EUROPEAN

INTERNATIONAL
CONTRACTORS

EIC Contractor’s Guide

to
the FIDIC Conditions of Contract
for

Construction

(The New Red Book

March 2002

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Foreword

EIC prepared a Contractor's Guide to the FIDIC Conditions of Contract for EPC Turnkey Contracts
(the Silver Book) and published it in March 2000. EIC took this decision, not only due to the
significant (in some instances unquantifiable) risks that the Contractor is required to carry under
the Silver Book but also because it places the Contractor in a contractual environment that permits
the Employer considerable scope for interference and unilateral action. It is this combination of
high risk and limited freedom of action that concerns contractors. The Guide to the Silver Book
was generally well received and whilst it did not receive a wholehearted endorsement from FIDIC
they were kind enough to suggest that it provided a useful checklist for both employer and
contractor. Feedback from contractors tells us that they find it useful; it highlights and discusses
the risks confronting contractors within the restrictive contractual framework of the Silver Book and
is a useful checklist, highlighting those clauses requiring careful thought.

As a FIDIC form the Silver Book was completely new to EIC contractors, whereas we are very
familiar with the Fourth Edition of the Conditions of Contract for Works of Civil Engineering
Construction and generally consider it an acceptable form of contract. Indeed, given the
opportunity, contractors have recommended its use to employers. Throughout this Guide, it is
referred to as the Fourth Edition. So, why publish a guide to its successor, the Conditions of
Contract for Construction for Building and Engineering Works Designed by the Employer,
hereinafter referred to as the Red Book? In contrast to contractors’ favourable impressions of the
Fourth Edition, our study of the Red Book and discussions with FIDIC led us to the conclusion that
whilst it does not present the same high degree of risk as the Silver Book it is more onerous than
the Fourth Edition to the extent that the publication of a guide is justified. We have followed a
format similar to our Guide to the Silver Book and comment only where we think that there is
something important for contractors to consider and only at length where there are important
issues at stake.

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 to the industry at large, we would like to
receive feedback from EIC member companies on its usefulness and relevance and we would
particularly like to gather experience of any contracts carried out under the Red Book. All
communications should be sent to the EIC Secretariat in Berlin.

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Acknowledgements

EIC would like to thank the FIDIC Contracts Committee for the time they devoted to explaining the
philosophy behind the publication of the Red Book and for listening patiently to our arguments. We
would particularly like to thank the Contracts Committee of the International Construction Group in
the United Kingdom for the preparation of the first draft of this Guide and Mr Robert Akenhead QC
for the important contributions he made in reviewing the draft and recommending improvements.

EIC would also like to express its appreciation of the work carried out by those members of its own
Conditions of Contract Working Group who contributed to the preparation of this Guide: Richard
Appuhn, Salini; Håkan Broman, NCC; Martin Carrey, Carillion; Eric Eggink, Ballast Nedam; Dr
Joachim Goedel, Hochtief; Frank Kennedy (Chairman); Simon Williams, Taylor Woodrow. Our
thanks also go to the Working Group's hard working secretary Frank Kehlenbach.

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Executive Summary

We readily accept that in some respects the Red Book is an improvement on the Fourth Edition.
However, we believe that the balance of all amendments will increase the risk to contractors and
have concluded therefore that the Red Book is a less satisfactory form of contract than the Fourth
Edition. From a contracting perspective, the clauses dealing with the provision of confidential
information, fitness for purpose, tests on completion and notice of claim represent a move in the
wrong direction. Whilst we recognise that today’s engineer can no longer act impartially, we
believe that some of his new powers could prove problematical in practice, especially where he is
required to make judgements as if he were an experienced contractor.

Improvements

The first of the welcome changes requires the Employer to demonstrate that sufficient finance is
available to carry out the Works (Sub-Clause 2.4). This will be particularly important where the
immediate client is a Special Purpose Company (SPC) and is funded by loans. For contracts
placed by an SPC it is usual for the lending banks to put a Direct Agreement in place, which
permits them to take over control of the contract should the SPC default. Where such an
agreement exists it is important that the Contractor is given the opportunity to study and consider
its terms and conditions before the construction contract is finalised. This clause will also prove
useful where major variations are ordered or where the Employer has acknowledged the
Contractor's right to any significant payment for additional works or major claims.

The procedure for dealing with Employer’s Claims (Sub-Clause 2.5) is also an improvement over
the Fourth Edition. The Employer must now follow a set procedure if he considers himself entitled
to any payment and must give notice as soon as practicable and provide particulars of the claim.
These provisions are mandatory. The Engineer must then make a determination but the
Contractor can refer such a determination to a new and independent body, the Disputes
Adjudication Board (the DAB, Sub-Clause 20.2). These new provisions should go a long way to
prevent any unreasonable actions of the Employer, especially in terms of the application of Delay
Damages, a not uncommon practice with some employers in countering or indeed negating the
legitimate claims of the Contractor. The DAB can comprise either one or three members, to be
appointed by the Employer and the Contractor. The appointment of the DAB expires only after a
written discharge by the Contractor has become effective and the DAB is therefore available
throughout the duration of the Contract and provided both Parties agree they can refer any matter
to it and this provision could prove useful in resolving disputes before they effect the progress of
the works. The creation of the DAB is a welcome addition to the Red Book and the binding nature
of its decisions, even if either Party is dissatisfied is an added benefit.

Our friendly and impartial Engineer has been laid to rest! The Engineer is now required to act for
the Employer (Sub-clause 3.1) and no longer has a duty to act impartially. Why do we consider
this a change for the better? Simply because it recognises what has long been the established
custom and practice in the industry. In any event, we believe that any possible downside will be
more than compensated for by the introduction of the DAB.

Whilst the Employer can still make claims on the Contractor’s Performance Security (Sub-Clause
4.2), any claim must now be made strictly in accordance with the terms laid down in the Contract.
This is an improvement on the Fourth Edition and the Contractor is offered protection for all costs
incurred should the Employer make a false claim and the Employer must indemnify the Contractor

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accordingly. Whereas the Fourth Edition merely required the Employer to notify the Contractor
prior to making a claim, the Red Book limits the Employer’s claims under this guarantee to
amounts to which the Employer is entitled.

Retrogressions

Regrettably there are a quite a few clauses in the Red Book which have been toughened up and
whilst the principal obligations and risks carried by the Contractor are still construction oriented,
they are generally more onerous than under previous construct only editions and the overall effect
is to increase the risk profile by comparison with the Fourth Edition.

