Chapter 4: Overview of FIDIC and NEC Standard Forms of Contract

4
Overview of FIDIC and NEC Standard Forms of Contract

4.1. A brief overview of the History and Development of FIDIC

FIDIC (Federation Internationale Des Ingenieurs-Conseils) is the acronym for the International
Federation of Consulting Engineers. FIDIC organisation was founded in 1913 in Ghent, Belgium by
three national associations of independent consulting engineers within Europe including Belgium,
France, and Switzerland. The main aim was to draft and publish a standard form of contract for
international civil engineering projects (Lina, 1997; Bunni, 2005). FIDIC published its first edition of
conditions of contract for Works of Civil Engineering Construction in 1957 which was inspired and
based mainly on the English Institution of Civil Engineers (ICE) conditions of contract (Broome and
Hayes, 1997). Mortimer-Hawkins (1995) argues that this edition of FIDIC addressed the particular
needs and requirements of working on overseas basis because it considered the variety of legal systems
and jurisdictions under which the contract was going to operate, including both civil law and common
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 Chapter 4: Overview of FIDIC and NEC Standard Forms of Contract
law concepts and philosophies. However, Wallace (1974) criticised the contentions of describing
FIDIC as international form as it mirrored to a large extent its English ICE counterpart. He said: “as a
general comment, it is difficult to escape the conclusion that at least one primary object in preparing
the present international contract was to depart as little as humanly possible from the English
conditions.” Thus, FIDIC incorporates the traditional English contract wordings. The main reviews
were done and revised forms were published in 1969, 1977, 1987, and most importantly in 1999
(Bunni, 2005; Sarie-Eldin, 1994).
Today, headquartered in Geneva in Switzerland, FIDIC represents the interest of some one million
consulting engineers, from 88 countries around the world, and Palestine is included. Membership is
restricted to one association within a country that has to prove that the statutes, bylaws and regulations
of the country guarantee the compliance of its members with the ethics and professional code of
practice of a consulting engineer according to FIDIC’s principles. Therefore, FIDIC represents the
majority of the consulting engineering industry in the world (FIDIC, 2012; Bunni, 2005). Nowadays,
FIDIC family of contracts is the most popular. They are used for almost all of the construction projects
financed by the World Bank and govern the majority of international construction projects in the world
because they are compatible with many legal systems (Seifert, 2005).

The popularity of FIDIC has been increased dramatically in the oil producing countries since the
construction boom that followed the significant escalation of oil prices in 1973. FIDIC’s third edition
has been used for most international infrastructure projects (Firman, 2006) and more than 30% of civil
engineering projects in the Middle East in the 1980s (Seifert, 2005; Bunni, 2005). Undoubtedly, this
percentage has risen more under current editions (Sarie-Eldin, 1994). Unlike any other construction
contract, FIDIC forms have been translated into some 15 languages, including Arabic that shows their
widespread relevance and use (Hillig et al., 2010). FIDIC is used with or without amendments, and
quite often form the basis of bespoke public works contracts (Potts, 2008). For the public works
contracts and civil engineering projects, FIDIC is the predominant form in the majority of the Arab
Middle Eastern countries such as Kuwait, Saudi Arabia, United Arab Emirates, Iraq, Oman, Jordan and
Egypt (Sarie-Eldin, 1994). In Palestine, it was shown in Chapter 3 that FIDIC form has been endorsed
by the Palestinian Cabinet, and also taken by many different governmental and foreign institutions as
the basis for their own conditions of contract.

Because of the international and widespread use of FIDIC form, and its adoption by international
financing institutions, the contactor should gain more confidence in the contract and lower risk

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 Chapter 4: Overview of FIDIC and NEC Standard Forms of Contract
contingencies. The following banks have participated in drafting the Multilateral Development Bank
(MDB) Harmonised Edition of FIDIC contract and have agreed to its use for their projects (Aljarosha,
2008; Swiney, 2007; Zhanglin and Yuli, 2010):

1. The African Development Bank;

2. The Asian Development Bank;
3. The Black Sea Trade and Development Bank;
4. The Caribbean Development Bank;
5. The European Bank for Reconstruction and Development;
6. The Inter-American Development Bank;
7. The International Bank for Reconstruction and Development (World Bank);
8. The Islamic Bank for Development; and
9. The Nordic Development Fund
Besides, a significant percentage of the main development agencies use FIDIC contracts directly, or as
the basis for their own bespoke forms of contract. For instance, USAID and different United Nations
(UN) bodies use FIDIC for their financed construction projects (Aljarosha, 2008; Swiney, 2007). At the
same time, USAID has developed its own bespoke contract to govern projects undertaken in Palestine
as shown in Chapter 3.

Indeed, FIDIC contracts govern most of foreign and multilateral aid and it would be not an
exaggeration to argue that FIDIC forms dominate international development construction projects.
Often, developing countries such as Palestine depends on the aid from these institutions to fund the
construction of critical, important and capital intensive infrastructure facilities, such as electrical, water
and sewage treatment plants. The form of contract governing these projects is not a trivial matter as
small differences in contract clauses or wording may be very costly (Swiney, 2007).

Based on the aforementioned points, it can be argued that FIDIC is becoming the ‘common law’ of the
international construction contracting (Seifert, 2005). Essentially, FIDIC forms were intended to be
used in international projects, where the client country was seeking the involvement of contractors
from other countries. Nonetheless, in recent years, FIDIC has been increasingly used for domestic
projects where all parties are of the same country (Potts, 2008). This was encouraged by the Red Book
fourth edition in 1987 in which major changes were done that extended even to the title by deleting the
word ‘international’ to invite the parties to use it locally as well as internationally (Bunni, 2005).

4.1.1. History and Development of FIDIC Family of Contracts

FIDIC drafts and publishes a range of standard forms (alternatively known as family or suite of
contracts) which are routinely updated after wide consultation with its main stakeholders. Those
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 Chapter 4: Overview of FIDIC and NEC Standard Forms of Contract
stakeholders include its members, international consultants and contractors, the International Bar
Association, and major financing organisations and banks such as the World Bank (Potts, 2008).

The main problem in the first FIDIC contracts was that they assumed that the detailed design was to be
carried out by the engineer, and the contract to be used for all engineering disciplines, whether civil or
electrical and mechanical. However, this is only appropriate for civil engineering and infrastructure
projects such as roads, bridges, tunnels, dams, water and wastewater treatment facilities, but by no
means should it be considered suitable to fulfil the needs of electrical and mechanical projects in which
major items of plant were manufactured off-site and then installed on-site (Glover, 2008). This led to
the development of the FIDIC “Yellow Book” for mechanical and electrical works, with an emphasis
on testing and commissioning, in 1963. The traditional contract became known as the Red Book
(Glover, 2008).

FIDIC made major revisions and published new editions of the Red and Yellow Books in 1987. The
fourth edition of the Red Book has become alternatively known as FIDIC 87, or the old Red Book
(Glover, 2008).The old Red Book was very popular, and still in some countries, and was used by the
Multilateral Development Banks (MDBs), including the World Bank, in their procurement. Basically, it
was a modified version of the 4th edition of ICE conditions (Bunni 2005; Glover, 2008).

FIDIC published the “Orange Book” to be used in design and build or turnkey projects in 1995 (this
was superseded by the Yellow and Silver Books published in 1999). One year later, FIDIC published a
supplement to the Red and Yellow Books to enable the users to incorporate alternative arrangements
such as a Dispute Adjudication Board and an option for payment on a lump sum basis rather than on to
bills of quantities (Bunni 2005; Glover, 2008).

In 1994, after acknowledging anomalies in the old contracts and in the light of developments in the
international construction industry, FIDIC established a task force to update its model forms. The main
drives and reasons were (Bunni 2005; Glover, 2008):
1. The impartiality of the role of the engineer even though being employed and paid by the employer;
2. The desirability for standardisation within the FIDIC forms;
3. The desirability for simplification (improved clarity, consistent wording, and user-friendly format
and layout) in light of the fact that FIDIC forms are issued in English but mainly used by people
who are not native English speakers; and
4. The need for applicability and compatibility under both common law and civil law jurisdictions.

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 Chapter 4: Overview of FIDIC and NEC Standard Forms of Contract
This led to the publication of four new standard forms in 1999, known as ‘FIDIC’s Rainbow’ because
FIDIC refers to them by different colours (Hillig et al., 2010).These contracts are (Aljarosha, 2008;
Andersson, 2002; Bunni, 2005; Hillig et al., 2010; Jaeger and Hök, 2010; Owen, 2003; Potts, 2008;
Seifert, 2005):

1) Conditions of contract for construction (the new Red Book): suitable for building and
engineering works designed by the employer. This traditional contract is viewed as the flagship of
all FIDIC contracts. It is known as the ‘Construction Contract’, the ‘new Red Book’ or the ‘1999
Red Book’. It should not be called the ‘Red Book’ because this name is associated with its previous
edition; the fourth edition of 1987. Under this contract, the engineer does most of the design, and
the contractor constructs the works, and thus follows traditional procurement route, with
competitive bidding tendering procedure. However, some design may be carried out by the
contractor for civil, mechanical, electrical and construction works, for example, shop drawings to
show construction details and reinforcement. Payment is based on a re-measurement of quantities
(with units prices defined in bill of quantities) or lump sums, normally monthly for approved work
done. This form achieves a balance of risks between parties. This research focuses only on the new
Red Book. Thus, any reference to FIDIC contract/ form/ conditions should be understood to refer to
the new Red Book.
2) Conditions of contract for plant and design-build (the new Yellow Book): suitable for electrical
and mechanical plant and for building and engineering works designed by the contractor. Under
this contract, the contractor does the majority of the design and then builds the process or power
plant projects or various infrastructure, engineering, and buildings projects. Payment is based on the
achievement of milestones, generally on a lump-sum basis, but re-measurement is possible. This
form holds a fair balance of risks and interests of parties. Under this contract, the engineer or
employer monitors the work on a day-to-day basis.
3) Conditions of contract for EPC turnkey projects (the Silver Book): suitable for projects
undertaken under project finance deals such as PPP, PFI, BOT, BOOT etc. where the
concessionaire (the special purpose vehicle (SPV), private consortium, or employer) takes total
responsibility for the financing, designing, construction and operation of the project in return for a
fixed price lump sum. Then the employer enters into engineer-procure-construct (EPC) contract
with the contractor, usually through negotiation tendering procedure, who takes total responsibility
for design and construction of the infrastructure facility. This form transfers almost all risks to the

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 Chapter 4: Overview of FIDIC and NEC Standard Forms of Contract
contractor. Under this contract, the engineer or employer is not expected to monitor the work on a
day-to-day basis.
4) Short form of contract for contracts of relatively small value (the Green Book): suitable for
relatively small engineering and building works (budget under US$ 500,000, or duration less than
six months), or a relatively repetitive and simple work that does not need specialist sub-contracts.
The design is done by either party, and payment can be based on lump sum or any other payment
system.

