Turkish Law Blog

Contractor’s Entitlement for Payment for Varied / Additional Works (Do We Really Require a Particular Form to Initiate Obligations Under Contract?)

Tuğrul İnci Tuğrul İnci/ Muhibbah Engineering Middle East LLC
29 June, 2020
704

1 Preface

Changes / additions are inevitable for construction contracts due to intrinsic feature of business. Contractor becomes mostly happy about getting change orders / variation requests because this will most probably extend the time for completion of project and have contractor earn additional money / profit. For employer’s side, issuing additional works to contractor is easier choice rather than contracting those to another contractor because of the reasons such as that the current contractor is already mobilized to the site and knows the ongoing project.

When operated smoothly, changes / additions are not something to be scared of at construction. However, more often than not, there are problems occurring at operation of changes / additions to works.

One of the foremost of those problems is employer’s hesitation to pay the dues of contractor for executed changes / additions while there is not a signed variation order. Employers refrain from making payment for those changes / additions until variation order is signed by both parties at practice but this brings two challenges:  1) Variation orders are issued by employer so the discretion as to when to prepare variation orders are mostly left to employer at practice. 2) Due to the same reason as stipulated earlier, the contents of variation orders are mostly deliberated by employers so employers sometimes put onerous conditions in variation orders which contractor cannot sign and this issue delays signing of variation orders and payment thereof. Accordingly, contractors suffer from insufficient cash flow while carrying out changes / additions.

The purpose of writing this narrative is to shed light on the time of the payment for varied works. While doing this, rules of Law No. 22 of 2004 Regarding Promulgating the Civil Code of State of Qatar (“Qatar Civil Code” or the “Code”) and one of the most prevalent contract template at practice which is FIDIC[1] ‘Rainbow Suite’ of contracts[2] will be comparatively taken into consideration.

2 Legal Basis and Thorough Discussion of Matter

In the State of Qatar (“Qatar”), construction contracts between a specific employer/client and a contractor are regulated specifically between Articles 682 and 715 of Qatar Civil Code in Chapter One ‘Contract Agreements’ of Part 3 ‘Employment Contracts’. To be more precise, Article 682 stipulates the following:

“A contracting agreement shall be defined as a contract under which either party undertakes to make a thing or perform any work for the other party in consideration of a wage, without being an agent or representative of such party.”[3]

As Article 682 stipulates there are two essential obligations under contracting agreements / contracts for works / construction contracts: 1) Employer’s obligation i.e. making payment 2) Contractor’s obligation i.e. carrying out the work. Furthermore, as it is deduced, the Code did not bring a particular form requirement for executing a contracting agreement. Meaning that, there is no particular form required for these types of contract. When there is mutual intention of parties (offer-acceptance) in terms of those essential parts, the contract is deemed concluded. This is clear result of mandate of Articles 61 and 91 of Qatar Civil Code stipulating the following statements respectively:

“Without prejudice to any special formalities that may be required by law for the conclusion of certain contracts, a contract shall be concluded from the moment an offer and its subsequent acceptance have been exchanged if the subject-matter and cause of such contract are deemed legal.”[4]

“Unless otherwise required by law, no particular form of consent shall be required for concluding the contract.

If the law imposes a particular form for concluding the contract and such form is not observed, the contract shall be rendered invalid.”[5]

Moreover, parties are not needed to agree on the specific amount of works to be carried under contracting agreement. The amount shall be determinable only. This is in accordance with Article 79 of Qatar Civil Code stipulating the following:

“Where the contracting parties have agreed on all the essential terms of the contract and have left certain details to be agreed at a later date without stipulating that, failing agreement on these details, the contract shall not be concluded, the contract shall be deemed to have been concluded.

In the event of a dispute regarding those details not yet agreed upon, the court shall resolve the dispute according to the nature of the transaction, the provisions of the law and custom, and the rules of justice.”

Likewise, a change or an addition to contracting agreement would not require a specific form. Indeed, Article 381 of Qatar Civil Code regulating ‘novation’ does not mandate the contrary with following statement:   

“Obligations shall be renewed where:

  1. The debt is changed by virtue of the parties' agreement to replace the initial obligation by a new and different obligation;… ”[6]

In summary, a contracting agreement or an addition or variation to it is concluded by means of meeting of offer and acceptance of parties without requiring a particular formation. The parties are not required to determine the price to conclude the contract. It is sufficient that the price is determinable for the purpose of conclusion of contract. In a construction contract this is pretty easy and can be done by checking the market price of items used in construction if the price is not agreed while concluding the contract.