The Contractor is now required (Sub-Clause 1.12) to provide all such confidential information as
the Engineer may reasonably require in order to verify the Contractor’s compliance with the
Contract. This clause is overly demanding and could place the Contractor in a difficult position in
situations where a dispute has arisen, especially with regard to third parties. A similar provision to
that in the Silver Book would be more appropriate, which sets out a mutual confidentiality
obligation and provides for agreement of privileged information pre-tender. This would be a more
sensible approach.

The Contractor is entitled to time extension and payment of additional cost suffered due to errors in
Setting Out information provided by the Employer (Sub-Clause 4.7). However, this entitlement is
now subject to the test of whether an experienced contractor would spot the error and the Engineer
will be the judge on this matter. Not only does the Engineer act for the Employer; he is also
required to make decisions as if he were an experienced contractor!

Of particular concern for contractors working under English or Common Law is the introduction of
an obligation (Sub-Clause 4.1), which stipulates that any designs by the Contractor must be fit for
purpose. Under those jurisdictions, the Employer's designer will only have an obligation to design
with reasonable skill and care and this could lead to some interesting disputes should difficulties
arise as a result of any conflicts or anomalies that occur between the Employer’s and the
Contractor’s designs.

A requirement to carry out Tests on Completion has been introduced (Clause 9) and is a novel
concept for a construct only contract. It is difficult to see what type of contract would qualify and it
is not the tests themselves that are the problem but rather the punitive sanctions that could be
suffered in the event of failure to pass such tests. In extreme circumstances, these could include
dismantling the structure, removing it and returning the site to its original condition and repaying all
monies received by the Contractor. This clause, which may well be attractive to the less
reasonable type of employer should be deleted in its entirety - a possibility that FIDIC actually
provide for if the clause is inappropriate to the nature of work being carried out. This makes it even
more difficult to understand why it is there in the first place.

Most parties to a construction contract would agree that the ability of any contractor to prepare an
accurate cost estimate is completely dependent on the quality and comprehensiveness of the
information provided at tender stage. In the Fourth Edition, the Employer was required to supply
all available data on hydrological and sub-surface conditions. It is difficult to understand therefore
the provisions of the Red Book (Sub-Clause 4.10) which modify that requirement to relevant data
in the Employer’s possession. It is difficult to see how it will help employers to limit in any way the
information provided to bidders and contractors should try to amend this requirement to reflect the
terms of the Fourth Edition.

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Where the Contractor encounters unforeseen conditions (Sub-Clause 4.12), the Engineer may now
consider whether conditions in similar parts of the Works were more favourable than could have
been foreseen before finally determining any entitlement to additional costs. If, in the Engineer's
opinion such favourable conditions were encountered, the Engineer can take them into account
when determining any entitlement to additional Cost. This provision could be extremely prejudicial
to the Contractor and is open to widely differing interpretations. A further new concept permits the
Contractor to provide evidence of the physical conditions foreseen in his tender calculation.
However, if such evidence is provided, the Engineer may or may not take account of it and is not
bound by it. It would appear that FIDIC’s objective is to use every means possible to reduce the
financial impact of claims for unforeseeable conditions but the extent of the discretionary powers
now at the Engineer’s disposal seem more likely to increase the potential for dispute and
disagreement.

The Employer now has the right, not present in the Fourth Edition, to terminate for convenience
(Sub-Clause 15.5). This right can be exercised at any time 28 days after giving written notice.
The payment terms do not provide for loss of profit and are inequitable and inappropriate in the
case of termination for the Employer’s convenience. In such circumstances, loss of profit should
be payable to the Contractor. The clause states that the Employer may not terminate in order to
undertake the Works directly or arrange for them to be completed by another Contractor.

The Contractor’s obligation to issue a notice has changed for the worse and he is now required
to give notice 28 days after becoming aware, or when he should have become aware (Sub-
Clause 20.1). Contractors should beware! Failure to comply with this provision will incur a fierce
penalty and will result in the Contractor forfeiting his right to an Extension of the Time for
Completion and to additional payment and the Employer is also discharged from any liability.
The penalty for failure to comply with a purely technical requirement to give notice 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. Whilst we accept that the Contractor may prejudice his entitlement
by failing to comply strictly with a notice provision we cannot agree that he should forfeit his
rights altogether and neither should the Employer be discharged from any and all liability. It
becomes doubly unreasonable that this provision also applies when the Employer is responsible
for causing the problem in the first case. It is revealing to compare these terms with the
obligations of the Employer where either the Employer or the Engineer is only required to give
notice as soon as practicable after becoming aware. This demonstrates once again the unfair
imbalance between the respective obligations of the Employer and the Contractor that is
becoming symptomatic of FIDIC contract forms.

Comments on a number of individual clauses follow and deal with the matters referred to above
in greater detail.

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1 General Provisions
1.1.2.6 The new definition of the Employer’s Personnel includes the personnel of
Employer's both the Employer and those of the Engineer. This could include a very
Personnel significant number of people, especially where the Employer is a national
government or government agency.

1.1.4.3 The definition of Cost excludes profit and could result in the Contractor
Cost carrying out extra work or incurring expense, possibly quite substantial in
extent, without profit. Such work or expense could arise under various
Sub-Clauses, for example, 4.12 [Unforeseen Physical Conditions], 4.24
[Fossils], 8.9 [Consequences of Suspension], 13.7 [Adjustments for
Changes in Legislation], 17.4 [Consequences of Employer’s Risks],
except as indicated, and 19.4 [Consequences of Force Majeure]. Under
each of those clauses any entitlement would exclude profit unless tenders
have been otherwise qualified.

1.4 Provides that “The Contract shall be governed by the law of the
Law and Country (or other jurisdiction) stated in the Appendix to Tender”.
Language The Contractor should be aware that under certain Civil Law jurisdictions
some Red Book conditions may be considered unfair trade terms and
therefore inapplicable. There may also be mandatory laws, which cannot
be overridden by the Contract. Any potential conflict between the
Contract and mandatory legal requirements is best clarified by taking
expert advice during the tender period.

1.12 Requires that, “The Contractor shall disclose all such confidential
Confidential and other information as the Engineer may reasonably require”.
Details This clause could present difficulties if the Contractor were required to
disclose confidential information in respect of which the Contractor has a
duty of confidentiality to a third party.

