Professional Documents
Culture Documents
M KENNEDY Carillion Plc and Chairman of the EIC of Contract Working Group
In October 1997, EIC received from FIDIC the first drafts of the 1999 First Editions of four new standard forms of contract and were invited to comment. EIC gratefully accepted this opportunity and undertook a comprehensive review of all of the new forms and submitted a large number of proposals for amendment, clarification and improvement. A significant number of EIC proposals were incorporated in the Test Editions of 1998 and, following further exchanges, in the First Editions of September 1999. In common with a number of other reviewers of the draft forms, EICs objective was to try and ensure that the new documents maintained the same balance and fairness between client and contractor that has been the hallmark of FIDIC contracts. In our view the Silver Book falls a long way short of this objective. The Silver Book will create problems for employers and contractors and is unlikely to achieve the dispute free projects desired by FIDIC. It sets out to place almost every conceivable risk on the contractor but within a framework of conventional FIDIC contract administration procedures. Such an approach is a long way from good turnkey practice, which gives the contractor a fair degree of freedom to decide how to achieve performance criteria unhindered by bureaucratic processes. Interestingly, it is also contrary to FIDICs own recommendation in the Introductory Note to the Silver Book that the Contractor should be given freedom to carry out the works in his chosen manner. It is this scope for interference in the design and construction process along with the Employers right to unilaterally issue instructions that so troubles contractors rather than any fundamental objection to the principle of risk transfer. Regrettably, examples of turnkey projects falling behind programme whilst the contractor attempts to satisfy the Employers engineers requests for further information before authority to proceed with construction is permitted, are all too common. What could cause greater disagreement and dispute however is the attempt to make the
1 European International Contractors was founded in 1970 and is a federation of construction industry trade associations from 15 European countries. The value of international business carried out by members amounts to around 30 billion Euro per annum. Copies of the Guide can be obtained from EIC at: European International Contractors, Kurfurstenstrasse 129, D-10785 Berlin, Germany. Tel: ++49 30 21 286 244. Fax: ++49 30 21 286 285. Email: eicontractors@compuserve.com
1
Conditions
contractor responsible for information provided by the employer who is not even responsible for the accuracy of the Employers Requirements. It is difficult to understand the thinking behind such a requirement. In the Introductory Note to the Silver Book, FIDIC set out their rationale for preparing it, point out some of the consequent obligations on Employers and even go so far as to warn against its use in certain circumstances. A more imaginative solution would have been to create a form of contract which establishes a fair balance of risk between the parties, based on their respective abilities to deal with risk. This would provide the Contractor with the freedom to perform his obligations and give the Employer confidence that he is getting what he is paying for. In the past, contractors have taken comfort from the fact that contracts produced by FIDIC have laid down a predictable and practical starting-point for negotiations between the parties based on equitable
and balanced risk sharing. It is the Silver Books departure from the traditional FIDIC contractual and risk sharing philosophy, that has prompted EIC to publish a Contractors Guide and highlight many of the potential pitfalls of the Silver Book. In preparing our guide we have tried to avoid the pitfall of only arguing the case for the contractor and we have attempted to point out what we see as potential areas of difficulty for both employer and contractor. Consequently, we welcome the opportunity offered by the International Construction Law Review to publish the guide, open a debate with a wider audience and test the validity of our arguments.
1.9 Confidentiality
Obligates both Parties to treat the details of the Contract as confidential. If the Contractors design contains data which is commercially sensitive and which he does not wish to be placed in the public domain, the second sentence of this Sub-Clause, referring to restrictions on publication or disclosure of particulars, should also be an obligation on the Employer.
and contractors are dealt with under Sub-Clause 8.4 (c) [Extension of Time for Completion] which provides only for granting a time extension for such events. There is no provision in the Contract to recompense the Contractor for the consequential cost of delay and disruption caused by such events. Contractors should carefully consider the possible effects of such events in light of the obligation under Sub-Clause 4.12 [Unforeseeable Difficulties] where the Contractor is deemed to have foreseen all difficulties and costs of successfully completing the Works.
to any paymentand/or to any extension of the Defects Notification Period. The Employer must notify the Contractor as soon as practicable and give particulars of his claim, after which the Parties may agree the claim or failing which the Employer may then make a determination in accordance with Sub-Clause 3.5 [Determinations] . The provisions of this Sub-Clause are also mandatory in the event that the Employer wishes to set off against or make any deduction from an amount due to the Contractor. A provision entitling the Contractor to claim against the Employer is found in Sub-Clause 20.1 [Contractors Claims], but is much more onerous on the Contractor compared with Sub-Clause 2.5. (See comments under Sub-Clause 20.1.)
interference that might arise if too many assistants are appointed. The Contractor is entitled to receive a copy of the written delegation which describes clearly the role of the assistant or the like and the delegation does not become effective until received by the Contractor.
