In the realm of construction contracts, the FIDIC guidelines serve as a global standard, with suspension and termination clauses being critical components that safeguard the interests of the contracting parties. These provisions are particularly nuanced in the FIDIC 1999 and 2017 editions.
Suspension Rights (Clause 16.1): Contractors can pause the works or slow down the pace if the employer defaults materially. This includes non-payment, failure to provide financial evidence, or disregarding decisions or agreements that are binding. A 21-day notice is required, emphasizing the gravity of the default. If resolved, contractors must resume work promptly.
Termination by Contractor (Clause 16.2): Contractors can terminate the contract if the employer persistently fails to honor their obligations, such as financial transparency, timely payments, or substantial performance. Specific triggers include prolonged suspension or the employer’s insolvency. A 14-day notice is typically required, except in cases of employer insolvency or prolonged suspension, where immediate termination is permissible.
Employer’s Termination for Convenience (Clause 15.5): Employers may also terminate the contract for their convenience, without the contractor’s fault. The 1999 edition offers limited protection to contractors, while the 2017 edition enhances contractor rights, including compensation for loss of profit and other damages.
The Balance of Power: The 2017 FIDIC editions recalibrate the balance of power, providing more structured and contractor-friendly provisions. They ensure that contractors are compensated for termination and protect their rights during suspension. Conversely, employers gain the flexibility to terminate for convenience but with financial obligations to the contractor.
Detailed Explanation:
Start: Clause 2.4
This is the starting point of the analysis. Clause 2.4 is focused on the Employer’s financial arrangements.
Employer’s Financial Arrangements
This is the core subject of Clause 2.4. It deals with the financial commitments and obligations of the Employer.
Contractor’s Protection
This part emphasizes that the clause offers greater protection to the Contractor compared to the 1999 edition.
Comparison with 1999 Edition
Clause 2.4 in the current edition is more extensive and offers better protection to the Contractor than its counterpart in the 1999 edition.
Employer’s Ability to Sustain Payments
The Contractor needs to be confident about the Employer’s financial stability and ability to make ongoing payments throughout the project.
Security Against Performance
The Contractor may obtain security against the Employer’s financial performance, although this is not always guaranteed.
Employer’s Other Financial Obligations
Besides payments, the Employer may have other financial obligations that they must meet.
Inadequate Security
Sometimes the security obtained against the Employer’s financial obligations may be inadequate.
Failure to Provide Evidence
The Employer’s failure to provide appropriate evidence of financial arrangements is a critical point.
Grounds for Suspension & Termination
Failure to provide evidence can lead to suspension or termination by the Contractor.
Under Clause 16
Both suspension and termination are executed under Clause 16 of the FIDIC contract.
Contractual Jargon Words:
- Employer: The party responsible for the project’s financial obligations.
- Contractor: The party responsible for executing the project.
- Financial Arrangements: The financial commitments and securities set by the Employer.
- Suspension: Temporary halting of work due to specific conditions not being met.
- Termination: Ending the contract due to failure in meeting specific conditions.
Detailed Explanation:
Start: Clause 7.7
This is the starting point of the analysis. Clause 7.7 deals with the ownership of plant and materials.
Ownership of Plant and Materials
This is the core subject of Clause 7.7. It outlines when the plant and materials become the property of the Employer.
Risk Transfer to Employer
This part indicates when the risk associated with the goods delivered to the site but not yet incorporated into the works passes to the Employer.
Goods Delivered but Not Incorporated
This refers to items that have been delivered to the construction site but have not yet been used in the construction.
Local Law Consistency
The clause must be consistent with the mandatory rules of local law.
Mandatory Rules
These are the rules that are obligatory according to the local governing law.
Property Transfer Conditions
These are the conditions under which the property is transferred to the Employer, free from liens and other encumbrances.
Free from Liens and Encumbrances
This means that the property is transferred without any legal claims or restrictions on it.
When Contractor is Paid under 8.11
Ownership transfers when the Contractor is paid the value of the plant and materials under clause 8.11, which deals with payment after suspension by the Employer.
After Suspension by Employer
This refers to the period after the Employer has suspended the works.
