Value Engineering Proposal in FIDIC 13.2 – Unlock Cost Savings & Innovation in Construction Projects

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2️⃣ Breakdown of Clause 13.2

📘 FIDIC 1999 – Clause 13.2 Highlights:

“The Contractor may, at any time, submit to the Engineer a written proposal which (in the Contractor’s opinion) will, if adopted:

• accelerate completion,
• reduce the cost to the Employer of executing, maintaining or operating the Works,
• improve the efficiency or value to the Employer of the completed Works,
• or otherwise be of benefit to the Employer.”

📌 Procedure in 1999 Edition:

• Contractor submits the written proposal to the Engineer.
• Engineer reviews and consults the Employer.
• If accepted, the change is formalized as a Variation under Clause 13.1.
• The Contractor bears the cost of the proposal.
• If the Employer benefits financially, the Contractor gets 50% of the net savings (unless otherwise agreed).

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📕 FIDIC 2017 – Clause 13.2 Highlights:

“The Contractor may, at any time, submit to the Engineer a written proposal which (in the Contractor’s opinion) will, if adopted:

• (a) accelerate completion;
• (b) reduce the cost to the Employer of executing, maintaining or operating the Works;
• (c) improve the efficiency or value to the Employer of the completed Works; or
• (d) otherwise be of benefit to the Employer.”

📌 Key Additions in 2017:

• Mirrors the structure of the 1999 clause almost verbatim.
• Clarifies that:
  • The Contractor must prepare the proposal at their own cost.
  • The Engineer shall evaluate and consult the Employer.
  • If accepted, the change is formalized via a Variation.
  • The share of savings (if any) is to be stated in the Contract Data, offering custom flexibility.
• Explicitly mentions the Employer may use the proposal without liability, even if the Contractor doesn’t profit unless agreed otherwise.

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3️⃣ Key Interpretations and Implications

✅ Positive Intent:

• Encourages cost-saving ideas from the Contractor.
• Enables the Employer to benefit from construction experience-driven innovation.
• Offers financial incentives for early contractor involvement in design optimization.

🚨 Watchpoints:

• No defined percentage of savings in 2017 unless stated in the Contract Data — important for the Contractor to negotiate this.
• The Employer can reject the proposal, even if technically beneficial.
• Proposal preparation is at the Contractor’s risk and cost.

📊 Comparative Table – Clause 13.2: Value Engineering

Aspect	FIDIC 1999 – Clause 13.2 (Verbatim)	FIDIC 2017 – Clause 13.2 (Verbatim)	Key Differences & Notes
Initiation	“The Contractor may, at any time, submit to the Engineer a written proposal…”	“The Contractor may, at any time, submit to the Engineer a written proposal…”	✅ Same broad intent – Contractor-initiated proposals.
Purpose of Proposal	“…which (in the Contractor’s opinion) will, if adopted, (i) accelerate completion, (ii) reduce the cost… (iii) improve the efficiency or value… (iv) otherwise be of benefit…”	“…which (in the Contractor’s opinion) will, if adopted: accelerate completion; reduce the cost…; improve the efficiency or value…; or otherwise be of benefit…”	📝 Structure slightly reworded in 2017 for clarity; core aims remain identical.
Submission Details	“…shall include the items listed in Sub-Clause 13.3 [Variation Procedure].”	“…shall include the details as stated in sub-paragraphs (a) to (c) of Sub-Clause 13.3.1 [Variation by Instruction].”	🔍 2017 introduces sub-clauses like 13.3.1, improving procedural clarity.
Engineer’s Role	“The Engineer shall, as soon as practicable after receiving such proposal… respond with approval, disapproval or comments.”	“The Engineer shall… respond by giving a Notice to the Contractor stating his/her consent or otherwise. The Engineer’s consent or otherwise shall be at the sole discretion of the Employer.”	🚨 Major shift: In 2017, Employer’s sole discretion governs approval – not just Engineer’s technical view.
Follow-Up Action	“The Contractor shall not delay any work whilst awaiting a response.”	“The Contractor shall not delay any work while awaiting a response.”	🔁 Consistent principle to avoid work disruption.
If Approved	Not specified beyond Engineer’s approval process.	“If the Engineer gives consent… the Engineer shall then instruct a Variation. Thereafter: the Contractor shall submit further particulars… [including cost/benefit sharing as per PCs].”	✅ 2017 gives clear procedural steps post-approval including potential sharing of benefits/costs.

