FIDIC 1999 - Is this meeting the needs of the construction industry?

In his series of articles, Chris Binnington this month examines FIDIC and points out a few of the shortcomings of this widely used contractual standard.

FIDIC, the French acronym for the Federation of International consulting engineers, have been producing contract documents since 1954. Its 1999 suite, in part, was undoubtedly produced because of pressure to provide a comprehensive suite of procurement options which would meet the changing needs of the construction industry. Some would also argue that FIDIC were under pressure from the competing suite of NEC documents produced under the auspices of the Institution of Civil Engineers UK. (See my article on Page 43 of the March edition) This latter suite has become, since its first introduction in 1991, the dominant form of contract in the UK.

A number of major employers in the South African industry adopted the 1999 FIDIC suite and the Botswana Government has steadily moved towards the use of these documents.

The documents in the suite comprise;

  • The new Red book for building and engineering works designed by the employer;
  • The Yellow book (actually a beige book) the Plant and Design-Build for electrical and
  • mechanical plant and for building and engineering works designed by the contractor;
  • The Silver book, EPC/Turnkey design and build document; and a short form of contract. (There is also a dredging long form but for obvious reasons its use in Southern Africa is of limited application.)

Numerous commentaries have been written on the Silver Book highlighting the risk shift to the contractor which provoked the European Contractors Association (Orgalime) to issue an advisory note to its members NOT to contract under the Silver Book. FIDIC have stated that this form of contract is to be used where certainty of final price is a specific requirement and where the employer is prepared to pay the premium which comes with such an objective. This writer’s personal view is that the quality of this form of contract has been undermined by the dramatic risk shift to the contractor and that far from ensuring certainty of final price outcome it has, in fact, placed the employer at serious risk of having a contractor liquidate in the face of unforeseen risks. The provision that once the contract has been concluded the contractor is obliged to accept the risk of the employer’s own requirements being wrong is simply unacceptable.

Modernisation but not without errors

The new suite of contracts is based around the use of 20 clauses (except for the short form with 15 clauses) and the different philosophies which characterised the previous documents have now been eliminated to provide consistency between documents. Thus, for example, the claims clause, 20.1, provides a clear time bar for failure to give the appropriate notice within 28 days of becoming aware of an event giving rise to an entitlement to time or cost.

In an effort to modernise the contracts FIDIC have introduced useful additions but, in an attempt to deal with some of the perennial problems which contractors face, the draftsmen have clearly lost their way. Thus for example the introduction of an early warning provision (clause 8.3) in terms of which notice is required to be given of specific probable future events adversely affecting the work or leading to increased time or cost, is to be welcomed. Unfortunately the clause is hidden away in the programming requirements and does not give teeth to the clause since following the notice, if the engineer fails to react, there is nothing further to be done.

The entitlement of the contractor to receive information regarding the employer’s financial arrangements in an effort to overcome the difficulty associated with payment is both half hearted and unlikely to be retained by many employers. (Clause 2.4) Failure to provide “reasonable evidence” entitles the contractor to suspend and thereafter to terminate the contract, a risky position for the contractor since if he misinterprets the ‘reasonable evidence” requirement and gives a notice to suspend, this could constitute an act of repudiation allowing the employer to cancel and claim damages.

In similar vein the engineers entitlement now to set-off from a claim for unforeseeable physical conditions any situation of more favourable conditions in similar parts of the work (clause 4.12) is simply impractical and a dispute waiting to happen.

The retention of oral instructions is also incomprehensible in a modem form of contract. The tortuous conversion of an oral instruction into a written instruction requiring written confirmation from the contractor within 2 days of receipt of the oral instruction and if not dissented from within a further 2 days by the engineer results in the instruction constituting a written instruction! Which also demonstrates that the oral instruction was not to cater for emergencies since it takes a minimum of 4 days to covert it to a written instruction. (clause 3.3) Regrettably CCC 2004, published by SAICE, has introduced similar provisions but the time periods for confirming an oral instruction in this document are now up to 28 days! (clause 36,2)

No sub contract documents

The other major difficulty is the absence of sub contract documents. FIDIC have never been big on producing sub contract documents. Indeed their only effort in this regard is the 1992 version of the sub-contract for use with FIDIC IV. However FIDIC IV does not refer to nominated sub contractors and FIDIC appear to have overlooked employers need to have a set of general conditions for enquiry purposes when seeking tenders from proposed nominated sub contractors. (Following numerous re quests, Binnington Copeland and Associates have drafted subcontract conditions for use with all of the documents in the 1999 suite,)

So, is the suite meeting the needs of the industry? Although the documents are lengthy (in excess of 30 000 words) and several of the clauses require amending to create true functionality, the style is consistent with earlier FIDIC documents and users should not have too much difficulty converting to the 1999 suite, It is almost five years now since the suite appeared and FIDIC have undoubtedly received considerable feedback from a variety of sources, It is to be hoped that this will result in an improved 2nd edition although this does not appear to be on the horizon at the moment. Given the dearth of competing documents and the considerable footprint internationally which FIDIC enjoys it is probably fair to say that FIDIC 1999 provides a useful set of documents which are capable of being implemented without going through a significant learning curve. The suite does not however incentivise the parties towards co-operative contracting and the documents remain adversarial. The use of the Dispute Adjudication Board for dispute resolution should be capable of defusing the consequences of the adversarial style but more could have been done to promote co-operation between the parties.