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Entitlement to Suspend or Slow down because of late pay

20 replies [Last post]
Thu, 2005-10-06 01:09
Anthony Scarlett
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Gents and Ladies,

Let’s say a contract has a specific clause allowing the contractor to reduce the rate of progress or suspend the works after the notice procedure in the event of late payment.

Presumably this clause is intended for circumstances whereby a small contractor experienced cash flow problems and was unable to procure materials etc until the payments were received.

My questions are:

1. Would such a clause apply to an international contractor?
2. Would the notice requirements apply or would such a breach be so fundemental so as to entitle the contractor to suspend or reduce the rate of progress even without proper notifications?
3. Would such a clause remove the employer’s entitlement to apply liquidated damages?

Regards to all, and thanks in advance,

Anthony
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Replies

Tue, 2005-10-11 09:22
#1
Shahzad Munawar
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Anthony

My wording does not say that you put your confidential information on the forum (as this Section is very sensitive and confidential- no doubt) but reference of Contract Clauses should be made properly for the reply of inquiry.
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Tue, 2005-10-11 05:07
#2
Stuart Ness
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Shahzad,

I think that the point made by Anthony is very valid.

In addition, I think that most originators of threads and questions in this Forum have already researched their Conditions of Contract, yet they may be looking for some reassurance as to their own conclusions.

We deal in complex and confidential information, yet we are involved in industries where each project (irrespective of its nature) is unique. This means that our questions and responses can only be of a general nature, and I would not be so patronising as to suggest that the originator of any thread has neither read nor understood his specific Conditions of Contract.

Cheers,

Stuart

www.rosmartin.com
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Mon, 2005-10-10 18:55
#3
Anthony Scarlett
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Shazad,

Respectfully I have no intention of putting confidential information on a public forum.

I am looking for generalities here, specifics I can handle myslef.

Regards,

Anthony
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Mon, 2005-10-10 06:49
#4
Shahzad Munawar
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In this Section it has been observed that PP members raise their inquiries without having look at their Conditions of Contract, Type of Contract and want to seek opinion which needs to be avoided.

Before raising such issues, it will be better that firstly read your related all Contract Conditions and then in light of or by referring these, ask your questions. This will surely helpful for understanding the contractual issue and give any contractual or legal remedy more precisely and accurately

Whatsoever, is your Contract and its conditions. Beyond which you get nothing except that you may prove it evidently and substantially.

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Mon, 2005-10-10 04:36
#5
Anthony Scarlett
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Stuart,

Much as what I expected.

Regards,

Anthony
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Mon, 2005-10-10 04:30
#6
Stuart Ness
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Hi Anthony,

Without having a look at your Conditions of Contract it is difficult to be precise, as I am sure you understand.

For example, you may be time-barred from claiming an earlier excusable delay only once that you realise (towards the end of the project) that you need more time. If the Contractor forgoes his right to suspend the Works due to late payment, it may be that if he is late at the time of project completion due to non-excusable delays (in other words, his own fault!), then it may not be possible to use the earlier right to time that he gave up at the time of late payment.

In other words, if you don’t use your entitlement to time at the right time, then it is reasonable to presume that you consider that it is unnecessary, and therefore you have probably kissed it goodbye!!

Hope this helps,

Cheers,

Stuart

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Mon, 2005-10-10 04:03
#7
Shahzad Munawar
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For quantify of EOT entitlement, firstly establish the Delay period of non-payment by incorporating this non-payment delay on your original and approved schedule by using various delay techniques such as Time Impact Analysis, Window Technique etc.

As once this period is established, then you prepare your additional claims in this respect.
Loss of Profit, Loss of Productivity, Loss of overheads etc.
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Mon, 2005-10-10 04:01
#8
Anthony Scarlett
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Stuart,

That works for me.

Ineresting senario though. We are entitled to suspend so if the client is 4 months late then we are entitled to suspend for 4 months = 4 months extension of time less available float.

Let’s say we don’t but we do become late. Are we entitled to 4 months because of the entitlement or must it be less because we did not actually suspend?

Cheers,

Anthony
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Mon, 2005-10-10 03:30
#9
Stuart Ness
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Anthony,

The EOT will be determined by the extent that the critical path shoots out beyond the due completion date in the relevant Schedule Impact Study.

The critical path will be impacted by the extent of delay caused by the reduced work productivity and not by the duration of the delay in late payment. (wish it could be so simple, though!! ) ;-)

For example, the Employer may ultimately be four months late in making payment. During this time, the Contractor may slow down his rate of work progress, and after consuming the available float, his critical path activities may only be extended by two months (or whatever!). It will all depend on the amount of float available (if any!) and the extent of reduction in the work progress decided by the Contractor.

