The rainbow suite - The 1999 FIDIC suite

The rainbow suite

The 1999 FIDIC suite

This is a series of articles being published in CES

1

with the post 1999 editions of the

FIDIC suite of contracts being the overall subject matter.

Following an introduction to FIDIC and its 1999 suite of contracts the joint authors,

Paul Battrick

2

and Phil Duggan

3

of Driver

4

will discuss many practical issues of using FIDIC

contracts. Their thoughts and opinions are based upon actual working experiences of

working with many FIDIC contracts both past and present.

Paul Battrick

Managing Director (International)

FRICS MCIArb CEDR Accredited

Mediator

Phil Duggan

Director (International)

BSc MSc MCIArb

A Brief History

FIDIC is the French acronym for the

International Federation of Consulting

Engineers. It was formed in 1913 by three

national associations of consulting

engineers. From its base in Geneva it now

has members from some 86 member

associations worldwide.

Whilst best known for drafting contracts

between an Employer and a Contractor,

FIDIC also drafts model agreements for

professional services:

 Client and Consultant

 Client and Architect

 Joint Ventures between Consultants

 Sub-consultant Agreement

 Representatives Agreement

Indeed FIDIC provides many other

publications and is involved in many

initiatives in an attempt to fulfil its stated

mission; “To improve the business climate

and promote the interests of consulting

engineering firms globally and locally,

consistent with the responsibility to provide

quality services for the benefit of society

and the environment”. FIDIC‟s vision is to

be the industries recognised global voice.

FIDIC‟s Employer / Contractor contracts,

first issued in 1957, have a distinctly British

feel to them. These early contracts were

work style based such that the Red Book

was relative to civil engineering works; the

Yellow book was relative to electrical and

mechanical works with erection at site;

and the Orange Book was relative to

turnkey or design and build projects.

The Red Book first issued in 1957, and

having four major revisions, was borrowed

much from the ICE forms of contract whilst

the Yellow book leant upon the forms of

contract drafted by the IMechE / IElecE.

The Orange book was published in 1995

due to a growing trend towards design

and build projects and at that time FIDIC

recognised that the world of contract

drafting was moving on, indeed the

Orange Book contained Dispute

Adjudication Board (DAB) provisions; the

Red Book had, in 1996, a DAB supplement

published by FIDIC.

The drafting committee of mostly

consulting engineers and its many advisors

began to work and in 1999 the FIDIC 1999

suite of contracts were born.

The FIDIC 1999 Suite of Contracts

At this juncture it is worth noting that the

FIDIC 1999 contracts are not a revision of

previous forms; hence “First Edition” within

their titles.

Sponsored by perhaps a desire to create

the dominant forms of contract relative to

all forms of construction project coupled

with the changing face of construction a

complete overhaul took place.

The most fundamental change to the new

contracts being the abandonment of the

work based contract; it being replaced by

contracts that recognised which party was

to be responsible for the design of the

Works (or the vast majority of the Works)

and where risk would be allocated.

FIDIC issued three contracts for major

works and one for minor works. It is the

three major work contracts that have

become synonymous with the term “FIDIC

Contract”. Those being:

 The Red Book = Conditions of

Contract for Construction for Building

and Engineering Works Design by

the Employer, also known as the

Construction Contract

 The Yellow Book = Conditions of

Contract for Plant and Design – Build

for Electrical and Mechanical Plant,

and for Building and Engineering

Works Designed by the Contractor,

also known as the Plant and Design-

Build Contract

 The Silver Book = Conditions of

Contract for EPC/Turnkey Projects,

also known as the EPC/Turnkey

Contract

The fourth contract to be issued was the

“Short Form of Contract” to be known as

the Green Book.

To avoid any confusion it may have been

better to avoid the repeated use of “Red

Book” and “Yellow Book” and adopt a

totally new range of colours from the

outset since many contracts are still let

based upon pre-1999 FIDIC contracts.

In 2001 FIDIC published a Contracts Guide

to the three major forms of contract; it has

become known as the Rainbow Book and

FIDIC has perpetuated the rainbow theme

by encouraging all of its subsequently

issued contracts to be known by the

colour of their covers.

The New Red, Yellow and Silver Books

As previously noted a fundamental

change adopted by FIDIC when drafting

these contracts was to move away from a

work style to a contract that reflected

where the responsibility for design would

be allocated.

These contracts were also intended to be

used both on the international market and

domestic markets, although it is suspected

that the vast majority of sales of the

various forms relate to projects where the

nationalities of the contracting parties

differ.

FIDIC not only sought to issue a new suite

of contracts but also, and to its credit,

sought to make the contracts user friendly

and create a best practice manual for

contract administration. The latter being a

topic for a subsequent article.

To aid all users the task group drafting the

contracts were instructed to standardise

the three new major forms. The results

being that, unless differences were

essential, definitions, layout, clause

numbering, and clause wording were

identical.

Accordingly the Red, Yellow and Silver

Books contain only twenty clauses; the last

edition of the old Red Book contained

seventy two clauses whilst the old Yellow

Book fifty one clauses.

An example of standardisation being,

whereas in the old Red Book clause 67 was

headed “Dispute, Engineer‟s Decisions”

and in the old Yellow Book clause 50 was

headed “Disputes and Arbitration” the

1999 suite of contracts, at clause 20,

prescribe the conditions under which the

Contractor, the Engineer and the

Employer should act through the “Claims,

Disputes and Arbitration” procedure.

First impressions of the 1999 suite maybe off

putting since the purchased document

appears to be much larger than previous

editions, for instance the new Yellow Book

has, in total, over 100 pages whereas the

old Yellow Book has less than 50 pages.

This is all part of the FIDIC‟s desire to

produce a document that is easier to use

than previous FIDIC contracts and also

other contracts from which Employers and

Engineers can choose.

The general layout of the Contracts is as

follows:

 General Conditions; including an

Appendix entitled General

Conditions of Dispute Adjudication

Agreement which includes the

Procedural Rule for a DAB

 A section giving guidance for the

preparation of any Particular

Conditions; this section also includes

examples of guarantees, securities

and bonds that are commonplace

on international projects

 A section entitled Forms; here FIDIC

provide examples of:

 Letter of Tender with supporting

Appendix to Tender

 Contract Agreement

 DAB Agreements (either a one-

person DAB or three person

DAB)

Whilst the above can be considered to be

the most important elements within a

Contract, FIDIC have continued to be

helpful to those using its contracts. Within

the very useful Forward to the Contract

there are three graphics indicating

timelines relative to:

1. Principle events from invitation to

tender to return of the Performance

Security

2. Payment procedures under clause

14 Contract Price and Payment

3. The sequence of events under

clause 20 Claims, Disputes and

Arbitration following either Party

giving notice of its intention to refer a

dispute to a DAB

All in all a very complete document that

should require few amendments however,

as we shall see in a later article the

document is not only used but is abused.

The Engineer

Before noting some specifics regarding the

Red, Yellow and Silver Books it is worth

noting that FIDIC have amended the role

of the Engineer in the Red and Yellow

Books (the Silver Book has an Employer‟s

Representative) from the impartial, quasi

arbitral role of previous editions. The

Engineer is clearly stated to act for the

Employer. He is no longer required to be

impartial but whenever required to make

a determination in respect of value, cost

or time related matter he has to make his

determination fairly, and in accordance

with the Contract, having taken into

consideration all relevant circumstances.

The FIDIC 1999 First Edition Red Book

The main features of this Contract can be

summarised as:

 It is suitable for all types of project

where the main responsibility for

design lies with the Employer (or its

Engineer) although provision is made

for the Contractor to design

elements of the Works

 The administration of the Contract

and approval of work is carried out

by the Engineer as is certification of

payments and determination of

extensions of time

 Payment to the Contractor is based

upon work done and rates as per a

Bill of Quantities (a Standard Method

of Measurement should be stated);

thus reflecting the likely on site

nature of the Works (a reflection that

the Red Book will most likely be used

for building and civil engineering

projects)

 Risk sharing is balanced between

Parties such as the Employer taking

the risks of “adverse physical

conditions” and the “operation of

the forces of nature” that are

considered to be unforeseeable

 Claims by both Parties have to follow

procedures, albeit the conditions

imposed upon the Contractor are

harsher with the inclusion of a “fatal”

notice provision

 The Contractor has some financial

protection in that it can request

evidence from the Employer that it

has the finances to pay the

estimated Contract Price

 Materials can be paid for both on

and off site if strict criteria are

followed, including the listing of

materials for which payment maybe

sought within the Contractor‟s

tender

The FIDIC 1999 First Edition Yellow Book

The main features of this Contract can be

summarised as:

 It is suitable for all projects where the

main responsibility for design lies with

the Contractor based upon the

Employer‟s Requirements although

provision is made for the Employer

(or his Engineer) to design elements

of the Works

 The administration of the Contract

and approval of work is carried out

by the Engineer as is certification of

payments and determination of

extensions of time

 Payment to the Contractor is based

upon a Lump Sum price and

normally against a schedule of

milestones to be achieved by the

Contractor. This reflects that the

Yellow Book will most likely be used

for process plants and the like where

a high degree of offsite

manufacture of plant and

equipment is foreseen and payment

terms can be drafted to recognise

this situation subject to the listing of

such plant and equipment within the

Contractor‟s tender as within the

Red Book

 Testing procedures leading to

completion are likely to be more

complicated than within the Red

Book, again reflecting the likely

nature of the project

 The Yellow Book shares with the Red

Book the provisions noted above

relative to:

 Risk sharing

 Claims by both Parties.

 Financial protection for the

Contractor

The FIDIC 1999 First Edition Silver Book

The Red and Yellow Books are said to

provide contracts with a balanced view of

risk sharing meaning:

 The Employer pays the Contractor

only when specific risks occur

 The Contractor does not have to

include within its tender for risks that

are difficult to value

The above means that the Employer has a

great degree of uncertainty in respect of

the final price and the final time for

completion.

The Silver Book reflects a market desire for

certainty of cost and time; perhaps by a

“one off” Employer or a totally risk adverse

Employer willing to “pay the price” or

potentially by lenders who crave certainty

of price and time, such that the risk

allocation is far from balanced.

The Contractor is asked to allow within its

tender for a wide range of risks relative to

cost and time; such risks will most likely

include all ground conditions (potentially

in a country of which the Contractor will

have little knowledge) and the completion

of the Works will be based upon a strict

but often brief performance related

specification.

The Employer will still bear some risks such

as those related to war, terrorism and

Force Majeure but the unbalanced risk

profile of this Contract will undoubtedly be

a higher price; a factor that Employer‟s

must accept.

The main features of the Silver Book can

be summarised as:

 Design liability rests solely with the

Contractor, the Employer will

provide its requirements but these

are often in the form of a brief

performance specification

 The Contractor carries out all

engineering, procurement and

construction often including

performance tests after completion;

a “turn-key” project allowing

operation of the facility upon

completion

 There is not an Engineer within the

Contract; the Employer may appoint

an Employer‟s Representative

 It is lump sum Contract with

payment terms most likely similar to

those envisaged under the Yellow

Book

Given the above circumstances under

which an Employer may select a Silver

Book, Employer‟s should recognise the

significant costs for a Contractor to

produce a tender. Accordingly it is hoped

that Employer‟s recognise this and select

only a small number of Contractors to

tender.

Similarly Employers have chosen a turnkey

style of contract and therefore should

allow the Contractor complete freedom

to carry out the Works in its chosen manner

in order to reach any performance criteria

laid down by the Employer.

