36.1 (Quality (Quality of materials, Plant and workmanship). Two English cases in which the designer's liability was held to be an absolute one, namely namely to ensure that the the works were fit for for their purpose purpose were IBA v EMI and BICC (1980) 14 BLR 1, a decision of the House of Lords, and Greaves v Baynham Meikle (1975) 2 Ll R 325. For a case on the Contractor's liability for design carried out by subcontractors, see Cable (1956) Limited v Hutcherson Bros (1969) 43 ALJR 321. For a recent consideration, by the Supreme Court of Queensland, of the standard of responsibility taken by a contractor, see Doug Rea Enterprises v Hymix Australia (1988) B&CL67.
CLAUSE 8 : General Obligations of the Contractor
This clause sets out the Contractor's general obligation to carry out his duties carefully and in accordance with the contract. The Contractor is also obliged to provide all labour, supervision materials etc necessary to carry out and complete the project. The The Cont Contra ract ctor or is full fullyy resp respon onsi sibl ble e for for site site oper operat atio ions ns and and meth method odss of const constru ruct ctio ion n but but is not not resp respon onsi sibl ble e for for the the design design or speci specififica catition on of the the permanent works or for temporary work not designed by him. If the contract Page 66 of 264
requ requir ires es the the Cont Contra ract ctor or to under underta take ke any of the the desi design, gn, he shall shall be full fullyy responsible for that design even if the Engineer approves it. The principle and much of the wording of clause 8 of the 3rd Edition has been retained retained but rearrangemen rearrangements ts and additions additions have occurred. occurred. The reference reference to design in sub-clause 8.1 is new as is the final sentence of sub-clause 8.2. 8.1: 8.1: This This claus clause e adds adds detai detaill to the basic basic oblig obligat atio ion n set set out out in the Cont Contra ract ct Agreement clause 3 whereby "the Contractor ... covenants with the Employer to execute and complete the Works and remedy any defect therein ...". In common with the 3rd Edition but unlike the ICE 5th or 6th, the words "with due care and diligence" are used. It would, however, be no defence to an allegation of brea breach ch of a cont contra ract ct which which prov provide idess stri strict ct liliab abililitity, y, for for the the Cont Contra ract ctor or to demonstrate that he used due care and diligence, for example in the selection and ordering of a material which proved to be defective. The purpose of the words may be to make it clear to the Contractor that the Employer is not concerned solely with the result but with the means whereby the Contractor achie achieve vess that that resu resultlt.. Unde Underr clau clause se 41.1 41.1 (Com (Comme menc ncem ement ent of Work Works) s) the the Contractor is obliged to proceed after the commencement of the works "with due expedition and without delay". Thus, a Contractor is obliged not only to complete the works on time but to work diligently throughout. Some U.K. contracts express this as an obligation to proceed "regularly and diligently". This obligation is reflected in clause 46 (Rate of progress) which gives the Engineer power to order the Contractor to expedite the works. The reference to design poses a danger to the Contractor. As the contract includes the specification, drawings and bills of quantities, the Contractor would be well advised to check carefully that there is no design obligation hidden away in any of these documents. There is some comfort in clause 8.2 with its general statement statement that the Contractor is not responsible responsible for design design and the requirement requirement for express provision of the Contractor's design obligation. For a comment on the level of design responsibility imposed, see clause 7.3 (Responsibility unaffected by approval). The second sentence of clause 8.1 should be read in conjunction with clause 11.1 (Inspection of Site) and clause 12.1 (Sufficiency of Tender). Naturally, it is impossible for a specification or the Bills of Quantities to specify every nut, bolt and screw-driver that may be required. See, however, clause 51.1 (Variations) item (e) "execute additional work of any kind necessary for the completion of the Works". CLAUSE 8.1 (Contractor's general responsibilities) The following additional paragraph has been added:"The Contractor shall give prompt notice to the Engineer, with a copy to the Employer, of any error, omission, fault or other defect in the design of or
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Specification for the Works which he discovers when reviewing the Contract or executing the Works." The wording closely follows a recommendation contained in the World Bank's Sample Bidding Documents published in December 1991. The first question raised by this addition is whether a Contractor will be liable for breach of this clause if he should, should, and any reasonably diligent diligent Contractor Contractor would have discovered the error. In other words, is the test purely subjective? It would normally be very difficult to prove that a Contractor knew of but failed to report a design error. error. The Employer will will therefore therefore no doubt turn to the opening words of the clause which require the Contractor "with due care and diligence (to) .... execute execute and complete complete the Works". The Employer Employer will argue that this this duty of care applies to the new obligation imposed by the additional paragraph. It is submitte submitted d that such an argument argument should should not succeed. succeed. As stated stated in the comm commen enta tary ry to Clau Clause se 8 in the the main main work work,, the the Engl Englis ish h cour courts ts have have not not established a policy in relation to an implied obligation to warn the Employer of a defect actually found. The English courts have therefore been unwilling even to to entertain an argument that a Contractor without design responsibility should be required by implication to perform a check of the design. The wording of the additional paragraph supports the view that it is only design errors actually discovered that give rise to the duty, particularly because it would be difficult to argue that the discovery of faults is embraced within the meaning of the "Works" which have to be executed and completed with due care and diligence. The second question raised by the wording is whether there is any obligation upon a tenderer who discovers design errors during his review of the tender documentation either to disclose the error at that stage or immediately upon signat signatur ure e of the contr contract act.. The The incl inclusi usion on of the the cond conditition ionss in the tend tender er documents does not of itself impose obligations upon the tenderer who only submits to those conditions and the obligations contained therein when he signs the the cont contra ract ct.. If an Em Empl ploye oyerr wish wishes es to impose impose such an obliga obligatition on upon a tenderer, he must require tenderers expressly to disclose any errors found and to include within the tender form a declaration that no such errors have been found. It will of course be appreciated that the identification of errors is a part of the estimator's art as it enables the tenderer to reduce his overall price in anticipation of additional payment for the variations that are necessitated by the errors. If the error has been discovered during the tender process, it was no doubt the intention of the draftsman that such errors should be disclosed immediately after the signature of the contract contract if not before. If this was indeed indeed the intention, it must be doubted whether it is reflected in the wording which is more consistent with a discovery after the date when the contract is entered into.
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Clause 1.5 (Notices, consents etc) requires that notices such as the one to be given under this paragraph be in writing. ".... any error error , omission, omission, fault or other defect defect in the design ...". ...". This wording wording is wide enough to cover conceptual defects as well as errors in detailed design. Thus, a Contractor may be obliged to give notice if, for example, he considers that the design of a structural element gives an inadequate factor of safety. Equally Equally,, he could could be obliged obliged to notify notify if he consider considered ed that the design design of the works did not make proper allowance for the integration of a subsequent phase of the project. The damages that could flow flow from breach of such a wide-ranging obligation could be considerable and would come as a great surprise to any Contractor from whom they were claimed. Although it is by no means beyond dispute, it is submitted that the Contractor must not only discover discover the error error but also recognise recognise it as such. It may very well be the case that design error is a matter matter of opinion in which case it is submitted submitted that the Contractor must form the requisite opinion. This places an even greater burden upon any Employer seeking to claim from a Contractor under this clause. Notification under this paragraph will generally lead to a review of the element of design in question and, where appropriate, a variation would be ordered under clause 51.1 (Variations). However, this wording is not limited to design design executed by the Engineer but also calls upon a Contractor to notify defects in his own desig design. n. In thes these e cases cases,, noti notififica catition on will will lead lead to the the subm submiss issio ion n of revi revise sed d draw drawin ings gs for for appr approv oval al unde underr clau clause se 7.2 7.2 (Per (Perma mane nent nt work workss desi design gned ed by Contractor). 8.2: 8.2: The The Cont ontract ractor or's 's resp esponsi onsibi billity ity for site ite oper operat atio ions ns and and metho ethods ds of const constru ruct ctio ion n is refl reflec ecte ted d in clau clause se 12.2 12.2 (Adve (Advers rse e physi physica call obst obstru ruct ctio ions ns or conditions) where the Engineer may choose to leave the Contractor to suggest means means of overcom overcoming ing the obstacl obstacles. es. Under Under clause clause 14.1 14.1 (Progr (Programm amme e to be submitted) the Engineer may require the Contractor to provide a written general description of the arrangements and methods which the Contractor proposes to use for the execution of the works. Clause 14.4 (Contractor not relieved of duties or responsibilities) makes plain that showing the Engineer does not relieve the Contractor of his responsibility for his methods. An exception to the principle of leaving method method to the Contractor Contractor is found in clause 46 (Rate of progress) progress) which gives the Engineer the right to withhold consent to the Contractor's proposed acceleration measures. The Contrac Contractor tor's 's respon responsib sibili ility ty under under this this clause clause is qualif qualified ied by clause clause 20.4 20.4 (Employer's risks) which gives to the Employer responsibility for a number of circumstances causing loss or damage including item (g) which makes "loss or damage to the extent that it is due to the design of the Works" by the Engineer a risk upon the Employer. FIDIC does not produce a design and build form of contract. However, design by the Contractor is referred referred to in four other clauses namely:Page 69 of 264
clause clause 7.2. 7.2. clause clause 20.4 20.4 clause clause 39.1 39.1 clause clause 49. 49.3 3
Perman Permanent ent Works Works designed designed by Contra Contracto ctor r Empl Em ploye oyers rs Risks Risks Removal Removal of of improp improper er work, work, mate materia rials ls or plant plant Cost Cost of rem remed edyi ying ng defe defect ctss
A Contractor concerned at the number of references to design by the Contractor contained in the conditions will find some reassurance in the statement in this sub-c sub-clau lause se that that he is not respo respons nsib ible le for for the the desig design n and and the the refe refere rence ncess to express provision in the final sentence of this clause, clause 7.2 (Permanent work work design designed ed by Contra Contracto ctor) r) and, in relati relation on to nomina nominated ted subcont subcontrac ractor tors, s, clause 59.3 (Design requirements to be expressly stated). For a comment on the level of design responsibility imposed, see clause 7.3 (Responsibility unaffected by approval). A difficult question arises as to the responsibilities of a contractor without design responsibility. In McQuade v Solchek Pty Limited (1989) B&CL 131, it was held by the Supreme Court of South Australia that there was no implied warranty by the contractor that a steeply sloping driveway, the design and location of which was specified by the owner, would be fit for its intended use. However the Supreme Court of Canada in Brunswick Construction v Nowlan (1974) 49 DLR(3d) 93 held that where the Employer had obtained a design from a professional but had not retained the designer to supervise, the contractor was liable where the design was found to be defective as he should have warned the Employer of the design defects. The duty to warn principle is not settled or well established in the English courts. One Official Referee in Edac v Moss (1984) 30 BLR 141 expressed the view that a contractor who finds a defect in the design given to him is under an implied obligation to warn the Employer of the defect, whilst another, in University of Glasgow v Whitfield (1988) 42 BLR 66, considered a duty to warn would only exist if the contractor contractor had voluntarily voluntarily assumed such a duty. See also Investors in Industry Commercial Properties v South Bedfordshire (1986) 1 QB 1034 where the Court of Appeal held that an architect has a duty to warn in relation to structural design defects even where an engineer had been appointed. CLAUSE 9 : Formal Contract Agreement
This clause provides for the preparation and signing of the formal Contract Agreement which is to be prepared, modified as necessary and completed at the Employer's cost. This clause is virtually unchanged from the 3rd Edition. The parties will have concluded a contract as soon as the offer comprised in the Tender, which may have been adjusted during negotiations, is unequivocally accepte accepted d by the Employ Employer er in his Letter Letter of Accept Acceptanc ance. e. After After a negoti negotiati ation, on, however, the existence and terms of the contract may not be beyond doubt and the Employer is given the option of requiring the Contractor to enter into the Agreement. In some countries, however, a formal formal agreement is required by law Page 70 of 264
or highly advisable politically. As pointed out by FIDIC FIDIC in their Guide, the parties should should also also bear bear in mind mind the need need for counter-s counter-sign ignatu ature re or ratifi ratificat cation ion,, the obligation to pay stamp duty and other respects in which local law or practice may impinge upon the signing of the Agreement. It should also be borne in mind that the Letter of Acceptance is used extensively as the starting point for various periods of time under the contract. For a list of the relevant clauses, see under clause 1.1(b)(vi). Conflict and confusion could therefore be created if the law or practice applicable to the project dictated that a contract would only come into existence once the Contract Agreement had been signed if that Contract Agreement was not signed simultaneously with or very soon after the Letter of Acceptance had been sent. In those cases, the relevant clauses should perhaps be amended to make the periods of time run from the signature of the Contract Agreement. If any modification to the Agreement is required other than the completion of the blanks, which should not not be controversial, there may be scope for disputes. For example, if the Employer adds a number of documents to the list of documents whic which h are are to comp comprrise ise the cont ontract ract,, this his may may give ive rise ise to obje object ctio ions ns.. Furthermore, under English law, an agreement imposing an obligation upon a part partyy to sign sign a docu docum ment, ent, the terms erms of whic which h are are not not yet yet agre agreed ed,, is unenforceable: this is because the English courts do not consider it their role to create agreements between the parties. If the English courts' dislike of "an agreement to agree" did not nullify the existence of a contract, a dispute over the necessity for proposed modifications would would fall fall within within the scope scope of clause clause 67 (Settlem (Settlement ent of disputes disputes). ). Thus, Thus, the necessity for such modifications could be the subject of a decision by the Engineer and possibly by an arbitrator. The result of such procedure could be an award specifying the necessary modifications and a direction to the Contractor to execute the document. If the the Contr Contrac acto torr refu refused sed to execu execute te a modi modifified ed docum document ent provi provide ded d by an Employer, and the court or arbitrator decided that the refusal was a breach of clause 9, it is not immediately obvious what loss or damage the Employer would have suffered as a consequence. As the Agreement is given the highest priority under clause 5.2 (Priority of contract contract documents) documents) its terms and any modificati modifications ons thereto thereto are very important. important. It is envisaged by clause 1.1(b)(i), in the definition of "Contract", that further documents may be expressly incorporated into the Agreement. For clarity, it may well be advantageous to list all contract documents under Article 2 but it is not strictly necessary as such further documents that are expressly incorporated in the the Lett Letter er of Acce Accept ptan ance ce will will fall fall with within in the the defi defini niti tion on of Cont Contra ract ct.. The The incorporati incorporation on into the Agreement Agreement of all the contract contract documents documents could potentially potentially disrupt disrupt the intended intended order of priority priority of the contract documents: documents: for a discussion discussion of this point, see the commentary under clause 5.2.
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As "the Employer" and "the Contractor" are defined both in the Agreement and in clause 1.1 (Definitions), the parties should ensure there is no mismatch between the two. The Agreement is in very similar form to the 3rd Edition and ICE 5th. CLAUSE 10 : Performance Security
If a bond is called for by the contract, the Contractor must supply it to the Empl Em ploy oyer er at his his own own cost cost with within in 28 days days of his his rece receip iptt of the the Lett Letter er of Acceptance, Acceptance, simultaneo simultaneously usly informing informing the Engineer. Engineer. The amount must must be as stated in the Appendix and the form and bondsman must be agreed by the Employer. The bond bond must must be vali valid d unti untill the the issue issue of the the Defe Defect ctss Liab Liabililitityy Cert Certifific icat ate e whereupon it must be returned to the Contractor within 14 days. Before claiming on the bond, the Employer must inform the Contractor of the grounds for the claim. Sub-clause Sub-clause 10.1 is a re-worded re-worded version version of clause 10 of the the 3rd Edition. Edition. Subclauses 10.2 and 10.3 are entirely new. Part II provides two example forms of performance security and provides optional additional wording to specify the currency or source of the security. The type of performance guarantee suggested by FIDIC was the subject of scrutiny by the Hong Kong Court of Appeal in Tins Industrial v Kono Insurance (1987) 42 BLR 110, who held that the bond is indeed conditional on proof of breach and damage. 10.1 10.1 It would would normall normallyy be preferab preferable le for both both the form and and institut institution ion provid providing ing security to be agreed prior to the issue of a Letter of Acceptance. Otherwise, the Contractor is given a period of 28 days in which to agree these matters and to negotia negotiate te with the institut institution ion and provide provide the bond. bond. Four Four weeks weeks will often often be insufficient insufficient for this exercise. exercise. More fundamental fundamentally, ly, if the Contractor Contractor is informed informed after the contract has been entered into that the Employer requires the form of bond to be, for example, "on-demand", agreement on the form may never be achieved. achieved. As commented commented in relation relation to clause 9.1 (Contrac (Contractt Agreement), Agreement), an agreement agreement to agree something something in the future is not readily enforceable enforceable in English English courts and difficult to enforce under any circumstances. Therefore the Employer runs the risk that if the form is not agreed in advance of the Letter of Acceptance, he will lose his right right to securi security ty altogeth altogether. er. It may even be arguab arguable le that, as agreement on an important term has not been achieved, no contract exists at all. As to the Employer's approval of the institution, clause 1.5 (Notices, consents etc) states that such approval "shall not unreasonably be withheld or delayed". Page 72 of 264
Again, a protracted dispute dispute could arise out of whether whether a refusal refusal of approval approval was unreasonable unreasonable which which would once again endanger endanger the Employer's Employer's security security.. The sensible course is for the Employer's requirements and indeed the Contractor's proposed institution, to be defined as far as possible in the tender documents. An effective sanction is provided by clause 60.2 (Monthly payments) which prohibi prohibits ts interi interim m certif certifica icatio tion n until until the the perfor performan mance ce securi security ty has been been duly duly provided. The effectiveness of the sanction is negated, however, if the form of the bond is still the subject of debate when the first interim payment is due. The Engineer may have no power to certify but the Contractor may have no obligation to perform due to the absence of a concluded contract. In English law, the Contractor would be entitled to be paid a reasonable sum for the work done in the absence of a contract. The forms of security set out in Part II are a performance and a surety bond. FIDIC do not encourage the use of on-demand bonds because of the premium that tenderers add to their bids on account of the risk of abuse of such bonds. As the English Court of Appeal pointed out in Edward Owen Engineering v Barclays Bank (1977) 3 WLR 764; 6 BLR 58, a properly documented call on an ondemand bond must be honoured unless there is clear evidence of fraud. Other forms of bond that the Employer may seek include:- tender or bid bond - advance payment bond - retention money bond - maintenance bond, to ensure compliance with Defects Liability Period obligations. Other security provided to the Employer under the contract includes: retention, whereby up to 10% of the value of the work is not paid for by the Employer Employer until the project is successfully completed; payment in arrears, whereby the Employer pays for works at least two months after they have been executed; the ability of the Employer to make use of the Contractor's equipment, temporary works and materials following the termination of the Contractor's employment under clause 63.1 (Default of Contractor); the right to deduct damages for delay under clause 47.1 (Liquidated damages for delay); and the insurance provisions to be found in clauses 21, 23 and 24. 10.2 10.2 This This clause clause cannot cannot of itse itselflf influe influence nce the the terms terms of an existin existing g bond but but is intended to be part of the form to be agreed between the Employer and the Contractor. In the event of a default by the Contractor such that he does not complete the works, this sub-clause would theoretically require the performance security to remain remain valid indefinitely indefinitely.. If a performance performance bond is paid, paid, then it is defunct and, and, similarly, if the surety either completes the work itself, or by another contractor or pays the amount of the bond, the surety bond will also be defunct.
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Perfor Performanc mance e securi security ty is not availa available ble to an Employe Employerr in respec respectt of defect defectss emerging after the issue of the Defects Liability Certificate. The return of the bond within 2 weeks of the issue of the Defects Liability Certif Certifica icate te is partic particular ularly ly import important ant in relati relation on to on-demand on-demand bonds. It is not unknown for institutions to consider it necessary for the sake of their reputations to hono honour ur on-d on-dem eman and d bond bondss if they they rema remain in in the the hand handss of an Em Empl ploy oyer er regardless of a claim by the Contractor that its validity has expired or that it is too late under the contract contract to make a claim under it. it. The attitude attitude may be that they will not become party to such disputes but will treat the bond as the equivalent to a bank banker er's 's draft. draft. Thus Thus,, it is only only by secur securin ing g the the retu return rn of the the bond bond to the the institution itself that a Contractor can be sure that no claim will be honoured. 10.3 10.3 Agai Again, n, the real real sign signifific icanc ance e of this this claus clause e is in rela relatition on to on-d on-dem eman and d bonds. Given prior notification, the Contractor will will be better placed to attempt to remedy the default, to dissuade the Employer from proceeding or to dissuade the institution from honouring the demand by demonstrating, for example, that the bond was invalid or had expired or that any claim against the bond would be fraudulent. Alternatively, the Contractor could attempt to obtain an injunction injunction to prevent the payment under the bond on such grounds. However, as no period is specified or of necessity to be implied, the Employer is entitled to call the bond immediately upon giving the notice in accordance with clause 68 (Notices). The failure of the Employer to give the requisite notice would not normally preve prevent nt paym paymen entt under under the the bond. bond. Unle Unless ss the the term termss of the the bond bond expre express ssly ly required the Employer to provide proof of notification, the payer would not be concerned with the terms of this sub-clause. Such a failure would amount to a breach of contract on the part of the Employer for which he would be liable in damag damages es.. In the the case case of a typi typical cal on-de on-dema mand nd bond bond,, the the Cont Contra ract ctor or would would probably be unable to show any loss as he would not have been able to prevent payment unless one of the exceptional grounds referred to above existed. With other forms of security, the bondsman or insurer would consult the Contractor in any event before paying. This sub-clause raises the issue of the respective rights and liabilities of the Contractor and Employer after the Employer has successfully called an ondemand bond where either the call was unjustified or the sum thereby recovered exceeded any loss loss or damage incurred incurred by the Employer. Employer. There is no express express term dealing with the matter nor does this sub-clause address the matter directly. Its relevance may be in the support that it gives to the argument that there is an implied term that the Employer will only call the bond where there has been a genui genuine ne defa defaul ultt and will will repa repayy to the the Cont Contra ract ctor or any any sum sum rece receiv ived ed by the the Employer which exceeds the amount of his loss and damage flowing from the default. default. An argument argument for such an implied term rests rests on the assumption assumption that the Contractor is bound by agreement with the institution to indemnify the institution in respect of the sums paid out, as is normally the case.
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The terms of clause 67 (Settlement of Disputes) are wide enough in principle to cover a dispute dispute over a bond and the financial financial consequences consequences of a call upon upon it. In the absence of such an implied term, it would be a very difficult question whether the arbitrator would have power to make an award directing the Employer to repay to the Contractor all or part of the sums paid out by the institution under the bond. See on this the discussion under clause 67.3 (Arbitration). (Arbitration). The use of the term "default" in this sub-clause reflects the use of that term in the two sample bonds in Part Part II. In this context, the term means any material breach of contract and it is therefore submitted that the use of the term in this clause is not limited to the defaults listed in clause 63.1 (Default of Contractor). CLAUSE 11 : Information regarding Contract
The Employer is to hand over to the Contractor at tender stage all information in his possession relevant to the site. The Contractor is responsible for interpreting interpreting the informa informatio tion. n. The Contrac Contractor tor will will be taken to have inspected inspected the site and examined available information relating to the ground conditions, weather, the necessary work and materials and the access and accommodation that he will need. Generally, he will have considered all the risks which may affect his tender. The Contractor will be taken to have based his tender on such information and inspections. Clau Clause se 11 is esse essent ntia iallllyy simi simila larr to the the 3rd 3rd Edit Editio ion n alth althou ough gh "so "so far far as is pract practic icab able le"" is now now qual qualififie ied d by cost cost and and time time consi conside dera ratition onss and, and, more more importantly importantly,, the addition addition of the final sentence means that the Tender is deemed to be base based d both both on the the data data and and upon upon the the Cont Contra ract ctor or's 's insp inspec ecti tion on and and examination whereas, under the 3rd Edition, the deeming referred only to the data. This This claus clause e provi provide dess for for the the Em Empl ploye oyerr to provi provide de "dat "data" a" as dist distin inct ct from from interpretat interpretation. ion. Thus an Employer Employer may be well advised advised to remove the opinions opinions and conclusi conclusions ons express expressed ed in the reports reports and surveys surveys that he obtains. obtains. If an incorrect or negligent opinion was passed to the Contractor and he relied upon it, he coul could d well well argue argue under under claus clause e 12.2 12.2 (Adv (Adver erse se phys physic ical al obstr obstruc uctition onss or conditi conditions) ons) that any experi experience enced d Contra Contracto ctorr would would accept accept the views views of the specialist who prepared the report and that therefore the actual conditions could not reasonably reasonably have been foreseen. foreseen. The Employer Employer should, however, however, err on the side of inclusion where the line between data and opinion cannot clearly be drawn. drawn. If an Employer Employer is found found to have withhel withheld d data, he will have have been in breach of contract and the damages would, in principle, be the difference if any that the information information would would have made to the contract price. price. Alternative Alternatively, ly, the miss missin ing g info inform rmat atio ion n coul could d affe affect ct what what an expe experrienc ienced ed Cont Contra ract ctor or coul could d reasonably have foreseen within clause 12.2. In this context, see the Federal Court of Australia's decision in Phillip & Anton Homes v Commonwealth of Australia (1988) 7 ACLR 39 in which the court held the Employer liable for the Page 75 of 264
misl mislead eadin ing g impr impress essio ion n creat created ed by the the docum document entss about about the the sub-s sub-sur urfa face ce conditions and discounted a general disclaimer of responsibility. This clause clearly shows the difficulty of reconciling the commercial realities of tender tendering ing with with a desire desire to place risks risks upon the Contract Contractor. or. It would would make tendering prohibitively expensive if each tenderer was obliged to conduct his own grou ground nd invest investig igat atio ion n so the the Em Empl ploye oyerr carri carries es out out the the surv survey ey and and make makess it available to the tenderers. tenderers. On the other hand, the tenderers tenderers are deemed to have satisfied themselves as to the form and nature of the site including the subsurface surface conditions. conditions. Nevertheless, Nevertheless, commercia commerciall reality is reflected reflected in that such inspections and examinations are limited to what is practicable in terms of cost and time. This limit limit of practicabilit practicabilityy seems to qualify qualify only the obligation obligation for the Contrac Contractor tor to satisf satisfyy himsel himselff and not the deemed deemed obliga obligatio tion n to inspect inspect and examine: examine: this may not be materi material al as the limitati limitation on is repeat repeated, ed, somewha somewhatt ambiguously, by the words "subject as above mentioned" in the general deemed obli obliga gati tion on to make make due due allo allowa wanc nce e for for all all info inform rmat atio ion n glea gleane ned d from from such such inspections and examinations. The third deeming provision that the tender is based on the Employer's data as well as on the Contractor's own inspection and examination could give rise to curious results as the Contractor's inspection and examination may lead him to conclus conclusion ionss quite quite differen differentt to those those suggested suggested by the Employer Employer's 's data. For example, if the data showed the water table to be at a sufficient depth so that it woul would d not not inte interf rfer ere e with with the the work workss in any any way, way, but but the the Cont Contra ract ctor or's 's own own information was that the water table was normally much higher with the result that either the data was incorrect or readings readings were taken at a moment when the water table was unusually low, what is the effect of this provision? If there is an item for pumping in the bills, the Contractor is quite possibly going to make a fortune! fortune! However, However, he will get no recovery under clause clause 12.2 as the conditions conditions could could have have been "reason "reasonably ably foresee foreseen n by an experi experience enced d Contra Contracto ctor". r". The difficulty comes with with his entitlement to extension of time. time. The answer may lie lie in the difference difference between data and interpreta interpretation. tion. Any conclusion conclusion drawn that the water table was not a problem could be held to be interpretation and thus the responsibility of the Contractor. In this way, it is possible to reconcile the tender bein being g base based d bot both on the data data and and on the the Cont Contrract actor's or's inspe nspect ctiion and and exami examinat natio ion. n. A furt further her conse consequ quenc ence e of this this deem deemin ing g prov provis isio ion n is that that the the Employer will not be able to argue that the Contractor did not rely on any incorrect information supplied under this clause by the Employer. In the absence of an express obligation to provide the data, the common law has considerable difficulty in deciding whether the Employer has any duty in relation to the provision provision of information information and, if so, the extent of that duty. In the Supreme Court of New South Wales, the matter arose in Dillingham Construction v Downs (1972) 2 NSWLR 49. It was held that a duty of care might exist in pre-contractual negotiations negotiations depending on whether whether the Employer Employer assumes the task of providing full and accurate information on site conditions and whether the Contractor relied upon the Employer providing such accurate information. It was held that there was no general duty to provide information. The High Court of Australia also Page 76 of 264
discusse discussed d this this issue issue in Morris Morrisonon-Knu Knudse dsen n Intern Internati ationa onall v Common Commonwea wealth lth of Australia (1972) 46ALJR265; 13 BLR 114. This clause should be read with clause 12.1 (Sufficiency of tender) which also seeks to deem matters to be included in the Contractor's tender. See the commentary under that clause for discussion of the extent of the Contractor's obligation to overcome difficulties and complete the works. In the 3rd Edition, the tender was deemed to be based only on the Employer's data and not expressly expressly the Contractor's Contractor's inspectio inspection n and examination. examination. ICE 5th makes makes the the supp supply ly of info inform rmat ation ion by the the Em Empl ploye oyerr opti option onal al;; whil while e ICE ICE 6th, 6th, unbelievably, deems that the Employer has made available all his information on the site. "(a) the form and nature thereof, including the sub-surface conditions". See clause 12.2 (Adverse physical obstructions or conditions) which places the risk of unforeseeable ground conditions on the Employer. As commented above and under under clau clause se 12.2 12.2,, the the data data provi provide ded d and and avai availa lable ble to the the Cont Contra ract ctor or will will influence whether the conditions found are held to be unforeseeable. "(b) the hydrological and climatic climatic conditions". See clause 44.1 (Extension of time time for completion) where "exceptionally adverse climatic conditions" are grounds for an extension of time. Whilst there is is an apparent mismatch mismatch in that weather may be exceptionally adverse despite the fact that the information indicating the probability of such weather was available to the Contractor at tender stage, this clause may have the effect of imposing an additional requirement before an extension of time is granted. For circumstances "fairly to entitle entitle the Contractor to an extension", he must presumably demonstrate that such conditions were not allowed for nor deemed to have been allowed for in his tender and thus his programme. programme. See also clause 12.2 (Adverse (Adverse physical physical obstruction obstructionss or conditions) and clause 40.1 (Suspension of work) for other references to climatic conditions and clause 20.4 (Employer's risks) for the phrase "any operation of the forces of nature". "(c) the extent extent and nature nature of work and materials materials...". ...". The purpose purpose of this subclause is to forestall claims for variations under clause 51.1 (Variations) on the grounds that the Contractor Contractor did not know that such work was necessary. This is to be read in conjunction with clause 8.1 (Contractor's general responsibilities) which requires that "the Contractor shall provide...all other things...required...so far as the necessity for providing the same is specified in or is reasonably to be inferred from the Contract" and clause 12.1 (Sufficiency of tender). See also clauses clauses 55 to 57 (Measure (Measuremen ment) t).. These These clause clause in combinati combination on make it very very difficult to argue that if a type of work is not covered by the bill of quantities, a variation should be granted to the Contractor. "(d) the means of access to the Site and the accommodation he may require". This item is to be read in conjunction with clause 42.1 (Possession of site and acce access ss ther theret eto) o) and and clau clause se 42.3 42.3 (Way (Wayle leav aves es and and faci facililiti ties es). ). The The term term Page 77 of 264
"accommodation" occurs only here: clause 42.3 was amended for the 4th Edition and "accommodation" was replaced replaced with "facilities". "facilities". It is necessary to distinguish between access which the contract requires the Employer to make available and the residual obligation upon the Contractor to make his own arrangements. Part II provides an optional additional clause for circumstances where the data cannot cannot be provided provided with the Tender Tender document documents. s. The clause clause is not strict strictly ly necess necessar aryy as the the pres present ent word wordin ing g "made "made avail availab able le"" cover coverss data data open open for for inspect inspection ion at specif specified ied places places as well well as inform informati ation on provid provided ed with with Tender Tender documentation. CLAUSE 12 : Tender and Rates
This clause states that the Contractor will be taken to have satisfied himself that his tender and the rates and prices stated in the Bill of Quantities are correct and suffi suffici cien entt and and that that they they cover cover ever everyt ythi hing ng that that the the Cont Contra ract ctor or has has to do to complete the contract. If the Contractor Contractor encounters encounters physical physical obstructions obstructions or conditions conditions (other than bad weather) which an experienced Contractor could not have foreseen, he may give notice to the Engineer. If after consultation with the Employer and the Contractor, the Engineer agrees, he grants an extension of time and costs including in respect of any instruction or other action taken by the Contractor to overcome the obstacle. In the 4th Edition, Edition, clause 12 is divided into two sub-clauses. Sub-clause 12.1 is very similar to the first sentence of the 3rd Edition Edition but the words in parentheses parentheses are additional. additional. Sub-clause Sub-clause 12.2 retains retains the same basic structure structure as the second part of clause 12 of the 3rd Edition but refers to "physical obstructions or physical conditions" instead of "physical conditions ... or artificial obstructions". 12.1 12.1 This This sub-c sub-cla laus use, e, which which logi logicc and, and, indee indeed, d, the the ICE ICE woul would d plac place e in the prev previo ious us clau clause se,, has has to be read ead in conj conju unct nction ion with ith clau clause sess 55 to 57 (Measurement). This clause does not deem the Contractor to have satisfied himself as to the quantities in the Bill which clause 55.1 (Quantities) states are estimated and "not to be taken as the actual and correct quantities". This clause provides a defence to the Employer against a claim by the Contractor for variations and extra payment on the grounds that items of work were not covered within the Bills of Quantities. The Employer will say that the Contractor has to satisfy himself that the tender covers all his obligations under the contract and that if the work the subject of the claim was reasonably to be inferred from the drawings, specification etc the Contractor is entitled to no further payments. For more on this area, see the commentary to clauses 55 to 57. It may be relevant to note that the Tender is defined at clause 1.1(b)(v) as the Contractor's offer "as accepted by the Letter of Acceptance". Thus the Tender Page 78 of 264
will often be the result of a course of negotiation and changed from the document originally submitted. Under clause 5.2 (Priority of contract documents), it is stated that whilst the contract documents, of which the Tender is one, are to be taken as mutually explanatory, "in case of ambiguities or discrepancies the same shall be explained or adjusted by the Engineer". Thus it may be possible for an error in the tender which amounts to a discrepancy discrepancy or causes an ambiguity, ambiguity, to be rectified. rectified. It is not necessary for the ambiguity or discrepancy to be between the various contract documents but may be limited to the Tender. Errors in carrying forward the rates and prices in order to achieve the Contract Price should be irrelevant to the Contractor' Contractor'ss recovery recovery which will be based on the remeasured remeasured quantities quantities and the rates only. Thus, the unscrupulous unscrupulous Contractor Contractor may try to increase increase his prospects prospects of succeeding in the competitive tender by introducing such errors in order to reduce his tender price. Thus, the first task of the Employer's Quantity Surveyors will be to check the mathematics of the Bill of Quantities. "...except insofar as it is otherwise provided in the Contract...". Taken in isolation, clause clause 11.1 11.1 (Ins (Inspec pectition on of Site Site)) and and this this claus clause e seem seem to sugg suggest est that that the the Contractor must allow for whatever steps are necessary in order to complete the project. This position would be in accordance with English common law which, subject to numerous qualifications, imposes the same obligation. This contract has a number of provisions provisions which produce produce a fairer result result with the benefit benefit to the Employer that the Contractor will not have to include large contingency sums in his tender to cover a wide range of largely unpredictable risks:-cla -claus use e 12.2 12.2 (Adve (Advers rse e phys physic ical al obst obstru ruct ctio ions ns or condi condititions ons)) rele releas ases es the the Cont Contra ract ctor or from from respo respons nsib ibililitityy for for phys physica icall obstr obstruc uctition onss or condi condititions ons not reasonably foreseen; -clause 13.1 (Work to be in accordance with contract) releases the Contractor in the event of legal or physical impossibility; -clause 20.4 passes responsibility to the Employer for a list of "Employer's Risks" including design and "any operation of the forces of nature"; -cla -claus uses es 55 to 57 (Mea (Measu sure reme ment nt), ), whic which h make make this this form form of cont contra ract ct a remeasurement contract, give the Contractor a right to be paid for additional quantities of work executed by reason, for example, of an unexpectedly high degree of unsuitable material found in excavations unless the contract expressly places responsibility on the Contractor's shoulders; -clause 65 (Special risks) further protects the Contractor from liability in the event of war and certain of the Employer's risks under clause 20.4; -cla -claus use e 66 (Rel (Relea ease se from from perf perfor orma manc nce) e) rele releas ases es the the Cont Contra ract ctor or from from performance in the event that any circumstance outside the control of both parties renders performance impossible or unlawful; and Page 79 of 264
-claus -clause e 70 (Chang (Changes es in cost and legisl legislati ation) on) reimbu reimburse rsess the Contr Contract actor or for additional costs arising from price fluctuations or changes in the law. The foregoing clauses represent a distribution of risk within the contract in line with the philosophy that it is better for the Employer to take on those risks which cannot readily be ascertained or priced. To do otherwise means that the lowest tenderer is likely to be the Contractor who has most severely under-estimated the possible problems with the project or who has taken the greatest risks. The Employer will not be well served if his Contractor is forced out of business should the risk eventuate. eventuate. Nevertheless Nevertheless,, an Employer Employer on a large project project which would would attract major international contractors and large performance bonds could well decide that risks should be re-aligned in the Employer's favour. In addition to the clauses listed above, the Engineer is empowered to order the Contractor Contractor to "execute "execute additional additional work of any kind necessary for the completion completion of the Works" under clause 51.1 (Variations) item (e). 12.2 12.2 This This edition edition depar departs ts from from the 3rd Edit Edition ion and and ICE 5th by dispe dispensi nsing ng with with the word "artificial" to describe the obstructions which now need only to be "physical". This plainly widens the scope beyond man-made obstructions to anyt anythi hing ng mate materi rial al.. The The ques questi tion on of what what is reas reason onab ably ly fors forsee eeab able le by an experienced experienced Contractor Contractor is a difficult question question of fact which has and will continue to occupy the attention of arbitrators worldwide. Contractors bidding for a contract containing this clause have to decide which of the most common risks to price for: the fewer allowed for, the lower their price and the better their their chance of winning the contract. Rock is a common example: an everyday risk in civil engineering but slow and expensive to remove. If the contract is silent, is the Contractor entitled to assume that no rock will be encountered? Clause 11.1 (Inspection of site) would require the Contractor to include in his tender for anything that practicable investigations should have disclosed. Disputes are perhaps inevitable when the contractor to win the job may be the contractor who has made the least allowance and thus is the most dependant on a claim under this clause. Notice must be given in writing in accordance with clause 1.5 (Notices, consents etc) and must be correctly addressed in accordance with clause 68 (Notices). Such Such noti notice ce must must be given given "for "forth thwi with th", ", that that is imme immedi diat atel ely. y. The The only only other other circumstances requiring such an instant reaction are clause 27 (Fossils) and clause 65.5 (Increased costs arising from Special Risks). However a failure to give such notice is not expressed to be a condition precedent to the Contractor's recovery and the notice requirement may be contrasted with clause 52.2 (Power of Engineer to fix rates) and with clause 44.2 (Contractor to provide notification and detailed particulars).
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The lack lack of proc procedu edure re foll follow owin ing g the the disc discove overy ry of a phys physic ical al obst obstru ruct ctio ion n or condition may give rise to difficulties. The question as to who is to decide what steps should be taken taken to overcome the obstruction or condition is not answered. The Contractor may ask for instructions of the designer of the project who will doubtless reply that it is not for him to dictate to the Contractor his method of working. In view of the likely critical nature of the problem, this impasse should perha perhaps ps have have been been avoi avoide ded d by the the draf drafts tsma man, n, despit despite e the the wide wide varie variety ty of possible circumstances giving rise to a claim under this clause. It is argued in the commentary under clause 51.1 (Variations) that, although the Engineer Engine er is given a broad discretion, when excercising that discretion as to whether or not to instruct, he is subject to clause 2.6 (Engineer to act impartially), particularly when the instruction would amount to a variation. "...during the execution of the Works...": A Contractor who has received his Letter of Acceptance but has not yet received his notice to commence under clause 41.1 (Commencement of works) would be well advised to avoid carrying out any digging of trial pits or drilling of boreholes. If the unforeseen physical condition or obstruction is discovered prior to the commencement of the execution of the Works, the Employer may well be entitled to argue that clause 12.2 does not apply. The Contractor would have to fall back upon clause 44.1 (Extension of time time for for comp comple leti tion on)) and and clai claim m that that the the prob proble lem m amou amount nted ed to "spe "speci cial al circumstance circumstances". s". Whilst the Contractor Contractor would probably have the sympathy of the arbitrator, his argument may well not succeed. "...other than climatic conditions on the Site". For the other references to the weather, weather, see clause 11.1 (Inspection (Inspection of Site), Site), clause 40.1 (Suspension of work) and clause clause 44.1 44.1 (Ext (Exten ensi sion on of time time for for comp comple letition) on);; and and see see claus clause e 20.4 20.4 (Employer's risks) for the phrase "any operation of the forces of nature". Clauses 20.4 and 44.1 are not limited to climatic conditions "on Site". Site". This is another example example of a clause where the marginal note, "Adverse physical physical obstruc obstructio tions. ns..." .." is not reflec reflected ted in the clause. clause. The word word "advers "adverse" e" does does not feature feature in the clause and the obligation obligation to give notice is not confined confined to adverse adverse conditions: the discovery of soil where rock was expected would technically require notification. The Engineer may be reluctant to grant time or costs for such good fortune but if the Contractor had to bring to site different equipment to replace the rock-blasting arrangements he had prepared, there may nevertheless be a claim. Clause 1.2 (Headings and marginal notes) makes it clear that marginal notes are not to be considered when construing the contract. In civil law countries, with systems based on the French model, administrative contracts including public works contracts would incorporate the Theorie des sujetions imprevues.By this doctrine, a Contractor encountering an exceptional and unforeseen physical physical obstruction obstruction which had not been caused by the relevant Administration, might be entitled to compensation under administrative law. In such a contract, therefore, clause 12.2 may not be strictly necessary. A questionmark remains, however, as to whether compensation will be reduced or refused if clause 11.1 (Inspection of site) is interpreted to mean that the Contractor has Page 81 of 264
agreed to take on the risk of ground conditions. For an outline of the major administrative law provisions, see under clause 5.1 (Languages and law). CLAUSE 12.2 (Not foreseeable physical obstructions or conditions) In the title of this sub-clause, the word "adverse" has been replaced with "not foreseeable". foreseeable". It was a peculiarity peculiarity of both the 3rd and 4th Editions that that the word "adverse" "adverse" appeared in the the title but not in the the text of the sub-clause. sub-clause. It is only a peculiarity as clause 1.2 (Headings and marginal notes) makes it plain that headi heading ngss and and marg margin inal al note notess shal shalll not not be take taken n into into consi conside dera ratition on in the the interpretation of the contract. CLAUSE 13 : Instructions from the Engineer
The Contractor shall complete the project in strict accordance with the contract to the satisfaction satisfaction of the Engineer unless it is legally legally or physically physically impossible impossible to do so. The Contractor Contractor is to obey Engineer's Engineer's instructions instructions on any matter relevant relevant to the works but shall only take instructions from the Engineer or the Engineer's Representative. This clause is effectively the same as the 3rd Edition. In relation to impossibility, this clause should be read in conjunction with clause 65 (Special risks) and clause 66 (Release from from performance). Under clause 65, the Contractor is released from performing, at the Employer's option, in the event of war but otherwise is obliged to continue to use his best endeavours to complete complete the works. If the works are damaged damaged by one of the special risks risks such as a bomb, the Contractor may be obliged to repair and replace the works at the cost of the Employer. Thus, it is only where war war or special risks render it legally or physically impossible to carry on that the Contractor is released without the Employer's consent. Clause 66 deals with any circumstance outside the control of both parties "which renders it impossible or unlawful for either party to fulfil his contractual obligations". Legal impossibility would include an injunction or a change in the local legislation which prevented the Contractor working at all or otherwise prevented the project from proceeding. proceeding. In this context, context, see clause 26.1 (Complian (Compliance ce with statutes, statutes, regulations) and clause 70.2 (Subsequent legislation) which deals with local legislation causing changes to the cost of the works. There is a spectrum of physical impossibility: at one extreme, there is something akin to frustration whereby circumstances beyond the control of either party prevent further performance such as the permanent flooding of the site due to some natural phenomenon. In the middle of the spectrum there would be projects which are physically impossible to build: for example, ground conditions might render the bridging of a river physically impossible so that the project would have to be aborted in favour of a tunnel. At the other end of the spectrum, a part of the particular design may be physically impossible to build. For example, it may be Page 82 of 264
impossible to fit the specified reinforcement within a column of the size required. It is submitted that all these types of physical impossibility to some degree relieve the Contractor Contractor of his underlying underlying obligation. obligation. In the third example, example, he is relieved from complying strictly with the drawings and specifications and the Engineer Engineer will be obliged to instruct instruct pursuant pursuant to clause 51.1 (Variation (Variations) s) as a variation variation would "in his opinion, be necessary". Unless the element of works had been designed by the Contractor, the variation would be valued under clause 52.1 (Valuation of variations). Physical impossibility could also include circumstances where the site was too smal smalll for for the the work workss desi design gned ed or wher where e clau clause se 12.2 12.2 (Adv (Adver erse se phys physic ical al obstructions or conditions) circumstances were encountered that were so severe as to prevent the completion completion of the works. It is submitted submitted that this clause does not cover circumstances where the completion of the works is simply more difficult or expensive than anticipated; nor circumstances where methods or machinery which the Contractor did not allow for in his tender are found to be necessary. necessary. This situation situation is to be contrasted contrasted with the circumstances circumstances where where the relevant relevant method or machinery machinery is specified specified in the contract with the result that the Contractor would be entitled to a variation if the relevant method or machinery prov proved ed phys physic ical ally ly impo imposs ssib ible le.. See See the the comm commen enta tary ry unde underr clau clause se 14.1 14.1 (Programme to be submitted) in relation to specified methods of working. If the the Engi Engine neer er's 's desig design n is inca incapab pable le of bein being g buil built, t, for for exam exampl ple, e, beca because use structural elements as designed would be incapable of withstanding the loads to be imposed upon them by other elements of the works, this could amount to physica physicall impossi impossibil bility ity.. The Contrac Contractor tor would would be entitled entitled to seek seek and obtain obtain instructions from the Engineer which would amount to variations under clause 51.1 (Variations). This situation is to be contrasted with a case case such as Sharpe v San Paulo Railway (1873) 8 Ch. App. 597 where a Contractor undertook to construct a railway for a lump sum. When it turned out that the quantities stated in the contract were substantially underestimated, it was held that, in the absence of fraud, the contractor had taken that risk when tendering a lump sum. "...in "...in strict accordance accordance with the Contract Contract to the satisfacti satisfaction on of the Engineer". In National Coal Board v William Neill & Sons (1985) QB 300; (1984) 26 BLR 81, an English Court considered a similar phrase, "executed in the manner set out in the specification, if any, and to the reasonable satisfaction of the Engineer". It was concluded that these words imposed a two-fold obligation upon the Contractor to achi achiev eve e comp complilian ance ce with with the the spec specif ific icat atio ion n and and to obta obtain in the the reas reason onab able le satisfaction of the Engineer. Both the ICE and FIDIC have removed the "and" but, but, it is submitt submitted, ed, the obliga obligatio tion n remain remainss two-fo two-fold. ld. The two requir requireme ements nts contained contained in this phrase are not always always easy to reconcile. reconcile. If the Contractor Contractor has complied with the letter of the contract but has not satisfied the Engineer, is he in breach or is he entitled to a variation to cover the additional work required by the Enginee Engineer? r? If the Contract Contractor or has not fulfill fulfilled ed the letter letter of the contra contract ct but the Engineer indicates that he is satisfied with a lesser standard, is the Contractor open to criticism? It must be borne in mind that the decisions of the Engineer are open to review by an arbitrator arbitrator under clause 67.3 (Arbitratio (Arbitration) n) at the instance of Page 83 of 264
both both Em Empl ploye oyerr and and Cont Contra ract ctor or.. As the the Engin Enginee eerr is to give or with withho hold ld his his satisfaction impartially in accordance with clause 2.6 (Engineer to act impartially), it is submitted that the Engineer is not acting as agent for the Employer in the event that he expresses satisfaction in relation to works not strictly in accordance with the contract. The Contractor is therefore therefore not able to argue that the Employer Employer has, through his agent, waived or varied the contract. See also clause 2.1 (Engineer's duties and authority) at item (c) which states that the Engineer does not have authority authority to relieve relieve the Contractor Contractor of any of his contractual contractual obligations, obligations, "except as expressly stated in the contract". The practical working interpretation should be that the Engineer is to be taken as the arbiter of what amounts to "strict accordance with the Contract". Compare the role of the Engineer as arbiter arbiter under clause 5.2 (Priority (Priority of contract documents) documents) in relation to ambiguities and discrepancies. How ever there is little support for such an approach in the contract. The Contractor appears to be entitled to execute the works to the letter of the contract and dispute at arbitration if necessa necessary ry the Engineer Engineer's 's decisi decision on to withhol withhold d his satisfac satisfactio tion. n. Sim Simila ilarl rly, y, a Contractor would be unwise to act upon an Engineer's expression of satisfaction where the works fall short of strict compliance with the contract as the Employer would be equally entitled to challenge the expression of satisfaction before an arbitrator and recover from the Contractor for breach of contract. It is therefore necess necessar aryy for for a Cont Contra ract ctor or wishi wishing ng to be secur secure e to obtai obtain n an inst instru ruct ctio ion n amounting to a variation or an indication that the Engineer, in waiving strict compliance, is doing so as authorised agent for the Employer despite clause 2.1(c). Elsewhere in the contract, the Engineer's satisfaction recurs most frequently in relation to the rectification of defects and damage and in relation to the readiness of the works or any part of the works works for a TakingTaking-Ove Overr Certific Certificate ate.. See for example, clause 17.1 (Setting out) and clause 49.2 (Completion of outstanding work and remedying defects). The Engineer's power to instruct instruct is very, perhaps perhaps absurdly, broad, limited only by the requirement requirement that that such instructi instructions ons must touch touch or concern the works. works. The provisions in the contract covering instructions are widely dispersed and this clause should be read in conjunction with clause 2.5 (Instructions in writing), clau clause se 7.1 7.1 (Sup (Suppl plem emen enta tary ry draw drawin ings gs and and inst instru ruct ctio ions ns)) and and clau clause se 51.1 51.1 (Variations). For a discussion of the Engineer's power to instruct variations, variations, see under clause 51.1. The question arises as to the power of the Engineer to issue instructions after substantial completion. There is no express limitation under clauses 2.5 or 7.1 or under this clause or clause 51.1. On the contrary, clause 7.1 refers to the remedying of defects and clause 49.2 (Completion of outstanding work and remedy remedying ing defect defects) s) and clause clause 50.1 50.1 (Contr (Contract actor or to search) search) contai contain n express express references to instructions during the Defects Liability Period. Nevertheless, it would come as a surprise to most people involved in a civil engineering project if the the Engi Engine neer er sough soughtt to issue issue an inst instru ruct ctio ion n amoun amountiting ng to a varia variatition on afte after r Page 84 of 264
substantial completion. This is because the project will generally be occupied by the Employer and in use and the Contractor will have been permitted permitted pursuant to clause 54.1 (Contractor's equipment, temporary works and materials; exclusive use for the works) to demobilise demobilise all his equipment equipment and labour save to the extent necessary to complete outstanding works and remedy defects. Finding support for this commonly held and common-sense view in the terms of the contract is diff diffic icul ult. t. Perh Perhap apss the the best best argu argume ment nt is that that clau clause sess 7.1 7.1 and and 51.1 51.1 refe refer r respect respective ively ly to instru instructi ctions ons and variat variation ionss that that are "necessar "necessary". y". It might might be argued that once the project is substantially completed, variations could not be necessary unless to overcome a fault not caused by the Contractor in which case clause 49.2 applies. The problem with such an argument is that "necessary" in clause 51.1 is entirely unqualified. If it appears during during the Defects Liability Liability Period that some part of the design is inadequate and needs to be amended in order to achieve the purpose of the project, it would be difficult to resist the variation on grounds of necessity. It is submitted that this issue needs to be resolved: this could be achieved either by making it clear that variations may not be instructed after the issue of the taking-over certificate or by way of a provision that instructions may not be issued after substantial completion where the Contractor has removed from the site, with the consent of the Engineer pursuant to clause 54.1, the equipment, temporary works or materials which would have been necessary to carry out the variations. Although a Contractor who had removed equipment could no doubt claim for the cost of remobilising in order to execute such a variation, this would often mean serio serious us disr disrup uptition on to the the Cont Contra ract ctor or's 's plan planss and and othe otherr proj projec ects ts and and is thus thus undesir undesirabl able. e. If the Engineer Engineer does does not have have power to order variat variation ions, s, the Employer is still at liberty to negotiate with the Contractor for the execution of the additional works. Clause 2.3 (Engineer's authority to delegate) makes provision for the delegation of powers powers to the Engine Engineer' er'ss Repres Represent entati ative ve and enable enabless the Contra Contracto ctorr to question question any communicati communication on from the Engineer's Engineer's Representative Representative and to receive the Engineer's confirmation or otherwise. Clause 2.5 (Instructions in in writing) also gove goverrns the the Engi Engine neer er's 's own own inst instru ruct ctio ions ns,, for for exam exampl ple e in requ requir irin ing g such such instructions to be in writing or, if oral, confirmed within the time limit specified. Clause 2.4 (Appointment of assistants) permits assistants to issue instructions under limited circumstances. In conformity with this clause, such instructions are deemed to have been given by the Engineer's Engineer's Representative. Representative. The reference in the current clause to the Engineer's Representative is superfluous and after clause 15.1 (Contractor's superintendence), no more is heard about him. If the instructions are given late, the Contractor may have a claim under clause 6.4 (Delays and cost of delay of drawings). CLAUSE 13.1 (Work to be in accordance with Contract) The final sentence of this clause has been changed from :"The Contractor shall take instructions only from the Engineer or, subject to the provisions of clause 2, from the Engineer's Representative." Page 85 of 264
to:"The Contractor shall take instructions only from the Engineer (or his delegate)." In the main work, it was commented that the references to the Engineer's Representative in clauses 13.1 and 15.1 (Contractor's superintendence) were unnecessary given that the Engineer has power under clause 2.3 (Engineer's authority to delegate) to delegate to the Engineer's Representative any of his duties and authoriti authorities. es. Those responsible responsible for the 1992 amendments amendments obviously obviously did not consider that that they could simply simply delete the the superfluous superfluous words. No doubt they feared that he emphatic language, "shall take instructions only from the Engineer", could be taken to override the effect of an Engineer's delegation under clause clause 2.3 of his authority authority to issue instruction instructions. s. As this sentence sentence is the only occasion that purports specifically to restrict an action to the Engineer himself, himself, the draftsman's draftsman's caution is perhaps perhaps not inappropriate. inappropriate. Contrast Contrast clause 15.1 (Contractor's superintendence), where a simple deletion of the reference to the Engineer's Representative was considered sufficient. CLAUSE 14 : Work Programme
Within a set time of the Letter of Acceptance the Contractor is to submit for approval approval his program programme me in the form form required required by the Enginee Engineer. r. He is also also to provide a written method statement as and when required by the Engineer. If the the Engi Engine neer er cons consid ider erss that that prog progre ress ss does does not not matc match h the the appr approv oved ed programme, he may require the Contractor to produce a revised programme showing how the works are to be completed on time. Within a set time of the Letter of Acceptance, the Contractor is to submit a detailed cash flow estimate of payments due to the Contractor and will revise the estimate quarterly if the Engineer so requires. The Engi Engine neer er's 's conse consent nt to prog progra ramm mmes es,, meth method od stat statem ement entss or cash cash flow flow estimates will not relieve the Contractor of any of his contractual responsibilities. Sub-clauses 14.1, 14.2 and 14.4 are taken, with changes mainly of vocabulary, from the 3rd 3rd Edition. Sub-clause 14.3 is entirely new. 14.1 14.1 It is a featur feature e of this cont contrac ractt that the the Employ Employer er and the the Engine Engineer er take take a close interest in the intentions of the Contractor. Compare for example a turn-key contract where the Employer may have no representative and is not overly interested in how the Contractor achieves the desired result provided that on the due date the required product is supplied. Such an approach is not always appropriate in civil engineering where ongoing quality control is often necessary due, at least in part, to the high proportion of the works which are covered up by subsequent operations. This clause requires the Contractor to tell the Engineer in what order and, if so requested, requested, by what methods methods the works are to be executed. executed. Page 86 of 264
From a practical point of view, this enables the Engineer to programme his detailed design and the Employer will need information to plan the giving of possession of the various parts of the site to the Contractor. The programme supp supplilied ed purs pursua uant nt to this this clau clause se will will defi define ne the the Em Empl ploy oyer er's 's duty duty to give give possession pursuant to clause 42.1 (Possession of site and access thereto). Failure to give possession in accordance with the programme could result in the Contractor being entitled to an extension of time and costs. In contrast, under clause 6.4 (Delays and cost of delay of drawings), a further notice to the Engineer making a specific request for a particular drawing or instruction is almos almostt certa certain inly ly requ requir ired ed befo before re time time and and cost costss may may be obta obtain ined ed.. See See the the comm commen enta tary ry unde underr subsub-cl clau ause sess 6.3 6.3 and and 6.4 6.4 as to whet whethe herr a mark marked ed-u -up p programme could amount to sufficient notice. The degree of detail to be provided is to be determined by the Engineer: this could be important. For the Employer a detailed programme will define closely his duties in relation to giving possession of the site and in relation to the provision of drawings by the Engineer. It will be more obvious when a breach of those duties has occurred. For the Contractor, it must be appreciated that he not is bound by his programme: he may call for draw drawin ings gs under under clau clause se 6.3 6.3 (Dis (Disru rupt ptio ion n of prog progre ress) ss) as he wishe wishess and and may may proceed with any part of the site of which he has possession. The constraint is that the Employer's obligation to give possession is governed by the programme (or 'reasonable proposals'). He will have no claim for late possession if he has not signalled his change of plan with a revised programme under sub-clause 14.2 or revised proposals under clause 42.1. If the Contractor's programme or method statement is a contractual document, any inability to execute the works in accordance with that programme or method could give rise to a claim by the Contractor for a variation and costs. See for example the case of Yorkshire Water Authority v Sir Alfred McAlpine (1985) 32 BLR 5 where the contract incorporated the Contractor's proposed method of upstream working which proved impossible: it was held that the Contractor was entitled to a variation and payment for the change to downstream working. Tenderers will invariably be asked for an outline programme to be submitted with their tenders. tenders. Clause 42.1 42.1 (Possession (Possession of site and access thereto) reflect reflectss the Employer's Employer's ability to specify the parts of the site of which the Contractor is to be given possession possession and the order order in which such parts parts are to be given to him. The Empl Em ploy oyer er woul would d be unwis unwise e to impos impose e such such lilimi mita tatition onss unle unless ss abso absolu lute tely ly necessary as the order of the release of parts of the site may amount to the Employer dictating the programme of the works which will cause the Employer to be responsible in the event that the Contractor, through no fault of his own, is unable to work to that programme. If the Contractor submitted a programme with his tender, that programme may well form part of the contract contract as "the Tender" is one of the documents documents contained in the definition definition of Contract. This could give rise to the argument that the tender programme is a contract programme with the consequences set out above. As this is clearly not the purpose or intention behind a tender programme, the parties, particularly the Employer, would be well advised to ensure that the
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version of the tender that is accepted by the Letter of Acceptance is one which excludes the tender programme. In relation to methods, an Employer may well choose his Contractor on the strength of the types of machinery and methods proposed by the individual tenderers. Having selected a tenderer on that basis, an Employer may well wish to ensure that the tendered methods and machines are used on site and will therefore include the tender method statement statement in the contract document. Again, the result is that the Employer takes the risk if, through no fault of the Contractor, the method method or those those machines machines are not capable capable of execut executing ing the works. works. It is submitted that clause 8.2 (Site operations and methods of construction), which seeks to place full responsibility for methods of construction on the Contractor, does not affect this situation where the method is part of the contract. For commentary on the effect of the submission of an optimistic programme, see under clause 47 (Liquidated damages for delay). Under clause 51.1 (Variations), the Engineer is entitled to order a change to "any specified specified sequence or timing timing of construction". construction". Thus, if the programme programme was part of the contract, it would represent a specified sequence or timing and any change to that could entitle the Contractor to a variation and payment. As to a change of method, clause 51.1(c) deals with changes to "the character or quality or kind of any such work". Alternatively, a change in method could be covered by an omission and an addition of alternative work under items (b) and (e). The Contractor Contractor is unlikely unlikely to object, object, provided he is paid, as the greater greater responsibility responsibility taken on by the Employer for method, the less the risk remaining on him. The ultimate sanction ensuring compliance with this clause is determination under clause 63.1 (Default of Contractor) item (d) for a flagrant neglect to comply with with an obli obliga gati tion on.. More More imme immedi diat atel ely, y, wher where e the the cont contra ract ct is sile silent nt as to possession of the site, the Employer will not be under an obligation to give possession under clause 42.1 (Possession of Site and access thereto) without such a programme, or the 'reasonable proposals' referred to in that clause. Compare the sanction provided in relation to clause 10.1 (Performance security) by clause 60.2 (Monthly payment) whereby no interim payment may be made until the security has been supplied. It is a serious criticism of this clause that there is no provision addressing a refusal of consent by the Engineer to the Contractor's programme. In view of the importance of the programme under clause 42 (Possession of Site) and implicitly under clause 46.1 (Rate of Progress) and generally, there should be a procedure or timetable or, as a minimum, recognition of the possibility of consent being refused. Clause 42.1 should refer to the programme as approved. Overmuch reliance should not be placed on the 'honeymoon' period at the start of the project. For a provision dealing with rejection by the Engineer, see ICE 6th clause 14(1)(c). The time for submission of the programme is to be inserted in Part II. Page 88 of 264
14.2 14.2 This This clause clause should should be read read toget together her with with clause clause 46.1 46.1 (Rat (Rate e of progre progress) ss) whereby the Engineer may require a Contractor in culpable delay to accelerate in order to complete complete on time. Under the current current sub-clause, sub-clause, the fact that progress progress does not conform to the programme could be due to any reason whether or not it entitl entitles es the Contract Contractor or to an extensi extension on of time. time. If the Contrac Contractor tor had been granted an extension of time, the Engineer would require a programme showing the new completion completion date. date. If the Contractor Contractor is in culpable culpable delay, delay, the Engineer Engineer would require a programme showing what steps the Contractor would have to take in order to complete on time. time. In order to oblige the Contractor Contractor to work to the accelerated programme, notification under clause 46.1 would be necessary. The wordin wording g of this this clau clause se woul would d allo allow w an Engin Engineer eer to call call for for a revi revise sed d programme in the event that the Contractor was substantially ahead of the approved approved programme. programme. As discussed discussed under clause 47.1 (Liquidated (Liquidated damages damages for delay), in English law, a Contractor is not entitled to impose greater obligations upon the Employer by way of the granting of possession of the site or upon the desig design n team team in their their prod product uction ion of draw drawin ings gs by acce accele lera ratiting ng the the work work,, for for example, in order to obtain a bonus. Thus, an Engineer could call for a revised programme where a Contractor was substantially ahead and threatening to make claims under clause 6.4 (Delays and cost of delay of drawings) in order to ascertain what would amount to a reasonable time-table for the production of drawings. 14.3 14.3 Cash-f Cash-flow low estima estimates tes are are normall normallyy essentia essentiall to the Employ Employer er to enable enable him to plan the funding funding of the works. The Contractor Contractor is best placed placed to carry out this this exercise exercise as the programme programme of works is within his control. control. There is no obvious sanction if the estimate is inaccurate, even if the estimate was designed to mislead the Employer. The time for submission of the estimate is to be inserted in Part II 14.4 14.4 This This clau clause se is cons consis iste tent nt with with clau clause se 2.1( 2.1(c) c) (Eng (Engin inee eer' r'ss duti duties es and and authority) whereby the Engineer "shall have no authority to relieve the Contractor of any of his obligations". obligations". It is also consistent consistent with the the scheme of the contract contract wher whereby eby the the Em Emplo ploye yerr take takess no respo respons nsib ibililitityy for for the the pract practic icab abililitityy of the the Cont Contrract actor's or's prog progrramme amme and and metho ethods ds of wor work. See also also clau clause se 7.3 7.3 (Responsibil (Responsibility ity unaffected by approval), approval), clause 17 (Setting-ou (Setting-out) t) and clause 54.8 (Approval (Approval of materials materials not implied) implied) for other examples. examples. See See also clause 61.1 61.1 (Approval only by Defects Liability Certificate). CLAUSE 15 : Contractor’s Superintendence
The Cont Contra ract ctor or shall shall provi provide de all all nece necessa ssary ry mana managem gemen entt and supe superv rvis ision ion throughout the project and for as long as the Engineer may consider necessary including a full time competent and authorised representative approved by the Engineer. The representative will will receive instructions from the Engineer and the Engine Engineer er's 's Repre Represen senta tatitive ve.. If the the Engi Engine neer er with withdr draw awss his his appr approva oval, l, the the Page 89 of 264
Contractor is to remove the representative from the works permanently and replace him with a representative approved by the Engineer. This clause, although somewhat re-arranged, re-arranged, is essentially essentially the same as the 3rd Edition. This clause is designed to tackle the problem of ensuring that the Contractor maintains on site good quality management right to the end of the project and throughout the defects liability period. Indeed, the clause may provide additional incentive for the Contractor to achieve a speedy submission of final account documentation. However, the Engineer's view of the superintendence necessary could be challenged and there is little obvious sanction should the Contractor wish to remove his most experienced management to more rewarding work than the remedying of defects. The withdrawal of approval of a manager during the course of the works could, however, however, be very disruptive disruptive to the Contractor. Contractor. The Engineer must must exercise his discretion in relation to the approval of the Contractor's authorised representative in accordance with clause 1.5 (Notices, consents etc) and clause 2.6 (Engineer to act impartially) impartially).. Thus, approval approval shall not be unreasonably unreasonably withheld withheld and the Engineer must exercise his discretion impartially. FIDIC, in their Guide, seek to discourage delegation of the Engineer's power under this clause. The Contractor's ability to challenge the withdrawal of the Engineer's approval is of little practical assistance as the representative must be replaced "as soon as is practicable" practicable".. An arbitrator arbitrator could could in due course rule that the withdrawal withdrawal of the appro approva vall was was unre unreas ason onab able le wher whereup eupon on the the Cont Contra ract ctor or may may be enti entitltled ed to whatever whatever damages damages he could demonst demonstrat rate. e. It must be doubted doubted whether whether the arbitrator arbitrator has power to order the reinstatemen reinstatementt of such a representat representative, ive, even if an arbitration could be completed in time. As clause 62.2 (Unfulfilled obligations) contemplates the existence of obligations beyond the Defects Liability Certificate, the Engineer could seek to require the Contractor to maintain superintendence well beyond the defects liability period if he considered it necessary. "... which approval may at any time be withdrawn ...". This expression does not, it is submitted, free the Engineer from the constraints placed upon him by clause 1.5 1.5 (Not (Notice ices, s, conse consent ntss etc. etc.)) and and clau clause se 2.6 2.6 (Eng (Engin inee eerr to act act impa impart rtia ialllly) y).. Compare the words used in clause 3.1 (Assignment of contract) where the draftsman sought to give the Employer an unfettered right to withhold his consent to the assignment of the contract. In contrast with assignments, it is plainly right right that the Contractor's top management on site should be left undisturbed unless the Engineer has good reason to withdraw his approval. There is a conflict between this clause and clause 68 (Notices) which requires all certificates, notices or instructions to be sent to the Contractor's principal place of business or other nominated address by post, telex, etc. Here, instructions may Page 90 of 264
be handed to the Contrac Contractor tor's 's authoris authorised ed represent representati ative ve on site. site. Whilst Whilst it is obvio obvious usly ly sensi sensibl ble e that that day day to day day inst instru ruct ctio ions ns shou should ld not not be sent sent to the the Contractor's head office alone, this conflict should be resolved, preferably by the requirement requirement that copies of all instructions instructions which are handed over on site should be sent sent to the the head head office office or nomin nominat ated ed address address.. That That woul would d remo remove ve any possibility of debate as to whether an instruction had in fact been given. The refe refere renc nce e in the the curr current ent clau clause se to the the Engi Enginee neer' r'ss Repr Repres esen enta tatitive ve is superfluous given clause 2 (Engineer and Engineer's Representative). After this clause, no more is heard about him. Part II provides an optional clause requiring the Contractor's representative to be fluent in a particular language and/or for the Contractor to provide a competent interp interpret reter. er. ICE 5th and 6th require require the contract contractor' or'ss superi superinte ntende ndents nts to be knowled knowledgeab geable le in safety safety matter matterss and makes makes the author authorise ised d repres represent entati ative ve expressly responsible for safety on site. FIDIC's 4th Edition Edition leaves these matters to clause 8.2 (Site operations and methods of construction) and clause 19.1 (Safety, security and protection of the environment). CLAUSE 15.1 (Contractor's superintendence) The final sentence of the first paragraph in this clause read as follows:"Such "Such author authorise ised d repres represent entati ative ve shall shall receiv receive, e, on behalf behalf of the Contrac Contractor tor,, instructions from the Engineer or subject to the provisions of clause 2, the Engineer's representative" The words words in italic italicss have now been deleted. deleted. In view of the broad delegat delegation ion powers given to the Engineer by clause 2.3 (Engineer's authority to delegate) the words were unnecessary. Contrast clause 13.1 (Work to be in accordance with the Contract), referred to above, where it was not felt safe simply to amend these words. CLAUSE 16 : Contractor’s Employees
The Contractor shall bring to site for the project skilled and experienced technical assistants, competent foremen and leading hands to supervise the works and all necessary labour for the proper execution of the project. The Engineer shall be entitled to object to anybody he considers has misbehaved or is incompetent incompetent or negligent negligent or otherwise otherwise undesirable. undesirable. The Contractor Contractor shall shall remove any such person permanently and shall replace him as soon as possible. This clause is essentially similar to the 3rd Edition subject to a number of changes in the vocabulary.
