In December 2017, FIDIC published the second edition of the Red Book (Conditions of Contract for Construction), Yellow Book (Conditions of Construction for Plant and Design Build) and Silver Book (Conditions of Contract for EPC Turnkey Projects) (“2017 FIDIC Suite”). This is an update of the previous editions which were published in 1999.
The 2017 FIDIC Suite is stated by FIDIC to continue the principles of balanced risk sharing while seeking to build on the user experience and to modernise the contracts. The amendments are extensive. Some of the key changes are summarised below but the key thing to bear in mind is that the FIDIC Suite is now more prescriptive.
Extensions of time:
- A new provision has been included to deal with concurrent delay. Clause 8.5 provides that the Contractor’s entitlement to an EOT shall be assessed in accordance with any rules or procedures provided for by the parties in the Special Provisions of the Particular Conditions, or if none are so stated “as appropriate taking due regard of all relevant circumstances”. It is unclear what these words actually mean in practice.
- The exceptionally adverse weather provision has been altered so that the Contractor’s entitlement to an extension of time is limited to Unforeseeable adverse climatic conditions at the Site.
- There is a procedure dealing with the Engineer’s ability to request a proposal for a Variation and how the Contractor must respond to this.
- The procedure for instructed variations is not entirely new but the update is much more prescriptive as to what the Engineer and Contractor have to do than was previously the case.
- If the Engineer does instruct a Variation, the Contractor must within 28 days of the Notice (or other period agreed) submit certain information to the Engineer. The information which must be provided by the Contractor is more detailed.
- Sub-Clause 3.7 introduces new procedures and time limits for determining the EOT and price adjustment. The Engineer is to encourage the parties to reach agreement within a time limit of 42 days. If the parties fail to agree, the Engineer has a further time limit of 42 days to make a fair determination. Where the Contractor is dissatisfied wtih the determination, the Contractor has to give a Notice of Dissatisfaction within 28 days after receipt of the Engineer’s determination, failing which the determination is final and binding.
- There is a new reference to using a Schedule of Rates for valuing Variations (where there is one).
- There are greater circumstances where the Contractor can object to a Variation.
- Sub-Clause 3.5 now includes a mechanism by which the Contractor can clarify that it considers an instruction to amount to a Variation or raise the fact that the instruction does not comply with applicable Laws. The Contractor can give a Notice to the Engineer with its reasons. The Engineer has 7 days to respond following the Notice, failing which the instruction is deemed to be revoked.
Liability and indemnities:
- The limitation of liability clause is relocated to the front of the contract at Sub-Clause 1.15. There are more carve outs to the exclusion of liability for loss of profit, loss of use, loss of contract or any indirect and/or consequential loss e.g. delay damages. Parties should pay close attention to the carve outs to ensure that they are appropriate for the project. In relation to the total cap on liability of the Contractor, provisions have been inserted to make it clear that limitations of liability will not apply in the case of fraud, gross negligence, deliberate default or reckless misconduct. So, for example, delay damages will not be capped in these circumstances.
- There has been a clarification in respect of the fitness for purpose obligation at Sub-Clause 4.1. The works must now be fit for the purpose as defined in the Employer’s Requirements rather than the Contract. Where no purpose is specified, the works must be fit for their “ordinary purpose”. Employers should take care to specify the purpose prescriptively if they have particular requirements in mind.
- The new indemnity provisions include more indemnities going back to the Contractor so as to introduce more reciprocity.
- There is a significant new indemnity given by the Contractor in respect of all acts, errors and omissions by the Contractor in carrying out the design obligations that results in the Works, when completed, not being fit for purpose. Although, Sub-Clause 1.15 makes it clear that the Contractor is not liable for loss of profit, loss of use, loss of contract or any indirect and/or consequential loss which arises as a result of such breach, and as noted above there is an overall cap on the Contactor’s liability, this is still an onerous new obligation. Contractors will need to discuss this provision with their insurers and watch out for attempts to amend the exclusion at Sub-Clause 1.15.
- There is a new definition of Exceptional Events – these replace the old form of “Force Majeure” (and it should be noted that some of the Exceptional Events contain parts of the old “Employer’s Risks”).
- The entire claims procedure has become mutual, i.e. the same procedure now applies for claims of both, the Contractor as well as the Employer.
- If one party considers itself to have a claim for payment and/or extension of time, the new Sub-Clause 20.2 requires such party to submit a ‘Notice’ latest within 28 days. Failure to give such ‘Notice’ in time will generally result in a loss of such claims.
- A ‘Notice’ must be identified as such, i.e. a valid ‘Notice’ cannot be given within any other communication not expressly identified as ‘Notice’
- While the further procedure once a ‘Notice of Claim’ is made still requires the Engineer to agree or determine a matter or claim, the respective provisions in Sub-Clause 3.7 of the 2017 FIDIC Suite (Sub-Clause 3.5 in the Silver Book) are far more detailed and formalistic. Failure to comply with the respective requirements may - again - result in a loss of claim.
Disputes and Arbitration:
- Clause 20 of the 1999 FIDIC Suite which covered the multi-tier dispute resolution provisions has been divided into two parts in the 2017 FIDIC Suite. Clause 20 now solely deals with Claims whereas Clause 21 covers Disputes and Arbitration.
- The Dispute Adjudication Board (DAB) of the 1999 FIDIC Suite has been changed into a Dispute Avoidance/Adjudication Board (DAAB), the latter now being a standing DAAB in the Yellow and Silver Book, as already stipulated in the Red Book, rather than an ad-hoc DAB. The DAAB shall now be appointed within 28 days following contract signature unless the parties agree otherwise.
- There is now more emphasis on amicable settlement - parties can ask the DAAB to provide assistance and/or informally discuss and attempt to resolve any issue or disagreement.