EIC Contractors Guide

to the FIDIC Conditions of Contract for Construction

Copyright European International Contractors 2002

ISBN 3-9808257-2-8
Reprint March 2003 with editorial amendments All rights reserved No part of this publication may be Reproduced or transmitted in any form or by any means without permission of the publisher Published by European International Contractors Kurfrstenstrasse 129 D 10785 Berlin, Germany P h o n e :++493021286244 F a x : ++493021286285 E-mail: eicontractors@compuserve.com W e b : www.eicontractors.de

March 2002

Erratum

EIC Contractors Guide to the FIDIC Conditions of Contract for Construction (The New Red Book)

We would like to draw your attention that the following mistakes appear in this document:

nd The first sentence in the 2 paragraph of our comment onSub-Clause 16.2[Termination by

Contractor]must be replaced by the following sentence:These time limits are too long.

In our comment on Sub-Clause 20.3 [Failure to Agree Dispute Adjudication Board]the

wordsParticular Conditions must be replaced by the words A ppendix to Tender.

Foreword
EIC prepared a Contractor's Guide to the FIDIC Conditions of Contract for EPC Turnkey Contracts (the Silver Book) and published it in March 2000. EIC took this decision, not only due to the significant (in some instances unquantifiable) risks that the Contractor is required to carry under the Silver Book but also because it places the Contractor in a contractual environment that permits the Employer considerable scope for interference and unilateral action. It is this combination of high risk and limited freedom of action that concerns contractors. The Guide to the Silver Book was generally well received and whilst it did not receive a wholehearted endorsement from FIDIC they were kind enough to suggest that it provided a useful checklist for both employer and contractor. Feedback from contractors tells us that they find it useful; it highlights and discusses the risks confronting contractors within the restrictive contractual framework of the Silver Book and is a useful checklist, highlighting those clauses requiring careful thought. As a FIDIC form the Silver Book was completely new to EIC contractors, whereas we are very familiar with the Fourth Edition of the Conditions of Contract for Works of Civil Engineering Construction and generally consider it an acceptable form of contract. Indeed, given the opportunity, contractors have recommended its use to employers. Throughout this Guide, it is referred to as the Fourth Edition. So, why publish a guide to its successor, the Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer, hereinafter referred to as the Red Book? In contrast to contractors favourable impressions of the Fourth Edition, our study of the Red Book and discussions with FIDIC led us to the conclusion that whilst it does not present the same high degree of risk as the Silver Book it is more onerous than the Fourth Edition to the extent that the publication of a guide is justified. We have followed a format similar to our Guide to the Silver Book and comment only where we think that there is something important for contractors to consider and only at length where there are important issues at stake. EIC wishes to make it clear that this document is not exhaustive and is intended for guidance only. Expert legal advice should always be obtained before submitting an offer or making any commitment to enter into a contract. Neither EIC nor the authors of this document accept any responsibility or liability in respect of any use made by any person or entity of this document or its contents which is and shall remain entirely at the user's risk. To ensure that this Guide provides the maximum benefit to the industry at large, we would like to receive feedback from EIC member companies on its usefulness and relevance and we would particularly like to gather experience of any contracts carried out under the Red Book. All communications should be sent to the EIC Secretariat in Berlin.

EIC Contractors Guide to the FIDIC Conditions of Contract for Construction

Acknowledgements

EIC would like to thank the FIDIC Contracts Committee for the time they devoted to explaining the philosophy behind the publication of the Red Book and for listening patiently to our arguments. We would particularly like to thank the Contracts Committee of the International Construction Group in the United Kingdom for the preparation of the first draft of this Guide and Mr Robert Akenhead QC for the important contributions he made in reviewing the draft and recommending improvements. EIC would also like to express its appreciation of the work carried out by those members of its own Conditions of Contract Working Group who contributed to the preparation of this Guide: Richard Appuhn, Salini; H kanBroman, NCC; MartinC a r r e y , C arillion; EricEggink, BallastN e d a m ; D r Joachim Goedel, HOCHTIEF; Frank Kennedy (Chairman); Simon Williams, Taylor Woodrow. Our thanks also go to the Working Group's secretary Frank Kehlenbach.

EIC Contractors Guide to the FIDIC Conditions of Contract for Construction

Executive Summary
We readily accept that in some respects the Red Book is an improvement on the Fourth Edition. However, we believe that the balance of all amendments will increase the risk to contractors and have concluded therefore that the Red Book is a less satisfactory form of contract than the Fourth Edition. From a contracting perspective, the clauses dealing with the provision of confidential information, fitness for purpose, tests on completion and notice of claim represent a move in the wrong direction. Whilst we recognise that todays engineer can no longer act impartially, we believe that some of his new powers could prove problematical in practice, especially where he is required to make judgements as if he were an experienced contractor. Improvements The first of the welcome changes requires the Employer to demonstrate that sufficient finance is available to carry out the Works (Sub-Clause 2.4). This will be particularly important where the immediate client is a Special Purpose Company (SPC) and is funded by loans. For contracts placed by an SPC it is usual for the lending banks to put a Direct Agreement in place, which permits them to take over control of the contract should the SPC default. Where such an agreement exists it is important that the Contractor is given the opportunity to study and consider its terms and conditions before the construction contract is finalised. This clause will also prove useful where major variations are ordered or where the Employer has acknowledged the Contractor's right to any significant payment for additional works or major claims. The procedure for dealing with Employers Claims (Sub-Clause 2.5) is also an improvement over the Fourth Edition. The Employer must now follow a set procedure if he considers himself entitled to any payment and must give notice as soon as practicable and provide particulars of the claim. These provisions are mandatory. The Engineer must then make a determination but the Contractor can refer such a determination to a new and independent body, the Disputes Adjudication Board (the DAB, Sub-Clause 20.2). These new provisions should go a long way to prevent any unreasonable actions of the Employer, especially in terms of the application of Delay Damages, a not uncommon practice with some employers in countering or indeed negating the legitimate claims of the Contractor. The DAB can comprise either one or three members, to be appointed by the Employer and the Contractor. The appointment of the DAB expires only after a written discharge by the Contractor has become effective and the DAB is therefore available throughout the duration of the Contract. Provided both Parties agree they can refer any matter to it and this provision could prove useful in resolving disputes before they effect the progress of the works. The creation of the DAB is a welcome addition to the Red Book and the binding nature of its decisions, even if either Party is dissatisfied, is an added benefit. Our friendly and impartial Engineer has been laid to rest! The Engineer is now required to act for the Employer (Sub-clause 3.1) and no longer has a duty to act impartially. Why do we consider this a change for the better? Simply because it recognises what has long been the established custom and practice in the industry. In any event, we believe that any possible downside will be more than compensated for by the introduction of the DAB. Whilst the Employer can still make claims on the Contractors Performance Security (Sub-Clause 4.2), any claim must now be made strictly in accordance with the terms laid down in the Contract . This is an improvement on the Fourth Edition, as the Contractor is offered protection for all costs incurred should the Employer make a false claim and the Employer must indemnify the Contractor accordingly. Whereas the Fourth Edition merely required the Employer to notify the Contractor

