Out with the old, in with the new:

opportunities offered by changes to the

FIDIC Form Contracts: Part 1
21st Annual Lecture
King’s College Construction Law Association
Sweet & Maxwell
13 June 2018
Simon Hughes QC
Keating Chambers
Jeremy Glover
Partner, Fenwick Elliott LLP
 The 2017 revisions to the FIDIC ‘Rainbow Suite’ are
long-anticipated and substantial. They are, perhaps,
the occasion for some wider reflections on the use
of standard form contracts in the construction and
engineering industry …
 The particular challenges of long-term or ‘relational’
contracts:

• Changes in requirements (eg, variations)

• Changes in objective circumstances (eg, strikes or hyper-

inflation).

• Need for a framework, or set of ‘rules’, governing future

conditions which can be assessed (and ‘priced’) at time of
contracting (see Scheldebouw BV v St James as an example).
 Standard forms have certain attractions and
functional advantages:
• Reflecting (or seek to reflect) consensus or balance of industry interests
(not always: cf. FIDIC Cl 20 and the new 2017 revisions).

• Avoiding total bespoke negotiation & its costs (though of course the
largest projects will have substantially bespoke arrangements).

• Assisting project/professional staff on projects by providing set-piece

mechanisms (change, EOT, suspension, valuation).

• Offering contracting terms which might be regarded as a ‘known

quantity’ in terms of meaning & effect.
 The undoubted attractions of standard forms have to
be kept in perspective, however:
• Parties cannot assume that a standard form will simply ‘take care of
things’: active choices about use of standard forms are vital.

• Bespoke amendments create significant challenges.

• During the course of a project, project/professional staff need a solid

understanding of how the contractual mechanisms are to operate, and
then have systems in place to allow that to happen.

• The ‘known quantity’ aspect of standard forms can be over-stated

(especially in international contracting): see for example Sub-Cl 2.5 and
NH International (Caribbean) Limited v NIPDEC [2015] UKPC 37.
 Revisions to standard forms can comprise a complex mix of
good and not so good. I highlight three aspects for present
purposes:
• Good: An opportunity to reflect, in a systematic way, market feedback and
experience: in this respect, the 2017 revisions are timely and welcome
(examples: Cl. 20 now becomes Cl. 20 and 21 and notice provisions are more
balanced; and the termination for corrupt payments [etc] is now a right which
the Contractor has as well as the Employer: see Sub-cl 16.2.1(j)).

• Possibly not so good: The growing tendency of standard forms – and FIDIC
2017 amendments no exception – to over-legislate and micro-manage, with
longer and more complex provisions. Sub-Cl 3.7 is arguably an example of
detail taken too far: it also potentially revives the question posed
[unsuccessfully] by the appellant contractor in AMEC v Secretary of State for
Transport as to whether the Engineer acts in a quasi-judicial capacity and
hence must observe the rules of natural justice.
• Change which is arguably counter-productive:

(1) Example: Cl 19 of the 1999 suite (force majeure) no

becomes Cl 18 in the 2017 amendments exceptional
event); and yet the words ‘exceptional event’ are not clear.

(2) Example: in making a determination under Clause 3.7, the

Engineer is now required to act ‘neutrally’ whereas the
language of ‘independently’ and ‘impartially’ featured in
previous FIDIC forms. Is there a difference?
 Closer examination of two areas where the 2017
revisions will be of particular interest to practitioners,
and where opportunities for interesting debate are
likely to arise …
 Clause 15: Termination by Employer.
 New grounds:

• Where non-compliance with a determination by the

Engineer (Sub-cl. 3.7) or decision of a DAAB (Cl. 21) is a
‘material breach’ (phrase not defined).

• Exceeding the limit on Delay Damages: Sub-cl. 15.2.1(c)

(failure by the Contractor to comply with completion
obligations are ‘…such that the Employer would be entitled
to Delay Damages that exceed this maximum amount…).
 The language of ‘…material breach…’ within Sub-cl.
15.2.1 where there is a failure by the Contractor to
comply with a Notice to Correct; a determination
under Sub-cl. 3.7 or a DAAB decision under Sub-cl.
21.4. This might be intended to more clearly reflect
the common law position: see Obrascon Huarte Lain
v A-G for Gibraltar.
 Sub-cl. 15.5: Termination for Employer’s Convenience:
• An important contractual ‘out’ for the Employer.

