10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(MARK ONE)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2009

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             .

Commission file number: 001-13439

Dril-Quip, Inc.

(Exact name of registrant as specified in its charter)

Delaware	74-2162088
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
13550 Hempstead Highway Houston, Texas	77040
(Address of principal executive offices)	(Zip code)

Registrant’s telephone number, including area code: (713) 939-7711

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange On Which Registered
Common Stock, $.01 par value per share	New York Stock Exchange
Rights to Purchase Series A Junior Participating Preferred Stock	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act.    Yes  x    No  ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one):

Large accelerated filer  x	Accelerated filer  ¨	Non-Accelerated filer  ¨	Smaller reporting company  ¨
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

At June 30, 2009, the aggregate market value of the registrant’s Common Stock held by non-affiliates of the registrant was approximately $1,109,000,000 based on the closing price of such stock on such date of $38.10.

At February 23, 2010, the number of shares outstanding of registrant’s Common Stock was 39,754,190.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Proxy Statement for its 2010 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A are incorporated by reference in Part III of this Form 10-K.

TABLE OF CONTENTS

PART I
Item 1.	Business	2
Item 1A.	Risk Factors	11
Item 1B.	Unresolved Staff Comments	17
Item 2.	Properties	17
Item 3.	Legal Proceedings	18
Item 4.	Submission of Matters to a Vote of Security Holders	19
Item S-K 401(b).	Executive Officers of the Registrant	19
PART II
Item 5.	Market for Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities	20
Item 6.	Selected Financial Data	21
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 8.	Financial Statements and Supplementary Data	34
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	57
Item 9A.	Controls and Procedures	57
Item 9B.	Other Information	57
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	58
Item 11.	Executive Compensation	58
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	58
Item 13.	Certain Relationships and Related Transactions, and Director Independence	58
Item 14.	Principal Accountant Fees and Services	58
PART IV
Item 15.	Exhibits and Financial Statement Schedules	59
	Signatures	61

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K includes certain statements that may be deemed to be “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Statements contained in all parts of this document that are not historical facts are forward-looking statements that involve risks and uncertainties that are beyond the control of Dril-Quip, Inc. (the “Company” or “Dril-Quip”). You can identify the Company’s forward-looking statements by the words “anticipate,” “estimate,” “expect,” “may,” “project,” “believe” and similar expressions, or by the Company’s discussion of strategies or trends. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, no assurances can be given that these expectations will prove to be correct. These forward-looking statements include the following types of information and statements as they relate to the Company:

• future operating results and cash flow;

• scheduled, budgeted and other future capital expenditures;

• working capital requirements;

• the availability of expected sources of liquidity;

• the introduction into the market of the Company’s future products;

• the market for the Company’s existing and future products;

• the Company’s ability to develop new applications for its technologies;

• the exploration, development and production activities of the Company’s customers;

• compliance with present and future environmental regulations and costs associated with environmentally related penalties, capital expenditures, remedial actions and proceedings;

• effects of pending legal proceedings; and

• future operations, financial results, business plans and cash needs.

These statements are based on assumptions and analyses in light of the Company’s experience and perception of historical trends, current conditions, expected future developments and other factors the Company believes were appropriate in the circumstances when the statements were made. Forward-looking statements by their nature involve substantial risks and uncertainties that could significantly impact expected results, and actual future results could differ materially from those described in such statements. While it is not possible to identify all factors, the Company continues to face many risks and uncertainties. Among the factors that could cause actual future results to differ materially are the risks and uncertainties discussed under “Item 1A. Risk Factors” in this report and the following:

• the volatility of oil and natural gas prices;

• the cyclical nature of the oil and gas industry;

• uncertainties associated with the United States and worldwide economies;

• uncertainties regarding political tensions in the Middle East and elsewhere;

• current and potential governmental regulatory actions in the United States and regulatory actions and political unrest in other countries;

• operating interruptions (including explosions, fires, weather-related incidents, mechanical failure, unscheduled downtime, labor difficulties, transportation interruptions, spills and releases and other environmental risks);

• the Company’s reliance on product development;

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• technological developments;

• the Company’s dependence on key employees and skilled machinists, fabricators and technical personnel;

• the Company’s reliance on sources of raw materials;

• control by certain stockholders;

• impact of environmental matters, including future environmental regulations;

• competitive products and pricing pressures;

• fluctuations in foreign currency;

• the Company’s reliance on significant customers;

• creditworthiness of the Company’s customers;

• fixed-price contracts;

• the worldwide financial crisis;

• access to capital markets; and

• war and terrorist acts.

Many of such factors are beyond the Company’s ability to control or predict. Any of the factors, or a combination of these factors, could materially affect the Company’s future results of operations and the ultimate accuracy of the forward-looking statements. Management cautions against putting undue reliance on forward-looking statements or projecting any future results based on such statements or present or prior earnings levels. Every forward-looking statement speaks only as of the date of the particular statement, and the Company undertakes no obligation to publicly update or revise any forward-looking statement.

PART I

Item 1. Business

General

Dril-Quip, Inc., a Delaware corporation (the “Company” or “Dril-Quip”), designs, manufactures, sells and services highly engineered offshore drilling and production equipment that is well suited for use in deepwater, harsh environment and severe service applications. The Company’s principal products consist of subsea and surface wellheads, subsea and surface production trees, subsea control systems and manifolds, mudline hanger systems, specialty connectors and associated pipe, drilling and production riser systems, liner hangers, wellhead connectors and diverters. Dril-Quip’s products are used by major integrated, large independent and foreign national oil and gas companies in offshore areas throughout the world. Dril-Quip also provides technical advisory assistance on an as-requested basis during installation of its products, as well as rework and reconditioning services for customer-owned Dril-Quip products. In addition, Dril-Quip’s customers may rent or purchase running tools from the Company for use in the installation and retrieval of its products.

Dril-Quip has developed its broad line of subsea equipment, surface equipment and offshore rig equipment primarily through its internal product research and development efforts. The Company believes that it has achieved significant market share and brand name recognition with respect to its established products due to the technological capabilities, reliability, cost effectiveness and operational timesaving features of these products.

The Company’s operations are organized into three geographic segments: Western Hemisphere (including North and South America; headquartered in Houston, Texas), Eastern Hemisphere (including Europe and Africa; headquartered in Aberdeen, Scotland) and Asia-Pacific (including the Pacific Rim, Southeast Asia, Australia, India and the Middle East; headquartered in Singapore). Each of these segments sells similar products and services and the Company has major manufacturing facilities in all three of its headquarter locations as well as

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Macae, Brazil. The Company maintains additional facilities for fabrication and/or reconditioning in Norway, Denmark, China and Australia. The Company’s manufacturing operations are vertically integrated, allowing it to perform substantially all of its forging, heat treating, machining, fabrication, inspection, assembly and testing at its own facilities. The Company’s major subsidiaries are Dril-Quip (Europe) Limited (DQE), located in Aberdeen with branches in Denmark, Norway and Holland; Dril-Quip Asia Pacific PTE Ltd. (DQAP), located in Singapore; Dril-Quip do Brasil LTDA (DQB), located in Macae, Brazil; and Dril-Quip Holdings Pty Ltd. (DQH), located in Perth, Australia. Dril-Quip (Nigeria) Ltd. is located in Port Harcourt, Nigeria and Dril-Quip Egypt for Petroleum Services S.A.E. is located in Alexandria, Egypt. Both are wholly owned subsidiaries of DQE. Dril-Quip Oilfield Services (Tianjin) Co. Ltd. (DQT) is located in Tianjin, China. DQT is a wholly owned subsidiary of DQAP. For additional discussion of our geographic segments, please see Note 11 of Notes to Consolidated Financial Statements.

Dril-Quip markets its products through its offices and sales representatives located in the major international energy markets throughout the world. In 2009, the Company generated approximately 66% of its revenues from foreign sales compared to 69% in both 2008 and 2007.

The Company was co-founded in 1981 by Larry E. Reimert, Gary D. Smith, J. Mike Walker and an investor who is no longer affiliated with the Company. On September 23, 2009, Mr. Smith unexpectedly passed away. Together, Messrs. Reimert and Walker have over 70 years of experience in the oilfield equipment industry, essentially all of which has been with the Company and its major competitors. In addition, most of the Company’s key department managers have been with the Company over 10 years.

The Company makes available free of charge on its website its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after it electronically files such reports with, or furnishes them to, the Securities and Exchange Commission (“SEC”). The Company’s website address is www.dril-quip.com. Except to the extent explicitly stated herein, documents and information on the Company’s website are not incorporated by reference herein. Any materials we file with the SEC may be read and copied at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information concerning the Public Reference Room may be obtained by calling 1-800-SEC-0330. In addition, the SEC maintains a website (www.sec.gov) that contains reports we file with the SEC.

Additionally, the Company makes available free of charge on its internet website (www.dril-quip.com/govern.htm):

• its Code of Business Conduct and Ethical Practices,

• its Corporate Governance Guidelines,

• its Nominating, Governance, and Compensation Committee Charter, and

• its Audit Committee Charter.

Any stockholder, who so requests, may obtain a printed copy of any of these documents from the Company. Changes in or waivers to our Code of Business Conduct and Ethical Practices involving directors and executive officers of the Company will be posted on our website.

The information on the Company’s website or any other website is not incorporated by reference into this Form 10-K.

Overview and Industry Outlook

Both the market for offshore drilling and production equipment and services and the Company’s business are substantially dependent on the condition of the oil and gas industry and, in particular, the willingness of oil and gas companies to make capital expenditures on exploration, drilling and production operations offshore. The level of capital expenditures has generally been dependent upon the prevailing view of future oil and gas prices, which are influenced by numerous factors affecting the supply and demand for oil and gas, including worldwide economic activity, interest rates and the cost of capital, environmental regulation, tax policies, and the ability of

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OPEC and other producing nations to set and maintain production levels and prices. Capital expenditures are also dependent on the cost of exploring for and producing oil and gas, the sale and expiration dates of offshore leases, the discovery rate of new oil and gas reserves in offshore areas and technological advances. Oil and gas prices and the level of offshore drilling and production activity have historically been characterized by significant volatility. In general, increases in oil and gas prices, rig counts and new rig construction result in an increase in demand for the Company’s products and services.

Increasing oil and gas prices from 2005 through mid-2008 resulted in oil operators increasing capital spending for both exploration and development programs. As various geopolitical issues have limited the ability of oil and gas companies to invest in certain geographic areas, such as Russia and the Middle East, an increasing amount of this capital spending was in the deepwater areas. However, in mid-2008, oil and gas prices began to decline. This decline resulted in reduced capital spending by some oil and gas companies and may result in additional reductions in capital spending. The economic volatility continued in the first half of 2009 and began to stabilize somewhat in the latter half of the year. This volatility significantly impacted land drilling activity and, to a lesser degree, offshore drilling activity, particularly deep-offshore waters, where Dril-Quip products are more frequently utilized. The Company expects that the need for specialized products will continue and to date, the Company has not seen a material dropoff in demand for its products during this volatile market period. See “Item 1A. Risk Factors—A material or extended decline in expenditures by the oil and gas industry could significantly reduce our revenue and income.”

Products and Services

Products

Dril-Quip designs, manufactures, fabricates, inspects, assembles, tests and markets subsea equipment, surface equipment and offshore rig equipment. The Company derived approximately 84% of its revenues from the sale of its products in 2007, 2008 and 2009. The Company’s products are used to explore for oil and gas on offshore drilling rigs, such as floating rigs and jack-ups, and for drilling and production of oil and gas wells on offshore platforms, TLPs, Spars and moored vessels such as FPSOs. TLPs are floating production platforms that are connected to the ocean floor via vertical mooring tethers (called tension legs). A Spar is a floating cylindrical structure approximately six or seven times longer than its diameter and is anchored in place (like a Spar buoy). FPSOs are floating production, storage and offloading monohull moored vessels.

Subsea Equipment. Subsea equipment is used in the drilling and production of offshore oil and gas wells around the world. Included in the subsea equipment product line are subsea wellheads, mudline hanger systems, specialty connectors and associated pipe, subsea production trees, liner hangers, subsea control systems and subsea manifolds.

Subsea wellheads are pressure-containing forged and machined metal housings in which casing hangers are landed and sealed subsea to suspend casing (downhole pipe). As drilling depth increases, successively smaller diameter casing strings are installed, each suspended by an independent casing hanger. Subsea wellheads are utilized when drilling from floating drilling rigs, either semi-submersible or drillship types, and TLPs and Spars. The Company’s SS-15 Big Bore Subsea Wellhead System is designed to accommodate additional casing strings installed through a conventional marine riser and a subsea blowout preventer.

Mudline hanger systems are used in jack-up drilling operations to support the weight of the various casing strings at the ocean floor while drilling a well. They also provide a method to disconnect the casing strings in an orderly manner at the ocean floor after the well has been drilled, and subsequently reconnect to enable production of the well by either tying it back vertically to a subsequently installed platform or by installing a subsea tree.

Large diameter weld-on specialty connectors (threaded or stab type) are used in offshore wells drilled from floating drilling rigs, jack-ups, fixed platforms, TLPs and Spars. Specialty connectors join lengths of conductor or large diameter (16-inch or greater) casing. Specialty connectors provide a more rapid connection than other

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methods of connecting lengths of pipe. Connectors may be sold individually or as an assembly after being welded to sections of Company or customer supplied pipe. Dril-Quip’s weld-on specialty connectors are designed to prevent cross threading and provide a quick, convenient method of joining casing joints with structural integrity compatible with casing strength.

A subsea production tree is an assembly composed of valves, a wellhead connector, control equipment and various other components installed on a subsea wellhead or a mudline hanger system and used to control the flow of oil and gas from a producing well. Subsea trees may be either stand alone satellite type or template mounted cluster arrangements. Both types typically produce via flowlines to a central control point located on a platform, TLP, Spar or FPSO. The use of subsea production trees has become an increasingly important method for producing wells located in hard-to-reach deepwater areas or economically marginal fields located in shallower waters. The Company is an established manufacturer of more complicated dual-bore production trees, which are used in severe service applications. In addition, Dril-Quip manufactures a patented single bore (SingleBore^™) subsea completion system which features a hydraulic mechanism instead of a wireline-installed mechanism that allows the operator to plug the tubing hanger annulus remotely from the surface via a hydraulic control line and subsequently unplug it when the well is put on production. This mechanism eliminates the need for an expensive multibore installation and workover riser, thereby saving both cost and installation time. Dril-Quip’s guidelineless subsea production tree is used in ultra-deepwater applications. This tree features remote multiple flowline and control connections, utilizing remotely operated intervention tools. The Company’s subsea production trees are generally custom designed and manufactured to customer specifications.

A liner hanger is used to hang-off and seal casing into a previously installed casing string in the well bore, and can provide a means of tying back the liner for production to surface. Dril-Quip has developed a state-of-the-art liner hanger system and has installed its liner hangers in a number of difficult well applications, resulting in improved industry recognition and market opportunities.

A subsea control system provides control of subsea trees, manifolds and other ocean floor process equipment. Dril-Quip has developed a variety of subsea control systems, including fiber optic based multiplex control systems that provide real time access to tree functions and tree equipment status. The control system can be packaged for shallow water or deepwater applications. Dril-Quip also manufactures control systems used in the installation, retrieval and workover of production equipment.

A subsea manifold is a structure located on the ocean floor consisting of valves, chokes, flowline connections and a control module used to collect and control the flow of oil and gas from subsea wells for delivery to a terminal.

Surface Equipment. Surface equipment is principally used for flow control on offshore production platforms, TLPs and Spars. Included in the Company’s surface equipment product line are platform wellheads and platform production trees. Dril-Quip’s development of platform wellheads and platform production trees was facilitated by adaptation of its existing subsea wellhead and tree technology to surface wellheads and trees.

Platform wellheads are pressure-containing forged and machined metal housings in which casing hangers are landed and sealed at the platform deck to suspend casings. The Company emphasizes the use of metal-to-metal sealing wellhead systems with operational time-saving features which can be used in high pressure, high temperature and corrosive drilling and production applications.

After installation of a wellhead, a platform production tree, consisting of gate valves, a wellhead connector, controls, tree cap and associated equipment, is installed on the wellhead to control and regulate oil or gas production. Platform production trees are similar to subsea production trees but utilize less complex equipment and more manual, rather than hydraulically activated, valves and connectors. Platform wellheads and platform production trees and associated equipment are designed and manufactured in accordance with customer specifications.

Offshore Rig Equipment. Offshore rig equipment includes drilling and completion riser systems, wellhead connectors and diverters. The drilling riser system consists of (i) lengths of riser pipe and associated riser

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connectors that secure one to another; (ii) the telescopic joint, which connects the entire drilling riser system to the diverter at the rig and provides a means to compensate for vertical motion of the rig relative to the ocean floor; and (iii) the wellhead connector, which provides a means for remote connection and disconnection of the drilling riser system to and from the blowout preventer stack. Completion risers provide a vertical conduit from the subsea wellhead to a TLP, Spar or FPSO. The wellhead connector also provides remote connection/disconnection of the blowout preventer stack, production tree or production riser to/from the wellhead. Diverters are used to provide protection from shallow gas blowouts and to divert gases off of the rig during the drilling operation.

Wellhead connectors and drilling and production riser systems are also used on both TLPs and Spars, which are being installed more frequently in deepwater applications. The principal markets for offshore rig equipment are new rigs, rig upgrades, TLPs and Spars. Diverters, drilling and production risers and wellhead connectors are generally designed and manufactured to customer specifications.

Certain products of the Company are used in potentially hazardous drilling, completion and production applications that can cause personal injury, product liability and environmental claims. See “Item 1A. Risk Factors—Our business involves numerous operating hazards that may not be covered by insurance. The occurrence of an event not fully covered by insurance could have a material adverse effect on the financial conditions and results of operations.”

Services

Services provided by Dril-Quip include technical advisory services, reconditioning of its products which are customer-owned, and rental of running tools for installation and retrieval of its products. These services are provided from the Company’s worldwide locations and represented approximately 16% of revenues in each of 2007, 2008 and 2009.

Technical Advisory. Dril-Quip does not install products for its customers, but provides technical advisory assistance to the customer, if requested, in the installation of its products. The customer is not obligated to utilize these services and may use its own personnel or a third party to perform these services. Technical advisory services performed by the Company are negotiated and sold separately from the Company’s products. These services are not a prerequisite to the sale of the Company’s products as its products are fully functional on a stand alone basis. The Company’s technicians provide assistance in the onsite installation of the Company’s products and are available on a 24-hour call out from the Company’s facilities located in Houston, Texas; Aberdeen, Scotland; Stavanger, Norway; Esbjerg, Denmark; Singapore; Perth, Australia; Macae, Brazil; Alexandria, Egypt; and Tianjin, China.

Reconditioning. The Company provides reconditioning of its products at its facilities in Houston, Texas; Aberdeen, Scotland; Stavanger, Norway; Singapore; and Macae, Brazil. The Company does not service, repair or recondition its competitors’ products.

Rental. The Company rents running and installation tools for use in installing its products. These tools are used to install and retrieve the Company’s products which are purchased by customers. Rental or purchase of running tools is not a condition of the sale of the Company’s products and are contracted for separately from product sales and other services offered by the Company. Running tools are available from Dril-Quip’s locations in Houston, Texas; Aberdeen, Scotland; Stavanger, Norway; Esbjerg, Denmark; Beverwijk, Holland; Singapore; Perth, Australia; Tianjin, China; Alexandria, Egypt; and Macae, Brazil.

Manufacturing

Dril-Quip has major manufacturing facilities in Houston, Texas; Aberdeen, Scotland; Singapore; and Macae, Brazil. Each location conducts a broad variety of processes, including machining, fabrication, inspection, assembly and testing. The Houston facility provides forged and heat treated products to all the major manufacturing facilities.

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The Company’s Houston, Aberdeen and Singapore manufacturing plants are ISO 9001:2008 certified and licensed to applicable API product specifications. The Company’s Macae manufacturing plant is ISO 9001:2008 certified. See “Properties—Major Manufacturing Facilities.” Dril-Quip maintains its high standards of product quality through the use of quality assurance specialists who work with product manufacturing personnel throughout the manufacturing process by inspecting and documenting equipment as it is processed through the Company’s manufacturing facilities. The Company has the capability to manufacture various products from each of its product lines at its major manufacturing facilities and believes that this localized manufacturing capability is essential in order to compete with the Company’s major competitors.

The Company’s manufacturing process is vertically integrated, producing a majority of its forging requirements and essentially all of its heat treatment, machining, fabrication, inspection, assembly and testing in house. The Company’s primary raw material is cast steel ingots, from which it produces steel shaped forgings at its forging and heat treatment facility. The Company routinely purchases steel ingots from multiple suppliers on a purchase order basis and does not have any long-term supply contracts. The Company’s Houston facility provides forgings and heat treatment for its Aberdeen, Singapore and Macae facilities. The Company’s major competitors depend on outside sources for all or a substantial portion of their forging and heat treatment requirements. The Company has made significant capital investments in developing its vertically integrated manufacturing capability. Prolonged periods of low demand in the market for offshore drilling and production equipment could have a greater effect on the Company than on certain of its competitors that have not made such large capital investments in their facilities.

Dril-Quip’s manufacturing facilities utilize state-of-the-art computer numerically controlled (“CNC”) machine tools and equipment, which contribute to the Company’s product quality and timely delivery. The Company has also developed a cost effective, in-house machine tool rebuild capability which produces “like new” machine upgrades with customized features to enhance the economic manufacture of its specialized products. The Company purchases quality used machine tools as they become available and stores them at its facilities to be rebuilt and upgraded as the need arises. Rebuilding used machine tools allows for greater customization suitable for manufacturing Dril-Quip proprietary product lines. This provides the added advantage of requiring only in-house expertise for repairs and maintenance of these machines. A significant portion of the Company’s manufacturing capacity growth has been through the rebuild/upgrade of quality used machine tools, including the replacement of outdated control systems with state-of-the-art CNC controls.

Customers

The Company’s principal customers are major integrated, large independent and foreign national oil and gas companies. Offshore drilling contractors and engineering and construction companies also represent a minor customer base. The Company’s customers are generally oil and gas companies that are well-known participants in offshore exploration and production.

The Company is not dependent on any one customer or group of customers. In 2007 and 2008, the Company’s top 15 customers represented approximately 51% and 45%, respectively, of total revenues, with no customer accounting for more than 10% of the Company’s total revenues. In 2009, the Company’s top 15 customers represented approximately 60% of total revenues, and one customer accounted for approximately 10% of the Company’s total revenues. The number and variety of the Company’s products required in a given year by any one customer depends upon the amount of that customer’s capital expenditure budget devoted to offshore exploration and production and on the results of competitive bids for major projects. Consequently, a customer that accounts for a significant portion of revenues in one fiscal year may represent an immaterial portion of revenues in subsequent years. While the Company is not dependent on any one customer or group of customers, the loss of one or more of its significant customers could, at least on a short-term basis, have an adverse effect on the Company’s results of operations.

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Backlog

Backlog consists of firm customer orders for which a purchase order or signed contract has been received, satisfactory credit or financing arrangements exist and delivery is scheduled. The Company’s revenues for a specific period have not been directly related to its backlog as stated at a particular point in time. The Company’s backlog was approximately $429 million and $603 million at December 31, 2007 and 2008, respectively, compared to $563 million at December 31, 2009, an increase of approximately $174 million, or 41%, from 2007 to 2008 and a decrease of approximately $40 million, or 7%, from 2008 to 2009. The Company expects to fill approximately 65% of the December 31, 2009 backlog by December 31, 2010. The remaining backlog at December 31, 2009 consists of longer-term projects which are being designed and manufactured to customer specifications requiring longer lead times. Our reported backlog at December 31, 2008 and 2009 excludes $27 million related to the MPF contract discussed in “Item 3. Legal Proceedings.”

The Company can give no assurance that backlog will remain at current levels. Sales of the Company’s products are affected by prices for oil and natural gas, which fluctuate significantly. Additional future declines in oil and natural gas prices could reduce new customer orders, possibly causing a decline in the Company’s future backlog. All of the Company’s projects currently included in its backlog are subject to change and/or termination at the option of the customer. In the case of a change or termination, the customer is required to pay the Company for work performed and other costs necessarily incurred as a result of the change or termination. In the past, terminations and cancellations have not been significant to the Company’s overall operating results.

Marketing and Sales

Dril-Quip markets its products and services throughout the world directly through its sales personnel in two domestic and fifteen international locations. In addition, in certain foreign markets where the Company does not maintain offices, it utilizes independent sales representatives to enhance its marketing and sales efforts. Some of the locations in which Dril-Quip has sales representatives are India, Mexico, Brazil, Indonesia, Malaysia, China, Turkey, Egypt, Libya, Nigeria, Qatar, Saudi Arabia and United Arab Emirates. Although they do not have authority to contractually bind the Company, these representatives market the Company’s products in their respective territories in return for sales commissions. The Company also advertises its products and services in trade and technical publications targeted to its customer base. The Company also participates in industry conferences and trade shows to enhance industry awareness of its products.

The Company’s customers generally order products on a purchase order basis. Orders, other than those considered to be long-term projects, are typically filled within three to six months after receipt of a purchase order, depending on the type of product and whether it is sold out of inventory or requires some customization. Contracts for certain of the Company’s larger, more complex products, such as subsea production trees, drilling risers and equipment for TLPs and Spars can take a year or more to complete.

The primary factors influencing a customer’s decision to purchase the Company’s products are the quality, reliability and reputation of the product, price and technologically superior features. Timely delivery of equipment is also very important to customer operations and the Company maintains an experienced sales coordination staff to help assure such delivery. For large drilling and production system orders, project management teams coordinate customer needs with engineering, manufacturing and service organizations, as well as with subcontractors and vendors.

A portion of the Company’s business consists of designing, manufacturing and selling equipment, as well as offering technical advisory assistance during installation of the equipment, for major projects pursuant to competitive bids. The number of such projects in any year fluctuates. The Company’s profitability on such projects is critically dependent on making accurate and cost effective bids and performing efficiently in accordance with bid specifications. Various factors can adversely affect the Company’s performance on individual projects, with potential material adverse effects on project profitability.

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Product Development and Engineering

The technological demands of the oil and gas industry continue to increase as offshore exploration and drilling expand into more hostile environments. Conditions encountered in these environments include well pressures of up to 15,000 psi (pounds per square inch), mixed flows of oil and gas under high pressure that may also be highly corrosive and water depths in excess of 10,000 feet. Since its founding, Dril-Quip has actively engaged in continuing product development to generate new products and improve existing products. When developing new products, the Company typically seeks to design the most technologically advanced version for a particular application to establish its reputation and qualification in that product. Thereafter, the Company leverages its expertise in the more technologically advanced product to produce less costly and complex versions of the product for less demanding applications. The Company also focuses its activities on reducing the overall cost to the customer, which includes not only the initial capital cost but also operating and installation costs associated with its products.

The Company has continually introduced new products and product enhancements since its founding in 1981. In the 1990s, the Company introduced a series of new products, including diverters, wellhead connectors, SingleBore^™ subsea trees, improved severe service dual bore subsea trees, subsea and platform valves, platform wellheads, platform trees, subsea tree workover riser systems, drilling risers and TLP and Spar production riser systems. Since the year 2000, Dril-Quip has introduced multiple new products including liner hangers, subsea control systems and subsea manifolds.

Dril-Quip’s product development work is conducted at its facilities in Houston, Texas and Aberdeen, Scotland. In addition to the work of its product development staff, the Company’s application engineering staff provides engineering services to customers in connection with the design and sales of its products. The Company’s ability to develop new products and maintain technological advantages is important to its future success. There can be no assurance that the Company will be able to develop new products, successfully differentiate itself from its competitors or adapt to evolving markets and technologies.

The Company believes that the success of its business depends more on the technical competence, creativity and marketing abilities of its employees than on any individual patent, trademark or copyright. Nevertheless, as part of its ongoing product development and manufacturing activities, Dril-Quip’s policy has been to seek patents when appropriate on inventions concerning new products and product improvements. All patent rights for products developed by employees are assigned to the Company and almost all of the Company’s products have components that are covered by patents.

Dril-Quip has numerous U.S. registered trademarks, including Dril-Quip^® , Quik-Thread^®, Quick-Stab^®, Multi-Thread^®, MS-15^®, SS-15^®, SS-10^® and SU-90^®. The Company has registered its trademarks in the countries where such registration is deemed material.

Although in the aggregate the Company’s patents and trademarks are of considerable importance to the manufacturing and marketing of many of its products, the Company does not consider any single patent or trademark or group of patents or trademarks to be material to its business as a whole, except the Dril-Quip^® trademark. The Company also relies on trade secret protection for its confidential and proprietary information. The Company routinely enters into confidentiality agreements with its employees and suppliers. There can be no assurance, however, that others will not independently obtain similar information or otherwise gain access to the Company’s trade secrets.

Competition

Dril-Quip faces significant competition from other manufacturers and suppliers of exploration and production equipment. Several of its primary competitors are diversified multinational companies with substantially larger operating staffs and greater capital resources than those of the Company and which, in many instances, have been engaged in the manufacturing business for a much longer period of time than the Company.

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The Company competes principally with GE Oil and Gas (formerly Vetco Gray), and the petroleum production equipment segments of Cameron International Corporation, FMC Technologies, Inc. and Aker Solutions.

Because of their relative size and diversity of products, several of the Company’s competitors have the ability to provide “turnkey” services for offshore drilling and production applications, which enables them to use their own products to the exclusion of Dril-Quip’s products. See “Item 1A. Risk Factors—We may be unable to successfully compete with other manufacturers of drilling and production equipment.” The Company also competes to a lesser extent with a number of other companies in various products. The principal competitive factors in the petroleum drilling and production equipment markets are quality, reliability and reputation of the product, price, technology, service and timely delivery.

Employees

The total number of the Company’s employees as of December 31, 2009 was 2,130. Of these, 1,288 were located in the United States. Substantially all of the Company’s employees are not covered by collective bargaining agreements, and the Company considers its employee relations to be good.

The Company’s operations depend in part on its ability to attract quality employees. While the Company believes that its wage and salary rates are competitive and that its relationship with its labor force is good, a significant increase in the wages and salaries paid by competing employers could result in a reduction of the Company’s labor force, increases in the wage and salary rates paid by the Company or both. If either of these events were to occur, in the near-term, the profits realized by the Company from work in progress would be reduced and, in the long-term, the production capacity and profitability of the Company could be diminished and the growth potential of the Company could be impaired. See “Item 1A. Risk Factors—Loss of our key management or other personnel could adversely impact our business.”

Governmental Regulations

Many aspects of the Company’s operations are affected by political developments and are subject to both domestic and foreign governmental regulations, including those relating to oilfield operations, worker safety and the protection of the environment. In addition, the Company depends on the demand for its services from the oil and gas industry and, therefore, is affected by changing taxes, price controls and other laws and regulations relating to the oil and gas industry in general, including those specifically directed to offshore operations. The adoption of laws and regulations curtailing exploration and development drilling for oil and gas for economic or other policy reasons could adversely affect the Company’s operations by limiting demand for the Company’s products. See “Item 1A. Risk Factors—Our operations and our customers’ operations are subject to a variety of governmental laws and regulations that may increase our costs, limit the demand for our products and services or restrict our operations.”

In recent years, increased concern has been raised over the protection of the environment. Legislation to regulate emissions of greenhouse gases has been introduced in Congress, and there has been a wide-ranging policy debate, both nationally and internationally, regarding the impact of these gases and possible means for their regulation. In addition, efforts have been made and continue to be made in the international community toward the adoption of international treaties or protocols that would address global climate change issues, such as the United Nations Climate Change Conference in Copenhagen in 2009. Also, the EPA has undertaken new efforts to collect information regarding greenhouse gas emissions and their effects. Recently, the EPA declared that certain greenhouse gases represent a danger to human health and proposed to expand its regulations relating to those emissions. Moreover, offshore drilling in certain areas has been opposed by environmental groups and, in certain areas, has been restricted. To the extent that new laws or other governmental actions prohibit or restrict offshore drilling or impose additional environmental protection requirements that result in increased costs to the oil and gas industry in general and the offshore drilling industry in particular, the business of the Company could be adversely affected. The Company cannot determine to what extent its future operations and earnings may be

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affected by new legislation, new regulations or changes in existing regulations. See “Item 1A. Risk Factors—Our business and our customers’ businesses are subject to environmental laws and regulations that may increase our costs, limit the demand for our products and services or restrict our operations.”

Based on the Company’s experience to date, the Company does not currently anticipate any material adverse effect on its business or consolidated financial position as a result of future compliance with existing environmental laws and regulations controlling the discharge of materials into the environment. However, future events, such as changes in existing laws and regulations or their interpretation, more vigorous enforcement policies of regulatory agencies, or stricter or different interpretations of existing laws and regulations, may require additional expenditures by the Company, which may be material.

Item 1A. Risk Factors

In this Item 1A, the terms “we,” “our,” “us,” and “Dril-Quip” used herein refer to Dril-Quip, Inc. and its subsidiaries unless otherwise indicated or as the context so requires.

Our principal stockholders have the ability to significantly influence our management and affairs and matters on which shareholders may vote.

Our principal stockholders, Larry E. Reimert and J. Mike Walker and certain entities they control, beneficially own approximately 15% of our common stock and are able to exert significant control over us. The collective ownership of Messrs. Reimert and Walker may have the effect of delaying or preventing a change of control. In addition, our principal stockholders are generally not prohibited from selling their interest in us to a third party.

A material or extended decline in expenditures by the oil and gas industry could significantly reduce our revenue and income.

Our business depends upon the condition of the oil and gas industry and, in particular, the willingness of oil and gas companies to make capital expenditures on exploration, drilling and production operations offshore. The level of capital expenditures is generally dependent on the prevailing view of future oil and gas prices, which are influenced by numerous factors affecting the supply and demand for oil and gas, including:

• worldwide economic activity;

• the level of exploration and production activity;

• interest rates and the cost of capital;

• environmental regulation;

• federal, state and foreign policies regarding exploration and development of oil and gas;

• the ability of the Organization of Petroleum Exporting Countries (OPEC) to set and maintain production levels and pricing;

• the cost of exploring and producing oil and gas;

• the cost of developing alternative energy sources;

• the sale and expiration dates of offshore leases in the United States and overseas;

• the discovery rate of new oil and gas reserves in offshore areas;

• technological advances; and

• weather conditions.

Oil and gas prices and the level of offshore drilling and production activity have been characterized by significant volatility in recent years. Worldwide military, political and economic events have contributed to oil

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and natural gas price volatility and are likely to continue to do so in the future. Oil prices declined from record levels in July 2008 of over $140 per barrel to $45 per barrel in December 2008 and natural gas prices declined from over $13 per thousand cubic feet to below $6 per thousand cubic feet over the same period. Oil prices in the first six months of 2009 ranged from approximately $34 per barrel to slightly over $70 per barrel by the end of June 2009. In the latter half of 2009, oil prices ranged from approximately $60 per barrel to $80 per barrel. We expect continued volatility in both crude oil and natural gas prices as well as in the level of drilling and production related activities. Even during periods of high prices for oil and natural gas, companies exploring for oil and gas may cancel or curtail programs, or reduce their levels of capital expenditures for exploration and production for a variety of reasons. In addition, future significant or prolonged declines in hydrocarbon prices may have a material adverse effect on our results of operations.

The unsettled conditions in the global financial system may have impacts on our business and financial condition that we currently cannot predict.

The credit crisis and unsettled conditions in the global financial system may have an impact on our business and our financial condition. Uncertainty and turmoil in the credit markets may negatively impact the ability of our customers to finance purchases of our products and services and could result in a decrease in, or cancellation of, orders included in our backlog or adversely affect the collectability of our receivables. If the availability of credit to our customers is reduced, they may reduce their drilling and production expenditures, thereby decreasing demand for our products and services, which could have a negative impact on our financial condition. Additionally, unsettled conditions could have an impact on our suppliers, causing them to be unable to meet their obligations to us. Although we do not currently anticipate a need to access the credit markets in the short term, a prolonged constriction on future lending by banks or investors could result in higher interest rates on future debt obligations or could restrict our ability to obtain sufficient financing to meet our long-term operational and capital needs.

Our international operations expose us to instability and changes in economic and political conditions and other risks inherent to international business, which could have a material adverse effect on our operations or financial condition.

We have substantial international operations, with approximately 69%, 69% and 66% of our revenues derived from foreign sales in each of 2007, 2008 and 2009, respectively. We operate our business and market our products and services in all of the significant oil and gas producing areas in the world and are, therefore, subject to the risks customarily attendant to international operations and investments in foreign countries. Risks associated with our international operations include:

• volatility in general economic, social and political conditions;

• terrorist acts, war and civil disturbances;

• expropriation or nationalization of assets;

• renegotiation or nullification of existing contracts;

• foreign taxation, including changes in law or interpretation of existing law;

• assaults on property or personnel;

• restrictive action by local governments;

• foreign and domestic monetary policies;

• limitations on repatriation of earnings;

• travel limitations or operational problems caused by public health threats; and

• changes in currency exchange rates.

Any of these risks could have an adverse effect on our ability to manufacture products abroad or the demand for our products and services in some locations. To date, we have not experienced any significant problems in

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foreign countries arising from local government actions or political instability, but there is no assurance that such problems will not arise in the future. Interruption of our international operations could have a material adverse effect on our overall operations.

We are subject to taxation in many jurisdictions and there are inherent uncertainties in the final determination of our tax liabilities.

As a result of our international operations, we are subject to taxation in many jurisdictions. Therefore, the final determination of our tax liabilities involves the interpretation of the statutes and requirements of taxing authorities worldwide. Foreign income tax returns of foreign subsidiaries and related entities are routinely examined by foreign tax authorities. These tax examinations may result in assessments of additional taxes or penalties or both. Please see “Item 3. Legal Proceedings” for a description of our current dispute regarding a tax assessment in Brazil.

Our excess cash is invested in various financial instruments which may subject us to potential losses.

We invest excess cash in various financial instruments including interest bearing accounts, money market mutual funds and funds which invest in U.S. Treasury obligations and repurchase agreements backed by U.S. Treasury obligations. However, changes in the financial markets, including interest rates, as well as the performance of the issuers, can affect the market value of our short-term investments.

We may suffer losses as a result of foreign currency fluctuations and limitations on the ability to repatriate income or capital to the U.S.

We conduct a portion of our business in currencies other than the United States dollar, and our operations are subject to fluctuations in foreign currency exchange rates. We cannot assure you that we will be able to protect the Company against such fluctuations in the future. Historically, we have not conducted business in countries that limit repatriation of earnings. However, as we expand our international operations, we may begin operating in countries that have such limitations. Further, we cannot assure you that the countries in which we currently operate will not adopt policies limiting repatriation of earnings in the future.

Our business involves numerous operating hazards that may not be covered by insurance. The occurrence of an event not fully covered by insurance could have a material adverse effect on our financial conditions and results of operations.

Our products are used in potentially hazardous drilling, completion and production applications that can cause personal injury, product liability and environmental claims. A catastrophic occurrence at a location where our equipment and/or services are used may expose us to substantial liability for personal injury, wrongful death, product liability or commercial claims. To the extent available, we maintain insurance coverage that we believe is customary in the industry. Such insurance does not, however, provide coverage for all liabilities, and we cannot assure you that our insurance coverage will be adequate to cover claims that may arise or that we will be able to maintain adequate insurance at rates we consider reasonable. The occurrence of an event not fully covered by insurance could have a material adverse effect on our results of operations, financial position and cash flows.

We may lose money on fixed-price contracts.

A portion of our business consists of the designing, manufacturing and selling of our equipment for major projects pursuant to competitive bids, and is performed on a fixed-price basis. Under these contracts, we are typically responsible for all cost overruns, other than the amount of any cost overruns resulting from requested changes in order specifications. Our actual costs and any gross profit realized on these fixed-price contracts will often vary from the estimated amounts on which these contracts were originally based. This may occur for various reasons, including:

• errors in estimates or bidding;

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• changes in availability and cost of labor and materials; and

• variations in productivity from our original estimates.

These variations and the risks inherent in our projects may result in reduced profitability or losses on projects. Depending on the size of a project, variations from estimated contract performance could have a material adverse impact on our operating results.

Our business could be adversely affected if we do not develop new products and secure and retain patents related to our products.

Technology is an important component of our business and growth strategy, and our success as a company depends to a significant extent on the development and implementation of new product designs and improvements. Whether we can continue to develop systems and services and related technologies to meet evolving industry requirements and, if so, at prices acceptable to our customers will be significant factors in determining our ability to compete in the industry in which we operate. Many of our competitors are large multinational companies that may have significantly greater financial resources than we have, and they may be able to devote greater resources to research and development of new systems, services and technologies than we are able to do.

Our ability to compete effectively will also depend on our ability to continue to obtain patents on our proprietary technology and products. Although we do not consider any single patent to be material to our business as a whole, the inability to protect our future innovations through patents could have a material adverse effect.

We may be required to recognize a charge against current earnings because of percentage-of-completion accounting.

Revenues and profits on long-term project contracts are recognized on a percentage-of-completion basis. We calculate the percent complete and apply the percentage to determine revenues earned and the appropriate portion of total estimated costs. Accordingly, purchase order price and cost estimates are reviewed periodically as the work progresses, and adjustments proportionate to the percentage complete are reflected in the period when such estimates are revised. To the extent that these adjustments result in a reduction or elimination of previously reported profits, we would have to recognize a charge against current earnings, which could be significant depending on the size of the project or the adjustment.

Loss of our key management or other personnel could adversely impact our business.

We depend on the services of our executive management team, Larry E. Reimert and J. Mike Walker. The loss of either of these officers could have a material adverse effect on our operations and financial condition. In addition, competition for skilled machinists, fabricators and technical personnel among companies that rely heavily on engineering and technology is intense, and the loss of qualified employees or an inability to attract, retain and motivate additional highly skilled employees required for the operation and expansion of our business could hinder our ability to conduct research activities successfully and develop and produce marketable products and services. A significant increase in the wages paid by competing employers could result in a reduction of our skilled labor force, increases in the wage rates paid by us or both. If either of these events were to occur, in the near-term, the profits realized by us from work in progress would be reduced and, in the long-term, our production capacity and profitability could be diminished and our growth potential could be impaired.

Our operations and our customers’ operations are subject to a variety of governmental laws and regulations that may increase our costs, limit the demand for our products and services or restrict our operations.

Our business and our customers’ businesses may be significantly affected by:

• federal, state and local and foreign laws and other regulations relating to the oilfield operations, worker safety and the protection of the environment;

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• changes in these laws and regulations; and

• the level of enforcement of these laws and regulations.

In addition, we depend on the demand for our products and services from the oil and gas industry. This demand is affected by changing taxes, price controls and other laws and regulations relating to the oil and gas industry in general, including those specifically directed to offshore operations. For example, the adoption of laws and regulations curtailing exploration and development drilling for oil and gas for economic or other policy reasons could adversely affect our operations by limiting demand for our products. We cannot determine the extent to which our future operations and earnings may be affected by new legislation, new regulations or changes in existing regulations.

Because of our foreign operations and sales, we are also subject to changes in foreign laws and regulations that may encourage or require hiring of local contractors or require foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. If we fail to comply with any applicable law or regulation, our business, results of operations or financial condition may be adversely affected.

Our businesses and our customers’ businesses are subject to environmental laws and regulations that may increase our costs, limit the demand for our products and services or restrict our operations.