All FIDIC’s rainbow contracts have 20 clauses or chapters covering the key project aspects with 17 of
these clauses have common clause titles (Glover, 2008). The main difference between these Books is
who does the design, and who bears the risk for change in quantities. Bunni (2005) points out an
important change in the philosophy brought by 1999 edition which is dividing the Books according to
who does the design, unlike the old set that divide Red and Yellow Books according to the type of the
project.

Since 1999, FIDIC has published other contracts including the Model Representative Agreement in
2004, the White Book (Client/Consultant Model Services Agreement, fourth edition) in 2006,
Multilateral Development Bank (MDB) Harmonised edition of the Red Book in 2006, the Blue Book
(Form of Contract for Dredging and Reclamation Works) in 2006, Standard Prequalification Form,
third edition, in 2008, and the Gold Book (Conditions of Contract for Design, Build and Operate
Projects) in 2008; which is like the Yellow Book but with operations and maintenance obligations
tagged on (Glover, 2008; Hillig et al., 2010; Jaeger and Hök, 2010).

4.2. A brief overview of the History and Development of the New Engineering and
Construction Contract (NEC)
The origin of NEC dates back to 1985 when the Institution of Civil Engineers carried out a major
review of the alternative contract strategies for civil engineering projects to attain the good practice.
This review was a response to the state of discontent and dissatisfaction within the construction
industry because of the prevailing adversarial and confrontational relationships, the prevalence of
‘claim culture’, and the rising levels of disputes and project failures (Broome, 1998; Eggleston,
2006; Perry, 1995). The major point of debate was between two opposing philosophies to serve the
interests of both parties; focusing on the obligations and responsibilities of the parties , as the case
in traditional forms, or on good management to improve co-operation and to reduce confrontation.
Most arguments voted for the second route (Broome, 1998; Eggleston, 2006; Perry, 1995).
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 Chapter 4: Overview of FIDIC and NEC Standard Forms of Contract
Professor John Uff points out that the main difference between ICE and NEC conditions of contract
is that the former operate on the basis that each party seeks to fulfil its own interests whereas the
latter aims to alter the perceptions of the parties to focus on the project rather than their interests
(McInnis, 2001). In fact, NEC drafting policy has aimed to produce a contract that is different from
other standard forms in style and content by achieving three main specific objectives and principles
(Eggleston, 2006; Lavin and Potts, 1998; Perry, 1995):

1. it should provide greater stimulus to sound project management than existing forms
2. it should be more flexible than existing standard forms
3. it should be expressed more simply and clearly than existing forms
In 1991, the consultative version of the NEC main contract and subcontract was released to a wide
range of stakeholders to review and solicit comments, feedback, criticism, and advice in order to
develop and improve the form. The stakeholder groups include ICE members, contractors, engineers,
surveyors, suppliers, lawyers etc. and extend to the UK, Africa, Hong Kong, and South America. The
first formal edition was published in 1993 (Eggleston, 2006; Li, 2006).

One year later, in 1994, Latham issued an influential report called “Constructing the Team” commonly
referred as the Latham Report. This report, which was funded by the industry and the government,
encourages and urges the use of NEC in both private and public sectors, and recommends it to become
the national standard contract for the UK. Latham criticises existing standard forms and supports NEC
because it satisfies almost all of the 13 principles identified in his report to promote partnering,
teamwork, clarity, fairness, payments and dispute resolution (Eggleston, 2006; Li, 2006). However,
Latham suggested some modifications to bring NEC fully into line with his report recommendations.

As a response to this, the second edition of NEC was published in 1995. Although the second edition of
NEC had been used on thousands of projects of all types and all over the world, the ICE was not
satisfied as they expected it could have been more widespread (Bedelian, 2000). To fully implement
Latham recommendations, legislation was required and necessary. The Housing Grants, Construction
and Regeneration Act 1996 has been enacted to realise some of the report’s aspects (Hughes and
Maeda, 2002). The NEC drafting team needed a one further decade to produce the third edition of
NEC in 2005, known as NEC3, which has many significant changes. NEC3 has been reprinted and
reissued with some small amendments in 2006, 2007, 2008, and 2009. Latham believes that
“widespread use of the NEC will reduce the number of disputes in the engineering and construction
industry” (Broome, 1998; Eggleston, 2006; Perry, 1995). A very important and detailed review of the

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 Chapter 4: Overview of FIDIC and NEC Standard Forms of Contract
NEC3 suite of contracts undertaken by Humphrey Lloyd QC, one of the world’s leading international
construction law experts and a former UK Technology and Construction Court judge, has concluded
that they are suitable for world-wide use (Lloyd, 2009). This finding supports the quickening spread of
NEC in overseas countries.

There is a growing and tremendous worldwide interest in the use of NEC. This is in part because of the
support and endorsement of some institutions and groups such as the Institution of Civil Engineers,
Thomas Telford Limited, NEC Panel, and NEC Users’ Group. They provide administrative and
commercial support for the drafting, reviewing, publishing, and training activities and services (Li,
2006). NEC’s position has also been underpinned by the ICE decision to abandon and withdraw ICE
standard form in favour of NEC standard form (Rowsell, 2011a). In 2011, the ICE officially endorsed
NEC 3 as the best practice contracts for all construction work in the United Kingdom and overseas
(Kashweka, 2011). The acceptability and growth of NEC is also influenced, and to a large extent, by
Latham report (Li, 2006).

The rapid expansion of the use of NEC has been a remarkable success story. Contrary to intentions and
to expectations, NEC has and within a few years, been the most popular standard form for civil
engineering works and the most fast-growing for building, process and plant works (Eggleston, 2006).
NEC has been written with international usage in mind and the benefits are now being realised
worldwide (Rowsell, 2011b). NEC’s international expansion is shown by its acceptance in the UK and
other 30 countries in the world (Thompson et al., 2000). Its application has been successful on all types
and sizes of projects in the UK, Middle East, Africa, Asia Pacific, Hong Kong, New Zealand and
Australia (Rowsell, 2011b). The formal endorsements of NEC by governments and organisations will
certainly boost the international growth of NEC usage. The Office of Government Commerce (OGC),
working on behalf of the UK Government, states that NEC has incredibly clear terms that satisfies the
"Achieving Excellence in Construction" criteria (Sweeney, 2010). In fact, NEC is the only contract to
be endorsed by the OGC and recommended to be used in all public sector projects. In addition, NEC
has been endorsed by the South African government and the South Africa’s national electricity supply
utility company (ESKOM), one of the largest users of NEC and the fifth largest electric company in the
world(Li, 2006).

Major Clients, such as the Asian Development Bank, the British Government’s Overseas Development
Agency, the Government of New South Wales, and Scottish Hydro-Electric continue to test replacing
FIDIC with NEC, and initiate the use of NEC on their sponsored major projects (Li, 2006; Ndekugri
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 Chapter 4: Overview of FIDIC and NEC Standard Forms of Contract
and Mcdonnell, 1999). In 2011, NEC Board was invited to speak at a major international conference
for the procurement heads and decision makers of the worlds’ leading multilateral development banks
held at the offices of the Asian Development Bank in Manila. This event was attended by the Asian
Development Bank, the African Development Bank, Black Sea Trade & Development Bank, European
Bank for Reconstruction and Development, European Investment Bank, Inter-American Development
Bank, Islamic Development Bank and the World Bank. In this event, the main benefits of NEC were
explained and a high level comparison between NEC and FIDIC, which is currently used by most
development banks, was given (Thawrani, 2011).This attempt tried to promote the use of NEC and
presented it as a very competent contract that the international banks could consider as an alternative to
FIDIC.

Indeed, this shows the strong competition between the two standard forms which extends over
geographical "battle fields" and targets major employers in the world such as international banks and
development agencies, in addition to governments.

In line with these rapid developments, NEC Engineering and Construction Contract (ECC) had been
translated into Chinese because it was envisaged that the Chinese construction industry could be a very
large NEC user (Bedelian, 2000).

Although NEC has been used for many major projects, it is also used at more mundane levels. For
example, the British Airports Authority has used NEC in contracts ranging in value from £60,000 to the
£4.3 billion London’s Heathrow Airport terminal 5 project. In the UK, and most notably, NEC has been
used for the £30 billion Channel Tunnel Rail Link project, and the £9.3 billion Olympic and
Paralympic Games contracts in 2012. In the UAE, NEC has been chosen for the £7 billion Al-Raha
Beach development in Abu Dhabi (Li, 2006; Lloyd, 2009). In fact, the use of NEC for these prestigious
mega projects increases the confidence of people to use it.