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This clause imposes upon the Contractor obligations and gives the Engineer powers with a view to ensuring the quality quality of the works. The general obligation is set out at clause 8.1 (Contractor's general responsibilities) where "the Contractor shall shall provid provide e all superint superintende endence, nce, labour.. labour...". .". The Engineer Engineer's 's power power must must be exercised impartially as the removal of assistants and labour is action which "may "may affe affect ct the the right rightss and and oblig obligat atio ions" ns" of the the Cont Contra ract ctor or unde underr claus clause e 2.6 2.6 (Engineer to act impartially). The Engineer's entitlement to object is not necessarily limited to the categories of person set out at 16.1 (a) and (b) as he can require the removal of "any person provided by the Contractor". Thus, management, consultants and subcontractors could fall within this clause. Clause 1.3 (Interpretation) states that the term 'person' includes firms, corporations and other organisations. "...otherwi "...otherwise se considered considered by the Engineer to be undesirable.. undesirable...". .". The duty to act impartially is an important qualification of an otherwise extremely broad term. From From the the Em Empl ploye oyer' r'ss poin pointt of view view,, the the Contr Contrac acto tor' r'ss claim claimss team team coul could d be considered undesirable as could experts brought on to site to look into, for example, deficiencies in the Engineer's design. As "undesirable" does not cover misbehaviour, incompetence or negligence, which are specifically referred to, the term is presumably aimed at trouble-makers or people who disregard site safety. As with clause 15.1 (Contractor's (Contractor's superintendence) superintendence),, Part II provides provides an optional optional clause whereby the Contractor' Contractor'ss superintendi superintending ng staff should have a reasonable reasonable prop propor orttion ion of peop people le wit with a worki orking ng know knowle ledg dge e of a giv given langu anguag age. e. Alternatively, competent interpreters are to be provided. Part II also provides a clause encouraging the Contractor to employ local staff and labour. FIDIC, in their Guide, seek to discourage delegation of the Engineer's power under this clause and clause 15.1. CLAUSE 17 : Setting out
Once the Engineer has stated in writing the original points, lines and levels of reference, the Contractor is responsible for the accurate setting-out of all parts of the work and providing labour and equipment for the purposes of setting out. The Contractor shall rectify any setting-out error that appears, if required to do so by the Engineer, at his own cost unless the error is based on incorrect written data supplied by the Engineer, in which case the Contractor will be reimbursed. The Contractor will not be relieved of his responsibility if the Engineer checks any setting-out. The Contractor must protect protect all bench-marks, site-rails, site-rails, pegs etc. This clause uses the vocabulary of the 4th Edition but the principles of the 3rd Edition are retained. This clause, like clause 39.1 (Removal of improper work, materials or plant), gives gives the the Engi Engine neer er wide wide power power to cause cause the the Cont Contra ract ctor or to rect rectififyy erro errors rs Page 92 of 264
regardless regardless of their significan significance. ce. In practice, practice, parties parties would normally normally agree to a reduction in the valuation of the work if a minor defect would be disproportionately expensive to remedy. At common law, the Employer would be under an obligation to mitigate his loss, but the terms of this clause and clause 39 seem to negate any such duty. For discussion of the Engineer's power to waive strict compliance with the specification, see the commentary under clause 2.1 (Engineer's duties and authority) and clause 13 (Work to be in accordance with contract). This clause envisages the Engineer giving reference points and data in writing which is obviously sensible for the avoidance of disputes. However, it is easy to to imagine site conditions in which writing would not assist and the Engineer would be obliged obliged to provid provide e a physica physicall datum point. point. In these these circum circumsta stances nces,, the Cont Contra ract ctor or would would be well well advi advise sed d to requ reques estt the the Engine Engineer er to conf confir irm m with with whatever whatever description description was appropriate appropriate the nature nature and location of the marker. In any situation situation where there is a physical datum point, point, there is risk that it would be move moved d or dama damage ged d by heav heavyy mach machin iner eryy henc hence e the the obli obliga gati tion on upon upon the the Contractor Contractor to protect protect and preserve it. As the physical datum datum point would be the best evidence of the setting out error upon which the Contractor may be seeking to rely, it is plainly in his interests to do so. If the Engineer supplies incorrect data, and admits the error, he is given the choice of requiring the Contractor to rectify the error, whereupon the Contractor is entitled to be paid in accordance with clause 52 (Valuation of variations); or of disre disregar gardi ding ng the the erro error. r. Howev However er as clau clause se 2.1( 2.1(c) c) (Engi (Enginee neer' r'ss duti duties es and and authority) makes it clear that the Engineer has "no authority to relieve the Contractor of any of his obligations", the Contractor must obtain evidence that the Employer has approved the Engineer's decision. As commented under clause 2.1, it is unlikely that a written instruction is sufficient evidence. The use by the draftsman of the expression "subject as above mentioned" here and in clause 11.1 (Inspection of site) is an unhelpful practice as in both cases it far from from obvious obvious what is being being referred referred to. Here Here it presum presumabl ablyy refers refers to "in relation to original points, lines ... given by the Engineer...". "The checking of any setting-out ... shall not ... relieve the Contractor of his responsibili responsibility ty ...". Whilst Whilst the Contractor Contractor should should not be entitled to escape escape his liability liability for inaccurate setting setting out due to the fact that one of the Engineer's Engineer's team was on hand when the setting out was done, it would be equally wrong if some crucial crucial element element of setting out, which the Contractor Contractor specificall specificallyy arranged arranged for the Engineer to check and verify, could then be held to be inaccurate with the result that the Contractor Contractor is obliged obliged to rectify rectify all work carried carried out at his own cost. The Contractor could endeavour to protect himself by requesting that the Engineer confirm in writing that the setting out is accurate and correct or alternatively he could treat the approval of the setting out as an oral instruction and write pursu pursuant ant to clau clause se 2.5 2.5 (Ins (Instr truc uctitions ons in writ writin ing) g) confi confirm rmin ing g the the inst instru ruct ctio ion. n. However, However, neither of these steps overcome overcome the express express words of the clause, it is submi submitt tted. ed. As a last last reso resort rt,, the the Cont Contra ract ctor or coul could d chal challe leng nge e the the Engi Engine neer er's 's Page 93 of 264
decision to require rectification as being unreasonable and contrary to clause 2.6 (Engineer to act impartially). This clause continues a theme in the contract of mainta maintaini ining ng the Contra Contracto ctor's r's respons responsibi ibilit lity, y, regard regardless less of the action actionss of the Engineer. See also clause 7.3 (Responsibility unaffected by approval), clause 14.4 (Contractor not relieved of duties or responsibilities), clause 37.2 (Inspection and testing testing), ), and clause 54.8 (Appro (Approval val of materials materials not implied) implied) for other other examples. See also clause 61.1 (Approval only by Defects Liability Certificate). Although this clause provides for additional money, extension of time is not dealt with. Delay caused by an error by the Engineer must be capable of an extension of time or else else time would would be set at large. large. Clause Clause 44.1 44.1 item (d), (d), "any delay, delay, impediment or prevention by the Employer" could apply, failing which the error could amount to "special circumstances" under item (e). Clause 53.1 (Notice of claims) applies to claims under this sub-clause so that the Contractor has 28 days of the event to notify the Engineer of an intention to claim. The notice requirement of clause 52.2 (Power of Engineer to fix rates) does not, it is submitted, apply for the reasons set out under that sub-clause. CLAUSE 18 : Boreholes and Exploratory Excavation
The Engineer may instruct the Contractor to make boreholes or to carry out explora explorator toryy excavat excavation ion at any time during during the executi execution on of the works. works. Such Such instructions will be dealt with under clause 51 unless an item or a provisional sum is included in the Bill of Quantities. This clause is not significantly different from the 3rd Edition although it caters for the possibility that items will be included in the Bill of Quantities for boreholes or excavation and are not just dealt with as provisional sums. The Engineer's right to instruct boreholes or carry out exploratory excavation only starts, it is submitted, when the Contractor Contractor chooses to start on site. Under clause 41.1 (Commencement (Commencement of works) the Contractor Contractor is obliged obliged to start "as soon as is reasona reasonably bly possibl possible" e" after the notice notice to commence. commence. Thus is may be that that the Contractor is entitled to to refuse such an instruction instruction during his mobilisation. As the Engineer may well require such excavation at a very early stage, it may be preferable to give the Engineer the right to give such instructions at any time from the notice to commence until the end of the Defects Liability Period. See also clause 50.1 (Contractor to search) for a right to require the Contractor to explore the cause of defects. If an item for boreholes or exploratory excavation is included in the Bill of Quantities, clause 58 (Provisional sums) will apply and the work will be valued in accorda accordance nce with clause 52 (Valua (Valuatio tion n of variations variations). ). Thus Thus the Contract Contractor' or'ss recovery will be the same whether an instruction is issued in accordance with clause 51 (Variations) or clause 58. Page 94 of 264
CLAUSE 19 : Employer’s Responsibilities
Throughout the project, the Contractor is it be careful to keep the site safe and orderly including by providing guards, fencing etc., and will take reasonable steps to protect the environment and avoid nuisance and pollution. The Employer will have corresponding duties if he employs his own workmen or other contractors. In the 4th Edition, Edition, clause clause 19 has been much expanded. expanded. Clause 19 of the 3rd 3rd Edition was entitled "Watching and Lighting" and is now contained in clause 19.1(b) with with some amendments. amendments. The rest of sub-clause sub-clause 19.1 and the whole of sub-clause 19.2 are new. 19. 19.1 The The part art of this his cla clause use requi equirring ing reas reason ona able ble step stepss to prot protec ectt the environment environment is a new and welcome welcome addition addition to the 4th Edition. Edition. The question question it raises is whether the Engineer is empowered to instruct the Contractor, for example, to modify his machinery in order to render it more environmentally friendly or in order to avoid damage or nuisance and, if the Engineer has such powe powers rs,, whet whethe herr such such inst instru ruct ctio ions ns woul would d enti entitl tle e the the Cont Contra ract ctor or to any any compens compensati ation. on. The Engineer Engineer is entitl entitled ed to issue instruc instructio tions ns which touch or concern the works under clause 13.1 (Work (Work to be in accordance with with contract). It would seem to be clear that an instruction in relation to machinery to be used on the site would fall within the Engineer's powers, but if the instruction requires the Contractor to remedy a breach of this clause of the contract, then there can be no question of payment. Otherwise, the instruction would be a variation within clause 51 (Variations) "Site" is defined to include areas where works are to be carried out but which are not yet in the possession of the Contractor. For comment on the definition of Site see under clause 1.1(f)(vii) and under clause 42.1 (Possession of Site and access thereto). thereto). Simi Similarly larly,, "Works" covers covers the entirety entirety of the works works whether handed over or not. Damage to persons or property of third parties is also dealt with under clause 22.1 (Damage to persons and property), whereby the Contractor indemnifies the Employer against losses and claims resulting from such damage. 19.2 19.2 As alway alwayss when when an Employ Employer er insis insists ts upon upon using using his his right right under under clauses clauses such as clause 31 (Opportunities for other contractors), there is ample scope for difficulty difficulty and a clash of duties and responsibili responsibilities ties in practice. practice. The concurrent concurrent obligations of the Employer, his other contractors and the Contractor for safety and the maintenance of the site in an orderly state is a potential source of difficulty. Other clauses permitting the Employer to use other contractors are clause 39.2 (Default of Contractor in compliance) and clause 49.4 (Contractor's failure to carry out instructions). Page 95 of 264
CLAUSE 20 : Contractor’s Responsibilities
The The Cont Contra ract ctor or is full fullyy resp respon onsi sibl ble e for for the the care care of the the work works, s, from from the the commencement date until the works or any section or part is taken over by the Employer. The Contractor will also take responsibility for any outstanding works which he undertakes to finish during the Defects Liability Period. The Contractor is to rectify at his own cost any damage to the works before they are taken over unless caused by one one of the Employer's risks. He will also rectify any damage done by him during the Defects Liability Period including damage done during a search. If the damage is due to one of the Employer's risks, the Engineer will decide what rectificatio rectification n should take place and will determine determine the Contractor's Contractor's costs. If the damage was only partly due to an Employer's risk, the Contractor will be paid a proportion only. The list of Employer's risks is set out. Although reorganised, re-worded and clarified, this clause is not fundamentally changed in principle from the 3rd Edition but note the significant changes to subclause 20.4, particularly items (g) and (h). This clause contains an allocation of risk between Contractor and Employer and clause clause 21 (Insu (Insura ranc nce e of Work Workss and and Cont Contra ract ctor or's 's Equi Equipm pmen ent) t) cont contain ainss the the obligation obligation to insure those those risks. Simil Similarly arly clause clause 22 (Damage to persons persons and property) deals with the risk and clause 23 (Third party insurance) covers the obligation to insure. Clauses 20 to 25 and clause 65 (Special risks) impose risk and insurance liabilities in layers as follows:(a) (a) resp respon onsi sibi bilility ty is allo alloca cate ted d to the the Cont Contra ract ctor or by clau clause sess 20, 22 and 24, 24, subje subject ct to except exceptio ions ns in sub-c sub-clau lause se 20.4 20.4 (Emp (Emplo loyer yer's 's risk risks) s) and and clau clause se 65 (Special risks); (b) (b)
liabi liabilility ty to insu insure re is impos imposed ed by cla claus uses es 21, 21, 23 23 and and 24;
(c) (c) if ful fulll recove recovery ry is not not achi achiev eved ed from from insu insure rers rs,, liab liabililitityy rever reverts ts to (a) (a) above above pursuant to clause 21.3 (Responsibility for amounts not recovered); and (d) if eith either er party party is is in in breach breach of its its insura insurance nce obliga obligatio tions ns unde underr the the cont contrac ractt or its obligations under the contracts of insurance, they become liable for any consequential loss pursuant to clause 25.3 (Remedy on Contractor's failure to insure) and clause 25.4 (Compliance with policy conditions).
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20.1 20.1 Greate Greaterr clarity clarity would would be achiev achieved ed in sub-cla sub-clause use (b) ifif the refere reference nce was to outstanding outstanding "work" "work" rather than than "Works". This would conform conform with with the usage in clause 48 (Taking-over certificate) and clause 49 (Defects liability). liability). There should be no outstanding Works as the entirety of the Works would have been taken over by the Employ Employer. er. The use of the term term "Works" "Works" is a change change from from the 3rd Edition Edition where "work" "work" was used. It is presumed presumed that the draftsman draftsman had in mind mind the final phrase of sub-clause 49.1 whereby "the Works" are obliquely redefined. It should should be noted noted that it is the issue of the Taking-o Taking-over ver certif certifica icate te that that is significant for insurance purposes and not any date stated in it. The Contractor must maintain his policies regardless of any agreement on site that substantial completion has been achieved. There will be an overlap of responsibility when the Contractor is returning to part of the Works taken over by the Employer in order to complete some perhaps minor element of outstanding works. It is submitted that the formula used in subclause 20.2 rendering the Contractor liable "for any loss or damage to Works occasioned by him in the course of any operations ... under clauses 49 and 50" would be more satisfactory. Contractors should bear in mind that the duty to care for the works includes Plant. This may mean a duty to insure machinery that is to be obtained by the Empl Em ploy oyer er,, perh perhaps aps from from its its own own fact factor orie ies, s, that that may may be trans transpor porte ted d by the the Employer, and that may be subject to testing off-site by technicians employed by the Employer. Altogether, the Contractor's responsibility may extend far beyond matters within his control, a factor to be taken into account in arranging insurance for the project. 20. 20.2/2 2/20.3 0.3 If the Works are damag amaged ed by, by, for examp ample, an exp explosi osion of materials stored by the Contractor, then the Contractor is obliged to rectify and rebuild rebuild the works. If however, however, the explosion explosion was due to war or insurrection insurrection or one of the other Employer's risks, the Employer through the Engineer is given the choice as to whether to rebuild rebuild or not. Thus, the Employer's use of the insurance money and the Contractor's right to execute the works depends on whether an event falls within clause 20.4 (Employer's risks) or not. "...from any cause whatsoever...". The breadth of this phrase has the curious result that if the damage is done by the Employer other than by his use or occupation occupation or if it is done by the Engineer other than by his design of the works, the Contractor is liable for the cost of any rectification work instructed. The same applies for damage by "other contractors" of the Employer. This allocation of risk is not not too too obje object ctio iona nabl ble e in the the cont contex extt of insu insura ranc nce e but, but, as clau clause se 21.3 21.3 (Responsibility for amounts not recovered) makes clear, the Contractor would bear these losses if for any reason the insurance did not cover them. An innovation in the 4th Edition is the way in which clause 20.3 deals with circum circumst stan ance cess wher where e the the loss loss or dama damage ge deri derives ves from from a comb combin inat atio ion n of Employer's risks and other risks. Page 97 of 264
The unde underl rlyi ying ng obli obligat gatio ion n of the the Cont Contra ract ctor or is to compl complet ete e the the work works. s. This This obligation obligation is subject to any applicable applicable law of frustration frustration or force majeure majeure as well as to a number of clauses such as clause 13 (Work to be in accordance with the contract) and clause 66.1 (Payment in event of release from performance). If the works are damaged by the Contractor or by a cause for which he is responsible, the Contractor's obligation to to complete is unaffected. If the event of damage for which the Employer is responsible, the Contractor's obligation and, indeed, right to complete the works is qualified by the right of the Engineer to dictate the extent extent of the rectific rectificati ation on required. required. The remedial remedial works would effecti effectively vely be treated as a variation entitling the Contractor to the valuation of his work under clause clause 52. The delay delay consequent consequent upon upon the damage damage would would qualif qualifyy either either as "delay, impediment or prevention by the Employer" under clause 44.1 (Extension of time for completion), as (a) additional work or (e) special circumstances. Conversely, it follows from the "full responsibility" taken by the Contractor for the care of the works other than in relation to Employer's risks, that no extension of time will be granted for loss or damage to the Works from risks other than Employer's risks. Thus the Contractor will be well advised to ensure that the relevant insurance cover includes his liability for liquidated damages, if such cover is available. Clause 53.1 (Notice of claims) applies to claims under this sub-clause so that the Contractor has 28 days of the event to notify the Engineer of an intention to claim. The notice requirement of clause 52.2 (Power of Engineer to fix rates) does not, it is submitted, apply for the reasons set out under that sub-clause. "... "...dur durin ing g the the peri period od for for whic which h the the Cont Contra ract ctor or is respo responsi nsibl ble e for for the the care care thereof...". The Contractor's obligation to rectify loss and damage is limited to the period prior prior to the issue of the Taking-Over Taking-Over Certificate. Certificate. It would obviously obviously be unsatisfactory if the Contractor was obliged to re-mobilise in order to repair damage damage caused by the Employe Employer's r's risks. risks. However However,, "the period" period" is less less than than prec precis ise e due due to claus clause e 20.1 20.1(b (b)) which which plac places es resp respon onsi sibi bilility ty for for care care on the the Contractor during the Defects Liability Period for the work which he is completing or remedying. remedying. The effect of clause clause 20.2 seems to be that if the loss or damage damage happens to a part of the works for which the Contractor has a continuing responsibili responsibility, ty, then he is obliged to rectify rectify it but not otherwise. otherwise. In this context, context, it should be borne in mind that if a defect emerges in any part of the works, the Cont Contra ract ctor or would would be obli oblige ged d to re-m re-mob obililis ise e all all nece necessa ssary ry equi equipm pment ent and and manpower to search for the cause of the defect under clause 50.1 (Contractor to searc search) h) and claus clause e 49.2 49.2 (Com (Compl plet etion ion of outs outsta tand ndin ing g work work and and reme remedy dying ing defects). This re-mobilisation obligation is so even if the costs are not ultimately payable by the Contractor because, for example, the defect is found to be a design problem. For discuss discussion ion of the Engineer' Engineer'ss power power to waive waive strict strict complianc compliance e with with the specifi specificat cation ion,, see the comment commentary ary under under clause clause 2.1 (Engin (Engineer eer's 's duties duties and authority) and clause 13.1 (Work to be in accordance with the contract).
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20.4 20.4 This This clause clause should should be read in conjun conjuncti ction on with with clause clause 65 (Specia (Speciall risks), risks), which are defined as Employer's risks (a), (c), (d) and (e) as well as (b) provided that the rebellion etc relates to the country in which the Works are to be execute executed. d. Clause Clause 65 makes it clear that that the Contract Contractor or is not liable liable for the consequences consequences of special risks upon the Works or other property property nor for injury injury or loss of life. life. However, However, there is a conflict conflict between between sub-clause sub-clause 20.3 and clause clause 65.3 (Damage (Damage to Works by special risks). risks). Under 20.3, 20.3, the Contractor Contractor is obliged to rectify the damage caused by the Employer's risks at the Employer's expense only if required required by the Engineer to do so. Simil Similarly, arly, clause clause 49.2 (Completion (Completion of outstanding work and remedying defects) requires the Contractor to carry out such remedial works as the Engineer instructs. Clause 65.3 on the other hand, expressly entitles the Contractor to payment for rectifying the damage "so far as may be required by the Engineer or as may be necessary for the completion of the Works" Works" (underlin (underlining ing added). added). Thus, Thus, despite despite the fact that four of the five five special risks may well be uninsured, the Employer is obliged to pay for such of the Contractor's Contractor's repair works as are necessary for the completion completion of the Works. An exception to this is if the risk concerned is the outbreak of war which would entitle the Employer to determine the contract under clause 65.6 (Outbreak of war). Alternatively, either party could seek to rely upon clause 66.1 (Release from performance) in the event that they thought the contract to be frustrated; or the Employer could give an "economic dislocation" notice under clause 69.1 (Defau (Defaultlt of Employ Employer) er) bringi bringing ng about about the termin terminati ation on of the contrac contractt by the Contractor. It is submitted that the conflict should be resolved in favour of the Contractor's right and obligation to complete the works and that the Engineer's role is confined to instructing the Contractor which portions of the damaged work he requires to be rectified in order to achieve the completion of the works to his satisfaction. In the 3rd Edition, the equivalent words to those in 20.3 were "if and to the extent required by the Engineer and subject always to the provisions of clause 65 hereof ...". ...". Such conflict conflict only only arises where where the works have have been damaged damaged in such a way or to such extent that completion would be impossible without repair. If the damage is to a peripheral part of the works, it is right that the Employer and Engineer should have the option to omit the work. "(e) riot...". Insurance for riot is not readily available but the Contractor is obliged by clause 21 (Insurance of Works) and possibly clause 23 (Third party insurance) to cover this risk. "(f)...due to the use or occupation by the Employer...". As the risk passes to the Employer on the issue of a Taking-Over Certificate, which the Engineer is obliged by clause 48.2 (Taking over of Sections or parts) to issue upon the occupation or use by the Employer, this clause only covers limited circumstances. However, clause 48 is far from straightforward straightforward and needs careful careful reading. "(g) loss or damage to the extent that it is due to the design...". In the 3rd Edition, loss or damage had to be "solely" due to design so that if it could be shown that, for example, poor workmanship contributed to any extent to the loss or damage, Page 99 of 264
the risk would remain upon the Contractor. As amended, the clause will relieve the Contractor of responsibility to the extent that the Engineer's design was causative. "(h) any operation of the forces of nature...". Whereas the 3rd Edition required the forces forces of nature nature to be such that "an experie experienced nced Contra Contracto ctorr could not forese foresee.. e.... or insure insure against against", ", this this editio edition n refers refers to forces forces "against "against which an exper experien ience ced d Cont Contra ract ctor or could could not reas reason onabl ablyy have have been been expe expect cted ed to take take precautions". Foreseeability has been shown by clause12.2 (Adverse physical obstructions or conditions) to be a source of much dispute; and insurability is a difficult difficult test as cover is sometimes available available but only at an exorbitant price. price. The present wording may represent an improvement. For example, the Contractor's information concerning a particular site could show that flooding occurs from time to time for two reasons: firstly, because of a local river breaching its banks at a particular particular point and, secondly, due to occasional occasional flash floods following following torrential torrential rain in the region. region. It may be that an experienced experienced Contractor Contractor would would build up and reinforce the bank of the river but that nothing could realistically be done to avoid the damage that a flash flood would cause. The Employer takes the risk of the latter. Inevitably, there will be many borderline cases and it is submitted that the present test will have much in common with the foreseeability test of the 3rd Edition. In civil law countries, where administrative law based on the French model applies, applies, this clause reflects reflects the Theorie Theorie de l'imprevisio l'imprevision n whereby if exceptional exceptional and unforeseen events render the Contractor's obligation excessively onerous threatening him with exorbitant loss, then the Contractor's excessive losses may be reduced to reasonable limits by way of compensation by the Employer. In certain countries, notably Egypt, this doctrine has been extended to private law contracts as well. This clause is in fact more generous than the administrative law law doctr doctrin ine e as it prov provid ides es for for the the Cont Contra ract ctor or to be comp comple lete tely ly reli reliev eved ed of respo responsi nsibi bilility ty,, wher wherea eass the the Theor Theorie ie only only prov provid ides es for for the the reduc reductition on of the the Contractor's losses. For a brief overview of administrative law based on the French model, see clause 5.1 (Languages and law). CLAUSE 21 : Insurance of Works
The Contractor is to insure 115% of the full replacement value of the works to cover reinstatement as well as professional fees, demolition etc and will also insure the replacement value of his own equipment. The insurance is to be in the joint names of the Contractor and the Employer and is to cover all risks other than Employer's risks (a) - (d) from the start of work on site until taking-over of the works. It must also cover the the Contractor's operations in the Defects Liability Period and when searching. The Contractor and the Employer will bear losses in relation to their own risks to the extent that their losses are not paid for by the insurer. Page 100 of 264
This clause has been fundamentally reorganised for the 4th Edition including at sub-clause 21.4 a wholly unnecessary repetition of items (a) to (d) of clause 20.4 (Employer's Risks). 21.1 21.1 "(a).. "(a)...fu .fullll replac replaceme ement nt cost". cost". This This may not be be necessar necessaryy where where the site site is spread out making total destruction very unlikely. In these circumstances, the clause should be amended to require insurance to be obtained for a lesser amount. "(c) the Contractor's Equipment...". This equipment is not referred to in clause 20 but clause 54.2 (Employer not liable for damage) makes it clear that damage caus cause ed othe otherr than than by Em Empl ploy oyer er's 's or Spec Speciial risks sks is the Cont Contrract actor's or's responsibility. Part II provides optional additional wording for sub-clause 21.1 if insurance payments are to be in a certain currency or if the Employer wishes to specify a ceiling upon the deductible limits or excess provided for by the policy. There is as yet no recognition in FIDIC of the increased use of decennial insurance. Decennial liability is imposed by many civil law countries and renders arch archititect ects, s, engi engine neer erss and and cont contra ract ctor orss liliab able le for for the the safet safetyy and and stab stabililitityy of structures. Any defect threatening the safety or stability of the structure or its fitness for its purpose appearing within 10 years would render the designers and builders liable to the Employer without proof of fault. Insurance of this liability is now compulsory in France following the Spinetta Law of 1978 and there are signs, certainly in the UK, that it will become more widespread. CLAUSE 21.1 (Insurance of Works) Sub-clause 21.1 (Insurance of Works and Contractor's Equipment) "The Contractor shall, without limiting his or the Employer's obligations and responsibilities under clause 20, ensure that:(a) (a) The The Works Works toge togeth ther er with with mate materi rial alss and Plan Plantt for inc incor orpor porat atio ion n there therein in,, the full replacement cost (the term "cost" in this context shall include profit), ..." The additional words are needed because the definition at clause 1.1(g)(i) states that ""cost" means all expenditure properly incurred or to be incurred, whether on or off the Site, including overhead and other charges properly allocable thereto, but does not include any allowance for profit." If profit was excluded from the amount insured, the Employer could not be confident confident that there would be sufficient sufficient cover in the event of the total loss of the project. Even with an additional sum of 15% which might well be absorbed with demolition costs and professional fees, the obligation upon a Contractor to rePage 101 of 264
build with no profit recovery could be sufficient to drive a Contractor at least to a consideratio consideration n of abandoning abandoning the project if not into financial difficult difficulties. ies. It would certainly be difficult to attract an alternative contractor to undertake the rebuilding. It should be recalled that the insurance of the works is in respect of all risks other than those risks risks set out at clause 20.4 (Employer's (Employer's risks) risks) items (a) to (d). (d). The Employer may try to insure those risks himself if such insurance is available on the market. market. Under clause clause 20.2 (Responsibilit (Responsibilityy to rectify loss or damage), damage), in the event that there is loss or damage to the works, the Contractor Contractor is obliged, at his own cost, to re-build. re-build. He is dependent upon upon the insurance insurance to pay him to do so. Whether the insurance policy will pay out any element of profit to the Contractor undertaking such remedial works, [ is to be doubted]. If for any reason, the Contractor is not prepared to undertake the remedial works, the Employer will be the claimant under the insurance policy whose claim would comprise primarily the cost of obtaining an alternative contractor to undertaken the re-building works. That cost would would include paying the alternative Contractor an amount in respect of profit. Sub-clause 21.1 is not the only provision requiring amendment in relation to profit. The main source of the difficulty is that the bar on profit is not limited limited in the definition to profit recovery by the Contractor. Contractor. In arriving at the global definition, definition, it appears that the draftsmen did not consider each and every use of the term "cost" to see whether whether the definition definition given was actually actually appropriat appropriate. e. Too much reliance has been placed on the opening words of clause 1.1 which gives words and expre express ssio ions ns cert certain ain meani meaning ngss "exce "except pt wher where e the the conte context xt other otherwi wise se requires". One only has to look at clause 21.1(b) to see the term "costs" referring to professi professiona onall fees fees and demoli demolitition. on. It cannot cannot have have been been the intent intention ion of the draftsman draftsman to exclude exclude the professionals' professionals' profit element nor that of the demolition demolition contractor. contractor. Nor is the exclusion of profit profit appropriate appropriate in the indemnity indemnity clauses some of which are listed listed in the commentary commentary to clause 60.9 in in the main work. For example, in clause 22.2 (Exceptions), a Contractor is not responsible for damage to persons and property property arising arising from any act or neglect of the Employer Employer "or in respect of any claims, proceedings, damages, costs, charges and expenses in respect thereof". This context obviously requires the definition not to apply. Perhaps the most striking examples of the inappropriateness of the definition of "cost "costs" s" are are in claus clauses es 39.2 39.2 (Def (Defau ault lt of Cont Contra ract ctor or in comp complilianc ance) e) and 49.4 49.4 (Contr (Contract actor' or'ss failure failure to carry carry out instru instructi ctions ons). ). In both both cases, cases, failur failure e of the Contractor to carry out certain instructions entitles the Employer to employ and pay another contractor contractor to execute execute the works concerned. concerned. "All costs consequent consequent thereon thereon or incidential incidential thereto" thereto" are recoverable recoverable from the Contractor. Contractor. Clearly Clearly it is inten intended ded that that the the Em Empl ploy oyer er should should reco recove verr the the elem elemen entt of prof profit it whic which h the the alternative Contractor has charged. Again, in clause 46.1 (Rate of progress), it is is the Employer's additional supervision costs incurred as a result of the Contractor having to accelerate that are to be deducted from sums otherwise due to the
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Contractor. Contractor. Without Without doubt, it is not intended that the supervisor's supervisor's profit profit should not be recoverable. The purpose of the definition is to resolve a recurrent problem, namely whether a Contractor entitled to loss and expense under the Contract is entitled to claim a loss of profit as part of that loss and expense claim. Arbitrators both in England and internationa internationally lly have differed differed on this point. point. Has it been resolved resolved in the 4th Edition? It is submitted that a Contractor would would find it almost almost impossible to argue that a loss of profit on the turn-over If an attempt is made to reconcile the definition of cost and the clear intention of the draftsmen in clauses such as 39.2 (Default of Contractor in compliance) and 49.4 (Contractor's failure to carry out instructions), a distinction must be drawn between profit in the hands of the Contractor or the Employer on the one hand and their professionals, alternative contractors and sub-contractors on the other. If that is the case, then those elements of the Contractor's loss and expense claims which relate to subcontractors could probably include elements by way of profit. profit. This may may indeed be the intention intention of the drafts draftsman. man. If so, the the definitio definition n should be clarified. Sub-clause 21.4 (Exclusions) The first category of causes of loss or damage for which the Contractor has no obligation to ensure is now :"war, "war, host hostililititie iess (whe (wheth ther er war war be decl declar ared ed or not) not),, invasi invasion on,, act of fore foreig ign n enemies..." The previous wording "(where war be declared or not)" was presumably a typographical error. Recent events have demonstrated the importance of these word wordss and and the the exte extent nt to whic which h host hostililit itie iess can can esca escala late te with withou outt a form formal al declaration of war. The words in parentheses could usefully qualify all four four of the items and not just hostilities. 21.2 21.2 Ther There e is a mismis-ma matc tch h betw betwee een n the the requ requir irem emen entt in clau clause se 21.2 21.2 for the the insurance to run from "the start of work at the site" and the date from which the Contractor takes full responsibility for the works under clause 20.1 (Care of Works) Works) which which is from the Commenc Commencemen ementt Date. There There may be a period period of several months between the date upon which the Employer gives notice under clause 41.1 (Commencement of Works) and the date that the Contractor actually mobilises and commences. The Contractor's obligation obligation is to commence "as soon as it is reasonably possible" after the notice to to commence. There may be a very considerable considerable procurement procurement and mobilisati mobilisation on period. period. It may be preferable preferable to have the insurance run "from the Commencement Date or as soon thereafter as is practicable" practicable".. A simple obligation obligation to insure from the Commencement Commencement Date might not be practicable as the Contractor could receive the Engineer's notice under clau clause se 41.1 41.1 (Com (Comme menc ncem emen entt of Work Works) s) at any any time time afte afterr the the Lett Letter er of Acceptance, within the period specified. Page 103 of 264
The Contractor would normally be present on site after taking-over for one of four reasons:i. in pur pursu suan ance ce of of his his unde undert rtak akin ing g to fini finish sh out outst stan andi ding ng wor workk pursu pursuan antt to clau clause se 48.1 48.1 (Tak (Takin ingg-ov over er cert certif ific icat ate) e),, clau clause se 48.4 48.4 (Sur (Surfa face cess requ requir irin ing g reinstatement) and clause 49.2 (Completion of outstanding work and remedying defects); ii. ii. remed emedyying ing def defect ects dur during ing the the Defe Defect ctss Liab iabililit ityy Peri Period od und under clau clause se 49 (Defects Liability); iii. iii. sear search chin ing g for the the caus cause e of defec defects ts purs pursua uant nt to to claus clause e 50 (Con (Contr trac acto torr to search); or iv. demobilising and complying with clause 33 (Clearance of site on completion). The insurance obligation covers (i) to (iii) but not (iv). The benefits to the Employer of requiring the insurance to be in joint names include a greater control over the maintenance of the insurance in relation to clause 25 (Evidence and terms of insurances), control over the claims process and, importantly, importantly, a right to be paid directly by the insurance insurance company in respect respect of the Employer's Employer's losses. losses. If the insurance insurance was in the name of the Contractor Contractor alone, the Contractor's insurers could pursue the Employer in relation to loss and damage for example resulting from the Engineer's design. 21.3 21.3 It is in the the intere interests sts of both both parti parties es to the the contrac contractt to make make sure that that there there is adequate insurance in place. It is little little comfort to to an Employer to know that a Contractor takes responsibility for a risk if, should that risk occur, the Contractor would be driven out of business by the cost of rectifying the consequent loss. The priority for both parties is to ensure that in the event that the works are damaged or destroyed, funds will be available to enable the project to be completed. completed. As such risks will will invariably invariably cause delay to to the works, it is also of impo import rtan ance ce that that the the insur insuran ance ce will will cover cover on the the one one hand hand the the Cont Contra ract ctor or's 's prolongation costs and, on the other, the Employer's losses flowing from the delay. Although Although clause 21.3 may state no more than is clear from the preceding preceding clauses, it serves as a reminder to the parties to ensure that the insurance cover is adequate. As this clause is equally applicable to the insurances under clauses 23 and 24, it could usefully have been placed in clause 25 (Evidence and terms of insurances) which applies to all the insurance provisions. The Employer may obtain some measure of protection from the Contractor's financial financial vulnerability vulnerability to uninsured uninsured losses from a bond obtained under clause 10 (Performance security). However, these rarely exceed 10% of the contract value and it will be a question for interpretation of the wording of each bond whether Page 104 of 264
the loss itself or the lack of relevant insurance insurance cover amounts amounts to a failure of due performance allowing the Employer to claim on the bond. Any lack of recovery from insurers could result from one of the following causes:(i) no obligation to insure; (ii) breach of obligation to to insure insure or procure insurance; insurance; (iii) non-disclosure or breach of term of insurance policy; (iv) excess; (v) loss exceeds maximum cover; or (vi) reduced payment due to scaling-down or negotiation. Under Under item item (iii), (iii), breach is covered covered by clause clause 25.4 25.4 (Compl (Complianc iance e with with policy policy conditions): whoever breaches the policy is liable for any non-recovery. Under Engli English sh law, law, nonnon-di disc sclo losur sure e of any info inform rmat atio ion n rele relevan vantt to the the risk risk to be undertaken undertaken by the insurer is treated as rendering rendering the policy void and as if never effected. In some European jurisdictions, the same is true if the failure of disclosure was in bad faith. A difficult question arises as to whether an avoided policy should be treated as a failure to insure under clause 25.3 (Remedy on Contractor's failure to insure) or a failure to comply under clause 25.4. In view of the ineffectiveness of the prescribed remedy under clause 25.3 in situations where a claim has arisen and the insurer has refused liability on the ground of non-disclosure, the practical solution must be to treat the case as one of breach. If the uninsured loss is the result of a breach by the Contractor of the duty to insur insure, e, and and fall fallss with within in claus clause e 20.4 20.4 (Emp (Employ loyer er's 's risk risks) s) item itemss (e) (e) to (g), (g), the the question arises whether this sub-clause means that the Employer must bear the loss or whether whether he can pursue the Contractor Contractor for the breach. It is submitted submitted that the Employer's remedy for the failure of the Contractor is set out in clause 25.3 (Remedy on Contractor's failure to insure) and that it is intended to be the exclusive remedy. If it had been intended that the Employer could sue for the breach, the draftsman would, it is submitted, have so indicated in this sub-clause or in clause 25.4 (Compliance with policy conditions). The 4th Edition for the first time divides the Employer's risks into those to be insured and those which need need not be insured. Employer's risks (a) to (d) cannot normally be insured against and thus are excluded from the insurance obligations upon the Contractor. If the Employer is able to obtain insurance for some or all of these risks, he is free to do so. Obligations in relation to insurance are also imposed by clause 23 (Third party insurance), clause 24.2 (Insurance against accidents to workmen) and clause 25 (Evidence and terms of insurances). As with clause 23.1 (Third Party Insurance) and clause 25 (Evidence (Evidence and terms terms of insurances), Part II provides for this clause alternative wording in the event that the Employer decides to insure the works and the third party risks himself.
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CLAUSE 22 : Indemnity
The Contractor Contractor is to indemnify indemnify the Employer Employer in respect of the death death or injury of any person or damage to the property of any third party resulting from the execution of the project subject to certain exceptions. The exceptions are listed in clause 22.2. The Employer shall indemnify the Contractor against claims in respect of the exceptions. This edition is similar to the 3rd Edition although there have been changes to the vocabulary and the exceptions are now set out in a separate sub-clause. 22.1 22.1 The draf draftin ting g of this this claus clause e obscur obscures es the the meanin meaning g of this this clau clause. se. Why itit is necess necessar aryy to have have two two lilist stss of item itemss agai agains nstt whic which h the the Cont Contra ract ctor or shoul should d indemnify the Employer i.e., "losses and claims" as well as "claims, proceedings etc" is a mystery and raises the suspicion that the exception qualifies only the second list and not the first. This, however, cannot be right. "...ex "...except cept if and so far as the Contrac Contractt provides provides otherwis otherwise.. e..." ." The princip principal al provision which the contract makes in relation to the indemnity is the insurance required by clause 23.1 (Third party insurance) which is in the joint names of the Contractor Contractor and the Employer Employer in respect respect of these risks. Thus, the Employer Employer will recover directly from the insurer and neither the Employer nor the insurers will be entitled to seek to recover from the Contractor in respect of sums paid out under the insurance policy. Clause 65 (Special risks) provides further exceptions, protecting the Contractor from liability for items (a) to (e) of clause 20.4 (Employer's risks), provided in the case of item (b) that the rebellion etc occurs in the country where the Works are taking place. "(b) loss of or damage to any property (other that the Works)". This covers prop proper erty ty of the the Em Empl ploy oyer er othe otherr than than the the proj projec ectt itsel itself. f. The The corre corresp spon ondi ding ng insurance obligation puts the matter beyond doubt as clause 23.1 (Third party insurance - including Employer's property) expressly covers such property. An equiv equival alent ent vers versio ion n of this this indem indemnit nityy was was consi consider dered ed in Rich Richar ards dson on v Buckinghamshire County Council (1971) 1 Ll R 533; 6 BLR 58 when the Court of Appeal considered the ICE 4th Edition clause 22(1). There the Employer had incurred legal and other costs in successfully defending a personal injury action . He sought to recover those costs from the Contractor who had been joined into the action as a co-defendant. The Court of Appeal decided that the Employer's costs did not fall within the terms of the indemnity.
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22.2 22.2 Items Items (a), (a), (b) and and (c) could could arise, arise, for for exampl example, e, in the claim claimss that migh mightt be made by an adjoining owner who considered the value of his property to be adversely affected by the construction activity and the presence of the completed project close to his land or if there was a disputed boundary between his property and the site. In particular, an injunction or other order of court could be obtained bringing all or part of the works to a halt. Item (d) injury or damage caused or contributed to by the Employer or those empl employe oyed d by him him is the the most most impor importa tant nt excep exceptition on.. It is subm submititte ted d that that the the Engineer would be the servant or agent of the Employer for these purposes with the result that injury or damage caused by the Engineer's design would be covered. Compare the wording of clause 44.1 (Extension of time for completion) item (d) and the commentary thereunder. "...ot "...other her contrac contractor torss not being being employ employed ed by the Contrac Contractor tor... ..."" could could create create difficulties in relation relation to contractors employed employed by subcontractors. The intention is clea clearr howe howeve ver, r, even even with withou outt an expr expres esss refe refere renc nce e to clau clause se 31 (Oth (Other er contractors). 22.3 22.3 It may may be wort worthy hy of note note that wher where e damage damage to the works works resul results ts from from risks which are the Employer's responsibility, the Engineer is empowered to ascertain the cost of rectification under clause 52 (Valuation of variations). variations). With risks that may be termed "off-site", the Engineer and the contractual payment machinery machinery have no part to play. Nevertheless, Nevertheless, a dispute dispute as to the contractor' contractor'ss entitlement to indemnity would have to be referred to the Engineer for a decision and to an arbitrator pursuant to clause 67 (Settlement of disputes). CLAUSE 23. : Insurance Liabilities
The Contractor is to obtain joint insurance for death or injury to persons other than workmen and loss or damage to property other than the Works subject to certain exceptions. The minimum amount of insurance is stated in the Appendix. The insur insuranc ance e poli policy cy shall shall trea treatt the the Cont Contra ract ctor or and Em Empl ploy oyer er as sepa separa rate te insureds. This clause has been changed for the 4th Edition and introduces insurance in the joint names of the Employer and the Contractor, whereas the Contractor took out the insurance in his sole name in the 3rd Edition. The exceptions relevant to the requirement for third party insurance are items (a), (b) and (c) in clause 22.2 (Exceptions) which refer to claims and damage which arise from the mere mere fact of the existence and execution of the project. It must be doubtful whether insurance is available to cover those matters. Insurance for item (d) should be readily obtainable. Page 107 of 264
This insurance only excludes the works so that other property belonging to the Employer is intended to be covered as the clause title of sub-clause 23.1 (Third party insurance insurance - including including Employer's Employer's property) property) indicates. indicates. This insurance insurance is to be in joint names, but is to include include a cross-liability cross-liability clause. clause. The effect effect of these provisions is that the Employer and the Contractor may act individually in respect of a claim, despite the insurance being in joint names. Other obligations in relation to insurance are imposed by clause 21 (Insurance of works and Contractors Equipment). Clause 24.2 (Insurance against accident to workmen) and clause 25 (Evidence and terms of insurances). Part II provides alternative wording in the event that the Employer decides to take out the insurance himself. See also Part II for clause 21 (Insurance of Works) and clause 25 (Evidence and Terms of Insurances). CLAUSE 24 : Accident or Injury
The The Cont ontract ractor or is to indem ndemni niffy the Em Empl ploy oyer er aga against inst all all dam damages ages or compensation payable to any workman employed by the Contractor or any subcontractor unless his death or injury results from an act or default of the Employer. The Contractor shall maintain insurance against accident or injury to workmen or shall procure that subcontractors maintain insurance indemnifying the Employer and that the subcontractors produce to the Employer on demand proof that the insurance is current. The rather strange wording of this clause is taken, with minor amendments, from the 3rd Edition. Edition. As with all the insura insurance nce clauses, clauses, the require requiremen ments ts for the insurance to be approved by and produced to the Employer have been removed to clause 25 (Evidence and Terms of Insurance). 24.1 24.1 This This contract contract cannot cannot regulat regulate e the Employer Employer's 's liabili liability ty to third third parties parties which which are likely to be governed by local laws. The ineffectiveness of the first sentence is recognised by the second in which the Contractor agrees to indemnify the Employer in respect of the the same liability. This indemnity is qualified qualified by clause 65 (Special risks) which protects the Contractor from liability for damage, injury or loss of life arising from items (a) to (d) of clause 20.4 (Employer's risks), provided that the rebellion etc. referred in in item (b) takes place in the country where the works are taking place. It is important to note that, despite the clause title, the terms of the clause go beyond accidents or injuries and cover any damages or compensation payable. Thus any payment upon the dismissal of an employee would be covered, for example where the Engineer required the removal of a person under clause 15.1 Page 108 of 264
(Contractor's superintendence) or clause 16.2 (Engineer at liberty to object). Equally the clause title is misleading in its reference to workmen as the provision covers all employees. "...the Employer, his agents or servants". As in clause 22.2 (Exceptions), it is submitted that the Engineer, and thus his design, is covered by this phrase. See the commentary under clause 44.1 (Extension of time for completion) item (d) on this point. 24.2 24.2 The immed immediat iate e difficul difficulty ty with with this claus clause e is to ascertai ascertain n exactly exactly what what "such liability" refers to. At first sight it seems to refer only to the Employer's liability for its acts or defaults as that is the only context in which the word "liable" is used in clause 24.1. Whilst that interpretation would satisfy the immediate concern of the Employer, the draftsman probably intended to oblige the Contractor to go further. If so, two options remain: either that the insurance is to cover the Contractor's liab liabililitity; y; or that that all all acci accide dent ntss and and inju injuri ries es to work workme men n are are to be insur insured ed.. Presumably, as the Employer is concerned to see evidence of the existence of such insurance, it is intended that the Employer's liability for its acts and defaults is intended to be covered as well. It is further further presumed that "such liability" does not infer an obligation to insure against liability to pay damages or compensation to employees due to their dismissal from the site or otherwise in relation to their contrac contracts ts of employmen employment. t. It must be doubted doubted that such insuran insurance ce would be available on the market. There is no express minimum or limit to the amount of insurance required under this clause. Local laws could impose additional obligations in relation to the insurance of the workforce, however. For the subcontractors' insurance to indemnify the Employer it would normally mean that the Employer would have to be named in the policy. Other obligations are imposed in respect of insurance by clause 21 (Insurance of Works Works and Contrac Contractor tor's 's Equipm Equipment ent), ), clause clause 23 (Third (Third party party insura insurance) nce) and clause 25 (Evidence and terms of insurances). "... any persons are employed employed by him on the Works". If the last workmen workmen on site are employed by a subcontractor, the Contractor's insurance is permitted to lapse. If the workmen are not covered by a subcontractor's insurance, this could represent a gap in the insurance protection given to the Employer. Problems are frequ frequen entltlyy gener generat ated ed by the the defi defini nitition on of empl employm oymen entt whic which h may may well well be governed by local law. For example, employees of the Employer will often be in training with the Contractor in relation to the operation of the project. This training may be full-time and the trainees may be under the control and supervision of the Contractor: Contractor: the question of who is their employer employer for the purposes purposes of this clause will not necessarily be straight-forward.
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CLAUSE 25 : Terms of Insurance
The Contractor shall prove to the Employer before starting work that the required policies of insurance have been taken out. He will also supply the policies to the Employer within 3 months of the the Commencement Date. The Engineer should be kept informe informed. d. The Contract Contractor' or'ss polici policies es must must be with insurers insurers and in terms approved by the Employer. The Contractor will keep the insurers informed and maintain adequate insurance throughout, producing policies and proof of payment of premiums on demand by the Employer. If the Contractor fails to provide or maintain the policies, the Employer may do so and deduct the premiums from sums due to the Contractor. The Contractor and the Employer will indemnify each other against any breach of the terms of any policy. Sub-clauses Sub-clauses 25.2 and 25.4 25.4 are new to the 4th Edition Edition.. In the 3rd Edition, Edition, the obligation now contained in sub-clause 25.1, to obtain approved insurance and to produce it on request, request, was repeated repeated in clauses clauses 21, 23 and 24. Sub-clause Sub-clause 25.3 contains the additional sanction that if the Contractor fails to provide proof of the polici policies, es, the Employer Employer may take out his own insurance insurance at the Contr Contract actor' or'ss expense. 25.1 The obligat obligation ion to to "provide "provide the insurance insurance policies policies to the the Employer Employer"" does not apparently mean that the Contractor is to leave the policies with the Employer as he is required to produce them again upon demand under sub-clause 25.2. "Such insurance policies policies shall be consistent consistent with the general general terms agreed prior to the issue issue of the Lette Letterr of Accept Acceptan ance ce". ". The intent intentio ion n and and effe effect ct of this this sentence is obscure. There are three three specific clauses detailing the nature of the insurance policies and an overriding requirement that both the terms and the insurers must be approved by the Employer. The insurance is to come into effect when the Contractor starts on site which will normally be some months months after the Letter Letter of Acceptance. Acceptance. Thus the reference reference to "general "general term termss agre agreed ed prio priorr to the the issu issue e of the the Lett Letter er of Acce Accept ptan ance ce"" is baff baffliling ng,, particularly as it is the Letter of Acceptance that signifies the existence of an agreement between the the parties. The draftsman is perhaps intending to indicate that the terms of the policies and the identity of the insurers should be discussed and the approval of the Engineer obtained during the negotiations leading up to the Letter of Acceptance. The approval of the Employer to the terms and supplier of insurance is subject to clause 1.5 (Notices, consents etc.) and must not "unreasonably be withheld or delayed". Page 110 of 264
25.3 25.3 The princ principl iple e that the the Employe Employerr should should take out insu insuranc rance e himself himself in the the event that the Contractor does not do so is obviously sound as is the Employer's right to deduct the premiums from monies otherwise otherwise due to the Contractor. Contractor. The detailed working of this clause could give rise to considerable argument however. If a Contractor effects insurance but fails through an oversight to provide the policy to the Employer within 3 months of the commencement date, is the Employer entitled to take out insurance and maintain it for the entirety of the remain remainder der of the contrac contract? t? If so, does the Contra Contracto ctor's r's obligat obligation ion to insure insure lapse? What if the Contractor is able to to obtain the insurance much more cheaply than than the the Em Emplo ploye yer? r? Is the Em Empl ploy oyer er under under any duty duty to mitigat mitigate e his his loss loss? ? Happily Happily,, these these questi questions ons should should arise arise only only rarely rarely in practi practice ce as contrac contractor torss generally recognise the importance of insurance. For a comment on whether non-disclosure leading to the avoidance of a policy of insurance is a failure to insure or a failure to comply, see under clause 21.3 (Responsibility for amounts not recovered). 25.4 25.4 This This subsub-cl clau ause se has has to be read ead with with clau clause se 21.3 21.3 (Res (Respo pons nsib ibililit ityy for for amounts amounts not recovered) recovered) and clause 23.1 (Third (Third party insurance). insurance). Clause 21.3 makes it clear that the Employer and the Contractor bear any losses through damage to the works which are not insured or not recovered from the insurers, in accordance with the division of risks set out in clause 20 (Care of Works). If the failure failure of insurance or recovery recovery is due to a breach of condition condition by, for example, example, the Employer when the risk was otherwise upon the Contractor, this sub-clause will, it is submitted, overrule the effect of clause 21.3 and the Employer will bear the loss. For a comment on whether non-disclosure leading to the avoidance of a policy of insurance is a failure failure to insure insure or a failure to comply, see under clause 21.3 (Responsibility for amounts not recovered). Similarly, this clause would appear to overrule the preservation of the indemnities given under clause 22 (Damage to persons and property). Loss caused to the Contractor by the Employer's failure to comply with conditions of an insurance policy taken out by a subcontractor in joint names with the Employer would be recoverable from the Employer if the policy could be said to have been "effected "effected pursuant to the Contract". Contract". Clause 24.2 24.2 (Insurance (Insurance against accidents to workmen) envisages the Contractor procuring the insurance by subcontractors so that such policies could, it is submitted, be regarded as falling within the terms of this sub-clause. Part II to this clause, as to clause 21 (Insurance (Insurance of Works) and clause 23 (Third Party Insurance) provides alternative wording in the event that the Employer decides to take out those insurance policies himself. CLAUSE 26 : legislations and Regulations
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The Contractor should comply with all local legislation and regulations and the rules of all public bodies bodies and companies affected affected by the works. The Contractor Contractor will indemnify the Employer against any breaches, but the Employer will be responsible for and will indemnify the Contractor in respect of matters such as planning permission. This clause represents a welcome simplification when compared with the 3rd Edition. Edition. The final sentence sentence is new and forms a necessary necessary link with clause clause 22.2 (Exceptions) and clause 22.3 (Indemnity by Employer) which make damage resulting from the very existence of the project the responsibility of the Employer. Missing Missing from the 4th Edition Edition is any provision whereby the Employer repays fees properly properly incurred incurred by the Contractor. Contractor. There is no other mention mention of such fees fees in the the cont contra ract ct so that that norma normall pract practic ice e woul would d be to inclu include de a provi provisi siona onall or contingency sum or a lump sum item in the Bill of Quantities. Difficulties can arise when part of the Engineer's design is found to conflict with a local law. If the discrepancy is found before the work is executed, the Contractor Contractor can seek a variation variation of the works. The Employer Employer would not, it is submitted submitted,, be entitled to deny the Contractor payment of any costs consequent upon the variation on the grounds that the Contractor had undertaken to conform with local regulations regulations and therefore should not be entitled entitled to further further payment for doing so. The Contractor has undertaken that he will conform with the local law in the executi execution on of the works. works. He is not undertaki undertaking ng that the works works as designed designed so conforms. conforms. It would, it is submitted, submitted, place intolerabl intolerable e burdens upon tenderers tenderers if they had to check the design for compliance. Another area of difficulty that frequently occurs is when delays and costs are incurred as a result of the rules and regulations of the various utilities whose pipes and cables pass under or are connected to the works. The design of the works is normally the Engineer's concern, but liaison with the utility companies is the Contractor's Contractor's responsibil responsibility. ity. In many countries, countries, the procedure procedure for re-routing, re-routing, for example, example, a telephone telephone cable may be a long and bureaucrati bureaucraticc process. It is submitted submitted that the Contractor Contractor would be obliged to show severe delay of this sort to qualify as "special circumstances" entitling the Contractor to an extension of time under clause 44.1 (Extension of time for completion). A very very inte intere rest stin ing g ques questi tion on aris arises es when when the the Em Empl ploy oyer er is an arm arm of the the government of the country in which the project is sited and the utility concerned is also government-owned. Thus, the Contractor Contractor could be dealing with the Ministry of Public Works as Employer and the Ministry of Telecommunications in relation to the relocation relocation of a cable. A Contractor Contractor will will seek to argue that delays delays caused by the Ministry of Telecommunications fall within the ambit of "delay, impediment or prevention by the Employer" under clause 44.1(d). The answer lies within the admin adminis istr trat ativ ive e law law of the the coun countr tryy in whic which h the the proj projec ectt take takess plac place. e. If the government can be said to be "one and indivisable" so that the two Ministries are mere merely ly mani manife fest stat atio ions ns of the the same same lega legall perso person, n, the the Cont Contra ract ctor or may may well well succeed. In civil code countries, countries, with legal systems based on the French model, a contract with a ministry would normally be an administrative contract and the Page 112 of 264
doctrine of Fait du Prince could apply: this would make an act of one arm of government a potential ground for claim under a contract with another as the state is not regarded as comprising separate entities but as a single whole. The boundary between the Contractor's duty of conformity with local rules and regulations on the one hand and the Employer's responsibility for "planning, zoning or other similar permission required" on the other hand is likely to cause difficulty. difficulty. The reference reference in the sentence to clause clause 22 (Damage to persons and property) and in particular the indemnity in respect of the exceptions set out in clause 22.2 may be intended to give guidance to the scope of the words "other similar permission". This clause should be read with clause 70.2 (Subsequent legislation) which does not detract in any way from the duty to comply but reimburses the Contractor in respect of costs caused by changes in relevant laws after a certain date. It should also be read with clause 5.1 (Language/s and law) and the commentary thereto, clause 13 (Work to be in accordance with the contract) which requires the Contractor to execute the works "unless it is legally...impossible" and clause 66.1 (Release from Performance). Government Employers may wish to exempt Contractors from certain taxes and duties in order to ensure, for example, that all the funding available is spent on the project and not on taxes. A clause to that effect should be inserted in Part II. CLAUSE 27 : Fossils
Items of value value or interest discover discovered ed on the site belong to the Employer. Employer. The Contractor shall take steps to preserve such articles and will tell the Engineer immediately immediately and follow follow his instructions. instructions. The Contractor Contractor will be entitled entitled to an extension of time and reimbursement of his costs in relation to such instructions. The only change of principle in the 4th Edition is the power of the Engineer to grant an extension extension of time for delays caused caused by instructions. instructions. The standard standard 4th Edition wording for the Engineer's determination of extension of time and cost has been introduced. The purpose of this clause is to endeavour to ensure that items of interest are handed over to the Employer. Employer. Apart from from the potential potential value of such items, the Contractor would have good reason to seek to hide such discoveries if the Contractor Contractor would suffer suffer financially financially as a consequence consequence of the discovery. For this reason, almost every standard form of contract has a fossils or antiquities clause placing the financial risk of such discoveries on the Employer. "...as between the Contractor and the Employer...". Local legislation may require all finds to be handed over to the state and third parties may have claims over the articles uncovered. The contract of course can only govern relations between the two parties. Page 113 of 264
The Contractor's entitlement to extension of time and costs is only "by reason of such instructions" instructions".. Thus, if critical critical work stops whilst whilst the Engineer is acquainted acquainted with the discovery and whilst decisions are made, possibly by the importation importation of experts, and the result is only an instruction by the Engineer to proceed because for example, the discovery is of no value, the Contractor will apparently be entitled to no extension of time. time. This may be unfortunate in that it contradicts the purpose of the clause and the Contractor will have to make decisions as to whether the discovery is of value and interest and will be taking a risk if he stops the work and informs informs the Engineer. Engineer. This will tempt tempt contractors contractors to take the safe course and say nothing. nothing. To achieve its its objective, objective, the clause clause should allow allow the Contractor an extension of time at least whenever a genuine discovery causes critical work to come to a halt. This clause is the only occasion in the contract where the Contractor is required to "acquaint" the Engineer of something, as normally a written notice of some description description is required. required. Written Written confirmatio confirmation n of the fact that the Engineer has been informed would be a sensible precaution for the Contractor. CLAUSE 28 : Patent Rights
The Contractor will indemnify the Employer from all claims for infringement of patent rights etc. in relation to Contractor's Equipment, materials or plant except where the infringement results from the Engineer's design or the Specification. The Contractor is to pay all costs for obtaining materials for the Works. In the 4th Edition, this clause has been divided into two sub-clauses and uses somewhat somewhat differe different nt vocabular vocabulary. y. The phrase phrase "or for incorpora incorporatio tion n in" in subclause clause 28.1 28.1 is new. The The except exceptio ion n in rela relatition on to the Engi Enginee neer' r'ss desi design gn or specification is also new and has been introduced to allow for the fact that normally the Contractor has little control over the materials and plant to be incorporated and thus should not be liable for infringements as a consequence. Now it is only where the Contractor or a subcontractor selects the equipment, material or plant that the Contractor is liable for infringements. This clause raises the queation as to who is liable to pay royalties or licence fees other than in respect of matters dealt with in sub-clause 28.2. The phrase "damages...and expenses...in relation thereto" appears to be broad enough to cover cover payments payments made in order to avoid the infrin infringem gement ent,, but the excepti exception on assumes that the infringement has already occurred. This clause could usefully be clarified. Meanwhile, as it would perhaps impose an excessive burden upon tenderers to require them to investigate the potential liability for royalties etc., a provisional sum would, it is submitted, produce a sensible result, particularly as it is the Engineer's design and he is best placed to make the necessary enquiries.
