The FIDIC Forms of Contract

Nael G. Bunni

• Editore: Wiley-Blackwell
• Anno: 2013
• ISBN:
  9781118658659
• Edizione: 3
• Argomento: Law
• Categoria: Construction Law

In September 1999, FIDIC introduced its new Suite of Contracts, which included a "new" Red, Yellow, Silver and Green forms of contract. The "new" Red Book was intended to replace the 1992 fourth edition of the Red Book, with the ambition that its use would cease with time. This ambition has not materialised and is unlikely to do so in the future.

Despite the importance of the 1999 Forms, there has been very little published on the new concepts adopted in them and how they interact with the previous forms. This important work considers these aspects together with the many developments affecting the fourth edition of the Red Book that have taken place since 1997, when the second edition of this book was published, and relates them to key contracting issues. It is written by a chartered engineer, conciliator and international arbitrator with wide experience in the use of the FIDIC Forms and in the various dispute resolution mechanisms specified in them.

Important features of this book include:

· background and concepts of the various forms of contract;

· a detailed comparison of the wording of the1999 three main forms, which although similar in nature; it nevertheless significantly differs in certain areas where the three forms diverge due to their intended purpose;

· analysis of the rights and obligations of the parties involved in the contract and the allocation of risks concerned;

· a range of 'decision tree' charts, analysing the main features of the 1992 Red Book, including risks, indemnities and insurances, claims and counterclaims, variations, procedure for claims, programme and delay, suspension, payments and certificates, dispute resolution mechanisms, and dispute boards;

· a much enlarged discussion of the meaning of "claim" and "dispute" and the types of claim with a discussion of the Notice provision in the 1999 forms of contract for the submittal of claims by a contractor and by an employer;

· the FIDIC scheme of indemnities and insurance requirements; and the methods of dispute resolution provided by the various forms of contract; and

· five new chapters in this third edition, the first four chapters deal with each of the 1999 forms and the fifth chapter is confined to the topic of Dispute Boards.

Part I

Background and Concepts of the Red Book

Chapter 1

Background of the Red Book

In the commercial activities of today’s highly complex society, standard forms of contract have become an essential part of the day-to-day transactions of most agreements. The majority of standard forms have been developed by commercial organisations for the purpose of efficiency, to build on the experience gained from the repeated use of these forms, but most of all for the optimum protection of one or both parties’ interests. Standard forms of contract developed for construction activities, however, have mostly been drawn up by independent professional organisations, rather than by one or other of the parties to the contract, in order to establish or to consolidate a fair and just contract. Knowledge accumulated through experience and recurrent use over a long period of time has brought about revisions and modifications in construction standard forms with the aim either of achieving greater certainty in the intention of the wording or of providing a response to the needs of the parties and/or society. The use of a standard form in construction contracts where tendering is the conventional method of obtaining quotations has also ensured a common basis for the comparison and evaluation of tenders.

In Europe, and more particularly in the United Kingdom and in Ireland, such forms were produced as early as the nineteenth century. A standard form for building contracts was used under the aegis of the Royal Institute of British Architects some time towards the end of the nineteenth century. This led to what became known as the ‘RIBA Form’ which was published in successive editions between 1909 and 1957. It later developed into what became known as the JCT Form (Joint Contracts Tribunal) when the 1963 and the 1980 Editions were published. In Ireland, the RIBA Form was followed by the RIAI Articles of Agreement and Schedule of Conditions of Building Contract, issued by the Royal Institute of the Architects of Ireland.

In civil engineering contracts, various forms which were used by different employers prior to the Second World War were combined by the Institution of Civil Engineers and the Federation of Civil Engineering Contractors in the United Kingdom into an agreed standard document. This was published in December 1945, and the document was thereafter known as the General Conditions of Contract and Forms of Tender, Agreement and Bond for Use in Connection with Works of Civil Engineering Construction, in short the ICE Form. In January 1950 it was revised and issued with the added agreement of the Association of Consulting Engineers, London. Other revisions followed in March 1951 (Third Edition); in January 1955 (Fourth Edition which was later amended in 1969); in 1973 (Fifth Edition); and in 1991 (Sixth Edition). These revisions reflected some changes in the law and in the practice of civil engineering.

1.1 The ACE Form

To the credit of those responsible for drafting the ICE Form, many professional institutions all over the world modelled their own conditions of contract on its text, making only minor amendments to accommodate differences in local matters of law and nomenclature. The ICE Form was, however, drawn up mainly for the domestic scene in the United Kingdom. The obvious need for a similar form in the international construction field prompted the Association of Consulting Engineers in the United Kingdom, jointly with the Export Group for the Construction Industries in the United Kingdom, and with the approval of the Institution of Civil Engineers, to prepare a document for use in other parts of the world. It was published in August 1956 and became commonly known as the Overseas (Civil) Conditions of Contract (the ACE Form). Although in text and format this latter Form differed only slightly from the ICE Form, there were some minor changes in forty clauses as well as a small number of major alterations.

The most important of the minor changes were as follows:

(a) a definition of the word ‘approved’ was added;

(b) a clarification statement was added in clause 3 in relation to assignment;

(c) the words ‘which shall not be unreasonably withheld’ were added in respect of the consent of the engineer to the contractor to sub-let any part of the works;

(d) the words ‘touching or concerning the Works’ were added in clause 13 to describe the engineer’s directions;

(e) clause 15 in relation to contractor’s superintendence was expanded;

(f) the exception relating to damage to crops in clause 22 was re-worded;

(g) the words ‘affecting the safety of the Works’ were added in sub-clause 40(l)(b) to describe the weather conditions as a reason for suspension of the works; and

(h) the day as a unit of measurement of time replaced the week for the purpose of calculating liquidated damages in clause 47.

