EIC Contractor'sGUIDE For FIDIC Conditions

Type/Clase : Source/Procedencia :
Guide de redaction / Userss guide / Guas de redaccin European International Contractors 129, Kurfurstenstrasse D-10785 Berlin
Date de publication : Date of publication : Fecha de publicacin : Tl/Tel : Fax :
01/03/2000
(49) 30 212 86 244 (49) 30 212 86 285 eicontractors@compuserve.com
Avertissement: Les contrats et guides de la prsente collection ont t slectionns seule fin d'illustration. Leur contenu et leur utilisation n'engagent pas la responsabilit de Juris International. Please note: The contracts and guides contained in the present collection have been selected for illustrative purposes only. Juris International shall not be liable for their contents or use. Advertencia: Los contratos y las guas de la presente coleccin han sido seleccionados nicamente a manera de ilustracin. Su contenido y utilizacin no compromenten la responsabilidad de Juris internacional.
EIC Contractors Guide to the FIDIC Conditions of Contract for EPC Turnkey Projects
Foreword
FIDIC and EIC have held many constructive discussions since the September 1997 draft of the Conditions of Contract for EPC Turnkey Projects (known as the Silver Book) was issued. As a result of these discussions and those held with other interested parties, the first edition of the Silver Book has incorporated some improvements by comparison with the original draft. To EIC however, the Silver Book represents such a significant departure from FIDIC's traditional approach to the contractual and risk sharing relationship that has prevailed over the years between Employer and Contractor that EIC has decided to take the unusual step of publishing a contractor's guide to the Silver Book. Contractors often take comfort from the fact that a contract is to be carried out under FIDIC terms and conditions but this will certainly not be the case where the Silver Book is used. The purpose of this guide is to highlight the potential risks and pitfalls. It is FIDIC's view that the individual nature of the turnkey project invariably requires a fair degree of flexibility on the part of Employer and Contractor and extensive negotiations are essential prior to contract signature and they offer the Silver Book as a good starting point for negotiation. EIC does not share this view and in the preparation of this guide, EIC has tried to highlight for contractors, particularly those who may be confronted with this form of turnkey contract for the first time, some of the more important issues to be addressed in bid preparation and client discussions. EIC wishes to make it clear that this document is not exhaustive and is intended for guidance only. Expert legal advice should always be obtained before submitting an offer or making any commitment to enter into a contract. Neither EIC nor the authors of this document accept any responsibility or liability in respect of any use made by any person or entity of this document or its contents which is and shall remain entirely at the user's risk. To ensure that this Guide provides the maximum benefit, we would like to receive comments from EIC member companies on its usefulness and relevance. We would particularly like to hear about any contracts which have been put out to tender under the Silver Book. All communications should be sent to the EIC Secretariat in Berlin.
EIC Contractor's Guide to the FIDIC Conditions of Contract for EPC Turnkey Projects.
Acknowledgements EIC would like to thank explaining the philosophy to our arguments. We Metalliques Europeennes contributions they made improvements. EIC would also like to express its appreciation of the work carried out by members of the the Conditions of Contract Working Group who produced this Guide: Lidia Amadio, Astaldi; Louise Axton-Wilkins, Costain; Eric Eggink, Ballast Nedam; John Fenwick, Amec; Dr Joachim Goedel, Hochtief; Frank Kennedy (Chairman), Carillion; Andrew Lee, Balfour Beatty; Agne Sandberg, Skanska; Charles Shankland, Eiffage. Thanks also to the Working Group's secretary Frank Kehlenbach and Martin Carrey of Carillion. the FIDIC Contracts Committee for the time they devoted to behind the publication of the Silver Book and for listening patiently would also like to thank the Organisme de Liaison Industries (ORGALIME) and Mr Robert Akenhead QC for the important in reviewing the final draft of this Guide and recommending
Executive
Summary
In their Introductory Note to the Silver Book, FIDIC describe the benefits to the Employer of turnkey project execution and state that passing responsibility for designing and constructing the works to the Contractor will relieve the Employer of responsibility for close supervision of the design and construction processes. FIDIC also maintain that there will be an increased certainty of the final price and fewer disputes if the Contractor assumes responsibility for the wide range of risks set out in the Silver Book. Regrettably, EIC cannot endorse this view and believe that the Silver Book falls a long way short of meeting the objectives which FIDIC set down for it. Contractors accept that, by choosing a turnkey approach, Employers can reasonably expect the Contract to transfer as much risk as practicable to the Contractor, offer a high degree of certainty on the final price, facilitate the speedy completion of the Works and, in the event of dispute, provide for their rapid resolution. Contractors on their part, are quite prepared to contract on a turnkey basis and accept additional risk, provided that risks can be identified, priced and managed, design and construction of the works is free of disruptive interference and disputes are resolved quickly and equitably. In a number of important respects, the Silver Book does not adequately satisfy the respective aspirations of Employer and Contractor and its failure to do so is best illustrated by consideration of those matters that most commonly give rise to disputes in turnkey projects; .inadequate definition of the scope of work, .disruption of the design and construction process, .inequitable allocation of risk and .claims and dispute resolution.
Definition
of the scope of the works
It is stating the obvious to say that an offer to work on a fixed lump sum basis can only be made if the Works are sufficiently well defined. This requires an adequate preliminary design, comprehensive technical specifications and clear and unambiguous performance criteria. The Contractor will carry out the majority of these tasks in a turnkey project. However, it is essential that the Employer fully understands and accepts what is on offer and the required clarity of understanding will only be achieved through detailed and lengthy negotiation between employer and contractor. Manifestly, this cannot possibly be achieved during the tender period with all bidders and, until such time as agreement has been reached, any offer should remain conditional. The obligations placed upon contractors by the Silver Book are onerous, whereas the Employer's most significant responsibility is limited to providing a definition of the intended purposes of the Works and setting criteria for testing and performance. The Employer is not even responsible for the accuracy of the "Employer's Requirements"! The Contractor is required to make all necessary investigations, verify relevant information and carry out design in sufficient detail to price the Works. Such demands, combined with the allocation of risks to the Contractor which may be impossible to predict or cost accurately, may make it impossible for the Contractor to establish precisely the full scope and extent of his liability. In particular, it will be practically impossible for the Contractor to fully comply with all of these obligations during the tender period especially the full verification of the Employer's Requirements and the development of a fully detailed design. Contractors must decide
EIC Contractor's Guide to the FIDIC Conditions of Contract for EPC Turnkey Projects
5 whether it will be feasible to clarify all of these matters following tender submission and prior to the signature of a binding contract. In most circumstances, contractors will be well advised to submit an appropriately conditioned offer which makes it clear that a full and binding offer will only be made (to the extent that this is practically possible) following extensive and conclusive negotiations. Arguably I the submission of a qualified bid might lead to disqualification of the Contractor's tender despite FIDIC's recommendation in their Introductory Note that it should be used as a starting point for negotiations. Clarification of the Employer's position on qualified tenders should be established before any decision is made to submit a bid. In many instances, clauses in the Silver Book are in direct conflict with the obligations placed on Contractors. Not only is the obligation to define the scope of the Works loosely defined, it is also subject to reviews by the Employer who has the same power to interfere through instructions, approvals, variations and determinations as the Engineer in a conventional construct only contract. Paradoxically, should any Employer exercise his right to interfere in this way it will inevitably undermine FIDIC's primary objective, certainty of the final price.
Disruption
of the design and construction
process
Only the Employer can make the choice of a turnkey contract and should only do so if he has confidence in the competence, resources and experience of his potential Contractor. To achieve this level of confidence demands a serious and comprehensive pre-qualification and tendering process aimed at selecting the best contractor for the project. Thereafter, there can be no justification for detailed supervision and interference and clearly specified monitoring at defined milestone events should be perfectly adequate. For a Contractor to enter into a contract of fixed time and price his obligations must also be fixed and once the contract is signed, the Employer should not be able to unilaterally impose his will on the design and construction process. The extent to which the Employer might disrupt the design and construction process is the most fundamental area of concern for contractors working on turnkey projects. FIDIC would appear to accept this important principle by stating in the Introductory Note to the Silver Book, "the Employer should exercise limited control over and should in general not interfere with the Contractor's work". Consequently, in the event that the Employer orders the Contractor to design or construct all or part of the works in a particular way, then the Employer must accept full responsibility for the consequences of his actions. Should the Contractor be responsible for the achievement of any Performance Criteria then the Contractor must have the right to refuse an instruction, which, in his opinion, is likely to have an adverse effect on the achievement of the Performance Criteria.
Allocation
of risks and responsibilities
EIC accept that Contractors will bear considerably more risk under a turnkey contract compared to that of a conventional construct only contract but EIC cannot accept the extent to which Silver Book goes in attempting to make the Contractor responsible for almost every eventuality however unforeseeable. EIC believe that the Employer cannot pass liability for all risks to the Contractor and any contract signed under the Silver Book should clearly
EJC Contractor's Guide to the FJDIC Conditions of Contract for EPC Turnkey Projects
