Understanding Clauses in FIDIC Conditions of Contract for EPC/ Turnkey Projects First Edition 1999

Clause No. 8
Sub-Clause No. 8.7

Commencement, Delays and Suspension

Delay Damages

Summary Delay damages shall be paid for every day which elapses between the relevant time for completion and the date stated in the taking over certificate subjected to maximum liability as stated in the particular conditions. Delay damages are due to slow rate of actual progress as compared to the programme due to the reasons attributed to the contractors default and leads to additional cost to the employer. Extension of time creates a win-win situation, through which the employer is protected against the loss of delay damages and the contractor becomes released from liability for delay damages. It is not appropriate to agree to milestones in combination with delay damages. However if sections of works (which are not milestones) have different importance to the employer different delay damages rates can be fixed.

(For the purpose of understanding Delay Damages following Sub-Clauses have been mentioned) Sub Clause 8.1 8.2 8.3 8.4 8.6 Title Commencement of Works Time for Completion Programme Extension of Time for Completion Rate of Progress

Sub-Clause No. 8.1

Commencement of Works

Content of the FIDIC Clause in Brief Unless otherwise stated in the Contract Agreement: (a) the Employer shall give the Contractor not less than 7 days' notice of the Commencement Date; and (b) the Commencement Date shall be within 42 days after the date on which the Contract comes into full force and effect under Sub-Clause 1.6 [Contract Agreement]. The Contractor shall commence the design and execution of the Works as soon as is reasonably practicable after the Commencement Date, and shall then proceed with the Works with due expedition and without delay.

Sub-Clause No. 8.2

Time for Completion

Content of the FIDIC Clause in Brief The Contractor shall complete the whole of the Works, and each Section (if any), within the Time for Completion for the Works or Section (as the case may be), including: (a) achieving the passing of the Tests on Completion, and (b) completing all work which is stated in the Contract as being required for the Works or Section to be considered to be completed for the purposes of taking over under Sub-Clause 10.1 [Taking Over of the Works and Sections].

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Understanding Clauses in FIDIC Conditions of Contract for EPC/ Turnkey Projects First Edition 1999

The Time-Line of Time for Completion Schematic (Only symbol to be considered as time-line) Time-line of Time for Completion Programme Tests on Completion Taking over
Extension of Time for Completion (an aid for contractor to be released from liability of liquidated delay damages) Liquidated Delay Damages (an aid for Employer to be protected from the loss of delay attributed to the contractor)

Sub-Clause No. 8.3

Programme

Content of the FIDIC Clause in Brief The Contractor shall submit a time programme to the Employer within 28 days after the Commencement Date. The Contractor shall also submit a revised programme whenever the previous programme is inconsistent with actual progress or with the Contractor's obligations. Unless otherwise stated in the Contract, each programme shall include: (a) the order in which the Contractor intends to carry out the Works, including the anticipated timing of each major stage of the Works, (b) the periods for reviews under Sub-Clause 5.2 [Contractor's Documents], (c) the sequence and timing of inspections and tests specified in the Contract, and (d) a supporting report which includes: (i) a general description of the methods which the Contractor intends to adopt for the execution of each major stage of the Works, and (ii) the approximate number of each class of Contractor's Personnel and of each type of Contractor's Equipment for each major stage. In this event, or if the Employer gives notice to the Contractor that a programme fails (to the extent stated) to comply with the Contract or to be consistent with actual progress and the Contractor's stated intentions, the Contractor shall submit a revised programme to the Employer. Schematic (Only symbol to be considered as time-line) Submission of Time Programme by the Contractor to the Employer < 42 Days Signing of the Agreement < 7 Days Employers Notice to the Contractor of Commencement Date Commencement Date <28

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Understanding Clauses in FIDIC Conditions of Contract for EPC/ Turnkey Projects First Edition 1999

Sub-Clause No. 8.4

Extension of Time for Completion

Content of the FIDIC Clause in Brief The Contractor shall be entitled subject to Sub-Clause 20.1 [Contractor's Claims] to an extension of the Time for Completion if and to the extent that completion for the purposes of Sub-Clause 10.1 [Taking Over of the Works and Sections] is or will be delayed by any of the following causes: (a) a Variation (unless an adjustment to the Time for Completion has been agreed under Sub-Clause 13.3 [Variation Procedure]), (b) a cause of delay giving an entitlement to extension of time under a Sub-Clause of these Conditions, or (c) any delay, impediment or prevention caused by or attributable to the Employer, the Employer's Personnel, or the Employer's other contractors on the Site. When determining each extension of time under, the Employer shall review previous determinations and may increase, but shall not decrease, the total extension of time.