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🔎 Interpretation Highlights

📌 Control and Discretion

• 1999: Engineer had independent authority to approve/disapprove.
• 2017: Even if the Engineer agrees, the Employer has final say – a clear move to centralize control.

✅ Cost Efficiency Incentive

• Both editions reward Contractor-initiated proposals that reduce costs or improve outcomes.
• 2017 opens the door to benefit-sharing mechanisms (to be defined in Particular Conditions).

🚨 Ambiguity in Approval Criteria

• 2017 states approval is “at the sole discretion of the Employer” — this could discourage Contractors if not balanced by well-defined PCs.

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4️⃣ Cross-Referencing with Other Clauses (FIDIC 2017 Edition)

Let’s explore how Clause 13.2 (Value Engineering) connects with other parts of the contract machinery. Because in FIDIC, no clause is an island! 🌍

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🔄 A. How Clause 13.2 interacts with Clause 13.1 (Right to Vary)

This one is an obvious best friend.

• Clause 13.1 gives the Employer (through the Engineer) the right to vary the Works at any time before the Taking-Over Certificate.
• Meanwhile, Clause 13.2 allows the Contractor to suggest changes, but these cannot be implemented unless the Employer agrees and the Engineer instructs a Variation under Clause 13.1 + 13.3.1.

📌 The Pipeline:

1. Contractor submits a written proposal under 13.2.
2. Engineer (on Employer’s discretion) accepts it.
3. Engineer then issues a formal instruction under 13.3.1 [Variation by Instruction].
4. Only then does it become a Variation under 13.1.

🧠 Think of Clause 13.2 as the Contractor’s gateway to trigger the formal variation process, while Clause 13.1 is the power plug that gives it legal energy.

✅ Tip: Always remember, Clause 13.2 alone doesn’t cause a Variation—only 13.3.1 does that!​1. FIDIC Yellow Book 20…

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⚖️ B. The Engineer’s role via Clause 3.7 (Agreement or Determination)

Let’s say the Contractor submits a value engineering proposal, and there’s disagreement over:

• How much time or cost savings resulted?
• Whether the Employer should share benefits?
• If the proposal affected performance or quality?

That’s when Clause 3.7 steps in. It gives the Engineer power to:

• Consult both parties.
• Try to get agreement (3.7.1).
• If not, issue a determination (3.7.2), with reasoning.

So, if there’s a dispute about the value or implementation of a 13.2 proposal, the Engineer becomes a neutral referee.

🚨 But here’s the twist:

The Engineer’s response to a 13.2 proposal is subject to Employer discretion. The Engineer can only give consent if the Employer agrees​1. FIDIC Yellow Book 20….

Therefore, 3.7 won’t help if the Employer simply says “no thanks” to the idea — even if it’s brilliant.

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📜 C. Procedural Flow via Clause 13.3.1 (Variation by Instruction)

This clause is literally baked into the process once a value engineering proposal is accepted.

Here’s why:

• Clause 13.2 says that if the Engineer agrees to the proposal, “the Engineer shall then instruct a Variation.”
• Once that happens, Clause 13.3.1 becomes applicable — especially the third paragraph, which covers:
  • Cost estimates
  • Programme adjustments
  • Sharing of savings (if any, per Particular Conditions)

✅ So, Clause 13.3.1 is the contractual engine room that powers the execution of a Value Engineering proposal.

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💰 D. Value Sharing Disputes = Clause 20.1 & 20.2 (Claims)

Imagine this:

• The Contractor makes a brilliant proposal under 13.2.
• It gets approved, and results in ₹10 crore savings.
• The Particular Conditions say he should get 40% of that.
• But the Employer says, “Nope, we don’t owe you anything.”