When Contractor is Paid under 14.5
Ownership transfers when the Contractor is paid the amount determined for the plant and materials under clause 14.5, which deals with plant and materials intended for the works.
Plant and Materials Intended for Works
This refers to items that are specifically intended to be used in the construction.
Contractual Jargon Words:
- Employer: The party responsible for the project’s financial obligations.
- Contractor: The party responsible for executing the project.
- Plant and Materials: Items used in the construction.
- Liens and Encumbrances: Legal claims or restrictions on a property.
- Suspension: Temporary halting of work due to specific conditions not being met.
Detailed Explanation:
Start: Clause 7.9 Employer’s Suspension of the Works
This is the starting point of the flowchart, representing the overarching clause that deals with the Employer’s right to suspend works.
7.9.1 Right to Instruct Suspension
The Engineer/Employer has the right to instruct the Contractor to suspend part or all of the works. The instruction should specify the date and cause of the suspension. The Contractor is obligated to protect the works during this period.
7.9.2 Effects of Suspension
This step outlines the consequences of the suspension. The Contractor’s entitlements to additional time and/or payment are affected by the cause of the suspension. If the Contractor is not at fault, they can claim extensions and/or additional payments.
7.9.3 Payment for Plant and Materials After Suspension: Clause 8.11
The Contractor is entitled to payment for plant and materials that have not yet been delivered to the site, under specific conditions.
7.9.4 Prolonged Suspension: Clause 8.12
If the suspension lasts for more than 84 days, the Contractor can request permission to proceed. If not granted within 28 days, the Contractor has two choices:
- Choice A: Agree to a further suspension and negotiate extensions and/or payments.
- Choice B: Treat the suspension as an omission and proceed accordingly, which may lead to termination under Clause 16.2.
7.9.5 Instruction to Resume Work: Clause 8.13
Upon receiving a notice to resume work, the Contractor must do so as soon as practicable. Both parties will examine the works and the Contractor is responsible for making good any deterioration, loss, or damage.
Examine Works and Plant
This step involves a joint examination of the works and plant affected by the suspension.
Make Good Deterioration, Loss, Damage
The Contractor is responsible for restoring the works to their original state, as per the contract.
Claim Extension of Time or Additional Payment
If the Contractor is not at fault for any damage during the suspension, they may claim an extension of time or additional payment.
Detailed Explanation:
Start: Clause 7.9
This is the starting point of the analysis, focusing on Clause 7.9, which deals with the Employer’s Suspension of the Works.
Employer’s Suspension of Works
This is the main subject of Clause 7.9. It outlines the Employer’s right to suspend the works and the consequences thereof.
7.9.1 Right to Instruct Suspension
The Engineer/Employer has the right to instruct the Contractor to suspend part or all of the works. The instruction should specify the date and cause of the suspension. The Contractor is obligated to protect the works during this period.
- Right to Instruct Suspension (Clause 8.9)
- Engineer/Employer’s Authority: The Engineer or Employer has the authority to instruct the Contractor to suspend part or all of the works.
- Contractor’s Responsibilities: The Contractor must protect, store, and secure the affected parts of the works during the suspension.
- Effects of Suspension
- Importance of Cause: The cause of the suspension affects the Contractor’s entitlements to additional time and/or payment.
- Contractor’s Entitlements: If the suspension is not the Contractor’s fault, he may claim an extension of time, cost plus profit, and other reliefs.
- Extension of Time: Additional time granted to the Contractor.
- Cost Plus Profit: Additional cost and profit that the Contractor may claim.
- Clause 8.13: Resuming Work: Conditions under which work may be resumed.
- Clause 8.11: Payment: Conditions for payment for plant and materials after suspension.
- Clause 8.12: Prolonged Suspension: Special provisions for prolonged suspension.
- Contractor’s Responsibilities: The Contractor is not entitled to any relief if the suspension was his responsibility.
- Payment for Plant and Materials (Clause 8.11)
- Conditions for Payment: Specific conditions that must be met for the Contractor to be paid for plant and materials.
- More than 28 Days: The suspension must be more than 28 days.
- Scheduled for Delivery: The items must have been scheduled for delivery during the suspension.
