Every FIDIC contract is, at its core, a risk allocation instrument dressed up in construction terminology. Clause 17 is where that allocation is made explicit, dividing the universe of things that can go wrong on a project into two camps: risks the Contractor bears because it priced them, insured them, or is simply best placed to manage them, and risks the Employer bears because no reasonable contractor could have priced or controlled them. Getting this distinction wrong at tender stage, or misapplying it during the works, is one of the most common sources of disputes on international projects.
The mechanics matter enormously in practice. When physical loss or damage to the Works occurs, the first question is never “who caused this” in a tort sense — it is “which sub-clause does this fall under.” FIDIC’s scheme largely sidesteps fault and instead assigns responsibility by category of event. A flood caused by exceptionally severe weather is treated completely differently from a flood caused by the Employer’s failure to maintain an existing drainage structure it retained control over, even though both are “acts of nature” in a loose sense. The contract, not general principles of causation, tells you who pays and who gets time.
This article works through the structure of Clause 17 in both the 1999 and 2017 Rainbow Suite editions, explains how the named Employer’s Risks operate, and sets out what rectification, time, and cost actually mean once a risk event has occurred. It closes with practical guidance for contractors, employers, and engineers administering this clause on live projects.
The Architecture of Risk Under FIDIC Clause 17
In the 1999 Red Book, Clause 17 is headed “Risk and Responsibility” and runs from Sub-Clause 17.1 (Indemnities) through 17.2 (Contractor’s Care of the Works), 17.3 (Employer’s Risks), 17.4 (Consequences of Employer’s Risks), 17.5 (Intellectual and Industrial Property Rights), to 17.6 (Limitation of Liability). The 2017 edition restructures this material under the heading “Care of the Works and Indemnities,” folding the former Employer’s Risks list into Sub-Clause 17.2 (Liability for Care of the Works) and separating the exceptional, largely uninsurable perils — war, terrorism, and similar events — out into Clause 18, Exceptional Events. The label changed; the underlying logic of splitting default responsibility from named exceptions did not.
From “Care of the Works” to a List of Named Perils
The starting point in both editions is the same default rule: the Contractor takes full responsibility for the care of the Works from the Commencement Date until the Taking-Over Certificate is issued (Sub-Clause 17.2 in 1999, and the equivalent obligation in 2017’s 17.1/17.2). If the Works, Goods, or Contractor’s Documents suffer loss or damage during that period, the Contractor must rectify it at its own cost — unless the loss or damage results from one of the specifically enumerated Employer’s Risks. Clause 17 therefore functions as a carve-out mechanism: broad Contractor responsibility, narrowed by a closed list of exceptions.
The 1999 vs 2017 Structural Shift
Practitioners moving between editions need to resist the temptation to assume the content is identical merely because it has moved location. Under the 1999 form, Sub-Clause 17.3 lists the Employer’s Risks in a single block, and 17.4 sets out consequences uniformly. Under 2017, Sub-Clause 17.2 integrates the risk list directly into the liability provision, and the consequences (rectification, EOT, and Cost, with profit in specified circumstances) are set out within the same sub-clause rather than a separate one. The 2017 drafting also tightens notice requirements — the Contractor must give notice to the Engineer promptly after becoming aware of the event or circumstance giving rise to loss or damage, and the general claims machinery of Clause 20 (with its 28-day time bar) now applies explicitly to Clause 17 entitlements, something that was less clearly stated in 1999.
Contractor’s Risks: The Default Position
Everything not on the Employer’s Risks list is, by exclusion, a Contractor’s Risk. This includes ordinary weather within the range a contractor operating in the Country should reasonably have anticipated, defective workmanship or materials, damage caused by the Contractor’s own equipment or methods, theft or vandalism of unsecured plant, and loss arising from the Contractor’s failure to comply with its obligations regarding security, protection of the environment, or the Employer’s Equipment. The Contractor’s obligation to rectify such loss or damage at its own cost is not contingent on fault in the tort sense — it applies simply because the event does not fall within the closed list of exceptions. This is a stricter standard than many civil law contractors initially expect, and it is one reason tender pricing should factor in a realistic contingency for site risks even where the Contractor was not “negligent” in any conventional sense.
Employer’s Risks: The Named Exceptions
The Employer’s Risks list is exhaustive, not illustrative — if an event does not fit one of the enumerated categories, it remains a Contractor’s Risk regardless of how unusual or costly it turns out to be. The list typically groups into three families.
War, Terrorism and State-Level Perils
The first family covers war, hostilities, invasion, act of foreign enemies, rebellion, revolution, insurrection, military or usurped power, or civil war; riot, commotion, or disorder within the Country by persons other than the Contractor’s Personnel; and munitions of war, explosive materials, ionising radiation, or contamination by radioactivity, together with pressure waves caused by aircraft or other aerial devices travelling at supersonic speeds. These are, almost by definition, uninsurable in the ordinary commercial market and uncontrollable by either party — but the contract assigns them to the Employer because it is even less reasonable to expect the Contractor to price for them. In the 2017 edition, several of these state-level perils sit more naturally within Clause 18’s Exceptional Events regime, which requires the affected party to give notice within 14 days and imposes a duty to minimise delay, but the financial consequences for loss or damage to the Works during such an event are still addressed through the Clause 17 mechanism.
Employer-Caused Risks: Use, Occupation and Design
The second family is more prosaic and, in practice, more frequently litigated: use or occupation by the Employer of any part of the Permanent Works, except as may be specified in the Contract; and design of any part of the Works by the Employer’s Personnel or by others for whom the Employer is responsible. If the Employer takes early possession of a completed section and damage occurs to that section from the Employer’s own operations, or if a defect traces back to design the Employer provided (relevant particularly in Red Book contracts where the Employer, not the Contractor, retains design responsibility), the resulting loss sits with the Employer. This is a critical protection for contractors on Red Book projects who are frequently asked to build to an Employer-furnished design and should not bear risk for its adequacy.
