FIDIC ‘launched’ the FIDIC 2022 reprints at the FIDIC International Construction Users’ Conference 2022, in London. The reception to the changes was mixed – some embraced the clarity; others questioned the significance and cost. This article draws your attention to 10 of the key areas of change in respect of the FIDIC Red Book 2017 including the definition of Claim, matters to be agreed or determined, the definition of Dispute and Exceptional Events.
Could provisions in FIDIC contracts giving relief for ‘Force Majeure’ or ‘Exceptional Events’ provide relief to contractors suffering as a result of price escalation? It is well documented that construction and engineering projects around the globe are being affected by extreme and sometimes unprecedented price escalation. This is for many reasons including the Covid-19 pandemic and the Russo-Ukrainian conflict.
El efecto del coronavirus en la construcción es amplio y desconocido, en particular, en cómo evaluar el tiempo y el dinero perdido. Por fortuna, los contratos FIDIC proveen varias opciones a las Partes para manejar riesgos y proteger derechos. Este artículo analiza cómo se trataría la pandemia del Covid-19 bajo el Contrato de Construcción de Obras FIDIC 2010 armonizado por el Banco Mundial en español.
Covid-19 has had huge consequences around the world and unfortunately
Although Clause 17 is titled ‘Risk and Responsibility’ it also sets out other provisions relating to indemnities, limitation of liability and, unusually, the specific topic of intellectual and industrial property rights. The clause provides that the Contractor assumes responsibility and bears the risk for the care of the works during execution and for remedying any defects during the Defects Notification Period. Risk transfers to the Employer on issue of the Taking–Over Certificate to the extent of works defined as being completed. Generally, in construction contracts ‘risk’ is understood to mean an event or circumstance which causes delay, loss or damage to the Works. A risk can be said to be Employer caused, Contractor caused or neutral. The purpose of risk allocation is to determine which party bears the risk for such events. The Contractor may be required to remediate the damage at his own cost or the Employer may be required to pay for the damaged works. It has been stated that the “FIDIC standard forms are generally recognised as being well balanced because both parties bear parts of the risks arising from the project.”
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.
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]
Clause 5 defines a ‘nominated Subcontractor’ as either a Subcontractor who is stated in the Contract as being ‘nominated’; or who the Engineer instructs the Contractor to employ as a Subcontractor under clause 13. The Contractor may object to employing a nominated Subcontractor. A number of grounds are deemed to be reasonable for objecting and these include: where there are reasons to believe that the Subcontractor does not have sufficient resources, competence or financial strength to complete the subcontracted works; where the Subcontractor refuses to agree to indemnify the Contractor for any negligence; or where the Subcontractor does not agree to carry out the works so as not to put the Contractor in breach of its own obligations. If the Employer requires that the Contractor employ a nominated Subcontractor where a reasonable objection has been made then it must agree to indemnify the Contractor. The Contractor is required to pay to the nominated Subcontractor the amounts which the Engineer certifies to be due in accordance with the Subcontract. This sum is then added to the Contract Price as well as any amount for overheads and profit as stated in the appropriate schedule or Appendix to Tender. However, before issuing a Payment Certificate to the Contractor the Engineer may ask for evidence that previous payments have been made to the nominated Subcontractor. If evidence is not provided by the Contractor or the Contractor does not satisfy the Engineer that there are grounds for withholding payment then the Employer may at his discretion pay the nominated Subcontractor directly.
What relief does FIDIC provide when bank accounts are frozen as a result of war, hostilities, rebellion, terrorism etc.? Maybe not as much as you think. Tensions in Africa and the Middle East have seen the implementation of numerous international financial sanctions. While these sanction regimes vary in execution and enforcement they often freeze assets and prevent financial transactions. These restrictions may impact on the Employer’s performance of its payment obligations under the Contract. This can have serious consequences where the Contractor is entitled to suspend or terminate on notice for non-payment. Many parties automatically assume that financial sanctions will be recognised as force majeure. However, this may not be the case.
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