If the Employer cannot grasp such factors,

or the tender time is too short to allow the

Contractor to compile an adequate

tender, or considerable amounts of work

are underground, or difficult to inspect the

Employer may be better off using a Yellow

book, accepting some additional risks and

receiving a lower tender price.

The FIDIC 1999 First Edition Green Book

The final contract to be issued in 1999 was

the Green Book or Short Form of Contract.

This Contract recognised a need for a

much simpler and shorter contract to suit

projects with a relatively low Contract

Price and short time duration.

The Contract itself is very flexible, any

reader will however recognise the

Contract as being from the same family

albeit it has only fifteen clauses and a total

of ten pages.

The clauses are short and easily

understood; whilst design can be carried

out by either party an Engineer is not

foreseen, however the Employer may

appoint a Representative. Payment can

be made on either a lump sum or

remeasured basis.

As with the major forms the Contract

includes guidance notes (noted as not

forming part of the Contract) as well as an

Agreement together with its Appendix and

Rules for Adjudication. The noticeable

absentee being the Particular Conditions

section; in this respect FIDIC consider that

the Green Book can work without such

conditions however, a cautionary note is

provided should an Employer deem it

necessary to amend the drafted Contract.

A final thought

Without doubt FIDIC broadened its appeal

to those selecting contract forms, whether

they be Employer, Engineers providing

advice, project funders such that there

was a contract for every occasion.

Nevertheless FIDIC continued to draft

contracts to recognise the marketplace

and sectors of the construction industry as

will be discussed in a subsequent article.

Introduction

First a brief introduction followed by an

overview of various forms.

The White Book

As previously noted FIDIC also drafts, as

well as contracts between an employer

and contractor, many agreements

between “client and consultant”. The

“Client / Consultant Model Services

Agreement”, now in its fourth edition,

issued in 2006, it has become known as the

White Book.

The Blue Book (or Turquoise Book as it

is sometimes called)

This form is designed specifically for use in

connection with dredging and

reclamation projects. It differs from the

major forms in many ways but perhaps

most importantly that it was drafted in

close collaboration with the International

Association of Dredging Companies

(IADC) and as such has a great input from

contractors from the outset. The current

version of the Form of Contract for

Dredging and Reclamation Works is the

fourth edition issued in 2006.

The Pink Book

Whilst funding agencies adopted the

versions of old and new Red Books for

many years it became standard practice

to amend certain clauses. In response to

the Multilateral Development Banks‟

(MDBs) desire to harmonise their bid

documents including a standard form of

contract, FIDIC responded by issuing the

Conditions of Contract for Construction

MDB Harmonised Edition; the latest version

being issued in 2010.

The Gold Book

This form of contract is probably the most

radical of the new colours; it represents a

contract period of over 20 years! It is a

design, build and operate (DBO) contract

that the industry has needed for some

time to reflect the ever growing trend that

contractors no longer construct something

then go away but also maintain and

operate the facility for many years to

come. It has been described as a Yellow

Book with an operate and maintenance

contract bolted on; the First Edition of the

Conditions of Contract for Design, Build

and Operate Projects was issued in 2008.

No colour as yet, but a subcontract…

FIDIC has often issued a new form of

contract as a “test edition” such that the

construction industry can review the

proposed conditions of contract whilst

perhaps using them in a real life situation.

The latest test edition again is a departure

from the engineer driven FIDIC

organisation since it delves into the world

of the contractor and subcontractor,

although it is noted that advice was

sought from many working for and with

contracting organisations.

The results being the Conditions of

Subcontract for Construction for Building

and Engineering Works designed by the

Employer issued in 2009. As the title of this

form suggests it is for use with the Red Book

and the Pink Book. It is the second

attempt at creating a subcontract since

FIDIC issued one in 1994 relative to the old

Red Book

Overview of the various forms

The White Book

The drafters of the White Book are

predominately engineers who within this

form sought to create conditions of

agreement that would span the life cycle

of an engineer‟s or consultant‟s

involvement.

Accordingly the document is suitable for

use during:

 pre-investment and feasibility studies

 the design phase

 the administration of a contract

As with FIDIC contracts there are both

general and particular conditions of

contract which combined set out the

scope of the consultant‟s work, payment

terms and the like.

The White Book incorporates the same

financial protection as afforded to

contractors in that the consultant too can

ask the Client (as opposed to the

Employer) if it has the ability to pay the

Consultant‟s fees. In a similar vein, and

maybe not surprising to some, the White

Book limits the consultant‟s responsibilities,

and therefore liabilities, to “exercise

reasonable skill, care and allegiance in the

performance of his obligations under the

Agreement”. This limitation is further

qualified since nothing else in the

agreement, or any legal requirement of

the Country or any other jurisdiction can

impose a greater risk upon the consultant.

Thus the consultant/engineer has a limited

risk that, it is suggested, is not in accord

with the thoughts of employers and

contractors alike.

The Blue (Turquoise) Book

The Blue Book is like the Green Book in that

it is abbreviated and flexible. In terms of

being a smaller document the general

conditions are only 16 pages and fifteen

clauses long. The format has also

changed from the major forms with the

agreement and appendix to the contract

being the first section. Perhaps it is the

major forms that have the order incorrect

since it is those particular terms that are

the most important to recognise especially

in such a flexible form as the Blue Book.

Similarities with the major forms are in the

inclusion of standard forms, such as

securities, a section on adjudication (a

one or three person DAB) with rules and

the adjudicator‟s agreement and the all

important guidance section.

The engineer is still recognised within the

contract however design responsibility can

rest with either the employer (and its

engineer) or the contractor. Payment

terms are extremely flexible and a list of

options, such as lump sum,

remeasurement and cost plus are all

noted within the appendix.

It is perhaps apparent that a greater input

of a contractor‟s organisation has

influenced some of the general conditions,

as has perhaps the use of other forms

within the industry as a whole:

 Notices by the contractor in respect

of a claim must be given within 28

days but there is no fatal provision.

 Claim items are listed as defined risks

which may entitle the contractor to

monetary or time compensation.

 The defined risks, recognising the likely

impacts of weather upon the

contractor‟s ability to make progress,

potentially soften the usual clause

wording on one hand, entitling the

contractor to make a claim if “any

operation of the forces of nature

affecting the Site/and or the Works”,

which was unforeseeable or against

which an experienced contractor

could not reasonably have been

expected to take precautions” but

give the employer (and contractor)

less room for debate by also defining

the employer‟s risk to be “climatic

conditions more adverse than those

specified in the Appendix”.

 If disputes are not settled amicably

they are to be settled by referral to

adjudication by a DAB and, if

dissatisfied with the DAB‟s decision (or

if no decision is made within the set

timescale) the dispute can be

referred to Arbitration.

The Blue Book is a model of a contract

drafted by those with a particular section

of the industry in mind and with the

knowledge to incorporate the necessary

variations to standard forms that may

have been considered for use in the past.

The Pink Book

As previously noted the Pink Book was

created as a derivative of the Red Book.

This reflecting the usual nature of a project

that would require funding from lending or

aid agencies and would deploy from the

outset an engineer to assist in all phases of

the project, especially design.

Those projects normally being

infrastructure types of projects as opposed

to industrial, power, process plants and the

like where funds would normally be from

the employer‟s own resources and the

contractor would design the facility; in

other words a Yellow or Silver Book project.

The MDBs include in their number such

organisations as:

 The World Bank

 The European Bank for Reconstruction

and Development

 African Development Bank

The MDBs in fact represent lending

agencies that fund projects on a global

basis and as such play a crucial role in the

development of the planet‟s lasting

infrastructure. With this level of

importance in mind it was crucial that

FIDIC participated in amending the Red

Book to provide a contract not only that

adhered to the wishes of the MDBs but

also gave borrowers, engineers and

contractors some consistency in format,

leading to fewer ad-hoc and poorly

thought through amendments.

Those faced with a Pink Book will have

often been used to the Red Book and

therefore will be familiar with the general

layout of the contract, the twenty clauses

are still there but there have been

amendments which some may think are

for the better, and others otherwise.

Examples being when compared to the

Red Book:

 Minor amendments have taken place

to definitions of which one is worthy of

being noted:

 Cost no longer refers to

reasonable profit but states

profit since at clause 1.2 profit is

fixed at 5% unless stated

otherwise in the contract data.

 clause 1.5, is a new clause that allows

the lender‟s representatives to inspect

the site and audit the contractor‟s

accounts and records relative to the

project

 clause 2.1, access to the site must be

given such that the programme can

proceed “without disruption”

 clause 2.4, the employer has to

demonstrate its ability to pay the

contract price before “the

commencement date” and also

“punctually”

 clause 2.5, the employer must now

give notice of its claims within 28 days

but whilst more onerous there is still no

condition precedent

 clause 3.1, the engineer has to gain

the employer‟s approval before

dealing with matters under clauses

dealing with claims in respect of

unforeseeable physical conditions

and the issue of variations

 clause 3.5, the engineer now has to

give its determination “within 28 days

from receipt of the corresponding

claim or request…”

 clause 6.2, there is an obligation upon

the contractor to inform its personnel

of their liability to pay local income

tax

 clause 8.1, the project cannot

commence unless:

 the contract agreement has

been signed by both parties

 the contractor has reasonable

proof that funding is in place

 the advance payment has

been received by the

contractor

 clause 8.6, the contractor can be

paid for acceleration measures to

overcome employer delays

 clause 13.1, the contractor is not

bound to carry out a variation if it

would “trigger a substantial change in

the sequence or progress of the

works”.

 clause 15.5, whilst the employer can

terminate for convenience it cannot

terminate to pre-empt a just

termination by the contractor.

 clause 15.6, is a new clause that

attempts to deal with corrupt and/or

fraudulent practices.

 clause 16.2, the contractor must now

demonstrate that the employer‟s

failures must “materially and adversely

affect the economic balance of the

contract and/or the ability of the

contractor to perform the contract”

prior to termination. There are

however two further grounds allowing

the contractor to terminate:

 Failure of the funder to provide

funds.

 The absence of the engineer‟s

instruction to commence work

180 days after the letter of

acceptance.

 clause 19.2, in order to claim force

majeure the claiming party must

demonstrate that it has been

prevented from performing “its

substantial obligations”

 clause 20.6, arbitration rules may differ

according to the origin of the lending

agency.

The amendments to the Red Book appear

to be a mixed bag providing support to

the contractor in terms of guaranteed

funding but also apparently allowing the

employer influence over the engineer in

respect of claims for unforeseeable

ground condition and variations.

The latter is not considered to be prudent

especially when considering that

borrowing countries may not have the

sophistication necessary to deal with such

matters.

The Gold Book

The Gold Book without doubt fills one of

the last gaps in FIDIC‟s toolbox of

contracts. Its use is growing especially as

government departments such as water

authorities warm to the idea of having

foreign contractors bring their knowledge

of providing water treatment and supply

at a profit but also having to be

responsible for remedying defects whilst

remaining in the country rather than being

on the side of the globe.

Accordingly FIDIC has not only responded

to employers who crave to outsource but

also the changing face of contractors

who are now operators too. Any potential

disputes between contractors carrying out

a design and build contract to

questionable standards leading to poor

performance, defects and disputes whilst

leaving the employer to struggle through a

20 year life time of a plant have,

potentially, been negated. That is,

provided the whole scheme is fully thought

through and both parties, as with all

contracts, are willing and able to act

responsibly towards each other such that

a balance is struck between the

construction and operating elements of

the contract.

The contract‟s ethos and key features are:

 Design, build plus operation and

maintenance for 20 years by the

contractor on a green field site.

