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2013-12-29 01:27:18

EPC Contract - Delay in Certification, Approval, Payments by Lead Contractor

We have awarded a EPC Contract for carrying out MEP Works by a lead EPC contractor, based on the s/c agreement there are milestones penalties applicable for each individual building ( There are 27 buildings) which is specified in a Annexure. The Annexure has Installation Start date and End date for each building.

The lead contractor has appointed it's own internal consultant team for reviewing the Heat laod calculations, U Values and other design parameters and shop drawings & material submittal, under the pretext of approving the internal engineering team of the lead contractor is delaying the approval process and asking to resubmit again and again.

The main reason for delaying the approval process is the lead contractor has delayed in handing over site and there is no site access provided as per the milestones specified in Annexure which has a penalty applciable for each building.

The Design concept is also being revised as 85 % of time has elapses, there is a condition precedent that the lead contractor has to issue Architectural drawings and design parameters within 2 months of signing of subcontrcat agreement for all buildings, as of date there is a delay in the submission of the same by lead contractor for each building.

The Lead contrcator is also at default in certifying the payment certificates and release of payments as per contract payments terms which is stipulated as below in Special conditions of Contract:

Payment Mielstones : 1. 5 % of subcontract price upon approval of agreed design and fabrication drawings

2. 60% of subcontract price upon supply and receipt of materials under subcontract items at site with evidence of the same

3. 25 % of subcontract price on successfull installation of s/c items at site

4. 5% of subcontract price on successfull commissioning of s/c items at site

5. 5% of subcontract price o upon receipt of final documentation such as all data, drawings, documentation and operating manuals and maintenance manuals.

Payments for progress invoice to be made through L/C which shall be done within 50 days from date of approval of invoice and the invocie should be certified within 7 days of submission.

UP TO 6 month from Jan to June there was a delay in certification and payments , From July to November the invocies are not certified and returned back in november under the pretext that there is a revised invoicing procedure to be implemented and all the incoices from july to novemeber to be revised as per new format which they are stating is in line with the payment milestones as listed above and the new invoicing procedure is asking for a item by item pricing and weighatge for every component of equipments or material to be supplied and installed as Ïtem rate contract".

The invocing procedure and progress measurement was approved by lead contractor based on which the payments and certifications were made earlier, now after 85 % time has elapsed is the lead contractor fair enough to reject , returned back the invoices .

As per contrcat terms and conditions there is no interest applicable for delayed payments, nor any prolongation cost for extension, moreover the contract stipulates that the s/c should ensure that it carrys out work where work front is available and it will not have full access to all buildings at all times.

There is no contratcual relationship between the client and the subcontractor as per special conditions of contract.

There are severla notifications send to the lead contractor for dleayed certifications and payments, delay in site access, ammending the milestones dates, delay in approval of drawings, design calculations, material approvals, variations approvals based on new design concept as well as a detailed cause and effect study as per SCL Protocols has being submitted.

Under the light of such circumsatnces as listed above , please provide valuable advice and comments of the following

1. Payments

2. Variations

3. EOT

4. LD's

5. Prolongation Cost

6. Suspension

7. Termination

 •  World Commerce & Contracting  •   2014-01-03 08:20:08
I regret this situation is probably much too complicated for anyone to offer meaningful advice on all the issues you raise. Answeres would also of course depend on detailed understanding of the various clauses you list.

Overall, it certainly appears as though the prime contractor is trying to avoid responsibilities and potentially seeking to allocate some of the consequences to its sub-contractors. It is clearly imperative that you undertake all actions under the contract and maintain full and proper records of these. It sounds as though you may want to threaten a delay or even declare default by the contractor, in order to force some action by them. In general, you should be extremely cautious regarding termination; often such action will backfire and certainly it is very much a last resort.

 •  Bluehaus Group  •   2014-01-06 06:04:39
I agree with the above advise. The best thing you can do right now is to ensure that all your correspondence and notifications are fully documented and with acknowledgement receipts by the Lead Contractor. Also ensure that you are complying with your obligations as per the Contract as far as that is possible due to non-payment. You can also keep on sending them delay notifications clearly emphasizing the delays from their side and any circusmtances brought by those delays will be their responsibility.

Client Relationship - you may not have a direct relationship with the Client but have you been approved as S/C by them? Because if you are, you can escalate your issues to them for obvious reasons.

 •  Mr  •   2014-06-05 09:49:06
It would be great if we could get an update on the progress and outcome of the issues raised in your post. There are many issues raised and some good advice has already been dispensed.

Without knowing the precise wording of the contract, the law and jurisdiction, it is difficult if not impossible to offer considered advice. For the purpose of formulating a reply, I will assume the law, jurisdiction and location is England.

1. PAYMENT: 'As per the contract terms and conditions there is no interest applicable for the delayed payments"

The expressed terms within the contract are at odds with the implied terms. That is to say, the contract terms relating to late payment interest is void. The "Late Payment of Commercial Debts (Interest) Act 1998" supplants the contract terms, to that end you can charge the prime contractor 8% above the BOE (Bank of England) base rate i.e. 8.5% per annum. If you have not raised invoices due to not authorisation but can prove the Prime Contractor would have cause to have paid, your business may also be entitled to late payment for these elements also.

Milestone payments; did the Prime Contractor or the Subcontractor prepare the schedule of milestone payment? It would be good to understand the philosophy and intent behind each.

Non-payment / late payment to the mentioned extent is a material breach by the Prime Contractor and as such, expressed in the contract or not is grounds for termination by Subcontractor. You should review the "Housing Grants, Construction and Regeneration Act 1996". It may not be advisable to terminate, however it should be considered if other remedies fail, in the first instance consider adjudication for interim relief. Timing it critical and should be done when it is most advantageous to the subcontractor.

2. VARIATIONS: It would be reasonable to assume that the main contract or subcontract contains a variation clause, you should be able to submit variation requests. You should make yourself fully aware of both subcontract and main contract terms, as there may be a time bar which excludes your company after a defined period of time. It is important that your business is firm in its stance and seeks written agreement prior to instigating changes. You will need to record all changes regardless of the perceived cost impact, it will add to the weight of your other claims.

Milestone payment schedule: update the payment schedule to include all additional variations (agreed or not).

3. EOT: Get your planner involved and issue a revised schedule / plan on a weekly basis for challenge and consideration by the Prime Contractor. Submit a variation with an estimated cost for the delay and update it weekly, but most critically this is to ensure your business does not get hit with damages.

4. LDs: See 2 & 4

5. Prolongation Costs: Firstly you will not be entitled to prolongation costs (which means proving a breach by the Prime Contractor) if you can not get an EOT or at least prove your entitlement to one.

What is allowable in terms of monies will be defined within the contract. It maybe that your business can go for both direct and indirect costs.

6. Suspension & 7 Termination: It is always easy to see only one side of the story, and before doing either of these your business should consider the weight of argument from the Prime Contractor.

My suggestion would be to escalated the issues to a project director or such like person with in the Prime Contractor and client organisation, be honest and explain your situation and the impact it is having on your business and it ability to deliver on this project and others. If you get no joy, your business needs to go trough the ADR or litigation route, and this is why your record keeping is extremely important.

What about collateral warrantees for the plant and equipment provided,
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