The Silver Book allows the Contractor to retain confidentiality over

information, which has been specified at tender stage, whereas the Red
Book offers no such protection. Whilst the Sub-Clause includes the
phrase "as the Engineer may reasonably require" no criteria are
provided to give guidance on what is reasonable. The Contract should
contain a provision to provide the Parties with the opportunity, pre-tender,
to discuss and agree the extent of any privileged Contractor’s
information. Contractors should be mindful of this requirement with
regard to internally confidential and sensitive information and that of third
parties.

1.13 The Contractor shall comply with all applicable laws. However
Compliance with responsibility for obtaining permits, licences or approvals is not entirely
Laws 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 give all notices, pay all taxes, duties and fees, and obtain all
permits, licences and approvals, as required by the Laws in relation
to the execution and completion of the Works and the remedying of
any defects”. Responsibility for obtaining permissions is ambiguous and

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should be clarified. For instance, what is “similar permission” for which

the Employer is responsible pursuant to Sub-Clause 1.13 (a) and how
does it 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 party responsible for obtaining the same.
In the event that the Contractor is responsible then, under Sub-Clause
2.2.b (i) [Permits, Licences and Approvals] “the Employer shall (where
he is in a position to do so) provide reasonable assistance to the
Contractor”. Consequently, any delays caused by the Employer’s failure
entitle the Contractor to an extension of time in accordance with Sub-
Clauses 8.4(e) [Extension of Time for Completion]. Any delays caused by
authorities entitle the Contractor to an extension of time under 8.5 [Delays
Caused by Authorities], 8.4(b). In particular, all 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.

In the event that the Contractor undertakes any design of the Works, he
must clarify who is responsible for the provision of permits, licences or
approvals for that part of the Works.

1.14 Where the Contracting Party is a joint venture or consortium, this Sub-
Joint and Clause requires that, the parties to such joint venture or consortium must
Several Liability be jointly and severally liable to the Employer. Likewise, should the
Employer consist of two or more legal entities the obligation should be
reciprocal.

2 The Employer
2.1 Although a “right of access to and possession” of the Site is to be
Right of Access given by the Employer, this “right and possession may not be
to the Site exclusive”. It would be sensible for the contract documents to identify
the extent to which there may not be exclusive access and possession
and it would be beneficial to clarify this, given the Contractor’s duty to co-
operate with others under Sub-Clause 4.6.

2.3 This Sub-Clause relates to the Employer’s obligations in respect of his

Employer’s personnel and contractors employed directly by him. It should be noted
Personnel that there is no express obligation on the Employer to secure generally
that his other contractors co-operate 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 (e)
[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 cost of delay and disruption caused by
such events. Contractors should carefully consider the possible effects
on the cost of successfully completing the Works, especially where the
Employer intends to be closely involved.

2.4 FIDIC recognises the need for the Contractor to be satisfied that the
Employer’s Employer has the necessary financial strength to undertake his
Financial obligations under the Contract. This Sub-Clause requires that “the
Arrangements Employer shall submit, within 28 days after receiving any request

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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. The Contractor must have the right to refuse to
undertake any significant Variation if no clear evidence is provided that
the available funding is sufficient to cover the cost of the varied Works.

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 such an agreement is to be put in place
between lenders and contractor then the terms and conditions should be
made available prior to signature of the Contract.

A powerful sanction is available to the Contractor should the 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 try to 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, if for example a major Variation is
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 This Sub-Clause offers better protection to the Contractor and obligates
Employer’s the Employer to follow a given procedure if he “considers himself to be
Claims entitled to any payment under any Clause of these Conditions or
otherwise in connection with the Contract, and/or to any extension
of the Defects Notification Period, the Employer shall give notice
and particulars to the Contractor”. The Employer or the Engineer may
give notice and “The notice shall be given as soon as practicable”
and give particulars of the claim, after which the Parties may agree the
claim or failing which the Engineer 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”. In accordance with Sub-Clause 3.5
[Determinations], the Engineer shall make a determination in respect of
any such Employer claim. These new provisions should go a long way to
prevent any unreasonable actions of the Employer, especially in terms of
the application of Delay Damages.

These provisions for Employer’s Claims represent a significant

improvement over the Fourth Edition. If the Engineer fails to make a fair
determination pursuant to Sub-Clause 3.5 [Determinations], the disputes
procedures laid down in Sub-Clause 20.4 [Obtaining a Dispute
Adjudication Board’s Decision] operates within very strict time constraints
and offers therefore, an immediate means of challenge and should act as
a deterrent to any unreasonable action on the part of the Engineer.

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A provision entitling the Contractor to claim against the Employer is found

in Sub-Clause 20.1[Contractor’s Claims], but its terms are much more
onerous on the Contractor than those placed upon the Employer under
this Sub-Clause. The obligations of the Employer and Contractor should
provide for similar time frames and sanctions for non-compliance. (See
also comments under Sub-Clause 20.1 [Contractor’s Claims]).

3 The Employer’s Administration

3.1 This Sub-Clause states that the Engineer acts for the Employer but the
Engineer’s obligation to act impartially as set out in the Fourth Edition does not
Duties and appear in the Red Book.
Authority
Where the Engineer is required to obtain the approval of the Employer
before issuing an instruction this shall be stated in the Particular
Conditions. However, whenever the Engineer issues an instruction
without first obtaining approval, then the Employer shall be deemed to
have given his approval. This means that the Contractor is relieved of
any need to establish any limitations on the Engineer’s powers.

3.3 This Sub-Clause gives the Engineer wide powers “to issue to the
Instructions of Contractor (at any time) instructions and additional or modified
the Engineer drawings which may be necessary for the execution of the Works”
and obligates the Contractor to comply with such instructions.
Contractors should note the 2-day period in sub-paragraph (b) regarding
the written confirmation of oral instructions of the Engineer or delegated
assistants.