- Evidence of Compliance: There must be evidence that the items comply with the Contract.
- Marked as Employer’s Property: The items must be marked as the Employer’s property.
- Conditions for Payment: Specific conditions that must be met for the Contractor to be paid for plant and materials.
Clause 8.12: Prolonged Suspension
- Prolonged Suspension: This clause is activated when the suspension of work has continued for more than 84 days.
- Contractor Request to Engineer/Employer: The Contractor may request permission to proceed with the work.
- No Permission in 28 Days: If the Engineer or Employer does not grant permission within 28 days, the Contractor has two options:
- Agree to Further Suspension (Yellow Block): The Contractor may agree to extend the suspension. Both parties can then agree on the extension of time and/or cost plus profit.
- Cannot Agree to Further Suspension (Red Block): If an agreement cannot be reached, the Contractor can issue a second notice and choose one of the following:
- Treat as Omission (Green Block): The Contractor can treat the suspension as an omission under Clause 13.3.1, releasing them from further obligations.
- Notice of Termination (Orange Block): If the entire work is affected, the Contractor can issue a notice of termination under Clause 16.2.
7.9.5 Instruction to Resume Work: Clause 8.13
- Instruction to Resume Work (Blue Block): The Engineer or Employer can instruct the Contractor to resume work.
- Resume Work As Soon As Practicable (Light Green Block): Upon receiving a notice to resume work, the Contractor must do so as soon as practicable. Both parties will examine the works and the Contractor is responsible for making good any deterioration, loss, or damage.
- Joint Examination (Purple Block): Both parties examine the works and plant affected by the suspension.
- Make Good (Pink Block): The Contractor must make good any damage, loss, or deterioration.
- Claim Extension of Time or Additional Payment: If the damage was not the Contractor’s fault, they may claim an extension of time or additional payment under Clause 8.10.
Contractual Jargon Words:
- Omission: A part of the work that is left out or uncompleted.
- Extension of Time: Additional time granted for completing the work.
Cost Plus Profit: Additional costs incurred by the Contractor, along with a profit margin.
Detailed Explanation
Start Point: Contractor Default
The flowchart begins with the situation where the Contractor is in default. This is the triggering event that allows the Employer to consider termination.
Type of FIDIC Book
The next decision point is the type of FIDIC Book being used. The 1999 editions of the Red, Yellow, and Silver Books have different clauses and conditions for termination.
1999 Red and Yellow Books: Clause 15.2
For the Red and Yellow Books, the Employer can terminate the contract for various reasons:
- Performance Security (4.2): Failure to provide the required performance security.
- Notice to Correct (15.1): Failure to comply with a notice to correct.
- Abandonment: Abandoning the works or showing an intention not to continue.
- Failure to Proceed (8): Not proceeding with the works as per clause 8.
- Non-compliance (7.5/7.6): Failing to comply with notices under clauses 7.5 or 7.6 within 28 days.
- Subcontract/Assign: Subcontracting the whole works or assigning the contract without agreement.
- Bankruptcy: Becoming bankrupt or insolvent.
- Unlawful Inducements: Offering unlawful inducements related to the contract.
For most of these reasons, the Employer must give a 14-day notice to the Contractor. However, for bankruptcy and unlawful inducements, immediate termination is allowed.
1999 Silver Book: Clause 15.2
The Silver Book is similar to the Red and Yellow Books but with one key difference: failure to comply with a notice under clauses 7.5 or 7.6 does not entitle the Employer to terminate. All other conditions are the same, including the notice periods.
Notice Periods The notice periods are either 14 days or immediate, depending on the severity of the default.
Detailed Explanation:
- Start: Event Occurs (Yellow Block)
- An event listed in sub-paragraphs (a) to (f) occurs, triggering the possibility of contract termination.
- Employer Terminates Contract (Red Block)
- The Employer may terminate the contract by giving a 14-day notice to the Contractor. For corruption or insolvency (sub-paragraphs e or f), the Employer can terminate immediately.
- Contractor Leaves Site (Orange Block)
- Upon receiving the termination notice, the Contractor is required to vacate the site.
