By Duncan Halliwell, Special Counsel and Tamzin Dempster, solicitor, Kensington Swan
MANY WORKING IN the construction industry will be familiar with the FIDIC suite of construction contracts. For the uninitiated, FIDIC is the Federation Internationale des Ingenieurs-Conseils, or the International Federation of Consulting Engineers.
The ‘FIDIC’ standard form contracts come in an expansive suite to cover all manner of project types, engineering disciplines, and extent of responsibility to be taken on by the contractor. These contracts are used the world over.
Each contract in the FIDIC suite is commonly identified by the colour of its cover. At the end of 2017, after 18 long years of service, FIDIC retired three of its key ‘Books’ and released updated versions – FIDIC Red Book (construct only), Yellow Book (design and construct), and Silver Book (turnkey). The FIDIC Red Book is the most commonly used standard form contract in the world.
Purpose of revisions
FIDIC said the revisions set out to “maintain principles of balanced risk-sharing established in the 1999 edition while seeking to build on the substantial experiences gained from the previous 18 years”.
There was also a focus on:
- providing greater detail and clarity on the requirements for notices and other communications
- introducing provisions to address employer’s and contractor’s claims treated equally and separated from disputes
- inserting mechanisms for dispute avoidance
- providing detailed provisions for quality management and verification of contractor’s contractual compliance.
Outcomes of revisions
Broadly speaking, the principled approach to risk allocation has held true. However, there are a few important changes in the indemnities provisions, long-term liabilities and procedural requirements that will be significant for some. Some of which benefit the contractor and some of which do not.
The latest revision has introduced greater detail on requirements for notices. For example, all notices must be written and verbal instructions and notices by any party will no longer be valid. Failure to issue valid notices within contractual timeframes will result in a position being deemed to have been given, which may catch parties unaware if diligence is not exercised.
All claims made by either party are referred to the same process. These claims may arise in respect of variations, extensions of time, or dissatisfaction of any performance or decision made under the contract. Mechanisms for dispute avoidance have been established, mostly in the form of ensuring communication and a paper trail is established. For example, a mechanism has been introduced requiring both parties to give advance warning of any known or probable events or circumstances that may adversely affect the contractor’s performance of the contract. The management of these events or circumstances are then to be managed by the engineer.
In the event that dispute cannot be avoided, a standing Disputes Avoidance and Adjudication Board (DAAB) has a more expedient and hands-on role in managing and resolving disputes.
Provisions for quality management encourage a collaborative approach between contractor and engineer (or employer in the case of the Silver Book) but these detail more prescriptive processes for how this is to be achieved. For example, the Quality Management and Compliance Verification Systems require the contractor to maintain and audit its processes for project management, administration, and performance of the contract.
Many of the above changes introduce an increased administrative burden on the parties to the contract, particularly on the contractor. This can be problematic in a contract and there is a risk that parties will not have the time or resource to comply with all of the administrative steps. While this may not seem to matter during the project, issues can arise if there is a dispute and the correct processes have not been followed.
What this means for contractors
FIDIC really drives home the importance of efficient contract management systems. Contractors are required to run a very tight ship in order to avoid running afoul of the changes.
While the changes may have the effect of increasing the administrative burden, the intended payoff is that disputes will be avoided, and/or managed more effectively.
Time will tell whether this occurs in practice.
This article was first published in Contractor‘s April issue.
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