Procurement Policy and Supervision DivisionProject Development DepartmentJapan Bank for International Cooperation(JBIC) Check List for One

Sided Contracts For use with Sample Bidding Documents under JBICODA Loans - Procurement of Civil Works November1999 Edition D e c e m b e r 2 0 0 6 Version1.0 PREFACE To realize effective and prompt implementation of projects financed by JBIC ODALoans, it is essential to set out the rights and obligations of the Borrower and theConsultant in a consultancy contract and those of the Borrower and the Contractor in aconstruction contract, clearly and properly . (See Section 2.02 of Guidelines for Employment of Consultant under JBIC ODA Loans and Section 4.04 of Guidelines for Procurement under JBIC ODA Loans).JBIC recommends all the Borrowers to use The Sample Bidding Documents under JBIC ODA Loans for Procurement of Civil Works in drafting civil work contracts.These sample documents adopt the 1987 Edition of FIDIC conditions of contract (theFIDIC Red Book) under which the balanced risk allocation between the Employer andthe Contractor is maintained. However, it is sometimes observed that contractdocuments prepared by the Borrower contain one-sided contract provisions, changing afair allocation of contractual risks between the parties. Such one sided contracts actuallyaffect negatively the smooth implementation of projects and consequently are consideredto be disadvantageous to the Borrowers due, amongst other things, to the late completionof the project.With this thought in mind JBIC commissioned the Association of Japanese ConsultingEngineers (AJCE) to prepare a check list to encourage to avoid such one sided contract provisions. This check list is based on samples actually observed in JBIC ODA projects.It is intended to be used by the Borrowers in preparation of fair contract conditions.JBIC will also use it when reviewing draft contract documents prepared by theBorrowers. JBIC recognizes that, even contract conditions maintain a balanced risk allocation, if these conditions are not properly applied, smooth project implementationcannot be achieved. However, to set out the proper provisions is essential for the smoothimplementation..JBIC will make a continuous effort to improve project implementation by closediscussion and cooperation with Borrowers. JBIC hopes that this check list willcontribute to the improvement.

Context of this DocumentCheck List for One Sided ContractA check list is set out in the first part of this document. This check list is prepared to avoid onesided provisions effecting the rights, obligations and risk of contracting

parties. It can be usedduring preparation and review of contracts documents for construction works under JBIC ODAloans.Chapter 1 : Purpose of Check List The purposes of the Check List are described in chapter 1 together with the background behind thenecessity of such a check list.Chapter 2 : Distinctive Features of FIDIC Red Book The general features and basic concepts of the FIDIC Red Book, which should be well understood by writers of construction contracts under JBIC ODA loans, are set out in chapter 2.Chapter 3 : Factors which create One Sided ContractThe factors which create contracts one sided are examined in chapter 3 by categorizing the effectsinto 3 groups.Chapter 4 : Commentary on the Check List A commentary on the Check List is set out in chapter 4 as a guide to users .

1 1. Purposes of Check ListA contract is a document which stipulates rights, responsibilities and risks to be undertaken byeach of the contracting parties. It is therefore a very important document to be used for smoothimplementation of the project by the various stakeholders. Japan Bank for InternationalCooperation (JBIC) recommends that executing agencies of loan recipient countries utilize the"Sample Bidding Documents under JBIC ODA Loans (Procurement of Civil Works)" published by JBIC in 1999 (hereinafter called as JBIC Sample Bidding Documents) in preparation of bidding documents for construction works. These sample bidding documents use the FIDICRed Book 1987 1 as general conditions of contract. FIDIC Red Book provides a well-balancedallocation of risks as between the Employer and the Contractor.The FIDIC general conditions of contract may be modified in consideration of the actual projectcircumstances and requirements by adding conditions of particular applications in Part II of theFIDIC Red Book. If modifications for any particular project alter the originally contemplatedrisk distribution to a large extent and the risks allocated to the Contractor become excessivelyhigh, the following problems may occur:-(1) Higher bid price(2) Bid failure and disruption of project implementation(3) Non-participation in the bid of conscientious and capable contractors(4) Contract award to a bidder who fails or was not capable of estimating the risks properly(5) Poor construction quality and delay to the progress of the work due to lack of risk contingency(6) Undermining the relationship of mutual trust and respect between the Employer and theContractor (7) Repetition of groundless claims from the Contractor (8) Frequent disputes between the Employer and the Contractor (9) In an extreme case eventual termination of the contractThese situations interfere with the smooth implementation of projects financed by JapaneseODA loans and, as a result, may impose larger financial burdens on the Employer.The Check List is prepared for the purpose of elimination of one sided provisions from thecontract. It is recommended to the executing agencies of loan recipient countries to utilize thisCheck List as a reference guide in preparation of bid documents under JBIC Loans in order to 1 Conditions of Contract for Works of Civil Engineering Construction 2 allocate risks and liabilities fairly between contracting parties as well as to keep fairness of theEngineer .The Check List is drafted based on actual experience on pervious construction contracts financed by Japanese ODA loans.2. Distinctive Features of FIDIC Red Book The JBIC Sample Bidding Documents adopt FIDIC Red Book 1987 as general conditions of contract. FIDIC has a long history in drafting various conditions of contract for constructionworks. In particular, FIDIC Red Book 2 (first published in 1957) is recognized as a de factostandard for civil and building works contracts in international projects. FIDIC Red Book isadopted in standard bidding documents for most multilateral development banks includingWorld Bank and Asian Development Bank 3 .While JBIC is examining revision of the Sample Bidding Documents incorporating new FIDICRed Book 1999, the Engineers roles described hereinafter will remain unchanged in principleexcept for the matters indicated in foot

notes 3 and 4 on Page 4.The FIDIC conditions of contract comprise Part 1: General Conditions of Contract and Part 2:Conditions of Particular Application. Part II has the following functions:-(1) to supplement and complete Subclause 1.1 2.1 5.1 14.1 14.3 68.2 in Part I(2) to add particular provision required by local conditions such as characteristics of executionagency, project, region and country, etc.(3) to add to particular requirements or recommendations of the project financer If the Part II additions, supplementations and or modification of Part I alter the basic balance of the FIDIC Red Book the contract may become unfairly advantageous to the drafting party.The basic concepts and framework of the FIDIC Red Book are summarized below:-1) Design by Employer FIDIC Red Book is suitable for Design-Bid-Build projects. The Employer designs the 2 The first edition of FIDIC Red Book was issued in 1957 and it was drafted based on ICE conditions of contracts inUK. 3 World Bank and Asian Development Bank issued Harmonized Edition of Sample Bidding Documents based onFIDIC Red Book 1999 in May 2005. Both banks adopted FIDIC Red Book 1987 in their previous versions of SampleBidding Documents. 3 permanent work except for the works to be designed by Contractor in accordance with Clause7.2, and the contractor executes the work according to those drawings and specifications provided with the bid documents. The design work is usually carried out by a consultingengineer appointed by the Employer and the design liability lies with the Employer refer toSub-clauses : 6.1, 6.4, 7.1, 7.2, 8.1).The design of the civil work structure largely depends on the site conditions includingtopography and geology. Since it is not entirely possible to know the actual geological conditionsin the pre-investigation, design modification is frequently required during construction.Sub-clauses 51.1 Variations, allows such unforeseeable variations to be efficiently achievedwithout contractual problems.2) Presence of Engineer One of the distinctive features of FIDIC Red Book is the appointment of "The Engineer". TheEngineer is not a contracting party but his duties and authority are stipulated in the contract andthe Engineer plays an essential role in the contract administration process. The roles of the Engineer can be classified into three categories in administration of constructioncontracts.(1) Employers agent The Engineer has three main functions in the administration of FIDIC Red Book basedconstruction contracts:Production of detailed design drawings under Sub-clauses 6 and 7 Issuance of instructions for variation of the works under Sub-clause 51 Review of plans and drawings submitted by the Contractor under Sub-clause 7.2 Employer C o n t r a c t o r E n g i n e e r (ConstructionContract)(Consultancy Agreement)(Report, Notice, Application)(Supervision, Notice, Instruction,Determination, Approval, Consent) 4

