FIDIC BOOK GUIDE EXECUTIVE SUMMARY
Last December, the much anticipated 2017 editions of the Yellow, Red and Silver Books were released by the International Federation of Consulting Engineers (FIDIC) at their annual conference. Significant changes have been made across the Books which users need to be alive to. This interactive document looks at the core changes and provides quick reference guides to each of the Books.
EXECUTIVE SUMMARY
FIDIC has introduced significant changes across the 2017 Red, Yellow and Silver Books. Though these changes are largely similar across the Books, there are of course changes that are specific to the nature of each Book.
All are considerably longer than their 1999 counterparts and most provisions have been re-drafted. Despite this, FIDIC's standard approach to clause names and numbering is largely unaltered.
Readers will recall that the pre-release Yellow Book, released at the end of 2016, was not looked upon favourably by users. FIDIC appears to have taken on board much of the critical feedback it received on the pre-release Yellow Book, softening the risk allocation that was previously viewed by some as not reflecting good industry practice. However, the 2017 Books are still much more administratively burdensome than the 1999 versions, with various deeming provisions and time bars that may catch parties out if they are not careful. FIDIC has stated that the new Books are aimed at increasing clarity and certainty within the forms. However, the introduction of highly prescriptive procedures may not be what some users want to see.
- A philosophy that is broadly similar to the pre-release version of the 2017 Yellow Book
- Generally less flexible, more complex and less user friendly
- 50% longer than the 1999 Books
- Expanded role and powers for the Engineer / Employer's Representative
- Exceptionally prescriptive drafting, including new definitions and 'step-by-step' procedures, results in greater administrative burden on the Contractor and (in principle) additional costs for the Employer
- New time limits which, if not met, trigger deeming provisions or result in time bars
- More reciprocity with the Contractor's and Employer's rights and obligations
- Provisions to promote collaboration between the parties
- Enhanced (and separate) claims and disputes provisions, including the introduction of a new standing 'Dispute Avoidance / Adjudication Board' (DAAB) and a focus on early dispute avoidance
FIDIC RED BOOK 2017
Potential risks - Contractor
General Obligations (Cl. 4.1)
The Contractor's general obligations in relation to design (if
any) have been expanded and there is an additional undertaking by
the Contractor that the design and the Contractor's Documents
will comply with the technical standards stated in the
Specification and the Laws (in force when the Works are taken over)
and otherwise in accordance with the documents forming the
Contract.
Contractor's Documents (Cl. 4.4)
Construction cannot commence until the Engineer has (or is deemed
to have) issued a Notice of No-objection to the Contractor's
Documents. The Contractor's obligations to provide As-Built
Records and Operation and Maintenance Manuals have been expanded
and are now set out separately in cl. 4.4.2 and 4.4.3.
Training (Cl. 4.5)
There is a new obligation on the Contractor to train the employees
of the Employer in the operation and maintenance of the Works and
to provide qualified and experienced staff and all necessary
facilities and materials. This is also a pre-condition to taking
over under cl. 10.1.
Costs of Remedying Defects (Cl. 11.2)
The Contractor is responsible for remedying defects that arise from
improper operation and maintenance which was attributable to
matters for which the Contractor is responsible (i.e. As-Built
Records, Operation and Maintenance Manuals and Training).
Adverse Climatic Conditions (Cl. 8.5)
The Contractor's entitlement to an EOT as a result of adverse
climatic conditions has been clarified to mean those at the Site
which are Unforeseeable having regard to climatic data made
available by the Employer and/or published in the Country for the
geographical location of the Site. Whilst this clarification is
helpful, relief is limited to adverse climatic conditions affecting
the Site only, which wouldn't apply where adverse weather
elsewhere delayed delivery of key items of plant or materials.
Concurrent Delay (Cl. 8.5)
Whereas the 1999 Red Book was silent on the issue of concurrent
delay (meaning the governing law approach would apply), the 2017
version now requires Parties to adopt rules and procedures to deal
with concurrent delay by means of the Special Provisions.
Design Risk (Cl. 17.4)
A new indemnity has been inserted requiring the Contractor to
indemnify the Employer against all errors in the Contractor's
design (if applicable) which result in the Works not being fit for
purpose. Importantly, the exclusion of indirect or consequential
loss and the aggregate cap on liability under cl. 1.15 applies to
this indemnity, limiting the Contractor's liability in this
regard.
