8/11/2019 Yellow FIDIC GC SC 14 - Application of Delay Damage

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 Yellow FIDIC GC SC 14.11

Dragan RAKO

Principal Engineer at SAFEGE Croatia

Contractor submitted DRAFT final statement - the Engineer disagrees

with some parts of DRAFT, one of the issues is determined Delay

Damages (DD) pursuant to GC SC 3.5 which is disputed by the

Contractor - conclusively, Contractor refuses to change his DRAFT, so

the Engineer will have to issue Interim Payment Certificate for the

agreed parts of the DRAFT.

My question is - is DD agreed par t (since already determined by the

Engineer) or should DD be excluded from the IPC, until resolved by the

DAB or Arbitration? Please note that GC SC 14.11 makes no reference

to GC SC 14.6. Thanks in advance

     

Comments

Like       Reply privately      Flag as inappropriate       1 month ago

Ibrahim Izzldin

Cost Engineer at Newtech Consulting Group

I think the answer mainly depends on what considered as agreed part of draft final statement, I try

to analysis the case as fallows:

Scenario 1: if the Contractor agreed to apply "Delayed Damages" in accordance & compliance

with the Contract, then the Interim Payment Certificate of the Draft final statement shall includethe same as agreed part.

Scenario 2: if a dispute exists regarding "Delayed Damages", the aforesaid IPC shall be issued to

the Employer exclusive of DD. If the dispute later resolved under Sub Clauses 20.4 & 20.5 (DAB's

decision) or Amicable Settlement, then the Contractor shall prepare the Final Statement in

accordance with the outcome.

Therefore, as per your comment, the dispute in relation to "Delayed Damages" is exist, as such it

is not agreed part so I do recommend not to include the Engineer's determination for DD in the

IPC of the draft final statement until this issue has been resolved.

I hope this value and let us wait for another comments for different interpretations

Regards,

Like       Reply privately      Flag as inappropriate       1 month ago

Dragan RAKO

Principal Engineer at SAFEGE Croatia

Dear Mr Izzldin, thanks for the comments.

Please note that GC SC 2.5 paragraph 4, s tates that "This amount (i.e. DD in this particular case)

may be included as a deduction in the Contract Price and Payment Certificates."

Obviously there is minor discrepancy between the GC SC 2.5 and 14.11 provisions.

 Any comment?

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8/11/2019 Yellow FIDIC GC SC 14 - Application of Delay Damage

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Like       Reply privately      Flag as inappropriate       1 month ago

Ibrahim Izzldin

Cost Engineer at Newtech Consulting Group

Dear Rako,

In my previous comment, I would like to modify the first scenario as follows:

"If the amount of "Delay Damages" became due under SCL 2.5, after the EMPLOYER applied all

procedures prescribed in this SCL (notices, particulars, and agreement or determination by the

Engineer), then the amount of which shall be incorporated as deduction in the Interim Payment

Certificate of the Draft final statement".

I read both Sub Clauses 2.5 and 14.11, and to be honest, I couldn't capture the discrepancy you

mentioned so please clarify.

 Also I would like to correct the statement, in my previous comment, "Delayed Damages" with

"Delay Damages".

Regards,

Like       Reply privately      Flag as inappropriate       1 month ago

Dragan RAKO

Principal Engineer at SAFEGE Croatia

Dear Mr Izzldin

The discrepancy, as I see it, is as follows:

GC SC 14.11 says that Interim Payment Certificate for the agreed part of the draft final statement.

GC SC 2.5 says "this amount (i.e. Delay Damages) may be included as a deduction in ...

Payment Certificates."

Delay Damages are, without any doubt, disputed by the Contractor and therefore not agreed with

the Engineer - note must be taken that pursuant to GC SC 14.11 Employer plays no role in

reaching the final statement agreement, however is entitled to dispute (?) agreement reached

between the Engineer and Contractor.

If your interpretation presented within Scenario 2 is valid, it does not seem as a fair scenario for 

the Employer, especially if there are Claims determined in Contractor’s favour but disputed by the

Employer – in this case, Contractor wins it all, right?

Like       Reply privately      Flag as inappropriate       1 month ago

Cristiana RoscoiuContract manager at Romanian National Company of Motorways and National Roads (RNCMNR)

Dear Rako,

From your question I understand that the Delay Damages have been already determined by the

Engineer.

If the case is that the Engineer already proceeded as per SCL 3.5 and already issued his fair 

Determination for DD, then these have to be included into the Final Payment Certificate in the

base of the Engineer’s Determination.

 Afterwards, the unsatisfied Party (the Employer) is liable to address the matter in DAB/Arbitration.

If actually a fair Determination has not been issued, but just the Engineer’s calculation for DD, the

Final Certificate has to exclude the DD until the matter will be sett led in DB/arbitration.

However, if the Engineer issued the fair Determination, why does the Contractor dispute the case?

Didn’t he agree the Engineer’s calculation for the DD/contested the Determination?

Dragan RAKO

Principal Engineer at SAFEGE Croatia

Dear Ms Roscoiu

Delay Damages (DD's) were determined by the Engineer pursuant to SCL 8.7, 2.5 and

conclusively 3.5.

Before that, all Contractor's 20.1 claims for additional payment and EoT were officially rejected

(i.e. 3.5 determined) by the Engineer.

Of course, the Contractor disputes all determinations, and this is his contractual right - no DAB or 

 Arbitration appointed yet, for several reasons that are not important for this topic.