3.5 Sub-Clause 3.5 sets down the procedure to be followed by the Engineer
Determinations when he is required to make a determination. The Engineer shall consult
both Parties, endeavour to reach an agreement and failing agreement, he
shall then make a fair determination taking account of all relevant
circumstances. The Engineer is required to make a determination under
the following Clauses:
1.9 [Delayed Drawings or Instructions]
2.1 [Right of Access to the Site]
2.5 [Employer's Claims]
4.7 [Setting Out]
4.12 [Unforeseeable Physical Conditions]
4.19 [Electricity, Water and Gas]
4.20 [Employer's Equipment and Free-issue Materials]
4.24 [Fossils]
7.4 [Testing]
8.9 [Consequences of Suspension]
9.4 [Failure to Pass Tests on Completion]
10.2 [Taking Over Parts of the Works]
10.3 [Interference with Tests on Completion]
11.4 [Failure to Remedy Defects]
11.8 [Contractor to Search]
12.3 [Evaluation]
12.4 [Omissions]
13.2 [Value Engineering]
13.7 [Adjustments for Changes in Legislation]
14.4 [Schedule of Payments]

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15.3 [Valuation at Date of Termination]

16.1 [Contractor's Entitlement to Suspend Work]
17.4 [Consequences of Employer's Risks]
19.4 [Consequences of Force Majeure]
20.1 [Contractor's Claims]

4 The Contractor
4.1 Sub-paragraph (c) places a fitness for purpose obligation on the
Contractor’s Contractor in respect of any design of any part of the Permanent Works
General which the Contract specifies shall be undertaken by the Contractor. It
Obligations provides that unless the Particular Conditions provide otherwise the works
when they are complete shall, “be fit for such purposes for which the
part is intended as are specified in the Contract”. 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 of less
concern under other jurisdictions where fitness for purpose is the law of a
country or common practice. However, the issues discussed below are
relevant to both situations.

The Red Book contains no obligation on the Employer to provide the

definition of Intended Purpose. If the Technical Specifications do not
sufficiently define the reference terms for that part of the Design to be
provided by the Contractor, contractors should ensure that prior to
contract signature a definition is agreed by both Parties which is clear and
unambiguous and is not open to re-interpretation at a later date. Failure
to do so could lead to a serious and costly dispute.

With regard to 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 the Contractor. 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
universally available and is a particular problem for British consultants. It
is quite likely therefore that the Red Book will create anomalies where the
Employer’s designers (having carried out the greater part of the design)
might only be subject to a reasonable skill and care obligation whilst the
Contractor will be subject to the more onerous fitness for purpose
obligation.

If the Contractor’s design is in respect of a major part of the Works

(“major part” is not a defined term and is accordingly open to differing
interpretation) which major part cannot be put to the intended use then
the Contractor may incur punitive sanctions limited only by the terms of
Sub-Clause 17.6 [Limitation of Liability].

4.2 The form of Performance Security must be clearly set out in the Contract.
Performance Failure to do so could result in difficulty in obtaining approval from the
Security Employer and particularly so if a Conditional Bond is offered whereas the
Contract anticipates an On Demand Bond.

This Sub-Clause is an improvement on the Fourth Edition and the

Contractor is offered protection for all costs incurred in the event that the
Employer makes a false claim and the Employer must indemnify the

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Contractor accordingly. Whereas the Fourth Edition merely required the

Employer to notify the Contractor prior to making a claim under the
Performance Security, the Red Book limits the Employer’s claims under
this guarantee “for amounts to which the Employer is entitled” and
the Employer’s entitlement to demand sums under the guarantee is
limited by Sub-Clause 2.5 [Employer’s Claims].

The Employer is permitted to make a claim on the Contractor’s

Performance Security in the event of “circumstances which entitle the
Employer to termination under Sub-Clause 15.2 [Termination by the
Employer]”, but again such claim must be made in accordance with Sub-
Clause 2.5.

4.6 This Sub-Clause spells out the obligations of the Contractor in respect of
Co-operation co-operation. 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, especially those where the Employer intends to place
significant other contracts, notwithstanding Sub-Clause 2.3 [Employer’s
Personnel], it would be prudent to ensure that the Employer assumes
clear and reciprocal obligations.

4.7 The Employer shall be responsible for errors in specified or notified items
Setting Out of reference provided by the Employer or Engineer but the Contractor has
a duty to verify their accuracy.

The Contractor is required to give notice to the Engineer in the event that
delay or additional costs arise due to such errors, and will only be entitled
to an extension of time and payment of his additional costs plus
reasonable profit if it is considered that an “experienced contractor
could not reasonably have discovered such error”. This leaves the
responsibility for such errors open to the Engineer’s judgement, which is
unsatisfactory, as all such errors should without exception be the
responsibility of the Employer.

4.10 This Sub-Clause constitutes a step backwards for the Contractor.

Site Data Whereas in previous editions, the Employer was required to supply all
available data on hydrological and sub-surface conditions, the Red Book
modifies that requirement by inserting the words “relevant data in the
Employer’s possession”. It is difficult to see how it helps employers to
limit in any way the information provided to bidders and contractors
should try to amend this requirement to match those of the Fourth Edition.

4.11 This Sub-Clause is to be read together with Sub-Clause 4.10 [Site Data].
Sufficiency of the Within the practical restraints of reasonable time and cost, the Contractor
Accepted Contract shall satisfy himself as to the correctness and sufficiency of the Accepted
Amount Contract Amount. The requirement to have based the Accepted Contract
Amount on data, interpretations, inspections and information provided by
the Employer and obtained from his inspection of the Site are included in
this Sub-Clause. The Contractor’s obligations under this Sub-Clause do
not deviate in substance from the Fourth Edition.

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4.12 “Unforeseeable” is a defined term (see Sub-Clause 1.1.6.8) and means

Unforeseeable “not reasonably foreseeable by an experienced Contractor by the
Physical date of submission of the Tender”. Sub-Clause 4.10 [Site Data] deems
Conditions the Contractor to have obtained all necessary information (based on
practicality of time and cost) as to risks, contingencies and to have
satisfied himself before submitting his tender as to the nature of the Site,
including sub surface conditions, all of which permits the Engineer to
argue that the Contractor should have foreseen such physical conditions.

Where the Contractor is entitled to recover his additional costs, these

costs will not include profit. This is totally unreasonable as the Contractor
will have been required to undertake additional work and as such he
should be entitled to receive a reasonable profit for his labours.

The Contractor is entitled to relief for cost and time due to unforeseeable
“natural physical conditions and man made and other physical
obstructions or pollutants” and “including subsurface and
hydrological conditions”. The Contractor may no longer rely on this
Sub-Clause for relief due to impediments encountered off the site. Like
the Fourth Edition, the Red Book excludes climatic events from the
definition of physical conditions that may give rise to entitlement to time
extension and Cost.

