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…
February 10, 2022
Is the Contractor Entitled to Claim for Additional Preliminaries for Variations?
Variations and whether the Contractor has entitlement to payment for additional preliminaries arising out of variations are both topics of interest to many. The short answer is: it depends. The preliminary section of the bills of quantities is where the Contractor is given the opportunity to price for his project overheads and running costs. These will include mobilisation and demobilisation; time-related costs for management, administration and non-productive labour; time-related costs for plant, equipment offices and temporary buildings; contractual costs; etc. Provided that there is no delay to the project and there is no significant increase in the amount of work, such costs will remain fixed. If a variation is instructed, the Contractor’s payment for the additional or changed work will be picked up in the remeasurement in the case of remeasurable contracts or measured and evaluated separately in the case of lump sum contracts. The contract rates and prices will include overheads…
August 21, 2021
Q&A: Events Prior to Contract Finalisation
In this blog post, Steering Committee member, Mark Watson, answers a variety of questions related to FIDIC 1999 Red Book. These questions are excerpted from our tenth Construction Clinic session, which took place in June 2020. The entire webinar may be viewed on-demand on YouTube. Question 1 Question: When it comes to Notice provisions and Time barring, we set the following scenario: - FIDIC Red Book 1999 - Commencement date stated in Contract data as 11 May 2020 - No Letter of Acceptance - Contract signed 22 May 2020 - Event started 3 May 2020 In instances where events happened before Contract Finalisation as above, do you set the ‘became aware’ date as the Commencement date, Contract signing, or actual date when the event happened pre-Contract? Answer: The important dates are the Commencement Date [Sub-clause 8.1 (Commencement of Works)] and the Time for Completion date [Sub-clause 8.2 (Time for Completion)]. The reason for this is that an Extension of Time for Completion [SC 8.4…
May 8, 2020
Are Contractors Playing with Fire? Construction Projects and “Uncertified Revenue”
Uncertified revenue is the value of work as assessed by a contractor which has been completed but not yet certified and paid by an employer. It typically could include the value of measured works, changes to the works and / or other claimed entitlements. Practices in the industry vary hugely. However, some contractors account for uncertified revenue on a basis which is – at best – optimistic and – at worst – wildly unrealistic. They may assume that the vast majority or even 100% of uncertified revenue will be realised when reporting internally and externally. This approach can pose serious risks. Following the collapse of Carillion in the UK in 2017 it was found that £294 million of the £729 million revenue reported in its accounts but which it would not actually receive concerned unapproved variations and other claims submitted to clients (i.e. uncertified revenue). Although there were many other failings, this unrealistic accounting of uncertified revenue was a major factor in…
February 20, 2020
What Can We Do When We Don’t Get Paid?
What can we do if we don't get paid? We get asked this question a lot. In some regions, legislation is quite strict on payment terms, but in other parts of the world it is very common for the paying party to hang onto their money for as long as possible. Most forms of construction contract will include some sort of remedy for non-, or late payment, so you will need to check what these are on your projects. As an example though, let’s have a look at what the FIDIC 1999 Editions have to say about late payment. Sub-Clause 14.8 (Delayed Payment) states that: ‘If the Contractor does not receive payment in accordance with Sub-Clause 14.7 [Payment], the Contractor shall be entitled to receive financing charges compounded monthly on the amount unpaid during the period of delay. This period shall be deemed to commence on the date for payment specified in Sub-Clause 14.7 [Payment], irrespective (in the case of its sub-paragraph (b)) of the date on which any Interim Payment Certificate is…