Common Pitfalls in FIDIC Contracts (Silver Book)

7 November 2017, Hanoi

 01 OVERVIEW OF FIDIC SILVER BOOK

Presentation
Agenda 02 WHAT EMPLOYERS SHOULD TAKE NOTE OF

03 WHAT CONTRACTORS SHOULD TAKE NOTE OF

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 FIDIC Silver Book
- an overview

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 OVERVIEW

• EPC Turnkey Projects

• Employer – sets requirements

• Contractor - single point of responsibility for Design & Construction

• Certainty – price and time for completion

• Ease of financing vs higher price
• Delay damages

• Risk allocation – mostly borne by the Contractor

• Administration – Employer or Employer’s Representative

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 What Employers
should take note of

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 AMBIGUITY OR DISCREPANCY IN CONTRACT DOCUMENTS

• Clause 1.5 sets out the priority of the documents forming the Contract:
• Contract Agreement
• Particular Conditions
• General Conditions
• Employer’s Requirements
• Tender and any other documents forming part of the Contract

• Red/ Yellow Books allow Employer to issue clarification/ instruction

• No such option in Silver Book

• Unless parties agree on how to resolve discrepancy – may lead to dispute

• No express exemption from the contra proferentem rule

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 AMBIGUITY OR DISCREPANCY IN CONTRACT DOCUMENTS

• Employer’s Requirements: specify detailed requirements for the Works.

• fixtures, fittings and equipment,
• supply of items such as consumables (eg spares, material used for testing)
• operational training requirement for the Employer’s Personnel
• tests on/after completion and damages for failure to pass these tests
• spare parts required
• warranties required

• Differences in standards within the same set of documents (eg. Tender)

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 AMBIGUITY OR DISCREPANCY IN CONTRACT DOCUMENTS

MT Højgaard A/S v E.On Climate and Renewables UK Robin Rigg East Ltd
[2017] UKSC 59
Facts:
• MTH to design, fabricate and install foundations for wind farms.
• Foundation failed shortly after completion.
• EON’s “Employer’s Requirements” – 2 Technical Requirements:
(i) Compliance with J101 standard; and
(ii) Foundation design to ensure lifetime of 20 years without replacement.
• One of the crucial calculations in the J101 standards for the axial capacity of grouted connections
in wind farm foundations proved to be overestimated by a factor of about ten, meaning that
transition pieces would start to slip down the monopoles into the sea (i.e. cannot last 20 years).
• Dispute as to who should pay for the remedial works (€26.M)
Findings:
• (1) Technology and Construction Court: MTH was responsible for the costs
• (2) Court of Appeal: Allowed MTH’s appeal. granted EON only nominal damages because testing
would not have revealed the J101 error
• (3) Supreme Court: higher standard will prevail and there MTH responsible
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 AMBIGUITY OR DISCREPANCY IN CONTRACT DOCUMENTS

Where there are discrepancies between the documents on the applicable

standards, instead of relying on the document on a higher priority, the
Employer may want the highest standard to apply.

• Example:
“…in the event of a conflict between or among the terms of this document,
the higher standard or greater requirement for Contractor shall prevail;
and in the event of a conflict between or among the terms of the Contract
Documents, the higher standard or greater requirement for Contractor
shall prevail…”

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 ACCESS AND POSSESSION OF SITE

• Clause 2.1: Employer is required to give Contractor right of access to and

possession of, all parts of the Site within the time stated in the Particular
Conditions (or if not specified, by the Commencement Date).

• “If the Contractor suffers delay and/or incurs Costs as a result of a failure by
the Employer to give such right or possession within such time, the
Contractor shall give notice to the Employer and shall be entitled subject to
Sub-Clause 20.1 to:

(a) an extension of time for any such delay…

(b) payment of any such Costs plus reasonable profit, which shall be
added to the Contract Price….”
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 ACCESS AND POSSESSION OF SITE

To limit exposure to additional costs, Employers may consider:

• Stipulating that EOT shall be the Contractor’s sole remedy -- i.e. delete limb (b)

• Removing the entitlement to “reasonable profit” – i.e. only costs.

• Setting a cap to the maximum compensation under limb (b) that the Contractor
may be entitled to.

• Stipulating that the Contractor shall only be entitled to any claim for additional
costs, under limb (b) or otherwise, for any period of delay that exceeds [30] days.

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 NOTIFICATION OF EMPLOYER’S CLAIMS

Clause 2.5
“If the Employer considers himself to be entitled to any payment under any Clause of
these Conditions or otherwise in connection with the Contract, and/or to any extension of
the Defects Notification Period, he shall give notice and particulars to the
Contractor.…

The notice shall be given as soon as practicable after the Employer became aware of
the event or circumstances giving rise to the claim….