 Design and build phase risk allocation

similar to the Yellow Book with

exacting completion criteria but also

a cut off date should the contractor

be 182 days late leading to

termination if desired.

 Payment on a lump sum basis but a

defined asset replacement fund and

schedule that notes the timing and

cost of the replacement of certain

assets. Costs of replacing plant and

equipment outside of the schedule

will be the responsibility of the

contractor, as is a cost over that

stated on the schedule. Any surplus in

the fund at the end of the twenty

years is divided equally.

 The employer is entitled to deduct 5%

from payments during the “operation

service period” (OPS) in case the

contractor does not fulfil its

maintenance obligations. The fund is

to be released, if not spent, within the

final payment to the contractor. The

contractor being responsible for its

own defects arising from design and

construction in this period.

 An independent audit body is jointly

appointed for the duration of the OPS

to monitor the performance of the

contractor and employer. Whilst

having no power, the parties are

intended to give “due regard” to

matters raised by the audit body.

 A joint inspection is required at least

two years before the end of the OPS;

any works identified must be carried

out by the contractor who will also

face completion tests similar to those

at the end of the design and build

phase. Defaulting contractors risk

losing the 5% maintenance retention

fund.

 A standing DAB is established from a

set date for the design and build

phase and a new one every 5 years

during the OPS.

The key to success appears to be with the

contractor who must design and build a

quality plant with low operating and

maintenance costs; fit for purpose and

built to last.

However, like any relationship time gives

rise to change and only time will tell if

FIDIC have considered all factors such as

changes in the deliverables required by

the employer. FIDIC has very recently

issued its guide to this form.

The Subcontract to the Red and Pink

Books

As noted this form is a test edition with the

first edition arriving sometime later.

The contract seeks to be back to back

with the Red Book, in this respect selected

highlights or lowlights are:

 The subcontractor is required to

complete its scope of works such that

no act or omission shall constitute or

cause a breach under the Red Book.

 The contractor is entitled to make a

“fair decision” in respect of its claims

towards the subcontractor and

deduct monies accordingly.

 Payments are back to back (where

legal to do so) such that

subcontractors may find contractors

using this as a shield to avoid paying

for their own problems

 The subcontractor is apparently

responsible for the care of its works

until the main contract works are

taken over. This situation will always

require careful management

whatever the form of contract

 Notice provisions are passed through

to the subcontractor but with a

reduction in time to 21 days to allow

the contractor to fulfil its obligations

under the main contract.

A subcontract that allows both fair

payment provisions for the subcontractor

for all liabilities of the contractor whilst

obliging the subcontractor to allow the

contractor to make claims upwards will

always be a tough ask; has FIDIC really got

it right? Perhaps the absence of

subcontractors from the drafting

committee is a clue.

A final thought

FIDIC has continued to broaden its

potential customer base by these further

contracts. The next stop could be a target

price contract but it is understood that we

will see a complete overhaul of the 1999

suite in the not too distant future.

This is the third in a series of articles being published in CES

1

. The first introduced the rainbow

suite, the second provided insight into the continued growth of the suite.

In this the third article by joint authors, Paul Battrick

2

and Phil Duggan

3

of Driver

4

, commenting

upon the FIDIC forms of contract the programming requirements are considered in

conjunction with the procedures in respect of progress reporting. The Parties to the Contract

and the Engineer, but in particular the Contractor, all have clear obligations in respect of the

programming and reporting functions within the FIDIC forms.

Programming and Reporting

A Benefit or Burden for the Contractor

and the Employer and its Engineer?

In this the third article commenting upon

the FIDIC forms of contract the

programming requirements are

considered in conjunction with the

procedures in respect of progress

reporting. The Parties to the Contract and

the Engineer, but in particular the

Contractor, all have clear obligations in

respect of the programming and reporting

functions within the FIDIC forms.

It is considered that these obligations are

intended to be considered in tandem with

the provisions for considering claims

submitted by the Contractor such that any

Contractor who neglects, or is allowed to

neglect, its obligations may face a more

difficult task to establish its entitlements

than a Contractor who has fully complied

with its obligations.

For the purposes of this article all

references to Sub-Clause are taken from

the Yellow Book; in simple terms the

Contract for design and build projects

where the design is carried out by the

Contractor.

The drafters of the FIDIC suite of contracts,

and many commentators, say that the

FIDIC contracts not only provide the

mechanisms for dealing with risks,

responsibilities, payment terms, change

and all the other good things necessary to

allow a project to be completed in a

managed and (hopefully) equitable

fashion but they also act as a best

practice project management handbook.

The project management handbook is

most prevalent within the programming

and reporting provisions and no doubt the

FIDIC drafters consider what they thought

the Contractor and the Engineer should

be aware of in order that control of the

project was to the fore and certainty of

outcome, especially in respect of progress,

was assured.

Many of us, and perhaps some FIDIC

drafters, will have received lectures in

management at some stage of our

careers and many will know the

mnemonic.

Family Planning Often Means Careful

Choice of Contraceptives

Management handbooks quite rightly look

to the perfect world however the real

world is one of harsh commercial realities

and shortcomings in performance in many

respects where, should a Contractor allow

within its bid for every risk and obligation it

would certainly lead to lost tenders. As

with all things compromise is often the

solution however, to compromise in

respect of programming and reporting

may not be such a wise course of action.

The FIDIC Yellow Book envisages the

typical procedure to be expected in

establishing a contract for a design and

build project:

 Invitation to bid (ITB) with

Employer‟s Requirement included,

no doubt a timescale for the

completion of the project was

stated.

 Contractor‟s bid complying or

otherwise with the ITB, including a

timescale which was probably

detailed to some degree noting

any required milestones and/or

those of importance to the

Contractor, such as the provision of

feedstocks.

 The coming together of the

Employer and the Contractor to

create a contract detailing without

ambiguity a shared understanding.

It is now that Clause 8, Commencement,

Delays and Suspension takes over, and for

the purpose of this article Sub-Clause 8.3

Programme in particular.

The Contractor, will have agreed or

accepted the Time for Completion noted

within the Appendix to Tender and the

Engineer will have issued a notice of the

Commencement Date. Assuming all other

formalities are in place, such as the

provision of the Performance Security, the

dates for commencement and

completion of the Works, including any

Sections, are now anchored.

Sub-Clause 8.3 Programming

Now Sub-Clause 8.3 takes over!

It is suggested that all programmes in

existence at this point in time should be

cast to one side as from now on only one

programme will matter; the Sub-Clause 8.3

programme and of course the revisions to

it.

This programme will be, or should be, a

baseline against which the performance

of the Contractor and the Employer, if

appropriate, will be monitored, claims for

extensions of Time for Completion will be

based upon and Engineer‟s instructions to

expedite progress will be based. Its

importance cannot be stressed enough.

However, the requirements upon the

Contractor of Sub-Clause 8.3 goes further

than producing a programme; the

Contractor is required, for the first time to

bear its soul before the Engineer for

scrutiny. Whilst the details to accompany

the programme may seem quite normal to

most they are an obligation upon the

Contractor.

The Contractor has to submit, to the

Engineer, its detailed programme within 28

days after receiving the notice of the

Commencement Date. Realising that the

programme will not be perfect and will be

subject to revision not only to take

account of actual progress but also to

take account of other factors such as sub-

suppliers and sub-Contractors

programmes being agreed as orders and

contracts are placed, the FIDIC drafters

placed a further obligation upon the

Contractor to submit a revised

programme whenever the previous

programme becomes, in effect, out of

date and does not reflect the manner in

which the Contractor will achieve its

obligations.

Every time the Contractor submits a

revised programme it must include:

 the order in which the Works will be

carried out

 the timing of each stage of design,

preparation of Contractor‟s

Documents, procurement,

manufacture, inspection, delivery

to site, construction, erection,

testing, commissioning and trial

operation

 the periods allowed for the

Engineer to review documents

submitted by the Contractor (Sub-

Clause 5.2) and any similar

submissions, approvals and

consents specified in the

Employer‟s Requirements

 the sequence and timing of

inspections and tests specified in

the contract

 a supporting report which includes:

 a method statement noting

the major stages of

execution of the Works

 the Contractor‟s

reasonable estimate of the

numbers of each class of

Contractor‟s Personnel and

each type of Contractor‟s

Equipment required at Site

for each major stage of the

Works

Having received all of this information at

the outset of the project and every time

the programme is updated the Engineer

has 21 days in which to state, by a issuing

notice, that it does not comply with the

contract; note that the Engineer does not

have to approve programme should the

Engineer not issue such a notice the

Contractor must proceed in accordance

with the programme; in doing so the

Contractor should be aware that the

Employer will rely upon that programme in

arranging any feedstocks and other inputs

it has to facilitate the completion of the

Works.

FIDIC is silent as to what should happen if

the Engineer gives notice that the

programme “does not comply with the

contract”; as to what non-compliance

with the contract actually means maybe

left to the Engineer‟s interpretation. It is

considered that it should mean

compliance with dates and periods of

time stated within the contract including

working hours and periods for approvals

etc by the Engineer but should an

investigation take place into the level of

resources and methods the Contractor

intends to use, probably not. Nevertheless

the Contractor has provided to the

Engineer an insight into such things as its

intended resources which, as we all know,

is also often the starting point for many a

claim prepared by a Contractor.

As noted the Sub-Clause 8.3 programme is

the baseline against which the Engineer

will monitor the Contractor‟s progress and

the Contractor‟s ability to meet the Time

for Completion and decide whether or not

to issue instructions to the Contractor to

prepare and issue a revised programme

and supporting report detailing how the

Contractor will accelerate the Works, as its

own cost and potentially with claims from

the Employer to complete with the Time

for Completion.

There is one other obligation of Sub-Clause

8.3 that is worth nothing; the Contractor is

to inform the Engineer of:

 specific future events or

circumstances which may diversely

affect the work (note the Works is

not used)

 increase the Contract Price

 delay the execution of the Works

It is also worth noting that the Employer

does not have a similar obligation.

The Contractor has to submit estimates

relative to these occurrences and/or a

proposal under the Variation Procedure if

applicable.

Early warning clauses such as this are now

commonplace and there is no noted

sanction for non-compliance by the

Contractor however, Contractors should

consider this provision in the light of the

fatal notice provisions under Sub-Clause

20.1 (a topic for later discussion).

Sub-Clause 4.21 Progress Reports

Having given the Engineer an insight into

its initial and revised programmes and

resourcing levels the Contractor is obliged

to prepare reports, on a monthly basis,

that reveal yet more of the Contractor‟s

progress towards Completion.

The monthly reports can be quite a time

consuming exercise to complete since

they require a considerable amount of

detail, let alone six copies to be issued.

