FIDIC

Construction Law, Contract Administration, Project Management

The Suspension That Never Ends: The 84-Day Clock and the Choice at the End of It

By Dr Samer Skaik

Suspension is the most under-used and most abused provision in the FIDIC time clauses, and it manages to be both at once for the same reason: it looks like a neutral administrative step and it is not.

The power itself is broad. The Engineer may instruct the Contractor to suspend progress of part or all of the Works, and under the 1999 wording is not obliged to give a reason. The Contractor must then protect, store and secure whatever has been suspended. In exchange, where the suspension is not attributable to the Contractor, it is entitled to an extension of time and to its Cost, with the 2017 edition treating the profit element more generously than its predecessor.

That is the clause. What makes it interesting is what happens when a suspension stops being an event and becomes a condition.

The suspension that is really a funding problem

Let me start with the misuse, because it is common enough to be worth naming.

An Employer runs into a funding difficulty. The money is delayed, or the approval for the next tranche has not come through, or a decision above the project’s pay grade has quietly been deferred. Rather than say this, the project instructs a suspension. On paper it is an ordinary exercise of a contractual power. In substance it is an Employer using a mechanism designed for technical and safety circumstances to manage its own cash flow.

I understand why it happens. A suspension instruction is administratively easy and it buys time without anyone having to admit anything. But it is expensive in ways that are not visible on the day it is issued. The Contractor’s entitlement to time and Cost begins accruing immediately. Idle plant, retained staff, standing subcontractors and demobilisation and remobilisation costs accumulate against an Employer that has, by its own instruction, accepted responsibility for them. And a suspension issued for reasons the Employer would prefer not to state tends to be issued without any assessment of how long it will last, which is how the 84-day problem arrives.

The related pathology is the suspension nobody instructs. Access is not given, information does not arrive, the site simply stops. There is no instruction, so the suspension machinery never engages and the Contractor has to claim under other heads with weaker mechanics. If you are a Contractor sitting on a de facto stoppage, one of the more useful things you can do is write and ask whether an instruction under the suspension clause is intended. The answer, either way, improves your position.

The 84-day election

This is the part of the clause that most project teams have never had to use and should nonetheless understand, because the options narrow sharply once it engages.

Where a suspension has continued for more than 84 days, the Contractor may request the Engineer’s permission to proceed. If permission does not come within 28 days of that request, the Contractor has a choice that depends on what was suspended.

If the suspension affects only part of the Works, the Contractor may treat that part as an omission under the variation machinery. If it affects the whole of the Works, the Contractor may give notice of termination under the Contractor’s termination provisions.

Both of those are serious steps with permanent consequences, and there are two traps worth flagging.

The first is the partial suspension route. Treating suspended work as an omission removes it from the contract, and an omission cannot be used to take work away from one contractor and give it to another. If the Employer’s intention is to have the suspended work performed by somebody else once funding arrives, the parties are heading for an argument about whether the omission was legitimate at all. Contractors should think carefully before electing this route on work they actually want to perform, because the entitlement that follows is the value of the omitted work, not the profit they hoped to earn on it.

The second is the timing itself. The 84 days run from the suspension, but on projects where suspension is instructed in stages, extended, partially lifted and reinstated, working out when the clock started is not always simple. I have seen more than one Contractor discover that the election it thought it was preserving had become impossible to evidence because the suspension history was never properly recorded. Diarise the date on the day the instruction arrives.

Partial suspension and the problem of the moving front

Most writing on this subject assumes a suspension of the whole works. In practice partial suspension is far more common and considerably harder to administer.

A single area is suspended pending a design resolution, or a utility diversion, or a permit. The rest of the site continues. On paper the Contractor is entitled to time and Cost only in respect of the affected part, and the Employer’s exposure looks modest.

The reality is messier, because construction sequences are not modular. Suspending one area displaces the crews that were meant to work there, disturbs the planned flow of following trades, and forces resequencing across areas that were never suspended at all. The resulting loss looks like disruption rather than standing time, and it is correspondingly harder to prove and easier to resist.

Two practical consequences follow. Contractors should resist the instinct to treat a partial suspension as a minor event with a small claim attached; the knock-on effects need to be identified and recorded at the time, not inferred from a productivity shortfall eighteen months later. And Employers should understand that a partial suspension is not a cheap way of deferring a decision. It is frequently the most expensive form of delay per week of works actually stopped, precisely because the consequences spread beyond the suspended area.

