On 5 December 2017, the International Federation of Consulting Engineers (FIDIC) published new editions of its suite of contracts, reflecting long-awaited responses to the changing needs of the construction industry. Given its general dominance in the Middle East, the changes to the 1999 FIDIC “Red Book” will be of interest to employers, contractors, and engineers operating in the region. While effectively every clause in the FIDIC Red Book has been amended in the new edition, this briefing focuses on our view of the Top 7 with the greatest impact on employers and contractors alike.
Notices (Cl. 1.3): The 2017 Red Book includes notice requirements in approximately 80 places. The term ‘Notice’ is now defined and distinguished from other forms of communication; whereas the latter must reference the clause under which it is issued, a Notice does not. In addition, all Notices and communications must “not be unreasonably withheld or delayed.”
Profit (Cl. 1.1.20, 13.3 & 15.6): In terms of Cost Plus Profit for relief events, unless stated otherwise, a Contractor will be entitled to a 5% profit (while under the 1999 Red Book, there was no stated figure). The 2017 Red Book also specifically entitles the Contractor to “any loss of profit or other losses and damages suffered” for variations and termination for convenience.
Exceptional Event (Cl. 18): Force majeure is now called “Exceptional Event,” but the risk allocation remains the same.
Advance Warning (Cl. 8.4): For the first time, the 2017 Red Book introduces advance warning provisions, which require each Party to advise the other “in advance of any known or probable future events which may (a) adversely affect the work of the Contractor’s Personnel; (b) adversely affect the performance of the Works when completed; (c) increase the Contract Price; and/or (d) delay the execution of the Works or a Section (if any).” There is no time limit for giving an advance warning, nor is there any explicit sanction for failing to do so.
Extension of Time (Cl. 8.5): At least four important changes have been made to the EOT provision. First, unlike the 1999 Red Book, the Contractor is not required to give a separate notice of a claim for an EOT for a delay caused by a Variation (as this notice has been built into the Variation clause at 13.3). Second, delay for “exceptionally adverse climatic conditions” has been qualified to be “Unforeseeable having regard to climatic data.” Third, the Contractor has an explicit entitlement to an EOT if the delay is caused by an increase of more than 10% of an estimated quantity. Fourth, the clause specifically contemplates the parties adopt provisions in respect of concurrent delay.
Claims (Cl. 20): The provisions relating to Claims and Disputes have been separated and redrafted substantially. Clause 20 (Claims) sets out a procedure for (a) Employer Claims (“additional payment from the Contractor (or reduction in the Contract Price) and/or to an extension of the DNP”); (b) Contractor claims for “additional payment from the Employer and/or to EOT”; and (c) either Party for “another entitlement or relief against the other...of any kind whatsoever…except (a) and (b).” Notably, the existing 28-day time requirement for notifying claims now applies to the Employer as well, and the old 42-day timeframe for the “fully detailed claim” has been increased to 84 Days.
DAAB (Cl. 21): The newly introduced “DAAB,” which stands for “Dispute Avoidance / Adjudication Board” (in contrast to the previous “DAB”), brings with it a number of important procedures. First, unless the Parties agree otherwise, the DAAB members are to be appointed within 28 days after the Contractor receives the Letter of Acceptance; there are also detailed procedures for resignation, termination and new appointments. Second, the DAAB may provide “Informal Assistance” if jointly requested by the Parties, who are not bound to act on the DAAB’s advice. Third, in terms of time-bars (a) the DAAB must give its decision within 84 days after receiving the reference; (b) a Party must refer a Dispute to the DAAB within 42 days after giving or receiving a Notice of Dissatisfaction with the Engineer’s determination; and (c) a Party that is dissatisfied with the DAAB’s decision must give an NOD to the other within 28 days or else the decision becomes final and binding on both Parties. Fourth, arbitral tribunals are empowered to order the enforcement of a DAAB decision, by way of summary or other expedited procedure, whether by an interim or provisional measure or award.
It is clear that the drafters of the new edition have gone to great lengths to address previous criticisms from users, including greater emphasis on dispute avoidance. While the new edition is more rigid and prescriptive than its predecessor (not to mention, nearly double the length), which is likely to put more pressure on employers and contractors to ensure they comply, the overall risk allocation remains generally the same. Given its early days, it remains to be seen whether regional owners and contractors adopt the 2017 Red Book or stick with its 18-year-old predecessor.