Each report must include:

 charts and detailed descriptions of

progress including:

 each stage of design

(possibly relevant to the

major stages identified

within the Sub-Clause 8.3

programme)

 Contractor‟s Documents (a

defined term including

calculations, computer

programmes, drawings and

models)

 procurement, manufacture

and delivery to site

 erection, commissioning

and trial operations

 photographs showing the status of

manufacture and of progress on

the Site

 for the manufacture of each main

item of Plant (apparatus,

machinery and vehicles to be

incorporated into the Works) and

Materials (things of all kinds, other

than Plant) to be incorporated into

the Works)

 the name of the

manufacturer

 the manufacturer‟s location

 percentage progress

 actual or anticipated dates

of:

 commencement of

manufacture

 Contractor‟s

inspections

 Tests

 shipment and arrival

at site

 records of the numbers of the

Contractor‟s Personnel (the

Contractor‟s staff, Sub-contractor

staff and anyone else working at

the Site)

 records of the Contractor‟s

Equipment (types and details of

plant and vehicles used by the

Contractor, its Sub-contractors and

anyone else working at the Site)

 copies of quality assurance

documents, test results and

certificates of Materials

 list of Variations, notices given by

the Employer of its intention to

make a claim towards the

Contractor and notices of claim

issued by the Contractor

 safety statistics, including details of

hazardous incidents, activities

relating to environmental aspects

and public relations

 comparisons of actual and

planned progress

 details of any events or

circumstances that may jeopardise

the Contractor‟s ability to meet the

Time for Completion or any interim

milestones (it is noted that this is

another opportunity for an early

warning of potential delay by the

Contractor)

 measures being adopted or to be

adopted by the Contractor to

overcome delays (it is not certain if

this relates to recovery measures

being adopted as a result of an

Engineer‟s instruction and/or

measures voluntarily adopted; the

latter is most likely given the

required comparison in respect of

progress)

Whilst most Contractors will readily have to

hand, whether allowed for in the bids or

not, the resources and management

structure to comply with the reporting

obligations within Sub-Clause 4.21 it is clear

that those working for the Contractor, Sub-

contractors, Sub-suppliers and specialist

design houses must also provide the

countless pieces of information required to

allow the Contractor to conform.

It is suggested that perhaps Contractors

who are not used to FIDIC, such as those

from Eastern Europe, who may find

themselves working on externally funded

projects may find these obligations outside

of their normal reporting capabilities.

Similarly some Engineer‟s may also find the

administration of this aspect of FIDIC

somewhat difficult to achieve, albeit it

gives the Engineer the perfect platform to

report to the Employer.

Benefit or Burden?

To consider whether or not the

programming and reporting obligations

are a benefit or burden for the Contractor,

a simple question must be asked, what

does the Contractor (and all other parties

involved for that matter) really want from

a project?

After the difficulties of bidding and winning

a project the Contract will desire certainty

and to construct with control. That being,

amongst other things, certainty of:

 Contribution to overheads and

profit, the lifeblood of any business

 Timely completion, to allow the

planned movement of resources

towards the next project

 Completion to the required quality

standards, to enhance reputations

 A dispute free project, to avoid the

time consuming and expensive use

of resources

Whilst far easier to say than to achieve; to

obtain certainty it requires all involved with

the Employer‟s, Engineer‟s and

Contractor‟s organised to fulfil their

obligations to the standards required and

at the right time.

The initial Sub-Clause 8.3 programme not

only provides the Engineer with a yardstick

to measure projects against but it also

allows the Contractor to inform the

Employer when critical inputs such as free

issue materials, electricity, gas, water or

feedstocks are required. It is therefore

something for the Contractor to measure

the Employer‟s performance against and

every updated programme and report

should therefore contain a statement

regarding the progress of the Employer‟s

obligations as well as the required

information regarding the Contractor‟s

progress. There should be no hindrance

from either the Employer or the Engineer to

the Contractor taking a proactive stance

in relation to a desire to complete the

Works without delay from the Employer‟s

quarter.

It is clear however, that the focus, on the

Sub-Clause 8.3 programme and its

revisions is on the Contractor‟s

performance. Despite this opportunity to

set out a clear statement of intent that is

capable of demonstrating cause and

effect in respect of delay to the Time for

Completion all too often Contractor‟s

produce programmes that are

inadequate at the outset, possibly due to

a lack of information from suppliers etc,

and continue to be inadequate when

revised.

A good programme that is properly

maintained is without doubt, a double

edged sword; it allows the Contractor to

identify its own shortcomings and take

instant remedial action as well as identify

delay that falls under the risk area of the

Employer such that an extension to the

Time for Completion can be instantly

requested and hopefully determined by

the Engineer such that the risks of

completion fall back towards the

Contractor.

The reporting requirements within Sub-

Clause 4.21 are a great motivator for the

Contractor to have at its fingertips all the

data to allow time to be properly

monitored and adjusted to suit deviations

from any intended programme. In doing

so the Contractor can once again feed

into those responsible for preparing the

programme data indicating the rate of

progress of all concerned allowing the

programme to be adjusted to take

account of either work being completed

earlier than scheduled or likely delays such

that resources can be deployed

economically and claims, if appropriate

will have strong foundations based upon

fact.

In a similar fashion the Engineer, by

reviewing the available data and early

warnings given by the Contract, can

foresee areas of work where delays are

likely to occur and take appropriate

action by alerting the Employer, especially

if the Employer is culpable, but more

importantly communicating with the

Contractor to mitigate the impacts of

delay and issue a Variation if desired and

required.

Whilst, with all this data to hand, the

Contractor should be able to construct

with control and take the appropriate

action when and if delay occurs,

Contractors should also never

underestimate that the data; resourcing

levels, duration of work operations etc etc

is also with the Engineer who will use this

against any Contractor that submits a

hasty and ill-prepared claim for what

could be a very just entitlement.

There is doubt that in the minds of the

FIDIC drafters that all involved intended to

fulfil their obligations to the standards

required and in a timeous manner but in

the event that this did not happen and

delay occurred the Engineer and the

Contractor would have a wealth of

information to hand to prepare claims for

just entitlements that could be determined

without question under Clause 20,

although that Clause is a topic for another

day.

Sadly all concerned have frailties either as

individuals and/or organisations however

this should not prevent at least the firm

foundations of good programming from

being achieved.

A final thought

Perhaps the FIDIC drafters did attend the

same lectures as it is not too difficult to see

that with any FIDIC contract there are

elements of; Forecasting, Planning,

Organisation, Motivation, Coordination,

Control and Communication…

This is the fourth in a series of articles being published in CES

1

with the post 1999 editions of

the FIDIC suite of contracts being the overall subject matter.

The first article discussed the birth of FIDIC’s rainbow suite, the second provided a brief insight

into continued growth of the rainbow, the third article looked at programming and reporting

requirements. In this, the latest article, joint authors Paul Battrick

2

and Phil Duggan

3

of

Driver

4

look at studying project contracts themselves.

It is easy to tell all involved with the

management of any construction project to

read and fully understand the Contract. No

matter how experienced we are there is

always the potential for an amendment to

a previous form, a new revision or an

Employer removing some well understood

elements that may fundamentally alter any

previous understanding.

Please do not adopt the attitude of “I’ve

seen that form before” or “we always do it

like this” as one particular client did to its

detriment. Whilst not involving a FIDIC

Contract the story highlights a totally

incorrect attitude to adopt; in short:

 A specialist Contractor asked for

assistance, the pressure vessel it

had spent 1000s of hours

manufacturing in Europe had been

rejected at site in the Far East.

 It had been rejected as it was

constructed using steel and not

stainless steel as required by the

specification.

 When asked why an alternative

material was used the reply was

“we always make these vessels

from steel”.

 The specialist Contractor was forced

to make a new vessel constructed

out of the specified material

resulting in losses and delay

damages being levied… a true story.

All this could have been avoided had

someone considered the pertinent

documentation.

A clause that is within most contracts that

is similarly misunderstood relates to Force

Majeure. Perceived lists of relevant events

are carried from one project to another

without considering if the events change; if

the list is exhaustive, since the word

“include” is often within the clause or if the

events carry monetary entitlements as well

as time benefits.

Definitions can vary from contract type to

contract type and, in practical terms, from

work scope to work scope. Consider for

yourselves suitable definitions relative to

remeasurable and lump sum contracts and

also completion requirements for a road as

opposed to a multi phased power plant.

FIDIC conveniently provides definitions

firstly in the body of the Contract in

respect of topics:

 The Contract

 Parties and Persons

 Dates, Tests, Period and Completion

 Money and Payments

 Works and Goods

 Other Definitions

and also in alphabetical order noting the

particular Sub-Clause.

For the purpose of this article one

definition is selected, that of Cost. It often

has differing meanings under various forms

of Contract, especially bespoke forms, and

is often translated when claims are being

prepared to what those preparing the claim

would like it to mean.

In earlier additions of standard forms,

including FIDIC forms, whether or not the

Contractor was entitled to add profit to its

cost claims remained silent. Now in the

FIDIC forms Cost expressly excludes profit

but profit is still an entitlement under

certain circumstances as will be explained.

FIDIC defines Costs as:

“Cost” means all

expenditure reasonably

incurred or to be incurred),

whether on or off the Site,

including overhead and

similar charges, but does not

include profit.

All those dealing with entitlement (a

preferable word to claim) understand that

success depends upon the creation and

maintenance of the appropriate records

and in doing so can fulfil the requirements

of FIDIC in both submitting claim

documents and adjudicating upon those

documents. The definition of Cost provides

a starting point in respect of monetary

entitlements and clause 20 (Claims,

Disputes and Arbitration) provides the end

point; in between there are many clauses

within FIDIC which give rise to a monetary,

and often time, entitlements to the

Contractor.

It pays to understand all of these clauses

which can be classed as “claims under the

Contract” as opposed to “claims under the

governing law of the Contract”.

Briefly, and in respect of the latter type of

claim, FIDIC does not contain an exclusive

remedies clause and also appears to

foresee such claims, but still governed by

clause 20, by the use of the word

“otherwise” within the opening paragraph

of Sub-Clause 20.1.

Below is a list of the Sub-Clauses which

entitle the Contractor to claim additional

money (and possibly time) noting when the

definition of Cost remains as per the

definition or the Contractor is also entitled

to a “reasonable profit”.

Sub-Clause 1.9 Delayed Drawings or

Instructions (Red Book only)

If delay or disruption is caused or likely to

be caused as a result of late drawings or

instructions the Contractor is entitled to

claim:

 Cost plus a reasonable profit

 Extension of time

Sub-Clause 1.9 Errors in the

Employer’s Requirements (Yellow Book

only)

If delay is caused or Cost is incurred as a

result of errors in the Employer’s

Requirements which were not previously

discoverable the Contractor is entitled to

claim:

 Cost plus a reasonable profit

 Extension of time

Sub-Clause 2.1 Right to Assess to the

Site

If delay is caused or Cost incurred as a

result of the Employer failing to give the

Contractor access to the Site at the

prescribed time the Contractor is entitled

to claim:

 Cost plus a reasonable profit

 Extension of time

Sub-Clause 4.7 Setting Out

If delay is caused or Cost incurred as a

result of errors in the original setting out

points and levels of reference notified by

the Engineer the Contractor is entitled to

claim:

 Cost plus a reasonable profit

 Extension of time

Sub-Clause 4.12 Unforeseeable

Physical Conditions

If delay is caused or Cost incurred as a

result of the Contractor encountering

physical conditions which are

Unforeseeable the Contractor is entitled to

claim:

 Cost (only)

 Extension of time

It is worth noting that Unforeseeable is a

defined term meaning “not reasonably

foreseeable by an experienced contractor

by the date for the submission of the

Tender”.