Now what?

📌 Enter Clause 20:

• 20.1 lets either party raise a Claim if they feel entitled to something (e.g., cost saving share).
• The procedure under 20.2 requires:
  • Notice of Claim within 28 days
  • Submission of detailed particulars
  • Engineer’s initial response and determination (again under 3.7)

🚨 If unresolved, it can escalate to the DAAB under Clause 21.

This means that even value engineering can be claimable if there’s a breakdown in agreement over entitlements​1. FIDIC Yellow Book 20….

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🔗 E. Don’t Forget These Quiet Linkages:

Clause	Connection to 13.2
Clause 4.1	Defines Contractor’s General Obligations, including fitness for purpose—any proposal must still meet these obligations.
Clause 8.5	If a 13.2 proposal impacts the Time for Completion (positively or negatively), the Contractor may seek EOT or bonus under a tailored PC.
Clause 1.15	The Limitation of Liability clause could potentially affect the Contractor’s risk in case the proposal fails or causes defects.

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🧩 Summary Visual: Clause 13.2 in Action

Contractor proposes ➜ Engineer reviews ➜ Employer consents ➜ Variation issued ➜ Executed via 13.3.1 ➜ Entitlement assessed via 3.7 ➜ Claim route via 20 if disputed

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5️⃣ What If Scenarios?

💭 What if the Engineer never responds to a proposal?

• FIDIC doesn’t set a mandatory timeframe. To avoid ambiguity, it’s best to set a response period in Particular Conditions.

💭 What if the Employer uses the proposal but denies savings?

• In 2017, explicit language allows the Employer to adopt the proposal even without sharing benefits, unless terms are added to secure Contractor’s entitlement.

💭 What if the proposal involves third-party proprietary technology?

• FIDIC does not address intellectual property in Clause 13.2. Parties should address this via Particular Conditions or technical annexes.

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6️⃣ Suggestions for Clarity and Improvement

Let’s enhance Clause 13.2 the right way — not just by making it clearer, but by aligning our changes with FIDIC’s intent and rules. That means respecting the original roles and responsibilities, the risk balance, and making the clause fit for your specific project needs.

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🔍 A. Ambiguities in the Current Wording of Clause 13.2

Let’s first identify what might confuse or trip up the Parties in its current form:

🚨 1. “Benefit to the Employer” — Too Vague?

The term “otherwise be of benefit to the Employer” is open-ended. Is improved safety a “benefit”? What about sustainability or digital twin integration?

🔁 Risk: If left undefined, this gives the Employer total discretion and makes Contractor proposals vulnerable to rejection without cause.

🚨 2. No Default Timeframe for Engineer’s Response

Clause 13.2 requires the Engineer to consult the Employer and then respond. But no timeline is provided. This can cause unjustified delays, especially if the Employer is indecisive.

🔁 Risk: Proposals sit idle. The Contractor’s enthusiasm and planning may suffer.

🚨 3. Cost Sharing Percentage is Left to Contract Data

There’s no default value if the Employer forgets to include a share (e.g., 50%) in the Contract Data.

🔁 Risk: The Contractor might do all the work and get zero reward.

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🧠 B. Golden Principle-Aligned Enhancements (GP1–GP5)

Let’s now apply the FIDIC Golden Principles to improve Clause 13.2:

✅ GP1: Keep Duties and Roles Intact

👉 Our changes must not override the Engineer’s independence or the Contractor’s entitlement.

✅ GP2: Be Clear and Unambiguous

👉 Eliminate grey zones like “benefit” and introduce defined timelines.

✅ GP3: Maintain Risk Balance

👉 Share savings fairly — if the Contractor helps reduce cost, they should gain.

✅ GP4: Reasonable Timeframes

👉 Set a fair response window for the Engineer (e.g., 14 or 21 days).

