6.6.2.3 Work Contracts

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In a case where the Contractor fails to complete the project (or any part thereof if provisioned) within the period of time specified in the contract (depending on the case), this time counting from the Start Time and considering any extension of time granted officially, then he is imposed with the Penalty for Delay in the completion of the project. The penalty, for every day or for the part of the day that lapses between the respective completion time and the date written in the Acceptance Certificate for the entire project or the respective part, is specified in the contract.

In order to determine the amount of the penalty per calendar day which will be included in the contract, the Contracting Authority must estimate the amount of daily damages expected that it will incur in a case of delay in the completion of the project. For the calculation of the daily damages, the costs, losses and expenses below must be taken into account:

Costs for supervision (continuous or/ and periodical) and contract management including all the wages of the supervising staff on site, the scientific and technical staff that supervises or visits the project periodically or monitors the project from the office, transportation costs, overhead or other special office costs etc.
Loss, due to delay in the operation of the project, of the economic benefit (return), which the Contracting Authority is expecting to gain from the operation of the project. In a case where the estimation of the benefit (return) of the project is difficult, consideration will be given to the cost of the capital expenditure of the project based on the value of the contract (pursuant to the estimate, excluding contingencies) and the Lombard rate specified by the Central Bank.
Any other special costs, losses or expenses which the Contracting Authority is expected to incur for the specific project.

The penalty per calendar day must range between the limits corresponding to percentages of 8% and 20% of the average daily value of the project. The average daily value is estimated as the ratio of the contract value (pursuant to the estimate excluding contingencies) divided by the contractual time of completion (in days). In a case of projects in which the timely completion is of material importance to the Contracting Authority, the amount that may be specified as penalty, following the approval of the Director of the Contracting Authority, may correspond to percentage up to and including 30% of the average daily value of the project. If the amount of the daily damages that is calculated based on the above is less than the lower limit or exceeds the upper limit arising from the above calculation, then the amount of the penalty shall be defined respectively to be the minimum or maximum. It is self explanatory that at any rate the amount of the penalty shall be rounded off to the closest ten or hundred Euro, depending on its total.

Annex 6-612 [ The example given in Annex 6-6 is included in the Circular 1593/2005 which was issued by the Central Committee for Variations and Claims. ] includes an example of calculation of the penalty for delays in the completion of a public works project.


© 2007 Republic of Cyprus, Treasury of the Republic, Public Procurement Directorate
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