Preliminaries:
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The Contractor has been contracted to supply and lay 30km of HDPE pipeline
(“the Works)”.
HDPE Pipeline will fall under the definition of “Materials” pursuant to SubClause 1.1.5.3.
Liability:
Under the Red Book 1999, the Contractor has an obligation to remedy any defects in the
work (Sub-Clause 4.1). Furthermore, Sub-Clause 4.9 puts an obligation on the Contractor
to institute quality assurance (QA) systems to demonstrate compliance with the
requirements of the Contract and further provides that compliance with the QA system
does not relieve the Contractor of any of his duties, obligations or responsibilities under
the Contract. Therefore, despite the third-party inspection agency approving the pipes, the
Contractor is still under a duty to carry out his own testing in order to comply with SubClause 4.9 as well as Sub-Clause 7.1 (the Contractor shall carry out the production and
manufacture of Materials in a proper workmanlike and careful manner).
The aforementioned scenario does not specifically state that the Contractor implemented
any such system. Therefore he will be liable for failure to comply with Sub-Clause 4.9
and liable to remedy the defects as a result thereof.
Furthermore, under Sub-Clauses 7.3 and 7.4, the Employer is entitled to conduct various
activities including inspections and testing and Sub-Clause 7.3, in particular, states that
no such activities relieves the Contractor from any obligation or responsibility. Therefore,
the Employer should be advised that despite the Employer’s Personnel approving the
pipes, the Contractor is still under an obligation to carry out the Works in accordance
with the Contract (Sub-Clause 7.1). Therefore, the Contractor is still under a duty to
suitably supply and lay the pipes in order to execute the Works.
Actions available to the Employer:
Pursuant to Sub-Clause 7.5 if, as a result of any inspection or testing etc., any Materials
etc. is found to be defective etc., the Engineer may reject Materials by giving notice to
the Contractor. Following same, the Engineer may instruct the Contract to remedy any
defects within a certain time period (7.6).
The Employer should further be advised that if the on-site tests are classified as re-tests
(Sub-Clause 7.5), the Employer is entitled to recover the costs of same from the
Contractor ad should therefore issue a 2.5 notice as soon as practicable (i.e. between
months 16-18).
The Employer should also bear in mind that if the Contractor fails to remedy the defect
after a notice is issued under Sub-Clause 7.5 [Rejection ] or Sub-Clause 7.6 [Remedial
Work ], within 28 days after receiving it, the Employer is entitled to terminate under sub
clause 15.2. However, practically speaking, from the scenario it seems that if the
Contractor places a new order, it will take approximately 8 months to reach country A
and 2 months to lay same. Therefore, if the Contractor is to be given a reasonable
opportunity to remedy the defects and a notice (Sub-Clause 7.5 [Rejection ] or SubClause 7.6 [Remedial Work ]) is given in month 16 then in or about months 26-28, the
Contractor will be able to remedy the defects. Therefore, the Employer should also be
advised that if the remedial works done by the Contractor results in delay to the
Completion Date, he should also issue a 2.5 notice in respect of delay damages (SubClaus 8.7) , as the Contractor will not be entitle to an EOT in the circumstances.
Lastly, since the Contractor has disputed its liability and has not taken any steps since the
issue of the notice within 28 days, the Employer is entitled to terminate pursuant to SubClause 15.2. Furthermore, the said dispute will be considered a dispute for which the
Employer should issue a 2.5 notice as soon as practicable and invoke the procedure to the
DAB.