Clause 14

Written by Victoria Tyson

Summary
Clause 14 deals with all aspects of payment. It also
deals with the Statement at Completion, the Final
Payment Certificate, Discharge and Cessation of the
Employer's Liability.

The Clause provides that this is a re-measurement

contract and that the quantities stated in the Bill of
Quantities are estimated. There is provision for an
advance payment to be made to the Contract.
Applications for Interim Payment Certificates are
made monthly and these must be supported by
documents and a report on progress. Unless the
amount assessed is less than the minimum amount set
out in the Appendix to Tender, the Engineer has 28
days to issue an Interim Payment Certificate, which
states the amount the Engineer fairly determines to
Victoria Tyson
be due. The Employer thereafter has an obligation to
Partner
pay the amount certified, in the currencies named in
the Appendix to Tender. In the event that payment is T +44 (0)20 3755 5733
not received the Contractor can claim financing M +44 (0)7546 695 614
charges compounded monthly.
victoria.tyson@howardkennedy.com
Fifty per cent of the retention monies are paid when
the Taking-Over Certificate is issued. Where there are
Sections then a proportion is paid. The balance of
retention is paid on the expiry of the latest Defects Origin of clause
Notification Period or, where there are Sections, a
proportion at the expiry of the Defects Notification Sub-Clauses 14.1(c) and 14.1(d) of the FIDIC Red Book
Period for that Section. Within 84 days of receiving the 1999 are based on Clause 55 and Sub-Clause 57.2 of
Taking-Over Certificate the Contractor submits a the FIDIC Red Book 4th edition respectively. Sub-Clause
Statement at Completion. This must include an 14.15 is based on Clause 72 of the FIDIC Red Book 4th
estimate of all sums which the Contractor considers edition.
due.
Sub-Clauses 14.3 and 14.5 - 14.14 of the FIDIC Red
Within 56 days of receiving a Performance Certificate, Book 1999 have their origins in Clause 60 of the FIDIC
the Contractor submits a Final Statement. The Red Book 4th edition. There was no similar provision in
Contractor must also submit with the Final Statement the FIDIC 3rd edition and it was suggested in that
a written discharge which confirms that the total of edition that detailed provisions relating to payment
the Final Statement represents full and final should be drafted by the Parties.
settlement of all moneys due. The Engineer then
issues to the Employer a Final Payment Certificate. Sub-Clauses 14.2 and 14.4 of the FIDIC Red Book 1999
are new. However, an Advance Payment was one of
The Contract states that the Employer shall have no
the suggested Conditions of Particular Application
liability to the Contractor except to the extent that the
within the FIDIC Red Book 4th edition.
Contractor has included an amount expressly for that
matter in the Final Statement and also the Statement
at Completion.

1
Cross-references Conditions would be inappropriate if significant design
input by the Contractor is required. In those cases,
Reference to Clause 14 is found in the following FIDIC's other forms may be more appropriate: see
clauses: FIDIC's Conditions of Contract for Plant and Design-
Build (the FIDIC Yellow Book 1999) or Conditions of
Sub-Clause 1.1.4.2 Definitions – Contract Price
Contract for EPC/Turnkey Projects (the FIDIC Silver
Sub-Clause 1.1.4.4 Definitions – Final Payment Book 1999). For a lump sum contract, the tender
Certificate documents should include a schedule of payments
(see Sub-Clause 14.4), and any drawings required for
Sub-Clause 1.1.4.5 Definitions – Final Statement construction may be specified as being Contractor's
Documents. The Specification should describe the
Sub-Clause 1.1.4.7 Definitions – Interim Payment
procedures under which the Contractor submits these
Certificate
Documents for the Engineer to approve. The Guidance
Sub-Clause 1.1.4.9 Definitions – Payment gives the following example clause for a lump sum
Certificate contract:

Sub-Clause 1.1.4.11 Definitions – Retention Money • "Delete Clause 12 [Measurement and Evaluation].

Sub-Clause 1.1.4.12 Definitions – Statement • Delete the last sentence of Sub-Clause 13.3 and
substitute: "Upon instructing or approving a
Sub-Clause 2.4 Employer's Financial Variation, the Engineer shall proceed in accordance
Arrangements with Sub-Clause 3.5 to agree or determine
Sub-Clause 13.6 Daywork adjustments to the Contract Price and to the
schedule of payments under Sub-Clause 14.4. These
Sub-Clause 16.1 Contractor's Entitlement to adjustments shall include reasonable profit, and
Suspend Work shall take account of the Contractor's submissions
under Sub-Clause 13.2 if applicable."
Sub-Clause 16.2 Termination by Contractor
• Delete sub-paragraph (a) of Sub-Clause 14.1 and
Sub-Clause 18.2 Insurance for Works and substitute: "(a) the Contract Price shall be the lump
Contractor's Equipment sum Accepted Contract Amount and be subject to
Sub-Clause 20.2 Appointment of the Dispute adjustments in accordance with the Contract;"
Adjudication Board Unless otherwise provided in the Particular
Clause 6 Payment – of the General Conditions, the Contract Price is agreed and
Conditions of Dispute determined in accordance with the measurement
Adjudication Agreement provisions in Sub-Clause 12.3 [Evaluation] and is
subject to further adjustment (primarily under Clause
13 [Variations & Adjustments]) as the Contract
Sub-Clause 14.1 – Contract Price proceeds.
Sub-Clause 14.1(a) states that this Contract is not a
The Contract Price is defined at Sub-Clause 1.1.4.2 to
lump sum contract but a measurement contract. The
be "the price defined in Sub-Clause 14.1 [The Contract
Guidance for the Preparation of Particular Conditions
Price], and includes adjustments in accordance with
states that lump sum contracts may be suitable if the
the Contract". The Contract Price is expressly subject
tender documents include details which are
to adjustments in accordance with the Contract.
sufficiently complete for construction and for
Primarily, such adjustments will be found in Clause 13
Variations to be unlikely. From the information
[Variations and Adjustments] but will also include
supplied in the tender documents, the Contractor can
automatic changes in the quantities, i.e. "automatic
prepare any other details necessary, and construct the
variations" where a change in quantity is simply due to
Works, without having to refer back to the Engineer
the inaccuracy of the Bill of Quantities and for which
for clarification or further information. Further design
no Engineer's Instruction is necessary. Therefore, the
by the Contractor (under subparagraphs (a) to (d) of
Contract Price is not fixed. Some commentators have
Sub-Clause 4.1) is not precluded. However, these
questioned whether damages arising from claims for

2
breach of contract should properly be included in the documents, which the Contractor will be unable to
Contract Price. FIDIC Contracts: Law and Practice1 prepare).
asserts that this has implications for both security and
tax payable on the Contract Price, as in some legal If exemption is not then granted, the customs duties
jurisdictions tax is not payable on awards for damages payable and paid shall be reimbursed by the Employer.
or settlement of proceedings commenced. All imported Goods, which are not incorporated in or
th
In the FIDIC Red Book 4 edition, Contract Price was expended in connection with the Works, shall be
defined as the sum stated in the Letter of Acceptance. exported on completion of the Contract. If not
In this edition it is the Accepted Contract Amount exported, the Goods will be assessed for duties as
which is defined by reference to the amount accepted applicable to the Goods involved in accordance with
in the Letter of Acceptance – see Sub-Clause 1.1.4.1. the Laws of the Country.
The Accepted Contract Amount must be distinguished However, exemption may not be available for:
from the Contract Price. The Accepted Contract
Amount is fixed, but the Contract Price will change as (a) Goods which are similar to those locally produced,
a result of Variations and other adjustments. unless they are not available in sufficient quantities
or are of a different standard to that which is
In the FIDIC Red Book 1999, the Contract Price is necessary for the Works; and
agreed and determined in accordance with the
measurement provisions in Sub-Clause 12.3. Sub- (b) any element of duty or tax inherent in the price of
Clause 12.3 requires the Engineer to agree or goods or services procured in the Country, which
determine the Contract Price in accordance with Sub- shall be deemed to be included in the Accepted
Clause 3.5 [Determinations] by evaluating each item of Contract Amount.
work, applying the measurement agreed or
determined in accordance with Sub-Clauses 12.1 and Port dues, quay dues and, except as set out above, any
12.2 and the appropriate rate or price for the item. element of tax or duty inherent in the price of goods or
services shall be deemed to be included in the
Sub-Clause 14.1(b) provides that the Contractor is Accepted Contract Amount"
obliged to bear the costs of all taxes, duties and fees.
This is repeated in Sub-Clause 1.13 [Compliance with The Guidance for the Preparation of Particular
Laws]. Unless otherwise stated in the Particular Conditions provides the following example clause
Conditions time and costs are recoverable only to the where the Contractor is to be exempt from paying
extent they amount to changes in legislation under taxes:
Sub-Clause 13.7. The Contractor is obliged to give "Expatriate (foreign) personnel shall not be liable for
notice of such. income tax levied in the Country on earnings paid in
The Guidance for the Preparation of Particular any foreign currency, or for income tax levied on
Conditions provides the following example clause subsistence, rentals and similar services directly
where the Contractor is to be exempt from paying furnished by the Contractor to Contractor's Personnel,
duties: or for allowances in lieu. If any Contractor's Personnel
have part of their earnings paid in the Country in a
"All Goods imported by the Contractor into the Country foreign currency, they may export (after the conclusion
shall be exempt from customs and other import duties, of their term of service on the Works) any balance
if the Employer's prior written approval is obtained for remaining of their earnings paid in foreign currencies.
import. The Employer shall endorse the necessary
exemption documents prepared by the Contractor for The Employer shall seek exemption for the purposes of
presentation in order to clear the Goods through this Sub-Clause. If it is not granted, the relevant taxes
Customs, and shall also provide the following paid shall be reimbursed by the Employer".
exemption documents: (describe the necessary Sub-Clause 14.1(c) states that the Bill of Quantities
and other Schedules provide only estimates of the

1 FIDIC Contracts: Law and Practice by Ellis Baker, Ben Mellors,

paragraph 6.17.

