Purpose of Clause 15.3 – what problem is it solving?
This is the “freeze-frame” that stops the clock at termination and asks: what is the Contractor fairly entitled to for compliant work up to today?
Stocktake focus 1️⃣ What Clause 15.3 actually does
Imagine you’re mid-project and the Employer finally says: “Enough. We’re terminating for Contractor default.”
Lawyers and claims consultants immediately ask two brutal questions:
- How much work has actually been done (and done properly) up to the termination date?
- Once we know that, who ends up owing whom money after we factor in completion costs and damages?
Clause 15.3 is all about Question 1.
In 1999, Sub-Clause 15.3 [Valuation at Date of Termination] tells the Engineer to put a number on the value of the Works, Goods and Contractor’s Documents as at the date the termination takes effect, for work executed in accordance with the Contract.
In 2017, Sub-Clause 15.3 [Valuation after Termination for Contractor’s Default] tells the Engineer to use the 3.7 [Agreement or Determination] process to agree or determine the same thing – again, for work executed in accordance with the Contract – and clarifies that the termination date starts the 3.7.3 time limit clock.
So in both editions, 15.3 is basically a closing stocktake:
Only after we have this “stocktake number” does 15.4 come in to deal with Question 2: set-off of Employer’s completion costs, losses and delay damages.
2️⃣ Breakdown of Clause 15.3 – step by step
Let’s split Clause 15.3 into the 1999 and 2017 editions, then line them up so you can see how the valuation engine evolved between them.
📘 1999 A. 1999 – Sub-Clause 15.3 [Valuation at Date of Termination]
Trigger
A notice of termination under Sub-Clause 15.2 [Termination by Employer] has taken effect. Once that happens, 15.3 tells the Engineer: “Right, now do the valuation.”
Who does what?
Engineer’s role
The Engineer proceeds “in accordance with” the determinations clause (in 1999 that’s Sub-Clause 3.5 [Determinations]), which means the Engineer should:
- consult both Parties,
- consider all relevant facts,
- make a fair determination consistent with the Contract.
The Engineer must determine the value of:
- the Works executed up to the date termination takes effect,
- any Goods (e.g. Plant, equipment) properly supplied for incorporation in the Works,
- the Contractor’s Documents that the Employer can use,
- and any other sums due to the Contractor for work executed in accordance with the Contract.
In practice, the Engineer is building a termination account snapshot using the same valuation logic used for interim payments (BoQ, lump sum breakdown, variation records, etc.).
Contractor’s role
The Contract doesn’t spell it out in detail, but in practice, the Contractor should:
- Submit a “termination account”: updated quantities, valuation of work stages, delivered Goods, approved Contractor’s Documents.
- Hand over all records – daily reports, inspection records, delivery notes, approvals, test certificates.
- Show clearly which portions of the Works are compliant, and which are still defective or incomplete.
The stronger your records, the less room there is for the Engineer (or later a tribunal) to discount your valuation.
Employer’s immediate position
Under 15.4 [Payment after Termination], the Employer may withhold further payments until its completion costs, defects, and delay damages are known, and can recover those costs after allowing for sums due under 15.3.
So the 15.3 valuation is not the final net outcome – it’s the starting number the Employer uses in 15.4 to do the final accounting.
Key nuance in 1999
The phrase “for work executed in accordance with the Contract” is doing a lot of hidden work. It implicitly allows the Engineer to exclude or discount non-compliant or defective portions. There’s no formula given – which is exactly where disputes tend to arise.
📒 2017 B. 2017 – Sub-Clause 15.3 [Valuation after Termination for Contractor’s Default]
Trigger
The Contract is terminated under Sub-Clause 15.2 [Termination for Contractor’s Default].
Now the process is sharper and more structured:
Engineer must use the 3.7 mechanism
The clause explicitly sends the Engineer to Sub-Clause 3.7 [Agreement or Determination].
That means:
- 3.7.1 – consult the Parties and try to reach agreement;
- 3.7.2 – if no agreement, make a fair determination;
- 3.7.3 – do this within set time limits (usually a fixed number of days).
