Skip to main content

PLEASE NOTE: For everyone’s safety, Fasken recommends anyone on-site at our Canadian offices be familiar with the COVID-19 recommendations in place which may include one or more of the following: social distancing, hand sanitizing, wearing a mask in common areas and proof of full vaccination. These measures apply to lawyers, staff, clients, service providers and other visitors.

Bulletin

The Employer’s Taking Over of the Works under FIDIC clauses 10.1 and 10.2

Fasken
Reading Time 8 minute read Reading Level Level 1
Subscribe

Overview

Clause 10 of the International Federation of Consulting Engineers suite of construction contracts (the “FIDIC Contracts”), which deals with “Employer’s Taking Over”, can be a difficult section of the FIDIC Contracts to navigate.

One of the ultimate goals of construction contracts is for the Works to be handed over by the Contractor to the Employer. Clause 10.1 of the FIDIC Contracts deals with taking over of the Works in the ordinary course of the Project, that is when the Works are substantially complete.

Clause 10.1 provides that the Works and each Section are to be taken over by the Employer when two conditions have been satisfied:

  1. completion of the Works or Section; and
  2. the issue (or deemed issue) of a Taking-Over Certificate for the Works or Section.

The underlying principle of this FIDIC clause is that the Employer has no right to use the Works if the Contractor has not yet completed them and a Taking-Over Certificate has not yet been issued.

Clause 10.1: The Engineer may “issue the Taking-Over Certificate to the Contractor…except for any minor outstanding work and defects…”

After having received an application for a Taking-Over Certificate from the Contractor, the Engineer has two options. One, to reject the application while giving reasons for the rejection and specifying which parts of the Works are not up to scratch. Or two, to issue the Taking-Over Certificate stating the date on which the Works or Section was completed in accordance with the Contract.

Although these two paths seem black and white, the second option does allow for some wiggle room. The Engineer may issue a Taking-Over Certificate stating the date on which the works were completed, “except for any minor outstanding work and defects which will not substantially affect the use of the Works or Section for their intended purpose (either until or whilst this work is completed and these defects have been remedied)”.

The effect of this sub-clause is that the Engineer may still issue a Taking-Over Certificate despite there being minor outstanding work and defects not substantially affecting the use of the Works or Section for their intended purpose.

The reference to “minor outstanding work and defects” allows the Employer to Take Over the Works when they are practically or substantially complete.

In J. Jarvis and Sons v Westminster Corporation (1978) 7 BLR 64 HL, practical or substantial completion was defined by Lord Justice Salmon not to mean completion down to the last detail, however trivial and unimportant, but rather completion for the purpose of allowing Employers to take possession of the Works and use them as intended. Other judgments have held that practical completion means that if there were any patent defects, the Engineer should not give a certificate of practical completion. In addition, the Engineer may consider the value of the work outstanding and the importance of the defects to the safety of the facility.

Although the outstanding work must not prevent the Works from being used for its “intended purpose”, there is no obligation on the Contractor to ensure that the Works are fit for purpose, except where the Contractor takes on a design obligation (Sub-Clause 4.1(c)). The Contractor’s obligation is only to construct the works as specified in the Contract (Sub- Clause 7.1). So the reference to “intended purpose” must not be confused with the term ‘fit for purpose.[1]

When applying for a Taking-Over Certificate under clause 10.1, notwithstanding any minor outstanding work or defects, Contractors must take heed of what in fact constitutes ‘minor’ in the circumstances. If the outstanding work or defects affect the use of the Works or Section for their intended purpose, a Taking-Over Certificate will not be issued.

Clause 10.2 is designed to address a different situation; that is where the Employer uses parts of the Works before completion in the ordinary course (that is under clause 10.1) is achieved.

Clause 10.2: “The Employer shall not use any part of the works (other than as a temporary measure…”

The underlying principle of Clause 10, as we mentioned above, is that the Employer is not allowed to use any part of the Works unless and until the Engineer has issued a Taking-Over Certificate. 

If the Employer does use part of the Works, that part will be deemed to have been taken over as from the date on which it was used (Sub-Clause 10.2(a)).