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CLAUSE 29 : Interference at work site
The Contractor shall complete the project causing a minimum of interference to the convenience of the public or the access to adjacent properties and roads. The Contractor shall indemnify the Employer against claims arising from such interference if the Contractor is responsible. This clause is virtually unchanged from the 3rd Edition. This clause should be read in conjunction conjunction with clause 19.1 (Safety, security security and protection of the environment) whereby the Contractor is to "avoid damage or nuisance to persons or to property of the public or others" and clause 22 (Damage to persons and property). property). The latter clause at 22.2(a) to (c) makes the Empl Em ploy oyer er resp respons onsib ible le for for the the damag damage e and claim claimss whic which h are are the the inev inevititabl able e consequence consequence of the execution and existence existence of the project. project. This clause, clause, which could easily have been combined with clause 22, is the corollary, namely that the Contractor is liable for the avoidable claims etc. arising from the works. Altogether in the contract, some 13 indemnities are given or are to be given by nominated subcontractors or insurance policies of which 7 are given to the Employ Employer er by the Contra Contracto ctorr and 4 to the Contrac Contractor tor by the Employer Employer.. This This proliferation of indemnities must be borne in mind when the parties consider whet whether her their their liabil liabilititie iess in rela relatition on to the proj project ect are at an end. When When the the Contractor is giving his written discharge under clause 60.7 (Discharge), he should be aware that his right to indemnity is compromised in respect of liabilities incurred at the date of the discharge, but not, it is submitted, in respect of future liabilities liabilities.. See also clause 60.9 (Cessation (Cessation of Employer's Employer's liability) liability) and clause clause 62.2 (Unfulfilled obligations) and the comments under those clauses. CLAUSE 30 : Damage at work site
The Contractor shall take all reasonable steps to avoid damage to roads and bridges including by the careful selection of routes and distribution of loads. Unle Unless ss the the cont contra ract ct says says othe otherw rwis ise, e, the the Contr Contrac acto torr is resp respons onsib ible le for for any any altera alteratio tions ns to roads roads and bridges bridges necessa necessary ry for the transp transport ortati ation on to site site of Contractor's Equipment or Temporary Works and shall indemnify the Employer against any claim arising from damage. If any any damag damage e arise arisess due due to the the trans transpor porta tatition on of mate materi rial alss or Plan Plant, t, the the Contractor shall inform the Engineer and Employer. If the local law so provides, the haulier and not the Employer shall be liable liable for such damage. Otherwise, the Employer shall pay for the damage and indemnify the Contractor except to the extent that the Engineer considers the damage was due to lack of care by the Contractor. Contractor. The Employer Employer may deduct deduct the Contractor Contractor's 's share of the damage damage
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from from sums otherwis otherwise e due to the Contrac Contractor tor.. The Employ Employer er is to inform inform and consult with the Contractor in relation to settlement negotiations. The same principles apply to any necessary waterborne transport. Sub-clause 30.1 and 30.4 are virtually unchanged from the 3rd Edition save as to vocabul vocabulary ary.. Sub-cl Sub-clause ausess 30.2 30.2 and 30.3 have however however been fundament fundamentall allyy altered. This clause should be read in conjunction of clause 19.1 (Safety, security and protection of the environment), clause 22 (Damage to persons and property) and clause 29.1 (Interference with with traffic and adjoining adjoining properties). Damage to roads and bridges should be insured pursuant to clause 23.1 (Third party insurance) save to the extent that the damage "is the unavoidable result of the execution and completion of the Work": see clause 22.2 (Exceptions). However, in respect of Contractor's Equipment or Temporary Works, the Contractor is responsible for damage regardless of its avoidability. avoidability. The Contractor is therefore therefore liable for such damage as insurance will not be available in respect of the unavoidable. In respect of damage due to the transportation of materials or plant under subclause 30.3, the Contractor is only liable if he has failed to use every reasonable means to prevent damage. In arriving at their prices, tenderers will be obliged to obtain information about the bearing capacity of roads and bridges which will be used in the transportation of materials materials etc. to the site. Under clause clause 11.1 (Inspection (Inspection of Site) the Contractor Contractor will be deemed to have inspected the surroundings of the site both as to the "extent and nature of work and materials necessary" and "the means of access to the site". In relation to their equipment and proposed Temporary Works, they will be obl obliged iged to inclu nclude de for for the cost cost of any any nece necess ssar aryy str strengt engthe heni ning ng or improvements and for the cost of repairs. In relation to any strengthening of bridges etc. needed for movement of materials and plant, the Contractor is apparently not responsible for or obliged to pay the cost of such strengthening, but must "use every reasonable means" to prevent damage. The interpretat interpretation ion of such "reasonable "reasonable means" should presumably presumably be limi limite ted d to matt matter erss of the the sort sort part partic icul ular aris ised ed in clau clause se 30.1 30.1.. It is ther theref efor ore e subm submit itte ted d that that a Cont Contra ract ctor or is enti entitl tled ed to a var variati iation on in resp respec ectt of any any strengthening etc. which is necessitated only by the transportation of materials or Plant. It is not immediatel immediatelyy obvious why the Contractor Contractor should should not be asked to price for all strengthening necessitated by the works with additional payment only in the event of additional strengthening being required for the execution of some varied or additional work. In the 3rd Edition, the Contractor was obliged obliged to notify the Engineer of any exceptional load which was likely to cause damage and make proposals for the necessary strengthening. Unless the Engineer served a count counter er-n -not otic ice e denyi denying ng the the neces necessi sity ty for for stre streng ngth then enin ing g or modi modify fyin ing g the the proposals, the Contractor would be paid. If the foregoing commentary is correct and the Contractor has no duty to strengthen roads and bridges which may be Page 116 of 264
damaged by the transport of materials or Plant and as the obligation contained in the 3rd Edition to notify the Engineer of loads likely to cause damage has been deleted from the 4th Edition, the Employer is left exposed to damage claims which could have been avoided. It would normally normally be much cheaper temporarily to strengthen a bridge than to repair it. This is an oversight that must surely be rectified. An addition to sub-clause 30.3 is the requirement that the Employer should inform the Contractor about the negotiation of any settlement and consult with him if liabilit liabilityy is to be shared. shared. In the 3rd Edition, Edition, the Employer Employer would would simply simply negotiate the settlement and the Engineer would certify the amount payable by the Contractor. The Contractor's only defence to excessive settlements settlements would be the difficult task of persuading the Engineer or an arbitrator that the amount paid out was due to poor negotiation rather than the Contractor's lack of care for the bridges etc. This clause proceeds almost on the assumption that the Employer is part of the government in the Country in which the works are taking place and the Engineer is employed by the Ministry Ministry of Public Public Works or equivalent. equivalent. The absence of any reference to liaising with local authorities and the assumption that a Contractor may set about strengthening bridges and "improving any road" will often be quite unre unreal alis isti tic. c. In this this rega regard rd,, this this clau clause se shou should ld be read read with with clau clause se 26.1 26.1 (Compliance with statutes, regulations) as the local law will often have provision for the movement of exceptionally heavy loads around the country. The liability of both Employer and Contractor should be covered by the insurance under clause 23 (Third party insurance). CLAUSE 31 : Opportunities for other Contractors
The Contractor is to allow the Employer's workmen, other contractors and local authority workmen working on or near the site on work not forming part of the contract all reasonable opportunities for carrying out their work. If the other contractors request that the Engineer makes roads available which the the Cont Contra ract ctor or is obli obliged ged to main mainta tain in or if the the Cont Contra ract ctor or permi permits ts use use of Temporary Works or Contractor's Equipment or provides any other services, the Contractor is to be paid. This clause is effectively unchanged from the 3rd Edition but, in common with the policy of the 4th Edition has been divided into items to make the clause more read readab able le.. It is subm submit itte ted, d, howe howeve ver, r, that that the the word wordss from from "who "who may may be employed..." onward are intended to qualify (a) and (b) as well as (c) and should therefore commence on the following line. The presence on or adjacent to the site of other contractors can often be a source of contention due to the obligation upon the Contractor to liaise and afford Page 117 of 264
them access, but without the powers that he has in relation to subcontractors subcontractors to programme, control and monitor their work. Although the Contractor may obtain extra payment for the facilities provided to other contractors, there is no express provision for extension of time for any delay that results from their work. This is in contrast to the ICE 5th and 6th Editions which provide for an extension "if compliance...shall involve the Contractor in delay...beyond that to be foreseen by an experienced contractor". The Contractor under the FIDIC conditions is left with the task of trying to demonstrate that such delays fall within one or other of the items in clause 44.1 (Extension (Extension of time for completion). completion). Where the delay derives from workmen or other contractors employed by the Employer, there should be no difficulty difficulty in demonstratin demonstrating g entitlement entitlement under clause 44.1 item (d) "any delay, impe impedi dime ment nt or prev prevent ention ion by the the Em Empl ploye oyer" r".. Delay Delay by the the work work of duly duly constituted authorities may be more difficult, particularly if it has to qualify as "other special circumstances" under clause 44.1 item (e). An extension of time may be available to the Contractor under clause 42.2 (Failure to give possession) if the work of the other contractors on site or relating to the access to the site amounts to the retaking by the Employer of possession of that part of the site. Although Although clause 42.2 addresses addresses only the "failure "failure on the part of the Employer to give possession", it is submitted that by necessary implication, it also covers delays caused by the Employer subsequently depriving the Contractor of such possession. Compare the Canadian Federal Court of Appeal decision of Queen v Walter Cabott Construction (1975) 69 DLR(3d) 542 where an Employer was held to be in breach of his obligation to provide an unimpeded site when work on an adjoining phase of the site hampered the contractor in the execution of his work. Clause 53.1 (Notice of claims) applies to claims under this sub-clause so that the Contractor has 28 days of the event to notify the Engineer of an intention to claim. The notice requirement of clause 52.2 (Power of Engineer to fix rates) does not, it is submitted, apply for the reasons set out under that sub-clause. This clause should be read in conjunction conjunction with clause 19.1 (Safety, security security and protection protection of the environment) environment) whereby the Contractor Contractor is to "have full regard for the safety of all persons entitled to be upon the site" and clause 19.2 (Employer's responsibilities) whereby the Employer takes on responsibilities in relation to site safety where where he employs workmen workmen or other contractors contractors on site. The Contractor Contractor retains the safety responsibility in relation to the workmen of duly constituted authorities. The use of the term "written request" in sub-clause 31.2 and not "instruction" suggests that the Contractor has some right to decline the request, regardless of its reasonableness. However, on this occasion and the three other occasions in the contract when the Engineer makes a request, the Contractor is obliged by the word word "shall "shall"" to comply comply with with that that request. request. Here, Here, the relevant relevant "shall" "shall" is in subclause 31.1. 31.1. The other clauses clauses are clause clause 6.1 (Custody and supply supply of drawings drawings and documents), clause 14.2 (Revised programme) and clause 37.4 (Rejection). In these three clauses, it seems that "request" is intended to be interchangeable Page 118 of 264
with with "ins "instr truct uctio ion". n". An inst instru ruct ctio ion n to prov provid ide e faci facililitities es in rela relatition on to othe other r contr contract actor orss work workin ing g off off site site coul could d be chal challe lenge nged d on the the grou ground ndss that that the the instruction was not on a matter "touching or concerning the Works" within clause 13.1 13.1 (Work (Work to be in accordanc accordance e with contract contract). ). Clause Clause 2.5 (Instru (Instructi ctions ons in writing) does not cover requests or "requirements" in sub-clause 31.1: only the requests requests are expressly expressly to be written. written. This is no doubt because it is the requests requests that may entitle the Contractor to recover costs. Provision is made for the employment of other contractors in case of default by the Contractor in the following clauses:- clause 39.2 (Default of Contractor in compliance) - clause 49.4 (Contractors failure to carry out instructions) - clause 63.1 (Default of Contractor) - clause 64.1 (Urgent remedial work) These contractors seem to fall within sub-clause 31.1 item (a) which yields the curious result that the Contractor, having defaulted on an obligation under the contract contract thereby causing the employment of another contractor, contractor, may be entitled entitled to payment for "allowing" the new contractor onto site. Part II urges the Employer to include in the tender document details of any anticipated works to be done by other other contractors. The degree of notice given to to the Contractor at the outset, or indeed after the works have commenced, and thus his ability to programme or allow for the other works, may well influence the Contractor's entitlement to extension of time. CLAUSE 32 : Keep site Clear of Obstructions
This clause, which is virtually unchanged from the 3rd Edition, requires the contractor to keep the site clear of obstructions, rubbish and surplus equipment and materials. "Obstruction" is to be distinguished from the "physical obstructions" referred to in clause clause 12.2 12.2 (Adv (Adver erse se physi physica call obst obstru ruct ctio ions ns or condi condititions ons)) and and is no doub doubtt intended to refer to obstructions of the sort that the Contractor is to store or dispose of. This clause is to be read in conjunction with clause 54.1 (Contractor's Equipment etc.) which prohibits prohibits a Contractor Contractor from removing removing any Contractor's Contractor's Equipment Equipment or materials from site without the consent of the Engineer. This clause should also be read in conjunction conjunction with clause 33 (Clearance (Clearance of site on completion) which addresses the position after the taking-over of the Works.
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CLAUSE 33 : Clearance of Site on Completion
The Contractor shall remove from any part of the site taken over all Contractor's Equipm Equipment ent,, surp surplu luss mate materi rial al,, rubb rubbis ish h and and temp tempor orar aryy work workss whic which h are are not not required during the Defects Liability Period. The part of the site taken over must be left clean and in a workmanlike condition to the Engineer's satisfaction. This clause, which has been substantially revised for this edition, is to be read in conjunc conjunctio tion n with with clause clause 32.1 32.1 (Contr (Contract actor or to keep keep site site clear) clear) which which imposes imposes obligations upon the Contractor to dispose of surplus equipment and materials during the course of the works; and in contrast with clause 54.1 (Contractor's Equipm Equipment ent etc.) etc.) which which prohib prohibits its the removal removal of Contrac Contractor tor's 's Equipm Equipment ent and materials materials without without the consent of the Engineer. Engineer. Reading Reading this clause and clause 54.1 together, it may be that the consent of the Engineer is only required for such removals during the course of the works and not when the works have been handed over. Other provisio provisions ns relevant to the removal removal of equipment equipment etc. are to be found in clause 63.1 (Default of Contractor) which entitles the Employer to use the Contractors Equipment etc. after termination by the Employer and clause 69.2 (Removal of Contractor's Equipment) in the case of termination by the Contractor. The proviso allowing the Contractor to retain on site materials, equipment etc. that are necessary during the Defects Liability Period is new to the 4th Edition. It is necessary because the obligation is tied in the 4th Edition to the taking-over certificate whereas it is "the completion of the Works", almost certainly meaning the end of the maintena maintenance nce period, period, that that is the key in the 3rd Edition. Edition. It is an obvious improvement that the obligation to clear the site as far as practicable should start upon taking-over. CLAUSE 34 : Engagement of Staff and Labour
This clause imposes the basic obligation upon the Contractor to obtain and provide for his own staff and labour. The clause is the equivalent to clause 34(1) of the 3rd Edition: sub-clauses 34(2) to (9) have been relegated to Part II, which provides a menu of some 15 optional clauses dealing with everything from wage rates to burying the dead. It may be that a degree of coordination between the additions to this clause and those to clause 54 (Contactor's Equipment, Temporary Works and materials) would be appropriate. This This clau clause se is to be read read in conj conjun unct ctio ion n with with clau clause se 16.1 16.1 (Con (Contr trac acto tor' r'ss employees) which refers to the provision by the Contractor of "such skilled, semiskilled and unskilled labour as is necessary", and clause 16.2 (Engineer at liberty to object), which entitles the Engineer to ban any person from the site. Insurance
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obligations obligations in relation relation to staff and labour are imposed imposed by clause 24.2 (Insurance (Insurance against accidents to workmen). CLAUSE 35 : Returns of Labour and Equipment
This clause, which is taken with minor amendments from the 3rd Edition requires the Contractor to maintain a record in a prescribed form of his labour and equipment. This is the first of a number of clauses requiring the Contractor to maintain records. The others are:-
clau clause se 44.3 44.3 (Int (Inter eriim det determi ermin natio ation n of exte extens nsio ion) n):: int interim erim par particul icular arss of delays having continuing effect;
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clau clause se 52.4 52.4 (Day (Daywo work rk): ): list listss of of wor workm kmen en and and rec recei eipt ptss and and vouc vouche hers rs proving payment;
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clau clause se 53.2 53.2 (Tem (Tempo pora rary ry reco recorrds) ds): in in sup suppo porrt of of cl claims aims;;
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clau clause se 58.3 58.3 (Vou (Vouch cher ers) s):: all all docu docume ment ntat atio ion n sho showi wing ng expe expend ndit itur ure e in in relation to provisional sums;
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clau clause se 59.5 59.5 (Cer (Certi tifi fica cati tion on of paym paymen entt to to nom nomin inat ated ed Subc Subcon ontr trac acto tors rs); );
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clau clause se 60.1 60.1 (Mon (Month thly ly stat statem emen ent) t):: sho showi wing ng mont monthl hlyy val valua uati tion on;; and and
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clau clause se 60.6 60.6 (Fin (Final al stat statem emen ent) t):: to incl includ ude e sup suppo port rtin ing g doc docum umen ents ts..
Apar Apartt from from the the Engi Engine neer er's 's gene genera rall invo involv lvem emen entt in and and cont contro roll over over the the Contractor's operations, the relevance of this information is primarily in relation to fluctuations in the event that clause 70.1 (Increase or decrease of costs) is operati operating. ng. This This clause clause also provide providess a method method of polici policing ng the prohib prohibiti ition on in clause clause 54.1 54.1 (Cont (Contra ract ctor or's 's Equi Equipm pmen ent) t) whic which h preve prevent ntss the the Cont Contra ract ctor or from from removing equipment from the site without the consent of the Engineer. Part II provides optional additional clauses for record-keeping in relation to health and safety and the reporting of accidents. CLAUSE 36 : Facilities for Testing
All materials, plant and workmanship must be strictly in accordance with the contract and any Engineer's instructions and tested as the Engineer may require in accordance accordance with with the contrac contract. t. The Contrac Contractor tor will provide provide all facili facilitie tiess for testing and shall supply samples for materials for testing as required by the Engineer. Page 121 of 264
The Contractor will supply samples at his own cost if such supply is envisaged by the contract. The Contractor will bear the cost of all tests envisaged by the contract and, in the case of load tests and tests on executed work, where such tests are described in sufficient detail to allow a price in the tender. The Contractor will bear the cost of all other tests if the work or materials fail to satisfy the Engineer. Otherwise, the Engineer will award the Contractor an extension of time and costs. This clause is virtually unchanged from the 3rd Edition save that sub-clause 36.5 has been added to provide machinery for the payment of the Contractor's costs of the extra tests and also to provide expressly for extension of time. Previously, the Contractor would have been obliged to demonstrate that the extra tests were "extra or additional work" within clause 44.1 (Extension of time for completion). The broad scheme of the contract is that the Contractor will be paid for any tests for which he has allowed or should have allowed in his contract price but the cost of any other tests tests will be allocated allocated according to the result of the the test. This "loser pays" formula is to be found in clause 38.2 (Uncovering and making openings), clause 49.3 (Cost of remedying defects) and clause 50.1 (Contractor to search). This arrangement is bound to raise the suspicion that materials etc. will be ruled as having failed their tests in circumstances where another result would mean additional cost to the Employer and the inference of a mistake by the member of the Engineer's Engineer's team who ordered ordered the test. This suspicion suspicion will be particularl particularlyy reinfo reinforce rced d where where the Engine Engineer er susbeq susbequent uently ly agrees agrees to accept accept the materi materials als tested despite such failure. For a comment comparing the treatment of the above clauses, see under sub-clause 36.5 below. 36.1 36.1 "(a) "(a).. .... descr describ ibed ed in the Cont Contra ract ct and in accord accordan ance ce with with the Engi Engine neer er's 's instruction instructions". s". If the Engineer's Engineer's instructions instructions are inconsistent inconsistent with the contract, contract, then, to the extent that they impose a higher standard than that specified, the Contractor should be entitled to to a variation under clause 51.1 (Variations). If the instruction suggests a lower standard than that prescribed, a problem arises in relation to clause 2.1 (Engineer's duties and authority) item (c) which states that the Engineer "shall have no authority to relieve the Contractor of any of his obligations under the Contract". The Contractor will be in the difficulty difficulty that clause 7.1 (Supplementary drawings and instructions) and clause 13 (Work to be in accordance with the contract) both insist that the Contractor strictly obeys the Enginee Engineer's r's instruc instructio tions. ns. The answer answer may be that that the Engineer Engineer's 's authority authority to instruct a change in the quality of work is expressed in clause 51.1(c) so that this would override override the limitat limitation ion within within clause 2.1. Thus, clause clause 36.1(a) 36.1(a) may be
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reconciled as the description in the contract would effectively be altered by the instructions. In English law, there will be implied into a construction contract a strict duty to supply good and proper materials, irrespective of fault on the Contractor's part: see for example Young & Marten v McManus Childs (1969) 1 AC 454. 36.2 36.2 The The oblig obligat atio ion n to supp supply ly samp sample less is limi limite ted d to mate materi rial als: s: workmanship are tested in other ways.
plan plantt and
36.3 36.3 "(a) "(a) clea clearl rlyy inten intende ded d by or provi provided ded for for in the the Contr Contract act". ". This This phra phrase se,, which occurs in clauses 36.2 and 36.3 and nowhere else in the contract, could give rise to some difficulty. As "provided for" deals with express requirements requirements for tests or samples, "clearly intended by" appears to deal with implicit tests or samples. In clause 36.1, there is a clear requirement requirement for samples of materials to be supplied as selected selected and required required by the Engineer. Presumably Presumably this is not a clear intention or provision or else clause 36.2 would make reference to clause 36.1. 36.1. It appear appearss that that the draf drafts tsma man n has tried tried to reliev relieve e the the Em Empl ploye oyerr and and Engineer of setting out a requirement for every single sample and test and has left left it to be implie implied d where where such sample sampless and tests tests will will be needed. needed. It seems seems inevitable that this short-cut will create arguments. Simi Simila larl rly, y, claus clause e 36.3 36.3(b (b)) seem seemss desig designe ned d to rais raise e the the issue issue whet whether her the the description of a test was sufficiently detailed to enable a Contractor to allow for it in his tend tender er.. It may well not be obvi obviou ouss from from the tender tender itsel itselff whet whether her a particular test was allowed for and thus an unscrupulous Contractor or Employer would be free to debate the sufficiency of detail. Materials Materials etc. are to be subjected subjected to testing "from time time to time". This raises raises the question whether such tests may occur after the taking-over of the part of the works concerned. concerned. The testing testing and inspection inspection in clause 37.2 37.2 (Inspection (Inspection and testin testing) g) only only takes takes place place "durin "during g manufa manufactu cture, re, fabri fabricat cation ion or prepar preparati ation" on" of materials etc. Under clause 50.1 (Contractor to search), it is only when a defect has appeared in the works that a search may be undertaken during the defects liability period. Under clause 38.2 (Uncovering (Uncovering and making openings), the words "from time to time" time" recur and raise the same question. It is submitted that, once the works are taken over, the Engineer's powers under this clause are at an end save in respect of any outstanding work completed during the defects liability period pursuant to clause 49.2 (Completio (Completion n of outstanding work and remedying remedying defects). Although the word "measuring" features in the list of items in respect of which the Contractor is to provide assistance, labour etc. it is submitted that this is not an intentional reference to the measurement referred to in clause 56.1 (Works to be measured) whereby the Contractor is to provide only "a qualified representative" and certain particulars.
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36.4 "In accordanc accordance e with the provisio provisions ns of the Contrac Contractt to the satisfa satisfaction ction of the the Engineer". Engineer". See the commentary commentary under clause clause 13.1 (Work (Work to be in accordance accordance with contract) in relation to a very similar phrase. For other provisions permitting the Engineer to test work, see clause 38.2 (Uncovering and making openings) and, where a defect has emerged, clause 50 (Contractor to search). 36.5 36.5 As comme comment nted ed above, above, there there are four four "los "loser er pays" pays" provis provisio ions ns where where the the Contractor is paid for work only if no fault is found for which he is responsible. There is a strange inconsistency between these clauses. Under this clause, the Contractor receives time and his costs; under clause 38.2 (Uncovering and making openings) and clause 50 (Contractor to search), he receives costs only; and under clause 49.3 (Cost of remedying defects), he receives a valuation under clause 52 (Valuation of variations). Although the Contractor is probably able to claim an extension for work executed pursuant to clauses 38.2 and 50, where appropriate, under clause 44.1 (Extension of time for completion) item (a) "the amount or nature of extra or additional additional work", the contract contract should make the matter matter clear. An Employer Employer could well argue, albeit wrongly, that the comparison comparison shows shows that that the the intent intentio ion n was was to give give time time only only for for extra extra test tests. s. Ther There e is a difference between the valuation for remedials under clause 49.3 and "costs" under the other clauses. The definition of "cost" at clause 1.1(g)(i) makes it clear that profit is excluded. A valuation has no such exclusion.There is no discernable policy distinguishing these clauses and the answer may be that there is none. CLAUSE 37 : Inspection and Testing
The Engin Enginee eerr is to have have access access to the site site and offoff-si site te factor factorie iess etc. etc. Contractor is to help to obtain such access.
The The
The Engineer may inspect and test materials materials and Plant and the Contractor Contractor shall obtain permission for such inspections and testing where it is to take place offsite. Inspection and testing will not relieve the Contractor Contractor of his responsibilities. responsibilities. The Contractor and the Engineer are to agree times and places for inspection and testing and the Engineer should give at least one day's notice of his intention to inspect or test. If the Engineer Engineer does not attend, the Contractor Contractor may carry out the test and forward the results to the Engineer who must accept them as accurate. If the test is a failure, or is not ready ready at the agreed time and place, the the Engineer may issue a rejection, stating his reasons and the Contractor must remedy the failure. failure. If the Engineer Engineer requires requires a repeat test, the Contractor Contractor must pay any costs incurred by the Employer. Inspection and testing may be delegated to independent inspectors acting as assistants under clause 2.4, provided 14 days' notice is given to the Contractor. This clause clause has been very considerab considerably ly extended: extended: the 3rd Edition Edition comprised comprised only sub-clause sub-clause 37.1; sub-claus sub-clauses es 37.2 to 37.5 are entirely entirely new. They expand and and clar clarif ifyy the the power owerss in clau clause se 36. 36.1 (Qual Qualit ityy of mat materi erials, als, plan plantt and and Page 124 of 264
workmanship) and clause 39.1 (Removal of improper work, materials or plant). The principal effect is to give the Engineer an express power to reject materials prior to their arrival arrival on site. Whilst in practice an Engineer who indicated that he would instruct the removal of materials which he had inspected or tested off-site, would not normally be ignored, these express powers reinforce the Engineer's role as quality controller. In addition, provision is now made for the Employer Employer to recover the costs of repeated tests which may well provide an incentive to Cont Contra ract ctor orss and and their their suppl supplie iers rs to ensu ensure re a sati satisf sfact actor oryy resu result lt on the the firs firstt occasion. 37.1 37.1 "Person "Personss authoris authorised" ed" could could include include the Engineer Engineer's 's Represen Representat tative ive under under clause 2.2 (Engineer's Representative), one of his assistants under clause 2.4 (Appointment of assistants), an independent inspector under sub-clause 37.5 or, presumably, a representative of the Employer. In addition, as these clauses deal with delegation, it is submitted that the Engineer may give written authority to any other person who he wishes to be present at the inspection or testing. The clause stops short of requiring the Contractor to procure access which is perhaps strangely reticent, particularly given that in clause 37.2, "the Contractor shall shall obta obtain in perm permis issi sion on"" for for the the Engi Engine neer er's 's insp inspec ectition on and and test testin ing. g. The The Contractor will no doubt be able to make it a term of the sub-contracts and supply contracts that the Contractor, the Engineer and others should have access for inspection inspection and testing. testing. The present present position is that that the Contractor Contractor would be in breach of contract for failure to secure permission for the Engineer to visit a supplier's factory to inspect and test but not if the affording of every facility and assistance assistance failed failed to gain access for the Engineer. Engineer. In practice, practice, the two are so near to being being insepa inseparabl rable e that that the necessi necessity ty for separat separate e sub-cl sub-claus auses es and separate degrees of obligation must be questionable. 37.2 37.2 "...sh "...shall all not not relea release se the Cont Contrac ractor tor from from any oblig obligati ation" on".. The Cont Contrac ractor tor's 's principal obligations in relation to materials and plant are set out in clause 36.1 (Qua (Qualility ty of mate materi rial als, s, Plan Plantt and and work workma mans nshi hip) p) but but see see also also clau clause se 8.1 8.1 (Contractor's general responsibilities) and clause 13.1 (Work to be in accordance with contract). 37.3 37.3 The purpose purpose of of the the words words "as "as provi provided ded in in the the Contr Contract act"" is obsc obscure ure.. The Engineer's powers to test appears in clause 36.1 (Quality of materials, Plant and workmanship) and is repeated in sub-clause 37.2 in relation to "the materials and Plant to be supplied supplied under the Contract". Contract". The use of the phrase "as provided provided in the Contract" rather than "as referred to in clause 37.2 above", raises the question as least of whether this clause refers to any sub-division of the materials and plant. Compare, Compare, for example, example, the phrase "clearly "clearly intended intended by or provided for" in clause 36.2 (Cost of samples) and clause 36.3 (Cost of tests). At first first sight, sight, the first first two senten sentences ces of this this sub-cl sub-claus ause e seem incomp incompati atible ble.. Pres Presum umab ably, ly, the the inte intent ntio ion n of the the draf drafts tsma man n is that that the the Cont Contra ract ctor or and and the the Engi Engine neer er agre agree e a time time when when insp inspec ecti tion on or test testin ing g will will take take plac place e by the the Page 125 of 264
Contractor alone or, if the Engineer so chooses, by or witnessed by the Engineer. Thus, if he chooses to attend, the Engineer Engineer must give the requisite requisite notice. notice. That notice must be in writing in accordance with clause 1.5 (Notices, (Notices, consents etc.). etc.). If the Engineer is unable to attend on one occasion, his right to have access "at all reasonable times" under sub-clause 37.1, will mean that his opportunity to inspect is not lost, even though he will have missed the test. If the Engineer is not represented at the test, he does not lose all possibility of rejecting the material as, firstly, he may instruct the test not to proceed with the risk that the instruction will entitle the Contractor to further payment under clause 52 (Valuation of Variations), or secondly, he could reject the materials or plant under sub-clause 37.4 if the certified results did not comply with the contract. 37.4 37.4 Cost Costss will be incur incurre red d by the Empl Employ oyer er by the repet repetititio ion n of test testss if he is obliged to pay the Engineer or his delegates and authorised persons additional sums and expenses expenses for attending attending the repeated repeated tests. The cost of the test itself itself will be borne by the Contractor under clause 36.3 (Cost of tests) and clause 36.4 (Costs of tests not provided for) unless the repeated tests fall under the latter clause clause and and demon demonst stra rate te that that the the mate materi rial alss etc etc are are in accor accordan dance ce with with the the contrac contract. t. This This would would produce produce the result result that the amount amount determin determined ed by the Engineer Engineer under clause 36.5 (Engineer's (Engineer's determination determination where tests not provided for) could be deducted again or reduced by the Engineer under this sub-clause. One answer to this curious situation would be if a repeated test falls within clause 36.3 being a test "clearly "clearly intended by or provided provided for in the contract". contract". For the reasons why this tempting solution may not be sustainable, see the commentary under clause 36. In the event of a rejection notice, the Contractor is to "make good the defect or ensure that rejected materials materials or Plant comply". In practise this means replacing, amen amendin ding g or trea treatiting ng the the mate materi rial als, s, plant plant etc. etc. to over overco come me the the Engi Engine neer er's 's object objection. ion. Howeve However, r, it is only only "rejec "rejected ted materi materials als or plans" plans" that that may be the subject of repeated repeated tests. tests. Thus, if the tested tested item has been replaced, it may be open to a Contractor to argue that the Employer is not entitled to his costs in respect of that repetition and, if clause 36.4 (Costs of tests not provided for) applies, then he is entitled to be paid for the repeated test and even obtain an extension of time. Under clause 63.1 (Default of Contractor), a failure by the Contractor to comply with a notice issued pursuant to this clause within 28 days is an act of default which which entitl entitles es the Employer Employer to determine determine.. As mentione mentioned d in the commen commentar taryy under clause 63, the choice of clauses to receive specific mention as grounds for termination seem bizarre. In this case, the inspection inspection of materials off-site off-site may be taking place months before their intended incorporation into the works with the result result that there there may be no particul particular ar urgency. urgency. Moreov Moreover, er, the result result of the rejection may be that alternative materials have to be located and ordered from a distant source. source. The required required compliance compliance is that the Contractor Contractor should promptly promptly make good the defect or ensure that rejected material or plant comply with the contract. Read without reference to clause clause 63, a reasonable interpretation of that Page 126 of 264
clause would be that unless the Engineer required a repeat of the tests, the suppl supplie ier' r'ss only only oblig obligat atio ion n was was to ensu ensure re that that when when the the mate materi rial alss etc etc were were delivered to site, they conformed with the contract and the Engineer's objection had been overcome. overcome. In the event that the the rejection rejection was caused by the fact that that the test was not ready at the time and place agreed, it is altogether more difficult to see what it is that the Contractor is to do within 28 days. Any Engineer asked to certify pursuant to clause 63.1 that there has been a failure of compliance under this sub-clause may have an unenviable task. 37. 37.5 See the commentary unde nder clause 2 (Engi ngineer and Engin gineer's Representati Representative) ve) and the apparent breadth of the phrase "any person authorised authorised by him" commented upon under sub-clause 37.1. CLAUSE 38 : Inspection of part of works
The Contractor is to give the Engineer an opportunity to check any foundations or other other parts parts of the Works Works which are about about to be covered covered up. The Contract Contractor or should notify the Engineer who should either attend or decline to do so. The Contractor is to open up and make good any part of the Works as the Engineer instructs. If clause 38.1 has been complied with and the part inspected is found to be in accordance with the contract, the Contractor will be paid for the opening-up and making good. The principal alteration to sub-clause 38.1 in this edition is the reference to "part of the Works" rather than "work" "work" as in the 3rd Edition. Sub-clause 38.2 has been translated into the phraseology of the 4th Edition but the principles of the clause remain unaltered. 38.1 38.1 The The drafts draftsma man n has decide decided d not to impose impose time time limits limits on the notic notice e and inspection procedure, relying instead on the co-operation between Contractor and Engineer. Engineer. Whilst Whilst this faith, which is not generally generally reflected reflected in the contract, may often be justified, the fact that the Engineer is entitled to cause reasonable delay to a Contractor who is ready to proceed with the covering of foundations, is likely to cause difficulty, particularly if the covering up is repeated many times over a period period of severa severall weeks. The parties parties to this contrac contractt may well well feel it sensible to agree a more formal procedure, including a right for the Contractor to proceed if the Engineer does not attend at the appointed hour, in order to avoid delays. A "part of the Works" is not defined so that there will always be scope for debate as to when this sub-clause sub-clause applies. applies. In clause 48.2 (Taking-o (Taking-over ver of Sections Sections or parts), parts), "any substantial substantial part" is referred referred to. Here, no guidance guidance is given and, in view of the fact that the recovery of costs under clause 38.2 depends upon this sub-clause having been complied with, the Contractor will be well advised to achieve agreement with the Engineer on what amounts to a relevant part. Page 127 of 264
This sub-clause should be read in conjunction with clause 37.1 (Inspection of operations) which gives the Engineer access to the site as well as clauses like clause 36.1 (Quality of materials, plant and work) and clause 8.1 (Contractor's general responsibilities). 38.2 38.2 This This claus clause e shoul should d be read read in conju conjunct nctio ion n with with clause clause 50 (Cont (Contra ract ctor or to searc search) h) where whereby by the the caus cause e of defe defect cts, s, shri shrink nkag age e or othe otherr faul faults ts may may be investigated. From the Employer's point of view, view, it would be beneficial if this subclause and clause 50 could be linked so that if defective workmanship in one area gave rise to a problem, a reasonable amount of opening-up in other areas likely to be similarly affected could be undertaken at the Contractor's expense. Thus, for example, example, if one pile under a bridge was found to be unstable, unstable, due to a faulty concrete mix the cost of opening up nearby piles in order to check the concrete mix used there could properly, it is submitted, be chargeable to the Contractor. Contractor. As it is, no no matter how justified justified the the opening opening up and no matter matter how great the risk of a repeat of the defect, the Contractor is to be paid if no defect is in fact found. For a comment comparing the treatment of this clause with the other "loser pays" clause clauses, s, claus clause e 36.4 36.4 (Cost (Cost of test testss not prov provid ided ed for) for),, claus clause e 49.3 49.3 (Cost (Cost of remedying defects) and clause 50 (Contractor to search), see under clause 36.5 (Engineer's determination where tests not provided for). This clause should also be read with clause 39.1 (Removal of improper work, materials or Plant) which provides an express power to have remedied any defects discovered . "... the Engineer may from time to time instruct ..." For comment on the ability of the Engineer to instruct variations and tests after taking over, see the comments under clause 13.1 (Work to be in accordance accordance with the contract) and clause 36.1 (Quality of materials, plant and workmanship). wo rkmanship). It should be noted that to recover his costs, the Contractor must show that both sub-c sub-clau lause se 38.1 38.1 has has been been comp complilied ed with with and and that that the the work workss were were prop proper erly ly executed. executed. He does not recover recover his costs costs of the opening-up, opening-up, even if the the works were perfect, perfect, if the Engineer Engineer was not invited to inspect. inspect. It should also be noted that an examination by the Engineer under sub-clause 38.1 will provide the Contractor with no defence in the event that the works are found on opening up to be defective. defective. See for example example clause 37.2 37.2 (Inspection (Inspection and testing) testing) where where "such inspection or testing shall not release the Contractor from any obligation under under the the Cont Contra ract ct". ". If, If, upon upon such such exam examin inat ation ion,, the the Engin Enginee eerr indi indicat cates es willingness to accept work that is not fully up to specification, the Contractor shoul should d obta obtain in a vari variat atio ion n in writ writin ing g to that that effe effect ct or foll follow ow the the clau clause se 2.5 2.5 (Instructions in writing) procedure in relation to oral instructions although neither of these would rule out all possibility of challenge by the Employer: see under clause 51.1 (Variations).
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CLAUSE 39 : Removal / Replacement of material / plant
The Engineer may order the removal and replacement of any materials, plant, work or design by the Contractor which are not in accordance accordan ce with the contract. If the Contractor fails to comply with the Engineer's instructions within the time stated or a reasonable time, the Employer may employ others to execute the work at the Contractor's expense. Sub-clause 39.1 is similar to the 3rd Edition although the reference to design in item (c)(ii) is new. Sub-clause 39.2 has been substantially amended not least by giving the Contractor "a reasonable time" to comply with the instruction. 39.1 39.1 This This clause clause is theor theoret etic ical ally ly unnece unnecessa ssary ry as the the Cont Contra ract ctor or is obli obliged ged to produce a result in accordance with the contract and would not be entitled to payment for defective work, nor substantial completion if the defect was serious nor a Defects Liability Certificate. The role of the clause is therefore to give the Engineer a more proactive quality control capability, forcing the Contractor to remove defective work at once rather than at a time convenient to the Contractor. In this sub-clause, the instructions may be issued if "in the opinion of the Engine Engineer er"" work work or mate materi rial alss are are not not in accord accordanc ance e with with the cont contra ract ct.. The The Engineer's opinion does not feature in clause 37.4 (Rejection) or clause 38.2 (Uncovering and making openings). The significance of the opinion may be that if the Engineer is shown to be wrong and that the works in fact conformed with the contract, the Contractor will be entitled to treat the instruction as a variation and claim payment payment under clause clause 52 (Valuation (Valuation of variations). variations). If the clause had said that the Engineer was only entitled to issue instructions where the works and materials did not comply with the contract, an Employer could argue in the above instance that the instruction was unauthorised and invalid and deny liability for the cost of the works works executed. executed. For a discussio discussion n of the signif significa icance nce of the Engine Engineer erss opin opinion ion in anot anothe herr cont context ext,, see see the the comm commen enta tary ry to claus clause e 63.1 63.1 (Default of Contractor). Whilst this clause gives the Engineer wide powers, which seem to remove any duty upon the Employer to mitigate the loss flowing from what may be a minor breach of the specification, in practice it is more likely that, where possible, minor faults will be left or allowed for and a deduction will be made in the valuation of the work. A failure to comply with an instruction under this sub-clause within 28 days of its receipt is a ground for termination by the Employer under clause 63.1 (Default of Contrac Contractor tor). ). As commente commented d under under clause 37.4 (Reject (Rejection ion)) the selecti selection on of clauses to be specifically mentioned in clause 63.1 seems to owe nothing to logic. Here, the time for compliance with an instruction may be specified in the instruction and could well be longer than the 28 days referred to in clause 63.1. Furthermore, the Employer's remedy in the case of a failure to respond by the Page 129 of 264
Contractor is carefully set out in sub-clause 39.2 where the Contractor is given "a reasonable time" where no time time is specified by the Engineer. In some instances, where items items are not critical, critical, six months months may be a reasonable reasonable time. Yet, if 28 days go past, the Contractor Contractor is at risk of termination. termination. See also the commentary commentary under clause 63.1. This clause should be read in conjunction with clause 17 (Setting-out) whereby the Contractor Contractor has power to order the re-execution re-execution of works due to dimensional dimensional or alignment errors. A new feature of the 4th Edition is the reference to design at item (c)(ii); this fills a gap because an element of the works may be wrong despite the materials, plant and workmanship being in accordance with the contract. Before this edition, the Employer would have had to base his rejection of badly designed work on breach of the responsibility given to the Contractor for design under clause 8.2 (Site operati operations ons and methods methods of constr construct uction) ion).. See also clause clause 7.2 (Perma (Permanen nentt Works designed by Contractor). The inclusion of work or materials in an interim certificate does not mean that those works and materials are in any sense approved. approved. See clause 61.1 (Approval (Approval only by Defects Defects Liability Liability Certificate Certificate)) and the commentary thereunder. 39.2 39.2 The The sanc sancti tion on prov provid ided ed by this this subsub-cl clau ause se is far far more more imme immedi diat ate e and and effective than the threat of termination which is unlikely to be in the interests of either party. The threat of the disruption and expense of alternative alternative contractors entering the site and executing a part of the works would provide a very real incentive to the Contractor. For For othe otherr clau clause sess invo involv lvin ing g work work by othe otherr cont contra ract ctor ors, s, see see claus lause e 31 (Opportunities for other contractors), clause 49.4 (Contractors failure to carry out instructions) and clause 63.1 (Default of Contractor). If the work or materials had been paid for in interim certificates, the Employer's deduction would amount to the entire cost of the other contractor; if not paid for the deduction would be limited to any additional cost to the Employer of having an alternative contractor carry out the works. CLAUSE 40 : Suspension of Works
If the Engineer so instructs, the Contractor is to suspend all or any part of the works works and and prope properl rlyy prot protec ectt and and secu secure re the the work workss as the the Engine Engineer er thin thinks ks necessary necessary for the duration of such suspension. suspension. Unless the suspension suspension is either either provided for in the contract, or is the Contractor's responsibility, or is necessary due to the weather, the proper execution or safety of the works (for a reason not being the Employer's responsibility), the Contractor will be reimbursed. The Engineer will determine the extension of time and costs to be granted to the Contractor. Page 130 of 264
If a suspension of all or any part of the works for which the Contractor is to be compe compens nsat ated ed lasts lasts for for 12 weeks weeks,, the the Cont Contra ract ctor or can can give give noti notice ce requ requir irin ing g permission to proceed within 4 weeks. If permission is is not given, the Contractor may give notice and treat the part of the works as omitted or, where all the works were suspended, terminate under clause 69.1 (Default of Employer). There have been a number of changes of vocabulary and arrangement in the 4th Edition Edition but the principl principles es of the 3rd Edition Edition remain remain intact. intact. In particul particular, ar, the provision for extension of time and additional cost has been put into a separate sub-clause 40.2.
40.1 Other express express provision provision for suspensi suspension on is found in these these conditi conditions ons only only at clause 69.4 (Contractor (Contractor's 's entitlement entitlement to suspend work), whereby the Contractor Contractor is entitled to suspend if he is not paid within 4 weeks after the due date for payment of a certificate and after 4 weeks of giving notice to the Employer. Clause 45.1 (Restriction on working hours) also imposes restraints and the contr contract act may may expr express essly ly prov provide ide for for perio periods ds of suspe suspens nsio ion n durin during g reli religi giou ouss festivals, sod-cutting ceremonies etc. "...default of or breach breach of Contract by the Contractor". Contractor". The draftsman of the 4th 4th Edition has added the words "or breach of contract" to the word "default" on three occasions in this contract, the others being clause 44.1 (Extension of time for completion) and clause 51.1 (Variations). On each occasion the words relate to misdemeanours by the Contractor: the same "belt and braces" approach has not been thought necessary in relation relation to the Employer's Employer's failings. The rationale may be that as the term "default" has been used, albeit in the clause titles only, in clause 63.1 (Default of Contractor) and clause 69.1 (Default of Employer), the draftsman draftsman may have considered considered it necessary to make clear that a default default in this context does not necessarily need to be a default which would entitle the Employer to terminate. "(c) necessary by reason reason of climatic conditions on the Site". This contract places the the risk risk of delays delays caus caused ed by weat weathe herr upon upon the the Cont Contra ract ctor or unles unlesss he can demonstrate that he has suffered "exceptionally adverse climatic conditions" under clause clause 44.1 (Extension (Extension of time for completi completion) on) item (c). (c). If the climatic climatic conditions that give rise to the suspension can be shown to be "exceptionally adverse", it is submitted that the Contractor will still be entitled to an extension of time under clause 44.1 but no reimbursement under clause 40.2. It would defeat the object of the allocation of risk if an Engineer could keep the Employer's entitl entitleme ement nt to liquid liquidate ated d damages damages alive alive by suspen suspending ding the works works wheneve whenever r excepti exceptional onally ly adverse adverse climat climatic ic condition conditionss occurr occurred. ed. See also clause clause 11.1 11.1 (Inspection of Site) and clause 12.2 (Adverse physical obstructions or conditions) for other references to climatic conditions and clause 20.4 (Employer's risks) for the phrase "any operation of the forces of nature".
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"(d) necessary for the proper execution of the Works...". Works...". In circumstances were the Employer is having difficulty in funding the works, it is possible on the present wording to see an argument that where the suspension occurs in order to give the Employer time to re-organise his funding and in circumstances where all certificates have been and will continue to be paid, exception (d) will apply and the Contractor will not be entitled entitled to time and money. The Employer would argue that the suspension is necessary for the proper execution of the works and does not arise arise from any act or default default on the Employer Employer's 's part. part. Such an argument argument certainly runs counter to the intention of the clause and should be defeated on the grounds that "proper execution" relates to conformity with the contract and not whether the contract can be executed at all. Suspe Suspensi nsion on may may be necess necessar aryy "for "for the the prop proper er execu executition on of the the works works"" in circum circumsta stance ncess where where a Contrac Contractor tor is, through through poor organi organisat sation ion,, insuff insuffici icient ent labour etc., failing to to cope to the detriment of the works. In those circumstances, the Engineer could probably call a halt to the work to allow and require the Contractor to put in place a proper organisation and level of manpower before proceeding. The risks defined in clause 20.4 (Employer's risks) range from war and hostilities through loss or damage due to design, to "any operation of the forces of nature". If a suspension was caused by, for example, the flooding of the works, such that it fell within clause 20.4(h) "any operation of the forces of nature", there could be conflict conflict with items items (c) and (d) of this sub-clause. sub-clause. It is noteworthy noteworthy that item (c) (c) refers to climatic conditions only "on the Site" so that if the flood occurred due to heavy rainfall elsewhere, there would be no difficulty. This overlap should it is submitted be dealt with so that damage to the works resulting from such an event is recoverable by the Contractor but costs and time flowing from a related suspension would not be granted. The Engi Enginee neerr is entit entitle led d to inst instru ruct ct suspe suspens nsio ion n when wheneve everr he consi conside ders rs it necessary. necessary. No guidance guidance is given as to the circums circumstances tances in which which the power power may be exercised so the question is whether the Engineer may use it at the Employer's request, for instance in circumstances where the Employer is having funding funding difficulties. difficulties. Clause Clause 2.6 (Engineer to act impartially impartially)) does not apply to instruction instructionss although although the ordering ordering of a suspension suspension could certainly amount to the exercise of a discretion "which may affect the rights and obligations" of the parties. Thus, it may well be arguable that the Engineer is obliged to exercise his right to order suspensio suspension n impartially. impartially. In circumstances circumstances where where the Employer Employer is asking the Engineer to order suspension to enable the Employer to overcome funding difficulties, the Engineer may well consider his power to grant time and money and the Contractor's power under clause 40.3 to bring about the omission of a suspended part or the termination of the contract as a whole results in no unfair unfairnes nesss to eith either er party party with with the the resul resultt that that he coul could d impar impartitial ally ly agre agree e to suspend at the Employer's request. 40.2 40.2 This This sub-c sub-cla laus use e is new to the 4th Editi Edition on and is consi consist sten entt with with the draftsman's policy of spelling out in some detail the Engineer's obligations to Page 132 of 264
consult and determi determine ne time and money. The cost incurred incurred by the Contractor Contractor by reason of the suspension would no doubt include the costs of protecting and securing the suspended works. 40.3 40.3 If items items (b) (b) to (d) of clause clause 40.1 40.1 apply, apply, the the Employe Employer's r's entit entitlem lement ent to have have the work suspended is limited only by the Engineer's view of how long the suspension is necessary. If the ground for suspension is the outbreak of war, the Employer may terminate the contract under clause 65.6 (Outbreak of war). Similarly, if the cause of the suspension is a frustrating event, clause 66.1 (Relea (Release se from from perfor performan mance) ce) may apply, apply, releasi releasing ng both both partie partiess from from furthe further r performance. If the suspension is due to the Employer's funding difficulties, the Employer may give notice under clause 69.1 (Default of Employer) that "for unforeseen reasons, due to economic economic dislocat dislocation ion,, it is impossib impossible le for him to continu continue". e". This This subsubclause adds a new ground for termination by the Contractor under clause 69.1: see the commentary under that clause. The Contractor Contractor is given the option whether to bring the suspension to a head or not and may be content with an extension of time and reimbursement of his costs indefinitely. In some circumstances the Employer, through the Engineer, will also be given a choice of whether to suspend the work, thereby potentially potentially giving the Contractor Contractor a right to terminate, or whether to grant the Contractor extensions extensions of time as necessary. For example, the Employer may find himself unable to give possession of part of the site to the Contractor. He could suspend all or part of the works or simply allow the Engineer to grant extensions of time pursuant to clause 42.2 (Failure to give possession). There may be no difference in costs payable to the Contractor as the Contractor's ability to demobilise any part of his labour force or equipment would depend in either case upon the Engineer's instructions and the parties' views as to how long the delay would be likely to last and how quickly the Contractor would be required to resume working. The Employer could therefore prevent the Contractor having the option to terminate. CLAUSE 40.3 (Suspension lasting more than 84 days) "If the progress of the Works or any part thereof is suspended on the written instructions of the Engineer ..." The The word word in ital italic icss has has been been remo remove ved, d, no doub doubtt beca becaus use e of clau clause se 2.5 2.5 (Instructions in writing) which states that "instructions given by the Engineer shall be in writ writing ing". ". Unfo Unfort rtun unat atel ely, y, the the rema remain inde derr of clau clause se 2.5 2.5 deal dealss with with oral oral instructions. The effect of the deletion deletion therefore is to to permit an oral instruction instruction to suspe suspend, nd, prov provid ided ed it is foll follow owed ed by conf confir irma matition on of the the inst instru ruct ctio ion n by the the Contractor Contractor to the Engineer. Engineer. As this could lead to the termination termination of the contract, contract, the wisdom of the deletion is questionable. Nevertheless, the deletion of the reference to writing removes an anomaly as sub-clause 40.1 (Suspension of work) has no express reference to the instruction Page 133 of 264
to suspend being in writing. However, this was not the last reference to written instructions as clause 48.1 (Taking-Over Certificate) still refers to "instructions in writing" regarding outstanding defects. Either clause 2.5 needs to be tightened up or the conditions should specify where it is essential that an instruction be written. There are numerous other references throughout the conditions to delegations, requ request estss and and other other commu communi nica catition onss bein being g in writ writing ing.. See also also claus clause e 1.5 1.5 (Notices, (Notices, consents consents etc) which requires requires notices, notices, consents, consents, approvals, approvals, certificat certificates es and determinations to be in writing. CLAUSE 41 : Commencement of Works
This clause defines the start of the construction of the project. Once the tender has been accepted, the Employer has a period, period, set out in the tender, to give the go-ahead go-ahead via a notice from the Engineer. Engineer. When the Contractor Contractor has received the notice, time is running and the Contractor is obliged to start work and proceed "with due expedition". This clause is different from the 3rd Edition in that the Appendix to Tender spec specif ifie iess the the time time with within in whic which h the the Engi Engine neer er must must give give a noti notice ce and and the the Contractor Contractor must start "as soon as is reasonably possible" possible" thereafter. thereafter. Under the 3rd Edition, the period named in the appendix governed the Contractor's start on site and there were no time limits for the Engineer's order. The procedure for commencement commencement of the construction construction phase of the project project is as follows:(i) The Employer decides how much time he needs after choosing a Contractor to do everything necessary to enable the project to begin i.e. secure possession of the site, obtain necessary planning and other approval, organise import licences etc. The required time is inserted in the Appendix to Tender. (ii) (ii)
The The Lett Letter er of of Acce Accept ptan ance ce is is issue issued d by the the Emp Emplo loye yerr to the the Con Contr tract actor or..
(iii (iii)) With Within in the the time time peri period od inse insert rted ed in the Appen Appendi dixx to Tend Tender er the the Engi Engine neer er issues a notice to commence. (iv) (iv) Receip Receiptt of the notice notice by the the Cont Contrac ractor tor is the the date date define defined d at clause clause 1.1(c) 1.1(c) (i) as the Commencement Date from which time runs. Upon receipt of the Engineer's notice, the Contractor is obliged to commence the works as soon as reasonably possible. "Works" is defined narrowly and does not seem to cover mobilisation. The Contractor should therefore be aware that a client may be entitled to object to a programme involving a mobilisation period longer than is strictly necessary. It is work on Permanent or Temporary Works that is to be commenced as soon as reasonably possible. As the definitions of Page 134 of 264
Temporary Works and Contractor's Equipment are circular and unhelpful, it is unclear whether, for example, setting up site huts and compounds counts as "Works". This lack of clarity is particularly unfortunate in view of clause 63.1 (Default of Contractor) item (b)(i) which makes a failure without reasonable excuse to commence the works in accordance with the current clause a ground for termination. The clause also imposes upon the Contractor an obligation to proceed with the works "with due expedition and without delay". Breach of this obligation is not a specific ground for termination under clause 63.1, unlike ICE 5th and 6th which refer to "failing to proceed... with due diligence". The Employer would have to show a repudiation for clause 63.1 item (a), a failure to proceed for item (b)(ii) or persistent breach for item (d). It could, however, form the basis of a claim by the Employer for general damages if some loss could be shown to flow from the slow progress. This claim is, of course, quite distinct from a claim for delay to the completion completion of the Works as a whole for which liquidated liquidated damages represent represent the (normally) exclusive remedy. If, for example, the Employer lost funding as a result of the poor progress and was obliged to refinance part of the project at greater cost, he could have a claim. Poor progress should result in a notice under clause 46.1 which the Engineer is obliged to give if he forms the opinion that progress is too slow to complete on time. A failure to comply with such notice could lead to termination under clause 63.1. "Without delay" presumably means without delay other than a delay for which an exte extens nsio ion n of time time is avai availa labl ble e unde underr clau clause se 44.1 44.1 (Ext (Exten ensi sion on of time time for for completion). These words seems to add little to "with due expedition". The form of the notice to be issued by the Engineer is not specified although clause 68.1 (Notices) requires it to be in writing. If the notice to commence is not given within the time set out in the Appendix to Tender, the contract is silent. The Employer would be in breach and the parties would have to negotiate a variation of the contract. Any claim by the Contractor would be subject to his duty to mitigate his loss. The Commencement Date defined by this clause is relevant under clause 20.1 (Care of works), clause 25.1 (Evidence and terms of insurances) and clause 43.1 (Time for Completion). CLAUSE 42 : Handing over possession
Unless the contract contains specific provisions, the Employer is to hand over possession of as much of the site and the agreed means of access as necessary to enable the Contractor to proceed with his programme or proposals for the project.
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If the Contractor is delayed or incurs costs due to a failure by the Employer to give necessary possession, the Engineer is to grant an extension of time and costs. The Contractor is to pay for any special wayleaves or additional facilities required off-site. This clause is essentially the same as the 3rd Edition with changes to the vocabulary vocabulary consistent consistent with the policy policy of the 4th Edition. Edition. Item (d) of sub-clause sub-clause 42.1 is however new. new. In sub-clause sub-clause 42.3, the term term "facilities" "facilities" has been used in place of "accommodation" although the latter term has been retained in clause 11.1 (Inspection of Site) at item (d). 42.1 42.1 In the the UK, at least least,, the comm common on law woul would d imply imply a term term that if you ente enter r into a contract whereby the Contractor is to carry out certain work, the Employer will provide provide him with with the site on which that that work is to be executed. executed. It would be unsafe to assume that all jurisdictions make the same implication. With civil engineering projects, projects, particular particularly ly roads, it is quite unnecessary unnecessary for the Contractor to be given possession of the entirety of the site, some parts of which might might not be touched touched for a year or more. more. Thus, Thus, if the contract contract is silent, silent, the Employer's obligation is simply to feed the Contractor with sufficient of the site to enable him to pursue his intended sequence of operations, whether set out in a clause 14 programme or set out in written proposals. An Employer who is unable to provide any part of the site at short notice would be unwise unwise not to deal deal with with the the matt matter er in the the contr contrac act. t. Under Under claus clause e 14.1 14.1 (Programme to be submitted), the programme is to be submitted after the letter of acceptance and this may not give the Employer a great deal of time. The reference to "the programme referred to in clause 14, if any," is ambiguous as clause 14.1 refers to a programme to be submitted for the Engineer's consent. This clause should make it clear that it is the programme as consented to that will gover govern n the the Em Empl ploye oyer' r'ss obli obliga gatition on and and not not any any prog progra ramm mme e no matt matter er how how unrealistic unrealistic which the Contractor Contractor may choose to submit, possibly as a foundation for a claim. As the reference is to clause 14 as a whole rather than just subclause clause 14.1, 14.1, it is submitt submitted ed that that the drafts draftsman' man'ss presum presumed ed intent intention ion should should prevail. It may be considered relevant to a consideration of what is reasonable that the Contractor has an obligation under clause 11.1 (Inspection of site) to have obtained all necessary information in connection with the site. As for the alternative "reasonable proposals" no time is given for these proposals and indeed it is not clear that the right to submit reasonable proposals ends at the commencement of the job. A Contractor seeking to generate a claim and an extension of time could propose to commence works on a portion of the site which he knew to be unavailable unavailable to the Employer. Employer. The question question would then be what amounts amounts to "reasonable". "reasonable". It is to be presumed presumed that "reasonable" "reasonable" will will be judged primarily in terms terms of the logical progression of the Works. Works. If two areas of Page 136 of 264
the site were equally logical but the Contractor deliberately chose the unavailable portion, the Engineer, and probably an arbitrator, would conclude that this was unreasonable. Clause 14.2 (Revised programme) provides for the revision of the programme and there can be little doubt that the Employer's obligation to provide further portions of the site will be revised accordingly. The definition of "Site" at clause 1.1(f)(vii) is new to the 4th Edition and is plainly one that has caused draftsmen draftsmen of civil engineering engineering contract contractss difficulty. difficulty. On its own, the first half of the definition - "the places provided by the Employer where the Works are to be executed" executed" - would defeat the current clause as portions not prov provid ided ed would would not not be part of the Site Site.. The The essen essence ce of the the defi defini nitition on is presumably the second half, "any other places as may be specifically designated in the contract as forming forming part of the Site". It is assumed that the purpose of the first half is in case either the contract does not define the Site with precision or if additional land is found to be necessary during the course of the Works. See also the commentary under clause 1.1(f)(vii). 1.1(f)(vii). The Canadian Canadian Federal Federal Court of Appeal decided in Queen v Walter Cabott Construction (1975) 69DLR(3d) 542 that the Employer's underlying obligation to provide the site meant more than simply providing the actual site upon which the structure was to stand but also sufficient working space. In that case the Employer was held to be in breach when he let an adjacent contract which interfered with the Contractor's working space. This clause is silent as to the duration of the possession to which the Contractor is entitled. Under clause 48.2 (Taking-over of sections or parts), provision is made for the occupation or use of parts of the works by the Employer in the absence of provision in the contract and, indeed in the absence of agreement by the Contractor. Clause 48.2 is presumably providing a remedy for a possible breach of contract, contract, although normally a Contractor Contractor will welcome welcome the opportunity opportunity to pass responsibility for a section of the site to the Employer and to benefit under clause 47.1 (Liquidated damages) from the early hand-over. If a bonus clause clause is avai availa labl ble, e, an addit additio iona nall incen incentitive ve will will be provi provide ded. d. If the the use use or occupation causes delay to the progress of the works, the Contractor may be entit entitle led d to an exte extensi nsion on of time time under under clau clause se 44.1 44.1 (Ext (Extens ensio ion n of time time for for compl complet etio ion) n) unde underr item item (d) (d) "any "any delay, delay, impe impedim diment ent,, or prev prevent entio ion n by the the Employer". For a comment on the effective re-taking of possession by the Employer's use of other Contractors, see under clause 31.1 (Opportunities for other contractors). 42.2 42.2 For For the the Cont Contra ract ctor or to be enti entitl tled ed to an exte extens nsio ion n unde underr clau clause se 44.1 44.1 (Extension of time for completion), he must first have given notice of the delay pursu pursuant ant to clau clause se 44.2 44.2 (Con (Contr trac acto torr to provi provide de noti notifificat cation ion and deta detaililed ed particulars). This at least is the likely construction construction of the contract although it is by no means beyond argument that the entitlement referred to is as set out in clause 44.1 and that the obligation upon the Engineer to determine an extension is not subject to clause 44.2. In the absence of a right to an extension of time, the Page 137 of 264
English courts would treat a failure to give possession on time as being fatal to the Employer's entitlement to liquidated damages: see for example the Court of Appeal in Rapid Building v Ealing Family Housing (1984) 29 BLR 5. Similarly, it is unclear whether the Contractor's entitlement to costs under subclause 42.2 item (b) is subject to the procedure for claims set out in clause 53 (Procedure for claims). A Contractor would be unwise to assume that notification is not required. "Consultation": this requirement for consultation is new to the 4th Edition and adds an element of natural justice justice to the Engineer's deliberations. deliberations. It is subject to clause 2.6 (Engineer to act impartially) impartially) and the Engineer Engineer must make up his own mind impartially. A curi curiou ouss feat featur ure e of the the draf drafti ting ng of this this clau clause se is that that the the fail failur ure e to give give possession for which extension of time and costs may be granted is a failure to give possession in accordance with the clause 14 programme or the Contractor's reasonable proposals and does not deal with a failure to grant possession as specifically specifically prescribed prescribed by the contract. This is because this sub-clause sub-clause refers refers to "failure on the part of the Employer to give possession in accordance with the terms of sub-clause 42.1" which only imposes an obligation to give possession where the contract is otherwise silent. This point is unlikely to be significant as the the clau clause se 14 progr program amme me will will no doub doubtt take take any any presc prescri ribed bed poss possess essio ion n sequence into into account. The Contractor Contractor will be entitled entitled to an extension extension of time under clause 44.1(d) "any delay, impediment or prevention by the Employer" and will be entitled to his costs as damages for breach of contract. Damages would, however, be less satisfactory to the Contractor as the Engineer would not be entitled to determine such damages and include them in certificates. It would be in the interests of both parties to resolve this discrepancy. 42.3 42.3 It appear appearss that that the perm permanen anentt access access to to the site site is to to be provid provided ed by the the Employer only if the contract so provides. Otherwise, clause 11.1 (Inspection of Site) requires the Contractor to have made due allowance in his tender for access. Any temporary rights of way or special permissions are to be obtained by the Contract Contractor. or. In practice practice,, the distinc distinctio tion n betwee between n permane permanent nt access and temporary temporary rights rights of way will often be far from from clear. Short of making making one party responsible for all such matters, there is little that can be done in the contract to resolve the potential uncertainty. If special or temporary wayleaves or additional facilities are only required in order to enable the Contractor to execute a variation instructed by the Engineer, the Contractor should be reimbursed for costs incurred which he could not possibly have have allo allowe wed d for. for. The The draf drafts tsma man n has has not not consi conside dere red d this this situ situat atio ion n and and a Contractor must rely on the words "required by him" to argue that variations and the associated wayleaves etc are required by the Employer. Alternatively, the Contractor must bear the costs and seek to recover the outlay in the rates fixed under clause 52 (Valuation of variations).
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CLAUSE 42.3 (Rights of way and facilities) The Contractor shall bear all costs and charges for "special or temporary rights of way require required d by him in connect connection ion with with the access to the Sites. Sites."" The word word "wayleaves" "wayleaves" has been removed removed from the clause clause and its title. It is presumed presumed that the reason for the change was to do away with a somewhat obscure term. English property lawyers might seek to argue however that right of way is a narrower concept than wayleave but the difference is unlikely to be significant in practice. CLAUSE 43 : Completion of work on time
This clause provides the basic obligation upon the Contractor to complete the works on time. He must substantially complete the whole of the works within the given period subject to any extensions granted. If the project has been divided up into Sections, then he must complete each Section within the specified period, again subject to any extensions. The wording of this clause is materially different from the 3rd Edition but the principle has been retained. If it is preferred to express this clause in terms of dates rather than periods, Part II provides alternative wording. The obligation upon the Contractor is not, in reality, to complete by the specified date or any current extended date but to complete on or before the date finally settled upon as the extended date. Clause 44 (Extension of time for completion) envisages a delay of at least 8 weeks (28 days for the Contractor's notice; 28 days for the detailed claim) before the Engineer begins his own investigation and that must be followed by consultation before a determination is made. There will therefore very often be a period of uncertainty as to the date by which the Contractor must complete. If the delay is a continuing one, clause 44.3 (Interim determ determina inatio tion n of extensi extension) on) applie appliess and the uncerta uncertaint intyy will will be even even more more prolonged. For the position on the deduction of liquidated damages during this perio period, d, see see claus clause e 47.1 47.1 (Liq (Liqui uidat dated ed dama damages ges). ). For For a comme comment nt on impl implied ied acceleration orders see clause 46.1 (Rate of progress). "...any Section required to be completed...". This clause should be read with clause 20 (Care of Works),clause 44, clause 47 and clause 48.2 (Taking-over of Sections or parts) to follow through the principal provisions dealing with Sections, a new defined term in this edition. As the Time for Completion is defined at clause 1.1 (c)(ii) in terms that are similar but not identical to those contained in this clause, it is perhaps surprising that this clause does not simply oblige the Contractor Contractor to complete complete the works by the Time for Completion. In any event and in view of the clause title, it would be sensible to ensure that this clause and the definition accurately reflect one another.
