fidic rainbow suite 2012

8/13/2019 FIDIC Rainbow Suite 2012

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The ra in b o w suiteThe 1999 FIDIC suite

This is a series of articles being published in CES1 with the post 1999 editions of theFIDIC 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 FIDICcontracts. Their thoughts and opinions are based upon actual working experiences ofworking with many FIDIC contracts both past and present.

Paul Battrick Managing Director (International)FRICS MCIArb CEDR AccreditedMediator

Phil Duggan Director (International)BSc MSc MCIArb

A Brief History

FIDIC is the French acronym for theInternational Federation of ConsultingEngineers. It was formed in 1913 by threenational associations of consultingengineers. From its base in Geneva it nowhas members from some 86 memberassociations worldwide.

Whilst best known for drafting contractsbetween an Employer and a Contractor,FIDIC also drafts model agreements forprofessional services:

Client and Consultant

Client and Architect

Joint Ventures between Consultants

Sub-consultant Agreement

Representatives Agreement

Indeed FIDIC provides many otherpublications and is involved in manyinitiatives in an attempt to fulfil its statedmission; To improv e the business climateand promote the interests of consultingengineering firms globally and locally,

consistent with the responsibility to providequality services for the benefit of societyand the environment. FIDIC s vision is tobe the industries recognised global voice.

FIDIC s Employer / Contractor contracts,first issued in 1957, have a distinctly Britishfeel to them. These early contracts werework style based such that the Red Bookwas relative to civil engineering works; theYellow book was relative to electrical andmechanical works with erection at site;and the Orange Book was relative toturnkey or design and build projects.

The Red Book first issued in 1957, and

having four major revisions, was borrowedmuch from the ICE forms of contract whilstthe Yellow book leant upon the forms ofcontract drafted by the IMechE / IElecE.

The Orange book was published in 1995due to a growing trend towards designand build projects and at that time FIDICrecognised that the world of contractdrafting was moving on, indeed theOrange Book contained DisputeAdjudication Board (DAB) provisions; the

Red Book had, in 1996, a DAB supplementpublished by FIDIC.

The drafting committee of mostlyconsulting engineers and its many advisorsbegan to work and in 1999 the FIDIC 1999suite of contracts were born.

The FIDIC 1999 Suite of Contracts

At this juncture it is worth noting that theFIDIC 1999 contracts are not a revision of

previous forms; hence First Edition withintheir titles.


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Sponsored by perhaps a desire to createthe dominant forms of contract relative toall forms of construction project coupledwith the changing face of construction acomplete overhaul took place.The most fundamental change to the newcontracts being the abandonment of thework based contract; it being replaced bycontracts that recognised which party wasto be responsible for the design of theWorks (or the vast majority of the Works)and where risk would be allocated.

FIDIC issued three contracts for majorworks and one for minor works. It is thethree major work contracts that havebecome synonymous with the term FIDICContract. Those being:

The Red Book = Conditions ofContract for Construction for Buildingand Engineering Works Design bythe Employer, also known as theConstruction Contract

The Yellow Book = Conditions ofContract for Plant and Design Buildfor Electrical and Mechanical Plant,and for Building and EngineeringWorks Designed by the Contractor,also known as the Plant and Design-Build Contract

The Silver Book = Conditions ofContract for EPC/Turnkey Projects,also known as the EPC/TurnkeyContract

The fourth contract to be issued was theShort Form of Contract to be known asthe Green Book.

To avoid any confusion it may have beenbetter to avoid the repeated use of RedBook and Yellow Book and adopt atotally new range of colours from theoutset since many contracts are still letbased upon pre-1999 FIDIC contracts.

In 2001 FIDIC published a Contracts Guideto the three major forms of contract; it has

become known as the Rainbow Book andFIDIC has perpetuated the rainbow themeby encouraging all of its subsequentlyissued contracts to be known by thecolour of their covers.

The New Red, Yellow and Silver Books

As previously noted a fundamentalchange adopted by FIDIC when draftingthese contracts was to move away from awork style to a contract that reflectedwhere the responsibility for design wouldbe allocated.

These contracts were also intended to beused both on the international market anddomestic markets, although it is suspectedthat the vast majority of sales of thevarious forms relate to projects where thenationalities of the contracting partiesdiffer.

FIDIC not only sought to issue a new suiteof contracts but also, and to its credit,sought to make the contracts user friendlyand create a best practice manual forcontract administration. The latter being atopic for a subsequent article.

To aid all users the task group drafting thecontracts were instructed to standardisethe three new major forms. The resultsbeing that, unless differences wereessential, definitions, layout, clausenumbering, and clause wording wereidentical.

Accordingly the Red, Yellow and SilverBooks contain only twenty clauses; the lastedition of the old Red Book containedseventy two clauses whilst the old YellowBook fifty one clauses.

An example of standardisation being,whereas in the old Red Book clause 67 washeaded Dispute, Engineer s Decisionsand in the old Yellow Book clause 50 washeaded Disputes and Arbitration the1999 suite of contracts, at clause 20,

prescribe the conditions under which theContractor, the Engineer and the


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Employer should act through the Claims,Disputes and Arbitration procedure.

First impressions of the 1999 suite maybe offputting since the purchased documentappears to be much larger than previouseditions, for instance the new Yellow Bookhas, in total, over 100 pages whereas theold Yellow Book has less than 50 pages.This is all part of the F IDIC s desire toproduce a document that is easier to usethan previous FIDIC contracts and alsoother contracts from which Employers andEngineers can choose.

The general layout of the Contracts is asfollows:

General Conditions; including anAppendix entitled GeneralConditions of Dispute AdjudicationAgreement which includes theProcedural Rule for a DAB

A section giving guidance for thepreparation of any ParticularConditions; this section also includesexamples of guarantees, securitiesand bonds that are commonplaceon international projects

A section entitled Forms; here FIDICprovide examples of:

Letter of Tender with supportingAppendix to Tender

Contract Agreement DAB Agreements (either a one-

person DAB or three person

DAB)

Whilst the above can be considered to bethe most important elements within aContract, FIDIC have continued to behelpful to those using its contracts. Withinthe very useful Forward to the Contractthere are three graphics indicatingtimelines relative to:

1. Principle events from invitation totender to return of the PerformanceSecurity

2. Payment procedures under clause14 Contract Price and Payment

3. The sequence of events underclause 20 Claims, Disputes andArbitration following either Partygiving notice of its intention to refer adispute to a DAB

All in all a very complete document thatshould require few amendments however,as we shall see in a later article thedocument is not only used but is abused.

