At the FIDIC International Contract Users Conference in London late last year, the pre-release of FIDIC's Yellow Book ("Second Edition") was revealed, with the objective of it being officially released late in 2017. FIDIC also announced that revised versions of the Red Book and Silver Book would follow later this year, but no further details have been provided at this stage.
Many would agree that the Yellow Book, which is now 17 years old, was due for a refresh. The proposed changes, however, are very extensive. While the contract remains lump sum, the length of the General Conditions has almost doubled, and there is a marked emphasis on contract administration procedures (such as the addition of a new "advance warning" mechanism and more streamlined claims and dispute resolution procedures). This sees a shift in the role of the Engineer who will be required to take a more proactive and engaged approach throughout the duration of the Project to knuckle out and resolve issues at an early stage.
We set out the highlighted changes below:
- The role of the Engineer
- There is a new role for an “Engineer’s Representative”, who is based on Site throughout the duration of the Project.
- The Engineer is not required to obtain the Employer’s consent before making a Determination.
- New sub-clause 3.7, which is headed “Agreement or Determination”, reflects the fact that the Engineer is under a positive obligation to encourage agreement of claims.
- If the Engineer fails to make a Determination within the stated time limits, then they are deemed to have rejected a claim, permitting referral to the Dispute Avoidance Board.
- When acting to seek to reach an Agreement or to make a Determination, the Engineer has a duty to encourage the Parties to settle claims, and is said not to be acting for the Employer but to be acting “neutrally” between the Parties. We note however that "neutrally" is not defined.
- Advance Warning
There is a new clause 8.4, which sets out the requirement for either party to inform the Engineer of any foreseeable event (known or probable) which may, among other things, adversely affect the Works, increase the Contract Price or cause a delay. This replicates similar mechanisms found in FIDIC Gold Book and NEC3. It is hoped that more detail will be provided as to the process that will be followed once the advance warning mechanism is activated.
The distinction between Employer claims and Contractor claims has now been removed, and instead sub-clause 20.1 divides claims into the following categories:
- Claims for payment and extensions of time; and
- Other claims.
Previously, an Employer was only required to give notice and particulars of a claim to the contractor "as soon as practicable" once he became aware of an event or circumstance which gave rise to a claim. Now, both the Employer and the Contractor must give notice of a claim within 28 days of becoming aware of the event or when they ought to have become aware of the event. The Employer is now also required to provide a detailed analysis of its claim, setting out the particulars, explaining the event and the quantum of the claim. Employers should note this bolstered administrative requirement.
The Second Edition requires the Contractor to give a general indemnity to the Employer against "any errors in the design of the works and other professional services which results in the works not being fit for the purpose" and that indemnity is not subject to the overall liability cap. Obviously, this is a material exposure for the Contractor.
The Second Edition remains a draft, and the final version may, of course, be different in some important respects. However, it is clear that the new contract will be longer and more complex than the First Edition, taking a very different approach to contract management. There will be greater emphasis on the Employer and the Contractor engaging in dialogue with one another throughout the course of the Project, in order to minimise disputes (or avoid them altogether).
FIDIC contracts are used on projects throughout the Middle East. As FIDIC reviews and rewrites its 1999 rainbow of contracts, the implications for the market here are likely to be profound.
The contents of this publication are for reference purposes only and may not be current as at the date of accessing this publication. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication.
© Herbert Smith Freehills 2020