2-Day FIDIC Workshop ME - Case Studies PDF

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2 DAY FIDIC WORKSHOP - CASE STUDIES
CASE STUDIES
Case Study 1............................................................................................................. 3
Case Study 2............................................................................................................. 7
Case Study 3........................................................................................................... 10
Case Study 4........................................................................................................... 12
Case Study 5........................................................................................................... 14
Case Study 6........................................................................................................... 16
Case Study 7........................................................................................................... 18
Case Study 8........................................................................................................... 22
Case Study 9........................................................................................................... 24
Case Study 10......................................................................................................... 28
Case Study 11......................................................................................................... 31
Case Study 12......................................................................................................... 33
Case Study 13......................................................................................................... 35
Case Study 14......................................................................................................... 36
Case Study 15......................................................................................................... 38
Case Study 16......................................................................................................... 41
Case Study 17......................................................................................................... 45
Case Study 18......................................................................................................... 48
Case Study 18......................................................................................................... 51
2 Day FIDIC Workshop ME – CS – Sept 2014 (3) Page 2 of 53 Copyright BCA Training (Pty) Ltd 2014
CASE STUDY 1
The parties enter into the Red Book Construction Contract. This contract provides, in
Sub-clause 4.2 [Performance Security], for performance security and states that:
“The Contractor shall deliver the Performance Security to the Employer within
28 days after receiving the Letter of Acceptance and shall send a copy to the
Engineer.”
The Contractor receives a Letter of Acceptance on 1 October. On 27 October the

Contractor visits the Engineer and tells him that his bank managed to mislay his
application for security and that the bank has only just begun processing the
matter. He shows the Engineer a letter written by the manager of his bank in
which the manager apologises for the delay and undertakes to expedite the matter
as soon as possible and with a minimum of delays.
The Engineer is very sympathetic. He has worked with the Contractor in the past and knows
that he is good for the guarantee. He also happens to have experienced his own delays with
the bank in issue and is therefore understanding of the Contractor's predicament.
Can the Engineer agree to extend the period for the production of the guarantee?
Note: Please refer to the following clauses:
 Sub-clause 14.6 [Issue of Interim Payment Certificates], paragraph 1,

which states:
“No amount will be certified or paid until the Employer has

received and approved the Performance Security. Thereafter,
the Engineer shall, within 28 days after receiving a Statement
and supporting documents, issue to the Employer an Interim
Payment Certificate which shall state the amount which the
Engineer fairly determines to be due, with supporting
particulars.”
 Sub clause 15.2 [Termination by Employer] which states:
“The Employer shall be entitled to terminate the Contract if the

Contractor:
(a) fails to comply with Sub-Clause 4.2 [Performance

Security] or with a notice under Sub-Clause 15.1
[Notice to Correct],
(b) abandons the Works or otherwise plainly demonstrates

the intention not to continue performance of his
obligations under the Contract,
(c) without reasonable excuse fails:
(i) to proceed with the Works in accordance with

Clause 8 [Commencement, Delays and
Suspension], or
(ii) to comply with a notice issued under

Sub-Clause 7.5 [Rejection] or Sub-Clause 7.6
[Remedial Work], within 28 days after receiving
it,
(d) subcontracts the whole of the Works or assigns the

Contract without the required agreement,
(e) becomes bankrupt or insolvent, goes into liquidation,

has a receiving or administration order made against
him, compounds with his creditors, or carries on
business under a receiver, trustee or manager for the
benefit of his creditors, or if any act is done or event
occurs which (under applicable Laws) has a similar
effect to any of these acts or events, or
(f) gives or offers to give (directly or indirectly) to any

person any bribe, gift, gratuity, commission or other
thing of value, as an inducement or reward:
(i) for doing or forbearing to do any action in

relation to the Contract, or
(ii) for showing or forbearing to show favour or

disfavour to any person in relation to the
Contract,
or if any of the Contractor’s Personnel, agents or

Subcontractors gives or offers to give (directly or indirectly) to
any person any such inducement or reward as is described in
this sub-paragraph (f).
However, lawful inducements and rewards to Contractor’s

Personnel shall not entitle termination.
In any of these events or circumstances, the Employer may,

upon giving 14 days’ notice to the Contractor, terminate the
Contract and expel the Contractor from the Site. However, in

the case of sub-paragraph (e) or (f), the Employer may by
notice terminate the Contract immediately.
The Employer’s election to terminate the Contract shall not

prejudice any other rights of the Employer, under the Contract
or otherwise.
The Contractor shall then leave the Site and deliver any
required Goods, all Contractor’s Documents, and other design
documents made by or for him, to the Engineer. However, the
Contractor shall use his best efforts to comply immediately with
any reasonable instructions included in the notice (i) for the
assignment of any subcontract, and (ii) for the protection of life
or property or for the safety of the Works.
After termination, the Employer may complete the Works and/or

arrange for any other entities to do so. The Employer and these
entities may then use any Goods, Contractor’s Documents and
other design documents made by or on behalf of the Contractor.
The Employer shall then give notice that the Contractor’s