EIC Contractors Guide to the FIDIC Conditions of Contract for Construction

prior to making a claim, the Red Book limits the Employers claims under this guarantee to amounts to which the Employer is entitled. Retrogressions Regrettably there are quite a few clauses in the Red Book which have been toughened up and whilst the principal obligations and risks carried by the Contractor are still construction oriented, they are generally more onerous than under previous construct only editions and the overall effect is to increase the risk profile by comparison with the Fourth Edition. The Contractor is now required (Sub-Clause 1.12) to provide all such confidential information as the Engineer may reasonably require in order to verify the Contractors compliance with the Contract. This clause is overly demanding and could place the Contractor in a difficult position in situations where a dispute has arisen, especially with regard to third parties. A similar provision to that in the Silver Book would be more appropriate, which sets out a mutual confidentiality obligation and provides for agreement of privileged information pre-tender. This would be a more sensible approach. The Contractor is entitled to time extension and payment of additional cost suffered due to errors in Setting Out information provided by the Employer (Sub-Clause 4.7). However, this entitlement is now subject to the test of whether an experienced contractor would spot the error and the Engineer will be the judge on this matter. Not only does the Engineer act for the Employer, he is also required to make decisions as if he were an experienced contractor! Of particular concern for contractors working under English or Common Law is the introduction of an obligation (Sub-Clause 4.1) which stipulates that any designs by the Contractor must be fit for purpose. Under those jurisdictions, the Employer's designer will only have an obligation to design with reasonable skill and care and this could lead to some interesting disputes should difficulties arise as a result of any conflicts or anomalies that occur between the Employers and the Contractors designs. A requirement to carry out Tests on Completion has been introduced (Clause 9) and is a novel concept for a construct only contract. It is difficult to see what type of contract would qualify and it is not the tests themselves that are the problem but rather the punitive sanctions that could be suffered in the event of failure to pass such tests. In extreme circumstances, these could include dismantling the structure, removing it and returning the site to its original condition and repaying all monies received by the Contractor. This clause, which may well be attractive to the less reasonable type of employer should be deleted in its entirety - a possibility that FIDIC actually provide for if the clause is inappropriate to the nature of work being carried out. This makes it even more difficult to understand why it is there in the first place. Most parties to a construction contract would agree that the ability of any contractor to prepare an accurate cost estimate is completely dependent on the quality and comprehensiveness of the information provided at tender stage. In the Fourth Edition, the Employer was required to supply all available data on hydrological and sub-surface conditions. It is difficult to understand therefore the provisions of the Red Book (Sub-Clause 4.10) which modify that requirement to relevant data in the Employers possession. It is difficult to see how it will help employers to limit in any way the information provided to bidders and contractors should try to amend this requirement to reflect the terms of the Fourth Edition. Where the Contractor encounters unforeseen conditions (Sub-Clause 4.12), the Engineer may now consider whether conditions in similar parts of the Works were more favourable than could have been foreseen before finally determining any entitlement to additional costs. If, in the Engineer's
EIC Contractors Guide to the FIDIC Conditions of Contract for Construction

opinion, such favourable conditions were encountered, the Engineer can take them into account when determining any entitlement to additional Cost. This provision could be extremely prejudicial to the Contractor and is open to widely differing interpretations. A further new concept permits the Contractor to provide evidence of the physical conditions foreseen in his tender calculation. However, if such evidence is provided, the Engineer may or may not take account of it and is not bound by it. It would appear that FIDICs objective is to use every means possible to reduce the financial impact of claims for unforeseeable conditions but the extent of the discretionary powers now at the Engineers disposal seem more likely to increase the potential for dispute and disagreement. The Employer now has the right, not present in the Fourth Edition, to terminate for convenience (Sub-Clause 15.5). This right can be exercised at any time 28 days after giving written notice. The payment terms do not provide for loss of profit and are inequitable and inappropriate in the case of termination for the Employers convenience. In such circumstances, loss of profit should be payable to the Contractor. The clause states that the Employer may not terminate in order to undertake the Works directly or arrange for them to be completed by another Contractor. The Contractors obligation to issue a notice has changed for the worse and he is now required to give notice 28 days after becoming aware, or when he should have become aware (SubClause 20.1). Contractors should beware! Failure to comply with this provision will incur a fierce penalty and will result in the Contractor forfeiting his right to an Extension of the Time for Completion and to additional payment and the Employer is also discharged from any liability. The penalty for failure to comply with a purely technical requirement to give notice is unduly harsh. This is the first time that a FIDIC contract has removed the fundamental right of the Contractor to make a claim merely as a result of a failure to comply with a fixed period of time to submit the required notice. Whilst we accept that the Contractor may prejudice his entitlement by failing to comply strictly with a notice provision we cannot agree that he should forfeit his rights altogether and neither should the Employer be discharged from any and all liability. It becomes doubly unreasonable that this provision also applies when the Employer is responsible for causing the problem in the first case. It is revealing to compare these terms with the obligations of the Employer where either the Employer or the Engineer is only required to give notice as soon as practicable after becoming aware. This demonstrates once again the unfair imbalance between the respective obligations of the Employer and the Contractor that is becoming symptomatic of FIDIC contract forms. Comments on a number of individual clauses follow and deal with the matters referred to above in greater detail.

EIC Contractors Guide to the FIDIC Conditions of Contract for Construction

1
1.1.2.6 Employer's Personnel 1.1.4.3 Cost

General Provisions
The new definition of the Employers Personnel includes the personnel of both the Employer and those of the Engineer. This could include a very significant number of people, especially where the Employer is a national government or government agency. The definition of Cost excludes profit and could result in the Contractor carrying out extra work or incurring expense, possibly quite substantial in extent, without profit. Such work or expense could arise under various Sub-Clauses, for example, 4.12 Unforeseen [ Physical Conditions ] , 4.24 [Fossils ] , 8 . 9 [Consequences of Suspension ] , 1 3 . 7 [Adjustments for Changes in Legislation ] , 1 7 . 4 [Consequences of Employers Risks ], except as indicated, and 19.4 Consequences [ of Force Majeure ] . Under each of those clauses any entitlement would exclude profit unless tenders have been otherwise qualified. Provides thatThe Contract shall be governed by the law of the Country (or other jurisdiction) stated in the Appendix to Tender . The Contractor should be aware that under certain Civil Law jurisdictions some Red Book conditions may be considered unfair trade terms and therefore inapplicable. There may also be mandatory laws, which cannot be overridden by the Contract. Any potential conflict between the Contract and mandatory legal requirements is best clarified by taking expert advice during the tender period. Requires that,The Contractor shall disclose all such confidential and other information as the Engineer may reasonably require . This clause could present difficulties if the Contractor were required to disclose confidential information in respect of which the Contractor has a duty of confidentiality to a third party. The Silver Book allows the Contractor to retain confidentiality over information, which has been specified at tender stage, whereas the Red Book offers no such protection. Whilst the Sub-Clause includes the phrase"as the Engineer may reasonably require" no criteria are provided to give guidance on what is reasonable. The Contract should contain a provision to provide the Parties with the opportunity, pre-tender, to discuss and agree the extent of any privileged Contractors information. Contractors should be mindful of this requirement with regard to internally confidential and sensitive information and that of third parties .

