Author: NICHOLAS KRAMER, a partner at the law firm CMS, looks at some of the many advantages of using FIDIC contracts in the Middle East.
FIDIC contracts are widely used throughout the Middle East. Not only are they well known – and have formed the basis of government standard forms, for example in Abu Dhabi, Oman and Saudi Arabia – they are drafted in a clear and easy to understand way.
At the heart of the FIDIC Rainbow Suite – in particular the Red and Yellow Books – is a relatively fair risk-allocation. The procedural framework for claiming additional time and money and notifying claims can also be used to deal with any issue at an early stage, whereby the contract and programme can be used as an effective project management tool.
Risk allocation
The FIDIC Rainbow Suite allocates risk with reference to the party best placed to assume that risk – although the contractor, of course, bears more responsibility under the Silver Book – EPC/Turnkey. Ultimately, the contractor is responsible for planning and executing the works whereas the employer is responsible for the site, access thereto and unforeseeable site-risks. The party responsible for providing the design bears the design-risk accordingly.
To that end, the risk allocation is fairly balanced, which has been further emphasised by the increased number of reciprocal rights and obligations introduced in the 2017 updates to the Rainbow Suite. For example, Clause 1.13 in the 2017 Yellow, Red and Silver Books, provides that:
a) the contractor and the employer are now both under an obligation to comply with all applicable laws;
b) the contractor is also now under an obligation to assist the employer in obtaining its permits etc. (mirroring the employer’s obligations set out in Sub-Clause 2.2); and
c) the indemnities from the employer to the contractor and from the contractor to the employer for failures to comply with Sub-Clause 1.13 do not apply if the failure has been caused by a failure to provide such assistance.
Procedural framework
Given that FIDIC contracts are generally considered to be easy to navigate, this should result in more effective project management – in theory, at least. The Global Construction Disputes Report, published by Arcadis in 2017 and 2018 cites poor contractual administration as the number one cause of construction disputes: “A failure to properly administer the contract remained the most common cause of construction disputes. Staying in the same spot in the rankings this year was the issue of the employer/contractor/subcontractor failing to understand and/or comply with contractual obligations”.
From our perspective, poor contract management compounds other issues, which will inevitably arise on complicated construction and engineering projects. On the flip-side, good contract management will assist managing issues more effectively and help to keep them in perspective.
The procedural mechanisms to notify claims for additional time or money (such as notice provisions and the requirement for substantiation) and engineer’s determinations can help to identify and narrow any issues in dispute – particularly so, with a pragmatic engineer. With the 2017 updates, the message is that greater detail and clarity on the requirements for notices and other communications will reduce the potential scope of and possibility for disputes. Also, if a dispute arises, it can now be dealt with more quickly and proportionately – with greater certainty on the enforcement of DAAB decisions, as well as the opportunity to utilise the ICC Arbitration Expedited Procedure, if appropriate.
In the Middle East, where the use of older forms of FIDIC contracts is still common, the question is: will the 2017 updates be adopted as the contracts of choice any time soon?
l Thanks to Sarah Mather, senior associate at CMS, for her assistance with this article.
This article originally published and quoted from source: http://fidic.org/sites/default/files/FIDIC_Contract%20Newsletter%231.pdf