Today, public and private organisations, across the world want to use NEC contracts because of all the
aforementioned good reasons besides the fact that after more than 15 years of use for billions of pounds
worth of projects, there is no case law relating to the words of NEC contracts (Patterson, 2009). With
the support base it has now built amongst users, besides the wide range of NEC suite of contracts now
available, there are real prospects that NEC will become the dominant contract of the future.

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 Chapter 4: Overview of FIDIC and NEC Standard Forms of Contract
4.2.1. NEC Family of Contracts
Essentially, NEC3 is a family of interlocking documents which has steadily grown. It is suitable for a
variety of uses and contracting methods providing contractual flexibility (Lavin and Potts, 1998).

NEC3 is today comprised of (Eggleston, 2006; Heaphy, 2011):

1. Professional Services Contract

2. Adjudicator’s Contract
3. Engineering and Construction Contract (with 6 available options)
· Option A : Priced Contract with Activity Schedule (Lump sum)
· Option B : Priced Contract with Bill of Quantities (re-measurement)
· Option C : Target Contract with Activity Schedule (Target price-based on a lump-sum)
· Option D: Target Contract with Bill of Quantities (Target price-based on a Bills of Quantities)
· Option E : Cost Reimbursable Contract (Cost plus)
· Option F : Management Contract
4. Engineering and Construction Short Contract
5. Engineering and Construction Subcontract
6. Engineering and Construction Short Subcontract
7. Term Service Contract
8. Term Service Short Contract
9. Supply Contract
10. Supply Short Contract
11. Framework Contract
12. Partnering Agreement (PA)

NEC 3 suite is supported by guidance notes, flow charts and NEC 3 procurement and contract
strategies document (Eggleston, 2006). According to Broome, NEC3 family can be used to “procure
the whole spectrum of works, services and goods.” (Surally, 2010). ECC is the main contract form
governing the relationship between Employers and Contractors. For the purpose of this research, any
reference to NEC should be understood as reference to ECC.

4.3. FIDIC versus NEC Family of Contracts

Table 4.1 shows the diverse range of NEC and FIDIC suite of contracts. This table shows the contracts
that each form offers for a certain type of work that has a similar ground. However, it is important to
bear in mind that the ‘counterpart’ forms are not necessarily identical or similar. For example, NEC
Engineering and Construction Contract has six options that cover a broader range of payment systems
and procurement routes, than the FIDIC Red, Yellow, and Silver Books. It is very clear that NEC
family is more sophisticated and covers a wider range of works, supply and services, besides the

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 Chapter 4: Overview of FIDIC and NEC Standard Forms of Contract
framework contract and partnering agreement options. Yet, it is, only FIDIC that has a single contract
covering design, build and operate arrangements.
NEC3 FIDIC
Services
Professional Services Contract (PSC) (2005) Client/Consultant Model Services Agreement
(White Book) (2006)
Adjudicator Contract (2005) (Dispute Adjusting Agreement – in the 'works'
contracts)
Works
Conditions of Contract for Construction (Red
Book) (1999)

Multilateral Development Banks (MBD)

Harmonized Edition- Condition of Contract
Engineering and Construction Contract (ECC) for Construction (Red Book) (2005)
(2005)
Conditions of Contract for Plant and Design-
Build (Yellow Book) (1999)

Condition of Contract for EPC/Turnkey

Projects (Silver Book) (1999)
Engineering and Construction Short Contract The Short Form of Contract (Green Book)
(ECSC) (2005) (1999)
Engineering and Construction Subcontract Conditions of Subcontract for Construction
(ECS) (2005) (Test Edition, 2009)
Engineering and Construction Short
Subcontract (ECSS) (2005)
- Form of Contract for Dredging and
Reclamation Works (Blue Book) (20060
Design, build and operate
- Conditions of Contract for Design, Build and
Operate Projects (Gold Book) (2008)
Operational / maintenance Works
Term Service Contract (TSC) (2005) -
Term Service Short Contract (TSSC) (2009) -
Supply
Supply Contract (SC) (2010) -
Supply Short Contract (SSC) (2010) -
Others
Framework Contract (FC) (2005) -
Partnering Agreement (PA)
Table 4.1: How contracts in NEC3 and FIDIC suites relate to each other (source: Heaphy, 2011)

By and large, FIDIC divides the ‘main’ works contracts according to who does the design, although it
still to some extent divides based on the type of project. For instance, the new Red Book is the
predominant for civil engineering, whereas the Yellow Book for process or power plants. On the other
hand, NEC divides its main contract (ECC) based on the payment system. Again, for the purpose of
this dissertation, the comparison in the following chapter is going to be between the FIDIC’ new Red
Book, and the NEC3 Engineering and Construction Contract (ECC).

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 Chapter 5: FIDIC Compared and Contrasted with NEC

5
FIDIC Compared and Contrasted with NEC

5.1. Introduction
This chapter fulfils the third objective of this dissertation. At the heart of the aim of this research is
comparing FIDIC and NEC. This comparison is neither clause-to-clause nor is it claimed to be
exhaustive and encyclopaedic. However, it concentrates on the most important aspects and key
comparative and contrasting issues that normally give rise to disputes, in the opinion of the author. For
each point of comparison, the pros and cons of both contracts are highlighted in as much detail as
possible. These issues can be examined further with reference to FIDIC and NEC documents
themselves. This provides useful insights into any gaps or weaknesses in the contracts’ provisions, and
which contract is better in terms of dispute minimisation.
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 Chapter 5: FIDIC Compared and Contrasted with NEC
5.2. Clarity and Simplicity
Chong and Zin (2009) argue that one of the main causes of disputes is misunderstanding and
misinterpretation of contract clauses and the preventive solution lies in the use of plain English. They
recommend the courts to interpret the intentions of the parties to the contract using plain and common
meanings of the words. Clarity is defined in terms of the design, layout, and structure of contract
documents, logical sequence of clauses and structure of sentences, order of words and the choice of
vocabulary to be relevant to modern construction practice (Broome and Hayes, 1997). Also, clarity is
defined as “can be simply seen or heard, easily understood, not confusing, clear and precise” (Omar,
2000). Although this definition is quite correct in that clarity requires simplicity rather than complexity,
and preciseness and exactness in order to be certain in meaning with a single interpretation, it ignores
or misses an important fact. That is that preciseness requires completeness and comprehensiveness
which in turn requires great details to define what is the real meaning and intention of every term.
Then, the contract will end up with very long clauses and many pages constituting a thick document
which a few are willing to read, the thing which give rise to the question of practicability. The real
challenge of drafting a well-balanced contract stems from the compromise or trade-off between
simplicity and preciseness. How can a contract be simple and precise at the same time?

Clarity is important to ensure that all parties of a contract understand what they are getting themselves
into, their rights and obligations, and the risk apportionment and thus what risks they bear. Hibberd and
Newman (1999) point out that the most problematic aspect of the traditional forms is their lack of
clarity that “nurtures a dispute”. Duncan Wallace (1986) describes the language of traditional forms
as:
"Their obscurities and poor draftsmanship create many anomalies, if not downright
absurdities and injustices...the draftsmanship tends to be clothed in a legalistic, poor quality
jargon, ideally suited to conceal and obscure practical intentions and consequences…the
draftsmanship of the available standard forms in all countries is of the poorest kind"
(Wallace, 1986; cf. Broome and Hayes, 1997:255)
Broom and Hayes (1997) attribute this failure mainly to three reasons. Firstly, the age of the language
used which can be traced back to contracts of the19th century in England although the technology has
dramatically changed afterwards. Secondly, the forms were drafted by lawyers with little or no
knowledge and experience of the practical or commercial problems on a building site. Thirdly, the
committees responsible for developing the forms suffer from lack of direction and partisanship.

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 Chapter 5: FIDIC Compared and Contrasted with NEC
Barnes (1987) says that FIDIC’s phrases are almost identical to the contracts used for the construction
of the Thames embankments and main London sewers in the 1860s’. Shockingly and very surprisingly,
Bunni (1986) found out that 86% of the sentences in FIDIC can only be understood by 4% of the
population. He said that FIDIC was originally drafted in precise and legal language. However, the
revisions made the language more and more complicated and inscrutable, beyond the understanding of
the average reader and even beyond what a reasonably intelligent person can readily understand. In
addition, Uff (1991) cited by Broom and Hayes (1997), described FIDIC to be quite obscure
particularly on the way in which a due appropriate sum for an instruction or variation order is to be
calculated. In this situation, an eminent lawyer would advise the parties to seek clarification before
entering into a contract. Furthermore, Cutts and Maher (1986) and Wydick (1978), maintain that FIDIC
has long sentences, poor layout and many redundant legal expressions. Nevertheless, it is important
while reviewing these critiques to consider their time context as they were written prior to or just after
the release of FIDIC 1987. It has been mentioned in Chapter 4 that one of the objectives behind
drafting FIDIC 1999 Rainbow edition is simplifying the language. However, it is uncertain whether
FIDIC has been completely successful in this aim. Definitely, FIDIC has been improved much from its
earlier editions and moves towards fewer clauses and clearer language and contract structure, but the
real judgement is left to its users. Indeed, this area is worthwhile investigation in further research.

NEC is different from other standard forms in style and structure because the drafting policy was to
start from scratch, rather than to build on old foundations. One of the three declared objectives of NEC
is to minimise the incidences of disputes arising from unclear language. NEC uses non-legalistic
ordinary unequivocal language, straightforward, simple and plain English, short sentences (have no
more than 40 words), bulleted structure, and avoids confusing cross-references. The present tense is
used rather than the word ‘shall’ to signify obligations. Also, there are guidance notes and flow charts
to assist in the understanding and the application of the contract (Eggleston, 2006; Gould, 2007; Li,
2006). According to a research carried out by Broome and Hayes (1997) targeting 81 interviewees,
most of the people agree that NEC has less sources of conflict or dispute within the contract documents
compared with other forms of contract since the language, as they claim, is more precise.