Sub-Clause 4.24 Fossils

If delay is caused or Cost incurred as a

result of the Contractor’s compliance with

instructions issued by the Engineer to deal

with the discovery of fossils and the like

the Contractor is entitled to claim:

 Cost (only)

 Extension of time

Sub-Clause 7.4 Testing

If delay is caused or Cost incurred as a

result of testing being delayed by the

Employer or on behalf of the Employer the

Contractor is entitled to Claim:

 Cost plus a reasonable profit

 Extension of time

Sub-Clause 8.5 Delays caused by

Authorities

If delay or disruption is caused or Cost

incurred as a result of the actions or non

actions of Authorities the Contractor is

entitled to claim:

 Cost, with or without profit, appears

not to have been specifically

considered

 Extension of time

Sub-Clause 8.9 Consequences of

Suspension

If delay is caused or is likely to be caused

or Cost incurred as a result of the

Engineer’s instructions to suspend work the

Contractor is entitled to claim:

 Cost (only)

 Extension of time

Sub-Clause 10.2 – Taking Over of

Parts of the Works

If the Contractor incurs Cost as a result of

the Employer taking over or using a part of

the Works the Contractor is entitled to

claim:

 Cost plus a reasonable profit

Sub-Clause 10.3 Interference with

Tests on Completion

If delay is caused or Cost incurred as a

result of tests being delayed by a reason

for which the Employer is responsible the

Contractor, amongst other remedies, is

entitled to claim:

 Cost plus a reasonable profit

 Extension of time

Sub-Clause 11.8 Contractor to Search

If the Contractor incurs Cost as a result of

searching for a defect for which it was not

liable the Contractor is entitled to claim:

 Cost plus a reasonable profit

Sub-Clause 12.2 Delayed Tests (Yellow

Book only)

If the Contractor incurs Cost as a result of

carrying out Tests delayed by the Employer

until after Completion the Contractor is

entitled to claim:

 Cost plus a reasonable profit

Sub-Clause 12.4 Failure to Pass Tests

after Completion (Yellow Book only)

If the Contractor incurs Cost as a result of

the Employer delaying access to allow

Tests to be carried out the Contractor is

entitled to claim:

 Cost plus a reasonable profit

Sub-Clause 13.7 Adjustments for

Changes in Legislation

If delay is caused or is likely to be caused

or Cost incurred or likely to be incurred as

a result of changes in the Laws of the

Country the Contractor is entitled to claim:

 Cost (only)

 Extension of time

It is worth noting that Country is a defined

term meaning the Country in which the

Site (or most of it) is located, where the

Permanent Works are to be executed.

Thus this definition is very limited in the

field of international contracting where

Contractors, Suppliers and Sub-Contractors

may all have originated from Countries

other than where the project is being

carried out and may suffer as a result of

changes in legislation.

Sub-Clause 16.1 Contractor’s

Entitlement to Suspend Work

If delay is caused or Cost incurred as a

result of the Contractor properly

suspending work (or reducing the rate of

work) the Contractor is entitled to claim:

 Cost plus a reasonable profit

 Extension of time

Sub-Clause 19.4 Consequences of

Force Majeure

If delay is caused or Cost incurred as a

result of Force Majeure events the

Contractor is entitled to claim:

 Cost (only) in respect of the events

listed at Sub-Clauses 19.1 (ii), 19.1

(iii) and 19.1 (iv)

 Extension of time

The above list is not exhaustive as to

where the Contractor can gain payments

and/or entitlements within the FIDIC

contracts; the list refers to Sub-Clauses

specifically referring to Cost as defined.

In terms of monetary entitlements, Sub-

Clauses not referenced include Evaluation

(in respect of the Red Book) and Variations

as well as Payment on Termination where

an alternative set of rules come into being.

The provisions of Sub-Clause 8.4 in respect

of extensions of time should be thoroughly

considered in respect of entitlements to

time extensions.

The subtle differences between the

contents of the listed Sub-Clauses are

interesting if not explainable. The most

interesting of which may be the addition or

not of a “reasonable profit” to the

Contractor’s Cost.

Contractors will argue that they are not

charities and all expenditure properly

incurred as a result of others deserves /

should be required to return a profit.

Similarly many of the claim events, had the

scope been fully understood at the time of

tender by both parties, would have been

included within the Contractor’s bid and the

Contractor would have had the opportunity

to add profit to its foreseen costs.

Contractors and their advisers may wish to

seek an adjustment to the definition of

Cost when negotiating the Contract in the

future.

The influence of whether or not a Cost

attracts profit may also extend to the

preparation of claims for extensions of

time. Whilst many will say that at all times

the causes of delay should be capable of

being clearly identified, this is often not the

case. There is also the propensity for

Contractors to establish claims around

events that appear to have the best chance

of success or line of least resistance from

the Engineer; perhaps even a global style

claim is submitted to gain relief from the

deduction of Liquidated Damages.

In any event at some juncture the

Contractor and the Engineer, or perhaps a

DAB or Arbitral Tribunal, have to consider

the causes of delay, establish periods of

extension of time against those causes and

lastly establish if there are any monetary

entitlements to accompany those periods

of delay.

The addition, or not as the case may, be of

profit to a Contractor’s elements of a

prolongation claim maybe considerable

amount in these days where mega projects

exist and delays run into years not just

days or weeks. Contractors therefore may

select, if possible, delay events that could

maximise their potential financial returns.

In respect of the Contractor declaring its

required profit, it is suggested that instead

of waiting until such time as a claim exists

and the Employer and its

Engineer/Representative may be seeking to

limit expenditure against claims, the

parties follow the lead given by FIDIC

within the MDB Harmonised Edition (the

Pink Book).

The Pink Book at Sub-Clause 1.2 differs

from the Red Book by the addition of two

paragraphs, in this context the important

one being:

“In these Conditions,

provisions including the

expression “Cost plus profit”

require this profit to be one-

twentieth (5%) of this Cost

unless otherwise indicated in

the Contract Data.”

It will therefore be up to the Contractor to

consider that he may wish to declare a

higher profit than 5% at the pre-contract

stage or accept that 5% profit where

applicable on its entitlements listed with

the Contract. It may be that the

Contractor’s actual bid margin was less

than 5% and so it would gladly accept that

on offer.

A further interesting subtlety is the use or

not of the phrase is “likely to cause”. It

may have been more prudent upon the

part of the FIDIC drafters, when

considering the Employer’s interests to use

this phrase within all entitlement clauses

so as to be consistent with the early

warning obligations upon the Contractor in

terms of time within Sub-Clause 4.21 and

the general notice provisions of Sub-Clause

20.1. This may also aid the early

conclusion of claim issues.

Contractors, when drafting sub-contracts

should take note of the differing provisions

within the entitlement clauses such that

the variants, especially in respect of the

recovery of profit, are incorporated into

Sub-Contracts so as not to cause a

shortfall in recovery or lengthy discussions

concerning the right or otherwise to profit

in respect of claim monies. Although, in

practice it appears that Engineers only

deny profit on the Contractor’s element of

a claim.

It is noted that Sub-Clause 11.8 Contractor

to Search, does not give a specific

entitlement to a time extension albeit

circumstances can be imagined where a

delay to completion may occur. Under

these circumstances the Contractor has

two further options to obtain any

entitlement within Sub-Clause 8.4

Extension of Time for Completion:

 Sub-Clause 8.4(b), where an

extension of time may be claimed

as a result of any cause under a

Sub-Clause of the Contract.

 Sub-Clause 8.4(e), where an

extension of time may be claimed

as a result of any delay impediment

or prevention caused by or

attributable to the Employer, the

Employer’s Personnel or the

Employer’s other contractors on the

Site.

FIDIC having been thorough in respect of

the Contractor’s claims towards the

Employer have not carried through this

thoroughness in respect of claims from the

Employer to the Contractor.

There is no definition of cost relative to the

Employer’s claims towards the Contractor

and therefore it must be left to the

Employer’s agent or the Engineer, to

determine if profit should be passed on as

a legitimate claim item.

Finally, a brief reference was made above

to claims made under the governing law as

opposed to under the Contract. This is

obviously an option open to the Contractor

however, it is considered that claims

properly made under the Contract will have

a greater chance of speedy resolution. It

may also be quite a time consuming

exercise for a Contractor to take the

necessary legal advice before commencing

a claim under the governing law. Should

this be the case the initial and fatal notice

provisions of Sub-Clause 20.1 may come

into play – a topic for another article.

This is the fifth in a series of articles being published in CES

1

.

Following an introduction to FIDIC and its 1999 suite of contracts the joint authors, Paul

Battrick

2

and Phil Duggan

3

of Driver

4

will discuss many practical issues of using FIDIC

contracts. Their thoughts and opinions are based upon actual working experiences of working

with many FIDIC contracts both past and present.

Risk and Responsibility Clause 17 and

beyond

If the phrase risk and responsibility is

mentioned in respect of the FIDIC suite of

contracts many, possibly new to the FIDIC

forms, would consider clause 17 and

possibly 18 and 19, of the major forms and

close out their thought processes.

This article reflects upon the allocation of

risk and responsibilities within the major

forms introduced in 1999 (the Red, Yellow

and Silver Books) beyond the words

contained within clause 17; but first a

consideration of clause 17 as contained

within the Red, Yellow and Silver Books.

Clause 17 – Risk and Responsibility

This clause is typical of clauses that

allocate risk and responsibility to events

that are generally, but not always,

insurable events; the likeness to clause 18

Insurance can be readily viewed. The

wording within the three major forms is

considered to be clear and not in need of

great explanation saves for the overview

below.

Sub-clause 17.1 provides for the

indemnities that the Employer and the

Contractor must provide to each other in

case injury to people and/or property

occurs as a result of the actions of

personnel or other for which they are

responsible during the “design, execution

and completion of the Works”. Property

excludes the Works itself which is dealt

with separately at Sub-clause 17.2.

Generally unless specifically allocated to

the Employer and those defined as being

under its responsibility, events are the risk

and responsibility of the Contractor.

Sub-clause 17.2 provides for the

Contractor’s care of the Works, for which it

is fully responsible until such time as the

Taking-Over Certificate (or Taking-Over

Certificates in the case of sectional

completion) is issued or deemed to be

issued in accordance with Sub-clause 10.1,

save for those items listed within Sub-

clause 17.3 which are Employer’s Risks.

Whilst this Sub-clause specifically deals

with the care of the Works until a Taking-

Over Certificate has been issued it does not

mention suspension by either the

Contractor or the Employer possibly

leading to termination. It is suggested that

the obligations of the Contractor to care for

the Works remain throughout a

suspension, irrespective of responsibility

for the events leading to the suspension,

until such time as work recommences and

a Taking-Over Certificate is issued or

Termination takes place and the Contractor

is released from its obligations in this

respect.

This may be considered somewhat unjust if

the Contractor has not been paid, the

Employer cannot demonstrate that it has

the arrangements in place to pay and the

suspension leading to termination is

lengthy thus resulting in a high cost burden

for say the protection of the Works

including materials stored on and off site.

The Contractor that relies upon the

argument that it was not the cause of the

suspension and consequent termination

and therefore had no responsibility to care

for the Works - may find itself unable to

justify its claims for the work completed or

partially completed and materials handed

over to the Employer should termination

take place.

Sub-clause 17.3 is entitled Employer’s

Risks which, in other words, are the risks

that the Contractor has no control over.

The Red and Yellow Books have identical

lists and it is suggested that these are

cross referenced with the list of typical

events that may be classed as a Force

Majeure within clause 19. It is also

suggested that the defined term

Unforeseeable within Sub-clause 17.3(h) is

fully understood as so many have

difficulties in separating what is unforeseen

from what is unforeseeable when making

claims.

The FIDIC guide confirms the definition of

unforeseeable to be “not reasonably

foreseeable by an experienced contractor

by the date for submission of the Tender”.

It goes on to suggest that the frequency of

natural events relative to the duration of

the Time for Completion may provide

guidance as to what should be considered

as unforeseeable. Taking this suggestion

perhaps a five minute discussion and

survey with your colleagues could take

place noting the following:

 Two projects adjacent to each other;

same Contractor, Engineer and

Employer.

