Table of Contents

1. Absence of Express Provisions to the Contrary Introduction……………….…...01

1.1. Introduction……………………………………………………...……..
………...01
1.2. Effects ………………………………….…………………………………...
…...01
1.3. Example………………………………………………………………………....
.02
2. “Pay When Paid” Provision……………………………………………………......03
2.1. Implications on Contractor
……………………………………………………...03
2.2. Implications on Nominated Sub- Contractor…………….………….
…………...04
3. Contractor’s Right to Suspend the Works……………….…………..…………...05
3.1. Statuary
Right…………………………………………………………………....05
3.2. Suspension Notice and Stopping the Works………………………………..
…...05
3.2.1. 7 Days’ Notice…….............................................................................…...05
3.2.2. 14 Days’ Notice..……………………………………………….…...…...05
3.2.3. Consequences of Work Suspension………………………………...…...06
3.2.4. Stopping the works is a risky proposition…..……………………….......06
3.2.5. Avoid Wrong Suspension of Works…..………………………………....06
4. Claim for Extension of Time, and Direct Loss & Expenses……………………...07
5. References…............……………………………………………………………..….10

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1. Absence of Express Provisions to the Contrary Introduction
1.1. Introduction
Some events may occur which are beyond the control of the parties involved
in a project. For that kind of circumstances, ECC4 has clause 19.1. This clause
describes if express provisions to contrary are not present then the loss shall
lie where it falls. The effect of this clause is opposite when it is taken together
with the Clause 60.1(19) for the compensation events. In the term of
“Prevention” the burden of time and the cost lies upon the client.
Clause 19.1 guides that in special events in which the contractor has to stop
the work then the project manager shall give instructions to combat with the
event. Thus, only one of the obligations of a project manager is defined in this
clause. [1]
1.2. Effects
 In conjunction with Clause 60.1(19), the term “Prevention” has a wide
variety of interpretations. The contractor may have right to argue that
the faulty design, defective construction materials, poor work of
subcontractors, accidents, strike and other problems are beyond the
control of the parties and thus the definition of prevention goes far
beyond the force majeure.
 Phrases like “unreasonable to have allowed for” and “small chance of
occurring” of clause 19.1 makes an event “prevention event” although
it was foreseeable. For dispute resolution, these become very difficult
criteria.
 A very troublesome perspective of this clause is that gets applied in a
similar way for the events stopping total completion as well as
stopping completion as per the schedule. The two are different terms,
however stopping in total or lesser sense both have similar
employment in this clause.
 Due to above mentioned reasons, this clause is rarely found in the
contracts.

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1.3. Example
One of the examples on in ‘the absence of express provisions to the contrary’
is the case of Thorn v. London Corporation (1876). The contractor had to
demolish and rebuild a bridge. The design was prepared by the engineer of
client and it had included caissons into it. The caissons provision proved
useless and the work was completed by the contractor using a different
method. Later, the losses were claimed by stating that it happened because of
following the client’s advice to follow the client engineer’s design. The
House of Lords held that no such warranty could be implied.

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2. “Pay When Paid” Provision
In ECC4 contracts, the clause 11 (b) deals with the subject of “Pay when paid”. It
means that the main contractor will pay to the subcontractor as he receives the
payment from the client. This term should be included in the contract in order to
avoid the ambiguity at later stage. The contracts where this clause is not
employed, find it difficult to solve if the payment is stopped from the client. In
Hong Kong, there was no clear mentioning of the “Pay when paid” clause before
1996 and most of the issues had to be solved by the arbitration. The courts of the
Hong Kong made it clear that the receipt of payment to the main contractor should
not include the deduction of liquidated damages. If there are some liquidated
damages, they should be dealt with separately.
A case was reported to the court of the first instance in 1996, which lead to the
permanent provision of this clause. The defendant of that case was a sub-
contractor and the plaintiff was his sub-sub-contractor. The defendant implied that
since it was agreed on back to back payments which he is not getting from his
main contractor, therefore he cannot pay. The court however gave decision in the
favor of the plaintiff asserting that the agreement was based on the time
dependency and not the absolute dependency of the payment from the main
contractor. Thus if the defendant is not paid absolutely from his main contractor,
he cannot deprive the plaintiff of his payment.
2.1. Implications on Contractor
Main Contractor is on the safer side with this clause. If the payment is made
from the client, he is entitled to provide it to the sub-contractor. The clause
11(b) explains that if the main contractor receives payment from the client, he
has to inform and pay to the sub-contractor for his approved works within the
14 days from the date of receipt.
On the other hand, if any delay occurs in the project and liquidate damages are
imposed on the contractor, they shall be the sole responsibility of the
contractor only and nothing to do with the sub-contractor. In that kind of
circumstance, the client has option to directly pay to the sub-contractor as he
was not involved in the overall delay.
A common problem is that the main contractor receives the payment for some
of the other works from the client but the sub-contractor under consideration
asserts that since the money is received by the main contractor, he should pay
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 it to him as well. In such sort of conditions, the main contractor may clarify to
the sub-contractor that his payment is subjected to approval of the payment for
the specified works. And as long as no payment is received for those works,
the sub-contractor is not entitled to claim for his payment.
2.2. Implications on Nominated Sub- Contractor
The Nominated sub-contractors work under the main contractor and thus their
agreement is also with the main contractor. With the provision of this clause in
the contract, the nominated sub-contractor gets dependent upon the main
contractor for the payment. Therefore, it should be very clear at the time of the
sub-contract agreement if the clause shall be included or not? If the clause is
included, then the sub-contractor is entitled for his payment within the 14 days
from the date of receipt of the payment to the main contractor.
In the beginning of the project, the sub-contractor may not have any issue for
the payment. But as the progress goes on, he needs the payment for his cash
flow and if any delay happens, it may affect him. Thus, near the end of the
project, the sub-contractor may face the most critical situation if his payment
is delayed. What if the main contractor does not pay any of the amounts? if it
is so then it is a very big problem for the sub-contractor.
However, there is a possibility that the client may directly pay to the sub-
contractor if there is any delay in the project from the main contractor and the
sub-contractor has nothing to do with it. There are a number of the sub-
contractors working on the project under the umbrella of the main contractor.
If any delay happens because of some other sub-contractor or due to the
mishandling or poor management of the main contractor or any other reason
which is not related to the sub-contractor under discuss, he should be paid. As
the financial capacity of the sub-contractor is lower, so the payment issue
should be dealt at earliest urgency.

