Notes from the FIDIC

Steve Mangan
Corbett & Co
International

Users’ Conference,
Construction Lawyers,
London

London, December 2011

T he FIDIC faithful gathered on 6 and
7 December 2011 for the annual
FIDIC Users’ Conference in London. Below
New and forthcoming FIDIC forms
of contract
Work continues on the drafting of the new
is a summar y of the proceedings. The edition of the FIDIC Yellow Book (Conditions
Conference received an overview of the new of Contract for Plant and Design-Build), now
Gold Book and its Guide, the new Red Book expected to be available for friendly review in
subcontract and ideas for the new Yellow June 2012 with publication in December 2012.
Book and a ‘brownfield’ contract. There The entirely new 2008 Gold Book (Conditions of
was much discussion of the present use and Contract for Design, Build and Operate Projects)
amendment of FIDIC contracts in Central now informs much of the drafting for this new
and Eastern Europe and in developing Yellow Book.
countries and of the lessons to be learned Generally, FIDIC’s drafting committees have
from this. Dispute resolution under the been striving to produce contracts that are clear
FIDIC contracts as usual stimulated debate, and user-friendly. The Gold Book has been
including on how the enforceability of DAB written so far as possible without legal
decisions should be addressed. terminology and in clear and precise language.

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 SPECIAL REPORT

There are new definitions, terminology and upgrade a project’s facilities. Get that right, he
approaches not found in other books within the argued, and the rest will follow easily.
FIDIC ‘rainbow suite’. October 2011 also saw the publication of the
Gold Book clauses concerning risk, insurance first edition of the subcontract intended for use
and force majeure, for example, were new. Force with the FIDIC 1999 Red Book. Siobhan Fahey
majeure is dealt with by a new clause dealing with of the drafting task group gave a presentation of
exceptional risk. Unlike the existing Yellow the new subcontract following feedback on the
Book, the Gold Book has a standing Dispute test edition released in 2009.
Adjudication Board (DAB). It has also softened The subcontract is intended to be used ‘back
the 28-day time bar for contractors’ claims to back’ with the 1999 Red Book, which it
notices by providing for the DAB to permit late incorporates by reference. There are important
submission where it is fair and reasonable to do differences, however, if the main contract is in
so. Sub-Clause 20.5 permits the parties by the MDB form. The subcontract is drafted with
agreement to request informal assistance from flexibility in mind and is appropriate for
the DAB in resolving any disagreement between subcontracts both large and small. There are
them – an important dispute avoidance facility. numerous alternative clauses for the parties to
An interim binding decision of the DAB may consider using, dealing with, for example,
also now be enforced, closing the ‘gap’ that has taking over of the subcontract works and issue
been the subject of much recent debate in the of the performance certificate. Extensive
industry (see below). guidance notes are provided within the
We therefore expect to see a similar ‘Gold document. Unless an alternative is required for
Book approach’ in the forthcoming new edition countries where such clauses are unenforceable,
of the Yellow Book. the default payment position is
The Gold Book has been ‘pay-when-paid’ and not ‘pay-if-
followed in 2011 by publication of ‘We expect to see paid’. Generally, the subcontract
its own guide – the FIDIC DBO a “Gold Book adopts the same balanced
Contract Guide. Michael approach to risk allocation as is
Mortimer-Hawkins, its principal approach” in the found in the Red Book main
author, spoke to the Conference
on the thinking behind this
forthcoming new contract and other FIDIC 1999
rainbow contracts.
document and on the Gold Book edition of the Of particular interest is the
itself. As well as providing its clause- disputes resolution clause. Chris
by-clause commentary, the Guide Yellow Book.’ Seppälä gave a presentation of the
sets out to inform readers of why three alternative options. These
the wording and provisions of the contract are may result in a very complex procedure for the
as they are. Although it has no contractual resolution of subcontract disputes given the
weight, users of the Guide say they find the back-to-back nature of the subcontract and
guidance particularly helpful and that it does main contract obligations and therefore the
avoid disputes. potential for related disputes to arise on a
As to the new editions of the Red and Silver project. The simplest option involves no
Books, these will be released in 2013, subcontract DAB and direct recourse to ICC
appropriately enough coinciding with the 100th arbitration if disputes cannot be resolved
anniversary of FIDIC itself. amicably within a 56-day timetable. The main
FIDIC has also appointed a task group to contractor may, however, require the
consider the introduction of a ‘brownfield’ subcontractor to attend and provide information
(Operate, Design & Build (ODB)) form of in an upstream dispute with the employer.
contract. With this in mind, Andrew Brickell, A second option requires an ad hoc
Director of Project Management MWH New subcontract DAB and if the dispute between
Zealand Ltd, gave an interesting presentation of subcontractor and main contractor involves a
his experience in the preparation and use of main contract issue, the main contractor must
bespoke brownfield ODB contracts in New notify the subcontractor and refer that dispute
Zealand. He recommended that, instead of first to the main contract DAB. The
FIDIC rewriting the Gold Book, a simpler and subcontractor is not bound by the result or by
more helpful approach might be to focus on any later arbitral award.
producing an enhanced operation and A third complex option binds the
maintenance contract, useable whether or not subcontractor to a related decision of the
any future capital works would be required to DAB and any arbitral award under the main

