Investment from Governments and foreign investors in infrastructure across Africa continues to increase. The FIDIC standard forms of contract are already widely used within Africa for such projects.
At a recent conference in London, a pre-release version of the first major revision to the Yellow Book since 1999 was launched. The final version is due to be published later in 2017 and there are some significant changes on the horizon which will affect its use in the African market - particularly the provisions which give greater emphasis to project management and describe a strict and detailed procedure for the notification of claims and disputes. The draft FIDIC 2017 Yellow Book has seen the 20 General Conditions increase from 63 pages to 108 pages, but this article will focus on the following fundamental changes:
- The role of the Engineer (clause 3);
- Early warning (clause 8); and
- Claims, Time Bars and Disputes (clause 20).
In short, the Yellow Book is recommended for the provision of electrical and/or mechanical works as well as the design and execution of building or engineering works. In the ordinary course, the contractor designs and provides, according to the employer's requirements, plant and/or other works which may include a combination of civil, mechanical, electrical and/or construction works.
Construction by its very nature involves risk. The African construction industry has its own share of risks, which include, amongst other things, inadequate budgets for design, insufficient authority of the site representatives for an early settlement of disputes and delayed processing of payments by government and private funding agencies.
In this regard, one finds that the design and build contractor generally has strong financial funding and an efficient contract administration department, which includes an on‐site claim consultants team. If and when serious contractual issues arise resulting in protracted disputes and/or lengthy negotiations taking place with the employer, a large contractor is still able to execute the works, even with cash flow difficulties. However, more often than not it is a medium size contractor who wins the work due to government budget constraints on the project and an overall weak African economic climate. As such, the medium‐sized contractor usually has to resolve his cash flow problem with private funding agencies, affecting the timeous completion of the works.
The proposed updates to the FIDIC Yellow Book discussed below will go some way to addressing these issues by contributing to a better understanding and management of the contract process.
The role of the Engineer
In clause 3, the role of the Engineer has changed in many respects. Not only does the Engineer's assistant (which must be distinguished from the addition of the Engineer's Representative) need to be fluent in the ruling language but also the Engineer himself. As mentioned, there is the addition that the Engineer may appoint an Engineer's Representative and delegate to him the necessary duties, authority and attend to site when the Engineer cannot. The wording suggests that the Engineer's Representative is on site for the entire duration of the project. However, what is unclear at this stage is whether the Engineer's Representative will have the authority to make Determinations.
One would assume that the Engineer's Representative can make determinations; otherwise it would appear that there is no substantial differentiation between the Engineer's assistant and the Engineer's Representative. Lastly, the Engineer has the duty to encourage the parties to settle claims. In this process, the Engineer is said to be acting "neutrally" and not acting on behalf of the Employer. According to the authors, the word "neutrally" in this context is not to be understood as meaning "impartial" or "independent". The word "neutrally" has not been defined and will no doubt become the subject of many discussions.
Similar to the NEC3 and the FIDIC gold book, the FIDIC Yellow Book has introduced a provision in clause 8 for early warnings. The early warning is a mechanism whereby either party can notify the other of any foreseeable problem which could have an effect on the works, and ultimately the cost and delay of the works. The purpose of the early warning is not to decide who is responsible for the foreseeable problem, but rather to determine how the parties can work together to resolve the issue and avoid a claim or dispute arising. At this stage, it is unclear as to what process must be followed once an early warning notice has been issued.
Claims, disputes and arbitration
has resulted in a merger of the previous sub‐clause 2.5 and 20.1. Similar again to the NEC3, the claims procedure set out in the revised Yellow Book has become administrative intensive and is now one of the longest clauses in the contract totalling approximately three pages. Previously, the Employer was only required to give notice and particulars of a claim to the Contractor "as soon as practicable", once he became aware of an event or circumstance which may give rise to a claim. The revision aligns both the Employer and the Contractor to give notice of a claim within 28 days of becoming aware of the event or ought to have become aware of the event. The change to these provisions is obvious, the reason being that the current claims procedure appears to be one‐ sided and slightly prejudicial to the Contractor.
Furthermore, the Employer is now required to provide a detailed analysis of his claim, setting out the particulars of the claim, explanation of the event and the quantum of such claim. The Employer is required to do so within the same prescribed period in which the Contractor is required to submit his claim, being 42 days after the claiming party becomes aware or ought to have become aware of the event giving rise to the claim.
The Dispute Adjudication Board has been amended to the "Dispute Adjudication/Avoidance Board". The revision to the Yellow Book welcomes the inclusion of an additional clause whereby the parties can jointly refer a matter to the DAB in writing, to provide assistance to informally discuss and attempt to resolve any issue or disagreement that has arisen between the parties during the contract. This provision will certainly assist in avoiding disputes reaching the formal adjudication stage.
The purpose behind the revision of the FIDIC 1999 Rainbow Suite and specifically the Yellow Book is to achieve greater reciprocity between the Employer and Contractor, to incorporate international best practice and to reflect the changes in the construction industry. Employers should be made aware of the administrative requirements that they will be required to manage in order to ensure compliance with the stringent claims procedure. The role and authority of the Engineer's Representative currently remains unclear.
The updated FIDIC Yellow Book is now drafted with the intention of attempting to minimise risk and also properly allocating risk to the relevant contracting parties, regardless of their size and role within the construction industry.
As investment and construction continues to develop rapidly in Africa, it appears that the revised Yellow Book will be in the hot seat and implemented shortly. FIDIC is used widely throughout Africa and Eastern Europe as it caters to a variety of legal systems. Once the final revision of the Yellow Book is published, contract negotiations and compliance with the revised provisions will undoubtedly become interesting.