FIDIC - New contracts released

Following on the heels of the publication of the 2016 JCT suite and NEC4, FIDIC has now unveiled the second editions of their Red (Construction), Silver (EPC/Turnkey Projects) and Yellow (Plant & Design Build) Books. Readers may be aware that a draft of the updated Yellow Book was released a year ago, at FIDIC's International Contract Users' Conference, but users of the original FIDIC Rainbow Suite have had to wait until this month to see the final forms of the new contracts.  As the first editions were released eighteen years ago, in 1999, the current review has been much anticipated by users.

The core purpose of the update, according to FIDIC, is to achieve greater clarity, transparency and certainty, which will in turn lead to fewer disputes and more successful projects.  Underlying this overarching aim, is the recognition of a need to reflect current best practice and the issues raised by users over the past 18 years.

FIDIC's ethos bears similarities with the NEC approach when producing NEC4 (the NEC4 contracts were released in June of this year and the revisions have been generally well-received).  However, FIDIC's revisions are much more substantial, evidenced not least by the fact that the new editions are significantly longer than the first editions (around 50%).  The additional length is the consequence of more prescriptive provisions, with greater clarity, transparency and certainty being achieved by setting out in detail the step-by-step requirements on the employer, contractor and the engineer during the course of a project.

Focusing on the Yellow Book, this article will highlight the main areas of change and some of their implications for early users. 

Structural and cosmetic changes

There are various structural changes, for example, definitions are now in alphabetical order; there are some new definitions and defined abbreviations; and, all books now contain 21 clauses rather than 20.

Best Practice

FIDIC has incorporated a number of provisions concerning best practice.  For example, provisions dealing with fraud, corruption and similar practices; health and safety and quality assurance; and, environmental impact assessments.

Time and Programme obligations

There is significantly more detail concerning programming, including prescription on what each programme must show, and an obligation on the contractor to update the programme whenever it ceases to reflect actual progress.  A separate testing programme is also required.

The grounds on which a contractor can claim an extension of time remain largely unchanged although there is a new provision dealing with concurrent delay which envisages that the parties will expressly provide for who takes the risk when there are two concurrent delays, one of which entitles the contractor to an extension of time and the other of which is a contractor delay event.  This could easily become a difficult negotiating point.

Contract Management

As mentioned above, the additional length is largely due to FIDIC's focus on contract management with greater detail on the contract procedures, including timescales, for the parties to follow, particularly in the area of claims pursuit.  If a party fails to comply, 'deeming' provisions are triggered, often resulting in a deemed acceptance or rejection, to keep the project moving.

Role of the Engineer

The engineer's role has been expanded and now includes, for example, a new role for an 'Engineer's Representative' who should be based on site for the duration of the Project.  This underlines the emphasis on active project management – who does what and when.

Risk Allocation

Contractual risk allocation has not been fundamentally altered although the increased procedural requirements on the parties, including the 'deeming' provisions, arguably expose them to greater potential liability, for example, failure to identify notices correctly and serve them on time could have severe consequences.

Termination

There are several changes to the termination provisions, including new termination triggers such as failure to comply with a final and binding engineer's determination (subject to such failure amounting to a 'material' breach) and a termination right for the employer if the cap on delay damages is reached.

Disputes and Claims

The provisions relating to dispute avoidance and claims handling have been overhauled.  These revisions are some of the most substantive and have resulted in a number of additional pages.  While the principles behind the new approach are to be welcomed, the prescriptiveness is likely to be unwelcome to some.

The key changes include:

• A new clause 21 has been incorporated in order to separate claims from disputes.  The ethos behind this separation is to underline that the two are not the same and that claims should not be assumed to automatically flow into disputes, but instead have the potential to be resolved amicably and quickly.
• An early warning system has been introduced (as per the NEC contracts and the FIDIC Gold Book) to deal with potential problems.  Again, the purpose of these provisions is to ensure that issues are tackled early on and thereby resolved before they escalate and while the information is still fresh in everyone's mind.
• There are increased requirements as to when and how to submit notices when claims are made under specific sub-clauses to make sure that it is clear when a party is making a claim and to avoid a party seeking a tactical advantage by attempting to hide its claim in other correspondence.
• There are new provisions designed to emphasise the engineer/employer's representative's neutrality and professionalism when dealing with claims.
• There are multiple new time limits that need to be complied with in order to avoid claims being time-barred.
• The DAB (Dispute Adjudication Board) is now the DAAB (Dispute Avoidance/Adjudication Board) and is intended to be constituted at the outset of the contract as a permanent board for the duration of the project to assist in avoiding disputes and/or settling them quickly.  While the concept makes good sense, commentators have noted the likely increased costs of appointing a standing board who are required to have regular site meetings.

It should be noted that there are many other material changes to the contracts - too numerous to address exhaustively here.  The predominant message to take away is that FIDIC's revisions have resulted in a more prescriptive and procedural contract requiring more active management.  While we generally welcome the changes, how they play out in practice will, no doubt, be the subject of debate and discussion for years to come.