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Late Payment Claims.

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Jawad Al-Nimri
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Dear All,

This is an interesting subject with verry limited resources to talk about.

When the Employer is delayed in paying the Contractor his monthly invoices certified by the Engineer, we all know that this will entitle the contractor to Interests for the delayed amounts over the delay period, as well as, the finance charges.

However, i could not find any resource handling the quantification of the effect the late payment caused on progress. we all know that such an action by the Employer, especially when the delay is excessive and repeatitive over consequen certificates will affect adversely the Contractor’s progress.

BUT HOW TO CALCULATE THE EFFECT??? PLEASE ADVICE

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David Barnett
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Isn't non-payment "prevention" by the Employer. 

Mike Testro
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You have found your own solution.

Give the notice first and then slow down or stop.

You have your EoT already granted.

Wajih Ullah
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Hi Mr. Mike Testro and Dear All!

  • I mean, If the Employer delayed the payment of contractor up to 3 months or more then against his monthly invoice certified by the Engineer so, is there mentioned any specific clause in FIDIC which can entitle the contractor for grant of EOT.   
  • I have a clause (69.4 regarding Contractor's Entitlement to Suspend Work) in my contract, which describes something like that " Without prejudice to the Contractor's entitlement to interest under Sub-Clause 60.10 (Time for Payment) and to terminate under Sub-Clause 69.1, the Contractor may, if the Employer fails to pay the Contractor the amount due under any certificate of the Engineer within 28 days after expiry of time stated in Sub-Clause 60.10 within which payment to be made, subject to any deduction that the Employer is entitled to make under the contract, after giving 28 days ' prior notice to the Employer, with a copy to the Engineer, suspend work or reduce the rate of work.
  • If the Contractor suspends work or reduces the rate of work in accordance with the provisions of this Sub-Clause and thereby suffers delay or incurs costs the Engineer shall, after due consultation with the Employer and the Contractor, determine:

          (a) any extension of time to which the Contractor is entitled under Clause 44, and

          (b) the amount of such costs. which shall be added to the Contract Price"

  • So, can I link this clause with EOT claim due to delay in payment by the Employer.

 

   

Mike Testro
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Hi Wajih

Any standard act or ommission clause will trigger a releveant event.

How you calculate the cause and effect is another matter.

Best regards

Mike Testro

Wajih Ullah
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Dear All,

 

Can any one explain, if there is any clause regariding delay in payment will entitle the Contractor for the Extension of Time.

 

Wajih Ullah
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Dear Shahzad Munawar

         Please defined if possible, the clauses regarding any delay in payment will entitle the Contractor for the Extension of Time as you mentioned.

ashraf alawady
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Shahzad,

Clarify your opinion in order to continue and reach to final conclusion.
John Whitney
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Shahzad,

Your comments in your last post are contradictory. Can you please clarify your position?


John
Shahzad Munawar
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Ashraf

Contractual support in respect of Payment delay is Extension of Time clauses whereby in most of the Contracts it is explicitly stated that any delay in payment will entitle the Contractor for the Extension of Time as well as associated costs and further Extension of Time is mostly awarded on the basis of late payments in arbitration being as vital issue.

So be acknowledged that financial crunch always directly impact the overall progress of project. Therefore I think that there is no question of irrelevancy that such delays may cause only financial disruption and it has no direct impact on the progress of works.

ashraf alawady
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Can we get any contractual support or reasonable reasons to show that delays the contractor’s payment can cause adelays in the over all the project.

is it no logic that such delays may cause only fnanicial disruption and it has no direct impact on the progress of works.
Andrew Flowerdew
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Jawad,

If you wish to conclusively prove cause and effect - use T.I.A.

95 updates is not that great a number - I know of T.I.A’s with a 1000 plus updates.

You get out what you put in, but as always an analysis should be proportionate to the money at stake.

If there’s alot of money at stake, taking short cuts or choosing a less intensive method of analysis to save you work is not the thing you should be doing.
ashraf alawady
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In my opinion, we can not make direct relatio between ’s delay the Contractor’payments by the Employer and the over all project’delays.

In our cotracts, itis mentioned clearly that the engineer has the right to take 28 days to review ,check and correct
or approve the contractor’s payments from the date of the contractor’s submission .
the employer has the right to take 90 days from the date that th engineer has forwarded the payment to the client.
That means,the contractor has to receive his payment after 118 days from the date of submission.

in the light of the above ,i do think that it can be logic or accepted that the contractor can finance the out put cash flow of the project based on the in coming cash flow accordingly the contractor has to take into his consederation to finance the project by his own safest way.

