Professional Documents
Culture Documents
Introduction
1. The purpose of this paper is twofold. First to provide a brief
overview of the history and development of the FIDIC form; and
second to discuss the different ways the employer and contractor are
treated when it comes to making claims. This second section includes a
brief discussion about the different approaches under the civil codes
and common law jurisdictions. This leads to a short comment at the
end about the treatment of force majeure.
2. Accordingly this paper is set out in the following sections:
(i) The FIDIC form: a brief history;
(ii) The new Fidic form 1999;
(iii) The MDB version of the New Red Book May 2006;
(iv) The future the new FIDIC DBO contract September 2007;
(v) Making a claim under the FIDIC form the employer;
(vi) Making a claim under the FIDIC form the Contractor;
(vii) Force majeure the FIDIC form and NEC3 compared
1. Gradually further
Switzerland. The UK did not join until 1949. The first edition of the
Conditions of Contract (International) for Works of Civil Engineering
Construction was published in August 1957 having been prepared on
behalf of FIDIC and the Fdration Internationale des Btiment et des
Travaux Publics (FIBTP)1.
4. The form of the early FIDIC contracts followed closely the fourth
edition of the ICE Conditions of contract. In fact so closely did the
FIDIC form mirror its English counterpart that Ian Duncan Wallace
said:
as a general comment, it is difficult to escape the conclusion that at
least one primary object in preparing the present international
contract was to depart as little as humanly possible from the English
conditions2.
5. One difficulty with the first FIDIC contracts was that they were
based on the detailed design being provided to the contractor by the
employer or his engineer. It was therefore best suited for civil
engineering and infrastructure projects such as roads, bridges, dams,
tunnels and water and sewage facilities. It was not so suited for
contracts where major items of plant were manufactured away from
site. This led to the first edition of the Yellow Book being produced
in 1963 by FIDIC for mechanical and electrical works. This had an
emphasis on testing and commissioning and was more suitable for the
manufacture and installation of plant. The second edition was
published in 1980.
6. Both the Red and Yellow Books were revised by FIDIC and new
editions published in 1987. A key feature of the 4th edition of the Red
Book was the introduction of an express term which required the
engineer to act impartially when giving a decision or taking any action
which might affect the rights and obligations of the parties, whereas
the previous editions had assumed this implicitly. Although this talk
concentrates on the new FIDIC forms, it should be remembered that
the FIDIC 4th edition (The Old Red Book) remains the contract of
choice throughout much of the Middle East, particularly the UAE.
7. In 1995 a further contract was published (known as the Orange
Book). This was for use on projects procured on a design and build or
turnkey basis, dispensing with the engineer entirely and providing for
an Employers Representative who, when determining value, costs
or extensions of times had to:
determine the matter fairly, reasonably and in accordance with the
Contract.
8. Consequently the need to submit matters to the engineer for his
Decision prior to an ability to pursue a dispute, was eliminated. In
sponsors were
added including the
International
Federation of Asian
and West Pacific
Contractors
Associations the
Associated General
Contractors of
America, and the
Inter-American
Federation of the
Construction
Industry.
2. I.N. Duncan
Wallace QC, The
International Civil
Engineering
Contract, 1974.
18. Now, the conditions provide that the Engineer shall proceed in
accordance with sub-clause 3.5 to agree or determine any matter:
the Engineer shall consult with each Party in an endeavour to
reach agreement. If agreement is not achieved, the Engineer shall
make a fair determination in accordance with the Contract, taking due
regard of all relevant circumstances.
19. Clause 4 is by far the longest sub-clause and covers the
Contractors general obligations including the requirement that in
respect of Contractor-designed works3:
it shall, when the works are completed, be fit for such purposes for
which the part is intended as are specified in the Contract.
20. This is an absolute duty.
21. Sub-clause 4.2 specifies that the Contractor shall provide a
Performance Security4 where the amount has been specified in the
Appendix to Tender, and the sub-clause continues with provisions for
extending the security. Some protection is afforded to the Contractor as
the sub-clause requires the Employer to provide an indemnity to the
Contractor against damage, loss and expense resulting from a claim
under the performance security:
to the extent to which the Employer was not entitled to make the
claim.