And 15.3 goes further: it says, for 3.7.3 time limits, the date of termination is the start of the clock.
So unlike 1999’s “as soon as practicable”, 2017 bakes in a time-bound process.
What must be valued?
The Engineer must agree/determine the value of:
- the Permanent Works executed,
- any Goods supplied for the Works,
- the Contractor’s Documents that the Employer can use,
- and any other sums due to the Contractor for work executed in accordance with the Contract.
Again, the filter is “in accordance with the Contract” – so defective, out-of-tolerance or non-approved work can be left out or significantly discounted.
Link to final account logic
In the official structure, 15.3 and 15.4 sit in the same “Termination by Employer” cluster.
15.4 then allows the Employer to:
- withhold payment of the 15.3 amount until completion costs, losses and damages are clear, and
- recover additional costs, site reinstatement, and delay damages, subject to 20.2 [Claims for Payment and/or EOT].
In effect, 15.3 behaves like a “mini final account at termination”, but it is still just one half of the equation; 15.4 provides the set-off engine.
| Point | 📘 1999 – 15.3 Valuation at Date of Termination | 📒 2017 – 15.3 Valuation after Termination for Contractor’s Default |
|---|---|---|
| Trigger | Termination under 15.2 [Termination by Employer] has taken effect. | Termination under 15.2 [Termination for Contractor’s Default]. |
| Procedure | Engineer proceeds in line with 3.5 [Determinations] (no hard time limit). |
Engineer must use 3.7 [Agreement or Determination] with clear time limit;
termination date starts the clock.
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| Scope | Works, Goods, Contractor’s Documents, other sums due for work executed in accordance with the Contract. |
Permanent Works, Goods, Contractor’s Documents, other sums due for work
executed in accordance with the Contract.
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| Role of 15.4 |
Employer uses 15.4 [Payment after Termination] to apply completion costs, damages
and set-off, after allowing for 15.3 sum.
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Employer uses 15.4 [Payment after Termination for Contractor’s Default]
to withhold and then recover extra costs, losses and Delay Damages, again after
allowing for 15.3.
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3️⃣ Key interpretations & implications – how do tribunals see 15.3?
How do DAABs and arbitral tribunals actually read Clause 15.3 in the real world – especially when it collides with 15.4, Delay Damages and claims machinery?
01 “Neutral valuation” vs “final financial outcome”
A very common mistake on projects:
Contractors sometimes argue: “The Engineer has valued my work under 15.3, therefore that is what I must be paid.”
Employers sometimes act as if: “We terminated you, so we owe you nothing until we finish the Works and count our losses.”
The contract actually sits right in the middle:
- 15.3 aims to be a neutral, objective valuation of compliant work at the termination date.
- 15.4 is where the net outcome is calculated – adding Employer’s completion costs, losses and Delay Damages, and then offsetting the 15.3 value.
So, can it be interpreted that Clause 15.3 gives the Contractor a guaranteed payment?
👉 Not exactly. It gives them a starting point in the account, but 15.4 can more than wipe that out if the Employer’s additional costs and damages are high.
02 “In accordance with the Contract” – the quiet filter
Both editions use the phrase “for work executed in accordance with the Contract”.
In practice, this means:
- If a section of the Works is fully compliant and accepted → it goes into the 15.3 valuation at (or close to) full value.
- If it is defective but economically remediable → Engineers, tribunals and experts often treat it at a discounted value (full value minus cost of remedy), or sometimes value it as zero and treat the salvage as a separate issue.
- If it is fundamentally non-compliant or must be demolished → in many determinations, it ends up with zero value in the 15.3 account.
So although 15.3 doesn’t spell out a formula, that phrase is usually interpreted as:
“We only value the part of the Works, Goods and Documents that genuinely comply with the agreed bargain.”
03 Interaction with the determination / claims machinery
In 1999, 3.5 [Determinations] is fairly high-level. There is a duty to consult and be fair, but no built-in time limit. The wording “as soon as practicable” in 15.3 can easily slip into months if nobody pushes.
