On 13 September 2007 in Singapore, FIDIC launched a new form of contract for Design Build and Operate (“DBO”) projects. FIDIC intend to publish a formal First Edition towards the end of 2008. The publication of the new contract, being as it is the first major standard form for DBO projects, is of considerable interest of itself. However, as Jeremy Glover1 discusses, examination of the new clauses bears a wider interest as it may reveal the direction FIDIC is looking to move towards in respect of its suite of contracts as a whole.
The new draft contract retains the standard FIDIC 20 Clause format and is intended to supplement the existing forms of contract, namely:
- The Conditions of Contract for Construction – the Red Book;
- The Conditions of Contract for EPC Turnkey projects – the Silver Book; and
- The Conditions of Contract for Plant and Design-Build – the Yellow Book.
The new DBO form will be known as the “Gold Book”. This is probably because many of the provisions in the contract have been adapted from the existing Yellow Book. Indeed, the need for the DBO form arose out of recognition by FIDIC that for concession contracts in the transport and water/waste sectors, the market typically used the existing FIDIC Yellow Book with operations and maintenance obligations tagged on. FIDIC recognised that this was unsatisfactory and prepared the new form in order to achieve a degree of uniformity, and therefore it is hoped, a higher degree of certainty.
Under the DBO form, the contractor (who, given the size of these projects, will typically be in the form of joint venture or consortium) will be responsible for:
- designing and constructing the works during the design-build period; and
- operating and maintaining the facilities for a 20 year period once the facility has been handed over with the issue of the Commissioning Certificate.
However, the contractor will have no responsibility for the financing and ultimate commercial success of the project.
Dispute resolution, time bars and early warning notices
Given FIDIC’s stated desire for conformity, the changes to the dispute resolution provisions to be found at clause 20 are of particular interest as it is entirely possible that they will lead to amendments to the other existing FIDIC forms. In this regard, it is important to note that the difference in the way in which employer and contractor claims are treated remains. Clause 20 refers to contractor claims, whereas claims made by the employer are dealt with by clause 2.5. Therefore, the contractor remains bound by the condition precedent to be found in clause 20.1 whereby it must give notice of any event or circumstance giving rise to a claim “not later than 28 days after the contractor became aware, or should have become aware, of the event or circumstance” giving rise to a right to claim. In contrast, where the employer has a claim, it must give notice “as soon as practicable” after it becomes aware of the event or circumstance giving rise to that claim. Whilst the rationale for this difference in treatment is presumably that in the majority of, if not all, situations, the contractor will be (or should be) in a better position to know what is happening on site and so will be much better placed to know if a claim situation is likely to arise than an employer. To those on the contracting side, this distinction remains unfair and contrary to the generally regarded view that the contract adopts an even-handed allocation of risk.2
On the other hand, the obligation set out by clause 8.4 is on both parties. The clause introduces, for the first time in a FIDIC contract3, a requirement that both employer and contractor “endeavour to” advise the other of any circumstances of which they are aware which may adversely affect the project, e.g. increase the Contract Price or cause delay.
Therefore contractors will be interested by the new words, included in clause 20.1(a), which as set out in our article on time bars (see pages 34-35), represent a softening of the condition precedent. Clause 20.1(a) now enables a contractor to submit to the dispute board, the details of any circumstances which may justify the late submission of a claim. The clause provides that if the dispute board considers that the circumstances are such that the late submission was “acceptable”, the dispute board may override the condition precedent. No definition of “acceptable” has been given, so a contractor is still best advised to operate as if the 28-day limit strictly applies. However, there is now some degree of latitude. In addition, a further new clause, 20.4 headed “Avoidance of Disputes”, has been introduced. This clause states as follows:
“If at any time the Parties so agree, they may jointly refer a matter to the DAB in writing with a request to provide assistance and/or informally discuss and attempt to resolve any disagreement that may have arisen between the Parties during the performance of the Contract. Such informal assistance may take place during any meeting, site visit or otherwise. However, unless the Parties agree otherwise, both Parties must be present at such discussions. The Parties are not bound to act upon any advice given during such informal meetings, and the DAB shall not be bound in any future Dispute Resolution process and decision by any views given during the informal assistance process, whether provided orally or in writing.
If a dispute of any kind whatsoever arises between the Parties, whether or not any informal discussions have been held under this Sub-clause, either Party may refer the dispute in writing to the DAB according to the provisions of Sub-Clause 20.5...”
Therefore, it can be seen that FIDIC is following the worldwide trend to encourage dispute avoidance. This is a trend to be found in Abu Dhabi where the Emirate has finally introduced a form of the 1999 Red and Yellow Books.4 Thus for the first time the Middle East, having for many years resisted such a change in favour of the 1987 Old Red Book FIDIC 4th Edition, has recognised and adopted the Dispute Board concept. And whilst clause 20 does not go as far as the Gold Book, the standard amicable settlement clause to be found at clause 20.5 has been expanded to include the right, at any time, for either party to refer a dispute to independent management review, those senior managers then being required to endeavour to reach a settlement.
Clauses 17-19: risk and insurance
There has also been a number of changes made to clauses 17-19. The insurance clause has been moved to 19, whilst clause 17 (formerly risk and responsibility) has been renamed “risk allocation”. The “force majeure” clause that was previously clause 19 has been dropped and replaced with a new clause 18 headed “exceptional risks”. The main change in this revised approach to the way in which risks and insurance are treated has been to set out in a much more detailed and precise way, the risks which the employer and contractor are to bear. That said, the definition of “exceptional risk” is very similar to the definition of force majeure previously to be found in clause 19 of the 1999 forms. Now, clause 17 details risks borne by each party and takes care to differentiate between the risks during the two project periods. If risks occur which are either exceptional or the responsibility of the employer, the contractor is entitled to an extension of time and payment of costs during the design-build period. However, as the operation service period cannot be extended, naturally enough, the contractor will only receive cost if these risks occurred during that time.
We have written before about Project Mediation5, a collaborative process designed to manage the risk of disputes by focusing on dispute avoidance, project knowledge and the participation of all parties during the project. The new steps proposed by FIDIC do not go that far, but they do, if formally adopted, represent an acknowledgement by the FIDIC of the potential advantages to be gained by adopting a collaborative approach to dispute resolution.