Ijciet 11 01 006
Ijciet 11 01 006
Ijciet 11 01 006
Volume 11, Issue 1, January 2020, pp. 43-52, Article ID: IJCIET_11_01_006
Available online at http://iaeme.com/Home/issue/IJCIET?Volume=11&Issue=1
ISSN Print: 0976-6308 and ISSN Online: 0976-6316
DOI: https://www.doi.org/10.34218/IJCIET.11.1.2020.006
© IAEME Publication
ABSTRACT
Unfair contracting practices are a major contributor to the high cost, failed
schedules, bankrupted Contractors and other abominations afflicting major
subsurface projects in many countries. The new Emerald Book is an ITA/FIDIC joint
initiative to create a fairer contractual framework for the construction of underground
works and heralds an international recognition of the benefits of carefully
apportioning ground conditions risk.
Inappropriate risk allocation contributes to the cost, schedule uncertainty,
business risk and complexity of underground infrastructure delivery.
In recent decades ill-informed allied professionals have wrongly guided
Employers to specify irresponsible contractual terms that entirely place ground
condition risk (sovereign risk) with the Contractors and then invite the market to enter
a fierce commercial battle in which the lowest bidding Contractor assumes the
sovereign’s ground risk. Financiers are advantaged by such risk apportionment but
rarely is this motivation for such practices acknowledged or discussed.
Under the new Emerald Book, FIDIC arrangements commercial tension is
directed to the price for construction and associated works for the execution of the
excavation and lining works including design and construction methods and the
reaction of the ground to such methods. The Geotechnical Baseline Report sets out
the allocation of the risk between the parties for such subsurface physical conditions.
Under the new FIDIC/ITA Emerald Book arrangements the Contractor is expected
to perform in accordance with its bid and is only compensated for the conditions
encountered. For the Employer this means that they can rely upon the Contractor to
perform as warranted under the Contract – demanding the competence, skill and
expertise required to undertake the anticipated task. For the Contractor it means that
where the encountered conditions and reaction of the ground is not as warranted by
the Employer, there is a mechanism to adjust the terms of the Contract to compensate
for the consequences of unanticipated conditions.
The attraction of this new FIDIC/ITA Emerald Book Contract framework is that
for the most part it draws upon the well-known normal FIDIC forms of contracting
providing reassurance to Employers, Contractors and Banks that the allocation of
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The Renaissance of Fairness in Ground Risk Allocation – The New Ita/Fidic Emerald Book
risks, mechanisms for dispute and conduct of Contract management are sound,
reliable and internationally understood.
Innovative features of the new Emerald Book include a contractual mechanism to
extend or shorten the time for completion, adjustments to remuneration and a focus on
the expertise of the Contractor. Importantly these innovations are linked to
Geotechnical Baseline Reports and therefore the rock. In this way rock beats paper
because remuneration is based upon fact and not maneuvering for commercial
variations and other elaborate desperate mechanisms.
Keywords: Contracts, Geotechnical, Risk, Underground, GBR and Costs.
Cite this Article: A. E. Dix, The Renaissance of Fairness in Ground Risk Allocation –
The New ITA/FIDIC Emerald Book. International Journal of Civil Engineering and
Technology 11(1), 2020, 43-52.
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1. INTRODUCTION
The new FIDIC[1]/ITA[2] underground works standard Contract of 2019 heralds an
international change in direction of apportioning risk by rightly recognising the role of ground
conditions in formulating the reward for Contractors for effort and the demand by Employers
for Contractors to perform.
The apportionment of ground risk in a technical context within a structured contractual
risk sharing legal framework is an international step change in ground risk apportionment.
This new Contract is known as the Emerald Book, 2019 Ed. It is based upon FIDIC’s highly
successful Conditions of Contract for Plant and Design-Build, FIDIC’s Yellow Book.
The ITA, Contractual Practices Group, chaired by the author, produced “The ITA
Contractual Framework Checklist for Subsurface Construction Contracts” of April 2011.[3]
This document (now in review for 2nd Edition), was the first articulation of the special
subjects requiring consideration in an underground works contract.
The ITA conducted a world survey of the performance of subsurface construction projects
and found that there was a correlation between ‘on time’ and ‘on budget’ projects and the use
of sophisticated risk apportionment methodologies, technically competent Employers and
Contractors. The most pertinent example came from Switzerland where the Swiss Tunnelling
Contracts tended to result in a greater degree of certainty of quality, cost and timeframe
outputs.
A detailed analysis of the Swiss suite of contracts also revealed that they were tailored to a
European context and therefore, despite being the most sophisticated contracts identified,
were not considered readily transferrable to becoming a default international model, although
their merit in sophisticated and experienced subsurface construction countries is undeniable.
The ITA then set about a process of identifying key global ‘off the shelf’ standard form
Contracts that might become the base for a new global underground works template.
