Contractors Legal

Guidance Note
Summer Edition 2010

Statements You Cannot Afford To Ignore

This Summer edition of the Contractors Legal Guidance Note highlights the
critical importance of Statements at Completion and Final Statements under
the four main Books published by the Fdration Internationale Des Ingnieurs-
Conseils (FIDIC
FIDIC):
FIDIC Conditions of Contract for Construction (CON
CONS
CONS ), Conditions
of Contract for Construction Multilateral Development Bank Harmonised
Edition (CONS
CONS MDB),
MDB Conditions of Contract for Plant and Design-Build
(P&DB
P&DB)
P&DB and Conditions of Contract for EPC/Turnkey Projects (EPCT
EPCT).
EPCT

Introduction
All FIDIC Books set out clearly what, how and
when payments must be made. They provide a
complete set of standard rules relating to pricing
and payment. In the case of projects that are
financially assisted by the Japan International
Cooperation Agency (JICA
JICA),
JICA the July 2004 version
of the CONS MDB represents JICAs recommended
basis for the procurement of unit price or rated
works through international competitive bidding.
Thus, in many of the overseas projects in which
Japanese civil engineering contractors become
involved, there is no real need to introduce
Particular Conditions to amend the CONS MDBs
payment provisions.
But whatever express payment provisions are
adopted in the particular case, in absolutely no
circumstances will there be any justification for
departing from the (legally binding) procedures.
Whilst ignorance of the detailed workings of those
provisions is no excuse, it is potentially fatal to a
positive financial outcome on a project.
So, what payment regimes do the main FIDIC
Books set up?
The Standard Payment
Pay ment
P rocedure
For each of the recurring payment cycles in a
project procured under the FIDIC Books, the
procedure for payment will start with an
application for payment according to which:-
1. The Contractor submits a Statement either:-
a. at the end of each month (CONS and
CONS MDB) an 'interim Statement',
or
b. after the end of the period of
payment stated in the Contract (if
stated) (P&DB and EPCT) an
'interim Statement';1 then
2. The Contractor then submits another
Statement within 84 days after receiving the
Taking-Over Certificate for the Works the
Statement at completion.2
1 9
Sub-Clause 14.3 [Application for Interim Payment Certificates].
2
Sub-Clause 14.10 [Statement at Completion].
2
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3. Following the Contractors submission of any
further information which the Engineer (or in
the case of the EPCT, the Employer) may
require, following his receipt of a draft final
statement within 56 days after receipt of the
Performance Certificate (or in the case of the
EPCT, Application for Final Payment) 3 , the
Contractor submits a Final Statement. If a
dispute concerning the draft final statement
arises and is resolved by a Dispute
Adjudication Boards decision 4 or settled
amicably5, then the Contractor must submit a
Final Statement.
4. The Statement shows (among other things)
the amounts to which the Contractor
considers himself to be entitled at the relevant
time, and it is submitted together with the
supporting documents. 6
5. In the case of an interim Statement' or
'Statement at completion', the Engineer (or in
the case of the EPCT, the Employer) issues an
Interim Payment Certificate (or in the case of
the EPCT, a notice of disagreement, if any)
within 28 days after receiving the said
Statement and supporting documents. 7 The
last Interim Payment Certificate to be issued is
the one following the Contractor's submission
of the Statement at completion.
6. In the case of a Final Statement, the procedure
for a Final Payment Certificate (being the
procedure for settling the financial aspects of
the Contract) is more complicated. The
Contractor and the Engineer (or in the case of
the EPCT, the Employer) must firstly reach an
agreement on the draft final statement. The
Engineer may request further information
based on the draft final statement. The
Contractor then submits the Final Statement
accordingly. 8
7. Under the CONS, CONS MDB and P&DB, the
Engineer must issue a Final Payment
Certificate within 28 days after receiving the
Final Statement and a written discharge,9 and
the Employer must within 56 days after he
3
Sub-Clause 14.11 [Application for Final Payment Certificate].
4
Under Sub-Clause 20.4 [Obtaining Dispute Adjudication Boards
Decision].
5
Under Sub-Clause 20.5 [Amicable Settlement].
6
Under Sub-Clauses 14.3, 14.10 and 14.11.
7
Under Sub-Clause 14.6.
8
Under Sub-Clause 14.11.
In accordance with Sub-Clause 14.11 and Sub-Clause 14.12
[Discharge].
