Contractor or Subcontractor -Who Wins Under Bespoke Subcontract? By

Rama S Sinnaswamy BEng, MBA, LLM (Construction Law & Arbitration) MCIArb, MCInstCES, CCP, MASCE-CEng

Rajesh Kumar BE, MSc (Construction Law and Practice), MCIArb, MRICS, MCInstCES, MAIQS, MIIQS, CCP, ICIOB

Signing the Subcontract

Decision is taken Signed

Risks in Subcontract

Some Onerous Clauses a. Extension of Time b. Terms of Payment c. Liquidated Damages d. Delay and Cost of Delays e. Fluctuation

Main Causes of Disputes Main Contractor Subcontractor

Late appointment Delay in Shop Drawings and Samples Changes in design, speciMication and approval delay Delay in resources Changes in the sequencing of works Lack of Quality Work Lack of access Non-adherence to the Schedule Financial Lack of Proper Communication

Effects of Disputes Contractors Obligation not to Disrupt is not implied Time Delay Payment Delay

Time Delay Delays caused by Employer/ authorities Main contractor Subcontractor

Extension of SCs Time for Completion (FIDIC Sub-clause 7.2)

If the Subcontractor shall be delayed in the execution of the Subcontract Works or if applicable, any Section thereof by any: a) circumstances in regard to which the Contractor is entitled to receive from the Engineer an extension of his time for completion of the Main Works under the Main Contract, b) instruction pursuant to Sub-Clause 8.2 (Instructions under Subcontract) to which paragraph (a) of this Sub-Clause does not apply, or c) breach of the Subcontract by the Contractor or for which the Contractor is responsible, then in any such event the Subcontractor shall be entitled to such extension of the Subcontractor's Time for Completion of the Subcontract Works or such Section thereof as may in all the circumstances be fair and reasonable.

Extension of SCs Time for Completion (FIDIC Sub-clause 7.2) Provided that the Subcontractor shall not be entitled to such extension of time unless he has submitted to the Contractor notice of the circumstances which are delaying him within 14 days of such delay Mirst occurring together with detailed particulars in justiMication of the extension of time claimed in order that the claim may be investigated at the time and, in any case to which paragraph (a) of this Sub-Clause applies, the extension shall not in any event exceed the extension of time to which the Contractor is entitled under the Main Contract.

Commencement and Completion (Bespoke Sub-clause 6.2) 6. 2 If the Sub-Contractor shall be delayed in the execution of the Sub-Contract Works: a) by any circumstances or occurrence (other than a breach of this Sub-Contract by the Sub-Contractor) entitling the Contractor to an extension of his time for completion of the Main Works under the Main Contract; or b) by the ordering of any variation of the Sub-Contract Works to which paragraph (a) of this sub-clause does not apply; or c) by any breach of this Sub-Contract by the Contractor; then in any such event the Sub-Contractor shall be entitled to such extension of the Period for Completion as may in all the circumstances be fair and reasonable.

Commencement and Completion (Bespoke Sub-clause 6.2)

Provided always that in any case to which paragraph (a) of this sub-clause applies it shall be a condition precedent to the Sub-Contractor's right to an extension of the Period of Completion that he shall have given written notice to the Contractor of the circumstances or occurrence which is delaying him within 7 days of such delay Mirst occurring and in any such case the extension shall not in any event exceed the extension of time to which the Contractor is properly entitled under the Main Contract

Payment Delay Delays caused by: Delays in certiMication Withholding of Payments CertiMied but not paid: Payment provision Pay when paid Payment protection in the UK, governed by HGCR Act In Qatar?

Payment Due; Payment Withheld or Deferred; Interest (FIDIC Sub-clause 16.3)

Within 35 days of the SpeciWied Day or otherwise as agreed but

subject as hereinafter provided, the amounts included in a

Statement shall be due and payable to the Subcontractor, subject to deduction of previous payments and of retention monies at the rate(s) speciMied in the Appendix to Subcontractors Offer until such time as the limit of retention money (if any) therein speciMied has been reached. The Contractor shall be entitled to withhold or defer payment of all or part or any sums otherwise due pursuant to the provisions here of where ...

Payment (Bespoke Sub-clause 15.1 a) The Sub-Contractor shall not less than 7 days before the date speciMied in the First Schedule (the SpeciMied Date) or otherwise as agreed submit to the Contractor a written statement of the value of all work properly done under the Sub-Contract and of all materials delivered to the Site for incorporation in the Sub-Contract Works and if allowable under the Main Contract the value of off-site materials for incorporation in the Sub-Contract works at the date of such statement. The statement shall be in such forms and contain such details as the Contractor may reasonably require and the value of work done shall be calculated in accordance with the rates and prices, if any, speciMied in the Sub-Contract, or if there are no such rates and prices, then by reference to the Price.