32 CONSTRUCTION LAW INTERNATIONAL Volume 7 Issue 1 March 2012

 contract. A related claim by the subcontractor Romania offered a similar story. Increasingly,
requires the main contractor to pursue the public projects are being procured using the
claim under the main contract with the Yellow Book form. The risks associated with land
subcontractor’s support. The main contractor expropriation, archaeological remains and the
must pass on to the subcontractor an accuracy of the employer’s requirements are all
appropriate share of resulting entitlements to being regularly passed down to the contractor in
extensions of time and additional payment. Silver Book fashion. However, there is at least
Related disputes must be brought by the main some anecdotal evidence that, despite this, there
contractor before the main contract DAB with are fewer disputes than formerly, when the Red
the involvement of the subcontractor. The Book was the predominant form for public
main contractor would be entitled to receive projects. This may, however, be because of
an appropriate share of any benefit provided recent changes in the procedure for land
by the DAB decision and must be consulted in expropriation in Romania and in the greater
any following amicable settlement process. If availability of contingencies in a project budget.
the dispute is referred to arbitration, the Reports from Hungary indicated that the
subcontractor may be trend was broadly similar
involved and will be bound
by the result.
‘Tinkering with FIDIC’s there too. When the Yellow
Book is used employers
This third option will delicate balance of risk tended to view it as if it were
require meticulous drafting a Silver Book and an
of a long, detailed and has brought with it opportunity to pass all risk
complex arbitration clause. increased propensity for onto the contractor.
Whether it proves workable Much of the problem was
and not too complex or disputes and increased said to lie with public
rigid for practical use only
experience and time will
cost of procurement.’ procurement legislation in
Central Europe. The
tell. It is, however, an attempt capacity for instructing
by the FIDIC drafting committee to provide an variations to a contractor’s scope is generally
efficient and cost-effective means to resolve very limited. Unless a change was unforeseeable,
related disputes. it was ineligible for additional public funds. The
There is also a Yellow Book subcontract in requirement for acceptance of the lowest tender
preparation that will contain the same policy price was also a problem. Guidance is now being
fundamentals as the Red Book’s subcontract. considered on how public authorities should
best respond to abnormally low-tender offers,
which must usually be accepted. Possible
Amendment and use of FIDIC forms
solutions include the right to reject an
of contract in Central and Eastern
abnormally low tender, demand an increased
Europe
retention, increased performance security or
A major topic of discussion was the effect of both.
FIDIC’s contracts being unfairly amended, Also problematic were the conditions under
particularly in Central and Eastern Europe. which EU infrastructure funding was being
Reports from both the podium and the floor made available. Timetables for the take-up of
of the Conference told of bespoke reallocations funds were unrealistically short, leading to
of risk producing some very unhappy results. rushed tender procedures and incomplete
Tinkering with FIDIC’s delicate balance of risk design of infrastructure projects. Disputes and
has brought with it increased propensity for increased cost were the result. As regards those
disputes and increased cost of procurement. disputes, EU funds were not being made
We hear that, in general, contractors in available for their resolution by DABs. Those
Central Europe are content with the Red, Yellow costs typically come from the relevant state
and Pink (MDB) forms. In Poland, public budgets. Consequently, public authorities were
authorities are said to be increasingly shifting simply deleting these provisions – a move that
the risk balance in their particular conditions. appears very short-sighted in view of the
Provisions that give the contractor protection increased project costs that so often follow.
are being systematically deleted. However, some Poland and Romania were examples of this.
employers there now appear to be realising the There are now moves to try and convince the
folly of their actions after witnessing unnecessarily EU that, instead of simply seeing the DAB as an
high tender prices and cancelled bids. unnecessary additional project cost, it should be