Our operations and the operations of our customers are also subject to federal, state, local and foreign laws and regulations relating to the protection of the environment. These environmental laws and regulations affect the products and services we design, market and sell, as well as the facilities where we manufacture our products. In addition, environmental laws and regulations could limit our customers’ exploration and production activities. We are required to invest financial and managerial resources to comply with environmental laws and regulations and anticipate that we will continue to be required to do so in the future. These laws and regulations change frequently, which makes it impossible for us to predict their cost or impact on our future operations. Legislation to regulate emissions of greenhouse gases has been introduced in Congress, and there has been a wide-ranging policy debate, both nationally and internationally, regarding the impact of these gases and possible means for their regulation. In addition, efforts have been made and continue to be made in the international community toward the adoption of international treaties or protocols that would address global climate change issues, such as the United Nations Climate Change Conference in Copenhagen in 2009. Also, the EPA has undertaken new efforts to collect information regarding greenhouse gas emissions and their effects. Recently, the EPA declared that certain greenhouse gases represent a danger to human health and proposed to expand its regulations relating to those emissions. It is too early to determine whether, or in what form, further regulatory action regarding greenhouse gas emissions will be adopted or what specific impacts a new regulatory action might have on us or our customers. Generally, the anticipated regulatory actions do not appear to affect us in any material respect that is different, or to any materially greater or lesser extent, than other companies that are our competitors. However, our business and prospects could be adversely affected to the extent laws are enacted or modified or other governmental action is taken that prohibits or restricts our customers’ exploration and production activities or imposes environmental protection requirements that result in increased costs to us or our customers.

These laws may provide for “strict liability” for damages to natural resources or threats to public health and safety, rendering a party liable for environmental damage without regard to negligence or fault on the part of such party. Sanctions for noncompliance may include revocation of permits, corrective action orders, administrative or civil penalties, and criminal prosecution. Some environmental laws and regulations provide for joint and several strict liability for remediation of spills and releases of hazardous substances. In addition, we may be subject to claims alleging personal injury or property damage as a result of alleged exposure to hazardous substances, as well as damage to natural resources. These laws and regulations also may expose us to liability for the conduct of or conditions caused by others, or for our acts that were in compliance with all applicable laws and regulations at the time such acts were performed. Any of these laws and regulations could result in claims, fines or expenditures that could be material to results of operations, financial position and cash flows.

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We may be unable to successfully compete with other manufacturers of drilling and production equipment.

Several of our primary competitors are diversified multinational companies with substantially larger operating staffs and greater capital resources than ours and which have been engaged in the manufacturing business for a much longer time than us. If these competitors substantially increase the resources they devote to developing and marketing competitive products and services, we may not be able to compete effectively. Similarly, consolidation among our competitors could enhance their product and service offerings and financial resources, further intensifying competition.

The loss of a significant customer could have an adverse impact on our financial results.

Our principal customers are major integrated oil and gas companies, large independent oil and gas companies and foreign national oil and gas companies. Offshore drilling contractors and engineering and construction companies also represent a portion of our customer base. In 2008, our top 15 customers represented approximately 45% of total revenues, with no customer accounting for more than 10% of our total revenues. In 2009, our top 15 customers represented approximately 60% of total revenues, and one customer accounted for approximately 10% of our total revenues. While we are not dependent on any one customer or group of customers, the loss of one or more of our significant customers could, at least on a short-term basis, have an adverse effect on our results of operations, financial position and cash flows.

Our customers’ industries are undergoing continuing consolidation that may impact our results of operations.

The oil and gas industry is rapidly consolidating and, as a result, some of our largest customers have consolidated and are using their size and purchasing power to seek economies of scale and pricing concessions. This consolidation may result in reduced capital spending by some of our customers or the acquisition of one or more of our primary customers, which may lead to decreased demand for our products and services. We cannot assure you that we will be able to maintain our level of sales to a customer that has consolidated or replace that revenue with increased business activity with other customers. As a result, the acquisition of one or more of our primary customers may have a significant negative impact on our results of operations or our financial condition. We are unable to predict what effect consolidations in the industry may have on price, capital spending by our customers, our selling strategies, our competitive position, our ability to retain customers or our ability to negotiate favorable agreements with our customers.

Increases in the cost of raw materials and energy used in our manufacturing processes could negatively impact our profitability.

Any increases in commodity prices for items such as nickel, molybdenum and heavy metal scrap that are used to make the steel alloys required for our products would result in an increase in our raw material costs. Similarly, any increase in energy costs would increase our product costs. If we are not successful in raising our prices on products to compensate for any increased raw material or energy costs, our margins will be negatively impacted.

We depend on third party suppliers for timely deliveries of raw materials, and our results of operations could be adversely affected if we are unable to obtain adequate supplies in a timely manner.

Our manufacturing operations depend upon obtaining adequate supplies of raw materials from third parties. The ability of these third parties to deliver raw materials may be affected by events beyond our control. Any interruption in the supply of raw materials needed to manufacture our products could adversely affect our business, results of operations and reputation with our customers.

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Our shares that are eligible for future sale may have an adverse effect on the price of our common stock.

Future sales of substantial amounts of our common stock, or a perception that such sales could occur, could adversely affect the market price of our common stock and could impair our ability to raise capital through the sale of our equity securities. This risk is compounded by the fact that a substantial portion of our common stock is owned by Messrs. Reimert and Walker and an entity Mr. Reimert controls. Messrs. Reimert and Walker and an entity Mr. Reimert controls have piggyback and demand registration rights that provide for the registration of the resale of shares at our expense which will allow those shares to be sold in the public market generally without restriction.

The market price of our common stock is volatile.

The trading price of our common stock and the price at which we may sell common stock in the future are subject to large fluctuations in response to any of the following:

• limited trading volume in our common stock;

• quarterly variations in operating results;

• general financial market conditions;

• the prices of natural gas and oil;

• announcements by us and our competitors;

• our liquidity;

• changes in government regulations;

• our ability to raise additional funds;

• our involvement in litigation; and

• other events.

We do not anticipate paying dividends on our common stock in the near future.

We have not paid any dividends in the past and do not intend to pay cash dividends on our common stock in the foreseeable future. Our Board of Directors reviews this policy on a regular basis in light of our earnings, financial condition and market opportunities. We currently intend to retain any earnings for the future operation and development of our business.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Major Manufacturing Facilities

Location	Building Size (Approximate Square Feet)	Land (Approximate Acreage)	Owned or Leased
Houston, Texas
—Hempstead Highway	175,000	15.0	Owned
	21,000	—	Leased
—N. Eldridge Parkway	1,519,000	218.0	Owned
Aberdeen, Scotland	165,300	16.8	Owned
	3,200	—	Leased
Singapore	56,000	—	Owned
	10,500	16.7	Leased
Macae, Brazil	100,900	10.6	Owned

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Dril-Quip has manufacturing facilities in Houston, Aberdeen, Singapore and Macae. The Houston facility at Eldridge produces in-house a majority of the Company’s forging and heat treatment requirements.

Sales, Service and Reconditioning Facilities

Location(1)	Building Size (Approximate Square Feet)	Land (Approximate Acreage)	Activity
New Orleans, Louisiana	2,300	—	Sales/Service
Great Yarmouth, England	1,300	0.4	Service
Beverwijk, Holland	5,200	0.4	Sales
Perth, Australia	1,400	—	Sales/Service
Darwin, Australia	62,400	—	Service/Warehouse/Reconditioning
Stavanger, Norway	42,000	6.1	Sales/Service/Reconditioning/Warehouse/Fabrication
Esbjerg, Denmark	19,400	1.2	Sales/Service/Reconditioning/Warehouse
Port Harcourt, Nigeria	8,300	0.5	Sales/Service/Reconditioning/Warehouse
Tianjin, China	12,200	—	Service/Reconditioning/Warehouse
Paris, France	300	—	Sales
Cairo, Egypt	6,400	—	Sales/Warehouse
Alexandria, Egypt	5,200	0.6	Service/Reconditioning/Warehouse
Ghana, West Africa	1,800	—	Service/Reconditioning/Warehouse

(1) All facilities are leased except Stavanger, Norway, which is owned.

The Company also performs sales, service and reconditioning activities at its facilities in Houston, Aberdeen, Singapore and Macae.

Item 3. Legal Proceedings

In 2006, the Company entered into a contract in the amount of approximately $47 million with MPF Corp. Ltd. (“MPF”) under which the Company was to construct risers and related equipment to be installed on an offshore drill ship being constructed for MPF. MPF and its affiliates filed a Chapter 11 bankruptcy case in September 2008 in the United States Bankruptcy Court for the Southern District of Texas, Houston Division (Case No. 08-36084). Under the Bankruptcy Code, at some point MPF must either assume this contract or reject it. Since MPF is not required to make a decision on the handling of the contract immediately, the Company cannot be sure as to when its rights under the contract will be clarified. Currently, the Company has possession of all the raw materials purchased to date and work-in-progress under the contract. At the time of the bankruptcy filing, the Company had recognized approximately $20 million in revenues under the contract and had received payments of approximately $16 million. No further revenue has been recognized since the second quarter of 2008. The Company believes the remaining $4 million of unpaid receivables will be realized through the workings of the contract or through its interest in the partially constructed inventory. While the Company has made filings in the bankruptcy proceedings that it believes are appropriate to protect its rights, there can be no assurance that the Company will be able to receive the expected benefits of the contract with MPF. While the Company does not expect the outcome of this matter to have a material adverse effect on the Company’s operations, financial position or cash flows, the Company may be required to write down or forfeit some portion of the revenues recognized to date if it becomes probable that the Company will not receive such funds or realize the value of the inventory in its possession.

In August 2007, our Brazilian subsidiary was served with assessments collectively valued at approximately BRL23.3 million (approximately U.S. $12.6 million as of February 2010) from the State of Rio de Janiero, Brazil, to collect a state tax on the importation of goods. The Company believes that its subsidiary is not liable

18

for the taxes and is vigorously contesting the assessments in the Brazilian administrative and judicial systems. At this time, the ultimate disposition of this matter cannot be determined and therefore, it is not possible to reasonably estimate the amount of loss or the range of possible losses that might result from an adverse judgment or settlement of these assessments. Accordingly, no liability has been accrued in conjunction with this matter. The Company does not expect the liability, if any, resulting from these assessments to have a material adverse effect on its operations, financial position or cash flows. While pending, the amount of interest, penalties and monetary restatement fees on the tax assessments continues to accrue and totaled as of February 2010 approximately BRL35.4 million (approximately U.S. $19.1 million).

The Company also is involved in a number of legal actions arising in the ordinary course of business. Although no assurance can be given with respect to the ultimate outcome of such legal action, in the opinion of management, the ultimate liability with respect thereto will not have a material adverse effect on the Company’s operations, financial position or cash flows.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders of the Company during the quarter ended December 31, 2009.

Item S-K 401(b).      Executive Officers of the Registrant

Pursuant to Instruction 3 to Item 401(b) of Regulation S-K and General Instruction G(3) to Form 10-K, the following information is included in Part I of this Form 10-K:

The following table sets forth the names, ages (as of February 25, 2010) and positions of the Company’s executive officers:

Name	Age	Position
Larry E. Reimert	62	Co-Chairman of the Board and Co-Chief Executive Officer
J. Mike Walker	66	Co-Chairman of the Board and Co-Chief Executive Officer
Jerry M. Brooks	58	Chief Financial Officer and Corporate Secretary

Larry E. Reimert is Co-Chairman of the Board and Co-Chief Executive Officer with principal responsibility for engineering, product development, finance, sales and training. He has been the Director—Engineering, Product Development and Finance, as well as a member of the Board of Directors, since the Company’s inception in 1981. On September 24, 2009, he assumed additional responsibilities for the areas of sales and training. Prior to 1981, he worked for Vetco Offshore, Inc. in various capacities, including Vice President of Technical Operations, Vice President of Engineering and Manager of Engineering. Mr. Reimert holds a BSME degree from the University of Houston and an MBA degree from Pepperdine University.

J. Mike Walker is Co-Chairman of the Board and Co-Chief Executive Officer with principal responsibility for manufacturing, purchasing, facilities, service and administration. He has been the Director—Manufacturing, Purchasing and Facilities, as well as a member of the Board of Directors, since the Company’s inception in 1981. On September 24, 2009, he assumed additional responsibilities for the areas of service and administration. Prior to 1981, he served as the Director of Engineering, Manager of Engineering and Manager of Research and Development with Vetco Offshore, Inc. Mr. Walker holds a BSME degree from Texas A&M University, an MSME degree from the University of Texas at Austin and a Ph.D. in mechanical engineering from Texas A&M University.

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Jerry M. Brooks has been Vice-President—Finance and Chief Financial Officer since February 2007. From March 1999 until February 2007, Mr. Brooks was Chief Financial Officer. Prior to March 1999, he served as Chief Accounting Officer since joining the Company in 1992. On September 24, 2009, he assumed the additional responsibilities of Corporate Secretary. From 1980 to 1991, he held various positions with Chiles Offshore Corporation, most recently as Chief Financial Officer, Secretary and Treasurer. Mr. Brooks holds a BBA in Accounting and a MBA from the University of Texas at Austin.

PART II

Item 5. Market for Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities

The Company’s Common Stock is publicly traded on the New York Stock Exchange under the symbol DRQ. The following table sets forth the quarterly high and low sales prices of the Common Stock as reported on the New York Stock Exchange for the indicated quarters of fiscal 2008 and 2009.

	Sales Price ($)
	2008		2009
Quarter Ended	High	Low	High	Low
March 31	60.22	42.14	33.22	18.13
June 30	65.36	46.01	46.40	29.31
September 30	63.59	40.08	50.52	33.95
December 31	43.32	14.15	59.00	47.07

There were approximately 34 stockholders of record of the Company’s Common Stock as of February 10, 2010. This number does not include the number of security holders for whom shares are held in a “nominee” or “street” name.

The Company has not paid any dividends in the past. The Company currently intends to retain any earnings for the future operation and development of its business and does not currently anticipate paying any dividends in the foreseeable future. The Board of Directors will review this policy on a regular basis in light of the Company’s earnings, financial condition and market opportunities.

Information concerning securities authorized for issuance under equity compensation plans is included in Note 12 of Notes to Consolidated Financial Statements.

Repurchases of Equity Securities

In May 2008, the Company announced that its Board of Directors had authorized a share repurchase program under which the Company could repurchase up to $100 million of its common stock. At the end of the third quarter of 2008, the Company had repurchased 1,799,928 shares at an average price of $55.58 per share (including commissions) for a total of approximately $100 million. All repurchased shares were retired in 2008.

There were no repurchases of the Company’s equity securities during 2009.

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Item 6. Selected Financial Data

The information set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and Notes thereto included elsewhere in this report on Form 10-K.

	Year ended December 31,
	2005			2006			2007			2008			2009
	(In thousands, except per share amounts)
Statement of Operations Data:
Revenues:
Products	$	291,299		$	372,540		$	417,970		$	453,315		$	456,022
Services		49,530			70,202			77,587			89,456			84,182
Total revenues		340,829			442,742			495,557			542,771			540,204
Cost and expenses:
Cost of sales:
Products	$	197,779		$	217,847		$	237,728		$	260,626		$	260,780
Services		32,070			38,841			47,553			51,673			49,513
Total cost of sales		229,849			256,688			285,281			312,299			310,293
Selling, general and administrative expenses		40,916			44,085			49,313			62,390			55,474
Engineering and product development expenses		20,867			19,559			22,578			26,369			27,173
Special item(1)		—			—			—			—			5,224
Operating income		49,197			122,410			138,385			141,713			142,040
Interest income		258			3,632			8,275			3,453			507
Interest expense		(2,045	)		(669	)		(370	)		(182	)		(156	)
Income before income taxes		47,410			125,373			146,290			144,984			142,391
Income tax provision		14,843			38,482			38,349			39,399			37,250
Net income	$	32,567		$	86,891		$	107,941		$	105,585		$	105,141
Earnings per common share:
Basic	$	0.92		$	2.21		$	2.67		$	2.65		$	2.68
Diluted	$	0.90		$	2.15		$	2.63		$	2.62		$	2.66
Weighted average common shares outstanding:
Basic		35,276			39,340			40,447			39,918			39,164
Diluted		36,206			40,342			41,007			40,292			39,538
Statement of Cash Flows Data:
Net cash provided by (used in) operating activities	$	(16,889	)	$	93,482		$	82,663		$	40,677		$	136,412
Net cash used in investing activities		(19,206	)		(23,290	)		(24,854	)		(49,527	)		(44,325	)
Net cash provided by (used in) financing activities		62,961			36,851			10,160			(100,075	)		13,436
Other Data:
Depreciation and amortization	$	13,426		$	15,087		$	15,653		$	16,854		$	17,997
Capital expenditures		20,557			24,133			25,208			50,134			44,749
	December 31,
	2005			2006			2007			2008			2009
	(In thousands)
Balance Sheet Data:
Working capital	$	220,892		$	347,250		$	454,192		$	400,535		$	512,731
Total assets		428,262			594,935			699,822			680,609			817,246
Total debt		3,847			3,720			2,911			1,532			1,039
Total stockholders’ equity		329,462			467,497			592,495			559,450			705,085

(1) See discussion on page 26 under “Special Item.”

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The Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification^TM (“ASC”) Topic 718 effective January 1, 2006. During the years ended December 31, 2007, 2008 and 2009, stock-based compensation expense on a pre-tax basis totaled $2.3 million, $3.2 million and $4.0 million, respectively. Stock option expense in 2009 excludes $1.3 million for the accelerated vesting of stock options due to the death of a Co-Chairman. The amount was reclassified to Special item in the Consolidated Statements of Income. No stock-based compensation expense was capitalized during these years. Additionally, all share and per share data has been adjusted for all periods presented for the two-for-one stock split effective October 5, 2006.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following is management’s discussion and analysis of certain significant factors that have affected certain aspects of the Company’s financial position, results of operations and cash flows during the periods included in the accompanying consolidated financial statements. This discussion should be read in conjunction with the Company’s consolidated financial statements and notes thereto presented elsewhere in this Report.

Overview

Dril-Quip designs, manufactures, sells and services highly engineered offshore drilling and production equipment that is well suited for use in deepwater, harsh environment and severe service applications. The Company designs and manufactures subsea equipment, surface equipment and offshore rig equipment for use by major integrated, large independent and foreign national oil and gas companies in offshore areas throughout the world. The Company’s principal products consist of subsea and surface wellheads, subsea and surface production trees, subsea control systems and manifolds, mudline hanger systems, specialty connectors and associated pipe, drilling and production riser systems, liner hangers, wellhead connectors and diverters. Dril-Quip also provides technical advisory services on an as-requested basis during installation of its products, as well as rework and reconditioning services for customer-owned Dril-Quip products and rental of running tools for use in connection with the installation and retrieval of its products.

Both the market for offshore drilling and production equipment and services and the Company’s business are substantially dependent on the condition of the oil and gas industry and, in particular, the willingness of oil and gas companies to make capital expenditures on exploration, drilling and production operations offshore. Oil and gas prices and the level of offshore drilling and production activity have historically been characterized by significant volatility. See “Item 1A. Risk Factors—A material or extended decline in expenditures by the oil and gas industry could significantly reduce our revenue and income.”

According to the Energy Information Administration (“EIA”) of the U.S. Department of Energy, average crude oil (West Texas Intermediate Cushing) and natural gas (Henry Hub) closing prices are listed below for periods covered by this report:

	Average prices during year ended December 31,
	2007		2008		2009
Oil ($/Bbl)	$	72.32	$	99.57	$	62.18
Natural gas ($/per Mcf)		7.18		9.13		4.07

In mid July 2008, crude oil prices spiked to $145.16 per barrel and ended the year in 2008 at $44.60 per barrel. Additionally, by the end of December 2008, gas prices had declined to $5.48 per Mcf. These declines in hydrocarbon prices have adversely affected the willingness of some oil and gas companies to make capital expenditures on exploration, drilling and production operations offshore, which could have an adverse impact on the Company’s financial condition and results of operations. During 2009, the average West Texas Intermediate crude oil price was $62.18 per barrel with a high during 2009 of $81.37 per barrel and a low of $33.98 per barrel. Crude oil ended at $79.36 per barrel at December 31, 2009.

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According to the January 12, 2010 release of the Short-Term Energy Outlook published by the EIA, West Texas Intermediate crude oil prices are projected to average $79.83 per barrel in 2010 and $83.50 in 2011. These projections are based upon the assumption that the U.S. real gross domestic product (GDP) grows by 2% in 2010 and 2.7% in 2011 and world oil-consumption-weighted real GDP grows by 2.5% and 3.7% in 2010 and 2011, respectively.

In its January 12, 2010 report, the EIA expects Henry Hub natural gas prices to average $5.36 per Mcf in 2010 and $6.12 per Mcf in 2011. Henry Hub natural gas were priced at $5.57 per Mcf at the end of December 2009.

According to the EIA Short-Term Energy Outlook report dated January 12, 2010, the EIA expects crude oil production, which decreased by almost 2.2 million barrels per day on average in 2009, will increase by an average of approximately 0.5 million barrels per day per year through 2011 as global oil demand recovers. In its January 15, 2010 Oil Market Report, the International Energy Agency projected global oil demand to be 86.3 million barrels per day in 2010 compared to 84.9 million barrels per day in 2009.

Detailed below is the average contracted rig count for our geographic regions for the years ended December 31, 2007, 2008 and 2009. The rig count data includes floating rigs (semi-submersibles and drill ships) and jack-ups. The Company has included only these types of rigs as they are the primary end users of the Company’s products.

	Year ended December 31,
	2007	2008	2009
Western Hemisphere	181	185	165
Eastern Hemisphere	161	162	150
Asia-Pacific	218	238	233
Source: ODS – Petrodata RigBase – December 31, 2007, 2008 and 2009

The table represents rigs under contract and includes rigs currently drilling as well as rigs committed, but not yet drilling.

The Company believes that the number of rigs (semi-submersibles, jack-ups and drill ships) under construction impacts its revenues because in certain cases, its customers order some of our products during the construction of such rigs. As a result, an increase in rig construction activity tends to favorably impact the Company’s backlog while a decrease in rig construction activity tends to negatively impact its backlog. According to ODS-Petrodata, at the end of 2007, 2008 and 2009, there were 156, 172 and 130 rigs, respectively, under construction and the expected delivery dates for the rigs under construction on December 31, 2009 are as follows:

2010	64
2011	44
2012	22
	130

Due to the significant increase in the oil and gas activity over the past several years, the Company has expanded facilities in all of its major manufacturing locations in Houston, Texas; Aberdeen, Scotland; Singapore; and Macae, Brazil. With limited manufacturing capacity, the Company has had to prioritize its responses to customer’s bid requests. In making the decision, the Company takes into consideration such factors as manufacturing time, current projects in progress, delivery requirements, projected gross margins, available personnel and availability of material. Based upon these decisions, it is possible for the Company to have variations between quarters and years based upon product mix.

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Oil and gas prices and the level of offshore drilling and production activity have been characterized by significant volatility in recent years. Worldwide military, political and economic events have contributed to oil and natural gas price volatility and are likely to continue to do so in the future. Although hydrocarbon prices improved from 2005 until mid-2008 and the level of offshore exploration, drilling and production activity increased during that period, in mid-2008 oil and gas prices began to decline. The economic volatility continued in the first half of 2009 and began to stabilize somewhat in the latter half of the year. The Company expects continued volatility in both crude oil and natural gas prices as well as in the level of drilling and production related activities. The volatility in prices appears to have impacted the land drilling activity more so than offshore drilling, particularly in deeper offshore waters, where Dril-Quip’s products are more often utilized. Even during periods of high prices for oil and natural gas, companies exploring for oil and gas may cancel or curtail programs, or reduce their levels of capital expenditures for exploration and production for a variety of reasons. In addition, a significant and prolonged decline in hydrocarbon prices would likely have a material adverse effect on the Company’s results of operations.

The Company operates its business and markets its products and services in most of the significant oil and gas producing areas in the world and is, therefore, subject to the risks customarily attendant to international operations and investments in foreign countries. These risks include nationalization, expropriation, war, acts of terrorism and civil disturbance, restrictive action by local governments, limitation on repatriation of earnings, change in foreign tax laws and change in currency exchange rates, any of which could have an adverse effect on either the Company’s ability to manufacture its products in its facilities abroad or the demand in certain regions for the Company’s products or both. To date, the Company has not experienced any significant problems in foreign countries arising from local government actions or political instability, but there is no assurance that such problems will not arise in the future. Interruption of the Company’s international operations could have a material adverse effect on its overall operations. See “Item 1A. Risk Factors—Our international operations expose us to instability and changes in economic and political conditions and other risks inherent to international business, which could have a material adverse effect on our operations or financial condition.”

Dril-Quip’s revenues are generated from two sources: products and services. Product revenues are derived from the sale of offshore drilling and production equipment. Service revenues are earned when the Company provides technical advisory service for installation of the Company’s products, reconditioning services and rental of running tools for installation and retrieval of the Company’s products. In 2009, the Company derived 84% of its revenues from the sale of its products and 16% of its revenues from services. Service revenues generally correlate to revenues from product sales because increased product sales normally generate increased revenues from technical advisory services during installation and rental of running tools. The Company has substantial international operations, with approximately 69%, 69% and 66% of its revenues derived from foreign sales in 2007, 2008 and 2009, respectively.

Generally, the Company attempts to raise its prices as its costs increase. However, the actual pricing of the Company’s products and services is impacted by a number of factors, including competitive pricing pressure, the level of utilized capacity in the oil service sector, maintenance of market share, the introduction of new products and general market conditions.

The Company accounts for larger and more complex projects that have relatively longer manufacturing time frames on a percentage-of-completion basis. During 2007 and 2008, 16 and 23 projects, respectively representing approximately 19% and 25% of the Company’s total revenues and 22% and 30% of the Company’s product revenues were accounted for using the percentage-of-completion accounting. During 2009, 17 projects representing approximately 13% of the Company’s total revenues and 16% of the Company’s product revenues were accounted for using percentage-of-completion accounting. This percentage may fluctuate in the future. Revenues accounted for in this manner are generally recognized based upon a calculation of the percentage complete which is used to determine the revenue earned and the appropriate portion of total estimated cost of sales. Accordingly, price and cost estimates are reviewed periodically as the work progresses, and adjustments proportionate to the percent complete are reflected in the period when such estimates are revised. Losses, if any,

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are recognized when they become known. Amounts received from customers in excess of revenues recognized are classified as a current liability. See “Item 1A. Risk Factors—We may be required to recognize a charge against current earnings because of percentage-of-completion accounting.”

Results of Operations

The following table sets forth, for the periods indicated, certain consolidated statements of income data expressed as a percentage of revenues:

	Year Ended December 31,
	2007		2008		2009
Revenues:
Products	84.3	%	83.5	%	84.4	%
Services	15.7		16.5		15.6
Total revenues	100.0		100.0		100.0
Cost of sales:
Products:	48.0		48.0		48.3
Services	9.6		9.5		9.1
Total cost of sales	57.6		57.5		57.4
Selling, general and administrative expenses	9.9		11.5		10.3
Engineering and product development expenses	4.6		4.9		5.0
Special item(1)	—		—		1.0
Operating income	27.9		26.1		26.3
Interest income	1.7		0.6		0.1
Interest expense	(0.1	)	—		—
Income before income taxes	29.5		26.7		26.4
Income tax provision	7.7		7.3		6.9
Net income	21.8	%	19.4	%	19.5	%

(1) See discussion on page 26 under “Special Item.”

The following table sets forth, for the periods indicated, a breakdown of our products and service revenues:

	2007		2008		2009
	(In millions)
Revenues:
Products
Subsea equipment	$	316.7	$	318.2	$	357.3
Surface equipment		38.1		30.6		31.2
Offshore rig equipment		63.2		104.5		67.5
Total products		418.0		453.3		456.0
Services		77.6		89.5		84.2
Total revenues	$	495.6	$	542.8	$	540.2

Year ended December 31, 2009 Compared to Year Ended December 31, 2008

Revenues. Revenues decreased by $2.6 million, or approximately 0.5%, to $540.2 million in 2009 from $542.8 million in 2008, primarily due to a decrease in service revenues of $5.3 million in 2009 compared to 2008. Product revenues increased by approximately $2.7 million for the year ended December 31, 2009 compared to the same period in 2008 as a result of increased revenues of $39.1 million in subsea equipment and

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$600,000 in surface equipment, partially offset by a $37.0 million decrease in offshore rig equipment. The decrease in offshore rig equipment was primarily due to the decrease in the number of long-term projects. During 2008, there were 23 projects, compared to 17 projects during 2009. The majority of the projects in 2008 and 2009 related to offshore rig equipment. Product revenues increased in the Eastern Hemisphere by $12.0 million, partially offset by decreases in the Western Hemisphere of $4.7 million and $4.6 million in Asia-Pacific. Service revenues decreased by approximately $5.3 million resulting from decreased service revenues in the Western Hemisphere of $6.0 million and $0.6 million in Asia-Pacific, partially offset by a $1.3 million increase in the Eastern Hemisphere. The majority of the decreases in service revenues related to decreases in the rental of running and installation tools and reconditioning services.

Cost of Sales. Cost of sales decreased by $2.0 million, or approximately 0.6%, to $310.3 million for 2009 from $312.3 million for the same period in 2008. As a percentage of revenues, cost of sales were approximately 57.5% in 2008 and 57.4% in 2009. Cost of sales as a percentage of revenue remained relatively consistent between 2008 and 2009.

Selling, General and Administrative Expenses. For 2009, selling, general and administrative expenses decreased by approximately $6.9 million, or 11.1%, to $55.5 million from $62.4 million in 2008. The decrease in selling, general and administrative expenses was primarily due to the effect of foreign currency transaction gains, partially offset by increased stock option expenses. The Company experienced approximately $2.1 million in pre-tax foreign currency transaction losses during 2008 versus approximately $4.6 million in pre-tax foreign currency transaction gains during 2009. The gain in 2009 is primarily due to the weakening of the U.S. dollar compared to the British pound sterling, the Australian dollar and the Brazilian real. The loss in 2008 is primarily due to the increasing strength of the U.S. dollar in the later part of 2008 as compared to the Brazilian real. Stock option expense for 2008 totaled $3.2 million compared to $4.0 million in 2009. The stock option expense for 2009 excludes $1.3 million for the accelerated vesting of Mr. Smith’s remaining options upon his death as discussed in Special Item below. Selling, general and administrative expenses as a percentage of revenues were 11.5% in 2008 and 10.3% in 2009.

Engineering and Product Development Expenses. For 2009, engineering and product development expenses increased by approximately $800,000, or 3.0%, to approximately $27.2 million from $26.4 million in 2008. Engineering and product development expenses as a percentage of revenues increased from 4.9% in 2008 to 5.0% in 2009.

Special Item. In September 2009, Gary D. Smith, one of the Company’s Co-Chief Executive Officers, unexpectedly passed away. Under the terms of Mr. Smith’s employment contract, the Company was obligated to pay Mr. Smith’s base salary, including accrued vacation, and his annual bonus through the remaining employment period (October 27, 2012). In addition, stock options owned by Mr. Smith that were outstanding at the date of his death were immediately vested under the terms of the contract. Accordingly, the Company recognized a pre-tax expense of $5.2 million during the third quarter of 2009. The contractual obligation, including related payroll taxes, totaled $4.3 million, of which $434,000 had been previously accrued. The acceleration of the vesting increased non-cash expenses by $1.3 million.

Interest Income. Interest income for 2009 was approximately $507,000 as compared to $3.5 million in 2008. This decrease was due to reduced interest earned on short-term investments from lower interest rates and reduced balances in short-term investments. Due to the global financial crisis, the Company has transferred the majority of its short-term investments to funds which invest in U.S. Treasury obligations, which normally earn lower interest rates than money market funds.

Interest expense. Interest expense for 2009 was approximately $156,000 compared to $182,000 in 2008.

Income tax provision. Income tax expense for 2009 was $37.2 million on income before taxes of $142.4 million, resulting in an effective income tax rate of approximately 26.2%. Income tax expense in 2008 was $39.4 million on income before taxes of $145.0 million, resulting in an effective tax rate of approximately 27.2%. The decrease in the effective income tax rate reflects the difference in income before income taxes among the Company’s three geographic areas, which have different income tax rates.

26

Net Income. Net income was approximately $105.1 million in 2009 and $105.6 million in 2008, for the reasons set forth above.

Year ended December 31, 2008 Compared to Year Ended December 31, 2007

Revenues. Revenues increased by $47.2 million, or approximately 9.5%, to $542.8 million in 2008 from $495.6 million in 2007. Product revenues increased by approximately $35.3 million for the year ended December 31, 2008 compared to the same period in 2007 as a result of increased revenues of $41.3 million in offshore rig equipment and $1.5 million in subsea equipment partially offset by a $7.5 million decrease in surface equipment. The increase in offshore rig equipment was primarily due to the increase in the number of long-term projects. During 2007 there were 16 projects, compared to 23 projects during 2008 and the majority of these projects related to offshore rig equipment. Of the Company’s total product revenues, product revenues increased in the Western Hemisphere, Eastern Hemisphere and Asia-Pacific by $26.5 million, $6.0 million and $2.8 million, respectively. Service revenues increased by approximately $11.9 million from increased service revenues in the Western Hemisphere of $4.8 million, Eastern Hemisphere of $2.0 million and Asia-Pacific of $5.1 million. The majority of the increases in service revenues related to an increase in technical advisory assistance and reconditioning services.

Cost of Sales. Cost of sales increased by $27.0 million, or approximately 9.5%, to $312.3 million for 2008 from $285.3 million for the same period in 2007. As a percentage of revenues, cost of sales were approximately 57.6% in 2007 and 57.5% in 2008. Cost of sales as a percentage of revenue remained relatively consistent between 2007 and 2008. The increase in cost of sales in 2008 as compared to 2007 is basically consistent with the increase in revenue.

Selling, General and Administrative Expenses. For 2008, selling, general and administrative expenses increased by approximately $13.1 million, or 26.6%, to $62.4 million from $49.3 million in 2007. The increase in selling, general and administrative expenses was due to increased labor and overhead expenses resulting from increased staffing levels in the areas of sales and administration, increases in legal and professional fees, stock option expenses and the effect of foreign currency transaction gains and losses. The Company experienced approximately $3.0 million in pre-tax foreign currency transaction gains during 2007 versus approximately $2.1 million in pre-tax foreign currency transaction losses during 2008. The loss in 2008 is primarily due to the increasing strength of the U.S. dollar in the later part of 2008 as compared to the Brazilian real. Selling, general and administrative expenses as a percentage of revenues were 9.9% in 2007 and 11.5% in 2008.

Engineering and Product Development Expenses. For 2008, engineering and product development expenses increased by $3.8 million, or approximately 16.8%, to approximately $26.4 million from $22.6 million in 2007. This increase was due primarily to an increase in personnel and associated operating expenses. Engineering and product development expenses as a percentage of revenues increased from 4.6% in 2007 to 4.9% in 2008.

Interest Income. Interest income for 2008 was $3.5 million as compared to $8.3 million in 2007. This decrease was due to a reduction in interest earned on short-term investments caused by lower interest rates and reduced balances in short-term investments. Due to the global financial crisis, the Company has transferred the majority of its short-term investments to funds which invest in U.S. Treasury obligations, which normally earn lower interest rates than money market funds. Short-term investment balances declined primarily as a result of expenditures of $100 million related to the Company’s share repurchase program.

Interest expense. Interest expense for 2008 was $182,000 compared to $370,000 in 2007.

Income tax provision. Income tax expense for 2008 was $39.4 million on income before taxes of $145.0 million, resulting in an effective income tax rate of approximately 27.2%. Income tax expense in 2007 was $38.3 million on income before taxes of $146.3 million, resulting in an effective tax rate of approximately 26.2%. In the fourth quarter of 2007 the Company benefited from a foreign development tax incentive which resulted in a reduction in income taxes of approximately $4.7 million.

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Net Income. Net income was approximately $105.6 million in 2008 and $107.9 million in 2007, for the reasons set forth above.

Liquidity and Capital Resources

Cash flows provided by (used in) operations by type of activity were as follows:

	Year ended December 31,
	2007			2008			2009
	(In thousands)
Operating activities	$	82,663		$	40,677		$	136,412
Investing activities		(24,854	)		(49,527	)		(44,325	)
Financing activities		10,160			(100,075	)		13,436
		67,969			(108,925	)		105,523
Effect of exchange rate changes on cash activities		(1,666	)		3,145			(3,683	)
Increase (decrease) in cash and cash equivalents	$	66,303		$	(105,780	)	$	101,840

Statements of cash flows for entities with international operations that are local currency functional exclude the effects of the changes in foreign currency exchange rates that occur during any given year, as these are noncash changes. As a result, changes reflected in certain accounts on the Consolidated Statements of Cash Flows, may not reflect the changes in corresponding accounts on the Consolidated Balance Sheets.

The primary liquidity needs of the Company are (i) to fund capital expenditures to improve and expand facilities and manufacture additional running tools and (ii) to fund working capital. Recently, the Company’s principal sources of funds have been cash flows from operations.

During 2009, the Company generated $136.4 million of cash from operations as compared to $40.7 million for the same period in 2008. The primary reasons for the increase were the changes in operating assets and liabilities during 2009 as compared to the same period in 2008. Cash totaling approximately $16.0 million was provided during 2009 from decreases in operating assets and liabilities, compared to a $84.5 million utilization of cash during the same period in 2008 to increase operating assets and liabilities. The decrease in operating assets and liabilities during 2009 primarily reflected a decrease of $51.5 million in trade receivables, resulting primarily from a decrease in unbilled receivables of $20.0 million. Inventory increased by approximately $19.3 million, mostly in finished goods, to meet the needs of our existing backlog. The excess tax benefit on stock options exercised totaled $7.8 million and is offset by the same amount in financing activities. In 2009, there were approximately 636,000 stock options exercised compared to approximately 29,000 stock options exercised in 2008. Trade account payables and accrued expenses decreased by $4.7 million.

Capital expenditures by the Company were $25.2 million, $50.1 million and $44.7 million in 2007, 2008 and 2009, respectively. Capital expenditures in 2008 and 2009 included expanding manufacturing facilities in Southeast Asia and the Western Hemisphere and increased expenditures on machinery and equipment and running tools due to expanded operations. The capital expenditures for 2009 were primarily $11.3 million for machinery and equipment, $11.7 million for facilities, $16.7 million running tools and other expenditures of $5.0 million. Principal payments on long-term debt were approximately $900,000, $800,000 and $700,000 in 2007, 2008 and 2009, respectively.

In October 2009, Dril-Quip Asia Pacific Pte Ltd, a wholly owned subsidiary of Dril-Quip, Inc. entered into an agreement for the construction of a new manufacturing facility in Singapore valued at SGD46.5 million ($33.2 million on December 31, 2009).

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In May 2008 the Company announced that its Board of Directors had authorized a share repurchase program under which the Company could repurchase up to $100 million of its common stock. At the end of the third quarter of 2008, the Company had repurchased 1,799,928 shares at an average price of $55.58 per share (including commissions) for a total of approximately $100 million. All repurchased shares were retired and the share repurchase program as authorized by the Board of Directors was completed as of December 31, 2008.

The following table presents long-term contractual obligations of the Company and the related payments, excluding the effects of interest, due in total and by year as of December 31, 2009:

	Payments due by year
Contractual Obligations	2010		2011		2012		2013		2014		After 2014		Total
	(In thousands)
Long-term debt and capital leases	$	723	$	274	$	37	$	5	$	—	$	—	$	1,039
Operating lease obligations (1)		1,808		17,800		3,222		244		158		2,356		25,588
Estimated interest payments (2)		19		9		7		1		—		—		36
Total	$	2,550	$	18,083	$	3,266	$	250	$	158	$	2,356	$	26,663

(1) Includes certain minimum lease obligations for investments in machinery, leasehold improvements and buildings.

(2) Interest rates for leases were calculated using the interest portion of the lease payment. Interest payments for variable rate debt were calculated using the interest rate and exchange rate in effect at December 31, 2009.

The Company’s credit facility with Guaranty Bank, FSB which provided an unsecured revolving line of credit of up to $10 million, terminated in accordance with its terms on September 1, 2009. The Company is in the process of reviewing alternatives, including securing a new line of credit.

Dril-Quip (Europe) Limited has a credit agreement with the Bank of Scotland dated March 21, 2001 in the original amount of U.K. Pounds Sterling 4.0 million (approximately U.S. $6.5 million as of December 31, 2009). Borrowing under this facility bears interest at the Bank of Scotland base rate, which was 0.50% at December 31, 2009, plus 1%, and is repayable in 120 equal monthly installments, plus interest. Substantially all of this facility was used to finance capital expenditures in Norway. The outstanding balance of this facility at December 31, 2008 and 2009 was approximately U.S. $1.4 million and U.S. $865,000, respectively. The facility is secured by land and buildings in Aberdeen, Scotland and contains no restrictive financial covenants.

In addition to the above, the Company has issued purchase orders in the ordinary course of business for the purchase of goods and services. These purchase orders are enforceable and legally binding. However, none of the Company’s purchase obligations call for deliveries of goods or services for time periods in excess of one year.

The Company believes that cash generated from operations plus cash on hand will be sufficient to fund operations, working capital needs and anticipated capital expenditure requirements in 2010. However, any significant future declines in hydrocarbon prices could have a material adverse effect on the Company’s liquidity. Should market conditions result in unexpected cash requirements, the Company believes that additional borrowing from commercial lending institutions would be available and more than adequate to meet such requirements.

Backlog

Backlog consists of firm customer orders for which a purchase order or signed contract has been received, satisfactory credit or financing arrangements exist and delivery is scheduled. The Company’s revenues for a specific period have not been directly related to its backlog as stated at a particular point in time. The Company’s backlog was approximately $429 million and $603 million at December 31, 2007 and 2008, respectively, compared to $563 million at December 31, 2009, an increase of approximately $174 million, or 41%, from 2007 to 2008 and a decrease of approximately $40 million, or 7%, from 2008 to 2009. The lead time on many of the

29

projects extends for a year or more and several large projects that were reflected in the Company’s backlog as of December 31, 2008 were completed in 2009. The Company expects to fill approximately 65% of the December 31, 2009 backlog by December 31, 2010. The remaining backlog at December 31, 2009 consists of longer-term projects which are being designed and manufactured to customer specifications requiring longer lead times. The backlog amount at December 31, 2008 and 2009 excludes $27 million related to the MPF contract as discussed in “Item 3. Legal Proceedings.”

The Company can give no assurance that backlog will remain at current levels. Sales of the Company’s products are affected by prices for oil and natural gas, which fluctuated significantly between 2005 and 2009. Additional future declines in oil and natural gas prices could reduce new customer orders, possibly causing a decline in the Company’s future backlog. All of the Company’s projects currently included in its backlog are subject to change and/or termination at the option of the customer. In the case of a change or termination, the customer is required to pay the Company for work performed and other costs necessarily incurred as a result of the change or termination. In the past, terminations and cancellations have been immaterial to the Company’s overall operating results.

Geographic Segments

The Company’s operations are organized into three geographic segments—Western Hemisphere (including North and South America; headquartered in Houston, Texas), Eastern Hemisphere (including Europe and Africa; headquartered in Aberdeen, Scotland) and Asia-Pacific (including the Pacific Rim, Southeast Asia, Australia, India and the Middle East; headquartered in Singapore). Each of these segments sells similar products and services and the Company has major manufacturing facilities in all three of its headquarter locations, as well as Macae, Brazil.

Revenues for each of these segments are dependent upon the ultimate sale of products and services to the Company’s customers. For information on revenues by geographic segment, see Note 11 of Notes to Consolidated Financial Statements. Revenues of the Western Hemisphere are also influenced by its sale of products to the Eastern Hemisphere and Asia-Pacific segments. Accordingly, the operating incomes of each area are closely tied to third-party sales, and the operating income of the Western Hemisphere is also dependent upon its level of intercompany sales.