Since Contractor disputes (his) Claims and DD's determinations, in his 14.11 Draft final statement

Privacy & Terms

8/11/2019 Yellow FIDIC GC SC 14 - Application of Delay Damage

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Cristiana

 Andy

Dragan

 Andy

Paul

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the Contractor still put all amount he claims, i.e. A) value of works done in accordance with the

Contract and B) amounts he considers are due to him (Claims).

Since the Engineer cannot accept (all) amounts requested by the Contractor, and there obviusly

cannot / will not be any agreement on the issue between the Contractor and the Engineer,

pursuant to GHC SC 14.11 the Engineer has to issue Interim Payment Certificate for the agreed

parts of the Contractor's draft final statement.

 And here lies the problem, since DD's do not constitute part od Contractor's draft final statement -

therefore, the question remains, should 3.5 determined the DD's be or not be included in

Engineer's 14.11 IPC?

 Additionally, since it is obvious that the dispute exists, Final Payment Certificate will be (if any)issued only when all disputes are resovled either by the DAB or Arbitration.

Like       Reply privately      Flag as inappropriate       1 month ago

Cristiana Roscoiu

Contract manager at Romanian National Company of Motorways and National Roads (RNCMNR)

 As I previous said, as long as it exists an Engineer's Determination as per SCL.3.5,2.5, and 8.7, it

has to be put in practice (DD in the Payment Certificate ) even one/both Parties is/are dissatisfied

by it, until the matter will be settled in the DB or Arbitration.

The Certificate has to be Final Certificate that is no longer an interim one (IPC) as you mentioned

in the para 5.

Besides the matter DD in the Final Certificate, I guess that the DAB has to be appointed as per 

the SCL.20.2.

Like (1)       Reply privately      Flag as inappropriate       1 month ago

 Andy Reid

Post-contracts QS and Contractor 

IPC = INTERIM Payment Certificate.

The Eng. can issue his IPC based on his, the Eng.s fair evaluation. If it EXcludes the items under 

dispute, that's what an IPC can do. If, for example, the next day the items disputed are then

agreed, with say one remaining item still in dispute, the Eng. can issue a further IPC. The final

Certificate will remain outstanding until the last item is resolved...

Now let's see what this comment stirs up...?

       Cristiana Roscoiu likes this

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Dragan RAKOPrincipal Engineer at SAFEGE Croatia

Dear Mr Reid

Please note that my original question relates to 14.11 IPC, not "usuall" 14.6 & 14.7 IPC.

14.11 IPC deals with the amounts requested within the Contractor's draft final statement but finally

agreed between the Engineer and the Contractor.

Since 3.5 determined Delay Damages are disputed by the Contractor, the question remains - can

DD's as such be included in 14.11 IPC?

Like       Reply privately      Flag as inappropriate       1 month ago

 Andy Reid

Post-contracts QS and Contractor 

DDs should be deducted - see Cristiana's comment above.

However, I would issue an IPC, not a Final Certificate.

 A final certificate customarily means full and final payment of all monies outstanding - and by the

contractor accepting a 'Final Certificate' this could be interpreted as accepting the final figures. In

this case, as there are items in dispute, I do not see this as being possible until they are all

resolved one way or t'other...

Paul Clarke

Team Leader at Safege

I think the comments in response to the issue all generally indicate confusion as to the nature of 

damages and their relation to the IPC. First ly there is no reference in clause 8.7 to any decision

8/11/2019 Yellow FIDIC GC SC 14 - Application of Delay Damage

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Cristiana

 Andy

Paul

Cristiana

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required from the Engineer under 3.5. The Engineer DOES NOT determine whether or not DDs are

paid. 8.7 states the "... Contractor shall ... pay ..." and the Employer has an entitlement to be

paid the damages. The only condition is the provision of a notice - note only the provision of a

notice - to the Contractor under 2.5. The value of the damages is automatically determined by

comparing the contract completion date (see comment below) with the date of taking over the

works given on the taking over certificate to arrive at the delay so there is nothing for the Engineer 

to determine.

The IPC procedure, in particular for the final IPC, is to determine and agree the value of the Works

in response to a Contractor's statement. The value of the Works arises from the net effect of 

measurement and valuation, including variations, and the assessment and valuation claims

whether they are made by the Contractor or the Employer. The damages are not part of this

procedure.

The value of any damages may obviously be affected by a clause 3.5 decision where such adecision changes the time for completion and therefore the completion date. It should also be

born in mind that a final IPC should not include deductions as the advance payment should have

been recovered and the final IPC should include the payment of outstanding retention.

Where there outstanding disputes at the time of the final IPC - that is clause 3.5 decisions which

are contested by one of the parties to the contract that have not been resolved by a DAB or 

arbitration procedure - then a further interim IPC should be issued for the full value of the agreed

Works - clause 14.11 (which should include agreed variations, claims etc.)

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Cristiana Roscoiu

Contract manager at Romanian National Company of Motorways and National Roads (RNCMNR)

It is known that the DB/and especially the arbitration are long lasting processes.

 As also Andy says earlier, I guess it has to be issued rather an IPC than the final Certificate

because the works have to be certified and paid in the due time. But at the same time I would like

to know why to not include what the Engineer determined in this IPC as long as it exists a valid

fair Determination?

SCL. 3.5 states that:

..” Each Party shall give effect to each agreement or determination unless and until revised under 

Clause 20 (Claims, Disputes, Arbitration)

I think, next, when the Final Decision will be obtained (after the ending of of DB,arbitration) all the

final matters may be last settled in the final certificate.

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 Andy Reid

Post-contracts QS and Contractor 

 All factors, AT THE TIME OF THE VALUATION/CERTIFICATE (excuse the caps, only way to

highlight something) must be used to calculate the value of the works, and this includes the

deduction of DDs that are valid AT THAT TIME.