define where liability lies to ensure that contractors are in a position to accurately identify, price and manage those risks which are to be their responsibility. The Contractor must be especially alert to uninsurable risks, risks that are completely out with his control or risks that are likely to increase as. a consequence of the actions of the Employer or third parties. Contractors should also be wary of those clauses, which, as drafted, could leave the Contractor at the mercy of an unscrupulous Employer. However, it is probable that the greatest challenge and consequently the greatest risk will be the difficulty of checking and confirming the accuracy or adequacy of the information and data supplied by the Employer. Contractors who accept contracts under the Silver Book are responsible for the accuracy and correctness of all information and data regardless of its source. Contractors are advised to take particular care with clauses dealing with the definition of fitness for purpose and liability for unforeseeable difficulties and adverse physical conditions.
Claims and disputes
management
Despite FIDIC's claims to the contrary the Silver Book is likely to give rise to disputes between the Parties unless several of its provisions are modified during negotiation. In particular due to the time constraints placed on the Contractor to submit a notice of an intention to claim are impractical and the sanctions for non-compliance are unreasonably punitive. By contrast the Employer is neither required to observe similar time limits nor suffer any sanction provided he gives notice as soon as practicable. This is yet another example of an inequitable contract. The Contractor should only be required to advise the Employer of an intention to claim as soon as reasonably practicable and there should be no time deadline after which the contractor would lose his rights. This should also apply to the procedure to be followed where details of the claim are to be submitted. Events may have a continuing effect and it is not always possible to establish the final effect resulting from an event until later.
A comparison of FIDIC's Conditions of Contract for Plant and Design-Build Yellow Book) and EPC Turnkey Projects (the Silver Book)
(the
If further evidence is required to demonstrate EIC's concerns regarding the Silver Book the following comparison of these two books highlights how far FIDIC have departed from their normal fair-handed and equitable distribution of risk and responsibility. Consequently the Yellow Book provides a useful source of reference when drafting an alternative allocation of risk and design responsibility. It is also extremely important to remember and to point out to clients at every opportunity that FIDIC is well aware of the fact that the Silver Book is highly unsuitable for certain types of turnkey projects. FIDIC makes this clear in the Introductory Note to the First Edition by stating that it IS not suitable in the following circumstances and that the Yellow Book should be used:
-
If there is insufficient time or information for tenderers to scrutinise and check the Employer's Requirements or to carry out the necessary designs, risk assessment studies and estimating (taking particular account of Sub-Clauses 4.12 [Unforeseeable Difficulties] and 5.1 [General Design Obligations]) If construction will involve substantial work underground or work in other areas which tenderers cannot inspect. If the Employer intends to supervise closely or control the Contractor's work, or to review most of the construction drawings.
If the amount of each interim payment is to be determined intermediary .
by an official or other
EIC consider that the following circumstances could be added to the list;
-
Where part of the design is made by the Employer and is binding on the Contractor -see also comments on Sub-Clause 5.1 [General Design Obligations] in this Guide. In competitive bidding without negotiations. between the Yellow and Silver Books are worth
As a final word the principal differences highlighting:
It should be noted however, that the above only describes the overall responsibilities parties and that important exceptions apply in each particular case.
of the
Comments on a number of individual clauses follow and deal with the matters referred to above in greater detail. Where considered appropriate comparative references are made to the Yellow Book.
EIC Contractor's Guide to the FIOIC Conditions of Contract for EPC Turnkey Projects.
General Provisions
1.4
Law and Provides that "The Contract shall be governed by the law of the Country (or other jurisdiction) stated in the Particular Conditions". The Contractor should be aware that under certain Civil Law jurisdictions some Silver Book conditions may be considered unfair trade terms and therefore inapplicable. Also there may be mandatory laws which cannot be over ridden by the Contract. Obligates both Parties to treat the details of the Contract as confidential. If the Contractor's design contains data which is commercially sensitive and which he does not wish to be placed in the public domain, the second sentence of this Sub-Clause, referring to restrictions on publication or disclosure of particulars, should also be an obligation on the Employer. The Contractor shall comply with all applicable laws. However the responsibility for obtaining permits, licenses or approvals is not entirely clear when Sub-Clauses 1.13 (a) and (b) are compared: Sub-Clause 1.13 (a) provides that "the Employer shall have obtained (or shall obtain) the planning, zoning or similar permission for the Permanent Works". Sub-Clause 1.13 (b) states that "the Contractor shall... ...obtain all permits, licences and approvals, as required by the Laws in relation to the design, execution and completion of the Works and the remedying of any defects". Responsibility for obtaining permissions is ambiguous and should be clarified. For instance, what are "similar permissions" for which the Employer is responsible pursuant to Sub-Clause 1.13 (a) and how do they fit with the Contractor's obligations under Sub-Clause 1.13 (b)? Ideally, the Contract should include a detailed schedule of the permits required and should identify the responsible Party. In the event that the Contractor is responsible, then the Employer, under Sub-Clause 2.2(b)(e) [Permits, Licences and Approvals] "shall (where he is in a position to do so) provide reasonable assistance to the Contractor", Consequently, any delay in the issue of permits caused by the Employer's failure should entitle the Contractor to an extension of time in accordance with Sub-Clauses 8.4 [Extension of Time for Completion] and 8.5 [Delays Caused by Authorities]. In particular, those permits that are required to allow the project to be developed at the Site of the Works should be specifically identified in the Contract as being the responsibility of the Employer.
Language
1.9 Confidentiality
1.13
Compliance with Laws
1.14
Joint and Several Liability
Where the Contracting Party is a joint venture or consortium, this Sub-Clause requires that, the parties to such joint venture or consortium must be jointly and severally liable to the Employer. Conversely, should the Employer consist of two or more legal entities then, in such a case the obligation should be reciprocal.
2
2.3
Employer's Personnel This Sub-Clause relates to the Employer's obligations in respect of his personnel and contractors employed directly by him. It should be noted that there is no express obligation on the Employer to secure generally that his other contractors cooperate with the Contractor other than in the respects identified. The effects of any delay or disruption caused by the Employer's personnel and contractors are dealt with under Sub-Clause 8.4 (c) [Extension of Time for Completion] which provides only for granting a time extension for such events. There is no provision in the Contract to recompense the Contractor for the consequential cost of delay and disruption caused by such events. Contractors should carefully consider the possible effects of such events in light of the obligation under SubClause 4.12 [Unforeseeable Difficulties] where the Contractor is deemed to have foreseen all difficulties and costs of successfully completing the Works.
2.4
Employer's Financial Arrangements
FIDIC recognises the need for the Contractor to be satisfied that the Employer has the necessary financial strength to undertake his obligations under the Contract. This Sub-Clause requires that "the Employer shall submit, within 28 days after receiving any request from the Contractor, reasonable evidence that financial arrangements have been made and are being maintained which will enable the Employer to pay the Contract Price". This is a crucial obligation on the Employer, particularly where funding is being provided by third parties. Fundamentally, the Contractor should have the right to refuse to undertake any Variation if he believes that the available funding is insufficient to cover the varied Works. (See also comments in respect of Sub-Clause 13.1 [Right to Vary]). The Contractor should also have a right to be made aware of any terms, conditions or step-in rights that exist in any agreement between the Employer and his Lenders. If any direct agreement with regard to the project is to be made between the Lenders and the Contractor then the terms and conditions of such an agreement should be provided to the Contractor prior to signature of Contract. A powerful sanction is available to the Contractor should the
10 Employer fail to furnish reasonable evidence. The Contractor is entitled to suspend the work or terminate the Contract under Sub-Clauses 16.1 [Contractor's Entitlement to Suspend Work] and 16.2 [Termination by Contractor]. However, what constitutes "reasonable evidence" is undefined and the Contractor should establish this prior to submitting a tender. Failure to do so could prejudice any attempt to obtain more detailed information during the currency of the Contract, for example in the event of a major Variation being instructed. Contractors should give due consideration to the risk associated with continuing to work during the 28 day period available to the Employer to provide the required evidence and the further extended notice periods required to comply with the suspension and termination provisions.
2.5
Employer's Claims
This obligates
Sub-Clause the to
offers Employer to
some to
protection follow a
to given
the
Contractor procedure if
and he
"considers and/or
any himself extension
of theentitled be Defects
to Notification payment Period". any
The Employer must notify the Contractor ''as soon as practicable" and give particulars of his claim, after which the Parties may agree the claim or failing which the Employer may then make a determination in accordance with Sub-Clause 3.5 [Determinations]. The provisions of this Sub-Clause are also mandatory in the event that the Employer wishes "to set off against or make any deduction from an amount due to the Contractor". A provision entitling the Contractor to claim against the Employer is found in Sub-Clause 20.1 [Contractor's Claims], but is much more onerous on the Contractor compared with SubClause 2.5. (See comments under Sub-Clause 20.1).
3
3.1