Currency Risk

Through its subsidiaries, the Company conducts a portion of business in currencies other than the United States dollar, principally the British pound sterling (“GBP”) in the Eastern Hemisphere and the Brazilian real (“BRL”) in Brazil. The Company generally attempts to minimize its currency exchange risk by seeking international contracts payable in local currency in amounts equal to the Company’s estimated operating costs payable in local currency and in U.S. dollars for the balance of the contract. Because of this strategy, the Company has not experienced significant transaction gains or losses associated with changes in currency exchange rates and does not anticipate such exposure to be material in the future. In 2007, 2008 and 2009, the Company had, net of income taxes, transaction gains of $2.2 million, transaction losses of $1.5 million and transaction gains of $3.4 million, respectively. The gain in 2007 was principally due to the weakening of the U.S. dollar to the Brazilian real on the intercompany payables between Brazil and the United States. The BRL rose as compared to the U.S. dollar from the average of 0.47 in January 2007 to an average rate of 0.56 in December 2007. The loss in 2008 was primarily due to strengthening of the U.S. dollar compared to the Brazilian real on the intercompany payables between Brazil and the United States. The BRL fell as compared to the U.S. dollar from an average of 0.59 for the first nine months of 2008 to an average rate of 0.44 for the fourth quarter of 2008. The gain in 2009 was primarily due to the weakening of the U.S. dollar compared to the British pound sterling and the Brazilian real. At December 31, 2008, the pound sterling was 1.46 compared to 1.62 at December 31, 2009. The Brazilian real was 0.43 December 31, 2008 and 0.57 at December 31, 2009.

There is no assurance that the Company will be able to protect itself against such fluctuations in the future. Historically, the Company has not conducted business in countries that limit repatriation of earnings. However,

30

as the Company expands its international operations, it may begin operating in countries that have such limitations. Further, there can be no assurance that the countries in which the Company currently operates will not adopt policies limiting repatriation of earnings in the future. The Company also has significant investments in countries other than the United States, principally its manufacturing operations in Aberdeen, Scotland and, to a lesser extent, Singapore, Brazil and Norway. The functional currency of these foreign operations is the local currency except for Singapore, where the U.S. dollar is used. Financial statement assets and liabilities are translated at the end of the period exchange rates. Resulting translation adjustments are reflected as a separate component of stockholders’ equity and have no current effect on earnings or cash flow.

Critical Accounting Policies

The Company’s discussion and analysis of its financial condition and results of operations are based on the Company’s consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America under guidance from the ASC. The preparation of the consolidated financial statements requires the Company to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. There can be no assurance that actual results will not differ from those estimates. The Company believes the following accounting policies affect its more significant judgments and estimates used in preparation of its consolidated financial statements.

Revenue Recognition.

Product Revenue

The Company earns product revenues from two sources:

• product revenues recognized under the percentage-of-completion method; and

• product revenues from the sale of products that do not qualify for the percentage-of-completion method.

Revenues recognized under the percentage-of-completion method

The Company uses the percentage-of-completion method on long-term project contracts pursuant to ASC Topic 605-35, which provides guidance on accounting for the performance of contracts. Long-term project contracts have the following characteristics:

• The contracts call for products which are designed to customer specifications;

• The structural designs are unique and require significant engineering and manufacturing efforts generally requiring more than one year in duration;

• The contracts contain specific terms as to milestones, progress billings and delivery dates; and

• Product requirements cannot be filled directly from the Company’s standard inventory.

For each project, the Company prepares a detailed analysis of estimated costs, profit margin, completion date and risk factors which include availability of material, production efficiencies and other factors that may impact the project. On a quarterly basis, management reviews the progress of each project, which may result in revisions of previous estimates, including revenue recognition. The Company calculates the percent complete and applies the percentage to determine the revenues earned and the appropriate portion of total estimated costs. Losses, if any, are recorded in full in the period they first become evident. Historically, the Company’s estimates of total costs and costs to complete have approximated actual costs incurred to complete the project.

Under the percentage-of-completion method, billings do not always correlate directly to the revenue recognized. Based upon the terms of the specific contract, billings may be in excess of the revenue recognized, in

31

which case the amounts are included in customer prepayments as a liability on the Consolidated Balance Sheets. Likewise, revenue recognized may exceed customer billings in which case the amounts are reported in trade receivables. Unbilled revenues are expected to be billed and collected within one year. At December 31, 2008 and 2009, trade receivables included $44.8 million and $24.8 million of unbilled receivables, respectively. During 2009, 17 projects representing approximately 13% and 16% of the Company’s total revenue and product revenue, respectively, were accounted for using percentage-of-completion accounting, compared to 23 projects during 2008 representing approximately 25% of the Company’s total revenues and 30% of product revenue, respectively.

Revenues not recognized under the percentage-of-completion method

Revenues from the sale of inventory products, not accounted for under the percentage-of-completion method, are recorded at the time the manufacturing processes are complete and ownership is transferred to the customer.

Service revenue

The Company earns service revenues from three sources:

• technical advisory assistance;

• rental of running tools; and

• rework and reconditioning of customer owned Dril-Quip products.

The recognition of service revenue is the same for all products, including those accounted for under the percentage-of-completion method. The Company does not install products for our customers, but it provides technical advisory assistance. At the time of delivery of the product, the customer is not obligated to buy or rent the Company’s running tools and the Company is not obligated to perform any subsequent services related to installation. Technical advisory assistance service revenue is recorded at the time the service is rendered. Service revenues associated with the rental of running and installation tools are recorded as earned. Rework and reconditioning service revenues are recorded when the refurbishment process is complete.

The Company normally negotiates contracts for products, including those accounted for under the percentage-of-completion method, and services separately. For all product sales, it is the customer’s decision as to the timing of the product installation as well as whether Dril-Quip running tools will be purchased or rented. Furthermore, the customer is under no obligation to utilize the Company’s technical advisory services. The customer may use a third party or their own personnel.

Inventories. Inventory costs are determined principally by the use of the first-in, first-out (FIFO) costing method and are stated at the lower of cost or market. Company manufactured inventory is valued principally using standard costs, which are calculated based upon direct costs incurred and overhead allocations. Inventory purchased from third party vendors is principally valued at the weighted average cost. Periodically, obsolescence reviews are performed on slow-moving inventories and reserves are established based on current assessments about future demands and market conditions. The inventory values have been reduced by a reserve for excess and obsolete inventories. Inventory reserves of $20.8 million and $24.2 million have been established as of December 31, 2008 and 2009, respectively. If market conditions are less favorable than those projected by management, additional inventory reserves may be required.

Contingent liabilities. The Company establishes reserves for estimated loss contingencies when the Company believes a loss is probable and the amount of the loss can be reasonably estimated. Revisions to contingent liabilities are reflected in income in the period in which different facts or information become known or circumstances change that affect the Company’s previous assumptions with respect to the likelihood or amount of loss. Reserves for contingent liabilities are based upon the Company’s assumptions and estimates regarding the probable outcome of the matter. Should the outcome differ from the Company’s assumptions and estimates, revisions to the estimated reserves for contingent liabilities would be required.

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Off-Balance Sheet Arrangements

The Company has no derivative instruments and no off-balance sheet hedging or financing arrangements or contracts or operations that rely upon credit or similar ratings.

New Accounting Standards

In October 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-13, Multiple-Deliverable Revenue Arrangements (“ASU 2009-13”). The new standard changes the requirements for establishing separate units of accounting in a multiple element arrangement and requires the allocation of arrangement consideration to each deliverable based on the relative selling price. The selling price for each deliverable is based on vendor-specific objective evidence (“VSOE”) if available, third-party evidence if VSOE is not available, or estimated selling price if neither VSOE or third-party evidence is available. ASU 2009-13 is effective for revenue arrangements entered into in fiscal years beginning on or after June 15, 2010. The Company does not expect that the provisions of the new guidance will have a material effect on its consolidated financial statements.

In September 2009, the Company adopted ASC Topic 105. This standard establishes the ASC as the single source of the authoritative U. S. generally accepted accounting principles (U.S. GAAP) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of the authoritative U.S. GAAP for SEC registrants. The ASC supersedes all existing non-SEC accounting and reporting standards. Following the ASC, the FASB will not issue new standards in the form of statements, FASB staff positions or Emerging Issues Task Force. Instead, it will issue ASU’s that serve to update the ASC, provide background information about the guidance and provide the basis for conclusions on changes to the ASC.

In June 2009, the Company adopted ASC Topic 825 regarding disclosures about the fair value of financial instruments for interim periods of publicly traded companies as well as in the annual financial statements. The standard also requires publicly traded companies to include disclosures about the fair value of its financial instruments whenever it issues summarized financial information for interim reporting periods. The adoption of this standard had no material effect on the Company’s consolidated financial statements.

In May 2009, the Company adopted ASC Topic 855 regarding subsequent events. This standard establishes general standards of accounting for and disclosure of events or transactions that occur after the balance sheet date but before financial statements are issued or are available to be issued. This standard sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosure that an entity should make about events or transactions that occurred after the balance sheet date. The standard requires entities to disclose the date through which subsequent events have been evaluated as well as whether that date is the date the financial statements were issued or the date the financial statements were available to be issued. See Note 16 of the Notes to Consolidated Financial Statements.

In January 2009, the Company adopted ASC Topic 805 regarding business combinations. The standard establishes principles and requirements for the recognition and measurement of assets, liabilities and goodwill including the requirement that most transaction costs and restructuring costs be expensed. In addition, the standard requires disclosures to enable users to evaluate the nature and financial effects of the business combination that occurs either during the reporting period or after the reporting period but before the financial statements are issued or are available to be issued. The adoption of this standard had no material effect on the Company’s consolidated financial statements.

In January 2009, the Company adopted ASC Topic 810 regarding noncontrolling interest in consolidated financial statements. The standard established accounting and reporting standards for noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The adoption of this standard had no material effect on the Company’s consolidated financial statements.

33

In January 2008, the Company adopted ASC Topic 820-10. In February 2008, ASC 820-10-55 was issued. The standard provides a one year deferral of the effective date of ASC 820-10 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. ASC 820-10 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. ASC 820-10 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements. The Company does not have any assets or liabilities that would be recognized or disclosed on a fair value basis as of December 31, 2008 or December 31, 2009.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The Company is currently exposed to certain market risks related to interest rate changes and fluctuations in foreign exchange rates. The Company does not engage in any material hedging transactions, forward contracts or currency trading which could mitigate the market risks inherent in such transactions.

Foreign Exchange Rate Risk

Through its subsidiaries, the Company conducts a portion of its business in currencies other than the United States dollar, principally the British pound sterling and, to a lesser extent, the Brazilian real. The Company has not experienced significant transaction gains or losses associated with changes in currency exchange rates and does not anticipate such exposure to be material in the future. However, there is no assurance that the Company will be able to protect itself against currency fluctuations in the future. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Currency Risk” in Item 7 of this report.

The Company uses a sensitivity analysis model to measure the impact on revenue and net income of a 10% adverse movement of foreign currency exchange rates against the U.S. dollar over the previous year. Based upon this model, a 10% decrease would result in a decrease in revenues of approximately $23 million and a decrease in net income of approximately $8 million over the year ended December 31, 2009. There can be no assurance that the exchange rate decrease projected above will materialize as fluctuations in exchange rates are beyond the Company’s control.

Interest Rate Risk

As described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources,” the Company has a loan that requires the Company to pay interest at a floating rate. This floating-rate obligation exposes the Company to the risk of increased interest expense in the event of increases in the short-term interest rates. Based upon the December 31, 2009 balance of approximately $865,000 related to this floating rate obligations, each 1.0% rise in interest rates would result in additional annual interest expense to the Company of approximately $8,700, or $2,175 per quarter.

Item 8. Financial Statements and Supplementary Data

	Page
Management’s Annual Report on Internal Control over Financial Reporting	35
Reports of Independent Registered Public Accounting Firm	36
Consolidated Statements of Income for the Three Years in the Period Ended December 31, 2009	38
Consolidated Balance Sheets as of December 31, 2008 and 2009	39
Consolidated Statements of Cash Flows for the Three Years in the Period Ended December 31, 2009	40
Consolidated Statements of Stockholders’ Equity for the Three Years in the Period Ended December  31, 2009	41
Notes to Consolidated Financial Statements	42

34

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:

• pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;

• provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and

• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Management has designed its internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with accounting principles generally accepted in the United States of America. Management’s assessment included review and testing of both the design effectiveness and operating effectiveness of controls over all relevant assertions related to all significant accounts and disclosures in the financial statements.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of our management, including our principal executive officers and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control—Integrated Framework, our management has concluded that our internal control over financial reporting was effective as of December 31, 2009.

BDO Seidman, LLP, the independent registered public accounting firm, which audited the consolidated financial statements included in the Annual Report on Form 10-K, has also issued an attestation on our internal control over financial reporting, and their report is set forth on page 36.

35

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

Dril-Quip, Inc.

Houston, Texas

We have audited Dril-Quip, Inc.’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Dril-Quip, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Item 9A. Management’s Annual Report on Internal Control Over Financial Reporting”. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Dril-Quip, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Dril-Quip, Inc. as of December 31, 2009 and 2008, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2009 and our report dated February 25, 2010 expressed an unqualified opinion thereon.

/s/    BDO Seidman, LLP

Houston, Texas

February 25, 2010

36

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Dril-Quip, Inc.

Houston, Texas

We have audited the accompanying consolidated balance sheets of Dril-Quip, Inc. as of December 31, 2009 and 2008 and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2009. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Dril-Quip, Inc. at December 31, 2009 and 2008, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Dril-Quip, Inc.’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated February 25, 2010, expressed an unqualified opinion thereon.

/s/    BDO Seidman, LLP

Houston, Texas

February 25, 2010

37

DRIL-QUIP, INC.

CONSOLIDATED STATEMENTS OF INCOME

	Year Ended December 31,
	2007			2008			2009
	(In thousands, except per share data)
Revenues:
Products	$	417,970		$	453,315		$	456,022
Services		77,587			89,456			84,182
Total revenues		495,557			542,771			540,204
Cost and expenses:
Cost of sales:
Products		237,728			260,626			260,780
Services		47,553			51,673			49,513
Total cost of sales		285,281			312,299			310,293
Selling, general and administrative		49,313			62,390			55,474
Engineering and product development		22,578			26,369			27,173
Special item		—			—			5,224
		357,172			401,058			398,164
Operating income		138,385			141,713			142,040
Interest income		8,275			3,453			507
Interest expense		(370	)		(182	)		(156	)
Income before income taxes		146,290			144,984			142,391
Income tax provision		38,349			39,399			37,250
Net income	$	107,941		$	105,585		$	105,141
Earnings per common share:
Basic	$	2.67		$	2.65		$	2.68
Diluted	$	2.63		$	2.62		$	2.66
Weighted average common shares outstanding:
Basic		40,447			39,918			39,164
Diluted		41,007			40,292			39,538

The accompanying notes are an integral part of these statements.

38

DRIL-QUIP, INC.

CONSOLIDATED BALANCE SHEETS

	December 31,
	2008			2009
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	95,952		$	197,792
Trade receivables, net		172,072			130,816
Inventories, net		222,203			251,357
Deferred income taxes		15,834			24,542
Prepaids and other current assets		8,213			12,849
Total current assets		514,274			617,356
Property, plant and equipment, net		160,810			194,703
Other assets		5,525			5,187
Total assets	$	680,609		$	817,246
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	31,715		$	24,828
Current maturities of long-term debt		636			723
Accrued income taxes		7,153			8,514
Customer prepayments		51,153			47,214
Accrued compensation		9,702			10,751
Other accrued liabilities		13,380			12,595
Total current liabilities		113,739			104,625
Long-term debt		896			316
Deferred income taxes		6,524			7,220
Total liabilities		121,159			112,161
Commitments and contingencies (Note 9)
Stockholders’ equity:
Preferred stock: 10,000,000 shares authorized at $0.01 par value (none issued)		—			—
Common stock:
50,000,000 shares authorized at $0.01 par value, 39,022,597 and 39,658,524 issued and outstanding at December 31, 2008 and 2009, respectively		390			396
Additional paid-in capital		109,784			129,528
Retained earnings		478,146			583,287
Foreign currency translation adjustment		(28,870	)		(8,126	)
Total stockholders’ equity		559,450			705,085
Total liabilities and stockholders’ equity	$	680,609		$	817,246

The accompanying notes are an integral part of these statements.

39

DRIL-QUIP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended December 31,
	2007			2008			2009
	(In thousands)
Operating activities
Net income	$	107,941		$	105,585		$	105,141
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		15,653			16,854			17,997
Stock-based compensation expense		2,286			3,181			3,975
Gain on sale of equipment		(253	)		(102	)		(132	)
Deferred income taxes		(666	)		(383	)		(7,869	)
Special item—non-cash		—			—			1,272
Changes in operating assets and liabilities:
Trade receivables, net		4,990			(46,853	)		51,461
Inventories, net		(18,172	)		(62,139	)		(19,280	)
Prepaids and other assets		(7,428	)		(141	)		(3,580	)
Excess tax benefits of stock option exercises		(6,271	)		(399	)		(7,833	)
Trade accounts payable and accrued expenses		(15,417	)		25,074			(4,740	)
Net cash provided by operating activities		82,663			40,677			136,412
Investing activities
Purchase of property, plant, and equipment		(25,208	)		(50,134	)		(44,749	)
Proceeds from sale of equipment		354			607			424
Net cash used in investing activities		(24,854	)		(49,527	)		(44,325	)
Financing activities
Repurchase of common stock		—			(100,038	)		—
Principal payments on long-term debt		(875	)		(812	)		(695	)
Proceeds from exercise of stock options		4,764			376			6,298
Excess tax benefits of stock option exercises		6,271			399			7,833
Net cash provided by (used in) financing activities		10,160			(100,075	)		13,436
Effect of exchange rate changes on cash activities		(1,666	)		3,145			(3,683	)
Increase (decrease) in cash and cash equivalents		66,303			(105,780	)		101,840
Cash and cash equivalents at beginning of year		135,429			201,732			95,952
Cash and cash equivalents at end of year	$	201,732		$	95,952		$	197,792

The accompanying notes are an integral part of these statements.

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DRIL-QUIP, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

	Common Stock			Additional Paid-In Capital			Retained Earnings		Foreign Currency Translation Adjustment			Total
	(In thousands)
Balance at December 31, 2006	$	404		$	192,086		$	264,620	$	10,387		$	467,497
Translation adjustment		—			—			—		3,304			3,304
Net income		—			—			107,941		—			107,941
Comprehensive income		—			—			—		—			111,245
Options exercised (436,057 shares)		4			4,760			—		—			4,764
Stock-based compensation		—			2,286			—		—			2,286
Excess tax benefits—stock options		—			6,703			—		—			6,703
Balance at December 31, 2007		408			205,835			372,561		13,691			592,495
Translation adjustment		—			—			—		(42,561	)		(42,561	)
Net income		—			—			105,585		—			105,585
Comprehensive income		—			—			—		—			63,024
Options exercised (28,812 shares)		—			376			—		—			376
Stock-based compensation		—			3,181			—		—			3,181
Treasury stock (1,799,928 shares)		(18	)		(100,020	)		—		—			(100,038	)
Excess tax benefits—stock options		—			412			—		—			412
Balance at December 31, 2008		390			109,784			478,146		(28,870	)		559,450
Translation adjustment		—			—			—		20,744			20,744
Net income		—			—			105,141		—			105,141
Comprehensive income		—			—			—		—			125,885
Options exercised (635,927 shares)		6			6,292			—		—			6,298
Stock-based compensation		—			3,975			—		—			3,975
Special item—stock-based compensation		—			1,272			—		—			1,272
Excess tax benefits—stock options		—			8,205			—		—			8,205
Balance at December 31, 2009	$	396		$	129,528		$	583,287	$	(8,126	)	$	705,085

The accompanying notes are an integral part of these statements.

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DRIL-QUIP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization

Dril-Quip, Inc., a Delaware corporation (the “Company” or “Dril-Quip”), designs, manufactures, sells and services highly engineered offshore drilling and production equipment that is well suited for use in deepwater, harsh environment and severe service applications. The Company’s principal products consist of subsea and surface wellheads, subsea and surface production trees, subsea control systems and manifolds, mudline hanger systems, specialty connectors and associated pipe, drilling and production riser systems, liner hangers, wellhead connectors and diverters. Dril-Quip’s products are used by major integrated, large independent and foreign national oil and gas companies in offshore areas throughout the world. Dril-Quip also provides technical advisory assistance on an as-requested basis during installation of its products, as well as rework and reconditioning services for customer-owned Dril-Quip products. In addition, Dril-Quip’s customers may rent or purchase running tools from the Company for use in the installation and retrieval of its products.

The Company’s operations are organized into three geographic segments—Western Hemisphere (including North and South America; headquartered in Houston, Texas), Eastern Hemisphere (including Europe and Africa; headquartered in Aberdeen, Scotland) and Asia-Pacific (including the Pacific Rim, Southeast Asia, Australia, India and the Middle East; headquartered in Singapore). Each of these segments sells similar products and services and the Company has major manufacturing facilities in all three of its headquarter locations as well as Macae, Brazil. The Company’s major subsidiaries are Dril-Quip (Europe) Limited (DQE), located in Aberdeen with branches in Denmark, Norway and Holland; Dril-Quip Asia Pacific PTE Ltd. (DQAP), located in Singapore; Dril-Quip do Brasil LTDA (DQB), located in Macae, Brazil; and Dril-Quip Holdings Pty Ltd. (DQH), located in Perth, Australia. Dril-Quip (Nigeria) Ltd. is located in Port Harcourt, Nigeria, and Dril-Quip Egypt for Petroleum Services S.A.E. is located in Alexandria, Egypt. Both are wholly owned subsidiaries of DQE. Dril-Quip Oilfield Services (Tianjin) Co. Ltd. (DQT) is located in Tianjin, China. DQT is a wholly owned subsidiary of DQAP.

2. Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. All material intercompany accounts and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America under guidance from the Financial Accounting Standards Board Accounting Standards Codification (“ASC”) requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Some of the Company’s more significant estimates are those affected by critical accounting policies for revenue recognition, inventories and contingent liabilities.

Cash and cash equivalents

Short-term investments that have a maturity of three months or less from the date of purchase are classified as cash equivalents. The Company invests excess cash in interest bearing accounts, money market mutual funds and funds which invest in U.S. Treasury obligations and repurchase agreements backed by U.S. Treasury obligations. The Company’s investment objectives continue to be the preservation of capital and the maintenance of liquidity.

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Trade Receivables

The Company maintains an allowance for doubtful accounts on trade receivables equal to amounts estimated to be uncollectible. This estimate is based upon historical collection experience combined with a specific review of each customer’s outstanding trade receivable balance. Management believes that the allowance for doubtful accounts is adequate; however, actual write-offs may exceed the recorded allowance. The following is a summary of activity relating to the allowance for doubtful accounts for the years ended December 31, 2007, 2008 and 2009:

	In thousands
Balance at December 31, 2006	$	2,672
Charges to costs and expenses		978
Recoveries/write-offs		(1,338	)
Balance at December 31, 2007		2,312
Charges to costs and expenses		1,937
Recoveries/write-offs		(742	)
Balance at December 31, 2008		3,507
Charges to costs and expenses		1,333
Recoveries/write-offs		(2,173	)
Balance at December 31, 2009	$	2,667

Inventories

Inventory costs are determined principally by the use of the first-in, first-out (FIFO) costing method and are stated at the lower of cost or market. Inventory is valued principally using standard costs, which are calculated based upon direct costs incurred and overhead allocations. Inventory purchased from third party vendors is principally valued at the weighted average cost. Periodically, obsolescence reviews are performed on slow-moving inventories and reserves are established based on current assessments about future demands and market conditions. The inventory values have been reduced by a reserve for excess and obsolete inventories. Inventory reserves of $20.8 million and $24.2 million were recorded as of December 31, 2008 and 2009, respectively. If market conditions are less favorable than those projected by management, additional inventory reserves may be required.

Property, Plant, and Equipment

Property, plant and equipment are carried at cost, with depreciation provided on a straight-line basis over their estimated useful lives.

Impairment of Long-Lived Assets

Long-lived assets including property, plant and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the carrying amount of an asset exceeds the estimated undiscounted future cash flows expected to be generated by the asset, an impairment charge is recognized by reflecting the asset at its fair value. No impairment of long-lived assets existed at December 31, 2008 or 2009.

Income Taxes

The Company accounts for income taxes using the asset and liability method. Current income taxes are provided on income reported for financial statement purposes, adjusted for transactions that do not enter into the computation of income taxes payable in the same year. Deferred tax assets and liabilities are measured using

43

enacted tax rates for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Revenue Recognition

Product Revenue

The Company earns product revenues from two sources:

• product revenues recognized under the percentage-of-completion method; and

• product revenues from the sale of products that do not qualify for the percentage-of-completion method.

Revenues recognized under the percentage-of-completion method

The Company uses the percentage-of-completion method on long-term project contracts pursuant to ASC Topic 605-35, which provides guidance on accounting for the performance of contracts. Long-term project contracts have the following characteristics:

• The contracts call for products which are designed to customer specifications;

• The structural designs are unique and require significant engineering and manufacturing efforts generally requiring more than one year in duration;

• The contracts contain specific terms as to milestones, progress billings and delivery dates; and

• Product requirement cannot be filled directly from the Company’s standard inventory.

For each project, the Company prepares a detailed analysis of estimated costs, profit margin, completion date and risk factors which include availability of material, production efficiencies and other factors that may impact the project. On a quarterly basis, management reviews the progress of each project, which may result in revisions of previous estimates, including revenue recognition. The Company calculates the percent complete and applies the percentage to determine the revenues earned and the appropriate portion of total estimated costs. Losses, if any, are recorded in full in the period they first become evident. Historically, the Company’s estimates of total costs and costs to complete have approximated actual costs incurred to complete the project.

Under the percentage-of-completion method, billings do not always correlate directly to the revenue recognized. Based upon the terms of the specific contract, billings may be in excess of the revenue recognized, in which case the amounts are included in customer prepayments as a liability on the Consolidated Balance Sheets. Likewise, revenue recognized may exceed customer billings in which case the amounts are reported in trade receivables. Unbilled revenues are expected to be billed and collected within one year. As of December 31, 2008 and 2009, receivables included $44.8 million and $24.8 million of unbilled receivables, respectively. For the year ended December 31, 2009, there were 17 projects representing approximately 13% of the Company’s total revenues and approximately 16% of its product revenues that were accounted for using percentage-of-completion accounting as compared to 23 projects during 2008 which represented 25% of the Company’s total revenue and 30% of its product revenues.

Revenues not recognized under the percentage-of-completion method

Revenues from the sale of inventory products, not accounted for under the percentage-of-completion method, are recorded at the time the manufacturing processes are complete and ownership is transferred to the customer.

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Service revenue

The Company earns service revenues from three sources:

• technical advisory assistance;

• rental of running tools; and

• rework and reconditioning of customer owned Dril-Quip products.

The recognition of service revenue is the same for all products, including those accounted for under the percentage-of-completion method. The Company does not install products for our customers, but it provides technical advisory assistance. At the time of delivery of the product, the customer is not obligated to buy or rent the Company’s running tools and the Company is not obligated to perform any subsequent services related to installation. Technical advisory assistance service revenue is recorded at the time the service is rendered. Service revenues associated with the rental of running and installation tools are recorded as earned. Rework and reconditioning service revenues are recorded when the refurbishment process is complete.

The Company normally negotiates contracts for products, including those accounted for under the percentage-of-completion method, and services separately. For all product sales, it is the customer’s decision as to the timing of the product installation as well as whether Dril-Quip running tools will be purchased or rented. Furthermore, the customer is under no obligation to utilize the Company’s technical advisory services. The customer may use a third party or their own personnel.

Foreign Currency

The financial statements of foreign subsidiaries are translated into U.S. dollars at period end exchange rates except for revenues and expenses, which are translated at average monthly rates. Translation adjustments are reflected as a separate component of stockholders’ equity and have no current effect on earnings or cash flows. These adjustments amounted to an increase of $3.3 million in 2007, a decrease of $42.6 million in 2008 and an increase of $20.7 million in 2009. The translation adjustment decrease in 2008 resulted primarily from the strengthening of the U.S. dollar compared to the British pound sterling and the Brazilian real during the latter half of 2008. The translation adjustment increase in 2009 resulted primarily from the weakening of the U.S. dollar compared to the British pound sterling and the Brazilian real.

Foreign currency exchange transactions are recorded using the exchange rate at the date of the settlement. Exchange gains (losses) were approximately $2.2 million in 2007, ($1.5 million) in 2008, and $3.4 million in 2009, net of income taxes. These amounts are included in selling, general and administrative costs in the Consolidated Statements of Income.

Fair Value of Financial Instruments

The Company’s financial instruments consist primarily of cash and cash equivalents, receivables, payables, and debt instruments. The carrying values of these financial instruments approximate their respective fair values as they are either short-term in nature or carry interest rates that approximate market rates.

Concentration of Credit Risk

Financial instruments which subject the Company to concentrations of credit risk primarily include trade receivables. The Company grants credit to its customers, which operate primarily in the oil and gas industry. The Company performs periodic credit evaluations of its customers’ financial condition and generally does not require collateral. The Company maintains reserves for potential losses, and such losses have historically been within management’s expectations.

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In addition, the Company invests excess cash in interest bearing accounts, money market mutual funds and funds which invest in obligations of the U.S. Treasury and repurchase agreements backed by U.S. Treasury obligations. Changes in the financial markets and interest rates could affect the interest earned on short-term investments.

Comprehensive Income

ASC Topic 220 establishes the rules for the reporting and display of comprehensive income and its components. The standard requires the Company to include unrealized gains or losses on foreign currency translation adjustments in other comprehensive income. Generally, gains are attributed to a weakening U.S. dollar and losses are the result of a strengthening U.S. dollar.

Interest Capitalization

The Company capitalizes interest on significant construction projects for which interest costs are being incurred. These projects principally consist of construction or expansion of the Company’s facilities. No interest was capitalized in 2007, 2008 or 2009.

Earnings Per Share

Basic earnings per share are computed by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per share are computed considering the dilutive effect of stock options using the treasury stock method.

New Accounting Standards

In October 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2009-13, Multiple-Deliverable Revenue Arrangements (“ASU 2009-13”). The new standard changes the requirements for establishing separate units of accounting in a multiple element arrangement and requires the allocation of arrangement consideration to each deliverable based on the relative selling price. The selling price for each deliverable is based on vendor-specific objective evidence (“VSOE”) if available, third-party evidence if VSOE is not available, or estimated selling price if neither VSOE or third-party evidence is available. ASU 2009-13 is effective for revenue arrangements entered into in fiscal years beginning on or after June 15, 2010. The Company does not expect that the provisions of the new guidance will have a material effect on its consolidated financial statements.

In September 2009, the Company adopted ASC Topic 105. This standard establishes the FASB Accounting Standards Codification^™ (“ASC”) as the single source of the authoritative U.S. generally accepted accounting principles (U.S. GAAP) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of the authoritative U.S. GAAP for SEC registrants. The ASC supersedes all existing non-SEC accounting and reporting standards. Following the ASC, the FASB will not issue new standards in the form of statements, FASB staff positions or Emerging Issues Task Force. Instead, it will issue ASU’s that serve to update the ASC, provide background information about the guidance and provide the basis for conclusions on changes to the ASC.

In June 2009, the Company adopted ASC Topic 825 regarding disclosures about the fair value of financial instruments for interim periods of publicly traded companies as well as in the annual financial statements. The standard also requires publicly traded companies to include disclosures about the fair value of its financial instruments whenever it issues summarized financial information for interim reporting periods. The adoption of this standard had no material effect on the Company’s consolidated financial statements.

In May 2009, the Company adopted ASC Topic 855 regarding subsequent events. This standard establishes general standards of accounting for and disclosures of events or transactions that occur after the balance sheet

46

date but before financial statements are issued or are available to be issued. This standard sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosure that an entity should make about events or transactions that occurred after the balance sheet date. The standard requires entities to disclose the date through which subsequent events have been evaluated as well as whether that date is the date the financial statements were issued or the date the financial statements were available to be issued. See Note 16 of the Notes to Consolidated Financial Statements for the Company’s disclosure on this topic.

In January 2009, the Company adopted ASC Topic 805 regarding business combinations. The standard establishes principles and requirements for the recognition and measurement of assets, liabilities and goodwill including the requirement that most transaction costs and restructuring costs be expensed. In addition, the standard requires disclosures to enable users to evaluate the nature and financial effects of the business combination that occurs either during the reporting period or after the reporting period but before the financial statements are issued or are available to be issued. The adoption of this standard had no material effect on the Company’s consolidated financial statements.

In January 2009, the Company adopted ASC Topic 810 regarding noncontrolling interest in consolidated financial statements. The standard established accounting and reporting standards for noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The adoption of this standard had no material effect on the Company’s consolidated financial statements.

In January 2008, the Company adopted ASC Topic 820-10. In February 2008, ASC 820-10-55 was issued. The standard provides a one year deferral of the effective date of ASC 820-10 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. ASC 820-10 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. ASC 820-10 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements. The Company does not have any assets or liabilities that would be recognized or disclosed on a fair value basis as of December 31, 2008 or December 31, 2009.

3. Inventories

Inventories consist of the following:

	December 31,
	2008			2009
	(In thousands)
Raw materials and supplies	$	55,470		$	50,853
Work in progress		71,926			74,956
Finished goods		115,636			149,749
		243,032			275,558
Less: allowance for obsolete and excess inventory		(20,829	)		(24,201	)
	$	222,203		$	251,357

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Summary of allowance for obsolete and excess inventory:

	In thousands
Balance at December 31, 2006	$	16,873
Charges to costs and expenses		2,648
Write-offs of inventory		(294	)
Balance at December 31, 2007		19,227
Charges to costs and expenses		2,378
Write-offs of inventory		(776	)
Balance at December 31, 2008		20,829
Charges to costs and expenses		3,942
Write-offs of inventory		(570	)
Balance at December 31, 2009	$	24,201

4. Property, Plant and Equipment

Property, plant and equipment consists of:

	Estimated Useful Lives	December 31,
		2008			2009
		(In thousands)
Land and improvements	10-25 years	$	19,371		$	20,839
Buildings	15-40 years		87,616			103,713
Machinery, equipment and other	3-10 years		186,128			224,956
			293,115			349,508
Less accumulated depreciation			(132,305	)		(154,805	)
		$	160,810		$	194,703

5. Long-Term Debt

Long-term debt consists of the following:

	December 31,
	2008			2009
	(In thousands)
Bank financing	$	1,362		$	865
Equipment financing agreements		170			174
		1,532			1,039
Less current portion		(636	)		(723	)
	$	896		$	316

The Company’s credit facility with Guaranty Bank, FSB which provided an unsecured revolving line of credit of up to $10 million, terminated in accordance with its terms on September 1, 2009. The Company is in the process of reviewing alternatives, including securing a new line of credit.

Dril-Quip (Europe) Limited has a credit agreement with the Bank of Scotland dated March 21, 2001 in the original amount of U.K. Pounds Sterling 4.0 million (approximately U.S. $6.5 million at December 31, 2009). Borrowing under this facility bears interest at the Bank of Scotland base rate, which was 0.50% at December 31, 2009, plus 1%, and is repayable in 120 equal monthly installments, plus interest. Substantially all of this facility

48

was used to finance capital expenditures in Norway. The outstanding balance of this facility at December 31, 2008 and 2009 was approximately U.S. $1.4 million and U.S. $865,000, respectively. The facility is secured by land and buildings in Aberdeen, Scotland and contains no restrictive financial covenants.

Interest paid on long-term debt for the years ended December 31, 2007, 2008 and 2009 was $253,000, $132,000 and $21,700 respectively. Scheduled maturities of long-term debt are as follows: 2010—$723,000; 2011—$274,000; 2012—$36,000; 2013—$6,000; and none thereafter.

6. Income Taxes

In accordance with ASC 740-10, the Company is required to recognize in its financial statements the impact of a tax position that is more likely than not to be sustained upon examination based upon the technical merits of the position, including resolution of any appeals. The standard provides guidance on recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Based on the Company’s evaluation, the Company has concluded that there are no significant uncertain tax positions requiring recognition in the Company’s financial statements. The evaluation was performed for the tax years which remain subject to examination by major tax jurisdictions as of December 31, 2009, which are the years ended December 31, 2004 through December 31, 2009. The Company has occasionally been assessed interest or penalties by major tax jurisdictions and these assessments historically have been minimal and immaterial to the Company’s financial results. In accordance with the Company’s accounting policy, both before and after adoption of ASC Topic 740-10, interest expense assessed by tax jurisdictions is included with interest expense and assessed penalties are included in selling, general and administrative expenses.

Income before income taxes consisted of the following:

	Year ended December 31,
	2007		2008		2009
	(In thousands)
Domestic	$	79,397	$	72,515	$	52,203
Foreign		66,893		72,469		90,188
Total	$	146,290	$	144,984	$	142,391

The income tax provision (benefit) consists of the following:

	Year ended December 31,
	2007			2008			2009
	(In thousands)
Current:
Federal	$	25,371		$	24,428		$	23,998
Foreign		13,747			14,844			21,264
Total current		39,118			39,272			45,262
Deferred:
Federal		222			(929	)		(7,188	)
Foreign		(991	)		1,056			(824	)
Total deferred		(769	)		127			(8,012	)
	$	38,349		$	39,399		$	37,250

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The difference between the effective income tax rate reflected in the provision for income taxes and the U.S. federal statutory rate was as follows:

	Year ended December 31,
	2007		2008		2009
Federal income tax statutory rate	35.0	%	35.0	%	35.0	%
Foreign income tax rate differential	(4.0	)	(4.5	)	(5.7	)
Foreign development tax incentive	(3.3	)	(2.0	)	(2.1	)
Manufacturing benefit	(0.9	)	(1.1	)	(0.7	)
Other	(0.6	)	(0.2	)	(0.3	)
Effective income tax rate	26.2	%	27.2	%	26.2	%

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Based upon existing market conditions and the Company’s earnings prospects, it is anticipated that all deferred tax assets will be realized in future years. Significant components of the Company’s deferred tax assets and liabilities are as follows:

	December 31,
	2008			2009
	(In thousands)
Deferred tax assets:
Deferred profit on intercompany sales	$	4,109		$	6,439
Inventory		2,504			5,489
Inventory reserve		4,790			5,210
Allowance for doubtful accounts		551			656
Reserve for accrued liabilities		378			1,420
Stock options		2,104			3,431
Other		1,398			1,897
Total deferred tax assets		15,834			24,542
Deferred tax liability:
Property, plant and equipment		(6,524	)		(7,220	)
Net deferred tax asset	$	9,310		$	17,322

Undistributed earnings of the Company’s foreign subsidiaries are considered to be indefinitely reinvested and, accordingly, no provision for U.S. federal income taxes has been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, the Company may be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the various foreign countries. Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable.

The American Jobs Creation Act of 2004 provides for a tax deduction for qualified production activities. Under the guidance of ASC Topic 740, “Income Tax” and the “Tax Deduction on Qualified Production Activities Provided by American Jobs Creation Act of 2004,” the deduction will be treated as a “special deduction” and not as a reduction in the tax rate. As such, the special deduction has no effect on deferred tax assets and liabilities existing on the date of enactment. The Company’s production activities qualify for the tax deduction and the Company’s 2009 income tax provision includes an estimated deduction of approximately $3.0 million.

The Company paid $41.9 million, $40.5 million and $37.8 million in income taxes in 2007, 2008 and 2009, respectively.

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7. Other Accrued Liabilities

Other accrued liabilities consist of the following:

	December 31,
	2008		2009
	(In thousands)
Payroll taxes	$	2,733	$	2,443
Property, sales and other taxes		2,321		130
Commissions payable		1,459		2,179
Accrued project costs		1,510		2,614
Accrued vendor costs		2,692		1,965
Other		2,665		3,264
Total	$	13,380	$	12,595

8. Employee Benefit Plans

The Company has a defined-contribution 401(k) plan covering domestic employees and a defined-contribution pension plan covering certain foreign employees. The Company generally makes contributions to the plans equal to each participant’s eligible contributions for the plan year up to a specified percentage of the participant’s annual compensation. The Company’s contribution expense was $2.7 million, $3.0 million and $3.1 million in 2007, 2008 and 2009, respectively.

9. Commitments and Contingencies

The Company leases certain office, shop and warehouse facilities, automobiles, and equipment. The Company expenses all lease payments when incurred. Total lease expense incurred was $2.7 million, $2.6 million and $3.1 million in 2007, 2008 and 2009, respectively. Future annual minimum lease commitments, including required leasehold improvements, at December 31, 2009 are as follows: 2010—$2.5 million; 2011—$18.1 million; 2012—$3.3 million; 2013—$0.2 million; 2014—$0.2 million; and thereafter—$2.4 million.

In 2006, the Company entered into a contract in the amount of approximately $47 million with MPF Corp. Ltd. (“MPF”) under which the Company was to construct risers and related equipment to be installed on an offshore drill ship being constructed for MPF. MPF and its affiliates filed a Chapter 11 bankruptcy case in September 2008 in the United States Bankruptcy Court for the Southern District of Texas, Houston Division (Case No. 08-36084). Under the Bankruptcy Code, at some point MPF must either assume this contract or reject it. Since MPF is not required to make a decision on the handling of the contract immediately, the Company cannot be sure as to when its rights under the contract will be clarified. Currently, the Company has possession of all the raw materials purchased to date and work-in-progress under the contract. At the time of the bankruptcy filing, the Company had recognized approximately $20 million in revenues under the contract and had received payments of approximately $16 million. No further revenue has been recognized since the second quarter of 2008. The Company believes the remaining $4 million of unpaid receivables will be realized through the workings of the contract or through its interest in the partially constructed inventory. While the Company has made filings in the bankruptcy proceedings that it believes are appropriate to protect its rights, there can be no assurance that the Company will be able to receive the expected benefits of the contract with MPF. While the Company does not expect the outcome of this matter to have a material adverse effect on the Company’s operations, financial position or cash flows, the Company may be required to write down or forfeit some portion of the revenues recognized to date if it becomes probable that the Company will not receive such funds or realize the value of the inventory in its possession.

In August 2007, the Company’s Brazilian subsidiary was served with assessments collectively valued at approximately BRL23.3 million (approximately U.S. $12.6 million as of February 2010) from the State of

51

Rio de Janeiro, Brazil, to collect a state tax on the importation of goods. The Company believes that its subsidiary is not liable for the taxes and is vigorously contesting the assessments in the Brazilian administrative and judicial systems. At this time, the ultimate disposition of this matter cannot be determined and therefore, it is not possible to reasonably estimate the amount of loss or the range of possible losses that might result from an adverse judgment or settlement of these assessments. Accordingly, no liability has been accrued in conjunction with this matter. The Company does not expect the liability, if any, resulting from these assessments to have a material adverse effect on its operations, financial position or cash flows. While pending, the amount of interest, penalties and monetary restatement fees on the tax assessments continues to accrue and totaled as of February 2010 approximately BRL35.4 million (approximately U.S. $19.1 million).

In November 2007, the Company entered into a lease agreement in Singapore for approximately 11 acres of vacant land. The lease term is 30 years and the Company elected to make a lump sum payment for the entire lease. In addition, under the terms of the lease, the Company is obligated to make certain minimum investments in machinery, leasehold improvements and buildings by November 2012.

In October 2009, the Company entered into an agreement for the construction of a manufacturing facility in Singapore. The agreement is valued at SGD46.5 million (approximately $33.2 million USD on December 31, 2009). The expected construction term is 16 months and is followed by a maintenance term of 12 months.

The Company operates its business and markets its products and services in most of the significant oil and gas producing areas in the world and is, therefore, subject to the risk customarily attendant to international operations and dependency on the condition of the oil and gas industry. Additionally, products of the Company are used in potentially hazardous drilling, completion, and production applications that can cause personal injury, product liability, and environmental claims. Although exposure to such risk has not resulted in any significant problems in the past, there can be no assurance that future developments will not adversely impact the Company.