The Employer may deduct this amount from any moneys due, or to become due, to the
Contractor. The Employer shall only be entitled to set off against or make any
deduction from an amount due to the Contractor, or to otherwise claim against the
Contractor, in accordance with this Sub-Clause or with sub-paragraph (a) and/or (b) of
Sub-Clause 14.6 [Interim Payments].”
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 NOTIFICATION OF EMPLOYER’S CLAIMS

• Clause 8.7 (delay damages)

“If the Contractor fails to comply with Sub-Clause 8.2 [Time for Completion], the Contractor
shall subject to Sub-Clause 2.5 [Employer’s Claims] pay delay damages to the Employer for
this default…”

• Clause 7.6 (remedial work)

• Clause 11.4 (failure to remedy defects)

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 NOTIFICATION OF EMPLOYER’S CLAIMS

NH International (Caribbean) Limited (Appellant) v National Insurance Property

Development Company Limited (Respondent) (Trinidad and Tobago)
[2015] UKPC 37 – UK Privy Council
Facts:
• Caribbean company, NHIC, engaged by NIPDEC to construct hospital in Tobago.
• Following disagreements between the parties, NHIC suspended works and terminated.
• In response to contractor’s under Clause 16.4 (loss pursuant to termination), NIPDEC raised
counter-claims. Contractor argued that lack of notification (clause 2.5) barred these c/claims.
Findings:
• (1) The arbitrator, Robert Gaitskell, found that clause 2.5 did not bar the owner’s counterclaims,
because he found that the words of clause 2.5 were not sufficiently clear to exclude common law
rights of set off.
• (2) In the High Court of Trinidad and Tobago, Rajnauth-Lee J, and (3) then all three judges in the
Court of Appeal, reached the same conclusion.
• (4) The Privy Council, however, disagreed, finding that the clause was effective to bar the
employer from setting off its cross claims.
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 NOTIFICATION OF EMPLOYER’S CLAIMS

[39] …although the closing part of clause 2.5 limits the right of an Employer in relation to raising a
claim by way of set-off against the amount specified in a Payment Certificate, the final words are
“or to otherwise claim against the Contractor, in accordance with this sub-clause”. It is very hard
to see a satisfactory answer to the contention that the natural effect of the closing part of clause
of 2.5 is that, in order to be valid, any claim by an Employer must comply with the first two
parts of the clause, and that this extends to, but, in the light of the word “otherwise”, is not
limited to, set-offs and cross-claims.

[40] More generally, it seems to the Board that the structure of clause 2.5 is such that it applies to
any claims which the Employer wishes to raise. First, “any payment under any clause of these
Conditions or otherwise in connection with the Contract” are words of very wide scope indeed.
Secondly, the clause makes it clear that, if the Employer wishes to raise such a claim, it must do so
promptly and in a particularised form: that seems to follow from the linking of the Engineer’s role
to the notice and particulars. Thirdly, the purpose of the final part of the clause is to emphasise
that, where the Employer has failed to raise a claim as required by the earlier part of the clause, the
back door of set-off or cross-claims is as firmly shut to it as the front door of an originating claim.
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 KEY TAKEAWAYS

1 Resolving ambiguities in requirements/ standards

2 Access and resulting liability for Contractor’s Costs + Profits

31. Timely notification of Employer’s Claims

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 What Contractors
should take note of

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 DELAYS AND ENTITLEMENT TO EXTENSION OF TIME

Clause 8.4

The Contractor shall be entitled subject to Sub-Clause 20.1 [Contractor’s Claims] to

an extension of the Time for Completion if and to the extent that completion for the
purpose of Sub-Clause 10.1 [Taking Over of the Works and Sections] is or will be
delayed by any of the following causes:

(a) a Variation…
(b) a cause of delay giving an entitlement to extension of time under a Sub-Clause of
these Conditions, or
(c) any delay, impediment or prevention caused by or attributable to the Employer, the
Employer’s Personnel, or the Employer’s other contractors on the Site.

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 DELAYS AND ENTITLEMENT TO EXTENSION OF TIME

“(b) a cause of delay giving an entitlement to extension of time under a Sub-

Clause of these Conditions…”
 Variation under cl 13.3
 Delay impediment or prevention caused by or attributable to the Employer, Employer’s Personnel
or other contractors
 Right of access to site: cl 2.1
 Fossils, coins etc found on the Site: cl 4.24
 Delays in testing due to Employer: cl 7.4
 Delays by public authorities not reasonably foreseeable: cl 8.5
 Suspension instructed by Employer: cl 8.9
 Prevented from carrying out tests on completion: cl 10.3
 Changes in legislations: cl 13.7
 Contractor’s suspension: cl 16.1
 Contractor’s termination: cl 16.4
 Employer’s risks, eg war, rebellion, riot, pressure waves: cl 17.4
 Force Majeure: cl 19.4
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 DELAYS AND ENTITLEMENT TO EXTENSION OF TIME

• Yellow Book:

• c) exceptionally adverse climatic conditions

• d) Unforeseeable shortages in the availability of personnel or Goods caused by

epidemic or governmental actions.