Before finally determining any entitlement to additional Cost the Engineer

may take into account whether “other Physical Conditions in similar
parts of the Works (if any) were more favourable than could
reasonably have been foreseen when the Contractor submitted its
Tender”. If, in the Engineer's opinion such favourable conditions were
encountered the Engineer can take them into account when determining
any entitlement to additional Cost (although not with regard to additional
time); however he may not reduce the Contract Price. This provision
could be extremely prejudicial to the Contractor and the expressions
“similar parts of the Works” and “more favourable” are open to widely
differing interpretations.

The closing paragraph of this Sub-Clause introduces a new concept that

allows for the Contractor to provide evidence of the physical conditions
foreseen in his tender calculation. The Contractor should be aware that if
he provides the Engineer with such evidence, the Engineer may take
account of this evidence, but is not bound by any such evidence in
making a determination pursuant to Sub-Clause 3.5 [Determinations].

An alternative approach would be for the parties to agree the foreseeable

conditions beforehand. Where this practice has been adopted,
experience shows that this approach simplifies claims negotiations, which
is obviously to the benefit of both parties.

4.15 On certain projects there could well be an inconsistency between this

Access Route 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
(possession of the Site). Contractors should be aware that their right of
access to Site does not require the Employer to provide a physical access
route.

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4.21 The requirements of this Sub-Clause are unnecessarily detailed and over
Progress prescriptive for most types of project. Contractors would be advised to
Reports agree at tender stage a format, which is more appropriate to the particular
contract.

5 Nominated Sub Contractors

5 Although satisfactory as far as it goes, this Clause is incomplete in that it
Generally does not address the need for re-nomination or the other consequences
of a determination of the nominated Subcontract. The Contract does not
identify how work, which is to be the subject of nomination is to be
identified or how (in detail) such work is to be valued. Definition should
be provided in the Contract documentation.

7 Plant, Materials and Workmanship

7.6 A surprising omission is the lack of any express provision, which permits
Remedial Work the Engineer 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 Engineer insist on a replacement in situations
where a repair would be a perfectly reasonable solution then the
Employer should bear the additional cost.

7.7 Plant and Materials will become the property of the Employer when
Ownership of delivered to Site or when the Contractor is entitled to payment of the
Plant and value of the Plant and Material. In each case ownership passes to the
Materials Employer prior to the Contractor being paid for such Plant and Materials,
which could prove unsatisfactory in the event of Employer bankruptcy.

8 Commencement, Delay and Suspension

8.1 The Engineer’s notice of Commencement Date is onerous at 7 days; a
Commencement more reasonable period would be 28 days. If the Engineer fails to give
of Work notice of the commencement date, then after a period of 42 days there is
entitlement to extension of time and an increase in the Contract Price.

8.3 This Sub-Clause obliges the Contractor to give advance warning, and is a
Programme new feature of the FIDIC Conditions requiring that, “the Contractor shall
promptly give notice of specific probable future events or
circumstances which may adversely affect or delay the execution of
the Works”. Contractors should consider whether such a warning could
have an impact on the starting point for calculating the notice periods
under Sub-Clause 20.1 [Contractor’s Claims]. It would be reasonable for
this obligation to be reciprocal and also apply to the Employer.

8.4 The Contractor has an entitlement to an extension of Time for

Extension of Completion:
Time for (i) if the delay is due to a Variation Order, or
Completion (ii) exceptionally adverse climatic conditions, or
(iii) is caused by the Employer or his other contractors, or
(iv) is due to unforeseeable shortages in the availability of personnel
or goods caused by epidemic or governmental actions; or
(v) if a right to extension exists under any other Sub-Clause of these

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conditions, i.e.
2.1 Failure by the Employer to give access to and possession of the
Site.
(Cost plus reasonable profit added to Contract Price).
4.7 Setting Out
(Cost plus reasonable profit added to Contract Price)
4.12 Unforeseeable Physical Conditions
(Cost but no profit added to Contract Price).
4.24 Discovery of fossils etc.
(Cost but no profit added to Contract Price).
7.4 Delayed testing caused by Employer (see also Sub-Clause 10.3).
(Cost plus reasonable profit added to Contract Price)
8.5 Delays caused by Authorities.
(Extension of time only).
8.9 Suspension initiated by Employer (see also Sub-Clause 16.1).
(Cost but no profit added to Contract Price).
10.3 Interference with testing by Employer (see also Sub-Clause 7.4).
(Cost plus reasonable profit added to Contract Price).
13 The time consequences of Variations are dealt with in Sub-Clause
8.4(a)
13.7 Changes in Legislation.
(Cost but no profit added to Contract Price).
16.1 Suspension initiated by Contractor (see also Sub-Clause 8.9).
(Cost plus reasonable profit added to Contract Price).
17.4 Employer’s Risks.
(Generally cost but no profit added to Contract Price).
19.4 Force Majeure.
(Cost but no profit added to Contract Price).

It is difficult to follow FIDIC’s logic with respect to the variation in remedies

open to contractors which are:
• time only,
• time and cost
• time, cost and profit

The Red Book does not contain the sweep-up clause found in the Fourth
Edition, which refers to “other special circumstances” and contractors face
increased risk as a result of this omission and should reinstate a similar
provision whenever possible.

Sub-Clause 8.4(e) permits time extension where there has been “any
delay, impediment or prevention caused by or attributable to the
Employer”. Under some jurisdictions, this wording may not be specific
enough to cover breaches of contract by the Employer. In the event that
no time extension is granted, time may become at large and the delay
(liquidated) damages provisions will be unworkable in law.

8.6 If the Contractor is working too slowly the Engineer can instruct
Rate of Progress 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]”.
In addition to any delay damages the Contractor will be responsible for
the Employer’s additional costs arising from the Contractor’s revised
methods.

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8.7 The maximum amount of Liquidated Damages shall be stated in the

Delay Damages Appendix to Tender. However, damages in the event of delay can
exceed this amount e.g. if the Contractor has to pay the Employer’s costs
under Sub-Clause 8.6 [Rate of Progress] or if the Contract is terminated.

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 Sub-Clause 17.6 [Limitation of Liability].

Contractors should be aware that submitting claims for an extension of

time will not necessarily prevent the deduction of delay damages. The
Contractor must ensure that any claim for an extension of time is
submitted in accordance with the Contract. Should the Employer then
deduct damages despite receiving a properly documented claim or,
without pursuing his own entitlement under Sub-Clause 2.5 [Employer’s
Claims] this would be a breach of Contract.