The Employer's Representative The Employer is completely free to appoint any person to act as the Employer's Representative and/or to revoke any such appointment. Invariably it will be important for the Contractor to establish whether that representative will be an independent Consulting Engineer or a member of the Employer's personnel. It is also important for the Contractor to be aware of the exact nature of the duties and authority assigned to the representative( s). Contractors should appreciate a fundamental difference between a two Party contract such as the Silver Book and traditional FIDIC forms of contract. Under the Silver Book, the Employer's Representative acts directly for the Employer and is only responsible for looking after his interests. This is particularly relevant when compared to the role traditionally carried out by the Engineer which required the exercise of
EIC Contractors Guide to the FIDIC Conditions of Contract for EPC Turnkey Projects.
discretion
and
impartiality
even when
fulfilling
the
role
of
Employer's Representative. Contractors should also take note that the powers of the Employers Representative are potentially very comprehensive. "Unless and until the Employer notifies the Contractor otherwise, the Employer's Representative shall be deemed to have the full authority of the Employer under the Contract, except in respect of Clause 15 [Termination by Employer]".
3.2 Other
Employer's Personnel
The Employer or the Employer's Representative may delegate powers to assistants. The power to delegate authority to these third persons is very broad, and the Contractor should be alert to the possible confusion and interference that might arise if too many assistants are appointed. The Contractor is entitled to receive a copy of the written delegation which describes clearly the role of the assistant or the like and the delegation does not become effective until received by the Contractor. This Sub-Clause is very specific in terms of what constitutes an instruction under the project and requires that "Each instruction shall be given in writing and shall state the obligations to which it relates ". Contractors should ensure that all instructions comply with these requirements and should note that verbal instructions would appear to have no validity under the Contract. Notwithstanding the fact that FIDIC has drafted the Silver Book as a two-party contract, the Employer is given the unilateral right under this Sub-Clause to determine matters in respect of a broad range of matters. The thinking behind this was presumably to ensure that decisions are taken when required to minimise delay. The Employer has such rights in respect of the Sub-Clauses listed below. 2.1 2.5 4.19 4.20 4.24 7.4 8.9 9.4 10.3 11.4 11.8 12.2 12.4 13.3 13.7 14.4 15.3 16.1 [Right of Access to the Site]; [Employer's Claims]; [Electricity, Water and Gas]; [Employer's Equipment and Free-issue Materials]; [Fossils]; [Testing]; [Consequences of Suspension]; [Failure to Pass Tests on Completion]; [Interference with Tests on Completion]; [Failure to Remedy Defects]; [Contractor to Search]; [Delayed Tests]; [Failure to Pass Tests after Completion]; [Varia,tion Procedure]; [Adjustments for Changes in Legislation]; [Schedule of Payments]; [Valuation at Date of Termination]; [Contractor's Entitlement to Suspend Work];
3.4 Instructions
3.5
Determinations
Erc Contractor's Guide to the FIDI.C Conditions of Contract tor EPC Turnkey Projects
12 17.4 [Consequences of Employer's Risks]; 19.4 [Consequences of Force Majeure]; 20.1 [Contractor's Claims]. It may seem strange that one of the parties has the right to make determinations regarding the respective rights of the parties. This was normally reserved for the truly impartial engineer -a rare bird nowadays. However, the Contractor is not obliged to give effect to the determination provided he gives notice of his dissatisfaction within 14 days in which case the determination is not binding. The fact that the Employer has the right to make a determination is not necessarily against the interests of the Contractor. If no agreement is achieved and the Employer fails to make a fair determination then this will be a breach of Contract and the Contractor may refer the matter to the Disputes Adjudication Board. No time limit is placed upon the Parties reaching agreement and the Sub-Clause does not define a period in which the Employer is required to make a determination. It is suggested that a time limit of 28 days should be imposed on the Employer to reach agreement with the Contractor and that a further 14 days are provided for making a determination upon failure to reach agreement. The Contractor must be aware that the Sub-Clause places no obligation of the Employer to label his decision a determination. Conversely, the Contractor is required to "give notice, to the Employer, of his dissatisfaction with a determination within 14 days of receiving it". Consequently in cases of dispute as to whether a communication was a determination or otherwise it would be very unusual and grossly unfair for the Contractor lose his rights simply as a result of a failure to comply with the obligation to notify. However, every effort should be made to avoid dispute by establishing whether a communication from the Employer constitutes a determination or not. Avoidance of doubt is the safest way of ensuring that there is no loss of entitlement through any failure to lodge the required notice.
4 The Contractor
Clauses 4 [The Contractor] and Clause 5 [Design] set out the principal obligations and risks which are to be carried by the Contractor and both are much more onerous than any imposed by previous FIDIC Conditions of Contract. These two clauses interact with each other on a number of very important issues and should be studied together to ensure that the extent of a contractor's potential exposure is fully understood. The principal matters in Clause 4 which justify meticulous analysis and prudent appraisal are: -Fitness for purpose, Sub-Clause 4.1 [Contractor's General
EIC Contractor's Guide to the FIDIC Conditions of Contract for EPC Turnkey Project
Obligations] , Nominated subcontractors,
Sub-Clause
4.5 [Nominated
Subcontractors], Setting out, Sub-Clause 4.7 [Setting Out], Site Data, Sub-Clause 4. 10 [Site Data], Unforeseen difficulties, Sub-Clause 4.12 Difficulties].
[Unforeseen
4.1
Contractor's
General
Obligations
Fitness for purpose obligations are of particular concern where a contract is carried out under jurisdictions based on English Law or Common Law. It may be less of an issue under other jurisdictions where fitness for purpose obligations have been common practice for many years. However the issues discussed below are relevant to both situations. According to this Sub-Clause, "When completed, shall be fit for the purposes for which the intended as defined in the Contract". the Works Works are
Under Sub-Clause 5.1 (b) [General Design Obligations] the Employer is responsible for the correctness of the definition of intended purpose. Immediately however, we must consider the wider implications of Sub-Clause 5.1, which requires the Contractor to satisfy himself as to the accuracy of the Employer's Requirements. Contractors must therefore ensure that the definition is clear and unambiguous and that it is not open to reinterpretation at a later date. If a satisfactory definition is not available prior to tender submission then it would be prudent in almost all circumstances to prepare a definition acceptable to both Parties prior to contract signature. Failure to do so could lead to dispute later. With regard to the full extent of the obligation to design for fitness for purpose it may not be possible to pass the full liability on to any third party design consultant appointed by contractors. Current practice is for consultants to accept only an obligation to design with "reasonable skill and care" because insurance to cover the risk associated with fitness for purpose is not presently universally available and is a particular. problem for British consultants. In a perfect world, it should be obvious to all concerned that contractors cannot, within their lump sum price, be responsible for providing everything that an Employer later claims that he understood to be included. In reality, some Employers will choose to use the Silver Book for that very reason. An unscrupulous Employer could argue that the Contractor is responsible for an omission and refuse to issue a variation order. The Contractor's only protection against this type of behaviour is to prepare and agree as comprehensive and as detailed a schedule, as it is possible to prepare, setting out exactly what it is that is being provided. Failure of the Works to be fit for purpose carries punitive
EIC Contractors Guide to the FIDICConditions
of Contract tor EPC Turnkey Projects.
14
sanctions limited only by the terms of Sub-Clause 17.6 [Limitation of Liability].
4.5
Nominated SubContractors
The concept of an Employer nominating a subcontractor is hardly compatible with the obligations of the Contractor in a Turnkey Contract. Whilst this Sub-Clause does contain a provision for the Contractor to "raise reasonable objection...with supporting particulars", it does not convey an absolute right to reject a nomination. Manifestly, it is impossible to comply with such a requirement where the Contractor's concerns arise, say, from the relationships that are perceived to exist between the Nominated Subcontractor and either the Employer or his advisers. Contractors would be well advised to avoid or re-negotiate the terms of any contract that envisages such an arrangement. In the event that the Employer instructs the employment of a particular subcontractor despite the Contractor's reasonable objections then the Contractor will have a very strong case against the Employer to recover all of his costs arising from the default of the Subcontractor.
4.6 Co-operation
This Sub-Clause spells out the obligations of the Contractor. However, there is no equivalent or corresponding obligation on the Employer to secure that his directly employed "other contractors" co-ordinate or co-operate with the Contractor. In most contracts, but especially those where the Employer intends to place significant other contracts, it would be prudent to ensure that the Employer assumes clear and reciprocal obligations. Taken at face value, the obligations under this Sub-Clause would appear to be fair and reasonable and in accordance with normal practice. "The Contractor shall set out the Works...and shall be responsible for the correct positioning of all parts of the Works, and shall rectify any error". However, Sub-Clause 5.1 [General Design Obligations], which deals with the Contractor's design obligations, makes the Contractor responsible for the accuracy of the information provided by the Employer! There are some exceptions to this general requirement, but they are at best, limited and somewhat confusing in their application. Two courses of action are open to contractors: -If practicable, check the setting out data prior to submission of the tender, or -Clarify the basis of the offer and propose that the Employer retain responsibility under Sub-Clause 5.1. The question of responsibility for data is discussed more extensively under Sub-Clause 4.10 [Site Data] and Clause 5
[Design].
4.7 Setting Out
4.10
Site Data
The obligations and risks to consider under this Sub-Clause are essentially similar to, but much more wide-ranging than, those identified above under Sub-Clause 4.7[Setting Out]. "The Employer shall have no responsibility for the accuracy, sufficiency or completeness of such data, except as stated in
15
