In all construction contracts, one of the central principles is the Employer’s obligation to pay the contract price. The Contractor will be wary about the Employer’s financial standing and ability to pay and concerned to ensure that payments are made on time and that effective remedies are available in case of late or non-payment. The FIDIC standard forms of contract contain provisions dealing with these aspects.
Clause 8 contains all the fundamental provisions relating to the start of the Works, the Time for Completion, delays and the entitlement of the Contractor to an extension of time and of the Employer to delay damages, and finally the circumstances in which a suspension of the Works can occur and the implications for the Parties.
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.
The main changes in Clause 15 are the new grounds for termination: Non-compliance with a final and binding Engineer’s Determination (Sub-Clause 15.2.1(a)(ii)) and a binding or final and binding DAAB decision (Sub-Clause 15.2.1(a)(iii)) to the extent that such failure constitutes a “material breach” of the Employer’s obligations under the Contract. Maxing out the Delay Damages (Sub-Clause 15.2.1(c)). There is no requirement for the Delay Damages to have been actually deducted. It is not clear what the position would be if the Contractor claims an EOT and it is granted by the DAAB or arbitrator after termination so that the Delay Damages are reduced below the cap. Would the termination then be unlawful?
In London last week, FIDIC launched its Second Editions of the Red, Yellow and Silver Books. They are big, weighing in at almost a kilo each. The general conditions cover 106 pages with more than 50,000 words, over 50% longer than the 1999 forms. Many improvements have been made, addressing issues that have emerged since 1999. Fans of Dispute Boards will be pleased to see that all three books now have standing boards with more emphasis on dispute avoidance; and that appointment of DB members and enforcement of their decisions have been made easier. Disputes and Arbitration are now dealt with in a separate chapter 21. Here are the most interesting changes to the Yellow Book.
Clause 19 deals with two distinct events: (1) Force Majeure; and (2) release from performance under the law. Force Majeure is often narrowly defined under the laws of many countries; however, within the FIDIC 1999 forms of contract it has a much broader meaning. The terminology used by FIDIC has therefore sometimes been criticized as being misleading.
Click through to read Corbett & Co.'s helpful commentary on FIDIC 1999 book Clause 15
Clause 4 sets out various obligations which fall on the Contractor under the Contract and which cannot easily be classified elsewhere. The obligations under Clause 4 are of a wide range covering 24 different topics. Sub-Clause 4.1 sets out the Contractor’s general obligation to carry out his duties in accordance with the contract. Clause 4 of the FIDIC Red Book 1999 amalgamates various Contractor obligations under one provision. However this Clause 4 is not exclusive as there are also other Contractor obligations scattered throughout the Contract. Other significant general obligations which could equally have been included in Clause 4 (and which should be read in conjunction with this Clause 4) are as follows: • Sub-Clause 1.3 [Communications] • Sub-Clause 1.7 [Assignment] • Sub-Clause 1.8 [Care and Supply of Documents] • Sub-Clause 1.9 [Delayed Drawings or Instructions] • Sub-Clause 1.10 [Employer’s Use of Contractor’s Documents] • Sub-Clause 1.12 [Confidential Details] • Sub-Clause 1.13 [Compliance with Laws] • Clause 6 [Staff and Labour] • Clause 7 [Plant, Materials and Workmanship] • Sub-Clause 8.2 [Time for Completion] • Sub-Clause 8.3 [Programme]
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.