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by
Khalil T. Hasan
Construction Solutions (www.cspk.org)
While administration of any single FIDIC form of contract
requires a dedicated discussion, this case study presents
the joint and interrelated operation / administration of two
different FIDIC forms; the Red Book and the Yellow Book.
A short description of these forms in the context of this
case study is;
- Red Book: Construction of Works design by the Employer or ‘build
only’ contract forms.
- Yellow Book: Construction of Works design by the Contractor or
‘Design-Build’ contract forms.
This case study relates to a Hydropower Project involving
construction of, amongst others, a Power House. The Power House
construction was carried out jointly by two separate entities
(contractors):
– Civil Works Contractor (“CIV”): Administered under the FIDIC Red Book
(1999 edition), requiring construction of the civil works of the power house,
which were designed by the Employer (or his personnel, namely, the
Engineer)
Therefore, the Engineer issued several reminders and slow progress notices
to E&M to ensure timely delivery and construction of some of the key
elements of the Power House.
The Engineer, in order to make progress and to help alleviate the delays,
instructed CIV to construct the required additional temporary civil works as
part of the recovery plan.
The Engineer agreed that CIV should be reimbursed for the additional
services. Therefore in the first instance, instructed E&M to directly
coordinate with CIV and to ensure that the matter was fairly resolved by way
of payments made directly by E&M to CIV.
E&M refused to reimburse CIV for the additional temporary civil works.
In view of the dispute on this matter, the Engineer took the following actions
to ensure that the 0.5m dollars should be reimbursed to CIV from the
account of E&M.
It was important that the Engineer’s actions were within the ambit of the
provisions and procedures set out in the FIDIC Red and Yellow books and
discussion on these matters forms the basis of this case study.
STEP 1 - RECOVERY OF 0.5M DOLLARS FROM E&M – WITHIN THE
AMBIT OF THE FIDIC YELLOW BOOK
The Engineer in the first instance ruled out the possibility of a direct deduction from
the progress payments which were due to E&M. This was in view that there was no
provision within Sub-Clause 14.6 of the FIDIC Yellow Book (issue of an Interim
Payment Certificate (“IPC”) by the Engineer), which give him the authority take this
action.
Therefore, pursuant to Sub-Clause 2.5 of the Yellow Book, E&M was given a notice of
an Employer’s Claim. As permitted by the mentioned provision, the notice was given
by the Engineer on behalf of the Employer.
QUESTION NO. 1
(a) Yes
(b) No
(c) Direct deduction was permitted only if authorized by the Employer
• The notice given by the Engineer advised E&M that the Employer
considered himself to be entitled to recover 0.5m dollars for the
temporary civil works carried out by CIV to facilitate E&M in carrying
out his obligations.
• E&M was advised that the particulars related to this Employer’s Claim
would be submitted in due course by the Engineer or the Employer.
(a) Yes
(b) No
(c) Only after authorization given by the Employer
• E&M did not react positively, and in fact, wrote back challenging
the notice itself.
E&M was liable for all costs (0.5m dollars) associated with the
Employer’s Claim; and
Sub-Clause 3.5 required that both Parties give effect to the ED and
E&M was requested to comply therewith.
E&M was once again permitted to directly coordinate the matter with CIV
and to agree the terms in respect of payment of the claimed amount
directly to CIV.
E&M did not comply with the ED and therefore the Engineer, in the next
IPC of E&M, deducted the 0.5m dollars.
QUESTION NO. 3
The Engineer, having given the notice of an Employer’s Claim and the
submission of the related claim particulars, both on behalf of the
Employer, carries out an Engineer’s Determination of the Employer’s
Claim which he has himself processed. Is this fair and reasonable and
permitted under the Yellow Book?
(a) Yes
(b) No
(c) Only after specific approval is given by the Employer
STEP 2 - REIMBURSEMENT OF 0.5M DOLLARS TO CIV – WITHIN THE
AMBIT OF THE FIDIC RED BOOK
The Employer was liable for the reimbursement of the claimed amount to CIV,
who was entitled to additional payment in the amount of 0.5m dollars; and
CIV was advised to apply for payment of the determined amount in his next
payment application; and
The Engineer on receipt of the payment application, will certify the determined
amount of 0.5m in the next IPC due under the CIV contract; and
The Engineer concluded that after certification of the determined amount, the
Employer will be discharged from all liability (past, present and future) in
connection with the claim.
The determined amount was then certified by the Engineer in the next IPC of CIV.
QUESTION NO. 4
(a) Yes
(b) No
(c) Was possible with a specific approval given by the Employer
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