In case any delays from the Employer above the time frame mentioned in the contract related to the payment, the contractor will be entitel only for the additional costs of the intrest %.
shamail shardan
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Dear Jawad

If you have alot of concurrent events that makes it very difficult to seperate the effect of the late payments from other delays that were encountered during the same period of time, then i would recommend for you another method of delay analysis that i’m not sure if you are aware of in details, its the "Impact as-Planned" analysis. Simply, you update the latest revision of the approved programme just before the first event happen (in your case when the time the first payment was due has just ellapsed), dont change any logic, dont revise any relations even if that was the case on site, just keep the schedule "as-planned". Now, according to that updated "as-planned" schedule, conclude the critical dates you are targeting to concentrate on them in your analysis, (for example, placing orders of materials, mobilization of a main subcontractor, ...etc). Now, using the total floats of those activities compare that target to the actual acheived (or could been acheived) due to the disrupion caused by an Employer Delay Event, then just conclude it simply as follows:

" If the Employer had not delayed the Contractor any payments during the period from ..... to ..... , and as per the approved master programme of works, the overall project delay would have been equal to (X) , however; due to the delay of the Payments by the Employer, some activities could not be achieved as planned, and this would have already delayed the project to an overall delay of (Y), therefore; we request the Engineer to certify an EOT equals to (Y-X)".

It is very crusial here to understand, the concurrency of the delay does not waive your right for the delay but waives your right for the prolongation cost only.


Cheers
Jawad Al-Nimri
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Dear Shamail,

Thank you for considering the issue, actually we all revolve around the same thinking concepts, but let us analyze it a little more;

Establishing Entitlement:
Normally it is the responsibility of the Contractor to provide manpower Equipment, and materials necessary to complete the work specified under the Contract, without limitations to the finance requirements of the Contractor.
However, in my case we are using the contract and support it with additional law obligations for the action of the Employer. We have established a strong case of entitlement.

Time Effect:

In my case; there are numerous delay events Late Design, work permits, delayed payments, no coordination with other contractors, other parties dominating over the contract all the types of delays that could ever happen to any contract, even those that could happen on the moon, I am using the dominant delay principle and many overlapped the delayed payment issue. Well then the effects to be observed from the site records can not be contributed only and directly to the delayed payments issue. If I want to use the TIA method I will need seriously more than 95 revisions of the schedule, here we come to the ART OF DELAY ANALYSIS to present what can be considered as fit to the case and proves the delay and the disruption. So actually am not going to use it (the case of delayed payments) but I considered it to be a discussion topic and a very good mind storming initiation. The additional finance costs are considered separately and they are directly calculated as you mentioned.

Your method of converting this action by the Employer into event (with starting and completion dates) to impact it later is very good idea.

But please consider the financial requirements I mentioned before in this discussion page, and varying them and exceeding them significantly to a long period can it serve as an alternative to obtaining site records and relate them to this action, especially in a case similar to mine where there are numerous delay events causing low productivity and it can not be contributed to delayed payments directly???

Please advise,
shamail shardan
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Dear Jawad and ALL,

Sorry i am late, but was really busy for a couple of weeks.

This thread addresses one of the questions in Construction Industry that should be resolved and defined cleary in any COC.

Jawad

The Society of Construction Law has issued a "DELAY AND DISRUPTION PROTOCOL" which is a very valuable document in my opinion. The Protocol discusses many issues, one of them is DISRUPTION (PAGE 31 of the PROTOCOL).

you can get your soft copy of the protocol by loggin on to this site http://www.eotprotocol.com

The answer to your questions is dependant on many factors (for example, when did this delay first occur? when did it end ? was there any site records for prodcutivities before the event ? and after the event ? the Contractor might use evidence that payments for sub-contractor’s was due by ....... and were actually paid by ......, salaries were not paid for ........ therefore the following manpower had to be release ....... " all these issues should be prepared by the Contractor.

Now, to evaluate the effect of this disruption, we have to define two senarios:
a- what would the Contractor’s progress would be if this disruption did not occur ?
b- what is the actual Contractor progress during the affected period of time ? (whether that period is 60 days after the payment is due or else).

Ofcourse for the evaluation of the EOT we will look at the delayed path (usually the original critical path, but not necessarily).

Now the Contractor has to prove two things:

a- If these payments were not delayed , he would "ACTUALLY" be able to do this job by this time frame. The Contractor might refer to any records, documents, or even other sites to prove his point, this will be accepted by the arbitrator.

b- The "ACTUAL" progress on site, i.e when the payment was made to the subcontractor, supplier, ...etc, and the effect of that on the schedule.

Once you establish these facts, you can deal with it as an event and perform a time impact analysis on the schedule.

This is ofcourse in addition to the financial impact which i dont find any problem in evaluating it (simply the delayed actual interium payments times the actual bank interest for the delayed duration), in addition to the pronlongation cost (if applicable) that will result from the time impact analysis.

It is therefore recommended that the Contractor submits at least a monthly valuation of the impact of any Employer caused disruption, some contractor’s include this analysis in their monthly progress reports which is really helpful as a record for interuim determinations of any EOT or cost impacts.

In conclusion, there is no equation or definitive way to do it, however; disruption causes loss in efficiency and therefore time lost and cost lost. you have to prove that, analyse the time impact and cost impact in the way they "actually" had an impact on your programme, and i am sure it will be convencing.



John Whitney
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Jawad,

I’m with you now.

Lucky you, having no clause prohibiting you from claiming EoT!