• The phrase ‘for the Employer’s convenience’ is not developed or defined

by drafting.

• Perhaps surprising, in a now lengthy standard form, that there is little

explanation of the constraints on this power.

• Sub-cl. 15.6 deals with valuation once there has been a termination under
Sub-cl. 15.5 and this comprises the value of work done (15.6(a)) and the
amount of any loss of profit (15.6(b)) and then the words ‘…or other
losses and damages…’
 Clause 16: Suspension and Termination by the
Contractor.
 Again, there are new grounds:

• Non-compliance with a determination under Sub-cl. 3.7 or the

decision of a DAAB under Sub-cl. 21.4.

• Non-receipt by the Contractor of a Notice of the Commencement

Date under Sub-Cl. 8.1 within 84 days after receipt of the Letter
of Acceptance.

• As above, termination for corrupt payments [etc] is now a right

which the Contractor has as well as the Employer: see Sub-cl
16.2.1(j)).
THANK YOU FOR LISTENING
Out with the old, in with the new:
Opportunities offered by changes to
the FIDIC Form Contracts: Part 2
13 June 2018
21st Annual Lecture
King’s College Construction Law Association
Sweet & Maxwell
Jeremy Glover
Partner, Fenwick Elliott LLP

Simon Hughes QC
Keating Chambers
The 2017 Revisions to the Rainbow Suite:
the FIDIC Approach

• Clarity, transparency and certainty.

• Enhanced project management tools and mechanisms.

• Drafted by engineers experienced in design and construction: to reinforce

the role of the “Engineer”.

• Increased importance of dispute avoidance and real-time dispute

resolution.

• To achieve a balance risk allocation. The aim here is more reciprocity

between the parties.

• To reflect current international best practice and address issues raised by

users over the past 17 years arising out of the use of the 1999 suite.
The 2017 Rainbow Suite: Will it actually
be used?
• The 63 page 1999 Yellow Book is now 132 pages (including
Appendices and the DAAB rules).

• More prescriptive contract provisions setting out exactly what is

expected from the Parties during the performance of the Contract.

• Increased burden on parties to follow new administrative

requirements.

• An increased likelihood that if you fail to follow the rules, you lose the
right to make a claim.

• Isn’t the current international trend is for shorter clearer, more

collaborative contracts?

• Who benefits: surely not the lawyers…

Advantages of the DAAB well known

• Primary focus of the DAAB – dispute avoidance, the prevention of

disputes;

• To rationalise behaviour;

• To instil (gradually but firmly) professionalism;

• As a sounding board;

• A shield and a sword;

• Accountability;

• To guide the project?

A typical Employer's view?

• Special Provisions: Sub-clauses 21.1 – 21.5 are deleted.

Sub-clause 21.1:Disputes shall be decided by a DAAB in accordance

with Sub-Clause 21.4 [Obtaining DAAB’s Decision]. The Parties shall
jointly appoint the member(s) of the DAAB within the time stated in the
Contract Data (if not stated, 28 days) after the date the Contractor
receives the Letter of Acceptance.
Perceived Disadvantages of the DAAB

• Does the 2017 Form really have sufficient teeth to summarily enforce
DAAB Decisions?
• Will the Employer pay?
• 13 DAB Decisions and then an international arbitration?
• Cost.
• Attitude of JICA: the Employer’s share for DB cost is eligible for JICA’s
financing under its ODA Loan.
The 5 FIDIC Golden Principles

• All those drafting Special Provisions should take note that:

• GP1: Duties, rights, obligations, roles and responsibilities must be

generally as implied in the General Conditions.

• GP2: Use clear and unambiguous drafting.

• GP3: FIDIC’s fair and balanced risk allocation must remain.

• GP4: All time periods for parties to perform their obligations and
exercise their rights must be of reasonable duration.

• GP5: Disputes must be referred to a DA/AB for a provisionally

binding determination as a condition precedent to arbitration or
litigation.
The FIDIC Condition Precedent

• GP4: All time periods for parties to perform their obligations and
exercise their rights must be of reasonable duration.

• Recommendation 84:
“The legislation should void a contractual term that purports to make a
right to claim or receive payment, or a right to claim an extension of
time, conditional upon giving notice where compliance with the notice
requirements would:
a) not be reasonably possible; or
b) be unreasonably onerous; or
c) serve no commercial purpose.”

