Administration of a FIDIC Contract - Financial Management

Financial Management - Main Instruments - Measurements and Evaluations (Red Book only) Variations and Adjustments Contract Price and Payments

Financial Management - FIDIC Payment Conditions - Clause 12 – Measurement and Evaluation This Clause applies only to the New Red Book It is replaced in the New Yellow Book by a Clause on “Tests after Completion” Measurement is undertaken by the Engineer, giving notice to the Contractor’s Representative to attend, etc Method of Measurement in accordance with that stated in Schedules and measurements are net actual quantities

Financial Management - FIDIC Payment Conditions - Evaluation by Engineer – Red Book 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 in such casses Clause 12.4 provides for possible compensation to Contractor relating to omissions to the Works

Financial Management - FIDIC Payment Conditions - Evaluation by Engineer – Yellow Book Unless otherwise specified, payment under the Yellow Book is based on lump sum items Nevertheless, a means of evaluating progress on lump sum items will be needed for interim payments purposes Evaluation by the Engineer on the basis of percentage completion is only likely to be satisfactory if the lump sum items are small and numerous Remember, it is preferable to deal with Yellow Book interim payment through a payment schedule (Clause 14.4 – Schedule of Payments), linked to “Milestones”, when particular stages of construction have been completed

Financial Management - FIDIC Payment Conditions - Clause 13 – Variations and Adjustments Engineer has right to vary under Clause 13.1 – Right to Vary, and with details of types of issues covered (a to f) Opportunity for Contractor to submit “Value Engineering” change. Risk of development assumed by Contractor and any savings are split 50/50 Clause 13.3 sets out procedure required to be followed if Engineer requests a proposal from the Contractor, prior to instructing a Variation

Financial Management - FIDIC Payment Conditions - Clause 13.8 - Price Adjustments for Changes in Legislation Extensive details provided for the use of formulae for cost variations during the contract period (not much used in EC funded projects) Reference Base Date is 28 days prior to date of tender submission Factors provided in Appendix to Tender for each project

Financial Management - FIDIC Payment Conditions - Clause 14 – Contract Price and Payment Extensive details along 15 Sub-Clauses, relate to this vital sector and these include: Sub-Clause 14.1 – Contract Price may be represented through BoQ (re-measured) or Schedules Sub-Clause 14.2 – Anticipates that advance payment will be made and procedures provided Sub-Clause 14.3 – Contractor to submit a Statement for application for interim payment. Note cross reference to Clause 4.21 – Progress Report

Financial Management - FIDIC Payment Conditions - Clause 14 – Contract Price and Payment Sub-Clause 14.4 – Sets out the arrangements for interim payments under a payment schedule This Clause provides a basis for interim payment under the Yellow Book when the bill is composed of lump sum items Use of a payment schedule based on dates is not recommended as it provides a weak incentive for progress and requires the Engineer to make a Determination (Clause 3.5), if progress is behind schedule before reducing payment Sub-Clause 14.7 – Payment duties of Employer plus under Sub-Clause 14.8 the financial charges to be paid if Employer is late in payment

Financial Management - Financial Planning - Contractor payment schedules set out in the Red and Yellow Books Approval of disbursement schedules Possible need for Particular Conditions of payment Need for forward budgeting to ensure that funding is available to meet the Contractor’s programme and any additional costs to which he is entitled

Financial Planning - Contractor Payment Schedules - Advance payment (if any) and repayment is due in accordance with the schedules set out in the Appendix to Tender. To ensure it meets its purpose of assisting in financing mobilisation (and in the case of the Yellow Book, design), the dates of payment should be tied to the Commencement Date. Interim payments are due no later than 56 days after the submission to the Engineer of the monthly statement and the monthly statement, if not otherwise specified Final payment is due no later than 56 days after the Employer receives from Engineer the Payment Certificate and written discharge of Contractor (Both Books)

Financial Planning - Approval of Disbursement Schedules - Works carried out under aid funding or aid and development bank funding will require the approval of a local Authority which is responsible for the monitoring and disbursement of funds If there are any changes to the total amount of funding needed or the timing of payment, this body will need to seek approval from the bodies responsible for sourcing the funds Time must be allowed in the payment schedule for routine checks on payment certificates and the transfer of funds Project budgeting must ensure that sufficient advance notice is given of any changes to the amount or timing of funding needed so that approvals can be sought and received in good time

Financial Planning - Particular Conditions for Payment - The Clause 14 for payment conditions, require prompt payment to the Contractor This ensures that he does not incur heavy finance charges to cover the cost of carrying out work well before he is paid. Finance costs would only increase the bid price If the time needed for approval and disbursement of funds is likely to lead to a high risk of late payment, the schedule set out in Clause 14, should be altered by means of a Particular Condition/ Appendix to Tender The time for payment by the Employer should be the minimum needed and must not exceed the foreseen period, otherwise Contractor shall be entitled to receive financing charges (Sub-Clause 14.8)