Dubai,
24-27 February 2020
Dr. Nael G. Bunni
1
FIDIC Middle East Contract Users’ Conference
Dubai, 24-27 February 2020
Risk & Insurance Provisions in the New
FIDIC Books
Nael G. Bunni
BSc, MSc, PhD, CEng, FICE, FIEI, FIStructE, FCIArb, FIAE,
RConsEI,
Special Adviser, FIDIC Contracts Committee
Tel.: +353 1 8391141 Fax.: +353 1 8391167
e-mail: bunni@eircom.net
2
www.fidic.org
FIDIC Middle East Contract Users’ Conference
Dubai, 24-27 February 2020
Risk & Insurance Provisions in the New FIDIC Books
I. Clauses 17 to 19 of the
New FIDIC Books
Clause 17: Care of the Works
Clause 18: Exceptional Events
Clause 19: Insurance
3
www.fidic.org
FIDIC Middle East Contract Users’ Conference
Dubai, 24-27 February 2020
Risk & Insurance Provisions in the New FIDIC Books
Clause 17: Care of the Works
17.1 Responsibility for Care of the Works;
17.2 Liability for Care of the Works;
17.3 Intellectual and Industrial Property Rights;
17.4 Indemnities by the Contractor;
17.5 Indemnities by the Employer; &
17.6 Shared Indemnities.
4
www.fidic.org
FIDIC Middle East Contract Users’ Conference
Dubai, 24-27 February 2020
Risk & Insurance Provisions in the New FIDIC Books
Clause 18: Exceptional Events
18.1 Exceptional Events;
18.2 Notice of an Exceptional Event;
18.3 Duty to Minimise Delay;
18.4 Consequences of an Exceptional Event;
18.5 Optional Termination; &
18.6 Release from Performance under the Law.
5
www.fidic.org
FIDIC Middle East Contract Users’ Conference
Dubai, 24-27 February 2020
Risk & Insurance Provisions in the New FIDIC Books
Clause 19: Insurance
19.1 General Requirements;
19.2 Insurances to be provided by the
Contractor;
19.2.1 The Works;
19.2.2 Goods;
19.2.3 Liability for breach of professional
duty;
6
www.fidic.org
FIDIC Middle East Contract Users’ Conference
Dubai, 24-27 February 2020
Risk & Insurance Provisions in the New FIDIC Books
Clause 19: Insurance
19.2.4 Injury to persons and damage to
property;
19.2.5 Injury to employees; &
19.2.6 Other insurances required by Laws and
by local practice.
7
www.fidic.org
FIDIC Middle East Contract Users’ Conference
Dubai, 24-27 February 2020
Risk & Insurance Provisions in the New FIDIC Books
Background to the topic of risk
• It is developed since World War II.
• The dictionary meaning is “danger, harm, or loss”;
“an undesirable outcome”.
• British Standard No. 4778 of 1991 defines risk as
‘A combination of the probability, or frequency,
of occurrence of a defined hazard and the
magnitude of the consequences of the
occurrence.’
8
www.fidic.org
FIDIC Middle East Contract Users’ Conference
Dubai, 24-27 February 2020
Risk & Insurance Provisions in the New FIDIC Books
Background to the topic of risk
• British Standard No. 4778 of 1991 defines hazard
as
‘A situation that could occur during the lifetime
of a product, system or plant that has the
potential for human injury, damage to property,
damage to the environment, or economic loss’.
• These two definitions are confirmed in 2012.
9
www.fidic.org
FIDIC Middle East Contract Users’ Conference
Dubai, 24-27 February 2020
Risk & Insurance Provisions in the New FIDIC Books
Background to the topic of risk
However, in Australia/New Zealand Risk
Management Standard AS/NZ 3951: 1995,
the term “hazard” was replaced by “event”,
which was considered more appropriate and
precise technical meaning of risk, as it
includes positive as well as negative
consequences.
Thus,
10
www.fidic.org
FIDIC Middle East Contract Users’ Conference
Dubai, 24-27 February 2020
Risk & Insurance Provisions in the New FIDIC Books
Background to the topic of risk
RISK was defined as: ‘A combination of the
probability, or frequency, of occurrence of a
defined event and the magnitude of the
consequences of the occurrence of that
event.’