The abandoning of ‘legal language’, except in the insurance clause, is a revolutionary step done by
NEC drafters which is much debated. This makes the language more familiar to builders and other
people in the construction industry worldwide (Li, 2006).At site level, the users found it to be easier
than the traditional contract forms especially when dealing with compensation events (Lavin and Potts,

46
 Chapter 5: FIDIC Compared and Contrasted with NEC
1998). The drafters of NEC claim that they sacrifice the legal concepts in the interests of better
management of projects. Max Abrahamson (1979) puts the advantage of plain English in another way.
He says that when drafting a standard form, lawyers are employed to translate it into legal language,
then re-employed to translate it back when the users want to know what it means. This wastes time and
money, in addition to the inherent risk that much is lost, distorted or overlooked in the translation and
re-translation processes. In addition for being easy for non-native English speakers, NEC can be easily
translated to other languages without distortion to the real meaning and intentions because of the
simple non-legalistic language (Habib, 2011). Butt (2005) argues that the plain English reduces costs,
legally safe, more understandable by both lawyers and non-lawyers, and is preferred by most judges.
Therefore, it can be argued that the plain language will reduce the disputes, and also make it easier for
the courts, arbitrators, adjudicators etc. in discovering the true intentions of the parties once a dispute
arises.
On the other hand, the main criticism of this approach is that it discards the accumulated contractual
wisdom of generations, reinvents the wheel, and reduces the legal certainty which could increase the
chance of contractual disputes (Eggleston, 2006 ; Valentine, 1996). Also, NEC abandons familiar
phrases such as ‘extension of time’ and ‘variations’ and strangely uses present tense to impose legal
obligations (Valentine, 1996). What makes things worse is that NEC uses the word ‘shall’ in clause
10.1, and the word ‘may’ in clause 16.2, which open the door for arguments about the ‘legal’ difference
between those wordings on parties obligations. Ali and Wilkinson (2010) insist that it is ‘impossible’ to
express legal obligations in a contract using plain language. However, Wright (2012) argues that this is
wrong because what is actually ‘difficult’ is to express complex contractual/risk obligations without
using complex language; the trick is to find words that are both plain and complex.

Interestingly, and using readability formulas to measure the clarity of NEC, Rameezdeen and
Rajapakse (2006)found that NEC clauses are more readable than FIDIC, and as a result have better
interpretation. Readability is the component of clarity concerned with the complexity of words and
sentences and it is an indicator of the easiness of reading a text.

The competition between FIDIC and NEC in this area can be summarised as competition between
familiarity against simplicity.

Familiarity is an advantage of FIDIC that is achieved through its long history and popularity that brings
certainty of meaning and what would the outcome of a case be. The availability of legal commentaries,
arbitration awards, courts decisions, judicial precedents and a substantial body of case law and
47
 Chapter 5: FIDIC Compared and Contrasted with NEC
literature improve the understanding and legal interpretations particularly for less experienced users
(Baker et al., 2009). Then, this leads to minimisation of the incidences of disputes as both parties will
be aware how a certain clause would be interpreted by reasonable and independent person. Yet, even
the courts that set the judicial precedents themselves, have said "the time has now come for the whole to
be redrafted so that . . . contractors and building owners alike can understand what are their own
duties and what are those of the architect ''(Broome and Hayes, 1997). Actually, this is what the FIDIC
1999 version set out to do.

Simplicity is the approach of NEC to achieve clarity in order to prevent disputes in the first place by
providing people at site with easy-to-understand contract. Although, this is at the expense of legal
interpretation and certainty, overcoming this challenge will be a mere matter of time as the learning
curve is to be passed. Indeed, what is required to avoid disputes is clear English, and certainly not only
a long history of case law and judicial precedents on a particular clause or phraseology (Broome and
Hayes, 1997). To avoid dispute in the first place, people at site level should be able to understand the
conditions, and not to memorise a dozen of cases about particular clauses.

To sum up, the research acknowledges that NEC is not perfect, but it is a considerable improvement in
clarity compared to FIDIC (Broome and Hayes, 1997). Although, FIDIC 1999 adopted a new
improved format, it is still difficult to follow since there is substantial cross-referencing that sometimes
needs hard work to link different clauses together in order to completely understand the contractual
process and remedy for any given circumstance (Heaphy, 2011)

5.3. Flexibility
Unlike the aims of FIDIC 1999, flexibility is one, and the most ambitious one of NEC3 objectives
(Eggleston, 2006).However, flexibility is embedded in both NEC and FIDIC in the following features.
Firstly, both FIDIC and NEC were drafted with the international use in mind. They provide a choice of
governing law and language, and hence can be used on international or domestic projects. Both of them
attempt to reconcile the needs of both Common law and Civil law systems and to be compatible with
the jurisdiction of any country (Bunni, 2005, Eggleston, 2006).

Secondly, both forms are flexible in assigning design role and responsibility. Under NEC, design can
be set with either party at any amount from nil to total. Likewise, FIDIC’s Rainbow Books provide
options from build only, design and build, to fully engineer, procure and construct (Heaphy, 2011).

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 Chapter 5: FIDIC Compared and Contrasted with NEC
Thirdly, FIDIC has limited payment systems providing for only re-measurement or lump sum either in
part or in whole. NEC has a much more superiority here because it offers a broad-range of options for
payment including re-measurement, lump sum, cost reimbursable, and target cost (based on a lump-
sum or a Bills of Quantities). In addition, NEC provides an option for Management Contracting (and
also Construction Management) procurement routes (Eggleston, 2006; McInnis, 1991). Furthermore,
NEC does not only provide for more options of payment systems, but also provides for shorter
timescales for payment. Figure 5.1 shows timescales of payment procedure under both standard forms.
Definitely, this is ‘win-win’ situation. The contractor gets paid early, the thing which has significant
positive impact on his cash flow and performance. The client gets benefit as well because shorter
payment schedules means lower overhead (the part of financing cost) needs to be paid to the contractor.
Nevertheless, the one week period within which the project manager shall certify the payment under
NEC is really compressed. Therefore, it should not be surprise to see people in real world large scale
and complex projects extending this period. In fact, this ‘compressed’ payment timescale does not exist
in vacuum, but rather it should be viewed holistically with all administrative activities required by NEC
such as programming and communications, that some people consider them to be additional burdens
and cumbersome, requiring more staff to administer NEC contract.

56
Employer Pays
49

42
Calender Days

35

28 Engineer’s Statement
21
Employer Pays
14

7 Project Manager Certifies

0
Assessment Data Contractor’s Statement

NEC FIDIC
Figure 5.1: Payment Procedures under NEC and FIDIC (source: Forward, 2002)
Fourthly, FIDIC has a degree of flexibility by allowing employers to select whether certain clauses
apply. Basically, FIDIC conditions of contracts are composed of the general conditions, and particular
conditions. The particular conditions allow the parties to change, amend, delete, not invoke or add
49
 Chapter 5: FIDIC Compared and Contrasted with NEC
further wording to the general conditions (Bunni, 2005; Hillig et al., 2010). On the other hand, the
flexibility of NEC is much greater through its modular format. NEC conditions of contract comprise
‘core clauses’, ‘main option clauses’ and ‘secondary option clauses’ that vary according to the
preference of procurement strategy selected. The ‘core clauses’ are valid for the six options of ECC and
cannot be changed, modified, amended, altered, or deleted , unlike FIDIC general conditions. The
main option clauses’ pertain to the contract strategy and define which of the six options of ECC is to be
followed. The ‘secondary option clauses’ permit the employer to further refine the risk allocation
profile (Eggleston, 2006; McInnis, 1991). These ‘option clauses’ allow the employer to build up ‘pick
and mix’ the provisions to suit his requirements and preferences of the selected procurement strategy
(Cox and Thompson, 1996; Lavin and Potts, 1998). In addition, NEC adds an optional Z-Clause which
allows the employer to insert bespoke additional conditions or amendments to the contract; a new
feature and innovation which is not available in FIDIC (Gould, 2007). McInnis (1991) insists that while
comparing the modular structure of FIDIC and NEC, no analogy should be drawn. In other words, the
direct ‘counterpart’ thinking is not suitable here because of the new language, the new Z-Clause, and
the different approach NEC adopted whereby no precedence or hierarchy of contract documents is
assumed, unlike FIDIC.

Finally, NEC claims to be an all-purpose contract for all types of construction and engineering
disciplines (civil, building, mechanical, electrical etc.), and for small and large projects. This has been
achieved by avoiding referring to or using discipline specific terminology, through using non-technical
language. The flexibility of NEC is shown by its philosophy to unite the industry rather than divide it,
because it becomes a necessity within today’s complex and multidisciplinary projects to use a cross-
disciplinary form such as NEC (Cox and Thompson, 1996; Eggleston, 2006; Lavin and Potts, 1998).
However, besides the fact that such point of comparison should be viewed as NEC versus FIDIC’s
Rainbow Books, Wright (2012) maintains that it is dubious and illogical for NEC to be simply
designed for different types of projects, different payment systems, and various natures of relationships
while using the same set of risk/obligation terms.

Hughes and Greenwood (1996) argue that it is difficult to reconcile and achieve the flexibility and
clarity simultaneously, because flexibility, by definition, can lead to ambiguity. The flexibility of NEC
means it can be applied to every part of every construction or engineering project. However, Murdoch
and Hughes (2000) argue that a universal standard form to be used in any kind of project is just
unrealistic because of the significant differences in the approach of apportionment of risks in different

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 Chapter 5: FIDIC Compared and Contrasted with NEC
projects. Another criticism of the flexibility of NEC was directed towards the Z-Clauses. Klein (2010)
describes them as zany, unnecessary, and create many horror stories. For instance, in one case a client
inserted additional conditions totalling 90 pages, the thing which suggests a word limit for these
clauses. In fact, this incident should not be very shocking and horrible as Klein implies and proposes.
Rather, this tends to be normal practice and necessary especially in complex and multidisciplinary
projects. Indeed, NEC drafting panel needs to accept this fact and such practice because of the
flexibility they sought by using NEC form in any project of any kind. How can a nuclear power plant
construction and maintenance project, sport stadium construction project, and house building project
have the same terms and conditions? Obviously, they have different objectives and priorities as regards
quality, health and safety, time, cost etc.

