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The New FIDIC Forms
Daniel Atkinson, 1999
 
Background
 
The Federation International des Ingénieurs - Conseils (FIDIC) is the leading body for the development of model standard forms of contract for use in the international construction industry. The standard forms are generally accepted by Employers and Contractors as providing a balanced allocation of risks and providing fair procedures for administration of contracts.
 
In September 1998 FIDIC published "test editions" of its forms of contract in a new livery of colours Red and Yellow to update the existing Red, Yellow and Orange Books. FIDIC also introduced a short form of contract in another primary colour - the Green Book. A metallic colour has now been added in the Silver Book which is likely to be the most controversial form
 
The new Red Book is the traditional form for civil engineering construction in which the Contractor constructs to the Employer's design. There is however provision for the Contractor to carry out design where specified. The form maintains the role of the Engineer and the payment mechanism is based on measure and value. The new Red Book revises the previous Red Book version and incorporates current thinking on the management of contracts
 
The new Yellow Book replaces the existing Yellow and Orange Books. It is intended to be used for Design and Build contracts and for Plant Contracts. The Engineer administers the contract and payment is on periods or installments of the Lump Sum
 
The Green Book is an entirely new FIDIC form and adopts the overall risk philosophy of the Red and Yellow Books. It is intended for contracts of low capital value or simple contracts of short duration such as dredging works. There is no Engineer and the payment mechanism is required to be specified in the Appendix to the Form of Agreement, but payment is at monthly intervals
 
The new Silver Book is an entirely new FIDIC form for BOT and similar projects. It is intended to be used on fixed-price turn key projects. There is no Engineer, instead the Employer deals directly with the Contractor. Risk is placed largely with the Contractor. Payment is on periods or installments of the Lump Sum
 
One form of contract missing from the new livery is the Target Cost Reimbursable form of contract. This is not widely used internationally but is used extensively in the UK and particularly on tunnelling contracts. Available standard forms are the IChemE Green Book and the ECC Options D and E which have all been used with some success
 
Allocation of Risk
 
In many projects one of the significant risks is that of changed Site and Ground conditions. The starting point is the responsibility for supply of information
 
Clauses 4.10 and 4.11 are the relevant provisions in the Red and Yellow Book. Clause 4.10 requires the Employer to have made available, 28 days prior to the latest date for submission of the Tender, all relevant data in his possession on sub-surface conditions at the Site. The Contractor is only responsible for interpreting the data. Under Clause 4.11(b) the Contractor is deemed to have based the Contract amount on such data, and in the case of the Yellow Book any further data relevant to the Contractor's design. This effectively means that the Employer warrants the accuracy of the information he has provided
 
Under Clause 4.10 the contractor is also deemed to have obtained all necessary information as to risks which may influence or affect his Tender or the Works. He is deemed to have inspected and examined the Site and other available information. However, these "deeming" provisions are limited to the extent that the investigation by the Contractor is practicable, taking into account cost and time
 
Clause 4.12 defines the allocation of risk forchanged ground which in the Red and Yellow Books follows the traditional forseeability test. The Employer carries the risk of physical condition which could not have reasonably been foreseen by an experienced contractor by the date for submission of the Tender. Physical Conditions is defined as both natural physical conditions as well as man-made and other physical obstructions and pollutants. The definition excludes climatic conditions, but includes hydrological conditions
 
The Green Book (Short Form) is silent on the matter of supply of information. Clause 6.1 defines the Employer's risks which include changed ground . Sub-clause 6.1(b) includes as an Employer's risk any operation of the forces of nature affecting the Site and/or the Works which were either unforeseeable or against which an experienced contractor could not reasonably have been expected to take precautions. Sub-Clause 6.1(e) defines as the Employer's Risks physical conditions or obstructions other than climatic conditions where were not reasonably foreseeable by an experience contractor
 
The Silver Book adopts a different approach. The Employer is required to have made available to the Contractor all relevant data in the Employer's possession on hydrological and sub-surface conditions at the Site. The Contractor however is responsible for verifying as well as interpreting the data. There is therefore no warranty by the Employer of the accuracy of the information
 
The Silver Book allocates all the risk of changed ground conditions to the Contractor. Clause 4.11 provides that the Contractor is deemed to have satisfied himself as to the sufficiency of the Contract Price, and states that it covers all things necessary to design, execute and complete the Works. Clause 4.12 provides that the Contractor accepts responsibility for having foreseen all difficulties and costs of successfully completing the Works.

Controversially the Silver Book at Clause 5.1 also passes to the Contractor responsibility for the accuracy and completeness of the Employer's Requirements. The Employer is expressly stated not to be responsible for any error, inaccuracy or omission in the Employer's Requirements. The Employer is only responsible for the definition of the intended purpose of the Works and the criteria for testing/performance of completed Works.

