The five golden principles (FIDIC’s protection of genuinity)

The Most Popular General Conditions of Contract

Fidic’s General Conditions of Contract may be liked or disliked, but it is widely agreed upon
that they are the most popular General Conditions of Contract used for large construction
projects, for which the invitations to tender is open to contractors who operate
internationally. They may then be awarded to a non-domestic contractor and for this reason
have been drafted taking into account that they may have a foreign element, such as the
determination of the applicable law. Contracts between parties whose places of business are
in different states are generally referred to as international.
This, while in many jurisdictions, construction contracts which have a limited local relevance,
are governed by local standard contracts and in some of them there is not even a standard
contract.
Frequent Amendments to General Conditions
As it is well known, the Fidic General Conditions are frequently not only completed by
Particular Conditions, but also amended through the latter by replacements, additions and
omissions.
This is sometimes due to the need to adjust their structure to a less specific approach.
Need to Protect the Genuinity of the Fidic Contract
It is quite understandable then that Fidic has felt it necessary to protect its own Conditions
of Contract, in order to avoid that a contract be considered as a Fidic Contract even when,
due to material amendments to it, it has lost its precise balance between duties and rights, its
balance of risks and its careful selection of the time periods for the performance of the
contract and for the exercise of rights.
This has brought Fidic to launch its Golden Principles, through which it rightly aims to
avoid that one may be induced to accept as a Fidic Contract, a contract which is no more in
line with its essence.
A protection which reminds of one of the purposes of the registration of a trademark.
The Five Golden Principles
The best source of information as to these principles is of course the first edition 2019 of
the Golden Principles, which may be consulted on the Fidic’s site, reference to which is
made here below.
They may be very roughly summarized as follows:

 Principle 1 deals with the duties, rights, obligations, rules and responsibilities of all the
Contract Participants, set out by the Fidic General Conditions, which are not to be
significantly changed;
 Principle 2 provides that the drafting of the Particular Conditions must be clear and
not ambiguous;
 Principle 3 states that the balance of allocation of risks and rewards is not to be
changed;

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  Principle 4 states that a time period provided for by the Fidic Conditions may be
modified provided its duration remains reasonable;
 Principle 5 requires that all the disputes be referred to a Dispute
Avoidance/Adjudication Board or to a Dispute Adjudication Board, the provisionally
binding decision of which may be referred to arbitration.
Fidic rightly describes these principles as “the essence of a Fidic Contracts”.
It fortifies its message to users by stressing that the Fidic General Conditions are equitable
and balanced.
The Inevitable Impact of the Applicable Law
The Fidic Golden Principles recognize that the Fidic General Conditions may be
superseded by the applicable law.
To assess this impact, it may be useful to review very quickly the ambit of the applicable law.
In the majority of construction contracts, launched by an invitation to bid, the Principal has
selected its national law. As it is known, it will not be frequent that a bidder qualifies its bid
by not accepting the law selected by the Principal and, if this occurs, it is very likely that such
a contractor will not be awarded that contract.
In the general conditions attached to its invitation to bid, if the Principal provides that its
national law prevails on any different contractual term, the automatic consequence of this
will be that the contract entered into through its acceptance of a bid may not be in line with
the Golden Principles.
In the absence of a selection of the proper law in the contract, it will be determined by
applying the usual conflicts rules.
The immediate consequence of the applicable law is of course that its mandatory provisions
prevail on any different contractual provision.
Effects of Non-Compliance
It is suggested that non-compliance with the Golden Principles, while not affecting the
validity of the contract by itself, produces the result that it should not be described as
a Fidic Contract and should not be seen as such.
In an analysis to establish the applicable law, when not selected by the parties, a first aspect
concerns the traditional distinction between a sale and a contract for services, the former
consisting in the provision of goods manufactured by the seller or by a third party (this
performance being described in latin as dare) and the latter in the rendering of services,
which include the use of goods purchased or manufactured by the contractor (in Latin a
“facere”).
The United Nations Convention on Contracts for the International Sale of
Goods[1] provides that
“This Convention does not apply to contracts in which the preponderant part of the obligations of the party
who furnishes the goods consists in the supply of labour or other services”.
Under European law, Regulation Rome 1[2], which applies to contractual obligations, in civil
and commercial matters, which involve a conflict of law, art. 4 provides that the law
governing the contract as to provision of services shall be