The “Experienced Contractor” Test for Natural Forces
The third and most contested category is “any operation of the forces of nature affecting the Site which was Unforeseeable, or against which an experienced contractor could not reasonably have been expected to take precautions.” This is a genuinely high threshold — it is not enough that the event was severe or that it exceeded historical records by some margin; it must have been objectively unforeseeable to a contractor of the relevant experience, exercising due diligence, working in the Country and familiar with local conditions. Tribunals applying this test typically look at long-run climatic or seismic data, any site investigation reports made available at tender, and industry practice for the region. A “100-year flood” occurring in year 40 of available records will not automatically qualify; the analysis is fact-specific and expert-heavy, and this sub-clause frequently produces the most expensive quantum disputes under Clause 17.
Consequences of Employer’s Risks: Rectification, Time and Cost
Once an event is established as falling within the Employer’s Risks list, Sub-Clause 17.4 (1999) or the consequences provisions within 17.2 (2017) prescribe the remedy. The Contractor is entitled to rectify the loss or damage to the extent required by the Engineer, and the corresponding Cost is generally recoverable — but the entitlement to profit on top of Cost varies by risk category. For the war, terrorism, and radiation-type events, most editions limit recovery to Cost of rectification without an automatic profit component, reflecting the exceptional, non-commercial nature of those events. For the Employer-caused risks — use/occupation and Employer’s design — and for the qualifying natural-forces exception, the Contractor is generally entitled to Cost plus reasonable profit, consistent with the principle that the Employer, having caused or benefited from the underlying circumstance, should bear the full commercial consequence. In all cases where the event caused or is likely to cause delay, the Contractor is also entitled to an extension of time under Sub-Clause 8.4/8.5. None of this is self-executing: the Contractor must serve notice under the Clause 20 claims procedure (Sub-Clause 20.1 in 1999, Sub-Clause 20.2 in 2017) within the applicable time limit, or the entitlement can be lost entirely regardless of how clearly the event falls within the Employer’s Risks.
Interaction with Insurance and Exceptional Events
Clause 17 does not operate in isolation. The insurance obligations under Clause 19 (1999) or Clause 19 (2017, renamed “Insurance”) require the Contractor to maintain Works All Risks and other policies that typically respond to physical loss or damage regardless of whether the underlying cause is a Contractor’s Risk or an Employer’s Risk. Where insurance proceeds are available, they are usually applied first to fund rectification, with the Clause 17 allocation determining who ultimately bears any shortfall or deductible, and who is entitled to time and profit on top of the insured rectification cost. Parties should also cross-check Clause 17’s Employer’s Risks list against Clause 18’s Exceptional Events definition (2017) or Clause 19’s Force Majeure definition (1999): there is deliberate overlap on the war and state-peril categories, but Exceptional Events additionally covers relief from performance obligations generally (not just risk to the Works), including a right to terminate if the event persists beyond a specified period. A contractor facing a qualifying event should consider notices under both clauses where the facts support it, since the remedies are not mutually exclusive.
Practical Guidance
For Contractors
Price the default position realistically — everything not on the Employer’s Risks list is yours to carry, so tender contingencies should reflect genuine site conditions rather than an assumption that unusual events will automatically shift to the Employer. When an event occurs, assess immediately which sub-clause it falls under and issue notice under both Clause 17 and, where relevant, Clause 18/19, within the applicable time limits — missing the notice period is a far more common cause of lost entitlement than any substantive dispute over risk categorisation. Keep weather, seismic, and site condition records throughout the works; these become essential evidence if a “forces of nature” claim is later contested.
For Employers
Understand that early possession, partial occupation, or providing design input to the Contractor each carry a corresponding risk transfer under Clause 17 — these are not cost-free conveniences. Where the Employer intends to occupy or use completed sections before the Taking-Over Certificate, the contract should specify this expressly (through a Sectional Completion or partial possession mechanism) so that the risk consequences are anticipated and, where appropriate, allocated back to the Contractor by agreement rather than left to default rules.
For Engineers
Maintain a disciplined, evidence-based approach to determinations under Sub-Clause 3.7 when assessing Clause 17 claims. Categorise the event correctly against the closed list before assessing quantum, request supporting technical or meteorological data for “forces of nature” claims, and be explicit in determinations about which cost elements are recoverable (rectification only, versus rectification plus profit) since this distinction is frequently the actual point of contention between the parties, more than the underlying entitlement itself.
Conclusion: Risk Allocation as Commercial Strategy
Clause 17 rewards parties who treat it as a checklist rather than an afterthought. Because the Employer’s Risks list is closed, the commercial question at tender and during negotiation is not “is this fair” in the abstract, but “does this specific project have features — early occupation plans, Employer-novated designers, a genuinely unusual seismic or hydrological history — that warrant amending the standard list through the Particular Conditions.” Parties who leave the General Conditions untouched are accepting FIDIC’s default judgment about where uninsurable and uncontrollable risk should sit; parties who understand that judgment can negotiate around it deliberately, rather than discovering its consequences for the first time in the middle of a dispute.
This article is published for general information purposes and does not constitute legal advice. Construction law is a specialist field and parties to FIDIC contracts should seek professional legal advice in relation to their specific circumstances. CMGuide Pty Ltd provides construction claims, contract management, and contractual advisory services. For more information, visit cmguide.com.au.