At its annual conference in London in December 2017, FIDIC released the long-awaited new edition of the “Rainbow Suite” of contracts – the Red, Yellow and Silver Books. It is the first attempt to modernise the FIDIC forms since the First Edition of the Yellow Book was published in 1999. The core aim of the 2017 revision has been to provide a higher degree of clarity and certainty, reduce the risk of disagreement on interpretation and increase the probability of successful projects. This has resulted in a re-draft of most provisions and considerably lengthier and more prescriptive forms of contract. There are detailed step-by-step project management and procedural mechanisms for the Employer, Contractor and Engineer and an enhanced focus on the dispute board, dispute avoidance and the Engineer. Whilst on the one hand several provisions have been made reciprocal and more balanced, the Contractor now carries more design risk and the Employer more risk for his financial arrangements. Users will need to be aware of the changes when considering whether to use one of the new forms or when reviewing, amending or negotiating them.
Structure and terminology
Overall structure: the overall structure of the forms is unchanged, but there are now 21 (rather than 20) clauses and some clauses have been restructured or moved to more suitable locations.
Force Majeure> Exceptional Events: the force majeure clause has been renamed Exceptional Events in order to limit the risk that it is interpreted in the light of background law in certain civil law jurisdictions in which “force majeure” is a separate legal concept.
Employer’s Risks: the categories of what used to be referred to as Employer’s Risks have been expanded and incorporated into a redrafted indemnities clause.
New “Contract Data” concept: there is also a new key concept of “Contract Data” (rather than “Appendix to Tender”), similar to an NEC contract.
Definitions: there are several new definitions and abbreviations, for example “Claim”, “Delay Damages”, “Extension of Time”, “DNP”, “EOT”. The definitions are now in alphabetical order.
The below is a brief overview of some of the key changes in the 2017 Rainbow Suite, with a focus on the Yellow Book.
Split of Claims and Disputes; focus on Dispute avoidance; standing DAAB
Claims have been separated from Disputes and Arbitration in a new clause. Contractor’s Claims are on a par with Employer’s Claims. There is a new dispute avoidance function for a renamed Disputes Avoidance/ Adjudication Board (“DAAB”), which is a standing board in all three forms. Whilst these changes have been made with the aim of helping the parties deal with claims appropriately and promptly in order to avoid disputes, there is a risk that early involvement of the DAAB will increase the risk of disputes.
As a consequence of the key role of the Engineer in FIDIC contracts, its role has been strengthened and clarified. For example, it is now explicit that the Engineer must be neutral and there is no requirement for it to obtain the Employer’s consent before making determinations. As a result of feedback from Contractors, there are new deeming provisions if the Engineer does not act, for example if he does not consent, provide a clarification or issue the Performance Certificate.
More time periods; notices; time bars and deeming provisions
There are far more notice requirements, deeming provisions and time bars in the 2017 versions than in the 1999 editions. A new “Notice of No-objection” replaces approvals and consents. If not diligently managed, a party may be caught out by these new provisions and lose the right to a Claim or to approve or object to something.
More detailed project management procedures and mechanisms
The new forms include several enhanced and clarified project management procedures and mechanisms. Similar to the NEC suite of contracts, there is now an “Advance Warning” system: a new requirement to give advance warning of future events which may have an adverse effect on performance of the Works, increase the Contract Price or delay execution of the Works. There are also more detailed programme requirements, new management meetings, an updated quality management system, a new specific health and safety manual and new suggested special provisions for milestones.
Users will need to implement processes to manage these enhanced procedures and mechanisms.
New indemnity for Contractor’s design errors
A new provision requires the Contractor to indemnify the Employer against all errors in the Contractor’s design which result in the Works not being fit for purpose. The obligation is subject to the indirect/consequential loss exclusion and aggregate liability cap. Notably, there was no exclusion or cap in the 2016 pre-release version and it was only after substantial criticism from contractors that it was included. Contractors should consider whether the potential additional risk from this new indemnity for design defects is acceptable.
No solution for concurrent delay
After lengthy discussions, the 2017 version does not adopt a rule for concurrent delay as no agreement could be reached on the issue. Instead, it encourages the parties to include rules and procedures in special provisions.
Latent defects; review of defects remedy proposal
A new provision provides that the Contractor’s liability for latent defects ends two years after expiry of the Defects Notification Period. Employers should consider whether this new time limit is adequate.
Contractors should be aware that they now are required to submit a proposal for the remedy of defects to the Engineer for review. As the Engineer’s approval or consent is not explicitly required, it is not entirely clear what impact this review is intended to have.
Extensive revisions to Variations
The Variations clause has been extensively revised, including a split between methods for initiating Variations by Instruction and by Request for Proposal.
Care of the Works and Indemnities provisions substantially unchanged
Whilst significantly redrafted, the substance of the provisions relating to care of the works and indemnities remains largely unchanged.
Where the Contractor is entitled to Cost Plus Profit the amount of profit is now as a default set at five per cent. If users object to this level, they must ensure a different amount is inserted in the Contract Data.
Performance Security; Employer’s financial arrangements
If the Contract Price changes by more than twenty per cent as a result of a Variation, a request for an increase or decrease in the amount of the Contractor’s Performance Security can be made.
The Employer’s financial arrangements are to be described in the Contract Data. If the Employer intends to make a material change to these arrangements it must give notice to the Contractor. Also, if the Employer instructs a Variation of a value in excess of ten per cent of the Accepted Contract Amount, or if the Contractor does not receive payment or is aware of a change in the Employer’s financial arrangements, it can request evidence that financial arrangements are in place to enable the Employer to pay. It is expected that certain Employers will view this as too onerous and request amendments.
Rewritten Insurance clause
The insurance provision has been completely re-written and parties should consult their insurance advisers in respect of the changes.
New carve outs from consequential loss exclusion and aggregate cap
Delay Damages and intellectual property indemnities are now carved out from the indirect/consequential loss exclusion. In line with the practice, and law, in many civil law jurisdictions – and increasingly in common law governed contracts - gross negligence is carved out from the aggregate cap. The Employer has a new termination right if the Delay Damages cap is exceeded.
All users should consider the gross negligence carve out which, even if it may appear just, risks leading to increased disputes. Contractors should also consider whether the carve out of Delay Damages from the aggregate cap and the termination right if the Delay Damages cap is reached is acceptable.
New termination rights
In addition to the Employer’s termination right if the Delay Damages cap is reached, the new forms include additional termination rights for both parties, including if the other party fails to comply with a binding agreement or final and binding determination of the Engineer or decision of the DAAB, providing the failure constitutes a material breach.