Equipment and Temporary Works will be released to the
Contractor at or near the Site. The Contractor shall promptly
arrange their removal, at the risk and cost of the Contractor.
However, if by this time the Contractor has failed to make a
payment due to the Employer, these items may be sold by the
Employer in order to recover this payment. Any balance of the
proceeds shall then be paid to the Contractor.”
CASE STUDY 2
The Works are let under the Construction Contract. The construction period is 16 months.
Halfway through the completion period, the Contractor hears rumours that some of the
Employer's financing has fallen through. He also speaks to another Contractor who is owed a
lot of money by the same Employer and is about to go to court to try to get an order against
the Employer. The Contractor is concerned about this and therefore serves a notice on the
Employer requesting reasonable evidence that financial arrangements have been made and
are being maintained.
The Employer responds 28 days later with the following information:
“The Employer has approached some six banks to apply for additional financing
for the project. Three of these six have not yet responded but three have. He
presents to the Contractor letters from three of these banks, all of which indicate
that the project appears to be a sound one which the banks are keen to become
involved in. All three of these letters indicate that the banks are in the process of
considering the application. One of the banks has promised to finance the
project for a bridging period of two months while the application for additional
finance is being considered.”
The Contractor does not want to spend more money in executing the Works until he has more
certainty that he will be paid and he therefore gives notice and then suspends work.
The Employer argues that the Contractor is not entitled to suspend the work, that his failure
to complete constitutes a breach and that the Employer is entitled to all the usual remedies for
breach of contract.
The Contractor, on the other hand, argues that he is fully entitled to suspend the Works and
indicates that he intends claiming an extension of time as well as additional moneys for the
period of suspension.
Is the Contractor entitled to give notice to suspend the Works?
Note: In addressing this case study assume that all the required notices are served.
Refer to Sub-clause 16.1 [Contractor’s Entitlement to Suspend Work] which
provides as follows:
“If the Employer fails to comply with Sub-Clause 2.4 [Employer’s

Financial Arrangements] or Sub-Clause 14.7 [Timing of Payments], the
Contractor may, after giving not less than 21 days’ notice to the
Employer, suspend work (or reduce the rate of work) unless and until the
Contractor has received the reasonable evidence or payment, as the case
may be and as described in the notice.
The Contractor’s action shall not prejudice his entitlements to financing

changes under Sub-Clause 14.8 [Delayed Payment] and to termination
under Sub-Clause 16.2 [Termination by Contractor].
If the Contractor subsequently receives such evidence or payment (as

described in the relevant Sub-Clause and in the above notice) before
giving a notice of termination, the Contractor shall resume normal
working as soon as is reasonably practicable.
If the Contractor suffers delay and/or incurs Cost as a result of

suspending work (or reducing the rate of work) in accordance with this
Sub-Clause, the Contractor shall give notice to the Employer and shall be
entitled subject to Sub-Clause 20.1 [Contractor's Claims] to:
(a) an extension of time for any such delay, if completion is or will

be delayed, under Sub-Clause 8.4 [Extension of Time for
Completion], and
(b) payment of any such Cost plus reasonable profit, which shall be
to the Contract Price.
After receiving this notice, the Engineer shall proceed in accordance with
Sub-Clause 3.5 [Determinations] to agree or determine these matters.”
CASE STUDY 3
Employer, E, and Contractor, C, enter into a FIDIC contract for the construction of an office
park. Twelve months later they contract, separately, for the construction of a shopping centre
to sit alongside the office park.
The office park contract does not run as smoothly as would be hoped and E has claims valued
at some USD100 000 against C for defects in these Works.
At this stage the office park is almost complete and E has paid almost all of the money owing
under the contract. E therefore serves notice, under Sub-clause 2.5 of the shopping centre
contract, that he intends setting off the USD100 000 owing on the office park against moneys
owing in terms of the shopping centre contract.
Can E set off these sums?
If E fails to serve the notice called for by Sub-clause 2.5, will he be barred from claiming
altogether?
CASE STUDY 4
A public sector organisation has a number of projects under the Red Book for construction.
The organisation decides to contract a Mr Z to act as the Engineer on these contracts.
The organisation wishes to keep control over the budget and is concerned about variations
which may increase the contract price. The organisation therefore decides to limit Mr Z's
authority to issue variations.
The organisation's contract with Mr Z provides as follows:
"Mr Z is authorised to instruct Contractors to vary the Works, as long as no

single variation has a value of more than USD50 000. Mr Z is not authorised to
issue variations which have a value greater than USD50 000.”
This information is included also in the Particular Conditions of the Construction Contract.
Mr Z is appointed as the Engineer on a contract between the organisation and a Contractor, C.
During the course of the project Mr Z issues a number of variations. All are valued at less
than USD50 000. All are included in subsequent payment certificates and paid by the
Employer.
About seven months into the project Mr Z issues a variation valued at USD150 000.
C does the work covered by the variation. In his next payment certificate he claims the value
of the work done, including the USD150 000 for the varied work.
The Employer refuses to pay for the variation, arguing that Mr Z lacked authority to issue the
variation.
Must the Employer pay the USD150 000?
Some other sum?
Nothing at all?
Why?
CASE STUDY 5
Consider the FIDIC Example Form of Performance Security - Surety Bond below.
Answer the five questions posed above with respect to this form of performance
security.
CASE STUDY 6
M is a manufacturer and supplier in paving blocks. He enters into an agreement with

Contractor, C, in terms of which M is to supply a certain number of paving blocks to C. C
intends using the paving to pave a parking lot at a shopping centre which he is building in
terms of his contract with Employer, E. M is aware that the blocks will be used for this
purpose.
M delivers the blocks to C together with an invoice which reflects the agreed amount of
USD500 000 for the blocks. On the front of the invoice the following words appear:
“Contractually binding terms and conditions on the reverse.”
On the reverse of the invoice the following words appear:
“M retains ownership of all goods delivered until the goods are fully paid for.”
C takes delivery of the blocks and paves the parking lot with them.
The cost of the paving blocks and of the actual laying of the blocks (by C) is included in the
next Interim payment Certificate and is paid by E.
Two months later C goes insolvent. He has not, at this stage, paid for the blocks.
On hearing of C’s insolvency, M goes to the site and lifts all the blocks, loads them onto
trucks and takes them to his warehouse.
E wishes to recover the blocks.
Who owns the paving blocks?
Note: Ignore issues such as trespass and theft. We are only concerned with the legal
issue of ownership.
CASE STUDY 7
Employer, E, and Contractor, C, enter into the FIDIC “Yellow Book” for the completion of
certain Works.
The Works achieve taking-over and C hands over possession of the Works to E. C now
makes only occasional visits to the site in order to finish off outstanding work.
After taking over is achieved the Engineer brings another Contractor onto the site in order to
complete certain defective work. C only becomes aware that the other Contractor has
remedied the defective work when he comes onto site next and sees that the work has been
done.
The cost of doing so is USD100 000. The Engineer deducts this USD100 000 from the next
payment certificate due to C.
C is furious, particularly because the Engineer had not even pointed out the defect when he
did his taking-over inspection. There was no mention of the defective work on the taking-
over certificate and it had never been mentioned to him by the Engineer. He argues as
follows:
 E was not entitled to allow another Contractor onto the site;
 The Engineer should have advised him that the work was defective. Because the
Engineer failed to do so C has no further obligations in this regard; and
 Anyway, the cost of USD100 000 is way too high for the work done.
Can the sum of USD100 000 be deducted from moneys due to C?
Note: In coming to your answer assume that the work was indeed defective. Consider
the following provisions:
 Sub-clause 11.1 [Completion of Outstanding Work and remedying