Carrying out project management services including time and cost management,quality control, testing and inspection, safety and environmental management under various Sub-clauses especially 36-39, 49 and 50 (2) Certifier The Engineer issues various certificates certifying the quality of the Contractors performance and payment therefor at the Engineer discretion. The Engineers certificateshave a strong binding effect on both the Employer and the Contractor. Taking-over certificate under Sub-clause 48.1 Certification of work completion date under Sub-clause 62.1 Interim payment certificate under Sub-clause 60.2 Defect liability certificate under Sub-clause 62.1 Final payment certificate under Sub-clause 60.8 (3) Decision maker in claim and dispute settlement The Contractor is entitled to submit claims, as set out in the FIDIC Red Book, to theEngineer if the Contractor encounters events which are unforeseeable at the time of biddingor are deviations from the contract provisions. The Engineer will evaluate such claims andgive his determination to the Employer and Contractor. If either party is dissatisfied with theEngineers decision a dispute arises and such dispute can be referred to the Engineer for hisdecision under Sub-clause 67 3 .The Engineer therefore has three distinct and different roles:1) As Employers agent,2) As certifier, and3) As decision maker in claim and dispute settlement In carrying out the last two roles the Engineer is obliged to remain independent and to actimpartially as described in Sub-clause 2.6 4 . 2.6 Engineer to Act Impartially Wherever, under the Contract, the Engineer is required to exercise his discretion by:(a) giving his decision, opinion or consent, or 3 Under FIDIC Red Book 1999, a dispute shall be referred to Dispute Adjudication Board (DAB) in accordance with Sub-clause20.2. 4 Under FIDIC Red Book 1999, the Engineer shall make his determination fairly in accordance with Sub-clause 3.5. 5 (b) expressing his satisfaction or approval, or (c) determining value, or (d) otherwise taking action which may affect the rights and obligations of the Employer or the Contractor he shall exercise such discretion impartially within the terms of the Contract and having regard to all the circumstances. Any such decision, opinion, consent, expression of satisfaction, or approval, determination of value or action may be opened up, reviewed or revised as provided in Clause 67. It is usual to appoint consulting engineers as the Engineer under the contract with the Employer in JBIC ODA loan projects. JBIC Guideline for Employment of Consultants stipulates that thenature and the limit to delegation of authority to the consultant, as well as he scope and thenature of the responsibilities which the consultant is to assume shall be clearly defined in thecontract between the Borrower and the consultant.3) Claim and Dispute Settlement ProcedureConstruction work is susceptible to many external influences such as variable subsurface and,metrological conditions as well as social, economic and environmental factors. It is impossibleto eliminate all uncertainties from construction work and unforeseen events are likely to occur during any lengthy construction period.Under FIDIC Red Book, the Contractor has an entitlement to extensions of time for completionof the work if he suffers delay from specified events and payment of qualifying additional costhe incurs as a result of such events. The FIDIC Red Book sets out, in detail, a claims anddispute settlement procedure to cope with uncertainties involved in construction works.Appendix-1 shows a flowchart of the claims and dispute resolution procedures under FIDIC RedBook 1987.4) Balanced Risk AllocationIt is said that the FIDIC Red Book is drafted so as to allocate the risk to the contracting parties ina fair manner using the following principles:

The party who can best manage the risk, takes such risk. Risks for which neither the Employer nor the Contractor can control, is in principle taken by the Employer as the initiator of the project.5) Unit Price/Re-measurement Contract 6 The payment to the Contractor is based on the actual quantities of work done at the unit pricesset out in the contract Bill of Quantities. The quantities set out in the contract Bill of Quantitiesare provisional estimates of the work to be done. The actual work quantities are measured by theEngineer in the presence of the Contractor. The Engineer certifies interim payment amounts,usually monthly on the basis of the measurement of the work carried out during the relevant period. 3. Factors which create One sided ContractThere are three potential factors which make any contract one sided as follows:-(1) the Contractors contractual rights are unreasonably limited.(2) the Contractors contractual responsibilities are unreasonably expanded.(3) the Engineers powers, discretions and or authority are excessively restricted.All three factors can be introduced in the preparation of Conditions of Particular Application andresult in an enhanced risk to the Contractor.Examining each of these factors in turn:-1) Limitation of Contractors rightThe entitlement to claim (if an unforeseeable event occurs, or when there is a deviation from thecontract provision not attributable to the Contractor) is one of the most important contractualrights given to the Contractor. If such entitlement is unreasonably restricted then the risk taken by the Contractor are increased.The FIDIC Red Book 1987 allows the Contractor to exercise his entitlement to extensions of time and consequent additional cost arises in the following situations:Event Sub-clauseAdd.Cost *1 EoT *2 Process *3 1Delay of Drawing and instruction by theEngineer 6.4 A 2 Occurrence of unforeseeable physicalobstructions and conditions12.2 A 3Error in position, levels, dimension, andalignment of the works given by theEngineer 17.1

B 4Loss or damage due to Employers risk event 20.3

B 5Discovery of fossil, coins, article of value, 27.1 A 7 etc.6Facilities for other contractors 31.2

A 7Execution of additional test required by theEngineer 36.5 A 8Uncovering of the work not attributable tothe Contractor 38.2

A 9Suspension of the work instructed by theEngineer 40.2 A 10Employers failure to give possession of thesite 42.2 A 11Remedying defect not attributable to theContractor 49.3