The Engineer

Before noting some specifics regarding theRed, Yellow and Silver Books it is worthnoting that FIDIC have amended the roleof the Engineer in the Red and YellowBooks (the Silver Book has an Employer sRepresentative) from the impartial, quasiarbitral role of previous editions. TheEngineer is clearly stated to act for theEmployer. He is no longer required to beimpartial but whenever required to makea determination in respect of value, costor time related matter he has to make hisdetermination fairly, and in accordancewith the Contract, having taken intoconsideration all relevant circumstances.

The FIDIC 1999 First Edition Red Book

The main features of this Contract can besummarised as: It is suitable for all types of project

where the main responsibility fordesign lies with the Employer (or itsEngineer) although provision is madefor the Contractor to designelements of the Works

The administration of the Contractand approval of work is carried outby the Engineer as is certification ofpayments and determination ofextensions of time

Payment to the Contractor is based

upon work done and rates as per aBill of Quantities (a Standard Method


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of Measurement should be stated);thus reflecting the likely on sitenature of the Works (a reflection thatthe Red Book will most likely be usedfor building and civil engineeringprojects)

Risk sharing is balanced betweenParties such as the Employer takingthe risks of adverse physicalconditions and the operation ofthe forces of nature that areconsidered to be unforeseeable

Claims by both Parties have to followprocedures, albeit the conditionsimposed upon the Contractor areharsher with the inclusion of a fatalnotice provision

The Contractor has some financialprotection in that it can requestevidence from the Employer that ithas the finances to pay theestimated Contract Price

Materials can be paid for both onand off site if strict criteria arefollowed, including the listing ofmaterials for which payment maybesought within the Contractor stender

The FIDIC 1999 First Edition Yellow Book

The main features of this Contract can besummarised as:

It is suitable for all projects where themain responsibility for design lies withthe Contractor based upon theEmployer s Requirements althoughprovision is made for the Employer(or his Engineer) to design elementsof the Works

The administration of the Contractand approval of work is carried outby the Engineer as is certification ofpayments and determination ofextensions of time

Payment to the Contractor is basedupon a Lump Sum price andnormally against a schedule ofmilestones to be achieved by theContractor. This reflects that theYellow Book will most likely be usedfor process plants and the like wherea high degree of offsitemanufacture of plant andequipment is foreseen and paymentterms can be drafted to recognisethis situation subject to the listing ofsuch plant and equipment within theContractor s tender as within theRed Book

Testing procedures leading tocompletion are likely to be morecomplicated than within the RedBook, again reflecting the likelynature of the project

The Yellow Book shares with the RedBook the provisions noted aboverelative 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 toprovide contracts with a balanced view ofrisk sharing meaning:

The Employer pays the Contractoronly when specific risks occur

The Contractor does not have toinclude within its tender for risks thatare difficult to value

The above means that the Employer has agreat degree of uncertainty in respect ofthe final price and the final time forcompletion.The Silver Book reflects a market desire forcertainty of cost and time; perhaps by aone off Employer or a totally risk adverseEmployer willing to pay the price or


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potentially by lenders who crave certaintyof price and time, such that the riskallocation is far from balanced.

The Contractor is asked to allow within itstender for a wide range of risks relative tocost and time; such risks will most likelyinclude all ground conditions (potentiallyin a country of which the Contractor willhave little knowledge) and the completionof the Works will be based upon a strictbut often brief performance relatedspecification.

The Employer will still bear some risks suchas those related to war, terrorism andForce Majeure but the unbalanced riskprofile of this Contract will undoubtedly bea higher price; a factor that Employer smust accept.

The main features of the Silver Book canbe summarised as:

Design liability rests solely with theContractor, the Employer willprovide its requirements but theseare often in the form of a briefperformance specification

The Contractor carries out allengineering, procurement andconstruction often includingperformance tests after completion;a turn -key project allowingoperation of the facility uponcompletion

There is not an Engineer within the

Contract; the Employer may appointan Employer s Representative

It is lump sum Contract withpayment terms most likely similar tothose envisaged under the YellowBook

Given the above circumstances underwhich an Employer may select a SilverBook, Employer s should recognise thesignificant costs for a Contractor to

produce a tender. Accordingly it is hopedthat Employer s recognise this and select

only a small number of Contractors totender.

Similarly Employers have chosen a turnkeystyle of contract and therefore shouldallow the Contractor complete freedomto carry out the Works in its chosen mannerin order to reach any performance criterialaid down by the Employer.

If the Employer cannot grasp such factors,or the tender time is too short to allow theContractor to compile an adequatetender, or considerable amounts of work

are underground, or difficult to inspect theEmployer may be better off using a Yellowbook, accepting some additional risks andreceiving a lower tender price.

The FIDIC 1999 First Edition Green Book

The final contract to be issued in 1999 wasthe Green Book or Short Form of Contract.This Contract recognised a need for amuch simpler and shorter contract to suitprojects with a relatively low ContractPrice and short time duration.

The Contract itself is very flexible, anyreader will however recognise theContract as being from the same familyalbeit it has only fifteen clauses and a totalof ten pages.

The clauses are short and easilyunderstood; whilst design can be carriedout by either party an Engineer is notforeseen, however the Employer mayappoint a Representative. Payment canbe made on either a lump sum orremeasured basis.

As with the major forms the Contractincludes guidance notes (noted as notforming part of the Contract) as well as anAgreement together with its Appendix andRules for Adjudication. The noticeableabsentee being the Particular Conditionssection; in this respect FIDIC consider thatthe Green Book can work without suchconditions however, a cautionary note is

provided should an Employer deem itnecessary to amend the drafted Contract.


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Introduction

First a brief introduction followed by anoverview of various forms.