But, this is changed in 2009.
11
www.fidic.org
FIDIC Middle East Contract Users’ Conference
Dubai, 24-27 February 2020
Risk & Insurance Provisions in the New FIDIC Books
AS/NZS/ISO 31000:2009 – Definition of Risk
• Risk is the effect of Uncertainty on Objectives
• NOTE 1: An effect is a deviation from the
expected – positive and/or negative.
• NOTE 2: Objectives can have different aspects
(such as financial, health and safety, and
environmental goals) and can apply at different
levels (such as strategic, organization wide, project,
product and processes).
12
www.fidic.org
FIDIC Middle East Contract Users’ Conference
Dubai, 24-27 February 2020
Risk & Insurance Provisions in the New FIDIC Books
AS/NZS/ISO 31000:2009 – Definition of Risk
• NOTE 3: Risk is often characterized by reference
to potential events (2.17) and consequences (2.18),
or a combination of these.
• NOTE 4: Risk is often expressed in terms of a
combination of the consequences of an event
(including changes in circumstances) and the
associated likelihood (2.19) of occurrence.
13
www.fidic.org
FIDIC Middle East Contract Users’ Conference
Dubai, 24-27 February 2020
Risk & Insurance Provisions in the New FIDIC Books
AS/NZS/ISO 31000:2009 – Definition of Risk
• NOTE 5: Uncertainty is the state, even
partial, of deficiency of information related
to, understanding or knowledge of an
event, its consequences, or likelihood.
14
www.fidic.org
FIDIC Middle East Contract Users’ Conference
Dubai, 24-27 February 2020
Risk & Insurance Provisions in the New FIDIC Books
AS/NZS/ISO 31000:2009 – Definition of Risk
Risk is the effect, positive and/or negative, of
the state, even partial, of deficiency of
information related to, understanding or
knowledge of a potential event, its
consequences, or a combination, or
likelihood on objectives.
15
www.fidic.org
FIDIC Middle East Contract Users’ Conference
Dubai, 24-27 February 2020
Risk & Insurance Provisions in the New FIDIC Books
AS/NZS/ISO 31000:2009 – Definition of Risk
Objectives can have different aspects (such as
financial, health and safety, and environmental
goals) and can apply at different levels (such as
strategic, organization wide, project, product and
processes). Consequences of a potential event
include changes in circumstances and the associated
likelihood of occurrence, which can escalate through
knock-on effect.
16
www.fidic.org
FIDIC Middle East Contract Users’ Conference
Dubai, 24-27 February 2020
Risk & Insurance Provisions in the New FIDIC Books
The distinction between
Employer’s Risks and
Contractor’s Risks
17
www.fidic.org
FIDIC Middle East Contract Users’ Conference
Dubai, 24-27 February 2020
Risk & Insurance Provisions in the New FIDIC Books
• The effect of this change on Clause 17 is
considerable in that it is so elaborate that it does
not need any classification within Clause 17, but
instead risks are related directly to identification
within the various provisions of the Contract.
• Furthermore, the provisions of the Contract should
be explicit enough to specify clearly to whom the
risks are allocated.
18
www.fidic.org
FIDIC Middle East Contract Users’ Conference
Dubai, 24-27 February 2020
The Minor Requisite Differences in the Wording between the
Three Major Forms
• There are some minor requisite differences in the
wording of the Three Major Forms.
• Some examples include:
• SC 17.2 (c) & SC 17.3 (a): The Yellow Book refers to the
“Employer’s Requirements” whereas the Red Book
refers to “Specification and Drawings”. The Silver Book
refers to the Employer’s Requirements in SC 17.3 (a);
19
www.fidic.org
FIDIC Middle East Contract Users’ Conference
Dubai, 24-27 February 2020
The Minor Requisite Differences in the Wording between the
Three Major Forms
• SC 17.4: The last paragraph of the Red Book has the
following added text at the beginning of the last
paragraph: “To the extent, if any, that the Contractor
is responsible for the design of part of the Permanent
Works under Sub-Clause 4.1 [Contractor’s General
Obligations], and/or any other design under the
Contract, …”. However, neither the Silver Book nor
the Yellow Book contain this text;
20
www.fidic.org
FIDIC Middle East Contract Users’ Conference
Dubai, 24-27 February 2020
The Minor Requisite Differences in the Wording between the
Three Major Forms
• The last paragraph in SC 17.6 is slightly different in
the Yellow and Red Books. The Silver Book reads the
same as the Yellow Book; &
• The penultimate paragraph of SC 18.5: The Red Book
refers to the “Contractor’s particulars” whereas the
Yellow Book only refers to “particulars”. Similarly in
this paragraph, the Silver Book refers to the
“Employer” and the “Employer’s Representative”,
whereas the Yellow and Red Books refer to the
“Engineer”.
