FIDIC is concerned about its image. It says that heavily amending the FIDIC forms of contract impacts upon the FIDIC brand and that this is damaging FIDIC’s reputation. It seeks to address this with the introduction of five Golden Principles. But the Golden Principles are merely aspirational; they are not binding and have no contractual effect. Does this render them a pointless gesture ‘trying to hold back the tide’?
Much has been said about the new Red, Yellow and Silver Books 2nd Editions launched by FIDIC in December last year. The most obvious comment has been about their size, almost 50,000 words, which is some 60% longer than the 1999 forms. Although the 1999 forms were not perfect, most regular users seem to be agreed that they did not need 20,000 words to fix the issues. This consensus led this author to attempt to cherry-pick the good bits from the 2017 forms and to propose amendments to add the good ideas to the 1999 forms. The amendments apply to all three forms unless it is indicated otherwise.
Clause 14 deals with all aspects of payment. It also deals with the Statement at Completion, the Final Payment Certificate, Discharge and Cessation of the Employer’s Liability. The Clause provides that this is a re-measurement contract and that the quantities stated in the Bill of Quantities are estimated. There is provision for an advance payment to be made to the Contract. Applications for Interim Payment Certificates are made monthly and these must be supported by documents and a report on progress. Unless the amount assessed is less than the minimum amount set out in the Appendix to Tender, the Engineer has 28 days to issue an Interim Payment Certificate, which states the amount the Engineer fairly determines to be due. The Employer thereafter has an obligation to pay the amount certified, in the currencies named in the Appendix to Tender. In the event that payment is not received the Contractor can claim financing charges compounded monthly. Fifty per cent of the retention monies are paid when the Taking-Over Certificate is issued. Where there are Sections then a proportion is paid. The balance of retention is paid on the expiry of the latest Defects Notification Period or, where there are Sections, a proportion at the expiry of the Defects Notification Period for that Section. Within 84 days of receiving the Taking-Over Certificate the Contractor submits a Statement at Completion. This must include an estimate of all sums which the Contractor considers due. Within 56 days of receiving a Performance Certificate, the Contractor submits a Final Statement. The Contractor must also submit with the Final Statement a written discharge which confirms that the total of the Final Statement represents full and final settlement of all moneys due. The Engineer then issues to the Employer a Final Payment Certificate. The Contract states that the Employer shall have no liability to the Contractor except to the extent that the Contractor has included an amount expressly for that matter in the Final Statement and also the Statement at Completion.
Clause 3 deals with the duties and obligations of the Engineer and his assistants. Sub-Clause 3.1 deals with the role and duties of the Engineer. The Engineer is deemed to act for the Employer. The Engineer has no authority to relieve the Contractor of his duties, obligations or responsibilities under the Contract; nor can the Engineer amend the Contract. Under Sub-Clause 3.2 the Engineer can delegate authority to any assistants; however, the Engineer cannot delegate the responsibility to make Determinations. Under Sub-Clause 3.3 the Engineer may issue instructions or modified Drawings at any time, which are necessary for the execution of the Works. If the instruction constitutes a Variation, then it is dealt with under Clause 13 [Variations and Adjustments]. The Contractor is required to comply with any instruction given by the Engineer or delegated assistant. Sub-Clause 3.4 deals with the replacement of the Engineer. The Employer must not replace the Engineer with someone against whom the Contractor raises reasonable objection. Sub-Clause 3.5 deals with Determinations. When making a Determination the Engineer should consult with each of the Parties and, if agreement cannot be reached, make a fair determination in accordance with the Contract, taking due regard of all relevant circumstances. Both Parties are required to give effect to any Determination unless, or until, it is revised under Sub-Clause 20.1 [Claims, Disputes and Arbitration].
The main changes in Clause 16 are the new grounds for suspension and termination: Non-compliance with a final and binding Engineer’s Determination and binding or final and binding DAAB decision, to the extent that such failure constitutes a “material breach” of the Employer’s obligations under the Contract. (Sub-Clauses 16.1(d) and 16.2.1(d)). What constitutes a “material breach” is likely to be the subject of many disputes (see the commentary on Clause 15). Non-receipt of a Notice of the Commencement Date under Sub-Clause 8.1 [Commencement of Works] within 84 days after receiving the Letter of Acceptance. (Sub-Clauses 16.2.1(f)). This is development to ground (h) in the FIDIC Pink (MDB) Book which states: “the Contractor does not receive the Engineer’s instructions recording the agreement of both Parties on the fulfilment of the conditions for the Commencement of the Works under Sub-Clause 8.1 [Commencement of Works]”. It protects the Contractor from the financial consequences of fluctuations in the rates and prices during an extended delay to the start of the Works, although the Contractor ould be entitled to damages for breach of contract in any event. More importantly, it gives the Contractor loss of profit on the entire project. Engagement in corrupt, fraudulent, collusive or coercive practice at any time in relation to the Works or to the Contract. (Sub-Clauses 16.2.1(j).) This introduces parity between the Employer and Contractor. The wording is identical to that under Sub-Clause 15.2.1(h). In the FIDIC 1999 editions, the Employer was entitled to terminate if the Contractor gave or offered an inducement or reward etc. but there was no recipricol arrangement.
Articles on Arbitration The Need For Reasons - O, Reason
Rumour reaches us that the Multilateral Development Banks (MDBs) behind the Pink Book, FIDIC’s harmonised version of the 1999 Red Book, will discontinue the experiment. Should we be sorry to see the back of the Pink Book? We think not.
Read the full article here.