Liability Caps (Cl. 1.15)
Delay Damages and indemnity liabilities relating to intellectual
property rights have been carved out from the exclusion of indirect
or consequential loss. Gross negligence has also been carved out
from the aggregate cap and the Employer has a new right to
terminate where the Delay Damages cap is exceeded.
Potential risks - Employer
Liability for Care of the Works (Cl. 17.2, 17.5 &
17.6)
The categories of what used to be referred to as
'Employer's Risks' have been expanded and now also
includes a 'catch all' any act or default of the
Employer's Personnel or other contractors.
Indemnities (Cl. 17.5)
The Employer's indemnities in favour of the Contractor have
been expanded to include loss of or damage to property attributable
to any negligence, wilful act or breach of contract by the
Employer, the Employer's Personnel, or any of their respective
agents. The Employer is also now required to indemnify the
Contractor in respect of all claims, damages, losses and expenses
in respect of damage to or loss of property to the extent such
damage arises from an event for which the Employer is liable under
cl. 17.2. Both parties' liability under the indemnity
provisions will be reduced proportionately to the extent an event
for which the other party is responsible has contributed to the
loss.
EOTs (Cl. 4.15, 8.5 & 8.6)
The Contractor's entitlement to EOTs has been expanded to grant
relief where the non-suitability or non-availability of an access
route arises as a result of changes to that access route by a third
party after the Base Date, where delays are caused by private
utility entities or where there are Unforeseeable shortages in the
availability of Employer-Supplied Materials. In a major departure
from the 1999 Red Book, the Contractor has an express entitlement
to an EOT for delays (caused by epidemic or governmental
actions).
Latent Defects (Cl. 11.10)
The 1999 Red Book was silent on latent defect liability (save to
say that each Party shall remain liable for unperformed obligations
following issue of the Performance Certificate) and so the
Contractor's liability would be subject to the governing law
approach. Under the 2017 Red Book, the Contractor's liability
for latent defects in Plant shall cease two years after expiry of
the Defects Notification Period (subject to certain exceptions).
Employers will need to consider whether such latent defect
liability is adequate and ensure this default position is amended
if not.
Permits (Cl. 13.6)
The change in law provisions have been extended to apply to changes
in permits to be obtained by the Employer or a change in the
requirements for any permit to be obtained by the Contractor.
Profit (Cl. 1.1.20, 13.3 & 15.6)
Whilst the 1999 Red Book entitles the Contractor to recover cost
plus profit for various relief events, the amount of profit
recoverable under the 2017 Red Book is now set at a default sum of
5% in most circumstances. If Employers object to this level of
profit, they must ensure a different amount is inserted into the
Contract Data. The Contractor is also now expressly entitled to
recover lost profit where Works are omitted or where the Contract
is terminated for convenience (although the margin of profit is not
stipulated).
Contract administration - Contractor
Notices (Cl. 1.3)
There are far more notification requirements under the 2017 Red
Book. All notices must be in writing and identified as a Notice.
Contractors will need to ensure they have adequate resources to
comply with these requirements. A "Notice of
No-objection" replaces approvals and consents.
Advance warning (Cl. 8.4)
Advance warning provisions have been introduced requiring each
Party to advise the other of any known or probable future events
which may adversely affect the performance of the Works, increase
the Contract Price or delay the execution of the Works. There do
not appear to be any consequences for failure to issue an advance
warning. Contractors should expect Employers to address this with
amendments reducing the Contractor's entitlement to relief
where they fail to issue an advance warning.
Programming (Cl. 8.3)
The programming requirements have been expanded to include
additional details that must be included in each programme,
including logic links, float and critical path – increasing
costs at tender stage. Nothing in any programme will relieve the
Contractor from any obligation to give a contractual notice,
reducing the scope for reliance on programmes as notices of claims
for delay.
Variations (Cl. 13.3)
A clearer distinction is made between the methods for initiating
Variations by Instruction and Variations by Request for Proposal.
Regarding the former, Contractors are now required to submit
detailed particulars of the work, resources and methods to be
adopted, a programme for execution of the Variation, a proposal for
modifying the Programme and Time for Completion, a proposal for
modifying the Contract Price and the amount of any time related
costs.
Cessation of Employer's liability (Cl.
14.14)
Contractors must take care to include all claims in the Statement
on Completion (except for those arising after the issue of the
Taking-Over Certificate), Final Statement or any Partially Agreed
Final Statement, whether such claims have been referred to the DAAB
or have had a Notice of Dissatisfaction (NOD) issued in relation to
them, otherwise the Employer will avoid any liability for them. In
addition, the Contractor only has 56 days to dispute the Final
Payment Certificate (FPC) under cl. 20.2 otherwise the Contractor
will be deemed to have accepted the amounts and the Employer shall
have no further liability. Contractors will need to take extra care
to ensure all claims are captured in their statements and that the
56 day time bar for disputing the FPC is not missed.
