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Engineering Contracts Contractual Scheme of FIDIC-4 Terms of Payment.

There are five distinct types of certificates under Red Book which are as below:

3.0 Interim Payment Certificates (IPC), Final Payment Certificates (FPC),

4.0 Taking-Over Certificates (TOC), Defect Liability Certificates (DLC),

5.0 Certificate of Valuation at Date of Termination

Only first and second would be discussed in turn in this article. The rest would be considered in upcoming articles.

The Contractor submits Statement, when it is certified by the Engineer, it becomes certificate. Payments are made to Contractor in following three stages:

1.0 INTERIM PAYMENT CERTIFICATES

Interim Payment Certificates are issued by the Engineer during construction period till issuance of Taking Over Certificate. In recognition of the importance to the Contractor of a predictable and prompt cash flow, payments are to be made monthly on the basis.

1.1 Submission by the Contractor

1.1.1 Signature and form

a. The Contractor is required to submit six copies of monthly Statement(s).

b. The Statement(s) must be signed by the Contractor's Representative (CR) who has been approved by the Engineer under sub-clause 15.1.

c. The statement(s) must be in such format as prescribed by the Engineer time to time.

1.1.2 What amounts may be included in statement?

The Contractor may include amount in the statement which he considers himself to be entitled up to the end of the month in respect of:

a. the value of the Permanent Works executed,

b. any other items in the Bill of Quantities including those for Contractor's Equipment, Temporary Works, day works and the like,

c. the percentage of the invoice value of listed materials, all as stated in the Appendix to Tender, and Plant delivered by the Contractor on the Site for incorporation in the Permanent Works but not incorporated in such Works,

d. adjustments under Clause 70, and

e. any other sum to which the Contractor may be entitled under the Contract or otherwise.

1.1.3 Whether Claims can be added in monthly statement

Point (e) is important with respect to financial claims. This appears to be intended to include financial claims in the monthly statement. It has been seen that the Contractor raises claims separately and names it as a financial claim or losses etc. It is advised that the Contractor must include the amount of financial losses in his monthly statement as provided under this sub-clause or if the Contractor submits financial claim separately, it must be submitted as Statement.

1.2 Response of the Engineer

Within 28 days of receiving the monthly statements from the Contractor, the Engineer is required, under the provision of sub-clause 60.2, to certify the Employer the amount of payment which he considers due and payable to the Contractor in respect of under paragraph (a), (b) (c) (d) and (e) under clause 60.1.

1.2.1 Deductions to be made by the Engineer

Before certifying for payment, the Engineer shall make such deductions as the Contract prescribes. Most important are:

a. Payments on account previously made such as:

- Mobilization Advance - Secured Advances

b. Retention Money stated in the Special Stipulations but subject to a maximum in total, also given in the Special Stipulations.

1.2.2 Attention to following matters is required

Before an Interim Certificate is issued, the Engineer is required to give attention to the following matters:

a. The amount of the Certificate, after the appropriate deductions are made, must be greater than the minimum amount of Interim Certificate stated in the Special Stipulations. Otherwise, the Engineer is not bound to certify under the provision of sub-clause 60.2.

It is important to note that the words 'not to certify' has been used in sub-clause 60.2 (b) which implies that the Engineer has discretion and he may certify the Statement even when the amount after certification comes to be less than the minimum amount of Interim Payment Certificate stated in Special Stipulations.

b. Where performance security is required, no amount is to be certified unless such security is submitted by the Contractor and approved by the Employer as provided in sub-clause 60.2.

c. Under the sub-clause 60.4, the Engineer is authorized to make any correction or modification in any previous certificate and if any work is not carried out to his satisfaction, to omit or reduce the value of such work in any Interim Certificate.

Once delivered to the Employer, an Interim Payment Certi?cate entitles the Contractor to be paid within 28 days as provided under sub-clause 60.10, and within 56 days in the case of the ?nal payment certi?cate.