3.4 Instructions
This Sub-Clause is very specific in terms of what constitutes an instruction under the project and requires that Each instruction shall be given in writing and shall state the obligations to which it relates. Contractors should ensure that all instructions comply with these requirements and should note that verbal instructions would appear to have no validity under the Contract.
3.5 Determinations
Notwithstanding the fact that FIDIC has drafted the Silver Book as a two-party contract, the Employer is given the unilateral right under this Sub-Clause to determine matters in respect of a broad range of matters. The thinking behind this was presuambly to ensure that decisions are taken when required to minimise delay. The Employer has such rights in respect of the Sub-Clauses listed below.
[2000
2.1 [Right of Access to the Site]; 2.5 [Employers Claims]; 4.19 [Electricity, Water and Gas]; 4.20 [Employers Equipment and Free-issue Materials]; 4.24 [Fossils]; 7.4 [Testing]; 8.9 [Consequences of Suspension]; 9.4 [Failure to Pass Tests on Completion]; 10.3 [Interference with Tests on Completion]; 11.4 [Failure to Remedy Defects]; 11.8 [Contractor to Search]; 12.2 [Delayed Tests]; 12.4 [Failure to Pass Tests after Completion]; 13.3 [Variation Procedure]; 13.7 [Adjustments for Changes in Legislation]; 14.4 [Schedule of Payments]; 15.3 [Valuation at Date of Termination]; 16.1 [Contractors Entitlement to Suspend Work]; 17.4 [Consequences of Employers Risks]; 19.4 [Consequences of Force Majeure]; 20.1 [Contractors Claims] .
It may seem strange that one of the parties has the right to make
determinations regarding the respective rights of the parties. This was normally reserved for the truly impartial engineera rare bird nowadays. However, the Contractor is not obliged to give effect to the determination provided he gives notice of his dissatisfaction within 14 days in which case the determination is not binding. The fact that the Employer has the right to make a determination is not necessarily against the interests of the Contractor. If no agreement is achieved and the Employer fails to make a fair determination then this will be a breach of Contract and the Contractor may refer the matter to the Disputes Adjudication Board. No time limit is placed upon the Parties reaching agreement and the Sub-Clause does not define a period in which the Employer is required to make a determination. It is suggested that a time limit of 28 days should be imposed on the Employer to reach agreement with the Contractor and that a further 14 days are provided for making a determination upon failure to reach agreement. The Contractor must be aware that the Sub-Clause places no obligation of the Employer to label his decision a determination. Conversely, the Contractor is required to give notice, to the Employer, of his dissatisfaction with a determination within 14 days of receiving it. Consequently in cases of dispute as
to whether a communication was a determination or otherwise it would be very unusual and grossly unfair for the Contractor to lose his rights simply as a result of a failure to comply with the obligation to notify. However, every effort should be made to avoid dispute by establishing whether a communication from the Employer constitutes a determination or not. Avoidance of doubt is the safest way of ensuring that there is no loss of entitlement through any failure to lodge the required notice.
4. THE CONTRACTOR
Clause 4 [The Contractor] and Clause 5 [Design] set out the principal obligations and risks which are to be carried by the Contractor and both are much more onerous than any imposed by previous FIDIC Conditions of Contract. These two clauses intereact with each other on a number of very important issues and should be studied together to ensure that the extent of a contractors potential exposure is fully understood. The principal matters in Clause 4 which justify meticulous analysis and prudent appraisal are:
Pt. 4]
Fitness for purpose, Sub-Clause 4.1 [Contractors General Obligations], Nominated subcontractors, Sub-Clause 4.5 [Nominated Subcontractors], Setting out, Sub-Clause 4.7 [Setting Out], Site Data, Sub-Clause 4.10 [Site Data], Unforeseen difficulties, Sub-Clause 4.12 [Unforeseen Difficulties] .
unscrupulous Employer could argue that the Contractor is responsible for an omission and refuse to issue a variation order. The Contractors only protection against this type of behaviour is to prepare and agree as comprehensive and as detailed a schedule, as it is possible to prepare, setting out exactly what it is that is being provided. Failure of the Works to be fit for purpose carries punitive sanctions limited only by the terms of SubClause 17.6 [Limitation of Liability] .
relationships that are perceived to exist between the Nominated Subcontractor and either the Employer or his advisers. Contractors would be well advised to avoid or re-negotiate the terms of any contract that envisages such an arrangement. In the event that the Employer instructs the employment of a particular subcontractor despite the Contractors reasonable objections then the Contractor will have a very strong case against the Employer to recover all of his costs arising from the default of the Sub-contractor.