(As a draft final account is mentioned, no need to cover monthly values here so...) if subsequently

they are reduced, increased, etc., due to a resolution of the dispute(s) underway, then a further 

IPC could be issued, until such time as the final account is agreed and settled; and when a Final

Certificate would be issued (though depending upon terms not necessarily paid in full at that time

- contracts vary).

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Paul Clarke

Team Leader at Safege

Please state where in the contract you have found a clause that defines the DDs as a deduction

or a clause that the defines DDs as part of the valuation of the Works. Also use of the phrase "All

factors" is misleading. Words in the CoC have very specific meanings. DDs are not part of the

dispute procedure. The Contractor has an obligation to pay the DDs subject to the required noticebeing given by the Employer. Note that the Employer may choose not to issue such a notice for 

his own reasons. DS also are not part of the valuation of the "Works". The final IPC is issued in

response to a Contractor's statement in which he should detail all monies to which he believes he

is entitled. The DDs are not part of this procedure but have there own procedure - brief as it -

defined in clauses 8.7 and 2.5. It is the Employers choice - subject to notice - to deduct DDs from

any money certified as due to the Contractor in the IPC.

Cristiana Roscoiu

Contract manager at Romanian National Company of Motorways and National Roads (RNCMNR)

Dear Paul,

I totally agree with you that the Employer has an entitlement to be paid the damages if his notice

8/11/2019 Yellow FIDIC GC SC 14 - Application of Delay Damage

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 Andy

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under the SCL.2.5 exists . Then again, the notice is mostly not enough because the matter is not

so simple.

Would that if the damages to be automatically determined by comparing the contract completion

date with the date of TO of the works…

From my experience, the reasons which conducted at the exceeding of the Time for Completion

are multiple and its appreciation is not a quite simple thing (failures attributable to the Contractor 

or /and to the Employer - i.e late possess ion of the site/sectors, change in design, different

problems which occurred during the working period..) That why the both Parties have to give to the

Engineer all their arguments in order to substantiate as well as they can the claims/reject the

claims, and the Engineer has to be able to make a really fair Determination.

This document has to be put in practice (could it be otherwise than within the IPC?) until thematters will be finally settled in the DB/ ICA.

So, in Rako’s case I st ill believe that in addition with the executed works (quantities) that have to

be paid to the Contractor in due time, also the matters which the Engineer already determined

have to be included in the IPC (not yet the final certificate) and that is no need the DD to be in the

Contractor’s statement (?) in order to be count in the IPC.

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 Andy Reid

Post-contracts QS and Contractor 

 Ah Paul,

Read Cl. 14.6.b) & 14.11

I did not say DDs were defined as a deduction; nor that the contract specifically states that DDs

are part of the value of the works (actually definitely not 'value' as such)

What I did say (though badly put in my previous post) is that the Eng. must take into account all

factors to be considered at the time of his valuation in order to issue his certificate. DDs are one

such factor. If at the time of his valuation, DDs were due, then the Eng. would not be doing his job

if he failed to deduct them.

If, subsequently, it is found that DDs were/are not to be deducted, then they should not be AT

THAT TIME (here in caps, no other way to highlight) & (I.e the next valuation - which could still be

an IPC if there are still further items outstanding/in dispute and not yet finalised!)

Delete       1 month ago

Hashim Muhammud Bashir 

Senior Planning Engineer at KEO International Consultants

Dragan,

I believe your confusion is whether a Contractor intimating 'his decision' to dispute a 3.5Determination related to 2.5 Employer's Claim (in this case for 8.6 Delay Damages) should be

considered in 14.11 Final Payment Certificate as disputed item.

IMHO, as far 199 YB is considered, it does not.

Because, as per 1999 Red & Yellow Books a 3.5 Determination made by the Engineer is binding,

unless and until "revised" under the dispute resolution procedures in Clause 20.

[Note that this is not the case in Silver Book. In Silver Book if the Contractor issues a 'notice of 

dissatisfaction' within 14 days from the 3.5 Determination made by the Employer, the

determination is of no effect]

 Also, referring to your original question regarding DAB & Arbitration.

Please note that the DAB (20.4) or amicable settlement (20.5) might result in a Final Statement

(as stated in the last para of 14.11). Whereas the Arbitration might end up in a way that the award

itself will be enough and no Final Statement is necessary. [This is to just point out the possible

difference between their outcome].

In your case, I couldn't understand one issue though. Since the Engineer had issued his 3.5

Determination, why was this amount not deducted in the previous IPCs (14.6) or at least in the

Statement at Completion (14.10)? Why is it delayed until the Final Statement (14.11)?

The above make me think whether the Engineer is NOT 100% sure about the Determination or the

Determination itself was not fair! If that is the case, then I would recommend to play safe by going

for an IPC (as Andy pointed out), thus not deducting the DD. (However, make sure that the

Employer will have enough money with him to make that deduction later on!)

Otherwise, if the Engineer is 100% sure about the Determination, you can proceed as Cristiana

already confirmed.

regards,

8/11/2019 Yellow FIDIC GC SC 14 - Application of Delay Damage

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Paul

Paul

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Paul Clarke

Team Leader at Safege

I'm sorry to disagree with you but if DDs are not a deduction as referred to 14.6/14.11 then they

clearly do not form part of a valuation of the Works. In fact it is highly unlikely that the Engineer 

will have any idea as to how they were calculated. They are intended to be an estimate of the

"losses" the Employer might suffer due to not having the works available at the completion date.