In 2017, tying 15.3 to 3.7 [Agreement or Determination] and 3.7.3 [Time limits] is a deliberate tightening:
- the Engineer must move,
- there is a clear start date (the termination date),
- and failure to act can be criticised later before the DAAB.
Practically, this makes 2017 much more DAAB-friendly: the paper trail of 3.7 consultations and timeline is easier for a tribunal to review.
04 Delay Damages and completion costs: 15.3 vs 15.4
1999 – 15.4: after termination takes effect, the Employer can:
- proceed under 2.5 [Employer’s Claims],
- withhold further payments until its completion costs, defects and delay damages are established, and
- recover those, after allowing for the sum due under 15.3; any balance is then paid to the Contractor.
2017 – 15.4: after termination for default, the Employer may:
- withhold payment of the 15.3 amount until all costs, losses and damages are known, and
-
is entitled (subject to 20.2 [Claims for Payment and/or EOT]) to:
- extra execution/completion costs (including clearance / reinstatement under 11.11),
- other losses and damages, and
- Delay Damages if termination occurs after the Time for Completion.
So from a risk perspective:
- 15.3 says, “Here is the Contractor’s credit.”
- 15.4 says, “Now let’s debit the Employer’s costs and see who owes whom.”
For tribunals, Clause 15.3 is not a golden ticket for the Contractor and not a way for the Employer to zero the account either. It is a neutral valuation checkpoint that only counts compliant work, plugs into the determination machinery, and hands its result over to 15.4 – where the real battle over completion costs, Delay Damages and net balances is fought.
4️⃣ Cross-referencing with other clauses – the hidden wiring
Here’s the “wiring diagram” around Clause 15.3 in the 1999 and 2017 Yellow Books – how notices, termination, valuation, payment and claims all plug into each other.
📘 1999 Clause network around 15.3
Key neighbours
- 15.1 [Notice to Correct] – often used as a precursor; failure to correct can lead to 15.2 termination.
- 15.2 [Termination by Employer] – once a 15.2 notice has taken effect, 15.3 kicks in.
- 15.3 [Valuation at Date of Termination] – Engineer values the Contractor’s compliant work at the termination date.
15.4 [Payment after Termination] – Employer may:
- invoke 2.5 [Employer’s Claims],
- withhold payments,
- recover extra costs and losses, after allowing for the 15.3 sum.
Other cross-links
- Clause 14 [Contract Price and Payment] – valuation under 15.3 uses the same machinery as interim payments: BoQ, lump sum breakdown, variation valuation rules, etc.
- Clause 11 [Defects Liability] – helps frame whether the Contractor’s work is “in accordance with the Contract” or defective.
- Clause 20 [Claims, Disputes, Arbitration] (1999) – if a Party disagrees with the Engineer’s 15.3 determination, it may become a formal dispute.
📒 2017 Clause network around 15.3
Key neighbours
15.1 [Notice to Correct] → 15.2 [Termination for Contractor’s Default] → 15.3 [Valuation after Termination for Contractor’s Default] → 15.4 [Payment after Termination for Contractor’s Default].
3.7 [Agreement or Determination] – the procedural heart of 15.3:
- consultation first,
- determination if no agreement,
- within defined time limits.
14.x [Contract Price and Payment] and 14.13 [Final Payment Certificate]:
the logic of reconciling changes, payments and balances is mirrored in how 15.3 and 15.4 work – essentially a final account at termination.
20.2 [Claims for Payment and/or EOT]:
2017 makes Employer’s entitlements to recovery under 15.4 expressly subject to proper claims under 20.2.
This is a big structural change: Employers cannot simply wave 15.4 around; they must comply with the same claims architecture.
