GYK Newsletter – How to Claim Financing Charges arising from Late Payments under the 2017 FIDIC Red Book

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

 

Delayed payment is one of the common diseases in the Construction Industry.

Especially nowadays.


Issuance of any;

➤  Interim Payment Certificate
➤  Final Payment Certificate

not always means that you will get paid on time.

 

The Employer may delay the payments.



As a result, that delay will entitle you to receive financing charges related with the unpaid amount during the delay period.

However, the Employer may resist to pay the financing charges.

At that time, all you have to do is to submit a financing charge claim. But, how?

 

In this newsletter;  you will find the key issues and the procedure to be followed while preparing and submitting the financing charge claim in accordance with the 2017 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 without;

➤ The need for the Contractor to submit a Statement or any formal Notice (including any requirement to comply with Sub-Clause 20.2 [Claims for Payment and/or EOT]) 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 average bank short-term lending rate to prime borrowers prevailing for the currency of payment at the place of payment, or,

➤ Where no such rate exists at that place, the same rate in the country of the currency of payment, or,

➤ In the absence of such a rate at either place, the appropriate rate fixed by the law of the country of the currency of payment

 

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 Amount certified in each Advance Payment Certificate

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Within the period stated in the Contract Data after the Employer receives the Advance Payment Certificate. If not any period is stated, it is 21 days.

2.  The Amount Certified in each Interim Payment Certificate under

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• Sub-Clause 14.6 [Issue of IPC], within the period stated in the Contract Data after the Engineer’s receiving the statement and supporting documents. If not any period is stated, it is 56 days.
• Sub-Clause 14.13 [Issue of FPC], within the period stated in the Contract Data after the Employer receives the IPC. If not any period is stated, it is 28 days.

3. The Amount Certified in the Final Payment Certificate

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Within the period stated in the Contract Data after the Employer receives the FPC. If not any period is stated, it is 56 days.

 

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 of Claim

Sub-Clause 20.2.1 defines and describes the “Notice of Claim” procedure.

28 DAYS TIME LIMIT for the CONTRACTOR

1.  The Notice of Claim 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 payment and the Employer is to be discharged from any responsibility regarding the claim related event.

5   Engineer’s Initial Response

Sub-Clause 20.2.2 defines and describes “The Initial Response” procedure.

 

If the Contractor fails to give the Notice of Claim within 28 days under Sub-Clause [Notice of Claim];

 

 

 

 

2. If the Engineer fails to give a Notice within 14 days, the Notice of Claim is to be deemed to be a valid Notice.

 

3. If the Employer disagrees with deemed valid Notice of Claim, a Notice including the details of the disagreement is to be given to the Engineer by the Employer. Then, the Claim is to be reviewed by the Engineer.

 

 

6   Fully Detailed Claim

7  Interim or Final Fully Detailed Claim

Sub-Clause 20.2.6 defines and describes the relevant procedure. If the Claim related event has a continuing effect;

 

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

2. The Engineer is to respond to the “First Interim Fully Detailed Claim” in accordance with the time limits.

3. Monthly, the Contractor is to give further “Interim Fully Detailed Claims” with the accumulated additional payment claimed and Extension of Time claimed.

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

 

8   Agreement or Determination of the Claim

The Engineer is to proceed under Sub-Clause 3.7 [Agreement or Determination] to agree or determine the Payment.

 

1.  The Engineer is to give a Notice to the Contractor regarding the requirement of additional details with the reasons for it.

2.  The Engineer is to respond regarding the contractual basis of the Claim in accordance with the Sub-Clause 3.7.3 [Time Limits].

3.  The date which the additional details are received from the Contractor is the “Commencement Date” of the time limit.

 

 

FOOTNOTES

[1]  The period which is proposed by the Contractor and agreed by the Engineer.

[2]  The same Sub-Paragraph letters are used as in Sub-Clause 20.2.4 of the 2017 FIDIC Red Book. 

[3]  Contemporary Records means; Records that are prepared or generated at the same time or immediately after the event or circumstance giving rise to the Claim. (The same Sub-Paragraph letters are used as in Sub-Clause 20.2.3 of the 2017 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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