Hi guys,
I offer following situation for your review and advice :
Subcontractor's scope is part of a larger project involving other subcontractors. Subcontractor has caused a delay to the completion of its scope which would enable Contractor to draw liquidated damages as per the Contract.
However, the rest of the project has been delayed even more and both Contractor and Subcontractor have to wait until other parts of the project are finished so Subcontractor's scope can be put in operation. There does not seem to be any delay costs for the Contractor which are attributable to the Subcontractor.
What is your understanding, can the Contractor legally draw LD's as the actual completion of Subcontractor's scope is past the contractual completion date? Or could one argue that in the absence of any costs resulting from this delay, the applying of LD's is not justified?
It would be great if any advice could be backed-up with a reference to jurisprudence or recommended practice.
Thanks and have a nice day.
Mike,
Thanks so much. That's clear with me. I was once involved in claims that the Contract was based from a country other than the location of the Project.
Regards,
Hi Raymund
The applicable law is stated in the contract and need not be that of the location of the project.
I was in an arbitration for a project in Siberia where the applicable law was that of the state of New York and another in Shanghai where the law was that of the state of Alabama.
Best regards
Mike Testro
Mike,
Thanks for the info.
Trending nowadays is a "Contract Administrator" as those called as PMO, are implenting the contract of specific project.
The contract is based on the Law of a certain Country.
The same contract is applied to a specific project in another country where the project is located.
Which Law shall prevails then?
When disputes arises, it shall be resolved within the texts of that contract, otherwise it will be elevated to higher disputes venue. The venue can be those specified also on the same contract. This means that the texts of the contract shall govern.
Regards,
Hi Marcel
If you are the sub-contractor and the main contractor is awarded an EoT by default of third parties then the contractor must award the sub-contractor a commensurate EoT - thus providing relief from LD's.
Otherwise the main contractor would be guilty of unjust enrichment - if not fraud which is most likely a criminal offence in Spanish law.
The sole purpose of an EoT clause is to preserve the right of the employer to collect Liquidated Damages in the case of his own culpable delay.
Best regards
Mike Testro
dear Mike, dear Raymond,
thanks for your contribution.
Raymond's first reaction is very straightforward and seems to leave no room for discussion if there were only this single contract between Main Contractor - Contractor on the project. However it is becoming evident that the entire project will be delayed by third party contractors and there will not be any delay costs or whatever other costs for the Main Contractor resulting from the delay of "my" part of the entire project.
If sort of annoys me that according to Raymond the Main Contractor could legitimedly cash the LD amount as stipulated by the contract although he has not incurred any costs. This is not why LD's are being included in contracts isn't it?
PS. the contract law is the spanish law.
Have a nice day!
Hi Raymund
It is nothing to do with the contract clause.
It depends on the prevailing law.
Best regards
Mike Testro
Mike,
That's when the LD amount is not Specified on the Contract Clauses. Some Contract states the Specific amount and some mentioned a percentage of Contract Amount.
That's all depend on how the Contract States the Clause.
Regards,
Hi Raymund
That is not necessarily correct.
In some jurisdictions the ammount of LD's is a set maximum and the employer/contractor still has to demonstrate his loss.
Best regards
Mike Testro
Marcel,
The Sub-Contractor under a Contract with the Main Contractor are binded by the Contract between them and so with the Main Contractor under a Contract with the Project Owner are binded by the Project Contract.
If LD is stipulated in the Contract between a Sub-Contractor and a Main Contractor and that the Sub-Contractor breaches any conditions of the Contract which calls for the application of LD, then it is reasonable to apply it with the Sub-Contractor if the delays are proven to be a negligence on their part.
Regards,
Hi Marcel
It all depends on the location - applicable law - contract / sub-contract conditions.
These have to be clarified before a meaningful answer can be given.
If both the main contractor and the sub contractor were delayed by a third party then they both have a valid claim for an EoT - maybe with costs - so LD's need not be applied.
Best regards
Mike Testro