You can present this visually in your article as a simple pipeline: Fault → Termination → Valuation → Set-off → Net Position.
| Step | Clause (1999) | Clause (2017) | What happens? |
|---|---|---|---|
| Fault & warnings | 15.1, then 15.2 | 15.1, then 15.2 | Employer builds case for default termination. |
| Valuation snapshot | 15.3 | 15.3 + 3.7 | Engineer values compliant work at termination date. |
| Set-off & recovery | 15.4 + 2.5 | 15.4 + 20.2 | Employer brings in completion costs, losses, Delay Damages. |
| Net outcome | 15.4 – pay or be paid | 15.4 – pay or be paid | One side ends up with a net claim. |
5️⃣ “What if…?” scenarios – walking through real-world situations
Let’s bring Clause 15.3 to life with numbers so your readers can see how valuation and set-off actually play out on a live project, not just on paper.
Scenario 1 – Heavy variations, mid-project termination
You’re on a design–build power plant using Yellow Book. Contract Price: 100 million.
At termination date:
- 50% of original scope is properly executed and compliant.
- Variations added another 20 million; 10 million of that variation work is done and compliant.
- Interim certificates show 70 million paid so far (some over-valuation).
Under 1999:
Employer terminates under 15.2. Engineer, under 15.3, prepares the termination valuation:
- original scope: 50% × 80m base = 40m
- variations executed: 10m
- total value of compliant work = 50m
But interim certificates already paid 70m.
Under 15.4, Employer now:
- establishes extra completion cost (say 30m) and delay damages, etc., under 2.5 [Employer’s Claims];
- compares:
- Contractor’s “credit” for compliant work (50m),
- against amounts already paid (70m) and Employer’s additional costs/damages.
It may turn out the Contractor actually owes money back once everything is netted off.
Under 2017:
Employer terminates under 15.2 [Contractor’s Default].
Engineer uses 3.7 to agree/determine the 15.3 valuation; termination date starts the 3.7.3 time limit.
Same valuation (e.g., 50m) is produced, but within a more structured process.
Under 15.4 and 20.2, the Employer must properly claim its extra completion costs and Delay Damages, then offset them against the 50m.
Practical lesson:
If your project is variation-heavy, Clause 15.3 punishes poor record-keeping. If you can’t show what was executed, valued and approved, your 15.3 valuation will be fuzzy – and a DAAB will notice.
Scenario 2 – Non-compliant work everywhere
Suppose:
- Large parts of the Works are badly out of spec.
- The Employer terminates for Contractor’s default.
- The Employer’s replacement Contractor ends up demolishing and rebuilding 30% of the work.
Can the original Contractor still argue they should be paid for that 30% under 15.3?
Both editions give the Contractor an uphill battle, because only work “in accordance with the Contract” should be valued.
A typical Engineer / tribunal approach might be:
- value 70% compliant works fairly,
- give nil value to the 30% that was demolished,
- allow the Employer to recover the cost of demolition and rebuilding under 15.4 and the Employer’s claims provisions.
So while 15.3 is neutral, it is not generous to non-compliant work.
On your current projects, could you demonstrate – with records – which parts of the work are truly compliant if a 15.3 valuation had to be done tomorrow?
Scenario 3 – Overpayment before termination
Another classic:
Contract Price: 50m.
Because of optimistic progress reports, the Engineer has issued certificates totalling 35m, but the true value of compliant work is only 25m.
Employer terminates for default.
Under both editions:
- 15.3 valuation will aim to identify the true value of compliant work = 25m.
- Employer has already paid 35m → 10m overpayment.
Under 15.4, that overpayment becomes part of what the Employer can recover from the Contractor, in addition to extra completion costs and delay damages.
So a Contractor can go into termination thinking, “We’ve been paid a lot, we must be okay,” only to find that, under 15.3 + 15.4, they are net owing money.
4️⃣ Cross-referencing with other clauses – the hidden wiring
Here’s the “wiring diagram” around Clause 15.3 in the 1999 and 2017 Yellow Books – how notices, termination, valuation, payment and claims all plug into each other.
📘 1999 Clause network around 15.3
Key neighbours
- 15.1 [Notice to Correct] – often used as a precursor; failure to correct can lead to 15.2 termination.
- 15.2 [Termination by Employer] – once a 15.2 notice has taken effect, 15.3 kicks in.