In another case, a client had simply considered the whole conditions of another standard form as Z-
Clauses which would prevail over NEC conditions in case of conflict. This was his own way to comply
with the UK government’s recommendation to use NEC3 contracts. Furthermore, in the case of
inconsistencies or ambiguities between the Z clauses and NEC provisions, the contra proferentum
principle applies in which the courts will interpret the clauses against the interests of the party drafting
them (Klein, 2010).

To sum up, it is clear that NEC is more flexible than FIDIC in certain areas. Although flexibility may
be preferable for many clients, it can bring ambiguity and thus disputes.

5.4. Effective Project Management

Martin Barnes, the original creator of NEC and the president of the Association for Project
Management, states:-
“The management of projects has become a science with its own set of rules, techniques and
words which are not even mentioned in the existing standard forms. If the conditions of contract
were redraughted from first principles, having regard to modern management methods, a much
more purposeful document could be produced.” (Barnes, 1986:1)
In years past and to this day, the old adage that “the best place for a contract is in the drawer”, or “a
good contract was never taken out of the drawer until it was needed” has been and still espoused by
many people. They sign the contract and left it in a hiding place in the bottom drawer. It is only
retrieved and brought out when things go wrong or disputes surface in an attempt to find a clause that
will support their contractual position or justify a claim, or to allocate blame. Besides, if a party
attempts to administer a contract to the letter, it will be accused of being ’contractual’ or ‘claims
conscious’ (Brown, 2000; Eggleston, 2006). This narrow view of a contract as a set of terms and
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 Chapter 5: FIDIC Compared and Contrasted with NEC
conditions reflecting the commercial bargain or a legal document to legalise the commitments and then
to be utilised as a confrontation tool and a weapon of conflict, seems to apply to traditional standard
forms, and FIDIC is included.

NEC has a fundamentally different approach. Professor John Uff QC wrote:-

“At the heart of the NEC is a new creed that Project Management techniques can be
successfully written into a main contract to produce more co-operation, more efficiency and
fewer disputes. (Uff, 1991; cf. McInnis, 2001:19)
NEC as a project management tool should never be taken off the desk and put in the drawer (Eggleston,
2006). In addition to defining legal relationships, NEC enables the contracting parties to adopt a far
more positive culture and mindset than is normally the case by encouraging them to proactively
cooperate and openly share information about problems or risks to seek solutions and to mitigate their
impact. NEC is radically different from FIDIC in that it focuses on informed, proactive and foresight-
based management and decision-making, rather than reactive and hindsight-based negative approach.
The collaboratively applied foresight mitigates problems, shrinks risks and adversarial behaviour, and
removes most of the grounds for dispute (Lavin and Potts, 1998). Cox and Thompson (1996) have
identified NEC’s good management procedures as: active planning and programming, communications,
early warning procedures, advanced quotation and assessment, tight response periods for administrative
matters and quick resolution of disputes.

Actually, the programme is one of the most obvious areas of difference between FIDIC and NEC. The
programme is at the heart of NEC contract management. In contrast, FIDIC does not give the same
level of importance to the programme although it is required to be submitted. Both standard forms
require the programme to be updated to reflect the actual progress versus planned activities. However,
unlike NEC, FIDIC does not empower the engineer to accept it or reject it (Heaphy, 2011).

Cox and Thompson (1996) consider these administrative procedures to be expensive and burdensome
for site management. Communication between parties under NEC underpins collaborative and
proactive management, unlike traditional contracts such as FIDIC in which communication channels
are often used in relation to claims or complaints, and left to the end of the contract (Klein, 2009). In a
word, NEC is the only standard form of contract with the explicit objective of stimulating good project
management (Surally, 2010). Martin Barnes said: "Once there was a contract which stimulated good
management of projects, why would you use anything else?" (Fullaove, 2009).

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 Chapter 5: FIDIC Compared and Contrasted with NEC
Actually, the controversy and comparison between NEC and FIDIC regarding this area goes on to two
views on the purpose of a standard form of construction contract. Should the standard form be a
manual for project management procedures and practices or an agenda for legal actions? NEC was
drafted in accordance with the former view, while FIDIC tends to be skewed towards the latter view as
it is principally designed to focus more on the risk, liabilities and responsibilities of the parties
(Heaphy, 2011). It would be useful to give a little thought to what were the reasons behind NEC’s
introduction of project management procedures within the contract. It could be because FIDIC and
other contracts assume that clients would take all necessary precautions and steps to ensure that
contractors have the capabilities to manage the project efficiently and effectively. However, this
assumption appears to be unworkable, and necessitates explicit management procedures in the contract.

Lewis (1982) warns against missing the litigation aspect which helps to prevent breaches of contract,
and makes the parties more confident that their interests will be protected by the court if necessary.
Also, focusing on the management side at the expense of legalistic and contractual side would produce
an “obligationally incomplete” contract (Eggleston, 2006; Hughes and Maeda, 2002). Rooke and
Seymour (1995) state that NEC is not welcomed by lawyers because they are used to view projects in
terms of legal rights and responsibilities, rather than a set of tasks and activities. McInnis (2001)
believes that the cooperation and effective management techniques of NEC may minimise disputes, but
will be insufficient to change the ingrained adversarial culture.

5.5. Partnering
Latham suggests that the employer and the contractor should undertake a project in “a spirit of mutual
trust and co-operation” and to embody this in the contract clauses, which has been already introduced
in NEC Clause 10.1. This point has caused much of the debate and also criticism of NEC as what the
exact meaning and consequences of this new and unfamiliar requirement is. Is it contractual obligation
with legal implications, and what happens if one party suspects the other to not being cooperative? Can
the other party sue it for a breach of contract, which is in turn against the required spirit (Chappell,
2011; Hughes and Maeda, 2002; Kashweka, 2011). As arbitrator, Wright (2012) says that this phrase is
almost but not totally enforceable.

People tend to use the words ‘partnering’ and ‘partnership’ interchangeably as synonyms, which is
incorrect. Partnership is a contractual legal relationship between two or more persons governed by the
Partnership Act of 1890. On the other hand, partnering does not have to be contractual relationship
because it is all about openness and honesty between parties (Chappell, 2011). Chappell (1991)
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 Chapter 5: FIDIC Compared and Contrasted with NEC
maintains that NEC would only work if the partnering spirit was followed by all parties of the project,
the condition precedent that is difficult to materialise. In the opposite way, partnering is not suited to all
projects or circumstances (Cox and Townsend, 1997). Meanwhile, NEC uses partnering, which is not
contractual, to tackle the adversarial culture of the construction industry. This raises the question, from
the outset, whether the root cause of the adversarial mindset is a contractual matter (Hughes and
Maeda, 2002).

On the other hand, FIDIC contains no such provision for partnering. Does the absence of such a clause
mean FIDIC is adversarial contract? What is widely accepted and recognised is that a contract alone
cannot create a partnering environment, nor can it create an adversarial atmosphere (Heaphy, 2011).

All in all, NEC does encourage a more collaborative approach than FIDIC, but this is insignificant
compared with the behaviours of the parties (Heaphy, 2011).

5.6. Risk Allocation and Management

“Understanding project risks and risk allocation lies at the heart of good contracting” (Wassenaer,
2009:1). It is imperative for any project, particularly in construction industry, to involve risks. It is not
possible to eliminate all risks, but what can be done is to allocate the risks to the parties and then
manage them (Kozek and Hebberd, 1998). The standard forms of conditions of contract provide a
framework to regulate the process of risk allocation by defining the rights and obligations of both
parties. The responsibility stems from liability which in turn stems from risk allocation (Bunni, 2009;
Jaeger and Hök, 2010). Allocation of risk may be implicit or express. In other words, if the contract
does not contain express risk apportionment rules, the general law of contract will be decisive (Jaeger
and Hök, 2010). Risk allocation process directly or indirectly affect the attitudes of the parties, claims
and disputes, and ultimately project performance and success (Eastman, 1984; Seita, 1984).

"All contracts are a compromise between the conflicting interests of the parties" (Potts, 2008:260).
However, both FIDIC and NEC attempts to allocate risks fairly and reasonably between the employer
and the contractor (Ndekugri and Mcdonnell, 1999). The basic principle to achieve this is allocating
the risk to the party best able to control and manage the risk event, and bearing the risk consequences.
It is therefore expected that the contractor is required to consider, in his bid price determination, only
reasonable and foreseeable conditions which in turn lead to optimization of bid price (Bunni, 2005;
Eggleston, 2006; Potts, 2008; Williams, 2001).

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 Chapter 5: FIDIC Compared and Contrasted with NEC
FIDIC is based on the principle of balanced risk sharing and have been widely accepted by employers
and contractors as reasonable compromise (Bunni, 2005; Osinski, 2002). At the same time, FIDIC
balances between the responsibility and authority as it does not only give the parties responsibilities to
take risks, but also the power necessary to manage and control the risks (Zhanglin and Yuli, 2010).
However, there is a different view proposing that FIDIC places most of the risks upon contractors such
as unfavourable ground and weather conditions, strikes, and shortages of labour and materials
(Aljarosha, 2008). By and large, the contractor accepts and assumes all the risks that are not
specifically allocated to the employer. The employer bears the risks defined and listed in Clause 17.3
(Employer’s Risks) and Clause 19.1(Force Majeure). These are generally events caused by the
employer, directly or indirectly, or circumstances over which neither party will have any control. The
contractor may be entitled to time extension and/or cost and profit compensation, under Employer’s
Risks group, and time extension and/or cost compensation under Force Majeure group (Jaeger and
Hök, 2010). The theory is that under Employer’s Risks, the employer is in breach of contract and,
therefore the contractor shall be entitled to recover his profit. However, under Force Majeure the
employer is not at fault and, therefore the contractor shall share the risks by waiving an entitlement to
profit (Seppala, 2000).