1.4 Law and Language

1.12 Confidential Details

1.13 Compliance with Laws

The Contractor shall comply with all applicable laws. However responsibility for obtaining permits, licences or approvals is not entirely clear when Sub-Clauses 1.13 (a) and (b) are compared: Sub-Clause 1.13 (a) provides that the Employer shall have obtained (or shall obtain) the planning, zoning or similar permission for the Permanent Works.Sub-Clause 1.13 (b) states thatthe Contractor shall give all notices, pay all taxes, duties and fees, and obtain all permits, licences and approvals, as required by the Laws in relation to the execution and completion of the Works and the remedying of a n y d e f e c t s R . esponsibility for obtaining permissions is ambiguous and

EIC Contractors Guide to the FIDIC Conditions of Contract for Construction

should be clarified. For instance, what is similar permissionfor which the Employer is responsible pursuant to Sub-Clause 1.13 (a) and how does it fit with the Contractors obligations under Sub-Clause 1.13 (b)? Ideally, the Contract should include a detailed schedule of the permits required and should identify the party responsible for obtaining the same. In the event that the Contractor is responsible then, under Sub-Clause 2 . 2 . ( b ) (i ) [ P ermits, Licences and Approvals ] the Employer shall (where he is in a position to do so) provide reasonable assistance to the Contractor.Consequently, any delays caused by the Employers failure entitle the Contractor to an extension of time in accordance with Sub-Clauses 8.4 (e) Extension [ of Time for Completion ] . Any delays caused by authorities entitle the Contractor to an extension of time under 8 . 5 Delays [ Caused by Authorities ], 8.4 (b). In particular, all permits that are required to allow the project to be developed at the Site of the Works should be specifically identified in the Contract as being the responsibility of the Employer. In the event that the Contractor undertakes any design of the Works, he must clarify who is responsible for the provision of permits, licences or approvals for that part of the Works. 1.14 Joint and Several Liability Where the Contracting Party is a joint venture or consortium, this SubClause requires that, the parties to such joint venture or consortium must be jointly and severally liable to the Employer. Likewise, should the Employer consist of two or more legal entities the obligation should be reciprocal.

2
2.1 Right of Access to the Site

The Employer
Although aright of access to and possessionof the Site is to be given by the Employer, this r i g h t a n d p o s s e s s i o n m a y n o t b e exclusive . It would be sensible for the contract documents to identify the extent to which there may not be exclusive access and possession and it would be beneficial to clarify this, given the Contractors duty to cooperate with others under Sub-Clause 4.6. This Sub-Clause relates to the Employers obligations in respect of his personnel and contractors employed directly by him. It should be noted that there is no express obligation on the Employer to secure generally that his other contractors co-operate with the Contractor other than in the respects identified. The effects of any delay or disruption caused by the Employers personnel and contractors are dealt with under Sub-Clause 8.4 (e) [Extension of Time for Completion ] which provides only for granting a time extensionfor such events. There is no provision in the Contract to recompense the Contractor for the cost of delay and disruption caused by such events. Contractors should carefully consider the possible effects on the cost of successfully completing the Works, especially where the Employer intends to be closely involved.

2.3 Employers Personnel

EIC Contractors Guide to the FIDIC Conditions of Contract for Construction

2.4 Employers Financial Arrangements

FIDIC recognises the need for the Contractor to be satisfied that the Employer has the necessary financial strength to undertake his obligations under the Contract. This Sub-Clause requires that t h e Employer shall submit, within 28 days after receiving any request from the Contractor, reasonable evidence that financial arrangements have been made and are being maintained which will enable the Employer to pay the Contract Price. This is a crucial obligation on the Employer, particularly where funding is being provided by third parties. The Contractor must have the right to refuse to undertake any significant Variation if no clear evidence is provided that the available funding is sufficient to cover the cost of the varied Works. The Contractor should also have a right to be made aware of any terms, conditions or step-in rights that exist in any agreement between the Employer and his Lenders. If such an agreement is to be put in place between lenders and contractor then the terms and conditions should be made available prior to signature of the Contract. A powerful sanction is available to the Contractor should the Employer fail to furnish reasonable evidence . The Contractor is entitled to suspend the work or terminate the Contract under Sub-Clauses 16.1 Contractors [ Entitlement to Suspend Work ] a n d 1 6 . 2 [Termination by Contractor ]. However, what constitutes reasonable evidence is undefined and the Contractor should try to establish this prior to submitting a tender. Failure to do so could prejudice any attempt to obtain more detailed information during the currency of the Contract, if for example a major Variation is instructed. Contractors should give due consideration to the risk associated with continuing to work during the 28 day period available to the Employer to provide the required evidence and the further extended notice periods required to comply with the suspension and termination provisions.

2.5 Employers Claims

This Sub-Clause offers better protection to the Contractor and obligates the Employer to follow a given procedure if he considers himself to be entitled to any payment under any Clause of these Conditions or otherwise in connection with the Contract, and/or to any extension of the Defects Notification Period, the Employer shall give notice and particulars to the Contractor.The Employer or the Engineer may give notice andThe notice shall be given as soon aspracticable and give particulars of the claim, after which the Parties may agree the claim or failing which the Engineer may then make a determination in accordance with Sub-Clause 3.5Determinations [ ]. The provisions of this Sub-Clause are also mandatory in the event that the Employer wishes to set off against or make any deduction from an amount due to the Contractor. In accordance with Sub-Clause 3.5 [Determinations], the Engineer shall make a determination in respect of any such Employer claim. These new provisions should go a long way to prevent any unreasonable actions of the Employer, especially in terms of the application of Delay Damages. These provisions for Employers Claims represent a significant improvement over the Fourth Edition. If the Engineer fails to make a fair determination pursuant to Sub-Clause 3.5 Determinations [ ] , the disputes

EIC Contractors Guide to the FIDIC Conditions of Contract for Construction

procedures laid down in Sub-Clause 20.4 [Obtaining a Dispute Adjudication Boards Decision ] operates within very strict time constraints and offers therefore, an immediate means of challenge and should act as a deterrent to any unreasonable action on the part of the Engineer. A provision entitling the Contractor to claim against the Employer is found in Sub-Clause 20.1[ Contractors Claims ] , but its terms are much more onerous on the Contractor than those placed upon the Employer under this Sub-Clause. The obligations of the Employer and Contractor should provide for similar time frames and sanctions for non-compliance. (See also comments under Sub-Clause 20.1 Contractors [ Claims ]).

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3.1 Engineers Duties and Authority

The Engineer
This Sub-Clause states that the Engineer acts for the Employer but the obligation to act impartially as set out in the Fourth Edition does not appear in the Red Book. Where the Engineer is required to obtain the approval of the Employer before issuing an instruction this shall be stated in the Particular Conditions. However, whenever the Engineer issues an instruction without first obtaining approval, then the Employer shall be deemed to have given his approval. This means that the Contractor is relieved of any need to establish any limitations on the Engineers powers.

