Expert: Alina Valentina Oprea - 3/29/2010

Question
QUESTION: Hello Alina,
Under the FIDIC 1999 version, if the Engineer gives an instruction for a variation isn't the Contractor
required to comply? What is the Employer's remedy if the contractor refuses to carry out the variation
or is taking unreasonably long to comply?
Regards
Helen
ANSWER: Hi, Helen,
According to Sub-clause 13.1, the Contractor shall comply with the Engineer's instruction for a
variation, unless the Contractor has promptly notified the Engineer that he cannot comply, giving
reasons why. In this case, the Engineer will redraw the instruction, will vary it or will confirm it.
In case the Contractor fails to comply with the instruction, notice to correct may be given according to
Sub-clause 15.1. In case the Contractor fails to comply, Sub-clause 15.2 [Termination by the
Employer] may be applied.
Still, decision to terminate a Contract shall be taken with maximum carefulness, since it is an extreme
solution, with severe consequences on the parties and on the project.
Regards,
Alina
---------- FOLLOW-UP ---------QUESTION: Thanks Alina,
I agree with you that termination is not the best option. Can the Employer omit the work and have
someone else carry out the variation if the Contractor fails to comply or gives reasons why he cannot
comply?
Answer
Hi,
Sub-clause 13.1 says that an instruction to vary cannot be given to omit some works (i.e. to renounce
at some works which are now in the Contract) and these works to be performed by the Employer itself
or by other contractor.
If it is about some new works needed, but the Contractor cannot perform them, the Engineer can
modify the instruction to what the Contractor can comply, or can ask the Contractor to make a
proposal according to 13.3 or even renounce to instruct the Contractor to do this new work and do it
with other contractor.

Hope it helps.
Regards,
Alina
-----------------------------------------------------------------------Construction Law/FIDIC 1999 / Sub-Clause 12.4
Expert: Alina Valentina Oprea - 4/2/2014

Question
QUESTION: Dear Mme,
First of all I hope that this email finds you well.
As a matter of fact I was looking forward to receive an explanation for the sub-clause 12.4
"Omissions" of the FIDIC 1999 Condition of Contract for Construction for Building and Engineering
Works Designed by the Employer.
I would be very grateful if you as expert can explain for this sub-clause thoroughly and provide me
with some references.
Your cooperation is highly appreciated.
Many thanks.

Regards,
Jamil C. Daou
ANSWER: Hi,
This sub-clause refers to parts of the Works that the Employer does not need or does not want
anymore and decides to remove from the Contract.
In case the Contractor incurred costs while preparing to do these works, which are removed from the
Contract, or will incur costs following his preparations to do these works (let's say the Contractor
ordered some materials, equipment, which will not be used, but the suppliers don't accept to renounce
at supplying them while they are not necessary anymore to the Contractor), then the Contractor shall
give notice to the Engineer, who shall determine, according to the sub-clause 3.5, the amount of
money to be reimbursed to the Contractor.
The sub-clause 12.4 does not refer to a notice 20.1, nor establish a certain period of time in which the
Contractor shall give he notice, like the sub-clause 20.1 does.
Further explanation can be found in The FIDIC Contracts Guide First Edition 2000, which says about
this sub-clause:
"Since Sub-Clause 13.3 concludes by referring to Variations being valued under Clause 12, and the
quantity (for the purposes of Sub-Clause 12.3) of an omitted item is zero, Clause 12 concludes by
entitling the Contractor to compensation for the costs reasonably incurred in the expectation of
carrying out work subsequently omitted under the Variation. The Sub-Clause refers to the word "cost"
in its usual usage, rather than to "Cost".

The significance of this point is best illustrated by a typical example. If the Contractor had ordered
formwork for work which was subsequently omitted by' Variation, the Accepted Contract Amount
would typically have included direct cost plus profit in respect of this formwork. The Contractor would
then be entitled to recover cost and profit. However, if the Employer was thus required to pay for the
full cost of an item, he may also be entitled to recover it as his property."
Hope this help.
Best regards,
Alina
---------- FOLLOW-UP ---------QUESTION: Dear Alina,
Thank you for your helpful review.
In our case the Contractor is claiming for loss of overhead and profit under sub-clause 12.4 (a) for
work that has been omitted. However the Contractor did not incur any costs so far since he was aware
all along that this work was going to be removed from his scope.
How do we deal with this case? Does it really constitute a loss of over head and profit that formed part
of the Accepted Contract Amount that is not recoverable?

