Demystifying the Role of Engineer under FIDIC Forms

By Dr. Chandana Jayalath

The contractual ‘engineer’ could be anyone designated as the Engineer under the contract. As per clause 1 in any standard form, the engineer and his representatives (assistants and inspectors named under FIDIC versions to represent the engineer) are two different personalities. The engineer’s representative is appointed by the employer to perform the duties delegated under another clause (clause 3 under new forms). It is the engineer who shall notify such an assignment of duties and delegation of authority to the contractor in writing indicating the extent of authority to act as the engineer’s representative. This clause sets out the duties of the engineer’s representative, basically to watch and supervise works, and test and examine materials to be used and workmanship employed in connection with the works.  However, the engineer’s representative has no authority to relieve the contractor of any duties or obligations under the contract except as expressly provided in the contract, order any work involving delay or extra payment, and make any variation. The engineer also can not amend the contract.

In the event of the Engineer being required in terms of his appointment by the Employer to obtain the specific approval of the Employer for the execution of any part of his functions or duties, such requirement shall be usually set out in the particular conditions. Any written instruction or approval given by the engineer’s representative to the contractor within the terms of such delegation shall bind the contractor and the employer as though it had been given by the engineer. However, any failure of the engineer’s representative to disapprove the work or material does not harm the engineer’s power to subsequently order pulling down,  removal or breaking up such work or material of inferior quality.

The contractor may express dissatisfaction, query any communication, action or decision of the engineer’s representative and refer such matters to the engineer who will then confirm, reverse or vary such decision. The engineer may also extend the delegated powers from time to time within the terms of his engagement subject to approval of the employer. Where this is done both the contractor and employer are to be provided with a copy of all such written delegations. Unlike some other forms of contracts, it appears no significant constraint on the scope of delegation in FIDIC based locally treated contracts adopted in countries where civil codified laws prevail. The parties must therefore carefully note the limitations of the powers delegated by making cross-reference to other parts of the contract conditions. The engineer’s representative is merely acting on behalf of the engineer and can not exercise any discretion or independence in executing his role under this circumstance. The engineer’s representative’s role is therefore basically facilitative and supervisory, with a scope in making recommendations on technical, commercial and contractual issues, depending on the reason of appointment. However, the neutrality of both the engineer’s representative and the engineer is often questioned, given that they both are paid by the employer.

Just as one begins to miss the impartial engineer, any typical professional service agreement states that the engineer is under a contractual duty to exercise a ‘fair determination’. This clause somehow relates to assessment of additional cost and/or time, valuation of varied work, clarifying ambiguities, approval of works and confirming satisfaction, all of which requires a professional approach and expertise. However, the term ‘fair determination’ is always debatable, probably because the engineer moves from being an employer’s agent to being an independent consultant, in the same project.

In some contracts, surprisingly, the engineer shall mean any person nominated to represent the employer. The engineer plays the role of employer’s agent in protecting the employer’s interests. An argument is that the engineer must not be too remote and both parties are entitled to the expertise of the engineer on all matters. The engineer is therefore required to act fairly between and independently of the parties. However, the true employer’s agent has no independent function (acting as a professional exercising judgement in an even handed manner) but is simply an epitome of the employer. The employer’s agent is the employer’s representative and their relationship is normally governed by the law of agency where the agent has no discretion. This was discussed in JF Finnegan Ltd vs Ford Seller Morris Developments Ltd (No 1, 1991) 53 BLR 38, where the judge held that there was a difference between a certificate issued by an architect which has a binding effect unless and until it is overturned by arbitration or litigation, and the giving of a notice of failure to complete works given by the employer’s agent which does not have a binding effect particularly when there is a bona fide dispute as to the validity of the notice.

However, the role of certifier is different to and separate from the role of employer’s agent although two roles are often combined in one person. This distinction is important in all cases when decisions taken by the engineer can be at anytime contested. Once the role extends beyond acting solely as the agent for the employer, and particularly when the role involves issuing certificates or approvals and requires expertise and discretion to some extent, the position becomes more complicated. Hence, it is necessary to look right through the conditions to understand the full scope of the engineer’s role. In many FIDIC based local contracts, the engineer is a quality audit, a certifier and an adjudicator as we keep reading ahead in the conditions of contract. This distinction is inevitable due to very nature of the construction and a part of which might in some cases be delegated under clause 3 to engineer’s representative, such as cost consultancy. However one commonality is visible, where an assessment, interpretation or judgement is sought, the clauses have been focused to the engineer for decision under ‘determination’ clause. The author believes that the ‘impartial’ engineer has returned in the New Red Book under the guise of this very clause that states the engineer is under a contractual duty to exercise “fair determination”. These clauses relate to assessment of additional cost and/or time, valuation of varied work, clarifying ambiguities, approval of works and confirming satisfaction.

A reasonable degree of cooperation is therefore implied from both parties in the process of determining values and in amicably settling issues in order for the engineer to act in good faith.  Further, the engineer or his representative where authorised may make his own assessment in absence of such cooperation, details etc based on whatever bona-fide evidence, as available as befits the situation, but the engineer not supposed to act in ultraviors under any circumstance. For example, the engineer has no power to vary the contract itself. Only the parties to the contract were entitled to change the contract if both agreed to do so and accordingly, the Engineer is not an ‘Almighty God’ in the administration of contract.

