Fidic Guidance Notes

[Abigael Ortyl]

Thesecond edition introduces several pre-determined losses in the contract. Liquidated damages (as a pre-agreed contractual rate of damages) were previously used for delay. The 2021 edition however also applies liquidated damages to termination and prolongation costs. There is a pre-determined loss of profit figure, setting it at 10% of the value of the omitted work. Prolongation costs are calculated using a formula based on the value of the works carried out at the time of the delay event and the average onsite and offsite overheads for delay.

This is designed to avoid the parties having to measure damages after the event, and possibly having to engage an expert to determine. This would otherwise be disproportionately expensive and time-consuming for the parties, especially as the Green Book is intended to be used on smaller scale projects.

The Green Book uses a notice provision in clause 13 for claims where the Contractor believes they are entitled to additional time or money, or where the Employer considers they are entitled to additional payment or relief. The notice describing the event or circumstance, giving rise to the claim, is to be provided within 28 days, with a full detailed claim following within 56 days, of the date that the claiming party became aware or should have been aware of the event or circumstance. However, unlike other FIDIC contracts, if the claiming party fails to comply with this provision there is no time bar, or loss of right. Instead, any entitlement shall be reduced to take into account the lost opportunity to mitigate or investigate the claim arising from the delayed notice. This relaxation in having a time limit, rather than a time bar, reflects the nature of the works under the Green Book. There may not be the same level of resource to administer the contract, when compared with other forms of contract. An example form of notice is included as an Annex to the accompanying guidance notes, but this is only a guide and is not compulsory.

There is also an option for the parties to instruct the adjudicator on an informal basis to aid in the resolution of disputes. This involvement will not be binding upon the parties but may help the parties reach an amicable settlement. Such assistance can either be regular or provided as and when required. This is an unusual provision, but in some way appears to be a scaled down alternative to having a Dispute Resolution Board, which is often used in large scale FIDIC contracts. The contract thereby provides for a neutral third party (with some ongoing involvement in the dispute) to act as a sounding board. This is intended to enable the prompt resolution of any disagreements before they become full blown disputes.

The other long-established FIDIC contract is the Yellow Book,[8] first produced in 1963 and with subsequent editions in 1980[9] and 1987,[10] which is the design-and-build equivalent of the employer-design Red Book.

In the mid-1990s, two significant events occurred in the history of the development of the FIDIC contracts. These were the introduction of a turnkey contract, the Orange Book,[11] and the setting up of a task group to produce a major revision of the Red and Yellow Books. These events led to the launch in 1999 of the Rainbow Suite, so-named from the colours of the covers of the respective books: Red, Yellow and Silver.[12]

In December 2017, 18 years after releasing its first edition of the Rainbow Suite in 1999, FIDIC published second editions of the Red, Yellow and Silver Books as updates to the first editions. The introduction of the 2017 Rainbow Suite was the latest significant landmark in the development of international contracting for major infrastructure projects worldwide.

The position of the FIDIC contracts, specifically in major development work, has been secured by the signing of a five-year agreement with the World Bank,[13] with a commitment to use six FIDIC agreements[14] for its projects, and, on 10 May 2019, a five-year agreement with the Inter-American Development Bank,[15] which will ensure the use of the same contracts for development-financed projects in Latin America and the Caribbean.[16]

The latest addition to the FIDIC suite is the Conditions of Contract for Underground Works, known as the Emerald Book. This contract, produced in collaboration with the International Tunnelling and Underground Space Association, was released on 7 May 2019.[17]

During 2019 and for the immediate future, the principal FIDIC contracts are in a state of transition. The official position is quite straightforward. The current versions of the Red, Yellow and Silver Books are the second editions, which were launched by FIDIC in London[18] on 5 December 2017. However, the reality is that the contracts in widespread use at the time of writing are those of the 1999 Rainbow Suite, a situation that is likely to continue for some time to come.

One of the strengths of the FIDIC contracts has been consistency of structure. The 1999 Red, Yellow and Silver Books share the same 20-clause format and, as far as possible, the clause numbers correspond to their equivalents in each book. However, the individual contracts reflect quite different approaches to construction procurement and these extend to divergences in detailed provisions.