4.6 Co-operation
This Sub-Clause spells out the obligations of the Contractor. However, there is no equivalent or corresponding obligation on the Employer to secure that his directly employed other contractors coordinate or co-operate with the Contractor. In most contracts, but especially those where the Employer intends to place significant other contracts, it would be prudent to ensure that the Employer assumes clear and reciprocal obligations.
If practicable, check the setting out data prior to submission of the tender, or Clarify the basis of the offer and propose that the Employer retain responsibility under Sub-Clause 5.1.
The question of responsibility for data is discussed more extensively under Sub-Clause 4.10 [Site Data] and Clause 5 [Design] .
have no responsibility for the accuracy, sufficiency or completeness of such data, except as stated in Sub-Clause 5.1 [General Design Obligations] . Put simply, whatever the source, the Contractor is responsible for verifying data. In particular, the Contractor
is responsible for verifying and interpreting all data on subsurface and hydrological conditions, including environmental aspects. Such obligations are extremely onerous. The precise extent to which the exceptions offered under Sub-Clause 5.1 are actually applicable to the data supplied to the Contractor is debatable and it is recommended that the terms of the exceptions on offer in each individual contract be carefully scrutinised. Significantly, the disclaimer covers any information provided during the performance of the Works. Consequently the Contractor cannot rely on information provided by the Employer during the execution of the Contract and must always therefore establish its veracity unless the Employer retains liability under Sub-Clause 5.1 [General Design Obligations] . FIDIC recognise that, under certain circumstances, it will be impossible for contractors to comply with these obligations and propose a way out of this particular dilemma. They suggest, in the Introductory Note, that the Silver Book is not suitable for use where there is insufficient time or information for tenderers to scrutinise and check the Employers Requirements or for them to carry out their designs, risk assessment studies and estimating. FIDIC go on to state that, if contractors believe that such a situation pertains then they are advised to draw the Employers attention to FIDICs own recommendation which is to suggest a suitable alternative form of contract e.g. the Yellow Book! Instead of admitting that the Silver Book is inadequate on this important issue and amending it, they leave the Employer and the Contractor to choose a totally different form of contract at such a late stage in the implementation process that their proposal cannot be considered a credible alternative! Inevitably, it must be concluded that FIDIC have opted out and ducked the task of solving a difficult problem of their own making.
Employer to give the Contractor the right of access to the site. A matter to be clarified pre-contract.
5. DESIGN
A number of references have already been made to Clause 5, largely because it deals with the responsibility of the respective parties for the basic data, and it is for that same reason that it is considered to be one of the most important in the Silver Book. As has already been explained, Clause 5 [Design] establishes the fundamental and crucial principle that the Contractor has wide responsibility for the correctness of the Employers Requirements and there are only limited and inadequately defined exceptions to this principle. It is in the Contractors interest to make all proposed exceptions clear and precise.
Design criteria encompass many and varied technical matters that include amongst other things, quality standards, process design, capacity, design life and, in the case of process and power plants, equipment specifications. The Contractor must not only establish whether the design criteria are factually correct but must also establish whether they are adequate to achieve the desired performance and intended purpose, all in the limited time available during the tender period! Inevitably, it will be prudent for contractors to establish their own design criteria to ensure compatibility with their own design and to make this an integral part of the offer, even where design criteria have been provided by the Employer. Employers are likely to insist that performance criteria and definitions of intended purpose be complied with even if the technical specification fails to produce satisfactory compliance. Contractors must understand therefore that the Employers definition of intended purpose and his required performance criteria will invariably take precedence over detailed technical specifications.