The White Book

As previously noted FIDIC also drafts, aswell as contracts between an employerand contractor, many agreementsbetween client and consultant. TheClient / Consultant Model ServicesAgreement, now in its fourth edition,issued in 2006, it has become known as theWhite Book.

The Blue Book (or Turquoise Book as itis sometimes called)

This form is designed specifically for use inconnection with dredging andreclamation projects. It differs from themajor forms in many ways but perhapsmost importantly that it was drafted inclose collaboration with the InternationalAssociation of Dredging Companies(IADC) and as such has a great input fromcontractors from the outset. The currentversion of the Form of Contract forDredging and Reclamation Works is the

fourth edition issued in 2006.

The Pink BookWhilst funding agencies adopted theversions of old and new Red Books formany years it became standard practiceto amend certain clauses. In response to

the Multilateral Development Banks(MDBs) desire to harmonise their biddocuments including a standard form ofcontract, FIDIC responded by issuing theConditions of Contract for ConstructionMDB Harmonised Edition; the latest versionbeing issued in 2010.

The Gold Book

This form of contract is probably the mostradical of the new colours; it represents acontract period of over 20 years! It is adesign, build and operate (DBO) contractthat the industry has needed for sometime to reflect the ever growing trend thatcontractors no longer construct somethingthen go away but also maintain andoperate the facility for many years tocome. It has been described as a YellowBook with an operate and maintenancecontract bolted on; the First Edition of theConditions of Contract for Design, Buildand Operate Projects was issued in 2008.

No colour as yet, but a subcontract

FIDIC has often issued a new form ofcontract as a test edition such that theconstruction industry can review theproposed conditions of contract whilstperhaps using them in a real life situation.The latest test edition again is a departurefrom the engineer driven FIDICorganisation since it delves into the worldof the contractor and subcontractor,although it is noted that advice was


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sought from many working for and withcontracting organisations.

The results being the Conditions ofSubcontract for Construction for Buildingand Engineering Works designed by theEmployer issued in 2009. As the title of thisform suggests it is for use with the Red Bookand the Pink Book. It is the secondattempt at creating a subcontract sinceFIDIC issued one in 1994 relative to the oldRed Book

Overview of the various forms

The White Book

The drafters of the White Book arepredominately engineers who within thisform sought to create conditions ofagreement that would span the life cycleof an engineer s or consultant sinvolvement.

Accordingly the document is suitable foruse during:

pre-investment and feasibility studies

the design phase

the administration of a contract

As with FIDIC contracts there are bothgeneral and particular conditions ofcontract which combined set out thescope of the consultant s work, paymentterms and the like.

The White Book incorporates the samefinancial protection as afforded tocontractors in that the consultant too canask the Client (as opposed to theEmployer) if it has the ability to pay theConsultant s fees. In a similar vein, andmaybe not surprising to some, the WhiteBook limits the consultant s responsibilities,and therefore liabilities, to exercisereasonable skill, care and allegiance in theperformance of his obligations under the

Agreement. This limitation is furtherqualified since nothing else in theagreement, or any legal requirement ofthe Country or any other jurisdiction canimpose a greater risk upon the consultant.Thus the consultant/engineer has a limitedrisk that, it is suggested, is not in accordwith the thoughts of employers andcontractors alike.

The Blue (Turquoise) Book

The Blue Book is like the Green Book in thatit is abbreviated and flexible. In terms ofbeing a smaller document the generalconditions are only 16 pages and fifteenclauses long. The format has alsochanged from the major forms with theagreement and appendix to the contractbeing the first section. Perhaps it is themajor forms that have the order incorrectsince it is those particular terms that arethe most important to recognise especiallyin such a flexible form as the Blue Book.

Similarities with the major forms are in theinclusion of standard forms, such assecurities, a section on adjudication (aone or three person DAB) with rules andthe adjudicator s agreement and the allimportant guidance section.

The engineer is still recognised within thecontract however design responsibility canrest with either the employer (and itsengineer) or the contractor. Paymentterms are extremely flexible and a list ofoptions, such as lump sum,

remeasurement and cost plus are allnoted within the appendix.

It is perhaps apparent that a greater inputo f a contractor s organisation hasinfluenced some of the general conditions,as has perhaps the use of other formswithin the industry as a whole:

Notices by the contractor in respectof a claim must be given within 28days but there is no fatal provision.


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Claim items are listed as defined riskswhich may entitle the contractor tomonetary or time compensation.

The defined risks, recognising the likelyimpacts of weather upon thecontractor s ability to make progress,potentially soften the usual clausewording on one hand, entitling thecontractor to make a claim if anyoperation of the forces of natureaffecting the Site/and or the Works,which was unforeseeable or againstwhich an experienced contractor

could not reasonably have beenexpected to ta ke precautions butgive the employer (and contractor)less room for debate by also definingthe employer s risk to be climaticconditions more adverse than thosespecified in the Appendix.

If disputes are not settled amicablythey are to be settled by referral toadjudication by a DAB and, ifdissatisfied with the DAB s decision (orif no decision is made within the settimescale) the dispute can bereferred to Arbitration.

The Blue Book is a model of a contractdrafted by those with a particular sectionof the industry in mind and with theknowledge to incorporate the necessaryvariations to standard forms that mayhave been considered for use in the past.

The Pink Book

As previously noted the Pink Book wascreated as a derivative of the Red Book.This reflecting the usual nature of a projectthat would require funding from lending oraid agencies and would deploy from theoutset an engineer to assist in all phases ofthe project, especially design.

Those projects normally beinginfrastructure types of projects as opposedto industrial, power, process plants and thelike where funds would normally be fromthe employer s o wn resources and the

contractor would design the facility; inother words a Yellow or Silver Book project.

The MDBs include in their number suchorganisations as:

The World Bank

The European Bank for Reconstructionand Development

African Development Bank

The MDBs in fact represent lendingagencies that fund projects on a globalbasis and as such play a crucial role in thedev elopment of the planet s lastinginfrastructure. With this level ofimportance in mind it was crucial thatFIDIC participated in amending the RedBook to provide a contract not only thatadhered to the wishes of the MDBs butalso gave borrowers, engineers andcontractors some consistency in format,leading to fewer ad-hoc and poorlythought through amendments.

