Last week, along with 350 other attendees, I attended the FIDIC International Contract Users’ Conference in London. The conference not only marked the 60th anniversary of the release of the Red Book but also the formal launch of the 2017 editions of the Red, Yellow and Silver books.
Following last year’s pre-release of the new forms which had met with a sceptical reception, everyone was on tenterhooks now the final version was about to be launched: would these be contracts which will actually be used or are they destined for the back of the shelf?
Nicknamed by conference attendees as the “three kilo” suite, the 2017 editions are very different books to the 1999 editions. They are much longer, and therefore heavier, so watch out for your backs!
There is no halfway house between the short green form and the 128 page new Red Book. What if the parties don’t want such a detailed form? Demonstrating that they still think there is life in the 1999 forms, FIDIC have said that parties should consider using the Red Book 1999.
But the 2017 forms are fundamentally different to the 1999 editions. What if the parties want to use a simplified version of this new approach? FIDIC’s answer was that this isn’t really possible. To try and simplify the 2017 forms would be very difficult – with many lawyers discussing how dangerous it will be to amend such a cobweb of interlinked clauses. Not to mention that significant amendment would offend one of FIDIC’s “Golden Principles”. Is there a case for a new FIDIC-lite 2018/19 form? Since these revisions were eight years in the making, I won’t be holding my breath!
There is quite an important legal reason for the increased length. The 2017 forms are no longer merely documents which record the parties’ agreement; they have been transformed into active project management tools, which the parties ignore at their peril.
New step by step procedures and processes have been added (not to mention 5 time bars) and, if things are not done when they are meant to be, there are new deeming provisions. Contract management has been made much more prescriptive, mimicking (and perhaps seeking to head off competition from) the NEC suite of contracts, which (whether or not by coincidence) has also recently been updated. The Engineer’s role has also been expanded (see below), with a raft of new discretions which may create future work for litigators.
The core aim of these changes is clarity and certainty; the idea being that the parties should be clear on what they need to do to comply with the contract, and what happens if they don’t do it. Whether parties will actually choose to follow those processes in practice is another matter.
Arguably, the success of this change will depend on the maturity of the parties. If they know what they are doing, the prescriptive approach may work well. The problems come if the parties are not so knowledgeable.
An example of the new philosophy is how claims are to be treated. In the past, in common with many construction contracts, claims tended to be dealt with at the end of the project. However, the FIDIC 2017 approach is to deal with claims as the project progresses, rather than waiting until the end.
The 2017 forms envisage a standing, rather than an ad hoc DAAB (note change in title). The parties are expected to make joint referrals on issues so that claims are sorted out as they arise, not saved until the end. The core premise being that parties are proactive and speak to one another. The intention behind this change is to police the project throughout and ensure better practice.
Arguably this change benefits the contractor. An interesting observation made at the conference is that the contractor holds power for perhaps the first 30% of the project, because at this stage the employer most needs the contractor. So, if a claim arises (and is dealt with) during this period, the employer is likely to resolve it quickly. However, if claims are left for resolution until the final account stage, the employer no longer needs the contractor, so is more prepared to dig in for a lengthy dispute. Obviously this mind-set isn’t true of all contractors and employers, but it is nonetheless an interesting idea which may contain a nugget of truth.
This change reflects the influence of the Construction Act and NEC. But make no mistake: this is no move towards a “good faith” approach. Whilst retaining the “spirit of mutual trust and cooperation”, the 2017 forms remain adversarial contracts in that each party looks after its own interests. However, the increased emphasis on claims resolution is an acknowledgement of best modern project management principles: it’s not a bad thing to have claims sorted out as projects go along, and it should speed up financial settlements.
Reciprocity is another feature of the 2017 forms, best demonstrated by the claims procedure. The parties are required to follow exactly the same process and are subject to the same time bars.
The revised procedure also introduces the risk of claims about claims. The new clause 20 (Red Book) provides that, if a Notice of Claim is given within the 28 day time limit, then a fully detailed claim must follow within 84 days (the two periods running concurrently). If the claimant fails to submit a detailed claim, the Notice of Claim lapses and there is no scope to resubmit; the claim has gone.
However, there are a couple of exceptions. First, if the Engineer does not confirm that the claim has expired, it will not do so (though the Engineer’s failure gives the defendant the option to serve a notice saying that the claim has expired). Perhaps more controversially, even if the Engineer has given an expiry notice to the claiming party, he may nevertheless subsequently determine that the Notice of Claim may be treated as valid where late submission is ‘justified’. Examples of extenuating circumstances are given in the contract, but these are not prescriptive or exhaustive. It will be interesting to see how brave Engineers will be in exercising this discretion, and whether it leads to claims about claims.
The theme of prescription for the sake of certainty can also be seen in the revised variation procedure. In FIDIC 1999, a variation would typically be an email instruction – the only formal requirement being for it to be in writing. However, in FIDIC 2017, the variation needs to be a “Notice” (with the procedural requirements stipulated for this defined communication) and to state that it is a “Variation Instruction”, signed by the Employer’s Representative. Otherwise, unless the contractor submits a “Request for Proposal” at the time, it isn’t a variation.
Another major feature of the 2017 forms (which was covered in the Pre-release versions) is the expanded role of the Engineer. Under the 2017 forms the Engineer’s Representative is expected to be on site all the time. FIDIC has never expressly said this before.
The Engineer is required to act “neutrally”. Apparently this word was chosen very carefully: the Engineer cannot be called “independent” because it has been appointed by the Employer. Having said this, English legal practitioners will note that the Engineer is under a duty to act “impartially” in any event.
FIDIC’s explanation is that they have given the Engineer discretion to waive two of the five time bars because of legal issues that time bars raise in various jurisdictions, and for fairness. We suspect this is going to be a difficult issue in practice.
Presumably the Engineer’s PI insurance will cover the additional discretions now included in the role?
Fitness for purpose has also been clarified since the Pre-release. The works must now be “fit for purpose” as defined in the Employer’s Requirements, NOT (as before) the Contract. The forms also clarify that, where no purpose is specified, the works must be fit for their “ordinary purpose”, whatever that may be ….
Minus a crystal ball, only time will tell whether the 2017 forms will gain real traction in the market, but the consensus at the conference seemed to be that they are likely to do so – eventually.
The 2017 prescriptive approach will be better suited to certain projects and parties than others. It should not be used blindly just because it is the latest edition; the 1999 forms still have their uses. FIDIC acknowledged this at the conference, but they have confidence in this product. The 1999 suite took many years to build usage; FIDIC have time – they are happy to wait.
The big problem with FIDIC 2017 is that it does not lend itself well to amendment. This of course is intentional: another FIDIC Golden Principle being that the risk profile should not be changed. But what if the parties want to change the risk profile; surely it is for them to decide? It is rare to come across a construction contract based on a standard form that does not contain (at the very least) some tweaks.
Interestingly, the Pink Book is now being withdrawn, but this does not mean that the World Bank will not use the new FIDIC forms. It will be worth watching what approach to amendment the banks decide to take, as where they lead, others may follow.