21
www.fidic.org
FIDIC Middle East Contract Users’ Conference
Dubai, 24-27 February 2020
The Flow from Risk to Insurance
Risks are spread throughout the whole of the Contract
• Duties of the Contracting Parties
• Risks in Performance
• Responsibility towards others & self
• Liability (amount, period & scope)
• Indemnity
• Insurance
22
www.fidic.org
FIDIC Middle East Contract Users’ Conference
Dubai, 24-27 February 2020
Allocation of Risks in Clauses 17 to 19
• Further, and subject to the Applicable Law, a risk will
always remain with an employer unless there is an
express term within the contract provisions that allows
that risk to be transferred or reallocated to either
another party to the contract, others involved in the
contract or indeed to 3rd parties.
• The flow from liability to insurance occurs when risks
eventuate that might lead to liabilities in excess of what
the parties can comfortably afford or sustain.
23
www.fidic.org
FIDIC Middle East Contract Users’ Conference
Dubai, 24-27 February 2020
The Allocation of Risks that are not mentioned
• If the Risks are not allocated, then the four Maxims
used by a Judge or an Arbitrator, either individually or
in combination, consciously or unconsciously, are:
Which Party can best control the risk and/or its associated
consequences?
Which Party can best foresee the risk?
Which Party can bear that risk? and
Which Party ultimately most benefits or suffers when the risk
eventuates?
24
www.fidic.org
FIDIC Middle East Contract Users’ Conference
Dubai, 24-27 February 2020
Risk Allocation and Insurance
• Perhaps the changes concerning the risk and insurance
provisions in the New FIDIC Books were most intense &
complex, as they not only addressed the new
developments relating to the concept of Risk, but they also
corrected some of the short-comings of the 1992 & 1999
documents, for example:
• How to identify the risks allocated to the Employer and the
Contractor, rather than just the Employer as in the 1992 &
the 1999 books, where they only referred to the Employer’s
Risks?
25
www.fidic.org
FIDIC Middle East Contract Users’ Conference
Dubai, 24-27 February 2020
Risk Allocation and Insurance
• Why it is necessary to differentiate between
Care of the Risks and the Risks themselves?
• What is generally insurable and what is not?
26
www.fidic.org
FIDIC Middle East Contract Users’ Conference
Dubai, 24-27 February 2020
RISKS IN CONSTRUCTION
Identify, Analyse & Allocate Risks to the Parties
Risks of Loss and/or Damage Economic & Time Risk (Go to next slide)
Employer’s Risks Contractor’s Risks Residual Risks
(Allocated) (Allocated) (Not Allocated)
Required to be insured Insurable Risk but not Uninsurable
under the Contract required to be insured Risks
P.I. P. &
C.A.R. T.P.L. E.L. Excess D.I.C.
E.L.
27
www.fidic.org
FIDIC Middle East Contract Users’ Conference
Dubai, 24-27 February 2020
ECONOMIC & TIME RISKS
Employer’s Risks Contractor’s Risks Residual Risks (unallocated)
Delay & Cost Overrun Defective Design Non-Performance
Some Insurance Surety
Patent Defects Latent Defects
Decennial Insurance
28
www.fidic.org
FIDIC Middle East Contract Users’ Conference
Dubai, 24-27 February 2020
Clauses 17 to 19 in the New FIDIC Books
• Completely revised and re-structured;
• Drafted using sound foundations, logical reasoning &
flow;
• Based on identification & allocation of Risks within the
provisions of the Contract & not in Clause 17;
• Residual Risks are to be allocated in accordance with
four criteria;
• Substitute the term Force Majeure by the more logical
term “Exceptional Events”.