22. An Employer should decide upon the form of the performance
security during the finalisation of tender documentation. Whilst the
Old Red Book favoured Bonds which were in conditional terms,
payable upon default, there has been a general trend towards the use of
first or on-demand bonds5. This is reflected in the 1999 form where the
performance guarantees are in an on-demand guarantee form, which
are payable upon the submission of identified documentation by the
beneficiary. It is still necessary to state in what respect the Contractor
is in breach of his obligations6. In keeping with the intentions of FIDIC
to achieve a degree of uniformity and hence clarity, the securities
derive from the Uniform Rules of the International Chamber of
Commerce.7
3. Obviously, the
reference to design
changes throughout
the various FIDIC
forms.
4. The FIDIC
contract documents
include a number of
sample forms of
security.
5. See Lord
Denning in Edward
Owen Engineering
Ltd v Barclays
Bank International
Ltd and Umma
Bank (1978) QB
159.
6. Under some
jurisdictions, a
declaration made in
bad faith may be
capable of
challenge.
8. Great Eastern
Hotel Co Ltd v
John Laing
Construction Ltd 99
Con LR 45
9. Although in the
UK, section 109 of
38. Clause 19 deals with Force Majeure. As is discussed below, whilst the 1998 Housing
most civil codes make provision for force majeure, at common law,
Grants Construction
force majeure is not a term of art and no provision will be implied in & Regeneration Act
Volume 23 of the
ICLR, January 2006
a general right of set-off. The Employer can only set-off sums once the
Engineer has agreed or certified any amount owing to the Contractor
following a claim.
72. The Employer should remember that in accordance with sub-cause
14.7, he must pay any amount certified, even if he disagrees with the
Engineers decision. By sub-clause 14.8, were the Dispute
Adjudication Board to decide that the Employer had not paid the
amount due, the Contractor would be entitled to finance charges.
73. Sub-clause 2.5 imposes a specific notice procedure on any
Employer who considers that it has any claims against the Contractor.
Unless the Employer follows the procedure laid down by this subclause, he cannot withhold or otherwise deduct any sums due for
payment to the Contractor. The notice must be in writing and
delivered in accordance with the requirements of sub-clause 1.3. It is
unclear as to whether the particulars are required to be provided at the
same time as the notice is served. The sub-clause does not require that
the particulars are provided at the same time as no time limit or frame
is imposed on either.
74. The Employer must give notice as soon as practicable of him
becoming aware of a situation which might entitle him to payment.
Therefore unlike sub-clause 20.1, where a Contractor has 28 days to
give notice, there is no strict time limit within which an Employer
must make a claim, although any notice relating to the extension of the
Defects Notification Period must of course be made before the current
end of that period. In addition it is possible that the Applicable Law
might just impose some kind of limit.
75. It might have been thought that one option would have been to
suggest that the Employer should be bound by the same 28-day limit
as the Contractor. Instead, sub-clause 2.5 provides a simpler claims
mechanism with no time bar. However, the rationale for the difference
in treatment is presumably that in the majority of, if not all, situations,
the Contractor will be (or should be) in a better position to know what
is happening on site and so will be much better placed than an
Employer to know if a claims situation is likely to arise.
76. The particulars that the Employer must provide are details of the
clause (or basis) under which the claim is made, together with details
of the money is time relief sought. Details of any notices served by the
Employer are also required by sub-clause 4.21(f) to form part of the
regular progress reports.
77. Under sub-clause 3.5 of the Construction and Design-Build
Conditions, the Engineer must first try and agree the claim. Under the
EPC/Turnkey Conditions, the primary onus to agree or determine any
claims lies with the Employer. If either party is not satisfied with the
or circumstance.
If the Contractor fails to give notice of a claim within such period of
28 days, the Time for Completion shall not be extended, the
Contractor shall not be entitled to additional payment, and the
Employer shall be discharged from all liability in connection with the
claim. Otherwise, the following provisions of this Sub-Clause shall
21. Clause 20.1 is
apply.
identical in the Red,
Yellow and Silver
84. The NEC3 contains similar provisions:
Books, except that
in the Silver Book,
The Contractor notifies the Project Manager of an event which has the Employer
happened or which he expects to happen as a compensation event if
performs the role of
the Engineer.
