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3. PAYMENT SYSTEM IN CONSTRUCTION PROJECT UNDER MDB FIDIC, PPA AND APPLICABLE LAW

3. PAYMENT SYSTEM IN CONSTRUCTION PROJECT UNDER MDB FIDIC, PPA AND APPLICABLE LAW. Advance Payment Interim Payment Final Payment Final Account. 3.1 ADVANCE PAYMENT. ADVANCE PAYMENT Introduction

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3. PAYMENT SYSTEM IN CONSTRUCTION PROJECT UNDER MDB FIDIC, PPA AND APPLICABLE LAW

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  1. 3. PAYMENT SYSTEM IN CONSTRUCTION PROJECT UNDER MDB FIDIC, PPA AND APPLICABLE LAW Advance Payment Interim Payment Final Payment Final Account

  2. 3.1 ADVANCE PAYMENT • ADVANCE PAYMENT • Introduction • Advance Payment is type of payment which shall be issued as a loan or before it is due. An employer will usually make an unconditional down payment to a contractor at the start of the contract. • If the employer and the contractor agree that an advance payment should be made by the employer to the contractor, the employer shall make early payment to the contractor for the provision of:

  3. 3.1 ADVANCE PAYMENT • mobilization, for construction of site offices and office facilities • transport for the engineer’s and staff on site • material purchase • machineries and equipments rental and purchase • salary for employee, etc PAYMENT

  4. 3.1 ADVANCE PAYMENT • The Contractor shall demonstrate that advance payment has been used in this way by supplying copies of invoices or other documents to the Engineer if the advance guarantee is an insurance guarantee bond and it shall be paid using disbursements schedule. • Where as if the bond is a bank guarantee bond there is no need of supplying copies of invoice, the contractor shall be paid with out disbursement schedule. • These matters by no means cover the contractor’s outgoings for his initial set-up, especially when the project is very large and overseas, so significant advance payments, secured by a repayment bond, are often allowed.

  5. 3.1 ADVANCE PAYMENT • Also the employer recovered this expenditure by deducting it in installments over the consecutive months’ interim payments to the contractor under the contract.

  6. 3.1.1 ADVANCE PAYMENT REGULATION IN ACCORDANCE WITH MDB FIDIC, PPA AND ETHIOPIAN APPLICABLE LAW • Employers Obligation • Under MDB FIDIC condition of contract • According to Sub-clause 14.2, the Employer shall make an Advance payment to the Contractor as an interest- free loan for mobilization and cash flow support for the execution of the work. • . the first installment of the advance payment shall be settled within 42 days after issuing the Letter of Acceptance or within 21 days after receiving the documents in accordance with Sub-Clause 4.2 [Performance Security] and Sub-Clause 14.2 [Advance Payment], whichever is later;

  7. 3.1.1 ADVANCE PAYMENT REGULATION IN ACCORDANCE WITH MDB FIDIC, PPA AND ETHIOPIAN APPLICABLE LAW • According to this Sub-clause14.2 the contractor shall submit an advance guarantee otherwise until the Employer receives this guarantee or the total advance payment is not stated in the contract data, this Sub-Clause shall not apply. • Employers Obligation • Under PPA condition of contract • The employer shall pay to the contractor the amounts stated in the Special Conditions of Contract by the date stated in the Special Conditions of Contract. Sub-Clause 51.1 [Advance Payment]

  8. 3.1.1 ADVANCE PAYMENT REGULATION IN ACCORDANCE WITH MDB FIDIC, PPA AND ETHIOPIAN APPLICABLE LAW • Contractor Obligation • Under MDB FIDIC condition of contract • the Contractor shall submit and ensure that the advance guarantee is valid and enforceable until the advance payment has been repaid, however its amount shall be progressively reduced by the amount repaid by the contractor as indicated in the payment certificates.Sub Clause 14.2 • According to this clause the contractor is obliged to extend the advance guarantee validity date, if the terms of the guarantee specify its expiry date and the advance payment has not been repaid within 28 days prior to the expiry date.