 Duration of project A is eight years

and project B is two years with

identical commencement dates.

 Statistically the natural event

occurs every ten years.

 The last event happened nine

years ago and occurred one year

after commencement of the

projects.

Which event falls within the definition of

unforeseeable?

The Silver Book has a shortened list losing

the following:

 Use or occupation by the Employer

of any part of the Permanent

Works, except as may be specified

in the Contract - should this occur

it would be a breach by Employer

of Sub-clause 10.2 and therefore

not a risk.

 Design of any part of the Works by

the Employer’s Personnel or by

others for which the Employer is

responsible – the Silver Book

foresees the Contractor being

responsible for the total design of

the Works, however this may be

compromised by Sub-clause 5.1

where the Employer retains some

responsibilities for information that

can affect design carried out by

the Contractor.

 Any operation of the forces of

nature which is Unforeseeable –

unless such events can be justified

as being a Force Majeure such

events are deemed to be at the

risk of the Contractor.

Sub-clause 17.4 allows the Contractor to

put forward its claims in respect of time

and money in the event that the

Employer’s Risks noted within Sub-clause

17.3 result in loss or damage to the Works,

Goods or Contractor’s Documents.

As with all other claims submitted by the

Contractor in respect of a perceived

entitlement either under the Contract or by

law, the procedure within Sub-clause 20.1

must apply or the Contractor risks losing

any entitlement. The Engineer (or the

Employer in the case of the Silver Book)

must then proceed in accordance with Sub-

clauses 20.1 and 3.5 to determine any

entitlement. In terms of any monetary

entitlement the Contractor is entitled to

Cost or Cost plus a reasonable profit as

detailed.

Sub-clause 17.5 considers intellectual and

industrial property rights and provides

protection to both the Contractor and the

Employer from claims issued by third

parties related to patents, registered

designs, copyright and the like where the

intellectual or industrial property rights

have been allegedly infringed by either

party. Whilst it is suggested that the

claims procedure of Sub-clause 20.1

applies to claims made under this clause

(line two stating “under any clause…”) the

FIDIC drafters have seen fit to repeat,

albeit in slightly different terms, the fatal

nature of a 28 day notice period should

either party wish to submit a claim.

Sub-clause 17.6 deals with the limits of

certain liabilities under the Contract.

However, it is perhaps the most important

clause that must be considered in the light

of the provision of the governing law

prescribed within the Contract. Various

jurisdictions, either common law or civil

law jurisdictions may affect matters

concerning the length of any period in

respect of defects liability, the

commencement date for such liabilities can

even negate the clause in its entirety in

respect of the limit of financial liability in

the event that gross negligence can be

established to have taken place. This

latter point being reflected within the FIDIC

forms which confirms that there is no limit

of liability “in any case of fraud, deliberate

default or reckless misconduct by the

defaulting Party”. This statement being

particularly relevant during the bid phase

and it is likely that the limit of liability to be

stated within the Particular Conditions will

be the subject of intense negotiations

between the Employer and Contractor prior

to the award of the Contract. If no sum is

agreed and stated the Accepted Contract

Amount will be the limit.

The Sub-clause is intended to limit the

Contractor’s liability towards the Employer

relative to the Contractor’s failed

performance in respect of progress

resulting in delay damages and, in respect

of the Yellow and Silver Books, inadequate

design, workmanship and the failure of

materials etc., resulting in non-

performance damages and non-availability

damages if noted within the Particular

Conditions. It also excludes any liability,

by either party, in respect of loss of use of

any Works, loss of profit, loss of any

Contract or for any indirect or

consequential loss or damage other than in

respect of a termination or indemnities as

per Sub-clause 17.1.

There is no limit of liability upon the

liability of the Employer towards the

Contractor and any limitations by the

Contractor towards the Employer excludes

the supply of utilities (Sub-clause 4.19),

Employer’s equipment and free issue

material whilst in the care of the

Contractor (Sub-clause 4.20), indemnities

(Sub-Clause 17.1) and intellectual and

industrial property rights (Sub-clause

17.4).

Risk and Responsibilities – elsewhere

The opening paragraph of this article

suggested that many people, possibly new

to the FIDIC forms, will limit their thoughts

in respect of risks and responsibilities to

clause 17 and possibly clauses 18 and 19.

Those to whom that statement may apply

are invited to consider that the contract,

whether Red, Yellow or Silver Book, is in its

entirety a fine balance of risks and

responsibilities allocated between the

Employer (and its Engineer or

Representative) and the Contractor.

Whilst opinions may differ as to the

fairness, and validity in law, of conditions

such as the fatal 28 day notice with Sub-

clause 20.1, the FIDIC drafters will have

considered such a period in the light of

other obligations placed upon the

Contractor within the Contract; such as the

required monitoring of the programme and

related matters (as discussed in the third

article of this series).

A viewpoint being that any Contractor who

is not aware within 28 days that an event,

for which the Employer is culpable, has a

time or money impact does not deserve to

receive any entitlement!

The FIDIC suite of contracts, as with any

other contract, can be considered to be no

more than a rule book detailing the

potential consequences should a defined

event take place.

If in a game of soccer someone is caught

handling the ball the referee will give a free

kick or penalty to the other side. If at the

outset of a contract it is considered that all

of the risks and responsibilities are

allocated and the key elements of scope,

time and price are defined then any event

that may affect those key elements will

cause the applicable rules to be consulted

to establish which party is carrying the risk

of that event.

The FIDIC drafters have taken great care

when dealing with the allocation risk such

that internationally and less likely

nationally Employers and Contractors can

establish working relationships for the first

and perhaps the only time based upon a

considered set of rules.

Those rules provide some certainty at the

outset to both parties and, if triggered and

operated well, can restore certainty in

respect of the various risks and allocation

of those risks following any necessary

adjustments to all or any of the key factors

of scope, time and price.

The most obvious differences in risk

allocation between Red, Yellow and Silver

Books is in respect of design responsibility

and the consequent risks of time and

money impacts should design and

therefore scope be amended at some point

in time after the contract award.

Design can be translated to mean choice;

those with design responsibility have the

ability to choose, affect the scope and

potentially the time required to complete

the project and the price for the project.

Accordingly, and in overall terms, the risks

associated with design responsibility under

the Red Book rests with the Employer,

whilst the Contractor carries the risks

under the Yellow and Silver Books. In all

contracts for the Contractor to gain any

entitlement it has to comply with at least

the provisions of Sub-clause 20.1 in

respect of the issue of notices and the

subsequent provision of a detailed claim.

The risk of failing to establish contractual

relationships with Sub-Contractors and

others to allow compliance with these

periods rests with the Contractor. In this

respect the periods stated within Sub-

clause 20.1 may be considered short or the

minimum required to gain adequate data

and input from others.

There are many areas that are common to

the Red, Yellow and Silver Books that

provide protection and therefore less risk

to the Contractor.

In the context of perhaps the Contractor

making a bid to perhaps a special purpose

vehicle it is important to know that that

entity cannot change overnight once the

Contract Agreement has been signed. At

Sub-clause 1.7 Assignment it is stated that

neither party shall assign the Contract or

any part of the Contract without the prior

agreement of the other Party; accordingly

the Contractor (perhaps with the most to

lose) is protected from the Employer being

changed to some party it would never have

contemplated to be its contracting partner.

The Contractor’s cash flow may be

protected to some degree by the provision

of an advance payment linked to an

Advance Payment Guarantee. However,

regular and timely payments to the

Contractor remain its lifeblood; should the

Engineer fail to certify a payment (if

appropriate) and/or the Employer fail to

make payments at the prescribed time as

per Sub-clause 14.7 the Contractor can

either reduce the rate of work or suspend

work provided not less than 21 days notice

has been given. This being in accordance

with Sub-clause 16.1. Should the

situation not change within the timescales

prescribed within Sub-clause 16.2 the

Contractor can terminate the Contract.

The option of suspension or reducing the

rate of progress followed by termination

also applies if the Employer cannot provide

“reasonable evidence that financial

arrangements have been made and are

being maintained which will enable the

Employer to pay the Contract Price (as

estimated at the time)…” as stated with

Sub-clause 2.4. It is not confirmed whose

estimated Contract Price should be used as

a reference point; the views of the

Contractor and the Employer may differ

greatly in this respect especially if the

Contractor has the tendency to inflate its

claims to unrealistic values. Nevertheless

the FIDIC drafters have made provisions to

reduce the risk of a Contractor suffering

from an uncertain payment regime.

For the purpose of this article there is one

more major factor to be considered in

terms of risk allocation; that being the

ability of the Contractor to achieve

completion. It is not uncommon for

Employers to take occupation of a project

and subsequently receive income but find

reasons not to accept that the Contractor

has achieved completion as defined.

Accordingly the Employer gains income and

is possibly continuing to deduct delay

damages whilst the Contractor cannot

obtain any of the financial benefits of

attaining completion, the responsibility for

maintenance, wear and tear and the like

remain with the Contractor whilst any

defects liability period cannot commence.

The FIDIC drafters have considered such

circumstances and provided, within Sub-

clause 10.1, the ability for the Contractor

to attain Completion. Sub-clause 10.1,

states in general terms, that when the

Contractor has completed the Works (or

Sections) in accordance with the Contract

such that no minor outstanding work or

defects prevent the use of the Works for

what they were intended, the Contractor

may apply by notice to the Employer for a

Taking-Over Certificate. The Engineer (or

Employer as appropriate) will respond

within 28 days either by issuing the

Taking-Over Certificate or confirming why

no certificate can be issued. The latter

providing the criteria for the Contractor to

fulfil prior to issuing a further notice for a

Taking-Over Certificate.

Should the Engineer (or Employer as

appropriate) fail to either issue the Taking-

Over Certificate or give reasons for not

issuing the Certificate within the period of

28 days, the Taking-Over Certificate shall

be deemed to have been issued on the

twenty – eighth day.

Sub-clause 10.2 in all forms provides

further support for the Contractor by

confirming that the Employer shall not use

any part of the Works prior to Completion.

Sub-clause 10.3 within the Red and Yellow

Books gives further protection to the

Contractor. In the event that the

Contractor is prevented from carrying out

any tests necessary to attain Completion

by a cause for which the Employer is

responsible for a period of 14 days the

Employer will be deemed to have taken

over the Works and the Engineer must

issue a Taking-Over Certificate; the

relevant date being that on which the tests

would have been completed.

The defined timescales of every phase of

the dispute resolution procedure within

Clause 20 seek to offer the Contractor

some certainty and lessen risk in the event

that a DAB and Arbitration are necessary,

but they are the subject of a different

article as is the abuses to the allocation of

risk and responsibility so carefully

considered by the FIDIC drafters.

This is the sixth in a series of articles being published in CES

1

.

Following an introduction to FIDIC and its 1999 suite of contracts the joint authors, Paul

Battrick

2

and Phil Duggan

3

of Driver

4

will discuss many practical issues of using FIDIC

contracts. Their thoughts and opinions are based upon actual working experiences of working

with many FIDIC contracts both past and present.

A Risk too far for the EPC Contractor

This article considers the step change in

respect of the allocation of risks between

the Yellow and Silver books of the FIDIC

1999 suite of Contracts and poses the

question for a traditional EPC contract are

those risks a step too far.

Traditionally

International contracting possess a vast

number of contractors that use the term

EPC contractor to describe how they

operate and what services they can provide

to their potential Employers; in simple

terms they Engineer or design the works,

Procure all that is necessary to complete

the works and finally Construct the works.

