Financial Clauses

and
Procedures

CLAUSES 12, 13 & 14

Measurement and Evaluation
Variations and Adjustments
Contract Price and Payments

Payment Modalities
Lump Sum
Re-measurement
Cost reimbursement

Lump Sum
Scope of the work and the amount is well
defined.
Contractor agrees to work for a pre-determined
lump sum.

Lump Sum
tem
Nr.

Description

Unit

Qty

Rate

Amount

Lump Sum
Advantages & Disadvantages
Cost commitment is
known at the outset

Time required for

producing full scope

Relatively easy
contractor selection

Changes difficult and

potentially costly

Fully defined scope

Contractor assumes
greatest risks

Re- measurement
The scope of the work is generally well defined
but the amount of work is indefinite.
Sufficiently detailed scope of work to allow
contractor to calculate unit rates.

Measure & Pay

tem
Nr.

Description

Unit

Qty

Rate

Amount

Measure & Pay

Advantages & Disadvantages
Scope need not be as
accurate
Cost per unit of
production
predetermined
Flexibility- scope &
quantity can be
varied.

Final cost not clearly

known

Cost Reimbursement
Contractor is paid all what he spends plus OH & Profit.
Minimal pre-determined scope definition.
Clear and explicit definition of what constitutes
reimbursable costs.
Co-operative atmosphere and a competent and
trustworthy contractor.
Close audit and quality supervision and direction by the
Client.

Cost Reimbursement
Item
Nr.

Schedule

Rate

Unit

Cost Reimbursement
Advantages & Disadvantages
Useful when the
scope cannot be
specified in advance

Final cost unknown

Minimal predetermined scope

definition permits
early start

Reduces ability to
compare contractors
bids

Buyer retains risk

Contract Price and Payment

15 sub clauses relate to this vital sector
Sub Clause 14.1 Contract Price may be
represented through Bill of Quantities (remeasured) or Schedules
Sub Clause 14.2 Anticipates that advance
payment will be made and procedures provided

Measurement and Evaluation

(Clauses 12.1 and 12.2)
Measurements is undertaken by the Engineer,
giving notice to the Contractors Representative
to attend etc.
Measurement shall be net actual quantities

Evaluation by Engineer
(Clauses 12.3 and 12.4)
Sub Clause 12.3 Provides the basis for the Engineer to
determine the value of each item of work
The rates specified in the Contract will apply unless
there are no appropriate rates for a new item of
work
New Rates may be determined where items a) and
b) of Sub Clause 12.3 apply
Sub Clause 12.4 provides for possible
compensation to Contractor relating to omissions
of work

Variations and Adjustments

(Clause13)
Engineer has right to vary under Sub Clause
13.1 and with details of types of issues covered
Opportunity for Contractor to submit Value
Engineering change. Risk of development with
Contractor and any savings are split 50:50
Sub Clause 13.3 sets out procedure required to
be followed if Engineer requests proposal prior
to instructing Variation

Provisional Sums (Clause 13.5)

Include the provisional sum of
Dhr. 120 (one hundred and
twenty Dirhams) for connecting
end of drain to be the soakage
pit.

Prov. Sum

120

00

Prime Cost Sum

Include the prime cost sum of

Dhr. 800 (eight hundred
Dirhams) for patent partitions to
be executed by nominated subcontractors.
Add for profit
General attendance

PC Sum

%
Item

800

00

Prime Cost Sum

Include the prime cost sum of

Dhr. 55 (fifty-five Dirhams) for
ironmongery to be supplied by
nominated supplier.
Add for profit

PC Sum

(Contd)

55 00

Adjustment of PC & Provisional Sums

Omissions
Prime cost sum for patent partitions
Add for profit (10%)
General attendance

Additions

800.00
80.00
120.00
850.00

Emirates Interior Ltd., A/C No. 2134

85.00

Profit (10%)

120.00

General attendance
Total
Less omission
Net addition C/F to Grand Summary

1000.00

1055.00
(1000.00)
55.00

Daywork (Clause 13.6)

Day-work means payment for actual hours
spent carrying out an operation as against
payments made based on prices given in the
tender.

