Payment Procedures under FIDIC 2017

Payment provisions are critical elements in construction contracts, serving as the lifeblood for contractors. Timely and fair payments from owners are essential for the smooth progress of construction projects.

This article provides a summarised analysis of payment procedures under the FIDIC Conditions of Contract for Construction (2017 Redbook). FIDIC contracts are widely adopted globally, particularly in Middle Eastern countries, making a detailed understanding of payment provisions crucial for both owners and contractors.

1.0 Advance Payment

Under the FIDIC Conditions of Contract for Construction (2017 Redbook), the advance payment procedure is a critical aspect aimed at facilitating project commencement.

1.1 Clause 14 and it's Sub-clauses:

According to Clause 14 (Advance Payment), the Employer may agree to provide the Contractor with an advance payment as security for the execution of the Works. Subclause 14.2 outlines that the amount of the advance payment, its repayment terms, and the form of security shall be stipulated in the Contract. Furthermore, Subclause 14.3 requires the Contractor to furnish the Advance Payment Guarantee, which ensures the repayment of the advance. Notably, this advance payment is subject to interest as per Subclause 14.4 if the repayment is delayed beyond the specified period.

1.2 Necessity:

FIDIC 2017 Redbook’s provisions for advance payment are outlined in Clause 14, emphasizing the necessity for a clear agreement on the amount, terms, and security. The contractual requirement of an Advance Payment Guarantee adds a layer of financial security for the Employer. However, the Contractor must be diligent in adhering to the repayment schedule to avoid incurring interest charges as per the contract terms, promoting a fair and secure mechanism for project initiation.

2.0 Progress Payments

Progress payments play a pivotal role in sustaining contractor operations. The process involves several steps, and adherence to these procedures is crucial for both parties:

2.1. Contractor Submits Statement (C14.3):

The contractor initiates the payment process by submitting statements and supporting documents to the Engineer. These statements can follow a monthly schedule or be aligned with the agreed-upon payment schedule in the bidding documents.

2.2. Engineer Checks Prerequisites (C14.6):

The Engineer ensures that specific prerequisites are met before certifying interim payments. These include the owner's approval of the performance bond and the appointment of the Contractor's representative, subject to the Engineer's approval.

2.3. Fair Determination by Engineer (C14.6):

The Engineer evaluates the completed work, applies deductions such as retention and advance payment repayment, and assesses unperformed obligations, including the cost of rectifying defective work. Modifications to previous payment certificates may be made.

2.4. Minimum Amount Check (C14.6):

The Engineer verifies that the net amount due to the contractor, after deductions, meets the minimum specified in the contract. If the amount falls below the minimum, the contractor is not entitled to an interim payment certificate, and the Engineer notifies the contractor.

2.5. Interim Payment Certificate Issuance (C14.6):

The Engineer is obligated to issue the interim payment certificate within 28 days of receiving the statement and supporting documents. Failure to certify on time allows the contractor to take serious actions, such as suspending work or terminating the contract.

2.6. Employer's Payment Obligation (C14.7):

The employer must make the payment to the contractor within 56 days of the contractor's submittal of the statement and supporting documents. Failure to comply entitles the contractor to take actions, including suspension of work and termination, after specified notice periods. Additionally, the contractor is entitled to financial charges on late payments without prior notice or certification.

3.0 Final Payment

Final payment marks a significant milestone in project closeout, signifying agreement on all aspects. The final payment procedure involves the following steps:

3.1. Contractor Receives Performance Certificate:

The contractor receives the Performance Certificate, indicating successful completion of the project.

3.2. Draft Final Statement Submission (C14.11):

Within 56 days of receiving the Performance Certificate, the contractor submits a draft final statement to the Engineer. In case of disputes, the Engineer issues an interim payment certificate for the agreed-upon portion.

3.3. Engineer Requests Draft Statement (C14.11):

If the contractor does not apply for final payment, the Engineer requests the draft statement within 28 days. If an agreement is reached, the contractor submits the final statement. If not, the Engineer makes a fair determination and issues the Final Payment Certificate.

3.4. Final Statement Submission (C14.11) and Written Discharge (C14.12):

After reaching an agreement on the draft statement, the contractor submits the final statement along with a written discharge.

3.5. Final Payment Certificate Issuance (C14.13):

The Engineer is required to issue the Final Payment Certificate within 28 days of receiving the final statement and written discharge. Failure to certify on time entitles the contractor to financial charges on late certification.

3.6. Employer's Payment Deadline (C14.7):

The employer must make the payment (certified amount) to the contractor within 56 days of receiving the Final Payment Certificate. Failure to comply results in financial charges or interest on late payments.

In conclusion, the analysis of payment procedures under FIDIC 2017 Redbook reveals a meticulous framework that acknowledges the importance of timely payments in construction projects. FIDIC establishes precise time limits for certifying and making payments, with contractors entitled to financial charges for delays without the need for prior notice. The balanced perspective in FIDIC's drafting emphasizes the importance of harmonizing the interests of both owners and contractors, potentially reducing disputes and fostering successful project outcomes. This detailed understanding of payment procedures is crucial for stakeholders involved in construction projects governed by FIDIC contracts.

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