9 Tests on Completion
9 This clause should be deleted to avoid confusion where no practical
Generally purpose would be served by Tests on Completion.

9.2 In the event that “Tests on Completion” are applicable, then this Sub-
Delayed Tests Clause provides remedies to the Contractor in the event that the
Employer delays such tests. Under Sub-Clause 7.4 [Testing], the
Contractor will be entitled to an extension of time and the recovery of his
Costs plus reasonable profit if the Employer is responsible for delay. If
the tests are delayed for more than fourteen days then, under Sub-Clause
10.3 [Interference with Tests on Completion] the Engineer is required to
issue a taking over certificate and the Contractor will be entitled to an
extension of time and recovery of Costs plus reasonable profit.

9.4 If the Works fail to pass repeated Tests on Completion and the failure
Failure to Pass “deprives the Employer of substantially the whole benefit of the
Tests on Works or Section” then the Engineer has the right to reject the Works,
Completion terminate the Contract, recover all sums paid for the Works, plus
financing costs, costs for dismantling the Works and clearing the Site.
Manifestly, the Contractor would suffer catastrophic financial
consequences if these punitive sanctions were levied and it is
inconceivable that there are projects, suitable for execution under the Red
Book, where such a severe remedy can be justified.

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. In the event of termination for default by the Contractor it is
up to the Employer to decide whether or not to complete the Works with
another contractor. In such situations the Contractor must 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 situation design
responsibility for that portion of the Works designed by the original
Contractor could rest with the new Contractor and contractors faced with

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such a prospect should pay due regard to the risks involved. It is

important to understand the implications of this requirement, as the
Contractor could face very serious financial penalties 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 Employer’s Taking Over

10.1 Insurance must be maintained for the Works “until the date of issue of
Taking Over of the Taking-Over Certificate for the Works” (Sub-Clause 18.2
the Works and [Insurance of the Works and Contractor’s Equipment]) and cover should
Sections be maintained even if the Engineer unreasonably withholds the Taking-
Over Certificate (subject to the deemed issue referred to at the end of this
Sub-Clause).

11 Defects Liability
11.2 The Contractor shall at his own cost remedy defects caused by “any
Cost of design for which the Contractor is responsible”. The Contractor is, by
Remedying virtue of Sub-Clause 4.1 [Contractor’s General Obligations] only
Defects responsible for any design which he actually carries out but it should be
noted that this obligation includes any design carried out by
subcontractors including those that are nominated.

11.4 If the Contractor fails to remedy a defect and the defect or damage
Failure to “deprives the Employer of substantially the whole benefit of the
Remedy Defects Works or any major part of the Works” then the Employer is entitled to
recover all sums paid for the Works, plus financing costs and costs for
dismantling the Works and clearing the Site. These provisions are similar
to those noted under Sub-Clause 9.4, are completely inappropriate for the
type of contract likely to be carried under the Red Book and should be
redrafted to provide a more sensible remedy.

12 Measurement & Evaluation

12.1 The Sub-Clause states that the Contractor has only 14 days to notify the
Works to be Engineer if the measurement records are inadequate. On major projects
Measured there will invariably be voluminous records and 14 days is totally
unreasonable, particularly as Contractors are required to give notice
within this period if they disagree with any measurement record otherwise
it will be considered as accurate. At tender stage, Contractors should
agree a more realistic time frame, which is appropriate for the type of
works being carried out.

12.3 The provision for revising rates is complex and is based on (i) a 10% or
Evaluation greater increase or decrease in any quantity, (ii) the change in quantity
multiplied by the Contract rate exceeding 0.01% of the Accepted Contract
Amount, and (iii) the change in quantity changes the cost per unit by more
than 1%. At best, this is confusing and at worst, could result in losses
where individual rates do not accurately reflect costs.

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13 Variations & Adjustments

13.1 The Engineer may initiate Variations prior to issuing the Taking Over
Right to Vary Certificate for the Works, and the Contractor has only limited grounds for
refusing to undertake the instructed Variation, for example “if the
Contractor cannot readily obtain the Goods required for the
Variation”. Notwithstanding any objections raised by the Contractor, the
Engineer may still confirm his instruction.

If, 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 Price resulting from the
Variation, then it should be at the Contractor’s sole discretion to refuse or
accept a Variation.

Should the Engineer 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.

13.2 The Red Book provides a mechanism through which the Contractor is
Value compensated if the Engineer approves his suggestion in respect of value
Engineering engineering. The Engineer can determine “the reduction (if any) in the
value to the Employer of the varied works taking account of any
reductions in quality, anticipated life or operational efficiencies”. A
more specific provision should be provided to make it clear how the
benefits to both parties will be apportioned.

13.3 It is quite likely that the Contractor will be required to carry out substantial
Variation work before a Variation is approved. It is not clear whether the cost of
Procedure such work will be reimbursed in the event that the Variation is not
executed. This should be clarified pre-tender.

It would also be helpful if separate provision were made for compensation

for delay and disruption caused by Variations. Building such costs into
the revised rates under Sub-Clause 12.3 [Evaluation] could well make the
Variation look over priced.

13.7 This Sub-Clause contains provisions in respect of the recovery of

Adjustments for additional Costs associated with changes in legislation. Contractors
Changes in should note however that the recovery of losses only applies to changes
Legislation in legislation in the country in which the Site of the Permanent Works is
located. The Contractor is now expressly entitled to an extension of time
if he is delayed by reason of subsequent legislation, which is an
improvement over the Fourth Edition.

14 Contract Price and Payment

14.2 Provision is made for the Contractor to receive an Advance Payment as
Advance an interest-free loan for his mobilisation and design provided that the
Payment amount of the advance is stated in the Appendix to Tender.

If an advance is specified in the Appendix to Tender then the Engineer

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will issue an Interim Payment Certificate after receipt by the him of “a

Statement (under Sub-Clause 14.3 [Application for Interim Payment
Certificates]) and after the Employer receives (i) the Performance
Security in accordance with Sub-Clause 4.2 [Performance Security],
and (ii) 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 Appendix to Tender and the
Contractor must ensure that this is clear in the advance payment
guarantee.

The advance payment is repaid through percentage deductions in

Payment Certificates. In the absence of agreements to the contrary
deductions take place when the total of all certified interim payments
exceeds 10% of the Accepted Contract Amount and deductions are then
made at the rate of 25% from each (it is presumed subsequent) Payment
Certificate. The cash flow implications of this should be carefully studied
and if appropriate, an alternative time for commencement of repayment
and rate of repayment should be agreed.

