Contractor

or Subcontractor -Who
Wins Under Bespoke Subcontract?
By

Rama S Sinnaswamy
BEng, MBA, LLM (Construction Law & Arbitration)
MCIArb, MCInstCES, CCP, MASCE-CEng

Rajesh Kumar
BE, MSc (Construction Law and Practice),
MCIArb, MRICS, MCInstCES, MAIQS, MIIQS, CCP,
ICIOB

Signing the Subcontract

Decision is taken Signed

Risks in Subcontract
Some Onerous Clauses

a. Extension of Time
b. Terms of Payment

c. Liquidated Damages
d. Delay and Cost of Delays
e. Fluctuation

Main Causes of Disputes

Main Contractor
L ate appointment
Changes in design,

speciMication and
approval delay

Subcontractor
Delay in Shop Drawings and
Samples

D
elay in resources

C hanges in the sequencing of Lack of Quality Work

works
L ack of access
F inancial

N
on-adherence to the
Schedule

L ack of Proper

Communication

Effects of Disputes
Contractors Obligation not to Disrupt is not
implied
Time Delay
Payment Delay

Time Delay
Delays caused by
Employer/ authorities
Main contractor
Subcontractor

Extension of SCs Time for

Completion (FIDIC Sub-clause 7.2)
If the Subcontractor shall be delayed in the execution of the Subcontract
Works or if applicable, any Section thereof by any:

a) circumstances in regard to which the Contractor is entitled to
receive from the Engineer an extension of his time for completion of
the Main Works under the Main Contract,
b) instruction pursuant to Sub-Clause 8.2 (Instructions under Subcontract)
to which paragraph (a) of this Sub-Clause does not apply, or

c) breach of the Subcontract by the Contractor or for which the Contractor
is responsible,

then in any such event the Subcontractor shall be entitled to such
extension of the Subcontractor's Time for Completion of the Subcontract
Works or such Section thereof as may in all the circumstances be fair and

Extension of SCs Time for

Completion (FIDIC Sub-clause 7.2)

Provided that the Subcontractor shall not be entitled to such extension of

time unless he has submitted to the Contractor notice of the circumstances
which are delaying him within 14 days of such delay Mirst occurring
together with detailed particulars in justiMication of the extension of time
claimed in order that the claim may be investigated at the time and,
in any case to which paragraph (a) of this Sub-Clause applies,
the extension shall not in any event exceed the extension of time to which
the Contractor is entitled under the Main Contract.

Commencement and Completion

(Bespoke Sub-clause 6.2)
6. 2 If the Sub-Contractor shall be delayed in the execution of the Sub-
Contract Works:
a) by any circumstances or occurrence (other than a breach of this Sub-
Contract by the Sub-Contractor) entitling the Contractor to an extension
of his time for completion of the Main Works under the Main Contract; or
b) by the ordering of any variation of the Sub-Contract Works to which
paragraph (a) of this sub-clause does not apply; or
c) by any breach of this Sub-Contract by the Contractor;

then in any such event the Sub-Contractor shall be entitled to such extension
of the Period for Completion as may in all the circumstances be fair and
reasonable.

Commencement and Completion

(Bespoke Sub-clause 6.2)
Provided always that in any case to which paragraph (a) of this sub-
clause applies it shall be a condition precedent to the Sub-Contractor's
right to an extension of the Period of Completion that he shall have
given written notice to the Contractor of the circumstances or
occurrence which is delaying him within 7 days of such delay Mirst
occurring and in any such case the extension shall not in any event
exceed the extension of time to which the Contractor is properly
entitled under the Main Contract

Payment Delay
Delays caused by:

Delays in certiMication

Withholding of Payments

CertiMied but not paid: Payment provision Pay when

paid

Payment protection in the UK, governed by HGCR Act

In Qatar?

Payment Due; Payment Withheld

or Deferred; Interest
(FIDIC Sub-clause 16.3)
Within 35 days of the SpeciWied Day or otherwise as agreed but
subject as hereinafter provided, the amounts included in a

Statement shall be due and payable to the Subcontractor,

subject to deduction of previous payments and of retention monies
at the rate(s) speciMied in the Appendix to Subcontractors Offer
until such time as the limit of retention money (if any) therein
speciMied has been reached. The Contractor shall be entitled to
withhold or defer payment of all or part or any sums otherwise due
pursuant to the provisions here of where ...

Payment
(Bespoke Sub-clause 15.1 a)
The Sub-Contractor shall not less than 7 days before the date speciMied in
the First Schedule (the SpeciMied Date) or otherwise as agreed submit to
the Contractor a written statement of the value of all work properly done
under the Sub-Contract and of all materials delivered to the Site for
incorporation in the Sub-Contract Works and if allowable under the Main
Contract the value of off-site materials for incorporation in the Sub-
Contract works at the date of such statement. The statement shall be in
such forms and contain such details as the Contractor may reasonably
require and the value of work done shall be calculated in accordance with
the rates and prices, if any, speciMied in the Sub-Contract, or if there are no
such rates and prices, then by reference to the Price.