- 15.3 [Valuation at Date of Termination] – Engineer values the Contractor’s compliant work at the termination date.
15.4 [Payment after Termination] – Employer may:
- invoke 2.5 [Employer’s Claims],
- withhold payments,
- recover extra costs and losses, after allowing for the 15.3 sum.
Other cross-links
- Clause 14 [Contract Price and Payment] – valuation under 15.3 uses the same machinery as interim payments: BoQ, lump sum breakdown, variation valuation rules, etc.
- Clause 11 [Defects Liability] – helps frame whether the Contractor’s work is “in accordance with the Contract” or defective.
- Clause 20 [Claims, Disputes, Arbitration] (1999) – if a Party disagrees with the Engineer’s 15.3 determination, it may become a formal dispute.
📒 2017 Clause network around 15.3
Key neighbours
15.1 [Notice to Correct] → 15.2 [Termination for Contractor’s Default] → 15.3 [Valuation after Termination for Contractor’s Default] → 15.4 [Payment after Termination for Contractor’s Default].
3.7 [Agreement or Determination] – the procedural heart of 15.3:
- consultation first,
- determination if no agreement,
- within defined time limits.
14.x [Contract Price and Payment] and 14.13 [Final Payment Certificate]:
the logic of reconciling changes, payments and balances is mirrored in how 15.3 and 15.4 work – essentially a final account at termination.
20.2 [Claims for Payment and/or EOT]:
2017 makes Employer’s entitlements to recovery under 15.4 expressly subject to proper claims under 20.2.
This is a big structural change: Employers cannot simply wave 15.4 around; they must comply with the same claims architecture.
You can present this visually in your article as a simple pipeline: Fault → Termination → Valuation → Set-off → Net Position.
| Step | Clause (1999) | Clause (2017) | What happens? |
|---|---|---|---|
| Fault & warnings | 15.1, then 15.2 | 15.1, then 15.2 | Employer builds case for default termination. |
| Valuation snapshot | 15.3 | 15.3 + 3.7 | Engineer values compliant work at termination date. |
| Set-off & recovery | 15.4 + 2.5 | 15.4 + 20.2 | Employer brings in completion costs, losses, Delay Damages. |
| Net outcome | 15.4 – pay or be paid | 15.4 – pay or be paid | One side ends up with a net claim. |
Detailed sequence – 📒 2017 Sub-Clause 15.3 [Valuation after Termination for Contractor’s Default]
The 2017 edition keeps the same basic idea as 1999 – value compliant work at termination – but plugs it tightly into the 3.7 agreement/determination and 20.2 claims machinery.
Step 1 – Contractor default + Notice to Correct (Clause 15.1)
Contractor is failing in a serious way.
What happens:
- Employer issues a Notice to Correct under Clause 15.1, clearly specifying the breach.
- The notice gives a defined period for the Contractor to remedy that breach.
- If the breach is not fixed in time, the Employer prepares for a 15.2 termination.
Step 2 – Employer issues termination notice (Clause 15.2)
Employer serves a termination notice under Clause 15.2 [Termination for Contractor’s Default].
The notice should:
- identify the specific 15.2 ground(s) being relied upon,
- comply with all form and procedural requirements,
- be copied to those required under the Contract (e.g. Engineer, DAAB, Employer’s Representative, etc.).
Step 3 – Termination effective (T-date)
Once the conditions in Clause 15.2 are satisfied, termination takes effect.
Why the T-date matters:
- It becomes the key reference date for the 15.3 valuation – we value work “as at the date of termination”.
- It also becomes the start date for the 3.7.3 time limit on the Engineer’s determination (because 15.3 says so).
Step 4 – Engineer activates 15.3 + 3.7 process
Under Sub-Clause 15.3 [Valuation after Termination for Contractor’s Default], the Engineer must value:
- executed Permanent Works,
- Goods,
- Contractor’s Documents, and
- any other sums due for work executed in accordance with the Contract.
The Engineer must use Clause 3.7 [Agreement or Determination], which requires:
- consultation with both Parties (3.7.1),
- a fair determination if no agreement is reached (3.7.2),
- all of this to happen within a specified time limit from the T-date (3.7.3).