3
quantities of the Works the Contractor is required to Contract". Sanjay Kishan Kaul, J found that it was an
execute, and for the purpose of Clause 12 ordinary increase in quantities to be paid at the
[Measurement and Evaluation] unless otherwise contract rate and not as a Variation. The decision was
stated in the Particular Conditions. As in Clause 55 of appealed by the Highways Authority in National
the FIDIC Red Book 4th edition the quantities are not Highways Authority of India v Som Datt Builders - NCC
to be taken as the actual and correct quantities – and - NEC (JV & Ors) (17 November 2009)2 . The geogrid /
this confirms that this Contract is intended to be re- geotextile material as originally estimated in the Bill of
measurement. However, if the final measurement Quantities had been exceeded by nearly three times.
results have changed by more than 10% (i.e less than There had been no instruction from the Engineer. The
90%, or more than 110%), of the quantity stated in the Highways Authority considered that a Variation
Bill of Quantities included in the Contract, the criteria existed and that as the actual quantities had exceeded
in Sub-Clause 12.3(a)(i) is satisfied and either Party the tolerance limits set out in the Contract, the
should consider whether the criteria in Sub-Clause Engineer was entitled to seek a renegotiation of the
12.3 paragraphs (a)(ii) to (iv) have also been satisfied, rate for the additional quantities. Som Datt disagreed
in which case a new rate or price will be appropriate. that there had been a Variation and that any
Therefore, a Contractor might argue for a new rate or renegotiation was required. The Court found for the
price where the Bill of Quantities is inaccurate, and Highways Authority and overturned the earlier
the Engineer may exercise his discretion in decision.
determining the rate or price of an item. Errors in the
Bill of Quantities will be automatically corrected in the Note: there are also various cases in the High Court of
measurement and valuation process. Employers must Delhi considering whether a Contractor was entitled
always perform a mathematical check of the prices in to a price adjustment on items of work referred to in
the tender to ensure that "errors" have not crept into the Bill of Quantities under Sub-Clauses 60.1(d) and
the Bill of Quantities in order to obtain a more Clause 70 of the FIDIC Red Book 4th edition. See for
competitive price. It should be made clear to all example, National Highways Authority of India v
tenderers that other last-minute adjustments in Unitech - NCC Joint Venture (30 August 2010)3 , M/S
tenders to achieve a competitive price, e.g. less 1.5% JSC Centrodostroy v M/S National Highways Authority
or less £100,000 are not acceptable. A formal (5 September 2013)4 , and National Highways
Variation is not required for this process and changes Authority v MS KMC-RK-SD JV (22 October 2013)5 .
made in this way have been given the tag of Sub-Clause 14.1(d) is based on Sub-Clause 57.2 of the
"automatic variation". FIDIC Red Book 4th edition. Under this Sub-Clause the
In National Highways Authority of India v Som Datt Contractor is obliged to provide the Engineer with a
Builders – NCC - NEC (JV & Ors) (29 August 2007) the proposed breakdown of each lump sum price in the
High Court of Delhi considered the FIDIC Red Book 4th Schedules (within 28 days of the Commencement
edition, and the consequences of the quantities of soil Date) unless otherwise stated in the Particular
reinforcing geogrid / geotextile material exceeding Conditions. The breakdown does not bind the
those set out in the Bill of Quantities. The issue was Engineer, who may or may not take it into account
whether this material should be paid at the contract when preparing the Payment Certificates, but he
rates (as asserted by Som Datt) or at a newly would be expected to discuss any queries or changes
negotiated rate (as asserted by the Highways with the Contractor. As with the FIDIC Red Book 4th
Authority). Whilst the case primarily concerned the edition its purpose and effect is to reduce the scope
interpretation of Clause 51 [Alterations, Additions and for argument as to the proportion of items included in
Omissions] reliance was placed on Sub-Clause 55.1 the Schedules as lump sums which should be included
which states, "The quantities set out in the Bill of in each Variation so that the payments reasonably
Quantities are the estimated quantities for the Works, reflect the distribution of the lump sums over the
and they are not to be taken as the actual and correct period of the Contract. The Contractor will wish to be
quantities of the Works to be executed by the
Contractor in fulfilment of his obligations under the

2 FAO(OS) No. 427 of 2007 4 O.M.P. 855/2013

3 FAO(OS) No.338/2010 & CM No.8828/2010. 5 O.M.P. No. 1043/2013

4
paid in full for the item at the earliest possible and enforceable until the advance payment has been
moment. repaid by the Contractor as indicated in the Payment
Certificates. The ease of enforceability of guarantees
Sub-Clause 14.2 – Advance Payment varies considerably between jurisdictions and
therefore the choice of law applicable to the
The Employer is obliged to provide an advance guarantee is worth careful consideration. It does not
payment for mobilisation as detailed in the Appendix necessarily need to be the same as the governing law
to Tender, in exchange for the Contractor's guarantee. of the FIDIC contract.
It is expressed either as a sum or as a percentage of
the Accepted Contract Amount. The advance payment If the terms of the guarantee specify an expiry date
is repaid through percentage reductions in Payment (which might be required by the issuing entity), and
Certificates. If the advance payment is not repaid the advance payment has not been repaid 28 days
correctly, the whole of the outstanding balance prior to that expiry date, the Contractor must extend
immediately becomes due and payable by the the validity of the guarantee until the advance
Contractor to the Employer. payment has been repaid. An expiry date should
therefore take into account possible delays to
Advance payment is not a defined term. It is a completion. If the Contractor fails to extend the
payment made by the Employer to the Contractor in guarantee the Employer may call upon it for the
advance of the Works by way of an interest free loan unpaid balance. The 28 days is specified to allow the
to cover the costs of mobilisation. Its purpose is to Employer a reasonable period in which to make the
ease the Contractor's cash flow. Although provision necessary arrangements for the call. The Employer
for advance payment was given at Clause 60 of the may then proceed on the basis that the advance has
Suggested Conditions of Particular Application under been repaid by the guarantor.
the FIDIC Red Book 4th edition, this is a new provision
in the FIDIC Red Book 1999. The Engineer may only issue an Interim Payment
Certificate for the first instalment after:
The total advance payment (expressed either as a sum
or as a percentage of the Accepted Contract Amount), • he receives a Statement (plus supporting
the number and timing of instalments (if more than documentation) from the Contractor under Sub-
one), and the applicable currencies and proportions, Clause 14.3 [Application for Interim Payment
must be stated in the Appendix to Tender. Certificates] detailing the amount which the
Contractor considers himself to be entitled; and
If the total advance payment is not specified in the
Appendix to Tender this Sub-Clause does not apply, • the Employer receives (i) the Performance Security
but if the Contractor is not to receive advance in accordance with Sub-Clause 4.2 [Performance
payment it is good practice to strike through this Security] and (ii) the guarantee in the amounts and
clause and insert "not applicable" in the relevant part currencies equal to the advance payment.
of the Particular Conditions.
If, following receipt of this information, the Engineer
In exchange for the advance payment the Contractor fails to issue the Interim Payment Certificate, the
must give a guarantee. FIDIC gives an example form at provisions of Clause 16 [Suspension and Termination
Annex E. The guarantee must be issued by an entity by Contractor] apply.
and from within a jurisdiction approved by the
Sub-Clause 14.7(a) provides for payment of the first
Employer and in the form either annexed to the
instalment of the advance payment on the later of
Particular Conditions or approved by the Employer.
either:
This is a more stringent condition than in the more
recent MPA Harmonised Edition (the FIDIC Pink Book • 42 days after issuing the Letter of Acceptance; or
1999) where the guarantee need only be issued by a
"reputable bank or financial institution" which may be • within 21 days after receiving the documents in
selected by the Contractor. The guarantee should take accordance with Sub-Clause 4.2 [Performance
into account the law by which it will be governed and Security] and Sub-Clause 14.2 [Advance Payment].
be drafted by lawyers familiar with such. The
The Employer will be aware that this payment is to be
Contractor must ensure that the guarantee is valid
made and initiate arrangements for making prompt

5
payment. If the Engineer fails to pay, the provisions of Unlike the FIDIC Red Book 4th edition there is no
Clause 16 [Suspension and Termination by Contractor] express provision for the Statement to be signed by
apply. Delay in payment by the Engineer might delay the Contractor.
mobilisation. If payment is made but mobilisation is
slow the Employer might query the use of the monies. It is prudent for the Contractor to send the Statement
and supporting documents in a way which requires a
If the advance payment has not been repaid prior to receipt, e.g. recorded delivery, because Sub-Clause
the issue of the Taking-Over Certificate for the Works 14.7 requires the Employer to make payment of the
or prior to termination under Clause 15 [Termination sum certified by the Engineer within 56 days from the
by Employer], Clause 16 [Suspension and Termination date the Engineer receives the Statement and
by Contractor] or Clause 19 [Force Majeure] (as the supporting documents.
case may be), the whole of the balance then
outstanding shall immediately become due and The Statement must show "in detail" the amounts to
payable by the Contractor to the Employer. which the Contractor considers himself to be entitled,
and attach all supporting documents including the
report on the progress during this month in
Sub-Clause 14.3 – Application for accordance with Sub-Clause 4.21 [Progress Reports].
Interim Payment Certificates Whilst there may be argument as to whether the
Contractor has shown sufficient detail, as discussed in
The Contractor is obliged to provide the Engineer with the commentary on Sub-Clause 14.7 below, the trigger
copies of a monthly Statement, in an approved form. for payment is the Engineer's receipt of the Statement
This must detail the amounts to which the Contractor and supporting documentation.
considers himself to be entitled, together with
supporting documents including a report on progress. The Statement must include the following items, as
There is no definition of the term "supporting applicable (and expressed in the currencies in which
documentation" and so this may be open to dispute. It the Contract Price is payable) in the precise order
is not clear, for example, whether the supporting listed:
documentation would be considered to be incomplete
if the progress report was included but was not (a) The estimated contract value of the Works
complete. executed and the Contractor's Documents
produced up to the end of the month (including
The Statement must list the estimated contract value Variations but expressly excluding the items
of the Works, together with specified amounts of described below). Sub-Clause 14.4 [Schedule of
money to be added or deducted to the estimated Payments] assists with the calculation of the
contract value (as applicable), in the order prescribed. estimated contract value. There is no requirement
for the Works to have been properly executed or
This Sub-Clause is similar to Sub-Clause 60.1 of the executed in accordance with the Contract. Works
FIDIC Red Book 4th edition. It starts the mechanism for are defined to include both Permanent Works and
payment. It is in the Contractor's interest to comply as Temporary Works. Permanent Works are defined
soon as he is able because as soon as he does the to be "executed by the Contractor under the
sooner he is paid. Contract". Temporary Works are defined as
The Contractor is obliged to submit six copies of a required "for the execution and completion of the
Statement to the Engineer monthly, in a form Permanent Works". Included in the estimated
approved by the Engineer (preferably in advance and contract value will be Works which have been
incorporated into the Contract documents) together measured in accordance with Clause 12
with supporting documents. The timing of the first [Measurement and Evaluation] and an estimate of
Statement for the work executed will depend on the the value of the Works which have not yet been
progress of the Works, and will occur when the net certified by the Engineer. The estimated contract
amount due to be paid exceeds the minimum amount value must be calculated with reference to Sub-
of Interim Payment Certificate stated in the Appendix Clause 14.4 [Schedule of Payments].
to Tender. (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