  9. 3.1.1 ADVANCE PAYMENT REGULATION IN ACCORDANCE WITH MDB FIDIC, PPA AND ETHIOPIAN APPLICABLE LAW • Contractor Obligation • Under PPA condition of contract • Present an Unconditional Bank Guarantee in a form and by a bank acceptable to the Employer in amounts and currencies equal to the advance payment. • The Guarantee shall remain effective until the advance payment has been repaid, but the amount of the Guarantee shall be progressively reduced by the amounts repaid by the Contractor. Interest will not be charged on the advance payment.Sub-Clause 51.1 • Usually the advance payment guarantee bond is as stated in the general condition of contract but sometimes it may be also possible to present insurance guarantee bone if it is stated on the special condition of contract

  10. 3.2 INTERIM PAYMENT • Interim Payment referring to payment made by installments, periodically or in stages during the progress of building contract. • In most conditions of contract, regular payments based on the quantity of work done during the previous month, must be made by the employer to the contractor at monthly intervals.

  11. 3.2 INTERIM PAYMENT Provisions • The primary obligation upon the employer is to give the contractor the sum of money which forms the consideration for the contract. Money must be paid promptly and fully unless there are specific reasons for withholding it. • Under MDB FIDIC condition of contract • the amount certified in each Interim Payment Certificate within 56 days after the Engineer receives the Statement and supporting documents; or, at a time when the Bank’s loan or credit (from which part of the payments to the Contractor is being made) is suspended, the amount shown on any statement submitted by the Contractor within 14 days after such statement is submitted, any discrepancy being rectified in the next payment to the Contractor;

  12. 3.2 INTERIM PAYMENT • According to Sub Clause 14.3 the Contractor shall submit the payment statement in six copies, showing in detail the amounts to which the contractor considers himself to be entitled. • The contractor’s documents produced up to the end of the month (including Variations but excluding any amount to be added and deducted for changes in legislation and changes in cost, in accordance with Sub-Clause 13.7 [ adjustments for Changes in legislation] and Sub-Clause 13.8 [Adjustments for changes in Cost]

  13. 3.2 INTERIM PAYMENT • Provisions • Under PPA condition of contract • According to PPA Cause 43.1, It is the Employer obligation that the Employer pay the contractor the amounts certified by the Engineer within 30 days of the date of each certificate. • Under Ethiopian Applicable Law • Art.3269 [Right to receive installment]: The contractor may demand the payment of installment where he has deposited in the yard, factory or workshop material or supplies belonging to him in full ownership and intended to be used in the performance of the contract or he has paid wage in respect of labour employed by him exclusively in the performance of the contract.

  14. 3.2 INTERIM PAYMENT • Art.3270 also deals with the payments of installments in which at the end of each month there shall be a drawn up, at the request of the contractor and in order to serve as a basis for the payment of installments, a provision of calculation of the works performed and expense made by the contractor. Unless otherwise provided in the contract, installment by the Employer shall be paid in every three months

  15. 3.3 FINAL PAYMENT FINAL PAYMENT • Final Payment is the last payment issued by the Engineer in connection with a contract • The effect of the final certificate vary according to the form of contract being used. Under PPA condition of contract • The contractor shall request the Engineer to issue a certificate of Completion of the Works, and the Engineer will do so upon deciding that the work is completed. • The Employer will take over the Site and the Works within seven days of the Engineer’s issuing a Certificate of Completion. • Final Interim payment will be effected for works carried out up to the completion of the project

  16. 3.3 FINAL PAYMENT • The Contractor will supply the Engineer with a detailed account of the total amount that the Contractor considers payable under the Contract before the end of the Defects Liability Period. • The Engineer shall issue a Defects Liability Certificate and certify any Final Payment that is due to the Contractor within 60 days of receiving the Contractor’s account if it is correct and complete.

  17. 3.3 FINAL PAYMENT Under MDB FIDIC condition of contract • The contractor will submit to the Engineer a Statement at Completion with supporting documents within 84 days after receiving, the Taking-Over Certificate for the works. • The Engineer shall then within 28 days after receiving a Statement at Completion and supporting documents, certify and deliver the Performance Certificate, to the Employer and to the Contractor which shall state the amount which the Engineer fairly determines to be due, with all supporting particulars for any reduction or withholding made by the Engineer on the Statement if any..

  18. 3.3 FINAL PAYMENT • If the Contractor has not applied for Final Payment Certificate, the Engineer shall request the Contractor to do so. If the contractor fails to submit an application within 28 days, the Engineer shall issue the Final Payment Certificate for such amount as he fairly determines to be due.

