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Standard Sub-Clause 47.1 Liquidated Damages for Delay

If the Contractor fails to comply with the Time for Completion in accordance with Clause 48, for the whole of the Works or, if applicable, any Section within the relevant time prescribed by Clause 43, then the Contractor shall pay to the Employer the relevant sum stated in the Appendix to Tender as liquidated damages for such default and not as a penalty (which sum shall be the only monies due from the Contractor for such default) for every day or part of a day which shall elapse between the relevant Time for Completion and the date stated in a Taking-Over Certificate of the whole of the Works or the relevant Section, subject to the applicable limit stated in the Appendix to Tender. The Employer may, without prejudice to any other method of recovery, deduct the amount of such damages from any monies due or to become due to the Contractor. The payment or deduction of such damages shall not relieve the Contractor from his obligation to complete the Works, or from any other of his obligations and liabilities under the Contract.

Modifications

The modifications being introduced to Sub-Clause 47.1 can be summarized in the following table:

Modification

Selection

Criteria

Organization 1 Organization 2 Organization 3 Organization 4 Organization 5 Organization 6 Organization 7 Majority MRI = 3

(previously considered) 1 3 2 3 3 3 3

Modification Description Organizations Adoption

Delete and replace this Sub-Clause by considering Delay Penalty rather than Liquidated Damages

X X X X X 5

Keep the original wording of this Sub-Clause but deduct money from upcoming Contractor dues only

X -

Keep the original wording of this

The above table indicates that considering Delay Penalty rather than Liquidated Damages is the governing major modification to this Sub-Clause. Therefore, the modification being put into further analysis considers sample of the same.

Modifications to be analyzed

Delete the text of sub-Clause 10.3 and substitute with the following:

Delay Penalty:

If the Contractor fails to comply with Time for Completion, the Contractor shall pay delay penalty to the Employer for this default. This penalty shall be the sum stated in the Appendix to Tender, which shall be paid for every day which shall elapse between the relevant Time for Completion and the date stated in the Taking-Over Certificate. However, the total amount due under this Sub-Clause shall not exceed the maximum amount of penalty delay damages stated in the Appendix to Tender.

A. Why the specific modification is being introduced?

The semi structured interview highlighted that the reason behind the introduction of the said modification is to provide the Employer with additional protection by converting the liquidated damages to penalty payment hence escaping the difficulty associated with liquidating the damages that may occur due to Contractor’s delay. Responder O4 noted that “Penalty mechanism is easier to implement by the Employer in the event the Contractor failed his obligations”

B. What are the implications of such modification?

As a result of the introduction of this modification, the feedback received from the seven participants in terms of impact can be summarized by considering 4% increase in the project cost and not less than a one month increase in the project original time for completion, given typical project duration of three years, as a direct impact of this modification. Also, it was noted during the semi structured interviews that Contractors normally tend to request increasing the project duration in order to protect themselves against damages or penalty.

C. What consequences of the modifications can be drawn?

As per the feedback received from the semi structured interview, the modification eliminates the procedure as to how the penalty money will be deducted. Therefore, while the original clause is specific about the mechanism allotted for such deduction “The Employer may, without prejudice to any other method of recovery, deduct the amount of such damages from any monies due or to become due to the Contractor” the modified version is silent about

this procedure. In so doing, there is a void created that is likely to attract arguments between the parties and lead to misinterpretation by both parties.

Another consequence that was addressed during the said interview is the fact that the modification may lead to difference in interpretation as to what the Contactor may not do in case such money is deducted; and that is, in the original clause wording, the Contractor’s obligation is to continue the Works unaffected and the fulfillment of his other obligations.

One of the participants noted that “the term Penalty is not recognized under some Laws”.

D. Any other proposition/ recommendation concerning the modifications being witnessed

From the above analysis, the modification would impact the project cost and time also it was recorded that it is erroneous in many aspects. It will likely lead to misinterpretation of this clause by both parties.

E. Benchmarking the Sub-Clause Modification

It was noted by one of the organizations that “the term Penalty is not recognized under some Laws”. Accordingly, changing the type of the due payment from “liquidated damage” amount to a penalty one may invalidate the payment (i.e. Contractor would not have to pay it) under certain laws such as the British Law. As an agreement for one party to pay another Penalty is not acceptable under many laws, FIDIC has ensured that such damage would be paid as a liquidated damage. Accordingly, such a change is deemed an error in the Contract that invalidates this part of it.

F. Conclusion(s) about the Modification

The conclusion that can be withdrawn is that it is unnecessary to modify this clause. While the Employer is most likely under the understanding that such modification is fool-proof in terms of specifying exactly what, when and how much is to be deducted, it actually weakens the Employer’s position by eliminating many controls that are provided for and embedded in the original clause to safeguard from any misinterpretation; Notwithstanding some Law considerations in relation to Penalty Term.

Proposed Modification- Guideline(s) for this sub-Clause