There is, however, one exception to this clear rule. Employers are allowed to use part of the Works “as a temporary measure which is either specified in the Contract or agreed by both Parties” without the Engineer having issued a Taking-Over Certificate. The two qualifiers for this exception are that the temporary use of the Works must either:

  1. be set out in the Contract itself; or
  2. the Parties must agree to it.

Before considering the exception to the rule, the meaning of the rule itself needs to be unpacked.

Use

The word “use” is not defined in the FIDIC Contracts, and unless it has been defined in the particular conditions, regard must be had to the language used in light of the ordinary rules of grammar and syntax.  “Use”, as defined in the dictionary, means “take, hold, deploy as a matter of achieving something”; “the action of using or the state of being used”

The question is whether regard should also be had to the context in which the word is used. As we’ve seen in Clause 10.1, the words there are “use for intended purpose”.  The inclusion of these words in clause 10.1 is sensible and logical because the Works cannot be said to be complete and cannot, therefore, be taken over unless they can be used for their intended purpose. However, clause 10.2 does not deal with taking over of the Works on completion and these words do not appear in clause 10.2.

If ‘use’ in sub-clause 10.2 is intended to mean ‘use for its intended purpose’, then sub-clause 10.2 would only kick in if the Employer uses parts of the Works for their intended purpose. However, if for example the Employer was to use a part of the Works on another section, such use would not constitute ‘use for its intended purpose’ and the Contractor would not be able to rely on deemed taking over under sub-clause 10.2. Taken to its logical conclusion, this would mean that an Employer could strip every part of the Works and use them on other sections or for other projects and the Contractor would not be afforded a remedy under sub-clause 10.2.

We submit that this cannot be right. The drafters of the FIDIC suite of contracts were explicit in using the term ‘use for their intended purpose’ in the context of sub-clause 10.1 which deals with taking over of the Works as a whole upon completion. They did not use the term in sub-clause 10.2, which deals only with taking over parts of the works. There can therefore be no justification for incorporating the term into sub-clause 10.2. The dictionary definition of ‘use has a far broader meaning than that given to it in sub-clause 10.1 and we, therefore, submit that any ‘use’ of parts of the Works by the Employer (subject to the exception) would trigger sub-clause 10.2.

The exception to the Rule:

Temporary measure

In considering what constitutes use as a “temporary measure”, Edwards-Stuart J in the seminal case of Doosan Babcock Ltd v Comercializadora De Equipos Y Materiales Mabe Limitada [2013] EWHC 3010 (TCC) stated that “taking into use of equipment as a temporary measure implies that the arrangement will last for a short or limited time only”. In that case, the judge found that, on the face of it, the Works had been put into commercial operation as the Contract contemplated and so were not put into use by the Employer as a temporary measure but were rather under the Employer’s permanent control.

For the Employer’s use to be as a temporary measure, the use must not only be for a short or limited time but the Employer must be able to show an intention to return the Works to the Contractor.

In the Contract or Agreed to by the Parties

The final requirement for the Employer’s temporary use of the Works is that there must be an agreement to use parts of the Works as a temporary measure. Whether such agreement is specifically provided for in the Contract or whether the Parties later agree to such temporary use, a lack of agreement will negate an Employer’s temporary use.

The Parties must be able to prove that the Parties intended for this arrangement to take place. Without some type of agreement for temporary use, there will be a deemed Taking-Over of the Works.

Conclusion

It is important to consider the necessary provisions referred to above when making use of part of the Works prior to the issuing of a Taking Over Certificate. The Employer’s use of part of the Works, other than as a temporary measure which is either specified in the Contract or agreed by both Parties, could constitute a deemed Taking Over in terms of 10.2 of FIDIC. Employers using the Works prior to the issuing of a Taking-Over Certificate should be cautious of this deeming provision.

This article is authored by Tania Siciliano, Jesicca Rajpal and Wesley Fletcher.



[1] Corbett & Co International Construction Lawyers Ltd 2016 “Clause 10” 

Authors

    Subscribe

    Receive email updates from our team

    Subscribe