Daywork Records
The minimum information recorded should
include:
Hours worked by those engaged in daywork
Hours machines were hired
Material used by the Contractor for daywork
purposes

Who Orders Daywork?

Daywork is only carried out in special situations.
Engineer will usually only request daywork in an
emergency when there is insufficient time to raise a
variation quotation request. The same emergency may
give the Contractor insufficient time to assess and cost
a variation quotation.
Another instance would be where tradesmen for a
particular trade has to be brought back to do work in
that trade when the work in that trade is completed.

Price Fluctuations (Clause 13.8)

Often construction projects, particularly, large
projects are undertaken over a long period of time.
It is more than likely that the price of material used
in a job and the rates of pay of the workmen will
increase and even in some instances fall during
the life of the contract.

Rise and Fall is the adjustment made to the

contract price to offset or compensate for any rises
and falls that occur during the period of contract.

Adjustments for Changes in Cost

Extensive details provided for the use of
formulae for cost variations during the contract
period. Optional, determined by employer prior
to Tender
Base rate reference is 28 days prior to date of
tender submission
Factors provided in Appendix to Tender for each
project

Progress Payments

The value of progress payments are determined on

the actual value of work done

This method is based on actual measurement of

work done or value of percentages of work done

Contractual Implications
(Clauses 14.3 - 14.6)
The conditions of contract stipulates:

When progress payments are to be made.

The method of presentation by the Contractor of his

claim for progress payments (the information to be
provided)

Method for fixing the estimate of the contract value

of work executed including variations, unfixed
materials on site, etc.,

Interim Payments (Cont.)

Sub Clause 14.3 Contractor to submit a
Statement for application for interim payment.
Note cross reference to Sub Clause 4.21, plus
requirement for 6 copies.
Sub Clause 14.6 Sets out procedure for issue
of interim Payment Certificate by the Engineer see also chart 2

Payment (Clauses 14.7 & 14.8)

Sub Clause 14.7 Payment duties of Employers

plus under 14.8 the financial charges to be paid if
Employer is late in payment
(3% above discount rate of Central Bank of country
of the currency of payment)

Retention (Clauses 14.3 & 14.9)

Security for client
Sub Clause 14.9 refers to Retention Money
On issuance of Taking Over Certificate, first half
certified for payment by Engineer
On Expiry of Defects Notification Period, balance
certified for payment by Engineer

Final Accounts
Sub Clauses 14.10/14.11/14.12/14.13
These deal with the Statement on completion,
application for Final Payment Certificate, discharge
and issue of Final Payment Certificate
Sub Clause 14.15 Currencies of Payment
This clause sets out the procedures if the payments
are to be made in more than one currency

Final Accounts (Cont.)

Sub Clause 14.10 requires Contractors within
84 days of Taking Over Certificate too submit
a statement showing:
- Value of all work done
- Further sums considered due
- Estimate of any other amounts
considered due
Engineer shall certify in accordance with
Sub Clause 14.6

Final Accounts (Cont.)

Sub Clause 4.11 requires Contractor to submit
Final Statement within 56 days of receiving
Performance Certificate.
Sub Clause 4.12 Contractor to submit written
discharge with Final Settlement.
Sub clause 14.13 requires Engineer to issue
within 28 days Final payment Certificate.

Exercise 1
Read Clauses 12, 13 & 14 of the Red Book and answer following questions.

Yes
Does the Contractor undertake the measurement of
the Works in Red Book?
Should the method of measurement be stated in the
Bill of Quantities
Can the Engineer demand the Contractor to give the
breakdown of his rates?

No

May
be

Exercise 1 (Cont.)
Yes
Can the Daywork Schedule be used to agree
new rates
Can the Contract Price be fixed?
Can the Engineer correct previous payment
certificates?
Have Provisional Sums to be spent within the
contract?

No

May
be

Exercise 2 (Group)
A contract agreement was signed based on the FIDIC 1999
Red Book on 1st February, with Commencement Date
stated as 1st March. On 4th April the Contractor submitted an
application for an interim payment.
On 18th April, the Engineer replied that he did not intend to
issue an Interim Payment Certificate.
On what grounds can the Engineer refuse to issue an Interim
Payment Certificate?

Thank You