So, in case employer desires a variation / addition to original contract works, once it requests the same from contractor and contractor accepts to carry out this change, the contract for this changed part is concluded as per the Code. Accordingly, parties’ obligations under this contract commences as of meeting of offer and acceptance. Signing a variation order with tens of pages including details is not necessary to initiate the execution of obligations. Even signing is not even necessary to conclude a contract as long as parties’ intention are given by authorized persons in accordance with the ambit of Article 65 of Qatar Civil Code stipulating the following: -

“An intention shall be expressed orally or in writing, by a commonly used sign, by actual consensual exchange, and also by conduct that, in the circumstances, leaves no doubt as to its true meaning.

A declaration of intention may be implied when neither the law, nor the agreement, nor the nature of the transaction requires that such declaration be expressed.”[7]

There is a confusion at construction sector as if signing of those tens of pages are required for parties to commence executing their obligations. Of course for clarity and demonstration purposes it is better to define most of matters in writing but, there is a difference between a requirement and a useful act.

In FIDIC contracts which fall under the ambit of contracting agreements as per Qatar Civil Code, how to initiate changes / additions are regulated. In this narrative, for sampling purposes, only Red Book and Yellow Book will be used and 1999 Edition of the same will be taken into consideration instead of 2017 Edition because these are the most prevalent FIDIC contracts being used in practice (with some editions depending on specific project). Thus, the term ‘FIDIC contracts’ will stand for 1999 Edition of Red Book and Yellow Book in this narrative. Anyhow, clause 13 of FIDIC contracts regulates ‘Variations and Adjustments’.

In general, employer and / or engineer is entitled to initiate a variation to contract until taking-over certificate for the works is issued. Contractor needs to comply with this variation request unless there exist specific obstacles e.g. contractor being unable to obtain the goods for the variation. Most of the time this procedure concludes with employer’s issuance of a variation order to contractor to officialize /   finalize the terms of changes / additions to contract in practice. Although this is not particularly stipulated in FIDIC contracts, market practice went this way.  For the sake of record, in both Red Book and Yellow Book the following is mandated in Sub-Clause 13.3 ‘Variation Procedure’:

“The Engineer shall, as soon as practicable after receiving such proposal (under Sub-Clause 13.2 [Value Engineering] or otherwise) [referring to Contractor’s proposal for changed / varied works], respond with approval, disapproval or comments. The Contractor shall not delay any work whilst awaiting a response.”[8] [9]

Different than FIDIC Red Book, FIDIC Yellow Book ends Sub-Clause 13.3 ‘Variation Procedure’ with following stipulation as to explain on how variation procedure finalizes:

‘Upon instructing or approving a Variation, the Engineer shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine adjustments to the Contract Price and the Schedule of Payments. These adjustments shall include reasonable profit, and shall take account of the Contractors’ submissions under Sub-Clause 13.2 [Value Engineering] if applicable.’ [10]

If the FIDIC contracts are used as they are and parties comply with obligations fully and in timely manner, it is clear how the variation procedure will end. However, what happens if standardized variation clause is changed by the parties while entering into contract? What happens if signing a variation order is determined as last stage of variation process in this revised contract template?

Furthermore, it is pertinent to remind that Sub-Clause 13.3 ‘Variation Procedure’ of FIDIC Yellow Book refers to Sub-Clause 3.5 ‘Determinations’ for conclusion of variation process as follows:

‘Whenever these Conditions provide that the Engineer shall proceed in accordance with this Sub-Clause 3.5 to agree or determine any matter, the Engineer shall consult with each Party in an endevaour to reach agreement. If agreement is not achieved, the Engineer shall make a fair determination in accordance with the Contract, taking due regard of all relevant circumstances.

The Engineer shall give notice to both Parties of each agreement or determination, with supporting particulars. Each Party shall give effect to each agreement or determination unless and until revised under Clause 20 [Claims, Disputes and Arbitration].’ [11]

As it is inferred, for conclusion of variation procedure as per FIDIC Yellow Book, the final step is left to engineer whom is most of the time acts as employer’s personnel because payment is made by employer to it at practice. There is no timeline referred in Sub-Clause 3.5. Even if there was, when one party does not subject itself to comply with that, the remedies the counter party, which is most of the times a contractor, can resort to are very limited.