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CLAUSE 44 : Extension of Time
This clause provides provides the mechanism for extension of time to be granted. If the Contractor is fairly entitled to an extension, the Engineer must grant one, having first consulted with the parties. The qualifying grounds are as follows:-extra work -other grounds "referred to in these Conditions" -exceptionally bad weather -Employers' delays -special circumstances The Contractor is to give notice of the delay within four weeks and is to submit detailed particulars four weeks later. If the the dela delayi ying ng even eventt is cont contin inuo uous, us, provi provisi sion on is made made for for inte interi rim m and and final final parti particu cula lars rs and and the the dete determ rmin inat atio ion n of inte interi rim m and, and, afte afterr cons consul ulta tatition on,, final final extensions. The final extension may not reduce the interim extensions granted. Clause 44 contains contains some major changes changes as compared with with the 3rd Edition. In particular item (d) of sub-clause 44.1 is new as is the two-stage notification process in sub-clause 44.2. Sub-clause 44.3 is entirely new. 44.1 "(a) "(a) The The amou amount nt of or natu nature re of extra extra or addit additio iona nall work work." ." Claus Clause e 51 (Variations) permits the Engineer to order:- increased work - decreased work - omissions - changes to the character/quality of the work, its position, its sequence - additional work Although the word "extra" is not used elsewhere in this context in the contract, it may be that "extra or additional" reflects the distinction between the increase in quantities quantities at clause 51.1(a) 51.1(a) and the addition of new work at clause clause 51.1(e). On this assumption, this ground for extension of time covers the first and last items in the above list only. A decrease in quantities or an omission could have time consequences and it is obvious that any one of the changes listed could cause delay to the works. works. Unless one treats a change as an omission and an addition, addition, which is artificial, changes are not obviously covered and one may have to resort to trying to push them into (b) "any cause of delay referred to", (d) "any delay, impediment or prevention by the Employer" or (e) "other special circumstances". For an alternative interpretation of the word "extra", see the discussion under Page 140 of 264
clause 51.2 (Instructions for variations) in relation to the granting of extensions of time for "automatic" changes in quantities. In the UK, at least, if a change was ordered by the Engineer which caused delay but for which the extension of time clause made no provision, it would be arguable that time was at large and the Employer's ability to recover liquidated dama damage ge was was lost lost.. See See on time time at larg large e Peak Peak Cons Constr truc ucti tion on v McKi McKinn nney ey Foundations (1970) 1 BLR 114. For comment on the Contractor's right to extensions of time in relation to work whic which h is the the subj subjec ectt of prov provis isio ional nal sums sums,, see see unde underr claus clause e 58.2 58.2 (Use (Use of Provisional Sums). "(b) any cause of delay referred to in these Conditions". This wording, which is shared with with ICE 5th and ICE 6th, is not without ambiguity ambiguity.. Does it only refer refer to clauses where there is express reference to delay, extensions of time and clause 44 or could it also refer to clauses which deal with events which would frequently cause delay but have no express reference to extensions of time, such as clause 17.1 (Setting-out) or clause 20.3 (Loss or damage due to Employer's risks)? Express references to clause 44 can be found in the following clauses:- clause 6.4 (Delays and cost of delay of drawings) - clause 12.2 (Adverse physical obstructions or conditions) - clause 27 (Fossils) - clause 36.5 (Engineer's determination where tests not provided for) - clause 40.2 (Engineer's determination following suspension) - clause 42.2 (Failure to give possession) - clause 69.4 (Contractor's entitlement to suspension of works). Express reference to the word "delay" is to be found only in clauses 6.4, 27, 42.2 and 69.4, all of which are in the above list. It may also be possible to argue for a construction of these words as meaning anything referred to to in the conditions which causes delay. However, as such an interpretation would probably include the Contractor's delays, success is unlikely. "(c) "(c) excep exceptitiona onallllyy adver adverse se clim climat atic ic cond conditition ions. s."" The The inte intent ntio ion n is that that the the Contractor should allow for all the usual vagaries of the the weather. The use of the term "climatic" as opposed to the more usual "weather" may have a broadening effect on this this ground for extension. extension. For example, example, a flood which does not result result from exceptionally heavy rainfall in the area of the site might be covered by "climatic" but not by "weather". Comparing "exceptionally adverse" with "exceptional adverse" as used in the 3rd Edition and ICE 5th and ICE 6th, one sees a subtle but important change of emphasis emphasis.. Under Under those forms, forms, the weather weather has to be both exceptio exceptional nal and adverse. adverse. In these conditions conditions,, the weather need need not be unusual, it must must only be exceptionally exceptionally adverse. adverse. This raises raises the possibility possibility that it could be conditions conditions on Page 141 of 264
site that make the weather exceptionally adverse rather than anything unusual about the weather. weather. Equally, Equally, if the weather weather was very unusual unusual but did not cause exceptional difficulty, an extension could legitimately be declined. This item should be read with clause 11.1 (Inspection of Site) which requires tenderers to take note of the "hydrological and climatic conditions", clause 12.2 (Adverse physical obstructions or conditions) which excludes climatic conditions from from the the effe effect ct of the the clau clause, se, clau clause se 20.4 20.4 (Emp (Emplo loyer yer's 's risk risks) s) item item (h) (h) "any "any operation of the forces of nature" and clause 40.1 (Suspension (Susp ension of work). (d) "any delay, impediment or prevention by the Employer". In the UK at least, there needs to be clear words that allow an extension to be granted for a breach of contract by the Employer. See, for example, Peak Construction v McKinney Foun Founda dati tion onss (197 (1970) 0) 1 BLR BLR 114. 114. It seem seemss lilike kely ly that that the the word wordss used used are are suffic sufficien iently tly clear clear to cover cover such such breach breaches es althou although gh the absenc absence e of express express reference to breach invites an argument to the contrary. It is submitted that as delay delays, s, imped impedim iment entss and and prev preven entition onss are are clear clear examp examples les of breac breach, h, if not not authorised in the conditions by provisions such as clause 38.2 (Uncovering and making openings) or clause 51.1 (Variations), the quoted words are sufficiently clear to cover breach. Delays by the Engineer Engineer should also be covered by the words, at least in respect of those actions of the Engineer which are performed as agent for the Employer. However, However, the contrary contrary is arguable: arguable: there is no reference to "servants "servants or agents" agents" either here or in the definition of the Employer at clause 1.1(a)(i). Agents are referred to in clause 22.2 (Exceptions) and clause 24.1 (Accident or injury to workmen) so, it would be argued, the draftsman has used the term where he inten intended ded it to apply apply.. The The fact fact that that agent agentss are are not not ment mentio ione ned d here here is thus thus deliberate. Further, the Engineer's defaults have been covered elsewhere in clauses such as clause 6.4 (Delays and cost of delay of drawings) and clause 17.1 (Setting-out). It is submitted that this argument, which is unlikely to have impact outside common law jurisdictions, is essentially unmeritorious however sustainable by the rigorous application of the canons of the construction of contracts. The intentions of the parties are clear: time should not be set at large due to some failure of the Employer or his team when an extension of time is perfectly capable of doing justice between the parties. Arbitrators are unlikely to frustrate this purpose on such narrow grounds. There is no provision under this contract for extensions of time due to delay by subcontractors nominated by the Employer. This is in contrast to some English forms which balance the Employer's right to choose a subcontractor by placing part of the risk of that subcontractor's default upon the Employer. A Contractor might nevertheless be entitled to an extension of time if the selection of the defau defaultltin ing g subc subcont ontra ract ctor or was was suff suffic icie ient ntly ly negl neglig igent ent as to amou amount nt to dela delay, y, impediment or prevention by the Employer. It must be noted however that the Contractor is given the right to raise reasonable objection under clause 59.2 (Nominated Subcontractor; objection to nomination). If the Contractor failed to raise an objection, he may have no grounds for extension. Page 142 of 264
(e) "other special circumstances which may occur other than through a fault of or breach of contract by the Contractor or for which he is responsible". "Special" in the Concise Oxford Dictionary means "of a particular kind, peculiar, not general; exceptional exceptional in amount, degree, degree, intensity intensity etc". Thus, it is clearly not a catch-all catch-all clause as merely routine delays would seem to fall outside these words. There is however little authority on the meaning of these words leaving the Engineer and arbitrator with virtually unfettered discretion. It is not immediately obvious why this item alone has been qualified by reference to the Contractor's default. It must apply equally to items (a) and (b). The word "fairly" would seem to achieve the necessary result. The inclusion of the specific excepti exception on could could indeed indeed have have the effect effect of underm undermini ining ng the interp interpret retati ation on of "fair "fairly" ly":: why, why, it would would be argue argued, d, woul would d the the draf drafts tsma man n have have incl includ uded ed the the exception in item (e) if "fairly" is intended to mean the same? "Fairly "Fairly to entitle entitle ..." This sub-clause sub-clause is phrased phrased in such a way as to define define the Contractor's entitlement to an extension of time and then make it mandatory for the Engineer Engineer to determine determine and grant the Contractor Contractor his entitleme entitlement. nt. Compare Compare this with ICE 5th where the Engineer Engineer is obliged obliged only to "make an assessment assessment of the extension extension of time (if any) to which he considers the contracto contractorr entitled." entitled." In pract practic ice, e, the the diff differ erenc ence e may may not not be sign signifific icant ant but the the dist distin inct ctio ion n coul could d be sufficient to encourage an argument that the Engineer is obliged to grant the Contractor's fair entitlement. entitlement. Thus it could be said said that the Employer's obligation in relation relation to certificatio certification n is to procure that the Engineer Engineer certified certified fairly. fairly. This would be going considerably further than the obligation recognised by English law at present, which only places an obligation upon the Employer to ensure that the Engineer makes the determination and that he is free to do so fairly under clause 2.6 (Engineer to act impartially). For further discussion on the Employer's duty, see under sub-clauses 2.1 (Engineer's duties and authority) and 2.6. There is no express obligation upon the Contractor in this clause to take all reasonable steps to mitigate the effect of delays, such as would be found in many many Engl nglish ish stan standa dard rd forms orms.. Ther There e is an obl obligat igatio ion n in clau clausse 41. 41.1 (Commencement of Works) to proceed "with due expedition and without delay" but, it is submitted, it is the phrase "such as fairly to entitle" which ensures that the Contractor will not receive extensions of time for reasonably avoidable delay. "Any Section or part thereof ...". A section is defined as a portion of the Works specifically identified in the contract as a Section. A part is therefore a part part of the Works which is not so identified. Under clause 47.2 (Reduction of liquidated damages), provision is made for the reduction of liquidated damages where a part of the works has been taken earlier than the whole of the works or the section of the works of which it forms part. However, it is not necessary for that part to be the subject of a separate award of extension of time. The effect could, however, be to allow the Engineer to grant an extension of time to a narrowly defin defined ed part part of the the site site and and ther thereby eby incr increas ease e the the Cont Contra ract ctor or's 's liliabi abilility ty for for liquidated damages. Page 143 of 264
"... "...af afte terr due due consu consultltat atio ion n with with the the Em Empl ploy oyer er and and the the Cont Contra ract ctor or". ". This This requirement upon the Engineer to consult with the Employer and Contractor is new to these conditions. conditions. Indeed, in sub-clause 44.3, the requirement requirement to consult was only added with the Editorial Amendments made in 1988. The objective is to add an element of natural justice to the decision-making process and to ensure than Engineers do not speak exclusively to their paymasters prior to making impo import rtan antt deci decisi sion ons. s. Consu Consultltat atio ion n is not not inte intende nded d to alte alterr in any any way way the the Engineer's obligation to make an independent decision and clause 2.6 (Engineer to act impartially) is intended to override. override. Presumably, a determination of the sort provided for in this clause would be covered by clause 2.6 (Engineer to act impartially) item (d) "action which may affect the rights", although determinations other than of value are not expressly referred to. The timing of the grant of the extension is not catered for in the clause which only says it must be after consultation with the parties. Clause 1.5 (Notices, consents etc.) has removed the need to imply a term: the determination may not be unreasonably withheld or delayed. It is submitted that this imposes a duty on the Employer Employer to ensure that his Engineer performs: performs: see the English English case of London Borough of Merton v Leach (1985) 32 BLR 51. As to whether a failure to determine could ever cause the extension of time machinery to break down, leaving time and damages "at large". Concurrent delays: a perennial problem in relation to extension of time provisions is how to deal with circumstances where two causes of delay overlap. There is no problem if the two causes of delay are the responsibility of the same party with the same financial consequences but there is difficulty if the overlapping delays fall into two of the following categories: (i) (i) dela delays ys only only the the respo respons nsib ibililit ityy of the Con Contr trac acto tor: r: no ext exten ensi sion on of tim time e or reimbursement of costs, liquidated damages deducted; (ii) (ii) neut neutra rall delay delays, s, wher where e the Cont Contra ract ctor or rece receiv ives es exte extens nsio ion n of time time but but no reimbursement of costs; and (iii (iii)) dela delays ys whol wholly ly the resp respon onsi sibi bilility ty of the the Em Empl ploy oyer er where where the Cont Contra ract ctor or receives extensions of time and reimbursement of costs. This problem. which has been the subject of much comment and debate, has not been addressed, let alone resolved by the current clause. There is consensus, in the UK at least and in the absence of conclusive authority, that if overlapping delays fall into categories (ii) and (iii) above i.e. a neutral delay such as the weather and a delay which is wholly the responsibility of the Employer such as late late poss posses essi sion on of the the site site,, then then thes these e dela delays ys shou should ld be trea treate ted d as the the resp respo onsib nsibiility lity of the the Em Empl ploy oyer er and and the Cont Contrract actor shoul hould d recei eceive ve his reimbursement. It is the combination of categories (i) and (ii) and categories (i) and (iii) that cause the greatest difficulty. These questions will be addressed in broad principle first followed by an examination of the contract conditions: Page 144 of 264
-Overlap between (i) and (ii): Contractor's default and neutral delay. If it is accepted that the Employer's responsibility should predominate over a neutr neutral al delay delay,, it may may well well be argua arguable ble that that the the Cont Contra ract ctor or's 's defa defaul ultt shoul should d like likewi wise se predo predomi minat nate e over over such such neut neutra rall dela delays ys.. To take take an exam exampl ple: e: if the the Contrac Contractor tor claims claims that that bad weather weather preven prevented ted him from from comple completin ting g certai certain n concrete foundations, the Employer's response might be that the Contractor was not not read readyy to proc procee eed d in any any even eventt due due to the the fail failur ure e of the the Cont Contra ract ctor or's 's reinforcement subcontractor to have the necessary reinforcement on site and ready for installation. The Contractor says that he could not have finished earlier than he did because of the intervention of the weather. The Employer replies that the weather did not cause him to be delayed as the subcontractor's default would have prevented earlier execution of the foundations in any event. At this point, the the part partie iess woul would d prob probab ably ly imme immers rse e them themse selv lves es in compl complex ex crit critic ical al path path exerc exercis ises es in order order to atte attemp mptt to demon demonst stra rate te that that one one of the the delay delayss was was "dominant" or "effective". If the bad weather lasted a day beyond the time that the subcontractor was able to start or if the subcontractor had not delivered the steel to the relevant part of the works for a day after the weather permitted work to start, start, one party party would then claim that the other delaying event was irrelevant irrelevant.. In reality, of course, both events prevented the works from proceeding although one of the events might have been solely responsible for some part of the delay. As there is no question of the Contractor being compensated, the sole question is whether the Employer Employer should receive receive liquidated liquidated damages to compensate compensate him for the late receipt of the project. The Employer had accepted the risk in the contract that if exceptionally bad weather should occur then he would receive no such compens compensati ation. on. The receip receiptt of liquid liquidate ated d damages damages would would theref therefore ore be something of a windfall for the Employer. The Contractor, on the other hand, will have to pay for his own prolongation costs in any event. On broad principles of fairness, it is therefore submitted that the Contractor should receive an extension of time relieving relieving him of liability liability for liquidated liquidated damages. Whilst this produces produces the result that the Contractor "gets away with" his subcontractor's default, he has nevertheless nevertheless incurred irrecoverable irrecoverable prolongation prolongation costs. Better, in short, that the losses should lie where they fall than that the Contractor should be penalised twice, by liquidated damages as well as by prolongation costs. -Overlap between (i) and (iii): Contractor's default and Employer's Default. The problem is at its most acute when the Employer and the Contractor have cause caused d concu concurr rren entt dela delays ys.. To adapt adapt the the earl earlie ierr exam exampl ple, e, the the Cont Contra ract ctor or complains that the Engineer has not provided him with necessary details and drawings drawings to execute execute the foundations; foundations; the Employer Employer replies that the Contractor' Contractor'ss steelwork subcontractor has not supplied the necessary reinforcement to the site or otherwise prepared himself to execute the works. The Contractor argues for extension of time and reimbursement of costs and the Employer is seeking liquidated damages. In these circumstances, it is submitted that the just result is similar to that set out above. The Contractor should receive an extension of time Page 145 of 264
relieving relieving him from liquidated liquidated damages but should not receive reimbursement reimbursement of costs for prolongation which would have been experienced in any event. The Employer should not be compensated for his inability to take possession of the project on time when, due to his Engineer's default, such possession would not in any event have been possible. The quest questio ion n then then aris arises es whet whether her the the condi conditition onss stee steerr the the Engi Enginee neerr or an arbitrator arbitrator to particular particular conclusions conclusions or whether the conditions conditions leave the Engineer Engineer or arbitrator free to attempt to do justice on a case by case basis. Under the current sub-clause, the governing criterion is that the event is "such as fairly to entitle the Contractor to an extension". The formula used elsewhere in clauses such as clause 6.4 (Delays and cost of delay of drawings), clause 27 (Fossils) and clause 42.2 (Failure to give possession) is "if the Contractor suffers delay and/or incurs costs from failure on the part of the Employer..." or "by reason of" the failure or instructions. As far as time is concerned, these clauses invariably refer to the "extension of time to which the Contractor is entitled under clause 44" thereby invoking the Engineer's or arbitrator's opinion as to fairness. As to the costs, the Contractor has an entitlement and the Engineer has an obligation to determine if costs have been incurred from or by reason of the event. Therefore, the Engineer is not being asked to consider fairness but merely to confine himself to causation. Thus, in the second example given above where late drawings and a defa defaul ultiting ng subco subcont ntra ract ctor or coinc coincide ided, d, the the prin princi cipa pall costs costs incur incurre red d by the the Contractor would be prolongation costs. The Engineer would have to decide whether those costs were incurred "by reason of" the late drawings. The just result, it has been submitted, is for the Contractor to receive an extension of time but no money in this situation. On the wording of the clauses granting time and costs, it is difficult to see that the Engineer Enginee r is empowered to grant an extension of time without granting the consequential prolongation costs. It may be possible for him to refuse extension of time while granting costs because of the fairness qualification under clause 44 which applies only to time but it seems he cannot grant time alone. Once the Engineer has decided that the event has caused delay and thus cost, he is obliged to determine the costs even though he may still apply the fairness test to the extension of time. So in the case of the late drawings and subcontractor's default example, the Engineer would be obliged to make an all-or-nothing decision: either the "failure or inability of the Engineer" to prov provid ide e the the draw drawin ings gs caus caused ed the the dela delayy and and cost costss or it did did not. not. In thos those e circ circum umst stan ance ces, s, the the Engi Engine neer er is, is, regr regret etta tabl bly, y, not not enti entitl tled ed to prod produc uce e an intermediate, possibly more just, result. With clauses such as clause 17 (Setting out) and clause 38.2 (Uncovering and making openings) where cost but not extension of time is provided for, the result is effectively the same. If, for example, certain foundations were delayed either by amendments due to incorrect setting out data or by an instruction to reopen properly executed work, at the same time as the Contractor's subcontractor was in default or not ready to proceed with the next activity, the question again arises as to whether the Engineer is free to award an extension of time but not prolongation costs. In either case, an extension of time is available under clause 44. As to costs, both clauses oblige the Engineer to determine the Contractor's Page 146 of 264
costs, by express reference to clause 52 (Valuation (Valuation of Variations) Variations) in the case of clause 17. It is submitted that this framework does not allow the Engineer to grant an extension of time and determine the actual cost of executing the additional work but to stop short of determining the consequential prolongation costs. This is unfortunate as the Engineer must decide between unsatisfactory alternatives. If the Engineer refuses an extension of time, the payment of liquidated damages is automatic under clause 47.1 (Liquidated damages for delay) and there is no furt furthe herr exer exerci cise se of disc discre reti tion on by the the Engi Engine neer er as is to be foun found d in some some conditions. Of course, the Employer is at liberty to waive damages. In summary, these conditions oblige Engineers and arbitrators to choose which of the defaulting parties to reward and which to penalise. The middle road, by which it is submitted submitted a more just result may be achieved, seems to be closed to them them.. As conc concur urre rent nt dela delays ys are are a comm common on occur occuren ence ce and as the the lack lack of provision exposes both parties to considerable risk, express terms addressing the problem are highly to be recommended. In the United States, the courts have been striving for what has been submitted is the just result. Where the responsibility for delay is concurrent, each party is left to absorb its own loss and an extension of time alone would be granted. See, for example, Commerce International Company v United States 338 F2d 81, 90 (1964) and United States v United Engineering and Construction Co. 234 US 236 (1913). "The rule is well settled that where both parties are responsible for the delay and completion of the contract and it is impossible to ascertain the true balance by setting off one against the other, no... damages can be assessed": Sun Ship Building Co. v United States 76 Ct. Cl.154, 188 (1932). "Where two parties are delayed in the accomplishment of the construction objective, neither party should be allowed to profit from the delays of the other": Blackhawk Heating & Plumbing GSBCA No. 2432, 17-1 BCA 76-1 BCA No. 11, 649 at 55,577. 44.2 44.2 This This clause clause raises raises the quest questio ion n whet whether her a fail failur ure e to give give the the requi requisi site te notice would would be fatal to a Contractor's Contractor's application application for extensio extension n of time. The clause says that the Engineer "is not bound to make any determination" so it is still open for him to do so if he so wishes. How the Engineer should exercise his discretion in these circumstances is debatable. Clause 2.6 (Engineer to act impartially) presumably applies so the Engineer has to act impartially to reconcile the confli conflicti cting ng intere interests sts of Employ Employer er and Contr Contract actor. or. If he should should grant grant the extension if deserved, the notice procedure is rendered redundant. If not, the preservation preservation of the Engineer's power might be thought thought pointless. pointless. It is submitted that the Engineer should exercise his discretion in the manner suggested by clause 53 (Procedure for claims), namely to allow extensions which are verified on contemporary contemporary records but disallow very late claims of which his team had no knowledge and which the Contractor seeks to support by new or oral evidence only. only. In shor short, t, the the Engi Engine neer er shoul should d have have rega regard rd to the the purp purpose ose of noti notice ce provisions, namely to avoid surprises and "claims-by-ambush", and should not allow valid claims to be ruled out on technicalities. Page 147 of 264
If the delay was caused by the Employer, or the Engineer on his behalf, a refusal of an extension of time on the grounds of lack of notice raises the issue of the Employer benefitting in liquidated damages from his own breach. The answer may be that it is the Contractor's breach of the notice provision from which he is benefitting and not his own. If so, the damages bear no relationship to the gravity of the Contractor's, perhaps immaterial, default and may be vulnerable to attack as a penalty. It may also be possible to ask an arbitrator to grant an extension of time by reviewing the Engineer's decision not to exercise his discretion under this clause. Under ICE 5th, an Engineer may extend "if he thinks fit in the absence of any such claim". A similar discretion exists under ICE 6th. It is unclear exactly when the Contractor's time for notifying the Engineer begins to run. The first first notice must must be given "within "within 28 days after such such event has first first arisen arisen". ". "Such "Such event" event" appears appears to be one of the listed listed matter matterss "being such as fairly fairly to entitle entitle the Contractor Contractor to an extension extension of time". time". Thus in a case where additional work was ordered, then designed, supplied and installed over a period of time, it may only be realised during the installation period that delay would result. In such circumstances, it is not at all easy to identify the beginning of the 28-day period. There is no specified form for the notice to be given by the Contractor and it may be sufficient to point to correspondence or other documentation provided that the formalities of sub-clause 44.2(a) and clause 68 (Notices) have been complied with. As to the details to be provided, it would have been clearer to say "detailed particulars particulars in support of any extension of time" as the present wording wording indicates only details of the extension of time required. "In order that such submission submission may be investigated investigated at the time". time". The statement statement of the purpose of the sub-clause may well allow arbitrators to make commonsense decisions as to whether to treat the clause as a condition precedent to an extension extension of time. If the Engineer Engineer has been taken by surprise surprise at the end of a project project by a claim for an extension extension of time and his ability to investigate investigate the claim is undermined, the arbitrator could rightly rely upon the condition precedent. "Suc "Such h othe otherr reaso easona nabl ble e time time as may may be agre agreed ed by the the Engi Engine neer er". ". This This agreement need not take place before or during the 28-day period but could be retrospective. The application application of this notice notice requirement requirement to other clauses giving an entitlement entitlement to extension of time is a difficult question. For example, clause 27.1 (Fossils) provides for extension of time "under Clause 44" but also requires the Contractor to acquaint the Engineer immediately. Is the present sub-clause redundant or does it replace or supplement the terms of clause 27? It is submitted that this clause is best interpreted as imposing a time limit where no other limit applies.
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44.3 44.3 "Whe "Where re an event event has a cont continu inuin ing g effe effect ct". ". This This does not mean mean that that the event has to be continuous. continuous. If an event, which may itself itself be shortlived, shortlived, causes knock-on consequences that continue over a period of time, it is often very difficult to assess those consequences until the job is complete. A critical delay will have a continuous effect in the sense that all dependant activities will be delayed. This is not intended to be covered. In any event, it may be "practicable" for the Contractor to submit particulars of such an event within four weeks. It is doubtful whether it is practical to require a Contractor to provide interim part partic icul ular arss ever everyy four four week weekss and and for for the the Engi Engine neer er to make make an inte interi rim m deter determi minat natio ion n on each each occas occasio ion. n. The The subsub-cl claus ause e might might benefi benefitt from from the the Enginee Engineerr and the Contract Contractor or being being given given the abilit abilityy to agree agree an altern alternati ative ve period. The ability to review determinations of extensions of time under this clause is limited to continuing events in respect of which interim extensions have been granted. Therefore, the prohibition on decreasing extensions of time is limited to such continuing events. Strictly speaking, an Engineer may only reconsider a determination under sub-clause 44.1 if he is asked for a decision under clause 67.1 (Engineer's decision). In reality, of course, engineers tend to be cautious and conser conservat vative ive in granti granting ng extens extensions ions and contrac contractor torss will will endeavo endeavour ur to persuade persuade them to increase an extension extension of time granted. granted. Such an increase, it is submitted, is technically beyond the power of an Engineer except under this subclause or clause 67.1. A decrease in extensions of time may always be achieved by the the Em Empl ploy oyer er seek seekin ing g the the Engi Enginee neer' r'ss deci decisi sion on on the the groun grounds ds that that an excessive extension of time has been granted. It is submitted that the prohibition in the final sentence of the sub-clause upon decreases in extension of time does not bind either the Engineer when making a decision under clause 67.1 or an arbitrator under clause 67.3 (Arbitration). The prohibition applies only to the final review. CLAUSE 45 : Working Hours
The Contractor is not entitled to work at night, at weekends or bank holidays unless the contract or the Engineer allows him to do so or in an emergency of which the Contractor Contractor immediately immediately informs informs the Engineer or where it is customary customary to carry out the work 24 hours per day. This clause is not fundamentally changed from the 3rd Edition. Where the circumstances of the project are such that day and night working and/or working seven days a week is desired, Part II provides an alternative clause. In order to work extra hours, the Engineer's consent may be obtained under this clause or, after a notice to accelerate, under clause 46.1 (Rate of progress). Page 149 of 264
Alternatively, the Contractor must demonstrate a danger to life or property or, less dramatically, that it is customary to execute the work day and night. It is arguable that this clause is altogether unnecessary as any restrictions on working hours seem invariably to be included in the contract details. This clause should be read with clause 19.1 (Safety, security and protection of the environment) which requires the Contractor to "take all reasonable steps... to avoid avoid nuisan nuisance ce to persons persons... ... result resulting ing from from pollut pollution, ion, noise noise or other other causes causes arising as a consequence of his methods of operation". "...unavoidable or absolutely necessary for the saving of life...". If "unavoidable" is not qualified by "for the saving...", the clause gives more latitude than at first sight appea appears rs.. For For exam example ple,, the the need need to pour pour conc concre rete te cont continu inuous ously ly coul could d be unavoidable and thus entitle the Contractor to work after hours. Under clause 46 of the 2nd Edition, an inability to work extra hours gave rise to a claim on the part of the Contractor for an extension of time. This somewhat extraordinary means of rewarding a defaulting Contractor has, sensibly, been discarded. CLAUSE 46 : Rate of Progress
Clause 46 enables an Engineer to require a Contractor who is in delay for reasons which are the Contractor's responsibility, to accelerate to complete on time. The Contractor Contractor may be allowed allowed to to work day day and night. night. The Employer Employer is is entitled to recover any extra supervision costs which result. The principal change to this clause as compared with the 3rd Edition is the ability of the Employer to recover any additional supervision costs caused by the acceleration. Otherwise the alterations are mainly of vocabulary. vocabulary. Clause 46 is problematic. problematic. Its intent is to remove remove from a Contractor Contractor in culpable delay the choice of whether to accelerate or whether to incur liquidated damages. Somet Sometim imes es the the latt latter er cour course se may may be cheap cheaper er due to the the inef ineffifici cienc encie iess of acceleration. The difficulty is that there will often be a dispute as to whether the cause of delay falls within clause 44.1 (Extension of time for completion) ; further there will often be othe otherr clai claims ms for for exte extens nsio ion n of time time in the the proc proces esss of noti notifi fica cati tion on and and consi conside dera ratition on,, whic which h proc process ess is lilike kely ly to be at least least 10 weeks weeks long long.. If the Engine Engineer er is only only entit entitle led d to use use the the claus clause e when when he has has consi consider dered ed and and determined all extensions of time claimed, its use could be severely restricted. The Contractor could effectively prevent its use by a regular stream of extension of time notices. If the Contractor disagrees with the rejection of an application for an extension of time time,, he coul could d refu refuse se to act act upon upon the the Engi Engine neer er's 's noti notififica catition on and and seek seek to Page 150 of 264
persuade persuade the Engineer or arbitrat arbitrator or that the delay fell fell within within clause 44. If the Contractor acts upon the notification and subsequently proves that the delay fell within clause 44, the Employer may argue that the Contractor should not have complied. Wherever the Contractor has accelerated in order to overcome delays for which he is not responsible, he will seek to recover from the Employer the costs of the acceler accelerati ation. on. These These costs will often often substant substantial ially ly exceed the costs costs of the prol prolon onga gatition on of the the cont contra ract ct whic which h would would otherw otherwis ise e have have resu resultlted. ed. The The acceleration will often have been brought about by a notice under this clause, a refusal to grant an extension of time or both. As a failure to comply with a notice under clause 46.1 is a ground for the termination of the contract under clause 63.1 (Default of Contractor), Contractors are likely to comply first and argue later. When the entitlement to an extension of time has been established, the Employer may deny the validity of the Engineer's notice. The Contractor's options are then either to seek to recover his acceleration costs as damages for breach of contract by the Employer (by reason of the wrong notification by the Engineer) or else to argue for an implied agreement to accelerate. For comment on the former argument, see under clause 2.1 (Engineer's duties and authority). It is important to appreciate that there is no power given to the Engineer under the contra contract ct to order order acceler accelerati ation on at the Employ Employer' er'ss expense. expense. Clause 51.1 51.1 (Variations) item (f) includes a power in the Engineer to instruct the Contractor to "change any specified sequence or timing of construction of any part of the Works" but, even if "sequence and timing" could be interpreted as included the Contractor's rate of progress, the word "specified" must refer to a sequence and timing as specified by the contract. It is submitted that a programme consented to under clause 14.1 (Programme (Programme to be submitted) does not amount to a specified specified sequence, particularly in the light of clause 14.4 (Contractor not relieved of duties and responsibilities). It should also be appreciated that an Engineer, as agent of the Employer, will not necessarily necessarily have the Employer's Employer's authority authority to order such an acceleration. acceleration. Some circum circumsta stance nce,, perhaps perhaps only only the copyin copying g of releva relevant nt corres correspon pondenc dence e to the Employer, is needed to demonstrate the necessary authority or ratification for the Engineer's actions. It is therefore necessary for a Contractor to demonstrate a variation of the contract as distinct from from a variation pursuant to the contract. He must show that the Employer and Contractor have agreed that the Contractor should accelerate and that the Employer would would pay him so to do. One must therefore find words or conduct on the part of the Employer or the Engineer on his behalf amounting to an offer to vary the contract and thereby to pay for the acceleration. The actual acceleration by the Contractor would be sufficient acceptance to produce the binding binding variation. variation. Alternative Alternatively, ly, in UK and certain other jurisdict jurisdictions, ions, it may be sufficient to show a request to accelerate, an acceleration in the progress of works and some benefit benefit flowing to the Employer in order to establish establish a quantum quantum Page 151 of 264
meru meruitit,, a right right to a reaso reasonab nable le payment payment for the work work perfor performe med. d. A thir third d alternative and perhaps even further restricted in the jurisdictions in which it would apply would be conduct on the part of the Employer which the Employer intended the Contractor to rely upon and which was relied upon such that it woul would d be inequ inequititabl able e for for the the Em Empl ploy oyer er to deny deny any any obli obliga gatition on to pay pay the the Contractor. Thus, where the Engineer has required the Contractor by purported notice under clause 46 to accelerate and/or has refused him an extension, and perhaps reminding him of his duty to complete by the time for completion, the Contractor may respond that he is entitled to an extension and that there are no delays whic which h are are his his resp respons onsibi ibilility ty.. If the the Engi Engine neer er insi insist sts, s, the the Cont Contra ract ctor or may may accelerate warning the Engineer of his intention to claim additional payment in due course. course. This, This, not atypic atypical, al, scenario scenario will will presen presentt an arbitrat arbitrator or with some difficulties. An argument that a mere refusal of an extension of time, which turns out to have been incorrect, amounts to an implied acceleration request is unlikely to succeed. An arbitrator may well decide, however, that where acceleration has been insisted upon in the face of the Contractor's denial of responsibility, the Contractor could not realistically have refused to comply given the possibility of termination. The Employer has benefitted by early possession (and would would in any event have been compensated compensated for any lateness by liquidated liquidated damages) damages) and the Contractor Contractor has incurred incurred significant significant additional additional costs. In such circumstances, circumstances, an award in favour of the Contractor is unlikely to do grave injustice. The abilit abilityy of the Engine Engineer er to refuse refuse consent consent to the Contr Contract actor' or'ss propos proposed ed acceleration measures could give rise to problems. If the Contractor had already impl implem emen ente ted d meas measur ures es when when the the Engi Engine neer er issu issued ed his his noti notice ce and and thos those e measures were then rejected by the Engineer, the Contractor is left exposed to liqu liquid idat ated ed dama damage gess and and must must undo undo the the curr curren entt meas measur ures es and and prop propos ose e alternatives. A dispute would then be inevitable. This right to interfere with the Contractor's methods is contrary to the policy of the contract as expressed in clause clause 8.2 (Site (Site operati operations ons and methods methods of constr construct uction ion)) and clause clause 14.1 14.1 (Programme to be submitted) which leave method strictly to the Contractor. This This clau clause se shou should ld be read read with with and and comp compar ared ed to clau clause se 14.2 14.2 (Rev (Revis ised ed programme). There, if actual progress and the approved programme do not confo conform rm,, the the Engi Engine neer er may may reque request st the the Cont Contra ract ctor or to prod produce uce a revi revised sed program programme me showing showing comple completio tion n on time. time. Normal Normally, ly, a reques requestt for a revise revised d programme would accompany a notice under the current clause. Given the difficulties of this clause, it is perhaps unfortunate that the Engineer, having formed the opinion that the Contractor is in delay, is obliged to notify under this clause. Employers would be well advised to approach this means of spurring apparently slow contractors with considerable caution. For cases on acceleration, see Morrison-Knudsen v British Columbia Hydro and Power (1978) 85 DLR (3d) 186 and the decision of the English Court of Appeal in Lester Williams v Roffey Brothers (1989) 48 BLR 69. Page 152 of 264
CLAUSE 47 : Liquidated Damages
If the Contractor fails to complete the whole or any specified Section of the Works by the due date, the Employer may deduct or recover from the Contractor the daily amount specified in the contract up to a given maximum amount. If the works are handed over on a piecemeal basis, the amount of liquidated damages is reduced proportionately. If appropriate, a bonus clause may be added for early completion, of which examples are given in Part II. This clause has been substantially altered altered from the 3rd Edition. Not least by the inclu inclusio sion n of refe refere renc nce e to a maxi maximu mum m amou amount nt of liliqu quida idate ted d dama damage gess to be specified in the Appendix. 47.1 47.1 In view view of the inter internat natio iona nall natu nature re of the contra contract ct condi condititions ons,, it has has no doubt surprised many people that the concept of liquidated damages has been retained in the 4th Edition. There are now relatively few few jurisdictions in which the concept concept of a penalty penalty being being an unenforc unenforceabl eable e term term survives. survives. Even Even in those those jurisdictions which retain the venerable doctrine, the use of the term penalty woul would d have have been accept acceptabl able. e. The The House House of Lords Lords in Dunlop Dunlop Tyre Tyre v. New Garage (1915) AC 1979 accepted that the name given was not conclusive. The limit specified in the appendix would, in the U.K. and other jurisdictions mainta maintaini ining ng the penalty penalty doctrin doctrine, e, provid provide e an argumen argumentt that that the prescr prescribe ibed d damages were were not a genuine pre-estimat pre-estimate. e. See the comment comment on clause 47.2 below. The limit is not expressly expressly optional optional but leaving the relevant relevant section section of the appendix blank would doubtless remove the limit. In the U.K. at least, the the use of the term "nil" in the appendix either in respect of the daily rate or the overall limit, could result in no recovery for delay: see Temloc Ltd v. Errill Properties Ltd (1987) 39 BLR 30. The changes changes made made from from the the 3rd 3rd Edit Editio ion n do not not assist assist the work workin ing g of the the liquidated damages provision. It is not clear clear why the simplicity of the 3rd Edition Edition or ICE 5th 5th has has not not been been pursue pursued. d. The essence essence of an effe effect ctiv ive e liliqu quid idat ated ed damages damages clause clause is one with a very simple simple trigger trigger mechanis mechanism. m. Two simple simple questions questions should should be asked: asked: Has the date for for completion completion passed? passed? If so, is the work complete? If not, then liquidated damages are deductible. Here, the trigger is complicated complicated with reference reference to "Time for Completion", Completion", clause 48 (Taking-Over (Taking-Over Certificate Certificate)) and clause 43 (Time for Completion). Completion). The reference reference to failure "to comply with the Time for Completion" is unfortunate as the "Time for Completion" does not impose any obligation with with which to comply. Clause 43 is relegated to to the source of the "time prescribed" whereas it is in clause 43 that one finds the obligation to complete by any given time. The position is worsened by a conflict Page 153 of 264
between the definition of Time for Completion which refers to "the time...as extended under clause 44" whereas clause 43 refers to "the time stated...or such extended extended time as may be allowed allowed under clause 44". In short, short, one refers to a state of affairs existing at any given time whereas the other includes any future extensions extensions that may be allowed by the Engineer Engineer or even an arbitrator. arbitrator. Thus, in the typical situation where a Contractor is in delay but disputes that it is his fault and where applications for extension of time have been submitted, it may be arguable that there is no entitlement to deduct. The Employer would argue that when the contract is read as a whole, the right to deduct is clear enough to succeed. Neverth Nevertheless, eless, to be sure of the matter, matter, an Employer would would be well advised to clarify this clause. Further, as the amount that may be deducted is defined as the number of days betw betwee een n the the time time for for comp comple leti tion on "and "and the the date date stat stated ed in a Taki Taking ng-O -Ove ver r Certificate", it must be arguable that no deduction may be made until after substantial substantial completion completion has been certified. certified. Indeed, the Time Time for Completion Completion is varia variabl ble e until until the last last extens extensio ion n of time time has been been awarded awarded.. Furt Further her,, the the Employer is permitted to deduct "the amount of such damages": this phrase suggests that the total amount of the damages needs to have been established before deduction may take place. An Employer would counter that the final sentence refers to the Contractor's obligation to complete the Works which, he would say, demonstrates the intention that deduction should take place before completion. The Contractor would would be obliged to answer that that the Works includes the Defects Defects Liabil Liability ity Period: Period: see clause clause 49.1 49.1 (Defec (Defects ts Liabilit Liabilityy Period) Period).. It is submitted that the construction contended for by the Contractor, although plainly not intended by the draftsman is sustainable. It would be a brave Contractor, however, that suspended or terminated under clause 69 (Default of Employer) on the strength of deduction of liquidated damages and a robust arbitrator who upheld the Contractor's decision. "(which sum shall be the only monies due from the Contractor for such default)". This This statem statement ent that that liquid liquidate ated d damage damagess repres represent entss an exclusiv exclusive e remedy remedy is probably unnecessary in English law but is a welcome clarification in other jurisdi jurisdicti ctions ons where where this is far from from clear. clear. An Employer Employer wishing wishing to mount an argument argument for recovery recovery for delay beyond the liquidated liquidated damages will be assisted assisted by the words "monies due from the Contractor" and by the final sentence which says that the "damages shall not relieve the Contractor...from any other of his...liabilities under the contract". One problem that could result is a conflict with clause 63.3 (Payment after termination) in the event that the delay leads to the termination of the contract either by clause 63.1 item (a) repudiation, item (b)(ii) non-compliance with a notice under clause 46.1 (Rate of Progress) or item (d) persistent persistent breach of contract. contract. A Contractor Contractor whose contract contract is terminated terminated after the contractual completion date, would argue that the Employer's recovery is limited to liquidated damages and seek to avoid the costs of the execution, completion and remedying of any defects etc provided for under clause 63.3. This argument might turn on the actual ground for termination and the precise meaning of "such default" in clause 47.1.
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In this this cont contra ract ct,, the the deduc deductition on of liliqu quid idat ated ed damag damages es is left left stri strict ctly ly to the the Employ Employer. er. In clauses clauses 60.2, 60.2, 60.8 and 60.10, 60.10, the Engineer' Engineer'ss someti sometimes mes wide powers to deduct from the face of the certificate are carefully restrained in relation to liquidated damages. The Employer is entitled entitled to deduct liquidated liquidated damages "from any monies due or to becom become e due due to the Cont Contra ract ctor or". ". Ther There e is no expr express ess limit limitat atio ion n to sums sums becoming becoming due under this contract. contract. Thus the Contractor Contractor has arguably arguably agreed to allow the deduction to take place from sums due under, for example, another contract with the same Employer. Bonus clauses such as the one suggested by Part II can give rise to difficulties. For example, as the calculation of the bonus will normally be based on the period of time between substantial substantial completion completion and the contractual contractual completion completion date as extende extended, d, the Contra Contracto ctorr may requir require e the Engineer Engineer to conside considerr and award award extensions of time which may be entirely theoretical because the Contractor has in fact completed early. The wording of clause 44.1 (Extension of time for completion) does not prevent the Engineer from granting such an extension as the test is whether an event is "such as fairly to entitle the Contractor to an extension". Difficulty arises when the Contractor puts forward an accelerated programme in order to obtain his bonus and then seeks to claim extensions of time when the Engineer, the Employer and others fail to match the programme. This problem was considered in the case of Glenlion v. Guiness Trust (1987) 39 BLR 1989, when the Official Referee decided that whilst the Contractor was at liberty to put forward a programme which achieved early completion, he could not thereby impose obligations upon the designer to require the design to be ready earlier than would have been necessary to complete on time. This is the position in English law at present but it must be questionable whether it will be followed elsewhere, particularly where a bonus clause has been inserted into the contract precisely in order to encourage the Contractor to achieve the earliest possible completion date. If the Contractor's programme had been consented to by the Engi Engine neer er unde underr clau clause se 14.1 14.1 (Pr (Progra ogramm mme e to be subm submit itte ted) d),, it woul would d be extraordinary if the Engineer could then argue under clause 6.4 (Delays and cost of delay on drawings) that "a time reasonable in all the circumstances" should be judged not by reference to the approved programme but by reference to a programme that would achieve completion on time. In the civil law countries referred to under clause 5.1 (Languages and law), the English concern about liquidated damages does not exist. However, under some admini administr strati ative ve contrac contracts, ts, the Adminis Administra tratition on may have have additio additional nal powers powers to impose penalties; this clause may be adapted to make it plain that the deductions made made are are pena penaltltie iess and and ther thereb ebyy the the Admi Admini nist stra ratition on may may be lilimi mite ted d to the the specified amount. With private law contracts, a Contractor is sometimes free to argue before the courts that the damages deducted exceed the Employer's Employer's loss in order to obtain a refund. For a brief overview of administrative law based on the French model, see clause 5.1.
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The limit to liquidated damages prescribed in the Appendix will add to the arguments arguments of a Contractor Contractor seeking to demonstrate demonstrate that the provision represents represents a penalty. They will argue, argue, pursuant pursuant to Dunlop Tyre Tyre v. New Garage (1915) (1915) AC 1979 that as the same amount of damages could be recoverable whether a substantial proportion of the works had been handed over on time or not, the provision cannot represent a genuine pre-estimate of loss as the losses would be very different in the two cases. It is submitted that an arbitrator should be reluctant to overturn the liquidated damages provision on this ground as parties should be at liberty liberty to prescribe prescribe limits to the damages recoverable. recoverable. Of course, if the provision was overturned the question would then arise as to the damages recoverable at common law. Would they be unlimited or would the daily and overall figures be imposed as limits to general damages? In the absence of a breach of contract by the Employer (which would give rise to the argument that the Employer should not benefit from his own breach), it is very difficult to support any such limitation. Thus, an Employer wishing to escape from the limits on liqui liquidat dated ed damag damages es in the the Appen Appendi dix, x, coul could d be foun found d argu arguin ing g that that the the liquidated damages scheme amounts to a penalty clause. Two Hong Kong cases in which a minimum amount of liquidated damages was prescribed are Arnhold & Co. v Attorney-General of Hong Kong (1989) 47 BLR 129 and Philips (Hong Kong) v Attorney-General of Hong Kong (1990) 50 BLR 122. In both cases, the liquidated damages provision, which also had a sliding scale proportionat proportionate e to the value of the works taken over, was held to be void for uncertainty. See also the English decision in Bramall and Ogden referred to above. English courts will generally interpret a liquidated damages clause strictly against the Employer seeking to rely upon it. However, if, on the one hand, the Employer is endeavouring to avoid the clause in order to claim his actual damages or if, on the other hand, the Contractor is advancing the clause as a limitation upon his liability, the courts' approach might well change. 47.2 47.2 Claus Clauses es such such as this this have have caused caused diffi difficu cultltyy in the the past becaus because e of the diffic difficult ultyy of ascertai ascertainin ning g the value value of the part handed handed over: see for example example Bramall and Ogden v Sheffield City City Council (1983) 29 BLR 73. One solution that has been adopted is for the certifier to specify the value of the part taken over, which specified value is deemed to be the value for the purposes of the clause. Such arguments are unlikely to make much impact in jurisdictions without the sensitivity of the English courts to penalties. Under clause 60.3(a), the Engineer is given the power to determine the relevant proportion of work handed over in relation relation to the release of retention retention monies. A similar provision here would have reduced the scope for dispute as to the value of the part. For a comment on extensions of time for "part of the Works" see Clause 44.1 (Extension of time for completion).
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CLAUSE 48 : Taking over / Substantial Completion
This This claus clause e provi provide dess for for the the Engi Engine neer er to issu issue e a cert certififica icate te of subst substant antial ial completion, completion, known as a Taking-Over Taking-Over Certif Certificate. icate. The Contractor Contractor notifies notifies the Engineer when he believes the work to be complete and the Engineer either agrees and so certifies or specifies the works necessary to be completed before substantial completion. In the latter latter case, the Contractor receives his certificate within 21 days of completing the listed work. Taking-Over Certificates may be issued in respect of specified Sections or parts of the Works, which are either complete or are incomplete but have been taken over by the Employer. The Engineer Engineer is given a discretion discretion to issue an early early Taking-over Taking-over certificat certificate e in respect of completed but unoccupied parts. Early Taking-Over Certificates do not cover ground or surfaces which require reinstatement unless the Certificate expressly says so. Although the changes to this clause for the 4th Edition are mainly matters of vocabulary, vocabulary, item (c) (c) of sub-clause sub-clause 48.2 is entirely entirely new. The obligation obligation in subclause clause 48.3 48.3 to comp comple lete te outs outsta tand nding ing work work "wit "with h due due expe expedi ditition" on" is also also an innovation. 48.1 48.1 For guidan guidance ce on the meaning meaning of "substa "substanti ntiall allyy complete completed" d" and "practi "practical cally ly completed", see Hoenig v Isaacs (1952) 2 All ER 176. Substantial completion is gener general ally ly take taken n to refe referr to a suff suffic icien ientt degr degree ee of compl complet etio ion n to enabl enable e the the Empl Em ploy oyer er to take take bene benefi fici cial al use use of the the work workss conc concer erne ned. d. "Sub "Subst stan anti tial al completion" or "completion pursuant to Clause 48" must be kept distinct from completion completion of "the Works" Works" or of "the Contract". Contract". Clause 62.1 62.1 (Defects (Defects Liability Liability Certificate) makes it clear that "the Contract" will only be considered complete when a Defects Liability Certificate Certificate has been issued by the Engineer. Engineer. The title of clause clause 33.1 33.1 (Cle (Clear aranc ance e of Site Site on compl complet etion ion)) and the the term term "Stat "Statem emen entt at Completion" Completion" in clause 60.5 60.5 do not maintain the distincti distinction. on. There is, however, however, little scope for confusion. In contracts where the Contractor is given the task of designing any part of the Works, clause 7.2 (Permanent Works designed by Contractor) adds an additional requirement requirement to those set out in the current clause before before substantial substantial completion completion is certified, namely, to submit and have approved by the Engineer operation and maintenance manuals and as-built drawings. In theory, the Contractor is only entitled to notify the Engineer of substantial completion completion once the works have achieved achieved such completion. completion. Thus, an Engineer Engineer may decline to produce produce a list of outstanding outstanding works. works. In practice practice however, however, the Cont Contra ract ctor or will will want want to know know wher where e he stan stands ds in rela relati tion on to subs substa tant ntia iall Page 157 of 264
completion; but if the Contractor gives notice too early, the Engineer may well refuse to act. The somewhat complex provisions concerning concerning defects are no doubt intended to ensure that the Engineer's list is considered considered definitive definitive and may only be added to in respect of new problems that emerge. emerge. Otherwise, the Contractor Contractor is entitled entitled to his certificate once the listed works have been completed. A Contractor is at liberty to argue, when an Engineer seeks to add a defect to the list of work to be done prior prior to substan substantia tiall complet completion ion,, that that the defect defect "appear "appeared" ed" before before the Engineer's list and thus may not now be added to the work to be completed prior to issue of the certificate. In the penultimate sentence, the second occurrence of "Works" should, it is suggested, read "works". The Taking-over Taking-over certificat certificate e is significant. significant. Firstly, Firstly, in relation relation to the date of its issue: under clause 20.1 (Care of Works), responsibility for care of the works passes to the Employer; under clause 21.2 (Scope of cover), the Contractor's obligation obligation to insure insure the whole of the works ends; under clause 60.3 (Payment of retention money), one half of the retention is released; and under clause 60.5 (Statement at Completion), time begins to run for the statement at completion. Secondly, in relation to the date of substantial completion stated in the certificate: under clause 47.1 (Liquidated damages for delay) liquidated damages cease; and under clause 49 (Defects Liability Period), the Defects Liability Period starts to run; There is no mechanism for listing the outstanding work. It is submitted that a general undertaking is sufficient under this clause, without any attempt to define the work to be done after substantial completion. Under clause 49.2 (Completion of outstanding work and remedying defects), there is a general obligation to complete the work but no instruction is required. In reality, the Engineer or a member of his team will issue snag lists and no distinction is normally drawn between defects and work to be completed. 48.2 48.2 Alte Altern rnat ativ ive e (c) (c) is new to this this editio edition n and and cover coverss the the (pre (presu suma mably bly rare) rare) situation where the Employer takes permanent occupation of an area which is incomplete incomplete beyond merely merely requiring requiring reinstatement reinstatement of surfaces. surfaces. It does not fit conveniently into clause 48.2 because of the reference to "the procedure set out in Sub-clause 48.1" which deals with completion and satisfaction. This clause seems to proceed p roceed on the assumption that the Employer has ha s a right to take over any part of the works works whether complete complete or incomplete. incomplete. Whereas Whereas in some contracts, early possession must be with the agreement of the Contractor, there is no corresponding requirement here. Clause 42.1 (Possession of Site and access thereto) deals with the giving of possession to the Contractor but does not deal with the Employe Employer's r's re-entr re-entry. y. Clause Clause 47.2 (Retenti (Retention on of liquid liquidate ated d dmages), which deals with the reduction in liquidated damages where parts are taken over by the Employer, is also silent. The only reference to the Contractor's Contractor's Page 158 of 264
agreement is in sub-clause 48.2(c) which envisages agreement between the Employer and Contractor of use by the Employer "as a temporary measure". Whilst a Contractor Contractor in delay or one seeking to take advantage of a bonus would generally be content for the Employer to take early possession, a Contractor who is on time or is somehow in dispute with the Employer may well wish to exclude exclude him until the time for completion. As discussed under clause 42.1 (Possession of Site and access thereto), unless the contrary is stated, construction contracts assu assume me that that poss posses essi sion on is give given n to the the Cont Contra ract ctor or unti untill the the work workss are are substan substantitiall allyy comple completed ted whereu whereupon pon possess possession ion is return returned ed to the Employ Employer. er. Clause 51.1 (Variations) (Variations) item (b) makes it clear that the Employer Employer is not entitled to omit elements of the works in order to do the work himself or by another contractor. The Contractor might have a case for alleging repudiation if the Employ Employer er retakes retakes possessi possession on of an incomple incomplete te part of the site without without the Contractor' Contractor'ss consent. (If the Employer Employer through the Engineer issues issues a variation lawfully omitting the balance of the work to the relevant part of the site, then the part is not incomplete and item (c) does not apply). apply). The Employer's answer will will be to point to item (c) and argue that it shows the intention of the contract to be that that the the Em Empl ploye oyerr may may reta retake ke incom incompl plet ete e part partss of the the work workss and that that the the Contractor is compensated by a right to early substantial completion of the part and early release of the corresponding retention money. Even if this is right, there remains the anomaly in relation to the omission of the incomplete work. Thus it would have been helpful if this point had been made clear. ICE 6th also now addresses premature use by the Employer in a similar fashion. If the Employer causes delay by his occupation, clause 44.1 (Extension of time for completion) item (d) "any delay, impediment or prevention by the Employer" may apply but if the contract allows such occupation or the Contractor has agreed to it, the Engineer may refuse. A Taking-Over Certificate for a Section or part triggers the release under clause 60.3 60.3 (Payme (Payment nt of retent retention ion money) money) of a proport proportion ionate ate amount amount of retent retention. ion. However, it has no relevance to the final release of retention or the grant of a Defects Liability Certificate under clause 62.1 as these both refer to the expiry of the last Defects Liability Period. 48.3 48.3 This This clau clause se give givess the the Engi Engine neer er a disc discre reti tion on to issu issue e a Taki Taking ng-O -Ove ver r Certificate where a part is complete but but not occupied by the the Employer. Contrast the obligation to certify under the preceding sub-clause. This clause does not relate back to the procedure at clause 48.1 and is not initiated by a notice notice or request by the Contractor. Thus the Engineer has power to take over part of the works whether or not the Contractor wishes to lose possession of it and whether or not the Employer wishes to take occupation. It is difficult to see that the Engineer would exercise his discretion under this clause in any other fashion than at the request of and pursuant to the interest of the Employer but this would seem to run counter to clause 2.6 (Engineer to act impartially). Page 159 of 264
It is not difficult to envisage circumstances in which the Contractor might wish to postpone the issue of a Taking-Over Certificate. For example, if the Contractor believes that a defect existed in the work which would disrupt the Employer's use and occupation of the works, the Contractor may well regard the liquidated damages as a welcome ceiling to his liability. After substantial completion, the Employer would be entitled to unlimited general damages to the full extent of his loss. loss. In a proj project ect whic which h had had alre already ady exper experie ience nced d consi conside dera rabl ble e dela delay, y, for for example, the limit of liquidated damages might have been reached in which case any additional delay prior to substantial completion would involve the Contractor in no furt furthe herr dama damage ges. s. The The ques questi tion on ther theref efor ore e aris arises es as to whet whethe herr the the Contractor is able to prevent the issue of a Taking-Over Certificat. Unde Underr subsub-cl clau ause se 48.1 48.1,, the the mach machin iner eryy is trig trigge gere red d by a noti notice ce from from the the Contractor. Contractor. Under sub-clause sub-clause 48.2, the matter is not beyond argument: argument: there is the reference to the procedure in sub-clause 48.1 but it would be hard to construe the Contractor's request as a condition precedent. Under sub-clause 48.3, the Contractor is not involved and apparently the Engineer may act upon his own initiative. This however does not apply to the whole of the works. The Contractor has an additional control in relation to the whole of the works in projects where the Contractor was obliged to provide part of the design. Under clause 7.2 (Permanent works designed by Contractor), the provision of operation and maintenance manuals is expressed as a condition precedent. It is submitted that a Contractor wishing to take advantage of the liquidated damages provision as a limitation of his liability is in some difficulty: the Engineer might well consider it consistent with his duty of impartiality to grant substantial completion of the great majority of the works that was complete regardless of the Cont Contra ract ctor or's 's wishe wishes. s. If the the Cont Contra ract ctor or endea endeavo vour ured ed to dela delayy subst substant antia iall completion by stopping or slowing down the works, the Employer would have a number of remedies including clause 46.1 (Rate of progress) and clause 63.1 (Default of Contractor). 48.4 48.4 Rein Reinst stat atem emen entt has has pres presum umab ably ly to be dist distin ingu guis ishe hed d from from repa repair ir and and maintenance, particularly in circumstances where the Employer has moved onto and is making making use of the surface surface concern concerned. ed. On road project projects, s, the wearing wearing course is sometimes left off when the Employer first takes occupation so that, shortly before the works are complete as a whole, the entire project can be brought up to the same standard with the wearing course being laid for the whole project. Although it is not not clear, the natural meaning of the sub-clause is that that the requirement for reinstatement is to be judged as at the date of the Taking-Over Certificate. 48.5 48.5 Part Part II provi provide dess an optio optiona nall clause clause for the situat situatio ion n where where the the Tests Tests on Completion Completion cannot be carried carried out prior to taking-over taking-over.. It introduces introduces a deemed taking over on the date established by the Engineer's taking-over certificate as the the date date on whic which h the the Tests Tests on Compl Complet etio ion n woul would d have have been been compl complet eted. ed. Compared with the normal taking-over certificate, which states the date on which Page 160 of 264
in the Engineer's opinion the Works were substantially complete, this formula seems seems even more likely likely to give rise to dispute. dispute. For example example,, if the test test on completion is carried out during the Defects Liability Period and the work fails the test, is the taking over certificate open to challenge on the grounds that the test would not have been "completed" until the works had been remedied and had passed the test? There is also an unnecessary proviso which could simply say that that the the Work Workss shoul should d other otherwi wise se be subst substan antitial ally ly compl complet ete. e. The The phras phrase e "...substant "...substantially ially in accordance accordance with the contract" contract" might merely merely mean that such works as have been performed are not defective. The tests are to be carried carried out in the Defects Defects Liability Liability Period. It may have been sensible to give the Employer the option to dispense with that, particularly as the Cont Contra ract ctor or can can clai claim m addi addititiona onall costs costs for for carry carryin ing g the the test testss out out late later. r. This This proposed sub-clause is ambiguous as to whether the Employer is being granted an option to dispense dispense with the requirement requirement that the tests are carried out prior to the taking over certificate. This could be important as, for example, an Employer whose actual losses were greater than the liquidated damages provided for delay to the works could increase his recovery by taking over the works as soon as possible. This sub-clause is, it is submitted, ill thought-out and parties would be unwise to use it without substantial amendments. CLAUSE 49 : Defects Liability Period
This clause defines the Defects Defects Liability Liability Period as an agreed period, period, usually six or twelv welve e month onthss runn unning ing from from the dat date or date datess of the Takin akingg-Ov Over er Certificate(s). The Contractor is obliged to complete any outstanding work and remedy any defects during or shortly after this period. Unless any remedial work undertaken by the Contractor was due to a cause which was not the Contractor's responsibility, he receives no extra payment for works executed executed during this period. period. If the Contractor Contractor remedies remedies defects defects not of his making, he is paid as if the work was a variation. If the Contractor fails to carry out the remedial works within a reasonable time, the Employer can take on alternative contractors to execute the works and charge the Contractor the cost of remedying the Contractor's defects. In the 4th Edition, the "Period of Maintenance" Maintenance" has become the Defects Liability Liability Period. This change in name appears appears to have occurred to avoid any suggestion that the Contractor is obliged to carry out maintenance as distinct from remedial works after substantial completion. Clause 49 has retained retained the structure and the broad principles of the 3rd Edition but the vocabulary has changed extensively. The reference to design in item (b) of sub-clause 49.3 is the most material addition. Page 161 of 264
49.1 49.1 There There is a schoo schooll of though thoughtt that that if you you have a clause clause such such as clause clause 1.1 1.1 entitled "Definitions", then all definitions should be contained there. That view is reinforced by the fact that the Defects Liability Period is referred to in some thirteen clauses throughout the contract. "...the expression "the Works" shall be construed accordingly". It is far from clear what effect these these words are intended intended to have or indeed have. The definition definition of Works at clause 1.1(f)(i) includes the Permanent Works. It is also qualified by the phras phrase e in the the open openin ing g sente sentence nce of clau clause se 1.1 1.1 "exce "except pt wher where e the the conte context xt otherwise requires". The draftsman is no doubt addressing here the conflict arising at first sight from the definition of the Defects Liability Period as starting on "the date of completion of the Works". The Defe Defect ctss Liab Liabililitityy Perio Period d most most freq freque uent ntly ly seen seen in the the Appen Appendi dixx to civi civill engineering contracts is one year. 49.2 49.2 There There is no provis provision ion for for the outsta outstandi nding ng works works to be listed listed or other otherwis wise e identified. identified. In practice practice,, however, however, this this may not cause cause particul particular ar difficul difficulty. ty. The statement of intent in relation to the state of the works at the end of the Defects Liabil Liability ity Period Period is of little little apparen apparentt releva relevance nce to the obliga obligatio tion n to comple complete te outst outstand anding ing work work as soon soon as prac practitica cabl ble e afte afterr the the date date in the the Taki Takingng-Ov Over er Certificate consistent with the undertaking given under clause 48.1 (Taking-Over Certificate). Sub-clause (b) contains no time limit upon the Contractor for executing the remedial remedial works save by implication implication from the statement statement of intent. Nevertheless, Nevertheless, fail failur ure e to carr carryy out out work workss inst instru ruct cted ed with within in a reas reason onab able le time time has has the the consequ consequenc ence e that that the Employ Employer er may employ employ others others under under sub-cla sub-clause use 49.4 49.4 below. It is a question of construction whether the terms "amendment, reconstruction" are are gove goverrned ned by the wor words "oth "other er faul aults" ts" or whet whethe herr amen amendm dmen ents ts or recon reconst stru ruct ctio ions ns which which do not not deri derive ve from from defe defect ctive ive desi design gn,, mate materi rial alss or wokmanship and amount to variations may be instructed by the Engineer during the Defects Defects Liabilit Liabilityy Period. Period. The right right to order variati variations ons under clause clause 51.1 (Variations) is not expressly limited in time and therefore the Contractor may have no right to object to variations being ordered during the Defects Liability Period. The obligation upon the the Contractor to carry out variations variations may only end upon the granting granting of the Defects Liability Liability Certific Certificate ate under clause 62.1. 62.1. This might come as a considerable surprise to a Contractor who demobilises in the usual usual way way afte afterr the the Taki Takingng-Ov Over er Cert Certifific icat ate e has has been been issue issued. d. For For furt furthe her r discu discuss ssio ion n on whet whethe herr the the Engi Engine neer er may may issu issue e vari variat atio ion n inst instru ruct ctio ions ns afte after r substantial completion, see the commentary under clause 13.1 (Work to be in accordance with the contract). It is obviously in the Employer's interests to have a right to take advantage of the presence and knowledge of the Contractor to remedy faults arising through Page 162 of 264
design, the Employer's own direct works or other causes which are not the responsibility of the Contractor. Perhaps surprisingly, the Engineer is given a discretion as to whether or not to order remedials which seems to extend to defect defectss whic which h are are the the Cont Contra ract ctor or's 's resp respon onsi sibi bilility ty.. As inst instru ruct ctio ions ns are are not not expressly referred to in clause 2.6 (Engineer to act impartially), the Engineer will often be required to follow the wishes of the Employer. (See however the comme comment ntar aryy under under clau clause se 2.6 2.6 and and the the argum argument ent that that all all of the the Engi Engine neer er's 's funct functio ions ns are are cover covered ed by the the impar impartitial alitityy obli obliga gatition on.) .) This This raise raisess issu issues es of mitigation: is the Employer entitled to employ another contractor to execute the remedials? remedials? If so, has he any right to recover recover damages from the Contractor? Contractor? It is submitted that the Engineer's discretion is limited to whether the remedials are necessary and the means of carrying out the work. As the work is part of the contract, the Contractor has the right to do it. Compare the right to omit work, now expressly limited by clause 51.1 (Variations) item (b). If remedial work was given to another contractor and the Employer sought to recover the cost from the Contractor Contractor as damages damages for breach, the Contractor' Contractor'ss response response would be that the Employer was also in breach with the result that the Employer may recover no more than the cost to the Contractor would have been if he had executed the work. It is arguable arguable that the Employer Employer should recover none of the costs incurred in breach of contract but as the Contractor was himself in breach by executing work defectively, this position is more difficult to sustain. If the Contractor is able to demo demons nstr trat ate e that that the the reme remedi dial al work work woul would d have have cost cost him him noth nothin ing g as subcontractors would have executed it as part of their remedial obligations, it is submitted that the Employer is in greater difficulty. See clause 20.3 (Loss or damage due to Employer's risks) where a similar discretion is given and clause 65.3 (Damage to Works by Special Risks) where the the Cont Contra ract ctor or appe appear arss to have have been been give given n the the righ rightt to rect rectif ify, y, perh perhap apss inadvertantly. See also the commentary under those clauses. This clause should also be read with clause 64.1 (Urgent remedial work). For discussion of the Enginee Engineer's r's power power to waive waive strict strict compli compliance ance with with the specifi specificat cation ion,, see the commentary commentary under clause 2.1 (Engineer's (Engineer's duties and authority) authority) and clause 13.1 (Work to be in accordance with the contract). 49.3 49.3 The The refere reference nce to impli implied ed oblig obligat ation ion is one of the areas areas in the contr contract act in which the parties are exposed to the vagaries of the law of the contract, usually the law of the country in which the works are being executed. The opportunity of the overhaul of the conditions leading to the publication of the 4th Edition was unfortunately not used to make express some of the commonly accepted implied terms of the contract in order to reduce the necessity to research and apply local laws. If the Contractor is instructed to carry out remedial work which he believes to be due to a cause for which he is not responsible, it is submitted that he has no obligation to say so other than in accordance with clause 53.1 (Notice of claims), that is within 28 days of the event, here the instruction. The notice requirement in clause 52.2 (Power of Engineer to fix rates) relates to "work instructed to be done by the Engineer pursuant to Clause 51". Whilst remedial work additional to that Page 163 of 264
due to the Contractor's faulty work, design etc. may fall within clause 51.1, the instruction is pursuant to sub-clause 49.2 and not clause 51. This may be something that Employers would wish to change as a very different attitude may be taken to the repair of defects if they are not to be at the cost of the Contractor but rather the subject of a claim. There will be defects the cause of which cannot be established until opened up, such as those addressed under clause 50.1 (Contractor to search): the Employer will have to make an informed guess in the case of non-essential remedials as to whether he will have to pay for the work. In practice, defects are most likely to be due to workmanship or materials problems. It is comparatively rare that a problem is obviously and exclusively due to faulty design: as a consequence, many disputes derive from the grey area between design and workmanship. If the Contractor is instructed to do work that does not fall within sub-clause 49.2(b), such as dealing with "fair wear and tear", he is unable to recover under this sub-clause. Clarification should be sought as to the basis for the instruction. In view of the doubt over the ability of the Engineer to order variations after substantial completion, the Contractor should seek to ensure that the Engineer is authorised by the Employer to require the work: thus, under English law at least, the Contractor would be entitled to be paid for the work. To be certain, the Contractor should obtain written agreements from the Employer in relation to work of this sort falling outside the contract. For a comment comparing the treatment of this clause with the other "loser pays" clauses, clause 36.4 (Cost of tests not provided for), clause 38.2 (Uncovering and making openings) and clause 50.1 (Contractor to search), see under clause 36.5 (Engineer's determination where tests not provided for). 49.4 49.4 This This claus clause e relat elates es to the the fail failur ure e of the Cont Contra ract ctor or to carr carryy out out "suc "such h instr instruc uctition on". ". This This can only only refer refer to sub-cl sub-claus ause e 49.2 49.2 (b) as that is the the only only reference reference to an instruction instruction.. Clause 48.1 (Taking-Ove (Taking-Overr Certificate) Certificate) imposes imposes the deemed obligation obligation to complete complete outstanding work "with due expedition" expedition" and subclause 49.2(a) requires the work to be done "as soon as practicable". The insert insertion ion of "within "within a reasonabl reasonable e time" is new to the 4th Editio Edition. n. When When const constru ruin ing g what what is a reaso reasonab nable le time time,, one one shoul should d argua arguably bly cons consid ider er the the statement statement of intent at the the outset of sub-clause sub-clause 49.2. 49.2. Thus it could be said that that any time time with within in the the Defe Defect ctss Liab Liabililitityy Peri Period od woul would d be reaso reasonab nable le even even for for repairing faults instructed at the beginning of the period. It is submitted that the judgement of what is reasonable must also take into account the Employer's need for a fully complete project as soon as possible and the Contractor's ability to execute the remedial work. In view of the fact that an alternative contractor will almost invariably cost the Employer more than having works executed by the Contractor, it is strange that the Employer's entitlement to reimbursement under this sub-clause is limited to circ circum umst stan ance cess wher where e the the defe defect ct is foun found d to be the the resp respon onsi sibi bilility ty of the the Contractor. As the Employer is entitled by sub-clause 49.2 (b) to require the Page 164 of 264
Cont Contra ract ctor or to exec execut ute e reme remedi dial al work workss whic which h are are not not the the Cont Contra ract ctor or's 's responsibilt responsibilty, y, the Employer Employer would wish to be reimbursed reimbursed the additional costs of employing an alternative contractor to execute such works. The question is therefore whether it is intended that this sub-clause provides all of the Employer's remedies or whether the Employer is free to pursue the extra cost by way of damages for breach of sub-clause 49.2(b). Although this sub-clause sets out to prescribe the consequences of the Contractor's failure, it is submitted that the Employer may pursue damages. This is because the draftsman used very clear words when in clause 47.1 (Liquidation damages for delay) he wished to indicate that the provision was intended to be exhaustive. There are no equivalent words here but the matter is certainly not beyond argument. Part II provides an optional sub-clause 49.5 for projects which incorporate a high proportion proportion of machinery. machinery. If machinery machinery is replaced, replaced, the Defects Liability Liability Period starts starts running running again. again. The period period will cease cease to run during during any period period that the works are out of action due to a defect. defect. The provisions are subject subject to a two year maximum for the Defects Liability Period. CLAUSE 50 : Search for Cause of Defect
This clause permits the Engineer to instruct the Contractor to search for the cause of a defect emerging emerging during the Defects Defects Liability Liability Period. Period. Depending Depending on whose responsibility the fault turns out to be, the Contractor either bears the cost himself or receives additional payment. Although reorganised and translated into the language of the 4th Edition, the clause remains similar to the 3rd Edition. "Shrinkage" has been introduced in the place of "imperfection". The clause gives the Engineer power to instruct the Contractor to undertake searches both before and after substantial completion. The phrase "at any time" replaces the more specific provision contained in the 3rd Edition. In any event, the power to give instructions is more than adequate to enable the Engineer to cause the Contractor to investigate problems prior to substantial completion, even even with without out the the expr expres esss powe powers rs in clau clause se 38.2 38.2 (Unco (Uncove veri ring ng and and maki making ng openings) and clause 39.1 (Removal of improper work, materials or Plant). This This claus clause e is proba probably bly unnec unnecess essar aryy in relat relatio ion n to searc searche hess in the the Defe Defect ctss Liability Period given the provisions in clause 49 (Defects Liability) for obliging the Contractor to remedy defects which are not of his making. However, without this clause, the Contractor could decline to search or carry out any extra work in the absence of proof that a defect for which he was responsible existed on the grou ground nd that that ther there e is no expre express ss powe powerr to issu issue e inst instru ruct ctio ions ns amou amount ntin ing g to variations after substantial completion. Whether this argument is right or wrong, this clause serves to put the matter beyond doubt. For a discussion of this issue, see the commentary under clause 13.1 (Work to be in accordance with the contract). Page 165 of 264
If the Defects Liability Period expires while a search is under way, clause 62.1 (Defec (Defects ts Liabil Liability ity Certif Certificat icate) e) provid provides es for the postpon postponeme ement nt of the Defect Defectss Liabi Liabilility ty Cert Certifific icat ate e until until the the work work has has been been compl complet eted ed to the the Engin Engineer eer's 's satisfaction. By clause 60.3 (Payment of retention money), the Engineer may withhold withhold enough retention retention to cover the cost of the search and rectification rectification work. As it is only the "costs of such search" that are recoverable, the financing costs relating to the retention appear to be irrecoverable. This clause provides for the Contractor remedying the cause of the defect only if it is his responsibilit responsibility. y. In any other case, an instructio instruction n could be issued prior to substantial completion or clause 49.2(b) could be invoked during the Defects Liability Period. Similar provisions appear at clause 36.4 (Cost of tests not provided for) and clause clause 38.2 (Uncov (Uncover ering ing and making making openi opening ngs) s).. In both cases, cases, tests tests or uncovering are undertaken on the basis that if the work revealed is defective, the Contractor Contractor pays for such test or uncovering, uncovering, otherwise otherwise the Engineer determines determines an appropriate extra payment. Under clause 38, it is not necessary to have a defect in order for the Engineer to be able to order action, as here. For a comment comparing the treatment of this clause with the other "loser pays" clauses, clause 36.4, clause 38.2 and clause 49.3 (Cost of remedying defects), see under clause 36.5 (Engineer's determination where tests not provided for). CLAUSE 51 : Variation / Additions / Omissions
This This claus clause e empow empower erss the the Engin Engineer eer to orde orderr addi additition ons, s, omis omissi sions ons and/ and/or or changes changes to the Works. Works. Such Such variat variation ionss are to be valued valued in accordanc accordance e with with clause 52 unless the need for the variation arose through some default of the Contractor. The Contractor should obtain a written instruction from the Engineer unless the variation is simply an increase or decrease in the quantities stated in the bill of quantities. The 4th Edition contains some important amendments, particularly to sub-clause 51.1, including protection in sub-clause 51.1(b) for the Contractor from abuse of the right to omit work, a new item (f) allowing variations to the specified sequence or timing of construction and a proviso making it plain that variations necessitated by the Contractor's breaches will not be paid for by the Employer. 51.1 51.1 Unless Unless the Engin Engineer eer's 's authori authority ty is limite limited d in Part II in relat relation ion to clause clause 2.1 (Eng (Engin ineer eer's 's duti duties es and and autho authori rity ty), ), this this clau clause se auth author oris ises es him him to make make any any variation variation which in his opinion is necessary necessary or appropriate. appropriate. If a Contractor Contractor does not believe the work to be either necessary or appropriate, he may challenge the Engineer's opinion under clause 67 (Disputes). If a Contractor is confident that Page 166 of 264
the variation called for is beyond the power of the Engineer and thus beyond the Employer's right to require variations, he will be free to refuse the work or negotiate a fresh price for the work. This route may be one alternative open to a Contrac Contractor tor wishing wishing to escape escape from the rates in the contrac contract. t. If an arbitr arbitrato ator r reviewing reviewing the Engineer's Engineer's opinion agreed with the Contractor, Contractor, the work executed executed would no longer be varied work within the contract and the arbitrator would be free, under English law at least, to award a quantum meruit or reasonable sum in respect respect of the work performe performed. d. Doubtl Doubtless ess the rate quoted quoted by the Contrac Contractor tor would be one factor which the arbitrator would consider in selecting a reasonable rate. However, the Employer might be able to disown the variation as unauthorised as the Engineer's authority under this sub-clause is limited to ordering necessary and appropriate variations. As the Employer has the benefit of the work and an ability to recover from the Engineer for any breach of his terms of engagement and as the Contractor has incurred the cost of executing the variation, the Employer's argument will generally be unattractive. If the Employer had notice of the variation order before the work was executed e xecuted and did nothing to prevent it, he will doubtless be taken to have ratified the Engineer's action. Ratification could also be found in the subsequent conduct of the Employer. Although he does not receive a copy of the Contractor's notice under clause 52.2 (Power of Engineer to fix rates), he would normally receive one of the copies of the Contractor's monthly statement under clause 60.1. A lack of response to knowledge of the variation could be taken as ratification even if the knowledge came too late to prevent the work being executed. Is the Employer entitled to challenge a variation issued by the Engineer other than on the ground that it was not necessary or appropriate? If the Engineer is obliged by his terms of engagement to obtain the approval of the Employer for variations and that obligation is recorded in Part II to clause 2.1 (Engineer's duties and authority), it is made clear in clause 2.1 that the Employer may not subsequently challenge the variation on the ground of lack of approval. Rather, the matter should be resolved between the Employer and the Engineer. If Part II is silent, this sub-clause expressly authorises the Engineer to issue necessary or appropriate variations. Variations are not specifically referred to in either clause 1.5 (Notices, consents etc.) or clause 2.6 (Engineer to act impartially), so that it could be argued that the variation has been made by the Employer's agent and therefore has in effect been issued by the Employer who should not be entitled to seek to escape his own action. However, under both clause 67.1 (Engineer's decision) and clause 67.3 (Arbitration), the Engineer's instructions are open to challenge by the Employer as much as by the Contractor. The Employer may therefore argue, for example, that the work the subject of the variation was part of the original contract works and thus not a variation at all. It is submitted that the the Em Empl ploy oyer er's 's righ rightt to chall challen enge ge is lilimi mite ted d to ques questition onss of the the Engi Engine neer er's 's authority, authority, that is where the Employer disputes the necessity necessity or appropriateness appropriateness of the variation or claims that the work was already part of the contract.