In 2017, 15.3 is therefore a timed procedure, not just a vague “as soon as practicable”.
Step 5 – Contractor submits its 15.3 valuation proposal
The Contractor prepares and submits, within the relevant time-frame, a detailed 15.3 valuation proposal.
This usually includes:
-
a valuation of:
- Permanent Works up to T-date (measured quantities or milestone-based),
- variations executed,
- Goods delivered to site or otherwise in the Employer’s possession,
- approved and usable Contractor’s Documents,
- any other sums it considers due up to the termination date.
-
supporting evidence:
- QA/inspection records, test results, approvals,
- delivery notes, mill certificates, OEM documentation,
- as-built / design documents, models, BIM data, etc.
In your article you can label this as the “15.3 Termination Account”.
Step 6 – Employer’s response and challenges
Within the 3.7 consultation process, the Employer responds to the Contractor’s account.
The Employer will typically provide:
- written comments explaining:
- items that are non-compliant with Employer’s Requirements,
- areas with outstanding NCRs / punch list items,
- over-claimed quantities or unapproved variations,
- Goods that are damaged or not actually for the project,
- documents that are incomplete or rejected.
-
identification of locations where:
- demolition or major rework will be needed,
- there is effectively zero salvageable value.
Because 2017 only values work “in accordance with the Contract”, this step is crucial for the Employer to ring-fence non-compliant work.
Step 7 – Engineer’s 3.7 consultation phase
Acting under Clause 3.7.1, the Engineer manages the consultation.
Typical actions:
- reviews the Contractor’s proposal and Employer’s objections,
- asks for clarifications and additional documents,
- may hold joint meetings or workshops,
- may issue a draft valuation for comment before finalising.
The goal is to reach agreement between Employer and Contractor on the 15.3 valuation within the 3.7.3 time limit.
If they agree, that agreed figure becomes the 15.3 result.
Step 8 – Engineer’s determination (if no agreement)
If no agreement is reached in the consultation stage:
-
Under Clause 3.7.2, the Engineer must make a fair determination of:
- the value of the Permanent Works,
- compliant Goods and Contractor’s Documents,
- other sums due,
- with non-compliant elements excluded per 15.3’s wording.
- Under 3.7.3, this determination must be issued within the specified number of days – counted from the T-date because 15.3 fixes that start point.
A good 15.3 determination will show clearly:
- the valuation method (BoQ, lump sum breakdown, variation valuation rules),
- what is excluded for non-compliance,
- and the final 15.3 valuation figure.
Step 9 – Employer uses 15.3 valuation within Clause 15.4
Now Clause 15.4 [Payment after Termination for Contractor’s Default] comes into play. The 15.3 figure becomes the Contractor’s credit in the final termination account.
Employer identifies and claims:
- extra costs of completing the Works (including mobilisation of the replacement Contractor),
- costs of removing Contractor’s equipment and debris,
- costs of correcting or demolishing defective work,
- Delay Damages if termination occurs after the Time for Completion,
- any other losses or damages suffered.
Under 2017, these Employer entitlements are subject to the claims procedure in Clause 20.2:
- Employer must give a Notice of Claim within the time limit,
- then provide fully detailed particulars within the follow-up period.
The Engineer then determines those Employer claims (again using 3.7) and nets them off against:
- the 15.3 valuation, and
- amounts previously paid.
The result is a net balance either:
- payable by the Employer to the Contractor, or
- repayable by the Contractor to the Employer.
Step 10 – DAAB and arbitration if disputed
If either Party is unhappy with:
- the 15.3 determination, or
- the 15.4 set-off and final net figure,
they can escalate the dispute:
- refer it to the DAAB under the disputes chapter (2017: Clause 21), and
- if still dissatisfied, move on to arbitration.
What DAAB/arbitrators will look at:
- whether the 3.7 process was followed properly,
- the valuation logic and evidence,
- compliance records and QA documentation,
- how non-compliant work was treated in the 15.3 account.
