United Kingdom: Use And Misuse Of FIDIC Forms Of Contract In ...

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United Kingdomfile:///K:/FRANCOIS_FILING_SYSTEM/fidic/ressources/Frederickgillon2012.htmlPage 4 sur 819/12/2012When are the Silver Book conditions of contract unsuitable?When one compares the Silver Book with the Yellow Book, it is clear that the significant differenceslie with the greater allocation of risks to the Contractor. Such an allocation of risk may be suitablewhen the Employer wants a greater degree of certainty in price and time and as long as it is preparedto pay a higher price in order to achieve that and to give the Contractor sufficient time at tender stageto examine the Employer's Requirements, to verify all relevant information and data and to make allnecessary investigations so as to assess the severity of the risks it is taking.Conscious that the Silver Book should therefore only be used for Design-Build projects wherespecific conditions are met, FIDIC makes clear in the Introductory Note to the Silver Book that theseconditions of contract are not suitable in the following circumstances:” If there is insufficient time or information for tenderers to scrutinise and check the Employer'sRequirements or for them to carry out their designs, risk assessment studies and estimations(taking particular account of Sub-Clauses 4.12 [Unforeseeable Difficulties] and 5.1 [GeneralDesign Obligations]);” If construction will involve substantial work underground or work in other areas whichtenderers cannot inspect;” If the Employer intends to supervise closely or control the Contractor's work, or to reviewmost of the construction drawings;” if the amount of each interim payment is to be determined by an official or other intermediary.FIDIC then recommends that the Yellow Book be used in the above circumstances for Worksdesigned by (or on behalf of ) the Contractor. Prima facie, this is what many employers in the publicsector in CEE countries have done but quite perversely they have sometimes altered the YellowBooks general conditions by adopting Silver Book provisions so as to obtain a greater certainty ofprice. Key risks placed on the Employer have as a result been transferred to the Contractor, thuseffectively removing the fair and equitable allocation of risks under the Yellow Book. This isexplained further below.The adoption of Silver Book principles and provisions in public works contracts in CEEcountriesTrend No. 1 / Contract Administration - The role of the Engineer reduced to being theEmployer's Representative as in the Silver BookThe role of the Engineer under the Red and Yellow Books has always been the subject of muchcontroversy due to the difficulty of reconciling the dual role of the Engineer as agent of theEmployer and as decision-maker in respect of certain key matters under the Contract, including thedetermination of the Contractor's entitlement to additional payment and an extension of time, theinstruction and valuation of variations and the issue of Payment Certificates, Taking-Over Certificateand Payment Certificates.Under the Red and Yellow Books, the Engineer is expected to exercise his sole discretion whendeciding those matters and also to act fairly whenever they require a determination under Sub-Clause3.5 (additional payment, extension of time and variations).In practice, however, employers in the public sector in CEE countries have frequently sought toamend Sub-Clause 3.1 [Engineer's Duties and Authority] in order to restrict the Engineer's authorityby requiring the Engineer to obtain the express approval of the Employer before deciding those keymatters. For example this has been the case in Romania where over the past 4-5 years thegovernment has gone even further by not only amending Sub-Clause 3.1 but also making thatamendment compulsory for road works projects with the introduction of its new FIDIC-based
United Kingdomfile:///K:/FRANCOIS_FILING_SYSTEM/fidic/ressources/Frederickgillon2012.htmlPage 5 sur 819/12/2012General Conditions of Contract 3 .Although, in theory, the existence of that requirement alone does not necessarily mean that theEngineer will not make determinations fairly, there is of course a strong risk that the Employer mayinstruct the Engineer to withhold his determination or direct him to make a particular determination.If this happens, then the Engineer's role will in effect be limited to his role as an agent of theEmployer and he will become no more than the Employer's Representative in the Silver Book whoacts wholly for the benefit of the Employer, his principal.The amendment introduced in Romania by the new FIDIC-based General Conditions of Contract toSub-Clause 3.4 of the General Conditions of Contract [Replacement of the Engineer] seems toconfirm that trend. The new Sub-Clause 3.4 has removed the Contractor's right to raise objections tothe proposed appointment of a replacement Engineer. The Employer can now under the new GeneralConditions of Contract proceed with his appointment without even consulting the Contractor.It is also frequent in certain CEE countries for employers in the public sector to request the issue ofdraft Interim Payment Certificates for their review / approval, thus effectively putting the Employerin a position of self-certifier.Would those restrictions to the Engineer's authority really affect the administration of the contract?Putting aside FIDIC's policy which favours a fair and impartial Engineer for the good of the projectas a whole, the answer to this question obviously depends on whether the Employer intends to dealpromptly and fairly with the Contractor's claims for time and money, the financial impact ofvariations, etc. Ultimately, if the Employer were to instruct the Engineer to withhold hisdetermination or to instruct him to make a particular determination, then the Employer would be inbreach of its undertaking under Sub-Clause 3.1 not to place any further constraints on the authorityof the Engineer. The Contractor may also be able to rely on Sub-Clause 1.3 [Communications]which provides that any "Approvals, certificates, consents and determinations shall not beunreasonably withheld or delayed."Trend No. 2 - Extra risks borne by the Contractor under the Silver Book are now frequentlybeing transferred to the Contractor in D&B projects where the Silver Book is not suitableMore importantly, in some CEE countries such as Poland and Romania, key risks borne by theContractor under the Silver Book are now being allocated to the Contractor even in Design and Buildprojects where the Silver Book is not suitable. Those risks include errors in the Setting Out data(Sub-Clause 4.7) inaccurate or incomplete Site data (Sub-Clause 4.10), Unforeseeable physicalconditions (Sub-Clause 4.12) and errors in the Employer's Requirements (Sub-Clause 5.1).Errors in the Setting Out data (Sub-Clauses 4.7 YB/SB), Sub-Clause 4.7 of the Yellow BookThe Contractor is entitled (subject to Sub-Clause 20.1) to time and cost plus profit from executingwork which was necessitated by an error in the setting-out data, which an experienced contractorcould not reasonably have discovered. This is in contrast with the Silver Book where the Contractortakes responsibility for any errors in the setting out data contained within the Employer'sRequirements (Sub- Clause 5.1 of the Silver Book deems the Contractor responsible for the accuracyof the Employer's Requirements with certain limited exceptions). The Contractor therefore retainsunder the Silver Book the risk arising from errors in setting-out.A usual criticism of EU-financed projects in CEE countries has been that the Employer'sRequirements lack in precision, often because the Employer rushes to launch new tenders in order toabsorb the relevant EU funds. Unreliable tender documents have sometimes resulted in significanterrors in setting-out, which could lead to significant delays at the outset of the project.
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