NEC4 and FIDIC compared

The year 2017 will see the introduction of new editions of the FIDIC and NEC forms of contract.
Having been trialled last year in a pre-release version, FIDIC are launching the second edition
of their Rainbow suite of contracts in December, whilst, on 22 June 2017, the NEC4 form was
revealed. Jeremy Glover explains some of the changes to both contracts and at the same time
highlights some of the differences between the NEC and FIDIC forms.1

Use of the FIDIC and NEC forms

The first edition of the Conditions of Contract (International) for Works of Civil Engineering
Construction was published in August 1957, whilst the New Engineering Contract (“NEC”) was
first published in March 1993. In the UK, NEC3 was the contract of choice of the Olympic
Delivery Authority who were responsible for the planning, designing and building of the venues,
facilities and accommodation, and developing the infrastructure to support these, for the 2012
Olympic Games. NEC3 is also widely used in the decommissioning of nuclear power stations
and is currently being used on Europe’s largest construction project, the Crossrail project in
London. FIDIC is not used so much in the UK.

Since April 2015 all Hong Kong Government works departments have been required to tender
new projects using the full suite of NEC3 contracts. The NEC3 has also been widely used on
major projects in South Africa; the South African Construction Industry Development Board
currently recommends NEC3 contracts for public sector use in South Africa. In South Africa the
NEC3 form, along with FIDIC, is one of four contracts authorised for use under the Construction
Industry Development Board (CIDB) Act. Against it, it has been said that more contracts are let
under the FIDIC Red Book, annually by number, than any other single international form of
contract and that the FIDIC Red Book has been and is being used in more countries around the
world (160) than any other form of contract.2

When the NEC announced at the beginning of March 2017 that they were releasing the new
NEC4, they said that the three core drafting principles were as follows:

 stimulus to good management;

 support the changing requirements of users; and
 improve clarity and simplicity.
 The underlying philosophy behind the FIDIC 2016/2017 update is quite similar,
including:
 to enhance project management tools and mechanisms;
 to achieve a balanced risk allocation. This is being achieved through more reciprocity
between the Parties;
 to achieve clarity, transparency and certainty; and
 to reflect current international best practice.
At the June 2017 conference, where the new form was released, the NEC made clear that their
approach was “improvement through collaboration” or “evolution not revolution”. That does not
appear to be the case, with the pre-release version of the FIDIC Yellow Book being 50% longer
than the 1999 version. So the NEC4 is very much an update, the key features are the same and
the contract unsurprisingly still adopts the same plain English style. As well as updating the
existing NEC3, a new Design Build Operate contract has been introduced and the NEC are also
planning to introduce an NEC4 Alliance Contract. The NEC form has also adopted gender
neutral drafting, something FIDIC is expected to follow.

As with FIDIC, the NEC4 makes use of deeming provisions. A contractor’s programme will be
deemed to be accepted if the project manager does not respond within the contract timescales.
Again, as with FIDIC, the NEC4 introduces a requirement for the contractor to prepare a quality
management plan.

Structure and Format

There has been little change here. The FIDIC forms reflect different risk profiles: design and
build (Yellow Book), turnkey (Silver) and build-only (Red). With the NEC, the contracts are
arranged according to alternative pricing options: lump sum (option A), re-measurable (option
B), target cost (options C and D) and cost reimbursable (option E).

Both FIDIC and the NEC aim for standardisation. The 1999 Rainbow Suite contracts all have 20
clauses. This will increase to 21 and there is a high degree of similarity across the suite. The
1999 FIDIC form works by having standard clauses known as general conditions and then the
parties have the option to introduce Particular Conditions, which are meant to be project specific.

The foundations of the NEC form are the nine sections containing the core clauses. Beyond
these, a user selects the appropriate main option clauses to produce the contract appropriate for
the chosen procurement pathway. There are then a series of secondary option clauses known as
X-clauses. Finally, there are the additional conditions of contract known as Z-clauses. These
provide the parties, more usually the Employer, with the opportunity to insert bespoke terms or
amendments into the contract.

It is then up to the project participants to put the contract together. Care needs to be exercised
when doing this. In Transnet Soc Ltd v Group Five Construction (Pty) Ltd and Others,3 Jeffrey
AJ noted of an NEC3 contract that:

“This contract, in the result, contains a bewildering array of provisions derived from the various
NEC options, several of which were incorporated into the contract by the parties and which
follow neither a numerical sequence nor a uniform description. Also, the words used in the
blanks completed by the parties are often couched in a cryptic shorthand style."

It is unclear from the judgment the extent to which the parties had moved away from the
preferred NEC approach, but parties would do well to take heed of the words of Donald Keating
as recalled by Mr Justice Coulson in the case of Fenice Investments Inc v Jerram Falkus
Construction Ltd4:
“Donald Keating always advised parties who intended to sign up to construction contracts that
they should either use an unamended standard form of contract, or their own homemade contract
conditions, and that to attempt a mixture of both was usually a recipe for disaster.”

Both the FIDIC and NEC Forms lean towards the use of an unamended standard form, but
acknowledge that some amendment may usually be needed to take account of the particular
project conditions.

BIM
Previously the NEC had prepared a guide entitled “How to use BIM with NEC3 Contracts”. This
is no longer a part of the NEC4 contract suite. The “How to” guide had also explained how
NEC3 could be used with the CIC BIM Protocol. All references to the CIC Protocol are now
gone.

The new NEC4 contract instead includes a new secondary option, X10, specifically to support
the use of BIM. This, the NEC have said, will provide “the additional contract clauses required
to support the production of information for BIM”. As well as dealing with issues such as the
Model, ownership and liability, under the new BIM option the Contractor will be required to
provide an Information Execution Plan (the more standard phrase in general use is the BIM
Execution Plan) for incorporation in the contract either from the outset, or within a period
defined by the Client.

There is no mention of BIM in the pre-released second edition of the 2017 Yellow Book. That is
not to say that FIDIC has neglected BIM, far from it. At least three of FIDIC’s committees5 have
been asked to consider how best to deal with BIM. One particular difficulty for FIDIC is that, as
an international form of contract, it is designed for use throughout the many different
jurisdictions and cultures within which the engineering and construction industry operates. There
is far from being any uniform or standard approach. This is why any particular amendment to the
Rainbow Suite itself is not expected. FIDIC’s approach is more likely to be in the form of a
Guidance Note or perhaps a Protocol for use with the FIDIC form.

The programme and extension of time claims

In keeping with the trend in international contracts, and in line with the Red Book subcontract,
the second edition of the FIDIC form will include increased programming obligations (16 are
listed) within new sub-clause 8.3. NEC4 adopts a similar approach in clause 31.2. Although
FIDIC have retained their position that the programme does not become a contract document, the
Engineer is required to review the programme and say if it does not comply with the contract. If
the Engineer does not do this within 21 days, then the programme is deemed to comply. There is
also a positive obligation on the Contractor to update the programme whenever it ceases to
reflect actual progress.
With FIDIC, there is an interesting reference to concurrent delay, with new sub-clause 8.5 saying
that if a delay caused by the Employer is concurrent with a Contractor delay, then the entitlement
to an extension of time shall be assessed:

“in accordance with the rules and procedures stated in the Particular Conditions”.

This rather neutral comment, which does not appear in the NEC Form, will of course have the
effect of raising the issue of concurrency as a matter that needs to be dealt with by the parties
when they negotiate and finalise the contract.

Design responsibility
Under the FIDIC form, the Contractor will usually find itself subject to a fitness for purpose
obligation in respect of anything it designs. Clause 4.1 says this:

“When completed, the Works shall be fit for the purposes for which the Works are intended as
defined in the Contract.”

Under English or Common law, the fitness for purpose duty is stricter than the ordinary
responsibility of an architect or other consultant carrying out design where the implied obligation
is one of reasonable competence to “exercise due care, skill and diligence”.

In Viking Grain Storage v T.H. White Installations Ltd,6 Judge John Davies said:

“The virtue of an implied term of fitness for purpose is that it prescribes a relatively simple and
certain standard of liability based on the ‘reasonable’ fitness of the finished product, irrespective
of considerations of fault and of whether its unfitness derived from the quality of work or
materials or design.”

The NEC scheme is not always totally clear. Design is not mentioned in the core clauses, but the
secondary options do deal with design liability. Under NEC3, X15.1 provides that:

“The Contractor is not liable for Defects in the works due to his design so far as he proves that he
used reasonable skill and care to ensure that his design complied with the Works Information.”

The requirement that the Contractor prove that it used reasonable skill and care has been
amended slightly. Under NEC4:

“The Contractor is not liable for a Defect which arose from its design unless it failed to carry out
that design using the skill and care normally used by professionals designing works similar to the
works.”

However, regardless of whether or not the NEC contract includes X15.1, a Contractor should
check to see whether the obligations in the Scope (formerly Works Information) actually impose
a fitness for purpose obligation on any elements of design carried out by the Contractor.
Collaboration and good faith
Both the NEC and FIDIC contracts share an increased emphasis on collaboration. With the
NEC4, an option has been included to appoint a contractor at an early stage, to participate in the
development of designs and proposals. The basic idea is that this enables the contractor to
consider the design at an early stage when there is still scope to introduce improvements and/or
costs savings.