The Company is also involved in a number of legal actions arising in the ordinary course of business. Although no assurance can be given with respect to the ultimate outcome of such legal action, in the opinion of management, the ultimate liability with respect thereto will not have a material adverse affect on the Company’s operations, financial position or cash flows.

10. Stockholders’ Equity

The Rights Agreement between the Company and ChaseMellon Shareholder Services, L.L.C. dated as of October 17, 1997 included one right to purchase one one-hundredth of a share of Series A Junior Participating Preferred Stock for each share of common stock. On October 17, 2007, the Rights Agreement and the rights issued thereunder expired by their terms, at which time no shares of the Series A Preferred Stock were issued or outstanding.

Under a Stockholder Rights Plan adopted by the Board of Directors on November 24, 2008, each share of common stock includes one right to purchase from the Company a unit consisting of one one-hundredth of a share (a “Fractional Share”) of Series A Junior Participating Preferred Stock at a specific purchase price per Fractional Share, subject to adjustment in certain event. The rights will cause substantial dilution to any person or group that attempts to acquire the Company without the approval of the Company’s Board of Directors.

52

11. Geographic Segments

	Year ended December 31,
	2007			2008			2009
	(In thousands)
Revenues
Western Hemisphere
Products	$	198,346		$	224,816		$	220,171
Services		38,301			43,065			37,014
Intercompany		57,281			64,418			67,546
Total	$	293,928		$	332,299		$	324,731
Eastern Hemisphere
Products	$	148,223		$	154,226		$	166,181
Services		32,699			34,732			36,053
Intercompany		6,364			1,858			1,765
Total	$	187,286		$	190,816		$	203,999
Asia-Pacific
Products	$	71,401		$	74,273		$	69,670
Services		6,587			11,659			11,115
Intercompany		6,524			7,714			3,397
Total	$	84,512		$	93,646		$	84,182
Summary
Products	$	417,970		$	453,315		$	456,022
Services		77,587			89,456			84,182
Intercompany		70,169			73,990			72,708
Eliminations		(70,169	)		(73,990	)		(72,708	)
Total	$	495,557		$	542,771		$	540,204
	December 31,
	2007			2008			2009
	(In thousands)
Income (loss) before income taxes
Western Hemisphere	$	77,183		$	69,319		$	63,839
Eastern Hemisphere		31,538			35,509			45,939
Asia-Pacific		28,093			33,592			35,061
Eliminations		9,476			6,564			(2,448	)
Total	$	146,290		$	144,984		$	142,391
Total Long-Lived Assets
Western Hemisphere	$	122,978		$	147,460		$	158,210
Eastern Hemisphere		29,169			22,892			27,214
Asia-Pacific		15,496			16,402			18,029
Eliminations		(20,419	)		(20,419	)		(3,563	)
Total	$	147,224		$	166,335		$	199,890
Total Assets
Western Hemisphere	$	522,732		$	465,797		$	518,475
Eastern Hemisphere		161,626			125,497			158,112
Asia-Pacific		74,297			120,943			147,644
Eliminations		(58,833	)		(31,628	)		(6,985	)
Total	$	699,822		$	680,609		$	817,246

53

The Company’s operations are organized into three geographic segments—Western Hemisphere (including North and South America headquartered in Houston, Texas), Eastern Hemisphere (including Europe and Africa; headquartered in Aberdeen, Scotland) and Asia-Pacific (including the Pacific Rim, Southeast Asia, Australia, India and the Middle East; headquartered in Singapore). Each of these segments sells similar products and services and the Company has major manufacturing facilities in all three of its headquarter locations as well as Macae, Brazil.

Eliminations of operating profits are related to intercompany inventory transfers that are deferred until shipment is made to third party customers.

In 2007 and 2008, no single customer accounted for more than 10% of the Company’s revenues. In 2009, one customer accounted for approximately 10% of the Company’s total revenues.

12. Employee Stock Option Plan and Awards

On September 19, 1997, the Company adopted the Dril-Quip, Inc. 1997 Incentive Plan (as amended, the “1997 Plan”) and the Company reserved 3,400,000 shares of Common Stock for use in connection with the 1997 Plan. During 2001, the Company reserved an additional 1,400,000 shares for use in connection with the 1997 Plan. Some options remain outstanding under the 1997 Plan: however, no additional grants will be awarded under this plan. On May 13, 2004, the Company’s stockholders approved the 2004 Incentive Plan of Dril-Quip, Inc. (the “2004 Plan”), which reserved up to 2,696,294 shares of Common Stock to be used in connection with the 2004 Plan. Persons eligible for awards under the 1997 Plan and 2004 Plan are employees holding positions of responsibility with the Company or any of its subsidiaries. Options granted under the 1997 Plan and the 2004 Plan have a term of ten years and become exercisable in cumulative annual increments of one-fourth of the total number of shares of Common Stock subject thereto, beginning on the first anniversary of the date of the grant.

The fair value of stock options granted is estimated on the grant date using the Black-Scholes option pricing model. The expected life was based on the Company’s historical trends and volatility was based on the expected life of the options. The risk-free interest rate is based on U.S. Treasury yield curve at the grant date. The Company does not pay dividends and therefore, there is no dividend yield.

On October 26, 2007, October 28, 2008 and October 28, 2009, the Company granted options to purchase 256,284, 408,123 and 243,470 shares respectively, of Common Stock pursuant to the 2004 Plan to certain officers and employees. The following table presents the assumptions used in the option pricing model.

	2007			2008			2009
Expected life (years)		6.0			6.3			6.2
Volatility		45.8	%		46.2	%		48.8	%
Risk-free interest rate		4.04	%		2.75	%		2.37	%
Dividend yield		0.0	%		0.0	%		0.0	%
Fair value of each option	$	26.76		$	10.23		$	24.22

Option activity for the year ended December 31, 2009 was as follows:

	Number of Options		Weighted Average Price		Aggregate intrinsic value (in millions)		Weighted Average Remaining Contractual Life (in years)
Outstanding at December 31, 2008	1,610,210		$	23.59
Granted	243,470			48.77
Exercised	(635,927	)		9.90
Forfeited	(15,313	)		36.41
Outstanding at December 31, 2009	1,202,440		$	35.74	$	24.9	7.99
Exercisable at December 31, 2009	555,539		$	32.66	$	13.2	6.98

54

The total intrinsic value of stock options exercised in 2007, 2008 and 2009 was $19.9 million, $1.3 million and $24.9 million, respectively. The income tax benefit realized from stock options exercised was $8.7 million for the year ended December 31, 2009.

Stock-based compensation is recognized as selling, general and administrative expense in the accompanying Consolidated Statements of Income. During the years ended December 31, 2007, 2008 and 2009, stock-based compensation expense totaled $2.3 million, $3.2 million and $4.0 million, respectively. Stock option expense for 2009 excludes $1.3 million for the accelerated vesting of Mr. Smith’s remaining options upon his death as discussed in Note 15 to the consolidated financial statements. This expense is included in Special Item on the Consolidated Statements of Income. No stock-based compensation expense was capitalized during 2007, 2008 or 2009.

Options granted to employees vest over four years and the Company recognizes compensation expense on a straight-line basis over the vesting period of the options. At December 31, 2009, there was $11.4 million of total unrecognized compensation expense related to nonvested stock options. This expense is expected to be recognized over a weighted average of 1.9 years.

The following table summarizes information for equity compensation plans in effect as of December 31, 2009:

	Number of securities to be issued upon exercise of outstanding options	Weighted-average exercise price of outstanding options		Number of securities remaining available for future issuance under equity compensation plan (excluding securities reflected in column (a))
Plan category	(a)	(b)		(c)
Equity compensation plans approved by stockholders	1,202,440	$	35.74	1,523,982
Equity compensation plans not approved by stockholders	0		not applicable	0
Total	1,202,440	$	35.74	1,523,982

13. Earnings Per Share

The following is a reconciliation of the basic and diluted earnings per share computation as required by ASC Topic 260.

	Year Ended December 31,
	2007		2008		2009
	(In thousands, except per share amounts)
Net income	$	107,941	$	105,585	$	105,141
Weighted average common shares outstanding		40,447		39,918		39,164
Effect of dilutive securities—stock options		560		374		374
Total shares and dilutive securities		41,007		40,292		39,538
Basic earnings per common share	$	2.67	$	2.65	$	2.68
Diluted earnings per common share	$	2.63	$	2.62	$	2.66
Weighted average number of stock options with an exercise price greater than average market price for the period		306		576		294

55

14. Common Stock

In May 2008, the Company announced that its Board of Directors had authorized a share repurchase program under which the Company could repurchase up to $100 million of its Common Stock. At the end of the third quarter of 2008, the Company had repurchased 1,799,928 shares at an average price of $55.58 per share (including commissions) for a total of approximately $100 million. All repurchased shares were retired by September 30, 2008.

15. Special Item

In September 2009, Gary D. Smith, one of the Company’s Co-Chief Executive Officers, unexpectedly passed away. Under the terms of Mr. Smith’s employment contract, the Company was obligated to pay Mr. Smith’s base salary, including accrued vacation, and his annual bonus through the remaining employment period (October 27, 2012). In addition, stock options owned by Mr. Smith that were outstanding at the date of his death were immediately vested under the terms of the contract. Accordingly, the Company recognized a pre-tax expense of $5.2 million during the third quarter of 2009. The contractual obligation, including related payroll taxes, totaled $4.3 million, of which $434,000 had been previously accrued. The acceleration of the vesting increased pre-tax non-cash expenses by $1.3 million.

16. Subsequent Events

The Company has evaluated subsequent events through February 25 , 2010, the date of the issuance of these consolidated financial statements.

17. Quarterly Results of Operations (Unaudited):

	Quarter Ended
	March 31		June 30		Sept. 30		Dec. 31
	(In thousands, except per share data)
	(Unaudited)
2008
Revenues	$	132,413	$	142,544	$	132,271	$	135,543
Cost of sales		77,819		83,726		74,230		76,524
Gross profit		54,594		58,818		58,041		59,019
Operating income		34,712		37,760		35,818		33,423
Net income		25,391		27,703		27,446		25,045
Earnings per share:
Basic(1)	$	0.62	$	0.69	$	0.70	$	0.64
Diluted(1)		0.62		0.68		0.69		0.64
2009
Revenues	$	127,522	$	133,186	$	138,157	$	141,339
Cost of sales		72,017		77,407		78,260		82,609
Gross profit		55,505		55,779		59,897		58,730
Operating income		34,660		36,311		34,434		36,635
Net income		24,671		26,707		25,084		28,679
Earnings per share:
Basic(1)	$	0.63	$	0.68	$	0.64	$	0.73
Diluted(1)		0.63		0.68		0.63		0.72

(1) The sum of the quarterly per share amounts may not equal the annual amount reported, as per share amounts are computed independently for each quarter and for the full year.

56

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

In accordance with Exchange Act Rules 13a-15 and 15d-15, the Company carried out an evaluation, under the supervision and with the participation of management, including the Company’s Co-Chief Executive Officers and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Company’s Co-Chief Executive Officers and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2009 to provide reasonable assurance that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and such information is accumulated and communicated to management, including the Company’s Co-Chief Executive Officers and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.

“Management’s Annual Report on Internal Control over Financial Reporting” appears on page 35 of this annual report on Form 10-K.

There has been no change in the Company’s internal controls over financial reporting that occurred during the three months ended December 31, 2009 that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

Item 9B. Other Information

None.

57

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this item is set forth under the captions “Election of Directors,” “Corporate Governance Matters” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s definitive Proxy Statement (the “2010 Proxy Statement”) for its annual meeting of stockholders to be held on May 12, 2010, which sections are incorporated herein by reference.

Pursuant to Item 401(b) of Regulation S-K, the information required by this item with respect to executive officers of the Company is set forth in Part I of this report.

Item 11. Executive Compensation

The information required by this item is set forth in the sections entitled “Director Compensation,” “Executive Compensation” and “Corporate Governance Matters” in the 2010 Proxy Statement, which sections are incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item is set forth in the sections entitled “Security Ownership of Certain Beneficial Owners and Management” and “Executive Compensation—Equity Compensation Plan Information” in the 2010 Proxy Statement, which sections are incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this item is set forth in the section entitled “Corporate Governance Matters” in the 2010 Proxy Statement, which section is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services

The information required by this item is set forth in the sections entitled “Approval of Appointment of Independent Public Accounting Firm—Fees” and “—Audit Committee Pre-Approval Policy for Audit and Non-Audit Services” in the 2010 Proxy Statement, which sections are incorporated herein by reference.

58

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)(1) Financial Statements

All financial statements of the registrant are set forth under Item 8 of this Annual Report on Form 10-K.

(a)(2) Financial Statement Schedules

All schedules and other statements are omitted because of the absence of conditions under which they are required or because the required information is presented in the financial statements or notes thereto.

(a)(3) Exhibits

Dril-Quip will furnish any exhibit to a stockholder upon payment by the stockholder of the Company’s reasonable expenses to furnish the exhibit.

Exhibit No.	Description
*3.1	—	Restated Certificate of Incorporation of the Company (Incorporated herein by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1 (Registration No. 333-33447)).
*3.2	—	Certificate of Designations of Series A Junior Participating Preferred Stock of the Company (Incorporated herein by reference to Exhibit 3.1 to the Company’s report on Form 8-K dated November 25, 2008).
*3.3	—	Amended and restated Bylaws of the Company (Incorporated herein by reference to Exhibit 3.1 to the Company’s report on Form 8-K dated December 21, 2007.)
*4.1	—	Form of certificate representing Common Stock (Incorporated herein by reference to Exhibit 4.2 the Company’s Registration Statement on Form S-1 (Registration No. 333-33447)).
*4.2	—	Registration Rights Agreement among the Company and certain stockholders (Incorporated herein by reference to Exhibit 4.2 to the Company’s Registration Statement Form S-1 (Registration No. 333-33447)).
*4.3	—	Rights Agreement dated as of November 24, 2008 between Dril-Quip, Inc. and Mellon Investor Services LLC, as Rights Agent (Incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on November 25, 2008).
*10.1	—	Credit Agreement between Dril-Quip (Europe) Limited and Bank of Scotland dated November 18, 1999 (Incorporated by reference to Exhibit 10.2 to the Company’s Report on Form 10-Q for the Quarter ended March 30, 2000 (SEC File No. 001-13439)).
*+10.2	—	Form of Employment Agreement between the Company and each of Messrs. Reimert and Walker (Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 17, 2009).
*10.3	—	2004 Incentive Plan of Dril-Quip, Inc. (Incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on December 19, 2008).
**+10.4	—	Summary of Executive Officer and Non-employee Director Compensation.
**10.5	—	Agreement between Dril-Quip Asia Pacific PTE Ltd and Lum Chang Building Contractors PTE Ltd. dated October 16, 2009.
**21.1	—	Subsidiaries of the Registrant.
**23.1	—	Consent of BDO Seidman, LLP.
**31.1	—	Rule 13a-14(a)/15d-14(a) Certification of Larry E. Reimert.
**31.2	—	Rule 13a-14(a)/15d-14(a) Certification of J. Mike Walker.
**31.3	—	Rule 13a-14(a)/15d-14(a) Certification of Jerry M. Brooks.

59

Exhibit No.	Description
**32.1	—	Section 1350 Certification of Larry E. Reimert.
**32.2	—	Section 1350 Certification of J. Mike Walker.
**32.3	—	Section 1350 Certification of Jerry M. Brooks.

* Incorporated herein by reference as indicated.

+ Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K.

** Filed with this Report

60

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on February 25, 2010.

DRIL-QUIP, INC.
By:	/s/    LARRY E. REIMERT
	Larry E. Reimert
	Co-Chief Executive Officer and Co-Chairman of the Board of Directors

Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name	Capacity	Date
/s/    J. MIKE WALKER         J. MIKE WALKER	Co-Chief Executive Officer, Co-Chairman of the Board and Director (Co-Principal Executive Officer)	February 25, 2010
/s/    LARRY E. REIMERT         LARRY E. REIMERT	Co-Chief Executive Officer, Co-Chairman of the Board and Director (Co-Principal Executive Officer)	February 25, 2010
/s/    JERRY M. BROOKS         JERRY M. BROOKS	Chief Financial Officer (Principal Financial and Accounting Officer)	February 25, 2010
/s/    JOHN V. LOVOI         JOHN V. LOVOI	Director	February 25, 2010
/s/    L.H. DICK ROBERTSON         L.H. DICK ROBERTSON	Director	February 25, 2010
/s/    A.P. SHUKIS         A.P. SHUKIS	Director	February 25, 2010

61

EX-10.4

Exhibit 10.4

Summary of Executive Officer and Non-employee Director Compensation

Set forth below is a summary of the compensation paid by Dril-Quip, Inc. (the “Company”) to its executive officers and non-employee directors as of the date of filing of the Company’s Annual Report on Form 10-K. For more information regarding executive officer and director compensation, please read “Director Compensation,” “Executive Compensation,” and “Corporate Governance Matters—Related Person Transactions—Employment Agreements” contained in the Company’s proxy statement for its 2010 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation 14A.

Executive Officers

Each of the Company’s Co-Chief Executive Officers (the “Co-CEOs”) are compensated in accordance with the employment agreements entered into with the Company prior to the closing of the Company’s initial public offering. Those employment agreements were amended in 2008 to comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder (the “Code”), and were subsequently amended in 2009 to comply with the requirements of Section 162m of the Code. Except for revisions to certain provisions regarding the timing of payments made under the agreements and the calculation of certain bonus amounts upon termination, the benefits and terms of the amended employment agreements are substantially similar in all material respects to the benefits and terms of the prior employment agreements.

Each of these agreements provides for an annual base salary, as well as cash incentive compensation in the form of an annual performance bonus for each 12-month period based on (i) the Company’s performance in the 12-month period ending December 31 against the Company’s annual budget and (ii) the Company’s return on capital compared to that of a peer group of companies for the 12-month period ending September 30. In addition, each agreement provides for long-term stock-based incentive compensation in the form of an annual grant of options under the Company’s incentive plan equal to the employee’s base salary multiplied by three and divided by the market price of the Company’s Common Stock on the grant date. The employment agreements give the Nominating, Governance and Compensation Committee the discretion to increase the annual performance bonus and the annual option grant above the amounts determined for such awards pursuant to the terms of the employment agreements. Each agreement also requires the Company to maintain a flexible perquisites spending account in the amount of $25,000 each year for each of the Co-CEOs for use in paying for membership dues, costs associated with purchasing or leasing an automobile, financial counseling, tax return preparation and mobile phones. The Company is required to pay the unused and remaining balances of such accounts annually to the Co-CEOs.

Effective December 31, 2009 each Co-CEO currently receives a base salary of $585,000. For additional information regarding each Co-CEO’s annual cash incentive compensation and long-term stock-based incentive compensation, please read the Company’s proxy statement for its 2010 Annual Meeting of Stockholders.

The Company’s Chief Financial Officer (the “CFO”) is compensated with a base salary, annual cash incentive compensation and stock-based incentive compensation as determined by the Co-CEOs. Effective March 10, 2009 the CFO currently receives a base salary of $255,000. For additional information regarding the CFO’s annual cash incentive compensation and long-term stock-based incentive compensation, please read the Company’s proxy statement for its 2010 Annual Meeting of Stockholders.

Non-Employee Directors

The Company’s non-employee directors receive an annual fee of $75,000, plus a fee of $1,000 for attendance at each Board of Directors meeting and $1,000 for each committee meeting. All directors are reimbursed for their out-of-pocket expenses and other expenses incurred in attending meetings of the Board or its committees and for other expenses incurred in their capacity as directors.

EX-10.5

Exhibit 10.5

PROPOSED ERECTION OF A SINGLE-USER

INDUSTRIAL DEVELOPMENT WITH

1 BLOCK OF 4-STOREY ADMIN OFFICE

AND ANCILLARY FACILITIES

ON LOTS 03950PT, 04016PT, &04089PT MK07

AT TUAS SOUTH AVENUE 1

FOR

DRIL-QUIP ASIA PACIFIC PTE LTD

CONTRACT DOCUMENTS

16 OCTOBER 2009

VOLUME 1 OF 9

Document Reference SG62863/SKM/CD/001

Date of issue: 16 October 2009

PROPOSED ERECTION OF A SINGLE-USER INDUSTRIAL DEVELOPMENT WITH 1 BLOCK OF 4 STOREY ADMIN OFFICE AND ANCILLARY FACILITIES ON LOTS 03950PT, 04016PT, & 04089PT MK 7 AT TUAS SOUTH AVENUE 1

CONTRACT DOCUMENTS

TABLE OF CONTENTS

DESCRIPTION VOLUME 1	page
ARTICLES OF SIA CONTRACT
LETTER OF INTENT TO AWARD from SKM to Lum Chang dated 18 Sep 2009
(ref : SKM/SG62863/GSM/SR/LC_180909)
SIA CONDITIONS OF CONTRACT & AMENDMENT
APPENDIX	A/1 to A/2
SUPPLEMENTAL CONDITIONS	SC/1 to SC/3
REVISED SUMMARY OF TENDER (Bill of Quantities No. 1 and 2)	ST/1
REVISED BILL OF QUANTITIES No. 1 – Preliminaries	B1/1 to B1/30
REVISED BILL OF QUANTITIES No. 2 – (Structural and Architectural Works)	Total 34 Pgs
REVISED SUMMARY OF TENDER (Bill of Quantities No. 3 to 9)	B3/1
REVISED BILL OF QUANTITIES No. 3 – (ACMV)	B3.0/1 to B3.0/3
REVISED BILL OF QUANTITIES No. 4 – (Electrical Installation)	B4.0/4 to B4.0/9
REVISED BILL OF QUANTITIES No. 5 – (Fire Protection Installation)	B5.0/1 to B5.0/5
REVISED BILL OF QUANTITIES No. 6 – (Plumb, San. & Drain. Installation)	B6.0/1 to B6.0/4
REVISED BILL OF QUANTITIES No. 7 – Schedule of Works (CityGas Installation)	B7.0/1
REVISED BILL OF QUANTITIES No. 8 – Schedule of Works (Compressed Air Installation)	B8.0/1
REVISED BILL OF QUANTITIES No. 9 – Schedule of Works (Vertical Transportation)	B9.0/1
PERFORMANCE GUARANTEE (specimen)	PG1 to PG 3
PRODUCT GUARANTEE (specimen)	GUA/1 to GUA/3
SCHEDULE OF RATES (ARCHITECTURAL) – SIGNED	SR/1 to SR/7
SCHEDULE OF DAYWORK RATES – SIGNED	SD/1 to SD/3

ARTICLES OF CONTRACT

THIS CONTRACT is made the SIXTEENTH (16th) day of                                              OCTOBER                                             , 2009    

between                 DRIL-QUIP ASIA PACIFIC PTE LTD                                                                                                                                 

of                 NO. 9 TUAS AVENUE 12, SINGAPORE 639031                                                                                                            

(hereinafter called “the Employer”) and                 LUM CHANG BUILDING CONTRACTORS PTE LTD                                            

of                     1 SELEGIE ROAD #06-02, POMO, SINGAPORE 188306                                                                                                         

(hereinafter called “the Contractor”).

NOW IT IS HEREBY AGREED AS FOLLOWS:-

1. CONTRACTOR’S OBLIGATIONS

The Contractor hereby agrees with Employer to carry out, bring to completion, and maintain for the Employer the building

and other works comprising

PROPOSED ERECTION OF A SINGLE-USER INDUSTRIAL DEVELOPMENT WITH 1 BLOCK OF 4 STOREY ADMIN

OFFICE AND ANCILLARY FACILITIES ON LOTS 03950PT, 04016PT & 04089PT MK07

at                 TUAS SOUTH AVENUE 1

(which, together with such variations as may be required by the Architect and all temporary works needed satisfactorily to construct the permanent works, are hereinafter called “the Works”) in all respects in accordance with the descriptions in the Contract Documents identified in Article 6 hereunder and in accordance with all terms of the said Contract Documents for the price of

Singapore Dollars	FORTY SIX MILLION FOUR HUNDRED AND SIXTY THREE THOUSAND EIGHT HUNDRED AND
EIGHTY EIGHT ONLY

($ 46,463,888.00             only) or such other sum as may become due under the provisions of this contract (hereinafter called “the Contract Sum”)

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2. TYPE OF CONTRACT

(a) This is a Lump Sum Contract and the price is a fixed price not subject to measurement or recalculation should the actual quantities of work and materials differ from any estimates available at the time of contracting, except in regard to variations which may be ordered by the Architect, which shall be valued under the terms of the Contract in accordance with the Schedule of Rates.

(b) The expression “Schedule of Rates” wherever used in this contract shall include any document, however entitled or described, which is signed by the Employer and Contractor as a Contract Document and which is intended to be used for the purpose of valuing variations, or in assisting in the calculation of interim payment in accordance with sub-clause 31(4) or (5) of the Conditions.

^*(c) Interim payment shall be by fixed instalments of the Contract Sum payable on completion of defined stages of the work in accordance with clause 31(5) of the Conditions and the Appendix to the Contract or other Contract Documents.

(d) Interim payment shall be by periodical valuation of the Work in accordance with clause 31(4) of the Conditions and the Appendix to the Contract.

3. ARCHITECT

The term “Architect” in this Contract shall mean

Mr. GORDON S. MAXTED

of the firm of SKM (SINGAPORE) PTE. LTD.

by whom or under whose administrative control on behalf of the Employer the Works have been designed and the Contract Documents prepared, and under whose supervision or administrative control on behalf of the Employer the Works will be carried out. In the event of employment of the Architect by the Employer being terminated for any reason the Employer shall forthwith appoint an Architect in his place for the purposes of this Contract. Such appointee shall be a registered architect and member of Singapore Institute of Architects (hereinafter called “the S.I.A.”) against whom no reasonable objection is made by the Contractor. If the Employer fails to appoint a successor architect on receipt of reasonable notice by the Contractor, or if the Contractor objects to the appointment on any reasonable grounds, then on the application of the Contractor the President or Vice-President of the S.I.A., if satisfied in either case that a new or different architect, as the case may be, should be appointed, and that there has been no unreasonable delay by the Contractor in making the application, may himself nominate an architect whom the Employer shall engage to complete the administration of the contract, and in accordance with such terms as to remuneration as the President or Vice-President may fix. The President or Vice-President of the S.I.A.’s nomination and decision in all such matters shall be final and conclusive. Should the Employer fail or refuse to engage an architect nominated by the President or Vice-President of the S.I.A. under this Article the Contractor may, after giving 14 days’ written notice to the Employer, determine this Contract as provided for in clause 33 of the Conditions of Contract. No successor architect shall be bound by the previous opinions, decisions, valuations or certificates of his predecessor (other than any Delay, Termination of Delay or Further Delay Certificates) should later information or evidence reasonably require modification of such earlier opinions, decisions, valuations or certificates.

4. QUANTITY SURVEYOR

The term “Quantity Surveyor” in this Contract shall mean

Mr. FRANCIS NG

of the firm of SINGAPORE) PTE. LTD.

who shall be a professionally qualified quantity surveyor and whose duty will be to assist the Architect in all matters of valuation or measurement under the terms of Contract. Should a named quantity surveyor’s employment be terminated for any reason the Employer shall forthwith appoint a quantity surveyor in his place, and the provisions of Article 3 in regard to the Contractor’s right of reasonable objection to an appointment and the power of nomination by the President and Vice-President of the S.I.A., failing such appointment or agreement on a new quantity surveyor, shall apply mutatis mutandis, as also the Contractor’s ultimate right of determination of the Contract should the Employer fail to give due effect to the President’s or Vice-President’s nomination.

* Delete whichever sub-clause (c) is not applicable. [See also Appendix (and/or Specification) to Contract Conditions, which will need corresponding provisions defining stages and amounts of instalments.]

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5. PRICES TO BE INCLUSIVE

Unless otherwise expressly provided, the Contract Sum and the Contractor’s rates and prices in the Schedule of Rates shall be inclusive of all ancillary and other works and expenditure, whether separately or specifically mentioned or described in the Contract Documents or not, which are either indispensably necessary to carry out and bring to completion the Works described in the Contract Documents, or which may contingently become necessary to overcome difficulties before completion.

6. CONTRACT DOCUMENTS

The following Contract Documents shall form the contract between the parties:-

(a) These Articles of Contract.

(b) The Conditions of Contract and Appendix annexed thereto.

(c) Drawings identified and signed by the parties as the Contract Drawings on which the Contractor has based his prices.

(d) A specification similarly identified and signed as the Contract Specification on which the Contractor had based his prices.

(e) A Schedule of Rates priced and initiated or signed on behalf of the Contractor and the Employer.

(f) Such other letters of documents, including any Invitations to Tender, Tender forms, or letters of acceptance, as the parties may agree and attach hereto as Contract Documents, in which event such documents shall be initiated or signed on behalf of both parties when attached hereto. A list identifying such documents shall also be set out in or attached to the Appendix to the Conditions of Contract.

7. INTERPRETATION AND GUIDANCE NOTES

The Contract Documents shall be read and construed as a whole, and no special priority other than that accorded by law shall apply to any one document or group of documents, nor shall the contra proferenterm rule apply either to these Articles or to the conditions of Contract. The “Guidance Notes” published by the S.I.A. for use with the present Form of Contract shall not be Contract Documents but, in any case of uncertainty or ambiguity in the Contract documents as a whole, may be considered for the purpose only of assisting in resolving such uncertainty or ambiguity.

8. ASSIGNS

This Contract may as far as is permitted by law or by its express terms bind or benefit the heirs, personal representatives, administrators, legal successors or assigns of the parties.

9. DEFINITIONS AND INTERPRETATION

In this Contract, unless the context otherwise requires:

(a) “SOP Act” means the Building and Construction Industry Security of Payment Act 2004 or any subsequent amendment thereto.

(b) “SOP Regulations” means the Building and Construction Industry Security of Payment Regulations 2005 or any remaking thereof or any amendment to the regulation therein.

(c) “Payment claim” shall have the same meaning and effect as the words “payment claim” in the SOP Act and SOP Regulations .

(d) “Payment response” shall have the same meaning and effect as the words “payment response” in the SOP Act and SOP Regulations.

(e) “Progress payment” shall have the same meaning and effect as the words “progress payment” in the SOP Act and SOP Regulations.

(f) “Supply contract” shall have the same meaning and effect as the words “supply contract” in the SOP Act and SOP Regulations.

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IN WITNESS WHEREOF
the day and year first above written
	(hand of the Employer has been hereunto set
the	*(                                                                                                   )
	(Common seal of the Employer has been hereunto affixed)

Signed by the said
DRIL-QUIP ASIA PACIFIC PTE LTD	/s/ Blake Deberry
	Signature
BY ITS VICE PRESIDENT	BLAKE DEBERRY
*The Common Seal of
DRIL-QUIP ASIA PACIFIC PTE LTD
Was hereunto affixed in the presence of

Name	KRISTINA CHENG
Address	c/o 9 TUAS AVENUE 12
S(639031)

Description             PA to GM

(hand of the Contractor has been hereunto set
and the	*(                                                                                                      )
	(Common seal of the Contractor has been hereunto affixed)

Signed by the said
Signed by the said
LUM CHANG BUILDING CONTRACTORS PTE LTD
BY ITS EXECUTIVE DIRECTOR	/s/ Tan Wey Pin
	Signature
Signature TAN WEY PIN	TAN WEY PIN
*The Common Seal of
LUM CHANG BUILDING CONTRACTORS PTE LTD
was hereunto affixed in the presence of

Name	CHONG SOON TECK
Address	1 Selegie Road, #06-02
PoMo, Singapore 188306
Tel 6273 8888 Fax 6311 0909

Description GENERAL MANAGER, COMMERCIAL

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ARTICLES AND

CONDITIONS OF

BUILDING CONTRACT

SINGAPORE INSTITUTE OF ARCHITECTS

Published by Singapore Institute of Architects

No part of this contract may be reproduced or copied in any form or by any

means without the prior written permission of the publisher.

^©All Copyrights Reserved

by the Singapore Institute of Architects

First Edition 1980

Second Edition 1982

Reprint 1985

Third Edition January 1987

Fourth Edition December 1988

Reprint March 1990

Fifth Edition 1997

Reprint 1998

Sixth Edition August 1999

Seventh Edition April 2005

ARTICLES AND CONDITIONS OF BUILDING CONTRACT

INDEX OF ARTICLES OF CONTRACT

(LUMP SUM)

		PAGE
1.	CONTRACTOR’S OBLIGATIONS	A
2.	TYPE OF CONTRACT	B
3.	ARCHITECT	B
4.	QUANTITY SURVEYOR	B
5.	PRICES TO BE INCLUSIVE	C
6.	CONTRACT DOCUMENTS	C
7.	INTERPRETATION AND GUIDANCE NOTES	C
8.	ASSIGNS	C
9.	DEFINITIONS AND INTERPRETATION	C

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INDEX OF CLAUSES AND SUB-CLAUSES IN CONDITIONS OF CONTRACT

CLAUSE			PAGE
1.	ARCHITECT’S DIRECTIONS AND INSTRUCTIONS		1
	1.(1)	Written and Verbal Directions and Instructions	1
	1.(2)	Definition of “Direction” and “Instruction”	1
	1.(3)	Principal Directions	2
	1.(4)	Principal Instructions	2
	1.(5)	Classification by Architect not Binding	3
	1.(6)	No Duty on Architect	3
	1.(7)	Remedy on Non-Compliance by Contractor	3
	1.(8)	Compensation to Contractor	3
2.	METHODS OF WORKING AND TEMPORARY WORKS		3
	2.(1)	Contractor’s Principal Responsibility	3
	2.(2)	Architect’s Power to Order Change	3
	2.(3)	Indemnity to Contractor	3
3.	DESIGN AND COMPLETION RESPONSIBILITIES		3
	3.(1)	Responsibilities	3
	3.(2)	Architect to Supply Information	4
	3.(3)	Care of the Works	4
	3.(4)	Completion Definition	4
4.	PROGRAMME		4
	4.(1)	Submission of Programme	4
	4.(2)	Approval	5
	4.(3)	Disapproval	5
5.	MAKE-UP CONTRACTOR’S PRICES		5
	5.(1)	Rates and Prices	5
	5.(2)	Preliminary Items, Etc.	5
	5.(3)	Enforcement	5
6.	ADMINISTRATION		5
	6.(1)	Address for Notices, Etc.	5
	6.(2)	Foreman in Charge	6
	6.(3)	Dismissal of Persons Employed	6
	6.(4)	Copies of Documents	6
	6.(5)	Copies of Drawings, Etc.	6
	6.(6)	Documents on Site	6
	6.(7)	Return of Documents	6
	6.(8)	Restrictions on Use	6
	6.(9)	Issue of Certificates	6
7.	STATUTORY OBLIGATIONS		6
	7.(1)	By-Laws and Regulations	6
	7.(2)	Fees and Charges	7
8.	SETTING OUT		7
9.	ACCESS FOR ARCHITECT		7
10.	POSSESSION OF SITE AND COMMENCEMENT OF WORK		7
	10.(1)	Time of Commencement	7
	10.(2)	Possession of Site	8

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11.	QUALITY OF MATERIALS AND WORKMANSHIP		8
	11.(1)	Quality of Work and Materials	8
	11.(2)	Investigation of Defects	8
	11.(3)	Removal of Defective Work or Reduction of Price	8
	11.(4)	Variations Due to Defective Work	8
	11.(5)	No Duty of Architect or Employer	9
12.	VARIATIONS AND VALUATION OF ADDITIONAL PAYMENTS		9
	12.(1)	Power to Order and Subsequent Sanction	9
	12.(2)	Definition of Variation	9
	12.(3)	Measurement of Variations	9
	12.(4)	Valuation of Variations	10
	12.(5)	Payment of Variations	11
	12.(6)	Loss of Profit in Valuation	11
13.	SCHEDULE OF RATES		11
14.	DISCREPANCY OR DIVERGENCE		12
15.	ASSIGNMENT AND SUB-CONTRACTING		12
	15.(1)	Assignment by Contractor	12
	15.(2)	Sub-Contractors	12
	15.(3)	Responsibilities for Sub-Contractors	13
16.	PLANT AND MATERIALS		13
	16.(1)	Plant	13
	16.(2)	Materials and Goods	13
	16.(3)	Removal	13
	16.(4)	Hired or Hire Purchase Plant	13
	16.(5)	Assignment of Hiring, etc. Agreements	14
17.	ARTISTS, TRADESMEN AND OTHER CONTRACTORS		14
18.	INDEMNITIES TO EMPLOYER
	18.(1)	Personal Injuries	14
	18.(2)	Damage to Property	14
	18.(3)	Employer’s Negligence	14
19.	INSURANCE AGAINST INJURY TO PERSONS AND PROPERTY AND WORKMEN’S COMPENSATION		14
	19.(1)	Personal Injuries	14
	19.(1)(b)	Damage to Property	14
	19.(1)(c)	Production of Policies	15
	19.(2)(a)	Damage to Property when Contractor not Negligent	15
	19.(2)(b)	Placing of Insurance	15
	19.(3)	Default in Insurance	15
20.	INSURANCE OF WORKS
	20.(1)	Risks to be Insured	15
	20.(2)	Application of Insurance Monies	16
21.	DUE DILIGENCE BY CONTRACTOR		16
22.	TIME FOR COMPLETION		16
	22.(1)	Completion Date	16
	22.(2)	Completion Definition	16

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23.	EXTENSION OF TIME		16
	23.(1)	Grounds	16
	23.(2)	Notice	18
	23.(3)	Time for Extension	18
	23.(4)	Request for Information	18
24.	DELAY IN COMPLETION AND LIQUIDATED DAMAGES		18
	24.(1)	Delay Certificate	18
	24.(2)	Liquidated Damages	18
	24.(3)	Termination of Delay and Further Delay	18
	24.(4)	Completion	19
	24.(5)	Outstanding Works	19
25.	PHASED OR STAGE COMPLETION		19
26.	PARTIAL RE-OCCUPATION		19
	26.(1)	Occupation of Part with Consent	19
	26.(2)	Consequential Effects	20
	26.(3)	Occupation of Part without Consent	20
27.	MAINTENANCE FOLLOWING COMPLETION		21
	27.(1)	Maintenance Period	21
	27.(2)	Schedule of Defects	21
	27.(3)	Additional Powers of Architect	21
	27.(4)	Allowance for Defect	21
	27.(5)	Maintenance Certificate	22
28.	DESIGNATED AND NOMINATED SUB-CONTRACTORS AND SUPPLIERS		22
	28.(1)	Definitions	22
	28.(2)	Responsibilities	23
	28.(3)	Termination of Sub-Contract	23
	28.(4)	Payment for Work by Contractor under Provisional and Contingency Sums	23
	28.(5)	Payment for Work by Nominated Sub-Contractors or Suppliers	23
	28.(6)	Payment for Work by Designated Sub-Contractors or Suppliers	24
	28.(7)	Interim Payment	24
29.	NOMINATION AND RIGHTS OF OBJECTION		24
	29.(1)	Nomination	24
	29.(2)	Objections to Nomination	24
	29.(3)(a)	Powers following Objection	25
	29.(3)(b)	Alternative for Objection to Nomination	25
	29.(4)	Valid Objection Defined	26
30.	PAYMENT OF NOMINATED SUB-CONTRACTORS AND SUPPLIERS		26
	30.(1)	Certification and Payment	26
	30.(2)	Early Final Payment	26
31.	PAYMENT OF CONTRACTOR AND INTERIM CERTIFICATES		26
	31.(1)	Progress Payments	26
	31.(2)	Payment Claim	26
	31.(3)	Interim Certificate	27
	31.(4)	Interim Valuation	27
	31.(5)	Stage Instalments	28
	31.(6)	Correcting Earlier Certificates	28
	31.(7)	Sums to be Certified	28
	31.(8)	Retention Monies	28
	31.(9)	First Release of Retention	28
	31.(10)	Second Release of Retention	28

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	31.(11)	Final Claim Documents	28
	31.(12)	Final Certificate	29
	31.(13)	Outstanding Balances of Nominated Sub-Contractors and Suppliers	29
	31.(14)	Effect of Architect’s Certificate	29
	31.(15)	Limit on Certifying Power	29
	31.(16)	Payment Response	30
	31.(17)	Payment of Contractor	30
32.	TERMINATION BY EMPLOYER		30
	32.(1)	Termination without Default	30
	32.(2)	Termination for Default	30
	32.(3)	Grounds of Termination for Default	30
	32.(4)	Termination Certificate	31
	32.(5)	Damages Contractor’s Only Remedy	31
	32.(6)	Suspension of Termination Certificate	31
	32.(7)	Termination on Insolvency Etc. of Contractor	32
	32.(8)	Effects of Termination	32
	32.(9)	Employer may Elect to Abandon Project	34
	32.(10)	Powers on Rescission by Employer	34
	32.(12)	Architect’s Certificate Not Binding	34
33.	TERMINATION BY CONTRACTOR		34
	33.(1)	Grounds	34
	33.(2)	Contents of and Time for Contractor’s Notice	35
	33.(3)	Effect of Notice	35
	33.(4)	Power to Suspend Work	35
	33.(5)	Power to Suspend Work under SOP	35
	33.(6)	No Power of Architect to Certify	35
34.	OUTBREAK OF WAR		36
	34.(1)	Termination	36
	34.(2)	Protective Works Etc.	36
	34.(3)	Payment	36
35.	WAR DAMAGE		36
	35.(1)	Consequences	36
	35.(2)	Termination	37
	35.(3)	Compensation Monies	37
	35.(3)	Definition of War Damage	37
36.	ANTIQUITIES		37
	36.(1)	Responsibilities of Contractor	37
	36.(2)	Compensation to Contractor	37
37.	ARBITRATION		38
	37.(1)	Disputes to be Referred	38
	37.(2)	Arbitrator’s Power to Rectify Contract	38
	37.(3)	Restrictions on Powers of Arbitrator	38
	37.(3)(a)	Nomination by S.I.A. President	38
	37.(3)(b)	No Written Instruction	38
	37.(3)(c)	Directions not Objected To	38
	37.(3)(d)	Dayworks	38
	37.(3)(e)	Measurement	38
	37.(3)(f)	No Notice Claiming Extension of Time	38
	37.(3)(g)	Certificate of Partial Re-entry	38
	37.(3)(h)	Effect of Architect’s Certificates	39
	37.(3)(i)	Amending Certificates	39

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	37.(3)(j)	Other Contract Provisions	39
	37.(4)	Courts to have same Powers	39
	37.(5)	Early Arbitration	39
	37.(6)	Interest	39
	37.(7)	Overpayment	39
	37.(8)	Same Arbitrator as Nominated Sub-Contract Disputes	39
	37.(9)	Arbitration Clause may lapse if not same Arbitrator	40
	37.(10)	Limitation of Actions	40
	37.(11)	Refusal of Stay by Courts	40
38.	MEDIATION CLAUSE		40
39.	ADDITIONAL OPTIONAL CLAUSE FOR FLUCTUATIONS		40
	39.(1)	Steel Bar Reinforcement	40
	39.(2)	Cement	41
	39.(3)	Interim Payment	41
	39.(4)	Contractor in Delay	41
40.	ADDITIONAL OPTIONAL CLAUSE PERMITTING INSURANCE EXCESS		41

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CONDITIONS OF CONTRACT

1.		ARCHITECT’S DIRECTIONS AND INSTRUCTIONS
1.(1)		The Contractor shall at all times carry out, bring to completion, and maintain the Works in accordance with all the requirements of the Contract and must (subject to sub-clause (8) of this Condition) comply with all written directions and instructions given in relation thereto by the Architect. All orders of the Architect shall be expressed to be either directions or instructions, and shall be given in writing if requested by the Contractor. Any direction or instruction given verbally shall be deemed to have been given in writing, and have retrospective effect from the date of the verbal direction or instruction, provided that the Contractor confirms the direction or instruction in writing within 14 days of its being given, and that the Architect does not within 14 days of receipt of the written confirmation dissent from or withdraw the direction or instruction. If the Architect withdraws any verbal direction or instruction previously given by him within the latter 14 days, then the Contractor shall he compensated for any expense reasonably incurred by him in complying therewith. In addition the Architect may (but shall not be obliged to) at any time subsequently confirm in writing any direction or instruction previously given verbally by him, in which event the confirmation shall have retrospective effect as a written direction or instruction given at the time of the verbal direction or instruction. Verbal directions or instructions of the Architect or Clerk of Works, or written or other orders or requests not expressed to be directions or instructions, need not be complied with by the Contractor if the Architect fails or refuses to confirm the same in writing in properly expressed terms with the minimum of delay when requested to do so, and no claim will be permitted under this Contract based upon an order or request of the Architect unless expressed as a written direction or instruction or confirmed in writing to or by the Architect under the terms of this sub-clause of the Conditions. Directions or instructions given by a Clerk of Works appointed by the Employer shall be of no effect unless confirmed in writing by the Architect at any time, or by the Contractor to the Architect and not dissented from in writing within the same period as Architect’s verbal directions or instructions, in which events such directions or instructions shall be retrospectively validated in the same way as Architect’s instructions. Without such validation the Contractor shall not be entitled to compensation or expense incurred by compliance with any instructions of any Clerk of Works.	Written and Verbal Directions and Instructions
1.(2)		In this Contract or when used by the Architect the term “direction” shall mean an order of the Architect (as opposed to suggestions, recommendations or agreements with proposals made by the Contractor) compliance with which will not under the terms of the Contract entitle the Contractor to additional payment or compensation or to an increase in the Contract Sum, but which may in some cases result under the terms of the Contract in a reduction of the Contract Sum, whereas the term “instruction” shall mean an order of the Architect compliance with which, while it may in some cases involve a reduction of the Contract Sum, will in principle entitle the Contractor in an appropriate case under the terms of the Contract to additional payment or compensation or to an increase in the Contract Sum. All orders given or confirmed in writing to the Contractor by the Architect shall be expressed by him to be either “instructions” or “directions”.	Definition of “Direction” and “Instruction”
1.(3)		The principle matters under the Contract in respect of which the Architect shall have power to give directions as:-	Principal Directions
	(a)	To secure proper compliance by the Contractor with any existing contract obligations in regards to the permanent work, or to any temporary works or methods of working.
	(b)	To secure methods of working and temporary works which will be reasonably safe and proper during construction, or which will ensure properly constructed permanent work, in cases where the Contractor is failing to use the same.
	(c)	To vary the permanent works or temporary works or methods of working at the request of the Contractor so as to assist him in overcoming difficulties or in avoiding excessive costs during construction.