Paradoxically, it could well be that in situations where the performance criteria are vague or are difficult to measure, then a statement of and compliance with a detailed technical specification could be a more appropriate safeguard. Whilst there is no specific declaration to limit the Contractors responsibility for omissions it should be reasonably limited to the physical limits of the Works, especially if the alleged omission could not reasonably be established by a careful study of the intended purpose or from legal requirements or standards. To be on the safe side, proposals should be appropriately clarified. The exceptions offered under Sub-Clause 5.1 are of fundamental importance to the Contract. They would appear to mitigate many of the Contractors extremely wide responsibilities for the definition and specification of the Works. It is crucial to keep sub-paragraphs (a) to (d) in mind when studying the Employers Requirements and negotiating the Contract. They are important enough to consider one by one. Sub-Clause 5.1 (a) states that, portions, data and information which are stated in the Contract as being immutable. This means that they are incapable of being changed and are, therefore mandatory on the Contractor and must be the responsibility of the Employer. It is therefore very important to check and confirm that the Employers Requirements state very specifically which parts are immutable. This is such an important matter that it must not be left to post contract interpretation and argument. Of particular importance is the need to identify any part of the Employers Requirements which uses the term the Contractor shall in respect of any data or information, as this could well make the requirement immutable, insofar as it is incapable of being changed by the Contractor. Under Sub-Clause 5.1 (b), the Employer is responsible for the correctness of the definition of the intended purpose and it is reasonable to conclude
therefore that the Employer also retains responsibility for ensuring that it actually fulfils his needs. Unfortunately, the Silver Book does not deal with the situation where the Employer has provided no clear and identifiable definition. If this important issue is left unresolved, it could well be that the definition could only be established later by an interpretation of the Employers Requirements. Such a situation would be unsatisfactory in the extreme and contractors would be well advised to insist that a definition be provided in the Employers Requirements. Criteria for testing and performance is normally the Employers responsibility and this is as stated in Sub-Clause 5.1(c), so this issue should not be a problem. Again however, contractors would be well advised to satisfy themselves that they are appropriate to their proposed design for the particular project. Sub-Clause 5.1(d) will undoubtedly give rise to a significant amount of discussion. According to this Sub-Clause the Employer is responsible for those portions, data and information which cannot be verified by the Contractor, except as otherwise stated in the Contract. This is, to put it mildly, an interesting statement. The words cannot be verified are obviously open to interpretation but in this context, probably mean that it is either impossible or impractical to verify. Nowhere in the Contract or guidance notes is advice offered on how this is to be decided or against what yardstick it is to be measured. It might be assumed that the available time would be a deciding factor and yet no comfort is offered to the Contractor by including a statement such as with reasonable regard to time and economy. However, in the event of dispute, commercial practicality could still be a reasonable defence
when interpreting the word cannot. In the long term, only arbitrators or the courts will establish where the border lies between can be verified and cannot be verified. It would certainly be sensible for contractors to state in their tenders which parts of the Employers Requirements could not be verified. Such a statement should at least lead to a discussion to establish who is to be responsible for which information. It is important that these matters are agreed before the Contract is signed if dispute is to be avoided later.
until reviews of the contractors documents are completed to the satisfaction of the Employer is, to put it mildly, a recipe for disaster. The provisions for review of documents are overly prescriptive and give the Employer too much freedom to interfere with and disrupt the Contractors design. The Contractor has total responsibility for achieving the performance criteria and must therefore have total freedom to achieve this objective free of the Employers interference. Contractors Documents should be given to the Employer for information and the Contractor should at his own risk, be entitled to proceed with construction. To avoid potential conflict, contractors should set out in their tender document a clear and practical programme for the submission of all data, design and technical information required by the Employer and this should include a specific provision for work to proceed at all times, at the Contractors risk. The Contractors offer should be clarified accordingly and, to avoid dispute later, any differences of opinion on the procedure to be adopted should be resolved prior to contract signature.
between the Countrys technical standards and the Employers Requirements. Yet another matter for pre-contract discussions.
re-execution and the Contractor should have the right to carry out repairs to render the Plant or Materials acceptable and in accordance with the Contract. Should the Employer insist on a replacement in such situations then he should bear the additional cost.
2.1 Failure by the Employer to give access to and possession of the Site. (Cost plus reasonable profit added to Contract Price).
4.24 Discovery of fossils etc. (Cost but no profit added to Contract Price). 7.4 Delayed testing caused by Employer (see also Sub-Clause 10.3) (Cost plus reasonable profit added to Contract Price).
8.5 Delays caused by Authorities. (Extension of time only). 8.9 Suspension initiated by Employer (see also Sub-Clause 16.1) (Cost but no profit added to Contract Price).
10.3 Interference with testing by Employer (see also Sub-Clause 7.4). (Cost plus reasonable profit added to Contract Price).
13 The time consequences of variations are dealt with in Sub-Clause 8.4(a). 13.7 Changes in Legislation. (Cost but no profit added to Contract Price). 16.1 Suspension initiated by Contractor (see also Sub-Clause 8.9). (Cost plus reasonable profit added to Contract Price).
