Background

In December 2021, at the online International Contract Users Conference, the Fédération Internationale Des Ingénieurs-Conseils ("FIDIC") launched its Second Edition of the Conditions of the Short Form Contract (the "Green Book") as an update to the First Edition. The release of the Second Edition comes 22 years after FIDIC released its First Edition in 1999.

The Green Book form is recommended for general use for the construction of building or engineering works, whether partially or wholly designed by the Employer or Contractor. Under this form, pricing is a matter of choice for the Parties, with options ranging from lump sum, re-measurement and cost reimbursable. Historically, FIDIC recommended the use of the Green Book for 'engineering and building works of relatively small capital value', or for contracts of greater value requiring 'fairly simple or repetitive work or works of short duration'. That has changed. FIDIC state that market feedback over the last 22 years has revealed significant use of the Green Book on projects of a capital value exceeding USD 10 million and of Time for Completion beyond two years. For this reason, the Second Edition Green Book is positioned as an alternative to the FIDIC 2017 Conditions of Contract for Building and Engineering Works designed by the Employer (the "2017 Red Book") and the FIDIC 2017 Conditions of Contract for Plant and Design-Build (the "2017 Yellow Book"). In seeking to achieve this objective, the Green Book has undergone significant revision; however, it nevertheless maintains FIDIC's fundamental principles of balanced risk sharing.

What are the key changes to the FIDIC Green Book?