3.3 Instructions of the Engineer

This Sub-Clause gives the Engineer wide powers t o i s s u e t o t h e Contractor (at any time) instructions and additional or modified drawings which may be necessary for the execution of the Works and obligates the Contractor to comply with such instructions. Contractors should note the 2-day period in sub-paragraph (b) regarding the written confirmation of oral instructions of the Engineer or delegated assistants. Sub-Clause 3.5 sets down the procedure to be followed by the Engineer when he is required to make a determination. The Engineer shall consult both Parties, endeavour to reach an agreement and failing agreement, he shall then make a fair determination taking account of all relevant circumstances. The Engineer is required to make a determination under the following Clauses: 1.9 2.1 2.5 4.7 4.12 4.19 4.20 4.24 7.4 8.9 9.4 10.2 10.3 11.4 11.8 [Delayed Drawings or Instructions ] [Right of Access to the Site ] [Employer's Claims ] [Setting O u]t [Unforeseeable Physical Conditions ] [Electricity, Water and Gas ] [Employer's Equipment and Free-issue Materials ] [Fossils ] [Testing ] [Consequences of Suspension ] [Failure to Pass Tests on Completion ] [Taking Over Parts of the Works ] [Interference with Tests on Completion ] [Failure to Remedy Defects ] [Contractor to Search ]

3.5 Determinations

EIC Contractors Guide to the FIDIC Conditions of Contract for Construction

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12.3 12.4 13.2 13.7 14.4 15.3 16.1 17.4 19.4 20.1

[Evaluation ] [Omissions ] [Value Engineering ] [Adjustments for Changes in Legislation ] [Schedule of Payments ] [Valuation at Date o fTermination ] [Contractor's Entitlement to Suspend Work ] [Consequences of Employer's Risks ] [Consequences of Force Majeure ] [Contractor's Claims ]

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4.1 Contractors General Obligations

The Contractor
Sub-paragraph (c) places a fitness for purpose obligation on the Contractor in respect of any design of any part of the Permanent Works which the Contract specifies shall be undertaken by the Contractor. It provides that unless the Particular Conditions provide otherwise the works when they are complete shall, be fit for such purposes for which the part is intended as are specified in the Contract. Fitness for purpose obligations are of particular concern where a contract is carried out under jurisdictions based on English Law or Common Law. It may be of less concern under other jurisdictions where fitness for purpose is the law of a country or common practice. However, the issues discussed below are relevant to both situations. The Red Book contains no obligation on the Employer to provide the definition of Intended Purpose. If the Technical Specif ications do not sufficiently define the reference terms for that part of the Design to be provided by the Contractor, contractors should ensure that prior to contract signature a definition is agreed by both Parties which is clear and unambiguous and is not open to re-interpretation at a later date. Failure to do so could lead to a serious and costly dispute. With regard to the obligation to design for fitness for purpose it may not be possible to pass the full liability on to any third party design consultant appointed by the Contractor. Current practice is for consultants to accept only an obligation to design with reasonable skill and care because insurance to cover the risk associated with fitness for purpose is not universally available and is a particular problem for British consultants. It is quite likely therefore that the Red Book will create anomalies where the Employers designers (having carried out the greater part of the design) might only be subject to a reasonable skill and care obligation whilst the Contractor will be subject to the more onerous fitness for purpose obligation. If the Contractors design is in respect of a major part of the Works ( m a j o r p a r t is not a defined term and is accordingly open to differing interpretation) which major part cannot be put to the intended use then the Contractor may incur punitive sanctions limited only by the terms of Sub-Clause 17.6Limitation [ of Liability ].

EIC Contractors Guide to the FIDIC Conditions of Contract for Construction

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4.2 Performance Security

The form of Performance Security must be clearly set out in the Contract. Failure to do so could result in difficulty in obtaining approval from the Employer and particularly so if a Conditional Bond is offered whereas the Contract anticipates an On Demand Bond. This Sub-Clause is an improvement on the Fourth Edition and the Contractor is offered protection for all costs incurred in the event that the Employer makes a false claim and the Employer must indemnify the Contractor accordingly. Whereas the Fourth Edition merely required the Employer to notify the Contractor prior to making a claim under the Performance Security, the Red Book limits the E mployers claims under this guarantee for amounts to which the Employer is entitleda n d the Employers ent itlement to demand sums under the guarantee is limited by Sub-Clause 2.5 [Employers Claims]. The Employer is permitted to make a claim on the Contractors Performance Security in the event of circumstances which entitle the Employer to termination under Sub-Clause 15.2Termination [ by the E m p l o y e], r but again such claim must be made in accordance with SubClause 2.5 .

4.6 Co-operation

This Sub-Clause spells out the obligations of the Contractor in respect of co-operation. However, there is no equivalent or corresponding obligation on the Employer to secure that his directly employed o t h e r contractorsco-ordinate or co-operate with the Contractor. In most contracts, especially those where the Employer intends to place significant other contracts, notwithstanding Sub-Clause 2.3 Employers [ Personnel ], it would be prudent to ensure that the Employer assumes clear and reciprocal obligations. The Employer shall be responsible for errors in specified or notified items of reference provided by the Employer or Engineer but the Contractor has a duty to verify their accuracy. The Contractor is required to give notice to the Engineer in the event that delay or additional costs arise due to such errors, and will only be entitled to an extension of time and payment of his additional costs plus reasonable profit if it is considered that an experienced contractor could not reasonably have discovered such error. This leaves the responsibility for such errors open to the Engineers judgement, which is unsatisfactory, as all such errors should without exception be the responsibility of the Employer .

4.7 Setting Out

4.10 Site Data

This Sub-Clause constitutes a step backwards for the Contractor. Whereas in previous editions, the Employer was required to supply all available data on h ydrological and sub-surface conditions, the Red Book modifies that requirement by inserting the words relevant data in the Employers possession.It is difficult to seehow it helps employers to limit in any way the information provided to bidders and contractors should try to amend this requirement to match those of the Fourth Edition.

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4.11 This Sub-Clause is to be read together with Sub-Clause 4.10 [Site Data]. Sufficiency of the Within the practical restraints of reasonable time and cost, the Contractor Accepted Contract shall satisfy himself as to the correctness and sufficiency of the Accepted Amount Contract Amount. The requirement to have based the Accepted Contract Amount on data, interpretations, inspections and information provided by the Employer and obtained from his nspection i of the Site are included in this Sub-Clause. The Contractors obligations under this Sub-Clause do not deviate in substance from the Fourth Edition. 4.12 Unforeseeable Physical Conditions Unforeseeable is a defined term (see Sub-Clause 1.1.6.8) and means not reasonably foreseeable by an experienced Contractor by the date of submission of the Tender . Sub-Clause 4.10Site [ Data ] deems the Contractor to have obtained all necessary information (based on practicality of time and cost) as to risks, contingencies and to have satisfied himself before submitting his tender as to the nature of the Site, including sub surface conditions, all of which permits the Engineer to argue that the Contractor should have foreseen such physical conditions. Where the Contractor is entitled to recover his additional costs, these costs will not include profit. This is totally unreasonable as the Contractor will have been required to undertake additional work and as such he should be entitled to receive a reasonable profit for his labours. The Contractor is entitled to relief for cost and time due to unforeseeable natural physical conditions and man made and other physical o b s t r u c t i o n s o r p o l l u t a n t s a n d i n c l u d i n g s u b s u r f a c e a n d hydrological conditions . The Contractor may no longer rely on this Sub-Clause for relief due to impediments encountered off the site. Like the Fourth Edition, the Red Book excludes climatic events from the definition of physical conditions that may give rise to entitlement to time extension and Cost. Before finally determining any entitlement to additional Cost the Engineer may take into account whetherother Physical Conditions in similar parts of the Works (if any) were more favourable than could reasonably have been foreseen when the Contractor submitted its T e n d e r. If, in the Engineer's opinion such favourable conditions were encountered the Engineer can take them into account when determining any entitlement to additional Cost (although not with regard to additional time); however he may not reduce the Contract Price. This provision could be extremely prejudicial to the Contractor and the expressions similar parts of the Worksa n d more favourable are open to widely differing interpretations. The closing paragraph of this Sub-Clause introduces a new concept that allows for the Contractor to provide evidence of the physical conditions f o eseen r in his tender calculation. The Contractor should be aware that if he provides the Engineer with such evidence, the Engineer may take account of this evidence, but is not bound by any such evidence in making a determin ation pursuant to Sub-Clause 3.5 [Determinations]. An alternative approach would be for the parties to agree the foreseeable conditions beforehand. Where this practice has been adopted, experience shows that this approach simplifies claims negotiations, which is obviously to the benefit of both parties.