Defects] which states:
“In order that the Works and Contractor’s Documents, and

each Section, shall be in the condition required by the Contract
(fair wear and tear excepted) by the expiry date of the relevant
Defects Notification Period or as soon as practicable
thereafter, the Contractor shall:
(a) complete any work which is outstanding on the date

stated in a Taking-Over Certificate, within such
reasonable time as is instructed by the Engineer, and
(b) execute all work required to remedy defects or damage,

as may be notified by (or on behalf of) the Employer on
or before the expiry date of the Defects Notification
Period for the Works or Section (as the case may be).
If a defect appears or damage occurs, the Contractor shall be

notified accordingly, by (or on behalf of) the Employer.”;
 Sub-clause 11.2 [Cost of Remedying Defects] which states:
“All work referred to in sub-paragraph (b) of Sub-Clause 11.1

[Completion of Outstanding Work and Remedying Defects]
shall be executed at the risk and cost of the Contractor, if and to
the extent that the work is attributable to:
(a) the Design of the Works, other than a part of the Design
for which the Employer is responsible (if any),
(b) Plant, material or workmanship not being in

accordance with the Contract, or
(c) Improper operation or maintenance which was

attributable to matters for which the Contractor is responsible
(under Sub-Clauses 5.5 to 5.7 or otherwise), or
(d) Failure by the Contractor to comply with any other

obligation.
If and to the extent that such work is attributable to any other

cause, the Contractor shall be notified promptly by (or on
behalf of) the Employer, and Sub-Clause 13.3 [Variation
Procedure] shall apply.”;
 Sub-clause 11.4 [Failure to Remedy Defects] which states:
“If the Contractor fails to remedy any defect or damage within

a reasonable time, a date may be fixed by (or on behalf of) the
Employer, on or by which the defects or damage is to be
remedied. The Contractor shall be given reasonable notice of
this date. If the Contractor fails to remedy the defect or
damage by this notified date and this remedial work was to be
executed at the cost of the Contractor under Sub-Clause 11.2
[Cost of Remedying Defects], the Employer may (at his option):
(a) carry out the work himself or by others, in a reasonable

manner and at the Contractor’s cost, but the Contractor
shall have no responsibility for this work; and the
Contractor shall subject to Sub-Clause 2.5 [Employer’s
Claims] pay to the Employer the costs reasonably
incurred by the Employer in remedying the defect or
damage;
(b) require the Engineer to agree or determine a reasonable

reduction in the Contract Price in accordance with
Sub-Clause 3.5 [Determinations]; or
(c) if the defect or damage deprives the Employer of

substantially the whole benefit of the Works or any
major part of the Works, terminate the Contract as a
whole, or in respect of such major part which cannot be
put to the intended use. Without prejudice to any other
rights, under the Contract or otherwise, the Employer
shall then be entitled to recover all sums paid for the
Works or for such part (as the case may be), plus
financing costs and the cost of dismantling the same,
clearing the Site and returning Plant and Materials to
the Contractor.”;
 Sub-clause 11.7 [Right of Access] which states:
“Until the Performance Certificate has been issued, the

Contractor shall have the right of access to all parts of the
Works and to records of the operations and performance of the
Works, except as may be inconsistent with the Employer’s
reasonable security restrictions.”
CASE STUDY 8
Able Construction entered into a FIDIC Green Book contract to construct a 15Ml reservoir.
The specification prepared and issued by the Employer called for the interior walls of the
reservoir to be waterproofed with “Bitu-Flow Waterproofing Membrane” which was to be
applied in strict accordance with manufacturer’s recommendations.
Able Construction contacted Bitu-Flow prior to commencing with the waterproofing and
arranged for them to inspect and approve the quality of the workmanship on a regular basis,
which Bitu-Flow duly did.
Prior to the expiry of the period for the notifying of defects, damp patches were observed on
the exterior walls of the reservoir which indicated that the waterproofing membrane had
failed. On further investigation it was established that, in terms of Bitu-Flow’s Data Sheet,
the waterproofing system specified is not recommended for use on reservoirs.
The Employer subsequently instructed the Contractor to remove the defective waterproofing
and replace it with an alternative product which the Contractor refused to do on the basis that
he was not responsible for the design.
The Employer appointed IP Knightly & Sons at a total cost of USD325 000 to undertake the
work and duly deducted this amount from Able Construction’s final payment certificate.
Able Construction objected to the Employer’s actions and demonstrated that, if they had
undertaken the work themselves, it would have only cost USD175 000.
Was Able Construction entitled to refuse to repair the defective work?
Was the Employer entitled to recover the total cost of USD325 000 from
Able Construction and, if not, how much should he have deducted from
Able Construction’s final payment certificate?
Note: In addressing this case study please refer to Sub-clause 9.1 [Remedying Defects]
which states:
“The Employer may at any time prior to the expiry of the period stated in
the Appendix, notify the Contractor of any defects or outstanding work.
The Contractor shall remedy at no cost to the Employer any defects due to
the Contractor’s design, Materials, Plant or workmanship not being in
accordance with the Contract.
The cost of remedying defects attributable to any other cause shall be