Those faced with a Pink Book will haveoften been used to the Red Book andtherefore will be familiar with the generallayout of the contract, the twenty clausesare still there but there have beenamendments which some may think arefor the better, and others otherwise.Examples being when compared to theRed Book:

Minor amendments have taken place

to definitions of which one is worthy ofbeing noted:

Cost no longer refers toreasonable profit but statesprofit since at clause 1.2 profit isfixed at 5% unless statedotherwise in the contract data.

clause 1.5, is a new clause that allowsthe lender s representati ves to inspectthe site and audit the contractor s

accounts and records relative to theproject


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clause 2.1, access to the site must be

given such that the programme canproceed without disruption

clause 2.4, the employer has todemonstrate its ability to pay thecontract price before thecommencement date and alsopunctual ly

clause 2.5, the employer must nowgive notice of its claims within 28 daysbut whilst more onerous there is still nocondition precedent

clause 3.1, the engineer has to gainthe employer s approval beforedealing with matters under clausesdealing with claims in respect ofunforeseeable physical conditionsand the issue of variations

clause 3.5, the engineer now has togive its determination within 28 daysfrom receipt of the corresponding

claim or request

clause 6.2, there is an obligation uponthe contractor to inform its personnelof their liability to pay local incometax

clause 8.1, the project cannotcommence unless:

the contract agreement hasbeen signed by both parties

the contractor has reasonableproof that funding is in place

the advance payment hasbeen received by thecontractor

clause 8.6, the contractor can bepaid for acceleration measures toovercome employer delays

clause 13.1, the contractor is not

bound to carry out a variation if itwould trigger a substantial change in

the sequence or progress of theworks.

clause 15.5, whilst the employer canterminate for convenience it cannotterminate to pre-empt a justtermination by the contractor.

clause 15.6, is a new clause thatattempts to deal with corrupt and/orfraudulent practices.

clause 16.2, the contractor must nowdemonstrate that the employer sfailures must materially and adverselyaffect the economic balance of thecontract and/or the ability of thecontractor to perform the contractprior to termination. There arehowever two further grounds allowingthe contractor to terminate:

Failure of the funder to providefunds.

The absence of the engineer sinstruction to commence work

180 days after the letter ofacceptance.

clause 19.2, in order to claim forcemajeure the claiming party mustdemonstrate that it has beenprevented from performing itssubstantial obligations

clause 20.6, arbitration rules may differaccording to the origin of the lendingagency.

The amendments to the Red Book appearto be a mixed bag providing support tothe contractor in terms of guaranteedfunding but also apparently allowing theemployer influence over the engineer inrespect of claims for unforeseeableground condition and variations.

The latter is not considered to be prudentespecially when considering thatborrowing countries may not have thesophistication necessary to deal with suchmatters.


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The Gold Book

The Gold Book without doubt fills one ofthe last gaps in FIDIC s toolbox ofcontracts. Its use is growing especially asgovernment departments such as waterauthorities warm to the idea of havingforeign contractors bring their knowledgeof providing water treatment and supplyat a profit but also having to beresponsible for remedying defects whilstremaining in the country rather than beingon the side of the globe.

Accordingly FIDIC has not only respondedto employers who crave to outsource butalso the changing face of contractorswho are now operators too. Any potentialdisputes between contractors carrying outa design and build contract toquestionable standards leading to poorperformance, defects and disputes whilstleaving the employer to struggle through a20 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 allcontracts, are willing and able to actresponsibly towards each other such thata balance is struck between theconstruction and operating elements ofthe contract.

The contract s ethos and key features are:

Design, build plus operation andmaintenance for 20 years by thecontractor on a green field site.

Design and build phase risk allocationsimilar to the Yellow Book withexacting completion criteria but alsoa cut off date should the contractorbe 182 days late leading totermination if desired.

Payment on a lump sum basis but adefined asset replacement fund andschedule that notes the timing andcost of the replacement of certainassets. Costs of replacing plant andequipment outside of the schedule

will be the responsibility of thecontractor, as is a cost over thatstated on the schedule. Any surplus inthe fund at the end of the twentyyears is divided equally.

The employer is entitled to deduct 5%from payments during the operationservice period (OPS ) in case thecontractor does not fulfil itsmaintenance obligations. The fund isto be released, if not spent, within thefinal payment to the contractor. Thecontractor being responsible for its

own defects arising from design andconstruction in this period.

An independent audit body is jointlyappointed for the duration of the OPSto monitor the performance of thecontractor and employer. Whilsthaving no power, the parties areintended to give due regard tomatters raised by the audit body.

A joint inspection is required at leasttwo years before the end of the OPS;

any works identified must be carriedout by the contractor who will alsoface completion tests similar to thoseat the end of the design and buildphase. Defaulting contractors risklosing the 5% maintenance retentionfund.

A standing DAB is established from aset date for the design and buildphase and a new one every 5 yearsduring the OPS.

The key to success appears to be with thecontractor who must design and build aquality plant with low operating andmaintenance costs; fit for purpose andbuilt to last.

However, like any relationship time givesrise to change and only time will tell ifFIDIC have considered all factors such aschanges in the deliverables required bythe employer. FIDIC has very recentlyissued its guide to this form.


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The Subcontract to the Red and PinkBooks

As noted this form is a test edition with thefirst edition arriving sometime later.

The contract seeks to be back to backwith the Red Book, in this respect selectedhighlights or lowlights are:

The subcontractor is required tocomplete its scope of works such thatno act or omission shall constitute orcause a breach under the Red Book.

The contractor is entitled to make afair decision in respect of its claimstowards the subcontractor anddeduct monies accordingly.

Payments are back to back (wherelegal to do so) such thatsubcontractors may find contractorsusing this as a shield to avoid payingfor their own problems

The subcontractor is apparentlyresponsible for the care of its worksuntil the main contract works aretaken over. This situation will alwaysrequire careful managementwhatever the form of contract

Notice provisions are passed throughto the subcontractor but with areduction in time to 21 days to allowthe contractor to fulfil its obligationsunder the main contract.

