Understanding Clauses in FIDIC Conditions of Contract for EPC/ Turnkey Projects First Edition 1999

Clause No. 14
Sub-Clause No. 14.9

Contract Price and Payment

Payment of Retention Money

Summary Retention money is held as a percentage of interim payments. Retention money is returned in parts after issue of taking over certificate and after expiry of defects notification period. In lieu of retention as percentage of interim payments, the contractor can issue a retention guarantee as agreed by the parties.

Content of the FIDIC Clause in Brief Sub-Clause 1.1 Definitions, Sub-Clause 1.1.4 Money and Payments, Sub-Clause 1.1.4.7 Retention Money means the accumulated retention moneys which the Employer retains under Sub-Clause 14.3 [Application for Interim Payments] and pays under Sub-Clause 14.9 [Payment of Retention Money]. Clause 14 Contract Price and Payment, Clause 14.3 Application for Interim Payments The Contractor shall submit a Statement in six copies to the Employer after the end of the period of payment stated in the Contract (if not stated, after the end of each month), in a form approved by the Employer, showing in detail the amounts to which the Contractor considers himself to be entitled, together with supporting documents which shall include the relevant report on progress in accordance with Sub-Clause 4.21 [Progress Reports]. The Statement shall include list of the items which also include, any amount to be deducted for retention, calculated by applying the percentage of retention stated in the Particular Conditions to the total of the above amounts, until the amount so retained by the Employer reaches the limit of Retention Money (if any) stated in the Particular Conditions; Clause 14 Contract Price and Payment, Clause 14.9 Payment of Retention Money When the Taking-Over Certificate has been issued for the Works, and the Works have passed all specified tests (including the Tests after Completion, if any), the first half of the Retention Money shall be paid to the Contractor. If a Taking-Over Certificate is issued for a Section, the relevant percentage of the first half of the Retention Money shall be paid when the Section passes all tests. Promptly after the latest of the expiry dates of the Defects Notification Periods, the outstanding balance of the Retention Money shall be paid to the Contractor. If a Taking-Over Certificate was issued for a Section, the relevant percentage of the second half of the Retention Money shall be paid promptly after the expiry date of the Defects Notification Period for the Section. However, if any work remains to be executed under Clause 11 [Defects Liability] or Clause 12 [Tests after Completion], the Employer shall be entitled to withhold the estimated cost of this work until it has been executed. The relevant percentage for each Section shall be the percentage value of the Section as stated in the Contract. If the percentage value of a Section is not stated in the Contract, no percentages of either half of the Retention Money shall be released under this Sub-Clause in respect of such Section. Guidance for the Retention Money If part of the retention money is to be released and substituted by an appropriate guarantee, an additional subclause may be added. The acceptable form(s) of guarantee should be included in the tender documents, annexed to the particular conditions: an example form is annexed to this document, as annex F in FIDIC Book. In the event that the contractor elects the option to provide to the employer a retention bond in lieu of the retention, the contractor shall procure and deliver to the employer a retention bond for an amount equivalent to 5% of the actual
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Understanding Clauses in FIDIC Conditions of Contract for EPC/ Turnkey Projects First Edition 1999

contract price as certified by the engineer, reducing to 2.5% of the actual contract price at taking over and rest after expiry of defect notification period. The retention deducted from payments shall be paid to the contractor. Applied Clauses of the Retention Money for EPC Contracts (FIDIC or Mixed) (References to the clauses are removed) Payment of Retention Money The Employer shall be entitled to retain 10% of each payment of the contract price until the issue of the last taking over certificate in respect of the works. The Employer shall pay back to the Contractor the amount retained, after first deducting the Punch List Retention (to be retained by the Employer in accordance with clause) after the issue of the Employers notice in accordance with Clause (Statement at Completion). The remainder of the retention money shall not be paid until the Performance Certificate has been issued and Final Statement has been agreed by Parties in accordance with Clause (Application for Final Payment Certificate). Let us discuss article on Punch List which relates to FIDIC as if any work remains to be executed under Clause 11 [Defects Liability] or Clause 12 [Tests after Completion], the Employer shall be entitled to withhold the estimated cost of this work until it has been executed sometimes considered in other forms of EPC contracts not completely based on FIDIC. Punch List means a schedule of items which have not been completed but which do not affect the safe and reliable testing and commercial operation of the works and which are to be completed, corrected, fixed or repaired by the contractor at its own expense as a condition to obtaining the final completion certificate. Creation of Punch List As soon as the contractor reasonably believes the state of the works warrants such action, but in any event before taking over of the works the contractor shall provide written notice to the employer that the contractor is prepared to conduct a joint inspection of the works to produce a proposed punch list. Within five days of completion of any such joint inspection, the contractor shall prepare and deliver to the employer a written description of all proposed items for the punch list (other than the performance tests or additional work required in connection with such tests or which is necessary to achieve successful completion of such tests) which the contractor, in its best good faith judgment, believes have not been completed or require revision or correction to cause them to conform with the requirements of this contract. Items of additional work disclosed by testing or operation of the works through the successful completion of the performance tests shall be added to the proposed punch list. If the employer accepts the proposed list as a complete punch list, then the employer shall sign a copy of such list marked accepted and return such copy to the contractor. If the employer does not accept such proposed list, then the employer shall within 10 days, state the objections to such proposed list and all if its proposed changes therein and additions thereto by written notice to the contractor. The employer shall be entitled to retain from the retention money an amount equal to 150% of the estimated value of the work and materials required for rectification or completion of the punch list items (the Punch List Retention), pending satisfactory rectification and/or completion of the punch list items. If the amounts held in retention money are insufficient to provide all of the punch list retention amounts required pursuant to this clause, the contractor shall be required to make payment of the balance to the employer as a condition to taking over. Upon satisfactory completion of all of such punch list items and/or payment by the contractor of the cost of completion of the punch list items (as applicable), as agreed or determined, the punch list retention shall be returned to the contractor. The clause in the final completion includes a condition completion of the items in the punch list and hence obviously a specified portion of retention money is being held till the issue of performance certificate also in the form of punch list retention.

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