6
 Changes in Legislation] and Sub-Clause 13.8 will naturally include for inflation as any invoiced cost
[Adjustments for Changes in Cost]. will be the cost current at the date of purchase of the
materials.
(c) Any amount to be deducted for retention,
calculated by applying the percentage of retention The list does not include any amounts to be added for
stated in the Appendix to Tender to the total of the Provisional Sums under Sub-Clause 13.5 or any
above amounts, until the amount retained by the amount to be added and deducted for electricity,
Employer reaches the limit of Retention Money (if water and gas under Sub-Clause 4.19.
any) stated in the Appendix to Tender.
It is not necessary to have a Statement for any
(d) Any amounts to be added and deducted for the amounts which have been certified by the Engineer
advance payment and repayments in accordance but not paid by the Employer. The Contractor should
with Sub-Clause 14.2 [Advance Payment]. confirm the Certificates which have been paid and the
due dates for unpaid Certificates. The Contractor is
(e) Any amounts to be added and deducted for Plant entitled to finance charges for delayed payments
and Materials in accordance with Sub-Clause 14.5 without formal notice or certification under Sub-
[Plant and Materials intended for the Works]. Clause 14.8 [Delayed Payment] but a prudent
(f) Any other additions or deductions which may have Contractor would have a calculation of any finance
become due under the Contract or otherwise, charges due under Sub-Clause 14.3(f).
including those under Clause 20 [Claims, Disputes The Engineer will not certify any payment until the
and Arbitration]. The "or otherwise" has been Employer has received and approved the Performance
added to the corresponding paragraph of the FIDIC Security under Sub-Clause 14.6 [Issues of Interim
Red Book 4th edition. Therefore, claims for breach Payment Certificates]. This approval must not be
of contract, in tort (for example, negligence or unreasonably withheld or delayed under Sub-Clause
misrepresentation), in equity (for example, for 1.3 [Communications].
breach of good faith) should also be detailed in the
Statement, otherwise they may be barred. It would
be incorrect for a Contractor to assume that this Sub-Clause 14.4 – Schedule of
Statement automatically constitutes formal notice Payments
of a claim. Notice of a Contractor's Claim must be
given under Sub-Clause 20.1 describing in detail This Sub-Clause assists with the calculation of the
the event or circumstance giving rise to the claim estimated contract value required under Sub-Clause
rather than merely the amount to which the 14.3(a). If the Contract includes a schedule of
Contractor considers himself entitled under this payments then, unless otherwise stated, the
Sub-Clause. However, if the claim were described instalments listed in the schedule of payments will be
in detail in the Statement, it is at least arguable the estimated contract values. If the Contract does not
that it might constitute satisfactory notice.6 include a schedule of payments, the Contractor shall
submit non-binding estimates of the payments which
(g) The deduction of amounts certified in all previous he expects to become due during each quarterly
Payment Certificates. period.

The stipulated order in which the interim payment A schedule of payments is not compulsory, but it
application is to be calculated is important. For allows the Parties to plan their cash flow (and in that
example, price escalation under Sub-Clause 13.8 is respect is similar to Sub-Clause 14.3 of the FIDIC Red
calculated before the cost of materials on Site as this Book 4th edition).

6 In ICC Case 5634 (1989) - Final Award, in an unspecified location, Quantities.". The arbitral tribunal found that a claim for damages for
the arbitral tribunal considered whether a claim for damages should breach cannot properly be said to be a matter "for which provisions
be valued and certified under Clause 60(5) of the FIDIC 3rd edition (as is made under the Contract". Quite apart from the general context of
amended). Clause 60(2)(b) required the Monthly Statement to set this paragraph, there was a significant contrast between the words
out: "Any amounts to which the Contractor considers himself entitled "under the Contract" and the wider languages used in the opening
in connection with all other matters for which provision is made sentence of Clause 67.
under the Contract including any Temporary Works or Constructional
Plant for which separate amounts are included in the Bills of

7
The schedule of payments is not a defined term. It sum paid in Sub-Clause 14.3(g). There is no possibility
might be based on (i) calendar months, or (ii) on actual of duplication.
progress, i.e. defined milestone events. If the
instalments are not defined by reference to the actual Importantly, this Sub-Clause only applies if the
progress achieved in executing the Works, and if relevant Plant and Materials are listed in the Appendix
actual progress is found to be less than that on which to Tender, where there is no schedule of payments to
this schedule of payments was based, then the specify the instalments in which payment is to be
Engineer may proceed in accordance with Sub-Clause made (i.e. where Sub-Clause 14.4 [Schedule of
3.5 [Determinations] to agree or determine revised Payments] has been deleted), and where it is not
instalments, which will take account of the extent to otherwise excluded in the Contract.
which progress is less than that on which the Plant is defined in Sub-Clause 1.1.5.5 as "the
instalments were previously based. It is only in these apparatus, machinery and vehicles intended to form or
circumstances that the Engineer is permitted to revise forming part of the Permanent Works" and Materials
a payment schedule. at Sub-Clause 1.1.5.3 as "things of all kinds (other than
If the Contract does not include a schedule of Plant) intended to form or forming part of the
payments, the Contractor must submit non-binding Permanent Works, including the supply-only materials
estimates of the payments which he expects to (if any) to be supplied to the Contractor under the
become due during each quarterly period so that the Contract".
Employer may plan his finances accordingly. Unless There are two lists of relevant Plant and Materials – (i)
otherwise stated, this can be assumed to be January- those for payment when they are shipped, and (ii)
March, April-June, July-September and October- those for payment when they are delivered to Site.
December. The first estimate must be submitted 42
days after the Commencement Date. If (i) there are lists of relevant Plant and Materials in
the Appendix to Tender, (ii) the Contractor has kept
There is no prescribed form for the estimate, so if the satisfactory records, and (iii) the Contractor has
Employer requires certain details they should be submitted a Statement of the costs of acquiring and
specified in the Particular Conditions. delivering the Plants and Materials to Site (with
Neither Party is bound by the Contractor's estimates. evidence), then the Engineer may consider any
However, revised estimates are required at quarterly amount to be added or deducted for Plant and
intervals, until the Taking-Over Certificate has been Materials in a Contractor's application for an Interim
issued for the Works. Payment Certificate under Sub-Clause 14.3
[Application for Interim Payment Certificate] and shall
"determine and certify each addition"8. There is no
Sub-Clause 14.5 – Plant and Materials provision for disagreement in compliance with these
Intended for the Works requirements. It is not clear, for example, who
determines whether the Contractor's records are
This Sub-Clause provides for the payment for Plant satisfactory.
and Materials which are not yet fixed, but either en-
route to Site or delivered and properly stored on Site. The amount to be included in the Interim Payment
It therefore takes into account Plant and Materials Certificate must be 80% of the cost of the Plant and
which have been allocated to the Works but are not Materials as determined by the Engineer. This "cost" is
yet incorporated into the Works. This minimises the to include delivery to the Site although, for the items
Contractor's financing costs. The sums previously paid shipped and en-route to the Site (under paragraph
in respect of materials are automatically deducted in (b)), such delivery may not be complete until after the
the Interim Payment Certificate once the materials Payment Certificate has been issued. It must take into
have been incorporated into the Works. Firstly, the account the documents mentioned in this Sub-Clause
value of the materials on Site recorded at Sub-Clause and the contract value of the Plant and Materials. This
14.3(e)7 is reduced by the amount of materials used "contract value" is their value in accordance with the
up. Secondly, the 80% paid is taken into account as a Contract, i.e. the applicable part of the Contract Price

7 Previously considered in Sub-Clause 60.1(c) of the FIDIC Red Book 8 Note: there is no express reference to Sub-Clause 3.5
4th edition [Determinations]

8
as defined in Sub-Clause 14.1(a). The expression Clause 14.5. This is for two reasons. Firstly, the
"contract value" is also used in Sub-Clause 14.3(a), and Contractor is entitled to be paid 80% of "cost", namely
Sub-Clause 14.4. the invoiced cost of the materials. This payment
naturally includes for inflation as the invoiced cost will
The same currencies will apply as those in which be the cost current at the date of the purchase of the
payment will become due when the contract value is materials. Secondly, Sub-Clause 14.3 stipulates the
included Sub-Clause 14.3 [Application for Interim order in which the interim payment application is to
Payment Certificates]. At that time, the Payment be calculated. Escalation is calculated before the cost
Certificate shall include the applicable reduction which of materials on Site is to be claimed.
shall be equivalent to, and in the same currencies and
proportions as, this additional amount for the relevant Sub-Clause 13.8 defines "Pn" as "the adjustment
Plant and Materials. multiplier to be applied to the estimated contract
value in the relevant currency of the work carried out
The Contractor must provide a bank guarantee in a in period "n", this period being a month unless
form and issued by an entity approved by the otherwise stated in the Appendix to Tender". Sub-
Employer in respect of Plant and Materials listed for Clause 14.3(a) also refers to the "estimated contract
payment when shipped. The guarantee should be in value of the Works" and specifically excludes
the amounts and currencies equal to the amount due SubClause 14.3(e). Sub-Clause 14.3(e) is "any amounts
under this Sub-Clause. The guarantee may be in a to be added and deducted for Plant and Materials in
similar form to the form referred to in Sub-Clause 14.2 accordance with Sub-Clause 14.5 [Plant and Materials
[Advance Payment] and must be valid until the Plant intended for the Works]". Therefore, only the value of
and Materials are properly stored on Site and the executed works is to be included in the formula
protected against loss, damage or deterioration. governing Price Adjustment under Sub-Clause 13.8.
Consequently, if any interim payment expressly Price Escalation under Sub-Clause 13.8 will be applied
includes an amount for Plant or Materials which are to the value of the executed works for the relevant
not on Site, payment of such amount may be withheld month (which will include the cost of the incorporated
unless and until the Contractor provides the plant and materials but not the stockpiled plant and
guarantee. materials).
Sub-Clause 1.3 requires approvals to be given in The result is that the Contractor may gain an
writing and not unreasonably withheld. The advantage over the months between the time the
reasonableness of withholding an approval will materials are purchased and the time they are
depend upon the extent to which the guarantee and incorporated into the Works. Of course, if prices fall
the guarantor, which issued it, comply with any during that period, the Employer could benefit. That is
requirements specified in the Particular Conditions. If the way the contract works and should be taken into
the security is "in a similar form to the form referred to account by an Employer deciding whether to operate
in Sub-Clause 14.2", the Employer cannot insist upon a Clause 14.5, just as it will be taken into account by
more onerous form. contractors bidding for work.
The Plant and Materials shipped must "be in
accordance with the Contract" whereas those Sub-Clause 14.6 – Issue of Interim
delivered to Site must "appear to be in accordance Payment Certificates
with the Contract". Plant and Materials shipped and
en-route to the Site do not have to "appear" to be in This Sub-Clause is a development on Sub-Clause 60.2
accordance with the Contract, because they may not and Sub-Clause 60.4 of the FIDIC Red Book 4th edition.
have been inspected by the Engineer. Therefore, the Once (i) the Employer has received and approved the
Contractor has to provide security in the form of a Performance Security, and (ii) the Engineer has
guarantee because the shipped Plant and Materials received a Statement with supporting documentation,
may not become the Employer's property until the the Engineer must issue to the Employer an Interim
time defined in Sub-Clause 7.7 [Ownership of Plant Payment Certificate (with supporting particulars)
and Materials]. stating the amount which the Engineer "fairly
determines" to be due strictly in accordance with the
It is worth noting that escalation is not applied to terms of the Contract. Presumably this may be a
payments for materials brought onto Site under Sub-