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 SPECIAL REPORT

viewed instead as a project management tool the decision remains binding only and not
that ultimately leads to lower project costs and final and binding. If a party then fails to
higher quality infrastructure. At least one comply with that decision, the Red, Yellow
speaker expressed the wish to see FIDIC engage and Silver Books do not expressly permit an
with the EU on the point. aggrieved party to enforce the decision by
Evgeni Smirnov of the European Bank for referring the failure to arbitration, as it may
Reconstruction and Development (EBRD) was do under Sub-Clause 20.7 of the Red Book in
able to offer the Conference some good news the case of a final and binding decision.
on this front. He said that the EBRD is very There have, however, been a couple of
much in favour of standing DABs, and sees the examples where such binding DAB decisions
ad hoc DAB as the fall-back option when dispute have been enforced. There is, however, no
resolution is being considered. uniform ‘international’ policy on this issue.
Conference consensus therefore favoured There was continued discussion of the
leaving the FIDIC standard forms unamended ‘gap’ at the Conference. Nael Bunni advised
wherever possible. ‘If it ain’t broke, don’t fix it!’, that it had never been FIDIC’s intention to
they say! create a situation where the decision of a
DAB could simply be ignored. Compliance
was assumed and expected of the parties,
Developments and challenges of DABs
failing which, enforcement should be
The Conference heard from a panel of experienced available in the form of an arbitral award.
DAB members regarding recent developments The gap had now been closed by Sub-Clause
and challenges of DABs. Members included 20.9 of the new Gold Book. All DAB decisions
Nael Bunni, Nick were now
Henchie, Peter ‘There are now moves to try and enforceable and
Chapman and this policy should
David Loosemore. convince the EU that, instead be continued by
Nick Henchie the drafting task
expressed a strong
of simply seeing the DAB as an groups in their
note of caution unnecessary additional project preparation of
regarding the forthcoming
effectiveness of cost, it should be viewed instead editions of the
DABs. A DAB is as a project management tool that FIDIC contracts,
required actually to he said. In the
make a decision and ultimately leads to lower project costs meantime, he
thereby resolve the thought FIDIC
dispute before it. In
and higher quality infrastructure.’ should publish an
his experience, all errata sheet for
too often the board wrongly saw itself as a other contracts introducing both the Gold
Dispute Review Board with a dispute avoidance Book’s Sub-Clause 20.5 dispute avoidance
mission that paid little heed to the contract. As a facility and Sub-Clause 20.9 regarding
result, he considered that DABs only created enforcement. Alternatively, the parties could
further disputes rather than resolved them. themselves amend, for example, the Red
Nael Bunni reminded delegates that Sub- Book’s Sub-Clause 20.7 by replacing it with
Clause 20.2 of the Red Book has always contained the wording of Sub-Clause 20.9 of the new
a facility whereby the parties could jointly Gold Book.
approach the DAB and request its opinion on a The Conference also debated the motion that
matter. In his experience parties often did not the Silver Book was the 1999 form best suited to
often take advantage of this very valuable dispute design-build projects. Despite the best efforts of
avoidance service. It was a facility now given the proposers, the motion was soundly defeated.
more prominence by its own dedicated Sub- All in all, the 180 delegates, the content of the
Clause 20.5 of new Gold Book. Conference and the lively discussion from the
The pages of CLInt, the International floor show that the FIDIC project is in robust
Construction Law Review and other industry good health.
publications have seen much discussion
recently of the ‘gap’ in the enforceability of
Steve Mangan is a Director of Corbett & Co International
DAB decisions. Where notice of dissatisfaction
Construction Lawyers Ltd in London.
has been given following a DAB’s decision,

34 CONSTRUCTION LAW INTERNATIONAL Volume 7 Issue 1 March 2012