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			(d)		To vary the permanent or temporary works or methods of working as a consequence of defective work or other default or breach of contract by the Contractor, where insistence upon the removal and rebuilding of the original permanent work would involve unreasonable expense or delay or might prejudice the permanent works.
			(e)		To suspend or postpone work and carry out investigations when this is the reasonable consequence of defective work or any other default or breach of contract of the Contractor.
			(f)		To alter or vary a previous direction.
Principal Instructions	1.	(4)			The principal matters under the Contract in respect of which the Architect shall have power to give instructions are: -
			(a	)	To vary the permanent work where this is desired by the Architect or Employer or is required under clause 7(1) of the Conditions.
			(b	)	To vary the temporary works or methods of working where this is desired by the Architect or the Employer for any reason or is required under clause 7(1) of the Conditions and the Contractor would otherwise be entitled or obliged to use different methods of working or temporary works.
			(c	)	To postpone or suspend work and carry out investigations where this is not the consequence of any defective work or default or other matter for which the Contractor is responsible under the Contract but is desired for any reason by the Architect or the Employer.
			(d	)	To carry out work or supply goods or materials by Designated or Nominated Sub-Contractors or Suppliers which are the subject of a P.C. Sum or Item in the Specification, Bills of Quantities or other Contract Documents.
			(e	)	To carry out work or supply goods or materials, either by the Contractor himself or by Nominated Sub-Contractors or Suppliers, which are the subject of a Provisional or Contingency Sum or Item in the Specification, Bill of Quantities or other Contract Documents.
			(f	)	To alter or vary any other previous instruction.
Classification by Architect not Binding	1.	(5)			The choice by the Architect of the expression “direction” or “instruction” when giving an order to the Contractor shall not bind either the Contractor or the Employer before an arbitrator or the Courts, save only that if after 28 days from receipt of an order expressed as a direction or of its written confirmation by or to the Architect, as the case may be, the Contractor has not disputed its classification as such in writing, or claimed extra payment or compensation for it in writing, or given notice of arbitration in regard to it, then the Contractor shall be conclusively deemed to have undertaken to comply with the direction without an increase in the Contract Sum or any additional payment or compensation. Provided that if the Contractor shall within 14 days of receipt of the direction or its written confirmation request the Architect to inform him in writing under which provision of the Contract the direction is given the Contractor’s time for reserving a claim under this sub-clause shall be extended until 14 days after the Architect has complied with the Contractor’s request.
No Duty on Architect	1.	(6)			The Architect shall at no time he under any obligation or duty to the Contractor either on behalf of the Employer or his own account to give a direction as to any matter in sub-clause (3) nor an instruction under paragraphs (a), (b), (c) or (f) of sub-clause (4) hereof, nor shall any failure to do so on his part in any way prejudice the rights of the Employer against the Contractor or render the Employer liable to the Contractor.

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1.(7)	If within 7 days after receipt of a written notice from the Architect requiring the Contractor to comply with a written direction or instruction the Contractor fails to do so, the Employer may employ other contractors to do so under the supervision of the Architect and may upon the certificate of the Architect deduct the extra cost (if any) of doing so from any monies otherwise due under the Contract or recover the same from the Contractor. Such certificate shall be called a “Certificate of Cost of Other Contractor’s Work”, and any such deduction shall be recorded by the Architect in subsequent payment certificates under clause 31 of the Conditions.	Remedy on Non- Compliance by Contractor
1.(8)	If the Architect shall give any direction or instruction, either in writing, or effectively confirmed in writing by or to the Architect under the provisions of this clause, which is subsequently shown to have been given in circumstances where there was either no power to do so under the terms of the Contract, or no justification in fact for the exercise of a power, and if the Contractor has duly complied therewith in accordance with sub-clause (1) of this Condition (and in an appropriate case has protected his position in relation to a direction pursuant to sub-clause (5) of this Condition) then the Contractor shall be entitled to additional payment or compensation (and in an appropriate case to an extension of time) for any damage, liability, expenditure or cost which the Contractor would not have incurred but for the said direction or instruction. Provided that no additional payment or compensation or extension of time shall be made or given under this sub-clause where the direction or instruction is the reasonable consequence, in accordance with the rules of remoteness or mitigation of damage, of any negligence or of defective work, goods or materials or of any other breach of contract by the Contractor.	Compensation to Contractor
2.	METHODS OF WORKING AND TEMPORARY WORKS
2.(1)	Unless expressly stipulated or described in the Specification or other Contract Documents, control over the Contractor’s site operations and the choice of methods of working and temporary works shall be the sole right and responsibility of the Contractor.	Contractor’s Principal Responsibility
2.(2)	Provided that in those cases where the choice of and control over the methods of working or temporary works is the Contractor’s, the Architect may, without any obligation to do so and at his entire discretion, give a direction in the circumstances envisaged under clause 1(3) hereof, or an instruction in the circumstances under clause 1(4)(b), requiring the Contractor to change his methods of working or temporary works.	Architect’s Power to Order Change
2.(3)	If any accident, loss, liability, claim or damage subsequently occurs as a result solely of the use of the methods of working or temporary works ordered by a direction or instruction of the Architect under sub-clauses 1(3) and (4) of these Conditions and sub-clause (2) hereof (other than orders, whether expressed as directions or instructions, given at the request of the Contractor or as a reasonable consequence of any negligence or default or breach of contract by the Contractor or the result of an insured risk under clauses 19(2)(a) and 20 of these Conditions) the Employer will indemnify and if appropriate pay compensation to the Contractor in respect of the same, provided that the accident, loss, liability, claim or damage would not have occurred if the Contractor’s preferred or previous methods of working or temporary works had been used, and provided further that the Contractor has complied with the Architect’s direction or instruction with due skill and care.	Indemnity to Contractor
3.	DESIGN AND COMPLETION RESPONSIBILITIES
3.(1)	Except in so far as the Contract either expressly or by implication leaves any question of design, or of choice of materials or workmanship, or of performance of the Works after completion, to the Contractor, or to any Designated or Nominated sob-Contractor or Supplier, the design and/or specification of the Works will be provided on behalf of the Employer by the Architect or by consultants or other persons acting on behalf of the Architect or of the Employer, and the Contractor’s responsibility in relation to the part of the Works so designed and specified shall be limited to bringing the Works to full and satisfactory completion, and to this extent the Contractor shall be deemed to have satisfied himself as to his ability and to have undertaken so to do (subject to any	Responsibilities

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				obligation to vary the Works under clause 7 of these Conditions). The Contractor shall be under no responsibility for the design or suitability for their purpose or performance of the Works after completion to the extent that any part of the Works has been so designed and specified on behalf of the Employer, provided that he has complied in all respects with the requirements of the Contract, but shall be so responsible in respect of any part of the Works designed, specified or chosen by himself or by any Designated or Nominated Sub-Contractor or Supplier or any other Sub-Contractor or Supplier.
Architect to Supply Information	3.	(2)		In so far as he may not have already done so at the time of the Contract, the Architect shall supply such further or working drawings, specifications, details, levels, instructions or other information from time to time during the construction period as may be necessary to amplify and explain in detail the work to be carried out by the Contractor. Such information shall be given, in the case of original contract work, within a reasonable time to enable the Contractor to discharge all his obligations under the Contract, regard being had in particular to
			(a)	The Contractor’s programme furnished under clause 4 of these Conditions and any qualifications or reservations thereto made by the Architect.
			(b)	The actual rate of progress of the Contractor.
			(c)	The Contract Date for Completion as currently extended by the Architect.
			(d)	Reasonable pre-planning requirements of the Contractor having regard to the nature of the work.
			(e)	Advance notice or request for required information from the Contractor where this may be desirable or necessary.
				In the case of variations, information in relation to varied work shall be given within a reasonable time of the issue of the relevant variation order to the Contractor.
Care of the Works	3.	(3)		Subject to clauses 25 and 26 of these Conditions in regard to Phased or Stage Completion and Partial Occupation, the Works shall remain until completion at the risk of the Contractor, who (subject to the receipt of any insurance monies under clause 20 of these Conditions) shall make good at his own expense and without payment any accidental or other loss or damage thereto howsoever caused (including theft or other act of third persons), save only damage (other than damage to the Works due to a risk insured under clause 20 of these Conditions) whose proximate cause is any act or neglect of the Employer or of other contractors engaged by the Employer under clause 17 of these Conditions, or due to an instruction or direction of the Architect under sub-clause 2(3) of these Conditions, for the making good of any of which the Contractor shall be entitled to additional payment or compensation on the like terms as in that sub-clause and, if appropriate, to an extension of time.
Completion Definition	3.	(4)		Subject to clauses 25 and 26 of these Conditions, for the purpose of this clause “completion” shall mean the completion certified by the Architect in his Completion Certificate under clause 24(5) of these Conditions or, in relation to any outstanding work notified by the Architect under the terms of that clause at the time of the Completion Certificate, the subsequent completion and acceptance of that work.
	4.			PROGRAMME
Submission of Programme	4.	(1)		Following acceptance of his tender, and without prejudice to any requirement to do so earlier in his tender or the other Contract Documents, the Contractor shall, not later than 14 days before the stipulated date for the commencement of work, submit for approval by the Architect a programme related to the contract period showing the order or sequence in which he proposes to carry out the various parts of the Works and any proposed temporary works or methods of working which may be relevant to progress. The Contractor will not be permitted to commence work until 14 days after submission of a sufficiently detailed programme, notwithstanding the passing of the

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	stipulated Contract Commencement Date, and no extension of time shall be given in respect of any delay so caused.
4.(2)	Approval of the programme by the Architect shall signify his agreement with the proposed order or sequence of working in the programme, and may be taken into account in any dispute for determining a reasonable order or sequence for supplying any outstanding information or details to the Contractor, or for affording possession of the Site by the Employer, but shall not otherwise change the contractual obligations of either party in relation to the Contract Completion Date, or as to a reasonable time for giving or receiving further information, or for affording possession of the Site. In particular an optimistic programme showing completion before the Contract Completion Date shall not without express agreement to that effect with the Employer alter or advance the aforesaid obligations of the Architect and Employer, nor shall it advance the Contract Completion Date.	Approval
4.(4)	Disapproval of the programme by the Architect (provided the programme is sufficiently detailed) shall not prevent the Contractor from starting work, but may be taken into account (together with any reasons given by the Architect therefore) in determining any dispute as to a reasonable sequence or order for affording possession of the Site or for supplying further drawings or details or information.	Disapproval
5.	MAKE-UP OF CONTRACTOR’S PRICES
5.(1)	To facilitate the valuation of variations or measurement of the Works the Contractor, without prejudice to any express requirement in the Contract Documents to do so earlier, shall submit to the Quantity Surveyor not less than 14 days before the stipulated date for the commencement of work a breakdown of his prices in the Schedule of Rates. Such breakdown need not state the amount of the Contractor’s profit, but in the case of each rate or price (or representative groups of rates or prices) shall indicate the proportionate amounts (inclusive of profit) expressed as percentages of the total rate or price, attributable to labour, goods or materials, plant, and overheads expenditure (if any) respectively, and shall identify the type of plant, labour, materials or goods or other expenditure allowed for in sufficient overall detail for pricing purposes, drawing attention to any unusual or important items.	Rates and Prices
5.(2)	In the case of any preliminary items of expenditure in the Schedule of Rates the Contractor shall when tendering indicate by an appropriate key letter those items requiring adjustment based on the quantities of work carried out (Letter Q); those items requiring adjustment based on the time required to carry out the work (Letter T); and those items of expenditure which are of a once-for-all or fixed character and independent of quantities or time (Letter F). In the case of Preliminary or General or Contingency or Lump Sum items, the Contractor shall in addition when tendering indicate precisely all categories of expenditure contemplated by those items which are not included in his other rates and prices. Preliminary items for which the Contractor has given no key letter indication shall be deemed to be fixed.	Preliminary Items, Etc.
5.(3)	The Contractor shall not be permitted to commence work until 14 days after the submission of a sufficient breakdown of prices in accordance with sub-clause (1) of this clause, notwithstanding the passing of the stipulated Contract Commencement Date, and no extension of time shall be given in respect of any delay so caused.	Enforcement
6.	ADMINISTRATION
6.(1)	The Contractor shall upon signing this Contract notify the Architect in writing of an address at which Notices and Architect’s certificates, directions or instructions under this Contract may be served upon him. In the event of the Contractor failing to notify the Architect of such an address, all notices under the Contract and Architect’s certificates, directions or instructions shall be deemed served upon the Contractor on the date of recorded delivery if sent by registered post to the address stated in the Articles of Contract, or, if left at his office on the Site, on that date, if a receipt is obtained from the Contractor’s Site Agent or Foreman-in-charge. Notices shall also be deemed served on the date of recorded delivery if sent by registered post or, if not, of actual delivery by hand or otherwise, to the address notified by the Contractor.	Address for Notices, Etc.

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Foreman in Charge	6.(2)		The Contractor shall constantly keep upon the Works a competent Site Agent or Foreman-in-charge and without prejudice to sub-clause (1) hereof, any directions or instructions given to him by the Architect shall also be deemed to have been issued to the Contractor.
Dismissal of Persons Employed	6.(3)		The Architect may give directions requiring the dismissal from the Works of any person employed thereon whose continued employment by the Contractor may reasonably be regarded as prejudicial to the satisfactory and expeditious completion of the Works.
Copies of Documents	6.(4)		Immediately upon the execution of this Contract the Architect without charge to the Contractor shall furnish him (unless he shall have been previously furnished) with
		(a)	One copy certified on behalf of the Employer of the Articles of Contract, of these Conditions, and of the Contract Documents described in Article 6(f).
		(b)	Two copies of the Specification.
		(c)	Two sets of the Contract Drawings, and
		(d)	Two copies of the unpriced Schedule of Rates and (if requested by the Contractor) one copy of the priced Schedule of Rates.
Copies of Drawings, Etc.	6.(5)		The Architect shall within a reasonable time supply to the Contractor two copies of the working drawings, specifications and information referred to in clause 3(2).
Documents on Site	6.(6)		The Contractor shall keep one copy of the Contract Drawings, one copy of the unpriced Schedule of Rates, one copy of the Specification, and one copy of the working drawings, specifications and information referred to in sub-clause (5) of this Condition upon the Works so as to be available to the Architect or his representative at all reasonable times.
Return of Documents	6.(7)		Upon final payment under clause 31 of these Conditions, and if no further matters are outstanding between the Contractor and the Employer, the Contractor shall, if so requested by the Architect, forthwith return to the Architect all drawings, details, specifications and other documents of a like nature which bear his name, and the Architect shall return to the Contractor all copies of his make-up of prices under clause 5 of these conditions.
Restrictions on Use	6.(8)		None of the documents hereinbefore mentioned shall be used by the Contractor for any purpose other than this Contract and neither the Employer, the Architect nor the Quantity Surveyor shall divulge or use except for the purposes of this Contract any of the prices in the Schedule of Rates or in the Contractor’s make-up of prices.
Issue of Certificates	6.(9)		All certificates issued by the Architect under this Contract shall, unless otherwise expressly stated in the Contract, be issued to the Contractor, with a copy to the Employer dispatched by hand or ordinary post at the same time and date.
	6.(10)		Nothing in this clause shall prejudice the validity of any notice or certificate if proof is furnished of its actual receipt by the party to be served or by his authorised agent.
	7.		STATUTORY OBLIGATIONS
By-Laws and Regulations	7.(1)		The Contractor shall comply with and give all notices required by any instrument, rule or order made under any written law applicable or any regulation or bye-law of any Government authority or any statutory undertaker which has any jurisdiction with regard to the Works or with whose systems the same are or will be connected. The Contractor before making any variation from the Works described in the Contract Documents necessitated by such compliance shall give to the Architect a written notice specifying and giving the reasons for such variation and the Architect may issue a direction or instruction in regard thereto. If within seven days of having given the said written notice the Contractor does not receive any diction or instruction in

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	regard to the matters therein specified he shall proceed with the work conforming to the written law, instrument, rule, order, regulation or bye-law in question, and any variation thereby necessitated in any part of the Works designed, specified or chosen by or on behalf of the Architect or Employer and not by the Contractor or any sub-contractor shall be deemed to be a variation ordered by a written instruction of the Architect, and if appropriate an extension of time shall be given to the Contractor. Should the Architect himself give a direction or instruction the Employer will, subject to clause 1(5) of the Conditions indemnify the Contractor against any damage, claim, loss or expenditure which would not have been incurred but for the variation, and the Architect shall if necessary grant an extension of time to the Contractor therefore, provided always that the variation relates to any part of the Works designed, specified or chosen by or on behalf of the Architect or Employer and not by the Contractor or any sub-contractor, and that the variation is not required as a consequence of any negligence, breach of contract or other default of the Contractor or of any subcontractor, direct or indirect.
7.(2)	The Contractor may in addition be compensated by the Employer for any fees, charges or other expenditure incurred by him as a result of any statutory obligations which may be identified for the purpose in that Appendix and Specification or other Contract Documents.	Fees and Charges
8.	SETTING OUT
	The Architect shall determine any levels which may be required for the execution of the Works, and shall furnish to the Contractor by way of accurately dimensioned drawings such information as shall enable the Contractor to set out the Works at ground level. Any errors arising from inaccurate setting out by the Contractor shall either be amended at his own cost or, at the discretion of the Architect, may be accepted without amendment, subject to such reduction in the Contract Sum as may be reasonable having regard to any loss of value suffered by the Employer or any reduced cost to the Contractor resulting from the error, whichever shall be greater.
9.	ACCESS FOR ARCHITECT
	The Architect and his representatives shall at all reasonable times have access to the Works and to the workshops or other places of the Contractor or of any sub-contractor or supplier where work is being prepared for the Contract. Where such work is to be so prepared in workshops or other places of a sub-contractor or supplier, the Contractor shall by a term in the sub-contract secure a similar right of access to those workshops or places for the Architect and his representatives, and shall take all reasonable steps required of him by the Architect to enforce or assist in enforcing such right.
10.	POSSESSION OF SITE AND COMMENCEMENT OF WORK
10.(1)	Subject to compliance with his obligations under clauses 4 and 5 of these Conditions in regard to the provision of a sufficiently detailed programme and breakdown of his prices, and subject to any extension of time properly due under the terms of the Contract, the Contractor shall commence work on the Commencement Date stated in the Appendix to these Conditions, and the Contract Period and Date for Completion therein stated shall respectively commence upon and be calculated from the said date. If no such Commencement Date is stated in the Appendix, or if the date in the Appendix becomes invalidated for any reason which is not the responsibility of the Contractor, then the Commencement Date shall be deemed to be such other date as may be expressly or implicitly agreed by the parties or be a reasonable date for the commencement of work, and the Date for Completion shall be appropriately modified or re-calculated. In such event the Architect may and shall if required by the Contractor issue a Certificate stating the revised Commencement and Completion Dates. Such Certificate is referred to in this Contract as a “Certificate of Revised Commencement Date”.	Time of Commencement

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Possession of Site	10.(2)	In the absence of express provision to the contrary, the Contractor shall be entitled on the Commencement Date to free and uninterrupted possession of the whole of the area of the Site as defined in the Appendix to the Conditions, whether by reference to the Specification or Drawings or otherwise. The Contractor may also be entitled to such Special Access to the Site as is stated in the Appendix to the Conditions, which the Employer will be responsible for providing. Save as aforesaid the obtaining of access to the Site will be the responsibility of the Contractor. Any arrangements for possession to be given by stages or any other restrictions upon possession of the whole of the Site shall be stated in the Appendix to these Conditions or in the Specification.
	11.	QUALITY OF MATERIALS AND WORKMANSHIP
Quality of Work and Materials	11.(1)	Without prejudice to the Contractor’s responsibilities under clause 3 of these Conditions, an materials, goods and workmanship comprised in the Works shall, save where otherwise expressly stated or required, be the best of their described kinds and shall in all cases be in exact conformity with any contractual description or specification and of good quality. Wherever it is practicable to do so the Contractor shall, at the request of the Architect, furnish him with any necessary supporting vouchers, evidence or information confirming that all materials and goods whether fixed or unfixed comply with the requirements of this sub-clause. Any unreasonable failure or refusal by the Contractor to furnish such vouchers, evidence or information shall entitle the Architect to give a direction for the removal of the materials or goods at the expense of the Contractor, and until replacement to deduct their value, if already paid, from the Contract Sum.
Investigation of Defects	11.(2)	Without prejudice to his powers under the next following sub-clause, the Architect may issue a direction or instruction for the opening up or inspection of any work covered up, or for carrying out tests or investigations of any goods, materials or executed work, arid for the postponement of further work until the results of the tests or investigations are known. If such opening up or inspection or tests or investigations are the reasonable and prudent consequence of defective work by the Contractor or of any breach of contract or negligence or omission on his part or of any sub-contractor or supplier then in such event the Architect may give a direction and the Contractor shall comply with the same at his own expense, nor shall he be entitled to an extension of time, notwithstanding that no further defective work or breaches of contract are subsequently disclosed thereby, but in other cases the Contractor shall be entitled to an instruction and to compensation for any additional Expenditure or delay resulting from compliance with such instructions, and to an appropriate extension of time, unless and to the extent that defective work or other breaches of contract are disclosed thereby, in which event he shall not be entitled to such compensation or extension of time. For the avoidance of doubt, where it seems reasonable to do so in the light of the facts disclosed by any such opening up or inspection or tests or investigations or postponement the Architect may re-classify an earlier direction as an instruction or vice-versa.
Removal of Defective Work or Reduction of Price	11.(3)	Without prejudice to his power to vary the work under clause 1(3) of these Conditions, the Architect may give directions for the removal or demolition of any work, goods or materials, whether fixed or unfixed, which are not in accordance with the Contract, and for their reconstruction or replacement in exact accordance with the Contract. Provided that the Architect may, but shall not be bound to, accept any work containing defects unremedied and without removal or replacement, in which event the Contract Sum shall be reduced by any loss of value or otherwise suffered by the Employer, or by any saving in cost obtained by the Contractor in carrying out the defective work, whichever is greater.
Variations Due to Defective Work	11.(4)	Alternatively, where the requirements of clause 1(3)(d) are satisfied, and without prejudice to his powers under sub-clause (3) hereof, the Architect may, but shall not be obliged to, give directions for a variation of the Works in lieu of their removal or demolition and reconstruction under sub-clause (3) hereof.

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11.(5)		No failure by the Architect to exercise any of the foregoing powers in this clause shall prejudice any subsequent claim by the Employer against the Contractor at any time in respect of work which is not in accordance with the Contract, nor shall the Architect be under any duty to the Contractor to exercise any of the foregoing powers for the benefit of or to assist the Contractor.	No Duty of Architect or Employer
12.		VARIATIONS AND VALUATION OF ADDITIONAL PAYMENTS
12.(1)		In conformity with clauses 1(3) or 1(4) of these Conditions the Architect shall have power at any time to give directions or instructions, as the case may be, requiring a variation to be made in the original Contract work. The Architect shall also have power at any time subsequently to sanction by way of direction a variation previously carried out by the Contractor without any authority, direction or instruction from the Architect. Such subsequent sanction shall not entitle the Contractor to additional payment or compensation or an extension of time, unless such variation was due to negligence or omission or default on the part of the Architect or the Employer or was reasonably carried out in an emergency when it was not practicable to obtain the prior instructions of the Architect, but shall relieve the Contractor from liability to the Employer for departing from the contract requirements without authority, and may involve a reduction in the Contract Sum if any reduced value to the Employer or reduced cost to the Contractor, whichever is greater, is involved in the sanctioned variation.	Power to Order and Subsequent Sanction
12.(2)		The term “variation” in these Conditions shall mean any change in the original contract descriptions to be deduced from the Contract Documents as a whole describing or defining the Works to be carried out, and in particular shall include: -	Definition of Variation
	(a)	The addition of further work, materials or goods.
	(b)	The omission of work, materials or goods.
	(c)	The demolition of or removal of work, materials or goods no longer desired by the Employer or the Architect.
	(d)	The substitution of different work, materials or goods.
	(e)	Changes in the type, standard or quality of work, materials or goods.
	(f)	Changes in the plans, elevations, layout, or dimensions of the Works.
	(g)	Changes ordered in the Contractor’s temporary works or methods of working under clauses 1(3),1(4) and 2(2) of these Conditions.
	(h)	Changes or additions or omissions ordered in the work, goods or materials of any Designated or Nominated Sub-Contractor or Supplier.
	(i)	The postponement of any part of the Works, desired by the Employer.
		For the avoidance of doubt the term “variation” shall include any changes as aforesaid which may be designed to alter the ultimate use to which the Works will be put.
12.(3)		All variations required by the Architect or subsequently sanctioned by him shall be valued by measurement or calculation by the Quantity Surveyor who, where physical measurement is necessary and subsequent measurement will not be practical due to covering-up or for any other reason, shall give the Contractor an opportunity of being present at the time of such physical measurement and of taking such notes or measurements as the Contractor may require, and who shall following such Measurements make appropriate recommendations to the Architect with a view to subsequent certification by the Architect. Should the Contractor or his representative fail to be present at such time after receipt of reasonable written notice from the Quantity Surveyor, the quantities measured by the Quantity Surveyor, provided they have been communicated in writing to the Contractor by ordinary post within 14 days, shall be final and binding as between the Employer and the Contractor. In cases where the Contractor or his representative has been	Measurement of Variations

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			present, any such quantities communicated in writing at any time by the Quantity Surveyor to the Contractor shall be similarly binding unless the Contractor within 1 month of receipt of the same shall send details with sufficient explanations of any differences in the quantities claimed by him to the Quantity Surveyor or to the Architect.
Valuation of Variations	12.(4)		Variations shall be valued as closely as possible on the basis of the Contractor’s prices without regard to any alleged element of high or low profitability in those prices and in accordance with the following rules: -
		(a)	Work ordered in quantities or at times and locations which can be readily absorbed into the Contractor’s programme on the same basis of commercial profitability as the original contract work shall be valued at the same prices as those in the Schedule of Rates, but the prices for any preliminary items of expenditure may also be adjusted where necessary in the light of quantities or time using as guidance where it is reasonable to do so the Contractor’s Make-up of Prices under clause 5 of these Conditions.
		(b)	Work ordered as aforesaid but for which there is no exactly equivalent item in the Schedule of Rates, shall wherever possible be valued at comparable prices extrapolated from prices for similar though not identical work in Bills, if such exists. and using whatever it is reasonable to do so for such purpose the Contractor’s Make-up of Prices under clause 5 of these Conditions. Preliminary items may also be adjusted in the same manner as in paragraph (a).
		(c)	Work for which the same or comparable prices as aforesaid are available in or can be extrapolated from the Schedule of Rates, but which by reason of material increases or decreases in quantity, or its sequence of ordering or location, or postponement, or any resultant dislocation or other special physical or technical circumstance, will differ in cost or commercial profitability or working methods from the original work priced by the Contractor, shall whatever possible be valued at the same or comparable prices in accordance with paragraphs (a) and (b) hereof, but with allowances made by way of addition to or deduction from those prices to take account of any such factors and any consequential increase or decrease in cost or commercial profitability to the Contractor. For the avoidance of doubt, such valuation shall not take account of any increase or decrease in the level of building costs unless the variation is carried out at a time different from that reasonably contemplated by the Contractor when pricing his tender or submitting his programme under clause 5 of the Conditions, and the increase or decrease is not otherwise recoverable under any fluctuation clause.
		(d)	Where the calculation of allowances under paragraph (c) hereof is not practicable the Quantity Surveyor shall make a fair valuation based upon the Contractor’s overall level of contract prices and profitability and without adjustment for any alleged element of high or low profitability in those prices or (save as aforesaid in paragraph (c) hereto) of subsequent changes in building costs.
		(e)	If, and only if, work cannot be valued on any of the foregoing bases in paragraphs (a) to (d) hereof, the Contractor shall be allowed daywork rates or the prices prevailing when such work is carried out (unless otherwise provided in the Contract Documents):
			(i)     At the rates, if any, inserted for this purpose by the Contractor in the Schedule of Rates or in any other Contract Document; or
			(ii)    When no such rates have been inserted, at the, actual prime cost to the Contractor of his material, transport and labour for the work concerned, plus 15%, which percentage shall include for the use of all ordinary plant, tools and existing scaffolding, and for preliminaries, supervision, overheads and profit.
			Provided that as a condition precedent to payment in either case under this paragraph vouchers specifying the time daily spent upon the work (and, if required by the Architect, the workmen’s names) and any plant, equipment or materials employed shall be delivered for verification to the Architect or his authorised representative not later than the end of the week following that in which the work has been executed.

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	(f)	For the avoidance of doubt, in the case of omitted work (including work under P.C. or Provisional Sum items, but not contingency items) an allowance for the increased cost or reduced profitability (if any) of the remaining work may similarly be made as in paragraph (c) hereof against the prices for the remaining work, but not for loss of profit on the omitted work itself.
	(g)	In the case of an obvious accidental error in the rates or prices quoted by the Contractor resulting in a grossly excessive or inadequate rate or price, the Quantity Surveyor may apply a reasonable rate or price in line with the Contractor’s general level of rates or prices, but only to any difference between the original contract quantities and the actual quantities.
12.(5)		The value of all variations ascertained in accordance with the foregoing rules shall be added to or deducted from the Contract Sum and shall be payable to the Contractor on interim certificates in accordance with clause 31 of these Conditions provided: -	Payment of Variations
	(a)	That the variation has been ordered in writing by the Architect or confirmed in writing by or to the Architect in accordance with the requirements of clause 1(1) of the Conditions, and that in the case of a written direction the Contractor has protected his position pursuant to clause 1(5) of the Conditions.
	(b)	That in the case of variations ordered in the circumstances envisaged in clause 1(3) of these Conditions or subsequently sanctioned by the Architect under sub-clause (1) of this Condition, the Contractor shall not be entitled to any additional payment beyond the original Contract Sum or prices for the unvaried work.
	(c)	That in the case variations ordered in the Contractor’s temporary works or methods of working the Contractor shall not be entitled to any additional payment unless the requirements for additional payment in clauses 1(4)(b) and 2(2) of these Conditions have been satisfied.
	(d)	That no additional payment beyond the original Contract Sum shall be made for any variation which is the reasonable consequence of defective work or other breach of contract by the Contractor or which is made without the prior authority of the Architect.
	(e)	That in valuing any variation under paragraphs (b), (c) or (d) hereof, in those cases where the Contractor is not entitled to additional payment beyond the original Contract Sum allowance shall also be made for any loss of value to the Employer of the completed varied work or any reduction or saving in cost obtained by the Contractor in carrying out the varied work resulting from the variations, whichever shall be greater.
12.(6)		For the avoidance of doubt, where additional payment or compensation is due to the Contractor for compliance with an Architect’s Instruction in accordance with clauses 1 (4)(b), 1(4)(c), 1(8), 2(2), 12(4)(c) or any other clause of these Conditions, such payment or compensation shall, subject to clause 12(4)(c) in the case of dayworks payments, be equivalent to the increase (if any) in the cost, or the decrease (if any) in the profitability, of the contract work resulting from compliance with the instruction. Loss of profit on omitted work or on other business or contracts by reason of prolongation of the contract period shall be recoverable only in accordance with the general law where the Employer is in breach of contract, or in cases where under the terms of this Contract the Employer gives an indemnity to the Contractor, and shall not be subject to certification by the Architect.	Loss of Profit in Valuation
13.		SCHEDULE OF RATES
13.(a)		In conformity with Articles 5 of the Articles of Contract the original Contract Sum, and in respect of varied work the prices in the Schedule of Rates, shall (subject to any express provisions for adjustments of the Contract Sum) be treated as inclusive of all work, materials and expenditure, whether permanent or temporary, which will be either indispensably necessary in any event to complete the works as described in or to be inferred from Drawings, Specifications, Schedule of Rates or other Contract

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			Documents taken as a whole, or which may contingently become necessary to overcome difficulties and bring the said works so described a Bill or inferred to satisfactory completion.
		(b)	Any document entitled a Bill of Quantities is to be used only for the guidance of contractors when tendering, and shall be of no contractual effect, except insofar as such document may, pursuant to Article 2(b) hereof, constitute the Schedule of Rates for valuing variations under clause 12(4) of the Conditions, or for any other purposes of this contract. No warranty is given as to the accuracy of any quantities or descriptions in any such document, nor may any claim be made either in contract or in tort based upon any difference between those quantities or descriptions and the final as-built work, except insofar as they may be due to variations ordered an behalf of the Employer, or constitute a discrepancy or divergence pursuant to clause 14 of the Conditions.
	14.		DISCREPANCY OR DIVERGENCE
			Should any discrepancy or divergence be discovered in or between any of the Contract Documents as to the precise extent or nature of the work to be carried out by the Contractor he shall immediately give notice in writing of the same to the Architect so that a direction or instruction may be given as to the work in fact required by the Architect. In cases where the contract intention is capable of being resolved by interpretation of the documents as a whole, the Architect shall (and, in cases where no notice has been received, may) give a direction if his requirement accords with that intention, and an instruction if it differs from that intention, as the case may he, in which latter event the instruction shall be given under clause 12 of the Conditions and the Contract Sum shall be increased or decreased pursuant to the valuation provisions of that clause. If the discrepancy results in a total ambiguity which cannot be resolved, the Contract shall not be avoided but the Architect shall give an instruction and the Contract Sum shall either be appropriately increased, if the Contractor has as a fact been reasonably misled to his detriment when pricing the Contract, or reduced, if he has as a fact been misled to his advantage, and if necessary an appropriate extension of time shall also be granted to the Contractor.
	15.		ASSIGNMENT AND SUB-CONTRACTING
Assignment by Contractor	15.(1)		The Contractor’s performance by himself and his servants of a main contractor’s principal functions of controlling the Site with his own site staff, coordinating the work of any sub-contractors, and ordering of materials for the Works, is of the essence of the Contract, and the Contractor shall neither assign nor make arrangements for the vicarious performance of such functions by any other person, now shall any receiver, judicial manager or liquidator of the Contractor be entitled to carry out such functions without the consent of the Employer. In addition the Contractor shall not assign the right to receive monies due under the Contract, or any part thereof, to any person without the prior consent of the Employer, and no such assignment without consent, whether voluntary, involuntary, or statutory, shall bind the Employer.
Sub-Contractors	15.(2)		Except where expressly provided by the Contract the Contractor shall not engage or permit the engagement of any sub-contractor for any part of the Works without the prior written consent of the Architect, which consent shall not be withheld if the proposed sub-contractor is of a class and standing usual and appropriate to the type and extent of the work to be sub-contracted. Any sub-contractor, direct or indirect, properly objected to by the Architect under this clause shall not be permitted to enter the Site, or shall be expelled therefrom forthwith on the direction of the Architect as the case may be.

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15.(3)		Save as expressly provided in this Contract and the Contractor shall make good any damage or loss suffered by the Employer by reason of any breach of contract, repudiation, default or failure, whether total or partial, on the part of any sub-contractor or supplier, whether Designated or Nominated on behalf of the Employer under the provisions of clause 28 of the Conditions or privately engaged by the Contractor, and shall indemnify the Employer against any damage, liability, claim or loss arising therefrom.	Responsibilities for Sub-Contractors
16.		PLANT AND MATERIALS
16.(1)		All plant and temporary buildings brought onto the Site by the Contractor shall, until completion of the Works under clause 24(4) of these Conditions, be deemed to be the property of the Employer and shall not be removed therefrom without the prior consent in writing of the Architect, which consent, if no further work appropriate to that plant or those temporary buildings remains to be done, shall not be unreasonably withheld. Upon completion as aforesaid, or removal with consent, the property therein shall be deemed to revest in the Contractor.	Plant
16.(2)		Unless directed or instructed by the Architect to be removed under clauses 11(3), 12(2) (c) or 32(4) and (8) of these Conditions, all unfixed materials and goods delivered to the Site shall not be removed until completion without the prior consent in writing of the Architect, which consent, if the materials or goods are surplus to the requirements of the Contract, shall not be unreasonably withheld. The property in such materials or goods shall vest in the Employer upon delivery to the Site and, save as aforesaid, only revest in the Contractor to the extent that surplus materials or goods may be found to exist upon or prior to completion of the Works under clause 24(4) of these Conditions.	Materials and Goods
16.(3)		Subject to clauses 32(8) and (10) of these Conditions and sub-clause (4) of this Condition, the Contractor shall, upon the issue of the Architect’s Completion Certificate under clause 24(4) of these Conditions, remove all plant, tools, equipment, temporary buildings and surplus material from the Site, save only such as may be necessary to complete any outstanding work or otherwise discharge his obligations under clauses 24(5) and 27 of these Conditions, and in such manner as not to disturb or inconvenience the Employer on re-entry and beneficial occupation of the Works or any part thereof.	Removal
16.(4)		In the case of hired or hire-purchase or leased plant or equipment, or plant or equipment owned by any third person or associated or subsidiary company of the Contractor but not by the Contractor himself, no such plant shall be brought on to the Site without the consent of the Architect, who shall have power to withhold consent and if necessary give directions for its removal unless the owner of the plant or equipment gives an undertaking in writing to the Employer that, in consideration of the plant or equipment being permitted to be used on the Site,	Hired or Hire Purchase Plant
	(a)	The owner will consent to the assignment by the Contractor to the Employer of the benefit of any hiring or hire-purchase or leasing or other agreement made with the Contractor in respect of the said plant or equipment either
		(i)     upon termination by the Employer of the Contractor’s employment before completion or on abandonment of the Works by the Contractor;          or
		(ii)    upon any default in payment made by the Contractor under the terms of the hiring or hire-purchase or leasing or other agreement,          and
	(b)	without prejudice to any such assignment, the plant or equipment may be retained and used by the Employer until the Works have been completed.

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Assignment of Hiring, etc. Agreements	16.	(5)			The Contractor, in the circumstances described in sub-clause (4)(a) of this Condition, or his trustee or liquidator or other representative, shall formally assign the benefit of the said agreements if required to do so by or on behalf of the Employer.
	17.				ARTISTS, TRADESMEN AND OTHER CONTRACTORS
					The Contractor shall permit the Site to be used for the execution of work not forming part of the Contract by artists, tradesmen or other contractors engaged by the Employer. Such artists, tradesmen or other contractors shall be persons for whom the Employer is responsible under the terms of the next following clause of these Conditions.
	18.				INDEMNITIES TO EMPLOYER
Personal Injuries	18.	(1)			The Contractor shall be liable for and shall indemnify the Employer against any damage, expense, liability, loss, claim or proceedings whatsoever in respect of personal injury to or the death of any person whomsoever arising out of or in the course of or by reason of the carrying out of the Works, unless the proximate cause of the same is any act or wilful neglect of the Employer or of any person for whom the Employer is responsible (and subject always to sub-clause (3) of this Condition).
Damage to Property	18.	(2)			Without prejudice to his liabilities in regard to completing the Works under clause 3(3) hereof the Contractor shall be liable for and shall indemnify the Employer against any damage, expense, liability, loss, claim or proceedings due to injury or damage of any kind to any property real or personal, (including any property of the Employer other than the Works) insofar as such injury or damage arises out of or in the course of or by reason of the carrying out of the Works and provided always that the same is due to any negligence, omission, breach of contract or default of the Contractor or of any person for whom the Contractor is responsible including the Contractor’s servants or agents or any sub-contractors, whether direct or indirect, and their servants or agents.
Employer’s Negligence	18.	(3)			The indemnities given by the Contractor under sub-clauses (1) and (2) hereof shall not be defeated or reduced by reason of any negligence or omission of the Employer or Architect or Clerk of Works in supervising or controlling the Contractor’s site operations or methods of working or temporary works, or in detecting or preventing or remedying defective work, or in ensuring proper performance of any other obligation of the Contractor, but subject always to the Employer’s liability to indemnify the Contractor under sub-clause 2(3) of these Conditions where any loss, claim, or damage arises solely as a result of the Architect’s directions or instructions within the terms of that sub-clause.
	19.				INSURANCE AGAINST INJURY TO PERSONS AND PROPERTY AND WORKMEN’S COMPENSATION
Personal Injuries	19.	(1)			Without prejudice to his liability to indemnify the Employer under clause 18 of these Conditions, the Contractor shall maintain or shall cause any sub-contractor, direct or indirect, to maintain
			(a	)	Such insurances (subject to any limitations permitted by the Specification or other Contract Documents) as are necessary to cover the liability of the Contractor or, as the case may be, of any such sub-contractors, in respect of personal injuries or death arising out of or in the course of or by reason of the carrying out of the Works including any liability of the Contractor under the Workmen’s Compensation Act 1975 or any subsequent modification or re-enactment thereof; and
Damage to Property			(b	)	Such insurances as may be specifically required by the Specification or other Contract Documents in respect of injury or damage to property real or personal (other than the Works) arising out of or in the course of or by reason of the carrying out of the Works and caused by any negligence, omission, breach of contract or default of the Contractor, his servants or agents or, as the case may be, of such sub-contractors, direct or indirect, and their servants or agents. Such insurances shall be subject to such limitations as to the extent of liability for any one accident as shall be set out in the Specification and/or in the Appendix hereto.