9
positive or negative amount. There is no express expected. It is correct that the document which
provision for a copy to be sent to the Contractor, and Honeywell says enclosed the Performance Security
there is no provision for the Engineer to give reasons was not sent until May 2010 and that does not appear
and/or an explanation of any difference between the to have been of concern to Meydan at the time. As set
Interim Payment application (Statement) and the out in Dicey, Morris and Collins at 16-151 it is
Interim Payment Certificate (for example, why any necessary to show either that the evidence of fraud
amount is withheld). Further, there is no provision for was not available to the party alleging it at the time of
the Engineer to be requested to amend his Statement the arbitration hearing or, if perjury is alleged, that the
if, for example, there are errors in it. If the Contractor evidence for it is so strong that it would reasonably be
is not satisfied with the figure he will need to give expected to be decisive at the hearing: see Westacre
notice under Clause 20 [Claim, Disputes and at 309. In the present case the allegation by Meydan
Arbitration]. necessarily amounts to an allegation that the letter
and the attached performance security were forgeries.
Where the Engineer has received the Statement and That was something which Meydan could evidently
supporting documentation, but the Employer has not have asserted in the arbitration at the time and it had
received the Performance Security, the Engineer the evidence available to say that if it had wanted to.
cannot issue the Interim Payment Certificate. It is only The mere assertion by Meydan of alleged perjury
after the Performance Security has been received that based on Mr Sulaiman's evidence did not amount to
the Engineer is obliged to issue an Interim Payment evidence that is so strong that it would reasonably
Certificate. have been expected to have been decisive at the
In the English case of Honeywell International Middle hearing. The evidence that the document was sent
East Ltd v Meydan Group LLC9 Meydan alleged that an and that the attached performance security issued by
arbitration award was procured by perjury because it HSBC was genuine, is very strong evidence that the
was falsely asserted in the arbitration that Honeywell Performance Security was obtained from HSBC and
had provided Meydan with the relevant performance that on that basis it is strong evidence that it would
security under the Contract. Meydan denied that the have been sent to Meydan at the time. Mr Sulaiman
Performance Security was provided, and that until the does not give evidence himself that Meydan did not
Performance Security was provided, nothing was due receive, only that he did not see it and he would have
under the Contract. Under Sub-Clause 14.6 no expected to have seen it. On that basis Mr Jutice
payment could be certified in the absence of Meydan Ramsay did not consider that Meydan could raise a
having received the Performance Security. It was point on fraud or perjury on an application to enforce
alleged that Honeywell made a deliberately false claim which they could have, but did not, raise in the
when it said that the original document had been arbitration. Nor did he consider that the evidence of
delivered to Meydan on 20 May 2010, because it was perjury was so strong that it would reasonably have
not delivered at all. It was also alleged that the been expected to be decisive at the arbitration
document provided referred to Meydan LLC not hearing.
Meydan Group LLC. Mr Justice Ramsay concluded that If the Engineer fails to issue the Interim Payment
Meydan did not participate in the arbitration and Certificate within 28 days of receipt of the Statement
therefore did not raise these matters there (but could and supporting documents (including the progress
have) so that the arbitral tribunal would have been report under Sub-Clause 4.21) the Contractor may give
able to decide whether or not the Performance 21 days' notice and then suspend or reduce the rate of
Security was sent to Meydan. Meydan did not, at the work, under Clause 16 [Suspension and Termination by
relevant times during the performance of the the Contractor]. If the Engineer has still failed to issue
Contract, refuse to make payment to Honeywell on the Interim Payment Certificate after 56 days from
the basis that the Performance Security had not been receipt of the Statement and supporting documents,
provided. Further there do not appear to have been the Contractor may proceed to terminate the Contract
any requests for the Performance Security which, if it (which in effect means 28 days after failure to issue
had not been provided and Meydan had been insisting the Interim Payment Certificate). However,
that it should have been provided, would have been termination is not to be exercised lightly as the

9 [2014] EWHC 1344 (TCC)

10
consequences of doing so wrongly may be severe any previous Payment Certificate. Whilst it could be
under the governing law. It would of course be totally argued that the provision might mean that the Final
unjust for a Contractor to suspend or reduce the Work Payment Certificate could be corrected or modified,
or terminate the Contract for lack of an Interim such an interpretation would be inconsistent with
Payment Certificate, where the Employer had not Sub-Clauses 1.1.4.4 [Final Payment Certificate], 14.11
received the Performance Security. [Application for Final Payment Certificate] and 14.13
[Issue of Final Payment Certificate].
If the Employer has received the Performance
Certificate, an Interim Payment Certificate can only be A Payment Certificate is not deemed to indicate the
withheld in the following circumstances. Engineer's acceptance, approval, consent or
satisfaction. This discourages:
Firstly, where before issuing the Taking-Over
Certificate for the Works, the amount of the Interim • the Employer from withholding an interim
Payment Certificate would be less than the minimum payment if he feels entitled to withhold
amount of Interim Payment Certificates stated in the acceptance, approval, consent or satisfaction; and
Appendix to Tender. Where this happens, the
Engineer must give notice to the Contractor. However, • the Contractor from relying upon certificates or
the Engineer should not endeavour to minimise payments as evidence of acceptance, approval,
certification, and decline to certify whenever he is consent or satisfaction in respect of paid work.
entitled to do so. Withholding of certification may not Once the Interim Payment Certificate is issued the
be to either Party's benefit.
Employer is bound by it. He must make payment in
Secondly, if anything supplied or work done by the full, irrespective of any entitlement to compensation
Contractor is not in accordance with the Contract, the arising from any claim which the Employer may have
cost of rectification or replacement may be withheld against the Contractor. If the Employer considers
until rectification or replacement has been completed. himself entitled to claim against the Contractor, notice
Further, if the Contractor was, or is, failing to perform and particulars must first be submitted under Sub-
any work or obligation in accordance with the Clause 2.5 [Employer's Claims]. The Employer's
Contract, and had been so notified by the Engineer, entitlement is then to be agreed or determined in
the value of this work or obligation may be withheld accordance with Sub-Clause 3.5, and incorporated as a
until the work or obligation has been performed. deduction in a Payment Certificate. This procedure, as
Although the Retention Money retained under Sub- prescribed in Sub-Clause 2.5 (notice, particulars, and
Clause 14.3 [Application for Interim Payment agreement or determination), may require less time
Certificates] may be sufficient to cover the withheld than the 28-day period given in the first paragraph of
amounts, the withholdings described are not limited Sub-Clause 14.6 in which the Engineer is obliged to
to the amount of Retention Money retained. The issue an Interim Payment Certificate.
"contract value" of the item (as described in Sub- As well as the contractual mechanisms, the laws and
Clause 14.3(a)) is typically the value prescribed by the doctrines of the relevant governing law must also be
Contract less the anticipated cost of making it comply considered, and this is particularly so when regarding
with the Contract. If an item of work is so non- the withholding of payment.
compliant that its contract value is zero, there would
typically be no payment due and therefore nothing It should be noted that in UK construction contracts
from which a deduction for withholding may be the terms of the Housing Grants, Construction and
affected. Regeneration Act 1999 (HGCRA) as amended by the
Local Democracy, Economic Development and
The Engineer may correct or modify any Payment Construction Act 2009 (LDEDC) apply. The Act provides
Certificate that should properly be made to any that a party to a UK construction contract may not
previous Payment Certificate. The term "that should withhold payment after the final date for payment of
properly be made" is open to interpretation. Although a sum due under the contract unless he has given an
the title of the Sub-Clause only mentions Interim effective notice of intention to withhold payment.
Certificates, the last sentence of the Sub-Clause
expands the provision to allow the Engineer to make
any correction or modification that should be made to