• Risks attached to these events are allocated to Contractor in Silver Book

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 DELAYS AND NOTICE FOR EXTENSION OF TIME

Clause 20.1

If the Contractor considers himself to be entitled to any extension of Time for

Completion and/or any additional payment… the Contractor shall give notice to the
Employer, describing the event or circumstance giving rise to the claim. The notice
shall be given as soon as practicable, and not later than 28 days after the
Contractor became aware, or should have been aware, of the event 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.

* Note: Condition Precedent

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 DELAYS AND RIGHT TO EXTENSION OF TIME

Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar

[2014] EWHC 1028 (TCC)

Facts:
• OHL contracted with the government of Gibraltar to design and construct a road around the
perimeter of Gibraltar Airport (including a tunnel).
• The project fell behind schedule, OHL stopped work and proposed to re-design the tunnel
because of excessive and unforeseeable contamination.
• GoG served notice terminating the contract.
• Dispute over responsibility for state of affairs.
• One of the issues to be determined was whether claims for extension of time in respect of 2
grounds for extension:
• (i) Adverse weather; and
• (ii) Rock claim (unforeseeable ground condition ** Yellow Book)

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 DELAYS AND RIGHT TO EXTENSION OF TIME

OHL’s EOT claim for weather (6 days in Dec 2010)

• 1st, relied on its December 2010 progress reports which simply stated:
“The adverse weather conditions (rain) have affected the works.”
• Held: “clearly nowhere near a notice under Clause 20.1”

• 2nd, relied on a letter dated 10 January 2011 to the Engineer which referred to the
December rainfall which it says has flooded the site and thus "come into contact
with the contaminated ground…and we are unable to discharge this rainfall from
site…In our opinion the foregoing will entitle us to an extension of time…”
• Held: That is not a notice of claim about being delayed by weather actually whilst
working in December 2010… the letter relates to future delay caused by the effect
and impact of weather on the contaminated material on site.

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 DELAYS AND RIGHT TO EXTENSION OF TIME

Form of Notice:
• In Obrascon, Mr Justice Akenhead provided useful guidance on the form of notice to be
given under clause 20.1.
• The contractor’s notice must be:
• (i) in writing;
• (ii) describe the event or circumstance relied on; and
• (iii) identify that it is intended to notify a claim for extension and/or additional payment.

[313]
“Additionally, there is no particular form called for in Clause 20.1 and one should construe it
as permitting any claim provided that it is made by notice in writing to the Engineer, that the
notice describes the event or circumstance relied on and that the notice is intended to notify
a claim for extension (or for additional payment or both) under the Contract or in connection
with it. It must be recognisable as a "claim”….”

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 DELAYS AND RIGHT TO EXTENSION OF TIME

Timing of Notice:

• General industry interpretation of clause 20.1, was that the back-stop date of 28 days for
giving a notice commenced when the contractor became aware, or should have become
aware, of the event or circumstance in question; on that basis many contractor’s found
they were too late to give notice when seeking an extension of time.

• Having regard to clause 8.4, Mr Justice Akenhead said that phrase “is or will be delayed”
meant that an extension of time can be claimed either when it is clear that there will be
delay (a prospective delay) or when the delay has been at least started to be incurred (a
retrospective delay).

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 DELAYS AND RIGHT TO EXTENSION OF TIME

A hypothetical example:
(a) A variation instruction is issued on 1 June to widen a part of the dual carriageway well away
from the tunnel area in this case.
(b) At the time of the instruction, that part of the carriageway is not on the critical path.
(c) Although it is foreseeable that the variation will extend the period reasonably programmed for
constructing the dual carriageway, it is not foreseeable that it will delay the work.
(d) By the time that the dual carriageway is started in October, it is only then clear that the Works
overall will be delayed by the variation. It is only however in November that it can be said that the
Works are actually delayed.
(e) Notice does not have to be given for the purposes of Clause 20.1 until there actually is
delay (November) although the Contractor can give notice with impunity when it reasonably
believes that it will be delayed (say, October).
(f) The "event or circumstance" described in the first paragraph of Clause 20.1 in the appropriate
context can mean either the incident (variation, exceptional weather or one of the other specified
grounds for extension) or the delay which results or will inevitably result from the incident in
question.

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 KEY TAKEAWAYS

1 Adverse climatic conditions and unforeseeable shortages

2 Formality of EOT claims

31. Importance of timely notification of EOT Claims

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 THANK YOU

Shannon TAN
Rajah & Tann Singapore LLP
9 Battery Road #25-01
Singapore 049910
+65 6232 0228

yu.inn.tan@rajahtann.com

www.rajahtannasia.com

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