The 1999 first edition “Rainbow Suite” of contracts issued by the Fédération Internationale Des Ingénieurs-Conseils (“FIDIC”) have been the preeminent standard form contracts for international construction and engineering projects for the past 18-plus years. In December 2017, FIDIC launched the long-awaited new editions of the Red Book (Conditions of Contract for Construction), Yellow Book (Conditions of Contract for Plant & Design Build), and Silver Book (Conditions of Contract for EPC/Turnkey Projects). The updates in the second editions are extensive, although many of the changes are the same or similar across all three Books. The new editions have a stronger emphasis on dispute avoidance and are intended, among other things, to enhance clarity, promote the exchange of information among the parties, settle disputes more efficiently and quickly, and address certain ambiguities and/or omissions contained in the original editions.
At the outset, the most noticeable change is the significant expansion of the General Conditions, and the Guidance Notes – the updated editions now span over 200 pages each and include 21 separate clauses. With respect to substantive changes, this article will focus on the enhanced contract management provisions (including time limitations and notice requirements), variations, claims and determinations, and disputes – although numerous other changes are also included in the updates. For the sake of simplicity, the following discussion relates to the 2017 update to the Yellow Book (“YB2017”).
The updated edition sets out more detailed and prescriptive contract management procedures and expands communications and time-related requirements. These enhanced procedures address certain previously ambiguous or uncertain aspects of contract management under FIDIC. For example, YB2017 expands the role of the Engineer by, among other things, expressly providing that the Engineer need not obtain the Employer’s consent prior to making a determination on a matter or claim. The Engineer may exert its authority as provided by the contract, and the Employer is proscribed from imposing additional restrictions on the Engineer’s authority.
Additionally, YB2017 tightens communications requirements by requiring that all formal communications be in writing (which includes email) and expressly identify within the document the type or nature of the communication being presented or submitted. Thus, if the communication is an instruction, the communicating document must be in writing and must expressly state that it is an “instruction.” Furthermore, any formal communication (with the exception of most notices) must also reference the specific contract provision pursuant to which it is issued. Notices must be expressly identified as such. In fact, the updated edition expressly provides that the Contractor’s progress reports, programs, etc. cannot constitute a notice. Another notable addition in YB2017 is that an electronic communication or notice is deemed to have been received the day after transmission.
The Variations provisions in the new edition has been updated to clarify ambiguities and/or omissions in the previous edition. For example, the Engineer is now required to issue Variation instructions in writing, and all Variation instructions must be expressly identified as a “Variation.” This is in contrast to the previous edition, which allowed that an instruction could constitute a Variation if it was by nature a variation, even if it did not expressly identify itself as such. Furthermore, YB2017 provides that when the Contractor is presented a notice or instruction that is not labeled as a “Variation,” the Contractor may issue a notice to the Engineer, prior to commencing any work, that the Contractor considers the instruction to be a Variation. The Engineer must then respond within seven (7) days by either confirming, reversing, or modifying the instruction. In the event the Engineer fails to respond properly and timely to such a notice, he/she will be deemed to have revoked the instruction. Finally, another notable addition is the express recognition that Variations may be objected to should the varied work be outside of the nature and scope of the contracted work, i.e., “Unforeseeable.”
Claims And Determinations
The updated Claims provisions are a further reflection of the enhanced contract management procedures embodied in the 2017 updates. The updated edition now prescribes the same Claims procedure for both the Employer and the Contractor, essentially imposing reciprocity between the parties. In short, both the Employer and Contractor are now required to submit claims (should any claims need to be made) and must follow stricter administrative requirements.
YB2017 defines “Claim” and further identifies three categories of claims for: (1) time; (2) money; and (3) any entitlements outside of time and/or money. The third category of claims, however, are not defined in the new edition, and the resolution of these “other” type of claims are not subject to the new Claims procedure but, instead, are to be referred to the Engineer for agreement or determination.
The update also imposes more prescriptive time requirements on the parties. For instance, both parties are now required to provide notice within 28 days of the event(s) giving rise to a claim and must also submit a “fully detailed claim” within 84 days, including a detailed description of the circumstances giving rise to the claim, statement of the contractual or legal basis of the claim, “all contemporaneous records” supporting the claim, and supporting information/documentation for the amount of the claimed extension of time or change in the contract price. Should the required information not be provided sufficiently and timely, the notice of claim will be deemed invalid. It is also important to note that in the updated edition, the Engineer has the ability to waive the foregoing claim’s time bars if there are circumstances justifying a party’s failure to meet the time requirements. A party that protests such a waiver may then refer the matter to the Dispute Avoidance/Adjudication Board.
With respect to the Engineer’s determinations, the update maintains for resolution the requirement that the Engineer first consult with and encourage the parties to reach agreement prior to making a determination. New provisions have been added, however, including a provision making the Engineer’s determination final and binding unless a party issues a Notice of Dissatisfaction within 28 days.
The updated edition also introduces a “concurrent delay” provision. Concurrent delay—delay that is caused in part by both the Contractor and the Employer—is common in the construction industry. The FIDIC update does not address how concurrent delay is to be addressed, but instead requires that the parties negotiate this specific language on grounds that there is no standard or prevailing practice in the international arena for addressing concurrent delay.
The most significant update with respect to dispute resolution in the new edition is the requirement that the parties jointly establish a standing Dispute Avoidance/Adjudication Board (“DAAB”). The DAAB takes the place of the Dispute Adjudication Board required under the 1999 edition. Consistent with FIDIC’s emphasis on dispute avoidance in the updated editions, the DAAB’s role is not simply to adjudicate disputes, but also to help the parties avoid disputes through regular meetings and site visits by the DAAB.
Although only a small fraction of the 2017 updates to the FIDIC forms are discussed above, the updates discussed exemplify the overarching themes of the updated editions of enhanced clarity, certainty, and dispute avoidance. FIDIC has taken a significant step towards addressing many of the shortcomings in the 1999 editions by adopting a far more comprehensive and prescriptive approach to the standard forms. Only time will tell whether the 2017 updates will truly help to promote the efficiency and efficacy of international construction projects based on the FIDIC forms and/or FIDIC principles.