A subcontract that allows both fairpayment provisions for the subcontractorfor all liabilities of the contractor whilstobliging the subcontractor to allow thecontractor to make claims upwards willalways be a tough ask; has FIDIC really gotit right? Perhaps the absence ofsubcontractors from the draftingcommittee is a clue.

A final thought

FIDIC has continued to broaden itspotential customer base by these furthercontracts. The next stop could be a targetprice contract but it is understood that wewill see a complete overhaul of the 1999suite in the not too distant future.


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This is the third in a series of articles being published in CES1. The first introduced the rainbowsuite, 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, commentingupon the FIDIC forms of contract the programming requirements are considered inconjunction with the procedures in respect of progress reporting. The Parties to the Contractand the Engineer, but in particular the Contractor, all have clear obligations in respect of theprogramming and reporting functions within the FIDIC forms.

Programming and ReportingA Benefit or Burden for the Contractorand the Employer and its Engineer?

In this the third article commenting uponthe FIDIC forms of contract theprogramming requirements areconsidered in conjunction with theprocedures in respect of progressreporting. The Parties to the Contract andthe Engineer, but in particular theContractor, all have clear obligations inrespect of the programming and reportingfunctions within the FIDIC forms.

It is considered that these obligations areintended to be considered in tandem withthe provisions for considering claimssubmitted by the Contractor such that anyContractor who neglects, or is allowed toneglect, its obligations may face a moredifficult task to establish its entitlementsthan a Contractor who has fully compliedwith its obligations.

For the purposes of this article allreferences to Sub-Clause are taken from

the Yellow Book; in simple terms theContract for design and build projects

where the design is carried out by theContractor.

The drafters of the FIDIC suite of contracts,and many commentators, say that theFIDIC contracts not only provide themechanisms for dealing with risks,responsibilities, payment terms, changeand all the other good things necessary toallow a project to be completed in amanaged and (hopefully) equitablefashion but they also act as a bestpractice project management handbook.

The project management handbook is

most prevalent within the programmingand reporting provisions and no doubt theFIDIC drafters consider what they thoughtthe Contractor and the Engineer shouldbe aware of in order that control of theproject was to the fore and certainty ofoutcome, especially in respect of progress,was assured.

Many of us, and perhaps some FIDICdrafters, will have received lectures inmanagement at some stage of our

careers and many will know themnemonic.

Family Planning O ften Means C arefulC hoice of C ontraceptives

Management handbooks quite rightly lookto the perfect world however the realworld is one of harsh commercial realitiesand shortcomings in performance in manyrespects where, should a Contractor allowwithin its bid for every risk and obligation it

would certainly lead to lost tenders. Aswith all things compromise is often the


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solution however, to compromise inrespect of programming and reportingmay not be such a wise course of action.

The FIDIC Yellow Book envisages thetypical procedure to be expected inestablishing a contract for a design andbuild project:

Invitation to bid (ITB) withEmployer s Requirement included,no doubt a timescale for thecompletion of the project wasstated.

Contractor s bid complying orotherwise with the ITB, including atimescale which was probablydetailed to some degree notingany required milestones and/orthose of importance to theContractor, such as the provision offeedstocks .

The coming together of theEmployer and the Contractor to

create a contract detailing withoutambiguity a shared understanding.

It is now that Clause 8, Commencement,Delays and Suspension takes over, and forthe purpose of this article Sub-Clause 8.3Programme in particular.

The Contractor, will have agreed oraccepted the Time for Completion notedwithin the Appendix to Tender and theEngineer will have issued a notice of the

Commencement Date. Assuming all otherformalities are in place, such as theprovision of the Performance Security, thedates for commencement andcompletion of the Works, including anySections, are now anchored.

Sub-Clause 8.3 Programming

Now Sub-Clause 8.3 takes over!

It is suggested that all programmes inexistence at this point in time should be

cast to one side as from now on only oneprogramme will matter; the Sub-Clause 8.3programme and of course the revisions toit.

This programme will be, or should be, abaseline against which the performanceof the Contractor and the Employer, ifappropriate, will be monitored, claims forextensions of Time for Completion will bebased upon and Engineer s instructions toexpedite progress will be based. Itsimportance cannot be stressed enough.

However, the requirements upon theContractor of Sub-Clause 8.3 goes furtherthan producing a programme; theContractor is required, for the first time tobear its soul before the Engineer forscrutiny. Whilst the details to accompanythe programme may seem quite normal tomost they are an obligation upon theContractor.

The Contractor has to submit, to theEngineer, its detailed programme within 28

days after receiving the notice of theCommencement Date. Realising that theprogramme will not be perfect and will besubject to revision not only to takeaccount of actual progress but also totake account of other factors such as sub-suppliers and sub-Contractorsprogrammes being agreed as orders andcontracts are placed, the FIDIC draftersplaced a further obligation upon theContractor to submit a revisedprogramme whenever the previous

programme becomes, in effect, out ofdate and does not reflect the manner inwhich the Contractor will achieve itsobligations.

Every time the Contractor submits arevised programme it must include:

the order in which the Works will becarried out

the timing of each stage of design,

preparation of Contractor sDocuments, procurement,


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manufacture, inspection, deliveryto site, construction, erection,testing, commissioning and trialoperation

the periods allowed for theEngineer to review documentssubmitted by the Contractor (Sub-Clause 5.2) and any similarsubmissions, approvals andconsents specified in theEmployer s Requirements

the sequence and timing ofinspections and tests specified inthe contract

a supporting report which includes:

a method statement notingthe major stages ofexecution of the Works

the Contractor sreasonable estimate of thenumbers of each class of

Contractor s Personnel andeach type of Contractor sEquipment required at Sitefor each major stage of theWorks

Having received all of this information atthe outset of the project and every timethe programme is updated the Engineerhas 21 days in which to state, by a issuingnotice, that it does not comply with thecontract; note that the Engineer does not

have to approve programme should theEngineer not issue such a notice theContractor must proceed in accordancewith the programme; in doing so theContractor should be aware that theEmployer will rely upon that programme inarranging any feedstocks and other inputsit has to facilitate the completion of theWorks.