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	(c)	The Contractor shall produce or cause any sub-contractor, direct or indirect, to produce for inspection the relevant policy or policies of insurance together with the receipts in respect of premiums paid under such policy or policies as and when required so to do by the Employer, provided that, as and when may be required by the Employer, the production by either the Contractor or any such sub-contractor of a current certificate of insurance from the company or firm which shall have issued the policy or policies aforesaid shall be a good discharge of the Contractor’s obligations to produce or cause the production of the policy or policies and the receipts in respect of premiums paid, and provided always that any exclusions or limitations of liability or insurance excesses under the policy are stated in the certificate.	Production of Policies
19.(2)	(a)	The Contractor shall maintain in the joint names of the Employer and Contractor such insurances as may be specifically stated by way of Provisional Sum items in the Specification or other Contract Documents in respect of any damage, expense, liability, loss, claim or proceedings which the Employer may incur or sustain due to injury or damage of any kind to property real or personal (including property of the Employer but not the Works themselves) arising out of or in the course of or by reason of the carrying out of the Works and caused otherwise than by the negligence, omission, breach of contract or default of the Contractor, his servants or agents, or of any subcontractor, direct or indirect, and his servants or agents. Provided that the Contractor shall be under no liability to the Employer should the provision of such insurance in the event prove impossible or impracticable to obtain following receipt of the relevant Architect’s instructions under the said Provisional Sum items.	Damage to Property when Contractor not Negligent
19.2(2)	(b)	Any such insurance as is referred to in the immediately preceding paragraph of this sub-clause shall be placed with insurers nominated by the Architect and the Contractor shall deposit with the Architect the policy or policies and the receipts in respect of premiums paid.	Placing of Insurance
19.(3)		Should the Contractor or any sub-contractor, direct or indirect, make default in insuring or continuing to insure as provided in sub-clauses (1) and (2) of this Condition, the Employer may himself insure against any risk with respect to which the default shall have occurred and may deduct a sum equivalent to the amount paid by him in respect of premiums from any monies due or to become due to the Contractor (or, where a Provisional Sum item is involved, the Architect or Employer may deduct the amount of the said Provisional Sum from the Contract Sum).	Default in Insurance
20.		INSURANCE OF WORKS*
20.(1)		The Contractor shall in the joint names of the Employer and the Contractor insure against loss or damage by fire (however and by whomever caused), and earthquake (or such further risks as are set out in the Appendix hereto), all work executed and all unfixed goods and materials delivered on or adjacent to the Site for incorporation into the Works (but excluding temporary buildings, plant, tools and equipment owned or hired by the Contractor or any sub-contractor, direct or indirect) to the full value thereof (plus the percentage named in the Appendix hereto to cover professional fees) and shall keep such work, materials or goods so insured until completion under clause 24(4) of these Conditions, but subject to any partial termination of insurance permitted under this Contract in cases of Phased or Stage Completion or Partial Occupation by the Employer, Such insurance shall be with insurers approved by the Architect, and the Contractor shall deposit with him the policy or policies and the receipts in respect of premiums paid; and should the Contractor make default in insuring or continuing to insure as aforesaid the Employer may himself insure against any risk in respect of which the default has occurred and deduct a sum equivalent to any amount paid by him in respect of premiums from any monies due or become due to the Contractor. Such policy shall provide expressly for payment in the first place to the Employer of any insurance monies due under the policy.	Risks to be Insured

^* In the event of the Works being carried out in an existing building already the subject of insurance, special arrangements may be made with the Contractor’s and Employer’s insurers if satisfactory cover is to be obtained.

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		Provided always that if the Contractor shall maintain a general policy of insurance with insurers approved by the Architect covering other contracts as well as this Contract against the aforesaid insured risks, and in the like terms as to payment of insurance monies to the Employer, then the maintenance by the Contractor of such policy shall, if the Employer’s interest is endorsed thereon, be a discharge of the Contractor’s obligation to insure in joint names, and production by the Contractor, as and when may be required by the Architect, of the current certificates of insurance from the insurers confirming the existence and continuance of the relevant cover required by this clause shall be a sufficient discharge of the Contractor’s aforesaid obligation to deposit the policy or policies and receipts for premiums paid with the Employer. Such certificates shall state expressly any exclusions or limitations of liability or insurance excesses under the policy.
Application of Insurance Monies	20.(2)	Upon the occurrence of any loss or damage to the Works or unfixed materials or goods prior to completion from any cause whatsoever the Contractor shall (subject to clause 3(3) of these Conditions) proceed immediately to restore, replace or repair the same free of charge, save only that any monies, if and when received, from the insurance under this clause shall be paid in the first place to the Employer and then (less only the aforesaid percentage for professional fees if any) released to the Contractor by instalments on the interim certificate of the Architect, calculated as from the date of receipt of the monies in proportion to the extent of the work of restoration, replacement or repair previously carried out by the Contractor, but having regard also to any likely shortfall or deficit in the money so paid, whether under clause 40 of the Conditions or otherwise, and to the Contractor’s consequential obligation in such event to reinstate an appropriate proportion of the loss or damage represented by such shortfall or deficit free of charge, whether under clause 40 of the Conditions or otherwise. Provided that if any loss or damage to the Works covered as an insured risk under this clause has itself been caused by the wilful or negligent act of the Employer or of other persons for whom he is responsible without fault on the part of the Contractor, or if the Contractor is entitled to an indemnity from the Employer in respect of the loss or damage under clause 2(3) or any other clause of the Conditions, the Architect shall certify payment in favour of the Contractor on interim certificate in advance of the receipt of any insurance monies, and in addition shall make no deduction in respect of any shortfall or deficit under the policy if such has been previously agreed to or permitted under the Contract.
	21	DUE DILIGENCE BY CONTRACTOR
		Following commencement of work under clause 10(1) of these Conditions, the Contractor shall proceed with the Works diligently and with due expedition at all times until completion.
	22	TIME FOR COMPLETION
Completion Date	22.(1)	The Contractor shall complete the Works on or before the Date of Completion stated in the Appendix hereto, or by such Date as modified and re-calculated pursuant to clause 10(1) of these Conditions, or by such Date or modified Date as further extended pursuant to the next following clause of these Conditions, whichever is the latest.
	23	For the purpose of this clause “complete” and “completion” shall mean the completion certified by the Architect under clause 24(4) of these Conditions.
Grounds	23.(1)	EXTENSION OF TIME
		The Contract Period and the Date for Completion may be extended and recalculated, subject to compliance by the Contractor with the requirements of the next following sub-clause, by such further periods and until such further dates as may reasonably reflect any delay in completion which, notwithstanding due diligence and the taking of all reasonable steps by the Contractor to avoid or reduce the same, has been caused by

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(a)	Force majeure.
(b)	Exceptionally adverse weather conditions.
(c)	Fire, storm, lightning, high winds, earthquake or aircraft or aerial objects (provided and to the extent that any of the same are not due to any act, negligence, default, omission or breach of contract by the Contractor or any sub-contractor, direct or indirect, whether in failing to take reasonable steps to protect the Works or otherwise).
(d)	War, hostilities, insurgency, terrorism, civil commotion, or riots.
(e)	Industrial action by workmen, strikes, lock-outs or embargoes (whether domestic or foreign) affecting any of the trades employed upon the Works or in preparation, manufacture or transportation of goods or materials required for the Works, and provided the same are not due to any unreasonable act or default of the Contractor, or of any sub-contractor, direct or indirect.
(f)	Architect’s instructions under clauses 1(4)(a), (b) or (c), 7(1) (Or otherwise in accordance with that clause), 11(2) (where permitted under that clause) and 14 of these Conditions (but not Architect’s direction under clauses 1(3) or 12(5)(b), (c) or (d) of these Conditions).
(g)	Architect’s instructions given in relation to P.C. or Provisional Sum items but only if and to the extent that the work which is the subject of such instruction, on a true interpretation of the Contract Documents as a whole, constitutes a variation in kind or extent from the work described under the original P.C. or Provisional Sum items in the Contract Documents.
(h)	Architect’s instructions under clause 28 of the Conditions in regard to Contingency Sums.
(i)	Failure of the Employer to afford possession to the Contractor in accordance with clause 10(2) hereof.
(j)	The Contractor not having received from the Architect within a reasonable time necessary drawing, instructions and other information in regard to the originals contract work pursuant to clause 3(2) of the Conditions, or in the case of varied work within a reasonable time of its being ordered.
(k)	Acts or omissions of other contractors engaged by the Employer pursuant to clause 17 of these Conditions.
*(l)	Shortage of labour resulting from domestic or foreign government actions, embargoes or regulations which an employer of labour could not reasonably have foreseen at the date of the Contract, and notwithstanding the Contractor’s readiness by himself or his sub-contractors direct or indirect to afford satisfactory conditions of working and pay adequate wages or other emoluments therefore.
*(m)	Shortage of goods or materials which could not reasonably have been foreseen at the date of the Contract resulting from domestic or foreign government actions, embargoes or regulations notwithstanding the Contractors readiness by himself or his subcontractors direct or indirect to pay a reasonable price therefore.
(n)	Valid suspension of work under clause 33(4) or 33 (5)of these Conditions.
(o)	The grounds for extension mentioned in clauses 1(8), 3(3), 7, 14, 29(3)(a)(ii) and 29(3) (b)(ii) of these Conditions.

^* Delete if not desired.

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		(p	)	Any act of prevention or breach of contract by the Employer, or any matter in respect of which under the terms of this Contract the Employer gives the Contractor an indemnity.
		(q	)	Any other grounds for extension of time expressly mentioned in the Contract Documents.
Notice	23.(2)			It shall be a condition precedent to an extension of time by the Architect under any provision of this Contract including the present clause (unless the Architect has already informed the Contractor of his willingness to grant an extension of time) that the Contractor shall within 28 days notify the Architect in writing of any event or direction or instruction which he considers entitles him to an extension of time, together with a sufficient explanation of the reasons why delay to completion will result. Upon receipt of such notification the Architect, within one month of a request to do so by the Contractor specifically mentioning this sub-clause, shall inform the Contractor whether or not he considers the event or instruction or direction in principle entitles the Contractor to an extension of time.
Time for Extension	23.(3)			After any delaying factor in respect of which an extension of time is permitted by the Contract has ceased to operate and it is possible to decide the length of the period of extension beyond the Contract Completion Date (or any previous extension thereof) in respect of such matter, the Architect shall determine such period of extension and shall at any time up to and including the issue of the Final Certificate notify the Contractor in writing of his decision and estimate of the same.
Request for Information	23.(4)			The Architect may in writing request the Contractor for sufficient explanation, information, particulars or materials as will enable him to estimate the period of extension of time to be granted to the Contractor. The Contractor shall within 28 days after receipt of such request furnish to the Architect the information, particulars or materials requested.
				The Architect shall not be required under Clause 23(3) to decide and estimate the period of extension of time to be granted to the Contractor unless he is in receipt of the sufficient explanation, information, particulars or materials requested.
	24.			DELAY IN COMPLETION AND LIQUIDATED DAMAGES
Delay Certificate	24.(1)			After the latest Date for Completion of the Works pursuant to clause 22(1) of the Conditions has passed, then if at the said date there are no other matters entitling the Contractor to an extension of time and the Works nevertheless remain incomplete, the Architect may at any time thereafter up to and including the issue of the Final Certificate give a certificate setting out the Completion Date (if necessary modified or re-calculated under clause 10(1) of these Conditions); the total period of extension of time (if any); the consequential extended Contract Completion Date (if any); and certifying that the Contractor is in default in not having completed the Works by the stated Completion Date or Extended Completion Date (as the case may be). Such certificate shall be issued to the Employer with a copy to the Contractor, and is hereinafter called a “Delay Certificate”.
Liquidated Damages	24.(2)			Upon receipt of a Delay Certificate the Employer shall be entitled to recover from the Contractor liquidated damages calculated at the rate stated in the Appendix to the Conditions from the date of default certified by the Architect for the period during which the Works shall remain incomplete, and may but shall not be bound to deduct such liquidated damages, whether in whole or in part, from any monies due under the Contract at any time.
Termination of Delay and Further Delay	24.(3)			If while the Contractor is continuing work subsequent to the issue of a Delay Certificate, the Architect gives instructions or matters occur which would entitle the Contractor to an extension of time under clauses 23(1)(f)(g)(h)(i)(j)(k)(n)(o) and (p) of the Conditions, and if such matters would have entitled the Contractor to an extension of time regardless of the Contractor’s own delay and were not caused by any breach of contract by the Contractor, the Architect shall as soon as possible grant

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	to the Contractor the appropriate further extension of time in a certificate known as a “Termination of Delay Certificate”.
	Such further extension of time granted shall have no immediate effect nor shall it prevent the deduction or recovery of liquidated damages by the Employer until the issuance of the Termination of Delay Certificate. The Termination of Delay Certificate shall be issued to the Employer with a copy to the Contractor and while not preventing the deduction or recovery of liquidated damages accrued up to its issuance shall prevent the accumulation of liquidated damages during the period of the further extension of time granted.
	Thereafter, if the Contractor fails to proceed to complete the Works with due diligence within the period of the further extension of time granted under the Termination of Delay Certificate, the Architect shall issue a further Delay Certificate certifying that the Works have remained incomplete and that he is again in default in not so completing. Such certificate shall be known as a “Further Delay Certificate” and shall be issued to the Employer with a copy to the Contractor. Liquidated damages shall re-commence accruing in favour of and be recoverable or deductible by the Employer from the issuance of the Further Delay Certificate.
24.(4)	Subject to the provisions of sub-clause (3) of this Condition as to the effect of Termination of Delay Certificates, the liability of the Contractor to pay further liquidated damages under sub-clause (3) of this Condition shall cease, and the Contract be deemed to be completed for this purpose, upon the issue by the Architect of his certificate under this sub-clause that the Works have been completed. Such certificate is referred to in this Contract as a “Completion Certificate”, and shall be issued by the Architect when the Works appear to be complete and to comply with the Contract in all respects.	Completion
	Provided that, without prejudice to the Architect’s powers under clause 26(3) of the Conditions, if any minor works are outstanding which can be completed following the removal of the Contractor’s site organisation and all major plant or equipment, and without unreasonable disturbance of the Employer’s full enjoyment and occupation of the property, then upon the Contractor undertaking in writing to complete such outstanding work within such time or times as may be stipulated by the Architect, the Architect may (but shall not be bound to) issue a Completion Certificate, which shall record such outstanding work by way of a schedule attached to the certificate, together with the terms of the agreement with the Contractor for its completion, including any agreement as to withholding and subsequently releasing any part of the Retention Monies otherwise payable on the issue of the certificate in accordance with clause 31 (9) of these Conditions.	Outstanding Works
25.	PHASED OR STAGE COMPLETION
	Where different Commencement and Completion Dates for different phases or stages of the Works are stated and identified in the Appendix hereto and different and separate liquidated damages are provided for each Phase or Stage, the provisions of this Contract in regard to Completion Certificates, liquidated damages for delay, insurance of the Works, maintenance of the Works, and release of Retention Monies (but not final payment on Final Certificate) shall, in the absence of express provision to the contrary in the Contract Documents, apply mutatis mutandis as if each Phase or Stage was the subject of a separate and distinct contract between the Employer and the Contractor.
26.	PARTIAL RE-OCCUPATION
26.(1)	If before completion of the Works in accordance with clause 24(4) the Employer with the agreement of the Contractor takes possession and occupies any part of the same, (in this Contract called “the Occupied Part”) and whether or not all the work within that Part has been entirely completed, the Architect shall issue a Certificate recording the date of re-entry by the Employer and identifying the Occupied Part and, whether by reference or otherwise, any relevant terms of any agreement relating to use, possession and access by the parties, both as to the Occupied Part on the one hand and the remaining parts of the Works on the other. Such certificate is in this Contract called a	Occupation of Part with Consent

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			“Certificate of Partial Occupation”, and shall also contain an approximate valuation at Contract prices of the Occupied Part and a forecast of the approximate value of the whole of the Works once complete which shall be made by the Architect, failing agreement with the Contractor, after consulting the Quantity Surveyor. Such valuation shall take account of any outstanding work still remaining to be done in the Occupied Part, and a Schedule attached to or identified by the Certificate shall list the said outstanding work (if any) and record any agreement as to the time or times when it is to be completed.
Consequential Effects	26.(2)		The following provisions shall apply to the Occupied Part until completion of the remainder of the Works: -
		(a)	A release to the Contractor of a proportion of the first half of the Retention Monies under clause 31(9) of these Conditions in respect of the Occupied Part, based upon the certified approximate value of the Occupied Part relative to the certified approximate forecast value of the Works as a whole, shall be made within 14 days of the re-entry by the Employer, Such release shall be further proportionately increased when any outstanding work in the Occupied Part is certified by the Architect as completed by the Contractor.
		(b)	The Maintenance Period of the Occupied Part (save in regard to any outstanding work as aforesaid) shall be deemed to commence upon the said date of re-entry and the provisions of clause 27 of these Conditions in regard to the making good of defects and the issue by the Architect of a Maintenance Certificate shall apply separately and independently to the Occupied Part, and a release of the second half of the Retention Monies calculated on the same basis as the first half (but taking account, if it be the case, of any outstanding work at the time of release of the first half now entirely completed) shall take place separately and independently in relation to the Occupied Part (together with an appropriate reduction made at that stage in the Limit of Retention under clause 31(6) of these Conditions for the remaining Works) at the expiry of the Maintenance Period of the Occupied Part or the issue of its Maintenance Certificate, whichever is the later.
		(c)	The Contractor may reduce the value of the Works insured under clause 20 of these Conditions by the value of the Occupied Part certified by the Architect as from the certified date of re-entry by the Employer, from which date the Contractor’s obligations under clauses 3(3) and 20(1) of the Conditions shall cease in relation to the Occupied Part (save in regard to any outstanding works in the Occupied Part until such time as their completion by the Contractor has been certified by the Architect).
		(d)	Any liability of the Contractor for liquidated damages for delay pursuant to clause 24 of these Conditions shall be reduced proportionately based upon the certified value of the Occupied Part relative to the certified forecast value of the whole of the Works as in paragraph (a) of this sub-clause. Such liability shall be further reduced in the same proportions should any outstanding work as aforesaid in the Occupied Part be subsequently certified by the Architect to have been completed by the Contractor.
Occupation of Part without Consent	26.(3)		If before completion of the whole of the Works beneficial occupation and use of a part of the Works by the Employer can be effected without any unreasonable disturbance of the Contractor’s arrangements for completing the remainder of the Works then, upon the issue of a certificate to that effect (hereinafter called a “Certificate of Partial Re-Entry”), and provided that a Delay Certificate issued by the Architect under clause 24 is currently operative, the Employer may without the consent or agreement of the Contractor re-enter and occupy the relevant part of the Works, and the Contractor shall upon the instruction of the Architect remove his plant or equipment from the relevant part and permit the Employer to occupy the same. The Certificate of Partial Re-Entry shall, in the like manner to a Certificate of Partial Occupation, contain instructions regulating the use and possession of and access to the Occupied Part and the remainder of the Works by both parties and recording any outstanding work remaining to be completed in the Occupied Part.

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		Upon such re-entry by the Employer the foregoing provisions of this Condition shall apply in the same manner as if the Contractor has consented to occupation of the Occupied Part, save only that the Architect may on subsequent interim payment certify as additional payment or compensation to the Contractor any additional expenditure which, in spite of reasonable care being taken by the Contractor, would not have been incurred by the Contractor but for the re-entry of the Employer. For the avoidance of doubt, the Certificate of Partial Re-Entry shall be final and binding as to the right of the Employer to re-enter the Occupied Part, subject to the right of the Contractor to recover damages or additional payment or compensation under this sub-clause from an arbitrator or the Courts.
27.		MAINTENANCE FOLLOWING COMPLETION
27.(1)		Subject to clause 26 of these Conditions in the case of an Occupied Part of the Works, the Maintenance Period stated in the Appendix hereto shall commence upon the issue of a Completion Certificate under clause 24(4) or 25 of these Conditions. During such period:	Maintenance Period
	(a)	the Contractor shall complete the outstanding work (if any) listed in and in accordance with the terms recorded in the Completion Certificate, and
	(b)	the Architect may at any time following the Completion Certificate give directions or instructions for the making good by the Contractor of any defects, omissions or other faults which may be or become apparent in the Works. If the cause of the same is due or found to be due to any breach by the Contractor of any of his obligations expressed or implied under the Contract or those of any sub-contractor or supplier, direct or indirect, and whether Designated, Nominated or privately engaged, then the Contractor shall be responsible for repairing and making good the same or making arrangements therefore at his own expense on the direction of the Architect. If the said defects have occurred despite compliance with the Contract in all respects by the Contractor or any such sub-contractors or suppliers he shall be entitled to payment on a reasonable price basis for compliance with any instruction of the Architect to make good the same.
27.(2)		Not later than 14 days after the expiry of the Maintenance Period, the Architect shall deliver a Schedule of Defects specifying all remaining defects, omissions and other faults apparent at the date of delivery of the Schedule, and on receipt of directions or instructions to do so the Contractor shall forthwith repair and make good the same on the same terms as defects notified to the Contractor under sub-clause (1)(b) of this Condition.	Schedule of Defects
27.(3)		When giving instructions or directions during or at the end of the Maintenance Period under sub-clauses (1) and (2) of this Condition in relation to defects then appearing the Architect shall in addition to the powers in those sub-clauses have the same special powers in relation to such defects as those conferred by clauses 11(2), (3) or (4) of these Conditions, which shall be exercisable by him at any time until the issue of the Maintenance Certificate under sub-clause (5) of this Condition.	Additional Powers of Architect
27.(4)		Provided that in lieu of requiring the Contractor to make good defects under sub-clause (1) or (2) or exercising the powers in sub-clause (3) hereof, the Architect may, in any case where the cause is a breach of contract by the Contractor or by any sub-contractor or supplier as aforesaid, give a direction that a defect be not remedied, and instead that there should be a reduction in the Contract Sum to be assessed by the Quantity Surveyor representing the reduced value of the work to the Employer, or any savings in cost obtained by the Contractor which the defective work may have involved, whichever is the greater. Such reduction may be effected in the certificate of the Architect releasing the second half of the Retention Monies under clause 31(10) of these Conditions, in a certificate issued under clause 31(6) of these Conditions or alternatively shall be taken into account by the Architect in his Final Certificate.	Allowance for Defect

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Maintenance Certificate	27.(5)		When all defects notified by the Architect to the Contractor under sub-clauses (1), (2) or (3) hereof have either been made good by the Contractor in compliance with the Architect’s directions or instructions, or have been dealt with by a direction under sub-clause (4) hereof, the Architect shall issue a certificate to that effect (hereinafter called a “Maintenance Certificate”). Such Certificate shall finally discharge the Contractor from any further physical attendance upon the Works for the purpose of making good defects, but shall not prejudice any other rights of the Employer in regard to defective work, or any other breaches of contract whether previously or subsequently discovered.
	28.		DESIGNATED AND NOMINATED SUB-CONTRACTORS AND SUPPLIERS
Definitions	28.(1)		Work, materials or goods which are to be carried out or supplied by a sub-contractor selected on behalf of the Employer but employed by and under the control of the Contractor shall be identified in the Contract Documents in one of the following ways:-
		(a)	Where the identity of the sub-contractor is stated in the Specification or other Contract Documents, such sub-contractors are hereinafter referred to as “Designated Sub-Contractors” (or “Designated Suppliers” as the case may be) and may include persons with whom the Employer or the Architect on his behalf has entered into contractual relations before this Contract on terms that such prior contracts with the Employer will be novated in favour of the Contractor (In this Contract subcontractors designated or selected by the Architect to carry out work or to carry out work and supply materials or goods are referred to as “Designated Sub-Contractors” or “Nominated Sub-Contractors”, as the case may be, and those for the provision or supply of goods or materials only, without any work of fixing, installation, erection or construction, as “Designated Suppliers” or “Nominated Suppliers” as the case may be).
		(b)	Where the work, materials or goods have the words “Prime Cost”, “P.C.”, “P.C. Sum” or “P.C. Item” applied to their description in the Specification or other Contract Documents, in such cases the Architect shall select a sub-contractor to carry out the work or supply any goods or materials so described. Such sub-contractors when employed by the Contractor are referred to in this Contract as “Nominated Sub-Contractors” or “Nominated Suppliers” as the case may be. In addition, Designated Sub-Contractors or Suppliers whose work cannot be sufficiently precisely described for pricing purposes at the time of tendering may, pursuant to sub-clause (6) hereof, he the subject of a P.C. Item instead of their work being priced by the Contractor.
		(c)	Where the work, materials or goods have the words “Provisional” or “Provisional Sum” or “Provisional Sum Item” (but not “Provisional Quantity”) applied to their description in the Specification or other Contract Documents, in such cases the Architect shall either select sub-contractors to carry out or supply some or all of the work or materials or goods so described (who when employed by the Contractor shall similarly be known as “Nominated Sub-Contractors” or “Nominated Suppliers” as the case may be) or shall instruct the Contractor to carry out or supply some or all of such work or materials or goods himself.
		(d)	Where a Contingency amount is stipulated in the Contractor Documents or the words “Contingency”, “Contingent”, “Contingency Item”, “Contingency Sum” are applied to a description of work, materials or goods, in such cases the Architect may, but shall not be bound, to give instructions for the carrying out of work under such items whether in whole or in part either by Nominated Sub-Contractors or Suppliers or by the Contractor himself. If not ordered, any relevant contingency sum or price shall be deducted from the Contract Sum.

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28.(2)	Subject only as hereinafter expressly provided to the contrary in clause 29(3) of these Conditions in cases of reasonable. objection to the nomination of a Designated or Nominated Sub-Contractor or Supplier, the Contractor shall be fully responsible for all Designated or Nominated Sub-Contractors and Suppliers, and for any default or breach of contract on their part, in accordance with the provisions of clause 15(3) of these Conditions, in the same way as for his own work or materials or those of other sub- contractors selected and engaged by himself, and the Employer shall in no circumstances be liable to the Contractor for the default of any Designated or Nominated Sub-Contractors or Suppliers. Without prejudice to the foregoing the Contract shall be deemed to have accepted as his own responsibilities under this Contract all the obligations expressed or implied undertaken by any Designated or Nominated Sub-contractor or Supplier in his sub-contract, including any obligations as to the design, suitability, quality or performance of his work or materials or goods, or in regard to the provision of design services, and whether or not such obligations are expressly mentioned or repeated in this Contract. In particular, in cases where the Employer as a fact relies, and having regard to all the circumstances may be reasonably expected by the Contractor to have relied upon the skill and judgment of a Designated or Nominated Sub-Contractor or Supplier for the design or suitability of his work or materials, the Employer shall for the purposes of this Contract be deemed to have so relied upon the skill and judgment of the Contractor.	Responsibilities
28.(3)	Subject to clause 29(3) hereof in cases of reasonable objection to a nomination, the Contractor, in the event of repudiation or abandonment of his sub-contract by any Designated or Nominated Sub-Contractor or Supplier, or its termination by the Contractor, or its disclaimer by the liquidator or trustee in bankruptcy or receiver of any Designated or Nominated Sub-Contractor or Supplier, shall with the consent of the Architect, such consent not to be unreasonably withheld, select another competent sub- contractor or supplier to complete the sub-contract, or himself undertake to do so, in either event being paid therefore the same sum (subject to any defence set-off or counterclaim of the Employer under or by virtue of clauses 3(1) and 15(3) of these Conditions and sub-clause (2) hereof) as would have been payable had the original Designated or Nominated Sub-Contractor or Supplier completed the sub-contract without any default on his part.	Termination of Sub- Contract
28.(4)	Where in the case of Provisional. Sum or Contingency Sum items the Contractor is instructed by the Architect to do some or all the work or supply some or all of the goods or materials himself, the sum due to the Contractor for the said work or materials or goods shall be valued in accordance with the provisions for valuing variations in clause 12 of these Conditions, but whereas both the Contract Period and any preliminary items of expenditure in the Schedule of Rates shall be deemed to be inclusive of such work or materials as are described in or to be inferred from the relevant P.C. or Provisional Sum items (unless materially altered in kind or extent so as to constitute a variation) work ordered under Contingency Sum items, whether by the Contractor himself or by a Nominated Sub-Contractor or Supplier, shall be valued on the basis that neither the Contract Period nor the preliminary items and expenditure in the Schedule of Rates have been calculated or priced in the expectation of this work being ordered.	Payment for Work by Contractor under Provisional and Contingency Sums
28.(5)	Subject to any defence set-off or counterclaim of the Employer under or by virtue of this Contract, the sums due to the Contractor in respect of Nominated Sub-contractors and Suppliers shall be determined by deducting the relevant P.C. or Provisional or Contingency Sums from the Contract Sum and by substituting therefore the amount of the relevant Sub-Contractor’s or Supplier’s accounts showing the sub-contract value of the work carried out by them, together with any sums by way of profit or attendance that may have been priced by the Contractor in the Schedule of Rates or elsewhere in the Contract Documents (but not any sums due to the Sub-Contractor by way of damages or compensation in respect of any negligence, default or breach of the sub- contract by the Contractor, unless and to the extent that the same shall for any reason be recoverable by the Contractor from the Employer under or by virtue of any provision of this Contract). In the case of Contingency Sums appropriate adjustments (if applicable) may also be made to any preliminary items in accordance with sub-clause (4) of this Condition.	Payment for Work by Nominated Sub- Contractors or Suppliers

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Payment for Work by Designated Sub- Contractors or Suppliers	28.(6)		The sums due to the Contractor in respect to the work or materials of Designated Sub-Contractors or Suppliers shall either be included in the Contract Sum if the extent of the work or goods or materials is sufficiently precisely known for pricing purposes at the time of tendering, or, if the Specification or other Contract Documents so provide, shall be the subject of a P.C. Item and valued in the same manner as the work or materials or goods of Nominated Sub-Contractors or Suppliers under sub-clause (5) of this Condition. In the case of Designated Sub-Contractors or Suppliers whose work has been priced by the Contractor no instruction from the Architect shall be required under clause 29 of the Conditions, and the Contractor shall be bound to carry out the work or supply the materials by the Designated Sub-Contractor or Supplier.
Interim Payment	28.(7)		Payment under sub-clauses (4), (5) and (6) of this Condition shall be made by valuation or otherwise on interim certificate in accordance with the provisions of clauses 30 and 31 of these Conditions.
	29.		NOMINATION AND RIGHTS OF OBJECTION
Nomination	29.(1)		Upon the receipt of an instruction from the Architect under the foregoing clause of these Conditions identifying with sufficient particularity the works or materials to be carried out or supplied and nominating the sub-contractor or supplier selected by him (hereinafter called a “Nomination Instruction”) the Contractor shall forthwith enter into a sub-contract with the selected sub-contractor or supplier in accordance with the terms (if any) stipulated by the Architect in the Nomination instruction (whether by reference to a previous quotation of the Nominated Sub-Contractor or Supplier available for acceptance by the Contractor or otherwise) and if not on appropriate terms negotiated by the Contractor. Upon entering into the said sub-contract with the Contractor the sub-contractor or supplier shall become a Nominated Sub-Contractor or Supplier, as the case may be, for all the purposes of this Contract. In the case of Designated Sub-Contractors or Suppliers whose work is the subject of a P.C. Item under clause 28(6) of these Conditions the Contractor shall similarly place his order in accordance with such terms as may be stipulated or negotiated following an instruction of the Architect, which shall constitute a Nomination Instruction for the purposes of sub-clauses (2) and (3) of this Condition.
Objections to Nomination	29.(2)		Provided that the Contractor shall be entitled to object to a Nomination Instruction either
		(a)	Because, in the case of Nominated Sub-Contractors or Suppliers, but not Designated Sub-Contractors or Suppliers, there are reasonable grounds for supposing that the financial standing or solvency or technical competence or reliability of the selected sub-contractor or supplier is not such that a prudent contractor, having regard to the nature and extent of the sub-contract work, materials or goods and their possible effect on the remainder of the Works, would be justified at the time of the instruction in engaging the sub-contractor or supplier to carry out or supply such work, materials or goods.
		(b)	Because, in the case of Nominated Sub-Contractors or Suppliers, or Designated Sub- Contractors or Suppliers whose work is the subject of a P.C. Item, the terms of subcontract offered by the selected sub-contractor or supplier are unsatisfactory in that
			(i)     a sub-contractor for work or for work and materials is not prepared to accept equivalent responsibilities or obligations in the sub-contract consistent with those undertaken by the Contractor in this Contract; or
			(ii)    a sub-contractor for work or for work and materials is not prepared to indemnify the Contractor against liabilities, claims and damage arising out of negligence, breach of contract or default in the carrying out of the sub-contract work in the same terms as the Contractor is required to indemnify the Employer in this Contract; or

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		(iii)     a sub-contractor or supplier is not prepared to offer firm completion or delivery dates consistent with the Contractor’s completion dates or a reasonable programme having regard to those dates; or
		(iv)     a sub-contractor or supplier is not prepared to accept liability for general damages for delay which are reasonable having regard to the Contractor’s own liability for delay under this Contract, and to the extent to which the subcontractor’s or supplier’s progress or delivery or completion dates are or may be critical to the Contractor’s progress and productivity; or
		(v)      a sub-contractor for work or work and materials or goods is not prepared to accept terms for termination of the sub-contract by the Contractor upon the certificate of the Contractor that the sub-contractor is in default on one of the grounds stated in clauses 32(3)(d), (e) and (g) of these Conditions; or
		(vi)     a supplier of goods or materials is not prepared to accept liability for making good or replacing defective work or materials and for reimbursing the Contractor for any expenditure or damage incurred or suffered by him in consequence of such defects; or
		(vii)    a sub-contractor or supplier is imposing any other unreasonable exclusion of liability having regard to the Contractor’s obligations under this Contract.
29.(3)	(a)	Where the Contractor raises a valid objection to a Nomination Instruction under sub-clause (2)(a) of this Condition based on the standing, solvency, competence or Objection reliability of a selected sub-contractor or supplier the Architect may as an alternative to making a further nomination either	Powers following Objection
		(i)       instruct the Contractor himself to carry out or make arrangements for carrying out the work and/or supplying the goods or materials in question. In such case payment will be on the same basis as if the instruction had been given under a Provisional Sum, or
		(ii)      instruct the Contractor to enter into a sub-contract notwithstanding such a valid objection, in which event the Employer will guarantee the Contractor against any loss, damage, claim or expense incurred by the Contractor, provided that it arises as a direct result of the matters validly objected to by him, and which he is unable to recover from the sub-contractor or supplier, and in such a case the Architect shall also where necessary grant the Contractor an extension of time.
29.(3)	(b)	Where the Contractor raises a valid objection to a Nomination Instruction under sub-clause (2)(b) of this Condition based upon the terms of the proposed sub-contract, the Architect may, as an alternative to making a further nomination or selection either	Alternative for Objection to Nomination
		(iii)     instruct the Contractor himself to carry out or arrange to carry out or supply the work or materials or goods as in paragraph (a) hereof and with the like consequences as to payment, or
		(iv)     instruct the Contractor to enter into the sub-contract notwithstanding any term validly objected to by the Contractor. In such event no liability shall be imposed under this Contract upon the Contractor in respect of the Nominated or Designated Sub-Contractor’s or Supplier’s work, goods or materials where or to the extent that the Contractor, by reason of the term of the sub-contract objected to by him, is unable to impose a corresponding liability upon the Designated or Nominated Sub-Contractor or Supplier, and the Employer will to the same extent indemnify the Contractor against any damage, loss, expenditure or claim arising as a consequence of the term validly objected to by him, and in such a case the Architect shall also where necessary grant the Contractor an extension of time.

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Valid Objection Defined	29.(4)		For the purpose of sub-clause (3) of this Condition a valid objection shall, in a case to which paragraph (a) applies, mean a serious objection justified on the available known facts at the time of the Nomination Instruction, and in all cases under either paragraph (a) or paragraph (b) must be made before entering into the relevant sub-contract.
	30.		PAYMENT OF NOMINATED SUBCONTRACTORS AND SUPPLIERS
Certification and Payment	30.(1)		Interim certificates of the Architect in favour of the Contractor under clause 31 of these Conditions shall state separately the amounts in each certificate due to each individual Nominated Sub-Contractor or Supplier (or to Designated Sub-Contractors or Suppliers whose work or materials or goods are the subject of a P.C. Item) as the value of their work, goods or materials carried out or delivered at the relevant date under that clause.
Early Final Payment	30.(2)		If the Architect wishes to secure final payment to any Designated (where the subject of a P.C. Item) or Nominated Sub-Contractor or Supplier before final payment is due to the Contractor, and if such Sub-Contractor or Supplier has satisfactorily indemnified the Contractor against any defect or unsuitability subsequently appearing in his work, then the Architect may in an Interim Certificate include an amount to cover such final payment, and upon payment thereof by the Employer the Contractor shall pay the full amount so certified to the Designated or Nominated Sub-Contractor or Supplier. Upon such final payment the Limit of Retention under clause 31 of these Conditions shall be reduced proportionately to the value of the work so certified compared with the then estimated value of the whole of the Works, and save in regard to any defects or unsuitability of the work not apparent at the relevant date to which the Certificate relates, the Contractor shall be discharged from any further liability for the maintenance of the work during the Maintenance Period, but the Employer’s rights and remedies in relation thereto shall otherwise remain unaffected.
	31.		PAYMENT OF CONTRACTOR AND INTERIM CERTIFICATES
Progress Payments	31.(1)		The Contractor shall be entitled to progress payments for the Works carried out or supplied under this Contract by way of:
		(a)	fixed installments of the Contract Sum payable on certified completion of defined stages of the work as identified and set out in the Appendix; or
		(b)	periodic valuation of the Works or part thereof carried out by the Contractor.
Payment Claim	31.(2)	(a)	The Contractor shall be entitled to serve on the Employer a payment claim (a copy of which shall be forwarded to the Architect) as follows:
			(i)     where pursuant to clause 31.(1)(b), the progress payment is to be based on periodic valuation, the Contractor shall submit the payment claim on the last day of each month following the month in which the Contract is made (or otherwise by such time or on such day specified in the Appendix); or
			(ii)    where pursuant to clause 31.(1)(a), the progress payment is to be by stage instalments, on the certified completion of the relevant stage.
		(b)	If the time for the submission of any payment claim under the preceding paragraph falls due on a day which is Saturday, Sunday, Statutory or Public Holiday the Contractor shall submit the payment claim either on the day before or next following that date which itself is not a Saturday, Sunday, Statutory or Public Holiday.

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	(c)	Provided that if the Contractor submits a payment claim before the time stipulated herein for the making of that claim, such early submission shall not require the Architect to issue the interim certificate or the Employer his payment response in respect of that payment claim earlier than would have been the case had the Contractor submitted the payment claim in accordance with the Contract.
31.(3)		Within 14 days after receipt of the payment claim or the time by or the day on which the Contractor is required under clause 31(2) to submit his payment claim, whichever is later, the Architect shall (subject to the provision of adequate vouchers and information by the Contractor) issue an interim Certificate for payment to the Contractor (copy of which shall be forwarded to the Employer) subject to the provisions of clause 31(15) of these Conditions.	Interim Certificate
31.(4)		Where in accordance with Article 2(c), interim payment is to be based on periodic valuation, the sum certified in interim certificates shall be based on a retrospective re-evaluation of all the work carried out under the contract up to a date (which shall be named in the Certificate) not exceeding seven days before the date of issuing the Certificate itself. Such valuation (subject to the provision of adequate vouchers and information by the Contractor) shall be carried out in accordance with the following rules: -	Interim Valuation
	(a)	A valuation of all original contract work properly carried out to date by apportionment of the Lump Sum (consistent with the prices in the Schedule of Rates).
	(b)	A valuation of varied work in accordance with clause 12 of the Conditions and the Schedule of Rates.
	(c)	A valuation of unfixed goods and materials delivered (but not prematurely) to the Site and properly protected against damage or deterioration.
	(d)	In the case of Provisional Sum or Contingency Sum work carried out by the Contractor, a valuation in accordance with clause 28(4) of these Conditions.
	(e)	In the case of Designated (where the subject of a P.C. Item) or Nominated Sub- Contractors or Suppliers, a valuation, separately stated in accordance with clause 30(1) of these Conditions, of all work properly done and materials or goods delivered, but subject always to any terms as to payment in the sub-contract.
	(f)	Added to paragraphs (a), (b), (c), (d) and (e), any additional payments or compensation to which the Contractor may be entitled under the terms of the Contract (but not damages for breach of contract by the Employer as to which, in the absence of express provision, the Architect shall have no power to certify under the terms of the Contract).
	(g)	Deducted from the total of the preceding paragraphs, a fair allowance in respect of any defective or incomplete work for which the Contractor or any sub-contractor direct or indirect is responsible and of which the Architect is aware at the time of the certificate.
	(h)	Deducted from the total of the preceding paragraphs any adjustments of or reductions in the Contract Sum or any other sums to which the Employer may be entitled under the terms of the Contract (but not any sums deductible by the Employer for liquidated damages for delay, or under any provision in the Contract Documents entitling the Employer to deduct, which sums shall in all cases be deductible at the discretion of the Employer at any time and only if so deducted shall then be recorded by the Architect in subsequent certificates).

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Stage Instalments	31.(5)	Where pursuant to Article 2 interim payment is to be by stage instalments, payments shall be made in accordance with the Appendix (or any of the other Contract Documents) upon certified completion of the relevant stages but, unless otherwise expressly agreed in the Contract Documents, adjustments to the Contract Sum for variations, Provisional Sum, P.C. Sum or Contingency Sum work, or under any other provision in the Contract, shall be made on completion of each stage and added to or subtracted from the relevant instalment of the Contract Sum. Such adjustments shall be made in accordance with the principles in paragraphs (b), (d) and (e) of sub-clause (4) of this Condition, together with any further adjustments under paragraphs (f), (g) and (h) of sub-clause (4). Completion of any relevant stage shall be sufficiently certified by the Architect in an Interim Certificate certifying the payment due for that stage. For the avoidance of doubt the provisions as to unfixed goods and materials in paragraph (c) of sub-clause (4), and as to retention monies in sub-clauses (7), (8), (9) and (10) of this Condition, shall not apply to stage payments under this sub-clause.
Correcting Earlier Certificates	31.(6)	The Architect shall have power to issue a further Interim Certificate at any time whether before or after completion, correcting any error in an earlier Interim Certificate (but not in any Delay, Termination of Delay, Further Delay or any certificate other than an Interim Certificate) or dealing with any matter of which he was not aware, or which should have been dealt with, at the time of an earlier Interim Certificate, or revising any decision or opinion on which that Certificate was based.
Sums to be Certified	31.(7)	Except where, pursuant to Article 2, Interim Payment is to be by stage instalments, the sums stated as due in an Interim Certificate shall be calculated (unless otherwise stated in the Appendix) at the rate of 90% of the value of work done in accordance with clause 31(4) hereof and at the rate of 80% of properly protected materials or goods delivered to the site but not yet fixed and not prematurely delivered, from the total of which shall be deducted all sums previously certified by the Architect. In appropriate cases the Architect shall have power to issue a negative certificate showing sums overpaid or otherwise due to the Employer, which shall thereupon be a debt due to the Employer.
Retention Monies	31.(8)	The percentages not paid pursuant to sub-clause 31(7) hereof shall be known as “Retention Monies”, but shall be subject to the sum or percentage (if any) stated as the Limit of Retention in the Appendix hereto. On this limit being reached, any further balance of Retention Monies calculated pursuant to clause 31(7) shall be payable to the Contractor.
First Release of Retention	31.(9)	Subject to clauses 25 and 26 of these Conditions in regard. to Phased or Stage Completion or Partial Occupation, one-half of the Retention Monies not yet paid shall be certified as due to the Contractor on the issue of the Completion Certificate under clause 24(4) of these Conditions, less only a reasonable sum to cover the cost of the outstanding work (if any) not yet completed pursuant to clause 24(5) of these Conditions at the date of the said Certificate. Any sum so deducted shall be released to the Contractor upon a further certificate of the Architect given as soon as such outstanding work has been completed.
Second Release of Retention	31.(10)	Subject to clauses 25 and 26 of these Conditions, and to any special deduction under clause 27(4) of these Conditions, any remaining unpaid balance of the Retention Monies shall be certified and paid to the Contractor under a further Interim Certificate issued by the Architect at the expiry of the Maintenance Period for the whole work or upon the issue of the Maintenance Certificate under clause 27(5) of these Conditions, whichever is the later.
Final Claim Documents	31.(11)	The Contractor shall before the end of the Maintenance Period submit a final claim to the Architect with a copy to the Quantity Surveyor. Such claim shall contain details of all quantities, rates and prices and any adjustment of the Contract Sum or additional payments or compensation claimed by the Contractor under the terms of the Contract, together with any explanations and supporting vouchers, documents or calculations, including documents relating to the accounts of Designated or Nominated Sub-Contractors or Suppliers, which may be necessary to enable the Final Account to be prepared by the Quantity Surveyor and the Architect.