The major alterations were as follows:

(a) the document was published in two parts: Part I which incorporated 68 clauses as general conditions of contract; and Part II which included notes and a number of new clauses to be considered for inclusion in Part I. Part II was intended as ‘a guide in the preparation of clauses (some of which are referred to in Part I)’ but which were expected to ‘vary as necessary to take account of the circumstances and locality of the works.’ These additional clauses were intended to be drafted for each particular project to cover matters such as, definitions; labour; temporary reinstatement; material and plant; and certificates and payment. Part II was referred to as ‘Conditions of Particular Application’;

(b) a greater involvement and authority was given to the engineer’s representative under a number of the clauses of the ACE Form as compared with the ICE Form;

(c) the explicit procedural provisions under clause 12 in the case of adverse physical conditions and artificial obstructions were deleted;

(d) allocation of the risk of damage due to unforeseen forces of nature was shifted in clause 20 from the contractor to the employer by including the following words into the excepted risks:

‘any such operation of the forces of nature as reasonable foresight and ability on the part of the Contractor could not foresee or reasonably provide against’.

Whilst this shift in risk in respect of accidental damage to the works was implemented in clause 20, a similar shift in risk was not implemented in respect of financial loss resulting from suspension of work, under sub-clause 40(l)(b), due to weather conditions which are also a form of the forces of nature;

(e) the requirement that joint insurance for the employer and the contractor be provided against third party liability risks was deleted from clause 23 of the ACE Form;

(f) a change in clause 26 was made in connection with payment of fees under foreign statutes, ordinances and bylaws;

(g) a new sub-clause (4) was added to clause 30 in respect of water-borne traffic;

(h) the provision for labour under clause 34 was recommended to be drafted for each contract;

(i) temporary reinstatement as referred to in clause 49 of the ICE Form was omitted in the corresponding clause of the ACE Form;

(j) a condition was incorporated in the ACE Form requiring an amendment of the amount of the contract price in the case where the ‘net effect of all variations’ is found to result in a reduction or an addition greater than 15 per cent of the sum named in the tender;

(k) reference to the standard method of measurement was omitted from clause 57 of the ACE Form;

(l) failure by the contractor to proceed with the works with due diligence was deleted from the list of grounds entitling the employer to determine the contract under clause 63(l);

(m) a major revision was made to clause 65 which deals with special risks under which the employer was required to provide an indemnity to the contractor in respect of increased costs arising from these risks;

(n) a new clause was added under the title ‘Default of Employer’ entitling the contractor to determine the contract where no payment is made by the employer within a set period of time or where the employer interferes with or obstructs the issue of any certificate or where the employer becomes bankrupt; and

(o) a number of new clauses were included in Part II of the ACE Form to be considered for inclusion in Part I depending on the circumstances and locality of the works. These new clauses related to conditions of contract for price variations, customs duties and other dues, taxation, bribery and corruption, non-disclosure of information, other matters peculiar to the specific contract and finally, but most importantly, the law governing the contract.

1.2 The First Edition of the Red Book

The ACE Form as published in 1956 included a standard Form of Tender, an Appendix and a standard Form of Agreement. It was published in a blue cover which helped to distinguish it from the ICE Form. It was, perhaps, the first standard form of international conditions of contract for civil engineering works. In concept and style, however, it remained faithful to the original domestic form.

The ACE Form had only been used for a short period of time when the Conditions of Contract (International) for Works of Civil Engineering Construction was published in August 1957. This was based on the ACE Form, described above, and was also published in two parts. Perhaps because of its long title, in a very short time it became popularly known as the ‘Red Book’ (its cover was printed in red). It was prepared by the Fédération Internationale des Ingénieurs Conseils (the International Federation of Consulting Engineers, FIDIC) and the Fédération Internationale du Bâtiment et des Travaux Publics (the International Federation of Building and Public Works, now known as the International European Construction Federation, FIEC).

FIDIC is the international Federation of duly elected associations of consulting engineers representing the profession in their respective countries. Membership in the Federation is restricted to one association for each country. To qualify for membership, an association must demonstrate that its statutes, bylaws and regulations ensure that its members comply with the ethics and professional code of practice of a consulting engineer as outlined and according to the principles endorsed by FIDIC.^1.1 These principles have developed over the years and significant changes were recently introduced as explained later in Section 5.1 of this book.

In addition to some editing changes and a few minor revisions in clauses 1, 16, 31, 34, 40, 53, 60, 65 and 69(2), a number of important modifications were made to the ACE Form in the evolution of the first edition of the Red Book. These were:

(a) a reference to the ruling language of the contract was incorporated in clause 6(l);

(b) the reference to sureties in clause 10 was changed to performance bond;

(c) it was provided in clause 11 of the Red Book that the tender is to have been based on data supplied by the employer;

(d) the reference in the ACE Form to weather conditions or conditions due to weather conditions in clause 12 was deleted;

(e) a provision for the payment of a bonus under clause 47 for early completion of the works or any part thereof was added in Part II;

(f) in clause 52(l) of the ACE Form, the words ‘If the Contract shall not contain any rates applicable to the extra or additional work then reasonable prices shall be fixed by the Engineer’ were changed to:

‘If the Contract shall not contain any rates applicable to the extra or additional work then suitable prices shall be agreed upon between the Engineer and the Contractor. In the event of disagreement the Engineer shall fix such prices as shall in his opinion be reasonable and proper.’

(g) it was provided in the Red Book that the appointment of the arbitrator (or arbitrators) for the settlement of disputes under the contract was to be under the Rules of Conciliation and Arbitration of the International Chamber of Commerce in Paris (ICC); and

(h) two clauses were added at the end of the general conditions: the first provided for any increase or decrease in the costs of labour a...