I agree that the thing to do is to argue that the late payment is a material breach by the client, and that the delayed progress is a direct concequence of that breach.

As for quantifying the delay, this seems to be a question of looking at progress on disrupted events - the subject of another thread here, I think. Normally, this is done by comparing progress achieved between affected/non-affected periods. As you are dealing with EoT, you should confine this comparison study to critical path items only.

Good luck.

John
Andrew Flowerdew
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Jawad,

Any retrospective analysis (planning or otherwise) is tedious, painstaking, and very time consuming - that’s what it’s all about and why parties get others to do it!
Jawad Al-Nimri
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John,

In my contract there is no provision prohibiting EOT for delayed payments, but there is a provision allowing the contractor to terminate his employment under the contract, however the Contractor elected to proceed and only to provide notices of his intention to claim later. The delayed payment event is an event giving rise to claim for interests clearly in the contract, but take finance damages for example they are not expressly stated in the contract but it is a natural by-consequent event of the delayed payments so they are recoverable under the law. We are now handling the issue retrospectively, the shortage in the cash flow caused problems with the subcontractors and with the employees of the Contractor; arbitration is ongoing now, so the delayed payments are natural cause for the reduced productivity, so from a legal point of view we have an argument, but how to determine the effect scientifically, I am surprised to know that this issue was not handled before in any of my resources or with any of my colleagues.

Andrew,

I have prepared this exercise, to compare (cash flows) is really an exhausting tedious task and to prove expenditures correctly it will make the case just doesn’t worth it, so instead I used the payments only (planned vs actual) it showed the great effect of these delayed payments but still the shortage period and the reduced progress do not match directly because the payment is allowed contractually 60 days to be delayed, which will make its effect comes after and similar issues. I was looking for any internationally recognized and accepted method. It seems there is not, so I will do it in the common sense and be prepared to any arguments or questions…

Thanks to both of you

Regards,
Andrew Flowerdew
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Jawad,

Interesting question - what John has said is correct - the only thing I would add that you need to think about is that you are claiming for a BREACH OF CONTRACT by the Employer and are therefore seeking DAMAGES for this breach, ie a monetary value that put’s you in the same position as that had the contract been properly performed. This is not the same as a cost and expense claim under the contract.

Any effect of the reduced cashflow is therefore claimable, but quantifying it may prove difficult. I would do a comparison of as planned versus actual for the affected periods and try to isolate those differences that can be directly attributed to the reduced working capital available. This is going to involve more accounting than planning. You’ll have to establish the planned cashflow which should be easy enough, but then ACCURATELY establish the actual cashflow, which is going to involve a painstaking operation. When you have the actual cashflow you can look at those periods that the maximum available was hit and then look at the programme and say, we could have been doing this but due to the lack of capital we couldn’t and therefore the effect on progress was this.

Hope this helps
John Whitney
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In almost all of the contract forms that I have seen, there is no provision for any time extension for payment-related matters. Indeed, many contract forms expressly prohibit such time claims.

On the other hand, there is usually a provision for the contractor to terminate the contract in the case of extreme delays in payment. Usually, though, the right to terminate is accompanied with various early-warning notices, with which the Contractor must comply as conditions precedent for termination to take effect. These are designed to enable the errant client to get his act together to avoid the negative consequences of Contractor termination.

Cheers,

John
Jawad Al-Nimri
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Thank u sunil,


What i mean is there any analytical method?
For example to say that the Contractor budgeted $ x amount to finance the project from the Base Line Schedule
(Maximum Finance Requirement) However, due to the late payments he was required to provide Y (From the updates).

The Contractor’s Financial capacity can only provide Z,
which is X less than Z less than Y now, the period between the contractor
financed Z until the Y requirement was reduced back
to Z is excusable delay right?

But what about the period between the time the
contractor exceeded the x requirement
(baseline budget until his maximum financial
capacity of Z)?

Do you know any resource (book or article) considers this issue??

Any ideas sunil????
Sunil Kumar
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Hellow,

Its quite a tricky one but certaily will call for a claim per clause 20.1 prvoided you substantiate(which I think is possible with the chain of events).
The above will happen in the worse case scenario if we are talking of payments not received for months which will go into dispute followed by arbitration.

Cheers
Jawad Al-Nimri
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Thank you for paying attention to my question,
The inquiry is simply like this,
Suppose the Employer did not follow the contractual timeframe for paying the monthly statements of the contractor.
If this effect was great say four consequent months without paying any money to the contractor, for sure the Contractor is entitled to interest rates and additional finance damages we all know that.

What I want to know, if there is any method to calculate (retrospectively) the effect of this delayed payments on the Contractor’s progress on site? The issue is simple it is similar to that your Employer stopped paying you your monthly salary for about 4 months consequently so as a normal consequent you could not take a taxi and come to work, of course your employer can not say to you that you are delayed in your work. I could not find any method in my resources to calculate the effect of such an action on the PROGRESS of the Contractor so I want to know if any other claims specialist has.
Sunil Kumar
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Can you please make it a litte simpler on what your query is !!!