Contract administration - Employer
Engineer (Cl. 3)
The importance of the Engineer's role has increased under the
2017 Red Book. The Engineer is required to have suitable
qualifications, experience and competence to act as the Engineer
under the Contract and must act as a skilled professional. The
Engineer may also appoint an Engineer's Representative to be
present on Site. Employers will need to consider more carefully who
they appoint as Engineer, as a failure of the Engineer to satisfy
the above may amount to an Employer breach. The Engineer's
instructions must also now be in writing and otherwise comply with
cl. 1.3 – they can no longer be issued verbally and later
confirmed in writing.
Programme (Cl. 8.3)
There are new deeming provisions for acceptance of any revised
programme which require the Engineer to give notice to the
Contractor of the extent of the revised programme's
non-compliance with the Contract, inconsistency with actual
progress or the Contractor's obligations, within 14 days of
receiving it, failing which it will become the Programme.
Contract administration - Both parties
Engineer's Determination (Cl. 3.7)
The Engineer's determination provisions have been significantly
expanded and are much more procedural. The Engineer must act
neutrally in exercising its obligations under this clause and there
are new deeming provisions in relation to the issue of the
Engineer's determination. If the Parties cannot agree a Claim /
matter within 42 days and the Engineer fails to issue a 'fair
determination' within a further 42 days, then either (i) the
Engineer is deemed to have rejected the Claim; or (ii) in the case
of any other matter, it is deemed to be a Dispute which either
Party can refer to the DAAB without the need for a NOD. Contractors
will likely seek amendment requiring either deemed acceptance or
automatic referral to the DAAB for all Claims / matters not
determined in time. Also, if either Party objects to a
determination, it must issue a NOD within 28 days, otherwise the
determination shall be deemed final and binding. If either Party
doesn't comply with an agreement of the Parties or a final and
binding determination, the other Party may refer the failure
directly to arbitration for enforcement by expedited procedure.
Claims (Cl. 20)
The Claims provisions have been redrafted and separated from the
Dispute provisions (now cl. 21). If a Party's Notice of Claim
or statement of legal basis for claim to be included in the
Party's Fully Detailed Claim are not submitted within the set
timeframes, the Notice of Claim will be invalidated and the
claiming Party time barred. There is a deemed validation procedure
if the Engineer fails to notify the claiming Party it is outside
the relevant timeframe and a mechanism by which the Party can
challenge the invalidity of its Notice of Claim, requiring the
Engineer to consider their position and allow the late submission
if it is justified in the circumstances. Most importantly, FIDIC
has introduced reciprocity with respect to the 28 day time bar to
submit a Notice of Claim and the new 84 day time bar to submit the
Fully Detailed Claim - so that the Claims provisions apply to
Employers as well.
Both Parties should be careful to ensure they comply with the relevant timeframes under cl. 3.7 and 20.
Termination (Cl. 15.2 & 16.2)
Additional termination rights have been added for both Parties, the
most important being that either has a right to terminate if the
other fails to comply with a binding agreement or final and binding
determination of the Engineer or a decision of the DAAB and such
failure constitutes a material breach.
Contract administration - Changes to the DAAB provisions
While the fundamental aspects of the Dispute Avoidance/Adjudication Board (DAAB) process have been retained, a number of amendments have been made to promote good contract management and ensure disputes cannot roll on indefinitely. However, in practice, it is likely that the Parties will end up prematurely referring disputes to the DAAB or to arbitration to avoid falling foul of these revised provisions.
Key changes include:
- The DAAB is appointed as a standing board with a dispute avoidance function.
- The DAAB may now provide 'informal assistance', if the Parties jointly request it, under new 'Avoidance of Disputes' provisions. The Parties are not bound to act on the DAAB's advice and the DAAB is not bound in any future dispute by views given during this informal process. This process is not available when the Engineer is making a determination.
- A 42 day time bar applies to the reference of disputes to the DAAB following the issue of a NOD in relation to an Engineer's determination.
- A 28 day time bar applies to the issue of a NOD following a determination by the DAAB, otherwise the DAAB's decision shall become final and binding. However, unlike the pre-release Yellow Book, there is no time bar to referring disputes to arbitration following issue of such NOD.
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