valued as a Variation. Failure to remedy any defects or complete
outstanding work within a reasonable time of the Employer’s notice shall
entitle the Employer to carry out all necessary work at the Contractor’s
cost.”
CASE STUDY 9
The Works are for the construction of an office building. The time for completion under the
Red Book is 600 days, approximately 20 months. Work proceeds for some months without
dispute.
In Month 15 the Contractor submits his monthly payment statement but the agent refuses to
certify the full value of the Contractor’s claim because some of the work is, according to the
Engineer, defective. The same thing happens in Months 16 and 17.
These three certificates are discussed at site meetings. The Contractor argues strenuously that
there are no defects in the Works. It is agreed that work will continue while the issues are
being resolved.
At the end of Month 19 the Engineer advises C that the Employer has entered into lease
agreements with tenants who will be moving in at the middle of Month 21. The Contractor’s
response to this is to say:
“Well, I hope we have resolved the issues around Certificates 15, 16 and 17 by
then.”
At the end of Month 20 the Engineer sends the Contractor a letter saying:
“I hereby inform you that Taking-Over has been achieved. Attached is your
Taking-Over Certificate. Please complete all outstanding work required for
completion in accordance with the contract as soon as possible. As discussed,
tenants will be moving into the office block in two weeks’ time.”
The Contractor does an analysis of his financial situation. The amount specified for penalties
is relatively small, especially in relation to the amount outstanding in terms of Certificates 15,
16 and 17. The Contractor is worried that if he hands over possession he will struggle to get
payment on these certificates. He therefore writes to the Engineer as follows:
“I hereby reject your Taking-Over certificate and am returning it to you. You

have not undertaken a proper inspection as required by the contract and have not
listed outstanding items for me to complete. Further, if the work under
Certificates 15, 16 and 17 is indeed defective as you contend, then it is hard to
see how the Works could have reached Taking-Over. As long as payment on
these certificates remains outstanding I cannot accept your Taking-Over
certificate.
I understand that you are entitled to levy penalties against me.”
The Engineer responds by saying that it is not up to the Contractor to accept or reject the
Taking-Over certificate and that, anyway, the Employer is entitled to take possession.
Is the Contractor entitled to reject the certificate?
Is the Employer entitled to take possession even if the Taking-Over certificate is

rejected?
What can the Contractor do?
What should he have done?
Note: In addressing this case study refer to the following clauses:
 Sub-clause 10.1 [Taking Over of the Works and Sections] which states:
“Except as stated in Sub-Clause 9.4 [Failure to Pass Tests on

Completion], the Works shall be taken over by the Employer
when (i) the Works have been completed in accordance with the
Contract, including the matters described in Sub-Clause 8.2
[Time for Completion] and except as allowed in
sub-paragraph (a) below, and (ii) a Taking-Over Certificate for
the Works has been issued, or is deemed to have been issued in
accordance with this Sub-Clause.
The Contractor may apply by notice to the Engineer for a

Taking-Over Certificate not earlier than 14 days before the
Works will, in the Contractor’s opinion, be complete and ready
for taking over. If the Works are divided into Sections, the
Contractor may similarly apply for a Taking-Over Certificate
for each Section.
The Engineer shall, within 28 days after receiving the

Contractor’s application:
(a) issue the Taking-Over Certificate to the Contractor,

stating the date on which the Works or Section were
completed in accordance with the Contract, except for
any minor outstanding work and defects which will not
substantially affect the use of the Works or Section for
their intended purpose (either until or whilst this work is
completed and these defects are remedied); or
(b) reject the application, giving reasons and specifying the

work required to be done by the Contractor to enable
the Taking-Over Certificate to be issued. The
Contractor shall then complete this work before issuing
a further notice under this Sub-Clause.
If the Engineer fails either to issue the Taking-Over Certificate

or to reject the Contractor’s application within the period of 28
days, and if the Works or Section (as the case may be) are
substantially in accordance with the Contract, the Taking-Over
Certificate shall be deemed to have been issued on the last day
of that period.”;
 Sub-clause 10.2 [Taking Over of Parts of the Works] which states:
“The Engineer may, at the sole discretion of the Employer,

issue a Taking-Over Certificate for any part of the Permanent
Works.
The Employer shall not use any part of the Works (other than as
a temporary measure which is either specified in the Contract
or agreed by both Parties) unless and until the Engineer has
issued a Taking-Over Certificate for this part. However, if the
Employer does use any part of the Works before the
Taking-Over Certificate is issued:
(a) the part which is used shall be deemed to have been

taken over as from the date on which it is used,
(b) the Contractor shall cease to be liable for the care of

such part as from this date, when responsibility shall
pass to the Employer, and
(c) if requested by the Contractor, the Engineer shall issue

a Taking-Over Certificate for this part.”
CASE STUDY 10
The Works have passed the tests on completion and are, in the opinion of the Contractor,
substantially complete. The Contractor sends a notice to the Employer on 2 May, requesting
a Taking-Over Certificate.
On 3 May the Employer comes to the site with his Engineer. They glance around the site and
the Engineer says:
“These Works are obviously not complete. There are numerous major flaws
here. You are wasting my time and I reject your application categorically.”
On 2 June the Contractor sends a notice to the Engineer stating as follows:
“More than 28 days have elapsed since I served a notice requesting a

Taking-Over Certificate on you. Since the date of issuing the request I have
received neither a certificate nor a rejection giving reasons and specifying work
to be completed as required by Clause 10.1. The Taking-Over Certificate will
therefore be deemed to have been issued on 31 May.”
Will take over be deemed in these circumstances?
Note: In addressing this case study refer to Sub-clause 10.1 [Taking Over of the Works
and Sections] which states:
“Except ... the Works shall be taken over by the Employer when (i) the
Works have been completed in accordance with the Contract, including
the matters described in Sub-Clause 8.2 [Time for Completion] and except
as allowed in sub-paragraph (a) below, and (ii) a Taking-Over Certificate
for the Works has been issued, or is deemed to have been issued in
accordance with this Sub-Clause.
The Contractor may apply by notice to the Engineer for a Taking-Over

