Contract Re-Negotiation

I got a news of similar kind in UAE where in some projects client asked his contractors to revise the BOQ since cost of materials agreed for construction has gone down due to recession .
Conditions of contract{prepared by client}is just modified form of FIDIC in that some clause statement , you could find as null & Void the same statement has been described briefly in FIDIC book

Hi Sajid

One of the usual claim heads in a delay situation is increased costs of materials.

If the Contractor caused the delay then I can see no reason why the Employer should not claim back the lower material costs.

If the Employer caused the delay then he should have no claim by way of "unjust enrichment"

Whether that is the same in your jurisdiction I do not know.

Best regards

Mike Testro

Hi Mike
Thanks for reading my post & the reply.

I fall in the later part of your email. The employer caused considerable delays in issuing & signing the contract and more importantly in interim payments.

Now, he is asking us to re-negotiate the price in view of economic downturn. In his opinion, he is looking for 25% of price cut in intital project cost. Obviously, we understand 25% is un-imaginable figure but he wanted to have more cushion for himself and may really want us to drop the price to from 8-12%.

We are not inclined to do that based on the reasons you highlighted in your reply.

Now, there is a serious threat to the project to the extent that it may not proceed any further. In that case, I see another costly, both in terms of time & money, solution that is called Arbitration to settle all un-resolved issues and the uncertainty looms over our heads.


Regards

Hi Sajul

If you do not agree to the re-negotiation then the Employer may terminate the contract under the relevant contract clause.

The Contractor would then normally be awarded his loss of profit which could reasonably include the current buying gain.

The balance point is whether there is sufficient work in hand - or expected - to cover the contractors running overheads.

Best regards

Mike Testro

............the Employer may terminate the contract under the relevant contract clause.

wao!!!!!!!
What contract provision empowers the client that if the contractor disagrees for re-negotiation, he may terminate th contract.

Will you please suggest me of such clause. Please be noted that its a FIDIC silver book contract.

The project, to the best of my estimates, progressed around 15%. Rest is noteven in distant sight.

Regards

Hi Sajid

If there is no termination clause in the contract then you do not have to re-negotiate.

So whats your problem?

Best regards

Mike Testro

Dear Sajid,

Would you kindly refer to clause 13.8 "Adjustments for changes in cost" in your conditions of Contract and let us know what items are shown on the "table of adjustment data".

With kind regards,

Samer

Mike
The standard clause "Terminaion by Employer" does exist. Clause 15.5 empowers the Employer for termination at his convinience. To define "convinience" is very subjective particularly if employer caused considerable delays to the project. IfI refer to your erlier reply to my post, its "unjust enrichment" which is against the law.

Samer
13.8 is unchanged in PC and no such provisions are highlighted in PC. (But, I need to further dig into it if any such thing ever discussed and/or agreed).

Thanks you guys for reading & replying to this post.

Regards

Hi Sajid

The term "at his convenience" means whenever he wants to and for whatever reason.

The crux is what he has to pay to the contractor to satisfy his convenience.

Refer back to my earlier thread #5

Best regards

Mike Testro

Dear Sajid,

Per FIDIC, if there is no such table of adjustment data included in the Appendix to Tender, then the "Adjustment for changes in cost" shall not apply.

The answer lies within the FIDIC and your Conditions of Contract.

With kind regards,

Samer

Dear Sajid,

One other point to note under clause 15.5 is that the Employer is not entitled to terminate for convenience if he intends to complete the works himself or arrange for others to complete the works. If he did this then he could be liable for the loss of profit.

The Silver Book is a lump sum contract and generally the Employer has no right to vary the payment terms except where the contract includes a provision for adjustments (see clause 1.1.4.1)

Hope this helps

Andrew

Hi Andrew
Thank you very much for your reply.

It may sound wierd to many, but, the Particular Conditions stated to delete the sentence that barred the employer to terminate the contract in order to execute by himself or by another contractor.

Further, there are some items where we have to revise our price with the prevailing price wether it is on plus or minus side.

So, I may not have any room in the conditions of contract but may exercise common law to barred the employer to take any such step that may lead to termination of the contract on mere price negotiation grounds.

Regards