Forma d´ebil discretizada

In nearly all cases, contractors will allow something in their tender for finance charges on the working capital required to carry out the works.

There may not be a positive cash flow until final retention is released. What- ever the contractor's anticipated cash flow, as a general rule, if the value of work increases, the additional financing ought to be recovered in the rates for variations (assuming that the finance costs are allocated through- out the rates for measured work).

However, it is often the case that interim certificates do not reflect the true value of the original contract work including variations. In such cir- cumstances the contractor will be incurring additional finance charges on the under-certified sums. Whilst significant changes have taken place in recent years to compensate contractors for the loss incurred as a result of increased finance charges in cases of default by employers, the commer- cial reality of the high cost, and potential loss, has not been recognised fully in many modern contracts or in the general law. A claim for finance charges on late, or under-certification, will have to be founded on a contractual provision, or for breach of contract.

In the case of Morgan Grenfell Ltd v. Sunderland Borough Council and Seven Seas Dredging Ltd 85, it was held that clause of the ICE fifth edition enabled the contractor to claim compound interest on amounts which were included in a statement under clause if the engineer failed to certify and it was subsequently found that the amounts ought to have been certified.

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However, in Secretary of State for Transport v. Birse-Farr Joint Venture 26 BLR 36, Mr Justice said:

'The opinion which the engineer is required to form and express in his certifi- cates is a contractual opinion. It must be a bona opinion arrived at in accor- dance with the proper discharge of his professional functions under the contract.

In sub-clause (3) there is an express reference to "the amount which in his opinion is finally due under contract." It is implicit in subclause (2) that the sum certified is that which, in his opinion, he considered to be due under the con- tract as an interim payment under that month. If it should be the case that the engineer's opinion is based on a wrong view of the contract then it can be said that he has failed to issue a certificate in accordance with the provisions of the contract. This was the case in the Farr case [Farr v. Ministry of Transport 1 WLR Therefore, leaving on one side all question of bad faith or improper motive - and none is suggested in the present case - a contractor who is asserting that there has been a failure to certify must demonstrate some misapplication or misunderstanding of the contract by the engineer. For example, it certainly does not suffice that the contractor should merely point to a later cer- tification by the engineer of a sum which had been earlier claimed but not then certified.

Where the engineer has certified and the employer fails to pay on time, clause of the ICE sixth and seventh editions, clause of the FIDIC fourth edition and clause 14.8 of the FIDIC contracts expressly provide for finance charges to be paid.

The case of Borough of Kingston-upon-Thames v. Amec Civil Engi- neering 35 39 almost got to grips with the issue as to whether, or not, finance charges could be considered as part of the cost.

Amec's claim for finance charges had been rejected on the same grounds as those given in Secretary of State Transport v. Birse-Farr Joint Venture. Amec argued alternatively that finance charges were part of the cost. His Honour Judge Richard Havey stated:

'Two questions arise: first, whether interest on any balance found due to the con- tractor, calculated from the date when that balance could or ought to have been certified, is recoverable as a financing charge representing a cost, or part of a cost, recoverable under a relevant clause of the contract; and, second, whether any interest claimed as a financing charge representing a cost, or part of a cost, recoverable under a relevant clause of the contract continues (whether com- pounded or not) beyond the date when certification or payment could or ought to have been made.

The first question covers the whole of the amount of interest claimed. My answer to that question is that such interest is not recoverable, since no clause of the contract provides for its recovery. The second question seems to me to be aca- demic, since the amount of such interest, if any, is indeterminate having regard to the terms of the Commercial Settlement. Moreover, interest on that basis is not claimed in the points of claim. Mr [for the plaintiffs] submitted that

Formulation and Presentation of Claims 179 there was enough material before the arbitrator for him to award an appropri- ate sum under this head, and that, if necessary, the case should be remitted to him for determination of that sum. I reject that argument. Such determination would involve re-opening the Commercial Settlement.'

If there had been no commercial settlement and the argument had been included in the points of claim, perhaps a definitive answer would have been forthcoming. However, this case did not appear to deal with the finance charges on the 'prime cost' from the date when the cost was incurred until the date when it ought to have been certified. This is part of the contrac- tor's 'secondary cost' whether, or not, the engineer certifies promptly (see Rees and Kirby Ltd v. City Council infra).

In any event, the form of contract in this case was the ICE fifth edition where the definition of 'cost' is not so widely defined as in the sixth and seventh edition and the FIDIC contracts.

In the case of Amec Building Ltd v. Cadmus Investments Co Ltd the court held that under a JCT contract it was proper for simple interest to be awarded from the date of under-certification.

Where delay and disruption occur, the interest on the cost, or on the loss and/or expense, may be claimed as part of the cost or expense. This was held to be the case in Rees and Kirby Ltd v. City Council

30 BLR

A diagram illustrating interest or finance charges from the date of expending the 'primary cost' until payment is received in given in Figure 5.26. The first element represents the finance charges occurring from the date of incurring the cost until the date of certification (the sums approved in Rees and Kirby Ltd v. City Council The second element represents the finance charges due to late payment of certified sums under a provision in the (such as ICE or FIDIC) or for breach of contract (infra).

The Late Payment of Commercial Debt (Interest) A d of may be of assistance with respect to late payment of certificates in the UK. Many other jurisdictions have provisions for payment of interest on late payment.

Whilst it is not usually essential to include a statement showing the amount of interest on delay and disruption claims, it is a practice which should be encouraged, if only to prompt the architect or engineer to deal with the matters in the earliest possible interim certificate.

Remedies for late payment

Many contractors suffer from late payment of not just one certificate but of several or even all certificates. In international contracting and in domestic contracts overseas, it is not uncommon to experience several unpaid

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Finance charges as part of direct costs (loss expense) Payment received Finance charges for breach of contract due

(payment provisions)

Certificate Application 2nd Application 3rd Application

Figure 5.26 Finance charges

certificates at one time involving several million pounds. Apart from the extreme course of action to terminate the contractor's employment (which contractors are usually reluctant to do), what other redress is available to contractors in these circumstances?

In most countries, there are no legal rights to suspend work or slow down the progress of work. FIDIC, in its 1987 fourth edition of the Red Book and in its Red, Yellow and Silver Books, has introduced provisions to enable the contractor to suspend work or slow down his progress clause 69.4 of the fourth edition of the Red Book and sub-clause

of the Red, Yellow and Silver Books). Subject to the contrac- tor giving twenty-eight days' (1987 Red Book) or twenty-one days' (1999 contracts) notice of his intention to suspend or slow down the progress of the works, if the employer fails to pay by the of the notice period, the contractor may then suspend or slow down the progress of the work.

Following such suspension or slowing down, the contractor is entitled to:

an extension of time;

additional costs;

and in the case of the 1999 a reasonable profit.

These rights and remedies are without prejudice to any other rights (finance charges and/or termination).