In December of last year, FIDIC (Fédération Internationale des Ingénieurs-Conseils) presented new editions of the so-called Red, Yellow and Silver Books, its iconic forms of contract for the construction industry. Construction law practitioners around the world had been eagerly looking forward to this early Christmas gift as the previous versions dated from 1999. While some typical aspects of the FIDIC contracts such as the allocation of risks and obligations between the parties have remained largely the same, some of the changes deserve a closer look.
What are the FIDIC Books?
The forms of contract offered by FIDIC are used by public and private employers around the world As a result, they have contributed to a large extent to the harmonization of contracting in the construction sector.
There is an ever-increasing number of different FIDIC forms. The different forms are named by reference to the color of their cover. Probably the most well-known are:
- the Contract for Construction (Red Book);
- the Contract for Plant & Design-Build (Yellow Book); and
- the Contract for EPC / Turnkey Projects (Silver Book).
Although the different Books share the majority of the clauses, the allocation of risks and obligations between the ‘Employer’ and the ‘Contractor’ is specific to each Book. A key role is played by the ‘Engineer’ under the Red and Yellow Books. The Engineer acts for the ‘Employer’ but is also given certain determination rights.
What is the purpose of the 2017 amendments?
With the 2017 editions, FIDIC wished to tackle a number of issues which the previous versions had been criticized on in the past. First of all, the 2017 editions aim to provide greater detail on the process in relation to notices and communications. Much attention also went into the process on claims by the parties under the contract. More detailed mechanisms are set up to deal with claims between the parties, in order to avoid them from escalating and achieving dispute status. FIDIC also wanted to help parties manage their often challenging projects by adding quality management and compliance monitoring tools.
What are some of the remarkable changes?
- The various provisions on notices and communications under the contract are substantially more elaborate. The nature of a notice must be expressly mentioned and communications must refer to the provisions of the contract pursuant to which they are issued. There is an increased use of time-bars and the consequences of missing a time-bar are expressly indicated.
- As with the previous versions, the 2017 editions of the Red and Yellow Books confirm that the Engineer is deemed to act for the Employer. However, when exercising his specific powers in the framework of the determination of a claim, he must act neutrally. The process in relation to determination has been substantially elaborated. Determinations by the Engineer are provisionally binding on the parties and after set time-bars, they become finally binding.
- Existing project management tools such as progress reports and programs reflecting the progress of the works, have either been elaborated or new ones have been added, including management meetings, clauses in relation to advance warnings and the obligation for parties to keep “contemporary records” after having launched a claim.
- Provisions on claims by the parties and dispute settlement have been clearly separated from one another and elaborated. The Dispute Adjudication Board of the 1999 editions has been promoted to a Dispute Avoidance/Adjudication Board (DAAB), a standing committee whose members must be appointed shortly after the contract is formed. The DAAB procedure provides for additional opportunities to informally settle disputes.
Many commentators have been quick to criticize the 2017 editions, mainly for their additional complexity and length. We do not entirely share their view. The increased length and complexity will inevitably require more attention when drafting particular conditions, i.e. derogations from the general conditions. However, the clarifications may solve a number of long-standing issues, for example when one party blocks the appointment of the members of the Dispute Avoidance/Adjudication Board.
Also, it took the sector years to gain sufficient trust to adopt the 1999 editions on a wide scale. While we may see a similar gradual adoption for the 2017 editions, nothing prevents contracting parties from already including at least part of the new and more elaborate 2017 wording in their particular conditions. Such partial adoption may pre-empt some of the issues parties are currently facing under the 1999 editions.