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Changes to the FIDIC 'rainbow suite' of contracts from December 2017

Out-Law Analysis | 16 Feb 2018 | 2:41 pm | 4 min. read

ANALYSIS: The second edition of the FIDIC 'rainbow suite' of standard form contracts maintain FIDIC's fundamental principles of fair and balanced risk allocation whilst reflecting the current trend towards more active contract management.

As one of the most widely used standard forms of contract internationally, the new FIDIC Suite 2017 (Red, Yellow and Silver) was highly anticipated, especially since much debate followed the release of its test edition of the new Yellow Book in December 2016 (pre-release version). Some of the proposed changes prompted vigorous objections from organisations representing contractors, including the Energy Industries Council (EIC).

Publication of the new contracts coincided with FIDIC's International Contract Users' Conference in London on 5 December 2017.

The resounding theme that stands out as a result of the changes is FIDIC's intention to implement a proactive and engaged approach to the management of risk. Overall, the amendments made to achieve this goal are positive. The contract terms are now much better structured to reflect modern practices, and a number of gaps in the original drafting have been rectified.

That said, in seeking to update its 1999 edition, FIDIC may have gone too far in amending parts which did not require any amendments, adding perhaps unnecessary prescriptive procedures and time bars while also adding perhaps too many words. Each new contract of the new suite is now more than 50% longer than its equivalent in the first edition - which may ultimately lead to the creation of a new 'short form' of contract.

The main changes in the second edition

One of the criticisms raised about the pre-release version of the new Yellow Book was the increased burden created by new and prescriptive contract management procedures. FIDIC, however, took the view that increased clarity and certainty was needed to encourage more active contract management, reflect international best practice and put more emphasis on dispute avoidance.

For example, the new FIDIC Suite 2017 recognises the importance of the programme as a contract management tool, at the same time as articulating a number of step-by-step procedures and deeming provisions in respect of processes which had been vaguely drafted in the 1999 first edition. In this regard, the new contracts reflect an approach advocated for some time by NEC.

The changes from the first edition can be grouped around three main themes:

  • liability and risk allocation;
  • enhanced contract management process;
  • emphasis on dispute avoidance.

Liability and risk allocation: no radical changes

Overall, there are no radical changes to the balanced allocation of risks that has made the FIDIC suite of contracts so popular. This is a welcome about turn from the radical departure from FIDIC's traditional definition and allocation of risk that was proposed in the pre-release version.

Although a fitness for purpose indemnity is included, FIDIC has removed its proposed carve-out from the liability limits and kept the proportional reduction in liability for the employer's contributing factors. The indemnity is therefore now subject to the limitation of liability clause, which incidentally now sits within the general provisions in Chapter 1.

It is noteworthy that the new Clause 4.1 (contractor's general obligations) provides some balance in the form of a tighter definition of fitness for purpose, now defined and described by reference to the purpose set out in the "employer's requirements". Previously, this was by reference to the "contract" as a whole. Defining fitness for purpose by reference to the employer's requirements narrows its scope and should provide greater certainty as to the obligations the contractor is agreeing to take on.

However, the possible risk of a purpose loosely defined throughout the contract remains and clause 4.1 now provides, as a default position, for a purpose defined by reference to what it "ordinary" for works of the same kind as the Works covered by the contract.

It is also noteworthy that the fitness for purpose obligation applies to a "section of major item of plant, if any" as much as it does to the Works. This is a possible area for future disputes.

Enhanced contract management process in terms of time (programme, time limits and extensions of time) and the engineer's role

The amendments made to the contract management process are extensive. Of note is the requirement for a more detailed programme from the outset of the project. This forms part of the drive to contemporaneously identify significant changes through both the programme and early warning process; implement solutions to overcome delays and resolve differences between the parties as the work progresses; and ensure the timely completion of projects.

Deeming provisions are now much more prevalent, with the aim of addressing potential delays caused by a party's inaction, including any delay in the determination of claims by the engineer. The provisions in the new FIDIC Red and Yellow Books regarding the engineer have been simplified so as to better structure and clarify the description and role of the engineer. In short, the engineer's role is more involved than before, with the potential for a permanent presence on site and a greater involvement in resolving issues as they arise.

Emphasis on dispute avoidance: new claims and disputes procedures

Another significant change is the distinction between "claims" and "disputes". The addition of a new Clause 21 (disputes and arbitration) purposefully separates the concept of disputes and arbitration from claims entirely, with claims instead addressed in Clause 20.

This separation forms part of an increased emphasis on contemporaneous dispute avoidance. As a result, there is now a detailed claims process applicable to both the contractor and the employer. Importantly, Clause 20 places the parties' claims on an equal footing by requiring that the employer's claims are determined under the same procedure as claims made by the contractor, subjecting the employer's claims to the same time limits and requisite level of detail.

A further change to the dispute process is that a standing disputes adjudication board (DAB) should be appointed for the life of the project. The DAB also has a wider role with regard to dispute avoidance, and the parties may jointly agree to refer any matter to it at any time.

Frédéric Gillion and Rob Morson are construction contracts and disputes experts at Pinsent Masons, the law firm behind Out-Law.com.