Certificate not earlier than 14 days before the Works will, in the
Contractor's opinion, be complete and ready for taking over. If the Works
are divided into Sections, the Contractor may similarly apply for a
Taking-Over Certificate for each Section.
The Engineer shall, within 28 days after receiving the Contractor's

application:
(a) issue the Taking-Over Certificate to the Contractor, stating the

date on which the Works or Section were completed in
accordance with the Contract, except for any minor outstanding
work and defects which will not substantially affect the use of
the Works or Section for their intended purpose )either until or

whilst this work is completed and these defects are remedied) or
(b) reject the application, giving reasons and specifying the work
required to be done by the Contractor to enable the
Taking-Over Certificate to be issued. The Contractor shall then
complete the work before issuing a further notice under this
Sub-Clause.
If the Engineer fails either to issue the Taking-Over Certificate or to reject

the Contractor's application within the period of 28 days, and if the Works
or Section (as the case may be) are substantially in accordance with the
Contract, the Taking-Over Certificate shall be deemed to have been issued
on the last day of that period.”
CASE STUDY 11
On the facts given above assume, for the purposes of this case study, that taking over was
deemed to have occurred on 31 May, as the Contractor argued. The Contractor now wishes
to have the performance guarantee reduced. He pulls out his Form of Security, which is the
FIDIC recommended Demand Guarantee Form found at the back of the Contract Document.
This agreement (entered into between the Employer and a recognised banking institution)
provides as follows:
“Following the receipt by us of an authenticated copy of the Taking-Over

Certificate for the whole of the Works under Clause 10 of the conditions of the
Contract, such guaranteed amount shall be reduced by ...% and we shall
promptly notify you that we have received such certificate and have reduced the
guaranteed amount accordingly.”
The Contractor goes to the bank and asks to be released from a percentage (in this case 50%)
of the guarantee.
The bank says that it can do no such thing unless and until it receives an authenticated copy
of the Taking-Over Certificate.
The Engineer is unco-operative, arguing that there is no obligation upon him to issue a
certificate where taking over is deemed to have taken place.
Can the Contractor have the value of the bond reduced?
What can the Contractor do in these circumstances?
CASE STUDY 12
The Contractor, in the previous case study, is now somewhat desperate and wishes to recover
his retention. He approaches the Engineer and requests that he certify the first half of the
retention for repayment.
The Engineer says that he is unable to certify any part of the retention as there is no
Taking-Over Certificate. He refers the Contractor to Sub-clause 14.9 [Payment of Retention
Money].
Is the agent obliged to certify the first half of the retention for repayment?
Note: In addressing this case study assume that the Construction Contract (which allows
for retention) applies. Sub-clause 14.9 [Payment of Retention Money] states:
“When the Taking-Over Certificate has been issued for the Works, the
first half of the Retention Money shall be certified by the Engineer for
payment to the Contractor. If a Taking-Over Certificate is issued for a
Section or part of the Works, a proportion of the Retention Money shall be
certified and paid. This proportion shall be two-fifths (40%) of the
proportion calculated by dividing the estimated contract value of the
Section or part, by the estimated final Contract Price.
Promptly after the latest of the expiry dates of the Defects Notification
Periods, the outstanding balance of the Retention Money shall be certified
by the Engineer for payment to the Contractor. If a Taking-Over
Certificate was issued for a Section, the relevant percentage of the second
half of the Retention Money shall be certified and paid promptly after the
expiry of the Defects Notification Period for the Section. This proportion
shall be two-fifths (40%) of the proportion calculated by dividing the
estimated contract value of the Section by the estimated final Contract
Price.
However, if any work remains to be executed under Clause 11 [Defects

Liability], or Clause12 [Tests after Completion] the Engineer shall be
entitled to withhold certification of the estimated cost of this work until it
has been executed.
When calculating these proportions, no account shall be taken of any

adjustments under Sub-clause 13.7 [Adjustments for Changes in
Legislation] and Sub-clause 13.8 [Adjustments for Changes in Cost].”
CASE STUDY 13
On 1 April the Employer’s labour force goes on strike which results in the Contractor being
denied access to the site. The strike ends on 10 April at which time the Contractor is once
again given access to the Works.
On 5 April the Contractor notifies the Engineer, in terms of Sub-clause 20.1 [Contractor’s
Claims], of the delay and advises him that he will be submitting a claim for an extension of
Time for Completion. On 7 July the Contractor submits its fully detailed claim to the
Engineer for an extension of time of 9 days.
The Engineer subsequently rejects the claim on the basis that the Contractor failed to submit
its fully detailed claim within 42 days of the Contractor becoming aware of the event or
circumstance.
Was the Engineer correct in rejecting the claim?
Would your answer be different if the Contractor had submitted its notification of the
delay together with the claim itself on 1 May?
CASE STUDY 14
The Works are the construction of a 20km road with two bridges.
Halfway through the construction period, the Engineer issues an instruction increasing the
extent of the road by 10km and adds an additional bridge.
The Contractor says that he lacks the resources to fulfil and cannot be expected to do so.
Is this a lawful variation as contemplated by the contract?
Is the Contractor obliged to fulfil the variation?
Note: In addressing this case study, please refer to the following clauses:
 Sub-clause 13.1 [Right to Vary] which states:
“Variations may be initiated by the Engineer at any time prior

to issuing the Taking-Over Certificate for the Works, either by
an instruction or by a request for the Contractor to submit a
proposal.
The Contractor shall execute and be bound by each Variation,

unless the Contractor promptly gives notice to the Engineer
stating (with supporting particulars) that the Contractor cannot
readily obtain the Goods required for the Variation. Upon
receiving this notice, the Engineer shall cancel, confirm or vary
the instruction.
Each Variation may include:
(a) changes to the quantities of any item of work included in

the Contract (however, such changes do not necessarily
constitute a Variation),
(b) changes to the quality and other characteristics of any

item of work,
(c) changes to the levels, positions and/or dimensions of any

part of the Works,
(d) omission of any work unless it is to be carried out by

others,
(e) any additional work, Plant, Materials or services

necessary for the Permanent Works, including any
associated Tests on Completion, boreholes and other

testing and exploratory work, or
(f) changes to the sequence or timing of the execution of the