B 12Search not attributable to the Contractor 50.1

A 13Valuation of Variation 52.1

A 14Variation exceeding 15% of contract price 52.3

A 1 5 D e l a y e d 60.10

p a y m e n t

C 16Damage to the works by Special risk 65.3

B 17Increased costs arising from Damage to theworks by Special risk 65.5

A 18Contractors entitlement to suspension

69.4 A 19Increase of market price 70.1

C 20Change to legislation 70.2

A Notes:*1 : Additional Cost*2 : Extension of Time*3 : The Engineer is central to the decision making process to determine the Contractorsentitlement to an extensions time and additional cost. The determination and analysisis carried out in three categories Type A, B, and C as follows:TypeA: To be determined by the Engineer after due consultation with the Employer and the Contractor. Type B: To be determined by the Engineer.Type C: To be determined by rules stipulated in the contract 2) Expansion of Contractors responsibilityThe Contractors contractual responsibility is considered to be increased unreasonably if nomaximum amount is set for Liquidated Damages or an excessively long Defects Liability Periodis stipulated.The following are typical examples of Employers obligations and responsibilities under theFIDIC Red Book 1987:8 1. to give possession of the site to the Contractor under Sub-clause 42.1 2. to give necessary instructions, consents, approvals and notices to the Contractor under various clauses 3. to avoid delay, impediment or prevention by the Employer under Sub-clause 44.1 4. to be responsible for damage to transportation routes when the Employer is liable for this under Sub-clause 30.3 5. to supply goods or execute specified work when the Employer is responsibletherefore 6. to pay the Contractor according to Sub-clause 60.10, etc. 7. to be responsible for the Employers risk items under Sub-clause 20.3, 20.4 and 21.3 8. to settle disputes amicably under Sub-clause 67.2If any of the above items are excluded entirely or partially from the Employers obligations or if such responsibilities are in all circumstances or even in certain specified circumstancestransferred to the Contractor then the Contractors contractual responsibilities would beconsidered to be increased unreasonably.3) Restriction of the Engineers authorityThe Engineer is required to exercise his authority impartially in giving approval, consent,certification and determination as described in Chapter 2. However, under Sub-clause 2.1 of Conditions of Particular Application, it is possible to impose the Employers prior approval as a precondition for the exercising of such Engineers authority. 2.1 Engineer's Duties and Authority (b) The Engineer may exercise the authority specified in or necessarily to beimplied from the Contract, provided, however, that if the Engineer is required,under the terms of his appointment by the Employer, to obtain the specificapproval of the Employer before exercising any such authority, particulars of such requirements shall be set out in Part II of these Conditions. Similarly, the Engineers authority may be diminished if words such as subject to prior approvalof the Employer are inserted in the independent clauses as listed in Chapter 3-1, in which theEngineers authority is described.Excessive use of Employers prior approval as a precondition for the exercise of the Engineersauthority may tend to bias the Engineers independent decision making ability and therebyincrease the one sided tendency of a contract. 9

As described in section 3-1) above, the Engineer shall make determinations about alleged claimsafter due consultation with the Employer and the Contractor. This will ensure that theEmployers views can be deemed to have been considered in the decision making processundertaken by the Engineer. 10 4. Commentary on ChecklistTo draft Conditions of Contract in accordance with FIDIC Red Book's fundamentalconcepts and at the same time to avoid a one sided contract to be unreasonablyadvantageous to the drafting party as listed above, the following commentary is providedfor to assist in the understanding and intention of the check list.Check Point 01 Are the Bidding Documents based on the JBIC SampleBidding Documents?FIDIC Clause Whole<Interpretation>JBIC recommends that bidding documents are prepared based on Sample BiddingDocuments under JBIC ODA Loans (Civil Works) Nov.1999 (the JBIC SampleBidding Documents). The JBIC Sample Bidding Documents are based on FIDIC RedBook 1987 (FIDIC Red Book) as the de facto standard for international civilconstruction contracts. FIDIC Red Book is considered to be a fair balance of risk between the Employer and the Contractor.It is strongly recommended that bidding documents are prepared in line with the JBICSample Bidding Documents. If local standard bidding documents are used instead of theJBIC Sample Bidding Documents, the following problems have been encountered: Examination of the specially drafted conditions of contract takes a great deal of time as the clause numbers may not be consistent. The provisions may deviate from usual international standard contractual practice. The contract document may not be complete.Check Point 02 Has FIDIC Red Book Part II Conditions of Particular Application been completed and checked by a specialist whohas the necessary experience?FIDIC Clause Whole All<Interpretation>FIDIC Red Book consists of two parts; Part I Conditions of Contract, and Part IIConditions of Particular Application. Part II is prepared: 11 To provide the necessary details left blank in Part I (for example clauses: 1.1,2.1, 5.1, 14.1, 14.3, 68.2, etc.), To provide information specific to the project, specific to the region and specificto the country where the project is to be carried out, and To provide information on terms required or recommended by the financing bank (for example JBIC).The Part I provisions have been improved through use on many projects and its provisions reflect a standard policy that has a high degree of professionalism. Great careis also necessary to coordinate Part I and Part II. Any rewriting may destroy the entire balance of the provisions and introduce referencing errors. For example when Clause20.4 "Employer's Risk" is changed, it is possible to create inconsistency with Clause65.2 "Special Risks". Completion and checking the consistency of Part I and Part IIshould only be undertaken by a specialist with the following necessary experience:(1) A thorough knowledge of the international construction contracts,(2) An understanding of the basic concepts of FIDIC Red Book,(3) A technical understanding of the scope of construction work to be executed,(4) A knowledge of construction cost estimates and time scheduling,(5) English language and drafting skills.Check Point 03 Has an independent engineer been appointed to administer the contract?FIDIC Clause Whole<Interpretation>One of the main features of the FIDIC Red Book is that it provides for defineddecisions, and for the contract administration (described in Chapter 2) to be undertakenfairly, by an independent engineer.Some execution agencies in developing countries acting as Employers have a traditionof providing an employee or related organisation to serve as the Engineer. In some other countries the Employer also holds the post of the Engineer, and the Engineer thenappoints an independent consultant as the Engineers Representative. Even in thissituation, the Engineers Representative may face difficulty in remaining impartial,unless a great deal of the power and authority of the Engineer is delegated completely tohim. Where it is usual that execution agencies are both the Employer and the Engineer it 12 is highly recommended that this procedure be changed and that such execution agenciesappoint an independent consultant to maintain the Engineers impartiality. Independenceof the Engineer is an integral part of the FIDIC Red Book philosophy.Check Point 04 Is the design executed by the Employer, and does theEmployer have design responsibility?FIDIC Clause Whole<Interpretation>The Design-Bid-Build method is the assumed method of executing any project under theFIDIC ed Book. The Employer designs the permanent works, and the bidding is done based on that design. The Employer assumes the liability for defective design (for example under clauses: 6.1, 6.4, 7.1, 7.2, and 8.1).It would be a fundamental deviation from the JBIC Sample Bidding Documents and theFIDIC Red Book to impose liability on the Contractor for defective design andadditional cost for construction due to the modified design. If the Design-Bid-Buildmethod is used then such text change should be avoided as it increases the Contractor'srisks too greatly.Check Point 05 When the Engineer exercises an authority or power are thecircumstances under which he is required to get theEmployer's prior approval excessive?FIDIC Clause 2.1 Engineers Duties and Authority<Interpretation>Another feature of the FIDIC Red Book is that the Engineer is required to be impartialin administering the contract as described in Clause 2.6 and Chapter 2. Clause 2.1(b)specifies that if any Engineer's decision to approve, prove, determine or decide is subjectto the acquisition of specific prior approval from