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31.(12)	(a)	Within 3 months of receipt from the Contractor of the documentation referred to in the preceding sub-clause of this Condition or of the issue of the Maintenance Certificate (whichever is the later) the Architect shall issue a Final Certificate. Such Certificate shall be supported by documents showing the Architect’s final measurement and valuation of the Works in accordance with all the terms of the Contract, and after setting out and allowing for all payments or other expenditure of the Employer or any permitted deductions by him shall state any final balance due from the Employer to the Contractor or from the Contractor to the Employer, as the case may be, which shall thereupon become a debt due. Such certificate shall also take account expressly of any outstanding permitted deductions not yet made by the Employer under the terms of the Contract whether by way of liquidated damages or otherwise (unless the Employer shall inform the Architect of his decision to forego or postpone his right to the same).	Final Certificate
31.(12)	(b)	In addition the Architect, within the said three months before issuing the Final Certificate and after giving 14 days’ written notice to the Contractor, may, but shall not be obliged to, certify direct payment by the Employer to any Nominated Sub-Contractor or Supplier (or any Designated Sub-Contractor or Supplier whose work, materials or goods are the subject of a P.C. Item) of any outstanding balance due to such Sub-Contractor or Supplier and unpaid at that time. Should the Contractor within the period of notice object to such direct payment showing prima facie cause why any monies are not due from him to the Designated or Nominated Sub-Contractor or Supplier and the Architect nevertheless certifies such direct payment, the Employer, in lieu of payment direct may, but shall not be obliged to, pay any such sum into a special hank account made available for this purpose in the name and under the control of the President of the S.I.A. to wait the final determination of any dispute between the Contractor and the Sub-Contractor or Supplier by an arbitrator or the Courts, or its release in whole or in part in accordance with any agreement between the Contractor and the Sub-Contractor or Supplier duly notified by them to the President. In either event any amounts so paid may be taken into account by the Architect in the Final Certificate or, if not, may be deducted by the Employer from any sums then certified as payable by him, or may be otherwise recovered by the Employer from the Contractor.	Outstanding Balances of Nominated Sub-Contractors and Suppliers
31.(13)		No certificate of the Architect under this Contract shall be final and binding in any dispute between the Employer and the Contractor, whether before an arbitrator or in the Courts, save only that, in the absence of fraud or improper pressure or interference by either party, full effect by way of Summary Judgment or Interim Award or otherwise shall, in the absence of express provision, be given to all decisions and certificates of the Architect (other than a Cost of Termination Certificate or a Termination Delay Certificate under clause 32(8) of these Conditions), whether for payment or otherwise, until final judgment or award, as the case may be, and until such final judgment or award such decision or certificates shall (save as aforesaid and subject to sub-clause (6) of this condition) be binding on the Employer and the Contractor in relation to any matter which, under the terms of the Contract, the Architect has a fact taken into account or allowed or disallowed, or any disputed matter upon which under the terms of the Contract he has as a fact ruled, in his certificates or otherwise. The Architect shall in all matters certify strictly in accordance with the terms of the Contract. In any case of doubt the Architect shall, at the request of either party, state in writing within 28 days whether he has as a fact taken account of or allowed or disallowed or ruled upon any matter in his certificates, if so identifying any certificate and indicating the amount (if any) taken into account or allowed or disallowed, or the nature of any ruling made by him, as the case may be.	Effect of Architect’s Certificate
31.(14)		For the avoidance of doubt the Architect shall, in the absence of express provision, have no power to decide or certify any claim for breach of contract, such as for late provision of necessary information or failure to give undisturbed possession of the Site, made against the Employer by the Contractor, or in relation to a termination of the Contract by the Contractor or in relation to the termination of any Nominated or Designated Sub-Contract.	Limit on Certifying Power

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Payment Response	31.(15)		Within 21 days after the payment claim is served on the Employer by the Contractor, the Employer shall respond to the payment claim by providing, or causing to be provided, a payment response to the Contractor who shall be entitled to payment of any sum stated therein as due to the Contractor on the date or within the period provided under clause 31(16) of these Conditions.
Payment of Contractor	31.(16)		The Contractor will be paid progress payment on the date immediately upon the expiry of 35 days after (or otherwise by such time or on such day specified in the Appendix), if the Contractor is a taxable person under the Goods and Services Tax Act who has submitted to the Employer a tax invoice for the progress payment, in accordance to and in compliance with section 8 of the SOP Act, the date the tax invoice is submitted to the Employer, or in any other case, the date on which or the period within which the payment response is required to be provided under clause 31 (15) hereof (or otherwise by such time or on such day specified in the Appendix).
	32.		TERMINATION BY EMPLOYER
Termination without Default	32.(1)		The Employer may at any time and for any reason give the Contractor written Notice of Termination, which shall have the effect of immediately terminating the employment of the Contractor under this Contract. Unless at the time of giving the said notice the Contractor is in such default that the Employer is entitled under the general law to treat the Contract as repudiated by the Contractor, or the said Notice is supported by a Termination Certificate under the following sub-clause of this Condition, the Contractor shall after removing all his plant, equipment and labour force from the Site be entitled to compensation for all damage and loss suffered by him as a consequence of the termination of his employment, including loss of profit (if any) on any uncompleted parts of the Works. In such event the Architect shall have no certifying powers as to the sum due to the Contractor.
Termination for Default	32.(2)		Without prejudice to any right of the Employer in an appropriate case to treat the Contract as repudiated by the Contractor under the general law, the Employer may at any time within one month of the receipt of a certificate of the Architect (in this Contract called a “Termination Certificate”) give Notice of Termination of the employment of the Contractor, which Notice shall take immediate effect. In such a case the Notice of Termination shall identify any relevant Termination Certificate upon which it is based, and the date of its receipt by the Employer. The reliance upon a Termination Certificate in the Notice of Termination may take effect additionally or as an alternative to reliance by the Employer upon any alleged repudiation by the Contractor which is also stated in the Notice, or which is the subject of any other notice or contemporary letter or document passing between the Employer and the Contractor. A Termination Certificate shall be issued to the Employer with a copy to the Contractor, who shall be informed by the Architect in writing of the date of its receipt by the Employer.
Grounds of Termination for Default	32.(3)		The Architect may issue a Termination Certificate on any one of the following grounds: -
		(a)	If the Contractor fails or refuses, after receipt of one month’s written notice given by the Architect at any time after a date 14 days before the Contract Commencement Date to submit a sufficiently detailed Programme pursuant to clause 4 of these Conditions or a sufficiently detailed Make-up of Prices pursuant to clause 5 of these Conditions.
		(b)	If the Contractor assigns to another person or permits vicarious performance by another person of his principal functions, or if he assigns the right to receive monies due under the Contract without consent contrary to clause 15(1) of these Conditions.
		(c)	If the Contractor fails or refuses, after receipt of one month’s notice in writing from the Architect requiring him to do so, to dismiss or expel from the Site a subcontractor against whom the Architect has made reasonable objection pursuant to clause 15(2) of the Conditions or a person whose dismissal has been required pursuant to clause 6(3) of the Conditions.

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	(d)	If the Contractor has wholly suspended work without justification or is failing to proceed with diligence and due expedition, and following expiry of one month’s written notice from the Architect to that effect has failed to take effective steps to recommence work or is continuing to proceed without due diligence or expedition, as the case may be.
	(e)	If the Contractor has failed or unreasonably delayed in complying with a written direction of the Architect requiring the removal and replacement of any work, materials or goods under sub-clause 11(1) or (3) of these Conditions, or with any written direction or instruction of the Architect under clause 11(2) of these Conditions, and following receipt of 14 days’ notice in writing from the Architect has failed to take any effective steps to do so.
	(f)	If the Contractor has removed plant, goods or materials from the Site without the consent of the Architect contrary to clause 16 of these Conditions, in a case where the Architect was reasonably entitled so to refuse consent under the terms of that clause and the Contractor has failed or refused to comply within 14 days’ written notice from the Architect requiring him, to return the said plant, goods or materials to the Site.
	(g)	If the Contractor has previously received a valid and justified written notice under paragraph (d) hereof with which he has complied at the time but at any time thereafter has again suspended work or failed to proceed with due diligence and due expedition.
	(h)	If the Contractor has refused or failed following one month’s written notice by the Architect to comply with any written direction or instruction of the Architect which he is empowered to give under any clause of these Conditions, including instructions under clause 29(3) of the Conditions.
32.(4)		A Termination Certificate shall state that the Employer may terminate the employment of the Contractor and shall further state the ground or grounds and identify the paragraphs in the preceding sub-clause of this Condition entitling him to do so. The Certificate shall be final and binding between the parties to the extent only that, whether or not such certificate is as a fact justified, the Contractor shall be bound on receipt of Notice of Termination from the Employer supported by a Termination Certificate under sub-clause (2) of this Condition to vacate the Site leaving all temporary buildings, plant, tools, equipment, goods and unfixed materials upon the Site, save only such as he may at any time be specifically directed in writing by the Architect to remove therefrom. On final judgment or award, as the case may be, the Contractor, if the issue of the Termination Certificate is shown to have been unjustified, shall be entitled to compensation from the Employer for all damage and loss suffered by him as a consequence of the termination of his employment.	Termination Certificate
32.(5)		Upon receipt of any notice rescinding the Contract or a Notice of Termination under sub-clause (1) or (2) hereof and whether or not such notice or Notice of Termination is supported by a Termination Certificate or is based upon any alleged default or repudiation by the Contractor, the Contractor shall be bound to yield up possession and to remove his personnel and labour force from the Site, and irrespective of the validity of the rescission or Notice shall be limited to his remedy by way of compensation as set out in sub-clause (1) (if applicable) or, if not, in damages.	Damages Contractor’s Only Remedy
32.(6)		Upon the issue of a Termination Certificate the Employer may, before the expiry of the one month period referred to in sub-clause (2) hereof, and as an alternative to giving notice terminating the employment of the Contractor during that period under that sub-clause, serve a written notice (hereinafter called a “Notice of Suspension”) upon the Contractor suspending the operation of the Termination Certificate for one further month only. In such event the Employer shall be entitled to give Notice of Termination at any time before the expiry of two months from the date of receipt by the Employer of the Termination Certificate. Upon the expiry of the first such month without Notice of Termination or Notice of Suspension being given to the Contractor, or of the second such month without Notice of Termination, the right of the Employer to terminate under sub-clause (2) shall lapse, failing the issue of a later Termination Certificate on new or repeated grounds.	Suspension of Termination Certificate

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Termination on Insolvency Etc of Contractor	32.(7)		Without prejudice to the foregoing provisions of this Condition, the employment of the Contractor shall be automatically terminated if the Contractor becomes bankrupt or insolvent or makes a composition with creditors or if, being a company, any winding-up order of any kind is made, or if a receiver or manager of the Contractor’s undertaking or assets is appointed, or possession taken or execution levied by the creditors or debenture holders or under a floating charge, or if a judicial manager is appointed and the Contractor shall thereupon vacate the Site within 14 days of receipt of a written notice from the Employer requiring him to do so and stating the reason for the termination, with the consequences set out in the next following sub-clause of this Condition.
Effects of Termination	32.(8)		In the event of the termination of the employment of the Contractor under sub-clauses (2), (6) or (7) hereof
		(a)	No further sum shall be certified as due to the Contractor until the issue by the Architect of the Cost of Termination Certificate hereinafter mentioned in this sub-clause nor shall the Employer be bound to pay any sums previously certified if not already paid.
		(b)	The Employer may employ or engage other contractors or persons to complete the remaining parts of the Works, together with any variations of such works, for which the Architect shall have power to give directions or instructions in accordance with the terms of these Conditions, whether before or after such employment or engagement, in the same way as if the Contractor had completed the Works. The Employer and such other contractors or persons shall be entitled to re-enter and occupy the Site and, pursuant to sub-clause (4) hereof, make use of all temporary buildings, plant, tools, equipment, goods or unfixed materials upon the Site, all of which shall vest in and be deemed to be the property of the Employer, if not already so pursuant to clause 16 of these Conditions. In the case of hired or hire-purchase plant or equipment the benefit of the agreements for hire or hire-purchase shall be formally assigned by the Contractor to the Employer, if called upon to do so, pursuant to sub-clauses 16(4) and (5) of these Conditions.
		(c)	The Employer shall have power, but shall not be obliged, to pay any sub-contractor or supplier, whether Designated, Nominated or privately engaged by the Contractor, for any work, materials or goods, whether carried out or supplied before or after the termination, for which the Contractor has failed to make payment. Such payments shall be deemed to be made by the Employer as agent for the Contractor, and if required to do so, the Contractor shall in addition on receipt of notice in writing from the Employer so to do, assign the benefit of any such sub-contract to the Employer. All such payments by the Employer may be deducted from any monies otherwise to become due to the Contractor under this Contract, or alternatively shall be deemed to be a part of the cost of completing the Works for the purposes of paragraph (e) of this sub-clause.
		(d)	Should the Contractor fail to remove any temporary buildings, plant, tools, equipment, goods or unfixed materials from the Site within 14 days of being directed in writing to do so by the Architect pursuant to sub-clause (4) hereof, the Employer may thereafter sell the same, holding the proceeds less any cost incurred to the credit of the Contractor. All such property of the Contractor not so required to be removed but retained for the purposes of completion shall be subject to the further power of sale by the Employer in paragraph (h) hereof.
		(e)	If or as soon as the arrangements for completion of the work made by the Employer enable the Architect and the Quantity Surveyor to make a reasonably accurate assessment of the ultimate cost to the Employer of completing the Works following the termination of the Contractor’s employment and the engagement of other contractors or persons, the Architect and the Quantity Surveyor may jointly issue a certificate stating the amount of the costs so incurred or to be incurred by the Employer, and if they have not already done so shall issue such a certificate within 3 months of completing the Works. Such certificate shall state separately the sums previously paid to the Contractor by the Employer, the sums paid or payable to other contractors or persons engaged by the Employer to complete the Works, any sums

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	paid to sub-contractors or suppliers under paragraph (c) hereof and any other costs or expenditure (including professional costs) reasonably incurred or to be incurred by the Employer in completing the Works. The Certificate shall also state the final Contract Sum which, allowing for any variations or other matters which would have resulted in an adjustment of the original Contract Sum and for any other sums (but not damages for delay in completion) which the Employer might be entitled under the terms of the Contract to deduct therefrom, would have been payable under the Contract had the Contractor’s employment not been terminated. Such certificate is here referred to as a “Cost of Termination Certificate”.
(f)	If the final Contract Sum stated in the Cost of Termination Certificate is less than the Completion Cost certified therein, the difference shall be stated in the Certificate as a sum due from the Contractor to the Employer, and if greater as a sum due from the Employer to the Contractor. In either case the sums stated shall be recoverable forthwith from the Contractor or the Employer, as the case may be, subject to the next following paragraph hereof.
(g)	In the event that final completion of the Works by the other contractors or persons engaged by the Employer has been delayed beyond the Contract Completion Date (as revised or extended or notionally extended by the Architect in accordance with clauses 10(1) and 23 of these Conditions or any other provisions of this Contract entitling the Contractor to an extension of time and also in accordance with the next following sub- paragraphs) the following provisions shall have effect: -
	(i)     The Employer shall be entitled to the same liquidated damages for delay as those which would have applied under the terms of the Contract if the Contractor had himself completed the Works on the actual completion date of the other contractors or persons engaged by the Employer.
	(ii)    For the purpose of giving effect to this paragraph of this sub-clause, the Architect shall, upon the completion of the Works issue a certificate known as a “Termination Delay Certificate”. Such certificate shall state the date upon which the Contractor should have completed the Works and shall, mutatis mutandis, be given on the same principles as a Delay Certificate under clause 24 of these Conditions, but in addition the Certificate shall state the full period of delay for which the Contractor is responsible and shall compute the total damages due to the Employer therefore. The Certificate shall give credit for matters following the termination which would in any event have entitled the Contractor to an extension of time had he completed the Works himself and applied for such extension, and in assessing the period and date of delay to be certified in the Termination Delay Certificate the Architect shall also reduce the period of delay to be certified to the extent that there has been any failure by the Employer or by the other contractors or persons engaged by the Employer to use diligence and due expedition in arranging for or completing the remaining parts of the Works.
	(iii)  Upon the issue of the Termination Delay Certificate the damages certified in that Certificate shall be immediately payable by the Contractor to the Employer.
(h)	Where on final completion there shall be any temporary buildings, plant, tools, equipment, goods or unfixed materials on the Site, the property in which would otherwise be the Contractor’s or revest in him under clause 16 of these Conditions, the Contractor shall be permitted to remove the same, provided that if pursuant to paragraphs (f) and (g) hereof, or under sub-clauses (9) and (10) of this Condition, there shall be final net sums or damages due to the Employer from the Contractor, the Employer may retain the same until payment of such sums or damages by the Contractor, and failing payment may sell the same, holding any excess of the proceeds of sale obtained by the Employer, over the sums expenses, damages or costs (including legal and financing costs) properly due to the Employer, for the credit of the Contractor. Provided that the Contractor shall be entitled to purchase the same from the Employer at the same price as that in any prospective sale to a third person by the Employer within seven days of receipt of notification of the proposed sale.

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Employer may Elect to Abandon Project	32.(9)		As an alternative to the remedies provided for in sub-clause (8) hereof, the Employer may in an appropriate case, where it is reasonable to do so following a termination of the Contractor’s employment under sub-clauses (2), (6) or (7) hereof, elect to abandon the project of which the Works form part, in which event damages (subject to any questions of remoteness or mitigation of damage) shall be recoverable by the Employer from the Contractor under the general law on the same basis as if the Contractor had repudiated the Contract. For the avoidance of doubt the Architect shall have no powers of certification of the sums or damages due to either party in any such event.
Powers on Rescission by Employer	32.(10)		In the event of the Employer being entitled and selecting to treat the Contract as repudiated by the Contractor under the general law and deciding to complete the Works by other contractors, the powers, remedies and damages conferred by subclause (8) of this Condition shall be exercisable and recoverable by the Employer in the same way as if a valid Notice of Termination had been given.
Architect’s Certificate Not Binding	32.(11)		In accordance with clauses 31(13) and 37(3)(h) of these Conditions, the Cost of Termination and Termination Delay Certificates under sub-clause (8) of this Condition shall not be binding on either party before final judgment or award.
	32.(12)		The powers in sub-clauses (8) and (9) of this Condition are without prejudice to any other remedies or damages recoverable by the Employer.
	33.		TERMINATION BY CONTRACTOR
Grounds	33.(1)		The Contractor shall be entitled by a written Notice of Termination given to the Employer to terminate his employment under the Contract on any of the following grounds: -
		(a)	If, following 14 days’ written notice requiring him to do so, the Employer fails to engage, as a successor Architect or Quantity Surveyor for the purposes of the Contract, an Architect or Quantity Surveyor nominated by the President or Vice-President of the S.I.A. pursuant to Articles 3 and 4 of this Contract.
		(b)	If the Employer improperly or fraudulently interferes with or influences or obstructs the issue of a certificate by the Architect or there is fraudulent collusion between the Employer and the Architect.
		(c)	If the Employer becomes bankrupt or insolvent or makes a composition with creditors or, being a company, if any winding-up order is made, or if a receiver or manager of the Employer’s undertaking or assets is appointed, or possession taken of any property by creditors or debenture holders, or under a floating charge, and if thereafter, following 14 days’ written notice by the Contractor requiring the same, an irrevocable Bank Guarantee of all monies due or become due under the Contract is not given to the Contractor by a bank of sufficient and reasonable standing having regard to the extent of the Works.

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33.(2)		Any Notice of Termination by the Contractor under this clause shall take immediate effect, but must be given within a further 14 days of the expiry of the prior notices referred to in paragraphs (a), (b) and (c) of sub-clause (1) of this Condition or within 2 months of the Contractor becoming aware of any matter relied on under paragraph (b), and shall in all cases as a condition precedent to its validity state the ground on which the Notice of Termination is given. Failing service of Notice of Termination in the relevant cases within the further period of 14 days, any Notice of Termination served subsequently shall be of no effect unless supported by further prior notices expiring within the required period before the later Notice of Termination.	Contents of and Time for Contractor’s Notice
33.(3)		Upon giving Notice of Termination: -	Effect of Notice
	(a)	The Contractor, after taking reasonable precautions to safeguard the Works against accidental damage or from causing damage to other persons or property, may remove from the Site his temporary buildings, plant, tools, equipment and unfixed goods or materials (save only unfixed goods or materials which have been paid for by the Employer under clause 31 of the Conditions or in respect of which the Employer shall tender payment to the Contractor, together with any transport or other costs necessary to secure their return, within 7 days of Notice of Termination).
	(b)	The Contractor shall be paid (after allowing for previous payments).
		(i)       The contract value of all work executed before the termination.
		(ii)      The delivered value of any unfixed goods or materials left on the Site.
		(iii)     The cost of removal from the Site (including protection and safeguarding of the Works as aforesaid) in so far as this has not already been included in payments made or the value of work or materials.
		(iv)     Any liability costs or damage which would not have been incurred but for the termination.
		(v)      The cost of materials or goods ordered for the Works for which the Contractor is liable to pay, provided that possession and property in the goods is transferred by the Contractor to the Employer.
		(vi)     Loss of profit (if any) on the remaining part of the Works.
33.(4)		Should the Architect fail to issue any certificate at the date required by the Contract, or should he fail to make a statement in writing required under clause 31(13) within the period there stipulated, the Contractor may, after giving one calendar month’s notice in writing, at any time within a further 14 days, but not later, suspend all work, notifying the Employer to that effect in writing, until such time as the Architect shall issue the certificate or statement, as the case may be. Unless the Architect is for any reason justified in not issuing the certificate or statement (including failure to provide any necessary information or notice by the Contractor) the cost of such suspension shall be borne by the Employer and the Contractor shall be entitled to an extension of time therefore. For the avoidance of doubt, no decision or certificate or other action of the Architect in relation to any such suspension shall be binding on either party before final judgment or award, nor shall a disputed suspension prejudice the powers of the Architect under clause 32(3)(d) in a case where the suspension is not in fact justified, or the operation of subclauses 32(4) and (5) of the Conditions whether or not the suspension is in fact justified.	Power to Suspend Work
33.(5)		The Contractor shall be entitled to suspend work in accordance with and subject to the provisions of sections 23 and 26 of the SOP Act.	Power to Suspend Work under SOP
33.(6)		For the avoidance of doubt the Architect shall have no powers of certification under this clause.	No Power of Architect to Certify

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	34.		OUTBREAK OF WAR
Termination	34.(1)		If during the currency of the Contract there shall be an outbreak of hostilities (whether war is declared or not) in which Singapore shall be involved on a scale involving the general mobilisation of its armed forces then either the Employer or the Contractor may at any time by notice, by registered post or recorded delivery forthwith terminate the employment of the Contractor under this Contract:-
			Provided that such a notice shall not be given:
		(a)	Before the expiration of 28 days from the date on which the order is given for general mobilisation as aforesaid, or
		(b)	After completion of the Works under clause 24(4) of the Conditions, unless the Works or any part thereof shall have sustained war damage as defined in clause 35(4) of these Conditions.
Protective Works Etc.	34.(2)		The Architect may, within 14 days after a notice under this Condition shall have been given or received by the Employer, issue instructions to the Contractor requiring the execution of such protective work as shall be specified therein, or the continuation of the Works up to convenient points of stoppage to be specified therein, and the Contractor shall comply with such instructions as if the notice of termination had not been given. Provided that if the Contractor shall for reasons beyond his control be prevented from completing the work to which the said instructions relate within 3 months from the date on which the instructions were issued, he may abandon such work.
Payment	34.(3)		Upon the expiration of 14 days from the date on which a notice of termination shall have been given or received by the Employer under this Condition or, where works are required by the Architect under the preceding sub-clause, upon completion or abandonment as the case may be of any such works, the provisions of sub-clause (3) (except sub-paragraphs (iv) and (vi) of paragraph (b)) of clause 33 of these Conditions shall apply, and the Contractor shall also be paid by the Employer the value of any work executed pursuant to instructions given under sub-clause (2) of this clause, the value being ascertained in accordance with clause 12(4) of these Conditions as if such work were a variation required by the Architect.
	35.		WAR DAMAGE
Consequences	35.(1)		In the event of the Works, or any part thereof, or any unfixed materials or goods intended for, delivered to and placed on or adjacent to the Works, sustaining war damage then notwithstanding anything expressed or implied elsewhere in this Contract: -
		(a)	The occurrence of such war damage shall be disregarded in computing any amounts payable to the Contractor under this Contract.
		(b)	The Architect may issue instructions requiring the Contractor to remove or dispose of any debris or damaged work or execute such protective work as shall be specified.
		(c)	The Contractor shall reinstate or make good such war damage and shall proceed with the carrying out and completion of the Works, and the Architect shall grant to the Contractor a fair and reasonable extension of time for the completion of the Works.
		(d)	The removal and disposal of debris or damaged work, the execution of protective works, and the reinstatement and making good of war damage shall be deemed to be a variation required by the Architect.

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35.(2)		If at any time after the occurrence of war damage as aforesaid either party serves notice of termination under clause 34 of these Conditions, the expression “protective work” as used in that clause shall be deemed to include any matters in respect of which the Architect can issue instructions under paragraph (b) of sub-clause (1) of this Condition and any instructions issued under the said paragraph prior to the date on which notice of termination is given or received by the Employer and which shall not then have been completely complied with shall be deemed to be given under clause 34(2) of these Conditions.	Termination
35.(3)		The Employer shall be entitled to any compensation which may at any time become payable by the Government in respect of war damage sustained by the Works or any part thereof or any unfixed materials, or goods intended for the Works which shall at any time have become the property of the Employer.	Compensation Monies
35.(4)		In this Condition the expression “war damage” means:-	Definition of War Damage
	(a)	damage occurring (whether accidentally or not) as a direct result of action taken by the enemy, or action taken in combating the enemy or in repelling an imagined attack by the enemy;
	(b)	damage occurring (whether accidentally or not) as a direct result of measures taken under proper authority to avoid the spreading of, or otherwise to mitigate, the consequences of such damage as aforesaid;
	(c)	accidental damage occurring as a direct result;
		(i)     of any precautionary or preparatory measures taken under proper authority with a view to preventing or hindering the carrying out of an attack by the enemy; or
		(ii)    of any precautionary or preparatory measures involving the doing of work on land and taken under proper authority in any way in anticipation of enemy action.
		being, in either case, measures involving a substantial degree of risk to property; provided that the measures mentioned in paragraph (c) of this sub-condition do not include the imposing of restrictions on the display of lights or measures taken for training purposes,
	(d)	for the purpose of this sub-clause such action against the enemy or by the enemy as is referred to in paragraph (a)
		(i)     shall, in relation to any ship or aircraft taking part in such action, be deemed to continue until the ship or aircraft has returned to its base, or has been declared as lost.
		(ii)    includes naval, military or air reconnaissance and patrols.
	36.	ANTIQUITIES
36.(1)		All fossils, antiquities and other objects of interest or value which may be found on the Site or in excavating the same during the progress of the Works shall become the property of the Employer. The Contractor shall carefully take out and preserve all such objects and shall immediately or as soon as conveniently possible after the discovery of such articles deliver the same into the possession of the Architect of the Clerk of Works uncleaned and as excavated.	Responsibilities of Contractor
36.(2)		If compliance with the provisions of the preceding sub-clause has involved the Contractor in any liability, loss or expense for which he will not be reimbursed by a payment made by any other provision in this Contract, then the Contractor shall be entitled to additional payment by way of compensation therefore, which shall be added to the Contract Sum, and where appropriate shall also be granted an extension of time.	Compensation to Contractor

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	37		ARBITRATION
Disputes to be Referred	37.(1)		Any dispute between the Employer and the Contractor as to any matter arising under or out of or in connection with this Contract or under or out of or in connection with the carrying out of the Works and whether in contract or tort, or as to any direction or instruction or certificate of the Architect or as to the contents of or granting or refusal of or reasons for any such direction, instruction or certificate shall be referred to the arbitration and final decision of a person to be agreed by the parties or, failing agreement within 28 days of either party giving written notice requiring arbitration to the other, a person to be appointed on the written request of either party by or on behalf of the President or Vice-President for the time being of the S.I.A. or, failing such appointment within 28 days of receipt of such written request, together with such information or particulars of the dispute as may be requested in writing by the President or Vice-President for the time being of the S.I.A., such persons as may be appointed by the Courts.
			The arbitration proceedings shall be conducted in accordance with the Arbitration Rules of the S.I.A. for the time being in force which Rules are deemed to be incorporated by reference to this clause.
Arbitrator’s Power to Rectify Contract	37.(2)		Such arbitrator shall have power in an appropriate case to rectify any of the Contract Documents (but not this clause of the Conditions) so as to conform to the true intention of the parties in accordance with the principles of the general law applicable to the rectification of contracts.
Restrictions on Powers of Arbitrator	37.(3)		Such arbitrator shall not in making his final award be bound by any certificate, refusal of certificate, ruling or decision of the Architect under any of the terms of this Contract, but may disregard the same and substitute his own decision on the basis of the evidence before and facts found by him and in accordance with the true meaning and terms of the Contract, provided that: -
Nomination by S.I.A. President		(a)	The nomination and decision of the President (or Vice-President) of the S.I.A. under Articles 3 and 4 of the Contract shall be final and conclusive as provided by the terms of those Articles.
No Written Instruction		(b)	No claim by the Contractor shall be permitted based upon compliance with an order or request of the Architect or of the Employer which is not, pursuant to clause 1(1) of these Conditions, expressed as written instruction or direction of the Architect or confirmed to or by the Architect in writing in accordance with the provisions of that sub-clause.
Directions not Objected To		(c)	A direction of the Architect not objected to by the Contractor pursuant to the provisions of sub-clause 1(5) of the Conditions shall be conclusive to the extent provided for in that sub-clause.
Dayworks		(d)	Dayworks payments shall not be recoverable unless the Contractor has complied with the requirements of clause 12(4)(e) of the Conditions.
Measurement		(e)	In the special circumstances set out in clauses 12(3) and 13(3) of the Conditions, the quantities measured by the Quantity Surveyor shall be final and conclusive.
No Notice Claiming Extension of Time		(f)	Extensions of time shall not be granted in any case where the Contractor fails to comply with the requirements of clause 23(2) of the Conditions.
Certificate of Partial Re-entry		(g)	A Certificate of Partial Re-entry shall be final and binding to the extent stated in clause 26(3) of the Conditions.

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	(h)	Pursuant to clause 31(13) of these Conditions, temporary effect shall be given to all certificates (other than a Cost of Termination or Termination Delay Certificate under clause 32(g) of these Conditions), whether for payment or otherwise, granted (or refused) by the Architect, and to all rulings and decisions required of him for the purpose of issuing certificates under the terms of the Contract, until final award (or, where the courts may for any reason be seised of a dispute, until final judgment), save only that in cases where no ruling or decision has been made or certificate given or refused by the Architect (as to which an arbitrator or the Courts may if necessary receive evidence from the Architect) or in the case of a Cost of Termination or Termination Delay Certificate, or of any matter in relation to which the Architect has no power to decide or certify under the terms of the Contract, an arbitrator or the Courts, as the case may be, may deal with a matter whether in interlocutory proceedings or by way of Interim Award or in any other way, before final award or judgment.	Effect of Architect’s Certificates
	(i)	The power of the Architect to issue a further certificate under clause 31(6) of the Conditions shall continue until his Final Certificate notwithstanding the prior commencement of proceedings by way of arbitration or in the Courts, to which further certificate full effect shall be given by the Courts or an arbitrator until final award or judgment.	Amending Certificates
	(j)	Full effect shall be given to any other express provisions of the Contract Documents which may confer special finality on a certificate or notice (including in particular sub- clauses 32(4) and 32(5) of the Conditions) or which may bar or prevent a claim or defence being advanced by either party against the other.	Other Contract Provisions
37.(4)		For the avoidance of doubt, in any case where for any reason the Courts and not an arbitrator are seised of a dispute between the parties, the Courts shall have the same powers as an arbitrator appointed under this clause.	Courts to have same Powers
37.(5)		An arbitration under this Contract may be commenced at any time notwithstanding that the Works are not complete.	Early Arbitration
37.(6)		An arbitrator or the Courts shall have power to award interest at full commercial rates in favour of the Contractor to take account of under-certification or underpayment at any stage of the Contract, and in favour of the Employer in all cases of overpayment.	Interest
37.(7)		An arbitrator or the Courts shall have power to order repayment of sums allowed or overpaid by either party to the other whether under a mistake of fact or of law or pursuant to any certificate of the Architect, or whether previously awarded or adjudged in any interlocutory proceedings in accordance with any such certificate.	Overpayment
37.(8)		Where any dispute or part of a dispute between the Employer and the Contractor relates to the work or goods or materials of a Nominated Sub-Contractor or Supplier (or a Designated Sub-Contractor or Supplier whose work, goods or materials are the subject of a P.C. Item) and arises out of (or is connected with the same facts as a dispute or part of a dispute between the Contractor and such Sub-Contractor or Supplier, the Employer and Contractor will use their best endeavours to ensure that the same arbitrator shall hear the dispute or part of a dispute under this Contract and the dispute or part of a dispute under such sub-contract. To this end the Employer or the Contractor may apply, if necessary unilaterally, either to the President of the S.I.A. or the Courts, for the appointment of such an arbitrator, notwithstanding any previous appointment of an arbitrator or arbitrators, and for their replacement by a single arbitrator, in which event any previous appointments shall lapse, in whole or in part, as the case may be, upon any such later appointment. Such single arbitrator if appointed shall have power to hear the evidence in one dispute immediately before or after or at the same time as the evidence in the other dispute, and generally to act as closely as possible in both arbitrations in accordance with the general principles of third party procedure in the Courts and to make any such orders as to indemnity, contribution, and costs between any of the parties before him as may be appropriate.	Same Arbitrator as Nominated Sub- Contract Disputes

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Arbitration Clause may lapse if not same Arbitrator	37.(9)		If for any reason, in a case where a dispute under this Contract relates to work, goods or materials as aforesaid and arises out of or is connected with the same facts as a dispute under any sub-contract referred to in sub-clause (8) hereof, the same arbitrator cannot be or is not appointed to hear both disputes, or if the Courts and not an arbitrator are seised of the dispute in the sub-contract then, to the extent only that it applies to such a dispute, this arbitration clause shall, in the absence of contrary agreement between the parties hereto, lapse and cease to have effect and the authority of any arbitrator already appointed under it shall be deemed to be revoked to this extent in relation to any such dispute or part of a dispute.
Limitation of Actions	37.(10)		In any case where a dispute under this Contract is commenced by way of arbitration but is for any reason subsequently required to be dealt with in the Courts, or vice versa, the later proceedings shall be deemed to have been commenced for purposes of limitation of action at the date when the earlier proceedings were commended, provided that there has been no unreasonable delay by the claimant or plaintiff, as the case may be, in initiating or pursuing the later proceedings.
Refusal of Stay by Courts	37.(11)		None of the provisions of this Condition shall be construed so as to limit or prevent either party from requesting the Courts to exercise their discretion to revoke the appointment of any arbitrator or refuse a stay of proceedings in any case where third parties (including in particular a sub-contractor or supplier or the Architect or Quantity Surveyor or a Consultant) are also involved either directly or indirectly in a dispute with or between the parties to this Contract.
	37.(12)		For the avoidance of doubt, where a number of matters are in dispute between the Employer and Contractor, and also between the Contractor and a Nominated or Designated Sub-Contractor or Supplier, not all of which qualify as a dispute under sub-clause (8) hereof, the provisions of sub-clauses (8) and (9) hereof shall, in the absence of agreement, apply only to such matters of dispute as do so qualify.
	38.		MEDIATION CLAUSE
			Notwithstanding clause 37 (1) of the Conditions, upon the agreement of both the Employer and the Contractor, the Parties may refer their dispute as to any matter arising under or out of or in connection with this Contract or under or out of or in connection with the carrying out of the Works and whether in contract or in tort, or as to any direction or instruction or certificate of the Architect or as to the contents of or granting or refusal of or reasons for any such direction, instruction or certificate for mediation under the Mediation Rules of the SIA before a mediator to be appointed by the President or Vice-President for the time being of the SIA.
			For the avoidance of doubt, prior reference of the dispute to mediation under this clause shall not be a condition precedent for its reference to arbitration by either the Contractor or the Employer, nor shall any of their rights to refer the dispute to arbitration pursuant to sub-clause 37(1) of the Conditions be in any way prejudiced or affected by this sub-clause.
	39.		ADDITIONAL OPTIONAL CLAUSE FOR FLUCTUATIONS
Steel Bar Reinforcement	39.(1)		The Contract Sum shall be adjusted upwards or downwards to take account of any rise or fall respectively during the currency of the Contract in the quoted prices of Natsteel Ltd of Singapore for such steel bar reinforcement as may be used in the Works. For the purpose of this clause of the Conditions the Specification or other Contract Documents shall specify a Base Date for Steel Bar Reinforcement, with or without a list of prices at the Base Date. On delivery of steel bar reinforcement to the Site the Contractor shall
		(a)	In the case of steel bar reinforcement purchased from Natsteel Ltd, be paid or give credit for the difference between his invoice prices for the steel and the stipulated Base Date prices or, if no such prices are stipulated, the prices ruling at the Base Date.

Applicable only if initialled by or on behalf of the Employer or otherwise expressly incorporated in the Contract.

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	(b)	In the case of steel bar reinforcement purchased from other sources, be paid or give credit for the difference between the prices for steel bar reinforcement of that type and kind quoted by Natsteel Ltd at the date of delivery to the Site and the aforesaid Base Date Prices.
39.(2)		The Contract Sum shall be adjusted upwards or downwards to take account of any rise or fall respectively during the currency of the Contract in the market price of cement ruling in Singapore. For the purpose of this clause the Specification or other Contract Documents shall specify a Base Date with or without a list of the market prices for cement ruling at Base Date. On delivery of cement to the site the Contractor shall be paid or give credit for the difference between the market price ruling at the date of delivery or the actual price paid by the Contractor or any sub-contractor (whichever is the lower) and the stipulated Base Date prices, or if no such prices are stipulated, the market prices for cement ruling at the specified Base Date.	Cement
39.(3)		Effect shall be given to this clause upon an Interim Certificate under clause 31 of the Conditions.	Interim Payment
39.(4)		In the event of the Contractor failing to complete the Works by the Contract or extended Contract Completion Date, whichever is later, no further upward adjustment of the Contract Sum in respect of Steel Bar Reinforcement or Cement shall be permitted beyond the price ruling at the date of default certified by the Architect in his Delay Certificate.	Contractor in Delay
39.(5)		This clause shall apply to steel or cement purchased by any sub-contractors (but not to Nominated Sub-Contractors or Suppliers or Designated Sub-Contractors or Suppliers whose work is the subject of a P.C. Item, unless expressly incorporated into their subcontracts).
40.		ADDITIONAL OPTIONAL CLAUSE PERMITTING INSURANCE EXCESS*
		The insurance required to be taken out by the Contractor under clauses 19 and 20 of the Conditions shall, in those cases where payment for the insurance is required to be made under a Provisional Sum of P.C. Item, be subject to such limitations by way or insurance excesses to be borne by the insured in any event as are stipulated in the Specification or other Contract Documents and may at the Contractor’s discretion be so subject to the stipulated excesses in those cases where the Contract Sum will not be adjusted under the terms of the Contract to take account of the cost of the insurance in question. In the case of the insurance monies under clause 20 of the Conditions, their release by instalments under the terms of sub-clause (2) of that Condition shall also have regard to any shortfall or deficit in the monies so paid arising from the presence of a permitted excess under this Condition.

^* Applicable only if initiated by or on behalf of the Employer or otherwise expressly incorporated in the Contract.

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SCHEDULE OF AMENDMENTS

(Articles and Conditions of Building Contract)

Lump Sum Contract

SINGAPORE INSTITUTE OF ARCHITECTS

SIXTH EDITION AUGUST 1999		CHANGED TO
Article 2 (b)	The expression “Schedule of Rates” wherever used in this contract shall include any document, however entitled or described, which is signed by the Employer and Contractor as a Contract Document and which is intended to be used for the purpose of valuing variations, or in assisting in the calculation of interim payment in accordance with sub-clause 31(2) or (3) of the Conditions.	The expression “Schedule of Rates” wherever used in this contract shall include any document, however entitled or described, which is signed by the Employer and Contractor as a Contract Document and which is intended to be used for the purpose of valuing variations, or in assisting in the calculation of interim payment in accordance with sub-clause 31(4) or (5) of the Conditions. [Note: amendments in bold]
Article 2 (c)	Interim payment shall be by fixed instalments of the Contract Sum payable on completion of defined stages of the work in accordance with clause 31(3) of the Conditions and the Appendix to the Contract or other Contract Documents.	Interim payment shall be by fixed instalments of the Contract Sum payable on completion of defined stages of the work in accordance with clause 31(5) of the Conditions and the Appendix to the Contract or other Contract Documents. [Note: amendments in bold]
Article 2 (d)	Interim payment shall be by periodical valuation of the Work in accordance with clause 31(2) of the Conditions and the Appendix to the Contract.	Interim payment shall be by periodical valuation of the Work in accordance with clause 31(4) of the Conditions and the Appendix to the Contract. [Note: amendments in bold]
Article 9	Not in existence	In this Contract, unless the context otherwise requires: (a) “SOP Act” means the Building and Construction Industry Security of Payment Act 2004 or any subsequent amendment thereto. (b) “SOP Regulations” means the Building and Construction Industry Security of Payment Regulations 2005 or any remaking thereof or any amendment to the regulation therein. (c) “Payment claim” shall have the same meaning and effect as the words “payment claim” in the SOP Act and SOP Regulations. (d) “Payment response” shall have the same meaning and effect as the words “payment response” in the SOP Act and SOP Regulations. (e) “Progress payment” shall have the same meaning and effect as the words “progress payment” in the SOP Act and SOP Regulations. (f) “Supply contract” shall have the same meaning and effect as the words “supply contract” in the SOP Act and SOP Regulations.