Is is the obligation (his "job") of the Engineer to value the Works - please note the use of the

capital W; it is the right of the Employer to require payment of DDs from the Contractor subject to

having issued the required notice. One of the options open to the Employer for ensuring payment

of DDs is to retain the money from the Engineers valuations in the IPCs.

You should also make yourself aware that there considerations under law which affect the issue of 

DDs.

I refer you to the general intention of the FIDIC contract which is to define the obligations and

responsibilities of those involved in the Contract. The issue of DDs is clearly not a part of the

Engineers obligations as is made very clear in 8.7 and 2.5 - there is no requirement for any action

on the part of the Engineer in relation to DDs in these clauses. You should also check FIDIC

guidance and other references such as N. G. Bunni.

With regard to 3.5 determinations it is self evident that, i f at the t ime of issuing an IPC after the

agreed time for completion, a dispute remains unresolved which affects the time for completion

the DDs cannot be determined.

Delete       1 month ago

Hashim Muhammud Bashir 

Senior Planning Engineer at KEO International Consultants

Paul,

With due respect, I will have to disagree with some of the statements in your comments.

"Firstly there is no reference in clause 8.7 to any decision required from the Engineer under 3.5"

First of all, referring 3.5 as a decision might be a bit confusing. And, as the other members

pointed out, 8.7 refers to 2.5, which in turn refers to 3.5 Determination.

"The Engineer DOES NOT determine whether or not DDs are paid. ......"

"The DDs are not part of this procedure but have there own procedure - brief as it - defined in

clauses 8.7 and 2.5. It is the Employers choice - subject to notice - to deduct DDs from any

money certified as due to the Contractor in the IPC"

May be you are referring to the easiness of Calculation of DD. However that easiness (which is

not always the case as Cristiana & Andy pointed out) has nothing to do with the requirement of a

3.5 Determination as stated above.

Furthermore, please note the last s tatement in 2.5. Especially about the 'set off' & 'claim against

the contractor' part.

----The Employer shall only be entitled to set off against or make any deduction from an amount

certified in a Payment Certificate, or to otherwise claim against the Contractor, in accordance with

this Sub-Clause---

I would agree with you in principle that the DD should be a closed chapter by the time Statement

at Completion is certified as an IPC. However, please note that 2.5 states the below.

----This amount may be included as a deduction in the Contract Price and Payment Certificates----

Here the term Payment Certificate is defined under 1.1.4.9 as below.

----"Payment Certificate” means a payment certificate issued under Clause 14 [ Contract Price

and Payment ] ----

Please note that, it doesn't specifically refers to IPC.

Further, if you see 14.13 (Issue of Final Payment Certificate), item (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, the balance (if any) due from the

Employer to the Contractor or from the Contractor to the Employer, as the case may be.----

So yes, DD can be included as a deduction in in the Final Payment Certificate.

Best regards,

Paul Clarke

Team Leader at Safege

Just to settle this a quotation from "Baker, Ellis; Mellors, Ben; Chalmers, Scott; Lavers, Anthony

(2013-07-31). FIDIC Contracts: Law and Practice (Construction Practice Series) (Kindle Locations

14037-14040). Taylor and Francis".

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"On the other hand, the Guidance for the Preparation of Particular Conditions in the Red and

Yellow Books suggests that, where the Accepted Contract Amount is expressed as a figure in

more than one currency, “it may be preferable to define these damages (per day) as the

percentage reduction which would be applied to each of these figures”. The reference to a

percentage “reduction” here is misleading. The Employer's entitlement to delay damages under 

SubClause 8.7 (9.6 (G)) is a separate right to payment and does not operate as a reduction to the

 Accepted Contract Amount (or reduce the amounts payable to the Contractor for work done). It is

suggested that the Guidance should be understood to mean that the daily sum may be made up

of a percentage of each of the figures, expressed in different currencies, which make up the

 Accepted Contract Amount. In addition, the Guidance refers only to the daily sum being

expressed as a percentage of the Accepted Contract Amount (or as a figure) and not the Contract

Price".

I hope this does not contravene the rules of the group. I have attributed the quotation to the

authors / publishers.

Hashim Muhammud Bashir 

Senior Planning Engineer at KEO International Consultants

Dear Paul,

I think we both posted our previous comments (not your recent one) almost at the same time.

"In fact it is highly unlikely that the Engineer will have any idea as to how they were calculated.

They are intended to be an estimate of the "losses" the Employer might suffer due to not having

the works available at the completion date."

----8.7 Delay Damages --- (in FIDIC Yellow book reads)

These delay damages shall be the sum stated in the Appendix to Tender, which shall be paid for 

every day which shall elapse between the relevant Time for Completion and the date stated in the

Taking-Over Certificate. However, the total amount due under this Sub-Clause shall not exceed

the maximum amount of delay damages (if any) stated in the Appendix to Tender.----

I would like to know, with all the above information available; how come an Engineer in a FIDIC

Contract does not know how to calculate the DD! As for your recent comment on the problems

that MIGHT BE faced in projects with multiple currencies, please note that i t is the Employer who

should give notice and particulars in order for the Engineer to make a Determination. Read the

statement from FIDIC Guide related to Sub-clause 8.7 (...and the calculation of the amount to

which the Employer considers himself to be entitled under these Sub Clauses).

"You should also make yourself aware that there considerations under law which affect the issue

of DDs. " A point I will agree. There could be differences in between the Applicable Law and the FIDIC

Contract in certain countries (where I am located being an example). However, we are discussing

FIDIC procedures here. The original questioner did not give us much info about the Applicable Law

neither did he requested any information related to it.

" The issue of DDs is clearly not a part of the Engineers obligations as is made very clear in 8.7

and 2.5 - there is no requirement for any action on the part of the Engineer in relation to DDs in

these clauses. You should also check FIDIC guidance and other references such as N. G. Bunni.