17.4 Employers Risks. (Cost but no profit added to Contract Price). 19.4 Force Majeure. (Cost but no profit added to Contract Price)
The variable remedies open to contractors should be carefully noted i.e. time only, time and cost and time, cost and profit. Here again, FIDICs logic is difficult to follow. The Red and Yellow Books contain, in addition to those mentioned in the Silver Book, the right to an extension of time in the following cases:
(i) exceptionally adverse climatic conditions; (ii) unforeseeable shortages in the availability of personnel or goods caused by epidemic or governmental actions; or
None of the new FIDIC Contracts contain the sweep-up clause found in the fourth Edition of the Red Book which refers to other special circumstances. It could be argued that the Force Majeure provision in Sub-Clause 19.1 [Definition of Force Majeure] gives the Contractor a right to an extension of time in the events listed above under (i)(iii). Manifestly, exceptionally adverse climatic conditions should be a Force Majeure event, as should shortage in personnel and goods albeit depending on the reason for such shortage. The difference between an undisputed contractual right to an extension of time and claiming Force Majeure is that additional requirements must be satisfied for the latter such as the delaying event could not have been provided against before entering into the Contract nor avoided nor overcome when it happens. The existence of a right to an extension of time is not dependent on these requirements.
which maintains that it is for the Contractor to decide whether acceleration measures should be undertaken or not, particularly if the Employers
justification for acceleration is that although the Contractor has not yet fallen behind he will fall behind. Contractors should have a strong incentive to adhere to the programme in any event, as their right to payment is normally tied to meeting programme milestones tied to a payment plan.
is justified, where, for example the Contractor has developed a unique know-how for a complete production process and it fails to perform as guaranteed and no other contractor is capable of putting it into satisfactory working order. In such circumstances, it would be unreasonable to expect the Employer to bear the consequences of the Contractors failure.
On the other hand, current practice in the event of termination is that the Contractor is entitled to payment for the value of the Works completed at the date of termination. Thereafter, it is up to the Employer to decide whether or not to complete the Works with another contractor. In both situations the Contractor must pay the Employers additional costs. In circumstances where the Works contain technology which is in the public domain, then the same principle should apply. However, it should be recognised that in such a case design responsibility for the whole of the Works could rest with the new Contractor and contractors faced with such a prospect should take due regard of the risks involved. It is important to understand the implications of this requirement, as the Contractor could be in a very serous situation in the event that Tests on Completion are not successful. It is important, in relation to this Sub-Clause to consider the limitation of liability under Sub-Clause 17.6 [Limitation of Liability] .
10. EMPLOYERS TAKING OVER 10.2 Taking Over of Parts of the Works
According to this Sub-Clause, Parts of the Worksshall not be taken over or used by the Employer, exceptas may be agreed by the parties. It fails to address the situation where the Employer uses the Works or part of the Works without the agreement of the Contractor. Various difficulties and risks could arise in such a situation none the least of which would be damage to the Works, which may not be covered by insurance. The Yellow Book offers a way out in Sub-Clause 10.2 [Taking Over of Parts of the Works] which states that if the Employer does use any part of the Works before the Taking-Over Certificate is issued: (a) the part which is used shall be deemed to have been taken over as from the date on which it is used
Sub-Clauses 4.1 [Contractors General Obligations] and 5.1 [General Design Obligations] make it absolutely clear that the Contractor is fully responsible for the design of the Works, including the correctness of the information on which he bases the design subject only to the important exceptions in Sub-Clause 5.1. As written this means that the Contractor takes responsibility for any design supplied by the Employer. No exception is made for the situation where part of the design is supplied by the Employer or the defect in the design is due to incorrect information or design criteria for which the Employer remains responsible in accordance with Sub-Clause 5.1. It is clearly a flaw in the Silver Book that such important exceptions are not expressly referred to. This is an unsatisfactory state of affairs and the Contractor should not be left to rely on a court or similar to establish that a reasonable interpretation is that a responsibility allocated to the Employer under Sub-Clause 5.1 should also have the effect that the Employer takes the risk and cost for remedying defects caused thereby. The Employers responsibility under Sub-Clause 11.2 (a) should be entirely consistent with that set out in Sub-Clause 5.1. It is therefore recommended that the Parties clarify this matter in the Particular Conditions. This will be particularly important where the Employer has responsibility for supplying a wide range of information or for important parts of the design. It is interesting to note that Sub-Clause 11.2 (a) in the Yellow Book has specific wording to cover just this situation.
It should also be noted that a similar ambiguity exists and is highlighted under Sub-Clause 17.3 [Employers Risks] and underlines the importance of getting the exclusions under Sub-Clause 5.1 absolutely correct.
