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legal alert: FIDIC 2017 – What’s New?

10 Jan 2018

In December 2017, FIDIC published new editions of its contracts for Construction – Red Book; Plant & Design – Yellow Book; and EPC/Turnkey Projects – Silver Book. The Green Book was not updated so the 1999 version is still to be used.

The aim of the changes are to:

  • improve project and contract management
  • balance risk allocation
  • avoid disputes
  • achieve clarity, transparency and certainty

The main changes are:

  • Structure - with additional defined terms and more detailed contract management obligations, e.g. the Yellow book includes an optional Contract Agreement; there is a new clause 21; Contract Data replaces the Appendix to Tender.
  • Project management obligations on both parties - includes new procedures to be followed and fixed timescales, failing which there are deeming provisions.  For example see below clause 3.5 regarding variations and timescales to follow once a dispute arises. 
  • Contract management - claims are to be dealt with as the project progresses rather than at the end of the project.  Both parties must follow the same process and are subject to the same time bars.  Clause 20 is split into ‘Employer’s and Contractor’s Claims’ and contains 2 time-bars.  A Notice of Claim must be given within 28 days of becoming aware of the event or circumstance giving rise to the claim.  A fully detailed claim must follow within 84 days of the party becoming aware of the event or circumstance giving rise to the claim (the 2 periods running concurrently), failing which the Notice of Claim lapses and cannot be re-submitted.  The exceptions are firstly, if the Engineer does not notify the expiry of the claim, it will not expire; and secondly, even if the Engineer has given an expiry notice, the Engineer has the discretion to decide if a Notice of Claim is valid, if late submission is justified.  However any waiver by the Engineer can be challenged by referral to the DAAB or arbitration.
  • Programme - the Contractor must provide greater detail to the Employer in the Programme under clause 8.3 (e.g. start and end dates for each activity, the float and critical path).  The Engineer/Employer must review the programme to ensure compliance with the Contract.  A new clause 8.4 requires each party to give advance warning of circumstances that may adversely affect the Work; performance of the Work; the Contract Price and/or delay execution of the Works.
  • ‘Disputes and arbitration’ – this is the new clause 21.  A Dispute Avoidance/Adjudication Board has been introduced.  It is a standing board not an ad hoc board, and is intended to have a more prominent role to attempt to resolve any disagreements between the parties.  The parties can jointly refer a matter to the DAAB or the DAAB may invite parties to jointly refer an issue or dispute.  Under clause 20.3, the DAAB also has power to waive a failure to follow a time-bar requirement but there is a 14 day time limit on a party seeking relief for the refusal of an Engineer to consider a claim because it is said to be time barred. 
  • New timescales to follow once a dispute arises - The Engineer is to consult with the parties in an attempt to reach agreement within a new 42 day timescale.  If no agreement is reached, the Engineer has a further 42 days to make a fair determination of the matter or Claim.  If the Engineer fails to make a determination in time then this is deemed to be a rejection of the Claim (clause 3.7.3).  If a party is dissatisfied with an Engineer’s determination, they must serve a Notice of Dissatisfaction within 28 days of the determination (time-bar).  If the party fails to give this Notice, the Engineer’s Determination will be deemed to be accepted and be final and binding on the parties.   If a Notice of Dissatisfaction is served, there is a 42 day time limit to refer disputes to the DAAB (time-bar).  If a party wishes to challenge the decision of the DAAB, it must issue a Notice of Dissatisfaction within 28 days of the determination, otherwise the DAAB’s decision shall become final and binding (time-bar).  These time-bars and procedures cannot be waived. Arbitration must be commenced within 182 days, failing which the Notice of Dissatisfaction will be deemed to have lapsed and is no longer valid.
  • Variations need to be in the form of a formal ‘Notice’ not just an email instruction as per FIDIC 1999 and it must specify that it is a ‘Variation Instruction’ and be signed by the Employer’s Representative.  The Contractor can submit a ‘Request for Proposal’, which is a notice to the Engineer that an instruction is a variation. If the Engineer does not respond within seven days then the Engineer is deemed to have revoked the instruction (clause 3.5).
  • The Engineer has an enhanced role. The Engineer is expected to be on site all the time and is to act ‘neutrally between the parties and shall not be deemed to act for the Employer.’  As above the Engineer has the discretion to waive the time bars relating to the issue of the Notice of Claim. 
  • The works must now be ‘fit for purpose’ as defined in the ‘Employer’s Requirements’, not the ‘Contract’, as was previously the case.  The Contractor is also required to indemnify the Employer against its design obligations and Works or major item of plant not being fit for purpose (clause 17.4) but the fitness for purpose indemnity is now included in the total cap on the Contractor’s liability under clause 1.15.  Contractors will need to check whether their professional indemnity insurance will cover such liability, as typically fitness for purpose obligations are not an insured risk.


The two main criticisms of the revised contracts are that they not drafted in a way that allows the adoption of a schedule of amendments (however FIDIC’s ‘Golden Principle’ is that the risk profile should not be changed) and that BIM has not been incorporated (although FIDIC intends to issue a Technology Guideline to support the use of BIM).

FIDIC 1999 versions can still be used, so it remains to be seen if the market will welcome the more prescriptive but proactive approach of FIDIC 2017.

 

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Contacts


Sarah Wilson | Partner

Email:
sarah.wilson@watsonburton.com
Tel:
0345 9010930