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In view of the breadth of the Contractor's obligation to comply with the Engineer's instructions "on any matter, whether mentioned in the Contract or not, touching or concerning the Works" under clause 13.1, it is perhaps remarkable that the Employer's whim is so poorly catered for under the present sub-clause. The opinion of the Engineer is expressly covered by clause 2.6 (Engineer to act impartially) and is also challengeable under clause 67.1 (Engineer's decision) and clause 67.3 (Arbitration). The position is therefore arrived at whereby the Cont Contrract actor is ent entitle itled d to chall hallen enge ge the the Engi Engine neer er's 's opin opinio ion n as to the appropriateness of a variation arising from the Employer's whim. To pursue an earlier example, the Contractor could challenge the Employer's desire to have yellow rather than white road markings. This extraordinary extraordinary conclusion conclusion survives even when clauses 7.1 and 13.1 and this sub-clause sub-clause are read together. together. The wide terms of clause clause 13.1 could arguably be limited to matters touching or concerning the existing "Works" as built or as designed designed and not extend extend to variations variations of those those Works. If the the clause was to be interpreted otherwise, the use in clause 7.1 and this sub-clause of terms such as "necessary" and "appropriate" would be otiose. This matter, which appears to have received no consideration consideration by the draftsman draftsman of the 4th Edition, needs to be resolved. In administrative contracts under civil law systems of the sort referred to under clause 5.1 (Languages and law), the Employer and Engineer are limited in the variations variations they may instruct instruct by the public interest and the scope of the contract, contract, in a manner similar to the English common law: wholly new work, as distinct from additional work, may not be ordered. The distinction between new work and additional work will depend upon the nature of the project and the capacity of the Contractor. Administrative law provides for the compensation of the Contractor for variations imposed, independantly of the terms of the contract. The law of the country may impose limits on the value of variations that may be ordered: for example, Kuwait's Tender Law requires variations of more than 5% to be referred back to the Central Tenders Board for approval. "..any "..any variat variation ion.. ...th .that at may, may, in his opinion opinion,, be necessa necessary. ry..." ..".. A questi question on that that frequently arises in practice is whether the Engineer is obliged to instruct in any given circumstances. There are some 19 clauses in the contract which empower the Engineer to issue instructions of which only this clause and three others arguably impose an obligation to instruct. The other clauses are:-
clau clause se 5.2 5.2 (Pr (Prio iori rity ty of cont contra ract ct docu docume ment nts) s) wher where e the the Engi Engine neer er is obliged to instruct in respect of ambiguities;
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clause 27 (Fossi ssils) where ere the Eng Engineer neer see seems obliged ged to instruct th the Contractor upon the find; and
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clause 48.1 (Taking-O g-Over Cert ertificat cate) whe where the Engineer is either to grant the certificate certificate or instruct instruct the Contractor Contractor as to the work to be completed prior to substantial completion. Page 168 of 264
Apart from the particular situations addressed by the above three clauses, the Engineer's general discretion is fettered, if at all, by the terms of this sub-clause. As commented under clause 2.6 (Engineer to act impartially), it is certainly arguable that the Engineer's discretion under the current sub-clause is governed by 2.6 item (d) "taking action which may affect the rights and obligations" of the parties. However, unless one is to draw a distinction between those variations which are simply additional requirements of the Employer and variations from any other source, one has to conclude that variations were not intended to fall within within clause clause 2.6. (See (See however however the commenta commentary ry under clause clause 2.6 and the argument that all of the Engineer's functions are covered by the impartiality obligation.) If one struggles through the syntax of the opening sentence of this sub-clause there is some support for such a distinction. On the one hand, the Engineer is to make variations that may in his view be necessary; on the other, he may may make make vari variat atio ions ns whic which h for for any any othe otherr reas reason onss are are appr approp opri riat ate. e. Presumably, the Employer's whim, for example, to have yellow rather than white lines on his new stretch of road is intended to fall within this latter category. For discussion on whether the Engineer may issue variation instructions after substantial completion, see the commentary under clause 13.1 (Work to be in accordance with the contract). This matter has sensibly been put beyond doubt in ICE 6th by the simple statement that "such variations ...may be ordered during the Defects Correction Period". A similar clarification is recommended for the current clause. "(a) increa increase se or decrea decrease se the quantity quantity of any work." work." Taken Taken in isolati isolation, on, this phrase includes a simple increase in the quantities over those set out in the bills of quantities. But the Engineer would not normally instruct a change in quantities in a remeasurement contract. See sub-clause 51.2, which makes it clear that no such instruction is required; and the commentary under that sub-clause for the argument as to whether a simple change in quantities amounts to a variation. "(b) omit any such work (but not if the omitted work is to be carried out by the Employ Employer er or anothe anotherr contract contractor) or)." ." A welcom welcome e additi addition on to the 4th Edition Edition is making express what has been established in Australia at least, namely that omissions must be genuine. Otherwise, an Employer could remove part of the works from the Contractor if he found an alternative contractor able to do that part part of the the work work more more chea cheapl ply. y. In the the Aust Austra ralilian an High High Cour Courtt deci decisi sion on of Commissioner for Main Roads v Reid (1974) 12 BLR 55, it was held that the Contractor had a right to do the entirety of the works subject to the entitlement of the Employer to make proper variations. It will undoubtedly be a difficult line to draw: does a financing problem make the omission of works that the Employer can no longer afford proper? Does the fact that the Employer has had the work done after the completion of the contract works necessarily mean that he is in breach? It is submitted that the question will have to be judged by the perceived intention of the Employer at the time the instruction omitting the work was given. Certainly, this clause has not removed the difficulty entirely.
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An alternative view to that expressed by the Australian High Court is to say that the Employer should be entitled to omit what he wishes providing the Contractor is duly compensated. This has the merit of avoiding strained interpretations of clauses which do not have express exceptions such as that in the present clause. In valuing the variation, the Engineer would compensate the Contractor for the loss of overhead and profit recovery by, for example, deducting 90% only of the price of the omitted work. With a remeasurement contract, this is not normally normally possible so that either the 10% must be added or some element of the remaining work must be re-rated. This clause should be read with clause 40.3 (Suspension lasting more than 84 days) whereby the Contractor may, after giving notice, treat a part of the works suspended for 12 weeks as having been omitted. "(e) execute additional work...necessary for the completion of the Works". It could be objected that the Contractor has already agreed to do everything necessary. See, for example, clause 8.1 (Contractor's general responsibilities) or clause 12.1 (Suf (Suffi fici cien ency cy of tend tender er). ). In real realit ity, y, this this obli obliga gati tion on is much much dilu dilute ted d by the the remeasurement mechanism of the contract and clauses such as clause 13 (Work to be in accordance with the contract) and clause 20 (Care of Works). "(f) change any specified sequence or timing": This addition to the 4th Edition is more limited limited than may at first first appear. appear. The word "specified" "specified" means means that this is dealing only with variations to requirements requirements set out in the contract document. It does not, it is submitted, submitted, permit the Engineer to order acceleration. For more on this point, see the commentary under clause 46 (Rate of progress). "No such variation shall...vitiate...". At common law in the U.K. and elsewhere, a variation which changed the whole character of the works, would so alter the fundamental basis of the contract that the courts would not enforce such a varia variatition. on. A cont contra ract ct for a tunn tunnel el may not be vari varied ed to an airpor airport. t. See for examples the cases of Suisse Atlantique v N.V. Rotterdamsche (1967) 1 AC 361 and Chadmax Plastics v Hansen and Yuncken (1985) B&CL 52. The word "such" refers back to (a) to (f) so the Contractor is protected. The requirement that variations should be necessary or appropriate also provides a safeguard. It will of course be borne in mind that the Engineer Engineer has power to vary under the contract and not the contract itself, which can only be varied with the agreement of the Employer and the Contractor. Any change which is outside the power of the Engineer must therefore be negotiated. An apparent omission from the proviso is the situation where a variation is requested or suggested by the Contractor in order to improve the design, reduce costs or save time. 51.2 51.2 The The Engi Engine neer er's 's inst instru ruct ctio ion n need need not not init initia iallllyy be writ writte ten n as clau clause se 2.5 2.5 (Instructions in writing) writing) allows for for oral instructions. instructions. Written confirmation confirmation may be obtained at any time after the instruction has been given and indeed may even be obtainable from an arbitrator. Page 170 of 264
No instruction is required for simple changes in quantities from those stated in the bill of quantities. As this is a remeasurement contract, changes in quantities do not need special treatme treatment. nt. It is arguable arguable that changes changes in quantities quantities due to the inevitable inaccuracy of some items in the bills, sometimes called "automatic" changes in quantities, are variations. The importance of this argument relates to whether a Contractor is entitled to attempt to escape from the rates contained in the contract and claim additional payment under clause 52.2 (Power of Engineer to fix rates) where the actual quantities found on site have exceeded those set out in the Bill of Quantities. It will be recalled that, under clause 55.1 (Quantities), the quantities in the Bill "are not to be taken as the actual and correct quantities". The actual quantities are to be measured under clause 56.1 (Works to be measured) which also states that the value of the Works will be arrived at in that fashion. The Contractor is therefore paid under clause 60.2 (Monthly payments) for the actual quantities executed. Under clause 52.1 (Valuation of variations), variations are to be valued at the rates in the Bill if "applicable". Under 52.2 (Power of Engineer to fix rates), if the Contractor can show that "the nature or amount of any varied work" makes the Bill rate "inappropriate or inapplicable", he is entitled to a new rate. The first hurdle for the Contractor is therefore to show that the change in quantities amounts to "varied work". An Employer would argue that the purpose of clause 52.3 (Variations exceeding 15%) and the express reference to adjustments of the estimated quantities contained there is to compensate the Contractor, if appropriate, in the event of a serious difference between the estimated and actual quantities. This purpose, it would be said, would be defeated if the Contractor was entitled to claim a new rate whenever the actual and estimated quantities differed. The Employer would interpret interpret the present sub-clause sub-clause as the draftsman's draftsman's indication indication that changes and quantities are not variations as instructions are not required in relation to such changes. It is submitted that the Employer's arguments are ill-founded. An increase or decrease in the quantities of work is included at sub-clause 51.1(a) as being the subject matter of a variation. The inclusion of "automatic" changes in quantities in the current sub-clause and in clause 52.3, both of which are concerned with variations indicates the draftsman's thinking. (When referring to the draftman's thinki thinking, ng, it cannot cannot go unrema unremarke rked d that that the drafts draftsman man of the curren currentt editio edition n appears to have done very little in this respect. This particular problem has been not notori orious ous sinc since e at least east the the seco second nd edit editio ion n of this his form orm and and it is quit quite e extraordinary that the opportunity has not been taken to resolve this matter once and for all and thus bring to an end the inevitable disputes that are generated by this uncertainty.)
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For cases which address this issue and which come to different conclusions, see Arcos Industries v Electricity Commission of New South Wales (1973) 2 NSWLR 186 12 BLR 65, where the New South Wales Court of Appeal decided that a shortfall in quantities in a Schedule of Rates Quantities with estimated quantities and what was described as a "total price" did not amount to a variation; the Privy Council in Mitsui v Attorney-General of Hong Kong (1986) 33 BLR 1, which decided that quantities in excess of those anticipated were variations; and J. Crosby & Sons v Portland UDC (1967) 5 BLR 121 in which an English High Court judge decided that an increase in quantities under ICE 4th Edition amounted to a variation. A further relevance of the issue as to whether automatic changes in quantities amount to variations may be in relation to extensions of time. Under clause 44.1 (Extension of time for completion), "the amount or nature of extra or additional work" is the first ground for extension. It may be arguable on the Employer's side that that alth althou ough gh no expr express ess ment mentio ion n of vari variat atio ion n is made made in clause clause 44.1 44.1,, the the correlation between the wording of clause 44.1(a) and clause 51.1(a) and (e) is sufficient to make it plain that it is only variations for which extensions of time should be granted. It has been been subm submititte ted d that that auto automa matiticc chang changes es in quant quantitities ies fall fall with within in the the definition of varied work. If that is not correct, the question is whether an automatic change in quantities could nevertheless entitle the Contractor to an extension of time in appropriate circumstances. The term "additional" is to be found in clause 51.1 (e) but the term "extra" is used only in clause 52.2 (Power of Engi Engine neer er to fix fix rate rates) s) in rela relati tion on to extr extra a paym paymen ent. t. To what what then then does does "extra...work" refer? Extra to what? The answer may be extra to that work which the the Contr Contract actor or cont contra ract cted ed to perf perfor orm. m. If the the Cont Contra ract ctor or agree agreed d to perf perfor orm m whatever quantities are necessary to complete the works, (hence the lack of any need for an instruction instruction under the the current sub-clause sub-clause), ), that would would rule out any extension of time. If the answer is extra to the quantities of work which the Contractor Contractor was obliged to price for in the Bills of Quantities, Quantities, then an increase increase in quantities could give rise to an extension of time. It is submitted that justice would be done if an extension of time could only be granted granted in relation to provisional provisional quantities. quantities. For example, example, if the parties were not sure of the amount of rock that would be found in excavations, and a provisional quantit quantityy was includ included ed for excavat excavating ing rock, rock, the Contra Contracto ctor, r, in deciding deciding what allowance to make in his programme for excavation of rock, would not be unreasonable in alighting on the provisional quantity given. Thus, when the quantity increased, it would be just to grant an extension of time. In normal circumstances were the works have not changed in any way from what was anticipated but the quantities simply happen to be different, it is difficult to see that an extension of time can be justified. The answer, it is submitted, therefore lies in an interpretation which includes automatic changes of quantities within clause 44.1, regardless of whether it is varied work within clauses 51 and 52. The Engineer has ample discretion within clause 44.1 to grant or refuse extensions of time as justice demands. For a discussion of the allowance the Contractor is to Page 172 of 264
make in his programme for works which are the subject of provisional sums, see under clause 58.1 (Definition of "Provisional Sum"). Just as the adjustment that might be made under clause 52.3 might be adverse to the Contractor Contractor where the increase in the work has meant an over-recovery over-recovery in relation to his plant and overhead costs, so the Engineer under clause 52.2 could decide that the rate in the bills should be adjusted downwards owing to the increase in quantity. In their Guide, FIDIC suggest that the parties include in Part II a variations procedure which would cover authorisation by the Employer and agreement of cost by the Engineer and the Contractor, in advance of the final decision to issue the variation and prior to the execution of the works, where circumstances permit. CLAUSE 52 : Value of Variations
The value of variations variations is ascertained ascertained by this this clause. The starting starting point is that the rates and prices set out in the contract should be used as far as possible, failing which suitable alternative rates are either agreed or fixed by the Engineer. While the discussions proceed, the Engineer is required to make on account payments to the contract for the varied works. If it would be unfair to continue to use the rates contained in the contract for a given variation because of its nature or amount, a new rate is agreed or fixed by the the Engi Engine neer er.. Again Again,, he is to make on accou account nt paymen payments ts.. Howev However er,, the the Contractor must give notice within 14 days of the instruction and before he starts the work if he intends to claim claim extra payment payment for the variation. variation. Simi Similarly, larly, the the Engineer must give notice in the case of an omission. If at the end of the project, it is found that the variations amount to more than 15% of the contract price (as adjusted), an addition or omission to the contract sum may be agreed or determined by the Engineer in respect of the Contractor's overheads. The Engineer is empowered empowered to issue instructions instructions that variations be executed executed on daywork, daywork, at the rates and prices set out in the contract. contract. Detailed Detailed provision provision is made for the proving of the amount of labour and materials involved. This clause has been extensively extensively altered altered and re-arranged. re-arranged. In particular, particular, clause clause 52(5) of the 3rd Edition has become clause 53 (Procedure (Procedure for claims). Whilst the changes to sub-clause 52.4 are mainly matters of vocabulary, the first three subclauses are more fundamentally altered. 52.1 52.1 If the the rate ratess are are "appli "applicabl cable", e", they they shou should ld be be used. used. If not, not, they they should should be be used as far as "reasonable" "reasonable" to agree agree a "suitable" rate. rate. Failing Failing agreement, agreement, the Engineer fixes an "appropriate" "appropriate" rate. It is not not clear what "applicable" means nor Page 173 of 264
what what "sui "suita tabl ble" e" and "appr "appropr opria iate te"" mean mean or whet whethe herr ther there e is any diff differ eren ence ce between them. them. In the 4th Edition, "appropri "appropriate" ate" has replaced replaced "reasonable "reasonable and proper" proper" which appeared appeared in the 3rd Edition. Edition. In ICE 5th and 6th, the test test is not applicability but whether the work is of a similar character and executed under similar conditions. The term "applicable" suggests a purely mechanical judgment as to whethe whetherr the rate in the bill is capable capable of being being applied. applied. It suggest suggestss no judgment as to to fairness. "Suitable" and "appropriate" "appropriate" are presumably presumably synonyms and import import a judgme judgment nt as to what what is reason reasonabl able. e. This This clause must must be read read along alongsi side de subsub-cl claus ause e 52.2 52.2 whic which h deals deals with with occas occasio ions ns when when the the natur nature e or amount of the varied work renders the rates "inappropriate or inapplicable". "... additions to the Contract Price required to be determined in accordance with clause 52". Clauses with such reference to clause clause 52 are as follows: clause 17 (Setting out), clause 20.3 (Loss or damage due to Employers Risks), clause 31.2 (Facilities for other Contractors), clause 49.3 (Cost of remedying defects) and clause 65.3 (Damage to works by special risks). Other references to clause 52 are to be found in clause 51.1 (Variations), clause 58.2 (Provisional sums) and clause 59.4 (Payment to nominated Subcontractors). Where the Engineer fixes a rate, there can be little doubt that that the rate may be challenged by either party. Although fixing is not referred to in clause 67 (Disputes), it is clearly a decision of the Engineer and thus not intended to be final. An Official Referee so held in Mears Construction v Samuel Williams (1977) 16 BLR 49. A more difficult question arises in relation to a rate or price "agreed upon between the Engineer and the Contractor". Is such an agreement open to challenge by either the Employer or the Contractor? If the Engineer is acting as the agent of the Employer for the purposes of such agreement, then such agreement would be binding as there can presumably be no dispute over a matter that has been agreed between the parties. One would feel more confident about coming to that conclusion if it were not for the requirement for prior consultation by the Engineer with both parties. Such consultation is associated throughout the contract with those functions of the Engineer which he performs in his capacity as an independent certifier. The Engineer has six functions under this clause:(i) (i) (ii) (ii) (iii) (iii) (iv) (iv) (v) (v) (vi) (vi)
the the valu valuat atio ion n of vari variat atio ions ns at at the the rat rates es and and pri prices ces set out out in the the cont contra ract ct;; valu valuat atio ion n base based d upo upon n the the rate ratess and and pric prices es;; formin forming g an an opin opinion ion as to the applic applicabi abilit lityy of rates rates and prices; prices; agre agreem emen entt of of sui suita tabl ble e rat rates es and and pri price ces; s; fixi fixing ng of appr approp opri riat ate e rat rates es and and pri price ces; s; and and the the det deter ermi mina natition on of the the pro provi visi sion onal al valu valuat atio ion. n.
Of the above functions, there can be little doubt that (i), (ii), (iii), (v) and (vi) are performed as independent certifier and there is no reason in principle why the Engi Engine neer er as cert certif ifie ierr coul could d not not be atte attemp mpti ting ng to agre agree e a matt matter er with with the the Contractor. It is submitted, on balance, that the Employer is entitled to seek a decision and arbitration in order to reopen such a decision. In any event, the matter is debatable and a Contractor would be well advised to ensure that any Page 174 of 264
agreements made with the Engineer under this clause or elsewhere in the contract have the approval of the Employer or are subsequently ratified by him. 52.2 52.2 It is not not clear clear whether whether,, as in ICE ICE 5th and and 6th, the the condit conditions ions under under whic which h the the vari varied ed work work is execu execute ted d is rele releva vant nt to an altera alteratition on of the rate rates. s. "The "The nature...of any varied work" leaves the matter arguable. It is submitted that the better view is that all the circumstances of the variation and, indeed, other work directly or indirectly affected are relevant for consideration under this sub-clause. This sub-clause appears to address not only the rate applicable to the varied work work but the altera alteratio tion n of an existing existing rate rate or price. price. It talks talks of a "rate or price contained in the Contract" which is "by reason of such varied work, rendered inappr inappropr opriat iate e or inapplicab inapplicable" le".. Thus, Thus, if the variat variation ion comprise comprised, d, say a 50% increase in quantities in an item, this clause addresses the question whether the rate for that item should be adjusted, and not just the rate for the additional work. Compare sub-clause 52.3 where the whole of the value of the contract has been incr increa ease sed d or decr decrea ease sed d by more more than than 15%. 15%. The The ques questi tion on rais raised ed by the the comparison is quite how the two clauses interrelate. If this sub-clause allows rates to be departed from, with adjustments limited only by what is appropriate, what is the purpose purpose of sub-clause sub-clause 52.3? 52.3? The answer is that that there there may be an accumulation of variations and changes in quantities, none of which qualify under sub-clause 52.2 for re-rating. In that case, sub-clause 52.3 applies. Where the 15% includes variations that have been re-rated, the exception in sub-clause 52.3 operates: "(subject to any action already taken under any other Sub-Clause of this Clause)". Dayworks under sub-clause 52.4 are ruled out by item (b). The works may be varied by the omission of work. In a remeasurement contract, the effect is that the work is not done and therefore is not measured or paid for. Yet, this sub-clause indicates that the omission may not be valued unless notice is given by the Engineer Engineer or by.the by.the Contrac Contractor tor.. As this this cannot mean mean that the Contractor Contractor is to be paid for work not perform performed ed in the absence of notice, notice, it is presumably envisaged that the Contractor may wish to claim in respect of the overhead and profit elements of the price p rice for the omitted work. It is submitted that this is the correct interpretation and one that produces a fair result. The Engineer's functions under this sub-clause are as follows:(i) forming an opinion whether rates or prices are "inappropriate or inapplicable"; (ii) (ii) the the agr agree eeme ment nt of suit suitab able le rate ratess or or pric prices es;; (iii (iii)) the the fixi fixing ng of of appr approp opri riat ate e rate ratess and and pric prices es;; (iv) (iv) the the det deter ermi mina natition on of provi provisi siona onall val valua uatitions ons;; (v) (v) givi giving ng notic notice e of his his int intent entio ion n to to var varyy the the rate rate or pric price. e. For a discussion of the capacity in which the Engineer reaches agreement with the Contractor, and the Employer's ability to reopen such agreements, see under sub-clause 52.1 above.
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The proviso to sub-clause 52.2 imposes the tightest notice requirements of the entire contract. Notice has to be given within 14 days of the instruction or earlier if the work is to commence earlier. This can often mean that notice must be given immediately. Whilst this can cut both ways because the Employer's right to adjust a rate for an omission is also subject to this proviso, it seems unnecessarily severe. No doubt the objective is partly to warn the Engineer of the pending claim to enable him to reconsider the necessity necessity for the variations. variations. However, he will be assisted little by the notice which merely has to indicate an intention to make a claim. This proviso relates to "work instructed to be done by the Engineer pursuant to Clause 51" and therefore does not cover those clauses, such as clause 17.1 (Setting-out) and clause 49.3 (Cost of remedying defects), which requ requir ire e the the Engi Engine neer er to ascer ascerta tain in an extra extra paym payment ent to the the Cont Contra ract ctor or in accordance with this clause, it is submitted. Those clauses are governed by clause 53.1 (Notice of claims). This is because of the careful distinction drawn in the first sentence of sub-clause 52.1 between variations and "additions to the Contract Price which are to be determined in accordance with Clause 52". All of the the clau clause sess with with such such refe refere renc nces es to clau clause se 52 requ requir ire e extr extra a work work or the the expenditure of provisional sums and so could be considered variations. However, the the curr curren entt subsub-cl clau ause se refe refers rs to "vari "varied ed work work inst instru ruct cted ed to be done done by the the Engineer Engineer pursuant to Clause Clause 51": in each of the clauses with such references references to this clause, there is either a request, a requirement or an instruction causing the work to be done or the costs incurred. In no case is an instruction under clause 51 called for. "... before the commencement of the varied work...". The meaning of this phrase is difficult to ascertain. If the object is to give the Employer an opportunity to chang change e his his mind mind when when he disc discov over erss that that the the Cont Contra ract ctor or inte intends nds to clai claim m increased rates, it must mean before the Contractor has committed himself to expenditure. Otherwise, it could simply be an arbitrary, and somewhat pointless deadline additional to the 14-day limit. The severity of the notice requirement of this clause is not relieved by clause 53.4 (Failure to comply) because that deals only with a failure to give notice under clause 53. The only, probably vain, argument to the contrary, based on the opening words of clause 53.1 (Notice of claims), "notwithstanding any other provision of the Contract...", is discussed under clause 53.1. It is open to argument whether, in the event of an oral instruction, time runs from the oral instruction or the written confirmation. For more on this, see clause 2.5 (Instructions in writing). It is not clear how the current clause interrelates with clause clause 53 (Pro (Proce cedu dure re for for clai claims ms)) whic which h impos imposes es a 28-d 28-day ay notic notice e peri period od "notwithstanding any other provisions of the contract ...". It is doubtful that the proviso can be circumvented by reference to clause 53. This provision is considerably harsher than the 3rd Edition version which required notice "as soon after the date of the order as is practicable" practicable" and it would appear that failure to give such notice would be fatal to a claim. This seems somewhat draconian, particularly compared with the notice provisions of clauses such as Page 176 of 264
clause 44 (Extension of time for Completion) when an event which is possibly unknown to the Engineer has only to be notified within 28 days. Here, of course, the Engineer is fully aware of the variation having instructed it. One One poss possib ible le diff diffic icul ulty ty is wher where e a Cont Contra ract ctor or has, has, with within in 14 days days of the the instruction, formed no "intention to claim extra payment". It may only be later that it becomes apparent to anybody that the varied work is such as to make the rates inappropriate. In these circumstances, it is highly debatable whether notice is required required or not. An arbitrator arbitrator seeking to avoid the injustice injustice that will undoubtedly undoubtedly be worked by the strict application of the provison may well resort to this route. As the contract contains no express loss and expense clause to compensate the Contractor Contractor for the cost of prolongatio prolongation n caused by the ordering of variations, variations, this sub-clause is normally relied upon. It is said that the fact that the extra work has caused delay to the completion of the works and additional costs renders the rates inappropriate. This argument seems rightly to be accepted by arbitrators so it is perhaps surprising that the conditions continue to leave the matter to be dealt with in so oblique a fashion. 52.3 It is not entirely entirely clear whether whether the figure figure to be be compared compared with with the "Effec "Effective tive Contract Price" is the net result of the additions and deductions or whether "taken together" means the total of the additions plus the total of the deductions. This issue will often be important. As it would have been simple to make it clear that the net result was intended, it is submitted that the two figures should be added, even if this means an adjustment in circumstances where the additions and omissions in fact cancel each other out. Whil Whilst st it is some someti tim mes assu assume med d that that this this clau clause se is for for the the bene benefi fitt of the the Contractor, it can also be the case that the increase in the work has resulted in an over-recovery of overheads which the Engineer is able to nullify. The return to 15%, last seen in the 2nd Edition, from the 10% used in the 3rd Edition is also to the benefit of the Employer. The extent of the benefit depends on the right of the Contractor to demand the same adjustment in respect of all varied work under sub-clause 52.2 by showing the rate to be "inappropriate or inapplicable". Exactly what adjustment the Engineer can make is not spelt out: it is a sum to be "determined ... having regard to the Contractor's site and general overhead costs" but "such sum shall be based only on the amount by which the additions or deduc deductition onss shal shalll be in exces excesss of 15% 15% of the the Effe Effect ctiv ive e Cont Contra ract ct Pric Price. e."" Presumably, this means that where, for example, the Contractor put in his price a lump sum for overheads and the contract price increased by 20%, the Contractor may only be allowed an increase in his overheads of 5% (being (being the excess over 15%) rather than the full 20%. It is considerably more difficult to see how the clause works where a Contractor has put some or all of his overheads into the rates. Despite the details to be provided under clause 57.2 (Breakdown of lump sum items), it will frequently be very difficult to establish with any certainty how a Contractor's prices are made up in the absence of his co-operation.
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For a note on the relationship between this sub-clause and re-rating in respect of variations, see the commentary under sub-clause 52.2. For discussion on the possibility possibility of re-rating re-rating where quantities vary from those in the bills of quantities, quantities, see under clause 51.2(Instructions for variations). 52.4 52.4 Cont Contra ract ctor orss are are gene genera rallllyy plea please sed d to be able able to exec execut ute e work workss on a dayworks basis. This is because of the high level of profit which it is normal to include in the daywork schedule of rates and prices. The Engineer can require "any varied work" to be done on dayworks. Normally, this means occasions where there are no rates and where the amount of work is small. If the varied work was substantial, the Engineer would normally fix a rate. As daywor dayworks ks also also provid provide e unscrup unscrupulo ulous us Contra Contracto ctors rs with with the tempta temptatio tion n to exaggerate their claims, heavy emphasis is wisely put on the proof of the amount of labour and materials used. Nevertheless, it is remarkable that impracticality is an excuse for failing to provide lists and statements in relation to dayworks when the condition precedent of prompt notice under sub-clause 52.2 admits of no exception. Part II offers additional wording for contracts providing for payment in foreign currenc currency. y. There There is also additio additional nal wording wording for sub-clause sub-clause 52.2 which which would would greatly limit the circumstances under which the Engineer would be empowered to depart from from contract rates: rates: the suggested suggested provision provision is that the item would have to amount to more than 2% of the contract price and the actual quantity of work executed would have to vary by more than 25%. CLAUSE 53 : Notice for Claim
A Contractor intending to make a claim for additional payment must give notice that he will do so within 28 days of the event. Thereafter he must keep records including any records required by the Engineer, who will be entitled to inspect such records. Within 28 or an agreed number of days of the Contractor's notice, he should send a detailed claim to the Engineer. If the claim has a continuing effect, he should send regular interim claims followed by a final claim once the effects cease. If the the Cont Contra ract ctor or fail failss to give give noti notice ce,, keep keep reco record rdss or provi provide de deta detailils, s, his his entitlement will be limited by what can be proved from the records that do exist. The Engineer is obliged to include an Interim Certificate in respect of such claims or parts of claims for which the Contractor has supplied sufficient particulars. This clause is an expansion of clause 52 (5) of the the 3rd Edition. It is an attempt to to regulate regulate the claims procedure. procedure. Only time will will tell whether an improvement improvement has been achieved in practice. ICE 6th has adopted a very similar procedure. Page 178 of 264
53.1 "Notwithsta "Notwithstanding nding any other other provisio provision n of the the Contract Contract..." ...".. It is is difficult difficult to see how this clause will relate to clauses with their own internal notice procedures: clause clause 12.2 12.2 (Adver (Adverse se physical physical obstr obstruct uctions ions and condit condition ions) s) requir requires es notice notice "for "forth thwi with th"; "; clau clause se 27.1 27.1 (Foss (Fossilils) s) requi require ress the the Engin Engineer eer to be acqua acquain inte ted d "immediatel "immediately"; y"; and clause 52.2 (Variations (Variations)) requires notice notice within 14 days. It is submitted submitted that where the notice given makes express express the Contractor's Contractor's intention to claim and has been copied to the Employer, then that is sufficient notice and is given "within "within 28 days". No further further notice is necessary. necessary. If notice notice is not given, for example within the 14 days required under clause 52.2, it may be arguable that this clause overrides, allowing the Contractor to give notice within 28 days or to benefit under sub-clause 53.4. It seems unlikely that such an argument will succee succeed d as this this claus clause e does does not not crea create te right rightss to paym payment ent but but impos imposes es a machinery to deal with the rights created by other clauses. If such other clause prevents the right arising in certain circumstances, this clause could not, it is submitted, intervene. Accordingly, the "notwithstanding" appears to be addressed to clauses such as those quoted above which seem to grant rights to the Contractor Contractor unequivocally: unequivocally: notice must apparently apparently be given regardless, regardless, although although the penalty for failure to do so is much reduced by sub-clause 53.4. As the words "claim" and "additional payment" are not defined terms, the precise application application of the clause is uncertain. uncertain. Is it necessary for a Contractor Contractor to "claim" in circumstances where the entitlement is beyond dispute or triggered by, for example, the Engineer's opinion? "Addi "Additition onal al payme payment nt purs pursuan uantt to any any clau clause se": ": additional payment may be sought are as follows:- clause 4.2 - clause 6 - clause 9.1 - clause 12.2 - clause 17.1 - clause clause 20.3 - clause 22.3 - clause 27.1 - clause 30.3 - clause 31.2 - clause 36.5 - clause 38.2 - clause 40.2 - clause 42.2 - clause 49.3 - clause 50.1 - clause 52 - clause 58 - clause 65
clau clause sess pursu pursuant ant to whic which h
Assignment of subcontractors' obligations Drawings Contract Agreement Physical obstructions Errors in setting out Loss or damage due to Employer's risks risks Indemnity Fossils Transport damage indemnity Other contractors Tests Uncovering Suspension Late possession of the site Remedying defects not the responsibility of the Contractor Contractor Searching for defects Valuation of variations Provisional sums Special risks Page 179 of 264
- clause 69.4 Termination by Contractor - clause 70 Fluctuations and legislation Most Most of the the above above claus clauses es stat state e that that the the Engi Engine neer er "sha "shallll dete determ rmin ine" e" the the Contractor' Contractor'ss entitlement entitlement.. Under clause 40.2 (Engineer's (Engineer's determinat determination ion following following suspension), suspension), "the Engineer Engineer shall...det shall...determine ermine...t ...the he amount". amount". Simil Similarly, arly, under clause 49.3 (Cost of remedying defects) and clause 50.1 (Contractor to search), if the work has been caused by defects which, in the Engineer's opinion, are not the Contractor's responsibility, the Engineer "shall" determine the extra payment. In these instances, the only question is the quantum of the Contractor's costs. "... or otherwise.. otherwise...": .": this appears appears to be a reference to breach breach of contract. contract. This inclusion of breach of contract within the workings of the contract is reflected in clause 67 (Settlement of Disputes) where it is made clear that even disputes as to breach of contract must be referred to the Engineer for his decision prior to any arbitration. There is no similar provision in clause 52(5) of the 3rd Edition nor in clause 52(4) of ICE 5th or 6th. It is generally accepted that that without words such as those to be found in clauses 53 and 67 of the 4th Edition, the Engineer would have no jurisdiction jurisdiction in relation to breaches breaches of contract. contract. Any claims deriving from contract documents other than "these Conditions" or generated by local laws would also be covered by the phrase. "...if the Contractor intends to claim...": the force of this clause is mitigated by this phrase. If the Contractor Contractor can demonstrat demonstrate e that at the relevant time time he did not intend to claim, perhaps because he was unaware of the potential for such a claim, then then the notice requirement requirement is inapplicable inapplicable.. However, However, it should be noted that the 28-day period does not run from the date on which the intention was formed, nor from the date on which the effect first manifested itself, but the date on which the event giving rise to the claim occurred. An additional requirement is placed on a Contractor pursuing a claim by clause 60.9 (Cessation of Employer's Employer's liability). Under this clause, the Employer's liability liability for such claims ceases unless the Contractor Contractor has included the claim in his Final Statement and, if the claim arose prior to substantial completion, in his Statement at Completion. Under clause 60.1 (Monthly statements), the Contractor is to include in his statement "any other sums to which the Contractor may be entitled under the Contract". The form of that statement is to be prescribed by the Engineer who will inevitably require that the grounds for the claim be identified. A Contractor may well wish to point to his monthly statement by way of a notice under this subclause. A difficulty in the Contractor's way is that clause 60.1 does not require the monthly monthly statement to be copied to the Employer Employer whereas the Employer must be sent sent a copy copy under under the the curre current nt subsub-cl clau ause. se. Apart Apart from from this this obje object ctio ion, n, it is submitted that the monthly statement could well suffice. Under the 3rd Edition, regular monthly reports were called for, a system which has certain apparent advantages advantages over the present clause. clause. In ICE 6th, notices notices are called for "as soon as may be reasonable and in any event within 28 days". Page 180 of 264
53.2 53.2 The The obligat obligatio ion n impos imposed ed upon upon the Enginee Engineerr to study study the the reco record rdss may be found in practice practice to be inconvenient inconvenient to the Contractor Contractor and Engineer Engineer alike. This clause may be honoured more in the breach. See comments under 53.5 below. 53.3 53.3 This This clause clause bears simila similarit rities ies with with clause clause 44.3 (Interi (Interim m determin determinati ation on of extension extension of time) where delays having a continuing continuing effect cause the Contractor Contractor to give regular interim interim notices notices which are intended intended to result in interim extensions of time being being grante granted. d. Here, Here, the regular regular notices notices are to be given given and there is provision, albeit ambiguous, for interim payment under sub-clause 53.5. The requirement to submit "a final account within 28 days of the end of the effect resulting from the event", will will often prove difficult to to enforce in practice. It is very often highly debatable when when the effects of any given event come to an end. For exam exampl ple, e, the the effe effect ctss of a crit critic ical al dela delayy will will,, on one one view view,, end end only only upon upon substantial completion as every critical activity subsequent to the delay will have been postponed. 53.4 53.4 In contras contrastt to clauses clauses 44.2 (Cont (Contrac ractor tor to provid provide e notificat notification ion and detail detailed ed particulars) and 52.2 (Power of Engineer to fix rates), there is no attempt here to create a condition precedent to entitlement. entitlement. The incentive offered offered for compliance is that the Contractor's entitlement would be limited to such amounts as he is able to prove from from such contemporary records as he maintained. maintained. The severity of this this clau clause se woul would d depe depend nd very very much much on the the Engi Engine neer er's 's or arbi arbitr trat ator or's 's interpretation of the the clause. Arbitrators reading the the clause at its its narrowest would permit no oral evidence and would require the claim to be "verified", i.e. proved by contemporary records. This requirement may may lead to a far higher standard standard of proof than the traditional traditional balance of probabilities. Similarly, they could could decline to make make assum assumpt ptio ions ns in orde orderr to brid bridge ge gaps gaps in documen documenta tatition. on. More More lilike kely ly however, arbitrators will take the same view as they would if this clause did not exist, namely that the Contractor will only recover those sums to which he can prove his entitlement. 53.5 53.5 The The Engi Engine neer er is obli obliged ged to cert certififyy in inter interim im certi certifificat cates es those those claim claimss in respect of which which he has sufficient sufficient particulars. particulars. If clause 53.2 has been followed followed and the Engineer has indicated what records he requires to be kept, it will be diffic difficult ult for him to plead plead an insuff insuffici iciency ency of particul particulars ars.. The Engineer Engineer is not entitled to hold out for the claim to be fully particularised before making any payment but must make such payment as the particulars particulars justify. In the common common situation where liability is agreed but the amount of costs is disputed, this clause will be invoked in support of an interim payment. Whilst this may have been the intention, the Employer could argue that payment should only be made where the Engineer is fully satisfied as to a particular part of the claim. If it is clear that the claim is worth, for example, between $20,000 and $30,000 but agreement had not been achieved on any distinct part of the $20,000, the Employer could resist payment. This seems unfortunate and the clause could usefully be clarified. This provision should be compared with the provision for on-account payments in clause 52.1 (Valuation of variations) and Page 181 of 264
clause 52.2 (Power of Engineer to fix rates). Under those clauses, it is made clear that payment is to be made in the absence of agreement or the fixing by the Engineer of a rate or price. This comparison assists the Employer to argue that the draftsman did not intend such on-account payments to be made under the current sub-clause. CLAUSE 54 : Contractor’s Equipment
All equipment, temporary works and materials that the Contractor brings onto site are to be for the exclusive use of the works and may only be removed with the consent of the Engineer. The Employer will not generally be liable for loss or damage to the equipment, temporary works or materials. The Em Empl ploy oyer er will will use his his best best endeav endeavour ourss to help help the the Cont Contra ract ctor or obtai obtain n clearance of his equipment etc. through customs and, where equipment has been imported for the works, to help the Contractor obtain permission to reexport the equipment etc. when finished with. All equipment hire agreements agreements must permit the Employer Employer to take over the hiring hiring of the equipment in the event of a termination under clause 63 (Default of Contractor). All costs incurred by an Employer in taking over and hiring equipment will be recoverable from sums otherwise due to the Contractor under clause 63. All sub-contracts sub-contracts are to include include an equivalent clause permitting permitting the Employer to take over the equipment and materials of subcontractors. Nothing in this clause amounts to approval by the Engineer of the materials, equipment etc. Clause 54 has been substantially altered. Sub-clauses 54.5. 54.6 and 54.7 are new to the 4th Edition although clauses of this sort were suggested in Part II of the 3rd Edition. 54.1 54.1 The The objec objectt of this this subsub-cl clau ause se is to ensur ensure e that that equipm equipmen ent, t, mater material ialss etc etc intended for use on the Site are not diverted to other projects on which the Contractor Contractor may be working. working. The Engineer's Engineer's consent consent is subject to clause clause 1.5 (Notices, consents etc.) and must not "unreasonably be withheld or delayed". Moreover, under clause 2.6 (Engineer to act impartially), he must exercise his discretion in relation relation to granting such consent impartially. Thus, if a suspension under under clause clause 40.1 40.1 (Suspe (Suspensi nsion) on),, for example, example, is likely likely to be prolon prolonged, ged, an Engineer might well be acting unreasonably if he withheld his consent to the Contractor using his equipment on a nearby project. Page 182 of 264
The Engineer, it is submitted, may not withhold his consent once the execution of the works, subject to any necessary remedial works in the defects liability period, has been substant substantial ially ly complete completed. d. This This conclusi conclusion on derives derives both from the deemed intention in this sub-clause as well as the impartiality obligation under clause 2.6 (Engineer (Engineer to act impartia impartially). lly). This view is reinforced reinforced by the terms of clause 33.1 (Clearance of site on completion) which imposes an obligation upon the Contractor to remove from parts of the site taken over all Contractor's Equipment which is not required for remedying defects. See also clause 69.2 (Removal of Contractor's Equipment) which requires the Contractor to remove all his equi equipm pmen entt from from site site with with reas reasona onabl ble e desp despat atch ch afte afterr term termin inat atio ion n of his his employment under the contract due to a default by the Employer. The proviso in relation to transport vehicles is new to the 4th Edition, although suggested in Part II to the 3rd Edition. 54.2 54.2:: Clau Clause se 20 (Car (Care e of Work Works) s) make makess the the Em Empl ploy oyer er liliab able le for for dama damage ge resulting from causes listed in clause 20.4 (Employer's risks) which range from war and hostilities through damage due to use or occupation by the Employer to any operation of the forces of nature. nature. Clause 65 (Special risks) risks) again makes the Contractor liable in respect of five of the Employer's Risks set out in clause 20.4. In the event of termination by the Employer pursuant to clause 63.1 (Default of Contractor), the Employer or his replacement contractor is entitled to use the Contractor' Contractor'ss equipment, equipment, temporary works and materials. materials. As drafted, drafted, this clause protects the Employer from loss or damage to such equipment etc even if the loss loss and and dama damage ge is caus caused ed by the the Em Empl ploye oyerr or the the Em Empl ploy oyer er's 's alte altern rnat ativ ive e contr contract actor or.. If this this clause clause is left left uname unamend nded ed,, the the matt matter er must must be take taken n into into accou account nt by the the Cont Contra ract ctor or in arra arrang ngin ing g his his insur insuranc ance e under under clau clause se 21.1 21.1 (Insurance of Works and Contractor's Equipment). 54.3/ 54.3/54. 54.4: 4: The The duty duty impose imposed d by an obli obliga gatition on to use use "bes "bestt endeav endeavou ours rs"" has been the subject of a good deal of judicial consideration. In summary, the phrase has been held to impose a heavy burden, namely to leave no stone unturned. However, modern decisions have taken a less rigid approach and ask, as did the Australian court in Transfield v Arlo International (1980) 30 ALR 201, "what is reaso reasonab nable le in the the circ circum umst stan ance ces, s, havi having ng rega regard rd to the the natur nature, e, capaci capacity ty,, qualifications and responsibilities of the [Employer] viewed in the light of the particular contract". The reference to best endeavours is new to the 4th Edition and might well be said to impose a greater obligation than that contained in the 3rd Edition which was "to assist". It seems unlikely that it was the intention of the draftsman to add to the Employer's obligations in this regard. The Employer is only obliged to assist with re-export re-export in the case of Contractor's Contractor's Equipment. Surplus materials, temporary works, rejected plant etc. would need to be the subject of special arrangement arrangements. s. Clause 32.1 32.1 (Contractor (Contractor to keep the site site clear clear)) and and claus clause e 33.1 33.1 (Cle (Clear aranc ance e of site site on compl complet etio ion) n) requ requir ire e the the Contractor to remove such materials from site and should be read in conjunction with this clause. Page 183 of 264
54.5. By no means means all hirers hirers of of equipment equipment would would be willing willing to proceed proceed on terms terms whereby the Employer undertakes only to pay hire charges from the date of termination onwards although such terms are included in the standard terms of the English English Construc Constructio tion n Plant Plant Hire Associat Association. ion. As the Employer Employer has no obligation under clause 63.3 (Payment after termination) to pay the Contractor any further sum until the end of the Defects Liability Period, the Contractor may not have money to pay the hirer, leaving the hirer exposed. The Employer might be better served by a term whereby he agrees to pay all hire charges outstanding and thereafter deducts such charges from sums otherwise due to the Contractor. This This clause clause should should be read read with with clause clause 4.2 (Assig (Assignme nment nt of subcont subcontrac ractor tors' s' obligations) and clause 63.4 (Assignment of benefit of agreement). The latter clau clause se also also seek seekss to prot protec ectt the the Em Empl ploy oyer er's 's posi positi tion on in the the even eventt of the the termination of the Contractor's employment. 54.6. 54.6. Under Under clause clause 63.3 63.3 (Paymen (Paymentt after after terminat termination ion), ), the Employe Employer, r, after after the expiry of the Defects Defects Liability Liability Period, pays to the Contractor Contractor the total sum which the Engineer determines would have been payable had the Contractor completed less the total cost to the Employer of completing the works, remedying defects and any other damages or expenses incurred. 54. 54.7 This This subsub-cl clau ause se sho should uld be read ead with ith cla clause use 4 (Subco ubcont ntra ract ctin ing) g) in particu particular lar sub-cl sub-clause ause 4.2 (Assig (Assignme nment nt of subcont subcontrac ractor tor's 's obliga obligatio tions) ns) which which requires the Contractor to assign guarantees and other continuing obligations to the Employer. This may mean that a term has to be included into the subcont contra ract ct to that that effe effect ct.. See See also also clau clause se 63.4 63.4 (Ass (Assig ignm nmen entt of bene benefi fitt of agreement). agreement). Terms for inclusion in sub-contract sub-contractss are also set out in clause 59.2 (Nominated Subcontractors; objection to nomination). In the current sub-clause, the incorporation of terms is particularly important for the preservation of the Employ Employer' er'ss rights rights in the event event of termin terminati ation on under under clause clause 63.1 63.1 (Defau (Defaultlt of Contractor). As always, when seeking to incorporate the main contract provisions into sub-contracts, considerable care is necessary. For example, is the subcontract clause to indicate that it is the Engineer's consent or the Contractor's consent that is required prior to the removal of materials? Is it the Employer or the the Cont Contra ract ctor or who who is to use his his best best endea endeavo vour urss to assis assistt with with cust custom omss clearance as referred to in sub-clauses 54.3 and 54.4? A provision in the subcont contra ract ct impo imposi sing ng obli obliga gati tion onss upon upon the the Em Empl ploy oyer er is wort worth h lilitt ttle le to the the subcontractor as the Employer is not a party to the sub-contract. Presumably, the intention is that sub-clauses 54.1 and 54.5 should be incorporated so that the Engineer's consent is necessary to removal and so that the Employer is able to take over the subcontractor's hire agreement. The current sub-clause would benefit from clarification. 54.8. 54.8. This This clause clause is consist consistent ent with with the policy policy of the contra contract ct as stated stated under clause 61.1 (Approval only by defects liabilities certificate) that no other action should amount to approval. See also clause 7.3 (Responsibility unaffected by approval approval), ), clause clause 14.4 14.4 (Contr (Contract actor or not reliev relieved ed of duties duties or respons responsibi ibilit lities) ies),, Page 184 of 264
clause clause 17 (Sett (Settinging-out out)) and clause clause 37.2 (Inspect (Inspection ion and testing) testing) examples.
for other other
Part II provides two optional additional clauses whereby Contractor's equipment, temporary works etc. vest in the Employer on delivery to site and revest in the Contractor upon their removal removal with the Engineer's consent. This would not affect affect hired equipment or equipment the property of subcontractors unless the subcontr contract act is 'back 'back-t -too-ba back ck'' with with these these condi conditition onss and and vest vestss subco subcont ntra ract ctor ors' s' equipment in the Contractor on delivery to site On international projects, the role of the Contractor's Equipment is often critical. As ment mentio ione ned d in the the comm commen enta tary ry unde underr clau clause se 14.1 14.1 (Pro (Progr gram amme me to be submitted) a factor in the evaluation of tenders will often be the equipment that the competing competing tenderers tenderers propose propose to employ on the project. project. Thus it is important important that the passage of the equipment through customs and its arrival on site should go smoothly and that, once on site - and very often paid for - it cannot thereafter be removed until its work is complete. Optional clauses 54.2 and 54.5 are intended to give the Employer security over the Contractor's equipment etc for the performance of the contract. They also protect the Employer against delays or increased costs which would arise following termination, especially where the equipment equipment is substantial substantial or specially designed for the works. works. It is submitted submitted that these these opti option onal al clau clauses ses conf confer er on the the Em Empl ploye oyerr a secur securitityy inte intere rest st in the the Contractor's equipment etc. Advice should be obtained in each case whether the security interest requires registration in order to take priority over the Contractor's creditors or its liquidator. By contrast, it is submitted that the current Part I clause may not be sufficient to confer a security interest or proprietary right in the Contractor's equipment. It follows that under English law, the Employer's right to use the Contractor's equipment equipment after terminatio termination n may be invalidated invalidated by the insolvency laws. For this reason, Employers may prefer to adopt the optional clauses on all but the smallest projects. FIDIC'S Guide also suggests that Part II be used to deal with other issues such as limitations on the selection of Contractor's equipment and temporary works, preference for local products etc.. FIDIC also suggest that additions to this clause should be drafted bearing in mind any additions to clause 34 (Engagement of staff and labour). CLAUSE 55 : Bill of Quantities
This clause, which is virtually unchanged from the 3rd Edition, makes clear that the quantities in the bill of quantities are estimates only. Together with clause 56.1 (Works to be measured), clause 55 determines the character character of this contract as a remeasuremen remeasurementt contract. Apart from clause 56.1, this clause should be read in conjunction with clause 51.1 (Variations) which Page 185 of 264
makes the increase or decrease in the quantity of any work a variation which the Engineer has power to instruct; and clause 51.2 (Instructions for variations) which states that an instruction is not necessary where the increase or decrease in quantities is due simply to the inaccuracy of the quantities in the Bill of Quantities. These variations arise "automatically" due to the fact that the physical work executed comprises quantities different from the theoretical work described in the Bill of Quantities. It has been submitted under clause 51.2 (Instructions for variations) that automatic changes in quantities fall within the definition of "varied work". If this submission is correct, it is perhaps anomalous that under clause 52.1 (Valuation of variations) and clause 52.2 (Power of Engineer to fix rates), the Engineer is given the power to fix a rate for the work the subject of such autom automat atic ic varia variatitions ons whic which h is diff differ eren entt from from the the rate rate set out out in the the Bill Bill of Quantities. The Engineer may exercise his discretion where he considers the rates not to be "applicable" or where it is "rendered inappropriate or inapplicable" by "the nature or amount of any varied work relative to the nature of amount of the whole of the Works". Thus, although in practice a Contractor will fix his rate in accordance with the quantities that he believes will actually be required by the design of the Works rather than the quantities set out in the Bill of Quantities, he will nevertheless be entitled to argue for a new rate when, perhaps as he predicted, the Bill of Quantities turns out to be inaccurate. Of course, this may work in the Employer's favour: if, for example, a very small quantity was included for pumping water out of excavations on the mistaken belief on the part of the Engineer that the water-tabl water-table e was below the level of the deepest excavation and the Contractor, possibly suspecting differently, placed a large figure against that item, the Employer would, but for clause 52.2, be obliged to pay to the Contractor an enormous windfall when, in the event, a great deal of pumping was in fact required. One effect of a remeasurement contract is that errors made by the Contractor in carrying forward the rates and quantities into total figures which are summarised as the Contra Contract ct Price Price are automa automatic ticall allyy correc corrected ted in the measur measureme ement nt and valuation process. This is because each valuation will be made on the actual quantities executed, multiplied by the bill rates. The Contractor is in no way held to the total that is contained in the right-hand column of the Bill of Quantities. Unscrupulous contractors may therefore allow "errors" to creep in to their Bill of Quantities in order to produce a more competitive tender price. For this reason, one of the first actions taken by the Employer upon receipt of tenders is to perform a mathematical check of the prices in the Bill of Quantities. A different and difficult problem is created where tenderers make last minute adjustments to their tender in order to achieve a competitive price by inserting in the summary page of the Bill of Quantities, Quantities, for example, example, "Less 1 1/2%" or "Less £100,000". Employer's should make it plain to tenderers that such a practice is not acceptable or specify the way in which such an adjustment adju stment is to be dealt with. For For exam exampl ple, e, all all rate ratess coul could d be trea treate ted d as havi having ng been been redu reduce ced d by the the percentage or, in the case of a lump sum, the reduction could be confined to the preliminary section of the bill. Otherwise, there is room for debate over what are Page 186 of 264
the rates. The Contractor Contractor will argue that, for example, example, the adjustment adjustment should be disregarded disregarded when consideri considering ng the appropriate appropriateness ness of a rate or when fixing fixing a new rate. It may be said that the adjustment was intended only for the original contract work and not for whatever variations the Employer may require in the future. This uncertainty needs to be eliminated. CLAUSE 56 : Measurement of works
The The Engi Engine neer er sha shall valu value e the the Wor Works in acco accorrdanc dance e wit with clau clause se 60 by measurement. When any measurement is to take place, the Engineer is to give notice to the Contractor who will attend to assist the measurement and provide particulars. particulars. If the Contractor Contractor fails to attend, attend, the Engineer's Engineer's measurement measurement will be taken as correct. Where measurement is by records and drawings prepared by the Engineer, the Contractor will attend within two weeks of being called upon to do so and shall examine, agree and sign the records and drawings. If he fails to attend, the records and drawings will be taken to be correct. If he attends but does does not sign, sign, the the Cont Contra ract ctor or must must serve serve notic notice e with within in two two week weekss of his his objections, otherwise they will again be taken to be correct. The Engineer, on receipt of such objections, shall review and confirm or vary his records and drawings. There are a number of changes to this clause in the 4th Edition, mainly of vocabulary. The final sentence of the clause is new. Valuation by measurement is central to the character of this contract. Such valuation will occur in relation both to interim certificates and, most importantly, the Final Certificate under clause 60.8 (Final Certificate). It may be considered odd that there is no reference in clause 60 (Payment) either to measurement or to this clause, although the link is formed by the opening sentence of this clause. No time timeta tabl ble e for for the the meas measur urem emen entt is give given, n, so the the regi regime me of clau clause se 60.2 60.2 (Monthly payments) will effectively govern the procedure. The questions raised by this clause are, firstly, whether measurements "taken to be corr correc ectt or agre agreed ed"" for for the the purp purpos oses es of one one inte interi rim m certi certififica cate te may may be challenged for the purposes of the next interim certificate and, secondly, whether they may be opened up by arbitration. In theory, each interim certificate should represent a separate valuation exercise but it is nevertheless difficult to find support within the contract for the proposition that the Contractor should be able to call for the remeasurement of an area of work untouched between one valuation and the next. As to arbitration, an ascertainment or determination by the Engineer may be opened-up, reviewed or revised by an arbitrator pursuant to clau clause se 67 (Set (Settl tlem emen entt of disp disput utes es)) but but wher where e the the part partie iess have have agre agreed ed a measurement or by the contract have agreed that it should be deemed to be correct, there would appear to be no dispute and thus no room for an arbitration. It is therefore submitted that if the Contractor agrees a measurement or fails to attend with the result that the Engineer's measurement is deemed to be correct, the Contractor will be held to his agreement or the deeming effect of the clause Page 187 of 264
unless the particular works have subsequently to be remeasured. This result is logi logica call in view view of the the high high prop propor orti tion on of work work that that is cove covere red d up in civi civill enginee engineerin ring g contrac contracts. ts. The arbitr arbitrato ator, r, it is submitt submitted, ed, may look look at the facts facts leading to the conclusiveness to ensure that the terms of the clause have been followed but may not open up the measurement if the specified steps have been taken. If the Contractor attends a measurement but disagrees the result, there is no express provision within this clause such as that dealing with disagreements over records and drawings. However, it is for the Engineer to ascertain and determine so that he is not inhibited by such disagreements. Under those circumstances, the Contractor would be free to refer the dispute to arbitration. "...except "...except as otherwise otherwise stated...". stated...". Matters which are not to be measured measured include include the preliminary and lump sum items and variations and any other additions which are to be determined in accordance with clause 52 (Valuation of variations) where there are no appropriate or applicable rates. rates. Works relating to provisional sums sums or nomi nomina natted subc subcon onttract actors ors may also also be valu valued ed othe otherr than han by measurement. measurement. In a contract where where the parties parties have agreed to stage payments, payments, measurement would be relevant to the amount of the Final Certificate only. There is an apparent apparent conflict within this clause between between the "reasonable "reasonable notice" notice" to be given to the Contractor's agent and the obligation upon the agent who shall "forthwith attend". This wording is presumably intended to mean that the agent is to attend promptly at the time and place specified specified in the notice. If so, "promptly" "promptly" could usefully replace "forthwith". "forthwith". The requirement of "reasonable" notice is new to the 4th Edition. "...the Contractor's authorised agent...". This is presumably intended to be the "aut "autho hori rise sed d repr epresen esenttativ ative" e" ref referre erred d to in claus lause e 15.1 15.1 (Cont Contrract actor's or's superi superinte ntenden ndence) ce).. In the 3rd Edition, Edition, both clauses clauses 15 and 56 refer to "the Contractor's authorised agent or representative". If the draftsman of the 4th Edition Edition intended the agent in this clause to be the representat representative ive in clause 15, it would be as well to achieve consistency between these two clauses in the current edition. The new final sentence serves to remind the parties that after all the machinery of the clause, it is for the Engineer ultimately to ascertain and determine the measurements, subject only to arbitration. CLAUSE 57 : Net measurement of works
This clause provides for the Works to be measured measured net unless the contract says otherw otherwise ise.. The Contrac Contractor tor is required required to give a breakd breakdown own of the lump lump sum items in his tender within four weeks of the letter of acceptance.