"

 After reading 8.7, 2.5 & 3.5 together, I stil l believe that within the FIDIC Contract, the Employer 

cannot set off, claim or make a deduction (in any Payment) for the Delay Damage due from the

Contractor, unless the Employer issues a notice under 2.5 and the Engineer act under 3.5

Determination. However, if you still say that Engineer has no action to take in this regard, then I

think it 's time we respectfully agree on our disagreement.:)

Before concluding, since you referred to FIDIC GUIDE, allow me to quote few statements from it.

--- Regarding 8.7 Delay Damages

The applicability of Sub-Clause 8.7 is not dependent upon all extensions claimed by the

Contractor having been agreed or determined. The Contractor cannot prevent the deduction by

submitting claims for extension of time.......

.........

If the Employer considers himself to be entitled to be paid delay damages, he is required to give

notice and particulars in accordance with Sub-Clause 2.5. The particulars should include a

reference to Sub-Clause 8.7 and the calculation of the amount to which the Employer considers

himself to be entitled under these Sub Clauses. Sub-Clause 2.5 concludes by stating that the

Employer is not entitled to withhold the amount from payments due to the Contractor, unless and

until the procedure described in Sub-Clause 2.5 has been followed.---

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 Andy

Paul

 Andy

 Andy

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regards,

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 Andy Reid

Post-contracts QS and Contractor 

Thanks Hashim, you dealt with that better than I could!

 And great that you mentioned Cl. 14.13 - which reinforces my argument about ALL factors

affecting a valuation/certificate!

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Paul Clarke

Team Leader at Safege

Hashim

My last post included a quotation - please read it. This original issue in this thread was whether or 

not DDs should be included in an IPC. The legal opinion quoted clearly confirms that they should

not. Furthermore it confirms that the Employer has an indisputable right to require the Contractor 

to pay the DDs subject only to the provision of a notice. Note that the "procedure under 2.5" is

fully qualified in 8.7 by stating only that a notice is required. No 3.5 determination is required for 

the DDs to be paid. If you wish to continue to contest information presented from qualified legal

opinion given by experts on FIDIC conditions please do so but at your own risk.

The issue of DDs will be affected if at the time of issue of the IPC the time of completion is in

dispute, that is a c lause 3.5 decision has been taken to the DAB or arbitration. The Engineer maywell have determined that a Contractor's claim in relation is unfounded, even frivolous, but if the

Contractor has decided to dispute the decision it remains unresolved.

The value of damages is, or should be, provided in the special conditions. The comment I made

was that the Engineer is entirely unable to confirm whether or not the damages are appropriate

and there are many instances of this value being contested legally. This is not a case of 

applicable but general contract law.

Please read the quotation

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 Andy Reid

Post-contracts QS and Contractor 

 As the status of all EoT is not clear, the statement made in the original post s tands: " is DDagreed part (since already determined by the Engineer)" and thus the DD has already been

determined by the Eng. and thus must form part of the Eng.s certificate (as stated previously it is

not 'value' per se). If the Eng fails to deduct the determined DD, he is not performing his duty.

That the DD may subsequently be overturned through due process, AT THE TIME OF THE

CERTIFICATE, they must still be deducted.

Further your last para above. It is NOT up to the Eng to determine if the amount of damages is

appropriate - they are already agreed as per the contract and with a max. cap. If the amount is in

dispute, and the contractor feels that they are not appropriate, then he may dispute their 

application and/or the amount.

The law may or may not change the amount, the law may or may not change the determination

that they are payable; but until such time as the law has made its decision, the Eng.s

determination stands.

 Andy Reid

Post-contracts QS and Contractor 

 Also re: your quote. Agreed, the DD does not form part of the value of the work (that would be like

saying that the insurance and licensing of vehicle is part of the value!?). It states that the total

VALUE of the works must be ascertained.

What you quoted was "The Employer's entitlement to delay damages under SubClause 8.7 (9.6

(G)) is a separate right to payment and does not operate as a reduction to the Accepted Contract

 Amount" - the second part of which is covered above.

The first part refers to the employers right to payment of DD (if due) and the determination

mentioned in the original post says it is: and the industry standard is to deduct the amount from

the payment (not the value of works) due to the contractor.

(Or are you suggesting that the employer should invoice the contractor for a sum of DD that

common knowledge suggest the contractor would not pay, possession being 9 tenths of the...

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Chris

Paul

 Andy

Cristiana

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and the rest....)

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Chris Nixon

Freelance Practitioner: Project & Contract

Possibly less confusing maybe to see the DD as a "set off" as I believe is commented in

"Employer's Claims". If I recall correctly, previous FIDIC version did not require "set offs" to notified

but FIDIC 99 has required this.

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Paul Clarke

Team Leader at Safege

 Andy,

I appreciate the comment about 9 tenths of the law but that should not be a relevant

consideration. However the Employer has the right to be paid subject only to giving notice and if 

notice has been given would it not be the Employer who has the advantage at the point when

delay could be determined; the end of the time for completion or later the date of issuing the

taking over certificate. He would still have the retention and be able to "deduct" or "set off" ?? the

debt due to DDs from the payment. With regard to comment about the value of the Works it is self 

evident that the DDs have no relation to such value. In addition the payment of DDs is a debt

recoverable by the Employer without any requirement for certification. If you consider DDs, as you

state, as part of VALUE? then surely you would also need to consider interest due the Contractor 

for late payment which, like DDs, is a payment due without recourse to any action by the

Engineer. They are by the way not claims. They are due payments that require no determinationby the Engineer.