- Deliver Goods & Documents to Engineer/Employer (Teal Block)
- The Contractor must deliver any required goods and all documents to the Engineer or Employer.
- Follow Instructions for Subcontract & Safety (Dark Blue Block)
- The Contractor must follow any reasonable instructions in the termination notice for the assignment of any subcontract and for the protection of life, property, or safety of the Works.
- Employer Completes Works (Brown Block)
- The Employer has the right to complete the works themselves or arrange for other entities to do so.
- Employer Notifies Contractor for Equipment Release (Teal Block)
- After using the Contractor’s equipment and temporary works, the Employer must notify the Contractor for their release.
- Contractor Fails to Pay (Red Block)
- If the Contractor fails to make a payment due to the Employer, the Employer has the right to sell the Contractor’s equipment and temporary works.
- Contractor Removes Equipment (Orange Block)
- If the Contractor has made all due payments, they can remove their equipment at their own risk and cost.
- Balance Paid to Contractor (Dark Blue Block)
- If the Employer sells the Contractor’s equipment, the balance of the proceeds is to be paid to the Contractor.
Detailed Explanation
Start: Event Occurs
The process begins when any of the events listed in sub-paragraphs (a) to (f) occur. These events are conditions under which the Employer can terminate the contract.
Employer Terminates Contract
- 14 days notice: For most events, the Employer may terminate the Contract by giving a 14-day notice to the Contractor.
- Immediate notice: In cases of corruption or insolvency (sub-paragraphs e or f), the Employer can terminate the Contract immediately without the 14-day notice.
Contractor Leaves Site
Upon receiving the termination notice, the Contractor is obligated to leave the construction site.
Deliver Goods & Documents to Engineer/Employer
The Contractor must then deliver any required goods and all of their documents, as well as any other design documents made by or for them, to the Engineer or the Employer.
Follow Instructions for Subcontract & Safety
The Contractor must also follow any reasonable instructions included in the termination notice for the assignment of any subcontract and for the protection of life, property, or the safety of the Works.
Employer Completes Works
After the Contractor has left the site and delivered all required items, the Employer has the right to complete the works themselves or arrange for other entities to do so.
Employer Notifies Contractor for Equipment Release
Once the works are complete, the Employer must notify the Contractor that their equipment and temporary works will be released to them at or near the site.
Contractor Removes Equipment
The Contractor is then responsible for promptly arranging for the removal of their equipment at their own risk and cost.
Employer Sells Equipment (Conditional)
If the Contractor fails to make a payment due to the Employer, the Employer has the right to sell the Contractor’s equipment and temporary works to recover such payment.
Balance Paid to Contractor
Any balance from the proceeds of the sale is then paid to the Contractor.
End
The process ends here.
Contractual Jargon Words Defined:
- Employer: The party that hires the Contractor for the construction works.
- Contractor: The party responsible for carrying out the construction works.
- Engineer: A role that may be separate from the Employer, responsible for overseeing the technical aspects of the project.
- Subcontract: A secondary contract undertaking some of the obligations of the primary contract.
Works: Refers to the construction works being carried out under the contract.
Detailed Explanation:
Identifying the Edition:
- The first step is to identify which edition of the FIDIC contract is being used. The flowchart differentiates between the 1999 Red/Yellow Books and the 1999 Silver Book.
1999 Red/Yellow Books:
- No evidence of Employer’s financial arrangements (a): The Contractor can terminate the contract if the Employer fails to provide evidence of financial arrangements within 42 days after a notice is given.
- Engineer fails to issue payment certificate (b): If the Engineer does not issue a payment certificate within 56 days after receiving the necessary documents, the Contractor can terminate the contract.
- Non-receipt of amount due under interim payment (c): The Contractor can terminate if the amount due under an interim payment certificate is not received within 42 days.
- Employer substantially fails to perform (d): If the Employer fails to perform his obligations under the contract, the Contractor can terminate.
- Employer fails to comply with Contract Agreement (e): Termination is possible if the Employer fails to comply with the Contract Agreement.
- Prolonged suspension affecting whole works (f): If there is a prolonged suspension affecting the whole of the works, the Contractor can terminate.