Sub-Clause 5.1 [General Design Obligations]." Put simply, whatever the source, the Contractor is responsible for verifying data. In particular, the Contractor is responsible for verifying and interpreting all data on subsurface and hydrological conditions, including environmental aspects. Such obligations are extremely onerous. The precise extent to which the exceptions offered under Sub-Clause 5.1 are actually applicable to the data supplied to the Contractor is debatable and it is recommended that the terms of the exceptions on offer in each individual contract be carefully scrutinised. Significantly, the disclaimer covers any information provided during the performance of the Works. Consequently the Contractor cannot rely on information provided by the Employer during the execution of the Contract and must always therefore establish its veracity unless the Employer retains liability under Sub-Clause 5.1 [General Design Obligations]. FIDIC recognise that, under certain circumstances, it will be impossible for contractors to comply with these obligations and propose a way out of this particular dilemma. They suggest, in the Introductory Note, that the Silver Book is not suitable for use where "there is insufficient time or information for tenderers to scrutinise and check the Employer's Requirements or for them to carry out their designs, risk assessment studies and estimating". FIDIC go on to state that, if contractors believe that such a situation pertains then they are advised to draw the Employers attention to FIDIC's own recommendation which is to suggest a suitable alternative form of contract e.g. the Yellow Book! Instead of admitting that the Silver Book is inadequate on this important issue and amending it, they leave the Employer and the Contractor to choose a totally different form of contract at such a late stage in the implementation process that their proposal cannot be considered a credible alternative! Inevitably, it must be concluded that FIDIC have opted out and ducked the task of solving a difficult problem of their own making.
4.12
Unforeseeable Difficulties
The language used in this Sub-Clause is uncompromising in the extreme and its scope and application are much more wideranging than any previous clause covering unforeseen conditions. The consequential effects of all unforeseen difficulties are passed to the Contractor, "Except as otherwise stated in the Contract". Sub-Clause 4.12 (b) requires the Contractor to foresee and allow in the price for every eventuality however unforeseeable! Presumably this is intended to include events that are completely out with the control of the Contractor. It is difficult to imagine a clause which would be more threatening to contractors and which would leave them more open to unscrupulous Employers who could allege that any difficulty, however inconceivable at tender stage, could be laid at the Contractor's door under this Sub-Clause. Contractors should beware!
EIC Contractor's Guide to the FIDIC Conditions of Contract tor EPC Turnkey Projects.
16
4.15 Access Route
On certain projects there could well be an inconsistency between this Sub-Clause and Sub-Clause 2.1 [Right of Access to Site] which requires the Employer to give the Contractor the "right of access" to the site. A matter to be clarified pre-contract. The requirements of this Sub-Clause are unnecessarily detailed and over prescriptive. Contractors would be well advised to agree at tender stage a more appropriate format for the particular contract.
4.21 Progress Reports
5
A number of references have already been made to Clause 5, largely because it deals with the responsibility of the respective parties for the basic data, and it is for that same reason that it is considered to be one of the most important in the Silver Book. As has already been explained, Clause 5 [Design] establishes the fundamental and crucial principle that the Contractor has wide responsibility for the correctness of the Employer's Requirements and there are only limited and inadequately defined exceptions to this principle. It is in the Contractor's interest to make all proposed exceptions clear and precise.
5.1
General Design Obligations
This is a complex Sub-Clause with many potential pitfalls for the unwary and it is well worth having a further look at the major disclaimer it contains. "The Employer shall not be responsible for any error, inaccuracy or omission of any kind in the Employer's Requirements as originally included in the Contract". The problem created by this statement is particularly evident when considering the important matter of the Employer's responsibility for design criteria. This would normally be the Employer's responsibility, yet the Silver Book fails to establish this as a fundamental principle and this should be covered by the exceptions provided for in this Sub-Clause. The Sub-Clause is equally vague on the likely content of the Employer's Requirements. The whole case for producing a turnkey form of contract such as the Silver Book was based on the thinking that the Contractor must comply with the Employer's Requirements and carry all risks in doing so. Yet the only indication in the Silver Book of what the Employer's Requirements might be or what they might contain is contained in the Guidance Notes. According to FIDIC they are to be specifically prepared project by project by "suitably-qualified engineers", no doubt taking many months to do so! Notwithstanding all of these considerations, the Contractor is expected, prior to submission of the Tender, to check the Employer's Requirements and to verify his design criteria and calculations. To do this properly and establish a high degree of confidence in the Employer's data would be an enormous undertaking. Design criteria encompass many and varied technical matters that include amongst other things, quality standards, process design, capacity, design life and, in the case of process and power plants, equipment specifications. The Contractor must not
17
only establish whether the design criteria are factually correct but must also establish whether they are adequate to achieve the desired performance and intended purpose, all in the limited time available during the tender period! Inevitably, it will be prudent for contractors to establish their own design criteria to ensure compatibility with their own design and to make this an integral part of the offer, even where design criteria have been provided by the Employer. Employers are likely to insist that performance criteria and definitions of intended purpose be complied with even if the technical specification fails to produce satisfactory compliance. Contractors must understand therefore that the Employer's definition of intended purpose and his required performance criteria will invariably take precedence over detailed technical specifications. Paradoxically, it could well be that in situations where the performance criteria are vague or are difficult to measure, then a statement of and compliance with a detailed technical specification could be a more appropriate safeguard. Whilst there is no specific declaration to limit the Contractor's responsibility for omissions it should be reasonably limited to the physical limits of the Works, especially if the alleged omission could not reasonably be established by a careful study of the intended purpose or from legal requirements or standards. To be on the safe side, proposals should be appropriately clarified. The exceptions offered under Sub-Clause 5.1 are of fundamental importance to the Contract. They would appear to mitigate many of the Contractor's extremely wide responsibilities for the definition and specification of the Works. It is crucial to keep subparagraphs (a) to (d) in mind when studying the Employer's Requirements and negotiating the Contract. They are important enough to consider one by one. Sub-Clause 5.1 (a) states that, "portions, data and information which are stated in the Contract as being immutable". This means that they are incapable of being changed and are, therefore mandatory on the Contractor and must be the responsibility of the Employer. It is therefore very important to check and confirm that the Employer's Requirements state very specifically which parts are immutable. This is such an important matter that it must not be left to post contract interpretation and argument. Of particular importance is the need to identify any part of the Employer's Requirements which uses the term "the Contractor shall" in respect of any data or information, as this could well make the requirement immutable, insofar as it is incapable of being changed by the Contractor. Under Sub-Clause 5.1 (b), the Employer is responsible for the correctness of the definition of the intended purpose and it is reasonable to conclude therefore that the Employer also retains responsibility for ensuring that it actually fulfils his needs.
18
Unfortunately, the Silver Book does not deal with the situation where the Employer has provided no clear and identifiable definition. If this important issue is left unresolved, it could well be that the definition could only be established later by an interpretation of the Employer's Requirements. Such a situation would be unsatisfactory in the extreme and contractors would be well advised to insist that a definition be provided in the Employer's Requirements. Criteria for testing and performance is normally the Employer's responsibility and this is as stated in Sub-Clause 5.1 (c), so this issue should not be a problem. Again however, contractors would be well advised to satisfy themselves that they are appropriate to their proposed design for the particular project. Sub-Clause 5.1 (d) will undoubtedly give rise to a significant amount of discussion. According to this Sub-Clause the Employer is responsible for "those portions, data and information which cannot be verified by the Contractor, except as otherwise stated in the Contract". This is, to put it mildly, an interesting statement. The words "cannot be verified" are obviously open to interpretation but in this context, probably mean that it is either impossible or impractical to verify. Nowhere in the Contract or guidance notes is advice offered on how this is to be decided or against what yardstick it is to be measured. It might be assumed that the available time would be a deciding factor and yet no comfort is offered to the Contractor by including a statement such as "with reasonable regard to time and economy". However, in the event of dispute, commercia] practicality could still be a reasonable defence when interpreting the word "cannot". In the long term, only arbitrators or the courts will establish where the border lies between "can be verified" and "cannot be verified". It would certainly be sensible for contractors to state in their tenders which parts of the Employer's Requirements could not be verified. Such a statement should at least lead to a discussion to establish who is to be responsible for which information. It is important that these matters are agreed before the Contract is signed if dispute is to be avoided later.
5.2
Contractor's Documents