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 “the law of the country where the service provider has his habitual residence”
what is in line with its general attitude to select the law of the country where the party
required to affect the characteristic performance of the contract has his habitual residence.
A rule which, as it is known, has replaced the Rome Convention[3] which at art. 4 selected
“the law of the country with which it is more closely connected”.
The conclusion might then be that in transnational (international) construction contracts, the
applicable law should be the law of the contractor, with the consequence that the Principal,
when sending the invitation to bid, would not know which would be the applicable law. A
solution which would not have, it is submitted, much commercial sense.
However, it is suggested that the provision of art. 4(b) of the Rome Regulation 1 has to be
interpreted starting from the scope of letters (a) and (b) of art. 4 which is to ensure that the
contract is governed by the place where the goods are manufactured or the service is
provided, which is generally the place where they have their habitual residence, in other
words of the country where they operate.
In transnational construction contracts, the place where the contractor operates is not the
place of his habitual residence, but the country where the project has to be erected.
It is suggested that this remark allows to apply art. 4[4] of the Regulation, which provides
“where it is clear from all circumstances of the case that the contract is manifestly more closely connected with
a country other than that indicated in paragraphs 1 or 2, the law of that other country shall apply”.
Conflict of law rules outside the European Union
Subject to the possible specific provisions in some jurisdictions, in general it seems that
outside the European Union the closest connection principle is called to apply, what will
frequently lead to the application of the law of the place where the works are erected.
Mandatory provisions
Whether the applicable law has been agreed upon by the parties, or established based on
conflicts-of-law rules, the mandatory provisions of that law will automatically replace any
different statutory or contractual provision.
In addition to this, the mandatory provisions of the law of the place where the dispute is
decided (the lex fori) will of course have to be taken into account by the judge or arbitrator.

FIDIC Golden Principles

Charles Russell Speechlys
Introduction
FIDIC publishes a suite of contracts intended for use on international projects (often
referred to as the Rainbow Suite). FIDIC has become concerned that its contracts are being
heavily amended. It considers these amended contracts may undermine its “brand” position
as a fair and balanced internationally recognised suite of contracts for use in all jurisdictions.
In June 2019, FIDIC published the first edition of its guide to the FIDIC Golden
Principles. The Principles are intended to dissuade parties from making significant changes
to its contracts. FIDIC consider that it is “misleading” to call a contract “FIDIC” if
amendments undermine their Golden Principles.

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FIDIC has always envisaged that its contract conditions would be supplemented by project
specific contract provisions (“Particular Conditions”). The practise of amending standard
form building contracts has been going on for as long as there have been standard form
contracts. For example, the commonly used standard form JCT (utilised throughout the UK)
also seeks to discourage amendments in its guidance. However, it is not unusual for
developers to utilize 100+ pages of “standard” amendments to standard JCT contracts.
To some extent FIDIC could do more to protect its “brand” in relation to its licensed
software. Whilst JCT has been very careful to restrict its “on line” software so that all
amendments are tracked and certain provisions (e.g. clause headings) cannot be deleted or
amended, FIDIC software contains no such restrictions (although it may be that acceptance
of the “golden principles will from part of future licensing arrangements).
The five Golden Principles are:

 The rights, obligations and roles of the parties (Employer, Contractor, DAAB and
Engineer) must not significantly change from FIDIC
 Amendments must be clear and unambiguous
 The FIDIC “risk/reward” allocation must not change
 FIDIC time periods should not be significantly changed
 Unless applicable law requires otherwise, formal disputes must be referred to a
DAAB/DAB for a provisionally binding decision as a condition precedent to
arbitration.
This article will discuss each of the golden principles and examples that have been provided
by FIDIC’s publications and discuss whether FIDIC’s approach is reasonable and
appropriate.
Rights, obligations and roles of the parties
FIDIC examples of the “proper application” of this provision include retaining
the FIDIC requirement that the Employer must provide the Contractor with “reasonable
evidence” of “adequate financing arrangements” for the project. This requirement is often
deleted. Clearly both the Employer and the Contractor should interest themselves and carry
out due diligence on the financial capacity of their counterpart before entering into a
contract. But of note, FIDIC does not require a Contractor to provide any evidence of its
financial standing to the Employer. It seems a little strange to have a ‘golden principle’
requiring one party to provide financial information but the other party has no equivalent
rights. The Employer’s financial arrangements may be confidential and possibly even
politically sensitive. In the writer’s view, this matter should always be for negotiation
between the parties.
FIDIC also say that the Contractor must not be deprived of its rights to levy financial
charges, suspend and even (ultimately) terminate in accordance with FIDIC conditions for
non-payment. In our experience it is unusual to see FIDIC rights significantly eroded in
relation to these matters. However it is extremely common for Contractors to provide
collateral warranties including step in rights for the benefit of commercial lenders in
connection with FIDIC projects. Commercial lenders will not tolerate FIDIC time periods
in respect of suspension and termination for delayed payments. Indeed many banks and