Sub-Clause No. 8.6

Rate of Progress

Content of the FIDIC Clause in Brief If, at any time: (a) actual progress is too slow to complete within the Time for Completion, and/or (b) progress has fallen (or will fall) behind the current programme under Sub-Clause 8.3 [Programme], other than as a result of a cause listed in Sub-Clause 8.4 [Extension of Time for Completion], then the Employer may instruct the Contractor to submit, under Sub-Clause 8.3 [Programme], a revised programme and supporting report describing the revised methods which the Contractor proposes to adopt in order to expedite progress and complete within the Time for Completion. Unless the Employer notifies otherwise, the Contractor shall adopt these revised methods, which may require increases in the working hours and/or in the numbers of Contractor's Personnel and/or Goods, at the risk and cost of the Contractor. If these revised methods cause the Employer to incur additional costs, the Contractor shall subject to Sub-Clause 2.5 [Employer's Claims] pay these costs to the Employer, in addition to delay damages (if any) under Sub-Clause 8.7.

Sub-Clause No. 8.7

Delay Damages

Content of the FIDIC Clause in Brief If the Contractor fails to comply with Sub-Clause 8.2 [Time for Completion], the Contractor shall subject to Sub-Clause 2.5 [Employer's Claims] pay delay damages to the Employer for this default. These delay damages shall be the sum stated in the Particular Conditions, which shall be paid for every day which shall elapse between the relevant Time for Completion and the date stated in the Taking-Over Certificate. However, the total amount due under this Sub-Clause shall not exceed the maximum amount of delay damages (if any) stated in the Particular Conditions. These delay damages shall be the only damages due from the Contractor for such default, other than in the event of termination under Sub-Clause 15.2 [Termination by Employer] prior to completion of the Works. These damages shall not relieve the Contractor from his obligation to complete the Works, or from any other duties, obligations or responsibilities which he may have under the Contract.

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Understanding Clauses in FIDIC Conditions of Contract for EPC/ Turnkey Projects First Edition 1999

Schematic (Only symbol

to be considered as time-line)

Signing of Agreement

< 42 Days

Commencement Date < 28 Days

Time for Completion

Delay Damages

Taking Over

Submission of Programme

Delay Attributed to the Contractor

Tests on Completion

As per FIDIC, Delay Damages shall be paid for every day which elapse between the relevant Time for Completion and the date stated in the Taking-Over Certificate.

Guidance for Delay Damages Delay damages are also called liquidated damages or delay liquidated damages Delay damages are applicable when pursuant to the clause 8.6 Rate of Progress the contractor adopts revised methods, unless notified as otherwise by the employer when the actual progress is too slow to complete within the time for completion and/or the progress has fallen (or will fall) behind the current programme. If these revised methods cause the employer to incur additional costs, the delay damages shall be effective. The amount of this pre-defined delay damages must represent a reasonable pre-estimate of the employers probable loss. The particular Conditions should specify the daily sum, for the works and for each section, expressed either as an amount or as a percentage. Amount of Delay Damages as stated in Particular Conditions In subclause 8.7, the sum referred to the delay damages shall be 0.02% of the contract price as delay damages in respect of the works, payable (per day) in the proportions of currencies in which the contract price is payable. For each section, such daily sum shall be 0.02% of the final contract value of such section, payable (per day) in such currencies. The maximum amount of delay damages shall be ten percent 10% of the contract price stated in the contract agreement. Although the % of delay damages are specified in the guidance for particular conditions in FIDIC as mentioned above, it is usually intended that the % delay damages to be calculated or estimated as the sum of: The anticipated average cost to the employer of the extended period of the Engineers supervision, plus The anticipated average benefit to the employer of the completed works, or an amount roughly equivalent to the commercial cost of borrowing the accepted contract amount from a local bank. Notes: Delay damages are limitation to liability for delay. Liability towards delay damages cease only after the taking over certificate is issued and not on passing test on completion. Delay damages are generally excluded from the insurance policy cover since willful act or negligence will not be in policy cover. Failure to comply with time for completion will lead to the entitlement of delay damages according to subclause 8 with exception of extension of time for completion. If and when the contractor is prevented from carrying out the works or if the employer causes delay to the progress with effect to time for completion, the contractor is entitled to claim for extension of time and is relieved from the liability of delay damages. Extension of time creates a win-win situation, through which the employer is protected against the loss of delay damages and the contractor becomes released from liability for delay damages.
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Understanding Clauses in FIDIC Conditions of Contract for EPC/ Turnkey Projects First Edition 1999

Delay damages do not fall under national legislation concerning penalties. By contrast they include a promise to pay a certain amount of money for non compliance with a particular agreement only. It is not appropriate to agree to milestones in combination with delay damages. FIDIC does not mention milestones but sections. If sections have been determined within the particular conditions or in the appendix to tender, sectional completion dates should be stated. If sections have different importance to the employer different delay damages rates can be fixed. It can be seen that sections make the contract much more flexible and sometimes also more balanced.

Applied Clauses of the Delay Liquidated Damages for EPC Contracts (FIDIC or Mixed) The delay liquidated damages and project delay liquidated damages payable pursuant to this clause represent an agreed genuine pre-estimate of losses likely to be suffered by the employer in the event of delay to taking over of the works beyond the time for completion and are not a penalty. The contractor shall not be entitled to withhold or set-off any amounts due pursuant to this clause 8.7 for any reason whatsoever, including for the avoidance of doubt, where the contractor wishes to dispute the quantum or validity of any such amounts. Delay liquidated shall be 1% of the contract price per week subjected to maximum liability of 10% of the contract price.

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