Review of Security of Payment Laws- Building Trust and Confidence

John Murray
What about BIM?

“The BIM system is building information modelling. It comprises a software

system which is intended to assist the design, preparation and integration of
differing designs and different disciplines for the purposes of adequate and
efficient planning and management of the design and construction process.”

Mrs Justice O’Farrell

Trant Engineering Ltd v Mott MacDonald Ltd
The FIDIC BIM Advisory Note

• According to FIDIC, BIM is:

• “founded on a team approach and successful projects utilising BIM
encourage collaboration.”

• There is no FIDIC BIM Protocol. Note the Second Edition of the CIC
Protocol came out in April 2018.

• FIDIC has indicated that it is currently preparing two documents:

• “Technology Guideline”
• “Definition of Scope Guideline Specific to BIM”
The FIDIC Advisory Note

• FIDIC has identified the key risk areas on any BIM-enabled project:
• Misunderstanding of scope of services.
• Use of data for an inappropriate purpose and reliance on inappropriate
data.
• Ineffective information, document or data management.
• Cyber security and responsibility for “holding” the models or data.
• Definition of deliverables, approval and delivery.

• The Winfield Rock Report

• http://www.ukbimalliance.org/resources/request-a-copy-of-the-winfield-
rock-report/
The FIDIC Approach to Time

• Notices: Sub-Clause 1.3, must be in writing and identified as a Notice.

• Notices: the Sub-Clause 4.20 Progress Report and the Sub-Clause 8.3
Programme cannot be Notices.

• Claims for time and/or delay damages must be made in accordance with
Sub-Clause 20.2.

• The Programme: enhanced (and detailed) requirements set out in Sub-

Clause 8.3.

• Advance warning, Sub-Clause 8.4: key part of the road to dispute

avoidance.
The Enhanced Programme Requirements

• The Contractor “shall” submit a revised programme accurately reflecting

progress whenever the current one no longer does.

• Increased programme requirements of “new” Sub-Clause 8.3:

• Use software identified in the ERs or acceptable to the Engineer.
• Detailed, all activities, sequence and timing of inspections and tests, all key
dates, logic linked, float, rest days and holidays, delivery of materials What
are the key delivery dates? Have they been met?
• Supporting report, method and execution, labour resource.
• Initial programme within 28 days after receiving the Notice stating the
Commencement Date.

• “New” Sub-Clause 14.3(c): every payment application must include the monthly
Progress Report including a detailed description of progress.
Concurrent Delay

Sub-Clause 8.5:

“If a delay caused by a matter which is the Employer’s responsibility is

concurrent with a delay caused by a matter which is the Contractor’s
responsibility, the Contractor’s entitlement to EOT shall be assessed in
accordance with the rules and procedures stated in the Special Provisions
(if not stated, as appropriate taking due regard of all relevant
circumstances).”
Concurrent Delay

“In any event, I am clearly of the view that, where there is an extension of time
clause such as that agreed upon in this case and where delay is caused by two or
more effective causes, one of which entitles the Contractor to an extension of time
as being a Relevant Event, the Contractor is entitled to a full extension of time.”
Mr Justice Akenhead
Walter Lily v MacKay & Others, [2012] EWHC 1173 (TCC)

“The acting law recognizes situation when the loss suffered by one party was
caused by both parties’ reasons and so called “composed fault” exists. In such
case, the court is obliged to determine which party is liable for the loss to what
extent and to determine its amount proportionally to such extent.”

(ას-278-263-2017, 21 April 2017, Supreme Court of Georgia).

Sub-Clause 4.1 – Design

Red Book 1999 to 2017, first paragraph:-

• 1999:
“The Contractor shall design (to the extent specified in the Contract),
execute and complete the Works in accordance with the Contract and
with the Engineer’s instructions and shall remedy any defects in the
Works.”

• 2017:
“The Contractor shall execute the Works in accordance with the
Contract. The Contractor undertakes the execution of the Works and
the completed Works will be in accordance with the documents
forming the Contract, as altered and modified by Variations.”
Sub-Clause 4.1 – Design

Yellow Book 1999 to 2017, first paragraph:-

• 1999:
“The Contractor shall design, execute and complete the Works in
accordance with the Contract and shall remedy any defects in the Works.
When completed the Works shall be fit for the purposes for which the
Works are intended as defined in the Contract.”