There is no good faith obligation in the FIDIC form, although such an obligation is implied by
most civil codes. However, clause 10.1 of the NEC form does include an obligation to act in a
spirit of mutual trust and cooperation. In 2017 Mr Justice Coulson had the chance to consider the
meaning of this clause in the case of Costain Ltd v Tarmac Holdings Ltd.7 He also noted the
comment in Keating on NEC3, that a parallel can be drawn between “mutual trust and
cooperation” and obligations of “good faith”. Keating on NEC3 refers to the Australian case of
Automasters Australia PTY Ltd v Bruness PTY Ltd,8 which says this:

“1. What is good faith will depend on the circumstances of the case and the context of the whole
contract.

2. Good faith obligations do not require parties to put aside self-interests; they do not make the
parties fiduciary.

3. Normal reasonable business behaviour is permitted but the court will consider whether a party
has acted reasonably or unconscionably or capriciously and may have to consider motive.

4. The duty is one ‘to have regard to the legitimate interests of both the parties in the enjoyment
of the fruits of the contract as delineated by its terms’.”

Mr Justice Coulson further noted that Keating also said that the term of mutual trust and
cooperation suggests that:

“whilst the parties can maintain their legitimate commercial interests, they must behave so that
their words and deeds are ‘honest, fair and reasonable, and not attempts to improperly exploit’
the other party.”

Early Warning
FIDIC have included a new early warning clause (8.4) in the updated Rainbow Suite. This
follows the scheme of the clause to be found in NEC3 and the FIDIC Gold Book. Under the
NEC4 scheme, for clarity the risk register has been renamed as the early warning register, and
under clause 169 the Project Manager prepares a first early warning register within one week of
the starting date. Regular early warning meetings are then to be held, beginning within two
weeks of the starting date.
The NEC approach is drafted to encourage the identification of problems and for the parties to
work together in order to establish an early resolution. This provides that a Contractor will only
be compensated on the basis that an early warning had been given, based upon the date on which
an experienced Contractor would have or ought to have recognised the need to give a warning.
Contractors are therefore encouraged to play their part in the early warning procedures, in order
to avoid inadequate cost recovery for those problems which materialise later on. FIDIC is not so
obviously prescriptive, but there is no reason why similar arguments cannot be raised.

Claims and notices

FIDIC have made it clear that a notice given under the new contract must clearly state that it is a
notice and make reference to the sub-clause under which it is issued. The NEC3 form already did
this. This is to try and reduce disputes about what is a notice where parties try and argue that
references in a programme or progress report actually constitute notice of a claim. There is an
obvious benefit in defining a notice as being one that needs to be identified as a notice and
including the sub-clause. However, it is equally true that this is not the type of provision that is
strictly followed. A failure to identify notices will then mean that there will be arguments about
whether a particular notice is a notice or not. Any such arguments will not simply be answered
by the new FIDIC definition, as local law, and the factual matrix surrounding the event may well
still come into play.

Disputes as to whether a notice is a notice or not may well continue despite FIDIC’s best
intentions. Indeed, as we have explained in our article on page 30 of this Review, the new sub-
clause 20.3 does provide the DAB with the power to waive a failure to follow a time bar
requirement. This is not something to be found in the NEC4 form, which like FIDIC includes a
time bar on Contractor claims.

FIDIC are clearly trying to move towards “real time” claims management. This is in line with the
NEC approach and is clearly potentially a good thing, and fully in keeping with current contract
trends. It is sensible to encourage the notification and early review of issues relating to
extensions of time and the financial impact of change in delay as the work progresses. It is fresh
in everyone’s minds and it should be easy to assess. There should be benefits for everyone. For
the Employer, they will be better informed about the moving contract price and likely
completion date. In theory, the Contractor should then also obtain better cash flow.

However, the proposed notice and claims procedures will undoubtedly place an increased burden
on both the Employer and Contractor to follow these new administrative requirements. The
global construction umbrella federation, CICA, and the three international contractors’
associations from Europe, Japan and Korea, EIC, ICAK and OCAJI, wrote an open letter dated
26 January 2017, calling upon FIDIC to maintain an equitable contractual standard.10 The open
letter noted that:

“the proposed contract administration under the updated FIDIC standard will become highly
bureaucratic and carry the risk that the parties are drawn into time consuming, costly and labour-
intensive dispute settlement alongside the ongoing project.”
Dispute Resolution and Dispute Adjudication Boards
Again, as with FIDIC, there is an increased emphasis on dispute avoidance. The “Dispute
Resolution” part of NEC3 has been renamed “Resolving and Avoiding Disputes” in NEC4.
Under NEC3, there are two Dispute Resolution options, W1 and W2, one for use where the UK
adjudication provisions, the Housing Grants, Construction and Regeneration Act 1996, apply,
one for where they do not. Both provide for adjudication as a mandatory precondition to
arbitration.

The NEC4 has introduced a new option of referral to senior representatives of the parties to the
project. The idea is to provide for a four-week period for negotiation to see whether a more
formal dispute can be avoided. This does not (and in the UK could not) affect the statutory right
to refer a matter to adjudication at any time.

In addition, the NEC4 introduces a new option, W3, which provides for the use of Dispute
Adjudication Boards (“DAB”). Only for use where the UK mandatory adjudication provisions do
not apply, the proposed DAB is similar in form to the FIDIC DAB. Under Option W3, the NEC4
DAB will be a standing DAB, nominated by the parties at the time the contract is formed. The
DAB will be encouraged to make site visits and so become familiar with the project at a time
when there are no disputes. It will also be able to provide assistance and non-binding
recommendations when disputes do arise.

Conclusion
It is, of course, too early to make any definitive conclusions on the new revisions.

However, the increased emphasis on dispute avoidance within both the FIDIC and NEC forms is
something to be welcomed.
Top 7 Fidic 2017 Changes

V&E Construction Disputes Update E-communication, February 8, 2018

On 5 December 2017, the International Federation of

Consulting Engineers (FIDIC) published new editions of its
suite of contracts, reflecting long-awaited responses to the
changing needs of the construction industry. Given its
general dominance in the Middle East, the changes to the
1999 FIDIC “Red Book” will be of interest to employers,
contractors, and engineers operating in the region. While
effectively every clause in the FIDIC Red Book has been
amended in the new edition, this briefing focuses on our view
of the Top 7 with the greatest impact on employers and
contractors alike.
Notices (Cl. 1.3): The 2017 Red Book includes notice requirements in approximately 80 places.
The term ‘Notice’ is now defined and distinguished from other forms of communication;
whereas the latter must reference the clause under which it is issued, a Notice does not. In
addition, all Notices and communications must “not be unreasonably withheld or delayed.”

Profit (Cl. 1.1.20, 13.3 & 15.6): In terms of Cost Plus Profit for relief events, unless stated
otherwise, a Contractor will be entitled to a 5% profit (while under the 1999 Red Book, there
was no stated figure). The 2017 Red Book also specifically entitles the Contractor to “any loss of
profit or other losses and damages suffered” for variations and termination for convenience.

Exceptional Event (Cl. 18): Force majeure is now called “Exceptional Event,” but the risk
allocation remains the same.

Advance Warning (Cl. 8.4): For the first time, the 2017 Red Book introduces advance warning
provisions, which require each Party to advise the other “in advance of any known or probable
future events which may (a) adversely affect the work of the Contractor’s Personnel; (b)
adversely affect the performance of the Works when completed; (c) increase the Contract Price;
and/or (d) delay the execution of the Works or a Section (if any).” There is no time limit for
giving an advance warning, nor is there any explicit sanction for failing to do so.

Extension of Time (Cl. 8.5): At least four important changes have been made to the EOT
provision. First, unlike the 1999 Red Book, the Contractor is not required to give a separate
notice of a claim for an EOT for a delay caused by a Variation (as this notice has been built into
the Variation clause at 13.3). Second, delay for “exceptionally adverse climatic conditions” has
been qualified to be “Unforeseeable having regard to climatic data.” Third, the Contractor has an
explicit entitlement to an EOT if the delay is caused by an increase of more than 10% of an
estimated quantity. Fourth, the clause specifically contemplates the parties adopt provisions in
respect of concurrent delay.

Claims (Cl. 20): The provisions relating to Claims and Disputes have been separated and
redrafted substantially. Clause 20 (Claims) sets out a procedure for (a) Employer Claims
(“additional payment from the Contractor (or reduction in the Contract Price) and/or to an
extension of the DNP”); (b) Contractor claims for “additional payment from the Employer and/or
to EOT”; and (c) either Party for “another entitlement or relief against the other...of any kind
whatsoever…except (a) and (b).” Notably, the existing 28-day time requirement for notifying
claims now applies to the Employer as well, and the old 42-day timeframe for the “fully detailed
claim” has been increased to 84 Days.

DAAB (Cl. 21): The newly introduced “DAAB,” which stands for “Dispute Avoidance /
Adjudication Board” (in contrast to the previous “DAB”), brings with it a number of important
procedures. First, unless the Parties agree otherwise, the DAAB members are to be appointed
within 28 days after the Contractor receives the Letter of Acceptance; there are also detailed
procedures for resignation, termination and new appointments. Second, the DAAB may provide
“Informal Assistance” if jointly requested by the Parties, who are not bound to act on the
DAAB’s advice. Third, in terms of time-bars (a) the DAAB must give its decision within 84 days
after receiving the reference; (b) a Party must refer a Dispute to the DAAB within 42 days after
giving or receiving a Notice of Dissatisfaction with the Engineer’s determination; and (c) a Party
that is dissatisfied with the DAAB’s decision must give an NOD to the other within 28 days or
else the decision becomes final and binding on both Parties. Fourth, arbitral tribunals are
empowered to order the enforcement of a DAAB decision, by way of summary or other
expedited procedure, whether by an interim or provisional measure or award.

