FIDIC's ORANGE BOOK - FIT FOR ITS PURPOSE?

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INTERNATIONAL CONSTRUCTION REVIEW CORBETT & CO

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FIDIC's ORANGE BOOK - FIT FOR ITS PURPOSE?

The Orange Book, FIDIC's long-awaited Design - Build and Turnkey form of contract, is now out. Clients and lawyers
may find things to smile about, but engineers and contractors are less well served.

Since the publication of the draft Test Edition in December 1994, contractors have argued that fitness for purpose
should not be imposed for design and build contracts. Their principal arguments against a fitness for purpose clause
are:

z that it imposes on the Contractor a liability for design greater than that of a professional;
z and obtaining insurance for a non-fault based liability is costly and difficult.

FIDIC argued that as the law in many jurisdictions would imply a term of fitness for purpose then the clause added
nothing new and the Contractor would have the risk in any event.

The Courts will only imply a term of fitness for purpose where there is no clause dealing with design liability and
where one would give "business efficacy" to the contract.

A clause imposing an obligation of reasonable skill and care in design would effectively prevent a fitness for purpose
clause being implied.

Clause 4.1 of the Orange Book, which imposes the fitness for purpose obligation, states that the "purpose" is as
defined in the Contract. The documents that form the Contract are prioritised and the Employer's Requirements is the
most important document after the optional Contract Agreement and the Employer's Letter of Acceptance. The
Employer's Requirements will therefore be the key source for defining purpose.

Unless there is definition of the purpose, the Contractor has to infer the purpose from the totality of the documents.
Very often this is not a problem - a 20MW powerstation is a 20MW powerstation - but the Employer's purpose may
cover many other less easily defined criteria.

Design Risk

In his Tender, the Contractor states that he has checked the Employer's Requirements and found no errors. Before
undertaking his own design, it is for the Contractor to check the Employer's Requirements again and to satisfy
himself of the correctness of any design and calculations included. A variation may be claimed under clause 14 for
any errors found.

Under Clause 5.1 of the Orange Book the Contractor holds himself and his design team out as having the capability
and experience to complete the design. It would appear that the standard to be expected by the design team is a
high one. Errors in the ER's that a reasonably competent architect or engineer would notice ought then to be noticed
by the Contractor.

The boundary between the Employer's responsibility to pay for errors in his Requirements and the Contractor's
obligation to produce a result fit for its purpose requires careful investigation. No doubt the intention is that the
Contractor is to check the ERs at the outset and that responsibility then passes to the Contractor.

We doubt it is that simple.

Farewell the Engineer

Engineers may not be too pleased to see the disappearance of their cherished role as the Engineer. There is now an
"Employer's Representative" who must be a "suitably qualified engineer or other appropriate professional". FIDIC are
to be congratulated for bravely moving away from the much-criticised Engineer's dual role.

Lawyers, however, will rejoice to see the repeated use of a phrase that has kept them gainfully employed in relation
to adverse ground conditions. "Not foreseeable by an experienced contractor" is used in the Orange Book to enable
the Contractor to claim in relation to fossils, delays by local authorities, forces of nature and the suspension of work.
As experienced contractors can foresee most things, the phrase is not generally taken literally and the scope for
conflicting interpretations is vast.

Overall, the Orang Book is welcome as a clearly worded and understandable contract that is almost certain to find its
niche in the market.

http://www.corbett.co.uk/icr/orange_book_fit.htm 16/05/2011