Pre 1999 conditions specifically stated that DDs were not to be included as "deductions" in the

IPCs. They are in fact not deductions in the sense that there are not related to the value of the

Works. It is the value of the Works which the Engineer certifies in response to a Contractor's

statement. The current FIDIC contracts are very strong in stating that both the DDs and interest

are due to be paid without recourse to other means under the contract other than notices; they

"shall" be paid.

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 Andy Reid

Post-contracts QS and Contractor 

Hi Paul,

If read my comments above, I actually said that DD do NOT form part of the value (actually twice)and agreed with you in my previous post so....

 Also i don't know if I'm reading the wrong yellow book ("FIDIC Conditions of Contract for Plant And

Design-Build Contract First Edition, 1999") but the last para of my copy Cl. 2.5 states:

"This amount may be included as a deduction in the Contract Price and Payment Certificates.

The Employer shall only be entitled to set off against or make any deduction from an amount

certified in a Payment Certificate, or to otherwise claim against the Contractor, in accordance with

this Sub-Clause." Note: "and Payment Certificates"

If im wrong, my apologies up front, but otherwise I'll reiterate my earlier posts that the Eng. must

consider all factors, ALL, when drawing up his certificate and this includes DDs!

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Cristiana Roscoiu

Contract manager at Romanian National Company of Motorways and National Roads (RNCMNR)

I agree with Andy and Hashim,

...and also I tried to explain earlier that if a Determination for these DDs was issued, it means that

the matter - the right for the delay damages and the no. of days attributable to the Contractor -

weren’t so easy to be settled!

The mechanism indicated by Peter (DDs automatically determined by comparing the contract

completion date with the date of TO of the works when the Employer gave his notice of claims as

per SCL 2.5) functions if it is only the Contractor’s fault and when it didn’t exist concurrent events

already claimed.

 And indeed the last para from FIDIC Yellow SCl. 2.5 states that:

"This amount may be included as a deduction in the Contract Price and Payment Certificates.”

Best Regards,

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Hashim Muhammud Bashir 

Senior Planning Engineer at KEO International Consultants

Dear Paul,

I think the differences between us can be narrowed down to the below. Please note that what is

written below is based on FIDIC YB 1999 (as the question was based on that).

* Can the Employer proceed to ‘off set’, ‘claim’ or ‘deduct from a Payment Certificate’ the value he

thinks is due from the Contractor as Delay Damages (8.7) by only serving a Notice under 2.5 and

without obtaining a 3.5 Determination?

You stated the Employer can, since (in your own terms);

‘there is no reference in clause 8.7 to any decision required from the Engineer under 3.5’.

Then you continued to state

‘8.7 states the "... Contractor shall ... pay ..." and the Employer has an entitlement to be paid the

damages’.

What you missed in the quote is; 8.7 states that

* Contractor shall “subject to Sub-Clause 2.5 [ Employer’s Claims ]” pay delay damages to the

Employer for this default---

I am glad that we are at least in agreement on the notice requirement. However, I would like to

know how you reached the conclusion from 8.7 that only a Notice is required. Please quote the

statement in 8.7 which set qualification for its application under 2.5 (as stated by you in your fifth

comment). All I could find was Sub-clause 8.7 refers to 2.5 as the procedure to be followed.

I already stated that, as per the FIDIC Procedure, if the Employer wants to act within theContract, a notice and PARTICULARS to be issued to the Contractor under 2.5 Employer’s

Claims, referring to 8.7 Delay Damages. The Engineer will then proceed according to 3.5

Determination; First , t ry to reach an agreement with both parties and if unsuccessful, to issue a

fair Determination. Once, it is done the Employer can proceed to “set off against” or “make any

deduction from an amount certified in a Payment Certificate”, or to otherwise “claim against” the

Contractor.

Further, I have the below link from FIDIC.

http://fidic.org/node/923

* In order to deduct delay damages the Employer must submit a Claim in accordance with Sub-

Clause 2.5. As required by 2.5, the Engineer will then make a determination under Sub-Clause

3.5. If the Engineer determines that the Employer is entitled to deduct an amount as delay

damages then it can be deducted from Payment Certificates in accordance with the final

paragraph of 2.5---

 Also, s ince you referred to N. G. Bunni, please refer to page 526 under section titled (23.3.4)

'Clause 3: The Engineer’ in his book titled “The FIDIC Forms of Contract (Third Edition)”.

[Continued below]

Hashim Muhammud Bashir 

Senior Planning Engineer at KEO International Consultants

2) Is 3.5 Determination a crucial aspect considering the Employer’s right for DD under the Law.

I will reiterate that I am not going to bring the application of Law in here, because I do not consider 

myself qualified/experienced to answer such a question in a generalized way. Furthermore, it was

never mentioned or requested by the original questioner. The question was very specific in that

regard.However, as I stated earlier, I agree with you 100% that, the potential impact of Law on the

Contract should be considered by the parties before applying the DD. Who knows, even a notice

may not be required under the Law!

3) Can the DD be applied, when the Contractor is contesting the 3.5 Determination on his EOT

Claims and/or on the DD itself?

 As an answer to the above (which I already made in first comment), let me quote what is stated in

FIDIC and then the explanation in FIDIC Guide below.

The last sentence under 3.5 Determination in FIDIC YB 1999:

--- Each Party shall give effect to each agreement or determination unless and until revised under 

Clause 20 [ Claims, Disputes and Arbitration ].---

The FIDIC Guide’s explanation on this:

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--- The Engineer is then required to notify both Parties of his determination, “which is binding upon

them unless and until revised” under the dispute resolution procedures in Clause 20.---

Hence, IMHO, one party contesting the 3.5 Determination by proceeding with the dispute

resolution mechanism provided in FIDIC doesn’t mean that the Determination will be of no effect.