the Employer then such decisions shall be set out in FIDIC Red Book Part II.It is preferable to minimize the number of matters which need the prior approval of theEmployer. This encourages the Engineer to make impartial judgments in line with the basic philosophy of the FIDIC Red Book. If there are many matters which need the prior approval of the Employer then there is the possibility that the Employer's view willexcessively be reflected when the Engineer's exercises any discretion. Similarly whenthe text of FIDIC Red Book Part I and II is changed in this fundamental issue then 13 neutral judgment could be obstructed. As described in section 3-1)) above, the Engineer shall make hisdeterminations about allegedclaims after due consultation with the Employer and the Contractor. This will ensure that theEmployers views can be deemed to have been considered in the decision making processundertaken by the Engineer (Refer to Clauses 27.1, 36.5, 40.2, 42.2, 65.5, 69.4 and 70.2). FIDIC Red Book clause 1.5 specifies that any consent, approval, certificate or determination shall not unreasonably be withheld or delayed. If the Employer's prior approval is required then the Contractor may consider such approval proceduresrepresent an unjustifiable delay.The FIDIC Guidelines for Preparation of Part II clauses do not indicate whichdiscretions should be subject to approval. To consider the circumstances under whichrestraints may be placed on the Engineers authority it would be necessary to take intoaccount the factors specific to the country in which the works are to be carried out. TheJBIC Sample Bidding Documents recommend that the following five situations should be subject to prior approval from the Employer:-(a) approving subletting of any part of the Works under Clause 4,(b) certifying additional cost determined under Clause 12,(c) determining an extension of time under Clause 44,(d) issuing a variation order under Clause 51, except in an emergency situation or if such variation would increase the Contract Price by less than xx %,(e) fixing rates or prices under Clause 52.The issuance of the certificates under Clauses 48.1 "Taking-Over", 60.2 and 60.8"Payments", and 62.1 "Defects Liability" should be assumed to be the sole discretion of the Engineer, and should not be included in the matters requiring Employer's prior approval.Check Point 06 Is any restriction on the Engineer's ability to make animpartial decision fair?FIDIC Clause 2.6 Engineer to Act Impartially<Interpretation>As stated in Checkpoint 5 the FIDIC Red Book imposes on the Engineer an obligationto make impartial decisions when he has to exercise a discretion. From a broader pointof view when any Engineer follows the FIDIC Red Book requirements faithfully then 14 his decisions will in fact be thought of as fair and impartial.If there is a text change that requires the Engineer to get the Employer's prior permissionto exercise the Engineers authority under this clause, then the fairness of the Engineersdecision may be affected greatly by the Employers view. Such text change should beavoided.Check Point 07 Is the specified language of the contract, considered aninternational well understood neutrally regarded language?FIDIC Clause 5.1 Language/s and Law<Interpretation>The JBIC Sample Bidding Documents recommend that English be nominated to be alanguage of the Contract.If the Conditions of Contract are made in two languages (e.g. English, French, or Spanish plus language of the country where the Works are to be carried out or languageof the Employer's country) it is advisable to avoid specifying languages other thanEnglish, French, and Spanish as the ruling language for interpretation in the event of contradictions. This is advisable as all the stake holders in the Contract (the Employer,the Contractor, the Engineer, and JBIC) can regard English, French, and Spanish asneutral.Check Point 08 Is the priority order of documents forming the contractclearly defined?FIDIC Clause 5.2 Priority of Contract Documents<Interpretation>The priority of documents forming the contract recommended in the JBIC SampleBidding Documents is as follows:-(1) the Contract Agreement (if completed);(2) the Letter of Acceptance;(3) the Bid and the Appendix to Bid;(4) the Conditions of Contract Part II;(5) the Conditions of Contract Part I;(6) the Specifications;(7) the Drawings; and(8) the priced Bill of Quantities. 15 Contract amendments such as "The document which describes the content in detail shall be given priority over a more general document." should be avoided. Such provisions if included regardless of the definition of priority, create uncertainty.Additional provisions dealing with the priority of documents should be drafted carefullyso as not themselves, to create discrepancies and contradictions in the interpretation of the priority provisions whether the additional provisions are in the Contract Agreement,the Conditions, or the Letter of Acceptance.Check Point 09 Are the Contractor's rights to extension of time, and / or additional cost limited for delay in issuance of drawings andinstructions?FIDIC Clause 6.4 Delays and Cost of Delay of Drawings<Interpretation>Under the FIDIC Red Book, the Engineer has a duty to issue construction drawings atthe times set out in the construction time schedule submitted by the Contractor under Clause 14.1. The Contractor then prepares detailed drawings based on the constructiondrawings. The lead time for preparation of those drawings by the Contractor should beagreed at the time of the Contract.The Contractor suffers delay and / or incurs cost for waiting time in preparation of shopdrawings and / or a delay in the Works arises from delay by the Engineer in issuing theconstruction drawings. Such delay and / or incurred cost are risks that the Contractor cannot manage and should not be asked to take responsibility for.As a matter of fairness to the Contractor it is necessary to avoid text changes whichrestrict the Contractors right to claim for extensions of time and the additional costarising from delayed issue of drawings and instructions.Check Point 10 Has the Contractor's general obligation been extended so asto impose design responsibility?FIDIC Clause 8.1 Contractors General Responsibilities<Interpretation>The JBIC Sample Bidding Documents recommend that the provision the Contractor shall promptly notify the Employer and the Engineer of any error, omission, fault or 16

other defect in the design. is added.Any text change which makes the Contractor assume the responsibility for the designcarried out by the Employer excessively expands the Contractor's obligations. Such textchanges should not be made and the Contractor should not be responsible for any designwhich he has not prepared.Check Point 11 Has the Contractor's obligation been expanded by extendingthe performance security's validity period?FIDIC Clause 10.2 Period of Validity of Performance Security<Interpretation>FIDIC Red Book Clause 62.1 provides for the validity of the performance security toexpire on the issuance of the Defects Liability Certificate. The performance securitydocument shall be returned to the Contractor within 14 days of the issuance of theDefects Liability Certificate.FIDIC Red Book Clause 61.1 provides that the Contract shall only be regarded ascomplete upon issuance of the Defects Liability Certificate in accordance with Clause62.1. The Contractors contractual obligations are at an end upon the issuance of thisCertificate. Any text change that excessively expands the Contractor's obligation byrequesting a performance security to remain valid beyond that date keeps theContractors obligation alive unfairly.Check Point 12 Is the Contractor made to bear responsibility for the siteconditions, and are extensions of time and additional cost for the presence of unforeseeable site conditions limited?FIDIC Clause 11.1 Inspection of Site<Interpretation>Any text change or additional provision which makes the Contractor assume all theresponsibilities for the inaccuracy and / or insufficiency in information given by theEmployer deviates from the FIDIC Red Book and imposes an excessive and unfair responsibility on the Contractor.In case of inaccuracy of the site data, a claim can be submitted by the Contractor under Clause 12.2. Even if there is a text change attempting to limit this right the Employer may still be held responsible as the drafter of the tender / contract documents. If such aclaim develops into arbitration, an award could go against the Employer. An arbitration 17 tribunal could decide that a bidder had insufficient time to investigate and verify the sitedata provided by the Employer and it would have been necessary and reasonable for theContractor to have relied on the accuracy of the site data to calculate the tender price.The JBIC Sample Bidding Documents recommend adding a new Clause 11.2. This newclause allows the bidders to access data provided elsewhere in the Contract. This provision is helpful as it permits the bidders to understand site conditions in more detail.The critical factor is to select a proper contractor at an appropriate price by providing athorough understanding of the site situation at the time of the tender.Check Point 13 Are the Contractor's right to claim for an extension of timeand additional cost for unforeseeable physical obstructions or the conditions limited? Further, is there any possibility of theEngineer being unfairly influenced by the Employer whenmaking a decision on such extension of time and additionalcost?FIDIC Clause 12.2 Not Foreseeable Physical Obstructions or Conditions<Interpretation> No Contractor can manage risks arising from physical obstructions or conditions whichan experienced contractor could not reasonably have foreseen. Imposing a risk on aContractor which he cannot manage may lead the bid evaluator to select a bidder without the maturity and / or experience to reflect such a risk in the price. In thesecircumstances there is a high possibility of spoiling another very suitable bidder who has properly reflected the risk in his tender price.Any text change which restricts or limits the Contractors right to claim for extension of time and additional cost shall be avoided to prevent from disadvantage for both theEmployer and the Contractor.If there is a text change to the effect that the Engineer requires the Employer's prior permission to exercise his discretion in relation to extension of time and additional cost,the Engineers fair decision may be affected greatly by the Employer's views. Any suchtext change should be avoided as being against FIDIC Red Book principles and unfair.Check Point 14 Has the right to receive progress payments for work carriedout been limited by the Employer's capital plan?FIDIC Clause 14.3 Cash Flow Estimate to be Submitted 18 <Interpretation>FIDIC Red Book Clause 60 sets out the payment procedure which is invariably to be payment according to work progress. However, payment by some executing agencies /Employers is limited by an annual government budget. This limit is stipulated in theContract. In such cases payment can only be made within the limit of the budgetregardless of the amount due according to the FIDIC Red Book work progress procedures.The construction time schedule is prepared by the Contractor in accordance with their own construction methods. A cash flow plan is established referring to this constructiontime schedule. Any text change by which the Employer limits the Contractors cash flow plan should not be made.Check Point 15 Have the Contractor's obligations expanded to includeresponsibility for the original points, lines and levels given by the Engineer?FIDIC Clause 17.1 Setting-out<Interpretation>Any text change to make the Contractor assume responsibility for the accuracy of theoriginal points, lines and levels given to the Contractor by the Engineer changes the procedure stipulated in FIDIC Red Book Clause 17.1. Such a change imposes too muchrisk on the Contractor and any such text changes should be avoided as being unfair andagainst FIDIC Red Book principles.Check Point 16 Has any of the Employer's risk been imposed on theContractor and consequently has the Contractor's obligation been expanded?FIDIC Clause 20.3 &othersLoss or Damage Due to Employer Risks and other relatedissues<Interpretation>FIDIC Red Book Clause 21.2 provides that insurance shall be in the joint names of theContractor and the Employer. Such insurance shall include all the Employers risksexcept the Special Risks stipulated in Clause 65. Any loss or damage not insured or notrecovered from the insurers, pursuant to Clause 21.3, shall be borne by the Employer or the Contractor in accordance with their respective responsibility set out under the FIDICRed Book or at law. Any amount not recovered from the insurers is described 19 as Excess and/or "Deductibles. Any insurable event not covered by the policy for anyreasons is described as an "Exclusion.Any text changes which transfers the Employers risks to the Contractor increases theContractors obligation and would mean that the Contractor is required to bear any lossand or damage not recovered from the insurer.If a text change is made to delete an exclusion from FIDIC Red Book Clause 21.4 andsuch event occurs then the Contractors responsibility will have been unreasonablyenlarged. It is necessary to avoid such text changes that move those normally excludedrisks to the Contractor. Those risks cannot be managed and are not insurable at normal

