The FIDIC Digest Contractual relationships, responsibilities and claims under the fourth edition of the FIDIC Conditions The FIDIC Digest Contractual relationships, responsibilities and claims under the fourth edition of the FIDIC Conditions John G. Sawyer, FRICS, FCIOB, MSE, FCinstArb C. Arthur GillOtt, BEng(Hons), FICE Thomas Telford, London Published by Thomas Telford Ltd, Thomas Telford House, 1 Heron Quay, London E14 9XF First published 1990 British Library Cataloguing in Publication Data Sawyer, John G. The FIDIC digest: Contractual relationships, responsibilities and claims under the fourth edition of the FIDIC Conditions I. Title II. Gillot, C. A. (Cyril Arthur), 1922- 624 ISBN 0-7277-3341-9 © J. G. Sawyer and C. A. Gillott, 1990 Appendix 2 © Federation Internationale des Ingenieurs Conseils All rights, including translation, reserved. Except for fair copying ,no part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of the Publications Manager, Publications Division, Thomas Telford Ltd, Thomas Telford House, 1 Heron Quay, London E14 9XF. This guide is published on the understanding that the authors are solely responsible for the statements made and opinions expressed in it and that its publication does not necessarily imply that such statements and or opinions are or reflect the views or opinions of the publishers. Every effort has been made to ensure that the statements made and the opinions expressed in this publication provide a safe and accurate guide; however, no liability or responsibility of any kind can be accepted in this respect by the publishers or the authors. Typeset in Great Britain by MHL Typesetting Limited, Coventry Acknowledgements Once again we thank our wives for their continuing support, patience and understanding for the time we have devoted to the preparation of this publication rather than to them. We would also like to thank those readers of our previous Digests on the third edition of the FIDIC Conditions of Contract for their letters telling us of their experiences and of their views on many subjects. Finally we would like to express our thanks to Mr Kazutake Okuma of Nippon Kokan KK who translated the second edition of our Digest into Japanese and also arranged for its publication in Japan. John G. Sawyer C. Arthur Gillott Preface This digest is an appraisal of the fourth edition of the FIDIC Conditions of contract for works of civil engineering construction, 1987, generally known as 'the Red Book', which is reproduced in appendix 2. It is also concerned with the contractual relationships between the contracting parties and others involved. The publication of the fourth edition, which is no longer designated as international, gives good reason to consider new or changed clauses, and to examine the various duties and obligations of those running the contract. Fortunately there are few major changes from the third edition. Those that have been made generally give greater emphasis to the various obligations of the parties to the contract. There are also innovations to the subjects of claims, insurances, consultation and such like. Possibly the most notable change is that which brings the employer into greater contact with both the engineer and the contractor over a variety of subjects including, among other things, extra works and extensions of time. The clauses within most construction contracts separate themselves into distinct groups: procedure, authority, responsibility, obligation, risk, change, payments, information, who is who, and what happens when the parties to the contract have a seemingly unresolvable disagreement. Clauses related to most of these matters are examined in particular but those of lesser usage or importance are referred to only in a general way. The fourth edition has incorporated Part HI of the third edition into the new Part II, which now deals, among other things, with dredging and reclamation work, but, helpfully, the numbering of the Clauses remains virtually the same in both editions. Because of the considerable time which will elapse before the third edition is phased out there is little point in referring back to it or making com- parisons with the fourth edition. However, a digest on the third edition1 is available for readers who want to become more familiar with it. While many clauses have not been fundamentally changed, there are some which have been substantially altered. When applying the FIDIC Conditions of contract, or for that matter any legal document, any change of words, however slight, in any clause in a standard form can affect other clauses even if they are not directly related. The third and fourth editions of the FIDIC Conditions of contract are both intended for Works of Civil Engineering Construction which are to THE FIDIC DIGEST be measured and evaluated by Bills of Quantities. They are not suitable, without alteration, for works using a lump sum, fixed price, or target- cost contract where the basis for payment is not admeasurement, nor in their present form for design and build work. In both sets of conditions the order of importance concerning any construction project is as follows (a) Principals or Parties to the Contract: Employer; Contractor (b) supported by: the Engineer, his Representatives and Assistants; Nominated and other Sub-Contractors and Suppliers (c) others involved: Insurers; Providers of Geological details etc; Designers and Specialist Engineers (d) by invitation: Arbitrator or Arbitrators. It is the Employer and not the Engineer or Contractor in this particular form of contract who is responsible for providing or arranging the funds which enable the contract itself to come into being; it is the Engineer and the Contractor together who provide the technical skills necessary for the works to be constructed. If they all perform their various obligations and duties properly and on time, few problems will arise, but if anyone neglects to honour the commitments he has undertaken, then the use of the Clauses comprising the Conditions becomes essential, and disputes will arise which will have to be resolved. Contents Introduction 1 1. Contractual relationships 3 2. Schedules of responsibilities 11 3. Comparison with the third edition 40 4. Selected Clauses and special circumstances 49 5. Claims — new procedures 73 6. Charts of selected Clauses 80 7. Arbitration and disputes 85 Conclusions 89 References 90 Bibliography 90 Appendix 1. Contractor's Site Diary: typical information recorded daily 91 Appendix 2. FIDIC Conditions of contract for works of civil engineering construction, fourth edition, 1987: Part 1 General Conditions with forms of tender and agreement, and Part II Conditions of particular application with guidelines for preparation of Part II Clauses 95 Index 169 Introduction The publication of the fourth edition of the FIDIC Conditions of contract in no way detracts from the necessity of understanding the manner by which its Conditions are enforced. This is established through the Laws of the Land which govern the Contract and it is therefore of primary importance that the identification of the law applicable to the Contract is made clear, as well as the ruling language where the Contract documents are written in more than one language. So important is the identification of the language the Conditions require that a definition needs to be made as to which the ruling language is where two or