[Continued below]

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Hashim Muhammud Bashir 

Senior Planning Engineer at KEO International Consultants

* Can the Employer withhold monies from a Certified Payment for DD without following procedurein 2.5?

Let me quote from the FIDIC Guide’s explanation on Sub-clause 14.7 Payment

* Under CONS or P&DB, the Contractor receives a copy of an Interim Payment Certificate which

notifies him of the payment to which he is entitled, as fairly determined by the Engineer. The

Employer is thereafter bound by the Certificate, and must make payment in full, irrespective of 

any entitlement to compensation arising from any claim which the Employer may have against the

Contractor. If the Employer considers himself entitled to claim against the Contractor, notice and

particulars must first be submitted under Sub-Clause 2.5. The Employer's entitlement is then to

be agreed or determined, and incorporated as a deduction in a Payment Certificate. This

procedure, as prescribed in Sub-Clause 2.5 (notice, particulars, and agreement or determination),

may require less time than the 28 days mentioned in the first paragraph of Sub-Clause 14.6.---

Please note that in the question & answer given by FIDIC (refer to item 1 above), the DD is

considered as an Employer’s claim by FIDIC.

* Can the DD be included as a deduction to the IPC?

Below is quoted from FIDIC Guide, from its explanation on 14.6 Issue of Interim Payment

Certificate.

* If the Employer considers himself entitled to c laim against the Contractor, notice and particulars

must first be submitted under Sub-Clause 2.5. The Employer's entitlement is then to be agreed or 

determined, and “incorporated as a deduction in a Payment Certificate”.---

 At the moment, I am unable to obtain a copy of Baker’s book (a brilliant work indeed) and hence, I

cannot comment on the quote provided by you. However, based on what I read from the quoted

part, I don’t think that it is contradicting with any of the above. It just state that the deduction for 

DD included in an IPC (as per 2.5) is not to be confused as a reduction in ‘the amounts payable to

the Contractor for work done’. The Contractor’s entitlement for Work performed remains the same;

however the net payment he will receive will be Contractor’s entitlement less the DD (along with

any other applicable deductions).

* Can the DD be included as a deduction in the Final Statement?

 Again I have the same link from FIDIC as a response.

http://fidic.org/node/923

* limit for delay damages

Question:

… can the client apply the penalty on the contractor now? Or any time? The final payment

certificate is not yet issued and approved, also some variation orders are not yet finalized.

 Answer:

Sub-clause 8.7 of the General Conditions of Contract gives the possibility for the Employer to

apply delay damages in the limit stated in the Appendix to Tender. The Employer must follow the

procedure stated in the Sub-clause 2.5 for claiming from the Contractor the delay damages. If you

look at Sub-clause 2.5, there are no time constraints related to the point in time when theEmployer can claim the delay damages, so the Employer can claim at any time.---

Further, I already mentioned about 14.13 (b) which requires the Engineer to issue the Final

Payment Certificate;

* (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”, the balance (if any) due from the Employer to the

Contractor or from the Contractor to the Employer, as the case may be.---

I hope the above clarified my understanding in this topic. I don’t think I can add anymore to this

discussion, unless you have further/new comments on the above.

Best regards,

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Cristiana

 Andy

 Andy

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Hashim Muhammud Bashir 

Senior Planning Engineer at KEO International Consultants

 Andy & Christiana,

2.5 does states the below:

'This amount may be included as a deduction in the "Contract Price" and Payment Certificates'

Please note that the above quote from Baker's book provided by Paul is referring to "Accepted

Contract Amount". It states that the Employer's right for DD is not to confused as changing the

 Accepted Contract Amount.

From the FIDIC Guide,

'...if the Accepted Contract Amount is not named in the Letter of Acceptance, there may be an

implication that the amount is that which is s tated in the accepted Letter of Tender. The Accepted

Contract Amount is a fixed amount, which is referred to in the Appendix to Tender for the

calculation of the amount of Performance Security, advance payment, limit of Retention Money,

and the minimum amount of Interim Payment Certificates. In order to provide a phrase for the

adjustable amounts due to the Contractor, CONS and P&DB define the Contract Price, and refer 

to Sub-Clause 14.1 and adjustments prescribed in the Contract.'

From the above it is clear that DD can be deducted from the Contract Price (as per 14.1), but not

from Accepted Contract Amount which is a fixed amount. The implication of changing the

 Accepted Contract Amount is clear from the guide's explanation.

regards,

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Cristiana Roscoiu

Contract manager at Romanian National Company of Motorways and National Roads (RNCMNR)

Well done Hashim! Now I guess that the matter is exposed more than explicit ….

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 Andy Reid

Post-contracts QS and Contractor 

Hi Hashim,

 As per Cristiana: well done! My typing skills and patience are not as durable as yours so thanks

for the erudite reply!

However, I'd disagree on your last para. The Contract Price and Accepted Contract Amount

(usually one and the same but occasionally changed through negotiation) are in most instancesfixed.

Reasoning: if the contract under either term is carried out perfectly, that is the amount paid. This

is usually referred to as ''above" the line. Any deductions (for example) DDs mentioned above, or 

LDs, or contra-charges to the contract, that do not actually affect the value of the work are usually

deducted "below" the line.

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Hashim Muhammud Bashir 

Senior Planning Engineer at KEO International Consultants

 Andy,

The comments I made was a bit time consuming. But I hoped it will make my understanding in

the subject more clear and experts like you in this forum may be kind enough to point out

mistakes in it (and you did).

