Underground works standard form contract 'will balance risks'

Out-Law News | 17 May 2019 | 11:12 am | 1 min. read

The International Federation of Consulting Engineers (FIDIC) and the International Tunnelling and Underground Space Association (ITA) have teamed up to produce a standard form contract and guidelines for underground construction work.

The FIDIC ‘Emerald Book’ is a balanced standard form contract aimed for use in all types of works which include a significant geotechnical uncertainty.

The book is designed to take account of the particular characteristics of underground works, such as the critical importance of excavation and ground support, limited access, and third-party interests in the surrounding land.

The Emerald Book was modelled on the basis of the 2017 edition of FIDIC’s ‘Yellow Book’, which governs contracts for plant and design build, but contains specially modified clauses to accommodate the difficulties typical to underground works.

Construction law expert Frédéric Gillion of Pinsent Masons, the law firm behind Out-Law.com, said: “Underground works often involve uncertain subsurface conditions which may not be fully ascertainable with sufficient precision during the bidding process. With the Emerald Book, the joint FIDIC–ITA task force has therefore extended FIDIC's renowned balanced risk allocation to subsurface conditions.”

Under the terms of the contract laid out in the Emerald Book, the employer will adopt the risk for unexpected subsurface conditions, taking the burden of worse than predicted conditions and enjoying the benefit if conditions are better than anticipated. The contractor bears the performance risk and therefore benefits from faster rates of production.

The Emerald Book introduces the use of a Geotechnical Baseline Report (GBR) as the single contractual source of risk allocation related to subsurface physical conditions between the parties. All subsurface physical conditions not addressed in the GBR will be considered ‘unforeseeable’, with the risk allocated to the employer.

Due to the importance placed on the GBR, the book includes extensive guidance notes on its preparation.

“The GBR is provided at the tender stage and will have a direct effect on bid prices. An overly cautious GBR may result in higher bid prices, whereas an overly simplified GBR would excuse a contractor from otherwise foreseeable risks,” Gillion said.

Gillion said the clear allocation of risk of underground conditions would also contribute to dispute avoidance.