Financial Clauses and Procedures CLAUSES 12 13

Financial Clauses and Procedures

CLAUSES 12, 13 & 14 • Measurement and Evaluation • Variations and Adjustments • Contract Price and Payments

Payment Modalities • Lump Sum • Re-measurement • Cost reimbursement

Lump Sum • Scope of the work and the amount is well defined. • Contractor agrees to work for a pre-determined lump sum.

Lump Sum tem Nr. Description Unit Qty Rate Amount

Lump Sum – Advantages & Disadvantages – Cost commitment is known at the outset – Time required for producing full scope – Relatively easy contractor selection – Changes difficult and potentially costly – Fully defined scope – Contractor assumes greatest risks

Re- measurement • The scope of the work is generally well defined but the amount of work is indefinite. • Sufficiently detailed scope of work to allow contractor to calculate unit rates.

Measure & Pay tem Nr. Description Unit Qty Rate Amount

Measure & Pay Advantages & Disadvantages • Scope need not be as accurate • Cost per unit of production predetermined • Flexibility- scope & quantity can be varied. • Final cost not clearly known

Cost Reimbursement • Contractor is paid all what he spends plus OH & Profit. • Minimal pre-determined scope definition. • Clear and explicit definition of what constitutes reimbursable costs. • Co-operative atmosphere and a competent and trustworthy contractor. • Close audit and quality supervision and direction by the Client.

Cost Reimbursement Item Nr. Schedule Rate Unit

Cost Reimbursement Advantages & Disadvantages • Useful when the scope cannot be specified in advance • Final cost unknown • Minimal predetermined scope definition permits early start • Reduces ability to compare contractor’s bids • Buyer retains risk

Contract Price and Payment 15 sub clauses relate to this vital sector • Sub Clause 14. 1 – Contract Price may be represented through Bill of Quantities (remeasured) or Schedules • Sub Clause 14. 2 – Anticipates that advance payment will be made and procedures provided

Measurement and Evaluation (Clauses 12. 1 and 12. 2) • Measurements is undertaken by the Engineer, giving notice to the Contractor’s Representative to attend etc. • Measurement shall be net actual quantities

Evaluation by Engineer (Clauses 12. 3 and 12. 4) Sub Clause 12. 3 Provides the basis for the Engineer to determine the value of each item of work • The rates specified in the Contract will apply unless there are no appropriate rates for a new item of work • New Rates may be determined where items a) and b) of Sub Clause 12. 3 apply • Sub Clause 12. 4 provides for possible compensation to Contractor relating to omissions of work

Variations and Adjustments (Clause 13) • Engineer has right to vary under Sub Clause 13. 1 and with details of types of issues covered • Opportunity for Contractor to submit “Value Engineering” change. Risk of development with Contractor and any savings are split 50: 50 • Sub Clause 13. 3 sets out procedure required to be followed if Engineer requests proposal prior to instructing Variation

Provisional Sums (Clause 13. 5) Include the provisional sum of Dhr. 120 (one hundred and twenty Dirhams) for connecting end of drain to be the soakage pit. Prov. Sum 120 00

Prime Cost Sum Include the prime cost sum of Dhr. 800 (eight hundred Dirhams) for patent partitions to be executed by nominated subcontractors. Add for profit General attendance PC Sum % Item 800 00

Prime Cost Sum Include the prime cost sum of Dhr. 55 (fifty-five Dirhams) for ironmongery to be supplied by nominated supplier. Add for profit PC Sum % (Contd…) 55 00

Adjustment of PC & Provisional Sums Omissions Prime cost sum for patent partitions Add for profit (10%) Additions 800. 00 80. 00 120. 00 General attendance 850. 00 Emirates Interior Ltd. , A/C No. 2134 85. 00 Profit (10%) 120. 00 General attendance Total Less omission Net addition C/F to Grand Summary 1000. 00 1055. 00 (1000. 00) 55. 00

Daywork (Clause 13. 6) Day-work means payment for actual hours spent carrying out an operation as against payments made based on prices given in the tender.

