Payment for Work Not in Accordance with the Contract
A former Claims Class student asked my advice on a matter which I thought would be an interesting case study to share. The Contract conditions are FIDIC and the question around non-payment of work which was not in accordance with the contract.
Background
Each month the Engineer makes deductions in the payment certificate for Non-Conformance Reports under Sub-Clause 14.6 (Issue of Interim Payment Certificates), sub-paragraphs (a) & (b).
The Contractor does not contest the Non-Conformance Reports. They state that the defects will be rectified. A problem being that this is likely to take some time to achieve.
The Contractor is contesting the Engineers right to deduct for defects in interim certificates. These deductions are for works not in accordance with the Contract. The Employer has performance security and 5% retention, so the Contractor claims they would be at a further disadvantage of the deductions for NCRs.
My Advice
Sub-Clause 7.5 (Rejection) provides that the Engineer may reject work not in accordance with the Contract by giving notice. Hopefully, the Engineer has issued the NCRs as notices under the provisions of this clause. If not, you may want to take a look at this blog which answers the question, “what to do if you have not submitted a notice?”. For the purpose of this article, we will assume they were.
Sub-Clause 14.6 (Issue of Interim Payment Certificates), sub-paragraph (a) states that ‘if anything supplied or work done by the Contractor is not in accordance with the Contract, the cost of rectification or replacement may be withheld until rectification or replacement has been completed.’
This allows the Engineer to withhold payment for anything not in accordance with the Contract, plus the cost of rectification. Subject to the issue of non-conformance reports, the work is not in accordance with the Contract.
The Contractor’s argument that he is at a disadvantage is not sustainable. They are the party at fault by giving rise to the items of non-conformance.
The retention and performance bonds are there to provide money for the Employer to complete the works if the Contract is terminated. Not to provide security against defective works.
If this topic was of interest, you may find our Understanding Claims Under FIDIC E-course useful. Click here to find out more.
Usually the held amount will be reflect the whole portion of the works. You are right it has not clearly stated the amount to withheld and it is subjective and arguable by both party. That’s why SO will have to act impartially as independent professional decision.
I just sharing my view since I am interested to this topic.
I think that retention retains commitment of contractor to do maintenance requirements at site during maintenance stage.
Dear Andy,
Thanks for posting this topic which is more relavant to me as I have similar issues. I am representing the Contractor. Despite the COC has provisions to withhold, it does not give the Engineer to withhold ANY amount of money, isnt it?
Should the Engineer justify the held amount? I meant how it reached to that figure. Cz, the project I am involved, under the pretext of NCRs, HUGE amounts are being held which seriously impacts the Contractor’s cashflow.