14.3 To initiate the payment process the Contractor is to submit a Statement to

Application for the Engineer at the end of each month. To be valid, the Statement must
Interim Payment include items detailed in Sub-Clauses 14.3 (a) to (g) and also include the
Certificates progress reports defined in Sub-Clause 4.21 [Progress Reports]. These
requirements are considered an unduly onerous precondition for the
receipt of payment and should be modified if possible.

14.4 The Contract may provide for payment to the Contractor based upon a
Schedule of Schedule of Payments and if so, “the instalments quoted in the
Payments Schedule of Payments shall be the estimated contract values for the
purposes of sub-paragraph (a) of Sub-Clause 14.3 [Application for
Interim Payment Certificates]”.

If the instalments are not defined by reference to actual progress

achieved then the Engineer 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 receives an
appropriate increase in the scheduled payment.

If it is intended that the Schedule of Payments is 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.

14.5 This Sub-Clause makes provision for payment of plant and materials
Plant and which are either in the course of being shipped to the site (which
Materials presumably includes all other forms of transportation) or, (after being
intended for the separately identified in the Appendix to Tender) are delivered to Site. A
Works “bank guarantee” in favour of the Employer is required to be given by
the Contractor to the Engineer in respect of the Plant and Materials being
shipped which is to guarantee repayment of the pre-payment to the
Employer. Its validity expires when “Plant and Materials are properly
stored on Site and protected against loss, damage or deterioration”.

The additional amount certified “shall be the equivalent of eighty

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percent of the Engineer's determination of the cost of the Plant and

Materials (including delivery to Site)”.

14.7 The Sub-Clause details the periods within which payment is to be made
Payment 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.

14.8 The Red Book makes provision for interest upon late payments (referred
Delayed to in this Sub-Clause as financing charges) and the payment obligations
Payment contained in Sub-Clause 14.7 should give the Employer an incentive to
pay promptly. The Red Book also makes provision for a rate of interest to
be defined and the Contractor is entitled to payment without the need for
the issue of a Payment Certificate.

14.9 After the Taking Over Certificate has been issued for the Works, the
Payment of Engineer will certify one half of the Retention Money for payment by the
Retention Money Employer. If the Works are taken over in Sections then the Contractor will
only be entitled to a “proportion of the Retention Money” which
proportion equates to 40% of “the proportion calculated by dividing
the estimated contract value of the Section or part, by the estimated
final Contract Price”. A similar proportion of the Retention Money may
be released if the Contract provides that Sections may be the subject of
separate expiry provisions of the Defects Notification Period.

However the Sub-clause states that 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 the Defects Notification Period shall be extended for a period to be
notified in the Appendix to Tender and under Sub-Clause 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 or indeed
longer depending upon how the Appendix to Tender is completed. The
full release of Retention Money may be further delayed if any work
remains to be completed, as the Engineer may withhold certification of 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
before the Contractor is able to recover Retention Money. Disputes
would be less likely if the Employer were prepared to accept a bank
guarantee in lieu of retention.

14.10 The Contractor is required to submit a Statement at Completion with

Statement at supporting documents within 84 days after receiving the Taking-Over
Completion Certificate following which the Engineer shall certify and the Employer
shall make an Interim Payment to the Contractor. This statement requires
that notice of all the Contractor’s claims must be submitted, along with all
other documentation required or reasonably implied as required under the
Contract. Whilst there is no specific requirement to submit full and
detailed particulars of all claims at this stage it would be prudent to do so
as soon as possible. Sub-Clause 14.10 (b) and (c) refers. Failure to
include notice of claims would result in them being barred under Sub-

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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.

14.12 A written discharge is to be submitted by the Contractor with the Final

Discharge 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.

14.14 This is a very important Sub-Clause in respect of any Contractor’s claims.

Cessation of Claims arising prior to the Statement of Completion will be time barred if
Employer’s notifications are not included in the Statement as required by Sub-Clause
Liability 14.10 [Statement on Completion]. Notices of Claims arising after the
Statement of Completion must be included in the Final Statement to be
eligible for consideration. The notifications under this Sub-Clause are in
addition to those required under Sub-Clause 20.1 [Contractor’s Claims].

15 Termination by Employer
15.1 This Sub-Clause gives the Engineer, in addition to the right to give
Notice to instructions under Sub-Clause 3.4 [Instructions], an unlimited right to
Correct 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 a notice, the Employer has the right to terminate the Contract
under Sub-Clause 15.2 [Termination by Employer].

15.2 The Employer has further rights to terminate the Contract in certain
Termination by circumstances. These circumstances include breach by, and insolvency
Employer of, the Contractor as well as corruption.

Allowing the Employer the right to terminate the Contract in the event 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 sub-
contract 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”.
This clause is open to abuse 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.

15.5 This Sub-Clause introduces a right, not present in the Fourth Edition, for
Employer’s the Employer to terminate for convenience. This right can be exercised at
Entitlement to any time upon 28 days written notice. Payment is then made in
Termination accordance with Sub-Clause 19.6 [Optional Termination, Payment and
Release], which is inappropriate. In the case of termination for the

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Employer’s convenience, loss of profit should be payable to the

Contractor.

Contractors should note that the Employer may not terminate under this
Sub-Clause for the purpose of undertaking the Works directly or arranging
for the Works to be completed by another Contractor.

16 Suspension and Termination by Contractor

16.1 The Contractor is entitled to suspend the Works in the event that the
“Engineer fails to certify in accordance with Sub-Clause 14.6 [Issue
Contractor’s of Interim Payment Certificates] or the Employer fails to comply with
Entitlement to Sub-Clause 2.4 [Employer’s Financial Arrangements] or Sub-Clause
Suspend Work 14.7 [Payment]” by giving 21 days notice.

16.2 The right of the Contractor to terminate the Contract is subject to

Termination by extended notice periods. In the case of failure to receive reasonable
Contractor evidence with regard to the Employer’s financial arrangements, Sub-
Clause 2.4 [Employer’s Financial Arrangement] or failure to pay to the
Contractor amounts due, Sub-Clause 14.7 [Payment] the Contractor must
allow 42 days to elapse to demonstrate non-payment by the Employer
and in the case of a failure of the Engineer to certify, the period is 56
days. Thereafter he must give a further 14 days notice before he may
terminate the Contract.