Daywork Records The minimum information recorded should include: – Hours worked by those engaged in daywork – Hours machines were hired – Material used by the Contractor for daywork purposes

Who Orders Daywork? • Daywork is only carried out in special situations. • Engineer will usually only request daywork in an emergency when there is insufficient time to raise a variation quotation request. The same emergency may give the Contractor insufficient time to assess and cost a variation quotation. • Another instance would be where tradesmen for a particular trade has to be brought back to do work in that trade when the work in that trade is completed.

Price Fluctuations (Clause 13. 8) • Often construction projects, particularly, large projects are undertaken over a long period of time. It is more than likely that the price of material used in a job and the rates of pay of the workmen will increase and even in some instances fall during the life of the contract. • Rise and Fall is the adjustment made to the contract price to offset or compensate for any rises and falls that occur during the period of contract.

Adjustments for Changes in Cost • Extensive details provided for the use of formulae for cost variations during the contract period. Optional, determined by employer prior to Tender • Base rate reference is 28 days prior to date of tender submission • Factors provided in Appendix to Tender for each project

Progress Payments • The value of progress payments are determined on the actual value of work done • This method is based on actual measurement of work done or value of percentages of work done

Contractual Implications (Clauses 14. 3 - 14. 6) The conditions of contract stipulates: • When progress payments are to be made. • The method of presentation by the Contractor of his claim for progress payments (the information to be provided) • Method for fixing the estimate of the contract value of work executed including variations, unfixed materials on site, etc. ,

Interim Payments (Cont. ) • Sub Clause 14. 3 – Contractor to submit a Statement for application for interim payment. Note cross reference to Sub Clause 4. 21, plus requirement for 6 copies. • Sub Clause 14. 6 – Sets out procedure for issue of interim Payment Certificate by the Engineer - see also chart 2

Payment (Clauses 14. 7 & 14. 8) • Sub Clause 14. 7 – Payment duties of Employers plus under 14. 8 the financial charges to be paid if Employer is late in payment (3% above discount rate of Central Bank of country of the currency of payment)

Retention (Clauses 14. 3 & 14. 9) • Security for client • Sub Clause 14. 9 refers to Retention Money • On issuance of Taking Over Certificate, first half certified for payment by Engineer • On Expiry of Defects Notification Period, balance certified for payment by Engineer

Final Accounts Sub Clauses 14. 10/14. 11/14. 12/14. 13 • These deal with the Statement on completion, application for Final Payment Certificate, discharge and issue of Final Payment Certificate Sub Clause 14. 15 Currencies of Payment • This clause sets out the procedures if the payments are to be made in more than one currency

Final Accounts (Cont. ) • Sub Clause 14. 10 requires Contractors within 84 days of Taking Over Certificate too submit a statement showing: - Value of all work done - Further sums considered due - Estimate of any other amounts considered due Engineer shall certify in accordance with Sub Clause 14. 6

Final Accounts (Cont. ) • Sub Clause 4. 11 requires Contractor to submit Final Statement within 56 days of receiving Performance Certificate. • Sub Clause 4. 12 Contractor to submit written discharge with Final Settlement. • Sub clause 14. 13 requires Engineer to issue within 28 days Final payment Certificate.

Exercise 1 Read Clauses 12, 13 & 14 of the Red Book and answer following questions. Yes Does the Contractor undertake the measurement of the Works in Red Book? Should the method of measurement be stated in the Bill of Quantities Can the Engineer demand the Contractor to give the breakdown of his rates? No May be

Exercise 1 (Cont. ) Yes Can the Daywork Schedule be used to agree new rates Can the Contract Price be fixed? Can the Engineer correct previous payment certificates? Have Provisional Sums to be spent within the contract? No May be

Exercise 2 (Group) A contract agreement was signed based on the FIDIC 1999 Red Book on 1 st February, with Commencement Date stated as 1 st March. On 4 th April the Contractor submitted an application for an interim payment. On 18 th April, the Engineer replied that he did not intend to issue an Interim Payment Certificate. On what grounds can the Engineer refuse to issue an Interim Payment Certificate?

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