Furthermore, what happens if employer forces contractor to sign whatever is given and purports that if it is not signed, contractor will not be paid? Should contractor suspend the works? Would it be entitled? Should contractor refer the issue to dispute resolution mechanism? Then, what will happen to project? What will happen to contractor’s cash flow during these times?

First of all, one should not forget the main principles governing contracts which are ‘good faith’ and ‘principle of honesty’. Indeed, as per Article 172 of Qatar Civil Code the following is stipulated:

“A contract shall be performed in accordance with its provisions and in such manner consistent with the requirements of good faith.

A contract shall not be limited only to binding a party to its provisions but shall also cover whatever is required by law, customary practice and justice in accordance with the nature of the obligations contained in the contract.”[12]

Contracts can be FIDIC contracts or another type of contracting agreements. Application of principle of ‘good faith’ does not change. So, if employer instructs contractor to carry out a work and contractor undertakes to carry out the same and finishes, employer would not be able to say that there is not a signed agreement yet (especially if signing is stalled due to employer’s / engineer’s actions) and thus there will be no payment. As noted above, contracting agreement does not require a particular form nor does the novation contract.  If parties’ intentions are conveyed to each other, and accordingly the works are completed, contractor would be entitled for the payment. Purporting otherwise would be against the principle of ‘good faith’. Moreover, as told above signing of intentions is not even a condition precedent to conclude a contract.

Furthermore, one should not forget the mandate of Sub-Clause 12.3 ‘Evaluation’ of FIDIC Red Book stipulating the following:

“Until such time as an appropriate rate or price is agreed or determined, the Engineer shall determine a provisional rate or price for the purposes of Interim Payment Certificates.”[13]

A similar Sub-Clause finds its place in Sub-Clause 13.8 ‘Adjustments for Changes in Cost’ in FIDIC Yellow Book stipulating the following:  

“Until such time as each current cost index is available, the Engineer shall determine a provisional index for the issue of Interim Payment Certificates. When a current cost index is available, the adjustment shall be recalculated accordingly.”[14]

Accordingly, until final agreement takes place with respect to varied / changed / additional works, engineer is under the duty to assess the value of works for payment purposes and such assessed value shall be paid by employer in accordance with payment terms in FIDIC contracts or (if applicable another contract at use). Neither engineer nor employer can force contractor to sign something which contractor does not agree. Or neither engineer nor employer can say that contractor will not be paid in absence of signature of contractor. This would be again against the principle of ‘good faith’ and also above-mentioned Sub-Clauses of FIDIC contracts.

What happens if the concerned Sub-Clause ensuring contractor’s payment right in case of variation until agreement, is extracted while signing the contract? Would contractor not have any right to ask for payment for varied / changed / additional works which were executed in accordance with employer’s request? First of all, contractor always have the protection of the principle of ‘good faith’ as mentioned above. Secondly, mandatory provisions of law are always applicable even if there is contract and moreover, in case there is a gap in contract, provisions of law are used for interpretation and filling such gap. So, in this kind of circumstance, Article 697 of Qatar Civil Code comes to help of contractor stipulating the following:

“The employer shall pay the dues of the contractor upon taking over the work, unless otherwise required by agreement or by practice.”[15]

To understand this Article correctly, second part of the same shall be focused stipulating ‘unless otherwise required by agreement or by practice.’ So, employer shall pay the dues of contractor as required by agreement. FIDIC contracts have payment provisions. Even if FIDIC contracts are not used as they are, most probably, there will be clauses regulating the payments still. So in accordance with payment terms and due to the obligation of employer under Article 697 of Qatar Civil Code as ‘the employer shall pay the dues of contractor’, even if the final agreement is not reached as to varied / changed / additional works, once contractor completes execution of those, it shall be paid fairly. How much shall it be paid is explained above as per FIDIC contracts. A similar provision, Article 699 of Qatar Civil Code, is as follows:  

“Where the contractor's dues are not agreed, such dues shall be determined with reference to the value of similar work at the time of the contract and the value of the materials provided by the contractor as required for the work.”[16]

What happens if contractor is not paid for those varied / changed / additional works? As far as I am concerned, the rights of contractor as to suspend its obligations or more severely to terminate the contract will come into the picture as if contractor is not paid for executed original works under the signed contract. Suspension is regulated in general in Article 191 of Qatar Civil Code as follows:

“In contracts binding on both parties, where corresponding obligations are due for performance, either party may decline to perform his obligation if the other party fails to perform his obligation, unless the parties agree otherwise or mutually accepted practice provides otherwise.” [17]

Termination in this kind of scenario is regulated in Article 183 as part of General Provisions and Article 692 of Qatar Civil Code in Special Provisions (specific to contracting agreements) as follows respectively:  

“In contracts binding on both parties and imposing reciprocal obligations (synallagmatic contracts), where one of the parties fails to perform his obligation, the other party may, upon formal notice to the former, demand performance of the contract or its rescission, and may claim any damages caused by such failure to perform.

