The FIDIC forms of contract, the Yellow Book  in particular, are commonly used in the UK for  the procurement of offshore construction works.  Despite their widespread use, surprisingly few  disputes involving FIDIC contracts have reached  the English courts. A TCC case published in April  2014 is an exception. Although it concerns onshore  works it has implications for any offshore project  using FIDIC contracts.

Spanish contractor Obrascon Huarte Lain SA  (“Obrascon”) entered into a contract based on the FIDIC  Yellow Book with the Gibraltar government (“Gibraltar”)  for the design and construction of a tunnel under the  runway at Gibraltar airport. It did not go well. Two and  a half years into the two year contract, with only 25% of  the work completed, Gibraltar terminated the contract.  Obrascon claimed the termination was unlawful and that  it was entitled to an extension of time due to the quantity  of contaminated ground found on the site.

The contract provided that Obrascon could claim an  extension of time if the ground conditions encountered  could not reasonably have been foreseen by an  experienced contractor at the tender date. Obrascon  relied heavily on reports that Gibraltar provided  during the tender process to claim that the extensive  contamination (by lead and hydrocarbons) actually  encountered was not reasonably foreseeable. The  court rejected these arguments. The court found  that it was obvious from records that the site for the  tunnel had previously been used as a rifle range and  then a fuel store. Therefore the type of contamination  encountered was entirely foreseeable. The court noted  that, “what was needed and could have been expected  from experienced contractors was some intelligent  assessment and analysis”.

The court also considered what level of failure on  the part of Obrascon would be required to entitle  Gibraltar to terminate. It concluded that “termination  must relate to significant and more than minor  defaults”. What is significant and what is minor  will depend on the particular facts of each case.  However, in deciding where the balance should lie, “a  commercially sensible construction [of the contract’s  terms] is required”. On the facts, Gibraltar was  entitled to terminate both because of Obrascon’s  failure to proceed with the works with due expedition  and without delay and because Obrascon had plainly  demonstrated its intention not to continue with the  performance of its obligations.

Finally, the court found that Obrascon was time barred  from making certain of its claims for extensions of time  because it had failed to comply with the time period  specified in the contract.

This case decided no new law. However, it is useful  guidance on how the courts are likely to interpret FIDIC  contracts.