The Contractor believes that the event is a compensation event and
The Project Manager has not notified the event to the Contractor.
If the Contractor does not notify of a compensation event within eight
weeks of becoming aware of the event, he is not entitled to a change in
the Prices, the Completion Date or a Key Date unless the Project
Manager should have notified the event to the Contractor but did
not.
85. That said, the regime is very different between FIDIC and NEC.
Under FIDIC, the duty is to notify of an entitlement to additional time
or money; under NEC3 there is a duty to notify of an event.
86. The key features of sub-clause 20.1 are that:
o The Contractor must give notice to the Engineer of time
or money claims, as soon as practicable and not later
than 28 days after the date on which the Contractor
became aware, or should have become aware, of the
relevant event or circumstance.
o Any claim to time or money will be lost if there is no
notice within the specified time limit.
o Supporting particulars should be served by the
Contractor and the Contractor should also maintain
such contemporary records as may be needed to
substantiate claims.
o The Contractor should submit a fully particularised
claim after 42 days.
o The Engineer is to respond, in principle at least, within
42 days.
o The claim shall be an interim claim. Further interim
updated claims are to be submitted monthly. A final
claim is to be submitted, unless agreed otherwise,
within 28 days of the end of the claim event.
o Payment Certificates should reflect any sums
acknowledged in respect of substantiated claims.
o Contrary to the old FIDIC Books22, the notice to be
served under sub-clause 20.1 relates to claims for an
extension of time as well as claims for additional
payment.
87. The 28-day deadline does not necessarily start on the date of the
claim event itself but on the date the Contractor objectively should
have become aware of the event. Whilst it is relatively easy to identify
the claim event in the case of a single event such as the issuing of
engineers instructions or the receipt of borehole tests indicating
unforeseen ground conditions, when, however, the claim event is a
continuous event, such as unforeseeable weather over a certain period
of time, it can become extremely difficult to pinpoint the exact start of
the 28-day period. The Contractor also needs to remember that where
the effects of a particular event are ongoing then, rather unusually, the
Contractor is specifically required to continue submitting notices at
monthly intervals.
88. As outlined above, it can immediately be seen that a different set of
rules apply to the Contractor than to the Employer.
Prevention
claim for liquidated damages and the contractor not deprived of its
right to claim for an extension of time in spite of its failure to serve a
valid notice.
98. This judgment gave rise to a long debate as to whether the same
principles should be applied in England and Wales and other common
law jurisdiction. Whilst some commentators argued that a similar
approach might be adopted26, others strongly rejected the reasoning of
the court in Gaymark.27
99. One author submitted that the better approach for resolving the
tension between time bar clauses and the prevention principle
would be to accept first that the prevention principle is a rule of
construction (as opposed to a rule of law) and can therefore be
excluded by contractual provisions such as sub-clause 20.1, and
second that the prevention principle does not apply because the
major cause for the contractors loss in the above circumstances is the
contractors failure to operate the contractual machinery28.
100. This second option was clearly accepted in 2001 by the Inner
House of the Court of Session of Scotland in the case of City Inns Ltd
v Shepherds Construction29, in which Lord MacFadyen found that
there was a causal connection between the contractor's failure to
comply with the notification provisions of the contract and its liability
to pay a sum of money which bears no relation to the loss resulting to
the employer from that breach of contract. Lord MacFadyen thus held
that the liquidated damages remained payable by the contractor:
on the basis that it is a genuine pre-estimate of the loss suffered by
the employer as a result of the delay in completion, and is not
converted, by the fact that the contractor might have avoided that
liability by taking certain steps which the contract obliged him to take,
but failed to do so, into a penalty for failing to take those steps. The
fact that the contractor is laid under an obligation to comply with
clause 13.8.1 [obligation to notify], rather than merely given an
option to do so, does not in my opinion deprive compliance with
clause 13.8.1 of the character of a condition precedent to entitlement
to an extension of time. Non-compliance with a condition precedent
may in many situations result in a party to a contract losing a benefit
which he would otherwise have gained or incurring a liability which
he would otherwise have avoided. The benefit lost or the liability
incurred may not be in any way commensurate with any loss inflicted
on the other party by the failure to comply with the condition. But the
law does not, on that account, regard the loss or liability as a penalty
for the failure to comply with the condition (The Vainqueur Jos, per
Mocatta J at 578, col. 2).