29
www.fidic.org
FIDIC Middle East Contract Users’ Conference
Dubai, 24-27 February 2020
Responsibility & Liability to Rectify Loss or Damage
• SC 17.1 – the responsibility for rectifying loss or
damage during the execution of the Works is set out in
the last paragraph of this Sub-Clause.
• SC 17.2, first paragraph – two possibilities for the
liability of the Contractor thereafter:
1. Loss or damage after the Taking-Over Certificate.
2. Loss or damage which arose from an event that
occurred before the Taking-Over Certificate, for
which the Contractor was liable.
30
www.fidic.org
FIDIC Middle East Contract Users’ Conference
Dubai, 24-27 February 2020
Exceptions from Liability of the Contractor
• The second paragraph of Sub-Clause 17.2.
• Some examples include:
• Interference with any right of way;
• Use or occupation by the Employer of any part of the
Permanent Works, unless specified in the Contract; &
• Any act or default of the Employer’s Personnel or the
Employer’s other contractors.
31
www.fidic.org
FIDIC Middle East Contract Users’ Conference
Dubai, 24-27 February 2020
Date of Completion -v- Date of Taking-Over Certificate
Date on which responsibility for care of the
Works passes from the Contractor to the
Employer, under Sub-Clause 17.1, should be the
Date of Issue of the Taking-Over-Certificate as in
Sub-Clause 17.2 and not the Date of Completion,
since the latter varies under Clause 10.
32
www.fidic.org
FIDIC Middle East Contract Users’ Conference
Dubai, 24-27 February 2020
Exceptional Events & Consequences
• ‘Exceptional Event’ means an event or circumstance
which:
(i) is beyond a Party’s control;
(ii) the Party could not reasonably have provided against
before entering into the Contract;
(iii) having arisen, such Party could not reasonably have
avoided or overcome; and
(iv) is not substantially attributable to the other Party.
33
www.fidic.org
FIDIC Middle East Contract Users’ Conference
Dubai, 24-27 February 2020
Exceptional Events & Consequences
• An Exceptional Event may comprise but is not limited to any of
the following events or circumstances provided that conditions
(i) to (iv) in the previous slide are satisfied:
(a) war, hostilities (whether war be declared or not), invasion,
act of foreign enemies;
(b) rebellion, terrorism, revolution, insurrection, military or
usurped power or civil war;
(c) riot commotion or disorder by persons other than the
Contractor’s Personnel and other employees of the
Contractor and Subcontractors.
34
www.fidic.org
FIDIC Middle East Contract Users’ Conference
Dubai, 24-27 February 2020
Exceptional Events & Consequences
(d) strike or lockout not solely involving the
Contractor’s Personnel and other employees of
the Contractor and Subcontractors;
(e) encountering munitions of war, explosive
materials, ionising radiation or contamination
by radio-activity, except as may be attributable
to the Contractor’s use of such munitions,
explosives, radiation or radio-activity; or
35
www.fidic.org
FIDIC Middle East Contract Users’ Conference
Dubai, 24-27 February 2020
Exceptional Events & Consequences
(f) natural catastrophes such as earthquakes,
tsunami, volcanic activity, hurricane or
typhoon.
Reference to (f) should be noted in SC 17.2 (e) and
is to be distinguished from SC 17.2(d).
36
www.fidic.org
FIDIC Middle East Contract Users’ Conference
Dubai, 24-27 February 2020
The Insurance Requirements – Clause 19
19.1 General Requirements
19.2 Insurances to be provided by the Contractor
- The Works
- Goods
- Liability for breach of professional duty
- Injury to persons and damage to property
- Injury to Employees
- Other insurances required by Laws and by local practice.
37
www.fidic.org
FIDIC Middle East Contract Users’ Conference
Dubai, 24-27 February 2020
Liability for breach of professional duty
To the extent that the Contractor is responsible for
design:
(a) Professional indemnity insurance arising out of any
act, error or omission
(b) If stated in the Contract Data, professional
indemnity insurance arising out of any act, error or
omission that results in the Works, when completed,
not being fit for the purpose(s) for which they are
intended under Sub-Clause 4.1.
38
www.fidic.org
FIDIC Middle East Contract Users’ Conference
Dubai, 24-27 February 2020
Thank you for listening.
39
www.fidic.org
