Sarah Jane Hudson, consultant at Charles Russell Speechlys, considers the pre-release version of the second edition of the FIDIC Yellow Book, which is currently being unveiled at FIDIC conferences. It was first made available at the FIDIC users’ London conference in December 2016 (see News Analysis: FIDIC—an update on the new contracts and other developments).
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For regular users of the FIDIC Yellow Book, the new edition will offer much more detailed conditions. Here I explain the key differences for practitioners to note.
The most notable change is that the Contract is now 50% longer and for those who enjoyed the relative brevity of the FIDIC conditions, this will be a disappointment. However, for those drafting Particular Conditions, FIDIC have now incorporated additional requirements which make some Particular Conditions redundant.
What are the key changes?
FIDIC intends to formally publish the second edition of the Yellow Book (new edition) during the course of 2017, at the same time as the second edition of both the Red Book and Silver Book. FIDIC intends that the “new look” Yellow Book provisions will be reflected in the amended Red and Silver Books as well. We have identified six key changes in the new edition, as follows:
FIDIC still enshrines the Engineer’s role in making “determinations” under clause 3.7 (previously clause 3.5). Importantly, the parties may refer many matters to the Engineer without having to make a formal claim under the revised clause 20. The new edition requires the Engineer to:
- Act “neutrally” when determining any matter or claim.
- Consult with the parties either jointly or separately and actively encourage discussion between the parties in an endeavour to reach agreement on a matter or claim.
- Adhere strictly to various time limits in reaching agreement or making a determination. If the Engineer does not give notice of agreement or determination within the relevant time limit, the Engineer shall be deemed to have given a determination rejecting the matter or claim.
The clear intention behind these new provisions is to try and avoid disputes escalating in the first instance, not delay their resolution by the DAB, and ultimately to avoid arbitration. This could, of course, be unavoidable if the Engineer either can’t or won’t reach agreement or make a determination.
A new ‘Notice of Dissatisfaction’ (NOD) must be given within 28 days of the Engineer’s determination, otherwise the determination will be deemed to have been accepted “finally and conclusively” by the parties.
The requirement that the Engineer must be “a professional engineer having suitable qualification, experience and competence in the main engineering discipline applicable to the works” may cause problems for project managers taking on the role.
A new provision which provides for what happens if the Contractor considers that an instruction constitutes a Variation is helpful and states that the contractor should give a notice to the Engineer “immediately and before commencing any work related to the instruction”. However the clause (new 3.5) does not go on to explain what happens if the contractor fails to give a notice.
“Claims” and time bars
As expected, clause 20 of the current new edition is now reciprocal, covering both contractor and employer claims. While perhaps not welcomed by employers, this at least provides certainty following the interpretation of the existing clause 2.5 as an effective condition precedent in NH International (Caribbean Limited) v National Insurance Property Development Company  UKPC 37, 162 ConLR 183.
It also covers “other” claims which are defined as those claims that are not third party claims and do not relate to time and money, for example a party’s failure to assist in obtaining permits. These are all referred directly to the Engineer for agreement or determination (under new clause 3.7) and notice of this type of claim shall be given “as soon as practicable”. Requiring the Engineer to “determine” employer’s claims may cause a few headaches.
Failure to comply with the time bar results in the other party “discharged from any liability in connection with the event or circumstance giving rise to this claim”. This wording is wider than the existing clause 20.1 which excludes claims for additional payment/extension of time “in connection with the claim”.
Clause 20 of the new edition contains not one, but two time bar clauses and various other time limits and notice provisions. The second and important time bar relates to the production of the “fully detailed claim” within 42 days. Ensuring that claims are dealt with as and when they arise in a structured way is entirely consistent with the FIDIC theme of effective project management and dispute avoidance. However, given the current uncertainty as to how strictly time bar provisions will be enforced, both under English law and in civil law jurisdictions, it remains to be seen whether these provisions will have the effect FIDIC intends.
The DAB is able to waive the time limits and effectively over-ride the time bar provisions in certain circumstances. This is a concept borrowed from the Gold Book but it will only operate as intended if there is a standing DAB.
Contract price payment
FIDIC has introduced a definition of cost plus profit with a default profit rate of 5%.
New provisions at clause 13.4 amplify the arrangements for agreement of provisional sums by reference to quotations. Adjustments to the Contract Price by reference to changes in the law (13.6) have been amplified to reference not merely legislative action but also permits, permission licences and approvals.
The contract now references a Schedule of Rates for valuing variations.