101. The crucial fact in this case was that, under the terms of the
contract, but for its failure to serve a valid notice on time, the
26. Keating on
Building Contracts
(8th edition 2006)
at paragraph 9-025.
Good faith
105. Unlike England, many jurisdictions are governed by their own
civil codes. Whilst these codes recognise contract autonomy and allow
the parties to determine the terms and conditions of their contract, they
will also insist that these conditions do not contravene any mandatory
provision of the law or public policy. One such example is the concept
of good faith. Many civil codes provide that a contract must be
performed in accordance with its contents, and in a manner consistent
with the requirements of good faith. It is not always that easy to define
what good faith might mean. The English courts have said this:
explain the
influence of some
of the concepts of
the French Civil
Code such as abus
de droit on the
Egyptian civil.
36. There is
anecdotal evidence
on certain NEC3
projects of 30 or 40
notices being served
in one day and it is
clearly in the
interests of any
project that the
parties concentrate
on getting the
project finished
rather than dealing
with claims.
However it is only
in the interests of
the Contractor if he
has an agreed on
how he is to
proceed with
claims.
Party from performing any of its obligations under the Contract. The
now classic example of this is the refusal of the English and American
courts to grant relief as a consequence of the Suez Crisis during the
1950s. Those who had entered into contracts to ship goods were not
prevented from carrying out their contractual obligations as they could
go via the Cape of Good Hope even though the closure of the Suez
Canal made the performance of that contract far more onerous.
126. Clause 19.7 of the FIDIC form is also of interest. Here, the
parties will be released from performance (and the Contractor entitled
to specific payment) if (i) any irresistible event (not limited to force
majeure) makes it impossible or unlawful for the parties to fulfil their
contractual obligations, or (ii) the governing law so provides. It acts as
a fall-back provision for extreme events (i.e., events rendering
contractual performance illegal or impossible) which do not fit within
the strict definition of force majeure laid out under sub-clause 19.1. It
also grants the party seeking exoneration the right to rely on any
alternative relief-mechanism contained in the law governing the
contract.
127. If English law applies, following the landmark case of Davis
Contractors v Fareham UDC37, the affected party will be able to rely
on the common law concept of frustration, which occurs whenever
the law recognises that without the default of either party a contractual
obligation has become incapable of being performed because the
circumstances in which performance is called for would render it a
thing radically different from that which was undertaken by the
contract. Here, the contract was to build 78 houses for a fixed price in
8 months. Because of labour shortages and bad weather, it took the
contractor 22 months to build the houses. It was held by the House of
Lords that the contract had not been frustrated. To claim frustration,
therefore, it will not be enough for a contractor to establish that new
circumstances have rendered its contractual performance more onerous
or even dangerously uneconomic.
128. For frustration, what is required is a radical turn of events
completely changing the nature of the contractual obligations. It is a
difficult test to fulfil, but not as difficult as that of sub-clause 19.4
(force majeure) or the first limb of sub-clause 19.7 which both refer to
the concept of impossibility (or illegality). To take the example put
forward by A. Puelinckx of a wine connoisseur signing a contract for
the construction under his house of a very sophisticated wine cellar38.
If the house is burned down before execution of the contract, leaving
the basement part in perfect condition, this will certainly be considered
frustration under English law. However, no claim could be put forward
under a strict interpretation of sub-clauses 19.4 or 19.7 as the house
could in theory be rebuilt and the contractual obligation to build the
cellar performed. French law would apply the same reasoning as subclauses 19.4 or 19.7 and because performance is still possible, would
38. Frustration,
Hardship, Force
Majeure,
Imprvision,
Wegfall der
Geschftsgrundlage,
Unmglichkeit,
Changed
Circumstances: A
Comparative Study
in English, French,
German and
Japanese Law
Journal of
International
Arbitration, Vol. 3
No. 2 (1986), pp.
47/66.
Close window