Moreover, the employer bears only the risk of unforeseen negative conditions that are not offset by
unforeseen positive conditions. This means there is less chance for contractors to get time extension
and cost compensation of unforeseen events since they have to be unforeseen, and if they are, they need
to be offset by other favourable conditions. At first glance, FIDIC’s new philosophy of ‘conditions-
balancing’ seems fair, equitable, and desirable and similar to pain/gain or partnering arrangements.
However, it increases the disputes because it provides the parties with more things to argue about,
which could be costly and impossible to settle. This makes the originally difficult determination more
complicated because contractors will welcome any attempt by the engineer to set-off with hostility
(Swiney, 2007). Zhang et al. (2006) argue that some risk allocations principles in FIDIC are
theoretically correct; however, they need more improvement in clarity and need to consider the context
of a particular construction culture. Jaeger and Hök (2010) maintain that there are only few express risk
allocation provisions within FIDIC.

"If project management is management in uncertainty, a tool which can systematically and
comprehensively shrink the uncertainties must be one of the most important features of the contract "
(Eames, 2010: 5). Morris (1992) states that risk management processes are now being incorporated in

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 Chapter 5: FIDIC Compared and Contrasted with NEC
some legal forms, with the best and most obvious example being the New Engineering Contract.
Unlike FIDIC, NEC highly recognises that the standard form should not only be a mechanism for risk
allocation, but also for a proactive and dynamic risk management. Eames (2010) claims that NEC is the
first standard form in the world to have a rational basis for allocating and managing risk.

NEC acknowledges that an important part of risk management is effective communication between the
parties. This includes risk registers, risk prevention, early warning and risk reduction meetings
(Wassenaer, 2009). The risk register is used to insert and catalogue any identified risk as the project
proceeds, and the best response for this risk. It is created at the very beginning of the project and
maintained thereafter (Eames, 2010). The ‘early warning’ process is a mechanism whereby any party of
a contract is able to warn the other of a risk which has been newly identified. After warning or
notification, the risk is entered into the risk register, and then risk avoidance or reduction responses can
be implemented as early as possible. The risk reduction meeting involves lateral thinking and
brainstorming sessions to collaboratively solve problems (Eames, 2010; Eggleston, 2006; McInnis,
2001). Indeed, risk registers and risk reduction meetings are innovations in the world of standard
forms.

The Association of Project Management (APM) has clarified and explained how NEC’s early warning
risk process and APM project risk management process work together successfully (Hurst, 2011). This
compatibility between the managerial and legal aspects of project management would be very useful,
efficient and effective for all project managers.

Like FIDIC, NEC refers to three groups of risk. Firstly, ‘compensation events’ listed in clause 60.1, are
those events should they occur, the contractor is compensated for the cost and time effects of the event.
Secondly, the ‘Employer’s risks’ listed in clause 80.1, should they occur, the cost and time effect on the
work of the contractor is dealt with as a compensation event (Eggleston, 2006). However, Employer’s
risks are more than just compensation events because they give the contractor a wider indemnity if they
happen (Patterson, 2009). Thirdly, other risks which are not compensation events or employer’s risks
are carried by the contractor (clause 81.1) (Eggleston, 2006).

In a nut shell, FIDIC and NEC adopt the same general philosophy of allocating risks. They divide risks
into three groups according to who bears them. However, analogous group does not necessarily contain
identical risks. For example, the ‘Employer’s risks’ under the both contracts are not identical, and force
majeure risks in FIDIC are by no means counterparts to compensation events under NEC. Apparently,

56
 Chapter 5: FIDIC Compared and Contrasted with NEC
NEC has been more successful than FIDIC in expanding standard forms’ job towards risks. NEC
manages risks proactively and dynamically, and is not only concerned about risk allocation like FIDIC.

5.7. Force Majeure and Prevention Events

The force majeure events are of a great importance, particularly, under the unstable conditions in
Palestine. This section outlines how both FIDIC and NEC deal with this matter.

At common law, the doctrine of frustration allows a contract to be discharged and excuses further
performance if events or circumstances make the contract illegal or impossible or render its
performance commercially sterile. Usually, a plea of frustration is used to defend against a breach of
contract charge. The events which give rise to frustration must be unforeseen, not provided for in the
contract, outside the control of the parties, and beyond the fault of the party claiming frustration as a
defence (Eggleston, 2006).

The analogous of the doctrine of frustration is the doctrine of force majeure which has a French origin;
however, it is not identical. Under the French Civil Code, the events which give rise to force majeure
must be unforeseeable, unavoidable in occurrence and effects, and render the performance almost
impossible or severely impractical (Nicholas, 1979). Bunni (2005) states that force majeure events are
“unforeseen circumstances which prevent, totally or partially, one or both parties from fulfilling their
contractual obligations.” It has to conform with and pass the test of the doctrine of frustration in that
the claiming party must have no fault (Eggleston, 2006). Although this term is widely accepted around
the world, and appears to have a clear meaning, this is far from the truth. The legal definition and
interpretation of the events may vary from country to country, and from one jurisdiction to another
which will accordingly lead to different legal consequences. Therefore, most standard forms, including
FIDIC and NEC, cover these matters by express terms (Eggleston, 2006; Jaeger and Hök, 2010). FIDIC
clause 19.1, defines force majeure events to be:

· beyond a party's control,

· could not reasonably be provided against before entering into the contract,
· having arisen, could not reasonably be avoided or overcome, and
· are not substantially attributable to the other party.
Indeed, clause 19.1 provides a non-exhaustive list, including events such as war, terrorism, riots, and
natural disasters. The above definition of a force majeure event is entirely open-ended, such that a
human-caused event would be covered if it met the above criteria. This gives more risk to the employer
as he bears the cost and time impacts (Swiney, 2007). Jaeger and Hök (2010) criticise the
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 Chapter 5: FIDIC Compared and Contrasted with NEC
ambiguousness of the extent of the contractor’s entitlement to extension of time, and loss and expense,
as to whether it covers direct and indirect consequences of the event. It is worth mentioning that a force
majeure event does not need to pass the ‘unforeseeability’ test. This means even if an event is
foreseeable; it will be considered force majeure as long as it is beyond the control of the parties (Jaeger
and Hök, 2010).

NEC 3 has introduced new clause (clause 19.1) called ‘prevention’ under which the employer bears the
time and cost risks of events similar to, but potentially wider than, force majeure. The Guidance Notes
to NEC 3 state that ‘prevention’ provision is, in effect, a ‘force majeure’ clause. Prevention events are
also compensation events whereby the employer bears the time and cost consequences of their
occurrence. Also, it is a reason entitling the employer to terminate the contract (Eggleston, 2006).
Clause 19.1 defines prevention event as an event which:

· stops the contractor completing the works, or

· stops the contractor completing the works by the date shown on the accepted programme, and
· neither party could prevent, and
· an experienced contractor would have judged at the contract date to have had such a small
chance of occurring that it would have been unreasonable to have allowed for it

Eggleston (2006) criticises this clause as it opens the door for a very wide interpretation because its
definition goes well beyond what is adopted in law as ‘force majeure’. For instance, a contractor may
argue that insolvency of suppliers or the supply of defective materials, works, and designs by others
had a small chance of occurring and could not have been prevented by either party. He also critiques
the words ‘small chance’ and ‘unreasonable’ which are difficult tests to examine in dispute resolution
proceedings, and would indicate the event to be ‘prevention’ even though it was foreseeable, the same
as FIDIC. Furthermore, the ‘prevention’ clause seems to apply and operate for two distinct situations.
The first being ‘frustration’ which is a rarity in construction contracts, and the second being delay
events which are endemic. It does not make sense that the clause operates for each and every delaying
event (Eggleston, 2006). Eggleston (2006: 125) describes the prevention clause as ‘a potential gold
mine for contractors and a potential minefield for employers. It will be no surprise if they are usually
deleted.’

To sum up, both FIDIC and NEC share the same philosophy to transfer the risk of force majeure events
to the employer to avoid padding the tender prices by contractors. It appears that both FIDIC and NEC
fails to provide a decisive and conclusive definition of what constitutes a force majeure or prevention

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 Chapter 5: FIDIC Compared and Contrasted with NEC
situation. The problem with force majeure definition is that people do not know what might happen so
they always struggle to define it. This would cause disputes as a notice of force majeure would be
rejected by the defendant denying the existence of this event, and in turn suing the claimant or plaintiff
for a breach of contract. Bunni (2005) states that not covering these exceptional events in the
conditions of contract, and leaving them to the applicable law in the relevant jurisdiction would reduce
the likelihood of conflicts. However, not covering them at all will make the resort to litigation
inevitable which is not desirable. Hence, it can be argued that what is needed and recommended is to
improve the certainty of a force majeure or prevention situation in order to avoid disputes.