Payment (Bespoke Sub-clause 15.3 a)

Within 7 days after receipt of payment by the Contractor but subject as hereinafter provided, there shall be due to the Sub-Contractor in respect of the value of the work and materials if included in a valid statement payment of a sum calculated in accordance with the rates and prices speciMied in this Sub-Contract, or by reference to the Price, as the case may require, but subject to a deduction of previous payments and of retention monies at the rate(s) speciMied in the Third Schedule hereto until such time as the limit of retention (if any) therein speciMied has been reached.

What are the consequences?

Non-Payment, is there speciMic recourse under FIDIC or Bespoke? This will become a potential dispute No option for either suspension or termination for the Subcontractor under the Subcontract, except to bring it as dispute? Whereas, the Main Contractor may terminate the

Subcontractors Employment for causes

Termination, Penalty and Call-on Performance Bond

Termination Remove the Subcontractor, and take part of the works

Default of Subcontractor (FIDIC Sub Clause 18.1) If: (a) the subcontractor is deemed by law unable to pay his debts as they fall due,

or enters into voluntary or involuntary bankruptcy, liquida9on or dissolu9on, (b) the subcontractor has repudiated the Subcontract, (c) the subcontractor, without reasonable excuse, has failed to commence or proceed with the Subcontract Works.., (d) the subcontractor refuses or neglects to remove defective materials or remedy defective work after being instructed so to do by the Contractor.., (e) the Subcontractor, despite previous warning from the Contractor, in writing , is otherwise persistently or Mlagrantly neglecting to comply with any of his obligations under the Subcontract, (f) the Subcontractor has contravened Sub-Clause 2.5(Sub-Subcontracting), or (g) the Contractor is required by the Engineer to remove the Subcontractor from the Main Works after due notice in writing from the Engineer to the Contractor in accordance with the Main Contract,

Default of Subcontractor (FIDIC Sub Clause 18.1) Contd then in any such event , and without prejudice to any rights or remedies,

the Contractor may by a notice to the Subcontractor forthwith terminate the Subcontractors employment under the Subcontract and thereupon the Contractor may take possession of all materials, Subcontractors Equipment and other things whatsoever brought on to the Site by the Subcontractor and may by himself or any other contractor use them for the purpose of executing and completing the Subcontract Works and remedying any defects therein and may, if he thinks Mit, sell all or any of them and apply the proceeds in or towards the satisfaction of monies otherwise due to him from the Subcontractor. Sub Clause18.3 Contractors Powers The Contractor may in lieu of giving a notice of termination under this Clause take part only of the Subcontract Works out of the hands of the Subcontractor and may by himself or any other contractor execute and complete such part of the Subcontract Works and remedy any defects therein and in such event the Contractor may recover his cost of so doing from the Subcontractor, or deduct such costs from monies otherwise becoming due to the Subcontractor.

Sub-contractors Default (Bespoke Sub Clause 17.1) If the Sub-Contractor:

(a) fails to proceed with the Sub-Contract Works with due diligence aAer being required in wri9ng so to do by the Contractor; or (b) fails to execute the Sub-Contract Works or to perform his other obliga9ons in accordance with the Sub-Contract aAer being required in wri9ng so to do by the Contractor; or (c) refuses or neglects to remove defec9ve materials or make good defec9ve work aAer being directed in wri9ng so to do by the Contractor; or (d) commits an act of bankruptcy or enters a deed of arrangement with his creditors or, being a company goes into liquida9on, (other than a voluntary liquida9on for the purposes of reconstruc9on), or has a receiver appointed of all or part of its undertaking.

then in any such event and without prejudice to any other rights or remedies, the Contractor may by wriFen no9ce to the Sub-Contractor forthwith determine the Sub-Contractor's employment under this Sub-Contract and thereupon the Contractor may take possession of all materials, Construc9onal Plant and other things .,

Sub-contractors Default (Bespoke Sub Clause 17.3)

Part The Contractor may in lieu of giving a notice of determination under this clause take part only of the Sub-Contract Works out of the hands of the Sub-Contractor and may be himself, his servants or agents execute, complete and maintain such part and in such event the Contractor may recover his reasonable costs of so doing from the Sub-Contractor, or deduct such costs from monies otherwise becoming due to the Sub-Contractor.

Upon TERMINATION .