premiums.Check Point 17 Is there any possibility of the Engineer being unfairlyinfluenced by the Employer when making a decisionregarding obstruction to the Contractor during constructionof the Works for which he is not responsible?FIDIC Clause 27.1 Fossils<Interpretation>If there is a text change which requires the Engineer to get the Employer's prior permission to exercise Engineer's discretion in relation to extension of time andadditional cost caused by removal of obstruction by fossils, the Engineers ability tomake a fair decision may be affected by the Employer's views. Any such text changesshould be avoided as being against FIDIC Red Book principles and unfair.Check Point 18 Has the responsibility for compensation for damaged roadand bridges that the Employer should assume been imposedto the Contractor?FIDIC Clause 30.3 Transport of Materials or Plant<Interpretation>Any text change to FIDIC Clause 30.3 which imposes the Employers liability tocompensate for damage to roads and bridges on the Contractor regardless of the law andthe regulations, forces the Contractor to bear a risk that he cannot manage. Any such textchanges should be avoided as being against FIDIC Red Book principles and unfair. 20 Check Point 19 Is there any possibility of the Engineer being unfairlyinfluenced by the Employer when making a decision withregard to the Contractors additional cost for facilities for other contractors?FIDIC Clause 31.2 Facilities for Other Contractors<Interpretation>If there is a text change which requires the Engineer to get the Employer's prior permission to exercise his discretion in relation to additional cost, the Engineers fair decision may be affected greatly by the Employer's views. Any such text changes should be avoided as being against FIDIC Red Book principles and unfair.Check Point 20 Is there any restriction on the Contractors right to claim for extension of time and additional cost for testing not providedfor? Further, is there any possibility of the Engineer beingunfairly influenced by the Employer when making a decisionfor such extension of time and additional cost?FIDIC Clause 36.5 Engineers Determination where Tests not Provided for <Interpretation>Any text change to FIDIC Red Book which removes the Contractors entitlement to aclaim for extension of time and additional cost for the tests not provided for in theContract may lead to restriction on the Contractors rights. Such tests are unplannedwork and an extension of time would be unavoidable if this work is on the critical path.Further, such cost could not have been included in the Contract Price. It is necessary toavoid any such text change that imputes such risk that cannot be managed.If there is a text change which requires the Engineer to get the Employer's prior permission to exercise his discretion in relation to extension of time and additional cost,the Engineers fair decision may be affected greatly by the Employer's views. Any suchtext changes should be avoided as being against FIDIC Red Book principles and unfair.Check Point 21 Is there any restriction on the Contractors right to Claim for additional cost for uncovering and making openings?Further, is there any possibility of the Engineer beingunfairly influenced by the Employer when making a decisionfor such additional cost?FIDIC Clause 38.2 Uncovering and Making Openings 21 <Interpretation>Any text change to FIDIC Red Book Clause 38.2 which deletes the Contractors right toan additional cost for making openings of any part of the Works covered up in proper manner would impose an unmanageable risk to the Contractor.If there is a text change which requires the Engineer to get the Employer's prior permission to exercise his discretion in relation to additional cost, the Engineers fair decision may be affected greatly by the Employer's views.Both such text changes should be avoided as being against FIDIC Red Book principlesand unfair.Check Point 22 Is there any possibility of the Engineer being unfairlyinfluenced by the Employer when making a decision withregard to the Contractors additional cost and extension of time arising from work suspension ordered by the Engineer?FIDIC Clause 40.2 Engineers Determination following Suspension<Interpretation>If there is a text change which requires the Engineer to get the Employer's prior permission to exercise his discretion in relation to extension of time and additional cost,the Engineers fair decision may be affected greatly by the Employer's intention. Anysuch text changes should be avoided as being against FIDIC Red Book principles andunfair.Check Point 23 Is there a possibility of delay and idling time for theContractor before the Contractor can start work even thoughthe Letter of Acceptance had been issued?FIDIC Clause 41.1 Commencement of Works<Interpretation>The issuance date of the Notice to Proceed marks the commencement of the contractualconstruction period. The FIDIC Red Book requires the Contractor to submit a programme under Clause 14.1, and Cash Flow forecast under Clause 14.3 within thenumber of days stipulated in Part II such period counting from the date of the Letter of Acceptance. The Contractor is also required to submit the Performance Security under Clause 10.1, and a breakdown of the Lump Sum prices under Clause 57.2.A time limit for the issuance of the Notice to Proceed is usually stipulated in the 22 Appendix to Tender in relation to the date of issuance of the Letter of Acceptance by theEmployer. The Contractor is not able to schedule the Works when the Notice to Proceedand Letter of Acceptance are delayed. Therefore if there is a text change which deletesthe time limit for issue of the Notice to Proceed from the date of the Letter of Acceptance the Contractor may be forced to stand in readiness for a long time. TheContractor would also be forced to start contractual activities, such as the preparation of the Performance security under Clause 10.1, and preparation of the Lump Sum prices breakdown of under Clause 57.2 in order to submit these within 28 days from the date of the Letter of Acceptance. This would be so even if the Notice to Proceed had not beenissued by the Engineer after 28 days from the Letter of Acceptance. Such a text changecreates a risk that cannot be managed by the Contractor and should not be incorporated.An Employer may have many internal problems to overcome to commence the projectsuch as land compensation, arrangement of budget and staff arrangement. It may bedifficult to predict how long these tasks will take to solve and that may be the reason tomake a text change so as not to stipulate a time limit in the Appendix. However,managing these various procedures is not the Contractors problem but is the Employer'sresponsibility. Managing these procedures is a prerequisite for the smooth execution of construction works.Check Point 24 Is there a restriction on the Contractors right to claim for extension of time and additional cost for delay in possessionand or access to the Site? Further, is there any possibility of the