EIC Contractors Guide to the FIDIC Conditions of Contract for Construction

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4.15 Access Route

On certain projects there could well be an inconsistency between this Sub-Clause and Sub-Clause 2.1 Right [ of Access to Site ] which requires the Employer to give the Contractor the r i g h t o f a c c e s s to the Site (possession of the Site). Contractors should be aware that their right of access to Site does not require the Employer to provide a physical access route. The requirements of this Sub-Clause are unnecessarily detailed and over prescriptive for most types of project. Contractors would be advised to agree at tender stage a format, which is more appropriate to the particular contract.

4.21 Progress Reports

5
5 Generally

Nominated Sub-Contractors
Although satisfactory as far as it goes, this Clause is incomplete in that it does not address the need for re-nomination or the other consequences of a determination of the nominated Subcontract. The Contract does not identify how work, which is to be the subject of nomination is to be identified or how (in detail) such work is to be valued. Definition should be provided in the Contract documentation.

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7.6 Remedial Work

Plant, Materials and Workmanship

A surprising omission is the lack of any express provision, which permits the Engineer to order a repair as opposed to removal, replacement or reexecution and the Contractor should have the right to carry out repairs to render the Plant or Materials acceptable and in accordance with the Contract. Should the Engineer insist on a replacement in situations where a repair would be a perfectly reasonable solution then the Employer should bear the additional cost. Plant and Materials will become the property of the Employer when delivered to Site or when the Contractor is entitled to payment of the value of the Plant and Material. In each case ownership passes to the Employer prior to the Contractor being paid for such Plant and Materials, which could prove unsatisfactory in the event of Employer bankruptcy.

7.7 Ownership of Plant and Materials

8
8.1 Commencement of Work 8.3 Programme

Commencement, Delay and Suspension

The Engineers notice of Commencement Date is onerous at 7 days; a more reasonable period would be 28 days. If the Engineer fails to give notice of the commencement date, then after a period of 42 days there is entitlement to extension of time and an increase in the Contract Price. This Sub-Clause obliges the Contractor to give advance warning, and is a new feature of the FIDIC Conditions requiring that, the Contractor shall promptly give notice of specific probable future events or circumstances which may adversely affect or delay the execution of t h e W o r k s. Contractors should consider whether such a warning could have an impact on the starting point for calculating the notice periods

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under Sub-Clause 20.1Contractors [ Claims ]. It would be reasonable for this obligation to be reciprocal and also apply to the Employer. 8.4 Extension of Time for Completion The Contractor has an entitlement to an extension of Time for Completion: (i) (ii) (iii) (iv) (v) 1.9 2.1 4.7 4.12 4.24 7.4 8.5 8.9 10.3 13 13.7 16.1 17.4 19.4 if the delay is due to a Variation Order, or exceptionally adverse climatic conditions, or is caused by the Employer or his other contractors, or is due to unforeseeable shortages in the availability of personnel or goods caused by epidemic or governmental actions; or if a right to extension exists under any other Sub-Clause of these conditions, i.e. Failure of the Engineer to issue notified drawing or instruction Failure by the Employer to give access to and possession of the Site. (Cost plus reasonable profit added to Contract Price). Setting Out (Cost plus reasonable profit added to Contract Price) Unforeseeable Physica l Conditions (Cost but no profit added to Contract Price). Discovery of fossils etc. (Cost but no profit added to Contract Price). Delayed testing caused by Employer (see also Sub-Clause 10.3). (Cost plus reasonable profit added to Contract Pri ce) Delays caused by Authorities. (Extension of time only). Suspension initiated by Employer (see also Sub-Clause 16.1). (Cost but no profit added to Contract Price). Interference with testing by Employer (see also Sub-Clause 7.4). (Cost pl us reasonable profit added to Contract Price). The time consequences of Variations are dealt with in Sub-Clause 8.4(a) Changes in Legislation. (Cost but no profit added to Contract Price). Suspension initiated by Contractor (see also Sub-Clau s e 8.9). (Cost plus reasonable profit added to Contract Price). Employers Risks. (Generally cost but no profit added to Contract Price). Force Majeure. (Cost but no profit added to Contract Price).

It is difficult to follow FIDICs logic with respect to the variation in remedies open to contractors which are: x x x time only, time and cost time, cost and profit

The Red Book does not contain the sweep-up clause found in the Fourth Edition, which refers to other special circumstances and contractors face increased risk as a result of this omission and should reinstate a similar provision whenever possible.

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Sub-Clause 8.4 (e) permits time extension where there has been a n y delay, impediment or prevention caused by or attributable to the E m p l o y e r. Under some jurisdictions, this wording may not be specific enough to cover breaches of contract by the Employer. In the event that no time extension is granted, time may become at large and the delay (liquidated) damages provisions will be unworkable in law. 8.6 Rate of Progress If the Contractor is working too slowly, the Engineer can instruct acceleration measures. This applies not only when the agreed Time for Completion is at risk but also where progress has fallen (or will fall) behind the current programme under Sub-Clause 8.3Programme [ ] . In addition to any delay damages the Contractor will be responsible for the Employers additional costs arising from the Contractors revised methods. The maximum amount of Liquidated Damages shall be stated in the Appendix to Tender. However, damages in the event of delay can exceed this amount e.g. if the Contractor has to pay the Employers costs under Sub-Clause 8.6Rate [ of Progress ] or if the Contract is terminated. If the Contract is terminated due to delay then the Contractor will have to pay all losses and damages suffered by the Employer (see Sub-Clause 1 5 . 4 Payment [ after Termination ]). However, such loss and damage may not include loss of profit or other indirect damages and the maximum liability is limited under Sub-Clause 17.6Limitation [ of Liability ]. Contractors should be aware that submitting claims for an extension of time will not necessarily prevent the deduction of delay damages. The Contractor must ensure that any claim for an extension of time is submitted in accordance with the Contract. Should the Employer then deduct damages despite receiving a properly documented claim or, without pursuing his own entitlement under Sub-Clause 2.5 [Employers Claims ] this would be a breach of Contract.

8.7 Delay Damages

9
9 Generally 9.2 Delayed Tests

Tests on Completion
This clause should be deleted to avoid confusion where no practical purpose would be served by Tests on Completion. In the event thatTests on Completion are applicable, then this SubClause provides remedies to the Contractor in the event that the Employer delays such tests. Under Sub-Clause 7.4 [Testing ], the Contractor will be entitled to an extension of time and the recovery of his Costs plus reasonable profit if the Employer is responsible for delay. If the tests are delayed for more than fourteen days, then, under SubClause 10.3[Interference with Tests on Completion ] the Engineer is required to issue a taking over certificate and the Contractor will be entitled to an extension of time and recovery of Costs plus reasonable profit.

