Delayed Contractor's Payments Under FIDIC Redbook 99contracts
Most contractors will suffer the inevitable event of having their payments delayed, as employers look to hang on to their monies for as long as possible. They may want to benefit from additional interest, or just want to take more value from the contractor against what they pay them.
At the same time, contractors usually refrain from using their contractual rights in pursuing their delayed payments for reasons like a show of good will and perhaps a more strategic decision to build better relationship with the employer.
However, delayed payments are a common cause of disputes in construction industry, it may cause issues such as:
- Creates financial hardship
- Creates a negative chain effect on other parties
- Creates cash-flow problems
- Delays completion of projects
In any case, FIDIC 99 Red Book discusses this issue in Sub-Clause 14.8 [Delayed Payments], which states:
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 issued.
Unless otherwise stated in the Particular Conditions, these financing charges shall be calculated at the annual rate of three percentage points above the discount rate of the central bank in the country of the currency of payment, and shall be paid in such currency.
The Contractor shall be entitled to this payment without formal notice or certification, and without prejudice to any other right or remedy.?
It is clear that the contractor is entitled to an additional financial charge without any formal notice or certification. However, such amounts are usually of small magnitude, but in my humble opinion, sending a notice of claim pursuant to S-C 14.7 and 20.1 by the contractor serve as a strong reminder to the employer that the contractor is awaiting his payment, and that the contractor knows his contractual rights and is not willing to waiver them. Failure of the employer to comply may give rise to several complications including:
- EOT claim by the contractor
- Additional cost claim by the contractor
- Suspension/reduction in rate of progress of works by the contractor
- Termination of the contract by the contractor
Clause 16 allows the contractor to reduce rate of work, suspend or even terminate the contract. After all, why would a contractor proceed with a contract if he isn?t paid?
Therefore, a notice of claim for the minor financial charges as soon as the payment is due should have a profound effect, since a prudent employer could anticipate that the contractor may suspend the works later on, or if the delays are maximal, the contractor could terminate the contract after sending a 14 days prior notice.
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