Page 188 of 264
Sub-clause 57.1 is taken with minor amendments from the 3rd Edition but subclause 57.2 is new. 57.1 57.1 Part Partie iess will will ofte often n requ requir ire e a Stan Standa dard rd Meth Method od of Meas Measur urem emen entt to be referred to in the contract. An SMM guides the parties as to the meaning and contents of the Bill of Quantities as well as the measurement of the work executed. In theory, it should reduce both the length of the Bill and the scope for disputes. In fact, many disputes have been founded on the wording of an SMM, often in relation to omissions from the Bill. In this context, see clause 12.1 (Suf (Suffifici cienc encyy of tend tender er)) whic which h requ requir ires es a Cont Contra ract ctor or to allo allow w for for all all that that is necessary for the completion of the works. The meaning of "measured net" is far from settled, particularly in the absence of an SMM. 57.2 57.2 This This sub-c sub-cla lause use is new to the 4th 4th Editio Edition. n. Its Its purpose purpose and, and, no doubt, doubt, its its effect is to reduce the scope for argument argument as to the proportion proportion of items included in the Bill of Quantities or tender as lump sums which should be included in each valuation. Naturally, the Contractor will wish to be paid in full for the item at the earliest possible moment. The breakdown is also needed for the purpose of valuing variations pursuant to clause 52 (Valuation of variations). CLAUSE 58 : Provisional Sum
"Pro "Provi visi sion onal al sum" sum" is defi define ned. d. The The Cont Contra ract ctor or will will be enti entitl tled ed to the the sum sum determined by the Engineer in respect of work covered by the provisional sums. The Engineer may issue instructions in relation to provisional sums for work or the supply of materials etc either by the Contractor who is to be paid pursuant to clause 52 (Valuation of variations) or by a nominated Subcontractor who is to be paid pursuant to clause 59.4 (Payments to nominated Subcontractors). Unle Unless ss the the work work is value valued d in accor accordan dance ce with with exis existiting ng rate ratess or pric prices, es, the the Contractor shall produce all documentation relevant to provisional sums. This clause has changed little in principle from the 3rd Edition although the last sentence in sub-clause 58.1 is new and the exception at the end of sub-clause 58.3 58.3 is also new. Sub-cl Sub-claus ause e 58.2 58.2 has been reorga reorganis nised ed but without without major major alterations to its effect. Goods and materials to be purchased by the Contractor are now valued under clause 52 (Valuation of Variations) and not by reference to clause 59.4 (Payment to nominated Subcontractors) as in the 3rd Edition. 58.1/58.2 As commented under clause 49.1 (Defects Liability Period), it would be helpful and good practice to collect all definitions into clause 1.1 (Definitions) Page 189 of 264
particularly as the term "Provisional sum" is referred to on eight other occasions outside this clause. FIDIC has abandoned the distinction between provisional and prime costs sums which is maintained in ICE 5th and 6th: neither the 3rd Edition nor the 4th Edition refers to prime prime cost sums. In ICE 5th, provisional sums were optional sums but prim prime e cost cost sums sums had to be expe expend nded ed.. Thus Thus,, ver very oft often, en, nom nominat inated ed subcontractor subcontractorss were the subject of prime prime cost sums. Here and in ICE 6th, the Enginee Engineerr may instru instruct ct or not. This This raises raises the perennia perenniall question question as to what allowance if any the Contractor is obliged to make in his programme for works covered by provisional sums. Where there was a distinction distinction between provisional sums sums and and prim prime e cost cost sums, sums, ther there e was was an obviou obviouss liline ne to draw. draw. Unde Underr the the present regime, a Contractor may be justified in including in his programme none of the matters the subject of provisional sums, even though some of the works to be perfo perform rmed ed by nomi nomina nate ted d Subco Subcont ntra ract ctor orss may may be cent centra rall to the the proj project ect.. Alternatively, the line could be drawn between those matters which must be underta undertaken ken to comple complete te the project project and those those matter matterss which which are genuin genuinely ely optional extras. Under clause 44.1 (Extension of Time for Completion), "the amount of or nature of extra or additional work" is the first ground for extension of time. This area is fraught with uncertainty and should be addressed by the parties. For an argument that changes to the actual amount of work necessary for elements of the work given provisional quantities should be the subject of extensions of time, see under clause 51.2 (Instructions for variations). The question arises as to whether provisional sums fall within the definition of "varied "varied work" work" within within clause clause 52.1 52.1 (Valua (Valuatio tion n of Variat Variation ions). s). The questi question on is relevant under clause 52.3 (Variations exceeding 15%) and whether the value of work executed in relation to provisional sums is to form part of the calculation bearing in mind that the provisional sum entered into the Bill of Quantities will be excluded excluded from the calculations calculations.. "Varied "Varied work" includes "all variations variations referred to in clause 51". Instruction Instructionss relating to the expenditure expenditure of provisional provisional sums do not fit happily into any of the categories of o f variation listed in that clause. Alternatively, varied work may be "any additions to the Contract Price which are required to be determined in accordance with clause 52". Whilst the current sub-clause refers to clause 52, the reference is not in the context of an addition to the Contract Price. This is because the provisional provisional sum forms part of the Contract Contract Price and is then replaced by the actual value of any work ordered. As that replacement is done by way of the omission of provisional sum and the addition of the actual value, there is an argument that provisional sums fall within clause 51.1 (Variations) item (e) "execute additional work". However, it is submitted that it was not the intention of the draftsman that provisional sum work should fall within "varied work". The matters covered by the second part of the definition of varied work are those to be found in clauses such as clause 17.1 (Setting out) and clause 65.3 (Damage to Works by special risks) where the words "addition to the Contract Price in accordance with clause 52" are to be found. This view is supported by the separate treatment that provisional sums receive under clause 52.3 in item (b), whereas varied work is dealt with Page 190 of 264
under item (a). If the above submission is correct, notice is not required under clause 52.2 (Power of Engineer to fix rates). Whether payment for provisional sum work is "additional payment" for the purpose of clause 53.1 (Notice of Claims), so that notice within 28 days is required, is debatable. It is submitted that that such such noti notice ce is not nece necessa ssary ry,, part partic icula ularl rlyy in the the liligh ghtt of claus clause e 58.3 58.3 (Production of vouchers). Altogether, contractors would be well advised to make it clear in their tenders what allowance, if any, has been made in their programme and preliminaries for the provisional sums. 58.3 58.3 The The additi addition on of the except exceptio ion n to the the 4th Editio Edition n reflect reflectss the fact that that the provisional sum is to be valued under clause 52.1 (Valuation of variations) "at the rates and prices set out in the contract if, in the opinion of the Engineer, the same shal shalll be appl applic icab able le". ". Wher Where e such such rate ratess and and pric prices es are are appl applic icab able le,, the the Contractor' Contractor'ss actual expenditure expenditure becomes less relevant. relevant. However, However, under clause 59.5 (Certification of payments to nominated Subcontractors), the Contractor is obliged to produce proof that payments due to nominated Subcontractors have been made. It has been submitted above that the Contractor is not obliged to serve notice under clause 52.2 (Power of Engineer to fix rates) in order to obtain a valuation of work done in relation relation to a provisional provisional sum. The proviso proviso to clause 52.2 refers refers to "work instructed to be done by the Engineer pursuant to clause clause 51". It must be doubtful that a notice under clause 53.1 (Notice of claims) is required in view of this this sub-cl sub-clau ause. se. The The unce uncert rtai aint ntyy gener generat ated ed by claus clause e 53 is noted noted in the commentary under that clause. The Engineer's ability to instruct in relation to provisional sums may be one of the matters for which the Employer requires the Engineer to seek approval as listed in Part II under clause 2.1 (Engineer's duties and authority). CLAUSE 59 : Nominated Sub-Contractor
The term "nominated Subcontractors" is defined. The Contractor need not employ any nominated Subcontractor against whom he has reasonable objection or who refuses to enter into a sub-contract which is back to back with the main contract and which indemnifies the Contractor in respect of the nominated Subcontractor's breaches and against the negligence of his workmen and misuse of any Temporary Works. If any nominated nominated sub-contract sub-contract includes a design obligation, obligation, the contract and the nominated nominated sub-contract sub-contract must say so. A subcontractor subcontractor must agree agree to indemnify the Contractor in respect of such design obligations. Page 191 of 264
In respect of nominated Subcontractor's work, the Contractor will be entitled to the price due to the subcontracto subcontractor, r, payment under clause 52 for any attendance and the the prof profit it perce percent ntag age e speci specifified ed in the the Bill Bill of Quan Quantititities es or Appe Append ndix ix to Tender. The Engineer is entitled to proof that certified sums have been paid to nominated Subcont Subcontrac ractor torss before before issuing issuing any furthe furtherr certif certificat icate. e. Unless Unless the Contra Contracto ctor r shows he has reasonable grounds for refusing to make such a payment and proves that he has so notified the nominated Subcontractor, the Employer may make direct payments and deduct the equivalent sum from the Contractor. The Engineer is to show the deduction on the next certificate which should not be delayed. Clause 59 is essentially essentially the same as in the 3rd Edition save that clause 59(6) of the the 3rd 3rd Editi Edition on conc concer erni ning ng the the assi assign gnme ment nt of nomi nomina nate ted d Subc Subcont ontra ract ctor or's 's obligations has become clause 4.2 (Assignment of subcontractor's obligations) in the current edition. 59.1 59.1 The defini definitio tion n of nominate nominated d Subcontr Subcontract actors ors includ includes es persons persons with with whom the Contractor is obliged to enter into sub-contract by the terms of the contract. Under clause 4.1 (Sub-contracting), there is reference at item (c) to "the subcontracting of any part of the Works for which which the Subcontractor Subcontractor is named named in the Contract". Contract". It is possible possible to envisage circumstances where only one subcontractor or supplier is possible because, for example, a specified product is available from only one supplier or becau because se the the Cont Contra ract ctor or's 's lilist st of prop propos osed ed subco subcont ntra ract ctor orss was was agre agreed ed and and incorporated incorporated within within the contract. Under these circumstanc circumstances, es, it would surprise both parties to realise that the subcontractors or suppliers were "nominated Subcontractors" in respect of whose works and supplies the Contractor was entitled to the addition of the percentage set out in the Appendix to Tender under clause 59.4(c). "...sh "...shall all.. ...be .be deemed deemed to be subcont subcontract ractors ors to the Contract Contractor. or..." ..".. This This clause clause makes makes it clear clear that that the Contra Contracto ctorr remain remainss fully fully respons responsibl ible e for nominat nominated ed subcontractor subcontractors' s' acts and defaults defaults as if they were domestic subcontrac subcontractors. tors. By clause 4.1 (Sub-contracting), the Contractor "shall be responsible for the acts, defaults defaults and neglects of any Subcontractor Subcontractor". ". There is no extension extension of time for delays by nominated Subcontractors nor would such delay normally be accepted as "special circumstances" within clause 44.1 (Extension of time for completion). The Contractor is left to his remedies under the nominated sub-contract which should include the indemnities set out at sub-clause 59.2(a) and (b). Under English common law, the Engineer is obliged to renominate in the event of a nominated subcontractor's default. Under these conditions, it is submitted that the Engineer must be entitled entitled to specify specify a replacement replacement by issuing an instruction instruction and that he also has an obligation to do so. This is despite the fact that clause Page 192 of 264
4.1 (Subcontract (Subcontracting) ing) places responsibility responsibility for "any Subcontractor Subcontractor"" squarely squarely onto the Contractor, with no extension of time available, unlike some English forms. The significance of the issue is as follows:(i) (i) if the the mat matte terr is ent entir irel elyy at the the Cont Contra ract ctor or's 's ris risk, k, the then n it sho shoul uld d foll follow ow that that he is entitled to execute the works himself; and (ii) (ii) if the there re is an an oblig obligat atio ion n to inst instru ruct ct,, a fail failur ure e to do so or a fail failur ure e to do so reasonably reasonably promptly, could either bring the contract contract to a stand-still stand-still or entitle the Contractor to an extension of time. If it proves very difficult to find a replacement subc subcon ontr trac acto tor, r, does does resp respon onsi sibi bilility ty for for the the ensu ensuin ing g dela delayy pass pass from from the the Contractor? This question, it is submitted, may be limited to those circumstances where the Engineer has nominated or selected the original Contractor or they have been specified specified by the Employer in the contract. contract. The Contractor Contractor may argue that that the subcontractors, where specified in the contract or named by the Engineer, are effectively effectively part of the Works. Works. He is not entitled to use any other subcontract subcontractor or and so the Employer should be required to issue a variation in the event that some alternative alternative subcontrac subcontractor tor is required. required. Under clause clause 13.1 (Work to be in accordance accordance with contract), contract), the Contractor Contractor is spared performance performance of the contract where it is legally legally or physically physically impossible impossible to do it. When a subcontractor subcontractor has defaulted, for example, by going into liquidation and if the Contractor has no right to execute the works himself, it must be legally and/or physically impossible for him to proceed. proceed. Further, Further, the payment payment regime set out in sub-claus sub-clauses es 59.4 and 59.5 59.5 sugg sugges estt that that the the Engi Engine neer er has has a cont contin inue ued d rela relati tion onsh ship ip with with and and respo responsi nsibi bilility ty for for the the nomi nominat nated ed subc subcont ontra ract ctor ors. s. Wher Where e the the nomi nominat nated ed subcontractor is the subject of a provisional sum, clause 58.1 (Definition of "Provisional "Provisional Sum") makes it plain that the expenditure expenditure of the Provisional Provisional Sum is to be done on the instructions of the Engineer. Under clause 58.2 (Use of Prov Provis isio iona nall Sums) Sums),, the the Engin Engineer eer may may inst instru ruct ct eith either er the the Cont Contra ract ctor or or the the nomin nominat ated ed subc subcont ontra ract ctor or to execu execute te the the work works: s: such such an inst instru ruct ctio ion, n, it is submitted, is needed before the Contractor can himself execute the works. In summary, it is submitted that the Contractor's argument for an entitlement to an instruction upon the default of a subcontractor nominated by the Employer or the the Engi Engine neer er is stro strong ng and and that that,, altho lthoug ugh h the the risk isk of the the nomi nomina natted subcontractor's default itself remains on the Contractor, any delays created by a failure promptly to renominate or instruct would entitle the Contractor to an extension. extension. The Employer's Employer's preferred preferred solution solution in these circumstances circumstances will often be immediately to instruct the Contractor to execute the works himself or by subcontractors selected by him subject to the approval of the Engineer under clause 4.1 (Subcontracting). If the Contractor obtains his own replacement subcontractor, the work is still the subject of a provisional provisional sum and and clause 58 (Provisional (Provisional Sums) Sums) still applies. applies. A provisional sum would be valued in accordance with clause 52 and it follows from Page 193 of 264
the conclusion that an instruction must be issued that the Contractor should be reim reimbur bursed sed for for the the cost cost of exec execut utin ing g the the work work hims himsel elff or obtai obtaini ning ng a new new subcontractor to do that work even if the costs exceed those payable in respect of the nominated nominated subcont subcontrac ractor tor in default. default. This This is also also consis consisten tentt with the English common law position: the Engineer is obliged to renominate and the Employer Employer to pay the sub-contract sub-contract price of the replacement replacement subcontractor. subcontractor. Subclau clause sess 59.4 59.4 and and 59.5 59.5 will will no long longer er appl applyy as the the Cont Contra ract ctor or or his his new new subcontractor will not be "nominated Subcontractors". 59.2 59.2 A dispute dispute over over whether whether a Contrac Contractor tor's 's objecti objection on to a proposed proposed nomina nominated ted Subcontractor was "reasonable" or not is one that could theoretically bring the contrac contractt to a standst standstill ill whilst the matter matter was referr referred ed throug through h the disput disputes es procedure procedure under clause 67 (Settlemen (Settlementt of disputes) to arbitrat arbitration. ion. As FIDIC's FIDIC's own Guide points out, it is obviously important to give the Contractor every opportunity opportunity to object object at the earliest earliest possible possible stage. There is no provision provision as to the time at which such objections must be raised unless it can be said that the term "reasonable" refers both to the timing of the objection as well as its content. It is submitted that an Employer could properly reject an objection which was unreasonably delayed. Wher Where e nomin nominat ated ed subc subcont ontra ract ctor orss have have been been appoin appointe ted d in adva advanc nce e of the the Contract due, for example, to long lead times on certain materials, the right to make objection should not exist provided that the appointment was notified to the Contractor before the contract was entered into. No doubt the objection would have to be exceptional to pass the reasonableness test. If the Contractor raises a reasonable objection or the nominated Subcontractor declines to sub-contract on the specified terms, the Employer may either renominate, a course which could involve serious delay to the contract, or attempt to re-negotiate with the Contractor and nominated Subcontractor to overcome the object objection. ion. This This course course may prove prove expensiv expensive. e. A third third possibil possibility ity could could be to instruct the Contractor to execute the work himself. As the Contractor may have bid for the work the subject of the proposed nominated sub-contract himself, this may be a desirable result. result. If the work is specialised, specialised, possibly possibly incorpora incorporating ting an element of design, design, this will will be less welcome although although under clause clause 59.3, the the Contractor Contractor will have had notice notice of a design element element in his contract. contract. Generally, Generally, however, the Contractor would be unlikely to lose by the arrangement. Under clause 4.2 (Assignment of subcontractors' obligations) and clause 63.4 (Assignment of benefit of agreement), the Contractor should provide in any subcont contra ract ct for for the the righ rightt to make make such such assi assign gnme ment nts. s. See See also also clau clause se 54.7 54.7 (Incorporation of clause in subcontracts) which specifies a term for inclusion in sub-contracts concerning equipment and materials. 59.3 Just as as the Contractor Contractor is fully fully responsi responsible ble for for the defaults defaults of the nominat nominated ed Subcontractor, so the nominated Subcontractor must look to the Contractor in respect of any claims claims that the subcontractor subcontractor wishes wishes to advance. In view of the fact that it is the Engineer who instructs in the first instance what sum is to be Page 194 of 264
paid to the Subcontractor, it will often be with the Engineer that the subcontractor is aggrieved. The difficult question then then arises as to how that dispute should be resolv resolved. ed. Experi Experiment mentss in the UK with proceedin proceedings gs whereby whereby the nominat nominated ed Subcontractor "borrows" the name of the main contractor in order to pursue the Employer have produced horribly complicated and unsatisfactory results: see for example Lorne Stewart v William Sindall (1986) 35 BLR 109. An alternative which which appear appearss in Englis English h domest domestic ic sub-co sub-contr ntract actss is an obligat obligation ion upon upon the contractor contractor to obtain and pass on to the nominated nominated Subcontractor Subcontractor the benefits of the main main contra contract ct and genera generally lly to advanc advance e the intere interests sts of the nomina nominated ted Subc Subcon ontr trac acttor in deal dealin ings gs wit with the Em Emp ploye loyer. r. This This has has also also prov proved ed unsatisfactory due to the lack of incentive for the Contractor and the variety of other commercial commercial considerat considerations. ions. If the nominated nominated Subcontractor Subcontractor attempts attempts to start an arbitration against the Contractor, he may be met with the rejoinder that there is no dispute, dispute, that the subcontractor' subcontractor'ss claim is agreed in principle principle and has been forwarded forwarded on to the Employer Employer for consideration consideration and payment. payment. This would only defuse the arbitration however if, under the terms of the nominated subcontract, the Contractor was only obliged to pay to the nominated Subcontractor sums instructed to be paid by the Engineer. This sub-clause is to be read in conjunction with clause 7.2 (Permanent Works designed by Contractor) which also requires express provision of any design obligation and clause 8.2 (Site operations and methods of construction) which states "where the Contract expressly provides that part of the Permanent Works shall be designed by the Contractor, he shall be fully responsible...". FIDIC offers no guidance to the parties as to the form of any sub-contract other than indicating the obligatory terms under clause 59.2. The wide-spread practice of using an ICE form of sub-contract becomes increasingly dangerous as these conditi conditions ons and the ICE conditi conditions ons grow grow furthe furtherr apart. apart. Carefu Carefull consid considerat eration ion needs to be given, not least to the respective provision for design liability. 59.4 59.4 Item Item (a). (a). It is subm submititte ted d that that the Contr Contract actor or is not oblig obliged ed to obtain obtain an instruction on each occasion that payment is to be made to the nominated Subcontractor. It will be sufficient to point to an instruction that required the Contractor to enter the sub-contract giving rise to the obligation to pay. This interpretat interpretation ion is founded on the use of the words "paid or due to be paid": whilst the alternative may be explained as dealing with the Contractor's rights of set-off or with payments authorised but not payable under the sub-contract, the phrase, it is submitted, fits the contractual liability concept more easily. Furthermore, it is not immediately obvious why instructions would be needed for each payment as the Engineer already has the task under clause 60.2 (Monthly payments) of ruling on the Contractor's monthly application for payment which will include a statement of the nominated Subcontractor's work and the Contractor's proposed payment. "Instructions" refers back to those referred to in clause 58.2 (Use of Provisional Sums), therefore. If the above argument argument is incorrect, the question arises as to whether a payment must have been "on the instructions of the Engineer" as well as "in accordance Page 195 of 264
with the sub-contra sub-contract". ct". If the Contractor Contractor had been obliged obliged to make a payment under the sub-contract but has obtained no instructions from the Engineer, the Contractor Contractor has no entitlement. entitlement. If the subcontractor' subcontractor'ss entitlement entitlement was due to a defau default lt of the the Cont Contra ract ctor or,, then then the the Engi Engine neer er's 's inst instru ruct ction ion is an impor importa tant nt safegua safeguard rd for the Employ Employer. er. If, If, however however,, the Enginee Engineerr has simply simply failed failed to instruct or has instructed for a smaller sum, the Contractor will be obliged to take the matter to arbitration. arbitration. An Engineer may not necessarily feel obliged to instruct instruct even upon receipt of an arbitrator's award as between Contractor and nominated Subcontractor. Item (b). The Contractor's Contractor's attendance attendance and superintendenc superintendence e may be the subject of a separate item in the bill of quantities, either as a lump sum or percentage, or may be left to be valued in accordance with clause 52 (Valuation of variations). Item (c) represents represents the attraction attraction to contractors contractors of nominated nominated sub-contracts sub-contracts as this percentage for profit profit is comparative comparatively ly risk-free, risk-free, particularly particularly if the nominated sub-contract is reinforced by security such as a performance bond. 59.5 59.5 This This clause clause is designed designed to ensure ensure that that nominat nominated ed Subcont Subcontrac ractor torss are paid promptly and so perform their often crucial roles in the project without disruption. Without this provision, the Employer would have to pay the Contractor regardless of whether or not the subcontractor had also been paid directly. The Employer, in other other words, words, would would pay twice. twice. Perhaps Perhaps inevit inevitably ably,, this this sub-cla sub-clause use does does not prevent the Employer paying twice but arranges recovery from the Contractor. This is not ideal if the cause of the non-payment of the nominated Subcontractor is the insolvency of the Contractor, as will usually be the case. However, the Employer will at the very least have retention in hand from which to deduct. The sanction upon the defaulting defaulting Contractor Contractor does not seem to be very onerous. onerous. The indication upon reading the clause as a whole is that certificates under the main contract should should not be delayed but should merely merely exclude the amount due to the nominate nominated d subcontra subcontracto ctor. r. The Contrac Contractor tor would would lose lose the use of that money money for for what whateve everr numb number er of days days the the contr contrac acts ts allo allowe wed d him him but but seem seemss otherwise otherwise to be untroubled. He is apparently apparently still entitled entitled to his attendance attendance and his profit under items (b) and (c) under clause 59.4. It should be noted that the amount deducted from subsequent certificates will be the amount actually paid directly by the Employer so that the Contractor should receive receive the subcontractor's subcontractor's retention retention money less the Contractor's Contractor's own retention percentage. percentage. This is in fact an improvement improvement on the Contractor's Contractor's normal position position whereby, if the main contract and nominated sub-contract retention percentages were equal, the Contractor would receive no actual payment in respect of the subcontractor's retention. There would be a sanction against the Contractor if the Engineer certified nothing in respect of the nominated Subcontractor and simultaneously certified that the Employer was entitled to make direct payments. The Employer, having made the direct payment, would then be entitled to deduct from the current certificate the Page 196 of 264
sum paid direct so that the deduction would be made from sums actually payable to the Contra Contracto ctorr and his other subcontr subcontract actors. ors. However However,, this would hardly hardly achieve the objective of the clause as the nominated Subcontractor would have received the previous payment which had not been passed on but would have to wait at least a further month until any further payment could be made by either Contractor Contractor or Employer. Employer. The most likely likely scenario scenario is that the Engineer Engineer would certify the sums due to the nominated Subcontractor as normal and give the Empl Em ploy oyer er a dire direct ct paym paymen entt certi certififica cate te at the the same same time time.. Unde Underr those those circumstances, it is difficult to see that the Contractor suffers in any substantial way. "...paid or discharged...". The sub-clause recognises that the Contractor may have a set-off against the nominated Subcontractor which extinguishes any right to payment. It is the reasonableness reasonableness of the set-off of which the Contracto Contractorr must satisfy the Engineer. If the Contractor demonstrated to an arbitrator arbitrator that this this setoff was reasonable when the Engineer took the opposite view and issued a direct payment certificate, the risk, as first sight, is that the Employer may be obliged to pay the Contractor Contractor as well. Generally, the loss incurred by the Contractor Contractor will be minor, but if the Engineer's attitude prevented the Contractor recovering from the nominated Subcontractor a set-off to which the Contractor was entitled, the loss would be equivalent to that set-off. The significance of the requirement in item (b) for proof that the nominated subcontractor has been informed in writing of the cause for withholding payment would apparently be to ensure that the nominated Subcontractor has had an opportunity to respond to the Contractor's claims, the assumption apparently being that such response would either be made directly to the Employer or Eng Enginee ineerr or that hat the respo espons nse e woul would d be copi copied ed by the the Cont ontract ractor or or subc subcon ontr trac acto torr to the the Engi Engine neer er,, to enab enable le him him to make make his his judg judgme ment nt on reasonableness. In pract practic ice, e, the the desi desire re to make make dire direct ct payme payment ntss occu occurs rs most most freq freque uent ntly ly in circumstances where the employment of the Contractor has been terminated. This sub-clause does not address this issue and the obligation under clause 63.4 (Assignment (Assignment of benefit of agreement) agreement) requires requires only that the benefit of such subcontracts be assigned to the Employer and thus not the obligation to make payments. CLAUSE 60 : Certificates & Payments of the Contractor
This clause provides provides a mechanism mechanism for payment of the Contractor. Contractor. Each month, month, the Contrac Contractor tor submits submits six copies copies of his monthl monthlyy valuat valuation ion includ including ing on-sit on-site e materials, fluctuations and claims. The Engineer has 28 days in which to certify the sum due less retention and any sums other than liquidated damages which the Contractor owes the Employer. The Engineer will not certify unless the net amount of the certificate would Page 197 of 264
exceed the minimum amount set out in the Appendix and the Contractor has submitted his performance security. Half of the retention money will be certified upon the issue of the Taking-Over Certificate or a proportion of the retention money if the Taking-Over Certificate relates to a Section or part only. The other half will be certified at the end of the last Defects Liability Period. However, if there is any outstanding defect or search to be undertaken, the Engineer may continue to retain enough of the retention money to cover the cost of the work to be executed. The Engineer is entitled to correct or modify interim certificates, including by the omission or reduction in the value of items. Within 12 weeks of the Taking-Over Certificate , the Contractor is to submit a statement, which is a valuation of all the works and claims up to substantial completion. completion. In addition, addition, the Contractor Contractor should provide an estimate estimate of his future entitlement. The Engineer is to produce a further interim interim certificate. Within 9 weeks of the Defect Liability Certificate, the Contractor is to produce his draft final statement statement showing showing his final valuation valuation and accompanied accompanied by supporting supporting documentation. If the draft draft can be agreed, or after the production of any further information information that the Engineer Engineer calls for, the Contractor Contractor re-submits re-submits it in its agreed form as the Final Statement. At the same time, the Contractor must produce a written discharge stating that, once the sum set out in the Final Statement has been paid and the performance security returned, he will have been paid in full and final settlement. Within 4 weeks of the submission of the Final Statement and discharge, the Engineer issues a Final Certificate stating the total contract valuation and any balan balance ce outst outstan andin ding g betw between een the the Cont Contra ract ctor or and and the the Em Empl ploy oyer er othe otherr than than liquidated damages. The Employer will not be liable to the Contractor for any claim which was not referred to in the Final Statement and, unless the claim arose after the date of substantial completion, the Statement at Completion. Interim certificates shall be paid within 28 days of their delivery to the Employer and the Final Certificate Certificate within 8 weeks. Interest will accumulate on late payment at the rate stated in the Appendix. This clause represents FIDIC's first attempt to draft in detail the payment clause. In the 3rd and preceding editions, clause 60 merely suggested that the detailed provision should be drafted by the parties to the contract following a menu of subject subjectss set out in Part Part II. The influe influence nce of ICE 5th, the paymen paymentt clauses clauses of which were often used to fill the void in earlier editions, is clearly visible. Page 198 of 264
60.1 60.1 Alth Althou ough gh no time time is given given withi within n whic which h the Contra Contract ctor or is to subm submit it his monthly statement, the Contractor will normally submit it as soon as he can. (a) (a) It might ight hav have been been expe expect cted ed to see the the wor words "pr "proper operly ly exec execut uted ed"" or "executed in accordance with the contract". This would have put put it beyond doubt that permanent works executed but in a defective fashion or otherwise not to the satisfaction of the Engineer, would not be paid for. However, "Permanent Works" are defined as "works to be executed ... in accordance with the Contract", so the Engineer will not be without support in declining to pay. Contrast clause 60.5(a) where the Contractor submits "the final value of all work done in accordance with the Contract". For a case on payment for work not properly executed, see Acsim v Dancon (1989) 47 BLR 55. Payment does not imply approval: see sub-clause 60.4 (Correction of certificates) which allows the Engineer to amend interim certificates and clause 61.1 (Approval only by Defects Liability Certificate). "(e) any other sum to which the Contractor may be entitled under the contract." This appears to be intended to include claims and thus raises the question whether the monthly statement would be a sufficient notice to satisfy clause 53.1 (Notice (Notice of claims). Under this this clause, a statement statement is required required only to show the amou amount nt to whic which h the the Cont Contra ract ctor or consi conside ders rs hims himsel elff enti entitltled ed,, but but "the "the form form prescribed by the Engineer" is bound to require the Contractor at least to indicate the head of claim claim concerned concerned.. A brief head head of claim, claim, with with an amount amount quoted quoted would, it is submitted, submitted, be sufficient sufficient to satisfy clause 53.1. 53.1. However, However, claims that are not quantified quantified within within the month may be excluded from from the statement. statement. Good practice may be to include all heads of claim in the monthly statement whether quantified quantified or not. In the latter latter case, the entries entries could be marked marked "to follow" follow" or equivalent. Clause 53.1 requires notices of claim to be copied to the Employer, whereas all six copies of the monthly statement to go to the Engineer. The Contractor should therefore therefore send an extra copy copy to the Employer. CLAUSE 60 (Certificates and payment) 60.1 Monthly Statements The Contractor shall submit to the Engineer after the end of each month six copies, each signed by the Contractor's representative approved by the Engineer in accordance with Sub-Clause 15.1, of a statement, in such form as the Engineer may from time to time prescribe, showing the amounts to which the Contractor considers himself to be entitled up to the end of the month in respect of (a)
the value of the Permanent Works executed
(b) any other items in the Bill of Quantities Quantities including including those for Contractor' Contractor'ss Equipment, Temporary Works, dayworks and the like
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(c) the percentage of the invoice value of listed materials, all as stated in the Appendix to Tender, and Plant delivered by the Contractor on the Site for incorporation in the Permanent Works but not incorporated in such Works (d)
adjustments under Clause 70
(e) any other sum to which the Contractor may be entitled under the Contract or otherwise. 60.2 Monthly Payments Click on the [*] button to see omitted text. The Engineer shall, within 28 days of receiving such statement, [*] deliver to the Employer an Interim Payment Certificate stating the amount of payment to the Contractor which [*] the Engineer considers due and payable in respect [*] of such statement, subject: (a) (a) firs firstl tly, y, to the rete retent ntio ion n of the amou amount nt calcu calcula late ted d by appl applyi ying ng the the Percentage of Retention stated in the Appendix to Tender, to the amount to which the Contractor is entitled under paragraphs (a), (b), (c) and (e) of SubClause 60.1 until the amount so retained reaches the limit of Retention Money stated in the Appendix to Tender, and (b) secondly, to the deduction, other than pursuant to Clause 47, of any sums which may have become due and payable by the Contractor to the Employer. Provided that the Engineer shall not be bound to certify any payment under under this this SubSub-Cl Claus ause e if the the net net amoun amountt ther thereo eof, f, afte afterr all all rete retent ntio ions ns and and deduc deductition ons, s, woul would d be less less than than the the Mini Minimu mum m Am Amou ount nt of Inte Interi rim m Paym Paymen entt Certificates stated in the Appendix to Tender. Notwithstanding the terms terms of this Clause or any other Clause of the Contract no amount will be certified by the Enginee Engineerr for payment payment until until the perfor performanc mance e securi security, ty, if require required d under under the Contract, has been provided by the Contractor and approved by the Employer. 60.3 Payment of Retention Money Click on the [*]button to see omitted text. (a) (a) Upon Upon the the issue issue of the the Takin Takingg-Ov Over er Cert Certif ific icat ate e with with respe respect ct to the the whole of the Works, one half of the Retention Money, or upon the issue of a Taking-Over Certificate with respect to a Section or part of the Permanent Works only such proportion thereof as the Engineer determines having regard to the relative relative value of such Section Section or part of the Permanent Permanent Works, shall be certified certified by the Engineer for payment to the Contractor. (b) (b) Upon Upon the the expir expirat atio ion n of the the Defect Defectss Liabi Liabilility ty Peri Period od for for the the Works Works the the other other half of the Retention Money shall be certified by the Engineer for payment to the Contrac Contractor tor.. Provid Provided ed that, that, in the event event of differ different ent Defect Defectss Liabil Liability ity Period Periodss having become applicable to different Sections or parts of the Permanent Works Page 200 of 264
pursuant to Clause 48, the expression "expiration of the Defects Liability Period" shall, for the purposes of this Sub-Clause, Sub-Clause, be deemed to mean the expiration expiration of the latest of such periods. Provided also that if at such time, there shall remain to be executed by the Contracto Contractorr any work [*] instructed instructed,, pursuant to to Clauses 49 and 50, in respect of the Works, the Engineer shall be entitled to withhold certification until completion of such work of so much of the balance of the Retention Money as shall, in the opinion of the Engineer, represent the cost of the work remaining to be executed. 60.4 Correction of Certificates The Engineer may by any Interim Payment Certificate make any correction or modification in any previous Interim Payment Certificate which shall have been issued by him and shall have authority, if any work is not being carried out to his satisfaction, to omit or reduce the value of such work in any Interim Payment Certificate. 60.5 Statement at Completion Not later than 84 days after the issue of the Taking-Over Certificate in respect of the whole of the Works, the Contractor shall submit to the Engineer six copies of a Statement at Completion with supporting documents showing in detail, in the form approved by the Engineer, (a) the final value of all work done in accordance accordance with the Contract Contract up to the the date stated in such Taking-Over Certificate (b) (b)
any any fur furth ther er sums sums whi which ch the the Con Contr tract actor or consi consider derss to to be due due and and
(c) an estimate of amounts which the Contractor considers will become due to him under the Contract. The esti estima mate ted d amou amount ntss shal shalll be shown shown sepa separa rate tely ly in such such Stat Statem emen entt at Completion. Completion. The Engineer Engineer shall certify payment in accordance accordance with Sub-Clause Sub-Clause 60.2. 60.6 Final Statement Not later than 56 days after the issue of the Defects Liability Certificate pursuant to Sub-Clause 62.1, the Contractor shall submit to the Engineer for consideration six copies of a draft final statement with supporting documents showing in detail, in the form approved by the Engineer, (a)
the value of all work done in accordance with the Contract and
(b) any further further sums which the Contractor Contractor considers considers to be due to him under the Contract or otherwise.
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If the the Engi Enginee neerr disa disagr gree eess with with or canno cannott verif verifyy any any part part of the the draf draftt fina finall statement, statement, the Contractor Contractor shall submit submit such further information information as the Engineer may reasonably require and shall make such changes in the draft as may be agreed agreed between between them. The Contrac Contractor tor shall shall then prepare prepare and submit to the Engineer the final statement as agreed (for the purposes of these Conditions referred to as the "Final Statement"). If, follow following ing discus discussio sions ns betwee between n the Engineer Engineer and the Contrac Contractor tor and any changes to the draft final statement which may be agreed between them, it becomes evident that a dispute exists, the Engineer shall deliver to the Employer an Interim Payment Certificate for those parts of the draft final statement, if any, which are not in dispute. dispute. The dispute dispute may then be settled settled in accordance accordance with Clause 67. 60.7 Discharge Upon Upon subm submis issi sion on of the the Fina Finall Stat Statem ement ent,, the the Cont Contra ract ctor or shal shalll give give to the the Employer, with a copy to the Engineer, a written discharge confirming that the total of the Final Statement represents full and final settlement of all monies due to the Contractor arising out of or in respect of the Contract. Provided that such disch dischar arge ge shal shalll becom become e effe effect ctiv ive e only only afte afterr paym payment ent due unde underr the the Fina Finall Payment Certificate issued pursuant to Sub-Clause 60.8 has been made and the performance security referred to in Sub-Clause 10.1, if any, has been returned to the Contractor. 60.8 Final Payment Certificate Click on the [*] button to see omitted text. Within 28 days after receipt of o f the Final Statement, and the written discharge, the Engineer shall issue to the Employer (with a copy to the Contractor) a Final Payment Certificate stating (a) the amount which, in the opinion opinion of the Engineer, Engineer, is finall finallyy due under the Contract or otherwise, and (b) after giving giving credit credit to the Employer Employer for all amounts amounts previousl previouslyy paid paid by the Employer and for all sums to which the Employer is entitled [*] , other than under Clause 47, the balance, if any, due from the Employer Employer to the Contractor Contractor or from the Contractor to the Employer as the case may be. 60.9 Cessation of Employer's Liability The Employer shall not be liable to the Contractor for any matter or thing arising out of or in connection with the Contract or execution of the Works, unless the Contractor shall have included a claim in respect thereof in his Final Statement and (except in respect of matters or things arising after the issue of the Taking Over Certificate in respect of the whole of the Works) in the Statement at Completion referred to in Sub-Clause 60.5. Page 202 of 264
60.10 Time for Payment The amount due to the Contractor Contractor under any Interim Interim Payment Certificate Certificate issued by the Engineer pursuant to this Clause, or to any other term of the Contract, shall, subject to Clause 47, be paid by the Employer to the Contractor within 28 days after such Interim Payment Certificate has been delivered to the Employer, or, in the case of the Final Payment Certificate referred to in Sub-Clause 60.8, within 56 days, after such Final Payment Certificate has been delivered to the Employer. In the event of the failure of the Employer to make payment within the times stated, the Employer shall pay to the Contractor interest at the rate stated in the Appendix to Tender upon all sums unpaid from the date by which the same should have been paid. The provisions of this Sub-Clause are without prejudice to the Contractor's entitlement under Clause 69 or otherwise. As is show shown n abov above, e, the the amen amendm dmen ents ts to clau clause se 60 fall fall into into the the foll follow owin ing g categories:(i) (i) Amend Am endme ment ntss addr address essing ing the the cer certitifificat catio ion n of of bre breach ach of cont contra ract ct;; (ii) (ii) Amen Am endm dmen ents ts follo followi wing ng the the defi defini niti tion on of inter interim im payme payment nt certi certifi fica cate te and final payment certificate; (iii (iii)) The The provi provisi sion on for for inter interim im paym paymen ents ts wher where e the fina finall state stateme ment nt canno cannott be agreed; (iv) Minor amendments. (i) Breach Of Contract As was pointed out in the main work, the 4th Edition lacked any clear policy as to whet whether her damag damages es for for breac breach h of contr contrac actt shou should ld form form part part of the the paym payment ent mechani mechanism sm under claus clause e 60. This This has now been resolved resolved in favour favour of the inclusion of damages for breach of contract within the scope of the certifying function of the Engineer. The addition of the words "or otherwise" in sub-clauses 60.1, 60.6 and 60.8(a) and the removal of the words "under the Contract" in sub-clause 60.8(b) has had this effect. effect. The decision decision of those responsible responsible for the amendments amendments to make the Engineer responsible for the certification of damages for breach of contract removes an area of debate. Whilst it is clear that the the Engineer had power to rule on questions of damages when making a decision pursuant to clause 67.1 (Engineer's decision), it is far from clear that such power extended to the normal certifying functions. Under clause 53.1 (Notice of claims), claims for additional payment "pursuant to any Clause of these Conditions or otherwise" must be notified to the Engineer. Under clause 53.5 (Payment of claims):"The Contractor shall be entitled to have included in any interim payment certified by the Engineer pursuant to Clause 60 such amount in respect of any claim as the Engineer...may consider due to the Contractor provided that the Contractor Page 203 of 264
has suppli supplied ed suffic sufficient ient partic particula ulars rs to enable enable the Engine Engineer er to determ determine ine the amount due." Prior to this reprint, it was arguable by an Employer that, notwithstanding clause 53, there was no right to interim payments of damages because certificates under clause 60.2 could only include the sums listed in items (a) to (e) in clause 60.1. Item (e) referred referred only to sums to which the Contractor was entitled entitled "under the Contract." The counter-argument was was that the entitlement under clause 53.5 to have damages claims included in interim certificates had the effect of creating an entitlem entitlement ent "under "under the contr contract act". ". Such Such an argument argument could could only only extend to claims for damages where the Contractor had followed the clause 53 procedure procedure sufficiently sufficiently to enable enable the Engineer Engineer to make a determination. determination. For an old case in which these arguments were aired in the English courts, see Blackford & Sons v Chris Christc tchur hurch ch (196 (1962) 2) 1 LLR LLR 349. 349. This This argum argumen entt has has been been reso resolv lved ed by the addition of the words "or otherwise" to item (e). Clau Clause se 53 refe refers rs only only to clai claims ms of the the Cont Contra ract ctor or.. Ther There e are are no noti notice ce requ requir irem emen ents ts upon upon the the Em Empl ploye oyerr so that that the the Engin Engineer eer may may certi certify fy and and the the Employer may deduct without any notice notice other than the certificate certificate itself. This has alwa always ys been been true under under clause clause 60.2 60.2 (b) of the the 4th 4th Edit Editio ion. n. Of course course,, the the Employer may have rights of set-off under the law governing the contract in which case the Contractor could be given no notice at all. The inclusion of damages in certificates makes the careful exclusion of clause 47 (Liquidated damages for delay) from interim and final certificates look redundant. If the Engineer Engineer is to certify the Employer's Employer's entitlement entitlement to unliquidated unliquidated damages, with all the difficulties of ascertainment implicit in such a process, it is very difficult to see why he should not certify a sum that has been agreed as part of the contract and is capable of precise calculation. If the Employer does not wish to claim liquidated damages he may say so as with any other heads of claim which he may have. An Engineer certifying damages may wish to introduce additional lines on the form of certificate: firstly, representing additional sums owed to the Contractor for the Employer's breaches; and secondly, showing deductions resulting from the Contractor's breaches. (ii) Definition of "Interim Payment Certificate" and "Final " Final Payment Certificate" See generally generally the comments comments under clause 1.1 (Defini (Definitions) tions) above. above. As stated there, the new definition of Interim Payment Certificate has been used in subclauses 60.2 (Monthly payment), 60.4 (Correction of certificates) and 60.10 (Time for payment payment). ). As discusse discussed d in the comment commentary ary under under clause clause 1.1 above, above, the defin defined ed term term coul could d have have been been used used in subsub-cl clau ause sess 59.5 59.5 (Cer (Certitifificat catio ion n of payments to nominated Subcontractors), 60.3 (Payment of Retention Money) and 60.5 60.5 (State (Statemen mentt at comple completio tion) n) as the certif certificat icates es referr referred ed to in these these clauses clauses fall within within the defini definitition on of Interi Interim m Payment Payment Certifi Certificat cate. e. It has been been
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submitted that the definition of Interim Payment Certificate has been more widely drawn than intended. (iii) Interim Payment following disputed Final Statement In clause 60.6 (Final Statement), a paragraph has been added. This paragraph closely follows the World Bank's recommendation in their suggested paragraph 60.11. 60.11. One importa important nt differen difference, ce, however, however, is that the World World Bank adds an addit additio iona nall sent senten ence ce name namely ly:: "The "The Fina Finall Stat Statem ement ent shall shall be agree agreed d upon upon settlement of the dispute". dispute". The desirability of the sentence is considered below. The additional wording also deals with one of the criticisms of sub-clause 60.6 expre express ssed ed in the the main main work. work. In the absen absence ce of these these words words,, it remai remained ned arguable whether the Engineer was obliged to certify any payment pending the agreement of the Final Statement. Statement. Good practice would call for such a certificate but an Employer would previously have had grounds for denying the Engineer's authority to so certify. It is seen throughout the conditions that interim payment should be made for those parts of claims for additional payment which are not disputed by the Enginee Engineer. r. In clause clause 52.2 (Power (Power of Engine Engineer er to fix rates) rates) the Engineer Engineer is to determine provisional rates or prices pending the agreement or fixing of rates or prices prices for for variati variations. ons. Sim Simila ilarly rly,, under under clause clause 53.5 53.5 (Paymen (Paymentt of claims) claims) the the Contractor is entitled to payment for those parts of any claim for additional payment for which he has provided sufficient particulars. Disputed parts of the Contractor's final statement are to be settled in accordance with clause 67 (Settlement of disputes). This procedure may lead to one of three results:(a) a bind bindin ing g Engi Engin neer eer's deci decission; ion; (b) an arbitrator's award; (c) (c) an agre agreem emen entt betwe between en the the Emplo Employe yerr and the the Contr Contrac acto tor, r, whet whethe her r under Clause 67.2 (Amicable settlement) or otherwise. The question then arises as to whether sub-clauses 60.7 (Discharge), 60.8 (Final Payment Payment Certif Certifica icate) te) and 60.9 60.9 (Cessa (Cessatio tion n of Employ Employer' er'ss liabil liability ity)) have any functi function on when the disput dispute e has been resolved resolved under under Clause Clause 67. The Final Final Statement is defined as an agreement between the Engineer and the Contractor. Unless the Engineer's decision is wholly in agreement with the Contractor's claim, none of the possible results of the disputes procedure leads to a Final Statement. A settlement settlement or an award would generally specify when any balance due to the Contractor is to be paid so that the part of clause 60.10 (Time for payment) that deals with the final payment to the Contractor would also be redundant. An Engineer's decision, however, would not generally deal with time for payment. In these circumstances, it would no doubt be expressed as the overall balance Page 205 of 264
due to the Contractor and amount in effect to a Final Payment Certificate. However, there would be no agreed Final Statement and no discharge under Clause 60.7 (Discharge) which are the necessary pre-cursors to a Final Payment Certificate Certificate.. As the Employer's Employer's obligation obligation to make make final payment payment is tied to the Final Payment Certificate, the conditions have no mechanism for such a final payment. payment. Doubtless, Doubtless, the draftsman draftsman would rely rely upon the common sense of the parties to overcome this hurdle. The World Bank, by its use of the additional sentence, evidently does not share the draftsman's optimism and has provided that "the Final Statement shall be agreed upon settlemen settlementt of the dispute". This could be treated treated as a direction to the Engineer or arbitrator to make their decision or award in terms that the sum arrived arrived at shall be treated as the amount amount of the Final Statement. Statement. It is perhaps unfortunate that the World Bank's wording calls for further agreement between the parties. One party might well take issue with the arbitrator's award. If FIDIC decide to adopt the World Bank's general approach, it might be preferable to introduce a deeming provision whereby the gross sum arrived at in the dispute is taken to be the amount of the Final Statement. It is accepted that this solution is not not free free from from diff diffic icul ulty ty as such such a disp disput ute e coul could d well well addr addres esss the the over overal alll entit entitle leme ment nt of the the Cont Contra ract ctor or - in effe effect ct the the amou amount nt of the the Fina Finall Paym Payment ent Certificate - and not just the gross entitlement of the Contractor which is the subject of the Final Statement. The lack of a discharge under clause 60.7 (Discharge) does not matter greatly if the dispute which is taken through through to an Engineer's decision, decision, a settlement settlement or an award address address the the overall overall entitle entitlement ment of the Contract Contractor. or. The result result will will very very often be a full and final settlement settlement of the Contractor' Contractor'ss claims. More difficulty difficulty arises if the dispute relates purely to the Final Statement, permitting further scope for conflict if the Employer through the Engineer deducts claims and contra-charg contra-charges es on the face of the Final Payment Certificate. Certificate. Nevertheless, Nevertheless, the draft final statement is supposed to include reference to all the Contractor's claims so that a resolution of a dispute over the Final Statement should also be a resolution of those those claims. Clause 60.9 (Cessation of Employer's liability) liability) seeks to bar any claim from the Contractor that is not included in the Final Statement. As commented in the main work, the Final Statement referred to in clause 60.9 must be the Contractor's draft final statement as it would no longer be a claim once it formed part of an agreed Final Statement. It is reaso reasonab nable le to anti antici cipat pate e that that clau clause se 60 will will be the the subj subjec ectt of furt further her substantial change in the future. (iv) Minor Amendments In clause 60.3 (Payment of Retention Money) at item (b), the word "ordered" has been been repl replace aced d with with "inst "instru ruct cted ed"" bring bringin ing g the the voca vocabu bula lary ry into into liline ne with with the the remainder of the contract. The term "ordered" is left over from previous previous editions and shows the conditions' ICE origins.
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In clauses clauses 60.5 60.5 (State (Statemen mentt at Comple Completio tion) n) and 60.6 60.6 (Final (Final Statem Statement ent)) the Contractor is now required to produce six copies of each of those documents. This amendment is consistent with clause 60.1 (Monthly Statements) which has always required the Contractor to supply six copies of his monthly statements. 60. 60.2 ".. "...cons consiiders ders due due and and paya payab ble in resp espect ect ther thereo eoff...". .". The ques questtion ion frequently recurs as to whether the Engineer is entitled to certify damages payable by the Employer to the Contractor. It is submitted that he cannot because because the words words "in respect respect thereof" thereof" relate relate to the Contra Contracto ctor's r's statem statement ent submitted under sub-clause 60.1. The contents of this statement are specified and item (e) includes the words "under the contract" thereby excluding damages for breach of contract. At item (b), the Engineer is empowered to deduct from certificates "sums which may have become become due and payable by the Contract Contractor or to the Employer". Employer". The words "under the contract" are missing which must raise the argument that the Engineer is entitled to deduct on the face of certificates damages other than liquidated damages for any breach of the contract by the Contractor or even sums which are due and payable outside of the contract, for example, on other projec projects. ts. It must must be doubtf doubtful ul that that this was was intend intended ed by the draft draftsma sman. n. The expression "which may have become due and payable" seems unnecessarily vague and would allow an Employer to seek to persuade the Engineer to deduct on the face of the certificates sums which the Employer has merely claimed as due from the Contractor Contractor.. The Engineer Engineer is not asked to consider the the Employer's Employer's claim. Whilst in some jurisdictions it may may be that the the Employer would be entitled to set off from certificates sums in respect of such claims, it is again doubted that this was the intention of the draftsman. The careful exclusion of clause 47 (Liquidated damages) from this clause and sub-clauses 60.8 and 60.10 becomes somewhat ironic in the light of the latitude given given to the Employer Employer and Engineer Engineer by 60.2(b). 60.2(b). As the Employe Employer's r's ability ability to dedu deduct ct liqu liquid idat ated ed dama damage gess is real really ly larg largel elyy depe depend ndan antt upon upon Engi Engine neer er's 's decisions, decisions, the value of this careful exclusion must be doubtful. doubtful. One effect of the exclu exclusi sion on of liliqui quida date ted d dama damage gess is that that the the Cont Contra ract ctor or will will be enti entitltled ed to a certificate if the monthly total due to him would have been reduced below the Minimu Minimum m Amount Amount of Interi Interim m Certif Certificat icates es had the liquid liquidate ated d damages damages been deducted. It has not been made clear whether the Contractor is entitled to apply for interim certificates certificates other other than under sub-clause sub-clause 60.5 after substanti substantial al completion. completion. In reality, the period between the statement at completion and the final statement and certificate could be a long one and sums may fall due as, for example, the valuation of variations is agreed with the Engineer. It is submitted that the normal practice of certifying as and when significant sums are agreed is intended here. Clauses which entitle the Employer to make deductions are as follows:- clause 25.3 (Remedy (Remedy on Contractor's Contractor's failure failure to insure Page 207 of 264
- clause 30.3 (Transport of materials materials or plant): where where the Contractor has failed to prevent damage to roads. - clause clause 37.4 37.4 (Rejection) (Rejection) - clause 39.2 (Default (Default of Contractor Contractor in compliance) compliance) - clause clause 46 (Rate (Rate of of progr progress) ess):: extra extra costs costs of superv supervisi ision. on. - clause 47.1 47.1 (Liquidated (Liquidated damages) damages) - clause 49.4 (Contractor's failure to carry out instructions): regarding remedying of defects - clause 59.5 (Certification of payments to nominated nominated Subcontractors) - clau clause se 64 (Urg (Urgen entt rem remedi edial al work work)) - clause 70.1 (Increase (Increase or decrease decrease of cost) - clause 70.2 (Subsequent (Subsequent legislatio legislation) n) If the Employer is late in making payment of a certificate, provision is made under sub-clause 60.10 for the payment of interest. If, however, the the Engineer is late in certifying under this sub-clause, there is no express remedy for the Contractor although although the result in terms of cash-flow cash-flow is exactly the same. The Contractor Contractor is obliged to seek compensation from the Employer by way of damages for breach by the Employer of an implied term that the Employer will ensure that the Engineer Engineer certifies certifies in accordance with with the contract. Given that the existence existence of such implied terms will depend on the law of the contract, it might have been preferable for this obligation to have been spelt out, for example as part of clause 2 (Engineer and Engineer's Representative). This clause must be read with clause 56.1 (Works to be measured) which requires the Engineer to ascertain the value of the works by measurement. Strangely, there is no reference to clause 56 or measurement anywhere in clause 60. Under clause 10.1 (Performance security), the Contractor is supposed to submit his performance performance security security within within 28 days of the Letter of Acceptance. Acceptance. This will normally be before the date for commencement and inevitably before the first Interi Interim m Certif Certifica icate te is due. due. There There are limited limited possibi possibilit lities ies for the Employ Employer er to interfere with this process as the form is prescribed. However, the Employer is entitled under clause 10.1 to withhold his approval of the institution providing such security. security. Clause Clause 1.5 (Notices, consents consents etc.) prohibits prohibits the Employer Employer from withholding or delaying consent unreasonably. 60.3 (a) (a) Afte Afterr a Takin Takingg-Ov Over er Cert Certifific icat ate e with with respec respectt to a Sect Section ion or or part part only, only, the the Engineer determines the proportion having regard to the relative value of the Section or part. part. This clause clause is to be contrasted with with clause 47.2 (Reduction (Reduction of liquidated damages) where a similar determination by the Engineer would reduce the considerable scope for dispute as to the value of the part handed over.
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(b) (b) The The same same exerc exercis ise e of relea releasi sing ng a prop propor ortition on of the the rete retent ntio ion n is not not appli applied ed in respect of the second moiety of the retention money which is to be withheld until the last Defect Defect Liability Liability Period Period has expired. This could be galling galling if a very minor matter was delayed through no fault of the Contractor and received its TakingTaking-Ove Overr Certific Certificate ate later. later. The arrange arrangemen mentt certai certainly nly has the merit merit of simplicity simplicity but could could be open to abuse. It is perhaps perhaps misleading misleading to talk of "the "the other half of the Retention Money" as this indicates indicates that retention retention released after substantial completion and that to be released after the Defects Liability Period will will be the same same amount. amount. This This is unlikel unlikelyy to be so as the Engine Engineer er will have have certified one or more further payments under sub-clauses 60.2 and 60.5. As the release is determined by the effluxion of time rather than the completion of the remedying of the defects, it is obviously sensible to give the Engineer power to withhold withhold monies to cover outstan outstanding ding work. However, However, the Engineer Engineer is only entitled to withhold his estimate of the cost of work remaining to be executed whic which h has been ordere ordered. d. Unde Underr claus clause e 50.1 50.1 (Cont (Contra ract ctor or to sear search ch), ), the the Contractor Contractor may have been ordered to search for a defect but, until until such time as the the sear search ch has reveal revealed ed the the sourc source e of the the defe defect ct and and the the reme remedi dial al work work necessary to overcome it, the Engineer would not be in a position to order the remedi remedial al work. Thus, Thus, the Engine Engineer er would not be entitl entitled ed by this this provis provision ion to retain money money against the works works which may potentially potentially have to be ordered. ordered. This could leave the Employer exposed. The answer is perhaps for the Engineer to order the Contractor to search and also to remedy, with details of the remedial work to follow. It should be noted that the trigger trigger for the release release of retention retention is the expiry of the last Defects Liability Period and not the issue of the Defects Liability Certificate. 60.4 60.4 Althou Although gh the abilit abilityy to make correc correctio tions ns may be impli implicit cit in the the concept concept of an "interim" "interim" certificate certificate,, it is as well to make the power express. express. The Engineer Engineer would have been assisted in omitting or reducing the value of work not carried out properly if the words "in accordance with the Contract" which are used in subclause 60.5(a) had been used in sub-clause 60.1(a). It may be arguable that the Engineer's dissatisfaction could apply to the rate of progres progresss as well as to the quality quality of the work. This This raises raises the possibil possibility ity of reductions in certificates being an additional weapon whereby the Engineer might indu induce ce the the Cont Contra ract ctor or to make make prog progre ress ss.. See See also also clau clause se 46.1 46.1 (Rate Rate of progress). It is doubtful that this possibility was intended by the draftsman. draftsman. Clauses which require the Contractor to carry out work to the satisfaction of the Engineer are as follows:- clause 13.1 (Work to be in accordance accordance with contract contract)) - clause clause 17.1 (Setting (Setting out) out) - clause 20.2 (Responsibility to rectify loss or damage) - clause 33.1 (Clearance of site on completion) - clause 36.4 (Testing) Page 209 of 264
- clause 48 - clause 49
(Taking-Over) (Defects liability)
"...correction or modification in any previous certificate..." This wording could give rise to an argument that certificates other than interim payment certificates might be modified pursuant to this clause. Thus, a Taking-Over Certificate under clause 48.1, a certificat certificate e entitling entitling the Employer Employer to make direct payment to a nominated Subcontractor under clause 59.5 or a certificate of the Contractor's default under clause 63.1 could all be capable of modificiation. As the contents of the interim certificate is specified under sub-clause 60.2, where it is confined to amounts of payment, it seems plain that the power to modify was intended to be limited to interim interim certificat certificates. es. Accordingly, Accordingly, and for the avoidance of doubt, this sub-clause should be amended to read "any previous interim certificate". This clause must be read with clause 67.1 (Engineer's decision) which permits the Engineer to reconsider "any opinion, instruction, determination, certificate or valuation". However, before the Engineer may exercise this power, one of the parties must have referred a dispute to him with express reference to clause 67.1. 60.5 60.5 In this this clause clause and and in clause clause 60.6, 60.6, there there is refer referenc ence e to "the form form appro approved ved by the Engineer Engineer". ". Contra Contracto ctors rs will thus thus be oblige obliged d to submit submit draft draft forms in advance of the latest date in order to ensure that their submission is going to be acceptable acceptable to the Engineer. Engineer. The submission submission is due 12 weeks from from the issue of the Taking-Over Certificate and not from the date stated in the Taking-Over Certificate. The approval is subject to clause 1.5 (Notices, consents etc.) and may not be unreasonably delayed or withheld. (a) (a) The The eff effect ect of the the word word "fin "final al"" in this this clau clause se is is not ent entir irel elyy clea clearr. It is is perhaps surprising that it appears here and not in clause 60.6(a) which deals with the "Final Statement". (b) This appears ars to be broad oad enough to include damages ges for brea breacch of contract. contract. It may be that the words words "under the contract" contract" in (c) should should have been added to (b) as well. (c) (c) It is is to be be pres presum umed ed tha thatt it is is not not inte intende nded d that that the the Engi Enginee neerr shou should ld cert certififyy payment of the amounts estimated estimated by the Contractor. Contractor. The requirement requirement that the Engineer should certify "in accordance with sub-clause 60.2" would seem to rule this out as he is only to certify sums that he considers due and payable. It is essential that all the Contractor's claims are recorded in the Statement at Completion: see sub-clause 60.9 which terminates the Employer's liability for claims that are not recorded in both this Statement and the Final Statement under sub-clause 60.6. No indication is given of the degree of detail required: this may be a matter of the form to be approved by the Engineer and will no doubt depend on the extent extent of the notification notification made and records kept under clause 53
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(Procedure for claims). Normally, no more than a reference to the claim and the amount claimed would be necessary. Unfortunately, strict adherance to the letter of sub-clause sub-clause 60.2 could result in the entirety of the retention being deducted again having been released under subclau clause se 60.3 60.3(a (a). ). This This is beca becaus use e subsub-cl clau ause se 60.2 60.2 requ requir ires es the the rete retent ntio ion n percentage stated in the Appendix, a single figure, to be deducted from all certificates. Even if it can clearly be implied that sums repaid under sub-clause 60.3(a) should not be re-deducted under sub-clause 60.5, it is certainly unclear whet whether her the the full full rete retent ntio ion n perc percent entage age shou should ld be deduc deducte ted d or half half of that that percentage from the balance now certified. It is submitted that no departure from standard practice is intended. It is not clear what the effect of a failure by the Contractor under sub-clauses 60.5 or 60.6 to comply with the time limits would be. Generally, clear words words are required to make a time limit a condition precedent and such words are not used here. It is submitted that these time limits should be treated as directory rather than than mandatory mandatory.. It is very much in the Contract Contractor' or'ss intere interest st to make these submissions as early as possible whereas the Employer will not generally suffer detriment by the delay. 60.6 60.6 A compari comparison son of sub-c sub-clau lause se 60.6 (a) (a) and (b) (b) with sub-c sub-clau lause se 60.5(a 60.5(a)) and (b) and, indeed, with sub-clause 60.1(a) and (e) reveals a certain inconsistency. The word "final" "final" would have a place in sub-clause sub-clause 60.6 (a). Sub-clause Sub-clause 60.6 (b) includes claims but plainly does not include damages for breach of contract because of the words "under the contract". Thus, it is inconsistent in sub-clause 60.7 for the Final Statement to amount to a "full and final settlement of all monies due ... arising out of or in respect of the contract" as these words would include breach of contract. Taken literally, in the absence of agreement on the draft final statement, the clause would be powerless. No provision is made for such an eventuality so the parties parties would have to resort to clause clause 67 (Settlement (Settlement of disputes). disputes). Meanwhile, Meanwhile, the question arises whether, whether, pursuant to sub-clauses sub-clauses 60.2 or 60.5, there can be any certification in respect respect of those parts of the statement that are agreed. Whilst the sub-cla sub-clause use 60.2 60.2 interi interim m certif certifica icate te proced procedure ure is not expres expressly sly halted halted at substantial completion, the clause, together with sub-clause 60.1, does not seem to be drafted with the period after substantial completion in mind. One possibility is that the agreement is directed to form only: otherwise the Engineer would be reopening an agreement in determining the amount of the Final Certificate under sub-clause 60.8. This ambiguity should be resolved. It is essential that all the Contractor's claims are recorded in the Final Statement: see sub-clause 60.9 which terminates the Employer's liability for claims that are not recorded in both this Statement and the Statement at Completion under subclause 60.5.