11
Further, as stated by Robert Knutson10 , established principle of English law that rights of
common law and equitable set-off are not excluded in
"Distinction must be made between the absence of a clear contractual intention otherwise.
contractual rights to withhold sums said to This principle was confirmed in the English case of
be due (as found in this Sub-Clause) and Gilbert-Ash (Northern) Ltd v. Modern Engineering
(Bristol) Ltd11 in particular in the judgments of Lords
rights which exist at Common Law".
Diplock and Salmon and Viscount Dilhorne. The
arbitral tribunal stated that the principles enunciated
He continues,
in Gilbert-Ash are particularly appropriate for
"Rights said to exist at Common Law exist application in an international construction contract of
the present sort, where parties from different
primarily by virtue of the operation of the nationalities operate under a contract in a foreign
doctrines of set-off and abatement. Whilst language. In such circumstances, the arbitral tribunal
the law in this area is probably said it would be most reluctant to conclude that a
unnecessarily complicated, it is certainly party accepts the exclusion or extinction of rights of
true to say that the right to set-off must be set-off - which could involve very substantial sums -
based on anything other than obvious and precise
distinguished from the right to language, putting the parties on clear notice that such
counterclaim if a dispute arises. Set-off an extinction would occur. The Claimant relied on a
(like abatement) is an absolute defence number of different provisions in the Contract as
which exists by virtue of the operation of assertedly excluding any right of set-off by the
the law and could normally be raised very Respondent, in particular, Sub-Clauses 2.5, 14.6, 14.7,
20.4 and 20.6. However, the arbitral tribunal
late in the day … While it may be easy to concluded that for purposes of the summary
assert that contractual mechanisms should application none of these provisions had been shown
work in accordance with their terms and of to satisfy the Gilbert-Ash standard. For example, Sub-
course to be effective should be operated Clause 14.6 permits, but does not require, the
exactly in accordance with the clause in Engineer to adjust what would otherwise be certified
to reflect defects and other contractual failures to
question, the existence of this doctrine perform. Further, Sub-Clause 14.6 does not, expressly
creates a threat, under English law, the or at all, purport to exclude the Employer's rights of
contractual payment provisions will be set-off. Also, Sub-Clause 14.7 provides that the
frustrated in the face of a set-off claim." Employer is required to "pay to the Contractor ... (b)
the amount certified in the Final Payment Certificate
In ICC Case 11813 (2002) - Interim Award, in London, within 56 days after the Engineer receives the [Clause
an arbitral tribunal was asked to consider the FIDIC 14.3] Statement and Supporting documents..."
Yellow Book (Test Edition 1998) and whether the Although there are no express words permitting any
Respondent was entitled to set-off amounts which it set-off, equally there are no words excluding any set-
claimed from the First Claimant against the amounts off. Absent such an exclusion, the arbitral tribunal
of unpaid certified sums due to the First Claimant. The found that the test of Gilbert-Ash was not satisfied
Claimant argued that the Respondent had no right to and there was no basis for concluding that the parties
set-off as a matter of law. Reliance was placed on a meant to exclude common law set-off rights.
number of provisions of the Contract which, it was Therefore, the arbitral tribunal concluded that there
argued, determine that the agreement between the was no express language excluding set-off in the test
Parties was a "pay and then fight" contract and that edition of the FIDIC Yellow Book 1998. Set-off was
any rights of set-off were effectively excluded. It was therefore permitted as a defence to the claim.
accepted by both Parties that English law was the In the case of Sedgman South Africa (Pty) Limited &
proper or substantive law of the Contract. It is a well- Ors v Discovery Copper Botswana (Pty) Limited12, the

10 FIDIC An Analysis of International Construction Contracts, page 67. 12 [2013] QSC 105.
11 1 [1974] AC 689.

12
Supreme Court of Queensland analysed the meaning amounts contained in the Interim Payment
of Sub-Clause 14.6 in an amended FIDIC Silver Book Certificates. The Government argued that the Interim
1999, in particular, the words "Payments due shall not Payment Certificates were not the final agreed and
be withheld …". Sedgman contracted to design and approved payments but remained subject to
construct parts of the Boseto Copper Project in verification and approval by the Government even
Botswana for Discovery Copper. Sedgman applied for though the same were forwarded to it by its
an interim payment of US$20 million. Amended Sub- Consultant. Unfortunately, due to a procedural error
Clause 14.6 required Discovery Copper to give notice in the exhibiting of evidence (i.e. the Interim Payment
within 7 days [rather than the standard 28 days] if Certificates) the court was unable to reach a decision
they disagreed with any items in the application on this matter. However, Judge A.C.Mrima said,
(Statement). Discovery Copper failed to give the notice
and did not contest the application until 14 days later. "I wish to state that even upon the consideration of
Sedgman applied to the Court for payment of the sum the IPCs, this Court would have agreed with the
claimed. The Court dismissed Sedgman's application Plaintiff that the IPCs are not the finally agreed
for payment, holding that there was a genuine dispute payments and are subject to verification by the
and that Sedgman's interpretation of the contract was Plaintiff. (See General Condition 14 of the General
incorrect. The Court held that: "This contract did not Conditions of Contract for Construction as adopted by
entitle the applicants to be paid the sum which they the International Federation of Engineers and
now claim, simply from the fact that there was no Consultants (FIDIC)).".
response to their interim claim within the period of
seven days stipulated in the contract.". McMurdo J Sub-Clause 14.7 – Payment
considered the words "Payments due shall not be
This Sub-Clause has been developed from Sub-Clause
withheld" at Sub-Clause 14.6 and stated that they
60.10 of the FIDIC Red Book 4th edition. Provision is
were "different from saying that a payment will
now expressly made for payment in instalments.
become due if a notice of disagreement is not given"
as Sedgman contended. He said: "The alternative view The first instalment of the advance payment must be
[...] is that it does not make a payment due. Rather, it paid by the Employer within 42 days after issuing the
governs payments which, by the operation of another Letter of Acceptance or within 21 days after receiving
term or terms, have [already] become due.". If the documents in accordance with Sub-Clause 4.2
Sedgman were correct, the operation of the [Performance Security] and Sub-Clause 14.2 [Advance
contractual clauses to determine claims and Variations Payment], whichever is later. When entering into the
could otherwise be displaced by the operation of Sub- Contract, the Employer will typically be able to
Clause 14.6. If the Contractor included a claim in his calculate the amount of this first payment and should
application for payment which was inconsistent with, immediately initiate arrangements for making prompt
for example, a Dispute Adjudication Board's decision, payment.
and the Employer did not notify disagreement, the
outcome would be that Dispute Adjudication Board's The amount certified in each Interim Payment
decision would be displaced. Certificate must be paid by the Employer within 56
days after the Engineer receives the Contractor's
In County Government of Homa Bay v Oasis Group Statement and supporting documents. Arguably, even
International and GA Insurance Limited (2017) 13, if the Engineer does not certify, the time for payment
among other things, the High Court of Kenya at Migori still expires 56 days after receipt of the Contractor's
considered the status of Interim Payment Certificates. Statement and supporting documentation and the
Oasis's claim was mainly based on the fact that works Employer can open himself up to termination if he
were undertaken, and Interim Payment Certificates does not pay. The Employer will have the cash flow
were prepared and approved by the Government's estimate provided by the Contractor under Sub-Clause
consultants who then forwarded them to the 14.4 as a forewarning.
Government for payment, but rather than pay them in
full the Government chose to make part payments
thereof. The claim was for the balances of the

13 CIVIL CASE NO. 13 OF 2015

13
The amount certified in the Final Payment Certificate notice and then suspend or reduce the rate of the
must be paid by the Employer within 56 days after the work under Clause 16 [Suspension and Termination by
Employer receives the Payment Certificate. Contractor]. The Contractor may then proceed to
terminate the Contract if payment is not received
The Employer is obliged to pay these sums without within 42 days of the due date.
any deduction. If the Employer considers himself
entitled to claim against the Contractor, notice and The Parties may agree for different periods for
particulars must first be submitted under Sub-Clause payment to apply. If so, the Guidance for the
2.5 [Employer's Claims], subject to the exceptions Preparation of Particular Conditions provides that the
listed. The Employer's entitlement is then to be agreed Sub-Clause may be amended as follows, "In sub-
or determined, and maybe incorporated as a paragraph (b) of Sub-Clause 14.7, delete '56' and
deduction in the Contract Price and Payment substitute '42'".
Certificates. This procedure may require less time than
the 28 days specified in Sub-Clause 14.6 [Issue of If the country/countries of payment need to be
Interim Payment Certificates]. The clear intention is to specified, details may be included in a Schedule.
ensure that the Contractor is paid whatever is In the case of General Earthmovers Limited v Estate
certified, when it is certified, with disputes to be Management and Business Development Company14,
considered later, i.e. pay now argue later. the High Court of Trinidad and Tobago was asked to
Payment of the amount due in each currency must be consider an application by Estate Management to set
made into the bank account, nominated by the aside a default judgement relating to the non-
Contractor, in the payment country (for this currency payment of two Interim Payment Certificates. Estate
where there is more than one payment country) Management referred to errors in the Interim
specified in the Contract. For each of the currencies of Payment Certificates relating to a reduction in the
payment, a "payment country" may have been scope of works and a lack of agreement in respect of
specified, which might be the country of the currency additional works. Judgement was set aside because
of payment. Only the number of currencies in which there was a realistic prospect of success.
payment is to be made therefore limits the number of In Construction Associates (Pty) Ltd v CS Group of
bank accounts nominated. Alternatively, all payments Companies (Pty) Ltd15 (13 June 2008) the High Court of
may have been specified as being made into the Swaziland was asked to consider non-payment of
Contractor's bank in his country. When pricing their Construction Associates' Final Payment Certificate.
tenders, tenderers will take account of the option to Construction Associates sought summary judgement.
specify a payment country, and of the periods for CS Group argued that: (i) the Parties were obliged to
payment. Longer periods for payment increase the refer the matter to arbitration before referring to a
Contractor's financing costs, so tenderers would wish court of law, (ii) Construction Associates had been
to increase their prices accordingly. overpaid, (iii) Construction Associates had
If payment is delayed the Contractor may be entitled overcharged the Employer in respect of the Bill of
to financing charges under Sub-Clause 14.8 [Delayed Quantities, and (iv) the quality of Construction
Payment] (as well as his entitlement to payment), Associates' workmanship was poor. The court
calculated for a period, which is deemed to commence discussed the following: (i) the architect/Engineer is
on the date for payment specified in Sub-Clause 14.7, the agent of the Employer when issuing the
irrespective of the date on which any Interim Payment certificates, (ii) the Employer is bound by the acts of
Certificate is issued. For example, if the Certificate is a his agent, (iii) the Employer cannot dispute the validity
week late, the Contractor will be entitled to financing of a payment certificate merely because it has been
charges under Sub-Clause 14.8 unless the Employer given negligently or the architect/Engineer has used
manages to accelerate his procedures and comply his discretion wrongly, (iv) the Employer is bound to
with Sub-Clause 14.7. pay the sum certified, v) the fact that the amount of
the certificate is so payable does not mean that the
If the Employer fails to comply with these Employer is left without a remedy if the
requirements, then the Contractor may give 21 days' architect/Engineer, in an interim certificate, has