It is clear that the drafters of the new edition have gone to great lengths to address previous
criticisms from users, including greater emphasis on dispute avoidance. While the new edition is
more rigid and prescriptive than its predecessor (not to mention, nearly double the length), which
is likely to put more pressure on employers and contractors to ensure they comply, the overall
risk allocation remains generally the same. Given its early days, it remains to be seen whether
regional owners and contractors adopt the 2017 Red Book or stick with its 18-year-old
predecessor.
My Orders Editorial Guidelines Edit Firm Edit KAH Access LinkedIn API Writing Tips What's Trending T&C

Home > Europe > Real Estate and Construction

Ireland: Updated FIDIC Contracts 2017: What Has

Changed?
Last Updated: 16 March 2018

Article by Niav O'Higgins, Karen Killoran and Niamh McGovern

Arthur Cox

FIDIC has long been the contract of choice for use on international construction and engineering
projects, and is used in Ireland, notably on infrastructure and energy projects. FIDIC produced a
core 'Rainbow Suite' of 4 contracts in 1999: the Red Book (for Building and Engineering
Works), the Yellow Book (Plant and Design- Build), the Silver Book (EPC/Turnkey Projects)
and the Green Book (short form contract).

In December 2017, the FIDIC Contracts Committee unveiled the much anticipated new suite of
"Rainbow" Contracts, with the publication of amended Red, Yellow and Silver books. The last
update to these contracts was 18 years ago, and the revisions to these contracts has been the
subject of much discussion and debate in the construction industry. This article focuses on some
of the main changes to the Yellow Book, many of which changes are also reflected in the revised
Red and Silver Books.

SO, WHAT HAS CHANGED?

The revisions introduced in the 2017 Yellow Book ("YB") are extensive, in both length and
effect, and affect Employers, Contractors and Engineers. The YB General Conditions now run to
108 pages in length (versus the previous 63 pages) and many clauses in the revised YB have
been completely re-drafted.
The use of FIDIC internationally in a diverse range of countries has driven many of the changes,
which are aimed at improving contracting practices across the globe. For this reason, however,
many of the changes may appear unnecessary or, indeed, unhelpful to Irish users. For example,
this is the case with certain of the terms which are now defined.

Defined terms

The 2017 YB brings greater clarity to the defined terms used throughout the contract, and these
are now listed in alphabetical order, where previously they were grouped by topic. This should
have the effect of making the 2017 edition of the YB more user-friendly particularly for new
users. Notably, there has also been an increase in the number of defined terms, for example, the
concept of "reasonable profit" from the 1999 Edition (which was open to interpretation) is now
defined, with the entitlement now to recover "Cost Plus Profit", with the profit element listed as
5% unless otherwise specified in the Contract Data.

The terms "may" and "shall" (used extensively throughout the General Conditions) have also
been defined, and the concept of "Force Majeure" has been replaced by "Exceptional Event"
(although the categorisation of such events remains broadly the same).

Significantly, there is a new defined term of a "Notice" such that where the contract requires the
service by one Party of a "Notice" on the other, such notice must fulfil certain requirements (e.g.
be in writing, correctly labelled etc.). This has been included to ensure that informal notices (for
example, by email) will no longer constitute validly served notices under the contract.

The Role of the Engineer

Greater clarity is given to the role of the Engineer. The 2017 YB specifies that the Engineer must
be fluent in the ruling language of the contract, and must be a professional engineer holding
suitable qualifications, experience and competence to act as the Engineer. The Engineer can also
appoint an Engineer's Representative and delegate to him/her the authority to act on the
Engineer's behalf. If appointed, the Engineer's Representative is required to remain on site for the
duration of the works. Save for the Engineer's role in relation to determinations or agreements
regarding claims, and issuing notices to the Contractor to correct breaches, the Engineer can still
delegate the discharge of its duties to assistants and must issue a formal Notice to the Employer
and Contractor for such delegation to be effective.

There is a reminder now included in the drafting that when making a determination, the Engineer
is obliged to "act neutrally" as between the Parties, and shall not be deemed to act for the
Employer.

As set out in further detail below in relation to determinations and claims, overall, the manner in
which the Engineer is required to administer the contract has become more prescriptive in the
2017 YB and a greater onus is placed on the Engineer to administer claims efficiently.
Claims and Engineer's Determinations

The procedure for Contractor and Employer Claims is one of the most significant areas of
change in the 2017 YB.

The provisions from the 1999 YB which set out separate claims provisions for each of the
Employer and the Contractor has been abolished, and in the 2017 YB, there is a single claims
procedure which applies to both the Employer and the Contractor.

Notification of Claims

Previously, the 28 day time bar for notification of claims applied only to the Contractor (running
from the date the Contractor became aware of the event or should have become aware of the
event). This time bar now applies to both parties under the 2017 YB, such that if the Employer
wants to make a claim (e.g. for a reduction of the Contract Price or an extension of the Defects
Notification Period) it is also subject to the 28 day limitation period. This is very unusual and
arguably does not reflect the nature of Contractor 'claims' under a construction contract as
distinct from an Employer's entitlements to apply deductions, say. This change, however, reflects
practices encountered in the international market.

There is also a requirement for a formal Notice (defined term) to be provided in respect of any
Claims, and to be valid, the Notice must describe itself as a "Notice of Claim" and refer to the
relevant clause, in addition to complying with the other notice requirement in Sub-Clause 1.3.
This has the effect of bringing greater clarity to the claims process, and means Parties will not be
able to rely upon 'informal' notices, such as references in emails or meeting minutes. If the
Engineer considers the Notice of Claim to be out of time, s/he must duly notify the claiming
party within 14 days of receiving the notice or the Notice of Claim will be deemed valid.

The time periods for claims has become more prescriptive. The Claiming Party must submit a
"Notice of Claim" within 28 days of the circumstance giving rise to the claim arising. Thereafter,
a "fully detailed" claim must be submitted within 84 days (under the 1999 YB, this period was
42 days), which includes:

a. a detailed description of the event or circumstance giving rise to the Claim;

b. a statement of the contractual or legal basis for the claim;
c. all contemporary records on which the claiming Party relies; and
d. detailed supporting particulars of the amount of additional payment (or reduction in the
Contract Price if the Employer is the Claiming Party), extension of time or extension of the
defects notification period claimed.

If fully detailed particulars are not provided within the 84 day time period, the Notice of Claim
lapses and will no longer be valid.
Determining Claims

Under the 2017 YB, the Engineer has a significantly expanded role in determining claims and
disputes, and in encouraging greater collaboration between the Parties. Where the Engineer is
required to determine any matter or claim, the Engineer is obliged to consult with both Parties
and encourage the parties to reach agreement within 42 days. If no agreement is reached within
the 42 day time period, the Engineer has a further 42 days to make a 'fair' determination on the
matter or claim. If the Engineer fails to make a determination within this period, the Claim will
be deemed to be rejected.

Variations

Under the 2017 YB, the variations procedure has now been split into two parts. The first is a
Variation by Instruction; whereby the Engineer may instruct a Variation by giving a Notice
(which must be in writing and labelled "Variation") to the Contractor and the Contractor must
submit a proposal. This is a significant departure from the 1999 YB, where the Engineer was not
obliged to issue variation instructions in writing. This change should result in greater clarity as to
when a variation has actually been instructed.

Significantly, if the Engineer issues the Contractor with a Notice which is not labelled as a
"Variation", and the Contractor considers that it is in fact a Variation, the Contractor can
immediately (before commencing any work) notify the Engineer that it considers that a Variation
has been instructed. If the Engineer does not respond to either confirm or revoke the instruction
within 7 days, the Engineer will be deemed to have revoked the instruction. This is an important
demonstration of the enhanced contract management role that the Engineer has under 2017 YB.

The second procedure under the 2017 YB is a Variation by Request for Proposal procedure. This
is essentially the same as the variations procedure in the 1999 contract; the Engineer may request
a proposal, prior to instructing a Variation, by giving a Notice to the Contractor and the
Contractor must submit a proposal or give reasons as to why it can or cannot perform the
Variation.

Fitness for Purpose

In the 2017 YB, the fitness for purpose provision (in Sub-Clause 4.1) now states "When
completed, the Works shall be fit for the purpose for which they are intended, as defined as
described in the Employer's Requirements (or, where no purpose(s) are so defined and
described, fit for their ordinary purpose(s))." This is a departure from the 1999 YB, which
simply stated that "the Works shall be fit for the purpose for which they are defined in the
Contract."

From the Employer's perspective, this change poses the question as to whether if a purpose is
stated elsewhere in the contract (outside of the Employer's Requirements), such purpose should
be disregarded from the perspective of the fitness for purpose warranty. From the Contractor's
perspective, this amendment means the Contractor's review of the Employer's Requirements
document should be thorough and comprehensive, to ensure that it is very clear from the
document what the "purpose" of the Works is intended to be.

A further significant change introduced by the 2017 YB is that the fitness for purpose obligation
is backed up by an indemnity in Sub-Clause 17.4 – the Contractor is now required to indemnify
the Employer for loss suffered by the Employer as a result of the works not being fit for purpose
(albeit that indirect and consequential losses are excluded from this indemnity). The inclusion of
this indemnity is likely to cause Contractors problems, particularly in light of debates about
whether and the extent to which the Contractor can assume a fitness for purpose obligation on
the basis of recent case law.