The more usual provision for responsibility for the Employer's Requirements is to be found at Clause 5.1 of the new Yellow Book. This allows the Contractor within a specified period after Notice of Commencement, to notify the Engineer of any error, fault or defect in the Employer's Requirements. The Engineer then decides whether to issue a variation. The Contractor is entitled to extension of time and adjustment of the Contract Price, unless the error was one which an experienced contractor would have discovered before submitting his Tender, had he used reasonable skill and care
 
The Silver Book therefore clearly envisages that the Contractor will carry our a rigorous check of the Employer's Requirements before submitting his tender and take the risk of any errors whether it is reasonable or not for the Contractor to identify the errors
 
Communication
 
There has been a significant shift in current thinking in the UK on the nature, timing and effect of communications in construction contracts. The trend is towards more detailed programming, early warning of the potential consequences of events and the adoption of notices as a condition precedent to the contractor's entitlement under the contract. A further recent development has been the adoption of "exhaustive remedy" clauses, which provide that the only remedies available to the parties are those stated in the contract, to the exclusion of any other legal remedies. The FIDIC forms have adopted only some of these new ideas
 
The provision in the Red, Yellow and Silver Books in relation to programme are not radical. Clause 8.3 simply requires the Contractor to submit a programme and to revise the programme when it is no longer consistent with actual progress. The Contractor is required however to give prompt notice of specific probable future events or circumstance which may adversely affect the work, increase the Contract Price or delay execution of the Work. There is no direct sanction for failure to warn, but it is to be noted that in making a fair determination under Clause 3.5, due regard is to be taken of all relevant circumstance. It may be argued that this would include the contractor's failure to warn when he could have done, although this is not so expressly stated
 
The Green Book under Clause 7.,2 simply requires the Contractor to submit a programme but does provide for Early Warning at Clause 10.3. If the contractor fails to notify as soon as he becomes aware of any circumstance which may delay or disrupt the Works or give rise to a claim for additional payment, then the Contractor's entitlement is reduced if the Engineer as a result is unable to keep relevant records or take steps to minimise the effects of the events
 
One of the features of the new forms is the stringent notice provisions. Under the Red, Yellow and Silver forms, Clause 20.1 requires the Contractor to give notice as soon as practical, and not later than 28 days after the event or circumstance giving rise to the claim for extension of time or additional payment. Within 42 days of the event or circumstance the contractor is required to submit a fully detailed claim with full supporting particulars
 
If the event or circumstance has a continuing effect then the Contractor is required to send further claims at monthly intervals giving the accumulated delay and/or amount claimed. The final claim is to be sent within 28 days after the end of the effects
 
The Contractor is only entitled to payment for such part of the claim as he has been able to substantiate. If the Contractor fails to comply with the provisions, then there will be no entitlement to extension of time nor to additional payment
 
In the Red and Yellow Books any notice for unforseen physical conditions is required to described the physical conditions so they can be inspected by the Engineer, and set out the reasons why the Contractor considers them to be unforeseeable
 
None of the FIDIC forms adopt an "exhaustive remedy" clause, so the absence of notice may not cause the contractor to lose all entitlements, but clearly will have a significant effect on the administration of the contract.
 
Impossibility
 
The FIDIC forms have kept the impossibility provisions found in many standard forms
 
The new Red, Yellow and Silver Books at Clause 19.7 release the parties from further performance if any event or circumstance outside the control of the Parties make it impossible or unlawful for either or both parties to fulfill its obligations
 
The Green Book at Clause 1.1.14 goes further and defines "Force Majeure" as any event or circumstance which makes performance of a Party's obligations illegal or impracticable and which is beyond that Party's reasonable control. Clause 13.2 allows the Contractor to suspend the execution of the Works but only "if necessary". If the event continues for a period of 84 Days then either Party may give notice of termination
 
Design Liability
 
A significant feature of all the new forms is that the Contractor has a fitness for purpose obligation for any design which is his responsibility
 
The new Red Book at Clause 4.1(c) makes the Contractor responsible for any part of the Permanent Works which the Contract specifies is to be designed by the Contractor. When the Works are completed, that part designed by the Contractor is required to be fit for such purpose for which that part was intended
 
The new Green Book at Clause 5.2 also provides that the Contractor's design is fit for the purpose intended defined in the Contract
 
The Yellow and Silver Books has a similar provision, but since the Contractor is responsible for all design Clause 4.1 provides that the Works are to be fit for their purpose. Any error in the design in the Employer's Requirements is subject to Clause 5.1 described above
 
Conclusion
 
The new FIDIC forms have adopted much of current thinking in the administration of contracts and shifted risk and responsibility to the Contractor. Many of the changes will cause controversy
 
Unfortunately there is no radical thinking in the mechanism for dealing with the evaluation and settlement of claims, which are an inevitable result of the changes. The adoption of a Dispute Adjudication Board is a welcome change, but the procedure is unwieldy for all but the most complex disputes. It is unfortunate that the opportunity was not taken to introduce a mechanism for evaluating entitlement which would reduce the most costly part of disputes resolution.
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