The new FIDIC contracts – the contractor’s perspective

When it comes to infrastructure or international projects our clients often reach for the FIDIC suite, written and published by the International Federation of Consulting Engineers (the FIDIC acronym stands for the French version, ‘Federation Internationale des Ingenieurs-Conseil’).

• In December last year, after an interval of 17 years, FIDIC published updated versions of the following:
• Red Book: building and engineering contracts designed by the Employer. This contract is suitable where the works are predominantly designed by the Employer.
• Yellow Book: M&E and/or building and engineering works designed by the Contractor.
• Silver Book: turnkey contracts.

At Spencer West LLP, we have been advising clients on the FIDIC contracts with amendments for some time. We have also been advising on appropriate forms of subcontract where these do not come “off the shelf”.

Benefits to the Contractor

The amended FIDIC contracts bring welcome rights for contractors in a number of areas.

Particular Conditions

• the ‘Particular Conditions’: the contracts contain suggestions for clauses dealing with issues that are commonly encountered where the standard terms would need alteration – some might draw a parallel with ‘z’ clauses in NEC contracts.
• the contracts specify the ‘Golden Principles’ for the preparation of Particular Conditions namely that these must not change the balance of risk/reward provided for in the General Conditions. We welcome this and would urge contractors to resist aggressive terms imposed by Employers by relying expressly on these ‘Golden Principles’.

Reciprocity of rights and obligations

• The Red and Yellow Books both emphasise that rights and obligations under the contract are reciprocal in a number of areas, which reduces risk for contractors. Hence:-
• Both parties are now obliged to comply with all applicable laws.
• Both parties are under an obligation to assist the other party to obtain permits.
• Each indemnifies the other for losses due to the other party not assisting in obtaining permits.
• Both parties are prohibited from poaching each other’s staff.
• Both are under a new duty to provide advance warning of matters likely to affect programme or cost or performance.

The role of the engineer/employer’s representative – some safeguards

Contractors will welcome the fact that under the new contracts, additional requirements have been introduced to improve the integrity of the role of engineer (or employer’s representative) in administering the contract:-

• The engineer must be a natural person: if a firm or company is appointed, the person acting as engineer must be a natural person
• The engineer must be fluent in the ruling language of the contract: if possible, this should be the language of the jurisdiction and the project
• The engineer may no longer issue verbal instructions then follow these up in writing: the engineer must comply with the new procedure as to notices; if the engineer fails to do so, this could be open to abuse
• The determination by the engineer must not only be ‘fair’ but also the engineer must act ‘neutrally’ in exercising their functions
• The engineer does not have to obtain the employer’s consent.

Payment

The contract makes clear that advance payments are only required if specified in the Contract Data.

The contracts specify what the contractor needs to include with his “Interim Payment Certificates”: supporting particulars, identifying any differences between an amount the Contractor has applied for and the amount certified.

Contractor’s programme

The grounds on which the Contractor can claim an extension of time are expanded to include:

• “Exceptionally adverse climatic conditions”
• Delays caused by utility companies as well as public authorities.

Limitations of liability

The contracts contain a new limitation of liability in respect of plant. The contract will specify a defects notification period. The Contractor ceases to be liable for any damage occurring more than two years after the end of this period.

Points for Contractors to beware of

While the contracts present many advances for the Contractor some of the latest amendments may cause concern.

Design issues and fitness for purpose: the contracts contain various strict provisions as to complying with fitness for purpose, which is supported by an indemnity and a new requirement that the obligation is covered by professional indemnity insurance. However, such insurance may not always be available. The position should be checked with a broker and if necessary the Contract Data amended accordingly.

The role of the engineer: it will be preferable for the proper administration of the contract that the engineer is fluent in the language of the judicial seat and their advice needs to be dispensed within that jurisdiction where possible. Similarly, the engineer will need to be proactive in complying with the procedure for issuing written notices under the contract, since verbal instructions are no longer acceptable: otherwise the contract is open to potential abuse.

Liability for indirect and consequential loss: while the contracts contain exclusions for indirect or consequential loss, there is a carve out if the losses arise from delay damages, variations or claims under indemnities. This could considerably increase the Contractor’s exposure.

The claims process contains a number of detailed conditions precedent with strict time limits, which if not complied with, will result in the Contractor losing the right to the value of its claims. Hence for example claims have to be notified within 28 days, otherwise the claim is lost. Similarly if the Contractor does not make a claim within 56 days of receiving the Final Statement it loses the claim.

Conclusion

Overall we welcome the updated FIDIC terms as presenting a number of improvements for Contractors. The FIDIC terms do however contain a number of traps for the unwary which will need to be considered particularly carefully in relation to Contract Data, the Particular Conditions, the role of the Engineer and the submission of claims.