Dispute Adjudication / Avoidance Board (DAAB)

The new Clause 21 in the 2017 YB requires the Parties jointly to appoint a 'standing DAAB'; that
is, a Dispute Adjudication / Avoidance Board that is appointed at the start of the Contract, which
visits the Site on a regular basis and remains in place for the duration of the Contract to assist the
Parties in the avoidance of disputes, and in the 'real-time' resolution of Disputes, if and when
they arise.

CONCLUSION

The above changes reflect only some of the key changes introduced by the revised 2017 FIDIC
Contracts. It is fair to say that the changes introduced in the new suite of contracts are
significant, and undoubtedly it will take some time for contracting parties to become familiar
with the revised contracts. The revisions are intended to bring greater clarity to the contracts, and
to encourage increased collaboration between the Parties, albeit that it is possible that the more
prescriptive nature of many of the provisions may result in a greater burden on the Parties in
administering the contract.

It remains to be seen how the 2017 suite of contracts will be viewed by Employers, Contractors
and Engineers, and the extent to which the changes will be incorporated into contract documents
going forward.
20 Changes in the FIDIC 2017 Editions From
a Claims Perspective
December 18, 2017

|In Andy's Blog, Construction Claims, FIDIC, Notices

|By Andy Hewitt

I have just returned from the FIDIC International User’s Conference in London, attended by
roughly 400 delegates and speakers, all there to hear about the new editions of the Red, Yellow
and Silver FIDIC Forms of Contract. In this blog, I have highlighted 20 changes that are of
particular relevance to claims practitioners:

1. The Red Book now has 106 pages of General Conditions as opposed to the 1999 Edition
which had 62 pages. The Yellow and Silver books have been similarly increased. The increased
volume is said to bring greater clarity and include more procedures to be followed as a matter of
contract.

2. The word “Claim” is defined as ‘a request or assertion by either Party to the other Party for
an entitlement of relief under any Clause of these Conditions or otherwise in connection with, or
arising out of, the Contract or the execution of the Works.’

3. There is a provision to include a percentage in the Contract Data (formerly the Appendix to
Tender) and if no percentage is stated, the percentage shall be 5%.

4. The term “No-objection” has been introduced and defined.

5. “Notice” is defined as ‘a written communication identified as a Notice and issued in

accordance with Sub-Clause 1.3 (Notices and Other Communications)’.

6. There are many more requirements for the parties to submit Notices.

7. A “Notice of Dissatisfaction” may be issued by either Party if they are dissatisfied with an
Engineer’s determination.

8. There are more detailed requirements for the Contractor’s Programmes, including programmes
to show actual progress.

9. A provision is included for including rules and procedures to deal with concurrent delay.

10. Advance warning provisions have been included.

11. The procedures for evaluating and agreeing Variations and much more prescriptive.

12. The type of events previously included under Employer’s Risks and Force Majeure clauses
have been consolidated into a single clause – Exceptional Events.

13. Both Employer’s and Contractor’s Claims are now dealt with under Clause 20 (Employer’s
and Contractor’s Claims).

14. The provisions of dealing with disputes have been separated into a new Clause 21 (Disputes
and Arbitration) to reflect the fact that claims only become disputes if a Party gives a Notice of a
dispute.

15. Specific provisions of the requirements of a claim submission are included under Sub-Clause
20.2.4 (Fully Detailed Claim).

16. Under Sub-Clause 20.2.4 (Fully Detailed Claim), the claim submission period has been
extended from 42 days to 84 days, but submission has now become a condition precedent to
entitlement.

17. Under Sub-Clause 3.7 (Agreement or Determination), if the Engineer does not give Notice of
agreement of rejection of a claim within 42 days, the Engineer shall be deemed to have given a
Notice rejecting the claim.

18. The Dispute Adjudication Board (DAB) is now referred to as the Dispute
Avoidance/Adjudication Board (DAAB) which reflects enhanced requirements for the DAAB to
be proactive in dispute avoidance.

19. All DAABs are standing boards.

20. There are many more ‘deeming’ provisions whereby if a Party does not act in accordance
with an obligation, then the provisions will state that a specific action is deemed to have taken
place.

On the face of it, the 2017 forms of contract will require more contract administration if the
claim procedures are to be complied with, but if we think about things for a moment, this is not
necessarily the case. Many of the changes have been introduced because the parties simply did
not do things in the way that the 1999 versions required. For example, Contractor’s did not
submit claims within 42 days of the event and Engineers did not respond to claims within 42
days, but there were no consequences for failure to do so. Claims were therefore often left until
the end of the project and in many cases they then became hard to resolve and often resulted in
disputes which required additional and often costly resources to manage matters.

Isn’t it better to put the necessary resources in place from the beginning of a project to avoid
things reaching this situation and settle claims as the project proceeds? You may think that this is
an expensive option, but if we consider that the costs of arbitration may reach US$ 500,0000, I
think not.
After 8 years of preparations, FIDIC has finally published the updated versions of the contracts
Red Book, Yellow Book and Silver Book at the annual “FIDIC International Contract Users’
Conference” in London on 5 and 6 December 2017. The new contracts are expected to be
broadly applied similarly to the previous versions. In this Insight, we introduce the most
significant changes to the commonly used FIDIC Yellow Book and point out some of the new
provisions which employers, contractors and engineers should keep particularly in mind.
Furthermore, we include some remarks from the conference speakers.

Kromann Reumert will host a presentation of the new contracts on 19 January 2018.
Further information and registration details can be found here.

The FIDIC Red Book, Yellow Book and

Silver Book
Fédération Internationale des Ingénieurs-Conseils ("FIDIC") is an international federation of
consulting engineers founded in 1913 with members in close to 100 countries. FIDIC publishes
various standard contracts to be used for e.g. construction works, large-scale machinery supplies,
infrastructure projects, consultancy services, etc. Each contract applies to a specific area and is
characterised by an individual colour label. The contracts aim at distributing liabilities and risks
on the relevant parties, but they are not "agreed documents", i.e. contracts negotiated and agreed
between representative organisations (contrary to e.g. AB92, the Danish general conditions for
the provision of works and supplies within building and engineering).

The new versions of the FIDIC Red Book, Yellow Book and Silver Book were issued on 5
December 2017 and constitute updates of the former editions from 1999, which can still be used.
All three contracts have been significantly amended with the core aim of the majority of the
changes being increased clarity and certainty.

FIDIC Red Book is primarily intended for building and engineering works where the employer
bears the design responsibility. FIDIC Yellow Book is primarily intended for contracts on
electrical/mechanical installations where the contractor bears the design and project planning
responsibility, while FIDIC Silver Book is a turnkey contract. All three contracts have been
prepared for the purpose of tenders but may also, with a few adjustments, be applied without a
preceding tender. The advantage of applying the contracts is that they are all structured in the
same way. It is therefore easier for the tenderers to obtain an overview of the contracts and any
deviations from the standard wording and, consequently, to quickly prepare a tender.

In addition to the three contracts mentioned above, an updated FIDIC White Book to be applied
for consultancy/advisory services was published in the spring of 2017. FIDIC also offers a wide
variety of other standard contracts. We find that the FIDIC Yellow Book and the FIDIC Silver
Book are the ones applied most often, especially within the wind industry, for infrastructure
projects and in large-scale machine supplies, and also in contexts which they are not originally
intended for (e.g. where there is no design obligation).

Our comments in this Insight are based on the FIDIC Yellow Book, but the contracts are very
similar in their regulation.

Main changes to the Yellow Book

The 2017 Yellow Book is an update of the 1999 edition, and there are many similarities and
maintained provisions. The numbering is largely maintained, except that a few clauses have been
moved and clause 20 has been divided into two clauses: Clause 20 being "Employer's and
Contractor's Claims" and clause 21 being "Disputes and Arbitration". According to FIDIC, the
intention of this division is to obtain a clearer distinction between "claims" and "disputes".

Below, we will explain some of the most significant changes to the FIDIC Yellow Book, namely
in respect of:

1. The Engineer
2. Formalities
3. Fit for Purpose
4. Delays
5. Defects
6. Care of the works, indemnification and limitation of liability
7. Other changes to consider.

1. THE ENGINEER

The engineer is a key person in the FIDIC Yellow Book and Red Book (whereas the FIDIC
Silver Book has an “Employer’s Representative” instead). The engineer is appointed by the
employer and acts on behalf of the employer. The engineer is not a party to the contract, and the
engineer's liability is therefore not governed by the FIDIC Yellow Book (but should be handled
in the contract between the employer and the engineer). The engineer plays an even more
important part and has been given considerably more tasks and powers in the 2017 edition. The
engineer inspects, certifies, instructs, assesses, approves, mediates, makes decisions, etc.

Despite the fact that the engineer is appointed and remunerated by the employer and - in most
cases - acts on behalf of the employer, the engineer has an obligation to act neutrally. In addition
to the 2017 edition maintaining the engineer’s obligation to make fair determinations ("The
Engineer shall make a fair determination of the matter or Claim, in accordance with the
Contract, taking due regard of all relevant circumstances"), it thus also adds yet another general
obligation for the engineer to act neutrally ("When carrying out his/her duties under this Sub-
Clause, the Engineer shall act neutrally between the Parties and shall not be deemed to act for
the Employer").