According to your previous analogy we should not pay him in this case since the Contractor did not
incur any costs. Could you please provide me with a clearer substantiation than the FIDIC guide that is
rather ambiguous.
Answer
Hi,
The sub-clause 12.4 [Omissions] gives the right to the Contractor only to recover those Costs that he
incurred or he will incurred, as specified in 12.4. There is no loss of profit or loss or loss of overhead
and loss of profit mentioned in this clause, so the Contractor is not entitled to loss of overhead and
loss of profit in case of omissions.
The only clause in FIDIC which entitles the Contractor to loss of overhead and loss of profit is 16.4
[Payment at Termination], in case the Contract is terminated by the Contractor because of the
Employer's or Engineer's breach of Contract.
So, the Contractor from your question is not entitled to loss of overhead and loss of profit in case of
omission.
Hope you will find this answer really useful, since apparently my first answer was not good enough.
Regards,
Alina
--------------------------------------------------Construction Law/Sub-Clause 12.4 (omissions) of FIDIC 1999
Expert: Peter M. Elliott - 12/22/2014

Question
QUESTION: Dear Mr. Peter

I have some queries about above mentioned sub-clause as follows:

1- an item is required to be omitted by the Employer while the Contractor has not yet started at all in
execution of this item. It's apparently no cost has been incurred yet so according to sub-paragraph (a)
no compensation entitled However, overhead (OH) is a part of cost (cost as far as I know consists of
direct cost and indirect cost which is namely called overhead) .. i.e. is the Contractor is entitled to OH
compensation against the share of the item omitted in the estimated OH of his tender offer?
2- Please refer to the clarification of this sub-clause in the Guide which gave an example of form work
which has been already supplied by the Contractor prior omitting the item. The Guide says that the
Contractor in this case is entitled to cost and profit. my question is why profit? cost and profit means
the price quoted by the Contractor for this item. why do i have to pay the whole price of the item after
omitting it whereas 12.4 says only cost???
Hope you understand what is confusing my mind Sir
Khaled
ANSWER: Dear khaled,
The intention of the clause is to restore the Contractor to the position he was in before the omission.
So if he has had some expense, such as buying formwork, he would have expected to make a profit
on that item. Thus you pay for the cost of the work plus profit. If the omission is balanced by new
work which allows the Contractor to recover his overheads and profit, then there is no need to
recompense the Contractor for his loss of overheads and profit. Clause 52 of FIDIC 4 allowed the
Engineer to make an adjustment in the Final Certificate to cover any over or under recovery of
overheads and profit, but the words are different in FIDIC 99.

---------- FOLLOW-UP ---------QUESTION: Thank you Mr. Peter .. wonderful clarification however I still have further small queries:
1- In such form work example; how can we know the profit that to be added to the form work costs if
the BOQ item is "Supply & Apply reinforced concrete all inclusive of form work, steel fixing, concrete
pouring, workmanship, OH and total profit of the whole item" i.e. purchasing form work is a part from
a big contractual item. Do we know that total profit of the whole item which was estimated by the
Contractor upon tendering? DO we know the small profit that can be added to the form work cost only
(for compensating the Contractor) ?
2- May you give me a very short and quick opinion on my question No. 1 in my previous message?
Thank you so much Sir
ANSWER: Dear khaled,
Q 1) The contractor has to prove his actual profit, not the assumed profit shown in his bid, using his
audited accounts for several years. That profit is then added to the actual cost of the materials and
labour in making the formwork. When I was doing estimating, we allowed 100% mark up on
materials and 3 times basic take home wages for labour costs, but those factors would change with