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SIXTH EDITION AUGUST 1999		CHANGED TO
Clause 12. (4)(g)	In the case of an obvious accidental error in the rates or prices quoted by the Contractor resulting in a grossly excessive or inadequate rate or price, the Quantity Surveyor (subject to clause 13(2) of the Conditions) may apply a reasonable rate or price in line with the Contractor’s general level of rates or prices, but only to any difference between the original contract quantities and the actual quantities.	In the case of an obvious accidental error in the rates or prices quoted by the Contractor resulting in a grossly excessive or inadequate rate or price, the Quantity Surveyor may apply a reasonable rate or price in line with the Contractor’s general level of rates or prices, but only to any difference between the original contract quantities and the actual quantities. [Note: the words in bold have been omitted]
Clause 20.(2) Application of Insurance Monies	Upon the occurrence of any loss or damage to the Works or unfixed materials or goods prior to completion from any cause whatsoever the Contractor shall (subject to clause 3(3) of these Conditions) proceed immediately to restore, replace or repair the same free of charge, save only that any monies, if and when received, from the insurance under this clause shall be paid in the first place to the Employer and then (less only the aforesaid percentage for professional fees if any) released to the Contractor by instalments on the interim certificate of the Architect, calculated as from the date of receipt of the monies in proportion to the extent of the work of restoration, replacement or repair previously carried out by the Contractor, but having regard also to any likely shortfall or deficit in the money so paid, whether under clause 39 of the Conditions or otherwise, and to the Contractor’s consequential obligation in such event to reinstate an appropriate proportion of the loss or damage represented by such shortfall or deficit free of charge, whether under clause 39 of the Conditions or otherwise. Provided that if any loss or damage to the Works covered as an insured risk under this clause has itself been caused by the willful or negligent act of the Employer or of other persons for whom he is responsible without fault on the part of the Contractor, or if the Contractor is entitled to an indemnity from the Employer in respect of the loss or damage under clause 2(3) or any other clause of the Conditions, the Architect shall certify payment in favour of the Contractor on interim certificate in advance of the receipt of any insurance monies, and in addition shall make no deduction in respect of any shortfall or deficit under the policy if such has been previously agreed to or permitted under the Contract.	Upon the occurrence of any loss or damage to the Works or unfixed materials or goods prior to completion from any cause whatsoever the Contractor shall (subject to clause 3(3) of these Conditions) proceed immediately to restore, replace or repair the same free of charge, save only that any monies, if and when received, from the insurance under this clause shall be paid in the first place to the Employer and then (less only the aforesaid percentage for professional fees if any) released to the Contractor by instalments on the interim certificate of the Architect, calculated as from the date of receipt of the monies in proportion to the extent of the work of restoration, replacement or repair previously carried out by the Contractor, but having regard also to any likely shortfall or deficit in the money so paid, whether under clause 40 of the Conditions or otherwise, and to the Contractor’s consequential obligation in such event to reinstate an appropriate proportion of the loss or damage represented by such shortfall or deficit free of charge, whether under clause 40 of the Conditions or otherwise. Provided that if any loss or damage to the Works covered as an insured risk under this clause has itself been caused by the wilful or negligent act of the Employer or of other persons for whom he is responsible without fault on the part of the Contractor, or if the Contractor is entitled to an indemnity from the Employer in respect of the loss or damage under clause 2(3) or any other clause of the Conditions, the Architect shall certify payment in favour of the Contractor on interim certificate in advance of the receipt of any insurance monies, and in addition shall make no deduction in respect of any shortfall or deficit under the policy if such has been previously agreed to or permitted under the Contract. [Note: amendments in bold]
Clause 23. (1)(n)	Clause 23. (1)(n)	Renumbered to clause 23. (1)(o)
	Not in existence	Valid suspension of work under clause 33 (4) or 33 (5)of these Conditions.

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SIXTH EDITION AUGUST 1999		CHANGED TO
Clause 23.(1)(o)	Clause 23. (1)(o)	Renumbered to clause 23. (1)(p)
Clause 23. (1)(p)	Clause 237(1)(p)	Renumbered to clause 23. (1)(q)
Clause 24. (3) Termination of Delay and Further Delay	If while the Contractor is continuing work subsequent to the issue of a Delay Certificate, the Architect gives instructions or matters occur which would entitle the Contractor to an extension of time under clauses 23(1)(f)(g)(h)(i)(j)(k)(n) and (o) of the Conditions, and if such matters would have entitled the Contractor to an extension of time regardless of the Contractor’s own delay and were not caused by any breach of contract by the Contractor, the Architect shall as soon as possible grant to the Contractor the appropriate further extension of time in a certificate known as a “Termination of Delay Certificate”.	If while the Contractor is continuing work subsequent to the issue of a Delay Certificate, the Architect gives instructions or matters occur which would entitle the Contractor to an extension of time under clauses 23(1)(f)(g)(h)(i)(j)(k)(n)(o) and (p) of the Conditions, and if such matters would have entitled the Contractor to an extension of time regardless of the Contractor’s own delay and were not caused by any breach of contract by the Contractor, the Architect shall as soon as possible grant to the Contractor the appropriate further extension of time in a certificate known as a “Termination of Delay Certificate”. [Note: additions in bold]
Clause 24.(5) Outstanding Works	Provided that, without prejudice to the Architect’s powers under clause 26(3) of the Conditions, if any minor works are outstanding which can be completed following the removal of the Contractor’s site organisation and all major plant or equipment, and without unreasonable disturbance of the Employer’s full enjoyment and occupation of the property, then upon the Contractor undertaking in writing to complete such outstanding work within such time or times as may be stipulated by the Architect, the Architect may (but shall not be bound to) issue a Completion Certificate, which shall record such outstanding work by way of a schedule attached to the certificate, together with the terms of the agreement with the Contractor for its completion, including any agreement as to withholding and subsequently releasing any part of the Retention Monies otherwise payable on the issue of the certificate in accordance with clause 31(7) of these Conditions.	Provided that, without prejudice to the Architect’s powers under clause 26(3) of the Conditions, if any minor works are outstanding which can be completed following the removal of the Contractor’s site organisation and all major plant or equipment, and without unreasonable disturbance of the Employer’s full enjoyment and occupation of the property, then upon the Contractor undertaking in writing to complete such outstanding work within such time or times as may be stipulated by the Architect, the Architect may (but shall not be bound to) issue a Completion Certificate, which shall record such outstanding work by way of a schedule attached to the certificate, together with the terms of the agreement with the Contractor for its completion, including any agreement as to withholding and subsequently releasing any part of the Retention Monies otherwise payable on the issue of the certificate in accordance with clause 31(9) of these Conditions. [Note: amendments in bold]
Clause 26.(2)(a)	A release to the Contractor of a proportion of the first half of the Retention Monies under clause 31(7) of these Conditions in respect of the Occupied Part, based upon the certified approximate value of the Occupied Part relative to the certified approximate forecast value of the Works as a whole, shall be made within 14 days of the re-entry by the Employer. Such release shall be further proportionately increased when any outstanding work in the Occupied Part is certified by the Architect as completed by the Contractor.	A release to the Contractor of a proportion of the first half of the Retention Monies under clause 31(9) of these Conditions in respect of the Occupied Part, based upon the certified approximate value of the Occupied Part relative to the certified approximate forecast value of the Works as a whole, shall he made within 14 days of the re-entry by the Employer. Such release shall be further proportionately increased when any outstanding work in the Occupied Part is certified by the Architect as completed by the Contractor. [Note: amendments in bold]

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SIXTH EDITION AUGUST 1999		CHANGED TO
Clause 26.(2)(b)	The Maintenance Period of the Occupied Part (save in regard to any outstanding work as aforesaid) shall be deemed to commence upon the said date of re-entry and the provisions of clause 27 of these Conditions in regard to the making good of defects and the issue by the Architect of a Maintenance Certificate shall apply separately and independently to the Occupied Part, and a release of the second half of the Retention Monies calculated on the same basis as the first half (but taking account, if it be the case, of any outstanding work at the time of release of the first half now entirely completed) shall take place separately and independently in relation to the Occupied Part (together with an appropriate reduction made at that stage in the Limit of Retention under clause 31(6) of these Conditions for the remaining Works) at the expiry of the Maintenance Period of the Occupied Part or the issue of its Maintenance Certificate, whichever is the later.	The Maintenance Period of the Occupied Part (save in regard to any outstanding work as aforesaid) shall be deemed to commence upon the said date of re-entry and the provisions of clause 27 of these Conditions in regard to the making good of defects and the issue by the Architect of a Maintenance Certificate shall apply separately and independently to the Occupied Part, and a release of the second half of the Retention Monies calculated on the same basis as the first half (but taking account, if it be the case, of any outstanding work at the time of release of the first half now entirely completed) shall take place separately and independently in relation to the Occupied Part (together with an appropriate reduction made at that stage in the Limit of Retention under clause 31(8) of these Conditions for the remaining Works) at the expiry of the Maintenance Period of the Occupied Part or the issue of its Maintenance Certificate, whichever is the later. [Note: amendments in bold]
Clause 27.(4) Allowance for Defect	Provided that in lieu of requiring the Contractor to make good defects under sub-clause (1) or (2) or exercising the powers in sub-clause (3) hereof, the Architect may, in any case where the cause is a breach of contract by the Contractor or by any sub-contractor or supplier as aforesaid, give a direction that a defect be not remedied, and instead that there should be a reduction in the Contract Sum to be assessed by the Quantity Surveyor representing the reduced value of the work to the Employer, or any savings in cost obtained by the Contractor which the defective work may have involved, whichever is the greater. Such reduction may be effected in the certificate of the Architect releasing the second half of the Retention Monies under clause 31(8) of these Conditions, in a certificate issued under clause 31(4) of these Conditions or alternatively shall be taken into account by the Architect in his Final Certificate.	Provided that in lieu of requiring the Contractor to make good defects under sub-clause (1) or (2) or exercising the powers in sub-clause (3) hereof, the Architect may, in any case where the cause is a breach of contract by the Contractor or by any sub-contractor or supplier as aforesaid, give a direction that a defect be not remedied, and instead that there should be a reduction in the Contract Sum to be assessed by the Quantity Surveyor representing the reduced value of the work to the Employer, or any savings in cost obtained by the Contractor which the defective work may have involved, whichever is the greater. Such reduction may be effected in the certificate of the Architect releasing the second half of the Retention Monies under clause 31(10) of these Conditions, in a certificate issued under clause 31(6) of these Conditions or alternatively shall be taken into account by the Architect in his Final Certificate. [Note: amendments in bold]
Clause 29. (2)(b)(iv)	a sub-contractor or supplier is not prepared to accept liability for liquidated or other damages for delay which are reasonable having regard to the Contractor’s own liability for delay under this Contract, and to the extent to which the sub-contractor’s or supplier’s progress or delivery or completion dates are or may be critical to the Contractor’s progress and productivity; or	a sub-contractor or supplier is not prepared to accept liability for general damages for delay which are reasonable having regard to the Contractor’s own liability for delay under this Contract, and to the extent to which the sub-contractor’s or supplier’s progress or delivery or completion dates are or may be critical to the Contractor’s progress and productivity; or [Note: amendments in bold]
Clause 29. (2)(b)(v)	Clause 29. (2)(b)(v)	Delete in its entirety

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SIXTH EDITION AUGUST 1999		CHANGED TO
Clause 29.2(b)(vi)	a sub-contractor for work or work and materials or goods is not prepared to accept terms for termination of the sub-contract by the Contractor upon the certificate of the Architect that the sub-contractor is in default on one of the grounds stated in clauses 32(3)(d), (e) and (g) of these Conditions; or	Renumbered to clause 29. (2)(v) a sub-contractor for work or work and materials or goods is not prepared to accept terms for termination of the sub-contract by the Contractor upon the certificate of the Contractor that the sub-contractor is in default on one of the grounds stated in clauses 32(3)(d), (e) and (g) of these Conditions; or [Note: amendments in bold]
Clause 29.2(b)(vii)	Clause 29.2(b)(vii)	Renumbered to clause 29. (2)(vi)
Clause 29.2(b)(viii)	Clause 29.2(b)(viii)	Renumbered to clause 29. (2)(vii)
Clause 30.(1) Certification and Payment	Interim certificates of the Architect in favour of the Contractor under clause 31 of these Conditions shall state separately the amounts in each certificate due to each individual Nominated Sub-Contractor or Supplier (or to Designated Sub-Contractors or Suppliers whose work or materials or goods are the subject of a P.C. Item) as the value of their work, goods or materials carried out or delivered at the relevant date under that clause, Contractor to such Nominated or Designated Contractors or-Suppliers, less retention monies within 14 days of receipt by the Contractor from the Employer of the amounts so due under the certificate of the Architect.	Interim certificates of the Architect in favour of the Contractor under clause 31 of these Conditions shall state separately the amounts in each certificate due to each individual Nominated Sub-Contractor or Supplier (or to Designated Sub-Contractors or Suppliers whose work or materials or goods are the subject of a P.C. Item) as the value of their work, goods or materials carried out or delivered at the relevant date under that clause.
Clause 31. (1) Interim Payment	In existence	Delete in its entirety
	Not in existence	Clause 31.(1) Progress Payments The Contractor shall be entitled to progress payments for the Works carried out or supplied under this Contract by way of: (a) fixed instalments of the Contract Sum payable on certified completion of defined stages of the work as identified and set out in the Appendix; or (b) periodic valuation of the Works or part thereof carried out by the Contractor.
Clause 31. (2) Interim Valuation	Clause 31. (2) Interim Valuation	Renumbered to clause 31. (4)

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SIXTH EDITION AUGUST 1999		CHANGED TO
Clause 31. (2)(e)	In the case of Designated (where the subject of a P.C. Item) or Nominated Sub-Contractors or Suppliers, a valuation, separately stated in accordance with clause 30(1)(a) of these Conditions, of all work properly done and materials or goods delivered, but subject always to any terms as to payment in the sub-contract, and to any further adjustments under clause 30(1) (b).	Renumbered to clause 317(4)(e) In the case of Designated (where the subject of a P.C. Item) or Nominated Sub-Contractors or Suppliers, a valuation, separately stated in accordance with clause 30(1) of these Conditions, of all work properly done and materials or goods delivered, but subject always to any terms as to payment in the sub-contract. [Note: amendments in bold]
Clause 31. (2)(h)	Deducted from the total of the preceding paragraphs any adjustments of or reductions in the Contract Sum or any other sums to which the Employer may be entitled under the terms of the Contract (but not any sums deductible by the Employer for liquidated damages for delay or for payments direct of sub-contractors under clause 30(2) of these Conditions, or under any provision in the Contract Documents entitling the Employer to deduct, which sums shall in all cases be deductible at the discretion of the Employer at any time and only if so deducted shall then be recorded by the Architect in subsequent certificates).	Renumbered to Clause 31.(4)(h) Deducted from the total of the preceding paragraphs any adjustments of or reductions in the Contract Sum or any other sums to which the Employer may be entitled under the terms of the Contract (but not any sums deductible by the Employer for liquidated damages for delay, or under any provision in the Contract Documents entitling the Employer to deduct, which sums shall in all cases be deductible at the discretion of the Employer at any time and only if so deducted shall then be recorded by the Architect in subsequent certificates). [Note: the words in bold have been omitted]
	Not in existence	Clause 31. (2) Payment Claim (a) The Contractor shall be entitled to serve on the Employer a payment claim (a copy of which shall be forwarded to the Architect) as follows: (i)     where pursuant to clause 31.(1)(b), the progress payment is to be based on periodic valuation, the Contractor shall submit the payment claim on the last day of each month following the month in which the Contract is made (or otherwise by such time or on such day specified in the Appendix); or (ii)    where pursuant to clause 31.(1)(a), the progress payment is to be by stage instalments, on the certified completion of the relevant stage. (b)    If the time for the submission of any payment claim under the preceding paragraph falls due on a day which is Saturday, Sunday, Statutory or Public Holiday the Contractor shall submit the payment claim either on the day before or next following that date which itself is not a Saturday, Sunday, Statutory or Public Holiday.

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SIXTH EDITION AUGUST 1999		CHANGED TO
		(c)    Provided that if the Contractor submits a payment claim before the time stipulated herein for the making of that claim, such early submission shall not require the Architect to issue the interim certificate or the Employer his payment response in respect of that payment claim earlier than would have been the case had the Contractor submitted the payment claim in accordance with the Contract.
Clause 31. (3) Stage Instalments	Where pursuant to Article 2 interim payment is to be by stage instalments, payments shall be made in accordance with the Appendix (or any of the other Contract Documents) upon certified completion of the relevant stages but, unless otherwise expressly agreed in the Contract Documents, adjustments to the Contract Sum for variations, Provisional Sum, P.C. Sum or Contingency Sum work, or under any other provision in the Contract, shall be made on completion of each stage and added to or subtracted from the relevant instalment of the Contract Sum. Such adjustments shall be made in accordance with the principles in paragraphs (b), (d) and (e) of sub-clause (2) of this Condition, together with any further adjustments under paragraphs (f), (g) and (h) of sub-clause (2). Completion of any relevant stage shall be sufficiently certified by the Architect in an Interim Certificate certifying the payment due for that stage. For the avoidance of doubt the provisions as to unfixed goods and materials in paragraph (c) of sub-clause (2), and as to retention monies in sub-clauses (5), (6), (7) and (8) of this Condition, shall not apply to stage payments under this sub-clause.	Renumbered to clause 31. (5) Where pursuant to Article 2 interim payment is to be by stage instalments, payments shall be made in accordance with the Appendix (or any of the other Contract Documents) upon certified completion of the relevant stages but, unless otherwise expressly agreed in the Contract Documents, adjustments to the Contract Sum for variations, Provisional Sum, P.C. Sum or Contingency Sum work, or under any other provision in the Contract, shall be made on completion of each stage and added to or subtracted from the relevant instalment of the Contract Sum. Such adjustments shall be made in accordance with the principles in paragraphs (b), (d) and (e) of sub-clause (4) of this Condition, together with any further adjustments under paragraphs (f), (g) and (h) of sub-clause (4). Completion of any relevant stage shall be sufficiently certified by the Architect in an Interim Certificate certifying the payment due for that stage. For the avoidance of doubt the provisions as to unfixed goods and materials in paragraph (c) of sub-clause (4), and as to retention monies in sub-clauses (7), (8), (9) and (10) of this Condition, shall not apply to stage payments under this sub-clause. [Note: amendments in bold]
	Not in existence	Clause 31. (3) Interim Certificate Within 14 days after receipt of the payment claim or the time by or the day on which the Contractor is required under clause 31(2) to submit his payment claim, whichever is later, the Architect shall (subject to the provision of adequate vouchers and information by the Contractor) issue an Interim Certificate for payment to the Contractor (copy of which shall be forwarded to the Employer) subject to the provisions of clause 31(15) of these Conditions.
Clause 31. (4) Correcting Earlier Certificates	Clause 31. (4) Correcting Earlier Certificates	Renumbered to clause 31. (6)

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SIXTH EDITION AUGUST 1999		CHANGED TO
Clause 31. (5) Sums to be certified	Clause 31. (5) Sums to be certified Except where, pursuant to Article 2, Interim Payment is to be by stage instalments, the sums stated as due in an Interim Certificate shall be calculated (unless otherwise stated in the Appendix) at the rate of 90% of the value of work done in accordance with clause 31(2) hereof and at the rate of 80% of properly protected materials or goods delivered to the site but not yet fixed and not prematurely delivered, from the total of which shall be deducted all sums previously certified by the Architect. In appropriate cases the Architect shall have power to issue a negative certificate showing sums overpaid or otherwise due to the Employer, which shall thereupon be a debt due to the Employer.	Renumbered to clause 31. (7) Except where, pursuant to Article 2, Interim Payment is to be by stage instalments, the sums stated as due in an Interim Certificate shall be calculated (unless otherwise stated in the Appendix) at the rate of 90% of the value of work done in accordance with clause 31(4) hereof and at the rate of 80% of properly protected materials or goods delivered to the site but not yet fixed and not prematurely delivered, from the total of which shall be deducted all sums previously certified by the Architect. In appropriate cases the Architect shall have power to issue a negative certificate showing sums overpaid or otherwise due to the Employer, which shall thereupon be a debt due to the Employer. [Note: amendments in bold]
Clause 31. (6) Retention Monies	Clause 31. (6) Retention Monies The percentages not paid pursuant to sub- clause 31(5) hereof shall be known as “Retention Monies”, but shall be subject to the sum or percentage (if any) stated as the Limit of Retention in the Appendix hereto. On this limit being reached, any further balance of Retention Monies calculated pursuant to clause 31(5) shall be payable to the Contractor.	Renumbered to clause 31. (8) The percentages not paid pursuant to sub- clause 31(7) hereof shall be known as “Retention Monies”, but shall be subject to the sum or percentage (if any) stated as the Limit of Retention in the Appendix hereto. On this limit being reached, any further balance of Retention Monies calculated pursuant to clause 31(7) shall be payable to the Contractor.
Clause 31. (7) First Release of Retention	Clause 31. (7) First Release of Retention	Renumbered to clause 31. (9)
Clause 31. (8) Second Release of Retention	Clause 31. (8) Second Release of Retention	Renumbered to clause 31. (10)
Clause 31. (9) Final Claim Documents	Clause 31. (9) Final Claim Documents	Renumbered to clause 31. (11)
Clause 31. (10)(a) Final Certificate	Clause 31. (10)(a) Final Certificate	Renumbered to clause 31. (12)(a)
Clause 31. (10)(b) Outstanding Balances of Nominated Sub-Contractors and Suppliers	Clause 31. (10)(b) Outstanding Balances of Nominated Sub-Contractors and Suppliers	Renumbered to clause 31. (12)(b)

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SIXTH EDITION AUGUST 1999		CHANGED TO
Clause 31. (11) Effect of Clause Architect’s Certificate	31. (11) Effect of Architect’s Certificate No certificate of the Architect under this Contract shall be final and binding in any dispute between the Employer and the Contractor, whether before an arbitrator or in the Courts, save only that, in the absence of fraud or improper pressure or interference by either party, full effect by way of Summary Judgment or Interim Award or otherwise shall, in the absence of express provision, be given to all decisions and certificates of the Architect (other than a Cost of Termination Certificate or a Termination Delay Certificate under clause 32(8) of these Conditions), whether for payment or otherwise, until final judgment or award, as the case may be, and until such final judgment or award such decision or certificates shall (save as aforesaid and subject to sub-clause (4) of this condition) be binding on the Employer and the Contractor in relation to any matter which, under the terms of the Contract, the Architect has a fact taken into account or allowed or disallowed, or any disputed matter upon which under the terms of the Contract he has as a fact ruled, in his certificates or otherwise. The Architect shall in all matters certify strictly in accordance with the terms of the Contract. In any case of doubt the Architect shall, at the request of either party, state in writing within 28 days whether he has as a fact taken account of or allowed or disallowed or ruled upon any matter in his certificates, if so identifying any certificate and indicating the amount (if any) taken into account or allowed or disallowed, or the nature of any ruling made by him, as the case may be.	Renumbered to clause 31. (13) No certificate of the Architect under this Contract shall be final and binding in any dispute between the Employer and the Contractor, whether before an arbitrator or in the Courts, save only that, in the absence of fraud or improper pressure or interference by either party, full effect by way of Summary Judgment or Interim Award or otherwise shall, in the absence of express provision, be given to all decisions and certificates of the Architect (other than a Cost of Termination Certificate or a Termination Delay Certificate under clause 32(8) of these Conditions), whether for payment or otherwise, until final judgment or award, as the case may be, and until such final judgment or award such decision or certificates shall (save as aforesaid and subject to sub-clause (6) of this condition) be binding on the Employer and the Contractor in relation to any matter which, under the terms of the Contract, the Architect has a fact taken into account or allowed or disallowed, or any disputed matter upon which under the terms of the Contract he has as a fact ruled, in his certificates or otherwise. The Architect shall in all matters certify strictly in accordance with the terms of the Contract. In any case of doubt the Architect shall, at the request of either party, state in writing within 28 days whether he has as a fact taken account of or allowed or disallowed or ruled upon any matter in his certificates, if so identifying any certificate and indicating the amount (if any) taken into account or allowed or disallowed, or the nature of any ruling made by him, as the case may be.
Clause 31. (12) Limit on Certifying Power	Clause 31. (12) Limit on Certifying Power	Renumbered to clause 31. (14)
	Not in existence	Clause 31. (15) Payment Response Within 21 days after the payment claim is served on the Employer by the Contractor, the Employer shall respond to the payment claim by providing, or causing to be provided, a payment response to the Contractor who shall be entitled to payment of any sum stated therein as due to the Contractor on the date or within the period provided under clause 31(16) of these Conditions.

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SIXTH EDITION AUGUST 1999		CHANGED TO
	Not in existence	Clause 31. (16) Payment of Contractor The Contractor will be paid progress payment on the date immediately upon the expiry of 35 days after (or otherwise by such time or on such day specified in the Appendix), if the Contractor is a taxable person under the Goods and Services Tax Act who has submitted to the Employer a tax invoice for the progress payment, in accordance to and in compliance with section 8 of the SOP Act, the date the tax invoice is submitted to the Employer, or in any other case, the date on which or the period within which the payment response is required to be provided under clause 31(15) hereof (or otherwise by such time or on such day specified in the Appendix).
Clause 32. (8)(a)	No further sum shall be certified as due to the Contractor until the issue by the Architect of the Completion Cost Certificate hereinafter mentioned in this sub-clause nor shall the Employer be bound to pay any sums previously certified if not already paid.	No further sum shall be certified as due to the Contractor until the issue by the Architect of the Cost of Termination Certificate hereinafter mentioned in this sub-clause nor shall the Employer be bound to pay any sums previously certified if not already paid. [Note: amendments in bold]
Clause 32. (11) Architect’s Certificate Not Binding	In accordance with clauses 31(11) and 37(3) (h) of these Conditions, the Cost of Termination and Termination Delay Certificates under sub-clause (8) of this Condition shall not be binding on either party before final judgment or award.	In accordance with clauses 31(13) and 37(3) (h) of these Conditions, the Cost of Termination and Termination Delay Certificates under sub-clause (8) of this Condition shall not be binding on either party before final judgment or award. [Note: amendments in bold]
Clause 33. (1)(b)	In existence	Delete in its entirely
Clause 33.(1)(c)	Clause 33.(1)(c)	Renumbered as Clause 33.(1)(b)
Clause 33.(1)(d)	Clause 33.(1)(d)	Renumbered as Clause 33.(1)(c)
Clause 33.(2) Contents of and Time for Contractor’s Notice	Any Notice of Termination by the Contractor under this clause shall take immediate effect, but must be given within a further 14 days of the expiry of the prior notices referred to in paragraphs (a), (b) and (d) of sub-clause (1) of this Condition or within 2 months of the Contractor becoming aware of any matter relied on under paragraph (c), and shall in all cases as a condition precedent to its validity state the ground on which the Notice of Termination is given. Failing service of Notice of Termination in the relevant cases within the further period of 14 days, any Notice of Termination served subsequently shall be of no effect unless supported by further prior notices expiring within the required period before the later Notice of Termination.	Any Notice of Termination by the Contractor under this clause shall take immediate effect, but must be given within a further 14 days of the expiry of the prior notices referred to in paragraphs (a), (b) and (c) of sub-clause (1) of this Condition or within 2 months of the Contractor becoming aware of any matter relied on under paragraph (b), and shall in all cases as a condition precedent to its validity state the ground on which the Notice of Termination is given. Failing service of Notice of Termination in the relevant cases within the further period of 14 days, any Notice of Termination served subsequently shall be of no effect unless supported by further prior notices expiring within the required period before the later Notice of Termination. [Note: amendments in bold]

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SIXTH EDITION AUGUST 1999		CHANGED TO
Clause 33. (4) Power to Suspend Work	Should the Architect fail to issue any certificate at the date required by the Contract, or should he fail to make a statement in writing required under clause 31(11) within the period there stipulated, the Contractor may, after giving one calendar month’s notice in writing, at any time within a further 14 days, but not later, suspend all work, notifying the Employer to that effect in writing, until such time as the Architect shall issue the certificate or statement, as the case may be. Unless the Architect is for any reason justified in not issuing the certificate or statement (including failure to provide any necessary information or notice by the Contractor) the cost of such suspension shall be borne by the Employer and the Contractor shall be entitled to an extension of time therefore. For the avoidance of doubt, no decision or certificate or other action of the Architect in relation to any such suspension shall be binding on either party before final judgment or award, nor shall a disputed suspension prejudice the powers of the Architect under clause 32(3) (d) in a case where the suspension is not in fact justified, or the operation of sub-clauses 32(4) and (5) of the Conditions whether or not the suspension is in fact justified.	Should the Architect fail to issue any certificate at the date required by the Contract, or should he fail to make a statement in writing required under clause 31 (13) within the period there stipulated, the Contractor may, after giving one calendar month’s notice in writing, at any time within a further 14 days, but not later, suspend all work, notifying the Employer to that effect in writing, until such time as the Architect shall issue the certificate or statement, as the case may be. Unless the Architect is for any reason justified in not issuing the certificate or statement (including failure to provide any necessary information or notice by the Contractor) the cost of such suspension shall be borne by the Employer and the Contractor shall be entitled to an extension of time therefore. For the avoidance of doubt, no decision or certificate or other action of the Architect in relation to any such suspension shall be binding on either party before final judgment or award, nor shall a disputed suspension prejudice the powers of the Architect under clause 32(3)(d) in a case where the suspension is not in fact justified, or the operation of sub-clauses 32(4) and (5) of the Conditions whether or not the suspension is in fact justified. [Note: amendments in bold]
Clause 33. (5) No Power of Architect to Certify	Clause 33. (5) No Power of Architect to Certify	Renumbered to clause 33. (6)
	Not in existence	Clause 33. (5) Power to Suspend Work under SOP The Contractor shall be entitled to suspend work in accordance with and subject to the provisions of sections 23 and 26 of the SOP Act.

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SIXTH EDITION AUGUST 1999		CHANGED TO
Clause 37. (3)(h) Effect of Architect’s Certificates	Pursuant to clause 31(11) of these Conditions, temporary effect shall be given to all certificates (other than a Cost of Termination or Termination Delay Certificate under clause 32(8) of these Conditions), whether for payment or otherwise, granted (or refused) by the Architect, and to all rulings and decisions required of him for the purpose of issuing certificates under the terms of the Contract, until final award (or, where the courts may for any reason be seised of a dispute, until final judgment), save only that in cases where no ruling or decision has been made or certificate given or refused by the Architect (as to which an arbitrator or the Courts may if necessary receive evidence from the Architect) or in the case of a Cost of Termination or Termination Delay Certificate, or of any matter in relation to which the Architect has no power to decide or certify under the terms of the Contract, an arbitrator or the Courts, as the case may be, may deal with a matter whether in interlocutory proceedings or by way of Interim Award or in any other way, before final award or judgment.	Pursuant to clause 31(13) of these Conditions, temporary effect shall be given to all certificates (other than a Cost of Termination or Termination Delay Certificate under clause 32(8) of these Conditions), whether for payment or otherwise, granted (or refused) by the Architect, and to all rulings and decisions required of him for the purpose of issuing certificates under the terms of the Contract, until final award (or, where the courts may for any reason be seised of a dispute, until final judgment), save only that in cases where no ruling or decision has been made or certificate given or refused by the Architect (as to which an arbitrator or the Courts may if necessary receive evidence from the Architect) or in the case of a Cost of Termination or Termination Delay Certificate, or of any matter in relation to which the Architect has no power to decide or certify under the terms of the Contract, an arbitrator or the Courts, as the case may be, may deal with a matter whether in interlocutory proceedings or by way of Interim Award or in any other way, before final award or judgment. [Note: amendments in bold]
Clause 37. (3)(i) Amending Certificates ‘	The power of the Architect to issue a further certificate under clause 31(4) of the Conditions shall continue until his Final Certificate notwithstanding the prior commencement of proceedings by way of arbitration or in the Courts, to which further certificate full effect shall be given by the Courts or an arbitrator until final award or judgment.	The power of the Architect to issue a further certificate under clause 31(6) of the Conditions shall continue until his Final Certificate notwithstanding the prior commencement of proceedings by way of arbitration or in the Courts, to which further certificate full effect shall be given by the Courts or an arbitrator until final award or judgment.
Clause 38 Mediation Clause	For the avoidance of doubt, prior reference of the dispute to mediation under this clause shall not be a condition precedent for its reference to arbitration by either the Contractor or the Employer, not shall any of their rights to refer the dispute to arbitration pursuant to sub-clause 37(1) of the Conditions be in any way prejudiced or affected by this sub-clause.	For the avoidance of doubt, prior reference of the dispute to mediation under this clause shall not be a condition precedent for its reference to arbitration by either the Contractor or the Employer, nor shall any of their rights to refer the dispute to arbitration pursuant to sub-clause 37(1) of the Conditions he in any way prejudiced or affected by this sub-clause. [Note: amendments in bold]

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SIXTH EDITION AUGUST 1999		CHANGED TO
Clause 40 Additional Optional Clause Permitting Insurance Excess	The insurance required to be taken out by the Contractor under clauses 19 and 20 of the Conditions shall, in those cases where payment for the insurance is required to be made under a Provisional Sum of P.C. Item, be subject to such limitations by way of insurance excesses to be borne by the insured in any event as are stipulated in the Specification or other Contract Documents and may at the Contractor’s discretion be so subject to the stipulated excesses in those cases where the Contract Sum will not be adjusted under the terms of the Contract to take account of the cost of the insurance in question. In the case of the insurance monies under clause 20 of the Conditions, their release by instalments under the terms of sub-clause (2) of that Condition shall also have regard to any shortfall or deficit in the monies so paid arising from the presence of a permitted excess under this Condition.	The insurance required to be taken out by the Contractor under clauses 19 and 20 of the Conditions shall, in those cases where payment for the insurance is required to be made under a Provisional Sum of P.C. Item, be subject to such limitations by way or insurance excesses to be borne by the insured in any event as are stipulated in the Specification or other Contract Documents and may at the. Contractor’s discretion be so subject to the stipulated excesses in those cases where the Contract Sum will not be adjusted under the terms of the Contract to take account of the cost of the insurance in question. In the case of the insurance monies under clause 20 of the Conditions, their release by instalments under the terms of sub-clause (2) of that Condition shall also have regard to any shortfall or deficit in the monies so paid arising from the presence of a permitted excess under this Condition. [Note: amendments in bold]

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APPENDIX

	ARTICLE
Type of Contract	2	Lump Sum
LIST OF ADDITIONAL CONTRACT DOCUMENTS	6(t)	Refer to Volumes 2 to 4 of Contract Documents
	CLAUSE
FEES AND CHARGES	7(2)	Nil
COMMENCEMENT DATE	10(1)	21ST October 2009
CONTRACT PERIOD	10(1)	SIXTEEN (16) Months
COMPLETION DATE	10(l)	20TH February 2011
(a)    AREA OR EXTENT OF SITE	10(2)	Refer to Site Plan – Contract Drawing No. : SG62863-A-001- 02 Rev.A
(b)    SPECIAL ACCESS TO BE AFFORDED BY EMPLOYER	10(2)	To comply with Employer’s requirements as stated in Contract Bills of Quantities No. 1
(c)    RESTRICTIONS ON POSSESSION	10(2)	To comply with Employer’s requirements as stated in Contract Bills of Quantities No. 1
LIMIT ON AMOUNT INSURED (THIRD PARTY)	19(1)(b)	FULL COVERAGE AMOUNT for any one occurrence and unlimited number of claims
FURTHER RISKS TO BE INSURED (IF ANY)	20(1)	To comply with Employer’s requirements as stated in Contract Bills of Quantities No. 1
PERCENTAGE FOR PROFESSIONAL FEES	20(1)	10%

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APPENDIX

	CLAUSE
LIQUIDATED DAMAGES FOR WHOLE WORKS	24(2)	$3000.00 per day
MAINTENANCE PERIOD	27(1)	12 Calendar months from date of Completion Certificate
DATES AND PERIODS FOR ISSUING INTERIM CERTIFICATES (if none stated monthly and not later than seventh day of each calendar month	31(1) and 31(4)	Monthly
PERIOD FOR HONOURING CERTIFICATES (if none stated within 14 days of receipt of certificate or copy of certificate)	31(15)	28 days
RETENTION PERCENTAGES	31(7) and 31(8)	10% for work done 20% for unfixed materials or goods
LIMIT OF RETENTION	31(8)	10% of Contract Sum
SECURITY DEPOSIT	41	10% of Contract Sum

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SUPPLEMENTAL CONDITIONS

The following clauses shall supplement, amend and are to be incorporated into the Articles and Conditions of Contract hereinafter appearing.

Articles of Contract
Article 2:	Type of Contract
.	Delete the sub-article 2(c) in this Contract
Article 3:	Architect
	The term “Architect” shall mean authorized personnel from SKM (Singapore) Pte Ltd.
Article 4:	Quantity Surveyor
	The term “Quantity Surveyor” shall mean authorized personnel from SKM (Singapore) Pte Ltd.
Article 6(f):	Delete “initiated” in line 3 and replace with “initialed”.
Conditions of Contract
Clause 12:	Variations and Valuation of Additional Payments
	In sub-clause 12(4)(g) remove “original” in the fourth line.
Clause 15:	Assignment and Sub-Contracting
	In sub-clause (3) delete “and” in the first line and replace with “,”.
Clause 18:	Indemnities to Employer
	In sub-clause (1) delete “any act” in the fifth line and replace with “the sole negligence”.
Clause 19:	Insurance Against Injury to Persons and Property and Workmen’s Compensation
	In sub-clause (1), insert on line 3 after the words “to maintain” the following: “in the joint names of the Employer as principal, Contractor or sub-contractor as the case may be”
	In sub-clause (1a), insert on line 6 after the words “or re-enactment thereof” the following: “or at common law”
	Insert new sub-clause 1(d) as follows :
	“All of the insurance policies that the Contractor and his sub-contractors are required to maintain under the Contract shall contain provisions that the insurance companies shall have no right of subrogation against the Employer and, to the extent of the liabilities assumed by the Contractor under the Contract, all public liability policies shall be primary insurance and other insurance carried by the Employer shall not be called upon by the Contractor or his sub-contractor’s insurers to contribute or participate on the basis of contributing, concurrent, double insurance or otherwise.”

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Clause 20:	Insurance of Works
	In sub-clause (1), delete “fire (however and by whomever caused), and earthquake” in line 2 and replace with “All Risk Peril including but not limited to earth movement, wind and flood”.
	In sub-clause (1), insert “Contract documents and” in line 3 before the word “Appendix”.
	In sub-clause (1), line 6, delete “value” and replace with “replacement cost value or total contract value whichever is greater”
	In sub-clause (2), insert after the words, “upon the occurrence of any loss or damage to the Works” the following:
	“including properties of the Employer which are in the possession, care or custody of the Contractor, but not the Works themselves.”
Clause 23:	Extension of Time
	Delete sub-clause 23(1) - (1) and (m)
Clause 28:	Designated and Nominated Sub-Contractors and Suppliers
	In sub-clause(2), delete “Contract” in the tenth line and replace with “Contractor”
Clause 31:	Payment of Contractor and Interim Certificates
	Sub-clause (4), line 4, delete “seven” and insert “twenty eight”
Clause 32:	Termination by Employer
	Sub-clause (1), line 9, delete “including loss of profit (if any) on any uncompleted part of the Works” and replace with “in relation only to work completed at the time of receipt by him of the written Notice of Termination, but shall not be entitled to compensation in relation to works which are uncompleted at the time of receipt by him of the written Notice of Termination, whether as to his loss of profit or otherwise howsoever.
	Insert new sub-clause (3)(i) as follows :
	“If due to any act or omission on the part of the Contractor, any other party makes any claim against the Employer or commences any proceedings against the Employer or takes any steps against the Employer pursuant to the SOP Act.”
	Sub-clause (5), delete “(if applicable)” and replace with “in the event termination is in accordance with said clause” in the last line
Clause 33:	Delete sub-clause 33(3)(b)(vi)
Clause 39:	Additional. Optional Clause for Fluctuations
	The whole clause is deleted.

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Clause 40:	Additional Optional Clause Permitting Insurance Excess
	The whole clause is deleted.
Clause 41:	Security Deposit
(New)
	41(1)	Upon the Contractor signing this Contract, the Contractor shall deposit with the Employer, the amount set out in the Appendix, by way of security for the due performance of and observance by the Contractor of his obligations under the Contract.
	41(2)	The Contractor may, in lieu of the cash deposit in Clause 41(1) and for the same purposes, provide a guarantee for an equivalent amount from a bank or insurance company approved by the Employer and in the prescribed form.
	41(3)	The term “Security Deposit” shall hereafter refer to :
		(i)     The cash deposited under Clause 41(1); or
		(ii)    The cash proceeds of any or all demands on the guarantee provided pursuant to Clause 41(2)
		The Employer may utilise the Security Deposit to make good any loss or damage sustained or likely to be sustained as a result of any breach of contract whatsoever by the Contractor, including any liquidated damages. The Employer may utilise the Security Deposit to make good any loss or damage sustained or likely to be sustained as a result of any claims, proceedings or steps taken by any party against the Employer pursuant to the SOP Act. If the amount of the Security Deposit utilised by the Employer to make good any such loss or damage is found to be greater than the amount of loss or damage actually sustained by the Employer, then the Employer shall pay the balance of the amount utilised by the Employer without the addition of interest to the Contractor or to the bank or insurer, as the case may be, upon issue of the Final Certificate. Where the Security Deposit is made in cash, the Employer shall pay to the Contractor the unutilised amount without interest upon the issue of the Final Certificate. If the amount of the Security Deposit utilised by the Employer to make good any such loss or damage is found to be less than the amount of loss or damage actually sustained by the Employer, the Employer retains the right to claim the further loss or damage from the Contractor.
	41(4)	The provisions of this clause shall not affect the rights and remedies expressly reserved herein to the Employer or bar the Employer from claiming loss, expense, costs or damages incurred or sustained or likely to be sustained by the Employer as a result of any breach of contract of whatsoever nature by the Contractor.

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EX-21.1

EXHIBIT 21.1

SUBSIDIARIES OF DRIL-QUIP, INC.

Name of Entity	Jurisdiction of Organization
Dril-Quip (Europe) Limited	Scotland
Dril-Quip Asia Pacific PTE Ltd.	Singapore
Dril-Quip do Brasil LTDA	Brazil
Dril-Quip (Nigeria) Ltd	Nigeria
Dril-Quip Egypt for Petroleum Services S.A.E.	Egypt
Dril-Quip (Tianjin) Oilfield Services Co. Ltd	China
Dril-Quip France SARL	France
Dril-Quip Angola LTDA	Angola
Dril-Quip Holdings Pty. Ltd.	Australia
PT. DQ Oilfield Services Indonesia	Indonesia
Dril-Quip (Ghana) Limited	Ghana

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

Dril-Quip, Inc.

Houston, Texas

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-118876), Form S-8 (No. 333-68976), and Form S-8 (No. 333-47453) of Dril-Quip, Inc. of our report dated February 25, 2010, relating to the consolidated financial statements and the effectiveness of Dril-Quip, Inc.’s internal control over financial reporting, which appears in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

BDO Seidman, LLP

Houston, Texas

February 25, 2010

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Larry E. Reimert, certify that:

1. I have reviewed this annual report on Form 10-K of Dril-Quip, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 25, 2010

/S/    LARRY E. REIMERT        

Larry E. Reimert

Co-Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, J. Mike Walker, certify that:

1. I have reviewed this annual report on Form 10-K of Dril-Quip, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 25, 2010

/S/    J. MIKE WALKER        

J. Mike Walker

Co-Chief Executive Officer

EX-31.3

Exhibit 31.3

CERTIFICATIONS

I, Jerry M. Brooks, certify that:

1. I have reviewed this annual report on Form 10-K of Dril-Quip, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 25, 2010

/S/    JERRY M. BROOKS        

Jerry M. Brooks

Chief Financial Officer and Corporate Secretary

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Dril-Quip, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2009 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, I, Larry E. Reimert, Co-Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/S/    LARRY E. REIMERT        

Larry E. Reimert

Co-Chief Executive Officer

February 25, 2010

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Dril-Quip, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2009 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, I, J. Mike Walker, Co-Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/S/    J. MIKE WALKER        

J. Mike Walker

Co-Chief Executive Officer

February 25, 2010

EX-32.3

Exhibit 32.3

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Dril-Quip, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2009 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, I, Jerry M. Brooks, Chief Financial Officer and Corporate Secretary of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/S/ JERRY M. BROOKS

Jerry M. Brooks

Chief Financial Officer and Corporate Secretary

February 25, 2010