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9.4 Failure to Pass Tests on Completion

If the Works fail to pass repeated Tests on Completion and the failure deprives the Employer of substantially the whole benefit of the Works or Section , then the Engineer has the right to reject the Works, terminate the Contract, recover all sums paid for the Works, plus financing costs, costs for dismantling the Works and clearing the Site. Manifestly, the Contractor would suffer catastrophic financial consequences if these punitive sanctions were levied and it is inconceivable that there are projects, suitable for execution under the Red Book, where such a severe remedy can be justified. Current practice in the event of termination is that the Contractor is entitled to payment for the value of the Works completed at the date of termination. In the event of termination for default by the Contractor it is up to the Employer to decide whether or not to complete the Works with another contractor. In such situations the Contractor must pay the Employers additional costs. In circumstances where the Works contain technology which is in the public domain, then the same principle should apply. However, it should be recognised that in such a situation design responsibility for that portion of the Works designed by the original Contractor could rest with the new Contractor and contractors faced with such a prospect should pay due regard to the risks involved. It is important to understand the implications of this requirement, as the Contractor could face very serious financial penalties in the event that Tests on Completion are not successful. It is important, in relation to this Sub-Clause to consider the limitation of liability under Sub-Clause 17.6Limitation [ of Liability ].

10
10.1 Taking Over of the Works and Sections

Employers Taking Over

Insurance must be maintained for the Works until the date of issue of t h e T a k i n g - O v e r C e r t i f i c a t e f o r t h e W o r k s (Sub-Clause 18.2 [Insurance of the Works and Contractors Equipment ]) and cover should be maintained even if the Engineer unreasonably withholds the TakingOver Certificate (subject to the deemed issue referred to at the end of this Sub-Clause).

11
11.2 Cost of Remedying Defects

Defects Liability
The Contractor shall at his own cost remedy defects caused by a n y design for which the Contractor is responsible . The Contractor is, by virtue of Sub-Clause 4.1 [Contractors General Obligations ] only responsible for any design which he actually carries out but it should be noted that this obligation includes any design carried out by subcontractors including those that are nominated. If the Contractor fails to remedy a defect and the defect or damage deprives the Employer of substantially the whole benefit of the Works or any major part of the Works , then the Employer is entitled to recover all sums paid for the Works, plus financing costs and costs for dismantling the Works and clearing the Site. These provisions are similar to those noted under Sub-Clause 9.4, are completely inappropriate for the

11.4 Failure to Remedy Defects

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type of contract likely to be carried under the Red Book and should be redrafted to provide a more sensible remedy.

12
12.1 Works to be Measured

Measurement & Evaluation

The Sub-Clause states that the Contractor has only 14 days to notify the Engineer if the measurement records are inadequate. On major projects there will invariably be voluminous records and 14 days is totally unreasonable, particularly as Contractors are required to give notice within this period if they disagree with any measurement record otherwise it will be considered as accurate. At tender stage, Contractors should agree a more realistic time frame, which is appropriate for the type of works being carried out. The provision for revising rates is complex and is based on (i) a 10% or greater increase or decrease in any quantity, (ii) the change in quantity multiplied by the Contract rate exceeding 0.01% of the Accepted Contract Amount, and (iii) the change in quantity changes the cost per unit by more than 1%. At best, this is confusing and at worst, could result in losses where individual rates do not accurately reflect costs.

12.3 Evaluation

13
13.1 Right to Vary

Variations & Adjustments

The Engineer may initiate Variations prior to issuing the Taking Over Certificate for the Works, and the Contractor has only limited grounds for refusing to undertake the instructed Variation, for example i f t h e Contractor cannot readily obtain the Goods required for the Variation . Notwithstanding any objections raised by the Contractor, the Engineer may still confirm his instruction. If, following a request by the Contractor under Sub-Clause 2.4 [Employers Financial Arrangements ], the Employer is unable to provide evidence that satisfactory financial arrangements are in place and being maintained to pay for the addition to the Contract Price resulting from the Variation, then it should be at the Contractors sole discretion to refuse or accept a Variation. Should the Engineer instruct the Variation despite the Contractor giving notice that he will not consider himself bound by the Variation, then the only remedy open to the Contractor is to refer the matter to the Dispute Adjudication Board.

13.2 Value Engineering

The Red Book provides a mechanism through which the Contractor is compensated if the Engineer approves his suggestion in respect of value engineering. The Engineer can determine the reduction (if any) in the value to the Employer of the varied works taking account of any reductions in quality, anticipated life or operational efficiencies . A more specific provision should be provided to make it clear how the benefits to both parties will be apportioned.

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13.3 Variation Procedure

It is quite likely that the Contractor will be required to carry out substantial work before a Variation is approved. It is not clear whether the cost of such work will be reimbursed in the event that the Variation is not executed. This should be clarified pre-tender. It would also be helpful if separate provision were made for compensation for delay and disruption caused by Variations. Building such costs into the revised rates under Sub-Clause 12.3 Evaluation [ ] could well make the Variation look over priced.

13.7 Adjustments for Changes in Legislation

This Sub-Clause contains provisions in respect of the recovery of additional Costs associated with changes in legislation. Contractors should note however that the recovery of losses only applies to changes in legislation in the country in which the Site of the Permanent Works is located. The Contractor is now expressly entitled to an extension of time if he is delayed by reason of subsequent legislation, which is an improvement over the Fourth Edition.

14
14.2 Advance Payment

Contract Price and Payment

Provision is made for the Contractor to receive an Advance Payment as an interest-free loan for his mobilisation and design provided that the amount of the advance is stated in the Appendix to Tender. If an advance is specified in the Appendix to Tender then the Engineer will issue an Interim Payment Certificate after receipt by the him of a Statement (under Sub-Clause 14.3Application [ for Interim Payment Certificates ] ) and after the Employer receives (i) the Performance Security in accordance with Sub-Clause 4.2Performance [ Security ] , and (ii) a guarantee in amounts and currencies equal to the advance p a y m e n t. The advance payment may be paid in instalments. However the number and timing must be stated in the Appendix to Tender and the Contractor must ensure that this is clear in the advance payment guarantee. The advance payment is repaid through percentage deductions in Payment Certificates. In the absence of agreements to the contrary deductions take place when the total of all certified interim payments exceeds 10% of the Accepted Contract Amount and deductions are then made at the rate of 25% from each (it is presumed subsequent) Payment Certificate. The cash flow implications of this should be carefully studied and if appropriate, an alternative time for commencement of repayment and rate of repayment should be agreed.

14.3 Application for Interim Payment Certificates

To initiate the payment process the Contractor is to submit a Statement to the Engineer at the end of each month. To be valid, the Statement must include items detailed in Sub-Clauses 14.3 (a) to (g) and also include the progress reports defined in Sub-Clause 4.21 Progress [ Reports ] . These requirements are considered an unduly onerous precondition for the receipt of payment and should be modified if possible. The Contract may provide for payment to the Contractor based upon a Schedule of Payments and if so, t h e i n s t a l m e n t s q u o t e d i n t h e Schedule of Payments shall be the estimated contract values for the purposes of sub-paragraph (a) of Sub-Clause 14.3Application [ for