• 2017:
“The Contractor shall execute the Works in accordance with the
Contract. When completed, the Works (or Section or Part of major item
of Plant, if any) shall be fit for the purpose(s) for which they are intended,
as defined and described in the Employer’s Requirements (or, where no
purpose(s) are so defined and described, fit for their ordinary
purpose(s)).”
Contractor’s and Employer’s General
Obligations

“[…]’s error is perhaps a sad reflection of the fact that modern day
contracts of this kind are so complicated that nobody (not even the
consultants) bothers to check the actual documentation being signed.”

Mr Justice Coulson
Borough of Milton Keynes v Viridor (Community Recycling MK) Ltd
[2017] EWHC 239
Other Fitness for Purpose Points

• The fitness for purpose obligation is now backed by an indemnity (Sub-

Clause 17.4). Although all indirect and consequential losses for this
indemnity are excluded and liability shall fall within the overall cap, this is
likely to be a major concern for Contractors.

• Now, if stated in the Contract Data, the Contractor’s PI policy must

indemnify against a failure to achieve fitness for purpose (Sub-Clause
19.2.3).
Clause 17.4: Indemnities by Contractor

“The Contractor shall also indemnify and hold harmless the Employer against
all acts, errors or omissions by the Contractor in carrying out the Contractor’s
design obligations that result in the Works (or Section or Part or major item of
Plant, if any), when completed, not being fit for the purpose(s) for which they
are intended under Sub-Clause 4.1 [Contractor’s General Obligations].”

• Note however from an Employer’s point of view:

• Sub-clause 4.1: fitness for purpose obligation;

• Sub-clause 5.3: undertaking the design is in accordance with the
documents forming the Contract;
• Sub-clause 7.6: remedial work;
• Sub-clause 11: defects after Taking-Over.
The Enhanced Role of the Engineer (1)

• A new requirement that the “Engineer”:

• may be a legal entity rather than an individual;
• is a professional engineer, suitably qualified and experienced; and
• fluent in the language of the Contract.

• If the Engineer exercises any authority for which the Employer’s approval is
required then deemed approval has been given.

• May require parties to attend management meetings and shall keep a

record of those meetings.
The Enhanced Role of the Engineer (2)

• Now Sub-Clause 3.7 (was 3.5):

• When making a determination, the Engineer shall act “neutrally” and “…
shall not be deemed to act for the Employer.”

• Neutrally is not defined, but FIDIC did not mean “independent” or

“impartial” but rather “non-partisan”.

• Consultation (Sub-Clause 3.7.1):

• consult promptly/jointly and/or separately to endeavour to encourage the
Parties to reach an agreement; and
• write it down and ask the Parties to sign.

• Within 42 days, or proceed to make a determination.

FIDIC White Book: 5th Edition 2017

• Introduction of the concept of good faith and mutual trust in all dealings.
• Enhanced anti-corruption provisions.
• Not entirely complementary to the 2017 Rainbow Suite.
• Sub-clause 3.3.1: Consultant shall “have no other responsibility than to
exercise the reasonable skill, care and diligence to be expected from a
consultant experienced in the provision of such services for projects of
similar size, nature and complexity”.
• Sub-Clause 1.7.5 gives the Consultant the ability to “revoke any licence” on 7
days’ notice if the Employer is in payment default.
• Sub-Clause 3.9: contract administration, the Consultant shall act “fairly”
when exercising judgment or determining any matter under the works
contract.
• Clause 4: Programming Obligations. Needs to tie in with any BIM Protocol.
• FIDIC is a contract written by Engineers for Engineers.
Some Feedback on the new FIDIC Form:
FIDIC Regional Infrastructure Conference,
Georgia 2018
• Positive reaction, welcoming the new
Form.
• Some confusion over the enhanced
roles of the Engineer and DA/AB:
who does what.
• Overwhelming view in favour of the
new detailed step by step processes.
• Brought clarity to what was needed
from all parties.
• All parties, including Employer Reps
supportive of DA/ABs.
• Should result in less formal disputes.
Thank you

Simon Hughes QC
shughes@keatingchambers.com

Jeremy Glover
jglover@fenwickelliott.com