The judge may, mutatis mutandis, determine a period of grace within which the obligor shall perform his obligation.  The judge may also reject the application for rescission if the obligation not performed is insignificant compared with the obligations considered in their entirety.”[18]

“Where performance of the work requires a specific action within a specific time period by the employer but he fails to act within such time period, the contractor may demand the employer to act within such reasonable time as determined by the contractor.

Where such time period expires without the employer's action, the contractor may demand termination of the contract without prejudice to his right to indemnity, as applicable.” [19]

Suspension and termination procedure in FIDIC contracts for these cases are regulated in Clause 16 ‘Suspension and Termination by Contractor’. Without getting into the details of subject (since it is not scope of this narrative), the following is provided therein as preface in Sub-Clause 16.1 ‘Contractor’s Entitlement to Suspend Work’ as follows:

“If the Engineer fails to certify in accordance with Sub-Clause 14.6 [Issue of Interim Payment Certificates] or the Employer fails to comply with Sub-Clause 2.4 [Employer’s Financial Arrangements] or Sub-Clause 14.7 [Payment], the Contractor may, after giving not less than 21 days’ notice to the Employer, suspend work (or reduce the rate of work) unless and until the Contractor has received the Payment Certificate, reasonable evidence or payment, as the case may be and as described in the notice.”[20] [21]

3 Concluding Remarks and Summary

In conclusion, during construction projects, there will be always changes / variations / additions to original works agreed in contract. When those are managed correctly, both parties, either contractor and employer, will have happy result. However, if not, there will be problems faced by parties. One of the main problem in practice is employer’s hesitation to make payments for those varied / additional works until contractor’s complete agreement to what employer / engineer provides for signing. If contractor does not sign such agreement for novation, it sometimes is threatened (unofficially) with nonpayment.

Construction contracts / contracting agreements do not require a particular form as per Qatar Civil Code (with reference to Articles 61 and 91) nor do the novation contracts (with reference to Article 381) which bring changes to the same. Those contracts are basically concluded by means of meeting of parties’ intentions about essential terms and even without necessity of signature as long as intentions are submitted by authorized persons (with reference to Article 65). Price is essential part of a contract but it is not necessarily to be exact. The fact that it is determinable suffices the condition precedent to conclude the contract. 

Similar to original contracting agreement, for any additional / varied works, employer’s duty to pay is in force as long as employer requests varied / additional works to be carried out, contractor accepts this request and executes the same. This is guaranteed under Code (with reference to Article 697). Later on, employer cannot say that it will not make payment to contractor until contractor signs a variation order / novation agreement (which is most of the times based on employer’s terms). As told above, particular form for this is not required. Actually, such agreement is made much before when employer requested additional / varied works to be carried out and contractor acknowledged the same. Signing official variation order / novation agreement is only a matter of detail (as told above with reference to Article 65).

As if employer is paying for original contract works as per payment provisions of original contract, employer shall pay for additional / varied works. If the price is not agreed yet, it shall pay an amount fair to situation (with reference to Article 699 of Code; Sub-clause 12.3 ‘Evaluation’ of FIDIC Red Book; Sub-clause 13.8 of FIDIC Yellow Book). If employer does not make payment, it would be firstly against to principle of ‘good faith’ (with reference to Article 172 of Qatar Civil Code). Then, it would be in breach of provisions of FIDIC contracts (if standard template is used) as well as the Code (with reference to Article 697). In such case, contractor would be entitled to suspend the works or more severely terminate the contract if conditions exist as per provisions of both FIDIC contracts and the Code (with reference to Clause 16 of FIDIC contracts; Article 183, 191 & 692 of Code).

Every case is unique and has its own risks. So, prior to taking decisions and actions, I believe a lawyer’s recommendation shall be always sought who has skills and legal notion to assess the situation, business risks and contract provisions. At the end, construction is a business and while exercising a right under contract or law, business can be shaken. So, the decision shall be taken accordingly bearing in mind all these matters.  