- Employer’s insolvency (g): If the Employer becomes insolvent, the Contractor can terminate.
1999 Silver Book:
- No evidence of Employer’s financial arrangements (a): Similar to the Red/Yellow Books, the Contractor can terminate if no evidence of financial arrangements is provided within 42 days.
- Non-receipt of amount due under interim payment (c): Termination is possible if the amount due is not received within 42 days.
- Employer substantially fails to perform (d): The Contractor can terminate if the Employer fails to perform his obligations.
- Employer assigns Contract without agreement (e): If the Employer assigns the contract without agreement, the Contractor can terminate.
- Prolonged suspension affecting whole works (f): Similar to the Red/Yellow Books, termination is possible in case of prolonged suspension.
- Employer’s insolvency (g): Termination is possible if the Employer becomes insolvent.
Each termination right is subject to specific time durations, as indicated in the flowchart.
Detailed Explanation:
Start:
The process begins with identifying the edition of the FIDIC contract being used.
Identify Edition of FIDIC Contract:
For this flowchart, we are focusing on the 1999 Editions of the FIDIC contracts.
Clause 16.2, 1999 Editions:
This is the main clause that outlines the various grounds under which the Contractor can terminate the contract. The clause has several sub-paragraphs, each detailing a specific ground for termination.
- Sub-paragraph (a): Persistent failure to comply with obligation to provide evidence of financial arrangements
- The Contractor can terminate the contract if, 42 days after giving a notice suspending or reducing the rate of work, they still haven’t received reasonable evidence of the Employer’s financial arrangements. A 14-day notice for termination is required.
- Sub-paragraph (b): Engineer’s failure to issue relevant payment certificate (Red and Yellow Books)
- The Contractor has the right to terminate if the Engineer fails to issue a relevant payment certificate 56 days after receiving the Contractor’s statement and supporting documents. A 14-day notice for termination is required.
- Sub-paragraph (c): Failure to receive payment due
- The Contractor can terminate the contract on 14 days’ notice if they haven’t received payment due under an interim payment certificate by 42 days longer than the due date.
- Sub-paragraph (d): Substantial failure to perform
- This allows for termination on 14 days’ notice if the Employer substantially fails to perform their obligations under the Contract.
- Sub-paragraph (e): Failure to comply with clause 1.6 (Contract Agreement – Red and Yellow Books) or assigning without necessary agreement
- This combines two grounds: failure to sign the Contract Agreement within 28 days and assigning without obtaining the agreement of the Contractor. A 14-day notice for termination is required.
- Sub-paragraph (f): Prolonged suspension
- This allows for immediate termination if there has been a prolonged suspension of the works under clause 8.11, provided it’s not the Contractor’s responsibility.
- Sub-paragraph (g): Insolvency and similar events
- This allows for immediate termination in the event of bankruptcy, insolvency, or similar events.
End: The process ends once the Contractor has exercised their right to terminate based on the applicable sub-paragraphs.
Detailed Explanation:
- Start: The process begins when the Contractor decides to terminate the contract under Clause 16.2 of the FIDIC 2017 Editions.
- Stop All Further Work: The Contractor must immediately cease all ongoing work.
- Except for Protection of Life, Property, Safety: The only exception is work that is essential for ensuring the safety of life, property, or the works themselves.
- Incur Cost for Instructed Work: If the Contractor incurs any costs for carrying out these essential tasks, they are eligible to claim for it.
- Claim under Clause 20.2 for Cost + Profit: The Contractor can make a claim under Clause 20.2 to be compensated for the costs incurred, along with a profit margin.
- Deliver Documents, Plant, Materials to Engineer/Employer: The Contractor is required to hand over all documents, plant materials, and other work to the Engineer or Employer.
- For which Contractor has been Paid: This applies to items for which the Contractor has already received payment.
- Remove All Other Goods from Site: The Contractor must remove all other goods and materials from the construction site.
- Except those Needed for Safety: Items that are essential for maintaining safety can be left behind.
- Leave the Site: Finally, the Contractor is required to vacate the construction site.
- Payment After Contractor’s Termination:
- The Employer is required to make payments after the Contractor’s termination.