14 [2007] TTHC 50 (6 November 2007) 15 CIVIL CASE NO. 3026/06

14
certified in respect of defective work or has certified funding from alternative sources. All
too large an amount. In relation to CS Group's claims correspondence between the engineer and
the court held that: i) there was no "dispute" between
the parties, therefore parties were not obliged to refer
[Bosch] was conducted on the assumption
the matter to arbitration prior to the court, ii) the that a contract existed. At no stage prior to
Works were inspected prior to the issue of Interim this application did [Govan] inform [Bosch]
Payment Certificates, therefore there was no that it was of the view that no valid
overcharging, and iii) the alleged defects in the contract existed. Sight must not be lost on
workmanship were not identified. The court referred
to the FIDIC guidance on Bill of Quantities as follows:
the fact that the Bid Adjudication
"According to the NOTES ON DOCUMENTS. FOR CIVIL Committee approved [Bosch's] bid, but for
ENGINEERING CONTRACTS by FIDIC at page 38, "Bill of a more limited scope of work, and directed
Quantities means a list of items giving identifying that an award be made to it. Moreover,
descriptions and estimated quantities of work [Govan] offered no explanation for the
comprised in the execution of the works to be
performed. The objects of the Bill of Quantities are: (i)
steps it took beyond the expiration of the
enable tenders to be prepared efficiently and validity period, and the payments it made
accurately and facilitate the comparison of tenders before April 2014, from which [Bosch]
when received; and (ii) when the contract has been legitimately inferred that [Govan]
awarded, to provide the basis for the valuation of work considered itself bound by the contract
executed and to assist in the fixing of prices for varied
or additional work." (my underlining)".
supported by the signatures of Mr
Mahlangu and Mr Mtshali on Annexure
In the case of Bosch Munitech (Pty) Ltd v Govan Mbeki SM1. While it is still debateable whether a
Municipality16, Govan paid Bosch in respect of five
valid contract ever came into existence,
interim payments issued between October 2013 and
April 2014 but refused to pay amounts claimed in [Govan's] silence and its conduct led
eight certificates issued between April 2014 and [Bosch] bona fide to assert a cause of
October 2014. Following Govan's refusal to pay, Bosch action which ultimately has proved to be
elected to terminate the alleged contract. Bosch unsustainable on the basis alleged … I am
considered that it was entitled to all the amounts
of the view that [Govan's] conduct falls
payable under the outstanding interim payment
certificates, as well as the release of retention held short of the standard of ethical dealing one
under the contract. The South African court was asked might legitimately expect of an organ of
to consider the formation of the contract and government in a constitutional state."
incorporation of the FIDIC Red Book 1999 General
Conditions of Contract. The Court held that no
contract was formed between the Parties. It stated:
Sub-Clause 14.8 – Delayed Payment
This Sub-Clause sets out the consequences of delayed
"This court has some sympathy with payment in much more detail than Sub-Clause 60.10
[Bosch]. It is clear from the evidence that of the FIDIC Red Book 4th edition.
both parties proceeded in good faith on If payment is not received by the Contractor by the
the supposition that a contract had been due date, this Sub-Clause gives the procedure for
concluded. The real problem resulting in calculating financing charges.
the termination of the project was that
Financing charges are not defined. They are commonly
funding was not available. The project was understood to be damages for breach of contract - the
not properly budgeted for by [Govan]. reimbursement of interest which has been incurred as
Both parties engaged in efforts to acquire a consequence of wrongfully delayed payment. It has

16(88360/2014) [2015] ZAGPPHC 1096; [2015] 4 All SA 674 (GP) (17

September 2015

15
been suggested that the term "financing charges" may Employer accelerates his procedures and
have been adopted in this version rather than the complies with Sub-Clause 14.7, the
term "interest" adopted in the FIDIC Red Book 4th
edition to avoid offence to Sha'aria countries. The
Contractor will not be entitled to financing
relevant governing law relating to interest may charges".
therefore be pertinent. As Robert Knutson17 explains,
"It is worthwhile to record that the phrase "financing The Contractor is entitled to these financing charges
charges" is a legal term of art in England and may be, without being required to give formal notice or
because of the complicated case law referred to certification. There is no time limit for payment and no
above, distinguished from the concept of interest as express provision for interest on the financing charges
damages for late payment. In Minter v WHTSO (1980) if payment is delayed. The FIDIC Contracts Guide
13 BLR 1, financing charges for late payment of suggests that it may be preferable for financing
Variations for disturbed progress was recoverable as charges to be included in the Contractor's Statement
"direct loss and expense"". under Sub-Clause 14.3(f) for accounting purposes.

The distinction between financing charges and interest Financing charges are to be calculated at the annual
may be relevant not least of all because a Dispute rate of 3% above the discount rate of the central bank
Adjudication Board is only empowered to "decide in the country of the currency of payment. This might
upon the payment of financing charges" under Clause become complicated if payments are due in several
8f of the Dispute Adjudication Board Procedural Rules different currencies. Further, there may or may not be
in the Annex to the FIDIC 1999 edition. There is no something called a discount rate in the country in
express provision for the Dispute Adjudication Board question and there could be more than one rate
to award interest. If there was no financing in fact, identified as a possible candidate. The Guidance for
would there be no right to financing charges and/or the Preparation of Particular Conditions provides that
interest? if this rate is considered inappropriate when the
tender documents are being prepared, a new rate may
The distinction between financing charges and interest be defined in the Particular Conditions. Alternatively,
may be relevant not least of all because a Dispute the actual financing charges could be claimed and
Adjudication Board is only empowered to "decide paid, taking account of local financing arrangements.
upon the payment of financing charges" under Clause
8f of the Dispute Adjudication Board Procedural Rules Robert Knutson18 suggests that if Sub-Clause 14.8 is
in the Annex to the FIDIC 1999 edition. There is no deleted, The Late Payment of Commercial Debts
express provision for the Dispute Adjudication Board (Interest) Act 1998 may apply under English law.
to award interest. If there was no financing in fact,
Note: Sub-Clause 14.8 [Delayed Payment] deals only
would there be no right to financing charges and/or
with a failure to receive payment under Sub-Clause
interest? The financing charges are compounded
14.7 [Payment]. It does not deal with the withholding
monthly on the amount unpaid during the period of
of retention monies without good reason under Sub-
delay. The date on which the Interim Payment
Clause 14.3 [Application for Interim Payment
Certificate is issued is not relevant when calculating
Certificates] and 14.9 [Payment of Retention Money].
these financing charges. Financing charges are
calculated for a period which is "deemed to commence For further provisions relating to delayed payment,
on the date for payment specified in Sub-Clause 14.7". see for example Sub-Clauses 16.1 [Contractor's
The FIDIC Contracts Guide states, Entitlement to Suspend Work], and 16.2 [Termination
by Contractor].
"This period applies even if no Interim
Payment Certificate is issued, although it
would then be difficult to establish the
amount to which the rate is to be applied.
If the Certificate is a week late and the

17 FIDIC An Analysis of International Construction Contracts, page 68. 18 FIDIC An Analysis of International Construction Contracts, page 67.

16
Sub-Clause 14.9 – Payment of In ICC Case 15789 (2010) - Final Award, in an Eastern
European capital city, a sole arbitrator was asked to
Retention Money consider the correlation between an extended 5-year
Retention Money is retained under Sub-Clause 14.3(c) warranty period (comprising of a 1-year Defects
and is released under this Sub-Clause in instalments. It Liability Period plus an additional 4-years running from
is outside the normal Interim Payment process. expiry of the Defects Liability Period) and payment of
the Retention Money under an amended FIDIC Red
The first part of the Retention Money is released when Book 4th edition form of contract. A minimum 5-year
the Taking-Over Certificate is issued under Clause 10 warranty period was required under local law. The
[Employer's Taking Over] (as in Sub-Clause 60.3 of the sole arbitrator decided as follows: "94. Contractual
FIDIC Red Book 4th edition). If it is issued for the whole agreements of the Parties comply with the
of the Works, 50% of the Retention Money must be requirements of the Act on Public Works when in
certified by the Engineer for payment to the Clause 9 of the Contract Agreement states the
Contractor. However, if it is issued for a Section Warranty Period to 60 months [sic], and do not act
and/or part of the Works, under Sub-Clause 10.1 contra provisions of this Act when in Annex 2 to the
[Taking Over of the Works and Sections] and/or Sub- Contract Agreement Appendix to Tender they agree on
Clause 10.2 [Taking Over of Parts of the Works] the split of the warranty period to 12-month (basic)
respectively, it is now calculated at 40% of the Defects Liability Period and 48-month (additional)
proportion calculated by dividing the estimated Warranty Period, which in total represent the 60-
contract value of the Section or Part by the estimated month warranty period, requested by the law. 95.
final Contract Price. Only 40% (not 50%) of this With respect to the mentioned, the Retention Money
proportion is stated as being released at this stage. If can be released at any time post accomplishment of
half is released, there might be very little left (of the the Work with contractually agreed conditions. 96. It is
half of Retention Money) to be released on a purpose of the Retention Money to provide
completion of the Works, because of Variations. guarantee to the contractor that in case the works will
not be finished in compliance with qualitative
The date on which each Section is completed is to be parameters, so that the hand-over and take-over will
stated in its Taking-Over Certificate. On this date, the not be confirmed by the engineer and the builder will
Defect Notification Period commences, the duration not be willing to remove all declared defects, such
of which is to be stated in the Appendix to Tender. No finances can be used to employ third persons to
prescribed time limits are given for the payment of the remove such defects of Work (visible at the hand-
balance of the Retention Money. The balance of the over). 97. Without a doubt, the time period for release
Retention Money is merely to be released "promptly" of the Retention Money can be shorter than the
after the latest of the expiry dates of the Defects warranty period. 98. As reasoned above, release of the
Notification Period. If a Taking-Over Certificate was Retention Money prior the lapse of the whole
issued for a Section, a proportion of the second part of Warranty Period is not in conflict with the Act on
the Retention Money shall be certified and paid Public Works; neither circumvents nor contravenes the
promptly after the latest of the expiry dates of the purpose of law. 99. The division of the Warranty Period
Defects Notification Period for the Section. This into two parts (regardless how they are called -
proportion shall be 40% of the proportion calculated split/additional), where after the lapse of the first one
by dividing the estimated contract value of the Section the Retention Money will be paid, is possible.".
by the estimated final Contract Price. Therefore, release of the Retention Money upon
The FIDIC Contracts Guide states that the word expiry of the 1-year Defects Liability Period was
"promptly" suggests that it would not be appropriate compatible with the 5-year warranty period.
to await the next application under Sub-Clause 14.3 The Engineer may withhold the estimated cost of any
[Application for Interim Payment Certificates]. It also work which remains to be executed under Clause 11
states that the phrase "latest of the expiry dates" is [Defects Liability]. This entitlement applies to any
used, because of the possibility of a Defect release of Retention Money but is typically of greatest
Notification Period (which is not the last to importance at the latest of the expiry dates of the
commence) being extended under Sub-Clause 11.3 Defect Notification Periods. In order to protect the
[Extension of Defects Notification Period] and Employer's interests, the amount withheld should be
becoming the period with the latest expiry date.

