PPCC Training Manual 9 (1).doc

It is also important that the contract provides for

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It is also important that the contract provides for repair/replacement of defective components at the expense of the contractor should the latter fail to act within the specified period under the warranty clause. The contractors liability can even extend beyond the warranty period or defects liability period should defects in the procurement package be discovered that can be attributed to:- i) Contractors gross negligence ii) Contractor's fraud (misleading information, falsified tests etc) iii) Latent defects which could not be discovered through reasonable inspection of the time of acceptance. 10.6.2 Works Contract In works contract, the liability of the contractor as to defects in design, materials and workmanship is provided for under the defects liability period which usually runs for a specified period of time (usually one year or more) beyond the issue of the Take-over certificate by the Contracting Entity at the time of completion of the works. During the defect liability period, the contractor is obliged to repair/replace any defects at its own costs. However, if the defect is proven to be as a result of design problem, whereby the contractor was not involved in the design, then the Procuring Entity will bear the costs of repair. 10.7 Liquidated Damages Delays in delivery are a very common problem in international procurement. They may arise in construction due to the foreign contractor's unfamiliarity with the local conditions, to problems with local sub-contractors or to unexpected shortages of materials. In procurement of goods, developing countries often see themselves suffering delays due to the fact that overseas suppliers serve their home markets customers - may be more aggressive in bringing pressure to bear for timely delivery - before attending to orders from distant developing country. If their order-books are full, suppliers can afford to take this attitude. The question is sometimes asked whether liquidated damages clauses provide a solution to the problem. Such clauses give the buyer or employer a right to deduct a certain 66
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amount of money from the price payable under the contract for each day or week of delay as compensation for losses sustained. The amount is often expressed as a percentage of the value of the contract (or those goods or services which are exposed to this delay). Sometimes this percentage escalates so as to make the delay increasingly costly to the contractor. Usually, but not always, the total amount of damages is limited to a certain percentage of the contract price. Although their efficiency in actually preventing delays is subject to some doubt, they usually provide the buyer with a satisfactory legal basis for compensation in case of delay. Provision may also be made for a bonus to be paid to contractors/suppliers for completion of works or delivery of goods ahead of the times specified in the contract,. when such earlier completion or delivery would be of benefit to the Contracting Entity.
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