time and the country. The Contractor has to show his breakdown for the BoQ item, including
formwork and you have to make a judgement as to whether or not the proportion is correct for any
given activity.
Q 2) If the omission is balanced by new work which allows the Contractor to recover his overheads
and profit, as included in his offer, then there is no need to recompense the Contractor for his loss of
overheads and profit. Clause 52 of FIDIC 4 allowed the Engineer to make an adjustment in the Final
Certificate to cover any over or under recovery of overheads and profit, but the words are different in
FIDIC 99.
---------- FOLLOW-UP ---------QUESTION: Dear Mr. Peter
for question (1) no further questions.
for question (2) : please tell me your answer in case the omission is not balanced or replaced by new
work. i.e. Employer omitted a certain work totally without any substitute work and before any action
take by the Contractor regarding this work on site or procurement or else?
Thank you and sorry for my repetitive inconvenience
Khaled
Answer
Dear Khaled,
Q 2) It is normal that the Contractor will allow in his offer for a variation in the final price of +/- 15%
from the Accepted Contract Amount. If the final variation is within this range, then there would be no
change due to this omission. If the variation is outside this range, then the Contractor must prove his
loss of overhead recovery and profit. There is a lot of case law on this subject. I suggest that you
visit the web site http://atkinson-law.com/ for articles on the subject.

--------------------------------------------------------------------Construction Law/FIDIC sub -clause 12.4

Expert: Peter M. Elliott - 5/23/2013
Question
QUESTION: Dear Mr. Peter,
The Engineer issue an EI for omission of the Work (150mm thk concrete slab 10 m2)
and it has omitted. Now the Contractor is seeking loss of profit in accordance with
sub- clause 12.4 FIDIC 99 red book.
I would like to know, is there is any entitlement for loss of profit or any incurred
cost?

Please could you elaborate this issue?

ANSWER: Dear Sathis,
Clause 1.1.4.3 defines Cost means all expenditure reasonably incurred (or to be
incurred) by the Contractor, whether on or off the Site, including overhead and
similar charges, but does not include profit. Clause 12.4 refers to cost so no loss of
profit.
---------- FOLLOW-UP ---------QUESTION: Dear Peter,
Which mean the Contractor not entitle any loss of profit due to omission of the work
in accordingly FIDIC 1999 red book?
Could you clarify the Sub - clause 12.4 with an example?
Answer
Dear Sathis,
From the FIDIC Guide
'Since Sub-Clause 13.3 concludes by referring to Variations being valued under
Clause 12, and the quantity (for the purposes of Sub-Clause 12.3) of an omitted
item is zero, Clause 12 concludes by entitling the Contractor to compensation for
the costs reasonably incurred in the expectation of carrying out work subsequently
omitted under the Variation.
The Sub-Clause refers to the word "cost" in its usual usage, rather than to "Cost".
The significance of this point is best illustrated by a typical example. If the
Contractor had ordered formwork for work which was subsequently omitted by
Variation, the Accepted Contract Amount would typically have included direct cost
plus profit in respect of this formwork. The Contractor would then be entitled to
recover cost and profit. However, if the Employer was thus required to pay for the
full cost of an item, he may also be entitled to recover it as his property.'
Further the Contractor has to show loss of profit, which is based on audited
accounts for several years. Generally loss of profit cannot be calculated until the
final Contract Price is known.
---------------------------------------------------------------------------------------Right to vary and rate of progress Question

We are facing a couple of problems and your guidance will be appreciated. a) Clause
13.1 - Right to vary. For additional work, this clause is clear. For omission of part of
the work, there appears to be a problem. Clause 13.1 (d) reads: Each variation may
include: (d) omission of any work unless it is to be carried out by others. A
Contractor has been very slow; he is not likely to finish the job in time to cope with
the traffic arrangements. The Employer wants to reduce the Contractor's work and
ask others to do that job. Any contractual problem in view of Clause 13.1 (d)? b)
Clause 8.6 - Rate of Progress. What action one can take if the Contractor does not
respond, other than delay damages? The Employer is more interested in getting the
work done on time. All comments will be appreciated.
Answer: Presumably you are referring to the 1999 Conditions of Contract for
Construction, without any significant changes in the Particular Conditions. You are
correct that Sub-Clause 13.1 (d) prevents the Engineer from issuing a variation to
take work from the Contractor and give it to another contractor. Also, if the
Contractor fails to respond to Sub-Clause 8.6 then the consequence will be delay
damages. You say that the Employer wants the job finished on time. Of course the
Contractor may have different views as to the reason for the delays. The solution
may be for the Employer and Contractor to negotiate an addendum to the Contract
to change Sub-Clause 13.1 (d).