This regime is very similar to that utilised

by a Design and Build contractor and is

applied across the industry, typically in

sectors have some form of black box

technology or proprietary technology.

Accordingly, process plants of all

descriptions and power plants are often

constructed by and EPC contractor with the

Employer proffering a bespoke form of

contract. The Employers relative to process

and power plants are likely to be

“professional” Employers in that they will

construct a number of facilities, probably

have their own in-house as well as external

design engineers and will understand

completely what they expect from the

finished project in terms of quality of

components and production output

whether that be power, fertiliser or

whatever. The quality and maybe

consistent choice of components being

relevant to future operation and

maintenance considerations such as

costings and the length of non-productive

shutdown periods.

It is also not uncommon on mega-projects

for the Employer to commission Front End

Engineering Design or FEED whereby the

conceptual design is completed such that

the traditional EPC contractor can complete

the detailed design probably with the

Employer’s engineer retained throughout

the process.

The use of turnkey contracting has been

more associated with either the Employer

who wishes to have no part in the

construction process but wishes to have

delivered a fully operating facility, such as

a hospital with all surgical equipment,

bedding and the like provided and installed

by the Contractor such that the hospital

can function within the shortest possible

time after hand over. Alternatively this

form of procurement has been used by the

“non-professional” Employer that may only

ever require one new facility or so few new

facilities that it will have no internal

resident design functions or no ongoing

relationship with external design

consultants. The Contractor that delivers a

functioning facility to the Employer’s

requirements via a turnkey contract is

ideally suited to this type of Employer.

New Trends

Contractors have to react to the

marketplace to gain workload; similarly

FIDIC has reacted to a requirement in the

marketplace to produce the Silver Book

and provides more certainty of cost and

time and is perfectly suited to the “non-

professional” Employer who may be far

more risk averse, through a lack of

familiarity of the construction process or

the requirements of its funders, than the

“professional” Employer.

With the rise of Special Purpose Vehicles

(SPVs) relative to the renewable energy

sector there is a growing demand for

projects to be administered under the

Silver Book. It is perfectly suited; the

Employer is likely to be a “non

professional” Employer, possibly a SPV that

will only construct one bio-mass power

plant or whatever; the funders backing the

project will most likely demand certainty in

respect of cost and also the time for

completion (the latter to judge when the

income stream will commence and profits

be generated), the Employer may rely

entirely on the Contractor for all design

issues knowing only that it has a

sustainable, deliverable and, in respect of

say a bio-mass power plant, a consistent

fuel source.

Taking a bio-mass power plant as a typical

example and noting that the tradition EPC

contractor may be reacting to the market

place by developing its technology to

accommodate the various fuel sources

there will most likely be the situation

where the traditional EPC faces a Silver

Book for the very first time.

Noting that the front cover used the phrase

EPC/Turnkey Projects the Contractor may

have some pre-conceived ideas regarding

the term EPC which may be more aligned

to the Yellow Book.

The Yellow Book and the Silver Book –

a brief comparison

The notes below are in the context of

highlighting the obligations and risks a

traditional EPC contractor would face when

working under a Silver Book compared to

working under a Yellow Book.

It is worth recapping some of the selection

criteria that should be considered by an

Employer (and its advisors) when deciding

which form of contract is to be used

together with the fundamental differences

between the Yellow Book and Silver Book.

Yellow Book

 Contract administered by and

Engineer.

 Risks are allocated on a fair and

equitable basis.

 Tender time is short (or is insufficient

to allow adequate time for the

Contractor to assess the risks it is

obliged to carry out under the Silver

Book) and details of matters such as

hydrological, sub-surface and other

matters affecting the site are not

readily available; risks therefore

remain with the Employer.

 The Employer seeks a lower tender

price but accepts certain risks during

the duration of the project.

 The Employer via its Engineer

requires a close relationship with the

Contractor throughout the duration of

the project including the more likely

potential to cause change to design.

 It is not possible for the tenderers to

properly inspect the site or the

amount of underground work is so

significant or complex that for the

Contractor to price all risks under the

Silver Book would be both inequitable

and cost prohibitive (or a recipe for

disaster...).

Silver Book

 Contract administered by the

Employer (possibly an Employer’s

Representative).

 Disproportionately more risks are

allocated to the Contractor. As a

consequence the Contractor should

require more detailed data regarding

hydrological, sub-surface and other

conditions affecting the site to assess

risks; more detailed and precise

knowledge of the Employer’s

Requirements.

 In order for the Contractor to

properly assess the risks it is obliged

to carry and to provide the Employer

a high degree of cost and time

certainty there should be a longer

period for preparation of a tender and

more discussion with the Employer

during that time.

 The Employer accepts a higher tender

price in the knowledge that it has

fewer risks during the duration of the

project.

 The Employer has no great desire to

be involved on a daily basis with the

project and is content to allow the

Contractor to take full responsibility

for the design and construction of the

project (although the reporting

procedures within both the Yellow

Book and Silver Book at Sub-Clause

4.21 remain identical – perhaps for

claims adjudication purposes as

discussed in a previous article).

From the above and previous articles it is

clear that the most significant differences

between the Yellow Book and the Silver

Book relate to the transfer of risk from the

Employer to the Contractor. The FICIC

drafters use both wholesale amendments

to Sub-clauses and subtle amendments to

phraseology to achieve their goals as

discussed below in the order the Sub-

Clauses appear in the Contracts.

Sub-Clause 1.9 Errors in the

Employer’s Requirement – Yellow

Book only

Within the Yellow Book if the error causing

the Contractor to suffer delay or incur Cost

could not have been discovered by an

experienced contractor exercising due care

when scrutinising the Employer’s

Requirements then, provided the

Contractor fulfils the requirements of Sub-

Clause 20.1, it may receive an extension of

time and Cost plus reasonable profit that it

is entitled to receive.

There is no corresponding Sub-Clause

within the Silver Book as the Contractor

takes responsibility for the accuracy of the

Employer’s Requirements as will be

discussed below.

Sub-Clause 4.7 Setting Out – Yellow

Book and Silver Book

Both Books require the Contractor to be

responsible for the setting out of all parts

of the Works based upon the information

provided within the Contract and as

subsequently provided by the Engineer

(Yellow Book).

The fundamental difference being that

within the Silver Book the Contractor also

takes responsibility for the accuracy of the

setting out data within the Contract

(meaning the Employer’s Requirements).

To carry out the necessary review during

the tender period in order to properly

judge the severity of this risk is one of the

reasons why a longer tender period is

required relative to projects being let under

a Silver Book.

The Yellow Book, since the Employer is

responsible for the accuracy of the setting

out data, allows that data either to be

noted within the Contract or issued by the

Engineer during the course of the project.

If the Contractor suffers delay or incurs

Cost as a result of any error and provided

the Contractor, as an experienced

contractor, could not have reasonably

discovered or avoid the delay or Cost then

the claims procedure of Sub-Clause 20.1 is

applied and the Engineer determines the

Contractor’s entitlements in respect of

extensions of time and Cost plus

reasonable profit.

Sub-Clause 4.10 Site Data – Yellow

Book and Silver Book

Sub-Clause 4.10 reaffirms the ethos set

out within Sub-Clause 4.7 noting, within

the Yellow Book, that the Contractor is

responsible for interpreting such data

whereas the Silver Book takes the same

statement a step further noting that “the

Employer shall have no responsibility for

the accuracy, sufficiency or completeness

of such data, except as stated in Sub-

Clause 5.1”.

Sub-Clause 4.12 Unforeseeable

Physical Conditions – Yellow Book

Sub-Clause 4.12 Unforeseeable

Difficulties – Silver Book

It is worth noting that the term

“Unforeseeable” is defined within the

Yellow Book, at Sub-Clause 1.1.6.8, to

mean “not reasonably foreseeable by an

experienced contractor by the date for

submission of the Tender”.

The definition is missing from the Silver

Book which also changes the Sub-Clause

title to be much broader than

Unforeseeable Physical Conditions to

Unforeseeable Difficulties.

Under the Silver Book the intent is clear;

the Contractor is deemed to have obtained

all necessary information to assess all

risks, considered all such information and

accepts total responsibility for having

foreseen all difficulties and has allowed,

within its Tender, sufficient time and funds

to carry out the Works. Sub-Clause 4.12(c)

stating “the Contract Price shall not be

adjusted to take account of any unforeseen

difficulties or costs”.

The only possibility for the Contractor to

perhaps recover Cost (under certain

circumstances) or gain an extension of

time is if the event is of such magnitude

that it can be considered to fall within the

definition of a Force Majeure (Clause 19).

Sub-Clause 5.1 Design – Yellow Book

and Silver Book

The regime, in simple terms, is that the

Contractor is responsible for designing the

Works to meet the needs of the Employer

as stated within the Employer’s

Requirements. Should the Contractor, after

scrutinising those requirements, finds

errors, those errors can be accepted and

remedied by the Engineer in the form of a

Variation. The Contractor would then apply

the appropriate procedures within Clauses

13 and 20 to gain its entitlements in terms

of time and/or money.

The fundamental difference within the

Silver Book is that the Contractor takes

responsibility for the Employer’s

Requirements including design criteria and

calculations with only certain exceptions for

which the Employer is responsible those

being:

a) “portions, data and information

which are stated in the Contract as

being immutable or the

responsibility of the Employer,

b) definitions of intended purposes of

the Works or any parts thereof,

c) Criteria for the testing and

performance of the completed

Works, and

d) portions, data and information

which cannot be verified by the

Contractor, except as otherwise

stated in the Contract”.

Accordingly the Contractor is responsible

for the incompleteness, any error, any

inaccuracy or omission of any kind in the

Employer’s Requirements as included in

the Contract (except the reasons noted

above) in addition to its responsibility for

the design of the Works.

Whilst not perhaps relevant to this Sub-

Clause it is worth noting that the Priority of

Documents (Sub-Clause 1.5) ranks the

Employer’s Requirements above the

Contractor’s Tender.

Once again Employer’s must give

Contractors the time to allow a full

investigation and study of the Employer’s

Requirements at the time of tender, not to

do so will or should only lead to bills being

inflated (for good reasons) to cover the

risks that the Employer wishes to pass on.

Conclusions

Employer’s who choose to employ the

Silver Book should do so after careful

consideration and careful selection of

Contractor’s to submit bids.

The Employer should respect the

considerable amount of work that is

necessary for a Contractor to properly price

the risks it is obliged to take on board and

limit the numbers tendering to the

minimum to obtain competitive bids.

Employers must realise that the price they

will pay for risk avoidance will be high

potentially higher than the overall cost of

the same project constructed under a

Yellow Book.

Contractor’s familiar in carrying out works

under EPC Contracts, often bespoke in

nature, must understand the differences

contained within the Silver Book and

educate their sales departments to raise a

red flag when an Employer proffers a

contract under a Silver Book.

Above all both Parties should know the

Contract, recognise and manage the risks

to avoid disputes!

This is the seventh in a series of articles being published in CES

1

.

Following an introduction to FIDIC and its 1999 suite of contracts the joint authors, Paul

Battrick

2

and Phil Duggan

3

of Driver

4

will discuss many practical issues of using FIDIC

contracts. Their thoughts and opinions are based upon actual working experiences of working

with many FIDIC contracts both past and present.

The Gold Standard

This article considers elements of the FIDIC

Gold Book relative to the submission of

claims, predominately by the Contractor

but also by the Employer, and compares

the procedures with those contained within

the Red, Yellow and Silver Books.

It has been suggested that since the Gold

Book was issued some nine years later

than the various books issued in 1999 that

its provisions represents current day

thinking within the minds of the FIDIC

drafters and may be the blueprint for

revisions to the First Editions to the 1999

books.