17
sufficient to cover the cost of another contractor in the FIDIC Red Book 4th edition. However, there is no
completing the work but must be reasonable and not sanction provided if the time limit is not met, which
penalise the Contractor. suggests that the time period should be treated as
directory rather than mandatory. It is usually in the
It has been suggested that disputes regarding the Contractor's interest not to delay submittal of the
return of the retention would be less likely if the Statement and supporting documents.
Employer were prepared to accept a guarantee in lieu
of retention. If part of the Retention Money is to be The Taking-Over Certificate is defined as the certificate
released and substituted by an appropriate guarantee, issued under Clause 10 [Employer's Taking Over].
an additional Sub-Clause may be added, such as this
given in the Guidance for the Preparation of Particular The Statement at completion must be in accordance
Conditions: with Sub-Clause 14.3 [Application for Interim Payment
Certificates]. As pointed out in the FIDIC Contract
"When the Retention Money has reached three-fifths Guide, it must therefore have supporting documents
(60%) of the limit of Retention Money stated in the which shall include the detailed progress report
Appendix to Tender, the Engineer shall certify and the complying with Sub-Clause 4.21 [Progress Reports],
Employer shall make payment of half (50%) of the limit unless all the reports required by the Contract have
of Retention Money to the Contractor if he obtains a already been submitted. The Statement at completion
guarantee, in a form and provided by an entity must show:
approved by the Employer, in amounts and currencies
equal to the payment. (a) The value of all work done in accordance with the
Contract up to the date stated in the Taking-Over
The Contractor shall ensure that the guarantee is valid Certificate. This revised wording clarifies the
and enforceable until the Contractor has executed and ambiguity of the use of the word "final" in the
completed the Works and remedied any defects, as FIDIC Red Book 4th edition.
specified for the Performance Security in Sub-Clause
4.2, and shall be returned to the Contractor (b) Any further sums which the Contractor considers
accordingly. This release of retention shall be in lieu of are currently due. This is not limited to claims
the release of the second half of the Retention Money under the Contract, so might include claims for
under the second paragraph of Sub-Clause 14.9." breach of contract or arguably for claims in tort,
for example, for negligence or misrepresentation.
An acceptable form(s) of guarantee should be
included in the tender documents, annexed to the (c) An estimate of any other amounts (to be shown
Particular Conditions: an example form is provided in separately in the Statement) which the Contractor
the Guidance for the Preparation of Particular considers will become due to him under the
Conditions at Annex F. Contract in the future.

There is no express provision dealing with the Note that the Statement at completion is one basis of
withholding of Retention Money without good reason, the Cessation of Employer's Liability specified in Sub-
which is not an uncommon occurrence. Clause 14.14 and encourages the early settlement of
financial aspects. The FIDIC Contracts Guide suggests
that the Contractor should prepare the Statement at
Sub-Clause 14.10 – Statement at completion with these aspects in mind and include
Completion amounts or estimates for every payment for which the
Contractor considers the Employer has a liability,
This is an amended version of Sub-Clause 60.5 of the including all claims and potential claims, even though
FIDIC Red Book 4th edition. it is initially only processed like other interim
Within 84 days (i.e. 12 weeks) after receipt of the Statements, i.e. certified in accordance with Sub-
Taking-Over Certificate for the Works, the Contractor Clause 14.6 [Issue of Interim Payment Certificates].
is obliged to submit to the Engineer six copies of a
Statement at completion with supporting documents.
Time runs from receipt of the Taking-Over Certificate,
not from the date stated in the Taking-Over Certificate
or from issue of the Taking-Over Certificate as stated

18
Sub-Clause 14.11 – Application for Payment Certificate for the agreed parts of the draft
final statement, and those sums must be paid. The
Final Payment Certificate draft final statement remains open until the dispute is
This is similar to Sub-Clause 60.6 of the FIDIC Red Book finally resolved under Sub-Clause 20.4 [Obtaining
4th edition. Dispute Adjudication Board's Decision] or Sub-Clause
20.5 [Amicable Settlement]. There is no provision for
56 days (8 weeks) after receiving the Performance an interim draft final statement.
Certificate, the Contractor must submit to the
Engineer six copies of a draft final statement with If the dispute is resolved under Sub-Clause 20.4 or
supporting documents in detail in a form approved by 20.5 the Contractor will prepare and submit to the
the Engineer. The time limit starts to run from issue of Employer (with a copy to the Engineer) a Final
the Performance Certificate, not issue of the Defects Statement in accordance with the outcome. If there is
Liability Certificate as stated in Sub-Clause 60.6 of the a delay in payment of the Interim Payment Certificate
FIDIC Red Book 4th edition. However, there is no and it is not paid 56 days after the Engineer receives
sanction provided if the time limit is not met which the [Final] Statement and supporting documents in
suggests that it should be treated as directory rather accordance with Sub-Clause 14.7 [Payment], the
than mandatory. Contractor is entitled to financing charges under Sub-
Clause 14.8 [Delayed Payment].
The Performance Certificate is defined as the
certificate issued under Sub-Clause 11.9 [Performance There is no express provision in the event that the
Certificate]. It is issued following expiry of the Defects dispute is not resolved under Sub-Clause 20.4 or 20.5.
Notification Periods or as soon thereafter as the The FIDIC Contracts Guide suggests that it would
Contractor has supplied all the Contractor's probably need to be resolved under Sub-Clause 20.6
Documents and completed and tested all the Works, [Arbitration]. After resolution by arbitration, which
including remedying any defects. may be considerably later, there may be no need for a
Final Statement, so Sub-Clause 14.11 does not require
The draft final statement must show both: it to be prepared. The only necessary documentation
may have been prepared or defined by the
(a) the value of all work done in accordance with the arbitrator(s).
Contract; and
If there is no Final Statement, Sub-Clause 14.12
(b) any further sums which the Contractor considers [Discharge], Sub-Clause 14.13 [Issue of Final Payment
to be due to him under the Contract or otherwise. Certificate] and sub-paragraph (a) of Sub-Clause 14.14
The "or otherwise" is an addition to the FIDIC Red [Cessation of Employer's Liability] cannot apply.
Book 4th edition, and therefore clarifies that this
Sub-Clause contemplates monies due, for example, It is essential that, to the extent there is a Final
for breach of contract and in tort (negligence, Statement, all the Contractor's claims are recorded in
misrepresentation etc.). it. The Final Statement is one basis of the Cessation of
Employer's Liability specified in Sub-Clause 14.14 and
Note also Sub-Clause 14.14(b) [Cessation of encourages the early settlement of financial aspects.
Employer's Liability].
The Contractor should therefore prepare this
If the Engineer disagrees with or cannot verify any Statement with these aspects in mind and include
part of the draft final statement, the Contractor is amounts or estimates for every payment for which the
obliged to provide such further information as the Contractor considers the Employer has a liability,
Engineer reasonably requires and make such changes including all claims and potential claims, even though
in the draft as agreed between them. The Contractor it is initially only processed like other interim
must then prepare and submit to the Engineer the Statements.
Final Statement as agreed. In ICC Case 19105 (2014) - Procedural Order, in
However, following discussions between the Engineer Bucharest, Romania, a sole arbitrator was asked to
and the Contractor, if it becomes evident that a allow new claims to be introduced in to an ongoing
dispute exists, the Engineer must deliver to the arbitration after the main arbitration hearing had
Employer (with a copy to the Contractor) an Interim taken place. The arbitrator declined to do so. The new
claims concerned the Claimant's right to repayment of

19
the outstanding balance of the Retention Money not take place. In such circumstances, question
under a 1999 edition of the FIDIC forms of contract. whether the discharge would be effective?
There was a question during the main arbitration
hearing as to whether the Engineer had issued the The discharge should be submitted in the same way as
necessary certification. After the main arbitration the Final Statement, i.e. to the Employer with a copy
hearing had taken place, the Final Payment Certificate to the Engineer.
was issued by the Engineer. The Claimant then sought This Sub-Clause must be read with Sub-Clauses 11.10
permission to submit a new claim for revision of the and 14.14. Sub-Clause 11.10 [Unfulfilled Obligations]
Final Payment Certificate because: (i) the Final provides that the Parties remain liable for the
Payment Certificate included an entry ... named fulfilment of any obligation which remains
"Deduct amount as per FIDIC Sub-Clause 2.5" and the unperformed after the Performance Certificate has
said amount corresponded to the net total amount been issued, and for the purposes of determining the
certified for payment in the Final Payment Certificate; nature and extent of unperformed obligations, the
(ii) the Parties were in disagreement about the Contract is deemed to remain in force. Sub-Clause
meaning of "deduct(ion)"; (iii) claims deriving from the 14.14 [Cessation of Employer's Liability] provides that
Final Payment Certificate fall under the scope of Sub- the Employer remains liable for sums in the Final
Clause 20.6; (iv) the Final Payment Certificate should Statement and the Statement at Completion, in
be revised in the arbitration since it interferes with it respect of his indemnification obligations, and in
and contradicts the arbitrator's findings; and (v) the respect of his liability in any case of fraud, deliberate
arbitrator had jurisdiction over the new claim "since default or reckless misconduct. The Employer gives to
the matters to be revised are overlapping the claims the Contractor indemnities in, for example, Sub-
already brought in this arbitration". The arbitrator Clauses 1.13 [Compliance with Laws], 4.2
declined to admit the new claim into the arbitration [Performance Security], 5.2 [Objection to Nomination],
on the basis that the arbitration had come to its very 17.1 [Indemnities], and Clause 5 of the Appendix –
end and the connection, between the new claim and General Conditions of Dispute Adjudication
the claims to be decided in the Final Award, was not Agreement.
strong enough to justify now a reopening of the
proceedings. A prudent Contractor will word the discharge so as to
provide for the discharge to become effective when
Sub-Clause 14.12 – Discharge the final payment has been received and all bonds and
guarantees returned, otherwise the discharge will
This discharge is similar to that provided for in Sub- become effective immediately. For example, the
Clause 60.7 of the FIDIC Red Book 4th edition. discharge may state the effective date of the
discharge is the date when the Contractor has
With the Final Statement, the Contractor must submit
received the Performance Security (i.e. the security for
a written discharge confirming the Final Statement
proper performance under Sub-Clause 4.2
represents full and final settlement of all moneys due
[Performance Security] which is returnable to the
to the Contractor "under or in connection with the
Contractor 21 days after receipt of the Performance
Contract". Thus, it only takes effect once all
Certificate) and the outstanding balance of this total.
outstanding claims have been satisfied. The wording is
more restrictive to that in Sub-Clause 14.11 Brian Totterdill19 suggests, "If parts of the draft Final
[Application for Final Payment Certificate] where the Statement are eventually settled in arbitration then
Final Certificate must show further sums the the Contractor does not seem to have to submit a Final
Contractors thinks is due to him "under the Contract Statement and hence would not submit a discharge.
or otherwise". The submissions to the arbitration tribunal would
normally cover any amounts which the Contractor
As the Final Certificate takes no account of an
considers to be due". Query whether the same could
Employer's right to delay damages, it is possible that
be said in respect of a Dispute Adjudication Board
payment of the sum stated in the Final Certificate will
decision which becomes final and binding?