4 Bibliography

Authored Books

INCI, Tugrul, Evaluation of Employer’s Right of Termination in Construction Contracts due to Default of the Contractor within the Ambit of Provisions of FIDIC Contracts and Contracts for Work as part of Turkish Code of Obligations (Istanbul: On Iki Levha Yayincilik, 2019)

FIDIC, Conditions of Contract for Construction for Building and Engineering Works Designer by the Employer - First Edition 1999 - Red Book, (1st edn, Fédération Internationale des Ingénieurs-Conseils, 1999).

FIDIC, Conditions of Contract for Plant and Design-Build First Edition 1999 - Yellow Book (1st edn, Fédération Internationale des Ingénieurs-Conseils, 1999).

Laws

Law no (22) of 2004 Regarding Promulgating the Civil Code, accessed on 09 - 15 June 2020, http://www.almeezan.qa/lawview.aspx?opt&lawid=2559&language=en (Unofficial translation and provided for reference only)


[1] Fédération Internationale Des Ingénieurs – Conseils in other words The International Federation of Consulting Engineers.

[2] FIDIC has several committees namely: Finance Committee, Membership Committee, Conference Committee and the Contracts Committee. The Contract Committee is the one which is responsible with recommending to the Executive Committee the Conditions of Contracts and related documents which should be prepared or updated by FIDIC. So far several FIDIC template contracts, named as ‘Rainbow Suite’ of contracts, have been produced such as Red Book (Conditions of Contract for Construction), Yellow Book (Conditions of Contract for Plant and Design – Build) Silver Book (Conditions of Contract for EPC [Engineering, Procurement and Construction] / Turnkey Projects), Gold Book (Conditions of Contract for Design, Build and Operate Projects) so on so forth. INCI, Tugrul, Evaluation of Employer’s Right of Termination in Construction Contracts due to Default of the Contractor within the Ambit of Provisions of FIDIC Contracts and Contracts for Work as part of Turkish Code of Obligations (Istanbul: On Iki Levha Yayincilik, 2019), p. 6

[3] The Emir of State of Qatar, Law No. 22 of 2004 Regarding Promulgating the Civil Code, Official Gazette Issue 11, August 08, 2014, accessed on June 9, 2020, http://www.almeezan.qa/lawview.aspx?opt&lawid=2559&language=en#. (Unofficial translation and provided for reference only)

[4] Ibid.

[5] Ibid.

[6] Ibid.

[7] Ibid.

[8] FIDIC, Conditions of Contract for Construction for Building and Engineering Works Designer by the Employer - First Edition 1999 - Red Book, (1st edn, Fédération Internationale des Ingénieurs-Conseils, 1999).

[9] FIDIC, Conditions of Contract for Plant and Design-Build First Edition 1999 - Yellow Book (1st edn, Fédération Internationale des Ingénieurs-Conseils, 1999).

[10] Ibid. It should be noted that the main reason of existence of this Sub-Clause in FIDIC Yellow Book but not in FIDIC Red Book is due to the fact that FIDIC Yellow Books are, when used, lump-sum payment basis generally whereas FIDIC Red Books are, when used, re-measurable basis. That is why in attachment of FIDIC Red Book, FIDIC prepared a Guidance for the Preparation Particular Conditions of Contract and added the similar Sub-Clause as ‘example provisions for a lump sum contract’ for cases when FIDIC Red Book is wanted to be used by parties but with lump-sum payment basis.

[11] Ibid.

[12] Law no (22) of 2004 Regarding Promulgating the Civil Code, accessed on 15 June 2020, http://www.almeezan.qa/lawview.aspx?opt&lawid=2559&language=en.

[13] FIDIC, Conditions of Contract for Construction for Building and Engineering Works Designer by the Employer - First Edition 1999 - Red Book.

[14] FIDIC, Conditions of Contract for Plant and Design-Build First Edition 1999 - Yellow Book.

[15] Law no (22) of 2004 Regarding Promulgating the Civil Code, accessed on 15 June 2020, http://www.almeezan.qa/lawview.aspx?opt&lawid=2559&language=en.

[16] Ibid.

[17] Ibid.

[18] Ibid.

[19] Ibid.

[20] FIDIC, Conditions of Contract for Construction for Building and Engineering Works Designer by the Employer - First Edition 1999 - Red Book.

[21] FIDIC, Conditions of Contract for Plant and Design-Build First Edition 1999 - Yellow Book.

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