more languages are used within the Contract. The establishment of the ruling language determines that in any interpretation of the Conditions a second or other language is for convenience only and not to be considered authoritative if differences of translation arise. When a document is prepared Sub-Clause 5.1 in one language and translated into another it is a good idea to have the and Part II Sub- second language version independently translated back into the original Clause 5.1(a) language as a check, because, notwithstanding the efficiency of the translators, a number of identifiable differences are often discovered. A word of caution about language would not go amiss here. When dealing with international business in foreign languages, one must always be sure that the idea or concept perceived by each Party for a given word is the same for all. Because some people of different countries speak English very well, one must never assume that their understanding of the English words and grammar is necessarily correct — the same can apply when two people using their own language are communicating with each other. Because of the many variations in legal philosophies throughout the world, the need cannot be overemphasised for all Parties involved to have an adequate understanding of the particular legal system which governs the Contract. They should also be aware of the importance of receiving professional guidance on Statutes, Ordinances, National or Inter-State legal requirements which can override or influence the particular clauses contained within FIDIC, or indeed any other Conditions of Contract. Sub-Clause 5.1(b) When using the FIDIC Conditions of contract there are many Parties who prefer to nominate the established laws of England to govern its interpretation, but the legal system of the country where any dispute is resolved, either through the courts or arbitration, may require the application of its own laws and would therefore negate such choice. THE FIDIC DIGEST The attitudes of courts may vary in the interpretation of contracts. In some countries the courts will enforce a literal interpretation if this leads to a clear and unambiguous result, while in other countries the courts will look more to the intentions of the Parties. The applicable law will also determine the extent to which the Parties are bound to carry out their contractual obligations. Under English law there is no concept of 'force majeure' unless specifically incorporated within the Contract — only the very restricted concept of 'frustration', where a supervening event prevents performance by one or both of the Parties. Under systems based on the Code Napoleon the Parties to a Contract are relieved of their obligations to the extent that they are prevented from performing them by a case of force majeure. Courts under such systems of law may, where exceptional circumstances render the performance of one Party's obligations so onerous as to incur heavy loss (but without rendering performance impossible), reduce the onerous obligations to a reasonable level of equity so required. This potential conflict between force majeure and frustration has been prevented in the fourth edition by Clause 66.1 Release from Performance. Once the importance of understanding the legal system which governs the Contract is recognised, it is equally important for those involved with the Project to understand in practical terms the nature of their responsibilities and liabilities, and the mode of conduct expected of them. Everybody involved with the Contract has an important part to play in ensuring the successful completion of the Project, and this means the complete fulfilment of all their obligations to each other. The FIDIC document demands a system of communication which cannot be shortened or ignored without putting at risk the rights of any one Party to the Contract. It is therefore important to remember that when communications are required to be in writing, this means precisely that, and in like manner, the giving of notices, instructions or certificates should follow the timing and procedures precisely as dictated by the Conditions of Contract, and in the detail required. In the event of a dispute, the legal representatives of all Parties will rely more than anything else on written evidence, documents, and diaries, and if one Party has failed to fulfil its obligations properly in this respect, then its chances of success may be considerably reduced. Those who are familiar with the fourth and fifth editions of the Conditions of Contract issued by the British Institution of Civil Engineers (ICE) will be well aware of points of similarity contained in Clauses in both of these ICE editions and in the FIDIC Conditions. They should not, however, because of their knowledge of the ICE Conditions, assume that FIDIC is equally applicable in usage — it is not. FIDIC is a form of Contract not necessarily subject to the laws of England; nor is the wording precisely the same as the ICE Conditions either in syntax or definition. The FIDIC Contract must therefore be regarded separately and in its own right, and should be read and fully understood with these points in mind. The third edition of the FIDIC Conditions has been translated into various languages such as German and Spanish. 1. Contractual relationships Considerations and relationships For a Project to be created and before a Contract can be signed with the successftil tendering Contractor, the Employer has to examine what he wants to achieve and make a number of decisions. Which responsibilities will he accept for himself and which will he delegate to others skilled in doing things which he is not competent to do? A great deal of work has to be done by the Employer and his appointed Engineer to establish the viability of the Project. Then the engineering design has to be undertaken, all powers and legal rights secured and proper Contract documents prepared. Everyone involved with the Project knows that the intentions of the Parties are deemed to be expressed in the Contract documents but that some of these intentions are stated explicitly whereas others are implied. Both types need to be recognised. All should be well if both Parties to the Contract, together with the Engineer, the Sub-Contractors and the Suppliers, behave in accordance with the documents. Trouble starts when any of the above- named behave incorrectly and not in accordance with the Contract. To understand what is expected of those participating in the Project their involvement must be looked at in detail. The Employer There should be no doubt as to who the Employer actually is in that he is named and his address given in Part II. He can be changed during the life of the Contract but if the Employer wishes to assign the Contract, this can only be done with the Contractor's consent. Clause i.i(a)(i) There are various tasks the Employer is obliged to do. First task He has to develop the concept of the Project, examine its feasibility and financial viability and prepare a cost plan. He must have determination, authority, finance and energy to be able to proceed, and not only to design and build, but also to occupy, operate, maintain and support the Project throughout its life cycle. It is also important that he obtains, or is already in possession of, adequate technical and commercial resources to fulfil the purpose of the entire Project.