Release From Performance Under Cl. 66.1 FIDIC 4th

Hi Hesham,



Something that came to mind, that is good practice, is to get the contractor to provide a schedule of P&G rates, after the award, to provide an indication of how he will be claiming P&G’s on a monthly basis. This might in this case be 20/20 vision, but the reason for it, is just what is required in your instance, to support both yourself and the contractor in this type of claim. This will give an idea of indirect costs, as opposed to direct costs (which is measurable). The negotiations around the P&G cashflow, can be sorted out prior to mobilisation at the award stage, and as such obviate the problems of front loading,etc.



The problem is that site establishment/mobilisation costs can form a substantial portion of the P&G’s, and simularly demobilisation. In this instance, if the mobilisation/site establishment, had taken place, I believe the contractor is equally entitled to demobilisation costs, which would occur at the end of the P&G cashflow curve. So to summarise the contractor if established, has a right to the front- and rear end of the P&G curve in terms of the fact that he has mobilised, your dept sold the property, and he had to demobilise.



I hope this makes sense.



Regards



Philip

Hi Sayed,



My opinions are probably close to those of Bryan. However, the question is what state of readiness (Progress in terms of mobilisation) was the contractor. Had he mobilised staff, pre project planning, was there any project related equipment purchased, how much effort was spent to prepare other than tendering (this is supposed to be carried as an overhead in normal terms) and was the contractor made aware of the possibility of cancelation of contract due to the possibility of the sale of the land. We live in different cultures, and fidics is not always suitable to the law under which it is effected. I have some experience of laws as practiced in Qatar, however, in general I believe the law is fair and will practice this fairness, in normal terms. In english law they have a term ’common law’ which refers to the way way the law is understood by most people. I believe that Islam law has simular precedents,and as such the fairness of the situation should be looked at. In other words, if the contractor accepted the contract, started mobilising, which he spent money on, and was then dropped, he is entitled to his expenses, and as a result a portion of the profits in relation to his expenses.



By not taking this approach, and going for the cutthroat way, as dictated by the Fidics clauses, you can be doing your department irreparible damage in terms of future tenders, as the tender prices will be increased, in case more projects are abandoned, as the land prices are escalating, and the possibility is there to make more profits by cancelling further projects.



The point is that if in this situation, the contractor loses money he has spent other than tendering, pay him on the basis, of the proof of expenditure, and settle the profits on the same basis, to preserve your department’s integrity.



Forget the clauses an remain honest. Obviously the profit from the sale of the land was the carrot, and any good judge will see this.



Maybe try the NEC next time, it includes fairness, and partnering, which wiil lead to a lot more success in projects.



Regards

Hi Sayed,

My opinions are probably close to those of Btyan. However, the question is what state of readiness (Progres in terms of mobilisation) was the contractor. Had he mobilised staff, pre project planning, was there any project related equipment purchased, how much effort was spent to prepare other than tendering (this is supposed to be carried as an overhead in normal terms) and was the contractor made aware of the possibility of cancelation of contract due to the possibility of the sale of the land. We live in different cultures, and fidics is not always suitable to the law under which it is effected. I have some experience of laws as practiced in Qatar, however, in general I believe the law is fair and will practice this fairness, in normal terms. In english law they have a term ’common law’ which refers to the way way the law is understood by most people. I believe that Islam law has simular precedents,and as such the fairness of the situation should be looked at. In other words, if the contractor accepted the contract, started mobilising, which he spent money on, and was then dropped, he is entitled to his expenses, and as a result a portion of the profits in relation to his expenses.

By not taking this approaoch, and going for the cutthroat way, as dictated by the Fidics clauses, you can be doing your department irreparible damage in terms of future tenders, as the tender prices will be increased, in case more projects are abandoned, as the land prices are escalating, and the possibility is there to make more profits by cancelling further projects.

The point is that if in this situation, the contractor loses money he has spent other than tendering, pay him on the basis, of the proof of expenditure, and settle the profits on the same basis, to preserve your department’s integrity.

Forget the clauses an remain honest. Obviously the profit from the sale of the land was the carrot, and any good judge will see this.

Regards

Philip

Hi Sayed,



I’m afraid not. Profit is to be included as in my first reply, the principle is to place the Contractor back in the position he would have been had the termination not occurred. Damages in this case would be the profit that all the equipment and resources would have earnt on this job had it gone ahead, i.e. that percentage actually tendered.



The resources could have been employed elsewhere on other work, had they not been committed to your job. You might view Contractors’ equipment as a mechanism to generate revenue, including profit, to feed the company’s hungry mouths and shareholders’ pockets, whilst doing their work of excavating, etc!!

Hi Sayed,

Sub-Clause 69.3tells you that the first payment must be calculated as per 65.8, and then if the Contractor can demonstrate that he has not recovered his full expenses on any of the Preliminary and General BoQ rates, he must be paid that shortfall as damages.



The BoQ is structured with the complete job in mind and there may costs that are only recovered when completion s reached. Very much a negotiation exercise with the Contractor’s QS. The main principle is the EMployer has defaulted and the Contractor must be paid for his losses. [Plant and resources not earning for instance]



Best of luck

Sub-Clause 66.1 starts "If any circumstance outside the control of both parties .." The sale of the land cannot be classed as applicable to this Sub-Clause.

Sub_clause 69.1 (d) is suitable -"For unforeseen economic reasons it is impossible for him to continue ..."



After the notice from the Employer that the Project cannot progress, the Contractor is entitled to give notice to terminate and be paid via 69.3



Sub-Clause 69.3 tells you how to pay the Contractor, being ANY loss or damage arising out of the termination, extra over for the payments in Sub-Clause 65.8.



With regard to conflict with local law, I am uncertain of the specifics, but essentially under almost all law structures, just cancelling a contract because the Employer doesn’t want to do it anymore will normally impose severe economic payments to the Contractor. The principle is that the Contractor must be placed in the position he would have been had been able to complete the job as he had tendered, including profit.