Of the roles given above, the one which has caused most difficulty, particularly in recent years, has been that of the engineer acting in the independent role. Problems have arisen because both contractors and employers have questioned whether engineers have always acted impartially. On the one hand contractors have been suspicious of such impartiality bearing in mind that the engineer is remunerated by the employer and acts under a separate agreement with the employer to which the contractor is not party. In addition the engineer may have a long term interest in securing further appointments from the employer which could lead to bias towards the employer. Also the engineer in making decisions on disputes may have to rule on matters involving his own shortcomings, for example the late issue of drawings. Employers may also either rightly or wrongly, be in the impression that the engineer has acted over generously in the administration of the contract in areas such as determining extensions of time and settling claims.

However, the sub-clause 3.5 of the New Red Book keeps the Engineer under a contractual duty to act fairly in all circumstances unless otherwise specified. For example, the granting of an extension of time requires the Engineer to follow the process set out in sub-clause 3.5; however, upon termination of the contract by reason of Force Majeure, the engineer is not expressly required to comply with sub-clause 3.5 when determining the value of work done. In terms of liability, the engineer becomes totally linked to the employer due to the fact that the engineer should be deemed as representing the employer. It is important to understand that the engineer can not act on his own opinion on matters such as valuations, defects, entitlements and particularly in deciding disputes referred to him. In this function, the principle that applies is that the Engineer is required to reach his decisions fairly, yet within the contract, which is sometimes known as the Sutcliffe Principle.

The introduction of adjudication as a new process of dispute resolution has awakened everyone’s awareness on concepts such as “impartiality” and “natural justice”. The extent to which these concepts apply to an engineer in conventional contracts depends on the role. The subject clause expressly requires the Engineer to act impartially as between the parties, notwithstanding that the engineer is retained, and paid, by the employer. As the Corbett, E.C (1991) in his practical legal guide for FIDIC 4th edition contends that this stipulation “was treated in previous conditions as a professional obligation of the Engineer.” Now the term “impartiality” disappears. What is substituted is a requirement that the determinations of the engineer shall be “fair”. It is hard to understand why this change in terminology has been made unless it is intended to suggest that the engineer can be biased.

Let us identify whether deletion of the subject clause has an effect on rights and obligations. This is possible when the whole contract is read together. Much of construction involves the use of professional skill and judgment in deciding whether work has achieved a particular standard; let us say workmanship of a finished surface texture. This is resolved by adopting the opinion or satisfaction of the Engineer as a yardstick. However, such statements of opinion or satisfaction are not measurable, final or binding on the parties without express and clear provisions in the contract. The question remains as to what extent opinions, approvals and statements of satisfaction are binding on the parties. There is always an element of subjectivity attached in any complex technical issue even they are calibrated using advanced software.

The FIDIC Forms do not expressly state that the Works should be carried out to the Engineer’s satisfaction. The Red Form in which the Employer is responsible for design, except where specified otherwise, requires the Contractor to follow instructions and the contract procedures imply that consents and approvals will be given as the Works proceed. Only the maintenance certificate constitutes acceptance of the works and finality of the contract.

Another argument is that the engineer can not use discretion other than in forming his opinion or satisfaction. An element of idiosyncrasy is however inevitable in this case. The old clause 2.6 makes express what is otherwise generally accepted as an implied term of the contract namely the engineer must act impartially when performing his role as an independent certifier. All of the functions to be carried out shall be under the contract, without prejudice to the rights and obligations of the parties. What is important is to have adequate authority vested in the engineer to do so.

The key word used to distinguish between the engineer’s roles is discretion. It seems to have incorrectly assumed that the engineer has no discretion whilst acting as the employer’s agent. On the wording of this old clause, it is not difficult to mount an argument that every function of the engineer under the contract involved discretion and affects the rights and obligations of the parties. Accordingly every function of the engineer could be subject to obligation of impartiality with the result of the engineer would not be able to function as agent for the employer serving only the employer interests. The employer would therefore be obliged to specify in the contract where the engineer is required to obtain specific approval rather than where not required to exercise engineer’s discretion in certain instances. This might be achieved by listing certain ‘specific’ functions in part 2 of the conditions in establishing a limitation of the engineer’s discretion, keeping in mind that the engineer is not a party to the contract.

Further, the existence of an obligation that the engineer be impartial may give rise to an argument that the employer is obliged to nominate as engineer someone who is capable of such impartiality. Accordingly, the nomination of an employee of the employer who was obliged to report proposals to the employer and take instructions would be in accordance with the contract.

A certifier cannot bind his employer under the contract or vary the contract, unless these powers are expressly given to him. In FIDIC, the engineer’s power to certify is non-binding: he is usually only there to validate contractual claims for time and money and issue variation orders. So where a contractor is entitled to a time extension for an excusable delay and is relying on proving a breach of contract to recover acceleration costs as loss and expense, he does expect a certifier to act fairly and reasonably and within the timescales in the contract for awarding a time extension. If the certifier actually fails to respond to an time extension request within the prescribed timescale this will probably not amount to a breach of contract on the part of his employer. In Pacific Associates v Baxter (1990) it was held that a certifier owes no duty to the contractor when certifying the works. The contractor is therefore left to show that there is an implied term in the contract that requires the employer to ensure the certifier performs his obligations properly.

It could be argued that these concerns about the role of the engineer have been recognized by FIDIC and the introduction of dispute adjudication boards and replacement of traditional engineer’s decisions in the standard forms are evidence of that change of mindset. However, as long as employers continue to fetter the engineer’s discretion by insisting on a variety of scenarios in which he cannot act without express approval, the engineer will continue to be viewed in certain quarters as nothing more than an engineer’s representative.

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