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3. Contractor’s Right to Suspend the Works
Suspension of the works is not an easy decision to make as it involves the removal
of materials, machinery and manpower which has its own financial impact.
However, under certain circumstance, the contractor has to opt for this option and
it usually happens due to the non-payment. [2]
3.1. Statuary Right
Section 112 of the Act provides the contractor a right to suspend the works, if
he is not paid according the agreed terms of the contract. The contractor may
suspend “Any or all” of its obligations.
3.2. Suspension Notice and Stopping the Works
3.2.1. 7 Days’ Notice
“Payment Date” for the interim payment is the date by which the
notice specifying the sum due is to be issued by the Project manager,
acting as a specified person. It is usually 7 days. 112(2) of the
Construction Act guides about it. If project manager certifies within
this time or before, it also becomes a notice that the payment should be
made to the contractor
3.2.2. 14 Days’ Notice
“For payment” is the date by which the employer pays on or before. It
is usually 14 days. It is usually prescribed to pay in the last 7 days
instead of the early 7 days of this period. If there would be any
problem then less payment shall be made to the contractor. A notice is
issued by the payer that should not be later than 14 days from the
“Date”.
If after that payment is not made to the contractor and also no “Notice
to pay less” is issued, then he has a right to suspend the performance of
his works. If there was some defect then defect certificate should have
been issued to the contractor. If the Project manager makes the
assessment after the issue of that certificate then the due date has to be
five weeks after the issuance of certificate. If project manager failed to
make assessment then the contractor shall make his final assessment
and the due date shall be one week only. The contractor has a right to
stop the execution of part or all of the works. At this stage the
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 compensation event occurs. Even after this period, no payment is made
to the contractor; he has the right to fully suspend all of the activities
until his full payment is recovered. Once the payment is recovered, the
performance of the normal activities can get started.
3.2.3. Consequences of Work Suspension
Stopping the work will delay the project. But the Section 112(4)
mentions that any period during which performance is suspended shall
not be counted in the contract period. If the project is having start and
end date instead of the duration, then the end date is adjusted
accordingly. Suspension of the works puts pressure on the client to
arrange for the payment of the contractor. If the client is stopping the
payment, suspensions of construction activities may prove to be a
strong leveraging tool. It protects the rights of construction contractor.
3.2.4. Stopping the works is a risky proposition
The right to stop the works is a powerful tool, yet it is a risky process.
Even if the contractor has a right of, yet it is important to take
precautionary measures to keep yourself on the safer side. The best
way of protection is clear communication and keeping all the
communication in the document form. It is better to provide notices on
every critical stage, so that you do not have to suffer in the silence.
Most of the payment problems arise due to the lack of communication
as it is universally known that the angry clients do not pay.
3.2.5. Avoid Wrong Suspension of Works
However, a wrong suspension of the works should always be avoided.
Any suspension without the formal notices and procedure will cause
unnecessary delay in the project. The delay in project may lead to the
liquidated damages, if the work is resumed at some later stage. In
severe cases, the client may terminate the contract. Therefore, a wise
decision should be taken before the suspension of the works. The
contractor should review the contract carefully before taking any step.
Meetings should be arranged with the client to solve the matter
amicably, a as a last resort the suspension of the works may be
employed.