Works.
The Contractor shall not make any alteration and/or

modification of the Permanent Works, unless and until the
Engineer instructs or approves a Variation.”;
 Sub-clause 1.1.5.2:
“Goods means Contractor’s Equipment, Materials, Plant and

Temporary Works, or any of them as appropriate.”
CASE STUDY 15
The parties enter into a FIDIC Yellow Book contract. During the course of the contract the
Engineer, in terms of Sub-clause 13.1 [Right to Vary], has prepared his own estimate of the
value of this variation order and has determined it to be approximately USD100 000. In
terms of Sub-clause 13.3 [Variation Procedure] the Engineer requests a proposal from the
Contractor prior to confirming the instruction relating to the variation.
Two weeks after this request the Contractor submits a price for the variation of USD200 000.
The Engineer believes the cost is excessive and the Contractor has elsewhere stipulated
reasonable profit as being 10%.
How should the Engineer proceed?
Can the Engineer insist that the work be carried out before there is agreement on the
price?
Can the Engineer insist that the work be carried out for his assessment of USD100 000?
Note: In addressing this case study please refer to the following clauses:
 Sub-clause 13.1 [Right to Vary]:
“Variations may be initiated by the Engineer at any time prior

to issuing the Taking-Over Certificate for the Works, either by
an instruction or by a request for the Contractor to submit a
proposal. A Variation shall not comprise the omission of any
work which is to be carried out by others.
The Contractor shall execute and be bound by each Variation,

unless the Contractor promptly gives notice to the Engineer
stating (with supporting particulars) that (i) the Contractor
cannot readily obtain the Goods required for the Variation,
(ii) it will reduce the safety or suitability of the Works, or (iii) it
will have an adverse impact on the achievement of the Schedule
of Guarantees. Upon receiving this notice, the Engineer shall
cancel, confirm or vary the instruction.”;
 Sub-clause 13.3 [Variation Procedure]:
“If the Engineer requests a proposal, prior to instructing a

Variation, the Contractor shall respond in writing as soon as
practicable, either by giving reasons why he cannot comply (if
this is the case) or by submitting:
(a) a description of the proposed design and/or work to be

performed and a programme for its execution,
(b) the Contractor’s proposal for any necessary

modifications to the programme according to
Sub-Clause 8.3 [Programme] and to the Time for
Completion, and
(c) the Contractor’s proposal for adjustment to the Contract

Price.
The Engineer shall, as soon as practicable after receiving such

proposal (under Sub-Clause 13.2 [Value Engineering] or
otherwise), respond with approval, disapproval or comments.
The Contractor shall not delay any work whilst awaiting a
response.
Each instruction to execute a Variation, with any requirements

for the recording of Costs, shall be issued by the Engineer to
the Contractor, who shall acknowledge receipt.
Upon instructing or approving a Variation, the Engineer shall

proceed in accordance with Sub-Clause 3.5 [Determinations] to
agree or determine adjustments to the Contract Price and the
Schedule of Payments. These adjustments shall include
reasonable profit, and shall take account of the Contractor’s
submissions under Sub-Clause 13.2 [Value Engineering] if
applicable.”
CASE STUDY 16
The parties enter into the Yellow Book FIDIC contract. No period for statements is
stipulated.
In Months 1, 2, 3 and 4 the last day of the month happens to be a working day and the
Contractor accordingly submits his statement on the very last day of the month.
In Month 5 the last day of the month is a Sunday. The Contractor therefore submits his
statement on the preceding Friday.
The Engineer refuses to certify this work, arguing that the Contractor will have to wait until
the end of Month 6 before issuing this statement. The Engineer argues that Statement 5 was
not issued in accordance with the contract and that he is therefore not obliged to certify the
work. He refers the Contractor to Sub-clause 14.3 [Application for Interim Payment
Certificates] and argues that the clause is clear that the statement cannot be issued before the
end of the month.
Is the Engineer entitled to refuse to certify the work done in Month 5?
Note: In coming to your answer please consider the following provisions:
 Sub-clause 14.3 [Application for Interim Payment Certificates] which

states:
“The Contractor shall submit a Statement in six copies to the

Engineer after the end of each month, in a form approved by the
Engineer, showing in detail the amounts to which the
Contractor considers himself to be entitled, together with
supporting documents which shall include the report on the
progress during this month in accordance with Sub-Clause 4.21
[Progress Reports].
The Statement shall include the following items, as applicable,

which shall be expressed in the various currencies in which the
Contract Price is payable, in the sequence listed:
(a) the estimated contract value of the Works executed and

the Contractor’s Documents produced up to the end of
the month (including Variations but excluding items
described in sub-paragraphs (b) to (g) below);
(b) any amounts to be added and deducted for changes in

legislation and changes in cost, in accordance with
Sub-Clause 13.7 [Adjustments for Changes in
Legislation] and Sub-Clause 13.8 [Adjustments for

Changes the Cost];
(c) any amount to be deducted for retention, calculated by

applying the percentage of retention stated in the
Appendix to Tender to the total of the above amounts,
until the amount so retained by the Employer reaches
the limit of Retention Money (if any) stated in the
Appendix to Tender;
(d) any amounts to be added and deducted for the advance

payment and repayments in accordance with
Sub-Clause 14.2 [Advance Payment];
(e) any amounts to be added and deducted for Plant and

Materials in accordance with Sub-Clause 14.5 [Plant
and Materials intended for the Works];
(f) any other additions or deductions which may have

become due under the Contract or otherwise, including
those under Clause 20 [Claims, Disputes and
Arbitration]; and
(g) the deduction of amounts certified in all previous