Most contractors would agree that an orderly flow of technical information is critical to the success of a turnkey project. Yet, the Silver Book does not specifically address this issue but, under the terms of Sub-Clause 5.2, actually invites a situation where the Employer, or his adviser, can seriously disrupt and delay the design and construction process by repeatedly reviewing documents before giving permission for construction to proceed. Regrettably, this is not uncommon in turnkey projects, especially those where the Employer has appointed a consulting engineer, 'independent' from his own organisation. To delay the commencement of construction until reviews of the contractors documents are completed to the satisfaction of the Employer is, to put it mildly, a recipe for disaster. The provisions for review of documents are overly prescriptive and give the Employer too
19
much freedom design.
to interfere
with and
disrupt
the Contractor's
The Contractor has total responsibility for achieving the performance criteria and must therefore have total freedom to achieve this objective free of the Employer's interference. Contractor's Documents should be given to the Employer for information and the Contractor should at his own risk, be entitled to proceed with construction. To avoid potential conflict, contractors should set out in their tender document a clear and practical programme for the submission of all data, design and technical information required by the Employer and this should include a specific provision for work to proceed at all times, at the Contractor's risk. The Contractor's offer should be clarified accordingly and, to avoid dispute later, any differences of opinion on the procedure to be adopted should be resolved prior to contract signature.
5.3
Contractor's
The apparently simple undertaking required by this Sub-Clause hides a potentially dangerous inconsistency with Sub-Clause 5.1 [General Design Obligations]. Manifestly, "the documents forming the Contract", include the Employer's Requirements and, subject to certain exceptions, Sub-Clause 5.1 makes the Contractor responsible for their accuracy. Notwithstanding this, Sub-Clause 5.3 requires the Contractor to design and execute the Works to comply with the Employer's Requirements even if they are defective or deficient. Furthermore, the Contractor has no power to vary the Works without an instruction from the Employer who is not bound to issue one! This obvious ambiguity should be resolved pre-tender. This Sub-Clause should ensure that there is no open-ended obligation on the Contractor to amend the Works at his cost in order to comply with the very latest design standards even if published after the tender has been submitted. The Contractor should check however that the Particular Conditions do not amend or override this Sub-Clause. However, there is no mechanism in the Contract to resolve any ambiguity between the Country's technical standards and the Employer's Requirements. Yet another matter for pre-contract discussions.
Undertaking
5.4
Technical Standards and Regulations
7 Plant, Materials
7.6
Remedial Work
and Workmanship
A surprising omission is the lack of any express provision that permits the Employer to order a repair as opposed to removal, replacement or re-execution and the Contractor should have the right to carry out repairs to render the Plant or Materials acceptable and in accordance with the Contract. Should the Employer insist on a replacement in such situations then he should bear the additional cost.
EIC Contractor's Guide to the FIDIC Conditions of Contract tor EPC Turnkey Projects
20
8
8.3
Programme This Sub-Clause obliges the Contractor to is a new feature of the FIDIC Conditions Contractor shall promptly give notice future events or circumstances which or delay the execution of the Works". give advance warning, and requires that, "the of specific probable may adversely affect
Contractors should consider whether, if such warning i~ given, it could have an impact on the starting point for calculating the notice periods under Sub-Clause 20.1 [Contractor's Claims]. It would be only fair if this obligation to give warning is made reciprocal and applies to the Employer as well.
8.4
Extension of Time for Completion
The Contractor's entitlement to an extension of Time for Completion is limited by comparison with the Yellow Book. A right to extension exists if the delay is due to a Variation Order, to a delay caused by the Employer or his other contractors or if a right to extension exists under any other Sub-Clause of these conditions, i.e.
2.1
4.24
7.4
8.5
8.9
10.3
13
13.7
16.1
Failure by the Employer to give access to and possession of the Site. (Cost plus reasonable profit added to Contract Price). Discovery of fossils etc. (Cost but no profit added to Contract Price). Delayed testing caused by Employer (see also SubClause 10.3). (Cost plus reasonable profit added to Contract Price) Delays caused by Authorities. (Extension of time only). Suspension initiated by Employer (see also Sub-Clause 16.1 ). (Cost but no profit added to Contract Price). Interference with testing by Employer (see also SubClause 7.4). (Cost plus reasonable profit added to Contract Price). The time consequences of variations are dealt with in Sub-Clause 8.4(a) Changes in Legislation. (Cost but no profit added to Contract Price). Suspension initiated by Contractor (see also Sub-Clause
8.9).
17.4
19.4
(Cost plus reasonable profit added to Contract Price). Employer's Risks. (Cost but no profit added to Contract Price). Force Majeure. (Cost but no profit added to Contract Price).
The variable remedies open to contractors should be carefully noted i.e. time only, time and cost and time, cost and profit. Here again, FIDIC's logic is difficult to follow.
21
The Red and Yellow Books contain, in addition to those, mentioned in the Silver Book, the right to an extension of time in the following cases: (i) exceptionally adverse climatic conditions; (ii) unforeseeable shortages in the availability of personnel or goods caused by epidemic or governmental actions; or (iii) in the event of adverse physical conditions. None of the new FIDIC Contracts contain the sweep-up clause found in the 4th Edition of the Red Book which refers to "other special circumstances", It could be argued that the Force Majeure provision in Sub-Clause 19.1 [Definition of Force Majeure] gives the Contractor a right to an extension of time in the events listed above under (i)-(iii). Manifestly, exceptionally adverse climatic conditions should be a Force Majeure event, as should shortage in personnel and goods albeit depending on the reason for such shortage. The difference between an undisputed contractual right to an extension of time and claiming Force Majeure is that additional requirements must be satisfied for the latter such as the delaying event could not have been provided against before entering into the Contract nor avoided nor overcome when it happens. The existence of a right to an extension of time is not dependent on these requirements.
8.6
Rate
ofress
Prog
If, in the opinion of the Employer, the Contractor is working too slowly he can instruct acceleration measures. This applies not only when the agreed Time for Completion is at risk but also where "progress has fallen (or will fall) behind the current programme under Sub-Clause 8.3 [Programme]". This type of clause is normally found in construction contracts where the Employer or his engineer has produced the design and therefore has know-how sufficient to follow closely the actual construction of the works and construction methods. In a turnkey contract, the Employer has less detailed knowledge. With the increased responsibility for the Contractor under the Silver Book it should follow that the Contractor has more freedom to execute the Works at his own pace as long as he complies with the Time for Completion or other contractually agreed dates. It is perfectly feasible to sustain a position which maintains that it is for the Contractor to decide whether acceleration measures should be undertaken or not, particularly if the Employer's justification for acceleration is that although the Contractor has not yet fallen behind he "will fall" behind. Contractors should have a strong incentive to adhere to the programme in any event, as their right to payment is normally tied to meeting programme milestones tied to a payment plan.
EIC Contractors Guide to the FIDIC Conditions of Contract for EPC Turnkey Projects
22
8.7
Delay Damages
The maximum amount of Liquidated Damages shall be stated in the Particular Conditions. However, damages in the event of delay can exceed this amount e.g. if the Contractor has to pay the Employers costs under Sub-Clause 8.6 [Rate of Progress] or the Contract is terminated. It is not unusual for contracts to state that that the Employer may not terminate the Contract before the aggregate of liquidated damages has reached the maximum amount. The Silver Book does not contain such limitation but, on the other hand, in accordance with Sub-Clause 15.2 [Termination by Employer] there have to be qualified reasons for termination due to delay. If the Contract is terminated due to delay then the Contractor will have to pay all losses and damages suffered by the Employer(see Sub-Clause 15.4 [Payment after Termination]). However, such loss and damage may not include loss of profit or other indirect damages and the maximum liability is limited under SubClause 17.6 [Limitation of Liability].
9
9.2
Delayed Tests The references in this Sub-Clause to Sub-Clause 7.4 [Testing] (fifth paragraph) and Sub-Clause 10.3 [Interference with Tests on Completion] are confusing because these sub-clauses provide relief to the Contractor for the circumstances set out in those subclauses and not specifically for those set out in Sub-Clause 9.2 [Delayed Tests].
9.4
Failure to Pass Tests on Completion
If the Works fail to pass repeated Tests on Completion and the failure "deprives the Employer of substantially the whole benefit of the Works or Section..." then the Employer has the right to reject the Works, terminate the Contract, recover all sums paid for the Works, plus financing costs, costs for dismantling the Works and clearing the Site. It is obvious that the Contractor will suffer catastrophic financial consequences if the Contract Price has to be repaid together with financing costs and the costs of dismantling the Works and reinstating the Site. It is conceivable that there could be contracts where such a severe remedy is justified, where, for example the Contractor has developed a unique know-how for a complete production process and it fails to perform as guaranteed and no other contractor is capable of putting it into satisfactory working order. In such circumstances, it would be unreasonable to expect the Employer to bear the consequences of the Contractor's failure. On the other hand, current practice in the event of termination is that the Contractor is entitled to payment for the value of the Works completed at the date of termination. Thereafter, it is up to the Employer to decide whether or not to complete the Works with another contractor. In both situations the Contractor must
23 pay the Employer's additional costs. In circumstances where the Works contain technology which is "in the public domain", then the same principle should apply. However, it should be recognised that in such a case design responsibility for the whole of the Works could rest with the new Contractor and contractors faced with such a prospect should take due regard of the risks involved. It is important to understand the implications of this requirement, as the Contractor could be in a very serious situation in the event that Tests on Completion are not successful.
It is important, in relation to this Sub-Clause to consider the limitation of liability under Sub-Clause 17.6 [Limitation of Liability].
10
10.2
Taking Over of Parts of the

