What should the Contractor do if the Interim Payment Certificates are not paid under the 1999 FIDIC Red Book?

“In the event of non-payment, manage the process properly and minimize the probability of future disputes.” 

In our case; the Contractor submits its application for Interim Payment Certificate (IPC).

However, the application is returned by the Engineer due to lack of information in the Statement.

The Contractor re-submits the IPC in accordance with Sub-Clause 14.3 [Application for Interim Payment Certificates].

Afterwards, the Engineer issues the IPC to the Employer.

But, the Employer refuses to pay the certified amount.

The Contractor informs the Employer that its financial position is critical.

However, nothing changes.

The Contractor gives Notice to the Employer.

The Employer does not pay the amount despite the Notice.

As a consequence of the above, the Contractor terminates the contract, stops the work and removes the equipment.

At the end, the Employer pays the Contractor in accordance with Sub-Clause 19.6 [Optional Termination, Payment and Release].

In this document, you will find the key issues and the procedure in the event of non-payment of an Interim Payment Certificate under the 1999 FIDIC Red Book.

1   The Contractor Applies for the IPC 

1.1 The Contractor submits six copies of the statement to the Engineer after the end of each month.

1.2 The Engineer approves the form of the Statement.

1.3 The amounts are to be demonstrated in detail.

1.4 Progress report which is provided regarding the relevant month in accordance with Sub-Clause 4.21 [Progress Reports] and other supporting documents are to be included.

2   The Contractor Submits the Statement

2.1 The Statement should include;

– The estimated contract value of the Works and the Contractor’s Documents processed till the end of the month.
– Variations should be included.

2.2 The below mentioned items should be excluded;

2.2.1 Any amounts to be added and deducted for;
– Changes in legislation in accordance with Sub-Clause 13.7 [Adjustments for Changes in Legislation]
– Changes in cost in accordance with Sub-Clause 13.8 [Adjustments for Changes in Cost]
– The advance payment and repayments in accordance with Sub-Clause 14.2 [Advance Payment]
– Plant and Materials in accordance with Sub-Clause 14.5 [Plant and Materials intended for the Works]
– Which may have become due under the Contract or otherwise, including those under Clause 20 [Claims, Disputes and Arbitration]

2.2.2 The deduction of amounts;
– Certified in all previous Payment Certificates
– For retention

3   The Engineer Issues the IPC

3.1 Within 28 days after receiving the statement and supporting documents the Engineer issues the Interim Payment Certificate to the Employer.

3.2 The Interim Payment Certificate demonstrates the amount which should be determined by the Engineer.

4   The Employer Fails to Make Payment

In accordance with sub-paragraph (b) of the Sub-Clause 14.7 [Payment] the amount certified in the Interim Payment Certificate should be paid to the Contractor;

Within 56 days after the Engineer receives the Statement and supporting documents.

But, the Employer does not pay the amount which is certified in the Interim Payment Certificate to the Contractor.

5   Contractor’s Entitlement to Terminate

The Contractor is to be entitled to terminate the Contract, if [1];

The Contractor does not receive the amount due under an Interim Payment Certificate within 42 days after the expiry of the time stated in Sub-Clause 14.7 [Payment] within which payment is to be made (except for deductions in accordance with Sub-Clause 2.5 [Employer’s Claims]).

6   Notice to the Employer and Termination

In accordance with Sub-Clause 16.2 [Termination by Contractor];

6.1 Upon giving 14 days’ notice to the Employer, the Contractor may terminate the contract.

6.2 Termination by the Contractor will not prejudice any other rights of the Contractor.

7  The Work Ends and Contractor’s Equipment is Transferred

The Contractor is to promptly;

7.1 End all further work, other than the work instructed by the Engineer for the protection of life or property or for the safety of the Works.

7.2 Transfer the Contractor’s Documents, Plants, Materials and other work for which the Contractor has received payment.

8   The Required Form of Payment

The Employer is to pay to the Contractor;

– In accordance with Sub-Clause 19.6 [Optional Termination, Payment and Release].

– The amount of any loss of profit, loss or damage suffered by the Contractor as a result of this termination.

The Employer is to return the Performance Security to the Contractor.

FOOTNOTES

1. The same Sub-Paragraph letters are used as in sub-paragraph (c) of Sub-Clause 16.2 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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