5.8. Physical and Weather Conditions Risks

Unforeseen physical obstructions are inevitable to be encountered in major construction projects.
Simply, this is because it is impossible to cover every square metre of the site with geotechnical testing
(Potts, 2008). Construction contracts are one of the most obvious examples of incomplete contracts
because it is not possible to write down in detail all expected incidents which may, or may not happen
in the future. If an unforeseeable event occur, which the contract does not provide for, the inevitable
outcome will be dispute. Despite the good faith efforts of the parties, disagreements will go over who
bears the time and cost consequences of such an event (Omoto, 2002). For instance, according to
(Seppala, 1991), “unforeseen conditions and obstructions "are the first major area giving rise to claims
under FIDIC.
The traditional rule of law maintains that regardless of the difficulties and hardship a contractor may
face, he is obliged to carry out the works at the agreed price. However, it has become evident that this
principle is inefficient and counter-productive in the long-run. This is because contractors will pad their
prices significantly to cover the risk of unforeseeable events in order to stay in business. Otherwise,
such approach would discourage responsible contractors from bidding but attracts claims-oriented
bidders (Ndekugri and Mcdonnell, 1999; Seppala, 1991). Therefore, it is better for employers to bear
the responsibility of unforeseen conditions and pay for what did happen, rather than what the
contractors thought might happen. This approach provides commercial logic and motivational risk
allocation by placing the risk with the party best able to influence the risk, who is the employer in the
case of ground conditions. It is his site and he can commission intensive soil investigation (Eggleston,
2006; Seppala, 1991). This orthodoxy was adopted by FIDIC and NEC (Ndekugri and Mcdonnell,
1999). In the following paragraphs, the philosophies of FIDIC and NEC regarding the risks of ground
and weather conditions are compared.

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There is a fundamental difference between FIDIC and NEC approaches as regards the employer’s
obligation to provide the contractor with site information. FIDIC obliges the employer to provide the
contractor with the available data about the site, but not to carry out soil investigation nor to interpret
this data. NEC, in line with the position of English Common law, provides no such obligation to avoid
any potential disputes in case of error about the employer’s liability of its accuracy, breach of warranty,
misrepresentation or negligent misstatement (Ndekugri and Mcdonnell, 1999). The contractor’s duty to
inspect geotechnical conditions are relatively the same under the two contracts, but NEC tends to
minimise it. However, it is uncertain whether the contractor is required to make full geotechnical tests
in both contracts (Ndekugri and Mcdonnell, 1999).

Both contracts try to adopt equitable risk sharing principles of the ground conditions. Ultimately, the
employer will bear the additional costs when the physical conditions and obstructions are
“unforeseeable for an experienced contractor”, according to FIDIC, or have a “small chance” of
occurring, according to NEC. Apparently, FIDIC uses “foreseeability” test while NEC uses
“probability” test to allocate risks, which could be argued to be slightly different approaches
(Eggleston, 2006; Ndekugri and Mcdonnell, 1999). Some terminologies such as “experienced
contractor”, “physical conditions” and “foreseeable” in FIDIC, and “small chance” in NEC have
been criticised because they are uncertain in meaning and subjected to to a range of interpretations
(Ndekugri and Mcdonnell, 1999). In addition, FIDIC’s foreseeability test will be undertaken after the
occurrence of the event. This retrospective investigation or hindsight is not the best way to understand
the time context of the past to determine what was foreseeable and what was not.

To avoid disputes, Bunni (2005) maintains that a construction contract should not allow contractors to
gamble on encountering more or less favourable ground conditions, a practice which could lead to
excessive gain or loss. Gambling could be avoided if extensive geotechnical tests were done. Because
there is no sufficient time and benefit for contractors to initiate these tests, FIDIC resolves these
dilemmas by granting proper time and cost compensation should the unexpected event happen. To
avoid disagreements over whether the event is expected and foreseeable, Bunni (2005) proposes to
incorporate into the tender documents a ‘referenced list of adverse physical conditions’ to be the basis
of remuneration. This proposition tends to move the FIDIC approach towards NEC’s compensation
events list in dealing with physical conditions. Unlike FIDIC, the procedure the NEC uses to resolve
physical conditions issues once appeared are structured and systematic, and enhances cooperation to
minimise its effects (Ndekugri and Mcdonnell, 1999).

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Both contracts limit the situations under which the contractor is entitled to be compensated based on
weather conditions. FIDIC allows for only extension of time for “exceptionally adverse climatic
conditions”, while NEC allows for costs and/or time claims for weather conditions which occur on
“average less frequently than once in ten years” (Ndekugri and Mcdonnell, 1999). Obviously, NEC
uses more precise terms than FIDIC and includes an objective and statistical approach rather than the
FIDIC’s subjective judgement to determine whether the conditions are ‘adverse’ and ‘exceptional’
(Barrett, 2003). However, NEC approach of allocating the cost and time impact of weather conditions
to the employer seems illogical and unfair since the employer has no control over the situation
(Eggleston, 2006).

In brief, both contracts have commendable and desirable features in their physical and weather
conditions provisions. Nonetheless, a combination of these features would lead to a better approach
(Ndekugri and Mcdonnell, 1999). Rather than debating on which party should bear physical conditions
risk, and the meaning of ambiguous terms like “foreseeable” and “small chance”, it is better to carry
out full geotechnical tests and specify precisely which party is responsible for that.

5.9. Variations and Claims

5.9.1. Introduction
FIDIC adopts the traditional approach to variations and claims. FIDIC has separate clauses that justify
claims, which are spread out over the whole contract and cross-referenced. Also, FIDIC does not
consider time and cost claims simultaneously, or in other words, there is no automatic right to costs
compensation under the extension of time claims. NEC addresses all issues related to variations and
claims under the comprehensive list of compensation events, which appears to be preferable for users
(Hillig et al., 2010).

5.9.2. Claims (extension of time, and loss and expense)

FIDIC and NEC share a similar claim mechanism. In general, the contractor is to notify the engineer or
project manager of any event entitling him to cost and/or time claims. Both NEC and FIDIC have
introduced sanctions and strict time bar clauses expressly stating that the contractor will lose his rights
and entitlements to any compensation or time extension, if he does not comply with the time frame
restrictions to raise claims. Also, both FIDIC and NEC make it clear that the engineer or project
manager shall reply to the contractor notice within a specified period to prevent delaying the contractor
(Heaphy, 2011).

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Nevertheless, there are two key differences within this process. Firstly, the duty under FIDIC is to
notify of an entitlement to additional time or money whereas the duty under NEC is to notify of an
event (Glover, 2008). Secondly, FIDIC provides no express sanctions on the employer’s team in case
of a default to provide a timely response, which is a contentious issue. Under NEC, if the project
manager fails to reply, the contractor’s original notification or quotation is deemed to be accepted
(Eggleston, 2006). In fact, there are complex legal arguments about the matter of timescales in
construction contracts and whether they are condition precedent and mandatory, or only directory
(Glover, 2008). However, the real criticism may be directed towards NEC as to the usefulness of
partnering ethos in the light of penalising the contractor if failed to adhere to the timescale.

5.9.3. Variations
It is evident today, more than ever, that inevitable variations in construction process are a major source
of the endemic disputes which have a severe impact on project performance. Also, Latham
acknowledged this in his report (Othman, 2008). Abrahamson (1979) states ‘most of the employment
given to the legal profession by engineering work is to do with disputes about variations’.

The magnitude and frequency of variations, besides its subsequent valuation rules are certainly
influenced by the conditions of contract (Othman, 2008). To judge the performance of variation
clauses in a standard form, it is suggested to evaluate certain attributes such as the clarity of the
definition of what constitutes a variation, completeness, fairness, consistency, and valuation rules
(Akinsola and Potts, 1998). Obviously, the dispute can arise from a deficit in any of those attributes.
For instance, the engineer may instruct the contractor to do work, involving a variation in fact, which
the engineer fails to acknowledge (definition), or they may disagree about the valuation of its payment
(valuation rules) (Seppala, 1991). This underlies the importance of administering the contract by an
independent party to make fair decisions regarding variations entitlements.

According to (Seppala, 1991), variations are the second major area giving rise to claims under FIDIC.
Although FIDIC recognises that changes are inevitable, the avoidance and minimisation of incidents
and impacts of changes through good planning is one of FIDIC’s underlying principles (Bunni, 2005).
FIDIC details how a change is to be valued. This is to be valued at the same/ or by considering rates
and prices set out in the contract, or the engineer agrees new suitable rates and prices through the
procedure of ‘due consultation’ with the employer and the contractor. If no agreement is reached, the
last resort is determining the appropriate prices by the engineer. This procedure assumes that the value
will be calculated after the variation or change has been carried out (FIDIC, 1999; Forward, 2002).
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FIDIC is unable to cope with significant variations. FIDIC Sub-clause 12.3 limits variations of items to
10% by quantity and other criteria which necessitate new rates to be agreed (FIDIC, 1999). This is
because it is essentially a re-measurement contract that assumes the project scope, works, standards,
drawings, and specifications are well defined prior to letting the tender documents and thus unit prices
remain valid after the contract signature. Normally, the significant changes would be followed by a
contractor’s claim to apply new rates as the old ones are no longer valid. The process of determination
of the new rates, whereby a contractor submits a proposal and then the engineer determines the suitable
prices, is a rigorous and tough that inevitably will lead to disagreement and dispute (Aljarosha, 2008).

FIDIC makes a new innovation allowing contractors to initiate variations under ‘Value Engineering’
clause. The contractor may submit a proposal, which needs the approval of the engineer to proceed, to
increase efficiency, reduce cost and time etc. to the benefit of the employer (FIDIC, 1999). Obviously,
this feature encourages collaboration and partnering, and it should have been introduced within NEC.

Normally, standard forms make it clear via express terms that the contractor is obliged to perform
variations. Yet, NEC does not recognise the phrase ‘variations’ nor ‘changes’. NEC addresses the
contractor’s obligation to perform variations by an indirect route through Clause 14.3 (Instructions)
which serves as the variation clause (Eggleston, 2006).

Eggleston (2006) says it is uncertain and not clear whether such an instruction can oblige the contractor
to do additional work and therefore creates new obligations (variation to the terms of contract), or is it
only a change to the existing works. He states that there are no provisions fixing the scope of variations
such as limiting them to necessity, desirability or value. This means NEC is an open-ended contract;
however, there have to be practical limitations if contractual limitations do not exist. Nonetheless,
Clause 12.3 tends to limit changes by stating that no change to the contract has effect unless it is
provided for in the conditions of contract or unless it has been agreed, confirmed in writing, and signed
by the parties (Eggleston, 2006).