- Pay in accordance with Clause 18.5 (Optional Termination):
- The Employer must pay the Contractor in accordance with Clause 18.5 relating to optional termination.
- Pay Loss of Profit or Other Loss and Damage:
- If the Contractor has claimed in accordance with Clause 20.2, the Employer must pay the Contractor for any loss of profit or other loss and damage suffered due to the termination.
- End:
The process concludes once all the steps are completed.
Detailed Explanation:
1. Starting Point:
The flowchart begins with the Contractor deciding to suspend work. This is the initial step where the Contractor evaluates the situation and decides whether to proceed with suspension or termination.
2. Clause 16.1 Path:
- Contractor Gives Notice to Employer: Under Clause 16.1, the Contractor must give notice to the Employer about the intent to suspend work.
- Employer Remedies within 28 Days?: The Employer has 28 days to remedy the situation.
- Yes: Work resumes.
- No: The Contractor may suspend work.
- Contractor Claims under Clause 20.2: If the Contractor suffers any delays or incurs costs, they can make a claim under Clause 20.2.
3. Clause 16.2 Path:
- Contractor Gives Notice to Employer: Under Clause 16.2.1, the Contractor must give notice to the Employer.
- Employer Remedies within 14 Days?: The Employer has 14 days to remedy the situation.
- Yes: Work resumes.
- No: The Contractor may terminate the contract.
- Contractor Claims under Clause 20.2: Similar to Clause 16.1, the Contractor can make a claim under Clause 20.2 if they suffer delays or incur costs.
4. Clause 16.3 Path (After Termination):
- Stop All Further Work: The Contractor must stop all work except for specific tasks related to safety or property.
- Instructed Work: Any work that is instructed must be carried out.
- Claim under Clause 20.2 for Cost + Profit: If the Contractor incurs costs for the instructed work, they can claim under Clause 20.2.
- Deliver Documents, Plant, Materials to Engineer/Employer: The Contractor must deliver all relevant documents and materials.
- Remove All Other Goods from Site: Any other goods must be removed from the site.
- Leave the Site: Finally, the Contractor must leave the site.
5. Payment After Contractor’s Termination:
- Pay in accordance with Clause 18.5: The Employer must pay the Contractor as per Clause 18.5.
Pay Loss of Profit or Other Loss and Damage: If the Contractor has made a claim under Clause 20.2, the Employer must pay for any loss of profit or other damages.
Detailed Explanation:
- Start: Contractor Considers Termination: The process begins when the Contractor is contemplating the termination of the contract.
- Clause 16.2.1: Contractor Gives Notice to Employer: The Contractor issues a notice to the Employer under Clause 16.2.1, outlining the reasons for considering termination.
- Employer Remedies within 14 Days?: The Employer has 14 days to remedy the situation. If the Employer does so, work resumes. If not, the process moves to the next step.
- Clause 16.2.2: Contractor May Terminate: If the Employer fails to remedy the situation within 14 days, the Contractor can issue a second notice to terminate the contract immediately.
- Contractor Claims under Clause 20.2: The Contractor can claim an extension of time and/or payment of cost plus profit for any delays or costs incurred during the 14-day notice period.
- Clause 16.3: Contractor’s Obligations After Termination: After termination, the Contractor has several obligations:
- Stop All Further Work: Except for work needed for safety or protection of life or property.
- Instructed Work: Carry out any work as instructed by the Employer or Engineer.
- Deliver Documents, Plant, Materials: Hand over all documents, plant, and materials for which payment has been received.
- Remove All Other Goods: Remove all other goods from the site, except those needed for safety.
- Leave the Site: Finally, the Contractor must leave the site.
- Payment After Contractor’s Termination: After termination, the Employer is obligated to:
- Pay in accordance with Clause 18.5: This relates to optional termination.
- Pay Loss of Profit or Other Loss and Damage: Provided the Contractor has claimed in accordance with Clause 20.2.
- End: The process comes to an end.
Contractual Jargon Words:
- Clause: A specific provision or section within a legal contract.
- Termination: The act of ending a contract.
- Remedy: Corrective action taken to address a breach of contract.
Obligations: Duties or actions that a party is legally required to perform under a contract.