(i) the Contractor cannot readily obtain the Goods required for the Variation, or (ii) it will reduce the safety or suitability of the Works, or (iii) it will have an adverse impact on the achievement of the Performance Guarantees. Notwithstanding any objections raised by the Contractor, the Employer may still confirm his instruction. The Employers right to unilaterally issue Variations does not fit well within the concept of an EPC Turnkey Contract and the grounds that permit the Contractor to object to a Variation are too restrictive. It should be at the Contractors sole discretion to refuse or accept a Variation if he believes that the price offered is wholly inadequate, the Variation will have an adverse effect on the undertaking of any of his obligations under the Contract or, following a request by the Contractor under Sub-Clause 2.4 [Employers Financial Arrangements], the Employer is unable to provide evidence that satisfactory financial arrangements are in place and being maintained to pay for the addition to the Contract Price resulting from the Variation Order. Should the Employer instruct the Variation despite the Contractor giving notice that he will not consider himself bound by the Variation, then the only remedy open to the Contractor is to refer the matter to the Dispute Adjudication Board.
This Sub-Clause represents a dramatic departure from normally accepted practices for dealing with the valuation of variations and Contractors would be well advised to agree the price of all variations before starting the additional work. The procedure outlined places the onus on the Contractor to prepare the design and price and to reprogramme the Works to accommodate the proposed variation. The Employer may then approve, disapprove or comment upon the Contractors submission. The procedure will involve the Contractor in a great deal of additional effort and expenditure that may not be recoverable if the variation is not approved or is substantially amended by the Employer. Accordingly, the Employer should be made aware at the time of Tender that the Contractor will expect to recover such additional expenditure.
If the price of a variation is not agreed, then it shall be unilaterally determined by the Employer under Sub-Clause 3.5 [Determinations], and ultimately, in the event of disagreement, by the Disputes Adjudication Board or Arbitrator. Reasonable profit will be allowed but this does not necessarily mean the same profit margin as is built into other contract rates or in prices for comparable works or that comparable rates will apply.
Sub-Clause 4.2 [Performance Security] and Sub-Clause 14.2, whichever is later. Contractors may consider these periods too long before receipt of the advance and could indeed require payment of the advance as a condition precedent to the commencement of work on Site.
when the Works are ahead of programme he is entitled to an appropriate increase in the scheduled payment. If it is intended that the schedule of payments be based on the achievement of specific milestone events then this should be expressly stated. Otherwise, payments would be based on the actual value of work done.
This Sub-Clause provides for payment in respect of plant and materials provided they are in the Country in which the works are located. To obtain payment, the Contractor is to mark the relevant plant and material as being the property of the Employer or provide suitable insurance together with a guarantee equal to the value of the payment to be made. (See also comment under 14.3 [Application for interim Payments] above.)
could be extended by a maximum of two years. The release of the final tranche of Retention Money could therefore be up to three years after completion. The full release of Retention Money may be further delayed if any work remains to be completed, as the Employer may withhold the estimated cost of any outstanding works. The above restrictions, together with differing interpretations of the meaning of the word promptly could result in a protracted period of delay before the Contractor is able to recover his Retention Money. Pressure on contractors cash flow could be avoided if the Employer is prepared to accept a bank guarantee in lieu of retention.
14.12 Discharge
A written discharge is to be submitted by the Contractor with the final statement and should be worded to provide for such discharge to become effective when the final payment has been received and all bonds and guarantees returned.
require the Contractor by notice to make good any alleged failure to carry out any obligation under the Contract. If the Contractor fails to comply with such notice, the Employer has the right to terminate the Contract under Sub-Clause 15.2 [Termination by Employer] . In circumstances where the Employer has given the Contractor a very brief and vague description of the scope of work and the Contractor is responsible for the design and tied into a lump sum price, such a provision would be very dangerous for the Contractor. In situations where the Parties have made different interpretations of the Employers Requirements, then this provision enables the Employer to impose his view on the Contractor by threatening termination of the contract if the Contractor will not comply. Such a right should only apply in the event of material breach of contract.
The right of the Contractor to terminate the Contract is subject to notice periods that could extend to 84 days. In the case of failure to receive reasonable evidence with regard to the Employers financial arrangements
(Sub-Clause 2.4 [Employers Financial Arrangement]) or failure to pay the Contractor amounts due (Sub-Clause 14.7) the Contractor must allow 42 days to elapse to demonstrate non-payment. Thereafter he must give a further 14 days notice before he may terminate the Contract. These time limits are too long. The Contractor must continue working even if the Employer has failed to pay. It would be more equitable if (similar to the other grounds for termination in Sub-Clause 16.2) the Contractor were required to give 14 days notice, particularly in the case of suspension of work by the Contractor. The situation will be more complex where project finance is in place and a lender has step-in rights. However, the same basic principles should apply.
