The wait is now over. In December 2017, FIDIC published its much-heralded new editions of the Red, Yellow, and Silver Books, which contain extensive amendments to the first editions, released in 1999. We primarily focus on the Yellow Book, however, unless stated, the amendments also apply to the Red and Silver Books. Key changes across the suite include the new Advance Warning procedure, similar to that under NEC, the Notice procedure to be followed before any claims can be advanced and the new regimes for claims and dispute resolution.
Design
The 1999 edition of the Yellow Book contained an express fitness for purpose requirement, which has been modified, such that the purpose must be stated in the employers requirements; and if no such purpose is stated, the works must be fit for their ordinary purpose. Similar wording features in the Silver Book. The fitness for purpose obligation is now backed up by an indemnity whereby the contractor is required to indemnify the employer for any failures in this regard. This is tempered to some extent by the exclusion of liability for indirect and consequential losses and the fact that any liability will fall within the general cap on the contractors liability, however, we anticipate that contractors will not react positively to this provision.
The fitness for purpose and the professional indemnity insurance obligations provide that the contractors PI policy must protect any failure to achieve the fitness for purpose requirements, if stated in the contract data. This is rather optimistic – particularly at times when the contractors PI insurance market hardens and so contractors would be well advised to discuss these requirements with their brokers to see what can be achieved.
Security
An additional provision has been included to the effect that a request for an increase or decrease in the amount of the security can be made if variations under Clause 13 result in a change to the contract price of more than 20%. Employers may still wish to make amendments to adjust the percentage change to the contract price that triggers this provision and/or to provide for consequences if the contractor fails to provide the necessary increase to the performance security.
Variations
The grounds for objecting to a variation now include (i) varied work that is unforeseeable, having regard to the nature of the works set out in the employers requirements; (ii) whether the variation would adversely affect the contractors ability to comply with certain obligations; and (iii) whether the variation adversely affects the contractors ability to meet its fitness for purpose obligations.
With reference to omitted work, this can be carried out by others, if agreed, but the contractor will be entitled to loss of profit and other losses / damages by way of compensation. The change in law provisions have also been altered so that changes in permits etc. obtained by the employer or the contractor under sub-clause 1.13, or changes in the requirements for any such permits etc. are also to be treated as changes in law.
Time / Programme
The contents of the programme are more prescribed, for example, it should include logic links between activities and the critical path(s). There is also an additional requirement to submit a separate testing programme. If the parties are to stipulate a contractually binding programme, it is likely that additional work will be required up front to ensure that the programme is compliant.
This section also features a more developed advance warning provision from that previously provided for in the former Clause 8.3. Each party is now required to notify the other and the engineer of any known or probable future events, which could adversely affect the work of the contractors personnel or the performance of the works once completed, or increase the contract price, or delay completion. The engineer may then request a proposal to avoid or minimise the effect of any such event.
Users of the NEC suite will be familiar with this concept through the early warning provisions found in all NEC contracts, however, FIDIC has not included express provision for any failure to comply. When claims are to be made under specific sub-clauses, in many cases, there are increased requirements as to when and how to submit notices of those claims. It is made clear that progress reports and programmes cannot constitute notices. To that end, the advance warning procedure and the general requirement for notices seek to impose more order in terms of the administration of the contract.
Defects
There is a new limitation period for plant, which provides that the contractor is not liable for any defects or damage occurring more than two years after the expiry of the defects notification period (DNP) for plant (unless prohibited by law or in the case of fraud etc). Whilst not entirely clear, this is probably to be read as excluding liability for defects or damage occurring more than two years after the expiry of the relevant DNP, rather than imposing a shorter limitation period in respect of plant.
Termination
The employers right to terminate for convenience has been significantly modified by requiring it to pay loss of profit and other losses and damages suffered by the contractor as a result of the termination. These changes render the consequences to the employer of termination for convenience largely indistinguishable from a termination by the contractor for employer default, which, we suspect, will be unpalatable to many employers.
Claims
A party cannot raise a claim without submitting a notice. Therefore, a party cannot seek a tactical advantage by advancing a claim in day-to-day correspondence. In addition, verbal instructions can no longer be issued by the engineer and followed up in writing (which was the previous position under the Red Book). Instructions should now comply with the notice procedure and work should not be carried out before a written notice is issued.
There is a more detailed process for dealing with time/money claims. The usual provision requiring notification of the claim within 28 days has been retained, as has the provision stating that if the notice is not given in time the claim is lost. However, the claimant now has 84 days to deliver a fully detailed claim, rather than the previous 42 days and if it fails to state the contractual or legal basis for its claim within this 84-day period, the claim may be barred.
If a party is dissatisfied with the engineer/employers representatives determination, it must issue a Notice of Dissatisfaction (NOD) within 28 days and can then proceed to dispute resolution. If, however, the aggrieved party fails to serve such NOD or issues it out of time, the engineers determination will be deemed accepted and becomes final and binding. The party serving an NOD must also commence Dispute Avoidance and Adjudication Board (DAAB) proceedings within 42 days of the NOD, otherwise the NOD will lapse, and the engineers determination will become final and binding.
Dispute Resolution
This now contains a requirement for the DAAB to regularly meet with the parties and/or visit the site, which will add expense and more administration (some would say, unnecessarily). DAAB decisions, which have not become final and binding, may now be enforced by separate arbitration proceedings. This broadly follows the drafting proposed in the earlier FIDIC Guidance Memorandum, noting that a substantial number of arbitral tribunals had found the position previously unclear.
This is welcome news, given that bespoke amendments to the FIDIC Suite frequently provide for arbitration only after taking-over, which could inadvertently render a previously binding DAB decision/expert determination redundant if one party fails to comply. As regards to an arbitral tribunal, the ICC Court will decide the number of arbitrators to be appointed. This may now avoid jurisdictional issues, which can arise where the ICC Expedited Procedure applies, for example, the appointment of a sole arbitrator in the face of an arbitration clause which stipulates a panel of three.
The expedited procedure is relatively new, but challenges to similar procedures under other rules have led to inconsistent results, which can now be avoided. It is hoped that the new amendments to the FIDIC Rainbow Suite offer clarity. We often see bespoke contracts based on FIDIC or heavily amended FIDIC forms, which over-complicate the claims and dispute resolution provisions. One recent MENA example provided for a binding expert determination (with little clarity in terms of the appointment procedure); arbitration after taking-over; and a provision elsewhere in the contract, which allowed for payment disputes to be heard by a competent court (not a common law court in a freezone).
By incorporating the new regime for the handling of claims and dispute resolution, such heavily bespoke procedures should hopefully be avoided. To conclude, we appreciate that not all of the amendments in the 2017 suite will be welcome to all parties, but they are likely to raise useful considerations when drafting and negotiating FIDIC based contracts in the future (and indeed, when litigating), which can only be a good thing!