This raises the question if the engineer can be one of the employer's employees? There is no
requirement in the FIDIC Yellow Book for the engineer to be an independent third party, so in
principle there is nothing to prevent the engineer from being employed by the employer.
However, it seems questionable whether an employee of the employer could de facto meet the
new neutrality requirement. Furthermore, the neutrality requirement is a very vague criterion,
giving rise to e.g. the question of which past experiences the engineer may rely on. According to
the FIDIC speakers, the word "neutrally" was the best suited as for instance "impartial"
conflicted with the fact that the engineer is hired by the employer, although it was debated if
there were better terms to be used. The guidance to the Yellow Book states that "...when acting
under this Sub-Clause the Engineer treats both Parties even-handedly, in a fair-minded and
unbiased manner".

CONSIDERATIONS:

 Employer
It is recommendable to leave out the requirement of neutrality if the employer intends to
appoint an engineer from the employer's own organisation. Given the vagueness of the
criterion, it should in all circumstances be considered whether to leave it out.

 Engineer
Special attention should be paid to the substantial increase in responsibilities and deadlines
(and thus the increased risk of making mistakes), also when concluding the agreement with
the employer.

2. FORMALITY PROVISIONS

The extent of the contract has increased significantly, primarily as a result of the inclusion of
further details in the individual provisions, but also, however to a lesser extent, due to the
introduction of new provisions. Many additional deadlines and procedures have been included
which are important to keep in mind, especially with regard to the noticing of claims, which has
become very formalistic and detailed. For example, going forward a notice must be identified as
such and all formalities in sub-clause 1.3 shall be complied with. Also, the handling of variations
in clause 13 has become much more detailed.

FIDIC's intention is to obtain a much better claims procedure, in which respect it should also be
noted that the 2017 edition contains a provision of "advance warning".
2.1 Employer's claims
The former (1999) provision in sub-clause 2.5 on the employer’s right to claim payment or extension of
the defects notification period has been deleted in the 2017 edition. According to that provision, the
employer had to raise its claim "as soon as practicable after the Employer became aware of the event or
circumstances giving rise to the claim".

Instead, clause 20 now (in the 2017 edition) covers both the employer’s and the contractor’s claims, and
consequently the employer shall also give notice of a claim within 28 days after the time when the
employer became aware or should have become aware of the event or circumstance resulting in a claim
for payment (or reduction of the contract price) or an extension of the defects notification period. In
addition, both the employer and the contractor must submit a fully detailed claim within 84 days
(calculated from the same date of commencement).

No specific deadline is set out in clause 20 in respect of other claims than mentioned above but if there
is a disagreement in respect of such other claim, the claiming party may refer the claim to the engineer,
which shall be done "as soon as practicable after the claiming party becomes aware of the
disagreement".

These new provisions thus make it very important to distinguish between claims for additional payment,
reduction in contract price and extension of the defects notification period on the one hand and other
claims on the other hand. Such distinction does not always seem clear to us.

The new deadline of 28 days calculated from the point in time when the employer should have become
aware implies a significant tightening of the employer’s obligations, which will be welcomed by some
considering the fact that the contractor and the employer will now be on equal footing (an equally risky
footing, one could say). Others will probably find this unreasonable based on the view that the
employer’s claims are often more complex than the contractor's. In any case, many people would
probably agree that either there will be an additional item on the agenda for the negotiation meeting,
and/or there will be a (significant) increase in the claims considering that it is better to raise one claim
too many rather than one too few. Some may believe it is better to raise claims on a concurrent basis in
order to avoid late, stale claims, which seems to be the opinion of some of the FIDIC speakers.

2.2. Engineer's determination

If the deadlines are not met, the right to enforce the claim will generally be forfeited. However, the 2017
edition contains provisions in respect of the engineer nevertheless determining the (late) claim and
which circumstances may be taken into account in such respect. In our opinion, clause 20 contains
contradictory wording in respect of the consequences of failure to comply with a specific time limit, and
there also seemed to be a certain misalignment among the FIDIC speakers in this respect. Should the
wording of the 2017 edition be used without modifications, it would be wise to consider the time limits
as firm time bars and not rely on a justification of a late claim by the engineer.
The engineer shall make a determination of the matter or claim pursuant to sub-clause 3.7 (the former
sub-clause 3.5), and the 2017 edition contains a number of new requirements as to how and how
quickly the parties must react if they disagree with the engineer’s determination. Attention should be
paid to the fact that if the engineer does not make a determination within the time limit concerning a
claim, the claim will be deemed rejected which, for the sake of clarification, also applies in respect of the
employer's claims. If a party wants to file a notice of dissatisfaction with the determination with the
DAAB, such notice must be filed within 28 days calculated from the date of the deemed rejection, which
definitely places heavy demands on the parties' claims procedure. This is further complicated by the fact
that in other parts of the contract, the engineer’s failure to react is considered a “notice of no
objection”, i.e. a tacit approval. The DAAB is a “Dispute Avoidance/Adjudication Board” consisting of
one to three members. Contrary to the 1999 edition of the FIDIC Yellow Book, the DAAB is now set up
from the beginning as a standing DAAB.

CONSIDERATIONS:

 Employer and Contractor

Attention should be paid to the many new requirements for processing claims, including time
bars and whether the engineer's failure to react is deemed an approval or a rejection. It
should be considered making it clear what the consequences are of failure to comply with a
time limit.

 Engineer
Attention should be paid to the excessive number of deadlines and procedures for handling
claims and the difficulties in reading clause 20 and sub-clause 3.7.

3. FIT FOR PURPOSE

The fit for purpose provision in sub-clause 4.1, to which many contractors are typically reluctant,
has been maintained in the 2017 edition with a change:

The 1999 edition of the FIDIC Yellow Book states that: "When completed the Works shall be fit
for the purposes for which the Works are defined in the Contract" while the 2017 edition states
that: "When completed, the Works (or Section or Part or major item of Plant, if any) shall be fit
for the purpose(s) for which they are intended, as defined and described in the Employer's
Requirements (or, where no purpose(s) are so defined and described, fit for their ordinary
purpose(s))".
This naturally poses the question whether the intention of the above is to obtain a factual change,
including whether a purpose expressly stated elsewhere in the contract (except in the Employer
Requirements) should be disregarded, which will probably be considered the general rule, and
which is also in line with the opinion of the FIDIC speakers; thus, a change in the contractors'
favour.

In addition to the above change, the 2017 edition introduces an indemnification obligation for the
lack of fitness for purpose of the works, see further details below under item 6.

CONSIDERATIONS:

 Employer
It is recommended to include a separate clause on the purpose of the works in the Employer
Requirements and (at least under Danish law) to clarify the understanding of a fit for purpose
provision. Furthermore, it is generally (as usual) recommended to ensure that the purpose
and requirements are described as precisely as possible, e.g. in respect of lifetime,
requirements for maintenance, etc.

 Contractor
Instead of relying on the "ordinary purpose", it is recommended to ensure that the purpose of
the works is described in detail and preferably that the understanding of the fitness for
purpose clause is clear. E.g. instead of stating that the works "shall require a minimum of
maintenance", it should be stated how often and to what extent maintenance is required.

4. DELAYS

Time schedules and delays are, obviously, very important aspects of a construction contract and
the provisions hereon have been detailed even more in the 2017 edition of the FIDIC Yellow
Book. As an example, the programme (i.e. the time schedule) is subject to many more
requirements, and sub-clause 8.5 introduces a provision on concurrent delays (i.e. delays
attributable to both the employer and the contractor occur at the same time). The provision is
relevant, but is nonetheless close to empty, as it only refers to what has been agreed in the
Particular Conditions, and if nothing has been agreed there, all relevant circumstances must be
taken into consideration. The provision does, however, serve as a reminder for the parties to
regulate the matter, which is often neglected. Along this line is a new provision in sub-clause
17.6 regarding "shared indemnities"; i.e. the scenario that both parties have contributed to an
event for which one of the parties shall indemnify the other.

Time extension for weather has been tightened so that it is limited to unforeseeable climatic
conditions at the site. If the construction of the works is sensible to adverse weather (e.g. due to
offshore works where the Yellow Book is often applied), the provision should be adjusted and be
much more detailed.

CONSIDERATIONS:

 Employer
It could be worthwhile considering an incentive scheme / upside sharing programme,
especially in respect of contracts on production plants where the value increase of early
delivery is considerable.

 Contractor
It should be considered if the provisions on extension of time are sufficient, especially in
respect of adverse weather (if relevant to the project).

5. DEFECTS

The defects liability is generally maintained as hitherto but with slight changes in the 2017
edition. For example, it now appears from sub-clause 11.4 that the employer may fix a date on or
by which the contractor must remedy defects if the contractor’s remedial work is “unduly
delayed”, whereas the criterion in the 1999 edition was “fails to remedy within reasonable time”.
Again, this may give rise to doubts as to whether the intention of this changed wording is to
obtain a factual change, and it does not seem clear from which point in time the undue delay is
calculated. Further, the reference in sub-clause 11.1 to sub-clause 7.5 seems difficult to follow.

Contractors should be aware that sub-clause 11.7 (“Right of Access after Taking Over”)
introduces a procedure for the contractor’s access to the works to remedy defects: the contractor
must request access on a certain, preferred date, and the employer must respond within 7 days by
either stating its consent or by proposing a new date. Only if the contractor incurs additional
costs as a result of any "unreasonable delay” by the employer in permitting access to the works,
the contractor will be entitled to payment of such costs (again it is not clear from which point in
time such delay is calculated).
There are still no provisions in the contract on serial defects, which - depending on the nature of
the delivery - should be considered by the employer.

CONSIDERATIONS:

 Employer
It should be considered whether to use the 1999 wording of the provisions mentioned above
or at least make it clear from which point in time certain deadlines are calculated. Protection
in respect of serial defects are also worthwhile considering.