FIDIC has prepared translations of the 1999 Red, Yellow and Silver Books into selected languages, partly to deal with the problems caused by unofficial, and often very inaccurate, translations. The Red, Yellow and Silver Books have all been translated into Arabic, Chinese, French, Polish, Portuguese, Romanian, Russian, Spanish, Turkish and Vietnamese. A further nine European languages (Bosnian, Croatian, Estonian, Hungarian, Italian, Latvian, Lithuanian, Serbian and Slovak) have at least one contract translated, as do three Asian languages (Bahasa Indonesia, Japanese and Mongolian). There are guidance notes in German.

The contracts have been greatly expanded. The 1999 books were each about 60 pages long, with some 20 pages of guidance notes. Each of the 2017 books is over 100 pages long with more than 40 pages of guidance notes. The familiar 20-clause structure has been replaced by 21 clauses in all three books.

A deficiency of the 1999 Rainbow Suite was the absence of non-performance damages in the event of a failure of the tests on completion; non-performance damages applied instead to the tests after completion. The 2017 books enable the parties to agree performance damages in the Schedule of Performance Guarantees and, if the works, or a section, fail to pass the tests on completion repeated under Sub-Clause 9.3 [Retesting], the employer is entitled to payment in full satisfaction of the failure. As with the 1999 books, performance damages are also payable if the works or any section fail to pass any test after completion.[54]

Following the DAAB stage, the amicable settlement stage of the dispute resolution process was firmly established in the 1999 FIDIC forms.[77] It has maintained its position in the 2017 books, though the reduction of the period for amicable settlement from 56 days to 28 days was unexpected. More predictable has been the encouragement in the 2017 Guidance for the Preparation of Particular Conditions to consider reference to senior executives, mediation, expert determination or some other form of alternative dispute resolution.

For the time being, the Pink Book will continue to be used on MDB-funded projects let in the last 10 years, as they make their way through the execution process to completion. However, looking to the future, this model will not remain unchanged. It is, of course, a pre-2017 contract. It is inevitable, therefore, that it will be either replaced by a new edition or superseded by equivalent standard amendments to the 2017 forms, as was the case prior to the institution of the MDB version of the Red Book.

In simple terms, the Gold Book resembles a design-build contract, which is heavily based on the 1999 Yellow Book, with an agreement attached for operation and maintenance that assumes a 20-year operation service period.[92] Obviously, the latter necessitates the inclusion of a number of concepts and technical terms not found in the Yellow Book, such as asset replacement fund,[93] auditing body,[94] commissioning certificate and commissioning period,[95] operating licence, operation management requirement, operation and maintenance plan, operation service and operation service period.[96] Because, self-evidently, the Gold Book was not included in the FIDIC Contracts Guide published in 2000, FIDIC subsequently issued a separate equivalent.[97] The commentary reveals that FIDIC was largely able to keep to the established 20-clause structure of the Rainbow Suite and that, where possible, many provisions are similar, especially to the 1999 Yellow Book. The differences are essentially of two kinds: first, those additions that are a product of the operation service phase, following on from the design-build phase; and second, those changes that FIDIC introduced as improvements. Thus, in addition to the final payment certificate design-build[98] and the final statement design-build,[99] there is a final payment certificate operation service[100] and a final statement operation service.[101]

In some respects, the Gold Book for a time acquired greater importance than could be explained solely by reference to its use on DBO projects; it was seen as an indicator as to the likely future direction of reform of the Rainbow Suite contracts. In the result, this has only partly been confirmed by the 2017 second editions. The emphasis on dispute avoidance in the new contracts was certainly foreshadowed by the Gold Book, though the Gold Book approach to time bars was only followed to a limited extent in the 2017 books, and the risk allocation regime not at all.

In other respects, the Dredging and Reclamation Works Contract exhibits many of the characteristics of the FIDIC Green Book (see below), and adopts the same 15-clause structure. Contract administration under the Dredging and Reclamation Works Contract is done by the engineer. Price can be on a remeasurement, lump sum or cost-plus basis; the contract data contains a range of pricing options.[106] Dispute resolution in the first instance is by a DAB, with final resolution by arbitration. The FIDIC Dredging and Reclamation Works Contract is an example of a sector-specific standard form that, though not generally well known, has a disproportionately large significance within that specialist industry.

3a8082e126