session 6- payment clauses and procedures

8/8/2019 Session 6- Payment Clauses and Procedures

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Financial Clauses

and

Procedures



Measurement and Evaluation

Variations and Adjustments

Contract Price and Payments

CLAUSES 12, 13 & 14



Payment Modalities

Lump Sum

Re-measurement

Cost reimbursement



Lump Sum

Scope of the work and the amount is well

defined.

Contractor agrees to work for a pre-determined

lump sum.



Lump Sum

tem

Nr.

Description Unit Qty Rate Amount



Lump Sum ±

Advantages & Disadvantages ± Cost commitment is

known at the outset

± Relatively easycontractor selection

± Fully defined scope

± Contractor assumes

greatest risks

± Time required for

producing full scope

± Changes difficult andpotentially costly



Re- measurement

The scope of the work is generally well defined

but the amount of work is indefinite.

Sufficiently detailed scope of work to allow

contractor to calculate unit rates.



Measure & Pay

tem

Nr.

Description Unit Qty Rate Amount



Measure & Pay

Advantages & Disadvantages Scope need not be asaccurate

Cost per unit of productionpredetermined

Flexibility- scope &quantity can bevaried.

Final cost not clearly

known



Cost Reimbursement

Contractor is paid all what he spends plus OH & Profit.

Minimal pre-determined scope definition.

Clear and explicit definition of what constitutesreimbursable costs.

Co-operative atmosphere and a competent and

trustworthy contractor.

Close audit and quality supervision and direction by the

Client.



Cost Reimbursement

Item

Nr.

Schedule UnitRate



Cost Reimbursement

Advantages & Disadvantages Useful when the

scope cannot be

specified in advance

Minimal pre-

determined scope

definition permitsearly start

Final cost unknown

Buyer retains risk

Reduces ability to

compare contractor¶s

bids



Contract Price and Payment

Sub Clause 14.1 ± Contract Price may be

represented through Bill of Quantities (re-measured) or Schedules

Sub Clause 14.2 ± Anticipates that advance

payment will be made and procedures provided

15 sub clauses relate to this vital sector



Measurement and Evaluation

(Clauses 12.1 and 12.2)

Measurements is undertaken by the Engineer,

giving notice to the Contractor¶s Representative

to attend etc.

Measurement shall be net actual quantities



Evaluation by Engineer

(Clauses 12.3 and 12.4)

T

he rates specified in the Contract will apply unlessthere are no appropriate rates for a new item of work

New Rates may be determined where items a) and

b) of Sub Clause 12.3 apply

Sub Clause 12.4 provides for possiblecompensation to Contractor relating to omissions

of work

Sub Clause 12.3 Provides the basis for the Engineer to

determine the value of each item of work



Variation

± Increasing, decreasing or omitting any

part of the contract work

± Changing the character or quality of

material or work

± Changing the source of subcontract

work



Variations and Adjustments

(Clause13) Engineer has right to vary under Sub Clause

13.1 and with details of types of issues covered

Opportunity for Contractor to submit ³Value

Engineering´ change. Risk of development with

Contractor and any savings are split 50:50

Sub Clause 13.3 sets out procedure required to

be followed if Engineer requests proposal prior

to instructing Variation



Provisional Sums (Clause 13.5)

Include the provisional sum of

Dhr. 120 (one hundred and

twenty Dirhams) for connectingend of drain to be the soakage

pit.

Prov. Sum 120 00



Prime Cost Sum

Include the prime cost sum of

Dhr. 800 (eight hundred

Dirhams) for patent partitions tobe executed by nominated sub-

contractors.

Add for profit

General attendance

PC Sum

%

Item

800 00



Include the prime cost sum of

Dhr. 55 (fifty-five Dirhams) for

ironmongery to be supplied bynominated supplier.

Add for profit

PC Sum

%

Prime Cost Sum (Contd«)

55 00



Prime cost sum for patent partitions

Add for profit (10%)

General attendance

Emirates Interior Ltd., A/C No. 2134

Profit (10%)

General attendance

Total

Less omission

Net addition C/F to Grand Summary

800.00

80.00

120.00

1000.00

850.00

85.00

120.00

1055.00

(1000.00)

55.00

Omissions Additions

Adjustment of PC & Provisional Sums



Daywork (Clause 13.6)

Day-work means payment for actual hours

spent carrying out an operation as against

payments made based on prices given in the

tender.