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60.7 60.7 The discha discharge rge called called for is to the the effect effect that that the final final statem statement ent repres represent entss the Contractor's Contractor's entire entire entitlement. entitlement. Yet the wording of sub-clause sub-clause 60.6 (a) and (b) makes it plain that damages for breach of contract are not to form part of the Final Statement. Statement. Compare Compare the words "under the contract" contract" in 60.6 with "arising "arising out of or in respect of the contract" in this clause. This This is plai plainl nlyy a some somewh what at oneone-si side ded d proc proced edur ure e as the the Engi Engine neer er may may subse subseque quent ntly ly dedu deduct ct from from the the agre agreed ed value value sums sums whic which h he cons consid ider erss the the Employ Employer er to be entitle entitled d to. Indeed, Indeed, the Employ Employer er seems to be at liberty liberty to continue to present claims. "...payment due under the Final Certificate...". As this certificate takes no account of any entitlement of the Employer to liquidated damages, it is quite possible that payment of the sum stated in the certificate will not take place. As drafted, it is submitted that the discharge would not become effective in those circumstances. In order to take liquidated liquidated damages into account, words such as those in clause 60.10 (Time for payment), "subject to Clause 47", would be required. This clause should be read with sub-clause 60.9 and clause 62.2 (Unfulfilled obligations) and the comments under those clauses. It should also be borne in mind that the Employer gives to the Contractor indemnities under the following clauses:- clause 22.3 (Indemnity by Employer) - clause 25.4 (Compliance with policy conditions) - clause 26.1 (Compliance with statutes, regulations) - clause 30.3 (Transport of materials or Plant) It is submitted that the discharge does not inhibit future claims under these indemnities as it is "all monies due" that are settled and not, for example, "all monies due or to become due". 60.8 60.8 "(a) "(a) the amou amount nt which which,, in the the opin opinio ion n of the Engin Engineer eer ..." ...".. In view view of the the agreement which is required before a final statement can exist, it is somewhat surprising in this clause to see the Engineer being empowered to exercise his discretion discretion once again again as to the amount which is finally finally due. One explanation explanation would be if the agreement of the draft final statement in sub-clause 60.6 was to be as to form only. only. This This seems unlike unlikely ly in view of the words words with which which the second part of the sub-clause begins: "if the Engineer disagrees with or cannot verify any part of the draft draft final statement statement ...". ...". If the agreement agreement was as to form, content and final figure, then (a) should read "the amount of the agreed final statement". As drafted, the Engineer is apparently entitled to state in the Final Certificate a sum different to the sum agreed under sub-clause 60.6. This throws into question the purpose of the agreement and the capacity in which the Engineer is reaching such agreement. Regrettably, the only explanation seems to be an oversight on the part of the draftsman: this clause therefore needs to be amended. In sub-clause 60.8, the draftsman has reverted to "under the contract" thereby once again excluding excluding damages for breach breach of contract. Compare Compare the wording of Page 212 of 264
sub-clauses sub-clauses 60.1 (e), (e), 60.5(b), 60.5(b), 60.6(b) and and 60.7. There does not seem seem to be a clear policy on damages. Similarly, the Engineer gives credit for "all sums to which the Employer is entitled under the Contract" which is to be contrasted with sub-clause 60.2 (b) which lacks the words "under the contract". As in sub-clauses 60.2 and 60.10, the contract is careful to leave the deduction of liquidat liquidated ed damages damages to the Employe Employer. r. See the comment commentary ary on this under clause 60.2. Whereas Whereas in some, some, particu particular larly ly constru constructi ction, on, contrac contracts ts the final final certif certifica icate te is expressed to be conclusive in relation to certain matters contained in it which are not immedi immediate ately ly challe challenged nged at arbitr arbitrati ation, on, here here it is the combina combinatition on of the discharge under clause 60.7 and the cessation of the Employer's liability under 60.9 that limits the potential for future disputes. One must look to to clause 61.1 for any limitat limitation ion to be imposed imposed upon the Employer Employer.. There, There, it is said somewhat somewhat obliquely, that the Defects Liability Certificate constitutes approval of the Works. Exceptions are not spelt out, but it is doubtful that this recognition that the Contractor Contractor has executed executed the works and remedied remedied the defects defects to the satisfaction satisfaction of the Engineer would provide a defence to a claim in respect of latent defects. 60.9 60.9 In order order for for the Cont Contrac ractor tor to to maintai maintain n any claim claim,, he must must includ include e it in his Statement at Completion, if it has arisen by then, and in his Final Statement. There would be a discrepancy with clause 60.6 (Final Statement) if that clause envisages the agreement of the draft Final Final Statement. If this agreement extends to agreement of the Contractor's entitlement, it is difficult to see that a "claim", as distinct from sums agreed as either being due or not due, would still exist after the Final Statement. It is submitted under sub-clause 60.6 however that the required agreement is as to form only. This clause was at clause 62(2) in the 3rd Edition. Despite its new position, it should still be read with the the current clause 62.2 (Unfulfilled obligations) which at first sight looks contradictory but which, as is submitted thereunder, is in fact close to meaningless. The fact that clause 62.2 (Unfulfilled obligations) seeks to preserve certain liabilities of the Employer, militates in favour of the interpretation that the agreement is as to form only. If those liabilities are preserved but the Cont Contra ract ctor or is unab unable le to enfo enforc rce e them them,, clau clause se 62.2 62.2 woul would d be even even mor more redundant. See also also sub-clause 60.7 above. There are a number of incidences under the contract when the Employer gives to the Contractor indemnities or or is otherwise responsible 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 - clause 21.3
(Employer's responsibilities) in relation to safety; (Responsibility for amounts not recovered); Page 213 of 264
- clause 22.3 - clause 24.1 - clause 25.4 - clause 26.1 - clause 70.2 - clause 71.1
(Indemnity by Employer); (Accident or injury to workmen); (Compliance with policy conditions); (Compliance with statutes, regulations); (Subsequent legislation); and (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. The question therefore arises whether sub-clause 60.9 in fact bars these claims. The purpose of the sub-clause is sensible, namely to enable the Employer to achi achiev eve e a reaso easona nabl ble e degre egree e of cer certaint aintyy as to his his ulti ultim mate ate liabi iabililitty. Nevertheless, it is submitted that this sub-clause cannot be intended to contradict the indemni indemnitie tiess and other other rights rights contai contained ned in the clauses clauses listed listed above. above. If a change in legislation occurs or currency restrictions are imposed at the time of the final certificate, certificate, it is submitted that the Contractor Contractor is entitled entitled to claim for any losses under clauses 70.2 and 71.1. Therefore "claim" in the the current sub-clause must be interpreted as meaning a claim which the Contractor intends to make. This is consistent with clause 53 (Procedure for claims) which, it is submitted, addresses only claims which the Contractor intends to make. make. No such intention intention can exist where the circumstances have not arisen or are not known to the Contractor. Contractor. A difficulty difficulty in the way of such an interpretati interpretation on is the fact that the exception exception in brackets brackets refers only to the the Statement Statement at Completion. Completion. It would be argued for the Employer that if the draftsman had intended an exception to be made for subsequent events, the exception would have been extended extended to cover both Statements Statements.. If this is correct, correct, then Contracto Contractors rs would be well advised advised to include in their Final Statement a generally-worded claim in respect of any potential liabilities of the Employer to the Contractor including those arising out of the clauses listed above. It is submitted that this sub-clause should be amended to make it clear that claims that are known, or which should have been known to the Contractor at the date of the Final Statement Statement must be included included in that statement statement or lost. The subclause should have no effect on latent or future claims. 60.10 As clause 60 is the only clause clause under which interim interim certificat certificates es are issued, it is uncertain to what the words "or to any other term of the contract" refer. One possibility is that the draftsman had in mind a decision of the Engineer under clause 67.1 (Engineer's decision) to increase an interim certificate. Alternatively, an arbitrator's award to the same effect could be referred to, although most jurisdictions will have their own provisions for the time for payment and interest on awards. Another possibility is that the words refer back to "the amount due to Page 214 of 264
the the Contr Contrac acto tor" r" but but this this requi require ress a somew somewhat hat stra straine ined d cons constr truct uctio ion n whic which h replaces "or to any other term" with "or under any other term". The Employer's liability for interest is plainly tied to certificates. This position is to be contrasted with the scheme of the ICE 5th clause 60(6) where the Engineer's failure to certify certify also gives rise to an entitlement entitlement to interest. interest. To achieve the same result result under this contract, it would be necessary to obtain an award including damages for the failure of the Employer to procure proper certification by the Engineer in breach of an implied term. The damages would be the interest lost or cost of finance incurred by the Contractor. In English law, it is difficult to imply a term making the Employer liable in damages on each occasion that an arbitrator disagrees with the Engineer. Rather, the obligation found in cases such as London Borough of Merton v Leach (1985) 32 BLR 51 is to ensure that the Engineer is free to certify fairly and that when the contract calls for a certificate or other action on the part of the Engineer, he duly performs. The presence in the contract of clause 2.6 (Engineer to act impartially) provides an argument for a wider obligation in that, as the duty to be impartial is now express in the contract to which the Engineer is not party, the clause must impose an additional duty upon the Employer. It is submitted that a distinction has to be drawn between the duty duty to be impa impart rtial ial and and any any duty duty to be right right.. Just Just becau because se the the arbi arbitr trat ator or disagrees, it does not, it is submitted, mean that the Engineer has been partial. It is therefore difficult difficult to find that the Employer Employer is automatical automatically ly in breach and thus automatically liable for damages by way of interest. For a discussion of the extent to which the Employer is able to rely upon the Engineer's certificates by way of defiance to allegations of breach of contract, see under clause 63.1 (Default of Contractor). The payment of interest is without prejudice to the Contractor's entitlement under clause 69 (Default of Employer) to suspend or terminate but the question is whet whethe herr it is an exha exhaus usti tive ve reme remedy dy othe otherw rwis ise. e. If late late paym paymen entt and and the the consequential cash flow difficulties caused a Contractor, for example, to be unable to place an order or secure a shipment of materials, the Contractor arguably has no recourse to the Employer who has a further four weeks' grace before either suspension or termination is enforceable. Under ICE 5th, there is a similar provision but the Contractor's entitlement to interest is not stated to be without without prejudice prejudice to any other remedy. remedy. The contract's contract's silence silence might be more more beneficial to the Contractor than the express preservation of particular remedies as in this clause. The contract could be interpreted here as intending to exclude other remedies. remedies. It is submitted, submitted, however, however, that although although certain remedies remedies are prescribed by the contract for late or non-payment, these are not exhaustive. In English law at least, clear words are needed to exclude parallel common law rights; the words used here would probably not satisfy an English court, with the result that damages at common law could be recovered for the Employer's breach. The Contractor will be well advised to endeavour to agree a high percentage to ensure that the interest rate would never be attractive to an Employer when compared with the Employer's other financing arrangements. Page 215 of 264
A Contractor's ability to recover compound interest either for late payment of certificates or as part of the costs to be determined by the Engineer will vary from jurisdiction to jurisdiction. In England, the courts are still hampered by a long established rule against compound interest and have therefore tended to address the question as one of "financing charges" being part of the Contractor's direct costs or damages: see Minter v WHTSO (1980) 13 BLR 7 and Rees & Kirby v Swansea (1985) 30 BLR 1. ICE 6th now provides expressly for compound interest: a contractor in a sufficiently strong negotiating position would be well advised to seek the inclusion of a provision based on the ICE 6th clause. In Middle Eastern countries where the Sharia’ah influences the law, interest clauses have to be carefully checked for legality and enforceability. Interest provisions may be regarded as tainted with riba or usury. This difficulty applies equally to the recovery of interest on damages. Expenses such as financing charges may be acceptable if clearly demonstrated but each country enforces the Sha'aria with its own interpretation and severity. Part II provides optional additional sub-clauses dealing with situations where payments have been made in fixed proportions of various currencies, where all payments are to be made in one currency, where it is necessary to define the place of payment and where an advance payment is contemplated. Advance payments are common, particularly where a contractor is obliged to incur a high proportion of his costs on the purchase and transportation of equipment and other mobilizatio mobilization n before any of the permanent permanent works can be executed and thus before any payment would normally become due. Detailed provision for the amortization of such payment and for the securing of it by means of an advance payment bond is also normal. The clause proposed in Part II would not be adequate for large advances. CLAUSE 61: Defects Liability Certificate
This clause makes it clear that no certificate or determination or other action by the Engineer amounts to approval of the works other than the Defects Liability Certificate. This clause is taken from the 3rd Edition but the "Maintenance Certificate" is now known as the Defects Liability Certificate in order, FIDIC say, to avoid confusion as to the role of the Contractor during the period. The term "Defects "Defects Liability Liability Certifica Certificate" te" is not defined. defined. However, However, under clause 62.1 (Defects Liability Certificate), it is to be given by the Engineer within 28 days after the end of the last Defects Liability Period or when all works instructed have been completed, whichever is later. The significance of the Certificate Certificate is that it is is an acknowledgement that the Contractor has complied with the obligation to execute the works and remedy such defects as have been instructed by the Enginee Engineer. r. The Certif Certifica icate te would not, not, it is submitte submitted, d, amount amount to any sort of Page 216 of 264
release in relation to latent defects in respect of which the Employer would be entitled to recover damages for breach of contract; nor, more arguably, is it a release in respect of patent defects which were not the subject of instructions by the Engineer. The Certificate, Certificate, like any certificat certificate, e, may be opened up, reviewed and revised revised by the arbitrator if he disagrees either that the Defects Liability Period has expired or that remedial works, which have been instructed by the Engineer, have been satisfactor satisfactorily ily completed. completed. This is on the assumption that "the satisfacti satisfaction on of the Engineer" falls within his "opinion" or is a "decision" and thus falls within clause 67.3 (Arbitration) and amongst those things that the arbitrator has power to open up. There is no clear suggestion suggestion that the Defects Defects Liability Liability Certificate Certificate is in any way conclusive or in any way inhibits the Employer's subsequent subsequent right of action. action. If, for example, the Engineer believed that all remedial works instructed had been executed executed but subsequently subsequently found this not to be the case, the Employer would, it is subm submit itte ted, d, rema remain in enti entitl tled ed to reco recove verr for for the the brea breach ch that that the the defe defect ct represented, particularly if there had been any deliberate concealment by the Contractor. Moreover, the Employer could seek the Engineer's decision under clause 67.1 (Engineer's decision) in order to have the Defects Liability Certificate withdrawn. For a discussion of the Engineer's power to do so, see clause 67.1. "...approval of the Works". The Engineer is called upon to give his approval in numerous clauses and such approval is essential for the running of the project. For example, example, the Engine Engineer er must must approve approve the Contra Contracto ctor's r's superv supervisor isor under under clause 15.1 (Contractor's superintendence) and must give his approval before work is covered up under clause 38.1 (Examination of work before covering up). It is thus only approval of the "Works" that is confined to the Defects Liability Certificate. If this means the whole of the works, then it would be arguable that approval of a particular part could be valid. Indeed, it could also mean that a certificate other than the Defects Liability Certificate signifies approval for a part of the works. The definition of "Works" covers the whole project but the term is given an adjusted meaning in clause 49.1 (Defects Liability Period). It is arguable that if this clause is intended to refer to the Works or any part thereof, then it would not have been necessary, in so many clauses throughout the contract, to say that approval is not implied or that responsibility is not removed. However, this contract does repeat itself and more often than not the cause of clarity is served as a consequence. Further, when the contract is read as a whole and the wide powers in clauses such as clause 38.2 (Uncovering (Uncovering and making openings) openings) and clause 39.1 (Removal of improper work, materials or Plant) are noted, it is submitted that the correct interpretation becomes clear: the Employer through his Engineer is entitled to disapprove of any defective work at any time before the Defects Liability Certificate is issued and is not bound by any earlier action. The theme that the Engineer's approval and other actions will not relieve the Contractor of his contractual obligations runs right through the contract. See clause 7.3 (Responsibility unaffected by approval), clause 14.4 (Contractor not relieve relieved d of duties duties or respon responsib sibili ilitie ties), s), clause clause 17 (Sett (Settinging-out out), ), clause clause 37.2 37.2 (Inspection and testing) and clause 54.8 (Approval of materials not implied) for Page 217 of 264
examples. Under clause 2.1 (Engineer's duties and authority), the Engineer's authority is expressly limited to prevent an argument that the Engineer had approved a breach of contract or sub-standard work. As the Engineer is not mentioned in this clause, it could be said to apply to approvals of the Employer also. It would therefore be advisable for a Contractor seeking a relaxation of an element of the specification, for example, to obtain from the Employer agreement to a variation of the contract (as opposed to a variation under the contract). All approvals of the Engineer or the Employer are subject to clause 1.5 (Notices, consents etc.) and must not be unreasonably withheld or delayed. The Engineer must also comply with clause 2.6 (Engineer to act impartially). CLAUSE 62 Defects Liability Certificate
This clause provides for the issuing of the Defects Liability Certificate, which signals the completio completion n of the contract. The Certificate Certificate is to be issued within within 28 days of the end of the Defects Liability Period (or if the Works have been handed over in sections, the last of the periods) or after all remedial and searching works have been completed, completed, whichever whichever is the later. later. The second portion portion of retention retention money is released under clause 60.3 regardless of whether or not the Defects Liability Certificate is issued. The Defects Liability Certificate does not affect the Contractor and Employer's obligations to one another. This clause is essentially the same as sub-clauses 62(1) and 62(3) of the 3rd Edition Edition although the vocabulary vocabulary has changed. In particular, particular, "Maintenanc "Maintenance" e" has becom become e "Def "Defec ects ts Liab Liabililitity". y". SubSub-cl clau ause se 62(2 62(2)) of the the 3rd 3rd Edit Edition ion has, with with amendments, become clause 60.9 (Cessation of Employer's liability). 62.1 62.1 "The Contr Contract act shal shalll not be consi consider dered ed as compl complete eted.. d...". .". The "Con "Contra tract" ct" is is defined as a series of pieces of paper and not, as intended here, as the Contractor's obligation to carry out and complete the the Works. What is intended is reference to the physical construction obligations: it is not intended that other outstanding obligations and rights are are affected. For example, there is a string of rights and obligations, which flows flows from the Defects Liability Liability Certificate: within 56 days the draft final statement is due to be issued and subsequently discussed prior to the issue of the Final Statement. That statement leads within four weeks to a Fina Finall Cert Certifific icat ate, e, whic which h lead leadss with within in eigh eightt weeks weeks to payme payment nt by the the Employer. This common-sense interpretation of the clause is not assisted assisted by the last phrases of sub-clause 62.2, which deems the contract to remain in force for certain limited purposes.
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The proviso that payment of retention is not dependent upon the issue of a Defect Defectss Liabil Liability ity Certif Certifica icate te is probab probably ly unneces unnecessar saryy in this this editio edition n becaus because e clause 60.3 (Payment of retention money) makes the expiry of the last Defects Liability Period and not the certificate the occasion for the second release of retention. retention. This appears appears to be left over from from the 3rd Edition Edition when the the payment clause was left to the parties to complete in Part II. The Defect Defectss Liabil Liability ity Certif Certificat icate e may be delayed delayed whilst whilst remedia remediall works works and searches are undertaken so that responsibility for the defect which gives rise to the search under clause 50 (Contractor to search) can be identified prior to the triggering of the final payment machinery. The granting of the Defects Liability Certificate brings to an end the Employer's ability to claim on the Performance Security under clause 10 (Performance security). The security must be returned within 2 weeks of the issue of the certificate. The Contractor's right to remedy defects is also brought to an end. It is arguable that the Contractor is not given the right to repair all the defects, only those which he is instru instructe cted d to remedy remedy.. This This is incons inconsist istent ent,, however however,, with with the opening opening sente sentenc nce e of clau clause se 49.2 49.2 (Com (Comple pletition on of outst outstand andin ing g work work and and reme remedy dying ing defects), which shows that the draftsman plainly intended that the Contractor should remedy all defects in order to produce produce the works in the desired desired condition at the end of the Defect Liability Liability Period. Instructing the Contractor to remedy all defects is also consistent with the Employer's duty to mitigate his loss if, as would normally be the case, an alternative contractor would be more expensive. It is possible to reconcile the internal inconsistency of clause 49.2 if the Engineer's instruction power is treated as confined to the identification of the defects and, where appropriate, a statement of the required remedial action. For a discussion on when the Engineer's role comes to an end and he is functus officio, see under clause 2.1 (Engineer's duties and authority). 62.2 62.2 If the comme commenta ntary ry under under clause clause 61.1 61.1 (Approva (Approvall only by Defect Defectss Liabilit Liabilityy Certificate) and clause 62.1 is correct, this clause is necessary only in order to put certain certain matters matters beyond beyond doubt. doubt. Thus, Thus, the obligat obligation ion to pay damage damagess for breach of contract for latent defects would clearly remain unaffected. unaffected. It is a moot point whether the Employer's obligation to pay the Final Certificate has been "incurr "incurred" ed" prior to the issue issue of the Defects Defects Liabili Liability ty Certific Certificate ate.. As the Final Final Certi Certififica cate te is only only issu issued ed thre three e or more more mont months hs afte afterr the the Defect Defectss Liabi Liabilility ty Certificate, it could well be arguable that this clause does not bite on that obligation. obligation. That argument argument is reinforced reinforced by the deeming deeming provision provision at the end of this sub-clause, which suggests that, for the purpose of establishing establishing obligations arising after the Defects Liability Certificate, the contract is not in force. It is submitted that the ICE model is to be preferred without any deeming provisions. In order to make sense of this clause and to avoid the absurd result that the contract is not in force for the purpose of obligations arising after the date of the Page 219 of 264
Defects Liability Certificate, such as the obligation to pay the final certificate, it is necessary to interpret the sub-clause as a simple qualification of the opening sentenc sentence e of sub-claus sub-clause e 62.1. 62.1. That That sub-claus sub-clause e suggest suggestss that that the contrac contractt is complete when a certificate is issued. issued. Sub-clause 62.2 is therefore simply saying that "completed" does not mean "completed and a nd all obligations fulfilled". This clause should be compared to clause 60.9 (Cessation of Employer's liability) which seeks to curtail curtail the Employer's Employer's liability liability to the Contractor. Contractor. As submitted submitted thereunder, thereunder, that clause should only bite on claims which the Contractor knew or should have known about at the time of the final statement. statement. It would seem to be effective to bar the Contractor's claims which are not set out in the Contractor's statements statements under clause 60.5 (Statement at completion) completion) and clause 60.6 (Final statement). This clause should also be read with clause 60.7 (Discharge). CLAUSE 63 : Termination
This clause deals with the Employer's ability to terminate the employment of the Contrac Contractor tor and the conseque consequences nces of his so doing. doing. The power power arises arises if the Contractor has become insolvent, has either seriously or repeatedly breached the contract, has failed to obey instructions in relation to his progress or defective work or is in breach of the prohibition prohibition against subcontracting without consent. In the event that insolvency occurs in one of the listed forms or if the Engineer certifies one of the other heads of default, the Employer can give two weeks notice before terminating terminating the contract and taking over the site. site. The Employer is then free to complete the works himself or with another contractor and use the Contractors plant, materials etc. to do so. After termination, the Engineer certifies the value of the works executed and the value of any materials equipment and temporary works. After termination, the Employer is not obliged to pay the Contractor any further sum until after the Defects Liability Period and only then when all his costs of completion completion have been ascertained. ascertained. The balance is calculated calculated by the deduction of all the Employers' costs from the sum which would have been payable to the Contractor had he completed. For two weeks after termination, the Engineer may require the Contractor to assign sub-contracts and supply agreements to the Employer. Although the structure of clause 63 of the 3rd Edition has been retained, there have been extensive changes and sub-clause 63.4 has been added in the current edition. "Forfeiture" has become "termination" throughout and sub-clause 63.1(a) refers to "repudiation" rather than "abandonment". 63.1 63.1 Just as as under under the ICE ICE 5th and and 6th and and clause clause 69.1 69.1 (Defa (Default ult of of Employ Employer) er),, there there is no general general provisi provision on in this clause clause for any warnin warning g shot. Item Item (d) Page 220 of 264
however however is the one ground ground which provides provides for a prior prior written written warnin warning. g. If the Engine Engineer er cert certififie iess that that one one of the the lilist sted ed defa defaul ults ts has has take taken n place place,, then then the the Employer has an absolute right to terminate after only 14 days notice (seven days under ICE). No conduct by the Contractor in remedying the the default affects the Employer's rights in any way. way. FIDIC, in their Guide, indicate that the intention behind the Engineer's certificate, which is copied to the Contractor, was to give the Contractor Contractor a written warning. warning. This overlooks overlooks the important important fact that such a certificate certificate would in practice only be given at the instigatio instigation n of the Employer who may immediately act upon it. Furthermore, it overlooks the additional point point that, once the Engineer has certified, the Employer's right to terminate is not qualified either by a time-limit or by an opportunity for the Contractor to remedy the default and thereby prevent prevent terminatio termination. n. Because of the way the contract contract sets out the entitlements of the parties following termination, there is not even any effective duty duty to mitigat mitigate e restra restraini ining ng the Employ Employer. er. Only Only the delay delay and disrupt disruption ion of changing contractors acts as a deterrent to an Employer and only then if he has a genuine desire to complete the project. The Employer's powers are further extended by the absence of time limits for the exercise exercise of this power. Once the Engineer Engineer has certified, certified, there there is nothing in the clause which seems to prevent the Employer holding the threat of termination over the Contractor indefinitely indefinitely thereafter. A tribunal sympathetic to to a Contractor could however imply a requirement that the Employer act at once or not at all unless the Contractor's default was a continuing one. In this connection, see Mvita Construction Co. Ltd. v Tanzania Harbours Authority (1988) 46 BLR 19 and the decision of the Tanzanian Court of Appeal that although the words "then the Employer may...terminate" do not mean "at that time" but "in that event", the Employer must terminate within a reasonable time of the Engineer's notice "to avoid a change of the circumstances certified by the Engineer". Further, the Engineer could be asked substantially after the event to certify: under items (c) and (e), it would be possible for the Employer to invite the Engineer to certify that the Contractor had defaulted at some point in the past. Used in this way, a petty failure of compliance with clause 4.1 (Subcontracting) would effectively give the Employer a right to terminate at will with all the financial cons conseq eque uenc nces es at any any time time ther therea eaft fter er.. Only Only unde underr item itemss (b) (b) and and (d) (d) is it reasonably reasonably clear that the failing failing must be current. current. As to item (a), under English English common law the right to accept a repudiation repudiation of a contract and rescind is lost to an Employer if he "affirms "affirms"" the contract. contract. This means any act or omission omission which which might be interpreted as the expression of an intention on the part of the Employer to continue continue with the contrac contractt despite despite the repudiat repudiatory ory act. The orderin ordering g of a variation, making an interim payment, indeed almost any action by Engineer or Employer under the contract could amount to affirmation. Thus, at common law, the right to rescind rescind must be used promptly or lost. Here, the question is whether in item (a) the words "repudiated the Contract" might be interpreted differently to allow the Engineer to certify and the Employer to notify at any time after the repudiation regardless of whether the default has been remedied. It is submitted submitted that that the the word wordss perm permit it of this this hars harsh h inte interp rpre reta tatition on and and requ requir ire e amend amendme ment nt..
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Meanwhile arbitrators should strive to imply a term to bring the clause into line with English common law. ICE 6th has addressed the problems discussed above and, firstly, permits the Employer to extend the notice period to allow the contractor to rectify his default and, secondly, requires a notice of termination to be given as soon as is reasonably possible after the Engineer has certified. These provisions represent a significant improvement. This clause is very comprehensiv comprehensive e ranging ranging from informal informal insolvency ("unable to pay his debts as they fall due") to formal insolvency (liquidation etc). Thus in England it includes any failure to pay an undisputed debt within 21 days of service of a Statutory Demand and may also include a Contractor whose balance sheet discloses an excess of liabilities over assets (Section 123 of the Insolvency Act 1986). The clause is probably wide enough to cover any kind of insolvency under English law. Most countries have insolvency legislation although some have only provided for insol insolven vency cy recen recentltlyy and and thei theirr law law is in an earl earlyy stag stage e of deve develop lopme ment nt (for (for example, People's Republic of China and USSR). It should be noted that civil law jurisdictions tend not to recognise liquidators or receivers unless they have been appointed by a court of the country where the company was incorporated. Engli English sh law law is unus unusua uall in that most recei receive vers rs and a sign signifific ican antt numb number er of liquidators are appointed out of court. "...deemed by law...". It would always be advisable for parties to to these conditions to obtain local advice as to the meaning of this clause in the law of the contract as defined by clause 5.1 (Language/s and law). However it is by no means clear that the reference to "law" in this clause is to the law of the contract only. An Employer wishing to terminate the contract of a financially troubled Contractor will argue that the references in this clause to "any law" and "any applicable law" give a clear indication that the reference is not intended to be confined to the loca locall law law or the the law law of the the cont contra ract ct.. It is argu arguab able le that that the the refe referrence encess to bankruptcy, liquidation or dissolution are applicable no matter in which country they take place. In this context, see sub-clause 63.4 "unless prohibited by law". "...if "...if the Contract Contractor or has contra contravene vened d Sub-cl Sub-claus ause e 3.1". 3.1". The inclusi inclusion on of the refe refere renc nce e to a brea breach ch of the the nonnon-as assi sign gnme ment nt claus clause e in the the lilist st of acts acts of insolvency, appears to indicate an assumption that such an assignment would come about primarily in the event that the Contractor was in financial difficulty. This is not, of course, necessaril necessarilyy so and the law of assignment assignment is by no means so clear as to make it a safe proposition for an Employer to terminate on this ground without without the clearest clearest evidence. evidence. Such evidence evidence in some circumstances circumstances may may not not alwa always ys be fort forthc hcom omin ing. g. Comp Compar are e this this posit positio ion n with with the the rela relatitive ve reassurance given to an Employer in relation to the other grounds by the certificate of the Engineer.
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The only prerequisite for a notice of termination by the Employer on one of grounds grounds (a) or (e) is the certific certificate ate of the Enginee Engineer. r. It is a diffic difficult ult issue issue to determ determine ine what is the consequen consequence ce if the Engineer Engineer proves proves to be wrong. wrong. A certificate under this clause is as open to challenge at arbitration as any other certificate so that an arbitrator could and will often in these circumstances be asked to decide that the ground upon which the termination was based did not exist. If the arbitrator so awards, what is the result? The Employer is entitled to give notice of termination termination if he has the Engineer's certificate. certificate. Under English law at least, the Employer's duty is not to ensure that the Engineer certifies correctly but to ensure that he certifies when the contract calls for a certificate and that he is free to exercise his discretion in accordance with clause 2.6 (Engineer to act impartially impartially). ). Thus, the Employer Employer is not automatically automatically in breach of contract contract if an arbitrator overturns a certificate upon which a termination was based. The consequence of the termination will have been that the Contractor will have lost whatever profit he would have made on the balance of the work, has had his equipment, materials etc. effectively confiscated, will have received no payment until the works have been completed completed and the defects liability liability period period has expired and and at that that time time will will have have had had dedu deduct cted ed all all the the Em Empl ploy oyer er's 's expe expens nses es of completing the works by another contractor and any costs of delay. If there is no breach of contract, the question is on what basis the arbitrator is able to do justice between the parties. If termination was brought about by an incorrect certificate by the Engineer, this, it is submitted, is a risk which both parties take when entering into the contract. The risk should however fall somewhat more heavily upon the Employer as he has the opportunity to decide whether wh ether or not to act upon the Engineer's certificate before issuing his notice of termination. Thus, a fair result result would be achieved by the application of the measure of reimbursement given by clause 65.8 (Payment if contract terminated) so that the Employer has to bear the additional costs of completing the work by alternative means and the Contractor is reimbursed but recovers no loss of profit. This result, whilst fair, is not obviously open to the arbitrator. Unless it is said that he has some general inherent jurisdiction to produce a just result, he is obliged to consider the rights of the parties under the contract or, in the event of breach, at common law. Here there is no breach so that the arbitrator may be confined to opening up, reviewing and revising the certificates and other actions of the Engineer. Having reviewed and cancelled the certificate of default, it follows that the arbitrator must review and cancel the certificates under clause 63.3 which entitle entitle the Employer Employer to make the deductions deductions from the Contractor's Contractor's valuations. valuations. If the arbitr arbitrato atorr then then issued issued a furthe furtherr interi interim m certif certificat icate, e, the Contrac Contractor tor would would achieve payment for the works executed. That seems to be as far as the arbitrator can go to remedy the position and it has the result that the Contractor is paid for the works executed but does not receive profit nor compensation for late payment nor compensation for the use by the Employer of the Contractor's equip equipme ment nt and and mate materi rial als, s, save save to the the exte extent nt that that they they are are inclu included ded in the the arbitrator's interim certificate. Meanwhile, the Employer bears the additional costs Page 223 of 264
of obtaining an alternative contractor and receives no reimbursement for any delays that occurred. No doubt the Employer will consider what remedies are available to him under the Engineer's terms of engagement. For the Contractor to achieve full reimbursement including recovery of the lost profit, profit, he would would have to demonst demonstrat rate e that that the certif certificat icate e or the Employ Employer' er'ss reliance upon it amounted to breach of contract which, it is submitted above, is not easily possible if the Engineer acted in good faith and the arbitrator's contrary decision is simply a matter of opinion. Alternatively, the Contractor would have to argue that, once the arbitrator had overturned the certificate of default, the reentry by the Employer amounted to a breach of contract either under clause 42 (Possession of Site) or as a repudiation or even as an unlawful omission under clause 51.1 (Variations). However these arguments will be met with the defence that the Employer merely relied upon a certificate as he was entitled to do under clause 63.1. This argument seems to be correct. For a case in which this situation situation was considered, considered, albeit on a dissimilar dissimilar contract, contract, see the Privy Council's advice in Loke Hong Kee v United Overseas Land (1982) 23 BLR 35. On the facts, the arbitrator was held to be limited to considering whether the Engineer's certificate was given in good faith. Nevertheless, it was pointed out that the Employer is not obliged to act upon the Engineer's certificate, may judge its correctness for himself and therefore should not complain if it is subsequently overturned. The contract may be brought to an end prematurely under the following clauses:- clause 40 (Suspension) - clause 63 (Default of Contractor) - clause 65 (Special risks) - clause 66 (Release from performance) - clause 69 (Default of Employer) In addition, a repudiation by either either party could be accepted by the other party. In ascending order of worth to the Contractor, the financial consequences are broadly as follows:- clause 63.1 (Default of Contractor): Contractor receives the contract sum he would would have obtain obtained ed less less the Employe Employer's r's cost cost of execut execution ion/co /compl mpleti etion on and remedying of defects less damages for delay and all other Employer's expenses. - claus clause e 65 (Spec (Specia iall Risks Risks)) and and clau clause se 66 (Rele (Releas ase e from from perfo perform rman ance) ce):: Contractor receives value of works to date together with preliminaries, materials, committed expenditure plus the costs of demobilisation de mobilisation of plant and staff less any unspent advances paid by the Employer. - clause 40 (Suspension) (Suspension) and and 69 (Default (Default of Employer) Employer):: as clauses 65 and and 66 together with damages including the Contractor's loss of profit.
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repudiation: effectively the same as clause 69 but expressed as the Contractor's entitlements under the contract up to the date the repudiation was accepted and damages for breach of contract. "(a) has repudi repudiate ated d the contract contract". ". This This is new to the 4th Edition Edition and, under under English law at least, requires the Engineer to to make a difficult legal legal judgment as to whether the Contractor has, by his words or conduct, expressed an intention no longer to be bound by the contract contract.. Under the 3rd 3rd Edition Edition and ICE 5th and 6th the term is that the Contractor Contractor "has "has abandoned the contract". contract". If there is a repudiat repudiation ion,, the Employe Employerr would would be entitl entitled ed under under Englis English h common common law to terminate at once. It is submitted submitted that this right survives although the Employer woul would d lose lose the the prot protec ectition on of the the Engi Engine neer er's 's certi certififica cate te were were the the righ rightt to be exercised. Generally, clear words are required under English law if common law rights rights are to be excluded. It must be doubtful doubtful that these these words, which which do not even purport to exclude co-existent rights, qualify. Unless the Employer wishes to authorise the Engineer to take legal advice prior to certifying whether or not a repudiation of the contract has taken place, it is suggested that the interests of both parties would be served by restoring "abandonment", an altogether simpler concept. "(b) without reasonable excuse...": one can but speculate as to what would amount to a reasonable reasonable excuse for failing failing to commence or to proceed; proceed; plainly plainly this gives the Engineer and thus the arbitrator considerable discretion. As discussed in the commentary to clause 41.1, there is ambiguity as to the meaning of these words. "(i) to commence the Works". As discussed in the commentary to clause 41.1, these words are ambiguous. In particular, the distinction between Temporary Works and Contractor's Equipment is ill-defined. The Contractor must be aware that his right to programme a long mobilisation period will be subject to this obligation to commence Permanent or Temporary Works, on pain of termination. "(ii) to proceed proceed with the Works ... pursuant pursuant to Sub-clause Sub-clause 46.1": The obligation obligation under clause 46.1 (Rate of progress) is not "to proceed", rather to "take such steps as are necessary.. necessary...to .to expedite". expedite". The clause assumes assumes that the works are proceeding but at a rate which is not sufficient in the Engineer's opinion to achieve completion completion by the due date. It would require require a strained interpretatio interpretation n of the the cont contra ract ct to make make this this groun ground d for for term termin inat atio ion n appl applyy to a fail failur ure e of the the Contractor to take steps to expedite progress despite the knowledge that this must have been the draftsman's intention. This is an important provision as it is the only means of obliging a Contractor in delay to accelerate rather than take the often cheaper option of liquidated damages. It therefore needs amendment, together with clause 46.1 to provide a more precise obligation than to "take steps" and an effective sanction.
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Under clause 46.1, the Contractor's obligation is to react "thereupon" which is taken to mean immediately. This clause, if it were not misconceived, would give give the Contractor four weeks before any sanction is imposed. (c) (c) Unde Underr clau clausse 37. 37.4 (Reje Reject ctiion), on), the Engi Engine neer er is enti entittled led to notif notifyy the the Contractor of his rejection of plant and materials whereupon the Contractor "shall then promptly make good the defect". The Engineer does not necessarily specify the means whereby the defect will be remedied and "promptly" may have to be read in the context of ordering replacement plant or materials from a distant source. Under clause 39.1 (Removal of improper work, materials or Plant), the Engineer is empowered to instruct the removal and replacement of plant, materials or work which he considers not to be in accordance with the contract. It should be noted that there is provision for the Engineer to specify a time limit for the removal of such plant or materials. If that time limit should be longer than 28 days, there is a theoretical conflict with sub-clause 63.1(c) which requires the instruction to be carried carried out within within 28 days of receipt receipt.. Under clause clause 39.1(b) 39.1(b) and (c), (c), there there is no time limit imposed save by sub-clause 63.1 which could well trap an unwary Contractor on a project where the removal and replacement are not critical operations. See the comments under clauses 37.4 and 39.1 criticising the selection of these clauses as grounds for termination. (d) (d) The The 4th 4th Edit Editio ion n is in in line line wit with h ICE 5th 5th in in making making "wa "warn rnin ing" g" singu singula larr rath rather er than than plural plural as in the 3rd Edit Editio ion. n. Warn Warnin ings gs are not cover covered ed by claus clause e 1.5 1.5 (Notices, consents etc.) which deals with the necessity for notices to be in writing hence hence the the expr expres esss requi require reme ment nt for for writ writing ing here here.. ICE ICE 6th 6th has has rever reverte ted d to "warnings". "Persistent" is defined in the Concise English Dictionary as "continue firmly or obstina obstinatel telyy esp. against against remonstr remonstrance ance". ". "Fl "Flagr agrant ant"" is defined defined as "glari "glaring, ng, notorious, scandalous". It may perhaps be unavoidable that a clause which has consequences consequences as grave as this one includes includes terms terms as debatable as these. these. ICE 5th 5th and and 6th 6th also also use use "pers "persis iste tent ntly ly"" but but the the alter alterna natitive ve is "fund "fundam amen enta tallllyy in breach" breach".. It is a safeguard safeguard for both the Contrac Contractor tor and the Employer Employer that the Engineer's certificate is required before action may be taken. In English law, a forfeiture clause will be construed strictly, giving the Contractor the benefit of any doubt. (e) (e) Clau Clause se 4.1 4.1 relat elates es to subsub-co cont ntra ract ctin ing g and repre eprese sent ntss a cons consiider derable able danger to the Contractor. Contractor. No part of the works may be sub-contracted sub-contracted without without the prior consent of the Engineer save in respect of the provision of labour, subcontractors named in the contract and "the purchase of materials which are in accordance accordance with the standards standards specified specified in the contract". contract". In the context of subclause 63.1, the quoted words represent a considerable trap. trap. A Contractor would be most unwise to organise the purchasing of materials in any fashion without Page 226 of 264
the Engineer's Engineer's express express approval. Otherwise, Otherwise, if any materials materials are shown to be sub-standard, the Engineer may certify and the Employer may give notice to terminate without the the Contractor having defaulted in any culpable way. Compare the 3rd Edition and ICE 5th which requires that unauthorised sub-letting be "to the detriment of good workmanship or in defiance of the Engineer's instructions to the contrary". ICE 6th has adopted the course to be preferred and has dropped unauthorised subcontracting as a ground for termination altogether. A breach of clause 3.1 (Assignment of Contract) entitles the Employer to determine without a certificate from the Engineer. "Wit "Witho hout ut ther thereby eby rele releas asin ing g the the Cont Contra ract ctor or from from any any of his his obli obligat gatio ions ns or liabilities liabilities". ". This wording, wording, shared with with the ICE, is obviously not intended intended to be taken literally. Plainly, the Contractor is relieved of his obligation to execute and complete the works. Equivalent words were considered in the case of E.R. Dyer v Simon Built/Peter Lind Partnership (1982) 23 BLR 23 where it was held that these words prevented the contract being "determined" for the purpose of a subcontract contract which was automatical automatically ly to come to an end upon the "determinat "determination" ion" of the main contract. Only termination at common law by the acceptance of a repudiation would bring about the automatic ending of the sub-contract, it was held. "As he or they they may think proper proper": ": it is difficu difficultlt to see by what what standard standardss this proprie propriety ty is to be judged judged.. If the Contract Contractor or requires requires the material materials, s, etc., etc., for another project, project, is this a factor? It is submitted submitted that the draftsman draftsman intended the Employer and new contractor to use as much of the materials, etc., as they wished. To that end, the word word "proper" "proper" could usefully usefully be replaced replaced by the word "fit". The definition definition of "Contractor's "Contractor's Equipment" Equipment" at clause 1.1(f)(v), 1.1(f)(v), is wide enough to include the machinery of subcontractors. It seems that the Employer is also entitled to make use of any materials left on site. Clause 54.7 (Incorporation of clause in subcontracts) requires that terms equivalent to those in clause 54 (Contractor's Equipment, Temporary Works and materials) be included in "any sub-contract for the execution of any part of the Works". Therefore suppliers are not intended to be covered. No doubt, the use of machinery and materials would be part of the negotiations with suppliers which would follow the termination as mentioned in the commentary to sub-clause 63.4 below. By way of example, a supply agreement could include a retention of title clause whereby title to the goods or materials is not transferred transferred until such time as they have been paid for. Difficult Difficult questions questions of law would undoubtedly undoubtedly arise if the Employer sought to use this power in respect of the machinery or materials of unpaid suppliers. It is submitted that the provisions of this clause are not exhaustive and that there is a parallel right to terminate at common law. This question qu estion could be important in circumstances where the assumptions made in sub-clause 63.3 do not apply. For examp example le,, the the Em Empl ploy oyer er may may hims himsel elff aban abando don n the the proj projec ectt or may may take take the the opportunity to revise the project so that the payment mechanism of sub-clause 63.3 becomes inoperative. inoperative. The question question would also be relevant relevant if, after conduct Page 227 of 264
by the Contractor Contractor amounting amounting to the repudiation repudiation of the contract, the Employer reentered immediately and without giving the required 14 days notice. There are two factors which suggest that the common law is intended to be excluded: firstly, the inclusion of repudiation at item (a), replacing the term "abandonment" used in the 3rd Edition; and secondly, the absence of any express words such as "without prejudice to the rights of either party" as in clause 65.6 (Outbreak of war). It is submitted that the reason for including repudiation is to give to the Employ Employer er the protec protectio tion n afford afforded ed by the certif certificat ication ion of the Engine Engineer er when when terminating the contract for repudiation. As to the lack of words making it clear that this clause is "without prejudice" to common law rights, this is not essential under English law. Indeed, it may be argued that express words are required to exclude common law. Of the grounds for termination under this sub-clause, items (b), (c) and (e) would not normally amount to repudiatory conduct by the Contractor. Thus, a failure by the Employer to follow the letter of the clause in terminating the Contractor's employment could leave the Employer in repudiatory breach of the contract. With items (a) and (d), provided that in the latter case the neglect to comply with an obligation was sufficiently serious, the Employer could still terminate the contract without strictly following the terms of the clause. However, it is important to appreciate that the question of the relevance of common law must be judged in accordance with the law of the contract. The comments made relate to English law alone and thus are relevant to contracts adopting English or similar law pursuant to clause 5.1 (Languages and law). The wording of clause 67.1 (Engineer's decision) gives rise to an argument that if the Contractor requests an Engineer's decision within the 14-day period after receipt of a notice under this sub-clause, the termination is suspended until the Engineer has made a decision on the validity of the notice or the grounds upon which it was based. This is because clause 67.1 says that "unless the Contract has already been repudiated or terminated, the Contractor shall, in every case, continue to proceed with the works". Under this clause, the termination may not occur until the 14-day period has expired. However, if the notice states that ground (a) applies because the Contractor has repudiated the contract or if the Cont Contra ract ctor or's 's cond conduct uct in rela relatition on to one one of the the othe otherr grou grounds nds amoun amounts ts to repudiation, the argument may fail. The Contractor could seek a decision on the notice alleging repudiation. Of course, if the Employer has the courage of the Engi Engine neer er's 's conv convic icti tion ons, s, he coul could d term termin inat ate e the the cont contra ract ct at comm common on law law imme immedia diate tely ly,, if the the law law of the the cont contra ract ct permi permits ts.. The The phras phrase e "rep "repud udiat iated ed or termin terminate ated" d" and the fact fact that that "repudi "repudiate ated" d" replace replaced d "abando "abandoned ned"" in the 4th Edition gives rise to the suspicion that the draftsman intended the Contractor to continue in all cases where the works had not already come to a halt. In other words, words, it was the Contrac Contractor tor leaving leaving site site or the Employ Employer er re-ent re-enteri ering ng after after repudiation by the Contractor that was intended. If so, clarification of clause 67.1 is call called ed for, for, perh perhap apss by sayi saying ng "unl "unles esss the the Cont Contra ract ct has has alre alread adyy been been terminated, the Contractor has withdrawn or the Employer has already entered upon the Site...". Meanwhile, it is submitted that the present wording allows the
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intentions of the draftsman to be respected and the Employer should await the Engineer's decision before acting upon his notice. It is therefore submitted that the argument is good and the Contractor may delay termination by requesting a decision in the absence of a clear repudiation. However, it may not gain the Contractor much respite as the Engineer could make make his his deci decisi sion on by retu return rn of post post.. Ther There e is no expr express ess requ requir irem emen entt for for consultation and the Engineer's only restraint is clause 2.6 (Engineer to act impartially). In the commentary under clause 69.1 (Default of Employer), it is suggested that the same argument applies to termination by the Contractor. In some countries, particularly those with civil law systems, termination of a contract is only permissable with the leave of the court. However, in countries with administrative laws based on the French model, the administration may have a superimposed power to terminate at will if the public interest so demands, irrespective of the terms or law of the contract. This power is the most extreme expression of the doctrine of Fait du Prince briefly described under clause 5.1 (Languages and law) above. The Contractor may have a right to compensation. In relation to the Employer's continued use of the Contractor's machinery where it has been hired, see clause 54.5 (Conditions of hire of Contractor's Equipment) and clause 54.6 (Costs for the purpose of clause 63). Courts are faced with difficult decisions when asked to intervene in the event of a disputed termination. In Tara Civil Engineering v Moorfield Developments (1989) 46 BLR 72, an English Official Referee decided that an injunction would not be granted granted preventing preventing termination termination if the clause 63 notice appeared appeared valid on its face and in the absence of clear proof of bad faith faith or unreasonablenes unreasonableness. s. In AttorneyAttorneyGeneral General of Hong Kong v Ko Hon Mau (1988) 44 BLR 144, where the Contractor Contractor had had issu issued ed a noti notice ce of term termin inat atio ion n and and the the Em Empl ploy oyer er had had also also noti notifi fied ed term termin inat atio ion, n, the the quest questio ion n of the the Em Empl ploye oyer' r'ss right right to use use the the Cont Contra ract ctor or's 's equipment arose. The Hong Kong Court of Appeal decided that both notices would be treated as provisionally valid pending arbitration. The Contractor was allo allowe wed d to remo remove ve his his equip equipme ment nt.. For For some some cases cases on the the need need for for stri strict ct compliance with the notice provisions, see under clause 68 (Notices). In the New Zealand case of Brown and Doherty v Whangarei County Council (1988) 1 NZLR 33, the Court held that termination clauses must be complied with to the letter if they were to be relied upon. 63.2 63.2 Althou Although gh latin latin is an internat internation ional al language language,, it is still still to be doubted doubted whether whether legalistic legalistic latin latin should be employed in a civil engineering engineering contract. contract. In fact, given clause clause 2.6 2.6 (Engi (Engine neer er to act impa impart rtial ially) ly),, it is doubt doubtfu full whet whether her ment mentio ion n of reference to the parties, investigation and enquiries is necessary. Item (a) provokes the question why a quantum meruit ("reasonably earned", "reaso "reasona nabl blyy accru accrue") e") has been been intr introdu oduce ced. d. Ther There e can can be lilitt ttle le doubt doubt in a termination under the contract, as distinct from a common law termination after a Page 229 of 264
repudiation, that the payment provisions of clause 60 (Payment) are capable of being being operat operated. ed. Comp Compar are e for for examp example le clau clause se 65.8 65.8 (Pay (Payme ment nt if contra contract ct terminated) which deals with termination caused by one of the special risks, where the Contractor is paid "for all work... at the rates and prices provided in the Contract". The answer may be that this valuation and certification certification does not lead to payment. Sub-clause 63.3 provides an altogether different basis for the actual payment. payment. The purpose purpose of this clause clause is no doubt to provide for some some form of valuation to take place as soon after the termination as possible so that works executed by the Employer or alternative contractors is not confused with work executed executed by the Contractor. Contractor. This logic logic is however undermine undermined d by the fact that the valuation is likely to be of little use to the Engineer in performing his calculation under sub-clause 63.3. Item (b): whilst it is perfectly sensible for the value to be established of the Contractor's materials, equipment and temporary works, the valuation does not distinguish between those which the Employer intends to use and the remainder which, which, presuma presumably bly,, the Contra Contracto ctorr is at liberty liberty to remove remove from the site. site. (In contrast with clauses 65.7 and 69.2, there is no provision in clause 63 for the removal of the Contractor's Contractor's material and plant). Unhappily, the valuation arrived arrived at is, once again, not to be utilised save perhaps by an arbitrator who overturns the Engineer's certificate which gave rise to the termination. 63. 63.3 The The Em Empl ploy oyer er is not not obli oblige ged d to make ake any any furth urther er paym paymen entt unt until the the expiration expiration of the defects defects liability liability period. period. This gives rise rise to the obvious problem problem that after termination, there will be no defects liability period as that period starts, pursuant to clause 49, from the date specified in the Engineer's Taking-Over Certificate, which will not now now be given. How then is this clause to operate? One possibility is to take the defects liability period as starting from the contractual completion date as extended. This may be sensible although perhaps somewhat difficult to sustain if part of the background of the termination was culpable delay on the part of the Contractor Contractor which meant that he would not have completed on time. An alternative alternative is the defects liability liability period of the alternative alternative contractor. contractor. This assumes that a new contractor is taken on to complete the same works on very similar terms. It is of course perfectly possible that an Employer who has terminated will take the opportunity to revise the project or the contract conditions upon which the contract contract is let. Equally, Equally, it is quite possible that the Employer Employer will decide to abandon the project. This possibility is not catered for by the terms of the contract at all. The Employer would have to rely upon his general rights to damages for the Contractor's breach of contract. There is no time limit imposed for the ascertainment and certification by the Engineer Engineer of the Employer's Employer's costs costs and expenses. The Employer Employer would only only be concerned concerned to ensure prompt prompt certificatio certification n if a balance is due to him. From the Contractor's viewpoint, a time limit could usefully be added. The Engineer is required to certify what sum "would have been payable to the Contractor upon due completion completion by him". This exercise raises questions such as whether variations to the work introduced after termination should be taken into Page 230 of 264
account. A similar exercise would have to be undertaken by a court or arbitrator arbitrator endeavouring to establish a Contractor's loss of profit and other damages under clause 69 (Default of Employer) or after the acceptance of a repudiation by the Employ Employer. er. An alternat alternative ive approach approach is to deduct deduct from the value value of the works executed by the Contractor the additional cost to the Employer of executing the works by an alternative alternative contractor. This would also have required a comparison of the cost had the Contractor executed the works and the Employer's actual costs and thus amounts to the same speculative exercise. Variations introduced after the termination must either be included in the Contractor's Con tractor's costs or excluded from the Employer's costs. See the commentary commentary under sub-clause sub-clause 63.2 for a comment on the failure failure of this sub-clause to make any use of the valuation carried out by the Engineer under sub-clause 63.2. Included in the assessment to be undertaken by the Engineer are "damages for delay in completion completion (if any)". In the commentary commentary under clause 47.1 (Liquidated (Liquidated damages for delay), it has been remarked that it is arguable that damages only become payable under that clause after a Taking-Over Certificate has been issued. If that is correct correct and as terminatio termination n is unlikely to take take place after the the Takin Takingg-Ov Over er Cert Certifific icat ate e has has been been issu issued, ed, then then ther there e will will be no liliqu quida idate ted d damages for delay. If that is correct, it must be arguable for an Employer that, in the absence of an effective liquidated damages remedy, common law damages for delay should be available. available. If the termination termination takes place prior to the Time for Completion, it is plain that clause 47.1 does not come into operation and no liquidated damages are payable. Again, it may be be arguable that if the Employer can demonstrate loss, for example because an alternative contractor requires substantial additional payment in order to complete by the Time for Completion, this may be recoverable. Costs incurred by the Employer in taking over the hire of machinery from the Cont Contra ract ctor or as prov provid ided ed in claus clause e 54.5 54.5 (Cond (Condititio ions ns of hire hire of Cont Contra ract ctor or's 's Equipment) are deemed part of the cost of completing: see clause 54.6 (Costs for the purpose of clause 63). 63.4 "Unless prohibited prohibited by law": law": what what is prohibited prohibited by law law will will depend depend less upon the law of the contract pursuant to clause 5.1 (Languages and law) but rather upon the laws which govern the agreements concerned. Contracts for personal services are not capable of assignment under English law nor may assignments be effected which which infringe infringe the insolvency insolvency laws. The expression expression "prohibited "prohibited by law" seems to exclude a mere inability to assign owing to, for example, some limitation upon assignment in the supply agreements or sub-contracts. Thus, for the purposes of this clause and for clause 4.2 (Assignment of subcontractors' obligations) obligations) the Contractor Contractor must must beware of agreeing agreeing to any such limitation. limitation. If a Cont Contra ract ctor or,, in an ende endeav avour our to comp comply ly with with this this subsub-cl clau ause se or claus clause e 4.2, 4.2, purports to assign a contract containing such a limitation, the assignment will be ineffective and he will be in breach of this sub-clause. For clarity, clause 4 could Page 231 of 264
usefully impose an obligation upon the Contractor to ensure that all supply agreements and sub-contracts entered into are capable of assignment insofar as the relevant law allows. allows. See also clause 54.5 (Conditions (Conditions of hire of Contractor's Contractor's Equipment) which seeks to allow the Employer to take over the hire agreements after the departure of the Contractor. In cont contrrast ast with ith clau clause se 59.5 59.5 (Cert Certif ific icat atiion of payme ayment ntss to nomin ominat ated ed Subcontractors), there is no provision in this clause permitting the Employer to pay the subcontractors and suppliers directly in the event of termination. Many construction contracts provide for direct payment and set-off in the event of termination. The draftsman may be relying either on the Employer's rights as assignee assignee of sub-contracts sub-contracts or on sub-clause 63.3 which relieves relieves the Employer Employer of liability to make further payments until completion. However, in neither case is the Employer entitled to pay the subcontractors subc ontractors directly for work executed prior to termination and thereafter to set off the direct payment from sums otherwise due to the Contractor. The draftsman may have considered that clause 59.5 could be operated after termination. Even if this is the case, it only entitles the Employer to pay nominated subcontractors. The Contractor may have ordered a major item of machinery for installation by direct contract with a manufacturer which would not fall within this clause. An express power of direct payment on termination would place the Employer in a better position to negotiate with subcontractors and suppliers. Without it, the Employer would have no power of set-off if it chose to make the direct payment and, subject to other provisions in the contract, may be at risk of paying the same sum to a liquidator appointed over the Contractor. In these circumstances, it is surprising that Part II gives no optional clauses which might cover the situation. It should be noted that if the general conditions are amended to provide for a direct payment and set-off, the provision may be ineffective if the Contractor becom becomes es bankr bankrup uptt or goes goes into into liliqu quid idat atio ion. n. This This is becau because se of the the gene genera rall principle of insolvency law that the property of an insolvent must be distributed rateably amongst all the creditors. See for example British Eagle v Air France (1975) 1 WLR 785. It would be argued that the debt owed to the Contractor constituted property and that it is not open to the Employer to distribute that prop proper erty ty to any parti particu cula larr cred credititor orss of the the Cont Contra ract ctor or.. Such Such prov provis isio ions ns are are invalidated in some jurisdictions (e.g. Singapore, New Zealand and South Africa) but are upheld in others (England and Australia). Cases which have upheld such clauses in England may, however, no longer be good law. CLAUSE 64 : Remedies
If the Engineer considers that urgent work is necessary for the safety of the Works and the Contractor is unable or unwilling to carry out such work, the Employer Employer may use other contractors. contractors. If the Contractor Contractor was responsible responsible for the work, the Employer may deduct his costs from sums otherwise due to the Contractor. Contractor. The Engineer Engineer is to notify the Contractor Contractor of the emergency emergency as soon as practicable. Page 232 of 264
This clause is not fundamentally changed from the 3rd Edition. The The issu issue e whet whethe herr the the Cont Contra ract ctor or "was "was liliab able le to do at his his own own cost cost"" the the emergency emergency works, will depend largely on whether the work was done during the execution of the works or during the Defects Liability Period and partly on the terms of clause clause 20 (Care of Works). Clause 20 makes responsibi responsibility lity for care of the works the Contractor's until they have been taken over by the Employer. The Contractor is not liable for damage caused by the Employer's risks listed at clause 20.4 (Employer's risks) although he is obliged to rectify the damage if it occurred before taking-over. After the works are taken over, the Contractor has neither an obligation to execute the works nor to pay for them unless the emergency was caused by the Contractor either by defective work or while completing outstanding work or remedying defects. In view of the Engineer's power of instruction, and the fact that emergency work by another Contractor is likely to be more expensive than such work done by the Contractor, it is perhaps surprising that this clause is not expressed in mandatory terms and that the Contractor is not obliged to pay the Employer the additional costs costs of obtai obtaini ning ng an alte altern rnat ative ive cont contra ract ctor or in circ circum umst stanc ances es wher where e the the Contractor Contractor has an obligation obligation to rectify rectify but is not liable liable to pay. This apparent apparent omission in the clause may be rectified by the Engineer using his power of instruction so that if the Contractor failed to comply with that instruction, the Employer would be entitled to damages. In that way, this clause may be read read as a clause that gives the Employer a power to employ alternative contractors at the Contrac Contractor tor's 's expense expense rather rather than than a clause clause which which permit permitss the Contra Contracto ctorr to decline to take necessary emergency action. It will also provide the Contractor with the necessary incentive to act. Other contractors may also be used by the Employer pursuant to clause 31 (Oppor (Opportun tuniti ities es for other other contrac contractor tors), s), clause clause 39.2 39.2 (Defau (Defaultlt of Contra Contracto ctorr in complia compliance) nce),, clause clause 49.4 49.4 (Contr (Contract actor' or'ss failur failure e to carry carry out instru instructi ctions) ons) and clause 63.1 (Default of Contractor). CLAUSE 65 : Special Risks
A Cont Contra ract ctor or shall shall have have no liliabi abilility ty for for dama damage ge to the the Work Workss (oth (other er than than condemned condemned work under clause 39), other property or injury or loss of life arising arising from the special risks. The special risks are defined. If the Works, materials, plant or equipment are damaged by one of the special risk risks, s, the the Cont Contra ract ctor or is to be paid paid for for work work execu execute ted, d, mate materi rial alss and and plant plant damaged and any rectification work or replacement or repair of materials or equipment as required by the Engineer or necessary for the completion of the Page 233 of 264
Works. Damage Damage caused by bombs etc shall be deemed the consequence of the special risks. The Contractor is to be paid any costs of completing the Works which result from the special risks and which would not otherwise otherwise be recoverable. recoverable. The Contractor Contractor is to notify the Engineer of such costs forthwith. If war breaks out and materially affects the Works, the Contractor is to continue to use his best endeavours to complete the Works but the Employer is entitled to terminate the contract by notice. Upon a termination on account of war, the Contractor is to remove his equipment and assist his subcontractors to do the same as soon as possible. After such termination the Contractor will be paid for all work executed, for costs incur incurre red d incl includ udin ing g demob demobililis isat atio ion n costs costs less less the the bala balanc nce e of any adva advance nce payments. This clause has certain significant alterations from the 3rd Edition, and has been re-organised. The indemnity given by the Employer to the Contractor under clause 65(1) has been deleted. Payment for rectification and replacement work is now to be made in accordance with clause 52 (Valuation of variations) and not on the basis of cost plus profit. The opening words of sub-clause 65.5 and of 65.8, item (e) are new, as is the final sentence of 65.8. Clause 65 could usefully be divided, with sub-clauses 65.1 to 65.5 being included with the risk and insurance clauses 20 to 25 and with sub-clauses 65.6 to 65.8 remaining in their current position amongst the termination clauses. Such a move would emphasize the odd way in which the clause duplicates and sometimes clashes with clause 20 (Care of Works). 65.1 65.1 The caref careful ul exclus exclusion ion of work workss condemne condemned d under under clause clause 39 (Remo (Removal val of improper work, materials or plant) in this sub-clause and sub-clause 65.5 must make it easier for the Contractor to recover payment for work, no matter how imperfectly executed which had not been the subject of an instruction pursuant to clause 39. It is worthy of note that, with the exception of the reference to noncompliance with clause 39 as a ground for termination under clause 63.1 (Default of Contractor), clause 39 is not referred to anywhere else in the contract. In particular, clause 39 is not an exception to the Contractor's right of recovery under clause 20.3 (Loss or damage due to Employer's risks). The answer may be that under clause 20.3 the Engineer would not require the Contractor to rectify condemn condemned ed work work becaus because e he would would already already have instru instructe cted d the Contra Contracto ctor r under clause 39 to replace it. Nevertheless, it seems somewhat strange that if the damage serves to demonstrate that an element of the works was constructed wholly defectively, the Contractor is entitled both to payment for the original defective execution and for the cost of rebuilding.
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The essential difference between this sub-clause and clause 20.3 (Loss or damag damage e due due to Em Empl ploye oyer' r'ss risk risks) s) is that that the the Em Empl ploy oyer er's 's risks risks exem exempt pt the the Contractor from the cost of repairing damage to the Works whereas the special risks exclude the Contractor from liability not only for damage to the Works but also from damage to other property and death or personal injury. This must include death or personal injury to workmen as referred to clause 24.1 (Accident or injury to workmen). In civil code countries, where administrative law based on the French model applies, this clause reflects the Theorie de l'imprevision whereby if exceptional and unforeseen events render the Contractor's obligation excessively onerous threatening him with excessive loss, then the Contractor's loss may be reduced to reas reasona onabl ble e lilimi mits ts by way way of comp compens ensat atio ion n by the the Em Empl ploy oyer er.. In cert certai ain n countr countries ies,, notabl notablyy Eygpt Eygpt this this doctri doctrine ne has been been extende extended d to civil civil or privat private e contracts as well. This clause is in fact more generous than the administrative law law doctr doctrin ine e as it prov provid ides es for for the the Cont Contra ract ctor or to be comp comple lete tely ly reli reliev eved ed of respo responsi nsibi bilility ty,, wher wherea eass the the Theor Theorie ie only only prov provid ides es for for the the reduc reductition on of the the Contractor's losses. For a brief overview of administrative law based on the French model, see clause 5.1 (Languages and law). 65.3 65.3 If damag damage e to the work workss is caused caused by the the special special risk risks, s, that that is Emplo Employer yer's 's risks under clause 20.4 (a),(c),(d) and (e) or (b) in the event that the rebellion relates to the country in which the Works are being executed, the question arises whether there is any material difference between "no liability" under clause 65 and the Contractor's right to payment under clause 20.3. For example, if delay results from the event, is the Contractor exposed to liquidated damages? If he is under no liability whatsoever, presumably not. If, however, he is to receive an additional payment "in accordance with Clause 52", has he agreed to take the risk of delay upon himself? It is submitted that he has not because, in either event, an extension of time should be due under clause 44.1 (Extension of time for completion) items (a) or (e). Liability to a third party might not produce so simple an answer: could such liability be brought within the "rates and prices" context of clause 52? If the scheme of the contract requires prolongation costs to be covered by the terms of the clause, inappropriate as the wording may be for that function, function, the answer may be that even liability to a third party is covered. In summary, this clause and clause 20.3 should not on their respective wording have the same effect but in practical terms they probably do. As pointed out in the commentary under clause 20.3, there is a conflict between this sub-clause sub-clause and clause clause 20.3 as to the Contractor's Contractor's right right to carry out and be paid paid for for the the repa repair ir and and comp comple leti tion on of the the Work Workss and and the the repl replac acem emen entt of equipment etc. Here, "the Contractor shall be entitled ... so far as may be required by the Engineer or as may be necessary for the completion of the works, works, to paym paymen entt for for (a) (a) rect rectififyi ying ng ... ... and (b) (b) repl replaci acing" ng".. Work Work whic which h is necessary for the completion of the Works the Contractor is therefore entitled to undertake. On the other hand, clause 20.3 requires the Contractor to rectify the damage "if and to the extent required by the Engineer". It should be borne in mind that the Contractor's underlying right and obligation is to carry out and Page 235 of 264
complete the works unless and until the contract or his employment under it is terminated. terminated. Neither Neither clause 20.3 nor this sub-clause sub-clause give a right to terminate terminate nor do they address the issue of termination. Once an element of work has been satisfactorily completed, does a Contractor have a right or obligation to return to that part of the works in the event that it is damaged? If the damage is the resp respon onsi sibi bilility ty of the the Cont Contra ract ctor or,, ther there e is no diff diffic icul ulty ty and and clau clause se 20.2 20.2 (Responsibility to rectify loss or damage) imposes a clear obligation on the Contractor to rectify such damage. If the damage is not his responsibility, it is submitted that the Contractor has no underlying right or obligation to repair the damage. Clause 20.3 (Loss or damage due to Employer's risks) is consistent with this position and it is worthy of note that under clause 49.2 (Completion of outsta outstandi nding ng work work and remedyi remedying ng defect defects) s) the Contra Contracto ctorr is only oblige obliged d to remedy such defects as the Engineer may instruct. This sub-clause may be interpreted in two ways to achieve consistency: firstly, it may regarded as dealing only with the right to payment as distinct from the right or obligation to execute the the repa repair ir work works; s; or seco second ndly ly,, the the phra phrase se "as "as may may be nece necess ssar aryy for for the the completion of the Works" may be taken to mean the completion of those parts of the work which had not, at the time of the incident, been completed. It is submitted that this interpretation produces a sensible result. After all, there is no obligation upon the Contractor to insure four of the five special risks so the funds may not be available to execute repairs in any event. Clause 53.1 (Notice of claims) applies to claims under this sub-clause so that the Contractor has 28 days of the event to notify the Engineer of an intention to claim. The notice requirement of clause 52.2 (Power of Engineer to fix rates) does not, it is submitted, apply for the reasons set out under that sub-clause. "Plant" has been omitted from items (a) and (b) in this sub-clause which, it is presumed, is an oversight. 65.4/ 65.4/65. 65.5 5 The The very very wide wide word wordin ing g of this this cla claus use, e, espec especia iallllyy the "wh "when eneve everr and wherever" in combination with the very loose causative link required under clause 65.5 seems bound to give rise to some curious claims. Thus, the explosion of a grenade in Mecca, for example, leading to Moslem members of the Contractor's workforce on a project in Sweden taking a day off work by way of protest would seem to entitle the Contractor to claim additional costs under sub-clause 65.5. The Contractor Contractor is obliged obliged to give notice forthwith forthwith upon such costs coming to his knowledge. The only explanation for the forthwith requirement as distinct from, for example, the 28 days required by clause 53.1 (Notice of claims) is the apparent generosity of the clause. The only other occasion on which notice must be given given forthw forthwith ith is under under clause clause 12.2 12.2 (Adver (Adverse se physica physicall obstruc obstructio tions ns and conditions), although clause 27 (Fossils) requires the Engineer to be acquainted with the find "immediately". Sub-clause 65.5 should be read with clause 70.1 (Increase or decrease of cost).
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65.6 65.6 After After the genero generosit sityy to the Contrac Contractor tor of the the previous previous two two sub-cla sub-clauses uses this this clause seems intended as some partial compensation to the Employer. If he wishes to terminate the contract without being obliged to pay the Contractor any sum in respect of loss of profit, he may do so if he is able to demonstate a material effect upon the execution of the works by any war anywhere in the world. What amounts to a material material effect will always be a difficult difficult question question but a war which affected the price of oil, for excample, may arguably suffice. However, it is "the execution of the Works" which must be effected and there may well be scope for argument than an increase in price as distinct from the non-availability of material or labour needed for the works, would not affect the execution. Such an argument would be supported by the wording of clause 70.1 (Increase or decrease of cost) where matters affecting the "cost of the execution of the works" are referred to. The clause does not specify that the material effect must be adverse and, it is submitted on the wording of the clause, an Employer is given the option to terminate in the event of some benefit being conferred on the project by reason of the outbreak of war. For example, if a shortage of labour was converted to a plentiful supply on account of a war in a neighbouring region, the Employer might well be able to claim a material effect. In the event of termination, the parties' rights under this clause and clause 67 (Settlement of disputes) are expressly preserved as it is the contract that is being terminated and not the Contractor's employment as under clause 63.1 (Default of Contractor) or clause 69.1 (Default of Employer). Curiously, the Engineer, in making his decision under clause 67.1 (Engineer's decision) would not be bound by clause 2.6 (Engineer to act impartially) as that clause has not been preserved. The parties' rights in respect of breaches of contract occurring prior to termination are also preserved. preserved. This could rise to difficulty difficulty if such antecedent antecedent breaches give rise to a right in either party to terminate, yielding a different financial result to that set out in sub-clause 65.8. For example, if the Employer Employer had interfered interfered with the issue of a certificate and the Contractor was about to issue or had issued a notice of termination under clause 69.1(b) which would only take effect 14 days thereafter, the Employer might well seek to avoid the Contractor's profit claim by terminating under this clause. On the assumption that the Employer can show the requisite material effect, it is submitted that sub-clause 65.8 will prevail and the Contractor will not receive his loss of profit profit.. This This is because because it is the manner manner in which the the contract contract or the employment of the Contractor comes to an end that is critical in determining which of clauses 63.3, 65.8 or 69.3 applies. CLAUSE 65.6 (Outbreak of War) Click on the [*] button to see omitted text. The proviso has been amended as follows:Page 237 of 264
"Provided that the Employer shall be entitled, at any time after such outbreak of war, to determine the Contract by giving notice to the Contractor and, upon such notice being given, the Contract shall, except as to the rights of the parties under this Clause and [*] Clause 67, terminate, but without prejudice to the rights of either party in respect of any antecedent breach thereof." In this sub-clause and in clause 66.1 (Release from performance), thought has been given to the termination of the Contract as distinct from the termination of the employm employment ent under under the Contra Contract. ct. Under Under English English law, a widely widely-wo -worde rded d disputes clause, including the provisions for Engineer's decisions and amicable settle settlemen ment, t, would would surviv survive e the ending ending of a contrac contract. t. Accrued Accrued entitl entitleme ements nts to damages for breach breach of contract contract would also also generally generally survive. survive. The words are necessary, however, even in English law to ensure the survival of the applicable provisions provisions dealing dealing with payment following following terminati termination on of a contract. contract. Whatever Whatever the law governing the contract, it is obviously wise to deal with this matter expressly. 65.7 65.7 This This subsub-cl clau ause se shou should ld be cont contra rast sted ed with with clau clause se 54.1 54.1 (Con (Contr trac acto tor' r'ss Equipment etc) and clause 54.4 (Re-export of Contractor's Equipment.) See also the commentary under clause 54. 65.8 65.8 For a compar compariso ison n of the financ financial ial conseq consequen uences ces of termin terminati ation on under under this clause with termination under clause 63.1 (Default of Contractor) and clause 69.1 (Default of Employer), see the commentary under clause 63.1. CLAUSE 66 : Release from Performance
Where circumstances beyond the control of the parties make performance of the cont contra ract ct impo imposs ssib ible le or unla unlawf wful ul,, the the part partie iess are are rele releas ased ed from from furt furthe her r performance and clause 65.8 (Payment if contract terminated) applies. This clause contains significant alterations from the 3rd Edition, not least that speci specifificc refe refere renc nce e to war has been been omitte omitted. d. This This clause clause must be read read in conjunction with clause 13.1 (Work to be in accordance with contract) which says that the Contractor must carry out the works in strict accordance with the contract "unless it is legally or physically impossible". The words "impossible or unlawful" are new to the 4th Edition, the former wording being where "either party is prevent prevented ed from from fulfil fulfillin ling g his contrac contractua tuall obliga obligatio tions". ns". See the commen commentar taryy to clause 13.1 for discussion on "impossibility". This This clau clause se atte attemp mpts ts to brid bridge ge betw betwee een n the the stri strict ct comm common on law law doct doctri rine ne of frustration and the civil law concept of force majeure. English common law, as codified in the Law Reform (Frustrated Contracts) Act, makes it difficult for a party to succeed in a plea of frustration. In Davis Contractors v Fareham UDC (195 (1956) 6) AC 696, 696, the the Engl Englis ish h Hous House e of Lord Lordss held held that that a contr contrac actt was was not not frustrated by a severe shortage of labour; the Court of Appeal also refused relief in Wates v GLC (1983) 25 BLR 9 when the contractor complained that runaway Page 238 of 264
inflation had fundamentally altered the economics of the contract. It took a catastrophic landslip which buried the site, swept away a twelve storey block of flats and killed a number of people to persuade the Privy Council in Wong Lai Ying v Chinachem Investment Co. Ltd (1979) 13 BLR 81 that a contract had been frustrated. If a contract is held to be frustrated, the result, broadly speaking, is that the contractor is to be paid for the work done prior to the frustrating event but otherwise both parties are discharged from further performance. In civil law jurisdictions, the doctrine of force majeure takes an altogether more relaxed approach to relieving the parties of their obligations under the contract and it is this more relaxed approach that has been adopted in the current clause. This clause should be read with clause 20.4 (Employer's risks) and clause 65 (Special Risks), which also reflect the doctrine of force majeure, and the commentary under clause 5.1 which briefly outlines three civil law doctrines that are implied into administrative contracts in certain countries. The project comes to an end if one party is unable to fulfill his contractual obligations obligations or if both parties are released released from further further performance. performance. The latter circumstance may be relatively rare but the ease with which a party could invoke the former depends on the interpretation of the expression "any circumstances outside outside the control of both parties". parties". In theory, the financial financial circumst circumstances ances of a Contractor could render it impossible for him to continue and his difficulties could derive from a change in the construction market altogether outside his control and and that that of the the Em Empl ploy oyer er.. Alth Althou ough gh such such a Cont Contra ract ctor or woul would d have have to demonstrate the impossibility of his carrying on to the satisfaction of an arbitrator, this clause must present both parties with considerable scope for escaping from an unprofitable contract. As clause 65.8 (Payment if contract contract terminated) gives gives a generous reimbursement of costs, a Contractor who finds himself making a loss is bound to consider taking advantage of this clause if circumstances allow. It may be relevant to a consideration of whether a contract has been frustrated or a party is unable to fulfil his contractual obligations that there is a power under clause 40.1 (Suspension of work) to put all or part of the project on hold for three months without the consent of the Contractor. It could well be argued therefore that a merely temporary problem could be overcome within the terms of the contract. CLAUSE 66.1 (Release from performance) Click on the [*] button to see omitted text. This clause now reads as follows:"If any circumstance outside the control of both parties arises after the issue of the Letter of Acceptance which renders it impossible or unlawful for either [*] or both parties to fulfil his or their contractual obligations, or under the law governing the Contract the parties parties are released from further further performance, performance, then the parties Page 239 of 264
shall be discharged from the Contract, except as to their rights under this Clause and Clause 67 and without prejudice to the rights of either party in respect of any antecedent breach of the contract, and the sum payable by the Employer to the Contractor in respect of the work executed shall be the same as that which would have been payable under Clause 65 if the Contract had been terminated under the provisions of Clause 65." The firs firstt two two amend amendme ment ntss are are presu presuma mabl blyy inte intende nded d to make make it clea clearr that that impossibilit impossibilityy or illegalit illegalityy affecting affecting both the Contractor and the Employer has the same same effe effect ct of disch dischar argi ging ng the the cont contra ract ct as woul would d impos impossib sibililitityy or ilille lega galility ty affecting affecting one party only. Given the conservatism conservatism of the committee committee responsible responsible for the re-print, it is perhaps surprising that they felt it necessary to make these amendments. Scope for misunderstanding was very limited, limited, it is submitted. For comment on the preservation of certain clauses and rights, see under clause 65.6 (Outbreak of war) above. CLAUSE 67 : Settlement of Disputes
This clause is the disputes clause and introduces a 3-stage process. Any dispute should be referred in writing to the Engineer who is given 12 weeks in which to give give his decisi decision. on. Unless Unless the contr contract act has has come come to an end, end, the Contr Contract actor or conti continu nues es to execu execute te the the Work Workss and and both both parti parties es must must give give effe effect ct to the the Enginee Engineer's r's decisio decision. n. If either either party is dissatisf dissatisfied ied with with the decisio decision n or the Engineer Engineer fails to make a decision, they have 10 weeks in which to give notice of their their intenti intention on to commen commence ce arbitrat arbitration. ion. If they fail to give such notice, notice, the Engineer's decision will become final and binding upon the parties. For 8 weeks after the notice of arbitration is given, the parties try to settle the dispute amicably. If neither the Engineer's decision nor the attempts at amicable settlement have succeeded in resolving the dispute, the matter is referred to arbitration under the rules of the ICC. The arbitrator arbitrator will will have power to look into into any decision of the Enginee Engineerr and replace replace any certific certificate atess etc. etc. that that the Engine Engineer er has made. made. The parties may use fresh evidence and arguments and may call the Engineer as a witness. witness. The arbitration arbitration may may be commenced before before or after the completi completion on of the Works. The conduct of any arbitration arbitration before completion will will not change the obligations of the parties. Where an Engineer's decision has become final and binding, a party may refer any failure by the other party to comply with that decision directly to arbitration without the need for a further Engineer's decision or any attempt at amicable settlement.