Engineer being unfairly influenced by the Employer when making a decision on the Contractors right to anextension of time and additional cost for such events?FIDIC Clause 42.2 Failure to Give Possession<Interpretation>Any delay in giving possession of, and access to, the site is necessarily the responsibilityof the Employer. Such matters cannot be managed by any Contractor. If a delay to either of these activities actually affects the critical path of the Works, an extension of time isunavoidable. Text changes to impose responsibility for these activities on the Contractor therefore should be avoided.If there is a text change that requires the Engineer to get the Employer's prior permissionto exercise his discretion in relation to extension of time and additional cost, theEngineers fair decision may be affected greatly by the Employer's views. Any such text 23 changes should be avoided as being against FIDIC Red Book principles and unfair.Check Point 25 Are there any restrictions on the Contractors right to claimfor extension of time for Completion?FIDIC Clause 44.1 Extension of Time for Completion<Interpretation>Any amendment which changes the conditions for, or deletes entirely, any of the fivereasons for extensions of time and of the Contractors right to claim for extension of time should be avoided. Such an amendment attempts to impose on the Contractor risksthat he cannot manage. Any such text changes should be avoided as being against FIDICRed Book principles and unfair.Check Point 26 Are amounts and limits of liquidated damages which may beimposed on the Contractor appropriate?FIDIC Clause 47.1 Liquidated Damages for Delay<Interpretation>The Guidelines for Procurement under JBIC ODA Loans published January 2005recommend liquidated damage at a rate of 0.1% per day of the Contract price or 0.5 % per week of the Contract Price. It also recommends an upper limit in the range of between 5% and 10% of the Contract Price.Any text change which deletes the upper limit of liquidated damages and has the possibility of deducting extremely large amounts of money may be judged as a penaltyif a dispute proceeds to arbitration. Any decision that liquidated damages are a penaltycauses there to be a doubt on the effectiveness of the whole liquidated damages provision.Contractors may include a contingency in their bid price to cover the risk of extremelylarge amounts of liquidated damages set out in the bid documents. If the Works are notdelayed then the contingency is an unnecessary expense for the Employer. There is alsothe possibility that capable contractors will be deterred from bidding as described inCheckpoint 12. Such text changes have no advantage for the Employer or theContractor. 24 Check Point 27 Is there any possibility of the Engineer being unfairlyinfluenced by the Employer when making a decision to issuethe TakingOver Certificate?FIDIC Clause 48.1 Taking-Over Certificate<Interpretation>If there is a text change which requires the Engineer to get the Employer's prior permission to exercise his discretion in relation to issue of a Taking-Over Certificate, theEngineers fair decision may be affected greatly by the Employer's intention. Any suchtext changes should be avoided as being against FIDIC Red Book principles and unfair.Check Point 28 Is the defects liability period excessive?FIDIC Clause 49.1 Defects Liability Period<Interpretation>The Defects Liability Period set out in the FIDIC Red Book Appendix to Tender isusually one year for civil works. There is also an implication that the Engineer'smonitoring of the Works as a third party during the construction process functions toensure that the economic life of the civil works and structure will generally be durable inthe range of between 30 and 50 years.Any text change which imposes an excessive risk on the Contractor by unreasonablyextending the defects liability period may increase the bid price and make the projectmore expensive for the Employer. There is also the possibility that capable contractorswould be deterred from bidding as described in Checkpoint 12. Such text changes haveno advantage for the Employer or the Contractor.Check Point 29 Has the Contractors scope of the responsibility for defectsliability been expanded excessively?FIDIC Clause 49.2 Completion of Outstanding Work and Remedying Defects<Interpretation>The Contractor cannot control natural wear and tear caused by operation of facilitiesduring the Defects Liability Period, even if such a text change is made to impose such aresponsibility on the Contractor. Wear and tear of facilities and structures is naturalwhen they are put into use under normal operating conditions.To impose such responsibility on the Contractor is an unfair expansion of theContractors obligations and may increase the bid price and expense to the Employer. 25 There is also the possibility that capable contractors will be deterred from bidding asdescribed in Checkpoint 12. Such text changes have no advantage for the Employer or the Contractor.Check Point 30 Is there any possibility of the Engineer being unfairlyinfluenced by the Employer when making a decision on theadditional cost to be paid to the Contractor for rectificationof defects?FIDIC Clause 50.1 Contractor to Search<Interpretation>If there is a text change which requires the Engineer to get the Employer's prior permission to exercise his discretion in relation to additional cost, the Engineers fair decision may be affected greatly by the Employer's view. Any such text changes should be avoided as being against FIDIC Red Book principles and unfair.Check Point 31 Is there an infringement on the rights of the Contractor suchas the Employer reserving the unconditional right to omit parts of the Works?FIDIC Clause 51.1 Variations<Interpretation>FIDIC Red Book Clause 51.1(b) provides that "to omit any such work" is a part of avariation. However, the right of the Employer is conditional on the fact that suchomission shall not be for the purpose of having that work carried out by the Employer or by another contractor. It is necessary to avoid any text change which deletes such provision because this is a violation of the right of the Contractor to carry out thecontractual work.Check Point 32 Is the percentage applied in this clause reasonable? Is theformula by which the Contractor's right is calculated provided for? Further, is there any possibility of the Engineer being unfairly influenced by the Employer when making adecision on the amount of addition or deduction to theContract Price?FIDIC Clause 52.3 Variations Exceeding 15 percent<Interpretation> 26 The basis of this clause is to balance the Employer's and the Contractor's risk for increases or decreases of the Effective Contract Price. To accomplish this balance of risk it is necessary to allow for the adjustment of the Effective Contract Price if suchincrease or decrease of