Several international organisations were approached to collaborate with ITA to formulate
a bespoke global underground works contract – FIDIC rose to the challenge and a joint task
force was established. After more than 5 years of collaboration between experts from more
than 40 countries the first edition of the joint FIDIC / ITA conditions of contract for
underground works was released in May 2019 as the Emerald Book, 2019 Ed. It is anticipated
that the Emerald Book will be the first of many underground works specific forms of contract.
ITA’s objective is to develop a global culture for fair risk apportionment in underground
works.
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A. E. Dix
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The Renaissance of Fairness in Ground Risk Allocation – The New Ita/Fidic Emerald Book
Let us hope that the Emerald Book assists the world to responsibly deliver the
underground infrastructure it so desperately needs without destroying the construction
industry upon which the projects rely.
The author laments that in countries such as Australia the results of unfair risk
apportionment have decreased the number of local contracting companies, capable and
willing to assume subsurface risks, despite an Australian subsurface construction ‘boom’.
The consequences on cost, delivery times and quality of such practices remains to be seen, but
it is almost certain unfair ground risk apportionment will adversely impact the outcomes.
Hopefully the Emerald Book will encourage parties to reembrace the concepts of fairness in
contracting.
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A. E. Dix
The Completion Schedule and the Schedule of Baselines provide the trigger for
intervention by the Employer’s Engineer. This is how risk is fairly apportioned. The
Contractor is expected to do the job as they tendered in accordance with the agreed schedule –
this is the priority under the Contract. If conditions are not as expected and loss is incurred
then, and only then, is the Employer liable. This Contract focuses on the engineering, the
excavation and the lining. The Contract is intentionally directed away from lawyers except
for its proper administration in accordance with law which includes the professional conduct
of the major actors under the Contract – especially the Engineer.
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time and cost are adjusted if it is not correct. This is at the heart of the Emerald Book risk
apportionment model.
Of course, it will usually be better if the GBR closely describes the basis for the execution
of the excavations and lining works because in such cases the cost and schedule bid will more
likely match the project outcome. However, the fundamental point is, if the GBR is wrong
there is a pre-agreed mechanism to adjust the price and schedule.
To balance the GBR a “Geotechnical Data Report”, the GDR (Clause 1.1.52), is also
included in the Contract and it contains the geological geotechnical and hydrogeological data
deemed to be in the employers’ possession at the Base Date.
The Base Date (Clause 1.1.4) is a contractually defined term which means the date 28
days before the latest date for submission of the Tender.
When viewed in combination these provisions allow an Employer to go to market and
engage bidders with a high degree of commercial tension and allow bidders to aggressively
bid based on a common and agreed base case for the underground conditions.
Utilising this contractual framework, the mechanism for payment and time can be adjusted
if and when unexpected conditions are encountered. By entering into a Contract with the
prospect and mechanism for dealing with differing conditions agreed in advance the risks are
more fairly allocated.
If the Contractor fails to deal with the anticipated ground conditions appropriately, they
will be punished commercially. If the ground conditions are not as expected the time and
remuneration can be adjusted using mechanisms and even rates agreed in advance. To some
considerable extent this removes the gambling component of pricing the ground risk and
encourages Contractors to focus on substantive issues such as expertise, excavation, mining
and support works, design and construction methods.
Of course, there is still a place for the legal team – but the focus shifts from exploring
exotic means of extracting money from an Employer (or defending such actions) to examining
and evidencing actual conditions encountered and how the project responds to them within the
context of a highly regulated Emerald Book disputes mechanism.
Importantly the Emerald Book also deals with lengthening and shortening the project
duration as a function of ground conditions. This is a very powerful mechanism from within
the Contract – especially so because these projects can span many years, even decades.
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A. E. Dix
• Exceptionally adverse climatic conditions (unforeseeable having regards to the climatic data
made available by the employer and/or climatic data published in the country for that
geographic location)
• Unforeseeable shortages in personnel or goods caused by epidemic or government action
• Any delay impediment or prevention caused by or attributable to the employer the employer’s
personnel or the employer’s other Contractors on the site (Clause 8.5)
• The results of measurement of the excavation and lining works (Clause 13.8)
If the Contractor has diligently followed the procedures laid down by the relevant legally
constituted public authorities or private utility entities in the country and those authorities or
entities delay or disrupt the Contractor’s work and the delay or disruption was foreseeable
then this delay or disruption is considered grounds for extension of Time for Completion
(Clause 8.6).
On the other hand if actual progress is too slow to complete the Works, a section, to meet
a Milestone or if progress has fallen behind the program then the Engineer may instruct the
Contractor to submit a revised program describing revised methods the Contractor proposes to
expediate progress and complete the Works Section or meet any Milestones within the Time
for Completion. These proposals are entirely at the Contractors expense and may even be the
subject of a claim by the Employer for additional costs incurred (Clause 8.7).