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4. Claim for Extension of Time, and Direct Loss & Expenses
18 June 2019
AJB Ref: P160 -AJB-LTR-1120
DSA Architects International
Attention: Mr. Edward JP
Project Manager

Project: NJP Hospital, J Island, Hong Kong

Subject: Claim for Extension of Time, and Direct Loss & Expenses
Dear Edward,
This is with reference to the above subject and for the project of SB65-beach
villas with the details as follows:
Project: Construction of Hospital Unit.
Employer: Public work Authority Brief
Scope of Work: Substation, Construction of Hospital Building,
Underground water tank, All Civil,
Electro Mechanical work, wall, floors &
Ceiling finishes, Lifts, External works.
Project Value: HK Dollars 80890949.13
Commencement Date: 12-10-2012
Completion Date: 25-10-2014
Contract Duration: 743 days
Delays occurred to the Works as follows:
1. Change in design
Receipt of site instruction 05 June 2013
Submission of quotation 24 June 2013
Formal Confirmation for the approval of the quotation
 21 July 2013
 Submission of new design 29th Aug. 2013
 Design kick-off 2nd Sep 2013
 Approval of first package 29th Oct 2013
 Approval of second package 22nd January 2014
 Instruction for commencement of work 06th Feb 2014

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 2. Delay in approval of external wall
 After changes in first package it was required to contractor to get
approval for external wall cladding.
 On the submission of request for selection of pattern and color,
client took 5 months, and then this was not contractor’s mistake
Extended contract duration has resulted from additional works
requested by the employer which are events for which The
contract specifically provides an entitlement for the contractor.
Therefore, in accordance with conditions of contract by this
submission hereby sets out his Entitlement to Reimbursement of
Additional Costs incurred and loss and expenses suffered due to
Contract Prolongation. Hence contractor submitted following
financial summary:

Sr.# Head of Claims Claimed

Amount
1) PROLONGATION COSTS
1.1 ONSITE OVERHEAD COSTS-
1 Staff and supervision cost –Net salary excluding miscellaneous 2,012,801.00
expenses
2 Staff & Supervision Cost –Miscellaneous expenses (Gratuity, Airfare, 238,501.34
Yearly paid leaves & Medical Insurance.)
3 Direct Labor Cost based on Daily Progress Reports 3,340,621.03
4 Plant & Equipment Cost 358,266.74
5 Site Services & Facilities (including power, water, air, 377,620.32
telephone, stationary, Pantry consumptions etc.
6 Expenses incurred in photocopying & producing new Shop Drawings 186,172.00
7 Up gradation of Primavera Software as per latest requirements 33,452.00
8 Dust Control on Site / Temporary Controls. 40,800.00
2) PROLONGATION COSTS (cont’d)
2.1 FIXED FINANCE COST –CONTRACTUAL
1 Clause 10: Extension of Performance Bond 39,738.00
3 Appendix A : Extension to Advance Payment Bond 44,690.00
5 Clause 60.2.2.a : Extension to Retention Bond 19,929.00

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 6 Clause 21: Extension to Insurance of Works (CAR Policy) 11,219.00
7 Head Office Contribution in respect of extended support 1,601,871.72
2.2 Direct Expenses Incurred Under Fixed Finance Cost
1 Extension of Warranty Period pursuant to Clause 49: Definition 1,082,059.48
of Period of Maintenance, etc.
9 MEP Sub Contractor’s Claim: Clause 1,388,101.32
34 Conditions of Employment, etc.
Direct Expenses Incurred Under Fixed Finance Cost 4,344,997.30
3) VARIABLE FINANCE COST :
1 Losses due to Unutilized Financing Loans & Unutilized Letter 566,775.02
of Guarantees
2 Loss of Trade (No any claim has been raised) 0.00

2) INFLATION & ESCALATION COSTS

Inflation and Escalation Costs 1,295,398.97

TOTAL CLAIMED COST 12,565,570.81

Table for Estimation

Source: Research Paper [3]

Kindly issue the above mentioned revisions at your earliest

urgency.
Yours sincerely,
For and on behalf of
AJB Construction Company

Simon Stocking
Quantity Surveyor

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5. References
1. (Understanding construction) Hughes, Kelvin - Understanding the NEC4 ECC
contract_ a practical handbook (2019)
2. Eggleston, Brian C - The NEC4 engineering and construction contract _ a
commentary-John Wiley & Sons Ltd (2019)
3. Comparative study of Extension of Time Claims with case studies, D. Patil,
Ms. Jyoti, Saharkar, Prof. U. R, IRJET, May 2016

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