1. Reply - Yes It happens when contractor's payment is to be made based on milestone basis and where delay from contractor's side concurrently delay from employer's side also during contract administration stage both parities contracts manager and PM don't sit to-gather to establish the delay attributed to which party, on other hand employer want the work to be completed with in laid completion dates. with found delay employ deploys third party manpower to complete work and adjust this cost from Contractor's Accounts under Employer's Claims.
2. Reply - can be replied based on type of contract is formed.
You can reach me offline over the email: firstname.lastname@example.org (Rajit Shah - Founder and Director, RPCPL)
Just in case you still need a few other pointers, consider the following:
One thing sales people understand is numbers so approach it from an accounting point of view. Since the contract is void, consider discussing the fact they will not be able to meet all the GAAP principles for revenue recognition and if your accounts folk are diligent they probably will back you up ( but run this by them - accounts - first. Companies interpret or apply GAAP revenue recognition differently ).
Since Company X no longer exists and as such has no contracting capacity, it cant assign/novate the contract which will impact collectability should the New Company choose not to follow through with what it has implied it would do re: payment
If you are required to create a new agreement using the same or similar terms and conditions, consider preparing a risk assessment analysis of the contract and let the stakeholders approve the risk they are taking on by utilizing the same Ts & Cs so everyone is on the same page. Whatever discussions or approvals were obtained for the former Company should not apply to the New Company.
An interesting conundrum. Let us assume that the change order process has not been defined in sufficient detail to address this situation precisely.
It would appear that there is scope for negotiation of a mutually acceptable outcome. The most important thing is to discuss the issue openly, as it is unlikely that there is a hard and fast rule to fall back on.
This issue highlights the importance of post-award governance and relationship management.
The issue here is more of a matter of fact. Do you agree with the opinion of owner that the variation requested by you earlier is actually within the original scope of contract? If so, the matter ends there. Even if you do not agree but contract is clear that the so called variation requested is actually part of original scope, owner can always withdraw the approval (of variation) as the 'variation' was non-existent from beginning.
However if the contract is not clear and there is disagreement whether or not the work is a variation, then it boils down to negotiation on the scope of variation and its implications.
As Nicholas indicated in his reply, this issue highlights the need for clarity in scope of work (pre-contract stage) and post-award contract governance.
• Nigeria LNG Limited
I agree with Nicholas and the other contributor.
If the Scope considered for variation had already been captured in the Contract it is clear there is no variation requirement. The issue if all about whether the scope in the contract was clear in the first place or the post-award contract governance was properly carried out.
• Kuwait Gulf Oil Company
A variation order is to do change in time or scope frame and since the subject variation is already included in the scope then u can cancel the variation and in general you are only obligated by the variations after signing of both parties .
Thank you for your post. We have reached out to colleagues in the construction industry and I hope that theresponse below provides you with some interesting insight.
Kind regards, Sally
This is an area of law which is still widely debated by academics and practitioners and the correct approach appears to be currently undecided.
Firstly, the methods for assessing extensions of time and the application of liquidated damages should be sought from the express contractual provisions at first instance. However, if the contractual provisions are silent then below are two alternative viewpoints on relief/damages arising from concurrent delay that may be considered:
Apportionment method - The aggregate position which arises from contractor delay event(s) and relevant event(s) which delay the Contractor would be assessed. The contract completion date would be extended by an Extension of Time and the remaining delay period, if any, liquidated damages would be applied. This approach was proposed in the case of City Inn Ltd v Shepherd Construction Ltd , however, this is not considered to be the current approach by the courts of England & Wales.
Non-apportionment method - The current approach considered to be adopted by the courts in England & Wales, as stated in Henry Boot Construction v Malmaison Hotel (1999) and approved in further caselaw, is that an occurrence of concurrent delay would entitle the contractor to an extension of time i.e. no liquidated damages are applied. A reason for the current approach is the application of the prevention principle whereby a party, usually the Employer, cannot benefit under a contract through delay events it has caused to the contract completion date.