Penalty or Liquidated damages Call on Bond

Performance Security (FIDIC Sub Clause 2.2) If the Subcontract requires the Subcontractor to obtain security for his proper performance of the Subcontract, he shall obtain and provide to the Contractor such security in the sum stated in the Appendix to Subcontractor's Offer. Such security shall be in the form annexed to the Conditions of Subcontract or in such form as may be agreed between the Contractor and the Subcontractor. The institution providing such security shall be subject to the approval of the Contractor. The cost of complying with the requirements of this Clause shall be borne by the Subcontractor, unless the Subcontract otherwise provides.

Performance Bond (Bespoke Clause 20)

The Sub-Contractor shall obtain when required, a bond or guarantee of a bank registered in the U.A.E. acceptable to the Employer to be bound with the Sub-Contractor to the Contractor in a sum equal to 10 percent of the Sub-Contract value for the due performance of the Sub-Contract under the terms of the Performance Bond. The said bank and the terms of the said Performance Bond to be so entered shall be at the expense in all respects of the Sub-Contractor. Such bond or guarantee shall be valid until the issue of Defects Liability CertiMicate.

On demand bond - Is this a Cheque?

Calling on Performance Bond Is this an Act of bad faith? FIDIC/ Bespoke Clause: For the due performance? What does it really mean? So, Subcontractor is under the mercy of Main contractor, like the Main Contractor is under the Employer

Disputes between a Contractor and a Subcontractor

UAE Case - DebrieWing: i. Main contractor failed to make payments ii. Subcontractor reduced resources iii. Subcontractor was removed from the site for their alleged delay iv. Imposed penalty v. Performance Bond was encashed

Strategize Dispute Resolution Route

What does the Subcontract state about the Rights, Obligations and Liabilities of the PARTIES? What does the Subcontract say about dispute resolution? Whether Arbitration or Court? Of course each party would attempt capitalize the option(s) given in the agreement.

A dispute within a dispute? Bespoke Disputes 18.(1) If any dispute arises between the Contractor and the Sub-Contractor in connection with or arising out of this Sub-Contract or the carrying out of the Sub-Contract Works including any disputes as to any decision, opinion, instruction or direction of the Contractor and/or Employer Representative, it shall, subject to the provisions of this clause, be referred,

to the arbitration and Winal decision of a person agreed between the parties, or failing such agreement, the dispute shall be submitted to the jurisdiction of the Court of Law of Dubai and shall be Minal and binding upon the Contractor and Sub-Contractor. Seek Courts direction, if unable to resolve between parties.

Court Appointed a Single Arbitrator Both parties presented their arguements with evidences

Set backs in this Case Usual onerous clauses as explained earlier, in favor of the Contractor As seen in the Bespoke, No EOT Pay when paid Default Clause On Demand Bond

Contractors Wrongful Acts Overwhelmed the set backs

Contractor and other Subcontractors were also parties to the delay, besides mainly, ------- Non-payment: Dues - Progress payment 20% Termination took place and penalty imposed Performance bond encashed while, 1. Progress Payment CertiMicate revealed consistency in progress completed up to 99% 2. partial possession happened (28/67 Floors) 3. Substantially completed

Payment CertiWicates InWluenced Arbitrators Decision, How?

Effects of Payment CertiWicates CertiMication is a condition precedent either to payment or to quantifying the works Consistency in certiMicates Critical about certifying party?

Taking over CertiWicates InWluenced Arbitrators Decision, How?

Effects of Taking over CertiWicates Record shows partial progressive occupation for internal ofMice partitioning works without TOC Back dated TOCs Inconsistencies in other Subcontractors TOCs

Award

Main Contractors actions were proven as wrong Subcontractor entitled for the work done Due amounts paid less deduction Retention Paid Performance bond money returned

Lessons Learned Contracting parties shall honor their commitments/ fulWill the obligations under UAE/ Qatar Civil Codes, besides, Main Contractor Foresee implications of actions, letter or document such as Payment CertiMicate/ Taking over CertiMicate Avoid termination Sub Contractor Avoid delay or suspension Consultant Effects of Payment CertiMicates Effects of back-dated TOCs

Who wins? Contractors actions might be right under Bespoke, but was he the winner? Subcontractor reduced resources; Minally, was only compensated for his dues under the Subcontract, after a lengthy process of Arbitration/ Litigation. So, was he the winner?

SO IT IS NOT THE QUESTION OF WHO WINS, An Agreement usually is meeting of minds; But, both parties may have different intentions, while signing the agreement , which each other wouldnt know. The intention of parties seldom (truly) meet during the fulMilment of an agreement. Nonetheless, neither of their intentions wins, if they are of vested!

THEN, WHAT WINS? Fair and reasonableness prevails! Finally, as the Court upheld the INTENT of an Agreement, wins!

Thank You Q&A