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The 4th Edition introduces fundamental changes to to the disputes procedure. The principles contained in clause 67 of the 3rd Edition have been divided between sub-clauses sub-clauses 67.1 and 67.3. 67.3. A more detailed detailed procedure procedure has been set out for the Engineer's decisions. Sub-clause 67.2 introducing amicable settlement is new as is clause 67.4 giving either party a right to go directly to arbitration in the event that an Engineer's decision has neither been challenged nor complied with. 67.1 67.1 "If "If a dispu dispute te.. ..." .".. It is not not uncomm uncommon on for one one party party to deny deny that that a disp disput ute e exist existss and ther theref efor ore e to deny deny that that an Engi Engine neer er's 's deci decisi sion on or arbit arbitra ratition on is appropriate or indeed permitted under the terms of the contract. In England, a dispute dispute has been held to require a claim by the Contractor Contractor and its rejection: rejection: see Monmouthshire County Council v Costelloe & Kemple (1965) 5 BLR 83. This Court of Appeal decision on ICE 4th Edition centred on whether a dispute had been referred to the Engineer and illustrates the good sense of requiring the reference and the decision to say that they are made pursuant to this clause. It is clear from the breadth of the opening phrases of this clause that the category of disputes to be referred referred to the Engineer includes includes breaches of contract. contract. Thus, the Engineer will be asked to give a decision on, for example, whether the Employer was in breach by failing to ensure that the Engineer certified properly in accordance accordance with the contract. contract. The Engineer Engineer is therefore therefore called called upon to judge whether his own actions were correct or incorrect with possible ramifications under under his contract contract with with the Employer Employer.. It is perhaps perhaps asking asking too much much of any Engineer to be independent and disinterested in relation relation to such a decision. For this reason, this procedure is sometimes regarded as little more than a delay to the resolution resolution of the dispute or as a cooling-off cooling-off period. period. In practice, practice, a reference reference under clause 67.1 will often be preceded by correspondence between Contractor and and Engi Engine neer er in whic which h the the resp respec ecti tive ve posi positi tion onss are are set set out. out. In thes these e circumstances, the Contractor could justifiably consider a further 12-week delay, while the Engineer formalises his position, to be time wasted. Overall, the procedure does seem very protracted with a period of up to 30 week weekss from from the ref referen erencce to the Engi Engine neer er unt until an arbi arbitr trat atiion may be commenced. commenced. Under the ICC Rules, Rules, an award in less than a further further 6 months is prob probabl ablyy unli unlike kely ly.. Whil Whilst st this this may may encou encoura rage ge the the part partie iess to pursu pursue e only only substantial substantial complaints and to take the amicable amicable settlement settlement procedure seriously, seriously, a year is a very substantial period, particularly if the project will somehow be affected affected by the award. For example, example, a decision decision as to whether whether an Engineer is is entitled to instruct a particular variation could be of great importance to the project. Whether the broad opening phrases of clause 67.1 are sufficiently broad to require an Engineer's decision on a demand by either party for the rectification of the contract (i.e. the correction of the contract to reflect accurately the intentions of the parties) will depend on the applicable law. Under English law those words in an arbitration clause would almost certainly be held to give an arbitrator power to rectify the contract. Accordingly, it is submitted that a party could apply for Page 241 of 264
rectificatio rectification n in the first instance instance to the Engineer although, although, under clause 67.3, he would be free to put his argument in a different way and seek rectification from an arbitrator. It must be doubtful doubtful whether a decision by an Engineer could have the effect of rectifying a contract as distinct from resolving the particular dispute referred to him for decision. If the Engineer's decision became final and binding for lack of challenge, an arbitrator looking at a separate dispute involving the "rectified" clause would, it is submitted, be at liberty to ignore or reconsider the Engineer's purported rectification. There There is no express express time time limit for for a refere reference nce to the Engineer Engineer.. The clause clause envisages such references after the completion of the works. works. Limits on the ability of the Contractor to claim are contained in clause 53 (Procedure for claims), clause clause 60.7 60.7 (Disch (Discharg arge) e) and clause clause 60.9 60.9 (Cessat (Cessation ion of Employ Employer' er'ss liabil liability ity). ). Nevertheless, clause 62.2 (Unfulfilled obligations) preserves obligations on both sides. The most likely likely source of dispute long long after the completion completion of the works would be the emergence of defects. Subject to the limitation limitation period imposed by the law of the contract, such a dispute might arise many years after the project is complete. For a discussion on when the Engineer's role comes to an end and he is functus officio, see under clause 2.1 (Engineer's duties and authority). As no arbi arbitr trat atio ion n (oth (other er than than one one under under clau clause se 67.4 67.4)) may may star startt with without out an Engineer's decision, the question arises as to what happens if the Engineer is no longer available available.. The Engineer Engineer is defined as a person and Part II requires requires the the insertion insertion of a name. Although Although the draftsman draftsman appears to have in mind the name name of an individual, it would not be inconsistent with the contract for the name of a practice practice of Engineers to be used. In either event, event, the individual individual could be dead, retired or in dispute with the Employer Employer and the practice could could be disbanded. The Engineer may simply refuse to consider any reference. reference. In these circumstances, circumstances, it is submitted that the party must write to the name set out in Part II and the address also set out in Part II pursuant to clause 68.2 (Notice to Employer and Engineer) and thereafter rely upon the ability 84 days later to give notice of intention to commence arbitration when the Engineer has failed to give notice of his decision. There is no express power given to the Employer to appoint a new Engineer should the need arise. This is a departure both from the 3rd Edition and ICE 5th and one which has not been followed followed by ICE 6th. The reason given given in FIDIC's FIDIC's guide is that FIDIC wishes the parties to agree on the identity of the new Engineer because the identity of the Engineer would have been one of the factors factors which influenced influenced the Contractor Contractor in the calculation calculation of his tender. tender. For a discussion on the effect of this omission, see the commentary to clause 1.1(a) (iv) (iv).. The The effe effect ct on the the curre current nt subsub-cl claus ause e is that the Employ Employer er is unable unable unilaterally to nominate a new Engineer and the Contractor will be entitled to serve notice of arbitration arbitration after 12 weeks. It is submitted submitted that knowledge on the part of the Contractor that the person named is no longer alive or practicing and/or that the address set out in Part II is no longer effective should not disentitle the Contractor from giving notice and thereafter from commencing arbitration. Page 242 of 264
"Whether before or after repudiation or other termination termination of the contract...". contract...". It is helpful that it is made clear that the repudiation or other termination of the contrac contractt does does not affect affect the disput disputes es procedure procedure.. In many jurisdict jurisdiction ions, s, the survival of the disputes disputes procedure would not be beyond doubt. It could otherwise otherwise be arguable that the disputes procedure would perish along with the contract after repudiati repudiation. on. The issue of which parts parts of the contract remain remain alive and in what what part partic icul ular ar circ circum umst stan ances ces is not assis assiste ted d by claus clause e 62.2 62.2 (Unf (Unful ulfifilllled ed obligations) where, for certain purposes, "the contract shall be deemed to remain in force between between the parties...". parties...". For more on this point, point, see the commentary commentary to clause 62.2. "... "...any any opin opinio ion, n, inst instru ruct ctio ion, n, dete determ rmin inat atio ion, n, cert certifific icat ate e or valu valuat atio ion n of the the Enginee Engineer". r". Other Other functions functions of the Engineer Engineer listed listed in clause clausess 1.5 (Notices (Notices,, consents, approvals, certificates and determinations) or 2.6 (Engineer to act impartially) which do not appear in clause 67.1 are as follows:- decisions - consents - satisfactions - approvals - notices A table showing which of the Engineer's functions is referred to in which of clauses 1.5, 2.6, 67.1, 67.3 and 68 is contained in the commentary to clause 1.5. In view view of the the brea breadt dth h of the the open openin ing g wor words of this this clau clause se,, it is perh perhap apss unfortunate that it should remain arguable that there is any limitation on the funct functio ions ns of the Engi Engine neer er to whic which h this this proce procedur dure e appl applies ies.. Alth Althou ough gh it is submitted that, on a true construction, all functions of an Engineer are covered by the opening lines of the clause, the matter could be put beyond doubt by the use of some broad catch-all words such as those used at clause 2.6(d) "otherwise taking action which may affect the rights and obligations of the Employer or the Contractor". An innovation of the 4th Edition is to require both the reference to the Engineer and the Engineer's decision to state that they are made pursuant to clause 67. This removes considerable scope for argument as to whether any letter written to the Engineer claiming, claiming, for example, example, an extension extension of time amounted amounted to a request request for a decision and whether any response from the Engineer amounted to such a decision allowing the Contractor to move on towards arbitration. "... the Contractor shall, in every case, continue to proceed with the Works...". Whilst it is obviously right that the Contractor is obliged to proceed with the works whilst the disputes procedure is in operation, the exact definition of "Works" may well be the subject subject of the dispute. For example, example, if an instruction instruction or a variation variation had been given which the Contractor contended was not within the Engineer's powers. Simi Similarly, larly, the the Contractor Contractor is obliged to give effect effect immediatel immediatelyy to any Page 243 of 264
decision decision that the Engineer makes. makes. Thus, if the Engineer Engineer decides to refuse refuse the Contractor an extension of time, the Contractor would theoretically be obliged to accelerate in order to complete on time in order to "give effect" to the decision. For more on acceleration, see the commentary to clause 46.1 (Rate of progress). If the Engineer certified that one of the grounds for termination under clause 63.1 (Def (Defau ault lt of Cont Contra ract ctor or)) exis existe ted d but, but, befo before re the the Em Empl ploy oyer er gave gave noti notice ce of termination, the Contractor referred the dispute to the Engineer, the question would then arise as to whether the Employer is entitled to terminate the contract. The current sub-clause states that the Contractor should in every case continue to proceed with the works unless the contract has already been terminated. terminated. This situat situation ion has not been catere catered d for in clause clause 63.1. 63.1. It must be arguabl arguable e by a Contractor that the right to terminate is suspended until the Engineer has given his decisio decision. n. It is submitted submitted in the comment commentary ary under under clause clause 63.1 that this argum argument ent has has meri merit, t, part partic icul ular arly ly in the the liligh ghtt of the the expr expres esss refe refere renc nce e to termination in the clause. It is suggested under clause 69.1 (Default of Employer) that the same argument is available to the Employer in relation to termination by the Contractor. Whilst this clause makes clear that the Contractor is obliged to proceed with the works pending the Engineer's decision, there is no corresponding obligation upon the Employer to continue to make payments. If followed strictly, this could lead to the Contractor being obliged to continue working in circumstances where it was the Employer's failure to pay that give rise to the dispute in the first place. In reality, it must be unlikely that an unpaid Contractor would continue to work for an Employer who was not complying with his payment obligations. The form of the notice of intention intention to commence commence arbitration arbitration is not specified. specified. The 4th Edition has made it clear that it is not necessary necessary at this stage in a dispute to submit a Request for Arbitration to the ICC. Under earlier editions, the party had 90 days from receipt of the Engineer's decision to "require that the matter or matters in dispute be referred to arbitration". The arbitrators in ICC case no. 4862, reported in (1989) 6 ICLR 44, decided that these words were satisfied if a party had given notice of an intention to arbitrate to the other parties. The current edition puts the matter beyond doubt and thereby avoids the necessity for each dispute to be the subject of a separate Request for Arbitration, with all the time and expense involved, during the currency of the contract. As the statement of the dispute in the notice will establish the limits of the arbitrator's terms of reference in the absence of agreement to the contrary between the parties, it is important that the nature of the dispute is carefully worded. If too broad, the party giving the the notice could be met with the argument that parts of the matters set out have not been referred to the Engineer for his decision. If too narrow, the arbitration may be too too limited, despite the the freedom to introduce new evidence and arguments as set out in clause 67.3. It is suggested that the parties would be well advised to err, when referring matters to the Engineer and when notifying intention to commence arbitration, on the side of broadly-worded statements of the dispute. Two English cases on the point are Page 244 of 264
Mid Glamorgan County Council v Land Authorty for Wales (1990) 49 BLR 61 in which the courts stressed the need for clarity in defining the disputes as, if there had been no reference to the Engineer, the arbitrator would not have jurisdiction to deal with the dispute in the absence of agreement between the parties; and Wigan Metropolitan Borough Council v Sharkey Bros (1987) 43 BLR 115 where it was held that the words "other matters" were an insufficient reference of disputes to arbitration: the court held that the respondent in the arbitration was not thereby given sufficient information as to the claim which he had to answer. Another question which arises is whether a party is entitled to raise a new claim or counterclaim in an arbitration if that claim has not been the subject of an Enginee Engineer's r's decision decision and attemp attempts ts at amicab amicable le settleme settlement. nt. In practice practice,, the arbitration procedure is sufficiently protracted that a party would have a more than adequate time to refer the matter to the Engineer in order for it to be considered considered by the arbitrator. arbitrator. If an arbitrator arbitrator was asked to consider consider a claim that had not been the subject of an Engineer's decision, (other than one under subclause 67.4), it is submitted that a correct course would be for the arbitrator to disregard the claim. In the case of a counterclaim, he could wait until after the award whereupon he could consider an application for any payment under the award to be postponed until after the procedure was followed in respect of the counterclaim. If there was was no doubt about about the creditworthiness creditworthiness of the beneficiary beneficiary of the award, and no particular difficulties about executing against the beneficiary in respect of any sums awarded on the counterclaim, the arbitrator may well refuse any postponement of the payment. The relevant arbitration rules would, however, have to be considered to see if any such power was given to the arbitrator. Problems of this sort would be avoided by very broad terms of dispute such as "what sums are properly payable by x to y under or in connection with the contract dated... between x and y in relation to the...project." the...project." The importance importance of the form of notice notice is apparent from the final paragraph of this sub-cla sub-clause use which which states states that that in the absence absence of such such notice, notice, the Engineer Engineer's 's decision shall be final and binding. It is also vital that the Engineer clearly defines the matters covered by his decision to minimise room for dispute over what disputes may no longer be the subject of arbitration. There can be no appeal from the decision becoming final, only from an arbitration arbitration.. One exception exception to this could be statutory provisions such as section 27 of the UK's Arbitration Act 1950 which permits an application to the court for an extension of time for commencing an arbitration in certain circumstances. Note that in the absence of a decision by the Engineer and a notification of arbitration the status quo ante is not then fixed but the parties could refer the matters to the Engineer afresh. A possible exception to the "final and binding" binding" effect is found in sub-clause sub-clause 67.4 whereby an arbitration may be commenced in relation to a failure to comply with the Engineer Engineer's 's decision. decision. If the failur failure e was referre referred d to arbitrat arbitration ion under that clause, a party could argue that the arbitrator should consider the decision as well as the failure failure to comply. The other party party would undoubtedly undoubtedly argue that, that, as the decision has become "final and binding", the arbitrator's terms of reference would not extend beyond a consideration of the consequences of the failure to Page 245 of 264
comply. comply. This argument, argument, which which seems correct correct on the interpretat interpretation ion of the two sub-clauses, could put an arbitrator in the difficult position of assessing the consequences of a failure to comply with a decision with which he disagrees. Thus a Contractor must ensure that he observes the time limit strictly. A failure to comply with the dispute procedure set out in clause 67.1 has the result that "no arbitration... arbitration... may be commenced". This raises the issues issues whether court proceedings would be open to the parties as an alternative. An English court may well decide that the wording of the clause should not prevent it attempting to do justice between the parties on the grounds only of a failure to comply with a particular particular time time limit. However, However, a court would decline decline to review or revise any certifi certificate cate or other decision decision of the Engineer. Engineer. This is because because of the Court of Appeal's decision in NWRHA v Derek Crouch (1984) QB 644; 26 BLR 104, where it was held that, in a contract where an independent person was empowered to make decisions binding on the parties, a court does not have power to substitute its own views for that of the parties chosen decision-maker. The court courtss are are rein reinfo forc rced ed in this this view view wher where e ther there e is an arbit arbitra ratition on claus clause e wher whereby eby the the parti parties es have have agre agreed ed upon upon a proce procedu dure re for for the the revi review ew of the the decision-maker's rulings. Thus, the courts should, it is submitted, be prepared to consider consider a defects defects claim, claim, a claim for breach of contract contract or other claim which did not depend for its success upon the revision of the Engineer's decisions. An Engineer is apparently entitled to review and revise his own certificates so that, whereas under clause 60.4 (Correction of certificates) a specific power is given to correct interim certificates in subsequent interim certificates, under the current sub-clause, an Engineer may correct any certificate provided that one of the parties refers the dispute over the certificate to him. Both the Contractor and the Employer must give effect to the revised certificate. "Such "Such notic notice e shall shall esta establ blis ish h the the entit entitle leme ment nt of the the part party. y... .. to comm commen ence ce arbitr arbitrati ation". on". This This must must be subjec subjectt to clause clause 67.2 and the 56-day amicab amicable le settlement settlement period period provided for there. there. These words words may have been included to make it clear that no further notice is required under clause 67.3 in order to comme commenc nce e arbi arbitr trat atio ion. n. The The ques questition on could could aris arise e whet whether her the the runn running ing of a limitation period is halted by the notice of intention to commence arbitration or the commencement of the arbitration which may only take place (other than under sub-clause 67.4) 8 weeks later. In England, the Limitation Act 1980 defines the commencement of the arbitration for limitation purposes as when one party serves a notice requiring the other party to agree an arbitrator or to submit the dispute to the designated person. The reference to the ICC under sub-clause 67.3 is a request for the nomination of arbitrators and so would normally be the effective date but this will depend on the relevant law and the terms of the notice given under this sub-clause. 67.2 67.2 This This provi provisi sion on is new new to the 4th Editi Edition on and featu feature ress in an adap adapte ted, d, option optional al form form in ICE 6th. 6th. It is obvious obviously ly desirab desirable le for the the parties parties to resolv resolve e disput disputes es with without out arbi arbitr trat atio ion n if poss possib ible le but but this this prov provis isio ion n will will ofte often n mere merely ly Page 246 of 264
represent an eight-week delay to the resolution of the dispute. Opponents of this clause would say that no responsible, responsible, commercial commercial men would allow a dispute dispute to descend into the mire of arbitratio arbitration n without without first having attempted attempted to negotiate negotiate a settlement. This may often be true but it also happens that the parties become entrenched and relations between the parties are such that any suggestion of discussion leading towards amicable settlement could be interpreted as a sign of weakness. The advantage of a clause such as this is that it may allow the parties to meet or to engage the services of a third party such as a mediator without loss of face. By the same criterion, this clause could be criticised for failing to provide any guidance as to how the 56 days should be spent. Parties entering into these conditions may decide that they would be best served either by adopting some conciliation rules such as those of the ICC or by writing their own into the contract. The 56-day automatic limit is necessary as problems frequently arise where arbitration clauses state that arbitration may only be commenced "in the event that that amic amicabl able e settl settlem ement ent is not possi possibl ble". e". Part Partie iess dete determ rmin ined ed to dela delayy the the commencement of arbitration may argue that all avenues for amicable settlement have not been exhausted and therefore that arbitration should not commence. A failure by a party to attempt to settle the dispute amicably would not appear to be a breach of contract. Where the position is hopeless the parties are at liberty liberty to agree a shorter period than the 8 weeks for the commencement of the arbitratio arbitration. n. Equally, Equally, if settlement discussions discussions are making progress, progress, the parties may agree to a longer period. CLAUSE 67.2 (Amicable Settlement) Click on the [*] button to see omitted text. This sub-clause now reads:"Where notice of intention to commence arbitration as to a dispute has been given in accordance accordance with Sub-Clause Sub-Clause 67.1, arbitration arbitration of such dispute dispute shall not be commenced unless an attempt has first been made by the parties shall attempt to settle such dispute amicably before the commencement of arbitration. Provided that, unless the parties otherwise agree, arbitration may be commenced on or after the fifty-sixth day after the day on which notice of intention to commence arbitration of such dispute was given, whether or not even if no attempt at amicable settlement thereof has been made." This amendment is not strictly necessary. If it is an attempt to avoid a style of drafting that says "the parties shall do x and y but if they do not, never mind", the effort is to be welcomed. It has not, however, been successful as that remains the result. It is submitted that the amendment has no contractual effect. 67.3 67.3 This This clause clause does does not call call for any any new notice, notice, but but leaves leaves the the next steps steps to to the rules of the ICC.
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"Any dispute...shall be finally settled...". The arbitrator, it is submitted, has very wide power to resolve disputes and is not limited to opening up, reviewing and revising the Engineer's decision. The reference to "any dispute" refers back to the very broad opening words of sub-clause 67.1. A question arises whether there is anything that the arbitrator does not have power to reopen. For example, under clause 56.1 (Works to be measured), if the Contractor does not attend to examine and agree certain records and drawings, "they shall be taken to be correct". It is submitted that the effect of such words is that the parties have agreed that in certain circumstances, the records and drawings are to be taken as final and therefore there can be no dispute. The arbitrator could consider whether the circumstances have arisen which make the matter final but could not look into the correctness of the records and drawings. This situation is to be distinguished from the functions of the Engineer such as that in clause 52.2 (Power of Engineer to fix rates). The use of the term "fix" does not exclude the arbitrator as the Engineer is making a decision which is open to to review. Nor, it is submi submitt tted, ed, is ther there e any any doubt doubt that that the the Defe Defect ctss Liab Liabililitityy Cert Certififica icate te may may be reviewed and revised like any other certificate. The difficulties of defining the limits of the arbitrator's powers is illustrated by the following problem. If the contract calls for an on-demand bond to be provided by the Contractor, Contractor, as is often the case in international international contracts, contracts, and the Employer calls the bond, does the arbitrator have power to deal with the resulting dispute when the Contractor contends that the Employer's loss represented but a small fraction of the amount paid out under the bond? Whilst it is reasonably clear that the dispute "arises between the Employer and Contractor in connection with or arising out of the Contract" and thus falls within clause 67, there appears to be no express mechanism for bringing the money paid to the Employer under the bond into account. Unless it is possible to find some implied term of the contract, there appears to be no contractual right for the Contractor to reclaim the excess payment. The question therefore arises whether the arbitrator has power to make awards to do justice between the parties or whether he is confined to considering only claims with a clear basis in law or upon the terms of the contract. In reality, the answer is that the arbitrator arbitrator will be limited limited by the rules of arbitratio arbitration n and the applicable law only insofar as his awards are open to the Court's supervision. See also also the the discu discussi ssion on unde underr clau clause se 63.1 63.1 (Def (Defaul aultt of Cont Contra ract ctor or)) of the the arbitrator's power to do justice after a termination based upon an Engineer's certificate of default which is held to be incorrect. It is sobering to bear in mind that an arbitrator is only obliged to conduct the arbitration and decide the award in accordance with any relevant law to the extent that any court has power to supervise his action either by means of a power to remove the arbitrator for misconduct or to overturn or remit his award on appeal. In many countries, the courts will intervene in exceptional cases only and many arbitration rules make the arbitrator's award final excluding any appeal. Perhaps as a reflection of this reality, there is an increasing use of so-called "equity clauses" which expressly empower the arbitrator to decide the dispute between the parties in accordance with the principles of common-sense and commercial fair play rather than by the application of any particular law. On the Page 248 of 264
other hand, arbitration clauses are also frequently deleted in favour of resolution by the local court. The list of the Engineer's functions which may be reviewed and revised omits consents, satisfactions, approvals and notices but seems to be intended to be compreh comprehensi ensive. ve. It is submit submitted ted that that the omitte omitted d functi functions ons could could proper properly ly be treated as covered, particularly by "opinions" and "determinations" even in the absence of the final sentence of clause 2.6 (Engineer to act impartially) which states that "any such decision, opinion, consent, expression of satisfaction, or approval, determination of value or action may be opened up, reviewed or revised as provided in Clause 67". See the table in the commentary under clause 1.5 (Notices, consents etc.) showing how the terms describing the functions of the Engineer are used in the contract. Whilst the parties may be unrestricted in the evidence or arguments they may use before the arbitrator, they would be limited as to the disputes which they may raise. Any dispute which has not been the subject of an Engineer's decision and an attempted amicable settlement (apart from sub-clause 67.4 disputes) could and probably should be rejected by the arbitrator. See under sub-clause 67.1 for further comment. "...the "...the Engineer being being called as a witness...". witness...". Just as a judge at first instance instance may not be called as a witness on an appeal, it is certainly possible possible to envisage an argument seeking to prevent an Engineer being called as a witness to an arbitratio arbitration n to be cross-examined cross-examined on his decisions. decisions. Thus it is sensible sensible for the contract to provide expressly for the Engineer to be called. The contract makes express what should be clearly implicit that the obligations of the parties are unchanged by the conduct of an arbitration during the progress of the works. Difficulty arises when it is the nature and extent of those obligations that is being resolved at the arbitration. Parties may well decide to amend the contract to ensure that arbitration does not take take plac place e prior prior to subs substa tant ntia iall comp complet letio ion. n. The The disp disput ute e coul could d invol involve ve the the Engineer and other key figures being absent at arbitration in a different country and pre-occupied with its preparation when their time and energies are needed by the the proj projec ect. t. The The lengt lengthy hy disp disput utes es proc proced edur ure e and the the inev inevititabl able e dela delays ys involved in ICC arbitration should usually ensure that the arbitration will take place after the works are complete, however. If the award is published during the currency of the works, that award will, it is submitted, affect the obligations of the parties. Thus, if an extension of time has been granted by the arbitrator, the Contractor must be entitled to work to that time regardless of any notice under clause 46.1 (Rate of progress). If the arbitrator makes a money award, that award should be included in the following interim certificate under clause 60.2 (Monthly payments), in the absence of a more specific direction by the arbitrator. With administrative contracts in civil law jurisdictions, there may be conflict or overlap between the role of the administrative court and arbitration. For example, Page 249 of 264
a Contractor wishing to claim under one of the doctrines briefly set out under clause 5.1 (Languages and law) will have to decide whether an arbitrator could grant the relief sought or whether an application to the court would be necessary. This problem is at its most acute in situations where the administrative law is inconsistent with the contract terms such as in relation to liquidated damages or termination. The solution adopted in France has been to prohibit arbitration clauses in public works contracts. No generally applicable guidance can usefully be given here and local advice is obviously essential. As discussed under sub-clause 67.1 above in relation to the Engineer's power to rectify the contract, the ability of the arbitrator to make such an award will depend on the law of the contract and the rules and procedural law applicable to the arbitration. In English law, the opening words of clause 67.1 would be sufficiently wide to allow an arbitrator to rectify: see Ashville Investments Ltd v Elmer Contractors (1988) 3 WLR 867 where the Court of Appeal held the words "arising in connection with" the contract contract to be broad enough to cover rectification. Part II provides alternative wording if the ICC procedure is not to be followed. FIDIC recommend a careful checking of the amendments due to the need to tailor the clause to the alternative procedure. As commented under clause 5.1 (Languages and law), it is advisable to specify in the contract the place where an arbitration is to take place: this will determine the nature of any interference or supervision by the courts. The procedural law to appl applyy and, and, impo import rtan antl tly, y, the the lang langua uage ge in whic which h such such proc procee eedi ding ngss will will be conducted should also be put beyond argument. 67. 67.4 A par party who has has fail failed ed to give ive the requ equisit isite e not notice ice of inten ntenti tion on to commence arbitration may endeavour to have the matter arbitrated under this clause, perhaps by deliberately failing to comply with the Engineer's decision. Here, Here, a fail failur ure e to comp comply ly with with the the Engi Engine neer er's 's deci decisi sion on may may be arbi arbitr trat ated ed whereupon the arbitrator may be invited to review the Engineer's decision as well as the conse consequ quenc ences es of the the fail failur ure e to compl complyy with with that decis decisio ion. n. In the commentary to sub-clause 67.1, it was submitted that the arbitrator would be correct to decline to extend the scope of the arbitration beyond the failure to comply and its consequences even if the arbitrator disagrees with the Engineer's decision. CLAUSE 68 : Notices
This clause specifies the addresses to which certificates, notices and instructions must be sent. In the cases of the Employer and the Engineer, the addresses must be set out in Part II. The principal change for the 3rd Edition is the introduction of "cable, telex or facsi facsimi mile le tran transm smis issi sion on"" as alte altern rnat ativ ives es to post post or deliv deliver ery. y. It is obvio obvious usly ly advantageous advantageous to the administration administration of the project project that notices etc. may be given Page 250 of 264
locally as posting, for example, to the Contractor's principal place of business, probably in another country, will make administration more prolonged and subject to the uncertainties of the post. This clause should be read in conjunction with clause 1.5 (Notices, consents etc.), etc.), which which requir requires es that that all notices notices shall be in writing. writing. The term "writin "writing" g" is defined defined at clause 1.1(g)(iv). 1.1(g)(iv). In the commentary commentary to clause 1.5, there there is a table setting out where terms like certificates, notices and instructions are to be found in certain certain of the clauses clauses.. For example example,, it is quickly quickly apparen apparentt that clause clause 1.5 requires requires consents, approvals approvals and determinatio determinations ns to be in writing. writing. This clause, however, does not deal with with those matters. In the case of determinations, determinations, this is no doubt because the Engineer is invariably required to notify the parties of his determinati determination. on. Consents Consents and approvals approvals,, however, however, need need to be be dealt with. "All communications in writing" might be a preferable formula. There is an apparent conflict between this clause, which requires instructions to be give given n to the the Cont Contra ract ctor or by post post etc. etc.,, with with clau clause se 15.1 15.1 (Con (Contr trac acto tor' r'ss superintendence) which provides that the Contractor's authorised representative should receive instructions from the Engineer on behalf of the Contractor,. As a matter of practicality, there will inevitably be instructions which need to be given imme immedi diat atel ely, y, in whic which h case case they they shou should ld eith either er be conf confir irme med d by post post in accordance with this clause or in accordance with the procedure for confirming oral instructions under clause 2.5 (Instructions in writing). The contract gives no indication of when notice is deemed to be given. This could be of importance importance in relation, for example, to the timing of the Employer's Employer's calling calling of a bond under clause 10.3 (Claims under performance security) or his re-entry under clause 63.1 (Default of Contractor). It is presumably not intended that notice will only have been given once the recipient has actual knowledge of the notice, as such a provision would invite the parties to indulge in a variety of imaginative means of avoiding receipt or knowledge of such notice. It may well be intended that, with telex or facsimile transmissions or notices left at the office of a party, notice is deemed to have been given if successfully transmitted or left during normal office hours or the following working day otherwise. There is inevitably more difficulty with notices sent by post or cable. Unless a party is to be provi provide ded d with with the the defe defenc nce e that that a parti particu cula larr noti notice ce was was never never rece receiv ived ed,, something that will often be impossible to disprove, the contracting parties need to intr introd oduc uce e some some presu presump mptition on:: for for examp example le,, in Engl England and,, legal legal proc process ess is deemed to have been served by post on the second day after posting. This clause might be improved by the addition of a provision dealing with this issue. If a noti notice ce is serv served ed inco incorr rrec ectl tly, y, part partic icul ular arly ly in rela relati tion on to some someth thin ing g as fundamental as termination, a hard decision will have to be taken as to whether to allow such a technicality to deprive one of the parties of what would otherwise have been his rights. Contrast the Court of Appeal decision in J.M. Hill & Sons v London Borough of Camden (1980) 18 BLR 35 where a technical failing in the manner of serving a notice was held not to invalidate a termination on the grounds that a common-sense, businesslike approach was required; and the Page 251 of 264
Singapore Court of Appeal in Central Provident Fund Board v Ho Bock Kee (1981) 17 BLR 21 who came to the opposite conclusion when they held that an incorrectly served notice was fatal to a party's termination under the contract. CLAUSE 69 : Defaults of Employer
This clause gives the Contractor a right to terminate his employment under the contract contract or to suspend or decelerate decelerate his works. works. If the Employer Employer fails fails to pay a certi certififica cate te with within in 4 weeks weeks of the the due due date, date, or inte interf rfer eres es with with certi certififica cate tess or becomes insolvent or gives notice that unforeseen economic circumstances have rendered it impossible for him to continue, the Contractor may terminate on giving 14 days notice. After the 14 days notice, the Contractor is to remove his equipment from site. After termination, the Employer is to pay the Contractor for all work executed and all costs and damages associated with the termination of the project. Alternatively, if the Employer fails to pay a certificate within 28 days of the due date, the Contractor may give 28 days notice and then suspend or decelerate his work. He shall be entitl entitled ed to an extension extension of time and and costs in respect respect of the suspension or deceleration. If the Contractor suspends or decelerates and the Employer then pays the certificate together with interest, the Contractor will no longer be entitled to terminate and must resume normal working. Sub-clauses 69.1, 69.2 and 69.3 are taken from the 3rd Edition with minor amendments; for example, the period in clause 69.1(a) has been reduced from 30 days to 28 days. Sub-clauses 69.4 and 69.5 are entirely entirely new. 69.1 69.1 Cons Consis iste tent nt with most of clau clause se 63.1 63.1 (Def (Defau ault lt of Cont Contra ract ctor or), ), this claus clause e makes makes no provi provisio sion n for for a warn warning ing shot. shot. If one of the the event eventss occur occurs, s, the Contractor Contractor is entitled entitled to give notice and terminate. terminate. One distinction distinction is that here here the Contractor does not require a certificate of the Engineer to the effect that one or other of the default defaultss has taken place. place. Whilst Whilst this removes removes a hurdle, itit also removes a safeguard. safeguard. For a discussion discussion on this, see the commentary commentary to clause clause 63.1. "(a) failing to pay to the Contractor the amount due...". The 4th Edition has resolved the difficulty inherent in the 3rd Edition as to whether payment became "due" immediately upon certification or only upon the expiry of the period for payment. Now it is made clear that the Contractor may give notice of termination four weeks after the period specified under under clause 60.10 (Time for payment). As the Employer is given 4 weeks grace before any sanction may be imposed other Page 252 of 264
than than inte intere rest st unde underr claus clause e 60.1 60.10, 0, it woul would d be advi advisa sabl ble e for for Cont Contra ract ctor orss to negotiate as high an interest rate as possible. "...subject to any deduction that the Employer is entitled to make under the Contract.. Contract...". .". In view of the fact that under clause 60.2 (Monthly (Monthly payments) payments) and clause 60.8 (Final certificate) the Engineer is empowered to make deductions to whic which h the the Em Emplo ploye yerr is enti entitltled ed on the the face face of the the certi certififica cate te,, with with the the sole sole exception of liquidated damages, it is not immediately obvious what deduction the draftsman has in mind other than liquidated liquidated damages. If the effect effect is to allow the Employer not to pay a certificate in full on the ground that he is entitled to deduct sums under the contract which either have arisen subsequent to the certificate certificate or are deductions deductions of which the Engineer has not been satisfied, satisfied, these words add an unwelcome element of uncertainty in a critical clause. A Contractor who has not received full payment could be met with the argument that there are other sums due under the contract which the Employer will demonstrate to the Engineer Engineer or arbitrator. arbitrator. Thus, the Contractor Contractor in exercising exercising his rights under this clause may be taking the risk that the Engineer or arbitrator would be persuaded later that a deduction was due, and the Contractor's termination could then be treated as a repudiatory breach of contract. It will be noted that a failure of the Engineer to certify is not included in the list of Employer's defaults. If the reason for non-certification is interference by the Employer, then the matter is dealt with under item (b) below. If the Engineer is refusing to certify because, for example, he has not been paid, this could also be "obstructing ... the issue of any such certificate" under item (b). If the Engineer has died or is otherwise incapable of acting, the absence of any mechanism whereby whereby the Employ Employer er may renomi renominat nate e create createss a proble problem m which which has been discu discuss ssed ed under under the the defi defini nitition on of Engi Engine neer er in the the comm comment entar aryy to claus clause e 1 (Definitions and interpretations). If the Engineer, perhaps an employee of the Employer, simply refuses or fails to certify the whole or any part of sums due, this clause and the contract generally does little to assist the Contractor. He is not entitled to terminate and interest under clause 60.10 (Time for payment) is only payable on unpaid certificates. The Contractor is obliged to rely upon an implied term, namely that the Employer will procure that the Engineer, who is not a party to the contract, fulfils his function in accordance with the contract. The damages whic which h the the Cont Contra ract ctor or woul would d clai claim m would would incl include ude inte intere rest st and/ and/or or fina financ ncin ing g charges. Alternatively, in an extreme case, the Contractor might be able to argue that the Employer's failure to procure proper action on the part of the Engineer amounted to a repudiation of the contract entitling the Contractor to leave the site. To base such a radical step upon an implied term would be highly risky although although the threat of such a step might be sufficient sufficient to ensure some activity activity on the part of the Engineer. "(b) interfering with ... any ... certificate". In Part II to clause 2.1 (Engineers duties and authority), a list may be inserted of those clauses in respect of which the Engineer is to obtain the specific approval of the Employer before carrying out his duties. Thus, the Contractor is given notice that there is a term in the agreement between the Employer and the Engineer that such approval must be sought. It Page 253 of 264
may seem strange that if the Employer does not give the approval sought, the Contractor is able to terminate the contract. In effect, this clause renders the approval process a prior notification requirement only. Clause 2.1 makes it clear that the Contractor is not concerned to ensure that necessary approval has been obtained. Although ambiguous, the correct reading of (b) must relate "interfering with" and "obstructing" to "the issue of any such certificate". At first sight it is quite possible to read the clause as if it is the required approval that must not be interfered with or obstructed. As it is the Employer's own approval under clause 2.1 (Engineer's duties and authorities) that is referred to, this is not correct as he cannot interfere with with or obstr obstruc uctt hims himsel elf. f. It seem seemss to be neces necessa sary ry that that the the inte interf rfer eren ence ce or obstruction is successful in postponing or changing the certification. Giving the words their normal meaning, an attempted interference or obstruction would not allow the Contractor to terminate. Under clause 2.6 (Engineer to act impartially), it is suggested that the failure or refusal of the Employer to appoint or renominate an Engineer capable of impartiality could give a Contractor an argument that certificates were being interfered with or obstructed. "... any such certificate". certificate". As this refers refers back to payment certificates certificates dealt with in (a), the Contractor's right to terminate for interference does not extend to TakingOver Certificates, Defects Liability Certificates or such matters as determinations of extensions of time. "(c) becoming bankrupt...". The list of forms that the Employer's insolvency might take is very short compared with clause 63.1 (Default of Contractor) and appears undul undulyy rest restri rict cted ed.. This This may may refl reflec ectt the the fact fact that that Em Empl ploye oyers rs are are somet sometim imes es departments or agencies of governments but this assumption would lead to the conclusion that there should be no right to terminate on the insolvency of the Employer. In fact, of course, the form is not restricted to use by governments but is in widespread use by public and private employers. Bankruptcy and liquidation are unlikely to be the first formal insolvency procedures to affect an Employer. In the U.K., it is more likely that an Employer would go into receivership although liquidation may follow later. In civil jurisdictions, it is more likely that a courtsupe superv rvis ised ed proc proced edur ure e for for reor reorga gani nisa sati tion on woul would d come come firs first. t. This This may may be analogous to the administration procedure in England and Chaper 11 bankruptcy in the United States. In that connection, it would appear that Chapter 11 is excluded as, for the purposes of item (c), "becoming bankrupt" applies only to an individual. For these reasons, contractors may prefer to amend this clause to mirror the insolvency events in clause 63.1 (Default of Contractor). "(d) giving notice ... that for unforeseen reasons, due to economic dislocation, it is impossible for him to continue ...". It is by no means clear that the notice need be true. The event is the giving of the notice and the economic dislocation is expressed more as the prescribed contents of the notice rather than as a condition precedent. Thus, the Employer is given the option the terminate the contract. contract. This is not entirely entirely unreasonable unreasonable given that Sub-clause Sub-clause 69.3 (Payment (Payment on termination) provides for the Contractor to be paid in full including his loss or Page 254 of 264
damage so that he is able to recover the profit that he would otherwise have made. Having gone this far, it is but a short step for the draftsman to give to the Employer Employer an option option to terminate terminate at will but at considerable considerable expense. expense. This would remove the advantage given to the unscrupulous. Economic dislocation in this clause is to be compared with the two other clauses in which external events may bring the contract to an end. Under clause 65.6, (Outbreak of war) the outbreak of war in any part of the world which, "whether financially or otherwise materially effects the execution of the Works" gives the Employer a right to terminate by notice. Under clause 66.1 (Payment in event of rele releas ase e from from perf perfor orma mance nce), ), "any "any circ circum umst stanc ance e outs outsid ide e the the cont contro roll of both both parties ... which renders it impossible or unlawful for either party to fulfil his contrac contractua tuall obliga obligatio tions" ns" releas releases es the partie partiess from from furthe furtherr perfor performanc mance. e. The difference under these clauses is that the Contractor does not receive his loss or damage including his loss of profit. For more information on the different financial consequences of the various means of bringing the contract to an end, see the commentary under clause 63.1 Under either of clauses 65.1 or 66.1, it would seem that an arbitrator could review the circumstances to decide whether the circumstances really existed or not. Under this clause, the arbitrator would apparently only be entitled to ensure that the notice was in writing and addressed correctly. It should be noted that clause 40.3 (Suspension lasting more than 84 days) adds a further ground for termination by the Contractor in the event that the works are suspended for 12 weeks and the Engineer does not give permission to proceed within 4 weeks of a notice from the Contractor. The Contractor's notice is in no prescribed form but must comply with clauses 1.5 (Notices, Consents, etc) and 68 (Notices). It would probably be sufficient for the Contractor Contractor simply to write write saying that his employment employment under the contract contract would terminate after 14 days but in practice it would be advisable to specify which of (a) to (d) applies, not least so that the Employer has an opportunity to respond. This response might persuade the Contractor that he has made a mistake in which case the Contractor may be able to withdraw his notice and thereby avoid repudiation of the contract. Although the contract states that termination shall take effect 14 days after the giving of the notice, a statement by the Employer that the notice is invalid and that the Contractor is to continue working amounts both to an opportunity for the Contractor to withdraw the notice by accepting its invalidity invalidity and an affirmation affirmation by the Employer of the contract so that Contractor Contractor's 's action of giving the notice will no longer represent a repudiation which the Employer may act upon. It is a curious feature of this clause that, after the Employer has given notice that it is impossible for him to continue "to meet his contractual obligations" i.e. to pay, it is then necessary for the Contractor himself to give notice which only takes takes effe effect ct two two weeks weeks late laterr duri during ng whic which h perio period d the the Cont Contra ract ctor or shoul should, d, theor theoret etic icall ally, y, be work working ing.. Impos Impossi sibi bilility ty unde underr clau clause se 66.1 66.1 (Rele (Release ase from from Page 255 of 264
performance) produces an immediate release as does the Employer's notice of a material affect upon the execution of the works under clause 65.6 (Outbreak of war). For a discussion of the duration of the Contractor's entitlement to terminate, see the commentary to sub-clause 69.5 below. The argum argument ent is adva advance nced d in the the comm comment entss unde underr clau clause se 63.1 63.1 (Def (Defaul aultt of Contractor) Contractor) and clause 67.1 (Engineer's (Engineer's decision) that the Contractor Contractor can delay and perhaps perhaps forest forestall all the termin terminati ation on of his employ employmen mentt by request requesting ing the Engineer's decision within the 14-day notice period. This is because clause 67.1 says that "unless the Contract has already been repudiated or terminated, the Contractor shall, in every case, continue to proceed with the Works". As the termination does not take effect until the period expires, it is submitted that a request for a decision will prevent the termination unless the conduct of the Employer amounted to repudiation. Even then there may be doubt. If this argument is correct, the consequences are far-reaching. The benefits to the Employer could extend to a delay of up to 12 weeks while the Engineer decides whether the notice was justified. No doubt the Engineer's duty under clause 2.6 (Engineer to act impartially) would cause him to act promptly. If the decision was adverse to the Contractor, clause 67.1 requires the parties to proceed. Even if an arbitrator holds that the Engineer was wrong, provided the Engineer had acted in good faith, the Contractor would be in breach if he with withdr drew ew in defi defianc ance e of the the Engi Engine neer er's 's decis decisio ion: n: "the "the Cont Contra ract ctor or and and the the Employer shall give effect forthwith to every such decision". One exception to this may may be if the the Cont Contra ract ctor or is able able to demon demonst stra rate te that that the the Em Empl ploy oyer er had repudiated the contract, thereby entitling the Contractor to end the contract at common law under the law of the contract. This argument has to overcome the problem of any affirmation of the contract, that is, action by the Contractor which recognises the continued existence of the contract, and the possible argument raised under clause 63.1 that "repudiation" "repudiation" actually means the abandonment abandonment or common law termination of the contract, not the breach giving rise to a right to treat the contract as at an end. The advantage to the Contractor, it is submitted, is that if the Engineer endorses his notice of termination, termination, he is protected from the grave financial financial consequences even if an arbitrator reverses the Engineer's decision. The parties are obliged to comply with the decision pending the arbitration. Under some civil law jurisdictions such as those referred to under clause 5.1 (Lan (Langu guag ages es and law) law),, a Cont Contra ract ctor or may not not termi ermina nate te or suspe uspend nd an administrative contract without the sanction of the court. To terminate or suspend without leave could result in the forfeiture of all the Contractor's rights. Although an express right to terminate or suspend without a court's decision might suffice for a private law contract, such an express clause is ineffective in such an administrative contract. Page 256 of 264
For some cases on the need for strict compliance compliance with the notice procedure procedure and on the courts' approach to disputed terminations, see under clause 63.1 (Default of Contractor) and clause 68 (Notices). CLAUSE 69.1 (Default of Contractor) Click on the [*] button to see omitted text. The ground for termination termination of the Contractor' Contractor'ss employment at item (d) has been changed:"In the event of the Employer: (d) (d) givi giving ng noti notice ce to the the Cont Contra ract ctor or that that for for unfo unfore rese seen en econo economi micc reaso reasons ns due due to econ econom omic ic disl disloc ocat atio ion n it is impo imposs ssib ible le for for him him to cont contin inue ue to meet meet his his contractual obligations ...". It was commented in the main work that the event giving rise to the right to terminate was the Employer's notice and that the contents of the notice did not have have to be true true.. Nor, Nor, it was submit submitte ted, d, would would an arbi arbitr trat ator or have power power to cons consid ider er the the cont conten ents ts of such such a noti notice ce prov provid ided ed it clai claime med d the the requ requis isit ite e impossibility. If these unattractive unattractive conclusions are correct, correct, then the amendments are of little significance. If the contents of the notice may be the subject of dispute, the departure of the term "economic dislocation", which appeared also in the 3rd Edition, and the introd introduct uction ion of the far more more compre comprehen hensib sible le "economi "economicc reasons" reasons" will will be of benefit. After all, it is likely to be the impossibility and the lack of foresight which come under close scrutiny and not the precise nature of the economic cause. As pointed out in the main work, the Contractor is entitled to all his costs and his loss of profit, as he would be if the contract had simply been repudiated by the Employer, so challenges to such a notice may be unusual. 69.2 69.2 Clau Clause se 54.1 54.1 proh prohib ibit itss the the Cont Contra ract ctor or from from remo removi ving ng any any equi equipm pmen ent, t, temporary works and materials from the site without the consent of the Engineer. Here, the Contractor may retrieve his equipment but the temporary works and materials must remain unless the Contractor obtains the Engineer's consent. If the termination had been brought about by the Contractor's default, all these items would remain for the use of the Employer or an alternative contractor under clause 63.1 (Default of Contractor). 69.3 69.3 Termin Terminati ation on under under clause clause 65 is only only possible possible under under clause clause 65.6 65.6 (Outbre (Outbreak ak of war). Payment under clause 65.8 (Payment if contract terminated) provides for payment for works executed, materials etc supplied or which the Contractor is committed to purchase, sums committed for the completion of the works and demob demobililis isat atio ion n cost costs. s. Clau Clause se 65.8( 65.8(d) d) is irre irrelev levant ant as it deal dealss with with cost costss attributable to special risks.
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For a discussion of the financial results of termination under this clause, clause 63.1 (Default of Contractor), clause 65.6 (Outbreak of War) and after repudiation of the contract, see the commentary under clause 63.1. Given the broad scope of clause 65.8, "any loss or damage" will refer mainly to the Contractor's loss of profit. This appears to be the one occasion in the contract wher where e the the Cont Contra ract ctor or is enti entitltled ed to reco recove verr his his loss loss of prof profitit.. Comp Compar are e the the definition of "cost" at clause 1.1(g)(i) which carefully excludes profit. 69. 69.4 In addi additi tion on to his his right ight to inter nteres estt on unpai npaid d cert certif ific icat ates es and and as an alter alterna natitive ve to term termin inat atio ion, n, the the Contr Contrac acto torr may may suspe suspend. nd. At firs firstt read readin ing, g, it appears that this right only arises some 12 weeks after delivery of the Interim Certi Certififica cate te.. Howev However er,, it is subm submititte ted d that that a Cont Contra ract ctor or may may give give notic notice e of suspension immediately after the initial 28-day payment period has expired with the result that very shortly after the 28 days of default required under this subclause the notice will expire and the Contractor will be entitled to suspend or decelerate. If the intention had been that the notice could only be given after the 28-day default period, the clause would have said "the Contractor ... may give 28 days prior notice ... and thereafter suspend work or reduce the rate of work". "Subj "Subject ect to any any deduc deductition on that that the the Em Empl ploye oyerr is enti entitltled ed to make make under under the the Contract". See the commentary under sub-clause 69.1 on the identical phrase. "Due consultation": this requirement of consultation is new to the 4th Edition and adds an element of natural justice to the Engineer's deliberations. It is subject to clause 2.6 (Engineer to act impartially). The The righ rightt to susp suspen end d is a valu valuab able le addi additi tion on,, new new to the the 4th 4th Edit Editio ion. n. The The alternative of deceleration is also valuable. The ability to take action less drastic than termination against an Employer who is failing to pay must be in the interests of all parties of the contract. Similarly, the ability to decelerate or goslow enables the Contractor to make his point without having the problem of idle plant and labour. Such a go-slow may also be to the benefit of the Employer as the consequential reduction of the value of the next certificate may ease any financial difficulties which had given rise to the situation. Extension of time and costs are necessary to put the Contractor back in the position position he would have been in had the Employer Employer paid on time. There There is no limi limitt on the period for which a Contractor can suspend or go-slow. He may continue c ontinue to do so for as long as the Employer fails to pay and a notice to terminate is not issued. "(a) any extension of time": for the Contractor Con tractor to be entitled to an extension under clause 44; he must first have given notice of the delay pursuant to clause 44.2. This at least is the likely construction of the contract although it is be no means beyond argument that the entitlement referred to is not subject to clause 44.2.
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"(b) the amount of such costs": similarly, it is probable that the Contractor's entitlement to costs is subject to the procedure for claims set out in clause 53. A Contractor would be unwise to assume that notification is not required. "... which shall be added to the Contract Price". The Contract Price has a somewhat chequered history in this contract. Whilst in the Agreement as signed by the parties, parties, the Employer Employer covenants to pay the Contractor Contractor the Contract Price "or such other sums as may become payable", there is no reference to the Contract Price in clause 60, the payment clause. This makes the use of the term whene whenever ver the the Engi Engine neer er dete determ rmin ines es costs costs whic which h are are to be payab payable le to the the Contractor surprising at first sight.. "Contract Price" is defined at clause 1.1(e)(i) as being the sum stated in the Letter of Acceptance and is not itself subject to any variation. As this is a remeasurement contract, the Contract Price is of limited relevance, hence the lack of any mention of it in the payment clause. What then is the effect of the words "the amount of such costs, which shall be added to the Contract Price"? If the Contract Price is relevant only as a means of comparing tenders, why does it receive mention in a further 17 clauses? In relation to five clauses, namely:- clause 17.1 (Setting out) - clause 20.3 (Loss or damage due to Employer's Risks) - clause 31.2 (Facilities for other contractors) - clause 49.3 (Cost of remedying defects) - clause 65.3 (Damage to works by special risks) the answer is provided provided by clause 52.1 (Valuation (Valuation of variations). variations). The five clauses listed have express reference to clause 52 and the cost to be paid to the Contractor falls to be dealt with in accordance with the valuation of variations machinery. For a further 11 clauses, namely: - Clause Clause 6.4 (Delays and and cost of delay of drawings) - Clause 12.2 (Adverse physical obstructions or conditions) - Clause 27.1 (Fossils) - Clause 36.5 (Engineer's determination where tests not provided for) - Clause 38.2 (Uncovering and making openings) - Clause 40.2 (Engineer's determination following suspension) - Clause 42.2 (Failure to give possession) - Clause 50 (Contractor to search) - Clause 65.5 (Increased costs arising from special risks) - Clause 69.4 (Contractor's entitlement to suspend work) - Clause 70 (Changes in cost and legislation) Additions are provided for without any form of mechanism. An important question is whet whether her the the Cont Contra ract ctor or is entit entitle led d to rece receiv ive e such such addi addititions ons in inte interi rim m payments. Under clause 60.1 (Monthly Statements), only clause 70 of the above Page 259 of 264
list receives specific mention. The rest have to be included by the Contractor under clause 60.1 (e) "any other sum to which the Contractor may be entitled under under the Contr Contract act". ". The Contra Contracto ctorr will will argue argue that that once the Engine Engineer er has determined the amount of his costs, that is then a sum to which he is entitled under the contract. Clause 53.5 (Payment of claims) assists in this argument, as amounts determined by the Engineer as due in respect of claims are to be included in any interim payment. The difficulty with clause 53 is to know how it relates to other provisions of the contract. "Claim" is undefined. It is submitted, however, that there can be no genuine doubt that the Contractor is entitled to be paid for claims as soon as they have ha ve been ascertained in whole or in part. The use of the term "Contract Price" in this context does nothing for clarity. It permits of the argument that "shall be added to the Contract Price" does not amount to an immediate entitlement but that such costs may only be brought into account at the Final Certificate stage. Whilst it is submitted that this argument is not well founded, founded, it illustrates illustrates the point that frequent reference reference to Contract Contract Price throughout the contract is unhelpful in a remeasurement contract where the Contract Price has no part to play in the payment machinery. 69. 69.5The 5The Cont Contra ract ctor or is ent entitle itled d unde underr the cont contrract act to three hree reme remedi dies es simultaneously: from the due date for payment, he is entitled to interest and 28 days days ther therea eaft fter er (if (if notic notice e of susp suspens ensio ion n was was give given n when when paym payment ent becam became e overdue) he may suspend or go-slow and additionally serve notice of termination. Interest and the right to be in suspension or go-slow working continue for the 14 days of the termination notice. There is an error in this sub-clause if it is intended to bring the Contractor's rights under this clause (i.e. to serve notice of termination, to suspend or decelerate) to an end if the Employer Employer pays pays the overdu overdue e sum togeth together er with intere interest. st. If the Contractor has not suspended or decelerated, the Contractor's right to give notice notice of termin terminati ation on appear appearss to continue continue indefi indefinit nitely, ely, regard regardless less of the full full payment by the Employer of the certificate together with interest. This seems less extraordinary when it is appreciated that payment by the Employer the day after a notice of termination has been given by the Contractor does not in any way prevent the termination taking effect at the expiry of 14 days. Part II suggests that where the Employer is a government, item (c) should be deleted; item (d) should be deleted where it, in combination with sub-clause 69.3, is contrary to local law.
CLAUSE 70: Changes of costs and Legislation
The rise and fall in the cost of labour, materials etc is to be taken into account in accordance with a fluctuations clause as set out in Part II.
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Any affect upon the cost of the works resulting from changes in the local law, regulations etc., occurring after the date four weeks before the tender date, are to be established and added to or deducted from the contract price. Although Although worded slightly slightly differentl differently, y, this clause is fundamentall fundamentallyy the same as in the 3rd Edition. Edition. Consistent Consistent with the draftsman' draftsman'ss policy of giving time periods periods in multiples of seven, the 30 day period in sub-clause 70.2 has been reduced to 28 days. 70.1 70.1 Part Part II provides provides three three alterna alternativ tive e methods methods of dealing dealing with the the fluctuat fluctuation ionss issue: firstly, a clause allowing no adjustments; secondly, where adjustment is based on the difference in cost between base prices and the current price of local labour and specified materials; and thirdly, where adjustment is made by the use of indices in a formula. Each of these alternatives has its advantages and problems. In particular, parties will have in mind whether there is to be a fixed price element; element; whether local inflation inflation alone is to be taken into account, as some government Employers will object to "importing" inflation; and the scope for political interference with official indices. FIDIC, through their Guide, advise that any project lasting for longer than a year should contain contain a fluctuations fluctuations clause, clause, permitting permitting adjustment. adjustment. They take the view that the Employer should bear the risk rather than asking tenderers to quote firm prices which which include provision provision for increased increased costs. Ultimatel Ultimately, y, this is an area of risk that may be allocated as the parties think fit. In civil code countries, where administrative law based on the French model applies, this clause reflects the Theorie de l'imprevision whereby if exceptional and unforeseen events render the Contractor's obligation excessively onerous threatening him with exorbitant loss, then the Contractor's excessive losses may be reduced to reasonable limits by way of compensation by the Employer. In certain countries, notably Eygpt, this doctrine has been extended to civil or priv privat ate e cont contra ract ctss as well well.. This This clau clause se is in fact fact mor more gene genero rous us than than the the administrative law doctrine as it provides for the Contractor to be completely relieved relieved of responsibility, responsibility, whereas the Theorie Theorie only provides for the reduction of the Contractor's losses. The Theorie could however be relevant in cases where the fluctuations clause has been deleted. For a brief overview of administrative law based on the French model, see clause 5.1 (Languages and law). 70.2The Employer Employer is generally generally better placed to predict predict and to allow for changes to the local local law which which will affect affect the proje project ct.. Thus Thus it makes makes sense sense for for the the Employer to take this particular particular risk. If the Employer is a part of the government, then it is obvious that a Contractor would be taking a very grave risk by accepting any fundamental amendment to this clause. "If ... there there occur ... changes changes to any ... Law". Such changes changes are often heralded heralded for a considerable period period before coming into into effect. For example, legislation legislation may Page 261 of 264
already have been enacted which specifies that a relevant provision will come into effect on a date six six months into the project. The Employer needs to specify in the tender documents if the Contractor is required to take into account any change which will be implemented after the given date, otherwise, it is submitted, the Contractor may ignore the coming change and make a claim, despite clause 11.1 (Inspection of Site) which deems that the Contractor has obtained and based his Tender upon all relevant information. It is a pity that the draftsman of the current edition did not take the opportunity to tidy tidy up the drafti drafting ng of this sub-clau sub-clause. se. It is unnecessar unnecessaryy to have have two lists lists of stat statut utes es etc etc when when the the word wordss intro introduc ducin ing g the the firs firstt lilist st coul could d have have been been "the "the introduction introduction of or changes changes to". Presumably Presumably the word "such" "such" at the beginning beginning of the second list is intended intended to import import all the missing words words from the first list. list. In whic which h case case the the inclu inclusi sion on of the word word "state "state"" simp simply ly adds confus confusio ion. n. The The importance of clear drafting in this clause is that it will be closely scrutinized by contractors wishing to make a claim where additional costs have been caused by changes in the law of countries other than that in which the project is taking place. As commented commented under clause 5.1 (Language (Language and law), it is quite possible possible that several other countries' laws impinge upon the project, regardless of the specified law of the contract. For example, the country from from which the insurance has been obtained could introduce laws increasing the cost of that insurance. Similarly, a country in which elements of the work are being manufactured prior to delivery to site could change its laws and have the same effect. The intention of the clause and, it is submitted, the correct interpretation of the clause, despite its short-comings, is that the Contractor will only be reimbursed for changes in the law of the country in which which the project is taking taking place. Although Although "Works" is defined broadly enough to include elements of the work being manufactured elsewhere, the phrase "in the country in which the Works are being or are to be executed" seems to resolve the matter. In the civil code countries referred to above, this clause is the approximate equivalent of the doctrine of Fait du Prince applicable to administrative contracts. Under the doctrine, the Contractor will be fully compensated if he has suffered increased costs or losses due to a change in the law or other acts or decisions of the Administration. For a brief overview of administrative law based on the French model, see clause 5.1 (Languages and law). This This clau clause se shou should ld be read read with with clau clause se 26.1 26.1 (Com (Compl plian iance ce with with stat statut utes es,, regulations) which imposes the basic obligation to comply with the local law, clause 13.1 (Work to be in accordance with the contract) which requires the Contractor to execute the works "unless it is legally...impossible" and clause 66.1 (Payment in event of release from performance). CLAUSE 71: Compensation to Contractor
The Employer is to compensate the Contractor for any losses arising from currency restrictions imposed in the country in which the project is taking place after the date four weeks prior to the tender date. Page 262 of 264
This clause is not significantly changed from the 3rd Edition, although the 30 day period is reduced to 28 days. This clause could equally well have been grouped with clause 70.2 (Subsequent legislation) legislation).. The risk passes passes at the same date, 28 days prior prior to the tender date date and relates effectively to to changes to the law. In an extreme case, case, where the law changed and required the contract price to be paid entirely in local currency, it is difficult to see how the Employer could "reimburse any loss or damage to the Contractor". There could be real difficulties difficulties in the way of a Contractor seeking to pursue his rights under this clause, particularly against a government Employer. In such such circ circum umst stanc ances es,, the the Cont Contra ract ctor or coul could d find find it impo imposs ssib ible le to fulf fulfililll his obligations and could seek to invoke clause 66.1 (Release from performance). In the civil code countries referred to in clause 5.1 (Languages and law), this clause is the approximate equivalent of the doctrine of Fait du Prince applicable to admi admini nist stra rati tive ve cont contra ract cts. s. Unde Underr the the doct doctri rine ne,, the the Cont Contra ract ctor or will will be compensated if he has suffered increased costs or losses due to a change in the law or other acts or decisions of the Administration. For a brief overview of administrative law based on the French model, see clause 5.1. Whether Whether a failure failure to pay in the currencies currencies specified specified in Part II to clause 60 would amou amount nt to a fail failur ure e "to "to pay pay to the the Cont Contra ract ctor or the the amou amount nt due due unde underr any any certificate" allowing the Contractor to terminate under clause 69.1 (Default of Employer) Employer) is a difficult difficult point. The Employer Employer could say that, by reference reference to the (theoretica (theoretical) l) exchange rate, rate, he had paid the requisite requisite amount. The value to the Cont Contra ract ctor or,, howe however ver,, woul would d fall fall very very far far shor shortt of the the amoun amountt to whic which h he considered considered himself himself entitled. entitled. It is submitted submitted that the Contractor's Contractor's argument argument is to be preferred as "amounts" in clause 69.1 should be taken to mean "amount or amounts of the different currencies and in the proportions set out in Part II". "Foreign currency" is defined at clause 1.1(g)(iii) to mean "a currency of a country other than that in which the Works are to be located". CLAUSE 72: Currency and Exchange Rates
Where the contract provides for the Contractor to be paid in one or more foreign currencies, the exchange rate will be fixed. Where the tender is to be expressed in a single single currency but the Contractor Contractor has specified the proportions of the currencies in which he requires to be paid, the applicable exchange rates will be as stated in Part II or the local central bank rate prevailing 28 days prior to close of tenders. In respect of payment payment for provisional provisional sum work, the proportions proportions and amounts of foreign currencies will be worked out in accordance with the same rules. This clause has not been significantly changed from the 3rd Edition. Page 263 of 264
These These claus clauses es are are very very ofte often n of vita vitall sign signifific icanc ance e to Cont Contra ract ctor orss worki working ng oversea overseass and will will frequen frequently tly be supplem supplement ented ed with with condit condition ionss of particu particular lar application. application. The clause should be read with clause clause 71.1 (Currency (Currency restrictions) restrictions) and and any any clau clause se deal dealin ing g with with the the form form of paym paymen entt in Part Part II to clau clause se 60 (Certificates and payment). "Foreign currency" is defined at clause 1.1(g)(iii) to mean "a currency of a country other than that in which the Works are to be located". 72.1 72.1 Excha Exchang nge e rate ratess repr repres esen entt an area area of risk which which is equal equal to both both parti parties es and may be altere altered d rather rather than avoided avoided,, by being fixed. fixed. Signif Significa icant nt shifts shifts in exchange rate could spell disaster for either party whether exchange rates are fixed in the contract or not. 72.2 72.2 Part Part II provi provide dess the the alte altern rnat ativ ives es of a fixe fixed d rate based based on a local local centra centrall bank rate on a particular day or a rate set out in the Appendix to Tender. Certainty Certainty is the key. It is therefore therefore unhelpful unhelpful that the last phase, "as has been notifed...in the Tender", could refer to at least three alternative nouns in the sentence. sentence. Whilst Whilst analysis seems to suggest suggest that the reference reference is to "the latest date for the submission of tenders" the fact that the same wording was not felt necessary in clause 71.1 (Currency restrictions) is a misleading inconsistency. Certainty is as necessary in the earlier clause as this one. 72.3 72.3 It is not not immedi immediate ately ly obviou obviouss why provis provision ional al sums sums need to be be the subjec subjectt of specific provision or, if provision is necessary, why variations and all the other clauses whereby extra payment is made to the Contractor are not also dealt with. MISCELLANEOUS AMENDMENTS
- In clause 69.4 (Contractor's entitlement to suspend work), "cost" has become "costs". - In the Reference to Part II, "5.1 part" has become "5.1 (part)". - In the Tender, paragraph 1, "sums" in the last line has become "sum". - Appendix entries have been changed as follows:Percent Percentage age of invoic invoice e value value of listed listed materia materials ls and Plant Plant 60.1(c) 60.1(c) per cent Minimum amount of Interim Payment Certificates 60.2 Rate of interest upon unpaid sums 60.10 per cent per annum- A number of punctuation changes have been made and some additional use has been made of "and" and "or". These changes are set out below. The only noteworthy change is to clause 42.1 where already difficult syntax has been rendered nonsensical by the amendment.
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