Works
According to this Sub-Clause, "Parts of the Works shall not be taken over or used by the Employer, except as may be agreed by the parties". It fails to address the situation where the Employer uses the Works or part of the Works without the agreement of the Contractor. Various difficulties and risks could arise in such a situation none the least of which would be damage to the Works, which may not be covered by insurance. The Yellow Book offers a way out in Sub-Clause 10.2 [Taking Over of Parts of the Works] which states that "... if the Employer does use any part of the Works before the Taking-Over Certificate is issued: (a) the part which is used shall be deemed to have been taken over as from the date on which it is used "
11
11.2 Cost of
The Contractor shall at his own cost remedy defects caused by the design of the Works. Sub-Clauses 4.1 [Contractor's General Obligations] and 5.1 [General Design Obligations] make it absolutely clear that the Contractor is fully responsible for the design of the Works, including the correctness of the information on which he bases the design subject only to the important exceptions in SubClause 5.1. As written this means that the Contractor takes responsibility for any design supplied by the Employer. No exception is made for the situation where part of the design is supplied by the Employer or the defect in the design is due to incorrect information or design criteria for which the Employer remains responsible in accordance with Sub-Clause 5.1. It is clearly a flaw in the Silver Book that such important exceptions are not expressly referred to. This is an unsatisfactory state of affairs and the Contractor should not be left to rely on a court or similar to establish that a reasonable interpretation is that a responsibility allocated to the Employer under Sub-Clause 5.1 should also have the effect that the Employer takes the risk and
Remedying Defects
24
cost for remedying defects caused thereby. The Employer's responsibility under Sub-Clause 11.2 (a) should be entirely consistent with that set out in Sub-Clause 5.1. It is therefore recommended that the Parties clarify this matter in the Particular Conditions. This will be particularly important where the Employer has responsibility for supplying a wide range of information or for important parts of the design. It is interesting to note that Sub-Clause 11.2 (a) in the Yellow Book has specific wording to cover just this situation. It should also be noted that a similar ambiguity exists and is highlighted under Sub-Clause 17.3 [Employers Risks] and underlines the importance of getting the exclusions under SubClause 5.1 absolutely correct.
11.4
Failure to Remedy Defects
If the Contractor fails to remedy a defect and the defect or damage "deprives the Employer of substantially the whole benefit of the Works or any major part of the Works..." then the Employer is entitled to recover all sums paid for the Works, plus financing costs, costs for dismantling the Works and clearing the Site. These are indeed punitive sanctions and contractors must carefully consider whether the risks they carry under the Silver Book are commensurate with the likely reward for performing the Contract. This Sub-Clause is similar in effect to Sub-Clause 9.4 [Failure to Pass Tests on Completion] where more comprehensive comments have been made.
13
13.1
Right to Vary
The Employer may initiate Variations prior to issuing the Taking Over Certificate for the Works, and the Contractor has only limited grounds for refusing to undertake the instructed Variation, which are: "(i) the Contractor cannot readily obtain the Goods required for the Variation, or (ii) it will reduce the safety or suitability of the Works, or (iii) it will have an adverse impact on the achievement of the Performance Guarantees", Notwithstanding any objections raised by the Contractor, the Employer may still confirm his instruction. The Employer's right to unilaterally issue Variations does not fit well within the concept of an EPC Turnkey Contract and the grounds that permit the Contractor to object to a Variation are too restrictive. It should be at the Contractor's sole discretion to refuse or accept a Variation if he believes that the price offered is wholly inadequate, the Variation will have an adverse effect on the undertaking of any of his obligations under the Contract or, following a request by the Contractor under Sub-Clause 2.4 [Employer's Financial Arrangements], the Employer is unable to provide evidence that satisfactory financial arrangements are in place and being maintained to pay for the addition to the Contract
25 Price resulting from the Variation Order. Should the Employer instruct the Variation despite the Contractor giving notice that he will not consider himself bound by the Variation, then the only remedy open to the Contractor is to refer the matter to the Dispute Adjudication Board. This Sub-Clause provides that the Contractor may, but is under no obligation to, make proposals to amend the Works that will benefit the Employer. Unreasonably, what is not provided is a process whereby the two Parties share the benefits of any value engineering undertaken by the Contractor. The Contractor may therefore wish to consider how he should be reimbursed for his additional efforts, or agree a method of sharing the enhanced benefits to be enjoyed by the Employer. This Sub-Clause represents a dramatic departure from normally accepted practices for dealing with the valuation of Variations and Contractors would be well advised to agree the price of all Variations before starting the additional work. The procedure outlined places the onus on the Contractor to prepare the design and price and to re-programme the Works to accommodate the proposed Variation. The Employer may then approve, disapprove or comment upon the Contractor's submission. The procedure will involve the Contractor in a great deal of additional effort and expenditure that may not be recoverable if the Variation is not approved or is substantially amended by the Employer. Accordingly, the Employer should be made aware at the time of Tender that the Contractor will expect to recover such additional expenditure. If the price of a Variation is not agreed, then it shall be unilaterally determined by the Employer under Sub-Clause 3.5 [Determinations], and ultimately, in the event of disagreement, by the Disputes Adjudication Board or Arbitrator. "Reasonable" profit will be allowed but this does not necessarily mean the same profit margin as is built into other contract rates or in prices for comparable works or that comparable rates will apply.
13.5 Provisional
13.2 Value
Engineering
13.3 Variation Procedure
Sums
It is not clear whether the Contractor is liable for any design associated with Provisional Sums. In the absence of any express provision it may well be that the Contractor is held to be responsible under Sub-Clause 5.1 [General Design Obligations] . Again, an issue to be sorted pre-contract. Attention is drawn to the Guidance Notes which indicate that Provisional Sums should only be used for minor supplies.
EIC Contractors
Guide to the FIDIC Conditions of Contract for EPC Turnkey Projects.
26
13.7 Adjustments Changes in
for
This Sub-Clause contains provisions in respect of the recovery of additional Costs associated with changes in legislation. Contractors should note however that the recovery of losses only applies to changes in legislation in the Country in which the Site of the Permanent Works is located.
Legislation
14
14.2 Advance
Payment
Provision Payment provided Particular
is made for the Contractor to receive an Advance as an interest-free loan for his mobilisation and design that the amount of the advance is stated in the Conditions.
If an advance is specified in the Particular Conditions then its payment will only be made after receipt by the Employer of "(i) a Statement (under Sub-Clause 14.3 [Application for Interim Payments], (ii) the Performance Security in accordance with Sub-Clause ~.2 [Performance Security], and (iii) a guarantee in amounts and currencies equal to the advance payment". The advance payment may be paid in instalments. However the number and timing must be stated in the Particular Conditions and the Contractor will require the advance payment guarantee to recognise this. Within Sub-Clause 14.7 [Timing of Payments], paragraph (a) states that the first instalment of the advance payment shall be paid within 42 days after the date on which the Contract Agreement came into full force and effect, or within 21 days after the Employer receives the documents in accordance with SubClause 4.2 [Performance Security] and Sub-Clause 14.2 , whichever is later. Contractors may consider these periods too long before receipt of the advance and could indeed require payment of the advance as a condition precedent to the commencement of work on Site
14.3 Application Interim
for
Payments
To initiate the payment process the Contractor is to submit a Statement at the end of the period of payment which period is to be stated in the Contract. If no period is stated, the submission is to be at the end of each month. To be valid, the Statement must include items detailed in SubClauses 14.3 (a) to (t). It must also include the progress reports which are defined within Sub-Clause 4.21 [Progress Reports], an onerous precondition for the receipt of payment. Sub-Clause (a) requires that the contract value of the Works executed be estimated unless defined in accordance with SubClause 14.4 [Schedule of Payments]. It does not detail how the estimate is to be prepared in a manner that will be acceptable to the Employer. Accordingly, a suitable procedure should be agreed with the Employer. The Statement should also contain the various additions and deductions to be made to the contract value of the Works.
27