Payment
(Bespoke Sub-clause 15.3 a)
Within 7 days after receipt of payment by the Contractor
but subject as hereinafter provided, there shall be due to the
Sub-Contractor in respect of the value of the work and
materials if included in a valid statement payment of a sum
calculated in accordance with the rates and prices speciMied in
this Sub-Contract, or by reference to the Price, as the case
may require, but subject to a deduction of previous payments
and of retention monies at the rate(s) speciMied in the Third
Schedule hereto until such time as the limit of retention (if
any) therein speciMied has been reached.

What are the consequences?

Non-Payment, is there speciMic recourse under FIDIC or Bespoke?
This will become a potential dispute
No option for either suspension or termination for the
Subcontractor under the Subcontract, except to bring it as
dispute?
Whereas, the Main Contractor may terminate the
Subcontractors Employment for causes

Termination, Penalty and Call-on

Performance Bond
Termination
Remove the Subcontractor, and take part of the
works

Default of Subcontractor
(FIDIC Sub Clause 18.1)
If:

(a) the subcontractor is deemed by law unable to pay his debts as they fall due,
or enters into voluntary or involuntary bankruptcy, liquida9on or
dissolu9on,
(b) the subcontractor has repudiated the Subcontract,
(c) the subcontractor, without reasonable excuse, has failed to commence or
proceed with the Subcontract Works..,
(d) the subcontractor refuses or neglects to remove defective materials or
remedy defective work after being instructed so to do by the Contractor..,
(e) the Subcontractor, despite previous warning from the Contractor, in
writing , is otherwise persistently or Mlagrantly neglecting to comply with
any of his obligations under the Subcontract,
(f) the Subcontractor has contravened Sub-Clause 2.5(Sub-Subcontracting),
or
(g) the Contractor is required by the Engineer to remove the Subcontractor
from the Main Works after due notice in writing from the Engineer to the
Contractor in accordance with the Main Contract,

Default of Subcontractor
(FIDIC Sub Clause 18.1) Contd

then in any such event , and without prejudice to any rights or remedies,
the Contractor may by a notice to the Subcontractor forthwith terminate
the Subcontractors employment under the Subcontract and thereupon the
Contractor may take possession of all materials, Subcontractors Equipment
and other things whatsoever brought on to the Site by the Subcontractor and
may by himself or any other contractor use them for the purpose of executing
and completing the Subcontract Works and remedying any defects therein and
may, if he thinks Mit, sell all or any of them and apply the proceeds in or towards
the satisfaction of monies otherwise due to him from the Subcontractor.

Sub Clause18.3 Contractors Powers
The Contractor may in lieu of giving a notice of termination under this Clause
take part only of the Subcontract Works out of the hands of the
Subcontractor and may by himself or any other contractor execute and
complete such part of the Subcontract Works and remedy any defects therein
and in such event the Contractor may recover his cost of so doing from the
Subcontractor, or deduct such costs from monies otherwise becoming due to the
Subcontractor.

Sub-contractors Default
(Bespoke Sub Clause 17.1)

If the Sub-Contractor:
(a) fails to proceed with the Sub-Contract Works with due diligence
aAer being required in wri9ng so to do by the Contractor; or
(b) fails to execute the Sub-Contract Works or to perform his other obliga9ons
in accordance with the Sub-Contract aAer being required in wri9ng so to do by
the Contractor; or
(c) refuses or neglects to remove defec9ve materials or make good defec9ve
work aAer being directed in wri9ng so to do by the Contractor; or
(d) commits an act of bankruptcy or enters a deed of arrangement with his
creditors or, being a company goes into liquida9on, (other than a voluntary
liquida9on for the purposes of reconstruc9on), or has a receiver appointed of
all or part of its undertaking.
then in any such event and without prejudice to any other rights or remedies,
the Contractor may by wriFen no9ce to the Sub-Contractor forthwith
determine the Sub-Contractor's employment under this Sub-Contract and
thereupon the Contractor may take possession of all materials, Construc9onal
Plant and other things .,

Sub-contractors Default
(Bespoke Sub Clause 17.3)
Part
The Contractor may in lieu of giving a notice of determination under this
clause take part only of the Sub-Contract Works out of the hands of the Sub-
Contractor and may be himself, his servants or agents execute, complete and

maintain such part and in such event the Contractor may recover his
reasonable costs of so doing from the Sub-Contractor, or deduct such costs
from monies otherwise becoming due to the Sub-Contractor.