✅ GP5: Don’t disrupt the DAAB route

👉 Make sure that any dispute about savings still goes through Clause 20 and 21.

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✍️ C. Sample Particular Conditions – Modified Wording for Clause 13.2

Here’s a practical rewording you can drop directly into your Particular Conditions – Part B, with explanatory notes inline:

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🔧 Modified Sub-Clause 13.2 – Value Engineering (Aligned with GP1–GP5)

13.2 Value Engineering
The Contractor may, at any time, submit to the Engineer a written proposal which, in the Contractor’s opinion, will, if adopted:

(a) accelerate completion;
(b) reduce the cost to the Employer of executing, maintaining, or operating the Works;
(c) improve the long-term efficiency, sustainability, or life-cycle value of the Works; or
(d) otherwise be demonstrably beneficial to the Employer, provided such benefit is quantifiable.

The proposal shall include supporting technical justifications, cost estimates, and any effects on the Time for Completion.

The Engineer shall provide a reasoned response to the Contractor within 14 days of receipt of the proposal.

If the proposal is accepted, the Engineer shall instruct a Variation under Sub-Clause 13.3.1.

Unless otherwise stated in the Contract Data, the Contractor shall be entitled to [50%] of any net reduction in the cost to the Employer arising from the accepted proposal.

If the Parties disagree on the amount of savings or the entitlement, the matter shall be determined by the Engineer in accordance with Sub-Clause 3.7, and may be referred to the DAAB under Clause 21, subject to prior submission of a Claim under Clause 20.

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💡 Example Scenario Using This PC Text

Let’s say your project involves a wastewater treatment plant. The Contractor proposes:

• Replacing traditional pipes with glass-fiber reinforced epoxy ones,
• Saving ₹2 crores on material and ₹25 lakhs on reduced installation time.

✅ With the modified PC:

• Engineer has 14 days to respond,
• Employer agrees, and Variation is issued,
• Contractor receives ₹1.125 crores (i.e., 50% of ₹2.25 crores savings),
• Everything is transparent and trackable.

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📘 Optional Add-On: Bonus for Early Completion

FIDIC suggests this extra clause (also compliant with GP1-GP4):

“If the Works or any Section is completed earlier than the Time for Completion, the Contractor shall be entitled to a bonus, as stated in the Employer’s Requirements.
Time extensions under Clause 8.5 shall not affect the calculation of this bonus.”​1. FIDIC Yellow Book 20…

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🧩 D. Practical Tip: Use Definitions to Avoid Grey Zones

In Particular Conditions – Part A, consider defining:

• “Benefit to the Employer”
• “Net cost saving” (include method for evaluation)
• “Reasonable response period”

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🧾 Final Word on Clause 13.2 Enhancements

Goal	Enhancement	GP Alignment
🎯 Encourage timely decisions	Engineer must respond in 14 days	GP4
💰 Reward value generation	Default 50% cost-sharing	GP3
⚖ Avoid subjective rejections	Require “quantifiable benefit”	GP2
🔁 Ensure claim rights	Link disputes to Clause 20–21	GP5
🧠 Respect roles and authority	Engineer retains discretion	GP1

💡 Practical Suggestions:

• 🛠 Particular Condition Sample (aligned with GP2 – Explicit Modification Intent):

“In Sub-Clause 13.2, the following sentence is added: The Engineer shall respond to any proposal under this Sub-Clause within 14 days of submission. The Contractor shall be entitled to 50% of any net cost savings arising from such proposals, unless otherwise stated in the Contract Data.”

• 🧠 Consider defining “benefit” to include time, cost, lifecycle efficiency, or environmental performance, as measurable criteria.