Sub-Clause 14.5 [Plant and materials intended for the Works] below, makes provision for payment to be made in respect of certain Plant and Materials which are in the Country in which the Works are located but which are not yet on Site. However contractors should be aware that there are no provisions to make payments in respect of any Plant and Materials which have not been included in the entitlement under Sub-Clause 14.5, or for those which are either stored outside the Country of the Works or which have been delivered to the Site but are not incorporated in the Permanent Works. It is recommended that amended payment procedures be negotiated prior to Contract signature. The amount of any Retention Money is to be stated in the Particular Conditions and the Contractor may wish to include provisions that permit him to provide a retention guarantee in lieu of the Employer retaining cash. The Contract may provide for payment to the Contractor based upon a Schedule of Payments and if so, "the instalments quoted in the Schedule of Payments shall be the estimated contract values for the purposes of sub-paragraph (a) of Sub-Clause 14.3 [Application for Interim Payments]". If the instalments are not defined by reference to actual progress achieved then the Employer is entitled to revise any payment instalment by making a determination under Sub-Clause 3.5 [Determinations] which will take into account any delay in progress. Equally, the Contractor could request that, when the Works are ahead of programme he is entitled to an appropriate increase in the scheduled payment. If it is intended that the Schedule of Payments be based on the achievement of specific Milestone Events then this should be expressly stated. Otherwise, payments would be based on the actual value of work done. This Sub-Clause provides for payment in respect of Plant and Materials provided they are in the Country in which the Works are located. To obtain payment, the Contractor is to mark the relevant Plant and Material as being the property of the Employer or provide suitable insurance together with a guarantee equal to the value of the payment to be made. (See also comment under 14.3 [Application for Interim Payments] above). The provisions for withholding payment in this Sub-Clause are potentially harsh. For instance, if the Contractor, in the Employer's view, is allegedly proceeding without "due expedition", in apparent breach of Sub-Clause 8.1 [Commencement of Works], the Employer could maintain that the whole of the value of the delayed works should be withheld. A most unsatisfactory and unacceptable situation.
14.4 Schedule
of
Payments
14.5 Plant and Materials intended for the Works
14.6 Interim
Payments
28
14.7 Timing of
Payments
This Sub-Clause details the periods within which payment is to be made by the Employer in respect of the advance, interim and final payments. By comparison with well-established norms, the periods proposed are excessive and contractors may wish to suggest more reasonable intervals.
14.9
Payment of Retention
Money
The amount of any Retention Money will be defined within the Particular Conditions and this Sub-Clause provides for the first half of the Retention Money to be released after the Taking-Over Certificate has been issued provided that the Works have passed all specified tests, including any Tests after Completion. It is important to fix a date for any tests to be carried out after completion to avoid any delay to the release of the moiety of the retention. The outstanding balance of the Retention Money is to be paid "promptly" after expiry of the latest expiry date of the Defects Notification Period(s). Sub-Clause 1.1.3.7 provides that if no such period is stated in the Particular Conditions then the defects Notification Period shall be 12 months and under SubClause 11.3 [Extension of Defects Notification Period] the period could be extended by a maximum of two years. The release of the final tranche of Retention Money could therefore be up to three years after completion. The full release of Retention Money may be further delayed if any work remains to be completed, as the Employer may withhold the estimated cost of any outstanding works. The above restrictions, together with differing interpretations of the meaning of the word "promptly" could result in a protracted period of delay before the Contractor is able to recover his Retention Money. Pressure on contractor's cash flow could be avoided if the Employer is prepared to accept a bank guarantee in lieu of retention.
14.10
Statement at Completion
The Contractor is required to submit a Statement at Completion with supporting documents within 84 days after receiving the Taking-Over Certificate following which the Employer may make an Interim Payment to the Contractor. This statement means that all of the Contractor's claims must be submitted, along with all other documentation required or reasonably implied as required under the Contract. Sub-Clause14.10 (b) and (c) refers. Failure to include claims would result in them being barred under Sub-Clause 14.14 (b) [Cessation of Employer's Liability]. Contractors should also have regard to the extremely tight time limits laid down in Clause 20 [Claims, Disputes and Arbitration] for the submission of detailed particulars. A written discharge is to be submitted by the Contractor with the Final Statement and should be worded to provide for such discharge to become effective when the final payment has been received and all bonds and guarantees returned.
14.12 Discharge
EIC Contractors Guide to the FIDIC Conditions of Contract lor EPC Turnkey PrQiects.
29
14.14 Cessation
of
Employer's Liability
This is a very important Sub-Clause in respect of any Contractor's claims. If the Contractor fails to notify them in the Final Statement and the Statement at completion required by Sub-Clause 14.10 [Statement on Completion], then, with minor exceptions, they will be barred. The notifications under this SubClause are in addition to those required under Sub-Clause 20.1 [Contractor's Claims].
15
15.1
Notice to Correct
This Sub-Clause gives the Employer, in addition to the right to give instructions under Sub-Clause 3.4 [Instructions], an unlimited right to require the Contractor by notice to make good any alleged failure to carry out any obligation under the Contract. If the Contractor fails to comply with such notice, the Employer has the right to terminate the Contract under Sub-Clause 15.2 [Termination by Employer]. In circumstances where the Employer has given the Contractor a very brief and vague description of the scope of work and the Contractor is responsible for the design and tied into a lump sum price, such a provision would be very dangerous for the Contractor. In situations where the Parties have made different interpretations of the Employer's Requirements, then this provision enables the Employer to impose his view on the Contractor by threatening termination of the contract if the Contractor will not comply. Such a right should only apply in the event of material breach of contract. As always the Employer has the right to terminate the Contract in certain circumstances. These circumstances include breach by, and insolvency of, the Contractor as well as corruption. Allowing the Employer the right to terminate the Contract in the event of corruption is a sound principle. However, the definition of corruption as defined by this Sub-Clause is too wide. It extends to the Contractor's sub-contractors (over whom the Contractor does not have total control) and it covers any act, however small, carried out by any individual. As a consequence, determination of the Contract for the act of corruption under a sub-contract is too severe a remedy. The obligation should be limited to an obligation on the Contractor to terminate the subcontract and should not give the Employer the right to terminate the Contract. Sub-Clause 15.2 (a) could be applied to quite trivial faults since it relates to compliance with a Sub-Clause 15.1 [Notice to Correct] notice which covers "any" failure by the Contractor to carry out "any obligation". Such a clause could be used oppressively by an employer. This Sub-Clause should also be considered in the light of the comments on Sub-Clause 8.7 [Delay Damages] above regarding damages payable by the Contractor in the event of delay.
EIC Contractor's Guide to the FIDIC-Conditions of Contract for EPC Turnkey Projects.
15.2 Termination
by
Employer
30
16 Suspension
Contractor
16.2
and Termination
by
Termination by Contractor
The right of the Contractor to terminate the Contract is subject to notice periods that could extend to 84 days. In the case of failure to receive reasonable evidence with regard to the Employer's financial arrangements (Sub-Clause 2.4 [Employer's Financial Arrangement]) or failure to pay the Contractor amounts due (SubClause 14.7) the Contractor must allow 42 days to elapse to demonstrate non-payment. Thereafter he must give a further 14 days notice before he may terminate the Contract. These time limits are too long. The Contractor must continue working even if the Employer has failed to pay. It would be more equitable if (similar to the other grounds for termination in SubClause 16.2) the Contractor were required to give 14 days' notice, particularly in the case of suspension of work by the Contractor. The situation will be more complex where project finance is in place and a lender has step-in rights. However, the same basic principles should apply.
17
17.1 Indemnities
This Sub-Clause is unnecessarily broadly drafted. It imposes the risk on the Contractor of injury etc and damage to property (other than the Works) arising "in the course of' the design or execution of the Works even if not caused by the Works. This is a ridiculously wide risk for the Contractor to assume which, in its defined terms, may not be insurable. The last paragraph contains a reference to Sub-Clause 18.3 (d) (iii) [Insurance against injury to Persons and Damage to Property] according to which the Employer is not obliged to indemnify the Contractor to the extent that insurance cover is available at commercially reasonable terms. Since it is arguable whether or not insurance cover was available at commercially reasonable terms, it may be advisable when negotiating a contract to exclude this exception in Sub-Clause 18.3 (d) (iii). The catalogue of Employer's Risks does not include loss or damage due to the occupation of the Works, or any Section thereof, by the Employer because Sub-Clause 10.2 [Taking Over of Parts of the Works] does not allow the use of any parts of the Works, except if stated in the Contract or as agreed by both Parties. Where these latter exceptions occur, the Contractor should either ensure that a Taking Over Certificate is issued in respect of any such parts or the Yellow Book solution identified under the comments previously made in relation to Sub-Clause 10.2 [Taking Over of Parts of the Works] is followed.
The Employer's Risks Requirements, data and does not contain information for which the Employer's the Employer is
17.3 Employer's Risks
