FIDIC claim for delay payment

General contract clause (FIDIC 1987),

Time for Payment 60.10

The amount due to the Contractor under any Interim Payment Certificate issued by the Engineer pursuant to this Clause, or to any other term of the Contract, shall, subject to Clause 47, be paid by the Employer to the Contractor within 28 days after such Interim Payment Certificate has been delivered to the Employer, or, in the case of the Final Payment Certificate referred to in Sub-Clause 60.8, within 56 days, after such Final Payment Certificate has been delivered to the Employer. In the event of the failure of the Employer to make payment within the times stated, the Employer shall pay to the Contractor interest at the rate stated in the Appendix to Tender upon all sums unpaid from the date by which the same should have been paid. The provisions of this Sub-Clause are without prejudice to the Contractor's entitlement under Clause 69 or otherwise.

Particular Contract Clause 60.10

Time for Payment

The amount due to the contractor under any interim payment certificate issued by the engineer pursuant to this clause, or to any other terms of the contract within 28 days after such interim payment certificate has been delivered to the Employer, or in the case of final certificate referred to in sub clause 60.8, within 56 days after such final payment certificate has been delivered to the Employer. In the event of the failure of the Employer to make payment within the time stated, The Employer shall pay to the contractor compensation at the 28 days rate of KIBOR+2% per annum for local currency and LIBOR+2% for foreign currency, upon all sums unpaid from the date by which the same should have been paid. The provisions of sub-clause are without prejudice to the contractor's entitlement under clause 69.

Interpretation of FIDIC Contract Clause 60.10:

The phrase "the Employer shall pay to the Contractor compensation at the 28 days rate of KIBOR + 1% per annum" refers to the calculation of interest on delayed payments using the 28-day rate for the Karachi Interbank Offered Rate (KIBOR), plus an additional 1% as a penalty or compensation for the delay.

Here's how it works:

1. KIBOR 28-day Rate: KIBOR is a benchmark interest rate used in Pakistan, similar to LIBOR in international markets. The "28 days rate" refers to the rate applied for borrowing over a 28-day period. This rate fluctuates depending on the market, so you would use the KIBOR rate applicable on the date when the payment became overdue.

2. Plus 1%: The contract stipulates that the interest charged on delayed payments will be KIBOR + 1% per annum. This 1% is an additional penalty or compensation for the Contractor due to the Employer's failure to make timely payments.

3. Application:

   • Identify the 28-day KIBOR rate at the time when the payment became overdue.
   • Add 1% to this KIBOR rate.
   • The resulting interest rate is applied annually but needs to be prorated for the period the payment was delayed.

Example Calculation:

1. Suppose the 28-day KIBOR rate on the day the payment became overdue was 14%.

2. The contract adds 1%, so the interest rate becomes 15% per annum.

3. If the payment was delayed by 60 days, you would calculate the interest for those 60 days (a fraction of the year) using the formula:

   $$\text{Interest} = \left(\frac{15}{100} \times \text{Amount Due}\right) \times \left(\frac{60}{365}\right)$$

   This gives you the interest payable for the period of the delay.

In short, the clause requires the Employer to compensate the Contractor for any delays by paying interest based on the KIBOR rate for 28-day borrowings, plus 1%, prorated for the period of delay.

• If delay prolonged more than 28 days, then what, if the same rate will be applicable or the KIBOR rate will be applied after every 28 days?

In the context of your contract clause, the reference to the "28 days rate of KIBOR" typically means that the interest rate is based on the 28-day KIBOR at the time the payment became overdue. However, since the contract doesn't explicitly mention adjusting the KIBOR rate at intervals, the interpretation will depend on how the contract has been applied in practice and the specific legal interpretation.

Here are the two possible interpretations:

1. Fixed Rate Based on Initial KIBOR (Most Common Interpretation):

• The 28-day KIBOR rate applicable on the date when the payment first became overdue is used for the entire period of delay. This is the most common approach in contracts that reference an interest rate linked to KIBOR.
• Even if the delay exceeds 28 days, the same KIBOR rate (the one applicable at the time of default) would be used for the entire period until payment is made.

2. Adjusting KIBOR Every 28 Days (Less Common Interpretation):

• In this interpretation, the KIBOR rate would reset every 28 days, meaning that every 28 days, the interest rate would be adjusted to reflect the current KIBOR rate at that time.
• For example, if the delay extends beyond 28 days, and the KIBOR rate changes after 28 days, the new KIBOR rate would apply from day 29 onwards.
• This interpretation could be valid if the contract specifically stated that the KIBOR rate should be reviewed and adjusted after each 28-day period, but your contract doesn't specify this.

Which Interpretation is Likely?

• Fixed KIBOR Rate: In most FIDIC contracts and similar agreements, the initial KIBOR rate (set at the time of overdue payment) remains constant throughout the period of delay, even if the delay exceeds 28 days. This simplifies calculations and avoids disputes over changing rates.

• Adjustable Rate: If the parties want to apply an adjustable rate, this would need to be clearly stated in the contract. Terms like "the KIBOR rate in effect at the time of payment" or "adjustable every 28 days" would be required. Since your contract doesn't mention this, it's safer to assume that the rate remains fixed.

Conclusion:

If the delay prolongs beyond 28 days, the initial KIBOR rate (plus 1%) set when the payment became overdue will likely continue to apply for the entire period of delay, unless the contract explicitly states otherwise.