14.4 Schedule of Payments

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Interim Payment Certificates ] . If the instalments are not defined by reference to actual progress achieved then the Engineer is entitled to revise any payment instalment by making a determination under Sub-Clause 3.5 Determinations [ ] which will take into account any delay in progress. Equally, the Contractor could request that, when the Works are ahead of programme he receives an appropriate increase in the scheduled payment. If it is intended that the Schedule of Payments is based on the achievement of specific Milestone Events then this should be expressly stated. Otherwise, payments would be based on the actual value of work done. 14.5 Plant and Materials intended for the Works This Sub-Clause makes provision for payment of plant and materials which are either in the course of being shipped to the site (which presumably includes all other forms of transportation) or, (after being separately identified in the Appendix to Tender) are delivered to Site. A bank guaranteein favour of the Employer is required to be given by the Contractor to the Engineer in respect of the Plant and Materials being shipped which is to guarantee repayment of the pre-payment to the Employer. Its validity expires when Plant and Materials are properly stored on Site and protected against loss, damage or deterioration . The additional amount certified shall be the equivalent of eighty percent of the Engineer's determination of the cost of the Plant and Materials (including delivery to Site). 14.7 Payment The Sub-Clause details the periods within which payment is to be made by the Employer in respect of the advance, interim and final payments. By comparison with well-established norms, the periods proposed are excessive and contractors may wish to suggest more reasonable intervals. The Red Book makes provision for interest upon late payments (referred to in this Sub-Clause as financing charges) and the payment obligations contained in Sub-Clause 14.7 should give the Employer an incentive to pay promptly. The Red Book also makes provision for a rate of interest to be defined and the Contractor is entitled to payment without the need for the issue of a Payment Certificate. After the Taking Over Certificate has been issued for the Works, the Engineer will certify one half of the Retention Money for payment by the Employer. If the Works are taken over in Sections then the Contractor will only be entitled toa proportion of the Retention Money w h i c h proportion equates to 40% ofthe proportion calculated by dividing the estimated contract value of the Section or part, by the estimated final Contract Price . A similar proportion of the Retention Money may be released if the Contract provides that Sections may be the subject of separate expiry provisions of the Defects Notification Period. However, the Sub-clause states that the outstanding balance of the Retention Money is to be paid p r o m p t l y after expiry of the latest expiry date of the Defects Notification Period(s). Sub-Clause 1.1.3.7 provides that the Defects Notification Period shall be extended for a period to be

14.8 Delayed Payment

14.9 Payment of Retention Money

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notified in the Appendix to Tender and under Sub-Clause 11.3 Extension [ of Defects Notification Period ] the period could be extended by a maximum of two years. The release of the final tranche of Retention Money could therefore be up to three years after completion or indeed longer depending upon how the Appendix to Tender is completed. The full release of Retention Money may be further delayed if any work remains to be completed, as the Engineer may withhold certification of the estimated cost of any outstanding works. The above restrictions, together with differing interpretations of the meaning of the word p r o m p t l y could result in a protracted period before the Contractor is able to recover Retention Money. Disputes would be less likely if the Employer were prepared to accept a bank guarantee in lieu of retention. 14.10 Statement at Completion The Contractor is required to submit a Statement at Completion with supporting documents within 84 days after receiving the Taking-Over Certificate following which the Engineer shall certify and the Employer shall make an Interim Payment to the Contractor. This statement requires that notice of all the Contractors claims must be submitted, along with all other documentation required or reasonably implied as required under the Contract. Whilst there is no specific requirement to submit full and detailed particulars of all claims at this stage it would be prudent to do so as soon as possible. Sub-Clause 14.10 (b) and (c) refers. Failure to include notice of claims would result in them being barred under SubClause 14.14 (b)Cessation [ of Employers Liability ] . Contractors should also have regard to the extremely tight time limits laid down in Clause 20 [Claims, Disputes and Arbitration ] for the submission of detailed particulars. A written discharge is to be submitted by the Contractor with the Final Statement and should be worded to provide for such discharge to become effective when the final payment has been received and all bonds and guarantees returned. This is a very important Sub-Clause in respect of any Contractors claims. Claims arising prior to the Statement of Completion will be time barred if notifications are not included in the Statement as required by Sub-Clause 1 4 . 1 0 Statement [ on Completion ]. Notices of Claims arising after the Statement of Completion must be included in the Final Statement to be eligible for consideration. The notifications under this Sub-Clause are in addition to those required under Sub-Clause 20.1 Contractors [ Claims ].

14.12 Discharge

14.14 Cessation of Employers Liability

15
15.1 Notice to Correct

Termination by Employer
This Sub-Clause gives the Engineer, in addition to the right to give instructions under Sub-Clause 3.4[Instructions ] , an unlimited right to require the Contractor by notice to make good any alleged failure to carry out any obligation under the Contract. If the Contractor fails to comply with such a notice, the Employer has the right to terminate the Contract under Sub-Clause 15.2Termination [ by Employer ].

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15.2 Termination by Employer

The Employer has further rights to terminate the Contract in certain circumstances. These circumstances include breach by, and insolvency of, the Contractor as well as corruption. Allowing the Employer the right to terminate the Contract in the event of corruption as defined by this Sub-Clause is too wide. It extends to the Contractors sub-contractors (over whom the Contractor does not have total control) and it covers any act, however small, carried out by any individual. As a consequence, determination of the Contract for the act of corruption under a sub-contract is too severe a remedy. The obligation should be limited to an obligation on the Contractor to terminate the subcontract and should not give the Employer the right to terminate the Contract. Sub-Clause 15.2(a) could be applied to quite trivial faults since it relates to compliance with a Sub-Clause 15.1 Notice [ to Correct ] notice which covers a n y failure by the Contractor to carry outany obligation . This clause is open to abuse by an employer. This Sub-Clause should also be considered in the light of the comments on Sub-Clause 8.7 Delay [ Damages ] above regarding damages payable by the Contractor in the event of delay.

15.5 Employers Entitlement to Termination

This Sub-Clause introduces a right, not present in the Fourth Edition, for the Employer to terminate for convenience. This right can be exercised at any time upon 28 days written notice. Payment is then made in accordance with Sub-Clause 19.6 Optional [ Termination, Payment and Release ] , which is inappropriate. In the case of termination for the Employers convenience, loss of profit should be payable to the Contractor. Contractors should note that the Employer may not terminate under this Sub-Clause for the purpose of undertaking the Works directly or arranging for the Works to be completed by another Contractor.

16
16.1 Contractors Entitlement to Suspend Work 16.2 Termination by Contractor

Suspension and Termination by Contractor

The Contractor is entitled to suspend the Works in the event that the Engineer fails to certify in accordance with Sub-Clause 14.6I s [ sue of Interim Payment Certificates ] or the Employer fails to comply with Sub-Clause 2.4Employers [ Financial Arrangements ] or Sub-Clause 14.7 P [ aymen ] t by giving 21 days notice. The right of the Contractor to terminate the Contract is subject to extended notice periods. In the case of failure to receive reasonable evidence with regard to the Employers financial arrangements, SubClause 2.4Employers [ Financial Arrangement ] or failure to pay to the Contractor amounts due, Sub-Clause 14.7 P[a y m e n ] tthe Contractor must allow 42 days to elapse to demonstrate non-payment by the Employer and in the case of a failure of the Engineer to certify, the period is 56 days. Thereafter he must give a further 14 days notice before he may terminate the Contract.

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These time limits are too long. It would be more equitable if (similar to other grounds for termination in this Sub-Clause) the Contractor is only required to give 14 days notice.

17
17.1 Indemnities

Risk and Responsibility

The Contractors obligations to indemnify and hold harmless the Employer exist irrespective of whether the Contractor is liable for any negligence, wilful act or breach of the Contract. By contrast, the Employers obligation, set down in the second paragraph of this Sub-Clause, is subject to the default of the Employer. This imbalance is not justified and the additional risks imposed on the Contractor might not be insurable. The reference to Sub-Clause 18.3 (d) (iii) in the second paragraph of this Sub-Clause makes the Employers obligation to indemnify and hold harmless the Contractor inter alia, subject to the Contractors ability to obtain insurance at commercially reasonable terms. Since it is arguable whether or not insurance cover will be available on such terms, it will probably be advisable when negotiating a contract to exclude this provision.