  • The inclusion of the Engineer: Clause 3 (Employer's Representatives) has been replaced in its entirety by a new Clause 3 (Engineer), which, in contrast to the First Edition, provides for an Engineer to be appointed by the Employer to act on its behalf under the Contract. As under the 2017 Red and Yellow Books, the Engineer is given the responsibility for certification, administration and supervision. A new Sub-Clause of note is Sub-Clause 3.5 (Agreement or Determination), which prescribes the procedure for the Engineer to determine any matter or claim. Sub-Clause 3.5 is similar to Sub-Clause 3.7 of the 2017 Red and Yellow Books, since it imposes a positive obligation on the Engineer to act 'neutrally' between the Parties and provides that the Engineer shall not be deemed to act for the Employer when issuing a determination.
  • Exceptional Events: The definition of 'Exceptional Events' (Sub-Clause 1.1.23) is aligned with the 2017 Red and Yellow Books, and it is similar to the definition of 'Force Majeure' found in the First Edition. Sub-Clause 13.2 (Force Majeure) of the First Edition has also been replaced by new Sub-Clause 6.6 (Exceptional Events). Whilst these Clauses are similar, there are some notable changes. For example, the execution of substantially all the Works in progress must be prevented for a continuous period of 84 days by reason of the Exceptional Event, or for multiple periods that total more than 140 days, before a notice of termination on account of the Exceptional Event can be given. Under the First Edition, notice could be issued if the event simply continued for a period of 84 days. Termination now takes effect seven days after a notice of termination on account of the Exceptional Event is received by the other Party, whereas under the First Edition, termination took effect 28 days after the giving of notice.
  • Limitation of liability: The Contractor's total liability is now capped at the sum stated in the Contract Data or (if a sum is not stated) the Contract Price in the Contract Agreement (other than under Sub-Clause 11.3 (Indemnities)). Additionally, neither Party will be liable for indirect or consequential loss except as expressly stated (Sub-Clause 1.10 (Limitation of Liability)). This is a significant change from the First Edition, which did not contain any limitation of liability provision or any exclusion for consequential loss.
  • Indemnities: The Second Edition contains a new indemnities provision that requires each Party to indemnify the other and its personnel against all third-party claims, damages, losses and expenses (including legal fees and expenses) in respect of personal injury/death, property damage and intellectual property infringement (Sub-Clause 11.3 (Indemnities)). An indemnities provision was absent from the First Edition.
  • Employer's Risks and Contractor's Entitlements (Sub-Clause 11.1 (Employer's Risks and Contractor's Entitlements)): As noted above, the Second Edition maintains FIDIC's fundamental principle of balanced risk sharing, and the risk allocation broadly follows the risk allocation in the 2017 Red and Yellow Books; however, the consequences of the Employer's Risks in the Second Edition differ from the equivalent provisions found in the First Edition. Under Clause 6 of the First Edition, if any of the 'Employer's Liabilities' occurred, the Contractor was entitled to an EOT (Sub-Clause 7.3) and Cost (Sub-Clause 10.4). Under the Second Edition, the Employer's risks and the corresponding Contractor entitlements are now set out in tabulated form, and include:
    • Exceptional Events:
      • Exceptional Events that cause loss and/or damage to the Works, Goods or Contractor's Documents, which, if an instruction is given by the Engineer to rectify the loss and/or damage, will give rise to a Contractor's entitlement to Cost Plus Profit and/or an EOT as a Variation (Sub-Clause 11.1.3(a));
      • A 'man-made Exceptional Event' (for consequences other than loss and/or damage covered above) preventing the Contractor from performing its obligations under the Contract (Sub-Clause 11.1.3(b)). If the Exceptional Event occurs inside the Country, or in the case of war (whether declared or not) and similar Exceptional Events, whether they occur inside or outside the Country, this will give rise to a Contractor's entitlement to Cost and/or an EOT. If the Exceptional Event (other than war or other similar Exceptional Events) occurs outside the Country, the Contractor's entitlement will be limited to an EOT only; and
      • A 'natural Exceptional Event' (for consequences other than loss and/or damage covered above) preventing the Contractor from performing its obligations under the Contract, in respect of which the Contractor's entitlement will be limited to an EOT only (Sub-Clause 11.1.3(c)).
    • Unforeseeable Physical Conditions (natural physical conditions and physical obstructions, including topographic, sub-surface, hydrological and environmental conditions) encountered at Site, but excluding climatic conditions, will give rise to a Contractor's entitlement to Cost and/or an EOT (Sub-Clause 11.1.3(e));
    • Unforeseeable adverse Climatic Conditions at the Site, in respect of which the Contractor's entitlement will be limited to an EOT only (Sub-Clause 11.1.3(f));
    • Unforeseeable delay by local authorities, in respect of which the Contractor's entitlement will be limited to an EOT only (Sub-Clause 11.1.3(g));
    • Any change in Law in the Country made after the Base Date, or any change in the judicial or official governmental interpretation of these Laws, which adversely affects the Contractor in the performance of its obligations under the Contract, will give rise to a Contractor's entitlement to Cost and/or an EOT (Sub-Clause 11.1.3(h)); and
    • Any 'delay, impediment or prevention caused by or attributable to the Employer or the Employer's personnel, or any other failure of the Employer or the Employer's personnel to fulfil their obligations', which will give rise to a Contractor's entitlement to Cost Plus Profit and/or an EOT (Sub-Clause 11.1.3(j).
  • Suspension: The Engineer has the power to instruct the Contractor to suspend the Works, and the Contractor now also has the right to suspend the Works in certain circumstances if an Engineer or Employer default is not remedied generally within 14 days of a Contractor notice (Sub-Clause 10.1). This is a change from the First Edition which simply provided that the Contractor must comply with an Employer's instruction, inter alia, to suspend all or part of the Works (Sub-Clause 2.3).
  • Termination For Convenience: In line with the 2017 Red and Yellow Books, the Employer is now permitted to terminate the Contract for convenience (Sub-Clause 10.2.4); an equivalent right did not exist for the Employer under the First Edition. If the Employer has terminated for convenience under Sub-Clause 10.2.4, the Contractor is entitled to the Cost of the Contractor's demobilisation, and any other Cost or liability which, in the circumstances, was reasonably incurred by the Contractor in the expectation of completing the Works, as well as an amount equivalent to 10% of the value of those parts of the Works not executed at the date of termination (Sub-Clause 10.41(c)(i) and (ii)).
  • New claims procedure without time bars: Clause 13 (Claims) prescribes a new claims procedure that applies to both Employer and Contractor claims. Whilst Clause 13 includes time limits to be complied with by the claiming Party, unlike the other FIDIC forms, FIDIC expressly state that there are no time bars associated with such limits. Instead, any failure to comply with such time limits is to be taken into account in respect of any entitlement to relief to the extent that such failure has prevented or prejudiced the proper investigation of the claim, and/or mitigation of its effects (Sub-Clause 13.2.2).
  • Dispute resolution and avoidance: The Second Edition requires the Parties jointly to appoint an Adjudicator within 28 days after the date the Contract comes into effect. A decision by the Adjudicator is binding on the Parties (Sub-Clause 14.1.5) and a failure to comply with a decision can be referred directly to arbitration (Sub-Clause 14.1.6). Unlike the First Edition, the Adjudicator can provide informal assistance; however, neither Party will be bound by any such opinion (Sub-Clause 14.1.2). Sub-Clause 14.2 (Arbitration) provides for disputes to be finally settled by an arbitral tribunal composed of a sole arbitrator operating in accordance with the International Chamber of Commerce (ICC) Expedited Procedure Provisions (i.e. fast track arbitration within six months).

The release of the Second Edition Green Book is a welcome addition to the FIDIC Suite of Contracts. The First Edition was widely used in the global construction market; however, the form omitted certain of the basic contractual features found in the other FIDIC forms, such as indemnities, a limitation of liability, and a right for the Employer to terminate the Contract for convenience.

FIDIC has positioned the Second Edition Green Book as an alternative to the FIDIC 2017 Red and Yellow Books, and recommends its use where the Works are wholly or partially designed by either the Employer or the Contractor. However, in light of the absence of detailed testing provisions and performance guarantees, it is anticipated that the Second Edition Green book will be more readily utilised where the Works are wholly or mainly designed by the Employer.