The Gold Book – a brief recap

It should be recalled from a previous article

that the Gold Book is to be used in a

“green field” situation where the Employer

wishes to employ a single Contractor to

design, build and subsequently operate the

completed construction project for a period

of 20 years.

Whilst the Gold Book has been likened to a

Yellow Book (the design and build form)

with an added operate and maintenance

contract blended within, it contains many

differences to the Yellow Book in addition

to the obvious entirely new provisions

which deal with the suggested period of

twenty years for operation and

maintenance.

It has been suggested, in some quarters,

that the form should actually have been a

Yellow Book with an optional annex

containing the operation and maintenance

provisions. This would have provided

familiarity to all parties working with the

contract but FIDIC would have lost the

opportunity to showcase (and receive

industry feedback on) its potential

revisions to the Yellow and other books

within its family of contracts.

The most relevant provision to have in

mind when considering this article is that

the DAB for the construction period is of

the standing variety comprising of three

members and that it is obliged to visit the

Site at intervals of not more than 140

days. The provision of a standing DAB no

doubt fuelling the debate as to whether

such a DAB aids dispute avoidance by the

regular visits and discussing at Site an

agenda prepared with the input of itself

and the Employer and the Contractor or

not.

The Gold Book – Clause 20 provisions

When comparing the provisions of Clause

20 within the Gold Book with the Yellow

and other major forms issued in 1999 the

most obvious change is the physical layout.

Sub-Clause 20.1 (Contractor’s Claims) has

a completely new format; the use of

referenced sub-paragraphs makes the

clause much easier to consider than the

alternative style of a series of paragraphs

under the Sub-Clause heading.

Sub-Clause 20.2 (Employer’s Claims) is a

new clause in this location in that within

the other books, Employer’s Claims are

dealt with as Sub-Clause 2.5. Even though

the location has changed the overriding

principles have not. Whilst the Contractor

in all FIDIC forms has strict provisions to

follow with the claims procedure, the

Employer can submit its Notice to the

Contractor “as soon as practicable” after

the Employer becomes aware or should

have become aware of the relevant event.

The particulars of the claimed amount has

neither to be submitted within any stated

timetable nor to any given standard.

In terms of purely layout there is the

introduction of new clauses relevant to

Avoidance of Disputes (Sub-Clause 20.5)

and Disputes Arising during the Operation

Service Period (Sub-Clause 20.10); the

former being relevant to the standing

nature of the DAB and the latter relating to

post issue of the Commissioning Certificate

effectively ending the consortium phase of

the project.

It is however the provisions of Sub-Clause

20.1 (Contractor’s Claims) that have and, if

they form the basis for future editions of

other books, will be the cause of significant

debate for many a while to come.

Whilst not wishing to detract from a future

detailed review of the current provisions of

Sub-Clause 20.1 within the major books

issued in 1999 the provisions are in

essence:

 The Contractor has to submit its

Notice of a claim for time and/or

money within the stated period;

failure to do so blocks the

Contractor from pursuing its claim

any further.

 The Contractor has to submit its

fully detailed claim within the

stated period, failure to do so may

be taken into account to which the

failure has prevented or prejudiced

the proper investigation leading to

the determination of the claim.

 Depending upon which book is

being considered, the Engineer or

Employer’s Representative has a

stated period to consider the

Contractor’s fully detailed claim

and respond with approval or

disapproval together with detailed

comments.

 A determination in accordance

with Sub-Clause 3.5 to confirm the

approval of the Contractor’s claim

noting the extension of the Time

for Completion and/or any

additional payment which the

Contractor is entitled.

Within the Gold Book, at Sub-Clause

20.1(a), the initial Notice that has to be

provided by the Contractor has to be

submitted within 28 days after the

Contractor became aware, or should have

become aware, of the event that, in the

Contractor’s opinion has led to a situation

where it is entitled to an extension of the

Time for Completion and/or additional

payment.

Failure by the Contractor to issue this

Notice renders the claim time barred; in

the simplest of terms the Contractor loses

its right to make a claim.

There are those within the industry,

notably within the Contracting fraternity,

that consider this fatal notice clause to be

totally unfair and unduly harsh and a

diversion to the smooth running of the

project and relationships between the

contracting parties since such a clause

promotes a Notice being submitted at the

merest hint of a potential claim. It is true

that Contractor’s are required to issue such

protective Notices.

It is also stated that in some jurisdictions

such a fatal Notice clause may be contrary

to the intent of the relevant Law. Such a

statement reinforces the necessity to

consult a lawyer totally familiar with the

Law governing the Contract before entering

into any Contract. In principle the

enforceability of a fatal notice clause has

had support with some courts since it

contradicted the prevention principle; as

noted above when matters stray into the

influence and interpretation of law a lawyer

should be consulted to obtain the most

relevant advice to the situation being

encountered.

The FIDIC drafters, within the Gold Book,

have perhaps had half an ear leaning

towards those who consider that fatal

notices are unjust since they have

introduced a potential opportunity for the

Contractor to be able to proceed with its

claims despite not having submitted a

Notice within the required time period.

The solution being a referral to the DAB

should the Contractor consider that there

were circumstances to justify the late

submission of the Notice. The DAB has the

authority to override the 28 day time limit

if it considers it fair and reasonable to do

so.

In this respect it should be remembered

that, under the Gold Book, the DAB is of

the standing variety and accordingly it will

have had the benefit of regular site visits,

possible discussions with the Parties and

the Employer’s Representative concerning

the event and potentially an early sight of

relevant documentation such that a swift

decision can be made one way or the

other.

It remains to be seen whether or not a

standing DAB will actually encourage

disputes of this (or any) nature. Some of

those who consider that the fatal Notice

provisions are unjust would avoid this

second bite of the cherry as not being the

solution, stating that the most equitable

way forward is to remove the fatal nature

of the Notice and replace it with sanctions

against the Contractor should late

submission prejudice the Employer. The

FIDIC drafters have compromised, to an

extent, but firmly believe that the

professional Contractor should be aware of

the impacts of any event within 28 days.

The debate will no doubt continue.

Following submission of the Notice the

Contractor must keep, at site unless

otherwise agreed, such contemporaneous

records as may be necessary to

substantiate its claim as required by Sub-

Clause 20.1(b). It is suggested that the

professional Contractor will have the

majority of such records in place in any

event and may only need to focus those

records upon the relevant event. The

Employer’s Representation may also

instruct the Contractor to keep specific

records and monitor those being kept by

the Contractor; these actions do not count

as an admission of liability. Clearly at this

juncture there should be dialogue between

the Contractor and the Employer’s

Representative and it is suggested that the

Contractor, since it wants or needs

something, takes a pro-active stance and

actually asks if the records being

maintained are adequate such that a

determination can be made or is there any

other type of record that would assist the

determination to be made in accordance

with Sub-Clause 3.5. Such an action may

aid the swift resolution of the quantum of a

Contractor’s claim should there be an

entitlement.

The Gold Book goes on within Sub-Clause

20.1(c) where it again differs from the

major books issued in 1999. Within 42

days after the Contractor became aware

(or should have become aware) of the

event or circumstance giving rise to a claim

for an entitlement the Contractor must

send to the Employer’s Representative a

fully detailed claim which includes all

supporting particulars of the contractual

basis for the claim plus any delay analysis

or quantum evidence as appropriate.

There are relaxations to the 42 days if

allowed by the DAB pursuant to an

extension of the original 28 day Notice or if

agreed between the Contractor and the

Employer Representative who may also ask

for further supporting particulars.

Accordingly a Contractor may have as little

as 14 days (42-28) after it became aware

of an event to submit its fully particularised

claim. If the event continues the first fully

detailed claim must still be submitted

within the stated period but it will be

considered as an interim claim. The

Contractor must submit further claims at

28 day intervals until such time as the

event has finished giving rise to a claim.

A further new concept is also introduced by

the FIDIC drafters at this point in the

timeline in respect of claims submission

and determination. If the Contractor fails

to submit a fully particularised claim that

establishes the contractual or other basis

of the claim within the 42 day limit (or

extended limit) then the original 28 day

Notice as per Sub-Clause 20.1(a) shall be

deemed to have lapsed, and the claim will

not be accepted or considered since the

Notice will no longer be considered valid.

As with the original Notice, the Contractor

can apply to the DAB if it considers there

are circumstances which warrant an

extension to the 42 day period and the

Employer’s Representative has rejected the

Contractor’s request for the said period to

be extended.

Within the FIDIC guide to the Gold Book it

is recognised that the provision of “a fully

detailed claim which includes fully

supporting particulars of the contractual or

other basis of the claim and of the

extension of time and/or additional

payment claimed” within a 42 day period

“is a far-reaching requirement” and “it is

therefore not sufficient to simply make a

brief reference to the Clause under which

the claim is being made”.

No matter how professional a Contractor

maybe it may often prove difficult to

gather all relevant information within the

42 day period, especially if the Contractor

has to rely upon a chain of third parties,

such as Sub-Contractors and their

suppliers, to provide basic information and

potentially involve lawyers to advise upon

the contractual or other basis of the claim.

The debate regarding the fundamental

right of a Contractor to make a claim being

negated by a time bar clause will no doubt

again rise and this second time bar may

also give rise to an element of subjectivity,

since the Employer’s Representative

appears to have the power to decide if the

Contractor has established its contractual

basis of the claim in deciding whether or

not the original notice has lapsed.

It is hoped that FIDIC intend the deemed

lapse of the original notice only to apply to

the Contractor establishing its contractual

or other basis of its claim and not, having

established such a basis, to the value of

the supporting documentation to establish

the quantum of the claim in terms of time

and/or money.

The late submission of details being met

with the same sanction as within the 1999

major books.

In this respect however the writer has

viewed an amendment to the standard

form that adds the phrase “to the

satisfaction of the Employer’s

Representative in respect of the

contractual or other basis and particulars

of claim” within the Sub-Clause to abuse

the apparent power of the Employer’s

Representative.

Sub-Clause 20.1(a) details the time period

that the Employer’s Representative has to

respond to the Contractor’s claim both

establishing the contractual or other basis

and particularising the claim. There is a

mandatory 42 day period for the

Employer’s Representative to respond to

the contractual or other basis of the claim

however, by requesting further particulars

it is suggested that the same 42 day period

for replying to the quantum of the claim

may be extended. In giving its decisions

the Employer’s Representative must use

the provisions of Sub-Clause 3.5

(Determinations).

However, if the Employer’s Representative

fails to adhere to the timetable and fails to

respond to at least whether or not the

Contractor has established a contractual or

other basis of its claim either the

Contractor or the Employer may consider

the claim has been rejected by the

Employer’s Representative.

Whilst the Gold Book allows either Party to

refer the matter to the DAB it is more likely

to be the Contractor after its claim has

been rejected on the basis of the

Employer’s Representative failing to

respond in due time. The FIDIC drafters

apparently see the instant submission of a

claim by the Contractor to the DAB as a

more beneficial situation for the Contractor

than waiting and waiting for a

determination from the Employer’s

Representative.

Whilst on the face of it the default of the

Employer’s Representative and the other

provisions of Sub-Clause 20.1 may lead to

more issues ending up with the DAB it

would appear that the FIDIC drafters have

attempted to provide an overall timetable

(adequately noted within the Flow Charts

at page 9 of the book) for the resolution of

Contractor’s claims. Certainly to succeed

the Contractor has to be able to establish

its claims swiftly and with all

particularisation!