Employers Risk because it is intended that the Contractor bears the full risk. Omitting the operation of (exceptional) forces of nature from the list of Employers Risks is very burdensome. Generally speaking,
their specific occurrence is unforeseeable even by an experienced Contractor, and an experienced Contractor can not be expected to take adequate precautions against them. In view of the Contractors inability to foresee such risks the Contractor cannot make any realistic risk assessment. Accordingly, any estimate in respect of such events can only be speculative. If the Contractor does not want to assume such risks the corresponding provision of the Yellow Book Sub-Clauses (f), (g) and (h) should be adopted as a more appropriate risk allocation.
that includes natural catastrophes such as earthquakes, hurricane, typhoon or volcanic activity.
Cost of repatriation of staff and labour. If the Contractor wants to receive profit on these Costs, a corresponding provision would have to be included in the Contract.
prejudice his entitlement by failing to comply strictly with a notice provision but he should certainly not forfeit his rights altogether and neither should the Employer be discharged from any and all liability in connection with an event. It is ironic that this provision would also apply when the event or circumstance giving rise to the claim is caused by the Employer in the first case e.g. refer to Sub-Clause 8.9 [Consequences of Suspension] . A comparison of the notice provisions under Sub-Clause 20.1 with the notice provisions under SubClause 2.5 [Employers Claims] where the Employer is required to give notice as soon as practicable after becoming aware of the event or circumstance. This demonstrates an unfair imbalance between the position of the Employer and that of the Contractor without any reason being offered for such imbalance. In addition to the first 28 day notice period the Contractor is also subject to a 42 day period by which he has to send to the Employer a fully detailed claim with full supporting particulars. (See also the provisions for continuing claims.) Due to the complex nature of the Works in an EPC contract this could prove to be extremely difficult and inevitably, the task of compiling and interpreting the relevant facts to support and justify the claim will be a time consuming and long drawn out process. Such provisions could be lead to intensive disputes and costly arbitration. The sixth paragraph of this Sub-Clause requires the Employer to respond to a Contractors claim giving his approval or disapproval within a fixed period of time whereas the eighth paragraph requires the Employer to proceed in accordance wtih Sub-Clause 3.5 [Determinations] to agree or determine any extension of Time for Completion and/or any additional payment. It is not clear why these two separate procedures are required. However, it should be borne in mind that under Sub-Clause 3.5 there is no time limit within which the Employer has to make a determination. Contractors should read the Comments made under this Sub-Clause in conjunction with those under Sub-Clauses 14.10 [Statement at Completion] and 14.14 [Cessation of Employers Liability] all of which underline the importance of submitting all required notices in time to ensure that their rights are protected and maintained.
Projects would be much more effective under a standing body rather than one convened on an ad hoc basis. It would be particularly beneficial for the DAB to become conversant with the Contract and the Works at an early stage and to familiarise itself with the progress of the Works on a regular basis. Undoubtedly this will result in speedy and well informed judgments and consequently the procedures and draft agreements set out in the Red Book are to be preferred for such projects. Under these rules the DAB is appointed at the start of the Contract and remains in existence for the duration of the Contract unless agreed otherwise by the Parties.
EXECUTIVE SUMMARY
In their Introductory Note to the Silver Book, FIDIC describe the benefits to the Employer of turnkey project execution and state that passing responsibility for designing and constructing the works to the Contractor will relieve the Employer of responsibility for close supervision of the design and construction processes. FIDIC also maintain that there will be an increased certainty of the final price and fewer disputes if the Contractor assumes responsibility for the wide range of risks set out in the Silver Book. Regrettably, EIC cannot endorse this view and believe that the Silver Book falls a long way of short of meeting the objectives which FIDIC set down for it. Contractors accept that, by choosing a turnkey approach, Employers can reasonably expect the Contract to transfer as much risk as practicable to the Contractor, offer a high degree of certainty on the final price, facilitate the speedy completion of the Works and, in the event of dispute, provide for
[2000
their rapid resolution. Contractors on their part, are quite prepared to contract on a turnkey basis and accept additional risk, provided that risks can be identified, priced and managed, design and construction of the works is free of disruptive interference and disputes are resolved quickly and equitably. In a number of important respects, the Silver Book does not adequately satisfy the respective aspirations of Employer and Contractor and its failure to do so is best illustrated by consideration of those matters that most commonly give rise to disputes in turnkey projects;
inadequate definition of the scope of work; disruption of the design and construction process, inequitable allocation of risk and claims and dispute resolution.