The period of delay of the late payment determines the period in which the consequences of the late payment are carried out, but this does not necessarily equal the extent of EOT.

Hope this helps,

Stuart

www.rosmartin.com
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Mon, 2005-10-10 02:10
#10
Anthony Scarlett
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Guys,

All these answers are great. Cheers.

One more question though. How would you quantify the extension of time?

I suppose, given the fact that the entitlement is to SUSPEND or slow the rate of progress, it will be the entire length of time the Client is late with the payment.

Any thoughts?
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Fri, 2005-10-07 04:03
#11
Shahzad Munawar
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The Contractor is only entitled to suspend the Works or slow down the progress because of late interim progress payments not due to Advance Payment as mostly happened in our Contracts .

Secondly you may issue a notice to the Employer to show your intention to slow down the progress or suspend the Works as he is defaulted in late payment.

Thirdly you may only nullify Employer’s right to apply LDs by submitting an application for Extension of Time due to the Employer’s default of non payment as in your case.
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Fri, 2005-10-07 02:52
#12
Charleston-Joseph...
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Hello Anthony,

I agree with Stuart answer.

I just wonder if the case study existed in Philippines.

I worked in Philippines. Generally in The Philippines the contract follows FIDIC for foreign funded projects (World Bank, IBRD, UA AID, Japanese AID, etc.), blue book (similar to FIDIC) of the Department of Public Works and Highways. In the private sector, generally, the consulting engineers used a modified version of FIDIC.

What I did observe was the deliberate suspension of work by small time contractors or staggared de-mobilization of manpower resources (slow down of progress) in the event the client delayed the payment of montly billings.

Well, I think time changes. So be it as what you said in your thread.

Cheers,

Charlie
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Thu, 2005-10-06 04:03
#13
Stuart Ness
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You’re welcome, Anthony. ;-)

However, I would not assume that just because the contractor has received a wallet full of cash at the start of the Project, that he would not encounter cash flow problems later on.
The Advance Payment will have been spent on mobilisation, site establishment costs, down payments on materials, hiring of equipment, great big party celebration, etc. etc.

By the time the project gets seriously under way the Advance Payment is bound to have disappeared, and monthly cash flow may well be a critical item… ;-)

Cheers,

Stuart

www.rosmartin.com
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Thu, 2005-10-06 03:34
#14
Anthony Scarlett
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Stuart,

As always your posts are helpful.

Thanks for that I shall take it all under consideration.

Regards,

Anthony
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Thu, 2005-10-06 03:32
#15
Anthony Scarlett
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Stuart,

The thing about the advance payment was just to demonstrate that late payment would not neccessarily cause sufficient cash flow problems to cause a delay to the rpoject.

Chher,

Anthony
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Thu, 2005-10-06 03:19
#16
Stuart Ness
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Hi Anthony,

Yes, I am saying so. If the Contractor reduces his rate of progress of the Works due to an excusable delay for which the Employer is responsible (such as late payment), then inevitably he will require more time to complete the Works. If the Contract allows the Contractor to reduce his productivity for such a reason, it seems to me that he is fully entitled to an EOT with costs.

I have been on a few projects where this has been the case, and in one case the project was extended by an extra two years due to cash flow problems with the Employer.

Whether the Contractor is an International Contractor or not, if he is the Party to the Contract, then the Contract terms apply accordingly.

It may well be that an international contractor can shoulder the cash flow problems caused by the Employer better than a local contractor, and for a variety of reasons the contractor may continue at his planned rate of progress. He may, of course, consider claiming for interest and other fiscal charges!! ;-)

Hope this helps,

Stuart

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Thu, 2005-10-06 03:07
#17
Anthony Scarlett
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Stuart,

Are you saying the EOT would be based on the contractors entitlement to slow down?

For clarification my question relating to an international contractor was with reference to the fact that the contractor will not be slowing down or suspending because of cash flow problems but other unrelated delays (claimable or not).

I hope that makes sense.

Anthony
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Thu, 2005-10-06 03:04
#18
Stuart Ness
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Sorry Anthony,

I should have added that I don’t see the relevance of the advance payment. ;-)


Cheers,

Stuart

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Thu, 2005-10-06 03:03
#19
Stuart Ness
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Anthony,

My answers are:

1. Yes (why not?)
2. Yes – even a fundamental breach requires the giving of notice to allow for mitigation by the defaulting Party.
3. No – but the Contractor should be able to claim for an EOT and have the due completion date extended.

Hope this helps

Cheers,

Stuart

www.rosmartin.com
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Thu, 2005-10-06 01:13
#20
Anthony Scarlett
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Sorry people,

I should have added the fact that there is an advance payment on the project.

Cheers,

Anthony
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