How to Claim Financing Charges arising from Late Payments under the 1999 FIDIC Red Book

“The Construction Sector suffers the most from the late payment issues in comparison with others.”

In our case; the Engineer issues the Interim Payment Certificate (IPC) to the Employer for the Contractor’s payment.

Despite the 56 days time limit [1], the Employer makes the payment two weeks after the due date.

Therefore, the Contractor encounters cash-flow problems.

In order not to decelerate the Works and delay the completion, the Contractor uses external financing.

As a result, the Contractor incurs financial charges.

Despite the Contractor’s entitlement to receive the financing charges without submitting a formal Notice, the Employer rejects paying the financing charge.

At last, the Contractor submits a claim and gets paid.

In this document;  you will find the key issues and the procedure to be followed while preparing and submitting the financing charge claim in accordance with the 1999 FIDIC Red Book.

1   Entitlement to Receive Financing Charge

The Contractor will be entitled to receive financing charge when;

➤ The Contractor does not receive payment in accordance with Sub-Clause 14.7 [Payment].

The Contractor is to be entitled to payment of financing charges by the Employer without;

➤ Formal Notice or Certification,

➤ Prejudice to any other right or remedy.

2   Calculating Financing Charge

2.1  Identifying the Interest Rate

Unless otherwise stated in the Particular Conditions, the financing charges is to be calculated at the annual rate of three percent (3%) plus:

➤ The discount rate of the Central Bank in the Country of the currency of the payment.

and is to be paid in this currency.

2.2  Identifying the Delay Period

The Delay Period will begin on the expiry of the time for payment specified under Sub-Clause 14.7 [Payment].

1.  The First Instalment of the Advance Payment
Within 42 days after issuing the Letter of Acceptance or,

Within 21 days after obtaining the documents in accordance with Sub-Clause 4.2 [Performance Security] and Sub-Clause 14.2 [Advance Payment],

whichever is later.

2.  The Amount Certified in each Interim Payment Certificate

Within 56 days after the Engineer’s receiving the statement and supporting documents.

3. The Amount Certified in the Final Payment Certificate

Within 56 days after the Employer’s receiving the Final Payment Certificate.

2.3  Calculation

The Contractor is to be entitled to receive financing charges;

➤ Compounded Monthly

➤ On the Amount Unpaid

➤ During the Delay Period

3   Entitlement to Claim for Financing Charge

The Contractor will be entitled to claim, if;

➤ Financing charge is not received in accordance with Sub-Clause 14.8 [Delayed Payment].

4   Notice to the Engineer

Sub-Clause 20.1 defines and describes the “Notice to the Engineer” procedure.

28 DAYS TIME LIMIT for the CONTRACTOR

1.  The Notice to the Engineer is to be given within 28 days after the Contractor became aware or should have become aware of the claim related event.

2.  If the Notice of Claim is not given within 28 days, the Contractor is not to be entitled to any additional payment, the Time for Completion is not to be extended and the Employer is to be discharged from any responsibility regarding the claim related event.

5   Fully Detailed Claim

42 DAYS TIME LIMIT for the CONTRACTOR

➤ Within 42 days or other period [2] after the Contractor became aware, or should have become aware of the Claim related event, the Contractor is to submit the “Fully Detailed Claim” to the Engineer.

6   Interim or Final Claim

If the Claim related event has a continuing effect;

1.  The Fully Detailed Claim submitted is to be considered as interim.

2.  Monthly, the Contractor is to give further “Interim Claims” with the accumulated Additional Payment claimed and/or Extension of Time claimed.

3.  After the end of the effects of the claim related event, the Contractor is to give a “Final Claim” within 28 days.

7  Engineer’s Response

Within 42 days, after receiving a Claim or any particulars supporting a previous claim or within such other period as may be proposed by the Engineer and approved by the Contractor, the Engineer shall respond with approval or with disapproval and detailed comments [3].

8   Agreement or Determination of the Claim

The Engineer is to proceed under Sub-Clause 3.5 [Determinations] to agree or determine;

➤ The Additional Payment to which the Contractor is entitled under the Contract.

FOOTNOTES

1. 56 days after the Engineer receives the Statement and the supporting particulars.

2. The period which is proposed by the Contractor and agreed by the Engineer.

3. The same Sub-Paragraph letters are used as in Sub-Clause 20.1 of the 1999 FIDIC Red Book.

This information is provided for your convenience and does not constitute any “Legal Advice”. This document is prepared for the general information of the interested persons. This should not be acted upon in any specific situation without appropriate legal advice.

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