17.3 Employers Risks

The Employers Risks have been amended by comparison with those contained in the Fourth Edition and Civil War and Riot is only applicable if it occurs within the Country. The Fourth Edition contains no such restriction. Munitions of war have been introduced as an additional Employers Risk and should include landmines. If the Engineer requires the Contractor to rectify the loss or damage to the Works, Goods or Contractors Documents resulting from any of the Employers Risks, the Contractor is entitled to time extension and payment of the Cost incurred for rectifying the loss or damage but, with minor exceptions, no uplift for profit(as is the case in the Fourth Edition). The Contractors rights under this Sub-Clause are subject to his compliance with Sub-Clause 20.1Contractors [ Claims ]. This Sub-Clause provides that there is no liability on either Party to the other Party for loss of use of any Works, loss of profit, loss of any contract or for any indirect or consequential loss or damage other than under SubC l a u s e 1 6 . 4 [Payment on Termination ] and Sub-Clause 17.1 [Indemnities ] . By excluding Sub-Clause 17.1[Indemnities ] from the limitation of liability both the Contractor and the Employer are fully liable for the events outlined in that Sub-Clause. The Contractor should note that it is only in certain cases of breach of contract by the Employer that the Contractor is entitled to compensation for loss of profit. See also the comments made under Sub-Clause 1.1.4.3. This is inequitable and the Contractor should always be entitled to compensation for loss of profit and other indirect or consequential damages, in the event of a breach of contract by the Employer.

17.4 Consequences of Employers Risks

17.6 Limitation of Liability

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19
19.1 Definition of Force Majeure 19.4 Consequences of Force Majeure

Force Majeure
This Sub-Clause provides a definition of Force Majeure and provides a non-exhaustive catalogue of Force Majeure events in the second paragraph that includes natural catastrophes such as earthquakes, hurricane, typhoon or volcanic activity. In the event that the Contractor is prevented from performing any of his obligations under the Contract due to an event of Force Majeure, the Contractor can claim for time extension and the Cost incurred. However, entitlement to claim for Cost is limited to the events listed in Sub-Clause 19.1 (ii) to (iv)Definition [ of Force Majeure ]. Such limitation is difficult to understand given that the catalogue of Force Majeure events is not exhaustive. In case of termination due to Force Majeure, the Contractor is entitled to be paid for the Works executed, the Cost of Plant and Materials ordered, any other Cost incurred in the expectation of completing the Works, the Cost of removal of Temporary Works and Contractors Equipment and the Cost of repatriation of staff and labour. If the Contractor wants to receive profit on these Costs, an appropriate provision would have to be included in the Contract.

19.6 Optional Termination, Payment and Release

20
20.1 Contractors Claims

Claims, Disputes and Arbitration

This Sub-Clause details the procedure that the Contractor must follow when he considers himself entitled to an Extension of Time for Completion and/or additional payment under any Clause or otherwise in connection with the Contract. The Contractor is required to give notice of his claim as soon as practicable and not later than 28 days after becoming aware, or when he should have become aware, of the event or circumstance giving rise to the claim. Failure to comply with this notice provision results in the Contractor forfeiting his right to an Extension of the Time for Completion and to additional payment and the Employer is then discharged from his liability in connection with the event. The penalty for failure to comply with a purely technical requirement to give notice of a claim is unduly harsh. This is the first time that a FIDIC contract has removed the fundamental right of the Contractor to make a claim merely as a result of a failure to comply within a fixed period of time to submit the required notice. In certain circumstances the Contractor may prejudice his entitlement by failing to comply strictly with a notice provision but he should certainly not forfeit his rights altogether and neither should the Employer be discharged from any and all liability in connection with an event. It is ironic that this provision would also apply when the event or circumstance giving rise to the claim is caused by the Employer in the first case e.g. Sub-Clause 8.9 [Consequences of Suspension ]. A comparison of the notice provisions under Sub-Clause 20.1 with the notice provisions under Sub-Clause 2.5 Employer's [ Claims ] where the

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Employer or the Engineer is required to give notice as soon as practicable after becoming aware of the event or circumstance demonstrates once again the unfair imbalance between obligations carried by the Employer and the Contractor. In addition to the first 28 day notice period the Contractor is also subject to a 42 day period (that is a further 14 days) by which he has to send to the Engineer a fully detailed claim with full supporting particulars. (See also the provisions for continuing claims). This could prove to be extremely difficult and inevitably, the task of compiling and interpreting the relevant facts to support and justify the claim will be a time consuming and long drawn out process. Such provisions could lead to intensive disputes and costly arbitration. However, it should be noted that failure to provide a fully particularised claim (as opposed to giving notice of a claim) does not in itself bar the claim. The sixth paragraph of this Sub-Clause requires the Engineer to respond to the Contractor's claim giving his approval or disapproval within a fixed period or time whereas the eighth paragraph requires the Engineer to proceed in accordance with Sub-Clause 3.5 Determinations [ ] to agree or determine any Extension of Time for Completion and/or any additional payment. It is not clear why these two separate procedures are required. However, it should be borne in mind that under Sub-Clause 3.5 there is no time limit within which the Engineer has to make a determination. Comments made under this Sub-Clause should be read in conjunction with those under Sub-Clauses 14.10 Statement [ at Completion ] and 14.14 [Cessation of Employers Liability ] all of which underline the importance of submitting all required notices in time to ensure that the Contractors rights are protected and maintained. 20.2 Appointment of the Dispute Adjudication Board This Sub-Clause provides for the establishment of the Dispute Adjudication Board (DAB) comprising either one or three members to be appointed by the Parties. The DAB is to be appointed by the date given in the Appendix to Tender. The appointment of the DAB expires after the Contractors written discharge to be provided under Sub-Clause 14.12 [Discharge ] has become effective; accordingly the DAB is available throughout the duration of the Contract to review any disputes referred to it. If both Parties agree they may jointly refer any matter to the DAB for it to give its opinion and, employed sensibly, this could present a useful forum for resolving disputes before they cause delay and disruption to the progress of the Works. If the parties are unable to agree on the appointment of the third member and they do not wish the President of FIDIC to make the appointment, the Appendix to Tender should be amended accordingly.

20.3 Failure to Agree Dispute Adjudication Board 20.4 Obtaining Dispute Adjudication Boards Decision

Either Party may refer a dispute of any kind whatsoeverthat arises out of the Contract or the execution of the Works to the DAB at any time. It should be noted that, if the DAB has given its decision as required by this Sub-Clause and if neither Party has given notice of dissatisfaction within 28 days after having received the DAB's decision, the decision

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becomes final and binding on both Parties. Even in the case of dissatisfaction by either Party, decisions of the DAB are binding on both Partieswho shall promptly give effect to it unless and until it shall be revised in an amicable settlement or an arbitral award. T h i s arbitral award could be many months after the DAB decision during which time the DAB decision would still rule. The Contractor is required tocontinue to proceed with the Works but the obligation of the Employer, in so far as payment is concerned, is merely to comply with the normal process for Interim or Final Payments detailed in Clause 14 [Contract Price and Payment] . Payment under this process does, of course, give the Contractor the right to suspend or terminate the works if the Employer fails to make the payment due. However, any payments due as a result of a DAB decision should be made with immediate effect and not in accordance with Clause 14. Any failure to make immediate payment should give the Contractor the rights under Clause 16Suspension [ and Termination by Contractor].

EIC Contractors Guide to the FIDIC Conditions of Contract for Construction