FIDIC is silent as to what should happen ifthe Engineer gives notice that the

programme does not comply with thecontract; as to what non -compliance

with the contract actually means maybeleft to the Engineer s interpretation. It isconsidered that it should meancompliance with dates and periods oftime stated within the contract includingworking hours and periods for approvalsetc by the Engineer but should aninvestigation take place into the level ofresources and methods the Contractorintends to use, probably not. Neverthelessthe Contractor has provided to theEngineer an insight into such things as itsintended resources which, as we all know,is also often the starting point for many aclaim prepared by a Contractor.

As noted the Sub-Clause 8.3 programme isthe baseline against which the Engineerwill monitor the Contractor s progress andthe Contractor s ability to meet the Timefor Completion and decide whether or notto issue instructions to the Contractor toprepare and issue a revised programmeand supporting report detailing how theContractor will accelerate the Works, as itsown cost and potentially with claims from

the Employer to complete with the Timefor Completion.

There is one other obligation of Sub-Clause8.3 that is worth nothing; the Contractor isto inform the Engineer of:

specific future events orcircumstances which may diverselyaffect the work (note the Works isnot used)

increase the Contract Price

delay the execution of the Works

It is also worth noting that the Employerdoes not have a similar obligation.

The Contractor has to submit estimatesrelative to these occurrences and/or aproposal under the Variation Procedure ifapplicable.


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Early warning clauses such as this are nowcommonplace and there is no notedsanction for non-compliance by theContractor however, Contractors shouldconsider this provision in the light of thefatal notice provisions under Sub-Clause20.1 (a topic for later discussion).

Sub-Clause 4.21 Progress Reports

Having given the Engineer an insight intoits initial and revised programmes andresourcing levels the Contractor is obligedto prepare reports, on a monthly basis,that reveal yet more of the Contractor sprogress towards Completion.

The monthly reports can be quite a timeconsuming exercise to complete sincethey require a considerable amount ofdetail, let alone six copies to be issued.Each report must include:

charts and detailed descriptions ofprogress including:

each stage of design(possibly relevant to themajor stages identifiedwithin the Sub-Clause 8.3programme)

Contractor s Documents (adefined term includingcalculations, computerprogrammes, drawings andmodels)

procurement, manufactureand delivery to site

erection, commissioningand trial operations

photographs showing the status ofmanufacture and of progress onthe Site

for the manufacture of each main

item of Plant (apparatus,machinery and vehicles to be

incorporated into the Works) andMaterials (things of all kinds, otherthan Plant) to be incorporated intothe Works)

the name of themanufacturer

the manufacturer s location

percentage progress

actual or anticipated datesof:

commencement ofmanufacture

Contractor sinspections

Tests

shipment and arrivalat site

records of the numbers of theContractor s Personnel (theContractor s staff, Sub -contractorstaff and anyone else working atthe Site)

records of the Contractor sEquipment (types and details ofplant and vehicles used by theContractor, its Sub-contractors andanyone else working at the Site)

copies of quality assurancedocuments, test results andcertificates of Materials

list of Variations, notices given bythe Employer of its intention tomake a claim towards theContractor and notices of claimissued by the Contractor

safety statistics, including details ofhazardous incidents, activities

relating to environmental aspectsand public relations


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comparisons of actual and

planned progress

details of any events orcircumstances that may jeopardisethe Contractor s ability to meet theTime for Completion or any interimmilestones (it is noted that this isanother opportunity for an earlywarning of potential delay by theContractor)

measures being adopted or to beadopted by the Contractor toovercome delays (it is not certain ifthis relates to recovery measuresbeing adopted as a result of anEngineer s instruction and/ormeasures voluntarily adopted; thelatter is most likely given therequired comparison in respect ofprogress)

Whilst most Contractors will readily have tohand, whether allowed for in the bids or

not, the resources and managementstructure to comply with the reportingobligations within Sub-Clause 4.21 it is clearthat those working for the Contractor, Sub-contractors, Sub-suppliers and specialistdesign houses must also provide thecountless pieces of information required toallow the Contractor to conform.

It is suggested that perhaps Contractorswho are not used to FIDIC, such as thosefrom Eastern Europe, who may find

themselves working on externally fundedprojects may find these obligations outsideof their normal reporting capabilities.Similarly some Engineer s may also find theadministration of this aspect of FIDICsomewhat difficult to achieve, albeit itgives the Engineer the perfect platform toreport to the Employer.

Benefit or Burden?

To consider whether or not theprogramming and reporting obligations

are a benefit or burden for the Contractor,a simple question must be asked, whatdoes the Contractor (and all other partiesinvolved for that matter) really want froma project?

After the difficulties of bidding and winninga project the Contract will desire certaintyand to construct with control. That being,amongst other things, certainty of:

Contribution to overheads andprofit, the lifeblood of any business

Timely completion, to allow theplanned movement of resourcestowards the next project

Completion to the required qualitystandards, to enhance reputations

A dispute free project, to avoid thetime consuming and expensive useof resources

Whilst far easier to say than to achieve; to

obtain certainty it requires all involved withthe Employer s, Engineer s andContractor s organised to fulfil theirobligations to the standards required andat the right time.

The initial Sub-Clause 8.3 programme notonly provides the Engineer with a yardstickto measure projects against but it alsoallows the Contractor to inform theEmployer when critical inputs such as freeissue materials, electricity, gas, water or

feedstocks are required. It is thereforesomething for the Contractor to measurethe Employer s performance against andevery updated programme and reportshould therefore contain a statementregarding the progress of th e Employer sobligations as well as the requiredinformation regarding the Contractor sprogress. There should be no hindrancefrom either the Employer or the Engineer tothe Contractor taking a proactive stancein relation to a desire to complete the

Wor ks without delay from the Employer squarter.


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It is clear however, that the focus, on theSub-Clause 8.3 programme and itsrevisions is on the Contractor sperformance. Despite this opportunity toset out a clear statement of intent that iscapable of demonstrating cause andeffect in respect of delay to the Time forCompletion all too often Contractor sproduce programmes that areinadequate at the outset, possibly due toa lack of information from suppliers etc,and continue to be inadequate whenrevised.