Upon TERMINATION .
Penalty or Liquidated damages
Call on Bond

Performance Security
(FIDIC Sub Clause 2.2)
If the Subcontract requires the Subcontractor to obtain
security for his proper performance of the Subcontract, he
shall obtain and provide to the Contractor such security in the
sum stated in the Appendix to Subcontractor's Offer. Such
security shall be in the form annexed to the Conditions of
Subcontract or in such form as may be agreed between the
Contractor and the Subcontractor. The institution providing
such security shall be subject to the approval of the
Contractor. The cost of complying with the requirements of
this Clause shall be borne by the Subcontractor, unless the
Subcontract otherwise provides.

Performance Bond
(Bespoke Clause 20)
The Sub-Contractor shall obtain when required, a bond or guarantee of a
bank registered in the U.A.E. acceptable to the Employer to be bound with
the Sub-Contractor to the Contractor in a sum equal to 10 percent of the
Sub-Contract value for the due performance of the Sub-Contract under
the terms of the Performance Bond. The said bank and the terms of the
said Performance Bond to be so entered shall be at the expense in all
respects of the Sub-Contractor. Such bond or guarantee shall be valid until
the issue of Defects Liability CertiMicate.

On demand bond - Is this a

Cheque?
Calling on Performance Bond Is this an Act
of bad faith?
FIDIC/ Bespoke Clause: For the due
performance? What does it really mean?

So, Subcontractor is under the mercy of

Main contractor, like the Main Contractor is
under the Employer


Disputes between a Contractor
and a Subcontractor


UAE Case - DebrieWing:
i. Main contractor failed to make payments
ii. Subcontractor reduced resources
iii. Subcontractor was removed from the site for
their alleged delay
iv. Imposed penalty
v. Performance Bond was encashed

Strategize Dispute Resolution

Route
What does the Subcontract state about the
Rights, Obligations and Liabilities of the
PARTIES?
What does the Subcontract say about dispute
resolution?
Whether Arbitration or Court?
Of course each party would attempt capitalize the
option(s) given in the agreement.

A dispute within a dispute?

Bespoke Disputes 18.(1)

If any dispute arises between the Contractor and the Sub-

Contractor in connection with or arising out of this Sub-
Contract or the carrying out of the Sub-Contract Works
including any disputes as to any decision, opinion, instruction
or direction of the Contractor and/or Employer Representative,
it shall, subject to the provisions of this clause, be referred,
to the arbitration and Winal decision of a person agreed
between the parties, or failing such agreement, the
dispute shall be submitted to the jurisdiction of the Court
of Law of Dubai and shall be Minal and binding upon the
Contractor and Sub-Contractor.

Seek Courts direction, if unable to resolve

between parties.

Court Appointed
a Single Arbitrator
Both parties presented their arguements with
evidences

Set backs in this Case

Usual onerous clauses as explained earlier, in
favor of the Contractor

As seen in the Bespoke,
No EOT
Pay when paid
Default Clause
On Demand Bond


Contractors Wrongful Acts
Overwhelmed the set backs
Contractor and other Subcontractors were also parties to

the delay, besides mainly,
-------
Non-payment: Dues - Progress payment 20%
Termination took place and penalty imposed
Performance bond encashed
while,

1. Progress Payment CertiMicate revealed consistency in
progress completed up to 99%
2. partial possession happened (28/67 Floors)
3. Substantially completed


Payment CertiWicates InWluenced
Arbitrators Decision, How?

Effects of Payment CertiWicates

CertiMication is a condition precedent either to
payment or to quantifying the works
Consistency in certiMicates
Critical about certifying party?


Taking over CertiWicates InWluenced
Arbitrators Decision, How?
Effects of Taking o ver CertiWicates

Record shows partial progressive
occupation for internal ofMice partitioning
works without TOC
Back dated TOCs
Inconsistencies in other Subcontractors
TOCs

Award
Main Contractors actions were proven as wrong
Subcontractor entitled for the work done
Due amounts paid less deduction
Retention Paid
Performance bond money returned

Lessons Learned
Contracting parties shall honor their commitments/ fulWill
the obligations under UAE/ Qatar Civil Codes, besides,
Main Contractor
Foresee implications of actions, letter or document such
as Payment CertiMicate/ Taking over CertiMicate
Avoid termination
Sub Contractor
Avoid delay or suspension
Consultant
Effects of Payment CertiMicates
Effects of back-dated TOCs

Who wins?
Contractors actions might be right under
Bespoke, but was he the winner?
Subcontractor reduced resources; Minally,
was only compensated for his dues under the
Subcontract, after a lengthy process of
Arbitration/ Litigation. So, was he the
winner?

SO IT IS NOT THE QUESTION OF

WHO WINS,

An Agreement usually is meeting of minds;
But, both parties may have different intentions,
while signing the agreement , which each other
wouldnt know.
The intention of parties seldom (truly) meet during
the fulMilment of an agreement.

Nonetheless, neither of their intentions wins, if they
are of vested!

THEN, WHAT WINS?

Fair and reasonableness prevails!

Finally, as the Court upheld the

INTENT of an Agreement, wins!

Thank You
Q&A