Payment Certificates.”;
 Sub-clause 14.6 [Issue of Interim Payment Certificates] which states:

particulars.
However, prior to issuing the Taking-Over Certificate for the

Works, the Engineer shall not be bound to issue an Interim
Payment Certificate in an amount which would (after retention
and other deductions) be less than the minimum amount of
Interim Payment Certificates (if any) stated in the Appendix to
Tender. In this event, the Engineer shall give notice to the
Contractor accordingly.
An Interim payment Certificate shall not be withheld for any
other reason, although:
(a) 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; and/or
(b) if the Contractor was or is failing to perform any work

or obligation in accordance with the Contract, and had
been so notified by the Engineer, the value of this work
or obligation may be withheld until the work or
obligation has been performed.
The Engineer may in any Payment Certificate make any

correction or modification that should properly be made to any
previous Payment Certificate. A Payment Certificate shall not
be deemed to indicate the Engineer’s acceptance, approval,
consent or satisfaction.”;
 Sub-clause 1.1.4.12 which states:
“Statement means a statement submitted by the Contractor as

part of an application, under Clause 14 [Contract Price and
Payment], for a payment certificate.”
CASE STUDY 17
The Contractor has received the Taking-Over Certificate and eighty days later has submitted
a Statement at Completion in accordance with Sub-clause 14.10 [Statement at Completion] in
which it summarises:
 The value of all work done up to the date of the Taking-Over Certificate is the
sum of USD25m,
 An estimate of USD1m in respect of defects listed as at the date of issuing the

Taking-Over Certificate which defects did not substantially affect the use of the
Works and which defects remain outstanding;
 The balance of retention being 50% of the amount retained in the sum of USD1m;
and that
 The defects notification period is 12 months.
What amount will the Contractor receive in the next interim certificate?
Note: In addressing this case study please refer to the following clauses:
 Sub-clause 14.10 [Statement at Completion]:
“Statement at Completion. Within eighty-four days after

receiving the Taking-Over Certificate for the Works, the
Contractor shall submit to the Engineer six copies of a
Statement at completion with supporting documents in
accordance with Sub-Clause 14.3 [Application for Interim
Payment Certificates] showing:
(a) the value of all work done in accordance with the

contract up to the date stated in the Taking-Over
Certificate for the Works;
(b) any further sums which the Contractor considers to be

due, and
(c) an estimate of any other amounts which the Contractor

considers will become due to him under the contract.
Estimated amounts shall be shown separately in this
Statement at completion.
The Engineer shall then certify in accordance with

Sub-Clause 14.6 [Issue of Interim Payment Certificates].”;
 Sub-clause 14.6 [Issue of Interim Payment Certificates]:

particulars.
However, prior to issuing the Taking-Over Certificate for the

Works, the Engineer shall not be bound to issue an Interim
Payment Certificate in an amount which would (after retention
and other deductions) be less than the minimum amount of
Interim Payment Certificates (if any) stated in the Appendix to
Tender. In this event, the Engineer shall give notice to the
Contractor accordingly.
An Interim Payment Certificate shall not be withheld for any

other reason, although:
(a) 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; and/or
(b) if the Contractor was or is failing to perform any work

or obligation in accordance with the Contract, and had
been so notified by the Engineer, the value of this work
or obligation may be withheld until the work or
obligation has been performed.
The Engineer may in any Payment Certificate make any

correction or modification that should properly be made to any
previous Payment Certificate. A Payment Certificate shall not
be deemed to indicate the Engineer’s acceptance, approval,
consent or satisfaction.”;
 Sub-clause 1.1.4.12 which states:
““Statement” means a statement submitted by the Contractor

as part of an application, under Clause 14 [Contract Price and
Payment], for a payment certificate.”
CASE STUDY 18
The Works to be completed is the erection of an oil production facility to be used to increase
oil production on an oil field in Kazakhstan.
Part of the permanent Works is to be manufactured at the Contractor’s factory in Turkey and
is to be stored there. Before the Contractor can transport the plant to Kazakhstan, it is
damaged when the warehouses in which they are being stored are invaded by anti-
government protesters. The anti-government protesters assume control of the warehouses
and refuse to release the plant or equipment.
Who bears the risk – the Contractor or the Employer?
Note: ● Sub-clause 17.3 [Employer’s Risk] of the Conditions of Contract for

Construction for Building and Engineering Works designed by the
Employer states:
“The risks referred to in Sub-Clause 17.4 below are:
(a) war, hostilities (whether war be declared or not),

invasion, act of foreign enemies,
(b) rebellion, terrorism, revolution, insurrection, military or

usurped power, or civil war, within the Country,
(c) riot, commotion or disorder within the Country by

persons other than the Contractor’s Personnel and other
employees of the Contractor and Sub-Contractors,
(d) munitions of war, explosive materials, ionising radiation

or contamination by radio-activity, within the Country,
except as may be attributable to the Contractor’s use of
such munitions, explosives, radiation or radio-activity.
(e) pressure waves caused by aircraft or other aerial

devices travelling at sonic or supersonic speeds,
(f) use or occupation by the Employer of any part of the

Permanent Works, except as may be specified in the
Contract.
(g) design of any part of the Works by the Employer’s

Personnel or by others for whom the Employer is
responsible, and
(h) any operation of the forces of nature which is
Unforeseeable or against which an experience

Contractor could not reasonably have been expected to
have taken adequate preventative precautions.”
““Country” means the country in which the Site (or most if it)
is located, where the Permanent Works are to be executed.”
“”Site” means the places where the Permanent Works are to be

executed and to which Plant and Materials are to be delivered,
and any other places as may be specified in the Contract as
forming part of the Site.”
 Sub-clause 17.4 [Consequences of Employer’s Risks]:
“If and to the extent that any of the risks listed in