A good programme that is properlymaintained is without doubt, a doubleedged sword; it allows the Contractor toidentify its own shortcomings and takeinstant remedial action as well as identifydelay that falls under the risk area of theEmployer such that an extension to theTime for Completion can be instantlyrequested and hopefully determined bythe Engineer such that the risks ofcompletion fall back towards the

Contractor.

The reporting requirements within Sub-Clause 4.21 are a great motivator for theContractor to have at its fingertips all thedata to allow time to be properlymonitored and adjusted to suit deviationsfrom any intended programme. In doingso the Contractor can once again feedinto those responsible for preparing theprogramme data indicating the rate ofprogress of all concerned allowing the

programme to be adjusted to takeaccount of either work being completedearlier than scheduled or likely delays suchthat resources can be deployedeconomically and claims, if appropriatewill have strong foundations based uponfact.

In a similar fashion the Engineer, byreviewing the available data and earlywarnings given by the Contract, canforesee areas of work where delays are

likely to occur and take appropriateaction by alerting the Employer, especially

if the Employer is culpable, but moreimportantly communicating with theContractor to mitigate the impacts ofdelay and issue a Variation if desired andrequired.

Whilst, with all this data to hand, theContractor should be able to constructwith control and take the appropriateaction when and if delay occurs,Contractors should also neverunderestimate that the data; resourcinglevels, duration of work operations etc etcis also with the Engineer who will use thisagainst any Contractor that submits ahasty and ill-prepared claim for whatcould be a very just entitlement.

There is doubt that in the minds of theFIDIC drafters that all involved intended tofulfil their obligations to the standardsrequired and in a timeous manner but inthe event that this did not happen anddelay occurred the Engineer and theContractor would have a wealth ofinformation to hand to prepare claims for

just entitlements that could be determinedwithout question under Clause 20,although that Clause is a topic for anotherday.

Sadly all concerned have frailties either asindividuals and/or organisations howeverthis should not prevent at least the firmfoundations of good programming frombeing achieved.

A final thought

Perhaps the FIDIC drafters did attend thesame lectures as it is not too difficult to seethat with any FIDIC contract there areelements of; Forecasting, Planning,O rganisation, Motivation, C oordination,C ontrol and C ommunication


19/44

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 toread 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 Ive

seen that form before or we always do it

like this as one particular client did to i ts

detriment. Whilst not involving a FIDIC

Contract the story highlights a totally

incorrect attitude to adopt; in short:

A specialist Contractor asked forassistance, 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 eventsare carried from one project to another

without considering if the events change; if


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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 onedefinition 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 clauseswithin 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.


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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

Employers Requirements (Yellow Bookonly)

If delay is caused or Cost is incurred as a

result of errors in the Employers

Requirements which were not previously

discoverable the Contractor is entitled to

claim:


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 aresult of the Contractor encounteringphysical conditions which areUnforeseeable the Contractor is entitled toclaim:

Cost (only)

Extension of time

It is worth noting that Unforeseeable is adefined term meaning not reasonably


22/44

foreseeable by an experienced contractorby the date for the submission of theTender.

Sub-Clause 4.24 Fossils

If delay is caused or Cost incurred as aresult of the Contractors compliance withinstructions issued by the Engineer to dealwith the discovery of fossils and the likethe Contractor is entitled to claim:

Cost (only)

Extension of time

Sub-Clause 7.4 Testing

If delay is caused or Cost incurred as aresult of testing being delayed by theEmployer or on behalf of the Employer theContractor is entitled to Claim:


Extension of time

Sub-Clause 8.5 Delays caused byAuthorities

If delay or disruption is caused or Costincurred as a result of the actions or nonactions of Authorities the Contractor isentitled to claim:

Cost, with or without profit, appearsnot to have been specificallyconsidered

Extension of time

Sub-Clause 8.9 Consequences ofSuspension

If delay is caused or is likely to be causedor Cost incurred as a result of theEngineers instructions to suspend work theContractor is entitled to claim:

Cost (only)

Extension of time

Sub-Clause 10.2 Taking Over ofParts of the Works

If the Contractor incurs Cost as a result ofthe Employer taking over or using a part ofthe Works the Contractor is entitled toclaim:


Sub-Clause 10.3 Interference withTests on Completion

If delay is caused or Cost incurred as aresult of tests being delayed by a reason

for which the Employer is responsible theContractor, amongst other remedies, isentitled to claim:


Extension of time

Sub-Clause 11.8 Contractor to Search

If the Contractor incurs Cost as a result ofsearching for a defect for which it was not

liable the Contractor is entitled to claim:


Sub-Clause 12.2 Delayed Tests (YellowBook only)

If the Contractor incurs Cost as a result ofcarrying out Tests delayed by the Employeruntil after Completion the Contractor isentitled to claim:


Sub-Clause 12.4 Failure to Pass Testsafter Completion (Yellow Book only)

If the Contractor incurs Cost as a result ofthe Employer delaying access to allowTests to be carried out the Contractor isentitled to claim:



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Sub-Clause 13.7 Adjustments forChanges in Legislation

If delay is caused or is likely to be causedor Cost incurred or likely to be incurred asa result of changes in the Laws of theCountry the Contractor is entitled to claim:

Cost (only)

Extension of time

It is worth noting that Country is a definedterm meaning the Country in which theSite (or most of it) is located, where the

Permanent Works are to be executed.Thus this definition is very limited in thefield of international contracting whereContractors, Suppliers and Sub-Contractorsmay all have originated from Countriesother than where the project is beingcarried out and may suffer as a result ofchanges in legislation.

Sub-Clause 16.1 Cont ractorsEntitlement to Suspend Work

If delay is caused or Cost incurred as aresult of the Contractor properlysuspending work (or reducing the rate ofwork) the Contractor is entitled to claim:


Extension of time

Sub-Clause 19.4 Consequences ofForce Majeure

If delay is caused or Cost incurred as aresult of Force Majeure events theContractor is entitled to claim:

Cost (only) in respect of the eventslisted at Sub-Clauses 19.1 (ii), 19.1(iii) and 19.1 (iv)

Extension of time

The above list is not exhaustive as towhere the Contractor can gain paymentsand/or entitlements within the FIDIC

contracts; the list refers to Sub-Clausesspecifically referring to Cost as defined.