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receives the Final Payment Certificate pay to
the Contractor the certified amount therein.10
8. In the case of a Final Statement under the
EPCT, the Employer must pay to the
Contractor the amount which is finally due,
less all amounts previously paid by the
Employer and any deductions.11
Figure 1 (below) illustrates the procedure
concerning certification and payment under the
CONS, the CONS MDB and the P&DB.
Beware the
t he Sting in the
Tail
It is apparent from the above outline of the
standard payment procedure that Statements are
the precursor to payment at all three phases of the
account: Pre-Taking Over Certificate; Post-Taking
Over Certificate; and Post-Performance Certificate.
But it does not end there.
Sub-Clause 14.14 provides, what the FIDIC
Secretariat describes as a reasonable constraint on
the Contractors entitlements to initiate claims at a
late stage in the Contract. 12 Sub-Clause 14.14
states:
The Employer shall not be liable to the Contractor
for any matter or thing under or in connection with
the Contract or execution of the Works, except to
the extent that the Contractor shall have included an
amount expressly for it:
a) In the Final Statement and also
b) (except for matter or things arising after the
issue of the Taking-Over Certificate for the
Works) in the Statement at completion
described in Sub-Clause 14.10 [Statement
at Completion].
However, this Sub-Clause shall not limit the
Employers liability under his indemnification
obligations, or the Employers liability in any case of
fraud, deliberate default or reckless misconduct by
the Employer.
The dire implications for a claim concerning a
matter or thing under or in connection with
10
Under Sub-Clause 14.7 [Payment].
11
In accordance with Sub-Clause 2.5 [Employers Claims]
12
See The FIDIC Contracts Guide, at page 255.
3
Contract for which the Contractor has not
included an amount expressly in:
a. the Final Statement, and
b. (assuming the matter or things had arisen
by the time the Taking-Over Certificate
had issued) in the Statement at
completion,
are tolerably clear: The Employer shall not be liable
to the Contractor for that matter or thing, and so
(except in exceptional factual or legal
circumstances) the claim will fail.
Manifestly the underlying purpose of this
exemption clause is to encourage early settlement
of financial aspects and to afford the Employer a
measure of certainty as to his final liability to the
Contractor, and yet, in the author's humble view,
the sanction for failing to submit a comprehensive
Statement at completion and Final Statement is
draconian.
Concluding
Recommendations
We are noticing a worrying incidence of Japanese
contractors overlooking the requirement to issue
timely and comprehensive Statements at
completion, draft final statements and Final
Statements.
In view of the above-mentioned FIDIC provisions,
our strong recommendation is that, following
receipt of the Taking-Over Certificate, the
Contractor should turn his mind to preparing, and
to issuing in good time, a conforming and
comprehensive Statement at completion. Then,
similarly, following receipt of the Performance
Certificate, the Contractor must turn his mind to
preparing, and to issuing in good time, a
conforming and comprehensive draft final
statement, and subsequently, a conforming and
comprehensive Final Statement once it is agreed
with the Engineer (or Employer).
Assuming for risk management purposes that Sub-
Clause 14.14 will be legally effective in a particular
case, Sub-Clause 14.14 calls for three
recommended countermeasures:
When preparing a required Statement, do
carefully examine your actual legal and
financial position, the progress of the
 Pinsent Masons: regional presence, international expertise

project and the incidence of any disputes
under or in connection with the Contract.
If a dispute has arisen when it comes time
to issue the Statement at completion, a
draft final statement or the Final Statement,
do include in the Statement an estimate of
all future costs of the anticipated dispute
adjudication and arbitration, to ensure that
such costs will not be rendered
irrecoverable for want of express inclusion
in the Statement as a contingent expense.
If you are ever unsure as to what (if any)
information needs to be submitted to the
Engineer (or in the case of the EPCT, the
Employer) check this immediately with your
trusted specialist legal advisor.

Figure 1 - Timeline for Certification and Payment under the CONS, CONS MDB and P&DB

This bulletin does not constitute legal advice. Specific legal advice should be taken before acting on any of the topics covered

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