 Contractor
Sub-clause 11.7 should be considered carefully, especially if the contractor has provided an
uptime or availability guarantee or is liable for production losses in general.

6. CARE OF THE WORKS, INDEMNIFICATION AND LIMITATION OF LIABILITY

Clause 17 has been changed in the 2017 edition of the FIDIC Yellow Book, however not as
substantially as in the draft circulated a year ago. Clause 17 is now entitled "Care of the Works
and Indemnities" and holds many of the provisions of the 1999 clause 17. Clause 18 is now
entitled "Exceptional Events" which replaces the 1999 clause 19 concerning force majeure. The
term "force majeure" is no longer used in the 2017 edition. The changes made to these clauses do
not, in our view, contribute much to an easy understanding of this very important issue, and the
wording seems unclear in some places despite the intention by FIDIC to obtain a much clearer
language.

The obligation of the parties to indemnify each other for certain claims has been extended by a
new provision in sub-clause 17.4 of the 2017 FIDIC Yellow Book, which has resulted in many
objections in connection with the review of the draft contract. The provision implies that the
contractor shall indemnify and hold harmless the employer "against all acts, errors or omissions
by the Contractor in carrying out the Contractor's design obligations that result in the Works (or
Section or Part or major item of Plant, if any), when completed, not being fit for the purpose(s)
for which they are intended under Sub-Clause 4.1 [Contractor's General Obligations]”.

This extensive obligation to indemnify the employer was - in the draft version of the FIDIC
Yellow Book circulated about a year ago - further exempted from the limitations of liability in
sub-clause 17.6 (now 1.15) resulting in this indemnity obligation not being subject to a liability
cap or an exemption for indirect losses. However, in the final version this is no longer the case
and FIDIC seems to have listened to the many objections against that provision.
As mentioned above, the limitations of liability are now found in sub-clause 1.15. Some changes
have been made to the exceptions of the overall liability cap and the exclusion of indirect loss,
which seem to be correcting the provision in the 1999 edition.

CONSIDERATIONS:

 Employer
Clause 17 and 18 should be read and considered carefully. If the employer has an obligation to
supply anything under the contract (other than the contract price), e.g. material, personnel
etc., clause 18 should be modified to also properly cover the employer.

 Contractor
The last paragraph of sub-clause 17.7 regarding the indemnification obligation in respect of
fitness for purpose should be considered and increases the need to have a clear description of
the purpose.

7. OTHER CONSIDERATIONS
 Contractor
It should be considered if it is acceptable that the employer may now (as opposed to the 1999
edition) terminate the contract for convenience and employ another contractor for the
execution of the works, provided that the original contractor receives compensation for loss
of profit.


 Employer and Contractor
While some clauses may have become rather extensive and perhaps "over-regulating", certain
important provisions still seem far too short and unregulated in the 2017 FIDIC Yellow Book.
This includes for example the provisions on assignment (clause 1.7), IPR (clauses 1.10 and
1.11) and confidentiality (clause 1.12). The confidentiality clause has, however, been
somewhat extended in the 2017 edition, but it still ought to be much more detailed;
moreover, it states that the contractor's confidential information must be marked as such,
which is undesirable for the contractor.

 Employer
The possibility to terminate for convenience has been tightened and the need for exit
possibilities should be considered. It should further be considered adding an escrow
agreement, provisions on access to spare parts during the lifetime of the works and an
 availability or yield guarantee. It also seems strange that the contract contains no provisions
on IT security (and the parties could consider adding cyber terrorism to the "exceptional
event" clause).

Final remarks
The changes to the 2017 FIDIC Yellow Book as described above naturally constitute only some
of the many, significant changes that have been made and many other provisions could have
been mentioned.

All things considered, it is our opinion that the FIDIC Yellow Book 2017 edition has many
advantages in that its provisions are more detailed and make higher demands on the parties’
handling and avoidance of disputes and on the focus on project management; however, the
contract also seems unnecessarily heavy seen from a contract management perspective, and it is
on many points difficult to read, inter alia due to a large number of cross references to other
clauses.

Nevertheless, it is the general expectation that the new editions of the FIDIC Yellow Book, Red
Book and Silver Book will achieve great penetration in the market of (international)
construction, infrastructure and large-scale machinery projects and the updated contracts are
indeed welcome in this regard.
FIDIC Forms of Contract- Major Changes in
the New Suit- 2017
 Published on February 7, 2018

 77

  3

 

RAMASUBRAMANIAN B.E. ACIArb

Contracts Management Professional at ADROIT PMC

The International Federation of Consulting Engineers (commonly known as FIDIC) launched its
much anticipated 2017 FIDIC Suite of Contracts at its annual users' conference which took place
on 5 and 6 December 2017 in London. FIDIC has published revised versions of its
internationally recognized "Rainbow Suite", namely the Red Book (Building and Engineering
Works), the Yellow Book (Plant and Design-Build) and the Silver Book (EPC/Turnkey
Projects).

The new, more prescriptive 2017 FIDIC books now consist of 21 clauses of General Conditions
of Contract rather than 20, and include far-reaching amendments compared to the 1999 model
provisions. The core aim of the majority of changes is increased clarity and certainty to reduce
the risk of disagreements and thereby increase the probability of successful projects.
In particular, the following modifications will have the largest impact on parties to international
construction agreements based upon the FIDIC books:

 The former Clause 20 [Claims, Disputes and Arbitration] has been split into Clause 20
[Employer's and Contractor's Claims] and Clause 21 [Disputes and Arbitration] to separate 'day-
to-day' Parties' claims from Parties' disputes. To highlight the distinction in the contractual
approach, Employers' Claims are no longer part of Clause 2 since these are now dealt with in
Clause 20 in the same way as Contractors' claims;
 Sub-Clause 3.7 [Determinations] of the Red and Yellow Books 2017, which replaces Sub-Clause
3.5, details the Engineer's role in dealing with Parties' claims and introduces a step-by-step
procedure with time limits;
 Sub-Clause 8.3 [Programme] has been updated with additional requirements for the initial
programme and all revised programmes to be submitted to the Engineer (under the Red and
Yellow Books 2017) or to the Employer (under the Silver Book 2017), i.e. the critical path and
any float or linked activities, key delivery dates for plant and materials, as well as any delays and
the sequence and timing of remedial works shall be displayed;
 Sub-Clause 20.2 [Claims for Payment and/or EOT] prescribes the step-by-step procedure to be
followed for Employers' and Contractors' claims for time and/or money. If the Engineer (under
the Red and Yellow Books 2017) or the other Party's (under the Silver Book) initial response is
that the Notice of Claim is time-barred due to the 28 day time-bar provision, but the claiming
Party disagrees, the claiming Party is required to include these points in the fully detailed claim
and these need to be taken into account in the agreement/determination;
 Sub-Clause 21 [Constitution of the DAAB] provides for a "standing" Dispute
Avoidance/Adjudication Board (DAAB), i.e. the board is appointed at the start of the Contract
and is in place for the duration of the Contract; furthermore, the procedure to obtain the
DAAB's decision and a Party's failure to comply with such decision has been clarified in Sub-
Clause

The above, however, reflects only the most important changes. The new FIDIC books include
further extensive changes, both in terms of length and effect. Nevertheless, teh stake holders
(Employer, Contractor or Engineer) should be fully aware of the amendments and what these
mean for them for the effective administration of these Contracts.
FIDIC 2017...The end of the rainbow?
Publication | January 2018

 Introduction
 FIDIC 2017 – At a glance
 The mantra: “Improved clarity and certainty”
 FIDIC’s five Golden Principles
 Is the future green?
 La vie en rose
 Choosing the right FIDIC contract
 Amending FIDIC contracts
 What constitutes “the contract”?
 YB17: Guidance for the Preparation of Particular Conditions and Annexes: Forms of Securities
  The Particular Conditions
 New definitions and a much broader interpretation clause
 Reciprocity
 Communications
 The Engineer
 The Contractor’s Documents
 Claims and Disputes
 Early warning
 A fully detailed claim
 Don’t forget the time bars
 The DAAB: Avoiding Disputes and Referring Disputes
 The devil is in the detail – Ignore it at your peril

Introduction
After one of the longer gestation periods in construction contract history and much publicity
surrounding the new suite’s inaugural event, FIDIC launched new editions of the FIDIC Red,
Yellow and Silver Books at its annual International Conference in London, which took place in
December 2017.

The conference was attended by double the usual number of delegates - a clear sign of the keen
interest in the new forms and confirmation that, when it comes to international contracts, FIDIC
is still king 60 years after the first Red Book was published. In fact, one of the opening remarks
made concerned the Red Book (the 2017 edition is its sixth incarnation): this form has been used
more than any other contract, on a global scale, and therefore made a huge contribution to
improved living conditions and greater prosperity around the world – a fitting tribute at the start
of the 30th International Conference.

We were delighted to be present among the glitterati of the international construction,

engineering and infrastructure procurement world. As practitioners in a global law firm, we were
thrilled by the number of delegates from Asia and Africa and, with an ever-increasing number of
FIDIC projects on the go, we were keen to find out more – not just about the new 2017 contracts
but also users’ experiences of the previous forms.

FIDIC 2017 – At a glance

After dipping a toe in the water with its 2016 special pre-release version of the Yellow Book 2nd
edition, this was FIDIC’s real opportunity to update and improve their most popular forms of
contract. In this overview, our comments are on the new Yellow Book (“YB17”) and the
comparisons made are against the first edition (“YB99”).