In terms of monetary entitlements, Sub-Clauses not referenced include Evaluation(in respect of the Red Book) and Variationsas well as Payment on Termination wherean alternative set of rules come into being.The provisions of Sub-Clause 8.4 in respectof extensions of time should be thoroughlyconsidered in respect of entitlements to

time extensions.

The subtle differences between thecontents of the listed Sub-Clauses areinteresting if not explainable. The mostinteresting of which may be the addition ornot of a reasonable profit to theContractors Cost.

Contractors will argue that they are notcharities and all expenditure properlyincurred as a result of others deserves /should be required to return a profit.Similarly many of the claim events, had thescope been fully understood at the time oftender by both parties, would have beenincluded within the Contractors bid and theContractor would have had the opportunityto add profit to its foreseen costs.

Contractors and their advisers may wish toseek an adjustment to the definition ofCost when negotiating the Contract in thefuture.

The influence of whether or not a Costattracts profit may also extend to thepreparation of claims for extensions oftime. Whilst many will say that at all timesthe causes of delay should be capable ofbeing clearly identified, this is often not thecase. There is also the propensity forContractors to establish claims around

events that appear to have the best chanceof success or line of least resistance fromthe Engineer; perhaps even a global style


24/44

claim is submitted to gain relief from thededuction of Liquidated Damages.

In any event at some juncture theContractor and the Engineer, or perhaps aDAB or Arbitral Tribunal, have to considerthe causes of delay, establish periods ofextension of time against those causes andlastly establish if there are any monetaryentitlements to accompany those periodsof delay.

The addition, or not as the case may, be ofprofit to a Contractors elements of aprolongation claim maybe considerableamount in these days where mega projectsexist and delays run into years not justdays or weeks. Contractors therefore mayselect, if possible, delay events that couldmaximise their potential financial returns.

In respect of the Contractor declaring itsrequired profit, it is suggested that insteadof waiting until such time as a claim existsand the Employer and itsEngineer/Representative may be seeking tolimit expenditure against claims, theparties follow the lead given by FIDICwithin the MDB Harmonised Edition (thePink Book).

The Pink Book at Sub-Clause 1.2 differsfrom the Red Book by the addition of twoparagraphs, in this context the importantone being:

In these Conditions, provisions including theexpression Cost plus profitrequire this profit to be one-twentieth (5%) of this Costunless otherwise indicated inthe Contract Data.

It will therefore be up to the Contractor toconsider that he may wish to declare ahigher profit than 5% at the pre-contractstage or accept that 5% profit whereapplicable on its entitlements listed withthe Contract. It may be that the

Contractors actual bid margin was lessthan 5% and so it would gladly accept thaton offer.

A further interesting subtlety is the use ornot of the phrase is likely to cause. Itmay have been more prudent upon thepart of the FIDIC drafters, whenconsidering the Employers interests to usethis phrase within all entitlement clausesso as to be consistent with the earlywarning obligations upon the Contractor interms of time within Sub-Clause 4.21 andthe general notice provisions of Sub-Clause

20.1. This may also aid the earlyconclusion of claim issues.

Contractors, when drafting sub-contractsshould take note of the differing provisionswithin the entitlement clauses such thatthe variants, especially in respect of therecovery of profit, are incorporated intoSub-Contracts so as not to cause ashortfall in recovery or lengthy discussionsconcerning the right or otherwise to profit

in respect of claim monies. Although, inpractice it appears that Engineers onlydeny profit on the Contractors element ofa claim.

It is noted that Sub-Clause 11.8 Contractorto Search, does not give a specificentitlement to a time extension albeitcircumstances can be imagined where adelay to completion may occur. Underthese circumstances the Contractor has

two further options to obtain anyentitlement within Sub-Clause 8.4Extension of Time for Completion:

Sub-Clause 8.4(b), where anextension of time may be claimedas a result of any cause under aSub-Clause of the Contract.

Sub-Clause 8.4(e), where anextension of time may be claimed

as a result of any delay impedimentor prevention caused by orattributable to the Employer, the


25/44

Employers Personnel or theEmployers other contractors on theSite.

FIDIC having been thorough in respect ofthe Contractors claims towards theEmployer have not carried through thisthoroughness in respect of claims from theEmployer to the Contractor.

There is no definition of cost relative to theEmployers claims towards the Contractor and therefore it must be left to theEmployers agent or the Engineer, todetermine if profit should be passed on asa legitimate claim item.

Finally, a brief reference was made aboveto claims made under the governing law asopposed to under the Contract. This isobviously an option open to the Contractorhowever, it is considered that claimsproperly made under the Contract will havea greater chance of speedy resolution. Itmay also be quite a time consumingexercise for a Contractor to take thenecessary legal advice before commencinga claim under the governing law. Shouldthis be the case the initial and fatal noticeprovisions of Sub-Clause 20.1 may comeinto play a topic for another article.


26/44

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 andbeyond

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 ofrisk 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 t he 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

Contractors care of the Works, for which it

is fully responsible until such time as theTaking-Over Certificate (or Taking-Over

Certificates in the case of sectional


27/44

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 Employers 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 Worksincluding 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 Employers

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 suggestionperhaps 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.


28/44

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 Employers Personnel or by

others for which the Employer is

responsible the Silver Book

foresees the Contractor beingresponsible 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 ofnature 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

Employers Risks noted within Sub -clause

17.3 result in loss or damage to the Works,

Goods or Contract ors 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 providesprotection 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 20.1applies to claims made under this clause


29/44

(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 bestated 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 theContractors liability towards the Employer

relative to the Contractors 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),

Employers 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 applyare invited to consider that the contract,


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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 eventthat 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 underthe Red Book rests with the Employer,


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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 orany 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 Contractors cash flow may beprotected 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 differgreatly 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 onemore major factor to be considered in


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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 (orEmployer 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 withinClause 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.


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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

appl