Resumption, and the deterioration nobody costed

The end of a suspension is treated as an administrative formality far more often than it should be.

Both editions provide for a joint examination on resumption, and give the Contractor entitlement in respect of deterioration, defect or loss occurring during the suspension period. On a long suspension in a demanding climate this is not a small item. Concrete cures unattended. Steel corrodes. Temporary works degrade. Materials stored on site are stolen or spoil. Formwork warps.

The practical difficulty is proof. A joint examination that both parties actually attend, with a photographic record and an agreed schedule of condition, converts a contentious claim into an administrative one. A resumption where the Contractor simply restarts and raises the deterioration six months later will be met, entirely predictably, with the argument that the damage happened afterwards and through poor care.

My standard advice to both sides is the same and it is unusually cheap: do the joint examination properly, produce a signed record, and disagree in writing about the items you cannot agree. Twenty pages of agreed condition at resumption saves a great deal of argument later.

What each party should be doing

For an Employer, the discipline is mostly about honesty at the point of instruction. If you are suspending, know why, form a view on duration, and write both down internally. If what you actually have is a funding problem, recognise that suspension does not solve it — it converts a payment delay into an accruing entitlement plus a delay to the asset, which is a worse position, not a better one. And watch the 84-day date at least as carefully as the Contractor does, because the elections that become available at the end of it are not in your gift.

For a Contractor, the discipline is record-keeping from day one of the suspension rather than day one of the claim. Standing resources should be logged daily, not reconstructed. Mitigation should be visible: plant released, staff redeployed, subcontractors stood down where it was reasonable to do so. A suspension claim built on daily records with visible mitigation is one of the more straightforward claims to make good. One built on an invoice total and an assertion is one of the hardest.

And on both sides, remember that a suspension is one of the very few events in a construction contract where liability is essentially established by the instruction itself. Everything that follows is about quantum and duration. That is an unusual luxury in this field, and it is worth not wasting it through poor administration.


Related reading: Termination under FIDIC: Clauses 15 and 16, Variations Under FIDIC Clause 13, and FIDIC Payment Provisions.

Construction Law, Contract Administration, Project Management

Telling a Contractor to Speed Up: The Instruction Employers Keep Getting Wrong

By Dr Samer Skaik

A project falls behind. The Employer becomes anxious. Somebody suggests that the Engineer should instruct the Contractor to accelerate, and a letter goes out.

What happens next depends entirely on a distinction that is rarely drawn at the time the letter is written, and the cost of getting it wrong runs in both directions. I have seen Employers believe they had purchased acceleration when they had bought nothing at all, and I have seen Contractors treat a routine progress instruction as a blank cheque and spend accordingly.

The provision at the centre of this is Sub-Clause 8.6 in the 1999 editions, renumbered 8.7 in 2017. It is worth being precise about what it does, because it is almost the opposite of what people assume. …

Construction Law, Contract Administration, Dispute Boards, Project Management

When the Banks moved onto FIDIC 2017: What Public Employers Inherited With the New Contract

By Dr Samer Skaik

A few years ago I sat in a workshop with the contract management team of a national roads agency. They were good at their jobs. Several of them had been administering donor-funded works contracts for well over a decade, and between them they had probably handled more claims than some law firms see in a generation.

About an hour in, one of the senior engineers said something that stopped the room. He said: we have been running this contract the way we ran the last four, and I am starting to think it is not the same contract.

He was right. It was not. …

Construction Law, Contract Administration, Dispute Boards, Project Management

The Programme Nobody Agreed To: Sub-Clause 8.3 and What Silence Actually Means

By Dr Samer Skaik

Ask three people on a FIDIC project what status the programme has, and you will usually get three answers.

The planner thinks it is a management tool. The contractor’s commercial manager thinks it is the baseline against which every delay claim will eventually be measured. And the Engineer, if pressed, will often say that it was never approved, which is a curious thing to say about a document the whole project has been working to for two years.

All three are partly right, and the confusion is not their fault. Sub-Clause 8.3 is one of the shortest provisions in the contract carrying one of the heaviest practical loads, and it does not answer the question everyone actually wants answered: is this thing binding? …

Construction Law, Contract Administration, Dispute Boards, Project Management

The First Four Weeks: How Public Infrastructure Employers Set a Project Up to Avoid Disputes

 

By Dr Samer Skaik

The call usually comes about eighteen months in.