19FIDIC Users' Guide: A Practical Guide to the 1999 Red and Yellow
Books at pages 251-252

20
Sub-Clause 14.13 – Issue of Final [Payment] failing which the Contractor might be
entitled to financing charges.
Payment Certificate
It is worth noting that, under the governing law, the
This is similar to Sub-Clause 60.8 of the FIDIC Red Book issue of the Final Payment Certificate may be relevant
4th edition. 28 days after receiving the Final Statement to limitation and when a cause of action arises. In the
and written discharge in accordance with Sub-Clause English case of Henry Boot Construction Ltd v Alstom
14.11 [Application for Final Payment Certificate] and Combined Cycles Ltd20, the Court of Appeal considered
Sub-Clause 14.12 [Discharge], the Engineer must issue (among other things) whether under the ICE
to the Employer, the Final Payment Certificate for Conditions of Contract (6th edition)21 (i) the
payment. There is no express provision requiring it to Contractor's right to receive payment for the value of
be copied to the Contractor. The time limit is work done and materials supplied arose upon the
important because if the Contractor fails to submit an work being done and the materials being supplied, or
application within it, the Engineer will issue the Final only upon the issue of the certificate, and (ii) if the
Payment Certificate for such amount as he fairly latter, whether it arose once and for all as soon as the
determines to be due. Under Sub-Clause 1.3 Contractor was entitled to have the sum certified in an
[Communications], certificates must not be interim certificate, or whether the Contractor had a
unreasonably withheld or delayed. continuing right to have the sum certified in
If the Contractor has not applied for a Final Payment subsequent certificates, and in particular the final
Certificate in accordance with Sub-Clause 14.11 certificate, so that (where the sum was not certified)
[Application for Final Payment Certificate] and Sub- each failure to certify in accordance with the contract
Clause 14.12 [Discharge], the Engineer will request the gave rise to a new cause of action. The Court of
Contractor to do so. Appeal held on the first issue that on a true
construction of the contract, certificates were a
The Final Payment Certificate must state both: condition precedent to the Contractor's right to
payment and not merely evidence of the Engineer's
(a) the amount which is finally due; and
opinion, i.e. the right to payment arose when a
(b) the balance (if any) due from the Employer to the certificate was issued or should have been issued and
Contractor or from the Contractor to the not earlier, such as when the work was done, or the
Employer, after giving credit to the Employer for all materials supplied. However, it did not follow from
amounts previously paid by the Employer and for this that the absence of a certificate was a bar to the
all sums to which the Employer is entitled. right for payment, because the Engineer's decision in
relation to certification was not conclusive of the
Unlike Sub-Clause 60.8 of the FIDIC Red Book 4th rights upon the Parties and could be reviewed by an
edition, sums which the Employer is due are not arbitrator or the court (relying on the English case of
limited to those under the Contract. Beaufort Developments Ltd v Gilbert Ash Ltd 22). The
Court of Appeal held on the second issue that as the
Sub-Clause 14.13(a) is widely drafted and might
nature of the exercise the Engineer had to perform in
include any additions or deductions that have become
relation to an interim payment certificate, and a final
due under Sub-Clause 3.5 [Determinations], and any
payment certificate is so different, a failure of the
additions or deductions that have become due under
Engineer to comply with the interim payment
the Contract or otherwise (i.e. for breach of Contract
obligations could not start time running in respect of a
or in tort, equity etc.) The Employer must pay the
cause of action based on the failure of the Engineer to
Contractor the amount certified in the Final Payment
comply with the final certificate obligations.
Certificate within 56 days after the Employer receives
this Payment Certificate under Sub-Clause 14.7(c)

20 [2005] BLR 437 CA 22 [1999] 1 AC 266

21 The FIDIC Red Book was originally derived from the English ICE
Conditions of Contract (4th edition), and the FIDIC and ICE forms
tracked each other through successive editions for a number of years.

21
Sub-Clause 14.14 – Cessation of to their ordinary meaning. As stated by Robert
Knutson24 ,
Employer's Liability
"As many failures by an Employer to pay
The Employer is not liable to the Contractor for
anything under or in connection with the Contract or are in my experience a result of honest
execution of the Works, in the same way as Sub- differences of opinion with Contractors it
Clause 60.9 of the FIDIC Red Book 4th edition. would remain to be seen if deliberate but
If the Contractor is not happy with anything under, or honest failure to pay would be barred. On
in connection with, the Contract or execution of the its face the word "deliberate" makes no
Works, he must include an amount expressly for it (a) distinction between honest and somehow
in the Final Statement, and (b) in the Statement at fault based failures to pay, but the word
Completion described in Sub-Clause 14.10 [Statement
"default" implies a failure to comply with a
at Completion] (except for matters or things arising
after the issue of the Taking-Over Certificate for the contractual obligation, perhaps simply
Works). This notification is in addition to that required through reckless neglect".
under Sub-Clause 20.1.
The Employer gives to the Contractor indemnities in,
The Contractor should also include all future cost of for example, Sub-Clauses 1.13 [Compliance with
Dispute Adjudication Board proceedings and Laws], 4.2 [Performance Security], 5.2 [Objection to
arbitration in the Final Statement or Statement at Nomination], 17.1 [Indemnities], and Clause 5 of the
Completion. Appendix – General Conditions of Dispute
It is a surprising provision in its obvious bias against Adjudication Agreement.
the Contractor. The relevant governing law may The Contractor's liability ceases in accordance with
therefore be pertinent. As stated by Robert Knutson23, Sub-Clause 11.9 [Performance Certificate], save for
unfair contract terms' arguments (such as the Unfair unfulfilled obligations under Sub-Clause 11.10
Contract Terms Act (1977) in England) may be [Unfulfilled Obligations].
invoked, and the exclusionary aspects of the Clause
will probably be considered contra proferentem.
Sub-Clause 14.15 - Currencies of
This Sub-Clause is difficult to read with Sub-Clause Payment
11.10 [Unfulfilled Obligations] which seeks to preserve
liabilities which the Contractor cannot enforce unless Rates of exchange were provided for in Sub-Clause 72
expressly provided for in the Final Statement or of the FIDIC Red Book 4th edition.
Statement at completion under this Sub-Clause.
In this edition, currencies in which payment is to be
This Sub-Clause is difficult to read with Sub-Clause made should be expressly stated in the spaces
11.10 [Unfulfilled Obligations] which seeks to preserve provided in the Letter of Tender and the Appendix to
liabilities which the Contractor cannot enforce unless Tender.
expressly provided for in the Final Statement or
Statement at completion under this Sub-Clause. If all payments are to be made in one named currency,
this Sub-Clause becomes inapplicable, subject to any
New to this addition and for the avoidance of doubt, it Particular Conditions. The FIDIC Guidance for the
is now expressly provided that the Employer's liability Preparation of Particular Conditions provides the
under his indemnification obligations, or the following example clause for a single currency
Employer's liability in any case of fraud, deliberate contract:
default or reckless misconduct by the Employer, is not
limited. These are not terms of art under English law "The currency of account shall be the Local Currency
and the words would have to be construed according and all payments made in accordance with the
Contract shall be in Local Currency. The Local Currency

23FIDIC An Analysis of International Construction Contracts, pages 24 FIDIC An Analysis of International Construction Contracts, page 69.

68-69.

22
payments shall be fully convertible, except those for
local costs. The percentage attributed to local costs
shall be as stated in the Appendix to Tender".

If payment is to be made in more than one currency,

or if different currencies are specified in the Letter of
Tender and Appendix to Tender, this Sub-Clause (in
the absence of any agreement between the Parties)
provides for the currencies in which payments are to
be made.

• Where the Accepted Contract Amount (i.e. the

amount accepted in the Letter of Acceptance for
the execution and completion of the Works and
the remedying of any defects) is expressed in Local
Currency only (i.e. the currency of the Country in
which the Site is located) but is to be made partly
or wholly in other currencies, agreed proportions
and rates of exchange must be given in the
Appendix to Tender.

• Payments for damages specified in the Appendix to

Tender will be made in the currencies and
proportions specified in the Appendix to Tender.

• Other payments to the Employer by the Contractor

will be made in the currency in which the sum was
expended by the Employer, or in such currency as
may be agreed by both Parties.

• When an amount payable by the Contractor to the

Employer in a particular currency exceeds the sum
payable by the Employer to the Contractor in that
currency, the Employer may recover the balance of
this amount from the sums otherwise payable to
the Contractor in other currencies.

The rates of exchange are fixed in the Appendix to

Tender. There is no provision for change in the rates of
exchange, which is a risk area for both Parties. If rates
of exchange are to be adjusted to allow for currency
fluctuations, then provision should be made for such
in the Particular Conditions.

If no rates of exchange are stated in the Appendix to

Tender, they will be those prevailing on the Base Date
and determined by the central bank of the Country.

Please get in touch at

victoria.tyson@howardkennedy.com with your
thoughts or to discuss any concern

23