Daywork Records

The minimum information recorded should

include:

± Hours worked by those engaged in daywork

± Hours machines were hired

± Material used by the Contractor for daywork

purposes



Who Orders Daywork?

Daywork is only carried out in special situations.

Engineer will usually only request daywork in an

emergency when there is insufficient time to raise avariation quotation request. The same emergency may

give the Contractor insufficient time to assess and cost

a variation quotation.

Another instance would be where tradesmen for a

particular trade has to be brought back to do work in

that trade when the work in that trade is completed.



Price Fluctuations (Clause 13.8)

Often construction projects, particularly, largeprojects are undertaken over a long period of time.It is more than likely that the price of material usedin a job and the rates of pay of the workmen will

increase and even in some instances fall duringthe life of the contract.

Rise and Fall is the adjustment made to thecontract price to offset or compensate for any risesand falls that occur during the period of contract.



Adjustments for Changes in Cost

Extensive details provided for the use of

formulae for cost variations during the contract

period. Optional, determined by employer prior

to Tender

Base rate reference is 28 days prior to date of

tender submission

Factors provided in Appendix to Tender for each

project



Payment Methods

± Payment on completion

± Stage payments

± Progress payments



Progress Payments

The value of progress payments are determined on

the actual value of work done

This method is based on actual measurement of

work done or value of percentages of work done



Contractual Implications

(Clauses 14.3 - 14.6)

The conditions of contract stipulates:

When progress payments are to be made.

The method of presentation by the Contractor of hisclaim for progress payments (the information to beprovided)

Method for fixing the estimate of the contract valueof work executed including variations, unfixedmaterials on site, etc.,



Interim Payments (Cont.)

Sub Clause 14.3 ± Contractor to submit a

Statement for application for interim payment.

Note cross reference to Sub Clause 4.21, plus

requirement for 6 copies.

Sub Clause 14.6 ± Sets out procedure for issue

of interim Payment Certificate by the Engineer -see also chart 2



Payment (Clauses 14.7 & 14.8)

Sub Clause 14.7 ± Payment duties of Employersplus under 14.8 the financial charges to be paid if Employer is late in payment

(3% above discount rate of Central Bank of countryof the currency of payment)



Final Accounts

Sub Clauses 14.10/14.11/14.12/14.13

These deal with the Statement on completion,

application for Final Payment Certificate,discharge and issue of Final Payment Certificate

Sub Clause 14.15 Currencies of Payment

This clause sets out the procedures if the

payments are to be made in more than one

currency



Final Accounts (Cont.)

Sub Clause 14.10 requires Contractors within

84 days of Taking Over Certificate too submit

a statement showing:

- Value of all work done

- Further sums considered due

- Estimate of any other amounts

considered due

Engineer shall certify in accordance with

Sub Clause 14.6



Final Accounts (Cont.)

Sub Clause 4.11 requires Contractor to submit

Final Statement within 56 days of receiving

Performance Certificate.

Sub Clause 4.12 Contractor to submit written

discharge with Final Settlement.

Sub clause 14.13 requires Engineer to issue

within 28 days Final payment Certificate.



Exercise 1

Read Clauses 12, 13 & 14 of the Red Book and answer

following questions.

Yes No May

be

Does the Contractor undertake the measurement of

the Works in Red Book?

Should the method of measurement be stated in the

Bill of Quantities

Can the Engineer demand the Contractor to give the

breakdown of his rates?



Yes No May

be

Can the Daywork Schedule be used to agree

new rates

Can the Contract Price be fixed?

Can the Engineer correct previous payment

certificates?

Have Provisional Sums to be spent within the

contract?

Exercise 1 (Cont.)



Exercise 2 (Group)

A contract agreement was signed based on the FIDIC 1999Red Book on 1st February, with Commencement Datestated as 1st March. On 4th April the Contractor submittedan application for an interim payment.

On 18th April, the Engineer replied that he did not intend toissue an Interim Payment Certificate.

On what grounds can the Engineer refuse to issue an InterimPayment Certificate?



Thank You

session 6- payment clauses and procedures

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