Someone from an implementing agency, often a project manager who has inherited the file from a predecessor, explains that things have gone badly wrong. The ground turned out differently from the investigation report. The utility diversions never happened. The contractor has submitted a claim with a number in it large enough that it has now been seen by people several floors above the project office. And somewhere in the conversation comes the question I have learned to brace for: we think the contract requires us to have a dispute board — how quickly can one be set up?

Contract Administration

Force majeure – the devil is in the detail

By Ruth Wilkinson

Key Points:
• A force majeure clause normally excuses one (or both) parties from performance of the contract in some way on the occurrence of a specified event or events beyond their control

• In English law what constitutes force majeure varies widely between contracts

• Most construction contracts define what is meant by force majeure and prescribe the time and cost consequences, as well as what happens to the contract going forward

• The courts have taken a narrow approach to construction of force majeure clauses, requiring that obligations have actually become impossible to perform, not merely more difficult or less profitable

The origin of the doctrine of force majeure is the French Civil Code. It has been used as a defence to a claim for breach of contract as in effect it relieves a party of performance because of some ‘act of God ’ or unavoidable catastrophe. A force majeure event may be relied upon if it has made performance of the contract impossible, was unforeseeable and was unavoidable in consequence and effect.

But in English law it is not so simple. The term ‘force majeure’ is not a legal term of art. Chitty describes the normal understanding of the purpose of a force majeure clause as follows:


[a force majeure clause is] normally used to describe a contractual term by which one (or both) of the parties is

entitled to cancel the contract or is excused from performance of the contract in whole or in part, or is entitled to suspend performance or to claim an extension of time for performance, upon the happening of a specified event or events beyond his control.’

Typical force majeure events would include war, riot, civil commotion, strike and natural catastrophes (such as earthquakes and hurricanes) but would not include bad weather, football matches, a funeral or an act, negligence or omission by the party seeking to be excused.

The concept of force majeure cannot be relied upon as a defence unless and to the extent that the contract so provides, or if it is implied as a term. Construction contracts will usually define what is meant by force majeure and the consequences. The precise terms and effect of such clauses can vary widely.

As the leading authority on force majeure in English law (the judgment of McCardie J. in Lebeaupin v Crispin [1920] 2 KB 714) states, the precise ambit of the term will depend on the context in which it is used:

‘A force majeure clause should be construed in each case with a close attention to the words which precede or follow it, and with a due regard to the nature and general terms of the contract. The effect of the clause may vary with each instrument.’

It is common to see force majeure defined by a list of events followed by a general sweep up provision. In Tandrin Aviation Holdings Ltd v Aero Toy Store LLC [2010] EWHC 40 (Comm) the defendant sought to justify its refusal to accept delivery of an aircraft on the basis that the alleged ‘unanticipated, unforeseeable and cataclysmic downward spiral of the world’s financial markets’ constituted ‘any other cause beyond the Seller ’s reasonable control’ as provided for in the force majeure clause of the contract. This, they said, postponed the time for the defendant to complete the purchase.

The judge rejected the argument. He held that this phrase had to be read in the context of the entire clause. Although the judge noted that the phrase ‘any other cause beyond the Seller’s reasonable control’ did not need to mirror the specific examples set out earlier in the definition, he pointed out that it was nonetheless telling that nothing in any of those specific examples was even remotely connected with economic downturn, market circumstances or the financing of the deal.

A force majeure clause may provide relief from liability when a party is prevented from carrying out his obligations or is unable to do so. However, a party seeking to rely on a clause which states that he is relieved of his obligations if he is prevented from carrying them out must show that performance has become physically or legally impossible, and not merely more difficult or unprofitable.

It is not unusual for contractors to claim that whilst performance of the contract is technically possible, it has become financially unviable, so much so, that it is economically impossible.

Generally, a change in economic or market circumstances affecting the profitability of a contract or the ease with which the parties’ obligations can be performed will not be regarded by the courts as constituting a force majeure event. This was the case in Tandrin above.