31 responsible according to Sub-Clause 5.1 [General Design Obligations]. If any loss or damage to the Works is caused by these responsibilities then the Employer must remain liable. The operation of exceptional forces of nature has not been included as an Employer's Risk because it is intended that the Contractor bears the full risk. Omitting the operation of (exceptional) forces of nature from the list of Employer's Risks is very burdensome. Generally speaking, their specific occurrence is unforeseeable even by an experienced Contractor, and an experienced Contractor can not be expected to take adequate precautions against them. In view of the Contractor's inability to foresee such risks the Contractor cannot make any realistic risk assessment. Accordingly, any estimate in respect of such events can only be speculative. If the Contractor does not want to assume such risks the corresponding provision of the Yellow Book Sub-Clauses (f), (g) and (h) should be adopted as a more appropriate risk allocation.
17.4
Consequences
of Employer's risks
If, and to the extent that, the Employer requires the Contractor to rectify the loss or damage to the Works, Goods or Contractor's Documents resulting from any of the Employer's Risks, the Contractor is entitled to time extension and payment of the Cost incurred, but not to any uplift for profit, for rectifying the loss or
damage.
The Contractor's rights under this Sub-Clause are subject to his compliance with Sub-Clause 20.1 [Contractor's Claims].
17.6
Limitation of
Liability
This Sub-Clause provides that there is no liability on either Party for loss of use of any Works, loss of profit, loss of any contract or for any indirect or consequential loss or damage. It should be noted that it is only in certain cases of breach of contract by the Employer that the Silver Book entitles, the Contractor to compensation for loss of profit (see Sub-Clauses 2.1 [Right of Access to Site], 7.4 [Testing], 10.3 [Interference with Tests on Completion]). This is inequitable and the Contractor should always be entitled to compensation for loss of profit and other indirect or consequential damages, in the event of a breach of contract by the Employer, irrespective of whether or not there is a specific Sub-Clause in the Silver Book. By excluding Sub-Clause 17.1 [Indemnities] from the limitation of liability both the Contractor and the Employer are fully liable for the events outlined in Sub-Clause 17.1.
EIC Contractor's Guide to the FIDIC Conditions of Contract tor EPC Turnkey Projec
32
19.1
Definition of Force Majeure
This Sub-Clause provides a definition of Force Majeure and provides a non-exhaustive catalogue of Force Majeure events in the second paragraph that includes natural catastrophes such as earthquakes, hurricane, typhoon or volcanic activity. In the event that the Contractor is prevented from performing any of his obligations under the Contract due to an event of Force Majeure, the Contractor can claim for time extension and the Cost incurred. The claims for Cost are limited to the events listed in Sub-Clause 19.1 (i) to (iv) [Definition of Force Majeure]. Such limitation is difficult to understand given the fact that the catalogue of Force Majeure events is not exhaustive. In case of termination due to Force Majeure, the Contractor is entitled to be paid for the Works executed, the Cost of Plant and Materials ordered, any other Cost incurred in the expectation of completing the Works, the Cost of removal of Temporary Works and Contractor's Equipment and the Cost of repatriation of staff and labour. If the Contractor wants to receive profit on these Costs, a corresponding provision would have to be included in the Contract.
19.4
Consequences of Force Majeure
19.6
Optional Termination,
Paymentand
Release
20.1
Contractor's Claims
This Sub-Clause details the procedure that the Contractor must follow when he considers himself entitled to an extension of Time for Completion and/or additional payment under any of the Clauses or otherwise in connection with the Contract. The Contractor is required to give notice of his claim as soon as practicable and not later than 28 days after becoming aware, or when he should have become aware, of the event or circumstance giving rise to the claim. Failure to comply with this notice provision would result in the Contractor forfeiting his right to an extension of the Time for Completion and to additional payment and the Employer is then discharged from his liability in connection with the event. The penalty for failure to comply with a purely technical requirement to give notice of a claim is unduly harsh. This is the first time that a FIDIC contract has removed the fundamental right of the Contractor to make a claim merely as a result of a failure to comply with a fixed period of time to submit the required notice. In certain circumstances the Contractor may prejudice his entitlement by failing to comply strictly with a notice provision but he should certainly not forfeit his rights altogether and neither should the Employer be discharged from any and all liability in connection with an event. It is ironic that this provision would also apply when the event or circumstance giving rise to the claim is caused by the Employer in the first case e.g. refer to Sub-Clause 8.9 [Consequences of Suspension].
EIC Contractors Guide to the FIDIC Conditions of Contract tor EPC Turnkey Proje<
A comparison of the notice provisions under Sub-Clause 20.1 with the notice provisions under Sub-Clause 2.5 [Employer's Claims] where the Employer is required to give notice as soon as practicable after becoming aware of the event or circumstance. This demonstrates an unfair imbalance between the position of the Employer and that of the Contractor without any reason being offered for such imbalance. In addition to the first 28 day notice period the Contractor is also subject to a 42 day period by which he has to send to the Employer a fully detailed claim with full supporting particulars. (See also the provisions for continuing claims). Due to the complex nature of the Works in an EPC contract this could prove to be extremely difficult and inevitably, the task of compiling and interpreting the relevant facts to support and justify the claim will be a time consuming and long drawn out process. Such provisions could be lead to intensive disputes and costly arbitration. The sixth paragraph of this Sub-Clause requires the Employer to respond to a Contractor's claim giving his approval or disapproval within a fixed period or time whereas the eighth paragraph requires the Employer to proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine any extension of Time for Completion and/or any additional payment. It is not clear why these two separate procedures are required. However, it should be borne in mind that under Sub-Clause 3.5 there is no time limit within which the Employer has to make a determination. Contractors should read the comments made under this SubClause in conjunction with those under Sub-Clauses 14.10 [Statement at Completion] and 14.14 [Cessation of Employer's Liability] all of which underline the importance of submitting all required notices in time to ensure that their rights are protected and maintained.
20.2
Appointment of the Dispute Adjudication
Board
This Sub-Clause provides for the establishment of the Dispute Adjudication Board (DAB) comprising either one or three members to be appointed by the Parties. The DAB is to be appointed by the date 28 days after a Party has given notice of its intention to refer a dispute to a DAB. The appointment of the DAB expires after it has given a decision on the referred dispute, provided no other disputes have been referred to it in the meantime. When the appointment expires a new DAB will have to be appointed to deal with the next dispute. It is very likely that adjudication by a DAB in large and complex EPC Projects would be much more effective under a standing body rather than one convened on an ad hoc basis. It would be particularly beneficial for the DAB to become conversant with the Contract and the Works at an early stage and to familiarise itself with the progress of the Works on a regular basis. Undoubtedly this will result in speedy and well informed judgements and consequently the procedures and draft agreements set out in the
34 Red Book are to be preferred for such projects. Under these rules the DAB is appointed at the start of the Contract and remains in existence for the duration of the Contract unless agreed otherwise by the Parties.
20.4
Obtaining Dispute Adjudication Board's Decision
It should be noted that, if the DAB has given its decision as required by this Sub-Clause and if neither Party has given notice of dissatisfaction within 28 days after having received the DAB's decision, the decision becomes final and binding on both Parties. Even in the case of dissatisfaction by either Party it would appear that the intention is that decisions of the DAB are binding on both Parties "unless and until it shall be revised in an amicable settlement or an arbitral award". The Contractor is required to "continue to proceed with the Works" but the obligation of the Employer, in so far as payment is concerned, is merely to comply with the normal process for Interim Payments. There is no provision for any sanction against the Employer in the case of non-payment. Manifestly, any payments due as a result of a DAB decision sholJld be considered as Payments due under Clause 14 [Contract Price and Payment] but to be made with immediate effect. Any failure to pay would then give the Contractor the right to Suspend the Works under Sub-Clause 16.1[Contractor's Entitlement to Suspend Work], an appropriate sanction in such circumstances.
EIC Contractor's Guide to the FIDIC Conditions of Contract for Epc.:rumkey Projects.

EIC Contractor'sGUIDE For FIDIC Conditions

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

EIC Contractor'sGUIDE For FIDIC Conditions

Uploaded by

Copyright:

Available Formats

Type/Clase : Source/Procedencia :

Date de publication : Date of publication : Fecha de publicacin : Tl/Tel : Fax :

(49) 30 212 86 244 (49) 30 212 86 285 eicontractors@compuserve.com

of the scope of the works

of the design and construction

of risks and responsibilities

Claims and disputes

If the amount of each interim payment is to be determined intermediary .

As a final word the principal differences highlighting:

any himself extension

to Notification payment Period". any

Obligations] , Nominated subcontractors,

EIC Contractors Guide to the FIDICConditions

of Contract tor EPC Turnkey Projects.

sanctions limited only by the terms of Sub-Clause 17.6 [Limitation of Liability].

4.7 Setting Out

4.21 Progress Reports

much freedom design.

Taking Over of Parts of the

13.3 Variation Procedure

Guide to the FIDIC Conditions of Contract for EPC Turnkey Projects.

Provision Payment provided Particular

14.5 Plant and Materials intended for the Works

17.3 Employer's Risks

You might also like