September 2, 2023
Drafting Acceleration Clauses 3
This is the third in a three-part series. The previous posts covered: Brainstorming to be carried out for drafting an acceleration clause Methodologies of achieving acceleration. Proving acceleration claim Standard acceleration clauses under FIDIC 1999, 2017 and NEC standard forms of contract Payment methodologies for acceleration. This shall discuss how we drafted a simple acceleration clause suitable for the requirements and constraints of the project; which were: Completion period – 3 years Maximum Acceleration anticipated – 2 months Acceleration likely to be ordered only during the final stages of the project and under extreme circumstances, mainly due to political considerations. Hence no question of refusal by the Contractor except in case of non-feasibility. Acceleration may be ordered to reschedule the Original Completion Date (if there is no delay) or the Extended Completion Date, in case EOT has been granted. No time to have mutually agreed costs before instructing…
August 25, 2023
Drafting Acceleration Clauses 2
This is the second in a three-part series. The previous post discussed the brainstorming by the Employer for formulating an Acceleration clause. This post shall discuss payment modalities and how standard contracts deal with acceleration. Payment methodologies for acceleration may be: Fixed lump sum payment (lump sum amount or percentage of contract value). This payment may be conditional on the completion of deliverables by the revised dates with and/or Liquidated Damages. Payment of reasonable costs. This may be less risky to the Contractor than the first method but places a greater obligation on the Contractor to maintain accurate records and prove additional costs. Dealing with delays during an acceleration period also needs some thinking. In extreme cases, the Contractor may lose out on additional costs and also be subjected to Liquidated Damages. Other aspects that need to be considered are: If midway the Contractor realises that he will not be able to achieve the revised…
August 17, 2023
Drafting Acceleration Clauses
This is the first in a three-part series on drafting acceleration clauses. This post will examine the considerations necessary before committing to an acceleration clause. I have been involved in a INR 2000 crore (US$250 million) Indian Public Sector EPC Project based on the FIDIC Silver Book 1999 (modified as usual by PCC - but not distorted), wherein we decided to include an Acceleration (Directed Acceleration) clause- a first in Indian Public Sector Construction Projects. Acceleration clauses look easy, but are actually quite difficult to implement. The aspects that we considered were: Do we really need an acceleration clause? Can’t we just achieve this through an amendment to the contract or Supplementary Agreement? How much acceleration is actually feasible? Should acceleration be applicable for only extended periods or for the original period of the contract as well? What will be the correlation of acceleration with the bonus clause, which was also there in the contract? How…
May 28, 2023
Formulation of a Balanced Construction Contract Part 2
This is the second in a two-part series. The previous post examined what an equitable contract is. This post will look at a case study of how an equitable contract was achieved on a Public Sector project in India. To briefly recap the previous post, there are two ways in which Employers formulate contracts: The Employer ‘de-risks’ itself by allocating maximum risks to the Contractor. This is normally found in bespoke contracts. Risks are allocated equitably based on certain principles which have been best illustrated in works of Max Abrahamson and Nael Bunni. Standard contracts like FIDIC are based on this. I propose a third way, which is, that each and every clause should be ‘war gamed’ for maximum contingencies and the clause should be formulated: to be in the best interests of the project, cater for maximum contingencies without leading to disputes. This should be done in consultation with prospective bidders. Case Study We will now examine one Directed Acceleration clause that…
March 22, 2023
Construction Contract Issue – Pay-If-Paid and Pay-When-Paid Clauses
In this post, we shall discuss ‘pay-if-paid’ and ‘pay-when-paid’ clauses in construction contracts: their meaning, differences and implications. Delays in payments are endemic in the construction industry all over the world. A European Commission report on payment behaviour in business-to-business transactions, published in 2018, mentions that construction industry is most affected by delays with 65% of stakeholders having experienced delayed payments. Extensive research all over the world has shown that delayed payments in the construction industry have four major outcomes: cash flow problems, increase in disputes, insolvency and bankruptcy, and/or delays and cost overruns in projects. One reason for delayed payments in the construction industry that particularly affects Subcontractors, is the ‘pay-if-paid’ and ‘pay-when-paid’ clauses included or implied in construction contracts. These broadly imply that the main Contractor will be liable to pay the Subcontractor if and when he is…