If the client is not releasing the final payments, the contractor may have leverage by holding or delaying the following deliverables, depending on the contract terms and jurisdiction:
1. As-Built Drawings & Operation & Maintenance (O&M) Manuals
As-built drawings reflect the final constructed state of the project, incorporating any changes made during construction. O&M manuals provide detailed guidelines for operating, maintaining, and troubleshooting equipment and systems installed in the project.
- Why it's critical for the client? Required for regulatory approvals and obtaining the occupancy certificate. Essential for the operation, maintenance, and future modification of the facility.
- Contractor's leverage: If the client withholds payment, the contractor can delay the submission of these documents until payments are settled.
2. Warranties & Guarantees
These include manufacturer warranties for equipment and materials, as well as performance guarantees from the contractor.
- Why it's critical for the client? Without warranties, the employer bears the risk of defective materials or equipment failures. Some warranties may be required for insurance purposes or future maintenance agreements.
- Contractor's leverage: The contractor can refuse to issue or transfer warranties until full payments are made. If warranties have a validity period tied to payment completion, the employer may lose their benefits.
3. Spare Parts & Special Tools
Some contracts require the contractor to provide spare parts and specialized tools needed for maintenance after handover.
- Why it's critical for the client? Essential for maintaining the facility’s operations. The employer may face higher costs or delays if these items are not delivered on time.
- Contractor's leverage: The contractor can delay handing over spare parts or tools, affecting the employer’s ability to maintain equipment.
4. Training & Handover Support
In some contracts, the contractor is required to train the employer’s personnel on operating systems, equipment, or specialized installations.
- Why it's critical for the client? Lack of training can lead to operational inefficiencies and increased risk of equipment failure. Regulatory authorities may require proof of training before granting operational permits.
- Contractor's leverage: The contractor can refuse to conduct training sessions until final payments are made. The employer may struggle with managing complex equipment without the necessary training.
5. Final Handover & Taking Over Certificate (TOC) Compliance
The Taking Over Certificate (TOC) is a formal document issued when the employer accepts the works as completed.
- Why it's critical for the client? It may trigger important obligations, such as the start of the Defects Liability Period (DLP) or insurance transitions. The employer may need the TOC to release funds from lenders or meet investor requirements.
- Contractor's leverage: The contractor can delay compliance with TOC requirements, preventing its issuance. Without TOC, the employer may be unable to operate or obtain financing.
6. Bank Guarantees Release Coordination
These include performance guarantees, advance payment guarantees, and retention money guarantees provided by the contractor to the employer.
- Why it's critical for the client? The employer may rely on bank guarantees as financial security. If guarantees are not released, the contractor remains liable for project performance obligations.
- Contractor's leverage: The contractor can refuse to initiate the process of releasing bank guarantees until payments are cleared. This prevents the employer from misusing guarantees while withholding payments.
7. Defects Liability Period (DLP) Obligations
The Defects Liability Period (DLP) is the post-completion period where the contractor is responsible for fixing defects at no additional cost.
- Why it's critical for the client? If defects occur, the employer needs the contractor to rectify them. If the contractor refuses, the employer may have to hire third parties at a higher cost.
- Contractor's leverage: If final payments are withheld, the contractor may limit engagement in defect rectification. The employer may be forced to negotiate payments to ensure contractor cooperation.
8. Key Project Documentation
This includes testing & commissioning reports, quality assurance records, material test certificates, and compliance certificates.
- Why it's critical for the client? Some of these documents are mandatory for regulatory approvals. The employer may need them for future claims, audits, or warranty enforcement.
- Contractor's leverage: The contractor can withhold documents, preventing the employer from proving compliance. Delays in documentation submission can result in penalties for the employer.
Final Considerations
- Contractual Limitations: Some contracts (e.g., FIDIC) may explicitly prohibit withholding certain deliverables, especially those affecting public safety or regulatory compliance.
- Legal Risks: The employer may seek legal remedies if withholding certain deliverables is seen as a breach of contract.
- Negotiation Strategy: Instead of outright withholding, the contractor can use these deliverables as leverage to pressure the client into releasing payments.
Contract Specialist, Contracts and Commercial/Claims Management
1 周In FIDIC Contracts Contractor could not withhold any documents which is under his obligation as Clients have sufficient amount of PBG and amount deducted under Final approval of EoT and CoS etc. Hence, only Contractual Correspondence for delay in final bill payment and finally to claim it with interest is only a remedy for the experienced Contractors.
Depends on the contractratual requirements, However, it’s not an ideal way to resolve a dispute. I think negotiating and collaborating before during and on the payment timelines is a better approach.
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Oil&Gas | Energy | Linear Infrastructure | Business Development | Contracts
1 周After a first glance, I was going to debate your post Mr. Boologa, however, I reckon that you proposed at the end the FIDIC's position against withholding something by the Contractor. Anyway, I liked your post very much because it's also true that there could be a contractual imbalance pushed by Client's employees while performing their obligations. Contracts shall always be the tool which represents the good faith of both parties even in undesirable conditions or even more when one is in need or trouble. The Contractor's cash flow is as important as the Client's goals.
Senior Contracts Administrator CBGU D&C, Cross River Rail
1 周For Item 6, the Employer can encash the Guarantees due to the Contractor’s failure to comply with contractual requirements (items 1, 2, etc.). The Employer can issue a “Notice to Correct” and request the necessary documents. If the Contractor does not comply, it constitutes a material breach, allowing the Employer to proceed with encashment. Although the Contractor has several leverages to avoid issuing the documents, the unconditional nature of the Guarantees gives the Employer the upper hand.