In this way the Contractor is at risk for failing to meet the agreed contractual timelines for
project delivery due to its failure to meet its promises under the Contract but the Employer is
responsible for consequences arising from ground conditions outside the GBR or other
circumstances in the Employer’s control or departing unforeseeably from the site data
provided under the Contract.
2.8. Price
Under the Emerald Book there is an Accepted Contract Amount for the Works. That amount
is deemed to cover all of the Contractors obligations under the Contract and all things
necessary for the proper execution of Works in accordance with the Contract (Clause 4.11).
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Project delays and additional costs actually incurred are recoverable as a result of
subsurface physical conditions actually encountered that are outside the limits described in the
GBR (Clause 13.8).
There is a strict mechanism for giving the Engineer notice of such unforeseeable
conditions which have or are likely to have an adverse effect on progress or cost.
Notice must:
• Be given as soon as practicable and in good time to allow the Engineer opportunity t o in spect
and investigate the physical conditions properly and before they are disturbed
• Describe the physical conditions, so that they can be inspected and/or investigated promptly
by the Engineer
• Set out the reasons why the Contractor considers the physical conditions to be Unforeseeable
• Describe how the physical conditions will adversely affect progress and/or increase the cost of
the execution of the Works
Ideally the Notice should include proposals for measures to be taken to further investigate
or mitigate such physical conditions (Clause 4.12.1).
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3. CONCLUSIONS
The Emerald Book marks a critical step change in global recognition of the importance of
ground conditions when apportioning risk in subsurface construction projects. The
collaborative multinational effort of FIDIC/ITA provides a transparent example of how
ground risks can be fairly and responsibly managed. This mechanism provides a framework
in which Contractors are rewarded for effort and punished for incompetence and Employers
gain the benefit of transparent risk sharing including reduced cost.
The global construction industry is highly stressed, in part due to the adoption of ill -
informed and unfair practices in the allocation of ground risk. Countries such as Australia are
testament to the consequences of unfair risk allocation contributing to local contracting
capacity having been severely impacted in the face of lawful but unfair ground risk allocation
in contractual practices by Clients.
In projects such as Snowy 2.0 in Australia there is evidence that more appropriate risk
sharing is finding its way into large underground infrastructure projects even before the
release of the Emerald book in May 2019. The world is likely in the process of rediscovering
the value of fair contracting practices and the Emerald Book is likely part of that renaissance
process.
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ITA’s continued objective is to cultivate a global appetite and culture for fair risk
apportionment in underground works.
A recalibration of focus on the substantive engineering and technical resolution of
disputes is a healthy sign that the resources of a project will be directed to achieving the
desired infrastructure outcome. The big winners of fairer Contracts will be our societies
because it will be easier to maintain competition in a market focused on engineering and not
gamesmanship and gambling about ground conditions. The use of global Contracts may also
provide some comfort to foreign lenders and Contractors considering doing business in
foreign countries. It is expected that ITA will collaborate with other global Contract providers
to provide new examples of fair risk allocation for other procurement strategies serving the
global underground construction demand.
ACKNOWLEDGEMENTS
Professor Dix initiated and championed the FIDIC/ITA Emerald Book collaboration and was
a joint Tutor and peer reviewer of the Emerald Book. Special acknowledgement also to the
founders of this project in 2012 being Arnold Dix ITA WG3 Animateur, Enrico Vink of
FIDIC and Martin Smith ITA WG3 Secretary. Special acknowledgment is also made of
FIDIC-ITA Task Group 10 under the Chairmanship of Matthias Neuenschwander whom
delivered the final Emerald Book 2019 Ed along with peer review and special GBR expertise
of Randall Essex, ITA.
REFERENCES
[1] FIDIC, the International Federation of Consulting Engineers, (the Fédération
Internationale des Ingénieurs-Conseils) is the global representative body for national
associations of consulting engineers.
[2] Founded in 1974, the International Tunnelling and Underground Space Association (ITA)
aims to encourage the use of the subsurface for the benefit of public, environment and
sustainable development and to promote advances in planning, design, construction,
maintenance and safety of tunnels and underground space. ITA is supported by 75
Member Nations and 310 Affiliate Members.
[3] “The ITA Contractual Framework Checklist for Subsurface Construction Contracts”,
April 2011, ISBN 978-2-9700634-7-9.
[4] The Yellow Book in turn was published by FIDIC as an update of the FIDIC 1999
Conditions of Contract for Plant and Design-Build (Yellow Book), First Edition.
[5] Sir Harold Harding DSc, BSc (Eng), FEng, Presidential Address, Proceedings of the
Institution of Civil Engineers, November 1963.
[6] FIDIC., Opening Notes – Conditions for Contract for Underground Works – The Em erald
Book 2019 Ed.
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