In this article, Natalie Wardle, Associate Director, Berwin Leighton Paisner LLP and Jancyn Gardiner, Senior Editor, Practical Law consider some of the changes that FIDIC is proposing to make to its rainbow suite of contracts.
There was a full house at the FIDIC International Contract Users’ Conference 2016 which took place in London on 6 and 7 December 2016.
The FIDIC conferences always attract a large international audience. However, this year there was an additional draw; a special pre-release version of the second edition of the FIDIC Yellow Book was unveiled.
FIDIC intends to formally publish the second edition of the Yellow Book (new edition) during the course of 2017, at the same time as the second edition of both the Red Book and Silver Book. FIDIC intends that the “new look” Yellow Book provisions will be reflected in the amended Red and Silver Books as well. While we will have to wait until then to see what changes make the final cut, we certainly have a taste for what the key changes are likely to be.
One of the key themes that emerged at the conference was project management and dispute avoidance. Perhaps more than anything else, this increased focus on proactively managing the project and actively avoiding disputes seems to have driven many of the proposed changes to the Yellow Book, including the role of both the engineer and the Dispute Avoidance/Adjudication Board.
The “hub” of the engineer’s role is sub-clause 3.7 (previously sub-clause 3.5), which sets out its role in agreeing or determining any disputed matter between the parties or any claim by either party against the other. Importantly, the parties may refer many matters to the engineer without having to make a formal claim under the revised clause 20. The new edition requires the engineer to:
The clear intention behind these new provisions is to try and avoid disputes escalating in the first instance, and not delay their resolution by the DAB, and ultimately arbitration, if the engineer either can’t or won’t reach agreement or make a determination.
In terms of project management, the new edition requires the engineer to appoint a representative and delegate to it the authority necessary to act on the engineer’s behalf at the site. The engineer’s representative is required to be based at the site for the whole period that works are being carried out to ensure effective and timely management of claims and other matters and issues that may arise. This change perhaps embodies the flavour of changes throughout the contract, with an unapologetic move to increase project management.
The change in name of the DAB is indicative of its more pro-active role in dispute avoidance as well as dispute resolution. Disputes now reside in a new, much extended (from the previous clause 20) clause 21, leaving clause 20 for employer and contractor claims under the contract. The new clause currently:
Again the intent behind these provisions is clear: avoiding disputes if at all possible and properly managing them if they do arise. There was some consternation from delegates that obliging parties to commence arbitral proceedings while the works are still progressing may divert attention and resources from the task at hand. In practice, parties may opt to “commence” arbitral proceedings within the time period but delay progressing the substance of the dispute until after the works are complete. However, this appears to be “at odds” with the theme of dealing with disputes effectively as and when they arise.
The new edition currently contains a number of new time limits with which the parties and the engineer must comply. If the time limits are not met, this triggers certain “deeming” provisions. The contract contains many more processes and procedures in a clear attempt to address some of the issues that can arise under the current editions of the rainbow suite where the project is left “in limbo” if the parties or the engineer fail to give or respond to a notice. These provisions also attempt to ensure effective management of the project and dispute avoidance.
However, interestingly, only a quarter of the conference delegates felt that this would result in less claims; half thought that the numerous and varied contractual processes and procedures may in fact result in more claims. Although, as FIDIC were keen to emphasise, in separating “claims” from “disputes” in clauses 20 and 21 respectively, an increase in claims does not necessarily mean an increase in disputes and this perhaps reflects the more hands-on approach to procedural control under the contract.
As expected, clause 20 of the current new edition is reciprocal, covering both contractor and employer claims. While perhaps not welcomed by employers, this at least provides certainty following the surprising interpretation of sub-clause 2.5 as an effective condition precedent in NH International (Caribbean Limited) v National Insurance Property Development Company .
It also covers “other” claims which are defined as those claims that are not third party claims and do not relate to time and money, for example a party’s failure to assist in obtaining permits. These are referred directly to the engineer for agreement or determination (under new sub-clause 3.7) and notice of this type of claim shall be given “as soon as practicable” (which wording was found to be an effective condition precedent in any case in NH International).
Clause 20 of the new edition contains not one, but two time bar clauses and various other time limits and notice provisions. Ensuring that claims are dealt with as and when they arise in a structured way is entirely consistent with the key theme of effective project management and dispute avoidance. However, given the current uncertainty, both under English law and in civil law jurisdictions, as to how strictly time bar provisions will be enforced, it remains to be seen whether these provisions will have the effect FIDIC intends.
The DAB is able to waive the time limits and effectively over-ride the time bar provisions in certain circumstances. This is a concept borrowed from the Gold Book but it will only operate as intended if there is a standing DAB. If the parties chose not to appoint a DAB or decide to appoint an ad hoc DAB then they will lose the potential benefit of this provision.
The new edition is 50% longer than the current Yellow Book by word count: quite a few changes to get to grips with and too many to consider in this blog post. Changes are also proposed to the employer’s taking-over procedures, contract price and payment, fitness for purpose, variations, testing and defects, force majeure (now “exceptional events”), risks and insurance. This includes several changes to the indemnity provisions that took many conference delegates by surprise. We shall have to wait and see if all of these make the second edition of the rainbow suite of contracts when published in 2017.