1.2.3 Deductions to be made by the Employer

It should be observed that this Sub-Clause leaves to the Employer the responsibility of determining in the case that liquidated damages are due whether to make the appropriate deduction or not. In addition, the Employer may be required by law to effect certain deductions, e.g., for taxes. It appears relevant to describe the clause where under the Employer is entitled to make deductions. There are total nine clauses which are as below:

- Clause 25.3 (Remedy on Contractor's failure to insure)

- Clause 30.3 (Transport of materials or plant): where the Contractor has failed to prevent damage to the road

- Clause 37.4 (Rejection): This Sub-Clause deals with the situation where the Contractor is not ready on the pre-arranged date. The Sub-Clause also deals with the consequences of unsatisfactory test results.

- Clause 39.2 (Default of Contractor in compliance): The Contractor is required to remove faulty materials, Plant and work and to replace the same at his own cost.

The Engineer, in giving his instructions, would be wise to rely on tests or other objective criteria, as well as to specify a reasonable time for the Contractor to act, as sanctions are provided under Sub-Clause 39.2 if the Contractor does not act within the time specified by the Engineer or, if no time is specified, within a reasonable time.

- Clause 46 (Rate of Progress) : extra cost of supervision - Clause 47.1 (Liquidated Damages) - Clause 49.4 (Contractors failure to carry out instructions): Regarding Remedying defects

- Clause 59.5 (Certification of Payments to nominated subcontractors) Serious difficulties can arise if the Contractor fails or refuses to pay at the appropriate time the amounts due to a nominated Subcontractor.

This Sub-Clause lays down the procedure if the Contractor cannot, or will not, without giving satisfactory reasons to the Engineer, make payments due to nominated Subcontractors. Under given circumstances, the Employer may pay the nominated Subcontractor directly and recover the amount from the Contractor, possibly by deduction from payments due to be made to the Contractor by the Employer.

- Clause 64 (Urgent remedial work): If, during the execution of the Works or during the Defects Liability Period, the Engineer finds that repair work is urgently necessary for the safety of the Works, and the Contractor does not comply with an instruction to carry out the work at once, Sub-Clause 64.1 empowers the Employer to engage others to carry out such work.

If, in the opinion of the Engineer, the Contractor was liable to do such work at his own cost under the Contract, then the costs thereof are recoverable from the Contractor

2. FINAL BILL

There are two sub-clauses which deal with the final bill. It may be noted that the terms 'Statement at completion' and 'Final Statement' have been. The details of clauses are as under:

- Clause 60.5: Statement at Completion

Statement of completion is the bill which is produced by the Contractor within 84 days after issuance of Taking-Over Certificate for the whole of the Works. The Statement at Completion would include the following:

a. the final value of the Work done up to the date of issuance of TOC b. any sums which the Contractor considers due and c. an estimate of the amount which the Contractor considers will become due to him under the Contract.

- Clause 60.6: Final Statement

Within 56 days after issuance of Defects Liability Certificate, the Contractor would submit draft Final Statement comprising the following:

a. the value of all work done in accordance with the Contract

b. any sums which the Contractor considers due

If the Engineer does not agree with the draft Final Statement, the Contractor would submit the revised Final Statement with proposed changes.

- Final Certificate

Within 28 days after receipt of the:

* ?nal statement as provided in sub-clause 60.6 and * the written discharge in accordance with sub-clause 60.7, the Engineer is required to issue to the Employer, with a copy to the Contractor, a ?nal payment certi?cate in accordance with sub-clause 60.8.

In the ?nal payment certi?cate, the Engineer is required to state:

a. the amount which, in his opinion, is ?nally due under the contract; and

b. after giving credit to the Employer for all amounts previously paid by the Employer and for all sums to which the Employer is entitled under the contract, other than clause 47, the balance, if any, due from the Employer to the Contractor or from the Contractor to the Employer as the case may be.
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Publication:Pakistan Engineering Review
Date:Jan 31, 2019
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