Thames Valley Power Ltd v Total Gas & Power Ltd [2006] 1 Lloyd ’s Rep 441 established:

‘… It does not at all follow that the supplier is entitled to rely upon an increase in the market price in comparison to the contract price as a force majeure circumstance … This conclusion is consistent with a line of cases, both on force majeure clauses

… to the effect that the fact that a contract has become expensive to perform, even dramatically more expensive, is not a ground to relieve a party on the grounds of force majeure …’

The burden of proof is on the party seeking to rely upon the force majeure clause. He must prove the occurrence of the event he is relying on and that he has been prevented, hindered or delayed (as the case may be) from performing the contract by reason of the event. Subject to the terms of the contract, he must also prove that the event in question was beyond his control and that there were no further steps he could have taken to avoid or mitigate the consequences: Channel Island Ferries Ltd v Sealink UK Ltd [1988] 1 Lloyd ’s Rep 323. In that case a clause that included ‘strikes beyond [its] control’ did not bite if the party seeking to rely on the clause could have settled the strikes by taking reasonable steps.

The standard form construction contracts deal with force majeure differently as illustrated by comparing NEC3, JCT 2011 and the FIDIC Red Book.

NEC3

The term force majeure is not used in NEC3, however cl 19.1 (Prevention) is the equivalent. Clause 19.1 states:

‘ If an event occurs which

• stops the Contractor completing the works or

• stops the Contractor completing the works by the date shown on the Accepted Programme,

and which

• neither Party could prevent and

• an experienced contractor would have judged at the Contract Date to have such a small chance of occurring that

it would have been unreasonable for him to have allowed for it,

the Project Manager gives an instruction to the Contractor stating how he is to deal with the event’.

Such an event is a compensation event (cl 60.1(19)) and a ground upon which the employer may terminate (cl 91.7). Clause 91.7 requires that the event must stop the works completing by the date shown on the Accepted Programme and ‘is forecast to delay Completion by more than 13 weeks.’

The NEC3 Prevention clause is generally regarded as providing a more generous approach for the contractor than a typical force majeure clause, since it puts the onus on the employer to decide how such events should be dealt with and entitles the contractor to both time and money where such events arise. As many employers are uncomfortable with the prospect of considering whether an event is one which it would have been reasonable for a contractor to allow for, these provisions are often deleted by employers, with the result that the contractor may have no effective remedy in the event of force majeure.

JCT

The JCT form clause references are to JCT 2011 With Quantities which includes express reference to force majeure; but it is not defined, which gives rise to potential uncertainty about its scope. In the absence of such a definition Keating on Construction Contracts (9th edn, para 20-118) suggests that the court would follow Lebeaupin v Crispin when attempting to define what a force majeure event would include.

Force majeure is listed as a relevant event which entitles the contractor to an extension of time (cl 2.29.14). It is not identified as a relevant matter for the purposes of recovering loss and expense. It sits alongside other events which could ordinarily be considered as force majeure such as ‘exceptionally adverse weather conditions’ (cl 2.29.9), ‘civil commotion’ (cl 2.29.11), or ‘strike’ (cl 2.29.12).

It may also be a ground for termination (cl 8.11). Clause 8.11.1 provides that if before practical completion, the whole or substantially the whole of the uncompleted works is suspended for the period specified in the contract particulars by reason of various events including force majeure, then either party may give notice of termination.

FIDIC

Clause 19 of the Red Book states:

‘ In this Clause, “ ‘Force Majeure” means an exceptional event or circumstance:

a) which is beyond the Party’s control,

b) which such Party could not reasonably have provided against before entering into the Contract,

c) which, having arisen, such Party could not reasonably have avoided or overcome, and

d) which is not substantially attributable to the other Party.

Force majeure may include, but is not limited to, exceptional events or circumstances of the kind listed below, so long as conditions (a) to (d) above are satisfied:

i. war, hostilities (whether war be declared or not), invasion, act of foreign enemies,

ii. rebellion, terrorism, revolution, insurrection, military or usurped power, or civil war,

iii. riot, commotion, disorder, strike or lockout by persons other than the Contractor ’s Personnel and other employees

of the Contractor and Sub-Contractors,

iv. munitions of war, explosive materials, ionising radiation or contamination by radio-activity, except as may be

attributable to the Contractor ’s use of such munitions, explosives, radiation or radio-activity, and

v. natural catastrophes such as earthquakes, hurricane, typhoon or volcanic activity.’

Read on their own, sub-clauses (a) to (d) could be seen as providing a broad definition of force majeure, however, in line with Lebeaupin v Crispin , reading these with the subsequent sub-clauses I to V may well limit the definition of force majeure.

Clause 19.4 provides that the Contractor can recover an extension of time and can on the occurrence of events I to IV recover cost subject to (in relation to I to IV) these occurring in the country in which the site is located. Clause 19.6 provides that either party may give notice of termination if the execution of substantially all the works is prevented for a continuous period of 84 days by reason of force majeure or for multiple periods totalling more than 140 days.