variations adversely the affects the proportion and thereforerecovery of indirect construction costs.The Effective Contract Price shall be adjusted in relation to the amount of contractvariations. Any text change which specifies an unreasonably high percentage for variations before adjustment is made should be avoided.If there is a text change that requires the Engineer to get the Employer's prior permissionto exercise his discretion in relation to increase or decrease amount of the EffectiveContract Price, the Engineers fair decision may be affected greatly by the Employer'sintention. Any such text changes should be avoided as being against FIDIC Red Book principles and unfair.Check Point 33 Is there an unfair limitation in the period of time duringwhich the Contractor has a right to claim?FIDIC Clause 53.1 Notice of Claims<Interpretation>The basic philosophy behind a claim notice period being set as 28 days is that theEmployer and the Contractor are able, in good time, to identify which contemporaryrecords will be required to substantiate the claim and to take any action that may beappropriate. Clearly memory alone is not a good basis as it becomes fainter as time goes by. There is also a common sense view that a 28 days period is appropriate for theContractor to recognize that an event may developed into a claim. A text change toshorten this 28 days period should be avoided because of possible unfair restriction of the Contractors rights.The FIDIC Red Book Clause 53.3 requires the Contractor to send to the Engineer, withan explanation of the grounds upon which the claim is based, with an account givingdetailed particulars of the amount claimed. According to the Contract, the assessed valueof the claim will be paid to the Contractor when the Engineer has determined that theamount claimed was reasonable in the light of the facts and rights under the Contract. 27 Check Point 34 Have the provisions on the Employers assistance to theContractor been deleted or reduced?FIDIC Clause 54.3 Customs Clearance<Interpretation>FIDIC Red Book Clause 54.3 sets out the range of support to be offered by theEmployer to the Contractor regarding customs clearance. The clause does not clearlyspecify the details of such support. The Employer must therefore describe in Part II of the Conditions of Contract, the details of the Employer's support. What support theEmployer provides actually varies in different countries and projects.Any text change which deletes such support from the Employer may not only expandthe Contractors obligation but also obstruct execution of the Project.Customs departments usually require endorsement by the Employer for re-export of theContractors construction equipment after the construction in accordance with FIDICRed Book Clauses 33.1 and 54.1.Check Point 35 Is the Contractor's right to reasonable objection to theEmployer's selection of nominated subcontractor beenlimited or deleted?FIDIC Clause 59.2 Nominated Subcontractors; Objection to Nomination<Interpretation>Under FIDIC Red Book Clause 59.2(a) all nominated subcontractors should undertaketowards the Contractor such obligations and liability that will enable the Contractor todischarge his own obligations and liabilities towards the Employer.Any text change which prevents the Contractor from rejecting any subcontractor selected by the Employer who will not undertake such responsibility shall be avoided because it prejudices the Contractor's chance of keeping the quality of work and time period stipulated in the Contract.Check Point 36 Does the Contractor have the right to set out in the Contracthis attendances and profit on Nominated Subcontractors?FIDIC Clause 59.4 Payments to Nominated Subcontractors<Interpretation>The Contractor shall submit his method statement, applications for approval of construction materials, and selection of subcontractors. It is a right of the Contractor to 28 receive profit and payment for services which he provides to the subcontractors. Therate of profit and payment for charges must be at the Contractors discretion.The Tender document must include a format sheet to include the appropriate rate of profit and payment for charges in the build up of the Contract Price. This format sheetshall provide separate columns for the rates for his own work and subcontracted work asthe Contractors management input is different in each case.Therefore FIDIC Red Book Clause 59.4(c) should have no text change to fix the rates toa single rate to avoid violation of the Contractors right.Check Point 37 Is the party to pay for the bank commissions and fees etc.clearly defined in the contract?FIDIC Clause 60.1 Monthly Statements<Interpretation>The JBIC Sample Bidding Document recommends a clause for Certificates andPayment. The numbering system of this recommended clause is different from FIDICRed Book but the effect of the clause is the same.If the Employer intends to pay the bank for opening letters of credit, making remittanceand other bank charges including those incurred by the Contractor then it is necessary toclearly specify this in the Contract.The Contractor can request payment for these bank fees under Clause 60.1(e) andinclude them as any other sum to which the Contractor may be entitled under theContract in both the FIDIC Red Book and the JBIC Sample Bidding Documents.Check Point 38 Is the Contractor's right limited by extending the time limitfor the Employer to honour a payment certificate issued bythe Engineer?FIDIC Clause 60.2 Monthly Payments<Interpretation>Both the FIDIC Red Book and the JBIC Sample Bidding Documents specify the timelimit for the Employer to honour an Engineers certificate for payment as 28 days.Any text change to extend the 28 day honouring period will extend the time limit for payment by the Employer and will probably increase the Contract Price. There is alsothe possibility of deterring capable contractors from bidding as stipulated in Checkpoint 29 12. Therefore such text changes should be avoided from the perspective of economicrationality.Check Point 39 Has an excessive obligation been forced on the Contractor with regard to amortisation of the Advanced Payment?FIDIC Clause - Advance Payment<Interpretation>The provision of an advance payment allows the Contractor to pay for preparation of thesite and temporary works until receipt of the first interim payment.The advance is amortised by the Employer deducting a defined amount from anotherwise due interim payment. The JBIC Sample Bidding Document recommends thatrepayment should be calculated so as to obtain full recovery of the advance payment bythe time 80% of the Contract Price has been certified for payment.Any text change to make the Contractor repay the advance payment much beforeinterim payments have reached 80% of the Contract Price should be avoided as theymay undermine the original purpose of the advance payment.Check Point 40 Has an excessive obligation been imposed on the Contractor in respect of amount or timing of release of retention money?FIDIC Clause 60.3 Payment of Retention Money<Interpretation>FIDIC Red Book Clause 60.3 provides that the first half of the