Interim payment certificates
Clause 14.6 has been amended to indicate that the value will be the amount the Engineer fairly “considers” to be due and that the Engineer may withhold an amount if he considers that there is a “significant error or discrepancy” in the statement. The Engineer must “detail his calculations” of the amount withheld and state the “reasons for it being withheld”.
Generally, clause 14.6 has been amplified and clarified with reference to interim payment certificates (now called IPCs). The clause now includes an additional provision (clause 14.6.3) for both the Engineer and the contractor to correct and/or modify IPCs.
Clause 14.6.3 says the contractor should highlight “identified amounts” that are disputed in IPCs. These may be referred for determination by the Engineer under clause 3.7 where appropriate where the identified amounts exceed 5% of the accepted contract amount. .
Dispute Avoidance/Adjudication Board (DAB)
The change in name of the DAB is indicative of its more proactive role in dispute avoidance as well as dispute resolution. Disputes now reside in a new, much extended (from the previous clause 20) clause 21, leaving clause 20 for employer and contractor claims under the contract. The new clause:
- Requires the DAB to be a standing DAB rather than an ad hoc one.
- Provides that the parties may jointly refer a matter to the DAB with a request for “assistance” and/or to informally discuss and attempt to resolve any disagreement between them.
- Allows the DAB to invite the parties to make a joint referral if it becomes aware of any issue or disagreement.
- Requires a party to give a notice of dissatisfaction (NOD) with the DAB’s decision within 28 days after receiving it, otherwise the decision will become final and binding on both parties.
- Requires the parties to commence arbitration within 182 days after giving or receiving an NOD with the DAB’s decision. If arbitration is not commenced within this period then the NOD will be deemed to have lapsed and no longer be valid.
Obliging parties to commence arbitral proceedings while the works are still progressing may seem odd. In practice, parties may opt to “commence” arbitral proceedings within the time period but delay progressing the substance of the dispute until after the works are complete. However, this may lead to multiple referrals and some complexity around jurisdiction.
Caps on liability
Although FIDIC has promised to revisit this drafting, there is a significant change in the approach of the pre-publication draft contract as regards the clause 17.6 exclusion clause/cap on liability. The contractor’s indemnities (new clause 17.7) now include an indemnity in relation to “the design of the Works and other professional services which result in the Works not being fit for purpose”. This indemnity is “carved out” of the overall cap on liability.
Whilst the drafting is consistent with the approach adopted in the Gold Book and perhaps resolves the potential conflict between the termination provisions which permit the Employer to recover all sums paid, finance charges etc. under clause 11.4(d) of the new Yellow Book, the change of approach will not be welcome amongst contractors. Several groups have already voiced their opinions on this – see News Analysis: Contractor groups express concern regarding new FIDIC contracts.
What else has changed?
The clause regarding errors in the Employer’s Requirements (clause 1.9) has been amplified and rebalanced in favour of the employer (if the contractor fails to give notice within 42 days).
The programme provisions of the contract have been extensively re-written and amplified in a new clause 8.3. There are deemed notices of no objection within 21 days/14 days of receipt of the contractor’s programme.
There is a new provision in clause 8.4 to supplement the amended programme requirements as regards “advance warning”. Both parties shall “endeavour” to give advance warning of probable future events that will adversely affect the project.
The extension of time provisions (clause 8.5) now include an amended definition as regards adverse climatic conditions. The conditions must be unforeseeable by reference to climatic data published in the country for the geographical location of the site.
FIDIC has also introduced a new provision in clause 8.5 as regards concurrent delay. Unfortunately, the provision, highlighting the possibility that a delay caused by the employer may be concurrent with a delay which is the contractor’s responsibility indicates that the issue will be dealt with in the Particular Conditions (or if not “as appropriate taking due regard of all relevant circumstances”).
The extension of time provisions have also been amended with regard to delays by authorities to include a reference to delay by private utility entities.
Contractors should note that a new clause 8.8 introduces the possibility of delay damages outside the scope of the liquidated sums agreed in the case of fraud, deliberate default or reckless misconduct.
The Insurance provisions of the contract have been extensively re-written although specialist advice from local lawyers and brokers should always be sought and FIDIC assumes that they are only providing “base” requirements with further details in the Particular Conditions.
Contractors will regard the change of approach in relation to caps on liability as a major shift in the balance of this contract which is now more favourable to employers. Employers will be nervous about the mutual and wider notice provisions which will require proper administration and management. These provisions aside, we believe there is much to be commended in the revised editions in relation to the clarity of the drafting of FIDIC forms.
For more information, see subtopic: FIDIC contracts (which includes reference PDF copies of the key contracts). To keep up to date with the release schedule of standard form contracts, and other key upcoming developments relevant to construction lawyers, see the Construction future developments tracker.
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