Summary

These are just examples of some of the standard forms’ treatment of force majeure. It makes sense to consider carefully at drafting stage what parties wish force majeure to look like – as always, it is about who bears the risk. The devil is, as they say, in the detail.

www.dundas-wilson.com

Contract Administration

RECORDS, RECORD, RECORDS – Importance for Contract Claim

Contract Requirement

Max Abrahamson in his book Engineering Law and The ICE Contract wrote

” A party to a dispute, particularly if there is an arbitration will learn three lessons (often too late) the importance of records, the importance of records and the importance of records”. This quotation came to mind recently when I read the judgement in the case of Attorney General for the Falkland islands v Gordon Forbes construction (Falklands) Limited. A contract was let for the construction of the infrastructure of the East Stanley Housing Development in the Falkland Islands using the FIDIC 4th Editions conditions.

Contract Administration

The ‘notices’ provision

by Dennis Brand
Many of you will deal with industry-standard form contracts, while others will deal with company standard or even bespoke forms; whatever the form of contract, the notices provision contained in the conditions of contract is probably one of the least-read provisions. The notices provision does not attract the same degree of interest as, say, the variation or change order provisions, or provisions which deal with certificates of completion, suspension or even termination, but in each case a notice is required.

Let me be clear: a notice provision in a contract is not the same as where a contract includes the term ‘notify’; a requirement that one party must inform the other of a thing or matter. A notice provision is where the contract includes the term ‘shall give notice’ (or something similar), which usually requires a formal written notice to be issued by one party and delivered to the other.

For example, a ‘Notice to Proceed’ is a formal notice issued under many forms of industry-standard contracts. The issue of a ‘Notice to Proceed’ is the confirmation that the contractor or supplier of a service is to start work. To proceed on the basis of simply being notified, which could be a phonecall or even a text message, without a formal notice in writing, would be risky in the extreme for the contractor or supplier.

From the employer’s side, such a notice is equally important because, by issuing the formal ‘Notice to Proceed’, he knows that, regardless of what discussions or communications he may have had with the contractor or supplier, they will only start work, and thereby incur cost to his account, once the employer has issued the ‘Notice to Proceed’, and not before.

When one is involved in the preparation of a contract and the subject of the notices provision is to be addressed, there are really six points or matters to be considered:

1. How many days?

The first thing is that the period of notice should be expressed in days rather than weeks. Notice periods will differ depending upon the reason for the notice. When determining the number of days, the period should be reasonable, not too long and not too short, and must be workable. Many contracts contain provisions that, where a contractor seeks additional money or a variation, the contractor must give notice within a limited number of days following the event which resulted in the request. Some contracts go further and provide that, if the notice is not given within the specified time, the contractor loses his right to claim a variation. You may think this pretty harsh, and indeed it is not one that courts or arbitrators like to enforce, but if the period for the notice is reasonable, the contractor should not have any difficulty in complying with it.

2. In what form?

There is no standard form for a notice. The important thing to bear in mind is that it is a standalone document which advises the other party of something or requires the other party to do something. It should contain all the relevant information, including reference to the provision of the contract and relevant clause, so the recipient can be under no misapprehension as to the purpose of the notice and what is required. For example, FIDIC requires that, in the event of a dispute which is referred to the engineer for a decision, the notice must provide a description of the dispute and confirmation that a decision of the engineer under the relevant clause is required. Failure to give that information will likely mean that the notice is considered invalid.

3. Who should sign them?

Due to the importance of a contractual notice, it should only be signed by someone in authority. Rarely will the contract state who should sign the notice. Therefore it should be signed by the same person who signs all other contract correspondence, such as the contractor’s or employer’s nominated representative.

4. To whom should they be sent?

Due to the importance of such a notice, it is important it is brought to the attention of the senior management of the contractor or employer. However, for those large organisations where the head office might be in another country, a notice sent to the head office will not be acted upon at site level until it has been received and site management informed. In order to avoid attendant problems, it is not unusual to see a notice provision which requires the notice to be addressed to a named individual in the head office, with a copy sent to the project manager on-site. I have seen this put to good effect where the employer, who was not getting the required action from the site, issuing a notice, which required the original to be sent to the head office.