Yes you are right about the last paragraph in my last comment. There was a poor choice of words

from me. It should have been "DD can be included as a deduction in the Contract Price" as stated

clearly by FIDIC.

Thanks & regards

 Andy Reid

Post-contracts QS and Contractor 

 Ah heck, you can kick my butt later... I've amended your last sentence in caps...

It should have been "DD can be included as a deduction in the PAYMENT OF THE Contract

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Clarence

Elmer 

Cristiana

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Price" as stated clearly by FIDIC.

The Contract Price/Amount, call it what you will, cannot be changed - it's a total value of the

Contract (including changes thereto) which is 'above' the line.

 And before you do, let the others get in line to deliver the first hoof to my rear... :-)

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Hashim Muhammud Bashir 

Senior Planning Engineer at KEO International Consultants

lol... Sorry Andy... I couldn't resist the temptation to take the risk to use the opportunity. ;)

"The Contract Price/Amount, call it what you will, cannot be changed".

I have my doubt about the validity of above statement as far as FIDIC 1999 Suites are concerned.

 As per Yellow Book, Accepted Contract Amount (ACA) is a LS figure as stated in the LOA. If this

is the figure that you s tated as cannot be changed, then you are right.

Whereas Contract Price (CP) is equal to ACA, only & until it is adjusted in accordance with the

Contract (14.1.a). And that adjustment could be addition or omission. One such omission can be

DD, that is my opinion, after reading the statement in 2.5 Contractor's Claims.

I think I have seen further references to REDUCTION in CP in FIDIC guide (Contractor's failure to

remedy the defects was one I guess). Unfortunately I will have to wait till tomorrow to see where &

how exactly those statements are worded.

My understanding is; CP is what the Contractor get paid in the end for all the Works done less all

kind of omissions. I might be idiotically wrong here. Hence I will hope for further comments from

the esteemed members (and that includes you).

:)

Regards,

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Clarence Elmer Quismundo, MRICS, MAIQS

Chartered QS, CMCCA, CCCE, PMO, CE

Dear Gents/Lady,

I came to read this thread very late in its life and there is nothing much I can say further without

being redundant or possibly muddling the issue (knowing my penchant of stirring the pot). Sogenerally, I am in agreement with the positions put forth by Andy and Hashim, whose patience in

elaborating it is really a virtue. Not bad for (in Hashim's own words) a "simple planning engineer".

Just to add a point: My understanding of the Accepted Contract Amount is the original figure as

negotiated and awarded by the Employer to the Contractor, while the Contract Price is a figure in

progress that is being continually adjusted (either by addition or subtraction, depending on various

reasons such as positive/negative variation, deductions/reductions, etc.) which culminates in a

Final Contract Price in the Final Account.

Best regards.

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Cristiana Roscoiu

Contract manager at Romanian National Company of Motorways and National Roads (RNCMNR)

Indeed as per FIDIC SCL 1.1.4.1 “Accepted Contract Amount” means the amount accepted in the

LoA for the execution and completion of the Works and the remedying of any defects” that it is

the fixed value (it cannot be changed...)

whereas the Contract Price as per SCL 1.1.4.2 “means the price defined in Sub – Clause 14.1

[The Contract Price], and includes adjustment in accordance with the Contract.” and the DD s are

part of these adjustment …

If the Accepted Contract Amount is changed the fair competition at the tendering is injuriously

affected. say not so!...

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 Andy Reid

Post-contracts QS and Contractor 

Cristiana, just one thing...

Your last para - the accepted contract amount can be changed at award, subject to negotiation.

I've seen tenders come in, be adjudicated on a level playing field, and then once the lowest was

accepted, some changes were made to the drawings and the subsequent contract was awarded

for a different amount. Not the usual thing, but quite acceptable post tender.

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Clarence Elmer Quismundo, MRICS, MAIQS

Chartered QS, CMCCA, CCCE, PMO, CE

You beat me to the punch Andy, I was about to point that out. I did squeezed in the negotiation

process in my earlier post. Once the winning Contractor is selected, the contracting parties are

free to negotiate the sum further prior to contract signing. Whether it is due to additional details or 

the Employer simply wanted a goodwill discount, it is an acceptable post tender practice as long

as there is no irregularity involved. Working in a similar country, I'm sure you know what I mean

(wink wink).

Best regards.

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Hashim Muhammud Bashir 

Senior Planning Engineer at KEO International Consultants

Hi All,

 Are we at least in agreement that (in FIDIC 1999 Yellow Book), the Accepted Contract Amount is

what is stated in the LOA and cannot be changed after issuance of LOA? Also that, whatever 

additions/omissions happens to it afterwards the LOA will define the Contract Price as per FIDIC?

regards,

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Cristiana Roscoiu

Contract manager at Romanian National Company of Motorways and National Roads (RNCMNR)

Come on! Andy It can’t be done!… I thought as we are speaking against Rako’s post, or no?

otherwise we can provoke him a confusion. So, we are long after the date of the award phase,

namely, at the end of the works contract period…

 Again, are we finally in the consensus as in this situation the DDs can be component in the

Contract Price as the adjustments (and not in the Accepted Contract Amount) and can be

included the IPC as already the Engineer determined?! (wink wink. wink.)

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 Andy Reid

Post-contracts QS and Contractor 

Hashim, I'd agree with you.

Cristiana, half and half - I said the accepted contract amount could be changed post tender but

pre- contract. Once the contract details have been agreed (with ny possible changes) then the

LoA would normally be sent and the contract signed for a Contract Price.

I know, a little nit-picky but...

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