Arguably, the submission of a qualified bid might lead to disqualification of the Contractors tender despite FIDICs recommendation in their Introductory Note that it should be used as a starting point for negotiations. Clarification of the Employers position on qualified tenders should be established before any decision is made to submit a bid.
In many instances, clauses in the Silver Book are in direct conflict with the obligations placed on Contractors. Not only is the obligation to define the scope of the Works loosely defined, it is also subject to reviews by the Employer who has the same power to interfere through instructions, approvals, variations and determinations as the engineer in a conventional construct only contract. Paradoxically, should any Employer exercise his right to interfere in this way it will inevitably undermine FIDICs primary objective, certainty of the final price.
cannot accept the extent to which Silver Book goes in attempting to make the Contractor responsible for almost every eventuality however unforeseeable. EIC believe that the Employer cannot pass liability for all risks to the Contractor and any contract signed under the Silver Book should clearly define where liability lies to ensure that contractors are in a position to accurately identify, price and manage those risks which are to be their responsibility. The Contractor must be especially alert to uninsurable risks, risks that are completely out with his control or risks that are likely to increase as a consequence of the actions of the Employer or third parties. Contractors should also be wary of those clauses, which, as drafted, could leave the Contractor at the mercy of an unscrupulous Employer. However, it is probable that the greatest challenge and consequently the greatest risk will be the difficulty of checking and confirming the accuracy or adequacy of the information and data supplied by the Employer. Contractors who accept contracts under the Silver Book are responsible for the accuracy
and correctness of all information and data regardless of its source. Contractors are advised to take particular care with clauses dealing with the definition of fitness for purpose and liability for unforeseeable difficulties and adverse physical conditions.
A comparison of FIDICs Conditions of Contract for Plant and Design-Build (the Yellow Book) and EPC Turnkey Projects (the Silver Book)
If further evidence is required to demonstrate EICs concerns regarding the Silver Book the following comparison of these two books highlights how far FIDIC have departed from their normal fair-handed and equitable distribution of risk and responsibility. Consequently, the Yellow Book provides a useful source of reference when drafting an alternative allocation
of risk and design responsibility. It is also extremely important to remember and to point out to clients at every opportunity that FIDIC is well aware of the fact that the Silver Book is highly unsuitable for certain types of turnkey projects. FIDIC makes this clear in the Introductory Note to the First Edition, by stating that it is not suitable in the following circumstances and that the Yellow Book should be used:
If there is insufficient time or information for tenderers to scrutinise and check the Employers Requirements or to carry out the necessary designs, risk assessment studies and estimating (taking particular account of Sub-Clauses 4.12 [Unforeseeable Difficulties] and 5.1 [General Design Obligations]) .
If construction will involve substantial work underground or work in other areas which tenderers cannot inspect.
If the Employer intends to supervise closely or control the Contractors work, or to review most of the construction drawings.
EIC consider that the following circumstances could be added to the list;
Where part of the design is made by the Employer and is binding on the Contractorsee also comments on Sub-Clause 5.1 [General Design Obligations] in this Guide.
As a final word the principal differences between the Yellow and Silver Books are worth highlighting:
The Yellow Book Responsibility for the design provided by the Employer and for providing specifications rests with the Employer. Responsibility for the correctness of information provided by the Employer remains with the Employer. The risk for unforeseen physical conditions is borne by the Employer.
It should be noted however, that the above only describes the overall responsibilities of the parties and that important exceptions apply in each particular case.
Comments on a number of individual clauses follow and deal with the matters referred to above in greater detail. Where considered appropriate comparative references are made to the Yellow Book.
ACKNOWLEDGEMENTS
EIC would like to thank the FIDIC Contracts Committee for the time they devoted to explaining the philosophy behind the publication of the Silver Book and for listening patiently to our arguments. We would also like to thank the Organisme de Liaison Industries Mtalliques Europennes (ORGALIME) and Mr Robert Akenhead QC for the important contributions they made in reviewing the final draft of this Guide and recommending improvements. EIC would also like to express its appreciation of the work carried out by members of the Conditions of Contract Working Group who produced this Guide: Lidia Amadio, Astaldi; Louise Axton-Wilkins, Costain; Eric Eggink, Ballast Nedam; John Fenwick, Amec; Dr Joachim Goedel, Hochtief; Frank Kennedy (Chairman), Carillion; Andrew Lee, Balfour Beatty; Agne Sandberg, Skanska; Charles Shankland, Eiffage. Thanks also to the Working Groups secretary Frank Kehlenbach and Martin Carrey