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7️⃣ Final Takeaways

Aspect	FIDIC 1999	FIDIC 2017
Proposal Type	“Written proposal”	“Written proposal”
Default Cost Sharing	50% (if accepted)	Defined in Contract Data (flexible)
Contractor’s Preparation Cost	Contractor bears	Contractor bears
Engineer’s Obligation	Evaluate and consult Employer	Same, but still lacks fixed timeframe
Use Without Reward?	Not addressed	Employer can use proposal without reward unless agreed

Flowchart for Clause 13.2 Value Engineering:

1. Initiation of Clause 13.2 Value Engineering:
   • This is the starting point where the opportunity or need for value engineering in the project is recognized.
2. Contractor’s Proposal Submission:
   • At this stage, the Contractor prepares and submits a detailed proposal for value engineering, outlining the potential benefits and cost savings.
3. Engineer’s Proposal Evaluation:
   • The Engineer evaluates the submitted proposal to determine its feasibility, potential benefits, and alignment with project objectives.
4. Proposal Approved:
   • If the Engineer finds the proposal beneficial and in line with the project’s goals, it gets approved.
5. Implementation of Value Engineering:
   • The approved value engineering proposal is then implemented in the project. This could involve changes in design, materials, or construction methods.
6. Shared Savings Mechanism:
   • Determine and implement the mechanism by which any cost savings from the value engineering proposal will be shared between the Contractor and the Employer.
7. Technical Implementation:
   • Ensure that the technical aspects of the value engineering proposal are effectively implemented. This could involve using new technologies or innovative construction techniques.
8. Cost Analysis and Savings Estimation:
   • A detailed cost analysis is conducted to determine the potential savings from the implemented value engineering.
9. Proposal Rejected:
   • If the Engineer does not find the proposal beneficial or feasible, it gets rejected.
10. Feedback to Contractor:

• The Engineer provides detailed feedback on the reasons for rejection and areas of improvement.

11. Revised Proposal Submission:

• Based on the feedback, the Contractor can prepare and submit a revised proposal for consideration.

✅ Clause 13.2 (Value Engineering) Checklist

Section	Checklist Item	✅
Proposal Preparation	Has the Contractor prepared a written proposal clearly describing the suggested change?	⬜
	Does the proposal specify one or more of the following: (a) acceleration, (b) cost savings, (c) efficiency, (d) other quantifiable benefit?	⬜
	Are technical justifications and cost estimates included?	⬜
Engineer’s Review	Has the Engineer acknowledged receipt of the proposal?	⬜
	Has the Engineer responded within the agreed timeframe (e.g., 14 days)?	⬜
	Has the Engineer consulted with the Employer regarding acceptance?	⬜
Variation Process	If accepted, has the Engineer issued an instruction for Variation under Sub-Clause 13.3.1?	⬜
Entitlement & Sharing	Is the Contractor’s share of the cost saving stated in the Contract Data or Particular Conditions?	⬜
	Has the amount of cost saving been calculated and agreed (or determined under 3.7)?	⬜
Claims and Disputes	If a dispute arises over cost saving, has a Claim been submitted under Clause 20?	⬜
	If unresolved, has the dispute been referred to the DAAB under Clause 21?	⬜

Sample Letter

📄 Sample Letter 1: Contractor Submitting a Value Engineering Proposal

Subject: Submission of Value Engineering Proposal under Sub-Clause 13.2 – [Proposal Title]

To: The Engineer  
[Engineer’s Name]  
[Engineer’s Address]

Date: [dd/mm/yyyy]  
Contract: [Contract Name/Number]  
Project: [Project Name]  
Sub-Clause Reference: Sub-Clause **13.2** – Value Engineering  
Our Ref: [Contractor’s Letter Ref]

Dear [Engineer’s Name],

We hereby submit a Value Engineering Proposal under Sub-Clause **13.2** of the Conditions of Contract.

The objective of this proposal is to [e.g., reduce the cost of piping installation by using high-efficiency materials], which we believe will:
- [✓] Reduce execution cost by approximately ₹ [amount]  
- [✓] Accelerate the Time for Completion by [X days/weeks]  
- [✓] Improve long-term operational efficiency

Enclosed with this letter are the following:
1. Detailed technical justification
2. Revised drawings and/or specifications
3. Cost analysis
4. Proposed implementation schedule
5. Evaluation of impact on Employer’s Requirements

We kindly request your formal review and response to this proposal within **[14 days]**, as per our mutually agreed timeframe or as may be stated in Particular Conditions.