  19. 3.4 FINAL ACCOUNT FINAL ACCOUNT Under PPA condition of contract • The PPA condition of contract clause 57.1 provides that the contractor shall submit final account within 60 working days before the end of the defects Liability Period • This will be a detail summing up of the effects upon the contract sum of all additions, deductions and alterations. Under MDB FIDIC condition of contract • The Contractor shall submit to the Engineer six copies of a statement at completion, within 84 days after receiving the Taking-Over Certificate for the work

  20. 6. PAYMENT UP ON TERMINATION

  21. 6.PAYMENT UPON TERMINATION TERMINATION • Construction contract may not always end up with completion but also with frustration and termination due to many facts. • Termination may initiated by an employer or by the contractor • The most common termination conditions are • Termination due to force majeure • Termination for convenience, and • Termination for default

  22. 6.1 Termination for Default 6.1 Termination for Default • This may occur when one party commits a default that may be considered as fundamental breach to the contractor while the other party is discharging its obligation as per the terms and conditions of contract. • For instance • Non-payment by the employer • non-acceptance of the engineers instruction by the contactor can be taken as breach to terminate the contract according to PPA clause 59.2

  23. 6.2 Termination for Convenience 6.2 Termination for Convenience • Under MDB FIDIC Sub clause 15.5. The Employer shall be entitled to terminate the contract, at any time for employer’s convenience, by giving notice to such termination to the contractor. • The contractor shall not be terminate the contract under this sub- clause in order to execute the works himself or to arrange for the works to be executed by another. • After this termination, the contractor shall proceed in accordance with sub- clause 16.3 [Cessation of Work and removal of contractor’s Equipment] and shall be paid in accordance with sub-clause 16.4 [Payment on termination]

  24. 6.3 Termination due to Force Majeure Termination due to Force majeure • This is an event or circumstance which is beyond a party’s control, like acts of God, munitions of war, riot, revolution, war hostilities etc… • During the existence of such circumstances and while one party or both parties found the none performance of the contract, then may & or shall terminate the contract following the procedures of conditions of contracts. • while terminating a contract: how, when will payments measured and effected. What are the considerations to be taken in to account while preparing payment up on termination?

  25. TERMINATION PROVISIONS Provision in PPA Payment up on Termination [clause 60] • If the Contract is terminated because of a fundamental breach of Contract by the Contractor, the Engineer shall issue a certificate for the value of the work done and Materials ordered less advance payments received up to the date of the issue of the certificate and less the percentage to apply to the value of the work not completed, as indicated in the Special Conditions of Contract. • Additional liquidated Damages shall not apply. If the total amount due to the Employer exceeds any payment due to the Contractor, the difference shall be a debt payable to the Employer [Clause 60.1].

  26. TERMINATION PROVISIONS Provision in PPA [clause 60.2] • If the Contractor is terminated for the Employer’s convenience or because of fundamental breach of Contract by the employer, the Engineer shall issue a certificate for the value of the work done, Materials ordered, the reasonable cost of removal of Equipment, repatriation of the contractor’s personnel employed solely on the works, and the contractor’s costs of protecting and securing the works, and less advance payments received up to the date of the certificate.

  27. TERMINATION PROVISIONS Provision in MDB FIDIC • In the provisions of MDB FIDIC termination of contract may come to picture. • If the employers commits default [clause 16.2]. • If the employer needs to terminate the contract for convenience [clause 15.5] • If a force major occurs to terminate wholly or partly [optional termination [clause 19.6] and • If the contractor commits default. • The payment after termination for the first 3 causes is the same and shall be treated as per Sub-clause 16.4

  28. TERMINATION PROVISIONS • After a notice of termination under Sub-Clause 16.2 [Termination by Contractor] has taken effect, the Employer shall promptly: • Return the Performance Security to the Contractor, • Pay the Contractor in accordance with Sub-Clause 19.6 [ Optional Termination, Payment and Release], and • Pay to the Contractor the amount of any loss or damage sustained by the Contractor as a result of this termination. • If the contractor commits default and termination come to picture due to the default then the payment on termination & follows the procedure given under Sub-clause 15.3 & 15.4

  29. THANK YOU

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