The FIDIC 99 Redbook Conditions of Contract allows the parts of the Works to be specified as "Sections". Sections are defined in Sub-Clause 220.127.116.11 of the General Conditions of Contract as:
“Section” means a part of the Works specified in the Appendix to Tender as a Section (if any).
It does not add much, and disappointingly, there seem to be a lack of guidance regarding Sections. However, Sections allows the Employer to set intermediate milestones as obligations on the Contractor, and culpable delays by the Contractor to meet these milestones will entitle the Employer to deduct delay damages.
There are also some more to Sections than delay damages, which are discussed in the post.
For the purposes of this post, lets assume a fictional Works compromising of "the construction of a two storey building" with a total Time for Completion of 180 days. The Works are divided in to two Sections, "Section 1" comprise of the works of the ground floor and "Section 2" compromise of the works of the first floor. The value of the Works of Section 1 is 75% of the Contract Amount. The total amount of Retention Money of the Works is $20,000
The first piece of information in the definition of Sections in the FIDIC Redbook 99 is that Sections are defined in the Appendix to Tender. The guidance for preparing the Particular Conditions provides the following table to fill in the Appendix to Tender in case the Works are divided into Sections.
Definition of Sections
|Description (Sub-Clause 18.104.22.168)||Time for Completion (Sub-Clause 22.214.171.124)||Delay Damages (Sub-Clause 8.7)|
|Section Description||TFC for each Section||Delays Damages for each Section|
So building upon our fictional project, the Sections of the Works are:
Section 1 consisting of the Works of the First Floor, 130 days TFC
Section 2 consisting of the Works of the Ground Floor, 50 days TFC
Delay damages may also be defined, but it is beyond the scope of this article.
Consequences of Sections
Having several Time for Completions for the Works allows the Employer deduct delay damages for the Contractor's failure to complete the Section within the TFC. Similarly, the Employer may extend the TFC for each Section individually.
Upon the completion of a Section and its test on completion, and the Engineer issues a taking over certificate for that Section of the Works. The defects liability period will start from the date stated in the taking over. This has some implications on the payment of the Retention Money.
Retention Money relating to Sections of the Works
Normally, the Retention Money under the un-amended FIDIC Redbook 99 is released as follows:
- first half of the retention money is certified to the Contractor when the Taking-Over Certificate is issued for the Works, and
- the second half of the retention money is certified to the Contractor promptly after the expiry date of the Defects Notification Period.
However in case of having Sections, the matter is slightly more complicated. In short, the certification of Retention Money in case of taking over Sections is as follows:
- After a Taking-Over Certificate is issued for a Section (or a part) of the Works, a proportion of the Retention Money equal to two-fifths (40%) of the proportion of that Section to the estimated final Contract price is certified to the Contractor.
- After the expiry of the Defects Notification Period of the Section of the Works, another proportion of the Retention Money equal to two-fifths (40%) of the proportion of that Section to the estimated final Contract price is certified to the Contractor.
- After the expiry of the latest of the Defects Notification Periods, the remaining balance of the Retention money is certified to the Contractor.
To further explain, using the example project above (in which the Taking-Over of both Sections are assumed to be on time):
After issuing of Taking-Over Certificate for each Section of the Works:
- 40% of the proportion calculated by dividing the estimated contract value of the Section or Part by the estimated final Contract Price of the Retention Money
- After Taking-Over of Section 1 of the Works = 40% * 75% * 20,000 = $6,000
- After Taking-Over of Section 2 of the Works = 40% * 25% * 20,000 = $2,000
- Retention Money balance = $12,000 (60%)
After expiry of the Defects Notification Period of each Section of the Works:
- 40% of the proportion calculated by dividing the estimated contract value of the Section or Part by the estimated final Contract Price of the second half of the Retention Money
- After expiry of Defects Notification Period of Section 1 = 40% * 75% * 20,000 = $6,000
- After expiry of Defects Notification Period of Section 2 = 40% * 25% * 20,000 = $2,000
- Retention Money balance = $4,000 (20%)
After expiry of the latest Defects Notification Period of Section 1 of the Works:
- The balance of the Retention Money is promptly released to the Contractor = $4,000
The content of this commentary is not legal advice. You should always consult a suitably qualified professional regarding any particular legal issue. This blog and all its articles (including this article) shall not be construed in an way as legal or professional advise.