The first thing we noted was the weight of the contracts; upon closer inspection, we noticed that
the new forms have almost doubled in length. YB17 is still comprised of three parts – the
General Conditions (“GCs”), Guidance for the Preparation of Particular Conditions and
Annexes: Forms of Securities and Forms. Together with an appendix and additional annex, the
GCs now take up 126 pages in YB17, as opposed to 69 pages in the 1st edition; the Guidance
with Annexes take up 68 pages, as opposed to 30.

FIDIC users will be forgiven for thinking that the new forms appear to incorporate a fair chunk
of the amendments commonly made to the 1999 forms. From a page turn, it is also clear that the
new forms represent a change of form as well as content. By way of example, YB17 lists all
definitions in alphabetical order and introduces more headings (to aid interpretation); at the same
time, the fundamental concepts relating to claims and dispute resolution and the conditions that
relate to the separate disputes agreement and procedural rules that form the Appendix to the GCs
and the Annex to that Appendix have been expanded considerably. It would be fair to say that
FIDIC’s approach to dispute management and resolution constitutes one of the hallmarks of
FIDIC 2017.

Key features of the new forms include:

 more detailed contractual provisions (hence longer agreements) and guidance;

 new (and more) definitions and a broader interpretation clause;
 a broadening of the concept of communication through “Notices”;
 an expanded role for the engineer;
 variations to be dealt with as they arise;
 claims to be dealt with as they arise;
 more reciprocity of obligations between the parties;
 a distinction between a “Claim” and a “Dispute”, with the old clause 20 being split into two
provisions; and
 the introduction of ‘dispute avoidance’.

The mantra: “Improved clarity and certainty”

Early in the conference, speakers made reference to the Gold Book (the Design, Operate and
Build contract), which is now a decade old. It was acknowledged that take up of this form has
been poor and the lesson learned (by FIDIC) is to focus on the contracts which are being used
and the users’ needs.

Throughout the conference, FIDIC Committee member speakers re-iterated the raison d’etre
behind the new suite – to increase clarity and give more certainty. In producing the new forms,
FIDIC’s key aims were to:

 reduce the risk of disagreements over the interpretation of contractual terms;

 introduce mechanisms for disputes avoidance; and
 improve contractual provisions by making them more prescriptive, introducing step-by-step
project management and procedural mechanisms and setting out exactly what is expected from
each of the employer, the contractor and the engineer during the performance of the contract.

Evidence of “improved clarity” can be found throughout the new forms, such as:
  the old Force Majeure clause has been renamed ‘Exceptional Events’. As the GC that covers
Insurance mentions Exceptional Events, the two have been swapped around (so that GC 18 now
deals with Exceptional Events and GC 19 with Insurance). While the ‘Exceptional Events’ clause
is broadly the same as before (it now includes tsunami), the wording of the subsequent GC
covering insurance is new;
 in YB17, the contractor is now required (19.2) to take out professional indemnity insurance and
insurance covering his “Contractor’s Equipment, Materials, Plant and Temporary Works” from
the time they are brought onto the site until they are no longer required for the works; and
 the main limitation of liability clause has been moved from the back of the document to GC
1.15. Additions to the list of exclusions are set out and include Delay Damages, variations and
indemnities relating to infringements of and claims relating to IP rights.

FIDIC’s five Golden Principles

One of the presentations given at a previous FIDIC Conference was on the development of
certain ‘Golden Principles’ – principles which FIDIC considers to be inviolable and sacrosanct
and in accordance with which FIDIC contracts should be negotiated and executed. These are:

1. Duties, rights, obligations and responsibilities should generally be as defined in the GCs;
2. The Particular Conditions must be drafted clearly and unambiguously;
3. The Particular Conditions must not change the balance of risk allocation provided for in the GCs
(they must be drafted in compliance with the Abrahamson Principles, namely that risk should be
allocated to the party in the position to control them);
4. The parties should have a reasonable time in which to perform their obligations and exercise
their rights; and
5. All formal disputes must be referred to a Dispute Avoidance/Adjudication Board for a
provisionally binding decision as a condition precedent to arbitration or litigation.

These principles were covered again, at this year’s conference, in more detail and now appear in
the contracts themselves (in the introduction to the Particular Conditions).

Is the future green?

At the conference, a number of delegates mentioned that the issue of the three new editions has
effectively created a gap in the suite between the main forms and the Green Book (which is yet
to be updated). Whatever FIDIC users think of the new forms, the reality is that they contain
some new drafting and are considerably longer than their predecessors. Take up of the 2017
contracts may therefore be slow as users delay making a wholesale transition. FIDIC would
argue that, while the new agreements are longer, their provisions are more considered and this
should result in fewer disputes arising.

Mention was also made at the conference of the less sophisticated SME employer (aid agencies
and other similar entities that support smaller communities) who is more in need of a ‘Red-lite’
FIDIC contract rather than a ‘Green-heavy’ agreement incorporating substantial amendments. In
our view, the FIDIC suite has room for a new form – a contract for works of intermediate size
and complexity (as the JCT does) – but only time will tell how FIDIC proposes to deal with this.
La vie en rose
FIDIC users will be familiar with the Pink Book: first published in 2005, it is (in essence) a
version of the Red Book current at the time incorporating the additional clauses and standard
amendments which were often required and repeated whenever bidding documents were
prepared for multilateral development banks. Following the publication of the new Red Book,
one of the conference speakers from a multilateral financial institution even went as far as to say
that the new RB17 sounds the death knell for the Pink Book.

Choosing the right FIDIC contract

Another key message conveyed on the first day of the conference concerned the choice of
contract – or, more accurately, the wrong contract being selected in the first place with a plethora
of contractual amendments then being introduced.

Mention in particular was made of the 1st edition of FIDIC’s Procurement Procedures Guide
2011, a mighty 250 page tome with chapter and verse on the procurement phase from strategy
through prequalification to obtaining tenders, evaluation and finally award of contracts.

Amending FIDIC contracts

FIDIC has always voiced concerns over changes being made en masse to its contractual terms.
That said, it fully understands the need which users have to amend the agreements and, over the
years, it has developed its practice of selling licences to amend its contracts (which are subject to
strict terms).

With the evolution of the Golden Principles mentioned above, it is surely only a matter of time
before FIDIC re-publishes the guidance on its licence. In particular, mention was made at the
conference of FIDIC being able to confer “FIDIC-Compliant Contract status” on a contract
amended in accordance with its licence and, in addition, potential contractors bidding on a
project being able to ask whether the contract proposed has such status.

What constitutes “the contract”?

A recurring theme at the conference was the 2017 Supreme Court decision in MT Højgaard A/S v
E.ON Climate and Renewables UK, which restored the TCC’s original decision that the
contractor was liable to comply with a fitness for purpose type obligation “tucked away” in a
technical schedule, despite the obligations contained in the contract terms to exercise reasonable
skill and care and to comply with a particular international standard.

The Højgaard decision has significant ramifications for the interpretation of construction
contracts, which regularly incorporate schedules and technical documentation that, more often
than not, have not been “harmonised” as against the final conditions. Højgaard is also viewed,
by many, as yet another example of the courts returning to the literal meaning of contractual
terms; now, more than ever before, parties will be taken to mean what they say in their contracts.

YB17: Guidance for the Preparation of Particular

Conditions and Annexes: Forms of Securities
Templates of seven typical security documents (including a PCG and the bonds) appear as
Annexes at the end of the Guidance. These remain largely the same as before, except that
references have been updated (for example, the Uniform Rules for Demand Guarantees 2010
Revision).

Behind the Guidance (with Annexes) are the FIDIC Forms – template forms of a Letter of
Tender, a Letter of Acceptance, a Contract Agreement and Dispute Avoidance/Adjudication
Agreement between the parties and a DAAB member (“DAAA”).

Compared with YB99, the form of Letter of Acceptance is new, the separate YB99 Dispute
Adjudication and Dispute Adjudication Board Agreements have been merged and adapted into
the new DAAA and the three page YB99 Appendix to Tender has been moved to the front of the
Guidance now taking pride of place as the Contract Data.

The Particular Conditions

The bulk of the Guidance itself (that precedes the Annexes) concerns the Particular Conditions
(“PCs”), which are broken down into two parts - the Contract Data and the Special
Provisions. In the GCs, the Contract is defined as including the Conditions which, in turn, are
defined as the GCs as amended by the PCs.

The Introduction and the Notes on the Preparation of Tender Documents that appear within the
Guidance give a steer as to how the information required at tender stage is to be obtained and
also list the documents which should be issued to prospective contractors when going out to
tender.

The Special Provisions (“SPs”), which in YB17 are now twice as long as before, are the PCs
which amend or supplement the GCs. The Guidance contains a valuable reminder that the tender
documents should make it clear that the SPs take precedence over the equivalent provisions in
the GCs and the Contract Data takes precedence over the SPs.

It is important to read the Guidance thoroughly as certain points will need careful consideration.
For example, on page 35 of the Guidance, in the section on extending time for completion, the
commentary provided steers the parties towards making specific provision regarding the
contractor’s entitlement to an EOT where there is concurrent delay attributable to both parties
(“… the rules and procedures for assessing the Contractor’s entitlement to an EOT where there is
concurrency between delays attributable to both Parties shall be stated in the Special
Provisions.”).
In relation to concurrent delay, the Guidance makes reference to the 2nd edition of the UK
Society of Construction Law Delay & Disruption Protocol 2017 which it states “is increasingly
being adopted internationally”.

