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Advance Payment Gurantee

6 replies [Last post]
Wed, 2009-06-10 07:36
Mohammed Owais
User offline. Last seen 11 years 26 weeks ago. Offline
Joined: 11 Mar 2005
Posts: 17
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We are a MEP subcontractor in one project , it’s menthioned in the contract agreement that main contractor will pay us 15 % as advnace payment agains bank gurantee with same.
We already submite the bank gurantee and we got the advance payment but now after more than one year the gurantee is already expired and main contractor asked us to renew the bank gurantee for one more year due to some delay in the project and we refuse to extende the validity of the gurantee becuase our bank refuse to do so . Now the main contractor sent us a letter saying that he will going to stop all our due payments in the project in case of we don’t renew the advance payment gurantee .

Does he entitled to stop paying us if we didn’t renew the gurantee ? even the gurantee from the begining is issued for only one year and it impilicty clear that we will not go to renew it in the futur.
So if the Main contractor stop all our due payments in the project is it give us a right to stop or suspend our work in the project untill he release our old payments?
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Replies

Mon, 2009-06-15 07:34
#1
R. Catalan
User offline. Last seen 13 years 15 weeks ago. Offline
Joined: 15 Aug 2005
Posts: 314
Groups: None
Mohammed,

Follow Samer’s excellent advise.
- Extend BG
- Pay the BG extension fees (can be recovered if EOT with cost is granted, though a nominal amount)
- Submit an EOT with cost implications
- Review again contract conditions if there’s clause regarding payment of material/equipment on site, and any clause stating that your contract conditions with the GC is back-to-back with condition of GC with the Client. I doubt maybe the GC is taking payment from CLient for material/equipment delivered on/off site.

Best regards,
Rommel
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Fri, 2009-06-12 06:35
#2
Samer Zawaydeh
User offline. Last seen 6 years 15 weeks ago. Offline
Joined: 3 Aug 2008
Posts: 1664
Groups: Civil Engineering, Regional Representatives
Dear Mohammed,

This is a case of time delay. You should issue your G.C a notice of delay as soon as the delay event has occurred. Make sure that you cover all the causes of delays.

You also need to read your Conditions of Contract carefully and make sure that all requirements for B.G are understood clearly by both parties. Your statements of agreement witht the G.C for "1 year" only should be written down and not verbal only.

You need to know that your liabilities are for this project only. You can not allow your G.C to mix the liabilitities on both projects.

Ultimately, it would be safer to extend the B.G and pay the nominal fees, and subsequently claim them as cost of delay. In addition, make sure that you report all your delays in your monthly reports. This is the minimum that you can do.

With kind regards,

Samer
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Fri, 2009-06-12 04:02
#3
Mohammed Owais
User offline. Last seen 11 years 26 weeks ago. Offline
Joined: 11 Mar 2005
Posts: 17
Groups: None
Thnx SAJID

-No invoice was raised yet
-I cant raise an invoice with General or O.H. expenses only because it’s already loaded and absorbed in Price Break Down Items and there is no payment for equipments delivery, Payment is due only when the equipments are supplied and fixed.
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Fri, 2009-06-12 00:02
#4
Sajid Balma
User offline. Last seen 13 years 51 weeks ago. Offline
Joined: 8 Jun 2007
Posts: 151
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"3-I use some money from advance payment in booking all the machines Units of the project with the supplier+ over head expenses paid for Direct and Indirect expenses like (Submittals & Approvals, Preparing Shop Drawings, etc) + H.O.O.H."

Was it for the same project??
If yes, did you raise an invoice???
If not, raise it now.
Let the engineer certify it and let them make all deductions and then see what you end up with.

In the absence of a valid APBG, the engineer can stop all payments against work done till he recovers full amount of advance payment for the project for which the BG was issued.

If you don’t amortize or issue another bank guarantee, you are exposing yourself against the claim(s) by the engineer/employer.

If bank refused to "EXTEND" the bank guarantee, get a new one.

Regards
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Wed, 2009-06-10 14:26
#5
Mohammed Owais
User offline. Last seen 11 years 26 weeks ago. Offline
Joined: 11 Mar 2005
Posts: 17
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1-After 1 year since signing contract, our work (HVAC) is still not started yet due to delay of Civil works by G.C. so, no interim payments and no advance payment has been recovered.
2-Our Payments which G.C. wants to stop are our due payments in another project but unfortunately with same contractor and same Engineer!
3-I use some money from advance payment in booking all the machines Units of the project with the supplier+ over head expenses paid for Direct and Indirect expenses like (Submittals & Approvals, Preparing Shop Drawings, etc) + H.O.O.H.
4- From the beginning we agreed with main contractor to submit the B.G. for only one year not to be extended under any circumstances and the syntax of B.G. mentioned that the B.G. is only for one year not more
5-The G.C. Accept B.G. to be valid for only one year and if he wants B.G. to be automatically renewal then he should asked from the beginning a different syntax for B.G. to be automatically renewed and continues to be valid until return back the original B.G. letter to the bank.
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Wed, 2009-06-10 12:30
#6
Samer Zawaydeh
User offline. Last seen 6 years 15 weeks ago. Offline
Joined: 3 Aug 2008
Posts: 1664
Groups: Civil Engineering, Regional Representatives
Dear Mohammed,

The essence behind the Advance payment guaranttee is that the employer pays you an advanced payment and you give a B.G against this money.

During the 12 months of work, the works are invoiced, and a recovery of the Advanced payment is deducted from the Interim payments. Subsequently, you all allowed to reduce the B.G after each Interim payment.

After the duration of the B.G elapsed, you need to check how money the employer has recovered from the advance payment that they gave you. Subsequently, you have two options:

1. Submit a new B.G with the reduced amount after recover of the the advanced payment through the Interim Payments.

2. Pay back the Balance Money of the Advance Payment in case you can not submit a new reduced B.G.

The Engineer can recommend to withheld payment in the amount of the balance advance payment to be recoved. No more.

You can not stop work if the Contractor is maintaining a fair balance. But if they are being unjust, you can explain in more detail. Stopping work will put you at risk of default.

Make sure that the situation is balance, and you will be all right.

With kind regards,

Samer
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