retention money shall bereturned to the Contractor upon the issue of the Taking-Over Certificate with respect tothe whole of the Works. This recognises the fact that the Employers risk from thedefault by the Contractor is reduced at this time. The second half of the retention moneyis still held by the Employer to cope with the risk of the Contractor not remedyingdefects in workmanship. For this reason the second half of the retention money isreleased only at the end of the defects liability period at the same time as the performance security is also returned to the Contractor.Any text change to request the Contractor to submit a bank bond in exchange for thereturn of the first half of the retention money may impose on the Contractor anexcessive obligation beyond the FIDIC Red Book model. Any such text changes should be avoided as being against FIDIC Red Book principles and unfair. 30 Check Point 41 Is the Contractor's right to payment in a specified period prolonged, or is he denied interest for delayed payment?FIDIC Clause 60.10 Time for Payment<Interpretation>The JBIC Sample Bidding Documents recommend 56 days as the time for payment inFIDIC Red Book Clause 60.8..Any text change which allows the Employer to delay payment beyond the standard timelimit of 56 days and / or deletes the obligation to pay interest for delayed payment may push up the Contract Price. Such a text change could deter capable contractors fromsubmitting a bid as stipulated in Checkpoint 12 and should be avoided from the point of view of economic rationale.It is important that the payment obligation of the Employer should be clearly specifiedin FIDIC Red Book Clause 60.10. The actual time of payment by the Employer couldvary according to the particular contract definition. Payment could be the time of delivery by the Employer of necessary documents to the Contractor, or delivery to JBIC,or at the time of actual payment into the Contractors bank account. The FIDIC RedBook Clause 60.10 should clearly specify the time of payment to define the starting datefor calculation of interest.Check Point 42 Is there any possibility of the Engineer being unfairlyinfluenced by the Employer when making a decision on theamount to be reimbursed for the Contractor to rectify or replace any Works damaged by Special Risks?FIDIC Clause 65.3 Damage to Works by Special Risks<Interpretation>If there is a text change that the Engineer requires the Employer's prior permission toexercise his discretion on cost related to damage caused by Special Risks, the Engineersfair decision may be affected greatly by the Employer's intention. Any such text changesshould be avoided as being against FIDIC Red Book principles and unfair.Check Point 43 Is there any possibility of the Engineer being unfairlyinfluenced by the Employer when making a decision on theamount of increased cost arising from Special Risks? 31 FIDIC Clause 65.5 Increased Costs arising from Special Risks<Interpretation>If there is a text change that requires the Engineer to get the Employer's prior permissionto exercise his discretion on the amount of increased cost arising from Special Risks, theEngineers fair decision may be affected greatly by the Employer's view. Any such textchanges should be avoided as being against FIDIC Red Book principles and unfair.Check Point 44 Is there any possibility of the Engineer being unfairlyinfluenced by the Employer when making a decision on theadditional cost at the termination of the Contract arising fromSpecial Risks?FI DIC Clause 65.8 Payment if Contract Terminated<Interpretation>If there is a text change that requires the Engineer to get the Employer's prior permissionto exercise his discretion in relation to additional cost, the Engineers fair decision may be affected greatly by the Employer's view. Any such text changes should be avoided as being against FIDIC Red Book principles and unfair.Check Point 45 When the DAB procedure is used, has the cost beenexamined sufficiently?FIDIC Clause 67.1 Engineers Decision<Interpretation>Chapter 11 of the JBIC Sample Bidding Documents provides for the use of a DisputeAdjudication Board (DAB). The DAB comprises three (3) members in the case of a project in which the contract price exceeds 42 million US$ (equivalent to 5.0 billionJapanese Yen) as the optional method for the settlement of disputes. Under the FIDICRed Book Clause 67.1 this option is included at the discretion of the Employer as amethod of resolving differences over any Engineers decision.There have been projects where the establishment of a DAB was suspended because of the large sums of money to be paid for the DAB by both the Employer and theContractor. Even if the sharing of such cost was stipulated in the FIDIC Red Book thecost of a DAB can be exceptionally high especially if the adjudicators come from thirdcountries. The Employer should have understood that such expenses are inevitable whenthe DAB procedure was selected. 32 Check Point 46 Is the selection of the arbitration procedure and the methodof selection of arbitrators properly international?FIDIC Clause 67.3 Arbitration<Interpretation>There should be proper consideration given to the selection of the dispute settlement procedure incorporated in an international contract especially in the case of thenomination of an arbitration rules / organization which is based in the country of theEmployer and (usually) the country where the Works are to be carried out. The generalrule should be to appoint a truly international and neutral rules / organization such asInternational Chamber of Commerce (ICC).Check Point 47 Are the Contractors rights limited by shortening the notice period, or providing for a prolonged grace period for theeffectiveness of termination of the Contract by reason of anEmployers default?FIDIC Clause 69.1 Default of Employer <Interpretation>The FIDIC Red Book Clause 60.10 (a) provides a period of 28 days within which payment should be made by the Employer for interim certificates and 56 days for theFinal Certificate. The FIDIC Red Book Clause 69.1 also provides a period of 14 daysfor the effectiveness of a notice of termination for Employer's failure to pay as required.Proper consideration should be give to these periods taking into account theimplementation method and the context of the country where the Works are to be carriedout. The specification of these time limits shall be subject to sufficient investigationespecially when the executing agency has no authority to make a decision on the issuerelated to this clause and is required to consult with other government authorities.It is necessary to investigate all the circumstances surrounding the executing agency atthe same time as considering the rights of Contractor stated and implied in the Contract.Check Point 48 Is there any possibility of the Engineer being unfairlyinfluenced by the Employer when making a decision onextensions of time and additional cost at the termination of the Contract or suspension of the Works caused byEmployers default?

33 FIDIC Clause 69.4 Contractors Entitlement to Suspend Work <Interpretation>If there is a text change that requires the Engineer to get the Employer's prior permissionto exercise his discretion in relation to extension of time and additional cost, theEngineers fair decision may be affected greatly by the Employer's intention. Any suchtext changes should be avoided as being against FIDIC Red Book principles and unfair.Check Point 49 Is the Contractors right to price adjustment limited by theEmployer selecting an unreasonable adjustment formula or providing a very large non-adjustable range?FIDIC Clause 70.1 Increase or Decrease of Cost<Interpretation>The JBIC Sample Bidding Documents recommend alternative provisions to FIDIC RedBook Clauses 70.1 to 70.7 in Part II of the Conditions of the Contract.It is necessary to avoid any text change to restrict the Contractors right which deletesthis clause, or specifies unreasonable formula, or automatically cuts a certain percentageof price escalation, or limits adjustment to the cases of drastic movement in price.Check Point 50 Is the Contractors right to claim for additional cost for changes in legislation limited? Further, is there any possibility of the Engineer being unfairly influenced by theEmployer when making a decision for the amount of increase or decrease cost due to changes in legislation?FIDIC Clause 70.2 Subsequent Legislation<Interpretation>The FIDIC Red Book Contract stipulates that the Contractor is entitled to additionalcosts incurred due to changes in legislation and any text changes that limits theContractor's right to price adjustment only in circumstance when the additional amountwould exceed a certain limit are unfair.The limits of price adjustment under Clause 70.1 can be ambiguous as described in theCommentary on Clause 70.1 above. A description which clarifies adjustment to be madeunder Clause 70.1 is required in a particular project.If there is a text change that requires the Engineer to get the Employer's prior permissionto exercise his discretion on increase or decrease cost caused by changes in legislation, 34 the Engineers fair decision may be affected greatly by the Employer's view. Any suchtext changes should be avoided as being against FIDIC Red Book principles and unfair.Check Point 51 Is the provision of ratio of currencies of payment reasonable,does it unfairly restrict the Contractors right and does itavoid conflict with any other clause?FIDIC Clause 72.2 Currency Proportion<Interpretation>When the Employer specifies his obligation to pay, in more than one currency, anunbridgeable gap in the Contractor's actual cash flow may be caused if the text changesfix that ratio. There is also the possibility that the bid price will be increased by thecontractor making provisions for this exchange risk and the restriction on the recoveryfor Clause 70.1 price adjustment. Any such text changes should be avoided as beingagainst FIDIC Red Book principles and unfair. Appendices AP-1 Appendix -1 Procedure of Claim and Dispute Settlement FIDIC RedBook -1987 Note 1*If a Dispute Adjudication Board (DAB) has beenappointed by the modification of Part II Conditionsof Particular Application.Occurrence of Claimable Event Notice to Engineer of Intention to Claim Within 28 days Notice of ground and details of Claim Within 28 days Engineers Determination after consultation with partiesAgreement tothe DeterminationOccurrence of DisputeSettlementof Claim 53.1 Cost 44.2 Time 53.3 Cost 44.2

Time 53.5 52.2 Cost 44.1 Time Notice to commenceArbitration Within 70 days Attempt at AmicableSettlement Within 56 days Amicable Settlement Arbitration(under ICC Rule ) 67.267.3 Yes NoYesYes No No 67.1 Agreement to Engineersor DABs Decision Settlementof DisputeSettlementof DisputeReference of dispute toEngineer EngineersDecision Within 84days Reference of dispute toDAB *1 67.167.267.167.267.167.1 DABsDecision *1 Within 84days Final Settlement of Dispute

Japan Bank for International Cooperation Head Office4-1 Ohtemachi 1-chome, Chiyoda-ku,Tokyo 100-8144, JapanT e l e p h o n e : T o k y o 8 1 - 3 5218-9611Facsimile: Tokyo 81-3-5218-9640U R L : h t t p : / / w w w . j b i c . g o . j p E-mail: pdds@jbic.go.jp