NEC provides for pre-pricing a variation/change before it is carried out. This means that the instruction
-variation order or change order- by the client will at first be an instruction to submit a price (quotation)
for the work, which if accepted will be followed by an instruction to carry out the work (Eggleston,
2006). This is beneficial for both parties. The client can decide whether to go ahead or not based on the
price. The contractor ensures the price of the work is accepted and thus avoids disputes.

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To sum up, both FIDIC and NEC recognise that variations are a traditional cause of disputes. FIDIC
tries to avoid disputes by minimising variations to certain limit after which new process should be
agreed. However, the process of price determination is still problematic. On the other hand, NEC is
very flexible as it does not limit variations, but it requires pre-pricing and quotations that fix the prices
before commencing the variation. All in all, it is obvious that both use different approaches to tackle
the same problem, but NEC tends to be more successful as what really does matter, at the end of the
day, is price agreement and not the 10% limit on quantity or whatever.

5.10. Dispute Avoidance and Resolution

"As a Judge… I cannot imagine a civil engineering contract, particularly one of any size, which did not
give rise to some disputes. This is not to the discredit of either party to the contract. It is simply the
nature of the beast. What is to their discredit is if they fail to resolve those disputes as quickly,
economically and sensibly as possible" (Hawker, et al., 1985: forward page).
This section compares two philosophies adopted by FIDIC and NEC to reduce the adversarial
behaviour and litigation, and resolve disputes in the construction industry.

The Dispute Review Board (DRB) was developed by the American Society of Civil Engineers in 1975
to improve the way of dealing with disputes and to settle them promptly. The underlying principle is
that an unsettled dispute inhibits communication and fosters an adversarial relationship, which often
results in more disputes (Thompson et al., 2000). FIDIC adopts this concept even though it refers to it
as Dispute Adjudication Board (DAB). Totterdill (2006) says that the only difference between them is
that DAB gives a decision that must be implemented, whereas DRB gives a recommendation. The
DAB consists of three -or only one if the parties specify that- preselected neutral experts in the
technical and contractual matters of the project. They visit the site periodically and are aware of the
progress of the project. The existence of DAB in a project encourages the parties to view their
differences objectively and to resolve them by themselves (Robinson, 2011; Thompson et al., 2000).

Unlike FIDIC, NEC aims to resolve the upstream and root cause of the afflictions by changing the
contractual relationship to prevent disputes. According to Latham report, the adjudication process
adopted by NEC is the optimal way to prevent minor claims being delayed and to resolve disputes.
NEC is not only a contract, but also a project management tool that allocates risks realistically and
stimulates cooperation (Thompson et al., 2000).

In fact, NEC and DRB approaches have similar features. Both change the parties’ attitudes, foster trust
and communication, and enhance clarity and logic. They have initial additional preventative costs

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which will save money in the long term. However, the adjudication process under the two contracts is
different from three aspects. Firstly, unlike DAB, the adjudicator under NEC does not make periodic
visits to the site and he works only when the dispute arises (Robinson, 2011; Thompson et al., 2000).
Secondly, DAB consists of three people, by default, while NEC provides for one adjudicator only.
Thirdly, DAB focuses on improving the ways to resolve disputes, whereas NEC seeks to fundamentally
change contractual relationships to prevent disputes.

Some disadvantages of using DAB which can also be extended to the adjudicator model under NEC are
presented by (Harmon, 2011). For instance, the benefits of confidentiality, reduced costs, and quicker
resolution in comparison to other ADR techniques, may increase the contractor’s claims against the
owner and encourage him to challenge even the minor engineer’s decisions. In addition, if there are no
disputes, the cost of DAB or adjudicator is an additional burden which does not add value to the
project. This additional cost would be justifiable only for large projects (Ndekugri and Mcdonnel,
2007). For example, it is mandatory to use three-member DRB in the World Bank’s projects which cost
more than $50 million. Another limitation of NEC’s adjudicator and DAB is the fact that their
decisions cannot easily be enforced if the parties agree to submit disputes to arbitration tribunals. On
the other hand, NEC has a tight timeframe for correspondence advantage over FIDIC. For example, the
adjudicator shall make his decision within 28 days under NEC compared to 84 days under FIDIC’s
DAB. However, NEC approach is criticised since the adjudicator does not need to take proactive role
like DAB to avoid disputes (Ndekugri and Mcdonnel, 2007).

In a nut shell, both approaches to resolve disputes have been very successful and commendable, indeed.
Besides the adjudication process provided for, NEC as an effective tool to manage projects successfully
is superior to DAB alone in improving the project performance. Nevertheless, the dispute resolution
process under DAB is superior to NEC due to the familiarity of DAB members of the project as they
keep up with its progress and due to the ‘wisdom of crowds’ effect. Therefore, combining both
approaches leads to a comprehensive way to avoid disputes upstream from the very beginning when a
contract is developed (NEC approach) , and settle them downstream in a quick and efficient manner,
once they arise (FIDIC approach).

5.11. Project Organisation (Engineer versus Project Manager)

The aim of this section is to critically examine and compare the role of the engineer under FIDIC with
the project manager under NEC.

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Under the FIDIC’s old Red Book, the engineer has two main duties. Firstly, he is the employer’s agent
for design, supervision of the works construction and execution, and contract administration. Secondly,
he is a neutral and independent third party responsible to decide and determine the contractor's claims
for additional payment or extensions of time, and to resolve disputes fairly between the contractor and
the employer (Seppala, 1991).

The employer is responsible for engineer’s default in the first group of duties and in turn may be in
breach of contract, but he is not responsible for the engineer’s performance of the second group of
duties, except in the case of total failure to perform these duties. The duality of role of the engineer as
the employer’s agent and a neutral third party is much criticised because of the conflict of interests in
his duties. For example, the engineer may be the cause of problems like design errors and delay in
making decisions. Moreover, he is appointed and paid by the employer and may seek future work with
him, or at least avoid being sacked (Ndekugria et al., 2007; Seppala, 1991).

NEC resolves these problems by splitting the engineer into four entities; the project manager,
supervisor, designer, and adjudicator. All these roles are agents of the employer except the adjudicator.
The project manager is required to make the plans, administer the contract, certify and value payments
etc. The supervisor is concerned with the quality of works and defects. Those two roles can be
combined and occupied by one person (Eggleston, 2006). It is important to keep in mind that new roles
of the engineer under NEC, compared to other forms, would make engineers not to recommend such a
standard form that considerably reduce their own authority and workload (Lavin and Potts, 1998).

The project manager is the representative of the employer and works on his behalf. There is no express
requirement on NEC provisions obligating the project manager to be impartial. However, some routine
tasks and activities such as issuing certificates, and valuing compensation events seem to require
impartiality and fairness. As a certifier and valuer, the project manager shall not work to secure the
employer’s interests. This was emphasised in the unusual case of Costain Ltd and Others v. Bechtel Ltd
(2005), in which the judge made the decision that the project manager’s duty is to act fairly and
impartially when acting as a certifier (Eggleston, 2006). This case shows that the roles separation is not
as simple as appears on the face of it.

Under the new Red Book, there is an attempt to abandon the ‘independent engineer’ concept. This
appears from three changes: removing the requirement to ‘act impartially’, expressly stating that the
engineer is to act as the employer’s agent, and introducing the Dispute Adjudication Board (DAB) to

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which the parties may refer any dispute. It is important to view the development and changes of the
contract holistically. The non-neutral engineer and DAB are closely related and have been introduced
as one package (Swiney, 2007). Certainly, this has significantly reduced the dispute resolution role and
power of the engineer (Ndekugria et al., 2007).

The total abandonment of the ‘independent Engineer’ concept is questioned since it replaces the duty to
‘act impartially’ by the duty to make ‘fair determinations’ of the claims between the employer and the
contractor, which appears to reinstate the old concept. However, a new mechanism to allow the
employer to regain control over the engineer is introduced in clause 3.1. This is achieved by stating that
the engineer is to act as the employer’s agent in the Particular Conditions. Furthermore, unlike the old
Red Book, the new Book empowers the employer with express authority to replace the engineer for any
reason whatsoever, subject to two procedural requirements (Ndekugria et al., 2007).

Lina (1997) argues that although the dual role of the engineer should be abandoned, the new FIDIC and
NEC approaches are less efficient than the traditional system. For instance, the NEC approach of
separating the duties of the engineer to multiple people or firms ignore the consistency gained by one
party working over the whole project life cycle from the project inception to completion. Also, the
engineer’s knowledge of the project’s day-to-day activities enables him to make decisions better than
the DAB or adjudicator. In addition, the interference of the DAB or adjudicator may create
confrontational rather than cooperative environment and in turn increases the claims, especially as the
engineer no longer has an obligation to act impartially. Finally, the additional fees payable to the DAB
or adjudicator make the works more expensive (Lina, 1997).

In a nut shell, the new Red Book has moved towards the NEC approach to get rid of the independent
engineer concept. However, FIDIC has not gone all the way because the duality of engineer’s role has
not been eliminated completely. Arguably, this is favourable as the new Red Book is structured flexibly
enough to serve the requirements of different parties (Ndekugria et al., 2007).

5.12. Conclusion
This chapter compares and contrasts FIDIC with NEC. Although both contracts are well-built and have
commendable features, it is obvious that NEC has more advantages over FIDIC. However, the author
holds the opinion that the result of the comparison can by no means be judged based on point-by-point
way. This is because this comparison is in relative and not absolute terms, and the comparison points or
issues carry different weight as regards their effect on disputes occurrence and/or impact.

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