Our view, however, is reflected in last year’s decision of the English High Court in North
Midland Building Limited v Cyden Homes Limited (2017) which confirms the ability of parties to
exclude concurrent delay claims by the terms of their contract.

New definitions and a much broader interpretation clause

In a new section in the Guidance, FIDIC asks its employer users and their advisers who draft SPs
to consider whether and how the terminology used in the GCs would accord with general
practice in the relevant jurisdiction. As examples, the Guidance notes (page 13) that “gross
negligence” has no meaning under a number of legal systems, and “indemnity” and “indemnify”
have specific meanings under English law.

The number of definitions has gone up to 90 (from just short of 60). New definitions include
“Claim”, “Date of Completion”, Delay Damages”, “Dispute”, “Key Personnel”, “Notice” and
“Notice of Dissatisfaction” and “Programme”.

Since the contractual documentation in most projects comes from several sources, it will
important to ensure that all parties drafting documents are aware of the interpretation clause and
the expanded definitions so that terminology is uniform across documentation.

Reciprocity
One of FIDIC’s fundamental pillars is the ‘fair’ allocation of risk between the parties under its
contracts: see the third of the five Golden Principles mentioned above. In the new forms, various
additions and tweaks mean this new ‘reciprocity’ can be seen in a number of clauses - 1.12
(Confidentiality), 1.13 (Compliance with Laws), 6.3 (Recruitment of Persons), 16.2 (the
contractor now has the right to terminate for any fraud or corruption on the part of the employer)
and, most notably, GC 20 (claims made by each of the employer and contractor).

Communications
GC 1.3 has also been broadened to include the concept of communication through “Notices”,
which are the required form of communication in a number of contractually defined
circumstances. All communications must be made “in writing” (which includes email). If a
communication is a “Notice”, it must be identified as one. If it is not, it must be identified by
reference to the contract provision under which it is issued. Finally, an electronic Notice or
communication is deemed to have been received on the day after transmission. To ensure
compliance with these provisions and contractual time periods, the parties will need to be
vigilant in their contractual administration practices.
The Engineer
Under a new GC 3.1, if the engineer is a legal entity, it is required to appoint a “natural person”
to act on its behalf who must have suitable qualifications, the experience and competence to act
under the contract and “… be fluent in the ruling language …”.

A new GC 3.2 boldly provides that there is no requirement for the engineer to obtain the
employer’s consent before exercising his authority under GC 3.7 (as to which, see below) and,
additionally, that the employer “shall not impose further constraints on the Engineer’s authority”.
In addition, whereas YB99 made provision for delegation by the engineer, YB17 now goes
further with a new definition – the “Engineer’s Representative”.

GC 3.5 contains an interesting new provision concerning any instruction issued by the engineer
which does not state that it is variation: if the contractor considers the instruction to be a new
variation or part of an existing variation or that it will reduce safety of the works or does not
comply with applicable laws or is “technically impossible”, the contractor is required to give
immediate notice. If the engineer does not respond within 7 days, his original instruction is
deemed to have been revoked.

YB99 GC 3.5 has been wholly rebuilt as a three-page GC 3.7 under the heading Agreement or
Determination. The first paragraph states that the engineer is “to act neutrally” between the
parties (but there is no definition of “neutrally”) and “shall not be deemed to act for the
Employer”. In order to encourage dialogue between the parties and reach an agreement, the
engineer is required to consult with both parties “jointly and/or separately”.

As before, the engineer is then required to make a “fair determination, in accordance with the
Contract, taking due regard of all relevant circumstances”. The engineer is now given a time
limit within which to issue his notices (of agreement / determination), namely 42 days (or other
time period put forward by him and agreed to by both parties). Agreements reached and
determinations made are binding unless and until revised by the DAAB or in arbitration.

The new GC 3.7 also makes provision for either party to give the other a “Notice of
Dissatisfaction” with reasons as to why it is not happy with any part of the engineer’s
determination which is the pre-cursor to proceeding to the DAAB.

Many of the new and amended provisions have been introduced to emphasise the independence
of the engineer and to detail procedures and powers.

The Contractor’s Documents

GC 5.2 has been amended to create a clearer step-by-step procedure. A careful read of the
changes made to the definition of “Contractor’s Documents” suggests that the GC might now
apply to a wider range of documents. In any event, the procedure still makes provision for review
by the engineer (if the parties agree in the contract that any specific documents are to be subject
to such review) and construction is not to begin until a Notice of No-objection is given (or
deemed to have been given) by the engineer.

Claims and Disputes

In addition to improved clarity and fairer risk allocation, FIDIC’s additional aims are to promote
active project management and encourage continuous dispute resolution throughout the contract
period and the carrying out of the works as well as encouraging dispute avoidance.

There is now a distinction between a “Claim” (a request for an entitlement provided for in the
contract) and a “Dispute” (which arises if the Claim is rejected or ignored) and the old GC 20 has
been split into two and new definitions introduced. A “Claim” extends to any “entitlement or
relief under any Clause … or otherwise in connection with … the Contract or … execution of the
Works”; so, importantly, it is not limited to time and/or money.

The YB99 provisions dealing with each of the employer’s and contractor’s claims were in
different parts of that contract and differed from each other. In YB17, the process for both
parties’ claims is now set out in GC 20 and is the same for both parties.

Early warning
Also new to YB17 is the reciprocal obligation at GC 8.4 known as “Advance Warning”. This
provision has been taken from the Gold Book. Both parties and the engineer are required to
advise the other party (and engineer), in advance, of any known or probable future events or
circumstances which may adversely affect the works or increase the contract price.

The process for dealing with claims (other than for time and/or money) is set out in GC 20.1 and
is short. If the claim is not agreed, the claiming party may by giving a notice refer its claim to the
engineer for agreement/determination under GC 3.7 (and ultimately arbitration under GC21).

For time and money claims, GC 20.2 sets out a very detailed procedure. The clause is 4 pages
long - so there is clearly more for the parties to comply with, and contractors should make sure
they fully understand what is required of them and the consequences of failure to comply with
the strict terms of the contract.

A fully detailed claim

GC 20.2.4 sets out what is meant by a “fully detailed” claim and requires the claiming party to
submit one to the engineer which has to include “all contemporaneous records”. In a conference
session on managing claims, there was a useful discussion of the importance of keeping records.
This considered what types of records the parties should proactively maintain and keep (projects
records, programmes, digital reports), looking out for “inadequacies” (lack of precision and
detail) in records (such as invoices) and the guidance given in the 2nd Edition of the UK Society
of Construction Law Delay & Disruption Protocol 2017.
Don’t forget the time bars
In GC 20.2, the requirement (in YB99) for notification of the claim to be made within 28 days
has been retained, as has the provision stating that if the notice is not given in time, the claim is
lost. In 20.2.4, there is an additional condition precedent for the claimant to comply with and
failure to state the contractual or other legal basis of its claim within 84 days of it arising renders
the claim susceptible to being time-barred in a similar way.

However, new drafting in clause 20.2.5 now gives the engineer (or the employer’s representative
under the Silver Book) the power to consider a Notice of Claim that has been submitted late and
sets out various circumstances which may be taken into account in making such a decision.
Leaving aside the issue of how willing in practice the engineer will be to exercise this power, this
new wording in effect enables the engineer to disapply the time bar provisions and may increase
the scope for disputes between the parties as to the effectiveness of Notices of Claim and the
relevant decisions of the engineer.

The DAAB: Avoiding Disputes and Referring Disputes

The Dispute Avoidance/ Adjudication Board (“DAAB”) is the new name for the Dispute
Adjudication Board. “Avoidance” focuses the mind on the new driver – the requirement to avoid
disputes wherever possible. Where, under the 1999 suite, the Red Book 1999 required a standing
DAB, a standing DAAB now applies in all three new contracts on the basis that it is easier to
prevent a claim from becoming a dispute if there is a standing board in place to guide the parties.
While the logic behind this approach is clear there is additional cost to the parties of adopting
this approach.

GC 21.3 enables the parties (if they agree) to “jointly request … the DAAB to provide assistance
and/or informally discuss and attempt to resolve and issue or disagreement”. Any advice given
by the DAAB is said not to bind it in subsequent formal DAAB proceedings.

The DAAB Procedural Rules are set out in the Annex to the Appendix to the GCs. They are now
three times as long as before and include provisions for the DAAB to meet with the parties
regularly and make site visits – again, all well and good, until one considers the additional costs
this will give rise to.

As regards the reference of a dispute to the DAAB, the last paragraph of GC 21.4.1 and GC 21.5
need to be read together. What is unclear is how the deemed interruption of “the running of any
applicable statute of limitation or prescription period” will work in practice. What has been made
clear (unlike the provisions of YB99) is that DAAB decisions which have not become final and
binding may still be enforced by separate arbitration proceedings.

Finally, arbitration clause 21.6 now provides for “one or three arbitrators”; in YB99, three
arbitrators had been stipulated.

The devil is in the detail – Ignore it at your peril

This overview lists just a few of the changes.

The new contracts represent a combination of updated and clearer drafting, “fairer” provisions
(risk allocation), more detailed procedural mechanisms and more comprehensive guidance.

However, whatever the form of the agreement, while the drafting is often shared, overall each
contract is unique and the language used fundamental. It is of paramount importance that the
whole contract (and not just the GCs) is drafted to reflect both the sector-specific details (for
example, testing and commissioning) and the project-specific details (for example, liquidated
damages and caps on liability).

In 2018, we will continue our look at specific features of the new forms as well as other
developments in construction procurement.