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their advisors routinely require 120 days before suspension/termination compared to
FIDIC’s 21 days for suspension and 42/56 days for termination.
FIDIC also disapprove any constraints on the Engineer’s role in making determinations of
extensions of time. Readers familiar with MDB Harmonised edition of the 1999 FIDIC Red
Book (the Pink Book) will be aware that Engineer’s right to make a determination was
subject to “specific approval” of the Employer. We understand that the World Bank has
endorsed the FIDIC 2017 form. Presumably other multilateral banks will follow or at least
drop their previous requirement for Employer approval.
FIDIC “condemn” amendments which transfer risk of unforeseeable psychical conditions
to the Contractor (except under their Silver Book). However in the writer’s view there are
some reasonable exceptions that FIDIC have not considered. One example would be where
the Contractor has already carried out site preparation or ground investigation works or is
working in an adjoining area.
Clarity
It is difficult to argue with a FIDIC principle requiring amendments/Particular Conditions
to be drafted clearly and unambiguously. However their examples of “non-compliant”
Particular Conditions are not without some controversy. FIDIC say it is unacceptable for
the Particular Conditions to stipulate that a General Condition is deleted and replaced in the
Particular Conditions by the words “not used”. Why is such a provision unclear? If a
provision is deleted it is helpful to stipulate that the clause number is not used in order to
explain what might otherwise appear a rather odd gap in the contract numbering system.
Risk and Reward
FIDIC say that the Particular Conditions must not change their “risk reward allocation”.
Clearly this is closely linked to the first Principle as regards to the rights/obligations of the
parties.
In their examples, FIDIC endorse a common amendment which requires the Contractor to
provide the Engineer all the Program information as a precondition before any interim
payment certificate. In practice Contractors often struggle to provide the detailed program
with all the supporting information within the 28 day period required. Accordingly this
amendment could oblige the Contractor to commence work and continue without payment
for several months. It is not clear whether or not FIDIC envisage that the advance payment
could properly be subject to such a precondition.
FIDIC quite properly considers that failure by the Employer to fulfil his duty to provide
access and possession of all parts of the site to the Contractor should always give rise to the
Contractor’s rights for compensation. However in the writer’s experience there are
exceptions even to this general principle. One example would be where the Contractor was
the previous owner of the site and/or where the Contract makes specific
arrangements/imposes clear duties on the Contractors to share access/possession of the site
particularly in relation to fit out works by others. Shared access/possession arrangements
should not be a breach of a Golden Principle.
FIDIC defends all its timelines as reasonable. However as we have indicated above many
Contractors consider the 28 day period for production of the program and all supporting
details (bearing in mind that FIDIC 2017 adds a significant level of additional detail to the
program requirements) to be onerous and commercial banks will not accept FIDIC’s
suspension/termination time periods.

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DAAB
The final FIDIC principle seeks to preserve the role of the dispute avoidance/ adjudication
board (DAAB) or dispute adjudication board (DAB) as a condition precedent to arbitration
(unless the local governing law requires otherwise). In FIDIC 2017 Contracts the DAAB
has a much wider role as a standing body which deals with all instances of dissatisfaction
with the Engineer’s determination (or failure to determine). Many Particular Conditions
either delete the DAB completely or else severely restrict its role. Where the DAB/DAAB
provisions are deleted this is often because of local law requirements or because the parties
agree that the project isn’t large enough to warrant a standing DAB/DAAB. Another
difficulty can arise if the DAB/DAAB is involved to decide on completion. On commercial
projects the Employer will often have committed to allowing interested third parties to make
comments. It is perfectly possible for the Engineer’s appointment to require him to review
these observations without offending his duty to provide a fair and reasonable determination.
Third parties are unlikely to accept that they are bound by a DAAB/DAB decision.
The difficulties with enforcement and recognition of DAB decisions may be the subject of a
separate article. If the DAB/DAAB determination cannot be efficiently enforced it seems
unfair and wasteful to make the parties participate in process to get a DAB/DAAB
“decision”. Whilst the DAB/DAAB decision may result in a commercial compromise
thereby avoiding arbitration, the same can be said of mediation and most people agree that
mediation should not be compulsory.
Conclusions
FIDIC says its Golden Principles are based on the most fundamental principle
of FIDIC contracts which is that their contracts have a fair risk reward
allocation. FIDIC say that they apply the following principles to allocate risks:

1. Which parties can best control the risk and/or its associated consequences;
2. Which party can best foresee the risk;
3. Which party can best bare the risk;
4. Which party ultimately most benefits or suffers when the risks eventuate.
Ultimately FIDIC is a standard form, but the projects on which they are used are rarely
“standard” and whilst these are proper and appropriate principles, they can only provide
guidance. Ultimately if a contract is being entered into between two sophisticated parties
with the benefit of appropriate advice why should FIDIC object to the use and amendment
of its standard forms?

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