5. How should they be delivered?

Usually a notice provision provides for notices to be delivered by one of three methods: by hand, by mail or by fax. To deliver a notice by hand means exactly what is says; it also includes delivery by courier. To include a provision allowing the delivery of a notice by mail, consideration must be given to the delivery point, which could be another country. Often a number of days are added in case of delay, with an overall number of days agreed upon when delivery will be considered as having taken place. For delivery by fax, the sender’s fax report confirms the delivery.

6. Is an acknowledgement needed?

In my view never … that simply invites problems!

CW

Contract Administration

FIDIC 1999 VS FIDIC 1987

By Edward Sunna

What You Need To Know and Why?
The private sector in the UAE and more recently the public sector in Abu Dhabi, have adopted FIDIC or at least a hybrid version of FIDIC for government use. This was done in part to reduce the risk of international contracting, but more importantly, to standardise terms of engagement to reduce uncertainty caused by the application and interplay of Federal Laws and the various Laws of the Emirates, in so far as they are applicable to construction contracts.

Construction Law, Contract Administration

FIDIC’S FOUR NEW STANDARD FORMS OF CONTRACT: Risks, Force Majeure and Termination

 By Christopher R. Seppala

I propose briefly to discuss five topics in the three new Books for major works (the new Construction Contract, the Plant Contract and the EPC Contract), as follows:

 (1) Contractor’s risk and “Employer’s Risks”,

(2) Indemnities,

(3) Limitation of Liability,

(4) The New Force Majeure Clause, and

(5) Grounds and Procedure for Termination of the Contract by the Employer and the Contractor. …

Contract Administration

A new year brings fresh thinking from FIDIC and new developments…

by Sarah Thomas

I thought that I would hail in the new year with an update on some interesting construction developments. Put it down to a period of reflection over the Christmas break! As I want to cover a number of areas, I have split this update into 2 postings.

In this first update, I am going to cover the latest FIDIC news and the new Bribery Bill currently going through the UK parliament. In my next posting I will look at two recent construction cases in English law, the first covering recoverability of damages and the English “remoteness” rule, the second covering treatment of contractual notice bars for claims.

Firstly, on FIDIC. I presented at the annual FIDIC conference in London in December of last year and can report some interesting developments:

FIDIC have just published a new Subcontract form (termed the Conditions of Sub-Contract for Construction). This is specifically designed as a construction only subcontract – to be used by main contractors operating under either the 1999 FIDIC Conditions of Contract for Construction for Building and Engineering Works designed by the Employer (known as the “Red Book”) or the Multilateral Development Bank’s Harmonised Edition of these FIDIC Conditions of Contract. The subcontract is drafted very much on the basis of a “total pass down of risk”, although there are some interesting features (particularly from an English law perspective).

For example, the payment provisions are effectively tied to payment under the “Main Contract” and include “pay when paid” clauses (Sub-Clause 14.6 (c)) in that the Contractor can withhold monies where “the Employer has failed to make payment in full to the Contractor in respect of those amounts…”. Of course, this protection will not apply where the reason for non-certification under the Main Contract is because of Contractor default or the Employer’s insolvency. Whilst common in subcontracts in Europe, any construction contract signed in England and Wales is subject to the UK Housing Grants, Construction and Regeneration Act and this prohibits pay when paid provisions. It will be interesting to see how this plays out in the market – readers will no doubt be conscious of the current harsher market conditions for contractors generally – so this may be more palatable to subcontractors in these straitened times. What it means in practice is that subcontractors will have to take a good deal more notice of what the main contract says about payment, and certification of payments, to ensure they are comfortable with these risks flowing down into their subcontracts.

As for other key features,

• Whilst the underlying principle is direct risk pass down, there is no general provision (as appears in many “pass-down” subcontracts) saying, for example, that the Sub-Contractor shall carry out the Sub-Contract Works such that he does not put the Contractor in breach of the Main Contract.

• The Sub-Contract assumes that the Main Contract will be the FIDIC Red Book and directly refers to Main Contract Clauses. Of course, the numbering will not necessarily work if the Main Contract is either not FIDIC or is an amended form of FIDIC.