Further recent caselaw regarding Concurrent Delay can be found within the case transcript for Saga Cruises BDF Ltd & Anor v Fincantieri SPA  EWHC 1875 (Comm) (29 July 2016).
As Sally mentioned below, construction industry is still grappling with these questions. However from my own experience in such situations with Indian clients, I have been able to apply the apportionment method. On one side, we had to pay LD for the portion of the delay attributed to us while on the other hand, for the balance duration of delay, client issued extension of time and also compensation for the extension of time.
We cannot really generalize these and will depend upon the facts of individual cases. Moreover the outcome I mentioned above was the result of negotiation between us and client. The outcome would have been different if the matter was escalated to arbitration/court of law.
I asked one of our senior members in Kazakhstan for their advice. They wrote as follows:
First few points are directly related to the forum question, the next few are general comments.
• For Kazakhstan, it may help to tie a consumer price index (CPI) to the hourly personnel rates due to high annual inflation rates in the Country. In Kazakhstan, the CPI measures changes in the prices paid by consumers for a basket of goods and services.
• Adding provisions that allow for negotiation if the index moves drastically (a certain % threshold) from year-to-year would also be helpful to protect both parties if an inflationary/deflationary spike occurs.
• Note that strict application of an inflationary adjustment clause may not allow for the appropriate wage adjustment due to supply/demand economics, so a general understanding of the supply/demand picture can help to address the appropriate wage adjustments required.
• Methods to address currency fluctuation risk would also have to be considered in the Contract and the corresponding method for rate adjustment as a result (e.g. February 2014 devaluation of Kazakhstan currency by ~19%).
• If the Contractor is heavily dependent on you for revenue, it would be wise to monitor the Contractor's audited financials through the duration of the Contract to see if Contractor is being sufficiently compensated. This would allow for more dialogue and understanding of the true costs for a Contractor to operate in Kazakhstan and adjustments can be negotiated.
Thank you very much for your reply!!!
• VVB Engineering
CPI (Consumer Price Index) or other such like index is a reasonable and common way to approach fluctuation on labour costs. Most escalation clauses I am familiar with are based in western europe (UK, Germany, Holland, Ireland), as a consequence the CPI is relatively stable and labour rates are reviewed annually. If there are big fluctuations Tim rightly mentioned considering the timing and frequency of the review to ensure losses are not made by the contractor. There are other mechanisms to deal with escalation (i) increases in line with working rule agreements or collective bargaining agreements (if any), and (ii) escalation formula. The more switched on clients will be weary and try to ensure labour escalations are not just another revenue stream for the contractor, thus they will seek to link the pay to an actual pay to man.
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,
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
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.
Hi Ashley, this service is exactly what my company, ABiz Corporation, does, among other things. Speaking from experience based on our client base, what works well is when the outsourced team understands the goals and objectives of the company and of the function, as well as good integration with the in-house team. In the beginning it is important to have a complete knowledge transfer of the outsourced function, a small period of overlap and then regular checkpoints set up after transition is complete. If the outsourced support consists of simply a task, the knowledge transfer is relatively short. If it consists of the full function, knowledge transfer would be a bit longer. Depending on the number of activities and types of contracts, the service may or may not come with technology, but it also depends on whether the client company has their own technology. Feel free to contact me if you would like to discuss further or compare notes.
Hi Mohammad, we have studied quite a few systems recently as part of our services to clients. The only software product that I have come across specifically focused on the oil and gas industry is Aveva ProCon. This is by no way an endorsement for this product. In fact, we have not had the opportunity to do an in depth assessment of the tool, but we have reviewed it at a very high level. As you go through your identification of different tools. trade market
Thanks, Phyllis, I am glad that you found the webinar helpful; it was certainly a great session to moderate, with some really good questions at the end. I agree - we often don't pay enough attention to the learning style and the impact that has on how information is absorbed. Paul Branch