The current standard form FIDIC contracts were issued in 1999. FIDIC aims to publish revised versions of its contracts this year and has started with the Yellow Book.
HFW has sponsored the FIDIC conferences in London and the Middle East for the last three years. This is an interesting time for the FIDIC forms of contract.These contracts are very widely used internationally, in particular in the Middle East, Africa and South East Asia. They are also becoming increasingly commonly used on UK projects, with off-shore wind farm projects commonly let under amended Yellow Book contracts.
At the recent FIDIC conferences, in London in December 2016 and Abu Dhabi in February 2017, a pre-release version of the new 2017 Yellow Book was made available for delegates. FIDIC has decided to start with a revised version of the Yellow Book, which has been circulated as a means of attracting industry comment, before finalisation later this year. The plan is to also publish revised versions of the Red and Silver Books later this year.
The new contract has provoked considerable discussion and Max Wieliczko and I gave a talk at the most recent conference on issues arising in relation to the variations clause under the new Yellow Book.
The new contract introduces more structured, but complex, processes. These aim to get disputes resolved as the project goes along. As with the NEC forms of contract, these systems inevitably require the parties to undertake more contract administration during the project. The potential downside is that the contract mechanisms may be too complex for certain projects with the risk that they are not followed, potentially leading to greater uncertainty. The new approach to variations is a good example.
Under the 1999 Yellow Book, a variation instruction had to be in writing (for example email) but other than that did not have to be in any specified format or use any special wording. The new contract completely changes that simplified approach. The instruction must identify itself as a “Notice” and state that the work requested is a “Variation”. If it does not, then the contractor must flag this up and give notice to the Engineer. If the contractor undertakes the work without getting such a formal notification that it is a “Variation” then it will not be entitled to additional payment.
For all instructed variations, the contractor must give the Engineer full details of its proposed price and the impact on the project programme, with the aim of these being agreed contemporaneously.
If the parties cannot agree whether certain work is a variation, then there is a danger that there will be a stand-off on site. In other words, the Engineer will not issue an instruction in the specified format and the contractor will not do the work without it.
The new contract has procedures to resolve such disagreements. The contractor has to give notification of a claim which the Engineer is under an obligation to resolve within 42 days. If the Engineer confirms his original decision, and says that the work is not a variation, then the contractor must refer the issue to the Dispute Adjudication Board (DAB) within a month or lose the right to appeal.
The DAB has 84 days to make a decision. If it decides that the item of work is not a variation then the contractor will again have to serve a notice of dissatisfaction within a month and have the issue resolved via arbitration.
There is no question therefore that the new contract sets down a much more structured approach. Taking the process for instruction of variations as an example, it can be seen that the new contract brings matters in disagreement to a head, rather than letting them fester.
Any disagreement as to whether an instructed item of work is a variation cannot be left until the final account stage as is currently the case. The parties must address the issue straight away. However, it is a system which is more likely to lead to stand-offs on site and multiple arbitrations on contested issues.