• Not surprisingly, there are provisions allowing for immediate termination where the Main Contract terminates (Clause 15). Where the Main Contract is terminated for default the Sub-Contractor only gets the value of work and documents produced up to the date of termination (less amounts recovered by the Employer and any other losses and damages incurred by the Contractor and, notably in my view, its other sub-contractors). If not in breach, the Sub-Contractor gets paid the value of works/documents to date, demobilisation and reasonable repatriation costs, any other costs “reasonably incurred” in expectation of completing the Sub-Contract Works plus loss of profit. This is all fairly standard, although I suspect a number of main contractors may wish to curb the ‘loss of profit’ claim. However, the biggest potential issue is I think Sub-Clause 15.6. This allows the Sub-Contractor to terminate where there would be a right to do so under the Main Contract. The clause simply refers to the termination events in the Main Contract equally applying to the Sub-Contract. I query whether this actually works or makes the Contractor’s other termination rights sufficiently clear. It would be preferable to spell them out for such an important clause.

FIDIC is also proposing to issue a new user guide to accompany the Design Build and Operate form (Gold Book). Just to remind readers, the current form (first published in September 2008) covers design, build and long term operation of facilities on green field sites. The new guide will include provisions allowing this to be used for brown field sites. No doubt FIDIC hope that this will lead to a much greater use of the Book as most DBO projects involve some element of upgrade of existing facilities alongside new build. However, as this form is still in its infancy I am yet to hear from anyone who has actually used this form (- readers please get in touch if you have), it remains to be seen whether this will lead to wholesale take up of this new form. I think one reason for the lack of use so far may be that the form has no provision for funding by the Contractor and so is not suitable for PPP projects.

At the same time, FIDIC are proposing a review of all the contract forms in their current “1999 Rainbow Suite” (i.e. principally the Red, Yellow and Silver Books) and plan to amend these in line with current business practices and in response to request for amendments over the last decade. For example, one likely amendment is to include the amendment FIDIC has already made to Sub-Clause 20.1 in the DBO form dealing with the procedure for Contractor’s claims. Just to recap, Sub-Clause 20.1 has always been a sticking point for contractors as it essentially precludes any entitlement to claim for time/money if the conditions of this clause are not strictly complied with. What the Gold Book has introduced is a slight relaxation of this absolute notice bar, allowing the Contractor to apply to the Dispute Adjudication Board for a ruling if he considers there are circumstances which justify the late submission of a notice. If the DAB agrees that in all the circumstances “it is fair and reasonable that the late submission be accepted”, it can overrule the 28 day notice limit.

FIDIC canvassed views at our London conference as to what other clauses should be amended. There were a number of requests for a review of the variations clause (Sub-Clause 13) and in particular to the right of the Contractor to payment for value engineering changes. Currently under all the forms, the Contractor bears the cost of any proposal and only if it is accepted by the Employer, does he then get remunerated. This has always been something of a disincentive to propose value added changes.

Before signing off on this first update, I would like to touch upon the Bribery Bill 2009 which is currently going through the UK Parliament. The reason this has been introduced is because the UK has come under foreign criticism from the Organisation of Economic Co-Operation and Development (OECD), amongst others, because of its perceived failure to carry out its obligations under the OECD Convention, which the UK ratified in 1998. The new Act, if it becomes law, will impact upon all commercial organisations seeking contracts with the public sector both in the UK and abroad.

Key features to watch out for if you are a UK contractor are the proposed new offences of bribing a foreign public official and the corporate offence of failure to prevent bribery by persons working on behalf of the business, including employees, agents and subsidiaries (whether domestic or foreign). The corporate offence applies to companies or partnerships which are either formed under UK law or which carry on business in any part of the UK – in other words, it could also impact on foreign companies doing business in the UK. The offence is punishable by an unlimited fine for the company whilst company individuals with responsibility for anti-corruption measures face personal criminal liability and up to 10 years’ imprisonment.

It will be a defence to the corporate charge for a company to show that “adequate procedures” to prevent corruption were in place at the time. The Bill does not detail what “adequate procedures” means but this month the Government agreed to add an amendment that will require the Secretary of State to provide guidance on this. All UK companies and overseas companies doing business in the UK should probably review their internal procedures carefully and update training, policies and contracts of employment to reflect the new law.

Some of you may ask whether there is sufficient parliamentary time to push this through before the UK election (which most commentators are forecasting in early May this year). The current view is that while the Bill is generally understood to have cross-party support, timing is very tight as there are a number of further stages that the Bill must complete in the House of Commons before it can be passed into law. If the Bill is not passed in time, it will need to be re-introduced in the next Parliament.

Any thoughts on the latest FIDIC development or indeed on the UK’s proposed anti corruption measures are of course always welcome!

 

Kluwer Construction Blog

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