The time limits between suspension and termination becoming effective

are too long. It would be more equitable if (similar to other grounds for
termination in this Sub-Clause) the Contractor is only required to give 14
days notice.

17 Risk and Responsibility

17.1 The Contractor’s obligations to indemnify and hold harmless the Employer
Indemnities exist irrespective of whether the Contractor is liable for any negligence,
wilful act or breach of the Contract. By contrast, the Employer’s obligation,
set down in the second paragraph of this Sub-Clause, is subject to the
default of the Employer. This imbalance is not justified and the additional
risks imposed on the Contractor might not be insurable.

The reference to Sub-Clause 18.3(d)(iii) in the second paragraph of this

Sub-Clause makes the Employer’s obligation to indemnify and hold
harmless the Contractor inter alia, subject to the Contractor’s ability to
obtain insurance at commercially reasonable terms. Since it is arguable
whether or not insurance cover will be available on such terms, it will
probably be advisable when negotiating a contract to exclude this
provision.
17.3 The Employer’s Risks have been amended by comparison with those
Employer’s contained in the Fourth Edition and Civil War and Riot is only applicable
Risks if it occurs within the Country. The Fourth Edition contains no such
restriction. Munitions of war have been introduced as an additional
Employer’s Risk and should include landmines.

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17.4 If the Engineer requires the Contractor to rectify the loss or damage to the
Consequences Works, Goods or Contractor’s Documents resulting from any of the
of Employer’s Employer’s Risks, the Contractor is entitled to time extension and
Risks payment of the Cost incurred for rectifying the loss or damage but, with
minor exceptions, no uplift for profit(as is the case in the Fourth Edition).
The Contractor’s rights under this Sub-Clause are subject to his
compliance with Sub-Clause 20.1 [Contractor’s Claims].

17.6 This Sub-Clause provides that there is no liability on either Party to the
Limitation of other Party for loss of use of any Works, loss of profit, loss of any contract
Liability or for any indirect or consequential loss or damage other than under Sub-
Clause 16.4 [Payment on Termination] and Sub-Clause 17.1
[Indemnities]. 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 that Sub-Clause.

The Contractor should note that it is only in certain cases of breach of

contract by the Employer that the Contractor is entitled to compensation
for loss of profit. See also the comments made under Sub-Clause
1.1.4.3. 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.

19 Force Majeure
19.1 This Sub-Clause provides a definition of Force Majeure and provides a
Definition of non-exhaustive catalogue of Force Majeure events in the second
Force Majeure paragraph that includes natural catastrophes such as earthquakes,
hurricane, typhoon or volcanic activity.

19.4 In the event that the Contractor is prevented from performing any of his
Consequences obligations under the Contract due to an event of Force Majeure, the
of Force Majeure Contractor can claim for time extension and the Cost incurred. However,
entitlement to claim for Cost is limited to the events listed in Sub-Clause
19.1 (i) to (iv) [Definition of Force Majeure]. Such limitation is difficult to
understand given that the catalogue of Force Majeure events is not
exhaustive.

19.6 In case of termination due to Force Majeure, the Contractor is entitled to

Optional be paid for the Works executed, the Cost of Plant and Materials ordered,
Termination, any other Cost incurred in the expectation of completing the Works, the
Payment and Cost of removal of Temporary Works and Contractor’s Equipment and the
Release Cost of repatriation of staff and labour. If the Contractor wants to receive
profit on these Costs, an appropriate provision would have to be included
in the Contract.

20 Claims, Disputes and Arbitration

20.1 This Sub-Clause details the procedure that the Contractor must follow
Contractor’s when he considers himself entitled to an Extension of Time for
Claims Completion and/or additional payment under any Clause or otherwise in
connection with the Contract.

The Contractor is required to give notice of his claim as soon as

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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 results 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 within 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. Sub-Clause 8.9 [Consequences of
Suspension].

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 or the Engineer is required to give notice as soon as practicable
after becoming aware of the event or circumstance demonstrates once
again the unfair imbalance between obligations carried by the Employer
and the Contractor.

In addition to the first 28 day notice period the Contractor is also subject
to a 42 day period (that is a further 14 days) by which he has to send to
the Engineer a fully detailed claim with full supporting particulars. (See
also the provisions for continuing claims). 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 lead to intensive
disputes and costly arbitration. However, it should be noted that failure to
provide a fully particularised claim (as opposed to giving notice of a claim)
does not in itself bar the claim.

The sixth paragraph of this Sub-Clause requires the Engineer to respond

to the Contractor's claim giving his approval or disapproval within a fixed
period or time whereas the eighth paragraph requires the Engineer 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 Engineer has to make a determination.

Comments made under this Sub-Clause should be read 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 the Contractor’s
rights are protected and maintained.

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 EIC Guide to the Red Book, 6 Feb 02.

20.2 This Sub-Clause provides for the establishment of the Dispute

Appointment of Adjudication Board (DAB) comprising either one or three members to be
the Dispute appointed by the Parties. The DAB is to be appointed by the date given
Adjudication in the Appendix to Tender. The appointment of the DAB expires after the
Board Contractor’s written discharge to be provided under Sub-Clause 14.12
[Discharge] has become effective; accordingly the DAB is available
throughout the duration of the Contract to review any disputes referred to
it. If both Parties agree they may jointly refer any matter to the DAB for it
to give its opinion and, employed sensibly, this could present a useful
forum for resolving disputes before they cause delay and disruption to the
progress of the Works.

20.3 If the parties are unable to agree on the appointment of the third member
Failure to Agree and they do not wish the President of FIDIC to make the appointment, the
Dispute Particular Conditions should be amended accordingly.
Adjudication
Board

20.4 Either Party may refer a dispute “of any kind whatsoever” that arises
Obtaining out of the Contract or the execution of the Works to the DAB at any time.
Dispute
Adjudication It should be noted that, if the DAB has given its decision as required by
Board’s this Sub-Clause and if neither Party has given notice of dissatisfaction
Decision 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, decisions of the DAB are binding on both
Parties “who shall promptly give effect to it unless and until it shall
be revised in an amicable settlement or an arbitral award”. This
arbitral award could be many months after the DAB decision during which
time the DAB decision would still rule.

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
should be considered as Payments due under Clause 14 [Contract Price
and Payment] and 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.

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