Yours sincerely,  
[Name]  
[Title]  
For and on behalf of [Contractor’s Name]  
**Attachments**: Annexes A to E

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📄 Sample Letter 2: Engineer’s Acknowledgment of Proposal

Subject: Acknowledgement of Value Engineering Proposal under Sub-Clause 13.2

To: [Contractor’s Name]  
[Contractor’s Address]

Date: [dd/mm/yyyy]  
Contract: [Contract Name/Number]  
Our Ref: [Engineer’s Letter Ref]

Dear [Contractor’s Name],

We acknowledge receipt of your letter ref [Contractor’s Ref] dated [dd/mm/yyyy], submitting a Value Engineering Proposal under Sub-Clause **13.2**.

We are reviewing the submitted documents and will consult the Employer in accordance with the provisions of the Contract. A formal decision shall be communicated to you within the required timeframe.

Should further clarification or documents be needed, we will contact you promptly.

Sincerely,  
[Engineer’s Name]  
For and on behalf of the Engineer

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📄 Sample Letter 3: Engineer’s Acceptance of Proposal & Instruction of Variation

Subject: Acceptance of Value Engineering Proposal and Instruction for Variation under Sub-Clause 13.2 and 13.3.1

To: [Contractor’s Name]

Date: [dd/mm/yyyy]  
Contract: [Contract Name/Number]

Dear [Contractor’s Representative],

Further to your proposal dated [original date], submitted under Sub-Clause **13.2**, and following consultation with the Employer, we confirm acceptance of the proposed modification relating to [e.g., material substitution, design improvement].

Accordingly, this letter shall serve as an instruction for a Variation under Sub-Clause **13.3.1**.

Please proceed with the implementation of the accepted proposal. You are required to submit the updated programme and any further impact details, including implications for the Time for Completion.

The amount of cost savings and any entitlement under the Contract (including potential Contractor share) will be addressed through Sub-Clause **3.7** or as otherwise agreed.

Sincerely,  
[Engineer’s Name]  
Engineer under the Contract

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📄 Sample Letter 4: Contractor Claiming Entitlement Over Disputed Savings

Subject: Notification of Claim under Sub-Clause 20.2.1 in relation to Value Engineering Proposal

To: The Engineer

Date: [dd/mm/yyyy]  
Contract: [Contract Name/Number]  
Our Ref: [Ref]

Dear [Engineer’s Name],

We refer to our approved Value Engineering Proposal dated [date], accepted under Sub-Clause **13.2**, and the subsequent instruction under Sub-Clause **13.3.1**.

As the Parties have not reached agreement on the Contractor’s entitlement to a share of the net cost saving, we hereby give notice of a **Claim** under Sub-Clause **20.2.1** for our entitlement.

We will submit all particulars of this Claim, including:
- Summary of calculations of net savings
- Proposed percentage share
- Corresponding contract references

We look forward to your determination in accordance with Sub-Clause **3.7**.

Yours faithfully,  
[Contractor’s Name]  
[Title]  
For and on behalf of [Contractor’s Company]

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📄 Sample Letter 5: Engineer’s Rejection of Value Engineering Proposal

Subject: Rejection of Value Engineering Proposal under Sub-Clause 13.2

To: [Contractor’s Name]

Date: [dd/mm/yyyy]  
Contract: [Contract Name/Number]

Dear [Contractor’s Representative],

We refer to your proposal dated [dd/mm/yyyy] submitted under Sub-Clause **13.2**.

Following review and consultation with the Employer, we regret to inform you that the proposal will not be adopted. The reasons for this decision include:
- [Technical concerns, e.g., reduced durability]
- [Incompatibility with Employer’s long-term operational objectives]
- [Unacceptable impact on completion schedule]

We thank you for your submission and encourage future proposals which align with project requirements and performance standards.

Yours sincerely,  
[Engineer’s Name]  
For and on behalf of the Engineer