Dear Sajid,

I would recommend that you very smart in pricing the new contract. That is, if you can ask for new prices. If you can Front Load the 1st part of the works by increasing the unit rates and reducing the unit rates of the finishes items coming last. This way, you will ensure that you have a healthy cash flow and most of your money is paid upfront.

You can also ask the employer for evidence of sufficient funds to complete the works as soon as the Letter of intent is issued.

Closing the outstanding payments on the old contract should be a must before the start of the new one.

Best Regards,

Samer

Yes of course if you are a fair-minded contractor, it is always tempting to give a little to make sure you have a chance of the next job!

But if you have agreed to a schedule of payments for the outstanding amount from the first contract, I would be tempted to make sure there is a conditon precedent clause inserted such that if they fail to make payment of any of the amounts on the schedule, then you have right to cease work immediately.

Just a thought as you may otherwise end up being owed a lot more than you are now.

Ask them how they intend to pay for the remaining work if they cannot afford to pay for the work already done.

Regards

Ken

Hi Sajid

Sounds like they ned you more than you need them!! Well done for standing your ground.

I suggest that any expenses you have incurred as aprt of the failed "first" contract should be agreed and paid before you enter into the new contract. If y can do this, then why should there be any problem with the new contract?

What I would be wary of is the Employer seeking to defer the settlement of the first contract or in some way making the balance due part of the new contract. You shouldnt have to agree to anythng like that.

Remember the employer is friendly now but as soon as the project is complete, he does not have to be.

Good luck

Ken

Hi sajid,

Why did you say that the claims can be put aside for sometime??

Now is the best and perhaps only opportunity to get an agreement on your EOT and disruption and prolongation costs.

I will bet you that if you leave this without formal agreement now, and you go back to site, then the Employer will be in no mood to talk to you later. Once the job is finished, he will not be interested in your claims.

You have the upper hand now - you must use it.

Also, why do you insist on the full scope of the remaining work? If the Employer is as bad as he seems, I would not want to expose myself to the risk associated with greater work. If he has taken 60% of the work off you, accept this but demand that he pays your loss of profit on that amount of work at whatever your mark up was - 15% say. You then get to make that profit without doing any work or taking any risk.

Dont let this opportunity go by!!

Good luck

Hi Sajid

Yes, run your CPI, but if the result is not "1", then you have a case!

Of course its more complicated that this but simply put, try approaching it like this;

Value of work done
plus
the profit lost on the work not completed
plus
the cost of decommissioning on site
plus
the cost of prelims not receovered because of early finish (ie. your staff would have been employed - and paid for- on this project, but now you have to find something new for them. Youmay be paying their salaries in the meantime)
plus
the lost overhead contribution by your reduced turnover
plus
costs from subcontractors
plus
the cost of preparation of your claim
plus
my fee in advising you!!!!!

Dont dwell too much on whether you have lost money - you know this is the case without CPI.

Your greater challenge is to demonstrate that your costs are reasonable and actual.

Good luck

Ken

Dear Sajid,

You can read the FIDIC clause 16.4 "Payment on Termination" to give you a better idea about the sequence of events that should follow. Apply it if your CoC permits.

Good luck,

Samer

Hi Sajid,

Yes of course, claim 100% of the retention. After all, what gives the Employer the right to hold on to it if the contract has been determined?

Ken

Sajid

Yes you are right, its a civil matter rather than criminal.

But your rights are determined by the common law and statutory provisions rather than contractual rights as the contract appears to have been set aside.

Its confusing I know - a civil matter under a common law jurisdiction!

Hi Sajid,

Repudiatory breach of contract is a breach that is so fundamental that the injured party is entitled to regard the contract as having ended. Absolute failure to pay for the work done is one example.

Basically it is said to go to the root of the contract, which in its simplest regard, is the construction of a building in return for payment.

The usual remedy to the injured party is the payment of damages, which are intended to put that party back in the postion it would have been had the breach not occured.

So where would you have been, financially, had the project been completed properly and been paid for?

One confusing comment is that you speak of civil law but, to my knowledge, Pakistan is a common law country, not civil law ?!

Ken

Hi Sajid,

It seems you are on the ball thankfully.

I am no lawyer of course, but I know that the legal system in Pakistan is based on English common law.

If the contract has been butchered to the extent you suggest, it may well be that the Employer has repudiated the contract by his refusal to pay.

Your remedy for this repudiatory breach is therefore damages at common law. I suggest you get on with compiling your costs as soon as possible and present these to the Employer and see what happens.

I cant say what you would need to do if a dispute over the amount arises - arbitration maybe?

Hi Sajid,

I wish I shared Samer’s confidence that it "will not be a problem". I suspect you have a huge problem!!

Firstly, have you determined correctly? Late payment by the Employer does not give the right to determine - merely to suspend work until payment is received. There has to be a substantial effect on the progress of the works for the contractor to thereafter determine.

Has the Employer accepted your notice of termination? If not, then the Engineer is not likely to value and certify all of your claims is he?

You are right to be concerned about rights if the contract is terminated. Other forms of contract (eg JCT) are better drafted in that they refer to "determination of the contractor’s employment" That is, the contractors obligations to progress and complete the works are ended but the contract still exists and therefore so do all the rights and obligations. FIDIC refers to termination of the contract so you might ask "if the contract is ended, under what provision is the employer obliged to pay?" This is an example of one of the simplisitic features of FIDIC.

You need to ignore this conundrum and get on with compiling your costs. The lawyers will argue whether it is due under the contract or whether is is payable as damages for breach of contract - it amounts to the same as far as recovering cash is concerned.

Your heads of claim might then include:

1) Work completed
2) De-mobilisation costs - return of plant, labout etc
3) Non productive time for direct staff if not re-directed to new work
4) Additional costs in making safe areas of incomplete work
5) Loss of profit on the work not now to be completed
6) Finance costs from the late payments
7) Similar claims from your sub-contractors

The contract obliges the Engineer to compile and certify the above costs - now if he does this without a fight and you are happy with his figure then I will eat my hat! Or you could send Samer in and he can sort it "no problem"

Good luck
Ken

Dear Sajid,

If you have proper documents at site then this is not going to be a problem. You will need all your material logs, shop drawings logs and the Procurement logs. Contracts with your sub contractors and a list of all the items that you want to claim for.

Make sure that you have an updated schedule showing all the ongoing activities/ lack of it at site.

Retention Money & Performance Bond:
Since you completed some of your works, you will need to submit the "Maintenance Bond" in exchange for your retention money, and performance bond.

Recovery of Advance Payment:
You will include it in your Final Certificate.

Best Regards,

Samer