Sub-Clause 17.3 above results in loss or damage to the Works,
Goods or Contractor’s Documents, the Contractor shall
promptly give notice to the Engineer and shall rectify this loss
or damage to the extent required by the Engineer.
If the Contractor suffers delay and/or incurs Cost from

rectifying this loss or damage, the Contractor shall give a
further notice to the Engineer and shall be entitled subject to
Sub-Clause 20.1 [Contractor’s Claims] to:
(a) an extension of time for any such delay, if completion is

or will be delayed, under Sub-Clause 8.4 [Extension of
Time for Completion], and
(b) payment of any such Cost, which shall be included in the

Contract Price. In the case of sub-paragraphs (f) and
(g) of Sub-Clause 17.3 [Employer’s Risks], reasonable
profit on the cost shall also be included.
(c) After receiving this further notice, the Engineer shall

proceed in accordance with Sub-Clause 3.5
[Determinations] to agree or determine these matters.”
CASE STUDY 18
Consider the oil production facility facts given above.
Would it have been better for the Contractor to have based his claim on the force
majeure clause rather than basing it in “Employer’s Risk”?
Note: In addressing this case study refer to the following clauses:
 Sub-clause 19.1 [Definition of Force Majeure] states:
“In this Clause, “Force Majeure” means an exceptional event

or circumstance:
(a) which is beyond a Party’s control,
(b) which such Party could not reasonably have provided

against before entering into the Contract,
(c) which, having arisen, such party could not reasonably

have avoided or overcome, and
(d) which is not substantially attributable to the other Party.
Force Majeure may include, but is not limited to, exceptional

events or circumstances of the kind listed below, so long as
conditions (a) to (d) above are satisfied:
(i) war, hostilities (whether war be declared or not),

invasion, act of foreign enemies,
(ii) rebellion, terrorism, revolution, insurrection, military or

usurped power, or civil war,
(iii) riot, commotion, disorder, strike or lockout by persons

other than the Contractor's Personnel and other
employees of the Contractor and Sub-Contractors,
(iv) munitions of war, explosive materials, ionising radiation

or contamination by radio-activity, except as may be
attributable to the Contractor's use of such munitions,
explosives, radiation or radio-activity, and
(v) natural catastrophes such as earthquake, hurricane,

typhoon or volcanic activity.”;
 Sub-clause 19.4 [Consequences of Force Majeure] states:
“If the Contractor is prevented from performing any of his

obligations under the Contract by Force Majeure of which
notice has been given under Sub-Clause 19.2 [Notice of Force
Majeure], and suffers delay and/or incurs Cost by reason of
such Force Majeure, the Contractor shall be entitled subject to
Sub-Clause 20.1 [Contractor's Claims] to:
(a) extension of time for any such delay, if completion is or

will be delayed, under Sub-Clause 8.4 [Extension of
Time for Completion], and
(b) if the event or circumstance is of the kind described in

sub-paragraphs (i) to (iv) of Sub-Clause 19.1 [Definition
of Force Majeure] and, in the case of
sub-paragraphs (ii) to (iv), occurs in the Country,
payment of any such Cost.
After receiving this notice, the Engineer shall proceed in

accordance with Sub-Clause 3.5 [Determinations] to agree or
determine these matters.”

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What clause deals with force majeure?

What clause deals with force majeure?

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The Contractor receives a Letter of Acceptance on 1 October. On 27 October the

Note: Please refer to the following clauses:

 Sub-clause 14.6 [Issue of Interim Payment Certificates], paragraph 1,

“No amount will be certified or paid until the Employer has

 Sub clause 15.2 [Termination by Employer] which states:

“The Employer shall be entitled to terminate the Contract if the

(a) fails to comply with Sub-Clause 4.2 [Performance

(b) abandons the Works or otherwise plainly demonstrates

obligations under the Contract,

(c) without reasonable excuse fails:

(i) to proceed with the Works in accordance with

(ii) to comply with a notice issued under

(d) subcontracts the whole of the Works or assigns the

(e) becomes bankrupt or insolvent, goes into liquidation,

(f) gives or offers to give (directly or indirectly) to any

(i) for doing or forbearing to do any action in

(ii) for showing or forbearing to show favour or

or if any of the Contractor’s Personnel, agents or

However, lawful inducements and rewards to Contractor’s

In any of these events or circumstances, the Employer may,

Contract and expel the Contractor from the Site. However, in

The Employer’s election to terminate the Contract shall not

After termination, the Employer may complete the Works and/or

The Employer shall then give notice that the Contractor’s

The Employer responds 28 days later with the following information:

Is the Contractor entitled to give notice to suspend the Works?

“If the Employer fails to comply with Sub-Clause 2.4 [Employer’s

The Contractor’s action shall not prejudice his entitlements to financing

If the Contractor subsequently receives such evidence or payment (as

If the Contractor suffers delay and/or incurs Cost as a result of

(a) an extension of time for any such delay, if completion is or will

Can E set off these sums?

The organisation decides to contract a Mr Z to act as the Engineer on these contracts.

The organisation's contract with Mr Z provides as follows:

"Mr Z is authorised to instruct Contractors to vary the Works, as long as no

Mr Z is appointed as the Engineer on a contract between the organisation and a Contractor, C.

Must the Employer pay the USD150 000?

Some other sum?

M is a manufacturer and supplier in paving blocks. He enters into an agreement with

“Contractually binding terms and conditions on the reverse.”

On the reverse of the invoice the following words appear:

E wishes to recover the blocks.

Who owns the paving blocks?

 E was not entitled to allow another Contractor onto the site;

Can the sum of USD100 000 be deducted from moneys due to C?

 Sub-clause 11.1 [Completion of Outstanding Work and remedying

“In order that the Works and Contractor’s Documents, and

(a) complete any work which is outstanding on the date

(b) execute all work required to remedy defects or damage,

If a defect appears or damage occurs, the Contractor shall be

 Sub-clause 11.2 [Cost of Remedying Defects] which states:

“All work referred to in sub-paragraph (b) of Sub-Clause 11.1