UK: Amending Clause 13.1 Of FIDIC – Protracted Negotiations

Last Updated: 18 March 2013
Article by Jatinder Garcha

Having negotiated contracts on a number of internationally financed projects over the past year, the reluctance of employers (or more likely of their lenders) to progress projects on the standard FIDIC conditions of contract is clear to see. There are a number of provisions that will inevitably always be subject to protracted negotiations, for example the Clause 17.6 limitation on liability cap and, almost more importantly, which liabilities fall outside of the overall cap, and also the removal of the conditionality wording in Clause 4.2 and substitution with wording making it clear that the bonds are purely "on-demand". Developments in respect of on-demand bonds are discussed separately in this article.

However, there are other provisions that appear to be reasonable and uncontroversial but again are sought to be amended, which can lead to lengthy negotiations as a result of contractors attempting to "stay in line" with the standard FIDIC provisions. One such provision is Clause 13.1 which relates to the variation procedure set out in the FIDIC Yellow Book. There are three issues in Clause 13.1 that cause particular discussion. First, the employer will attempt to delete the last sentence of the first paragraph which states that "A Variation shall not comprise the omission of any work which is to be carried out by others."

This provision is aimed at ensuring that the employer cannot remove works from the contractor's scope and have them carried out by a third party at perhaps a lower price. The contractor will have priced the contract works on the basis of a complete EPC wrap and therefore it is unfair to compare its prices for individual elements of the works with those of other contractors who do not have to price the full EPC risk. The obvious concern for the contractor is that removal of any scope of its works will result in a reduction in its contract price and therefore its profit. Contractors acknowledge that, if for commercial viability reasons the project works have to be scaled back, then the works under their contract can accordingly be reduced without any penalty. It is not acceptable, however, for works to be omitted just so that they can be carried out by another contractor. The employer will argue that for reasons of flexibility it needs an unrestricted right to be able to change the project works and how they are undertaken. Employers will vigorously argue that they require this flexibility and that the contract provisions need amendment in order to be acceptable to lenders.

If the deletion is insisted upon, contractors should consider putting a proposal to the employer that the contractor be entitled to payment of its loss of profit in respect of the element of works omitted where the omitted works are to be undertaken by a third party. Any such provision would need to be specifically carved out of the exclusion for loss of profit under Clause 17.6.

The second issue that arises relates to the ability of the contractor to object to a variation proposed or initiated by the employer. The FIDIC contract allows for an objection in three limited circumstances only, but even that is considered far too wide by employers who require an unrestricted ability to instruct variations of any kind. Employers will look to delete the standard FIDIC rights of objection, arguing that they have to ensure that any modification in the project to reflect commercial changes can be forced upon the contractor, and that the project is not held to ransom by the contractor. One of the three rights of objection under the FIDIC contract is if the variation "will have an adverse impact on the achievement of the Schedule of Guarantees". The rationale for this provision, which is occasionally amended to refer to failure to pass completion tests, is well understood. Employers, on the other hand, will argue that just because there is an impact this should not necessarily result in an automatic right to object. Employers consider that the contractor should assess the consequences of the variation and if necessary propose changes, redesigns, or other modifications that will result in the Schedule of Guarantees being achieved. As far as employers are concerned, it is for the contractor to come up with the necessary solutions as part of its proposal in response to the employer's request. For the employer it is just a matter of cost and time to the contractor. Logic dictates that contractors are more than willing to accept variation orders (as variations increase the contract price and, accordingly, profit); however, there will inevitably be occasions when for good reasons a contractor may be unable to execute a variation. Being unable to execute a variation has to be distinguished from a variation which is merely more difficult to execute. Added difficulty can be addressed through the compensation procedure, but impossibility can not. Such factors should be taken into account when discussing what events should entitle the contractor to object.

After lengthy discussions over the variation objection events, the final issue to be discussed is the wording of the last sentence of Clause 13.1. This states that upon receiving from the contractor an objection notice to a proposed variation the engineer "shall cancel, confirm or vary the instruction". It is the express right to "confirm" the instruction that causes contractors some concern. If a contractor has objected to a variation that will cause it to be in breach of laws or a consent, or will lead to the contractor's failure to achieve the Schedule of Guarantees, then how is it appropriate that such a variation proposal can be confirmed? What is the effect of such confirmation on the contractor's obligations under the contract (especially where the contractor knows that being forced to comply with the variation will put it in breach of another express provision of the contract)?

The FIDIC contract does not specifically address this issue. One would expect that such confirmation would absolve the contractor from any responsibility or liability to the employer for the consequences of the contractor's failure to perform an express obligation under the contract which results by virtue of compliance with such variation. Whilst it is likely that this assumption would be implied into the contract under English law, it is prudent to incorporate wording to this effect, especially if the contract is to be governed by the laws of a jurisdiction other than England.

This article came from Fenwick Elliott's International Quarterly, to see similar articles please go to www.fenwickelliott.com/research-insight/newsletters/international-quarterly.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Jatinder Garcha
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions