The FIDIC Form of Contract: The Fourth Edition of The Red Book

The FIDIC Form

of Contract

The Fourth Edition of the Red Book When published in 1987, the Fourth Edition of the FIIDIC Form of Contract, used for international civil engineeringworkas wellasfor largeinternational building projects, introduced a number of major changes in the Form. Since then, further changes were made to the Fourth Edition in the 1988 and 1992reprints, and a supplement was introduced in November 1996. The World Bank, in its 1995 Standard Bidding Documentsfor major projects, adopted the 1992reprintof the FourthEdition of the Red Book as its standardform of contract. However, despitethe importanceofthe Form, therehasbeenlittlepublished on it. This important work, writtenby a consultingengineerwith wideexperiencein the use of the FIDIC Form and in dispute resolution methods specified in it including international arbitration, considers the Fourth Edition in detail and relates this to key contracting issues. Important features of the book include: — —

background and concepts of the Form;

a detailed comparison oftheThird Edition and the 1992reprint ofthe Fourth

Edition of the Form, explaining the reasons for the changes; analysisofthe rightsand obligationsofthe parties involved inthe contract and the allocation of risks concerned; — a rangeof 'decision tree' charts, analysing the main features of the Form including risks, indemnities and insurances, claims and counterclaims,variations,procedureforclaims,programmeand delay,suspension,paymentsand certificates, disputeresolution mechanisms, adjudication and review boards; — a discussion ofthetypes ofclaim which arise, theFIDIC scheme ofindemnities andinsurance requirements, and themethods of disputeresolutionprovided by the Form; — twonew chapters inthis second edition dealing with: a) otherrelated standard forms of contractpublished byFIDIC; andb)the World Bankstandardbidding document for major projectswhichis based on the Fourth Edition of the Red —

Book; —

in this second edition, the amendments madein 1988and1992to the Fourth Edition of the Red Book are discussed as is the 1996 Supplement which introduced the concept of the disputeadjudication board which providedan alternative to the traditional role of the engineer in clause 67; andprovided standardchanges in the Form to enableitbeingused as a lumpsum contract.

The Author Nael G. Bunni

Dr. Bunni is a consultingengineer, registered arbitrator and concifiator. He is Past President of the Associationof Consulting Engineers of beland andPast Chairmanof the IrishBranchof theChartered Institute of Arbitrators.He received his MSc from Manchester University and his PhD from London University.He has extensive experience in civil and structural engineering design, supervision of construction,contract management,construction insurance,arbitration and other methods of dispute resolution. He has acted as an expert witness, conciliatoror arbitrator inhundredsof domesticandinternational disputes (as a solearbitrator, member or chairman of a tribunal in oversixty cases of disputein excess ofLim, involving parties from over twenty differentcountries). Dr.Bunni is a member of various technicalcommitteesin Ireland andabroad, including: Council of the Chartered Institute of Arbitrators, London (acting as Chairman of its Arbitration Committee for a number of years); the European Council of the London Courtof International Arbitration and a member of the Court's Board of Directors; the Conciliation Committee of the Institution of Engineers of Ireland of which he was the Chairman since its inception; the Commission on International Arbitration of the International Chamber of Commerce,Paris; and amemberofthePanel ofArbitrators ofthe AmericanArbitration Association.Dr. Bunni was elected Vice-Presidentof the Chartered Institute of Arbitrators and in December 1996, was appointed Visiting Professor at Trinity College,Dublin. Dr. Bunni has lectured extensively and has been invited to speak in many countriesinEurope, Asia,Africa,NorthandSouthAmerica.Hehas organisedand lectured atcourses onvarious topics relating to constructioncontractsfor FIDIC, the World Bank, the Munich Reinsurance Company, the Institution of Engineers of Ireland, the Chartered Institute of Arbitrators and otherorganisations. He has won a numberofawards, including the MullinsSilver Medal awarded by theInstitution of EngineersofIreland, for hisworkin structural design and in disputeresolution, and in November 1995 he was awarded theirpremieraward, The Institution Prize.

The FIDIC Form of Contract The Fourth Edition of the Red Book 2nd Edition

Nael G. Bunni BSc, MSc, PhD, CEng, FIEI, FICE, FiStruct, FCIArb, FInstD, MconsEl

b Blackwell Science

III

© 1997Nael C. Bunni

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A cataloguerecord for this title isavailablefrom the British Library ISBN 0-632-04079-3

Libraryof Congress Cataloging-in-PublicationData Bunni,NaelG. TheFIDIC form of contract:the fourth edition ofthe Red Book/Nael G. Bunni.—2nded.

of the publisher.

First edition published 1991 Reprinted 1993, 1994, 1996 Second edition 1997 Reprinted 1998

p.

cm.

Includes bibliographical references

and index.

ISBN 0-632-04079-3 1..Engineeringcontracts. 2. Standardized terms ofcontract. I. International FederationofConsulting Engineers. II.Title.

Set in 9iPl3Palatino byDP Photosetting,Aylesbury, Bucks Printed and boundin GreatBritainby MPG BooksLtd. Bodmin,Cornwall The Blackwell Sciencelogo is a trade mark of Blackweb Science Ltd, registeredat theUnited KingdomTradeMarks Registry

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OF

For further informationon Blackwell Science, visit ourwebsite: www.blackwell-science.com

iv

The FirstEdition To

my wife and Nadia, Layth, Siobháin,Lara, LaylaandLydia. Forthe long hoursnot shared and others whichwere inthe writingof this book. The Second Edition

To Anne Without her own help, supportand understanding this second edition wouldnot have been completed.

V

Page blank in original

vi

Contents

List ofFigures List ofTables

xvffi XX

Preface to the SecondEdition Prefaceto theFirstEdition

xxi xxiv xxvi

Acknowledgements

Part I

Background andConcepts of the Red Book

1

Chapter 1

Background of the Red Book 1.1 The ACE Form 1.2 The FirstEdition of the Red Book 1.3 The Second and Third Editions of the Red Book 1.4 The Fourth Edition of the Red Book 1.5 The 1996 Supplement to the Red Book 1.6 Conceptsof the Red Book

3 4 6 7

Chapter 2

The Red Book is Based on a Domestic Contract 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8

2.9

Introduction Diversity of legal systems Theapplicable law in international construction Theapplicable law of the contract Law governing procedure Law governing enforcementof awards Grouping of the contemporary legal systems TheRomano-Germanicgroup 2.8.1 Sourcesof law in the Romano—Germanic group 2.8.2 Legal authoritative writing 2.8.3 Areas of the law affectingconstruction in the Romano-Germanicgroup The common law group 2.9.1 Sourcesof law in the common law group 2.9.2 Areas of the law affectingconstruction in the common law group

vii

12 15

16 18 18 18 20

21 24 25 25

27 30 34 34 34 38 43

viii

The FIDIC Form ofContract 2.10

Chapter 3

Thelaw inIslamic countries 2.10.1 Sources ofIslamic law

43

44

Legal Concepts Based on the Common Law System 3.1 The law applicableto the contract

47

3.2 3.3

49 50

Conflict

Some specific concepts underthe common law 3.3.1 Substantivelaw andprocedural law 3.3.2 Legislation,common law and equity 3.4 Tort 3.5 Contract — general principles 3.5.1 Prerequisitesof a contract 3.5.2 Limitationperiods 3.6 Privity of contract 3.7 Performanceof a contract 3.8 The contents of a contract 3.9 Remediesfor breach of contract 3.10 Exclusionclauses 3.11 The responsibilityto complete

47

50

50 51 53 53 55 56 57 58 61 67 67

Chapter 4

DraftingPrinciples

69

Chapter 5

The Concept of a TrustedIndependentEngineer

73 73

5.1

Introduction 5.1.1

5.2 5.3

5.4

Chapter 6

FIDIC's Statutes and By-Laws

independent engineer 5.1.2 FDIC's Code of Ethics 5.1.3 FIDIC's Quality-BasedSelection, 'QBS' Othersuppliers of consulting services Servicesprovided by the consulting engineer 5.3.1 Counsellingservices 5.3.2 Pre-investment studies 5.3.3 Design,preparation of documents and supervision 5.3.4 Specialiseddesign and development services 5.3.5 Projectmanagement 5.3.6 Programme manager Independence

A Traditional Re-measurement Contract 6.1 6.2

and the 73 76 77 77 77 78 78 78 79 79 79

80 82

Factors governing choiceof contract 82 83 Theallocationof essential functions 6.2.1 The allocationof the function relating to finance 84

Contents 6.2.2

6.3

6.4 6.5

Chapter 7

Chapter 8

Theallocation of the functions of designand

construction 6.2.3 The allocationof risk,quality control and the method of pricing and payment Re-measurementcontracts 6.3.1 The Red Bookis a re-measure contract 6.3.2 Contracts with a bill of quantities 6.3.3 Contracts with a schedule of rates Cost-reimbursablecontracts Lump sum contracts 6.5.1 The Supplement to the Fourth Edition of the Red Book, SectionB 6.5.2 Main Features of FIDIC'sForm for Payment on a lump sum basis

Sharingof Risks 7.1.

Introduction

7.2 7.3 7.4 7.5 7.6 7.7

The definition of 'risk' Measurementof risk Riskmanagement Allocationof risks in the Red Book Responsibilityand liability Indemnity andinsurance

The Concepts in Practice 8.1 8.2

8.3 8.4

ix

The Red Bookinuse Areas of conflict 8.2.1 A relationship of trust 8.2.2 The role of the engineer 8.2.3 Avoidance ofrisk 8.2.4 The design function 8.2.5 Absence of a legal system 8.2.6 Distrust of changes 8.2.7 Legal questions EIC/FIDICsurvey of 1996 A brief summary of Part I

85

86

87 87 89

89 90 90 91 91 93 93 95 96 98 100 104 105 108 108 110 110 110 111 111 113 113 113 117 117

Part II

TheFourthEdition: A Commentary

119

Chapter 9

TheRevisions — Purposesand Consequences

121 121 125 125

9.1 9.2

Introduction Clause 1 9.2.1 Definition of 'Engineer' under group (a)

The FIDIC Form ofContract 9.2.2 9.2.3 9.2.4 9.2.5 9.2.6 9.3

9.4 9.5 9.6 9.7 9.8 9.9 9.10 9.11

9.12 9.13 9.14 9.15

9.16 9.17 9.18 9.19 9.20 9.21 9.22 9.23 9.24 9.25 9.26 9.27 9.28 9.29 9.30 9.31 9.32 9.33 9.34 9.35 9.36

Definitionof 'tests on completion' Definitionsunder group (e) Definitionsunder group (f) Definitionsunder group (g) Definition of 'approved'

Clause 2 9.3.1 Requirementfor consultation 9.3.2 Responsibilityfor delegation 9.3.3 Requirementfor writing 9.3.4 Expressrequirement for impartiality Sub-clause5.2 Sub-clauses6.1, 6.4 and 6.5 Clause 7 Clause 8 Clause 10 Sub-clause12.2 Clause 13 Sub-clauses 14.1 and14.3 Clause 15 Clause 19 Clause 20 Clause 21 Clause 23 Clause 25 Clause 27 Clause 28 Clause 30 Clauses 34 and 35 Sub-clause36.5 Clause 37 Clause40 Clause41 Sub-clause42.3 Clause44 Clause 46 Clause 51 Sub-clause52.3 Clauses 53 and54 Sub-clause57.2 Clause 60 Sub-clauses65.4 and 66.1 Clause 67 Clause 69

126

127 127 128 132 132 133 133 133 134

134 135 135 135 136

137 137 138 138 139 139

140 141 141 141 142 142 142 142 143 143 143 144

144 145 145 146 146 146 146 148 149 150

Contents

Part III

xi

9.37 Other changes madein the 1992 Reprint 9.38 Concludingremarks

150

The Fourth Editionin Practice

153

150

Chapter 10 Role of the Engineer 10.1 Introduction 10.2 The engineer as a designer 10.3 The engineer as the employer's agent 10.3.1 Authority andduties of the engineer 10.4 The engineer's proactive duties andauthority 10.5 The engineer's reactive duties andauthority 10.6 The engineer's passive duties and authorities 10.7 The engineer as a supervisor 10.8 The engineer as certifier 10.9 The engineer as adjudicator or quasi-arbitrator 10.10 Concluding remarks

155 155

Chapter 11 Responsibility and Liability of the Engineer 11.1 Introduction 11.2 Responsibilityof the engineer towards the employer 11.3 Responsibilityof the engineer towards the contractor 11.3.1 In the common law countries 11.3.2 In the Romano—Germanic system 11.4 The responsibilityof the engineer towards third parties (other than the contractor) 11.5 The responsibilityof the engineertowards society; employees;andthe engineerhimself

188

Chapter 12 The Employer's Obligations 12.1 Introduction 12.2 Identificationof specificelements of the project 12.3 Appointment of engineer 12.4 Possessionof site 12.5 To provideinstructions as and whenthey are required 12.6 The employer is to refrain from taking any action which wouldimpede or interfere with the progress of the works 12.7 The employer is to supplymaterials and carry out works if these form part of the work as defined in the contract 12.8 The employer is to nominate specialistsub-contractors and suppliers as and when they arerequired

205 205 206

157 163

164 168 172 176 176 182 183 187

188 190

196 197

202 203 204

207

208 210

212

214 215

The FIDIC Form ofContract

xii 12.9

To permitthe contractor to carry out the whole ofthe

works 12.10 To makepayments and to make themon time 12.11 Additional obligationsfor the employer under the FourthEdition of the Red Book

216 216 217

Chapter 13 The Contractor's Obligations 13.1 Introduction 13.2 The contractor's obligationsduringthe tendering stage 13.3 The contractor's obligationsfollowingthe letter of acceptanceandduringthe construction stage up to substantial completion 13.3.1 Finalisingdocumentationrequiredprior to commencementof the works 13.3.2 Constructionand completion of the workswith due diligenceandwithin the time for completion 13.3.3 Use ofmaterials, plant and workmanship 13.3.4 Provision of securities,indemnities and insurances 13.3.5 Supply of information,notices or alerts 13.3.6 Performanceof certain administrative functions 13.4 Contractor's obligationsaftersubstantial completion of the works

220 220 221

Chapter 14 Risks, Liabilities, Indemnities andInsurances 14.1 Introduction 14.2 The Red Bookprovisions relating to risk, responsibility,liability, indemnity and insurance 14.3 Clause 20 of the Red Book— '20.1: care of the works'; '20.2:responsibilityto rectify loss or damage'; '20.3:lossor damage dueto employer's risks'; and '20.4: employer's risks' 14.3.1 Sub-clause20.1: care of the works 14.3.2 Sub-clause20.2: responsibilityto rectify loss or damage; and sub-clause 20.3: lossor damage due to employer's risks 14.3.3 Sub-clause20.4: the employer's risks 14.4 Clause 65 of the Red Book (sub-clauses65.1 to 65.8) — specialrisks 14.5 Clause 21 of the Red Book— insurance 14.5.1 Importance of adequacy of cover 14.5.2 Period of insurance andextent of cover

242 242

222 222

223 229 232

233 235 240

242

244 244

246 247 250 254 254 255

xiii

Contents

Jointnames Scope of insurance cover Provisions for payment in foreign currency Provision for deductibles Clause 22 of the Red Book indemnityfor damage to persons andproperty other than the works Clause 23 of the Red Book — third partyinsurance Clause 24 of the Red Book injury to workmen and insurance Clause 25 of the Red Book— general insurance requirements Part II of the Red Book insurance arranged by the employer Definitions 14.5.3 14.5.4 14.5.5 14.5.6

14.6 14.7 14.8 14.9 14.10 14.11

-

-

258

259 261 261 262

263 264 264 266

267

Chapter 15 Performance and other Securities 15.1 Introduction 15.2 The spectrum of securities 15.3 Types of securities 15.4 Characteristicsofperformance bonds and guarantees 15.4.1 Payment guarantees 15.4.2 Performancebonds 15.4.3 Demand guarantees 15.5 The ICC Uniform Rules for Demand Guarantees 15.6 Uniform Rules for Contract Bonds 15.7 Insurance against unfair calling 15.8 Performancesecurities under the Red Book 15.9 Examplesof securities provided 15.10 Othersecurities associated with a constructioncontract 15.10.1 Bid bonds or guarantees 15.10.2 Advance payment guarantees 15.10.3 Retentionmoney bonds 15.10.4 Maintenanceor defectsliability bonds 15.10.5 Company suretyship 15.11 Concluding remarks

273

Chapter 16 Claims andCounterclaims 16.1 Definitionandlegal basis of claims andcounterclaims 16.2 A claim under the contract andbasedonits provisions 16.2.1 Variations 16.2.2 Measurementchanges 16.2.3 Adverse physical obstructionsor conditions 16.2.4 Employer's risks

299 299

273

274 276

277 277 277 281 285

286 289

290 294 296 296

297 297 297 298

298

300

302 308

309 319

xiv

The FIDIC Form ofContract

Compliancewith statutes, regulations, price fluctuations,currency and other economic causes 16.2.6 Defects and unfulfilled obligations 16.2.7 Failure to commence, delays, suspension of work, release from performance,default and termination 16.2.8 Other miscellaneousspecifiedevents 16.3 Claim based on grounds of breach of contract 16.4 Procedure for claims — clause53 16.4.1 Procedural steps 16.2.5

16.4.2 Records 16.5 The presentationof claims 16.6 Quantum 16.6.1 Heads of claim 16.6.2 The global approach 16.7 Concluding remarks

320 321

324 330

332 334 334 335 338 338

339 340 344

Chapter 17 Delay in Completion andClaims for Extension of Time 17.1 Time is of fundamental importance 17.2 Relevantclauses of the Red Bookto an extension of time under clause 44 17.3 Programming 17.4 Claims for extensionof both time and money 17.4.1 Prolongation 17.4.2 Disruption 17.5 Liquidated damages 17.5.1 Liquidated damages and penalties

345 345

Chapter 18 Certificates andPayments 18.1 Introduction 18.2 Interim payment certificates 18.3 Taking-overcertificate 18.4 Defects liabilitycertificate 18.5 Final payment certificate 18.6 The engineer is to certify a valuation at date of termination 18.7 Common requirements 18.8 Late certification

364 364 365 366 368 369

Chapter 19 DisputesSettlement by Arbitration 19.1 Introduction andbackground 19.2 Advantages of arbitration

373 373 375

347 348 358 358 359 360 360

369 372 372

Contents 19.3 19.4 19.5

Whatis arbitration? Thearbitration agreement Sourcesof law in arbitration 19.5.1 General 19.5.2 The arbitration agreementas a source of law 19.5.3 Practice and custom

The arbitrator The arbitration agreementunder clause 67 of the Red Book 19.7.1 Procedure under clause 67 19.8 The 1996 supplement to the Fourth Edition of the Red Book 19.9 The new provision for Dispute Adjudication Board, its procedural rules and terms of appointment 19.9.1 Compositionandqualification 19.9.2 Duties of the Board members and commencementof such duties 19.9.3 Termination of the Board's duties 19.9.4 Remunerationof the Boardmembers 19.9.5 Duties of the employer and the contractor towards the Board 19.9.6 Procedure for dispute referral to the Board 19.9.7 Conduct of hearings 19.9.8 Authority of the Board 19.9.9 Commentary 19.10 The ICC Rules of Conciliationand Arbitration 19.10.1 The ICC Rules 19.10.2 The advantages of the ICC Rules 19.10.3 Someconstructivecriticism 19.11 Why doesarbitration in construction disputes continue to lose favour? 19.12 Concluding remarks 19.6 19.7

xv 376 377 379 379 379 380 381 383 386 391 397 397 398 399

399 400 401 402 403 403 407 409 412 414 415 419

Chapter20 Amicable Settlement UsingAlternative DisputeResolution 420 Introduction 20.2 Methods of disputesettlement 20.3 Direct negotiation 20.3.1 Negotiators 20.3.2 When should negotiation be usedandwhat 20.1

are the steps? 20.4 Mediation 20.5 Conciliation 20.5.1 What is conciliation?

420 421

423 423 424 425

427 428

xvi

The FIDIC Form ofContract 20.5.2 20.5.3 20.5.4 20.5.5 20.5.6 20.6 20.7 20.8 20.9 20.10

Part IV

Why conciliation? When should conciliationbe used? Who should be a conciliator? Who should attendthe conciliation? Theconciliationprocess Mini-trialprocedure Dispute review boardsor experts, claims review boardsanddisputeadjudication boards or experts Adjudication Pre-arbitralreferee procedure Concludingremarks

Other Documents Related To The Red Book

429 429 430 431 431 434 436 437 438 438 439

Chapter 21 FIDIC's Other Forms of Contract 21.1 Introduction 21.2 The Yellow Book, third edition 21.2.1 Background 21.2.2 Differencesin the natureof civil engineering and E & M engineering projects 21.2.3 Essentialfeatures of the YellowBook 21.3 The Orange Book, first edition 21.3.1 Background 21.3.2 Differencesin the natureof the Red and Yellow Bookson the one hand and the Orange Book on the other 21.4 The conditions of subcontractfor works ofcivil engineering construction 21.4.1 Format 21.4.2 Clause 1, definitionsandinterpretation 21.4.3 Clause4, 'main contract' 21.4.4 Clauses 13 and 15, 'indemnities; insurances' 21.4.5 Clause 16, 'payment' 21.4.6 Clause 19, 'settlement of disputes' 21.5 Other publicationsof FIDIC

441

Chapter 22 The World Bank andthe FIDIC Form 22.1 Introduction 22.2 The World Bank Group 22.3 The World Bank's SBDW: an overview 22.4 SBDW: Part II- conditions ofparticular application 22.5 Some significantmandatory provisionsin Part II of

465 465 465 466 467

SBDW

441 441 441 443

444 450 452

453 458 459 459 460 460 461 463 463

468

Contents

xvii

Sub-clause1.1 (a) (iv) Clause 10 Sub-clause20.4 Sub-clause21.2 Sub-clause25.5 Clause 67 Additional clauses 22.6 The Dispute Review Board 22.5.1 22.5.2 22.5.3 22.5.4 22.5.5 22.5.6 22.5.7

22.6.1 The wordingof SBDW clause 67 22.6.2 Notes attached to version 1 ofclause 67 22.7 The rules and- procedure ofthe Dispute Review Board 22.7.1 Compositionand qualification 22.7.2 Duties ofthe Boardmembers and

commencement of suchduties 22.7.3 Termination of the Board's duties 22.7.4 Remuneration of the Board members 22.7.5 Duties ofthe employer andthe contractor

towards the Board

Chapter 23

478 479 479

22.8 Commentary

480 481 482 482 483 483

Comparison Between The Third And Fourth Editions Of Part I Of The Red Book

489

A Precise Record of Alterations, Omissions andAdditions

491

-

571

22.7.6 Procedure for disputereferral to the Board 22.7.7 Conduct of hearings 22.7.8 Authority of the Board 22.7.9 The effectof the Board's recommendation

Part V

469 470 471 471 471 472 472 472 473 475 476 477

References

AppendicesA, B and C TableofCases TableofClauses Index

595 635 639 643

xviii

List of Figures

Areas of the law affectingconstruction in the Romano-Germanicgroup.

35

Areas of the law affectingconstruction in legal systems basedon common law.

44

Figure 3.1

Remediesfor breach of contract inthe common law system.

62

Figure 7.1

Risks in construction under the FIDIC Red Book, Fourth

Figure2.1 Figure 2.2

Edition.

Figure 7.2

102

Indemnities and possibleinsurance coversfor a construction project.

106

Figure 13.1 Acceptanceof tenderand commencementof works.

226

Figure 14.1 Flow of risk intoresponsibility,liability, indemnity and insurance.

243

Figure 14.2 Indemnities and insurances relating to risks of injury and damage under the Fourth Edition of the FIDICRed Book.

245

Figure 14.3 Indemnity and insurance relating to financialrisks, etc.

246

Figure 14.4 Consequencesofrisks eventuating.

256

Figure 14.5 The insurance scheme as in the FourthEdition of the Red Book.

268

Figure 15.1 The two alternativesof issuing a performance guarantee.

282

Figure 16.1 Claimsandcounterclaims.

302

List ofFigures

xix

Figure16.2 Variation orders.

310

Figure16.3 Suspension.

326

Figure16.4 Procedure for claims.

336

Figure17.1 Programme — time— delay — rateof progress.

350

Figure 17.2 An example of a network analysis.

353

Figure 17.3 Criticalpath diagram associated with the network analysis in Figure 172.

354

Figure 18.1 Certificatesandpayments.

370

Figure 19.1 Procedure under clause 67 of the Red Book.

392

Figure 19.2 Procedure under the provisions of the newalternative version of clause 67 contained in the Supplement reference to the Dispute Adjudication Board.

404

Figure 22.1 Procedure under the provisions of clause 67 of the SBDW for major contracts over US$50 million.

484

Figure 22.2 Procedure for referenceto the Dispute Review Board underthe SBDW for major contracts.

485

Figure 22.3 Arbitrationunder version 1 of clause 67 of the SBDW for major contracts.

486

xx

List of Tables

Table9.1

Determination by the engineer in favour of the contractor.

129

Table9.2

Determination by the engineer in favour of the employer.

131

Table 9.3

Determination by the employer against the contractor.

131

Table10.1 Theengineer's proactive duties and authority.

169

Table10.2 Theengineer's reactive duties and authority.

173

Table10.3 The engineer's passive duties.

177

Table12.1 Notices required to be given by the employer to the contractor under the contract.

211

Table13.1 The phases of a construction project in chronologicalorder.

224

Table 13.2 Notices required to be given by the contractor under the contract.

236

Table22.1 Mandatory provisions as included in Part II of the World Bank SBDW.

469

xxi

Preface to the Second Edition

Sinceitspublicationin1987,therehavebeenanumberofimportant developments relating to the use of the Fourth Edition of the Red Book. It has been amended twice, firstin 1988whenit was subjectedtominoreditorial amendments and later in 1992 whenfurther amendments of a more significant naturewere introduced. In essence, however, the Red Book continued to be used internationally and sometimes nationally. Its success story was cemented further when the World Bank adopted the form inits Standard Bidding DocumentsinJanuary 1995, albeit with some further mandatory amendments of its own. Most important of these mandatory requirements concernedthe role ofthe engineerunderclause 67ofthe Red Bookand the adoption by the Bankofthe conceptofadisputereview boardto replace the engineer in disputeresolution. FIDIC respondedin 1996 by introducingits Supplementto theFourth Edition of theRedBookwhichwaspublished in November 1996. Three major issues were tackled by the Supplement: the role of theengineerasanadjudicator or quasi-arbitratorwhenactingunderclause 67was replaced under an optional clause 67 by a dispute adjudicationboard; the use of the FIDIC Formas a lump sum contract was facilitatedby introducing standard amendments to the Form; andlate certificationby the engineer under clause 60 was dealt with by introducing a new optional sub-clause 60.10. Most of the above developments took place since the publication of the first edition of this book in 1991. Hence, it was deemed necessaryfor a second edition tobepublished encapsulatingthese changes.It wasalsofeltthat thewhole text of the first edition had to be reconsidered and that pure additions would not adequately deal with the topics of the changes, amendments and the new developments.Thus,partswererewritten whilstotherswererelocated inorderto make the text clearer and more accessible. Such a revision was also essential in order to takeinto accountthe many constructivecomments whichwere received from the reviewers of the first edition. For example, parts of Chapter 5 were rewritten to incorporate the changes which have takenplace in the Statutes and By-lawsof FIDICandits Code of Ethics. Chapter 6 was modified to incorporate the recent changes whichhave taken place in the procurement and financing of large civil engineering projects;and also the introduction of part B of the 1996 Supplement with regard to lump sum contracts. Chapter 7, 'Sharing of Risks' and Chapter 13 (now 14), 'Risks, Liabilities,

xxii

The FIDIC Form ofContract

Indemnities and Insurances' were reconsidered in view of the amendments to BritishStandard No. 4778 relating to the topic ofrisk and riskmanagement.Parts ofthe existingmaterial in those two chapters were relocated to accommodatethe new arrangement of the relevant topics under the Red Book. Chapter 9, which dealt withthe revisionswhichhadbeen madeto produce the FourthEdition, had to be enlarged to dealwith the amendments to the FourthEdition madein 1988, 1992 andsubsequently the optional changes introduced in the 1996 Supplement. Chapter 10 on the role of the engineer was enlarged to incorporate new experiencesin thatrespect andwas divided into two chapters, 10 and11, thus separating the engineer's rolefrom his liabifities,both of whichhad beendealt with in the first editionwithin Chapter 10. The new Chapter 11 includes some of the recent developmentsin the law relating to the liabifityof the engineer. Chapters 14 and 15, now 15 and 16 dealt withthe subjects of claimsand counterclaims;delayand extensionoftimewere enlarged to takeintoaccountthe recentexperiencesinthat field including the developmentsin some of the relevant legal cases. Chapter 18, now 19, 'Dispute Settlementby Arbitration', was much enlarged to incorporatevarious aspects of the topic of arbitration and material relevant to clause 67 of the Red Book. This chapter now includes details of the new concept of the disputeadjudication board and its advantages and shortcomings;the ICC Rules of Conciliationand Arbitration; arbitration under these rules; some of the problems encountered in arbitration as a method of dispute resolution as experienced by the author; and finally some recommendations towards a cost effective and speedy arbitration procedure. Chapter 19, now 20, which dealt with amicablesettlement and alternative dispute resolution nowincludes a new section on conciliation/mediation written with some insight as a result of a number of successful and a few unsuccessful cases of amicabledispute resolution. A new part, Part 1V,has beenaddedto the bookandcomprises two chapters. Chapter 21 deals with other related standard forms of contract published by FIDIC: the YellowBook; the Sub-contractFormfor use withthe RedBook; and the Orange Book. Chapter 22 deals with the Standard Bidding Documents for major contracts published by the World Bank incorporating the Fourth Edition of the Red Book in its reprinted form of 1992 with some amendments. These amendments, some ofwhichare mandatory,are discussed and explained.Flow charts in a 'decisiontree' format, assuccessfullyincorporatedfortheothertopics dealtwith in the first edition of the book, were added in these two chapters to show at a glance the procedure to be followed in disputereview boardsanddispute adjudication boards. Part Vofthis edition of thebook, Part lV in thefirst edition, provides a precise record of the alterations, omissions and additions made to produce the Fourth Edition andthesenow include the amendments madein 1988 and 1992. Thus, the text of boththe Third andthe Fourth Editions ofthe Red Bookis included in this part of the book whilst Part II of the Red Book is reproduced in Appendix C.

Prefaceto the Second Edition

xxiii

Appendices A and B show the amendments made in 1988 arid 1992. These appendices havebeen added at the suggestion of a number ofreaders. Finally, I would like to express my gratitude to those people who helped in producing this edition ofthe book.In particular,I gratefullyacknowledgethe help extendedby my daughter Siobhaininproducing the computerisedart materialfor the charts. To my daughters Layla, B.A., LL.B. and Lydia, I owea special tribute for their valued research and secretarial assistance, respectively. A particular word of thanks is dueto Julia Burden of Blackwell Science Ltd for her continued encouragement,patience andsupport duringthe production of this edition of the book. My thanks are also due to Alison Morley LL.B. for her meticulous copyediting of the book. Inthis edition, Ihavealso deviated from the presentconventionof usinghe or she whenever areferenceisneededandadopted the useofthe masculine pronoun to embrace thefeminine. Nael G. Bunni January 1997

xxiv

Preface to the First Edition

The FIDIC Form of Contract for civil engineeringwork, known as the Red Book, has since its introduction thirty-four years ago contributed greatly to the successful completionof a large numberofprojectsaroundthe world. The useofthe Red Book has been endorsed by most international development and financial institutions including the World Bank. Yet, little has been published on it, and what has is largely by way of articles in legal periodicals and journals which are mainly read by the specialist andrarelyby the practising engineer. The Fourth Edition of the FIDIC Form, published in 1987, is an improved set of conditions whichintroduces anumberofmajor changes.Insome clausesthereare changesin wordingto improve clarity and simplicity,but in others the changes are substantive andfundamental.Forthose who are familiarwith the Third Edition ofthe Form butintend to usethe FourthEdition for theirfuturework, it isessentialtobe aware ofeachandevery change.For the beginners, itis necessaryto understand the original text of previous editions and the reasons for change. The taskofwritingabookabout a standard form ofcontract,let alone one used by people from different cultures and backgrounds, is not an easy one as it involves not only aspects of engineeringbut also matters of law, insurance and riskmanagement.Forcontractsin theinternational field, thelaw extends beyond any simple legal system and involves such specialised fields as private international law and conflictof laws. Commentsin this bookon the law have therefore, of necessity,been ofa generalisednatureandstatements of generalrulesand principles must not be taken to mean that they apply without exception or qualification. These rules and principles may differ from one jurisdiction to another andevenwithinone legal group. Withthis inmind,thebookis divided intofour parts: —

—

Part I covers the background and development of the Red Bookthrough its

various editions;its concepts including those relating to law; andthe problems experiencedbythe users whichhaveled some employerstoincorporate changes in its text. Part II provides commentaryon some of the important andcomplexaspects of a number of the changes made in producing the Fourth Edition and explains the reasons for these changes.

Prefaceto the First Edition —

—

xxv

Part ifi provides

an analysis of the rights and obligations of the parties involved inthe contractandthe allocationofthe risksinherent inconstruction and alsotheschemeofindemnities and insurancerequirements. This analysis

includes a range of 'decision tree' charts whichanalyse the main features of the Red Bookincluding risks; indemnities andinsurances; programme and delay; payments and certificates; procedure for claims; and variations. A discussion of the types of claim which may arise is also included together with details of thevarious methods ofdisputeresolutionprovidedunder the procedures of the Red Book. Part IV identifies in a precise mariner the revisionswhichwere madein the text of the Red Book to produce the Fourth Edition. This part precisely highlights the following: — anyalteredwording; — any text which appeared in the Third Edition but was omitted in the Fourth; — any newwordingadded to the text of the Third Edition.

I have deviated from conventionby usinga lower casefor the words'employer', 'engineer', 'contractor' and 'sub-contractor',whatever the form andfunction they take, exceptin directquotations. I have, however, bowed to conventionin using 'he' andnot 'he or she' wherever areference is neededand in doingso, I ask for tolerance from the purist. Nael G. Bunni June

1991

xxvi

Acknowledgements to the First Edition

I amindebted to theFédération InternationalDes Jngenieurs-Conseils(FIDIC)for the permission granted to quote and reproduce from the Third and Fourth Editions of the Conditionsof Contract for work of civil engineeringconstruction, the Red Book, as well as some passages from the Guide to its use. These publications are copyright of FIDIC and can be purchased directly from FIDIC's offices at P.O. Box 86, CH-1000 Lausanne,12-Chaffly, Switzerland,orfromanyof FIDIC's member associationsin over forty different countries around the world. Myspecial thanks are due to John Parris, LL.B.(Hon), PhD, Charles O'Farrell, BE, CEng,FlStructE, and Edward Fitzgerald,BE,CEng,MIEI, for the painstaking task of reading the entiretypescript, providing comments and criticisms to the many drafts produced. To Paul McRandal, LL.B., and Michael Carrigan, BCL, LL.B.,for commentingon Chapters 2 and 3 of the book, I owe a special gratitude. I also gratefully acknowledge the help extended by Helen Casey and Lyn Crouchinproducing the art materialforthe charts.Tomydaughters Siobhainand Nadia, I owe a special tribute. To Anne McLoughlin,my secretary, I owe my thanks for patiently wordprocessing the successivedraftsof the manuscript. Finally, I wish to add a special word of thanks to Julia Burden of Blackwell Science, for her continual encouragement, patience and support during the production of this book.

Part I Background And Concepts Of The Red Book

I

blank Page in original

2

Chapter 1

Background of the Red Book

In the commercialactivitiesoftoday's highly complex society, standard forms of contract have become an essential part of the day-to-day transactions of most agreements.The majorityof standardforms have been developed by commercial organisationsfor the purpose ofefficiency, tobuildon the experiencegained from the repeated use of these forms, butmost of all for the optimum protection of one or both parties'interests. Standard forms of contract developed for construction activities, however, have mostly been drawn up by independent professional organisations,ratherthanby one or otherof the parties to the contract,in order to establish or to consolidate a fair and just contract. Knowledge accumulated through experience and recurrent use over a long period of time has brought about revisions and modifications in construction standard forms with the aim eitherof achievinggreater certainty inthe intention ofthe wordingor ofproviding aresponse totheneedsoftheparties and/orsociety. The use ofa standardform in constructioncontracts where tendering is the conventionalmethod of obtaining quotationshasalso ensured a commonbasisforthe comparisonandevaluationof tenders. In Europe, andmore particularly in the United Kingdom and in Ireland, such forms were produced as early as the nineteenth century. A standard form for building contracts was used under the aegis of the Royal Institute of British Architectssome time towards the end ofthe nineteenth century. This led to what became known as the 'ifiBA Form' whichwas published in successive editions between 1909 and 1957. It later developed intowhat became known as the JCT Form (Joint Contracts Tribunal) whenthe 1963 andthe 1980 Editionswere published. In Ireland,the ifiBAFormwas followedbythe ifiATArticlesof Agreement andScheduleof Conditions of Building Contract,issuedby theRoyal Institute of the Architectsof Ireland. In civil engineering contracts, various forms which were used by different employers prior to the Second World War were combined by the Institution of Civil Engineersand the Federationof CivilEngineeringContractorsinthe United Kingdom into an agreed standard document. This was published in December 1945, and the document was thereafter known as the General Conditions of Contract and Forms ofTender, Agreementand Bondfor Use in Connectionwith Works ofCivilEngineeringConstruction,inshortthe ICEForm. InJanuary 1950 it

3

4

The FIDIC Form ofContract

was revised and issued with the added agreement of the Association of Con-

sulting Engineers,London. Other revisions followed in March 1951 (Third Edition);in January 1955 (FourthEdition which was later amended in 1969); in 1973 (FifthEdition);and in 1991 (Sixth Edition).Theserevisionsreflectedsome changes in the law and in the practiceof civil engineering. 1.1

The ACE Form To the credit of those responsible for drafting the ICE Form, many professional institutions all over the world modelled their own conditions of contract on its text, making only minor amendments to accommodatedifferencesin localmatters of law and nomenclature. The ICEForm was, however, drawnup mainly for the domesticscene inthe United Kingdom.Theobviousneed for a similar form in the international constructionfieldprompted the AssociationofConsultingEngineers in the United Kingdom, jointly with the Export Group for the Construction Industries in the UnitedKingdom,andwiththe approval ofthe Institutionof Civil Engineers, to prepare a document for use in other parts of the world. It was published in August1956 and became commonlyknown as the Overseas (Civil) Conditions of Contract (the ACE Form). Although in text and format this latter Form differedonlyslightlyfrom the ICEForm, therewere some minor changes in forty clauses as well as a small number of major alterations. The most important of the minor changes were as follows: (a) a definitionof the word 'approved'was added; (b) a clarificationstatement was added in clause 3 in relation to assignment; (c) the words'whichshall not be unreasonably withheld' were added in respect of theconsent of theengineerto thecontractorto sub-letany partoftheworks; (d) the words 'touching or concerningthe Works' were added in clause 13 to describe the engineer's directions; (e) clause 15 in relation to contractor's superintendence was expanded; (f) the exceptionrelating to damage to crops in clause 22 was re-worded; (g) the words'affectingthe safety of the Works' were added insub-clause40(l)(b) to describe the weather conditions as a reasonfor suspension of the works; and (h) the day as a unit of measurementof time replaced the week for the purpose of calculatingliquidated damages in clause 47. The major alterationswere as follows: (a) the document was publishedintwoparts: Part I whichincorporated 68clauses as general conditions of contract; and Part II which included notes and a numberof new clauses to be considered for inclusion in Part I. Part II was

Backgroundofthe Red Book

5

intended as 'a guide in the preparation ofclauses (someof which are referred to inPart I)' but which were expected to 'vary as necessaryto take account of the circumstancesand locality of the works.' These additional clauses were intended to be drafted for each particular project to cover matters such as, definitions;labour; temporary reinstatement; material andplant;and certificates and payment. Part II was referred to as 'Conditions of Particular Application'; (b) a greater involvementandauthority was given to the engineer's representative under a numberofthe clauses of the ACEFormas compared withthe ICE Form; (c)

the explicit procedural provisions under clause 12 in the case of adverse

physical conditionsandartificialobstructionswere deleted; (d) allocationofthe riskof damage due to unforeseenforcesofnaturewas shifted in clause 20 from the contractor to the employer by including the following wordsintothe excepted risks:

'any such operation of the forces of nature as reasonable foresight and ability onthe part ofthe Contractorcould not foreseeorreasonably provide against'.

(e)

(f)

(g) (h) (i) (j)

(k) (1)

Whilst this shift in risk in respect of accidental damage to the works was implementedinclause 20, a similarshift inrisk wasnotimplementedinrespect of financiallossresulting from suspension of work, undersub-clause40(1)(b), due to weather conditions which arealso a form of the forces of nature; the requirement that joint insurance for the employer and the contractor be provided against third party liability risks was deleted from clause 23 of the ACE Form; a change in clause 26 was made in connectionwith payment of fees under foreign statutes, ordinances and bylaws; a newsub-clause (4) was added to clause 30 in respect of water-borne traffic; theprovision for labour under clause 34 wasrecommended to be drafted for each contract; temporary reinstatement as referred to in clause 49 of the ICE Form was omitted in the corresponding clause of the ACE Form; acondition wasincorporatedintheACEFormrequiring anamendment ofthe amount ofthe contractpriceinthe casewherethe 'neteffectof all variations' is found to result in a reduction or an addition greater than 15 per cent of the sum named in the tender; referenceto the standardmethod ofmeasurement was omitted from clause 57 of the ACE Form; failure by the contractor to proceed with the works with due diligence was deleted from the list of grounds entitling the employer to determine the contract under clause 63(1);

6

The FIDIC Form ofContract (m)

a major revision wasmadeto clause 65 whichdeals with special risks under

which the employer was required to provide an indemnity to the contractor in respect of increased costs arising from theserisks; (n) a new clause was added under the title 'Default of Employer' entitling the contractor to determine the contract where no payment is made by the employer within asetperiod of time orwherethe employer interferes withor obstructs the issue of any certificateor wherethe employer becomes bankrupt; and (o) a number of new clauses were included in Part II of the ACE Form to be considered forinclusion inPartI depending onthe circumstancesandlocality of the works. These new clauses related to conditions of contract for price variations, customs duties and other dues, taxation, bribery andcorruption, non-disclosureof information,other matters peculiar to the specific contract and finally, but most importantly, the law governing the contract. 1.2 The First Edition of the Red Book The ACE Form as published in 1956 included a standard Form of Tender, an Appendix and a standard Form of Agreement. It was published in a blue cover which helped to distinguish it from the ICE Form. It was, perhaps, the first standardform of international conditionsof contract for civil engineeringworks. In concept and style, however, it remained faithful to the original domesticform. TheACE Form had only been used for a short period of time whenthe Conditions of Contract (International) for Works of Civil Engineering Construction waspublished inAugust1957.This wasbasedontheACEForm, describedabove, andwas also published in two parts. Perhaps because of its long title, in a very shorttime it became popularly known as the'Red Book' (its cover wasprintedin red). Itwas preparedby the FédérationInternationaledesJiigénieursConseils(the International Federation of Consulting Engineers, FIDIC) and the Fédération InternationaleduBâtimentet des Travaux Publics (the InternationalFederationof Building and Public Works, now known as the International European Construction Federation,FIEC). FIDICis the international Federation of duly elected associationsof consulting engineersrepresenting the professionintheirrespectivecountries.Membershipin the Federation is restricted to one association for each country. To qualify for membership, an associationmust demonstrate that its statutes, bylaws and regulations ensure thatits members complywith the ethics and professionalcode of practice of a consulting engineer as outlined and according to the principles endorsed by FIDIC.11 These principles have developed over the years and significant changes wererecently introduced as explainedlater iii Section5.1 of this book.

In addition to some editing changes anda few minor revisionsinclauses 1, 16,

Backgroundofthe Red Book

7

31, 34,40,53, 60, 65 arid69(2), anumberofimportant modificationsweremadeto the ACEFormin the evolution of the first edition of the Red Book. These were: (a) a referenceto the ruling language of the contract was incorporated in clause 6(1);

the referenceto sureties in clause 10 was changed to performance bond; it was provided in clause 11 of the Red Bookthat the tenderis to havebeen based on datasuppliedby the employer; (d) the reference in the ACE Form to weather conditions or conditions due to weather conditions in clause 12 was deleted; (e) aprovision forthe payment ofabonusunder clause47forearlycompletionof the works or any part thereof wasadded in Part II; (f) in clause 52(1) of the ACE Form, the words'If the Contract shall not contain any rates applicable to the extra or additional work then reasonable prices shall be fixed by the Engineer' were changed to: (b) (c)

'If the Contract shall not contain any rates applicable to the extraor additionalwork thensuitable prices shallbe agreed upon betweenthe Engineer and theContractor.Intheeventof disagreementtheEngineershall fix such prices as shall in his opinion be reasonable andproper.' (g)

it was provided in the Red Bookthat the appointment of the arbitrator (or

arbitrators)for the settlement of disputes under the contract was to be under the Rules of Conciliation and Arbitration of the International Chamber of Commercein Paris (ICC); and (h) twoclauseswereadded at the endof the general conditions:the first provided for any increase or decrease in the costs of labour and/or materials or any othermatters affectingthecost ofexecutionoftheworks;thesecond provided for currency restrictionsor devaluation. 1.3 The Second and Third Editions of the Red Book The Second Edition of the Red Book was published in July 1969, when the document was approved and ratifiedbythe InternationalFederationofAsianand Western Pacific Contractors' Associations.A supplementary section containing ConditionsofParticular ApplicationtoDredging andReclamationWorkwas then addedas PartIll.The SecondEdition,however, included no changes inthetext. A reprintof the Second Edition in 1973 added the approval and ratificationby the AssociatedGeneralContractors ofAmerica and the Inter-AmericanFederationof the ConstructionIndustry. However, the publication of the controversialFifth Edition of the ICEForm in

8

The FIDIC Form ofContract

June1973 provided an impetus for a further revision of the Red Book. This Fifth Edition of the ICE Form provided the civil engineering industryin the United Kingdom with a document which included major departures from the practice followed in its Fourth Edition. Three maincommentarieswere published inJuly and November 1973, analysing theeffectofthesechanges.Both Abrahamsonand Akroyd criticisedthe style, language andlack of clarity ofthe document. Akroyd inquired as to 'whether this new document forms a contractor's charter to riches?'12Duncan Wallace,in an article published in November 1973 (with the title 'The Modest Revision which Became a Torrent of Change') called the Fifth Edition of the ICEForm 'a new andradically revisedcontract'.13 The FifthEdition ofthe ICEFormobviouslyprovided foodforthoughtforthose responsibleforthe RedBook, and so itwas inMarch 1977that the Third Edition of the Red Book was published, incorporating some significant changes. These changes, however, did not follow in all respects those made in the ICE Fifth Edition.In the preface tohis bookonthe Fifth Edition ofthe ICEForm,14 Duncan Wallace wrote:

'... it is apparent thatthey [the draftsmen ofthe Third Edition ofthe Red Booki evidently considered and studiously avoided, all the principal difficulties (and indeed innovations)inthe Fifth Edition,aswell asanumberof the anomaliesin the Fourth Edition (with the single exception of the difficult Maintenance Certificateprovisionsin Clause 62, which have beensweptaway, quiterightly, in the Fifth Edition, but which are retained unchanged in the 1977 FIDIC Contract).'

Aswellas editing andother minor changes, afulllistofthe revisionsis given in a supplement to a bookbyDuncan Wallace,dealing withthe RedBook.15 The most significantrevisionsmadefor the Third Edition ofthe Red Bookwere as follows: (a)

the definition of the word 'cost' was added as a new sub-clause 1(4) of the Third Edition,providing for cost'to include overhead costswhetheronoroff thesite'. It replaced theword'expense' in some of theclausesofthe previous edition whichled to the inferencethat profit shouldnot be paid to the contractor in a claims situation under these clauses of the contract. Such situations, for example, arose in: (i) sub-clause 5(2), under ambiguities or discrepancies in the contract

documents, (ii) sub-clause 6(4), under a failure or inability of the engineer to issue drawings or orders withina reasonabletime, (iii) clause 12, under conditions which could not have been reasonably foreseen by an experiencedcontractor; the duties and power of the engineer were defined under sub-clause 2(1) of (b) theThird Edition andfor thefirst time itwas acceptedthatthe engineermay

Backgroundofthe RedBook

(c)

9

berequiredunderthe terms ofhisappointment by theemployer to obtain the latter'sspecificapproval forthe executionofanypartofthese duties inwhich case this informationwas to be set out in Part II of the Conditions. In clause 2, it was clearly stated that the engineer's representative is responsible to the engineer; clause 5 ofthe Second Edition whichspecifiedthe extentofthe contract was enlargedandincorporated intoanewclause 8 within the section dealingwith the general obligationsof the contractor. These obligations were explicitly stated. However,the obligationofthe contractortocompletethe workswhich is acceptedinmost, ifnotall, constructioncontractswasreplaced bytheterm 'execute and maintain the Works'. Similarlyunder clauses 12 and 13, this obligation to complete was omitted. This omission was criticised: although some may argue thatit is implicitin constructioncontractsthatthe contractor must complete, it would have been much clearer had this requirement remainedinexplicitterms. This isbecausetheremaining clausesinthe general conditionsassume suchanobligationand, perhaps more importantly,because suchan obligation is not necessarilyimplied in all legal jurisdictions;

(d) sub-clause 6(1) of the Second Edition became sub-clause 5(1) of the Third Edition. It was expanded to include both the ruling language and the

law of the contract; (e) the concept of disruption to the progress of the works in the case of nonavailability of information which is considered necessary for the implementation of the contract, was incorporated in the Third Edition by the inclusion of sub-clause 6(3). Sub-clause6(4) was added to deal with extensions of time and payment to the contractor as a result of such disruption. Under the Second Edition, delay in the receipt of information or instructions which resulted in extra cost tothe contractor could have formed a valid claim for damages for breach of contract. This was because it is an implied termof thecontract that thecontractor is entitled to receivesuchinformation orinstructions within a reasonabletime before thedate onwhichtherelevant workis required tobe executed.17See Section3.8for further commentaryon implied and express terms. Referenceshould also be madeto Section 17.4.2 wherethe question of calculatingthe cost of disruption is discussed; (f) under clause 11 of the Third Edition, distinctionwas madebetweenthe data provided by the employer andthe contractor's interpretation of suchdata.It is worthnoting thattheeffectoftherisks associatedwiththesiteisrecognised andallocatedto the contractor 'in so far as is practicable'; (g) clause 14 of the Third Editionwas amended slightly and expanded making it necessaryfor the contractor to submit a programme within a certain period after the acceptance of his tender. The requiredprogramme in the Third Edition deals only with the proposed 'order of procedure andnotthe method ofworkingpreviously stipulated'. Ifrequired, the contractorwasalsoobliged under the latter edition to revise his programme; applicable16

70

The FIDIC Form of Contract

the provision in the Second Edition that the contractor is not liable to insure against the necessityforthe repairorreconstructionof anywork constructed withmaterials or workmanshipnotinaccordancewith therequirement ofthe contract, was omitted from the Third Edition. This change was criticised as theredidnotseem tobeanyreasonableexplanationforthedecisiontoomitthis sentenceandas drafted itcontradictedthe requirementinthe clauseitselfthat all loss or damage for whichthe contractor is responsible must be insured. Accordingly, unless the contractor was able to insure against defective materials andworkmanship, hewouldautomaticallybeinbreach ofcontract; (i) sub-clause 23(3) was added in the Third Edition in which it was stipulated that the terms of the third partyinsurance, required under sub-clause 23(1), should 'includea provision whereby, in the eventof any claim in respect of whichthecontractor would be entitled to receiveindemnity under thepolicy beingbroughtor made against the employer, the insurerwifi indenmify the employer against suchclaimsandanycosts, charges and expensesin respect (h)

thereof'. This sub-clause 23(3), which became known as the 'Principal Clause' was addedto fill the gap formed originallyin theFirstEdition whenit followed theACE Form by omitting the requirement forjointinsurance. In filling this gap the Red Bookfollowedthe revision in the Fifth Edition of the ICEForm, published in 1973; (j) the extra cost incurred by the contractor andborne by the employer in the case of suspension of work as described in clause 40 was detailed in more precise terms in the Third Edition; (k) clause 46 of the Third Edition was re-drafted to accord withthe Fifth Edition of the ICE Form. The noise and disturbance indemnity provided by the contractor in the Second Edition was omitted; (1) clause 48 ofthe conditionswas expanded in the Third Edition providing for more specific terms underwhichacertificateof completionofthe worksmay be issued by the engineerto the contractorwith a copy to theemployer. The revision to this clause followed in broadterms that inthe Fifth Edition of the ICEForm; (m) time limits were added in the Third Edition for written confirmationof an oralorder given by the engineer under sub-clause51(2); (n) the word 'rates'inclause 52 of the Second Edition was replaced in the Third Editionby'rates and prices', thus permitting the valuation of variations to be based on both rates and prices. It was also envisaged in this clause in the Third Edition thata decreaseaswellasanincreasemayresultinthe valuation of variations; the (o) percentageofvariationswhichwouldtrigger the operation ofclause 52(3) wasreduced to 10 per centinthe Third Edition andamore precise definition, although not precise enough, was given to the method of calculation of that percentage;

Backgroundofthe Red Book

11

(p) the reference to prime cost sums in clause 58 of the Second Edition was omitted in the Third Edition. Clause 58 of the latter edition dealt only with provisional sums as defined therein, the power of the engineerto order such sums and the production of documentation related thereto; (q) clause 59 dealing withnominated sub-contractorswas expanded inthe Third Edition with the inclusion of threenew sub-clausesproviding for: (i) an express statement of design requirements where such exist in a nominated sub-contract; (ii) the payments to be madein respect of actual pricepaid or tobe paid by the contractor, labour to be suppliedby the contractor and all other charges and profit; and (ffl) the assignment of nominated sub-contractors'obligations; (r) nuclear andpressurewave risks as describedinsub-clause20(2) were added to the list of special risksin clause 65 of the Third Edition; (s) a provision was added under clause 66 of the Third Edition whereby the contract wouldbe treated as frustrated should the parties to the contract be released from further performance under the law governing the contract; (t) a provision was added under clause 67 of the Third Edition permitting the referenceto arbitration to proceed duringthe progress of the works; (u) three new clauses were added to Part I of the Third Edition under the headings of: (i) Changesin Costs andLegislation:Clause 70; (ii) Currency and Rates of Exchange:Clause 71; (iii) Rates of Exchange:Clause 72.

A set of 'Noteson Documentsfor Civil EngineeringContracts' was published byFIDIC in 1977whichreferred to some selectedaspects ofthevarious clausesof the Third Edition ofthe RedBook. The statusofthese Notes wasbriefly alluded to by the statement that they 'must not be taken as representing in any way an interpretation of the text of these clauses' (the individual clauses of the Third Edition).18

Unfortunately, these Notes did not deal with the background or the reasons behind the extensive changes whichwere made in producing the Third Edition, especially when only some of these changes reflected the revisions which had takenplace in producing the Fifth Edition of the ICEFormin 1973. As in the ACE Form, the importance of the law governing a specific contract, the applicable law of the contract, was recognised in the Red Bookbut despite this, no attempt was made to depart from the principles of the common law under which the ACE and the ICE Forms were drafted. Neither was there any attempt to recognisethat therecould be a conflict of lawsbetween the common law system andany other system oflawto whichthe applicable law of the contract belonged. Despite this lackof recognition,it seems that the provisions of the Red Book

12

The FIDIC Form ofContract

coped extremelywell, andfor a long time, with any conflictof laws whichmay haveexisted. The Second andThird Editions of the Red Bookprovedto be successful in many projects throughout the world. The Third Edition in particular coincided with the major economic growth which took place in developing countries towards the end of the 1970s andthe major part of the 1980sand, particularly, in the Middle East and the Far East. The Third Edition was translated intoFrench, German andSpanish. Criticismcame to the surfaceonly inrecentyears whenthe numberof disputes ending in arbitrationsincreased andevery clause andterminthe Red Bookcame under thescrutiny of lawyers experiencedindiscoveringdiffering interpretations to asetofwords.This problemand othersweredealtwithquitesuccessfullywhen the revision of the Third Edition was undertaken by FIDIC.

1.4

The Fourth Editionof the Red Book The Third Edition of the Red Book remained unaltered and no amendments were issued until the Fourth Edition was published in September 1987, when major revisions were made which extended even to the title of the document. The word 'international' was deleted, inviting parties from all over the worldto use the Red Booknot only in international contracts but also in domestic contracts.

Part II of the Red Book which is referred to as the 'Conditions of Particular Application'was expanded and produced in a separatebooklet.Itis linked to Part I by the corresponding numbering of the clauses, so that Parts I and II together comprisethe conditionsgoverning the rightsand obligationsofthe parties. Part II mustbe specificallydrafted to suit each individual contract. To assistin the preparation of Part II, explanatory material and example clauses are included providing the parties with options for theiruse whereappropriate. Tn 1988, the Fourth Edition of the Red Book was reprinted with a number of editorial amendments which were identified at the end of the document. These amendments were of a very minor natureanddid not affect the meaning of the relevant clauses but simply clarified their intention. They are reproduced in Appendix A atthe end of this book. Later, in 1992, further amendments were introduced in a reprint of the Fourth Edition of the Red Book. The list is reproduced in Appendix B at the end of this book andthe editorial amendments relating to punctuation and the use of 'and', 'or' or both are individually set out. Some of these 1992 amendments were directed towards a more uniform style of drafting but others were of a more significant nature, either adding to or changing the meaning of the relevant clauses of the Form. These significant amendments are as follows:

Backgroundofthe RedBook

Page 2

13

Amendment Sub-Clause 1.1, sub-paragraph (e): Definitions (iii) 'Interim Payment Certificate'and(iv) 'Final Payment Certificate'have been added.

6

Sub-Clause8.1: Second paragraph has been added.

7

Sub-Clause12.2Marginalnote: The word'Adverse' hasbeen changed to read 'Not Foreseeable' (also amended in the Contents andthe Index).

8

Sub-Clause13.1: Last sentence has been shortened by deleting thewords 'or, subject tothe provisions of Clause 2, from theEngineer'sRepresentative.',andaddingthewords'(or his delegate).'.

Sub-Clause15.1, paragraph 1: Last sentence has been shortened byplacing afull stop after theword 'Engineer', deleting the words 'or subject to the provisions of Clause 2, the Engineer'sRepresentative.' 10

Sub-Clause 21.1, sub-paragraph (a): The words '(the term "cost" in this context shall include profit)' have beenadded.

11

Sub-Clause 21.4, sub-paragraph (a): The word 'where' has beencorrected to read'whether'.

18

Sub-Clause40.3: The word 'written' has been deleted at the end of the firstline.

19

Sub-Clause42.3: The word 'wayleaves' has been changed to read 'rights of way' in the text and marginal note (also amended inthe Contents and the Index).

29

Sub-Clause60.1, sub-paragraph (e): Thewords'orotherwise' havebeenaddedat the end. Sub-Clause 60.2: The words 'certify to the Employer' have been changed to read 'deliver to the Employer an Interim Payment Certificate stating', the word 'thereof has been changed to read 'of such statement' and the word 'he' has beenchanged to read'the Engineer'. Sub-paragraph (b): The words 'Interim Certificates' have been changed to read 'InterimPayment Certificates'. Sub-Clause 60.3, sub-paragraph (b): In the eighth line, the word'ordered' has been changed to read 'instructed'. Sub-Clause 60.4: The words 'interim certificate' in the first andfourthlines, and the word'certificate'in thesecond line, havebeenchanged to read'InterimPayment Certificate'.

'

The FIDIC Form

14

Page 30

ofContract

Amendment Sub-Clause60.5: Inthe second line, afterthe word 'Engineer', the words'six copies of' havebeen added. Sub-Clause 60.6: In the second line, after the word 'consideration', the words 'six copies of' have been added. Sub-paragraph (b): The words 'or otherwise' have been added at the end. At the end of the sub-clause, the final paragraphhas beenadded. Sub-Clause 60.7 and Sub-Clause 60.8 (text and marginal note): The words 'Final Certificate' have been changed to read 'FinalPayment Certificate' (also amended in the Con-

tentsandthe Index).

Sub-Clause 60.8 (a): The words 'or otherwise' have been added. Sub-Clause60.8 (b): Thewords'under the Contractother than Clause 47' have been changed to read 'other than under Clause 47'. 31

Sub-Clause 60.10: In the first and fourth lines, the words 'interimcertificate' have beenchanged to read'InterimPaymentCertificate'.In thefifthandsixth lines, the words'Final Certificate' have been changed to read 'Final Payment Certificate'.Thewords'or otherwise'havebeen added atthe end.

33

Sub-Clause 65.6: In the ninth line, the words 'and to the operation of Clause 67' have been changed to read 'and Clause 67'.

34

Sub-Clause66.1: Inthe second line the word 'party' has been changed to read 'orbothparties', inthe third line between the words 'his' and'contractual' the words 'or their' havebeen added. In the fourthline after the word 'then', the words'the parties shall be discharged from the Contract, except as to their rights under this Clause and Clause 67 and without prejudice to the rights of either party in respect of any antecedentbreach of the Contract, and' have beenadded.

35

Sub-Clause67.2: The words'arbitration of suchdisputeshall notbe commencedunless an attempt has first been madeby the parties to settle suchdisputeamicably' have been changed to read 'the parties shallattemptto settle such dispute amicably before the commencement of arbitration.' The words 'whetheror not any attempt at amicable settlement thereof hasbeenmade'havebeen changed to read'evenifno attempt at amicablesettlement thereof has been made'.

Backgroundofthe Red Book

Page 37

15

Amendment Sub-Clause69.1, Sub-paragraph (d): The words 'unforeseen reasons, due to economic dislocation' have been changed to read'unforeseen economicreasons'. Sub-Clause69.4: Tn the second line of the second paragraph, theword 'cost'has beenchanged to read 'costs'.

38

REFERENCE TO PART II: In the third line, the words '5.1

TENDER

part' havebeenchanged to read '5.1 (part)'. Paragraph 1: In the last line, the word 'sums' has been changed to read 'sum'.

Appendix

In the ninthline, the words'and Plant' have beenadded. In the twelfth line, the word'Payment' has beenadded. In the thirteenth line, the words 'per annum' have been added.

EDITORIAL AMENDMENTS

For page 35, afterthe words 'Sub-Clause67.1', the first sentence has been inserted.

1.5 The 1996 Supplementto the Red Book Tn November 1996, FIDIC published a document entitled 'Supplement to Fourth

Edition 1987- ConditionsofContractforWorks ofCivilEngineeringConstruction — Reprinted 1992with Further Amendments'. It is intended to provide the user with alternative arrangements in threecontroversial areas of the Red Book, thus giving himachoiceinthe method tobeusedfor: settlementof disputes; payment; and preventing delay in certificationfor the purpose of payments. The Supplementcomprises threesections, referred to as follows: (a) Section A, entitled 'Dispute Adjudication Board'. This section provides an alternative wording to clause 67 of the Fourth Edition of the Red Book, 'Settlement ofDisputes'. Thenewwordingwas drafted inresponse to mounting criticismofthe role of the engineer as an adjudicatoror quasi-arbitratorin the resolution of disputes under clause 67 of the Red Book (seeChapter 9 later). Various alternativemethods of dispute resolutionwere considered inthe past few years, both domesticallyand internationally.The method finally chosen by FIDIC in its new supplement is that based on the use of an adjudication board composed of one or threeexperts whocanrendera decisionin respect ofa dispute withouthaving to resortto the engineerfor a finaldetermination under the presentclause 67 (see Chapter 19 later). This new method requires anexpert orexperts to be appointed at thebeginning of a contract,who must keep in touch with the work in progress on the site which is achieved by

The FIDIC Form ofContract

16

visiting the siteatregular intervals. The appointed expert, orexperts, are to be available to act in the resolution of any disputes that may arise. In the supplement, FIDIC embraces this alternative method of dispute resolution as an acceptable substitute to the engineer's traditional role in disputesettlement. The newsupplement provides the necessaryamendment to the wordingof clause 67 of the Red Bookand also contains a guide tothis amended wording. Moreover,itcontains Model Terms ofAppointment and Procedural Rules for the Dispute Adjudicaton Expert or Board and the necessary amendments required to the Appendix to Tender which correspond to the amended wordingof clause 67. (b) Section B, entitled 'Payment on Lump Sum Basis'. This section provides the necessary amendments to the relevantclausesinPartI, GeneralConditions of Contract,of the Red Bookwhichenable payment to be madeto the contractor on a lumpsumbasisinstead ofusingbifis of quantities.SectionB contains an introductory note followedbythe amendments,together with amendedforms ofTender andAgreementcorrespondingto thelumpsumbasis.See Chapter 6 later in this bookfor further discussion ofthis topic. (c) Section C, entitled 'Late Certification'. This section provides alternative wording to safeguard the interests ofthe contractorwherethe engineeris late in certifying interim payments. See Chapter 18 later in this bookfor further discussionon this part of the supplement.

A detailedanalysis andcommentaryontheFourth Edition oftheRed Bookas a whole including the above mentioned amendments isprovided laterinChapter 9. Thetext of the whole Formincluding the amendments of 1988 and 1992 is providedin Chapter 23 whereit is compared with the Third Edition. 1.6

Concepts of the Red Book Despite the universal use of the Red Book, its Fourth Edition retained some essential features and concepts which formed the foundation of its previous editions. In order to understand the provisions of the Red Book andthe implications of the changes made in the Fourth Edition and its most recent amendments, it is essentialto elaborateon these conceptsas abackground to the form of contractitself,on thereasoning underlying the revisionsitwasnecessarytomake, and underlyingfurther changeswhichcould havebeenmadebutwere not. These concepts are set out below and are dealt with in detail in the following six chapters. — —

Apart from a few revisionswhichhave been made,it is based on a domestic contract: Chapter 2. Its legalconceptsare based on the common law system: Chapter 3.

Backgroundofthe RedBook — —

—

—

17

Its wordingis basedon English legal drafting principles: Chapter 4. Its concept,in relation to the design and supervision of construction of the project,is basedon the appointment of a consulting engineer trusted by both parties to the contract andreferred to as the 'Engineer': Chapter 5. Its conceptof remuneration is based on a re-measurement contract with a provisional bifi of quantities whichserves as a basis for finalremeasurement and payment, under certificatesfrom the engineer: Chapter 6. Its conceptof responsibility and liability is based on the sharing of risks: Chapter 7.

Chapter 2

The Red Book is Based on a Domestic Contract

2.1

Introduction As discussed earlier, theRed Book wasmodelled on the ACEForm whichoriginatedfrom the ICEStandard Form ofContract. The ICEFormwasdrafted for use as a domestic contract in the United Kingdom. The changes made to transform that domesticform to an international one were minimal. A briefknowledge of the legal systems aroundthe worldand howtheserelate to the legal concepts onwhichtheFIDIC Red Bookis basedis thereforehelpful, if not essential,to theunderstanding ofthe problemswhichmayresult from its use. This taskisattempted inthe presentchapter andin Chapter3. Itis a difficultbut necessarytask. Commentsonthe lawareofnecessitygeneralised,andstatementsof general rules and principles are not intended to mean that they are without exceptionor qualification.These rules andprinciples may differ from one jurisdiction to another and even within one legal group. The present chapter and Chapter 3 are intended to expose the non-lawyerreadertolegal topics whichare considered important inthe internationalconstructionscene.Thesetopics include: the diversity oflegal systems,the applicablelawin international construction,the applicablelaw of the contract, the law governing procedure, the law governing enforcementof awards and the various groups of contemporarylegal systems.

2.2

Diversity of legal systems Aslongas thereis human endeavour, therewifi alwaysbeconflict. The ideaoflaw wasbornand developed independently in communitiesaroundtheworldatvery early stages of civffisation in order to provide an instrument to regulate the various aspects of human behaviour and relationships between one individual and another and thus achieve a balance between the freedom of choice of the individual and the control of this freedom for the protection of others. Societies aspired to have laws that mirrored justiceso as to eliminatethe necessity to resort to force exceptfor the purpose of upholding the supremacy of the law itself.

18

The Red Book is Based on a DomesticContract

19

To thatend, rules were written in theform oflegal codes as early as 1700BC,21 and as communitiessprang up, grewandlater declined, thelegal rules changed from afew basic,simple codesto sophisticated,complexand voluminoussystems of law. By thattime, legal conceptshaddevelopedfromwhatwas earlier considered to be the lawof the gods to a three-tier hierarchy. At the top, the law of the gods changed to the laws of God due to the evolution of religion. The second tier represented natural law orthe lawofreasonandcommon sense, andthe third tier represented man-made law. The latter has beensubject to evolution from time to time and from place to place while endeavouring to respect the boundaries laid down by the divine and natural laws. Whilst this aim and concept prevailed in the West, Near East, and parts of the Middle Eastwherelawwas held supreme, it was quite differentin the Far East.In China andindeed in some communitiesin the Middle East,lawhas been and is still considered an instrument of arbitrary action rather than necessarily one of justice.Thus, it is expectedthat the goodcitizenwouldnotresortto the laworthe courts. Rather, the conduct of individuals shouldbe animated by the search for harmony and peace throughmethods other than the law. In these parts of the world, conciliationand mediation have been considered to be superior and of greater valuein resolving conflicts. Countries in the Far East have traditionally heldthe view that law is for barbarians and that one shouldavoid ending with a winnerand a loser. Asthesedevelopmentsin thelaw took different directionsin different cultures around the world, it is practically impossible today to achieve any degree of international standardisation of the law dealing with legal relationships of individuals from different states. Even worse, it is now impossible to unify the national laws of all political entities and states of the world. The contemporary legal systems of the worldhave evolved across societiesand cultures and across politicalsystemsdifferently.Becausethey arerooted indifferentcultures, they are writtenindifferentlanguages,influencedby differentreligiousbeliefsand formed under different customs. Given such socio-culturalvariety, it may,therefore, be easier and more acceptableto reach international agreementon the basic concepts and rules which shouldgovern contractualrelationships inan international field, suchas, construction. In a simple form, this is what is attempted by a standard form of contract for civil engineeringworks. However, the fact remains that as soonas one specifiesin aninternational contractthe applicablelawof the contract asthe lawof thelocalityofthe project,one automaticallyintroduces a diversity of laws governing the relationshipbetweenthepartiesto the contract. At first glance,the task of understanding the differencesbetweentwo or more legal systemsand realisingtheirimplicationsseemsinsurmountable.However, at closer scrutiny one may simplifythe task by grouping these legal systems into a small number of categories.Each category should include systems with recognisable fundamental similarities and criteria upon which a classificationcan be

20

The FIDIC Form ofContract

successfullymade. These groups canthen becompared and contrasted usingas a base matters suchas legal principles, sourcesoflaw, influencesonform, drafting

and substance.

Such an analysis comes withinthe boundaries of comparative law, a complex and specialisedareaofthelaw, butit is essentialininternationalcontractswherea mix of legal systems is used. The problem for the analyst is that there is no agreementonthe matters whichshouldform the essentialfundamentalcriteriafor suchan analysis and for establishingthese groups: However, a certain minimum basic knowledge of the law governing the areas of professionalactivity is necessaryfor theengineer. Furthermore,for theengineer ininternational contracts,itis essential for him to understand the implications of the applicable law of the contract in a particular project since it is accepted that ignorance of the law is no excusefor mistakes. Fromthepoint of view of construction,it is suggested that a simple classificationshould sufficeinany studyof comparativelaw, atleastas abeginning,since a large number of the relevant basic concepts are similar in many potential subdivisions of legal systems. However,before dealing with the contemporary legal systems, it is important toconsider the topic ofthe applicablelaw ininternational construction contracts. 2.3 The applicablelaw in internationalconshuction

In an international construction contract,the law under whichthe parties' rights andobligations are determined may be one of many. It could be the law of the country wherethe contractismadeorwhere theproject isconstructedorthatofthe domicile of one of the parties to the contract. It could also be the law of the state wherea significantpartofthecontractworksaremanufactured,orthat wherethe contract is financed or simply the law which the parties regard as well-suited to govern the particular contractualrelationship.Inthisconnection,ithasbeenstated

that'acontractisonly internationaliftheparties haveeithertheirplacesofbusiness, or habitual residence, in different states'12 In the context of international commercial arbitration,however, the word'international' has asecondary criterion in respect of the arbitration process itself.Thus, it is defined by the United Nations Commissionon International Trade Law (UNCITRAL) Model Law as follows:

'An Arbitration is international if: (a) the parties to anarbitration agreementhave, at the time ofthe conclusionof that agreement, their places ofbusiness in different States; or (b) one of the followingplaces is situated outsidethe Stateinwhichthe parties have theirplaces ofbusiness: (i) the place of arbitration if determined in, or pursuantto, the arbitration agreement;

The Red Book is Based on a DomesticContract (ii)

21

any place wherea substantialpart of the obligationsofthe commercial relationship is to be performed or the place with which the subjectmatterof the disputeis most closelyconnected;

or (c)

the parties have expressly agreed that the subject-matterof the arbitration agreement relates to more than one country.'2'3

In general, there is broad international acceptance that subject to few limitations, the parties are free to choose for themselves the law applicable to their contract.This freedomto chooseisreferred to as the principle ofautonomy of the parties and although it was developed first by jurists under various systems of law, it was adopted by national courtsandhas been accepted by most legal systems.24This principle has also been adopted in international conventions.2'5 In international commercialarbitration, the European Convention of 1961 provides inArticle VII thatthe parties aretobefreeto determine,by agreement,the law to be applied bythe arbitratorsto thesubstanceofthe dispute. Similarly,Article33.1 of the UNCITRAL Arbitration Rules provides that '(T)he arbitral tribunal shall apply the law designated by the parties as applicable to the substance of the dispute.' 2.4 The applicablelaw of the contract The law which governs a contract between certain parties and by which questions as to the validity, application and interpretation ofits terms are addressed, is referred to as the 'applicable law of the contract'. In some jurisdictions, the terms 'proper law of the contract' or 'governing law of the contract' are used instead. However, as statedearlier inSection 1.3, the term applicable law is preferred by this writer. It is essentialto recognise,however, that in certain circumstancesit is possibleto have differentcontractual matters of a contract governed by different systems of law, by agreementeitherof the parties or of a competent authority such as a court or an arbitrator, should the contract be silent on the point or if the parties disagree. In such a case, the applicable law of these specific matters could be different from the applicable law of the contract as a whole.

Wherethereisno certaintyas tothe applicablelawofthe contract,itwouldhave to be selected in accordance with the principles of a branch of law known as 'privateinternational law' sometimescalled'theconflictoflaws'.This is abodyof principles whichattempts to provideanswers as to what law is the most appropriate to apply and which forumis appropriate to determine a particular issue with an international dimension. This branch of the law forms part of the legal system ofevery jurisdictionandtherefore,thereare asmany systemsofconflictof

laws as therearejurisdictions.2'6

The FIDIC Form ofContract

22

There arethreealternativesinrespect ofthe determinationof the applicablelaw of the contract: (a) (b) (c)

wherethereis an express choiceof the applicable law; wherethereis aninferred choiceof the applicable law; and wherethereis no choiceof the applicable law.

These alternativesare 'iowconsidered separately. T'Vherethere is an expresschoice of the applicable law

Atthetime ofmaking thecontract,theparties mayexpresslychoose thelawwhich theywishto apply to theircontract. As in clause 5 ofthe FIDIC Form, this choice maybe expressed by asimple statement naming the country to which the chosen law belongs. In sucha case, the only question whichremains to be answered is whetherthereare any limits to the freedomofthat choice andif so what arethese limits.

Where litigation is concerned, there is a great deal of controversy over this question.At one end ofthe scalethereare those who advocate that the parties are free to submit the validity of their contract to any law of their own choosing. Article 3(1) of the EEC Convention on the Law Applicable to Contractual Obligations (see Section 2.8 later) provides as follows:

'Acontract shallbegoverned by thelaw chosen bythe parties. The choicemust be expressed or demonstrated with reasonable certainty by the terms of the contract or the circumstancesof the case. By theirchoice the parties select the law applicable to the whole or a part only of a contract.' Others prefer the view that a court should notnecessarilyregard anexpress choice of law by the parties as beingthe governing consideration in cases where: (a) a system oflaw is chosen whichhas little ornothing to do with eitherparty or with the contract;and/or (b) the chosen law may frustrate the mandatory provisions ofthe law whichhas in fact the closestconnectionwith the contract.

In contrast to litigation, the situation is different in international commercial arbitration where, unlike a judge of a national court, an arbitral tribunal is not bound to follow the rules of conflict of laws of the country in which it has its seat.27 An arbitral tribunal mayrefuse to recogniseandapply achosen lawonlyin the unlikely event of the effect of that chosen law violating international public policy.Subjectto this limitation,party autonomyis unlimited andanarbitrator is obliged to recogniseandgive effectto a choice oflawby the parties.28

The RedBook is Basedon a DomesticConfract

23

Accordingly,subject to the above consideration,it is wise for parties to a construction contract to exercise their discretion carefully and to choose an appropriatesystem of law as the applicablelaw ofthe contract.Ofcourse, what maybe 'appropriate' foronepartymaynotbe so for another.Inconstructioncontracts,the choice of the applicablelaw ofthe contract is generally madeby the promoter of the project or the 'employer'. Where there is an inferredchoiceofthe applicable law

In some cases wherethereis no express and clear choiceof the applicable law of thecontract,it maybe possibleto infer achoiceoflawfromtheother provisionsof the contract and the relevant surrounding circumstances.The most important provision from whichsuchinferencemay be takenisthe arbitration clause where theplace for arbitrationhasbeenselected.Other factorsfrom whicha choice ofthe applicablelawofthe contract maybeinferred include the form ofthe conditionsof contract adopted by the parties, the residence ofthe parties, the currency inwhich payment is to be made, and the nature and location of the subject matter of the contractualobligations. Where there is no choice ofthe applicable law Where there is no express choice of the applicable law of the contract and no inferencecan be madeto establish suchlaw, the principles of conflictof lawsare used to select the legal system whichshouldapply. In international commercial arbitration, however, the tribunalis faced firstly with the question of whether it has a free choiceof the applicablelawof the contract orwhetheritmustfollowthe private international law of the place of arbitration. As this law differs from one jurisdiction to another, the result may be different. In this connection,it is interesting to note the provisions ofArticle4(1) ofthe EECConvention,discussed later inSection2.8.1. It provides thattothe extentthatthe law applicabletothe contract has not been specifiedin accordancewith Article3 of the Convention,the contract is to be governed by the law with whichit is most closelyconnected. If the applicable law of the contract is not selected and specified when the contractis formed, extremelycomplexanddifficult problemscould ariseshouldit befoundnecessaryat a later stage to make sucha selection. Furtherconsideration ofthe topic is outsidethe scope of this book, andespeciallyso in view of the fact that theRed Bookprovides, in clause 5, the opportunity to select and specifythe applicablelaw of the contract.2'9 However,itisnot sufficientsimply to choose the applicablelaw ofthe contract. It is equally important to understand the implications of such choice. Unfortunately, despite its obviousimportance, clause 5 ofthe Red Bookis often given no more than a passing reference by the parties when international construction contracts are initiated. Indeed, in a large number of these contracts, the char-

24

The FIDIC Form ofContract

acteristicsof the applicablelaw ofthe contract are unscrutinised or even ignored. Where disputes arisebut are not settled underthe provisions of the contract, the applicablelaw ofthe contract can form a leading section of the dispute resolution process. The special characteristicsof the chosen applicable law of the contract thenbecome the focal consideration of the parties to the contract andtheir legal advisers. In this connection,it is essential to appreciate that whenthe applicable law of the contract is being selected or considered,not only its prevailing characteristics should be scrutinised butoneoughtalso to considerthe lilcelthood of anychanges which may be enacted and the nature of such changes. This is because such changes may bring matching effects on the contract itself, thus altering its character and causing an imbalanceinthe relationshipbetween the parties. Of course, theprobabilityofsuchachange mayhavetobe consideredbyoneoftheparties or all as part ofthe risk undertaken inpursuingand executingthe contract.The risk is of greater severity ifthe other partyto the contract,for example,a government ministry, has some or total control over suchchanges. 2.5 Law governing procedure Distinction must be made between the law applicable to procedure and that applicable to the substance of a dispute or the applicable law of the contract discussed above.This distinctionisimportant becauseitis generallyacceptedthat the law applicable to procedure is the law of the forum where the litigation or arbitration takes place; whereas the law applicable to substance is the law governing the matters inprinciple:in a contractitisthe applicablelaw of the contract or the particular term in question. Accordingly,this distinction assumes greater importance where international contracts are concerned because one may find that the applicablelaw of the contract and that applicableto procedure belong to two differentjurisdictions or even two different systems of law. Although this distinction is not an easy one, itmay be takenthatingeneral the conceptof procedureincludes, amongst others, the areas ofevidence,assistanceof the courts and in some cases the rules on limitation. An arbitrator appointed to determine a disputein an international commercialarbitration mayfind that the applicable law of the contract is differentfrom that whichregulates the internal arbitration proceedings. In general and subject to those arbitrations which are delocalised,21° an arbitration is governed in respect of procedural law by the law of the jurisdiction in whichthe arbitration proceedings are held the placeof arbitration which is technicallyreferred to as the Seat of arbitration. In many cases,the choiceofthe Seat ofarbitrationis left to the arbitrator or toathird party, suchas the authority namedas responsiblefor the appointment of the arbitrator. In the latter case, should this appointing authority be an institution, such as the International Courtof the International Chamber of Commerce (ICC) in Paris or

-

-

The RedBook is Based on a Domestic Contract

25

the London Courtof International Arbitration, the Seatof arbitration is fixed in accordancewith the institution's rules. In the case of the International Court of the ICC, whose Rules are named in clause 67 ofthe Red Book, the Seat of arbitration (referred to in French as 'siege' and in the English version as 'place'),ifnot agreed by the parties, is fixed by the Court under Article 12 of the Rules. It is usually chosen on the basis of its neutrality and asaplace other than thattowhicheitherofthe parties is connected. In the case of the London Court of International Arbitration, Article 7 of the Court's Rules provides that 'The parties may choose the place of arbitration. Failing sucha choice,the place ofArbitrationshall be London,unless the Tribunal determines in view of all the circumstancesof the case that another place is more appropriate'. Accordingly,should the parties wish to determine the law applicable to the arbitration proceedings, a choice of the place of arbitration should be made by themat the time of the formation of the contract. 2.6

Law governing enforcement of awards Besidesthe applicablelawofthe contractandthe law applicabletothe procedure, the parties in an international construction contract may be involved in yet another system of law: the law of the country where a decision or an arbitral

awardis to be enforced. A partyseeking to enforce an awardmayhavea choiceofjurisdictionwhereto do so. Theselected locationwill dependonwherethe assetsofthelosing partyare situated andonthe easewithwhichthe awardwifibe enforced.Suchenforcement usually means that some legal proceedings wouldhave to be taken in the jurisdiction wherethe assets are located, a location usually differentfrom the place of arbitration. One of the major considerations is whether the country where the assets are locatedis asignatorytothe 1958 NewYorkConvention,ortosome other treatyfor the recognition and enforcementof foreign awards.211 Another major consideration is the legal system of the place of intended enforcement and its provisions.Itis perhaps worthwhile forthe parties toacontractto look carefullyat the question of asset location and enforceabilityat the time of, or before, the formation of the contract. 2.7 Groupingof the contemporary legal systems Where international construction is concerned, there are four major groups of legal systemswhichapply today. These are: (a) the Romano-Germanicgroup; (b) the common law group;

26

The FIDIC Form ofContract

the Islamiclaw group, including those with origins from thefirsttwo groups; (d) the socialist laws group. (c)

There are of course other minor groups in existence,some of which are totally distinct from those mentioned above whilst others share some oftheirconcepts.A detailed analysis of suchgroups is, however, outside the scope of this work. TheRomano-Germanicgroup owes its origin to Romanlaw duringthetimesof Julius Caesar and the Emperor Augustus (63 BCto 14 AD) andsubsequently to compilationsof the Emperor Justinianin the sixth century,promulgated from 529 to 534. Tn later times, betweenthe thirteenth and nineteenth centuries, andin a tradition of promotingthroughteachingthe searchforjustlawsand the pursuitof a model law, different universities in Latin and Germanic countries in Europe developed this group of legal systems. The term 'civil law' is often used in the English-speakingworldto denote the Romano-Germanicgroup of legal systems andto indicate that the origin of these lawsis the Romanlaw. However, because the term 'civil law' is used in other contexts in legal terminology, it is more appropriate here to refer to the above group as the RomanoGermanic group. Romano-Germaniclaws are, in principle, based on the judicial application of a certain legal code to a particular case by learned jurists and theorists, in conformitywith logicaland systematicdeduction. Underthis group, the rules of lawhavedeveloped as rules of conduct linked to ideas of'justice and morality'. They are usually formulated by legal scholarswho are not involved in the practical administration andapplication of these rules. The commonlaw group, onthe other hand,originated asthe lawcommon to all England after the Norman conquest in 1066. It developed from a body of law whichis almost entirely the productof judicial decisionsby courts whichapplied custom and reasonto everyday disputes, aidedby only a few formal enactments of law. These decisionsare embodied in an extensive series of reports extending back to the end of the thirteenth century. The common law continued to be developed in England by judges, rather than by legislators, through the accumulation of tradition expressed by upholding certain principles. The resultant case law continues at presentto fill in gapsin the law, or to change the law in a certain direction, or to interpret the meaning of the large number of legislative enactments, by declaring precedents which impose authority on future judicial decisions.Such authority is not granted to precedent in the Romano-Germanic systems: a volume of reports of judicial decisions in common law has a similar authority to that ofan authoritative legal text bookin Romano-Germanicsystems. Thecommon law as a system of law, however, incorporates two otherclosely linked elementsbesides the accumulatedbodyof precedents.These areequity and statute law, see Chapter 3. Both the common law and the Romano-Germanicsystems spread into other parts of the world either through colonisationor by voluntary adoption where therewasaneedto modernise or anattempt to inject certainideasto fill gapsinto

The Red Book is Based on a Domestic Contract

27

an already developed civilisation.In the latter case, they formed new groups whichhave certain common principles with eitherthe Romano-Germanicor the

common law groups or with both. Islamic law is basedon the Qur'an, the sacred bookof Islam, which is a collection of God's revelations to the Prophet Muhammed just before the year 622 AD, the year of his flight from Mecca to Medina whichis called the Hijra. The Islamic calendar starts from that year.212 However, whilstthe Qur'an is the primarysource ofIslamiclaw,itcontainsonlysome ofthe principles needed to form the law in a secular society. Islamiclaw drawsits rules from threeother sources: the Sunna, which is the traditional and model behaviour of the Prophet Muhammed; the Ijma'or consensus of scholars of the Islamic communities;and the Qiyas whichis the juristic interpretation by the process of reasoning. Collectively,they are called the Shari'ah whichcan be literally translated as 'the wayto follow'. But as modem society is much more complex than the times when the Shari'ah was used,other legal rules in the formof legislationhavebeen added by various Islamic states to form their own law. Therefore, in countries where Islamic law applies, one finds that in some, legislationis based on the Romano-Germanicgroup of laws,whereas in others, legislationis based on the common law group. Thesocialistlawsgroupisadistinct developmentfrom abase lineofaRomanoGermanicconcept.It originated inthe former Union of SovietSocialistRepublics, whereunder the 1917 Revolution,law wastreated as strictly subordinate to the taskof creating aneweconomicstructure, andthe field ofprivate lawwaslimited and curtailed in favour of public law. Taking these groups individually and analysingtheirprincipal conceptsshould lead to some understanding of the variations under which one would have to operate in international construction.

2.8

The Romano-Germanic group Astheydidinallthe provincestheyconquered, the Romansestablishedtheirlaw inGaul, an ancientname for theregion inWesternEurope roughly corresponding to presentFrance, Belgium, Western Germany and Northern Italy. Followingthe collapse of the Western Roman Empire in 476, Roman law survived in the southern part of France.Inthe north of France,with the incursion of the Franks, Roman law was replaced, thoughnot entirely, by customary laws of Germanic origin.

Unlike the common law in England whichwas supportedand developed by strong centralised royal courts in Westminster, the revival of the RomanoGermanicgroupinthe thirteenth century tookplace withoutanyreferenceto any European politicalsystem, but only to a community ofculture and endeavour by various universities.This workwas led by the University of BolognainItalyand

28

The FIDIC Form ofContract

was followed by other universities such as MontpellierandToulouse iii France wherelaw wasconsidered as a means for bringing about socialorganisation and justice. A number of law books were written at that time by famous authors. Twoprinciples were ultimately enunciated, whichperhaps constitute the two main differencesbetweenthe Romano-Germanicandthe common law systems. Thefirstprinciple determined themanner in which a divisionbetweenpublic and privatelaw wasachieved,liithe Romano-Germanicsystem, the decisionis based on the idea that the relationship between those who govern and those who are governed requires a different approach from that requiredfor the relationship between individuals, andthat the interests of the individual cannot be given the same weight as those of society. Thus, all the fundamental branches of the law were compiled individually for both divisions. Within public law lies adniinistrative law which denotes a whole section of law whose rules deal with two aspects in the relationship betweenthe administration and the public. The first aspect is the problem of encroachmentonthe rightsand duties of the individual. The second aspect is the requirement of an effective operation of the public service. The concepts of an administrative contract are different from those of one underprivate law. The administrativecontract is importantfromthepointofview of constructionlaw because itincludes a public workscontract. The second principle which developed was that the legal writing and work done bythe universitiesgavewaytoenacted lawandthus a change evolvedfrom compilation of the law to its codification, fusing the theoretical and practical aspectsofthe lawofthe time. Codificationbecame a successunderthe Napoleonic regime in France immediately afterthe French Revolutionof 1789 which established the newlyadopted ideas ofjustice, freedom and dignity of the individual. Napoleon devoted considerable energy to the creation of the Code Civil. It is recorded that atthe meetingsof the Conseild'Etat,he constantlyfocused attention on therealitiesof liferatherthanthetechnicalitiesoflaw. Heimmediatelysawthe relevanceof abstract rules and insisted on a style of drafting whichwas clear and comprehensiveto anon-lawyer.Ithasbeensaidthat the CodeCivilowes the clarity and comprehensibilityofits language to thefact thatits draftsmanhadconstantly to askhimselfwhether thewordshehadchosen wouldwithstand the criticismsof a highiy intelligent layman like Napoleon, unfamiliar with the jargon of the law.213

TheFrench Code of 1804was adopted by many European countries to varying degrees including Belgium,Italy,Luxembourg,the Netherlands andPoland, butit was rejected in Germany. The Civil Code in Germany dates back only to 1896. Therefore,it should be emphasised that within the Romano-Germanicgroup of laws, thereare differences as well as similaritiesandthat these differencesmay even extend to the precise meaning of certain legal terms, such as goodfaith or unjustenrichment or movables and immovables. Codification spread from the European countries to vast territories in the remaining continents of the world through colonisationor voluntary adoption,

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andthesecodes andlegal systemsareconsideredaspartoftheRomano-Germanic group. Animportant concept whichbinds thewholeRomano-Germanicgroup is that ofthe legal rule. The legal rulewhichis the most basic element of theCode is not considered as merely a rule appropriate to the solution of a specificcase.

'It isviewedas aruleofconduct endowedwith a certaingeneralityandsituated above the specific applicationwhichcourtsor practitioners may makeof it in any concretecase...Accordingtothe Romano-Germanicnotion, a code should not attempt to providerules that are immediately applicable to every con-

ceivable concrete case, but rather an organised system of general rules from which a solution for any given problem may be easily deduced by as simple a process as possible.''4 The legal rules applicableto administrative contractscan be differentfrom those which apply to private contracts. Accordingly,the act of the jurist in this group consistsin finding and formulating a rule so that it must not be too general, for thenitwouldnolonger be a sufficientlyreliablepracticalguide; ontheotherhand, therulemustbe general enough tocover a seriesof casesratherthanmerely apply to some particular situation as does a judicial decision. Thetask of the lawyer in the Romano-Germanicgroupis conceived as essentially one ofinterpreting legislativeprovisions, and is thusunlike thatin common law countries wherethe legal technique is characterised generally and in broad terms by the process of distinguishing applicablejudicial decisions.The applicablelegal rulein a given situationisnotconsideredin thesame manner across the legal systems: in common law countries, it is expected that the rule whichprovides asolution toadisputewillbeframed aspreciselyaspossible;whereas inthe Romano-Germanicgroup, it is the contrary.This isbecause of the function of the latter, whichis simply to establish the framework of the law and to furnish the judgewithguidelinesfor decisionmaking.Thus, intheRomano-Germariicgroup, itis considereddesirablethatthe legal ruleleaves acertain margin of discretionin its application. It follows, therefore, that there are fewer actual rules of law in the RomanoGermanicgroupthan inthe commonlawgroups wherethe legalrule,becauseitis less abstract, enters into greater detail for specffic situations. Accordingly,where civil engineering contracts are concerned, it is generally surprising to a lawyer from the Romano-Germanicgroup of countries to find that general conditions of contract,like those in the Red Book, are in such detail. For example,he wouldbe surprised to find that, despite the fact that clause 5 in the Red Bookdoesspecifythe applicablelaw of the contract, the conditions continue tospecifytherightsand obligationsof theparties, wHchis ineffecta repetition of the provisions of the specifiedlaw. Someobservers speculatethatthe reasonforthisrepetition is the mistrust ofthe

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technologistsinthe decisionsofthe judiciary.Others give the reasonthat the Red Bookisbasedonthe ICEFormwhose legal conceptsare rooted inthe common law system, whilst some say that the reason lies simply in the lack of knowledge of engineersas to the legal conceptsofa contract andmore so whensucha contractis an international one. 2.8.1 Sourcesof law in the Romano-Germanicgroup

The sources of law in the Romano-Germanicgroup are legislation,the creative role of the judge, judicial decisions, custom and international conventions and treaties. Legislation The primary source of law in the Romano-Germanicjurisdictions is legislation, butone must not confuse'laws' and 'legislation' since thelatteris not the exclusive source of law. Nearly all the countries within the Romano-Germanicgroup

havewritten constitutions alongside theircodes. The writtenconstitutionis held at thehighestpoint of authority. All legislationis subordinate to the constitution, where it exists. The constitution usually comprises a series of rules whichguarantee fundamental rightsandfreedoms to the individual andlimit any arbitrary exercise of power by the stateor government. A statute, on theonehand,isintended tobe an expressionof theintention ofthe legislatureand, onthe other hand,is intended to be aguide to the lawyer andhis client in determining what is the law within its field. Some believe that the intentionofthe legislatureis bestexpressed asbroadly but asconciselyaspossible even atthe cost of obscurityand that obscuritycanbe interpreted andresolved by thejudiciary. Others believe that thereverse is 'a more appropriate style and that statutes should be drafted in comprehensible and precise terms so that the ordinary practising lawyer, rather than the specialist,and perhaps even hisclient, might be ableto understand its provisions readily. Therefore,in drafting legislation,a balance has to be achievedbetween brevity and precision. Legislators in all countries have this problem and are divided between the two extremes. The division also extends to jurisdictions within the common law group although a distinction is sometimes drawn betweenthe two groups as expressed in the followingquotation by Lord Wilberforce:

'... the English system and the French. These are thought- perhaps there is

-

some mythology about it buttheyaregenerally thought to be typical of two extreme methods. The English of elaborate, detailed drafting covering every individual case:the French of elegant generalitiesfrom whichapplications are deduced. It is the belief in this country, possibly ill founded, that the French method derives from your Revolutionwhich decided, breaking with the old

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system, thatlawsshould be drafted inunderstandable yet preciseterms, the job of judgesbeing merely that of applying the words to a situation.TheEnglish method is supposed to be due to English pragmatism, English dislike of principle.'215

The creative role ofthe judge The creative role of the judge goes hand in hand with the logical process of interpretation ofthe codified law. Itis reportedthat inafamous speechin 1904 on theoccasionofthecentennialcelebrationsoftheFrench CodeCivil, Ballot-Beaupré, thethenPresidentoftheFrench Supreme Court (Cour de Cassation),explainedhow thejudgesmust approach the interpretation of legislation:

'Whena text expressed in imperative language is clear, precise,unambiguous, the judge must apply its literal meaning... But when the text is ambiguous, when there are doubts as to its meaning and intent, when it can be either restrained or extended or even contradicted by some other text, then in my opinion, the judge has the widest power of interpretation; he must not then stubbornly attempt to ascertain what the original thoughtof the draftsmen of the civil codewas100years ago;hemustratherask himselfwhattheirintention wouldbe were thatprovision tobe drafted bythemtoday — inthefaceofallthe changes which have come about in the last century in ideas, social manners, institutions, the economic and social conditions in France, he must say to himself that justice and reason require that the text be liberally and humanly adapted to the realities andrequirements of modemIife.'26 However, unlike the common law system, oncejudgment is rendered in a particularcase in the Romano-Germanicsystem, it is not thenused as a precedent for another. In fact, most codes prohibit judges from laying down general and regulatory rules, asprovided, for example,in Article5 of the French CodeCivil.217 There are, however, exceptions to this principle. For example,in Germany the decisions of the Federal Constitutional Court are bindingandfor this reasonare published in the officialFederalJournal. Otherexceptions exist although they are basicallyrelated to the decisionsof the Constitutional Courtor a court of similar status. In most of the Romano-Germanicjurisdictions there is judicial control of the constitutionalityoflegislationandin some countries the courts arepermitted to set aside lawsthat violate any provision of theconstitutionwhilstinothers this roleis allocatedto a speciallyformed council or supreme court. Judicial decisions

In judicial decisions in the Romano-Germanicgroup, written reasons must be included in the judgments and this requirement is sometimes embodied in the

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constitution,as in Italy, to ensurethat a well thought-out solution is given. Two styles of formulatingthe decision existinthe Romano-Germanicgroup: the first is the French style which is very conciseandformulated on the basis of a series of conclusions,one following the other. This style is followed in many other European countries, such as Belgium, the Netherlands, Spain, Portugal and Luxembourg.The second styleis practisedinGermany,Greece,Italyandothersandis basedonadissertationwhichsometimesincludesreferencestoprevious decisions andlegal doctrine. Whilst one cannot emphatically deny that judicial decisions in RomanoGermanicjurisdictionshave anyroleinthe formulationof asource oflaw, theydo notin fact have the same role as in the common law countries. This difference between the two groups of law is perhaps one of the earliest and most distinguishing factors between them. However, in a certain way, decided cases do advance the law in a certain direction in the Romano-Germanicgroup and, furthermore, cases decided by important courts, such as the French Supreme Court (Cour de Cassation) or those of the French Council of State (Conseil d'Etat) are studiedin, and exercisean influenceon, various neighbouringor distant Frenchspeaking countries. Inthe main, judicial decisionsdo not create rules of lawto be followed in future cases, because this role is left to the legislators. A judicial decision may thereforebe rejectedor modified in a subsequent decision of a new case.Iffollowed,an earlier decisionin a previous case is not quoted, butthe legal rule underlying both decisionsis quoted. Thereforewhilstit could be incorrector impreciseto say that judicial decisions arenota sourceoflawintheRomano-Germanicgroup, itis correct to say thatthey arenot a source of legal rules. Judges in the Romano-Germanicgroupare obedient to enacted law but, as in the case of judges elsewhere, they may have to decide a case where there is a lacunainthe legislation.UnlikethejudgesinRoman times, ajudgetoday cannot refuseto adjudicatewhenthelawisuncertain.Insuchacasethejudge must givea decisionas ifhe were the legislator.The SwissCivilCodehas anexpressprovision for suchcases (Article 1, paragraph 2). Tn this respect, the situation is the same in common law countries. Judges in the Romano-Germaniccountries, in general, haveformal legal training and in anumberof countriestheyareappointed for life and arethus irremovable,a status intended to guarantee theirindependence. Custom Attitudes towards the roleof custom asa sourceoflaw differ from one country to another in the Romano-GermanicGroup. French, Italian and Austrian jurists subscribe to the view that custom may be applied when the law itselfexpressly states so. On the other hand, in Germany, Switzerland and Greece, custom is recognisedata higher level approachinglegislation.In practice,however, the role ofcustom has diminished withthe growth ofcodificationand whilstithad, inthe

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past, an important influence upon the development of law, it exerts a minimal effect at present. International conventionsand treaties International conventions and treaties are a source of law only in the countries whichhaveboth signedand ratified them. Uponratification,signatoriesto conventions become boundby the provisions of the conventionortreaty,and infact manyconventionsandtreaties becomepart ofthe domesticlaw ofthe country. In some cases, the treaty or convention is sovereign to domestic law and even to constitutionallaw. It is, however, opento a contracting state, wherea convention or treaty allows, to derogate from or to make a reservation in respect of certain provisions, for example,the New York Convention of 1958. Two examples of such international conventions, referred to earlier in this chapter, are discussed below. (i) The EECConvention on the Law Applicableto Contractual Obligations.This convention which is limited to Member States of the European Community has the objectiveof unifying within the European Conurninitythe 'choiceof law' rules wherecontract is concerned.It wasopened for signature on19June 1980 andhas already beensignedandratified by 10 Member States. Although it has a very wide scope, ninetypes of contractual agreements areexcluded from it,as specifiedinArticles1(2) and (3).Amongst those excludedwhichare relevant here are arbitration agreements and agreements on the choice of court, andcontractsofinsurancewhichcover risks situated inthe territoriesof the member states. The articles which deal with the determination of the applicable law are Articles3 and 4 to whichreferencewas madeearlier in this chapter. (ii) The New York Arbitration Convention of 1958. This is the most significant international conventiongoverning the recognitionandenforcementof arbitral awards which have been made in a territory of a state foreign to the country whererecognition and enforcementis sought. Theconventionwasestablishedin NewYork on 10 June 1958 as a resultof an initiative by the International Chamber of Commercein Paris, which, in 1953, promoted a new treatyto govern international commercialarbitration. The proposals madewerelater adopted by the United Nations Economicand Social Council (UNECOSOC) and developed into the New York Convention

of 1958. The New York Convention of 1958 represented an improvement on the Geneva Convention of 1927, which it replaced, as it provided for a much simpler and effective method of obtaining recognition and enforcementof arbitral awards. The Convention has two main objectives. The first is the recognition and enforcement of foreign arbitral awards. The second is to

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The FIDIC Form ofContract

require the courts of contracting states to recognise and give effect to arbitration agreements made in writingwithin the meaning of Article 2 of the Conventionandto refer to arbitration disputes arising in respect ofwhichthe parties have madesuch an agreementto arbitration. At present, there are over 100 contracting states, making it a truly international convention. A contracting state is permittedto make two reservations from the provisions of the Convention.The first, referred to as the reciprocity reservation, applies to the words: 'Of awards madeonly in the territory of another contracting state.' This reservationhasthe effectoflimitingthe field ofapplication oftheNewYork Conventionto awardsmade in a statewhichis a contracting state. Such awards are sometimes referred to as 'convention awards'. It is appliedby abouttwo-thirds ofthe contractingstates. The second reservation is referred to as the commercialreservation which entitlesa contracting state to declare that it willapply the Conventiononly to disputes arising 'out oflegal relationships,whether contractualornot, which are consideredas commercialunder thenational law oftheState making such declaration'. (See Article 1.3 ofthe Convention.)Of course, underthe national lawofa contractingstate, relationshipswhichareconsideredcommercialmay notbe so underthe law of another state. 2.8.2 Legal authoritativewriting

Works of legal scholarship nurtured the development of the Romano-Germanic laws and, particularly so, through the work of universities. At present, however, the role of legal writingis complex and delicate. It is considered by some merely as a source for stimulating and creating the ideas which are subsequently used by legislatorsto enact laws. Others consider it as a living source of interpretation from which methods may be establishedto understand and inter-

pret the law.

2.8.3 Areas ofthe law affectingconstruction in the Romano-Germanicgroup

At a glance, the areas of the law affectingconstruction in the Romano-Germanic groupare shownin Figure 2.1. 2.9 The common law group

Thecommonlaw system originated inEnglandaftertheNorman conquestof 1066 butitwasmainly createdbythejudgesappointedbytheCrown inthetwelfth and thirteenth centuries. It is thereforejudge-made law, sometimesreferred to as case law. Disputes were brought before the various royal courts of justice which

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Areas of the law affecting construction in legal systems based on the Romano-Germanicsystem

Doctrine

J

J

Fig. 2.1 Areas ofthe law affecting construction in the Romano Germanic group.

developed the idea that their intervention was justified in the interests of the Crown even if private interests were in question. All cases brought before the English royal courts, which by the thirteenth centuryhad establishedtheir seatat Westminster,concerned matters of public law.

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The FIDIC Form ofContract

This originated historicallyfrom the ideathat to bring a matter before the royal courts was not a right but a favour, which might or mightnot be granted. The claimant, having obtained a writ, hadin effect an order given by the king to his officers to order the defendant to act in accordance with the law and thereby satisfythe claimant.Ifthe defendant refused to act accordingly,the claimantcould then proceed against him not only because his claim was not satisfied but also because of the defendant's disobedienceof an order of the royal administration. The trial was therefore a matter ofpublic law. In the nineteenth century, the royal courts became automaticallyaccessible to the citizens, but the law remained that of public law. No separation between public and private law exists in the common law system. But the essentialfeature of the common law is that where there is no legislation directly on a particular point, it would then be legallybasedon evolvingprecedent. Thusit has beensaid that to the lawyer from the Continent of Europe, English law has always been, 'something rich and strange'.218 Another important feature of the common law groupis that it developed in a maimer in which procedural considerations gained extreme importance. The way in which litigation was initiated led legal practitioners to think not so muchin terms of rightsas in terms of types of action and to focus more on the facts within the various actions or writs rather than on elaboration of the substantive law into a system based on a specific method. In law, 'writ' meant a command of the king directed to the relevant official, judge or magistrate, containing a brief indication of the matter under dispute and instructing the addressee to call the defendant into his court and to resolve the dispute in the presence of the parties. In this context, it has been stated that the procedure observed before the royal courts at Westminster varied according to the maimer in which the suit was begun. To eachwrit there corresponded in effect a fixed procedure whichlaid down the other stepsto be followed, the handling of incidental questions, the admissibility of evidence and the means of enforcing the decision. In any given procedure, the plaintiff and the defendant had to be styled by a specific wording; their inappropriate use in another procedure would be fatal to the proceeding.2'9 In many respects this procedure caused difficulties and problems, with the result that the courts oflawfailed to administer justice.Aggrieved litigants turned to the king and petitioned himfor an order to compel the opponent to do what justice, morality and goodconsciencerequired. Petitions were at firsttransmitted by the king to his chancellorwho was the highest administrative officer and a prominent churchman. With time, however, the chancellorbegan to receivethese petitions directly. The decisionsmadeby the chancellordeveloped into a bodyof special rules and principles which are referred to as 'equity'. It is extremely difficult, if not impossible, to define the rules and principles of equity in a short paragraph but the following statement is probably the best attempt that has been madein that direction:

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'In its broadpopularsense equity is practically equivalentto naturaljusticeor morality; yet it would be a mistake to suppose that the principles of equity as administered in the courts ... are coextensivewith the principles of natural justice. Owing to the difficultyand doubtful wisdom of framing andenforcing any general rules to cover them, many matters ofnaturaljusticearenot subject to legal sanctions but are left to the dictates of public opinion or to the conscience of each individual. Thus, in dismissing a claim against a company director who has perpetrated a sharp but not illegal practice, Fry U was constrained to say, "if we were sitting in a court of honour, our decision mightbe different" 2.2O

From thatbeginning,wherethe chancellorwasnot boundby precedent,the Court

of Chancery developedwhichbythe eighteenthcentury administeredequity as a recognised part of the law andin a similar manner to the common law. A constructionrelated example of the remediesdeveloped underequity is that ofinjunction.It developed against thebackground in common law where a party could not protect itself against a recurring illegal act of another but hadto claim damages inrespect ofeachincident.Stillless could apartyprotect itselfagainst an impending illegal act of another but had to wait untilthe harm was inflicted and then sue for damages. The chancellor,when petitioned, did not accept this rule undercommonlaw and granted whatbecameknown asaninjunctiontorestrain a party from actingin a manner which wouldcause harm to another. Eventually,as more and more specificcasescame beforehim, answers to many related questions

were provided. See later in Section3.8. A confrontation was inevitable between common law and equity and this happened in 1615 when a dispute between Chief Justice Coke and Lord ChancellorEllesmerewas submitted to KingJames 1. TheKing decided infavour ofthe Chancellor.221 Since then, wherethere is conflictbetween the common law and equity, the rules ofequity prevail.A consolidationofthe two areas of commonlaw and equity wasachieved by theenactment of the Judicature Acts 1873 and1875. The consolidationmeantthat all areas ofthe lawincluding equity could be applied by thesuperior court. TheJudicature Act section25(11) provided that where there is conflict,therules ofequity are to prevail. However,it would be wrongto view equity as a contradictionor replacementofthe common law as it is simply a setof supplementary rules. The Judicature Acts of 1873 and 1875 were repealed and replaced by the Supreme Courtof Judicature Act 1925 whichwas itself replaced by the Supreme CourtAct 1981. An achievement of the reform in 1873 was the transformation of the courts system so that they were brought within a single Supreme Courtof Judicature, consisting of the High Court of Justice and the Court of Appeal. Procedure in England today is governed by statutory rules, orders or instruments. The rules which apply inthe Supreme Court are known as the Rulesof the Supreme Court. These rules are published in a document extending over two volumes with

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extensivenotes and annotation describingthe fundamentalstepsto befollowed in procedural matters from the inception of an action through the various stages to the trial. It is worth noting that, because of the basic difference in the structure betweenthecommonlaw group and other groups,similar legal terms mayconvey different meanings. English equity is different from the French equité and the division in French law between public law and private law does not exist in England. Even ata fundamental level, the equivalent ofthe French legal rule regle de droitis very different in that it evolved through judicial decisions. Although itis true thattherehave always been statutes affectingvarious areas of the law in England andthat duringcertain periods of its development a large numberwere enacted,itwasthe endofthe nineteenthcentury thatmarked ahuge increase in legislation. Comprehensive statutes were enacted codifying existing rules whichcovered specificareas of commerciallaw. Inrecenttimes, therehasbeena tremendous increaseinthenumber andvolume of statutory enactmentswhichmake legislationa major source of law. Legislation is enacted by thesovereignwith theadviceandconsent of theHouse of Lordsand theHouse ofCommons andbytheirauthority. The rulecontainedin thestatuteis in the finalanalysis subject to interpretation by the courts. 2.9.1 Sourcesof law in the common

law group

Whilstthereisno written constitutioninEngland, someofthe countrieswithin the common law group do have a writtenconstitution whichis held supreme as to authority within that state. InEngland, the situationis perhaps bestdescribed inthefollowingwordsofSir George Engle:

'Under our unwritten constitution there are no constitutional or legal restrictions on Parliament's power to legislate.Parliament can pass any law it pleases on any subject, and no court inthe United Kingdom has the rightto declarean Act of Parliament unlawful or to set it aside as unconstitutional.'2 Sourcesoflaw other thanthe constitution,whereitexistsinawrittenform, maybe stated as follows: (a) judicial decisionswhenthey are recognised asprecedents in the common law; (b) equity; (c) legislationor statute law; (d) regulations anddelegated or subordinate legislation; (e) international treaties; and (f) custom.

Considering these in turn:

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Judicial decisions One must appreciate that the role of judicial decisions is not only to apply the legal rules but also to define them. Furthermore, the rules already defined by decided cases must be followed by lower courts — the rule of precedent. The hierarchy of the courts establishes a distinction betweenthe courts within the Supreme Courtof Judicature andthe 'lower' courts andit is only a decision of a court within the Supreme Court that can be established as a precedent. In England, there are three levels in the hierarchy of the courts. These start with the High Court as the first level followed; at the second level, by the Court of Appeal, where cases are usually heard by a panel of three judges; and finally, at the top lies the Appellate Committee of the House of Lords where cases are usually heard by a panel of five judges but never by fewer than three. This Committeedoesnot deliver judgments but opinions which are then adopted by thefullHouse of Lords as its judgment. Inrespect oftheruleofprecedent, thedecisionsrenderedbytheHouse ofLords are considered bindingon all other courts. Until 1966, the House of Lords considered itself strictly bound by its own previous decisions, but in a Practice Statementin thatyearitannounced that infutureitmight consideritselfnolonger boundif thecircumstancesindicated this tobe necessaryinthe interest ofjustice. The first decision by the House of Lords wherethey refused to followtheirown previous decision was in 1968.2 The decisionsof the Courtof Appeal are bindingprecedents for all courts of a lower level in the hierarchy and also for the Court of Appeal itself except in criminal cases.The decisionsof the HighCourt are bindingon the lowercourts and persuasive for subsequent cases in theHigh Court. A system of hierarchy is followedin othercountries of the common law group withperhaps differentnames given tothevarious courts in thelevelsofhierarchy. The top level generally ends with the Supreme Court except in some of the Commonwealthand Britishoverseasterritorieswherethe finalcourt ofAppealis the Privy Council. The Privy Council is composed of members of the English House of Lords and others from the countries concerned and in theory it gives advice to the sovereignas the head of stateof the country concerned. When a judgment is renderedin the superior courts of a country within the commonlaw group, thejudge sets outthe reasoningandthe logiche has followed in reaching his decision in the particular case before him. Besides the necessary basis for his decision, the judge may comment on other matters or indeed on the decision itself.The rule ofprecedent applies only to the necessaryreasoning. Any commentarywhich for all intents andpurposes could have beenomitted doesnot form part of the precedent. It is, however, considered persuasive in deciding subsequent cases if it is renderedby a judge considered to be authoritative. To distinguish between what is and what is notpart of a precedent, ajudge in alater casemustanalyseprevious decisionsincasesdealing withsimilar issues andmust

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firstdistinguish betweenthe essentialreasoning and thecommentaryand thenon whether or not the former applies in the case before him. Someofthejudgments renderedincaseswhereaprecedent is setare published, butothers remain unreported. The reports, where published records of judicial decisions are contained, are referred to as law reports. Figures quoted for the numberof cases selected for publication from the various levelsof the courts in England are as follows: 75 per centof the decisionsofthe House of Lords, 25 per cent of the decisionsof the Courtof Appeal and10 per centof the HighCourt. There are different series of law reports, eachof which is given a titlewhich is abbreviated for ease of reference. Therefore the 'All England Law Reports' is abbreviated as All ER and the 'AppealCases Law Report'is designatedas ACand so forth. The report of a decision contains the title of the case, a statement of the facts giving rise to the litigation, its history in the courts and a reproduction of the judgment of the court and of the decision. In England, until1865, reportingwas notorganised andwasbyprivateenterprise, often overlapping andirreconcilable. In the United States of America,law reports were also privately published at first. Today,however, reportedopinionsare almost invariablywritten by the court and are officially published. However, a private publishing organisation which began unofficial publication in the nineteenth century still continues today to publish its National Reporter System. Equity Equity, as already defined earlier (Section2.9), forms part of the substantive law developed by the decisions of the Court of Chancery.There are certain general principles on which the court exercised its jurisdiction, many of which are embodied in what is called the twelve maxims of equity. A number of these maximshave aneffecton construction contracts. An example of anapplicationof one ofthesemaximsis the areaof penalties.The maxim concerned provides that 'equitylooks to theintent rather thanto the form'. In Parkin v. Thorold(1852) 16 Beav 59 at 66 RomillyMR said: 'Courts ofequity make a distinctioninall casesbetween thatwhichis matter of substanceandthatwhichismatterofform; andifitfindsthatby insistingon the form, the substance will be defeated, it holds it to be inequitable to allow a personto insist on suchform, and thereby defeat the substance.' Since equity regards penalties as inequitable, it will not therefore be bound by a

description,suchas'liquidateddamages', ifintruth the sumspecifiedis apenalty. See later in Section17.5. Although equitable remedies are discretionaryand are viewed as anexpression of fairness,the rule of precedent doesapplynowadays to matters of equity.

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Legislation The third most important source oflawislegislationand although itdeveloped as a secondarysource oflaw to thecommonlaw and therules ofequity, ithas grown to aconsiderable volume embodying thelegal principles ofmanyareas ofhuman activity.Besidesdeveloping the law in a certain area or direction, legislationhas an important role in altering an existing flawed legal rule or restating a legal principle which had beendeveloped throughprecedent inthe courts. Indoingso, legislationcan overrule common law. This is extremelyimportantwherethe error in the lawis of a serious nature andcannot be left until a case maybe brought before the courts permitting suchcorrection.Becauseofthe rule of precedent, the route through the courts, whichis the only alternative for correcting or restating the law, requires a plaintiff who has the courage of his convictionsand who is preparedto challenge a previous decisionof a higher court. Legislationis also animportant vehicleto fill any gapsin the law or to augment it in matters relating to new concepts or changes in the organisation of modern society withouthaving to establish the law through judgments in the courts. However, as explained earlier, it is worth noting that statutory law may come underthe scrutiny of thecourts if andwhenthe interpretation of some wordingis at issue. In the event of inadequate drafting, the courts maybe called upon to resolve the ambiguity.

Primaryand subordinate legislation Legislationis divided into two forms: primary and subordinate. Primary legislationmeans anAct ofParliament,sometimesreferred to as a statute. Subordinate legislationrefersto rules, regulationsorbylaws and are matters of detail relevant to a parentAct. Primary legislationis drafted firstinthe form of a Bill by full time professional draftsmen which is presented, usually by the government, to Parliament for debate. If and when Parliament ratifies the Bifi with or without amendment, it becomes an Act or a statute. Subordinate legislationis drafted by qualified lawyerswhoareexpertsinthefieldoflaw underspecificpowersconferredbyActs of Parliament on a minister of the government or some other official of an organisation. Primary legislationin England is drafted by full time professionaldraftsmenwhoare lawyers by profession. Subordinate legislationon theotherhand is drafted by legal advisers to the governmental department concerned. These are also lawyersby professionandare generallyexpertsinthe fieldoflawinquestion. InEngland, the generalbeliefof the draftsmen is that the ordinary citizen does not concernhimself with legislation,as canbe surmised from the followingtwo quotations:

'I thinkthat most citizenshardlyeverread an Act of Parliament. I hardlyever

met anyonewhohasread awholeActofParliament. Most people gettheiridea

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The FIDIC Form ofContract

of whatthelaw is from newspapers, or from the CitizensAdviceBureau,which gives them leaflets if they want to know what the position is about taking a tenant in theirhouse, or getting rid of a tenantin a housewhichis controlled. The last thingthey would do wouldbe to go and read the Act of Parliament. They wouldgo to a solicitorif they needed legal advice or they would go to some less exalted source of rathergeneral legal advice.'224 and

'I believe that the clients whose interests we must primarily consider, in the process of legislativedrafting, are, on the one hand, the legislator,and on the otherhand, thelawyer andhisclients(inwhichtermIinclude ourbiggest client, the government)... It is too often suggested on the otherhand, that the intelligibilityofstatuteto the general public is a prime considerationin drafting it. I do not believe that this is so. Tam firmlyoftheopinionthathoweverwedraftourstatutes,the Britishpublic, exceptperhaps fortheremote lunaticfringe,never read the statutesnorare likely to. (Ibelievethatthishasmoreto dowiththeBritishtemperament thanwith the stateofthe statutebook:JamtoldthattheFrenchman-in-the-streetdoes readhis statutes, and is not slow to assert his rights, whether to his employer or his landlord, byquotingthe Journal Officiel athim.) TheBritishcitizen ismuchmore likelytoreadthe departmentalbookletwhichisoftenissuedtoexplainthe law, or to go to his CitizensAdvice Bureau or his lawyer, if necessary.'2 These statements may explain the difficulties experienced by lay people in understanding the legal language of statutes. Furthermore, once an Act comes into force, the meaning of its wordingmay become a matter of a disputein which caseinterpretation ofthe Act becomes the function of the courts. In specific cases, certain prokrisions have been left to the courts to interpret andthus statutory provisionshavebecomeburdened by alarge numberof precedents under common law, the text of which replaces that of the

statuteitself.

International conventionsand treaties

As in the Romano-Germanicgroup, international conventions and treaties are a source of law only to the states which are signatories to them and which have ratifiedthe provisionscontainedtherein. They are thenboundbythe provisionsof the conventionor treaty. Custom

Custom was an important source oflawin earlier times. Now, however, as legal systems grow, the importance of custom as a source of law has diminished.

The RedBook is Basedon a DomesticContract

43

Custom can only attainlegal statuswhenitisrecognised by the courtsas being reasonableandin conformitywith statute law. Thus, the courts have a great deal of discretion in determining whethercustom is given legal validity. Should customattainthislegal validity, itthenhasthe forceoflawbut itremains subordinate to thewrittenlaw and, as such, has lostmuchof its importance as a sourceof law

in modemsociety.

The role oftextbooks andlegal writing

As the common law is based on reason, it implies that certain general principles deriving from already existing rules must be sought out and applied. Thus, textbooksby distinguished authors have a role in analysing, commenting and elaborating on the law at a particular point in time. In such legal writing, reasoning, ideas and interpretations are of the essence in establishing the tools for argument. Passagesfrom suchestablishedmaterial are often quoted in litigation or arbitrationin supportor inexplanation of a pointof view or a decision. As an example, reference may be made to the case of Morgan Grenfell (Local Authority Finance) Ltd v. Sunderland Borough Council and Seven Seas Dredging Ltd (1990) 49 Build LR 31, where the opinions of 'two distinguished text book writers' with

regard to the ICE Conditions of Contractwere quoted. 2.9.2

Areasofthe law affecting construction in the common law group At a glance, the areas of thelaw affectingconstruction in the commonlawgroup are shown in Figure 2.2.

2.10

The law in Islamic countries Islamiclawforn-is only a part of the law in Islamic countries andit must not be confusedwiththe whole bodyof lawwhichapplies inaparticular jurisdiction or state. Like canon law in the Christian religion it is the law ofthe religion of Islam and although its authority is stipulated in the constitution of many Islamic countries,none of them is exclusivelygoverned by it. Legislation,codificationor customhavebeenused to augment it and complement its provisions in order to regulate the activitiesof society and to provide public order. The direction followeddiffersdepending onwhetherthe Romano-Germanic,common law or, in a few cases, the socialistsystem is followed. This has not contravenedIslamic law whichprovides that civil authorities havethe power to regulate society. Codificationwas used, for example, in Egypt, Syria and Iraq, inspired by the French Code. Other countries in North Africa have also formulated their own codes inspiredby the Italian andFrench Codes.Pakistan, MalaysiaandNorthern Nigeria are examples of countries that have followed the common law group,

The FIDIC Fonn ofContract

44

Negligence

Libel

Theduty is

A duty is owed _________________

Trespass

Slander__J

Damage or suffered

_________________J

Nuisance__J

Proximity

p

_________________

Fig. 2.2 Areasofthe law affecting construction in legal systems based on common law.

whereasthe People's DemocraticRepublicofYemenhas drawnclose to countries

of the socialistgroup. Therefore, the law in Islamic countries differs greatly from one jurisdiction to another because of the different directions they followed to augment the principles of Islamic law andbecause these countries extend over large areas with manybasic differencesin socialandpolitical traditions. 2.10.1 SourcesofIslamic law

Besides legislationandbindingdecisions there are two fundamental sources of Islamic law andtwo subsidiary ones. The two fundamental sources are:

The RedBook is Based on a Domestic Contract

45

(a) the Qur'anwhichis the sacred book of Islam containing God's revelations to theProphetMuhanimed andrecognisedas theprimary sourceof Islamiclaw; and (b) the Sunna whichis the modelbehaviour of the ProphetMuhammed andhis wayoflife arid of conduct serving as an example ofbehaviour to befollowed by allMuslims.Thecollection ofhis statements is called theHadieth and may serve as a guide tojurists.

The combination of these sources is called the Shari'ah which when literally translated means 'the way to follow'. The two subsidiary sources of Islamic law are: (a) The Ijma' which is the consensus of Muslim scholars (Fuqaha') in writings called Fiqhmeaningjurisprudence. The rules or consensus ofIjma'are drawn from the Shari'ah and are interpretations bythe scholarsof the wordingofthe Qur'an and the Si.mna. Ijma' was made an important source of Islamic law throughtwo statements of theProphetMuhammed (Hadieth)in the form of:

'Mycommunity willnever agree upon an error' and 'WhatMuslims find to be just isjustby God'. (b)

The Qiyas, which is the juristic reasoning by analogy, is used only for the interpretation and application of the law and not to form a new rule. Some sects ofIslam reject the applicabilityofQiyas as a source oflaw aridrecognise it simply as a method of analogy.

Although Ijma' is the consensus of the Muslim scholars,the degree of agreementrequiredallows for some differencesofopinion. In one of thestatements of the Hadieth, itis stated:'Thedifferencesof opinion existingin mycommunity are a manifestationof the grace of God.'. Differenceshavein fact given birthto anumberofrites ofIslamicreligionbased on differencesof detail in the interpretation ofIslamic law. Principally,there are four orthodox rites which form the followinggroups: the Sunnite, the Shi'ite, the Wahabbi and the Ibadi. The Shi'ites are so called because they are partisans of All, the son-in-law of the prophetMuhammed. The word Shi'a means partisan. They differ from the Sunnites mainly on constitutionallaw andthe position of the caliphate and they are found mainly in Iraq and Iran. The Wahabbi rite is followed in Saudi

Arabia. The developmentofFiqhas abodyoflawwas haltedinthe tenthcentury when political problems led to the disintegration of the Islamic Empire of that time. Thus, Islamic law established at that time is today immutable. However, this immunity tochange is complementedbyagreatflexibility and resourcefulnessfor development through the operation of custom, the right to formulate adminis-

46

The FIDIC Form ofContract

trative regulationsandthe rightofthe individual tocontract,rightswhichare held sacred in Islamic law. Although Islamic law originates in the Islamic religion, there are basic differences between it and canon law. These are: (a) Islamic law is in a senseimmutable and cannot be changed by any authority; (b) not to obey Islamiclaw is a sin punishable in the next world after death; (c) a Muslim shouldleadhis life in accordancewith the Islamic religion; (d) although canon law is based on the revealed principles of the Christian religion, it is in itself not a revealed law; and Islamic law is applicable only to dealings between Muslims. (e) Many rules canthus be modifiedthroughthe use of contract withoutviolation ofIslamic law. Loansbearing interest whichare forbiddencanbe madebymeans ofa double sale or by giving thecreditor the useof some property as security and theenjoyment of anyrevenue that mightaccrue. Itis also possibleto hold that the ban on interest applies to persons and not organisations such as banks and companies. Contracts dependent on contingenciesand insurance are forbidden butonly the person collecting the premium commits a sin. Insurance contracts with companiesor with a non-Muslim cantherefore be made. This chapter has briefly considered the diversity of legal systems around the world, the applicablelaw in international construction,the applicable law of the contract, the lawsgoverning bothprocedure andenforcementof awards andthe groupings of contemporary legal systems. The latter includes the Romano-Germanic group, the commonlaw group andthe Islamicgroup. Sincethe Red Bookis based on legal concepts rooted in the common law system, the next chapter specificallyconsiders the concepts of that system.

Chapter 3

Legal Concepts Based on the Common Law System

Once againit is worthwhilerepeating the caveat given atthe beginning ofChapter 2that thecommentsonthelaw areofnecessity generalisedand that statementsof general rules and principles are not intended to mean that they are without exception or qualification.These rules and principles may differ from one jurisdiction to another, even within one legal group, and therefore there is no alternative to athorough studyofthe applicablelaw inallits relevant parts. Inthis chapter, the law oftorts and the law of contract willbeconsidered insome detail.

3.1

The law applicableto the contract As explainedearlier, theRed Book, which is basedonlegal conceptsrooted inthe common lawsystem, originatedfromthe ACEform whichinturnoriginated from the ICE Form. The legal framework of the contract is basically set out in three clauses in the Red Book. These are clauses5, 26 and 70. Clause5 of the RedBookprovidesfor the lawofthe contract,usuallyreferred to as the 'applicable law of the contract', to be specifiedin Part II of the conditions. Where that law follows the common law system there would be little, if any, conflictof lawsbetween the concepts ofthe Red Bookand those under whichthe contract might have tobe construedbecauseofthe fact thatthe RedBookis based onthecommon lawconcepts.Infact, intheearly years aftertheRed Bookwasfirst introduced, it was customary to stipulate English law to govern these contracts whenever the engineer or the contractor was of British nationality. The general ruleunder private internationallaw ofmost countriesfollowsingeneral terms the statement madeby Lord McNair and quoted below:

'It is often said that the parties to a contract make their ownlaw, andit is, of

course, true that,subjecttothe rulesof public policy andordrepublic, the parties arefree to agree uponsuchterms as theymaychoose.Nevertheless,agreements that are intended to have a legal operation (as opposed to a merely social operation)create legal rights andduties, andlegal rightsand duties cannot exist

47

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The FIDIC Form ofContract

in a vacuum butmusthavea place withina legal system whichis availablefor dealing with such questions as the validity, application and interpretation of contracts, and generally,for supplementing their express provisions.'31

It has become more usual and appropriate in recent years to specify as the

applicable law of the contract the law of the countrywhere the project is constructed. The restrictionsinthisfreedomofchoiceofthe applicablelaware taking place through increasing intervention by modem-day governments intent on regulating their own economic activities. In. such cases or where the contract follows a system of law other than the common law, it is inevitable that some conflictwouldoccur between the applicable law of the contract and some of the legal concepts incorporated in the Red Book. However, as the Red Book was devised for use anywhere in the world, the extent and type of conflict of laws could notbepredicted andthusthe draftsman ofthe RedBookmadeno attempt to deal with this problem. Furthermore, the general conditions, of whichthere are over 70, were considered to be sufficientfor most contracts. Incertaincountries,thelegal rulethatrightsof property aresubjecttothelaw of the country where the immovable property, 'the works', are located has been extended so that it applies to personal obligationsarising in connection with an 'immovable'. In these countries,the applicablelaw of the contract must be that of the country where the project is located. If this is not done, it mayhappenthat, should a disputearise, the legal problemsarising from that dispute supersede the technical problems and should an arbitration award be rendered, it might be unenforceableon the groundsof public policy. Thesecond clause forming the legal framework of the Red Bookis clause 26. It requires the contractor to conform in all respects with all national statutes, ordinances, laws, regulations and by-laws of any local or other duly constituted authority in connectionwith the executionandcompletion of the worksandthe remedying of any defectstherein. It thereforerequires conformitynot only with the lawsof the country wherethe project is locatedbut also with the lawsof any othercountry where part of the workis executed.This is requiredirrespective of what law is chosen as the applicable law of the contract. It is a far-reaching requirement as, in effect, it means that if the work or the supply of materials for such work is carried out in more than one country, then the laws of all these countries involved wouldhave to be observed. It should be noted thatthebranches oflaw which arerelated toconstructionare manyand in a complexproject could extend across the whole spectrum of legal systems. Clause70 ofthe RedBookis the third clause inthe legal framework.Itprovides for the possibffity of either introducing new, or making changes to already existing, national or state statutes, ordinances, decrees or other lawsor any regulationor by-law of anylocal orotherduly constituted authority inthecountry in whichtheworksare being, or are to be, executed.

Legal ConceptsBasedon the CommonLaw System

49

If such laws are introduced or if such changes are implemented in already existing laws causing additional or reduced costs to the contractor, then such additional or reduced costs mustbe determined bythe engineer and accordingly, an adjustment should be madeto the contract price. The matters covered by this clause are referred to in Part II of the Form. In this connection,reference should also be made to clauses 71 and 72 whose provisionsrelate indirectly to those ofclause 70. They dealwithchanges imposed by the government of the country in whichthe works arebeing or are tobe executedin respect to currency restrictions or the ratesof currency exchange. Theparties entering into a contract wherethe Red Bookis used as a standard form ofgeneral conditions are thereforeadvised inthe foreword tothe conditions as follows:

'In the preparation of the Conditions it was recognised that while there are

numerousClauses whichwillbe generally applicable there are some Clauses whichmust necessarilyvary to takeaccountofthecircumstancesand localityof the Works.TheClauses of general application have beengrouped together and arereferred to asPart I -General Conditions.They have beenprintedinaform which will facilitate their inclusion as printed in the contract documents normallyprepared.' The general conditions are linkedwith the conditions of particular application, referred to as PartII,by the correspondingnumbering ofthe clauses,so thatPartsI andIItogether comprisetheconditionsgoverning therightsandobligationsof the parties. TheclausesinPartII must bespecificallydrafted to suiteachparticular contract. Some notes and explanatorymaterial have been included in Part II of the documentandare intended as an aide-mémoire in relation to the matters whichshould be covered by the various clauses. These notes should be detached from the document wheninviting tenders. 3.2

Conflict Depending on the choice ofthe applicablelaw ofthe contractas determined under clause 5 of the Red Book, conflictbetween its rules and the conditionsin Part I of the Red Bookmay arise. If suchconflict arises it maytakethe form of any of the followingpossibilities:

that there is no legal rule in the applicablelaw of the contract similar to that assumed to exist by the draftsmen of the Red Book; (b) that a legal rule similar to that assumed to exist by the draftsmen of the Red Bookdoesexist in the applicable law of the contract,but only in a very basic andunderdeveloped form; and/or (a)

50

The FIDIC Form ofContract (c)

3.3

that a legal rule similar to that assumed to exist by the draftsmen of the Red Book does existin the applicable law ofthe contract, but its effectis different from, if not directly opposite to, that assumed.

Some specific concepts under the common law Because of the possibility of conflict outlined above, it is necessary to consider some specificlegal concepts under the common law system to establish the features upon which the Red Book is based. However, the purpose of the present section is not to give a comprehensive description of contract law under the common law system but simply to highlight the essential features. Those who wishto investigatethis subject in greater depthshouldstudy standard reference books on contract law or specialisedworkson engineeringcontracts. In a construction contract, in addition to criminal negligence, one may encounter all the areas of law dealing with civil wrongs as distinct from those which are liable to result in criminal proceedings.The areaofcivil wrongs can be divided intwo differentways. The first isbydividing the lawintosubstantive law and procedural law. The second is by dividing the law into legislation,common law andequity. (See Figure 2.2.)

3.3.1 Substantive law and procedural law

Figure2.2 in the previous chapter illustratesboth methods of categorisationof the law, where construction contracts are concerned. As to the first method, substantive law refers to all areas which define and dealwiththe rightsandduties of individuals, groups, orgariisationsand the state. Contract law comes under this heading. Procedural law deals withthe legalrulesthroughwhich the processoflawis set in motion to enforce some substantive right or remedy. These rules are often complexandnumerous. 3.3.2 Legislation, common law andequity

As already noted, another method of categorisationof areas of thelawwhichmay be encounteredinconstructioncontracts dividesthe law intolegislation,common law and equity. Legislation and equity are discussed in Section 2.9 above. The thirdareais that ofthe common lawfrom whichcontract law and the law of torts emanate. (See Figure 2.2.) The remainder of the presentchapter considers the law of torts and the law of contract in more detail.

Legal ConceptsBasedon the CommonLaw System

51

3.4 Tort Tort is a legal term used in both the common law and the Romano-Germanic systems of law to describe various wrongs whichmay give rise to civil proceedings mainly in theformofanactionfordamages.Theword torthas itsorigin inthe Latin 'tortus', which means 'twisted or crooked'. The French word 'tort' means 'wrong'. A tort must be distinguished from a breach of contract in that the obligations and rightsof the parties to an agreement emanate from the terms of that agreementwhereas intorttheyarisefromtheoperation ofthelawwithoutanyneedfor consentfromthe parties. Thus,unlike the situationundercontract,aperson hasno choicein the obligations placed upon him by the law in his behaviour towards others.

The same factsofa particular situationmay giveriseto anactionin contractand intortunderthecommonlaw system.Concurrent liabilityin contractandintortis not, however, universally recognised. The law of torts regulates a wide variety of unlawful behaviour. Those which are related to construction are shown in Figure 2.2 as: nuisance, slander, libel, trespass andnegligence. Nuisance

The enjoyment of land and any right over, interest in, or premises thereon is protected by the tort of nuisance.Excessivedust,noise,vibration, fumes, seepage, gases, smoke etc. produced by someone mayexpose him to liability fornuisance. Thecourtmayorder the nuisance to be stopped by an injunction or mayaward damages or both.

Libel and slander

A defamatory statement is one which injures the reputation of someone by its tendencyto lowerhiminthe estimationofright-thinkingmembers ofsocietyorto cause him to be shunnedor avoided. Adefamatorystatement islibellousif thedefamationisinapermanent form,for example, in writing or in a televised interview. It is slanderous if it is in a nonpermanent form. A libellousstatementis actionablewithoutproofof damage,and may be considered criminal. On the other hand, a slanderous statement is actionableonly onproofof damages capable ofbeing expressedintermsofmoney (with some exceptions)andit cannot be a crime. Trespass There are threeforms of trespass: to land, to chattels andto the person.

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The FIDIC Form ofContract

Aperson is liablefortrespass whenheintentionallyenters orremains onlandin possession of another withouthis permission. An action for trespass to chattels arisesfrom any intentional,physical interferencewith a chattel in thepossession of another.Thelosssuffered forms the basis of theliability. Any conduct whichcauses some physical contact with another personwithout consent mayformthe basis of an actionin tort. Consentmay be either explicit,as inthe caseof a surgicaloperation, or implicit,as whenoneparticipates in a sport. Negligence

The most important tort whereconstructionis concernedis the tort ofnegligence. Itis alsothebranch ofthelawwhichhasbeenthesubjectofintensivedevelopment and changeinthetwentieth century.Negligencemay bebroadly defined asfailure to comply with that standardof care which would correspond to the conduct expected of a reasonable person of ordinary prudence under similar circumstances, which resultsin damage. The tort of negligence is concerned with breach of the duty to take care. However,the mere failure to complywith the standardofcareis notsufficientto constitutethe tort of negligence.In order to succeedin an action for negligence,a plaintiff must prove: (i)

a duty ofcareis owed, requiring conformityto a certain standardofconduct

for the protection of others against exposure to risk; (ii) a breach of that duty has beencommitted; (iii) damage or injury is suffered as a result of that breach; and (iv) a proximate connection exists between the conduct in question and the resulting damage. This condition of proximity or remoteness is sometimes linked to either (i) or (iii) above. However, it is of sufficientimportance to be considered on its own. Contribution to the loss and assumption ofthe risk Liabilityfornegligencemaybe negated orlessened ifthe injured party was alsoat fault. Closelyrelated isthe situationwhereapartyexpressly orimplicitlyagrees to assume the riskofnegligencewhichmaybe committedby another.The liabilityin this case may also be excluded. In contrast to contributory negligencebetween two negligent parties causing damage or injury to one ofthem, are the contrastingrightsof contributionwhich exist between persons who are liable in respect ofthe same injury or damage to a third innocent party. Itshouldalsobenotedthatthe law imposes a duty on theinjured partyto take all reasonable steps to mitigate the loss and debars himfrom claiming compensation for any part of the loss whichis due to his own negligence.

LegalConceptsBased on the CommonLaw System Breach ofstatutoryduty andcrime

53

InEnglish law some statuteswhichcreate criminaloffencesmayalsogivetheright to any person whohasbeeninjured orwhohas suffered damage by theoffenceto recover damages by a civil action. This is a separate tort, known as 'breachof statutory duty'.

3.5

Contract — general principles As statedearlier, the Red Bookis based on a background rooted in the common law legal system. In the followingsections important characteristicsof this legal system with regard to contract are discussed. Thesimplest definitionofacontract is: 'a legallybinding agreement'. A slightly more elaborate definitionis'an agreementbetween two or more parties in which eachpartybindshimself to do or forebear to do some act and eachacquires the rightto what the other promises'. In a valid contract, one may have to establish in certain circumstances the precise meaningof whatthe parties haveundertaken to perform andhow,where, whenandby whomthat performance wasto be expected. Thecontents of a contract maynot necessarilybe confined to the wordswhich appearwithin itswrittenboundary. UnderEnglish law, however, anagreementis an act and not a mental exercise,and its meaning is thereforeto be inferred from whatthe parties havesaid orwritten or done andnot from what is intheirminds. This is a long established principle going back to 1478 when Chief JusticeBrian proclaimed,inthe contextof a sale agreement,that 'the intentof a man cannot be tried,fortheDevilhimselfknows nottheintentofaman' (Anon(1477),YB17 Edn.

4fol,p12).

This subjectis quite complexand embraces areas from the law of contract and beyond. Whilst the engineer, whether a designer or a constructor,isnot expected to have detailed knowledge of the law, he must havegeneral knowledge. Furthermore, where construction contracts are concerned, administration of the contract requires a certainminimum amount ofknowledge of the law. As already stated, the discussion of the legal aspects presented here is by necessity a very brief one and itisneither intended tobe withoutexceptionor qualificationnoris it in any way to be a substitute for expert legal knowledge or advice. 3.5.1 Prerequisites ofa contract

In many day-to-day activities, most people enter into contracts withoutgiving muchthought to theiractions.Except for the very few, thesecontractsrequire no special forms and can be oral or in writing. They are called 'simple contracts'. For simple contractsto be legally binding and enforceableunder the common

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The FIDIC Form ofContract

law system, the prerequisites of intent, agreement, consideration,legal capacity and legalityof objectives must be satisfied. (a) Intent The intention to create legal relations and to be legallyboundby the contents of a contract must be clearly apparent. There is a very strong presumption in construction and other commercial contracts that such intention does exist. This prerequisite is thereforeof greater importance in other branches of the law. (b) Agreement

There mustbe anagreementbetween the parties tothe contract basedonadefinite offer by one of the parties andanunqualified acceptanceof the offer by the other party. A conditional acceptance or a counter-offermay supersede the original offer and cancelits effect. Once an offer is accepted, a binding contract is formed, subject to the remaining prerequisites, even if a provision is included in the contract for the subsequent executionof formal documentation, as provided in clause 9 of the Red Book. When seeking to determine what the parties consented to do by their contract, one should not look intothe parties' mindsbutshouldascertaintheirintentions by the outward expression as conveyed by the written or spoken words of that contract.It is also worthnoting that where a person signs a written or a printed standard form of contract, he is bound by it, whether or not he has read it, understood it or accepted it. (c) Consideration

There must be an exchange of an act or a promise of an act, referred to as a 'consideration'. Consideration must be real, clear, definite, possible to perform and legal. Themost usual form of consideration in construction contracts is the promise to performwork or the payment ofmoney. As stated later in this section, contracts under seal are enforceable without consideration. (d) Legal capacity

There must be the capacity to contract. Any sane adult person can enter into a contractandsuchcapacity is referredtoas thatofa'naturalperson'. Corporations, on the other hand, have a judicial capacity referred to as that of an 'artificial person' and created by law througha separate identity distinct from theirmembers. The capacity to contract is defined and regulated by the 'objects clause' of a corporation's articles and memorandum of association.A corporationis entitled

LegalConceptsBased on the CommonLaw System

55

to do only those thingsset out inthesearticlesandan act outsidethese objectsis ultra vires, thatis, beyond one'spoweror exceedingthe powersgranted by law. It is important to note, however, that wherethe European Union is concerned, thefirst EUCompanles DirectiverequiredMemberStates to abolishthe ultra vires rule as it affected outsiders. Therefore, in EU Member States, a corporation can now be bound by contracts which are ultra vires. The Directive,however, in an important proviso, permits Member States to maintain the rule provided the company could provethe outsiderknewthat the act was beyond the authority of thecompany.3'2 (e) Legality ofobjectives

The objectives of a contract must be lawful, otherwise it is void. Legally, an agreementmay not be given its required effectif it involves the commissionof a legal wrong or is in some other way contrary to public policy or public safety. In addition to simple contracts,however, another typewhichis usedbyEnglish lawyers is that ofa 'contract under seal'wherea person undertakes an obligation by expressing his intention in a formally drawn up document, on paper or parchment, and signs it andhas it delivered as his deed. Such a contract doesnot have to include a consideration and could be a gratuitous promise. It has the advantage of a limitationperiod oftwelve years from the dateonwhichthe cause of action accrues instead of the six year limit for simple contracts.33 For this reason, it is extensivelyused in construction contracts and almost exclusivelyin international construction contracts. 3.5.2 Limitation periods

Incontract,thecause ofactionaccruesonthedateofthebreach ofcontractanditis independent of the date ofany damage which mayhave occurred.In construction contracts, however, the dateof the breach may or may not be that datewhenthe act causing the breach was committed,since it could be extendible to the dateof practical completion of the works. This extension depends on the nature of the breach and on the circumstancesof the case. By comparison, under the law of tort, the cause of action accrues only when damage is suffered, so that the cause of action may not arise until long afterthe relevant workwas carried out. The periods oftimewhichlimit anactionunderthe lawoftortvaryfromonecountry toanother,evenwithin thecommonlawgroup. In England,the Latent DamageAct1986stipulates the followingperiods oflimitation in a case of tortious negligence(other thanfor personal injury or death), as either: (a) six years from the date onwhichthe cause of action accrued; or (b) threeyears from the starting date, if that period expires later than the period set out in (a) above.

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The FIDIC Form ofContract

The starting dateis the earliest dateonwhichthe plaintiff or anypersoninwhom the cause of action wasvested beforehim,firsthadboth the knowledge required forbringing an actionfor damages inrespect oftherelevant damage and arightto bring such an action.34 However,itis important to notethat both under contractandtort, an exception to thenormal periods of limitationexistsin certainsituations.Forexample,under English law, fraud, deliberate concealment and mistake extend the period of limitationso thattime does notbeginto runagainst the plaintiffuntilhe discovers oroughtto havediscoveredthefraud.Section 32of theLimitationAct 1980which replaced section 26 of the 1939 Limitation Act deals with this exception.35 The operation of this exceptioniswellillustrated inthe case ofApplegatev.Moss (1971). Brieflythe circumstanceswere as follows: 'By acontract madeinFebruary1957, the defendant agreed to build two houses for the plaintiffsand to support themon araftfoundation reinforcedwith asteel network of a specifiedtype. He employed a Mr. Piper, an independent contractor, to do the work. The plaintiffswentinto occupationof the houses when theywere completed towards the end of 1957. In 1965, it was observed that, owing to the defectivemanner in which the foundation hadbeen constructed, the houses were irreparable and unsafe for habitation. There was no raft, the reinforcement was grossly inferior to that specified and wide cracks had appeared beneath the houses. Theplaintiffs claimed damages for breach of contract. Despite the fact that their action wasbroughtmore than six years after the breach of contract they succeeded on the ground that therehad been concealmentwithin the meaning of section 26 of the Limitation Act 1939. "The builder put in rubbishy foundations and then covered themup".'36 Although section32 oftheLimitationAct 1980involvessome changesto section26 of the Limitation Act 1939 referred to in the case ofApplegatev. Moss, its effectis substantially unchanged. Attention is drawnto the fact that,underEnglish law, the rightto claimbeyond the end of the limitation period is not extinguished. It is simply barred by the relevant statutoryprovisionsifthe defendant successfullypleads thatthe cause of action arose outside the limitation period. If he does not plead this defence,no courtor arbitrator cantake thepointfor him. On the other hand, the situation is totally different outside the common law group wherethe right to sue is extinguished once the period of limitationis passed. 3.6 Privityof contract

Withfew exceptions,no one may be entitled to the benefits or be boundby the obligationsof a contract to whichhe is not a party. An example of anexceptionto

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57

this rule whichmay apply to a constructioncontract is anassignment,although of course only the benefits can be assigned, not the obligations unless the parties agree otherwise. Thecontractbetween apromoter anda contractorcannot thereforeextend to the engineer. Similarly, the contract between a promoter and an engineer cannot extend to the contractor. However, the terms of these two separate contracts would obviouslybe of interest to these three parties. 3.7 Performance of a contract When the parties to a contract perform the obligationsundertaken by its content, the contract is then discharged throughperformance. In a construction contract, performance of the contract means, on the one hand, completion of the work as well as any matter relating to the obligationsofthe contractor for maintenance of defectsand,onthe other hand, payment bythe employer.The employer,however, doesingeneral retainhisrightstosuefor'breach ofcontract' should alatent defect be discoveredwithin theperiod of limitationspecifiedunderthe relevant statute, unless the contract provides otherwise. There are three other ways to discharge a contract andthese are: (a) By agreementofthe parties, a contract may be varied or discharged through a

release by a subsequent contractunder seal, orbyaccord orthroughawaiver,

or rescission. (b) By frustration

of the contract, if circumstances change from those which existed when the parties entered into the contract and an event of a fundamental nature and beyond the control of either of the parties occurs which renders its performance impossibleor of a totally different nature. The event cannot be one which has been catered for inthe contract and neithercan it be one which simply makes the performance of the contract more difficult or expensive.

In a recent case heard by the Judicial Committee of the Privy Council on appealfrom the Court of Appeal of Hong Kong, a landslip occurred taking withitablock offlats of13 storeysas well ashundredsoftonnes of earth.They all landed on thesiteof partlycompletedbuildings, totally obliteratingthem. Itwasacceptedthatthelandslip wasanunforeseennaturaldisaster and it was uncertain as to whether the partly completed contract could ever be completed, andeven if itcould, as towhencompletion could takeplace. This was heldto be a frustrating event.37 (c) By a breach of a primary obligation by one party, the contract may become discharged ifthe injured party decides to treat the breach as a repudiation of thecontract,although damages maybe sought by thatinjured party. This is an extensive andcomplex topic which cannot be given its due consideration in

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the space availablehere. Reference should be madeto Chapters 18 and19 of Law ofContract (seeReference3.5). 3.8 The contentsof a contract The contents of a contract dependon the intention of the parties at the time the contract was entered into, or to be more accurate, what a reasonableman would judgeonthe evidenceavailableto havebeentheintention of the parties. Itisimportant to bearinmindthedistinctionbetweenwhattheparties intended andthe evidence availabletoprovewhat itwas theyintended. If it is clear that a contract actually existsthen the followingquestions must be answered before the intentions of the parties and, hence the scope of the contract, can be determined: (a) What did the parties say or write? (b) In making such oral or written statements, did the parties intend to create obligationsand rights? (c) If the parties intended to create rights and obligations, what is their relative

importance? (d) Are thereanymatters whichconstituteterms of the contract byreasonof their being implied as suchby statute, custom or the courts?

Not all statements (in whatever form) made by the parties become terms of the contract as some are what are called 'mere representations'. The question as to whichofthese applies canonly be answered by repeating thequestion:'Whatwas the intention of theparties?' Fora representationor statementtobecomea termofthecontract,the statement must havebeenmade either simultaneously with the close of the bargain or at some earlier moment,andthe parties must have intended thatit would become a part of the bargain. Again attention must be drawn to the differencebetween the situation which the parties actually intended and the evidence available to prove what their intention was. Implied terms constitutean exceptionto what has just beensaid since, by their very nature, theydonotdependontheintentionofthe partiesbutare importedinto thecontract.Itissometimespossibletoidentify suchimplicationsfrom thenatureor wordingoftheterms ofthecontract,butmore often thannotspecialistknowledgeis requiredto identify situations wheretheyarise. Such situations include: (a)

Anyprevailing trade orprofessionalorlocal custom,unless acontrary intention is shown in the contract. However, custom is not imported into a contract to contradict an express term therein, but to serve to reinforceit and assist its general purpose. Thus:

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'An alleged custom can be incorporated into a contract only if there is nothingin the express or necessarilyimplied terms of the contract to prevent such inclusion and, further, a customwill only be imported into a contract where it can be so imported consistently with the tenor of the document as a whole.'38 (b) Statutewhichincreasinglyplays an important role in consumer protection. (c) The courts, wherethereis no customary or statutory authority for an implied

term. In this case, the courts may imply a term which is needed to give business efficacy to the contract. However, it is important to note that the courts would not import a term into a contract unless it is inevitable and absolutely essentialin order to make the contract effective. Inthisconnection,referenceismadeto thecaseofTaiHingv. Liu ChongHing Bank (1986). The courts will not make a contract workable or improve its terms. Many cases maybequoted inthisconnectionbuttwoare chosen hereto provide an easy understanding of the principles:the Moorcock case in 18893.10 and Trollope & Colls Ltd v. North-West Metropolitan RegionalHospital Board in 1973.3.11

In the Moorcockcase, the defendants owned a jetty and wharf and agreed to allow the plaintiff, a shipowner, to discharge his vessel at their jetty which extended into the River Thames. The ship was to be moored alongside the jetty and to be discharged and loaded at the wharf. It wasunderstood by the parties that at low tide the ship wouldreston the riverbed, but the defendants hadno control over the bed of the river, andhadtakenno stepsto ascertain whether it wasor wasnot a safe place for the vessel to lie. They gave no warranty as to the safety ofthe areafor ships. At low tide,the ship settled ona ridgeofhard ground beneath the mud and was damaged. The plaintiff suedfor the resultant damage. Thecourtheldthattherewas an implied warrantythatthe areawassuitable for mooring and, therefore, the plaintiff could recover damages.The test whichwas applied to settle whether a term should be implied is known as the 'officious bystander test'. This means that if at the time whentwo partiesto a contract are negotiating its terms, a bystander asks: 'What will happen in such and such a case?', then both parties wouldreply: 'Of course so andso willhappen; it is too clear to say that.'312 In the Moorcockcase, Lord Justice Bowen explained the nature of the implied termas follows:

'I believeif one were to takeall the cases, and theyare many, of implied war-

ranties or covenantsin law, it willbefoundthat inall ofthemthe law is raising an implication from the presumed intention of the parties with the object of giving tothe transaction such efficacy asbothparties must have intended thatat all events it should have. In business transactions such as this, what the law

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desires to effect by the implication is to give such business efficacy to the transaction as must have been intended at all events by both parties who are business men. . . The question iswhatinferenceistobe drawnwherethe parties are dealing with eachotheronthe assumption that thenegotiationsareto have some fruit, and where they say nothingabout the burden of this unseenperil, leaving the lawtoraisesuchinferencesasare reasonablefromthe very natureof the transaction.' Since 1889, the authority ofthe Moorcockcasehasbeeninvoked onmanyoccasions,

butwhere construction is concerned, the words of Lord Pearson quoted below fromthe caseof Trollope & CoilsLtdv.North-WestMetropolitanHospital Board(1973), aremost apt. Inthat case,theHouse of Lordsrefused to implyaterm to make the building contract more workable.The workwas to be carried out in threephases, governed by different conditions. The contract provided that the work in phase ifi was to be completed by a set date, butitdidnot include atermforthe consequenceofthe workin phaseIbeing delayed. In the event, the work in phase I was delayed andtherewas a dispute about whether or not the date for completion of phase III should be amended. Lord Pearson stated:

'The court does not make a contract for the parties. The courtwifi not even improve the contract which the parties have made for themselves, however desirable the improvement mightbe. The court's function is to interpret and applythe contract whichthe parties havemade for themselves. If the express terms are perfectly clear and free from ambiguity, there is no choice to be made between different possible meanings: the clear terms must be applied evenif the courtthinks some other terms wouldhavebeenmore suitable. An unexpressed term can be impliedif and only if the court findsthat the parties must have intended that term to form part of their contract. It is not enough for the courtto find that sucha term wouldhavebeenadopted by the parties as reasonable menif it hadbeensuggested to them: it must have been a term that went withoutsaying, a term necessary to give business efficacy to the contract, a term which, though tacit, formed part of the contract which the parties madefor themselves.'

In the context of standardforms of contract, it is important to realise that terms whichhavebeenimplied in decided cases may be considered as precedents for

similar contracts, thus establishing a contractual duty under the operation of the commonlaw. Suchimplied contractualduties in constructioncontractsunderthe common law include, but are not limited to, the following: (a) the employer must give possession of the site within a reasonable time; (b) the employer or his agents must give any necessary instruction and infor-

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mation and have the design completed to enable the contractor to achieve completion of the works by the contract completion date; (c) the contractor must carry out his work with proper skill and care andwith materials of goodquality andfit for this purpose. Similarly,where it has been decided that certain duties or obligationscannot be impliedin a particular typeof contract, a precedent wouldbe establishedfor the non-existenceof animplied duty in that context. For instance,the ownerdoesnot impliedly undertake an obligation with regard to the nature or suitabilityof the site or subsoil or the design. 3.9

Remedies for breachof contract Theconcept of law, wherea contract is concerned,is embodied in what oughtor oughtnot tobe doneratherthaninwhatwifiorwillnotbedone. Whilst whatwill orwillnotbe done cannot be madecertain by the application of law, what ought oroughtnot tobe done is secured througha back-up of sanctions.313 Therefore,if an obligationunder thecontract is notfulfilled,sanctionsin theformof damages or equitable remedies willbe applied (seebelow). This approach is different from that under some jurisdictions within the Romano-Germanicsystem of lawwherethe performance ofthe contracthas tobe actually done, that is, thereis a legal requirement that what was promised to be done willbe done.314 ThechartinFigure 3.1 provides a schematicanalysis ofthe subject ofremedies for breach of contract. Under English law, where thereis a breach of contract, an injured partymay seek any or a combinationofthe followingremedies: (a) Remediesinthe form of damages. (b) Equitableremedies in the form of:

(i)

Speczj-lc performance

Specific performanceis defined inLawofContract (seeReference3.5), page 661,

as a decreeissuedbythe court whichconstrains a contractingpartyto do that which he has promised to do. This remedy is rarely availablein construction disputes because courts wifi not enforcea contract requiring constant supervision.

(ii) InjuncHon Injunctionsare court orders compelling or restraining a specific act. Like all equitable remedies injunctions are discretionary andthe courts usually grantthemonlyif theyaresatisfied,followingcertain establishedprinciples,that justice or conveniencerequires it. Injunctions may be of three kinds: interim, interlocutoryand perpetual.

Fig. 3.1

Remedies for breach of contract in the common law system.

A claim is made on a quantum meruit for the value of work done

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(a) Interiminjunctions

In cases ofreal emergency,application canbe madeto the court forinjunction on anexpartebasiswhichmeans that theperson againstwhominjunctionis sought is not on notice of or aware of the application.In granting such an injunction, the court will invariably require anundertaking from the applicant to pay any loss or damage sufferedby the party against whomthe injunction is granted shouldthe applicant's claim ultimately fail. Aninteriminjunctionisnormally granted merely to maintain the status quo and will only be valid for such time as would be necessary to obtain an interlocutoryinjunction. (b) Interlocutory injunctions

Where there is no real emergencybut some interimrelief is required pendingthe full trial of the issue, an interlocutoryinjunction may be obtained which essentially gives the same relief as an interim injunction, exceptthat the party against whomtherelief is sought is putonnoticeoftheclaim andhisprimafacie defenceto the claim is heard. As in the case of an interim injunction a court, in granting an interlocutory injunction, will generally require an undertaking as to damages from the applicant. (c) Perpetual injunctions

Followingthe full trial ofthe issue,the court maymakeabsolute the interlocutory injunctionalready granted. Indoingso, itmay grantone ofthe followingequitable remedies: (a) Rectification

Rectificationis a remedy in the case of a mistake resulting in the terms of contract being incorrectly expressed.

(b) Rescission

Rescissionis:

'the cutting downor terminatingof a contractbythe parties or one ofthem. It may be done by agreement, or by one party who is entitled to do so by reasonof the repudiation or material default of another or by reasonof the contract having been induced by fraud or misrepresentation by the other party. It is effectedby taking proceedingsto have the contract judicially set aside, or by giving noticeto the other partyofintention to treatthe contract as at an end.'315 in contract and underquasi-contractualrelationshipsthrougha claim on the basisof a 'quantummeruit'.

(c) Remedies

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Quantum meruit is the basis for a claim or a remedy sought for the payment of a reasonableremuneration for work done or services rendered. It arises where: (a) a contractual agreement existsbut either: (i) a precise price has not beenagreed; or (ii) conditions agreed as a basis for not charging for certain work do not eventually materialise;or (iii) an original contracthas beenreplaced by another andpayment is sought for work done under this new contract. for one reason or another, no contract exists.This situation couldarisewhere: (b) (i) therehas neverbeen a contract;or (ii) a contract could have existed but is discharged and no new contract is substituted; or (iii) thereis a presumption ofthe existenceof acontract butthis is later found to be without legal validity. Where there is a breach of the contract, the type of action to be followed by an injured party would dependonwhetheror not the contract becomes discharged as a result of the breach (seeFigure3.1). Ifthe contract becomes discharged,then the injured party has the choice of either holding the defaulting party to his promise under the contract or acceptingthe contract as discharged. In the former case,the injured partyremains liableforhis ownundertakings underthe contract. If thelattercourse is chosen, thenthe consequencesare:

Theinjured partyis relieved from the undertaking to perform his obligations andmayseek to havea declarationthat the contract is terminated. (b) The injured party may either sue for the recovery of damages or claim on a quantum meruit basis for the value of any work already carried out. (a)

Ifthe breach doesnot dischargethecontract,thenan actionfor damages would raisetwo issues — the first is the extent of the loss suffered and the second is the measure ofthe damages (seeFigure3.1). Inthis connection,the differencebetween thetwo words 'damages'and 'damage'should be fully recognisedto avoid any confusion in what is intended. The fundamental principle of establishing the extentofloss for whichdamages maybe claimedmustbe distinguishedfromthe assessmentofmonetary compensation.The type andextent oflosswhichmaybe compensatedwas first defined inthe case ofHadley v. Baxendale(1854) 9 Exch 341 by BaronAlderson as follows: 'Where two parties have made a contract, which one of them has broken, the damages which the other party ought to receive in respect of such a breach should be suchas may fairly and reasonably be considered either:

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(a) arising naturally, i.e. according to the usual course of things from such a

breach itself,or

(b)

suchas maybe supposed to havebeen inthe contemplationofboth parties at thetime theymadethe contract as theprobable resultofthe breach ofit.'

The facts of the case were summarised in Law ofContract as follows:316

'Themill of the plaintiffsat Gloucesterwas brought to a standstfflby a broken crank shaft and it became necessaryto sendthe shaft to the makers at Greenwichas apatternfor a newone. The defendant, a common carrier, promised to deliver it at Greenwich on the following day. Owing to his neglect, it was imdulydelayed in transit, with the result that themill remained idle forlonger than it wouldhave done hadthere been no breach of the contract of carriage. Theplaintiffs,therefore,claimedtorecoverdamages fortheloss ofprofit caused by the delay. The evidence of the parties was conflicting, but the Court of Exchequer considered the case on the footingthat the onlyinformationgiven tothe carrier was that the article to be carried was the broken shaft of a mill and that the plaintiffs were the millers of that mill. Itwasobviousthatthefailureofthecarriertoperform thecontract punctually was the direct cause of the stoppage of the mill for an unnecessarilylong time, and, if the piaintiffswere entitled to anindemnity against allthe consequences ofthebreach, theyshould havebeenawarded damages for thelossof profit. At the trial thejury did indeedallow the claim, but on appeal the courtordered a new trial. Alderson B demonstrated that,in accordancewith the principle that he had justexpressed, there were only two possible grounds upon whichthe plaintiffscould sustaintheirclaim.Firstly, thatinthe usual courseof things the workof themillwouldcease altogetherfor thewant of the shaft. This, he said, wouldnotbethenormal occurrence,for, totakeonly one reasonablepossibifity, the plaintiffsmight well have hada spare shaft in reserve. Secondly,that the special circumstanceswere so fully disclosed that the inevitable loss of profit was made apparentto the defendant. This, however, wasnot the case since the only communicationprovedwas thatthe article to be carried was the shaft of a mill and that the plaintiffs were the owners of the mill. Thejury, therefore, should nothavetakenthe loss ofprofit into considerationintheirassessmentof damages. The words "either", and "or", used in the formulation of the rule as explained by Alderson B, shows that it contains two branches. The first deals with the normal damage that occurs in the usual course of things; the second with abnormal damage that arises because of special or exceptionalcircumstances.The defendant is takento have contemplatedbothkindsof damage,but whereit is abnormal only ifhe knew of the special circumstancesatthe time of the contract.'

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Many cases have come before the courts since then wherethe above two rules were debated, explainedandreiterated. The words'inthe contemplationof both parties' were considered inthese cases in the context ofreasonable foreseeabiity and probabilityofoccurrencebuttheprinciple ofremotenessstill holds317 andthe two important questions in a claim for damages are still: (a) for what extent of loss is the claimant entitled to recover compensation?and (b) whatprinciple shouldbe applied in evaluatingor quantifyingthatdamage in

monetary terms?

Inrespect ofthe second question,the courts in England have tendedto apply the principle that 'If the plaintiff has suffered damage that is not too remote, he must, as far as money can do it, be restored to theposition he wouldhavebeen in had that particular damage not occurred.'318 In this connection,it is necessaryto remember that English law imposes a duty on all parties to mitigatethe loss or damage resulting from thebreach.Thecourts, therefore,in assessingthe damages to be awarded, would examinethe measures, if any, whichcould or oughtreasonablyto havebeenimplemented to reduce the loss or damage. If the injured person is considered to have failed to mitigate the loss,suchfailurewouldbe takenintoconsiderationinthe assessmentof damages to be awarded. The measure of damages is based on whether or not an assessment of the damages tobepaid hasbeenincluded inthe contract incase ofa breach.Thus, the parties may foresee the possibffityof a particular breach and accordingly may stipulate a genuine pre-estimate of a certain sum of money to be paid as compensation if a breach actually takes place. This is called liquidated damages and, provided itis a true and genuinepre-estimate,the claimantisentitled toitwithout having to provethat he has in fact sustained a loss or damage; see later in Section 17.5.

If, on the otherhand, the sum stipulated is not a true and genuine pre-estimate of the loss or damage whichwould result from the breach, the damages would then be considered as a penalty. Under English law, a penalty is subject to the rules of equity.3d9 if the damages arenotfixed in the contract,then they are referred to as unliquidated damages and an arbitrator or the court would be responsible for assessing their value as compensation for actual loss suffered subject to the principle ofremoteness discussed earlier in this chapter. They maybe inthe form of: (a) substantial damages which putthe claimantinthe same situation as he would

havebeen if the contract hadbeenperformed;or (b) nominal damages which apply ifno loss is sufferedandrepresent only a token sum awarded for the infringement of a contractual right.

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Apart from the remedies for breach of contract, it is worth mentioning exemplary or punitive damages which are awarded in certain tort cases. The purpose of awarding this type of damages is not to compensatethe plaintiff,nor even to strip the defendant ofhis profit, but to express the court'sdisapproval of the defendant's conduct, for example, where he has deliberately committed a wrong (such as defamation)with a view to profit.32° Damages may also be classified as general damageswhichare payable as compensationfor the losspresumed to followfrom abreach ofcontract or from a tort; and special damageswhich are payable as compensation for particular losses not presumed, but whichinfacthave followed in a particular case. Special damages have to be specificallyclaimed and strictly proven. 3.10 Exclusion clauses Exclusionclausesare usually, thoughnot exclusively,foundinstandardforms of contract.They are usedby oneparty toacontract inan attempt to excludeorlimit a certain liabifity or liabilitieswhichwouldotherwise be attached to that party. Becauseof theirnatureand dueto the conflictbetweencommercialand consumer interests, exclusionclauseshave produced a greatnumber of cases underEnglish law, but only a few rules. Specialist knowledge and advice are particularly required inthis area. Where construction contractsare concerned,itis generallyaccepted that where there may be any doubtabout the meaning and scope of the exclusionclause, the ambiguity is resolved against the party who has inserted the clause into the contract andwho is relying on it. An exclusionclause must therefore be carefully drafted andclearly expressed with precise phraseology. This is more stringently applied where the clause is attempting to exclude liability ratherthan limit it. 3.11

The responsibilityto complete Under common law, thereis a duty on the contractor to complete a construction contract whatever happens. This duty was defined as early as 1867inthe case of .21 Applebyv.Myers,3 where itwasheld that theplaintiff contractorwas notentitled to recover anything from the employer inrespect ofany portionof themachinery he had erected whichwas destroyed in a fire prior to the completionof thework. More recently, in the case of Charon v. Singer Sewing Machines Ltd (1968), the defendants employed the plaintiffsto convert a shop andliving accommodation. Thecontract included the words'allow for covering up and protecting the works duringfrosty and inclement weather or from damage from any other cause and reinstating any work so damaged'. Vandals broke into the shop one day before

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completion of the work and caused damage which had to be repaired by the plaintiff by repeating work already carried out andpaid for. The court held that the contractor hadto bearthe cost of repair.3 In this case, the following statement from Hudson's Building and Engineering Contracts, 10th Edition, was quoted with approval:3

'Indeed,byvirtueoftheexpressundertaking to complete (and insome contracts tomaintain for afixed period aftercompletion)thecontractor would be liableto carry outhis work again free of charge inthe eventof some accidental damage occurring before completion eveninthe absenceof any express provisionsfor protection of the work.' This chapter hasconsidered the mainlegalconcepts ofthe common lawsystem on which the Red Bookis based. The next chapter briefly discusses drafting principles in relation to contract documents.

Chapter 4

Drafting Principles

'AndtheLord said, "beholdtheyareonepeople andtheyhaveallonelanguage; and this is only the beginning of what they wifi do; and nothingthat they propose to do wifinow be impossiblefor them. Come let us go down and then confuse theirlanguage that they may not understand one another's speech." Revised Standard Version Common Bible, Genesis, Chapter 11 The ICEand ACEStandard Conditions ofContractuponwhichthe Red Bookwas based were drafted usinglegal language whichis expected to be so precise as to remain unequivocal even when subjected to detailed andhostile legal scrutiny. Unfortunately, the very reasons assumed to give precision tend to promote complexityand incomprehensibility,thus leadingto ambiguity.The principles of English legal drafting were discussed in Chapter 2, and referenceis specifically madehereto the quotations given in Section2.9.1, References2.22, 2.24 and 2.25. Where such drafting is appliedto a standardform of conditions of contract, one maylook at the words of an authoritative lawyer in this field:

'As to the risks on our listthat are created by lawyers andlaw, takelegal language to start with. Lawyers are lawyers, andthe lawyer/draftsmen and the lawyer/interpreter betweenthemshould make it possibleto obtain satisfactory forms ofconstructioncontract withreasonableeffort.The constructionindustry may take the view that lawyers as technicians have a job to do in producing contractswhich, as interpreted bythe courts, willbe satisfactoryinconstruction matters (complicatedas they are by their nature andnot merely because the parties make themcomplicatedto annoythe judges) andthatthey are not doing this job very well. Rules of interpretation are maintained which require the draftsmen ofstandardforms to do the impossible— to visualise all conceivable eventualities for many thousands of contractsandspell out terms to deal with them in language whichis so clear that it cannot be distorted even by a party who finds himself with an interest in distortion, and without making the document so cumbersome as to be useless to those for whose benefit it is presumably intended. When a case comes before the courts many days may be

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spent inanalysinga sentenceina conditionsof contractor specificationorbillof quantities withoutallowing for the fact that the draftsman hadto do his work with reasonablespeed. Thecourts also mustfind the game more fun whenit is played inthe dark, since theyrestrict the informationthatmaybeusedtoclarify the meaning of the wordsused.Onemust wonder preciselywhat function the courtsare fulfillingby interpreting a standard form document of greatimportance to a complexindustry in a legalisticway. The result is thatwhena standard form or a special termfor acontract has to be drafted, muchtime andmoney is spent employinglawyersto translate it into legal language, and then employing other lawyers to translate it back again whenthe users want toknowwhat it means.Theserious risk,often realised, is that much is lost, distorted or overlooked in the process of translation and retranslation.'41 However, even at its best, language as a means of communicationhas its limitations. For example, it is accepted that comprehension of sentences read for the first time, depends mainly on the lengthof a sentence, the number of ideas expressed in it, the complexity of these ideas andthe intelligencequotient (IQ), of the reader. Long sentences often contain complex ideasthat would be more clearly expressed in several sentences.Whilst sentences of around 18 words are direct and can be readily understood, informative and technical text may require sentences of 35 to 45 words for the expression of a complex idea or a numberof ideas. It is calculated that sentences with 28 words or more, representing a multiplicity of statements read for the firsttime can only be easily and readily understood by four per cent of the population (equivalent to an IQ of 130 and over) 4.2 The length of paragraphs and the connection betweenthem are also very important in presenting to the readera simple, logicaland clear text.43 With repetition, this limit in the number of words in a sentence increases of course but is still far below the average number of wordsper sentencein the two standard forms of contract referred to above. Thus, complaints about the complexity ofthe legal language usedinthese forms havebeenmadeevenby lawyers and judges who arerepeatedly exposed to them.44 In international contracts, other difficultiesarise in the use of languages as a means of communication,and these are: (a) Various languages have their own unique peculiarities,for example: vowels are not written in Arabic; definite and indefinite articles are not used in Russian; some words in English are not spelt as pronounced and can be equivocalin theirmeaning; and so on. (b) Words usedinnormal circumstancesmay have differentmeaningswhenused in the legal sense, for example,the words'error' and'mistake'. (c) Some words in English, when used in the legal sense, impose obligations

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unfamiliar to the layman, for example, the use of 'may' versus 'will' versus 'shall'.45

(d) The sequence of words in some languages is a determinative factor in their meaning. For instance the words: 'I wish him to survive' have a totally different meaning from 'I wish to survive him' despite the fact that the same words are used in both statements. The relevanceof the provision of language has been recognised fromthe early daysof civiisation. Confucius said:

'Iflanguage is notcorrect, thenwhat is saidis not whatis meant, ifwhat is said is not what is meant, then what ought to be done remains undone. If this

remains undone, morals and arts willdeteriorate.Ifmorals and arts deteriorate, justice willgo astray. TI justice goes astray the people stand about in helpless confusion. Hence theremust be no arbitrariness in what is said. This matters above everything.' But, in order to formulateafair contract,itisnotsufficientto use simple, logical and clear wording. What is equally important, is to recognise the different interpretations whichmight beplacedonthatwording, not only by the averageperson but also by a clever advocate whowould attempt to argue for an interpretation suitable to his case. History has demonstrated the ingenuity of mankind to produce different interpretations to a particular set of words. A masterful demonstration of how useful a strictconstruction of a set of words can be was made in Shakespeare's MerchantofVenice. Mr.JusticeNiallMcCarthyreferredtoitinthe followingmanner: 'Portia opted for the strictconstruction "Therefore prepare thee to cut off the flesh, Shedthou no blood; nor cutthou less, nor more, Butjust a pound of flesh: ifthou tak'stmore Or less than a just pound be it but so much As makes it lightor heavy in the substance, Or the division of the twentieth part Of one poorscruple: nay, if the scale do turn But in the estimationof a hairThoudiest andall thy goods are confiscate."

-

(Act IV, Scene 1) The arbitrator,the Duke, never madeany ruling on the true construction ofthe bond;the unfortunate Shylock,an earlyvictim of the lawyers' art, not merely losthis claimforinterest —forprincipal — but wasdamnifiedfor having daredto sue.'46

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However, Shakespeare's plot is capable of a different interpretation as was demonstrated in the following statement: 'Shakespeare illustrated in fiction that the terms of a contract which are repugnant to naturecan be interpreted, with sufficient ingenuity, to produce a just result even to the point that the party seeking to impose and enforce oppressive terms mightbe deprived of all benefit.'47 Faced with suchdrafting difficulties as described above,therehave beenvarious calls to simplify the language and the wording of the Red Book.48 Although considerablechangeinthat directionhas beenachievedinthe most recentrevision and its reprints, the original concept wasretained.

Chapter 5

The Concept of a Trusted Independent Engineer

5.1

Introduction This chapter considers the concept of a trusted, independent engineer which is central to a contract usingthe Red Book, under the headings of the qualities of a consulting engineer, the services provided by him and his independence. The definition,qualities and independence ofa consultingengineerare outlined inthe Statutes and By-Laws of FIDIC whichwere firstpublished in 1955. The initiator of a civil engineering project may be a government agency, municipal authority, public corporation, semi-state organisation, incorporated company, a groupofindividuals or a private person. As in the ICEForm of Contract for civil engineering works, the Red Book is drafted on the basisthatwhen a projectis initiated by a developer or a promoter, theduties related to feasibility, design and supervisionduringconstructionofthe project are entrustedto anindependent consultingengineerwho is referred to as the 'Engineer' in the contractual arrangements between the developer and the contractor. The developer of such a project is referred to in these forms as the 'Employer'.

5.1.1

FIDIC's Statutes and By-Laws andthe independentengineer FIDIC'sStatutesand By-Laws have been kept underconstant scrutiny and review in order to react promptly to, and sometimes be proactive in, international developmentsinthe constructionindustryandthe manner inwhichconstruction projectsare procured and executed.Thusthe definitionsof independenceandof a consulting engineer have developed over the years. The third edition of the Guide to the Use ofIndependent Consultantsfor Engineering Services published by F]DIC in 1980 defined a consulting engineer as follows:

'The consulting engineer is a professional engineer in private practice. He maintains his own engineering office either alone or in associationwith other

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engineers.He employs the necessarystaff to assist in carrying out the services which he provides. His orgariisation may be that of a sole proprietorship, a partnership or a company. This depends on the type and magnitude of his operations and the conditions of practice set by his national association. He must carry outhis practice on a highly ethical professionalbasis. The technical knowledge, experience and abifity of the consultant, his associates and assistantsmust be fully adequate for the projectsundertaken.'51 Until October 1995, Article 3(2) of FIDIC's Statutes andBy-laws set out the following three principles relating to consulting engineers.These are professional status, independence andcompetence. '(1) ProfessionalStatus

In the exercise of his Profession a Consulting Engineer must act in the legitimateinterest ofhisClient.He mustdischargehisdutieswithcomplete fidelity and conducthimselfinsuchamanner asfaithfullyto serve the best interest of Societyandto upholdthe standing and reputation of the profession. (2) Independence

A Consulting Engineer's professionaladvice,judgement or decisionmust not be influenced in any way by a connection with another person or organisation.

Control of the policies and management of a Consulting EngineeringFirm which is partly or wholly owned by entities other than Consulting Engineers shall be vested in Consulting Engineers. The remuneration of a Consulting Engineer for professional services should be derived only from fees paidby Clients, with the exceptionthat a Consulting Engineer may nevertheless also benefit from equity participation in ad hoc groups formed with others to undertake design and construct,project management or similar activities. (3) Competence

AConsultingEngineermusthavethe necessaryknowledge and experience to enablehim to fulfil his mission.'52 Article 25 of these Statutes and By-Laws provided that the words 'Consulting Engineer(s)' are deemed to include individual members or member firms of Member Associationsof FIDIC. However, in October 1995, significant changes were introduced into FIDIC's Statutes and By-lawsleading to the followingdefinitionof a consultingengineer being incorporated in Article 25 ofthe 1995 Edition:

The Conceptofa Trusted Independent Engineer

75

'The words "Consulting Engineer" shall define persons who are individual members of a Member Association,or are qualified practising professionals principally occupied as advisers on engineering and related matters, with the responsibilityfor the management of member firms of a Member Association, or persons who have recently held such positions before their professional retirement.' Furthermore,Article 3(2) was also replaced inOctober 1995 by the followingtext which represents a fundamental development of the concepts of professional conduct, status and independence of a consulting engineer:

'To qualifyfor membership of theFederationan Associationmustdemonstrate thatitsStatutes, By-Laws andregulations ensure thatits members complywith theFIDIC Statutes, By-Laws and Code ofEthics.Thefollowingprinciples apply: (i) Scopeof Membership

(a) Member Associations may only include amongst their membership suitably qualified individuals or firms whose principal income is derived from the provision of consulting services to clientsfor a fee. (b) The scope ofsuch consultingservices shall be engineering and related disciplines.

(ii) Legal Status Member associationsmay only include amongst theirmember individuals, partnerships, firms that are properly constituted as separate legal entities, or employeesof suchfirms. Allmembers shall practise without thebenefit of financial subsidies or preference from any outside ownership that may exist. (iii) ProfessionalConduct

Member Associationsshall ensurethat a member firm subscribesto and respects the Statutes andCode of Ethics of the Member Association,and hence that theirmembers, individuals andfirms: (a) act solely in the legitimate interest of the client. This principle should not be affected by outside ownership or any connection with another person or organisation; (b) be remunerated for their consulting services solely by their client. No direct orindirectbenefit shallbereceived from any other party without that client's knowledge. (iv) ProfessionalQualifications FIDIC strives for a high standard of competence and professionalperfor-

mance of its membership. Member Associations in their statutes shall

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The FIDIC Form ofContract

define the professionalqualificationsandexperiencewhichare required as a pre-requisitefor membership. (v) Additional Criteria

Member Associations may require stricter membership criteria which exceed the basic requirements set out by FJDIC.' 5.1.2 FIDIC's CodeofEthics

The Statutes and By-laws of FIDIC also refer to a Code of Ethics.53 This code focusesonthe principles which are fundamental to the behaviour of a consulting engineer if societyis to have the necessary confidencein its advisers. It specifies that the consulting engineershall: 'Responsibility to Society and

the Consulting Industry

Competence

1. Accept the Responsibilityof the consultingindustryto society.

2. Seek solutions that are compatiblewith the principles of sustainable development. 3. At all times upholdthe dignity, standing andreputation of the consultingindustry. 4. Maintain knowledge and skills atlevels consistent with developmentintechnology,legislationandmanagement, andapplydue skill,careanddiligence in the services

renderedto the client. 5. Perform services only whencompetentto perform them. Integ-rity

6. Actat all timesin the legitimateinterest of the client and provideall services with integrity andfaithfulness.

Impartiality

7. Be impartial inthe provision of advice, judgement or decision.

8. Inform the client of any potential conflictof interest that mightarise inthe performance of services to the client. 9. Not accept remuneration whichprejudicesindependent judgement. Fairness to others

10. Promote the concept of 'Quality-BasedSelection' (QBS). 11. Neither carelesslynor intentionally do anything to injure the reputation or business of others. 12. Neither directly norindirectly attempt to takethe place of

another consulting engineer, already appointed for a specificwork. 13. Never take over the work ofanother consulting engineer before notifyingthe consultingengineer in question, and withoutbeing advised in writingby the client of the termination of the prior appointment for that work. 14. Tnthe event ofbeing asked to review the workofanother, behave in accordancewith appropriate conduct and courtesy.

The Conceptofa Trusted Independent Engineer Corruption

77

15. Neither offer nor accept remuneration of any kindwhich

in perception or in effect either a) seeks to influencethe

process or selection or compensation of consulting engineers and/ortheirclients or b) seeks to affectthe consultingengineer's impartialjudgement. 16. Co-operatefully with any legitimatelyconstituted investigativebodywhichmakes inquiry into the administration of any contract for services or construction.' 5.1.3 FIDIC's Quality-Based Selection, 'QBS' Tn 1997, FIDIC published its document on Quality-BasedSelection, referred to in

item 10 ofits Code ofEthics,inthe form ofabrochure. Itsets out to help all those responsiblefor the selectionofconsultants to achieve thatobjectiveonthe basisof qualifications,experience,ability andintegrity.s.3a 5.2

Other suppliers of consultingservices The Statutes and By-Laws of FIDIC exclude some other suppliers of services unless they are individual members of a member association of FIDIC, or are qualified practising professionals principally occupied as advisers on engineering and related matters, with the responsibilityfor the management of member firms of a member association, or persons who have recently held sucha position before professional retirement. The following are examples of these excluded suppliers: — Tn-house departments within the employer's organisation; — Government or

agencies

organisations;

—

Contracting firms;

—

Supplyfirms; Public corporations; Non-profitmakingorganisations; Universities and research institutions; Anynon-independent enterprise with an interest in orpossible benefit drawn from matters which include amongst others, the determination of design standards; choice and acceptabilityof materials; and the adoptionof methods of ensuring a saving in essentialcosts.

— — — —

5.3 Services provided by the consultingengineer The servicesprovidedby the consultingengineermay be one or a combinationof any ofthefollowing:counselling,pre-investmentstudies, design and preparation ofdocuments, supervision,specialiseddesigner developmentservicesandproject management.

The FIDIC Form ofContract

78 5.3.1

Counsellingservices These servicesare very wide in scope andcan be anything fromthe provision of adviceon the identification ofresources, project identificationandquantification of objectives to advising on a particular case or situation. Such services may require the involvementofan individual consultingengineer, or a smallgroupof specialistsqualified to dealwith the particular task.

5.3.2 Pre-investment studies

Pre-investmentstudiesare perhaps the most criticalof allthe servicesprovided by the consultingengineer as they determine the investment policy of the promoter as wellas the feasibffityand basic features of individual projectswhichcouldbe suitable for the particular situation. The promoter usuallyinitiatesthe process of procurement of a particular project knowing ingeneral the objectives forwhichit is required. However, it is the pre-investmentstudythat determines whether this project is feasible or not, economicallyviable or not, environmentally acceptable or not, politicallyconstrained or not, physicallyworkableinone detail or another or not at all and, finally, sustainableor not andatwhat cost. At this stage, thebase of knowledge requiredto provide suchservice is extremely wide and the team composition may include engineers, planners, economists, sociologists, ecologistsandother specialists.Various alternative solutions are normally presented to the particular problem under studywith commentary onadvantagesanddisadvantagesofeachoption.Itis clear thatsuchastudyhas to be totally independent and free from any bias or influence, be it commercial, technical,political,financial or of any other kind. In some cases,this servicemaybe divided intotwo stages. The first entails the pre-feasibilitystudyduringwhichthe consultingengineerinvestigateswhetheror notit is worthwhile to proceed to an advanced stage of a feasibilitystudy. It is extremely difficult to define the boundary between these two stages without referenceto a particular project. 5.3.3 Design,preparationofdocuments and supervision

Engineering and detailed design, preparation of contract documents andsupervision services during project implementation are all services provided by the consultingengineer. Engineeringand detaileddesignservicesshouldnormallybe followed by supervision services during the implementation period. The same consulting engineer should normally provide both services as it is a mistake to employdifferent professionalsfor these two interrelatedservices.There aremany reasons forthis conclusion,the most important of whichis perhaps the avoidance of any doubt about the resporisibifity for the engineering and other services provided.54The documents showing the essentialengineeringinputintoa project

The Conceptofa Trusted Independent Engineer

79

areusuallybasedon an admeasurement contract. Anadmeasurement contract is onewherebifis of quantitiesareused to show the quantitiesof work tobe carried outfor theprice quoted and whilstthe contractorremainsliable tocompleteallthe workshown on the drawings andspecifications,thequantities areremeasured at the end of the contract to recalculatethecontract price,whetheror notvariations had been ordered. In addition to any instructions given to tenderers, the documentation supplied to themusually comprises the followingparts: (a) form of tender; (b) general conditionsof contract; (c) specificationand description of the works preparedin conjunctionwith the design; (d) bill of quantities; (e) drawings; and (f) form of agreement.

Although the design of the permanent works is expectedto be carried out by the consulting engineer, the contractor may be expected to perform some design function. 5.3.4 Specialiseddesignand developmentservices

The consulting engineer is responsible for work of a specialist nature. Some consultingengineers provide specialisedserviceswhichencompassthe provision of original designs of certain processes or items of machinery or equipment or construction artefacts. Services may extend to research and development of innovative work and assistancein registration of patents for inventions. 5.3.5

Projectmanagement This service is identified in Reference 5.1 andis defined as:

-

'The mobilisationof multiple resources and the coordination oftheir activities so thatwork performedbyeachaccumulatesinto amulti-disciplineteameffort to achievethe owner's objective within anagreed schedule,budgetandquality. A Project Management team, in addition to managing engineering, procurement,constructionand commissioning,wifi alsoberequiredto cover other significantelementsof aproject,suchas securingproject financing,maintaining public awareness and obtaining government approvals.'

5.3.6 Programme manager

This function differsfrom project management in that it involves elements other thanthose relating to construction, suchas financing andoperation.

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The FIDIC Form ofContract

Other details of these services are given in Reference 5.1. Standard Forms of Agreementbetweenthe promoter (employer or owner or client) and consulting engineers are published by FIDIC.55 5.4

Independence The appointed engineer is expected to provide his services in a strictly fiduciary manner, one oftrust, which is essentialnotonly to the whole relationshipbetween the employer and the consulting engineer but also to that between the employer and the contractor.Although the concept of independence is developing at a fast paceandespeciallyinrespect tothe role of theengineerin disputeresolution,itis worthwhile to ifiustrate thispointbythe followingquotation whichistakenfrom a paper presented by Mr. J. J. de Greef, then President of the European International Contractors,at a seminar held inJakarta in October 1984:56

'Let us assume that theEmployerwith theadvice ofthe Engineerhas selected a numberofContractorsqualifiedtobidforthejobandthat thechosen ones have received theirtenderdocuments. Thefirst two questions the Contractor willask himself are: "Who are my competitorsand who is the ConsultingEngineer?"

Icomenowto anawkward partinmylecture but Ishouldbe less thanfrankifI

didnotmention one pointwhichstrongly influencesthepriceofthecontract to be concluded between the Employer and the successful Tenderer: the Employer's choice ofthe ConsultingEngineer. Why am I puttingso much stress on the quality of the Engineer or ratherhis suitability for that particular project? The answer is simple: because every experiencedContractor includes in his price calculationa factor forthe wayhe expects the Engineer to function. The weight of this factor is determined by a number of considerations, e.g. how good (or how bad) is an Engineer in maintaining his time schedule for drawings? How efficientlydoeshe dealwith monthly payments? What is his attitude towards variation orders? Does he decide on them quickly or not? There are at least a dozen qualities in the Engineer's Organisationwhichwill be weighed by the Contractor and which sometimesmaylead to awarding to hima considerablenuisance value andthis wifiincreasethe price the knowledgeableContractorwill quote. The conclusion is therefore:"the betterthe Engineer,themore realisticthe Contractor's price".' This pointis particularlyvalidinview of the factthat under the General Conditions of Contract between the employer and the contractor, the engineer is

The Conceptofa Trusted IndependentEngineer

81

entrustedduringthe constructionperiodwith administrativeduties whichmight alter the time for completionof the works arid vary the costof suchworks. These duties include, interalia, measuring and valuing of the executedwork, fixingrates and prices of additional and varied work and deciding all matters which are within the engineer's role under the contract. The engineer in carrying out his duties within the roleallocatedto himmust do sowith unfettered judgement.This is essential since in performing these administrative duties, the engineer is regardedas having a dualrole. Onthe onehand, he is considered as actingin the roleofan agentofthe employer in ensuring throughsupervision that theworkis executed by the contractor in accordancewith the provisions of the contract and that the contractor is in possession of all required documentation for such execution. On the other hand, the engineer is regarded as a certifieror an adjudicator as the case may be.57 As intheICEForm, theRedBookprovides for arbitrationwhenandifeitherthe employer or the contractor or both are dissatisfiedwith the decision madeby the

engineer in performing his duties, see Chapter 19, clause 67. Inperforming hisduties, the engineeris underanimplied dutyincommonlaw, whereitapplies, andan expressdutyundertheCode ofEthics ofFIDIC toactwith complete impartiality of judgement or decision in applying the terms of the contract between the employer and the contractor. Theprevious codes of practice refer also to another requirement, that of independence of ownership. The independence of the engineer is a topic which has rarely beensurpassed inproducing aheateddebatebetween those involved inthe construction industry. Employers, contractors, engineers, lawyers and others quote differentincidentstosupportone or the other ofthe conflictingviews of the debate from whichthey draw divergent conclusions.See Chapters 10 and 11. In suchdebates on independence, some argue that the engineer mustbe independent in both judgement and ownership. Some argue that he need only be impartial. Others argue that in performing his administrative duties, it is not humanlypossible to act with independent judgement when there are questions relatingto his ownduties. Others contend that whilst the engineershouldbe and is capableof acting withindependent judgement, even on matters whichconcern him,he does notnecessarilyneedto be of independent ownership. Thesematters should beexaminedineachcase andthe conclusionsmayform specificprovisions in Part II of the Red Book.

Chapter 6

A Traditional Re-measurement Contract

The previous chapter considered the concept of a trusted,independent engineer whichis central to the contract under the Red Book. The presentchapter examfries the contractualarrangements availableto an employer or a promoter in the construction field and the basisupon which a choiceis made. In particular, four criteria are considered:the identity of the parties undertaking the major roles in construction; the identityof the designer; the manner in which the risks are shared between the parties concerned; and the method of management and of remuneration in respect ofthe worksto be executed.As the Red Book is a traditional re-measurement contract, this type of contractual arrangement is consideredin more detail.

6.1

Factors governing choice of contract Beforeembarking on the implementationof a construction project, a number of steps wouldhave to be successfullycompleted. It wouldbe necessary to ascertain that the proposed project would be technically feasible, econon-iically viable, financially supportable and operationally resourceable. Technical feasibility involves both design and construction. Economic viability and the provision of finance go hand in hand. Operation, expertise, transfer of technology and training are other aspects to be considered if a project is to be successfully implemented. For such projects, the promoter and/or the employer have a wide variety of contractual arrangements to choose from for the various contracts requiredto initiate and implementthe constructionproject.Beforemaking suchachoice,they wouldhaveto consider,carefullyanalyse anddetermine threemaincomponents of the contractualarrangement whichgovern that choice,namely: —

To whomis the essential function of finance allocated?

— To whom are the essentialfunctions of designand constructionallocated? — To whomare the risks allocated andinparticular those of quality control and

valuation?

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A TraditionalRe-measurementContract 6.2 The allocation of essentialfunctions

83

In addition to the fundamental role of the initiator of a construction project, the essentialfunctionssetoutbelowmustbeallocatedtoortakenbycertainparties who wouldthen become involved in the implementation of the project. The initiator could beeither theeventual owner ofthe project,knownalsoasthe employer,oran outsiderintheroleofapromoter whoinitiatesanddevelopstheideaoftheproject. —

initiation anddevelopment of the project;

— finance; — design; —

—

managementand co-ordination of the design functions;

riskmanagement;

— —

construction; safety andhealth; — managementof constructionactivities; — supervision andquality control; — certification; — dispute resolution; —

otherspecialistadvice,supplyand construction;

—

operation.

Thepromoter and/ortheowner/employer havevarious options inallocatingthe above functions to one party or to a number of parties in different possible combinations.For a numberof these options, thereis a suitable standardform of contract withinthe family of standardforms published by FIDIC as enumerated below. —

Client/Consultant — model services agreement (the White Book), PartsI & II,

Second Edition, issued in 1991; of Contractfor Works of Civil EngineeringConstruction (the Red Parts I & II, Fourth Edition, issuedin 1987andreprinted in 1988 with Book), editorial amendments, and subsequently reprinted in 1992 with further amendments; — Conditions of Contract for Electrical& MechanicalWorks including erection on site (the YellowBook), PartsI & II, Third Edition, issued in 1987; — Conditions ofContractfor Design-BuildandTurnkey (theOrange Book), Parts I & II, First Edition,issued in 1995; and — Conditions of Sub-contract for Works of Civil Engineering Construction with the Red Parts I & First issued in 1994. Edition, II, (compatible Book), — Conditions

The Yellow Book, the Orange Book and the Sub-contractform are briefly discussed in Chapter 21, later in this book.

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84

6.2.1 The allocationofthe functionrelatingtofinance

A constructionproject canbe financed in a number ofwaysas follows: — self financing throughthe owner'sown resources; — —

borrowingfrom a lending agency; and financing through involvement of the public and/or the constructor of the project.

In the latter type of arrangement, it is more often than not that a concession agreementwouldbe negotiatedto own or operate or own and operate the project for a period of time for thebenefit ofall the parties involved beforehandingover theproject to theowner. Thus,theconcessionagreementmaybe one for any of the following: — Build-Ownagreement, knownby the acronym 'BO'; — Build-Operate-Transferagreement, known by the acronym 'BOT'; — known the

Build-Own-Operate-Transfer agreement,

—

— —

by

acronym 'BOOT',

whichincorporates in the arrangements property developmentsrights; Build-Own-Operate agreement,knownby the acronym 'BOO'; Build-Rent-Transferagreement,knownby the acronym 'BRT';and Build-Lease-Transferagreement, known by the acronym 'BLT'.

In some cases,the financiermaydictate the terms of contract for theproject to be financed, suchas ina casewherethe World Bankis involved,certain amendments totheprovisionsofthestandardform ofcontract usedaremandatory;seeChapter 22 later in this book. The 'BOT' and 'BOOT' concepts

The concepts of Build-Operate-Transferor 'BOT' and of Build-Own-OperateTransfer or 'BOOT', are the most popularamongst those mentioned above. They require the presence ofthreeelements:first, afeasibleandviable project;secondly, a willing government to grant a concessionagreement which empowers a concessionairethe right to operate and benefit from the constructedproject by that concession; and thirdly, funders who are willing to take the financial risk of undertaking the project.On the expiry of the concessionperiod, the projectreverts to the authority which hadgranted the concession. These concepts are not new although the acronym is.61The first construction project financed through such an arrangement was the Suez Canal which was completed and opened for international navigation in 1869. The concession agreementin that case was for a period of 99 years. A similar approach was later adoptedfor theconstruction of the Panama Canal project.

A TraditionalRe-measurementContract 85 Although a period of99 years proved tobe too long inthe caseofthe Suez Canal and was cut short in 1956 due to a political motivation, the project financing arrangements were successful.A more reasonable period nowadays for a con-

cessionagreementwouldbe 10 to 40 years. However, despite the successof these arrangements,the traditional methods of financinginfrastructure projectsaround the world remained, until recently, unchanged. These traditional methods entailed using either fiscal resources of the respective countries or sovereign borrowings from lending agencies, such as the World Bank, the International MonetaryFund, the African Development Bank and similar organisations. Inrecentyears, however,therehavebeenmajorglobal shortcomingsin funding theever growingneedforinfrastructure projectsaroundtheworld. This ledmany governments to reconsider their policy of self-financingsuch projects. Many resurrected the concepts of BOTand BOOT ratherthan seeking to impose higher taxes. This approach was encouraged by the fact that in many countries around the world, thenational economicgrowth andthe annual income per capita have increased to a level that permitted the participation of the general public in such financial activitiesfor the benefit of the whole society. In summary, although the traditional methods of financing a project, i.e. selffinancing andborrowing,represent the mainmethods used today, the concept of involvingprivatefinanceinthe constructionofinfrastructureprojectsisbecoming morepopular. The use of private finance is expectedtorise to anestimated 15% of infrastructure projectsimplemented world-wide. 6.2.2 The allocationofthefunctions

ofdesignandconstruction

The functions of sketch design, preliminary design and final detailed design, management of design, supervision, quality control, certification and dispute resolution may be allocated to one independent professional as is traditionally done in conjunctionwith the use of the Red Book, as described in the previous chapter. On the other hand, these functions may be split and allocatedindividually so that,forexample,the designfunction maybe entrusted to the contractor in a designandconstruct contract. The function of quality control or disputeresolutionmaybe allocatedto a third party. The functions of construction and of the management of construction and supply activitiesmaybe entrusted to one maincontractor as envisaged inthe Red Book. Thesetwofunctionsmay, however, be separated to create whatis known as a management contract where a numberof contractors are appointed, each of whomis entrustedwith a separate part or a different aspect of the project. The whole project is thenmanaged byan overallmanagement contractorto whom the responsibilityforcoordinating the activitiesofthe various contractorsis allocated. Other combinations of function allocation are also possible.However, clearly wherethe Red Book is concerned, the above functions are divided between the engineer and the contractor. The functions of design, management of design,

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The FIDIC Form ofContract

supervision, certification,adjudication and dispute resolution are allocatedto the engineer. The functions of constructionandmanagement of related activitiesare allocated to the contractor. Whilst modifications may be made to that concept, theymustbespecificallyand explicitlystated. Thus,forexample,sub-clause8.2 of the Red Book permits the allocation of some designfunction to the contractor, provided that it is 'expressly' providedfor inthe contract. 6.2.3 The allocation ofrisk,quality control and the method ofpricing andpayment

Havingdetermined the allocation of the essential functions to the various contracting parties, the employer, and the promoter if applicable,should then consider the matrix of risks generated. They should first consider and determine whetheror not it is acceptable,in principle,to havethe risks that areinherent in the contemplated contractssharedbetween the parties involved. This is particularly important in the construction contract where the risks are numerous and diverse. Furthermore, they should consider the risks inherent in the method of valuing the work done and the method of paying for it within the context of the form of contract chosen by them. If the concept of risk sharing is acceptable,its extent and manner should then be decided and made explicit in the contract documentation.Chapter 7 in this bookdeals with the topic of 'Risk'. Astoevaluatingtheworkdoneand payingforit,thereare, inbroadterms, three categoriesof valuation depending on the extent ofrisk accepted by the employer and/orthe promoter. These are: (a) re-measurement contractsbasedon unit rates and prices; (b) cost-reimbursablecontracts;and (c) lump sum contracts. Clauses 55, 56 and 57 of the Red Book clearly identify the Red Book as a remeasurement contract.However, in some cases the use ofa lump sum contract is attractivetothe employer andtechnicallysuitable;for example,ina project where the design has been developed to a sufficiently complete stage that, from the information supplied in the tender documents, the contractor can prepare all drawings and details necessaryfor the constructionwithouthaving to referto the engineer for clarification or for further information and no design changes of significanceare likely.Typically,thismay be the caseinbuilding workratherthan in civil engineeringconstruction.Insuchcircumstances,some employersused to modify certain provisions of the Red Book so that the contract becomes a lump sumtype. Suchmodificationwasnotstandardised byFIDIC untiltheintroduction of the Supplement to the Fourth Edition in November 1996. In the context of the Yellow Book, sub-clause 33.8, 'Payment by Measurement', provides that 'ForanypartoftheWorkswhich is to bepaidaccordingtoquantity supplied orwork done, theprovisionsformeasurementshallbe stated in PartII.' Thus,the option

A Traditional Re-measurementContract 87 is leftopenforthemostappropriate choiceto be madenotonly for eachparticular project,but also for each section thereof.

TheOrange Book, onthe other hand, is a fixed pricelumpsumform of contract as providedin its clause 13.1. 6.3

Re-measurement confracts In this category of contract the employer accepts the risk of variation in the quantities originallyestimated and in some ofthe rates and prices tendered. This is particularly relevant in civil engineering works with a high content of work below the groundsurfacewherethe quantities are inherently unpredictable. TheRed Book, like its ICEmodel, is basedonthis category ofcontract wherea bill of quantities is utifised. The bill of quantities is used for the final remeasurement of all the items of work executed and also for valuing the final contract price. Thesectionentitled 'Measurement' in theRed Bookwhichincludes clauses55, 56 and57 establishesthe principle of re-measurementin the contract.It provides for the contractor to be paid pursuant to clause 60 for the value of the works executedin accordancewith the contract.Sub-clause60.1 provides for payment in respect of, amongst other things, the value of the permanent works executed together with any other sum to whichthe contractor may be entitled, whether underthecontract or otherwise.Thelatterprovision refers to allthe clausesunder whichadjustment to the contract price maybe made,suchas variations, adverse physical conditionsandotherspecifiedevents. (See Chapter 16 later inthis book.) In addition to measurement changes,therefore, attention should be directed to variations andto eventswhichleadtochanges inthe contract and, inparticular, to clause 52 that deals with the valuation of variations. In sub-clause 52.2, the employer accepts that not only quantities may vary, but also 'the rate or price containedinthe ContractforanyitemoftheWorks' maybeitselfvaried. Suchvariation intherateorpricewouldoccur byreason ofanyvariation inthenatureor amount of any work done. In sub-clause52.3,an adjustment to the contract pricemaybe made where'therehavebeenadditionsordeductionsfrom the Contract Price which taken togetherare in excess of15 per cent ofthe "EffectiveContract Price".'

a

6.3.1 The Red Book is re-measurecontract

It isperhapsnecessaryto emphasisethatundertheRed Book, there isnowarranty bythe employer thatthe quantitiesmeasured inthebifi of quantitiesare accurate. It follows that compensationfor any unexpected differencesin quantities should bepaidfor onpreciselythesamebasis as thatalready usedinthetenderandnotas a variation ordered by the employer. This emphasis is necessary in view of the confusion which has occurred as a result of some decisionsincases wheresimilar

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The FIDIC Form ofContract

conditions of contract to the Red Book were used, but with certain additional clauses, resulting in controversial decisions relating to the principle of remeasurement.62Some commentators believe as a result that increases in quantifies under the Red Bookcan be takenas automatic variations.63 The true position under the Red Book has been explained clearly in the following terms: 'By clause 56.1, the engineer is requiredto ascertain and determine by measurement the valueofthe works inaccordancewiththe contractand thuswould be ableto compensatethe contractorforchanges inthe quantifiesand, if it were necessary and appropriate, be able to adjust any relevant items in the preliminary bifis which could be shown to be affected by time or quantifies, withoutany need for the assistance of the variations valuation clause or of wholly new prices under that clause.'64

In this connection,it is of importance to point out that a properly advised employer would require a detailed make-up of prices, to be supplied by the

tenderers, against whichfutureclaimsfor preliminariesor other rate adjustments canbe accuratelyand fairly measured in the lightof the as-built final quantities. Furthermore, if any major change is implemented during the currency of the contract whichaffects that make-up, then a new make-up must be submitted by the contractor and verified by the engineer. The question of preliminary items has become increasingly significant in quantifying proper adjustments to changes in quantities in international construction contracts. This is because some contractors now include into the preliminary bills not only the fixed items of expenditure suchas mobiisationcosts, butalso certainvariable time-relateditems, suchas supervision costs;quantitiesrelated items, suchas temporary works, taxes or insurance premiums; and other items whichshould moreproperly be included in the constructionbifis. Fromthe experienceofthe writer, therangeinpercentage terms forthe value ofpreliminary items as part of the cost of the whole project is as wide as 8% to 58% in international construction contracts. Of course, if the total contract price is built up in such a way that the preliminary items only represent fixed items of expenditure which will not be affected by changes in quantities or time, then even significant changes in the quantities would require no more than a recalculation of the contract price using the final quantities mulitiplied by the unit rates of the respective construction items. However, if the preliminary items form a major part of the contract price, then a recalculationtakinginto account only the construction items, withoutan appropriate adjustment of the preliminary items, would not be accurate. On the one hand it would produce a contract price which might be too high if the quantities were reduced without a reduction in the preliminary items, or on the other hand too low if the quantities were increased withoutan increasein preliminaries.

6.3.2

A TraditionalRe-measurementContract Contracts with a bill ofquantities

89

From a detailed analysis of the design calculations,specificationand drawings, the project is divided into its constituent trades and types of activitiesto be performed. Each constituent trade or activity is subdivided into discrete items, compiled into a bill, with a brief description attached to each item of work to be done. Quantities for each item are calculated from the drawings either precisely, wherepossible, or estimated, wherenot. Whatever method is chosen for the selection of a contractor, he would have entered,whentendering, a unitrate or price against each ofthe items inthe bifi of quantities.Thepriceofthe contractisthencalculatedbyaddingthe extendedpriced bifis. Accordingly,the purposes ofthe bill ofquantities document are as follows: (a) Where tenders are sought by employers, the cost of tendering is reduced by

having these bills preparedonly once on behalf of the employer. The alternative would be for each ofthe tenderers tocompute hisown quantities,atask which can be verycostly in complicatedprojectsandwhichwouldhave to be borne in the end by employers as an overhead cost of contractingfirms. Some also argue that if tenderers are expected to compute their own quantities, the time allocatedfor tendering wouldhave to be increased considerably. (b) Where tendersare sought and received,the billof quantitiesis usedas a basis for analysis of andcomparisonbetween the tenders submitted. Such analysis is essential since, for the experienced engineer, it can be quite revealing to scrutiriisethe rates and prices inserted bythe tenderers and thus establishthe intentions and the capabffities of the tenderers. (c) Thebifi of quantitiesis usedas abasis forvaluation ofvariations,if theyoccur, duringthe constructionperiod. This benefit,however, mayoften dependon a schedule of make-up rates andprices being submitted by the successfultendererafter appointment butbefore he is permitted tocommenceworkon site. The make-up of rates and prices should identify the cost of mobffisation, labour, material, plant, construction equipment, overheads and demobilisation. It should also include the make-up of any preliminary items whichare incorporated inthe bills.65 (d) The document is also used as a basis for valuing the work executed by the contractor duringthe constructionperiod for the purpose of certificationand interimpayments. (e) The bill of quantities is used at the end of the contract as a basis for remeasurement of the various itemsof workexecuted andforvaluing the final contract price.66 6.3.3 Contracts with a scheduleofrates

Where the design ofthe permanent workis not sufficientlydeveloped forabifi of quantities to be compiled and where the work is urgentlyrequired, it may be

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possible to have a contract based on a schedule of rates. This type of contract leaves to the endofthe contractperiod the task of establishingwhichof the items of workwascarried out and the respective quantities. No quantities are given in the schedule of rates. Instead, the tenderers are invited eitherto quotea percentagetobe addedor deducted fromrates previously entered bythe engineer, or to enter their own rates to the various items of the schedule.

6.4

Cost-reimbursable contracts Another type of contract that the employer may choose is the cost-reimbursable contract.In this categoryof contract,the employer essentially accepts the whole risk of carryingout theworks. The contractor is reimbursed for the actual cost of carrying out the work plus an additional amount of money in respect of profit. This may be done on the basis ofthe following: (a) cost plus percentage fee contracts; (b) cost plus fixed fee contracts; (c) cost plus fluctuating fee contracts;and/or (d) targetprice contracts.

In all of these contracts, very detailed and extensive day-to-day professional administrative services are requiredto check the quality and quantity of work done.67

6.5

Lump sum contracts The third category of contract is the lump sum contract, where the employer wishes to acceptthe leastamount ofrisk withrespect to quantities. Itis sometimes referred to as a fixed price contract, since a duty is imposed on the contractor to carry out all the work included h-i the contractdocumentsfor a fixed specified tendered sum.Atypicalexample ofthistype of contractis the Orange Bookwhere clause 13.1 provides that: (b) the Contract Price shall notbeadjustedforchangesin the costoflabour,materials or other matters; (c)

(d) any quantitieswhich maybe setout in a Scheduleare only estimatedquantities and arenotto be taken as theactualandcorrectquantities oftheWorks to beexecutedby the Contractorinfulfilment ofhis obligationsunder the Contract; and (e) ...'

A Traditional Re-measurementContract 91 Fixedlumpsum contractsare usedextensivelyin the United States of America

and in other parts of the world for building work. They are useful where the quantities are expected to remain unchanged. Bills of quantities, however, are sometimesincluded in this type of construction contract for the reasons detailed aboveinparagraphs (a) to (d) ofSection6.3.2 above,butnotthat ofparagraph(e). Thus, the contractor is made responsible for all the costs necessaryfor the completionof thework. Accordingly,despite the fixed pricenature of this contract, there area numberof grounds on which a contractor canclaim extra payment. If the drawings andcontract documents do not accurately describethe work, or if theymake provision forspecificalterations,the contractorwouldbe entitledto be paid additional sums. Payment is usuallymadeat pre-determined stages related to the extent of progress achieved on site. 6.5.1 The Supplementto the Fourth Edition ofthe Red Book, SectionB

It is worth noting that in certain countries and for one reason or another, employers have found the lump sum contract more attractive and have thus modifiedthe Red Bookandchanged itto alumpsum fixed price contract leaving only a few specific provisions for price changes. Therefore, there was a considerabledemand for FIDIC to standardise the necessarychanges tothe Red Book in order to transform it from a re-measurementcontract to a lumpsum contract. This was successfullyaccomplishedby FIDICin November 1996 with the publicationof its Supplement to the Fourth Edition ofthe Red Book. SectionB ofthat document gives guidanceonthe preparation ofcertain clausesofPartIIofthe Red Bookwhichare necessary to amend Part I in order to produce a lump sum contract.

As is explained in the introductory part of this section of the Supplement,it is intended thatthis lumpsum form ofcontract should be usedfor works which are simple andstraightforward, ofrelativelylowvalueand shortduration. Moreover, it is recommended that for larger worksFIDIC Conditions for Design-Buildand Turnkey shouldbe used. 6.5.2

MainfeaturesofFIDIC's FormforPaymenton a lump sum basis In order to adopt a lump sum basis for payment to the contractor in a contract basedontheRed Book, a number of amendments arenecessaryto its PartI. These amendments should be incorporatedintoPartIIofthe RedBook. Furthermore,the wordingof the Tender andofthe Form of Agreementshould also be amended to suitthe amended provisions of the contract. Section B of the Supplement recommendsthat the followingclausesof the Red Bookshould be amended: 1(b),7.1 to 7.3, 12.1, 18.1, 38.1, 51.2, 52.1, 52.2, 57.1, 58.1, 59.4 and 60.1. Clauses 52.3, 55 and 56 of the Red Book are recommended for deletion.

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Thelump sum form maintains the essentialtraditions of the Red Book philosophy including the authority of the engineer.However, the responsibilityof the constructiondrawings is shiftedtothe contractorwho isrequiredto prepare them andsubmit themfor the engineer's approval. Such approval does notrelieve the contractor of any of his responsibilities under the contract. This allocation of responsibilitynecessitatesthat the tender documents must be brought to sucha stage of completion prior to the invitation to tender that they properly reflect the employer's requirements. As thereis neither a billof quantitiesnora re-measurementofthe contract price, interimand final payments should be made onthebasis ofpercentagecompletion of the various components of the project. Accordingly,a schedule containing a breakdown of the lumpsumis annexed to the Tender form for completionby the contractor. The term 'breakdown of the lump sum' is a defined term under the amended clause 1 andis intended only for the purposes of the monthly interim payments. Although the final cost of the project is fixed in respect of any variations in quantities, it is adjustable in accordance with a certain number of the contract provisions.

Chapter 7

Sharing of Risks

'It is only by risking our persons from one hourto another that we live at all.' WilliamJames (1897) 7.1

Introduction Basedonthe statisticsgathered inthe past two decades on topics suchas disputes in the construction industry and international arbitration,71accidents at work72 and exposure to natural hazards aroundthe world,73 it canbe concluded that construction projects are sensitive to an extremelylarge matrix of hazards and risks. This sensitivity is due tosome ofthe inherent characteristicsof construction projectswhich are summarised as follows: (a) The time required to plan, investigate, design, construct and complete a construction project spans such a lengthy period that it is often greater than the period of cyclical recurrence, known as the 'return period', of many ofthe hazards to which such projects are exposed. For example, the hazard of rainfallhasusuallya returnperiod ofless than oneyear depending onthe time for therainyseason. The returnperiod forrainfall of a specificintensity at an individual site would depend on its location. Therefore,the risks associated with rainfall on a particular project wouldhaveto be assessed and managed for the numberof years taken to complete it. Anyreduction in the period of construction introduces its own risks. (b) The number of people requiredto initiate, visualise, plan, finance, design, supplymaterials andplant, construct,administer, supervise, commissionand repairany defects in a construction project is enormous.Suchpeople usually come from differentsocial classes and in international contracts, from different countries andcultures. (c) Many civil engineeringprojectsare constructed inisolated regions of difficult terrain, sometimes stretching over extensive areas and exposed to natural hazardsof unpredictable intensity,frequency and returnperiod. (d) The materials selected for use generallyinclude anumberof newproducts of unproved performanceor strength. Advanced and complextechnologyis also necessaryin some construction projects.

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(e) Extensive interaction is required betweenmany

of the parties involved in

construction, including those engaged as suppliers, manufacturers, subcontractors and contractors, each with its own different commitments and

goals. (f) Constructionprojects are susceptibleto risk cultivation by the parties them-

selves or by others associated with themor advising them.

Itisthereforeextremelyrelevant for theconstructionindustry andthose involved in it to understand the concept of risk and to know howto manage properlythe

risk matrix generated whena constructionproject is initiated. Thesubject of risk, its assessment, allocationand management in construction projects has been developed andappliedon an increasing scale over the last 20 years. The Health and Safety at Work Regulations introduced in a number of countries andinparticularthose recently imposed inthe EuropeanUnion gavethe subject of risk in construction an even greater significance. Amongst the requirements introduced in the European Union through the Construction (Designand Management)Regulations1994, 'CDM',74there is a requirement to carry outrisk assessmentofplanned workandto takereasonablemeasuresto deal effectively with any significantrisk. However, there is little uniformity of approach to the topic of risk by those involved in the constructionindustry and, surprisingly, only afew usefulgeneral applicationsof the topic of risk have been developed in the areaof planningand management of construction projects. The lack of uniformity relating to risk extends evento the definitionof 'risk' and what is meantby it. Etyrnologically, the origin of the word 'risk' in English, 'risque' in French and 'rischis'inItalian is uncertain.The Latinword 'resecum' meaning 'danger'or 'rock' maythrow some light on its origin, but the Chinese 'wej-ji' with the characters representing 'chance' and 'danger',is more ifiustrative of the concept of riskas it applies to the construction industry. This concept has evolved with these two notions embodied in it. It encompassesnot only the danger of a loss but also the chance of obviating it with a consequent gain. Decisionmaking often, if not always, involves risk taking. However, the wellinformed decision maker wifi be aware of the risks associated with any decision and willendeavour to reduce all foreseeablerisksandtheir consequencesto an acceptableminimum. In making a decision, an individual may face any one of the followingpossibilities:

'pure risk' where only negative deviations from the desired outcome are possible and therefore danger of loss is predominant; or (b) 'speculative risk' where both negative and positivedeviationsare possibleand thereforethereis a danger of loss as well as a chance of gain; or (c) only positive deviationsare possibleand thereforeonly a chanceofgainexists. Such events do not form part of the notion ofrisk.75 (a)

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7.2. The definition of 'risk' Risk is defined in BritishStandard No. 4778: Section3.1: 1991,76as 'A combination oftheprobability,orfrequency,ofoccurrenceofa definedhazardand the magnitude ofthe consequences oftheoccurrence'.Inthe same BritishStandard,the definitionofhazard is given as 'A situation that couldoccur duringthe lifetime ofaproduct, systemorplant thathas thepotentialforhuman injury,damagetoproperty, damageto theenvironment,or economicloss'. Basedon these two definitions,riskmaybeexpressed inthe formof a mathematicalequation, as follows: Risk = Probability, or frequency, of the occurrence of a defined hazard x Consequences of the occurrenceof that hazard; or R = P x C. There are anumberofpoints whichflowfrom the above mathematicalexpression

whichare as follows: An undesirable event may have a numberof different causative factors, of whichone or anycombinationcould leadtoitsoccurrence.Forexample,ifthe undesirable eventis the collapse of a cofferdam at a construction site, such collapsemay havebeen caused as a result ofbadground conditions, material failure, defective design, or a combinationof some or all of these factors. All these factors are referred to as hazards; (b) A hazard can, therefore, be construed as a dormant potential for inconvenience, loss, damage to property, damage to the environment, moral damage, injury or loss of life. To eventuate, it is triggered by a particular incident, which may be referred to as a 'triggering incident'. A triggering incident is usually necessary for a hazard to eventuate into an undesirable event. Forexample, if the cofferdamcollapse mentioned in (a) above was due to adefectivesectioninitswall,thetriggeringincident couldbetheimposition of anadditional loading beyond the limitsustainableby thatdefectivesection; (c) The hazard may result in different levels of severity or magnitude of consequencesdepending onthe particular circumstancesand timing of the event. For example, the consequenceof the collapse of the cofferdam in (a) above maybe afinancial loss intheformof thecost oftherepairto thecofferdam,or it mayextend to a critical delayinthe completion of the project,or it maygo beyond the financial loss and delay intopersonal injury anddeath; and (d) Expressing risk in a mathematical formula permits a comparison of the magnitude of the various risks to which a project is exposed. Such a comparative analysis may then be used to decide whether to accept a particular risk or takemeasures to eliminateit or, at least, to mitigate its effect. (a)

Insummary, whena hazardeventuates intoanundesirableevent, the sequenceof events can best be expressed as follows: hazard —*

—

triggering incident

assessment and evaluation.

—*

undesirable

event -+

consequences

—*

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Anyassessmentandevaluationcarried out on these consequencesmaybeused subsequently in the measurement of risk relating to that hazard. Anifiustrativeexample ofthe above conceptandterminologyis the collapseof thewalkwaybridge oftheHyatt Regency Hotel inKansasCityintheUnited States in 1981. The events were as follows: Ona Fridayevening inJuly 1981, over 1000people were crowded onto themain floor of the lobby ofthe hoteland on three walkwaybridges spanning it, to watch andparticipatein a dancingcontest.Shortly after7p.m.,aloud crackingnoise was heardand the fourth-levelwalkway was seen to buckle and fall onto the secondlevel walkwaytwo storeys below, causing it to collapseand dumpsome 60 tonnes of debris, along withthe spectatorsfrom bothwalkways,onto the crowded dance area. The deathtoll was 111, and 188 were injured. Lawsuits were quickly launched, seeking compensation damages exceeding US$1 billionandpunitive damages ofmore than US$500million.Severaltechnical investigationswerecommissionedwhichshowedthatthe failurewas triggeredin thehanger rodconnectionstothe floorbeams. Theseconnectionswere defectively constructedas aresultofa changeintheirstructural detail duringthe construction period. The change in detail of the connectionsresulted in doubling of the load applied against the lowerflange of the upper floor beams. The walkway failure cyclebeganwhenone of the upper hanger rods pulledthroughthe bottom flange of its supporting floor beam. Theas-built connection reached its capacity under deadloading alone and was readyto fail whenany significantlive loading was imposed.77

In this example,thehazardwasthe defectivelyconstructedconnectionsand the triggering incident was the dancing contest. 7.3

Measurement of risk As explained above, when considering the acceptabilityof a particular risk or whencomparingrisksiii aparticular project or anumberofprojects,itis useful to have the formula referred to in Section 7.2. Considering the first variable, the consequences of an undesirable event, British Standard No. 4778 classifies the consequencesofhazardsintofour categoriesof severity: (a) negligible; (b) controlled or marginal; (c) critical; and (d) catastrophic. This classificationis basedonthe effectproduced oncethe hazardistriggered into aneventand mayinclude any one or acombinationof, loss oflife;personal injury; damage to reputation; material damage; financial loss; loss of time; and mental

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distress.Therefore,the consequencesof ahazardresultinginanundesirableevent range from those whicharenegligibleand canbe disregarded to those atthe other endofthe scalewhichwould include lossoflife, personal injury, or material loss of various types. Inordertoexpress this variable,theconsequencesofhazards, as numericaldata toinsertintheaboveformula of'R=P x C', further categoriescanbe extrapolated from the BS 4778 classification. Arangeofnumerical values canbeassigned tothe variable based on the expected financial loss expressed as a percentage of the overall cost of the project. For example: Category of loss 0 1 3 5 6

7 10

The consequences

ofa

hazard eventuating

Percentage of cost ofproject

No loss

Nil—0.09

Nuisance type small losses Medium losses whichcan be borneby the individual concerned Large losses Probable maximum loss in the range of the largest previous losses of similar projects Serious and exceedingany previous events Catastrophic — totalloss

0.1—0.99

1-4 10—19

20-40 41—50 81—100

Values for the second variable, probability of occurrence,range from 0 to 1.

Forexample: Probabilityof

The event

occurrence 0 0.3 0.5 0.7 1.0

It is certain that no loss would occur — loss is notpossible Slight probability of occurrerice Equal chance of occurrence or non-occurrence Strong probability of occurrence Certain to occur

Probabilityof occurrenceofmany undesirableevents in constructionprojectscan be calculated from dataavailablefrom various sourcessuchas HealthandSafety reports onaccidents;meteorological,climaticandseismic reports; geological data;

insurance statistics;and othertechnicalreports. Where suchdataisunavailable, a best estimate based on experience and common sense could be used. In this regard, it is important to note that the probabffity of occurrence refers only to occurrencesduringthe period of the relevant contract. Various methods and formulae are availablefor the calculationof probabffity. Indeed, within the fieldof statistics, probability is a major field of studyandthe

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literature indicates the developmentof an ever increasingrange of computerised statistical modelling techniques in the calculation of risk. Consequently,further consideration of the topic is outside the scope of this book.78 Finally, it is notable that in using the above formula to determine the acceptability ofa particular risk,boththe severityofthe consequencesofthe hazardand its probabifity of occurrence contribute to the risk factor obtained. Thus, a high severitycombined with alowprobability ofoccurrencemayleadto anacceptable risk,buta low severitycombined with ahigh probability of occurrencemaylead to an unacceptablerisk.Anexample of thefirstcombinationis thematrixofrisks which exist during the commissioningof a nuclear power station (although in some countries this riskhas been rejectedas being unacceptable).An example of the second combinationis that which could resultfrom the use of a low quality roofing system suchas the material known as mineral felt, a risk which is considered unacceptablein permanent construction. 7.4

Risk management

Itis advocatedby some commentatorsthatfor efficientand effective construction

and completion of a project, risk management is essential. Risk management is defined in BS 4778 as 'the process whereby decisionsare made to accept a known or assessedriskand/or theimplementationofactionsto reducethe consequences orprobability of occurrence'. Risk management is also concerned with the mitigation of those risks deriving from unavoidable hazards through the optimum specificationof warning and safety devices and risk control procedures, such as contingency plans and emergencyactions. If a decision is made to accept a risk, a further decision must be made on whetheror not theriskshouldbe shared. Before suchdecisionscanbe made, itis necessary to go through a systematic process which involves analysis of the possible hazards to whichthe project may be exposed and evaluation of their intensity, frequency and return period. In this regard, the following terms and definitionsfrom BS 4778 are relevant (see Reference 7.8): Hazardanalysis

The identificationof hazardsandthe consequences of the credible accident sequences ofeachhazard.

Risk quantification

The estimation of a given risk by a statistical and/or analytical modelling process.

Risk evaluation

The appraisal of the significanceof a given quantitative (or, when acceptable,qualitative) measure of risk.

Riskassessment

The integrated analysis of the risks inherent in a product, system or plant and their significance in an appropriate context.

Sharing ofRisks

Risk criteria

99

A qualitative and quantitative statement of the acceptable standardof risk with which the assessed risk needs to be compared.

When hazards are identified, assessed and analysed, theirmanagement must be allocatedto the various parties in order to keep themunder control, prevent the occurrence of their harmful consequencesand thus reduce the risk.Suchallocation is part of the risk management process, wherethe party to whoma certain hazard and associated risk are allocated should be selected in accordance with certain rules rather than haphazardly. The rules for allocationof risks in a construction project may simply revolve aroundthe ability of a party to: (a) control any arrangementswhichmight be required to dealwiththe hazardor any triggering incident relating to it; (b) control the risk or to influenceany of its resultant effects; (c) perform a task relating to the project, such as obtaining and maintaining insurance cover; and (d) benefit from the project.79

Onthe otherhand, therules may revolve aroundan already established policy

in a large organisation or a governmental agency, such as that contemplated by some authoritative writers in the followingtenns:710

'...while an event may be foreseen ... employers may see advantages in a contract which requires him (the contractor)to assume that risk, and to include forthe cost of dealing with that situation in histendered contract price.Where therisk isuncertain,thislogicallyrequires that acontingentelementwifihaveto be included in the original price which, in the event, may possibly not be required. If so, the employer willhaveagreed to anunnecessarilyhighpricebut may regard that as preferable ... than a lower price subject to post-contract upward adjustment at [a] late stage should the risk materialise ... whether or not aparticular riskshould be so included intheprice is inessence aquestion of policy andnot of "fairness", "morality", or "justice.", and 'This (American)system ... also seeks to preserve a large pool of competent contractors and obtain low contract bids by absorbing particular risks and seeking to assure the contractor he willbe treated fairly.'

If risks arenot allocatedin a contract and a dispute arises between thepartiesto that contract concerningto whomaparticular riskis allocated,then anarbitrator orajudge wouldmostlikely examinethefollowingcriteriaforrisk allocationand determine the disputeaccordingly:

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whichpartycould best foreseethat risk? (ii) whichparty could bestcontrol thatriskand its associatedhazardorhazards? (iii) whichparty could best bear that risk? (iv) whichparty most benefits or suffers whenthat risk eventuates? (1)

In the risk management process, an extensive matrix of general risks can be identified formost, if not all, constructionwork towhichone can add further risk matrices for specific projects. They can be identified from past experience since actual examplesfromreal life are plentiful.711 Theserisks are traditionallyshared between the parties involved, in accordancewith the provisions of two contracts usually agreed: first, between the developer and the design professionals involved; and secondly,between the developer and the maincontractor.Fromthe latter agreement, where the developer is referred to as the employer, flows another line of risk sharing between the main contractor, on the one hand, and sub-contractors,suppliers, manufacturers,insurers and others, on the other hand. If these risks are analysed on the basis of the effect they generate once they eventuate,two basic types ofriskcan be identified.The first type incorporatesthe risks which could lead to damage, physical loss, or injury and the second type incorporates risks which could lead to lackor non-performanceof the contract, delay incompletion ofthe Works and/orcostover-run of the constructedproject. Examplesofthe firsttype ofrisk whichinvolves damage,physical loss orinjury include defective design, defective materials, defective workmanship, Acts of God, fire, human error and failure to take adequate precautions. Examplesof the second type include late possession of the site, delay in receipt of information necessaryfortimely construction,changesindesign, and variationsto the original contract.712

7.5

Allocation of risks in the Red Book The RedBookis drafted onthe basis ofsharing ofrisks between the employerand the contractor. The principles of sharing of risks in the Red Bookare similar to those in the ICE Form which can be best statedby reference to the draftsman's reply to criticismsmadeafterthe publication ofthe Fifth Edition ofthat Form.713 The principles were statedas follows:74

'It is a function of a contract to define upon whom the various risks of an enterprise shall fall, anditwas decided thatthe Contractorshould only pricefor

those risks which an experienced contractor could reasonably be expected to foresee at the time of tender... It is the right andthe duty of the Employer to decide, and byhisEngineerto designand specifythatwhichis to be done, andit is the Employer's duty to allow the Contractor to do that whichis to be done withouthindrance. It is the duty of the Contractor to do what the contract

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requires to be done, as designed and specifiedby the Engineer, but, subject to any specific requirement in the contract, it is his right and duty to decide the manner in whichhe will do it. if there are to be exceptionalcases where the Contractoris to decide whatto do orto designwhat is tobe done, orwherethe Employer or the Engineeris to decide how the workis to be done, the contract mustexpresslyprovideforthis andforthenecessaryfinancial consequencesfor the protection ofthe Contractor.' Whilst these principles were statedin connectionwith the Fifth Edition of the ICEForm, theyare inessencethe sameforboth the RedBookandthe SixthEdition of the ICE Form, although they may differ in detail. Figure 7.1 shows the categories of risk under the Red Book. Inallocatingtheserisks betweentheemployer and thecontractorthreeconcepts must be bornein mind. These are: (a) the meaning and the significance of 'risk'; (b) not all undesirable events can be foreseenandidentified; and (c) whilst risks generally imply undesirable consequences, in certain circumstances undesirable consequencesto one of the parties would be generally desirableto the other. Taking these concepts in turn, the first which deals with the meaning and significanceof risk has been considered earlier in this chapter under Section7.2. The second concept referred to above relates to foreseeabilityof risk. Not all undesirableevents or hazardsin aparticularconstruction project can be foreseen and identified. Whereas it is possible to plan for those hazards which can be foreseenandidentified,itis extremelydifficult,ifnot impossible,to do so for the unidentified hazards. Accordingly, where risk management is concerned, the decision on what is practicable or acceptable risk exposure is generally made without a complete identification of the hazards and consequently their probability of occurrence. The danger then lies in the possibility that an individual's conduct may be judged to have been negligent, retrospectively,with abundant legal and expert help, ampletime andfull hindsight. Risks involving unidentified hazards are, therefore, extremely difficultto allocate or apportion between the parties. By definition, they cannot be avoided and their consequencescannot be accurately assessed. However, it should be noted that notwithstanding the above, there are accepted statistical methods available for takingintoconsideration the possibility of theiroccurrence and thus dealing withthemonthebasis ofa contingencyprovision.Such risks areusuallyallocated to oneorthe other oftheparties involved either as a whole or inpreciselydefined categories.

The third concept referred to above is that whilst risks generallyimplyundesirable consequences,in certain circumstances desirable as well as undesirable

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Fig. 7.1

Risks in construction underthe FIDIC Red Book, Fourth Edition.

consequences mayoccur.Where this happens,bothnegative and positive aspects mustbe assessed and allocated.If the negative aspects are identifiedin the contractand allocatedto oneparty, the positive aspects, shouldtheyoccur, mustalso

be identifiedand allocated.It wouldbe an error to ignore these positive aspects andhave them consideredas awindfall to the otherparty. For example,iftherisk of unforeseenconditions is allocatedto the employer and if during the execution

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103

of the works, the contractor encounters adverse unforeseen conditions, which cause additional cost to be incurred, thenthe additional cost ofencountering such conditions is borne by the employer. However, should unforeseen conditions produce a more favourable and cost-saving operation for the contractor, then logically,the effectmustbe credited tothe employer ratherthan to the contractor, unless explicitly stated otherwisein the conditions of contract. The recentchange inthe Marginalnote of sub-clause 12.2 ofthe Red Book(replacementof theword 'adverse'by the words 'not foreseeable')which was implemented in the 1992 reprint shows a recognition of this principle. However, whilst the effect of an adverse set of unforeseen conditions is dealt with clearly in clause 12, that of desirable unforeseen conditions is left withoutan express solution. Presumably, the engineercandealwithsuchcircumstancesinhis due-consultationrole.715(See also Chapter 9 of this book.) As risks associated with foreseen and identifiable hazards are calculated, it should be generally a matter of policy to determine to whomeach ofthe risks is allocated. The most cost-effective method of allocationfrom the point of view of controlling the occurrence of the risk and mitigating or eliminating its adverse effectsis basedon the abffity to exercisesuchcontrol. However,risks allocatedto thecontractoronthebasis ofthismethod would have a costimplicationiftheyare nothis ownfault, since it wouldbe prudentfor the contractor to include in his originalpriceanelement relating to this additional riskheis askedto carry. if the risk does not eventuate, the employer would have paid a larger sum than necessary. On the other hand, this may be more advantageous to the employer thanto assume theriskhimselfandbe exposedtothepossibilityofhaving tomake an additional payment should the risk eventuate. This is particularly so where there are strict budget restrictions or where the financial considerations of the projectare suchthat the projectwouldnotbe economically viablebeyonda certain limit.

Should the employer decide, for financial or other reasons, that he is not preparedto assume certain of theidentified risks, thetenderdocuments must reflect thatpolicy decision.Similarly,tenderers whoparticipate inthe tendering process must show that they are prepared to accept that policy decision and mayreflect the acceptanceof the risks allocated to themin theirprice. In certain circumstances,the contractor's price for accepting a particular risk maybe extremely high in comparison with the adverse effect on the employer should the risk eventuate.Insuchacase,the wisdom ofallocatingthistype ofrisk to the contractor should be carefullyexamined. Anexample of sucha situation is the 'on-demand' or 'unconditional' bond or guarantee requirement which has recently become popularin international contracts. An on-demand bondcreates an obligationonthe partyproviding sucha bond to pay a specified sum to thebeneficiary as soon as he makes a simple demand. The demand may have to contain the description of an event which entitles the beneficiary to make such demand. However, specifying the event in itself pro-

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vides noprotection to the bonded party since the occurrenceofthe eventdoes not have to be proven by the beneficiary,but may simply be alleged. (See later in Chapter 15 andin particular Section 15.3.) What doesprovide some protection, however, is the fact that once the bondedparty is given notice of the call on the bond, he may attempt to injunct the proceedings to prevent the bonding bank from effectingpayment. 7.6

Responsibilityand liability Whatever the rules or the reasons for allocation of risks, the responsibilityand liabifity attaching to these risks when they eventuate, follow and flow from that allocation. Accordingly,the simplicity and clarity of the wordingwhere such allocationis made is of paramountimportance. This means that the contractual arrangements,the legal rules of the applicablelaw ofthe contractandthe technical documentation,suchas the specificationand the drawings, mustbe clearlystated and fullyunderstood. Once liabilities are assigned through the contract documents, the parties involved have the followingoptions to finance the consequencesof risks should these risks eventuate: (a) To retainthe responsibilityforfinancing the costs ofloss or damage orinjury by providing any one or a combinationof the followingarrangements: (i) an element of theircash flow; (II) reserves created specificallyfor the purpose; (iii) funds assigned; (iv) creating captive societies. (b) To transfer the responsibilityforfinancingthe costsofloss or damage orinjury or non-performanceto: (i) another party to the contract by agreement, thus creating a sharing of risks; (ii) an insurer through an insurance contract whichin turn becomes transferred to reinsurers throughreinsurance arrangements. An insurermay impose his own risk management conditions, thus creating another cycle oftransfer. This second cycle of transfer which is enforced through either an incentive in premium reductions or conditions attached to the insurance policies may result in: — the insuredhaving to take measures to eliminateor mitigate a certain risk;

—

theinsuredhaving toretainpart ofthe responsibilityby the imposition of a deductibleorexcessat the lower end ofthe scale,or alimitation of

thepart insuredatthe upper end of the scale;

Sharing ofRisks — —

105

the insuredhaving to retaincertain risks throughexclusionclausesin the insurance policy; or the insuredhaving to seek another insurance cover from a different insurer.

7.7 Indemnityand insurance

Due to a numberof inherent characteristicsof construction projects, liabffities arising from the duties and obligationsof the parties to the construction contract should be coveredby indemnities given by one party to the other, orprovidedin the form of construction insurance policies as can be seen in Figure 7.2. These inherent characteristicsmay be summarised as follows: (a) except infew specifiedcircumstances,the contractor must complete the con-

tract irrespective of whatever happens including accidents and other deterrents; see Chapter 13; (b) construction projects involve vast sums of money, frequently provided by banks, financial institutions and insurance companies which require some form ofguarantee asto the safety ofthe capital they provide forfinancing the project; (c) construction projectsare unique and no two projectsare alike; (d) numerous hazardsandrisks exist in a variety of categories;and (e) analysis of tenders is simplifiedif a figure isincluded in the Bill ofQuantities

to cover the insurance premium in respect of providing the necessary indemnities in respect of the liabilitieswhich might be incurred by the contractor.716

Inthis chapter,the conceptofrisksharing inconstructioncontractsis explained anddeveloped to show therelationshipbetween hazard, risk, liabifity,indemnity andinsurance.Later in this book, Chapter 14 further develops this topicandthe inter-relationshipbetween theseareas to show how they are treated underthe Red Book.

As mentioned attheend ofChapter 1, theessentialfeatures and conceptswhich remain to be at the core of the Red Book have been discussed and explored in Chapters 2 to 7. Chapter 8 considers how suitable these concepts had been in practice and the extent to which they had satisfied the construction industry requirements inthe international field.

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Financial risks

Injury or damane risks Riskswhich could lead to injury or damage if they eventuate

Resulting from defaultin the obligations specifiedin the contract documents and augmented by the rules of the applicable law of the contract

Insurablerisks but not required to be insuredunderthecontract

Fig. 7.2 Indemnities and possible insurance covers for a construction project.

SluzringofRisks

Injury or damaae risks Riskswhich could lead to injury ordamageif

theyeventuate

Emanating fromdefaultin the duties and obligationsas specifiedin the contract iments and augmented bythe legal ofthe applicablelaw ofcontract

Decennial insurance

10years but limited in scope

(Hg. 7.2 Contd.)

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Chapter 8

The Concepts in Practice

The preceding chapters of this bookhave considered the mainconcepts underlying the Red Book. In sunlmary, these concepts are: TheRedBookis mainly basedon a domesticcontract; Its legalconceptsare rooted in the common law system; — Its wordingemerged from a contract written using English legal drafting principles; — The appointmentof a trusted and independent 'Engineer' for design and supervisionis central to the whole contract; — Remuneration is based on re-measurement with a provisional bill of quantities; — Responsibility andliability is based on the sharing of risks between the contractingparties. — —

The presentchapter focuses on how some of these concepts operate in practice.

8.1

The Red Book in use The Red Bookis a balanced document providing an excellentStandard Form of Conditions of Contract with sufficient rules for a construction contract. Should disputes arise between the parties to a contract, and some disputes are perhaps inevitable in a complexcontract, then the Red Book provides a mechanism for theirresolution.Arbitrationis used as a lastresort.Whilst manycontractsdo end in arbitration,itmustbe noted that for every suchcontract,thereare many others where disputes are resolved withoutthe need to resort to arbitration. Unfortunately, only those contractswhich end in arbitrationare noted andbecomepart of the statistics.8' Overtheyears,use oftheRedBookhascontributedto thesuccessfulcompletion of many projects around the world. The Red Book has, in fact, beenused continuously more than any other forminthe international scene for over 30years. Its use has beenendorsed by most international development and financial institutions including the World Bank. However, the last two decades have seen the

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erosion of trust between parties involved in constructionwhichhas led to many problems, often resulting in disputes ending in arbitration. In arbitration, every detail of the construction contract comes under the magnifying glass of lawyers engaged by the parties and, consequently,their zealousness to protect the rightsof their clientsresultsin every detail of the contract beingminutely scrutinised with hostility. Employersare oftentemptedtomakechanges inthe Red Bookbefore usingitas theConditions of Contractfor projectstheypromote. They do so in an attempt to reduce their exposure to some of the financial risks inherent in a construction contract. Consulting engineers have also sometimesattempted to amend the Red Book in response to a bad experience in a previous case. Contractors facing financial losses in a specific contract have sometimes attempted to eliminate similar losses in the future but have often adopted a wrong approach, thereby creating an evenmore difficult andcomplexsituation. Following the oil price explosion of the early 1970s, large resources became availableto a numberof new organisations andstateagencieswhichresulted in the construction of some daringly largeandcomplexprojects. In an article published in 1983, the followingstatistics were given:82 operations of the development finance institutions increased sharply afterthe mid 1970s... Their lending is limited to financiallyprofitable projects and is based on economiccriteria... The cumulative commitmentsof these institutions (excluding the Iraq Fund for which detailed data are not available) rosefromUS$1.5 billionin 1975 to overUS$11.0 billionin 1981...' •the lending

Tn 1978, the World Bank, which is aninternational financing agency thatlends

money for projects in developing countries, approved loans and provided disbursements of US$8.8 billion, in 46 countries. This figure increased steadily to US$25.57 billion in 1987, to US$29.04 billion in 1990 and is further increasing, especiallyin the areaof infrastructure as can be seen from the figures quoted in Chapter 22 later.83 Thenew developers depended toalargeextentonforeignconsultingengineers andcontractors whose capacityto provideor retain experienced engineers and technicianswas strained to the limits.Personnel withlimited experiencehadtobe engaged and were given responsibilitiesfor whichthey were not well suited.84 There was a shift in the location ofwork, and engineers were not only working in developing countries but were also training there. The understanding of the new developmentagenciesand orgariisationsofthe essentialconcepts of theRed Book, or the conviction that these were essential for their proper use, did not prevent them from varying these concepts. In some cases, the lack of proper understanding of the less-experiencedengineers andcontractorsortheiradvisers of the possible risks did not prevent them from making changes. Whilst some changes were madeto resolve a particular, real or expected conflict, others were

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madesimply to shift thebalance ofrisksharing. Incertain circumstances,some of the essentialfeaturesof theRed Book, as describedintheprevious chapters,were sacrificed, resulting in conflict between the intention of the document and its changed wording. Some specificareas of conflictwillnow be examined. 8.2

Areas of conflict Areas of potential conflictinclude:the erosion ofthe relationship oftrust between the employer andthe engineer, the role of the engineer and his independence in relationto both the employer and the contractor, attempts by a partyto offload risk to others and in particular in matters relating to design, absence of a developed legal system, distrustand conflictsbetween the concepts embodied in the Red Bookandthe applicablelaw of the contract.

8.21 A relationship oftrust

In many cases, the relationship of trust which should haveexisted between the parties in a construction contract either did not exist or was sacrificed. This relationship of trust must be basedon the confidencewhichthe employer has in theengineer's abilityandprofessionalintegrity. Completeconfidenceisnecessary for a successfuldelegationof authority from the employer to the engineer and in particular where such authority relates to monetary matters. However, such confidencecan only develop with time afterthe completion of many successful assignments. Where the selection of the 'Engineer' is not based on ability and professional integrity, but on fee competition or other financial considerations, particularlyin afieldwhereidentificationand precisedefinitionof a setof 'Terms ofReference'is almost animpossibletask, thensuchtrust evenwhereit originally existed, often disappears. Someengineershavecontributedtothe erosionoftrust bybehaviourwhichwas unacceptable to certain employers resulting in the profession as a whole being brandedas a business ratherthan a profession.85 In such situations,the employer has oftenresorted to allocate the authority of the 'Engineer' to himself or to an employeeof his withoutconsidering the effect whichthis assumption of authority has on the independent roleof the engineer underthe Conditions ofContract. Someoptimisticcontractorsdid not foreseethe risks involved in sucha contract and foundno reason to be waryof the possible adverse conditionsorpossible abuse of authority inherent in sucha situation.86 8.2.2 The role ofthe engineer

The role of the 'Engineer' in the international field has come under attack from both employer and contractor on the question of bias. On the one hand, the

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'Engineer' has been accused by the contractor of being biased in favour of the employer because: — — —

His feeis paidbytheowner or developer,referred to as employer under the Red Book; He has acted as adviserto the employer prior to constructionand may wishto continuethis role upon completionof the construction stage; He isrequiredto consultwith the employer prior to making certain decisions.

Therefore,the engineer has beensuspected ofcolluding withthe employer. The case is even stronger against the engineer where he is an employee of the employer, as his future employmentmightwell dependon his actions. Ontheother hand, he hasbeenaccusedbytheemployer ofbeingbiased towards thecontractorduringtheadministration andexecutionofthecontractinareas such as awardingextensionsoftime andindeterminingamountsofclaims,etc.,infavour of the contractor.Ingeneral, it is sometimesclaimedthathe is toolenient towards thecontractortherebyrelievinghimofcertainofhisobligationsunderthecontract. 8.2.3 Avoidance ofrisk

Sometimesa party to a construction activityseeks to avoid the risks inherent in, and best allocatedto, its ownfunction, by attempting to offloadthemonto others or onto aninsurer, even whereinsurance does not providethe answer.87 Suchattempts havebeenmadethroughthe rewriting of some of theprovisions of the Red Book. Inevitably, this has led to conflict and disputes between the parties as thereare established principles of allocationof risks whichoughtto be followed whenever possible.88 These principles are generally based on control over the occurrenceofthe risks and/orinfluenceover the effectthey cause if and when they eventuate (see Chapter 14). Only in certain circumstances can the allocation of risks be successfullybased on the optimum ability of a party to perform aspecifictaskrelated tothe projector the inabilityofanyparty other than the promoter or the employer who initiated the project to accept a certain risk. There are exceptionstothe freedom to allocaterisks in accordancewith the above principles andthey dependonthe prevalentlegal rules, suchasthose whichapply to exclusionclauses andlimitationclauses. 8.2.4 The designfunction

Fortechnicalreasonsorfor cost-cuttingpurposes in order to competeon thebasis offeesratherthanabffityorformanyother reasons,the designer sometimesseeks to offload some of his design functions to the contractor. Such a shift in the responsibffityfor designfunctions invariably results indisputes as to liabffityfor financiallossas a result of any of the following:

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(a) subsequent defects; (b) delays due to late availabililyof information; (c) additional work being carried out whichwas not shownon the drawings but is necessary for the completionof the project; (d) varied work which has to be implemented to a different standard or in a

different form to complete the project; and (e) many other circumstances.

These disputes, if not resolved amicably, end in arbitration, which then grow from technicalintolegal issues and arguments never intended in thefirst place. The cost thus multiplies and increases to limits disproportionate to the cost of

the project.

This shift in the function of design may in some cases be totally justified for technicalreasonsorwherethe contractoris incontrol ofelementswhichform part ofthe decision-makingprocess relating to design. Itmay,however, be for reasons whichinmanycasescould be considered unwise. As an example ofwherea shift in the designfunction maybe justified, the contractor on a road project maybe askedto designthe asphalt mix for an asphaltic concrete layer. This is usually done for the simple reason that the design of such a mix would depend on parameters within the contractor's control, such as the type of aggregate he chooses,its grading, shapeand crushing characteristics,andonthe characteristics of the asphaltic material and the plant selected by the contractor.An example of wherea shift in the design responsibifitymaybe unwise is wherethe contractor may be asked to design the steel reinforcementbars for a reinforced concrete structure whose dimensionsare already designed and finalised bythe consulting engineer.Another common exampleofa shift inthe designresponsibilityiswhere thecontractor is askedto designthe mechanicaland electricalservicesinaproject whichhas already been architecturally and structurally designed by the professional design team. Where the design function is shifted to the contractor, a new matrix ofrisks is generated and unless these risksare preciselyallocatedand a definiteprocedure is adopted to differentiatebetween the design risks of the professional team and those ofthe contractor,problemswifi arise. This isnota newideaorconclusion.In 1964, the Report of the Banwell Conunittee on the Placing and Management of Contracts for Building and Civil Engineering Work published in the United Kingdom stated that:89

'Themore that is known of what is involved in any project,the less willbe the degree of uncertainty against which tenderers wifi be obliged to make provision; this applies to all construction work but is of particular importance where contractors are being asked to quote firm prices. Only if the work has been settled in all its critical details is it reasonable to expect a contractor to tender for a firmpriceanda fixed period.'

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Time andmoney being the two elements behind most disputes, such shift in design responsibilityin a standardform of conditionsof contract whichdoesnot recognise the consequences of such a shift in clear, unambiguous and precise terms results in major problems in practice. Shared responsibility of design, whether expressed in the Conditions of Contract or in the specification,is the cause of some major disputes between the construction trinity inpractice.

a

8.2.5 Absenceof legal system

The absenceof a developed legal system relating to constructioneither in some of the countries wherethe Red Bookhas beenused or in the international context, has resulted in a vacuum where different approaches have beencontested. The resulthas not always been certain.Indeed, in some cases a number of the established principles underthe Red Bookwhichrequire absolute trust in the engineer wererejectedby some employers in a country far away from that of theengineer or the contractor. 8.2.6

Distrustofchanges In some cases,the employer has objectedto thechanges madeto theICEFormin devisingthe international contract asinthe Red Book. Questionshavebeenasked asto'why theoverseasemployer should betreated onadifferentfootingandwhy sauce forthe gooseis not alsosauce for the gander. Thecynicmightsee inthis the influence of contractors' associations.'81° The critical analysis made by Ian Duncan Wallace QC, in The International Civil Engineering Contract was used by some employers to argue theircase that a lot of imbalanceexists in the Red Book against the employer's interests.811

8.2.7 Legal questions

As soon as disputes arisebetween the parties and come under the scrutiny of lawyers, any conflictwhichmightexist between the common law system, upon which the Red Book is based, and the applicable law of the contract assumes paramount importance. hrespective of the scale of the dispute, the legal conflict amplifies what could in essence be a technical problem to a complex andlong drawn out set of legal arguments, the resolution of which is usuallyextremely costly. The conflict could involve mandatory provisions, envisaged solutions to contractual problems in the Red Bookwhichmay be differentfrom those under the applicablelaw of thecontract,imported provisionsfrom theapplicablelaw of the contract andsome specificproblems dueto these imported provisions. Mandatory provisions There are certain imperative and mandatory provisions of the applicable law of the contract. In certain legal systems the concept ofpublic law, as against private

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law, makes mandatory provisions in some specific areas. The concept of an administrativecontract under public law is, for example,different in many substantialaspectsfromthatof anordinary contractunder private law (seeChapter2 above).

Envisagedsolutions Solutions envisaged in the Red Book may be different from those under the applicablelaw of the contract.For example,the term'liquidated damages' which is a legal term rooted in the common law system is the solution envisaged in the Red Book for any default by the contractor in completing the works on time. Clause 47 of the Red Book provides that 'if the contractor shall fail to achieve completionof the workswithin the time prescribed', then the contractor is to pay to the employer the sum stated in the contract as liquidated damages for such default and not as a penalty. Systemsother than the common law do nothave an equivalent term for 'liquidated damages'. The problem is multiplied when the languageofthe contract is notEnglish and wherea translation ofthattermfurther shrouds the intention of the Form. In Arabic,for example, the term 'liquidated damages' whenliterally translated means 'fines'. Forboth employer and contractor, it wouldhavebeenessential to establish in theThird Edition of the Red Book a clear statement as to whether the amount of damages stated inthe contractisthe only remedy fordelay, orwhether inaddition to suchamount higher damages canbe successfullyclaimedby theemployer (see Part V on the changes madein the Fourth Edition). Furthermore,onemust considerthatin an administrativecontractundercertain jurisdictions, where the term 'unliquidated damages' is not known and the accepted solution to aproblem ofdelayis the impositionof apenalty, the absence of a clause on penalties does not waive the rightof the administration to impose penalties. The right is an imperative provision of administrative law which an administrativeauthority isnotpermitted to waive.812 Inthis connection,it should be noted that penalties in an administrative contract are notsubject to proofof damages. Another example of such possible incompatibilitybetween the Red Book and the applicable law of the contract is the term 'frustration' as used in the Third Edition.This termisalso virtually unknown outside the common law system. (See Chapter 21, clause 66, onthe changes madein the Fourth Editionwherethis term has now been replaced by the words 'release from performance'.) Imported provisions Provisions can be imported from the applicable law of the contract, whether through additional obligationsorthroughdeletionsfrom the RedBook. Incertain circumstances,the applicablelawof the contract imports into the provisionsofan

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agreement between the partiessome additional rights and obligationson which the contract is silent. Suchsilence could be dueeitherto a deletion of a specific condition from the standard form of contract or to a simple omissionfrom that form. Should theseadditional rightsandobligationsformthe basisofclaimsbetween the parties to the contract, they would do so through the operation of the applicable law and not through a breach of contract. For example, in certain countries forming part of the Romano-Germariicgroup, unexpected changes in thelaws,regulations andbylaws, andunforeseeableeconomicandpoliticalevents comeunder the provisionsof certainarticlesof the civil Code.813 Theseevents are collectivelydealt with in what is known as the theory of 'exceptional circumstances'. Should the law applicable to a contract include legal rules which deal with such events, it is usual that any agreementbetween the parties outsidethe meaning ofthe provisionsof the legal rule is considered null and void. Therefore, in general it is thecivil Code that specifieswhat happens in such a situation and not the contract betweentheparties. Thus, for events under clauses70 and 71 of the Red Bookandalso for some of the events under clause 20, the rules of the applicable law of the contract may stipulate differentsolutionsfrom those envisagedunder the Red Book. Under the law of various Arab countries whose law is rooted in the Egyptian Code, events wouldfall within the theory of exceptionalcircumstancesif the followingthree conditions are satisfied: (a) the existenceof anexceptionalcircumstance; (b) that circumstancemust be unforeseeable;and (c) that circumstance must be so onerous as to result in great loss if the task is performed.814 Specific problems due to importedprovisions

It is interesting to note in the above connection,that certain legal rules in some jurisdictions coincide in their provisions with the solutions adopted by the Red Book. For example, the provisions under clause 12 are to a large extent echoed in

the theory of unforeseen exceptionalphysical obstructions.815 In sucha case,any amendments or changes made to the standard form could be doubly dangerous as they not only affectthe interpretation ofthe remaining part of the Conditions of Contract, but may also have serious consequenceson the interpretation of other clauses in the light of the legal rule. Thus, if clause 12 is deleted, the intentions of the provisionsofclause 11 may suffer whenthat clause alone is interpreted under the legal rule. In an extreme situation, release from performance of the contract may result, an equivalent to the term 'frustration' used in the Third Edition of the Red Book. Anotherprominent exampleofa possibleimported provision isthatofjointand

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several liability of the engineer (as a designer and supervisor) and of the contractor (as the constructor) for latent defects or damage resultingto the works. Under the common law, this is a very complex subjectwhere both contract law andtort law must be considered and where the contributory negligence criteria haveto be invoked to establish a remedy involving more than one party. Joint andseveral liabilityofthe designer/supervisor and the contractor relieves the employer from the necessityof establishingtheprecise cause ofthe particular latentdamage or defectbefore instituting legal action. It also avoids the problem of delay inreachingagreement onthe appropriate method ofrepairorrestitution. Furthermore, it establisheslegal rights of recourse between the designer/supervisorand the contractor.Thus, the questions of whois really liable,for what, and in what proportion, areleft to themtoresolve, relievingthe employer from facing lengthy and costly legal proceedings. Joint and several liability exists in many countries which followthe RomanoGermanic system. It exists under Swiss law, German law, French law and in a numberof other countrieswhose law is rooted inthe French legal system.Where they differ, however, is in the concept of the limitation period for legal actions connected with latent defects.This concept ofthe period of limitationwhichis in itself another imported provision from the applicablelaw to the Red Book, exists in most legal systems.816 A survey of the period of limitation under different jurisdictions was made by the Standing Committee on ProfessionalLiability of FIDIC. The resultswere published in the Committee's annual report of 1984 and updatedsubsequentlyin 1985 and 1986. This period wasfoundto varyin contract from asshortaperiod asoneyearinNorwayto 12years forcontractsundersealin countries within the common law group. The period of limitation for liability in tortwasfoundto vary, however, between one yearto infinity asit depends onthe date on which the damage or defect is discovered or ought to have been discovered.817

Under the French legal system and many others that are rooted in it, thereis a further requirement in the case of building structures. It is called decennial liability and, as its name indicates,it operates for a period of 10 years. The provisions of decennial liability are usually mandatory and cannot be excluded by agreement of the parties. It has been adopted in, amongst others, Belgium,Italy, SaudiArabia, Egypt, Kuwait and the United Arab Emirates.818 See also Chapter 11 later.

Another important exampleofimported provisionsintoa constructioncontract is the elementof terminationwhichis treated differently under differentsystems oflaw. Thus, although theThird Edition ofthe Red Bookincludes a clause which deals with 'frustration', this term is unknown in Romano-Germanicsystems of

law.819 The doctrine of frustration which is rooted in the common law system

stipulates that a contract can be annulled if the parties to it cannot achieve their purpose because of unforeseen events. The source of this principle is relatively recentas it dates back to the beginningof this century whenamanrenteda room

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on Pall Mall in London to watch theplanned coronation of Queen Victoria'sson, Edward VII. However,whenthe coronationwas cancelled,he demanded some of

his money back, and won. Although this conceptof terminationinaconstruction contract is known in legal systems other than the common law, it is embodied in termssuch as rescission andrelease from performance whichare the subject of specific legal rules under differentjurisdictions. For example,Article 1794 of the French Civil Code gives the employer the right to terminate the contract at any time before completion.This right to terminate whichis provided simply for the convenienceof the employer, exists independently of the right of termination in case of a breach of contract as provided in the Red Book. 8.3

EIC/FIDICsurveyof 1996

A survey of the Red Book users' feelings about contract policy in general and

about the Red Book in particular was undertaken by Reading University in England atthe requestof the European International Contractorsand FIDIC. The finalsurvey report waspublished inJune1996, which provided some interesting

data on the following:820

(a) General contractual issues such as the use of specific clauses for individual projects; the importance of simplicity of expression; powers of the engineer andhis impartiality; and payment clauses. (b) Specific contractual issues relating to the Red Bookincluding: risk distribution; settlement of disputes; applicabilityto civil lawjurisdictions;provisions for money claims; best featuresof theRed Book; andworstfeatures ofthe Red Bookwith specific referenceto the clauses whichare frequently amended.

8.4

A brief summary of Part I This chapter concludes Part I. In summary, Part I considered the background of the Red Book; it explained that the Red Bookis basedon the ICE domesticcontract; it demonstrated that the Red Book is rooted in legal concepts based on the common law system; it briefly discussed drafting principles in relation to international construction contracts; it considered the concept of the trusted, independent engineer as embodied in the Red Book; it explained that the contract undertheRedBookis atraditional re-measurementcontract;anditconsideredthe concept of sharing ofrisk in constructioncontractsin general.Finally,the present chapter discussed how these conceptsaffectedthe useofthe Red Bookinpractice and the resultant conflicts. The conflictsand the problems resultingtherefrom promptedanextensiverevision of theThird Edition ofthe Red Book. Part IIgives a detailed commentaryontheserevisionswhichresulted in theFourth Edition.

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Part II The Fourth Edition: A Commentary

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Chapter 9

The Revisions Purposes and Consequences

9.1

Introduction Tn1983, F1DICdecided that the problems facing the userof the Red Booknecessi-

tateda revision ofthe document.As indicated in Chapter 8, theThird Editionwas being criticised and changes to the text ofthe document were regularly made by promoters, developers and employers. Consequently, FIDIC considered that it was desirableto reconcilethe document with its practice and use.91 Thedrafting committeeappointed in 1983by FIDIC wasrequested to prepare a Fourth Edition of the document. Its Terms of Reference were briefly summarised as follows: —

Changeonly wherechange is necessary.

— Maintainthe basic role ofthe Engineer. — Pay close attention to some specifictopics suchas Bonds andGuarantees,

Apportionment of Risk, Insurance, Claims Procedures, Certificates and Payments andDispute Procedures. — Endeavourto updatethelanguage sothat itis more understandable to those charged with administering the Conditions on site.'

Initially, all FIDIC National Member Associationswere invited to submit their comments and suggestions drawnfrom theirown experience with the operation of the Third Edition of the Form. At the same time, the European International Contractors (ETC), who were instructed by the Confederation of International Contractors Associations(CICA) to represent themin the consultative role allocated to themby FrDIC,sought the views oftheir members on the Third Edition. The ETC representativeswere assisted by two others from the AssociatedGeneral Contractors of America (AGC). The outcome of these enquiries was madeavailable to the drafting committee.Contributionsfrom the employers' pointof view were put forward, amongst others, byvarious representatives of the World Bank and by officials from the various Arab Funds, through a numberof seminars organised by FIDIC and other organisations. Specialist advice and help was

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sought and obtained by the drafting committeefrom an insurance broker on the insurance provisions of the document and from numerous organisations, firms, institutionsandindividuals who contributedinvarious waystothe revision ofthe document. Legal advice was also obtained on the final wordingof the Fourth Edition prior to its publication.92 These comments and suggestions,received by FIDIC from all over the world, were assembled and analysed andmuch of this material was used in redrafting theFourth Edition. The subsequent draft of the new clauseswasthen studiedby thevarious interested parties, suchas theETC liaison group, representativesofthe World Bank and of the various Arab Funds, and others. During the drafting process, every one of the 72 clauses was changed. Every clause was carefully drafted and redrafted numerous times, with one particular clause being the subject of seventeen redrafts.93 Following the above consultation and redrafting process, extensive revisions were madeto produce the Fourth Edition of the Red Book. In some clausesthere arechanges inwordingto improvethe language, making it simpler and clearerto understand; in other clausesthereare substantiveandfundamental changesinthe intention ofthe draftsman,in order to tackle and, thus,attempt to resolvesome of the problems whichfaced the user of the ThirdEdition, as described earlier in Chapter 8. Whilst the drafting committee remained faithful to the overall guiding principles for the revision, it was admitted by the chairman of the committee, Mr. Helge Sorensen, that 'both the sheer number of changes and the depth of the whole exercisegoes far beyond what was originallyenvisaged'.He explained the principles achievedin general as follows:94 Thebasicrole of the engineer has been maintained; Therole of the employer has been mademore visible; — Every endeavour has been made to maintain the overall balance of rightsand obligationsbetween the two parties to the contract; — Currentpracticehas been reflected in the newconditions; — Procedureshave been spelled out in greater detail in an action oriented way; — Theconditionscaterfor a largerdegree of plant(i.e. electrical and mechanical work); — Greater recognitionhas been given to the fact that contractors are sometimes called upon to do some design; and — Efforts have been made to harmoriisethe Red Book with the Third Edition of FIDIC's Form of Contract for Electricaland Mechanical Works, the Yellow — —

Book.95

Theabove were obviously in addition to the principles containedin the Terms of Referencequoted earlier. Overall, the Fourth Edition adhered to the clause numbering system and the

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headings of the differentclauses of the Third Edition. Whilst thereare those who will argue that the amendments do not go far enough or that some are not in themselves an improvement on the former edition, the essential features of the Form as described in the previous chapters have been retained in the Fourth Edition andall the guidingprinciples are reflected in the new text. As an example, the roleof the employer has beenemphasised withoutdiminishingthe basic role ofthe engineer. However,some changesweremadeto ensure thatthe Formwouldbe more compatiblewithlegal principles other thanthose of thecommon law. Despite thesechanges,it is certain that arguments andcounterarguments willcontinueto bevoiced as to whetheror not the balance of riskhas been maintained between the parties to the contract. Such arguments willbe in respect ofboth the changes madeand also that particular part ofthe Form which wasnot altered. Anewfeature is addedinsome clausesplacing an obligationontheengineerto consultwith the employer or withboth the employer and the contractor prior to reaching his determination on various issues. However, regardless of the obligation placed onthe engineer to consult withthe employer,itis the engineerwho must determine the issues. But, according to the Fourth Edition, the employer must be provided with copies of certain items of correspondenceor documents and is thereby kept informed of various issues during construction.Forexample, under clause 8.1, the contractor is requiredto give promptnotice to the engineer, 'with a copy to the Employer, of any error, omission, faultor otherdefect in the design of or Specificationfor the Works whichhe discovers whenreviewing the Contractor executingthe Works'. Furthermore,wherethe engineer determines a certainissue, the Fourth Edition requires the employer to be kept informed as,for example, in clause 6.4 where the engineer determines any extension of time or coststowhichthe contractormaybeentitled as a result ofthe engineer's failure or inability to issue certain drawings or instructions. There is generally a greater demand for communicationand adherence to set procedures between the employer, the contractor and the engineer in their dealings with eachother under the provisionsof the Fourth Edition.Some will argue that this initselfonly regulates and reflectswhatwasalready impliedinthe Third Edition and what was already happening to the industry. The objective of achieving harmony with the FIDIC Conditions of Contract for Electrical andMechanical Works (E & M, YellowBook) (see Reference 9.5) did not progress sufficiently,but some progress was made in this area.96 In fact, this objectivewas inconflictwith thatof'change only whenchange is necessary'since thelanguage of theE & MConditions wasdramaticallychangedto a simpler and clearer language, more comprehensible to the layman. This objective, however desirable, cannot ever be completely attained due to the different nature of the work involved. However, there is now an increased similarity in definitions between the two Forms of Conditions of Contract, and some of the provisions of the Red Book closelyfollow those of the YellowBook, sub-clause37.4 being one

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such example. Clear differencesalso exist, as will be seen later in this chapter where both Forms are compared. Procedures are set out in greater detail in the Fourth Edition and greater emphasis is placed on the time limits that are required for certain actions to be initiated or completed. If followed, these constraints should introduce a greater degree of disciplineintothe administration of a project than that which formerly existed underthe Third Edition.Accordingly,betterprojectmanagement oughtto be expectedfromthe provisions under the Fourth Edition. Thesequenceof theclauses and thecontent of theThird Edition has essentially beenpreserved in the new document, the mainexception being a change in the topic covered inclause 53 whichis now confined to the procedure for claims.The text on claimswas formerly included as part of clause 52 in the Third Edition.In numbering the clauses, numerals replaced alphabetic symbols. Whilst important amendments have been madeto the majority of the clauses, notall of themare discussed inthis chapter, as some ofthe changes are obvious andtheir effect can be clearly established from a simple comparison of the two texts, as set out later in Part V. A selective approach is adopted here in order to highlight some of the more complex and significant changes. It is, however, important for those who are familiarwith the Third Edition and who now intend to use the Fourth Edition of the Form, to be fully acquainted with all the amendments. To those who are interested only in the Fourth Edition, a comparisonwith the previous edition is perhaps of only academicinterest. Attheoutset, it isworthnoting thatthetitle ofthe documenthasbeenrevised in that theword(International)has beenremoved. The intention ofthe committeein deleting this word was to emphasise that the document forms a sound basis for both international and domesticcontracts,since it has alsobeensuccessfullyused in the lattersituation in manyplaces. A referenceto this effectis included in the first paragraph ofthe Forewordto PartI of thedocument. A further pointof note regarding the titleofthe document is thatthe Fourth Edition is now issued solely by FIDIC and there is no mention of other organisations which had previously ratified the document (seeSection1.3 earlier). This is probably due to two main reasons. The first reasonis that the organisations which previously approved of the ThirdEdition could not approve all of the amendments proposedby FIDIC. Perhaps this led FIDICto decide that where differencescould not be reconciled, theywouidadopta form ofwordingwhichin FIDIC's opinion best preserved the balance ofrisks, rightsand obligationsofboth parties tothe contract.The second mainreasonis that approval of suchorganisationsmayhave given theerroneous impression to employers that the FIDICForm is a contractor's orientated document. (See Section8.2.6.) In order to explain the changes, FIDIC published a Guide to the use of the revised Form referred to in Reference 9.1. However, despite its considerable length, the Guide does not provide a complete commentary on all the changes. The commentary was in the main confined to the fundamental changes

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implemented but, as statedearlier,for those who are familiarwith the wordingof the Third Editionanditsintentions and whoarenowadopting theFourthEdition, it is essential,if not imperative, that each change should be carefully considered and its consequencesestablished.In PartV of thisbook, the text of the clausesof both editions is set out with the intention of highlighting all the changes by adoptingthe followingmethod: (a) The text of eachsub-clausein the Third Edition is set outwith the text ofthe Fourth Edition, as later amended in 1988 and 1992, alongside. (b) Altered wordingis shown inbold type,i.e. boththe wordingwhichoriginally appeared inthe Third Edition and itsreplacementinthe Fourth Edition (1992). (c) Any words in the Third Edition whith were omitted in the Fourth Edition (1992) are shown underlined andthe location of that omission is marked by superimposing the symbol A in the text of the Fourth Edition (1992). (d) Newwordsadded to the original text of the Third Edition are showninitalics.

Nocommentaryis given inPart V of theBook. Instead, thereadershouldrefer to the commentary in the remaining part of the presentchapter as well as the commentaryprovided inthe Guide to Use ofFIDIC ConditionsofContractforWorks of Civil Engineering Construction, Fourth Edition, and referred to hereinafter as the 'Guide'.Commentary nowfollows in the present chapter on the more important andcomplexaspects ofsome ofthechangesmadeinproducing theFourth Edition inits 1987format and onthe subsequentamendments in1988 and 1992. Reference is alsomadeheretothe1996 SupplementtotheFourthEdition andtotheimpact it has onthe relevant clauses of the Red Book. 9.2 Clause 1 Clause 1 of the Fourth Edition deals with definitions and provides a greater number of definitions than its predecessor. In order to assist the reader to understand the document more readily andmore clearly,definitionsare listedin groups in the presentchapter, ratherthan in alphabeticalorder. Whilstthe fulllist of definitions needs to be closely studied, the following are deemed worthy of particular mention. 9.2.1 Definition of'Engineer' undergroup (a)

Under group (a), the 'Engineer' is defined as follows: '1.1 (a) (iv) "Engineer" means the person appointed by the Employer to act as Engineerfor the purposes ofthe Contractand named as suchinPart 11ofthese Conditions.'

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Inthe Fourth Edition, the definitionofthe engineeris confined to a person, but

sub-clause 1.3 provides that 'words importing persons or parties shall include firms and corporations and any organisation having legal capacity'. Therefore, whilstthe engineerwifibe named usuallyas anindividual, thefirmherepresents willin effectbe involved in that capacity. The definition, however, is no longer qualified by the expression 'from time to time.. .', as in the Third Edition. The intention of this omission, as explained in the Guide, is to prevent the employer from replacing the engineer without the consent of the contractor, and the reason givenis contained in the statement that 'The identity of the Engineer (and his reputation) has been a factor in the calculationof the Contractor's tender'. Consequently,the employer would have to discusshisintentions withthe contractorif he were contemplating suchreplacement and presumably he wouldalso haveto discuss the identity of the intended replacement as he may not take a unilateral decision on this matter. However, while this may be in the intention of the definition as stated in the Guide, this intention is not repeated in the text of the document itself. TI compared withthe similarprovision inthe FIDIC YellowBook, (see Reference 9.5) a clearerstatement is found as can be seen in sub-clauses2.8 and 46.1 of the YellowBook, quoted below. aisu tflL

-

1J

Sub-clause2.8 ofthe YellowBook: replacementof engineer

'The Employer shall not appoint any person to act in replacement of the Engineerwithout the consent of the Contractor.' Sub-clause46. 1 ofthe YellowBook:Employer's default

'The Contractor may, by giving 14 days notice to the Employer and the Engineer,terminate the Contractif the Employer: (e) appoints a person to act with or inreplacementof the Engineerwithoutthe

Contractor's consent...'

Some critics have commented on this unfortunate difference betweenthe two documents inview ofthe stated guidingprinciple of achievingharmony between

the two texts. 9.2.2 Definition of 'tests on completion'

TheFourth Edition includes a groupof new definitions as part of an exercise in providing definitionsinrespect ofthe fullrange of the terms usedthroughout the FDIC document. The most worthy ofmention is, perhaps, the definitionof'Tests on Completion' stated under group (d), paragraph (i) as:

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'the tests specifiedin the Contractor otherwiseagreed by the Engineerandthe Contractor which are to be made by the Contractor before the Works or any Sectionor part thereof are takenover by the Employer.' This specific provision for undertaking tests on completion is a development whichwill bewelcomedby employersas itwill constituteavery definiteyardstick by whichthey can measure whetheror not a project is satisfactorilycompleted. Theconceptis also closelyrelated to the provision in the ConditionsofContractfor Electrical and Mechanical Works, see Reference 9.5. Detailed provisions for the conduct of suchtests are madeunder clause 37 of the E & M Conditions. 9.2.3 Definitions under group (e)

Two new definitionswere introduced in the 1992 Reprint of the Form. These are interim payment certificate and final payment certificate which relate to the provisions of clause 60. The word 'payment'has been added to the two original terms used in clause 60: interim certificateand finalcertificate. 9.2.4 Definitions undergroup

(

Undergroup(f),terms relating to the works arenow definedwith two important amendments. The term'Section' is now a defined term requiring specificidentification in the contract in order to operate the provisions of clauses 43 and46. 'Constructional Plant' is replaced by 'Contractor's Eqiiipment' and suchequipmentis separated from plantbyintroducing a newdefinitionfor 'Plant'.Plantin the Fourth Edition signifies machinery and apparatus 'intended to form or forming part of the Permanent Works'. The permanent works are defined in paragraph (f)(ii) as the permanent works to be executed (including plant) in accordancewith the contract. There maybe a problem of lack of clarity with the above definitionsrelating to thewords(includingplant) inthe definitionofpermanent works, as it is not clear when 'plant' becomes permanent works. Is it part of the permanent works, for instance,whenitis being manufactured and stored abroad or does itonly become permanent works when it is delivered to the site or only when it is finally installed? From the definition of 'plant' given under paragraph (f)(iv), it would appear thatplantis tobe deemed part of the permanent worksonceit is 'intended to form partofthePermanent Works', regardless ofwhereit is situated orstored. Ontheotherhand, one mayinterpret thephrase'to be executed (includingplant) in accordance with the contract' to mean actually installed and conunissioned. This is due to the fact that under sub-clause60.1 of the Red Book, the contractor's monthly statements may include 'the percentage of the invoice valueof listed... Plant delivered by the contractor on the site for incorporation in the Permanent Works butnot incorporated in suchworks'.

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ofContract It is interesting to note that this definition of plant is closely related to the definitionunderthe Third Edition ofthe E & M Form although it differsfrom itin oneimportant aspect. Inthe E & M Form, plantincludes materials whereas in the Red Bookit doesnot.

9.2.5 Definitions undergroup(g)

Undergroup(g) of the definitionsin the Fourth Edition,the term 'cost' has been more clearly defined as exclusive of profit. Where the word cost is to include profit, it is expressly stated so, as in sub-Clause21.1 where'full replacementcost' is defined in the context of the sum to be insuredby the contractoras including profit. New definitions have also been added for 'day', 'foreigncurrency', and 'writing'. Now that 'cost' is clearlydefined in the Fourth Edition to be exclusiveof profit, it is interesting to distinguish the clauses which refer to cost from those which refer to an alternative form of calculation of payment. Tables 9.1 to 9.3 list the clauseswhere payments are to be made on the basis of cost or alternatively,on some other method describedtherein. These clauses have been considered under thefollowingheadings: — where the engineer is to determine in favour of the contractor: Table 9.1; — where the engineer is to determine in favourof the employer: Table9.2; and — where the employer can determine in favour of himself directly against the

contractor: Table9.3.

Itisvery importantto distinguishthecircumstanceswhere 'cost'formsthebasis

of payment from others. Forexample, sub-clause 12.2(b) states that the engineer shall determine:

'(b) theamount ofany costswhichmayhavebeenincurredbythe Contractorby reasonof suchobstructionsor conditionshaving beenencountered, which shall be addedto the Contract Price,' This means that the contractor is entitled to recover only 'costs' which he may have incurredas a result of encountering physical obstructions or conditions. Sub-clause12.2 goes on to state that this determination by the engineer as to the amount of any costs must also takeaccount of any instruction whichthe engineer may issue to the contractor in connectiontherewith. However, such instructions may involve the operation of sub-clause 52.4 on dayworks whichprovides that:

'The Engineer may, ii in his opinion it is necessary or desirable, issue an instruction that any variedwork should be executedon a daywork basis.'

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129

Determination bythe engineer in favourofthe contractor.

Clause description

Where the word cost' is used

Delays and cost ofdelays

6.4(b)

Adverse physical obstruction ofconditions

12.2(b)

Where an alternative form of wording is used

Sethng out

17.1(c), an Addition to the Contract Price in accordance with Clause 52'

Lossor damage due to

20.3,'an Addition to the Contract Price in accordance with Clause 52'

employer's risks Fossils

27.1(b)

Facilities for other contractors

31.2, 'an Addition to the

Contract Price inaccordance

with Clause 52' Engineer's determination where tests not provided for uncovering and making openings

36.5(b)

Engineer's determination following suspension

40.2(b), 'the amount which shall be added to the Contract Price in respect ofthe cost

38.2

incurred...' Failure to give possession

42.2(b)

Costof remedying defects

Contract to search

49.3, 'an Addition to the Contract Price in accordance with Clause 52' 50.1, 'amount inrespectofthe costs'

Valuations ofvariations

52.1, 'Values at the ratesand prices etc.'

Variations exceeding 15%

52.3, 'further sum'

Daywork

52.4, 'The Engineer.., shall be entitled to authorise

payment... as daywork... or at suchvalue thereforas shall in his opinion befair and reasonable' Failure to comply

53.4, 'such amount as verified by contemporary records'

Payment ofclaims

53.5,'such amount as the Engineer shall determine'

130

The FIDIC Form ofContract (Table 9.1 Contd.) Clause Description

Where the word 'cost' is used

Where an alternative formof wording is used

Use ofprovisional sums

58.2, 'an amount equaltothe amount thereofdetermined in accordance with Clause 52'

Payment to nominated subcontractors

5.4, 'actual price;in respectof labour..,the sum entered in the BOQ or as Clause 58.2; and in respect ofall other charges and profit, a sum being a percentage rate...'

Monthly payments

60.2, 'an amount which he (the Engineer) considers due...'

Final certificate

60.8,'the amount, which, in the opinion ofthe Engineer, is finallydue...'

Valuation atdate of termination

63.2,'the amount reasonably earned...;and the value of any unused or partially used, any Contractor's Equipment and any Temporary Works'

Damage to works by special risks

65.3,'an addition to the Contract Price in accordance with Clause 52'

Increased costs arising from special risks

65.5

Payment ifcontract is terminated

65.8(b), (e) and (f)

65.8(a), (c) and (d) 'amounts payable in respect of any preliminary items...' 'a sum being the amount...' and 'additional sum... Subclauses 65.3 and 65.5'

Payment in eventofrelease from performance

66.1,'sum payable ... same as ... underClause 65'

Payment on termination

69.3,'the amount of any loss or damage...'

Contractor's entitlement to suspend work

69.4(b)

Increase or decrease ofcost

70.1

Subsequent legislation

70.2

Currency restrictions

71.1, 'any loss or damage'

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131

Determination bythe engineer in favourofthe employer. Where the word 'cost' is used

Clause description Transport ofmaterials orplant

Where an alternative form of wording is inserted

30.3,'the amount determined by the Engineer...'

Rejection (due to testing, inspection of material plant etc.)

37.4

Default of contractor in compliance

39.2

Rate ofprogress

46.1

Contractor's failure to carry out instructions

49.4

63.3,'the cost . .. andallother

Payment aftertermination

expenses incurred by the

Employer...' Urgent remedial work

64.1

Payment if contract terminated (possibly)

65.8,'anyother sums which were recoverable...'

Payment in eventofrelease from performance (possibly)

66.1, 'the sum payable ... the same... underClause 65...'

Increase ordecrease ofcost

70.1

Subsequent legislation

70.2

Table 9.3 Determination by the employer against the contractor. Clause description

Where the word cost' is used

Where an alternative formof wording is inserted

Remedy oncontractors failure

25.3, the amount so paid'

Liquidated damages for delay

47.1, 'the relevant sum stated in the Appendix'

to insure

Costs for the purposes of clause63 (i.e. remedies) Certification of payments to nominated sub-contractors

54.6

54.6, 'all sums properly paid...' 59.5, 'the amount so paid...'

Under sub-clause 52.4 the engineer is 'entitled to authorise payment for such work, either as daywork, ... or at suchvaluetherefor as shall, in his opinion, be fairandreasonable',that is, thecontractor is entitled to a fairand reasonableprice for workcarried out at theengineer's instruction. In contrast, under clause 27 on fossils,the contractor is entitled to recover only

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his costs whether this is due to encountering fossils or to carrying out an instruction issued by the engineer for the purpose of dealing with such an encounter. In general, however, where the contractor is required to act and thereby actually do additional work, he is entitled to profit by virtue of the applicationof clause 52. 9.2.6 Definition of'approved'

The definition of approved in sub-clause 1(1)(n) of the Third Edition, which necessitatedthatapprovalto be inwriting, has been incorporatedin sub-clause1.5 oftheFourth Editionas partoftherequirementfornotices,etc. tobeinwriting. An additional requirement has also been included in sub-clause 1.5 to the effectthat any consent, approval, certificate or determination must not be unreasonably withheld or delayed.

9.3

Clause 2 Clause 2 deals with the engineer and the engineer's representative. Whilst there aremany clauseswhichregulate therole and authority ofthe engineerto actasthe employer's representative within the contract between the employer and the contractor,clause 2 in conjunctionwithclause 67contains the mainprovisionsby which this role and authority are regulated. These two revisedclauseshave been greatly expanded from theirpredecessors in the Third Edition,butthe traditional roleof the engineerhas beenpreserved. The Red Bookis still basedon the requirement that the engineer is to act impartially. Accordingly,wherecircumstancesdictate that the employer shouldrestrict the engineer's role by vesting the whole of the decision-makingprocess in the employer or an employeeofthe employer,then an alternative set ofconditionsof contract should be adopted. If decision making is totally removed from the engineer's role and allocatedto the employer,then the credibilityofthe impartial adjudication role presently given to the engineer throughout the document, and specificallyso under sub-clause 2.6, could no longer apply. A further aspect which must beconsideredinanymodificationoftheengineer's rolewithrespecttovesting thedecision-makingprocessintheemployer isthatthe employer may well have to consider the need to obtain professionalindemnity insurance for himself, if he were to assume, as he must, the responsibifity for a decision-makingrole on technical and professionalmatters. As every decision carries the concomitantrisk of it being the wrong one, the responsibffityfor the consequences of a wrong decision would lie with the decision maker. Such responsibilitymay leadto the necessityforproviding indemnity inrespect ofthe cost of remedying the adverse effects. Where the indemnity is not specifically incorporated inthe wordingofthe contract,itisgenerallyimported intoitinmost

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legal systems throughthe applicable law of the contract between the parties. if suchindemnity is not shifted to an insurer, the liabilityis self retained. (See also Chapter 10.) Bearing in mind the impartial role of the engineer, the new text of clause 2 includes many important changes from its predecessor. These are discussed below. 9.3.1

Requirementfor consultation Sub-clause 2.1, through the wordingin Part II of the Conditions, identifies the preciserole ofthe engineerbyindicatingthe particular clauseofthe contractwhere the engineer is requiredto obtain the specific approval of the employer before carryingouthis duties.Anewsentenceis addedinthe Fourth Edition to avoid any doubt about whether or not approval had been sought and obtained by the engineer from the employer prior to his undertaking any of his duties. The new wording deems any requisite approval to have been given once authority is exercised by the engineer, thus placing the responsibility on him to ensure that approvals are sought and obtained whenever necessary. The Fourth Edition introduces a new term, 'due consultation', in a number of clauses. This term appears inclauses:6.4,12.2,27.1,30.3,36.5,37.4,38.2,39.2,40.2,42.2,44.1, 44.3,46.1, 49.4,50.1,52.1,52.2,52.3,53.5,64.1,65.5,65.8,69.4 and70.2. Itrequires the engineer to consult with the employer and the contractor before taking his decisionas to whatactionisappropriate in thecircumstancesoftheparticular clause.Whilst this requirement for consultationbetween the engineer andthe employer is anattempt to involve the employer more activelywith the contract administration,the consultation with the constructor is in fulfilment of his investigativerole.

9.3.2 Responsibilityfor delegation

Sub-clause2(2) ofthe Third Edition is nowreplaced inthe Fourth Edition by subclauses2.2,2.3 and 2.4 whichdealnot only withthe engineer's representativeand the engineer's authority to delegate, but also with a new personreferred to as 'assistant to the engineer's representative'. It is now clearly stated that the appointment of the engineer's representative is the sole responsibifity of the engineer to whomthe engineer's representativeis responsible. The appointment of assistants is madeby eitherthe engineer or the engineer's representative.The engineer or his representative are requiredto notify the contractor of the names, duties and scope of authority of suchassistants. 9.3.3 Requirementfor writing

Anewsub-clausehasbeenaddedtotheFourth Editionrequiring that instructions given by the engineer must be in writing, or i.f oral, must be subsequently con-

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134

firmed in writing. This requirement which was part of clause 51 of the Third Edition has nowbeentransferred to clause 2 of the Fourthto give the principle of record keeping a wider application. However, it should be noted that some reference to 'instructions in writing'remains in the Fourth Edition, for example sub-clause 48.1. Accordingly,it may be taken that when the word 'instruction' appearson its own, it maybe given eitherin writingor orally followed by confirmationinwriting. On the other hand, whenthe words'in writing'are added to the text, oralinstructions maynot be given. An example of the former is now in Clause40.3 wherethe word 'written'has been omitted in the 1992 Reprint of the Fourth Edition. 9.3.4 Expressrequirementfor impartiality

Finallyand, perhaps, most importantly, sub-clause 2.6 of the Fourth Edition is a new provision with the express requirement that the engineer must act impartially whenever he gives a decision, opinion or consent; or expresses his satisfaction or approval; or determines value; or takes any action which may affect the rights and obligationsofthe parties. This express requirement replaces what was an implied term in previous editions of the Red Book. It is notable that the new provision incorporates a reference to clause 67 indicating that any such decision, opinion, consent, etc., may be opened up, reviewed or revised by an arbitrator.

9.4

Sub-clause 5.2 Sub-clause5.2 deals with priority of contract documents, providing a hierarchy between the various documents forming the contract whichmustbe takento be mutually explanatory of one another. Whilst any discrepancies or ambiguities which arose in a contract under the Third Edition were to be 'explained and adjusted' by the engineer, underthe Fourth Edition they must be explained and adjusted in accordancewith a priority listing ofthe contract documents specified in sub-clause 5.2. It is to be noted that Part II of the Fourth Edition provides alternativeforms ofwordingwhereother orders ofprecedencemightbepreferred or, alternatively, where it is decided that no order of precedence should be included. Onefurther change whichshouldbe noted is the deletion ofthelastsentenceof sub-clause5(2) of the ThirdEdition. This sentence cateredfor the situationwhere ambiguity or discrepancy in the contract documents involved the contractor in costs which could not reasonably havebeen foreseenby him. The deletion ofthis provision makes it clear thatifthe engineerissues aninstructionunder sub-clause 5.2, it constitutesa variation, the valuation of whichwifi have to be madeunder clause 5.2.

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135

Sub-clauses 6.1, 6.4 and 6.5 Sub-clauses6.1, 6.4and6.5 dealwith delays,the costofthe delay of drawings and thefailure by the contractor to submit drawings. Sub-clause6.1 includes a new provision dealing with drawings to be supplied bythe contractor.It also provides that unless it is strictly necessary, no document provided by the employer orthe engineer is to be communicatedto a third party by the contractor or usedby a third party. Sub-clause6.4 isthe firstprovision inthe Red Bookwherethe employer's role in the contract has been made more visible. This is achieved through two new provisionsin this sub-clause:the first isthroughthe inclusionof theprocess ofdue consultation,andthe second is throughthe requirement that the engineer, after determination of any extension of time and additional costs, should give the employer a copy of his notificationto the contractor of suchdetermination. Sub-clause6.5 is a new provision added in the Fourth Edition to cater for the situation where the contractor contributes to a delay being the subject of subclause 6.4. The engineer is requiredto takeanyfailure by the contractor to submit drawings, specificationsor other documents whichthe contractor is requiredto submit, into account whenmaking his determination pursuantto sub-clause 6.4. The inclusion of sub-clause 6.5 emphasises the fact that provision is madeunder theFourth Edition forcertainelementsof designtobe carried outbythecontractor (seeclause 7 of the FourthEdition).

9.6 Clause7 Clause 7 in the Fourth Edition has been extended to provide for the situation wherethe contractor is entrusted withthe designof partof thepermanent works. The procedure for submission of drawings, specifications,calculationsand other informationis detailedinthe newprovisions of sub-clauses6.1 and 7.2. Paragraph (b) of sub-clause7.2 caters forprojectswhere elementsofmechanicalandelectrical plantforming part of thecontract areto be designed bythe contractor.It is worth noting that, under this new provision, the works will not be considered to be completed for the purposes of taking over until the operation and maintenance manuals, together with drawings on completion, have been submitted to and approved by the engineer. Sub-clause7.3 is a new clause dealing with responsibifityfor designwhencarried outbythe contractor expresslystating that approval by theengineer of suchdesignin accordancewith sub-clause 7.2 doesnot relieve the contractor of any of his responsibilitiesunder the contract. 9.7 Clause 8

A second paragraphwas introduced inclause 8 of the 1992 Reprint of the Fourth Edition.Ineffect,it requires the contractor to give promptnotice ofany defecthe

136

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discoversin the design of orthe specificationfor the works when 'reviewing the Contract or executing the Works'. The words quoted indicate that this duty is imposed on the contractor as soon as the contract comes into existenceandnot before. However, as soon as a contract is formed, the contractor is requiredto notify the employer orthe engineer ofanydefectsdiscovered duringthe tendering period. A number of important aspects flow from the addition of this duty to the contractor's obligations. First, the principle is sound from a theoretical pointof view since it wouldbemuchbetterand less costlyto dealwith any defect as soon as it is discovered. In fact, this addedduty is takenfrom a similar clause recommended by the World Bank to its borrowers in its Standard Bidding Documents for major works. Ifthe existenceof a dutyonthe contractortoinform the engineer and employer of any defect discoveredby him had hitherto been in doubt, it is nowclear that suchdiscoverymust benotified.However,from apracticalpointof view, it wouldbe extremelydifficultto enforce sucha duty, exceptin a few rare cases, because of the difficulty in proving that the contractor hadknown of the defect but failed to notify the engineer andthe employer of its existence, if such knowledge is not proven, no sanction can be imposed. Secondly,this newwording ofclause 8introduces the question ofwhether there is an implied duty on thecontractor to checkthedesignofor specificationfor the works. Such a potential shared responsibffitybetweenthe contractor and the engineerwouldleadto an evengreater number of, and more bitter, disputes than exist atpresentin the constructionindustry. Up tothis newwording, the courtsin some jurisdictions have wisely, as a matter of policy, resisted imposing such an implied obligation on the contractor. In addition to the above newwording, a statement similar to that in sub-clause 7.3 has been added to sub-clause 8.2 in relation to the responsibifityof the contractor for design carried out by him notwithstanding any approval by the engineer. 9.8

Clause10 Clause 10 inthe Fourth Edition has beensubstantially amended and expanded to incorporate two new sub-clauses. The former term 'performance bond' is now replaced by 'performance security', and the wordingofsub-clause 10.1 is now in respect of 'proper' performance instead of the previously imprecise 'due' performance. Many argued that 'due' merely allocated an obligation to complete, whereas 'proper' has the added obligation of doingso with satisfactorymaterial andworkmanship and in accordancewith the specificationanddrawings. Sub-clauses10.2 and 10.3 are new. The first deals withthe period of validity of theperformancesecuritywhichisnowexpresslystatedas ending withtheissue of the defects liabifitycertificate. The second stipulates that prior to making a claim

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137

under the performance security, the employer should notify thecontractor of the natureofthe default in respect of whichthe claim is to be made. Itshouldbenotedin this connectionthat whilstsuchnotificationis acondition precedent to making a claimunder the performancesecurity, the condition is only slightly restrictivein thatthe default doesnot have to be provenatthatstage (see later in Chapter 15). 9.9 Sub-clause 12.2 Whilethe overall provisionsofthis sub-clausehavenotbeen altered in the Fourth Edition, a number of significant changes have been incorporated into the new wording. Itisnow evident that inorder to warrantconsiderationunderthisclause in the Fourth Edition, both obstructions and conditions must be physical, as opposed, for example,to being administrative. Furthermore,the role of the employer is againemphasised inthat the engineer must'duly consult' with theemployer priorto reachinghis determination on any entitlement due to the contractor. When the engineer determines any such entitlement, the employer should receivea copyofthe determination,as notified to the contractor. Thenew wording of sub-clause12.2 also includes a provision for directdetermination of an extensionof time in favour of the contractor pursuantto the provision ofclause 44. This expressreferenceto extensionof time clarifieswhat some commentators considered to be a vague area under the Third Edition. Another important change in the wordingof this sub-clause is the shift from 'approval'to 'acceptance' by theengineer of any properandreasonablemeasure takenby the contractor pursuant to this clause. The marginal note of this sub-clause was changed in the 1992 Reprint of the Fourth Edition bysubstituting the words'NotForeseeable'forthe word'Adverse' in thetitleof the sub-clause:'Adverse Physical Obstructionsor Conditions'. This change could be interpreted as suggesting that unforeseen physical obstructions or conditions mayproduce an advantageous as well as an adverse effect. However, the sub-clause deals only with an effectwhichentitles the contractor to an extension of time and/or additional payment and is a presumption of only an adverse effect. It is not clear as to whether the contractor is expectedtogivenotice under this clause irrespectiveofwhetherornotthe conditionswere ofan adverse nature. Inanycase, as statedinsub-clause1.2 ofthe Form, headings and marginal notes shouldnot be takenintoconsideration in the interpretation of the contract. 9.10

Clause 13 The wordingof the last sentenceof this clause was shortenedinthe 1992Reprint by the deletion ofboth the express referenceto the engineer's representativeand

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to clause 2. However, the words 'or his delegate' were addedin brackets to that

sentence. The deletion of the reference to the engineer's representative was also made in clause 15 'Contractor's Superintendence', see Section9.12 below. This deletionwas obviouslymadeinviewof the powerwhich is given to the engineer under sub-clause 2.3 'Engineer's Authority to Delegate' but it is puzzling as to why it wasconsiderednecessary to addthe words 'or his delegate' in clause 13, since no suchreferenceis madeelsewhere.Ifthe reasonfor adding these wordsis to counteractthe forcefuleffect of the word'only' in that sentence,thenit would havebeenmore logicalto delete it leaving the text muchclearer. 9.11

Sub-clauses 14.1 and 14.3 Although sub-clause14.1 of the Fourth Edition closelyfollows its predecessor in theThirdEdition, there aretwo important changes in its wording. Both of these changes occur in the provision that the contractor must:

'...submit to the Engineerfor his approval a programme showing the order of procedure in which he proposes to carry out the Works.' which has changed to: submit to the Engineerforhis consent a programme, insuchformanddetail asthe Engineer shall reasonablyprescribe,for the executionof the Works. The Contractorshall, wheneverrequiredby the Engineer,alsoprovide inwritingfor his information a general description of the arrangements andmethods which the Contractor proposes to adoptfor the executionof the Works.' The first changeis from the word'approval'to'consent'. The second is the change intherequirements ofwhattheprogramme should show:'the order ofprocedure' is now changed to 'such form and detail as the Engineer shallreasonably prescribe, for the execution of the Works'. This change could have far-reaching consequences if the engineer reasonably prescribes that, for example, the contractor should submit in support ofhis programme a criticalpath analysis insuch detail so as to show the resources he intendsto employ in carrying out the works. Sub-clause 14.3 now requires the contractor to provide a detailed cash flow estimate, in quarterly periods, of all payments to which the contractor will be entitled under the contract. 9.12 Clause15

Aswith clause 13referred to above,thewordingherehas alsobeenaltered bythe deletion ofthe referencetothe engineer's representativeand toclause 2,but unlike clause 13, thereis no referenceto delegationby the engineer.

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9.13 Clause19 Clause 19 deals with safety, security and the protection of the environment. The text of this clause has been expanded to incorporate new provisions placing greater responsibilityon the contractor for the safety of all persons entitled to be onthe site and alsofortheprotection oftheenvironment onandoffthesite. Anew sub-clause is also added to dealwith the employer's responsibilitieswhen he is expected to carry out work onthe site with his ownworkmen. 9.14

Clause20 Clause20deals with: careofworks;responsibilitytorectifylossordamage;andloss or damage due to employer's risks. The wording of this clause has been considerablyaltered inordertoprovideasimpler, clearerandmore logicallanguage. Theimportant changes effected by this alteration canbe sununarised as follows: (a) The clause is now divided into three sub-clausesproviding a logicalflowin

the conditions, starting with the care of the works and continuing to the responsibilityforrectifyinganylossordamage whichmayoccur and howthat responsibilityis allocateddepending on the type of risk encountered. (b) Theexcepted risks are now referred to as the employer's risks, probablyinan attempt, although notadmitted, to clarifythat the responsibifityfor these risks is the employer's. (c) Theemployer'srisksare nowlisted, making the languageofthe clause simpler andclearerto comprehend.The definitionoftwo ofthese risksisaltered inthe Fourth Edition.These arethe designrisk andthe riskofthe forcesofnature. As tothe designrisk, theword'solely' isnowdeleted from thepreviousphrase: 'a cause solely due to the Engineer's design ofthe Works'. The Guideto the use of FIDIC Conditionsreferred to earlier inReference9.1includes thefollowing reasoning for this deletion:

'It hasbeendecided to change this so that thecontractor is only responsible for errors in the designs for which he has been responsible. This is consideredto bemore balancedthan wasthe Third Edition.Itis nowpossibleto establish designresponsibilityfrom the outset, rather than applying a test afterthe event (i.e., was therecontributionto the error by another party or was it solely caused by the Engineer?). In practice that question was exceedinglydifficultto answer. Should therebe damage to the works in circumstanceswherean error in design is a contributory factor, the Contractor is only relieved of responsibility to the extentthat the damage was caused bya designnotprovided by him.'

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The definitionof the risk of forcesof naturehas also been altered in clause 20, thus removingtwo difficulties.TheThirdEditionreferred torisks which could not be foreseen and to risks from the forces of nature which could not be insured against. Both of these references have been removed for the following reasons given in the Guide: Thewords 'could not be foreseen... could be argued that all risks of the forces of nature can be foreseen' and the words 'Could not insure against have been removed as this test is difficult to apply. . Inthisregard,theFourthEditionprovides thatitisanemployer'sriskiftheworks are damaged by an operation ofthe forcesof natureagainst whichthe contractor could not reasonably havebeen expected to takeprecautions. Unfortunately, the test of reasonablenesshereis also difficult to apply (seeChapter 14 later).

9.15

Clause21 Clause 21 deals with: insurance of works and contractor's equipment; scope of cover;responsibilityfor amounts not recovered; and exclusions.As in clause 20, the wording of this clause has also been considerably altered to clarify the insurance provisions under the Red Book. The important changes whichemerge from this alteration may be summarised as follows: (a) The definitionof the suminsuredhas been altered with an additional sum of 15 per centofthe 'replacement' cost nowbeingrequiredto be included in the insurance cover, unless otherwise specifiedin Part II of the Conditions. This additional sumis addedtotakeintoaccountadditional costs ofandincidental to the rectificationof the loss or damage. (b) A new sub-clauseis added to clause 21 inthe Fourth Edition, to identify any permitted exclusions from the insurance cover to be provided under the contract.This additional sub-clauseis in recognitionofthe fact thatinsurance policies do, in general, contain exclusions.The permitted exclusions as identified in the FourthEdition referto some of the employer's risks listed in subclause 20.4. It is important to recognisethatthe contractor would be in breach of contract if the insurance cover he provides contains exclusions not permitted by this clause. Furthermore, as the employer's risks (e) to (h) of subclause 20.4 are not included in the list of permitted exclusions under subclause 21.4, the insurance policy required under clause 21 must providecover against these risks which include, amongst others, defectivedesign; defective material; and defective workmanship for the whole project. These risks are usuallynot insurable, see Section 14.5.4 of this book. This is obviously a mistake which should have been corrected in the 1992 Reprint, but no such correctionwas made. Perhaps a similar position was adopted to thatoutlined by one insurance broker who stated publicly that he saw no difficulty in a contractor being inbreach of contractin suchcircumstances!Such an attitude

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is erroneous and contractors in practice seek and obtain letters from their insurers confirmingthat view in an attempt to excusethis breach. The 1992 Reprint of the Formdid, however, resolvetwo minor problems in clause 21. Tn sub-clause 21.1, the term 'replacement cost' as qualified by defining costis inclusiveofprofitwithin the context of this clause.Farther, in sub-clause 21.4, the word 'where' in sub-paragraph (a) was replaced by 'whether'.This was obviously a typographical error as the word 'whether' appearsin the matching sub-clause 65.6. 9.16

Clause 23 This clause reinstates jointinsurance in respect of third party liability whichhad beenabandoned in theThird Edition. This third partyinsurance is required to be effectedinthe jointnames ofthe contractorandthe employer.Furthermore,anew sub-clauseisadded toprovidefor the insurance to applytothe contractorandthe employer as separate insureds, thus acting as third parties to eachother.

9.17 Clause 25 This clause has been expanded to incorporate standard insurance requirements which usuallyapply to the insurance clauses 21, 23 and 24. Accordingly,the contractor is now requiredunder sub-clause 25.2 of the FourthEdition to notify the insurers ofany 'changes in thenature, extent orprogramme for the execution of the worksand ensurethe adequacy of the insurances at all times in accordance with the terms of the Contract. . Anew provision is also addedunder sub-clause25.4 to dealwith anyfailure to complywiththe insurance conditionsasstipulated bythe policiesbyrequiring the parties to indemnify each other against all losses and claims arising from such failure.

9.18

Clause27 Clause27 deals with fossils.The provisionsof this clause have beenexpanded to allowforthe processof'dueconsultation'with the employer andthe contractorto takeplace. Inthisregard,theprovision intheThird Editionthatthecontractoristo carry out the engineer's representative'sorders atthe expense ofthe employer has nowbeenaltered to a provision whereby it is for the engineer to determine after due consultation,bothtime extensionand additional payment in respect of costs. The change from 'expense' to 'cost' incurredby the contractor as a result, mentioned in Section9.2.5 above, should also be noted.

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9.19 Clause28 Sub-clauses28.1 and 28.2 reiterate what wasformerly provided byclause 28 ofthe Third Edition, except that an added sensible protection has been included in favourof the contractor.This protection is in respect ofthe indemnity whichthe contractor must provide infavourofthe employer for any infringementofpatent rights. The contractor is not now required to provide indemnity where such infringement results from his compliancewith the design or specificationpro-

videdby the engineer. 9.20

Clause 30 Sub-clauses 30.2 and 30.3 have been redrafted to differentiate between the responsibilityforthe transportation ofthe contractor'sequipment andtemporary works, andthatforthe transportationof materialsand plantasspecifiedunderthe terms ofthe contract. The former relates to responsibilityfor matters selected by the contractor and, thus, his responsibility,whereas the latter is for elements outside his controland, accordingly,the responsibilityisallocatedto the employer in this regard. It is interestingtonotethat sub-clause30.3provides forthe only situation in the Red Bookwherethe employer is expected to consult directly with the contractor withoutthe presence of the engineer.

9.21

Clauses 34 and 35 These clauses have been reduced in Part I of the Fourth Edition to a general statement in respect of the engagement of staff and labour, in addition to the returnsoflabour andthe contractor'sequipment. However,inPartII oftheFourth Edition, it is noted that a number of sub-clausesshould be added to these two clauses to take account of the circumstancesand localityof the particular works. Various examples of such sub-clauses are given in Part II and the employer is invitedto addthese as relevant.

9.22 Sub-clause 36.5 This sub-clause has been added in the Fourth Edition to provide for the situation where a test requiredby the engineer in accordance with sub-clause 36.4 shows the materials,plantor workmanshiptobeinaccordancewiththeprovisionsofthe contract.In thisclause, 'due consultation'with the employer and the contractor is also specified as a pre-condition to the determination by the engineer for any extensionof time and for additional payment of costs.

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9.23 Clause37 Clause 37 has been greatly expanded from the version in the Third Edition. The provision of the new sub-clauses37.2 to 37.5 describe in detail the various procedures whichshould be followed for the testing of materials andplantin additionto the consequencesofboth satisfactoryand unsatisfactorytesting. 9.24 Clause 40

Anumberofamendments havebeen madeto clause 40 inan attempt to clarifyits intent. These are:

(a) Paragraph 40.1 (b) has been expanded to include reference to 'breach of contract' andthe words'or for whichhe (the Contractor)is responsible' have beenadded. Itis understood thatthese additions were included onthebasisof legal advice obtained whichindicated theirnecessity to avoid complications which might arise in instances where sub-contracts are involved. (Similar additions have also been madeto sub-clause44.1(e) andto the last sentenceof sub-clause 51.1.) (b) The important provisions regardingthe engineer's determination of extensions of time arid any extra amount tobe added to the contract price are now given under anewsub-clause40.2. Suchdeterminationis onceagainsubjectto 'due consultation' by the engineer with the employer and the contractor. It should also be noted thaf the requirement in the Third Edition that the contractor gives writtennoticeofhis intention to claim withintwenty-eight days of the engineer's order has beendeleted. (c) The new wording of sub-clause 40.3 of the Fourth Edition has an express reference to clause 69, default of employer, in case of a suspension lasting more than 84 dayswhichdoes notfallwithin the definitionin sub-clause40.1. In such cases, the suspension is to be treated as an event of default by the employer andthe provisions of sub-clauses 69.2 and 69.3 are to apply. Furthermore, in the 1992Reprint of the Fourth Edition,the word 'written' at the end of the first line wasdeleted, providing an option for aninstruction given by the engineer to be eitherin writingas requiredin sub-clause 2.5 or given orally followed by a confirmationin writing. 9.25

Clause 41 Unlike the Third Edition, there is no period for commencement in the Fourth Edition. The contractor's obligation is to commence as soon as is reasonably possible after receipt of a notice to this effect from the engineer. This notice,

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however, mustbe issued withinaspecificperiodoftimeafterthe dateofthe letter of acceptance,whichis stated in the Appendix to Tender. The commencement date is now a defined term, in sub-clause 1.1(c)(i), and is established by the engineer whenhe issues a notice to the contractor to commence the work. Inmanycases,this noticewifiprobably be issued bythe engineeras soonas the contractor has received and acknowledged the letter of acceptance from the employer.However, theremaybe occasionsdueto the sitenotbeing immediately available, or the employer having to take some procedural steps prior to commencement of the works, whenthe engineer maybe obliged to delay the issueof the notice to commencethe work. In any case, the contractor will know at the tenderstage thepermitted extent of any delay, as thetime withinwhichthenotice to commencemustbe issuedwillhave beenstatedin the Appendix to Tender.

9.26

Sub-clause 42.3 The word 'wayleaves' was replaced in the 1992 Reprint of the Fourth Edition by 'rights of way' in the text of the clause and in the marginal note. This is presumably duetothe fact thattheformer term-isrelativelyunknowninternationally.

9.27 Clause 44 The text and format of clause44havebeenimproved and expanded fromthose of its predecessor in the Third Edition. In sub-clause 44.1 'Extension of Time for Completion,'the listof events givingrise to entitlementsto extension oftime are presented in tabularform which improves the clarity ofthe wording. Thenumberof events themselveshas also been expanded to include what was originallytakenin some cases as implied. For example: (a) The 'nature' of extra oradditional workisnow added alongsidethe amount of

suchwork; (b) 'Any delay, impediment or prevention by the Employer' is now explicitly referred to as an eventgiving rise to an entitlement to extensions of time. By deliberatelyinserting suchan event, the riskof the contract being invalidated by suchshortcomingsonthe part of the employer has been greatly reduced. Whileinthe past, anysuchshortcomingsweredealt withbymutualconsent of the parties, as entitlingthe contractor to an extension of time, it is now clear that suchentitlement is the remedy to be adopted; (c) Paragraph (e) ofsub-clause44.1 now contains referenceto'breachof contract', and the words 'or for which he (the Contractor)is responsible' have been addedto include referenceto sub-contractors; and (d) The role ofthe employer is again emphasised in sub-clause44.1 through both

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the'due consultation'provision andtherequirement thattheemployer istobe provided with copies of whatever determinationis made. The procedure for notificationofthe occurrence of such events referred to above has alsobeenamended. Consequently,under sub-clause44.2, thecontractor must nowprovide: (a)

Awrittennotificationof the delayingeventto theEngineerwith a copy to the

employer; and (b) Within 28 days, or such other reasonable time, the contractor must supply detailed particulars of any extensionoftime to whichhemay considerhimself entitled in order that suchsubmission may be investigated at the time. Where an event has a continuing effect and where it is not practicable for the contractor to submit detailed particulars within the statedtime, a new provision has beenaddedunder sub-clause44.3 to cater for the procedure in sucha situation. Once again, this procedure includes the 'due consultation' provision by the engineer with the employer and the contractor.Attention should be given to the finalsentenceinthissub-clausewhereitis stated that: 'Nofinalreview shallresult in a decrease of any extension oftime already determined bythe Engineer'. 9.28

Clause46 Clause 46 deals with rate ofprogress. Asinclause 14, 'approval'of the engineeris nowreplaced by his 'consent'. An important provision is now addedin the FourthEdifion which empowers the employer,through a determinationbythe engineeralter 'due consultation', to recover extra supervisioncostsresulting from any stepstakenbythe contractor in meeting his obligationsunder this clause.

9.29 Clause51 Clause51 deals with variations; and instructions for variations.In addition to the general changes inthe wording, anumberofimportant changes were introduced intothe text of this clause. These are:

the contractor to omit work does not extend to work to be carried out by the employer or by another contractor; (b) The engineer's authority isnow extended to include the issueof an instruction to change any specifiedsequence or timing of constructionof any part of the works; and (a) The engineer's authority to instruct

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(c)

A new sentence is added expressly providing that where a variation is necessitatedby a default of, orbreach of contractby the contractor or anysubcontractor for whichhe is responsible, any additional cost incurredis to be borneby the contractor.

9.30 Sub-clause 52.3

In addition to thechange from 10 per centto 15 per centas thelimitwhichtriggers the operation of this sub-clause,its wordinghas been expanded to elaborate on many of its provisions whichwere ambiguous in the Third Edition. The most important ofthesechanges is the new last sentencewhichexpresslyprovides that thesumsdetermined bythe engineerunder this sub-clauseare basedonly onthe amounts by whichthe additions or deductions are in excessof 15 per centofthe effective contract price.

9.31 Clauses 53 and 54 The provisions of sub-clause 52(5) of the Third Edition have been modified and transferred to sub-clauses53.3 and 53.5 of a new clause 53 in the Fourth Edition. The new clause 53 also incorporates provisionsrelating to the mariner of dealing with claims; their substantiationwithin specifictime limits andby contemporary records; andtheirpayment. In addition to the claimsmadeunder theprovisions of thecontract,this clause encompassesclaimsmade underthe applicablelawof the contract.

Clauses53 and 54 ofthe Third Edition have now been combined in the Fourth Edition into one clause, clause 54, under the title'Contractor's Equipment, TemporaryWorks and Materials', In clause 54 of the FourthEdition, there are new provisions to dealwith the conditions of hire of contractor's equipment. 9.32

Sub-clause 57.2 This is a new sub-clause providing for the contractor to submit to the engineer within certain time limits a breakdown for each of the lumpsum items contained inthetender. Italso providesthat suchbreakdownissubjecttotheapproval ofthe engineer.

9.33

Clause 60 Clause60 deals with certificatesand payments. The provisions of clause 60 of the Third Edition were mainly given inPart II of the document, as it was considered

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that procedures for payments differed so much between one organisation and another that it was not practicableto draft a clause for general application. This view changed whenthe Fourth Edition was drafted, and a specific procedure is now set out for: the contractorwhen making applications for payment or when submitting a draftfinalstatement; — the engineerin certifying;and — the employerin making payment. —

It should be noted that sub-clause 60.10 of the Fourth Edition provides for payment of interest at a fixed rate upon all sums unpaid on the appointed date, butwithoutprejudice to the contractor's entitlement under clause 69 (default of the employer).

Additional sub-clausesare also included inPartII ofthe Fourth Edition tocover certain matters relating to payments, such as when payments are to be made in various currencies,or where the place of payment is defined. These sub-clauses are to be addedto the maindocument as relevant. A numberof amendments were madein the1992 Reprint oftheFourth Edition, as listed below: (a) The words'or otherwise' were added after the words'under the Contract'in eachof sub-clauses60.1(e), 60.6(b) and 60.8(a). (b) Insub-clause60.8(b), the words'underthe Contractotherthan Clause47' have beenchanged to read 'otherthan under Clause 47'. (c) The words 'or otherwise' were added in sub-clause 60.10 after the words 'under Clause 69' at the end of the sub-clause. (d) In sub-clause60.2(b), 60.4, 60.7 and60.10, changesweremadeto takeeffectof the new definitions added in the 1992 Reprint, i.e. 'InterimPayment Certificate' and 'FinalPayment Certificate'. (e) In sub-clause 60.6, 'Final Statement', a new paragraph has been added requiring the engineer to deliver to the employer an interimpayment certificate for those parts of the draft final statement whichare not in dispute. (f) In sub-clause 60.2, the words'certify to the Employer' have been changed to read 'deliver to the Employer an Interim Payment Certificate stating', the word'thereof' has been changedto read'of suchstatement' andtheword'he' has beenchanged to read 'the Engineer'. (g) Inthe eighth line of sub-clause60.3, sub-para (b),the word 'ordered'leftfrom therelics of previous Editionsto read 'instructed'. (h) In the second line of sub-clause60.5, afterthe word 'Engineer', the words'six copies of' have been added. (i) Inthe second line of sub-clause60.6, after the word 'consideration', the words 'six copies of' have been added.

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The finalparagraph of sub-clause60.6 described in item (e) above endswith theprovision that any disputeinrelation to thefinalstatementmaybe settled in accordancewith clause 67 of the Form.

The changes referred to in items (d) to (i) above are self-explanatoryand need no comment.However, the changes indicated in items (a), (b), (c) and (j) above are far-reachingandrequire specialattention. They provide an endtothe debate as to whether damages for breach of contract should form part of the contractor's monthly statement showing the amounts to which he considers himself entitled. The newwordingofsub-clause60.1(e) confirmsthatthe contractormayinclude in suchastatement 'any other sumtowhichtheContractormaybeentitled underthe Contract or otherwise.' More importantly, the changes mentioned above to sub-clauses 60.6(b) and 60.8(a) confirm that when submitting his final statement for the engineer's consideration, the contractor may include such damages and that the engineer may include these damages inthe final payment certificate whichhe must issue to the employer within the set 28 days. Furthermore,and as aconsequenceofthe newlyadded final paragraphof subclause 60.6, any disputeregarding the finalstatement whichmust now include a disputerelating to damages inbreach ofcontract is to beresolved under clause 67 of the Form. This clearly means that the mechanism of clause 67 including the decision of the engineer under that clause does apply to a claim or counterclaim for breach of contract. Finally,as discussed earlier in Chapter 1, FIDIC published inNovember 1996a Supplement to the Fourth Edition of the Red Book in three sections. Section C deals with sub-clause 60.10 and is intended to provide some safeguard for the contractorinthe eventthatthe engineerislateincertifyinginterimpayments.This isachievedby deletingin lines3 and 4 ofthesub-clausethewords'within28 days after suchInterim Payment Certificatehas been delivered to the Employer' and substituting the words 'within 56 days after the Contractor's statement has been receivedby the Engineer'. 9.34 Sub-clauses 65.4 and 66.1

In the 1992 Reprint of the Fourth Edition the followingchanges were made: —

In theninthline of sub-clause 65.4, the words'and to the operation of Clause 67' have been changed to read 'and Clause 67'; and In the second line sub-clause 66.1, the word'party' has been changed to read 'orboth parties', inthethirdlinebetween thewords'his'and 'contractual' the words'or their' havebeenadded. Inthe fourthline after the word'then', the words 'the parties shallbe discharged from the Contract, except as to their

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rightsunder this Clause and Clause 67 and without prejudice to the rightsof either partyinrespect ofany antecedentbreach ofthe Contract,and' have been added. These changes were presumably made to highlight the difference between termination ofthe employmentofthe contractorandterminationofthe contractitself.

9.35

Clause 67 Clause 67 deals with the settlement of disputes. The wordingof this clause has beenimproved, clarifyingmany ofthe provisions ofthe Third Edition which had been a source of jurisdictional challenges in many arbitration cases. The clause now clearly states that the referenceto the engineer shouldstate that it is made pursuantto clause 67. Thedecisionofthe engineershouldalsostatethatitismadepursuanttoclause67. Theconsequencesofthe engineer'sfailuretogivenoticeofhisdecisionhasnowalso beenclarifiedinthatitis treated inthesame manner asifeithertheemployerorthe contractoraredissatisfiedwiththe decisionoftheengineer.Furthermore,ithasnow been clearly established that a notice given by either party to the other of his intention to commence arbitration entitles that party to arbitration. It is also established thatwithoutsuchnotice, thereis no entitlement to arbitration. A further important change has been made by deleting the word 'difference' from the firstsentenceofclause 67 restrictingitsapplicationto adisputesituation. Clause 67 has also been expanded to include: (a) A new provision for an amicable settlement of disputes prior to the commencementof arbitration;and A (b) new sub-clauseto providefor the situation whereeither ofthe parties fails to comply with a decisionof the engineer which has become binding. In any such case, the other party may refer such failure to arbitration, thus transforming the engineer's decision into an arbitral award which may be enforceableunder international conventions.

In the November 1996 Supplement to the Fourth Edition of the Red Book, referredtoabove,SectionA provides an alternativewordingtoclause 67. Thenew wordingwasdrafted inresponse to mounting criticismofthe role of theengineer as an adjudicator or quasi-arbitratorin theresolution of disputes under clause 67 of the Red Book. Various alternative methods of disputeresolution were consideredin thepastfew years, both domesticallyandinternationally.Themethod finally chosen by FIDIC in its new Supplement is that based on the use of an adjudicationboardcomposed ofone or three expertswho canrendera decision in respect of a disputewithouthaving to resortto the engineer for a finaldetermi-

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nation under the present clause 67 (see Chapter 19 later). This new method requires an expert or experts to be appointed at the beginning of a contract, who must keep in touchwith the workin progress on the site whichis achieved by visiting the site at regular intervals. The appointed expert, or experts, must be availableto act inthe resolutionofany disputes thatmay arise.Inthe supplement, FIDIC embraces this alternative method of dispute resolution as an acceptable substitute to the engineer's traditional role in dispute settlement. The new supplement provides the necessary amendment to the wordingof clause 67 of the Red Book arid also contains a guide to this amended wording. Moreover, it contains model terms of appointment andprocedural rules for the dispute adjudication expert or board and the necessary amendments requiredto theAppendix to Tender whichcorrespond to theamended wordingof clause 67. The effectofthe changestoclause 67 are discussedinmore detail inChapters 19 and 20. 9.36 Clause 69 There are two new sub-clauseswithin clause 69: sub-clauses69.4 and 69.5. They provide a possible temporary solution to the problem of non-payment by the employer under a certificate. Accordingto the new provisions of sub-clause 69.4, thecontractorcangive noticeto theemployer entitlinghimtosuspendtheworkor to reduce therate ofproduction after a period of28 days. Sub-clause69.5 provides for resumption of work whenthe employer subsequently effectspayment. The 1992 Reprint included two amendments: the first in sub-clause 69.1 where insub-paragraph (d), thewords'unforeseenreasons, dueto economicdislocation' were replaced with 'unforeseen economicreasons'; andthe second in sub-clause 69.4 wherethe word 'cost' was replaced with 'costs'. 9.37 Other changes made in the 1992 Reprint Besides the changes made in the 1992 Reprint of the Fourth Edition of the Red Bookto Part I of the 1988 Reprint as discussed in the presentchapter, numberof

a

minor changes were also madeto the Tender, Appendix, Referenceto Part II and Editorial Amendments. These are set out in Chapter 1 andalso in Appendix B. Furthermore,therewere amendments madeto Part II of the 1988 Reprint of the Red Bookwhichare set out in Appendix B. 9.38 Concluding remarks

In this chapter, the revisions madein producing the Fourth Edition of the Red Book, its 1988 and1992 Reprints andits 1996 Supplement were highlighted and discussed.

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Part III considers the Fourth Edition of the Red Book in practice, under the headings: the role of the engineer;responsibilityand liability of the engineer;the employer's obligations; the contractor's obligations;risks, liabilities,indemnities and insurances; performance and other securities; claims and counterclaims; delay in completion andclaims for extension of time; certificatesand payments; disputes settlement by arbitration and finally, amicable settlement using alternative dispute resolution. Part IV deals with related documents to the Red Book; namely: otherstandard forms ofcontract published byFIDIC,e.g. the YellowBook, the Orange Bookand the Sub-contractForm; and the World Bank Standard Bidding Documents for major workswhichis basedonthe FourthEdition ofthe Red Bookas reprinted in 1992.

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Chapter 10

Role of the Engineer

10.1

Introduction

It is evident fromthe previous chapters that the role of the engineer is central to

the contractunder theRedBook. Indeed, theengineerhas many, sometimeswhat appear to be conflictingroles. This chapter deals with the engineer inhis roles of designer, employer's agent, supervisor, certifier, adjudicator or quasi-arbitrator, andalso with his proactive,reactive and passive duties and authority under the contract.

The concept of engaging a consulting engineer for any of the tasks detailed in Chapter 5 stems from the idea that when a promoter initiates a construction project he is faced with a multiplicity of technical, commercial and legal considerations withwhichheisnotfamiliar,orat leastinwhichheis not anexpert. In civil engineering construction, in order to transform the promoter's ideas into reality,the traditional method, and alsothe method adopted byFIDIC,hasbeento engage the servicesof a consultingengineer to carry outthe followingfunctions: (a)

To complete a skilful design of the project sought by the promoter. Such design includes, but is not limited to, the preparation of drawings which should expressandcommunicatethe details ofevery aspect ofthe projecttobe constructed; to draft a specificationof the materials to be used and of the standard of the workmanship to be achieved; and to prepare the bill of quantities;

(b) To prepare all documents necessary for obtaining a competitive price for

carrying outthe work by a competent contractor andto advise the promoter on the tendersreceived andonthe selection of thecontractor; (c) Once workstarts onthe project,to supervise or to inspect the work carried out by thecontractor in order to ensureconformitywith thedesignrequirements;

and (d) To administer the contract,to dealwith situations as they arise, to certifyand

to act as an adjudicator of disputes.

Incarrying outthe duties set outin steps (a) and (b), theconsulting engineeracts as an adviserand consultant to the promoter. Once a contract is placed with a

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contractor, the developer is called an employer under the Red Book arid the consultingengineer is referred to as the engineerfor the purposes ofsteps(c) and (d). During these steps the engineer acts as agent of the employer. For the purposes of the construction of a civil engineering project, two contracts are traditionally formed, one between the consulting engineer and the employer and another between the employer and the contractor.101 In the case of the first contract, the contractor is not a party. Similarly, the engineer is not a party to the contractbetweenthe employer and the contractor. This traditional method has distinct advantages over others. First,it permits the completionornear completionof the design ofthe project beforethe appointment of a contractor and thus allows for competitive tendering in respect of its construction.Secondly,it eliminatesor atleastminirnisesthe problem ofprofessional judgement being influencedby anycommercialaspirationswhichmight influence the designer. Thirdly,itpermits ahigher degree of control over thequality of the constructed works, such control being exercised by the designer who would subsequently,normally act as the supervisor. Fourthly, it embodies greater flexibility of the final designof the project in that it incorporates procedures which allow for modification of requirements and of detail which might be required duringthe constructionperiod. As already discussed in Part I, the role of the engineer under the Red Book is based on, and developed from, the English tradition and in particular from the ICE Form of Contract. Although similar contractual arrangements, where the design and specificationfor aproject are prescribed by an employer and expected to be strictly followed by a contractor, are traditionally also used in countries outside the English influence,the differencebetweenthe latter type andthe Red Bookin the position and the role of the engineer seems to focus on his role as described in step (d) above.102 Many employers and commentators unfamiliar with either the ICE Form of Contractor theRedBookfindthe position andthe roleof the engineerunderthese two forms of contract confusing and abnormal. This is particularlyso whenthey find that the engineer may act, on the one hand, as an agent of the employer duringthe constructionof theworks, and on theotherhand, as an adjudicator of disputes betweenthat employer andthe contractor. They consider it even more unusual whensome of these disputes relate to the engineer's own design, specification or instructions. Others find it peculiar that the engineer, whilst not a party to the contract between the employer and the contractor, is in fact empowered under various clausesofthe FIDIC ConditionsofContractto giveinstructions,tomake decisions, determinations or variations, which are binding on the parties to the contract unless and until they are subsequently rescinded or varied by an arbitrator. Furthermore, those unfamiliar with the Red Book also consider it peculiar that because ofthe principle ofprivity of contract under the common law system (on which the Red Book is based, see Chapter 3 above), the engineer's actions or

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inaction do not expose him to any liability under the contract between the employer and the contractor.In addition, any liabilitytowards the employer for lack of care orskifi existsonly underthe engineer's contractwiththe employer.On theother hand, should thecontractorsuffer any loss or damage underhis contract withthe employer duetotheengineer's negligencehe canobtain aremedy against the employer only through the contract with that employer. The employer may then, if appropriate, initiate a claim against the engineer for the loss or damage sustained.For a detailed discussiononthis aspect ofthe relationship between the engineer, the employer and the contractor, see Chapter 11 later. Therefore,whilstthe functions set outin steps (a), (b) and (c) above are known almost worldwide, it is step (d) which is controversialandrequires detailed discussion.To sammarise,insteps (a) and (b),the engineer'sroleis thatof adesigner; in step (c) as a supervisor and as an employer's agent; and in step (d) as administrator, certifier and adjudicator. The engineer's proactive,reactive andpassive duties are performed throughout the construction and completion of the works. Theseroles are discussed below. 10.2 The engineeras a designer

Therole of a designer is the first and primary role of the engineerandshould be completed,or almost completed,by the time the Conditionsof Contractcomeinto operation. The more complete the design of the project is at the time of inviting tendersfor its construction, the lowerthe risk of an unsatisfactoryoutcome. To ensure the completenessof the design, the design brief must first be defined and its parameters decided, so that the best personcanbe selected to undertake the design. It is difficult, if not impossible, however, to define in general terms the conceptof'Design' because each civil engineeringproject is a unique artefactand the design parameters and boundaries are therefore different in every case.103 Nevertheless, it may be useful to clarify the path followed in performing the design function and the expected results. The designof a particular project involves decision making on the form and shapeofthe project;theconstituent elementsofthat form and shape; theirprecise dimensionalcharacteristics;the specificationof the material and workmanship of eachmodule oftheseelements;the quality to be achieved;and howthese elements relate to andinteract with eachother. Thedesignprocess described above applies equally to temporary works, with the additional requirement of ensuring that the temporary works are capable of performing a specific function for a certain period of time to facilitate the construction of the permanent works. Thenature of the project for whichthe design is required is identified in the contractbetweenthe employer and the consultant.Whereas the temporary works mustbefitfor theirpurpose and, thus,arenormallylefttothe contractorto design

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and to be liable for (see Chapter 13 later), the liabifityfor the design of the permanent works extends onlyto skifi and care,unless further extensionofliabffityis specificallystipulated inthe contract.When the entiredesign has beencompleted thefollowing aspectsof theproject would normally havebeendetermined: (a) The shape, form and dimensions of the project. (b) Thefunction whichthe projectis expectedtoperformandthe level andquality

of suchperformance. (c) The selectionof materials and workmanship to producethe shape, form and dimensions of the project; and the production of documents necessary to express and communicate the designprecisely and clearly to the employer and to prospectivecontractors. Some aspects of the method of construction which would be necessaryfor theimplementation ofthe project mayhaveto be included depending onthe project and its design. Other aspects remain within the control of the contractor and the division between the two is animportant aspect whichcannot be sufficientlyemphasised. (d) The projected cost of the project on completion,basedon an accurate Bifi of Quantities, and also the projected maintenance cost of the project's life span. It is generallyacceptedthatthereis arelationshipbetween thequality of the materials and workmanship selected in the design and the necessity for maintenance and its frequency. (e) In certain aspects, the timing or sequence of construction of any part of the works.

A check list prepared by an advisory committee to the Tnstitution of Civil EngineersinLondon provides avaluable reminder ofwhatshouldbe doneby the engineer at the pre-contract and the post-contract stages.104 Although drafted with referenceto the Fifth Edition of theICEForm, most of its items applyto the FIDIC Form and accordinglyit is quoted below. 'Pre-contract 1. Ensure the employer is aware that he carries the financial risk for unforeseen events andofthe financialmanagerialandadvisoryresources required

for the contract.

2. Warn the employer of the decision and actions required of him giving programme dates of finalisation of designs, provision of access, constructionandtaking over theworks. 3. Design and detail the contract works andas far as possible prepare clear working drawings anda concise specification. 4. Prepare accurate bifis of quantities, detailing the works required and complyingwith the standard method ofmeasurement wherepossible.Keep provisional items to a minimum.

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5. Ensure the employer andhis staff understand the roleofthe Engineerunder theICEConditionsofContract,to ensure fairdealingsbetweenthe contractor and the employer. 6. Adoptthe ICE ConditionsofContract orforancillaryworks, national andwell understood Conditions of Contract, in full, withoutany variations or deletions, and draw the employer's attention to the powers and duties of the Engineerunder these contracts. 7. Ensure the employer andhisauditors acceptthe ICE/CIPFA jointstatement on the Engineer's and auditor'srelationship and accept that the Engineer has the quasi-judicialpowers to make decisionsthat arefinalandbinding on the employer and contractor subject only to referenceto arbitration.105 8. Ensure the Engineer has a defined and readily understood method of selectingcontractorsand recommendthenumberinvited shouldbe limited. 9. Ensure alltenderers receivethe same tendering informationand are given a sufficientperiod for the preparation of tenders. 10. Make all site and service information in the employer's and Engineer's possession availableto those invitedto tender. 11. Ensure tenders are delivered in specifically marked envelopes to the employer or Engineer, by a fixed date and time, and are openedwith witnesses at a declared fixed time. 12. Check tenders carefully and correct any errors in extension of item rates, times or quantity. Notifytenderer ofany resulting change in the total of the priced bills of quantities and tender sum. Review tenders received with particular regard to the proposedconstructionmethods and degree of risk involved and with the implications of sectional completion dates on the employer's and contractor's cash flow, as well as the anticipated final contractprice. Submit areport to the employer pointing out any rate that is less than the known cost of carrying out the work and giving a recommendation of a tender acceptance with reasons. If rates are in doubt recommend a tenderer be invited to stand by his rates or withdraw. 13. Advise the employer to givetenderers thenameofthe successfultendererat the earliest opportunity. It is also recommended that the list of values of tendersreceived should be circulated. Post contract 14. On the appointment of a contractor, confirmthe appointment by letter. 15. State by letterto the contractor and Engineer's representative details ofthe

delegated powers and responsibilities and names of the Engineer's representative and projectteam, andgive a datefor commencementofthe works. 16. Agree the extent and methods of payment for variations, extras and supervision and recording of dayworks, preferably before work is commenced, andconfirm in writing.

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Do not exceed the powers granted by the employer, e.g. do not take on responsibilityforredesign or significantvariations andextraworks without the employer's agreement to the works and to providefinance. 18. Make decisionsonextensionsoftime atstages andtimes requiredunderthe 17.

contract. 19. Ensure thata site diaryandsiterecords are properly kept and agreed where

appropriate with the contractor and arrange for regular progress photographs to be taken. 20. Ensure site meetingsareheld atleastmonthly andthatminutes are keptand agreed. 21. Issue certificatesfor payments after interim measurements promptly. 22. Visit the site regularly, at least monthly. Inspect works in progress and

review compliancewith the contract programme.

23. Ensure nominated subcontractors are properly appointed by the main contractor and thatappropriate subcontractconditionsofcontract are applied. 24. Agree measurements of quantities for completed works as the work pro-

25. 26. 27. 28.

29.

ceeds and agree with the contractor that they are to be carried to the final account,unaltered. Ensure claims are detailed and the sumsduesettled as soon as possible. Ensure certificationof maintenance andcompletion are issued to the contractor on time. Ensure the employer is aware of his new insurance liabifity when the maintenance certificateis issued. On clause 66 decisions,review all the evidence available and if possible, arrange forthe Engineer'srepresentativeto putthe employer's case,andthe contractor his, to enable a clear judgment to be madeonthe issues. In the event of arbitration, keep the disputeto the areas of the clause 66 determination and presentyour evidencefairly and concisely.The guiding principles for the Engineer and his staff are that the contract is a joint enterprise for the benefit of both parties andthe employer is entitled to a project well executed and the contractor to fair dealing and a fair profit. Remember always the contractor could only price and resource for the works whichwere defined at the time he tendered.'

Although it is accepted that the whole design, including the drawings, the specificationand any other documentation, should ideally be completed before tendersareinvited, theFourth Edition oftheRed Bookallowsforthepossibilityof not achieving this ideal situation. In sub-clause 7.1, the engineer is given the authority to issue to the contractor during the currency of the contract 'supplementary Drawingsandinstructions asshall be necessaryforthe purpose ofthe proper and adequate executionandcompletion of theWorks. . Sub-clause 7.1 should, however, be considered in conjunctionwith sub-clauses 6.3 and 6.4, 'Disruption of Progress' and 'Delays andCost of Delay of Drawings'.

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The flexibility providedby sub-clause 7.1, in allowing for finalising the design duringthe construction period,is matched by a possible cost implicationwhich cansometimes form the basis of substantial claimsby the contractor against the employer.Inthisregard,sub-clause6.3 states in essencethat 'the Contractorshall givenotice . . . wheneverplanning or executionofthe Worksislikelytobe delayed or disrupted unless any furtherdrawing or instruction is issuedby the Engineer within a reasonable time. . Sub-clause 6.4 states briefly that:

'if, by reasonof any failureor inability ofthe Engineerto issue, within a time reasonableinall the circumstances,anydrawing or instructionforwhichnotice has been given ..., the Contractorsuffersdelayand/orincurs costs then the Engineershall, ..., determine: a) any extensionof time... b) the amount of suchcosts...'

The Fourth Edition of the RedBookalsoprovides, insub-clauses7.2and8.2,for the possibilityof part of the permanent worksbeing designed by the contractor. Thesetwo sub-clauseshave been drafted with mechanicaland electrical plantin mind (see sub-clause 7.2(b)), where operation and maintenance manuals are required to be submittedbythe contractorto the engineer.In suchanevent, where thecontractor isrequiredto designpart ofthepermanent works, thespecification must expresslyprovide for sucharequirement.Inthis connection,itisnotable that sub-clause7.3 provides that approval by the engineer of drawings, specifications, calculations,operation and maintenance manuals andother informationis not to relieve the contractor of any of his responsibilities. The responsibilityfor design is stipulatedinsub-clause20.4(g) where the riskof loss or damage dueto the designof the works is allocatedto the employer. Where anypartofthe designis provided by thecontractororthe contractoris responsible forit,theriskofanyloss or damage islistedas acontractor'sriskundersub-clause 20.2.

In the latterconnection,it should be noted that clause 38(11) of the 'ModelServices Agreementbetween Clientand Consultant', published byF]DIC in1990 (see Reference 10.1), states that 'Neither the Client nor the Consultant shall assign obligationsunder the Agreementwithoutthe writtenconsent of the other party'. Therefore, should there be a need for the contractor to design any part of the permanent works, itwouldbe necessarytoalter clause 38(11) ofthe ModelServices Agreement, if used, unless consent of the employer is first obtained. If another form of agreement is used whereno referenceto assignment is made, then it is important to consider the necessity of incorporating an express term into the agreement authorising the designer to delegate to the contractor the relevant design obligationsrelating to that part of the permanent works. This wouldcertainlybeprudentunderEnglish law since it wasdecided inMoreskv. Hicks [1966]

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2 Lloyd's Rep 338, that thereis no implied authority for the designer to delegate any of his duties to others. In that case, an architectsub-contractedthe design of thestructural frame of the building to a contractor whosuppliedand erectedthe frame. The frame, however, proved tobe defectivein two major design areas. The architectsought to arguethat therewas animplied authority to delegate the duty ofthedesignoftheframe. The court disagreedwith this submissionandheldthat:

'... if abuilding owner entrusts the task of designing a building to an architect he is entitled to look to that architect to see that the building is properly designed.The architecthas no power whatever to delegate his dutyto anybody else. Certainlynotto a contractorwho wouldin fact haveaninterestwhichwas entirely opposed to that of the building owner.'

In this connection,itis alsoimportant to refer to clause 59.3 of theRedBookwhich provides for the situation where the services to be provided in respect of a provisional sum include a matter of design or specificationof any part of the permanent works or of any plantto be incorporated therein. Under this clause,such design requirement should be expressly stated in the contract and should be included in any nominated sub-contract. Accordingly, similar express terms should be incorporated into the agreement between the promoter and the consulting engineer authorising the latter to delegate the relevant design duties. As the designer is under a continuing duty during the construction period to check that his design willwork in practice and to correct any errors which may emerge, a reference to clause 51 of the Red Bookis necessary in this context.106 Sub-clause51.1(c) authorises the engineer to change the character or quality or kind of workincluded in the contract.Such change falls withinthe definition of 'Design' as propoundedabove, as does any change in levels, lines, position and dimensionsof any part of the works which is referred to in sub-clause 51.1(d) as being within the authority of the engineer. Change of any specified sequence or timingof constructionof any part ofthe workmayalsobe part of the 'Design', a change provided for under sub-clause51.1(f). Finally, 'Design' may include additional work of any kind necessary for the completion of the works as provided in sub-clause 51.1(e), whether such additional work is requiredto rectify the original designor simply to represent an addition to it. Sub-clause7.1 provides the authorityfor the engineertoissueto the contractor, from time to time, supplementary drawings and instructions which wouldbe necessaryfor the properand adequate executionandcompletionof the works and for remedying of any defects therein. Apartfrom the permanent works, it is usual to expectthe contractor to design thetemporary works, and referencein this connectionis madeto sub-clause8.2 of the Red Book. This sub-clause provides that the 'Contractor shall take full responsibifity for the adequacy, stability and safety of all Site operations and methods of construction'. The sub-clause further provides that the contractor is

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notto be responsible for the design or specificationof any temporary works not

preparedby the contractor, suggesting that it is normally expected that the temporary works wouldbe designed and specifiedby the contractor and wouldfall within his responsibility.107

10.3

The engineeras the employer'sagent When the employer appoints a contractorto construct a project,certain duties are generallycreated whichmust be performed by the employer, or onhis behalf, in order to ensure that the project is completed on time, within the budget and, perhaps more importantly, with qualities as designed and specified. Whoever performsthese duties is called the employer's agent. These duties are, in general, concernedwith the followingfunctions: — Design: As explained earlier, the process of design continues duringthe con-

—

—

struction period and many questions could arise during this period which wouldrelate to matters of design. The philosophy and practicalcalculationsof the design process are best known by the engineer. Design,beingmore of an artthana science, could best be modifiedor changed, should it berequired, by the original designer. Quality control:The design is expressed throughdrawings and specifications whichset out therequiredquality to be achieved.Quality must be monitored by someonefamiliar withthe original conceptsandparameters of the design. Administrationand management:Progress on site depends to a large extent on the availability of information required by the contractor. This information may involve queries as to how a certain provision of the contract shouldbe interpreted or how problems encountered on the site should be dealt with promptly and properly. It may involve questions relating to whether or not a certainitem is necessaryforthe completionofthe work; whetherornot an item shouldform a variation to the contract; whether or not a specificcontractual obligation has been fulfilled; whether or not a certain item of the work is

properly measured; etc. When suchinformationis required, it is necessarythat the employer's agent be familiarwith the details ofthe project in order to dealwith itpromptly. — Cost accountancy and certification: The contract is based on interim payments being made periodically, mostly on a monthly basis, by the employer to the contractor. The employer's agent must possess the necessary knowledge to evaluate the work carried outby the contractor,periodicallyand ultimately in

a finalcertificate.

The functions set out above are detailed in 51 out of the 72 clausesof PartI of the Conditions.They are clauses:1,2,4,5,6,7, 12, 13, 14, 15,16,17,18, 19,20,27,30,31,

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Of the above clauses, however, clauses 1 and 2 should be recognised as the principalclauseswithrespecttosetting outthe duties andauthorityofthe engineer and in particular his role as the employer's agent. It is important, therefore, to consider the provisions of clauses 1 and 2 as they relate to the engineer. 10.3.1 Authority and duties of the engineer

Under the RedBook, the role ofthe employer's agentisperformedby the engineer whois defined in sub-clause1.1(a)(iv) as theperson appointed by theemployer to actas engineer for thepurposes of thecontract and named as suchin Part II ofthe Conditions.There aremanyreasonswhy thisroleis usually takenby the engineer, the most important one being that he is perhaps the most competent personto assume that position and to perform these duties. Previous editions of the Red Book defined the engineer as follows:

"Engineer" means the Engineer designated as such in Part II, or another Engineerappointed from time to time by the Employerand notified in writing to the Contractorto act as Engineerfor the purposes of the Contractin place of the Engineerso designated.' It is significantto notethat the words'from time to time' in theabove definition havebeendeletedfrom theFourth Edition.The definitionwithoutthisphrasemay imply that the employer cannot replace the engineer withoutclear bona fide reasons and without the consent of the contractor since the latter may have attached some importance to the reputation and expertise ofthe named engineer when submitting his tender. As a minimum requirement, it would therefore be necessary for the employer, if he were intending to replace the named engineer with another,to discusshisintentions withthe contractor and to attempt toobtain his consent. Consequently, so far as the duties and the authority of the engineer in the context of his role as the employer's agentare concerned,it is important to note thatwhilsthe is not a partyto the contract,both the employer andthecontractor have, in signing the contract,recognisedandaccepted the duties and authority of the engineer as specified. Sub-clause 2.1(a) of the Red Book provides that the 'Engineershall carry out the duties specifiedin the Contract'. The term'Contract' is defined in sub-clause 1.1(b)(i) as the: 'Conditions (Parts I and II), the Specification, the Drawings, the Bill of Quantities, the Tender, the Letter of Acceptance,the Contract Agreement (if completed) and such further documents as may be expressly incorporated in the Letter of Acceptanceor ContractAgreement (if completed).'

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Each of the documents enumerated in this definition except for the Conditions (Parts I and II) is subsequently defined in clause 1. Collectively, they are exclusive to theparticular project for which theyhave beendrafted. Onthe other hand, the duties which are common to all projects where the Red Bookis used are those whichare incorporated in the Form itself. In order to carry out these duties, the engineer is given certain authority eitherspecifiedin, or necessarilyto be implied from, the provisionsofthe contract,which he may exercise underthe provisionsof sub-clause 2.1(b). The duties and authority ofthe engineermaybedivided intoproactive,reactive and passive categories.The proactive categoryincludes any duty performed or action takenwhere the initiative lies with the engineer in administering the contract. The reactive category includes any duty performed or action taken in response to a request by the contractor or the employer. The passive category includes rules andregulationswhich must be observed.Tables 10.1 to 10.3 setout check lists for these three categories. Furthermore, sub-clause2.1(b) provides that if the engineer is required under theterms ofhis appointmentby theemployertoobtain thespecificapproval ofthe employer beforeexercisingthe authority delegated to him, the particulars of such requirements should be precisely set out in Part II of the Conditions. It is most important for all to recognise that any such requirement must be capable of implementation.In this connection,page 4 of Part II of the Conditions contains a recommendationthat ifthe obligationon theengineertoobtain the approval ofthe employer could result in his being unable to take action in an emergency where matters of safety are involved, an additional paragraph may be necessaryand an example wording is given therein as follows: 'Notwithstanding the obligations,as setout above,to obtain approval, if, in the opinion ofthe Engineer, anemergencyoccursaffectingthe safetyof life orof the Worksorof adjoiningproperty, he may,withoutrelievingthe Contractorofany of his duties and responsibilitiesunder the Contract, instruct the Contractorto execute all such work or to do all such things as may, in the opinion of the Engineer,be necessary to abate or reduce the risk. The Contractorshall forthwith comply despite the absence of approval of the Employer,with any such instruction of the Engineer. The Engineer shall determine an addition to the ContractPrice, in respect of suchinstruction,inaccordancewith Clause52 and shall notify the Contractor accordingly,with a copy to the Employer.'

Theproviso to paragraph (b) ofsub-clause2.1 states that 'anyrequisite approval shall be deemed to have been given by the Employer for any such authority exercised by the Engineer' (i.e., for any of the items identified in Part II which require the employer's approval).The contractor can thereforeproceed with the works withoutquestioningthe validity ofthe engineer's authority irrespectiveof whether or not the engineer has actually obtained such approval and the con-

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tractor would be entitled to payment for any work carried out should the employer be unwilling to give retrospective approval for any action by the engineer.

Furthermore, if it subsequently transpires that the engineer was seeking approval from the employer before taking action on matters not specifically identified in Part II, the contractor wouldhave legitimategrounds for complaint having regard to the provisions of sub-clause 2.6. Under sub-clause 2.6, the engineer is requiredto 'exercise his discretion' impartially whenever he is: (a) (b) (c) (d)

Giving his decision,opinion or consent; or Expressinghis satisfactionor approval; or Determining value; or Otherwise taking action whichmay affect the rights and obligations of the employer or the contractor.

It is essentialto recognise that the engineer canexercise his discretion only if his authority is not curtailed in accordancewith sub-clause 2.1 of Part II of the Conditions.If the engineer's liberty to exercise his discretionisrestricted in respect of certain duties whichare specificallystated in Part II of the Conditions, then the question of acting impartially does not arise. That is, of course, if the engineer understands the true meaning of impartiality.

'Impartiality doesnotconsist innothaving prejudices ... we allhave them. The art consists in the ability to discard prejudices [which] largely depends on a sufficient measure of self-awarenessto be consciousof this defect of character, in so far as it is a defect,andto learnto recognise it whenthe devil comes and tempts one. My adviceis: be aware of yourprejudices,andhang themuponthe peg with your raincoat before you come intocourt.'108 Accordingly,it is clear that sub-clause 2.1 provides the main safeguard for the contractor in the FIDIC Conditions where the actions of the engineer are concerned.Whilst itcanbe argued that the provisionsofthis sub-clausecould always be inferred from previous editions of the Red Book, the fact that they are now expressly stated is to bewelcomed and the parties can no longer plead ignorance ofthis fact. Should suchanimpartialstance by theengineerbeunacceptableby an employer,itwould be necessaryforhimto make expressprovision inPartII of the Conditions to alter sub-clause 2.1 or strike out sub-clause 2.6. In such circumstances,tenderers would be alerted to thissituation andconsequentlywouldhave an opportunity to adjust theirtender prices accordingly. In a numberof the clauses of the Fourth Edition a condition is imposed on the engineer prior to his exercisinghis discretion which requires him to determine any of his duties only after 'due consultation with the Employer and the Contractor' (see Section 9.3). This combined with the wordingof sub-clauses

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and 25.1 where the employer is requiredto liaise directly with the contractor, gives more prominence to the role of the employer under the Fourth Edition of the Red Book. Inaddition to theabove, clause 2 ofthe RedBookdeals withthreeother aspects of the engineer's duties and authority as follows: 10.1

(a) The duty to appoint an engineer's representative; (b) The authority to appoint assistants to the engineer's representative;and (c) The duty to putt his instructions into writing. Thefirst ofthese, the dutyto appoint anengineer's representative,is expressed in sub-clause2.2.Theengineerappointedbythe employer is notnormallyresident at close proximity to the site,hence the necessity arises forthe engineer to appoint a representative to whom he can delegate certain duties and authority. The engineer's representative is appointed by, and is responsible to, the engineer who in tarn is responsible for theaction or inaction of the engineer's representative. The delegation of duties and authority vested in the engineer to the engineer's representativemust, therefore,beinwritingandthe Fourth Edition nowexpressly states, in sub-clause 2.3, that any such delegation (or revocation) of duties and authority 'shall not take effect until a copy thereof has been delivered to the Employer and the Contractor'. As there is no reference to the engineer's representative in the FourthEdition, exceptin clause 2, the engineer's representative is totally dependent on the letter of delegationfor his ownduties and authority. The employer mayinfact place certain restrictionsonthe engineer,inthe contract between them, as to exactlywhat can or cannot be delegated to the engineer's representative. In such circumstances,it would be prudent to state such liniitations in Part II ofthe Conditions. Clearly,certain functionsshould notbe delegatedby the engineerandthe Guide to Use ofFIDIC Conditions of Contract for Works of Civil Engineering Construction,

Fourth Edition, (referred to in Reference 9.1), specificallyexcludes delegation in respect ofclauses41,44,48, 62, 63, 65, 67 and 69. It is, however, stated inthe Guide that in order to avoid unnecessary interruption of work at site, delegation of authority (in whole or inpart),is commonin respect ofthe followingclauses:4,5, 7,12, 14, 16, 17, 18, 19,20,27,30,31,33,34,35,36,37,38,39,40,42,45,49,50,53,54, 56, 59, 60 (except60.6 and 60.8), 64 and 70. Theengineer's representativehas theauthority to appoint persons to assisthim in carryingouthis duties. This authority, whichis newunder theFourth Edition, comes underthe provisions ofsub-clause 2.4. Although limited in scope,it canbe particularlyusefulin situations where the engineer's representativeis required to attend various meetings, inspections, tests, etc., some of which may take place simultaneously or far away from the site. It is important to notethat the contractor is to be notified of the precise duties whichsuchassistants maycarryoutand,moreimportantly,the scopeof authority

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of such persons in carrying out their duties. It is necessary to retain a clear distinction between the authority of the engineer's representative and that of his assistants. Inthis connection,referencemustalso be madeto sub-clause37.5 of theFourth Edition entitled 'Independent Inspection' which empowers the engineer to delegate the duty of inspection and testing of materials or plant to an independent inspector. This delegationwhich should be read in conjunctionwith sub-clause 37.2 of the Conditions is to be effected in accordance with sub-clause 2.4 and, accordingly,any personso appointed is to be 'considered as an assistant of the Engineer'. It is notable that some ambiguity exists between sub-clause2.4 and sub-clause 37.5 regarding the appointment of persons to assist the engineer's representative and the engineer, respectively. Specifically, sub-clause 2.4 deals with the appointment of persons to assistthe engineer's representativewhile in sub-clause 37.5, the appointment is thatof anassistant ofthe engineer.Of course, the chain of authority created through delegationin clause 2 would meanthat an authorised instruction given by an assistant ofthe engineer's representativecould bedeemed to have been given by the engineer's representative (see sub-clause 2.4). Tn this connection,referenceto the wording ofclause 13 should bemadewhereitis stated that 'the Contractor shall take instructions only from the Engineer, or, subjectto the provisions of Clause 2 from the Engineer's Representative'. There is no mention of the assistants, thus creating a further ambiguity. However, if the engineer's representativeis authorised throughdelegationto give an instruction, thenit would'havethe same effectas thoughit has been given by the Engineer' (sub-clause 2.3). Consequently, the engineer should monitor very closely the actions of appointed inspectors and assistants as theywouldbe acting with some specifiedauthority of the engineerhimself. Theobligation placed on the engineer in sub-clause 2.5 to give instructions in writingisextremelyimportantwithregardtokeeping contemporaryrecords ofall matters related to the contract as work proceeds. Such records would provide important evidence when payment for work executed is considered, or when claims are made for additional work. The provisions of clause 53, for example, highlights the necessityof suchrecords. 10.4 The engineer'sproactive duties and authority The engineer's proactiveduties and authority, defined earlierinSection10.3.1, are set out in Table 10.1, arranged in sequence corresponding to the clauses of the Conditions ofContract.Where a duty includes the obligationto give notice to the employer orthe contractor or to both, the word 'Notify'in bold type is used. The proactive duty or authority of the engineer is shown in italics with the first letter capitalised.

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Table10.1 The engineer's proactive dutiesand authority. Sub-clause No.

Duties and authorities where an action

is initiated by the engineer

2.1 (b)

Obtain the approval ofthe employer before exercising any authority forwhich he is required to obtain such approval, as set out in Part II ofthe Form.

2.2

Appointthe engineer's representative.

2.3

Delegate to the engineer's representative, in writing, any ofthe duties and authorities vested in the engineer, with a copytothe employer and the contractor.

2.4

Appointassistants tothe engineer's representative. Notifythe contractor ofthe names, duties and scope ofauthority ofassistants.

6.1

Providetwo copies ofthe drawings to the contractor, free ofcharge.

6.4

Determine, afterdue consultation, extension oftime and amount ofcosts, if any, duetofailure orinability ofthe engineer to issue anydrawing orinstruction for which noticehas beengiven undersub-clause and Notify the contractor accordingly with copytothe employer.

6.5

(The engineer shall take into account anyfailure by the contractor to submit drawings, specifications orother documents whichhe is required to submit underthe contract.)

7.1

Issueto the contractor any supplementary drawings and instructions as necessary for completion ofthe works and remedying ofany defects.

13.1

Consider whether or not satisfied withthe contractor's execution and completion ofthe works including remedying defects andissue instructions where necessary (see clauses 37, 49 and 50).

14.1

Prescribe the formandthe detail ofthe programme to be submitted bythe contractorwithin the stated period in Part II. Ifappropriate give Consentto such programme.

14.1

Considerand, ifappropriate, Askthe contractor to submit a general description

ofthe arrangements andmethods he proposes toadopt forthe execution ofthe works. 14.2 15.1

If appropriate, Request the contractor to produce a revised programme. Where appropriate, Approve the authorised representative ofthe contractor and keep underreviewsuchapproval. Determine the period of superintendence required after completion ofthe works. Ifthe engineer's approval ofthe contractor's authorised representative iswithdrawn, Notify the contractor accordingly.

16.2

Ifapplicable, Object to andRequire the contractor to remove anyperson whois incompetent or negligent orwho misconducts himselforwhosepresence on site is undesirable.

17.1

Inform the contractor ofthe original points, lines and levels ofreference and in caseoferrorinthe position, levels, dimensions oralignment ofthesetting out of any part ofthe works, Require the contractor to rectify sucherroreitherat his own cost or against an addition to the contract priceDetermined bythe engineer. Notify the contractor accordingly with a copyto the employer.

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Duties and authorities where an actionis initiated by the engineer

20.2

Gonsiderwhether or not he is satisfied withthe contractor's rectification ofany loss or damage to the permanent works due to anyofthe contractor's risks, If not, Referto clauses 37.4,49 and 50for actionto betaken.

20.3

Incaseofloss ordamage duetoany ofthe employer's risks, Indicate the extent ofrepair required and Determinean addition tothe contract pricein accordance with clause 52. Notify the contractor accordingly, with a copytothe employer. Where the contractor provides facilities forother contractors, Determine an

31.2

addition tothe contract price and Notify the contractor accordingly with a copy to the employer. 33.1

Considerwhetheror not heis satisfied withthe clearance ofsiteon completion and inform the contractor accordingly.

35.1

Considerand ifrequired, Obtain fromthe contractor areturn ofstaff, labourand contractor's equipment, as prescribed by the engineer.

36.1

Speci/j' anytestswhichmaybe required and Selectany materials or plant for testing.

36.5

Determine, afterdue consultation, any extension oftime and the amount of costsas a resultoftests not intended by, orprovided for, underthe contract. Notify the contractor accordingly with a copyto the employer.

37.3

Notify the contractor when intending to inspectorto attendtestson materials and plantto be supplied underthe contract.

37.4

Considerand ifrequired, Requestthatthe testsofrejected materials orplantbe made or repeated. Determine, afterdue consultation, the costsrecoverable fromthe contractor and Notify the contractor accordingly, with a copyto the employer.

37.5

Consider and ifrequired Delegate inspection and testing of materials and plant to an independent inspector in accordance with sub-clause 2.4. Notify such delegation and appointment to the contractor with a noticenot less than 14

40.2

Where supervision ofthe progress ofthe works is not in accordance with subclause 40.1,Determine, afterdue consultation,extension oftime andamount of costs, ifany, and Notify the contractor with a copyto the employer.

days.

41.1

Notify to the contractor to commence the works withinthe time stated in the Appendix

to Tender.

46.1

Consider whether ornot the rateofprogress ofthe works istoo slowto comply with the timefor completion and ifso, whether this is for a reason which does notentitlethe contractor to anextension oftime, and ifso, Notify the contractor accordingly. If the employer is involved, as a result, in additional costs, Determine, afterdue consultation, the amount recoverable fromthe contractor and Notify him accordingly with a copyto the employer.

49.2

Inspect works and Instructthe contractor to execute amendments; reconstruction; and to remedy defects, shrinkages orother faults.

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(Table 10.1 Contd.) Sub-clause No.

Duties and authorities where an action is initiated

49.3

Determine anaddition tothe contract price in accordance withclause 52should an instruction begiven undersub-clause 49.2(b) for reasons otherthan in subclause 49.3. Notify the contractor accordingly with a copytothe employer.

49.4

Determine, afterdue consultation, all costsincurred bythe employer in an instruction under sub-clause 49.2(b) forwhich thecontractoris liableand which shall be recoverablefromthe contractor bythe employer. Notify the contractor accordingly with a copyto the employer.

50.1

Where the causeofany defect, shrinkage orotherfaultwhichappears priorto the end ofthe defects liability period is not known, Consider the necessity for conducting a search forsuch a causeand ifsucha search is considered necessary Instructthe contractor, with a copyto the employer, to search.

50.1

Where the defect, shrinkage orotherfaultis the responsibility ofthe employer, Determine after dueconsultation the amount in respect ofsuchsearch incurred by the contractor which should be added to the contract price. Notify the contractor accordingly with a copyto the employer.

51.1

Where necessary, Vaiy the form, quality or quantity ofthe works, orany part thereofand forthat purpose, orif appropriate, Instructthe contractor in accordance with clause 51.1 with the effectto be valued in accordance with clause 52.

52.2

Consider whether or not any rate or price should be varied as a resultof any instruction underclause51,andifso, Notify thecontractorwithin 14daysofthe date of suchinstruction ofthe intention to vary a rateor a price.

52.3

If, on issue ofthe taking-over certificate forthe whole ofthe works, all varied workand all adjustments, as defined in sub-clause 52.3, exceed 15% ofthe effective contract price, Consultwith employer and contractor and agreesuch sum to be added or deducted fromthe contract price. Failing agreement, Determine suchsum and Notify the contractor accordingly with a copyto the

bythe engineer

employer. 52.4

If necessary ordesirable, Issue an instruction that any varied workshall be executed ona daywork basisin accordance withthe procedures setout in subclause 52.4.

56.1

Ascertain and Determine by measurement the value ofthe works. Notify the contractor giving reasonable timewhen any partofthe workisto be measured and followthe procedure underclause 56.

57.2

Receive within28 daysafterreceipt ofthe letterofacceptance and, if appropriate, Approvethe breakdown foreachofthe lump sum items contained in the tender.

58.1

Determine the provisional sumto be used, inwholeorin part, and Instructand Notifythe contractor accordingly withacopyofthe notification tothe employer.

59.4

Consider and, if appropriate, Instructthe contractor on the matter of payments to sub-contractors.

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(Table 10.1 Contd.) Sub-clause No.

Duties and authorities where an action is initiated

59.5

Considerand, ifappropriate, Demand fromthecontractor reasonable proofthat all payments less retentions included in previous certificates for subcontractors have beendischarged. If proofis not supplied, Follow the procedure laid down in sub-clause 59.5.

60.1 & 60.2

Prescribe from time to time the formofstatement to be submitted by the contractor undersub-clause 60.1. Certify, within 28 daysof receiving such statement, tothe employer the amount to be paid to the contractor.

60.3

Upon the issueof the taking-over certificate for a section or part ofthe permanent works orforthe wholeofthe works, Certify for payment one halfof the relevant retention money. Upon the expiration ofthe defects liability period, Certify the second half ofthe relevant retention money.

60.8

Within 28 daysafterreceipt fromthe contractor ofthe final statement and the written discharge inaccordance with sub-clause 60.7,Issue afinal certificate to the employer with a copyto the contractor.

62.1

Within the period, and the procedure setout in sub-clause 62.1, Sign and Delivertothe employer a defects liabilitycertificate with a copyto the contractor.

64.1

Inform the employerof anyremedial orotherworkwhichis urgently necessary forthe safetyofthe works and whichthe contractor is unable or unwilling todo atonce,having been previously notified. Ifworkso donebythe employer isthe responsibility of the contractor, Determine, after due consultation, all costs consequent thereon or incidental thereto which are recoverable from the contractor bythe employer. Notify the contractor accordingly withacopytothe employer.

68

bythe engineer

Comp/ywith procedures laid down in sub-clauses 68.1,68.2 and 68.3 regarding

noticesand change ofaddress. 70.2

10.5

If, after 28dayspriortothe latest dateforsubmission oftenders forthe contract, changes in legislation occurwhich causeadditional or reduced coststothe contractor otherthan due to riseorfall in thecostoflabourand/or materials and other matters under sub-clause 70.1,Determine after due consultation such additional or reduced costsfromthe contract price and Notify the contractor accordingly with a copytothe employer.

The engineer'sreactive duties and authority The engineer's reactiveduties andauthorities defined earlier inSection10.3.1, are set out in Table 10.2, arranged in sequence corresponding to the clauses of the Conditions of Contract. Where the duty includes the obligationto give notice to the employer or the contractor or to both, theword 'Notify' in bold typeis used. The reactive duty or authority of the engineer is shown in italics with the first letter capitalised.

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Table 10.2 The engineer's reactive duties and authority. Sub-clause No.

Duties and authorities which are in response to anactioninitiated by the employer

or the contractor

4.1

Ifappropriate, Give consentto the contractor tosub-contract any partofthe work.

5.2

Issue instructions to explain and Adjustany ambiguities ordiscrepancies which may be present in the contract documents.

6.1

Ifappropriate, and only when strictly necessary for the purposes ofthe contract,

Give consent tothe contractor to useor communicate the drawings, specifications and othercontract documents toa third party. 6.3

Check thatany notice given bythe contractor undersub-clause 6.3 contains all the details required. Avoid, or ifnot possible, Minimise, likelydelayor disruption.

7.2

Where drawings, specification, calculations, maintenance manuals, and other information is submitted by the contractor, where appropriate, Approve such documents. (Such approval does not relieve the contractor ofany ofhis responsibilities.)

10.1

Receive notification fromthe contractor regarding the provision of performance security.

12.2

When the contractor gives notice ofencountering physical obstructions orphysical conditions undersub-clause 12.2 and ifsuchobstructions orconditions could not have beenreasonably foreseen by an experienced contractor, Determine, after due consultation, extension oftime and amount ofany costsincurred bythe Contractor. Notify the contractor accordingly, with a copyto the employer.

14.3

Receive, withinthe specified time, a detailed cashflowestimate. the contractor to submit revised estimates at quarterly intervals.

27.1

Ifand when anotice isreceived fromthe contractorofanydiscoveryoffossils,

etc., Instruct the contractor on howto deal with them. Determine, afterdueconsultation, any extension oftime andthe amount ofcostsincurred and Notify the contractor accordingly with a copytothe employer.

30.3 & 30.4

Ifand when notification fromthe contractor ofanydamage toany bridge orroad is received and ifaclaimis made successfully asaresultofafailure bythe contractor toobserve and perform any ofhis obligations, Determine, after due consultation, the amount recoverable fromthe contractor. Notify the contractor with a copyto

If required, Ask

the employer. 31.1

Ifapplicable, Require the contractor toaffordall reasonable opportunities forother contractors and workmen to carryout theirwork.

38.1

Receive noticein respect of any partofthe worksorfoundations whichare ready for examinations and withoutunreasonable delay Attendtoexamine andmeasure.

39.2

In caseofdefault bythe contractor in carrying out instructions in accordance with sub-clause 39.1,Determine after due consultation all costsrecoverable fromthe contractor bythe employer and Notify thecontractoraccordingly witha copytothe employer.

40.3

When a notice is received within sub-clause 40.3,Consider and, if appropriate, Grant permission within28 daysfrom receipt ofthat notice to proceed with the suspended works.

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The FIDIC Form ofContract (Table 10.2 Contd.) Sub-clause No. 42.2

Duties and authorities which are in response toan action initiated bythe employer

or the contractor

Ifthe employer fails to give possession ofsite oraccess thereto, Determine after due consultation any extension oftime and amount of any costsincurred and Notify the contractor accordingly, with a copyto the employer.

44.1

44.2

In theeventofcertain circumstances which entitle the contractor toan extension of the time for completion, Determine afterdue consultation the extent ofsuch extension and Notify the contractor accordingly, with a copyto the employer. (Note that the engineer is not bound to make any determination unless the contractor within 28 daysaftersucheventnotifiesthe engineer with a copyto the employer; and within 28daysor as may be agreed bythe engineer after such notification, submits detailed particulars of any extension of time claimed.)

44.3

Where an eventwhich fairlyentitlesthe contractor to an extension oftimefor completion has a continuing effectsuchthat it is not practicable for the contractor tosubmit detailed particulars withinsub-clause 44.2(b), and provided that interim details have beensubmitted, Make withoutundue delay, and after due consultation, an interim determination andfinallyreview and Determine an overall extension, after due consultation. (Such final review shall not resultin a decrease ofthe extension oftime already determined.) Notify the contractor accordingly, with a copytothe employer.

46.1

Ifand when notified bythe contractor undersub-clause 46.1, Consider and if

appropriate, Give consent to the steps proposed bythe contractor to expedite progress oftheworks. Ifanysteps takenbythe contractor underthisclause involve the employer in additional supervision costs, Determine, afterdue consultation, such costs and Notify the contractor accordingly, with a copyto the employer. 48.1

When requested bythe contractor under sub-clause 48.1,and within21 days ofthe date ofdelivery ofthe notice, either Issue a taking-over certificate stating the date ofsubstantial completion or Give instructions specifying outstanding workrequired to be done before the issue ofsuchcertificate. Notify the contractor ofanydefects in the works affecting substantial completion.

48.2 & 48.3

As in the last sub-clause, butin respect oftaking-over ofsections or partsof the works.

48, 20 & 21

Before issuingataking-over certificate in respect ofthe works oranysection orpart thereof, the engineer should Informthe employer ofhis intention todo so, giving him sufficient timetoarrange forthetransferofthe responsibility forthecareofthat section orpart and for any insurances.

52.2

If notice is given either bythe contractor to the engineer of his intention to claim extra payment oravaried rate orprice;orbythe engineer to the contractor ofhis intention tovarya rate orapricein accordance with sub-clause 52.2,andwithin the time stipulated therein, then:

52.1

i

Ifthe contract does notcontain any ratesorprices applicable toany varied work andfailing the useofthe contract rates orprices asabasisforvaluation, Consult withthe employer and the contractor toagreeon suitable ratesor prices with the contractor. In the eventofdisagreement, Fixsuchratesorprices asappropriate and Notify the contractor accordingly with a copyto the employer;

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(Table 10.2 Contd.) Sub-clause No. 52.1

Duties and authorities whichare in response to an action initiated bythe employer

orthe contractor

ii Untilsuchtime as ratesor prices forvaried workare agreed orfixed, Determine provisional ratesor prices to enable on-account payments to be included in interim certificates;

52.2

iii

Ifthe nature oramount ofanyvaried workrelativetothe nature oramount ofthe whole works orto any part thereofrenders the rates or prices in the contract inappropriate, Consult withthe employer and the contractor to agreesuitable rate orpricewith the contractor. In the eventofdisagreement, Fixsuchother appropriate rateorpriceand Notify the contractor accordingly witha copytothe employer;

52.2

iv Untilsuchtime as ratesor prices underthe contract whichare rendered inappropriate due to varied work are agreed orfixed, Determine provisional ratesor prices to enable on-account payments to be included in interim certificates.

53.2 & 53.3

Ifnotified bythe contractorthat heintends to claimunder sub-clause 53.1,Inspect such contemporary records and, ifappropriate, Instructthe contractor to keep furtherrecords and/or supply copies ofsuchrecords. Furthermore, Considerand,if appropriate, Followthe procedure set out in sub-clause 53.3 regarding interim accounts.

53.5

Where the contractor has given noticeundersub-clause 52.1, kept records under sub-clause 53.2 and supplied particulars undersub-clause 52.3,Consultwith the employer and the contractor and Determine amount due to the contractor for inclusion inany interim certificate andNotify the contractor accordingly witha copy tothe employer.

54.1

Ifrequested andifappropriate, Consent tothe contractor's removal ofequipment, temporary works and material fromthe site.

60.5

When the contractor submits a statement at completion (within 84 daysafterthe issue ofthe taking-over certificate) with supporting documents, and ifappropriate, Approve the formofdetails ofthesedocuments and Certify payment inaccordance with sub-clause 60.2.

60.6

Whenthe contractor submits a draft final statement (within 56daysafter the issue ofthe defects liability certificate) with supporting documents, ifappropriate, Approve the formof details ofthese documents. Ifnot, Require the contractor to submit furtherinformation.

63.4

Where the employerenters upon the site andthe works and terminates the employment ofthe contractor, Fix, Determine andCertifyas soon thereafter as may be practicable avaluation oftheworkdoneunderthe contract and unused or partially used materials, any contractor's equipment and anytemporary works. Furthermore, within14 daysofsuchentryand termination Consider and, if appropriate, Instructthe contractor to assign to the employerthe benefits of agreements for the supplyofgoods ormaterials orservices and/orfor the execution ofany workfor the purposes ofthe contract, which the contractor may have entered into.

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The FIDIC Form ofContract (Table 10.2 Contd.) Sub-clause No. 65.3

Duties and authorities whichare in response to anactioninitiated by the employer

or the contractor

Ifthe works orany materials or plant on ornear orin transit tothe siteoranyofthe contractors equipment sustain destruction ordamage by reason ofany ofthe

special risks and when notified in accordance with clause 52, Determine an addition to the contract price and Notify the contractor accordingly with a copyto the employer.

10.6

65.5

Ifandwhen notified bythe contractor ofincreased costs arising fromany ofthe special risks, Determine afterdue consultation the amount ofsuchcostswhich shall be added to the contract priceand Notify the contractor accordingly with a copyto the employer.

65.8

Ifthe contract is terminated underthe provisions ofsub-clause 65.6, Determine after due consultation, any sums payable undersub-clause 65.8 and Notify the contractor with a copyto the employer.

67.1

Ifa dispute is referred to the engineer in writing underclause 67, Notify within84 daysofreceipt ofsuch reference, the employer and the contractor ofthe decision stating thatsuch decision is made pursuant to clause 67.

69.4

Ifnotified bythe contractor undersub-clause 69.4 that workwill be suspended or the rateofwork reduced, and following suchsuspension or reduction the contractor suffers delay orincurscosts, Determine after due consultation extension oftimeand amount ofcoststobe added to thecontract priceand Notify the contractor accordingly with a copyto the employer.

The engineer'spassive duties and authorities The engineer's passive duties and authorities,defined earlierin Section10.3.1 are set out in Table 10.3, arranged in sequence corresponding to the clauses of the Conditions of Contract. Where the duty includes the obligation to give notice to the employer or thecontractor or to both, theword 'Notify' in bold typeis used. The passive duties and authorities are shownin italics with the first letter capitalised.

10.7 The engineeras a supervisor

Itmustbe stated atthe outset thatthetaskofachievingthequality specifiedunder

aconstructioncontract is theresponsibilityof thecontractor,as also isthe method

of performing that task. There are many legal cases whichhave dealt with this topic, but the most pertinent from the point of view of the engineer acting as a supervisor is, perhaps, the case of Oldsthool v. Gleeson (1976) 4 Build LR 103 (see page122). The plaintiffsin that casewere theowners of two adjoining properties, Nos. 30 and 31Islington Green, London Ni, which theywished toredevelop. The

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Table10.3 The engineer's passive duties. Sub-clause No.

Duties and authorities expressed as rules to be followed

1.5

Ensure that any notice, consent, approval, certificate or determination is in writing.

2.1(c)

Ensure that no action is taken whichwould relieve the contractor ofhis obligations underthe contract, unless expressly stated therein.

2.5

When giving instructions, Do so in writing or iforal, confirm in writing.

2.6

Exercise impartially any discretion in giving adecision, opinion, orconsent; orin expressing satisfaction or approval; orin determining value; or in otherwise taking actionwhich may affectthe rights and obligations, eitherofthe employer orthe contractor.

6.1

Keepthe drawings inthe sole custody ofthe engineer.

16.2

(The engineer hasthe proactive authority to object andrequire the contractor to remove any person who is incompetent or negligent orwho misconducts himselfor whose presence on site is undesirable.) The engineer may consent to allowsuch a person to return.

18.1

Ifboreholes orexploratory excavations arerequired, suchrequirementshall be the subjectofaninstruction inaccordance withclause 51, unless provided forin the Bill ofQuantities.

19.1

Theengineer hasthe authority torequire the contractor toprovide and maintain lights, guards, fencing, warning signsandwatching, atthe latter's cost.

20.2

In caseofloss or damage to the works due to any ofthe contractor's risks, Consider whether ornot satisfied with the rectification and ifso give instructions as necessary.

25.1

Receive notification fromthe contractor required underthe contract.

36.1

All materials, plantandworkmanship shall beas described inthe contract and in accordance with the engineer's instructions.

37.1

The engineer, orany personauthorised by him, shall atall reasonable times have access to the site, workshops and place ofmanufacture.

37.2

The engineer is authorised to inspect and test the materials and plant to be

of providing evidence ofinsurance as

supplied.

37.4

Theengineer, as a rule, hasthe authority, when necessary, to reject materials or plantif defective or not in accordance with the contract and notify the contractor stating his objections with reasons.

38.2

The engineer, as a rule, has the authority, when necessary, to instruct the contractor to uncover or make openings in orthrough any partofthe works. Determine, after due consultation, the amount of costs, ifworkis satisfactory, and Notify the contractor accordingly, with a copyto the employer.

39.1

The engineer, asa rule, hasauthority when necessary to instruct the contractor to remove any material or plantnot in accordance with the contract.

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(Table 10.3 Contd.) Sub-clause No.

Duties and authorities expressed as rules to be followed

40.1

The engineer, as a rule, hasthe authority, when necessary, to Issue instructions to suspend the progress ofthe works orany partthereofshould he consider it necessary andto have the works properly protected and secured.

42.1

Ifa programme underclause 14 is not submitted, Receivenoticefrom the contractor of reasonable proposals for possession of site.

45.1

None ofthe works, unless otherwise provided (seesub-clause 46.1), shall be carried out during the nightoron locally recognised daysof rest withoutthe consent ofthe engineer.

52.1

All variations under clause 51 shall bevalued atthe rates and prices setout in the contract, iftheseratesand prices are applicable. Ifnot applicable, they shall be used as a basis for valuation.

54.8

Theoperation ofclause 54 doesnot implyapproval by the engineer nordoes it prevent him from rejecting such material orother matters referred to in the clause.

58.2 &58.3

Theengineer, as a rule, hasthe authority when necessary, toissueinstructions in respect ofthe use of the provisional sums included underthe contract.

60.4

Theengineer, asarule, hasthe authority, when necessary, tocorrectormodify any interim certificate and to reduce oromitthe value ofany workriot being carried out to his satisfaction.

63.1

The engineer, as a rule, has the authority, when necessary, to certify, if appropriate, to the employer, with a copytothe contractor, any default bythe contractor.

67.3

Thedecision oftheengineer under clause 67does not disqualify himfrombeing called as a witness and giving evidence before an arbitration on any matter relevant to the dispute.

first defendants were the building contractors engaged by the plaintiffs and the second defendantswere the consultingengineers.Theworks necessitatedthetotal demolitionof No. 31 andthe partialdemolitionof No. 30. Workcommenced in November 1971, and on 14 March1972whenthe demolitionandexcavationat No. 31 was almost complete,the party wall separating No. 31 and No. 32 collapsed. The plaintiffssuedthe first defendants and the second defendants seeking tobe indemnified against alldamages whichmightbeawardedagainst theminrespect of the damage sufferedby the owners of No.32 or theirtenants. The first defendants admitted their liability to indemnify the plaintiffs and instituted third party proceedings against the second defendants, the consulting engineers,claiming an indemnity orcontributionin respect ofthe plaintiffs' claim and damages in respect of the loss suffered by themin that their contract works hadbeen delayed. Inthose third party proceedings,the first defendants alleged thatthesecond defendantsowedthemaduty ofcare inrelation tothedesign and! or supervision ofthe works andthat suchduty had beenbreachedby the second

Role ofthe Engineer

179

defendants inproducing adesignwhichcould not havebeen constructedwithout causing the collapse of the party wall and/or in failing to provide adequate supervision. In his judgment, Judge W. Stabb, QC stated: 'Plainly it is the consultingengineer's dutyto produce a suitable design for the works which wifiachievewhat the building owner requires, anditis further his duty to ensure that design is carried out. Thedifferenceof opinion between the experts Mr H. on behalf of the first defendants and Mr M. on behalf of the second defendants — is as to the extent of the consulting engineer's duty in regard to the manner in which the contractors execute the work in order to achieve the required results. Here may I pay tribute to the two experts, both of whomare consulting engineers of high qualification and considerableexperience,andbothofwhominmy estimationgavetheirevidenceinsupportoftheir respective opinions in a manner deserving of the highest praise. Mr H. obviously is, if he wifi forgive me saying so, of the older school. Although he was disposed to agree at one stage that a consulting engineer's duty was to design and see that the design was properly carried out, but otherwisetoleave the contractorstoget onwiththejobandnotgiveinstructions as to howthe work wasto be done, henevertheless maintained that it wasstill theconsultingengineer's dutyto see thatthecontractorsexecutedtheworkina competentmanner, particularlywhere the safety ofthe workswas involved.He regards the consulting engineer as what he described as being 'the father and mother ofthe job', whose duty it is to directthe contractorsas to the manner in which the work is to be done, if he sees that the method which they are employing might endanger the safety of the works, and to stop the work if necessary.Heconsiders itto be the consultingengineer's dutyto ensurethat the contractorscarryoutthe work inamanner whichwillnotendanger the safety of theworksandthereby to assume responsibilityforinsisting thatthecontractors shouldundertakethe work, if necessary, in a manner and sequence different from that whichthey have planned or may be proposing to follow. MrM,on the other hand, wasequally insistent that the manner of execution of the worksis a matter for the contractors.He considered that the consulting engineer isin noposition,for instance,torequire the contractorstocomply with any particular sequence of works; he has no right, let alone duty, to involve himself in the work of the contractors. Of course he wouldinterest himself in theirwork, wouldoffer adviceto assistthejob to go betterand wouldcertainly notturnhis backona situationthathe could see waslikelyto giveriseto danger to life. Equally he wouldintervene if he could see imminent damage to property.Thoseare matters of commonsense;butthatis avery differentmatter from assuming responsibility for the method of work to be adopted by the contractors. In my judgment, Mr M's view is the right one. I do not thinkthat the consaltingengineer has any duty to tell the contractorshowto do theirwork. He

-

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The FIDIC Form ofContract

can andno doubtwifi offer advice to contractors as to various aspects of the work, but the ultimate responsibilityfor achieving the consulting engineer's design remains with the contractors.To takethe presentcase as an example, I haveno doubtthat it was the contractors' duty to set whatever shoring might have been necessary. It was also for them to decide upon the sequence of excavation that was to be adopted and how such excavation was to be temporarily supportedif required... It was the responsibilityofthe contractorsto decide upon the method andsequence of excavationso as to achieve the consulting engineer's design...' Dismissingthe first defendants' claim, the court held that: (a) The second defendants' design was not fundamentally unsound and the collapse of the party wall was not due to any faultofthat design. (b) The second defendants were notunder a duty and had no righttoinstruct the first defendants as to the manner ofexecutionof the contract works. (c) Even ifit is the lawthat whena consulting engineerknows or oughtto know that the contractors are failing to take proper precautions in the absence of whichthereis a risk of damage to property, he owes those contractorsa duty to take care to prevent suchdamage occurring then: (i) his duty does not extend beyond warning the contractors to take the necessaryprecautions;and (ii) the second defendants in fact gave to the first defendants amplewarning andwere notinbreach of any such duty.

It must be recognised, however, that a contract is a promise of what ought or oughtnot to be done ratherthan a guarantee ofwhatwillorwifi not be done and thata breach ofthat promise canleadonly tosanctions.Theformof sanctiontobe applied would dependonthe applicablelaw ofthe contract.Incommon law, itis in theform of damages (seeChapter 3). To minimisethe number of events where such sanctions might apply, it is necessary to discover any irregularities and defects in the performanceof the contract as soon as they occur or at the earliest possible time thereafter. This is particularly important in construction contracts because of some peculiar characteristicswhichare recognised in these contracts, suchas: (a) Most construction contractstake a long time to complete during which time various parts of the work become covered or concealedby other parts and, thus,becomepractically inaccessible. (b) The work is carried out onthe employer'ssite, this being a fixed piece ofland or waterway. A completed but defective project cannot be rejected and replaced in practice by another, as is normally done in manufactured products. Instead it has to be repaired and accepted in a condition which

Roleofthe Engineer

181

mightbe less thanperfect. Suchrepairmaynot infact be acceptableand even if acceptable,maynotbe feasibleif the contractor becomes insolvent. (c) As the construction process includes a great number of activities, some of which cannot start before the completion of others, the earlier a defect is discovered the greater the possibilityof finding apossible or feasiblesolution. Furthermore, the earlier the discovery of a defect, the lower the cost of implementinga solution and the shorter the period ofdisruption anddelayto the completion of the project. Accordingly,the supervisory role of the engineer is an essential part of any construction contract,but sucha role must be viewed as a supportive role to the contractor'sobjective of quality rather than aprimary oneforits achievement.This view is supportedby other judicial decisionswhichinclude the decisionsof the CourtofAppealin Claytonv. Woodman[1962]1WLR 585 andtheHouse ofLordsin EastHamv. Bernard SunleyandSons [1966] AC 406. Itfollows,therefore,thatunless the contractor intends to fulfil this objective of quality control by allowing in his tenderfor personnel to carry outhis ownsupervision;planninghis construction methods toinclude forsuchanobjective; andcontrollingandexecutinghisworkto achieve the requiredquality within the prescribed time, it wouldbe extremely difficult for the contractor and the engineer to have a smooth and satisfactory relationship onsite. Theengineer wifi simplybe left to act as apolicemanbusy in discoveringmistakes anddevising methods to remedy the effectof suchmistakes. The question which must therefore be asked is, what is the extent of the supervisory role of the engineer?A policy statement by FIDIC on the role of the consultingengineer during constructionprovides some insight into supervision, but unfortunately it deals mainly with the recommendation that the engineer should beappointed toprovideafullprofessionalserviceinclusiveofpre-contract and post-contract activities.109 This policy statement still leaves unanswered the question of whether supervision means inspection or overseeing or soméihing beyond those functions. Obviously, it does not mean one supervisor for each worker. In the schemeof the Red Book, the engineeras a supervisoris expected to monitor, through inspection and testing, the workbeing carried out and to make surethat on completiontheemployer,forwhomtheprojecthas been constructed, has a project completed in accordance with the contract and with any supplementary instructions which may have been given. (See Section10.1 above, for a definition of design.) What then is the engineer to monitor? The main aspects whichneed to be monitored by the engineer are: (a) compliancewith the specifiedquality;

(b) progress in accordancewith the planned programme; (c) budget control in accordancewith the cost plan; and (d) compliancewith othermatters specified, such as safety, environmental controls, etc.

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The relevant clauses of the Red Book dealing with these four aspects include clauses 2, 17, 19, 20, 33, 36, 37, 38, 39, 46, 49, 50, 51, 56, 57 and 65. Tn considering these clauses, it should be borne in mind that the contractor must employ supervisory staff who should also ensure the quality ofthe work being executed throughdirect contactwiththe site personnel. Such contactincludes giving direct instructionswhichno one else,including the engineer, can give. 10.8

The engineeras certifier Sub-clauses2.6(c) and (d) make it clear that wherever the engineer is required to exercise his discretion by 'determining value' or 'otherwise taking action which mayaffect therights and obligationsof the Employer or the Contractor',he is to exercisesuchdiscretion impartially.When combined with sub-clause 60.2 which provides thatthe engineershall'.. .certifyto theEmployerthe amount ofpayment to the Contractorwhich he considers due andpayable. . .', theroleofthe engineer inrespect ofpayment is clear. Itis also a powerfulrole, since onthe strength of an interim certificateissued by the engineer under sub-clause 60.10, the contractor must be paid by the employer any amount due to him within 28 days afterthe certificatehas been delivered to the employer. In the case of the finalcertificate, the period for making payment is 56 days. Sub-clause60.10 further provides that failure to pay within the stated period entitles the contractor to be paid interest at the rate stated in the Appendix to Tender. This is without prejudice to the contractor's other entitlements under clause 69 in case of non-payment within the specifiedperiod. Under sub-clause 69.1, the contractor is entitled to terminate his employment under the contract if the employer fails to pay the amount due under any certificate issued by the engineerwithin 28 daysafter the expiry ofthe time stated in sub-clause 60.10. Furthermore, under sub-clause 69.4, the contractor is entitled, after giving28 daysnoticetothe employer,witha copy to the engineer,tosuspend work or reduce the rate of work should the employer fail to pay within the specifiedtime. Besides issuing certificates under clause 60, the engineer's role as a certifier includes other certificationduties under the contract. These duties include: (a) issuing a taking-overcertificateunder clause 48; (b) certifyingthe dateof completion of the works under clause 49; (c) certifyingpayments to nominated sub-contractorsunder clause 59; (d) issuing a final certificateunder sub-clause 60.8; (e) signing and delivering a defects liability certificate under sub-clause 62.1; and (f) valuation of work done, materials supplied and other equipment on site in case of termination under clause 63.2.

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Despite the diversity of the duties of the engineer as a certifier, the most important of these is, perhaps, his role under clause 60 enabling him to certify monthly payments to be made to the contractor.These payments are essentialfor the smooth performance of the contract as they represent to the contractor the lifelinewith respect tothe contract.Inessence,under the Red Bookthe contractor is responsible for financing the cost of construction for the periodstatedin subclause 60.10, whilstitisthe employer who mustensurethe continued financingof the contract worksfor the whole period of construction. Certificationunder clause 60 is also important in an indirect manner to show: (a)

A mode of expressinginterimsatisfactionwiththe work in relation to quality notwithstanding thatsuchsatisfactionmaybesubsequently reversed andthat interimcertificatesare to be takenonly as on-accountpayments and can be

corrected under sub-clause 60.4; and (b) Evidence,inthe formofa sum included in the certificate, ofanydetermination or assessmentmade by the engineer in respect of any claim whichmay have beenmadebythe contractor.Suchaclaim could be inrespect ofeither amatter of fact or a matter of interpretation of the wording of the technicaland legal aspects of the contract documents. These two aspects andparticularlythe latter reveal the actions of the engineerin performing his role as the employer's agentin determining additional payments and extensionsof time to whichthe contractormaybe entitled. Accordingly,they providethe linkto thefinalroleof the engineer, that of an adjudicator or quasiarbitrator. 10.9 The engineeras adjudicatoror quasi-arbitrator As stated above,the Red Bookprovides for yet another role for the engineer: the role of an adjudicator which is sometimes referred to as the role of a quasiarbitrator.This roleis embodied inclause 67whichprovides that any disputemay be referred to the engineer for his decision and such reference is a condition precedent to arbitration. The term 'quasi-arbitrator' as applied to this role was rejectedby Mr JusticePurchas in the case of PacificAssociatesInc v. Baxter [1989] 2 All ER 159. He stated in that respect:

'...I am quite unable to accept the proposition that the role played by the

engineer under GC67was anything other than areview of an earlier executive decision madein the courseofits function as supervisingengineer andsubject to arbitration under the latter provisions of GC67. To adoptthe words of Viscount Dilhome in a similar position in Sutcliffev. Thackrah,to view the function of the engineer under GC67 as an arbitral function wouldbe to construct an arbitration on an arbitration.'

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It appears from the abovejudgment that the engineer's role under clause 67 is anadjudicator'sroleratherthana role similar tothat of anarbitrator.Whicheverit is, this role is of particular importance to those contracts where the engineer is required, under the terms of his appointment by the employer, to obtain the specific approval of the employer before exercisingcertain authorities delegated to him under the Conditions of Contract. As discussed earlier, sub-clause 2.1(b) provides that should therebe sucharequirement,it should be set outin PartIIof the Conditions so that tenderers mayrecognisethe framework within whichthe engineer is permitted to operate withoutpossible interferenceor hindrance. However, whilst itmaybe acceptedthat the employer mightwish to curtail the engineer's authorityinrespect of any ofthe provisionsofthe contractbyrequiring the engineer to obtain his prior approval, it is not logical to curtail the authority provided underclause 67bysucharequirement.Should this be done, the two-tier system of dispute settlement, devised in the Red Book, for a primary determination by the engineerfollowed by arbitration where eitheror both ofthe parties involved are dissatisfied with the engineer's determination, would be meaningless (see Chapter 19). Accordingly,the engineer must be free to decide the issues referred to him under clause 67 withoutobtaining the approval of the employer. Similarly,the contractor by entering into the contract must be deemed to have accepted the procedure laid down by the two-tier system of dispute resolution andits time allowances and constraints. However, it must also be recognised that only disputes canbe referred to the engineer under clause 67 for his decision. Furthermore, before a dispute comes intobeing there must be a claim or an assertion madeby a claimantpartyand thatclaim orassertion is subsequentlyeither denied or rejectedby the otherparty and then that denial or rejection is rejected by the claimant party. This assertioncould be in the form of a claim for money; a claim for an extension of time; an asserting statement as to quality or quantity or an interpretation of a particular clause whether technicalor legal; or a declarationor othersimilar form. When the assertionis a claim for money ortime, the engineer mustbe allowedsufficienttime to investigateandprocess theclaim inaccordance with therelevant provisionsofthe ConditionsofContractandin particular clause 53. ifthis is notdone, the employer wouldbe deprivedofa serviceto whichhe is entitled under the contract. The two-tier system of dispute resolution in the Red Bookbegins, therefore, with anassertion or a claimby oneorbothof theparties to thecontract underany ofitsclauses, other thanclause 67, whether ornot suchanassertion orclaim is due to anopinion,instruction,determination,certificateorvaluation oftheengineer.If suchan assertion as madeby the claimantpartyis thenrejectedor deniedby the otherparty, the rejection or denial mightbe accepted or rejected by the claimant party. Ifaccepted,whetherby persuasion or forcommercialorotherreasons,that is the end of the matter, if the rejectionis unacceptableto the claimantparty, the situation would only then developintoa disputebetween the parties. Itisrelevant

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hereto drawattention to thefact thatthe word'difference' hasbeendeleted from thetextof clause 67 oftheFourth Edition oftheRed Book(seesection9.35 above). Thus, the second tier of the system begins when the dispute is referred by the claimant party to the engineerunder clause 67 forhis decision as an adjudicator. The engineer fulfils his role as an adjudicator through the following framework: (a)

Thecontract is betweenthe employer and the contractor and only a dispute between the employer andthe contractorcan bereferred tothe engineerunder clause 67.

The word 'dispute' means: a verbal controversy; an argument; a debate; a quarrel. A dispute canresultonly from a previous assertionmadebyoneparty whichis rejected by another party, and the rejectionis finally pronounced to be unacceptableby the asserting party. (c) A dispute may emanate from an action or inaction by the engineer or the employer in response to an assertion madeby the contractor, or viceversa. (d) After a disputehas arisen,thereisno time limittothe referencebyeitherparty to the engineer for his decisionunder clause 67. A time bar may, however, existunderthe provisionsofthe applicablelawof the contractor,of course,by a final settlement of the account. However, once a disputeis referred to the engineerfor his decisionunder clause 67, then a strict timetable applies with whichboth the engineer and the parties must comply. (e) In reaching his decision, the engineershouldnot only be impartial, but must also do so in a logical and reasoned manner whichmay have to be explained later should he be called uponto give evidence in any subsequent arbitration proceedings(seesub-clause67.3). Although the engineerisnotobliged to give reasonswithhis decision,heis notprecluded from doingso,andin somecases it wouldbe advisable for himto consider suchaction. In this connection,it is worthwhile noting that the decision of the engineermay subsequentlybe reopened, reviewed and revisedby an arbitrator. Therefore,any reasons given by the engineer with his decisionwould be extremely helpful during arbi(b)

tration proceedings. (f) Many of the matters which may be referred to the engineer for a decision underclause 67arematters relating totheinterpretation and applicationofthe terms of the contract documents. As such, the engineer wouldrequire both technicalknowledge as well as a clear understanding of various aspects of constructionlaw. (g) In deciding disputes under clause 67, the engineer may even find himself having to rule onmatters whichmay concernhis own work andprofessional activitieswith respect to the project and may thus be of relevance to his own responsibilityand liabilityunderhis contractwiththe employer.The engineer must dealwith these matters in an impartial manner. It must be pointed out thatthepossibilityofthe engineerhaving to decide claims,thecause ofwhich

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maybe attributed to his ownactions,has broughtthe role of the engineer as adjudicator under attack on the basis of bias.101° In such circumstances,the engineer is open to the suspicion that he may not be willing to disclose or admitany of his failings or shortcomingsand, therefore, that not only he can notactindependently and impartially,butalso thathewouldnot appear to be acting as such. Theroleoftheengineerhas recently been subjectedtofurtherattack emanating from both parties to the contract. On the one side, the engineer is accusedby the contractor of being biased infavourof the employer because: his fee is paid by the employer; hehas acted as adviser to the employer prior to constructionand may wish to continue this role upon completion ofthe constructionstage; — he is expected to go through'due consultation' with the employer prior to making certain decisions; — he may have to obtain the specific approvalof the employer prior to taldng certain actions or decisions. — —

Therefore,he is sometimes assumed by those who attack the engineer's role as adjudicator, to act in collusion with the employer. The case is even stronger against the engineer who is in the employment of the employer, as his future employment may dependon his actions. On the other side, he is sometimes accused by the employer of being biased towards the contractor duringthe administration and executionofthe contract in such areas as awarding extensionsof time and in determining amounts of claims, and giving instructions in favour of the contractor.He is also sometimesaccused of being too lenient onthe contractor, thereby relieving the contractor of some of his obligationsunder the contract. It seems inevitable that where there is substance in such attack, and in situations where either party to the construction contract is dissatisfied with the impartiality of the engineer, the only answer would lie in arbitration proceedings wherethe arbitrator is empowered to re-open, review and revise the engineer's decision. As discussed earlier, the above mentioned criticism of the roleof the engineer under clause 67 of the Red Bookled to the introduction of an alternative wording to that clause in the new supplement published by FIDIC. As described later in Chapter 19, the new wording is based on the use of an adjudication board composed of one or three experts who canrender a decisionin respect of a disputewithouthaving to resort to the engineer. Thus, if the new wording of clause 67 is chosen in preference to that presently in use, the traditional role of the engineer as an adjudicator will be transferred to the disputeadjudication expert or board.

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10.10 Concludingremarks

Inthis chapter, theduties ofthe engineerandhis traditionallycomplexroleunder theRed Bookwere discussedin detail. The weaknesses and strengths of thatrole were explored. Should the engineerfail to perform any ofhis functions properly, theliabilitytowards theemployer for any lack ofcareor skillwhichcausesloss or damage to the employer is discussed in Chapter 11. Furthermore, should the contractorsuffer any loss or damage under his contract withthe employer dueto the engineer's negligence, the contractor might obtain a remedy against the employer through the contract between the contractor and the employer, leaving the employer with the option of obtaining redress against the engineer. This matter is also discussed in Chapter 11.

Chapter 11

Responsibility and Liability of the Engineer

11.1 Introduction

Theword'responsibffity'is usedherein thesense that a person is responsiblefor certain events if his conduct has been a material factor in their occurrence.111 'Liability', on the other hand, is used whenever a personis, or at leastmay be, legally obligedto do or suffer somethingto be done. Liabilityis often the result of responsibility. However, whilst these two notions are expressed in two different words in the English language, in other languages one may find them to be combined in one expression.The differencebetween the two concepts is that of obligation under the law, for example, in the French language where the word 'responsabilité' is used to meanlegal responsibility. Regardingthe engineer,his responsibility/accountabilityapplies to the manner inwhichhe dischargesthe duties allocatedtohimunder thecontract as discussed in Chapter 10. Thus, the question which must be answered is: to whom, and in respect of what, is responsibilityowed by the engineer? In essence, the general principles whichapply to the first part of this question canbe summarised by listing the parties to whom the engineer owes a duty: (a) the employer, as client; (b) the contractor,as the party responsible for construction; (c) third parties; (d) societyin general; (e) his employees;and (f) himself

The answer to the second part of the question is extremely complex and depends not only on the contractualarrangements,but also onthe applicablelaw of the contract or contracts between the parties involved. As stated earlier in Chapter 2, the applicable law imports into the general conditions, certain principles of law which govern the contract. However, the situation becomes even more complexin the international scene where a contract incorporating the Red

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Bookis executed in a country wherethe accepted role ofthe engineer is different from that described in the previous chapter. Tn such cases and because of the similaritiesbetween the Red Bookandthe ICEForm, legal cases whichapply to the ICEForm areof value in establishingwhat legal principles arerelevant inthe application of the scienceof comparativelaw. For example, in construction projects in France, the nearest corresponding position to the engineer under FIDIC is that occupiedby the maître d'ceuvre. The role of the maître d'ceuvre normally includes the design of the works and the administration and supervision during the construction period. Under French law, a maître d'ceuvre carrying out his duties during the construction period is neither regarded as an agentof the employer, nor as an adjudicator or a 'quasiarbitrator', unless he is specificallyrequested and empowered to do so under the contract.112 He is recognised as an independent professionalbound by contract forthe hireof work underArticles1710 and1779of theFrench Civil Code (contrat de louaged'ouvrage).Thus,hisprincipal dutyis to advise his client,but notto act on his behalf. In the paper referred to in Reference 11.2, the authorcompares the standard form ofcontractforprivate workinFrance('NormeAfnor—Marches — CahiersTypes' — NIP03 — 001, April 1982) withthe RedBookandconcludesthatthe powers ofthe maître d'cuvreunder aconstructioncontract are generallymuch more limited than those of the engineer under the Red Book. He states that under the French form: (a) Variations in the

works are ordered by the owner (art. 07.1.4.1) not the engineer. They are implemented bywritten orders signed bythe engineerand countersignedby the owner. (b) Completionof theworksisestablishedbyminutes ofcompletiondrawnupby the engineer but signed by the owner (art. 14.4). (c) The engineer is accorded no power to approve or disapprove the contractor's work programme (art. 01.4.1.5). (d) The engineerhas nopowertostop the works, although the owner cando so for periods of up to six months withoutbeing deemed in breach of contract (art. 19.1.3).

(e) The engineer has no formal role in the settlement of disputes between the owner and the contractor. Moreover, the provisions of FIDIC, which might

permit the engineer to render decisions that in certain circumstancesmay become 'final and binding' on the contractor, may be unenforceableagainst thecontractor underFrench law (Cass. Comm. 9 March 1965).

Thus, whendealing with a FIDIC-type contract,lawyers, engineers and others from countries using the Romano-Germanicsystem of law should acquaint themselveswith the role of the engineerunder the Red Bookbefore dealing with his responsibifityandliability. In this connection,it should be realised that other systems of law may have a

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differentrole for the equivalentposition to the 'FIDICEngineer' and, furthermore, thatnot allcountries within the Romano-Germanicsystem oflaw have exactlythe same legal principles. Returning then to the second part of the question posed above: 'what is the responsibifityowedby the engineer?', one would have to accept the role of the engineerunder the Red Bookas a basis and addtoit whatever is imported bythe applicablelaw ofthe contract. Theremaining sections of this chapter willconsider the question of 'to whom, and in respect of what, is responsibilityowedby the engineer?' in relation to the employer, the contractor, third parties, society, employees and the engineer himself.

11.2 Responsibility of the engineertowards the employer

Undertheconditionsof thecontractwithhisemployer,theengineeris responsible for the duties he undertakes. If these duties arerelated to a contract between the employer and the contractorunderthe Red Book, the engineerisresponsibleinhis roleas a designer,and duringtheconstructionof theproject,as employer's agent,

supervisor, certifierandadjudicator. Failure to perform these duties properly in accordance with the provisions of the contract would result in the engineer being liable to the employer under the provisions of the law of the contract applicable to his agreement with the employer. However, in certain jurisdictions, and in some circumstances, the engineer may be foundto be concurrently liable in respect of a particular event andin respect of theresultant damage both in contract andin tort. In countries within the common law system, the law on whetheror not concurrent liability in contract and in tort applies is still evolving. In England, the construction case of Bagot v. Stevens Scanlan & Co. in 1964 marks, perhaps, a starting point forthe developmentofthis areaofthe law. Thecourtheld then that duties owedby a professionalpersonarose only in contract and notin tort.113 In 1976, however, the case of Esso Petroleum v. Mardon pavedthe way for the latter concept to be abandoned.114 In his judgment in that case, Lord Denning remarked that the courtin the Bagotcasewas notreferred to two earlier decisions of higher authority where it washeld:first, in 1844, that 'the plaintiff mayeither recover intort orin contract'115; and secondly,in 1914, that'for failureto perform his obligations,hemaybeliable atlaw incontract or evenin tort, fornegligencein breach of a duty imposed on him,.116 Theseremarks led in 1978 to the adoption ofthe concept ofconcurrent liability inthecase ofMidland BankTrustCo. Ltdv. Hett,StubbsandKemp.117 Later decisions in othercases confirmed this position. While some courts outsideEngland and Wales were willing to adopt the concept of concurrent liability,118 others were not.119

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Shortly afterwards, the trend towards concurrent liability was halted and the Courtof Appeal in England heldthat a claim in tort could be no wider than the claimincontract.'11°Inthe mid1980s, the courtsbeganto look more favourablyat the dissenting judgments in previous decisions to restrict the right to impose concurrentliabffity. ThePrivy Councilin TaiHingCottonMillLtdv. Liu ChongHing Bank Ltd, in 1986, decided to:

'adhere to the contractual analysis [firstly] on principle because it is a relationship in whichthe parties have, subject to a few exceptions,the right to determine their obligationsto eachother; and [secondly]for the avoidance of confusion [in the law] because different consequences do flow according to whetherthe liabifityarises from contract or tort,e.g. inlimitationof action'.1111 Two passages fromthe judgment inthat case are worthyof mention as they have been cited in subsequent cases: 'Their Lordships do not believe that there is anything to the advantage of the law's developmentin searchingfor a liability in tortwheretheparties arein contractualrelationship', and '. . .TheirLordshipsdo notacceptthat theparties' mutualobligationsin tortcanbe any greater thanthose to be found expressly or by necessary implicationin their contract.' This trend continued with the case of Ernstand TA/hinney v. Willard (1987) where the assignees of a long lease of an office development brought a claim against engineers, nominated mechanical sub-contractorsand ductwork sub-contractors for alleged deficiencies in the air-conditioning system.'112It was held that it wouldnot be just and reasonable to impose liability in negligenceon the defendantsforvarious reasons,amongstwhichwasrelianceonthe decisioninTaiHing. The general trend continued towards denying concurrent liability, at least in certain circumstances, culminating in the decision in Greater Nottingham CooperativeSocietyv. CementationPiling& Foundations Ltd (1988).h1.13In this case, the plaintiffswere building owners, and the defendants pilingsub-contractors,who hadexecuted a collateralwarrantyagreement. Damage occurred to an adjoining property due to certain negligent piling. The employers claimed the additional cost of executinga revised pilingscheme whichhad been paid to the maincontractor. The employers' claim was brought in tort notwithstanding the direct contract since it was not relevant to dealwith the particular issues of the case.In deciding whether thereshould be a concurrentbut more extensiveliabilityintort asbetweenthetwo parties arisingoutofthe executionofthecontract,Lord Justice Purchasinthe CourtofAppealconsidered asrelevant the fact thatthe 'parties had an actual opportunity to define theirpartnership by means ofa contract,andtook it'. The CourtofAppealwentonto decidethat therewasnoliability intortin this case.This decision maybe takento indicate that a contract can have the effect of limiting, ratherthan excluding,tortious liability. However, the recenttrend inconstructionin England seems to be developingin a waythat each casewillhave tobeconsidered onits ownmerits as towhetheror

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notthereis concurrentliabilityincontract and intort.Furthermore,it seemsthata consideration of the particular facts and circumstances of each case would determine whether a duty ofcarein tort,whichmight be imposed by the general law, was of widerscope than any contract in whichthe same parties hadagreed duringthesame courseof dealing.InBarclaysBankplcv. FaircloughBuildingLimited (1993)," the plaintiff, citing the two passages quoted above from Tai Hing, contended thatiftherewere liabilityforbreach ofcontract,there wasno liabilityin tort for negligence. The case arose out of asbestos contamination of a building followingthe cleaning down ofcorrugated asbestosroofsheets bypressurejetting with water. Water and slurrywhich contained asbestosentered the buildings in substantial quantities. The slurry then dried out leaving asbestos dust which polluted the atmosphere, causing serious healthproblems.The courtheld inthat case thattherewas a claim both undercontract andintort. In Lancashireand CheshireAssociationofBaptist ChurchesIncorporated v. Howard and SeddonPartnership (1993)," a claim arose in contract against the architects where it wasalleged that therewas condensation and inadequate ventilation in thechurch sanctuary designedbythemand completedin1980. But,theclaim was statute barred in contract under the Limitation Act and a pre]ininaryissuewas ordered to be tried concerning whether the basis of the claim could be in tort wheretime was still within the limitationperiod. It was heldthat a professional person owed duties in both contract and tort and that 'unless the contracting parties have expressly excludedthe duty inthe law oftort, whichthey are free to do, it is reasonable to conclude that the duties under both heads survive concurrently' and so the longer limitation period in tort could be reliedupon.Thus, theclaim succeeded andthejudgewent onto categoriseTaiHingas a case which provides authority for the proposition that wherethereis a contract, the tortious liabilitycannot be more extensive than that in contract. In1995, two cases followedthesame trend. In GableHouse Estatesv. The Halpern Partnership and Bovis Construction Ltd16the court held that a concurrent duty in tortcanexistwheretheparties arein a contractualrelationship if theterms of the contract do not preclude it. In the case of Holtv. Payne Skillington,the court held that duties in contract andintort canbe concurrent,but arenot co-extensive.17 Furthermore, the duty in tort for negligence may be greater than for breach of contract and it is imposed bythe general law, whereas the dutyin contract comes about only by the obligation assumed by the parties. IntheRomano-Germanicsystem,whilstthe contractbetweenthe employerand the engineer governs therelationship between them, many jurisdictions differ in theirinterpretation andapplicationofthe law in respect of concurrent liabifityin both contractandtort. InFrance,for example,an act or omissionby either partyto a contract which is considered to be in breach of that contract, is a basis for an action under contract law (Articles 1146 to 1155 of the Civil Code), but does not concurrently serve as abasisfor an action in tort. TheBelgiancourtsalsoreject theideaofconcurrentliabilityunderbothcontract

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and tort. InGermanlaw, except in specificcases of lossor damage, the Code, in paragraph 823 (BGB),bars the recognition of a tort action in a contractual situation. However, under Dutch law, concurrent liability is permitted with the restriction that the requirements of a tort action should be met independently of those required for a breach of contract. Therelevance ofwhetherliability is in contract or in tortstemsfromtwo major differences.Thefirstisinrespect ofthe time barunderthe relevant LimitationAct. Although the time bar differsfrom onejurisdictionto another, in general, actions under tort have longer periods of time in that they start to run later than those under contract.The second relevant differenceis inrespect ofthe damages which may be awardedunder tortious and contractual liability. There may be other differenceswhich could conceivablyalter the balance as to whether to have an action in tort or in contract. These are: the rules of proximity, the proofof negligence and the level of liabilitywhichmay apply under the contract inquestion. As the law in this area is obviously developingandsince the law differsfrom onejurisdictiontoanother, itisnecessarytotreat theabove discussionofthetopic as a matter of general ratherthan specialistknowledge. It is also necessarywhen considering this question of concurrent liabilityto obtain expert knowledge and advice in the relevant jurisdiction. Beforeleaving this topic, it is helpful to discuss the two standards of duties in construction. The first is the duty of reasonable skill and care and the second, which is of a higher standard, is the fitness for purpose. It is important to distinguish between these two standards, because in the first, negligence of the defendant has to be proven by the claimantparty, whereas forfitness forpurpose thereis a strictobligationto achieve the objective irrespect of negligence.1118 The standard ofduty ofcare

In generalterms, aprofessionalperson is undera dutyofreasonableskillandcare, whereas a contractoris under a dutyoffitnessforpurpose. But, itis also generally acceptedthata designerhas to takeintoaccountthe purpose ofhis designifthatis specificallymadeknown to him. Ifhe does not, he would be lackinginreasonable care. For instance, it wouldbe a lack of careif a pumpingstation is designed to discharge a certain volume of water per hour when it is known that the actual volume requiredto be handled is twice that designed. Withregard to his responsibilityto the employer, the standardof duty ofcare and skill owed by the engineer as a designer is perhaps best described in the decision in the case of Bolam v. Friern Hospital Management Committee, in 195711.19 which was approved in V'/hitehouse v. Jordan (1981) by the House of Lords:1L20 'How do you testwhetherthis actor failureisnegligence?Inan ordinary caseit is generally said that you judgethat bythe action of themanin thestreet. Heis theordinary man.Inonecase ithas been said thatyou judgeitby theconductof

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the manonthetop ofthe Claphamomnibus.Heisthe ordinary man. But where you get a situation whichinvolves theuse of some special skill or competence, thenthetest as to whether therehas beennegligenceornotisnot thetestof the man on top of the Clapham omnibus, becausehe has not got this special skifi. Thetestis thestandardoftheordinary skilled manexercisingand professingto havethatspecial skifi. A manneednot possessthe highest expert skill;itis well established law that it is sufficient if he exercised the ordinary skill of an ordinary competentman exercisingthat particular art.' The ordinary skill ofan ordinary competentpersonwouldnormally bejudgedby referenceto the state ofthe art of the design whenit was carried out andnot ata

later date.1121 Itis accepted thatthe precise scope ofthe duties undertaken bythe engineer in the contract with his client, the employer, would determine his responsibilities and, consequently,his liability. Obviously, should the terms of the agreement between the promoter and the engineer include detailed expectations of the design,the standardof carewouldbe elevated tothat offitness of purpose aswas concluded inaCanadian casein198O.h1 Inthat case,it was concludedthat there was a 'common intention that the building should be fit for its purpose'.It was held that 'this gave rise to a termimpliedin fact that if the structure was completed in accordance with the design it wouldbe reasonably fit for use as a store'. The designer is also under a continuing duty to check duringthe construction period that his design willwork in practice and to correct any errors whichmay emerge.1123In some cases, the continuing duty would extend not only to the specific matters in the design itself, but to any new developing knowledge emerging duringthe constructionperiod. However, suchduties can be exercised only ifthe designprofessionalis involved inthe supervision as well as the design of the project. The risk of something going wrong increases, therefore, whenthe designer is not engaged in supervision either because another professional is employed instead of him, or because no one is engaged to carry out the supervisory duties. There is one further matter whichmighthave to be considered in connectionwiththe continuing dutyofthe designer and that is, whether the duty continues beyond the practical completion of the project. The law in this areais developingin some jurisdictionsandspecialistknowledge wouldbe requiredto

dealwith this topic. Inrespect ofdelegationofresponsibifities,thereis,generally,no implied termin the contract between the employer andthe engineerpermitting thedelegation of the dutyof design:inMoresk v.Hicks (1966),an architectsub-contractedthe design of the structural frame of the building to a contractor who supplied and erected the frame.24 The frame, however, proved to be defective in two major design aspectsandthe architectwas thereforeheld liable to his client. (See the quotation from the judgment in that case referred to in Section10.2 above.)In order for the

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engineer tobe relieved of the responsibilityof design of a specificpart, a contract must be establishedbetween the employer and the specialistdesigner. Before leaving the subjectof the liabifityof the engineer towards the employer, consideration must be given to two further aspects. First, knock-on liabifity;and secondly,decennialliabilitywhich existsinalargenumberofjurisdictionsaround the world. Knock-onliability arises whereanindividual maybe held liable for more than his actual share ofblamein respect of a lossfor whichhe is only partlyto blame. This happens when other parties, also partlyresponsible for the loss, cease to remain solvent due to one reason or another. The engineer may, therefore, find himselfnot only partlyresponsible,butalso totallyliable to the employerforaloss eventfor which aninsolvent contractoris alsoliable.Suchliabilitymayinclude the fullcost of repair of the damage or replacementofthe damaged item. This legal principle applies both in the common law and the Romano-Germanicsystems of law. Further considerationofthis principleorthatof contributionbetween several wrongdoers is beyond the scope of this book, but for further referencethe publication,The LiabilityofContractors is informative.1 Decennial liability forms part of the law relating to construction projects in many jurisdictions,including France,Belgium,Spain, Latin America, some parts of Africa and the Middle East. It applies as soon as the worksarecompleted and accepted by the owner without any reservation and continues for ten years thereafter. In France, Articles 1792 and 2270 of the Civil Code legislate for this liability.1126Article 1792 provides as follows: 'Every constructor of a structure is legally responsible to the owner, or those deriving titlefromhim, for any damage (includingdamage resulting from subsoil conditions) which jeopardises the integrity of the structure or which by affecting one of its component elements, or one of the equipment elements, renderthe structure unfitfor its intended purpose. Suchresponsibilitywillnotbe imposed wherethebuilderdemonstratesthat the said damage results from causation outside his authority and control.' Accordingly,underFrench law, every constructorofa structure ispresumed to be liable to the owner for damage which jeopardises the integrity of the structure or which, by affecting one of its component elements, or one of the equipment elements,renders the structure unfit for its intended purpose. The constructor is defined as including,among other persons: an architect,a contractor,a technician or otherperson boundto the owner by a contract for the hire of work. The defect giving rise to the damage defined in Article 1792 must be latent. Visibledefects atthe dateofcompletion,(referredto inFrench as the equivalentof 'reception') do not give rise to a presumption of decennialliability. The provisions of Article 1792 impose strict liability on all constructors and, therefore, the employer or owner doesnot have to proveeithernegligenceor any

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causal associationbetweenthe negligence and the damage. Under French law, these provisionsare amatter ofpublic policyandcannotberestricted orexcluded in any agreement. In other jurisdictionsit is permissibleto modify the legal provisions regarding decennial liabifity, for example, in Holland. Article 2270 of the French Civil Code deals with the ten-year period of this liabilityandArticle 2820 provides for decennial insurance. 11.3 Responsibility of the engineertowards the contractor

In thetraditional contractualarrangementwherethe RedBookis used,thereis no contract between the contractor and the engineer. The contractor, therefore, is precluded from bringing an action against the engineer in contract. Instead, he mustrelyonthelawoftortwithin thelegal framework oftheapplicablelawofthe contract.

Clause2 of the RedBookis ofparticular relevanceinthe above connection.Subclause 2.1 (engineer'sduties andauthority) states: (a) 'TheEngineershallcarryout the duties specified in the Contract'; and (b) 'The Engineer may exercise the authority specifiedin, or necessarilyto be implied from, the Contract,...' Therefore, the engineer, while not being a party to the contract betweenthe employer and the contractor, is empowered thereunder to issue instructions, consent, approve, certifyor determine all of which are binding on both the employer and thecontractor unless and untiltheyarechallengedand! orsubsequently amended or rescinded in arbitration. Under sub-clause 2.6, the engineer is required to exercise his discretion impartially withinthe terms of the contract and having regard to all the circumstances.

Itis clear from theabove that clause 2 oftheRedBookestablishesthat a dutyof care is owedto the contractor by the engineer in exercisinghis discretion in an impartial manner within the terms of the contract, andhaving regard to all the circumstances.This duty of care exists alongside the other duties whichmay be imposed intort underthe applicablelaw of the contractin order to avoid causing physical loss or damage or,in some cases,economicloss, withor without physical damage. The above duties might well include exercising skill and care in, amongst others, designing and issuing design drawings and specifications; in making valuations andin certifying;and in making statements and giving instructions. Theprecisenatureofwhichdutyisowedandwhichisnotwill dependnotonly on the applicable law of the contract, but also on the contractualstructureandthe circumstancesof the event leading to loss or damage. In the followingparts of this section, the state of the lawof negligencein the common law andthe Romano-Germanicjurisdictions is examined in relation to the responsibilityand liability of the engineer.

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in the common law countries The stateofthe law ofnegligence inthe common lawcountries has yet to become clear in this regard, andrecent judicial decisionsraise more questions than they provide answers. This leads to the conclusionthatfurther developmentsmust be anticipated.Inconnectionwithconstructioncontractsbasedon conditionssuchas theRed Book, there arevarious considerationswhichmust betakenintoaccount wherever the case is considered and whatever jurisdictionapplies. These are:

(1)

A claim in negligence The contractormay eitherclaim against the engineerintort if all the prerequisites of a successful tortious claim are established, or he may claim against the employer.Ifthe firstcourse of actionis taken, then the requirements for the tort of negligence must be established. These requirements have been the subject of argument in many cases,andinPortsea Island MutualCo-operative Society v. Michael BrasherAssociates,they were setout as follows:1127 (a) The defendant must have oweda duty of care to the plaintiff.For sucha duty to haveexisted, the followingrequirements must have beenfulfilled: (i) that the defendant foresaw or ought reasonably to have foreseen that failure to exercise reasonable care and skill in the performance of a specifiedconduct wouldlikelyresult ininjury or damage to the plaintiff; (ii) that there was at the material time a sufficient relationship of 'neighbourhood' or 'proximity' between the parties; and (iii) that it was just and reasonable that the defendant should have owed a

duty of careto the plaintiff; The defendant should have acted in breach of duty by failing to take rea(b) sonable care; and (c) As the result of the defendant's breach of duty, the plaintiff suffered damage whichwas of the type which the defendant foresaw or ought reasonably to haveforeseen as likely to result. However,evenif causation andforeseeabiity of damage can be proven, it may

a

stifi be contrary to public policy for particular loss to be recovered. By followingthis courseof action and claiming in tort against the engineer, the

contractoracts as any third party claiming underthe tort of negligence.The only difference is, perhaps, in respectoftheforeseeabffityorproximityrequirements as set out above whichwouldbe easier for him to establish in the context of a construction contract. (2) A claim in respect of designandsupervision

The engineer owes a duty of carein respect of the design andsupervision of the works and would incur a liability to the contractor if his design is such that a

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competent contractorcould nothaveavoided anyresultant damage. Itwas stated inthe case of Oldschoolv. Gleeson (Construction) LtdbyJudgeStabb QC that:11

'I taketheview that theduty of care which an architectoraconsultingengineer owes to a third party is limited by the assumption that the contractor who executesthe works acts at all times as a competent contractor. The contractor

cannot seek to pass the blame for incompetent work on to the consulting engineer on the grounds that he failed to intervene to prevent it ... the responsibility of the consulting engineer is for the design of the engineering components of the works andhis supervisory responsibility is to his client to ensurethat the works are carried outin accordancewith that design. But if, as wassuggested here, the design wasso faulty that a competentcontractor inthe course of executingthe works could not have avoided the resulting damage, thenonprinciple it seemsto methattheconsultingengineerresponsibleforthat design should bear the loss.'

In that case,the engineer's design was not fundamentally unsound and the contractor's claim failed, but the principle of responsibifityis clearly set out where suchdesignis faulty. (3)

A claimfornegligentunder-certification

'In a trade in whichcash flow is especially important, this [negligentcertifi-

cation]might have caused the contractorserious damage forwhichthe architect [or the engineer] could have been successfullysued.'

This statement from the decision in Arenson v. Casson, Beckman, Rutley and Co. (1975) sets out clearly that where the engineer has negligently certified, and the employer is unable to meet his obligations, for one reason or another, the contractor may be in a position to recover the loss from the engineer.1129 However,in the case of PacijlcAssociatesv. Baxter (1989),h1.30to whichreference is made later, a different set of circumstancespresented themselves leading the English courts tohold thatan architector engineerowes no duty to the contractor intort provided that thecontractoris ableto challengethe certificate in arbitration proceedings andprovided that the employer is not insolvent. (4)

Is there a claim where lossor damage is anticipated? Whatshould happenin a case wherea defect is discoveredbefore any damage resultsandmoney is spent to avert existing or future danger? Can suchloss be recovered? In this regard, Lord Bridge in the case of D & F Estates v. Church Commissioners for England (1989) stated:31

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'Ifthehiddendefectinthechattel is thecause ofpersonal injury or ofdamage to property other than the chattel itself, the manufacturer is liable. But if the hiddendefectisdiscoveredbeforeanysuchdamage iscaused,thereisno longer any room for the applicationof the Donoghuev. Stevensonprinciple.Thechattel is nowdefectivein quality,but it is no longer dangerous. Itmaybe valueless or it may be capable of economic repair. In either case the economic loss is recoverablein contractbya buyerorhirer ofthe chattel entitled tothe benefit of relevant warranty of quality, butis not recoverablein tort by aremote buyeror hirerof the chattel. If the same principle applies in thefieldofrealpropertyto theliability of the builder of a permanent structure which is dangerously defectivethat liabifity canonly arise if the defect remains hiddenuntilthe defectivestructure causes personal injury or damage to property other than the structure itself. If the defectisdiscovered before anydamage is done, the loss sustained by the owner of the structure who has to repair or demolish it to avoid a potential source of danger to third parties, would seem to be purely economic. Thus, if I acquire a property with a dangerously defectivegarden wallwhichis attributable to the bad workmanship of the original builder, it is difficult to see any basis in principle on which I cansustainan actionintort againstthe builder for the cost of repairing or demolishing thewall. Nophysical damage has beencaused. All that has happenedis thatthe defectinthe wallhas beendiscoveredin time to prevent damage occurring...' The above passage seems to settle the position regarding whetherornot a claim exists in tort where loss or damage is anticipated but has not yet actually occurred. (5)

A claim againstthe employer If the contractor follows the second course of action, referred to in (1) above, by clainiing againstthe employer,then in general terms, and exceptincases offraud or dishonesty,the employer would be liable for the acts of the engineer as his agent, subject to any right of recourse he might have against his agent for indemnity. An action ofthis type is usually defended jointlybythe employer and the engineer.

(6) The arbitrationclause

The Red Book includes an arbitration clause which can be used to have any determination of the engineer which is unacceptable to the contractor examined by an arbitrator and, if appropriate, corrected.This remedy whichis availableto the contractor can be used to correct the results of economic loss or damage resulting from lackof careof the engineer.

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(7) Concurrencyofliability in contract andtort

There is a strongtendencyto deny any duty of carein tort if atthe material time the defendant oweda duty in contract eitherto theplaintiff or to someoneelse. InGreater Nottingham Co-operative Societyv. CementationPiling& FoundationsLtd (1988),referred toinSection11.2 above,the defendantpilingsub-contractorswere suedinnegligenceinrespect ofworkmanship by building owners to whomthey had given warranties in designandachoiceofmaterials.1132The CourtofAppeal decided that therewas no liabifityin tort in this case. Inthe case of PacificAssociatesv. Baxter (1989),the engineeroweda contractual duty to theemployer basedonconditionssimilar to those of theRed Bookandthe question was asked: basedon the contractualstructure intowhichthe contractor waspreparedto enterwiththe employer, did the contractorlook to the engineer bywayofreliancefortheproperexecutionofhis (the engineer's)duties underthe contract inextensionof the rightswhichwouldaccrueto the contractor underthe contract against the employer? Inotherwords,it maybe argued that it is notjust and reasonableto impose on theengineer by wayof liabilityin tort,rights in favour of the contractorin excess ofthese rightswhich thelatter wascontent to acquireagainst theemployer under

the contract.

A competentauthoritysuchas a court oranarbitrator maynotimposeaduty of careon the engineer if it is consideredto be neither justnor reasonableto do so. (8) Theparties have the right to determinetheirown obligation

A verdict of neither justnor reasonable mightbe reached by a court or an arbitrator if the employer and the contractor in a set of circumstances had the

opportunity to define their contractual relationship by means of a contract and theytook it. In this connection,see the categorisationof the TaiHing case by the court inthe case ofLancashireand Cheshire AssociationofBaptist Churchesreferred to above in Section11.2. Inthat case,thecontractor,by acceptingthe invitationto tender upontheterms inthe 'Instructionsto Tenderers' andthe contractualdocuments,was assumed to have accepted the role of the engineerin the contract. A similar conclusionmaybe reached if the answer to thefollowingquestion is given in the negative: should the law intervene in a commercialrelationship to impose on the agent of one party to a contract the duty of caretowards the other partyin respect ofadministrativeactsfor theconsequencesof which his principal would in any case be liable under the contract? (9) Deviating from a standardform ofcontract

The Pacific Associates case referred to above serves as a good example of the importance of the contractualframework in determiningthe respective duties of

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the contracting parties. In that case, the plaintiff contractor was the successful tenderer for dredging andreclamationwork inDubaiCreek Lagoon.The contract was based on the third edition of the Red Book with some additional clauses inserted in the 'General Conditions'. The most relevant to this casewas clause 86, whichprovidedas follows: '86. Neither any memberofthe Employer'sstaff nor the Engineernor anyofhis staff,northe Engineer'sRepresentativeshallbe inanywaypersonallyliable fortheactsorobligationsunderthecontract,oranswerableforanydefault or omissionon the part of the Employerin the observanceorperformance of any ofthe acts, matters or thingswhicharehereincontained...'

In that case, disputes arose between the contractor and the employer which were subjectto arbitration underclause 67 ofthe contract.However, a settlement wasagreed in thearbitration and the contractorclaimed innegligenceagainst the engineerfor an alleged breach of duty to act impartially in certifyingpayment in respect of encountered physical conditionswhich, the contractor claimed, could not havebeen foreseen by an experiencedcontractor. The engineer applied to the court to have the claim struck out on the grounds that it didnotdiscloseareasonablecause of actionandwasanabuse oftheprocess ofthecourt. Thecourtheldthat thecontractorcould notrecoverdamages from the engineer.Thecontractor appealed to the CourtofAppeal, whichupheldthe lower court's decision.

In the Court of Appeal, Lord Justice Purchas reasoned that in view of the contractor's acceptanceof the invitation to tender with the complete contractual framework, including the disclaimerin clause 86, itwould:

'beimpossible to supportthe contention that eitherthe engineer washolding itself out to accept a duty of carewith the consequentialliabilityfor pecuniary

lossoutsidethe provisions afforded to the contractor under the contract, or to support the contention that the contractor relied in any way on such an assumption ofresponsibilityonthe part of the engineerin anywaytobolster or extend its rights'.

The existence of the arbitration clause enabling the contractor to challenge certificatesofthe engineerwas alsoconsidered to be importantbythe court, ifnot decisive.Inthe wordsofLordJusticePurchas:evenif clause86 'werenot included inthe contractin thiscase,the provisionsofGC67would, inmy view,be effective toexclude the creationofany direct duty on theengineertowards thecontractor.' Thus, this caseserves toshow thatanymodificationstoa standard form mustbe carefullyexaminedandits consequencescautiouslyconsidered beforeacceptance. The facts and the law in the PacificAssociates case has been dealt with in detail here asit seemsto have settledthe law inthe referredlegal system inrespect ofthe

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duty, if any, of the engineer towards the contractor under similar circumstances. Two decisions in 1991 in the British Columbia Court of Appeal followed the conclusionsreached inthe PacificAssociatescasebyholdingthatthe engineerowed the contractorno duty ofcare.1133However,itisnotable that under a differentset of circumstancesin Canada, the engineer washeld liable wherehe wasfoundto have negligently misrepresented relevant information relating to tender documents, on which he knew or ought to have known that the contractor would rely.1134

In the Romano-Germanicsystem In contrast to the situation in the common law countries, the position under the

11.3.2

Romano-Germariic system of law may be influenced by the existence of some

expressprovisionsinthe CivilCode ofthe particularjurisdiction.Alegal principle maybe imported intothe legal framework ofthe relationship in theconstruction contract.

Forinstance,Articles1382 to 1386 of the French Civil Code contain the general principles of tort law which briefly provide that any act of man which causes damage to another shall oblige the personby whose faultthe damage occurred to make it good. In some jurisdictions, however, it is necessary for a contractor to bring into operation the principle of 'benefit' in order to bring anaction against the designer in tort. A typical example of this principle is Article 1029 of the Civil Code of Quebec in Canada which provides:

'Apartyinlike manner maystipulate forthebenefit of athirdparty,whensuch is thecondition of thecontractwhichhe makes for himself,orofa giftwhichhe makes to another; and he whomakes the stipulation cannot revokeitifthe third partyhas signified his assentto it.'

This particular article came intofocus in the Canadian case ofDemers v. Dufresne (1979).h135

In some jurisdictions, decennial liabffity has been extended from its French origin, where it refers to damage jeopardising the integrity of the structureor its fitnessforitsintended purpose, toa referencetoany defectthatmight threaten the soundness and safety of the structure, as in the United Arab Emirates where Article 880 ofthe Civil Code states:

'Article 880 (1) Ifthe intentionofthe contractwas toconstructbuildings or other permanent construction works which were designed by the Engineer and to be executed by the Contractor under the Engineer's supervision, they both jointly and severallywarrant, to indemnify the Employer in respect of all

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occurrencesof partial or total failure of what they hadconstructed or built and for all defects that might threatenthe soundness and safety of the structure for a period of ten years unless a longer period is stipulated in the Contract. All this applies unless the period for which both parties of the Contractrequire these construction works to last is less than ten years. (2) The obligation to indeniriifyremains even if the damage orfailurewas due to a fault in the ground itself or if the faultyconstruction was carried out with the approval of the Employer. (3) The period of Ten Years starts from the dateof handing over of the Works.' The referenceinitem2 of thisArticle to the 'ground' is basedonthe theory that if thefaultwasdiscoverablethenitmustbetheresponsibffityof theconstructor,but if it could not be discovered then it would come within the definition offorce majeure which absolvesthe constructorfrom liability.1136 11.4 The responsibilityof the engineertowardsthird parties (other than the contractor) The responsibilityof the engineer and the liability whichfollows towards third parties originates in tort under the applicable law of the contract. However, liability towards third partiescan also arise under statute or undercontractswith third parties in what is known as collateralwarranties. It is a matter of law as to whetherornotaduty of care arises inaparticular situation.Thus, it isbeyondthe scope of this book to consider in detail the nature of liability of the engineer towards thirdpartiestothe constructioncontract.This is particularlyso inview of the fact that in a numberofjurisdictions the stateof the law of negligenceis far from settled.Recentjudicial decisionshavereinterpreted eventhe most celebrated statements of previous important decisions.1137 New concepts are continually evolving and the liability of the engineer would haveto be establishedinaccordance with theprevailing legal principles through specialist knowledge.'138Forinstance, in the recent past, the European Community issued its directives 89/391/EEC whichis referred to as the Framework Directivefor safety and health at the workplace; and Directive92/57/EEC on the implementation of minimum safety and health requirements at temporary or mobile construction sites. Each member stateis expectedto implement these two Directivesby enacting Regulations to transpose theirprovisions to the local law. The purpose ofthe Regulationswouldbe to improve site safety on any building, civil engineering or engineering construction work. A number of states have already issued theirRegulations. Amongst those included inthe liability net in these Directivesis the engineerin both capacities, as a designer and as a supervisor. As a matter of interest, the employer andthe contractor are also included.

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Theduties of the designer include a long listof elements whichmust be taken into account for the purpose of prevention of accidents. The list starts with elements ofrisk avoidanceandevaluation,goesonto technicalmatters of design, material and systems of work, and ends with the requirement of providing appropriate training andinstructions to employees. Perhaps the most remarkable result of the Regulations implementing these Directives is the nature of the liability of the parties to a construction contract arising from a breach of the statutory duties imposed. The liability arising from sucha breach could changefrom civil to criminalliability and the penalty which mightbe imposed mayreach afineofunliniited amount and/orimprisonmentfor a number ofyears. 11.5

The responsibilityofthe engineertowardssociety; employees; and the engineerhimself The engineer, as a designer andsupervisor, owes a duty to society in general in respect of theimpact ofhis designonthe environment surrounding him.Aduty is also owed by the engineer towards employees under the applicable labour and employmentlaws. Lastbutnotleast, the engineer owes a dutytowards himselfto maintain ahigh standardand a highreputation as a professionaland at the same time remainin practice.However, the details ofthese duties are outsidethe scope of this work.

Chapter 12

The Employer's Obligations

12.1

Introduction The employer has obligationsunder both the applicable law of the contract and underthe Conditionsof Contract.The applicablelawofthe contractis specifiedin Part II of the Conditions with reference to sub-clause 5.1(b). In general, the employer would be concernedwith those branches ofthe law as described earlier in Chapter 3. Under the FIDIC Conditions of Contract, the developer of a project wifi have taken a numberof specific actionsbefore reachingthe stage wherehe isinvolved in the role of employer. He will already havereceived professional advice and havetakena numberof decisionsin connectionwith the following:

The choice of professional advisers for the plarming, engineering and other aspects of the construction project; The most suitable contractual arrangements for the employment of these (b) (a)

professionaladvisers; The design of the project, the site, assessment of budget costs, choice of financial arrangements and any services which must be obtained to permit construction to start on site; (d) The most appropriate procurement and contractual arrangements for the purpose of constructingthe project; (e) The criteriato be adopted for selectingthe contractor who wifibe responsible for construction of the project; (f) The most appropriate arrangements for the day-to-day control over the quality of the construction andfinalcompletionof the project; (g) The manner in which any legislative or governmental approvals are to be obtained; and (h) The relevant information required in respect of the various clauses of the conditions of contract chosen to govern the construction of the works. In particular, a decision must be made in respect of the details to be inserted againstthe itemslistedinthe Appendix to Tender and also inconnectionwith thevarious clausesof theConditions ofParticularApplicationas containedin Part II of the document. (c)

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Compared with previous editions of the Red Book, under the Fourth Edition, additional obligationshave been allocated to the employer in order that he may have more direct control in the day-to-day progress and administration of the project.Together with those traditionallyrecognised, these new obligationswill obviously lead the employer towards accepting greater responsibilities and liabffities. He must be particularly aware of these additional duties and should familiarisehimself with the obligations assigned to him, especially when these involvehiminadherence withtime schedules.The employer's obligationsunder theFourth Edition arediscussed below, mainly inthe order inwhichtheyappear in the standard Form.121 These areto: (a) identify specificelements of the project,suchas the site and the personnel to be involved in it; (b) appoint an engineer to administer the contract; (c) give possession ofthe site; (d) provide information,instructions,consents, approvalsandgivenotices as and whentheyare required; (e) refrain from taking any action which would impede or interfere with the progress of the works; (f) supply materials and carry out works if these form part of the works as defined in the contract; nominate (g) specialist sub-contractors and suppliers as and when they are required; (h) permitthe contractor to carry out the whole of the works; and (i) make payments andto make themon time. 12.2 Identificationof specific elements of the project

Part II of the Red Book is specific to eachparticular project. Thus, the employer is requiredto insert certain informationregarding the project eitherin Part II of the Form or in the drawings andthe specification.Definitions of these requirements are given in Clause 1 of the conditions. Sub-clause 1.1(a)(i) defines the employer as the person named as such in Part II which once given cannot be changed through assignment withoutthe consent of the contractor. Sub-clause 1.1(a)(iv) defines the engineer as the person appointed by the employer to act as engineer for the purposes of the contract and named as such in Part II of the Form. Although not specificallystated, the employer by identifying the engineerin Part II of the Conditionsis restrained from changing the engineer without the consent of the contractor (see earlier in Chapter 9 for a detailed comment on this matter). The site is defined in sub-clause 1.1(f)(vii) and this definition must also be identified in Part II of the Form. The relevance of this declaration can be recog-

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nised whenread against clause 42, 'PossessionofSite andAccess thereto', discussed

later in Section 12.4. 12.3

Appointmentof engineer As discussed in Chapter 10, therole ofthe engineer duringthe construction of a project is extremely complexandinvolves: (a) (b) (c) (d) (e)

a continuing design role;

an administrative roleas the employer's agent;

a supervisory role;

a certifyingrole; and an adjudicating role.

Whilst it is recommended and highly desirable that the employer appoint the engineer from the beginning of the project so that he would be the person responsibleforcarrying outthe pre-contractduties of designas defined inChapter 10, this is not an absolute requirement.The obvious disadvantages of appointing someone differentfor these two distinct roles, i.e. pre-contract and post-contract roles, wouldhave to be considered very carefullybefore adoptingthatcourse. In any case, the Red Bookhas been drafted in such a manner that subject to minor clarifications in connectionwith clause 6, whosoever is appointed could fulfil the duties and authority delegated to the engineer in both ofthe above roles. Where the employer wishes to restrict the authority of the engineer in such a way that he is requiredto obtain the specific approval of the employer before exercisingany suchauthority, the employer must set out suchrestrictionsin the termsof appointment of the engineer and in the Articlesof any agreement with him.Suchrestrictionsmustalso appearinprecise terms inPart IIof theRed Book so that all tenderers are aware of the restricted roles of the engineer, prior to pricing andsubmitting theirtenders. Attention mustbe given by the employer to threeaspectsofthe RedBookinthe aboveconnection:first, tosub-clause2.6 where the engineeris requiredto exercise his discretionimpartially in respect of any decision,opinion, consent, expression of satisfaction,approval, or determination of value or action; secondly,throughouttheRed Book, the engineeris required to 'duly consult' withtheemployer and the contractor (seeChapter 9), buthaving so consulted, he is entitled to form his ownopinion regardless of what the employer or the contractor maysay to him, unless such authority is restricted under sub-clause 2.1(b); and thirdly, the provisionat theend ofsub-clause2.1(b), whereitis statedthat anyrequisite approval shallbe deemedto have beengiven bythe employerforanyauthority exercisedby the engineer, safeguardsthe contractor from having to establish that the engineer hadinfact obtainedthe approval ofthe employerpriorto exercisinghis authority.

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The employer also has an indirect role in the delegation of authority by the engineer to the engineer's representative.Undersub-clause 2.3, any delegationor revocation of duties or authority to the engineer's representative must be delivered from time to time and in writing to the employer andthe contractor. If the employer intends to have control over what can or cannot be delegated to the engineer's representative,he should have suchcontrol incorporated in the terms of appointment of the engineer. The FourthEdition of the Red Bookincorporates two important changes from previous editions (seeChapter 9),whichwouldcreate some difficultyifthe person namedas theengineerwere to dieorbecomeseriouslyifi orresign. Astheposition of engineer is essential in the Red Book, and the contract becomes unworkable withoutan engineer, the employer is implicitlyrequiredto appoint another personwithinareasonabletime. However, heis not expressly empowered under the Fourth Edition to appoint from 'time to time' and unless the contractor accepts the appointment ofthe newengineer, the situationcouldbe deadlocked.To avoid that happening, it wouldbe advisable for the employer to namethe engineer and his firmin Part II givinghimselfthe option of appointing another member ofthe firm as theengineer. However,that propositiondoesnot solvetheproblemthatwould arise should both the engineer and his firm resign. 12.4 Possession of site The duty ofthe employer to give possessionofthe site and to explain the process by which suchpossession is accomplishedis expressly statedin sub-clause42.1 whereit is provided, inter alia, that:

'...theEmployerwifi, with theEngineer's noticeto commencethe Works,give to the Contractorpossession of (c) so much of the Site,and (d) such access as, in accordancewith the Contract, is to be provided by the Employer...' Sub-clause42.2 provides forthe remedy inthe caseoffailurebythe employer to give possession of the site in accordancewith the terms of sub-clause 42.1. Such remedy may takethe form of an extension of time under clause 44 and/orpaymentof any costs incurredby the contractor. Whilst the contractor is given possessionof the site, an expressright is given to theengineer, and to any person authorisedby him,to haveaccess to the site atall reasonable times (see sub-clause 37.1). The Red Book is, however, silent on whether the employer has such right of access. Of course, he could obtain authorisation through the engineer under sub-clause 37.1, but it remains ambiguous as to whether the employer has an implied right of access or that it is

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intended that the contractor should have exclusivepossession.Whichever is the correct interpretation,the contractor'sobligationto 'havefullregardfor the safety of all persons entitled to be upon the Site' under sub-clause 19.1 must not be affected. Similarly,the contractor's obligation to 'take full responsibility for the care of the Works and materials andPlantfor incorporation therein' under subclause 20.1 must not be diminished, Of course, the employer may enteruponthe site andthe works and terminate the employment of the contractor under subclause 63.1, 'Default of Contractor',but this is a specfficsituation different from thatof accessduring thenormal executionofthe works. Under a separate heading, unless it is expressly stated to the contrary, the employer is under no duty to the contractor to make any alterations to the site whichwould make it easier for the works to be executed.A clause in the specification would normally be inserted to the effectthat the contractor must accept the siteas he findsit. However, whilstthereis no duty owedby the employer to identify the subsoil conditions or, for that matter, topography of the site, it is essentialfor cost implications andalso for the purposes of design that suchsurveys and investigations be conducted and the results obtained madeknownto tenderers in the contract documents. The provisions of clause 11 deal explicitly and preciselywith this aspect ofthe site. However, clause 11 provides that the contractor is responsible for his own interpretationofallthe datamadeavailabletohimbythe employer.Theclause also provides thatthe contractoristobedeemed tohaveinspected andexaminedthesite andhavesatisfiedhimselfwithamongstother things,themeans ofaccesstothesite. Access to site Two other aspects of the process of possession of the site require detailed explanation in the contract documents at the tender stage. The first is the possible provision already madeby the employer for accessto the site with the owners of properties forming part of the site or withthe owners ofneighbouring properties, or in respect of other properties owned or controlled by him. The second is whether the whole of the site is to be made available to the contractor at the commencementdate or whetherpossession of the site is to be given in stages as the worksproceed. This is particularly important whena date for completion is specifiedin the contract documents. The followingquotation is apt in this respect:

'IfintheContractonefindsthe time limited within whichthebuilderisto dothe work, thatmeans, notonly that he isto do it within thattime, butitmeans also that he is to havethat time within which to do it.'122 These two aspects should also form part of the specificationand the drawings, thus clarifyinga usual matter of contention in civil engineering contracts.

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The FIDIC Form of Contract Finally, any discussionregarding the siteis incompletewithoutreferencetothe

precise definition of the word 'site'. In this regard it has been argued by many commentatorsthat the definitionofthe word 'site' is far toovague as containedin most standardforms ofConditionsofContract.This argument is supportedbythe fact that engineeringworksfrequently take place over wide areas whichmay or maynot be already occupied by the employer andthese areas very often do not have readily recognisable boundaries or limits. Examples of such works range from pipelaying under highways and through open country to others confined within the existingcomplex of a water treatment works. It is important to define exactlywhat is meantbythe word 'site'becauseofthe many referenceswhichare madeto itthroughout the contract documents. Theword 'site' appears in the followingclauses of the Red Book: 6.2, 8.2,

j,

,,

4,J,

j,

,,,

16.1, 16.2, 30.3, 35.1, 36.1, 36.4,37.1, 39.1, 40.1, 54.1, 54.5, 54.7, 60.1, 63.1, 65.3, 65.7 and 69.2. However, only those which are underlined above are relevant to the possession of, identificationof andaccess to the site.

Theprecise detailspertaining to thesitearebestdefined inthe specificationand drawings. if it can be established at the outset wherethe exact description of the 'site' will be given in the contract documents, then this could be stated in the definitionofsub-clause1.1(f)(vii)or, alternatively,itcouldbe given asan addition inthe Appendix to Tenderbyreferenceto sub-clause 1.1(f)(vli)or sub-clause42.1. Theprecise definitionofthe sitemayalso haveimplicationsinconnectionwith the provisions of the liability and insurance clauses of the Conditions. In particular, the terms ofthe insurance policiesprovided underclauses21 and 23 of the Conditions maybe affectedby the boundaries of the site, wherewithin such boundaries the worksare tobeexecuted andwhereoutsidesuchboundaries there are neighbouring properties. Where neighbouring properties are owned by the employer, sub-clause 23.3 assumes particular importance, since suchproperties shouldto all intents andpurposes be treated as properties of thirdpartiesto the contract between the employer and the contractor. 12.5 To provideinstructionsas and when they are required

Under a number of the clauses of the FIIJIC Fourth Edition, the employer is requiredto providedirectly to the contractor certain information,instructions, consentsandapprovals. He is alsorequiredtogivenoticestothe contractor.These are in addition to information, instructions, consents, approvals and notices providedby the engineer to the contractor,in his roleas the employer's agent. The clauses wherethe employer is under the obligation to provide the above instructions, etc., andgive notices, are listedbelow: (a)

Underclause 3, thecontractorwouldrequire theprior consentofthe employer

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should he wish to assign the contract or any part thereof, or anybenefit or interest thereinorthereunder. Theemployer is, therefore, requiredto providea replyto the contractor if such a request is made, and such reply, whether in granting consent or withholding it, shouldbe in writingas providedin sub-clause 1.5. (b) Should the contractor be called upon to enter into and execute a contract agreementinaccordancewith clause 9, the employerisresponsibleforthe cost of the preparation and completionof this agreement. (c) Under sub-clause10.1, the choiceof institution providing the securityfor the contractor's proper performance of the contract is subject to the approval of theemployer.Suchapproval, if appropriate, should be given by theemployer in writing. Although there is no time limit for a decision on providing or withholding such approval, there is a time limit imposed on the contractor under sub-clause 10.1 for obtaining and providing such security. This time limit is 28 days from the day of receipt by the contractor of the letter of acceptance. (d) Should the employer decide to make a claim under the provisions of the performance security provided by the contractor under sub-clause 10.1, he

must first notify the contractor stating the nature of the default in respect of whichthe claim is to be made. This obligation is provided under sub-clause 10.3. There are four other situations where the employer is required to give notice to the contractor.These are listed in Table 12.1. (e) Sub-clause11.1 provides that the employer shall have made availableto the contractor,beforethe submissionby the contractor ofthe tender, suchdata on hydrologicaland sub-surfaceconditionsashavebeenobtainedbyor onbehalf of the employer. Table 12.1

Notices required to be given by the employer to the contractor under the contract.

Sub-clause

Description ofthe event

10.3

Whenthe employer is making aclaimunderthe performance security, the nature of the defaultin respect of which the claim is to be made should be stated

30.3

Whenever a settlement is to be negotiated between the employer and the road authority in respectofdamage toany bridge orroad communicatingwithor on the routes to the site

63.1

Whenthe employer wishesto terminate the employment ofthe contractor due to the latter'sdefault

65.6

If and when the employer terminates the contract due to outbreak of war Whenever the employer is dissatisfied with any decision ofthe engineer or ifthe engineer fails to give notice ofhis decision on or before the appointed date in accordance with clause 67.1,the employer should give notice tothe contractor of his intention to commence arbitration asto the matter in dispute, withacopytothe

67.1

engineer.

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Although thereis no duty onthe employer to carry out suchinvestigations and surveys to provide the necessary data, it is nevertheless essential that whatever information is available to the employer should also be made availableto the tenderers duringthe tendering period and hence to the con-

tractor. As stated earlier,itis usualpracticetohavesuchsurveys and investigations doneatthepre-investmentstage of theproject for thepurposes of design, cost analyses andbudgeting. (f) The employer is requiredunder sub-clause 22.3 to indemnify the contractor against all claims, proceedings, damages, costs, charges and expenses in respect of any of the following: (i) deathor injury to any person; or (ii) loss ofor damage to anyproperty(otherthan the works), which may arise as a resultof the 'exceptions' referred to in sub-clause 22.2. Essentially, these exceptions are risks which are allocated under the contract to the employer. (g) In accordance with sub-clause 25.1, the insurance policies required to be effected by the contractor under the provisions of the contract should be submitted to the employer within 84 days of the commencement date. The terms ofthese policiesare subjectto the approval ofthe employer.Once again, although thereisno time-limitimposed on the employer to granthis approval and/or comments,thereisthe overall limitof84 daysto resolveany questions

whichmayarise. (h) Under clause 26, the employer is responsible for obtaining any planning, zoning or other similar permission requiredfor the works to proceed. The employer is further requiredunder this clause to indemnify the contractor in respect of suchresponsibilityinasimilar manner to thatstipulated under sub-

clause 22.3. (i) The employer is requiredunder the provisions of clause 71 to reimburse the contractor for any lossor damage arising from currency restrictionsimposed by thegovernment or authorised agency ofthe government ofthe country in whichthe works are being orare tobeexecuted 'afterthe date28 daysprior to the latest date for submission of tenders for the Contract'. Similarly, the employer is requiredto reimburse the contractor for any loss or damage arising from restrictionson transfer of currency. 12.6 The employeris to refrain fromtaking any action whichwould impede

or interferewiththe progress of the works

As discussed inSection 12.5(h) above, it is an express obligationof the employer under clause 26 to obtain any planning, zoning or other similar permission required for the works to proceed. To fail in obtaining such permission, the

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employer would be inbreach of atermof the Conditionsof Contract.However,in addition to the obligation to obtain such permission, it is necessary for the employer to do so in a timely manner inordernotto impede or interfere withthe progress of the works. Under sub-clause44.1(d),it is expressly providedthat:

in the event of any delay, impediment or prevention by the Employer

being such as fairly to entitle the Contractor to an extension of the Time for Completionofthe Works,oranySectionorpart thereof,the Engineershall, after dueconsultationwith theEmployer and the Contractordetermine the amount of suchextension...' Besides this express provision entitling the contractorto anextension oftime, it is

an implied obligation of the employer not to hinder or preventthe contractor in the performance of his ownobligations. Under the Fourth Edition ofthe Red Book, the contractor'sprogramme for the executionofthe works is expectedto be submitted to the engineerfor his consent withina period oftimeprescribedinPartII of theConditions.Theformand detail ofthis programme which wouldhavebeenprescribedby theengineer undersubclause 14.1 would have had to include the date on which the contractor would require the employer to obtain suchplanning or other permissions. Undersub-clause14.1, thegeneral descriptionofthearrangementsandmethods whichthe contractor proposes to adoptfor the executionof theworkswouldbe submitted only if required by the engineer. However,itmustberemembered that suchdescriptionis submitted only forthe informationofthe engineerwho, in the absenceofexpressprovisionsto thecontrary, has norighttoinstruct the contractor onhowthelatter should dohisworknor tointerfere withhis methods ortheorder in whichthe work willbe carried out. In the wordsof MrJustice Mocatta:

'Itis thefunctionandrightofthebuilderto carryouthisownbuilding operation as he thinks fit.'123

Accordingly,should the employer orthe engineer on his behalf interfere with the progress of the works, the contractor wouldbe entitled to damages for breach of contract.

Inconnectionwiththe employer's duty not to interfere withthe progress ofthe works, clause 31 expressly provides for the possibility of the presence of other contractorsor workmen onthe site. It states that the contractor should 'affordall reasonableopportunities' for other contractorsemployed by the employer,forthe workmen of the employer and for the workmen of any duly constituted authorities, in carrying out their own work. There is no reference made, however, as to the duties and obligations of the

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employer onbehalf ofthese thirdparties inrespect ofinterferingwithorimpeding the progress of the works. Each situation would have to be considered on its merits, butingeneral terms itmay be takenthat'an Employerwillbe liable tothe Contractorif other contractorsof the Employer disturb the Contractorinhiswork hi circumstances which he could not reasonably have foreseen at the time of tendering.'124

Oneofthe contentiousissues in connectionwith interferencewith theprogress ofthe worksisthetimingofanyinstructions given byoronbehalf oftheemployer eitherfor additional drawings or instructionsunder sub-clauses6.3 and 6.4,orfor alterations, additions and omissionsunder clauses 51 and 52. In addition to the provisions in the Red Book that alterations, additions and omissions may be ordered, thereisa mechanismfor these variationstobevaluedandfortime for the completionofthe contract to be extended should the instructiontovarythe works necessitate suchanaction. However, the followinghypothetical questions are often askedinthe situation where a contractor is substantially behind programme, but shortly before completion he receives either some new design information,whichwould not have beenrequiredto begiven tohimearlier, or aninstruction forachange in a part of theworksnot yet executed.In sucha situation canthe contractor be excused the liabilityfor the substantial antecedent culpable delay? Can suchprevious delays be ignored because of the subsequent additional requirements?Furthermore, can theassumption bemadethat designcould notbe completeduntilthelatest design informationor the final instruction be given to the contractor? Whilst thereis no judicial authority known to the author to help resolve such questions,itis illogical forthe draftsman of a constructioncontracttocontemplate any positive interpretation without an express term to that effect. This is particularly so in view of the provision in the Red Book which regulates the consequencesof late designinformation,as in sub-clause6.4, andofvariations, as

in clause 52.

12.7

Theemployeris to supply materials and carryout works if these form partof the work as defined in the contract The possibilitythatthe employer mightprovideworkmen onthe siteis expressly referred to in sub-clauses31.1(b) and 19.2. Tn respect of their work, there is an implied obligationto have itexecuted inatimely manner andin sucha wayso as not to impede the contractor in the performance of thewholeof the works. Ofcourse, theemployer is entitled under sub-clauses39.2 and49.4 to carry out work in respect of instructions with whichthe contractor has not complied, but this is an entitlement rather than an obligation. Under sub-clause 39.2, the instructionsnotcompliedwithrefertothe removal ofimproper work, materialsor plant according to sub-clause 39.1, whereas those under sub-clause 49.4 refer to

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amendments, reconstruction and remedying defects, shrinkages or other faults duringthe defects liabilityperiodor within 14 days after its expiration.

12.8

The employeris to nominate specialist sub-contractors and suppliers as and when they are required Nominated specialistsub-contractorsare defined in sub-clause59.1 to include all those 'specialist merchants, tradesmen and others executing any work or supplying any goods, materials,Plantor servicesfor whichProvisionalSums are includedinthe Contract'. Aprovisional sumis defined insub-clause58.1 asasum includedinthe contractandso designatedinthe bill ofquantitiesforthe execution ofany partof theworks orfor thesupplyofgoods, materials,plantorservices,or for contingencies.Sub-clause58.2provides thataprovisional summaybe usedat the instructionoftheengineer inrespect of thesupply ofgoods, materials,plantor servicesby eitherthe contractor or a nominated sub-contractoras defined in subclause 59.1. Furthermore,the sum maybe usedin whole or in part ornot at all on the instruction of the engineer. The decision as to whetherthe contractor or a nominated sub-contractoris to be usedfor thesupplyof specificgoods,materials, plantor servicesis usuallymade by the employer on the advice of the engineer. The intention behind the appointment ofnominated sub-contractorsstemsfrom two possible advantages. First, by nominating a particular sub-contractor, the employer can select a particular quality or type of goods, materials,plant or servicewithoutcreating a direct contract with the sub-contractor.Secondly,by suthselection,the employer canensurethroughdirecttendering that a competitivepriceis obtained for this specialistwork. Accordingly,for every provisional sum included in the bifi of quantities there mustbe either a direction in thecontract or aninstruction given later as towhois to providethe specialistworkinvolved andhowit is to be provided. There must be, therefore, an implied duty under sub-clause 59.1 for the employer, or the engineer on his behalf, to nominate or select or approve such nominated subcontractor in sufficient time to enable the contractor to perform his obligations

under the contract.

In making a timely decision, account should be taken not only of the time required to obtain quotations from specialistsub-contractors,but alsoforanytime necessary for the nominated sub-contractor or supplier to provide any irifor-

mation, specificationor drawings required, under sub-clause 59.3, for the proper completion of the design of the project. In general terms, the work of any nominatedsub-contractorwhose duties include design of the elements to be supplied would affectthe detailed design of the remaining part of the project.Some ofthe most complicatedclaimsin constructionprojectsresult from problems related to this obligation of the employer. Arbitration cases contain numerous situations

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which could providevaluable lessons to employers, contractors, engineers and sub-contractors,but the proceedings are privateand confidential. Attention should also be given to sub-clause 59.2, whereit is providedthat the contractor is not requiredto be under any obligation to employ any nominated sub-contractor against whom he has reasonable objections or who declines to enterintoa sub-contractwith the contractor inthe terms provided in sub-clause 59.2.

12.9

To permitthe contractor to carry out the whole of the works The employer is entitled under sub-clause 51.1(b) to omit any work included under thecontract provided that suchomitted workis nottobecarriedoutby the employer or by another contractor. Furthermore,under sub-clause 8.1 the contractor is required to complete the works and accordingly,itcan be deduced that theemployer shouldpermitthecontractortocarryoutthewhole oftheworks and the only exceptionto that rulerelatesto any partwhichis genuinely not required andis thus omitted.

12.10 To make paymentsand to make them on time

Theobligation of the employer to pay and to do so in stages specifiedunder the contract and on time is expresslyprovided inclause 60. Details ofthe reasons for whichpayment is to be made, however, are distributed throughout the various clausesof the Red Book. Taking first the obligation to pay, sub-clause 60.10 makes it clear that the 'amount dueto the Contractor..,shall subjectto Clause47, be paid ... within 28 days aftersuchinterimcertificatehas been delivered to the Employer.. .'. In the case of a final certificate, the payment shall be made within 56 days after the certificatehas been delivered to the employer. Sub-clause60.10 further provides forinteresttobepaid in the eventoffailureby theemployertopay within thespecifiedperiods. The rate ofinterest is specifiedin the Appendix to Tender and it is applicableto all unpaidsums from the date on whichthese sums were due to the contractor. The importance with which this obligation of the employer is viewed can be clearlyseen from the provisionsofclause 69. This clause provides thatinthe event of any failurebythe employer to payundersub-clause60.10, orofanyinterference with or obstruction or refusal of any requiredapproval to the issueof a payment certificate, or of any one of a numberof financialproblems stipulated therein, the contractoris entitled to terminate his employmentunder the contract. The staging ofpayments is specifiedin sub-clause60.2 and is dependentonthe submission ofmonthly interim statements by the contractor to the engineerwho

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should, within 28 daysfrom the date of receipt of suchstatements, certifyto the employer the amount of payment due to the contractor. A minimum amount for these interim certificatesis specifiedinthe Appendix to Tender. Finally, the clauses relevant to the obligation of the employer to pay are as follows (titlesare not precisely reproduced): — Sub-clause 6.4 — Sub-clause 12.2 — Sub-clause 27.1 — Sub-clause 36.5 — Sub-clause 38.2 — Sub-clause 40.2 — Sub-clause 42.2 — Sub-clause 50.1 — Clause 52 — Sub-clause 53.5 — Sub-clause 59.4 — Clause60 — Sub-clause 63.3 — Sub-clause 65.5 — Sub-clause 65.8 — Clause 66 — Sub-clause 69.3 — Sub-clause — Sub-clause —

69.4 70.1 Sub-clause 70.2

— Clause 71

Delays and costs of delayof drawings; Adverse physical obstructions or conditions; Fossils;

Tests for which there is no provision; Uncoveringand making openings; Costs following suspension; Failure to give 5ossession of site; Contractorto search; Valuation of variations anddaywork; Payment of claims; Payment to nominated sub-contractors; Certificatesand payments; Payment aftertermination; Increased costs arising from special risks; Payment if contract is terminated; Releasefrom performance; Payment on termination; Contractor's entitlement to suspendwork; Increase or decreaseof cost; Subsequentlegislation;and Currency and rates of exchange.

It is to be borneinmindthat sub-clause60.9 provides that the employer is not liable tothe contractor'for anymatter or thingarising out oforin connectionwith the Contractorexecutionof theWorks,unless the Contractorshall haveincluded a claim in respect thereof in his Final Statement and ... in the Statement at Completion.. A claim in respect of any matters whicharise afterthe issue of thetaking-over certificatewouldobviouslyhave tobeincluded inthe finalstatement,if itis to be pursued. 12.11 Additional obligations for the employer underthe FourthEdition of

the Red Book

As stated earlier in the introduction to this chapter, the employer takes a more active role in the administration of the contract under the Fourth Edition of the

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Red Bookcompared with earlier editions. This extended role means an extended boundary of his obligations under the contract. See Part IV of this book for a comparison betweenthe Third and Fourth Editions of the Red Book. The most important of these additional obligationsare:

Due consultation: As discussed in Section 9.3.1 above, there is a new requirement imposed onthe engineerto 'duly consult'bothwiththe employer andthe contractorbefore making assessmentor determinationof a number of specificmatters should they comebefore him. This duty onthe engineermust be matched by an obligation on both the employer and the contractor to provide the time and the intention to consult with the engineer. This consultation may have to be done at shortnotice or within a very shorttime. Theduty to consult appearsin 24 sub-clausesand with the exceptionof two, all are concerned with assessment of costs. The two exceptions cover the engineer's assessment of extension of time. 16 of the 22 references are in respect of payments to the contractor. This new feature probably does not constitute any deviation from commonlyacceptedpractice, since the engineerwouldnormallyhavefoundit appropriate to consultbothparties, even without the explicitprovision ofthis new feature, if he considered that his assessment wouldhave certain implicationsforthem. The mainpointof the present sectionis thatthis procedure is now clearly and expressly stipulated in the text of the contract. The term'dueconsultation'is not definedinthe Conditionsand this initself has led to some debate as to what exactly 'due consultation' should mean. Somecommentatorshave expressed the view that it should be interpreted as consultation appropriate to the circumstances under which the particular action fallsto be considered, while others view it as a definite restraint on the engineerby the employer.It is not specifiedwhether this consultationshould takeplace with both parties present or with each separately, but here again individual circumstances wifi dictate what can or should be achieved. However,itmustbe rememberedthat the engineershould 'duly consult'with the employer and not be dictated to by him, since he is required to act impartially,under the provisions of sub-clause2.6. (b) The Fourth Edition of the Red Book provides, in many of its terms, that the employer should receive copies of certain documents. The employer is thereforeexpectedtobe kept informed about certain events as they takeplace. Accordingly,he is expected to take action should he disagree with what is happening, and should providethe staff to pursuesuchaction. (c) The employer,whenhe isto carry outworkonthe sitewithhis ownworkmen, is responsible under the new sub-clause 19.2 for the safety of all persons entitled tobe onsite, andtokeep the site inan orderly state appropriate to the avoidance of danger to suchpersons. (d) The employer has the obligationunder sub-clause21.3 to bearany amount not

(a)

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insured, or not recovered from the insurers, whichfalls within his responsibifityunder clause 20. (e) Under the Fourth Edition ofthe Red Book, third partyinsurance is required to be effected in the jointnames of the employer and the contractor (see subclause 23.1). Insurance of the worksas required under the provisions of subclause 21.1 has always been required in the jointnames of the employer and the contractor. Asjointly insured, the employer has the obligation under the terms of the relevant insurance policy to observe and comply with the conditions stipulated in that policy. In the event that eitherthe employer or the contractorfails to complywiththe conditionsimposed by anyofthe insurance policies effected pursuant to the contract, a new provision has been added under sub-clause25.4 to theeffectthat 'eachshall indemnify theotheragainst all losses andclaims arising from suchfailure'. (f) Under sub-clause 25.1, the general terms of the insurance policies required under the contract areto be agreed between the employer and the contractor prior to the issue of the letter of acceptance. This is obviously a joint precondition of the contract between the employer and the contractor and an obligation on the employer to make a decision as to the insurance arrangements to be followed. (g) Under sub-clause 30.3, the employer is now responsible for negotiating a settlement of and paying all sums due in respect of terms emanating from damage toany bridge or roadinflictedbythe haulierofmaterials orplantona route to the site, unless the haulier is required by law or regulation to indemnify the road authority against such damage. In this connection, the employer has the obligationto informthe contractorwhenever a settlement is to be negotiated. Where any amount may be due from the contractor, the employer is required to consult with the contractor before suchsettlement is reached. This, however, would necessarily involve the engineer as it is the engineer who, after due consultation with the employer andthe contractor, determines the amount to be due to the employer. (h) An obligation has been added to both the employer and the contractor to attempt to resolvedisputes through amicablesettlement underthe provisions of sub-clause67.2, before proceeding to arbitration.

Chapter 13

The Contractor's Obligations

13.1 Inhoduction

In a construction contract, the contractor's obligationsmay be divided into two maincategories: first, theobligationswhichemanatefromtheagreementbetween theparties tothe constructioncontract asprescribedintheConditionsofContract; and secondly, a set of obligationswhich apply under the applicable law of the contract between the parties. This second categoryextends inlegal terms beyond the contractor's obligations under the contract with the employer and in time beyond the completion ofthat contract. Insimple terms, thecontractor'sobligationsundertheFourth Edition oftheRed Bookrevolve aroundfive main areas: the construction andcompletion of the works with due diligence and within thetime for completionas specifiedin the contract; the use of materials,plantandworkmanship as described in the contract and (2) in accordancewith the engineer's instructions; (3) the provision of securities, indemnities and insurances in respect of such worksandobligationsduringthe contract period; (4) the supply of information and notices requiredfor the execution and completionof the works and also for alerting the employer whenever an event occurs whichis likely to increase the cost of the work or the time for completion; and (5) the performance of certain administrative andother functions, (including, if explicitlyrequired, the designof certain elements)to facifitatethe process of constructionand its various activities. (1)

Although the contractor's obligationsunder the Fourth Edition of the Red Book canbe statedinsummary as above,a detailed studywouldreveal thattheyare,in fact, spread throughout the whole document and the provisions of most of its clausesimpose some obligationsonthe contractor.Anumberofthese obligations startwith the commencementof the project cycle and continue to the end ofthe contractor's involvement, such as the obligation to provide securities and indemnities.Others emerge and continue for only a part of the project cycle. The

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various clauses regulate in detail the timing, extentand procedure for the contractor's obligationsin respect of most of the complex situations associated with civil engineering construction. In the remainder of the present chapter, the five mainareasof the contractor's obligations,referred to above, are discussed with particular referencetothe threemainstages ina constructioncontract which areas follows:

(a) tendering stage up to the letter of acceptance; (b) following the letter of acceptance and during construction up to substantial completionofthe works; (c) after substantial completion of the works. 13.2 The contractor's obligations during the tenderingstage Sub-clauses11.1 and 12.1 impose obligationsonthe contractorretrospectiveof the date of the contract in relation to the site, its surroundings and any information availablein connection with it. These two sub-clausesprovidethat prior to submittinghis tender, the contractor shall be deemed to have: (a) inspected the site andits surroundings; (b) inspected any information availablein connectionwith the site; (c) received and interpreted data on hydrological and sub-surface conditions obtained by or on behalf of the employer; (d) satisfied himself (so far asis practicable,within financialand time constraints) as to: — the form and natureof the site, including the sub-surfaceconditions, — the hydrologicalandclimaticconditions, — the extentand nature of work and materials necessaryfor the execution and completion of the works and the remedying of any defects in these works, the means of access to the site and the accommodationhe may require; (e) obtained, in general, all necessaryinformation as to risks, contingenciesand all othercircumstanceswhichmayinfluence or affect his tender; (f) basedhis tenderon the datamadeavailableby the employer and on his own inspection and examination;and (g) satisfied himself asto the correctnessand sufficiencyof histenderto cover all his obligationsandall matters forthe properexecutionand completionof the works and the remedying of any defects therein. Sub-clause25.1 states thatthe contractoris to provide evidenceto the employer prior to the start of the work that the insurance policies required under the contract havebeen effected. Sub-clause25.1 also imposes aretrospectiveduty onboth

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the employer and the contractor to agree the general terms of the insurance policiesrequiredunderthe contract.Such agreement is to be reached prior to the issue ofthe letter of acceptance. Furthermore,sub-clause70.1 referstoPartII ofthe Conditionsinrelation towhat should be done in the case ofa changeinthe cost of labour and/ormaterials orany othermatters affectingthe costof the executionof the works. The contractor should reflect these arrangements in his tender rates

andprices.

13.3 The contractor's obligations followingthe letter of acceptance and

during the construction stageup to substantialcompletion

Theletter of acceptance,defined in sub-clause1.1(b)(vi) as theformal acceptance by the employer of the tender, forms thecontract betweenthe employer andthe contractor. In some jurisdictions,the date of the contract is the dateof receipt of thisletterwhilstinothersit isthe dateoftransmission.Within thespecifiedperiod of time undersub-clause41.1 in PartII ofthe RedBook, the engineershould issue to the contractor the notice to commencethe works. The time lag between the issue of the letter of acceptance and the notice to commenceis animportant period duringwhichmany activitiesshould takeplace. Forthe employer, this period should be utilised to ensure that possession of the site and access to it can takeplace in accordancewith clause 42 andthat all the necessarylegal andfinancialmatters are processed.Forthe contractor,thisperiod shouldbe utilised in initiating mobilisationformalities;finalising commitments with suppliers and sub-contractors;finalising arrangements for securities and insurances; arranging the workprogramme; and finalising estimatesof cash flow requirements and details of the breakdown of lump sum items. It is important thereforeto specifyin PartIIofthe FIDIC Formarealisticperiod between the date ofthe letter of acceptanceand thenotice to commence. 13.3.1 Finalising documentationrequired prior to commencement

of theworks

The obligations which must be fulfilled by the contractor within specific time periodsfrom the dateof receipt of the letter of acceptanceorthe commencement date areas follows: (a)

In accordance with sub-clause 10.1, and if the contract requires it, the con-

tractor should obtain security for his proper performance of the contract within 28 daysafter receipt ofthe letter ofacceptance,inthe sumstatedinthe Appendix to Tender. The contractor should notify the engineer whenhe has provided suchsecurity to the employer. (b) Within the time stated inPart IIof the Conditionsfromthe dateofthe letter of acceptance,the contractor should submit to the engineer, for his consent, a

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programme for the executionof the worksas requiredin sub-clause14.1. The programme should be in the form and detail reasonably prescribed by the engineer. The Red Book does not provide for the date when the engineer should prescribe the form and detail ofthe programme nor what is meantby the word 'reasonable' in describingsuchform and detail. (c) Within the time statedin PartII ofthe Conditionsfrom the dateof the letter of acceptance,the contractor should submittothe engineer, forhisinformation,a detailed cash flowestimate,in quarterly periods, of all payments to whichthe contractor will be entitled under the contract (seesub-clause 14.3). Prior to thestartofworkatthesiteandinaccordancewithsub-clause25.1, the (d) contractor should provide evidence to the employer that the insurances requiredunderthe contracthavebeeneffectedandshould notify the engineer of so doing. Within 84 daysof the commencementdate,the contractor shouldprovide the (e) insurance policiesto the employerwhichshouldbe consistentwiththe general terms agreed prior to the issue of the letter of acceptance. The contractor should also notify the engineer of so doing, as requiredby the provisions of sub-clause 25.1. (f) Within 28 daysafterthe receipt by the contractor ofthe letter ofacceptance,he should submit to the engineer, for his approval, a breakdown of each of the lump sumitemscontained in the tender(see sub-clause57.2). Figure 13.1 shows a flow diagram of these obligations and their effect on commencementof work, andTable 13.1 sets out, in a chronologicalmanner, the positionofthe contractor'sobligationsundertheRedBookwithrespecttothe other parties from the date of invitation of tendersto the date of the final certificate. The contractor'sobligations,set outin(a) to (f) above,form a prerequisitetothe executionof the works as can be seen in the flow chart in Figure 13.1. As the contractor moves into the construction stage, all the five areas of obligations identified earlier in the introductionto this chapter become alive and relevant. A morecomprehensive analysis of these obligationsis given below. 13.3.2 Constructionandcompletion ofthe workswith due diligence

and withinthe

timefor completion

The date of receipt by the contractor of the notice to commence is the commencement date as defined in sub-clause 1.1(c)(i) and accordinglyit is also the commencement of the construction stage. From thereon, the contractor's first obligation is to proceed with the works with due expedition and withoutdelay. The time for completion specifiedin PartII ofthe Red Bookunder sub-clause43.1 is calculated from the commencementdate. Thecontractor should complete the workswithinthe period statedin theAppendix to Tender or suchextended time as maybe allowed under clause 44.

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Table 13.1 The phases of a construction project in chronological order. Subclause No.

Emp.

Eng.

. .

0

•

0

11.1 11.1 11.1 11.1 11.1

•• •

S

•

11.1 12.1

S

•

70.1

25.1

Con.

o.

0•

0

.

1.1 (b)(vi) 10.1

.

0

0

S

14.1

0

S

14.3

0

.

41.1

.

0

57.2

25.1

0

• •

41.1

25.1

•

5

0

48.1

•o

Action by Receiptby

0 5 5

8.1

48.1 48.1

Time schedule

InviteTenders and supply

— Inspectthesite — Inspectany information — Satisfy himselfas toformand nature ofthe site — Providedata — Interpretthe data provided bythe

0 a)

0) C

employer

— Base tenderon the data — Satisfy himselfas to correctnessand sufficiencyofthetender and ofthe

a)

C

I-a)

rates and prices

— Considertheprovisionsin Part II regardingincreaseor decreaseof cost TenderSubmissions,Analysisand Decision on Award

— Agree general terms ofinsurance Letter of

l.0

— Providesecurityfor proper performance,

ifrequired, (shall notify

0

0

0

.

•

5

0

C

I-a)0

engineerof so doing) — Providebreakdownfor each ofthe

0xC

0a)

lump sum items — Submitprogrammefor the executionof

a)

0. 0. a) a)

— Submitdetailedcashflowestimate (in

Cl)

quarterlyperiods) Notice

— Provideevidenceprior to the start of work at thesite that theinsurances requiredhave been effected

COLj CO

o

I

(Date of receiptofNotice to — Commencethe works as soon as is

reasonablypossibleafter the receiptof the Noticeto Commence — Accessto site and possessionofsite — Engineer'srepresentativeis to be appointed — Provideinsurance policies — Carry out design (tothe extent provided forinthe contract), executeand completetheworks — Tests on completion — Notice of Substantial Completionand — written undertakingto finish with due expeditionanyoutstandingworkduring the DefectsLiability Period Taking-OverCertificate Date statedin Taking-OverCertificateas...

0)

>

ocI

Commencement Date

1.1(c)(i)

42.1 2.2

Descriptionofmain events from invitationto tender until thefinal certificate

0) CO

C

a)a)

0

.

a) E I0 CO

(N

The Contractor's Obligations

225

(Table 13.1 Contd.) Subclause

Emp.

Eng.

0

•

No.

33.1

•

60.3(a)

0

60.5

Con.

0

•

•

49.1

49.2 60.3(b) 62.1

0

10.2

S

60.6 60.6 60.7

0

• •

•

Descriptionof main events from invitationto tender until thefinal certificate Taking-OverCertificate — Datestated inTaking-OverCertificateas the date onwhich, in theopinionofthe Engineer,theworks were substantially completedin accordancewith the Contract

0

a) Co

>'

End ofDefectsLiability Period

— Completetheworks, and executeany outstandingworkand remedy defects — Second half ofretentionmoney

V

a)

0 Q

•

0 0

•

•

Defects Liability — Returnperformancesecurity to contractor (no claim to be made againstsecurity after issue ofDefects Liability Cert) — Submit Draft Final Statement Submit Final

0

0

. CU

a) I—

0

U).— — o_

>' a) Co >. a) V

C')

certifiedforpayment to contractor

Q

0)

C)

a)

— Clear away site and leave clean — One halfofretentionmoney certified forpayment to the contractor — SubmitStatement at completion

Co

V

Co

>' (0

Cl)

Agreementbetween Eng. & Contractor

— Give written dischargeconfirmingthat Upon submission the total ofthe Final Statement representsfull and final settlementof all monies(only effectiveafter payment due under Final Certificateand return of performance security under subclause 10.1)

60.8

Time schedule

>' CO

a) V C')

Final Certificate

The contractor's duty to complete the wholeof the works may be divided into two stages:first, the duty to completethe workssubstantiallyto the stage where a taking-overcertificatecan be issued by the engineer undersub-clause48.1 stating the date on which the works were substantially completed; and, secondly, the duty to completethe works to thestagewherea defects liabilitycertificatecanbe issuedby the engineer under sub-clause 62.1 stating the date onwhichthe contractor'shallhave completedhis obligationsto execute andcomplete the Works and remedy any defects thereinto the engineer's satisfaction'.It should be borne in mind, however, that the contractor is not considered to have completed the contractuntil a defects liabilitycertificateis signedbythe engineer and delivered to the employer with a copy to thecontractor. With very few exceptions, under the Red Book the contractor undertakes to execute and complete the whole of the works irrespective of any difficultieshe may experience. This obligation is expressly stated in sub-clause 8.1 and sup-

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Termsof insuranceto be agreedbetweencontractorand

employer_J

+

'

Letterofacceptance(LOA) is

Has

Hasthe lump sum breakdownbeen submitted within 28 days of LOA?

No

No

performance

security,ifrequired,been effectedwithin 28 days of

________

57.2

LOA? 10.1

Noticeto commenceis conditional on receiptof this information -

Yes

Has a quarterlycash flow forecastbeensubmittedwithin thetimestated inpartII after the date of LOA? 14.3

issuedj

No

Yes

Hasa programmebeen submittedwith thetime stated in part IIafter the date of.

No

Yes

Yes

I

14.1.

I I Employershallgive the contractoraccess

I

I Engineershall givenoticetocontractorto commence work within thetime statedintheAppendixto Tender afterthedate of LOA 41.1

LOA?

to siteasperprogrammeoras agreed

J ntractor effectedinsurance ecommencementdate and submitted

___________

123

a9 ___ _______

Doesthe loyer elect to effect insurances? 25.3

I Employerdeductsthe I amount of premiumfrom moniesdueto contractor 25.3

24 2 25 1

I

II

Engineershall appointengineer'srepresentative and assistantsand inform employerand contractorof 2.2,2.3, 2.4J [legated dutiesand authority

Yes

cannot

1

Yes

_________

commence

I

42.1

I

Engineershall issuetwosetsof documents to contractor as required 81

____________________J

shall commenceas soonasreasonably possibleafter receiptof notice to commence

[Ic

41.1

J

Fig. 13.1 Acceptance oftender and commencement ofworks.

ported throughout the Conditionsby other sub-clauseseitherbyexpressreference to 'completion', suchas in sub-clauses1.1(c), 7.1, 12.1, 13.1, 14.2, 16.1, 19.1, 22.1, 22.2, 26.1,29.1,43.1,47.1,49.2,51.1(e), 62.1, 65.6 and/orby implication,suchas in sub-clauses14.1, 14.4, 20.1,44.1, 47.2, 48.1,48.2, 48.3, 60.3, 60.5 and 65.3.

The exceptionalsituations where the contractor would be excused from the

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227

obligationtocomplete thewholeofthe works and,thus,notbe liable forbreach of contract,are as follows: (a) In the case of legal or physical impossibility as provided under clause 13, failure by the contractor to execute such work which is either legally or physically impossible would not lead him to be in breach of contract. Impossibility is not to be confused with either difficulty or complexity. Therefore,workwhichis more difficultor more complex does notfall within the provisions of clause 13; nor does workwhich requires more attention, labour, equipment, or cost. For instance,it wouldbe physically impossibleto install a prestressing duct in concrete work through a space between reinforcementbars smaller than the diameter of the duct. To eliminate the physical impossibility,the solution would be either to increase the space or reduce the diameter of the duct or re-route the duct within the unit, any of which should be ordered in an instruction varying the form of the worksin accordancewith clause 51. Unless suchaninstructionis issued, the contractor would be in default if he proceeded to install the ductin a manner different from that shownin the contract documents. Legal impossibifitywould vary with the provision of the applicablelaw of the contract and an act maybe legally sound in some jurisdictions but not in others. For instance, the use of certain materials may be barred by law. An example of legal impossibility is the position where machines or materials whichareprotected by apatentarespecified,buttheholder ofthepatentright will not supply or consent to the use of the protected item in any circumstances.131 The use of this particular item is legally impossible,but it would notbe animpossibilityiftheonly obstructionto itsuseisthat alarger payment thanthat anticipatedbythe contractoris demandedby thepatentholder. This situation may also serve as an example of legal impossibilityin one jurisdictionwhilstnot in another if theprotected item is barred from being imported into one jurisdiction but not intothe other. (b) Where an employer's risk, as defined under sub-clause 20.4, eventuates causing lossor damage to the works, the contractor's obligation to complete would be restricted to exclude from the whole of the works the elements which had suffered such loss or damage, unless and until the engineer requires the contractor to rectifythe loss or damage under the provisions of sub-clause20.3. Where the engineer requires the contractor torectifysuchloss or damage,he (the engineer) must determineanaddition to the contract price in accordance with clause 52. (c) Where the progress of the works or any part thereof is suspended on the instruction of the engineer under sub-clause 40.1, and where permission to resume work is not given by the engineer within 84 daysfrom the date of suspension, the contractor's obligation to complete the whole of the works wouldbe limited in accordancewith the provisions of sub-clause40.3.

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(d) In the eventof a default by the employer as provided in sub-clause 69.1, the contractor wouldbe entitled to terminate his employmentunder the contract by giving 14 days notice of termination to the employer with a copy to the engineer.

Regarding the contractor's obligation to complete the works, a question often arises as to the extent of the work included in the obligation to complete. This question is usually followedby another: are thereany limits on the variations to the form, quality or quantity of the works which the engineer can make? The answer is thereforerelevant fromthe point ofview of completionandthe ordering of variations under clause 51. Twoprinciples mayhelp as a guideline: (a) Constructionwork involves many processes,materials and methods of construction and if it is to be done properly, then no description, however comprehensive, would be sufficientto include every detail and descriptionof the work to be done. In this regard, it has been submitted that:132

'in the absence of an expressed contrary intention, an obligation to do

describedworkimportsanobligationto do all the necessaryancifiarywork or processes,whetherdescribed or not, which are neededto produce the described work.'

For example, an express obligation to cast structural reinforced concrete elementswouldimply, ifnotspecificallystated, that there is a quantity ofsteel reinforcementbars whichhas to be supplied, cut and bent to specific shapes and fixed in place before the concreteis poured. The question of whether or notthis is to be paidfor as anextrawoulddependon thecontract documents, but the relevant principle in this example is that the contractor is under an obligation to carry out andcomplete the steel reinforcementwork.133 (b) Construction work involves many risks. When such risks eventuate, they frequently result incases wherethe contractormust carry out incidentalwork in order to completetheproject.Suchwork mayinclude therepairof damage, thereplacementofanelementin caseoflossortheaddition of some processin case of physical or legal impossibilityto complete the works. It is submitted that suchincidentalworkis coveredbythecontractor'sobligationto complete. The constructionandcompletionofthe worksmustnot only be done but itmust alsobe done with due difigence. This obligationisregulated insub-clauses8.1 and 41.1 in respect of the work duringthe constructionperiod and insub-clauses48.1 and 49.2(a) for the period after the issue of the taking-over certificate. The obligation regarding the rate of progress in order to comply with the time for completion is repeated in sub-clause 46.1, whichprescribes the procedure to be followed ifin the opinion ofthe engineer, the rate ofprogress ofthe worksor any

The Contractor's Obligations

229

section is at any time too slowto complywith the timefor completion.According tothe provisionsof sub-clause46.1, suchprocedure isinitiated bythe engineerby giving the contractor anotice to that effect. Therelevant notice should be carefully worded in order not to be used as an instrumentfor an unjustifiable claim for acceleration.Should the contractor ignore orneglectto complywiththe obligation to proceed with due diligence, the only sanction is the ultimate one of default whichwouldbe appliedbythe engineer whenhe would certifyto theemployer, under sub-clause63.1(d), provided thatthe noticeunder sub-clause46.1 hadbeen properly given and could have served as a warning. Finally underthis heading, the contractoris underthe obligationto execute and complete the works within the time for completion,as stated in the contract or as extended under clause 44 calculated from the commencementdate.The time for completion is specified in the Appendix to Tender. However, a reason for an extension of time might arise under any of the following sub-clauses:6.4, 12.2, 20.3,27.1, 36.5, 40.2,42.2, 44.1, 44.3,65 and 69.4. 13.3.3 Use ofmaterials, plantandworkmanship

In addition to construction and completion of the works with due diligence and withintime, the contractor is also obliged to use materials, plant andworkmanship as described in the contract andin accordance with the engineer's iristructions. The subjectof quality ofmaterials, plant and workmanship in construction work is vast. The Conditions of Contract are not usuallythe place to dealwith sucha subjectexcept inprescribing the principles to be applied. Inthe Red Book, these principles are set out in sub-clauses36.1, 39.1 and37.4. Tn this regard, subclause 36.1 provides that the materials, plant and workmanship must be 'of the respectivekinds describedinthe Contract and in accordancewith the Engineer's instructions.. .'. The detailed description and specification of the 'respective kinds' of suchmaterials, plant and workmanship is normally given in the other contract documents, particularlythe specification. Describingandspecifyingthe materials and plant to be used can generally be done with precision. Codes of practice and national standard specifications are availablein many countries to help the designer specify with precise detail the type of materials and plant

required. Where workmanship is concerned, however, it is more difficult to be precise in general terms. There is no standard specification describing the requirements ofstandardworkmanship in constructionand therefore one should be explicit in specifyingtherequiredstandard. Inlegal terms, it has long beenestablished that the contractor has a very wide obligation with respect to the supply of materials and workmanship. Under English law, unless thereare express terms to the contrary, there is an implied warranty in a construction contract for the contractorto: — do the work with care and skifi or, as sometimes expressed, in a proper and workman-likemanner;

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230

use materials of good and marketable quality; and ensure that both the work and the materials should be reasonably fit for the

— —

purposes for which they are required.

In a case in 1870, it was stated that:13'4

'I donothesitateto saythat I amclearly oftheopinion, as a general proposition of law, that where one man engages with another to supply him with a particular article or thing, to be applied to a certain use or purpose, in consideration of a pecuniary payment, he enters intoan implied contract that the article or thingshall be reasonably fit for the purpose for whichit is to be used andto whichit is to be applied.' Later, in 1934,13.5 the followingwas stated which was subsequently approved unanimously in the House of Lords in Youngand Marten Ltd v. McManus Childs [1969] 1 AC 454:

'I think the true view is that a person contracting to do work and supply

materials warrants thatthe materials whichheuses willbe of good quality and reasonably fit for the purpose for which he is using them, unless the circumstancesof the contract are such as to exclude any suchwarranty.'

In cases where the work is precisely and sufficientlydescribed in the design documents, however, the implied warranty amounts to no more than awarranty that reasonable care and skill will be taken in carrying out the specified work. There is usually a thin line separating workmanship and design; selection of materials through design and use ofmaterials through construction;and between workmanship and use of materials. The latter is particularly relevant in nonhomogeneousmaterials manufactured on site, suchas concrete. Inthe Romano-Germanicsystem of law,the obligationofthe contractor and his liability is codified by statute and so, for example, the German statutory law governing contractsfor work'3'6 provides that the contractor is obligedto perform the construction so that:

it

— possesses the guaranteed quality; and — there are no faults whicheither destroy orlimitthe purposes for which it was

required, eitheras stipulated inthe contract or for normal usage.

TheConditions of Contract mayadda further requirement, suchas that added bythe VOB Conditions'3'7 intheformof'observance oftheprofessionalstandards of the construction industry'. Other jurisdictions within the Romano-Germanic system have similar rulesintheirCivil Codes providing for similar obligationsof good quality materials and construction workof good workmanship, free from defects andin accordancewith the contract documents.13'8

The Contractor's Obligations

231

Sub-clause 39.1 of the Red Book provides a remedy in the case of improper work, materials or plant. It provides that the engineer is to have the authority to issue instructions for: (a) the removal from the site ofany materialsorplantwhich, inthe opinion ofthe engineer, are not in accordance with the contract; (b) the substitution of proper and suitable materials or plant;and (c) the removal and properre-executionof any work where: eitherthe material, plant,workmanship; or the designby the contractor is not, in the opinion of the engineer, in accordancewith the contract.

In a similar vein, sub-clause 37.4 gives the engineer the authority to reject any materials or plantwhichare foundto be defectiveor otherwisenot in accordance with the contract. The contractor is alsounderan obligationto ensurethatthe quality ofmaterials, plantand workmanshipis asprescribed inthecontract.Thus, itisprovidedunder sub-clauses15.1 and 16.1 that the contractor should provide onthe site: first, such skilled, semi-skified and unskilled labour as is necessary for the proper and promptfulfilment of the contractor's obligations under the contract; secondly, only such technical assistants as are skilled and experienced in their respective callings and such foremen and leading hands as are competent to give proper superintendence; thirdly, all necessary superintendence duringthe executionof the works and as long thereafter as the engineer may consider necessary; and, fourthly, an authorised representative who gives his whole time to the superintendence of the works. An extensive set of provisions are included in the Red Book for sampling, testing and inspection of the quality of the materials, plant and workmanship. These provisions are included in clauses36, 37, 38 and 39. Where defects arise which, in the opinion ofthe engineer, are eitherdue to the useofmaterials,plantorworkmanship not inaccordancewiththe contract,or due to neglect or failure on the part of the contractor to comply with any obligation under the contract, theyshouldbe repaired by the contractor at his owncost, as

provided in sub-clause49.3. Where the contract expressly provides thatpart ofthe permanent worksisto be designed by the contractor,an additional obligationis imposed onthe contractor. This is done under sub-clauses 6.1, 7.2, 39.1(c)(ii) and 49(b). In relation to the elements designed by the contractor, the employer will rely on the contractor in the selection of the materials. The warrantyfor fitness for purpose wifi almost certainly extend from that in respect of material, plant and workmanship to include design, inmostjurisdictions.Asthisisanabsolute obligationindependent of lackof care or negligence,it shouldbe contrasted with the standardskifi and careobligation of the engineer as a designer (see Section11.2 above).Suchcomparison is particularlyrelevant from the pointofview ofonus ofproof. Where the

232

The FIDIC Form ofContract

obligation is one based on negligence,the onus of proof is that of the claimant (usually the employer),whereas if the liabffity is independent of fault or negligence, the onus of proof shifts to the defendant contractor to prove no legal responsibility.Furthermore, from a practical pointof view, the employer would nothave to differentiatebetween defects arising out of design and those from a contractor's obligationas to materials,plantorworkmanship, making iteasier for himto substantiate a claim. 13.3.4 Provision ofsecurities, indemnitiesandinsurances

TheFIDICFourth Edition also imposes on the contractor the obligation of providing the followingsecurities,indemnities and insurances. (a) If, having considered the matter of securities, the employer decides that securityforproperperformance should be obtainedbythe contractor,then in accordancewith sub-clause 10.1, such security should be obtained and submitted to the employer within 28 daysafterthe receipt of the letter of acceptance. Theperformance security should be in the sum statedinthe Appendix to Tender. Chapter 15 below deals with the subjectinmoredetail. (b) Clauses 20 to 25, inclusive, dealwith the subjectof liabifities of the employer andthecontractor,theindemnitieswhichmustbeprovided inthatconnection, andtheinsurancecover inrespect ofthese indemnities.Chapter 14below deals with the risks to which the employer and the contractor are exposed, the responsibffityand liability triggered by the occurrenceof suchrisks, and the indemnities and insurances to cover suchevents. (c) Under sub-clause 26.1, the contractor is required to keep the employer indemnified against all penalties and liability for breach or non-compliance with national or state statute, ordinance or other law, or any regulation or bylaw of any local or other duly constituted authority in relation to the execution and completion of the works and the remedying of any defects therein. Such indemnity is also required in respect of any breach or noncompliancewiththe rules andregulations ofall public bodies andcompanies whose property or rightsare affected or may be affected in any wayby the works.

(d) Under sub-clause28.1,the contractor is requiredto provide indemnity from and against all claims and proceedings for or on account of infringementof any patent rights, design trademark or name or other protected rights in respect of any contractor's equipment, materials or plant used for or in connectionwith or for incorporation in the works, unless suchinfringement results from compliancewith the design or specificationof the engineer. The indemnity should extend to all damage, costs, charges and expenses whatsoever in respect of such claimsandproceedings or in relation thereto. (e) Under sub-clause29.1, the contractor is required to provide indemnity to the

The Contractor's Obligations

233

employeragainst allclaims,proceedings,damage,costs,chargesandexpenses whatsoever arising out of or in relation to interference with traffic and adjoining properties. (f) The contractoris alsorequiredto provide indemnity,under sub-clause30.2,to the employer against all claims for damage to any road or bridge communicating with oronthe routesto the siteused to facffitate the movement of the contractor's equipment or temporary works. 13.3.5 Supply ofinformation, notices or alerts

It is a requirement throughout the Red Book that, in certain specifiedinstances, each party to the contract undertakes to provide information,notices or alerts to the other party or to the engineer. Where such notices are submitted to the engineer, a copy should also be sent to the other party. Failure to give such information,notices or alerts wouldbe a breach of the terms of the contract. The informationandalertswhichshould be provided bythe contractor,during theconstruction period are set outbelowin items (a) to (n), while Table 13.2 sets out the notices whichshould be given by the contractor during this period. Information and alerts required to beprovided by the contractor during the construction period (a) Design information:wherethe contractoris expressly required to designpart of the permanent works, design information should be submitted by the contractor to the engineer for the latter's approval in accordance with subclauses 6.1 and 7.2. (b) Programme: In accordance with sub-clauses 14.1 and 14.2, a programme shouldbe submitted by thecontractor to theengineerfor thelatter'sconsent, and whenever requiredby the engineer, the contractor should providein writinga general description of the arrangements and methods which the contractor proposes to adopt for the execution of the works. A revised programme showing any modificationsnecessary to ensure completion of the works within the time for completion should be produced by the contractor for the engineer at the latter'srequest. (c) Cashflow estimates:As provided in sub-clause 14.3, the contractor should provide to the engineer a detailed cash flowestimate, in quarterly periods, which should be subsequently revised if requiredby the engineer. (d) Geologicalandarchaeologicalfinds: Immediately upon discovery of fossils, coins, articles of value or antiquity and structures and other remains or articles of geological or archaeological interest, and before removal, the contractorshouldacquaint the engineer ofsuchdiscoveryas provided under sub-clause27.1.

234

The FIDIC Form of Contract

Details of labour and equipment: TI requiredby the engineer, under subclause 35.1, the contractor should deliver tohima detailedreturn oflabour in sucha form and at suchintervals as prescribed by the engineer. This return should show the staff and the number of the several classes of labour employed by the contractor from time to time on the site in addition to any other informationinrelation to the contractor'sequipment as defined in subclause 1.1(f)(v). (f) Particulars of extension of time: Where the contractor had notified the engineer, and sent a copy to the employer,of an eventunder the terms ofsubclause 44.1, the contractorshould submit detailedparticulars ofanyextension oftimeto whichhe mayconsider himself entitled.Sucha submission should be made under the provisions of sub-clause 44.2(b) and within 28 days or suchother reasonabletime as maybe agreed by the engineer. Where an eventhas a continuing effectsuchthat it is not practical for the contractorto submit detailed particulars within the 28 daysreferred to above, he should thenprovidesuchparticulars in accordancewith thetermsofsubclause 44.3. (g) Emergencywork: Wheneverworkis unavoidable or absolutelynecessaryfor the saving of life or propertyor for the safety of the works, the contractor shouldimmediatelyadvise theengineer and carry outsuchworkirrespective of the restrictionsimposed under clause 45. (h) Varied work: In the eventof an instruction by the engineer that any varied workis to be executed on a daywork basis, under sub-clause 52.4, the contractor should furnish tothe engineersuchreceipts or othervouchers as may be necessary to provethe amounts paid and, before ordering materials, the contractorshould submit quotationsforthe same forthe engineer's approval. During the continuance of suchwork, the contractor should deliver each day to the engineer an exact listin duplicate of the names, occupation and time of all workmen employed on such work and a statement, also in duplicate, showing the description and quantity of all materials and contractor's equipment used thereon or therefor other than contractor's equipment which is included in the percentage addition in accordance with such daywork schedule. Onecopy of each list and statement should, if correct, or when agreed, be signed by the engineer andreturnedto the contractor. At the end of eachmonth,the contractor shall deliver to the engineer a priced statement of the labour, materials andcontractor'sequipment, except as aforesaid, used and the contractor shall not be entitled to any payment unless suchlists and statements have been fully andpunctually rendered. (i) Contemporary records: Where the contractor has given a notice under subclause 53.1,he should keep suchcontemporaryrecords asmay reasonably be necessary to support any claim whichhe may subsequently wish to make. The contractor should supply the engineer with copies of such records as referred to in sub-clause53.2 as and whenthe engineer so instructs.

(e)

The Contractor's Obligations

235

Thecontractor shouldalso sendto the engineer an account giving detailed particulars of the amount claimed and the grounds uponwhichthe claim is based. The period within which such accountis to be sentis detailed in subclause 53.3. Measurement:The contractor should supplyall particulars requiredby the engineer under the provisions of sub-clause 56.1 in connection with measurement of the value of the worksin accordancewith the contract. (k) Lump sum items:A breakdown for eachofthe lump sumitemscontained in the tender should be submitted by the contractor to the engineer, for his approval, within the time specifiedin sub-clause57.2. (1) Provisional sums: The contractor should produce for the engineer in accordance with sub-clause 58.3 all quotations, invoices, vouchers and accounts of receipts in connectionwith expenditure in respect of provisional sums, exceptwhereworkisvaluedin accordancewith rates or prices set out in the tender. (m) Payment to nominated sub-contractors:The contractor should provide the information required under sub-clause 59.5 in relation to payments to nominated sub-contractors. (n) Monthly statements: The contractor shouldsubmit to the engineer afterthe end ofeachmonth,sixcopies ofa statementinsuchformas theengineermay from time to time prescribe. The statement should contain the information detailed in sub-clause 60.1. (j)

The notices which should be given by the contractor during the construction period in a contract under the FIDIC Form are identified in Table 13.2. These notices are required by the employer or the engineer and should be sent by post, cable, telex or facsimile transmission or delivered to the respective addresses nominated for that purpose in Part II of the Conditions pursuant to sub-clause 68.2. In this regard, itisnotable that communicationbycable andtelex hasbecome obsolete inthe recentpastwith the rapid developmentofmore modemelectronic media. The relevant section in Part II of the Conditions should reflect these developments. 13.3.6 Performanceofcertain administrative functions

In the performance of the contract, the contractor undertakes to carry out many

administrative obligationsand functions whichinvolve positive acts, suchas the submission of drawings under sub-clause6.1 and the payment of royaltiesunder sub-clause 28.2. On the other hand, the contractor has obligationsnot to pursue certain lines of action, for instance, not to assign the contract withoutthe prior consent ofthe employer as provided under sub-clause3.1 and notto sub-contract the whole of theworksas in sub-clause4.1.

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Notices required to be given

bythe contractor underthe contract.

Description ofthe event

Sub-clause

Notice to

Copy to

6.3.

Engineer

Employer

10.1

Engineer

12.2

Engineer

25.1

Engineer

When providing evidence to the employer that the insurances required underthe contract have been effected and also when providing the insurance policies

25.2

Insurers

Whenever there arechanges in the nature, extent or programme ofthe works

26.1

Statutory authorities

Whenever notices are required in compliance with statutes or regulations orother lawsor bylaws

30.3

Engineer

38.1

Engineer

40.3

Engineer

40.3

Engineer

Where planning orexecution ofthe works is likelyto be delayed ordisrupted unless furtherdrawing or instruction is issued by the engineer withina reasonable time. The notice should include details ofthe drawing orinstruction required and ofwhyand bywhenitisrequired and ifanydelayordisruptionis likelyto be suffered ifsuchnoticeis late When providing performance security tothe employer, to notifythe engineer of so doing

Employer

Employer

Whenever the contractor encounters physical obstructions or physical conditions, other than climatic conditions onthe site, notforeseeable byan experienced contractor

Whenever and as soon as any damage occurs to any bridge or road communicating with oron the routes to the site Whenever any part ofthe works is aboutto be covered up or put out ofvieworfoundations are ready orabout to be ready for examination When requiring permission to proceed with the works orthat partthereofin regard to which progress had been suspended

If and when the contractor elects to treatthe suspension, where itaffects only part ofthe works, as anomission ofsuchpart underclause 51; or

where it affects the whole of the works, the contractor elects totreatthesuspension as anevent ofdefault bythe employer and terminate his employment underthe contract in accordance with the provisions ofsub-clause 69.1 42.1

Engineer

Employer

When the contractor makes proposals to commence and proceed with the execution ofthe works

44.2

Engineer

Employer

Within 28 daysafteran eventhasfirst arisen which fairlyentitlesthe contractor to an extension ofthe time for completion ofthe works

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237

(Table 13.2 Contd.) Sub-clause

Notice to

Copyto

Description ofthe event

48.1

Engineer

Employer

When the whole ofthe works have been substantially completed and have satisfactorily passed any testson completion prescribed bythe contract. Such notice should beaccompanied byan undertaking to finishwith dueexpedition any outstanding work during the defects liability period

52.2

Engineer

Whenever the contractor intends to claimextra payment oravaried rateorprice in respect ofvaried

work 53.1

Engineer

65.5

Engineer

Employer

Within28 daysafteran eventforwhichthe contractor intends to make a claimfor additional payment pursuant to a clause underthe Conditions

As soon as any cost attributable to, or consequent on, orthe result of, or in any waywhatsoever connected with, any of the special risks comes to the contractor's knowledge

67.1

Employer

Engineer

Within70 days ofreceiptofanotice ofan engineer's decision underclause 67 with whichthe contractor isdissatisfied and the matters inrespectofwhichhe intends to commence arbitration

67.1

Employer

Engineer

Ifthe engineer fails to give notice ofhis decision within84 daysafterthe dayon whichhe received a referenceto him ofmatters indispute, thenwithin70 days afterthe expiryofthe above-mentioned 84 days, a notice should be given bythe contractor of his intention to commence arbitration in respect of the matters in dispute

Details of the contractor's administrative obligationsare as follows:

(a) Definition of terms: Whilst the definition of all the expressions included in clause 1 are relevant and significantto the contractor,itisgenerallynecessary to scrutiniseandpursuethe implicationsofsome ofthese definitionspriorto the submissionsof thetender. Others mayhaveor continueto have aneffect after the commencement date as they impose certain obligations on the contractor after that date. For instance, the meaning of 'sub-contractor' as given in sub-clause 1.1(a)(iii) raises two important points to be considered duringtheconstructionperiod should thecontractorbe expectedtoenterinto a sub-contract with a named sub-contractor in the contract. First, it is a 'person' that has to be named as the sub-contractor;and secondly,the definitionof a sub-contractor doesnot include an assignee of suchperson. (See

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below for the significance of assignment compared with sub-contracting.) Other definitions in this category include those for the expressions:tests on completion;temporary works; and contractor's equipment. (b) Assignment: Other than in specific circumstances referred to in sub-clause 3.1, the contractoris underthe obligationnotto assign the contractoranypart thereof or any benefit or interest therein or thereunder withoutthe prior consent of the employer. As anassignmentis alegal instrument whichmayhave differentmeanings under different jurisdictions, it is essential to ascertain the precise position under the applicablelaw of the contract between the employer and the contractorbefore entering intoorconsenting to an assignment.In general,where acontract existsbetweentwo parties,A and B, assignment means thetransfer of certain contractual rights by one of the parties, either A or B, to a third party, C. The assignor,A or B, who is originallyentitled to those rightsthus enables the assigneeC to pursue the other party in the original contract and enforcethose transferred rightsdirectly against him. It is essential in this context to distinguish between, on the one hand, the rights and, on the other, the obligationsor liabilitiesof the parties involved. Under English law, for example,the assignmentofcontractualobligationsor liabilitiesis not permitted withoutthe permission of the other party to the contract, that is, agreement must be reached not only between the assignor and the assignee but also between them and the other partyto the contract with the assignor. Accordingly, in a construction contract, the contractor cannot divest himself from the obligation to complete the works in the absenceof anagreementwithboth the third party assigneeandthe employer. Such an agreementis called a 'Novation'.139 Whilst certain rightsrequire specificformalities ifthey are to be assigned, not all rights are assignable. One of the rights where assignment may be questioned is the right of arbitration. An assignment of 'all monies dueor to become due under the contract' by a contractor was held not to include the rightto arbitration in the English case of Cottage Club Estates Ltd v. Woodside Estates Co. (Amersham)Ltd [1928] 2 KB 463. Although the decisionin this case has beencriticisedin subsequent cases and by authoritative writers,1310 it is essentialto ensure that the wordingof an assignment reflects precisely and unequivocally what is intended by the parties and that suchintentions are withinthe provisionsof the applicable law of the contract. (c) Sub-contracting:In similar terms, sub-clause4.1 prohibitsthe contractorfrom sub-contractingthe whole of the works. Inthe case of sub-contractingpart of the works, the contractor is requiredto seek and obtain the prior consent of the engineer. This obligation does not, however, extend to situations where the sub-contractoris named inthe contract. As there is no contract betweenthe employer and a sub-contractor,the contractor remains responsible and liable to the employer for the perform-

The Contractor's Obligations

(d)

(e) (f)

(g)

(h)

(i)

239

ance of the sub-contractor.The sub-contractor has no contractual rights or obligationstowards the employer under the Red Book. Copies of drawings and other documents:The contractor is required under sub-clause 6.1 to make at his own cost any further copies of the drawings, beyond the two supplied to himfreeofcharge.Where he isresponsibleforthe design ofpart ofthe permanent works, the contractoris requiredto supply to the engineer, free of charge, four copies of all drawings, specificationsand otherdocuments, together with a reproducible copy of any material which caimot be reproduced to an equal standard by photocopying. Any further copies shouldbe supplied at cost. Onecopy of the drawings provided to or suppliedby the contractor is to be keptbyhim on thesite, as requiredunder sub-clause 6.2. Contract agreement: Sub-clause 9.1 provides that the contractor should, if called uponto do so, enterinto and executethe contract agreement. Other contractors on the site: The contractor is required to afford all reasonableopportunities for other contractors,the workmen of the employer andof any duly constituted authorities, in carrying out any workon ornear the site, whichis not included in the contract.This obligation is provided in sub-clause31.1 and is subjectto the requirements of the engineer. Engagement of staff and labour: Underthe provisions of clauses 34 and 35, the contractoris required to make his ownarrangementsfor theengagement of all staff and labour and, if required by the engineer, deliver a return of labour onthe site and of the contractor's equipment. Access to the site: The contractor shouldaffordto the engineer and to any personauthorised by him, every facilityfor and every assistancein obtaining rightof accessto the siteand to allworkshops andplaces wherematerials or plant arebeing manufactured, fabricated or preparedfor the works. During such manufacture, fabrication or preparation, the engineer is entitled to inspect and test the materials andplant to be suppliedunder the contract. The contractor's obligation,described above, in respect of accessis therefore extended to obtain permission for the engineer to carry out such inspection and testing, in accordancewith clause 37. Monthly statements: In respect of certificates, the contractor is under an obligation to submit to the engineer, on a monthly basis, six copies of a statement showing the amounts towhichhe considers himself to be entitled. Such statements shouldbe in the form and detail as providedin sub-clause 60.1.

(j)

Assignment to the employer in case of termination: If the employment of the contractor is terminated in accordance with clause 63, he is required under sub-clause 63.4, if instructed by the engineer, to assign to the employer the benefit of any agreement whichhe (the contractor) may have entered into for the supply of any goods or materials or services and/orfor the executionof any work for the purposesof the contract. This obligation

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is subject to the provisions of the applicable lawof the contract in respect of assignment. (k) Amicablesettlementof disputes tobeattempted: Where notice ofintention to commence arbitration has been given under sub-clause 67.1, there is an obligation imposed on the contractor, as well as the employer,to attempt to settle the dispute amicablywithin limits stipulated in sub-clause 67.2. (1) Making payments in certain circumstances: In a number of sub-clauses throughout the conditions, the contractor is under an obligation to make payments as detailed below: (i) sub-clause 28.2 in respect of royalties; (ii) sub-clause 30.2 in respect of the cost of strengthening any bridges or altering or improving any road communicatingwith or on the routesto the site; (if) sub-clause 42.3 for special or temporary wayleaves requiredby him in connectionwithaccesstothe site and for any additionalfacilitiesoutside the site. Due-consultation: (m) Finally,it is the duty ofthe engineerto 'duly consult' with and the employer the contractorin certain circumstancesfor which the contractorwould have to provide the time and the desire to consult with the engineer in a promptmanner. See also Sections 9.3 and12.11. 13.4

Contractor's obligations after substantial completion of the works After substantial completion in accordancewith sub-clause 48.1, the contractor has the obligationto complete the works and execute any outstanding work and remedy defects in accordance with sub-clauses 49.2 and 49.3. This obligation extends as canbe seen from Table 13.2 toa numberofprovisionsinthe Conditions which are related to the defects liability period as well as to others which apply mainly to the construction period but also whenever work is requiredto be done or testedor inspected. These provisions are: (a) Site clearance: Under sub-clause 33.1, the contractor, upon the issue of the taking-overcertificate, isrequiredto clear away andleave cleanthatpart ofthe siteto whichsuchtaking-overcertificaterelates. He is, however, permitted to retain on site certain items which are requiredby him for the purpose of fulfillinghis obligationsduringthe defectsliability period. (b) Defects: Undersub-clause50.1,if any defect, shrinkageor other faultappears, the contractor is required, if instructed by the engineer, to search under the directions of the engineer for the cause. The contractor is also requiredto remedy any defects and faults for whichhe is foundto be liable. (c) Statementof completion:Thecontractor should submit adetailed statement at completion within 84 days after the issue of the taking-over certificatein

The Contractor's Obligations

241

respect of the whole of the works. This statement should contain all the information prescribed in sub-clause 60.5. (d) Draft of final statement: The contractor,within56 days afterthe issueof the defects liability certificate,should submit to the engineer, for his consideration, a draft final statement with supporting documents. The draft final statement shouldshow the informationrequiredin sub-clause 60.6. Further information:In the eventthat the engineer disagrees with or cannot (e) verify anypart of the draft finalstatement,the contractorshouldsubmit such further information as the engineer may reasonably require as provided in sub-clause 60.6. He should also prepare andsubmit the final statement. (f) Discharge:Upon submission ofthe finalstatement, the contractor should give to the employer, with a copy to the engineer,a written dischargeconfirming that the total of the final statement represents full and final settlement of all monies due. Such discharge is providedunder sub-clause 60.7.

Theabove obligationsare set out in the time schedule shown in Table 13.1.

Chapter 14

Risks, Liabilities, Indemnities and Insurances

'Measured on a scale of the needs for the tasks to come, mankind is a faulty design' Unknown air force pilotinstructor 14.1

Introduction As already discussedinChapter7,the conceptofresponsibifityandliabilityofboth theemployer andthe contractor towards each otherand towards thirdparties is based on the sharing of the risksin accordancewith the obligationsallocatedto themunderthecontract.InChapter 7,thedefinitionandsignificance oftheconcept of'risk'is explained.Chapters 10 to13setoutindetail theduties and obligationsof theemployer andtheengineer,asagentoftheemployer,ontheonehand,andthose of the contractor on the other, under the Fourth Edition of the Red Book. As is evident from these chapters, such duties and obligations are extremely complexin any constructioncontractbutparticularly so as the sizeandcostof the projectincreases.Complexityalsoincreasesas the risk matrix becomeslarger with the involvement of a greater numberof parties andespeciallyso when different nationalitiesand cultures are involved. Thepresentchapter considers the responsibilities,liabilities,indemnities and insurances as they relate to risks in construction projectsunder the provisions of theFourth Edition oftheRedBook. Inthisregard,aglossaryofdefinitionsisgiven in Section14.11 below.

14.2 The Red Book provisionsrelatingto risk, responsibility,liability,

indemnityand insurance

The Red Book provisions relating to the topics of risk, responsibility, liabifity, indemnity andinsurance are contained in clauses 20 to 25 and65 of the general

242

Risks, Liabilities, Indemnities and Insurances

243

conditionsof contract.A logicalflow from the risksinconstruction (as illustrated in Figures 7.1 and 7.2) to their ensuing responsibilitiesand liabilities and how these risks are dealt with under the Red Bookis showninFigure 14.1. Although the wordingof these clauseshas been much simplified in the Fourth Edition following many criticisms and some recommendations,14' it remains complexto most engineers due to the fact thatitcovers legal and insurance topics inwhichengineers,forwhomthe conditionsarewritten, arenotexperts. Inmany respects, the wording of the Fourth Edition of the Red Book follows the Fifth Edition of the ICE Formwhich dates back to 1945, although some punctuation

Fig. 14.1 Flowof risk into responsibility, liability, indemnity and insurance.

The FIDIC Form ofContract

244

markswere added. Thenew punctuation resulted in a reduction of the average length of the sentences and therefore an improvement in the text. However, by followingthe ICE Form, the opportunity was missed of rewriting the whole sectionin a logicallyflowing sequence from the concept of risk sharing to responsibility to liabilitywhichleads to the indeniriitiesin respect of whichinsurance is required. This limited improvement was suchthat the drafting committee of the Sixth Edition of the ICEForm adoptedit withoutmuch change. Figures 14.2 and 14.3 show in a diagrammatic form the indemnities and insurances inrespect of the risks allocatedto the parties underthe Fourth Edition ofthe Red Book. In addition, Figure 14.2 shows otherinsurance coverswhichare not required under the Red Book, but are either required under the contract betweentheemployerandtheengineerorvoluntarilytakenbythe employerorby the contractor. (See also Section 13.3.4 for the indemnities andinsurance covers required to be provided.) The indemnity provisionsunder the Red Bookrelating to the risks of damage, loss and injury are containedin clauses 20, 22, 24 and65 while clause 25 deals with general insurance requirements. The remainder ofthe present chapter considers in detail clauses 20 to 25 and 65.

14.3 Clause 20 of the Red Book — '20.1: care of the works'; '20.2: responsibilityto rectify loss or damage'; '20.3: loss or damage due to employer'srisks'; and '20.4: employer'srisks' 14.3.1

Sub-clause20.1: care ofthe works Clause 20 begins by placing the responsibifityfor careof the works, material and plantfor incorporationin theworkswith the contractor. This responsibility continues until the date of issue of the taking-over certificate for the whole of the works except inthe followingtwo circumstances:the first exceptionis wherethe engineer issues a taking-over certificatefor a section or part of the permanent works; andthe second is in respect of any outstanding elements whichthe contractorundertakes to completeduringthe defectsliabffity period. Inthe first case, theresponsibilityfor the care of that sectionor part passes to the employer from the dateof issue ofthe taking-overcertificatein respect of suchsection or part of the permanent works. In the second case, the contractor remains responsiblefor thecareof any outstanding elementsuntiltheyare completedpursuantto clause 49.

Itis unclear inthelatter regard,as to whether completionofindividual elements occurswheneach elementis completedorwhether all outstanding elementshave tobecollectivelycompletedbefore responsibilityispassedonto theemployer.Itis also unclear as to whethertherewouldhave to be a completioncertificateissued bythe engineerfor these outstanding elementsbefore theresponsibilitypasses to the employer. Clarificationof these two points could have been made in sub-

Risks, Liabilities, Indemnitiesand Insurances

CAR

PL

EL

contractors all risks policy

public liability policy

employer's

245

liability policy

Fig. 14.2 Indemnities and insurances relating to risks ofinjuryand damage underthe Fourth Edition ofthe FIDIC Red Book.

clauses48.1and49.2(a). Thislackofclarityisunsatisfactoryfrom the pointofview

of the related insurance requirement whichgoes hand in hand with the duty of careanditstransferfrom thecontractortothe employer onthe dateofissueofthe taking-overcertificate.Inthis connection,itshould be noted thatthe relevant date is the date of issue of the certificateas distinct from the date of taking over as statedin that certificate.

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246

Fig. 14.3 Indemnities and insurances relating to financial risks underthe Fourth Edition ofthe FIDIC Red Book. 14.3.2

Sub-clause20.2: responsibility to rectify loss or damage;andsub-clause 20.3: loss or damage due to employer'srisks

Theremaining partof clause 20 consistsofthreesub-clauseswhichdistribute and allocate the risks of injury, loss or damage between the employer and the contractor. They also describe the contractor's obligation to rectify such loss or damage when caused by either the risks allocatedto him or to the employer.

Risks, Liabilities, Indemnities andInsurances

247

Accordingly,these risks are divided into two bands, the first of which is allocated to the contractor and includes all risks 'whatsoever' other than the employer's risks as defined in sub-clause 20.4. Sub-clauses20.2 and 20.3 prescribe the extent of the contractor's obligation to rectifyanyloss ordamage caused bythe employer's and/orthe contractor'srisks. When the loss or damage occurs as a result of the contractor's risks during the period for whichhe is responsiblefor the care of the affected part, these clauses allocatethe obligationto rectifysuchloss or damage and the liabilityforthe costto thecontractor. It is further providedthat the contractor should rectify thelossor damage so that the permanent worksconformwith the provisions of the contract to the satisfactionofthe engineer. The obligation to rectify any loss or damage whichoccurs as a result of any of the employer's risksor of a combination of the employer's risks with any of the contractor's risks is also placed on the contractor, but only if and to the extent requiredby the engineer. The word 'if' can be interpreted to indicate that the contractor maybe relieved ofhis obligationsto complete the project inrespect of items lost or damaged due to an employer's risk, if the engineer does notrequire suchlossor damage toberectified. The liabilityfor the costof suchrectificationis allocatedto the employer to the extent thatit isnecessitatedbyanemployer's risk. The engineer is requiredunder sub-clause 20.3 to determine an additionto the contract price in accordancewith clause 52 taking into account the proportional responsibility of the employer and the contractor where the cause of the loss or damage is aresultofacombinationof employer'sandcontractor'srisks. Reference in this connection should also be made to sub-clause 65.3 which deals with damage to the works due to any of the special risks. It is important to note that in rare cases, there might not be an addition to the contract pricebut insteada reduction. This situation could arise as a result of a special risk eventuating causing destruction of or damage to a part of the works whichhadalready been condemnedundertheprovisionsofclause 39.1 oftheRed Book prior to occurrence of the special risk. Clause 39.1 deals with removal of improper work, material or plant.If the employer tbrough the engineer doesnot require the contractorto rectifythe lossor damage to the part of the workswhich had been abeady condemned, then the engineer must deduct the value of the condemned part fromany payment due to the contractor.Inthese circumstances, theprovisions of sub-clause65.1(a), 65.5 and 65.8 in combinationwithsub-clauses 20.3 and 39.1 are relevant. Where the contractorcauses anyloss or damageto the works duringthe defects liabilityperiodwhilstcarrying out any of his obligationsunder clauses49 and50 of the contract,the liability for such loss or damage is allocatedto the contractor. 14.3.3 Sub-clause20.4: the employer'srisks

Sub-clause20.4 deals with employer's risks andincorporates what are referred to as the special risks which are defined in clause 65. These special risks are dis-

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The FIDIC Form of Contract

cussed inSection14.4 below. Thepresentsectionconsidersthe employer'srisks as defined in sub-clause 20.4 and discusses their implications and whether or not they are properly allocated. These include the risk of war, the risk of pressure waves, risks relating to design and risks relatingto the action of forcesof nature. Definitionofsome ofthe relevant terms are given inthe glossary inSection14.11 at the end of this chapter. (a) TheRisk ofWar, etc. Although the risk ofwar,whichis an employer'srisk underparagraph (a) of subclause 20.4, is expressly defined in sub-clause 65.6 as a special risk regardless of whereit occursin the world, by referenceto sub-clause 65.2(b) thereseems to be anintention thatthecombinedrisksofwar,hostilities,invasion and acts offoreign enemiesare alsoto betreated as employer'srisks regardless ofwherethey occur in the world. Similar intentions apply to the employer's risks as defined in paragraphs (c), (d) and (e) of sub-clause20.4. However,it appearsthat thisis intended to apply only inthe contextof theprovisionsof sub-clause65.1 wheredestruction of or damage tothe worksandto other propertyandirjury or loss oflife arisedue to theabove risks, ifthat is thecase,thereis incompatibilitywiththeprovisions of sub-clause 65.2(b) where the definition of the risks of rebellion, revolution, insurrection, military or usurped power, and civil war are restricted to those relating to the country in whichthe works are to be executed.Ifdestruction of an item covered by the description in sub-clause 65.1 happens due to war in the country whereitismanufactured, itwouldbe considered aspecial risk: why then would it not be a special risk under sub-clause 65.2(b) if it happens due to, for instance,civil war in that country? (b) The risk ofpressure waves

The risk of pressurewaves caused by aircraftor other aerial devicestravelling at sonic or supersonic speeds isincluded as an employer'srisk underparagraph(d) of sub-clause 20.4. The inclusion of this risk under the list of employer's risks originatesfrom the ICEForm whereinthe UK, the government undertook to pay compensationif damage resulted fromthe supersonictest flights originallymade by Concorde. Consequently, insurers in the UK excluded this risk from their contractors'all risks insurance policy.Later whenlittleorno damage was caused by supersonic test flights,the undertaking seems to haveremained in respect of operational flights. In countries where the standard form of contract does not originatefrom the ICEForm, no specificreferenceis madeto this risk. Therefore, there is no apparent reasonfor this risk to remainas one of the employer's risks andespeciallywheninsurance cover canbe provided forit, ifrequested,underthe contractors'all risks insurance policy.

Risks, Liabilities, Indemnities and Insurances

249

(c) Risks relatingto design

The employer's risk in respect of design as defined in paragraph (g) of subclause 20.4 is extremelywide as it refers to loss or damage due to the designof the works other than that provided by the contractor. This definition is not restricted to negligent design as it includes events where damage occurs without any fault, defect, error or omission committed by the designer. Such an event could occur simply because of the state of the art and knowledge in the field of engineering, such as the case of the bridge over the Pioneer river in Australia where three concrete piers collapsed due to the inadequacy of their design to withstand forces during an unprecedented flood. The design of the piers complied with the standard expected from professional bridge engineers at that time and there was no 'personal failure or noncompliance with standardswhichwouldbe expected of designing engineers'.142The failure resulted from the effect of the prismatic shape of the piers, an effect which was not known at the time. The employer's risk in terms of designdoesnot include the word 'solely' previously included in the Third Edition. Accordingly,'should damage occur to the Works in circumstances where an error in design is a contributory factor, the contractor is relieved of responsibifity only to the extent that the damage was caused by a design not provided by him'.143 (d)

Risksrelatingtoforcesofnature The employer's risk in respect of the forces of nature as defined in paragraph (h) of sub-clause 20.4, although less contentious than its predecessor in the Third Edition, (see Chapter 9), remains imprecise. The wordingof paragraph (h) is as follows: 'any operation of the forces of nature against whichan experienced contractor could not reasonably have been expected to takeprecautions.' Theambiguity of this paragraphstems from the use of the followingwords, all in the same sentence: 'experienced', 'could not reasonably', and 'expected to take precautions'. There is no need to create such ambiguity in the contract since insurance is available for the risks of forces of nature. In fact, it can be argued that it is for this type of risk that insurance is generally available. It should be noted that with the present wording, these employer's risks are the responsibility of the employer and should the insurer decide to argue about whetheror not any payment in respect of a particular eventis covered under the termsof the contractors' all risks insurance policy, it is the employer whois at risk of not being covered. In this connection,reference should also be made to the mandatory amendment of this paragraph required by the World Bank in their Standard Bidding Document for Major Works (see Chapter 22 later in this book).

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The FIDIC Form ofContract

14.4 Clause 65 of the Red Book (sub-clauses 65.1 to 65.8) — special risks

It is appropriate nowto dealwith the provisions of clause 65 whichcome under the heading of'special risks', astheyarecloselyrelated tothe provisionsofclause 20 and, in particular, sub-clause 20.4 discussed above.In fact, it is clear from the wordingof clause 65 thatits purpose is to describethe contractual arrangements and to allocate the financial consequences when any of the special risks eventuates. To that extent, itis puzzling as to why it did notformpart of clause 20, or

alternativelyfollow immediately thereafter. As neitherof these two alternatives was chosen,onewouldhave expected some explanationtobe given in theGuide, referred to in Reference 14.3 above, in order to remove the confusion caused by this separation.However no explanationis given. Sub-clause65.1 starts with the statement that the 'contractor shall be under no liabilitywhatsoever in consequenceof any ofthe SpecialRisks referred to in subclause 65.2 whether byway ofindemnity or otherwise. . .'. The only restriction to thisprovision is inrespect ofimproperwork, material orplantbythe contractoras stipulated underclause 39 of the Conditions. Sub-clause65.2 identifiesthe specialrisks in terms of the definitiongiven under sub-clause 20.4. Thus, the special risks include the risks identified in paragraphs (a), (c), (d) and (e) of sub-clause 20.4 and also those in paragraph (b) ofthat subclause in so far as the risks relate to the country in which the works are to be executed.Thus,a distinctionis madebetweenthe risks of war,hostilitiesand acts of foreign enemies which are defined as special risks regardless of where they occur, and the risks of rebellion, revolution, insurrection, military or usurped power, and civilwar which are recognisedas special risksonly iftheyoccur in the country in whichthe works are to be executed. In broadterms, theremaining part ofclause 65 deals with the consequencesof the occurrenceof a special risk. Sub-clause65.3 prescribes the contractual arrangements if the works, or any materials or plant on or near or in transit to the site, or any of the contractor's equipment, sustain destructionor damage by reasonof any ofthe special risks. It provides that the contractorisentitled to paymentinaccordancewiththe contract for:

(a) any permanent works duly executed; (b) any materials or plant destroyed or damaged; and (c) inso far as the engineerrequires or as may be necessaryfor the completion of the works, for (i) rectifyingany destruction or damage to the works, and (ii) replacing or rectifyingsuchmaterials or contractor's equipment.

Withregard to (c) above, the phrase 'necessaryfor the completion of the Works' requires careful consideration.The intended meaning of this phrase is that the

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251

contractor is entitled to payment for materials and/or equipment under the provisionsofsub-clauses65.3 only ifsuchmaterial and/orequipment waspresent on the site for the purpose of completion of the works. Any materials or equipmentpresentonthesitefortheconvenienceofthe contractorsbutnot required for the completion of the works at the time of occurrenceof the special risk do not qualify for payment by the employer if it is destroyed or damaged as a consequence of the special risk. Furthermore, under sub-clause 65.3, payment for destroyed or damaged materials or equipment is not dependenton the resumptionof constructionworkor completion of the works afterthe occurrence ofthe special risk. This isbecausethe basis ofclause 65 is the allocationof responsibifity for these special risks to the employer. Sub-clause65.3 continues by requiring the engineer to determine:

'an addition to the ContractPrice in accordancewith Clause 52 (which shallin the case of the cost of replacement of Contractor's Equipment include the fair market value thereof as determined by the Engineer) and shall notify the Contractoraccordingly,with a copy to the Employer.'

Animportant aspect ofthe wordingin theabove text is the use ofthe words'the cost of replacementof the Contractor's Equipment [which shall] include the fair market value.' Inthisregard,the replacementcostorthe fair market valuemustbe reasonably and fairly determined withoutany subjective influence.This aspect assumes great importance in international contracts and particularly where expensiveitemsof machinery andequipment are used. Anypaymentto thecontractorunder clause 65 is determined by theengineeras an adjustment to thecontract priceinaccordancewith clause 52 of theconditions of contract. As discussed earlier, this determination may not always be an addition. For example, a reduction may result if the part destroyed includes defective work, materials or plantandthe contract is terminated under the provisions of sub-clause65.6 withoutthe engineer requiring the replacementof such defective work.

Thedefinitionof destruction, damage,injury orloss oflife caused bythespecial risks is extended in sub-clause65.4 to include any 'destruction, damage, injury or loss oflife caused bythe explosionorimpact wheneverandwherever occurringof any mine,bomb, shell, grenade, or other projectile,missile,munition, or explosive of war'. Sub-clause 65.5 deals with increased costs arising from the special risks and allocatesthe liability for any increaseinsuchcost ofthe worksto the employer. In this regard, the wordingofsub-clause 65.5 is extremelywide inthat any increase in cost 'consequent on or theresultof or in any way whatsoever connected with the said special risks...'is allocatedto the employer. However, the contractor is requiredtonotify theengineerforthwith ofsuchincreaseassoonas it comestohis knowledge. Furthermore, the engineer is required to 'duly consult' with the

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employer and the contractor before determining the amount of the contractor's costs. The engineer is also required to notify the contractor in writing of the amounthe has determined providing a copy to the employer. Once againclause 39 is the only qualificationto this provision. The remaining parts of clause 65 deal with the risk ofwar and the contractual arrangements,whether war is declaredornot, andirrespectiveofwheresuchrisks eventuate in any part ofthe world. Sub-clause65.6 provides that the employer is entitled to terminate the contract at any time afterthe outbreak of war by giving notice to the contractor and the contract becomes terminated upon such notice being given subject to the operation of clause 67. Where the contractor is concerned, this sub-clause provides that if there is an outbreak of war which materially affects the executionof the works, whether financiallyor otherwise,he isrequiredtouse his best endeavoursto completetheworks,unless the contractis terminated by the employer. This is an extremely onerous provision where the safety of employees is threatened andthe employer delays his decision to terminate the contract. if a contract is terminated under sub-clause 65.6, then the mechardsm and consequencesofsuch terminationare as follows: (a) The contract is terminated onlywhena notice is given by the employer to the contractor.Upon suchnotice being given,the contract terminates exceptas to the rights of the parties under clauses 65, 'special risks'; and clause 67, 'settlement of disputes', but withoutprejudice to the rights of eitherparty in respect of any antecedent breach of the contract. This means that once a contract is terminated under sub-clause 65.6, no provision of that contract survives other than the provisionsof clauses 65 and 67. This wording of subclause 65.6 does not affect the rights and obligations of the parties to the contract in respect of a breach committed prior to the termination of the contract under that sub-clause. The (b) rightsofthe parties followingterminationunder sub-clause65.6 aredealt with under thefollowingsub-clauses: — sub-clause 65.3, 'damage to worksby special risks', discussed above; — sub-clause 65.7, 'removal of contractor's equipment on termination'; and — sub-clause 65.8, if contract terminated'. 'payment

In this regard, the provisions of sub-clause 65.3 have been discussed above, while the remainder of the present section considers sub-clauses65.7 and 65.8. Specifically, sub-clause 65.7 provides that 'ifthe Contractisterminated underthe provisionsofSub-Clause65.6, the Contractor shall, with all reasonable dispatch, removefrom the Siteall Contractor'sEquipment and shall give similar facilitiesto his Sub-contractorsto do so.' Accordingly,sub-clause65.7 provides for the right of the employer to require the Contractor, 'with all reasonable dispatch' to 'remove from the Site all the

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Contractor's Equipment'This provision is intended to ensure that the effects of theoccurrenceof anyof theemployer's special risksbe reduced to a minimumby theremovalfromthe siteofsuchmaterialsandequipment forwhichtheemployer would become liable if they remain on the site and sustainloss or damage. Sub-clause65.8 provides for the method and amount of payment to whichthe contractor is entitled if the contract is terminated under sub-clause 65.6. Tn such circumstances,the contractor is entitled to be paid by the employer for amounts not already paidinrelation to all work executedpriortothe dateofterminationat rates and prices providedin the contract. In addition, the contractor is entitled to be paid as followsunder sub-clauses65.8(c) to (f): '(c)

a sum beingthe amount of any expenditure reasonably incurredby the

(d)

to in this Sub-Clause; any additional sum payable underthe provisions of Sub-Clauses65.3 and

contractor in the expectationof completingthe whole of the works insofar as suchexpenditure has notbeencoveredbyany otherpayments referred

65.5;

(e)

(f)

such proportion of the cost as may be reasonable, taking into account payments made or to be made for work executed, of removal of Contractor's Equipment under Sub-Clause65.7 and, if requiredby the Contractor, return thereof to the Contractor'smainplantyard inhis country of registration or to other destination, atno greater cost; and thereasonablecostofrepatriationof allthe Contractor'sstaff and workmen employed onor in connectionwith the Works at the time of suchtermination.'

There are various phrases usedin the above provisions of sub-clause 65.8 which merit more detailed consideration.For example: —

—

—

Thewords'expenditurereasonably incurred' in (c) above must meananitem ofcost whichhas already been incurred. Otherwise,theterm'cost'wouldhave been used instead of 'expenditure', 'cost' being defined as 'expenditure incurred or to be incurred'. Therefore,the expression 'expenditure reasonably incurred... in the expectation of completing the whole of the works' in (c) above, would mean an expenditure already incurred and whichis essentialfor the project as a whole, suchas payment for the contractor'sinsurance policies pursuant to clauses21 and 23 of the general conditions of contract, or the expenditure incurred in obtaining the performance security required under clause 10 of the general conditionsof contract. It would not include an item not already incurred and neitherwouldit include consequentialcosts. The word'proportion' in the expression'suchproportion ofthe cost asmay be reasonable', which appears in (e) above, could mean anything from 0% to

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The FIDIC Form ofContract 100%.Thus,in certaincircumstances,the word 'proportion' could meanzero if that is what is deemed to be thereasonable amount in the particular circum-

stances. Accordingly,whenthe latter meaning is incorporated in the remainderofsub-clause65.8(c),thereasonableproportion ofthecostofremoval ofthe contractor'sequipment maybe verylittle ifthat equipment is simplyremoved and transported toalocationnearertothe site thanthe'mainplantyard' inhis (thecontractor's) country of registration. Figure 14.4 shows aflow chartofthe consequencesofriskswhentheyeventuate duringthe contract period. 14.5 Clause21 of the Red Book — insurance The responsibilityfor insurance is based on the responsibilities and liabilities allocatednot only to the contractorbut also those allocatedto the employer under clause 20. The gap which existed in the Third Edition wherethe contractor was requiredto insuretheworksonly against those risks of loss or damage for which he was responsible, has been eliminated in the Fourth Edition (see Construction Insurance (Reference 14.1 above), pages 198 and199). In this regard, specific items are provided in the bill of quantities for such insurance to be priced bythe contractorwhentendering. Thus, the employer pays for suchinsurance to safeguard against the possibilityof severe losses occurring during the currency of the contract which mayrenderthe contractor financially incapableofcompletingthe project.The latter prospect is unacceptablenotonly to the contractor but also to the employer. Clause 21 sets out the insurance requirements for which the contractor is responsiblehi respect of the works and the contractor's equipment. It deals with details of the scope andextent of the insurance cover requirediii respect of the works and contractor's equipment including the period of insurance, joint insurance, provision for payment in foreign currencies andother insurance features. These aspects are considered below. 14.5.1 Importance ofadequacy of cover

The fact that insurance is in force as provided in clause 21 does not alter the obligationsand duties ofthe parties under the contract.Sub-clause21.1 provides thattheworkstogetherwithmaterialsandplantforincorporationthereinshould be insured to the full replacementcost plus an additional sumof15 per centof such replacementcost,orasmaybe specifiedinPartIIofthe Conditions.This additional percentageisrequiredtocover any extra costsofandincidental to the rectification of loss or damage including professional fees and the cost of demolition and removal of any part of the worksand ofremoval of debris of whatsoever nature.

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Sub-clause21.1 also provides for insurance of the contractor's equipment and other belongings brought onto the site by the contractor, for a sum sufficient to provide fortheirreplacementat the site. The replacementcost should be reflected inthesuminsuredorthemonetary valueoftheinsurance policytobe provided for therelevant elements.Fromaninsurancepointofview,the sum insured isusually defined inthe Schedulesectionofthe insurancepolicy inaprecisemannerso as to establishthe basisofclaimsettlementif arisk coveredunderthe policy eventuates. Ifthereisunder-insurance,thevalue oftheclaimis reduced intheproportion ofthe sum indicated in the policy to the sum representing the replacement cost of the damaged element. This insurance principle is referred to as 'the average clause' and is usuallyincorporated in most contractors' all risks policies. Besides determining the insurer's liabifity,the sum insuredmust be inprecise terms because it forms the basis ofcalculatingthe insurance premium and of any analysis of the performance of the insurance transaction. The calculationof the replacement cost is basedon the contract price plus any subsequent adjustment made through variations, additions, omissions and normal inflation, such as increases in the cost of material, plant, labour and machinery. Such normal inflationreferred to as the primary inflation,should becoveredby the contractors' allriskspolicy inaddition to two other elementsofinflation inthe event oflossor damage to any completed or partially completed part of the works. These are: — The inflation between the time at which such part of the work is originally

—

carried out and the time at which it is repaired or reinstated. Such inflation is referred to here as secondary inflation. The inflation which occursduring the delay in executing any uncompleted partoftheworksaftersucheventof damage.This elementis referredtohereas the transitional inflation.

Sub-clause21.3 provides for the situation wherethere is under-insurance of any item that suffers loss or damage. In such a case, sub-clause 21.3 allocates the responsibilityfor any amounts notinsuredor not recovered fromthe insurers in respect of the cost of the replacementor repair ofthe lost or damaged itemto the partywhois responsible for thatitem pursuantto clause 20. 14.5.2

Periodofinsurance andextent ofcover

The period ofinsurance and the extent of cover to be provided duringthe period of construction and the defects liability period are set out in sub-clause 21.2. During the constructionperiod,insurancecover isrequiredfromthe start ofwork atthesiteuntilthedateofissue of therelevant taking-overcertificateinrespect of the works or any section or part thereof. This can create a gap in the insurance cover between the commencement date and the date of start of work at the site, and particularly so wherethe contract contains a substantial plant element.

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Do any

of theinsurable risks eventuateand if sowhen?

efore date of issueoftakingover certificate (TOC)

I

Afterdate of issueoftakingover certificate (TOC)

P

lscontracto

Isitan (20.4)ora contractor's risk (20.2)o combination of both?

ponsibleunder

em

4

sub-clause"

492 an

issue of TOC?

Employer's responsibility

Employer'srisk

Contractor's risks

204

20.2

I

Clause 49.3 appliesand contractor is toexecute and complete the works U at hisowncost

employer's1 Isit normal ora

___________________________

special risk 20.4, 65.2

Contractor shall rectify loss ordamage ifand tothe extent required bythe engineer 20 3

Contractor shall rectify loss ordamageat his own cost 20.2

I

Normalrisks

if

Contractor shall, and

20.3

Engineershall determine addition to the contract price and notify contractor and employer 20.3

J outwork within a reasonabletimeand without default? 48.4

Special risk

20.4 _______________

to theextent required by theengineer rectify loss ordamage

J

Doesthe

I

Account shall betaken of theproportional responsibilityofthe contractor andemployer 20.3

_____________ ______________

____

S.

Combinationof and contractor'srisks 20.3

I

65.2

*?ontractorcarry

he

No

f"damagedpart

Employeris entitled to employ other personatocarry outany works which in theengineer'sopinion were the contractor's liability 49.4

condemnedunder

"Nc1aLJ39?,z" 65.1 __________

___________________________

Contractor is liable forthe costofthe condemnedpart 65.3 _________________________

No Engineerto consult employer and contractor and determinecosts of same and notifycontractor and employer 49.4

I

No special risk an outbreak of

p

Employermay deduct such costsfrom 49.3 any monies due tocontractor

war? Yes _____________________________

See next page

Fig. 14.4 Consequences ofr(sks eventuating.

II II

Risks, Liabilities, Indemnitiesand Insurances

Contractor continues toexecute the works in accordance with engineer's instructions and engineer determines additionto contract price 20.3,52 (Fig. 14.4 Contd.)

257

The contractor shall be paid in accordance with sub-clause 65.2 and subjectto any deductions due to the employer from contractor 65.8

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Itis difficultto understand whythisrestriction hasbeen incorporatedin theRed

Book sinceit does not affectany savinginpremium andonly makes acomplicated

subjectmore complex. It is suggested in the Guide that one way of avoiding this gap mightbeto alter sub-clause21.2 through replacing the words'startof work at theSite'bythe defined term'CommencementDate'. However, a warning is given that sucha change 'couldleadto complicationsin arranging insurance' andthat 'otherwordings might be more appropriate inthecontext ofa particular contract'. Ifthis change is implementedinsub-clause21.2, thenitis suggested in theGuide, and rightly so,thata similar change should bemadeinsub-clause25.1, inorderto maintain consistency. It is, however, suggested here that no such complication should arise if the requiredprocedures are followed properly andpromptly (see Table 13.1). During the defectsliabilityperiod,the insurance cover is reduced to anylossor damage due to: first, an eventwhichoccurs duringthe constructionperiod but is not discovered until the defects liability period; and secondly, an event which occursduringthe defectsliabilityperiodwhich is'occasionedbythe Contractorin thecourseofanyoperationscarried out byhimfor thepurpose ofcomplyingwith his obligations under Clauses 49 and 50'. Clause 49 refers to any work that a contractor undertakes to completepursuantto clause 48. The division in the period of insurance intotwo parts is compatible with the period forcareofthe works as specifiedin clause 20, that division being basedon the date of issue of the taking-overcertificate. It is therefore essentialthat before issuing the taking-overcertificate, the engineer should inform the employer ofhis intention to do so,leaving adequate timeforthe employer to arrange for whatever insurance cover he wishes to obtain. It is also essentialfor both the employer and the engineer to appreciate the differencein the scopeof the contractors' all risks insurance policybetween the cover provided before and after the issue ofatakingover certificate. Thecover requiredandthat provided by insurers is reduced in scope oncethe taking-overcertificateis issued. Forfurther details see Construction Insurance (Reference 14.1 above), pages 182 to 185.

14.5.3

Joint names

The insurance policy required pursuantto clause 21 must be issued in the joint names of the employer and the contractor in respect of the works, the materials, andplant for incorporation therein, together with the additional sum of 15 per cent stipulated under sub-clause 21.1(b). Sub-clause 21.2 provides that joint insurance is requiredin respect of the specifiedinsurance covers for the whole period from the start of the work at the site until the end of the defects liability period.However, it should be notedthatjointinsuranceisnotrequiredinrespect of the contractor's equipment. To provide jointinsurance, the policy or policies must include in the relevant

Risks, Liabilities, Indemnities and Insurances

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schedule an explicit statement to that effect,and it is not sufficient to name the employer in the policy as a principal or to note his interest in its provisions. However, inconnectionwith the topicofjointinsurance, it is statedon page 73 of theGuidethat:

'during the Defects LiabilityPeriod the insurance is only against that damage whichthe Contractor is required to repairunder the termsof the DefectsLiabifity Clause and so the Employer has no insurable interest in this part of the policy. This section of the insurance could, therefore be in the name of the Contractor alone.' This statement is incorrect and misleading and is not in accordance with the requirements ofsub-clause21.2. Asexplained above,the required insurance cover extends beyond the repair of defects into loss or damage arising from a cause occurring prior to the commencement of the defects liability period. It would, therefore,be wiseandwouldcostnomoretohavethe full cover inthe jointnames of the employer and the contractor. The disadvantagesofnot having jointinsurances are many and are enumerated in Construction Insurance (Reference 14.1 above),pages197 and 198. 14.5.4 Scopeofinsurance cover

Sub-clause21.2 also identifies the scope of the insurance cover required. It states that 'the insurance.., shall cover ... the Employer andthe Contractoragainst all loss or damage from whatsoever cause arising, other than as provided in subclause 21.4.. .'. In sub-clause 21.4, the permitted exclusions from the insurance cover are set out in the terms of the employer's risks (a) to (d). Thus, a loss or damage fromwhatsoever cause otherthan the employer's risks (a) to (d) oughtto be coveredby theinsurance obtained under clause 21. Regrettably,this means that faulty materials, faultyworkmanship andfaulty designmust be insured if the requirements of sub-clause21.2 are to be fulfilled. Faulty design is not the subject of a contractors' all risks policy, other than in respect of consequencesof suchfaults. It is generallycovered under professional indemnity insurance,butthen the sum insured isonlyafraction ofthe value ofthe construction project. But, the risk offaulty materials and workmanshipisusuallyuninsurable as such cover would be in conflictwith the insurance principle of fortuity. Furthermore, employersshould alsoupholdthatprinciple,since ifsucharisk isinsured, the use of defectivematerials andworkmanship wouldin effectbe encouraged. From an employer's point of view, even if such a risk were insurable, it should not be permitted to be insured. The use of sub-standard material and workmanship is much less costly than specifiedmaterial and workmanship. Hence,wherecontractsare awarded on the

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The FIDIC Form ofContract

basis of competitivetendering, it is only a matter of time before the lowest and perhaps successful tenders are based on the supply of the cheapest possible materials and workmanship and, in many cases, at a standard lower than acceptable.Inthis connection,some may argue thatitis notessentialto have both 'if' and 'when' as unknown entities for theprinciple of fortuity to be satisfied in insurance and that the insurance prerequisites are satisfied if only one of those variablesis unknown. Thus, for example,they may argue that iffaulty material is used in a structure, fortuity wouldremain in respect ofthe time ofthe impending accident. Examples given from existing insurance practice in support of such arguments include life assurancewhereit is inevitablefora humanto die and the only question is when. However, this comparison is erroneous since the question of benefit must be consideredandwhereas deathdoesnot providefinancialgain to theperson whose lifeis insured, thecontraryistrueinthecaseoffaultymaterial and workmanship. Lessons should be learnt from the experience of tendering during times of recession. During such periods, competition for contracts is keenest and tenders are often at cost, if not below, with some contractors depending on claimsmadeduringthe constructionperiod to ensure a break-even

situation. It seemsthatthese problemswere recognisedatthe time ofwritingtheGuideor whenit was published.145 In commentingon these two issues, it is suggested in theGuide that as 'insurance is not generallyavailableforthe costs of rectification of defects', the cover required 'relates to the costs of the repair of the damage which results from the defect'. It is then added that 'sub-clause 21.2 requires the insurance to be against'lossordamage' and notforthe part ofthe work whichwas itself defective'. Unfortunately, this is all wishful thinking because sub-clauses 21.2 and 21.4 willbeinterpreted only by theirown text andnotby importing some otherwordingintotheirtext. Perhaps what wasnot appreciatedbythe draftsman is that in most cases whena defectiveor faulty partfails,it suffersloss or damage as well ascausing loss or damagetosurrounding parts. Thus,theloss or damage is not limited to thesurrounding partsbutalso extends tothedefectiveor faultypart itself.

It is essential, therefore, for anyone using the Fourth Edition to consider the risks of faulty material, workmanship and design and to decide on how they should be allocatedand, if insurance is required, how they ought to be insured. In this connection, the experience of the past few years in using the Fourth Edition shows that prudent contractorshave always written to the engineer and to the employer, as soon after the award of the contract as possible, informing themof the lack of availability of this type of insurance cover in the insurance market and requested guidance as to what action was expected of them in the

circumstances. In this connectionitis worthnoting thatthe6th Editionof theICEConditionsof Contract for Works of Civil Engineering Construction, published in 1991, has maintained the wording of its predecessor, the 5th Edition, in excluding the

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261

necessityfor insuring against the risk ofmaterialsandworkmanship incorporated in the workswhichare not in accordancewith the requirements of the contract. This continued use of that exclusionwas maintained despite the fact that the 6th Edition hadborrowed a number ofthe provisions from the Fourth Edition of the Red Book. A further problem existsinsub-clause21.4 inthat there are other risks which are not insurable and these should appear as part of the permitted exclusions,the most important of which are consequential losses and those losses due to wear

andtear.

Finally, under the heading of 'Responsibilityfor Amounts not Recovered',subclause 21.3 provides that any amounts not insured ornotrecovered from insurers aretobe bornebytheparties inaccordancewith theirresponsibilitiesunderclause 20.

14.5.5 Provisions forpayment inforeign currency

It is suggested in the Guide that where there is provision in the contract for payments tobe made to the contractorin foreign currency,it may be appropriate to add the followingsentence to sub-clause21.1: 'Theinsurance in paragraphs (a) and(b) shall provide for compensationto be payable inthe types and proportions of currenciesrequired to rectifythe loss or damage incurred.' This is an importantprovision, especiallywhenthe contractor is obligedto insure with a national insurance companywhicharranges for settlementofany claimsin local currency, despite the usual reinsurance arrangements which are made by insurers with international reinsurancecompanies. 14.5.6 Provisionfor deductibles

A second useful suggestionis madein the Guide recommendingthe addition of the following phrase to paragraph (a) of sub-clause 21.1, in connection with deductibles:

'and with deductible limits for the Employer'sRisks not exceeding ... (insert amounts)'.

Itis not clearwhythisprovision for deductiblesisnotextended to thecontractor's risks or why the provision is not incorporated in the text of clause 21, as for example, was later incorporated in the 6th Edition of the ICE Form of Contract whenpublished in 1991. The relevant item in the ICE 6th Edition is under subclause 21(2)(d) whichstates as follows:

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262

'(d) Any amounts not insured or not recovered from insurers whether as excessescarried under the policy or otherwise shall be borneby the Contractor or the Employer in accordance with their respective responsibilities under Clause 20.' 14.6 Clause22 of the Red Book— indemnity for damage to personsand

propertyother than the works

Clause 22 sets out the indemnities requiredby the employer andthe contractor towards each other in respect of: (a) (b)

death or injury to any person; or lossofor damage to any property (other thantheworks) which mayariseout of or in consequenceof the execution and completion of the works and the remedying of any defects therein, and against all claims, proceedings, damages, costs, charges and expenses whatsoever in respect thereof or in relation thereto, subject to the exceptionsdefined in sub-clause 22.2.

These indemnities are unlimited in amount, and this fact should somehow be reflectedin the tender evaluationprocedure whenthe contractor is chosen. In many respects, clause 22 complements clause 20 in that one deals with responsibilitiesand liabilitiesin respect of the works, while the other deals with those in respect of indemnities emanating from responsibilitiesandliabilitiesfor matters other than the works. An immediate distinction between the works and the site becomes apparent andaccordinglywhere thereis damage to the site, the provisions of clause 22 and not clause 20 apply. This is important in projects involvingthe construction of,for example,tunnelsor roadswherethe employer's decision to construct the works on a particular site results in certain risks being attached to that decision.Amongst these is loss or damage which emanatesfrom thepermanent use of, or occupationof, landby theworks;thatwhichresultsfrom the rightof the employer to execute the works; or that whichis the unavoidable result of the construction ofthe works or the remedying of any defectsthereinin accordance with the contract. These events are listed in paragraphs (a) to (c) amongst the exceptionsof sub-clause22.2 whichapply to the indemnity required by the employer from the contractor. It should benoted, however,thatthe exceptionin sub-clause22.2 relating to the 'unavoidable result of the execution and completion of the works and the remedying of any defectsthereinin accordancewith the contract' is restricted to property and does not extend to personal injury as was the case in the Third Edition. This means that under the Fourth Edition the contractor is requiredto indemnifythe employer inrespect ofthe unavoidablepersonalinjury as aresultof the execution and completion of the works and the remedying of any defects

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263

therein. The reason for this extension in the indemnity requiredfrom the contractor is unclear, especially in view of the difficulty, if not unavailabifity,of insuring sucha risk by the contractor under a public liability policy.14'6 The last exceptionis setout inparagraph(d) of thatsub-clause and provides an exceptionto the indemnity requiredfrom the contractor for: (a) deathoforinjury to persons or loss of or damage topropertyinso far as they result from any act or neglect of the employer, his agents, servants, or other contractors,not being employed by the contractor;or (b) any claims,proceedings, damages, costs, charges and expenses in respect of the events in (a) above or in relation thereto,

with the proviso that where the injury or damage was contributed to by the contractor,his servants or agents,the exceptionto the indemnity extends only to the extentof the responsibility of the employer, his servants or agents or other contractors. The division of this responsibility is based on what is just and equitable in the circumstances of the case in question, since no generalisation could be made for all sorts of events andcircumstances. Sub-clause22.3 sets out the requirements for the indemnity to be provided by the employer to the contractor for the exceptionsspecifiedin sub-clause 22.2. 14.7 Clause 23 of the Red Book— third partyinsurance Clause 23provides forthe insurance requirements to underwrite the indemnities specifiedin clause 22 in respect of both damage to propertyandpersonal injury other than to workmen. Once again, the fact that insurance is effected does not alter the obligationsof thepartiesas definedinclause22. Asinthe insurance ofthe works, jointinsurance is also requiredfor third party liabffity to protect both the employer andthe contractor against the liabifities specified in clause 22. While these liabilitiesare not limited in amount, the required insurance is limited to an amount stated in the Appendix to Tender under sub-clause 23.2. This fixed amount in the Appendix to Tender in respect of third party insurance is a minimum amount per occurrence. The numberof occurrences per year should be unlimited to any one period of insurance. The scope of insurance is alsolimited in so far as itmay exclude the exceptions defined in paragraphs (a), (b) and (c) of sub-clause 22.2,but not paragraph(d). This means that the insurance cover provided under this clause wouldhave to cover any act or negligence of the employer, resulting in death of or injury to persons or loss of or damage to property, other than the works. Therefore,whilstthe contractor is not required to indemnify the employer in case of a negligent act causing damage or injury to a third party, the insurance cover provided in compliancewith sub-clause 23.1 should providean indemnity to thelimitspecifiedunder sub-clause 23.2.

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The FIDIC Form ofContract

Theperiod ofinsuranceis indirectlyspecifiedbyreferenceto theloss or damage arising out of the performance of the contract. Sub-clause 23.3 provides that the insurance policy should include a cross liabifityclause suchthat the insurance is to apply to the employer and the contractor as if they were separate insureds and accordingly each would be considered as a third party towards the other. 14.8

Clause 24 of the Red Book— injury to workmenand insurance Theliabffity inrespect ofaccidentsorinjuriesto employeesofacontractoror asubcontractorisdealt with differentlyinvarious partsofthe world. Inmany countries, there are specificstatutory provisions applying to this type of liabffity and to the insurancetransactions connectedwith it, making it difficult to formulate a single clause whichcan apply to all circumstancesof a constructioncontract. Clause 24 stipulates that the employer is not to be liable for any damages or compensationpayable to any workman or other person in the employment ofthe contractororany sub-contractorunless asaresult ofan act or default forwhichhe is responsible. That responsibility includes acts or defaults of the employer's agents or servants. The clause also requires the contractor to indemnify the employer against all such damages and compensation unless they are the responsibilityof the employer. Sub-clause 24.2 provides that the contractor must insure against his liability towards hisworkmen for the whole time atwhichany person is employed by him ontheworks. Asthepremium forthis typeofinsurance is based onthepay-rollof the employer, sub-clause 24.2 provides that the contractor's obligation to insure would be satisfied if each sub-contractor insures against his own liabilities towards his own workmen in a similar manner to that done by the contractor so that the employer is indemnified under the policy. In this connection, the contractor must require his sub-contractorsto presentto the employer the policy of insurance andthe receipt for the payment of the current premium. The liabilityofthe employer for deathoforinjury to workmen ofthe contractor and hissub-contractorsasaresult ofanactor default ofhisownand arisingoutof the performance of the contract is generallycovered under the insurance policy arranged in accordancewith clause 23.1. However, this cover doesnot extend to the employer's servants or agents or to other contractorsnot being employed by the contractor as they arenot namedas jointinsureds.

14.9 Clause 25 of the Red Book — general insurancerequirements There are certain insurance requirements whichare common to the three insurance clauses21,23 and24. These are set out in clause 25. Sub-clause25.1 provides

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that evidence of compliancewiththe insurance requirements specifiedunder the contract should be providedby the contractor tothe employer priorto the start of workatthe site. As discussed inSection14.5 above,if theinsurances arerequired to be in force from the commencementdate,thenthe wordingof this sub-clause shouldbe altered accordingly.In any event, the contractoris required to produce, within84 days ofthe commencementdate, the insurance policies required under the contract andto deliver themto the employer so that theycanbe checked and approved by him. The contractor is also requiredto notify the engineer whenhe has provided these policies. Furthermore, the contractor is obliged under the provisions ofsub-clause 25.2 to produce tothe employer,whenrequiredto do so, the insurance policiesin force and thereceipts for payment ofcurrent premiums. Some commentators have expressed doubt about the adequacy of the 84 day periodfor production of the insurance policiesandespeciallyso wherecomplex projects have to be insuredwith national insurance companies.However, whilst this may have been the experiencein the past, it is important to recognise that under sub-clause 25.1, the terms of the insurance policies must be discussed between the employer and the contractorbefore the letter of acceptanceis issued. It is at that time thatthe important features of these policies aredetermined, and all that would be necessaryafterthe issueof the letter of acceptanceis simply to have these policies processed. These features should include all the critical elementsof the insurance cover, suchas: —

— — — — —

The sum insuredinthe caseofthe contractors'allrisks policyandanyrequired

indexing to be applied on such sum during the contract period and which would be necessaryto calculatethe fall replacementcost; The limit of indemnity in the case of the liabffitypolicies; The deductiblesto be applied in case of claims; The general and special exclusionsfromthe insurance cover provided; The conditions attached to the policies; and Most importantly,perhaps, the mechanism of claim settlementand whether or not there is agreement on the appointment of a specificallyappointed loss adjusterbythe insurerand the insureds. Where suchagreementis not made, a loss adjuster appointed by the insurer should be professionallyqualified and should act in a recognised professional mariner. If he does not, the whole processwould leadto disputes and disrepute.

Sub-clause 25.1 provides that the insurance policies when ultimately issued should be consistentwiththe generalterms agreed priortothe issueofthe letterof acceptance and that they should be placed with insurers approved by the employer. Some commentators147 have suggested that these provisions would entail comprehensive discussions and negotiations prior to the award of the contract butaftersubmission ofthe tenders. Otherwise,itwouldbe difficult,ifnot impossible, for a contractor to quote a definite pricefor the provision of these

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insurances. This may be the case especiallyifthe criticalfeatures ofthe insurance policiesare not preciselyspecifiedinthe tenderdocuments or if they arerequired to be altered duringthe pre-award negotiations. More importantly, it wouldbe a speculative task for the contractor to quote a definite price if insurance is not available for some of the risks requiredto be covered under the contract, such as the faulty material, workmanship or design cover required under the strictinterpretation of the wordingofclauses 20 and 21. Sub-clause25.2 places an obligation on the contractor to notify the insurers of anychange inthenature, extent orprogrammefortheexecutionof theworks. This provision is necessaryas it is a usual condition ofthe contractors' allrisks policy that any such change must be notified to the insurer in case there is a material changein theriskscovered.Theinsurance covermay beinvalidated ifthe insurers are not made aware of such changes or, indeed, any other condition imposed under the terms of the policy. The contractor is also required to ensure the adequacy of the insurances at all times in accordancewith the terms of the contract. This obligation is a continuing one and the contractor would be wise to clarifythe position regarding anyrisksforwhichinsuranceis not available,at the earliest possible time, but in all circumstances not later than the pre-award negotiations. Ifthe contractor fails to effect and keep inforce any of the insurances required underthe contractorifhefails toprovidethepolicieswithinthe84 daysspecified insub-clause25.1, thentheemployer mayeffectandkeep inforce suchinsurances. This provision is undersub-clause25.3 whichalsoentitlesthe employer topaythe premium necessary for effectingandkeeping in force suchinsurances and then deducting the amounts paid from any monies due or to become due or as a debt duefrom the contractor. In the eventthat either the employer or the contractor fails to comply with the conditions of the insurance policy or policies,sub-clause 25.4 provides that each must indemnify the otheragainst all losses or claims arising from suchfailure. Figure 14.5 shows a summary ofthe insurance arrangements as required inthe Fourth Edition of the Red Book.

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14.10 Part II of the Red Book insurance arranged by the employer

In certain circumstances,it may be preferable for the employer to arrange the insurances requiredunderthe contract.This possibilityhasbeenrecognised inthe Fourth Edition and Part II includes examples for suchinsurance arrangement. Should this be the case,it is recommended that this course of actionis decided uponprior to thetenderstage andin sucha case,the employer shouldspecifyin thetenderdocumentsthe extent,typeand duration ofinsurancetobeprovided by him. The contractorshouldthenbegiven the opportunity to examinethe detailsof the insurance cover providedby the employer and should be permitted to effect,

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at his owncost, any additional insurance cover he mayrequire. In this regard, a clause should be inserted inthe Conditions to the effect that: 'The Employer shall, before commencingthe Works andwhenever required, produceto the Contractor for inspection any policy or policies of insurance requiredunder these Conditions, together with the receipts in respect of premiums paid under suchpolicy or policies.'

Indrafting clauses20to25 toreplacethose inPartI, thespecific requirements of the project in question should be considered. Furthermore, considerationshould be given to reorganisingthese clausesin a waythat wouldreflectthe logic in the flow from risk to responsibilityto liabilityto indemnity to insurance.148 14.11 Definitions The followingis a glossary of terms usedfor the purpose of the presentchapter, arranged in alphabeticalorder irrespective of theirsource or topic:149

Civilwar Civilwaris defined as large scale andsustained hostilities(as distinct from mere revolt or rising) betweenthe organised armed forces of two or more factions within one state, or between the government and a rebel or insurgent group within the same state. Commotion Commotionmay be defined as public disorder and physical disturbance.

Hazard Hazardis defined as a dormant potential for inconvenience,loss, damage, injury or loss of life. It is triggered by a certain incident referred to as a 'triggering incident' resulting in the occurrenceof an undesirable event. Hostilities(whetlurwar declared ornot) Hostilities are acts of enmity and antagonism by persons acting as the agents of sovereign powers, or of suchorganised andconsiderableforces as are entitled to the rank ofrebels as compared with mobs andrioters. This doesnot cover the act ofa mereprivate individual acting entirely onhis owninitiative,however hostile his actionmaybe.

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Contractor andemployeragree general termsof insurance 25.1

Letter ofacceptance

Should hewishtodosotheemployermay insure theexcluded employer's risks statedin 24.1 and22.2(a), (b) and (c) insofar as any is insurable (nota contractcondition)

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V

V

--V

CAR

PL

EL

In respect ofexclusions tocontractor'spolicies (i.e. employer's risks) in sofar asthese are

In respect ofexceptions definedbysub-clause 22.2(a), (b) and (C): 22.3 and 24.1, and own acts and/ordefault

In respect ofown

insurable

employees and for his own actsordefault underclauses 19.1; 31.1; 49.4; 63.1 and 64.1

21.4 V V

V

V

Employerretains uninsured risks and indemnifiescontractorin respect of injury, and/or damage in respect ofsame V

CAR

Contractorto takefull responsibility forcareofthe works,material and plant

PL Contractor shall indemnify

EL Contractor shall beliablefor

employeragainst personal injuryorloss ordamage to property otherthan theworks

damages orcompensation to workmen otherthan dueto act ordefaultofemployer, etc.

20.1

22.1

24.1 V

Contractoristo provide joint insurance ofthe contractor's risksand employer's risks except forthe exclusions stated in24.1, 22.2(a), (b) and (c), 21 23

CAR(loint names) Forworks,materials, plant,

forpersons and property,

PL (joint names)

EL (contractorand

equipment replacement costs, additional sum 21.1

specified amount, unlimited numberofclaims 23

forown employees

sub-contractors) 24.2 I

I

]Gotonextpage Fig. 14.5 The insurance scheme as in the Fourth Edition ofthe Red Book,

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Contractor and employer are

to comply with conditions and terms of policies. In the case of failure todoso, the defaulting partyis to indemnify the 25.4

Anyamountsnotinsured ornotrecoveredaretobe borne bythepartiesinaccordancewith responsibilitiesunder clause20

21.3

Insurance remainsinforcefor specifiedperiod and subject to excess limits,sum insured,limit of indemnityand by exclusions stipulatedinthepolicies, the contractor isto ensureadequacyand when required producepolicies.

Theinsurance cover in the joint namesshould remain tocover the contractor'sliabilityforloss ordamage froma cause priorto IDLP and fromthecontractor's operations under clauses49 and 50

(Fig. 14.5Contd.)

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Indemnity indemnity is an undertaking to compensatefor loss, damage, or expense whicha partyhas sufferedin consequenceofthe act or default ofanother.Thus, a contract of indemnity is one where a partyA undertakes to assume the legal liability to which another party 13 may be held. This liability may be either towards A or towards another party C. Insurance Insuranceis defined as the equitable financialcontributionofmany for the benefit of an individual party which has suffered a loss. This contribution is made through payment of a premium for which an insurance policy is issued. The insurance policy takes the form of a contract of indemnity. Insurrection Insurrection is a termgenerally used to meanan uprising or mutinyagainst the constitutedauthority ofa state. Itislesser inscopeand purpose than thatwhichis designated for revolution or rebellion. Liability Liabilityis the legal concept ofone partybeing subjectto the power of another,or to a ruleof law requiring somethingto be done or not done. This requirement to do somethingor notto do it canbe compelledby legal process at theother party's instance.It is sometimescalled subjection. Liabilitymay arise either from voluntary act or by force of some rule of law. Thus, a person who enters intoa contract becomesliable to perform what he has undertaken, or topayfor the counterpart performance,or otherwiseto implement his part ofthe bargain. Ifhe acts inbreach ofcontract,hebecomes liable bylaw to pay damages incompensationforthat breach.Similarly,if a person acts inbreach of any of the general duties imposed by law, such as the exercise of care and diligencein certain circumstances,that person incurs legal liabifityto make good any omissionor default he commits.

Militaryorusurped power Without usingwordsof rigorous accuracy,military andusurpedpowersuggests something more in the nature of war and civil war than riot and tumult. It is notable that the words 'military power' do not refer to military power of a government lawfully exercised. The disjunctive 'or' is used to denote contrast between the words'military' and'usurped'.Thus,these wordsshouldnotberead as 'usurped,military power'.

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Rebellion Rebellionis a violent opposition by a substantial group of persons against the lawfully constituted authority in a state, so substantial as to amount to an attempt to overthrow that authority. Responsibility

A person is said to be responsible for certain events if his conduct has been a material factor in bringing them about. In this sense, responsibifity means little more than having caused the events to occur and does not necessarily imply accountability. Accountability for the consequences of an event entails legal responsibilitywhichrequires the person tobeofsuchan ageandin suchastateof mind and body that he is deemed to be capable of controlling his conduct rationally and objectively.

Riot Riotisa tumultuous disturbanceofthe peaceby threeormorepersons assembled together without lawful authority, with intentto assist eachother, ifnecessaryby force, against anyone who opposes theminthe executionof a common unlawful purpose, and who executeorbegin to executethat purpose in a violent manner so as to alarm at least one personof reasonable firmness and courage. The usual consequenceof riot is destruction of property.

Risk Riskis a combinationof the probability,or frequency,of occurrenceof a defined hazard and the magnitude of the consequencesof the occurrence. Strike Strike is ausualtermgiven for a simultaneousand concertedcessationofworkby an employer's employees,or a substantial group of them, normally related to an industrial dispute. Itis a breach ofcontract byeachworkman, unless duenotice of intent to terminate employment be given by each, in which case it is not considereda breach of contract, but is not ifiegalor criminalunless it involves committingcriminal acts. Courts are generallyforbidden to require an employee to attendfor workby order of specific performance of a contract ofemployment or by an injunction restraining a breach of suchcontract.

War War is a forciblecontention between one state orgroupofstates and another state or groupof states through theapplicationofarmedforce and other measureswith

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the purpose of overpowering the other side and securing certain claims or demands.Waris recognisedandsoughtto be regulated byinternational law, even thoughit does involve breach ofpeaceful relationsbetweenthewarring states. Its existencebrings into play a great bodyof legal rules attempting to define parties' rights and duties.

Chapter 15

Performance and other Securities

15.1 Introduction

In therecentpast, theneedfor securities has grown rapidly mainly due to worldwide economic growth in general terms. But intermediate periods of economic recession have served to emphasize the benefits, if not the necessity, for such securities from the pointof view of sound business management. Furthermore, thisfieldhas emerged from its original,relativelyrestricted roleof protecting the capital at risk into a credit and financial management role within the whole business decision-makingprocess. However, this developmenttook place in differentdirections aroundthe world and the terminology for similar concepts differs from one part of the world to another. Forms of performancesecurity of various types are referred to as bonds, guarantees, demand guarantees, conditional guarantees, sureties and standby letters of credit. To a large extent, some of these securities are synonymous and their purpose only differs in detail. Some areissuedby banks, others by certain insurance companies,andinsome cases byboth.151 Except ina few cases,suchas customs guarantees, securities rest on latent contractual obligationsbetween two parties.152 The suretyorthe guarantor actingfor oneparty against afeewill, inthe event of non-performanceby that party, step in and fulfil a certain specified obligation.The responsibilitypasses to the suretyor guarantor only ifthe party in question is unable or unwilling to fulfil its own obligation in the underlying contract. In this way, it differs from an insurance policy which is a contract of indemnity. Accordingly,a form of security doesnot demand the heavy duty of disclosure of all known risks by the guaranteed party as is the case for aninsured partyin an insurance contract. Although thereare fundamental differencesbetween aninsurance policy anda form of security, they both perform a similar function in providing protection against an undesirable event occurring during a particular contract.Referenceto securities canbe seen inFigure 14.3 in Chapter 14, wheresecurities are marked as the appropriate route to protection against non-performance by either the employer or the contractor of certain aspects of their respective obligationsand responsibifitiestowards the other. Where the employer is concerned, the main obligation covered by a security is the payment obligation,whereas for the con-

273

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The FIDIC Fonn ofContract

tractorit is the executionof the works. Historically,securities were first required intheformof cash deposits and later developed intoguarantees issued by athird party. The security for a payment protection developed in the shape of a bank guarantee in the same manner as a 'letter of credit' in aninternational sales contract, wherethe guarantee essentially depends on an eventtakingplace or on a date reached. A letterof creditis effectivelya guarantee of an automatic payment by a purchaser inadvance ofreceipt or acceptanceofgoods supplied to himby a supplier. Should the purchaser find a defect inthe goods suppliedafter the letter of credit has been cashed,the onlyremedy availableto himwouldbeto pursuethe matter inlitigation.Aless extreme casewouldbewhereundertheletter of credit a certain eventis made conditional upon the call for payment but usuallysuch an event could be easily established. In construction,for instance,a letter ofcreditmay be issued by an employer in one country to a manufacturer in another in respect of thesupplyofcertain plant. The obligationto paythroughtheletter of credit canbe activatedonce deliveryis made onthe evidenceofapresentationof abill oflading or some otherform of receipt. The security for protection against non-performanceby the contractor developed in the form of a performance bond issued by a bank or a surety requiring proofofthe contractor'sdefault andof damage suffered.However,thisprotection wassubsequently extended to provide for a typeof bondwhere actual default or lossis irrelevanttothe enforcementofthesecurityprovisions,thusresemblingthe employer's type of security described above. The latter is referred to as 'on demand' or 'unconditional' performance guarantees. In this chapter, the differences between the various forms of security are highlighted, followed by the requirements of the Red Book which are then discussed inrelation to the whole process of construction.

15.2 The spectrum of securities There are threebasic forms of securities. In all of these, the guaranteed party is referred to as the principal party; the counterparty in the underlying contract is referred to as the beneficiary;andthe guarantor which issues the guarantee, the

bond,the suretyor the credit. Ononeendof thatspectrum of securitiesisthe documentarycreditform where the guaranteed party, the principal, arranges for a creditto be issuedby a bank whichwould be directly called upon, by the beneficiary,to pay in the event of non-performance by the principal. The beneficiary may resort to the principal pursuantto theunderlying contractonly if this demand fails,withoutanyfaulton the part of the beneficiary. On the otherendof the spectrum is the suretyship guarantee. This guarantee is in the form of a bond where the beneficiary must establish default by the

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principal before he can demand from the guarantor payment or performance of the obligation which had not been performed by the principal. This latter option of performing the obligation can be exercised by the guarantor only if it is specificallypermitted in the form of a bond. If default is established, the guarantor becomes liable for the amount of the loss suffered as a result of the default, within a maximum amount stated in the guarantee, but subject to any defences availableto the principal. In this connection,a conditional guarantee is similar to the suretyship guarantee, but when default is established and the guarantee is called, the guarantor covers the beneficiary up to an agreed maximum sum. The suretyship guarantee is accessory to the underlying contract and the entity giving the security is entitled to invoke against the beneficiary all defenceswhichthe principal debtor can raise in accordance with the underlying contract.

Between these two forms of securities lies the demand guarantee. Under this guarantee,performance is first required to be carried out bythe principal through the underlying contract.Theguarantee is intended to apply only if theprincipal fails to perform the obligations in the underlying contract, in which case the beneficiary can call on the guarantee. Such call on the guarantee shouldnot be madeunlessthereis default. Accordingly,the demand guarantee is inthisrespect dependent on the underlying contract. However, it is independent from the underlying contract to the extentthat the obligationsand liabilityof the guarantor are solely defined by the terms and conditions mentioned in the guarantee withoutthe necessity of establishing defaultor the defences which the principal could raise. There are a number of varieties of this form of guarantee contrasted by dependence on whether or not the beneficiary is requiredto present any documentation with his demand and also on the type of such documentation. For example,the guaranteemay simply be payable on first written demand, or itmay be thatthe demand be accompaniedby a statement that a default has occurred,or itmayfurther require that the default beidentified. However,althoughdefault is an essential prerequisite to the call of the guarantee, this principle is sometimes abusedintentionally andthe guarantee is called in the knowledge that the principal had not been in default. Inthis connection,it isworthyofnotethat standby letters ofcreditareaformof demand guarantees. They originated in the United States to circumvent the problem ofinabifityofthe banksthere toissueguarantees.The differenttitledoes not, however, change their naturebut the banking industry has tendedto apply some characteristicsof documentary credits thus creating differencesinbusiness practice. The confusion in terminologyextends to Europe where in commercial practice both accessory suretyship and demand guarantees are referred to as guarantees. In some jurisdictions, including England, accessory suretyship is referred to sometimes as conditional guarantee and in construction contracts as

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The FIDIC Form ofContract

performance bond, whereas demand guarantees are referred to as unconditional guarantees. The above range of securities includes many types as the following section outlines. 15.3 Typesof securities Some ofthe maintypes ofsecuritiesused inrelation toconstructioncontractsmay be identified as follows: (a) Customs, tax and/or similar bonds: These securities are issuedto guarantee thepayment of import duties, exciseandrelated taxes in accordancewith the legal requirements governing the entry of goods intoa country. (b) Contractbonds: These bonds secure due performance of a contract, The main categoriesofsuchbonds arebid, performance,payment and advancepayment bonds. Inconnectionwiththe performancebond, itissometimesissued forthe 'proper' executionandcompletion of the construction contract involving the properperformanceinrespect ofeachand every obligationinaccordancewith theterms ofthat contract.This maybe interpreted to meanthatthebeneficiary is covered for latent defectsin the worksduringthe period of validity of the bondand,hence, carefulconsiderationshould begiven tothe dateofrelease of thebondand whether it should extend beyond the dateofthe defectsliabifity period.153 (c) Maintenance bonds: These bonds provide protection against defective

materials and workmanship arising during the defects liability period of the

contract. (d) Bid bonds: These bonds are tendered by the party biddingfor a supply or

constructioncontractto guarantee thatifawardedthe contract,the bidderwifi infact enterintothe contract and furnish the prescribedperformance and/or any other specifiedbond. (e) Fidelity bonds: These bonds protect an employer against loss arising from fraudulent or dishonest acts of employees. (f) Financialbonds: These bonds comprise guarantees for the payment of rent (lease bonds) and judicial bonds, including payments to a courtin respect of legal proceedings (court bonds). (g) Licence, concessionor permitbonds: Thesebonds are usually requiredbefore a licenceto engage ina particular business is granted by a public or statutory body.

Inthenextsection of this chapter thethreemost important types ofbondsfrom thepointofviewofthe RedBookarediscussed.They are: the payment guarantee, the performancebond, and the demand guarantee.

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15.4 Characteristics of performance bonds and guarantees

Itisnecessaryto considerindetail thecharacteristicsoftheperformancesecurities relevant tothe Red Bookbeforeexaminingthe provisionsofthatdocument inlater sections of this chapter for obtaining andproviding suchsecurities. 15.4.1

Paymentguarantees Payment guarantees are issued by a bank which undertakes by the guarantee to make, or to return, a certain payment shouldthe guaranteed party, the principal, fail to do so in accordance with an underlying contract. For example, advance payments are sometimesmadebyan employer to acontractor forthe purchase of certain machinery at the commencementof a contract. Similarly,advance payments are made by an employer to a contractor or by a contractor to a subcontractor in respect of mobiisation or commissioningof some specific design duties. Theseadvance paymentswouldhavetobereturnedby deductionsfrommonies that would become due at a later stage or in accordance with a schedule of repayments. Any default in the agreed programme forrepaymentswouldhave to be safeguarded by the issue ofsuch payment guarantees. Accordingly,these guarantees are usually issued by a bank on the basis of an unconditional or on-demand call. In some cases, the amount secured by the guarantee is reduced progressively as the work covered by it is executed during

the contract.

Anotherexample ofthistype ofsecurityisapayment guaranteegiven byabank at the request of an employer in respect of interim payment certificatesto a contractor. Inthis case,the employer wouldbethe principal underthe guaranteeand the contractor wouldbe thebeneficiary. 15.4.2 Performancebonds

As explained earlier, a performance bond maybe defined as an undertaking to perform an obligation of a bonded party, called the principal, if and whenthat principal failsinitsperformance.Thepromised obligationcanbea simpleoneora complex combination of many duties expressly provided in an agreement. The consequences of a default by the bondedparty under this type of bond can be either: the proper completion of the contract; or the payment of an amount of money required to complete the contract properly; or the payment of the whole amount of the bond. However, the wordingof the bond must be specificin this respect andmust also specifythe circumstancesor the conditionswhichwould trigger these consequences. Unfortunately,the standardform of bondused inmany constructioncontracts has beenthe cause of considerable confusion and uncertainty, not only to those

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The FIDIC Form ofContract

usingit, but also to the courts whose responsibilityit is to interpret it in theevent of litigation.Inparticular, therehas beenconfusion as to the meaning ofthe exact nature of the obligation created by such a form in view of the archaic English wordinggenerally used despite repeated complaints. Many construction court cases have resulted in the sureties being able to discharge themselves from liability they hadundertaken by the bonds they hadissued. In arelevant case from thispointofview, abondsman ina constructioncontract sought unsuccessfullyto argue that he hadentered intoan insurance contract. In this case,Lord Atkinreferred to the traditional form of bond as follows:

'I entertain no doubt that this was a guarantee, andthe rights of the parties should be regulated on that footing. I may be allowed to remark that it is dif-

ficult to understand why businessmen persist in entering upon considerable obligationsinold-fashionedforms ofcontract whichdonot adequately express the true transaction...Why insurance of credits or contracts, if insurance is intended, or guarantees of the same, if guarantees are intended, should not be expressed inappropriate language, passes comprehension.It iscertainly notthe faultof lawyers.'

He did not offer his opinion on where the faultlay,but presumably he meant that itis the faultof those whohadrecommended andcontinued to recommend the use of such standard forms and of those who sign them; essentially both parties have been fromwithinthe constructionindustry.154 Adverse comments on the wordingof the traditional standard form of bond were made on numerous occasions.155 In 1992, in a case in the English Court of Appeal, Mercersv. New Hampshire,itwascommented that 'Theconstructionof the bondis not assisted by its archaic language'.156 More recently,two cases areworthy ofnote and study. The first isthe Perarcase in the EnglishCourt ofAppealrelating to a design andbuildcontract under the 1981 JCT Form of Contract.157 Inthe words of an authoritative author, a reasonably intelligent bystander wouldbe likely to concludethat:

'the lawyers and judgeshad all danced happily on the head of a pin;that the

person directly or indirectly paying for the premiums on the bond (i.e. the constructionowner) had been cleverly and legallypersuaded, as so often, into paying for a valueless bond; and that the bondsman hadbeen permitted, as so often,to pockethis premiums andescape scot-freefrom his obligationswithout anyone expressingaword of regret and, so far as anybody could tell, with the blessing of the Courtof Appeat'158 However, due to the peculiar circumstancesof the Perar case, its application in general is perhaps limited to highlightingthe importance of having to secure a properly worded bond incorporating the essential characteristics of such a

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document. This is particularly relevant to the employer and his advisers who shouldpay attention to the requirements of a properly wordedbond,as outlined below.

The second case was Trafalgar House Construction (Regions) Limited v. General Surety and Guarantee (1994) where the English Court of Appeal held, on an identical form of bond to that in the Perar case, that it imported an on-demand obligation.Attention was focused onthe words'or if,ondefaultofthe (principal),the surety shall satisfy the damages sustained by the (beneficiary) thereby up to the amount of the bond'. This wording, amongst other factors, led to the above decision which was later overruled in the House of Lords.159 However,before it wasoverruled, itsent reverberatingshocksthroughout theconstructionindustry, domesticallyand elsewhere,wherever similar traditional forms ofbondhadbeen used. In some instances, such a traditional form had beenused for a very long time. Various organisations abandoned the standard form and commissioned legal advisers to rewrite the document. It is expected that some new forms wifi nowemerge basedonthe experiencegained from these and otherprevious cases, encompassingsome,ifnot all, ofthe followingsuggested requirementsfor bonds and be adopted by the construction industry: (a) The bond should remain in force until the obligationsof the principal party, in whose name the bond is issued, are completelyfulfilled. There shouldbe no cancellationclause and no termination date within the performance period. In this regard, it is important to check the wording of the proposed form of bond to ascertain that it is worded in clear, understandable language andthat it does not include any restrictions, sometimesfostered and promoted by the guarantor, which might permit its cancellation or invali-

dateits effect.

(b)In construction and particularly in international contracts, the traditional

archaicbond wording should be abandoned, and instead there should be a simple undertaking ina clear wordingtoperform properly all the contractor's obligationsunder the relevant contract. document should be legallysoundunder the provisions ofthe applicable The (c)

law ofthe contract. (d) There should be noreferenceto,orprovision for, orrelease ofthisundertaking atany particular time duringthevalidity period ofthe performancebond. The validity period should extend eitherto the date of the final certificateif the proper or due performance is requiredagainst a breach during the contract periodor to the end ofthe limitationperiod, as specifiedunderthe applicable law ofthecontract,ifproperordueperformanceis required to extend tolatent defects.

(e) There should be no provision requiring notice to be given to the bondsman within a set period of time, whether of the contractor's default or of the employer's intention to claim, as this would impose an almost impossible

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burdenonboththeemployer and thecontractortofulfilproperly. Anexample of suchan onerous provision is given hereunder: 'This bondis executed ... uponthe followingexpressconditions,which shall be the conditions precedent to the right of the employers to recover hereunder. The surety shall be notified in writing of any non-performanceor non-observanceon the part of the Contractor of any of the stipulations or conditions contained in the contract and on their part be performed and observed, which may involve a loss for which the surety is responsible within one month after suchnon-performance or non-observanceit shall havecometo theknowledge ofthe Employeror hisrepresentativeshaving supervision of the contract... and the Employer shall insofar as it may be lawful permitthe surety to perform the stipulations ... of thesaidcontract whichthe Contractorshallhave failedto perform. .

It is impossibleto visualise how the draftsman of that provision could have beenreferring to a constructioncontract whenformulating its text. Theusual daily events on such a contract would have to result in continuous notifi-

cations to the surety. It is also difficult, if not impossible, to visualise the surety's reaction to suchnotifications. (f) There should be no other condition or restriction imposed on enforcement (e.g., exhaustion of prior remedies against the contractor, or the obtaining of an award or judgment). (g) There should beno referenceto interest orlegal costs in the contextofanylimit stipulated in the bond. The bond limit should ideally be expressed to be exclusive of interest and legal costs,whether due from the contractor or the bondsman. (h) There should be express provision that the bond cannot be voided by reason of: (i)

any alteration of the contract made between the employer andthe con-

tractor; any alteration in the natureor extentof theworkto be carried out; any allowanceof time to thecontractor; any indulgence,or additional or advance payment, forbearancepayment or concessionto the contractor; (v) any compromise of any disputewith the contractor; and (vi) any failure of supervision or failure to detect or prevent any fault of the contractor. Itissuggested thatthose whoseek and insist uponabondinthe wordingthey require wifi find that, in most circumstances,there will be no difficulty in obtaining one inthe above terms.151° (i) In contrast with the above positive requirements, it is usual and perhaps necessary to incorporate the negative condition that the performance bond (ii) (iii) (iv)

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wouldbe rendered unenforceableby a beneficiarywhois himselfinbreach of contract. Furthermore,it may be necessaryfor the principal to insist that the beneficiarymust not assign his rights under the bond. Finally, it is notable that careful consideration should also be given to whether ornotto accept the condition,generallyimposed by standardforms of bond, that

upon default by the principal, the guarantor may perform the principal's obligations under the contract and complete the workshimself.The concernrelating to theinclusionof suchcondition is due to thefearthat thework will thenbe done at minimum cost and with inferior quality andthe consequential difficultiesin exercisingcontrol of the standards requiredunder the contract. 15.4.3 Demand guarantees

As statedearlier,a demand guarantee is issued by a guarantor in suchterms that shouldthe guaranteed party, the principal, default in the performance of certain obligations,the guarantor undertakes to pay a certain amount to the beneficiary. Where the guarantoris a bank, it is referred to as the issuing bank, and if the beneficiary insists on the issuing bank being based in his own country and the guaranteed party is unwilling or unable to comply,then the demand guaranteeis issuedby a chain of banks. In thefirstalternative,the issuing bank requires and obtainswhat is referred to as a counter indemnity from itscustomer,theprincipal or theguaranteed party, in the form ofa debit to its account forall claimsreceived and paid.Accordingly,as soon as the guarantee is called by the beneficiary and a payment is made, the system willsimultaneously produce a debitin the principal's bank account. In the second alternative where there is a chain of banks, the issuing bank requires and obtains a counter indemnity from either the instructing correspondent bank or directly from the principal, depending on the particular circumstances. The demand guarantee andthe counter indemnity are usually worded in a careful manner so that one does not expire before the other.1511 Figure 15.1 shows these two alternatives. The accumulating costs involved in issuing the guarantee and the counter indemnities are payable by the principal. To create the obligation to pay the guaranteed sum,the beneficiaryneeds only make the demand for payment from the issuing bank. In most, ifnot all cases,the only defenceavailableto a bank isfraud bythe beneficiarywhichmust be known to the issuing bank at thetime of presentation of the demand. The unconditional nature of these securities has originated from other commercialcontractswherethe principle of an irrevocableletter ofcreditis used. The obligation to pay through the letter of credit can be activated once delivery is effectedonthe evidenceof a presentationof abill ofladingor some other form of receipt. In a similar manner, a performance guarantee is usually unconditional but in

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4

Beneficj

Guar:;eed

Issuing bank

ficj

I

J_i

_________________________

_#

Fig. 15.1 The two alternatives of issuing a performance guarantee.

the less extremecase,a condition can be inserted in the form of a necessary notificationof a breach committed by the guaranteed party. In construction,perhapsthe most serious problemin this typeof performance guarantee, whether unconditional or with simple and easily ascertainable conditions, is that it is extremelyexpensive and badvaluefor the money expended fromtheemployer'sperspective;andfroma contractor'spointofview, it could be ruinousif unjustifiablycalled. In the well-known English case of Edward Owen Ltd v. Barclays betweenan engineering company and its instructing bank, the problems of such securities were highlighted and discussed.1512 Edward Owen Engineering, an English company, was awarded a contract which was subject to Libyan laws. Payment was to be by letter of credit issued by a Libyan bank on behalf of the Libyan buyers. The engineering company was to provide a performance guarantee in favourofthe Libyanbuyers. The bondwas duly opened by Barclays Bankwhich gave the followingundertaking as a counter indemnity to the Libyanbank: 'We confirm our guarantee payable on demand withoutproof or conditions'. The

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Libyan bank issuedtheir guarantee to the Libyan beneficiary.The Libyan bank, however, failedto issuethe letterofcredit infavourof Owen Engineeringand the Libyanbuyers claimedon the guarantee. The Libyanbank claimedfrom Barclays, the instructing bank, but an injunction was sought by Owen Engineering, to prevent them from making a payment. In a lengthy judgment the following comments summed up the judges' decision which went against the English company:

'So, as one takes instance afterinstance,these performance guarantees are virtuallypromissory notes payable on demand. So long as the Libyan customers make anhonestdemand, the banks are boundto pay: andthe bankswillrarely, if ever, be in a position to know whetherthe demand is honestor not. At any rate theywifi not be able to proveit to be dishonest. So they will haveto pay.' and

'Theposition ofaBankwhichhas given abondpayable on demand issimilar to that of a Bankwhichhas openeda confirmedIrrevocableLetter ofCredit. Such obligations are the life blood of International Commerce and it is only in exceptionalcases, suchas fraud known to the Bank,that the Courts willinterfere.' The Courtfurther statedthat the: 'Performance Bonds mustbe honoured to the letter as between Banks and that questions between the buyers and sellers must be dealt with between themselves in this case presumably by Libyan Law.'

-

Thejudgeenumerated the instancesinwhichsuch a guaranteemightbe called andreferred to the extreme case where mere allegationsare made withoutany proof as one bearing the appearance of a discount. He stated:

'Itis obviousthatthatcourse ofaction canbefollowed,not only whenthereare

substantial breaches ofcontract,but alsowhenthe breaches are insubstantial or trivial, in which case they bear the colour of a penalty rather than liquidated damages: or even when the breaches are merely allegations by the customer withoutany proofat all: or even when thebreaches arenon-existent.The performance guarantee then bears the colour of a discount on the priceof 10 per cent, or 5 per cent, or as the case may be. The customer can always enforce payment by making a claim on the guarantee andit willthen be passed down the line to the English supplier. This possibility is so real that the English supplier, ifhe is wise, wifihavetakenit into account whenquoting his price for the contract.'

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In afurthercase aroundthe same time, R.D. Harbottle (Mercantile)Ltdv. National Westminster BankLtd. the EnglishNationalWestminsterBankwas takentocourtin

similar circumstancesby R.D. Harbottle who claimed that a demand under a guaranteeissued byNational WestminsterBankontheirbehalf was unjustified or even fraudulent as the goods hadbeen supplied by them as per the contract.1513 Once again the court ruled in favour of the Bank stating that: 'Performance guarantees in such unqualified terms seemed astonishing but apparently they were not unusual particularly with customers in the Middle East. In effect, the sellersrely on the probity andreputation of theirbuyers and ontheirgood relationswith them. Butthistrust is inevitablysometimesabused, and I understand that suchguarantees are sometimes drawnupon, partly or wholly, without any or any apparent justification, almost as though they represented a discount infavourof the buyers. In suchcases the sellers are then left merely with claims for breaches of contract against their buyers and the difficultyof establishingandenforcingsuch claims.' The judgment further stated thatthe:

'Courtswere not concerned with enforcing claims andcounterclaimsbetween buyers and sellers — thesewere the risks merchants took. Harbottle had taken the risk on theunconditional wordingofthe guarantee. The commitmentsof a Bank were on a differentlevel andmust be allowed to be honoured free from interference by the courts, otherwise trust in International Commercecould be irreparably damaged.' FIDIC does not advocate the use of on-demand guarantees.This is stated in the Guide(referred to in Reference9.1) on page 58 and the reasongiven is that such

guarantees canbe calledwithoutjustification,andtheiruse is likelyto increasethe tender sum to reflect this risk. Authoritative writers have also condemned this typeof securities.In Construction Contracts, Principlesand Policiesin Tortand Contract, Volume 2 (Reference 15.8 above),the followingwas said of these securities: 'Theuse ofthis typeofbondis unwise, atleastwithoutafullunderstanding of the consequences'.Later, on page 314 ofthatbook, the followingcommentwas made: (a) Ownerswhohavenointentionofcallingsuchabondirresponsiblymaywell

find that tendering contractors, influenced by adverse experience of the unwarranted calling of bonds elsewhere,may increase theirprices excessivelytocover the contingency.Indeed the mererequirement ofsuchabond inevitablysuggests an unwillingnessby the owner to accept,in a potential future dispute, the decisions of an independent tribunal, so that the psychologicaleffectonpricing may be muchmore substantialthan is realised. (b) Inanyevent, the directcost ofobtainingsuchbonds (whichmustinevitably enterthe contractprice) is very substantial,and is increased still further by

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the fact that two, and sometimes three or more banks or bondsmen can involve themselves simultaneously in one project. Thus a frequently met arrangementis for the owner/buyerto require the bondorguarantee tobe furnished tohimbyabank inhisown country (which is likelyto be a docile payer on demand and may evenbe closely linked to the buyer) with an unconditional counter-indemnityprovided to thatbank by a tradingbank in the seller's/contractor's country, with quite possibly a further counterindemnity to thatbankfromthe contractor'sown domesticbank. All these banks wifi charge for these guarantees or indemnities (notwithstanding that only the contractor's domestic, or otherlast bank in the line, willbe effectively at risk,since the remainder are only guaranteeing the solvency ofother banks). Notonly,however, mustthecontractor price directlyforall thesebanks'directcharges,but sincethe stringof indemnitieswillresultin promptdebiting of thecontractor's ownbank account,should thebondbe called by the owner, the contractor will need to price in additionfor the contingenteffectonhis ownfinancesof anirresponsibleor unjustifiedcall.' An analysis carried out on 40 constructionarbitration awards renderedunder the Rules of Conciliationand Arbitration of the International Chamber of Commerce in Paris between1988 and1990 showed that from the legal point ofview, conflict between the parties arose in matters relating to bank guarantees and performancebondsin25 per centofthe cases.Thecomparablefigure inrelation to interpretation and qualificationof the contract was 25 per cent; 17.5 per centin relation to repudiation or termination of the contract; 12.5 per centin respect of retention of monies due and20 per centin respect of other matters such as formationof the contract,the arbitrator's powerto adoptthe agreement,warranties, novation or monetary conversion. This is a very high percentage indeed for guarantees and bonds.1514 15.5

The ICC UniformRulesfor Demand Guarantees The abuse of the principles of demand guarantees, discussed above, by unfair callingled in 1992 to the publication of Uniform Rules for Demand Guarantees, URDG, by the International Chamber of Commerce in Paris.1515 These Rules sought tointroduce uniformityofapplicationandgoverning principles relating to demand guarantees.An important guideto these Ruleswas alsopublished inthe same year providing an important studyofthe operational andjudicial issues on demand guarantees.156 The URDG Rules comprise28 articlesandprovideinArticle 2(a)a definitionof a demand guarantee in the followingterms:

'...any guarantee,bond or other payment undertaking, however named or

described,by a bank, insurance company or other body or person(hereinafter

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called "the Guarantor") given in writing for the payment of money on presentationinconformitywiththe terms of the undertaking of awrittendemand for payment and such other document(s) (for example, a certificate by an architectorengineer, ajudgment oranarbitral award) asmaybe specifiedinthe Guarantee, suchundertaking being given (i)

at the requestor on the instructions and under the liabffity of a party

(hereinaftercalled "the Principal"); or (ii) at the request or on the instructions and under the liability of a bank, insurance company or any other body or person (hereinafter "the Instructing Party") actingonthe instructions ofa Principalto another party (hereinafterthe "Beneficiary")'. The mainfeatures of these Rules are as follows: (a) Demand guarantees are invoked only ifthe principal has defaulted; (b) The Rules do not apply to suretyship or conditional bonds or guarantees or other accessoryundertakings; (c) The principal can expect on the grounds of equity and good faith to be informed in writing of any claim made in which it is alleged that he is in breach of his obligationsin the underlying contract and also in what respect sucha claim is made; and (d) The demand guarantees should not contain any condition other than the presentationof a written demand and other specifieddocuments.

As explained in the introduction to these Rules, the specified documents required to be presented in demand guarantees vary widely. At one end is the guarantee which is payable on simple written demand, withouta statement of default or other documentary requirements. At the other end is the guarantee which requires presentation of a judgment or arbitral award.Between these two extremes lie various intermediate forms of guarantee, such as guarantees requiring a statement of default by the beneficiary,with or withoutan indication of the natureof the default, or the presentation of a certificateby an engineer or another professional. All these fall within the scope of the Rules. The documents presented must conformto the requirements of the guarantee, and whennon-conformityis apparent, thebeneficiaryis not entitled to payment. Of course, these Rules do not affectprinciples orrules of national law concerning the fraudulent or manifestabuseor unfair calling of guarantees. 15.6

UniformRules for Contract Bonds After the successful launch of the Uniform Rules for Demand Guarantees, the International Chamber of Commerce in Paris published its Uniform Rules for

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Contract Bonds, URCB, in 1993.1517 As explained in the introductory section of these Rules, they have been drawn up byan ICC working party of members representing the ICC Commissionon insurance and the building and engineering industry for world-wide application. They came into effect on 1 January 1994. Essentially,they comefrom the insurance industryand are intended to apply to suretyship guarantees.153 The URCB relate to contract bonds which create obligations of an accessory nature, wherethe liabilityofthe surety orguarantor arises andisconditionalupon an established default by the contractor of an obligationset outin anunderlying contract. The contractor is referred to as the principal. The Rules are intended thereforeto apply wherethe intention of the parties is that the obligationsof the guarantor wifi depend upon the duties or liabilities of the principal under the relevant contract.Furthermore,these Rules areintendedto operate so as to confer uponthe beneficiaryineachcase securityforthe performanceor executionof the contract obligationsorpayment whichmayfall dueto thebeneficiaryas aresultof anybreach ofobligationor default bytheprincipal underthe underlyingcontract. Accordingly,subject to its financial limits, either the obligations set out in the underlying contract wifi be performed or executed, or upon default, the beneficiarywillrecover any sum properly due, notwithstanding the insolvencyof the principal or the principal's failurefor any otherreasonto satisfyor discharge his liability.

The relationship betweenthe parties under a bond governed by the URCB differs from that arising under the URDG. In the URCB, the beneficiary obtains security for the obligations of the principal arising pursuant to the underlying contract but the guarantor's liabffity would only arise in case of an established default underthatcontract.Thus,inthe eventof adisputearisingas tothe liability of a guarantor, the URCB contemplate that such disputewill be determined by reference to the underlying contract. The guarantor and the principal are protected inthatliabffitywifi ariseonly whendefault isestablished.Thebeneficiaryis protected by the assurance that anyjudgment or awardwill be discharged by the guarantor ifthe principal fails to do so. On the other hand the guarantee underthe URDG should not stipulate anycondition forpayment otherthan the presentation of a writtendemand and other specified documentswithoutrequiring the guarantor to decide whether the beneficiary and principal have or have not fulfilled theirobligationsunder the underlying contract. Of course, both sets of Rules apply only where expressly incorporated by the parties in their underlying contract.By adopting these Rules,it is expected that some uniformity of practicein the operation and enforcementofbondswouldbe establishedinthe face of the difficulties created by first, unconditional bonds and secondly,by the uncertainty in defining what is and what is not conditional. Thefirst of these two problems canbe highlighted by reference to the case of Edward Owen Engineeringv. BarclaysBankInternational which hasbeen extensively discussed in the legal texts.1519 The second problem can be highlighted by

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referenceto the two recentcases inthe last few years mentioned above.Thefirstis the TrafalgarHouse case,andthe second is the Perarcase which revolved arounda design and buildcontract.152° New forms ofbonds were hastily preparedby various organisationsin the face ofthe criticismandtheconflictingjudgments inthese cases. Itishopedthatifboth sets of Rules are extensivelyapplied, suchconfusion wouldnot arise. The URCB contain eight articles, under the following headings: scope and application; definitions;form of bond andliabifity of the guarantor to the beneficiary; release and discharge of guarantor; return of the bond; amendments and variations to and of the contract andthe bondand extensionsof time; submission of claimsandclaimsprocedure; and jurisdiction and settlement of disputes. Article 2 of these Rules definesthe various forms of bondwhichfall within the applicationof these Rules. They are: advance payment bond;maintenance bond; performance bond;retention bond;andtender bond. Article 3 of these Rules sets outfirst, the informationwhichmustbe stipulated in a bond issued for a particular purpose under these Rules and secondly, the principles of liabifityofthe guarantor to the beneficiary. Sub-paragraphs(ix), (xii) and (xffi) of Article 3 pose three important questions whichmust be carefully considered andanswered for eachspecific bond. These are as follows: 'ix. Whetherthe Guarantor shallbeentitled atits option toperform or execute the Contractor any Contractual Obligation. x. Whether sub-paragraph (i) of Article7(j) is to applyand the name of the thirdpartyto be nominated thereunder forthe purpose of Article 7below (claimsprocedure). xlii. How disputes or differencesbetweenthe Beneficiary, the Principal and the Guarantor in relation to theBond are to be settled.'

In answer to thefirst ofthese questions,itissubmitted thatitshouldbe answered in the negative. In this connection,reference should be made to the arguments presented in Section15.4.2 above. The second question deals with the most interesting aspect of these Rules, Article 7 (j), which, if answered in the affirmative,requires the appointment of a referee to settle the question ofwhether or not thereis default by the contractor of any of his obligations under the underlying contract. Article 7 (j) provides as follows:

'Notwithstanding any dispute or difference between the Principal and the Beneficiary in relation to the performance of the Contract or any Contractual Obligation,aDefault shallbe deemed tobeestablishedfor the purposes ofthese Rules: i. upon issue

of a certificateof Default by a third party (who may without limitation be an independent architector engineer or a Pre-Arbitralreferee

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of the ICC) if the Bond so provides and the service of suchcertificateor a certified copy thereof upon the Guarantor; or ii. if the Bond doesnot provide for the issueof a certificateby a third party, upon the issue of a certificateof Defaultby the Guarantor;or iii. by the final judgment, order or award of a court or tribunalof competent jurisdiction,andthe issue of a certificateof Default under paragraph(i) or (ii) shall not restrict the rights of the parties to seek or require the determination ofany disputeordifferencearisingunder the Contractorthe Bond orthereview ofanycertificateofDefaultorpayment madepursuantthereto by a courtor tribunal of competentjurisdiction.' The appropriate answer to the question under sub-paragraph xli of Article 3 should therefore be in the affirmative and the name of the third party or an appointing authority shouldbe inserted in the bond. As to thequestion undersub-paragraph xiiiof Article3, itissubmitted that any disputeor differencebetween the beneficiary,the principal and the guarantor in relation to the bond should be settled in the same manner as stipulated in the underlying contract.Thereasonforthisproposalistopermituniformityinthe area ofdisputeresolutionbetweenthebondandtheunderlying contract,thusreducing thepossibilityof conflictingdecisionsbeing given under the same circumstances. There is one otheraspect of the URCB worthy ofnotewhichshouldbecarefully considered once a surety guarantee is chosen as the appropriate method of obtaining security. This concernsArticle 6(b) whichrelates to a tender bond and contains the words 'substantial or material variation of or amendment to the original tender'. This is an ambiguous wording whichshould be clarified for the sake of avoiding any doubt. Ifit is intended to be applied to aformof bondother thana tender bond,it should beclarifiedto mean avariation which transformsthe projectintoonewhich iseitherbeyond the financialcapacity orthe expertiseofthe contractor.

15.7 Insurance againstunfair calling

In certain countries, it is possible to arrange some insurance cover against unfair calling of performance securities with some insurance companies for particular customers,butsuchinsuranceis difficulttoobtain and expensive. Thecost ofsuch insurance varies from approximately0.5 per centupwardsperannumofthe value of the guarantee or bond. In addition, certain governmental agenciesin some countries providea cover against unfair callingfortheirnationalswho export goods and services. Inthe UK, the Export Credits Guarantee Department, ECGD, provides a bond support scheme which insures banks who issueperformance bonds. Underthis scheme, banks may claim from the ECGD which reserves the right to claim from the

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customer/supplier. If, however, the supplier has suffered an unfair call, then the ECGD wifi refund the supplier 100 per centof the loss. However, the eligibilityfor bond support is subject to sales contractsbeing a minimum of £250,000 and the terms must be cash or near cash terms. A similar scheme exists in a numberof other countries,for instance in France and in Germany where the relevant organisations are referred to as Coface and Hermes respectively. 15.8 Performance securities under the Red Book Having discussed the principles and characteristics of the various forms of securities, it is appropriate to consider in the remaining part of this chapter how these relate to the Red Book. Under the Fourth Edition of the Red Book, the employer in his contract with the contractor is mostly concerned with the following non-performancerisks: (a) Improper executionof the works by the contractor involving material, plant,

workmanship, or design leading to defectivework or work not in accordance with the contract whichis discovered duringthe contract peñod and ending with the issueof the final certificate; (b) Improper executionof the worksby the contractor involving material, plant, workmanship, or designleading to defectivework orwork not in accordance with the contract whichis discovered after the issueof the final certificate; (c) Delayed completion of the works beyond the stipulated date stated in the contract; and (d) Failure to complete the works as a result of the contractor's inability to continuewith the performance of his contractualobligations. The above risks are unrelated and should be analysed and assessed separately. Should the risk described in (a) above eventuate, the contract includes various detailed provisions to deal with the situation. In particular, some of the terms of clauses 7, 8, 13, 36 to 39, 49, 50, 54, and 59 to 64, come into operation in such eventuality providing the employer with a numberof remedies. Such remedies include interim payments due to the contractor;retention monieswithheldunder sub-clause 60.2 until such time as they become due under sub-clause 60.3; amounts which may be due under the final certificate; and the contractor's equipment whichis required underthe provisionsofsub-clause54.1 to bekept on siteand not removed withoutthe consent ofthe engineer. If therisks underitem (c) above eventuate,some ofthe terms ofclauses6, 14,41 to 48 and 63 come intooperation. In sub-clause47.1,in particular, the employer has a certain amount of protection in the form of liquidated damages. Although the percentage ofretention and the amount ofliquidated damages are

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linilted in extent as maybe statedin the Appendix to Tender, under sub-clauses 60.2 and 47.1 respectively,they can form a substantial security against the risks described in items(a) and (c). However, if the employer is either dissatisfied with the extent of the above securities ornotin apositionto accept the risks initems (b) and (d) above without any security, thenclause 10 ofthe Red Bookenableshimtorequire the contractor to provide the financial security or securities he chooses. Clause 10 is draftedin such a way that flexibility is provided for the employer to indicate the type of security requiredby appending its form to the Conditions. Twoexampleforms ofperformancesecurityareprovided onpages7to9 ofPart II of the Red Book. The first is an example of performance guarantee and the second is an example of suretybondfor performance.However, neither ofthese two forms provides the security against the risk described under item (b), if required. The two forms are dealt with later in this chapter, in Section 15.9. The employer must therefore studyhis needscarefullyandselectthe formofsecurity whichis most suitable to his needs. He must also ensure that theform selectedis compatiblewith the applicablelawofthe contract;forexample,itmayberequired under certain jurisdictions that a form of security must be executed under seal. Thevarious forms available in the guarantee and surety marketand their suitabilityto a construction contract are discussed later in Section15.10. When dealing with clause 10 of the Red Bookwhichcontainsthe provisionsfor obtaining the performance securities,two points shouldbe noted. First,the clause applies only if thecontract requires the contractorto obtain suchsecurity,inwhich case the form of security to be provided should be appendedto the Conditions. Secondly, unlike previous editions of the Red Book, clause 10 does not refer specificallyto the provision of a bond; instead, it refers to the provision of a performance security, thus allowing the employer to specify in Part II of the Conditions different types of security depending on the specific needs of the particular contract in question. Clause 10 does, however, require that if a performance security is required, it should be for the 'proper' performance of the contract.

In this connection,'proper'mustmeanthat it is not sufficientforthe contractor to perform the contract,butthat he must also perform it properly in accordance withitsterms andprovisions. This requirementforthe performancesecuritytobe for the 'proper' performance of the contract is, however, restricted under subclause 10.2, interms ofperiod,to the dateofissue ofthe defectsliabffitycertificate. Theperformancesecurity should thenbereturnedto thecontractorwithin 14 days of theissueofthat certificate. This condition is imposed onthe employer to avoid thepossibilityofan extensionof theperiod ofvalidity ofthe performancesecurity being imposed by the application of a rule of law in certain jurisdictions notwithstanding that the securityhas atermination date. Forinstance,inTurkey and Syria,the period of validity canbeextended forup to 10 years and inIndiafor up to60years.1521Therefore,undersub-clause10.2 thereisa requirementforsecurity

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for the risk described under item (a), while this sub-clause provides no such security for the risk of latent defects as described under item (b). Should this be unacceptableto the employer,the provisionsof sub-clause 10.2 wouldhave to be altered such that the performance security would be valid until the end of the limitation period, as stipulated under the applicablelaw of the contract. The restriction in the period of validity of the performance security marks an important change from previous editions of the Red Bookwhich did not address the question of the period of validity, thus implying unlimited time. Of course, allowing unlimited time is unacceptable to the surety, since liabifitieswill continueto accrue in respect of a multitude of construction contractswith vast sums of moneyinvolved. The changeintheFourth Editionhasthus swungtoofarinthe opposite direction. Under the provisionsof sub-clause10.1,the contractor is alsorequiredto obtain and provideto the employer such performance security in the amount statedin the Appendix to Tender within 28 days after receipt by him of the letter of acceptance. Having obtained and provided the security to the employer, the contractor is then requiredto notify the engineer accordingly.It is interesting to note that the amount of the security is usuallyexpressed as a percentage of the contract pricewhichcan vary from aroundten per cent to much higher percentages depending on the practice adopted aroundthe world. Although the form of the performance security provided by the contractor should be as annexed to the Conditions,sub-clause 10.1 does refer to 'suchother form as may be agreed between the Employer andthe Contractor'.Presumably, suchagreementwouldhave to bereached duringtheperiod leading totheissueof the letter of acceptance, as any later discussions may involve addition to or reduction from the contract price depending on what is agreed between the employer andthe contractor. Theinstitution providing theperformance securityis subjecttothe approval of theemployer andthecosts of complyingwith therequirements ofclause 10 areto be borneby the contractor unless the contract provides otherwise. Thethirdpart of clause 10, sub-clause 10.3, provides that prior to making a claim under the performance security, the employer must, in every case, notify the contractor of thenatureof the default inrespect of which the claim wouldbe made. However, this sub-clausestops shortof stating what happens aftersuchnotification.This is unfortunate, since such notificationcan then be followed by the call upon the suretyto execute the terms of the performance security depending on whether these terms specifythe payment of a sum of money in the case of a performance guarantee or the completionof the contract in the case of a performance bond. The Guide (seeReference 9.1) does,however, include the followingstatementin an attempt to explain this omission:

'Duringthe drafting, the possibilityof including a period of notice was examinedbut it wasconsidered that sucha provision mightimpede the use of the

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conditions. Normal practice is that when the Contractor is notified of any default, he is given an opportunity to remedy it prior to a claim under the securitybeing made.' However, it is not explained why explicit provisions as to the mechanics of reaching a claim situation were not incorporated in sub-clause 10.3 or even how such provisions would impede the use of the Conditions.If the only obligation that the employer has before making a claim is an obligation to notify the contractor ofthe default, then it isvery easy in the case of a performanceguarantee to make an unfair call upon suchsecurity. In construction,a search for a default in theform ofa departure from theprovisionsof thecontractis notvery difficult. For example, a delayof one dayin completing the project beyond the specifiedtime forcompletionplusany extensiongranted underclause 44isadefault, theuseofa substandard batchofconcreteis also a default. Numerous otherexamples of such default can be cited. By contrast, the Third Edition of the FIDIC Form for Electrical and Mechanical ConditionsofContract (the Yellow Book; see Reference 9.5), specifiedin detail the situations wherethe employer is entitled to makea claim under the performance security. These are: (a) Where a technical or other breach of the contract is being asserted, the employer must give notice to the contractor stating his intention to claim under the security provided, and the amount claimed and the breach of contract upon which he is relying. If the contractor fails to remedy the breach within 42 days after receipt of that notice, the employer may make a claim. The obvious purpose of the 42 day period is to give the contractor a reasonable final opportunity to remedy the breach before a claim can be made upon the security. If the contractor's breach is incapable of being remedied, the employer will still have to wait for 42 days, but this is better than the risk of an unfair calling of the security. Of course, it is important to note that under many jurisdictions, the 42 day period would give the contractor an opportunity to seek an injunction from the courts to restrain the employer from making a call upon the security, should he decide to challenge the employer's assertion that a breach of contract was committed. However, if an injunction is granted, then it would undoubtedly be on the basis that the contractor wouldhave to indemnify the employer in damages should it be subsequently foundthat the employer was entitled to makethe assertion of breach. (b) Where the employer has obtained an award in arbitration and the amount awardedhas not beenpaid within 42 days after the date of the award. Of course this provision must interact with the arbitration clause and the enforcementof or challengeto an award under sucha clause as well as with the arbitration law under the applicable law of the contract. Under most

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jurisdictions, the parties are entitled to challenge or appeal an arbitrator's award,but under very restricted conditions. (c) Where,ratherthan resortto arbitration, the employer and the contractor have agreed that a certain sumis due from one party to the other, but that the sum has notbeenpaid. (d) Where the employer calls upon the performance security afterthe contractor hadgone intoliquidation or hadbecome bankrupt. Such a call maybe made immediately after the above event anda copy of the claim mademust be sent to the contractor. Clause 10 of the Red Bookis supplemented by two suggestions in Part II of the Conditions.

The first is for the situation wherethere is a provision in the contract for payments to be madein foreign currency.Inthat case,it is suggested that sub-clause 10.1 may be variedby inserting afterthe first sentence the followingwording:

'The security shall be denominated in the types andproportions of currencies statedin the Appendix to Tender.' Secondly,it is suggested thatwherethe source ofthe performancesecurityis to

be restricted by the employer, an additional sub-clause may be added andtwo

examples are given in Part II of the Conditions under the heading 'Source of PerformanceSecurity', as follows: '10.4 The performance security, submitted by the Contractor in accordance with Sub-Clause10.1, shall be furnished by an institution registered in (insertthe country wherethe Works are to be executed)or licensed to do business in suchcountry.

or

10.4 Where the performancesecurityis inthe formof a bank guarantee, it shall

be issued by:

(a) abank located in the country of the Employer,or (b) a foreignbank through a correspondentbanklocated inthe country of the Employer.'

15.9 Examples of securities provided

As previously mentioned, two examples of performance securities are given in PartIIoftheRedBook, thefirst, onpage 7, intheformofa performanceguarantee and thesecond, on pages 8 and9, intheform ofa performancebond.They willbe referred to in this section as the First and the Second forms respectively.Both forms require modifications or additions depending on the particular circum-

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stances of the contract before they can be used successfully.The following comments provide some of the pointswhich maybe considered: (a) Although the wordingand the text of both forms hasbeen greatly simplified from the usual archaic language of such documents in response to criticism made, such as that by Lord Atkin, quoted earlier (Reference 15.4), there

remains one expression which is unusual to the ordinary person associated with construction and particularly to someone whose mother tongue is not English.This isthat the expression'presents' is usedin both exampleforms as a noun.The OxfordDictionary gives thefollowingmeanings to that noun: 'the presenttime';'something freely given'; 'gift'. None of these render a suitable meaning. It should therefore be replaced. (b) The Firstform includes the expression 'duly perform' and the Second form includes the expression 'promptlyand faithfully perform'. Clause 10, with whichthese exampleforms haveto comply,provides thatthe contractor is to obtain security for his 'proper performance'. Whilst it can be argued that the expression 'duly', 'promptlyand faithfully' and'properly'mean exactlythe same thing, this is the sortofargument thatwouldtakelawyers aconsiderable time to advance and argue in an arbitration. Therefore,it is subniitted that wherethat meaning is intended, the word 'duly' is used. (c) Whilst it is provided in the Second form that 'any suit must be instituted before the issue of the Defects Liability Certificate' in compliancewith the provision ofclause 10ofthe Red Book, no period ofliabffityhasbeenindicated in the First form. (d) The Firstform provides that 'if on default by the Contractor the Guarantor shall satisfyand dischargethe damages sustained by the Employerthereby up to the amount of the above written guarantee. . .'. This suggests that the employer can call upon portions ofthe sum guaranteed or that the guarantor cansatisfythebeneficiary'scall uponthe guaranteeby making apayment less thanthe guaranteed sum. If this is correct, this condition should be statedin clearer and more precise language allocating to the employer the duty to account for any monies he receives,and also providing the exact mechanism for ascertaining the properpayment to be made andhow. If not, then a differentform of wording should be used to avoid any doubt or possible confusion. (e) Whilstthe Firstform provides specifically, andrightlyso,that 'no alteration in terms . .. orinthe extentornatureofthe Works . . . andnoallowanceoftime nor anyforbearanceor forgiveness... shall in any way release the Guarantor from any liability. . .', such provisions are not included in the Second form except by the curtailed phrase '(including any amendments thereto)'. As

explained earlier,the above provisionsare necessaryto any properlydrafted form of security. (f) It is difficultto visualise how condition (a) ofthe Firstform canbe operated in

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accordancewith the provision of clause 10 of the Red Bookwhose only conditionfor the call uponthe securityis a simple notificationby the employer to thecontractorstating thenatureofthe default in respect ofwhicha claim is to be made, in accordancewith sub-clause 10.3. Similarly, if condition (b) is to apply, then the provision of sub-clause 10.3 must be altered to allow for an arbitration mechanism to be invoked in advance of a claim under the security. (g) The significance ofthe words'welland truly to be made'in the recital partof thebond in the context of the payment of the guaranteed sum in the Second form is not clear. A payment is eitherto be made or not. (h) Itis a condition ofthe Second form, inits third paragraph, that the employer must perform his obligationsunder the contract with the contractor in order for the security to be valid. This condition is not included in the First form. (i) The last paragraph of the Second form restricts the right of action under the bond to the employer or his heirs, executors, achninistratorsor successors. Such a condition is not included in the Firstform. The pitfalls ofperformancesecurities are many withoutcomplicationsfromuseof ambiguous language. 15.10 Other securities associated with a construction contract

Inaddition to theperformance securities which maybe requiredunder clause 10 of the Red Book, there are others which have become necessary in the implementation of a constructionproject,mainly due to growing distrustbetween those involved in the constructionindustry. These are described below. 15.10.1 Bid bonds orguarantees

Bid bonds or guarantees are securities given by tenderers accompanying their tendersin which the guarantor undertakes to paya sum or sums of money not exceeding a certain amount upon receipt of a demand stating that a particular eventhas taken place. They are intended, first, to avoid irresponsibletendering and, secondly,to ensure that the employer is protected if the successful bidder fails for any reason to proceed with the formation of a contract. Bid bonds orguarantees are typicallyrequiredfor between threetofivepercent of thetenderamount. They would normally be availableto the beneficiaryeither against his on-demand or unconditional callfor payment, usually indicating that the tenderer has refused to proceed with the contract;or onthe condition that an independent authority shouldcertifythat the tenderhas been withdrawn before an awardhas beenmadeorbefore the end of thebiddingperiod plus any agreed extension.They haveashortlife spanwhichisthe lengthoftimebetween the date

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of issue and the date of any performance security which may be requiredand whichnormally followsthe issue ofthe letter of acceptance.They should only be capable of extensionif the tenderer agrees. Bidbondsorguarantees should include acondition thattheywillbereturnedto the unsuccessfultenderer eitheras soon as a tenderhas beenaccepted or a decision has beentakennot to proceed with the project at all. 15.10.2 Advancepayment guarantees

These guarantees secure the repayment of an advance payment received by a contractor from an employer.The guarantor undertakes to pay a sum or sums of money not exceeding a certain amount upon receipt of a demand stating either that the contractor has failed to make the repayments or that a certain event specifiedin the guarantee has takenplace. 15.10.3 Retention money bonds

Retention of part of the monthly payments dueto the contractor is made by the employer under the provisions of sub-clause 60.2 in amounts calculated by applyingthe percentage of retention, stated in the Appendix to Tender, to the amount to whichthe contractoris entitledunder the provisionsof sub-clause60.1. Such retention accumulates until the amount so retained reaches the limit of retention money also stated in the Appendix to Tender. It is then released in accordancewith the provision ofsub-clause60.3,basicallyintwostages:halfupon theissueofthetaking-overcertificateforthewhole oftheworks and theotherhalf upon the expiration of the defects liability period for theworks. In certain circumstances, upon the issue of the taking-over certificate, the employer may agree to release the whole of the retention fund against an ondemand or unconditional guarantee, to be issued on behalf of the contractor for the value of thefundsreleased earlier than prescribed, that is halfof the limit of retention money.Similar arrangements maybe madebetween the contractor and his sub-contractors.The guarantor in this type of guarantee undertakes to pay a sum or sums ofmoney not exceedinga certain amount uponreceipt of a demand stating either that the contractor has failed to carry out his obligationsunder the contract or that a certain event specifiedin the guarantee has takenplace. 15.10.4 Maintenance or defects liability bonds

Thesearebonds issuedtoguaranteethatassoonastheconstructionorinstallationis complete,the contractorwififulfilhis obligationsthroughout the defectsliabilityor the commissioningandtesting periods, respectively.Therefore,essentially,these securitiesprovide aprotection againstdefectsinmaterials,workmanshipandother aspects of the contract forming part of the contractor's obligations.

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15.10.5 Companysuretyship

This type of suretyship is transacted when a party, not necessarilya bank or an insurance company, acts as a guarantor for another in the lease purchase of equipment or plant. This transactionisextremelyperilous forthe surety since the beneficiary in this case is normally a finance company which has perfected a standardformof agreementinwhichthe guaranteeismadeeffectivein respect of past and future transactions, irrespective of whether or not the surety has been madeaware ofthem. Ina recentcase infreland, itwasheldthatsucha transaction is alegallyvalidone butitwasatthesametime described as threeblank cheques, one for the past, one for the present, and another for the future. Those who are asked to act as surety in such transactions should be extremely careful of the undertakings to which they wifi become obligated. 15.11

Concluding remarks The entire area of securities is marked with uncertainty, inconsistencyand confusion, bothconceptuallyandin respect ofthe terminologyusedto describethese securities in various parts of the world. This chapter is an attempt to provide a proper understanding of the topic and a clear distinction between the various securitiesrequiredinconstruction.Italsoprovides a checklistofthe pitfallswhich must be avoided in suchbonds andguarantees.

Chapter 16

Claims and Counterclaims

16.1

Definitionand legal basis of claims and counterclaims A claim is defined in The Oxford Companionto Law as a general term for the assertion of a right to money, property, or to a remedy.161 A counterclaim is defined as an assertion made by a respondent whichcan convenientlybe examinedanddisposed ofinanactionoriginallyinitiatedby theclaimantparty. Itis not necessarily a defence,but a substantive claim against the claimant which could have grounded an independent action. Presumably, the word 'conveniently' is included in the definitionof a counterclaimto signify that the background ofthe claim is similar to the counterclaim. For the purposesofthischapter, bothclaims and counterclaimswillbe referred to as claims. Essentially, other than claimsunder statutory law, claimsin construction contracts may be based on any one of four legal and one non-legal concepts. They, therefore, mustbe categorisedon that basis in accordancewith the followingfive categories: (a)

Thefirst categoryrelates to a claim under the contract basedon the grounds that should a certain event occur, then a claimant would be entitled to a remedy specified under a particular provision of the contract. Such an event maybe one oftwo types. First,it maybe a specifiedevent under thecontract, which may or may not occur, where in certain defined circumstances the employer or the contractor is entitled to claim a designated remedy. For example,the contractor is entitled to claim an additional payment under the Red Bookfor tests in accordancewith the provisions of sub-clause 36.4 (see Section16.2). Secondly,the specifiedeventmaybe abreach of a particular stipulation in the contract entitling a claimant to a designated remedy if the provisions of such stipulation are not, or only partially, complied with. For instance, it is stipulated inthe RedBookthat failureby the contractorto completethe works on a specifieddatewouldentitle theemployer to deduct liquidated damages at a specifiedrate per day or week (see Section 16.2.8). If the claim is successful, the particular provision in the contract would

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apply and the remedy could be in the form of a payment of a sum of money, or an extension of time, or some other benefit, or a combination of all three. (b) The second categoryrelates to a claim arising out of the contractbasedonthe grounds thatatermofthe contracthadbeenbreachedbut wherethe remedy is notdesignated.Iftheclaim isvalid, theremedyliesunder theprovisions ofthe applicablelaw ofthe contract.Forexample,underEnglishlaw, the remedy for abreach of contract wouldbe under theprinciples laid downin theHadley v. Baxendale case.162Generally,the remedy wouldbesoughtthrougharbitration or litigationunless the claim is settled amicably.Such action would usually necessitate the employment of lawyers who are often very expensive (see

Section16.3).16.3 The remedy in this case may extend to consequential damages. Furthermore, ifthe breach is of a serious nature, the party againstwhomthe breach is committed may consider it to be repudiation of the contract by the party in breach.

(c) The third categoryrelates to a claim under the law of tort (or of delict,as it is referredtoinsomejurisdictions)ofthe applicablelawofthe contract,basedon the grounds of a specific legal rule or principle.If the claim is successful,the remedy lies in general in a 'just and equitable' award depending upon the particular circumstancesofthe case. (d) The fourth category depicts a claim where no contract exists between the parties, or, ifone existed,isdeemed to be void. It isbasedon the principlethat an individual has the right to be paid a reasonable remuneration for work done. This is referredtoinsomelegal systemsas quantum meruitor'as much as onehasearned', iftheclaim is successful,payment is assessed onthebasisofa reasonable recompense of the cost of the work carried out by the contractor andmayinclude an element of overhead and profit. (e) Finallythereis the exgratiaclaim (out ofkindness)wherethereis no legalbasis butrathersome commercialsense in making a settlement.

In the remaining part of this chapter, only the first two categories of claim are considered,i.e.,those which are madeunder the contract or which arise out ofthe contract, as the other categories of claim are beyond the provisions of the Red Book.

16.2

A claim under the contractand based on its provisions As previously stated, the Red Book regulates the rights and obligations of the parties to the contract. Its provisions specify what should be done by the two parties ortheiragents and servants and the consequenceif whatoughttobe done is eithernot done, or if done, is not done withinthetime specified.

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Claims wifi very often arise in a traditional construction contract because it is perhapsthe only contract wherethe priceof the endresultis defined before the process of'production' evenstarts. Accordingly,in the competitiveatmosphereof tendering which accompaniessuch a contract, little or no margins are left for futureunknowns in a long andcomplex period of construction.Furthermore, as the ratesandprices haveto be basedon certain assumptions which are, in turn, basedonthe provisions of theConditions of Contract, any change betweenwhat was assumed and what actually happens mayform a seed for a claim. As already stated, claims under this category maybe dividedinto: (a) claims as a result ofcertain anticipated and specified events andfor which a

remedy is designated in the contract; and (b) claims as a result of aneventwherea certain termof the contract is breached andforwhicha remedy is designated in the contract. The remedy in both of these types of claim is designated in the contract andthe claim may include the following: (a)

An assertion for financial compensationin respect of: variations whichinclude alterations, additions andomissions,aswellas (i) achange in any specifiedsequence or timing of constructionofany part of the works; (ii) measurement changes; (iii) adverse physical conditions; (iv) the employer's risks; (v) compliancewith statutes, regulations, price fluctuations, currency and othereconomiccauses; (vi) defectsandunfulfilled obligations;

(vii) failure to commence,critical or non-criticaldelays, suspension ofwork, release from performance, default and termination; and (viii) other miscellaneousspecifiedevents. (b) An assertionfor an extensionofthe time for completionofthe contract works (see Chapter 17). (c) An assertion for other benefit.

Figure 16.1 shows an analysis ofthese claimsbased on the provisionsof the Red Book. Claims under the contract are presented, inthe first place, to the engineer who should determine, impartially, the entitlement of the claimant in principle and inquantum. Suchdetermination,if unacceptableto either theemployer orthe contractor may be 'opened up, reviewed or revised' as provided in Clause 67 (settlementof disputes). (See sub-clause2.6 of the Red Book and Chapter 19later.) The claims in items (i) to (vffi) in point (a) above are discussed belowin Sections 16.2.1 to 16.2.8.

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Variations

cl.51 &52

Fig. 16.1 Claims and counterclaims. 16.2.1 Variations

Thenatureof variations, the responsibilityfor them andtheir valuationare discussed in this section. Nature ofvariations Although some claimscan be avoided by properplanning and riskmanagement, claims for variations, as indeed claims in general, are inevitable since it is prac-

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tically impossibletoforesee every eventthatmightoccur duringthe construction period and to plan in advancefor the consequencesofsuchevents.TI thatconcept is accepted,then it is necessaryto incorporate into the contract a mechanismfor implementing changes which are foundto be necessaryor desirable duringthe constructionperiod. These changesare permitted tobemadetothe worksbut not

to thecontract.

Furthermore,itis necessaryto provide the engineerwith authoritytomakesuch changes,asanagentofthe employer.Clauses51 and52inthe RedBookprovide for such a requirement by authorising the engineer to vary the works or any part thereof.They alsoregulate the rightsandobligationsof the parties inthe eventof suchvariations. Thewordingof sub-clause 51.1 confines this authority to make variations to the engineer. The first sentence of sub-clause 51.2 is in fact more specific in this respect in that the contractor is prevented from making such a variationwithoutaninstructionfrom the engineer.Theengineer's authorityinthis respectisextremelywideextendingtothe 'form, quality orquantity ofthe Worksor any part thereof'. However, in the case of additional work, such authority is explicitlyrestrictedinparagraph (e) ofsub-clause51.1 to'anykindnecessaryforthe completion of the Works'. Accordingly,the engineer's authority to add further worktothecontractisrestrictedsothatitdoesnotinclude work alien to theoriginal concept of the contract or work whichis not necessaryfor its completion. An instruction is required from the engineer to the contractor to initiate a variation andsuchan instruction is required to be in writingin accordancewith sub-clause 2.5, or, if given orally, then it should be confirmed in writing as provided for in that sub-clause. Some commentators have suggested that a drawing may constituteaninstruction in writing if it is issued showing a change from previous drawings andthe change maybe defined as a variation.Of course, it would always be preferable to issue the drawing accompaniedby a specific communicationasto the natureof any contemplatedvariation.Whatis and what isnota variationisa majorsourceof dispute inmanyprojectsand afrequentissue in arbitral proceedings. Sub-clause 51.1 also provides thatthe engineermay varythe works or anypart thereof iffor any reason, other than it being necessary, he finds it appropriate to: (a) increase or decreasethe quantity of any work included in the contract but an instruction for such variation is not required if the actual quantities of the work envisaged at the time of tendering prove, on remeasurement, to be differentfrom those recorded in the bill of quantities, see sub-clause51.2.16.4 The effectof sucha variation must then be taken intoaccount in determining whetheror not the provisions of sub-clause52.3 apply; (b) omit such work provided it is not to be carried out by the employer or by another contractor; (c) change the character or quality or kind of any suchwork; (d) change the levels, lines, position anddimensions of any part of the works;

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work of any kind necessary for the completion of the

works; (f) change any specified sequence or timing of construction of any part of the

works.

Paragraph (f) of sub-clause 51.1 which is a new provision under the Fourth Editionassumesthatsome specifiedsequenceortimingofconstructionhadalready beenmadeinthe contractdocuments. Itaddsanew dimensiontothe meaning ofa variationfrom previous editionsofthe Red Bookinthat it encompassesthe timing of construction and its programme. Any change from the specified sequence or timing stated in a programme submitted by the contractor under clause 14 and instructed bythe engineerunder clause 51 wouldtherefore qualify as a variation. Suchachange maybeinthe form ofarequirementtoacceleratetheworkorto vary itstiming. Whilstthisprovision isnewintheFourth Editionitisworthnoting thatit stops short of the provision of the Fifth andSixth Editions of the ICE Forms of ContractforWorksofCivilEngineeringConstructionwhichempowerthe engineer toorder a changeinthecontractor'sspecified'method' ofconstructioninaddition to itstiming. Suchanorder maybenecessarytoavoid continuingdisruption onsiteas aresultofaneventforwhichtheemployer is liable.Itisnotable thattheprovisions of sub-clause 50.1 of the ICE Sixth Edition, published in 1991, were extended to include variations orderedaftersubstantial completion of the works. Sub-clause51.1 of the Red Book also provides that any variation instructed by the engineer should not vitiate or invalidate the contract. It has been suggested that as a matter of business efficacy, this provision must be subjectto an implied limitation of reasonableness in so far as instructions cannot stray 'outside the Contract'.165 Extras,therefore, must notbe of a certain value and type and must notbe instructed at a time whichwouldrender the contract inapplicable. Responsibilityfor variations The allocationof liabifityfor the value of anyvariation instructed by the engineer is dependentupon whether ornot thenecessityfor it is due to some default of or breach ofcontractbythe contractor.Accordingly,anyadditional costsattributable to a variation necessitated by some default of or breach of contract by the contractor are to be borneby him;see sub-clause 51.1. Valuation ofvariations Valuationofthe variations referred to above is provided forunder clause52of the Red Bookwhichprovides the rules for suchvaluation.In essence,they are: (a) Within 14 daysofthe date of an instruction to vary the works in accordance with clause51,andbeforecommencementofsuchwork, anotice isrequiredto be given either:

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(c)

(d)

(e)

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(i) by the contractor to the engineerof his intention toclaim extrapayment or a varied rate or price; or (II) by the engineer to the contractor of his intention to vary a rate or price. It is clear by the wordingof clause 52 that a valid notice is a condition precedent to any additional payment. The importance of this condition can only be evaluated in the light of the provisions of the applicable law of the contract.Furthermore,in general terms, the treatment of thistopicunder civil lawjurisdictions differs significantlyfrom that under the common law.166In England, the relevanceof suchnoticewas highlighted by the CourtofAppeal in1965 inthe Tersonscasewhenitwasheldthatanotice needonly indicatethe intention tomakea claim and identify ingeneral termsthe additionalwork to which the claim willrelate.167 It is noteworthy thatthe wordingof the clause in question in that case is differentfrom that in the Fourth Edition ofthe Red Bookfrom the pointofview ofthe period within whichithadtobeserved. The wordsof theclause inthe Tersonscasewere: 'as soon after thedateoftheorder as is practicable', as against the period of 14 days specifiedin the Red Book. Such notice is not required to be given where the variation entails an instruction to omitwork. Varied work is valued in one of four different ways. The first is where the variation is valued at the rates and prices set out in the contract if, in the opinion of the engineer, these rates and prices are applicable to the items of varied work. In considering the applicabifity of the rates and prices in the contract to the variedwork, the engineer wouldhave to takeintoaccount the natureand amount of the varied workin addition to, presumably, the preliminary items whichmaybe affected, the time whenthe variation is ordered, the method of its construction and its physical location compared with the other work under the contract (see Section6.3.1 above). The second way in which a variation may be valued is where there are no applicable rates andprices in the contract, then the contract rates andprices are to be used as the basisfor valuation so far as maybe reasonable. The third wayin whicha variation may be valued applies if the contract rates and prices cannot be used as a basis for valuation; then the engineer is requiredto agree newsuitable ratesand prices throughtheprocedure of'due consultation' with the employer and the contractor. Where no agreement is reached between the engineer and the contractor, thenthe engineerisrequiredto fixsuchrates andprices as are, in his opinion, appropriate. Having done so, the engineer is required to notify the contractor accordinglywith a copy to the employer. Whilst no time limit is imposed on such agreement on suitable rates or prices, or any subsequent requirement to fix such rates or prices, in case of disagreement, the engineer is required under sub-clause 52.1 to determine provisional rates or prices for the purposes of on-accountpayments in any certificateissuedunder clause 60.

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Sub-clause60.2 provides that 'the Engineershall. .. certify. .. the amountof paymentto the Contractor whichhe considers due.. .'. It may, therefore, be taken that whatever is certified under the monthly payment will have to incorporate properly assessed rates and prices for the various items of work executed and incorporated in the monthly statements of the contractor 'to which the Contractor considers himself to be entitled'. Underthe heading of applying newsuitable ratesor prices, sub-clause52.2 providesforthe possibifityofchangingtheratesorpricesofitems oftheworks, other than varied work. It provides that if, in the opinion ofthe engineer, the nature or amount ofany varied workrelativeto thatofthe whole ofthe works, or to anypart thereof,issuchthattherateor price containedinthecontract for any item of the works, is rendered inappropriate or inapplicable, then a suitable new rate or priceis to be agreed uponbetween the engineer and the contractor.This provision extends,therefore,tothe rates orprices for'any item of theworks' and affectsthe rates orprices which areinfluencedbyvariations duetotimedelay, outofsequenceworking,changesinthemethod ofexecution andto a largeextent the preliminary items ofthe bill of quantities, if any are included. Fora properadjustment ofthe rates andprices ofthese items, ifsuch adjustment is foundtobe necessary,reliableknowledge and understanding of the make-up of these ratesandprices is essential. Once again, agreement on new suitable rates or prices is to be attempted undertheprovisionsofsub-clause52.2 after'due consultation'by theengineer with the employer and the contractor. In the event of disagreement, the engineer is required to fix such other rate or price as is, in his opinion, appropriate in the particular case. The engineer is then required to notify the contractor accordinglywith a copy to the employer. As previously requiredunder sub-clause 52.1, until suchtime as rates or prices are agreed or fixed, the engineer should determine provisional rates or prices to enable on-accountpayment to be included in any certificateissued under clause 60. (f) The fourthway in which a variation may be valued applies whereit is to be found, on the issue of the taking-over certificatefor the wholeof the works, that the value of varied work together with all adjustments upon measurement of the estimated quantities is in excess of 15 per cent of the 'Effective Contract Price'. The 'EffectiveContract Price' is defined in sub-clause52.3 of the Red Book as 'the Contract Price, excluding Provisional Sums and allowance for dayworks, if any'. Then, a sumis requiredto be added or deducted from the contract price as may be agreed between the engineer andthe contractor. There is no guidance in the Red Bookas to how this sum should be calculated.Itis, however, apparent thatthe targetofsuchadjustment is the bill of preliminary items whichforms part of the contract price. Onpage117 of theGuide, referred to in Reference9.1, thereis referenceto thepurpose ofthissub-clausewhere it is explainedthat 'in preparing a tender,

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acontractormaydistributehis on-costs andprofit invarious ways,.. .', andan

adjustment of these isnecessarywherethe amount ofworkunder the contract is varied beyond the specified percentage. For an accurate adjustment, however, itis imperativethatthe engineer should obtain details ofthe contractor's internal price make-up ofthese on-costs and profit items. (g) Sub-clause52.3, which deals with the situation wherethe valueof variations exceeds 15 per centof the effectivecontract price, definesthe value of varied workandall adjustments upon measurements of the estimated quantities in the followingmanner: (i) variedwork is defined in paragraph (a) of sub-clause 52.3 as all varied workvaluedunder sub-clauses52.1 and 52.2. This definitionremovesthe confusion which existed in previous editions of the Red Book as to whether or not changes of quantity arising from measurements, in accordancewith clause 56, should be included h-i the calculation of the valueof the variedwork. It is nowclear that only varied workin accordance with sub-clause 52.1 and 52.2 should be included; all (ii) adjustments upon measurement of the estimated quantitiesis defined in paragraph (b) ofsub-clause52.3as those adjustments which are'set out in the Bill of Quantities, excluding Provisional Sums, dayworks and adjustments of pricemadeunder Clause 70'. This definitionalsoclarifiesinprecise terms the valueof additions to or deductions fromthe 'EffectiveContractPrice', or inother wordsfrom 'the Contract Price, excludingProvisionalSums andallowancefor dayworks, if any'; (iii) agreement betweenthe engineer andcontractor is once againbased on the newconcept of 'due consultation' by theengineer with theemployer andthecontractor.Where no suchagreementcanbe reached, thesum to be addedto or deducted from the contract price is required to be determinedby the engineerhaving regard to the contractor's site and general overhead costs of the contract. The engineer, having determined such sum, is required to notify the contractor accordinglywith a copy to the employer; (iv) finally, sub-clause52.3 provides that the sum to be added to or deducted from the contract price is to be basedonly onthe amount by whichsuch additions or deductions are in excess of 15 per centas fixed in sub-clause 52.3. This provision answers the question which was left unanswered in theprevious editions ofthe Red Book. It isnow clear thatthe adjustment to the contract priceshouldbe related only to themargin below or above the 15 per cent. Therefore,if for example, thereis a reduction of 20 per centin the contract price due to the valuation of variations under subclauses52.1 and52.2, the 'losses' sustained by the contractor due to this reduction should only be related to the margin between 20percentand 15 per cent, i.e., 5 per cent and not thewholeof the 20 per cent.

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(h) Sub-clause52.4 deals with the situation wherethe engineer requires certain variedworktobecarriedouton a daywork basis.Dayworkisusuallycovered by a provisional sum in the bill of quantities which may then be used for additional itemsforwhichnobifi item is applicable.Where sucha provisional sumisincluded inthebillofquantities, a daywork schedule ofrates andprices is appended to the bill for pricing by the contractor. The procedure for paymentin respect of daywork is set out in sub-clause 52.4. Figure 16.2 shows aflowchart ofthe procedure tobefollowed where variations are found to be necessaryandof the manner in whichthey areto be valued. 16.2.2 Measurementchanges

Clauses 55 to 57 inclusivedeal with 'Measurement' under the Fourth Edition of the Red Book. Clause 55, a clear and concise clause, provides the principles applicable to measurement of quantities. These are:

Thatthecontract is a measureandvaluecontractandthat thequantitiesofthe various elements of the works are set out in a bill of quantities. (b) The quantities of the bill are only estimated and are not to be takenas the actual orthe correct quantities of the works to be executedby the contractorin fulfilmentofhisobligationsunder the contract.This means that there oughtto be a recalculation of the contract price by establishing the actual quantities (a)

carried out at completion. (c) Itfollows,therefore,that irrespectiveofwhetherornot the works arevariedin accordancewith clause 51, the contract priceis adjustable.Such adjustment is dependentupon whether or not it is foundnecessaryto change the quantities in the bill of quantities in order to complete theworks. Clause56 sets out some procedural matters inconnectionwithmeasurement of any part of the works. The clause begins with an express requirement that the engineer is to ascertain and determine by measurement the value of the works, suchvaluebeing used as the basis of payment to the contractor under clause 60. The words 'ascertain and determine' mean a recalculation of the quantities actually carried out. In order to carry out suchrecalculation,clause 56 provides for two stepsto be takenwhich are:

any part of the works is to be measured, the engineer is to give reasonablenotice to the contractor's authorised agent to: (i) attendand assist the engineer in making suchmeasurement; and (ii) supply any particulars requiredby the engineer. (b) Thatthe engineershould'preparerecords and drawings as the workproceeds (a) When

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andthe Contractor,as and whencalledupon to do so inwriting, shall, within 14 days, attend to examine and agree such records and drawings with the Engineerandshall sign the same whenso agreed.' Non-attendance by the contractor or an authorised representative on either of these two occasionswouldplace a heavy burden ofproofon himshouldhe later wishto challengeany of the calculationsof theengineer whichare deemed to be correct under the provisions of this clause. Where the contractor examines the records and drawings and wishes to disagree, hemust, within14daysofsuchexamination,lodge with the engineernotice stating the elementswhichhe allegesto be incorrect.On receiptofsuchnotice, the engineer is required under clause 56 to review the records and drawings and eitherconfirm or vary them. 16.2.3 Adversephysicalobstructions or conditions

As a largeproportion of workincivil engineeringconstructionis usually carried outunderground, the risk ofencountering unforeseeablephysicalobstructionsor physical conditions is quite high. Whilst it may be possible to investigate and establish the properties of the sub-soil at certain locationsand extrapolatefrom that an overview ofthe whole site, the actual ground conditionsfor the whole of the works can only be established when the contractor excavates. If the unexpected happens and unforeseeablephysical obstructionsor physical conditions areencountered,theconsequencescanbe enormous interms offinancialcosts and time delays. Clause12 provides forthis situationby allocatingthe risk of encounteringsuch conditionsto the employer. The reasonsbehind suchallocationare manybutthey areessentiallybasedonthecriteriaofcontrolovertherisk inthat itis theemployer who: (a) selects the site and the precise location of the works; (b) has control over the designofthe works and the timing of commencementof construction;and (c) can and has the opportunity to carry out whatever investigations he thinks necessary to safeguard himself against the unknown. Identification of the hazards andrisks inherent in the ground conditionsofaparticular site is to a large extent under the control of the employer. Once identified, the hazards and risks, if unacceptable,can be mitigated or eliminated by the employer either directlythroughselectionof analternativesite orindirectlybychanging the design of the project.

Itis generallyrecognisedthatcontractorstendering for a particularproject have neitherthe time nor the certainty of benefit to initiate extensive sub-soilinvesti-

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The FIDIC Form ofContract Does

the contractordeem necessarythatavariation order(VO) be issued bythe engineer?

.cl.13or

T Z

the engineer deem

it necessary or appropriate to issue a variation order(VO)? 51.1

Yes

Theengineer shall make anyvariation ofthe form, qualityor quantityofthe works or any partthereofthat may in his opinion be necessary or appropriate and shall have the authorityto instruct the contractor tovarythe works

Fig. 16.2 Variation orders.

Claims and Counterclaims

either the contractor or engineer givenotice of extra payment orof varied rate?

es Doeathe natureoramount of the varied

workinrelation to the nature oramount ofthe whole ofthe worksrender the rate orprice inaoorooriate or

(Fig. 16.2 Contd.)

311

The FIDIC Form ofContract

312 Seeprevious page

ntrorlesha!

be paid orsuchvan ed workunderthe terms setout in the day included in the by him inthe tender

Contractor shall furnishproof of all payments made by him to engineer and obtain the engineer's approval before ordering materials 52.4

During execution of dayworks contractor shall submit each dayto the engineer duplicate lists of workmen and duplicate statement of materials and equipment 52.4

e

trr

Yes

neertosignonecopy statemen

o

Engineer is entitled to authorise payment in favour

Yes

'

ecractor endofeachmon

'.

submitted priced statement ofall workmaterials and plant used?

No

ofcontractorforsuchwork on beingsatisfied astotime, labour, materials and equipment used or at such value asshall in his opinion befair and reasonable 52.4

impractical for contrac to submit statements? 52.4

No

to be certified in interim certificates [Amounts Go to next page (Fig. 16.2 Contd.)

Contractornot

entitled to payment

Claims and Counterclaims

Is it foundthatas a resultofall the varied work and all adjustments upon measurementsof quantities, there have been additions toor deductions from the contractprice whichhave resulted from varied work or admeasurementwhichwhen taken togetherare in excessof 15% of theeffective contractprice 52.3

(Fig. 16.2 Contd.)

313

314

The FIDIC Form ofContract

gation for a project for which they are participating in a tendering exercise.The contract for the construction of sucha project mightor might not be awarded to any suchtenderer. Accordingly,theconcept of clause 12 isbased on thecriterion that should the unexpected happen, then the cost of, and the time required in dealing with it wouldbe paid to the contractor by the employer. The contractor should not thereforeinclude inhis tenderfor unforeseeablephysical obstructions or physical conditions.This is perhaps bestillustrated by the followingquotation from the judgment of the Privy Councilinthe caseofMitsuiConstruction Co. Ltdv. Attorney-GeneralofHong Kong (1986):168 'Against this background offacts,ifthe contract documentswere understood in

thesense contended for by the Government,engineeringcontractorstendering for the work would have two options. They could either gamble on encountering more or less favourable ground conditions or they could anticipatethe worst case andprice theirtenders accordingly.It is clear from what happened here that the worstcase might double or more than double the time requiredto do the work with a consequent increase in time related costs. On this basis, tenderers gambling on favourable ground conditionswould risk a largeloss, while conversely,if all tenderers anticipated the worst case, but in the event reasonableconditionswere encountered,the Governmentwouldbe the losers. Itfollowsthat,ifthe Governmentareright, thereis a largeelement ofwagering inherent in this contract.It seems to theirLordships somewhat improbablethat a responsible public authority on the one hand and responsible engineering contractors on the other, contracting for the execution of public works worth many millions of dollars,should deliberatelyembark on a substantial gamble.'

A construction contract should notbe a gamble if disputes areto be avoided. Thus, clause 12 sets outthe principles ofrisk allocationinconnectionwith ground conditions and outlines the procedure when the risk of unforeseeable physical obstructions or physical conditions eventuates. Sub-clause 12.1 places on the contractor the responsibilityof satisfyinghimself 'as to the correctness and sufficiency of the Tender and of the rates and prices stated (by him) in the Bifi of Quantities.. .'. These rates and prices are deemed to cover all his obligations under thecontract;see Chapter 13 for'theproperexecutionandcompletionof the Works and the remedying of any defects therein'. To satisfy himself as to the correctness and sufficiency of his tender where ground conditionsare concerned,the contractoris deemed,amongst other things, to have compliedwith theprovisionsof clause 11 whichinclude a requirement to inspect andexamine 'the Site andits surroundings and informationavailable in connectiontherewith', before submitting his tender. It is recognised in clause 11 that the contractor in making suchinspection and examinationis constrainedby what 'is practicable,having regard to considerations of cost and time'. However, despite that restriction, the contractor is expected to consider the following

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315

specific matters in connectionwith the site, its surroundings and the information

availableon them:

'(a) the form and naturethereof, including the sub-surfaceconditions, (b) the hydrological and climatic conditions, (c) the extent and nature of work andmaterials necessary for the execution andcompletion of the Works andthe remedying of any defectstherein, and (d) the means of access to the Site and the accommodationhe may require and, in general, shall be deemed to have obtained all necessary information, subjectas above mentioned, as to risks, contingenciesand all other circumstances whichmayinfluence or affect his Tender.' The employer, on the other hand, is expected under clause 11 to have made availableto the contractor,before submitting his tender, all the availabledata on hydrological and sub-surfaceconditions which had been obtained from investigations relevant to the works. The interpretation of such data is, however, the responsibilityof the contractor and neither the employer nor his advisers should venture intothis area. The concept of clause 12 is basedon the above requirements being fulfilled by the employer and the contractor.Accordingly,the criterion adoptedin clause 12 for a compensationeventto the contractor is based on the discoveryof physical obstructionsorphysical conditionswhichwere'not foreseeablebyan experienced contractor'. Attention should be given to the limitation imposed by the word 'physical' on any unforeseeableobstruction or condition. Thus administrativeor otherobstructions or conditions are not within the scope of sub-clause 12.2 provisions.

Where suchan event occurs, the contractor is required under sub-clause12.2 to give notice to the engineer, with a copy to the employer, and this notice triggers the claim mechanismfor compensationin money or time orboth. Theengineeris required, on receipt of such notice, to consider and conclude whether, in his opinion, suchobstructionsor conditions'could nothavebeenreasonably foreseen by an experienced contractor'. Ifthe engineer's opinionis that suchobstructionsor conditionscould nothave been reasonably foreseen by an experienced contractor, he is then required to determine, after 'due consultation' with the employer andthe contractor:

'(a) any extension of time to which the Contractor is entitled under Clause 44, and

(b)

the amount of any costs whichmayhavebeenincurredby the Contractor by reason of such obstructions or conditions having been encountered, which shallbe added to the Contract Price,andshall notify the Contractor accordingly,with a copy to the Employer.'

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The FIDIC Form ofContract

After such determinationismade,the engineeris thereforerequiredto 'notify the Contractor accordingly,with a copy to the Employer' but such determination 'shall takeaccount of any instruction whichthe Engineer may issue to the Contractor ... and any proper and reasonable measures acceptable to the Engineer which the Contractor may take in the absence of specific instructions from the Engineer'. Accordingly,there is wide flexibility and risk sharing between the employer and the contractor in respect of dealing with the unexpected event. There is also flexibifityin the type of action or position that the engineer may wish to adopt should an event occur which the contractor contends falls under the provision of sub-clause12.2.This is quite differentfrom the situationunderclause 12 ofthe ICE Form, on which the Red Book was originallymodelled, where specific requirements are stipulated in response to a notice under this clause. Aninteresting changehas beenmadein thewordingof theThird Edition ofthe RedBookinthe descriptionofthe obstructionsorconditions.Thewords'could not havebeenreasonablyforeseen by an experiencedcontractor' as contained in the followingsentenceof the Third Edition:

'If, however, ... the Contractorshall encounterphysicalconditions ... or artificial obstruction,which...could, inhis opinion, not have been reasonably foreseen by an experienced contractor,.. have been altered to 'were ... notforeseeableby an experiencedcontractor' inthe

Fourth Edition. The significance of this change will have to be discovered in practice, especiallywhen these descriptive words remain unaltered later in the clause, dealing withthe referenceto the opinion ofthe engineer. See the exacttext later in Chapter 23. The change in wordingis particularly important in view of the fact that many authoritative commentators have criticised the indefinite meaning of the former phrase: 'could not have been reasonably foreseen by an experienced contractor'. The comments include the following: (a) The above phrase has been describedas one which 'probably gives rise to the most frequent disputes of fact whichcome before engineering arbitrators in theUnited Kingdom' and that'their applicationis likelyto vary inaccordance with the personal views of individual engineeringarbitrators.'169 (b) The phrase was also questioned in terms of whether a claim is 'excluded only if an experiencedcontractor could have foreseen that the conditions or obstructionsmust occur, or is it sufficient that he could have foreseen that there was a possibifity, however remote, that the conditions might occur?'161° (c) Afurther criticismwas made in that the difficultyin ground conditionsmay

betheresultofinadequate pre-contractinvestigationsor design which arethe

Claims and Counterclaims

317

responsibffityof the engineer. In having to determine the foreseeabiity ofthe obstructionsor conditions, the engineer willfind himself in a situation of a conflictof interest.1611 (d) More recently, the phrase was questioned in respect of the 'hypothetical' nature of the experienced contractor,andthe total dependence of the risk of unexpected adverse conditionson whatthis 'hypothetical person... oughtto have (considered)at the time of the contract', andthus it is hardly surprising that 'this test gives rise to some very peculiar consequences'. From this analysis, it is then concluded that 'this is why most substantial clause 12claimsmust goto arbitrationandwhy the clause itselfis andalways has been a contractualdisaster.'.1612 (e) On the other hand, it is argued that the policy behind a contract provision should be 'to allocatea risk to the partywho isbest ableto takeresponsibility for it, eitherbecauseitisfair to do so, or becausethatparty is the betterableto control the outcome', andthat 'it is not the wordingof the clause (clause12) which causes the problems,but ignorance andthe engineer's understanding

of it.'.1613 (f) Because of either the natureofthe risk,or thewordingofclause 12, or the type of disputes whichmay be triggered by events suchas adverse ground conditions, the partiesare driven to some ifiogical positions: (i) Experiencedcontractors who foresee such a risk as probable, and price

their tenders taking into account that probability, lose the contract in a competitive tendering situation to the contractor with the lowestmargin for such a risk. The contract may be lost, but for the employer, 'worse still, (it may be lost) to a class of contractor whose mainskill lies in the successful advancement and prosecution of this type of 16.14

claim.' (ii) As soon as the risk eventuates,the contractor is driven to concentrate on why ithadnot been foreseen instead of howto tackle its effect. (iii) The employer and the engineer, 'for whom the unforeseen conditions represent respectivelyafinancialproblem and an embarrassment,willbe trying to show that some information existed at the tenderstage (which the engineermighthavebeenquite unawareof) to demonstrate that the conditionscould have been foreseen'. (See Reference16.12.) The contractorwillattempt to show thatifthe conditionscould havebeen (iv) foreseen by an experiencedcontractor,then they should have been foreseen by the engineer and thatthe engineer's design should have catered for the possibility of this risk eventuating. Accordingly,the contractor would attempt to argue that if an experienced engineer couldnot have reasonablyforeseenthe hiddenrisk,how could anexperiencedcontractor have done so? Iftheengineer did,whythendid he notexpose itmore positivelytothe employer at first andsubsequently to the contractor?

The FIDIC FormofContract

3118

In defenceoftheconcept ofclause 12, some commentatorshavewarnedagainst its deletion since: —

Encountering unforeseeable conditions and obstructions may invalidate the

contract should there be no provision similar to clause 12 and should such conditions and obstructions present a situation far beyond the original contemplation ofthe parties.1615Inthis connection,referenceshould also be made to the theory of exceptionalcircumstancesin some Romano-Germanicjurisdictions, as discussed earlier in Chapter 8. — Passingpart of the responsibilityof site investigationsto the contractor might result in a reduced incentive for the employer to undertake the extensive investigationsnecessaryfor a final design. If this happens, it would certainiy betothe detrimentof thedesigner and his designaswellas totheemployer,in terms of cost and prompt completion of the project. Furthermore, if all contractors tendering for a project'were tocarryoutan extensivesurvey, the cost, notonly inmoney butin disruption and possiblydamage to thesite, would be enormous'. (See Reference 16.13.) — Theadditional contingentsumwhichwouldbe builtintothe contract priceby prudent contractors in terms of the unknown factor would mean a likely overall price disadvantage to the employer. Attempts have been made to resolve this problematic areaby advocating the inclusion inthe tenderdocuments of a precisemethod ofallocatingthe costof the consequencesof the risk of unexpected groundconditions, if and when it eventuates, thus eliminating the two extreme possibilities of the contractor either making excessivemonetary gains or facingfinancialhardship. This canbe done, it has beensuggested,by incorporating intothe tender documentsa referenced list of adverse physicalconditionswhereadditional remuneration, either on thebasis of cost or price, would be paid to the contractor should any of thelistedadverse conditions be encountered.1616 Additional remuneration on the basis of price wouldbe paid in accordance with tendered unit rates or prices for provisional quantities ofwork items included in a special part of the bill of quantities. Where the basis of such additional remuneration is cost, then the list of adverse conditions wouldserve as anitemised bifi ofcompensationevents underthe termsof the contract and a provisional sum is placedagainst eachsuch event. In both of these methods, the total of this special part of the bill of quantities is carried forward to the total of the contractor's priced offer. Thefollowingadvantages were envisagedin the above approach: (a) A better comparison and analysis of tenders can be achieved. The tenders would include the tenderer's rates and prices for, or the cost of, dealing with the specified unexpected reference events. This would be of benefit to the employer in identifyingthe most cost-effective tender, inclusiveof the cost of

Claimsand Counterclaims

319

dealing with the specified events, as well as being an advantage to prudent contractors who would include such costs in their tender, irrespective of whether or not a special part is included in the bifi of quantities. (b) The contractor'spriced offer would form a more realisticestimate ofthe costof the project whichis ofbenefit to the employer andthe contractor alike. (c) In compiling the list of unexpected events, the employer and his consulting engineer could be compelled to give more thoughtand time to identifying those unexpected events and to plan for dealing with the difficulties which may arise as a consequence of encountering them. Better planning of the design process and of the supervision of construction could thus be achieved. (d) The enquiry into these unexpected events wouldlead to a more comprehensive site investigationwhich mighteliminatepart ofthe risk of the unknown. Two serious objectionsto these proposals may be put forward: — —

Deleting sub-clause 12.2 may be against the principles of the applicablelaw of thecontract; see Chapter 8 in this book. The contractor in puttingforward rates or prices for provisional events, must

make certain assumptions. These assumptions extend to the quantity and complexityof the envisaged work, the plantrequired, whether or notit would beconvenientto do suchworksimultaneouslywith other work, whetheror not suchwork is of similar nature, whetheror not a specialisttypeof labour and plantwouldbe necessary,andsoon. Therisktotheemployer andcontractorin making the wrong assumptions is high and it is questionable as to whether or not the effect of such decision-makingshould be taken into account in the

awardof the contract.

There may, however, be some advantage in certain contractsadoptinga compromise by leavingclause 12unaltered butintroducingthe concept of areferenced list of unexpected events. 16.2.4 Employer's risks

Sub-clause20.3 ofthe Red Book stipulates the procedure to be followedwhenloss or damage arisesfromanyof theemployer'srisksas defined in sub-clause20.4,or from a combinationwith other risks. In this connection,the provisions of subclause 22.2 and clause 65 should also be considered when assessing the effectof the employer's risks. In the event of any such loss or damage, the engineer is expected to inform the contractorwhetheror nothe is requiredto rectifythe loss or damage and if so,to what extent. The engineeris requiredto determine anaddition to the contract price forwork done by the contractor in rectifyingsuchloss or damage calculated under clause

320

The FIDIC Form ofContract

52 for varied work. The engineer is then required to notify the contractor accordinglywith a copy to the employer. Where the loss or damage results from a combinationof employer's andcontractor's risks, the engineer must take into account their proportional responsibility.

Claims under this heading can therefore be easily formulated andmadeif the employer's risks are precisely defined in the Red Book. Problems will arise, however, under paragraph (h) of sub-clause 20.4 in which an attempt has been madeto allocate some of the risks of theforces of nature to the employer. Once again, as in clause 12, the 'experienced contractor' who features prominently, is assisted by an ambiguousphrasewhichin this caseis 'couldnotreasonably have been expected to take precautions'. In order to determine whether or not the contractor has a validclaim under this provision ofthe contract, it has first to be determined whether or not an experiencedcontractor could not reasonably have been expectedto takeprecautionsagainstthe riskofthe operation ofthe particular force of nature. Unlike the ambiguity of clause 12, the impact of the problem in this case is slightly diminishedby the fact thatthis risk is, inany case,requiredto be insured against under the provisionsof clause 21. Accordingly,the problem wifilie inthe differencebetween the ability of the contractor to claim for the cost of rectifying any loss or damage resulting from an employer's risk,under clause 52 or a contractor's risk through the insurancepolicy provided underclause 21. Underclause 52, the contractor can claim for all his costs plus profit, whereas under the insurance policy he wouldforfeit an amount equivalent to the deductible under the provisions of the insurance policy together with, and depending upon the terms of the insurance policy, any profit he is expected to make. Reference should also be made in this connection to Chapter 14 where the employer's risks are considered in greater detail. 16.2.5 Compliancewith statutes,regulations, pricefluctuations, currencijandother

economiccauses

The provisions of clauses 26, 70, 71 and 72 of the Red Book regulate the relationship between the parties in connectionwithmatters closely associatedwith the economicpolicy andthe laws of the place wherethe project is constructed. Accordingly,supplementaryclauses are drafted in Part II of the RedBookwhich provide for specific requirementsof individual projectsdepending ontheirstatus, nature and size. Clause 26 provides that the contractor should make all payments properly imposed underthe relevant legalrules as mentioned inthe clause.Two exceptions apply to these payments.The firstisinrespect of any compensationwhichmaybe payable for occupationof any land by the works, or anypartthereof,as provided in sub-clause22.2. The second is in respect of obtaining any planning, zoning or

Claims and Counterclaims

321

othersimilar permission requiredfor the works to proceed. Both of these exceptions are the responsibilityof the employer. Thus, claimsmay arise as a result of non-compliancewith the provisions of clause 26. Sub-clause70.1 deals with fluctuations in the costs of labour and materials or any othermatters affectingthe cost of construction.It is particularly important in projectsoflong durationand attimes ofinflationwherethe risk ofincreaseinsuch costsishigh. Unlesswage ratesare controlledby official bodieswithinthe country wherelabour is employed, it is difficult to ascertainthefluctuationswhichoccur. Siniilarly,unless the costof materials is controlled by official indices showing the cost of various basic materials, it is extremelydifficult to envisage a formula by which suchcosts couldbe calculated without the risk of serious abuse. Accordingly, once again,the opportunity isgiven in PartIIto draft specific clausesforthe particular project under considerationand in many cases considerationshould be given to allocatingthe risk of suchfluctuation to the contractor on the basis of his abilityto plan for minimisingthe effect of this risk. Sub-clause70.2 provides for costfluctuation asaresultof changes inlegislation in thecountry where theproject is tobeconstructed,whichoccur afterthe date28 days prior to the latest date for submission of tenders for the contract. Such fluctuation is easily calculated, and the engineer is requiredto determine any additional or reduced cost after 'due consultation' with the employer and the contractor.Once determined,the additional orreduced costs should benotified by the engineer to the contractor with a copy to the employer. In this connection, referenceshould bemadeto Chapter 8 of this book andin particular to Reference 8.13 quoted therein. Where clauses 71 and 72 are concerned, claims may be made in respect of currency restrictions, variations and proportions in accordance with the procedures provided and the particulars ofthe contract in question. 16.2.6 Defects andunfulfilled obligations

A defect has been defined as 'a failure of the completed project to satisfy the express or implied quality or quantity obligations of the construction contract.' 16.17

From the contractualpoint of view this is a succinctdefinitionlinking together therequirements of anumberof sub-clausesin theRedBookdealing with defects.

It is of benefit to consider these sub-clauses together but as they are scattered throughout the document, it is sometimesdifficult to visualise theireffect fully. However, before considering these sub-clauses, a controversial decision of the House of Lords inthis connectionis worthyof note. It is the decision inRuxley v. Forsyth.1618

A contract was entered into between RuxleyandMrForsyth for the constructionof a swimming pool at Mr Forsyth's home. Thepool was required to havea maximum depth of 7ft 6in (2.29m), but on completionit was discovered that the

322

The FIDIC Form ofContract

maximum depth was only 6 ft (1.83m). Mi Forsyth sought to recover the sum of £21,560in respect of the costof demolishing the pooi and reconstructingit to the depthoriginallyspecified. Atfirst instance,thejudgedecided that as constructed, the pool wasperfectlysafe to dive intoandthatthereforethe disadvantage of the reduced depth was totally disproportionateto the cost of demolition and reconstruction. He only awardedMr Forsyth the sum of £2500 for loss of amenity. Mr Forsyth appealed. The Court of Appeal disagreed with the decision of the lower court and allowed the appeal on the basis that the only way in which the contractual objective of a depth of7ft 6incould be achievedwas by demolitionof the pool and reconstructingit to the specified depth. Accordingly,Mr Forsyth was awarded the full amount of £21,560. Ruxleyappealed tothe House ofLords whichwas facedwith the question as to whether to award damages for the cost of providing what was promised or to award damages for the loss of value and amenity. Finding in favour of the contractor, the House of Lords concludedthat the trialjudge wasjustified in holding that it wouldbe unreasonable to incur the cost of demolitionofthe existingpool and reconstruction of a new one. Whilst there are many repercussions to the detailed judgment of this case, its immediate impact shouldbe considered with respect to clause 39 which requires the contractor to remove defective work and thefact thatthe Conditions donot permitthe engineerto acceptworknot carried out inaccordancewiththecontract.Another notablepointin this caseis thecostof litigationwhichfor Ruxley alone reached the figure of £160,000. Returning to the various sub-clauses under the Red Book which deal with defectivework, these are set out below in a logical sequence: (a) Sub-clause 36.1 defines the required quality of materials, plant and workmanship and provides thatthey are to be subjected,from time totime, to such tests as the engineermay require. (b) Sub-clause55.1 describes the quantities of the works to be executed by the contractor in fulfilmentof his obligationsunder the contract. (c) Sub-clauses8.1 and 13.1 set outthe contractor'sgeneral responsibilitieswithin the contract,whichinclude the obligation to remedy any defect in the works unless it is legally or physically impossibleto do so. (d) Sub-clause37.4 incorporatesthe provision that as a result of an inspection or testing referred to in clause 37, the engineer can reject the materials or plant inspected, if he determines that they are defective or otherwisenot in accordance withthe contract.The engineer is then required tonotify the contractor immediatelystating his objectionswithreasons. The contractoris required to make goodthe defect promptly or ensure that the rejecteditemscomplywith the contract. All costs incurredby the employer due to any repetition of the tests performed must, after 'due consultation' with the employer and the contractor,be determined bythe engineer. Suchcosts are recoverablefrom the contractor by the employer andmaybe deducted from any monies due or to

Claims and Counterclaims

(e)

(f)

(g)

(h)

323

become due to the contractor. As in other engineers' determinations, it is required that the contractor be notified accordingly, with a copy to the employer. It is important to note that failure to comply with the engineer's notice referred to above, exposes the contractor to the sanctions under sub-clause 63.1. Upon certification by the engineer, the provisions of sub-clause 63.1 entitle the employer, after giving 14 days' notice to the contractor, to enter upon the siteandthe worksandterminate the employmentof the contractor (seealso Section 16.2.7 later). Sub-clause39.1 provides that the engineer is authorised to instruct the contractor to remove from the site any materials or plant which are not in accordancewiththe contract.As insub-clause37.4, failurebythe contractorto comply with the engineer's instruction in this sub-clause, will expose the contractor to the provisions of clause 63. Sub-clauses 48.1 and 49.2 provide that once notified by the engineer, the contractor must remedy any defectin the worksbefore the taking-overcertificate or as soon as is practicable after the dateof that certificate. Sub-clause 49.2 also provides that the contractor is to remedy any defect, shrinkages or other faults as may be instructed by the engineer during the defects liability period or within 14 days after its expiration. Furthermore,it provides that besides the remedying of defects,the contractor is requiredto executeanyworkof amendmentandreconstructioninstructed bythe engineer during the defectsliability period or within 14 daysafterits expiration. Sub-clause 49.3 provides that the cost of remedying defects, shrinkages or otherfaults aswellasthat ofany amendment andreconstructionworkistobe bornebythe contractorwherethe cause is that of abreach ofcontract byhim. Otherwise,it istobebornebythe employer as anaddition to the contractprice in accordance with clause 52. Clause 50 gives authority to the engineer to instruct the contractor to search, underhis direction,forthe cause of any defect, shrinkage or other faultwhich appears atanytimepriorto the end ofthe defectsliabilityperiod. It is obvious that this clause applies wherethe cause of the apparent defectis notknown. Knowing the cause of a defect has two important purposes. The first is to determine the appropriate method of remedy arid the second is to determine

the liability. Theclause provides thatifthedefectis oneforwhichthecontractorisliable, thenthe cost ofthe search andofthe remedy is to be borneby thecontractor. Otherwise, the engineer, after'due consultation' with the employer and the contractor, is requiredto determine the cost of such search which is to be addedto thecontract price.Theprovisions ofsub-clause49.3 apply tothe cost of remedying the defect itself as referred to in item (f) above. The engineer is again required to notify the contractor accordingly, with a copy to the employer.

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324

(i) Sub-clause26.1 provides inits paragraph (a) that the contractoris required to conform in all respects with statutes, regulations, bylaws, etc., including the giving of notices and payment of all fees whenremedying any defects in the works.

Sub-clauses 39.2 and 49.4 provide for the situation where the contractor defaults in carrying out an instruction of the engineer under sub-clauses39.1 and49.2respectivelywithin thetimespecifiedorifnot specffied, thenwithin a reasonable time. In sucha case, the employer is entitled to employ and pay others to carry out the work instructed by the engineer. The employer is also entitled under sub-clause 64.1 to employ and pay others to carry out any remedial or other work which is, in the opinion of the engineer, urgently necessary for the safety of the works and which the contractor is unable or unwilling to do at once, whether duringthe executionof the worksor during the defects liabifityperiod. (k) Finally, sub-clause 60.3 provides, under its paragraph (b), that upon the expiration of the defects liabifityperiod, should thereremainto be executed anyworkorderedpursuantto clauses49and50 (defectsliabifity), the engineer is entitled to withhold certificationof as much of the balance of the retention money as shall, in his opinion, represent the cost of such work. The withholding of the certificatecontinues untilsuchwork is executed.if suchwork remains undone, then the provisions of sub-clause 49.4 apply, as described

(j)

above.

to the terms of the defects liability certificate,none of the above provisions supplants the rights of the parties to seek redress in respect of defects discovered duringthe executionofthe works,orinthe case oflatentdefects,after theircompletion.Sub-clause62.2, in fact, specificallyprovides that the contractor Subject

and the employer is to remain liable for the fulfilment of their respective obligations under the provisions of the contract prior to the issue of the defects liabilitycertificate. Subject to the provisions of the applicable law of the contract, this express provision,combined with the obligation to complete,has in the case of claimsfor defectivework or for defects, the valuable effectof causing time to start to run against the employer, for the purposes of the statutes of limitation,fromthe date of the defects liabilitycertificate.

16.2.7 Failure to commence, delays, suspension ofwork, releasefrom performance,

defaultandtermination There are few designated remedies in the Red Book in the form of financial compensationas a result of the failure of eitherparty to perform his obligations under the above headings. In most circumstances,the financial compensation is not designated and comesunderthe second categoryofclaims as discussed atthe

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325

beginning of this chapter, i.e., claims based on the grounds that a term of the contracthadbeen breachedbutwherethe remedy is not designated.These claims are discussed in Section16.3 later. However, it is important to list the provisions of the Red Bookwhichinclude designated remedies andthese are as follows: (a) Sub-clause6.4 incorporates provisions which protectthe contractor if he is delayed or incurs additional costs as a result of late issue of drawings or instructions in respect of whichhe has given notice in accordancewith subclause 6.3. Sub-clause 6.5 provides for the situation where the contractor contributesto the delayinrespect ofwhichnotice hadbeen given under subclause 6.3.Theengineer isrequired, after'due consultation'with the employer and the contractor, to determine any extension of time and any amount of costs which shouldbe added to the contract price. In determining these elements,the engineeris required totakeintoaccount the contractor's contribution if any, to such delay. The engineer is then requiredto notify the contractor accordingly,with a copy to the employer. (b) Clause 40 regulates the consequencesof a suspension of the progress of the works or any part thereof wheninstructed by the engineer for a numberof reasons specified in sub-clause 40.1. Figure 16.3 shows a flow chart of the procedure stipulated under clause 40. For a clear understanding of this procedure, it mustbebornein mind that whilstthe provisionsof this clause only apply to asuspension orderedby the engineer,thereisno obligationonhimto give such an instruction. The authority to suspend the work is purely discretionary.Accordingly,no matter what the difficulties are, the engineermay decide that suspension of the progress of the works is not appropriate, in whichcase itis the contractor'sduty to continue the work or as the case may be, for example,remove defectiveworkandreconstructwithoutdelay. Ontheotherhand, the contractorhastherightto and may suspendworkor reduce the rate ofworkinaccordancewith the provisionsof sub-clause69.4,if the employer fails to make a payment within the stipulated period under clause 60. if as a result of suchan action by the contractor,he suffers delayor incurs costs, the engineer is required to determine, after 'due consultation' withthe employer and thecontractorthe amount of such costswhicharetobe added to thecontract price. Where the progress of the worksis suspended, it is essentialthat attention shouldbe given to: (i) partially completed work which is particularly vulnerable to hazards occurring during a temporary incomplete state for which it is not designed. Protection of the works therefore assumes a different dimension and mayrequire special action such as storage of certain items or temporary protective measures; (if) elements of the worksin the process of being manufactured;

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The FIDIC Form ofContract

No Does

theContractor give notice

the engineer requiring permission to within afurther28days?

Thecontractormay electtotreat suspension, whereit affects part only of the works, as an omission underclause 51, bygivingafurthernoticeto the engineer to that effect 40.3, 51

Theengineer shall after dueconsultation with contractorand employer determine anyextension oftimetowhich thecontractorisentitled; and the amountwhichshall be added tocontractprice in respect ofcost incurred bythe contractor byreason ofsuspension. Theengineer shall notify,contractor of suchdetermination with copytoemployer 40.2

Thecontractormayelectto treatsuspension, whereitaffects thewholeoftheworksas defaultof theemployerand terminate his employment by daysnotice 40.3 &69.1 Upontheexpiryofthe 14 days' noticethe contractorshall, notwithstanding the provisions ofclause54.1 remove his equipment fromthesite 6g.2 employershall be under obligation• paycontractor, underthe provisions of clause65plus amounts for loss or damage suffered bycontractordueto suchdetermination 65 &

Fig. 16.3 Suspension.

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See previous page

Suspension is duetoitem (b) (necessary by reason ofsome default orbreachof contractbythecontractor

Engineer decides on thecourseof action tobe adopted

orfor whichhe is responsible)

40.1

1.

contract

63.1

Employer may after giving14days' noticetothe contractorenteruponthesite andtheworksand terminate the contractois employment, withoutrelieving the contractorofhis liabilitiesor obligations underthe 63.1

contract

Unless prohibitedbylawthecontractorshall if instructed bytheengineer within 14daysof entryand termination of

Theemployershall notbe liable to pay tothecontractoranyfurtheramount (includingdamages) in respect ofthe contractuntil theexpiration ofthe defects liabilityperiodand thereafter until the costs incurred bythe employer have been ascertained and the amount thereofcertified bythe engineer

the employerassign to theemployerthe benefitofany 63.4 agreement forthe purpose of thecor'tract

Engineer shall as soon as possible after anentryonsite andtermination bythe employerdetermine exparteor otherwise amounts reasonably accruing to the contractor forworkdone, materials and/orequipment and temporaryworksand shallcertify 63.2 accordingly

If suchamountexceeds thesum whichwouldhave been payable to the contractoron duecompletion by him then the contractorshall upondemand paytotheemployer the amountofsuchexcess and shall bedeemed a debt by the contractorto employerandshall be recoverable 63.3 accordingly

it

--

At theexpirationof thedefects liability period,thecontractorshallbe entitled only tosumswhich are in excess ofthe amounts incurred bytheemployerin executing and completing theproject plusdamages from delayas a result of termination

(Fig. 16.3 Contd.)

63.3

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the equipment on the site; its detailed characteristics, such as, type, number, age, origin and value; the method of calculating the effect of suspension onits value;andthe steps whichmust betakento safeguardit against damage; and (iv) any part of the works found to be defectively designed or executed. Suspension of the works or of part of themmay have to be ordered for a numberof reasons whichinclude: significantchanges in design; additions of major elements to the works; unavailabifityof a part or parts of the site; the occurrence of one or more ofthe employer's special risks as specified under the contract,suchas for examplecivil war; and temporary economicrestraint experiencedby the employer. Whilst it may be financially prudent to suspend the works in any of the above circumstances,ratherthan to continuethe workandfacethe inevitable claims afterwards, the financial consequencesof a suspension order couldbe extremely costly to either or both the employer and the contractor. This is particularly so where heavy andexpensiveequipment is usedonthe project. Thecost ofplacing suchequipment on standby for a long period of lime may endincosts approaching thevalueofthe work intended to be executedusing suchequipment. Standby costs of equipment are usually calculated by reference to appropriate depreciationfigures basedoneithera linear or non-linear relationship between the residual value of the equipment and the numberof years ofuse. (c) Sub-clause42.1 provides forthe requirement ofthe possessionofthe site from time to time, in a certain order and in such portions as maybe necessary and subjectto the requirements of the contract. Failurebythe employer to give possessionofthe site or portions of it which causes the contractor to suffer delay and to incur costs is governed by the provisions of sub-clause 42.2. The financial compensation, if any, is determined by the engineer, after 'due consultation' with the employer and the contractor.Once determined, the engineer is requiredto notify the contractor accordingly,with a copy to the employer. (d) Clause 63 deals with the provisionswhichapply in the case of default by the contractor. Before dealing with the financial compensation arrangements provided for in this clause, it is important to note that the subject of default and its consequencesis legally and technically a far-reachingandvery complex subject. It is especiallyso wherethe languageof the applicablelaw of the contract is differentfrom that usedin the Red Book. For example,whenlegal rules are translated from another language into English, they may contain terms suchas 'rescission', 'repudiation', 'frustration' or'termination'. Each of these legal terms may havea specificmeaningunder the applicablelawof the contract whichin turnmay have a certainimpact on the provisions of clause 63. It is therefore essentialthat the terms used in the Red Bookare carefully examined to establish their compatibifitywith the applicablelaw of the con(iii)

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tractandwithwhat is intended by theparties to be theconsequenceofdefault

should it happen. Clause 63 as worded in the Red Bookis divided intofour sub-clauses,the first ofwhichdefines whena default of the contractor occurs and establishes that the employer may, after giving 14 days' notice to the contractor, enter upon the site and theworksandterminate the employment ofthe contractor. Sub-clause63.1 also provides that suchtermination does not release the contractorfrom any of hisobligationsor liabilitiesunder the contract and neither does it affect the rights nor authority conferred on the employer or the engineer. Followingsuchtermination, the employer mayhimselfcompletethe worksor may employ any other contractor to complete the works. It is also providedthat he is entitled to certain rights against the contractor which include the use ofthe contractor'sequipment, temporary works and materials. The language of sub-clause 63.1 assumes that the employer wouldwish to complete the works. However, this may not be the case if, for example, the nature of the default is such that changes in design or execution must be implemented. This brings intofocus the question of whether or not the employer is ableto applythe provisions of the applicablelaw of the contract to rescind the contract rather than terminate it under the provision of clause 63. Tn order to answer this question,the provisions of the applicablelaw ofthe contract must be identified andconsidered. For example,in certain jurisdictions, the court maygranttime tothe defaulting partyto attendto thedefault or itmayreject the application to rescind the contract if the obligation which hadnot been performed is insignificantin comparison with the obligation under the contract as awhole. In other jurisdictions,thefactthat the provision of clause 63 permits the employer to terminate the employment of the contractor without affectingthe rightsand obligationsof the parties is inconsistentwiththe more stringent definitionofrescissionunderwhichthe contractis treated as being at an end. Another areaof extremeimportance iswhetheror not the contractor can be removed from the site once his employment is terminated by the employer. Thecontractor mayobjectto suchterminationandthe matter mayresultin a dispute whichmay remain unresolved untilan arbitratoror a court holds that theterminationisjustified.Thedispute resolutionprocess,however, maytake alongtime. Accordingly,the provisions of clause 63 mayhaveto becritically assessed. The secondandthird sub-clausesofclause 63mustalsobeexamined,forthe purposes ofthe discussionunder the heading of financial compensationas a resultof default by thecontractor.Sub-clause63.2 provides that 'the Engineer shall, as soon as may be practicableafterany suchentry andtermination by the Employer,fix anddetermine ex parte, ... and shall certify:'at the dateof termination a valuation of work carried out under the contract,ofunused or

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partially-used materials,of any contractor'sequipment andofany temporary works. Sub-clause63.3 provides that the employer shall not be liable to payto the contractor any amount

'until the expiration of theDefects LiabilityPeriod and thereafter untilthe costs of execution,completion and remedying of any defects, damages for delayincompletion,ifany, and allother expensesincurredbythe Employer have been ascertained andthe amount thereof certified by the Engineer'.

Aclaim fordamages undertheheading ofbreach ofcontract mayalso apply inthe caseof default by a contractor. (See Section 16.3.)

(e) Sub-clause65.8 provides for payment if the contract is terminated under the terms of clause 65 (special risks). Details of the payment are contained in paragraphs (a) to (f) of this sub-clause. They also apply in the case of the provisions of sub-clause 66 where it is impossible or unlawful for either or both oftheparties to meet theirobligationsunder the contract.Suchasituation arises when circumstancesbeyond the control of the parties occur after the issue of the letter of acceptance or wherethe parties are released from performance under the applicablelaw ofthe contract. (f) Clause 69 deals with the provisionswhichapplyin the case of default by the employer. Sub-clause 69.1 defines the events which render the employer in default and entitle the contractor to terminate his employment under the contract. The contractor may do so by giving notice of termination to the employer, with a copy to the engineer, 14 days after whichthe termination automaticallytakes effect. As in the caseof default ofthe contractor,theapplicablelawofthe contract is also a critical element of the termination process wherethe employer is in default. See point(d) above. Furthermore,some provisions of clause 69 may not be appropriate. Paragraph (c) of sub-clause69.1, for example,wouldhave to be deleted wherethe employer is a government. Sub-clause69.3 provides the termsofpayment onterminationwhichare the same as those under clause 65, but, in addition, the employer is required to pay 'to the Contractor the amount of any loss or damage to the Contractor arising out of or in connectionwith or by consequenceof suchtermination'. 16.2.8

Othermiscellaneousspecifiedevents

The Red Bookcontains a numberof provisions where financial compensationis specifiedshouldcertainevents occur.Theseinclude thefollowingevents arranged in the order in which they appear in the document: (a) Clause 17: Where an error in setting out of the works is basedon incorrect

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data supplied in writingby the engineer, the contractor is entitled to be paid anamountdetermined by the engineer in accordancewith clause 52.

(b) Clause18: Wherethe engineerrequires the contractorto makeboreholesor to

carryout exploratoryexcavation,payment is madein accordancewith clause 51 unless anitem or a provisional sum inrespect of suchworkis included in the bill of quantities. (c) Clause 26: The contractor is requiredunder this clause to pay all fees in conformity with the provisions of national statutes, regulations, etc. Nonpayment by the contractor willconstitutea breach ofcontract, the remedy for which is stated to be an indemnity in favour of the employer against all penalties and liabifityof every kind for breach of these provisions. Furthermore,it is stipulated in this clause that the employer is responsible for obtaining any planning, zoning or other similar permission requiredfor the works to proceed. Failure to obtain these permissions wifi constitute a breach of contractby the employer,the remedy for whichis designated as an indemnity in favour of the contractor in accordance with sub-clause 22.3, against all claims, proceedings, damages, costs, charges and expenses in connectiontherewith. (d) Clause 27: Where fossils, coins, articles of value or antiquity and structures and other remains or things of geological or archaeologicalinterest are discovered on the site, the engineer may issue an instruction for dealing with such articles. Should the contractor incur any costs as a result of such an instruction,the engineeris required to determine,after'due consultation'with the employer and the contractor,the amount of suchcosts incurredwhichare then added to the contract price. (e) Sub-clause 28.1: The contractor is responsible for dealing with patent and otherrights and royaltiesinrespect of plant,materials or contractor's equipment. Breachofthiscondition willinvokethe designatedremedy ofindemnity in favourof the employer from andagainst all claims, proceedings for or on account of such infringement. (f) Sub-clause29.1: This sub-clauseplaces anobligationonthe contractorto limit the interference which his operations may cause to public or private thoroughfaresortoproperties adjoiningthe site. Failureto do so is a breach of contract which would invoke the designated remedy of indemnity to the employer in respect of all claims, proceedings, damages, costs, charges and expenses whatsoever arising out of, or in relation to any such matters for whichthe contractor is responsible. (g) Sub-clause30.2: The contractor is responsible for the cost of strengthening anybridges andaltering orimproving anyroadcommunicatingwithor onthe routes to andfrom the site. Breachofthiscondition hasthe designatedremedy of an indemnity to the employer against all claims for damage to any such roads or bridges. (h) Sub-clause30.3: Should the contractor fail to observe and perform his obli-

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The FIDIC Form

ofContract gationsundersub-clause30.1 (avoidanceofdamage toroads) and anydamage occurs, an amount should be determined by the engineer, after 'due consultation' with the employer and the contractor, to be recoverablefrom the contractor by the employer. (i) Sub-clause31.2: If the engineer requests in writing and the contractor provides facilitiesforother contractorspursuantto sub-clause31.1 (opportunities forothercontractors),theengineer is required to determine anaddition to the contract pricein accordancewith clause 52. (j) Clause 36: Where the cost of samples and tests are clearly intended by or provided for inthe contract,the costis tobe borne bythe contractor.However, wheretests areneither intended by nor provided for under the contract,then sub-clause36.5requires the engineertodetermine,after'dueconsultation'with the employer and the contractor,an amount to be addedto thecontract price. (k) Sub-clause 38.2: The engineer may require, as a consequence of some subsequent discovery, that work already covered up should be uncovered, inspected and tested. If such work is found to be in accordance with the contract, the engineer is required to determine, after'due consultation' with the employer andthe contractor,the amount of the contractor's costs which should then be added to the contract price. (1) Clause43: This clause provides that the worksand, if applicable,any section thereof

'shallbe completedin accordancewithClause48, andwithinthetime stated inthe Appendix to Tender forthe whole of theWorks or the Section(asthe case may be), calculated from the CommencementDate, or suchextended date as maybe allowed under Clause 44'. Accordingly,it links time for completion with the taking-over certificatein clause 48, the Appendix to Tender andany extensions of time granted under clause 44. It should also be read in conjunctionwith the liquidated damages provision in clause 47. Clause47 provides a designated remedy inthe case of breach of the provisions of clause 43 by the contractor. The amount of liquidated damages is determined by the employer before tenders are invited. Such determination should be based on a reasonable assessment of the actual damages which he would suffer should therebe a delay. It is usual to have a limit to liquidated damages specified in the Appendix to Tender. 16.3

Claim based on grounds of breach of contract As previously discussed, in Section 16.1, this category of claim is based on the grounds of a breach of a particular term of the contract,the remedy for whichis

Claimsand Counterclaims

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notspecifiedin the Red Book. Accordingly,the remedy wouldhave to be found under the provisions of the applicable law of the contract through arbitration or

litigation, unless the claim is settled amicably.In addition to this basic difference, there are other differencesbetween claims under this category andthose others whicharebased on the provisions of the contract. In specific terms, thesedifferencesdependon theapplicablelaw of thecontract butin general they wouldinclude the following differenceswhere contracts are basedonthe Red Book: (a) The engineerunderthe Red Bookhasauthority to dealwithand determinethe

liability for claims made under the provisions of the contract where the remedy is designated.Until the 1992Reprintofthe RedBook, the engineerhad no suchauthority in respect of claimsfor breach ofa provision ofthe contract where the remedy was not specified, unless a specificallydrafted clause empowered himto do so underthe contract. Itwas the employer who had to dealwith sucha claim as he is the other partyto the contract.Of course, the employer may have appointed the engineer to deal with suchclaims on his behalf. If the claim was rejected by the employer, or by the engineer, if appointed on his behalf, then any dispute arising in that connection would have had to be submitted to the engineer for a decision under clause 67. However, inthe 1992 reprintofthe RedBook, the words'orotherwise' were addedatthe end ofsub-clauses60.1, 60.6(b) and 60.8(a) after thewords'under the contract', thus enabling the engineer to deal with any sums to whichthe contractor may be entitled 'under the Contract or otherwise'. These subclauses relate to: monthly statements, final statement and final certificate, respectively. (b) The notice ofintention tomakea claim doesnotgenerally apply to aclaim for abreachof contract,unlessan intention to thecontrary is specificallystated in the contract.If suchanintention is not specified,thenit is up to theparties to deal with the claim and failing agreement, the matter would have to be resolved through the disputesettlementmechanismin the contract.However, in theFourth Edition of theRed Book, it is specificallyrequired in sub-clause 53.1 that notice of intention to claim is requiredwhethersuchclaim is made 'pursuantto any Clause of these Conditions or otherwise'. Theword 'otherwise' is used in this phrase to signify the inclusion of claims for breach of contract.

Referencein this connectionshould be madeto Section3.5 and, wherethe common law system is concerned,to Figure 3.1. Examples of breach of contract claims where the remedy is not specified undertheRed Bookinclude all theprovisionswhereobligationsareplaced on eitheror both of the parties. An example is clause 41 wherethe contractor is required to commence the works 'as soon as is reasonably possible after receipt of a notice to this effectfrom the Engineer. . .'. Failure to do so forms

334

The FIDIC Form ofContract

one ground of termination of the contract under sub-clause 63.1 and could resultin a claim for breach of contract as wellas for theremedies specifiedin sub-clause 63.2. (c) Whereas the amount payable in respect of a claim under category (a) above should be easily calculable,the amount of damages payable undera category (b) claim is much more difficultto assess. Furthermore, the risk ofestimating in advance an accurate assessmentof suchdamages is too great. If the claim is not resolved amicably, arbitrating or litigating over the amount of damages remains a significantand possiblycostly gamble. 16.4 Procedure for claims — clause 53 Clause53 of the Red Book is a new clause with greatly expanded provisions compared with those of sub-clause 52.5 in the previous edition. It introduces an improved disciplineintothe areaof claims andensures that prompt attention is given to the events whichmay giverisetosuchclaims.The clause sets outindetail a procedure for submitting and dealing with claimswhichshouldreduce, if not eliminate,a numberof the contentiousproblems whichhave existed in the past. 16.4.1

Procedural steps Figure16.4 illustratesthe disciplinereferred to in clause 53 inwhichitis required to: (1) give anotice ofintention to claimwithin28 daysofthe eventgiving riseto the

(2) (3) (4) (5)

claim (note itis not afterthe consequencesofthe event). Thenotice is required whether the claimispursuantto a clause ofthe RedBookor otherwise.It does not haveto include any details of the claim itself; keep contemporaryrecords (by the contractor); inspect the records (by the engineer); provide authority to instruct the contractor to keep further contemporary records (by the engineer); within 28 days of the notice or an agreed period, submit particulars of the claim inrespect of amount andgrounds upon whichit is based (by the con-

tractor); (6) interim andaccumulated accounts to be submitted for continuing effects; (7) final accounts to be submitted at end; (8) a copy ofaccounts tobe sentto the employer, by the contractor,if so required by the engineer.

Some commentators have questioned the wisdom of sub-clause 53.4 which limits the contractor's entitlement to be paid to the amounts he can verify in the

Claims and Counterclaims

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case of delayed notificationor submission of accounts andparticulars. The criticismis basedonthe fact thatthislimitationoughtto apply inany case,evenwhen there is no failure on the part of the contractor to comply with any of the provisions of clause 53. Sub-clause 53.4 is, however, of benefit in establishing that failureto complywith the provisions ofsub-clauses53.1,53.2or 53.3 doesnotbar thecontractor's entitlement to additional payment tothe extent that is verifiedby contemporaryrecords (whether ornot suchcontemporary records were brought to the engineer's notice). Sub-clause 53.5 sets out the basis of payment of claims. It provides that the contractorisentitled to payments inrespect of claimsincluding interimpayments for those claimshaving acontinuingeffectand should be dealt withinconjunction with sub-clauses 60.5 to 60.9. Accordingly,payment to the contractor for claims havingacontinuingeffectdoesnothaveto awaitthe settlement ofthe whole claim. Inthis connection,however, it is important to notethat under theprovisions of sub-clause60.9, the employer isnotliable to the contractorfor any matters arising out ofthe contract,unless thecontractor has included aclaim in respect thereof in his finalstatement andinthe statement at completion,exceptinrespect of matters arising out of the taking-overcertificate. 16.4.2 Records

Actual and accurate records andinformation are necessary to establish the costs incurred as a result of any of the events leading to a claim andthe provisions of sub-clause53.2ofthe Red Book mustbecompliedwithmeticulously.Such records include: — Clause 14 programme setting out what the contractor had intended — — — — — — —

Progress programmes setting out the progress of the various activities against

the clause 14 programme. Recordsof actual resources andactual expenditure based on progress. Records of any resources whichwere standing or uneconomicallyemployed. Records of overtime worked, and the cost thereof.

Progressphotographs and/orvideos. Drawings register (with details of amendments andupdates, if any). — Site diaries. — Approvedminutesof meetings. — Labour allocation sheets. — Plantallocationsheets. —

for the

order,sequence andtiming of the various activitiesat thetime of tender. An estimate ofresources and anticipated expenditure in units of time, which arerequiredto achieve the clause 14 programme. Any updateand revision programmes in accordancewith events which may occur duringthe progress of the works, as requiredin sub-clause 14.2.

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336

I-las

aneventoccurred givingrisetoa claim pursuant to a clause underthe Red Book

orotherwise?

Yes•

Thecontractormust givenotice olhis intentions to the engineer with acopytotheemployerwithin28 daysaftertheevent givingrise totheclaim has first arisen.

53.1

Thecontractorshall keep contemporary records as maybe required to support any claimhe 53.2 maymake

Engineer instructsthecontractorto keep furthercontemporary records forfurtherinspection whenheso 53.2 requires

I-lasthe contractorwithin 28daysor within areasonable time after givingnotice ofa claim, supplied theengineer with a detailed account givingparticularsofamount beingclaimedand stating the grounds on which the clair

isbased? 53.3 Yes

Fig. 16.4 Procedure for claims.

337

Claimsand Counterclaims See previous page

Yes

account is cons ideredto

erim account

No

Thecontractorshall atintervals as the engineer requires send furtherinterimaccounts, giving the accumulated amount ofclaim andstateanyfurthergrounds 53.3 uponwhich it is based

No

The contractorshall send to the engineer a final accountwithin 28 daysoftheend of the effects resulting fromtheevent, with acopy to theemployer, ifthe engineer directs 53.3

Thecontractor's entitlement to payment shall notexceed such amountsastheengineer or appointed arbitratorconsiders to beverified by hecontem porary records

Does

contractorfail to th anyofthe provisions

ofclause 53?

mplywi

No

Thecontractorisentitledto have includedin any interim paymentbythe engineer suchamount in respect ofany claim asthe engineer mayconsiderdue to thecontractorin accordance withthe particulars supplied

53.5

gineernotifiesthecontractor

any determination with acopyto employer

(Fig. 16.4 Contd.)

J

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338

16.5 The presentationof claims Whether a claim is submitted to the engineer or to an arbitrator as part of a statement of claim, it shouldbe presented in a clear andlogical manner. A well preparedand documented claim wouldsave time in dealing with it and would have a betterchance of success.It should have the followingsections: — — — — —

— — — — —

Introductionproviding detailsof the parties, the contract,the project, relevant datesandother pertinentinformation. Brief descriptionof the works as required and specified in the relevant documents. Description ofthe claim events as theyoccurred andthe natureofthe resultant problems encountered. A sectioncontaining a statement ofthe facts, so that facts canbe established. An analysis of the facts showing the legal basis upon which the claim is founded, citing the relevant provision andclause of the conditions of contract under whichrelief is claimed. Description of the procedural steps already takenin dealing with the claim event, including notices given, if any. Calculation of cost impact andthe methods used. Calculation ofthe claimed extensionsoftime, if any, showingcritical and noncritical delays encountered. Calculation ofdisruption experienced,if any, andthe method usedto calculate its impact. Appendiceswhichshouldinclude all contemporaneous records and relevant correspondencereliedupon.

16.6 Quantum Although quantificationofthe typeandextentofthe remedy, whether designated underthecontract ornot, is dependent to some degree onwhatispermitted under theprovisionsofthe applicablelaw ofthe contract,it isnevertheless acceptedthat thebasic principle for the quantificationof claimsis that the claimant shouldbe putin theposition he wouldhave beenin had the claim event notoccurred. The quantification of claims wherethe remedy is specifiedunder the conditions of contract depends onthe precise wordingofthe provisionsofthe relevant clause or clausesforming the legal basisof the claim. However, there could generallybe additionalcosts whichmightberecoverable bythe contractor as a result of a successfulclaim, depending on thenatureof the claim event.

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339

t6.6.1 Heads ofclaim

In addition to the financial claims in respect of directcosts, the various headsof claim whichmay be encountered in practice include: (a) On-site establishmentcosts: They are referred to as site overheads and consist

of the costs of administrative and supervisory staff on the site including but not limited to: sitestaff; (i) (ii) (iii)

trades foremen;

plantandtools;

(iv) welfare including cleaning etc.; (v) lighting andpower; (vi) (vii)

storage, workshops, temporary works; contractor's site office including its equipment and communication

charges; (viii) accommodationfor the employer's representatives; (ix) sanitary accommodation; (x) scaffolding; (xi) transport. (b) Off-siteoverheads: Clause 1.1 (g)(i) of the 4thEdition of the Red Bookdefines 'cost'as'allexpenditure properly incurredortobeincurred, whetheronor off the site including overheads and other charges properly allocablethereto but does not include any allowance for profit' (emphasis added). The off-site

overheads cover contributions by individual contracts to the cost of maintaining the contractor's head office. They are difficult to establish and especiallyin respect of a period of delayanddisruption or prolongation of a particular contract,wherea specificallocationof time to the various contracts is difficultto assess. Accordingly:

'Whathas to be calculated hereis the contributionto off-site overheads whichthe Contractor might reasonably have expected to earn with these resources ifnot deprived of them. The percentage to be takenfor overheads forthispurpose isnotthereforethepercentageallowedbytheContractor in compiling the price for this particular contract, which may have been larger or smaller than his usual percentage and may or may not have been realised.It isnot thatpercentage (i.e. the tendered percentage)that one has to takeforthis purpose butthe averagepercentageearned bytheContractor on his turnoveras shownby the Contractor's accounts.'1619 This problem had led tothe useofformulae, the Hudson, Emden andEichleay formulae, which were developed for calculating off-site overheads where

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The FIDIC Form ofContract

(c)

(d) (e) (f) (g) (h)

approximate figures can be obtained.162° They have been the subject of scrutiny by the courts in various cases, amongst which is Property and Land Contractors Ltdv. AlfredMcAlpineHomesLtd where itwas statedthatthe correct approach was to ascertain the actual loss or expense incurred and not any hypothetical loss or expense that might have been incurred.1621 The use of a formula shouldbe approached with care as it doesnot establish the proofof suchcost and is no substitute for accuraterecords whichenable actual costs to be determined. Adverseweather conditions: A claim may arise if as a result of a change in the tinting of the execution of the works attributable to the employer, adverse weather conditionsare encountered causing delay. Increased costs of labour, materials or equipment. Financecharges and interest. Profit on direct costs. Loss of profits. Interest on late payments.

16.6.2 The globalapproach

Claims must be substantiated and the procedure for making themis detailed in clause 53 as describedearlier inSection16.4. Tn general,itis alsonecessaryfor the claimanttoestablisheachandevery headofclaim bymeans ofseparatesupporting evidence. Furthermore,it is generally necessary to link, in a logicalmanner, the individual breaches or grounds of a claim to the particular sumsclaimed. However, whereno other way to compute damages is foundto be feasible, it maybe permissibleunder theapplicable law of the contractinsome jurisdictions to submit one 'global claim' for anumberof claim headings withoutshowing the linkbetween the breaches or groundsof claim to the particular sumsclaimed. A global claim is defined in Hudson on Building Contracts as follows:16 'Global claims may be defined as those where a global or composite sum, however computed, is putforward as the measure of damage or of contractual compensationwhere thereare two or more separate matters of claim or complaint, and whereit is said to be impractical or impossibleto providea breakdownor subdivision of the sum claimed between those matters.' These claimsare sometimesreferredtoas total cost claims,especiallyinthe United States of America.Themajor objectionsto these claims are highlightedinHudson, referred to above, andinclude inter alia the following: (a) Cost computation carried out in a global manner is neither evidence of a breach of contractnor of a groundfor a claim entitlement.An example ofthis isthe case of WharfProperties Ltdv. Eric CumineAssociateswhere the courtdid

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341

not accept the presentation of a claim which obscured any examination of issues of causation despite its 'immense length andcomplication'.16There

was no evidence presented of causation between the general breaches complainedof and the damage suffered.Thecourt foundthat' .Thefailure even to attempt tospecifyany discerniblenexusbetweenthewrong alleged andthe consequential delayprovides "no agenda for the trial".'1624 (b) Even wherethe global claim is supportedby evidence ofbreaches ofcontract or other valid ground of compensation,there may be many other possible explanations of the costoverrun, suchas underpricing in the original tender, poor site orgariisation, poor cost control, inefficiency in carrying out the works, external matters suchaslabour ormaterial shortages, strikes,weather, or otherfactors for which the claimant is contractually responsible and the defendant is not. An example of such a situation occurred in Cervidone Construction Corp. v. US whereit was said that:

'Atrial court must use thetotal costmethod with caution and asa lastresort. Under this method, bidding inaccuraciescan unjustifiablyreduce the contractor's estimated costs.Moreover,performanceinefficiencies can inflate a contractor's costs. These inaccuracies and inefficiencies can thus skew accurate computationof damages.'16 (c) Globalclaimsinvariably avoid indicatingthe precise caseto be met and enable

the claimantsto shift thepractical onus of proving the extent oftheirdamage, or lack of it, to the defendant or to the tribunal, if the tribunal insists on a proper particularisation and detailed and critical analysis of quantum. An example of this problem facing a defendant occurred in McAlpine Humberoak Ltd v. McDermott International Inc where the defendants had to carry out a retrospective and dissectional reconstruction by expert evidence of events almost day by day, drawingby drawing, technicalqueryby technicalquery, and weld procedure by weld procedure to show that theywere not responsiblefor the claimants' alleged losses.1626

With the above objectionsin mind, an example of a successful global claim underEnglish law goesbackto 1967 inthe case of J. Crosby& Sons Ltdv. Portland UrbanDistrict Council.1627 The conditionsofcontract used was the Fourth Edition of the ICE Form and one of the matters in disputewhich was referred to arbitration by the contractor was a claim for delayand 'disorganisation'. The completion of the works had been delayed by46 weeks dueto a numberofreasons, some ofwhichentitled the contractorto additional time and/ormoney andsome of whichdid not. Thearbitrator stated: 'Theresultin terms ofdelayanddisorganisation,of each ofthematters referred to above wasa continuing one. As eachmatter occurred its consequenceswere

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added to the cumulative consequencesof the matters whichhadpreceded it. The delay and disorgariisationwhich ultimately resulted was cumulative and attributable to the combined effect of all these matters. It is therefore impracticable,if not impossible,to assess the additional expense caused by delayand disorganisation due to any one of these matters in isolation from other matters. . The arbitrator held that the contractor was entitled to be paid in respect of 31 weeks of the overall delay and awarded the contractor a lump sum by way of compensation.This decision was upheld by the court andthe employer's argumentthat the arbitrator must necessarilybuildup the sum by findingamounts due under eachof theindividual headsof claim uponwhichthecontractor relied in support of his overall claim for delay and disorganisation (disruption) was rejected.

Theboundaries of this decisionwere described as depending 'on an extremely complex interaction in the consequences of various denials, suspensions and variations' and where 'it may well be difficult or even impossible to make an accurate apportionment of the total extra cost between the several causative events'. Mr Justice Donaldson (as he then was) stated that in those limited circumstancesthereis no reasonwhy an engineer or arbitrator: 'shouldnot recognisetherealities of thesituation andmake individual awards inrespect ofthose parts of individual itemsoftheclaim whichcanbedealtwith in isolation and a supplementary award in respect of the remainder of those claims as a composite whole'. Theprinciples stated inthe Crosbycasewere approved in 1985in Leachv. London BoroughofMerton, albeit with strong reservations.1628 The court inthat case held that a combined claim could be awarded, butit could only be made, firstinthose cases wherethe loss could not in reality be separated; andsecondly,whereapart from thatpracticalimpossibility,allthe requiredcontractualconditionsfora claim hadbeensatisfiedin both cases. These restrictions were considered and applied in an ICC arbitration case relating to disputes arising out of a contract under the Third Edition of the Red Book.1629 In that case it was concluded by the tribunal that the contractor: 'has made no attempt to distinguish betweentheadditional costsithasincurred due to thelate instruction [Clause6(4) claims], andwhatmightbe suitablerates and prices underClause52(1)or whatrates andprices mightbe unreasonableor inapplicable under Clause 52(2). The decision under Crosby clearly requires arbitratorsto firstmakeindividual awards underthe appropriate Clausesofthe Contractand then, and only then, to contemplatemaking a compositeawardin respect ofthe remainder ofthe claims. TheArbitrators are accordinglyunable to

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accept the submission that they should fix a suitable rate or priceto reimburse the Claimant its losses andexpensesunder theprovisions of Clause 52.'

In the more recent case of T'VharfProperties, referred to above, the facts were in the sense that there were serious causation issues to be tried

unusual

betweenthe parties wheresuper-structure contractors suedthe developers,who subsequently compromised the claim, and then brought proceedings for breach of contract alleging negligence against their professional advisers, claiming as damages the sum paid to the contractors and also to recover loss of rent suffered as a result of delay in the completion of the project. Thus, the causation issues between the developers and their professional advisers were quite complicated, but the damages claimed were in themselves precise and were recoverable in principle subject to establishing causation. However, the case lacked any evidence of causation between the general breaches alleged and the

damages suffered. The Hong Kong Court of Appeal struckout the statement of claim as not disclosing a reasonable cause of action. In their petition to the Privy Council, the developers reliedon the CrosbyandLeachcases as justifying theircontention that particulars need not be given. It was held, by the Privy Council, that while the pleadings did disclose a cause of action, they failed to explain the nexusbetween theindividual breaches and the sums claimed, andtheyshouldbe struck out as embarrassing and prejudicial to a fair trial. The observations of the editors of Building Law Reports, on this case are worthy of note:

'It musttherefore follow from the decision of the Privy Council in WharfPropand Merton are to be confined to matters of quantum and then only whereit is impossible and impracticableto trace the loss back to the event. The two cases are not authority for the proposition that a claimant can avoid providing a proper factual description of the consequences of the various events upon which reliance is placed before attempting to quantify what those consequenceswere to him.163° erties v. Eric Cumine Associates that Crosby

A number of similar cases followed where the courts have stepped back somewhat to emphasise the principles of natural justice in suchsituations and to spelloutthe principles andthe purpose ofpleadings onwhichmany ofthese cases were based and challenged. In British Airways Pension Trustees v. Sir Robert McAlpine &Sons Ltd. two defendants soughtto strike outthe statement ofclaim on the basis that, inter alia it did not set out the remedial cost of each alleged defect and did not ascribe to each defect the amount by which it contributed to the alleged diminution invalue. The applicationfailed, the English Courtof Appeal found that the basic purpose of pleadings was to allow the opposing party to knowthe case it hadto meet, but that the practice of seeking particulars where theywere not necessarywastobe discouraged.The Courtof Appeal indicated in

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that case that the argument in WharfProperties centred more on the adequacy of pleadings than on any principle that global claimswere embarrassing per The case of GMTC Tools and Equipment Ltd v. Yuasa Warwick Machinery Ltd is another example of the same point. In that case, the English Court of Appeal decided that it was not open to ajudge to require aparty to provecausation by a particular method and that parties could provetheir claim for damages as they wished. The point for decision is whether the case is put sufficiently for the opposing party to know the case it has to meet and not whether, once it is in an understandable form, ithas good prospects of success.1632 16.7 Concludingremarks

In this chapter, the principles and the legal basisrelating to claims andcounterclaims were discussed. The categories of claim were considered in detail in the

context of the provisions of the Red Book. The relevant clauses of the Red Book relating to claims for financial compensation were discussed together with the procedure for submitting a claim under the provisions of clause 53. The appropriate method for presenting a claim with all the necessary components was outlined and discussed. The necessity for linking cause and effectwas explained with reference to decided legal cases andwith particular reference to quantum and total cost or global claims. Inthe next chapter, claimsfor delay andextension of time are discussed.

Chapter 17

Delay in Completion and Claims for Extension of Time

17.1 Time is of fundamentalimportance

If time is not 'of the essence' in construction contracts, it is certainly of fundamental importance. In practice, projects are required to be completed by a certain date and in the case of commercial projects, this usually means as soon as possible. In some cases, the design is conceived with a certain date for completion in mind as budgets, interest rates, rents, leases and saleability are worked into a formula by the promoter's or employer's financial advisers. Time is also of fundamental importance to the contractor in that he must assess his performance capabilities and resources to carry out and complete the works within a given time. Whether or not completion is achieved by the designated date is a question whichis accompaniedby amatrixofrisks, whichunder theprovisions ofthe Red Book are shared by both the employer and the contractor. These provisions relating to questions oftime are fundamental to the whole conceptof risk sharing (see Chapter 7 andin particular Figure 7.2). The sharing of time-related risksis based on the liability for the delay. If the delay is caused byan eventforwhichthe employerisliable,the riskis allocatedto theemployer.Therelevant clausesoftheRed Book whichdealwiththesharing of the time related risks and their consequencesareclauses 43, 44, 46, 47 and48. Clause 43 of the Red Book establishes the time by whichthe works must be completed. It requires the contractor to complete

'the wholeoftheWorks and, ifapplicable,any Sectionrequired tobe completed within a particular time ... in accordancewithClause 48, within the time stated in theAppendix to Tender..., or suchextendedtime as maybe allowedunder Clause 44'.

'Time forCompletion'isadefined termunder sub-clause1.1(c)(ii) ofthe Red Book and is calculated from thecommencementdatewhichis the dateof receipt ofthe notice to commencethe workspursuantto clause 41. Failure to complete within

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the defined time limit is abreach ofcontract,the remedy forwhichis provided in clause 47. Clause 44 deals with the events which permit an extension of the time for completion. Sub-clause44.1 provides the following:

'In the event of (a) (b)

the amount or nature of extra or additional work, or any cause of delay referred to in theseConditions,or

exceptionallyadverse climatic conditions, or (d) any delay, impediment orprevention by the Employer, or (e) other special circumstanceswhichmay occur, other than througha default of or breach of contract by the Contractor or for whichhe is responsible, (c)

being such as fairly to entitle the Contractor to an extension of the Time for Completionofthe Works,... the Engineershall,afterdueconsultationwith the Employer andthe Contractor,determine the amount of such extension . . Therefore,for example, a delay by the engineer in issuing a further drawing or instruction under the provisionsof sub-clause 6.4 is an employer's risk. For such

aneventor any other event occurring as aresultofa time related risk allocatedto the employer,the engineer is requiredto determine after 'due consultation'with

the employer and the contractor the amount of the extension of time. In sub-clause 44.2, the contractor is required, within 28 days after an event described in sub-clause 44.1 has first arisen, to give notice of such event to the engineer with a copy to the employer. Within a further period of 28 days, the contractorisrequired to give detailedparticulars of any extensionoftimeto which hemayconsider himself entitled.This second period of28 days may be extended by the engineer to suchotherreasonabletime as maybe agreed by him. Whilsta noticeisrequiredunder the provisionsof sub-clause44.2, thus making it a condition precedent to the contractor's entitlement to an extension of time under this clause, the text of the opening sentence of this sub-clause gives the engineer the discretion to allow sucha claim eventin the absenceof a notice. Sub-clause44.3 provides for the situation where the event giving rise to the delayhas a continuing effect which makes it impracticablefor the contractor to submit detailed particulars within the 28-dayperiod referred to insub-clause44.2. The contractor, having notified the engineer with a copy to the employer, is requiredto submit interimparticulars at intervalsofnotmorethan28 daysand to submit finalparticulars within 28 daysfollowingthe endof the effects resulting from the event. The engineer is requiredto make an interimdeterminationof any extension of time to whichthe contractor is entitled, 'withoutundue delay'. On receipt of the final particulars, the engineer is required to review all circumstancesand deter-

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mine anoverall extensionoftime inregard to the event. Itisimportant tonotethat the final review should not result in a decreaseof any extension of time already determined by the engineer. This places the engineer in the difficult position of having togive his initialdeterminationwithoutunduedelayandatthe same time beingrestrained from adjusting itdownward should itproveto be excessive. The necessity to imposesuchrestrictiononthe engineer's discretion is understandable since havingbeen given anextensionoftime, the contractorcanplan hisresources accordinglyandshould notbe ina position oflater discoveringthatanyextension of time whichhe had already beengranted has nowbeenreduced. It is clear that apartfrom therestriction insub-clause 44.3, theengineer is given a very wide discretion in determining what does or does not 'fairly entitle' the contractor to an extension of the time for completion. Clause47 provides that:

'if the Contractor fails to comply with the Time for Completionin accordance with Clause 48 ... withintherelevant time prescribed in Clause 43, then the Contractorshallpaytothe Employerthe relevant sum stated inthe Appendix to Tender as liquidated damages for such default andnot as a penalty..

46 of the Red Book deals with delay events which do not entitle the contractor to an extension of thne andresult in a rate of progress of construction which is tooslowto achievethe specifieddatefor completionof the contract.This clause permits the engineer to notify the contractor requiring him to take such stepsas are necessaryto expedite progress ofthe works so as to comply with the time for completion. Clause 48 defines what completion means and specifies the procedure to be followed to reachthat stage. Accordingly,in order to identify whether or not the contractor is in compliancewith the provisionsofthe contract in relation to time, all extensions of time granted in respect of events for which the employer is responsible have to be identified. Clause

17.2 Relevant clauses of the Red Book to an extension of time under clause44 Clauses of the Red Book involving possible events which may entitle the contractor to an extensionof time under clause 44 can be brieflyidentified as follows: (a) sub-clauses6.3 and6.4: delayin supplyof documents; (b) sub-clause 12.2: adverse physical obstructions or physical conditions; (c) sub-clause 27.1: fossils andarticles of valueor antiquity; (d) sub-clause 36.5: tests-requiredbut not provided for; (e) sub-clause40.2: suspension of the progress of the works;

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or reduce rate of

work.

Theengineerin grantingsuchanextensionof time doesnotautomaticallyprovide an entitlement to the contractor to claim additional payment but should he determinethat suchadditional payment is due under any of the provisions ofthe contract, then the contractor may be entitled to such a payment even if he completes the workswithin the timefor completionoriginally specified. Any analysis of the question of delay and determination of responsibility in respect ofaneventleading to delaymustbring intofocusthe programmerequired under clause 14 of the Red Book. Sub-clause 14.1 provides that the contractor is required to submit to the engineerwithin aspecifiedperiod, for hisconsent, aprogramme for the execution of the works, see Table 13.1 in Chapter 13. Sub-clause 14.1 does not, however, provide details ofthe form and contents ofthis programmebut leaves these tobe prescribed within reason by the engineer. In simple contracts, the traditional method of presenting a programme in the form of a bar chart may suffice. However, as the contract becomes more complex with a large number of interrelated activities involving intricate and laborious operations and extensive resources, the necessity for more sophisticated methods becomes obvious. The second part of sub-clause 14.1 gives authority to the engineer to require the contractor to submit in writing for his information a general description of the arrangements and methods which the contractor proposes to adopt for the executionof the works. Sub-clause14.2 provides thatwhenrequired bythe engineerthe contractor is to provide updated and revised programmes showing modificationsnecessary to ensure completion of the works within the time for completion. Figure 17.1 illustrates the link between the provisions of clauses 14, 44 and 46 of the Red Book.

17.3 Programming Programming involvesintroducing the parameters of time and resources intothe work activitiesand ultimately into the project itself. As stated above, the traditional method of presenting a programme for the construction contract has been throughabarchart. This gives anoutline planofthetime-scaleofaproject broken downinto arelatively small numberof components,each madeup of a collection of many activities. Each component may have its own bar chart. The chart also provides the start date and completion date for each of the components or activitiesshown. Forthepurposeofproject control,the bar chartcanshow theprogress actually

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achieved at any particular time but it is only useful at the lower level of management.Itdoesnotshow how the various activitiesare connectedexceptthrough sequence of listing andthereforethe constraint imposed bythe completionof one activity on the start of another cannot be accuratelyindicated or assessed. As delay is costly to boththeemployer and thecontractor,a more sophisticated method which can handlevarious details of each activity and the interrelationships between them should be used in all but the simplest of civil engineering projects.Networkplanning andcontrol is sucha method. The details whichcan behighlighted in a network programme are: (a) Independenceof one activityfrom another requiring that neither the startnor the completion time of each is affected by the other. (b) Sequence of activities showing when one activity cannot start before the completion of another. (c) 'Burst' describing restrictive activities which when completed allow two or more activitiesto start. (d) 'Merge' describinganactivitywhichcannot start unless anduntiltwoormore other activitieshave ended. (e) Combinedburst and merge of activitiesdescribingthe position when several activitiescannot start untiltwo ormore immediatelypreceding activitieshave ended. (f) Timingof activitiesinaunit oftimewhichusuallydepends onthe durationof the wholeproject, and as a general rule expressed as one per centto two per cent of the time-scaleof the whole project. This operation also includes an identificationof the start and the end of each activity.

A project network analysis should be carried out in at least eightphases, as described below, but each may be sub-divided and expanded to give a more detailed picture: (a) Planning phasewhere anetwork of all activitiesnecessaryforthe completion of a project is planned and drawnup. An activityis an operation wheretime and resources are consumed and is represented by an arrow. (b) Project timing where estimates of duration of activities are calculated to determine as accurately as possible the project durationand to identify the activitieswhich may proveto be critical. Duration estimates should be calculated withoutbias. (c) Resourceallocation where information is added to each activity durationto show the resources requiredto complete that activity within the projected duration. (d) Allocationof workto sub-contractorsanda programme of appointment to be followed with a schedule for production and approval of subcontractors' design, if any, and drawings. (e) Pricing of the various elements of the works.

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thecontractor within 28days orsuch time as may be agreedby engineer, aftersuchnotification submittedto engineerdetailed particulars ofany extensionof time considers

Theengineershall notifythe contractor thatthe rateofprogress is too slowto comply withthetime for completion

Contractor shall take necessarysteps subject to consent of engineerto expedite progressso asto comply withthetime forcompletion 46.1

the contractor submittedtoengineer interim particularsat intervals of notmore than 28days and final particulars within 28days ofthe end ofthe effects resulting from theevent?

Ill Iseenextpage Fig. 17.1

Programme — time — delays — rate of progress.

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See previouspage II

•The contractor is entitledto anextension oftime 44.3

The engineershall on receiptof such particularswithoutundue delay makean interim determinationof extensionof time 44.3

On receiptof final particulars,the engineershall reviewall the circumstancesand shall determinean 44.3 overall extensionoftime

Theengineerafter consultation with employerand contractor shall make his determination 44.1 & 44.3

Theengineershall notify the contractor of hisdeterminationwith a copytothe 44.1 &44.3 employer

All such costs shall be recoverable fromcontractor byemployeras determinedbyengineerafter due consultation and may be deducted by theemployerfrom anymonies due to orto becomedue tothe contractor 46.1

Mo final reviewshall result in a decrease

inextension oftime alreadydetermined by theengineer (only applies in thecase

of interim determinations)

44.3

The contractor shall submit a revised programmeshowing modifications necessaryto ensurecompletion ofthe works within the time for completion

(Fig. 17.1 Contd.)

Ensurecompletion of works within the time or completion

f

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(f) Procurement of materials. (g) Commencementon site. (h) Project control where the actual progress on site is periodically measured against the network plan andwhere any corrective action can be identified andthen taken. The network must thenbe updatedin accordance with the actionstaken, and a report can beperiodically compiledto highlightthe status of eachactivity at the particular time. Thereportmay show: (i) delayin an activity and its effect on other activities andon the time for completion; (ii) new activitiesdue to a variation and the effecton others and on the time for completion; (iii) resources whichmust be drafted to redress any new situation; (iv) any other change inthe critical path network. The network is divided into events which represent the end of all preceding activitiesand the start of a succeedingactivity.Figure 17.2 shows an example of a network analysis with events labelled from 1 to 15 and activities of durations shown assigned to letters A to 0. Figure 17.3 shows the critical path diagram associatedwith that network analysis. The eventis represented usuallyby a circlewhichcarries a unique label shown inthelefthalfofthecircle.Therighthalfofthecircle is divided intoquadrants, the upper one carries thenumberofunits of time representing the earliesteventtime and the lowerquadrantcarries the latest eventtime. These figures are calculated through a process called time analysis. Two sets ofcalculations are necessaryfor suchanalysis.Thefirst set of calculationsis carried out to find thefigures which representthe earliesteventtime. These figures arecalculatedby adding from left to rightthroughthenetwork the durations of activitiesleading to each event. This will give the earliest possible time within which each event can be achieved. Where there is more than one path leading to an event, then the longest path in terms of time durationwouldprovide the figure for the top right-hand quadrant of the event circle. Thesecond set of calculationsis carried out in a reverse order from the end of the project back towards the start. By deducting the durationof events from the earliesttime ofthe last event, onecan obtain the latest possibletimeforeachevent to be completedifthe earliesttime ofthelasteventis not to beexceeded.Iftwo or more paths lead to an event then, once again, the longest path in terms of time durationis used. When the time analysis is completed,the criticalevents andcriticalactivitiescan beidentified.A criticaleventis identifiedby thefact thatits earliestand latest time arethe same. A critical activity is identified when it joins two critical events and has a durationequal to the differencebetween the times of the critical events it joins. A critical pathjoins critical events from the startof a project to its completion.

Latest event time

Earliest event time

Fig. 17.2 An example of a network analysis.

C

The diagram illustrates the sequence of events through the time scale and identifies the critical path thus. —-—

(ito 15 in this case)

Event label

oA'\o

LA)

0

1

5

10

It

2

B

15

E

7

F

H

30

35 40

45 50

55 60

L

11

70

75 80

85 90

95

105

.1

100

I II i II] 65

II

810

iiJII 111111 -

25

6

20

C

34

110

115 120

Ni

F

125

12 131415

130

Fig. 17.3 Critical path diagram associated with the network analysis in Figure 17.2.

The diagram graphically illustrates the division of time for each event through the time schedule. The dotted line indicates the float within the period allocated for that event.

Day

Event No.

I

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Everyproject has at least one criticalpath and where thereare more than onethey all have the same duration. A non-criticaleventhas 'slack' whichis the calculated time spanwithin which theeventmustoccur, that is, thedifferencebetween its latest and earliesttimes. A non-criticalactivityhas'float' whichisthe time availablefor anactivityinaddition to its duration. Since an activityhas a startevent andanend event, eachofwhich has an earliest start anda latest start, thereare fourtypes offloat. These are: (a) Total float: the time by whichan activitycan be delayed or extended without affectingthe total durationof the project. Itis calculated as follows: Total float = latest end eventtime — earliest start eventtime — duration. (b) Free float: the time by whichan activity can be delayed or extended without delaying the start of any succeeding activity.It is calculated as follows:

-

-

Free float= earliest endevent time earliest start event time duration. (c) Late freefloat:the time equaltolatestendeventtime less latest start eventtime less durationand is of no practicalsignificance.This is expressed as:

Late free float= latest end event time — latest start event time — duration. (d) Independent float: the time by whichan activity can be delayed or extended withoutaffecting the preceding or succeeding activities. It is calculated as follows:

Independent float earliestend event time —latest starteventtime — duration. The identification of float in its different forms is of extreme importance when decisions have to be made on matters of time and resources to be employed whether duringthe plarming stage or later duringthe executionof the works. A criticalpathdiagram showing critical events,critical activities,various forms of float and the resources plannedfor the executionof the works is a powerful source of project control, if properly devised and used. Such control can be exercised throughout planning, commencementof worksand their execution,by periodically providing updateddiagrams. Delay in an activity with an independentfloatlonger thanthe period ofdelaywouldnot result in delayto thetimefor completion.It may, however, cause disruption. Events which may lead to delay can be avoided or theireffects mitigated if a critical path diagram is available to place them in context. If they cannot be avoided or if their effectcannot be mitigated, they can perhapsbe correctly allocated from the pointof view of responsibility. Major projects, nationally and internationally,have been completed on time when network analysis programmes were utilised by the contractor from the planning stage ofthe worksandupdatedperiodically untilcompletion.171

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Without the benefit of a critical path diagram before andaftera delay event, it would beextremelydifficult to designate delay preciselyas criticalornon-critical delay. This is because the question which is normally asked: 'Did a specificevent cause a delayto the contractor in the executionofthe works?' must be combined with: 'Should it have and if so to what extent?' The term 'critical delay' is usedhere in the context of that whichwoulddelay the time for completion of the wholeof the works or of a section requiredto be completedby a specific date. Inanswering thesecond question posed above,theaccuracyofthetime analysis of the original critical path diagram drawn at the planning phaseis of particular importance. This is so in view of the practice adopted by some contractors of submitting programmes with optimistic activity durations. This practice is referred to in English case law; see Walter Lawrence& Son Ltd v. Commercial Union Properties Ltd and Glenlion Construction Ltd v. Guinness Trust, and the following quotation fromthe latter case.172 'However Mr. Ramsey for the contractors, Glenlion, readily conceded that a relevant fact is thatboth parties atthe time of entering intothe contract would have been well aware that Contractors frequently produce programmes that were over-optimistic.' Researchcarried out in Australia has also shownthistendency.173 A sample of 329 constructionprojectswith atotalvalue ofmorethan $270 millionwas studied. The followingcomments were made:

'The main reasonwhy so much excess time appears to be required in some classes ofworkis becausethese contractcompletiontimestend tobe optimistic, rather than because of fundamental differences in time requirements. The results show that writing in construction times known to be inadequate in hopes of spurringthe contractor to greater endeavours has little influence on thetimes that areactuallytakeninpractice.Ontheotherhand, thereisas yetno clear evidence that writing in a long construction time will result in great improvement over one already conformingto reasonable standards unless at the same time control procedures areimproved... Oneof thebasic difficulties appearsto be inadequate communicationbetween themanypeople concerned in a project.Untilmoreeffectivecommunicationcanbe established,thatis until the timingof workbecomes mentally accepted as a real agreement on a common basis of understanding between the parties concerned and transfer of information is improved to permitadequate control against undue disruption from unessential changes there wifi be continued irritation, frustration and financial losses.'

It wasalso observedfrom the above-mentionedstudy that:

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'Execution of the nature and extent of factors which affect the time of construction revealed that genuinely uncontrollable factors such as inclement weather account for only 9% of the 47% overrun experienced overall in these projects. Faulty programming and organisation contributed 12%, much of whichwas caused by setting unrealistic targets in the first place. Tardinessin making decisionsandgranting approvals and faultydocumentation are major sources of delay bothin constructionandduringthe designphasecontributing a further 8% to the time overrun. Variationscaused extra constructionoradministrativeworkwhichled to 11% of thetime overrun. Further investigationhadrevealed that clientsgenerated a total of41% ofthe gross valueofvariations (mainlyadditions) and appeared not to realise the extent to whichthey are disrupting the construction process.' Accordingly, the employer or the engineer on his behalf must be fully acquainted with the contractor's programme and with its details whichmust be provided insucha manner asto enablea properassessmentofits achievabilityor otherwise.

This is a difficulttask inview ofthe fact that the programmeisnota contractual document but only a valuable guide, and that it is onlyrequiredto be submitted after the acceptanceofthe tenderand the formation ofthe contract.Furthermore, thereis nosanctionspecifiedintheRedBookshould thecontractorfailto submit a programme or tosubmit onewithoutthe full detailsthatmaybe prescribedby the engineer.Of course, ifthe contractor choosesnotto complywith the requirements of sub-clause14.1,he wouldhavea difficulttime aheadshould he wishto prove an entitlement to an extension of time and money in respect of any of the provisions in the contract. Irrespective of this difficulty, the engineer may wish to press for aprogramme tobe submitted as itis consideredthe mostefficientwayof controllingmany of the temporal aspectsof a contract. Two possible courses of action are available to him but both have extreme consequences.The first is under paragraph(b) of sub-clause 40.1, where he may suspend the progress of the works due to default of or breach of contract by the contractor. The second is in accordance with paragraph(d) of sub-clause 63.1 where, in his opinion, the contractor,despite previous warning fromthe engineer, inwriting, isotherwisepersistently orflagrantlyneglectingto complywith anyof his obligationsunderthe contract. Both of these courses of action would lead to an extremely serious situation should the contractor persistently refuse to submit a programme or the required details. Whilstfailure to complywiththe programme isnotinitselfabreach ofcontract, it could show thatthe contractorhas failed'to proceed with theWorks with due expedition andwithoutdelay', asrequiredbysub-clause41.1. It may also provide evidence for the application of sub-clause 46.1 which deals with the rate of progress.

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17.4 Claims for bothextensionof time and money

As discussed earlier inSection17.2, clause 44 of the Red Booksets out theevents whichmayentitle thecontractor to claim an extension ofthe time for completion oftheworks. Aclaim for anextensionoftimemayormaynotbeassociatedwith a claim forfinancial compensationorforthat matter with a delay in apaticular part oftheworks. However, there aretwo typesofclaim which maybemadeunderthe Red Book linking delayand money. The first type is associated with any critical delay which may occur in the completionof the works beyond the time forcompletion,and thisis often referred to as a claim for prolongation. The second type of claim is associated with the possible effectof a claim eventon the efficiency of the executionof some parts of the works, irrespective of whether or not there had been a delay in a critical activity.This type of claim is referred to as a claim for disruption whichincludes any reduction in efficiency inthe disrupted party's resources or a requirement to acceleratethe rate ofprogress ofthe executionofthe works, either to complywith the time for completion of the works or to advance it. Neither prolongation nor disruption is defined in the Red Book. However, whilst the term 'disruption' is alluded to in sub-clause 6.3, 'Disruption of Progress', thereare manyclauseswhichdealwithdelay, forexample,sub-clauses6.3, 6.4, 12.2, 27.1, 36.5, 40.2 and 69.4, referred to earlier in Section17.2. The financial compensation,where thereis prolongation or disruption, is not dealt with in the Red Bookin a unified manner as can be seen from the analysis made in Tables 9.1, 9.2 and9.3 providedearlier in Chapter 9. 17.4.1

Prolongation Prolongation may be defined as a critical delay which results when the time necessary to completea critical activityis prolonged, thus extending the time for completion of the whole of the works. Delays in completion of the works might result in anumberofaddedcosts to the contractor and if suchdelayis determined bytheengineertobetheresponsibilityof theemployer,thenanumberofheadsof claim for financial compensationcan be pursued by the contractor. Itis notclear as to whatwouldconstitute'being fairlyto entitle theContractorto an extension of time', whichis the wording used in sub-clause 44.1, since this is left to the engineer's interpretation of the contract, his assessment ofthe circumstances leading to the claim and his determination after'due consultation' with the employer and the contractor.However, a strict interpretation wouldrequire thatthe delay be suchthat it extends thelongest criticalpath to completionof the works, as discussed in Section17.3 above.In effectthis means that the contractor has toremainon siteandhas to expend hisresources overa longer period than he had anticipated in his tender. Part of these resources are spent in managing and carrying outthe worksfor aprolonged contract.The costsrelating toprolongation

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may therefore include: off-site overheads, on-site overheads, financing of any retention fund,the cost ofthe extended periods for insurance andbonds required underthe contract, any other financing charges andinterest. Someof these heads of claim were referred to in Section 16.6 above. Finally, it is notable that when a non-criticalactivity is delayed, the time for completionis not affected,butthere may be financial lossimplications. 17.4.2 Disruption

Disruption may be defined as the effect of an event or a number of events on the efficiency of executionof theworks, irrespectiveof whetheror not therehad been a delay to a critical activity. However, continuous, extensive and cumulative disruption may end in critical delay and prolongation of the time for completion. Inefficiency, loss of productivity of labour and uneconomicuse of equipment comeunder the heading of disruption whenthey are caused by an eventwhichis not the responsibility of the contractor. They are extremely difficult to assess because comprehensiverecords are essential, not only duringthe executionofthe works but also inthe period prior to the submission ofthe tender. Furthermore,as disruption maynotnecessarilybeaccompaniedby overall delay, no referencecan be usedfor its assessment.Calculationsof theanticipated outputfigures oflabour and equipment at the time of tendering are essential for the calculation of the actual disruption suffered as this can only be provenby comparing these anticipated figures with those actuallyachieved. A proper evaluation of a claim for disruption requires the following prerequisites: (a) An identification and an analysis of each of the operations claimed to have been disrupted. It is not sufficient simply to state that the execution of the works has been disrupted. (b) The cause and the manner in which disruption has occurred should be established. (c) The figures for the anticipated output, the resources planned and the time required to achievethe completionof the disrupted operationsascalculated in

thetenderhaveto be shownto be achievable. (d) The effectof any inefficiencyon the part of the disrupted party incarrying out the works should be properly calculated and its effectincluded in the calculations of disruption suffered. (e) The number of hours actually logged in the time sheets for the disrupted operation have to be shownto be accurate.

Where records are availableand are correct, then the cost of disruption canbe simply calculated as the number of hours actually worked less that originally

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The FIDIC Form ofContract

anticipated in the tender, with the result beingmultiplied by the cost of the particular resources disrupted per hour. When accelerationofthe progress ofthe worksis required, the costmayinclude the expense of: (a) workingadditional hours; (b) providing additional labour; (c) providing additional or differentequipment; (d) advancing the date of delivery of manufactured elements. 17.5 Liquidateddamages Clause 47 regulates the relationship between the employer and the contractor should there be a failure by the contractor to comply with the requirement to completein accordancewithclause 48 within the time for completion as specified in clause 43 and, if applicable,any extended time in accordancewith clause 44. Clause 47 provides that should the contractor fail in his obligations as stated above:

'then the Contractor shallpay to the Employer the relevant sum statedin the Appendix toTender as liquidated damages ... for everyday or part of a day... between the relevant Time forCompletionand the datestatedina Taking-Over Certificate...subjectto the applicablelimit statedin the Appendix to Tender.' Liquidated damages may be defined as a genuine pre-estimateof all the losses whicharelikelytobeincurred bytheemployer as aresultoflate completionofthe works, calculated atthe time ofmaking the contract.Thepurpose ofproviding for a monetary payment in the event of late completion is essentially to assess the damages forbreach ofcontract in not completingthe workson the specifieddate. Theprincipleofliquidated damages is derived fromthecommon law system and originallyappeared in the FirstEdition of the Red Bookthroughthe ICEForm on whichitwasmodelled.Itis distinguishedfrom apenalty,whichisusuallyusedin jurisdictions outside the common law system, in that a penalty is a sum whicha party agrees to pay or forfeit in the event of a breach and is a fixed sum as a punishment, the threat of whichis designed to prevent the breach, and not apreestimate of the probable loss. The use of either of these two deterrents, i.e., 'liquidated damages' and 'penalties', is therefore linked to the applicable law of the contract. 17.5.1

Liquidated damages and penalties Under the common law system, it is important to establish whether the sum entered is liquidated damages or a penalty, because it has long been established

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that a penalty is subject to equitablejurisdiction. The courts of equity have taken the view that

'...thepromisee is sufficientlycompensatedbybeingindemnifiedforhis actual loss, and that he acts unconscionablyif he demands a sum which, thoughcertainly fixed by agreement, may well be disproportionate to the injury.'174

The decision as to whethera sum represents liquidated damages or a penalty depends onthe terms ofthe contract and the intention ofthe parties at the time of making the contract andnot at the time of the breach. Therefore,the distinction between penalties and liquidated damages depends on:

'the intention of theparties tobe gathered from thewholeof the contract.If the intention is to secure performance ofthe contract by the imposition ofa fine or penalty, then the sum specified is a penalty; but if, on the other hand, the intention is to assess the damages for breach of the contract, it is liquidated damages.'175

It must also be borne in mind that the expression used in the contract for the sum entered, i.e. whether liquidated damages or penalty, should notbe takenas conclusiveevidence of the parties' real intentions at the time of making the contract. The decision as to whatitis inreality shouldbe basedonwhetherornot it is a genuine pre-estimate of the probable lossto resultfromthe breach. Such a loss may be extremely difficult to quantify when dealing with civil engineering projects suchas roads, water supplyand sewerageworks. Nevertheless,this remains a problem andthe onusof showing that the specifiedsum is a penalty liesupon thepartysuedforitsrecovery.176 InthestudyreferredtoinReference 17.3,certain rules for guidance when distinguishing between liquidated damages anda penalty were summarised from the judgment inDunlop Pneumatic Tyre Co. Ltd v. New Garage andMotor Co. Ltd.'77This summary is very useful and hence it is quoted below:

'(a) Theconventionalsumisa penalty ifit isextravagant and unconscionablein amount in comparison with the greatest loss that could possibly follow from the breach. (b) If the obligationof the promisor under the contract is to pay a certain sum ofmoney, and itis agreed that if he fails to do so heshallpayalargersum, this largersum is a penalty. The reason is that, since the damage arising from breach is capable ofexact definition, the fixing ofa largersum cannot be a pre-estimate of theprobable damage. (c) Subjectto the preceding rules, it is a canon of construction that,if thereis only one event uponwhichthe conventionalsum is to be paid, the sum is liquidated damages.This was held to bethe case,for instance,whereitwas

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The FIDIC Form ofContract

provided in a contract for the construction of sewerage worksthat, if the operations were not completeby 30 April, the contractor shouldpay £100 and£5 for every seven daysduring which the workwas unfinished after that date. (d) if a single lump sumis madepayable upon the occurrenceofone or more or all of several events, some of whichmay occasion serious and others mere trifling damage, there is a presumption (but no more) that it is a penalty. This presumption, however, is weakened if it is practically impossibleto provethe exact monetary loss thatwillaccruefrom abreach of the various stipulations. The sum fixed by the parties in sucha case, if reasonable in amount, willbe allowed as liquidated damages.' Under common law, if a liquidated damages clause fails,the employer is not prevented fromclaiming general damages ofhis provenlossto an amount which would put himin the same position, so far as money can do, hadthe contractor completed within the specified thne. It is worth sounding a cautionary note, however, as a result of a recent case where a 'nil' rate was entered against the liquidated damages clause in the appendix to a building contract. The issuethat arosewas whether thismeantthatthe liquidated damages were simply nilpounds or, as the employer contended, that the effect of writing'nil' was to exclude the wholeof clause 24 (the liquidated damages clause in the particular form of contract used). Theemployer's argument wasrejectedby the Court of Appeal. Lord Justice Nourse said:

'Ithinkitclear.., thatif (1) Clause24isincorporatedas partofthe contract,and

(2) the parties complete the relevant part of the Appendix, either by stating a rate at whichthe sum is to be calculated or, as here, by stating the sum is to be nil,thenthat constitutes anexhaustive agreement as to the damages whichare or arenot to be payable by theContractorin theeventof his failure to complete the works on time.'178

In jurisdictions outside the common law system, where penalty clauses for

delay are recognised, the general principles of law which apply are those of placing the injured party economicallyin the same situation as he wouldhave beenhadthe contractual performance takenplace. However, the question could arise as to whether it is better to include a clause in the contract betweenthe parties, which would provide for a fixed amount per day or per week, thus evading the often complicatedquestions of establishing the loss suffered and its quantum, andthus reducing the tendency to end in dispute. The penultimate sentence of sub-clause 47.1 makes it clear that the employer may deduct the amount of the liquidated damages from any monies due or to become due to the contractor. This, however, is 'withoutprejudice to any other method of recovery'. This sentence also makes clear that it is the employer who

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makes the deduction, if he so wishes. The engineer is requiredunder sub-clause 48.1 to indicate the date on which, in his opinion, the works were substantially completed in accordancewith the contract. This date establishes the amount of liquidated damages, if any. The engineer is not authorised to make deductions in respect of liquidated damages as can be seen from paragraph (b) of sub-clause 60.2.

The last sentenceof sub-clause 47.1 provides that payment or deduction ofthe liquidated damages must not relieve the contractor from his obligation to complete the works, or from any of his other obligations. Sub-clause47.2 deals withthe situationwhereataking-overcertificateis issued for anypartofthe works or ofa sectionthereof.The liquidated damages fordelay, if any, in completion of the remainder of the works or of that section are to be reduced on a pro rata basis. If it is considered by the employer that a pro rata reduction would not be equitable, then an alternative provision shouldbe included in Part II at the tenderstage. This should be done in avery clear and precise manner as otherwise it may have a legal effecton the applicability of the whole clause. Part II of the Red Bookincludes proposals for the inclusion of a bonus should this prove to be attractivefromthe employer's point ofview.

Chapter 18

Certificates and Payments

18.1 Introduction Traditionally,it has been accepted, and embodied in the provisions of the standard forms of contract, that in admeasurement contracts payment to the contractor should be made periodically, on account, in accordance with a proper evaluationof the work done andmaterials supplied.181 Clause60 ofthe Red Book is the relevant clause in this connection andis worded on the basis of monthly payments against certificatesissued by the engineer, referred to as an interim payment certificate. Suchmonthly accountingand certificationsystem isveryhelpful in providing a record and detailed information of the progress made on site and simulates the procedure in any properly run business organisation. As provided in sub-clause 60.4 of theRed Book, each time aninterimpayment certificateis issued, a new evaluation of the work done should be carried out providing an opportunity to adjust or modify previous evaluations of earlier interim payment certificates. The adjustment can be maderetrospectivelytaking into consideration,for example,any materials supplied, andpaid for under previous certificates, becoming part ofthe completedworksor anywork carried out not to the satisfactionof the engineer. As a rule, it is theintention ofthe Red Book that suchcertificatesarebindingon the employer in the absence of any cross claim from him against the certified sums. Furthermore, the certificateis a condition precedent to payment and is a necessary step in the prescribed procedure, subject to the arbitration clause and the arbitrator's power to open up, review andrevise. In this connection, it is notable that the engineer seems to have a continuing potential function under clause 67 of the contract in connection with deciding disputes betweenthe parties until the expiry of the limitationperiod under the applicable law of the contract.182 There are five distinct types of certificateunder the Red Book. They are as follows: interim payment certificate; taking-over certificate; defects liabffity certificate; final payment certificate;and certificateof valuation at date of termination. These certificatesare discussed in this chapter.

364

Certificates

andPayments

365

18.2 Interim paymentcertificates

An interimpayment certificateis defined under sub-clause U(e)(iii)of the Red Book as 'any certificateof payment issued by the Engineer other than the Final Payment Certificate'.Itis requiredtobeissuedunder the provisionsof sub-clause 60.2 ofthe Red Book, by the engineer, within 28 daysofhim receivingthe monthly statement from the contractor to certifyto the employer the amount of payment whichhe considers due andpayable to the contractor in respect of: the value of the permanent works executed; any other items in the bifi of quantities including those for contractor's equipment, temporary works, dayworks and the like; (c) the percentage of the invoice value of listed materials, as stated in the Appendix to Tender, and plant delivered by the contractor on the site for incorporation in the permanent works but not incorporated in suchworks; (d) adjustments under clause 70 for cost fluctuations and subsequent legislation; (a) (b)

and (e)

any other sum to which the contractor maybe entitled under the contract.

Theabove amount is subjectto the followingdeductions: (a)

a deduction in respect of a retention to be calculated by applying the per-

centage ofretention,statedinthe Appendix to Tender,tothe amount towhich the contractor is entitled (except for adjustments under clause 70), subject to the limit of retention money stated in the Appendix to Tender; (b) a deduction in respect of any sums whichmay be due and payable by the contractor to the employer, other than pursuantto clause 47. Beforeaninterimpayment certificateis issued, the engineer is requiredto give attention to the followingmatters:

are made, must be greater than the minimum amount forinterim payment certificatesas statedin theAppendix to Tender. Otherwisethe engineeris not boundto certifyunder theprovisions of sub-clause60.2. (b) Where a performance security is required, no amount is to be certified unless sucha security is submitted by the contractor andapproved by the employer as providedin sub-clause 60.2. (c) Under sub-clause 60.4,the engineer is authorised to make any correction or modificationin any previous certificateand if any work is not carried out to his satisfaction,to omitor reducethe valueof suchworkin any interimcer(a) The amount certified, after the appropriate deductions

tificate.

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The FIDIC Form of Contract

Once delivered to the employer, an interimpayment certificate entitles the contractor to be paid within 28 daysas providedunder sub-clause60.10, and within 56 daysin the case of the finalpayment certificate. The amount to be paid by the employer is equalto the amount shownon the certificateminus any deductions for liquidated damages under clause 47 and others requiredby law. Should the employer fail to make payment within the time stated in sub-clause 60.10, the employer wifi be liable to pay interest on the amount overdue. Such interest is payable at the rate stated inthe Appendix to Tender from the dateby which such payment should have been made. The entitlement to interest is withoutprejudice to the contractor's right to suspend work or terminate his employment under the contract in accordancewith clause 69. 18.3 Taking-over certificate 'Taking-Over Certificate'is defined under sub-clause 1.1(d)(li) of the Red Book, butthis definitionis by necessitya very brief one as it simply refers to clause 48. Anyelaborationonthis definitionwould havetoincorporatetheeffectoftheissue of the taking-overcertificatewhichincludes a long list of provisions withinthe Red Book as described later in this section. Clause 48 is divided into four parts: the first of which, sub-clause 48.1, deals withthecertificatefor 'thewholeoftheWorks'; and sub-clauses48.2,48.3 and 48.4 deal with sectionalor partial completion of theworks. Within 21 days of the date of delivery of a notice given by the contractor, the engineer is required, under the provisions of sub-clause 48.1, either to issue a taking-overcertificateor give instructions in writingto the contractor specifying all thework which, inhis opinion, isrequiredto be done beforetheissueofsucha certificate. Thenotice referred to abovewhichinitiates this process is given bythe contractor to the engineer, with a copy to the employer, whenthe whole of the workshave beensubstantially completedandhavesatisfactorilypassed anytests oncompletionas prescribedbythe contract. Thenoticemustbe accompaniedby a writtenundertaking to finish,with due expedition, any outstanding workduring the succeedingperiod of defects liability. It is important to draw attention to the change of wordingof sub-clause 48.1 in the Fourth Edition of the Red Book (see Part IV of this book). In particular, the words 'any finaltestthat may be prescribed by the Contract' in thefirst sentence have been replaced by the words'any Tests on Completion prescribed by the Contract'. 'Tests on Completion' is a defined term in paragraph(i) of subclause 1.1(d) as either those tests which are specified in the contract or otherwise agreed by the engineer and the contractor. As it is possible that the engineer and the contractor may fail to reachagreement on such tests and the matter would then have to be dealt with under clause 36, it is always better to

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367

specify such tests, if possible, in the contract documents. The purpose of these tests is three-fold: (a) To consider the effectoftime onthe performance of anypart ofthe worksand

to establish that a properly completed part of the works remains to be so withoutany damage or deterioration. (b) To consider the effectof collectiveperformanceofvarious parts ofthe works. This would establish that not only eachpart of the works is properly constructed but also that all parts work together. (c) To consider any special feature of the project and also any event whichmay occur duringthe construction period whichmay require a special test. If and when the taking-over certificateis issued by the engineer, it must be copied to the employer, and it must state the date on which, in the opinion of the engineer, the works were substantially completed in accordance with the contract.

Sub-clauses 48.2 and 48.3 deal with the situation where the taking-overcertificate is to be issuedfor:

any section in respect of whicha separate time for completionis provided in the Appendix to Tender; or (b) any substantial part of the permanent workscompleted and occupied or used by the employer; or (c) any part ofthe permanent workswhichthe employer has electedto occupyor use prior to completion. (a)

The certificate under sub-clause 48.2 is mandatory as demonstrated by the words'the Engineershallissue',whereas itis discretionaryunder sub-clause48.3, since the engineer mayissue sucha certificate. When ataking-overcertificateis issued, it hasthe followingeffecton a number ofthe provisions of the Red Book: (a)

Theresponsibifityfor the care of theworkspasses from the contractor to the employer onthe dateofissueofthe taking-overcertificate, as provided in sub-

clause 20.1. (b) The scope of the insurance cover as provided under sub-clause21.2 changes on the date ofissueofthe taking-overcertificate. (c) Uponthe issueofthe taking-overcertificate, the contractoris requiredto clear away and remove all contractor's equipment, surplusmaterial, etc. andleave the siteandworks clean as provided in sub-clause33.1. (d) Liquidated damages as providedfor in sub-clause 47 apply in respect of the periodbetween the relevant time for completion and the date stated in the taking-overcertificateof the whole of the worksor the relevant section.

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The FIDIC Form ofContract

(e) As providedin paragraph(a) of sub-clause 49.1, the defects liabifityperiod is calculated from the date of completioncertified in accordance with clause 48.

In accordancewith sub-clause49.2,the contractoris required to complete the work, if any, outstanding onthe datestatedin the taking-overcertificate. (g) Variations exceeding 15 per cent as provided in sub-clause 52.3 are calculated on the date of issue of the taking-over certificatefor the whole of the (f)

works.

(h) Upon the issueofthetaking-overcertificateforthe wholeofthe works, onehalf of theretention money shall be certifiedas providedunder sub-clause 60.3. (i) Notlater than 84 daysafter the issueof the taking-overcertificatein respect of the whole of the works, the contractor is required, under sub-clause 60.5, to submit to the engineerastatement atcompletionwith supporting documents. Reference should also be madeto sub-clause60.9. Attention should be drawnto the possibilitythat whenthe wholeof the works has been substantially completed, the contractor may be prevented by reasons outside his control from carrying out the tests on completion.if such an event is envisaged, a fifth sub-clause should be added to clause 48 to deal with the consequences of suchprevention. Part II of the Red Bookprovides a possibletext in this connection.

18.4 Defects liability certificate

Thedefects liabilitycertificateis required to be issued by theengineer, within28 days after the expiration of the defects liabifity period, (or if different defects liability periods become applicableto differentsections or parts of the permanent works, the expiration ofthe latest suchperiod), or as soon thereafter as anyworks instructed, pursuantto clauses 49 and 50, havebeen completedto the satisfaction of the engineer. This requirement is in accordance with the provisions of subclause 62.1. The issue of the defects liability certificatehas an effecton the following provisions ofthe Red Book:

In accordancewith sub-clause 6.1, upon the issue of the defects liabifitycertificate, the contractor is required to return to the engineer all drawings, specificationandother documents provided under the contract. (b) Underthe provisions of sub-clause 10.2, no claim shall be made against the performance security provided by the contractor under sub-clause 10.1, after the issue of the defectsliability certificate. Furthermore, suchsecurityis to be returned to the contractor within 14 days of the issue of the said defects (a)

liability certificate.

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369

In accordancewith clause 61, only the defectsliability certificateis deemed to constituteapprovalof the works. (d) Not later than 56 days after the issue of the defects liability certificate, the contractor is requiredto submit to the engineer for his consideration a draft finalstatement with supporting documents as required in sub-clause 60.6. (c)

18.5

Finalpaymentcertificate Within28 daysafterreceipt of thefinalstatement as providedin sub-clause 60.6 and the written discharge in accordance with sub-clause 60.7, the engineer is required to issue to the employer,with a copy to the contractor, a finalpayment certificatein accordance with sub-clause 60.8. In thefinalpayment certificate, the engineer is requiredto state: (a) the amount which, in his opinion, is finally due under the contract; and (b) after giving credit to the employer for all amounts previously paid by the employer and for all sums to which the employer is entitled under the contract, other than clause 47, the balance, if any, due from the employer to the contractor or fromthe contractor to the employer as the case may be. Sub-clause60.10 provides thatwithin56 daysafterthe final payment certificate has been delivered to the employer, the amount due to the contractor, subject to clause 47, should be paid by the employer to the contractor.Inthe eventoffailure of the employer to make payment within the above period, the contractor is entitled to be paid interest at the rate statedin the Appendix to Tender.

18.6 The engineeris to certifya valuation at date of termination Should the employer enter upon the site and the works and terminate the employment ofthe contractor undersub-clause63.1 ofthe Red Book, the engineer is required as soon as practicableafter any suchterminationto certifya valuation at dateoftermination.Incertifyingunder sub-clause63.2,the engineeris required to fix and determineexparte,orbyor afterreferenceto theparties or after carrying outany investigationhe maythinkfit,the following:

'(a) what amount (if any) hadat the time of such entry and termination, been reasonably earned by or would reasonably accrue to the Contractor in respect of work then actually done by himunder the Contract, and (b) the value of any of the said unusedor partially used materials, any Contractor's Equipment andany Temporary Works.'

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370

Contractor (C) submitstoEngineer(Eng) a detailed cashfloweatimatewithin 28 dayaof letter of acceptanceandrevisessameasrequired 14.

tfir

I C submits to Eng every month astatementshowing amountsthat C considershimselfdue

statement

Yes

No

Hasthe

Noamount will becertified until the

No

perf. security hasbeen provided 60.2 __________________________________

..curityrequ 101

rovided by

___.

Yes

i

Eng is entitled todemandproof fromC thatall paymentsless retentionsincluded in previous certificates forworkofnominatedsub-contractors havebeen paid byC 595

Does

Yes

Eng demand such proof? No

DoesEng receivesuch proof

Yes

fromC? No

Eng may modify and correctany certificate 60.4

within 28 days of atementcertified theamount he considersdue to C?

Has

60.2

En

Eng m not bound to

I

No

Does employer pay within

certifyj

28daysafter delivery of qertificateto employer?

No

Isthe

es

amount lessthanthe minimum amount of interim certificates? 60.2

.

__________ No

J

60.10,60.11

Yes

C maysuspend, reducetherate of or terminatetheworks and removehis equipment from siteby notice under clause

reasonable causeforrefusing hasC to makesuchpayments,orhe has producedto Eng proof that soinformed thenominated sub-contractor in writing? 59.5 No

___________

oes

CshowedEng

Yes _____________

_________

_________________________

Interest is due for amount unpaid 60.10

Yes

Employeris entitled to pay the sub-contractordirectly upon Eng's certificate 59.5

oyerpay within rther28days? Eng shall in issuing further certificates to C deductamount paid direct to sub-contractor 59.5

_JNo

69 (i.e. 56 days after employer hasfailed to pay). Suspension—28 days after notice. Reductionof workrate—28 days after notice. Termination—14 days after notice. Removalof equipment— 14 days afternotice.

thisa taking-over certificate forthewhole of the

Isthisa taking-over certificate forapartof the works?

No

Yes

See next page Respectiveproportion of retention moneytobe certified byEng.

60.31

Fig. 18.1

Certificates and payments.

Certificatesand Payments

371

See previous pagej Taking-overcertificate is issuedforthewhole ofthe works 60.3(a)

Thecontractor shall submit tothe engineerastatementat completion within 84 days after the issueof the taking-overcertificate in the form approvedby the engineer

One halfof retention money shall becertified byengineer 60.3(a)

60.5

Theengineershall certify payment due as an interim paymentcertificate in respectof theamount inthe statementat completion & 60.6

No

Theother half of theretention money all be certified forpaymentupon t. expiration of thedefects liability period

Theengineerisentitled to withhold certification untilthecompletionofsuc workof so much of thebalanceofthe retentionmonies asshall, intheopinion of theengineer,representthecostof the work which remainsto be executed 60.3

y

t

I Thecontractor must submit I further information asthe I engineermay reasonably I require andshall make such changesinthedraft as may be agreedbetweenthem

I

The employer is entitled toemploy any other personto carry work

I

Defectsliability certificateshall be given byengineerwithin 28 days after expirationofthe defects liability period subjecttoother provisions of cl.62 62.1

Onlythedefects liability certificate constitutesapprovalof theworks

60.6

61.1

V

All costs consequentthereon or incidental to shall be determinedby theengineerand shall be recoverablefromthecontractor by theemployer, and may be deducted fromany moniesdue to the

No

Do the contractor and the engineeragreewith_the finalstatement?

Yes

The contractor shall submit within 56 days after theissue of the defects liability certificateto the engineera draftfinal statement 60.6

49.4 &60.3

contractor

Does the

Aftergiving credit to employerforall

ute

amountspreviously paid byemployer and forall sums to which the employer is entitled under the contractother thancl.47, thebalance ifany, due fromtheemployerto the contractor orfromthe contractor to theemployerasthecasemay be ______________

employer alperformances ceftificateand return ecunty 60.7,60.1, & 69

60.6 Yea

Contractor submitsfinal statement 60.6

Thecontractor shall giveto theemployer,with acopyto the engineer,a written discharge confirming thatthe totalof the finalstatement representsfull and final settlementof all moniesdueto thecontractor 60.7 Yes

Discharge

becomes effective 60.7

(Fig. 18.1 Contd.)

60.8

No

engineeragree with the draft finalstatement

Within 28days ofreceipt of finalstatement and written discharge,the engineershall issue to theemployer a final certificateof amount due underthecontract 60.8

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The FIDIC Form ofContract

372

18.7 Common requirements Allcertificatesare requiredtobe inwritingas provided for insub-clause1.5 ofthe Red Book which also provides that any certificate must not unreasonably be withheld or delayed. Where payments are concerned,Figure 18.1 shows a flow chart of the procedure to be followed under clauses 48 and60.

18.8

Late certification Sub-clause60.10 of the Red Book provides that in the event of the employer's failure to make payments to the contractor within the statedtime after an interim payment certificate,the employer is requiredto pay interest at a rate specifiedin theAppendix to Tender.Theinterest is applied to all sums unpaidfrom the date by which they should havebeenpaid. Whilstthisprovision deals with the employer'sfailure to pay against aninterim payment certificate,it doesnot dealwith the situation where the engineerfails to certify within the specified time after receiving the contractor's statement. To provide some safeguard for the contractor in such an event, FIDIC published in November 1996, as part of a supplementto the Red Book, an alternative wording to sub-clause 60.10. This alternative wordingappears in Section C of the Supplement and varies the wordingof sub-clause60.10 by deleting inlines 3 and4 of the sub-clause the words 'Within 28 days aftersuch Interim PaymentCertificate has been delivered to the Employer' andsubstituting the words 'Within 56 days afterthe Contractor's statement has beenreceived by the Engineer'.

Chapter 19

Disputes Settlement by Arbitration

19.1

Introductionand background One of the most important provisions in any commercial contract, but most especiallywhere the parties are ofdifferent nationalities,is the provision of a fair method of dispute resolution. Such a provision instils in the parties confidence that the contract as a whole wifi be justlyoperated, a fact whichis all the more important due to the almost inevitable outcome that disputes willarise in complex, unique and long-term commercialcontracts suchas those in construction. Many methods ofresolving disputes have evolvedover the centuries. The most familiar in civiised societiesare: (a) negotiation; (b) litigation; (c) arbitration and

(d) alternative disputeresolution methods. The term 'alternative' is used in this bookin the sense ofalternative to litigationand arbitration, both of whichare judicial processes of an adversarial character. Traditionally,alternative and amicabledispute resolution methods have been more popularthan arbitration in the East,whilstarbitration has been usedmore extensivelyin the West. Despite that tradition, however, it can be said that for many centuries, and for many reasons, arbitration has been a successful alternative to litigation, as explained below. In the East, an old Buddhist advice to arbitrators contained five notable steps to making a decision: first, you must establish the truthfuiness of the events presented to you; secondly, you must establish yourjurisdiction to dealwith these events; thirdly, you must enterthe minds of those in disputeso that you can resolve the differenceswith justice; fourthly, you must analysethe matters with simplicityand logic; and fifthly,you must judge with sympathy andnot in harshness.191 In the West,inIreland at least, the recorded history of arbitration dates back to theBrehonlawsaroundthefifthcentury,ifnotbefore.19.2 continued toflourish and iii the early eighteenth century, a society was formed in Dublin called the Ouzel Galley Society which was composed of Dublin merchants who had the

j

373

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responsibilityfor settling commercialdisputes, under specificrules. The nameof the society stems from a romantic adventure of a merchant vessel by that name. The vessel was dispatched in the year 1695 to the land now known as Syria and Lebanon by the Dublin firm of Ferris, Twig andCashunder Captain Massey.193 The year 1695 was a year ofwar,madedoubly dangerous in the case of vessels bound for the Middle East by the activities of Algerian pirates who preyed on commercialtrafficpassing intoand out ofthe Mediterranean. The Ouzel Galley did not return by the time it was expected and nothingwas heard of her. The vessel was given up for lost with all hands. The insurance underwriters paid up on its hull and cargo. All was well untilfive years later in 1700the vessel reappeared andcast anchor in Dublin Port. Captain Massey had a tale of high adventure to tell describing how the vessel had been attacked and captured in the Mediterranean by Algerian pirates who thenusedherasa pirateship and howintimesheamassed spoilsonthehighseas. Later the Dublin crew managed to repossess the vessel andsail home with the spoils. But to whom did the return cargo belong? It did not belong to the owners because they had been fully compensated for theirlossby the underwriters after the owners hadmade aformal act of abandoning theirinterest to them; but at the same time its return cargo did not belong to the underwriters because the abandonment of interest inthe vesseltothemcoveredthe vesseland its outward cargo, not the return cargo with which the vessel was laden on its unexpected reappearance. While existing practices covered normal situations and made possible the amicablesettlementof most contracts, all the uncertaintiesin marine insurance were to the fore in this unusualsituation. Anactionin lawstarted in 1700. Litigationwasnotoriouslyslow and expensive, andtheprospects ofa speedy resolutionseemed evenless likelyina caseinvolving issues as complexand as unusual as the Ouzel Galley presented. Wisely,the issue wassettled in1705by thesubmission of thematterto thearbitrationof anumberof merchants.Fromthis instance ofarbitrationin anisolated andcomplexcase arose theOuzelGalleySocietyasapermanent arbitrationbodyofmerchants.Eighteenthcentury merchants everywhere in Western Europe quite frequently submitted complexmatters tothearbitrationoffellowmerchantsbyprivatearrangement.The significanceof the Ouzel Galley Societylay in the systemisationof arbitrationby prominent merchants, who were widely respected, into a permanent private tribunal to which both parties to a commercialdisputecould have recourse if they agreed.Theattractionofsucharbitrationproceedingsformerchantswasthatmany disputes hinged less on fine points of law than on issues which could be more readily decided by practicalknowledge for commodities and accepted practices. Thelawcourtsthemselveswouldhavehadtoresortto merchantsfor anopinion on matters suchasthe conditionofgoods orthe practicesintrade, anditwastherefore only common sense to seek the arbitration of merchants whose standingwould havemadethemthe decisive witnesses in court proceedings.

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Wl-iilstit is accepted thatthe simplest and quickest wayofresolving disputes is

throughnegotiation,it isnotinfact aneasy method, especiallyif there is a clash of personalities behind the dispute, or if in the parties' opinion thereare matters of principle at stake. Furthermore, until any of the other methods of dispute resolutionhave been invoked,thecosts involved arerarelyappreciated. In some cases, parties embark onlitigation simply becausetheywant their day in court; in other cases some are badly advised. Internationally,the parties face a number of additional uncertainties,problems, risks andfears. These range from having to dealwith people of differentcultures, language, customs,laws andbusiness practicesto having toselectforeignlawyers to dealwith a foreignjudicial process about whose neutrality and independence they may have serious doubts.194 Furthermore,if the chosen forumfor dispute resolution is litigation, then the courtsof at leasttwo differentjurisdictions may compete for supremacy and would often have overlapping roles with consequential difficultiesin the enforcementof foreignjudgments. It canbe said that international commercialarbitration provides an answer to many of these problems, risks and fears and particularly inrespect of the recognition and enforcementofforeignawards through the 1958 New YorkConvention and other sinilar international arbitral treaties. For that reason, it hasbeenchosen as the preferred forum for disputeresolution in the international field and has been influential in facilitating international trade, investment and economic developmentaroundthe world. The most important question,therefore, revolves aroundthe features andthewordingof a clause describing themanner inwhich disputes can be resolved with fairness,justice, speedand relative economy. 19.2 Advantages of arbitration Where arbitration is chosen as the appropriate and most effective method of dispute resolution, suchchoiceis madebecause ofthe many inherent advantages in arbitration, especiallywherethere is a technical dispute to be resolved. These advantages are: (a) Theparties indisputeare incontrol ofthe identity ofthe personto whom they entrusttheresolution of the dispute. (b) The parties in disputeare ableto choose as an arbitrator someone who is an expert in the fieldof the dispute, be it technicalor legal. (c) Unlike the procedure in litigation,pleadings are submitted at or close to the appointment of the arbitrator. This enables himto start with the case and to continue to be inclose touch with the stepstakenbybothsides, thus allowing him to knowthe case as it develops and to knowthe parties andtheirlegal representatives. (d) The processcanbeexpeditiousand cost-effective, ifthe parties wishittobeso.

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The FIDIC Form ofContract (e) The procedure is private, thus avoiding any undesirablepublicity.

Arbitration procedure is flexible and adaptable to the particular dispute or disputes. (g) The conduct throughout is less formal than court procedure without abandoningcourtesy. (h) It is possible to arrange for an inspection of the project and the matters relating to the dispute. (i) Depending upon the applicable law of the contract, the awardrenderedby the arbitrator in most jurisdictions is final and binding unless it can be shown that the arbitrator has erred in law or has misconducted the proceedings. (j) It can be conducive to a negotiated settlement even at a late stage of the proceedings. (k) Insomejurisdictions,the arbitrator has greater power than the courts toopen up, review and revise the decisionof the engineer.195 (1) Tn international commercialcontracts, the recognition and enforcementof a foreign arbitral awardis much easier than a judgment of court. This is made possible by a numberof international multilateral arbitral treaties and conventions. The most significant of these is the 1958 New York Convention on the Recognitionand Enforcementof Foreign Arbitral Awards as it has been acceded to by over 100 different jurisdictions worldwide. It has been described as the single most important pillar on which the international arbitration edifice rests and that it 'perhaps could lay claim to be the most effective instance of international legislation in the entire history of commercial law'.196 It is reportedthat an estimated 98 per cent of awards in international arbitration are honoured or successfully enforced and that enforcementby national courtshas only beenrefused inless than5 percentof cases,justifying the claim that it is far easier to enforce arbitration awards

(f)

than courtjudgments.197 (m)

A developed and highly respected system of arbitration law, relatingto national and international arbitration, supportedby the judicial establishmentand its policy-makingorgans is highly favourable on the international scene from the point of view of encouraging foreign investment into a developingcountry. Itis seen as a safeguardto thatinvestmentagainst unjust and haphazarddecisionmaking.

19.3 What is arbitration? Arbitrationis a process whereby parties in disputeagree to submit the matter in disputeto the decisionof a person or persons inwhomtheyhaveconfidenceand trust and undertake to abideby that decision. The prerequisites to a valid arbitrationare:

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A dispute mustarisebefore theparties canenterinto an arbitration.Itisnotforexample anarbitrationiftwo parties seek a decision in respect of a problem for which neither has ananswer, as in the case of the

(a) Theexistenceofa dispute:

evaluation of the cost of a certain item. If the cost of the item is not known a disputehasnotyet arisen.Adisputewillnot ariseuntil a decisionis madeby someone (for example anexpert) as tothe cost and that decision is challenged by one or both ofthe parties.198 (b) Agreement to refer the dispute to arbitration when the disputearises: Theparties in disputemust either agree or already haveagreed to referthe disputeto athird partyor a tribunal for determination. (c) Agreement to be bound by the award: The parties in dispute must also agree to be boundby the awardof the arbitrator chosen or appointed. (d) Initiation ofthe arbitration: A notice by one party to the other that he is commencing arbitration proceedings and in some cases to concur on the appointment of an arbitrator, shouldbe given to initiate the arbitration proceedings.In most, if not alljurisdictions,the date of suchnotice serves as the date of the commencement of arbitration. The date of commencement of arbitration is important from the pointof view of the limitation period since thenotice is equivalent to the issue of a writ. The term 'arbitrator', wherever it appears, in this paragraph and in the remainder of this chapter refers to a single arbitrator or an arbitralcommittee madeup of any numbergreater than one.199 19.4 The arbitrationagreement

As canbeseenin Section19.3,the arbitration agreementis an essentialpartof the procedure of arbitration. Agreementsto arbitrate are generally of two types and these are: (a) An ad hocagreement: An agreementwhere the parties indisputeagreetorefer already existingdisputes toarbitration isreferred to as adhoc.Theparties inan adhoc arbitration neednotonly agree to arbitratebutalso, if suchagreement is possible, agree on a detailed procedure to be followed suitable for the particular disputewithina legal framework set out in the relevant legislation controllingthe conduct of arbitration. If suchagreementis notreached on the procedure, the arbitrator will have to rule on the procedure as part of the matterin dispute. (b) An existing agreement: This type-of agreement is one where the parties to a certain contract, usually called the substantive contract, have already agreed to refer any and all of their future disputes to arbitration. In this type of agreement,a clause mustbeinserted inthe underlying substantive contractto describethe stepsto befollowedwhena disputearises inorder toreachand to

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complete the process of appointment of an arbitrator or a tribunal. In such a case,itwouldbe advisable,ifnotimperative,to refer to the lawto be applied, theplace ofarbitration andto a setof specificprocedural rules to be followed once the arbitrator is appointed. Such procedural rules, if correctly formulated, must refer to the legislation which confers on the arbitrator the jurisdictionandpowers necessaryto ensurejust, expeditious,economicaland finalenforceabledeterminationofthe dispute referred to him. Sucha clause in a contract is called the arbitration clause. When a disputefalls within the scope of the arbitration clause and if this clause is formulated correctly so that an arbitrator is appointed, then the original agreement,together with a validnotice of appointment, is sufficient to ensure that the parties in disputeare bound by the awardrenderedby the arbitrator. In some jurisdictions, in the absence of agreement to the contrary, the only issues which are beyond the jurisdiction of the arbitrator are those which reach intotheessentialvalidity ofthesubstantivecontract,i.e., astowhetheror notthere is a contract. If the contract is null and void, for instance dueto fraud,it follows that all of its provisions, including the arbitration clause, are void and the arbitratorhas no jurisdiction to adjudicate on any matter relating to that contract. A different situation arises, however, wherea contract is terminated, as it has been accepted by most jurisdictions that the arbitrator can survive the termination of the contract,thus enablinghim to hold that the contract between the parties has been frustrated or terminated withoutcasting a shadow on his own status or jurisdiction as arbitrator.191° A large number of disputes arise aftertermination of a contract andit would therefore be illogical if the arbitration clause in such a contract was held to be terminated thus placing the whole dispute resolution process in a vacuum. The followingquotation represents the properanalysis ofthe situationinthe contextof a contract where one party claimsbreach by the other: 'The contract is not put out of existence, though all further performance of the obligationsundertaken by eachparty in favourof the other may cease. It survives for the purpose ofmeasuring the claimsarising out ofthe breach,andthe arbitration clause survives for determining the mode of their settlement. The purposes of the contract have failed, butthe arbitration clause is not one of the purposes of the contract.'19"

Itisnowclearlyprovided intheFourth Edition oftheRed Book thatany dispute including onewhichoccurs'before or after repudiation or other termination ofthe Contract' is included under clause 67 for the purpose of its settlement. Furthermore,it should benotedthat Article8(3) ofthe Rules of the ICC Court of Arbitration, named under clause 67 as the applicable Rules unless otherwise specified,provides:

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'Should one of the partiesraise one or more pleas concerningthe existenceor validity of the agreement to arbitrate, and should the Courtbe satisfied of the primafacie existenceofsuchan agreement,theCourtmay, withoutprejudiceto the admissibilityor merits of theplea or pleas, decide that the arbitration shall proceed. In sucha case any decision as to the arbitrator's jurisdiction shall be takenby the arbitrator himself.' 19.5

Sources of law in arbitration In general,theruleswhichgovern theconduct of and theprocedure in arbitration in most jurisdictions are derived from thefollowing separate sources.

19.5.1

General Sources of law, as defined in Chapter 2, can be briefly stated as follows (not in hierarchicalorder): (a) the constitution,where it exists; (b) legislationand statute law; (c) regulations anddelegated or subordinate legislation; (d) in the common law system judicial decisionsrecognised as precedents, and (e) (f) (g) (h)

(i)

equity; in the Romano-Germanicsystem the judges' power of interpretation, andin some jurisdictions the bindingeffectof decisionsof some higher courts; in Islamic law the Qur'an, the Surina, the Ijma', the Qiyas, and in some jurisdictions the bindingeffect of decisionsof some higher courts; custom; international treaties andconventions; international law in the case of international arbitration.

19.5.2 The arbitrationagreementas a source oflaw

The arbitration agreementandany rules andprocedures it incorporates,whether madebefore or afterthe disputehas arisen, governs the conduct of and the procedure in arbitration. In the case of the Fourth Edition of the Red Book, the arbitration agreement is embodied in clause 67andthe rules incorporated inthe text ofthat clause are the Rules ofArbitration and Conciliationof the International Chamber ofCommerce. These rules are discussed in more detail in Section19.8. In the present context, sufficeit to say that these rules import intothe arbitration procedure anumberof important provisions and wherethese are silentonaparticular aspect,the parties themselves,or the arbitrator,maysettle the procedural rule required. Article 11 of these rules states:

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'The rules governing the proceedings before the arbitrator shall be those resulting from these Rules,andwherethese Rulesare silent, anyrules whichthe parties (or, failingthem, the arbitrator) may settle,andwhether ornotreference is thereby made to a municipal procedural law to be applied to the arbitration.'1912 19.5.3 Practice andcustom

The practice and custom of the commercialprivate sector and its arbitrators also governs the conduct of and the procedure in arbitration. In this context, it is relevant to quote the following passages, first from Sir M.J. Mustill and S.C. Boyd:1913

'Manytrades have developed their own, often idiosyncratic,ways of conducting arbitrations.Thecourts haveshownthemselvesconsistentlywilling,subject always to the dictates of naturaljustice, to recognise and sanction these individualprocedures;' and secondly from Mr Justice Megaw in Orion CompaniaEspanola de Seguros v. BelfortMaatschappijvoor AlgemeneVerzekgringeen [1962] 2 Lloyd's Rep 257 at 266: 'the two arbitrators and the umpire here were gentlemen who were very experiencedinthe business of insurance,and it might wellbethoughtthattheir view on a matter of thissort,evenif itbe strictly a matter of law, assuming they haddirected themselvescorrectlyin law, wouldbe — and I seenoreasonwhyI should not say it — preferableto the view of the court.'

In each and every arbitration, the sourcesof law listed in Section19.5.1 would havetobe examinedinmeticulous detail since the arbitrator cannot disregard the law or the contractualarrangements betweenthe parties unless he is empowered to act as an 'amiable compositeur'orto proceed'ex aequoetbono'.194Even then,this power should be exercised within specific limits depending upon the relevant jurisdictionbut always within the limits imposed by mandatory provisions and public policy rules. Furthermore, in certain jurisdictions such powers are not recognised and the arbitrator must, in general, apply a fixed and recognisable system of law.195 As an example,it is reportedthat in England the followingpolicy applies:

'... it is thepolicy ofthe law in this countrythat, in theconduct of arbitrations, arbitratorsmustingeneral applyafixed and recognisablesystem of law.., and thattheycannot be allowedto apply some differentcriterionsuchastheview of the individual arbitrator or umpire on abstract justice or equitable prin,19.16 ciples. ,

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In anyevent, thearbitrator must obtain a clear understanding oftheinteraction between the arbitration and the applicablelawofthe contractsince recourse to the legal processmay be needed at any ofthe various stagesina particular arbitration from the appointment of the arbitrator to the award. Of course,therecan beno doubtthat courts and judges play an integral part in any effectivearbitration system andwhereinternational arbitrationis concerned, itis acceptedthatitcannot functionwithouttheassistanceofnational courts.Only theypossess the coercive powersto enforceagreementsto arbitrate, as well as the resultant awards.1917 Therefore, in order to be effective,written agreements to arbitrate mustbeenforceableas mustarbitrationawards. They are enforced,when necessary,by resortto the courts. There can also be no doubtthat lawyers are an integral part ofthe arbitration process since they are, or should be, the experts in theapplication ofthe law, andin theprocedural requirements necessaryto attain fairness andjustice. 19.6 The arbitrator 'Traditionally an appointment as arbitratorwas regardedashaving anhonorary character: not so much that the arbitrator was expected to fulfil his duties withoutremuneration (although that was once the case) but that his appointment and agreement to act were at the same time a recognitionofhis standing and probity, anda recognition of the resporisibifities owedby suchpersonsto othersengaged in the same trade.. 19.18

Ifthe parties in theirarbitrationagreementprefer to choose thearbitratorrather thanleavethat taskto thepresidentof anamed institution, thecriteriabehind that choicemaybe revealed byfocusing on the duties andwhat is expected of sucha person. In general terms, it has been said that an arbitrator must be fair, firm,

formal, friendly, flexible and fast. It has also been said that the

'standardsofbehaviour expected ofarbitrators areno less stringent than those demanded of judges; in fact arbitrators are expected to behave a shade better since judgesare institutionallyinsulated by the establishedcourt-system,their judgments being also subjected to the correctivescrutiny of an appeal'.1919 Furthermore,to quote from the experienceof aneminent jurist and arbitrator ona comparisonbetween the role of judges and arbitrators: 'Unlikejudges, arbitrators mustinevitablytreat the parties and theirlawyers as having something ofthe aura of a clientele, whose goodwill,understanding and respect for the tribunal's authority must be cultivated and preserved. One cannot overlookthat,directly or indirectly,onehasbeenchosenbythe parties to

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decide the particular disputeinquestion."Rent-a-judge" inthe private forensic sector is necessarilydifferentfrom sitting as a professionaljudge in the public sector.Similarly,the parties' lawyers willgenerallytreat arbitral tribunals with far greater circumspectionandconsiderationthantheywoulddisplay towards a judge."92°

A trained and experienced arbitrator will know that as well as the above

requisites,the duties which must be taken care of are: (a)

to act fairly, independently and impartially and this, in international arbitration, includes a duty toact ina manner freefromnational, politicaland

cultural prejudice; (b) to weighthe evidenceandreacha logicalandreasoned decisionand dealwith technicalandlegal issues eitherpersonally or through advice; (c) to initiate and plan a management structure for the effective and speedy resolution of the dispute; and (d) to proceed diligentlytakingcontrol of the arbitration proceedings as soon as the appointment has beenmade.

On the other hand, an arbitrator, to be validly appointed, must possess the qualificationsrequiredby the law andby the arbitration agreement. These are: (a)

hemusthavethelegal capacityrequiredby law of every personwhoassumes the office of arbitrator, although in some jurisdictions no such capacity is

required; he must possess all the qualificationsand none of the disqualificationsprescribed by the arbitration agreement; (c) hemust be independent ofthe parties andthus free from anyconnectionwith themor the subjectmatter of the dispute; (d) hemust be impartial and thus freefrombias eitherin favour of or against any of the parties or any issuein dispute. (b)

Inconstructionarbitrations,there are, however,twofinulyheldviews as towho shouldbe appointed as arbitrator, a lawyer or a construction professional. The firstis heldby those whobelievethat as awards should be ultimately enforceable, importance andweight should be placed on the arbitrator being correct inlaw, as distinctfrom, andin comparisonwith, being correctin matters offact, technicalor otherwise. Furthermore,it is said that the judicial decision maker must be bold, imaginative and decisive and it is argued that a lawyer has the confidenceand

training to meet these requirements. The second view is held by those who believe that the arbitrator should be selected from the technicalfield and are of the opinion that a technical arbitrator wouldbe totally familiarwith the subjectmatter ofthe disputeand the technical

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terminology employed. They believe that coupled with this an 'engineer' arbitrator possesses all the managerial skills necessary to take control of the proceedings from theirinception,andto plan and devise anappropriate management structure for the particular dispute. In adopting this second view there is no departure from the original concept ofarbitration whichisbased on the desire of commercialpeople to have theirdisputes resolved by experts in the fieldof their particular dispute.

19.7 The arbitrationagreement underclause 67 of the Red Book Thearbitration agreement in theFourthEdition of the Red Book is embodied in clause 67. This clause,however, incorporates more thanthe arbitration agreement in that it provides in the first place a mechanism for the resolution of disputes through a two-tier system of reference to the engineer. If the dispute is not resolved, the Fourth Edition has introduced a provision under sub-clause 67.2 which includes a mechanism for amicable settlement which must precede the

referenceto arbitration. Clause 67 in the Fourth Edition has beenrevisedinorderto clarifya numberof its provisions thereby closingsome of the gaps whichwere discovered through the use of previous editions of the Red Book and also throughsome published awards,1921 and a number of articles.19 Thesewill be discussed in Section19.7.1 of this chapter. As mentioned earlier,the two-tier system whichexistedin previous editions of the Red Bookhas beenmaintained in the Fourth Edition, in its printed forms of 1987,1988 and1992. However, asupplement to the Fourth Edition ofthe RedBook (as reprinted in 1992), published by FIDIC in November 1996, contained in its Section A an alternative version to clause 67 of the Red Book. This alternative version provides for the establishment of a Dispute Adjudication Board, which may comprise eitherone or three members, to replace the engineer's traditional role of a decision maker in the settlement of disputes. As explained earlier in Chapter 10, and as willbe discussed later in this Section,therehas been strong criticism in recent years of the role of the engineer as adjudicator or quasi-arbitrator and in order to address this, a serious alternative method for dispute resolution had to be developed. The particular alternative which is finding increasingfavourfor the FIDICtype of contract for civil engineeringconstruction is the appointment of an independent and impartial expert or experts at the beginning ofa contract who keep in touch withworkinprogress bymeans ofsite visits at regular intervals and who are then availableto act in resolving disputes shouldthey arise. FIDIC,in its supplement, gives its full approval to this alternative to the engineer's former role in disputeadjudication.The supplement also includes a guide to the new alternative version of clause 67 and model terms of appointment andprocedural rules for the Dispute Adjudication Board. Further-

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more, it includes some necessary amendments to the Appendix to Tender corresponding to the new alternative version of clause 67. The new version of the clause is reproduced in Section19.8 below. The two-tier system is a feature whichoriginates from the ICEForm and thus has not been appreciated by some professionalswhose training is based on systems other than that used in England. Sometimes it is not even appreciated by those fromwithin thatsystem. This isperhapsmainly fortworeasons. The firstis the lack of precision in the language used, in that the wordingof the clause is misunderstood, particularly:(a) inrespect of the role ofthe engineeras a decision maker; and (b) in the definitionof the word 'dispute'. Withregardto (a), referenceshould be madeto Chapter 10 and in particular to theincorrectdescriptiongiven totheengineer's roleas a decisionmaker whenitis referred to as a quasi-arbitralrole (seeSection10.9).Withrespect to (b), the correct meaning should be taken from a comment made in the important decision in MonmouthshireCounty Councilv. Costello andKempleLtdwhereitwasinterpreted as

follows:19

•The submission of a claim does not necessarily (although it may) cause a disputeto arise;the rejectionof a claim wifiprobably do so,but not always, for theContractormightaccept either wholly or inpart theviews expressed by the Engineer,if the claim is not one whichis met with a clear rejection,but with a request for further information or even with a stalling reply, then no dispute mayarise.' The second reason is that the engineer is expected to decide all disputes including those whichcall intoquestion his own conduct. For instance, the contractor may claim that he has incurredadditional costs due to late supply of drawings and/orinformation,or due to the engineer's alleged failure to approve workshop drawings promptly, or due to faulty designand specification. In such situations, should the engineer decide the disputein favour ofthe contractor, he mightexpose himself to liability towards the employer, if he does not so decide andthe contractoris infact entitledto theclaimedcosts,the engineerwouldbe in breach of his duty to act fairly and impartially. Accordingly,the system is criticised forthis apparent conflictofinterest inthe decision-makingprocess between the engineer's duty to theparties to actfairly and impartially and his owninterest in avoiding liabifity. Some commentators explain the origin of the inclusion of such dispute resolutionwithintheengineer's functionbyreferencetotheICEForm, uponwhichthe RedBookhadbeenmodelled, and theEnglish doctrine that thecontractor cannot objectto such situations if and whenthey arise since he:

'is taken to haveknownat thetime oftendering and to have accepted,that the Engineermay be called uponto decide certain matters that will place him in a

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position of conflictbetween his duty tobefair to the contractor and hisown self interest.'1924

The following quotation is also relevant: 'Known interests do not disqualify the engineer from deciding between the contractor and employer.The contractoris in particular takentoknow that the engineerwifi generallyhavepreparedthe contract;willhave estimated the cost of the work and so will want to avoid extras; mayhave made mistakes in the plans involving extra cost which againhe will want to keep down; and may wish to minimise the extension of time for any delay which he causes the contractor, for whichhe may be liable to the employer.'19 This situation is contrasted with the position of an American court whichwas faced with a similar question as to whether or not an architect/engineer is authorised to decide matters relating to his own alleged misconduct. The court stated: 'While paragraph35 of the General Conditions ... does give the architect the power ... to adjust and determine disputes between the contractor and other contractors, it does not in our considered opinion, give the architectthe power topassjudgment uponhis ownerrorsandomissions.. . To permitthiswouldbe an outrageousresultnotcontemplatedby theparties, and onenot compelledby the language ofthe contract.'1926

On theinternational scene,theview of the Americancourtmaybe preferred to that under the English doctrine described above but then the matter can be referred to arbitration.As stated inthe Guide (referredto in Reference 9.1) onpage 153, 'theEngineer's decision...'isnotfinalandbinding, 'ifeitherparty challenges it in accordancewith the procedure laid down in Clause 67'. As aresultofthe above,itisimportant to dealwithclause 67in detail.Itmustbe said atthe outset,however, that most of those whocriticisethe effectiveness ofthe clause come across it only when it has failed. Many disputes are resolved daily, butwhentheyarethat is theend ofthematter, andthese successesdonotbecome part of the statistics. The procedure set out in clause 67 only becomes operative when a dispute occurs. It begins with the words:

'If a dispute of any kind whatsoever arises betweenthe Employer and the Contractorinconnectionwith, or arisingoutof, the Contractorthe executionof the Works...' Before one can analysethe provisions of clause 67, it is necessaryto define the

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word'dispute'.Inorderto do so one must go back intime and analyse theevents whichmusthaveoccurred to cause the dispute. A disputeis definedinThe Oxford English Dictionary

as an 'argument, debate, controversy, quarrel'. It should,

therefore, not comeas a surprise that the intention of the word dispute, whichis 'disagreement', ismissed, especiallybythose whose mother tongue is not English. It is only in the fourthdefinition above, 'quarrel', that a disagreement canbe construed. The first threewords, argument, debateand controversy,could mean only that the parties are still arguing or debating the various opinions held by them. A dispute or disagreement can only evolve when one party makes an assertion and the other disagrees with it. Such an assertion may be a claim for money or time or for both or it maybe an assertionthatresponsibilityorliability for a certain action orinaction is denied. It mayalso be an assertion that a certain view is incorrect or imprecise. It is only when a different pointof view is firmly heldby the other partythat a disagreementevolves anda disputeis generated. It is only then that the procedure of clause 67 becomes operative. If this is accepted, as it should be,1927 there is one type of situation which remains outsidethe scope ofthis definitionunlessitis somehowdeveloped intoa dispute. This iswhereone party'sclaim or assertionhasbeenmetby mere silence; or whilst it remains unchallenged,no attempt to meet the other party's demand is made. In these circumstances,itmay be held in somejurisdictions,for instancein England,1928that no dispute has arisen which can be submitted to the engineer underclause 67 and the contractor'snormal remedy wouldbe to obtain summary 19.29 judgment from the courts instead ofproceedingto arbitration. Thisisofcourse against the intention of the FDIC Fourth Edition which is intended to be used anywhereinthe world wherethe courts may notbe as reliableas the commercial courts in England. Another possible situation iswhereone party submits his claim or assertionto theengineer for determinationunder thefirsttier of the decision-makingprocess and is thenmetwith silence.A dispute has not arisen and could not thereforebe submitted to the engineer underthe second tier of clause 67. In such circumstances,the claimant party would have to create an artificial disputeinordertoproceed undertheprovisionsofclause 67. Hecan, forexample, set atimelimit within whichhe should obtain ananswer to theclaim or assertion, and failure to do so by the otherpartywouldconstitute a disputesituation. Itis interesting to notethat thewords'any dispute or difference'intheprevious editions of the Red Bookhave now been restricted to simply the word 'dispute'. This is perhaps anattempt by the draftsmento emphasisethe necessityof having an assertion and a rejection before the procedure in clause 67 could come into operation. 19.7.1

Procedureunderclause 67 Theprocedure laid downin clause 67inthe event ofa disputecan be summarised under thefollowingheadings.

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Assertion or claim made

An assertion or a claim is madeandrejectedinconnectionwith or arising out of thecontractortheexecutionoftheworks includingmatters undertheprovision of thecontract or inbreach thereof.Where theassertion or claimissimply ignored, a disputemust be generated througha notice requesting an answer within certain time limits.

A dispute arises A disputearises betweenthe employer and the contractor. The FourthEdition removed the referencein the previous edition to a dispute'between the Engineer andthe Contractor' in response to the criticism made that the engineer is not a partyto the contract andtherefore cannot be included in this agreement to arbitrate.

Thedisputecanbe: ofanykind whatsoeverarisingin connectionwith, oroutof, thecontractorthe executionof the works; (b) duringthe execution ofthe worksor aftertheircompletion; (c) before or after repudiation or other termination of the contract; and (d) as to any opinion, instruction, determination, certificate or valuation of the (a)

engineer. Dispute referredin writingfor a decision The disputemust, in the first place,be referred inwritingto the engineer for his decision, and copied tothe otherparty, stating that it is madein accordancewith clause 67.19.30Theterm'decision' inthe Fourth Editionofthe RedBookisreserved for use in clause 67 and no other clause contains a referenceto a decision of the engineer. Therequirement that the referenceto the engineerbe inwritingis a new provision, which eliminates the possible confusion as to what is and what is not a properreferenceto the engineer. Followinga validreferenceto the engineer he must, within a period of84 days, give notice of his decision to the employer andthe contractor, such notice must clearlystatethat the decision is given pursuant to the provisions ofclause 67. This specificnewreferencetoclause 67in both the referencebythe partiesto a dispute to the engineerandinthenotice ofthe engineer's decisionis aimedat eliminating a major source of confusion in practice since many arbitrations under previous editions of the Red Bookinclude allegations that such communication between eitherof the parties and the engineer or viceversa wasnot in effect a clause 67 communication.

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Decisionfinal unless referredto arbitration Disputes involve claimsorassertionsbyeither partytoa contract againstthe other party, either under the provisions ofthe contract or in breach of these provisions. It isimportant torecognisethat sub-clause67.1 doesnotimposerestrictionsonthe typeofdlisputewhichcanbe submitted to theengineerforhis decision.The Guide (referred to in Reference 9.1), on page 155, provides the followingadvice:

'It has been argued that, with respect to disputes having mainly a legal character, the Engineer could always refrain from giving a decision. Morein line

with the intention of the Clause wouldbe that the Engineergives his decision afterhaving takenlegal advice on the matter in dispute.' This appearsto be a changein policy or at least a clarificationof a statementmade in the Notes to the Third Edition of the Red Book where it was stated with referenceto the engineer's duties that:19'31

'TheEngineer'stask is to interpretthe Contractas written and to determine the legal rightsof eitherparty.' Thatstatement in the Notes was takenby some commentators to meanthat the engineer must refrain from giving a decision in respect of a purely legal dispute.19'32 However, if that was a correct interpretation of the statement, one is faced with the problem that the opening words of clause 67 oblige the parties to submit all disputes, without restriction, to the engineer. The above interpretation was in fact criticised by distinguished writers, one of whomstated: 'Some engineers suffer from the misconceptionthat disputes other than those involving a claim under some specificclause in the contract do not fallwithin theirrightand dutyto giveadecisionunderthisclause (Clause67), for example a claim by the contractorfor breach ofcontract.'1933 Fortunately,this problem hasnow beenresolved inthe Guide. The decision ofthe engineer once given is final and bindingon the parties unless either or both require thatthe matter in disputebe referred to arbitration. Notice of intention to commence arbitration

If dissatisfiedwith the decisionof the engineer, the employer and the contractor have 70 days followingthe day on which notice of the engineer's decisionwas received, to give notice to the other party, with a copy to the engineer, of their intention to commencearbitration proceedings in respect of the dispute.

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If theengineerfalls to givenotice ofhis decisionwithin 84 daysafterthe dayon whichhe received the reference of a dispute, then either party may proceed to arbitration within 70 days afterthe day onwhichthe 84 days expired by giving notice to the other party (no longer to the engineer as provided in previous editions of the Red Book) of his decision to commence arbitration proceedings, with a copy to the engineer. Thenoticeofintentiontocommencearbitrationproceedingshasthreeimportant functions and these are: (a) It establishes the entitlement of the party giving such notice to commence arbitrationfrom whichdatetime starts torunfor the purposes ofthe limitation period under the applicable law of the contract. (b) if not given, no arbitration proceedings may be instituted in respect of the matters in dispute. (c) It forms the mechanism by which arbitration is properly instituted thus eliminatingthe confusion in the wordingof previous editions in this respect. This confusion occurred whenconflictingarbitralawards were issued in1986 in two cases determining the question of 'whether a party had taken the required measuresunder Clause67. . .to prevent the Engineer'sdecision from becoming final and binding'. The arbitrators acting under the ICC Rules of Arbitration came to opposite conclusions.In one, it was considered that 'a request forarbitration mustbefiledwiththe ICC Courtof Arbitration' within the required period, whereas in the other 'a notification to the Engineer requiring the disputeto bereferred to arbitration' within the required period wasconsidered sufficient.1934 Thetime-limitsstated insub-clause67.1 are measured in daysandare chosen to be divisibleby seven to prevent the possibilityofhaving a weekend at the end of the period. In previous editions the time-limitswere expressed as 90 days. Introduction ofprocedurefor amicable settlement Where anoticeof intentiontocommencearbitrationinrespect ofacertain dispute, or anumberof disputes, has been served, a procedure for anamicablesettlement has tobe followedbefore commencementof arbitration. Sub-clause67.2 doesnot provide, however, forthe type ofamicablesettlement to befollowed nor bywhom suchprocedures shouldbe initiated. Should amicablesettlement be initiated and the process appears to be moving towards asuccessfulconclusion,but outside the stipulated period of56 days,then the parties may agree to defer the commencementof arbitration pendingthe outcomeofthe negotiations.Otherwise,arbitrationmaybecommencedonorafter the56th day after the dayonwhichnotice ofintention tocommencearbitration of such disputewas given, whetheror not any attempt at amicablesettlement had

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beenmade. Theuse of this phrase 'whetheror not any attempt at amicable...'at the endof sub-clause67.2eliminates any possibilityof confusionas towhat these attempts should be or whether or not they were made at all with obvious consequent problems for the parties and any appointed arbitrator pursuantto subclause 67.3. This provision in sub-clause 67.2 marks a new departure from arbitration towards alternative dispute resolution methods and since the phrase 'amicable settlement' is left undefined, it may include negotiation,mediationorconciliation, if the parties agree. Tripartite discussions involving the engineer may also take place if all the parties agree, especiallyif they are all involved in the matters in dispute. Furthermore, it serves as a provision expressly stated in the contract entitlingsome employers,who wouldotherwiseberestricted,tofollow thatroute withoutreproach. Applicable rules Should amicablesettlementattempts fail to resolvethe matters indispute, thenthe procedure set out in sub-clause 67.3 becomes operative provided the notice of intention to commence arbitrationhas been served withinthe time specified. This procedure provides that 'the dispute or disputes should be settled under the Rules of Conciliationand Arbitration of the International Chamber of Commerce in Paris, unless otherwise specifiedin the contract'. This last phrasemarks another departure from previous editions of the Red Book in that should the parties now wish to use different rules from the ICC Rules they can do so by simply deleting the words'unlessotherwisespecified...'followingparagraph(b) of sub-clause 67.3, and inserting instead thetitle ofthe favoured rules. Number ofarbitratorsto be appointed The number of arbitrators is not restricted under sub-clause 67.3 allowing the partiesto choose either a sole arbitrator or more than one depending on the circumstancesofthe case.However,ifarbitrationisto proceedunderthe Rules ofthe International Chamber of Commerce,then Article 2(5) of the 1988 Edition provides that:

wheretheparties have not agreed uponthenumberofarbitrators,the Court shall appoint a sole arbitrator, save whereit appears to the Courtthat the disputeis suchas to warranttheappointment ofthreearbitrators.In sucha casethe parties shall each have a period of 30 dayswithin whichto nominate an arbitrator.' If a differentset ofrules is specified, thencaremustbe takento ensure that no disputearises betweenthe parties as to thenumberofarbitrators to be appointed and theprocedure to be followedin suchan appointment.

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391

A numberof rules areincorporated under sub-clause 67.3 andthese are: (a) The arbitrator has full power to open up, review and revise any decision, opinion, instruction, determination, certificate or valuation of the engineer whenrelated tothe dispute. This powerisverywideandin somejurisdictions widerthanthepoweravailabletocourtsoflaw.1935However, it has nowbeen explicitly restricted to the matters relating to the dispute, thus eliminating another confusionwhichexisted inprevious editions of the Red Book. (b) Arbitration,onceinitiated, maytakeplace before or after the completionofthe works providedthat the obligations of the employer, the engineer and the contractor arenot altered by reason of the arbitrationbeingconducted during progress of the works. This provision is a change from previous editions wherearbitration could notbe commenceduntilcompletion ofthe workswas achieved. (c) The parties are not limited in the arbitration proceedings to the evidence or

arguments put before the engineer for the purpose of obtaining his decision under sub-clause 67.1. The decision of the engineer is not to disqualify him from being called as a (d) witness and fromgiving evidencebefore the arbitrator on any matter relating to the dispute. Sub-clause 67.4 contains another new provision. It provides that failure of a (e) to party comply with an engineer's decision which has become final and bindingunderclause 67mayitselfbe referred to arbitration. Such referenceto arbitration is made directly under the provisions of sub-clause 67.3 and accordingly,a party's failure to comply with a final and bindingdecision of theengineerneednotfirst be referred eitherto thedecisionofthe engineer, or to an amicablesettlement,under the clause. Inthisway,theengineer's decisioncanbeconfirmed through anarbitration which, if international, could then be enforced by virtueof any international conventions on enforcement of foreign arbitral awards which might be applicable.

Theabove procedure is perhaps best illustrated by the use of a flowchart. Figure 19.1 provides sucha chartshowing the various steps leading from an assertion made to arbitration, and thus identifying the two-tier system discussed above.1936

19.8 The 1996 supplementto the Fourth Editionof the Red Book

As explained above, theNovember 1996 supplement to the Fourth Edition ofthe Red Book, as reprinted in 1992, containedinits SectionA an alternativeversion to

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Such reference must be inwriting copied tothe otherpartystating that it is pursuant toclause 67 67.1 Decision is final and binding if not challenged wIthin70 days

Either party ifthe other

failsto complymay invokearbitration under

Isub-clause 67.3

67.4

Anattempt to reach an amicable settlement must be madewithin56daysafter notice atintentionto 67.2 Icommence arbitration Thedispute shall befinallysettled, unless otherwise stated inthecontract,under the ICC flutesof Conciliation and Arbitration

67.3

Fig. 19.1 Procedure underclause 67ofthe Red Book.

This notice operates as thedeemed commencement of the proceedings for thepurpose ofthe Limitation Act under the applicable law of thecontract Thearbitratorhas power to open up. review and revise anydecision, opinion, instruction, determination, certificate or valuation oftheengineer related tothe 67.3 dispute

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clause 67 of the Red Book, providing for the establishment of a Dispute Adjudication Board. For ease of reference, the new alternative version is reproduced below.

'Settlementof Disputes andArbitration

DisputeAdjudication Board 67.1 If a dispute of any kind whatsoever arises between the Employer and the Contractorinconnectionwith, or arising out of, the Contractor the executionof theWorks,including any disputeas to any opinion, instruction,determination, certificateorvaluation ofthe Engineer, the disputeshall initiallybe referred in writing to the Dispute Adjudication Board (the 'Board') for its decision. Such referenceshall state that it is madeunder this Sub-Clause. Unless the member or members ofthe Boardhave beenpreviously mutually agreed uponby the partiesandnamed in the Contract, the parties shall, within 28 days of the Commencement Date, jointly ensure the appointment of the Board. The Board shall comprise suitably qualified persons as members, the number of members being either one or three, as stated in the Appendix to Tender. If the Board is to comprise three members, each party shall nominate onemember for the approvalof the other party,and the parties shall mutually agree upon andappoint the third member (who shall act as chairman). The terms of appointment of the Board shall: (a) incorporate the model terms therefor published by the Fédération Internationale des Ingénieurs-Conseils(FIDIC), asthey may have been amended by theparties, (b) require each member of the Board to be, and to remain throughout his appointment, independent of the parties, (c) require the Board to act impartially andin accordance with the Contract,

and (d) include undertakingsbythe parties (toeachotherandtothe Board)thatthe members of the Board shall inno circumstancesbeliable for anything done or omitted in the discharge of their functions unless the act or omissionis shown to have been in bad faith, the parties shall indemnify the members against suchclaims. The terms of the remuneration of eachmember of the Board, including the remuneration of any expert from whomthe Board may seek advice, shall be mutually agreed uponbythe Employer,the Contractorand eachmember ofthe Board whenagreeing the terms of appointment. In the eventof disagreement, the remuneration of each member shall include a dailyfeein accordance with the dailyfee established from time to time for arbitrators under the adminis-

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ofContract trative and financial regulations of the International Center for Settlement of InvestmentDisputes, aretainer fee per calendarmonthequivalentto threetimes suchdailyfeeand reimbursement for reasonableexpenses. The Employer and the Contractor shall each be responsible for paying one-half of the Board's remuneration. Theappointment ofany member of theBoard maybe terminated (other than ona member's owninitiative)only by mutualagreement of theEmployer and the Contractor. The appointment of each member of the Board shall expire whenthe dischargereferredtoinSub-clause60.7 shallhavebecomeeffective,or at suchother time as the parties may mutually agree. If at any time the parties so agree, they may appoint a suitably qualified personorpersonstoreplace (or to be availabletoreplace) anyor all members of the Board. Unless the parties agree otherwise, the appointment willcome into effectif a member of the Board declinesto act or is unable to act as a result of death, disability, resignation or termination of appointment. If any of such circumstancesshould occur andno suchreplacementis available,the member shallbe replaced inthesamemanner as suchmemberwasnominated or agreed upon. If any of the followingconditions apply, namely: (a) the parties fail to agree upon the appointment of the solemember of a onepersonBoard within28 daysof the CommencementDate, (b) either partyfails to nominate a member (acceptableto the other party), fora Board ofthree members,within28 daysof the CommencementDate, (c) the parties fail to agreeuponthe appointment ofthe third member (toactas chairman) for a Board of three members within 28 days of the CommencementDate, or (d) the parties fail to agree uponthe appointment of a replacement member of the Board within 28 days of the date on which a member of the Board declinesto act oris unable to act as a result ofdeath, disability,resignation or termination of appointment,

then the appointing body or official named in the Appendix to Tender shall, after due consultationwith the parties, appoint suchmember of the Board, and suchappointment shallbe finaland conclusive. Procedure for Obtainingthe Board's Decision 67.2 When inaccordancewithSub-Clause67.1 adisputeisreferredbyonepartytothe Board, a copy of suchreferenceshallbe sentbythatparty tothe other partyand (forinformation)tothe Engineer.Theparties shallpromptly makeavailabletothe Board all suchadditional information,further accesstothe Site,and appropriate facilities,as the Board may require for the purposes of rendering a decision.

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TheBoard shall havefullpower, among otherthings, to: (a) establish the procedure to be applied in deciding a dispute, (b) decide uponthe Board's ownjurisdiction,andas to the scope ofanydispute referred to it, (c) take the initiative in ascertaining the facts and matters required for a decision,

(d) makeuse of its own specialistknowledge, if any, (e) decide upon the payment of interest in accordancewith the Contract, (f) decide togrant provisionalrelief suchas interimorconservatorymeasures,

and (g) open up, review and revise any opinion, instruction, determination,certificate or valuation of the Engineerrelated to the dispute.

No later than the eighty-fourth day afterthe day on whichit received such reference,the Board, acting as a panel of expert(s)and notas arbitrator(s),shall give notice of its decision to the parties and (for information) to the Engineer. Suchdecision,whichshallbereasoned,shall state thatitis givenunderthis SubClause. Unless the Contract has already been repudiated or terminated, the Contractor shall, in every case, continue to proceed with the Works with all due diligence, and the Contractor and the Employer,as well as the Engineer, shall give effectforthwith to every decision of the Board, unless and until the same shallberevised, as hereinafterprovided, in anamicablesettlementoranarbitral award. If either partyis dissatisfiedwiththeBoard's decision,theneither party, onor before the twenty-eighth day after the day onwhichit received notice of such decision, may notify the other party and (for information) the Engineer of its dissatisfaction.If the Boardfails to give notice of its decision on or before the eighty-fourth day afterthe day on whichit received the reference, then either party, onorbefore the twenty-eighthday afterthe dayonwhichthe saidperiod of 84 days has expired, may notify the other party and (for information) the Engineerofits dissatisfaction.Ineitherevent, suchnoticeof dissatisfactionshall statethatitisgiven underthisSub-Clause,and set outthematterindisputeand the reason(s) for dissatisfaction.Subjectto Sub-Clauses67.5 and 67.6, no arbitration in respect of such disputemay be commenced unless such notice is given. If the Board has given notice of its decision as to a matter in disputeto the Employer,the Contractorand the Engineer,andnonotice of dissatisfactionhas beengiven by either partyon or before the twenty-eighth day afterthe day on which the parties receivedthe Board's decision,then the Board's decision shall becomefinal and bindinguponthe Employer andthe Contractor.

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Amicable Settlement 67.3 Wherenotice ofdissatisfactionhasbeengiven underSub-Clause67.2 the parties shall attempt to settle such dispute amicably before the commencement of arbitration. Providedthatunless the parties agree otherwise,arbitrationmay be commenced on or after the fifty-sixth day after the day on which notice of dissatisfactionwas given, even if no attemptat amicable settlement has been made. Arbitration 67.4

Anydisputein respect of which: the decision,if any, oftheBoardhas not becomefinal and binding pursuant to Sub-Clause67.2, and (b) amicablesettlementhas not beenreached, (a)

shallbe settled, unless otherwise specified in the Contract, under the Rules of Concffiation and Arbitrationofthe InternationalChamber of Commerceby one ormorearbitrators appointed undersuchRules.The arbitrator(s)shall have full powerto open up, review and revise any decisionof the Board, as wellas any opinion, instruction, determination, certificate or valuation of the Engineer, related to the dispute. Neither party shall be limited,inthe proceedingsbefore sucharbitrator(s),to the evidenceorargumentspreviously putbeforetheBoardto obtainitsdecision. Arbitration may be commenced prior to or after completion of the Works. Any decision ofthe Boardshallbe admissibleinevidencein the arbitration. The obligationsof the parties, the Engineer and the Board shall not be altered by reason of the arbitration being conducted duringthe progress of the Works. Failure to Comply with the Board's Decision 67.5 Whereneitherpartyhas given noticeof dissatisfactionwithin the period inSubClause 67.2 and the Board's related decision, if any, has become final and binding, eitherpartymay, ifthe other partyfailsto comply with suchdecision, andwithout prejudice to any other rightsitmayhave, refer thefailure itself to arbitration under Sub-Clause67.4. The provisions ofSub-Clauses67.2 and 67.3 shall not apply to any suchreference. Expiry of the Board's Appointment 67.6 Whenthe appointmentofthemembersoftheBoard,including anyreplacements, haseitherbeenterntiriatedorexpired,anysuchdisputereferred to inSub-Clause 67.2 shall be finally settled by arbitration pursuant to Sub-Clause 67.4. The provisions of Sub-Clauses 67.2 and67.3 shall not apply to any suchreference.'

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19.9 The new provisionfor the Dispute AdjudicationBoard, its procedural

rules and terms of appointment

The new alternative version to clause 67 of the Red Book including the role ofthe Dispute AdjudicationBoard andits model terms ofappointment and procedural rules are discussed below under the followingheadings: — — — — — — — —

Composition andqualifications; Duties of the Board members and commencementof suchduties; Termination ofthe Board's duties; Remunerationofthe Board members; Duties of the employer andthe contractor towards the Board; Procedurefor disputereferral to the Board; Conduct of hearings; and Authority of the Board.

19.9.1 Composition and qualifications

The Board may be composed of either one or three members depending on the choicemadeinthe Appendix to Tender. TheBoard is the termused whether one or three members are appointed. The followingrules apply: (a) Unlessthe Board hasbeenmutually agreed uponbythe parties and named in the contract, the parties are required jointly to ensure the appointment of the Boardwithin28 days of the commencementdate. (b) Where a three member Board is selected, then each party is required to nominate onememberfor the approval ofthe other. Thepartiesshall mutually agreeuponand appoint the third memberwho shallactas the chairman,ifany of these members is not so nominated andapproved withinthe specified 28 daysperiod, thensuchmember shall be appointed bythe appointingauthority namedin the Appendix to Tender. (c) The terms of appointment include, amongst others, a termthat the employer andthecontractor give undertakings (to eachother and to theBoard) that the members of the Board shall inno circumstancesbe liable foranything done or omitted in the discharge oftheirfunctions unless the act or omissionis shown to havebeen in bad faith: the parties shall indemnify the members against

suchclaims. (d) A member of the Board must warrantthat he is experienced in the type of workinvolved intheparticular project andintheinterpretation ofthecontract documents andbe fluent in the language of the contract. (e) A member of the Board must have no financial interest in any party to the contract, or the engineer, or a financial interest in the contract, except for payment for services on the Board.

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(f)

A member of the Board must nothavebeenpreviously employed, as a consultant or otherwise, by any party to the contract, or the engineer, except as had been disclosed in writingto the parties prior to appointment. He must have also disclosed in writing to the parties and to the other members of the Board, prior to appointment, any professionalor personal relationships with

any director,officer,or employeeof theparties or the engineer, and any prior involvementin the project. (g) A member of the Board must be and remainindependent of the parties and mustactimpartially andhas acontinuing dutyto discloseinwriting to eachof the parties, and to the other members of the Board, any fact or circumstance whichmightbe suchas to callintoquestion his impartiality or independence. Dutiesofthe Board membersandcommencement ofsuchduties

19.9.2

TheBoard members shallcommencetheirworkon appointment andshall: (a) (b)

notassign, delegate or sub-contractany of theirwork; (i) be available,on 28 days'notice, for all hearings, site visits, and meetings

of the Board; become and remain conversant with the contract, the progress of the (ii) project and allproject developments and maintain relevant files;and (iii) observe the provisions of the Procedural Rules of the Dispute Adjudication Board; while a Boardmember,notbe employed whether as a consultant or otherwise (c) by eitherpartyto the contract,or theengineerwithoutthe prior consent ofthe parties and the other members of the Board; (d) while a Board member,not engage in discussionor make arrangements with any partyto the contract,orwiththe engineer,regarding employmentwhether as a consultant or otherwise eitherafterceasing to be a Boardmember; (e) visitthe siteandmeetwithrepresentativesofthe employer and the contractor and theengineeratregular intervals, attimes ofcritical constructionevents,at the request of either party, and in any case not less than threetimes in any period of 12 months. The timing of and agenda for the site visits shall be as agreed among the employer, the contractor and the Board, but failing agreement shall be fixed by the Board; (f) treat the details of the contract and all activitiesand hearings of the Board as privateandconfidentialand shallnotpublishor disclosethesame withoutthe prior writtenconsent of the parties; (g) at the conclusion of each site visit, prepare a report covering the Board's activitiesduringthe visitandshall sendcopies to the parties who attended; (h) be availableto give adviceandopinionsinconjunctionwith other membersof the Board on any matter relevant to the project not being a disputewhen requested so to do by the parties; and

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(i) shall not give arty advice to either party or to the engineer concerning the

conduct of the worksexceptin accordancewith the procedural rules.

19.9.3 Termination ofthe Board's duties

In accordance with sub-clause 67.6, the Board's appointment expires when the discharge referred to in sub-clause 60.7 of the Red Bookbecomes effective or at

such other time as the parties mayhaveagreed. Sub-clause60.7 of the Red Book deals with the discharge confirmingthatthe total ofthe finalstatement represents full andfinal settlement of all monies due to the contractor arising out of or in respect ofthe contract.This must be contrasted withthe provisionsof clause 67of the RedBookwhere evenyears afteraconstructioncontract is over, disputes have still to be referred to the engineer beforethey can be referred to arbitration. Thus, the mainpurpose of the Board is to resolve disputes during construction and to ensure that the resolution of all disputes arising during that period is completed.1937 19.9.4 Remuneration ofthe Boardmembers

Paymentsto eachboard member for their servicesare governed by the following provisions: (a) A retainer fee per calendar month equivalent to three times the daily fee established from time to time for arbitrators under the Administrative and FinancialRegulationsofthe InternationalCentre for Settlementof Investment Disputes (the ICSID Arbitrator's Daily Fee), or such other retainer as the employer and contractor may agree in writing. This retainer is to be considered as payment in full for: (i) being available, on 28 days' notice, for all site visits andhearings; (ii) becoming and remaining conversant with all project developments and maintaining relevant files; (iii) all office and overhead expenses such as secretarial services, photocopying and office supplies incurredin connectionwith the duties as a Board member; (iv) all servicesperformedhereunderexceptthose performed duringthe days referred to in paragraph(b) below. A (b) dailyfee which shall be considered as payment in full for: (i) up to a maximum of two days of travel time in each direction for the journey between the Board member's home and the site or other location of a Board meeting; (ii) each workingday on site visits, hearings, or preparing decisions; (iii) each day spent reading the parties' submissions in preparation for a hearing.

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The FJDIC Form ofContract (c) Expenses,including all reasonableandnecessarytravel, and the cost of tele-

phonecalls,faxes, courier charges and telexesincurredinconnectionwiththe duties as Boardmemberare tobe reimbursed against invoices.These expenses are to be paid in the same currency as that in which the fees arepayable. (d) Reimbursementofanytaxes that maybe levied in the country of the site. Escalation

Theretainer and fees remainfixed for the period of eachBoard member's term, unless agreed otherwise.

Phasingout ofmonthly retainerfee After the taking-overcertificatehas been issued, anduntil the Board has terminatedits regular activities,theBoardmembers areto receiveareduced retainer fee of 50 per cent. 19.9.5 Duties ofthe employerand the contractor towards

theBoard

(a) Sitevisits must be attended by personnel from the employer, the contractor and the engineer. (b) Paymentsto the Board members are sharedequally by the employer andthe contractorandare madethroughthe contractor.Failure of either the employer or the contractor to make payments in accordance with the agreement constitutes an event of default under the contract, entitling the non-defaulting party to take the measures set forth, respectively,in clauses 63 or 69. Notwithstanding sucheventofdefault, andwithoutwaiver ofrightstherefrom,in the event that either the employer or the contractor fails to makepayment in accordance with the terms of the appointment, the other party may pay whatever amount mayberequiredto maintain the operation ofthe Board. The partymaking suchpayments, inadditionto all other rightsarising from such default, istobeentitled to reimbursementofall sums paidinexcess ofone-half of the amount required to maintain operation of the Board, plus all costs of obtaining suchsums and interest thereon. (c) The employer and the contractor have the duty to give undertakings as indicated in item (c) of Section19.9.1. (d) Exceptforits participation inthe Board's activitiesas provided inthe contract, none of the employer, the contractor, and/orthe engineer is to seek advice from or consultationwiththe Board member regarding the project otherwise than in the normal course of theBoard's activitiesunderthe contract and the rules. The only exceptionto this prohibition shall be wherethe parties jointly agree to do so and the other Boardmembers also agree. The employer is tobe responsible for ensuring the complianceby the engineer.

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(e) The contractormust furnish to eachBoardmember one copy of alldocuments which the Boardmay request including contract documents, progress reports, variation orders, and other documents pertinent to the performance of the contract.

(f) In co-operation with the employer, the contractor must co-ordinate the site visits ofthe Board,including conferencefacilities, arid secretarialandcopying services. 19.9.6 Procedurefor dispute referral to the Board

When a dispute occurs, the followingprocedure must be followed: (a) Pursuant to sub-clause 67.1, if a disputearisesbetween the employer and the contractorinconnectionwith, or arising outof, the contract or the executionof the works, including any dispute as to any opinion, instruction, determination, certificate or valuation of the engineer, the dispute shall initially be referred in writing to the Boardfor its decision. Such referenceshall statethat it ismadeundersub-clause67.1 and acopy of thereferencemustbe senttothe other party and to the engineer, for his information, as requiredunder subclause 67.2. (b) The parties shall promptly make available to the Board all such additional information,further accessto the site, and appropriate facilities,as the Board mayrequire for the purposes of rendering a decision. (c) The Boardshall havefull power, among other things, to: (i) establish the procedure to be appliedin deciding a dispute; (ii) decide upon the Board's own jurisdiction,andthe scope of any dispute referred to it; (iii) take the initiative in ascertaining the facts and matters required for a decision; (iv) makeuse ofits own specialistknowledge, if any; (v) decide upon the payment of interest in accordance with the contract; (vi) decide to grant provisional relief such as interim or conservatory measures; and (vii) open up, review and revise any opinion, instruction, determination, certificate or valuation of the engineer related to the dispute. (d) No later than the 84th day afterthe dayon whichit received suchreference, the Board, acting as a panelof expert(s) and not as arbitrator(s),must give notice of its decision to the parties and to the engineer, for his information. Such decision, which shall be reasoned, is to statethat it is given under sub-

clause 67.2. (e) Ifeitherparty is dissatisfiedwith the Board's decision,then eitherparty, onor before the 28th day after the day on whichit receivednotice of suchdecision, may notify the other party and (for information) the engineer of its dis-

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satisfaction.Ifthe Boardfails togive noticeof its decisiononor beforethe 84th dayafterthe day on whichit received the reference,theneitherparty,on or before the 28th day after the day on which the said period of 84 days has expired, may notify the other party and (for information) the engineer of its dissatisfaction. In eitherevent, suchnotice of dissatisfactionmust statethat it is given under this sub-clause, and set out the matter in disputeand the reason(s)fordissatisfaction.Subjectto sub-clauses67.5 and67.6, no arbitration inrespect of such dispute maybe commencedunlesssuchnotice is given. 19.9.7 Conduct ofhearings

The procedure for the conduct of hearings by the Board are contained in the ProceduralRules attached to the alternativeClause67. Itis summarisedas follows: (a) In accordance with sub-clause 67.2, the Board has full power, among other things, to establish the procedure to be appliedin deciding a dispute. (b) Pursuant to the procedural rules, the Boardrriayinits discretion,among other things, conduct ahearing onthe disputeandapplythe rules. Where the Board decides to conduct a hearing, itwifirule on the date and place forthe hearing and may request that written documentation and arguments from the employer andthe contractor be presented to it prior to or at the hearing. (c) Subject to the time imparted to the Boardto give noticeofadecision and other relevant factors,the Board must afford to eachof the employer andthe contractor reasonable opportunity to presentits case in relation to the dispute referred to it. (d) The Boardshall act as a Board of impartial experts, not arbitrators, and shall have full authority to conduct any hearing asit thinks fit, notbeing boundby any rules or procedures otherthanthose set out in theprocedural rules. The Board shall have power to adopt an inquisitorial procedure, to refuse admission to hearings or audience at hearings to any persons other than the employer,the contractorandthe engineerandtoproceed inthe absenceofany partywhomtheBoard is satisfiedhadreceived notice of thehearing. (e) The Board is not to express any opinions during any hearing concerningthe merits of anyarguments advanced bythe parties. After a hearing is concluded the Board must convenein private to formulateits decision. (f) If a member fails to attend a meeting or hearing, or to fulfil any required function, the other two members may nevertheless proceed and make decisions unless the absent member is the chairman andinstructs the other two members not to proceed, or the parties otherwise agree. (g) The Boardshall give notice of its decision in writingto the employer and the contractor in accordancewith sub-clause67.2of the Red Bookor as otherwise agreed by the employer and the contractor in writing. (h) The Board shall endeavour to reach decisions unanimously, but if this is impossible decisions shall be by a majority and the minority member may

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prepareawrittenreportfor submission to the employer,the engineerandthe contractor. (i) Allcommunicationsbetween eitherofthe parties and aBoard member and all hearings shall be in the language specifiedin the procedural rules. All such communicationsshallbe copied to the other partyand to the other membersof

the Board.

19.9.8 Authority ofthe Board

In accordancewith sub-clause 67.2, the Board has the full power, among other things, to take all the steps set out in item (c) of Section19.9.6 above. 19.9.9 Commentary

The experience gathered relating to disputereview boards, as wifi be discussed later under Section 22.8, gives much encouragement to the concept of dispute adjudication boards as outlined under the provisionsofthe new alternative version of clause 67 and contained in the FIDIC 1996 Supplement. However, as the relevant procedures differsignificantly,Figure 19.2 shows aflowchartofthisnew procedure. There are a number of points in the rules and procedures which require a mention and to whichattention mustbe given. (a) Itisextremelyimportant thatthe parties agreetheidentityofthemembersofthe Board prior to the commencement date, and their appointment should be treated asapriority since therequirementundersub-clause67.1 ofensuringthe appointment of the Board within 28 days of the commencement date is not supportedby a specificmechanismin thecontract.Furthermore,iftheparties fail to agree the appointment ofthe Board within the stipulated 28 days, then first, there is no time limitwithinwhichthe appointing authoritymust act and appoint;andsecondly,aBoardisimposed uponthe parties whichiscontrary to thewholeconceptofatrusted,mutually agreed Board. Finally,inthisregard,as recommended in the Guideto amended clause 67, ifthe appointing authority namedintheAppendix toTender isnotthePresident ofF]DIC, thentheconsent of suchauthority to act shouldhavebeenpreviously obtained in writing. Sub-clause 67.1 requires Boardmembers tobesuitablyqualified and the terms (b) of appointment of the members demand a warrantythat the member is so qualified. It follows from these requirements that potential candidates for Board membership wifi come from high calibre, experienced professionals whoholdpositionsof authorityintheirparticular field.However, theterms of appointment prohibit, and rightly so, a Board member, during his term of appointment, from entering intodiscussions with eitherof the parties or the engineer regarding employmentby themafter ceasingto be a Board member. Even thoughthe appointment is apersonal one, as provided in item 1(a) ofthe

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Is there dispute between the I in connection with orout of the orthe execution ofthe works includingany dispute as to anyopinion,instruction, determination, certificate or valuation ofthe engineer'?

Thedispute shall initially be referred in writingto the DAB

Yes

67.1

the Board give noticeof its decision within84daysafter receipt ofthe reference?

Is there

noticeof dissatisfaction with the DAB's decision within 28 days after receipt of notice of suchdecision? 67.2

Yes

The parties shall attempt amicable settlement tor up to 56days, unless agreed otherwise by the parties 67.3

Fig. 19.2 Procedure underthe provisions ofthe newalternative version ofclause 67contained in the Supplement reference to the Dispute Adjudication Board.

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Wherea notice ofdissatisfaction has been given under sub-clause 67.2,the parties shall attempt tosettlesuch dispute amicably before the commencement of 67.3

arbitration

ave

the parties agreed to erice arbitration the expiry of 56 daysfrom the date of dissatisfaction notice?

Yes

67.3

Proceedtoarbitration even if no attempt at amicable settlement has been made

Continue the attempts to settle the dispute amicably

No

No$ Proceed to arbitration atthe end of 56 days orat the end ofsuchextended period as may be agreed bythe parties. Unless otherwise specified, the applicable rules shall bethe ICC Rules of Conciliation and Arbitration. 67.4 (Fig. 19.2 Contd.)

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terms of appointment, the above requirements in practice will effectively excludeseniormembers ofprofessionalfirms andcontractingcompaniesfrom acting as Board members as the above prohibitionmust extend to theirfirms. This prohibition could last for a considerable period of time if the project is large and complex. The question now to be answered is: where will these potential Board members be found for the number of projects which will include the new alternative version of clause 67? At the moment therewouldappear to be no easy solution to this problem, butthe answer maybe foundinan innovative and excitingnew development in the construction industry. This new technology, called Cyrax, is now available in the United States andwill amongst others, revolutionise on-site control anddata collection. Cyraxis a powerful laser radar system for threedimensional data acquisitionwith instant in-field modelling capability to convert this data to surface geometry with the high accuracy of down to 1mm. Once converted, the resultant geometry is transformed intoan inbuilt CAD format to create either two or three dimensional drawings within minutes. Cyrax can be operated eitherdirectly on siteor from any part of the world.1938 (c) The period of time allocated to the initial study of the project is too short, especiallyinthe case of complexand large projects,not only from the pointof view of the technical documentation which must be studiedbut also from a remuneration pointof view. (d) Sub-clause 67.1 provides that the appointment of a Board member may be terminated only by mutualagreementofthe parties. The question which does notseem tohavebeen addressed is: what happens inthe event that one of the parties wishes to terminate the appointment of a Board member whilstthe other party does not? The Board is required under the provisions of sub-clause 67.2 to render its (e) decisionin 84 daysafterreceipt of the reference.Are 84 dayssufficient in the case of a complex disputefor a comprehensiveprocedure, adequate hearing, Boarddeliberation and reaching a fair and just decision?Or is itthe intention thatforsuchcomplicatedand lengthy disputes,asummary decisionwould be rendered and if unacceptable,thenthe dispute mustbereferred toarbitration? It is notable thatbefore a disputecanbe referred to arbitration,a period of 168 dayswould have elapsed. This period is madeup of84 days for the Board to give its decision under sub-clause 67.2, plus 28 days for the parties to give notice of dissatisfaction with that decision, plus 56 days for the amicable settlement procedure under sub-clause 67.3. Of course, each of these periods could be shorter if the relevant procedural steps are completed earlier than allowed for. (f) Item 3(e) of the terms of appointment provides that the Board member shall not give advice to either of the parties or to the engineer concerning the conductofthe project otherthan inaccordancewith the procedural rules. Item 5 of these terms provides that neither the employer, the contractor nor the engineer shall seek advice from or consultation with the Board member

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regarding the project otherwise than in the normal course of the Board's activities under the contract and the rules. Moreover, under item 5 of the procedural rules, the Board must not expressanyopinions duringany hearing concerning the merits of any arguments advanced by the parties. These interrelated provisions lead to the following question: is a Board member preventedfromvoicing an opinion, iffor example onasitevisit, or indeed on examininga drawing, heencounters whatheknowsfromhis ownknowledge andexpertise to be incorrect? (g) Under sub-clause 67.1 andin item 6 of the terms of appointment, the remuneration of all Boardmembers is equal. Inview ofthe fact that the chairmanof the Board would have more onerous administrative duties and obligations thanhisco-members,ahigher feeforthe chairmanshould havebeenprovided for under the rules. (h) Under item 6 of the procedural rules, the contractor is required to paythe Board members' fees and expenses within 56 calendar days after receipt of theirinvoices. Itis suggested thatapreferred procedure forpayment wouldbe to establish a bank account in the form of security for costs from whichpayments are made against invoices submitted in advance to the employer and the contractor and released by authority of the chairman. (i) Attention should be given to the fourthparagraphof sub-clause 67.2 which provides that the contractor, the employer and the engineer are requiredto give effect to the Board's decision unless and until such decision is revised throughan amicablesettlement or an arbitral award. 19.10 The ICC Rules of Conciliation and Arbitration Unless otherwise specified in the contract, the Rules of Conciliation and Arbitration of the International Chamber of Commerce apply to any arbitration proceeding under sub-clause 67.3 of the Fourth Edition of the Red Book, or subclause 67.4 of the alternativeversion ofclause 67in the 1996 Supplement.The use of theICC Ruleshas beenmaintained due tothe numerous advantagesit offersto the parties in dispute, andthese willbe discussed belowin Section19.10.2. The International Chamber of Commerce (ICC) is a non-governmental organisation founded in 1919 to serve worldbusiness throughpromoting international trade,servicesandinvestment;promoting thefreemarketeconomysystem based onthe principle of competitivenessof business enterprise; and fosteringthe economic growth of developedanddevelopingcountries.Itsmemberscomefrom over 7,500 companies and business associationsin more than 140 countries. The ICC's headquarters are in Paris and national committees from over 60 countries throughout theworldrepresent itsview to governmentsandbusinessconcerns.1939 Attached to the InternationalChamber of Commerceis the International Court ofArbitration oftheICC whose members areappointedby theCouncilofthe ICC anda secretariat established at the headquarters of the ICC in Paris. The International Court whichwas founded in 1923 has built up unique experience and

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enjoysan outstanding place inthe field of the settlement ofinternational business disputes. Within the last fifteenyears, therehas been a 70 per centincrease in the annual numberof new cases referred to the ICC. In 1980, 250 cases were filedas against 427 cases in 1995. The Court has dealt with over 9,000 cases involving commercialagreementsbetween parties worldwide and has approved 140awards in 1995, compared with 92 awards in 1989.19.40 Onanannualbasis, arbitrators are appointed from approximately50 different countries andarbitrations are held in around30 differentjurisdictions. The Court does not itself settle the disputes brought before it but it does supervise the arbitration proceedings carried out by the arbitrator. Therefore,in that respect, the term 'Court' is misleading as it has neither judicial power nor does itrenderan award. It is the arbitraltribunal appointed by the Courtfor each specificcasethat exercises the judicialpowerthroughout the arbitral proceedings. Neither the parties in disputenor the arbitrator ever appear before the Court. It conductsits administrativefunctionsthroughdocumentary material submitted to itby theparties andthe arbitrator.The Court's functionsinclude, amongst others,

the following.1941

(a) deciding whether a prima facie agreement to arbitrate under the ICC Rules existsbetween the parties. However, any disagreementbetween the parties as to thevalidity of suchaprimafacie agreementis referredto thearbitrators for

theft decision; (b) taking allmeasures that maybe requiredwith regard to appointing,replacing or challengingthearbitrators. In thatregard,the Court mayrefuse to confirm the appointment ofarbitrators nominated bytheparties ifthereisan apparent lack ofindependence or a question as to theircompetenceorsuitabilityforthe particular arbitration case; (c) determining the place of arbitrationandthe numberof arbitrators wherethe parties have madeno provision to that effect;

(d) ensuring that the arbitrators' terms of referenceare drafted promptly andin conformitywith the ICC Rules; (e) in the event of refusal by one of the parties to sign the terms of reference, setting a time limiton the expiry of whichthe arbitration proceeds; (f) supervising the proceedings conducted by the arbitrators and ensuring that theirawardis madewithin thetime limitoriginallysetor, where necessary,as extended by the Court; (g) fixing the amount of the advance payment to be requested and determining the arbitrators' fees, thus providing a buffer between the parties and the arbitrators in respect of a matter whichmightwell inhibit the independence and neutrality of the arbitrators; and (h) scrutinisingthe draftawardand,ifnecessary,laying downmodificationsasto the form of the award and, without affecting the arbitrators' liberty of decision,the Courtmay also drawtheir attention to points of substance.

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409

TheICC Rules

Since itsinception, arbitrationunderthe ICCRuleshasbeenspecificallytailored to

handle international disputes,althoughthe rules are also technicallyacceptablein the case of domestic disputes.19 To summarise briefly,the procedure in practicewouldfollowthe steps outlined below:

(a) The claimant party submits a requestfor arbitration to the Court's secretariat in Paris and wherethere is agreement between the parties that there willbe three arbitrators, he nominates an arbitrator. (b) The Court's secretariatforwards the request to the otherparty (the defendant) for a response, whichshould be submitted within a specific period of time. Where there is agreement between the parties that therewill be three arbitrators, the defendant is also requiredto nominate an arbitrator. Where the parties have agreed that the disputes shall be settled by a sole (c) arbitrator, they may, by agreement,nominate the arbitrator for confirmation by the Court. Failing suchnomination within30 daysfrom the date of cornmtmicating the requestfor arbitration to the defendant, the sole arbitrator is appointed by the Court. Thus, the Court appoints the arbitrator or confirms the appointment of an arbitrator, or arbitrators, chosen by the parties. in the caseof a tribunal, the Courtappoints the chairmanof the tribunal. It alsofixes or confirms the place of arbitration, fixes an advance to cover the costs of arbitrationand, uponreceipt ofthe advance,submits the file to the arbitrator. The Court requires a high standard of impartiality in its arbitrators. Every (d) arbitrator appointedis requiredto sign either of the followingdeclarations:

'I amindependent ofeachofthe parties andintendto remainso: tothe best

ofmy knowledge,therearenofacts or circumstances,past and present, that might needbe disclosedbecause theymightbeof suchnatureas to call into question my independence in the eyes of any of the parties.' or

'I amindependent ofeachoftheparties and intend to remain so: howeverin

considerationofArticle2,paragraph7 of the ICCRulesofArbitrationIwish to call your attention to the followingfacts or circumstanceswhichI hereafter disclosebecauseIconsider thattheymightbe ofsuchanatureastocall intoquestion my independence in the eyes of any of the parties...' (e) The arbitrator, or the tribunal, draws up a document defining his terms of

referenceandcirculatesthe document to the parties fortheirapprovaland/or comments.The document must contain amongst other matters, a summary of theparties' respectiveclaimsand a definitionoftheissues to be determined in the arbitration. Once approved and signed by the arbitrators andthe parties,

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The FIDIC Form ofContract

the document is transmitted to the Court.The Court takes noteoftheseterms of referenceandinforms thearbitrators andthe parties accordingly.It is only thenthatthearbitrators maydealwiththemerits ofthecase.This documentis a special feature of the ICC Rules and an extremelyusefulinstrument in the conduct of international arbitration;see Section19.10.2 below. Although criticised by some, the terms of reference have four main advantages: (i) technical: where the parties,

their representatives and the arbitrators focus on the issues to be resolved and plan a management structure and framework for dealing with these issues, separating them into various categories to facilitate the effective conduct of the proceedings, with particular reference to the case inhand; (ii) psychological: where the parties and their legal representatives, often from differentlegal backgrounds,meet and becomeaware ofeachother's points of view; (iii) legal: wherethe parties, by theirparticipation in the preparation, andthe signing of the terms of reference, confirm theiragreement to have their disputes resolved throughthe arbtiration process;and (iv) control: where the arbitrators in drafting their award and subsequently theICC Court,in scrutinisingthe award, caneasilyestablish not only that allthe issues requiredto beresolved throughthearbitral process havein fact beendealtwithinthe award, butalsothatthe awardhasnotdeparted from the scope of these issues.19 These advantages have sometimesinduced experienced arbitrators to proposeat thecommencementof an arbitration an efficientprocedure similar in natureto the terms of referencedocument.19 (f) The arbitrators proceed with the case in accordancewith the ICC Rules and any other rules agreed upon,eitherinthe terms of referenceor subsequently. (g) The arbitratorsmakeadraftaward,whichmustbe submitted to the ICC Court for scrutiny.

(h) The Court scrutinises the award, and as stated above may drawthe attention

of the arbitrators to points of substance, and approves the final draft if it is satisfied withits form. This scrutiny bythe Courtis another special feature of the ICC Rules in the form of a quality control process in which any potential weaknesses which may affect the enforcementof the award are brought to the attention of the arbitrators.

(i) The award, having been signed by the arbitrators,is notified to the parties by

the secretariat of the ICC Court.

TheICC Rulesare keptup to datethrough periodic revisions.The latest Rulesof Arbitrationcame intoeffectin 1988 and they are now due for a further review.1945 ThepresentRulesinclude 26 articleswhichcontain theprovisionsin accordance

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411

withwhichICC arbitrationsare conducted.These articlesdealwith thefollowing topics: — — — — — —

Article 1 Article 2 Article 3 Article 4 Article 5 Article 6

International Court ofArbitration; TheArbitral Tribunal; Request for arbitration; Answer to the request; Counterclaim;

Pleadings and written statements, notifications or commuriications;

— — — — — — — — — — — — — — — — — —

Absenceof agreement to arbitrate; Effect of the agreement to arbitrate; Advanceto cover costs of arbitration; Transmissionof the ifie to the arbitrator; Rules governing the proceedings; Place of arbitration; Terms of reference; 15 Articles 14, and 16 The arbitral proceedings; Article 17 Award by consent; Article 18 Time limit for award; Article 19 Award by threearbitrators; Article 20 Decisions as to costs of arbitration; Article 21 Scrutiny of awardby the Court; Article 22 Making of award; Article 23 Notificationof award to parties; Article 24 Finality and enforceabilityof award; Article 25 Deposit of award; Article 26 General rule (regarding the applicability of the Rules and enforceabilityat law ofthe award). Article 7 Article 8 Article 9 Article 10 Article 11 Article 12 Article 13

The text of these rules is self-explanatoryandeasy to follow. Togetherwiththe ConciliationRules,they are published in Publication 447 of the ICC Publishing SA. The ConciliationRules are optional and contain U articleswhich set out the procedure tobefollowed from the time anapplicationis madeto the secretariatof the International Court of Arbitration of the ICC to the end of the process. The conciliationprocess ends either whena settlement agreement is reached or, ifthe process is not successful:

upontheproduction bytheconciliatorofa report recording thattheattempt to concffiate has not been successful;or (b) upon notification to terminate these proceedings being given to the conciliator by one or more of the parties at - any time during the conciliation (a)

process.

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The FIDIC Form ofContract

19.10.2 The advantages ofthe ICC Rules

Thecontinued use ofthe ICC Rulesof Arbitrationinthesuccessiveeditions ofthe Red Book, including the recent Supplement, is an obvious indication of the numerous advantagesof these Rulesinconstruction disputes. This observation is supported by the steady annual increase in the number of ICC arbitration cases.1946

These advantages which havebeen commented on by many experiencedusers include the following:1947 (a) Institutional Rules administeredandsupervisedby an internationally recognisedand respectedorganisation: Institutionalarbitration has anumberofbenefitswhen comparedwith adhoc arbitration,particularlyonthe international scenewhere there may be different systems of laws, jurisdictions, languages, geographic locations, cultures andother characteristics. In this regard,the followingfive canbe recognised: (i) it is extremely useful to incorporate a set of established rules into the procedure at the commencementof an arbitration. This often becomes indispensable to the whole process, such as, for example, the effect of article 15.2 of the ICC Rules if one of the parties, although duly summoned, failsto appear; orthe effectof article8.3 of the Rulesshouldthere be a question of the arbitrator's jurisdiction; (ii) in institutional arbitration there is the necessary administrative support provided from the commencementof the arbitral proceedings until the tribunal is established; (iii) institutions provide a procedure for the challenge to arbitrators, especiallywherethe independence of the arbitrators is concerned; (iv) institutions provide a buffer between the parties and the tribunal in respect of the financial arrangements obviating any possible embarrassment; (v) the unique function of the ICC Court in its scrutiny of awards could contribute to their enforceability.1948 (b) Neutrality, impartiality and expertise ofthe International Court ofthe ICC and its secretariat: The ICC Courtand its secretariat are neutralandimpartial. Both the members of the Court andof its secretariat come from different nationalities, from the East andthe West; and from the Northand the South. The secretariat has a high ratio of multilingual staff to cases in hand who are responsiblefor administering these cases with computerised systems for case management and retrieval of'ICC jurisprudence'. They offer objectiveadvice to the parties, their lawyers and to the arbitrators. They may even assist in securing compliancewith an awardby a losing party.1949 (c) Flexibility and frequent updating of the Rules: Article 14(1) of the ICC Rules provides greatfreedom to the arbitrators in the conduct of the proceedings.

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(d)

(e)

(f)

(g)

413

Such flexibilityis essentialfor the variable natureof the potential arbitration cases whichmight come from any part of the world under some of the many possible other characteristics of arbitration. Furthermore, the Rules are periodically examined and broughtup to date should the need arise. Access to internationally recognisedand highly experiencedarbitrators: The ICC Court will only appoint as a chairman or sole arbitrator someone who has experience in ICC arbitrations. Through its system of seeking a nomination from national committeesofthe ICC,it has accessto a largepool of qualified arbitrators from developing and developed countries all over the world. In deciding on the nationality of the committee to be invited to make such a nomination, the Court takes into account many factors, including the nationality of the parties, seat of arbitration, law of the contract, language of the arbitration, history of nominations madeby the national committees,and thenatureofthe dispute.195° Forthis reason, the Court is best suited tomake the most fittingselection. Party autonomy: The ICC Rules and practice permit the parties a large amount of freedom in choosingvarious aspects oftheir arbitration case,such as the seatofarbitration, language, procedural law andarbitrators.Under the French legal system,the importance ofthe freedom ofthe willofthe parties is emphasised, thus providing support in this regard to the ICC with its headquarters being locatedin France. Quality ofthe awards: As mentioned above in Sectionin 19.10.1, the scrutiny by the Court of the arbitrators' draft awards is a special feature of the ICC Rules in the form of a supervisory process in whichany potential weakness whichmightaffectthe enforcementof theawardis brought to the attention of the arbitrators.This featureencouragescompliancebythe unsuccessfulparty with the award and if not complied with voluntarily, it contributes to the enforceabilityof the award. Supplemental publications and reports: The ICC Rules are periodically supported by high quality publications and reports drafted by working parties drawn from experts in the field of arbitration, appointed by the ICC Commission on International Arbitration. Recent titles include: 'Multi-party Arbitration', 'Interim and Partial Awards' and 'Terms of Reference'. These reports seek to clarifyand elaborate on some ofthe special features unique to the ICC Rules, especially where they are misunderstood and/or misinterpreted. Forexample,article 13(1) ofthe ICC Rulesprovides thatthe terms of referenceare to be drawnup onthebasisofthe documentsandinthe light of theparties'mostrecentsubmissions.Article 13(1) of the ICC Rules further provides that the terms of referencemust contain a summary of the parties' respective claims. In connection with these two provisions, the parties are entitled to set down theirrespective claimsas they define them, up to time of signature, and suchsignature of the document defining the terms of reference does not signify the parties' acceptance of the claims being made against

414

The FIDIC Form ofContract them.1951 These provisions of article 13(1) are frequently misunderstood and in orderto address this misunderstanding a reportonthe Terms ofReference

was published by the ICC.1952 Another misconception is the status of dissenting opinions. In ICC arbitration, there is only one award, whether unanimous, majority or a chairman's award, as can be seen from the provisions of article 19 of the ICC Rules. A dissenting arbitrator may submit a dissenting opinion, but it is just that: an opinion, not an award. This fact escapes many including some very experiencedlawyers.1953 Hence, a report was published by the ICC on dissenting andseparate opinions.1954 These are but two examples of suchmisconceptions. 19.10.3

Someconstructivecriticism

Against the advantages of the ICC Rules set out above,thereis some constructive criticism levelled against the ICC system. Most worthy of note is: first, the adn-iinistrative fees charged by the ICC Courtadd to the total costs of an arbitrationandas theyarecollectedinadvance, theinterest accrued isnot credited to the parties. In a long-drawn-out arbitration with largesumsin dispute and consequently a high advance on fees, these arrangements are considered to be disadvantageous to the parties. However, in reality, when compared with the total legal costs of the parties, these fees form only an insignificantproportion of the total. Furthermore, the parties are given the opportunity to provide a bank guarantee against some of the advance on fees required to be paid. The second and more important criticism relates to the policy of usually appointing lawyers rather than professionals of technical disciplines relating to thetopicofthe disputes.This is done inthetradition ofthecivil law of appointing lawyers in the beliefthat a lawyer is better qualified ininternational arbitration to deal with difficult problems of procedure and conflict of lawswhichmay arise. Regrettably,this policy wouldappearto lose sight ofthe fact that,in construction disputes, the 'engineer' arbitrator,apartfrom histechnicalexpertise,is more likely to be better qualified than a lawyer to deal with managerial aspects of an international arbitration.The managerial difficulties whichariseare in themselvesjust as important, perhaps even more so,as those problems of procedure and conflict of laws. In any event, even if the arbitration requiredeither technical or legal expertise, then the arbitrator is empowered to appoint an expertin the relevant field, whereas it wouldbeinconceivablefor an arbitrator to seek expert adviceon managerial matters. Furthermore,this policy departsfrom the original concept of arbitrationbased on the desire of parties in disputeto be judged by their peers, In doing so, it appears that the emphasis on industry or professionally orientated expertise among arbitrators is being eroded, if not lost.

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Thethirdcriticism is related to the length of time usually takenby some of the administrativesteps atthe commencementof anarbitrationleading to some delay in receipt of the arbitration file by the arbitrators. This problem ought to be addressed in any future revision of the Rules. 19.11

Why does arbitrationin construction disputescontinueto lose favour? Users of international commercialarbitration place speedandeconomy high on thelistofthebenefitsofarbitrationas a method of dispute resolution.Regrettably, neither speed nor economy seems to be a feature of international construction arbitration today. As such, arbitration in fact is departing from its original goal and its procedures are increasingly evolving in the direction of court procedures.'9 This is mainly due tothe diminution of some or all of theadvantages of arbitration, referred to earlier in this chapter, to suchan extentthat arbitration has nowbeendescribed asnomorethan a 'mimic' oflitigation,butwiththe added disadvantage of having to pay the arbitrator and also pay for the hire of the arbitrationrooms. The reasons for this decline are many and are interrelated to a numberof characteristicpeculiaritieswhich canbe traced to all the parties who playa part in the arbitral process. Starting with the arbitrator, failure by him to take control of the arbitral proceedings at the outset and to maintain this control throughout and to devise a management framework for aneffectiveprocedure to be adoptedthroughout the arbitrationis one ofthe major sourcesof the problems encounteredin arbitration. However, it mustbementioned thatsuchfailureisnot always due to the inability ofthe arbitrator to perform his duties, but it is attributable,to some extent, to the parties themselvesor to theirlegal representatives. In this regard, as discussed above inSection19.10.3, it shouldbereiterated that the arbitrator's managerial skifis are of paramount importance in complex and lengthy construction arbitrations. Moving onto the input ofthe legal representatives,the followingquotation by an experienced constructionlawyer, although referring specificallyto arbitration in the United Kingdom, is worthy of note: 'Although enormous progress has been maderecently, UK arbitrations,particularly those in the construction field, still leave much to be desired. All too often they are allowed to assume a life of their own and what is already financiallyand emotionally taxing for a client, becomes a positive nightmare. Arbitrationgrewoutofthe need ofpersons ofcommercetohavea commercially viable disputeresolution procedure whichcould cope with disputes which the Courts were singularlyunsuitedfor. Regrettably,overthe years,the arbitration

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The FIDIC Form ofContract

process has been hijacked by lawyers. Now all too often it has become a pale imitation of High Courtprocedure, to which it is supposed to offer an alternative. What is more, this paleimitation doesnotpossess the sanction available to theHighCourt.As a consequencemost laypersons withpracticalexperience ofanarbitrationareusuallybadlyaffectedbythat experienceandclaimantsand defendants alike who have embarked upon arbitration emerge sadder, wiser

and poorerpeople.'1956

This view is echoed by another experiencedlawyer and arbitrator ininternational construction disputes, identifying problems which play a major part in causing delay and consequent increase in cost and whichmust be addressed by the parties' legal representatives,suchas: failing to meet deadlines; leaving no stone unturned in the interest of their clientsirrespective of cost; agreeingto time extensionby theiropposite numberknowing thatthey might want similar facilityin the future; and availabilityof counsel, whenbriefed.1957

— — — —

'Nowthelaw has cometoberecognisedas a vehicleforwinning cases.Lawyers uselegal argument before an arbitratorto overcomethetechnicalshortcomings of their client's case. Expert witnesses writelong reports, frequently based on disputedfacts. The full disclosure of documents, relevant and irrelevant, is commonplace. Lawyers indulge in protracted openings, and arbitration has becomeamirror of courtprocedure, with the consequent increasein costs. It is not surprising that there is now an increasing advocacy for mediation and concifiationas means of settling disputes.'1958

Finally, considering the part played by the parties in delay and expense, the claimant contributes to these problems if and when he vigorously pursues all issues, large and small, some of a very trivial nature, irrespectiveof the cost and time involved compared with the sumclaimedandthat which might or mightnot beultimatelyawarded. Moreover,shouldhegrosslyexaggeratethesums claimed, he diminishesany possibilityof settlementandtakes the debate from a matter of principleintoavenues of quantum. Astothe respondent, the question maywellbe asked: why should he speed up the arbitration process? Delaying tactics and obstructivebehaviour aremajor factorsinprolonging an arbitrationand making it more costly. It is more difficult to conceivearemedy thanto define the shortcomingsand to criticise, even more so wheresuch remedy is to apply in general terms to arbitrationwith some of its objectives being in conflictwith eachother. However, in international arbitrationtherehasbeen a recent evolvementof 'an internationally accepted harmonised procedural jurisprudence ... and a procedure for the

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resolution of disputes which cuts right across pastandpresentbarriers between different philosophies and legal systems'.1959 If arbitration is to regain its full advantages, then some or all of such steps ought to be at least considered, for example:196°

should be selected on the basis of his qualificationswhich should include: appropriate training; ability to be proactive, manage an arbitration and devise an effectivemanagement framework; expertise in the areaof thedispute; knowledge of thelaw of arbitration;time availability;and ability to take an active role in the arbitral process. (b) In devising his management framework,the arbitrator shouldmake use of as many as appropriate of the followingprocedures inorder to give effectto the desiredoutcome of speedandeconomy:1961 (i) holding case management conferences at the commencement of an arbitration and at other specifiedstages ofthe case in order to plan and (a) The arbitrator

to monitor time andcost;

(ii)

(iii)

separating the issues into categories and dealing with predominant issues before others in the hope of promoting settlement prior to the

mainhearing; arranging for full writtensubmissionscovering both fact andlaw from both parties, supportedby all documents relied upon,properlyreferenced;

(iv)

the submission in writingand exchange of all withess statements and experts' reports in advance of any hearing, supported by documents

relied upon; (v) controlling the number of experts on the issues concerned, the time availablefor cross-examinationandgiving consideration as to whether experts should meet prior to writingtheirreports but after preparing a detailed agenda for the technicalissues in question. Furthermore,consideration shouldbe given as to whether experts oughtto be examined by the experts of the other partyor by the tribunal; (vi) ensuring that experts know that in giving evidence to the tribunal, they owetheirprimary duty to thetribunal and not the parties; (vii) applying limited timetable to oral hearings with equal sharing of time betweenthe partiesprovidedthat such limitation doesnot offend the rules of naturaljusticewhichrequire each partytobe given areasonable opportunity to present evidence and argument and to test the case against j1962 This 'reasonable opportunity' is considered by an eminent lawyer arbitrator in the followingterms:

'But thereis no rightto conduct endless and exhaustiveexamination ofwitnesses,andthereis considerablescopefor an arbitratorto adopt a firmapproach indetermininghowfarthe investigationofparticular

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issues should be taken. In this regard, the arbitrator may need to expressly address the question of what is "reasonable opportunity", and if necessary hearthe parties on the question. It is most unlikely that the courtwould seek to impose any different view'.1963 (viii)

in preparation for the hearings, the production of a joint and agreed bundle of documents, chronologicallypaginated, and in complex and

large disputes, a much smaller core bundle; (ix) at the hearing, taking written statements as evidence in chief and directly proceedingto cross-examination,in between shortopening and closing statements from both parties which would then be supplemented by written post-hearing submissions; (x) contemplatingwhat, if any, other specificrequirements peculiar to the particular project or dispute exist as these may vary widely. In (c) devisinghis management framework,the arbitrator should be aware of the underlying forces whichexist andconsider such questions or matters as the following: (i) in only very few cases is the virtue of speed of dispute resolution an

aspiration of both parties? (ii) as to cost, do the parties place a cost restraint on theirlawyers? (iii) wouldparty autonomy affectthe influencethat the parties' legal representatives could have on the arbitrationprocedure to be adopted?

Furthermore,the applicabilityof the followingcriteria to the disputeshould be considered:'9 (a) Cost: The procedure must have regard to cost andensurethat it is not disproportionate to the importance or monetary value ofthe caseas a whole or of individual issues. (b) Speed: The overall period from commencement to rendering an award should bereasonableinrelation to the issues to be investigatedandthe need to bring the disputeto a result. (c) Hearing: The time to be allowed for any hearing should be as short as is consistent with dealing properly with the issues. The rapiditywhich can be achieved on a hearing will be dependent on the degree of pre-preparation. (d) Use ofexpertise: Itis ofthe essenceof the arbitrationprocess thatthe expertise of the arbitrator should be usedto the maximum possible extent. (e) Form and formalities: No procedures ought to be adopted unless they are positively useful. Forms of procedure should not be adopted merely because theyarefamiliar and/or available. (f) Interruptions: These should be avoided wherever possible;it followsthat the proceedings should be steered in a directionwhichminimises the possibility of unprogrammed delays.

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19.12 Concludingremarks This chapter provides an overview of the arbitral process and the significanceof arbitration in international construction contracts, in general and also with particular referencetothe FIDIC contract underthe RedBook. It highlightsthe many advantages that arbitration has over other dispute resolution methods and in particular over litigation,the onlyotherjudicialprocess availableto the parties. In Section19.7, the specific features andsome of the problems encountered in arbitrationunder the provisions of clause 67 of the Red Bookwere discussed. These features andproblems combined with general dissatisfactionwith the process of arbitration, in particular the excessivecosts and delay gave birth to a new alternative arbitration clause to that used under the Fourth Edition of the Red Book. This alternative was also needed to resolve at leastsome of the disputes which hitherto invariably ended in arbitration. Thenew alternative arbitrationclause is analysed anddiscussedindetail anda commentaryis given on some of its aspects whichraise questions to whichthere appears tobeno answer at present. Inbothversions of clause 67, the ICC Rulesare stipulated if the disputeends in arbitration. Thus, this chapter examines the ICC system forarbitration, the roleof the InternationalCourtof Arbitrationofthe ICC, the ICC Rules themselves, theiradvantages and shortcomings. Thechapter then reverts to theexisting essentialproblems facing arbitration in recent times and drawing from successful experiences in procedures in international arbitrationandthe evolvingjurisprudence, provides some guidanceas to what ought to be done to reinstate the two most important advantages of the arbitral process, speedandeconomy. InChapter 20, ADRmethods of disputesettlement,whetherthe letter A stands for alternative, appropriate, amicable, available, or affordable, are discussed in detail with particular emphasis on conciliationand mediation. It is worthnoting that the new alternative version of clause 67 retains the provision of the original sub-clause 67.2 providing for amicablesettlement as an obligatory step between theBoard's decision and arbitration.

Chapter 20

Amicable Settlement Using Alternative Dispute Resolution

'Discouragelitigation.Persuade yourneighbours tocompromisewheneveryou can. Point out to them how the nominal winner is often a real loser in fees, expenses and waste of time.' Abraham Lincoln 20.1 Introduction

As discussed in Chapter 19, the mainadvantages of arbitrationhavetraditionally been privacy, speed of resolution, cost effectiveness,convenience,finally, certainty and choice of tribunal. However, in recent years, some unhappy experiences inarbitration, especiallyinthe constructionfield,have diminishedthe effect ofthese advantages, or at leastsome ofthem, inparticular speedofresolution and cost effectiveness.The technical and legal journals contain examples of such experienceswhichhave left some employers andcontractors disenchanted with thearbitral processandledthemto search for a more attractivemethod ofdispute resolution.201 This is particularly so in the United States wheremany large corporations and insurance companies have signed pledges to consider amicable methods of resolution when disputes arise. In England, the relatively new standardform of contract developed by the Institution of Civil Engineers, the EngineeringandConstructionContract'NEC', went intoa second editionwithno referenceto arbitration as the ultimate method of disputeresolution.Instead, the authors ofthe second edition yielded to the pressure of protests on the erosion of thebenefits ofarbitration by referring any disputethatmayarise to a 'tribunal', a term which could meanany disputeresolution forum.202 This drastic measure was takenat the same time as judicial systems in some jurisdictions are moving towards a more efficientadministration in the courts byborrowing from some of the successful newly emerging jurisprudence of international arbitration.203 Those involved in the arbitration fieldwill have to takenote of these developments if arbitration is to remain the leading method of dispute resolution in construction contracts.

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Onepossible solution to the problem of the diminishing benefitsof arbitration whichwas adopted by FIDIC in theFourth Edition ofthe Red Book, in 1987, was the introduction ofthe idea of amicablesettlement as a prerequisite step to arbitration. The authors of the Red Book, to their credit, adopted a more sensible approach than thatof a total rejectionof the arbitrationprocess.Sub-clause67.2 of the Fourth Edition of the Red Book provides that arbitration should not be commenced unless an attempt has firstbeen madeby the parties to settle the dispute amicably.A period of56 daysis allowed for suchan attempt to bemade and this period is extendibleby agreementof the parties. The 56 day period starts the day followingthat on which notice of intention to commence arbitration under subclause 67.1 is given. Arbitration may then be commenced,whether or not any attempt at amicablesettlement had been made. Since the publication of the Fourth Edition of the Red Book in 1987, many institutionshavefollowedthe exampleofFIDIC. TheInstitutionof CivilEngineers

in London introduced conciliationprocedures inits Minor Works ContractForm, first published in 1988. Its successpromptedthe introduction of suchprocedures in subsequent forms of contract: the Sixth Edition of the ICE Form and the ICE Design and ConstructContract. In heland, concffiation has now been introduced in the Fourth Edition of the Irish Conditions of Contract for works of civil engineering construction as a first mandatory step in resolving contractual

disputes. The more recent forms of contract published by FIDIC,the contract for design-build and turnkeyand that for the sub-contractalso incorporate amicable disputesettlement methods intheir conditions. In addition, FIDIC introduced in November 1996 a Supplement to the Fourth Edition of the Red Book, as reprinted in 1992, whichcontains in its SectionA an alternativeversion toclause 67 ofthe RedBook, providing for the establishmentof a Dispute Adjudication Board which is in itself another form of an alternative method of dispute settlement. This new alternative version of clause 67 is discussed in detail in Chapter 19. The conceptis also discussedbelowin Section20.7. 20.2 Methods of dispute settlement Many methods ofresolvingcommercialdisputes have evolvedover the centuries. Themost familiar in civffisedsocietiesare: (a) negotiation; (b) mediation; (c) conciliation; (d) dispute review boardsor experts, claims review boards and dispute adjudi-

cation boards or experts; (e) adjudication; (f) mini-trial;

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The FIDIC Form of Contract (g) pre arbitral referee procedure (ICC); (h) arbitration;and (i) litigation.

The last two of the above methods lead to a solution whichis imposed on the parties in dispute, through a court judgment or an arbitral award. The other methods are amicableandso the parties have a say in and cancontrol the outcome of the dispute. They are more popularly known as 'Alternative Dispute Resolution'methods, and are usually referred to by the acronym 'ADR', the letter'A' standing for alternative to litigationandarbitration. However, the letter 'A' could equally referto appropriate, amicable,available,or affordable,depending on the context of its use. In this chapter, the first seven methods listed above are discussed in detail. It should bepointed outthat thebest time to decideon themandatory use of an amicablemethod ofdisputeresolution and the rules to be usedfor suchmethod is at the time of writing the contract agreement. The reason for this is that once a disputehasarisen, anyproposalbyonepartytowards amicablesettlementmaybe perceivedas a sign ofweakness by the other party orparties and may leadto the opposite result, namely entrenchment. A further advantage of using amicable settlement as a mandatory step before referenceto arbitrationis the avoidance of any possible blame being attached to the decision maker who pursuesamicable settlement of a disputeinstead of a more adversarial method. Alternative disputeresolution methods are successfulwhenthe parties believe that the disputes in question arenot 'black andwhite', and while goodfaithand truststill existsbetweenthem.Ontheotherhand, these methods aregenerallyless successfulwhenemotionsare running high andwheretheparties haveno interest in a promptsettlement.In general,however, theordinary personis not skilled in theartofnegotiation and athirdperson isusuallyengagedtofacilitatethe dispute resolution process. Withthe exceptionof direct negotiation, the above methods of disputeresolutiondiffer from arbitrationinthattheyinvolve aprocesswhereby a thirdpartyis simply called upon to facffitate the process and to assist in reaching a settlement byissuing anon-binding evaluationofthe disputeandarecommendationofhow it could be resolved. The advantages ofthese alternativemethods can be summarised as follows:204 (a) Whilst the procedure may or may not affectthe amount of settlement,it will more than likely affectthe cost of achievingit. (b) Theparties are ingreater control oftheirown destiny, thus avoiding any ofthe uncertain consequencesof litigationor arbitration. (c) The procedure tends to preserve business relationships and avoids the possibilityof one party being viewed as the loser. (d) Arbitrationor litigationmay be pursued shouldthe alternative method fail to

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produce the desired result. It is important, however, to remember that a written agreement should be signed by the parties to prevent information disclosed during the process from being used in subsequent litigation or arbitration. The parties must, however, be careful not to stipulate confidentiality terms so broadly that it becomes too restrictive to proceed to arbitrationor litigationshould settlementnot be reached or should it befound necessary to enforcethe terms of any settlement achieved. 20.3

Direct negotiation Wherever thereis humanendeavour, thereisconflict.Conflictmaybea conflictof interests, conflict of needs, conflict of opinion or simply a conflict of a desired outcome to a previous agreement. In such circumstances, the simplest and cheapest method to resolve the conflict is by negotiation. Direct negotiation between parties indisputewithout the intervention ofa third party isperhapsthe most readily availablemethod of disputeresolution andthe most effective.It is effective because of the speed and economy of procedure with whicha dispute maybe resolved. In its simplestform it consistsof successivelytaking, andthen giving up, a sequence of positions. Most, if not all, people negotiate on a daily basis getting involved in decisions which influence themrather than accepting those which are dictated by others. Thus, the ordinary person constantly negotiates at home, at work and in other various daily transactions. Negotiationmay be defined as a process wheretwo or more partiesin conflict attempt to reach anagreementto settle theirdifferencesandwherethat agreement is suchthat all the parties involved are preparedto live with it and accept it. Although the simplest and quickest way of solving disputes is throughnegotiation, this is not in fact an easy method, especiallyif thereis a clash of personalitiesbehindthe dispute, or ifin theparties'opinion thereare matters ofprinciple at stake. Furthermore, until any of the other methods of resolution have been invoked, the costs involved are rarely appreciated. In some cases, parties embark on litigation simply becausetheywanttheir day in court;inothercases some are badly advised. Negotiation may mean an element of trading or bargaining leading to a reduction in the parties' expectationsto a level which is acceptableto all ofthem. The reduction in one party'sexpectationmay, however, be greater thanthatofthe other.

20.3.1

Negotiators Negotiators who are involved in what is scientificallyknown as 'positional bargaining' are sometimes referred to as either soft or hard negotiators. To a soft negotiator, the goal is agreement; the other party is to be trusted; offers may be

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madeand abargaining position may be easilychanged. To a hard negotiator, the goalis victory; others should be distrusted; no compromise should be offered; positions should be entrenched and if offers are rejected, threats may be used. In its moresophisticatedforms, direct negotiation mayinvolve methods, other than positional bargaining, and would certainly require the negotiator to be skilled andexperienced.205 As well as possessingexpert knowledge ofthe matter in dispute, a skilled negotiator shouldhavethe ability to: (a)

listento theother partyand to understand thepointofview andthe casebeing made;

(b) recognisethe needsof the other party andto identify his interests; (c) express his thoughts clearly, both orally and in writing; (d) think clearly and rapidlyunder pressure; (e) persuade others; (f) be patient; (g) be flexible; and (h) have the ability to control andto hide emotions.

Direct negotiationwhichis successfulin resolving disputes is distinguishedby

threemainfeatures:

Thedifficultyof initiating direct negotiationhas beenovercomeby one of the parties at an early stage afterthe dispute has arisen, despite the commonly heldperceptionthat to do somightbe interpreted as asignofweaknessby the otherparty. (b) The negotiators of both parties are skilled in the art of negotiation, knowledgeable in the subjectmatter of the dispute, and experiencedin the field. (c) The agreement reached, if such agreement is at all possible, is efficiently produced withresults which meet the legitimateinterests ofeachdisputant in resolving the conflicting interests fairly with an improved relationship. (a)

Thus, it can be said that negotiation is a skill. Few of us are born with it and most of us become trained in its ways and means through day-to-day interactionwith those around us. However, even if we were bornwith it, training is essential if we are to succeed in achieving a positive outcome in all the transactionswe face. 20.3.2 Whenshould negotiation be usedand what are the steps?

Negotiationmaybe conducted by one person or ateamof people from eachofthe parties in disputewhenever thereis a desire to continue an existingrelationship andwhenever the cost is of concern. To resolveconflict through negotiation, the followingstepsor at leastsome of themshould be used:

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(a) Find out thefacts: (i) What is the real issue?

(ii) What is the history? (ill) What is really going on? (iv) Who are the people reallyinvolved? (b) Identify the needsofboth parties: (1) Know your own feelings (whether you are involved or not). (ii) What do the people involved really want? (iii) Why do they want it? Make an assessment ofthe conflict: (c) Is ita manageablesize inthenumberofissues tobe resolved?Ifnot, break (i) up the largerissues into a series of manageable elements. (ii) What level has this conflictreached? ifit hasescalatedbeyond the level of maintaining trust, then more careful attention is needed. (iii) Canyou do anything?Ifyoubecome involved,doyoustand areasonable chance of contributingto the resolution process? (d) Lookfor solutions:

Help groups to clarify and test understanding. (ii) Facifitate stating ofneeds and desired outcomes, (lii) Negotiate towards agreement. (i)

(e) Agree action:

(i) Check that both parties have the same perception of the outcome. (ii) Follow up actionagreed.

If one is asked whyconflictsare not always resolved throughnegotiation, the answer may be traced to a lack of confidence in the success rate of winning throughnegotiation;lackof confidencein one'sabifityto negotiate; andthe fear that theotherpartyis abetternegotiator.Thereisaneedto increase confidencein the abilityto negotiate in order to allay, or at leastdampen, fears and to create an atmosphere of trust between the parties in conflict. 20.4 Mediation Should negotiationsfail between the parties, thena thirdparty maybecalled upon to assist in findingcommon ground for compromise. This process can be either mediation or conciliationin that both mediation and conciliationare voluntary forms of dispute resolution where a 'neutral' party is appointed to facilitate negotiationsbetweenthe parties in dispute and to act as a catalyst for them to reach a resolution. However, the differencebetween mediation and conciliation lies in the role played bythe neutralparty. Inone, he simply performsthe task of persuading the parties in dispute to change theirrespective positionsinthe hope of reaching a point where those positions coincide,a form of shuttle diplomacy

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withoutactivelyinitiating any ideas as to howthedisputemight be settled. Inthe othermethod, theneutralpartytakes amore active role probing the strengthsand weaknesses of the parties' case, making suggestions,giving advice, findingpersuasive argumentsfor and against eachofthe parties' positions, and creatingnew ideas which might induce them to settle their dispute. In this latter method, however, if the parties fail to reach agreement, the neutralparty himself is then requiredto drawup and propose a solution which represents what, inhis view, is afairandreasonablecompromiseof thedispute. This is a fundamental difference betweenmediation andconciiation.206 Unfortunately,the two terms are usedinterchangeablyand thereisno universal agreementas towhichofthe two methods is mediationandwhichis conciliation. Forthe purpose of this book, thefirst method is referred to as mediation and the latter method isreferred to as conciliation. This choicecoincideswiththatmadeby various professional institutions in Europe where detailed and comprehensive rules of procedure have been published under the title of conciliation procedures.207

Theremainder ofthis presentsection considers mediation,while thefollowing section deals with conciliation. Agreementonmediationmaybemadeat the contractstage prior to any dispute taking place.208 However,thereshould alsobe agreementon the forumof dispute resolution should the mediation process fail, otherwisethe dispute wouldend in litigationwith all its disadvantages. Mediationis only marginally more expensivethan directnegotiation,butit has the advantage that it exposessenior management to an independent view, which is extremely valuable whether it be adverse or favourable, In this regard, an adverse viewpoint may enable senior management to separate the people involved in the events which gave rise to the disputefrom the dispute itself,and from theirmethod of handlingthe problems whichled to the dispute. The advantages of mediation include informality, speed and economy, but more importantly perhaps, it often leads to an agreed settlement betweenthe parties ratherthan an imposed awardorjudgment. However, mediation has little chance of success unless the parties wish to mediate and have a considerable degree of mutual trust in eachother'sintegrity andwillingnessto resolvethe dispute. Apartfrom this, themaindisadvantage of mediation is that the views of the mediator andany conclusionhe may reach are not enforceable. Because ofthis, thesuccessoftheprocess ofmediationdepends to a large extent on the skills of the mediator. A definition of a mediator's role has beenconciselygiven by theAmerican ArbitrationAssociationundersix headings as follows:209

(a) The recondiliator whobrings parties together inorderto engageinface-to-face discussions;opens channels of communication;and defuses hostility. (b) The facilitatorwho keeps discussions goingby providing a neutral ground,

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(d) (e) (f)

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arranging meetings, offering to chair them, helping to shape the agenda, simplifyingprocedures. The resource expander who helps to gain accessto necessaryfactualandlegal information, having an important bearing on the dispute; cuts through bureaucratic red tape. The interpreter/translator who makes surethat eachpartyunderstands what theotheris saying;andincreasesperception and empathybetween theparties. The trainerwho instructs the parties how to negotiate more effectivelywith eachother throughprobing andquestioning. The reality tester who gets each party to look at how the other side seesthe problem; makes eachside thinkthroughandjustify its facts, demands, positions and views; encourages the parties to assess the costs and benefits of eithercontinuing orresolvingthe conflict; makes eachpartyconsider and deal with the other's arguments; raises doubts on rigid positions; and explores alternatives.

It is evident from the above that the mediator is to a large extent filling the

position of the negotiator on both sides of the dispute and that a skified mediator would have to possess the dexterity requiredin an expert negotiator (seeSection20.3). Although mediation is not a regulated process, some mediation rules do exist andarepublished by a few organisations;for example,the ConstructionIndustry MediationRules are published bythe National ConstructionIndustryArbitration Comnittee in the UnitedStates,andthe Hong KongGovernmentMediationRules are administered by the Hong Kong International Arbitration Centre.201° The rules cover the whole process, from inception through the appointment of a mediator to the timetableandthe agreement.Themediator is generallychosen by the parties as an impartial individual in whom they both place their trust and whom they believe wifi act in a completely independent manner. His fees are payable by both parties in equal shares prior to the handing out of his opinion. Although some rules are explicit in barring legal representatives from the mediation process,2011 one experienced point of view suggests that 'a party should proceed without relianceonan attorney (lawyer) onlyifan attorneythinks it a reasonable approach'.2012 20.5 Conciliation Unlike an arbitrator, a conciliatoris not empowered to make a binding decision and this fact forms the main distinction between arbitration andconciliation.As with mediation, discussed in the previous section,it is also considered to be the main disadvantage of the conciliationprocedure. However, it is notable that if a settlement agreementis reached as a result ofmediation or conciliation,then that

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agreement is easier to enforcethan an arbitrator's award because it wouldhave beenconcluded throughtheparties'own choice. Conciliationis a more formal process than mediation andit generallyinvolves the engagementof legal representatives,thusmaking it a more expensiveprocess than mediation.Thereis, however, the addedadvantage that should no amicable solution be reached, the concffiator has the duty to attempt to persuade the differing partiesto accept his own solution to the dispute. In fact, the description given in item (f) of the definition of the role of a mediator by the American Arbitration Association,inSection20.4 above,is more in line with the process of conciliation,as known in Europe. There are a number of institutional rules for administering conciliation. Amongst the more popularare: (a) ICC ConciliationRules, 1 January 1988; (b) The Chartered Institute of Arbitrators Concifiation Rules, 1 July 1981; (c) The UNC1TRAL ConciliationRules, 4 December 1989; (d) The ICE ConciliationProcedure, 1994; (e) The Euro-ArabChambers of CommerceRules; (f) The International Centre for the Settlement of Investment Disputes, ICSID

ConciliationRules; and (g) The JET ConciliationProcedure 1995.

Itis worthnoting that undermostrules, neither a conciliatornor a mediator may later change his role to that of an arbitrator withoutthe agreementof the parties. Such a possibifitywould inhibit the parties from confiding in the conciliatoror mediator.

20.5.1

Whatis conciliation? Similarto mediation,conciliationis a voluntary form of disputeresolutionwhere a neutralparty, the conciliator, is appointed to facilitatenegotiation between the parties in dispute and to act as a catalyst for themto reach a resolution of their dispute. Whilst it is generallyacceptedthatconciliationisanon-bindingform of dispute resolution, an agreement reached between the parties in dispute following a conciliationprocess becomesbindingandhas a better chance of being honoured than an arbitration award. Furthermore, conciliationallows the parties the freedom to explore ways of settling the dispute withoutcommitment until they are ready and are preparedto commit themselves. A party whichis unhappy with theconciliationproceedingsor withits outcome canopt out and proceed to arbitrationor litigation, depending on theterms of the contract.

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20.5.2 Why conciliation? Like mediation, concifiationis considered to be one

of the most informal disresolution methods after direct pute negotiation, providing two important over the more formal methods of disputeresolution, namely flexiadvantages bility and choice. Flexibilitydoesnot, of course, mean lack of control since the process is always governed by rules of procedure and conduct, which are usuallyagreed upon by the partiesin advance by inserting a reference to them in their contract. The rules may be institutional rules, or ad hoc rules chosen by the parties for a particular case. Asto theadvantage ofchoice,conciliation,like mediation,is aprocess whereby the parties involved continue to be in control of the finaloutcome of the dispute resolution process. Thus, it is more likely that working relationships, whether business or otherwise, wifi survive this process, whereas they are unlikely to survive litigationor arbitrationwherethe decisionis imposed uponthe parties by a judge or an arbitrator. Whether the outcome of a concifiationprocess is conceived by the parties or by the concifiator or by both, it ultimately has to be sanctioned by the parties themselves. The ease withwhichmultiparty disputes canbe accommodatedby conciliation is another important example of the flexibility and adaptability of the process. Such disputes cause immense problems in arbitration. For example, a neutral facffitatorhelped settle the 1986 Dupont Plaza Hotel fire case in San Juan, Puerto Ricowhich involved more than 100 defendants andtheir insurers, thus saving an estimated $60 million in legal costs. 20.5.3 When should conciliation be used?

Concffiationshould be used in, or is suited to, any dispute in which any or a combinationof the followingexist: — — —

— — — —

a desirefor a negotiated settlementwhichcanbe approved and sanctionedby those in charge ofnegotiations; a desireor aneed to maintain an existingrelationship; the need for privacy andconfidentiality (this is one of the most attractive qualities of the concffiation process in that private conversations with the concffiator durirprivatemeetingsare not divulged to the other side andare considered to be privileged and confidentialso thatthe parties can feel free to confidefully in the conciliator); timeis a matter for concern; the issues are complicated involving highly technical and interlinked problems; the costs are ofconcern; and there are more than two parties.

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However, mediation or conciliationare generally not suitable where the fol— lowing circumstancesexist: — —

there is a need for an authoritative interpretation of the law; thereis a risk ofharm toreputation, whether of an individual, a company or a

product; — —

there is a need to discourage similar future disputes; and the issues involved are of a criminal,constitutional or civil rights nature.

20.5.4 Who should be a conciliator?

The calibreof the conciliatoris one of the mostimportant factors contributing to thesuccessof a conciliationprocess for a particular dispute. It is accepted thatthe ability, knowledge, experience and training of the conciliator contribute significantly to the success of the process and so it is suggested that a skified conciliator oughtto possess as many as possible of the followingattributes: — honesty; — and neutrality; impartiality,independence — someknowledge ofthe law and detailed

knowledge ofthe relevant conditions of contract and of the topic and the natureof the matters in dispute; — abifityto gain the trust andconfidenceof the parties; — in international disputes, it is necessary to possess some expertise in crosscultural communicationand a sensitivity towards the customs and habits of various societies; — the abilityto analyse complexlegal andtechnicalissues quickly and logically; — excellent communicationand skills; negotiating — — — — —

poise;

stamina and confidence; patienceand tolerance; good listening skills;and

a calmdemeanour.

Theaboveis not an exhaustivelist. Specifically, the conciliatormustablyperform at leastthreecritical functions: (a) A moderator for presentations of facts between the parties, keeping control of what will inevitably be an emotionally-chargedatmosphere involving exchanges from those who were present during the execution of the contract. (b) Devil's advocate in private meetings with each party individually, pointing

out weaknesses and strengths of the case as presented by them. This must, however, be done with a candour andobjectivity.

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A facilitatorfor actual negotiations,not only to carry backandforth the offers and counteroffers, but also to receive in confidence each party's bottom line.2013

In this connection it must be emphasised that the roleof the conciliatoris very differentfromthatofan arbitrator.Unlike an arbitrator,aconciliatorhasno power to imposea decisionandhe can only guidethe parties to a settlement. The conciliator must inform himself of the case prior to meeting the parties to suchan extent that he can engage in the above three functions from the start. The conciliator must also take the initiative in providing possible solutions andhow to achieve them. He must be capable of educating the parties regarding the process ofconciliation,ensuring that theycancomply withthe proposed procedures and requirements. 20.5.5 Who should attend the conciliation?

It isparticularlyimportant thattherepresentativesfromall parties at aconciliation should beofsuchcalibrethat theypossessthe decision-makingauthoritytoaccept or reject proposals for settlement of the matters in dispute. They shouldbe in possessionofany authorisationrequiredby theircompany or organisationto sign a document committingthatcompany ororganisationtotheextentrequired. Such personsinclude external parties, for example insurers. Of course, allthose involved inthe issues inthe conciliationshouldbepresentto throw revealing light on the matters requiring resolution. No one should be excludedwho can make a meaningful contribution or who has aninterest in the outcome. 20.5.6 The conciliation process

In conciliation it is necessary for each party carefully to prepare a document containingthe followingmaterial: (a) Thefacts:

A factual narrative of the events leading to the issues in the con-

ciliation. One of the parties, usually the party initiating the process, should prepare abundle containing documents whichcan be submitted jointly, such as the contract, the specification,any drawings necessaryfor understanding the issues involved, etc. (b) The issues: Itisnecessary to identify the issues between the parties as clearly

as possible. Thelegal basis supporting the case made by eachof the should be set outin as clear a language as possible. parties (d) The remedyor remediesrequired and the timeframe within which the conciliation process may or shouldbe conducted. (c) The legal principles:

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parties, otherwiseinaneutrallocation,whichcan accommodatebothprivate and jointmeetings with the conciliator. Simple conciliationmay takeonly a few hours. However, in construction,the issues are generally complex andlengthy and may often involve short sessions over the course of a few weeks. For example, the multiparty mediation/conciliationover the developmentinthe Tahoe Basin,referred to above,lasteda year, withpartiesfrom Californiaand Nevada meeting for two daysevery three weeks. There is no set format for the actual conciliationprocess. As a general rule, however, all conciliations involve a seriesof jointandseparate meetings withthe parties.20'4

The first step is ajointmeeting inwhichallthe parties in disputeare requiredto meet withthe conciliator, who should describe the conciliationprocessandreview the ground rules for participation, behaviour, and confidentiality.The participants are expected to discuss matters, such as: the role of the conciliator;identifying who willrepresent each party duringthe discussions;identifying who has authority to sign a final settlement; and the identification of documents to be exchanged.If litigationover the matter is pending, the partiesand the conciliator maydiscuss what activitieswill be suspended andwhetherthe courtshould be informed of suchsuspension andof the conciliationtaking place. At this point, if any side has any doubts about the conciliator's role or the procedure, that party can suggest modificationsin the procedures or rules. The applicable concffiation rules are aimed at creating an atmosphere of co-operation and respect. The rules can include such matters as agreeing to have only one person speak at a time, the identityof that person from eachparty, setting an agenda, limiting the scope of the negotiation,defining the role of the conciliator, defining the use of private meetings, agreeing which documents are to be submitted to the conciliator,if any, establishing how confidentialitywill be maintained, and stipulating how the sideswillrespond to mediaenquiries, if any. This initialjointmeeting also serves as anopenforumfor the parties to explain theirpositions andexpresshow theybelieve the case should be resolved. At this stage, the conciliatorbegins to gather the facts, becomes more familiar with the case and develops his assessmentof the interests and perceptions of the parties. Each party also has an opportunity to rebut the submissionsof the other party under the supervisionof theconcifiator,whomayaskquestions. Throughout the process, participants should remember that patience is the key to a successful outcome.Detailed,and sometimeslengthy,presentations of the facts arecrucial at the outset to inform the conciliator. Iftheconciliatorrequestswritten statementsfrom theparties and/ordocuments, then another jointmeeting maybe scheduled to give each side an opportunity to prepare and gather suchmaterialas maybenecessary.Inthiscase,the parties may waituntil the second jointmeeting to discuss theirpositions in the dispute. After the initial airing of rules andviews, the conciliationenters the problem-

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solving phase. During this phase, the conciliator may hold one or a series of private meetings or, in American terminology, 'caucuses', with eachparty. The concffiator shuttles between the parties, probing each side's position, asking questions, assessingthe meritsof each argument, narrowingthe issues by identifying what is important in an effort to understand the case from each side's perspective. At the same time, he works to defuse any hostility, in part by refraining the issues in objective language and in part by actively coolingdown overheated discussions. Amajoradvantage of conciliationis thatthis processallowsthe parties to 'vent' theirfrustrations andengage in celebratingtheir 'day in court'. This therapeutic interaction often helps move parties towards settlement. When the conciliatoris satisfiedthat the private meetingsphaseis complete,the process is ready to be brought to anend. This means that the parties are ready to come together in a finaljoint sessionto negotiate with each other the terms of an agreement. Prior to this final session, the conciliator usually helps each side develop severalsettlement options and anegotiation strategywhichwifi move the disputetowards settlement.As stated earlier, the conciliatordoesnot impose a settlement on the parties, even if he has been asked to render opinions. The conciliatorsimply workswith the parties and guides the process to remove barriers and smooth the way to settlement. Any party may float a settlement proposal, which would usuallyhave been discussed with the conciliator. If it has not been discussed in advance, the conciliator may inteiject an opinion if he feels the offer is inappropriate. If the conciliationinvolvesmany parties, itis morelikely that the conciliatorwouldinitiate settlement proposals. Once a 'reasonable' offer is on the table, it becomes the basisfor negotiation.If the parties are having difficulty achieving an agreement. the conciliator may request more private meetings to help bridge the gaps. If, at the endof a conciliation,a substantial difference persists over monetary issues, the conciliatormay try to encourage the parties to make a final effort to closethe gap, byallowing the conciliatortochoose a monetary awardbetweenthe last demand of the claimant and the last offer of the respondent. If thecase is settledina waythatis agreeableto all sides,theconciliatorand/or theparties willdraftadocument spellingouttheagreementand stipulating howit willbe implemented. It maybe circulated andeditedas necessary. As stated earlier, the outcome of a conciliationis non-binding. A proposed settlementmay be rejectedby any of the parties involved. If this occurs, the party objectingtothe proposals mayconsent toworktowards newsettlementproposals, or it may give up and proceed to arbitration orlitigation.However, it is important to notethatconciliationmore often thannotleads to a durable settlementbecause the agreementhas beenforged bythe parties themselves. If all parties agree to, and sign, a settlement agreementat theconclusionof the conciliation,the parties are bound to uphold that agreement. The settlement

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agreementis a contract;an actionalleging breach ofcontract maybe brought ifan agreementisnothonoured. If litigationis pending, the settlementshouldbe filed with the courtso that it willbe enforced withoutrequiringa separate action for breach ofcontract. If settlementis notachieved,thencertain procedures require the conciliatorto issuea recommendationwhichmust statehis solution to the disputereferred to him for conciliation.The recommendationmust not disclose information which any party had provided in confidence. It should be based on the conciliator's opinion as to how the partiescan best dispose of the disputebetween them and need not necessarily be based on any principles of law. The conciliatoris not usuallyrequiredto givereasons for his recommendation,but he maychoose to do so if he considers that such reasons would be helpful to the parties. If the recommendationis not rejectedwithin a prescribed period,then itbecomes final andbindingon the parties, butif it is rejected, it becomes a nullity. In the latter case, the terms and provisions of the recommendation and any reasons given together withany disclosuresspecificallymadeforthe purpose ofthe conciliation remainprivileged andconfidentialandcannot be divulged nor used in evidence in any subsequent forum. 20.6 Mini-hial procedure

Themini-trial procedure was developed by the Zurich Chamber of Commerceto meet the demand for alternative methods of dispute resolution to the traditional methods of litigationandarbitration. In the introductory remarks to its rules for mini-trial procedure, the salient features of the procedure are described as follows:2015

(a) its aim is to settle disputes with the active co-operation of senior corporate officers of the parties as associatemembers of the mini-trial panel; (b) it is quick, confidential and non-prejudicial; (c) it is based on the consent ofboth parties; (d) it concentrateson essentials; (e) it maintains the dialogue between the parties.

At approximately the same time a similar procedure was developed in the United States whenin 1984, the US Army Corps of Engineers developed a pilot programme designed to expedite the settlement of claims pending before the Board of Contract Appeals. The term coined to designate this pilot programme was 'mini-trial' since, although it is essentially an arbitration technique, it incorporatedsome characteristicsof thejudicial process.2016 The mini-trial procedure was described in 1986 in a memorandum developed for the Assistant Secretary of the Army (Civil Works) as follows:

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'Underthe "mini-trial" procedure,top level management officials ofeachparty voluntarily meet topresenttheirbestcaseandnegotiate anexpeditedresolution to a pendingBoard of Contract Appeals case.The "mini-trial" is designed to resolve disputes arising from matters of fact ratherthan matters of law and to takeno longerthanthreeorfourdays. Theprocedure alsoprovides for aneutral advisor who can assist the negotiators in understanding mailers of law and assessing the merits of the claim. No transcript of "mini-trial" proceedings is maintained. Either party may withdraw from the "mini-trial" proceeding at anytime.'

As it developed,the mini-trial procedure has the followingfeatures: (a) An independent and impartial adviser is appointed to take control of the proceedings, to act as advisor to the parties in dispute, to ask questions of witnesses,to provide commentsifthe parties so request, to enforcetime limits and to act as chairman totwo assistants whomaybe selectedfrom among the senior corporate officers of both parties and who are expected to make an independent assessmentof the issues in dispute. (b) The mini-trial panel is expected to hear the parties and then to propose or to facilitate a settlement. If no settlement is reached or proposed within a reasonable time, then the panel should submit a recommendation either unanimously or by the chairman. (c) Theprocedure is briefwithonly afew weeks allowedforthe parties toprepare theircase followed by a 'trial' of a few days' duration. (d) Lawyersare permitted to represent the parties at the trial. (e) A memorandum is exchangedbetween the parties and copied to the adviser two weeks prior to the trial, in whicheachparty outlines its position on the disputein question as well as all documentary evidencetobepresented at the trial.

Thepresentations areinformal with rules of evidencenot strictly adhered to. Cross-examinationof witnesses is allowed but severely limited in duration. (g) The proceedings are confidential and no transcript or recording is allowed. None of the material generated by the trial may be used as evidence in pendingor future proceedings.The adviser is disqualified as a witness, consultant or expert for either party in later proceedings shouldtherebe any. (f)

Parties intending to use mini-trial procedure to resolve disputes should either develop theirown mini-trial procedureor adopt one of the followingtwo frameworkprocedures on offer: (a) The Rules of the Center for Public Resources(CPR), New York;2017or (b) The Rules of the Zurich Chamber of Commerce, referred to in Reference 20.15.

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20.7 Dispute review boards or experts, claims reviewboards and dispute

adjudicationboards or experts

Dispute review boards, claimsreview boards and disputeadjudicationboards are titles given to the same concept of a three-member committee formed at the commencementof a constructionproject with one member appointed by each of theparties and the third selected by the other two appointedmembers orjointly by theemployer and the contractor.The concept wasadopted bythe World Bank in its Standard Bidding Documents for major works published in January 1995 and wasmadeobligatoryinall contractsforprojectsfinancedby theBankwith an estimated cost ofmore than US$50 million. The boardinthis case is referred to as theDispute Review Board. Fordetailed analysis and discussionof theconcept,its rules and procedures, reference should be made to Sections 22.6, 22.7 and 22.8 below.

As explainedin Section20.1 above, this concept was also adopted by FJDIC in its 1996 Supplement and is referred to as the Dispute Adjudication Board. For detailed analysis and discussion ofthe concept,its procedural rules and terms of appointment, referenceshould be madeto Section19.8 above. The basic principles, objectives and procedures of this method of dispute settlement may be explained as follows:2018 (a) The boardmembers visit the site periodically, but at leastthreetimes every

year, to keep abreast of construction activities and problems and of any developingpotential claims.Atthe end ofeach visitareport isprovided bythe boardto both parties. (b) The terms of reference given to the board provide, as a general rule, that a claim is referred to the board only after the engineer's decision and when either of the two parties has expressed its non-acceptanceof the engineer's determination. Thefirstsubmissiontotheboard, therefore,should bea written statement of claim bythe appellant party completewithrelevant correspondenceand other documentation of the appellant's choosing. A copy is provided for each member of the board and for the other party. The respondent is then afforded an opportunity to submit his reason for rejection of the appellant's claim, in writing and copied to all concerned.A shortperiod of time is allowed for this step. This is followed,within a similar period of time thereafter, by the appellant's rebuttal to the respondent's reasonsfor rejection.Therespondent is thenallowedafartherperiodinwhich to file his written rebuttal. This step concludes the submission of written representations to the board. (c) The board may hold hearings, review the record, and take testimony.Upon completingits deliberations,the boardmakes a non-bindingrecommendation to all parties. The board's action is acondition precedent to implementationof

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the contract's dispute clause. No party is obliged to accept the board's decision,inwhichcase the disputemay proceed to another method ofdispute resolution,generally arbitration.The ultimate solution,ifthe parties (oroneof them) do not acceptthe Board's decision,is arbitration inaccordancewith the rules selected under the contract. With smaller contracts,the boardmightbe asingle person, normallyreferred to as adisputereview adviser, an appointmentwhichmaybe regarded as equivalent to appointing an expert conciliator/mediator for the durationof the contract. An important difference betweenthis method and conciliation/mediation is that members ofthe boarddo visitthe site regularly duringconstructionandare kept advised regarding progress. They can therefore actually observe the problems at the time theyoccur and, basedon theirownconstruction experience,understand thetechnical details and contractualramificationsof the problem. Dispute boards have been used successfully on several major domestic and international construction projects. In fact, it was reportedthat they have been usedonmorethan100 projectsworthover $6 billion.2019It wasfurther reported that of the 98 disputes handled by the various boards, none had to be referred subsequently to arbitration or litigation for settlement. Maintaining the boards was estimated to cost from 0.04% to 0.51% of thetotal contract value.

20.8

Adjudication Adjudication can be defined as a process whereby an appointed neutral and impartial party is entrustedto take the initiative in ascertainingthe facts andthe law relating to a dispute and to reach a decisionwithin a shortperiod of time. A period of 28 days, extendible by a further 14 days has been named in recent legislationin England.202°However, in the newFIDICprocedure forthe Dispute AdjudicationBoard,this period is set at56 daysor84 days, depending onwhether the board is composed of one personor threewhichin itself is a measure of the sizeand complexityof the project.2021 Theadjudicator should be suitablyqualifiedin thetopic of thedispute. He may meet andquestion the parties indisputeandtheir representativeseither together orseparately.Hemayvisit thesiteand mayrequesttheproduction of documents or the attendance of certain individuals within specified times. Under certain procedural rules andin certain circumstances,the adjudicator is empowered to appoint experts, assessorsorlegal advisers toassisthiminreachinga decision,but in sucha case he must make such advice availableto the parties. Theadjudication process is private and any informationmade availableduring the proceedings should not be released to third parties except in so far as it is necessary to implement the decision of the adjudicator, or as may be requiredin subsequent arbitral or legal proceedings.

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The adjudicator's decision must be in writing and, subject to the procedure adopted,may be accompanied by reasons. It is bindingon the parties unless challenged within a specifiedperiodandthen varied in anarbitration orlitigation depending onthe terms ofthe contract.If the decisionisnotchallengedwithinthe specifiedperiod,it then becomes final andbinding. 20.9 Pre-arbitral refereeprocedure This is a relatively new procedure developed by the International Chamber of Commercein Paris. The rules which were published in 1990 were designed to provide a procedure for recourse at very short notice to a third person, the 'referee', who is empowered to order provisional measures needed as a matter of

urgency.20 The mainfeatures of these rules can be summarised as follows: (a) The rules may be resorted to on the basisof

awrittenagreementeither before

or afterentering intothe relevant contract from which the disputemay arise.

(b)

Thereferee may be selected by theparties or be appointedby the chairmanof the International Court of Arbitration of the ICC in the absence of such a selection.

(c)

Thereferee is empowered to makewidely varying orders of a bindingnature unless and imifi a competent jurisdiction (court or arbitral tribunal) has

decided otherwise. This (d) procedure may be put into operation as a complementary role to that of the expert under the ICC rules for technical expertise. The latter offers a method of quicklyidentifying, before the evidence is destroyed or changed, whethertechnicalproblems exist and, if so,their causes. The parties arethus providedwith anobjective statement offacts byanindependent expert which may serve either as an aid to reaching an amicablesettlement or as reliable, firsthand evidencein a subsequent court or arbitral tribunal.2023 20.10 Concludingremarks The presentchapter concludesPart III of this bookin whichthe Fourth Edition of theRed Bookand its use inpracticewere discussed in detail. PartW of theBook, which comprises two chapters, deals with related documents to the Red Book. Chapter 21 deals with other standardforms of contract published by FIDIC, the YellowBook, the Orange Bookand the Sub-contractForm;andChapter 22 deals with the World Bank Standard Bidding Documents for major works which is basedon the Fourth Edition of the Red Bookas reprinted in 1992.

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FIDIC's Other Forms of Contract

21.1 Introduction Although the Contracts CommitteeofFJDICwas establishedin 1913, its activities were confined,until1993,withintheframework ofthethreeForms ofContract,the Red Book, the Yellow Book and the White Book. The Yellow Book, Conditions of Contract for Electrical and Mechanical Works including Erection on Site, was first publishedin 1963.Itwasfirstrevisedin1980andlater in1987withthe introduction ofits thirdedition. The WhiteBook, Client/ConsultantModelServicesAgreement,was first published in 1990 for general use in agreements of pre-investment and feasibilitystudiesandinadministrationofconstructionandprojectmanagement.It replaced the three documents previously used in formulating such agreements which were designated the International General Rules for Agreement.211 The White Bookwas later revised andits second edition was published in 1991. When the work on these three forms of contract was completed, the various committeesinvolved intheirpreparation were disbanded and a singlecommittee wasreintroduced in 1993 with responsibilityfor producing new FIDIC contract documents and for updatingthose already produced. The new Contracts Committee through itsvarious taskgroups focused on anumberofareas whichneeded attention inthe fieldof conditionsofcontracts.Themainareas were: design-build; sub-contractwork; andthe use of the Red Bookinbuilding worksas distinct from civil engineering.Inthe remaining sections ofthis chapter the followingareas are considered:the mainfeatures ofthe third edition ofthe YellowBook(anelectrical and mechanical (E & M) contract),thefirst edition of the Orange Book (a design and buildcontract),andthefirsteditionoftheconditionsof subcontractforworks of civil engineering construction.Theuse of the Red Bookin building worksis discussed in Chapter 6 as part of the 1996 Supplement. 21.2 The Yellow Book, third edition 21.2.1 Background

It has always beenrecognised that the standardconditions of contract for civil engineeringworks do not properly providefor the requirements of all electrical

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and mechanical engineeringprojects, 'E & M Works'. The requirements for the two types ofcontract differ formany reasonsinherent in theirnature, as explained later in Section21.2.2. After the publication of the second edition of the Yellow Book in 1980, the coim-nents received from various users around the world concentrated on the fact that the legal drafting of the conditions, which was based on the AngloSaxon system, made them difficult to comprehend, especiallyby people whose mother tongue is not English.21'2 Many commentators considered it a higher priority to have a standard form of conditions of engineering contract understood by engineers rather than to have established legal meaning for the terms and expressions that were generally used in the first and second editions.21'3It was also thoughtto be more important that the employer andthe contractor be able to understand the conditions and to have the project satisfactorily completedwithinthe scheduled time and the approved budget,rather thanto have a project facing difficultiesbut with conditions written in legal terms understoodonly by lawyers. Accordingly,a major revision of the second edition of the Yellow Book was undertaken andthe third edition ofthe E StMFormwas published in 1987. Later, theGuidefor its use waspublished in 1988 dealing witheachindividual clause of the Conditions.21'4 As in the Red Book, thethird edition ofthe YellowBookis issued in two parts, Part I - General ConditionsandPart II - SpecialConditions.However, Part II of the Yellow Book is much smaller than its equivalent in the Red Book and is divided into two sections. Section Acontains anumberof sub-clauseswhere the provisions h-i theGeneral Conditionsrefer to an alternative solution inserted inPart II. Thus, the provisions in PartI will prevail unless an alternative solution is given in PartII. Accordingly, if it is intended that there should be no changes to the provisions of Part I, then Section A in Part II should not be completed. But Section A of Part II must be completed wherever alternative solutions to the standardprovisions ofPartI are necessary. SectionB simply provides the space to add any further special conditions which may be requiredfor a particular project. The YellowBookalso contains standardForms of Tender andof Agreement. The third edition of the Yellow Book was issued with a number of editorial amendments inMay 1988. Theseamendments are listed atthe end ofthe reprinted document. The third edition ofthe E& MForm ofContractdiffersgreatly from its previous editionin many important aspects, including thenumbering and thesequence of the various clauses. Because of the numerous differences between civil engineering projects,onthe one hand, andelectrical and mechanicalengineering projects, on the other, the third edition ofthe E & M Form of Contract also differs substantiallyfromthe Fourth Edition of theRedBook. However,itis notablethat a considerablemeasure ofcompatibilityandharmony between these two forms was

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maintained in order to permittheiruse jointly on a project comprising both civil engineering and electrical and mechanicalworks. 21.2.2 Differences

in the natureofcivil engineering andE & M engineering projects

Electricaland mechanical engineeringprojects differ from civil engineering projectsandrequire a differentsetofstandardconditionsofcontractforthefollowing reasons:

(a) Theprojectitselfi Civilengineeringprojectsgenerallyinvolvethe construction of workswith bulk operations and underground excavationsor underwater elements. Electricaland mechanicalprojects, on the other hand, involve the supply and erection of specialistwork, including machinery andequipment. (b) Purpose and use: Civil engineeringprojectsare in general constructedfor the benefit of society as a whole by a state or a semi-state organisation with no revenue generated at the endexceptin special circumstances.E & M projects on the otherhand generally involve the operation of machinery and equipmentfor the purpose of generating a revenue. (c) Suitabletenderers: In many cases,whereelectricaland mechanicalworksare involved,therewouldberelativelyfew organisationsqualifiedto carry outthe work successfully.Furthermore, in many instances the work would involve proprietary processes that are patentedandcannot be reproduced exceptby those holding the patentrightsorbytheirpermission.On the other hand, afar greater numberof constructioncompanieswould be eligibleto tenderforcivil engineeringprojects. (d) Life span ofthe project: The element of wear andtear has a much lesser effect on civil engineering projects than on electrical and mechanical projects. Furthermore, as technologicaldevelopments are more frequent in the latter, this results in therebeing a greater probabilityof a project becomingobsolete. Accordingly,civil engineering projectstend to be designed and constructed with a much longer period of use in mind thanE & M projects. (e) The design element: Civil engineering projects have, traditionally, been designedby a consultingengineeror afirm of engineerswho specialiseinthe design of the particular type of project, whereas electrical and mechanical projects contain to a largeextent design elements by the supplier or the contractor or the manufacturer. (f) The executionoftheproject: Civil engineeringprojectsare constructedon-site. Electricalaridmechanicalworks contain a major part of elementswhichmust firstly be manufactured in afactory or aworkshop off-sitebefore erection can takeplace on-site. (g) Payment for the Works: Civil engineering projects are generally paid for in accordance with a quantity of work executed which is estimated in a bill of quantities preparedprior to the commencement of work and finally estab-

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lished and ascertainedaftercompletionofthe project.E & M projectsare paid for in accordance with a schedule of rates for major itemsof machinery and equipment supplied and erected. 21.2.3 Essentialfeatures

ofthe YellowBook

TheYellowBookis drafted insuchawaythatitcanbe usedsuccessfullyalongside theRedBookinprojectscomprisingboth civil engineeringworksand mechanical andelectricalworks. Thus for projects such as dams, water supplyor sewerage works, the works could be separated into two separate contracts: one for civil engineering works and the other for electrical and mechanical works, with the contractor for either being allocatedthe overall responsibilityfor the whole project. This is possiblesince thereare similar terms andfunctionsused inbothforms of contract, such as the presence of an engineer, the requirement for due consultation by the engineer prior to a number of similar circumstances,and the similarity of definitions of certain terms in both contracts. The format of the YellowBookis also the same as thatof the Red Book in that it is divided intotwo parts: Part I whichcontains the general conditions of contract and Part II which contains the conditions of particular applicationto the project in question. However,except for clause 1 of the YellowBookwhichis divided into37 sub-clauses, numbered from 1.1.1 to 1.1.37, all the other provisions of the Yellow Book are drafted as intact discrete units and not as subordinate clauses, although usingthe decimal point system, e.g. clauses 2.1 to 51.3. Each of these units has its own heading andother related units whichare grouped under a group title. Despite these similarities, however, the provisions of the Yellow Book differ greatly from those ofthe Red Bookand canbe distinguishedinmanyrespects.The essentialdistinguishingfeatures ofthe YellowBookare: the commencementdate; the definition of the engineer; his impartiality; responsibility for design; the requirement of approval by the employer; the procedure for disputing the engineer's decisions and instructions; the procedure for his replacement; the contractor's general obligations; tests on completion; performance security; extension of the time for completion;dueconsultation;delayin completion and prolonged delay; risks and responsibility, damage to property and injury to persons, liabifity and insurance;force majeure; disputes and arbitration; andlaw and procedure. These features are discussed below. Commencement date

Clause 1.1.1 of the conditionsdefines the commencementdate as the latest of the followingfive dates: (a) the datespecifiedin the preambleas the dateforcommencementofthe works; or

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the date when the contractor receives suchpaymentin advance of the commencement of the worksas may be specifiedin the terms of payment; or (c) the datewhenthe contractor receives notice of the issueof anyimportlicence necessaryfor commencingperformance of the contract; or (d) the date when the contractor receives notice that any legal requirements necessary for the contract to enterintoforce have been fulfified;or (e) the date when the contractor receives notice that any necessary financial or administrative requirements specified in Part II as conditions precedent to commencementhave beenfulfilled. (b)

Itisnecessarytoprovidethe above set ofalternative dates, since a majorpart of the works wouldnormally be executed on the contractor's ownpremises or on premises other than the site. In this connection and where international contracts are concerned, import permit licences and other formalities relating to the electrical and mechanical componentsofthe projectmustbeobtained prior to the time startingto runfor the time for completion.Otherwise, delays wouldbe inevitable. Definition ofthe engineer

UndertheYellowBook, an engineeris appointed butin a different role fromthat under the Red Book. Clause 1.1.15 definesthe engineer as 'the personappointed by theemployerto actasEngineerforthepurposes oftheContractand designated as suchin the Preamble'. This is especiallyimportant with referenceto clause 2 which sets out the engineer's duties, his power to delegate, the circumstances under whichhe is requiredto act impartially, his decisions and instructions,the procedure providedfor disputing such decisions and instructions, andthe contractor's consent asrequiredshould the employer decide to appoint anypersonto replace the engineer. Impartialityofthe engineer Clause2.4 provides thatthe engineermustactimpartiallywhenever heisrequired to exercisehis discretion by: (a) giving his decision, opinionor consent; or (b) expressinghis satisfactionor approval; or (c) determining value; or (d) otherwise taking action which may affect the rights and obligations of the employer or the contractor.

In doingso,the engineer must haveregard to all the circumstancessurrounding the particular situation with whichhe is dealing. Accordingly,the engineer does

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notsimply act as an agent oftheemployer butalsoas an impartial decisionmaker in these specificcircumstances. Design

It is to be noted that the engineer's duties do not include design as this is the contractor's responsibility, as provided in clause 8.1. The engineer is, however, required to comment on the contractor's detailed design of the plant and his proposed method of carrying outthe works, bothof which are set outin clauses6 and 7 of the general conditions. Specific approval of the employer

Clause 2.1 provides that the duties of the engineer are setout in the contract and that where the engineer is required, under the terms of his appointment by the employer,to obtain the specificapproval ofthe employer before carrying out any of these duties, fullparticulars ofsuchrequirements should be set out in Part II of

the Conditions.

Procedurefor disputing the engineer'sdecisions and instructions Clause 2.5 of the Form provides that the contractor mustproceed withthe works in accordancewith the decisionandinstructions given by the engineer.The only remedy available to the contractor, should he wish to dispute any decision or instructions so given by the engineer,is to proceed under clauses2.7 and 50.1. By the terms of clause 2.7, should the contractor wish to disputeor question any decisionor instruction of the engineerunder clause 2.5 or a written confirmation given under clause 2.6,he should give a reasoned noticeto the engineerwithin 28 days of receipt of such decision,instruction or confirmation. Clause 50.1 provides for the procedure to be followed in arbitration. This procedure is discussed in detail under the heading Disputes andArbitrationlater in this section. However, it is notable in this regardthat the two-tier procedure followedinclause 67of theRed Bookis not usedin theYellowBook. The contractor and the employer under the Yellow Book can proceed directly to arbitration, unless suchreferenceis a result of dissatisfactionwith a decision orinstruction of the engineer. Inthat case,the notice ofintention to refer the matter to arbitration must be issued within 56 daysof such decisionor instruction. Replacementofengineer Should the circumstancesarise inthe courseof the contract where itis considered necessaryby the employer to replace the engineer,the employer is not entitled to do so withoutthe contractor's consent. This provision under clause 2.8 of the

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YellowBookis included in order to prevent the appointment of someonewho is notanimpartialpersontothissensitive position.However,itis not clearas to how the appointment of a replacement engineer is to be achieved if the contractor's consent is withheld. The only solution seems to be through the arbitration procedure in accordance with clause 50. However, this procedure requires time duringwhichavacuum wouldhave already beencreatedifthereisnoengineerin place or if the engineer is unable to act. Contractor's general obligations The contractor's general obligationsare set out in clause 8.1 of the conditions and theyare divided intosevenheadings whichrequire himto: —

design; — manufacture; — —

deliver to site; set out the works;

— erect;

— —

testand commissionthe plant supplied; carry out the workswithin the time for completion.

It is relevant in this connection to compare these obligationswith that simple butmuch wideroverall obligationunder the Red Bookofhaving to completethe

worksirrespective of what mighthappen,with the exceptionof a few specified events, duringthe contract period. Tests on completion

As itisusualfor aproject undertheYellowBookto containahigh elementofplant forincorporationintotheworks, commissioningof suchplantand ascertainingits performance is a major aspect of the contract. Clause 1.1.34 defines 'Tests on Completion' as those 'specified in the Contract or otherwise agreed by the Engineer and the Contractorto be performed before the Works are takenover by the Employer.' Therefore,it is essential that the necessary tests which must be successfullycompletedbeforethe worksaretakenover are clearlyspecifiedinthe contract documents. Itwouldalso be useful to set outthe sanction to be imposed shouldthese tests proveto be unsuccessful. Performancesecurity Clause 10 of the conditions provides the details of the performance security requiredunderthe contract.Sub-clause10.3 sets out theconditionswhich mustbe satisfied fora successfulclaim tobemadebythe employer underthe terms ofthat

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security. Thus, the security provided is conditional on this procedure being followed. Extension ofthe time forcompletion Clause26 sets out the conditionsunderwhichthe contractormaybecome entitled to an extension of the 'Time for Completion' of the contract. It also sets out the procedure to be followed for such an extension to be granted. The engineer is authorised, after dueconsultationwith the employer and the contractor,to grant from time to time such an extension.He may do so either in advance or retrospectively.

However, the clause is silent on whether suchan extension,once given, canbe reduced. Since such silenceisnot followedinthe Red Bookwhenthe engineer is prevented from reducing any extension of time once granted, it could be interpretedthat suchreduction is permissible. Due consultation This term which is used throughout the Yellow Book marks a very important development of the conditions. As in the Red Book, its implications should be thoroughly understood not only by the employer andthe contractor but also by

the engineer.215

Clauses27.1 and 27.2, delayin completion andprolonged delay Clause 27.1 provides an alternative concept to the liquidated damages solution contained in the Red Bookfor the delayof the contractor in performing the contract. It provides that the employer is entitled to a reduction in the contract price foreachday'sdelayandfurthermore, afterhaving reached a maximum reduction as stipulated in thepreamble,clause 27.2 provides for therightoftheemployer to terminate the contract provided that the employer had notified the contractor requiring him to complete the works. However, the contractor can avoid such reduction under the provisions of clause 27.1 if 'it can be reasonably concluded from the circumstancesthat the Employerwifi suffer no loss'. Clauses 37, 38 and 39, risks and responsibility; clauses40 and 41, damage to property andinjury to persons; clause 42, limitation of liability; andclause 43, insurance

Forthefirsttime, thissectionofastandardform ofcontractwhichembodiesseven inter-related clauses has been written in clear and simple language and in a sequence that is logical. However,unfortunately,thereare anumberof specific requirements which are embodied inthe provisionsofthese clauseswhich areunacceptableto anumberof

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employers as a matter of principle, and to a numberof engineers as a matter of practicality.21'6

Force majeure The term 'force majeure' covers a number of unforeseen circumstanceswhich prevent, totally or partially, one or both parties from fulfilling their contractual obligations.Although thistermis understood and accepted aroundthe world, the definition and interpretation of the circumstancesdiffer from one jurisdiction to another and the legal consequences of the events offorce majeure differ accordingly. Thus, wherethe Yellow Bookis expected to be used, the consequencesof including the events set out in clause 44.1 as incidents offorce majeure must be carefullyconsidered underthe applicablelaw ofthe contract assetout inclause51 of thegeneral conditionson law, procedure and language. Special attention must also be given to the consequencesof aforce majeure event andthese are set out in sub-clauses44.2 to 44.9 of the general conditions.

Disputesand arbitration: Although quitedifferent from clause 67 of the Red Book, clause 50 of the Yellow Bookdoesalso contain stricttime limitswhichmustbe compliedwithif a dispute is to be resolved by arbitration. As stated earlier, if a contractor wishes to disputeor question any decisionor instruction given by the engineer, a notice must firstbe given under clause 2.7 of the conditionswithin 28 daysof receipt of suchdecisionor instruction. Once the process is initiated by that notice from the contractor, then the engineer must within a further 28 days confirm, reverse or vary such decision or instruction giving reasons for his action. Should the employer or the contractor disagree with the action takenby the engineer or if the engineer fails to reply to the contractor's notice within the stipulated 28 daysandthe matter cannotbe settled amicably,then the mechanism under clause 50 canbe triggered. It is worthnoting that clause 2.7 doesnot havea provision for the employer to dispute or question an instruction or decision of the engineer inthe first instance. The employer canparticipate in this process only if the contractor first disputes the engineer's decision or instruction. However, clause 50.1 refers to both the contractorandthe employer whichmightcreate some confusionas to whether the employer can question aninstruction ofthe engineerwithoutreferring the matter to arbitration. Furthermore, in circumstances where the employer does not become aware of the engineer's decision or instruction, then his remedy must lie in theprovisions of his owncontract with the engineer. Ifthe mechanismof clause 50 is to be initiated by the contractor,thenthis must bedone within 56 daysoftheengineer's replyto thecontractor'sfirstnoticeunder

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clause 2.7. As stated above,the employer can trigger the mechanismofclause 50.1 within 56 days of any decision or instruction of the engineer with whichhe is dissatisfied.

If no noticeof intentionto proceed to arbitration is issued within the prescribed 56 days, then the decision of the engineerbecomes final. Clause 50.2 provides that anyreferenceto arbitration wifibe inaccordancewith the Rules of Conciliation and Arbitration of the ICC, unless other rules are specifiedin Part IIofthe YellowBook. This clause alsoprovides insimilar terms to those underthe Red Bookthatthe arbitrator has fullpowertoopenup,review and revise any decision, instruction, or certificate of the engineer which has been referred to arbitrationpursuantto clause 50.1. Once the arbitration process is initiated, then clause 50.3 stipulates that performance of the contract should continue even where arbitration proceedings havecommenced,unless suspension of the works had beenor is ordered by the employer. The clause also provides that any payment due to be made by the employer should not be withheld on account of a pending reference to arbitration. Furthermore,the clause also provides that any payment due to be madeby the employer should not be withheld on account of a pending reference to arbitration. Clause 50.4 provides for a time limit in respect of the date of commencing arbitration proceedings stating that formal notice of arbitration must be given no later than 84 days afterthe issue of the final certificateof payment. In this connection, reference should be made to clause 33.11 which deals with the conclusiveness of the final certificateof payment. Law andprocedure Clause 51 sets out the provision for the applicable law of the contract, the procedural law for any arbitration instituted under clause 50, the language and the place of anyarbitrationproceedingsinstituted.Itis anextremelyusefulclause as it avoids many possible but unnecessary disputes and delays in the process of arbitration, if and when it is instituted.

21.3

The Orange Book, first edition By the time the Orange Bookwas conceived,the constructionindustryhadbeen flirting with designandbuildcontractsforsometimeinthe formofpackage deals, butleft them aside for use with special projects where the contractor possessed either specialistknowledge and expertisenot availableelsewhereorpatentrights for a specific process.However, by the late 1980s, the designand build contract became attractiveand wasviewedas analternativetype ofcontract to the disputeriddled, traditional form of contract. In response to demand, the Institution of

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CivilEngineersinLondonpublished itsStandard Formof ContractforDesign and Construct in 1992.217Notwithstanding its origin, this form of contract was not a version of the Sixth Edition of the ICE Conditions with some selected modifications,but a totally new form of contract.218 Subsequently,in response to international demand, FIDICintroduced its first edition of the Conditionsof ContractforDesign-Buildand Turnkeyin1995. Itis of interest to note that those who advocated the use of suchcontracts claimed that theirbenefits included thefollowing: (a) Lower costs of designand supervision due to a perceived close co-operation

and involvement of designers and constructors duringthe wholeprocess of design, construction and qualitycontrol. (b) Anticipated shorterperiod of project implementationdueto disposal of any needto separate the design phases from the tendering process and from the subsequent construction period. Work on the wholeproject could begin with theselectionofthecontractorandconstructioncould beprogrammed sothatit wouldnotbe affectedby any delay innon-criticaldetailed designactivitiesof some elements of the works. (c) Merging the liabilitiesfor design, material and workmanship into a single party, the contractor,thuseliminatinganypossibleconfusionoruncertainty as to who is responsible and liable for undesirable events. (d) A fixed lump sum pricewhichis less susceptibleto cost over-run evenwhen variations to the scope andextent ofthe worksare permitted inthe conditions of contract. However, in contrast to the benefits claimed above, other experts foresaw that there were also some potential disadvantages which, for most projects, would have a more serious effect. These included the following:

Theloyalty and duty ofthe designer towards the employer is second tothose afforded by him to the contractor. (b) The cost of the preliminary designs whichmust be carried out by the urisuccessful tenderers in preparing theirproposals wouldnormallyhaveto be paid for ultimately throughthe successful tender. It is usuallyincluded under an item, suchas general overheads,aspart ofthe head office costs. But, since itis clear that the proportion ofunsuccessfulbids would be muchhigher than that of successful ones, this cost element forms a significant burden on the (a)

employer. Thedesign-buildformof contract isinappropriate for some projects,ifnot all, as it stifles innovation both in design and in construction techniques. The contractor tends to use methods with which he is most familiar from past experience and knowledge. (d) Using methods with which the contractor is most familiar from past experi(c)

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ence and knowledge could result in ignoring recent advances in the science and art of design and construction, thus leading to more expensive construction costs. Furthermore, the temptation to short-cut design procedures wouldalways be therewhichwouldbe implemented to refine andopthnise the use of materials. If suchshort cuts are followed,materials wouldnot be used to theiroptimum value resulting in more expensive construction. (e) The employer's requirements could never be as explicit as in the traditional method of procurement. The more clearly the employer's requirements are specified,the more costlytendering becomesbecausethese requirements must be taken into consideration in the preliminary design which must be submitted with the contractor's proposal as part of his tender. There is afurther problem forthe employerifheissues adetailed andrestrictive set of requirements in that this may result in weakening the contractor's design liability. Drafting the employer's requirements demands extreme care and a proper balance between what is explicitly stated and what is omitted. Such balance must be achieved fairly andsensitively,otherwise disputes might be generated or cultivated to a greater degree than that which already exists at the present time in the constructionindustry. 21.3.1 Background

The Orange Book has been drafted for use in construction contracts wherethe contractoris totallyresponsible and liable for design. Itis essentiallyintended for international contracts, but with some minor modificationsit is also suitable for use in domestic contracts. Its titlerefers to design-build contracts and turnkey contracts and its foreword sets out the difference between these two types of contract as envisagedby the draftsmen. Design-buildcontractsinclude anycombinationofbuilding work togetherwith civil, mechanical and electrical engineering works. On the other hand, turnkey contractsinclude the provision of a fully-equippedfacility, ready for operation at the turn of a key. Turnkey contracts typically include design, construction, fixtures, fittings andequipment to the extentdefined in the contract documents. The foreword goes on to indicate that turnkey contracts are often financed by the contractor and may require him to operate the works for a few months' commissioningperiod,or for some years' operation on a build-operate-transferbasis. Part II ofthe Orange Book also includesan advice note on turnkey arrangements and sample wordingfor a contract financed by the contractor.As in the Red and YellowBooks, the Orange Bookis dividedintotwo Parts: Part I General Conditions; and Part II Conditions of Particular Application, which are usually preparedandcompleted for eachindividual contract. Theprinciples adopted in thepreparation ofthese two parts ofthe Orange Book are set out in the introduction section to Part II of the document. It is usually

-

-

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envisagedthatamendments tosome provisionsofPart Imay haveto be made, but not in the context of upsetting the balance of its inherent fairness. Animportant feature ofthe document is thatwhensuchamendments are implemented,they are not necessarilydone through PartII oftheOrange Bookbut simplythrougheither activating orinvalidating in the Appendix to Tender, certain provisionsof Part I. For example, the provisions of: clause 11.4, 'Failure to Pass Tests after Completion'; clause 13.5, 'Plant and materials for the Permanent Works'; and others maybe variedby insertion of the requiredeffectin the Appendix to Tender.219 Accordingly, special attention is required when completing or examining the provisions of the Appendix to Tender. 21.3.2 Differences

in thenatureoftheRed and Yellow Books on the one handandthe

Orange Book on the other

The concepts of these three books differ greatly in the allocation of the main functions discussed earlier in Chapter 6. First, the financial arrangements in the design-build and turnkeyprojects lend themselvesto private finance; secondly, the entire design is entrusted to the contractor in the Orange Book; andthirdly, although the risks are sharedbetween the employer andthe contractor, the balanceof risk-taking is generally shifted towards the contractor under the Orange Book. Accordingly,the fundamental differencesbetweenthese three Forms of Contract may be summarised as follows: Both the Red and the YellowBooks rely on the involvementof an impartial engineer who takes various specfficroles during the project implementation cycle. In the case of the Red Book, the roleof the engineer is explained in detail in Chapters 5 and10 above. In the case of the Orange Book, the position of the engineer was replaced by an 'Employer's Representative' who has no duty to act impartially. Instead, he is the employer's agent with duties and authorities specifiedunder clause 3 of the contract.When he isrequiredto determinevalue, costorextension oftime, he is requiredto consultwith thecontractorinan endeavour to reach agreement. But, ifagreementcannot bereached,the employer'srepresentativeisrequired, underclause 3.5, to determine thematter 'fairly, reasonablyandin accordance with the Contract'. (b) Dispute resolution: This shift in the status of the engineer meant that the principles of dispute resolution as contained in the Red and Yellow Books could notbe maintained underthe Orange Book. In particular,the mechanism of decisionmaking as prescribed in clause 67 ofthe Red Bookand its two-tier system basedon the principle of the impartial engineer had to be abandoned in the Orange Book(see Chapter 19 above). A completelydifferentsystem ofdisputeresolutionhadto be adopted to fill this vacuum created inthe Orange Book. This was done byincorporating the (a) The employer's representalive:

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concept of disputereview boards as recommended in the Standard Bidding Documents of the World Bank for major contracts estimated to cost over US$50 million. For detailed analysis and discussion of this concept, its rules and procedures, reference should be made to Sections 22.6, 22.7 and 22.8 below.

In this regard,it is worthy of notethat this concept was also adopted by FIDIC inits1996 Supplement to the Red Bookandisreferred to asthe Dispute Adjudication Board. For detailed analysis and discussion of the concept, its procedural rules and terms of appointment, reference should be made to Section19.8 above. Accordingly,the Orange Book has a system of dispute resolution which maybe divided into thefollowingthree steps: (i) First, under clause 20.4, a dispute arisingoutof, orin connectionwith the contract,orwith the executionofthe works, mustbereferredinwriting to an impartial Dispute Adjudication Board, 'DAB', for its decision. The Board, acting as a panel of experts, is required to render a reasoned decision within 56 days. The contractor and the employer are requiredto give effect forthwith to that decision unless and until the decision is revised inanamicablesettlementoranarbitral award. The decision ofthe Boardbecomesfinal and bindingon the parties within28 days ofthe date ofreceipt of theBoard's decision,unless anoticeof dissatisfactionis given before that date. (ii) The second tier of the disputeresolution procedure is activated whena notice of dissatisfactionis given by eitherparty tothe other, under clause 20.4. Following suchnotice being served, the provisions of clause 20.5 stipulate that 'the parties shall attempt to settle such dispute amicably before the commencementof arbitration'. Unlessvariedbythe parties, 56 days are allowed for such amicable settlement to be completed. If unsuccessfulinresolvingtheirdispute amicably,the parties mayproceed to arbitration as set outin item (ili) below. (iii) Arbitrationmaybe commenced,undersub-clause20.6, only inthe case of a disputein respect ofwhich: '(a) the decision, if any, of the Dispute Adjudication Board has not becomefinalandbinding pursuantto clause 20.4; and (b) amicablesettlementhas not been reached.' The rules to be applied andother aspects of the arbitration procedure are referred to in the Appendix to Tender. (c) The employer'srequirements: The expression 'Employer's Requirements' is a defined term under sub-clause 1.1.1.2 of the Orange Book. It means 'the description of the scope, standard, design criteria (if any) and programme of work, as included in the Contract, and any alterations and modifications

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thereto in accordancewiththe Contract'.Itisthe mostimportant document for the success or failure of the project andunless it is drafted with the utmost care, it could result in major disputes between the parties. It ranks third in priority ofdocuments under clause 1.6 ofthe Orange Bookandonly after the contract agreementandthe letter of acceptance. Acheck listof the mainitems to be included in this document appears on page 3 of Part II of the Orange Book. The employer's requirements as defined above should be drafted in a balanced manner as follows: (i) theymustbeprecise intheirdefinitionofwhat the employer requires,yet flexibleenough to generate one of the mainadvantages of a design-build contract, namely the contractor's expert input into the design and building ofthe project; (ii) the requirements should be demanding enough to enable the employer to choose successfullythe most suitable contractor from amongst the tenderers, yet the tenderers should not be required, at the tender stage, to provide more than the necessaryinformationforthe correct decisiontobe madeon the successfultenderer; (iii) theymustbe sufficientlydetailedtoestablish the purposes ofthe contract, yetconciseenough nottoin-utthecontractor's abilityto designtheworks properly orto restrict his ingenuity insearching forthe most appropriate solution;

theymust be complete in prescribing all ofthe employer's requirements, including what the project would look like; how it is operated and maintained; the costofoperating it; the quality of the product, if any; the tests requiredto be run during and after construction and the rate of success of these tests; manuals to be prepared; and spare parts requirements and their costs. Yet, they must not relieve the contractor of his duties, obligations or responsibilities for the design, construction and completion of the whole project. TheRequirements are also the main source of information for the general obligations of the contractor as referred to in clause 4.1 of the Conditions. These obligations include fitness for the purposes for which the works are intended, whichmust be enunciated in the employer's requirements. (d) Fitness for purpose: The standard of liability imposed on the contractor is specified under clause 4.1 of the Orange Bookas that of fitness for purpose. This standard applies not only to the workmanship and materials used but also to the design as provided in clause 5 of the Conditions. The fitness for purpose with respect to design is a higher standard than that whichusually applies to design professionals and than that covered by the professional indemnity insurance they must provide. In fact, it is extremelydifficult,if not impossible,to obtain a professionalindemnity cover to the standardoffitness (iv)

for purpose.

(e) Fixed lump sum price: Clause 13.1 of the Orange Book provides that pay-

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ment for the works shall be made on a fixed lump sum basis and that the contract price shall not be adjusted for changes in the cost of labour, materials or other matters. Clause 13.1 (d) provides that any quantities set out in the schedule are only estimated and are not to be takenas the actual and correct quantities of the worksto be executed. Clause 13 also provides the principles for payment for the works and is divided into sixteen subclauses. Interim payments are intended to reflect the estimated value of the works executed up to the time of application for payment asindicated in

(±)

clause 13.3 (a). However, whilst the Orange Book is intended to be a fixed lump sum contract, the employer is empowered through his representation under clause 14 of the Conditions to initiate variations at any time during the contract period. The 'Contract Period' is a defined term meaning 'the period from CommencementDate to the date 365 days afterthe date on whichthe whole of the Works shall have been completed as certified by the Employer's Representative under Clause 10 (or as extended under Sub-Clause 12.3).' This is a new term quite different from its equivalent under both the Red and Yellow Books and it clearly removes the two ifiusions created in the minds of some people as to the intendedmeaning of 'maintenance' and 'defects liabffity'. The 365 days period is not the period of liability for defects and neither is it a period when maintenance of the project is provided. The period of liability is the limitationperiod as defined by reference to the applicable law of the contract. Maintenance and care of the project aftertaking over by the employer areprovided by theemployer. Design: Under the Orange Book, the design function is the contractor's responsibifity as stipulated in clause 5 of the Conditions. It is contained by implicationin what is referred to as the 'ConstructionDocuments' whichare definedinsub-clause 1.1.6.1 as 'all drawings, calculations,computer software (programmes), samples, patterns, models, operation and maintenance manuals, and other manualsand information of a similar nature, to be submitted by the Contractor.' However, the designmust firstbe initiated bythe employer in aconceptual form and included in the employer's requirements as part of the tender documents.The conceptual design serves as the employer's expressionof the project andmightrepresent an inputof no more than 10 per centof the total necessaryinput. This conceptual design should be checked by the tenderer, modified if necessary,but accepted if not, and developed intohis proposal with the tender. if the tenderis successful,the contractor is required, under clause 5.2 of the Conditions, to prepare the construction documents in sufficient detail to do allthat is necessaryto execute and complete theworks. Wheneachof the construction documents are considered ready for use, they are then required to be submitted to the engineer's representative for pre-constructionreview.

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This review whichmustbe carried outwithin 21 days permits the verification ofcompliancewith the contract at an early stage andalso whetheror notthe design is proceeding in accordancewith the employer's requirements. Inthis way, any corrective action could be taken at the earliest opportunily and before the commencement of any construction. However, it is notable that neither approval nor consent is specified as a condition precedent to commencement of construction. Although these words are mentioned in subclause 3.1 of the Orange Book, the contractor can proceed with the constructionof the works in accordancewith the constructiondocuments once he has notreceived any comments by the dateof expiry of thereview period.Inany case, clause 3.1 provides that

'Any proposal, inspection, examination, testing, consent, approval or similar act by the Employer's Representative (including absence of approval) shallnotrelievethe Contractorfrom anyresponsibifity,including responsibffityof his errors, omissions,discrepancies,andnon-compliance withSub-Clauses5.3 and 5.4'. Under the Orange Book, this completeresponsibilityfor designincludes the question of site data whichis referred to under clause 4.9. Unlike the Red Book, no mention is madeof the contractor's basis for histender. Instead, the contractor is 'deemed to have obtained all necessaryinformation as to risks, contingenciesandall other circumstanceswhich may influence or affect the Tender'. (g) Risk, responsibility, insurance and force majeure: These topics are collected together andincluded logicallyin threeconsecutiveclauses, 17, 18 and 19, of the Orange Book. Clause 17 which deals with risk and responsibilityis logically constructed as it deals first with the risks of bodily injury, sickness, disease or death; andwith injury to ordestruction ofphysical property (other thanthe works), including consequentiallossofuse. These risks are allocated to thecontractorbutarelimited to theextentthat theyaretheresultof abreach of a duty of careimposed by law. Clause 17.1 provides for an indemnity by the contractor to the employer and his representative, their contractors, agents and employeesin respect of theserisks. It is equivalent in part to clause 22.1 of the Red Book, but more clearly set out and properly phrased in the context of the whole topic of risk, liabilityandindemnity for bodily injury and accidental loss or damage. In this connection,it must be remembered that clauses 17, 18 and 19 deal only with the accidental risks whichmight cause bodily injury or disease or death or damage or loss to physical property. Unfortunately, this principle is not made sufficientlyclear in the Orange Book as there is no reference to risks of loss or damage in clause 17.5 'Contractor's Risks', leaving the unwary to assume that the contractor's risks are all risks inclusive of

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financial risks and the risks of loss or damage. Furthermore, there appears to be no exlanationfor this omissionin the Guideto the use of FIIDIC conditions of contract for design-build and turnkey. Therisks related to financial and/or time loss are not the subject of these clauses. Instead, they are spread in the other clauses of the Conditions.Such risks are allocatedto the contractor and the employer in the same manner as the allocation of risks of accidental loss or damage: that is to the contractor unless specificallyallocated to the employer. Accordingly, the events described inthe followingsub-clausesare allocatedtothe employer:clauses4.24, 'Fossils'; 4.11, 'unforeseeable Sub-Surface Conditions'; 8.8, 'Consequencesof Suspension'; 13.16, 'Changes in Legislation'; and 8.4, 'Delays caused by Authorities'. Clauses 17.2 to 17.5 are very similar to clause 20 of the Red Book and use the same language with slight improvement in the framework. The employer's risks are repeated verbatim from clause 20.4 of the Red Book exceptfor the designriskwhichis naturally shifted inthe Orange Bookto the contractor's list. Regardingrisk and liability,threeother important differencesexist: (a) Undersub-clause17.4 of the Orange Book, a noticeis required to be given by the contractor to the employer's representative when an employer's risk is either foreseen by or becomes known to the contractor. A further notice is requiredshould the contractorsuffer delay and/or incurcostas aresultof an employer's risk eventuating. Underthe Red Book only the second notice is requiredbut only by reference to valuation under clause 5.2 thereof. (b) The valuation of a claim made as a result of an employer's risk eventuating under the Orange Bookis madeunder sub-clause17.4 thereof which refers to cost, whereas clause 52 of the Red Bookmay include cost plus profit. (c) Sub-clause17.6 ofthe OrangeBookisanewadditionalsub-clausewhichlimits the liability of the contractor in respect of consequential and other specified losses exceptin certain circumstancesstatedtherein. 21.4 The conditionsof subcontract for works of civil

engineering construction As stated earlier, the conditions of subcontract for works of civil engineering constructionwere produced by FIDIC for the first time in 1994. Until then, contractors adapted either the Red Bookitself or the Form of Contractissuedby the English Federation of Civil EngineeringContractors known as the 'FCEC Form' andby colour as the 'Blue Form'. Thenew FIDIC subcontractconditionswere drafted in a compatibleformat and inlanguage andterminologyconsistentwiththeRedBook. The document isredin

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colour to emphasise its harmony with the Red Book. Accordingly,the main contractor underthe Red Bookis the employer under the subcontractconditions with siniilar rights and obligationsas those of the employer under the Red Book. Thesubcontractor,ontheotherhand, assumes theroleofthe contractorunder the subcontract with similar rights and obligations as those of the contractor in the Red Book. However, it must be emphasised that some significant differences between the two forms of contract exist. The main features of the subcontract conditions are: format and interpretation;the relationshipwiththe maincontract; indemnities andinsurance; payment; andthe method of settlement of disputes. These features are briefly considered below. 21.41 Format

Thesubcontractconditions followthe same patternas that of the otherstandard Forms of Contractpublished by FH)IC in thatthey are drafted intwo parts. PartI contains the clauses of general application and is referred to as the General Conditions. Part II contains the clauses whichmust be specially drafted to suit eachindividual subcontract. When combined,Parts I andII form the conditions governing the rightsand obligationsofthe maincontractorandthe subcontractor. Subjectto minor modifications,this form of subcontract is also suitable for use whenthe subcontractoris nominated by the employer. There are only 22 clauses in the subcontract form compared with the 72 contained in the Red Book. Accordingly,provisions of a numberof clauses which appearinthe Red Bookare incorporated under a single clause in the subcontract form. For example, clause 2 of the subcontract combines the topics of the subcontractor's obligations,subcontracting and assignment of the subcontract, performancesecurity and programming ofthe executionofthe works. The insurance provisionsare abbreviated andincorporated intoclause 15, whereas settlementof disputes remains undera single clause,clause 19. Clauses1,4, 13, 15, 16 and 19are discussed below. 21.4.2 Clause 1, definitions and interpretation

Clause 1 comprises six sub-clauses.Four of these, sub-clauses1.2 to 1.5, are the same as their equivalent sub-clauses in the Red Book. Sub-clause 1.1 contains definitions of a number of standard terms used throughout the subcontract. In general,definitions of the terms used inthe subcontractare similar to those in the Red Bookand are grouped under similar sub-headingsas those inthe Red Book. However, by its very nature, sub-clause 1.1 of the subcontract differs in some respects from that in the Red Book and there are a number of new definitions whichrelate specificallyto the subcontract. Sub-clause1.6 is the same as thatnumbered2.5 inthe Red Book.

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21.4.3 Clause4, 'main contract'

There are four sub-clauses under clause 4. Clause 4.1 provides that the subcontractor is deemed to have full knowledge of the provisions of the main contract. To that end, the contractor is requiredto makethe main contract available to the subcontractor,butwithout its price details. He is also requiredto provide the subcontractorwith copies of the Appendix to Tender and Part II of the Conditions and any conditions which differ from those in Part I of the main contract.

Sub-clause 4.2, 'Subcontractor's Responsibilities in Relation to Subcontract Works', provides thatthe subcontractormust carry outhis contractualobligations so thatno act or omissionof his shall constitute cause or contribute towards any breach of the main contract by the contractor. Furthermore, it is stated that the subcontractormust assume and perform all the obligationsandliabilitiesof the contractor under the main contract in relation to the subcontract works. This assumption of matching responsibility typifies the compatibifity of the two documents. Sub-clause4.3, 'No Privity of Contract with Employer', confirms what might otherwise only be implied; that there is no privity of contract between the subcontractor and the employer under the maincontract. Sub-clause4.4, 'Possible Effects of Subcontractor'sBreaches of Subcontract',is one of several places in the subcontract form where the subcontractor must indemnify the contractor against any damages arising from a breach of the subcontract or misuse committed or liabifities incurredby the subcontractor (subclauses 5 and13 respectively). 21.4.4 Clauses 13 and 15, 'indemnities; insurances'

The indemnity provisionsrelating to all losses and claimsinrespect ofdeathofor injury to anyperson, orloss or damage to any property other than the subcontract works are containedinclause 13 ofthe subcontract.The insurance provisionsare containedinsub-clause15.1 andare obviouslydrafted invery broadterms leaving the details to be specifiedindividually in Part II of the conditions, for eachsubcontract.

The details to be specifiedin Part II include: — — — —

the risks to be covered by insurance by the subcontractor; the sumsto be insured; the identity of the insured; the period of insurance.

However, the responsibilityto insureagainst the employer's liabilityin respect of the subcontractworksis placed on the subcontractorinPart I of the conditions.

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The responsibilityof the main contractor to provide insurance cover in respect of the whole of the works is outlined in sub-clause 15.2. Reference to this responsibilityis also drafted inbroadterms, butprovision ismadeinPart IIof the conditions for specific references particular to each subcontract. Sub-clause15.2 also provides thatthe subcontractworks are atthe riskof the subcontractoruntila taking-overcertificateis issuedinrespect ofthe sectionof the worksinwhichthe subcontractworksare contained. The responsibilityfor making goodany lossor damagewhichmayoccur to the subcontractworksduringthatperiod is allocated to the subcontractor. However, sub-clause 15.2 also provides that the subcontractor should bepaid the amount of anyclaimwhichcanbe establishedunder the maincontractor'sinsurance cover in respect of certain specifiedevents.These events are described in sub-clause 15.2 as those where any of the subcontract works, temporary works, materials or other belongings of the subcontractor are destroyed or damaged during the construction period of the main contract. Unfortunately, it is not clear what is intended by the word 'established' in that sub-clause and this mustbe deducedfromthe actual insurance policies provided

under the maincontract. Accordingly,the wholeareaofinsuranceis left openand istotally dependenton the conditionsnegotiated between the maincontractor and the subcontractorfor each individual case. Therefore, in this connection, Part II of the subcontract conditionsis of particular importance to those negotiating asubcontract, whether a main contractor or a subcontractor. The extent of the insurance cover to be provided by eachof themmustbe clearlyformulated andspecifiedso that it can be obtainedwithoutcreating any overlaps or gaps; theformer could be costlyand the latter ruinous. 21.4.5 Clause16, 'payment'

This is another important clause in the subcontract form which is given prominence by its lengthand numberof sub-clauses.There are six sub-clausesrelating to six differenttopics as set out below. Sub-clause16.1, 'subcontractor's monthly payments'

Inmanyrespects,this sub-clauseis similar to sub-clause60.1 ofthe Red Book. The maindifferenceis thatthe subcontractor'sstatement for payment is requiredtobe submitted to the maincontractorsevendaysafter the endofeachmonth,referred to as the 'Specified Day', compared with an unspecified period afterthe end of each month in clause 60 of the Red Book. The purpose ofthis time limitation is to ensure that the subcontractor's statement is received in time to enable the contractor to include its contents in his own submission to the engineer. The contractormaychooseto alter thisperiodofsevendaysto a shorter period byanentry in Part II of the conditions.211° It is notable that this sub-clause establishestwo

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newterms, 'Statement' and 'Specified Day', which are defined in sub-clause16.1 of the maintext of the conditions rather than in sub-clause 1.1. where the definitions are provided. Both of these terms are usedseveral times in clause 16. Sub-clause16.2, 'contractor's monthly statements' This sub-clause places an obligation on the contractor to include in 'his next statement for payment under the maincontract', any appropriate amounts submitted by the subcontractorin his statement to the maincontractor. Sub-clause 16.2 also provides that the contractor shouldinclude all sums certified but unpaid on account of the subcontract works in any proceedings he institutes against the employer to enforce payment. This provision is necessary from the subcontractor's point of view since there is no privity of contract between the employer and the subcontractor. In this connection, reference should be made to sub-clause 4.3 of the subcontract conditions where this is explicitly stated. Sub-clause16.3, 'payment due;payment withheld or deferred; interest' This sub-clause outlines the period within which the amounts included in the subcontractor's statement become due for payment. Subject to any specified deductions, the subcontractoris entitled to payment within 35 days ofthe specified day. There are a numberof specified events which entitle the contractor to withhold or defer payment. Inthe eventthat he doesso, the contractor is required tonotify the subcontractoras soon as reasonablypracticable,butnotlaterthanthe date whensuchpayment wouldotherwise have beenpayable. It appears that since the conditionsof subcontractwere published, this period of 35 days has been found to be too shortin relation to the events cited in the sub-clause. Until this is rectified in a subsequent revision, it is recommended that the period be increased to 70 days, by a suitable entry in Part II of the Conditions.211'

The question of interest which may become due in certain specified circumstances is dealt with in the two penultimate paragraphs of sub-clause 16.3. In circumstanceswhereinterest is to be claimed,itis necessaryforthe subcontractor to give notice of suchclaim withinsevendaysof the datewhenthe sum claimed became payable, but was not actually paid. Finally,this sub-clause incorporates the principle of sub-clause60.2 ofthe Red Book in specifying that no amount becomes payable until the performance security, if required under the subcontract, has been provided by the subcontractor and approved by the maincontractor. Therefore, it must be strongly recommended that the matter of acceptability of the performance security is determined atthe earliestpossibletime and anyquestion related toitimmediately resolved if the subcontractor's cash flow is not to be affected.

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Sub-clause16.4, 'payment ofretention money'

As suggested by its title, this sub-clause deals with the timing and method of payment to the subcontractorin respect of anyretention money held under the contract.

Sub-clause16.5, 'payment, ofsubcontract priceand other sums due' This sub-clause deals with the period of time by which the subcontractor is entitled to receive his final payment under the subcontract. Sub-clause16.6, 'cessation ofcontractor's liability'

Asinsub-clause60.9 oftheRedBook, this sub-clauseprovidesforthenecessityfor a noticeofclaim to be given tothemaincontractoras aprerequisite to establishing any liability in that respect. Such notice must be given before the issue of the defects liability certificatein respect of the mainworks. 21.4.6 Clause 19, 'settlement ofdisputes'

This clause followsthetrend, setbyFIDICinits Fourth Edition ofthe RedBook, of requiring amicablesettlementof disputes prior to arbitration. As inthe RedBook, a period of56daysis allowed fortheparties toattempt settlementoftheirdispute inan amicablemanner. The period of56 daysstarts with a notice of disputebeing given by one party to the other. In addition to the above, the first sub-clause of clause 19 provides that a disputewhich has not been settledamicably 'shall be finally settled underthe Rules ofConciliationandArbitration ofthe International Chamber of Commerceby one or more arbitrators appointed under suchRules.'. Sub-clause19.2 imposes the duty on the subcontractor to provide suchinformation as may be required by the main contractor in relation to any dispute between the employer and the main contractor which touches or concerns the subcontractworks. Sub-clause19.2 also requires the subcontractorto attendany meetings in connection with such dispute as the contractor may reasonably request. 21.5

Other publicationsof FIDIC In the lastthreesections,the mainfeatures of the YellowBook, the Orange Book andthe SubcontractForm aspublished byFIDIC havebeensetoutanddiscussed. There are other publications of FIDIC which should be known to any person involved in construction,andparticularlyininternational construction.However, they are outsidethe scope of this book, but it is appropriate that the more significant of these are mentioned here.

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The FIDIC Form ofContract FIDIC's publicationsare divided into six sections,

as follows:

1. Information about FIDIC. 2. Information for clients. 3. Agreements between clients and consulting engineers. 4. Information for consulting engineers. 5. Standard construction contract conditions. 6. Agreements between consultingfirms. Some ofthe above documents are availableinlanguages otherthan English.Some arefreeof charge and others arefor purchase at an affordableprice, but all area must to anyone whois involved inthe construction industiy.

Chapter 22

The World Bank and the FIDIC Form

22.1 Introduction

InJanuary 1995, theWorld Bank,the largest financing agency inthe international field, produced the first edition of its standard biddingdocuments for the procurement of works of civil engineering construction, 'SBDW'. The use of these documents was made a condition inall contractsfinanced inwholeor in part by the World Bank for construction works estimated to cost more than US$10 million.221 The SBDW included

a set of conditions of contract whichwas based on the Fourth Edition of the Red Book, in the form reprinted in 1992, with amendments. However,whilstPartI ofthe Red Bookwas kept intact, certain amendments were introduced by the World Bank to Part II of the FIDIC Form. Some of these amendments are mandatory, others are eitheroptional or recommended. The adoption ofthe Red Book by the World Bankin its SBDW is a major voteof confidenceandan endorsement of the FIDICRed Book. Furthermore,in view of the importance of the World Bank as a financing agency for works of civil ofthe Red Bookhas engineeringconstruction inthe developingcountries,the escalated considerably.Withthis in mind, it is necessaryto consider and to study in depththerationale behind theamendments requiredorproposed bytheWorld

us

Bank.

22.2 The World Bank Group There arefour separate institutionswhichmakeup the World BankGroup. These are: (a) The International Bank for Reconstruction and Development,'IBRD',which wasestablished in 1944, commonlyreferred to as the World Bank,andis the

single largest provider of development loans to middle-income developing countries. (b) The InternationalFinanceCorporation,'IFC',whichwasestablishedin 1956to supportprivate enterprise in the developing world.

465

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The FIDIC Form ofContract (c) The International DevelopmentAssociation,'IDA', which was established in 1960to assistthe poorest countries byproviding interest-freecredits with35 to 40 year maturity. (d) The MultilateralInvestmentGuarantee Agency,'MIGA',establishedin1988 to

offer investors insurance against non-commercialrisk and to help governments in developing countries attract foreigninvestment.

Whilstitis acommon goalforthe whole group toalleviatepoverty andraise living standards by promoting sustainable economic growth, each of these four institutions attempts to achievethat aim through a differentroute. The IBRD lends to governments of developing countries and receives some form of guarantee for repayment of these loans. The IFC promotes economic development by encouraging private sector investment into developingcountries.2 The successof the World Bank in its mission can beviewedby the extent ofits lending to over 130 developing and restructuring countries. The Bank lends annually inthe region ofUS$22billionforabout200operationsspreadover 40,000 contracts of varyingsize. These range from under US$1million to over US$200 million.30 per centofthe contractsarein respect ofconstructionworks and 10per cent arerelated to services of consultants. Within the 30 per centfor construction works, the division into sectors of construction is as follows: transportation 26 per cent; power 18 per cent; agriculture andrural development14 per cent; urbandevelopment 8 per cent; water supply and sewerage 7 per cent; education 7 per cent; energy 4 per cent; telecommunication3 per cent; health3 per cent; and others10 per cent.3 In all of its operations, the Bank has formal procurement rules and guidelines which incorporate a policy of International Competitive Bidding, 'ICB'. These have developed over time andare updated and published periodically.

22.3

The WorldBank's SBDW: an overview At first, in 1985, the World Bank produced biddingdocuments for the procurementofworksofcivil engineeringconstruction intheform of sample documents. As statedabove, these sample documents were upgraded bythe Bankto standard biddingdocumentsinJanuary 1995, having incorporated intothemthe valuable international experience gained during the intervening period and having made theirusemandatory in all contractsfor constructionworksfinanced inwhole orin part by the World Bank and whose cost is estimated to be more than US$10

million. The documentscontainedwithin theSBDW aredivided into14sections.Sections 1,2 and3 dealwiththe biddingprocedure and provide a comprehensiveand well structured codeforinvitingbidsandforprovidinginsuchinvitationsthenecessary data and instructions to bidderswhichshould accompanysuchinvitations.

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Section 4 reproduces Part I of the Fourth Edition of the FIDIC General Conditions of Contract for works of civil engineering construction, as reprinted in 1992; and section5 incorporatesPart IIoftheseConditionswith a large number of amendments introduced by the World Bank.As explainedbelow, the use of these amendments is intended to be either mandatory, or recommended or optional as designated inthe SBDW. Sections 6, 8 and 10 incorporate notes on the preparation of all the technical documentationfor the project including: technicalspecifications,billofquantities anddrawings. Section 7 comprises the form of bid, appendixto bid andbid security which must be specificallycompleted by the employer for eachproject in order to providethe necessary data required in certain clauses of Part I of the Conditions of Contract. This data defines the project and permits bidders to know the parameters of the contract. Section9contains the formof agreementandthe forms ofperformance security and bank guarantee for advance payment. Section11 ofthe SBDWprovides explanatorynotes andsome additional clauses to PartII of theConditions.In particular,these notes explain thereasoningfor the changes introduced in the text of the FIDIC Form. Section 12 is entitled 'Post-qualification' and contains notes on the form of invitation when bids are invited directly from contractors withoutusing prequalificationprocedure.Inthis case,biddersare requiredtocompleteallthe forms and tables of the standard pre-qualification documents and provide all the information requiredby them. Section13 deals specificallywith the disputeresolution procedures under this contract. It introduces two new versions for clause 67, settlement of disputes, in addition to the version usedinthe Red Book. The first new version provides for disputes betweenthe parties to be referred to a disputes review board whilst the second option providesfor suchdisputes tobereferred to a single disputes review expert. The use of the first version is mandatory for contracts estimated to cost morethan US$50 million. These versions aredealt with in more detail in Section 22.7 below. Section 14 of the SBDW legislates for the eligibility of the various countries around theworldfor the provision of goods, worksandservices. 22.4 SBDW: Part

II- conditionsof particularapplication

As stated earlier, Part I of the Conditions of Contractwhich are included in the SBDW has been reproduced verbatim from the FIDIC Form. However, Part II of these Conditions is significantlydifferentfromits equivalentunder the Red Book as it includes amended and/orsupplemental provisionswhichare prescribed as eithermandatory or recommended by the World Bank,or left as optional for the

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The FIDIC Fonn ofContract

employerto choosefrom depending on suitabilityto the particular project and the circumstance.Thenotes inthe introduction to section5 of the SBDW make it clear thatPart II has toinclude specific provisionsfor thecountry inwhichtheproject is to be constructedin addition to those specificprovisions requiredfor the project itself. Accordingly, the notes recommend that Part II should be drafted by someone who is thoroughly familiar with the provisions of Part I andwith any specificrequirements ofthe project.Furthermore,the notes recommendthat legal advice be takenwhendrafting this part of the Conditions as it takes precedence over the provisions of Part I. TheprovisionsofPartII ofthe Conditionsinthe SBDWstemfrom threesources,

as follows: (a) provisions drawnverbatim fromPartII of the RedBook, Fourth Edition 1987, as reprinted in 1992. These are designated with the letter 'F' for FIDIC;

(b) provisions drafted by the World Bank and designated with the letters 'WB';

and

(c) provisions which include changesfromthe FIDIC clauses and are designated

with an asterisk. Forthese provisions, thereare explanationsgiven in section 11 of the SBDW.

The provisions of Part II are also divided intothreecategories,as follows: (a) mandatory provisions which mustbeincorporated into any contract financed

from loans by the World Bank. They are marked with the letter 'M' for mandatory; (b) recommended provisions which should normally be incorporated in a contractfinanced from loans provided by theWorld Bank.They are marked with the letter 'R' for recommended; and (c) optional provisionswhichare included in Part II to suit a particular project or circumstance.They are marked with the letter '0' for optional.

Thus, section 5 of the SBDW provides a detailed list of all the mandatory, recommended and optional provisions of the SBDW Conditions of Particular Applicationwhichcomprisethe clausesofPartII ofthe F]DIC Formtogether with six additional clauses relating to: taxation; ifiegalpayments; termination of contract for employer's convenience;restrictions on eligibifity; joint and several liability;andconfidentiality.

22.5

Some significantmandatory provisionsin Part II of the SBDW Theprovisions marked as mandatory in the SBDW for contracts financed from loans provided by the World Bank are listed in Table22.1 below:

The World Bank and the FIDIC Form Table22.1

Mandatory provisions as included in Part II of the World Bank SBDW.

Sub-clause No.

Title

1.1 (a)

Definitions: Bank Definitions: Employer *Definitions: Engineer Language and Law: Language Language and Law: Law *prio.ftyof Contract Documents *Per.formanceSecurity Validity of Performance Security CostofPerformance Security Program to be submitted Cash flow Estimate to be submitted *Employers Risks Insurance of Works and Contractor's Equipment *Scope ofCover Scope of Cover *Evidenand Terms of Insurances *Source ofInsurance *Valuation of Variations *Power ofEngineer to FixRates *Vatiations Exceeding 15 percent *Contractors Equipment, Temporary Works, and Materials *Special Risks Engineer's Decision Notice to Employer and Engineer *Subsequent Legislation Currency Proportions Substantial Changes in Currency Requirements *Foreign Taxation *Local Taxation Restrictions on Eligibility Jointand Several Liability

1.1(a) (i) 1.1 (a) (iv) 5.1 (a) 5.1 (b)

5.2 10.1

10.2 10.4 14.1 14.3

20.4 21.1 21.2 21.4 25.1 25.5 52.1 52.2 52.3 55.2 65.2 67.1 68.2 70.8 72.2 72.4 73.1 73.2 76.1 77.1

469

stated above, some of the amended and supplemented provisions are accompaniedby explanatorynotes insection 11 of the SI3DW. Inorderto indicate that sucha provision is accompaniedby anexplanatorynote, it is marked with an asterisk. It is assumed that the logicbehind the other changes is self-evident. Mostof the mandatoryprovisions are significant and have far-reachingconsequenceswhichshouldbe carefullystudied. Someof these are discussed below: As

22.5.1 Sub-clause1.1 (a) (iv)

This provision relatestothe definitionofthe engineerwhichis extendedunderthe mandatory requirement of the World Bankbythe words: 'or anyothercompetent person appointedby the Employer, and notified to the Contractor, to act in replacementofthe Engineer'. As explainedinthe notes, the purpose ofthis added

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The FIDIC Form ofContract

text is to providean answer to the problem created by the FIDIC wordingwhich makesreplacement of the engineer impossiblewithoutthe contractor's approval. Whilst the reasoning behind this change in sub-clause 1.1 (a) (iv) is understandable, it could be open to abuse by the employer. 22.5.2 Clause10

The wordingofClause 10 of the Red Bookwhichdeals with performancesecurity is replaced by anewwording. The use ofthenew sub-clauses10.1, 10.2 and10.4 is mandatory whilst the wordingof 10.3 is recommended for deletion. The basisfor these changes stemsfrom the followingreasoning: (a) The SBDWremoves the possibifityofan employernotrequiring the contractor to providea performance security. (b) The new wordingprovides the employer with a choice of conditional and

unconditional securitiesissuedeitherby a suretyor a bank. (c) The newwordingallowsfor the possibility of an increaseinthe value of the securitywherever thereis anincreasein the contract price ofmore than 25 per cent. Furthermore,itprovides anoption relating tothe currency ofthe security compatiblewiththe types and proportions ofcurrenciesinwhichthe contract priceis payable under the contract. (d) The SBDW wording permits different expiry dates for the performance securitydepending onwhether itisconditionalorunconditional;28 daysfrom the date of issueof the taking-overcertificatein the case of a bank guarantee and one yearin the case of a performance bond. The logic behind this difference is not clear and is perhaps erroneous in view of the fact that the security is for the 'proper' performance of the contract (see Section 15.3, above).

The need for clarity as to the responsibilityfor the cost of complying with clause 10 provides the reasoning forthe new clause 10.4. (f) Inrecommendingthe deletion of sub-clause10.3 (which requires the employer to notify the contractorprior to his making a claim under the security stating the nature of default inrespect of whichthe claim is to be made), the World Bankprovides its answertothe concernthat suchnotificationmightprovidean earlywarning systemtothe contractorwhichcould leadtohis obtainingacourt injunction aimedat preventing the call on anunconditional guarantee. Whilst such an early warning system has indeed led to contractors seeking court injunctionsinsome cases inthe past, this remedy hasrarelybeengranted. The problem of either unfair callingor unfair refusal to pay the guarantee money could perhaps beresolvedbyinserting aprovision intothe underlying contract whereby a duty is imposed onthe employer who calls a demand guarantee, to accountforand establishhis entitlementtothatmoney orto anypart ofit. Any partfor whichentitlement is not establishedshould thenbe returned. (e)

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22.5.3 Sub-clause20.4

This sub-clause,whichdefinesthe employer'srisks, issignificantlydifferentinthe SBDW from its equivalent in the Red Bookin the followingaspects: (a) The risks identified in sub-clauses20.4(a) to (e) are allocatedto the employer only in so far as they directly affectthe executionof the worksin the country where the permanent works are to be executed. In this way the employer's risks are confined to a narrower boundary than those in the Red Book. The effectof this change extends to sub-clause 21.4. (b) The proportion of the risks relating to the operation of the forces of nature which are allocatedto the employer is also reduced in the SBDW. Whereas suchrisks are defined underthe Red Bookas those against whichan experienced contractorcould notreasonablyhavebeenexpectedto takeprecautions, theyare restricted under the SBDW to the following:

'any operation ofthe forcesofnature (insofaras it occurs onthe site) which

an experiencedcontractor:

(i) could not have reasonably foreseen, or (ii) could reasonably have foreseen, but against which he could not reasonably have takenat least one of the followingmeasures: (A) prevent loss or damage to physical property from occurring by taking appropriate measures, or (B) insure against suchloss or damage.' However,the opportunity ofmaking changes inthis sub-clause did notentice the draftsman of the SBDW to correct the error in the Red Book relating to the requirement to insurefor defectivematerial andworkmanship (seeSection14.5.4 above in this connection). 22.5.4 Sub-clause21.2

This sub-clauseis amended inthe SBDWproviding two changes,the first ofwhich is a significant one, as follows: (a) The insurance cover must start from the first working day, after the com-

mencementdateinstead of'fromthe startofworkatthe Site' asrequiredinthe Red Book. (b) It addsanew sub-clause21.2(c) whichduplicates the provisionsof sub-clause 25.2 of the Red Book, whichremains in itself unchanged. 22.5.5 Sub-clause25.5

This is a new sub-clause whichis added in the SBDW to allow for the insurance coversto be issued by insurers fromany eligiblesourcecountry, as defined in the

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The FIDIC Form ofContract

World Bank Procurement Guidelines,whichhavebeen determined to be acceptable to the employer. The purpose of this additional sub-clause is to enable contractors to insure in their own. home country. Whilst this would usually be cheaper, it might create a problem of accessibilityof the employer to insurers. After all, the employerisjointlyinsuredunder the requirements of clauses21 and 23 of the contract. 22.5.6 Clause 67

The standardbiddingdocuments include three alternative versions of clause 67, eachof whichis intended for a particular typeof contract. The first version disposes of the traditional role of the engineer as an adjudicator or quasi-arbitrator andprovides for disputes between theemployer andthe contractorto be referred to apanelofthreemembers calledaDispute Review Board. Thesecond version is identicalto the firstversion, exceptthatit providesforsuchdisputes tobe referred to a single personknown as a Dispute Review Expert. The third version leaves intact clause 67 as in the Fourth Edition of the Red Book, but stipulates that the engineer must be independent of the employer. Thefirstversion ofclause 67is intended tobe usedincontractsestimatedto cost more than US$50 million. For othercontracts using the SBDW, the employer may select any of the threeversions of clause 67. 22.5.7 Additional clauses

Section5 of the SBDW contains six additional clauses to the standard clauses of Part I of the Red Book. However, some of these clauses are in essence recommended inPartII of the RedBook. The SBDWadditional clausesarenumbered 73 to 78 anddeal with the followingtopics: Clause 73: Taxation,foreign and local; income taxes on staff; duties on contractor's equipment. Clause 74: Illegalpayments. Clause 75: Terminationof contract for employer's convenience. Clause 76: Restrictionson eligibility. Clause 77: Joint and several liability. Clause 78: Details to be confidential. 22.6 The Dispute Review Board

As stated in Section22.5.6 above,version 1 of clause 67 oftheSBDW is a modified alternative of clause 67 ofthe Fourth Edition of the Red Bookwhichincorporates theprocedure for disputesettlementusingtheservicesofaDispute ReviewBoard.

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The rules andprocedure applicableto the Dispute ReviewBoard are appended to themodifiedclause 67andmustbereadtogether withtheprovisionsoftheclause. 22.6.1

The wording ofSBDWclause 67 The wordingof sub-clause 67.1 ofthe SBDW is modified to read as follows:

'Disputes Review Board 67.1 If any disputearisesbetween the Employer and the Contractor in connection with, or arising out of, the Contract or the execution of the Works, whether duringthe executionof theWorks or aftertheircompletion and whether before or after the repudiation or other termination of the Contract, including any disagreement by either party with any action, inaction, opinion, instruction, determination, certificateor valuation of the Engineer, the matter in dispute shall, inthe first place,be referred to the Disputes Review Board ("the Board"). The Board shall be established by the signing of a Board Member's Declaration of Acceptance (as required by paragraph 12 of Annex A of these Conditions of Particular Application)by all threeBoard Members. The Board shall comprise threeMembers experienced with the type of construction involved in the Works and with the interpretation of contractual documents. One Member shall be selected by each of the Employer and the Contractor and approved by the other. If either of these members is not so selected and approved within 28 days of the date of the Letter of Acceptance, then upon the request of either or both parties suchMember shall be selected as soon as practicable by the Appointing Authority specifiedinthe Appendix to Bid. The thirdMember shall be selected by the other two and approved by the parties. If the two Members selected by or on behalf of the parties fail to select the third Member within 14 days afterthe later of their selections,or if within 14 days the selection of the third Member, the parties fail to approve that Member,then upon the request of eitheror both parties suchthird Member shall be selected promptlyby the same Appointing Authority specifiedin the Appendix to Bid who shall seek the approval of the proposed third member by the parties before selection but, failing such approval, nevertheless shall select the third Member. The third Member shall serve as Chairman of the Board. 62 Inthe event of death, disability,or resignationof any Member,suchMember shall be replaced in the sane manner as the Member being replaced was selected.If for whatever other reasona Member shall fail or beunableto serve, the Chairman (or failing the action of the Chairman then either of the other Members) shall inform the parties and such non-serving Member shall be replaced in the same manner as the Member being replaced was selected.Any replacement made by the parties shall be completed within 28 days after the

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The FIDIC Form ofContract

event giving rise to the vacancy on the Board, failing whichthe replacement shall be made by the Appointing Authority in the same manner as described above. Replacement shall be considered completed when the new Member signs the Board Member's Declaration of Acceptance. Throughout any replacement process the Members not being replaced shall continue to serve and the Board shall continue to function and its activitiesshall have the same force and effectas ifthe vacancyhadnotoccurred, provided, however, thatthe Board shall not conduct a hearing nor issue a Recommendation until the replacementis completed. Either the Employer or the Contractor may refer a dispute to the Board in accordance with the provisions of Annex A to these Conditions of Particular Application. If either the Employer or the Contractor is dissatisfied with any Recommendation of the Board, or if the Board fails to issue its Recommendation within 56 days after receipt by the Chairman of the Board of the written Request for Recommendation, then either the Employer or the Contractor may, within 14 days after his receipt of the Recommendation, or within 14 days after the expiry of the said 56-day period, as the case may be, give notice to the other party, with a copy for information to the Engineer, of his intention to commence arbitration,as hereinafter provided, as to the matter in dispute. Such notice shall establish the entitlement of the party giving the same to commence arbitration, as hereinafter provided, as to such dispute and, subject to Sub-Clause67.4, no arbitration in respect thereof maybe commenced unless suchnotice is given. if the Board has issued a Recommendationto the Employer and the Contractor within the said 56 days and no notice of intention to commence arbitration as to such dispute has been given by either the Employer or the Contractorwithin 14 daysafterthe parties receivedsuchRecommendationfrom the Board, the Recommendation shall become final and binding upon the Employer andthe Contractor. Whether or not it has become finaland bindingupon the Employer and the Contractor, a Recommendation shall be admissible as evidence in any subsequent dispute resolution procedure, including any arbitration or litigation having any relation to the disputeto whichthe Recommendationrelates. All Recommendations which have become final and binding shall be implemented by the parties forthwith, such implementation to include any relevant action of the Engineer. Unless the Contract has already been repudiated or terminated, the Contractor shall, in every case, continue to proceed with the Works with all due diligence and the Contractor and the Employer shall give effect forthwith to every decision of the Engineer unless and untilthe same shallbe revised as a resultof theoperation ofthis Sub-Clause67.1 or, as herein after provided, in an arbitral award.'

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Sub-clause 67.2: Sub-clause 67.2 is deleted without a change in the numbering of the other remaining sub-clausesof clause 67. Sub-clause 67.3: Sub-clause67.3 is modified to read as follows: 'Arbitration 67.3

AnydisputeinrespectofwhichtheRecommendation,ifany, oftheBoardhasnot become final and binding shall be finally settled by arbitration under the UNCITRAL ArbitrationRules.The arbitraltribunal shallhavefullpowerto open up, review and revise any decision,opinion,instruction,certificate, or valuation of theEngineerand anyRecommendation(s)of theBoardrelated tothe dispute. Neither party shall be limited in the proceedingsbefore suchtribunal to the evidence or arguments put before the Board for the purpose of obtaining its Recommendation(s)pursuant to Sub-Clause 67.1. No Recommendation shall disqualify any Board member from being called as a witness and giving evidence before the arbitrator(s) on any matter whatsoeverrelevant to the dispute. Arbitration may be commenced prior to or after completion of the Works, providedthat theobligationsoftheEmployer,theEngineer,theContractorand the Board shall not be altered by reason of the arbitration being conducted during the progress of the Works. The appointing authorityshallbe . The place ofarbitrationshallbe and the of arbitration shall be _________ _________ language Sub-clause67.4:

Sub-clause67.4 is amended to read as follows:

'Failureto comply with Recommendation 67.4 Where neitherthe Employernorthe Contractorhas given noticeof intention to commence arbitration of a disputewithin the period stated in Sub-Clause67.1 and the related Recommendationhas become final andbinding, either party may, ifthe other party failsto comply withsuchRecommendationand without prejudice to any other right it may have, refer the failure to arbitration in accordance with Sub-Clause67.3. The provisions of Sub-Clause67.1 shall not applyto any suchreference.' 22.6.2 Notes attachedto version 1 ofclause 67

There arethreenotes attached to the textof version 1 of clause 67 andthese are as follows:

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(a) In connection with sub-clause 67.1, an appropriate international authority mustbenamed intheAppendix to Bid,forappointing members of theDispute Review Board shouldthe parties fall to do so withinthe requiredtime. The notes identify a number of possible appointing authorities, such as the Secretary-Generalof the Permanent Court of Arbitration, The Hague; the Secretary-Generalof the International Centre for Settlement of Investment Disputes, Washington, D.C.; the Chairman of the international Court of Arbitrationofthe International Chamberof Commerce,Paris;the President of theLondon CourtofInternationalArbitration.Thenotes alsorecommendthat the consent of the chosen appointing authority be obtained in advance since these organisationsare ingeneral not obligedto actinthatcapacity outside the rules of their own institutions. (b) Sub-clause67.3 of the SBDW provides for the dispute settlement to be under the UNCITRAL Arbitration Rules. However, the notes provide that if the employer is unable to acceptthe UNC1TRAL Rules,then the Bank wouldbe willing to accept other disputesettlement provisions, In this event, the reference to the UNCITRAL Rules in the clause shouldbe amended accordingly. Furthermore,substantialamendments would alsohave to bemadeto the rest of sub-clause 67.3 andto sub-clauses67.1 and 67.4. Therules and procedure for the Dispute Review Boardwouldalso have to be amended accordingly.If theemployeraccepts theUNC1TRALRules,thentheprovisionsof sub-clauses 67.3 and 67.4 may be used as they are.

(c) The third and final note attached to clause 67 points out thatwhilstarbitration underthe UNCITRAL Arbitration Rules is a form of unadministered or non-

institutional arbitration, there are several arbitration centres which provide administered arbitration under rules based on the UNCITRAL Rules. Examplesof regional centres are given. Finally,itisimportant tonotethatthe last paragraph of sub-clause67.3 requires the employer to namethe following: —

the appointing authority forthe appointment of a solearbitrator, orthe second

and presiding arbitrators in thecase ofa tribunal, underArticles6 and 7 ofthe — —

UNCITRAL Arbitration Rules; the place of arbitration;and the language of arbitration.

22.7 The rules and procedure of the Dispute Review Board Therules and the procedureforthe Dispute ReviewBoard areannexed to versions 1 and 2 of clause 67 of the SBDW. They are discussed below under the same headings asthose previously adopted inSection19.9 abovein connectionwiththe

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alternative version to clause 67 as contained in FIDIC's 1996 Supplement. Although there are many similarities between the procedural rules of FIDIC's Dispute Adjudication Board andthe World Bank's Dispute Review Board, there are also many significant differences. Differences, where they exist, are shown below. Regrettably,in order to deal with the Dispute Review Board effectively, therewifi be much repetition of some of the text of Chapter 19 in the following sections.The headings are as follows: — — — — — — — —

Composition andqualifications; Duties of the Board members and commencementof suchduties; Termination of the Board's duties; Remunerationof the Board members; Duties of the employer and the contractor towards the Board; Procedurefor disputereferral to the Board; Conduct of hearings; and Authority of the Board.

22.71 Compositionandqualifications The Board may be composed of either one or three members depending on whether version 1or2 ofthe SBDWisbeing used.Ifa singlemember is appointed, then the Board is referred to as the Dispute Review Expert. As stated earlier in version 1, a threemember Boardis mandatory in all projectswhich are estimated to cost over US$50 million. The SBDW rules provideas follows: (a) Where asinglememberisappointed, he shallbeselectedbyagreementbetween theemployer andthe contractor.Where threemembers are selected,thenone member shall be selected by each of the employer and the contractor and approved bythe other. Inany case,the appointment shouldbe madewithin 28 daysofthe dateof the letter of acceptance. Ifany of these members arenot so selected and approved withinthe specifiedperiod,then upon the request of eitherorbothparties suchmembershallbeselectedassoonaspracticablebythe appointing authority specified in the Appendix to Bid. In a Board of three members,thethird memberisselectedbytheothertwomembers andapproved by theparties. Ifthe two members selectedby or onbehalf oftheparties failto select the third member within 14 daysafterthe date of their selections,or if within 14 daysofthe selectionof the third member, the parties fail to approve thatmember,thenupontherequestofeitherorbothparties suchthirdmember shallbe selectedpromptlyby thesame appointing authorityreferred to inthe Appendix to Bid. The Board members are independent contractors and not employeesoragents of either the employer or the contractor.It is notable that this appointment procedure in theSBDW rules differsfrom that of FIDIC.

478

The FIDIC Form ofContract (b)

(c)

A member of the Board must be experiencedwith the type of construction involved in the works and with the interpretation of contractual documents. He must also be fluentin the language of the contract. A member of the Board must have no financial interest in any party to the contract, or the engineer, or a financial interest in the contract, except for

payment for services on the Board. (d) A member of the Board must have had no previous employment by, or financialties to, anyparty to the contract,or the engineer, exceptforfee-based consultingservicesonotherprojects, all ofwhichmustbedisclosedin writing to both partiespriorto appointmentto theBoard. He must have also disclosed inwritingto both parties prior to appointment to theBoard any and all recent or close professional or personal relationships with any director, officer, or employeeof any party to the contract, or the engineer, and any and all prior involvementin the project to whichthe contract relates. (e) A member ofthe Board must be and mustremainimpartial and independent ofthe parties and shall disclose inwritingto the employer,the contractor,the engineer, and one another anyfact orcircumstancewhichmightbe suchas to cause either the employer orthe contractor to question the continued existence of the impartiality andindependence requiredof Board members. 22.7.2 Duties ofthe Board members

and commencement ofsuchduties

After having been selected and, wherenecessary, approved, eachBoardmember must sign two copies of the declarationand make a copy availableto eachof the parties. A declarationformis annexed to clause 67ofthe SBDWwhichis basedon the particulars set out in Section22.7.1 above andon the member's acceptanceof the appointment. Thereis no declarationform underthe FIDIC 1996 Supplement and the Board members simply sign the terms of the appointment. After completion ofthe declarationform, members of the Dispute Review Boardcommence

theirworkandshall: (a)

not assign or subcontractany of theirwork;

(b)be: (i)

available,on 7 days'notice,for allhearings, sitevisits, and othermeetings of the Board. Underthe FIDIC 1996 Supplement, the notice period is 28 days;

and (II) conversant with all project developmentsandmaintaining relevant files; (c) while aBoard member,notbe employed whether as consultant orotherwise

a

by either partyto the contract, or the engineer, except as a Board member, withoutthe prior consent of the parties andthe other Board members; (d) while a Boardmember,notengage in discussionor make agreementwith any partyto the contract,orwith the engineer,regarding employmentwhetheras

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479

a consultant or otherwiseeitherafterthe contractis completedor afterservice as a Board member is completed;

visitthesiteof the works and meet with representativesof the employer and the contractor and the engineer at regular intervals, at times of critical construction events, at the writtenrequest of either party, andin any casenotless thanthreetimes inanyperiod of12months. Thetimingofsitevisits shallbe as agreed among the employer, the contractor and the Board, but failing agreementshallbe fixed by theBoard; (f) arrange during the site visits to include discussion of the status of the construction ofthe works, an inspectionof the works, and review of anyrequests for recommendationmadeby the parties; (g) at the conclusion of each site visit, prepare a report covering the Board's activitiesduringthe visit andsendcopiestothe parties arid tothe engineer;and (h) except for providing the services required as a Board member, not give any advice to eitherparty or to the engineer concerningconduct of the works. (e)

22.7.3 Termination of the Board's duties

The Board terminates its activities when either (1) the defects liability period referred to in sub-clause 49.1 (or, if thereare more than one, the defectsliabffity period expiring last) has expired, or (ii) the employer has expelled the contractor from the sitepursuantto sub-clause 63.1, and when,in either case, the Board has communicatedtothe parties andthe engineeritsrecommendationson all disputes previously referred to it. Once the Board has terminated its regular activities as provided above, the Board is expected to remain availableto process any dispute referred to itby either party. Incase of sucha referral,the Board memberswillnot receive retainer payments. This rule is different from that under the FIDIC 1996 Supplement; see Section19.9.3 above. 22.7.4 Remuneration ofthe Boardmembers

Paymentsto eachBoardmember for theirservices are governedby the following provisions: (a)

A retainerfee per calendar month equivalent to three times the daily fee

established from time to time for arbitrators under the Administrative and FinancialRegulationsof the International Centre for SettlementofInvestment Disputes (the ICSID arbitrator's daily fee), or such other retainer as the employer and contractor may agree in writing. This retainer fee shall be considered as payment in full for: (i) Being available, on seven days' notice, for all hearings, site visits, and other meetings of the Board (the notice period under the FIDIC 1996 Supplement is 28 days).

480

The FIDIC Form ofContract

(ii) Beingconversantwith allproject developmentsand maintaining relevant files. (ffl) All office

and overhead expenses such as secretarial services, photoand office supplies (but not including telephone calls,faxes and copying telexes)incurredin connectionwith the duties as a Board member. (iv) All services performed exceptthose duringthe daysreferred to in paragraph (b) below. A (b) dailyfee equivalenttothe ICSIDarbitrator's dailyfee,or suchotherdailyfee as the employer and contractormayagree inwriting. This daily feeshall only be payable in respect of the following days, and shall be considered as paymentinfull for: (i) up to a maximum of two days of travel time in each direction for the journey between the Boardmember's home and the site or other location of a Board meeting. (ii) Each day on site or other location of a Board meeting. (c) Expenses including all reasonable and necessarytravel, and the cost of telephonecalls,faxes and telexes incurred in connectionwith the duties as Board member shall be reimbursed against invoices. (d) Reimbursementof any taxes that may be leviedin the country of the site. Escalation The retainer and fees remainfixed for the period of eachBoard member's term. Phasing out ofmonthly retainerfee After the taking-overcertificatehas been issued, and until the Board has terminateditsregular activities,the Boardmembers shallreceiveareduced retainerfee of one-third of the agreed monthly retainer. The reduction under item 6 of the terms of appointment in the FIDIC1996 Supplement is to one-half. 22.7.5 Duties ofthe employerand the contractor towards the Board

(a) Site visits must be attendedby personnel from the employer, the contractor and the engineer. (b)Paymentsto the Board members are shared equally by the employer and the contractorand are madethroughthe contractor.Failureof eitherthe employer or the contractor to make payment in accordance with the agreement constitutes an event of default under the contract, entitling the non-defaulting party to take the measures set forth, respectively,in clauses 63 or 69. Notwithstanding suchevent ofdefault, and without waiver ofrightstherefrom,in the event that eitherthe employer or the contractor fails to make payment in

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481

accordancewith the rules and procedures,the other party may pay whatever amount may be requiredto finance the operation of the Board. The party making such payments, in addition to all other rights arising from such default, shall be entitled to reimbursement of all sumspaid in excessof onehalfofthe amount requiredto maintain operation ofthe Board, plus all costs of obtaining such sums. Under the FIDIC 1996 Supplement, interest is also added. (c) Exceptforitsparticipation inthe Board's activitiesasprovidedinthe contract, none ofthe employer, the contractor, and/orthe engineer shall solicitadvice or consultationfromthe Boardor theBoardmembers onmatters dealing with the conduct of the works. (d) Thecontractor mustfurnishto eachBoard member one copy of all documents whichtheBoard mayrequestincluding contract documents, progress reports, variation orders, and other documents pertinent to the performance of the contract. Under the FDIC 1996 Supplement, it is the employer's and the contractor's responsibilityto supplythese documents. (e) In co-operation with the employer, the contractor must co-ordinate the site visits ofthe Board, including conferencefacilities,and secretarialand copying services. 22.7.6 Procedurefor dispute referral to the Board

When a disputeoccurs, the following procedure which is significantlydifferent from that under the FIDIC1996 Supplement must be followed: (a) If either party objects to any action or inaction of the other party or the engineer, the objectingparty mayfile a written notice of dispute to the other partywith a copy to theengineer stating thatitis given pursuant to clause 67 and stating clearlyandin detail the basis of the dispute. The (b) party receiving the notice of disputewifi consider it and respond in writingwithin 14 daysafterreceipt. (c) This response shall be final and conclusiveon the subject, unless a written appeal to the response is filedwith the responding party withinsevendays after receivingthe response. Bothparties are encouragedto pursuethatmatter further to attempt to settle the dispute. When it appears that the dispute cannotberesolved without the assistanceofthe Board,orifthe partyreceiving the notice of disputefails to provide a written response within 14 days after receipt of such notice, either party may refer the dispute to the Board by writtenrequestfor recommendation.The requestshall be addressedto the chairman of the Board, with copies to the other Board members, the other party,and theengineer, anditshallstatethatitismadepursuantto clause 67. (d) The request for recommendation shall state clearly and in full detail the specific issues of the disputeto be considered by the Board.

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482

(e) When

a dispute is referred to the Board, and the Board is satisfied that the

disputerequires the Board's assistance,the Board shall decide when to conduct a hearing on the dispute. The Board may request that written documentation and arguments from both parties be submitted to each Board member before the hearing begins. The parties shall submit in so far as

possible agreed statements of relevant facts. (f) During the hearing, the contractor,the employer, and the engineer shall each have ample opportunity to be heard and to offer evidence. The Board's recommendationsfor resolution of the disputewill be given in writingto the employer, the contractor and the engineer as soon as possible, and in any eventnot later than56 daysafterreceipt by the chairman of the Board of the written requestfor recommendation. 22.7.7 Conduct ofhearings

(a) Normally hearings willbe conducted at the site, but any location that would be more convenient and still provideall the required facilitiesandaccess to necessary documentation may be utifised by the Board. Private sessions of the Board may be held at any cost effective location convenient to the Board.

Theemployer,the engineer and the contractor shall be giventhe opportunity to haverepresentativesat all hearings. (c) During the hearings, no Boardmember shall express any opinion concerning the merits of the respective arguments of the parties. (d) After the hearings are concluded, the Board shall meet privately to formulate its recommendations. All Board deliberation shall be conducted in private, with all members' individual views kept strictly confidential. The Board's recommendations, together with an explanation of its reasoning shall be submitted in writing to both parties and to the engineer. The recommendations shall be based on the pertinent contract provisions, applicable laws and regulations, and the facts and circumstancesinvolved in the dispute. (e) The Board shall makeevery effort to reach a unanimous recommendation.If this proves impossible,the majority shall decide, andthe dissenting member mayprepare a written minority reportfor submission to both parties andto the engineer. (b)

22.7.8 Authority ofthe Board

In all procedural matters, including the furnishing of written documents and argumentsrelating todisputes, sitevisits, and conductofhearings,the Boardshall havefullandfinal authority.

The World Bank and the FIDIC Form

483

22.7.9 The effect ofthe Board'srecommendation

Theprocedure is similar to that under clause 67 of the Red Book, but instead of referring disputes to the engineer, all disputes must be referred in writing to the Board, for its recommendation. If the Board issues a recommendation to the employer andthe contractor within the specifiedperiod of56 days and no notice of intention to commence arbitration has been given within 14 days by either party, the recommendation shall become final and binding. However,it is notable that the Board's recommendationhas no interimfinality and if either the employer or the contractor is dissatisfied with the recommendationof theBoard, or iftheBoardfails toissueits recommendationwithin the56 days following receipt by the chairman of the Board of the written requestfor recommendation,then either party may, within 14 days afterhis receipt of the recommendation,or within 14 daysafterthe day onwhichthe Boardshouldhave issued the recommendation and failed to do so, give notice of his intention to commence arbitration. Such notice establishes the entitlement of that party to commencearbitration.Sub-clause67.3 provides forthe procedure to be adopted in arbitration. Whether or not it has become final and bindingupon the employer and the contractor, a recommendationshall be admissible as evidence in any subsequent disputeresolution procedure, including any arbitration or litigation having any relation to the disputeto whichthe recommendationrelates. All recommendations which have become final and binding must be implemented by the parties forthwith, such implementation to include any relevant action of the engineer.

22.8 Commentary The experience gathered relating to dispute review boards is encouraging. The concept originated in the American domestic scene andthe earliest reporteduse wasina projectinWashingtoninthe 1960s. The use of dispute review boards was extended to the international scene in 1980 on a large dam project in Honduras where all disputes were resolved withouta referenceto arbitration.4As mentioned in Section 20.7 above, in a report published in 1992, dispute boards had been used successfullyby that time on more than 100 major domestic and international constructionprojects totalling over $6 billion. It is expected that the use of the boards will increase significantly with the adoption of the concept by the World Bank andFIDIC.5 Amongst the recent major larger projectswheresuchaconcept hasbeenused are the Channel Tunnel and Hong Kong Airport. In the latter project, a measure of its success may be gleaned from the followingreportedstatisticsat a given stage of its progress: out of 86 cases; 24 were settled by negotiations;43 were settled in mediation; five

The FIDIC Form ofContract

484

were in progress in mediation; seven were referred to the board, four out of which were resolved and three were in progress; and seven were referred to arbitration, out of whichthreewere settled, one decided by an awardandthree

in progress.

Figure 22.1 shows a flowchart of the procedure under version 1 of clause 67 of

No Yes

Theemployermay use any of the versionsofclause67 as set out in part II page 122 of the SBDW

No

Version1: go to Fig. 22.2 Version2: As for version 1 but with a disputereview expert instead of DRB

Version3: As in FIDIC4th Edition, go to Fig. 19.1 Fig. 22.1 Procedure underthe provisions of clause 67 ofthe SBDW for major contracts over US$50 million.

486

The FIDIC Form ofContract

Fig. 22.3

Arbitration underversion 1 ofclause 67 ofthe SBDW for major contracts.

the SBDW. It is notable that there are a number of points in the rules and pro-

cedures which require further attention in addition to that given inSection 19.9.9 to the disputeadjudicationboardunderthe FIDIC 1996 Supplement.These areas follows:

(a) The success ofthe process will dependon the quality ofthe people chosen to serve as board members. The availability requirement of seven days is of limiting nature. If the selected person is an experiencedand successfulpro-

The World Bank and the FIDIC Form

(b)

(c)

(d)

(e)

(f)

(g)

487

fessional, one week'snotice is too short a period for the international field wherethe construction sitemightbe in a remote area of a faraway location. Such ashortnotice requirement is alsoinhibitingto anyonewho maybeasked to serve on morethan one board at a time. The period of time allocatedtothe initial studyofthe project is too short, as it is forthe adjudicationboardundertheFIDICSupplement.This is particularly so in the case ofprojects costing more than US$50 million, not only from the pointof view of the technicaldocumentationwhichmust be studiedbut also from a remuneration pointof view. By deleting sub-clause67.2, thereis no longer an amicabledisputeresolution processunder the SBDW.Submissionsto the boardare intended tobe the final process before proceeding to arbitration. In this connection,it is notable that before a disputecan be referred to arbitration, aperiod of 91 dayswouldhave elapsed (168 daysunder the F]DIC1996 Supplement).This period is madeup of 14 daysforthe parties toconsider thedisputeasfiledandrespond to it, plus sevendays to appealagainst theresponse and to submit a noticeof disputeto the board, plus 56 daysfor the boardto give its recommendationunder subclause 67.1, plus 14 daysfor the parties to give notice of dissatisfactionwith that recommendation and reference to arbitration. Of course, each of these periods could be shorter ifthe relevant procedural stepsare completedearlier than allowed for. Items 9 (e) and (h) ofthe procedural rules, Annex A, provide for the procedure to be followed when referring disputes to the board. As this is not an arbitration, what procedural law should apply andto what extent, for example, could evidence be sought? It would be useful to add to item 10(c) of the procedural rules a provision similar to thatinthe FIDIC 1996 Supplement which gives the boardthe power to adoptan inquisitorial procedure, to refuse admission to hearings or audience athearings to any persons otherthan the employer,the contractorand the engineerand to proceed inthe absence of any partywho the boardis satisfied hadreceived notice of the hearing. It would also be useful to addto the provisions of clause 67 andto the rules andprocedures a provision similar to that insub-clause67.1 oftheFIDIC1996 Supplement relating to indemnity given by the parties to the board members. This provision isalsoreferred toin item 8(c)ofthe terms ofappointment ofthe FIDICSupplement. A major difference exists in the procedure under the SBDW and the FIDIC 1996 Supplement. As required in the penultimate paragraph of sub-clause 67.1, the 'Recommendation'by the Board under the SBDW procedure should be implemented by the parties whereit has becomefinalandbinding. However, in the procedure under the FIDIC Supplement, the Board issues a 'decision' which becomes immediately effective and remains so 'unless and until' it is revised in an amicablesettlement or an arbitral award (see fourth paragraphof sub-clause 67.2).

blank Page in original

488

Part V Comparison Between The Third And Fourth Editions Of Part I Of The Red Book

489

Page blank in original

490

Chapter 23

A Precise Record of Alterations, Omissions and Additions

Extensive revisionswere madeto produce the Fourth Edition of the Red Book. In

some clausesthereare changesinthe wordingto improve the language and make it simpler and more comprehensible,in others there are substantive and fundamental changes in the intention of the draftsman. The Fourth Edition was reprinted in 1988 with some minor editorial amendments and later in 1992 with further and more significantamendments. (See AppendicesAandB at the endof this book.) In order to explain the changes made, FIDICpublished a Guideto the use of the revised Form.231 However, despite its considerable size, the Guide does notprovidea complete commentary on all the changes whichwere made. The commentary was, in the main, confined to the fundamental changes implemented. For those who are familiar with the wording of the Third Edition and its intentions and who have by now adopted, or indeed who are now in the process of adoptingthe Fourth Edition, it is essentialthat each and every change be considered and its consequences established. In this part of the book, the text of the clauses of the Third Edition and that of the Fourth Edition, including the amendments incorporated in 1988 and 1992, are set out with the intention of highlighting each and every change by adopting the followingmethod: (a) The text of eachsub-clauseinthe Third Edition is set out with the text in the Fourth Edition alongside it. (b) Altered wordingis shownin bold, i.e., both that which originallyappeared

in the Third Edition and its replacement as it appears in the Fourth Edition.

Anywordsin theThirdEdition whichwere omitted inthe Fourth Edition are shown underlined and the location of that omission is marked by superimposing the symbol A in the text of the FourthEdition. (d) New words added to the original text of the Third Edition are shown in (c)

italics.

491

492

The FIDIC Form ofContract (e)

Theamendments tothe words'or' and 'and' madein thereprintsof1988and 1992 are shownin this chapter inbold and italics, and crossed wherethey are omitted.

No commentary is given in this part of the book. Instead, the reader should use the Guide published by FIDIC and Chapter 9 of this bookfor cornmentary.

FOURTH EDITION

(as Reprinted in 1992 with amendments)

mitted assigns.

tender has been accepted by the Employer and includes the Contractor's personal representatives,successors and per-

(1)(c)

Engineer' means the Engineerdesignatedas such in Part II, or other (wise) the Engineer appointed from time to time by the Employer and notified in writing to the Contractor to act as Engineer for the purposes of the Contract in place of the Engineerso designated. (1)(d) 'Engineer's Representative' means any resident engineer or assistant ofthe Engineer, of any clerkofworks appointed from time to time by the Employer or the Engineer to perform the duties set forth in Clause 2 hereof, whose authority shall be notified in writing to the Contractor by the Engineer.

(1)(b)

'Contractor' means the person or persons, firm or company whose

Employer.

(1)(a) 'Employer' means the party named in part II who will employ the Contractor and the legal successors in title to the Employer, but not, except with the consent of the Contractor, any assignee of the

1.(1) In

the Contract, as hereinafter defined, the following words and expressions shall have the meanings hereby assigned to them, except where the context otherwise requires:-

Definitions

(a)(v)

(a)(lv)

(ii;)

Engineer's Representative' means a person A appointed from time to time by the A Engineer A under Sub-Clause 2.2.

named as such in Part II of these Conditions.

'Engineer' means the person apppointed by the Employerto act as Engineer for the purposes of the Contract and

such person, but not (except with the consent of the Employer)any assignee of such person. Subcontractor' means any person named in the Confract as a Subcontractor for a part of the Works or any person to whom a part of the Works has been subcontracted with the consent of the Engineer and the legal successors in title to such person, but not any assignee ofany suchperson.

(as hereinafter defined) the following words and expressions shall have the meanings hereby assigned to them, except where the context otherwise requires: A (a)(i) Employer' means the person named as such in Part II of these Conditions A and the legal successors in title to such person, but not (except with the consent of the Contractor), any assignee of such person. (a)(ii) 'Contractor' means the person A whose tender has been accepted by the Employer and the legal successors in title to

1.1 In the Contract

Definitions

As the sequence of the definitions in a clause is different in the Fourth Edition from that in the Third, identical terms are grouped together irrespective of the sequence oftheir appearance in the two editions. For the sake of clarity, the numbers of the clause and the sub-clause are given opposite each term.

DEFINITIONS AND INTERPRETATION

THIRD EDITION

(J

VI'

0

'-4-

8

'Contract' means the Conditions of Contract, Specification, Drawings, priced Bill of Quantities, Schedule of Rates and Prices, if any, Tender, Letter of Acceptance and the Contract Agreement, if completed.

(1)(I)

and any modification of such drawings approved in writing by the Engineer and such other drawings as may from time to time be furnished or approved in writing by the Engineer.

'Drawings' means the drawings referred to in the Specification

(1)(k) 'Specification' means the specification referred to in the Tender and any modification thereof or addition thereto as may from time to time be furnished or approved in writing by the Engineer.

(1)(f)

THIRD EDITION

Engineer. 'Bill of Quantities' means the priced and completed bill of quantities forming part ofthe Tender. 'Tender' means the Contractor's priced offer to the Employer for the execution and completion of the Works and the remedying of any defects therein in accordance with the pmvisions of the Contract, as accepted by the LetterofAcceptance. 'Letter of Acceptance' means the formal acceptance by the Employer of the Tender. 'Contract Agreement' means the contract agreement (if any) referred to in Sub-Clause 9.1.

tenancemanuals and other technical information of a like nature submitted by the Contractor and approved by the

'Contract' means these Conditions (Parts I and II), the Specification, the Drawings, the Bill of Quantities, A the Tender, the Letter of Acceptance, A the Contract Agreement, (if completed) and such further documents as may be expressly incorporated in the LetterofAcceptance or ContractAgreement (if completed). Specification' means the specification of the Works included in the Contract and any modification thereof or addition thereto made under Clause 51 or submitted by the Contractorand approved by the Engineer. 'Drawings' means all drawings, calculations and technical information of a like nature provided by the Engineerto the Contractor under the Contract and all drawings, calculations, samples, patterns, models, operation and main-

(b)(viii) 'Appendix to Tender'means the appendix comprised in the form of Tender annexed to these Conditions. Commencement Date' means the date upon which the Con(c)(i) tractor receives the notice to commence issuedby the Engineer pursuant to Clause 41.

(b)(vii)

(b)(vi)

(b)(v)

(b)(iv)

(b)(iii)

(b)(ff)

(b)(i)

FOURTH EDITION

(as Reprinted in 1992 with amendments)

Contract Price' means the sum named in the Letter ofAcceptance, subject to such additions thereto or deductions therefrom as may be made under the provisions herein after contained.

(1)(i)

'Temporary Works' means all temporary works of every kind required in or about the execution or maintenance of the Works.

(1)(e) 'Works' shall include both Permanent Works and Temporary Works. (1)0) 'Permanent Works' means the permanent works to be executed and maintained in accordance with the Contract.

(1)(g)

(iv)

(f)(iii)

(f)(ii)

(f)(i)

(iv)

(iii)

(ii)

(e)(i)

(d)(ii)

(d)(i)

(c)(ii)

'Works' means the Permanent Works and the Temporary Works or either of them as appropriate. 'Permanent Works' means the permanent works to be executed A (including Plant) in accordance with the Contract. 'Temporary Works' means all temporary works of every kind (other than Contractor's Equipment required in or about the execution and completion of the Works and the remedying of any defects therein. 'Plant' means machineiy, apparatus and the like intended to form or forming part ofthe Permanent Works.

'Interim Payment Certificate' means any certificate ofpayment issued by the Engineerotherthan the Final Payment Certificate. 'Final Payment Certificate' means the certificate of payment issued by the Engineerpursuant to Sub-Clause 60.8.

tance as payable to the Contractor for the execution and completion of the Works and the remedying of any defects therein in accordancewith the provisions of the Contract. 'Retention Money' means the aggregate of all monies retained by the Employer pursuant to Sub-Clause 60.2(a).

'Taking-Over Certificate' means a certificate issued pursuant to Clause 48. 'Contract Price' means the sum stated in the Letter of Accep-

or othe,wise agreed by the Engineer and the Contractor which are to be made by the Contractor before the Works or any Section orpart thereof are taken over by the Employer.

'Tests on Completion' means the tests specified in the Contract

'Time for Completion' means the time for completing the execution ofand passing the Tests on Completion of the Works or any Section or part thereof as stated in the Contract (or as extended under Clause 44) calculated from the CommencementDate.

0

'

-

'Constructional Plant' means all appliances or things of whatsoever nature required in or about the execution or maintenanceof the Works but does not include materials or other things intended to form or forming part of the Permanent Works.

(4)

Cost

The word 'cost' shall be deemed whether on or off the Site.

to include overhead costs

(1)(n) 'Approved' means approved in writing, including subsequent written confirmation of previous verbal approval and 'approval' means approval in writing, including as aforesaid.

(1)(m) 'Site' means the land and other places on, under, in or through which the PermanentWorks or TemporaryWorks designed by the Engineer are to be executed and any other lands and places provided by the Employer for working space or any other purpose as may be specifically designated in the Contract as forming part of the Site.

(1)(h)

THIRD EDITION

the Site.

'Site'means the A places provided by the Employerwhere the Works are to be executed and any other A places A as may be specifically designated in the Contract as forming part of

'Section' means a part ofthe Works specifically identified in the Contract as a Section.

Works.

'Contractor's Equipment' means all appliances and things of whatsoever nature (other than Temporaly Works) required for the execution and completion of the Works and the remedying of any defects therein, but does not include Plant, materials or other things intended to form or forming part of the Permanent

(g)(iv)

(g)(iii)

(g)(ii)

(g)(i)

munication, including telex, cable and facsimlle transmission.

A 'cost' means all expenditureproperly incurred or to be incurred, whether on or off the site, including overhead and otherchargesproperly allocable thereto but does not include any allowance for profit. 'day' means calendar day 'foreign currency' means a currency ofa countn/ other than that in which the Works are to be located 'writing' means any hand-written, type-written, or printed com-

Notices, Consents, Appmvals, Certificates and Determinations 1.5 Whereverin the Contract provision is made for the giving or issue ofany notice, consent, approval, certificate or determination by any person, unless otherwise specified such notice, consent, appmval, certificate or determination shall be in writing and the words 'noth/, 'certii' or 'determine' shall be construed accordingly. Any such consent, approval, certificate or determination shall not unreasonably be withheld or delayed.

(f)(vii)

(f)(vi)

(f)(v)

FOURTH EDITION (as Reprinted in 1992 with amendments)

of Engineer and Engineer's Representative

2.(1) The Engineer shall carry out such duties in issuing decisions, certificates and orders as are specified in the Contract. in the event of the Engineerbeing requiredin terms of hisappointment by the Employer to obtain the specific approval of the Employer for the execution of any part of these duties, this shall be set out in Part II of these Conditions.

Duties and Powers

Interpretation 1.3 Words importing persons orparties shall include firms and corporations and any organisation having legalcapacity.

the Contract.

Engineer's Duties and Authority 2.1 (a) The Engineer shall carryout the duties A specified in the Contract (b) The Engineermayexercise the authority specified/n ornecessarilyto be implied fmm the Contract, provided, however, that if the Engineer is required, under the terms of his appointment by the Employer, to obtain the specific approval of the Employer before exercising any such authority, particulars of such requirements shall be set out in Part II of these Conditions. Provided furtherthat any requisite approval shall be deemed to have been given by the Employer for any such authority exercised by the Engineer. (c) Except as expressly stated in the Contract, the Engineer shall have no authority to relieve the Contractor of any of h/s obligations under

ENGINEER AND ENGINEER'S REPRESENTATIVE

The headings and marginal notes in these Conditions of Contract shall not be deemed tobe part thereof or be taken into consideration in the interpretation or construction thereof or of the Contract.

Headings and Marginal Notes 1.2 The headings and marginal notes in these Conditions A shall not be deemed A part thereof or be taken into consideration in the interpretation or construction thereof or of the Contract.

Headings or Notes

(3)

Singular and Plural '14 Words importing the singular only also include the plural and vice versa where the context requires.

Singular and Plural Words importing the singular only also include the plural and vice (2) versa where the context requires.

removal or breaking up thereof. (b) If the Contractor shall be dissatisfied by reason of any decision of the Engineer's Representative he shall be entitled to refer the matter to the Engineer, who shall thereupon confirm, reverse or vary such decision.

(a) Failure of the Engineer's Representative to disapprove any work or materials shall not prejudice the power of the Engineer thereafter to disapprove suchworkor materials and to order the pulling down,

The Engineer may fromtime to time in writing delegate to the Engineer's Representative any of the powers and authorities vested in the Engineer and shall furnish to the Contractor and to the Employera copy of all such written delegationsof powersand authorities.Any written instruction or approval given by the Engineer's Representative to the Contractor within the terms of such delegation, but not otherwise, shall bind the Contractor and the Employer as though it had been given by the Engineer. Provided always as follows:—

Works.

2.(2) The Engineer's Representative shall be responsible to the Engineer and his duties are to watch and supervise the Works and to test and examine any materials to be used or workmanship employed in connection withthe Works. He shall have no authority to relieve the Contractor of any of his duties or obligations under the Contract nor, except as expressly provided hereunderor elsewhere in the Contract, to order any work involving delay or any extra payment by the Employer, nor to make any variation of or in the

THIRD EDITION

Appointment ofAssistants 2.4 The Engineer or the Engineer's Representative may appoint any number ofpersons to assist the Engineer's Representative in the carrying out of his duties under Sub-Clause 2.2. He shall notity to the Contractor the names, duties and scope of authority of such persons. Such assistants shallhave no authority to issue any instructions to the Contractor save in so far as suchinstructions may be necessary to enable them to carry out their duties and to secure their acceptance of materials, Planter workmanship as being in accordance with the Contract, and any instructions given by any of them for those purposes shall be deemed to have been given by the Engineer's Representative.

Representative he may refer the matter to the Engineer who shall A confirm, reverse or vary the contents of such communication.

Contractor. Any communication given by the Engineer's Representative to the Contractor in accordance with such delegation shall have the same effect as though it had been given by the Engineer. Provided that: A (a) any failure of the Engineer's Representative to disapprove any work, A materials or Plant shall not prejudice the authority of the Engineer A to disapprove such work, A materials or Plant and to give instructions for the rectification thereof; and (b) if the Contractor questions any communication of the Engineer's

Engineer's Authority to Delegate 2.3 The Engineer may from time to time A delegate to the Engineer's Representative any of the duties and authorities vested in the Engineer and he may at any time revoke such delegation. Any such delegation or revocation shall be in writing and shall not take effect until a copy thereof has been delivered to the Employer and the

Engineer's Representative 2.2 The Engineer's Representative shall be appointed by and be responsible to the Engineer and shall carry out such duties and exercise such authority as may be delegated to him by the Engineer under SubClause 2.3.

FOURTH EDITION (as Reprinted in 1992 with amendments)

ASSIGNMENT AND SUBCONTRACTING Assignment of Contract 3.1 The Contractor shall not, without thepriorconsent ofthe Employer (which consent, notwithstanding theprovisions of Sub-Clause 1.5, shall be at the sole discretion of the Employer), assign the Contract or any part thereof, or any benefit or interest therein or thereunder, otherwise than by:

Assignment 3. The Contractor shall not assign the Contract or any part thereof, or any benefit or interest therein or thereunder, otherwise than by a charge in favour of the Contractor's bankers of any monies due or to become due under this Contract, without the priorwritten consent of the Employer,

(c) determining value, or (d) othe,wise taking action which may affectthe rights and obllgations of the Employer or the Contractor he shall exercise such discretion impartially within the terms of the Contract and having regard to all the circumstances. Any such decision, opinion, consent, expression ofsatisfaction, orapproval, determination of value or action may be opened up, reviewed or revised as provided in Clause 67.

9'

(b) expressing his satisfaction or approval,

Engineer to Act Impartially 2.6 Wherever, underthe Contract, the Engineer is required to exercise his discretion by: (a) giving his decision, opinion or consent,

2.5 Instructions given by the Engineer shall be in writing, provided that iffor any reason the Engineer considers it necessaiy to give any such instruction orally, the Contractor shall comply with such instruction. Confirmation in writing of such oral instruction given by the Engineer, whether before or after the car,ying out of the instruction, shall be deemed to be an instruction within the meaning of this Sub-Clause. Provided furthèrthatif the Contractor, within 7 days, confirms in writing to the Engineer any oral instruction ofthe Engineerand such confirmation is not contradicted in writing within 7 days by the Engineer, it shall be deemed to be an instruction ofthe Engineer. Theprovisions ofthis Sub-Clauseshall equally apply to instructions given by the Engineer's Representative and any assistants of the Engineer or the Engineer's Representative appointed pursuant to Sub-Clause 2.4.

Instructions in Writing

ASSIGNMENT AND SUB-LETTING

Partly incorporated in Clause 51(2).

. ..

Previously incorporated in Sub-Clause 59(6)

4. The Contractor shall not sub-let the whole of the Works. Except where otherwise provided by the Contract, the Contractor shall not sub-let any part of the Works without the priorwritten consent of the Engineer, which shall not be unreasonably withheld, and such consent, if given shall not relieve the Contractor from any liability or obligation under the Contract and he shall be responsible for the acts, defaults and neglects of any subcontractor, his agents, servants or workmen as fully as if they were the acts, defaults or neglects of the Contractor, his agents, servants or workmen. Provided always that the provision of labour on a piecework basis shall not be deemed to be a sub-letting under this Clause.

Sub-letting

THIRD EDITION

Assignment of Subcontractors' Obligations 4.2 In the event of a Subcontractor having undertaken towards the Contractor in respect of the works executed, orthe goods, materials, Plant or services supplied by such Subcontractor, any continuing obligation extending fora periodexceeding that ofthe Defects Liability Period under the Contract, the Contractor shall at anytime, after the expiration ofsuch Period, assign to the Employer, at the Employer's request and cost, the benefit ofsuch obligation forthe unexpired duration thereof.

where otherwise provided by the Contract, the Contractor shall not subcontract any part of the Works without the prior A consent of the Engineer A . Any such consent A shall not relieve the Contractor from any liability or obligation under the Contract and he shall be responsible for the acts, defaults and neglects of any Subcontractor, his agents, servants or workmen as fully as if they were the acts, defaults or neglects of the Contractor, his agents, servants or workmen. Provided A that the Contractor shall not be required to obtain such consentfor: (a) the provision of labour, pi'A (b) the purchase ofmaterials which are in accordance with the standards specified in the Contract, or (c) the subcontracting of any part of the Works for which the Subcontractor is namedin the Contract.

Subcontracting 4.1 The Contractor shall not subcontract the whole of the Works. Except

(a) a charge in favour ofthe Contractor's bankers of any monies due orto become due under the Contract, or (b) assignment to the Contractor's insurers (in cases where the insurers have discharged the Contractor's loss or liability) of the Contractor's right to obtain reliefagainst any otherpartyliable.

FOURTH EDITION (as Reprinted in 1992 with amendments)

Oi

Custody of Drawings 6(1) The Drawings shall remain in the sole custody of the Engineer, but two copies thereof shall be furnished to the Contractor free of charge. The Contractor shall provide and make at his own expense any further copies required by him. At the completion of the Contract the Contractor shall return to the Engineer all Drawings provided under the Contract.

such additional sum as may be reasonable to cover such costs.

Documents Mutually Explanatory (2) Except ifand to the extent otherwise provided bythe Contract, the provisions ofthe Conditions ofContract Parts I and II shall prevail over those of any other document forming part of the Contract. Subject to the foregoing, the several documents forming the Contract are to be taken as mutually explanatory of one another, but in case of ambiguities or discrepancies the same shall be explained and adjusted by the Engineer who shall thereupon issue to the Contractor instructions thereon. Provided always that if, in the opinion of the Engineer, compliance with any such instructions shall involve the Contractor in any cost, which by reason of any such ambiguity or discrepancy could not reasonably have been foreseen by the Contractor, the Engineer shall certify and the Employer shall pay

Language/s and Law 5.(1) There shall be stated in Part II of these Conditions:— (a) the languageor languages in which the Contract documents shall be drawn up and (b) the country orstate the law of which is to apply to the Contract and according to which the Contract is to be construed. If the said documents are written in more than one language, the language according to which the Contract is to be construed and interpreted shall also be designatedin Part II, being therein designated the 'Ruling Language'.

Custody and Supplyof Drawings and Documents 6.1 The Dréwings shall remain in the sole custody of the Engineer, but two copies thereof shall be provided to the Contractor free of charge. The Contractor shall A make at his own cost any further copies required by him. Unless it is strictly necessary for the purposes of the Contract, the Drawings, Specification and other documents provided by the Employer or the Engineer shall not, without the consent ofthe Engineer, be used or communicated to a third party by the Contractor. Upon issue of the Defects Liability Certificate,the Contractor shall return to the Engineer all Drawings, Specification and other documents provided under the Contract.

I

(1) The Contract Agreement (if completed); (2) The Letter ofAcceptance; (3) The Tender; (4) Part II ofthese Conditions; (5) Part ofthese Conditions; and (6) Any other document forming part of the Contract.

Priority of Contract Documents 5.2 The several documents forming the Contract are to be taken as mutually explanatory of one another, but in case of ambiguities or discrepancies the same shall be explained and adjusted by the Engineerwho shall thereupon issue to the Contractor instructions thereon and in such event, unless othetwise provided in the Contract, the priorityof the documents forming the Contract shall be as follows:

Language/s and Law 5.1 There is stated in Part II of these Conditions: A (a) the language or languages in which the Contract documents shall be drawn up, and (b) the countryor state the law of which shall apply to the Contract and according to which the Contract shall be construed. If the said documents are written in more than one language, the language according to which the Contract shall be construed and interpreted is also stated in Part II of these Conditions, being therein designated the 'Ruling Language'.

CONTRACT DOCUMENTS

VI)

0

Delays and cost of delay of Drawings (4) If, by reason ofany failure or inability ofthe Engineer to issue within a time reasonable in all the circumstances any drawing or order requestedby the Contractor in accordance with Sub-Clause (3) ofthis Clause, the Contractor suffers delay and/or incurs costs then the Engineer shall take such delay into account in determining any extenasion of time to which the Contractor is entitled underClause 44 hereof and the Contractor shall be paid the amount of such cost as shall be reasonable.

Disruption of Progress (3) The Contractor shall give written notice to the Engineer whenever planning or progress of the Works is likely to be delayed or disrupted unless any further drawing or order, including a direction, instruction or approval, is issued by the Engineer within a reasonable time. The notice shall include details of the drawing or order required and of why and by when it is required and ofany delay or disruption likely to be suffered if it is late.

One copyof Drawings to be Kept on Site (2) One copy of the Drawings, furnished to the Contractor as aforesaid, shall be kept by the Contractor on the Site and the same shall at all reasonable times be available for inspection and use by the Engineer and the Engineer's Representative and by any other person authorised by the Engineer in writing.

THIRD EDITION

A notice to the Engineer, with a copy to the Employer, whenever planning or execution of the Works is likelyto be delayed or disrupted unless any further drawing or instruction is issued by the Engineer within a reasonable time. The notice shallinclude details of the drawing or instruction required and of why and by when it is required and ofany delay or disruption llkely to be suffered ffft is late.

Price,and shall notify the Contractoraccordingly, with a copy to the Employer.

(a) any extension of time to which the Contractor is entitled under Clause 44 A , and (b) the amount of such costs, which shall be added to the Contract

Contractor determine:

Delays and Cost ofDelayof Drawings 6.4 If, by reason of any failure or inabillty of the Engineer to issue, within a time reasonable in all the circumstances, any drawing or instruction for which notice has beengiven by the Contractor in accordance with SubClause 6.3 A , the Contractor suffers delay and/or incurs costs then the Engineer shall, after due consultation with the Employer and the

6.3 The contractor shall give

Disruption of Progress

6.2 One copy of the Drawings, provided to or supplled by the Contractor as aforesaid, shall be kept by the Contractor on the Site and the same shall at all reasonable times be available for inspection and use by the Engineer A and by any other person authorised by the Engineer in writing.

One Copy of Drawings to be Kept on Site

The Contractor shall supply to the Engineer four copies of all Drawings, Specification and otherdocuments submitted by the Contractor andapproved by the Engineer in accordance with Clause 7, together with a reproducible copy of any material which cannot be reproduced to an equal standard by photocopying. In addition the Contractor shall supply such further copies of such Drawings, Specification and other documents as the Engineer may request in writing for the use ofthe Employer, who shallpay the cost thereof.

FOURTH EDITION (as Reprinted in 1992with amendments)

7. The Engineer shall have full power and authority to

supply to the Contractor from time to time, during the progress of the Works, suchfurther drawings and instructions as shall be necessary for the purpose of the proper and adequate execution and maintenance of the Works. The Contractor shall carry out and be bound by the same.

Further Drawings and Instructions

Responsibillty Unaffected by Approval 7.3 Approval by the Engineer, in accordance with Sub-Clause 7.2, shall not relleve the Contractor of any of his responsibilities under the Contract.

7.2 Where the Contract expressly pro vides that partofthe Permanent Works shall be designed by the Contractor, he shall submit to the Engineer, for approval: (a) such drawings, specifications, calculations and other information as shall be necessaiy to satisfy the Engineer as to the suitabillty and adequacy of that design, and (b) operation and maintenance manuals together with drawings of the Permanent Works as completed, in sufficient detail to enable the Employer to operate, maintain, dismantle, reassemble and adjust the Permanent Works incorporating that design. The Works shall not be considered to be completed forthepurposes of taking overin accordance with Clause 48 until such operation and maintenance manuals, together with drawings on completion, have been submitted to and approved by the Engineer.

Permanent Works Designed by Contractor

be necessary for the purpose of the proper and adequate execution and completion of the Works and the remedying of any defects therein. The Contractor shall carry out and be bound by the same.

A

7.1 The Engineer shall have authority to issue to the Contractor, from time to time , such supplementaryDrawings and instructions as shall

A

SupplementaryDrawings and Instruction

Clause 6.4.

6.5 If the failure or inability of the Engineer to issue any drawings or instructions is caused in whole orin partby the failure ofthe Contractor to submit Drawings, Specification or other documents which he is required to submit underthe Contract, the Engineer shall take such failure by the Contractor into account when making his determination pursuant to Sub-

Failure by Contractor to Submit Drawings

01

Contract Agreement 9. The Contractor shall when called upon so to do enter into and execute a Contract Agreement, to be prepared and completed at the cost of the Employer, in the form annexed with such modification as may be necessary.

(2) The Contractor shall take full responsibility for the adequacy stability and safety of all site operations and methods of construction, provided that the Contractor shall not be responsible, except as may be expressly provided in the Contract, for the design or specification of the Permanent Works, or for the design or specification of any Temporary Works prepared by the Engineer.

all labour including the supervision thereof, materials, Constructional Plant and all other things, whether of a temporary or permanent nature, required in and for such execution and maintenance, so far as the necessity for providing the same is specified in or is reasonably to be inferred from the Contract.

9.1 The Contractor shall, if called upon so to do, enter into and execute the Contract Agreement, to be prepared and completed at the cost of the Employer, in the form annexed to these Conditions with such modification as may be necessary.

Contract Agreement

safety of all Site operations and methods of construction. Provided that the Contractor shall not be responsible (except as stated hereunderor as may be otherwise agreed) for the design or specification of Permanent works, or for the design orspecification ofany Temporary Works not prepared by the Contractor. Where the Contract expressly provides that part of the Permanent Works shall be designed by the Contractor, he shall be fully responsible for that part of such Works, notwithstanding any approval by the Engineer.

8.2 The Contractor shall take full responsibility for the adequacy, stability and

Site Operations and Methods of Construction

visions of the Contract. The Contractor shall provide all superintendence, labour, material, Plant, Contractor's Equipmentand all other things, whether of a temporary or permanentnature,required in and for such design, execution, completion and remedying of any defects, so far as the necessity forproviding the same is specified in or is A reasonably to be inferred from the Contract. The Contractor shall give prompt notice to the Engineer, with a copy to the Employer, ofany error, omission, fault or other defect in the design of or Specification for the Works which he discovers when reviewing the Contract or executing the Works.

FOURTH EDITION (as Reprinted in 1992 with amendments)

Contractor's General Responsibilities 8.1 The Contractor shall, A with due care and diligence, design (to the extent provided for by the Contract), execute and complete the Works A and remedy any defects therein in accordance with the pro-

GENERAL OBLIGATIONS

Contractor's General Responsibilities 8.(1) The Contractor shall, subject tothe provisions ofthe Contract, and with due care and diligence, execute and maintain the Works and provide

THIRD EDITION

p

Oi

10.

Contract otherwise provides.

an undertaking by the Contractor to obtain, when required, a bond or guarantee of an insurance company or bank, or other approved sureties to be jointly and severally bound withthe Contractorto the Employer, in a sum not exceeding that stated in the Letter of Acceptance for such bond or guarantee, the said insurance company or bank or sureties and the terms of the said bond or guaranteeshall be such as shall be approved by the Employer. The obtaining of such bond or guarantee or the provision of such sureties and the cost of the bond or guaranteeto be so entered into shall be at the expense in all respects of the Contractor, unless the

If for the due performanceof the Contract, the Tender shall contain

Performance Bond

If the Contract requires the Contractor to obtain security for his proper performanceofthe Contract, he shall obtain and provide to the Employersuch security within 28 days after the receipt of the LetterofAcceptance,in the sum stated in the Appendix to Tender. When providing such security to the Employer, the Contractor shall notify the Engineer of so doing. Such security shall be in the form annexed to these Conditions or in such other form as may be agreed between the Employerand the Contractor. The Institution providing such security shall be subject to the approval of the Employer. The cost of complying with the requirements of this Clause shall be borne by the Contractor, unless the Contract otherwise provides.

10.3 Prior to making a claim under the performance security the Employer shall, in every case, notify the Contractor stating the nature of the default in respect of which the claim is to be made.

Claims under Performance Security

10.2 The performance security shall be valid until the Contractor has executed and completed the Works andremedied anydefects therein in accordance with the Contract. No claim shall be made against such security after the issue ofthe Defects Liabillty Certificate in accordance with Sub-Clause 62.1 and such security shall be returned to the Contractor within 14 days ofthe issue ofthe saidDefects Liability Certificate.

Period of Validity ofPerformance Security

10.1

Performance Security

0

ci)

0

ci) ci)

0

0

ci)

of Site

The Contractor shall also be deemed to have inspected and examined the Site and its surroundings and information available in connection therewith and to have satisfied himself, so far as is practicable before submitting his Tender, as to the form and nature thereof, including the sub-surface conditions, the hydrological and climatic conditions, the extent and nature of work and materials necessary for the completion of the Works the means of access to the Site and the accommodation he may require and, in general, shall be deemed to have obtained all necessary information, subject as above mentioned, as to risks, contingencies and all other circumstances which may influence or affect his Tender.

The Employer shall have made available to the Contractor with the Tender documents such data on hydrological and sub-surface conditions as shall have been obtained by or on behalf of the Employer from investigations undertaken relevant to the Works and the Tender shall be deemed to have been based on such data, but the Contractor shall be responsible for his own interpretation thereof.

Sufficiency of Tender 12. The Contractor shall be deemed to have satisfied himself before tendering as to the correctness and sufficiency of his Tender for the and of the rates and prices stated in the priced Bill of Quantities and the Schedule of Rates and Prices, if any, which Tender rates and prices shall, except insofar as it is otherwise provided in the Contract, cover all his obligations under the Contract, and all matters and things necessary for the proper execution and maintenance of the Works.

11.

Inspection

THIRD EDITION

as to:

Sufficiency of Tender 12.1 The Contractor shall be deemed to have satisfied himself A as to the correctness and sufficiency of the Tender A and of the rates and prices stated in the A Bill of Quantities, A all of which shall, except insofar as it is otherwise provided in the Contract, cover all his obligations under the Contract (including those in respect of the supply of goods, materials, Plant or services orofcontingencies forwhich there is a Provisional Sum) and all matters and things necessary for the proper execution and completion of the Works and the remedying of any defects therein.

(c) the extent and nature of work and materials necessary for the execution and completion of the Works and the remedying of any defects therein, and (d) the means of access to the Site and the accommodation he may require, and, in general, shall be deemed to have obtained all necessary information, subject as above mentioned, as to risks, contingencies and all other circumstances which may influence or affect his Tender. The Contractor shall be deemed to have based his Tender on the data made available by the Employer and on his own inspection and examination, all as aforementioned.

(a) the form and nature thereof, including the sub-surface conditions, (b) the hydrological and climatic conditions,

Inspection of Site 11.1 The Employer shall have made available to the Contractor, before the submission by the Contractor of the Tender, such data on hydrological and sub-surface conditions as have been obtained by or on behalf of the Employer from investigations undertaken relevant to the Works A but the Contractor shall be responsible for his own interpretation thereof. The Contractor shall A be deemed to have inspected and examined the Site and its surroundings and information available in connection therewith and to have satisfied himself (so far as is practicable, having regard to considerations ofcost and time) before submitting his Tender,

FOURTH EDITION (as Reprinted in 1992 with amendments)

14.(1) Within the time stated in Part II of these Conditions, the Contractor shall, after the acceptance of his Tender, submit to the Engineer for his approval a programme showing the order of procedure in which he proposes to carry out the Works. The Contractor shall whenever required by the Engineer or Engineer's Representative, also provide in writing for his information a general description of the arrangements and methods which the Contractor proposes to adopt for the execution of the Works.

Programme to be Furnished

Engineer's Representative.

14.1

The Contractor shall, within the time stated in Part II of these Conditions after the date of the Letter of Acceptance,submit to the Engineer for his consent a programme, in such form and detail as the Engineer shall reasonably prescribe, for the execution of the Works. The Contractor shall, whenever required by the Engineer, A also provide in writing for his information a general description of the arrangements and methods which the Contractor proposes to adopt for the execution of the Works.

Programme to be Submitted

Workto be in Accordance with Contract 13.1 Unless it is legally or physically impossible, the Contractor shall execute and complete the Works and remedy any defects therein in strict accordance with the Contract to the satisfaction of the Engineer. A The Contractor shall comply with and adhere strictly to the Engineer's instructions A on any matter, whether mentioned in the Contract or not, touching or concerning the Works. The Contractor shall take instructions A only from the Engineer A (or his delegate).

Workto be to the Satisfaction of Engineer 13. Save insofar as it is legally or physically impossible, the Contractor shall execute and maintainthe Works in strict accordance with the Contract to the satisfaction of the Engineer and shall comply with and adhere strictly to the Engineer's instructions and directions on any matter whether mentioned in the Contract or not, touching or concerning the Works. The Contractor shall take instructions and directions only from the Engineer or, subject to the limitations referred to in Clause 2 hereof, from the

Contractor by reason of such obstructions or conditions having been encountered,which shall be added to the Contract Price, and shall notify the Contractor accordingly, with a copy to the Employer. Such determination shall take account of any instruction which the Engineer may issue to the Contractor in connection therewith,and any proper and reasonablemeasures acceptable to the Engineer which the Contractor may take in the absence of specific instructions from the Engineer.

Not Foreseeable Physical Obstructions or Conditions 12.2 If, however, during the execution of the Works the Contractor A encounters physical obstructions or physical conditions, other than climatic conditions on the Site, which obstructions or conditions were, in his opinion, not foreseeableby an experienced contractor, the Contractor shall forthwith give A notice thereof to the Engineer, A with a copy to the Employer. On receipt of such notice, the Engineer shall, if in his opinion A such A obstructions or conditions could not have been reasonably foreseen by an experienced contractor, after due consultation with the Employer and the Contractor, determine: A (a) any extension of time to which the Contractor is entitled under Clause 44, and (b) the amount of any costs which may have been incurred by the

Adverse Physical Conditions and ArtificialObstructions If, however, during the execution of the Works the Contractor shall encounter physical conditions, other than climatic conditions, on the Site, or artificial obstructions, which conditions or obstructions could, in his opinion, not have been reasonably foreseen by an experienced contractor,the Contractor shall forthwith give written notice thereof to the Engineer's Representative and if, in the opinion of the Engineer, such conditions or artificial obstructions could not have been reasonably foreseen by an experienced contractor, then the Engineer shall certify and the Employershall pay the additional cost to which the Contractorshall have beenput by reason of such conditions, including the proper and reasonable cost (a) ofcomplying with any instruction which the Engineer may issue to the Contractor in connection therewith, and (b) of any proper and reasonable measures approved by the Engineer which the Contractor may take in the absence of specific instructions from the Engineer, as a result of such conditions, or obstructions being encountered.

a

15. The Contractor shall give or provide all necessary superintendence during the execution of the Works and as long thereafter as the Engineer may consider necessary for the proper fulfilling of the Contractor's obligations under the Contract. The Contractor, or a competent and authonsed agent or representative approved of in writing by the Engineer, which approval may at any time be withdrawn, is to be constantly on the Works and shall give his whole time to the superintendence of the same. If such approval shall be withdrawn by the Engineer, the Contractor shall, as soon as is practicable, having regard to the requirement of replacing him as hereinafter mentioned, after receiving written notice of such withdrawal, remove the agent from the Works and shall not thereafter employ him again on the Works in any capacity and shall replace him by another agent approved by the Engineer. Such authorised agent or representative shall receive, on behalf of the Contractor, directions and instructions fromthe Engineer or, subject to the limitations of Clause 2 hereof, the Engineer's Representative.

Contractor's Superintendence

(3) The submission to and approval by the Engineer or Engineer's Representative of such programmes or the furnishing of such particulars shall not relieve the Contractor of any of his duties or responsibilities under the Contract.

(2) If at any time it should appear to the Engineer that the actual progress of the Works does not conform to the approved programme referred to in sub-clause (I) of this Clause, the Contractor shall produce, at the request of the Engineer, a revised programme showing the modifications to the approved programme necessary to ensure completion of the Works within the time for completion as defined in Clause 43 hereof.

THIRD EDITION

of Duties or Responsibilities

15.1 The Contractor shall

A provide all necessary superintendence during the execution of the Works and as long thereafter as the Engineer may consider necessary for the proper fulfilling of the Contractor's obligations under the Contract. The Contractor, or a competent and authorised A representative approved of A by the Engineer, which approval may at any time be withdrawn, A shall give his whole time to the superintendence of the Works. Such authonsed A representative shall receive, on behalf of the Contractor, A instructions from the Engineer. A If A approval of the representative is withdrawn by the Engineer, the Contractor shall, as soon as is practicable, having regard to the requirement of replacing him as hereinafter mentioned, after receiving A notice of such withdrawal, remove the representativefrom the Works and shall not thereafter employ him again on the Works in any capacity and shall replace him by another representativeapproved by the Engineer.

Contractor's Superintendence

14.4 The submission to and consent by the Engineer A of such programmes or the provision of such general descriptions or cash flow estimates shall not relieve the Contractor of any of his duties or responsibilities under the Contract.

Contractor not Relieved

14.3 The Contractorshall, within the time stated in Part/I ofthese Conditions after the date ofthe Letter ofAcceptance, provide to the Engineer forhis information a detailed cash flow estimate, in quarterly periods, of a/l payments to which the Contractor wi//be entitled underthe Contract and the Contractor shall subsequently supply revised cash flow estimates at quarterly intervals, if required to do so by the Engineer.

Cash Flow Estimate to be Submitted

14.2 If at any time it should appear to the Engineer that the actual progress of the Works does not conform to the programme to which consent has been given under Sub-Clause 14.1, the Contractor shall produce, at the request of the Engineer, a revised programme showing the modifications to such programme necessary to ensure completion of the Works within the Time for Completion A

Revised Programme

FOURTH EDITION (as Reprinted in 1992 with amendments) 00

as are skilled and experienced in their respective callings and such sub-agents, foremen and leading hands as are competent to give proper supervision to the workthey are required to supervise, and (b) such skilled, semi-skilled and unskilled labour as is necessary for the proper and timely execution and maintenance of the Works.

Setting-out 17. The Contractor shall be responsible for the true and proper setting-out of the Works in relation to original points, lines and levels ofreference given by the Engineer in writing and for the correctness, subject as above mentioned, of the position, levels, dimensions and alignment of all parts ofthe Works and for the provision of all necessary instruments, appliances and labour in connection therewith. If, at any time during the progress of the Works, anyerrorshallappearorariseinthe position,levels, dimensionsor alignment of any partofthe Works, the Contractor, on being required so to do bytheEngineerorthe Engineer's Representative,shall, athisowncost, rectify such error to the satisfaction of the Engineer or the Engineer's Representative, unless such erroris based on incorrect data supplied in writing bytheEngineerorthe Engineer's Representative,in which casethe expense of rectifying the same shall be borne by the Employer. The checking of any setting-out or of any line or level by the Engineer or the Engineer's Representativeshall notin anyway relieve the Contractorof his responsibilityforthe correctnessthereof and the Contractorshall carefully protect and preserve all bench-marks, sight-rails, pegs and other things used in setting-out the Works.

(2) The Engineer shall be at liberty to objectto and require the Contractor to remove forthwith from the Works any person employed by the Contractor in or about the execution or maintenanceofthe Works who, in the opinion of the Engineer, misconducts himself, or is incompetent or negligent in the proper performance of his duties, or whose employmentis otherwise considered by the Engineer to be undesirable and such person shall not be again employed upon the Works without the written permission of the Engineer. Any person so removed from the Works shall be replaced as soon as possible bya competent substitute approved by the Engineer.

(a) only such technical assistants

Setting-out 17.1 The Contractor shall be responsible for: (a) the accurate setting-out of the Works in relation to original points, lines and levels of reference given by the Engineer in writing, A (b) the correctness, subject as above mentioned, ofthe position, levels, dimensions and alignment of all parts of the Works, and A (c) the provision of all necessary instruments, appliances and labour in connection withthe foregoing responsibilities. If, at any time during the execution ofthe Works, any errorappears A in the position, levels, dimensions or alignment of any part ofthe Works, the Contractor, on being required so to do by the Engineer A , shall, at his own cost, rectify such errorto the satisfaction of the Engineer, A unless such error is based on incorrect data supplied in writing by the Engineer, A in which case the Engineershall determinean addition to the Contract Price in accordancewith Clause 52 and shall notify the Contractor accordingly, with a copy to the Employer. The checking of any setting-out or of any line or level by the Engineer A shall not in any way relieve the Contractor of his responsibility for the accuracy thereof and the Contractor shall carefully protect and preserve all bench-marks, sight-rails, pegs and other things used in setting-out the Works.

Engineer at Liberty to Object 16.2 The Engineer shall be at liberty to object to and require the Contractor to remove forthwith from the Works any person provided by the Contractor A who, in the opinion of the Engineer, misconducts himself, or is incompetent or negligent in the proper performance of his duties, or whose presence on Site is otherwise considered by the Engineer to be undesirable, and such person shall not be again allowed upon the Works without the A consent ofthe Engineer.Any person so removed from the Works shall be replaced as soon as possible. A

under the Contract.

respective callings and such foremen and leading hands as are competent to give proper superintendenceof the Works, A and (b) such skilled, semi-skilled and unskilled labour as is necessary for the proper and timely fulfilling of the Contractor's obligations

(a) only such technical assistants as are skilled and experienced in their

defects therein:

16.1 The Contractor shall provide A on the Site in connection with the execution and completion of the Works and the remedying of any

I 6.(1)

The Contractor shall provide and employ on the Site in connection with the execution and maintenanceof the Works

Contractor's Employees

Contractor's Employees

0

Boreholes and Exploratory Excavation 18.1 If, at any time during the execution of the Works, the Engineer requires the Contractor to make boreholes orto carry out exploratory excavation, such requirement shall be the subject of an instruction in accordance with Clause 51, unless an item ora Provisional Sum in respect of such A work is included in the Bill of Quantities. Safety, Security and Protection of the Environment 19.1 The Contractor shall, throughout the execution and completion of the Works and the remedying of any defects therein: (a) have full regard for the safety ofall persons entitled to be upon the Site and keep the Site (so far as the same is under his control) and the Works (so far as the same are not completed or occupied by the Employer) in an orderly state appropriate to the avoidance ofdanger to suchpersons, (b) provide and maintain at his own cost all lights, guards, fencing, warning signs and watching, when and where necessary or required by the Engineer A or by any duly constituted authority, for the protection of the Works or for the safety and convenience of the public or others, and (c) take all reasonable steps to protectthe environment on and offthe Site and to avoid damage or nuisance to persons or to property of the public orothers resulting frompollution, noise orother causes arising as a consequence of his methods of operation.

Boreholes and Exploratory Excavation 18. If, at any time during the execution of the Works, the Engineer shall require the Contractor to make boreholes or to carry out exploratory excavation, such requirement shall be ordered in writing and shall be deemed to be an addition ordered under the provisions of Clause 51, hereof, unless a provisional sum in respect of such anticipated work shall have been included in the Bill of Quantities.

Watching and Lighting 19. The Contractor shall in connection with the Works provide and maintain at his own cost all lights, guards, fencing and watching when and where necessary or required by the Engineer or the Engineer's resentative, or by any duly constituted authority, for the protection of the Works, or for the safety and convenience of the public or others.

Employer's Responsibilities 19.2 Ifunder Clause 31 the Employer shall carnjoutwork on the Site with his own workmen he shall, in respect of such work: (a) have full regard to the safetyof all persons entitled to be upon the Site, and (b) keep the Site in an orderly state appropriate to the avoidance of danger to suchpersons. IfunderClause 31 the Employer shall employ other contractors on the Site he shall require them to have the same regard for safety and avoidance of danger.

FOURTH EDITION (as Reprinted in 1992 with amendments)

THIRD EDITION

I

(21

of Works

Certificate of Completion for the whole of the Works pursuant to Clause 48 hereof the Contractor shall take full responsibility for the care thereof. Provided that if the Engineer shall issue a Certificate of Completionin respect of any part of the Permanent Works the Contractor shall cease to be liable for the care of that part of the Permanent Works from the date stated in the Certificate of Completion in respect ofthat part and the responsibility for the care of that part shall pass to the Employer. Provided further that the Contractor shall take full responsibility forthe care of any outstanding workwhich he shall have undertaken to finish during the Period of Maintenance until such outstanding work is completed.In case any damage, loss or injury shall happen to the Works, or to any part thereof from any cause whatsoever, save and except the excepted risks as defined in sub-clause (2) of this Clause, while the Contractor shall be sible for the care thereof the Contractor shall, at his own cost, repair and make good the same, so that at completion the Permanent works shall be in good order and condition and in conformity in every respect with the requirements of the Contract and the Engineer's instructions. In the event of any such damage, loss or injury happening from any ofthe excepted risks the Contractor shall, ifand to the extent required by the Engineer and subject always to the provisions of Clause 65 hereof, repair and make good the same as aforesaid at the cost of the Employer. The Contractor shall also be liable for any damage to the Works occasioned by him in the course of any operations carried out by him for the purpose of completing any outstanding work or complying with his obligations under Clauses 49 or 50 hereof.

20.(1) From the commencementof the Works until the date stated in the

Care

shall notify the Contractor accordingly, with a copy to the Employer. In the case of a combination of risks causing loss or damage any such determination shall take into account the proportional responsibility of the Contractorand the Employer. A

20.3 In the event of any such loss or damage A happening fromany of the A risks defined in Sub-Clause 20.4, cnn combination with otherrisks, the Contractor shall, if and to the extent required by the Engineer, rectify the loss or damage and the Engineer shall determine an addition to the Contract Price in accordancewith Clause 52, and

Loss or Damage Due to Employer's Risks

A,

Responsibility to RectityLoss or Damage 20.2 If any loss or damage A happens to the Works, or A any part thereof, ormaterials orPlant for incorporation therein, during theperiod for which the Contractor is responsible for the care thereof, from any cause whatsoever, other than the risks defined in Sub-Clause 20.4 the Contractor shall, at his own cost, rectify such loss or damage so that A the Permanent Works A conform in every respect with the provisions of the Contract to the satisfaction of the Engineer. The Contractor shall also be liable forany loss or damage to the Works occasioned by him in the course of any operations carried out by him for the purpose of A complying with his obligations under Clauses 49 and 50. A

ficateforthewholeofthe Works,whenthe responsibilityforthesaid care shall pass to the Employer. Provided that: (a) if the Engineer issues a Taking-OverCertificatefor any Section or partof the Permanent Works the Contractorshall cease to beliable forthe care of that Section orpart A from thedate ofissueofthe Taking-Over Certificate, A when the responsibility forthecare ofthat Section orpart shall pass to the Employer, and (b) A the Contractor shall take full responsibility for the care of any outstanding Works and materials and Plant for incorporation therein which he undertakes to finish during the Defects Liability Period until such outstanding Works have beencompleted pursuantto Clause49.

20.1 TheContractorshall takefullresponsibilityforthe careofthe Works and materials and Plant for incorporation therein from the Commencement Date until the date of issue of the Taking-Over Certi-

Care of Works

0

y

21. Without limiting his obligations and responsibilities under Clause 20 hereof, the Contractor shall insure in the joint names ofthe Employer and the Contractor against all loss or damage from whatever cause arising, other than the excepted risks, for which he is responsible under the terms of the Contract and in such manner that the Employer and Contractor are covered for the period stipulated in Clause 20(1) hereof and are also covered during the Period of Maintenancefor loss or damage arising froma cause, occurring priorto the commencement of the Period of Maintenance, and for loss or damage occasioned by the Contractor in the course of any operations carried out by him for the purpose of complying with his obligations under Clauses 49 and 50 hereof:—

Insurance of Works, etc

(2) The 'excepted risks' are war, hostilities (whether war be declared or not), invasion, act of foreign enemies, rebellion, revolution, insurrection or military or usurped power, civil war, or unless solely restricted to employees ofthe Contractor or of his sub-contractors and arising from the conduct of the Works, riot, commotion or disorder, or use or occupation by the Employer of any part of the Permanent Works or a cause solely due to the Engineer's design of the Works, or ionising radiations or contamination by radio-activity from any nuclear fuel or from any nuclear waste from the combustion of nuclear fuel, radio-active toxic explosive, or other hazardous properties of any explosive, nuclear assembly or nuclear component thereof, pressure waves caused by aircraft or other aerial devices travelling at sonic or supersonic speeds, or any such operation of theforces ofnature as an experienced contractor could not foresee, or reasonably make provision for or insure against all of which are herein collectively referred to as 'the excepted risks'.

Excepted Risks

THIRD EDITION

ment at the Site.

A,

Insurance of Works and Contractor's Equipment 21.1 The Contractor shall, without limiting his or the Employer's obligations and responsibilities under Clause 20, insure: A 20.3 (a) the Works together with materials and Plant for incorporation therein, to the full replacementcost; (the term 'cost' in this context shall include profit), (b) an additional sum of 15per cent ofsuch replacement cost, oras may be specified in Part!! ofthese Conditions, to coverany additional costs of and incidental to the rectification of loss or damage including professional fees and the cost ofdemolishing and removing any part ofthe Works and of removing debris of whatsoever nature, and (c) the Contractor's Equipmentand other things brought onto the Site by the Contractor, for a sum sufficient to provide for their replace-

Works, other than any part of the design provided by the Contractor or for which the Contractor is responsible, and (h) A any A operation of the forces of nature against which an experienced contractor could not reasonably have been expected to take precautions.A

(a) war, hostilities (whether war be declared or not), invasion, act of foreign enemies, (b) rebellion, revolution, insurrection, or military or usurped power, or civil war, (c) ionising radiations, or contamination by radio-activity from any nuclear fuel, or from any nuclear waste from the combustion of nuclear fuel, radio-active toxic explosive, or other hazardous properties of any explosive nuclear assembly or nuclear component thereof, (d) pressure waves caused by aircraft or other aerial devices travelling at sonic or supersonic speeds, (a) A riot, commotion or disorder, unless solely restricted to employees of the Contractor or of his Sub-contractors and arising fromthe conduct of the Works, (f) loss or damage due to the use or occupation by the Employer of any Section or part of the Permanent Works, except as may be provided by in the Contract, (g) loss or damage to the extent that it is due to the design of the

Employer's risks 20.4 The Employer's risks are:

FOURTH EDITION (as Reprinted in 1992 with amendments)

p

21.4 There shall be no obligation for the insurances in Sub-Clause 21.1 to include loss or damage caused by: (a) war, hostilities (whether war be declared or not), invasion, act of foreign enemies, (b) rebellion, revolution, insurrection, or millta,y or usurped power, or civil war, (c) ionising radiations, or contamination by radio-activity from any nuclear fuel, or from any nuclear waste from the combustion ofnuclear fuel, radio-active toxic explosive or other hazardous properties of any explosive nuclearassembly or nuclear component thereof, or (d) pressure waves caused by aircraftorother aerial devices travelling at sonic or supersonic speeds.

Exclusions

Responsibility for Amounts not Recovered 21.3 Any amounts not insured or not recovered from the insurers shall be borne by the Employer or the Contractor in accordance with their responsibilities underClause 20.

cover (a) the Employer and the Contractor against all loss or damage from whatsoever cause arising, other than as provided in Sub-Clause 21.4, from the start of work at the Site until the date of issue of the relevant Taking-Over Certificate in respect of the Works or any Section or part thereof as the case may be, and (b) the Contractor for his liability: (1) during the Defects Liability Period for loss or damage arising from a cause occurring prior to the commencement of the Defects Liability Period, and (ii) for A loss or damage occasioned by the Contractor in the course of any operations carried out by him for the purpose of complying with his obligations under Clauses 49 and 50. A

Scope of Cover 21.2 The insurance in paragraphs(a) and (b) of Sub-Clause 21.1 shall be in the joint names of the Contractorand the Employerand shall

20.3

20.2 This paragraph has been shifted in the Fourth Edition to clause 25.1, the text of which has however been changed and hence it appears here in bold. Thesection following the word 'insure' is shifted to the latter partof this clause.

other things. Such insuranceshall be effectedwithan insurer and in terms approved by the Employer, which approval shall not be unreasonablywithheld, and the Contractorshall, wheneverrequired produce to the Engineeror the Engineer's Representativethe policy or policies of insurance and the receipts for payment of the current premiums.°2

(a) The Works for the time being executed to be estimated to the estimated current contract value hereof, or such additional sum as may be specified in Part Il in the Clause numbered 21, together with the materials for incorporation in the Works at their replacementvalue. (b) The Constructional Plant and other things brought on to the Site by the Contractor to the replacement value of such Constructional Plant and

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NO!1103 aJiH1

A,

A for

See clause 25.1 of the Fourth Edition.

24.1 The Employer shall not be liable for or in respect of any damages or compensation payable A to any workman or other person in the employment of the Contractor or any Sub-Contractor, other than death or injury resulting from any act of default of the Employer, his agents or servants. The Contractor shall indemnify and keep indemnified the Employer against all such damages and compensation, other than those for which the Employeris liable as aforesaid, and against all claims, proceedings, damages, costs, charges, and expenses whatsoever in respect thereof or in relation thereto.

20.4

Accident or Injury to Workmen

24.(1) The Employer shall not be liable for or in respect of any damages or compensation payable at law in respect or in consequence of any accident or injury to any workman or other person in the employment of the Contractor or any Sub-Contractor, save and except an accident or injury resulting from any act of default of the Employer, his agents, or servants. The Contractor shall indemnify and keep indemnified the Employer against all such damages and compensation, save and except as aforesaid, and against all claims, proceedings, costs, charges and expenses whatsoever in respect thereof or in relation thereto.

23.3 The insurance policyshall include a cross liability clause such that the insurance shall apply to the Contractor and to the Employer as separate insureds.

Cross Liabilities

23.2 Such insurance shall be Appendix to Tender. A

at least the amount stated in the

out of the performanceof the Contract, other than the exceptions defined in paragraphs(a), (b) and (c) of Sub-Clause22.2.

A The Contractor shall without limiting his or the Employer's obligations and responsibilities under Clause 22 A ,insure, in the joint names ofthe Contractor and the Employer, against liabilities for death of or injury to any person (other than as provided in Clause 24) or loss of or damage to any property (other than the Works) arising

Minimum Amount of A Insurance

23.1

Third Party Insurance (Including Employer's Property)

Accident or Injury to Workmen

(3) The Terms shall include a provision whereby, in the event of any claim in respect of which the Contractor would be entitled to receive indemnity under the policy being brought or made against the Employer, the insurer will indemnify the Employer against such claims and any costs, charges and expenses in respect thereof.

Provision to Indemnify Employer

ineer

Minimum Amount of Third Party Insurance (2) Such insurance shall be effected with an insurer and in terms approved by the Employer, which approval shall not be unreasonably withheld, and for at least the amount stated in the Appendix to the Tender. The Contractor shall, whenever required, produce to the or the Engineer's Representative the policy or policies of insurance and the receipts for payment of the current premiums.204

employeeof the Employer, by or arising out of the execution of the Works or in the carrying out of the Contract, otherwise than due to the matters referred to in the proviso to Clause 22(1) hereof.

Third Party Insurance 23(1) Before commencing the execution of the Works the Contractor but without limiting his obligations and responsibilities under Clause 22 hereof, shall insure against his liability for any material or physical damage, loss or injury which may occur to any property, including that of the Employer, or to any person, including any

(.7'

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Remedy on Contractor's Failure to Insure 25. If the Contractor shall fail to effect and keep in force the insurances referred to in Clause 21, 23 and 24 hereof, or any other insurance which he may be required to effectunder the terms ofthe Contract then and in any such casethe Employer may effect and keep in force any such insurance and pay such premium or premiums as may be necessary for that purpose and from time to time deduct the amount so paid the Employer as aforesaid from any monies due or which may become due to the Contractor, or recover the same as a debt due from the Contractor.

(2) The Contractor shall insure against such liability with an insurer approved by the Employer, which approval shall not be unreasonably withheld, and shall continue such insurance during the whole of the time that any persons are employed by him on the Works and shall, when required, produce to the Engineer or the Engineer's resentative such policy of insurance and the receipt for payment ofthe current premium. Provided always that, in respect of any persons employed by any sub-contractor, the Contractor's obligation to insure as aforesaid under this sub-clause shall be satisfied if the sub-contractor shall have insured against the liability in respect of such persons in such manner that the Employer is indemnified under the policy, but the Contractor shall require suchsub-contractor to produce to the Engineer or the Engineer's Representativewhen required, such policy of insurance and the receipt for the payment of the current premium.

Insurance against Accident, etc. to Workmen

THIRD EDITION

Adequacy of Insurances 25.2 The Contraotor shall notify the insurers ofchanges in the nature, extent orprogramme for the execution ofthe Works and ensure the adequacy of the insurances at all times in accordance with the terms of the Contract and shall, when required, produce to the Employer the insurance policies in force and the receipts for payment of the current premiums.

agreed prior to the issue of the Letter of Acceptance. The Contractor shall effect all insurancesfor which he is with resronsible insurers and in terms approved by the Employer.20

25.1 The Contractorshall provide evidenceto the Employerpriorto the start of work at the Site that the insurances required under the Contract have been effected and shall, within 84 days of the Commencement Date, provide the insurance policies to the Employer. When providing such evidence and suchpolicies to the Employer, the Contractor shall notify the Engineer of so doing. Such insurancepolicies shall be consistent withthe general terms

Evidence and Terms of Insurances

Insurance Against Accident A to workmen 24.2 The Contractor shall insure against such liability A and shall continue such insurance during the whole of the time that any persons are employed by him on the Works. A Provided A that, in respect of any persons employed by any Sub-contractor, the Contractor's obligations to insure as aforesaid under this Sub-Clause shall be satisfied if the Sub-contractor shall have insured against the liability in respect of such persons in such manner that the Employer is indemnified under the policy, but the Contractor shall require such Sub-contractor to produce to the A Employer, when required, such policy of insurance and the receipt for the payment of the current premium.

FOURTH EDITION (as Reprinted in 1992 with amendments)

of

20.5

Provided always that the Employer shall be responsible for obtaining any planning, zoning or other similar permission required for the Works to proceed and shall indemnify the Contractor in accordance with Sub-Clause22.3.

Compliance with Statutes, Regulations A 26.1 The Contractor shall conform in all respects, including by the giving of all notices and the paying of all fees A , with the provisions of: (a) any National or State Statute, Ordinance, or other Law, or any regulation, or bye-law of any local or other duly constituted authority in relation to the execution and completion of the Works and the remedying ofany defects therein, and (b) A the rules and regulations of all public bodies and companies whose property or rights are affected or may be affected in any way by the Works, A and the Contractor shall keep the Employer indemnified against all penalties and liability of every kind for breach of any such provisions.

A

Clause 25.1 in the Fourth Edition is equivalent to the last paragraph of clause 21 of the Third Edition.

any such Statute, Ordinance or law as aforesaid and the regulations or bye-laws of any local or other duly constituted authority which may be applicable to the Works and with such rules and regulations of public bodies and companies as aforesaid and shall keep the Employer indemnified against all penalties and liability of every kind for breach of any such Statute, Ordinance or Law, regulation or bye-law. A (3) The Employer will repay or allow to the Contractor all such sums as the Engineer shall certify to have been properly payable and paid by the Contractor in respect of such fees.

Compliance with Statutes, Regulations, etc. (2) The Contractor shall conform in all respects with the provisions

Giving of Notices and Payment of Fees 26.(1) The Contractor shall give all notices and pay all fees required to be given or paid by any National or State Statute, Ordinance, or other Law, or anyregulation, or bye-law ofany local orotherduly constituted authority in relation to the execution of the Works and by the rules and regulations of all public bodies and companies whose property or rights are affected or may be affected in any way by the Works.

Compliance with Policy Conditions 25.4 In the event that the Contractor or the Employer fails to comply with conditions imposed by the insurance policies effected pursuant to the Contract, each shall indemniithe other against all losses and claims arising from suchfailure.

Remedy on Contractor's Failure to Insure 25.3 If the Contractor failsto effect and keep in force any of the insurances required under the Contract, or fails to provide the policies to the Employer within the period required by Sub-Clause 25.1, then and in any such case the Employer may effect and keep in force any such insurances and pay any premium A as may be necessary for that purpose and fromtime to time deduct the amount so paid A from any monies due or to become due to the Contractor, or recover the same as a debt due from the Contractor.

Patent Rights and Royalties 28. The Contractor shall save harmless and indemnity the Employer from and against all claims and proceedings for or on account of infringement of any patent rights, design trademark or name or other protected rights in respect of any Constructional Plant, machine work, or material used for or in connection with the Works or any of them and from and against all claims, proceedings, damages, costs, charges and expenses whatsoever in respect thereof or in relation thereto. Except where otherwise specified, the Contractor shall pay all tonnage and other royalties, rent and other payments or compensation, if any, for getting stone, sand, gravel, clay or other materials required for the Works or any of them.

27. All fossils, coins, articles of value or antiquity and structures and other remains or things of geological or archaeological interest discovered on the site of the Works shall be as between the Employer and the Contractor be deemed to be the absolute property of the Employer. The Contractor shall take reasonable precautions to prevent his workmen or any other persons from removing or damaging any such article or thing and shall immediately upon discovery thereof and, before removal, acquaint the Engineer's Representative of such discovery and carry out, at the expense of the Employer, the Engineer's Representative's orders as to the disposal of the same.

Fossils, etc.

THIRD EDITION

Royalties 28.2 Except where otherwise stated, the Contractor shall pay all tonnage and other royalties, rent and other payments or compensation, if any, for getting stone, sand, gravel, clay or other materials required for the Works. A

Patent Rights A 28.1 The Contractor shall save harmless and indemnify the Employer from and against all claims and proceedings foror on account of infringement of any patent rights, design trademark or name or other protected rights in respect ofany Contractor's Equipment,materialsor Plant used for or in connection with orfor incorporation in the Works A and from and against all A damages, costs, charges and expenses whatsoever in respect thereof or in relation thereto, except where such infringement results from compliance with the design orSpecification provided by the Engineer.

27.1 All fossils, coins, articles of value or antiquity and structures and other remains or things of geological or archaeological interest discovered on the Site A shall, as between the Employer and the Contractor, be deemed to be the absolute property of the Employer. The Contractor shall take reasonable precautions to prevent his workmen or any other persons from removing or damaging any such article or thing and shall, immediately upon discovery thereof and before removal, acquaint the Engineer of such discovery and carry out the Engineer's instructions for dealing with the same. If, by reason of such instructions, the Contractor suffers delay and/or incurs costs then the Engineer shall, after due consultation with the Employer and the Contractor, determine: (a) any extension of time to which the Contractor is entitled under Clause 44, and (b) the amount ofsuchcosts, which shall be added to the Contract Price, and shall notii the Contractor accordingly, with a copy to the Employer.

Fossils A

FOURTH EDITION (as Repnnted in 1992 with amendments)

(7' 1-4 00

Special Loads (2) Should it be found necessaryfor the Contractorto move one or more loads of Constructional Plant, machinery or pre-constructed units or parts of units or work over part of a highwayor bridge, the moving whereof is likely to damage any highway or bridge unless special protection or strengthening is carried out, then the Contractor shall before moving the load on to such highway or bridge give notice to the Engineer or Engineer's Representative ofthe weight and other particulars ofthe load to be moved and his proposals for protecting or strengthening the said highway or bridge. Unless within fourteen days of the receipt of such notice the Engineer shall by counter-notice direct that such protection of strengthening is unnecessary, then the Contractor will carry out such proposals or any modification thereof that the Engineer shall require and, unless there is an item or are items in the Bill of Quantities for pricing by the Contractor of the necessary works for the protection or strengthening aforesaid, the costs thereof shall be paid by the Employer to the Contractor.

any of his sub-contractors and, in particular, shall select routes, choose and use vehicles and restrict and distribute loads so that any such extraordinary traffic as will inevitably arise from the moving of plant and material from and to the Site shall be limited, as far as reasonably possible, and so that no unnecessary damage or injury may be occasioned to such highways and bridges.

Extraordinary Traffic 30.(1) The Contractor shall use every reasonable means to prevent any of the highways or bridges communicating with or on the routes to the Site from being damaged or injured by any trafficof the Contractor or

Interference with Traffic and Adjoining Properties 29. All operations necessary for the execution of the Works shall, so far as compliance with the requirements of the Contract permits, be carried on so as notto interfere unnecessarily or improperly with the convenience of the public, or the access to, use and occupation of public or private roads and footpaths to or of properties whether in the possession of the Employerorof any other person. The Contractor shall save harmless and indemnify the Employer in respect of all claims, proceedings, damages, costs, charges and expenses whatsoever arising out of, or in relation to, any such matters in so far as the Contractor is responsible therefor.

Transport of Contractor's Equipmentor Temporary Works 30.2 Save insofar as the Contract otherwise provides, the Contractor shall be responsible for and shall pay the cost of strengthening any bridges or altering or improving any road communicating with or on the routes to the Site to facilitate the movement of Contractor's Equipmentor TemporaryWorks and the Contractor shall indemnify and keep indemnified the Employeragainst all claims for damage to any such road or bridge caused by such movement, including such claims as may be made directly against the Employer, and shall negotiateand pay all claims arising solely out of such damage. A

30.1 The Contractor shall use every reasonable means to prevent any ofthe roads or bridges communicating with or on the routes to the Site from being damaged or injured by any traffic of the Contractor or any of his Sub-contractors and, in particular, shall select routes, choose and use vehicles and restrict and distribute loads so that any suchextraordinary traffic as will inevitably arise from the moving of materials, Plant, Contractor's Equipment or Temporary Works from and to the Site shall be limited, as far as reasonably possible, and so that no unnecessary damage or injury may be occasioned to such roads and bridges.

Avoidance of Damage to Roads

Interference with Traffic and Adjoining Properties 29.1 All operations necessary for the execution and completion ofthe Works and the remedying of any defects therein shall, so far as compliance with the requirements of the Contract permits, be carried on so as not to interfere unnecessarily or improperly with: (a) the convenience of the public, or (b) the access to, use and occupation of public or private roads and footpaths to or of properties whether in the possession ofthe Employer or of any other person. The Contractor shall save harmless and indemnify the Employer in respect of all claims, proceedings, damages, costs, charges and expenses whatsoever arising out of, orin relation to, any such matters in so far as the Contractor is responsible therefor.

(4) Where the nature of the works is such as to require the use by the Contractor of waterborne transport the foregoing provisions of this Clause shall be construed as though 'highway' included a lock, dock, sea wall or other structure related to a waterway and vehicle' included craft, and shall have effectaccordingly.

Waterborne Traffic

Settlementof Extraordinary Traffic Claims (3) If during the execution of the Works or at any time thereafter the Contractorshall receive any claim arising out of the execution of the Works in respect of damage or injury to highwaysor bridges he shall immediately report the same to the Engineer and thereafter the Employershall negotiatethe settlement ofand pay all sums due in respect of such claim and shall indemnify the Contractor in respect thereof and in respect of all claims, proceedings, damages, costs, charges and expenses in relation thereto. Provided always that if and so far as any such claims or part thereof shall in the opinion of the Engineer be due to any failure on the part of the Contractor to observe and perform his obligations under sub-clauses(1) and (2) of this Clause, then the amount certified by the Engineer to be due to such failure shall be paid by the Contractor to the Employer.

THIRD EDITION

Contractor of waterborne transport the foregoing provisions of this Clause shall be construed as though 'road' included a lock, dock, sea wall or other structure related to a waterway and 'vehicle' included craft, and shall have effect accordingly.

30.4 Where the nature of the Works is such as to require the use by the

Waterborne Traffic

30.3 If, notwithstanding Sub-Clause 30.1, any damage occurs

to any bridge or road communicating with or on the routes to the Site arising from the transport of materials or Plant, the Contractor shall notify the Engineer with a copy to the Employer, as soon as he becomes aware of such damageor as soon as he receives any claim from the authority entitled to makesuch claim. Where under any law or regulation the haulier of such materials or Plant is required to indemnify the road authority against damage the Employershall not be liable for any costs, chargesor expenses in respect thereof or in relation thereto. In other cases the Employer shall negotiatethe settlement of and pay all sums due in respect of such claim and shall indemnify the Contractor in respect thereof and in respect ofall claims, proceedings,damages, costs, charges and expenses in relation thereto. Provided thatif and so far as any such claim or part thereof is, in the opinion of the Engineer,due to any failure on the part of the Contractor to observeand perform his obligations under Sub-Clause30.1, then the amount, determined by the Engineer,after due consultation with the Employerand the Contractor, to be due to such failure shall be recoverable from the Contractor by the Employerand may be deductedby the Employer from any monies due or to become due to the Contractor and the Engineer shall notify the Contractor accordingly, with a copy to the Employer. Provided also that the Employer shall notify the Contractor whenevera settlement is to be negotiatedand, where any amount may be due from the Contractor, the Employer shall consult withthe Contractor before such settlement is agreed.

Transport of Materials or Plant

FOURTH EDITION

(as Reprinted in 1992with amendments)

Clearance of Site on Completion 33. On the completion of the Works the Contractor shall clear away and remove from the Site all Constructional Plant, surplus materials, rubbish and Temporary Works of every kind, and leave the whole ofthe Site and Works clean and in a workmanlike condition to the satisfaction ofthe Engineer.

longer required.

32. During the progress of the Works the Contractor shall keep the Site reasonably free from all unnecessary obstruction and shall storeor dispose of any Constructional Plant and surplus materials and clear away and remove fromthe Site anywreckage, rubbish or Temporary Works no

Contractor to Keep Site Clear

reasonable.

Employer shall pay to the Contractor in respect of such use or service such sum as shall, in the opinion of the Engineer, be

Opportunities for other Contractors 31. The Contractor shall, in accordance with the requirements of the Engineer, afford all reasonable opportunities for carrying out their work to any other contractors employed by the Employer and theirworkmen and to the workmen of the Employer and of any other duly constituted authorities who may be employed in the execution on or near the site of any work not included in the Contract or of any contract which the Employer may enter into in connection with or ancillary to the Works. If, however, the Contractor shall, on the written request of the Engineer or the Engineer's Representative, make available to any such other contractor, or to the Employer or any such authority, any roads or ways for the maintenance of which the Contractor is responsible, or permit the use by any such of the Contractor's scaffolding or other plant on the Site, or provide any other service of whatsoever nature for any such, the

A,

Clearance of Site on Completion 33.1 Upon the issue of any Taking-Over Certificate the Contractor shall clear away and remove from that part ofthe Site to which such TakingOver Certificate relates all Contractor's Equipment, surplus material rubbish and Temporary Works of every kind, and leave such part ofthe Site and Works clean and in a workmanlike condition to the satisfaction of the Engineer. Provided that the Contractor shall be entitled to retain on Site, until the end of the Defects Liability Period, such materials, Contractor's Equipment and Temporaiy Works as are required by him for the purpose of fulfilling his obligations during the Defects Liability Period.

Contractor to Keep Site Clear 32.1 During the execution of the Works the Contractor shall keep the Site reasonably free from all unnecessary obstruction and shall store or dispose of any Contractor's Equipment and surplus materials and clear away and remove from the Site any wreckage, rubbish or Temporary Works no longer required.

Engineer shall determine an addition to the Contract Price in accordance with Clause 52 and shall notify the Contractor accordingly, with a copy to the Employer.

31.2 If, however, pursuant to Sub-Clause 31.1 the Contractor shall, on the written request of the Engineer: A 9? (a) make available to any such other contractor, or to the Employer or any such authority, any roads or ways for the maintenance ofwhich the Contractor is responsible, or (b) permit the use, by any such, of TemporaryWorks or Contractor's Equipmenton the Site, or (c) provide any other service of whatsoever nature for any such, the

Facilities for Other Contractors

Opportunities for Other Contractors 31.1 The Contractor shall, in accordance with the requirements of the Engineer,afford all reasonable opportunitiesforcarrying outtheirworkto: (a) any other contractors employed by the Employer and their workmen, A (b) the workmen of the Employer, and (C) the workmen of any A duly constituted authorities who may be employed in the execution on or nearthe Site of any worknot included in the Contract or of any contract which the Employer may enter into in connection with or ancillary to the Works.

0

:1)

(5) The Contractor shall in dealings with labour in his employment have due regard to all recognised festivals, days of rest and religious or other customs.

Festivals and Religious Customs

(4) The Contractor shall not give, barter or otherwise dispose of to any person or persons, any arms or ammunition of any kind or permit or suffer the same as aforesaid.

Arms and Ammunition.

Alcoholic Liquor or Drugs (3) The Contractor shall not, otherwise than in accordance with the Statutes, Ordinances and Government Regulations or Orders for the time being in force, import, sell, give, barter or otherwise dispose of any alcoholic liquor, or drugs, or permit or suffer any such importation, sale, gift, barter or disposal by his sub-contractors, agents or employees.

Supply of Water (2) The Contractor shall, so far as is reasonably practicable, having regard to local conditions, provide on the Site, to the satisfaction of the Engineer's Representative, an adequate supply of drinking and other waterfor the use of the Contractor's staff and work people.

[A

FOURTH EDITION (as Reprinted in 1992 with amendments)

Engagement of Staff and Labour 34.1 The Contractor shall, unless otheiwise provided in the Contract, make his own arrangements for the engagement of all staffand labour, local or other, and A for their payment, housing, feeding and transport. A Clauses 34.2 onwards have now been transferred to Part Il for consideration. Model clauses are given in Part II as examples.]

LABOUR

Engagement of Labour 34(1) The Contractor shall make his own arrangements for the engagement of all labour, local or otherwise and, save insofar as the Contract otherwise provides, for the transport, housing, feeding and payment thereof,

THIRD EDITION

35. The Contractor shall, if required by the Engineer, deliver to the Engineer's Representative, or at his office, a return in detail in such form and at suchintervals as the Engineer may prescribe showing the supervisory staff and the numbers of the several classes of labour from time to time employed by the Contractor on the Site and such information respecting Constructional Plant as the Engineer's Representative may require.

Returns of Labour, etc.

Observance by Sub-Contractors (8) The Contractor shall be responsible for observance by his contractors of the foregoing provisions. (9) Any other conditions affecting labour and wages shall be as set out in Part II in the clause numbered 34 as may be necessary.

Disorderly Conduct etc. (7) The Contractor shall at all times take all reasonable precautions to prevent any unlawful, riotous or disorderly conduct by or amongst his employees and for the preservation of peace and protection of sons and property in the neighbourhood of the Works against the same.

(6)ln the event

of any outbreak of illness of an epidemic nature, the Contractor shall comply with and carry out such regulations, orders and requirements as may be made by the Government, or the local medical or sanitary authorities for the purpose of dealing with and overcoming the same.

Epidemics.

Returns of Labour and Contractor's Equipment 35.1 The Contractor shall, if required by the Engineer, deliver to the Engineer, A a return in detail, in such form and at such intervals as the Engineer may prescribe, showing the A staff and the numbers of the several classes of labour from time to time employed by the Contractor on the Site and such information respecting Contractor's Equipment as the Engineer may require.

0

0

of Tests

(3) The cost of making any test shall be borne by the Contractor if such test is cleariy intended by or provided for in the Contract, and in the cases only of a test under load or of a test to ascertain whether the design of any finished or partially finished work is appropriate for the purposes which it was intended to fulfil, is particularised in the Contract in sufficient detail to enable the Contractor to price or allow for the same in his Tender.

Cost

(2) All samples shall be supplied by the Contractor at his own cost if the supply thereof is cleariy intended by or provided for in the Contract, but if not, then at the cost of the Employer.

is: (a) clearly intended by or provided for in the Contract, or (b) partioularised in the Contract (in A cases only of a test under load or of a test to ascertain whether the design of any finished or partially finished work is appropriate for the purposes which it was intended to fulfil) A in sufficient detail to enable the Contractor to price or allow for the same in his Tender.

of Tests

36.3 The cost of making any test shall be borne by the Contractor if such test

Cost

be supplied by the Contractor at his own cost if the supply thereof is clearly intended by or provided for in the Contract A

36.2 All samples shall

Cost of Samples

Qualityof Materials, Plant and Workmanship A 36.1 All materials, Plant and workmanship shall be: (a) ofthe respective kinds described in the Contract and in accordance with the Engineer's instructions, and A (b) subjected from time to time to such tests as the Engineer may require at the place of manufacture, fabrication or preparation, or on the Site or at such other place or places as may be specified in the Contract, or at all or any of such places. The Contractor shall provide such assistance, labour, electricity, fuels, stores, apparatusand instruments as are normally required for examining, measuring and testing any A materials or Plant and shall supply samples of materials, before incorporation in the Works, for testing as may be selected and required by the Engineer.

Quality of Materials and Workmanship and Tests. 36.(1) All materials and workmanship shall be of the respective kinds described in the Contract and in accordance with the Engineer's instructions and shall be subjected from time to time to such tests as the Engineer may direct at the place of manufacture orfabrication, or on the Site or at such other place or places as may be specified in the Contract, or at all or any of such places. The Contractor shall provide such assistance, instruments, machines, labour and materials as are normally required for examining, measuring and testing any work and the quality, weight or quantity of any material used A and shall supply samples of materials before incorporation in the Works for testing as may be selected and required by the Engineer.

of Samples

MATERIALS, PLANT AND WORKMANSHP

MATERIALS AND WORKMANSHIP

Cost

FOURTH EDITION (as Reprinted in 1992 with amendments)

THIRD EDITION

'.4.

p

wise by the Employer.

If any test is ordered by the Engineer which is either (a) not so intended by or provided for, or (b) (in the cases above mentioned) is not so particularised, or (c) though so intended or provided for is ordered by the Engineer to be carried out by an independent person at any place other than the Site or the place of manufacture or fabrication of the materials tested, then the cost of such test shall be borne by the Contractor, if the test shows the workmanship or materials not to be in accordance with the provisions of the Contract or the Engineer's instructions, but other-

Inspection of Operations 37. The Engineer and any person authorised by him shall at all times have access to the Works and to all workshops and places where work is being prepared or from where materials, manufacturedarticles or machinery are being obtained for the Works and the Contractor shall afford every facility for and every assistance in orin obtaining the right to such access.

(4)

Costs of Tests not provided for, etc.

A:

Inspection and Testing 37.2 The Engineer shall be entitled, during manufacture, fabrication orpreparation toinspectand test the materials and Plant to be supplied under the Contract. If materials orPlantare being manufactured, fabricated or prepared in workshops orplaces otherthan those ofthe Contractor, the Contractor shall obtain permission for the Engineer to cany out such inspection and testing in those workshops or places. Such inspection or testing shall not release the Contractor from any obligation under the Contract.

Inspection of Operations 37.1 The Engineer, and any person authorised by him, shall at all reasonable times have access to the Site and to all workshops and places where materials or Plant are being manufactured,fabricated or prepared for the Works and the Contractor shall afford every facility for and every assistance in A obtaining the right to such access.

Engineer's Determination where Tests not Provided for 36.5 Where, pursuant to Sub-Clause 36.4, this Sub-Clause applies the Engineer shall, after due consultation with the Employer and the Contractor, determine: (a) any extension of time to Which the Contractor is entitled under Clause 44, and (b) the amount ofsuch costs, which shallbe added to the ContractPrice, and shall notify the Contractor accordingly, with a copy to the Employer.

36.4 If any test required by the Engineer which is (a) not so intended by or provided for, 9t (b) (in the cases above mentioned) A not so particularised, or (c) (though so intended or provided for) required by the Engineer to be carried out A at any place other than the Site or the place of manufacture, A fabrication orpreparation of the materials or Plant tested, shows the materials, Plant orworkmanship not to be in accordance with the provisions of the Contract to the satisfaction ofthe Engineer, A then the cost of such test shall be bome by the Contractor, but in any other case Sub-Clause 36.5 shall apply.

Costs of Test not Provided for A

0

THIRD EDITION

Independent Inspection 37.5 The Engineer may delegate inspection and testing ofmaterials or Plant to an independent inspector. Any such delegation shall be effected in accordance with Sub-Clause 2.4 and for this purpose such independent inspector shall be considered as an assistant ofthe Engineer. Notice of suchappointment (not being less than 14 days) shall be given by the Engineer to the Contractor.

if

Rejection 37.4 If, at any time and place agreed in accordance with Sub-Clause 37.3, the materials or Plant are not ready for inspection or testing or as a result of the inspection or testing referred toTh this Clause, the Engineer determines that the materials or Plant are defective or otherwise not in accordance with the Contract, he may rejectthe materials or Plant and shall notify the Contractor thereof immediately. The notice shall state the Engineer's objections with reasons. The Contractor shall then promptly make good the defect or ensure that rejected materials or Plant comply with the Contract. If the Engineer so requests, the tests of rejected materials or Plant shall be made orrepeated under the same terms and conditions. All costs incurred by the Employer by the repetition of the test shall, after due consultation with the Employer and the Contractor, be determined by the Engineer and shall be recoverable from the Contractor by the Employer and may be deducted from any monies due or to become due to the Contractor and the Engineer shall notify the Contractor accordingly, with a copyto the Employer.

Dates for Inspection and Testing 37.3 The Contractor shall agree with the Engineer on the time and place for the inspection or testing of any materials or Plant as provided in the Contract. The Engineer shall give the Contractor not less than 24 hours notice ofhis intention to carry out the inspection or to attend the tests. If the Engineer, or his duly authorised representative, does not attend on the date agreed, the Contractor may, unless othewise instructed by the Engineer, proceedwith the tests, which shallbe deemed to have been made in the presence of the Engineer. The Contractor shall forthwith forward to the Engineer duly certified copies of the test readings. If the Engineer has not attended the tests, he shall accept the said readings as accurate.

FOURTH EDITION (as Reprinted in 1992 with amendments)

Removal of Improper Work and Materials 39.(1) The Engineer shall during the progress of the Works have power to order in writing from time to time (a) the removal from the Site, within such time or times as may be specified in the order, of any materials which, in the opinion of the Engineer, are not in accordance with the Contract. (b) the substitution of proper and suitable materials and (c) the removal and proper re-execution, notwithstanding any previous test thereof or interim payment therefor, of any work which in respect of materials or workmanship is not, in the opinion of the Engineer, in accordance with the Contract.

Uncovering and Making Openings (2) The Contractor shall uncover any part or parts of the Works or make openings in or through the same as the Engineer may from time to time direct and shall reinstate and make good such part or parts to the or parts have been - satisfaction of the Engineer. If any such part covered up or put out of viewafter compliance with the requirement of sub-clause (1) of this Clause and are found to be executed in accordance with the Contract, the expenses of uncovering, making openings in or through, reinstating and making good the same shall be borne by the Employer, but in any other case all costs shall be borne by the Contractor.

38.(1) No work shall be covered up or put out of viewwithout the approval of the Engineer or the Engineer's Representative and the Contractor shall afford full opportunity for the Engineer or the Engineer's resentative to examine and measure any work which is about to be covered up or put out of view and to examine foundations before permanentwork is placed thereon. The Contractor shall give due notice to the Engineer's Representative whenever any such workor foundations is or are ready or about to be ready for examination and the Engineer's Representative shall, without unreasonable delay, unless he considers it unnecessary and advises the Contractor accordingly, attend for the purpose of examining and measuring such workor of examining such foundations.

Examination of Work before Covering up

39.1 The Engineer shall A have authority to issue instructions fromtime to time, for: (a) the removal from the Site, within such time or times as may be specified in the instruction, of any materials or Plant which, in the opinion of the Engineer, are not in accordance with the Contract. (b) the substitution of proper and suitable materials or P/ant, and (c) the removal and proper re-execution, notwithstanding any previous test thereof or interim payment therefor, of anyworkwhich, in respect of (i) materials, Plant or workmanship, or (ii) design by the Contractor or for which he is responsible, is not, in the opinion of the Engineer, in accordance with the Contract.

Removal of Improper Work, A Materials or Plant

added to the Contract Price, and shall notify the Contractor accordingly, with a copy to the Employer. In any other case all costs shall be borne by the Contractor.

Uncovering and Making Openings 38.2 The Contractor shall uncover any part A of the Works or make openings in or through the same as the Engineer may fromtime to time instruct and shall reinstate and make good such part A . If any such part A has been covered up orput out of viewafter compliance with the requirement of Sub-Clause 38.1 A and is found to be executed in accordance with the Contract, the Engineer shall, afterdue consultation with the Employer and the Contractor, determine the amount of the Contractor's costs in respect of such uncovering, making openings in or through, reinstating and making good the same, which shall be

Examination of Work before Covering up 38.1 No part ofthe Works shall be covered up or put out of viewwithout the approval of the Engineer A and the Contractor shall afford full opportunity for the Engineer A to examine and measure any such part ofthe Works which is about to be covered up or put out of view and to examine foundations before any part of the Works is placed thereon. The Contractor shall give A notice to the Engineerwhenever any such part ofthe Works or foundations is or are ready or about to be ready for examination and the Engineer shall, without unreasonable delay, unless he considers it unnecessary and advises the Contractor accordingly, attend for the purpose of examining and measuring such part of the Works or of examining suchfoundations.

I'.)

(c) necessary by reason of climatic conditions on the Site, or (d) necessary for the proper execution of the Works or for the safety of the Works or any part thereof insofar as such necessity does not arise from any act or default by the Engineer or the Employer or from any of the excepted risks defined in Clause 20 hereof. Provided that the Contractor shall not be entitled to recover any such extra cost unless he gives written notice of his intention to claim to the Engineer within twenty-eight days of the Engineer's order. The Engineer shall settle and determine such extra payment and/or extension of time under Clause 44 hereof to be made to the Contractor in respect ofsuchclaim as shall, in the opinion of the Engineer, be fair and reasonable.

or

and in such manner as the Engineer may consider necessary and shall during such suspension properly protect and secure the work, so far as is necessary in the opinion ofthe Engineer. The extra cost incurred by the Contractor in giving effect to the Engineer's instructions under this Clause shall be borne and paid by the Employer unless such suspension is (a) otherwise provided for in the Contract, or (b) necessary by reason ofsome default on the part ofthe Contractor,

Suspension of Work 40(1) The Contractor shall, on the written order of the Engineer, suspend the progress of the Works or any part thereof for such time or times

Engineer's Determination following Suspension 40.2 Where, pursuant to Sub-Clause 40.1, this Sub-Clause applies the Engineer shall, after due consultation with the Employer and the Contractor, determine:

Sub-Clause 40.2 shall apply.

Suspension of Work 40.1 The Contractor shall, on the instructions of the Engineer, suspend the progress of the Works or any part thereof for such time and in such manner as the Engineer may consider necessary and shall, during such suspension, properly protect and secure the Works orsuch part thereof so far as is necessary in the opinion of the Engineer. A Unless such suspension is: (a) otherwise provided for in the Contract, 91 (b) necessary by reason of some default ofor of breach of contract by the Contractor or for which he is responsible, 91 (c) necessary by reason of climatic conditions on the Site, or (d) necessary for the proper execution of the Works or for the safety of the Works or any part thereof (save to the extent that such necessity arises from any act or default by the Engineer or the Employer or from any of the A risks defined in Sub-Clause 20.4),

A

Default of Contractor in Compliance 39.2 In case of default on the part of the Contractor in carrying out such instruction within the time specified therein or, if none, within a reasonable time, the Employer shall be entitled to employ and pay other persons to carry out the same and all costs consequent thereon or incidental thereto shall, afterdue consultation with the Employer and the Contractor, be determined by the Engineer and shall be recoverable from the Contractor by the Employer, and may be deducted by the Employer from any monies due or to become due to the Contractor and the Engineer shall noti,the Contractor accordingly, with a copy to the Employer.

Default of Contractor in Compliance (2) In case of default on the part of the Contractor in carrying out such order, the Employer shall be entitled to employ and pay other persons to carry out the same and all expenses consequent thereon or incidental thereto shall be recoverable from the Contractor by the Employer, or may be deducted by the Employer from any monies due or which may become due to the Contractor.

SUSPENSION

FOURTH EDITION (as Reprinted in 1992 with amendments)

THIRD EDITION

(i-I 00

tractor's control.

Commencement of Works

AND DELAYS

41.1 The Contractor shall commence the Works as soon as is reasonably possible after the receipt by him of a notice to this effect from the Engineer A , which notice shall be issued within the time stated in the Appendix to Tender after the date of the Letter ofAcceptance. Thereafter, the Contractor shall proceed with the Works with due expedition and without delay. A

A

41. The Contractor shall commence the Works on Site within the period named in the Appendix to the Tender after the receipt by him of a written order to this effect fromthe Engineer and shall proceed with the samewith due expedition and withoutdelay, except as may be expressly sanctioned or ordered by the Engineer, or be wholly beyond the

COMMENCEMENT

suspension as an event of default by the Employerand terminate his employment under the Contract in accordance with the provisions of Sub-Clause 69.1, whereupon the provisions of SubClauses 69.2 and 69.3 shall apply.

A,

Suspension lasting more than 84 Days 40.3 Ifthe progress ofthe Works or any part thereof is suspended on the A instructions of the Engineer and if permission to resume work is not given by the Engineer within a period of 84 days from the date of suspension then, unless such suspension is within paragraph (a), (b), (c) or the Contractor may give notice to the (d) of Sub-Clause 40.1 Engineer,requiring permission, within 28 days from the receipt thereof, to proceed with the Works or that part thereof in regard to which progress is suspended. A If, within the said time, such permission is not granted, the Contractor A may, but is not bound to, elect to treat the suspension, where it affects part only of the Works, as an omission of such part under Clause 51 A bygiving a furthernotice to the Engineer to that effect, or, where it affects the whole of the Works, treat the

Commencement of Works

COMMENCEMENT TIME AND DELAYS

Suspension Lasting more than 90 days (2) If the progress of the Works or any part thereof is suspended on the written order of the Engineer and if permission to resume work is not given by the Engineer within a period of ninety days from the date of suspension then, unless such suspension is within paragraph (a), (b), (c) or (d) of sub-clause (1) ofthis Clause, the Contractor may serve a written notice on the Engineer requiring permission within twentyeight days from the receipt thereof to proceed with the Works, orthat part thereof in regard to which progress is suspended and, if such permission is not granted within that time, the Contractor by a further written notice so served may, but is not bound to, elect or treat the suspension where it affects part only of the Works as an omission of such part under Clause 51 hereof, or, where it affects the whole Works, as an abandonmentof the Contract by the Employer.

(a) any extension of time to which the Contractor is entitled under Clause 44, and (b) the amount, which shall be addedto the Contract Price, in respectof the costs incurred by the Contractor byreason ofsuch suspension, and shall notify the Contractor accordingly, with a copy to the Employer.

Works in accordance with the programme referred to in Clause 14 hereof, if any, and otherwise in accordance with such reasonable proposals of the Contractor ashe shall, by written notice to the Engineer, make and will, from time to time as the Works proceed, give to the Contractor possession of such further portions ofthe site as may be required to enable the Contractor to proceed with the execution of the Works with due despatch in accordance with the said programme or proposals, as the case may be. If the Contractor suffers delay or incurs costfromfailure on the part ofthe Employer to give possession in accordance with the terms of this Clause, the Engineer shall grant an extension of time for the completion of the Works and certify such sum as, in his opinion, shall be fair to cover the cost incurred, which sum shall be paid by the Employer.

42(1) Save insofar as the Contract may prescribe the extent of portions of the Site ofwhich the Contractor is to be given possession fromtime to time and the order in which such portions shall be made available to him and, subject to any requirement in the Contract as to the order in which the Works shall be executed, the Employer will, with the Engineer's written order to commence the Works, give to the Contractor possession of so much of the Site as may be required to enable the Contractor to commence and proceed with the execution of the

Possession of Site

THIRD EDITION

Contractor,

Employer.

Price, and shall notify the Contractor accordingly, with a copy to the

42.2 If the Contractor suffers delay and/or incurs costs from failure on the part ofthe Employerto give possession in accordance with the terms of Sub-Clause 42.1, the Engineer shall, A afterdueconsultation with the Employer and the Contractor, determine: (a) any extension of time to which the Contractor is entitled under Clause 44, and (b) the amountof such costs, which shall be added to the Contract

Failure to Give Possession

and, subject to any requirement in the Contract as to the orderin which the Works shall be executed, the Employer will, with the Engineer's notice to commence the Works, give to the Contractor possession of (c) so much of the Site, and (d) such access as, in accordance with the Contract, is to beprovidedby the Employer as may be required to enable the Contractor to commence and proceed with the execution of the Works in accordance with the programme referred to in Clause 14 A , if any, and otherwise in accordance with such reasonable proposals as the Contractor A shall, by A notice to the Engineer with a copy to the Employer, make. A The Employerwill, from time to time as the Works proceed, give to the Contractor possession of such further portions ofthe Site as may be required to enable the Contractor to proceed with the execution of the Works with due dispatch in accordance with such programme or proposals, as the case may be.

Possession of Site and Access Thereto 42.1 Save insofar as the Contract may prescribe: (a) the extent of portions ofthe Site ofwhich the Contractor is to be given possession from time to time, (b) the order in which such portions shall be made available to the

FOURTH EDITION (as Reprinted in 1992 with amendments)

4-

43.1 The whole of the Works and, if applicable,any Section required to be completedwithin a particular time as stated in the Appendix to Tender, shall be completed, in accordance with the provisions of Clause48 A ,within the time stated in the Appendix to Tenderfor the whole ofthe Works or the Section (as the case may be), calculated from the Commencement Date, or such extended time as may be allowed under Clause 44. A Extension of Timefor Completion 44.1 In the event of: (a) the amount ornature of extra or additional work A (b) any cause of delay referred to in these Conditions, 9t (c) exceptional/y adverse climatic conditions, 9t (d) any delay, impediment or prevention by the Employer, or (e) other special circumstances A which may occur, other than through a default of orbreach of contract by the Contractor or for which he is responsible, being such as fairlyto entitle the Contractor to an extension ofthe Time for Completion of the Works, or any Section or part thereof, the Engineer shall, after due consultation with the Employer and the Contractor, determine the amount of such extension and shall notify the

43. Subject to any requirementin the Contract as to completion of any section of the Works before completion of the whole, the whole of the Works shall be completed, in accordance with the provisions of Clause 48 hereof, within the time stated in the Contract calculatedfrom

Extension of Time for Completion 44. Should the amount of extra or additional workof any kind or any cause of delay referred to in these Conditions, or exceptional adverse climatic conditions, or other special circumstances of any kind whatsoever which may occur, other than through a default of the Contractor, be such as fairlyto entitle the Contractor to an extension oftime for the completion of the Works, the Engineer shall determine the amount of such extension and shall notify the Employer and the Contractor accordingly. Provided that the Engineer is not bound to take into account any extra or additional workor other special circumstances unless the Contractor has within twenty-eight days after such workhas been commenced, or such circumstances have arisen, or as soon thereafter as is practicable, submitted to the Engineer's Representative full and detailed particulars of any extension of time to which he may consider himselfentitled in orderthat such submission may be investigated at the time.

Contractor to Provide Notification and Detailed Particulars 44.2 Provided that the Engineer is not bound to make any determination unless the Contractor has (a) within 28 days after such A event has first arisen A notified the Engineer with a copy to the Employer, A and (b) within 28 days, or such other reasonable time as may be agreed by the Engineer, after such notification submitted to the Engineer detailed particulars of any extension of time to which he may consider himself entitled in orderthat such submission may be investigated at the time.

Contractoraccordingly, with a copy to the Employer.

,9t

Time for Completion

Time for Compleflon

the last day of the period namedin the Appendix to the Tender as that within which the Works are to be commenced,or such extended time as may be allowed under Clause 44 hereof.

Rights of Way and Facilities 42.3 The Contractor shall bear all costs and charges for special or temporary wayleaves required by him in connection with access to the Site. The Contractor shall also provide at his own cost any additional facilities outside the Site required by him for the purposes of the Works.

Wayleave, etc. (2) The Contractor shall bear all costs and charges for special or temporary wayleaves required by him in connection with access to the Site. The Contractor shall also provide at his own cost any additional accommodationoutside the Site required by him for the purpose of the Works.

0

0

a

0

0

Rateof Progress 46.1 Iffor any reason, which does notentitle the Contractor to an extension of time, the rate of progress of the Works or any Section is at anytime, in the opinion of the Engineer, too slow to comply with the Time for Completion,the Engineer shall so notify the Contractor A who shall thereupon take such steps as are necessary, subject to the consent

Rate of Progress

46. If for any reason, which does not entitle the Contractor to an extension of time, the rate of progress of the Works or any section is at anytime, in the opinion of the Engineer, too slow to ensure completion by the prescribed time or extended time for completion, the Engineer shall so notify the Contractor in writing and the Contractor shall thereupon take

Clause shall not be applicable in the case of any work which it is customary to carry out by rotary or double shifts.

Restriction on Working Hours 45.1 Subject to any provision to the contrary contained in the Contract, none of the A Works shall, save as hereinafter provided, be carried on during the nightoron A locally recognised A daysof rest A without the consent of the Engineer, except when work is unavoidable or absolutely necessary for the saving oflife or property or for the safety of the Works, in which case the Contractor shall immediately advise the Engineer. Provided A that the provisions of this Clause shall not be applicable in the case of any work which it is customary to carryout by multiple shifts.

44.3 Provided also that where an eventhas a continuing effect suchthatitis not practicable for the Contractor to submit detailed particulars within the period of 26 days referred to in Sub-Clause 44.2(b), he shall nevertheless be entitled to an extension of time provided that he has submitted to the Engineer interim particulars at intervals of not more than 28 days and final particulars within 28 daysofthe end ofthe effects resulting fmm the event. On receipt of such interim particulars, the Engineer shall, without undue delay, make an interim determination of extension of time and, on receipt of the final particulars, the Engineer shall review all the circumstances and shall determine an overall extension oftime in regard to the event. In both suchcases the Engineer shall make his determination after due consultation with the Employer and the Contractor and shall notify the Contractor ofthe determination with a copyto the Employer. No final review shall resultin a decrease of any extension oftime already determined by the Engineer.

Interim Determination ofExtension

FOURTH EDITION (as Reprinted in 1992 with amendments)

No Night or Sunday Work 45. Subject to any provision to the contrary contained in the Contract, none of the Permanent Works shall, save as hereinafter provided, be carried on during the night or on Sundays, if locally recognised as days of rest, or their locally recognised equivalent without the permission in writinj the Engineer'sRepresentative,except when the work is unavoidable or absolutely necessary for the saving of life or property or for the safety of the Works, in which case the Contractor shall immediately advise the Engineer's Representative. Provided always that the provisions of this

THIRD EDITION

p

N)

Liquidated Damages for Delay 47.(1) Ifthe Contractor shall fail, to achieve completion ofthe Works within the time prescribed by Clause 43 hereof, then the Contractor shall pay to the Employer, the sum stated in the Contract as liquidated damages for such default and not as a penalty for every day or part of a day which shall elapse between the time prescribedby Clause 43 hereof and the date of certified completion of the Works. The Employer may, without prejudice to any other method or recovery, deduct the amount of such damages fromany monies in his hands, due or which may become due to the Contractor. The payment or deduction of such damages shall not relieve the Contractor from his obligation to complete the Works, or from any other of his obligations and liabilities under the Contract.

such steps as are necessary and the Engineer may approve to expedite progress so as to complete the Works or such section by the prescribedtimeor extendedtime. The Contractor shall not be entitled to any additional payment for taking such steps. If, as a result of any notice given by the Engineer under this Clause, the Contractor shall seek the Engineer's permission to do any work at night or on Sundays, if locally recognised as days of rest, or their locally recognised equivalent, such permission shall not be unreasonably refused. A

stated in a Taking-OverCertificateofthe whole ofthe Works or the relevant Section, subject to the applicable limit stated in the Appendix to Tender. The Employer may, without prejudice to any other method ofrecovery, deduct the amount of such damages fromany monies A due or to become due to the Contractor. The payment or deduction of such damages shall not relieve the Contractor from his obligation to complete the Works, or from any other of his obligations and liabilities under the Contract.

Liquidated Damages for Delay 47.1 If the Contractor A fails to comply with the Time for Completion in accordance with Clause 48, for the whole of the Works or, if applicable, any Section within the relevant time prescribed by Clause 43 A , then the Contractor shall pay to the Employer the relevant sum stated in the Appendix to Tender as liquidated damages for such default and not as a penalty (which sum shall be the only monies due fromthe Contractor forsuchdefault) foreveryday or partof a daywhich shall elapse between the relevantTime for Completion and the date

obllgations under this Clause, involve the Employer in additional supervision costs, such costs shall, after due consultation with the Employer and the Contractor, be determined by the Engineer and shall be recoverable from the Contractor by the Employer, and may be deducted by the Employer from any monies due or to become due to the Contractorandthe Engineershall notii9jthe Contractoraccordingly, with a copyto the Employer.

of the Engineer, to expedite progress so as to comply withthe Time for Completion.The Contractor shall not be entitled to any additional payment for taking such steps. If, as a result of any notice given by the Engineer under this Clause, the Contractor considers that it is necessaryto do any workat night or on locally recognised days of rest, he shall be entitled to seekthe consent of the Engineerso to do. A Providedthatffanysteps,taken bythe Contractor/n meeting his

cn c,)

C,,

Cr

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0

of the whole

Maintenance. Such notice and undertaking shall be in writing and shall be deemed to be a request by the Contractor for the Engineer to issue a Certificate of Completion in respect of the Works. The Engineer shall, within twenty-onedaysof the date of delivery of such notice either issue to the Contractor, with a copy to the Employer, a Certificate of Completion stating the date on which, in his opinion, the Works were substantially completed in accordance with the Contract or give instructions in writing to the Contractor specifying all the work which, in the Engineer's opinion, requires to be done by the Contractor before the issue of such Certificate The Engineer shall also notify the Contractor of any defects in the Works affecting substantial completion that may appear after such instructions and before completion of the works specified therein. The Contractor shall be entitled to receive such Certificateof Completionwithin twenty-one days of completion to the satisfaction of the Engineer of the works so specified and making good any defects so notified.

Certification of Completion of Works 48(1) When the whole of the Works have been substantially completed and have satisfactorily passed any final test that may be prescribed by the Contract, the Contractor may give a notice to that effect to the Engineer or to the Engineer's Representative accompanied by an undertaking to finish any outstanding work during the Period of

(3) If it is desired to provide in the Contract for the payment of a bonus in relation to completion of the Works or of any part or section thereof this shall be set out in Part II in the clause numbered 47.

Bonus for Completion

of the Works any part or section of the Works has been certified by the Engineer as completed,pursuant to Clause 48 hereof, and occupied or used by the Employer, the liquidated damages for delay shall, for any period of delay after such certificate and in the absence of alternative provisions in the Contract be reduced in the proportion which the value of the part or section so certified bears to the value ofthe whole of the Works. A

(2) If, before the completion

Reduction of Liquidated Damages

THIRD EDITION

A

defects in the Works affecting substantial completion that may appear after such instructions and before completion of the Works specified therein. The Contractor shall be entitled to receive such Taking-Over Certificate within 21 days of completion, to the satisfaction of the Engineer, of the Works so specified and remedying any defects so notified.

Taking-Over Certificate 48.1 When the whole of the Works have been substantially completed and have satisfactorily passed any Testson Completion prescribed by the Contract, the Contractor may give a notice to that effect to the Engineer A, with a copy to the Employer, accompanied by a A written undertaking to finish with due expedition any outstanding work during the Defects Liability Period. Such notice and undertaking shall be A deemed to be a request by the Contractor for the Engineer to issue a Taking-OverCertificate in respect of the Works. The Engineer shall, within 21 daysof the date of delivery of such notice, either issue to the Contractor, with a copy to the Employer, a Taking-Over Certificate, stating the date on which, in his opinion, the Works were substantially completed in accordance with the Contract, or give instructions in writing to the Contractor specifying all the workwhich, in the Engineer's opinion, is required to be done by the Contractor before the issue of such Certificate. The Engineer shall also notify the Contractor of any

Reduction of Liquidated Damages 47.2 If, before the Time for Completion of the whole of the Works or, if applicable,any Section,a Taking-OverCertificate has been issued for any part of the Works or of a Section, the liquidated damages for delay in completion of the remainder of the Works or of that Section shall, for any period of delay after the date stated in such Taking-Over Certificate,and in the absence of alternative provisions in the Contract, be reduced in the proportion which the value of the part so certified bears to the value of the whole of the Works or Section, as applicable. The provisions of this Sub-Clause shall only apply to the rate of liquidated damages and shall not affect the limit thereof.

FOURTH EDITION (as Reprinted in 1992 with amendments)

Surfaces Requiring Reinstatement 48.4 Provided A that a Taking-Over Certificate given in respect of any Section or part of the Permanent Works before completion ofthe whole ofthe Works shall not be deemed to certify completion of any ground or surfaces requiring reinstatement, unless such Taking-Over Certificate shall expressly so state.

(4) Provided always that a Certificate of Completion given in respect of any section or part of the Permanent Works before completion of the whole shall not be deemed to certify completion of any ground or surfaces requiring reinstatement, unless such Certificate shall expressly so state.

(3)

If any part of the Permanent Works shall have been substantially completed and shall have satisfactorily passed any final test that may be prescribed by the Contract, the Engineer may issue a Certificate of Completion in respect of that part of the Permanent Works before completion of the whole of the Works and, upon the issue of such Certificate, the Contractor shall be deemed to have undertaken to complete, any outstanding workin that part of the Works during the Period of Maintenance.

48.2 Similarly, in accordance with the procedure set out in Sub-Clause 48.1, A the Contractor may request and the Engineershall issue a TakingOver Certificate in respect of: A (a) any Section A in respect of which a separate Timefor Completion is provided in the Appendix to Tender, 9t (b) any substantial part of the Permanent Works which has been both completed to the satisfaction of the Engineer and, othe,wise than as provided for in the Contract, occupied or used by the Employer, or (c) any part ofthe Permanent Works which the Employer has elected to occupy or use priorto completion (where suchprioroccupation oruse is not provided for in the Contract or has not been agreed by the Contractor as a temporary measure).

Taking-Overof Sections or Parts

Substantial Completion of Parts 48.3 If any part of the Permanent Works has been substantially completed and has satisfactorily passed any Tests on Completion prescribed by the Contract, the Engineer may issue a Taking-Over Certificate in respect of that part of the Permanent Works before completion of the whole of the Works and, upon the issue of such Certificate, the Contractor shall be deemed to have undertaken to complete A with due expedition any outstanding work in that part of the PermanentWorks during the Defects Liability Period.

(1) of this Clause, the Contractor may request and the Engineer shall issue a Certificate of Completion in respect of:— (a) any section ofthe Permanent Works in respect ofwhich a separate time for completion is provided in the Contract and (b) any substantial part of the Permanent Works which has been both completed to the satisfaction ofthe Engineer and occupied or used by the Employer.

Certification of Completion by Stages (2) Similarly, in accordance with the procedure set out in sub-clause

Ui Ui

Completion of Outstanding Work and Remedying Defects 49.2 To the intent that the Works shall, at or as soon as practicable after the expiration ofthe Defects Liability Period,be delivered to the Employer in the condition required by the Contract, fair wear and tearexcepted, to the satisfaction of the Engineer, the Contractor shall: (a) complete the work, if any, outstanding on the date stated in the Taking-OverCertificate as soon as practicable after such date, and (b) A execute all such work of A amendment, reconstruction, and remedying defects, A shrinkages or other faults as the Engineer may, during the Defects Liability Period or within 14 days after its expiration, as a result of an inspection made by or on behalf of the Engineer priorto its expiration, instruct the Contractor to execute.

Execution of Works of Repair, etc. (2) to the intent that the Works shall at or as soon as practicable after the expiration of the Periodof Maintenance be delivered to the Employer in the condition required by the Contract, fair wear and tear excepted, to the satisfaction ofthe Engineer, the Contractor shall finishthe work, if any, outstanding at the date of completion, as certified under Clause 48 hereof, as soon as practicable after such date and shall execute all such work of repair, amendment, reconstruction, rectification and making good defects, imperfections,shrinkages orother faults as may be required of the Contractor in writing by the Engineerduring the Period of Maintenance, or within fourteen days after its expiration, as a result of an inspection made by or on behalf of the Engineer priorto its expiration.

of Work of Repair, etc.

(3) All such work shall be carried out by the Contractor at his own expense if the necessity thereof shall, in the opinion of the Engineer, be due to the use of materials or workmanship not in accordance with the Contract or to neglect or failure on the part of the Contractor to comply with any obligation, expressed or implied, on the Contractor's part under the Contract. If, in the opinion of the Engineer, such necessity shall be due to any other cause, the value of such work shall be ascertained and paid for as if it were additional work.

Cost of Execution

accordingly.

49.3 All A work referred to in Sub-Clause 49.2(b) shall be executed by the Contractor at his own cost if the necessity thereof is, in the opinion of the Engineer, A due to: (a) the use of materials, Plant or workmanship not in accordance with the Contract, 9t (b) where the Contractor is responsible for the design of part of the Permanent Works, any fault in such design, or (C) the neglect orfailure on the part of the Contractor to comply with any obligation, expressed or implied, on the Contractor's oart under the Contract.

Cost of Remedying Defects

49.1 In these Conditions the expression 'Defects Liability Period' shall mean the defects liability period named in the Appendix to Tender, calculated from: (a) the date of completion of the Works certified by the Engineer in accordance with Clause 48 A , or (b) in the event of more than one certificate having been issued by the Engineer under Clause 48 A , the respective dates so certified, and in relation to the Defects Liability Period the expression 'the Works' shall be construed accordingly.

49.(1) In these Conditions

the expression 'Period of Maintenance' shall mean the period of maintenancenamed in the Appendix to Tender, calculated from the date of completion of the Works, certified by the Engineer in accordance with Clause 48 hereof, or in the event of more than one certificate having been issued by the Engineer under the said Clause, from the respective dates so certified and in relation to the Periodof Maintenancethe expression 'the Works' shall be construed

Defects Liability Period

DEFECTS LIABILITY

MAINTENANCE AND DEFECTS

Definition of 'Period of Maintenance'

FOURTH EDITION (as Reprinted in 1992with amendments)

THIRD EDITION

if required by the Engineerin writing search

under the directions of the Engineer for the cause of any defects, imperfection or faultappearingduring the progressto the Works or in the Period of Maintenance. Unless such defect, imperfection or fault shall be one for which the Contractor is liable under the Contract, the cost of the work carried out by the Contractor in searching as aforesaid shall be borne by the Employer. If such defect, imperfection or fault shall be one for which the Contractor is liable as aforesaid, the cost of the workcarried out in searching as aforesaid shall be borne by the Contractor and he shall in such case repair, rectify and make good such defect, imperfection or fault at his own expense in accordance with the provisions of Clause 49 hereof.

Contractor to Search 50. The Contractor shall,

(4) If the Contractor shall fail to do any such work as aforesaid required by the Engineer, the Employer shall be entitled to employ and pay other persons to carry out the same and if such work is work which, in the opinion ofthe Engineer, the Contractor was liable to do at his own expenseunderthe Contract, then all expensesconsequent thereon or incidental thereto shall be recoverable from the Contractor by the Employer, or may be deducted by the Employer from any monies due or which may become due to the Contractor.

Remedy on Contractor's Failure to Carry out Work Required

visions

of Clause 49. A

respect of the costs of such search incurred by the Contractor, which shall be added to the Contract Price and shall notify the Contractoraccordingly, with a copyto the Employer. Ifsuch defect, shrinkage or other fault is one for which the Contractor is liable, the cost of the workcarried out in searching as aforesaid shall be borne by the Contractor and he shall in such case remedy such defect, shrinkage or other fault at his own cost in accordance with the pro-

Contractor to Search 50.1 If any defect, shrinkageor other fault in the Works appears at any time prior to the end of the Defects Liability Period, the Engineer may instruct the Contractor,with a copy to the Employer, to search under the directions of the Engineerfor the causethereof. Unless such defect, shrinkageor other fault is one forwhich the Contractor is liable under the Contract, the Engineershall, after due consultation with the Employer and the Contractor, determine the amount in

A Contractor's Failure to Carry Out Instructions 49.4 In case of default on the part of the Contractorin carrying out such instruction within a reasonable time, the Employershall be entitled to employ and pay other persons to carry out the same and if such work is workwhich, in the opinion of the Engineer, the Contractor was liable to do at his own cost under the Contract, when all costs consequent thereon or incidental thereto shall, after due consultation with the Employer and the Contractor, be determined by the Engineer and shall be recoverable from the Contractor by the Employer, and may be deducted by the Employerfromany monies due or to become due to the Contractor and the Engineershall notify the Contractoraccordin gly, with a copy to the Employer.

accordingly, with a copy to the Employer.

If, in the opinion of the Engineer, such necessity is due to any other cause, he shall determine an addition to the Contract Price in accordance with Clause 52 and shall notify the Contractor

0

(2) NosuchvariationsshallbemadebytheContractorwithoutanorder in writing of the Engineer. Provided that no order in writing shall be required forincrease ordecrease in the quantityof anyworkwhere such increaseordecrease is notthe resultofanordergiven underthis Clause, but is the result of the quantities exceeding or being less than those stated in the Bill of Quantities. Provided also that if for any reason the Engineer shall consider it desirable to give any such order verbally, the Contractor shall comply with such order and any confirmation in writing ofsuch verbal ordergiven by the Engineer, whether before or after the carrying out oftheorder, shall be deemedtobe an order inwriting within the meaning ofthis Clause. Provided further that ifthe Contractor shall within seven days confirm in writing to the Engineer and such firmation shall not be contradicted in writing within fourteen days by the Engineer, it shall be deemed to be an orderin writing by the Engineer.

Orders for Variations to be in Writing

Contract, (b) omit any such work, (c) change the character or quality or kind of any such Work, (d) change the levels, lines, position and dimensions of any part ofthe Works and (e) execute additional workof any kind necessary for the completion of the Works and no such variation shall in any way vitiate or invalidate the Contract, but the value, if any, of all such variations shall be taken into account in ascertaining the amount of the Contract Price.

51.2 The Contractor shall not make any such variation without an instruction of the Engineer. Provided that no instruction shall be required for increase or decrease in the quantity of any workwhere such increase or decrease is not the result of an instruction given under this Clause, but is the result of the quantities exceeding or being less than those stated in the Bill of Quantities. A

Instructions for Variations A

the Works,or (I change any specified sequence ortimingof construction of any part ofthe Works. A No such variation shall in any way vitiate or invalidate the Contract, but the effects if any, of all such variations shall be valued in accordancewith Clause 52. Provided that where the issue ofan instruction to vaty the Works is necessitated by some default ofor breach ofcontract by the Contractor or for which he is responsible, any additional cost attributable to such default shall be borne by the Contractor.

51.1 The Engineer shall make any variation of the form, quality or quantity of the Works or any part thereof that may, in his opinion, be necessary and for that purpose, or if for any other reason it shall, in his opinion, be appropriate,he shall have the authority to instruct the Contractor to do and the Contractor shall do any of the following: A (a) increase ordecreasethe quantity of anywork included in the Contract, (b) omit any such work (butnot ifthe omitted work/sto be carried out by the Employer or by another contractor), (c) change the character or quality or kind of any such work, (d) change the levels, lines, position and dimensions of any part of the Works, A (e) execute additional workof any kind necessary for the completion of

Variations

ALTERATIONS, ADDITIONS AND AMENDMENTS

ALTERATIONS, ADDITIONS AND OMISSIONS

51(1) The Engineer shall make any variation of the form, quality or quantity of the Works or any part thereof that may, in his opinion, be necessary and forthat purpose, or iffor any other reason it shall, in his opinion be desirable, he shall have power to order the Contractor to do and the Contractor shall do any of the following:— (a) increase or decrease the quantity of any work included in the

Variations

FOURTH EDITION (as Reprinted in 1992 with amendments)

THIRD EDITION

price.

order as is practicable and, in the case of extra or additional work, before the commencementof the work or as soon thereafter as is practicable,notice shall have been given in writing:— (a) by the Contractor to the Engineer of his intention to claim extra payment or a varied rate or price, or (b) by the Engineer to the Contractor of his intention to vary a rate or

(2) Provided that if the nature or amount of any omission or addition relative to the nature or amount ofthe whole of the Works orto any part thereof shall be such that, in the opinion of the Engineer, the rate or price contained in the Contract for any item of the Works is, by reason of such omission or addition, rendered unreasonableor inapplicable, then a suitable rate or price shall be agreed upon between the Engineer and the Contractor. In the event of disagreement the Engineer shall fix such other rate or price as shall, in his opinion, be reasonable and proper having regard to the circumstances. Provided also that no increaseor decreaseundersub-clause (1) of this Clause or variation of rate or price under sub-clause (2) of this Clause shall be made unless, as soon after the date of the

Power of Engineer to Fix Rates

52.(1) All extra or additional workdone or workomitted by order of the Engineershall be valued at the ratesand prices set out in the Contract if, in the opinion of the Engineer, the same shall be applicable. If the Contract does notcontain any rates or prices applicable to the extra or additional work, then suitable rates or prices shall be agreed upon between the Engineer and the Contractor. In the event of disagreementthe Engineer shall fix such ratesor prices as shall, in his opinion, be reasonable and proper.

Valuation of Variations

Contract Price which are requiredto be determinedin accordance with Clause 52 (for the purposes of this Clause referred to as 'varied work'), shall be valued at the rates and prices set out in the Contract if, in the opinion ofthe Engineer, the same shall be applicable. If the Contract does not contain any rates or prices applicable to the varied work, the rates and prices in the Contract shall be used as the basisfor valuation so far as may be reasonable, failing which, after due consultation by the Engineer with the Employer and the Contractor, A suitable rates or prices shall be agreed upon between the Engineer and the Contractor. In the event of disagreement the Engineer shall fix such rates or prices as are, in his opinion, appropriate and shall notify the Contractor accordingly, with a copyto the Employer. Untilsuch time as rates or prices are agreed or fixed, the Engineer shall determine provisional ratesorprices to enable on-account payments to be included in certificates issued in accordance with Clause 60.

All variations referred to in Clause 51 and any additions to the

of Variations

52.2 Provided that if the nature or amount of any varied work relative to the nature or amount of the whole of the Works or to any part thereof, is such that, in the opinion of the Engineer, the rate or price contained in the Contract for any item of the Works is, by reason of such varied work, rendered inappropriate or inapplicable, then, after due consultation by the Engineer with the Employer and the Contractor, a suitable rate or price shall be agreed upon between the Engineer and the Contractor. In the event of disagreement the Engineer shall fix such other rate or price as is, in his opinion, appropriate and shall notify the Contractor accordingly, with a copyto the Employer. Until such time as rates or prices are agreed or fixed, the Engineer shall determine provisional rates orprices to enable on-account payments to be included in certificates issued in accordance with Clause 60. Provided also that no varied work instructed to be done by the Engineer pursuant to Clause51 shall be valued under Sub-Clause 52.1 or under this Sub-Clause unless, within 14 days of the date of such instruction and, other than in the case of omitted work, before the commencementof the varied work, notice shall have been given either: A (a) by the Contractor to the Engineer of his intention to claim extra payment or a varied rate or price, or (b) by the Engineer to the Contractor of his intention to vary a rate or price.

Power of Engineer to Fix Rates

52.1

Valuation

(A)

Ui

C,,

Cr,

0

FOURTH EDITION (as Repnnted in 1992with amendments) Variations Exceeding 15 per cent 52.3 If, on the issue of a Taking-Over Certificate for the whole of the Works, it is found that A as a resultof: (a) all varied workvalued under Sub-Clauses52.1 and 52.2, and (b) all adjustments upon measurement of the estimated quantities set out in the Bill of Quantities, excluding A Provisional Sums, dayworks and adjustments of price made under Clause 70, but not from any other cause, there have been additions to or deductions from the Contract Price which taken together are in excess of 15 per cent of the 'Effective Contract Price' (which for the purposes of this Sub-Clause shall mean the Contract Price, excluding the Provisional Sums and allowance for dayworks, if any) then and in such event (subject to any action already taken under any other SubClause of this Clause), after due consultation by the Engineer with the Employer and the Contractor, there shallbe addedto or deducted from the Contract Price such further sum as may be agreed between the Contractor and the Engineer or, failing agreement, determined by the Engineer having regard to the A Contractor's Site and general overhead costs of the Contract. The Engineer shall notiij the Contractor of any determination made under this Sub-Clause, with a copy to the Employer. Such sum shall be based only on the amount by which such additions ordeductions shall be in excess of 15 percentofthe Effective Contract Price. Daywork 52.4 The Engineer may, if A in his opinion it is necessary or desirable, issue an instruction that any varied work shall be executed on a daywork basis. The Contractor shall then be paid for such varied work under the terms set out in the daywork schedule included in the Contract and at the rates and prices affixed thereto by him in the Tender. The Contractor shall furnish to the Engineer such receipts or other vouchers as may be necessary to prove the amounts paid and, before ordering materials, shall submit to the Engineer quotations forthe same for his approval. In respect of such of the Works executed on a daywork basis, the Contractor shall, during the continuance of such work, deliver each day

THIRD EDITION

Variations Exceeding 10 per cent (3) If, on certified completion of the whole ofthe Works it shall be found that a reduction or increase greater than ten per cent of the sum named in the Letter of Acceptance, excluding all fixed sums, visional sums and allowance for dayworks, if any, results from:— (a) the aggregateeffect of all Variation Orders, and (b) all adjustments upon measurement of the estimated quantities set out in the Bill of Quantities, excluding all provisional sums, dayworks and adjustments of price made under Clause 70 (1) hereof, but not from any other cause, the amount of the Contract Price shall be adjusted by such A sum as may be agreed between the Contractor and the Engineer or, failing agreement, fixed by the Engineer having regard to all material and relevant factors, including the Contractor's Site and general overhead costs of the Contract.

Daywork (4) The Engineer may, if, in his opinion it is necessary or desirable, order in writing that any additional or substituted work shall be executed on a daywork basis. The Contractor shall then be paid for such work under the conditions set out in the Daywork Schedule included in the Contract and at the rates and prices affixed thereto by him in his Tender. The Contractor shall furnish to the Engineer such receipts or other vouchers as may be necessary to prove the amounts paid and, before ordering materials, shall submit to the Engineer quotations for the same for his approval. In respect of all work executed on a daywork basis, the Contractor

4'1-

A

to the Engineer an exact list in duplicate of the names, occupation and time of all workmen employed on such work and a statement, also in duplicate, showing the description and quantity of all materials and other than Contractor's Equipment used thereon or therefor Contractor's Equipmentwhich is included in the percentage addition in accordance with such daywork schedule A . One copy of each list and statement will, if correct, or when agreed, be signed by the Engineerand returned to the Contractor. At the end of each month the Contractor shall deliver to the Engineera priced statement ofthe labour, materials and Contractor's Equipment, except as aforesaid, used and the Contractor shall not be entitled to any payment unless such lists and statements have been fully and punctually rendered. Provided always that if the Engineer considers that for any reason the sending of such lists or statements by the Contractor, in accordance with the foregoing provision, was impracticable he shall nevertheless be entitled to authorise payment for such work, either as daywork, on being satisfied as to the time employed and the labour, materials and Contractor's Equipmentused on suchwork, orat such value therefor as shall, in his opinion, be fair and reasonable.

for Claims'. Clauses 53 20.6 The provisions of this sub-clause have been transferred and expanded upon in the Fourth Edition to a new clause 53 under the heading of 'Procedure and 54 of the Third Edition have been combined into one clause, clause 54 in the Fourth Edition.

in every month an account giving particulars, as full and detailed as possible, of all claims for any additional paymentto which the Contractor may consider himself entitled and of all extra or additional workordered by the Engineer which he has executed during the preceding month. No final or interim claim for payment for any such work or expensewiil be consideredwhich has not beenincluded in such particulars. Provided always that the Engineer shall be entitled to authorise payment to be made for any such work or expense, withstanding the Contractor's failure to comply with this condition, if the Contractor has, at the earliest practicable opportunity, notified the Engineer in writing that he intends to make a claim for such work.

(4) The Contractor shall send to the Engineer'sRepresentative once

Claims206

(5) shall, during the continuance of such work, deliver each day to the Engineer's Representativean exact list in duplicate of the names, occupation and time of all workmen employed on such work and a statement, also in duplicate, showing the description and quantity of all materials and plant used thereon or therefor (other than plant which is included in the percentage addition in accordance with the Schedule hereinbefore referred toy. One copy of each list and statement will, if correct, orwhen agreed, be signed by the Engineer'sRepresentative and returned to the Contractor. At the end of each month the Contractor shall deliver to the Engineer's Representative a priced statement ofthe labour, material and plant, except as aforesaid, used and the Contractor shall not be entitled to any payment unless such lists and statements have been fully and punctually rendered. Provided always that if the Engineer shall consider that for any reason the sending of such lists or statements by the Contractor, in accordance with the foregoing provision, was impracticable he shall nevertheless be entitled to authorise payment for such work, either as daywork, on being satisfied as to thetime employed and plant and materials used on such work, or at such value therefor as shall, in his opinion, be fair and reasonable.

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0

THIRD EDITION

Engineer pursuant to this Sub-Clause.

Substantiation of Claims 53.3 Within 28 days, orsuch other reasonable time as may be agreed by the Engineer, of giving notice under Sub-Clause 53.1, the Contractor shall send to the Engineer an account giving detailed particulars of the amount claimed and the grounds upon which the claim is based. Where the event giving rise to the claim has a continuing effect, such account shall be considered to be an interim account and the Contractor shall, at such intenials as the Engineer may reasonably require, send further interim accounts giving the accumulated amount of the claim and any further grounds upon which it is based. In cases where interim accounts are sent to the Engineer, the Contractor shall send a final account within 28 days of the end of the effects resulting from the event. The Contractor shall, if required by the Engineer so to do, copy to the Employer all accounts sent to the

Contemporary Records 53.2 Upon the happening of the event referred to in Sub-Clause 53.1, the Contractor shall keep such contemporaiy records as may reasonably be necessaiy to support any claim he may subsequently wish to make. Without necessarily admitting the Employer's llabillty, the Engineer shall, on receipt of a notice under Sub-Clause 53.1, inspect such contemporary records and may instruct the Contractor to keep any further contemporary records as are reasonable and may be material to the claim of which notice has been given. The Contractor shall permitthe Engineer to inspect all records kept pursuant to this Sub-Clause and shall supply him with copies thereof as and when the Engineer so instructs.

53.1 Notwithstanding any other provision of the Contract, if the Contractor intends to claim anyadditional payment pursuant to any Clause ofthese Conditions or ofhe,wise, he shall give notice of his intention to the Engineer, with a copy to the Employer, within 28 days after the event giving rise to the claim has first arisen.

Notice of Claims

PROCEDURE FOR CLAIMS

FOURTH EDITION (as Reprinted in 1992 with amendments)

Clauses 53 and 54 of the Third Edition have been combined into one clause in the Fourth Edition under the heading of Contractor's Equipment, Temporary Works and Materials'.

Contractor's Equipment,Temporary Works and Materials;Exclusive Use for the Works 54.1 All Contractor's Equipment,Temporary Works and materials provided by the Contractor shall, when brought on to the Site, be deemed to be exclusively intended for the execution of the Works and the Contractor shall not remove the same or any part thereof, except forthe purpose of moving it fromone part of the Site to another, without the consent A of the Engineer A . Provided that consent shall not be required for vehicles engaged in transporting any staff, labour, Contractor's Equipment, Temporanj Works, Plant or materials to or from the Site.

Plant, etc., Exclusive Use for the Works207 53.(1) All Constructional Plant, Temporary Works and materials provided by the Contractor shall, when brought on to the Site, be deemed to be exclusively intended forthe execution of the Works and the Contractor shall not remove the same or any part thereof, except for the purpose of moving it fromone part ofthe Site to another, without the consent, in writing, ofthe Engineer, which shall not be unreasonably withheld. A

20.7

CONTRACTOR'S EQUIPMENT,TEMPORARY WORKS AND MATERIALS

PLANT, TEMPORARY WORKS AND MATERIALS

substantiate the whole of the claim, the Contractor shall be entitled to payment in respect of such part of the claim as such particulars may substantiate to the satisfaction of the Engineer. A The Engineer shall notify the Contractor of any determination made under this Sub-Clause, with a copyto the Employer.

Payment of Claims 53.5 The Contractor shall be entitled to have included in any interim payment certified bythe Engineerpursuant to Clause 60 such amount in respect ofany claim as the Engineer, after due consultation with the Employer and the Contractor, may consider due to the Contractor provided that the Contractor has supplied sufficient particulars to enable the Engineer to determine the amount due. If such particulars are insufficient to

Failure to Comply 53.4 Ifthe Contractor fails to comply with any of the provisions of this Clause in respect of any claim which he seeks to make, his entitlement to payment in respect thereof shall not exceed such amount as the Engineer or any arbitrator or arbitrators appointed pursuant to SubClause 67.3 assessing the claim considers to be verified by contemporaly records (whether or not such records were brought to the Engineer's notice as required underSub-Clauses 53.2 and 53.3).

of the Works the Contractor shall remove from

the

(6)

may be necessary.

Any other conditions affecting Constructional Plant, Temporary Works and materials, shall be set out in Part II in the Clause numbered 53 as

(5) The Employer will assist the Contractor, where required, in obtaining clearance through the Customs of Constructional Plant, materials and other things required for the Works.

Customs Clearance

54.5 With a viewto securing, in the event oftermination underClause 63, the continued availability, for the purpose of executing the Works, of any hired Contractor's Equipment, the Contractor shall not bring on to the Site any hiredContractor's Equipment unless there is an agreement for the hire thereof (which agreement shall be deemed not to include an

Conditions ofHire of Contractor's Equipment

A A

54.3 The Employer will use his best endeavours in assisting the Contractor, where required, in obtaining clearance through the Customs of Contractor's Equipment, materials and other things required for the Works.

Customs Clearance

A

the terms of the Contract.

Re-export of Contractor's Equipment 54.4 In respect of any Contractor's Equipmentwhich the Contractor has imported for the purposes of the Works, the Employer will use his best endeavoursto assist the Contractor, where required, in procuring any necessary Government consent to the re-export of such Contractor's Equipment by the Contractor upon the removal thereof pursuant to

Contractor's Equipment,Temporary Works or materials.

Re-export of Plant (4) In respect of any Constructional Plant which the Contractor shall have imported for the purposes of the Works, the Employer will assist the Contractor, where required, in procuring any necessary Government consent to the re-export of such Constructional Plant by the Contractor upon the removal thereof as aforesaid.

damage to any of the said Constructional Plant, Temporary Works or materials save as mentioned in Clauses 20 and 65 hereof.

Employer not Liable for Damage A 54.2 The Employer shall not at any time be liable, save as mentioned in Clauses 20 and 65, for the loss of or damage to any of the said

A

FOURTH EDITION (as Reprinted in 1992 with amendments)

for the loss of or

Employer not Liable for Damage (3) The Employer shall not at any time be liable

Site all the said Constructional Plant and Temporary Works remaining thereon and any unused materials provided by the Contractor.

(2) Upon completion

Removal of Plant, etc.

THIRD EDITION

Approval of Materials, etc. not implied 54. The operation of Clause 53 hereof shall not be deemed to imply any approval by the Engineer of the materials or other matters referred to therein nor shall it prevent the rejection of any such materials at any time by the Engineer.

Approval of Materials A not Implied 54.8 The operation of this Clause A shall not be deemed to imply any approval by the Engineer of the materials or other matters referred to therein nor shall it prevent the rejection ofany such materials at anytime by the Engineer.

Incorporation of Clause in Subcontracts 54.7 The Contractor shall, where entering into any subcontract for the execution of any part ofthe Works, incorporate in suchsubcontract (by reference or otherwise) the provisions of this Clause in relation to Contractor's Equipment, Temporaiy Works or materials brought on to the Site by the Subcontractor.

54.6 In the event ofthe Employer entering into any agreement forthe hire of Contractor's Equipment pursuant to Sub-Clause 54.5, all sums properly paid by the Employer under the provisions of any such agreement and all costs incurred by him (including stamp duties) in entering into such agreement shall be deemed, for the purpose of Clause 63, to be part of the cost of executing and completing the Works and the remedying of any defects therein.

Costs for the Purpose of Clause 63

agreement for hire purchase) which contains a provision that the owner thereof will, on request in writing made by the Employer within 7 days after the date on which any termination has become effective, and on the Employer undertaking to pay allhire charges in respectthereof from such date, hire such Contractor's Equipment to the Employeron the same terms in al/respects as the same was hiredto the Contractor save that the Employer shall be entitled to permitthe use thereof by any other contractor employed by him for the purpose of executing and completing the Works and remedying any defects therein, underthe terms of the said Clause 63.

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Quantities 55.1 The quantities set out in the Bill of Quantities are the estimated quantities for the Works, and they are not to be taken as the actual and correct quantities of the Works to be executed by the Contractor in fulfilment of his obligations under the Contract. Works to be Measured 56.1 The Engineer shall, except as otherwise stated, ascertain and determine by measurement the value of the Works in accordance with the Contract and the Contractor shall be paid that value in accordance with Clause 60. The Engineer shall, when he requires any part A of the Works to be measured, give reasonable notice to the Contractor's authorised agent A , who shall: (a) forthwith attend or send a qualified representative to assist the Engineer A in making such measurement, and A (b) supply all particulars required by the Engineer. Should the Contractor not attend, or neglect or omit to send such representative, then the measurement made by the Engineer or approved by him shall be taken to be the correct measurement of such part of the Works. For the purpose of measuring such Permanent Works as are to be measured by records and drawings, the Engineer shall prepare records and drawings as the work proceeds and the Contractor, as and when called upon to do so in writing, shall, within 14 days, attend to examine and agree such records and drawings with the Engineer and shall sign the same when so agreed. If the Contractor does not A attend to examine and agree such records and drawings, they shall be taken to be correct. If, after examination of such records and drawings, the Contractor does not agree the same or does not sign the same as agreed, they shall nevertheless be taken to be correct, unless the Contractor A , within 14 days of such examination, lodges with the Engineer A notice A of the respects in which such records and drawings are claimed by him to be incorrect. On receiptof such notice, the Engineer shall review the records and drawings and either confirm or vary them.

55 The quantities set out in the Bill of Quantities are the estimated quantities of the work, but they are not to be taken as the actual and correct quantities of the Works to be executed by the Contractor in fulfilment of his obligations under the Contract.

Works to be Measured

56. The Engineer shall, except as otherwise stated, ascertain and determine by measurement the value in terms of the Contract of workdone in accordance with the Contract. He shall, when he requires any part or parts of the Works to be measured, give notice to the Contractor's authorised agent or representative, who shall forthwith attend or send a qualified agent to assistthe Engineer orthe Engineer's Representative in making such measurement, and shall furnish all particulars required by either of them. Should the Contractor not attend, or neglect or omit to send such agent, then the measurement made by the Engineer or approved by him shall be taken to be the correct measurement of the work. For the purpose of measuring such permanent work as is to be measured by records and drawings, the Engineer's Representative shall prepare records and drawings month by month of such workand the Contractor, as and when called upon to do so in writing, shall, within fourteen days, attend to examine and agree such records and drawings with the Engineer's Representativeand shall sign the same when so agreed. If the Contractor does not so attend to examine and agree such records and drawings, they shall be taken to be correct. If, after examination of such records and drawings, the Contractor does not agree the same or does not sign the same as agreed, they shall nevertheless be taken to be correct, unless the Contractor shall, within fourteen days of such examination, lodge with the Engineer's Representative, for cision by the Engineer, notice in writing of the respects in which such records and drawings are claimed by him to be incorrect.

MEASUREMENT

FOURTH EDITION (as Reprinted in 1992 with amendments)

Quantities

THIRD EDITION

hereof (b) Work to be executed or goods, materials or services to be supplied a nominated Sub-Contractor as hereinafter defined. The sum to be paid to the Contractor therefor shall be determined and paid in accordance with Clause 59(4) hereof (c) Goods and materials to be purchased by the Contractor. The sum to be paid to the Contractor therefor shall be determined and paid in accordance with Clause 59(4) hereof.

the value of such work executed or such goods, materials or services supplied determined in accordance with Clause 52

(a) Work to be executed,including goods, materials or services to be supplied by the Contractor. The ContractPrice shall include

(2) In respect of every Provisional Sum the Engineer shall have power to order:—

A and

A

and paid in accordance with Sub-Clause 59.4. A

(b)

a nominated Subcontractor, as hereinafter defined, in which casethe sum to be paid to the Contractor therefor shall be determined

A

with Clause 52,

to issue instructions for the execution of work or for the supply of goods, materials,Plant or services by: (a) the Contractor, in which case the Contractorshall be entitled to an amount equal to the value thereof determined in accordance

58.2 In respect of every Provisional Sum the Engineer shall have authority

Use of Provisional Sums

Use of Provisional Sums

the Contract and so designated in the Bill of Quantities for the execution of any part of the Works or for the supply of goods, materials, Plant or services, or for contingencies, which sum may be used, in whole or in part, or not at all, on the instructions of the Engineer. A The Contractor shall be entitled to only such amounts in respect of the work, supply or contingencies to which such Provisional Sums relate as the Engineer shall A determine in accordance with this Clause. The Engineer shall notify the Contractor ofany determination made underthis Sub-Clause, with a copy to the Employer.

A'

58.1 'Provisional Sum' means a sum included in

Definition of 'Provisional Sum

PROVISIONAL SUMS

57.2 For the purposes of statements submitted in accordance with SubClause 60.1, the Contractor shallsubmit to the Engineer, within 28 days after the receipt ofthe LetterofAcceptance, a breakdown foreach ofthe Lump sum items contained in the Tender. Such breakdowns shall be subject to the approval of the Engineer.

58.(1) 'Provisional Sum' means a sum included in the Contract and so designated in the Bill of Quantities for the execution of work or the supply of goods, materials, or services, or for contingencies, which sum may be used, in whole or in part, or not at all, at the direction and discretion ofthe Engineer. The Contract Price shall include only such amounts in respect of the work, supply or services to which such Provisional Sums relate as the Engineer shall approve or determine in accordance with this Clause.

Definition of 'Provisional Sums'

57.1 The Works shall be measured net, notwithstanding any general or local custom, except where otherwise provided for in the Contract.

57. The Works shall be measured net, notwithstanding any general or local custom, except where otherwise specifically describedor prescribedin the Contract. Breakdown ofLump Sum Items

Method of Measurement

Method of Measurement

Production of Vouchers A

FOURTH EDITION (as Repnnted in 1992 with amendments)

58.3 The Contractor shall A produce to the Engineer all quotations, invoices, vouchers and accounts or receipts in connection with expenditure in respect of Provisional Sums, except where work is valued in accordance with ratesorpricesset out in the Tender.

(2) The Contractor shall not be required by the Employer or the Engineer or be deemed to be under any obligation to employ any nominated Sub-Contractoragainst whom the Contractor may raise reasonable objection, or who shall decline to enter into a sub:contract with the Contractor containing provisions:— (a) that in respect of the work, go6Is, materials or services the subject of the sub-contract, the nominated Sub-Contractorwill undertake towards the Contractor the like obligations and liabilities as are imposed on the Contractor towards the Employer by the terms of the Contract and will save harmless and indemnify the Contractor from and against the same and from all claims, proceedings, damages, costs, charges and expenses whatsoever arising out of or in connection therewith, or arising out of or in connection with any failure to perform such obligations or to fulfil such liabilities, and

Nominated Subcontractors A Objection to Nomination 59.2 The Contractor shall not be required by the Employer or the Engineer, or be deemed to be under any obligation, to employ any nominated Subcontractor against whom the Contractor may raise reasonable objection, or who declines to enter into a subcontract with the Contractor containing provisions: A (a) that in respect of the work, goods, materials, Plant or services the subjectofthesubcontract,the nominatedSubcontractorwillundertake towards the Contractor such obligations and liabilities as A willenable the Contractor to discharge his own obligations and ilabilitlestowards the Employer under the terms of the Contract and will save harmless and indemnify the Contractor fromand against the same and from all claims, proceedings,damages, costs,charges and expenses whatsoeverarising out of orin connection therewith, orarising outoforin connection with any failure to perform such obligations or to fulfil such liabilities, and

59.1 All specialists, merchants, tradesmen and others executing any workor supplying any goods, materials, Plant or services for which Provisional Sums are included in the Contract, who may have been or be nominated or selected or approved by the Employer or the Engineer, and all personsto whom by virtue of the provisions of the Contract the Contractor is required to subcontract shall, in the execution of such work or the supply of such goods, materials, Plant or services, be deemed to be subcontractors to the Contractor and are referred to in this Contract as 'nominated Subcontractors'.

59.(1) All specialists, merchants, tradesmen and others executing any work or supplying any goods, materials or services for which Provisional Sums are included in the Contract, who may have been or be nominated or selected or approved by the Employer orthe Engineer, and all persons to whom by virtue of the provisions of the Contract the Contractor is required to sub-let any work shall, in the execution of such work orthe supply of such goods, materials or services, be deemed to be sub-contractorsemployed by the Contractor and are referred to in this Contract as 'nominated Sub-Contractors'.

Nominated Sub-Contractors;Objection to Nomination

Definition of 'Nominated Subcontractors'

Definition of Nominated Sub-Contractors'

NOMINATEDSUBCONTRACTORS

(3) The Contractor shall, when required by the Engineer, produce all quotations, invoices, vouchers and accounts or receipts in connection with expenditure in respect of Provisional Sums.

Production of Vouchers etc.

THIRD EDITION

00

Design Requirements to be Expressly Stated 59.3 If in connection with any Provisional Sum the services to be provided include any matter of design or specification of any part of the Permanent Works or of any A Plant to be incorporated therein, such requirement shall be expressly stated in the Contract and shall be included in any nominated Subcontract. The nominated Subcontract shall specify that the nominated Subcontractorproviding such services will save harmless and indemnify the Contractor from and against the same and from all claims, proceedings, damages, costs, charges and expenses whatsoever arising out of or in connection with any failure to perform such obligations or to fulfil such liabilities. Payments to Nominated Subcontractors 59.4 For all work executed or goods, materials, Plant or services supplied by any nominated Subcontractor, the Contractorshall be entitled to: A (a) the actual price paid or due to be paid by the Contractor, on the instructions of the Engineer, and in accordance with the subcontract; (b) in respect of laboursupplied by the Contractor,the sum, if any, entered in the Bill of Quantities or, if instructed by the Engineer pursuant to paragraph(a) of Sub-Clause 58.2 A , as may be determined in accordance with Clause 52 A ; and (c) in respect of all other charges and profit, a sum being a percentage rateof the actual price paid or due to be paid calculated, where provision has been made in the Bill of Quantities for a rate to be set against the relevant Provisional Sum, at the rate inserted by the Contractor against that item or, where no such provision has been made, at the rate inserted by the Contractor in the Appendix to Tender and repeated where provision for such is made in a special item provided in the Bill of Quantities for such purpose.

Design Requirements to be Expressly Stated (3) If in connection with any Provisional Sum the services to be provided include any matter of design or specification of any part of the Permanent Works or of any equipment or plant to be incorporated therein, such requirement shall be expressly stated in the Contract and shall be included in any nominated Sub-Contract.The nominated Sub-Contract shall specify that the nominated Sub-Contractorproviding such services will save harmless and indemnify the Contractor from and against the same and from all claims, proceedings, damages, costs, charges and expenses whatsoever arising out of or in connection with any failure to perform such obligations or to fulfil such liabilities.

Payments to Nominated Sub-Contractors

determined in accordance with Clause 52 hereof; (c) in respect ofall other charges and profit, a sum being a percentage rate of the actual price paid or due to be paid calculated, where provision has been made in the Bill of Quantities for a rate to be set against the relevant Provisional Sum, at the rate inserted by the Contractor against that item or, where no such provision has been made, at the rate inserted by the Contractor in the Appendix to the Tender and repeated where provision for such is made in a special item provided in the Bill of Quantities for such purpose.

supplied by the Contractor in connection therewith, or ifordered by the Engineer pursuant to Clause 58(2)(b) hereof, as may be

(4) For all work executed or goods, materials or services supplied by any nominated Sub-Contractor, there shall be included in the Contract Price:— (a) the actual price paid or due to be paid by the Contractor, on the direction of the Engineer, and in accordance with the Sub-Contract; (b) the sum, if any, entered in the Bill of Quantities for labour

(b) that the nominated Subcontractorwill saveharmless and indemnify the Contractor from and against any negligence by the nominated Subcontractor, his agents, workmen and servants and from and against any misuse by him or them of any A Temporary Works provided by the Contractor for the purposes of the Contract and from all claims as aforesaid.

(b) that the nominated Sub-Contractor will save harmless and indemnify the Contractor from and against any negligence by the nominated Sub-Contractor, his agents, workmen and servants and from and against any misuse by him or them of any Constructional Plant or Temporary Works provided by the Contractor forthe purposes of the Contract and from all claims as aforesaid.

II

Assignment of Nominated Sub-Contractors' Obligations (6) In the event of a nominated Sub-Contractor, as hereinbefore defined, having undertaken towards the Contractor in respect of the work executed, or the goods, materials or services supplied by such nominated Sub-Contractor, any continuing obligation extending for a period exceeding that of the Period of Maintenance under the tract, the Contractor shall at anytime, after the expiration of the Period of Maintenance, assign to the Employer, at the Employer's request and cost, the benefit of such obligation for the unexpired duration thereof.

Certification

of Payments to Nominated Sub-Contractors (5) Before issuing, under Clause 60 hereof, any certificate, which includes any payment in respect of workdone or goods, materials or services supplied by any nominated Sub-Contractor, the Engineer shall be entitled to demand from the Contractor reasonable proof that all payments, less retentions, included in previous certificates in respect of work or goods, materials or services of such nominated SubContractor have been paid or discharged by the Contractor, in default whereof unless the Contractor shall (a) inform the Engineer in writing that he has reasonable cause for withholding or refusing to make such payments and (b) produce to the Engineer reasonable proof that he has so informed such nominated Sub-Contractorin writing, the Employer shall be entitled to pay to such nominated Sub-Contractordirect, upon the certificate of the Engineer, all payments, less retentions, provided forin the Sub-Contract, which the Contractor has failed to make to such nominated Sub-Contractorand to deduct by way of set-off the amount so paid by the Employer fromany sums due or which may become due from the Employer to the Contractor. Provided always that, where the Engineer has certified and the Employer has paid direct as aforesaid, the Engineer shall in issuing any further certificate in favour of the Contractor deduct from the amount thereof the amount so paid, direct as aforesaid, but shall not withhold or delay the issue of the certificate itself when due to be issued under the terms of the Contract.

THIRD EDITION

A

Certification of Payments to Nominated Subcontractors 59.5 Before issuing, underClause 60 A , any certificate, which includes any payment in respect of workdone or goods, materials, Plant or services supplied by any nominated Subcontractor, the Engineer shall be entitled to demand from the Contractor reasonable proof that all payments, less retentions, included in previous certificates in respect of the work or goods, materials, Plant or services of such nominated Subcontractor have been paid or discharged by the Contractor. If the Contractor fails to supply such proof then, unless the Contractor A (a) satisfies the Engineer in writing that he has reasonable cause for withholding or refusing to make such payments, and (b) produces to the Engineer reasonable proof that he has so informed such nominated Subcontractor in writing, the Employer shall be entitled to pay to such nominated Subcontractor direct, uponthe certificate of the Engineer, all payments, less retentions, provided for in the nominated Subcontract, which the Contractor has failed to make to such nominated Subcontractor and to deduct by way of set-off the amount so paid by the Employer from any sums due or to become due from the Employer to the Contractor. Provided A that, where the Engineer has certified and the Employer has paid direct as aforesaid, the Engineer shall, in issuing any further certificate in favour of the Contractor, deduct from the amount thereof the amount so paid, direct as aforesaid, but shall not withhold or delay the issue of the certificate itself when due to be issued under the terms of the Contract.

FOURTH EDITION (as Reprinted in 1992 with amendments)

Payment in Foreign Currencies (3) If the execution of the Works shall necessitate the importation of materials, plant or equipment from a country other than that in which the Works are being executed, or ifthe Works or any part thereof are to be executed by labour imported from any other such country, or if any other circumstances shall render it necessary or desirable, a tion of the payments to be made under the Contract shall be made in the appropriate foreign currencies and in accordance with the visions of Clause 72 hereof. The conditions under which such ments are to be made shall be as set out in Part II in the Clause numbered 60.

(2) Where advances are to be made by the Employer to the Contractor in respect of Constructional Plant and materials, the conditions of ment and repayment shall be as set out in Part II in the Clause bered 60.

Monthly Payments 60.2 The Engineer shall, within 28 days of receWing such statement, deilver to the Employer an Interim Payment Certificate stating the amount ofpayment to the Contractor which the Engineer considers due and payable in respect ofsuch statement, subject: (a) firstly, to the retention ofthe amount calculated by applying the Percentage ofRetention stated in the Appendix to Tender, to the amount to which the Contractor is entitled underparagraphs (a), (b), (c) and (e) of Sub-Clause 60.1 until the amount so retained reaches the Limit of Retention Money stated in the Appendix to Tender, and (b) secondly, to the deduction, otherthan pursuant to Clause 47, of any sums which may have become due and payable by the Contractor to the Employer. Provided that the Engineer shall not be bound to certify any payment under this Sub-Clause if the net amount thereof, after all retentions and deductions, would be less than the Minimum Amount ofInterim Payment Certificates stated in the Appendix to Tender. Notwithstanding the terms ofthis Clause orany other Clause ofthe Contract no amount will be certified by the Engineer forpayment until the performance security, ifrequired under the Contract, has been provided by the Contractor and approved by the Employer.

Monthly Statements A 60.1 The Contractor shall submit to the Engineer after the end of each month six copies, each signed by the Contractor's representative approved by the Engineer in accordance with Sub-Clause 15.1, of a statement, in such form as the Engineer may from time to time prescribe, showing the amounts to which the Contractor considers himselfto be entified up to the end of the month in respectof: (a) the value of the Permanent Works executed, (b) any other items in the Bifi of Quantities including those for Contractor's Equipment, Temporaiy Works, dayworks and the ilke, (c) the percentage of the invoice value of listed materials, all as stated in the Appendix to Tender, and Plant delivered by the Contractor on the Site for incorporation in the Permanent Works but not incorporated in such Works, (d) adjustments underClause 70, and (e) any other sum to which the Contractormay be entitled underthe Contract or otherwise.

Certificates and Payment 60.(1) Unless otherwise provided, payments shall be made at monthly intervals in accordance with the conditions set out in Part II in the Clause numbered 60.

Advances on Constructional Plant and Materials

CERTIFICATES AND PAYMENTS

CERTIFICATES AND PAYMENT

THIRD EDITION

The Engineer may by any Interim Payment Certificate make any correction or modification in any previous Interim Payment Certificate which shallhaye beenissuedbyhim andshallhave authority, if any workis not being carriedout to his satisfaction, to omitor reduce the value ofsuch workin any Interim Payment Certificate.

60.5 Not laterthan 84daysaftertheissue ofthe Taking-OverCertificatein respect ofthe whole ofthe Works,the Contractorshallsubmitto the Engineer six copies of a Statement at Completion with supporting documents showing in detail, in the form approved by the Engineer:

Statement at Completion

60.4

Correction of Certificates

Payment of Retention Money 60.3 (a) Upon the issue of the Taking-Over Certificate with respect to the whole of the Works, one half ofthe Retention Money, or upon the issue ofa Taking-Over Certificate with respect to a Section or part of the Permanent Works only such proportion thereof as the Engineer determines having regard to the relative value of such Section or part of the Permanent Works, shall be certified by the Engineer forpaymentto the Contractor. (b) Upon the expiration of the Defects Liabilty Period for the Works the other half of the Retention Money shall be certified by the Engineer forpaymentto the Contractor. Provided that, in the event of different Defects Liability Periods having become applicable to different Sections or parts of the Permanent Works pursuant to Clause 48, the expression 'expiration of the Defects Liabillty Period' shall, for the purposes ofthis Sub-Clause, be deemed to mean the expiration ofthe latest ofsuchperiods. Provided also that ifat such time there shall remain to be executed by the Contractor any work instructed, pursuant to Clauses 49 and 50, in respect of the Works, the Engineer shall be entitled to withhold certification unifi completion of such work of so much of the balance of the Retention Money asshall, in the opinion ofthe Engineer, represent the cost of the workremaining to be executed.

FOURTH EDITION (as Reprinted in 1992 with amendments)

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THIRD EDITION

Within 28 days after receipt ofthe Final Statement, and the written discharge, the Engineer shall issue to the Employer (with a copyto the Contractor) a Rnal Payment Certificate stating: (a) the amount which, in the opinion of the Engineer, is finallydue under the Contract or othe,wise, and (b) after giving credit to the Employer for all amounts previously paid by the Employer and for all sums to which the Employer is entitled other than under Clause 47, the balance, if any, due from the Employer to the Contractor or from the Contractor to the Employer as the case may be.

60.10 The amount due to the Contractor under any Interim Payment Certificate issued by the Engineer pursuant to this Clause, or to any other term of the Contract, shall, subjectto Clause 47, be paid bythe Employer to the Contractor within 28 days after suchInterim Payment Certfficate has been delivered to the Employer, or, in the case of the Final Payment Certificate referred to in Sub-Clause 60.8, within 56 days, aftersuchFinalPayment Certificate has been delivered to the Employer. In the event of the failure of the Employer to makepayment within the times stated, the Employer shall pay to the Contractor interest at the rate stated in the Appendix to Tender upon all sums unpaid from the date by which the same should have been paid. The provisions of this SubClause are without prejudice to the Contractor's entitlement under Clause 69 or otheiwise.

Time for Payment

Cessation ofEmployer's Liability208 60.9 TheEmployer shall not be liable to the Contractor forany matter or thing arising out ofor in connection with the Contract or execution of the Works, unless the Contractor shall have included a claim in respect thereof in his Final Statement and (except in respect of matters or things arising after the issue of the Taking-Over Certificate in respect of the whole of the Works) in the Statement at Completion referred to in Sub-Clause 60.5.

60.8

Final Payment Certificate

FOURTH EDITION (as Reprinted in 1992 with amendments)

')

i

fhis sub-clause has

been transferred in the Fourth Edition to sub-clause 60.9.

This sub-clause has been transferred in the Fourth Edition from its original sequence in the Third Edition as sub-clause 62(2). The text in the Fourth Edition is expanded.

20.9

See Sub-Clause 60.9 above.209

Clause 60.3.

20.8

under this Clause.

Cessation of Employer's Liability (2) The Employer shall not be liable to the Contractor for any matter or thing arising out of or in connection with the Contract or the execution of the Works, unless the Contractor shall have made a claim in writing in respect thereof before the giving of the MaintenanceCertificate

62.(1) The Contract shall not be considered as completed until a Maintenance Certificate shall have been signed by the Engineer and delivered to the Employer stating that the Works have been completed and maintainedto his satisfaction. The Maintenance Certificate shall be given by the Engineer within twenty-eight days after the expiration of the Periodof Maintenance, or ifdifferent periods of maintenanceshall become applicable to different sections or parts of the Works, the expiration of the latest such period, or as soon thereafter as any works ordered during such period, pursuant to Clauses 49 and.50 hereof, shall have been completed to the satisfaction ofthe Engineer and full effectshall be given to this Clause, notwithstanding any previous entryon the Works or the taking possession, working or using thereof or any part thereof by the Employer. Provided always that the issue of the Maintenance Certificate shall not be a condition precedent to payment to the Contractor of the second portion of the retention money in accordance with the conditions set out in Part II in the Clause numbered 60.

Defects Liability Certificate 62.1 The Contract shall not be considered as completed until a Defects Liability Certificate shall have been signed by the Engineer and delivered to the Employer, with a copyto the Contractor, stating the date on which the Contractor shall have completed his obligations to executeand complete the Works and remedy any defects therein to the Engineer's satisfaction. The Defects Liability Certificate shall be given bythe Engineerwith 28 days afterthe expiration of the Defects Liability Period, or, if different defects liability periods shall become applicable to different Sections or parts of the Permanent Works, the expiration of the latest such period, or as soon thereafter as any works instructed A pursuant to Clauses 49 and 50 A, have been completed to the satisfaction of the Engineer. A Provided A , that the issue of the Defects Liability Certificate shall not be a condition precedent to payment to the Contractor of the second portion of the Retention Money in accordance with the conditions set out in Sub-

MaintenanceCertificate

A,

Approval only by Defects Liability Certificate 61.1 Only the Defects Liability Certificate, referred to in Clause 62 shall be deemed to constitute approval of the Works.

Approval only by Maintenance Certificate 61. No certificate otherthan the MaintenanceCertificate referred to in Clause 62 hereof shall be deemed to constitute approval of the Works.

REMEDIES AND POWERS

replace work for twenty-eight days after receiving from the Engineerwritten notice that the said materials or work had been condemned and rejected by the Engineer under these conditions, or (d) despite previous warnings by the Engineer, in writing, is not executing theWorks in accordancewith theContract, ens persistently or flagrantly neglecting to carry out his obligations under the Contract, or

Employer that in his opinion the Contractor:— (a) has abandonedthe Contract, or (b) without reasonable excuse has failed to commence the Works or has suspended the progress of the Works for twenty-eight days after receiving from the Engineer written notice to proceed, or (c) has failed to remove materialsfrom the Site or to pull down and

corporation, shall go into liquidation (other than a voluntary liquidation for the purposes ofamalgamationor reconstruction), or if the Contractor shall assign the Contract, without the consent in writing of the Employer first obtained, or shall have an execution levied on his goods, or if the Engineer shall certify in writing to the

Default of Contractor 63(1) If the Contractor shall become bankrupt, or have a receiving order made against him, or shall present his petition in bankruptcy, or shall make an arrangement with or assignment in favour of his creditors, or shall agree to carry out the Contract under a committee of inspection of his creditors or, being a

(3)

Notwithstanding the issue of the Maintenance Certificate the Contractor and, subject to sub-clause (2) of this Clause, the Employer shall remain liable for the fulfilment of any obligation incurred under the provisions of the Contract prior to the issue of the Maintenance Certificate which remains unperformed at the time such Certificate is issued and, for the purposes of determining the nature and extent of any such obligation, the Contract shall be deemed to remain in force between the parties hereto.

Unfulfilled Obligations

THIRD EDITION

A

if

debts,proceedings are commenced against the Contractororresolutions passed in connection with dissolution or liquidation or if any steps are taken toenforce anysecurity interest overa substantial partofthe assets ofthe Contractor, of any actis done or event occurs with respect to the Contractor or his assets which, under any applicable law has a substantially similar effect to any of the foregoing acts or events, or if the Contractorhascontra vened Sub-Clause 3.1, or has an execution levied on his goods, or ifthe Engineer certifies A tothe Employer, with a copy to the Contractor, that, in his opinion, the Contractor: (a) has repudiated the Contract, 9#' (b) without reasonable excuse has failed (i) to commence the Works in accordance with Sub-Clause 41.1, or A (ii) to proceedwiththe Works, or any Section thereof, within 28 days after receiving A notice A pursuant to Sub-Clause 46.1, 9t

due, or entersinto voluntary or involuntary bankruptcy, liquidation or dissolution(other than a voluntary liquidation for the purposesof amalgamationor reconstruction),or becomesinsolvent, or makes an arrangement with, or assignment in favour of, his creditors, or agreesto carry out the Contractundera committee of inspection of his creditors, or if a receiver, administrator, trustee or liquidator is appointed overany substantial part ofhis assets, or if, under any law or regulation relating to reorganization, arrangement or readjustment of

If

REMEDIES

Default of Contractor 63.1 the Contractorisdeemedbylawunabletopayhisdebtsas theyfall

A

62.2 Notwithstanding the issue of the Defects Liability Certificate the Contractor and the Employer shall remain liable for the fulfilment of any obligation incurred under the provisions of the Contract priorto the issue ofthe Defects Liability Certificate which remains unperformed at the time such Defects Liability Certificate is issued and, for the purposes of determining the nature and extent of any such obligation, the Contract shall be deemed to remain in forcebetween the parties to the Contract.

Unfulfilled Obligations

FOURTH EDITION (as Repiinted in 1992 with amendments)

(2) The Engineer shall, as soon as may be practicable after any such entry and expulsion by the Employer, fix and determine ex parte, or by or after reference to the parties, or after such investigation or enquiries as he may think fit to make or institute, and shall certify what amount, if any, had at the time of such entry and expulsion been reasonably earned by or would reasonably accrue to the Contractor in respect of work then actually done by him under the Contract and the value of any ofthe said unused or partially used materials, any Constructional Plant and any Temporary Works.

Valuation at Date of Forfeiture

the said Constructional Plant, Temporary Works and unused materials and apply the proceeds of sale in or towards the satisfaction of any sums due or which may become due to him from the Contractor under the Contract.

(e) has, to the detriment of good workmanship, or in defiance of the Engineer's instructions tothe contrary,sub-let any part ofthe Contract then the Employer may, after giving fourteen days' notice in writing to the Contractor, enter upon the Site and the Works and expel the Contractor therefrom without thereby voiding the Contract, or releasing the Contractor from any of his obligations or liabilities under the Contract, or affecting the rights and powers conferred on the Employer or the Engineer by the Contract, and may himself complete the Works or may employ any other contractor to complete the Works. The Employer or such other contractor may use for such completion so much of the Constructional Plant, Temporary Works and materials, which have been deemed to be reserved exclusively for the execution of the Works, under the provisions of the Contract, as he or they may thinkproper, and the Employer may, at anytime, sell any of

A

63.2 The Engineer shall, as soon as may be practicable after any such entry and termination by the Employer, fix and determine ex parte, or by or after reference to the parties A or after such investigation or enquiries as he may thinkfit to make or institute, and shall certify: (a) whatamount (if any) had, at the time of such entry and termination, been reasonably earned by or would reasonably accrue to the Contractor in respect of workthen actually done by him under the Contract, and (b) the value of any of the said unused or partially used materials, any Contractor's Equipmentand any Temporary Works.

Valuation at Date of Termination

they may think proper.

(c) has failed to comply witha noticeissued pursuant to Sub-Clause 37.4 or an instruction issued pursuant to Sub-Clause 39.1 within 28 days after having received it, 9t (d) despite previous warning from the Engineer, in writing, A is otherwise persistently or flagrantly neglecting to comply withany of his obligations under the Contract, or (e) has contravened Sub-Clause 4.1, then the Employer may, after giving 14 days' notice A to the Contractor, enter upon the Site and the Works and terminate the employment of the Contractor A without thereby A releasing the Contractor from any of his obligations or liabilities under the Contract, or affecting the rights and authorities conferred on the Employer or the Engineer by the Contract, and may himself complete the Works or may employ any other contractor to complete the Works. The Employer or such other contractor may use for such completion so much of the Contractor's Equipment,Temporary Works and materials A as he or

Urgent Repairs 64. If, by reason of any accident, or failure, or other event occurring to in or in connection with the Works, or any part thereof, either during the execution ofthe Works, orduring the PeriodofMaintenance, any remedial or other work or repair shall, in the opinion of the Engineer or the neer's Representative, be urgently necessary for the safety of the Works and the Contractor is unable or unwilling at once to do such work or repair, the Employer may employ and payother persons to carryout such work or repair as the Engineer or the Engineer's Representative may consider necessary. If theworkor repair so done by the Employer is work

(3) If the Employer shall enter and expel the Contractor under this Clause, he shall not be liable to pay to the Contractor any money on account of the Contract until the expiration of the Period of Maintenance and thereafter until the costsofexecution and maintenance, damages for delay in completion, if any, and all other expenses incurred by the Employer have been ascertained and the amount thereofcertified by the Engineer. The Contractor shall then be entitled to receive only such sum or sums, if any, as the Engineer may certify would have been payable to him upon due completion by him after deducting the said amount. If such amount shall exceed the sum which would have been payable to the Contractor on due completion by him, then the Contractor shall, upon demand, pay to the Employer the amount of such excess and it shall be deemed a debt due by the Contractor to the Employer and shall be recoverable accordingly.

Payment after Forfeiture

THIRD EDITION

Urgent Remedial Work 64.1 If, by reason of any accident, or failure, or other event occurring to, in, or in connection with the Works, or any part thereof, either during the execution of the Works, or during the Defects Liability Period, any remedial or other work A is, in the opinion of the Engineer A , urgently necessary for the safety of the Works and the Contractor is unable or unwilling at once to do such work A ,the Employershall be entitled to employ and pay other persons to carry out such work A as the Engineer A may consider necessary. If the work or repair so done by the Employer is work which, in the opinion of the Engineer, the Contractor

Assignment of Benefit of Agreement 63.4 Unless prohibited by law, the Contractor shall, if so instructed by the Engineer within 14 days ofsuchentiyand termination referred to in SubClause 63.1, assign to the Employer the benefit of any agreement for the supply ofanygoods ormaterials orseivices and/or forthe execution ofany workfor the purposes of the Contract, which the Contractor may have entered into.

Payment after Termination 63.3 If the Employer terminates the Contractor's employment under this Clause, he shall not be liable to pay to the Contractor any further amount (including damages) in respect of the Contract until the expiration of the Defects Liability Periodand thereafter until the costs of execution, completion and remedyingofany defects, damagesfor delay in completion (if any) and all other expenses incurred by the Employer have been ascertained and the amount thereof certified by the Engineer. The Contractor shall then be entitled to receive only such sum A (if any) as the Engineer may certify would have been payable to him upon due completion by him after deducting the said amount. If such amount exceeds the sum which would have been payable to the Contractor on due completion by him, then the Contractor shall, upon demand, pay to the Employer the amount ofsuchexcess and it shall be deemed a debt due by the Contractor to the Employer and shall be recoverable accordingly.

FOURTH EDITION (as Reprinted in 1992 with amendments)

65. Notwithstanding anything in the Contract contained:— The Contractor shall be under no liability whatsoever whether byway ofindemnity or otherwise foror in respect ofdestruction ofor damage to the Works, save to work condemned under the provisions of Clause 39 hereof priorto the occurrence of any special risk after mentioned, or to property whether of the Employer or third parties, or for or in respect of injury or loss of life which is the sequence of any special risk as hereinafter defined. The Employer shall indemnify and save harmless the Contractor against and from the same and against and from all claims, proceedings, damages, costs, charges and expenses whatsoever arising thereout or in connection therewith.

No Liability for War, etc. Risks,

SPECIAL RISKS

which, in theopinion ofthe Engineer, the Contractor was liable to do at his own expense under the Contract, all expenses properly incurred by the Employerin so doing shall be recoverable from the Contractor by the Employer, or may be deducted by the Employer fromany monies due or which may become due to the Contractor. Provided always that the Engineer or the Engineer's Representative, as the case may be, shall, as soon after the occurrence of any such emergency as may be reasonably practicable, notify the Contractor thereof in writing.

all costs after due conincidental thereto thereon or shall, consequent sultation withthe Employerand the Contractor, be determined by the Engineer and shall be recoverable from the Contractor by the Employer, and may be deducted by the Employerfromany monies due or to become due to the Contractor and the Engineer shall notify the Contractor accordingly, with a copy to the Employer. Provided A that the Engineer A shall, as soon after the occurrence of any such emergency as may be reasonably practicable, notify the Contractor

A.

65.1

A

A.

SPECIAL RISKS

The Contractor shall be under no liability whatsoever in consequence ofany of the special risks referred to in Sub-Clause 65.2, whether by way of indemnity or otherwise, for or in respect of: (a) destructionofor damage to the Works, save to workcondemned underthe provisions of Clause 39 A priorto the occurrence ofany of the said special risks, A 9? (b) destruction ofor damage to property, whether of the Employer or third parties, or (c) A injury or loss of life

No Liability for Special Risks

thereof

was liable to do at his own cost under the Contract, then

0

0

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'-4.

(4) The Employershall repay to the Contractor any increasedcost of or incidental to the execution of the Works, otherthan such as may be attributable to the cost of reconstructing work condemned under the provisions of Clause 39 hereof, priorto the occurrence of any special risk, which is howsoever attributable to or consequent on or the result of or in any way whatsoever connected with the said special risks, subject however to the provisions in this Clause hereinafter contained in regard to outbreak of war, but the Contractor shall as soon as any such increase ofcost shall cometo his knowledge forthwith notify the Engineer thereof in writing.

Increased Costs arising from Special Risks

(3) Destruction, damage, injury or loss of life caused by the explosion or impact whenever and wherever occurring of any mine, bomb, shell, grenade, or other projectile, missile, munition, or explosive of war, shall be deemed to be a consequence of the said special risks.

Projectile Missile, etc.

Works.

Damage to Works, etc. by Special Risks201° (2) If the Works or any materials on or near or in transit to the Site, or any other property of the Contractor used or intended to be used for the purposes of the Works, shall sustain destruction or damage by reason of any of the said special risks the Contractor shall be entitled to payment for:— (a) any permanent work and for any materials so destroyed or damaged, and, so far as may be required by the Engineer, or as may be necessary for the completion of the Works, on the basis of cost plus such profit as the Engineer may certify to be reasonable; (b) replacing or making good any such destruction ordamage to the Works; (c) replacing or makinggood such materials orother propertyofthe Contractor used or intended to be used for the purposes of the

THIRD EDITION

A.

65.5 Save to the extent that the Contractor is entitled to payment underany other pmvision of the Contract, the Employer shall repay to the Contractor any costs of the execution ofthe Works (other than such as may be attributable to the cost of reconstructing workcondemned under the provisions of Clause 39 A priorto the occurrence of any special risk) which are howsoever attributable to or consequent on or the result of or in any way whatsoever connected with the said special risks, subject however to the provisions in this Clause hereinafter contained in regard to outbreak of war, but the Contractor shall, as soon as any such A cost comes to his knowledge, forthwith notify the Engineer thereof The Engineer shall, after due consultation with the Employer and the Contractor, determine the amount of the Contractor's costs in respect thereof which shall be added to the Contract Price and shall notify the Contractor accordingly, with a copy to the Employer.

Increased Costs arising from Special Risks

Projectile, Missile A 65.4 Destruction, damage, injury or loss of life caused by the explosion or impact, whenever and wherever occurring, of any mine, bomb, shell, grenade, or other projectile, missile, munition, or explosive of war, shall be deemed to be a consequence of the said special risks.

and the Engineer shall determine an addition to the Contract Price in accordance with Clause 52 (which shall in the case of the cost of replacement of Contractor's Equipment include the fair market value thereofas determined by the Engineer) and shall notify the Contractor accordingly, with a copy to the Employer.

Damage to Works A by Special Risks 65.3 If the works or any materials or Plant on or near or in transit to the Site, or any of the Contractor's Equipment,sustain destruction or damage by reason ofany ofthe said special risks, the Contractor shall be entitled to payment in accordance with the Contract for any Permanent Works duly executed and for any materials orPlant so destroyed or damaged and, so far as may be required by the Engineer A or as may be necessary for the completion of the Works, to payment for: (a) rectifying any such destruction or damage to the Works, and (b) replacing or rectifying such materials or Contractor's Equipment,

FOURTH EDITION (as Reprinted in 1992 with amendments)

'I

Works, the Contractor shall, unless and until the Contract is terminated under the provisions of this Clause, continue to use his best endeayours to complete the execution of the Works. Provided always that the Employer shall be entitled at any time after such outbreak ofwar to terminate the Contract by giving written notice to the Contractor and, upon such notice being given, this Contract shall, except as to the rights of the parties under this Clause and to the operation of Clause 67 hereof, terminate, but without prejudice to the rights of either party in respect of any antecedent breach thereof.

If, during the currency of the Contract, there shall be an outbreak of war, whether war is declared or not, in any part of the world which, whether financially or otherwise, materially affects the execution of the

20.10

65.7 If the Contract is terminated under the provisions of Sub-Clause65.6, the contractor shall, with all reasonable dispatch, remove fromthe Site all Contractor's Equipment and shall give similar facilities to his Subcontractors to do so.

Removal of Contractor's Equipmenton Termination

thereof.

65.6 If, during the currency of the Contract, there is an outbreak of war, whether war is declared or not, in any part of the world which, whether financially or otherwise, materially affects the execution of the Works, the Contractor shall, unless and until the Contract is terminated under the provisions of this Clause, continue to use his best endeavours to complete the execution of the Works. Provided A that the Employer shall be entitled, at any time after such outbreak ofwar, to terminate the Contract by giving A notice to the Contractor and, upon such notice being given, the Contract shall, except as to the rights of the parties under this Clause and A Clause 67, A terminate, but without prejudice to the rights of either party in respect of any antecedent breach

Outbreak of War

executed.

Special Risks 65.2 The special risks are: (a) the risks defined under paragraphs(a), (c), (d) and (e) of SubClause 20.4, and (b) the risks defined under paragraph (b) of Sub-Clause 20.4 insofar as these relate to the country in which the Works are to be

Sub-clause 65(2) of the Third Edition has been replaced by sub-clause 65.3 of theFourth Edition; 65(3) by 65.4; 65(4) by 65.5 and 65(5) by 65.2 respectively.

(7) If the Contract shall be terminated under the provisions of the last preceding sub-clause, the Contractor shall, with all reasonable despatch, remove from the Site all Constructional Plant and shall give similar facilities to his Sub-Contractors to do sc.

Removal of Plant on Termination

(6)

Outbreak of War

not), invasion, act of foreign enemies, the nuclear and pressurewavesrisk described in Clause 20(2) hereof, or insofar as it relatesto the country in which the Works are being or are to be executed or maintained, rebellion, revolution, insurrection, military or usurped power, civil war, or, unless solely restricted to the employees of the Contractoror of his Sub-Contractorsand arising from the conduct of the Works, riot, commotion or disorder.

(5) The special risks are war, hostilities (whetherwar be declared or

Special Risks

if Contract Terminated

(8) If the Contract shall be terminated as aforesaid, the Contractor shall be paid by the Employer, insofar as such amounts or items shall not have already been covered by payments on account made to the Contractor, for all workexecuted prior to the date of termination at the rates and prices provided in the Contract and in addition:— (a) The amounts payable in respect of any preliminary items so far as the work or service comprised therein has been carried out or performed, and a proper proportion as certified by the Engineer of any such items, the workor service comprised in which has been partially carried out or performed. (b) The cost of materials or goods reasonably ordered for the Works which shall have been delivered to the Contractor or of which the Contractor is legally liable to accept delivery, suchmaterials or goods becoming the property of the Employer upon such payments being made by him. (c) A sum to be certified by the Engineer, being the amount of any expenditure reasonably incurred by the Contractor in the expectation of completing the whole of the Works insofar as such expenditure shall not have been covered by the payments in this sub-clause before mentioned. (d) Any additional sum payable under the provisions of sub-clauses (1), (2) and (4) of this Clause. (e) The reasonable cost of removal of Constructional Plant under sub-clause (7) of this Clause, and, if required by the Contractor, return thereof to the Contractor's main plant yard in his country of registration or to other destination, at no greatercost. (f) The reasonable cost of repatriation of all the Contractor's staff and workmen employed on or in connection with the Works at the time of such termination. Provided always that against any payments due from the Employer under this sub-clause, the Employer shall be entitled to be credited with any outstanding balances due from the Contractorfor advances in respect of Constructional Plant and materials and any other sums which at the date of termination were recoverable by the Employer from the Contractor under the terms of the Contract.

Payment

THIRD EDITION FOURTH EDITION

Payment if Contract Terminated 65.8 If the Contract is terminated as aforesaid, the Contractor shall be paid by the Employer, insofar as such amounts or items have not already been covered by payments on account made to the Contractor, for all work executed priorto the date of termination at the rates and prices provided in the Contract and in addition: A (a) the amounts payable in respect of any preliminary items referred to in the Bifi of Quantities, so far as the workor service comprised therein has been carried out or performed, and a proper proportion A of any such items A which have been partially carried out or performed; (b) the cost of materials, Plant or goods reasonably ordered for the Works which A have been delivered to the Contractor or of which the Contractor is legally liable to accept delivery, such materials, Plant or goods becoming the property of the Employer upon such payments being made by him; (c) a sum A being the amount ofany expenditure reasonably incurred by the Contractor in the expectation of completing the whole of the Works insofar as such expenditure has not been covered by any other payments referred to in this Sub-Clause; (d) any additional sum payable under the provisions of Sub-Clauses 65.3 and 65.5; (e) Such proportion of the cost as may be reasonable,taking into account payments made or to be made for work executed, or removal of Contractor's Equipment under Sub-Clause 65.7 and, if required by the Contractor, return thereof to the Contractor's main plant yard in his country of registration or to other destination, at no greater cost; and (f) the reasonable cost of repatriation of all the Contractor's staff and workmen employed on or in connection with the Works at the time of such termination. Provided A that against any payment due from the Employer under this Sub-Clause, the Employer shall be entitled to be credited with any outstanding balances due from the Contractor for advances in respect of Contractor's Equipment, materials and Plant and any other sums which, at the date of termination, were recoverable by the Employer from the Contractor under the terms of the Contract Any sums payable underthis Sub-Clause shall, after due consultation with the Employer and the Contractor, be determined by the Engineer who shall notiiythe Contractor accordingly, with a copy to the Employer.

(as Reprinted in 1992 with amendments)

p..)

J1 C.'

Settlementof Disputes— Arbitration 67. If any dispute or difference of any kind whatsoever shall arise between the Employer and the Contractor or the Engineer and the Contractor in connection with, or arising out of the Contract, or the execution of the Works, whether during the progress of the Works or after their completion and whether before or after the termination, abandonmentor breach of the Contract, it shall, in the first place, be referred to and settled by the Engineer who shall, within a period of ninety days after being requestedby either party to do so, give written notice of his decision to the Employer and the Contractor. Subject to arbitration, as hereinafter provided, such decision in respect of every matter so referredshall be final and binding upon the Employerand the Contractor and shall forthwith be given effect to by the Employer and by the Contractor, who shall proceed with the execution of the Works with all due diligence whether he or the Employerrequires arbitration, as hereinafterprovided, or not. If the Engineer has given written notice of his decision to the Employer and the Contractor and no claim to arbitration has been communicated to him by either the Employer or the Contractor within a period of ninety days from receipt of such notice, the said decision shall remain final

SETTLEMENT OF DISPUTES

Payment in Event of Frustration 66. If a war, or other circumstances outside the control of both parties, arises after the Contract is made so that either party is prevented from fulfilling his contractual obligations, or underthe law governing the Contract, the parties are released from further performance, then the sum payable by the Employer to the Contractor in respect of the work executed shall be the same as that which would have been payable under Clause 65 hereof if the Contract had been terminated under the provisions of Clause 65 hereof.

FRUSTRATION

Unless the Contract has already been repudiated or terminated, the Contractor shall, in every case, continue to proceed with the Works with all due diligence and the Contractor and the Employer shall give effect forthwith to every such decision of the Engineer unless and until the same shall be revised, as hereinafter provided, in an amicable settlement or an arbitral award.

pursuant to this Clause.

Engineer's Decision If a dispute A of any kind whatsoever arises between the Employer and the Contractor A in connection with, or arising out of, the Contract or the execution of the Works, whether during the execution of the Works or after their completion and whether before or after repudiation or other termination of the Contract, including any dispute as to any opinion, instruction, determination, certificate or valuation of the Engineer, the matter in dispute shall, in the first place, be referredin writing to the Engineer, with a copy to the otherparty. Such reference shall state that it is made pursuant to this Clause. No later than the eighty-fourth day after the day on which he receivedsuch reference the Engineer shall give notice of his decision to the Employerand the Contractor. Such decision shallstate thatit is made 67.1

SETTLEMENT OF DISPUTES

issue of the Letter of Acceptancewhich renders it impossible or unlawful for either or both paties to fulfil his or their contractual obligations, or under the law governing the Contract the parties are released from further performance, then the parties shall be discharged from the Contract, except as to theirrightsunder this Clause and Clause 67 and without prejudice to the rights of either partyin respectof any antecedent breach of the Contract, and the sum payable by the Employer to the Contractor in respect of the workexecuted shall be the same as that which would have been payable under Clause 65 A ifthe Contract had been terminated under the provisions of Clause 65. A

Payment in Event of Release from Performance 66.1 If any circumstance outside the control of both parties arises after the

RELEASE FROM PERFORMANCE

C.'

c:),

VII

C

Vi)

C

VI' VII

0

VI'

C

'0

fail to give notice of his decision, as aforesaid, within a period of ninety days after being requested as aforesaid, or if either the Employer or the Contractor be dissatisfied with any such decision, then and in any such case either the Employer or the Contractor may within ninety days after receiving notice of such decision, or within ninety daysafter the expiration ofthe first-named period of ninety days, as the case may be, require that the matter or matters in dispute be referredto arbitration as hereinafter provided. All disputes or differences in respect of which the decision, if any, of the Engineer has not become final and binding as aforesaid shall be finally settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by one or more arbitrators appointed under such Rules. The said arbitrator/s shall have full power to open up, revise and review anydecision, opinion, direction, certificates or valuation of the Engineer. Neither party shall be limited in the proceedings before such arbitrator/s to the evidence or arguments put before the Engineerforthe purpose ofobtaining his said decision. No decision by the Engineer in accordance with the foregoing provisions shall disqualify him frombeing called as a witness and giving evidence before the arbitrator/s on any matter whatsoever relevant to the dispute or difference referred to the arbitrator/s as aforesaid. The referenceto arbitration may proceednotwithstanding that the Works shall not then be or be alleged to be complete, provided always that the obligations of the Employer,the Engineer and the Contractor shall not be altered by reason of the arbitration being conducted during the progress of the Works.

and binding upon the Employer and the Contractor. If the Engineershall

THIRD EDITION

67.3 Any dispute in respect of which: (a) the decision, if any, of the Engineer has not become final and binding pursuant to Sub-Clause 67.1, and (b) amicable settlement has not been reached within the periodstatedin Sub-Clause 67.2,

Arbitration

67.2 Where notice of intention to commence arbitration as to a dispute has been given in accordance with Sub-Clause 67.1, the parties shall attempt to settle such dispute amicably before the commencement of arbitration. Provided that, unless the parties otherwise agree, arbitration may be commenced on orafterthe fifty-sixth day after the day on which notice of intention to commence arbitration of such dispute was given, even if no attempt at amicable settlement thereofhas beenmade.

Amicable Settlement

same to commence arbitration, as hereinafter provided, as to such dispute and, subject to Sub-Clause 67.4, no arbitration in respect thereofmay be commenced unless such notice is given. If the Engineer has given A notice of his decision as to a matter in dispute to the Employer and the Contractor and no notice of intention to commence arbitration as to such dispute has been given by either the Employer or the Contractor on or before the seventieth day after the day on which the parties received notice as to such decision from the Engineer, the said decision shall become final and binding upon the Employer and the Contractor.

to commencearbitration, as hereinafter provided, as to the matter in dispute. Such notice shall establish the entitlement of the party giving the

before the eighty-fourth day after the day on which he received the reference, then A either the Employer orthe Contractor may, on or before the seventieth day after the day on which he received notice of such decision, or on or before the seventieth day after the day on which the said period of 84 days expired, as the case may be, give notice to the other party, witha copy for information to the Engineer, of his intention

Ifeither the Employerorthe Contractor be dissatisfied with any A decision of the Engineer, or ifthe Engineerfailsto give notice of his decision on or

FOURTH EDITION (as Reprinted in 1992 with amendments)

(2)

All notices to be given to the Employer or to the Engineer under the terms of the Contract shall be served by sending by post or delivering the same to the respective addresses nominated for that purpose in Part II of these Conditions.

Service of Notices on Employer or Engineer

A Notice to Employer and Engineer 68.2 Any notice to be given to the Employer or to the Engineer under the terms of the Contract shall be sent by post, cable, telex or facsimile transmission to or left at the respective addresses nominated for that purpose in Part II of these Conditions:

A

68.1 All certificates, notices or instructions to be given to the Contractor by the Employer or the Engineer under the terms of the Contract shall be sent by post, cable, telexor facsimile transmission to or left at A the Contractor's principal place of business or such other address as the Contractor shall nominate for that purpose.

to Contractor

68.(1) All certificates, notices or written orders to be given by the Employer or by the Engineer to the Contractor under the terms of the Contract shall be served by sending by post to or delivering the same to the Contractor's principal place of business, or suchother address as the Contractor shall nominate for this purpose.

Notice A

A

NOTICES

Service of Notices on Contractor

NOTICES

67.4 Where neither the Employer nor the Contractor has given notice of intention to commence arbitration ota dispute within the periodstated in Sub-Clause 67.1 and therelateddecision has become finalandbinding, either partymay, ifthe otherpartyfails to comply with suchdecision, and without prejudice to any other rights it may have, refer the failure to arbitration in accordance with Sub-Clause 67.3. The provisions of SubClauses 67.1 and 67.2 shall not apply to any such reference.

Failure to Comply with Engineer's Decision

obtaining his said decision pursuant to Sub-Clause 67.1. No such decision A shall disqualify the Engineer from being called as a witness and giving evidence before the arbitrator/s on any matter whatsoever relevant to the dispute. A Arbitration may be commencedpriorto or after completion of the Works, provided A that the obligations of the Employer, the Engineer and the Contractor shall not be altered by reason of the arbitration being conducted during the progress of the Works.

shall be finally settled, unless otherwise specified in the Contract, under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by one or more arbitrators appointed under such Rules. The said arbitrator/s shall have full power to open up, review and revise any decision, opinion, instruction, determination, certificate or valuation of the Engineer related to the dispute. Neither party shall be limited in the proceedings before such arbitrator/s to the evidence or arguments put before the Engineer for the purpose of

01

0

0

DEFAULT OF EMPLOYER

DEFAULT OF EMPLOYER

the event of the Employer:— (a) failing to payto the Contractor the amount due under any certificate of the Engineer within thirty daysafter the same shall have become due under the terms of the Contract, subjectto any deduction that the Employer is entitled to make under the Contract, or (b) interfering with or obstructing or refusing any required approval to the issue of any such certificate, or (c) becoming bankrupt or, being a company, going into liquidation, other than for the purpose of a scheme of reconstruction or amalgamation, or (d) giving formal notice to the Contractor that for unforeseen reasons,

(2) Upon the expiry of the fourteen days' notice referred to in sub-clause (1) of this Clause, the Contractor shall, notwithstanding the provisions of Clause 53(1) hereof, with all reasonable despatch, remove from the Site all Constructional Plant brought by him thereon.

Employer, with a copyto the Engineer.

due to economic dislocation, it is impossible for him to continue to meet his contractual obligations the Contractor shall be entitled to terminate his employment under the Contract after giving fourteen days' prior written notice to the

69.(1) In

Removal of Contractors Equipment 69.2 Upon the expiry of the 14 days' notice referred to in Sub-Clause 69.1, the Contractor shall, notwithstanding the provisions of Sub-Clause 54.1, A with all reasonable despatch, remove from the Site all Contractor's Equipment brought by him thereon.

giving of the notice.

69.1 In the event of the Employer: (a) failing to pay to the Contractor the amount due under any certificate of the Engineer within 28 days after the expiry of the time stated in Sub-Clause 60.10 within which payment is to be made, subject to any deduction that the Employer is entitled to make under the Contract, 9*' (b) interfering with or obstructing or refusing any required approval to the issue of any such certificate, 9*' (c) becoming bankrupt or, being a company, going into liquidation, other than for the purpose of a scheme of reconstruction or amalgamation, or (d) giving notice to the Contractor that for unforeseen economic reasons it is impossible for him to continue to meet his contractual obligations. the Contractor shall be entitled to terminate his employment under the Contract by giving notice to the Employer, with a copy to the Engineer. Such termination shall take effect 14 days after the

Default of Employer

Change of Address 68.3 Either party may change a nominated address to another address in the country where the Works are being executed by prior A notice to the other party, with a copy to the Engineer, and the Engineer may do so by prior A notice to both parties.

Change of Address (3) Either party may change a nominated address to another address in the country where the Works are being executed by prior written notice to the other party and the Engineer may do so by prior written notice to both parties.

Default of Employer

FOURTH EDITION (as Reprinted in 1992 with amendments)

THIRD EDITION

consequence of such termination.

(3) In the event of such termination the Employer shall be under the same obligations to the Contractor in regard to payment as if the Contract has been terminated underthe provisions of Clause 65 hereof, but, in addition to the payments specified in Clause 65 (8) hereof the Employer shall pay to the Contractor the amount of any loss or damage to the Contractor arising out of or in connection with or by

Resumption of Work 69.5 Where the Contractor suspends work or reduces the rate of work, having given notice in accordance with Sub-Clause 69.4, and the Employer subsequently pays the amount due, including interest pursuant to Sub-Clause 60.10, the Contractor's entitlement under SubClause 69.1 shall, ifnotice oftermination has not been given, lapse and the Contractor shall resume normal working as soon as is reasonably possible.

69.4 Withoutprejudice to the Contractor's entitlement to interestunderSubClause 60.10 and to terminate under Sub-Clause 69.1, the Contractor may, if the Employer fails to pay the Contractor the amount due under any certificate ofthe Engineer within 28 daysafter the expiiyofthe time stated in Sub-Clause 60.10 within which payment is to be made, subject to any deduction that the Employer is entitled to make under the Contract, aftergiving 28days'priornoticeto the Employer, with a copy to the Engineer, suspend work or reduce the rate of work. if the Contractor suspends work or reduces the rate of work in accordance with the provisions ofthis Sub-Clause and thereby suffers delay or incurs costs the Engineer shall, after due consultation with the Employer and the Contractor, determine: (a) any extension of time to which the Contractor is entitled under Clause 44, and (b) the amount ofsuch costs, which shall be added to the Contract Price, and shall notify the Confractoraccordingly, with a copyto the Employer.

Contractor's Entitlement to Suspend Work

Payment on Termination 69.3 In the event of suchtermination the Employer shall be underthe same obligations to the contractor in regard to payment as if the Contract has been terminated under the provision ofClause 65 A , but, in addition to the payments specified in Sub-Clause 65.8 A , the Employer shall pay to the Contractor the amount of any loss or damage to the Contractor arising out of or in connection with or by consequence of such termination.

cJ1

Currency Restrictions 71. lf after the thirty dayspriorto the latest date for submission oftenders for the Works the Government or authorised agency of the Government of the country in which the Works are being or are to be executed imposes currency restrictions and/or transfer of currency restrictions in relation to the currency or currencies in which the Contract Price is to be paid, the Employer shall reimburse any loss or damage to the Contractor arising therefrom, without prejudice to the right ofthe Contractor to exercise any other rights or remedies to which he is entitled in such event.

Currency Restrictions 71.1 If, afterthedate28days priortothelatestdateforsubmissionoftendersfor theContract,the Governmentorauthorised agencyofthe Governmentof the country in which the Works are being or are to be executed imposes currency restrictions and/ortransfer of currency restrictions in relation to the currency or currencies in which the Contract Price is to be paid, the Employer shall reimburse any loss or damage to the Contractor arising therefrom, without prejudice to the right ofthe Contractor to exercise any other rights or remedies to which he is entitled in such event.

CURRENCY AND RATES OF EXCHANGE

Subsequent Legislation 70.2 If, after the date 28 dayspriortothe latest date for submission oftenders forthe Contractthere occurin the country in which the Works are being or are to be executed changes to any National or State Statute, Ordinance, Decree orother Law or any regulation or bye-law ofany local or other duly constituted authority, or the introduction of any such State Statute, Ordinance, Decree, Law, regulation or bye-law which causes additional or reduced cost to the Contractor, other than under SubClause 70.1, A in the execution of the Contract, such additional or reduced cost shall, after due consultation with the Employer and the Contractor, be determinedby the Engineer and shall be added to or deductedfrom the Contract Price and the Engineer shall notify the Contractor accordingly, with a copyto the Employer.

of Cost A

AND LEGISLATION

Subsequent Legislation. (2) If, after the date thirty daysprior to the latest date for submission of tenders for the Works there occur in the country in which the Works are being or are to be executed changes to any National or State Statute, Ordinance, Decree or other Law or any regulation or bye-law of any local or other duly constituted authority, or the introduction of any such State Statute, Ordinance, Decree, Law, regulation or byelaw which causes additional or reduced cost to the Contractor, other than under sub-clause (1) of the Clause, in the execution of the Works, such additional or reduced cost shall be certified by the Engineer and shall be paid by or credited to the Employer and the Contract Price adjusted accordingly.

Increase or Decrease

A

70.1 There shall be addedto or deductedfrom the Contract Price such sums in respect of rise or fall in the cost A of labour and/or materials or any other matters affecting the cost of the execution ofthe Works as may be determined in accordance with Part II A of these Conditions.

of Costs.

CHANGES IN COST

FOURTH EDITION (as Reprinted in 1992 with amendments)

70(1) Adjustments to the Contract Price shall be made in respect of rise or fall in the costs of labour and/or materials or any other matters affecting the costof the execution ofthe Works, as set out in Part II in the Clause numbered 70.

Increase or Decrease

CHANGES IN COSTS AND LEGISLATION

THIRD EDITION

0

J1

see PART Ill

For Conditions of Particular Application — see PART II For Conditions of Particular Application to Dredging and Reclamation Work—

NOTE

(3) Where the Contract provides for payment in more than one currency, the proportions or amounts to be paid in foreign currencies in respect of Provisional Sum items shall be determined in accordance with the principles set forth in sub-clauses (I) and (2) of this Clause as and when these sums are utilised in whole or in part in accordance with the provision of Clauses 58 and 59 hereof.

Currency Proportions 72.2 Where the Employer has required the Tender to be expressed in a single currency butwith payment to be made in more than one currency and the Contractor has stated the proportions or amounts of other currency or currencies in which he requires payment to be made, the rate or rates of exchange applicable for calculating the payment of such proportions or amounts shall, unless othe,wise stated in Part//ofthese Conditions, be those prevailing, as determined by the Central Bank of the countryin which the Works are to be executed, on the date 28 days prior to the latest date for the submission of tenders for the Contract, as has been notified to the Contractor by the Employer priorto the submission of tenders or as provided for in the TenderA

(2) Where the Employer shall have required the Tender to be expressed in a single currency but with payment to be made in more than one currency and the Contractor has stated the proportions or amounts of other currency or currencies in which he requires payment to be made, the rate or rates of exchange applicable for calculating the payment of such proportions or amounts shall be thoseprevailing, as determined by the Central Bank of the country in which the Works are to be executed, on the date thirty days prior to the latest date for submission of tenders for the Works, as shall have been notified to the Contractor by the Employer priorto the submission of tenders or as provided for in the tender documents.

72.3

A.

one currency, the proportions or amounts to be paid in foreign currencies in respect of Provisional Sums shall be determined in accordance with the principles setforth in Sub-Clauses 72.1 and 72.2 A as and when thesesums are utilised in whole or in part in accordance with the provisionof Clauses 58 and 59

for Provisional Sums Where the Contract provides for payment in more than

Currencies ofPayment

72.1 Where the Contract provides for payment in whole or in part to be made to the Contractor in foreign currency or currencies, such payment shall not be subject to variations in the rate or rates of exchange between such specified foreign currency or currencies and the currency of the country in which the Works are to be executed.

Rates of Exchange

72.(1) Where the Contract provides for payment in whole or in part to be made to the Contractor in foreign currency or currencies, such paymentshall not be subjectto variations in the rate or rates of exchange between such specified foreign currency or currencies and the currencyof the country in which the Works are to be executed.

Rates of Exchange

Cl)

0

Cl)

0

U) U)

C

C-)

Cl)

THIRD EDITION

must include additional wording in Part/I for the Conditions to be complete. Other Clauses may require additional wording to supplement Part! or to cover particular circumstances or the type of work(dredging is an example). Part/I Conditions ofParticularApplicat ion with guidelines for the preparation ofPart /1 are printed in a separately bound document.

Clause 1.1 paragraph (a) (i) and, (iv), 5.1 (part), 14.1, 14.3, 68.2 and 70.1

As stated in the Foreword at the beginning of this document, the FIDIC Conditions comprise both Part / and Part IL Certain Clauses, namely Sub-

REFERENCE TO PART II

A

FOURTH EDITION (as Reprinted in 1992 with amendments)

References

Chapter1 Background of the Red Book 1.1

'Statutes and Bye-Laws',

a publication of FIDIC,Lausanne, Switzerland, October

1996.

1.2 1.3 1.4

1.5 1.6

1.7

1.8

'Bad DraftingSires a Lawyer's Gift Horse', Max W. Abrahamsonand'A Charter to Richesforthe Contractor',ThomasAkroyd, New CivilEngineer,5July 1973, London. 'The ModestRevisionwhich Became aTorrent of Change',I.N. DuncanWallace,QC, New Civil Engineer,1 November 1973, London. TheICE ConditionsofContractFifthEdition,A Commentary,I. N. DuncanWallace, Sweet & Maxwell,London, 1978. Thisbookwas published after the date of publicationof theThird Edition of the Red Book. Commentsmadein this bookinconnectionwith the Red Book were linked to a previous book published in 1974 by Mr Duncan Wallaceon that Form withthe title The International Civil EngineeringContract and a subsequent supplement on the Third Edition published in 1980, see Reference 1.5 below. First Supplementto the International Civil Engineering Contract, I. N. Duncan Wallace, QC, Sweet &Maxwell,London, 1980. The applicablelaw of the contract is referred to by some as the 'proper' law of the contractand by others as the 'governing' law of the contract.Thesethreeterms are synonymousbutas thewording of sub-clause5.1(b)refersto 'the country or state the law ofwhichshallapply to thecontract...',thefirstofthese terms wifibe used inthe book. See Hudson's Buildingand EngineeringContracts,EleventhEdition,VolumeI,pages 311 to 313,para.2.133, wherethecase ofNeodox Ltd v. Swintonand Pendlebury BC (1958) QBD (unreported)is quoted in respect of whatis a reasonabletime. 'Notes onDocumentsfor CivilEngineeringContracts',a publicationof F]DIC, Lausanne, Switzerland,March 1977, page17.

Chapter 2 The Red Bookis Basedon a Domestic Contract 2.1

2.2

Codigo de Hammurabi,Edicion preparada por FedericoLara Peinado, Editora Nacional, Madrid, 1982. Hammurabi's Code containsthe earliestavailablerecorded rules of codifiedconstructionlaw arid insurance. PrivateInternational Law, Eleventh Edition, Cheshire and North, Butterworths,London, 1987, Chapter 18, page 447.

571

The FIDIC Form ofContract

572 2.3

2.4 2.5

2.6 2.7 2.8

Article 1(3) of the UNCITRAL ModelLaw onInternationalCommercialArbitration asadoptedby the United Nations CommissiononInternationalTrade Law, adopted on21 June 1985. ApplicableLaw in International Commercial Arbitration, Julian D. M. Lew, OceanaPublications, 1978, page 75. This principle was accepted, for example, by the Member States of the European Economic Communityin an international conventionon 19 June 1980, in Rome,on 'The Law Applicableto ContractualObligations'. Irish ConflictsofLaw, WilliamBinchy, Butterworths,London, 1988, page3. Lawand PracticeofInternational Commercial Arbitration, SecondEdition,Alan Redifern andMartin Hunter, Sweet & Maxwell,London, 1991, page 125. ApplicableLaw in International Commercial Arbitration (see Reference 2.4 above), page 104.

Forfurther informationonthis topic, seeReferences2.3and 2.4 aboveandalsoAmin RasheedShipping Corporationv. Kuwait Insurance Company[1983]3 WLR241. 2.10 Delocalisedarbitrations are those detached from the control of the law of the Seat where theyare held.Foradiscussiononthistopic, seeLaw andPracticeofInternational Commercial Arbitration (Reference 2.7 above),page81. See also apaper on 'Choice of Law Issues in International Arbitration' by Professor Michael Pryles, Singapore Conferenceon Current LegalIssues in InternationalCommercialLitigation,October 2.9

1996.

2.11 The NewYorkConvention:1958, ConventionontheRecognitionand Enforcementof ForeignArbitral Awards,NewYork,10June 1958. Seealso CommentarybyDr Albert Janvan den Berg, T.M.C. Asser Institutefor internationalLaw, The Hague, Nether-

lands. 2.12 Therearerecent movestochange this concepttotheyear570 ADwhichis theyearof Prophet Muhammed's birth. 2.13 An Introduction to ComparativeLaw, K. Zweigert and H. Kotz,Second Edition,translated by Tony Weir, Volume1, Clarendon Press, Oxford, 1987, page85. 2.14 Major Legal Systems in the World Today, Third Edition, Réne David and John E.C. Brierley, Stevens& Sons,London, 1985, page 94. 2.15 'BritishandFrenchStatutoryDrafting',Proceedingsofthe Franco-BritishConference of7and8April1986, edited bySirWilliamDale, InstituteofAdvancedLegalStudies, 2.16 2.17 2.18 2.19 2.20

2.21 2.22 2.23 2.24

Universityof London, page1. MajorLegal Systemsin the World Today(see Reference 2.14, above),page 120. FrenchCodeCivil, Article5, paragraph 70,Note2. An Introduction to ComparativeLaw (seeReference2.13 above),Volume 1, page188. MajorLegal Systemsin the World Today(see Reference 2.14, above),page 316. Snell's PrinciplesofEquity, P.V.Bakerand P. St.J. Langan,Sweet& Maxwell,London, 1982, pageS, and thejudgmentreferred to inthequotationisfromCawley&Co. (1889) 42 ChD 209 at 236. Earl ofOxford's Case (1615) 1 W & T615, 21 Eng Rep 485, 487. 'British andFrenchStatutory Drafting' (see Reference 2.15 above),page17. Conwayv. Rimmer [1968] AC 910; 1 All ER874. 'The LegislativeSystems', a paper by Sir George Engle, QC, First Parliamentary Counsel, London, readat aConferenceon StatutoryDrafting, Instituteof Advanced LegalStudies, UniversityofLondon, April1986, page25.

References 2.25

573

'TheDemands ofthe LegislatorandtheLawyer and his Client', apaperby Norman Adamson QC, First ParliamentaryDraftsmanfor Scotland,readat a Conferenceon Statutory Drafting,InstituteofAdvanced LegalStudies,UniversityofLondon,April 1986, page 63.

Chapter3 Legal Concepts Based on the Common Law System 3.1

3.2

Lord McNair, former President of the International Court of Justice,'The General PrinciplesofLawrecognisedbyCivilisedNations' (1957)33BYIL1atpage7. Seealso Amin Rasheed Shipping Corporationv. Kuwait Insurance Co. [1983] 3 WLR241 at 245. CompanyLaw in the Republic ofIreland, Judge Ronan Keane, Butterworths,London, 1985, page102.

3.3

3.4 3.5 3.6

3.7 3.8 3.9 3.10 3.11 3.12 3.13 3.14

3.15 3.16 3.17 3.18 3.19

InEngland,since 31July1990, bytheLawofProperty (Miscellaneous Provisions)Act 1989 and, so far as companies are concerned, by the Companies Act 1989, the formalities of affixing the seal to the signature in sealed contracts havebeenabolished. See page iv ofConstructionLawDigest,Volume8,alsopage10, BSPProfessional Books,Oxford,1990. Design Liabilityin the Construction Industry,Fourth Edition,D. L. Comes, BSP Professional Books, Oxford, 1994, Chapter 12. Cheshire, Fifoot and Furmston's Law of Contract, Twelfth Edition, Butterworths, London, 1991, pages 638 and 639. Applegate v. Moss [1971] 1 QB 406. The quotation is taken from Law of Contract (Reference 3.5 above). The last sentenceindouble quote marks isper Lord Denning MR at [1971]1 QB 413. WongLai Ying and Others v. ChinachemInvestment Co. Ltd (1979) 13 Build LR 81. See alsoChapters 8 and 20 in Law ofContract (Reference 3.5 above). London Export CorporationLtd v. Jubilee Coffee Roasting Co. [1958] 1 WLR661 at 675. Tai Hing Cotton Mill Ltdv. Liu ChongHing BankLtd [1986] 1 AC80. TheMoorcock(1886-90)All ER850. Trollope & CollsLtdv.North-WestMetropolitanRegionalHospital Board[1973]1WLR601 at 609, [1973]2 All ER 260at 268. Reigate v. Union Manufacturing Co. (Ramsbottom) [1918] 1 KB 592at 605. The Concept ofLaw, H.L.A. Hart, Clarendon Law Series, Oxford UniversityPress, Oxford, 1961. See the German Civil Code, paragraph 241, where the building owner is entitled to demandperformancefrom the contractor.See also 'Contractor's LiabilityforDesign underGerman ConstructionLaw', byDr ChristianWiegand, a paperpresented ata conferenceon'The Liabilityof Contractors',Centre for CommercialLaw Studies at Queen Mary College,London, 1986. The OxfordCompanionto Law, David M. Walker, ClarendonPress, Oxford, 1980. Law ofContract (see Reference 3.5 above), pages 595—598. VictoriaLaundry (Windsor)Ltd v. Newman Industries Ltd [1949] 2KB 528;The Heron II [1969] 1AC350;andH. Parsons (Livestock) Ltd v. Uttleylngham & Co. Ltd[1978]QB 791. See page595 of Law ofContract (Reference 3.5 above). For adiscussion ontheterms 'penalty' and 'liquidated damages', see later inSection 17.5. See also Section 2.9, equity as a source oflaw.

574

The FIDIC Form ofContract 3.20 The Law of Contract, Seventh Edition, G.H. Treitel, Stevens & Sons, London, 1987, pages 721 and 722. 3.21 Appleby v. Myers (1867), quoted in Hudson's Building and Engineering Contracts, EleventhEdition,byI. N. Duncan Wallace, Sweet &Maxwell,London, 1994,Volume I, page 645, para.4.251. 3.22 Charon (Finchley)Ltd v. Singer SewingMachines Ltd (1968), 207EG 140. 3.23 Hudson's Building and Engineering Contracts (see Reference 3.21 above). The words quoted and the reference to the case of Charon v. Singer Machines Ltd. appear in

Volume I, page 508, para. 4.051.

Chapter4 DraftingPrinciples 4.1

4.2 4.3 4.4

4.5

'Risk Management', Max W. Abrahamson, Appendix J of the discussion paper 'Construction, Insurance and Law' published by the International Federation of ConsultingEngineers,FIDIC,Switzerland,March 1986. Construction Insurance, NaeI G. Bunni,ElsevierApplied Science Publishers,London, 1986, page8. CommunicationforProfessional Engineers,Bill Scott, ThomasTelfordLtd, London, 1984, page 69. Monmouthshire County Council v. Costelloe and KempleLtd (1965) 63 LGR429. In this

caseLord JusticeWinn referred toclause66 oftheICEForm inthe followingmanner: '...I am very farfrom sayingthat Ifindthis Clause66 easily intelligible(and would addthatIventure to think itmight be reconsideredandpossiblyclarifiedby different wording) .. It is reported in the New CivilEngineer, 30 April 1987, that during the hearing of amendments to the Animals (Scientific Procedures)Bifi, in the House of Lords in England,the followingwas stated by one oftheirLordships:

'MyLords,the differencebetween"may"and "shall" is one ofthebugbears ofthe Statute law and ofParliamentary debate. I do not know how many hours Ihave spent in both Houses of Parliament debating the differencebetween "may" and "shall". I think we need an Act of Parliament to resolve this difficulty and to declare once and forall that "may"means "shall"... anywayinthis case "may" has beentranslated into "shall". Of course,we know that it meant "shall" all the time but I need not pursueit any further.' To this statement he receivedthe followingresponse from another member of the House of Lords:

'My Lords,Ishouldliketo say this to the noble Lord. If the word "shall" is used, thejudges will interpret it as "may".iftheword "may"is used,thejudges will interpret it as "shall".' 4.6

'Address to the Irish Branchof the Chartered Institute of Arbitrators', the late Hon. Mr. JusticeNiall McCarthy,Dublin, AGMof the Branchon 28 February 1985, Arbitration Journal, February 1986, page 61.

References 4.7

4.8

575

'Risk Assessmentand Allocation-.The Need for a Policy',John Barber,apaperread at aConferenceonConstructionContractPolicy,14-16September1988, the Centre of ConstructionLaw and ProjectManagement,King's College, London. Various articlesand lecturesat seminars and conferenceson the subject of the standard forms as wellas referencebooks havecalled for simpler and clearerwording. Amongst these are the following:'Revisions to the RedBook for CivilEngineering Works: The Pointof View of the Engineer', Humphrey Lloyd QC, TheInternational Construction Law Review (ICLR),Volume 3,Part 5, October1986; 'A Claims-ReviewBoardas aWayfor anAmicableSettlementofDisputes, and OtherConsiderationson the Subjectof Claims', C. Lodigiarii, ICLR, Volume 3, Part 5, October 1986; 'F]DIC ConditionsofContractforWorks of CivilEngineeringConstruction,Fourth Edition', Dr J. J. Goudsmit,a paper presented at a conferenceinLondon on these Conditions, October1987.

Chapter5 The Concept of a Trusted IndependentEngineer 5.1

Guide to the Use of Independent Consultants for Engineering Seroices,Third Edition, publication of FIDIC, the International Federation of Consulting Engineers,Swit-

zerland, 1980. FIDIC's Statutes and By-Laws, a publication of FIDIC, Lausarine, Switzerland, October1993 and 1994. See also:Consulting Engineers 1913—1988:FIDIC over75 Years, Ragnar Widegren,FIDIC,Switzerland,1988. 5.3 'Statutes and By-Laws', FIDIC,October1996. 5.3a 'Quality-BasedSelectionfor the Procurementof ConsultingServices',FIDIC, 1997. 5.4 'Making Effective Use of Consulting Engineers in Project Implementation', D.E. Cullivan,apaperpresented ata seminar heldin AbuDhabi,November1983. Report by FIDICentitled Arab Funds/FIDIC Seminar,1984, page 70. 5.5 'Jntemational Model Form of Agreement between Client and ConsultingEngineer and International General Rules of Agreement between Client and Consulting Engineer'. Three separate documents were published by FIDICdesigned to cover agreements relating to pre-investmentstudies: IGRAPT; design and supervisionof construction of works: IGRA D&S; and project management services:IGRA PM, Switzerland. These documents were later replaced by FIDIC's White Book, as to which see Chapter 21. 5.6 'RecommendedTendering Procedures and Pre-Qualificationof Contractors',J. J. de Greef, a paper presented at a seminar held in Jakarta, in 1984, on the subject of 'Consulting Engineering, a Development Resource'. Report published by FIDIC, Switzerland,1985, page137. 5.7 This dual role is confirmed by FIDIC in the 'Notes on Documents for Civil EngineeringContracts'published in 1977, page7; and alsoin legal writing, see for example: 'Contractor's Claims under the FIDIC International Civil Engineering Contract', International Business Lawyer,June 1986, by Christopher R. Seppala; and 'Position and Function of the Engineerunder FIDIC Civil Conditions of Contract', Conferencepaper by GeoffreyHawker,june 1988. 5.2

576

The FIDIC Form ofContract

Chapter 6 A TraditionalRe-measurement Contract 6.1

6.2

6.3 6.4 6.5

6.6

6.7

Itisreported inPrivatized infrastructure,theBOTapproachedited byC.Walkerand A. J. Smith and published by ThomasTelford in 1995, that the acronym 'BOT' was first coined inthe early 1980s byTurkey's late PrimeMinister, Targut Ozal. The cases which deal with the question of re-measurementand come to conflicting results mainly due to the differing provisions are Aros Industries v. Electricity Commission of New South Wales (1973) 2 NSWLR 186; Mitsui Construction Co. v. The Attorney-General ofHong Kong (1986) 2 Const U 133; and Grinaker Construction v.

Transvaal Provincial Administration [19821 1 SALR 78. See Construction Contracts: Principles and Policiesin Tort and Contract, I. N. Duncan Wallace, Volume 2,Sweet & Maxwell,London, 1996, Chapter 24. FIDIC4th,A Practical Legal Guide,E.C.Corbett,Sweet &Maxwell,London,1990, page 302. ConstructionContracts:Principlesand PoliciesinTortand Contract, (Reference 6.2above), page458.

The supply ofthe Scheduleofmake-upofrates andpricesbythe successfultenderer is a compulsoryfeature of the pre-contractproceduresoftheGerman VOB contract. See a paper by ProfessorHermann Korbion entitled 'The Effects of Changed Conditions on the Contractor'sRemunerationAccordingto GermanConstruction Law', presented at the First InternationalConstruction Law Conferenceheld on 24 May 1982, at theUniversityofFribourginSwitzerland.The Scheduleis alsoadvocated by Mr. IanDuncan WallaceQC, as can be seen from his paper at the same conference underthetitle of'Price Under CommonLawSystems'. Bothpapers arepublished in Selected Problems of Construction Law, International Approach, University Press, Fribourg,Switzerland,Sweet & Maxwell,London,1983. IanDuncanWallaceinConstructionContracts:PrinciplesandPoliciesinTort and Contract (Reference 6.2 above), Vol.1, Chapter 26, argues against the validity of the real advantagesreferred toinparagraphs (a) and (b).Whilst the reasonsgiven byhimare attractive,the practicalconsiderationsof a practising engineer maybe different. Civil EngineeringProcedure,Fourth Edition,the InstitutionofCivilEngineers,Thomas Telford,London,1986.

Chapter 7 Sharingof Risks 7.1

7.2

Annual Reportsofthe InternationalChamber ofCommerce,Paris;the sectiononthe ICC International Court of Arbitration indicates a constant flow of international construction disputes. Litigation and arbitration cases aroundthe world involving issues of professionalnegligenceadd to the list of disputes. Insurance and reinsurance loss statistics and reports complement this picture. See also Collection ofICC Arbitral Awards 1974-1985,SigvardJarvin andYvesDerains,ICC PublishingSA,ICC Publication No 433, Paris, 1990; and Collection ofICC Arbitral Awards 1986—1990, Sigvard Jarvin, Yves Derains and Jean-Jacques Arnaldez, ICC PublishingSA, ICC PublicationNo 514, Paris, 1994. See also Reference 8.1 below. Figurespublished annually by CentralStatisticsOfficesaroundtheworldindicate a high, ifnotthehighestexposureatwork tobodily orfatalinjuriesinconstruction.See

577 Refrrences alsoHealth andSafetyStatistics, HMSOUK andFacts inFocus,Statisticscompiledby theCentral StatisticsOffice, UK and publishedbyPenguinBooks in associationwith HMSO,UK. 7.3 Publications of the Munich Reinsurance Company and the Swiss Reinsurance Company are avaluable sourceofreferenceinthisregard. Thesepublicationscover topicssuchas earthquakes,windstorms,floodandinundation,volcaniceruptionand hailstorm. In 1978, the Munich Reinsurance Company published a world map of naturalhazardswhich wasupdatedin1988. It indicatesthe intensity,frequencyand reference period of various natural hazards (over 670 in number), catalogued in a chronologicalorderand location,with the consequencesin terms of loss of life and cost. Theseworld-wide records gobackintimeto thetenthcentury.The mapandthe accompanying publicationsare extremely useful in risk management calculations and in any attempt atpredicting futureexposuresthrough extrapolationfrom retrospectiveexposure. 7.4 Construction (Designand Management)Regulations1994; S.I. 1994 No. 3140. 7.5 'RiskManagementand Insurance', WoIf-Rudiger Heilmann, a paper delivered at a Conferenceon Structural Failure, Product Liabffity and TechnicalInsurance, Technische Universität,Vienna,1989, andpublished subsequentlyinForensicEngineering, V. 2, Nos. 1/2, 1990, pages 119—134. 7.6 Anextract from British Standard BS 4778: Part3; Availabffity, reliabifityand maintainabilityterms. Section3.1 Guide toconceptsandrelated definitions:1991, Quality Vocabulary.The BritishStandards Institution, Linford Wood,Milton Keynes,MTU4 6LE, UK,wherecompletecopies ofthe standards canbe obtained. 7.7 'Hyatt-Regency Walkway Collapse: Design Alternatives', George F. W. Hauck, A.S.C.E. Structural Engineering,Vol. 109,5 May 1983. 7.8 Practical riskmanagementin the constructionindustry, LeslieEdwards, ThomasTelford, London, 1995. 7.9 Construction Insurance, Nael G. Bunni,ElsevierApplied Science Publishers,London, 1986, page37; 'RiskManagement',Max W.Abrahamson,published asAppendix Jto a discussionpaper on'Construction,Insuranceand Law' published by FIDIC, 1986, page49; and 'Defects: A summary and analysis of AmericanLaw',Justin Sweet,a paper published in Selected Problems of Construction Law, International Approach, by Peter Gauch (Switzerland) and Justin Sweet (USA), University Press, Fribourg, Switzerland,Sweet & Maxwell,London, 1983, page97. 7.10 'Price underCommonLawSystem',I.N. Duncan Wallace; and'Defects: ASummary andAnalysisofAmericanLaw',Justin Sweet;pages 149 and 79 ofSelectedProblemsof Construction Law, International Approach (Reference 7.9 above). 7.11 Construction Insurance (Reference 7.9above), Chapter 3, 'The SpectrumofRisks'. 7.12 'Construction,InsuranceandLaw',Nael C.Bunni,apaperdelivered at a Conference on Structural Failure,Product Liability and Technical Insurance, TechnischeUniversität,Vienna,1989, and published subsequentlyinForensicEngineering,V.2,Nos. 1/2, 1990, page163. 7.13 The reply was madeby Sir WiffiamHarris, Chairman of the Joint ContractsCommittee (JCC) responsiblefortherevision oftheICEForm toitsFifth Edition,and Mr David Gardam, QC, LegalAdviser to the Committee. 7.14 'GearingtheCritics' Confusion',New CivilEngineer,20December1973, London,page 33.

578

The FIDIC Form ofContract 7.15 See also Construction Contracts:Principles and Policiesin Tort and Contract, Vol.1, I. N. Duncan Wallace, Sweet & Maxwell,London, 1986, chapter 27, paragraphs 27—34, page474. 7.16 Construction Insurance (Reference 7.9 above),page143.

Chapter8 The Concepts in Practice 8.1

Itisknownthat theInternationalCourtofArbitrationoftheInternationalChamberof Commerce,whose Rules of Conciliationand Arbitration are specified in the Red

Book,in1988received304 requestsfor arbitration,involvingparties from 86 different countries.In1995, thenumberofcaseswentupto 427.Around25% ofthese disputes

werein the constructionfield.The number ofrequestsforarbitration receivedbythe ICC in the years1982 to 1988ranged from 50 to 80 per year:'ICCAnnual Reports', 8.2 8.3 8.4

8.5

ICC Secretariat,Paris. An articleby Mr Zubair Iqbal,Finance and Development,June 1983. 'The World Bank Annual Report 1987', The World Bank, Washington,DC, 20433, 1987, page8, and subsequentReports for 1990 (page 13), 1994 and 1995. 'The Engineer'sApproach to Claims', NaelG. Bunni, a paper delivered at a ConferenceonCivil EngineeringClaimsand Arbitration,London,Professional,Business and Industrial ManagementStudies, October 1975, in which a warning was made that the liability resultant from such responsibilitiesforms a heavyburdenwhich could only produce conflict. 'The Changing Image of Consultants of the North Working in the South', T.A. Dabbagh,EngineeringAdviserto theKuwait Fund forArab Economic Development, 1980.

8.6

D.E. Cullivan in a light-hearted note

at a Seminar on the ConsultingEngineer, a DevelopmentResource,heldinJakartainOctober1984, told the followinganecdote: '[A contractor colleagueofhis] was complainingabout the horrible Conditionsof Contract that he wasbeing asked to sign which essentiallymadehim responsible forActsofGodandoftheConsultingEngineer,thetwothings being equivalentfor him. Someoneasked him: "If this is so horrible why do you insiston signing a Contract?"And he took a big sigh and said: "You know, Contractorshaveto be optimists.Iamconvincedthatifacontractdocument said:'The successfultenderer wifibehanged bythe neckas soonasthe contractis signed,youwouldnotlack for competitors!" Hecontinued:"They would think, well,perhaps I cannegotiate my wayoutof it. Secondly, I amsuremylawyer will finda clausethatwifiprotectme. Andfailing that, maybe the rope wifi break.".'

8.7

'Construction,Insurance and Law - ADiscussionPaper', FIDIC,Switzerland,1986,

page19. Construction Insurance, NaelG. Bunni, ElsevierApplied Science Publishers,London, 1986, page 37. 8.9 Banwell Report, HMSO,London, 1964. 8.10 'Examination of Some Aspects of FIDIC Conditions of Contract (International)for Works of Civil EngineeringConstruction',M.A. Ibrahim and M.Y. Abdel A'Al. A 8.8

References

579

paper presented at aseminar heldin AbuDhabi between theArabFunds andFIDIC inNovember 1983. Reportpublished by FIDICin 1984, page94. 8.11 The International Civil Engineering Contract, I. N. Duncan Wallace(a commentaryon the secondeditionof the Red Book) Sweet & Maxwell,London, 1974. A supplement on the thirdedition in 1980. 8.12 'Problems of Applying the FIDIC Contract for Civil Works under the Civil Code System — A Comparison of the Legal Concepts Used by the FIDIC Contract with Those Used Underthe CivilCode',AllElShalakany.Thiswas apaperataconference on FIDIC Conditionsof Contract,Cairo, 1987; later published in International Con8.13

struction Law Review (1989),page266. An exampleof such arule is Article 198 of the Kuwaiti CivilCode which states:

'If, after entering into the contract,and before its final execution,general unforeseeableexceptionalcircumstancesoccur causingtheperformanceoftheobligation arising therefromtobe onerous,ifnotimpossiblethreatening[the Contractorlwith excessivelosses,then,after balancingtheinterests ofthetwoparties, thejudgemay contain the onerous obligationto withinreasonablelimits by either reducing the extent of the obligation or increasing its consideration. Any agreement to the contrary shallbe null and void.' This doctrine has also been developed in Europe, either by the courts as in Germany or through codificationas in Switzerland (see Swiss Civil Code, Article373,

paragraph2). In this connection,see Al Wasseett,ProfessorAbdul Razak Al Sanhoori,Volume.7; Development of Kuwaiti Administrative Law, Al-Magwari; and Obligations of the Administration, Dr Ibrahim Taha Al-Fayad. 8.15 The EgyptianConseild'Etathas applied the theory ofphysical obstructionsin several casesbut it refused compensationin others due tothe absenceof one or more ofthe conditionswhich mustbe satisfiedifthetheory is to apply.See Reference 8.12. 8.16 TheRedBookprovides specific periods forthesubmissionofclaimsbybothemployer andcontractoragainsteach other,for example,seeclauses60to62,undertheheading 'CertificatesandPayments'.Ineffect, therefore,itprovidesforaperiodoflimitationto apply inconnectionwith known problems and defects.For hidden orlatent defects, however,theapplicablelaw ofthecontractimports intoits provisionsa separateand specific period oflimitation,inmost legal systems throughout the world. 8.17 'Investigate Don't Capitulate', Report of the Standing Committee on Professional Liabffity, 1984, FIDIC, Switzerland. See also subsequent annual reports of that 8.14

Committee. 8.18 The legal rule in the United ArabEmiratesis in Article880 of the Civil Codewhich states:

'1. if the intention of the contractwas to construct buildings or other permanent constructionworks which were designed bythe Engineerandtobe executedby the Contract underthe Engineer'ssupervision, theybothjointly andseverally warrant, to indemnify the Employerin respect of all occurrencesofpartialor totalfailure ofwhat theyhad constructedorbuiltandfor all defectsthat might threaten the soundness and safety of the structure for a period of ten years

The FIDIC Form ofContract

580

unless alonger period is stipulated in the Contract.All this applies unless the periodforwhichbothparties of the Contractrequire these constructionworks to last is less than ten years. 2. The obligationto indemnifyremains even ifthe damageorfailure was duetoa faultinthe ground (the Site) or if the fauhyconstructionwas carriedoutwith the approval of the Employer. 3. The periodoften years startsfrom the date ofhanding over ofthe Works.' 8.19 The FourthEdition of the RedBook refersto'release from performance'. 8.20 'EIC/FIDICQuestionnaireSurvey: The use of the FIDIC Red Book', Final Report, June 1996, Department of Construction Management and Engineering, Reading University.

Chapter 9 The Revisions — Purposes and Consequences 9.1

Guide to Use ofFIDICConditionsofContractforWorksofCivil EngineeringConstruction, Fourth Edition,FédérationInternationaledes Jngenieurs-Conseils, Switzerland,1989, page18. Thispublicationcontains173 pagesofcommentaryandthe textoftheFourth Edition of the Red Book. (FIDIC, P0 Box 86, CH 1000 Lausanne, 12-Chailly, Switzerland.)

9.2

Details of the advice sought and obtained are containedinthe Guide referred to in Reference 9.1.

9.3

9.4 9.5 9.6

'Background and Overview', a paper presented by Tony Norris, a member of the drafting committee of the Fourth Edition and of the Civil EngineeringContracts Committee of FIDIC, at a Conferenceon the FIDIC Civil Conditions of Contract, Fourth Edition,LegalStudies and ServicesLtd, London, June 1988. 'Background and Overview', Helge Sorensen, a paper presented at a two-day Seminar on the RevisedFIDIC Conditions,Amsterdam,October 1987. Conditions ofContract for Electrical and MechanicalWorks (Including Erection on Site), Third Edition,1987. Ina paper presented to aseminar onthe Fourth Editionofthe FIDICForm:Seminar on FIDIC conditions of Contract for Works of Civil Engineering Construction, October 1987, Dr J.J. Goudsmit wrote: 'Manychangesandanumberofthemcertainlyimprovementshavebeenintroduced. However,itremainsquestionablewhethertheopportunitytolaunchanewRedBook has been adequatelyused to simplifyand clarifythe contractualstructure and the wording which up tillnow could be characterisedasprolixand obscure.'

Chapter10 Role of the Engineer 10.1

A standard form of contract between an employer and a consulting engineer is published byFIDIC underthe title of'Model ServicesAgreementbetween Clientand Consultant', in two parts: Part I, Standard Conditions; and Part II, Conditions of Particular Application,1990.

References

581

10.2 'Legal Liabffity in ContractStructures', Dr J. J. Goudsmit, The LiabilityofContractors, Queen Mary College, University of London, Centre for CommercialLaw Studies, Longman,page18. 10.3 Construction Insurance, NaelG. Bunni,ElsevierApplied SciencePublishers,London, 1986, page145. 10.4 'NewDefencePlanfortheEngineer',Speaker'sCorner,New CivilEngineer,17October 1985.

10.5 Withrespect tothe referenceto aquasi-judicialrole,see Section 10.9. 10.6 Design Liability in the Construction Industry, D. L. Comes, BSP ProfessionalBooks, FourthEdition,Oxford, 1994, Chapter 4 atpage58. 10.7 The Guide to Use of FJDIC Conditions of Contractfor Works ofCivil Engineering Construction, Fourth Edition (see Reference 9.1), refers on page56 to the design of tem-

porary works asnormally carriedoutby the contractor.The Guide adds that 'where this is the case,theEngineer may, depending uponthenature or importanceof the Temporary Works,require informationabout their design'. 10.8 'Of judges andjudging', a speechdeliveredto magistratesin1964 byLord Hailsham, thethenLord Chancellor,United Kingdom. 10.9 'FIDICPolicy StatementontheRoleoftheConsultingEngineerDuringConstruction',a FIDICPolicy Statement,1984, Lausanne,Switzerland.The Red Bookis based on the ideathatthebestpersonto superviseaparticularprectis theone whohad originally designedit.Clause6oftheForm is drafted withtheassumptionthatfurther drawings or instructionsmaybe issued during theconstructionperiodby theengineer. 10.10 'Construction Contracts Timefor a Change', CliffordJ. Evans,Arbitration Journal, August 1987.

-

Chapter11 Responsibilityand Liabilityof the Engineer 11.1 Construction Insurance, Nael G. Bunni,ElsevierApplied Science Publishers,London, 1986, page103. 11.2 'The Engineer'sLiabilityto the Contractor:FrenchLaw',Christopher R. Seppala,a

paperpresented at the Conferenceofthe InternationalBar Association'sSectionon

11.3 11.4 11.5 11.6 11.7 11.8 11.9 11.10 11.11 11.12 11.13

BusinessLaw Conference,Toronto,1983. Bagot v. StevensScanlan & Co. [1964] 3 WLR1162; [1964] 3 AllER577. Esso Petroleum Co. Ltdv. Mardon [1976] QB 801; [1976]2All ER5.

Boormanv. Brown (1844) 8 ER 1003. Nocton v. Lord Ashburton [1914]AC 932. Midland Bank TrustCo. Ltdv.Hett, Stubbs & Kemp [1978]3 WLR167. Finlay v. Murtagh [1979] JR 249; and Valdo Vulic v. Bohdam Bilinsky (1982) NSW Supreme CourtNo. 177700/78. Rowev. Turner Hopkins & Partners[19801 NZLR550 (New Zealand High Court). Hill Organisation Ltd v. Bernard Sunley &Son Ltd (1983) 22 Build LR 1. TaiHing Cotton Mill Ltd v. Liu ChongHingBank Ltd [1986]AC 80. Ernstand Whinney v. Willard Engineering (Dagenham)Ltd (1987)3 Const U 292; (1988) 40 BLR 67. Greater Nottingham Co-operative Societyv. CementationPiling& Foundations Ltd [19891 QB 71; (1988)41 BLR 43.

The FIDIC Form ofContract

582

11.14 BarclaysBank plc v. FaircloughBuildingLimited [1995]QB 214. 11.15 Lancashireand CheshireAssociationofBaptist ChurchesIncorporatedv.Howard and Seddon Partnership [1993]3 All ER467. 11.16 Gable House Estates v. The Halpern Partnership and Bovis Construction Ltd 1995, ConstructionLawDigest, 12-CLD-03-01(QBD). 11.17 Holtv. PayneSkillington1995, ConstructionLaw Digest, 13-CLD-06-01(CA). 11.18 Design Liability in the Construction Industry,Fourth Edition, D. L. Comes, BSPProfessionalBooks, Oxford, 1994, page60. 11.19 Bolamv. FriernHospital Management Committee[19571 2 All ER 118. 11.20 Whitehousev. Jordan [1981]1 WLR246; 125 SJ 167; [1981]1 All ER 267. 11.21 Design Liabilityin the Construction Industry(Reference 11.18 above),page47. 11.22 Medjuck& BudovitchLtdv. Adi Ltd 33 NBR 2nd 271 (80 Apr. 271, paragraph 110). 11.23 Brickfield Propertiesv. Newton [1971]1 WLR862. 11.24 Moresk CleanersLtdv. Hicks [1966] 2 Lloyd's Rep 338. 11.25 The Liabilityof Contractors, Edited by Humphrey Lloyd QC, and in particular the

article by Max Abrahamson 'Contractors' Right over and against Architects, Engineersand Surveyors in respect of Liabifitiesincurred to the Employer', Centre for CommercialLaw Studies,Queen Mary College, 1986, page181. 11.26 AtranslationofArticle1792isgiven in ConstructionInsurance (Reference 11.1above),

page156. 11.27 Portsea lsland Mutual Co-operative SocietyLtd v. Michael Brasher Associates(1989), see ConstructionLaw Digest 7-CLD-10-05,'The Dutyto TakeCare', 1989, BSP Professional Books,Oxford. 11.28 Oldschoolv. Gleeson(Construction) Ltd (1976) 4Build LR 103. 11.29 Arenson v. Casson,Beckman, Rutley &Co. [1975]3 WLR815. 11.30 PacificAssociatesv. Baxter [1989]2 All ER159. 11.31 D &FEstatesLtdv. Church Commissioners forEngland[1989]AC 177.SeealsoMurphyv. BrentwoodDistrictCouncil in ConstructionLaw Digest 8-CLD-10-05,1990, BSPProfessional Books, Oxford. 11.32 Greater Nottingham Co-operative Society v. CementationPiling &Foundations Ltd [1989] QB 71. 11.33 PacficAssociates v. Baxter [1989]2All ER 159.See also Construction LawDigest 6-CLD06-01, 1989, BSP ProfessionalBooks, Oxford. 11.34 Demersv. DufresneEngineeringCo. Ltd (1979) 1 SCR 146 (SupremeCourt ofCanada). 11.35 See Reference 11.34 above. 11.36 AlWasseett in InterpretationofTheCivil Code—First Volume, Contracts onWork,A.A.Al Sanhoori, 1964, page105. 11.37 See Construction Law Digest 8-CLD-10-03, 1990, where the decision in Murphy v. BrentwoodDistrict Council is discussed andwhereit isheldthat the case ofDuttonv. Bog-nor Regis District Council is overruled and Anns v. London Borough ofMerton is departed from. 11.38

AsinReference 11.37 abovebutwithregardto complexstructures. Reference is also made hereto recent directivesof the European Community.

References

583

Chapter12 The Employer's Obligations 12.1 Hudson's Building and EngineeringContracts, EleventhEdition,I. N. Duncan Wallace, Sweet & Maxwell,London, 1994, Volume I, page568, paras. 4.136 to 4.139. 12.2 PerLord JusticeVaughanWilliamsinWellsv.Army&Navy Co-operative Society(1902) 86LT764. SeeHudson's Buildingand EngineeringContracts,EleventhEdition,VolumeI, page 573, para. 4.146. 12.3 AME(International)Ltdv. MagnetBowlingLtd [1968] 1 WLR1028. 12.4 Hudson's Building and EngineeringContracts, EleventhEdition (Reference 12.1 above), VolumeI,page610, para. 4.202.

Chapter 13 TheContractor's Obligations 13.1 EngineeringLawand theICE Contracts,Fourth Edition,Max W. Abrahamson,Applied Science Publishers Ltd, London, 1975, clause 13. 13.2 Hudson's Building and EngineeringContracts, I. N. Duncan Wallace, Eleventh Edition, Sweet & Maxwell,London, 1994, Volume I, page497. 13.3 Variouslegal casesare reported onthis questioninHudson'sBuilding and Engineering Contracts (Reference 13.2 above),VolumeI, pages497to 508,which throw somelight

on whether a contractor should be paid or not.

13.4 Francis v. Cockerell (1870)LR 5 QB 501. 13.5 G.H. Myers & Co. v. BrentCross Service Co. [1934] 1 KB 46 at page55. 13.6 Paragraph 633,Section1,German CivilCode,Statutory LawGoverningContractsfor Work. 13.7 Verdingungsordnungfilr Bauleistungen,Rulesfor all Public ConstructionWork, Paragraph13, Section 8. 13.8 See,for example,Articles 875 to 878 inclusive of the Civil Codeofthe United Arab Emirates, 1985; and Articles 647 to 649 inclusive of the Libyan Civil Code 1954,

Section3 on ContractsforWork.

13.9 Law ofContract (see ref3.5 above),Chapter 16. 13.10 Commercial Arbitration, Second Edition,Sir MichaelJ. Mustill and Steward C. Boyd, Butterworths,London, 1989, page138.

Chapter14 Risks, Liabilities, Indemnitiesand Insurances 14.1 Construction Insurance, Nael G. Bunrii, ElsevierApplied Science Publishers,London, 1986, Chapters 7and 8. 14.2 The collapseevent resulted in adispute betweentheinsured and the insurers which proceeded to arbitration and later to the Supreme Courtof Queensland.The case became known asManufacturers' MutualInsurance v. Queensland GovernmentRailways (1968), QWN 12. It is referred to in detail in Construction Insurance (Reference 14.1 above),page193. 14.3 The words inquotationmarks are quoted from theGuide to UseofFIDICConditionsof

584

The FIDIC Form ofContract ContractforWorksofCivilEngineeringConstruction,Fourth Edition;seeReference 9.1for afull reference. 14.4 See discussion ofthemandatory requirement of the World Bank inconnectionwith sub-clause20.4 in Section22.5.3 of the book. 14.5 After publicationoftheFourth Edition,four conferenceswereorganised inLondon,

Paris, Amsterdam and Copenhagen,where major contributionswere made on the changes madein the Red Book These conferenceswere held in the second half of 1987.

14.6

Aprobablereason maybethefactthattheequivalentclauseintheFifth Editionofthe

ICEForm does restricttheexclusiontoproperty damage.The restrictionis discussed by Max W. Abrahamsonin his book EngineeringLaw and the ICE Contracts,Fourth Edition,Applied Science Publishers,London, 1975, page 95. 14.7 Speakers and commentators at the seminar organised by the Institution of Civil Engineers,London,incollaborationwithFIDIC,asreported byMrK.N.Drobiginthe 'ProceedingsoftheInstitutionofCivilEngineers',PartI,August 1988, pages 821-836. Similarcommentswere also made at subsequentseminars inParis, Amsterdam and Copenhagen. 14.8 See Chapter 9 and Reference 9.1 quoted above. 14.9 These definitionsare takenfrom Construction Insurance (Reference 14.1 above),page 230.

Chapter15 Performance and Other Securities in the main by banks, the of an insurance or is now security surety company equally acceptableinthemajority of countries. The advantage for an enterprise to set up separate lines of credit for bonds and guarantees with surety companies,is that it would protect its lines of

15.1 Whilst bonds and guarantees were originally issued

-

creditwith banks forworking capital purposes whichmight otherwisebe blocked at the very time when such working capital is most needed. Additionally,banks preferto issue bonds inan onerous 'ondemand' form and mustthereforetreatthem as unpresented letters of credit. 15.2 Customsguaranteesareissued tocoveranycustomsdutiesthat maybecomepayable whenimportedgoods, which areexempt from duty ifre-exportedwithin aspecified time, are not re-exportedwithinthattime. 15.3 Construction Insurance, Nael G. Bunni,ElsevierApplied Science Publishers,London, 1986, page160. 15.4 TradeIndustryv. Workington [1937J AC atpage17. 15.5 'Guarantees and Bonds inConstructionContracts',apaperby I. N. Duncan Wallace, reprinted in a book entitled Construction Contracts:Principles and Policiesin Tort and Contract, Volume1, Sweet & Maxwell,London, 1986. 15.6 Mercers Co. v. New Hampshire Insurance Ltd [1992]2 Lloyd's Rep365. 15.7 PerarBV v. General Surety Guarantee (1994) 66 BuildLR. 15.8 Construction Contracts: Principles and Policies in Tort and Contract (Reference 15.5 above),Volume2, paragraph 19-01. 15.9 TrafalgarHouse Construction Ltd v. General Suretyand Guarantee Ltd (1994) 66 BLR 42,

I

CA, stronglycriticisedonbothfactual andtextual grounds in'Loose Cannonsin the

References

585

Court of Appeall: On Demand per Jncuriam?' by I.N. Duncan Wallacein 1995, 10 ConstructionLawJournal 190. The casewas later overruled by theHouse of Lords [1996] 1 AC199. 15.10 Theserequirements aremodified from and addedto thosesuggested in 'Guarantees and Bonds in ConstructionContracts' (Reference 15.5 above),page 308, paragraph 19—20.

15.11 TheLaw andPracticeofInternationalBanking,Graham A. Penn, Sweet&Maxwell,1987, paragraph 12.23, page 282. 15.12 Edward Owen Ltd v. Barclays Bank [1978]QB 159, page 170. 15.13 R.D. Harbottle (Mercantile)Ltd v. NationalWestminster Bank Ltd [1978]QB 146 [19771 2 All ER 862. 15.14 'SelectingArbitratorsfor ConstructionDisputes', GuillermoAguillar Alvarez,April 1990, (the thenGeneral CounseloftheICC InternationalCourt ofArbitration,Paris). 15.15 ICC Uniform DemandGuarantees, ICC PublicationsNo. 458, April 1992. 15.16 Guide to the ICC Uniform Rulesfor Demand Guarantees,by ProfessorRoy Goode, ICC PublicationNo. 510, October1992. 15.17 ICC Uniform RulesforContract Bonds,ICC PublicationNo. 524, September1993. 15.18 The International Credit Insurance Association (ICIA) with its headquarters in

Switzerland,brings together,on aworld-wide basis, 42 member companieswriting credit and/or guarantee insurance.The majorityof the membershipis comprised of companiesspecialisinginthese fields.Theyarelocatedin28 countriesspread overall five continents. 15.19 Construction Contracts: Principles and Policies in Tort and Contract (Reference 15.8 above),paragraph20-21. 15.20 TrafalgarHouse v. General Surety (1994)(Reference 15.9above)and PerarBVv. General Surety(1994) (Reference 15.7 above). 15.21 'Bonds and Guarantees', D.W. Graham, paper read at a seminar on FIDIC'sConditions of Contractfor Electrical andMechanicalWork,Third Edition,London, 1987.

a

Chapter 16 Claims and Counterclaims 16.1 The OxfordCompanionto Law, David M. Walker,ClarendonPress, Oxford, 1980, page 227. 16.2 Hadleyv. Baxendale(1854) 9Ex341. 16.3 On this topic, see two articles: 'Bones of Contention',by Nick Barrett, New Civil Engineer,8 February 1996; and 'This isYour Lawyer Speaking',Evening Standard, 17 November 1994 based on aresearch by theInternationalFinancialLaw Review. 16.4 See also the Guide to Use ofFIDIC Conditions ofContractfor WorksofCivil Engineering Construction, Fourth Edition (Reference 9.1 above), page 112; and Chapter 6 on the

meaning of a re-measurementcontract.

16.5 The International Civil EngineeringContract, I. N. Duncan WallaceQC, Sweet & Maxwell,London, 1974, page97. 16.6 Final Award inICC ArbitrationCase No. 5634(1989). Relevantextracts reported in the ICCInternationalCourtofArbitrationBulletin,Vol.2, No. 1,May 1991, page24. 16.7 Tersons Ltd v. StevenageDevelopmentCorporation [19651 1 QB 37. 16.8 MitsuiConstruction Co. Ltdv.Attorney-GeneralofHongKong(1986)33 BuildLR,1(PC).

586

The FIDIC Form ofContract 16.9 The International Civil Engineering Contract, I. N. DuncanWallaceQC, Sweet & Maxwell, London, 1974, page 43. 16.10 'Risks in Construction;Methods and Adverse Conditions', Max W. Abrahamson,

King's CollegeLondon, afive-day courseon CivilEngineeringLawand Arbitration, London,1987. Aninterestinganduseful analysisofthelegal backgroundtoclause 12 is given in this lecture,published by King'sCollege,page78. 16.11 'Recommendationsfor Review of the Conditionsof Contract (International) for the Works of Civil EngineeringConstruction',Dr Joachim E. Goedel, International Construction Law Review, Third Edition,March 1977. 16.12 'The Clause 12 Nightmare', ProfessorJohn Uff QC, New Civil Engineer,6 July 1989,

page19. 16.13 'Clause 12

- Not So Much a Nightmare, More a Haze', Guy Cottam, New Civil

Engineer,17 August 1989, page 15. 16.14 Construction Contracts: Principles and Policies in Tort and Contract, Volume 1, I. N. Duncan WallaceQC, Sweet & Maxwell,London, 1986, page 382. 16.15 'Handling the Unexpected under the New Yellow Book', Geoffrey Hawker, Proceedings of the 1988 FIDIC Conference, Dublin, Workshop No 8, September 1988.

16.16 'Price UnderCommon LawSystems', I. N. Duncan Wallace, QC, SelectedProblems of Construction Law, International Approach, First InternationalConstruction Law Conference, 1982. Proceedingspublished in 1983 by University Press, Fribourg, Switzerland, page169. See also Reference16.12. 16.17 'Defects: A Summary and Analysis of American Law', Professor Justin Sweet, Selected Problems ofConstruction Law, International Approach (Reference 16.16 above), page90. 16.18 Ruxley Electronicsand Construction Ltd v. Forsyth [1994] 1 WLR650, CA and [1995] 3

WLR118,HL, reversing the Courtof Appeal decision.

16.19 Whittall Builders Co. Ltd v. Chester-ie-Street District Council (1984), unreported. 16.20 The HudsonFormula, see ConstructionInsurance (Reference 11.1 above); the Emden Formula, see Emden's Building Contracts and Practice, Eighth Edition,Volume2, Butterworths, London, pageN/46; the EichleayFormula, see Building Contract Claims,

Third Edition,Powell-Smithand Sims, Blackwells, page133. 16.21 Property & Land ContractorsLtdv. Alfred McAlpine Homes Ltd, 47 Con LR74. 16.22 Hudson's Building and EngineeringContracts, Eleventh Edition,I. N Duncan Wallace, 16.23 16.24 16.25 16.26 16.27 16.28 16.29

Sweet& Maxwell,VolumeII, page1086. WharfProperties Ltdv. Eric CumineAssociates (1991)52 BLR 8. Thid., per Lord Oliver, at page 21. Cei-oidone Construction Corp. v. US, 931 F 2d 860 (Fed.Cu. 1991). McAlpine HumberoakLtd v. McDermott International Inc (1992)58 BLR 1. J. Crosby &Sons Ltdv. Portland Urban DistrictCouncil (1967)5 Build LR 121. Leach v. LondonBoroughofMerton(1985)32BLR 68, at pages 102, 112. Final Award inICC Arbitration Case No. 5634(1989), relevant extracts reported in the ICC International Courtof Arbitration Bulletin,Vol. 2, No. 1, June 1991, page

23. 16.30 BuildingLawReports, Volume52 page6. 16.31 British Airways Pension Trustees v. Sir Robert McAlpine & Sons Ltd (1994) 72 BLR 26. 16.32 GMTC Tools and Equipment Ltdv. Yuasa WarwickMachinery Ltd (1994) 73 BLR 102.

References

587

Chapter17 Delay in Completion and Claims for Extension of Time 17.1 'The PracticalUse ofCriticalPathNetworkAnalysisonaLargeProject','apaperread at a meeting of the InstitutionofEngineersin Ireland in 1990 by Paul Hackett,John

Sisk and Son Ltd, the contractor responsiblefor the SquareTowncentreat Tallaght, where the author's previous firm was responsible for the civil and structural engineeringdesign and supervision. 17.2 Walter Lawrence&SonLtdv. Commercial Union PropertiesLtd(1984)4 CLR 37; Glenlion Construction Ltdv. Guinness Trust(1987) CILL 360. 17.3 A study carried out by the Commonwealth Scientific and Industrial Research Organisation in Australia and reported in a paper by Terence M. Burke entitled, 'Delay under Australian Law', published in Selected Problems of Construction Law: 17.4 17.5 17.6 17.7 17.8

International Approach,UniversityPress, Fribourg, Switzerland,1984. Law ofContract (seeref3.5 above), pages 620—625. Lawv. Redditch Local Board [1892]1 QB 127 at 132. Robophone FacilitiesLtd v. Blank [1966] 1 WLR1428 at 1447. Dunlop Pneumatic TyreCo. Ltdv. New Garage andMotorCo. Ltd [1915] AC 79 at 86. TeinlocLtdv. ErrillProperties Ltd (1987)CILL 376, asreported inapaperbySir Patrick Garland, entitled 'Policy for Time, Conferenceon Construction Contract Policy:

Improved Procedure and Practice',King's CollegeLondon, September1988.

Chapter18 Certificates and Payments 18.1 The SIA standard forms of contract (publishedby the SingaporeInstitute of Architects) have since 1987 offered the altrnative of fixed stage instalments in their

measured contractforms withbillsofquantities aswellas in their lump sumforms.

18.2 Hudson's Building and EngineeringContracts, Eleventh Edition,I. N DuncanWallace, Sweet & Maxwell,VolumeII, page 846.

Chapter 19 Disputes Settlement by Arbitration 19.1 TeachingsofBuddhism, Buddhist PromotionsFoundations,Tokyo,Japan. 19.2 A Brehonwasanarbitrator, anexpositorofthelawrather thanajudge inthe modem sense. EveryKing or chiefof a substantialarea had anofficial Brehonwhose studies

occupied20 yearsof his life, andwhohad free landfor his maintenance.

19.3 Princes and Pirates: The Dublin ChamberofCommerce 1783—1983, L. M. Cullen, Dublin

Chamber of Commerce,Dublin, 1983.

under the auspices of the ICC, R. the then General of the ICC Court of International Stephen Bond, Secretary Arbitration,international and ICC Arbitration, Conference Proceedings,Centre of ConstructionLaw and Management,King's College London, 1990. 19.5 Northern RegionalHealthAuthorityv. DerekCrouch Construction Co. Ltd [1984]QB 644; (1984) 26 Build LR 1. However,this case has beenovertaken by events in England sincetheintroductionofthe Courts andLegalServicesAct 1990which provides for a 19.4 Arbitration of international commercial disputes

588

The FIDIC Form ofContract similar power of opening and revising an engineer's decision.However, in some other jurisdictions,this powermaystifi lie solelywith the arbitrator. 19.6 The ICC in the context ofInternational Arbitration, J Gills Wetter, ConferenceProceedings, Centre of Construction Law and Management, King's College London, 1990, page 42.MrWetter also provided thequoted passagefrom Lord JusticeMustifi in 'Arbitration:historyand background', 6 Journal mtArb,2June 1989, 43 at49. 19.7 Concordand ConflictinInternational Arbitration, Rt.Hon. Sir MichaelKerr,the Keating Lecture, King's CollegeLondon, October1996, page12. 19.8 This requirement is embodied in most systems of law as it is based on logic and reason.UnderEnglishlaw,seeCommercial Arbitration, SecondEdition,Sir M.J.Mustill and S.C. Boyd, Butterworths,London, 1989, pages 46-8. Under French law, see La Notion d'Arbitrage,ProfessorJarrosson,Paris, 1987, page35. Where thelawin certain jurisdictionsis silent onthis question,suchsilenceshould notbe interpreted against the necessityfor a formulated dispute being in existenceat the timewhenthe arbitrator is appointed. For the meaning of dispute, see Section19.7. 19.9 Most institutionalrules respect the choice of the parties as to the number of arbitrators. Some,however,do notallow anevennumberasin the caseoftherules ofthe UK CharteredInstituteofArbitrators,Article3.1, whichstatesthat:'Provided thatthe final number is uneven, the parties may agree on the number of arbitrators in the Tribunal.'Other institutions or organisationsinthis categoryinclude theEuro-Arab Chambers of Commerce;the United Nations Commissionon International Trade LawArbitrationRules;the NetherlandsArbitrationInstitute;andthe Inter-American CommercialArbitration Commission. Where theinstitutionalrules admitanevennumber ofarbitrators, amechanismto break apossibletie inthe decisionprocessmust be provided, for instance,the Japan CommercialArbitrationAssociationgrants a castingvoteto the'ChiefArbitrator' in Article34. 19.10 In recent yearsthe laws of many countries haveupheldthe effectof an arbitration agreement,for instance:in the United States, see the case of Prima Pain v. Flood and Conklin,USSupremeCourt, 338 US395 (1967); inFrance,theFrenchCourde Cassation Cass Civ., May 1963; and in many countries in the Middle East, see Arbitration in Private International Relations,ProfessorSamia Rashed, Cairo, 1984, Volume 1, page 114. 19.11 Heyman v. Darwins Ltd [1942]AC356 at 374. 19.12 Rules of the International Court of Arbitration of the International Chamber of Commerce,Paris, 1988 Edition,Article11. 19.13 Commercial Arbitration, SecondEdition,Sir M.J. Mustilland S.C. Boyd,Butterworths, London, 1989, page 57. 19.14 Toactas an 'amiablecompositeur'or to proceed 'exaequoetbono' isto disregard, within

specific limits, strict legal rules or the contractual arrangements in the interest of arriving at an equitable determination of the dispute. The powerto act as such is rarely conferred. 19.15 Itisreported inLawandPracticeofInternational Commercial Arbitration, SecondEdition, Alan Redlem and Martin Hunter, Sweet & Maxwell,1991, page37, that to act as an amiable compositeuris expresslyrecognised in, amongst other countries,Argentina, Brazil,Chile,Egypt, France,Iraq, Lebanon, Mexico, Panama, Peru,Switzerlandand Syria.

References

589

19.16 OrionCompaniaEspanoladeSegurosv.BelfortMaatschappijvoorAlgemeneVerzekgringeen [1962]2Lloyd's Rep257at264and confirmedinthisrespect bythedecision inEagle StarInsurance Co. Ltdv. Yuval Insurance Co. Ltd [1978]1 Lloyd's Rep357. 19.17 Concordand ConflictinInternational Arbitration (Reference 19.7 above),page9. 19.18 Commercial Arbitration (Reference 19.13 above),page219. 19.19 'Standard ofBehaviour ofArbitrators',Fali S. Nariman, Arbitration International, Vol. 4, No. 4, October1988, 311. 19.20 Concordand ConflictinInternational Arbitration (Reference 19.7 above),page6. 19.21 A numberof ICC awards were published in legal journals such as the International Construction Law Review (ICLR). Articles were also published and read at seminars

and conferenceson clause 67 and the interpretation of its wording. Some of these awards seem tohaveinfluencedtheCommitteeincharge ofthe Fourth Editionofthe RedBook. Amongst themost importantof these are: 'The Pre-ArbitralProcedure for theSettlementofDisputes intheFIDIC (CivilEngineering)Conditionsof Contract', Christopher R. Seppala, ICLR,Volume 3, Part4, July 1986, page330; 'ICC Court of Arbitration Case Notes', SigvardJarvin,ICLR, Volume3, Part5, October1986, page 470; 'Revisionsto the FIDICForm of CivilEngineeringWorks:The Pointof View of theEngineer',Humphrey LloydQC,ICLR, Volume3, Part5, October1986, page 517; and 'CurrentProblemsin InternationalConstructionContracts', H. Andre-Dumont,

Seminar Report,Seminar onInternational ConstructionContracts organisedby the Foundation for the Study of the Law and Practices of International Trade, Paris, February 1986, published inICLR,Volume 3,Part4, July 1986, page413. 19.22 'Changes in the ProcedurefortheResolutionofDisputes', ChristopherR.Seppala,a paperreadat aconferenceinLondon andParis onthenewFourth Edition ofthe Red Book entitled, Jnternational Construction Contracts FIDIC Conditions: The New Edition,SeptemberandOctober 1987. 19.23 Commentmadeinrelationtoclause66oftheICE Form,onwhich clause67oftheRed Bookis modelled,interpretingthecaseofMonmouthshireCountyCouncilv. Costello and KempleLtd (1965) 5 Build LR83 atpages84to85. 19.24 'The Pre-Arbitral Procedure for the Settlement of Disputes in the FIDIC (Civil Engineering)ConditionsofContract',ChristopherR.Seppala,ICLR,Volume3,Part4, July 1986, page328. 19.25 EngineeringLaw and the ICE Contracts,Fourth Edition,Max W. Abrahamson,Applied Science Publishers,London, 1979, page411. 19.26 Paschen ContractorsIncv. JohnJ. Calnan Co. 13 III. App. 3d485, 300 N.E. 2d 795 [App. Ct., 1st. Dist., 1st Div. (an intermediateappellate court of the State of illinois)19731; Methodist Church ofBabylonv. Glen-RichConstCorp, 27 N.Y. 2d 357, 318 N.Y.S. 2d 297 [Ct. App. (the highest court ofthe State ofNewYork) 19711. 19.27 This principle is acceptedascan be seenfrom atleast one reported arbitration case, ICC ArbitrationCase No. 5428, reported in Yearbook Commercial Arbitration, Volume XW (1989),publishedbyKluwerLawandTaxation,Netherlands.The FinalAward in that case,which was rendered in 1988, dealt with this issueand as reported in the above publication,thefollowingmaybe quoted: '[121There is aworld ofdifferencebetween a"claim" asopposed toa"dispute"or "difference".The FIDICschemeis clear.The Engineeristheport offirstcall ifthe Contractorhas a claim during the performanceofthe contract.The claim maybe

590

The FIDIC Form ofContract for extensionof time, extraexpense,etc. Of whatever nature, the Contractormust givenotice ofit tothe Engineeras soonasreasonablypracticaland he must, atthe earliest that he can, quantify it and detail it. When that "clam" — of whatever description goes to the Engineer,the Engineermaygrant it in full, or in part or reject it altogether.This is the firsttier of decisionmaking by the Engineer. The Contractormay be happy with the result.That would betheend ofthe matter and thereis no "dispute"or "difference". If, however, he is unhappy, he goes to the Engineeragain. This time there is a "dispute" or "difference" and we get to the secondtierofthe F]DIC systemwhere theEngineeracts (or shouldact) in aquasijudicial role specifically underClause 67.'

-

19.28 'The SourcesandLimits ofthe Arbitrator's Powers inEngland', KennethS. Rokison, in Contemporary Problems in International Arbitration, J.D.M. Lew (ed.), Martinus Nijhoff, 1987, page 90. 19.29 Commercial Arbitration, Second Edition, Mustill and Boyd, Butterworths, London, 1989, page122. 19.30 In ICC Award No. 4840, an arbitral tribunal held that it had no jurisdiction over

claims which were not submitted 'in the firstplace' to the engineer.This casewas reported bySigvardJarvin inanarticleentitled'ICC CourtofArbitration CaseNote', ICLR,Volume 3,Part 3, April1986. 19.31 'Notes on Documentsfor CivilEngineeringContracts', FIDIC, Lausanne,1977, page 16.

19.32 See Construction Contracts:Principlesand Policiesin Tort and Contract (Reference 16.14 above),page 327. 19.33 EngineeringLaw and the ICE Contracts (Reference 19.25 above),page290. 19.34 'ICC CourtofArbitrationCase Notes', SigvardJarvin (thethenGeneral Counsel,ICC Court of Arbitration),ICLR, Volume 3, Part 5, October 1986, page470. The author relates thefindings ofthe arbitratorsinICC ArbitrationCasesNo.4707andNo.5029

atwhich legal expertsappeared onboth sides giving opinionsasto the meaning ofa fewwordsin clause67. The author commentsthat

'It is obviouslyunsatisfactorythat such avital question as to howto present correctlya claimfor arbitration undertheterms of astandard andwidely-usedset of general conditions gives rise to different interpretations. I shall not discuss the learned opinions and arguments presented in favour of one or the other solution; thereaders .. .have thebenefitof thefull quotesfrom the awards on these points.' 19.35 NorthernRegionalHealth Authority v. DerekCrouch Construction Co. Ltd {1984j QB 644, (1984) 26 Build LR 1. This case has been overtaken by events in England since the

introduction ofthe Courts and LegalServicesAct 1990which provides for asimilar power of opening and revising an engineer's decision.However, in some other jurisdictions,this powermaystill lie solelywith the arbitrator. 19.36 This chartis adapted from one providedpreviously in 1987 for the Third Edition of

the Conditions. 19.37 'The Proposed NewFIDICProvisionfora DisputeAdjudicationBoard', Christopher R. Seppala,ProceedingsofanIBC conference ontheNewFIDIC Documents,Vienna, July 1996.

References

591

19.38 'Picture This in Your Future', Engineering News-Record,21 October 1996, McGrawHifi, USA. 19.39 ICC Annual Reports, PublicationsNos. 529 and 539, the InternationalChamber of

Commerce,Paris, 1989. 19.40 The ICC InternationalCourtofArbitration Bulletin,Vol. 7, No.1,May 1996, page4.

19.41

19.42

19.43 19.44

See also: 'Eight Years as Chairman of the ICC International Court of Arbitration', Alain Plantey, an overview presented during the meeting of Council of the ICC, November 1996. See also: 'Collectionof ICC Arbitral Awards 1974-1985', Sigvard Jarvin and Yves Derains, ICC Publishing SA, ICC PublicationNo. 433, Paris, 1990; and'CollectionofICCArbitral Awards 1986-1990', SigvardJarvin,Yves Derairis and Jean-Jacques Arnaldez,ICC PublishingSA, ICC PublicationNo. 514, Paris, 1994. Guide toArbitration, a publicationby the InternationalChamber of Commerce,ICC PublishingSA,PublicationNo. 382 Paris,September1983. Inthisregard, see alsothe articlesby DominiqueHascheronthe scrutiny of draft awards published intheICC InternationalCourt ofArbitration Bulletin,Vol. 6, No.1,May 1995, and Vol. 7, No.1, May 1996. 'International CommercialArbitration Rules of the International Chamber of Commerce', StephenR. Bond,SecretaryGeneral ofthe InternationalCourt of theICC at the time; apaper deliveredatthe 1988 Annual Conference ofthe Chartered Institute of Arbitrators,Dublin, September1988. Asin Reference 19.4 abovebut page 29. Seeforexampletheproposals made inan articlebyProfessorUffseekingto arrive at cost effectiveprocedures: Cost-effective arbitration,JohnUff, Arbitration, February

1993, page39. 19.45 'ICC Rules of Conciliationand Arbitration', Publication No. 447 by the ICC, ICC

PublishingSA, Paris, inforce from 1January 1988.

19.46 The ICC InternationalCourt of ArbitrationBulletin,Vol. 7,No.1, May 1996. 19.47 'Disputes Provisions RecentDevelopnrentsatFIDICand the World Bank', Robert Knutson,International Construction Law Review,Vol.13, Part2, April 1996. 19.48 BankMellat v. GAA DevelopmentConstruction Co. [1988]2 Lloyd's Rep 44. 19.49 'Post-conference review of ICC arbitration', Stephen R. Bond, ConferenceProceed-

-

ings, Centre of Construction Law and Management,King's CollegeLondon, 1990, page 83. 19.50 'ICC United Kingdom: and its role in arbitration', David Sarre, Conference Proceedings, Centre of Construction Law and Management,King's College London, 1990, page 59. 19.51 Guide toArbitration (Reference 19.40 above),Section4.9, page41. 19.52 'Terms ofReferenceUnderthe 1988 ICC ArbitrationRules - APracticalGuide',The ICC InternationalCourt of ArbitrationBulletin,Vol. 7,No.1, May, 1996. 19.53 'Particular features of the ICC Rules of Arbitration', Humphrey Lloyd QC, Conference Proceedings,Centre of ConstructionLaw and Management,King's College London, 1990, page94. 19.54 'ICC ReportonDissentingandSeparateOpinions',publishedintheICC International Courtof Arbitration Bulletin,Vol. 2, No.1, May 1991. Otherreports havealsobeen issued bytheICCCommissiononInternationalArbitration,suchasthoseon'Interim andPartial Awards' published intheICC InternationalCourt ofArbitrationBulletin, Vol.1, No. 2, December1990 and on 'Status ofArbitrators', Vol. 7, No.1, May 1996.

The FIDIC Form ofContract

592

19.55 'A.D.R.Discussed', Hans van Houtte. A summary of anICC seminar on the Settlement of International CommercialDisputes, the ICC International Court of Arbitration Bulletin,Vol. 7, No.1, May 1996. 19.56 'Getting the best from ICC arbitration', Martin Flarman, ConferenceProceedings, CentreofConstructionLawandManagement,King'sCollegeLondon,1990,page147. 19.57 See also the comprehensive paper in connection with this topic: 'The Future of

Arbitration (withparticular referenceto Constructiondisputed)', R.FemyhoughQC; apaperdeliveredto the Annual Conferenceofthe Chartered InstituteofArbitrators, Maidstone,13/15 June 1996. 19.58 'The Construction Dispute ResolutionGroup', Kenneth Severn, Structural Engineer, Vol. 69, No.11,page222. 19.59 Concordand Conflict in International Arbitration (Reference 19.7above), page7. 19.60 Report to the NewEngineeringContract (NEC) committee,N.G. Bunrii, September 1995.

In an interim reportentitled 'Accessto Justice', submitted by the Right Honourable Lord WoolftotheLord ChancellorontheciviljusticesysteminEnglandandWales,a number ofthe procedures developed in international arbitration were approved of and recommendedfor adoption. Someof these are incorporatedinSection19.11. 19.62 Commercial Arbitration (Reference 19.8 above), page 299. This passage is cited with approval by His HonourJudge Sir William Stabb QC in Town & City v. Wiltshier Southern (1988) 44 BLR 109 at 114. 19.61

19.63 'Cost-effectivearbitration', John Uff, Arbitration, February1993, page 33. 19.64 Ibid., page32.

Chapter20 Amicable Settlement Using Alternative Dispute Resolution 20.1 'Flip Flop Costs

- A Tonic to Revive Arbitration',Richard D. S. Bloore,Arbitration,

Volume61, Number 2, May 1995.

an NEC document, ThomasTelford,London, 1995. 'Accessto Justice',bythe Right HonourableLord Woolf, interim reportto the Lord Chancelloron the civiljustice systeminEngland and Wales,June 1995. 'Alternative Dispute Resolution for Design Professionals', American Consulting Engineers'Council Guidelinesto Practice, Volume 1, No. 7, WashingtonDC, 1988. Getting toYes:NegotiatingAgreementsWithoutGivingIn,RogerFisherandWffliamUry, Hutchinson & Co., London, 1981. 'Concffiation',John Tackaberry QC; a paper presented at the Conference on New Concepts in the Resolutionof Disputes inInternational ConstructionContracts,the Chartered Institute of Arbitrators,London, June 1989. Conciliation ProcedureoftheInstitutionofCivil Engineers,1994, Londonand Conciliation

20.2 'The Engineering and Construction Contract, 2nd Edition', 20.3 20.4 20.5 20.6

20.7

Procedure ofthe Institution ofEngineersofIreland, 1995. 20.8 The 1990 Standard General Conditionsof Contract for Civil EngineeringWorks in

South Africa include in their provisions a dause (clause69) for mediation prior to arbitration,whereas theICE 6thEdition refers to conciliation. 20.9 'Roles of a Mediator', Department of Education and Training of the American Arbitration Association,140 West 51st Street,NewYork,NY 10020-1203,USA.

References

593

20.10 The National Construction Industry Arbitration Committee, referred to in abbreviated form as NCIAC, is a committeeof the American Arbitration Association, whose address is given in Reference 20.9 above. 20.11 'Mediation',PeterH. Davies; apaperpresented at a conferenceonNewConceptsin

the Resolution of Disputes in International Construction Contracts,the Chartered InstituteofArbitrators,London, June 1989.

20.12 'ADR: AlternativeDispute Resolutionfor the ConstructionIndustry', a publication by the Associationof EngineeringFirms Practisingin the Geosciences, Maryland, USA, 1988. 20.13 Donovan LeisureNewton and Iroine ADRPractice Book, edited by John H. Wilkinson, WileyLaw Publications,1990, page139. 20.14 Martindale-Hubbell Dispute Resolution Directory, Dispute Resolution Options. Pub-

lished in co-operationwith the AmericanArbitration Association,1996.

20.15 'Zurich Mini-Trial',RulesofProcedure for the Zurich Mini-Trial, ZurichChamberof

Commerce,5 October1984.

20.16 'Mini-TrialCase Study',Jack K. Lemley, a paper presented at conference on New Concepts in the Resolution of Disputes in International Construction Contracts (Reference 20.11 above). 20.17 The Center for Public Resources,680FilthAvenue, NewYork,NY,USA. 20.18 'A ClaimsReviewBoardasaWayfor anAmicableSettlementofDisputes, andother ConsiderationsontheSubjectof Claims',G. Lodigiane,International ConstructionLaw Review,Volume 3, Part 5, October1986. 20.19 'Amicable Settlement of Construction Disputes', a Report of FIDIC'sAlternative

Dispute ResolutionTask Committee,August 1992. 20.20 Housing Grants, Construction and Regeneration Act 1996, Chapter 53, HMSO,

London. 20.21 Supplement to Fourth Edition 1987 of Conditions of Contract for civil engineering construction,SectionA, 1996, FIDIC,Switzerland. 20.22 'ICC Pre-ArbitralRefereeProcedure', ICC PublicationNo. 482, ICC PublishingSA,

January 1990. 20.23 'The International Centre for Technical Expertise', ICC Publication No. 307, ICC Paris, 1977, containingthe Role ofthe Centre and the Rulesfor Technical Expertise.

Chapter 21 FIDIC's Other Forms of Contract 21.1 'InternationalModelFormofAgreementbetweenClientandConsultingEngineerand

InternationalGeneral Rulesof Agreementbetween Client and ConsultingEngineer'. Thethreeseparatedocuments,publishedbyFIDIC,weredesignedtocoveragreements relatingtoPre-InvestrnentStudies: IGRAP1; DesignandSupervisionofConstructionof Works:IGRAD&S; and ProjectManagementServices: IGRA PM. 21.2 Construction Insurance, Nael G. Bunni,ElsevierApplied Science Publishers,London, 1986.

21.3 Guide to Use ofFIDICConditions ofContract for Electrical and MechanicalWorks, Third Edition, Fédération Internationale des Ingénieurs Conseils,Switzerland, 1988. This publicationcontains 171 pagesof commentaryandthetextofthethirdedition ofthe YellowBook.FIDIC, P0 Box86, CH 1000 Lausanne,12-Chailly, Switzerland.

594

The FIDIC Form ofContract 21.4 Ibid. 21.5 See referencesto 'Due Consultation'in this book. 21.6 'The Liability and Insurance Clauses of the FIDIC E & M Form', Nael G. Buruii, ConstructionLaw Review,July 1987. 21.7 The ICEDesign and ConstructConditionsofContract,publishedbyThomasTelford

ServicesLtdfor thejoint sponsoringauthorities:the InstitutionofCivilEngineers;the Associationof ConsultingEngineers;and the Federation of CivilEngineeringContractors. First edition, October 1992. 21.8 'FIDIC'sOrange BookConditionsofContractforDesign BuildandTurnkey', Peter Booen; apaper presented ata seminar in London, The Study Group, February1996. 21.9 Guide to Use ofFIDIC Conditions ofContractfor Design-Buildand Turnkey,First Edition, F1DIC,Switzerland,1996.Thispublicationcontains163 pagesofcommentaryandthe textof thefirstedition ofthe OrangeBook.FIDIC,P0Box86, CM 1000 Lausanne,12-

-

Chailly, Switzerland. 21.10 'Conditions of Subcontractfor Works of CivilEngineeringConstruction,for use in conjunctionwiththe Red Book',Edition,1994, FIDIC,P0Box86, CM1000 Lausanne, 12-Chaffly,Switzerland. 21.11 'NewFIDIC Publications: The TenderingProcedure and Subcontract',K. B. Norris; a

paper presented at a seminar in Oxford,The Study Group, August 1995.

Chapter22 The WorldBank and The FIDIC Form 22.1 'Standard BiddingDocumentsforthe ProcurementofWorks — MajorContracts (over US$10 million)', The World Bank,WashingtonD.C., January 1995, page122. 22.2 'An Overview of the World Bank's General Structure and Purpose, Project Development and Financing',Paul Blanchet,World Bank European Office. A paper presented at a conference heldin Dublin,the Institution ofEngineersof Ireland,March 1996.

22.3 'World Bank Procurement Guidelines', Raghavan Srinivasan, Chief Procurement Adviser,the World Bank. A paper presented at a conferenceorganisedby IBCU.K.

ConferencesLtd onInternationalProcurement,Vienna,July 1996. 'A ClaimsReviewBoardas aWayforanAmicableSettlementofDisputes,and other ConsiderationsontheSubjectof Claims',G. Lodigiarie, International Construction Law Review,Volume3, Part 5, October1986. 22.5 'Dispute ReviewBoards', NeilKaplan QC and Peter H. J. Chapman;proceedingsof the International Arbitration Conference, the Chartered Institute of Arbitrators, Boston,September1996. 22.4

Chapter23 A Precise Record of Alterations, Omissions and Additions 23.1 Guide to Use ofFIDIC ConditionsofContractfor WorksofCivil EngineeringConstruction, Fourth Edition,FédérationInternationaleDes Jngénieurs-Conseils, Switzerland,1989.

Appendix A

Editorial Amendments In The 1988 Reprint Of The Fourth Edition Of The Red Book

FollowingpublicationoftheFourthEdition in 1987oftheConditionsofContractforWorks of Civil EngineeringConstruction, a number of editorial amendments were agreed by FIDIC. The amendments were incorporated during a 1988 reprinting and the list below clarifiesthe differencesbetween the 1988 reprintandthe originaldocument. Foreword The last sentence of the firstparagraph previously read 'The Conditionsare equally suitable for use; ondomestic contracts.' Sub-Clause10.1. A comma has beeninserted after the word 'Contract' inthe Page 6 secondline. The thirdsentencepreviously read'Such security shallbe in such form as maybe agreed between the Employerand the Contractor.' Page 11

Sub-Clause22.1 (b) was previously one completeparagraph, i.e. therewasno space between the words 'other than the Works),' and the remainder of the Sub-Clause.

Page 15

Sub-Clause31.2 (c) was previouslyone complete paragraph, i.e. therewas no space between the words'.. .nature for any such,' and the remainder of the Sub-Clause.

Page 20

Page 21

Sub-Clause44.3. The penultimatesentencewas previously,'Inbothsuch cases the Engineer shall notify the Contractor accordingly,with a copy to the Employer.' Sub-Clause49.1 (a). The word 'substantial' has beendeleted.

Page 29

Sub-Clause60.3 (b) was previouslytwoparagraphs, thesecondbeginningwith thewords'Provided also that if at such time ...'

Page30

Sub-Clause60.5.The word 'The'hasbeeninserted atthe beginningofthefinal paragraph.

Page 35

Sub-Clause67.1. In the eighth line of the thirdparagraph, a commahas been inserted after the word 'provided', Inthesecond line of the fourth paragraph, the word 'notice' replacesthe word 'notification'.

535

596

The FIDIC Form ofContract Page 38

Reference to Part H. Inthe thirdline, the words 'and (iv)' havebeen inserted

after paragraph (a) (i). [NB Although neither the Tender nor the Agreementis included in this book, the amendments are included below for completeness.]

Tender Item 3

The word 'Works' has beencapitalised.

Agreement Line 4

Inverted commashavebeeninserted followingthe words 'theEmployer.'

Line 6

Inverted commashavebeeninsertedbefore theword'the' instead ofbefore the word 'Contractor.'

Line 8

The word 'Contractor' has been capitalised.

Line 9

The words 'Tender bythe Contractor'were previously'Tender by Contractor'.

Line 11

The word 'Agreement' has beencapitalised.

Lastlines The Agreement previously ended with the words 'Binding Signature of Employer' and 'BindingSignatureofContractor'.

Appendix B

Further Amendments In The 1992 Reprint Of The Fourth Edition Of The Red Book

Thefollowingamendmentshavebeenmadetothe1988Reprint oftheFourthEditionofthe Conditionsof Contract for Works of Civil EngineeringConstruction.The amendments of the 1988 Reprintare shown in Appendix A. In addition, some minor changes intheuse of punctuationmarks (commas,semicolons, colonsand stops),as well as theuse of thewords 'or' and 'and'havebeenintroduced to attain uniformityin thestyle of all clauses.These minor changes which improve the style, but which have no effect on the meaning of Clauses,arelisted at the end ofthisAppendix. Foreword

The eighth paragraph previouslyreferred to the anticipatedpublication of the 'Guide to the Use of FIDICConditionsof Contract for Works of Civil EngineeringConstruction'.

Page 2

Sub-Clause1.1, sub-para (e). Definitions(iii) 'Interim Payment Certificate' and (iv) 'Final Payment Certificate'havebeenadded.

Page 6

Sub-Clause8.1. Secondparagraph has been added.

Page 7

Sub-Clause12.2. Marginal note. The word 'Adverse' has been changed toread'Not Foreseeable'(also amended inthe Contentsand theIndex).

Page 8

Sub-Clause13.1. Lastsentencehasbeenshortenedbydeletingthewords 'or, subject to the provisions of Clause 2, from the Engineer's Representative.',and adding the words'(or his delegate).'. Sub-Clause15.1, para 1. Last sentencehas beenshortenedbyplacing a full stop after theword'Engineer', deletingthewords' or subjectto the provisions of Clause2, the Engineer'sRepresentative.'. Sub-Clause21.1,sub-para (a). Thewords '(the term "cost" inthiscontext shall include profit)' have beenadded. Sub-Clause21.4, sub-para (a). The word 'where' has beencorrectedto read 'whether'.

Page10 Page 11 Page 18

Sub-Clause40.3.The word 'written' has been deleted at the end of the

firstline.

597

The FIDIC Form ofContract

598 Page 19

Sub-Clause42.3. The word 'wayleaves'has beenchangedto read'rights ofway' inthetext and marginalnote(alsoamended intheContents and

the Index). Page 29

Sub-Clause60.1, sub-para (e).The words 'orotherwise' havebeenadded at the end. Sub-Clause60.2.The words 'certifytotheEmployer'have beenchanged to read'deliver to theEmployer anInterim Payment Certificatestating', theword'thereof'hasbeen changedto read'ofsuchstatement' andthe word 'he' has been changed to read 'the Engineer'. Sub-para (b). The words 'Interim Certificates' havebeen changed to read 'Interim Pay-

mentCertificates'. Sub-Clause60.3, sub-para (b). Intheeighth line, theword 'ordered' has been changed to read'instructed'. Sub-Clause60.4. The words 'interim certificate'in the first and fourth lines,and theword 'certificate'in thesecondline, havebeenchanged to read'Interim Payment Certificate'. Page 30

Sub-Clause60.5. In the secondline, after theword 'Engineer',thewords 'six copies of' have beenadded. Sub-Clause60.6. In the second line, after the word 'consideration', the words 'six copies of' havebeen added. Sub-pam (b). The words 'or otherwise' havebeenaddedat theend. Atthe endofthe sub-clause, the final paragraph has beenadded. Sub-Clause 60.7 and Sub-Clause 60.8 (text and marginal note). The words 'Final Certificate' have been changed to read 'Final Payment Certificate'(also amended in the Contents and the index). Sub-Clause60.8 (a). The words'or otherwise' have been added. SubClause 60.8 (b). The words 'under the Contract other than Clause 47' havebeenchanged to read'otherthan underClause 47'.

Page 31

Sub-Clause60.10. In the firstand fourth lines, the words 'interimcertificate' havebeenchanged to read 'Interim Payment Certificate'.In the fifthand sixth lines, the words'Final Certificate'have beenchanged to read 'Final Payment Certificate'. The words 'or otherwise' have been added at the end.

Page 33

Sub-Clause65.6. In the ninth line, the words 'and to the operation of Clause67' havebeenchanged to read 'and Clause 67'.

Page 34

Sub-Clause66.1.Tnthe secondlinetheword'party' hasbeenchanged to read 'or both parties'. In the third line between the words 'his' and 'contractual' thewords 'ortheir'havebeenadded. Inthefourth lineafter the word 'then', the words 'the parties shall be discharged from the Contract,except as to their rights underthis Clause and Clause 67 and withoutprejudice to the rights of either party in respect of any antecedentbreach of the Contract,and' havebeenadded.

Page 35

Page 37

599 Appendix B Sub-Clause 67.2. The words 'arbitration of such dispute shall not be commencedunless anattempthas firstbeenmadebytheparties tosettle such dispute amicably' have been changed to read 'the parties shall attempt to settle such dispute amicably before the commencementof arbitration'. The words 'whether or not any attempt at amicablesettlement thereof has beenmade' have been changed to read 'even if no attempt at amicablesettlementthereof has been made'.

Sub-Clause 69.1, sub-para (d). The words 'unforseen reasons, due to economicdislocation'havebeenchanged to read'unforeseen economic reasons'.

Sub-Clause69.4. In the second line of the secondparagraph, the word 'cost'has beenchanged to read'costs'. Page 38

REFERENCE TO PART II. In the thirdline, the words'5.1 part' have beenchanged to read'5.1(part)'.

Tender

Paragraph 1. Tn the last line, the word'sums' has beenchangedto read 'sum'.

Appendix

In the ninthline, thewords'and Plant' have beenadded. Inthetwelfth line, the word 'Payment' has been added. In the thirteenth line, the words'per annum' have beenadded.

Editorial amendments

Forpage35, after thewords 'Sub-Clause67. 1the first sentencehasbeen inserted.

The minor changesmade in the 1992 reprint of the Fourth Editionof the Red Book The minorchangeswhich were made inpunctuation andin the useofthewords'and' and 'or' inthe1992reprintoftheFourthEdition ofthe RedBookare set outbelowforthesake of completeness.They are also incorporated in the comparativetext of the Third and Fourth Editions in Chapter 23.

PartI changes Sub-clause 2.3

After the semicolonatthe end of sub-paragrasph (a), insert 'and'.

Sub-clause 2.6

At theend of sub-paragraphs (a) and (b), deletetheword 'or'.

Sub-clause 4.1

At theend of paragraph (a), delete the word 'or'.

Sub-clause 11.1

At theend of (b), after the word 'required',add a comma.

Sub-clause 12.2

Inthemargin,delete thepenultimate word 'and' and substitute 'or'.

Sub-clause 16.1

After the word 'therein', add a colon.

Sub-clause 19.1

At the end of (a), delete the word 'and'.

The FIDIC Form ofContract

600 Sub-clause20.4 sub-par. (c) sub-par. (g) Sub-clause 21.1 Sub-clause 21.4 sub-par. (c) Sub-clause 22.2 Sub-clause 31.2 Sub-clause 36.1 Sub-clause36.3 Sub-clause36.4

After the words 'toxic explosive', deletethe comma. Addat the end:'and'.

Attheendof (a)after 'include profit'adda comma;andatthe endof (b) after the word'nature',add a comma followedby 'and'. At theendof the secondline, after theword'by',addacolon;andatthe end of (c), after 'thereof', add 'or'. After thewords'toxicexplosive', deletethe comma.

Attheend of (c), after 'Contract', add 'and'. Attheend of (a), delete'or'. Attheend of the firstline, after the words 'shallbe', add a colon. Attheend ofthe firstline, after the words 'testis', add a colon. Atthe end ofthe firstline, afterthewords 'which is', addacolon;andat theendof (a), delete 'or.

Sub-clause40.1

Afterthe words 'suspension is', add a colon; and at the end of both (a) and (b), delete'or'.

Sub-clause40.2

After theword 'determine', add a colon.

Sub-clause42.1

At the end of (a), delete 'and'; at the end of (b), after the words 'the contractor', add a comma; and in the next line between 'and' and 'subject' insert a comma.

Sub-clause44.1

Attheendofthefirstline, after thewords 'event of', add acolon;and at the end of (a), (b) and (c), delete 'or'.

Sub-clause48.2

At the end of (a), delete 'or'.

Sub-clause49.1

At the end of (b), after the words 'so certified', add a comma.

Sub-clause 49.2

At the end of (a) between 'date' and 'and', insert a comma.

Sub-clause49.3

At the end of (a), delete 'or'.

Sub-clause 51.1

At the end of (e), after the comma,add'or'.

Sub-clause 58.2

At the end of (a), after the comma,add 'and'.

Sub-clause 59.4

At the end of (b), after the semicolon,add 'and'.

Sub-clause 59.5

Afterthewords 'unlesstheContractor',addacolon;andatthe end of(a) between 'payments' and 'and' insert acomma.

Sub-clause 60.1

Afterthewords 'respect of', addacolon;attheend of(a), (b)and (c), add a comma and at the end of (d), add a comma followedby 'and'.

Sub-clause 60.3

In (b)deletethecomma followingthe word'time' inthethirdsentence.

Sub-clause 60.5

After the words 'by the Engineer' delete the comma and substitute a colon.At the end of sub-paragraph (a), add a comma. After the word

601 Appendix B 'due'insub-paragraph (b), insert a comma. After theword 'Contract' in sub-paragraph (c), insert a comma.

Sub-clause 60.6

Afterthe words'by the Engineer' delete the comma and substitute a colon.

Sub-clause 60.8

Afterthe word 'stating', add a colon.

Sub-clause 63.1

Attheend of(a), at the end of (1) (ii) andat the end of (c), delete 'or'. Attheend of (a), delete'or'. At the end of (b), after the words 'Contractor's Equipment', add a

Sub-clause 65.1 Sub-clause 65.3

comma.

Sub-clause65.8

The firstletter ofeach ofsub-paragraphs(a)to (f) should bealtered from a capital to lowercase; at the end of sub-paragraphs (a) to (d), add a semicolon; and at the end of sub-paragraph (e), add semicolonfol-

a

lowedby 'and'. Sub-clause67.3 Attheend of (b), after the words 'Sub-Clause67.2',add a comma. Sub-clause69.1

Atthe end of (a) and (b), delete 'or'.

Sub-clause69.4

Tnthesecondparagraph aftertheword'determine', addacolon. Replace

'cost'with 'costs'.

IntheReference to PartII, '5.1 part' hasbecome'5.1(part)'. IntheTender,paragraph 1, 'sums' in thelast line hasbecome'sum'. Appendix entries have beenchanged as follows: Percentageofinvoice value listed materials andplant

60.1(c)

Minimum amount of Interim Payment Certificates

60.2

Rates of interest upon unpaidsums

60.10

per cent

per cent per annum

PartII changes Atthe end of (a), after 'include profit)', adda commafollowedby 'and'. Clause 60 (Payment to contractor) Attheend of the firstline, after thewords'shall be made'add a colon; and atthe end of (b), add'and'. Clause 60 (Payment to employer) Attheend ofthesecondline, afterthewords 'shallbemade'addacolon; Sub-clause 21.1

and at the end of (c), add'and'.

602

The FIDIC Form ofContract Sub-clause 70.1 (Secondexample) In (a)(i) at the end of the firstsub-paragraph commencingfollowing'or quarry', alter the full stop to a semi-colon; and at the end of the subparagraph 'BasicRate' after thewords 'carried out',alter thefull stop to a semi-colonand add 'and'. In (a)(ii) at the end of sub-paragraph (a), delete 'also'. Sub-clause 70.1 (Second example) In (b)(i) at the end of the firstparagraph, after thewords 'the Works', change thefull stop toa semicolon,and atthe endofthe sub-paragraph 'Basic Prices', after the words 'of tenders', change the full stop to a semicolonand add 'and'. Sub-clause 70.1 (Third example) In (a) after 'publication)', deletethe dashwhich followsthe colon;atthe end of(i), add acomma;attheend of (ii), addacomma followedby'or', and at the end of (ill), add a full stop. Sub-clause70.1 (Third example) In (b) at the end of (1), change thefull stopto a comma and add 'and'.

Appendix C

Part II — Conditions of Particular Application

Clause 1 Sub-ClauseLI — Definitions (a) (i) The Employeris (insert name) (a) (iv) The Engineer is (insert name)

Iffurther definitionsare essential,additionsshouldbe made to the list. Clause 2 Sub-Clause2.1 — Engineer'sDuties EXAMPLE

The Engineer shall obtain the specific approval ofthe Employerbefore carrying out his duties inaccordancewith the followingClausesof Part1: (a) Clause (insert applicablenumber) (b) Clause (insert applicablenumber) (c) Clause (insert applicablenumber) Thislistshould be extendedorreduced as necessary.In some casesthe obligationto obtain theapprovaloftheEmployermayapply to onlyone Sub-ClauseoutofseveralinaClauseor approval mayonlybe necessarybeyond certainlimits,monetaryorotherwise.Wherethis is so, the examplewording mustbevaried. If theobligationto obtain the approval of the Employercould leadto the Engineerbeing unable to take action in anemergency,where matters of safetyare involved,an additional paragraph maybe necessary. EXAMPLE

Notwithstandingthe obligation,as set outabove,to obtain approval, if,in the opinion of the Engineer, an emergencyoccurs affecting the safety of life or of the Works or of adjoiningproperty, he may, withoutrelieving the Contractorof any of his duties and responsibilitiesunderthe Contract,instructtheContractorto executeall such work or to

603

The FIDIC Form ofContract

604

do allsuch things as may,inthe opinion oftheEngineer,be necessaryto abate orreduce the risk. The Contractorshall forthwith comply, despite the absence of approval of the Employer,with any such instructionof the Engineer. The Engineer shall determine an additiontotheContractPrice,inrespectof suchinstruction,inaccordancewithClause52 and shall notify the Contractoraccordingly,with acopy to the Employer.

Clause 5

-

Sub-Clause5.1 Language/s and Law (a) The language is (insert as applicable) (b) The lawis that in force in (insert name ofcountry) If necessary(a) above should be variedto read: The languagesare (insert as applicable)

and thereshouldbe added The Ruling Languageis (insert as applicable)

Sub-Clause5.2 — Priority' ofContract Documents Where it is decided that an orderofprecedenceof all documents should be included, this Sub-Clausemaybe varied as follows: EXAMPLE

Delete the documents listed 1—6 and substitute: (1) the ContractAgreement (ifcompleted); (2) the letter ofAcceptance; (3) the Tender; (4) the ConditionsofContract PartII; (5) the ConditionsofContract PartI; (6) the Specification; (7) the drawings; and (8) the priced Bill of Quantities or Where itisdecided thatnoorderofprecedenceofdocuments should beincluded,this SubClausemaybe variedas follows: EXAMPLE

Deletethe text ofthe Sub-Clauseandsubstitute: The several documents forming the Contract are tobe taken as mutually explanatoryof one another, but in the case of ambiguities or discrepanciesthe priority shallbe that accorded by law. If, in the opinion of the Engineer, such ambiguities or discrepancies make itnecessaryto issue any instructiontothe Contractorinexplanationoradjustment, the Engineershall haveauthority toissuesuch instruction.

Appendix C

605

Clause9 Where itisdecided thatacontractAgreementshould beentered into andexecutedtheform must be annexed to these Conditionsas stated in Sub-Clause9.1 of PartI of these Conditions. A suitable form is annexed to PartI - GeneralConditions.

Clause10 Sub-Clause10.1 — PerformanceSecurity Where itis decided that aperformance security should be obtained by the Contractor,the form must be annexed to these Conditionsas stated in Sub-Clause10.1 of PartI of these Conditions.

Two exampleforms ofperformancesecurityare givenonpages7,8and9.The Clauseand wordingofthe exampleforms mayhave tobevariedtocomplywiththelawofthe Contract whichmayrequire the forms to be executed underseal. Where there is provisioninthe Contract for payments to the Contractorto be made in foreigncurrency, Sub-Clause10.1 of PartI of these Conditionsmaybevaried. EXAMPLE

After the firstsentence,insert thefollowingsentence: The security shallbe denominatedinthetypes andproportionsofcurrenciesstated inthe Appendix to Tender. Where the source of the performance security is to be restricted, an additional SubClause maybe added. EXAMPLE SUB-CLAUSES

Source ofPerformance Security 10.4 The performance security, submitted by the Contractorin accordancewith Sub-Clause 10.1,shallbefurnishedbyaninstitution registeredin (insert the country wheretheWorksare to be executed) orlicensed to dobusiness in such country. or Source ofPerformance Security 10.4 Where the performancesecurity is inthe form of a bank guarantee,it shall be issued by: (a) a bank located in the country oftheEmployer,or (b) foreignbankthrough a correspondentbanklocatedinthecountry oftheEmployer.

a

Clause11 Where thebulk or complexityof the data, or reasons of security enforced by the country where the Works are to be executed,makes it impracticablefor theEmployer to make all data availablewiththe TenderDocumentsandinspectionofsome data by the Contractorat anofficeis thereforeexpected,itwould be advisableto makethecircumstancesclear.

The FIDIC Form ofContract

606

EXAMPLE SUB-CLAUSE

Accessto Data11.2 Data made available by the Employer in accordance with Sub-Clause 11.1 shall be deemed to include datalisted elsewhereinthe Contractas openforinspection at (insert particulars of the officeor offices where such datais stored)

Sub-Clause11.1 — Inspection ofSite For a Contract comprising dredging and reclamationwork the Clause may be varied as follows: EXAMPLE

In the first paragraph, delete the words 'hydrological and sub-surface'and substitute 'hydrographic and sub-seabed'. Inthe secondparagraph, under (a) deletetheword'sub-surface' and substitute 'subseabed' and under(b) delete the word 'hydrological' and substitute 'hydrographic'.

Clause 12 Sub-Clause12.2 — NotForeseeableObstructions or Conditions For a Contract comprisingdredging and some typesofreclamation work the Sub-Clause mayrequire tobevaried. EXAMPLE

Deletethe word ', other thanclimaticconditions onthe Site,'.

Clause 14 Sub-Clause14.1 — Programmeto be Submitted The time within which the programme shall be submitted shall be (insert number) days.

Sub-Clause14.3 — CashFlow Estimate to be Submitted The timewithin which the detailed cash flow estimate shallbe submitted shall be (insert number) days.

Inboth examplesgiven above itis desirablefor consistencywiththerestof the Conditions that the number of days inserted should be a multiple of seven.

EXAMPLE PERFORMANCE GUARANTEE By this guarantee We______________ whoseregistered office is at______________(hereinafter called 'the Contractor') and _____________ whose registered office is at

(hereinafter called 'the Guarantor') are held and firmly bound unto (hereinafter called 'the Employer') in the sum of ____________ for of which sum the Contractor and the Guarantor bind themselves, their payment

Appendix C

607

successorsand assignsjointly and severallyby these presents. Whereas theContractorby anAgreementmadebetween the Employeroftheone part and the Contractorof the other part has entered into a Contract (hereinaftercalled 'the saidContract')to executeand completecertainWorks andremedy any defectstherein as thereinmentioned in conformitywith the provisions of the saidContract. Now theCondition of the above-writtenGuaranteeis such that iftheContractorshall dulyperform and observeallthe terms provisionsconditions andstiiulations ofthe said Contract on the Contractor's part to be performed and observed according to the true purportintent and meaning thereoforifondefaultbytheContractorthe Guarantor shall satisfyanddischargethe damagessustainedbythe Employertherebyuptotheamount of theabove-written Guarantee then this obligation shall be null and void but otherwise shallbeand remaininfullforce andeffectbutno alterationinterms ofthe said Contract or in the extent or nature of the Works to be executed, completed and defects therein remedied thereunder and no allowance oftime by the Employer or the Engineerunder thesaidContractnorany forbearanceorforgivenessinor inrespectofanymatter orthing concerningthesaidContractonthepartoftheEmployerorthesaidEngineershallin any way release the Guarantor from any liabilityunder the above-writtenGuarantee. Providedalwaysthatthe aboveobligationofGuarantortosatisfyanddischargethedamages sustained by the Employershallarise only

onwrittennotice from boththe EmployerandtheContractorthat the Employerand the Contractor have mutually agreed that the amount of damages concerned is payable to the Employeror (b) on receipt by the Guarantor of a legally certified copy of an award issued in arbitration proceeding carriedout in conformitywith the terms of the saidContractthat the amount of the damages is payable to the Employer. (a)

Signed on_________________________ Signedon _________________________ onbehalf of _____________________ on behalfof _____________________ by by in the capacity of ____________________ in the capacity of ____________________ in thepresence of_______________________ in the presenceof ______________________ EXAMPLE SURETYBOND FORPERFORMANCE

Know all Men bythese Presents that (nameand address of Contractor)

as Principal (hereinafter called 'the Contractor')and (name, legal title and address of Surety) ___________________________________as Surety (hereinafter called 'the Surety'), are held and firmly bound unto (name and address of Employer) ___________________________________ as Obligee (hereinafter called 'the Employer')intheamount of_____for the payment ofwhichsum,well and trulyto be made, theContractorandtheSuretybindthemselves,their successorsandassigns,jointly and severally,firmlyby these presents. Whereas the Contractor has entered into a written contract agreement with the Employer dated the____________day of ____________19_ for (name of Works) ____________in accordancewith the plans and specificationsand amendmentsthereto, to the extent hereinprovided for, are by referencemadepart hereof and are hereinafter referred to as the Contract.

The FIDIC Form ofContract

608

Now,therefore, the Condition of this Obligationis such that, if the Contractorshall promptly and faithfullyperform the saidContract (includingany amendments thereto) then this obligation shall be null and void; otherwise it shall remain in full force and effect WheneverContractorshall be, and declared by Employerto be, in defaultunder the Contract, the Employer having performed the Employer's obligations thereunder, the Surety maypromptly remedy the default, or shall promptly: (1) CompletetheContract in accordancewith its terms andconditions;or

(2) Obtain abid or bids for submissionto the Employerfor completingthe Contract in accordancewithitsterms and conditions,and upon determinationby the Employer and Surety of the lowest responsible bidder, arrange for a contract between such bidder and Employer and make availableas work progresses (even thoughthere should be a default or succession of defaults under the contract or contracts of completionarranged underthis paragraph) sufficientfunds to pay the costof completionlessthebalanceoftheContractValue; butnotexceeding,includingother costs and damagesforwhichtheSurety maybe liable hereunder, the amount setforthin the firstparagraph hereof. The term 'balance ofthe ContractValue', as used in this paragraph, shallmeanthetotalamountpayablebyEmployerto Contractorunderthe Contract,lessthe amount properly paidbytheEmployer to Contractor;or (3) Pay the Employer the amount required by Employer to complete the Contract in accordancewith its terms and conditionsanyamount up to totalnotexceedingthe amount of this Bond.

a

The Surety shall not be liable for a greater sumthanthe specifiedpenalty of this Bond. Anysuit underthis Bond must be instituted before the issueof the DefectsLiability Certificate.

No rightof action shall accrue on this Bond to or for the use of any personor corporation other thantheEmployernamed herein or theheirs,executorsadministratorsor successorsoftheEmployer. Signedon________________________ Signedon _______________________ on behalfof _____________________ on behalfof _____________________ by by in the capacityof ____________________ in the capacityof ____________________ in the presenceof_______________________ in the presenceof ______________________

Clause 15 Where the language in which the Contract documents havebeendrawnup to is not the language of the country in which the Works are to be executed, or wherefor any other reason I is necessary to stipulate that the Contractor's authorised representative shall be fluent in aparticular language, anadditional Sub-Clausemaybe added. EXAMPLE SUB-CLAUSES

Language Ability ofContractor's Representative15.2 The Contractor'sauthorised representativeshallbe fluent in (insertnameoflanguage).

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or Interpreter to be Made Available 15.2

TI theContractor's authorised representativeisnot,in the opinion of the Engineer,fluent

in (insert nameof language),the Contractorshallhaveavailable on Site at all times a competentinterpreter to ensure the proper transmissionofinstructions and information.

Clause 16 Where the languageinwhich the Contract documents have beendrawnup is not the language ofthecountry inwhichtheWorks aretobe executed,orwherefor any other reasonit is necessary to stipulate that members of the Contractor's superintending staff shall be fluent in aparticular language, anadditional Sub-Clausemaybe added. EXAMPLE SUB-CLAUSE

Language Abifity of Superinteuding Staff 16.3 A reasonableproportion of theContractor's superintending staff shall have a working knowledgeof(insert name oflanguage) or the Contractorshallhaveavailableon Site atall times a sufficientnumberofcompetent interpretersto ensure the proper transmissionof instructions and information.

a

Where thereis desire, butnot a legal requirement,that the Contractormakes reasonable use of materials from or persons resident in the country in which the Works are to be executed,an additional Sub-Clausemaybe added. Employment of LocalPersonnel 16.4 The Contractoris encouraged, to the extent practicableandreasonable, to employ staff and labourfrom sourceswithin(insert name ofcountry).

Clause 18 Sub-Clause181 — Boreholesand Exploratory Excavation ForaContractcomprisingdredging andreclamationwork theSub-Clausemayrequire tobe varied. EXAMPLE

Add secondsentence as follows: Such exploratoryexcavationshallbe deemed to include dredging.

Clause19 Sub-Clause191 — Safety, Security andProtectionofthe Environment Where a Contractincludes dredging thepossibility ofpollution should be given particular attention and additional wording may be required. For example, where fishing and

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The FIDIC Form of Contract recreationareas might be influenced,theContractorshould berequired to planand execute the dredging so that the effectis kept to a minimum. Where thereis a risk of chemical pollution from soluble sediments in the dredging area, for instance in a harbour, it is important that sufficientinformationis provided with the Tender documents. Responsibilitiesshould beclearly defined.

Clause21 211 — InsuranceofWorks andContractor's Equipment Where thereis provision in the Contract for payments to the Contractorto be madein foreigncurrency,this Sub-Clausemaybevaried.

Sub-Clause

EXAMPLE

Add final sentence as follows: The insuranceinparagraphs (a) and (b) shall provide forcompensationtobe payablein thetypes and proportions of currenciesrequired to rectifythe loss or damage incurred. Where it is decided to state the deductiblelimits for the Employer'sRisks,thisSub-Clause maybe varied. EXAMPLE

Add toparagraph(a) as follows: and with deductible limitsfor the Employer'sRisksnot exceeding(insert amount)

Clauses 21, 23 and 25, Insurances Arrangedby Employer InCertaincircumstances,suchaswhere anumber ofseparatecontractorsareemployed ona single project, or phasedtake-overis involved, it maybe preferable for the Employer to arrange insurance oftheWorks,and Third Party insurance.In such case,itmustbe clearin

the Contractthat the Contractoris notprecluded fromtaking outanyadditionalinsurance, should he desire to do so, over and above that tobe arranged by the Employer. Tenderers must be provided at the Tender stage with details of the insurance to be arranged by the Employer,in order to assess what provision to make in their rates and prices for any additional insurance, and for the amount of policy deductibleswhichthey wifi berequired tobear. Such detailsshall form part ofthe ContractbetweentheEmployer and the Contractor. Examplewording to allow for the arrangement of insuranceby the Employer is as follows: EXAMPLE

Clause 21 Delete the text ofthe Clause and substitute thefollowingre-numberedSub-Clauses: Insurance ofWorks 21.1 Without limitinghisortheContractor'sobligationsand responsibilitiesunderClause20, theEmployerwill insure:

611 Appendix C (a) the Works, together with materials and Plant for incorporationtherein, to the full replacementcost (the term cost in this context shall include profit),and (b) anadditionalsumto coveranyadditionalcostsofandincidentaltotherectificationof loss or damageincludingprofessionalfeesandthe costofdemolishingand removing any part of the Works and of removing debris ofwhatsoever nature.

Insurance of Contractor's Equipment 21.2 The Contractorshall, without ifinitinghis obligationsand responsibifitiesunderClause 20, insure the Contractor's Equipment and other things brought onto the site by the Contractor,for a sum sufficientto provide for their replacementat the Site Scope of Cover 21.3 The insurance in Sub-Clause21.1 shall be in the joint names of the Contractorand the Employerand shallcover: (a) the Employerand the Contractoragainst loss ordamage as provided inthe detailsof insuranceannexedtotheseConditions,from thestartofwork attheSite until the date of issue of the relevant Taking-Over Certificate in respect of the Works or of any Section orpartthereof as the case maybe, and (b) the Contractorfor his liability: (i) during the Defects Liability Period for loss or damage arising from a cause occurringpriorto thecommencementof the DefectsLiabilityPeriod, or (II) occasionedby the Contractorinthecourse ofany operations carriedoutby him for the purpose ofcomplyingwith his obligationsunder Clauses49 and 50. Responsibility for Amounts notRecovered21.4 Any amounts not insured or not recovered from the insurers shall be borne by the Employeror the Contractorin accordancewiththeirresponsibilitiesunder Clause20. Clause 23 Delete the text of the Clause and substitute:

Third PartyInsurance (including Employer's Property)23.1 Withoutlimiting his or the Contractor'sobligationsandresponsibilitiesunderClause22, the Employerwifi insure in thejoint names ofthe ContractorandtheEmployer,against liabifitiesfor deathoforinjuryto any person(otherthanasprovidedinClause24) orloss ofordamage to anyproperty (otherthantheWorks)arisingoutoftheperformanceofthe Contract,is provided inthe details of insurancereferred to in Sub-Clause21.3. Clause 25 Deletethetext of the Clause and substitute: Evidence and Terms of Insurances 25.1 The insurance policiesto be arranged by the Employer pursuantto Clauses 21 and 23 shall be consistentwith the general terms described in the Tender and copies of such policiesshall whenrequired be supplied by the Employerto the Contractor. Adequacy of Insurances 25.2 The Employershall notifytheinsurers of changesinthenature, extent orprogramme for executionof the Works and ensure the adequacyofthe insurancesat all times in accordance withtheterms oftheContractand shall, whenrequired, produce,tothe Contractor

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the insurance policiesin force and the receiptsfor payment ofthe premiums. No variations shall made to the insurances by the Employerwithoutthe prior approval of the Contractor.

Remedy onEmployer's Failure to Insure25.3 IfandsofarastheEmployerfailstoeffectandkeepinforceanyofthe insurancesreferred toinSub-Clause25.1,thenthe Contractormayeffectandkeepinforceanysuch insurance andpayanypremium asmaybenecessaryfor that purposeand addtheamount sopaid to any monies dueorto becomedue totheContractor,or recoverthesame as a debtdue from the Employer. Compliance with Policy Conditions 25.4 Inthe eventthat the ContractorortheEmployerfails to complywithconditionsimposed bytheinsurancepolicieseffectedpursuanttotheContract,each shallindemnifytheother against all losses and claimsarising from such failure.

Clause 28 Sub-Clause28.2 — Royalties For a Contract comprising dredgingand reclamation work and for any other Contract involving the dumping ofmaterials the Sub-Clausemayrequire to be varied. EXAMPLE

Addsecond sentenceasfollows: The Contractorshallalsobe liable for all payments or compensation,if any, levied in relation to the dumpingofpartor all ofanysuchmaterials.

itissometimesthe caseondredging contractsfor theEmployertobearthecosts oftonnage and other royalties,rent and other payments or compensation.If such conditions are to apply, Sub-Clause28.2 should be varied either by adding wording or by deleting the existingwording and substituting newwording.

Clause31 Where theparticular requirementsofother contractorsareknown withinreasonablelimits atthetime of preparation oftheContract documents,details must be stated. The Specification is usually the appropriate place to do so but,exceptionally,some referencemaybe desirableinthe Conditions.inthat case,anadditional Sub-ClauseorSub-Clausescould be addedto this Clause.

Clause 34 It will generallybe necessaryto add a number of Sub-Clauses,to take account of the circumstancesand locality oftheWorks,coveringsuch matters as: permits andregistrationof expatriateemployees;repatriationtoplace ofrecruitment;provisionoftemporary housing

613 Appendix C for employees; requirements in respect of accommodationfor staff of Employer and Engineer;standards of accommodationtobeprovided; provision ofaccessroads, hospital, school,power, water, drainage,fireservices,refuse collection, communalbuildings,shops, telephones;hours and conditions of working; rates of pay;compliancewith labour legislation; maintenanceof records ofsafety andhealth. EXAMPLE SUB-CLAUSES (tobe numbered,as appropriate)

Rates ofWages andConditions ofLabour 34. The Contractor shall pay rates of wages and observe conditions of labour not less favourablethanthoseestablishedforthe tradeorindustry where theworkiscarried out. Inthe absenceofanyrates ofwages orconditionsoflabour soestablished,the Contractor shallpay rates ofwages andobserve conditions oflabour which are not less favourable than the general level of wages and conditions observed by other employers whose general circumstancesin the trade or industry in which the Contractoris engaged are similar. Employment of Persons in the Serviceof Others34. The Contractorshall not recruit or attempt to recruit his staffand labour from amongst persons in theservice of the Employerorthe Engineer. Repatriation of Labour 34. The Contractorshallbe responsiblefor the returnto theplacewhere theywere recruited orto their domicileofall such persons ashe recruited andemployed for the purposes of or in connectionwith the Contract and shall maintain such persons as are to be so returnedin suitable manner until theyshallhaveleft the Site or, in the case of persons who are not nationals of and havebeenrecruited outside (insert name ofcountry), shall

haveleft (insert name ofcountry).

Housingfor Labour 34. SaveinsofarastheContractotherwiseprovides,theContractorshallprovide andmaintain such accommodationand amenitiesas he may consider necessaryfor all his staff and labour, employed for the purposes of or in connectionwith the Contract,including all fencing,water supply(bothfordrinkingandotherpurposes),electricitysupply,sanitation, cookhouses, fire prevention and fire-fighting equipment, air conditioning, cookers, refrigerators,furniture andotherrequirementsinconnectionwithsuch accommodationor amenities.OncompletionoftheContract,unlessotherwiseagreed withthe Employer,the temporary camps/housing provided by the Contractorshallbe removed and the site reinstated to its original condition,allto theapproval of the Engineer. Accident Prevention Officer; Accidents 34. The Contractorshallhaveon his staff at the Site an officer dealing only with questions regarding the safetyand protection against accidentsofall staff andlabour. This officer shallbequalified for thiswork and shallhavethe authoritytoissueinstructionsandshall takeprotectivemeasures fo prevent accidents.

Healthand Safety 34. Due precautionsshallbetakenbytheContractor,and athisowncost, toensure the safety of his staff and labour and, in collaborationwith and to the requirements of the local health authorities,to ensure that medical staff, firstaid equipment and stores, sick bay

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and suitable ambulanceserviceare availableat the camps,housing and ontheSite at all times throughout theperiod ofthe Contractand that suitablearrangementsaremadefor theprevention of epidemicsand for all necessarywelfare and hygienerequirements. Measures against Insectand Pest Nuisance 34. TheContractorshallatalltimes take thenecessaryprecautiontoprotectallstaffandlabour employedonthe Sitefrom insectnuisance,ratsand other pests andreduce thedangers to health and thegeneral nuisanceoccasionedbythe same.The Contractorshallprovide his staffand labour withsuitableprophylacticsforthepreventionofmalariaand take stepsto preventtheformationofstagnantpools ofwater.Heshallcomplywithalltheregulationsof the local health authorities in these respects and shall in particular arrange to spray thoroughlywithapproved insecticideallbuildingserectedontheSite.Suchtreatmentshall becarriedoutatleastonceayearorasinstructedbytheEngineer.The Contractorshallwarn his staff and labour ofthe dangers of bilharzia and wild animals. Epidemics 34. Intheevent ofanyoutbreakofillness ofan epidemicnature, theContractorshallcomply with and carry out such regulations,orders and requirements as maybe madeby the Government,orthe local medical or sanitary authorities,forthepurposeofdealing with and overcomingthe same. Burial of the Dead34. The Contractorshall make all necessaryarrangementsfor the transport, to any placeas required for burial,ofany of his expatriate employeesor membersoftheir familieswho maydie in(insertnameofcountry).The Contractorshallalso beresponsible,tothe extent required by the localregulations,formaking any arrangementswith regardto burial of any ofhis local employeeswhomaydie while engaged uponthe Works. Supplyof Foodstuffs 34. The Contractorshall arrange for the provision of a sufficientsupply of suitable food at reasonableprices for all his staff, labour and Subcontractors,for the purposes of or in connectionwith the Contract.

Supplyof Water 34.

The Contractorshall, so far asis reasonablypractical,having regardto local conditions, provide ontheSite anadequate supply ofdrinking and other water fortheuse ofhisstaff and labour. Alcoholic Liquor or Drugs 34. The Contractorshallnot,otherwisethaninaccordancewiththe Statutes,Ordinances and GovernmentRegulationsorOrders forthetimebeing inforce,import, sell, give,barter or otherwise dispose of any alcoholicliquor or drugs, or permit or suffer any such importation, sale, gift,barter or disposalby his Subcontractors,agents, staff or labour. Arms and Ammunition 34. The Contractorshallnotgive,barter orotherwisedisposeofto any person orpersons,any arms or ammunition ofany kind or permit or suffer the same as aforesaid. Festivals and Religious Customs 34. The Contractor shall in all dealings with his staff and labour have due regard to all recognisedfestivals,days ofrest and religiousor other customs.

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DisorderlyConduct34. The Contractorshallat all times take allreasonableprecautionsto prevent any unlawful, riotousordisorderly conduct by or amongsthis staffandlabour andforthe preservation of peace and protection of persons and property in the neighbourhood of the Works against the same.

Clause 35 Additional Sub-Clauses maybe desirableto cover circumstanceswhich require the maintenance ofparticular records orthe provisionof certain specificreports. EXAMPLE SUB-CLAUSES (to be numbered,as appropriate)

Recordsof Safety and Health35. The Contractor shall maintain such records and make such reports concerning safety, health and welfareof persons and damageto property as the Engineermayfrom timeto time prescribe. Reporting of Accidents35. The Contractorshallreportto theEngineerdetailsofany accidentas soonaspossibleafter its occurrence.In the case of any fatality or serious accident, the Contractor shall, in addition, notify the Engineerimmediatelybythe quickestavailablemeans.

Clause 40 ForaContractcomprisingdredging and sometypesofreclamationworktheClause maybe varied.

Sub-Clause40.1 — Suspension ofWork EXAMPLE

Delete paragraph (c) and renumber paragraph (d) as (c).

-

Sub-Clause40.3 Suspension Lasting more than 84 Days EXAMPLE

In the firstsentence delete the words ',(c) or (d)'and substitute 'or (c)'.

Clause 43 Sub-Clause43.1 — Timefor Completion Where completionisstatedto bebya date andnotwithinaperiodof time, the Sub-Clause wifi require to be varied. EXAMPLE

Deletethewords, 'within the time... such extended time' and substitute'bythe date or

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dates stated inthe Appendix to Tender for the whole ofthe Works ortheSection(as the case maybe) or such later date or dates'.

Clause 45 ForaContractlocatedinanisolatedarea,where environmentalrestrictionsdonotapply, or where a Contract comprises work, such as dredging and reclamation,that may require continuousworking, the Clause maybe varied. EXAMPLE

DeleteSub-Clause45.1 and substitute:

WorkingHours45.1

Subject to any provision to the contrary containedin the Contract,the Contractorshall

havetheoption toworkcontinuouslybyday and bynight and onlocallyrecogniseddays of rest. The Contractor's option maybe further extended by substituting, in the place of the last three words: 'holidays or days ofrest.'

Clause47 Where it is desired to make provision for the payment of a bonus or bonuses for early completion,an additional Sub-Clausemaybe added. Inthecasewhereabonusis providedfor early completionofthe whole of the Works: EXAMPLE SUB-CLAUSE

Bonus for Completion 47.3 Ifthe ContractorachievescompletionoftheWorksprior to thetime prescribedby Clause 43, the Employershall pay tothe Contractorasumof (insertfigure)for every day which shallelapsebetweenthe date stated intheTaking-OverCertificateinrespect oftheWorks issued in accordancewith Clause48 and thetime prescribed in Clause43. or

Inthe case where bonuses are provided for early completionof SectionsoftheWorks and details, other than the dates, are given in the Specification: EXAMPLE SUB-CLAUSE

Bonus for Completion 47.3 Sectionsare required to be completedby the dates given in the Appendix to Tender in orderthat such Sectionsmaybe occupied and used by the Employerin advance of the completionof the whole ofthe Works. Detailsofthe work required tobeexecutedto entitlethe Contractorto bonuspayments and the amount of the bonuses are stated in the Specification. For the purposes of calcuiatirigbonus payments,the dates given in the Appendix to

617 Appendix C Tender for completion of Sectionsare fixed and, unless otherwise agreed, no other adjustmentsofthe dates by reasonofgranting an extensionoftimepursuantto Clause44 or any other Clause of these Conditionswill be allowed. Issue ofcertificates bytheEngineerthattheSectionswere satisfactoryandcompleteby thedates given onthecertificatesshall, subjectto Clause60, entitle the Contractorto the bonus payments calculatedinaccordancewith theSpecification.

Clause48 Where it can beforeseenthat, whenthe whole of the Works havebeensubstantiallycompleted, theContractormaybe prevented by reasons beyond his control from carrying out the Tests on Completion,anadditional Sub-Clausemaybe added. EXAMPLE SUB-CLAUSE

Prevention from Testing 48.5 IftheContractoris prevented fromcarrying out the Tests on Completionbya cause for which theEmployer or the Engineeror other contractorsemployedbytheEmployer are responsible,the Employer shall be deemed to have taken over the Works on the date whentheTestsonCompletionwould havebeencompletedbutforsuch prevention.The Engineer shall issue a Taking-Over Certificateaccordingly.Provided always that the Works shall not be deemed to have been taken over if they are not substantially in accordancewith the Contract. if the Worksare takenover underthis Sub-Clausethe Contractorshall nevertheless carry outthe TestsonCompletionduring the DefectsLiability Period. The Engineershall require the Teststo be carried outbygiving 14 days notice. Anyadditional costs to which the Contractormaybeput, in making the Tests on Completionduring the DefectsLiabilityPeriod, shallbe addedto the Contract Price.

Clause49 For a Contractwhich includes ahighproportion ofPlant, anadditionalSub-Clausemaybe necessary. EXAMPLE SUB-CLAUSE

Extension of Defects Liability 49.5 The provisions of this Clauseshall apply to all replacementsorrenewals ofPlant carried outby the Contractorto remedy defectsand damageas ifthereplacementsandrenewals hadbeentaken over onthe date theywere completed.The DefectsLiabilityPeriodforthe Works shall beextended byaperiod equal tothe period during which the Works cannot be used by reason ofa defector damage. if onlypart oftheWorks is affectedtheDefects Liability Period shall be extended only for that part. In neither case shall the Defects Liabffity Period be extended beyond 2yearsfrom the date oftaking over. Whenprogress in respect of Plant has been suspended under Clause 40, the Contractor's obligations under this Clause shall not apply to any defects occurring more

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thai-i 3 years after the Time for Completion established on the date Acceptance.

of the Letter of

For a Contractcomprisingdredging work anadditional Sub-Clausemaybe added EXAMPLE SUB-CLAUSE

No Remedying of Defects of DredgingWorkafter Completion 49.5 Notwithstanding Sub-Clause49.2,the Contractorshall have no responsibilityfor the remedyingof defects,shrinkagesor otherfaults in respect of dredging work after the date stated in the Taking-OverCertificate.

Clause 50 For aContract comprisingdredging workand where the secondExampleSub-Clause49.5 has beenadopted, an additionalSub-Clauseshouldbe added. EXAMPLE SUB-CLAUSE

No Responsibilityfor Cost of Searching of Dredging Work50.2 Notwithstanding Sub-Clause 50.1, the Contractorshallhave no responsibffitytobearthe costof searchingforany defect,shrhikageor other fault inrespect ofdredging workafter the datestated inthe Taking-OverCertificate.

Clause 51 Sub-Clause51.1 — Variations For a Contract comprisingdredging and some types of reclamationwork the Sub-Clause mayrequire to bevaried. EXAMPLE

Addfinal sentenceas follows: Provided also that the Contractorshall be underno obligationto execute any variation which cannot be executedbythe Contractor'sEquipmentbeing usedor tobe used onthe Works.

Clause 52 Where provisionis made inthe Contractfor payment in foreigncurrency,this Clause may bevaried.

Sub-Clause52.1 — Valuation ofVariations EXAMPLE

Addfinal sentenceas follows:

619 Appendix C The agreement,fixingor determination of any rates or prices as aforesaid shall include any foreigncurrency and the proportion thereof.

Sub-Clause52.2 — Power ofEngineerto Fix Rates Addto firstparagraph final sentence as follows: The agreementorfixingofanyrates orpricesas aforesaidshallinclude any foreigncurrency and theproportion thereof.

15per cent Sub-Clause52.3 — VariationExceeding Add final sentence as follows: The adjustment or fixing of any sum as aforesaid shall havedue regardto anyforeign currency included in theEffectiveContract Price and the proportion thereof. Where itis required to place some limitationontherange ofitems forwhich the rates and pricesmaybe subjectto review,the Clause maybe varied.

-

Sub-Clause52.2 PowerofEngineerto FixRates EXAMPLE

At the end of the firstparagraph add: Provided further that no change in the rate or price for any items contained in the Contractshall be consideredunless such items accountsforan amount morethan 2 per cent of the Contract Price, and the actual quantity of work executed under the item exceeds or falls shortofthe quantity setout in the Bill ofQuantitiesby more than 25 per cent.

Clause 54 Wherevesting ofContractor'sEquipment,TemporaryWorks and materialsintheEmployer is required, additionalSub-Clausesmaybe added. EXAMPLE WORDING AND SUB-CLAUSES Sub-Clauses 54.2 and 54.3 shall berenumbered as 54.3 and 54.4 and Sub-Clauses54.4 to 54.8 shall be renumbered as 54.6 to 54.10. Addadditional Sub-Clauses as follows:

Vesting54.2 All Contractor'sEquipment, TemporaryWorks and materials owned by the Contractor, or byanycompany inwhich the Contractorhas a controllinginterest,shall,whenonthe Site,be deemed to be the property ofthe Employer.Provided alwaysthat the vesting of such property in the Employershall not prejudicetherightof the Contractorto the sole use ofthe saidContractor'sEquipment,TemporaryWorks andmaterials for thepurpose oftheWorks nor shallit affectthe Contractor'sresponsibffity tooperate andmaintainthe same underthe provisions ofthe Contract.

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Revesting and Removal54.5 Upon the removal,withtheconsent ofthe EngineerunderSub-Clauses 54.1,ofany such Contractor's Equipment, TemporaryWorks or materials as havebeen deemed to have becometheproperty ofthe EmployerunderSub-Clause54.2,theproperty thereinshallbe deemed to revestin the Contractorand, uponcompletionof the Works,the property in the remainder of such Contractor's Equipment, Temporary Works and materials shall, subjectto Clause 63, be deemed to revestinthe Contractor.

Clause60 Additional Sub-Clausesmay be necessary to cover certain other matters relating to payments. Where payments areto bemadeinvarious currenciesinpredeterminedproportionsand calculatedat fixed rates of exchangethe following3 Sub-Clauses,which should be taken together,maybe added: EXAMPLE SUB-CLAUSES (to be numbered, as appropriate)

Currency of Accountand Rates ofExchange60. The currencyof account shallbe the (insert name ofcurrency) and for thepurposes of the Contractconversionbetween (insert name ofcurrency) and other currenciesstated in the Appendix toTender shall be made inaccordancewith theTableofExchangeRates inthe Appendix to Tender.Conversionbetween the currenciesstated insuchTableother than the(insert name ofcurrency) shall bemadeatratesof exchangedetermined by useofthe relativeratesofexchangebetween such currenciesandthe(insert name ofcurrency) set out therein. Payments to Contractor60. Allpayments to the Contractorby the Employer shallbe made:

in the case of payment(s) under Sub-Clause(s) 70.2 and (insert number of any other applicableClause),in (insert name ofcurrency/ies); (b) in the case of payments for certain provisional sum items excluded from the AppendixtoTender,inthecurrenciesand proportions applicabletotheseitems atthe time whenthe Engineergives instructionsforthework coveredby these items to be (a)

carried out; and (c) in any othercase, includingIncrease or Decreaseof Costs underSub-Clause70.1, in the currenciesandproportionsstated intheAppendix to Tenderasapplicableto such payment provided that the proportions of currencies stated in the Appendix to Tender mayfromtimetotimeupontheapplicationofeitherpartybevariedasmaybe

agreed. Paymentsto Employer 60.

All payments to the Employer by the Contractorincluding payments madeby way of deduction or set-offshall be made:

in the case of credit(s) under Sub-Clause(s) 70.2 and (insert number of any other applicableClause) in (insert name ofcurrency/ies); (b) in the case of liquidated damages underClause 47, in (insert name ofcurrency/ies); (a)

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621

inthecaseofreimbursementofanysumpreviouslyexpended bytheEmployer,inthe

currency inwhich thesum was expended by the Employer;and (d) in any other case, in such currencyas maybe agreed.

Ifthepartpayableinaparticularcurrencyof any sumpayabletotheContractoriswholly or partly insufficient to satisfy by way of deduction or set-off a payment due to the Employerinthat currency,inaccordancewiththe provisionsofthisSub-Clause,thenthe Employermayifheso desiresmakesuch deduction or set-offwhollyorpartlyas thecase maybe from the balance of such sumpayable in other currencies. Where allpayments aretobemadeinone currencythefollowingSub-Clausemaybeadded: EXAMPLE SUB-CLAUSE (to be numbered, as appropriate)

Currency of AccountandPayments 60. The currency of account shall be the (insert name ofcurrency) and all payments made in accordancewith the Contract shall be in (insert name of currency). Such (insert name of currency), other than for local costs, shall be fully convertible.The percentage of such payments attributed to local costs shall be as statedintheAppendix to Tender. Where place of payment is to be defined thefollowingSub-Clausemaybe added: EXAMPLE SUB-CLAUSE (to be numbered,as appropriate)

Place ofPayment 60. Payments to the Contractorby the Employer shallbe madeinto a bank accountnominatedby the Contractorinthecountry ofthecurrency ofpayment. Wherepaymentis to be made in more that one currency separate bank accounts shall be nominated by the Contractorinthe country ofeach currencyandpayments shallbe made bythe Employer accordingly.

Where provisionis to be included forthe advancepayment thefollowingSub-Clausemay

be added:

EXAMPLE SUB-CLAUSE (to be numbered,as appropriate)

Advance Payment 60. An advancepayment of theamount stated intheAppendix toTender shall,followingthe presentationby the Contractorto theEmployer of anapproved performancesecurity in accordancewithSub-Clause10.1and aGuaranteeinterms approved bytheEmployerfor the full valueof the advance payment, be certifiedby the engineer for paymentto the Contractor.Such Guarantee shallbeprogressivelyreducedby the amount repaidby the Contractoras indicated inInterim Payment Certificates of theEngineer issued in accordance with this Clause. The advance payment shall not be subject to retention. The advance payment shallbe repaidby way of reduction in Interim Payment Certificates commencingwith the next certificate issued after the total certifiedvalue of thePermanent Works and any other items in the Bifi of Quantities (excludingthe deduction of retention)exceeds(insertfigure) percent ofthesumstated intheLetterofAcceptance.The amount ofthereductionineach InterimPaymentCertificateshallbeone (insertfraction) of the difference between thetotalvalueofthePermanentWorks andany other items inthe Bifi of Quantities (excludingthe deduction of retention) due for certificationin such Interim Payment Certificateand the said value in the last preceding Interim Payment

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Certificateuntilthe advancepayment hasbeenrepaidinfull. Provided thatuponissue of a Taking-OverCertificateforthewhole ofthe Worksoruponthehappening ofanyofthe eventsspecifiedinSub-Clause63.1orterminationunderClauses65,66 or69,thewhole of thebalance then outstanding shall immediately become due and payable by the Contractor to theEmployer.

Clause 67 Where itis considered desirableto add to Sub-Clauses 67.3 provisions withrespect to the number ofarbitrators,theplace ofarbitration and thelanguage ofarbitration,thefollowing paragraphs maybe addedto Sub-Clause67.3: EXAMPLE

The arbitraltribunal shall consistof... (a sole or three) arbitrator(s). The placeof arbitration shallbe ... (city and country). The languageofthe arbitration shall be... It is desirable that the place of arbitrationbe situated in a state, other than that of the Employer ortheContractor,which has a modem and liberal arbitrationlawandwhich has ratified abilateralormultilateralconvention(such asthe1958 NewYorkConventiononthe RecognitionandEnforcementofForeignArbitral Awards),orboth, that would facilitatethe enforcementof anarbitral awardinthe states of the parties to the Contract. Intheabsenceof stipulationsas to thethree abovementioned matters (number of arbitrators,placeof arbitrationand languageofarbitration),the ICCwifidecide onthenumber of arbitrators (typicallythree in any substantialconstructiondispute) and on the place of arbitration.The arbitraltribunal willdecide onthelanguage ofthearbitration iftheparties cannot agree. Itmayalsobe considereddesirable in some casesfor other parties to bejoined into any arbitration between the Employerand the Contractor,thereby creating a multi-partyarbitration. While this maybe feasible, multi-party arbitration clauses require skilful draftmanship on case-by-case basis. No satisfactorystandard form of multi-party arbitration clause for internationaluse has yetbeendeveloped. Where it is decided that a settlementof dispute procedure, other thanthat of the international Chamber of Commerce(ICC), should be used the Clause maybe varied.

a

Sub-Clause67.3 — Arbitration EXAMPLE

Following paragraph (b), delete the words 'shall be finally settled ... International Chamber of Commerce' and substitute 'shall be finally settled under the UNCITRAL ArbitrationRulesas administered by (insert name ofathninistering authority)'. Where alternatives to the ICC are considered care shouldbe taken to establishthat the favoured alternative is appropriate for the circumstancesof the Contract and that the wording ofClause67 is checkedandamended asmaybenecessaryto avoid any ambiguity withthe alternative.Careshouldbe taken todefine exactlyhowthearbitraltribunal istobe appointed and, where appropriate, an appointing authority should be designated.

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Clause 68 Sub-Clause68.2 — Noticeto Employer and Engineer Forthe purposes of this Sub-Clausethe respectiveaddresses are: (a) The Employer (insert address) (b) The Engineer(insert address)

The addresses should be inserted whenthedocuments arebeing prepared priorto inviting tenders.

Clause 69 Sub-Clause69.1 — DefaultofEmployer Where the Employer is a government it maybe considered appropriate to vary the SubClause. EXAMPLE

Deleteparagraph (c) and renumber paragraph (d) as (c). Where the terms oftheSub-Clause,whenreadin conjunctionwith Sub-Clause69.3, arein conflictwith the law of the country the Sub-Clause mayrequire tobe varied. EXAMPLE

Delete 'or' at theend of paragraph (c) arid delete paragraph (d).

Clause70 Three alternative methods of dealing with price adjustment are given below. The first alternativeis suitablewhere acontractis ofshortduration andno price adjustmentis tobe made:

Sub-Clause70.1 — Increase or Decreasein Cost EXAMPLE

Deletethe text ofthe Sub-Clauseandsubstitute Subject to Sub-Clause70.2, the Contract Price shall not be subjectto any adjustment in

respectofriseorfallinthe cost oflabour,materialsoranyother matters affectingthecost ofexecutionof the Contract.

Sub-Clause70.2 — Subsequent Legislation EXAMPLE

Delete thewords',otherthanunderSub-Clause70.1,'. The second alternativeis suitablewhere price adjustmentis tobe made byestablishingthe

624

The FIDIC Form of Contract differencein costbetweenthebasic price andthe current price oflocallabour andspecified materials:

Sub-Clause701-IncreaseorDecreasein Cost EXAMPLE

Deletethe text of the Sub-Clauseand substitute Adjustmentstothe ContractPriceshallbemade inrespectofrise orfallinthecostoflocal labour and specifiedmaterials as set out in this Sub-Clause. (a) LocalWorkmen (i)

Forthepurposeof this Sub-Clause:

'Local Workmen' means skilled, semi-skifiedand unskilled workmen of all tradesengagedbythe Contractoronthe Site for thepurposeoforinconnection with the Contract or engaged full time by the Contractor off the Site for the purposeof or in connectionwith the contract (by way of ifiustration but not limitation:workmenengaged full timein any office, store, workshop or quarry); 'BasicRate' means theapplicablebasic minimum wage rate prevailingonthe date 28 days prior tothe latestdate for submissionof tenders by reason of any National or StateStatute, Ordinance,Decreeor other Law or any regulations or bye-law of any local or other duly constitutedauthority, or in orderto conform withpractice amongstgoodemployersgenerallyinthearea where theWorksare to becarried out; and 'Current Rate' means the applicable basic minimum wage rate for Local Workmen prevailing on any date subsequent to the date 28 days prior to the latest date setfor submissionof tenders by reason of any National or State Statute,Ordinance,Decreeorother Law oranyregulationorbye-lawofany localor other duly constitutedauthority, or in orderto conformwith practice amongst good employers generallyin the areawhere theworks are to be carried out. (ii) The adjustmenttothe Contractpriceundertheterms ofthisSub-Clauseshallbe calculatedby multiplyingthe differencebetween the Basic andCurrent Ratesfor LocalWorkmenby:

the number of allhours actually worked, and (b) in respect of thosehours worked at overtime rates, by the product of the number of said hours andthepercentageaddition required bythe law tobe paidbythe Contractorfor overtime. Suchadjustmentmaybeeitheran addition to or a deduction from the Contract (a)

Price. (iii)

No other adjustment of the Contract price on account of fluctuation in the remunerationofLocalWorkmenshall be made.

(b) Specified Materials (i)

For the purposeofthisSub-Clause: 'SpecifiedMaterials'means thematerialsstated inAppendix (insertreference) to Tender required on the Site for the Executionand completionofthe Works;

625 Appendix C 'BasicPrices'means thecurrent pricesforthespecifiedmaterialsprevailingon the date 28 days prior to the latestdate for submissionoftenders; and 'CurrentPrices' means the current pricesfor the specifiedmaterialsprevailing atany datesubsequent tothe date28 days priortothelatestdateforsubmission of tenders. (ii) The adjustmentto the ContractPrice undertheterms of this Sub-Clauseshall be calculatedbyapplyingthedifferencebetweenthe Basic and Current Pricestothe quantity of the appropriate Specified Material which is delivered to the Site during the period for which the particular Current Price is effective. Such adjustmentmaybe either an addition to or a deduction from the ContractPrice. (iii) The Contractorshall use due diligenceto ensure that excessive wastage of the SpecifiedMaterialsshall not occur. AnySpecifiedMaterialsremoved from the Site shallbeclearlyidentifiedinthe recordsrequired underparagraph (d) ofthis Sub-Clause.

(iv) The provisions of this Sub-Clause shall apply to fuels used in Contractor's Equipment engaged on the Site for the purposes of executing the Works, includingvehicles owned by the Contractor(or hired by him underlong term arrangementsunderwhich theContractorisobligatedtosupplyfuel)engagedin transporting any staff, labour,Contractor'sEquipment,TemporaryWorks,Plant or materials to and from the Site. Such fuels shall be clearly identified in the records required underparagraph (d) ofthis Sub-Clause.The provisions of this Sub-Clauseshall notapply to any fuels soldor supplied to any employeeofthe Contractoror to any person for use inanymotorvehiclenot being usedfor the purposes of the Contract. (v) The Contractor shall at all times have regard to suitable markets and shall, wheneverbuyingmaterials avariationinthecostofwhich would giverise to an adjustment of the Contract Price under this Sub-Clause,be diligent to buy or procure the same at the most economical prices as are consistentwith the due performanceby the Contractorof his obligationsunderthe Contract. Ifatanytimethereshallhavebeenany lackof diligence,defaultor negligence on the part of the Contractor,whether in observing the above requirements or otherwise,then,for thepurposes ofadjustingthe ContractPrice pursuanthereto, no account shall be takenof any increasein cost which maybe attributable to such lack of diligence,default ornegligenceand the amount by which any cost would have been decreased butfor such lack of diligence,default or negligence shall be deducted from the Contract Price. (vi) No other adjustmenttotheContractPrice on accountoffluctuationinthe costof materials shall be made. Overheads and ProfitsExcluded (c) In determining the amount of anyadjustment to the ContractPrice pursuantto this Sub-Clause no accountshall betakenof any overheads orprofits. (d) Notices and Records The Contractorshall forthwith,upon the happening of any event which mayormay be likelyto giverise to adjustmentof the ContractPrice pursuanttothis Sub-Clause, givenotice thereoftotheEngineerandtheContractorshallkeepsuch books,accounts

626

The FIDIC Form ofContract arid other documents and records as are necessary to enable adjustmentunder this Sub-Clauseto bemadeand shall, at therequest oftheEngineer,furnish anyinvoices, accounts, documentsor records so keptand such otherinformation as the Engineer mayrequire. (e) Adjustment after Date of Completion AdjustmenttotheContractPrice,aftertheduedateforcompletionofthewhole ofthe WorkspursuanttoClause43,orafterthedateofcompletionofthewhole oftheWorks certified pursuantto Clause 48, shall be made in accordancewith Current Rates or Current Prices,as applicable,rulingatthe duedatefor completionor the datestated in theTaking-OverCertificate, whicheveris the earlier. (f) DeterminationofAdjustment to Contract Price

The amount of any adjustmentto theContractPrice pursuanttothisSub-Clauseshall be determinedby the Engineerinaccordancewith the foregoingrules. EXAMPLE APPENDIX TO TENDER

For use in conjunctionwith the second alternative. SPECIFIED MATERIALS

Material

Utht

Price and location

Transport tosite

Price

Remarks

delivered to site

Bitumen Diesel Petrol Lubricants Cement Reinforcing steel Explosives

Notes:

1. The Contractorshall provide copies ofquotationsto substantiateall pricesincluded in

theabove table.

2. All subsequent pricesubstantiation shall be from the same source as original unless otherwiseagreed by theEngineer. 3. The Contractorshallsubmit full explanationand provide substantiating documentationfor the mode of transport to Site he proposes.Onlytheproposed documentedmode of transport shall qualify forpriceadjustment. (Note: Materialsstated inthe Appendix to Tender should be those of which substantial quantities are involved.)

Appendix C

627

The third alternative is suitablewhereprice adjustment is to be madethrough the application ofindices ina formula:

Sub Clause 70.1 — Increase or Decreasein Cost EXAMPLE

Deletethetext of the Sub-Clauseand substitute (a) Adjustments to the ContractPrice in respect of rise andfall in the cost oflabour and materials and other matters affectingthe cost of executionof the Works shall be calculatedfor each monthly statement pursuantto Sub-Clause60.1, the Statementat Completionpursuantto Sub-Clause60.5 and the Final Statementpursuantto SubClause60.6 in accordancewith the provisionsofthis Sub-Clauseif thereshall be any changesinthe followingIndex figures compliedby (insert details ofsource ofindices) and published by (insert details ofpublication):

the Index of the cost of Labour in (insert name ofcounfry), (ii) the Index of cost of (insert otherfactor, asrelevant), or (iii) The Index of the cost of (insert otherfactor, as relevant). (i)

(b) For the purpose of this Sub-Clause:

'Base Index Figure' shall mean the index figureapplicableon the date 28 days prior to the latestdate forsubmissionof tenders, and (ii) 'Current Index Figure' shallmean the index figure apilicableon the last day of the period to which the particular statement relates. Provided that in respect of any work the value of which is included in any such monthly statement (or StatementatCompletionor Final Statement)and which was executed after the due date (or extended date) for completionof the whole of theWorks, pursuant toClause43,theCurrrentIndexFigureshallbetheindexfigureapplicableonthe aforesaid due date (or extendeddate) forcompletionofthewhole ofthe Works. Effective Value' shall be the difference between: (i)

(a) The amount which is due to the Contractorunder the provisions of SubClauses60.2, 60.5 or 60.8 (before deducting retention and excludingrepaymentoftheadvance payment)less any amounts for: — workexecuted undernominated Subcontracts — materials and Plant on the Site,as referred to in Sub-Clause60.1 (c) — dayworks, variations or any other items based on actual cost or current prices, and bonuses (if any) — adjustmentsunderClause 70, and (b) The amount calculated in accordancewith (b) (iii) (a) of this Sub-Clause and included inthe lastpreceding statement. (c) The adjustmentto the Contract Price shall be calculatedby multiplying the Effective Value by aPrice Fluctuation Factor which shall be the net sumof the products obtained by multiplying each of the proportions given in paragraph (d) ofthis Sub-Clauseby the followingfraction:

The FIDIC Form ofContract

628

Current IndexFigure - Base IndexFigure Base Index Figure calculatedusing therelevant index figures. (d) Forthepurposeof calculatingthe Price FluctuationFactor,the proportions referred toinparagraph (c)ofthis Sub-Clause shall(irrespectiveofthe actual constituentsof the work) be as follows: ü. in respect of labour (and supervision) costs subject to adjustment by referenceto the Index referred to in (a) (i) of this Sub-Clause; 0. in respect of by reference to the Index referred to in (a) (ii) of this SubClause;

0. in respect ofby reference to the Index referred to in (a) (iii) of this SubClause;

0. in respect of all other costs which shallnotbe subjectto any adjustment; 1.00 Total (e) Where the value ofanindex isnotknown atthetimeofcalculation,thelatest

availablevalue shallbeusedand any adjustmentnecessaryshallbe made in subsequent monthly statements.

(Note: The number of indices included under (a) of this Sub-Clausemaybe varied, ifit is

determinedthat a different number offactors should be separatelyidentified,and in such case (d) of this Sub-Clausemust be altered tobe consistent.)

Clause 72 Sub-Clause72.2 — Currency Proportions Whereitisdecidedthat therateorrates ofexchangeshallbeestablishedfrom a sourceother thanthe Central Bank of the country, the Sub-clause maybe varied. EXAMPLE

Deletethewordsfrom 'prevailing...'to the end ofthe sentenceand substitute 'stated in the Appendix to Tender'.

Clause 73 onwards Where circumstancesrequire, additional clausesmaybe added. EXAMPLE CLAUSES (to be numbered,startingwith Clause 73, as rppropriate).

Where thelaw applicableto the Contractdoes not coverbribery, the followingexample Clausemaybe added. Bribes .1 Ifthe Contractororany ofhisSubcontractors,agents orservantsofferstogiveor agreesto offer or give to anyperson, any bribe, gift, gratuity or commissionas aninducement or rewardfor doing orforbearing to do any action in relation to the Contractor any other

629 Appendix C contract withtheEmployer or for showing or forbearing to showfavour or disfavourto any personinrelation to the Contractor any other contractwith the Employer,thenthe Employer mayenter upontheSite and theWorks and terminate the employmentofthe Contractorand the provisions of Clause 63 hereof shall apply as ii? such entry and termination hadbeenmade pursuantto that Clause.

Where circumstances require that particular confidentiality is observed, the following exampleClause maybe added. Detailsto be Confidential .1 The Contractorshalltreat the details of the Contract as privateand confidential,save insofarasmaybenecessaryfor thepurposes thereof,andshallnotpublish ordisclosethe same oranyparticulars thereof in any tradeor technicalpaper or elsewherewithoutthe previous consentinwriting oftheEmployerortheEngineer.Ifany dispute arisesastothe necessityofanypublicationordisclosurefor thepurpose oftheContractthesame shallbe referred to the Employerwhose determinationshall be final. Where the Contract is being financed wholly or in part by an internationalfinancialinstitutionwhose rules or policies require a restriction on the use of the funds provided, the followingexampleClause maybe added. ExpenditureRestricted .1 The Contractorshall not make any expenditures for the purpose of the Contractinthe territoriesofany countrywhich isnotamemberof (insertname ofinternationalfinancial institution)nor shallhe make any expenditureforgoodsproduced inorservicessupplied fromsuchterritories. Where the Contractormaybe ajoint venture, thefollowingexampleClausemaybeadded.

Joint and Several Liability .1 Ifthe Contractoris ajoint venture oftwoormore persons,allsuchpersons shallbejointly and severallybound to theEmployerfor the fulfilmentof theterms of the Contract and shall designate one of such persons to act as leader with authority to bind the joint venture. The composition or the constitution of the joint venture shall not be altered withoutthe prior consent of the Employer.

Part II- Conditions of Particular Application Index

Clause

Accessto Data AccidentPrevention Officer Accidents,Reportingof Additional Clauses Alcoholic Liquor Arbitration Arms and Ammunition

11.2 34. 35. 73. 34. 67. 34.

Bonus for Completion

47.3

The FIDIC Form ofContract

630

Boreholes and ExploratoryExcavation

Burial of the Dead

CashFlow Estimateto beSubmitted Changes in Cost and Legislation Conditionsof Labour and Rates of Wages Contract Agreement Contractor'sEquipment,Insuranceof Contractor'sRepresentative,LanguageAbility of Currencyof AccountandRates of Exchange CurrencyProportions Data, Accessto Default of Employer DisorderlyConduct Documents,Order of Precedence Drugs Employer,Name and Address Employmentof Local Personnel Employmentof Personsin Service ofOthers Engineer,Name and Address Engineer'sDuties Enviromnent,Protectionof Epidemics

ExploratoryExcavationand Boreholes Extensionof DefectsLiability Facffities for Other Contractors

18.1 34. 14.3 70. 34. 9.1 21.1 15.2 60. 72.2 11.2 69.1 34.

5.2 34. 1.1

16.4 34. 1.1

2.1 19.1 34. 18.1 49.5

Festivalsand Religious Customs Foodstuffs,Supply of

31.2 34. 34.

Health and Safety of Staffand Labour Housing for Labour

34. 34.

Inspection ofSite Insuranceof the Works and Contractor's Equipment InsurancesArrangedbythe Employer

11.1 21.1 21.

23 & 25 Interpreter to be madeAvailable

15.2

Labour, Conditionsofand Rates of Wages Labour, Health and Safety Labour, Housing for Labour, Rates ofWages and Conditions Labour, Repatriationof Labour, SpecialProvisionfor Language,Abilityof Contractor's Representative Language,Abilityof SuperintendingStaff Language,Ruling

34. 34. 34.

34. 34. 34. 15.2 16.3 5.1

Appendix C

631 5.1

Language/s Law Applicable LocalPersonnel,Employmentof

5.1 16.4

MeasuresAgainst Insectand Pest Nuisance

34.

No RemedyingofDefectsinDredging Workafter Completion NoResponsibilityfor Cost ofSearchingofDredging Work NotForeseeablePhysicalObstructionsor Conditions Notice to Employerarid Engineer

49.5 50.2 12.2 68.2

Other Contractors,Facffities for Other Contractors,Opportunities for

31.2 31.1

Payments to Contractor Payments to Employer Performance,Example ofSecurityBond for PerformanceGuarantee, Example PerformanceSecurity PerformanceSecurity,Sourceof Physical Conditionsor Obstructions,Not Foreseeable Place of Payment Power ofEngineerto Fix Rates Prevention from Testing Programmeto be Submitted ProtectionoftheEnvironment

60.

Ratesof Exchange RatesofWages and ConditionsofLabour RecordsofSafety and Health Religious Customs andFestivals RepatriationofLabour Reporting ofAccidents Revestingand RemovalofContractor's Equipment,Temporary Works

and Materials Royalties Safety, Securityand Protectionof the Environment Security,Safety and Protectionof the Environment Site, Inspectionof Source of PerformanceSecurity Staff,Health and Safety of Submissionof CashFlow Estimate Submission of Programme SuperintendingStaff,LanguageAbffityof Supply of Foodstuffs Supply of Water Surety Bond for Performance,Example of Suspension Work

60. 10.1 10.1 10.1 10.4 12.2 60.0 52.2 48.5 14.1 19.1 60. 34. 35. 34. 34.

35. 54.5 28.2 19.1 19.1 11.1 10.4 34. 14.3 14.1 16.3 34.

34. 10.1 40.1

The FIDIC Form ofContract

632

Testing, Preventionfrom Time for Completion

48.5 43.1

Valuation ofVariations Variations VariationsExceeding15 per cent VestingofContractor's Equipment,TemporaryWorks and Materials Water, Supply of Working Hours Works, Insuranceof

52.1 51.1 52.3 54.2 34. 45.1 21.1

Editorial Amendments In 1988 to Part II— Conditions of Particular Application Followingpublicationin1987oftheFourthEditionoftheConditionsofContractfor Works of Civil EngineeringConstruction, a number of editorial amendments were agreed by FIDIC. The amendments have beenincorporated during reprinting in 1988 and the list below clarifiesthe differencesbetween the 1988reprintandthe original document. Page 5

Clause 9. The words'as stated inSub-Clause9.1 ofPart1 ofthese Conditions' havebeen addedto the final line of the firstparagraph.

Page 6

Sub-Clause12.2. A comma has beenmoved from after the word 'words' to immediatelybefore the word'other'.The word 'Site' has been capitalised.

Page 7

Exampleperformance guarantee.Acomma previouslyappeared between the words 'and' and 'complete' in the third line of the paragraph beginning 'Whereas'. The fifthline of theparagraphbeginning 'Now the Condition...'previously read'...defaultbytheContract...'

Page 12

Sub-Clause21.3. (b) (ii). Afull stop has beeninserted following'50'.

Page 13

Sub-Clause 34. Repatriationof Labour. A comma has beeninserted between thewords 'country)' and 'shall'. Sub-Clause34. Epidemics. The word 'Contractor' has beencapitalisedin the

Page 14

firstline. Sub-Clause34. Alcoholic Liquor or Drugs. The word 'Contractor' has been capitalisedinthe firstline. Page 15

Sub-Clause40.3. This waspreviously incorrectlylisted as 40.2.

Page 17

Sub-Clause49.5. The lastline ofthe firstparagraph previouslyread'..,extend beyond 730 days'.

Page 20

Sub-Clause 67.3.The word 'a' previously appeared before thebracket on the

penultimate line oftheExample.

Page 21

633 Appendix C Sub-Clause70.2. A comma has been moved from after the word 'words' to immediatelybefore the word 'other'.

Further Amendments in 1992 to Part II- Conditions of Particular Application The followingamendments havebeen madeto the 1988 reprint of the Fourth Edition. In addition, some minorchangesinthe use ofpunctuation (commas,semicolons,colonsand stops), as wellas the use of the words'or' and 'and' have beenintroduced to attain uniformityinthestyleofallClauses.Theseminorchangeswhich improve thestyle, butwhich haveno effecton the meaning ofClause,havenotbeenlistedbelow. Contents

Thewords'Index' and'EditorialAmendments'havebeenaddedatthebottom ofthepage.

Page 1

INTRODUCTION. The words', subject to minor modifications'have been

added, and the word 'equally' changed to read 'also'. Page 3 Page 4

Sub-Clause1.1. In the last sentence,the words'for examplethe nameof an InternationalFinancingInstitution (IFI)' havebeendeleted. Clause9. In the firstparagraph thewords'of PartI' havebeenadded. In the secondparagraph '1' has beencorrectedtoread 'I'

Page 5

Clause12. Sub-Clause12.2.Inthetitle theword'Adverse' has beenchangedto read'Not Foreseeable'(also amended in the Contents and the Index).

Page 10

Sub-Clause21.1, sub-para (a). The words '(the term "cost" inthis contextshall include profit)' havebeenadded.

Page 13

ExampleSub-ClauseforSupply ofFoodstuffs.The words 'staff and labour, or his Subcontractors' have been changed to read 'staff, labour and Subcontractors'.

Page 19

Example Sub-Clause for Advance Payment. The words 'interim certificate'have beenchanged to read'Interim Payment Certificate',in both the singular andplural. Clause 67. The firstfourparagraphs ofthe commentaryhavebeen added.

Page 24

Sub-Clause70.1. Inthe formula,the word 'Based' has beencorrected to read 'Base'.

Page 25

Example Clause for Bribes.The word 'Sub-contractors'has beencorrectedto read'Subcontractors'. ExampleClauseforDetailsto be Confidential.Inthe sixth line, thewords 'the decisionof' havebeendeleted.Inthe seventh line, theword 'award'hasbeen changed to read'determination'. Example Clausefor ExpenditureRestricted.In the commentaryand text, the leading capital letters of the words 'InternationalFinancingInstitutions'have

634

The FIDIC Form ofContract beenchangedto small letters.Inthe commentary,theword 'Articles' hasbeen

changed to read 'rules or policies'. In the third line, the word 'not' has been correctedto read'nor'. EditorialAmendments (1988). In the last item, thewords'Line21' havebeen correctedto read'Page 21'.

Table of Cases

Note: The followingabbreviationsof reports are used.

-

AC Law ReportsAppealCasesSeries All ER All England Law Reports BLR BuildingLaw Reports CILL Construction Industry Law Letter CLD Construction Law Digest ConLR- ConstructionLawReports EG — Estates Gazette ER English Reports Ex. Law ReportsExchequer Series Ill. App. AppellantCourtof the Stateofillinois LawReports JR IrishReports KB Law ReportsKing'sBench Series Lloyd's Rep. Lloyd'sList LawReports LT LawTimesReports NBR New BrunswickReports NYS- New York StateCourtReports NZLR NewZealandLawReports QB — Law ReportsQueen'sBenchSeries QWN - QueenslandLaw Reportsand WeeklyNotes SALR South African Law Reports WLR Weekly Law Reports

-

AMP (International)Ltd v. Magnet BowlingLtd [1968]1 WLR1028 Axnin RasheedShipping Corporationv. Kuwait InsuranceCompany [19831 3WLR241 AnnsandOthers v. London BoroughofMerton [1997] 2AllER 492 Appleby v. Myers (1867,unreported) Applegatev. Moss [1971] 1 QB 406 Arerisonv. Casson,Beckman,Rutley & Co. [19771 AC 405 Aros Industries v. Electricil.yCommissionofNewSouth Wales (1973) 2NSWLR186

213

Bagotv. StevensScanlan &Co. [1964]3 WLR1162; [1964]3 All ER577 Bolamv. Friern HospitalManagementCommittee[1957] 2 AllER 118 BankMellat v. GAA Development[19881 2 Lloyd's Rep. 44

190 193 412

635

48 203 67 56 198 88

The FIDIC Form ofContract

636

Barclays Bank plc v. FaircioughBuildingLtd [1993] CILL 848 Boormanv. Brown (1844) 8ER 1003 Brickfield Properties v. Newton [1971] 1WLR873

.

BritishAirwaysPension Trusteesv. Sir RobertMcAlpine& Sons Ltd and Others [1994] 72 BLR 26

192

190 194 343

Cervidone ConstructionCorp. v. U.S., 931 F 2d 860 (Fed. Cir. 1991) Charon (Finchley) Ltd v. SingerSewingMachinesLtd (1968) 207 EG 140 Clayton v. Woodman &Sons (Builders) Ltd [1962] 1 WLR585 Conwayv. Rimmer [1968]AC910;1 All ER 874 CottageClub EstatesCo. (Amersham)[1928]2 KB 463 CrosbyJ. and Sons Ltd v. Portland UrbanDistrictCouncil (1967) 5BLR 121

341

D. & F. Estates Ltdv. Church Commissionersfor England [1989] AC 177 Demersv. Dufresne EngineeringCo.Ltdet al (1979) 1 SCR146 (SupremeCourt of Canada) Donoghue v. Stevenson[1932] AC 562 Dunlop PneumaticTyre Co. Ltd v. NewGarage and Motor Co. Ltd (1915) AC 79 Dutton v. BognorRegisUrbanDistrict Council [1972] 1 QB373

198

67 181 39 238 341

202 198

... 361

EagleStar Insurance Co. Ltd v. Yuval InsuranceCo. Ltd [1978] 1 Lloyd's Rep. 357 Earl of Oxford's Case (1615) EastHam Corporationv. Bernard Sunley& Sons Ltd [1966] AC 406 Edward Owen Ltdv. BarclaysBank [1978] 1 QB 159 Ernst &Whinney v. WifiardEngineering(Dagenham)Ltd and Others (1988)

203

.. 380

40BLR 67

37 181 282

Esso PetroleumCo. Ltd v. Mardon [1976]QB 801; [1976] 2 All ER 5

191 190

Finlay v. Murtagh [1970]IR 249 Francis v. Cockerell (1870)5 QB 501

190 230

GableHouse Estates v. The HalpemPartnership and BovisConstructionLtd (1995) 12-CLD-03-01

GlenlionConstructionLtd v. The Guinness Trust[1978]CILL360 Greater NottinghamCo-operativeSociety v. CementationPiling & Foundations Ltd and Others (1988)2 All ER971 Grinàker Constructionv. TransvaalProvincialAdniinistration [1982]1 SALR 78 GMTCToolsand EquipmentLtd v. Yuasa WarwickMachineryLtd [1994] 73 BLR 102

....

192 356 191 88

344

64, 65,300 Hadley v. Baxendale[1854]9 Ex. 341 Hardbottle R.D. (Mercantile) Ltd v. National WestminsterBankLtd (1978)QB 146; 276 [1977] 2AllER 862 v. Darwins Ltd AC 356 378 Heyman [1942] Hill OrganisationsLtd v. BernardSunley &Son Ltd (1982)22BLR 1 191 H. Parsons (Livestock) Ltd v. Uttley Ingham & Co. Ltd [1978]QB 791 66 Holt andAno. v. Payne ShillingtonandAno. (1995) 13-CLD-06-01 192

TableofCases

637

Lancashireand Cheshire Associationof BaptistChurchesIncorporatedv. Howard and Seddon Partnership [19931 3 AllER 467 192 200 361 Law v. RedditchLocalBoard [1892] 1 QB 127 Leachv. LondonBoroughofMerton (1985)32 BLR 68 342 London Export CorporationLtd v. Jubilee Coffee Roasting Co. [195811 WLR661 59

....

342 McAlpineHumberoakLtd v. McDermottInternationalInc. (1992) 58 BLR 1 Manufacturer'sMutual Insurancev. The QueenslandGovernmentRailway and 249 Another (1968) QWN 12 v. Adi Ltd 33 NBR 2d 271 194 & Budovitch Ltd Medjuck (1980) 378 MercersCo. v. New Hampshire InsuranceLtd [19921 2 Lloyd's Rep. 365 Methodist Church of Babylonv. Glen-Rick ConstructionCorp. 27 NY 2d 357, 385 318NYS2d297 190 Midland BankTrustCo. Ltd v.HettStubbs &Kemp [197813 WLR167 Mitsui ConstructionCo. Ltd v. The Attorney General ofHong Kong (1986) 33 BLR 1 88, 314 MonmouthshireCounty Councilv. Costello and Kemple Ltd (1965)5 BLR 83 70, 384 Moresk CleanersLtdv. Hicks (1966)2 Lloyd's Rep. 338 194 198, 203 Murphy v. BrentwoodDistrictCouncil (1990)8-CLD-10-05 230 Myers G.H. & Co.v. BrentCross ServiceCo. [1934] 1 KB 46 Nocton v. Lord Ashburton [19141 AC 932 190 Northern RegionalHealth Authorityv. Derek Crouch ConstructionCo. Ltd [1984] 1 QB 644; (1984) 26 BLR 15 376, 391

...

Oldschooland Anotherv. Gleeson(Construction)Ltd and Others (1976)4BLR 103.. 198 Orion CompaniaEspanola deSegureos v. BeifortMatschappijvoor Algemene 380 Verzekgringeen[1962] 2Lloyd's Rep. 257 Pacific AssociatesInc. and Another v. Baxter and Others [19891 2AllER 159 198, 200, 201 301 Paschen ContractorsInc. v. JohnJ. Calman Co. 13 111. App. 3d 485, 300 NE2d 795 278 PerarB.V. v. General Surety Guarantee (1994) 66 BLR 72 Portsea Island Mutual Co-operativeSocietyLtd v. MichaelBrashierAssociates(1989)

...

7-CLD-10-03

PrimaPain v. Flood and Conklin U.S. Supreme Court Report,338 US395 (1967) Property & Land ContractorsLtd o. Alfred McAlpineHomes Ltd (1996) 47C1LL74

Reigatev. Union ManufacturingCo. (Ramsbottom) [1918]1 KB 592 RobophoneFacilities Ltd v. Blank[1966] 1WLR 1428 Rowe v. Turner Hopkins &Partners [19801 NZLR550 RuxleyElectronicsand ConstructionLtd v. Forsyth [1994] 1 WLR650

Tai HingCotton Mill Ltd v. Liu Chong HingBank Ltd [1986]AC 80 TemlocLtd v. ErrillProperties Ltd (1988)39 BLR 30 Tersons Ltd v. StevenageDevelopmentCorporation [19651 1 QB37 The Moorcock(1886—90) All ER 850 The HeronII [1969] 1AC 350 Town and City v. WilshireSouthern (1988)44 BLR 114

197

.... 378

340 59 361 190 314

59, 191 362 305 59 66 417

638

The FIDIC Form ofContract Trade Industry v. Workington[1937] AC 1 TrafalgarHouse ConstructionLtd v. General Surety and GuaranteeLtd (1994) 66 BLR 42, C.A., House of Lords [1996]1 AC 199 Troilope & CoilsLtd v. North-WestMetropolitanRegionalHospital Board [1973] 1WLR601;2All ER 260 VictoriaLaundry (Windsor)Ltd v. Newman Industries Ltd [1949] 2 KB 528 Walter Lawrence& Son Ltd v. CommercialUnion Properties Ltd (1984) 4 ConLR37 Wells v. Army &NavyCo-operativeSociety(1902) 86LI 764 Wharf PropertiesLtd v. Eric Cumine Associates(1991)52 BLR 8 WhittaIl BuildersCompany Ltd v. Chester-le-StreetDistrict Council(1984) 40 BLR 82 Whitehousev. Jordanand Another, House ofLords (1981) 1 WLR246; (1981) AllER267 Wong Lai Yingand Others v. ChinachemInvestmentCo. Ltd (1979) 13 BLR 81 Young and Martin Ltdv. McManusChilds [1969] 1 AC 454

278 279

59, 60 66 356 209 340, 341 316 193 57 230

Table of Clauses of The FIDIC Forms of Contract as referred to in this Book

Clauses relatingto the Third Edition of the Red Book Clause

Page

Clause

Page

1

8,132

8, 9, 133 8, 9, 134 8,9

8

9 9

48 51 52 53 54 58 59 60 65 66 67 70 71

10

2 5 6

72

11

11 12 13

14 20

8,9 9 9 11

23

10, 141

37 40

44

143 10 144

46

10

10, 134 10, 124, 146 146 146 11 :11

146, 147 11

11 11 11 11

Clausesrelatingto the FourthEdition of the Red Book Clause

Page

1

13, 91, 125, 126, 132, 137, 144, 163, 164, 177, 206, 210, 222, 223, 226, 234, 237, 339, 345, 364, 366, 372, 469, 470 13, 132, 133, 134, 138, 143, 196, 163, 164, 166, 167, 168, 169, 177, 182, 184, 196, 207, 208, 218,301, 303,

2 3 4 5 6 7 8

210, 235, 238 163, 167, 173,235, 238 22, 23, 29, 47, 49, 130, 134, 163, 167, 173, 205, 469 129, 133, 135, 160, 161,163, 169, 173, 177, 207, 210, 214, 217,229,231,233,235, 236, 239, 290, 325,342, 346, 347, 358, 368 91, 135, 136, 160, 161, 163, 167, 169, 226, 231, 233, 290 13, 86, 135, 136, 161, 162, 210, 216, 225, 228, 290, 322

639

The FIDIC Form ofContract

640

9

54, 211, 239,

10

136, 167, 173, 211, 222,232, 236, 253, 291to 296,368, 469, 470 115, 210, 211, 221, 13, 91, 103, 115, 128, 129, 133, 137, 163, 167, 173, 210, 217, 221, 226, 229, 236, 309, 314to 320, 347, 358 13, 137, 138, 163, 168, 169, 226, 227, 290,322 91, 138, 139, 145, 163, 167, 169, 213, 223, 226, 233, 290, 335, 348, 357, 469 13, 138, 163, 169, 231 163, 167, 169, 177, 210,226, 231 129, 163, 167, 169, 182, 330 91, 163, 167, 177, 330 139, 163, 167, 177, 182, 210, 214, 218,226

11

12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

27 28 29 30 31 33

34 35

36

115, 129, 131, 139, 140, 161, 163, 167, 170, 177, 182,219, 226, 227, 229,232,243, 244, 246, 247, 248, 250, 254, 258, 261, 262, 267, 319, 320, 367, 469, 471 13,128, 129, 140, 141, 210, 218, 219, 232, 243, 244, 253, 254, 258, 259, 260, 261, 264, 267, 320, 367, 469, 471, 472 212, 226, 232, 243, 244, 262, 263, 267,319, 331 141, 210, 219, 232, 243, 253, 263,264, 267, 472 141, 232, 243, 244, 264, 267, 362 131, 141,167, 177,210,212,219,221,223,232,236,243, 244, 264, 265, 266,267, 469, 471 47, 48, 212, 226, 232, 236, 320, 321, 324, 331 129, 131, 132, 133, 141, 163, 167, 173, 217, 229, 233, 331, 347, 358 142, 232, 235, 240, 331 226, 232, 331 133, 142, 163, 167, 173, 210, 211, 219, 233, 236, 240, 331 163, 167, 170, 173, 210, 213,214, 239, 332 164, 167, 170, 182, 210, 240, 367 142, 164, 167, 239 142, 164, 167, 170, 210, 234, 239

39

129, 133.,144, 164, 167, 170, 177, 182, 210, 217,229, 231, 290, 300, 322, 332, 347, 358, 366 127, 131, 133, 143,164, 167, 170, 177, 182, 208, 210, 229, 237, 239, 290, 322 91, 129, 133, 161, 164, 167, 173, 177, 182, 217,231, 236, 290, 332 131, 133, 164, 167, 173, 177, 182, 210, 214,229, 231, 247, 250, 290, 324

40

13, 10, 133, 134, 143, 164, 167, 170, 173, 178, 210, 217, 227, 229, 236, 347, 357,

37 38

358

41 42

43 44

143, 164, 167, 170, 222, 228, 290, 333, 345,348, 357 13,129, 133, 164, 167, 174, 178,207, 208, 210, 217, 222, 229, 236, 240,290, 348 127,210, 223, 226, 236, 290, 332, 345, 347,360 10, 133, 143, 145, 164, 167, 174,212,213,223,226, 229,234,290,315,332,345to

348,358, 360 45 46 47 48

164, 167, 178, 234, 290

127, 131, 133, 145, 164, 170, 174, 182, 228, 229, 290, 345, 347, 348 114, 131, 147, 216, 226, 290, 332, 345 to 347,360, 362, 363, 365, 367, 369 10, 134, 164, 167, 174, 182, 225, 226,228, 237, 240, 245, 258, 290, 323, 332, 345, 347, 360, 363, 366 to 369, 372

Table ofClauses 49 50 51 52 53 54 55 56 57 58 59 60

61 62 63 64 65

66 67

68

69 70 71 72

641

129, 131, 133, 164, 167, 169, 170, 182, 214,226, 228, 231, 240, 245,247, 258, 290, 323, 324, 368, 369, 479 129, 133, 164, 167, 169, 171, 182, 217, 240, 247, 258, 290, 323,324, 368 10, 91, 143, 145, 162, 164, 171, 182,214, 216, 226, 228, 303, 304 10,87, 91,128, 129,131, 132,133, 146, 164, 165, 171, 174, 178,210,214,217,227, 234, 237, 247,251, 303 to 308, 320, 323,332, 334, 342, 343, 368, 469 124, 129, 133, 146, 164, 167, 168, 174, 184, 217, 234, 237, 333 to 335, 340,344 131, 146, 164, 167, 174, 178, 210, 290 86, 87, 91, 308, 469 86, 87, 88, 91, 164, 167, 171, 182, 235, 307to 309 86, 87, 91, 146, 164, 171, 223, 235, 308 11, 91, 130, 162, 164, 171, 178, 215, 235 11, 91, 131, 164, 167, 171, 215, 216, 217, 235, 290 13, 14, 87,91, 127, 128, 130, 146, 147, 148, 164, 167, 171, 174, 178, 182,183, 210, 216,217,226,235,239, 241, 290, 297, 306, 324, 325, 333,335, 363,364,368,369, 372, 394, 399 290, 369 164, 167, 171, 225, 226,290, 324 130, 131,164,167, 174, 178, 210, 211, 217, 229, 239, 290, 323,328,334,357, 369, 400, 479, 480 131, 133, 164, 167, 171, 182, 290, 324, 400 24, 130, 231, 133, 141, 148, 164, 267, 174, 210, 212, 217, 226, 229,237, 243, 244, 247, 248, 250, 251, 252,319, 330, 469 14, 15, 114, 230, 231, 148, 160, 217, 330

14, 15, 25,81, 132, 134, 148, 149, 150,201, 167, 174, 178, 183, 184,185, 186, 201, 211, 219, 237, 240,252, 333,364,378,379,383to397, 399, 401 to407, 419, 422, 469, 472,473 to476, 478, 483,484, 487 164, 171, 235, 364, 469 15, 130, 133, 143, 147, 150, 164, 167, 174, 182, 210, 216, 217, 228,229, 325, 330, 348, 358, 365, 400, 480 11, 47, 48, 49, 115, 133, 164, 167, 171, 217, 222, 320,321, 365, 469 11, 49, 115, 130, 231, 212, 217,320, 321 11, 49, 320, 321

Clausesrelatingto the First Editionof the Sub-contract Form Clause

Page

1

459,462

2 4 5

459

460, 462

13 15 16 19

459, 460 459 to 461 459, 461, 462 459, 463

460

—

7k PIDICEmitifCvnbSi flanses z°61'ngto theThird Editionof the Yellow Book

a. 1

2 6

7 8 10

11

44444447 12444444446,449,456 446 446

444447 38,447

26

453 453 448

33 37

86,450 127,448

38 39 40 41

448 448 448 448

42

us us

13

r 43

44 46 50 51

us

449 126

447,449,450

444444450

ClausesrlaIhigto the First Editionofthe OrsugaBook 1

3 4 5 8 10

12

454450,456 458,457 455,457,458 450to458 458 456 156

13 14

57,98,455,454458

17

457458

18 19

457

3

456 457 454

Index

ACEForm of Contract,4, 10, 11, 18,47, 69 comparedwith theICE Form,4 comparedwith theFIDICForm, 6 origin, 4 acceleration,229, 360

costof, 360 acceptance

by engineer,137

definition,53 existing,377 in amicablesettlement,see amicable settlement standard forms of, 3, 6, 18, 19, 49, 54, 60, 67, 69, 70, 80, 83 alternativedispute resolution,15, 149, 150, 373, 390, 419, 420

letter of, 144, 164, 170, 211, 219, 221, 330, 455, 473

definition,222 obligationsfollowing,221, 222, 266, 292, 477

obligationsprior to, 221, 265, 292 oftender, 159,357 access to site, 209 accident,93, 98, 105, 260 prevention of, 202 to employees,264 act judicature, 37 Latent Damage,55 limitation,56, 192 offoreign enemies,248, 250 ofGod, 100 ofparliament, 38, 41 adverse physical conditions,see claims agent, 60, 263, 264, 267 engineer as employer's,81, 154—7, 163, 164, 183, 189, 199,206, 210, 242, agreement,4, 6, 16, 47, 51, 54 arbitration,22, 33, 377, 378 as a source of law, 379 enforcement,381 in the Red Book,379, 383 validity,379 ad hoc, 377 client/consultant, 83, 159, 441 concession,84

643

adjudication,437 advantages of, 422 concffiation, 427 advantages,429 attendanceat, 431 characteristics, 429 conciliator, 430 definition,428 process, 431 rules,428

whento conciliate,429

dispute boards, 383, 393,397, 467, 472 authority, 405, 482 compositionand qualification,397, 477

decisionof, 394—6,401—3,406 duties, 398, 478 failure to comply with decision,396 hearings,402, 482 proceduralrules, 397,401, 476, 481 recommendation,483 remuneration,399, 479 rights, 400, 481 termination,399, 479 underthe Orange Book,453 mediation, 425 methods of, 421 mini trial, 434 negotiation,423, 424 negotiators,423 pre-arbitralreferee, 438

644

Index amicablesettlement, 149, 219, 422 agreement,422, 424, 426, 428, 433, 438 procedure for, 389 applicablelaw, 11, 19, 24, 33, 48, 113, 188 imported provisions,114, 115 of contract,21,47, 110, 113—15,196, 206, 227

and theRedBook, 115, 328 claims under, 144—6, 300, 304, 324, 340 indemnity, 132 in internationalconstruction,20, 24, selectionof, 22, 23 approval 138, 145, 161 by the employer,133, 165, 206, 210 in an emergency,165 of engineersdutiesand authority, 133, 165, 169, 207

ofinsurance policies212 of securities,211, 292 by the engineer,357 ofbreakdown oflump sumitems, 146, 223, 235

of contractorsrepresentative,169 of design, 136, 233 of drawings etc., 92, 161, 173 ofprogramme, 138 ofreceipts and vouchers,234 definition,132

in Orange Book,457 in SBDW of World Bank, 470 in YellowBook, 445-8 of dispute adjudicationboard, 393, 397 of dispute review board, 472,476—9 of the Fourth Edition of Red Book, 124 arbitration,109, 149, 184—6, 373 advantages of 375 ad hoc, 377 agreement,20, 33, 199, 377—9 and role of national courts,380 and the ICC Court, see ICC Rules applicablelaw, see applicablelaw above as a source of law, 379 award, 376, 377 background,373 cost, 416, 418 criticism,414—18 custom, 38 definitionof, 376 delay, 416 disputes settlementby, 374 failure to complywith engineer's

decision,391 failure to give notice ofintention to commence,389 ICC awards, see ICC Rules initiation,391, 377 intention tocommence,149,211,237,240, 388

international commercial,20, 22 definition,20 notice to commence,237, 240 functions,388 place of, see seat priorto substantialcompletion,391 procedural law, 24 procedure underclause 14, 15, 149, 183, 201, 383, 386, 390 referenceto, duringprogressofworks, 11 remedies, 416 rightto, 14, 149, 235 seat of, 22, 24 sources oflaw, 379 UNCITRAL Rules21, 428, 475,476 arbitrator,71, 377, 381 appointment of, 7, 24, 377 awardof, 376, 377 duties of, 382 independenceof, 382, 409 jurisdiction,378 legal or technical,382 number to be appointed, 390 theduke as arbitrator,71 powerto open up review and revise, 391 qualificationsof, 382 rules forappointment, 390 sole, 390 technicalorlegal, 382 underICC Rules,407, 408, 412 assignment,11, 24, 57, 206, 239, 338, 459 award arbitrator's, 376 enforcementof arbitral, 25, 33, 376 underICC rules, see ICCRules benefit, 201 principle of, 201 billofquantities use of, 17, 87, 89, 105, 303, 318 contract documentation,78 contractswith, 87 remuneration 17, 108 preliminary items, 306

Index measurement of quantities,303,307,308 Boards,see Amicable Dispute Resolution bond, 121, 273, see also securities advanced payment guarantees,297

bid,296

company suretyship, 298 compatibifitywith applicablelaw, 291 for'proper'execution,276, 279 maintenanceor defectsliability,297 notice,103 ondemand, 103 performance,7, 136 retention,297 bonus, 7, 363 boreholes,331

breath

claimsfor, 148, 299, 300, 332 ofcontract,9, 14, 51, 64, 140, 143, 144, 192, 212, 331, 346 of duty, 52, 57, 196, 384, 457 failure to insure, 10, 140, 260 not liablefor, 227 guarantee against,279, 280 remediesfor breach of contract,61, 66 of statutory duty, 53, 202, 232 care ofworks, see works C.A.R. Policy,249, 259, 265 cash-flow estimates, 223 certificate,6, 8, 10, 13, 14, 17, 146, 364, 450 DefectsLiabffity, 136, 225, 241, 364, 391, 365, 463

definitionof, 127, 365 effectof Taking-Over,367 final,127, 130, 147, 148, 365, 369 interim 127, 147, 148, 364, 365 late certification,372 non-paymentorfailuretomake payment, 150, 366, 372

of valuation at Date of Termination,364 payment of, 216 Taking-Over,217, 225,228, 240, 244, 245, 255, 258, 306, 323,332, 360, 363, 366, 385, 461, 470, 474,480 civilwar, 248, 250, 267, 328, 270 claimsand counterclaims,299 adverse physical.obstructionsor conditions,128, 301, 309—16,318 acceleration,229,360 based on grounds ofbreach, 300, 332 basedon provisionsofthe contract,300

645

categories,299 specifiedremedy undercontract,299 underTort,300 ex gratia claim,300 delay, see delay legal basis, 299 definitionof, 299 defects,321 dispute as opposed to, 384—6 disruption, 338 employers risks, 319 extension oftime, 301, 324, 338 failure to commence,324 failure to perform obligations, 301,321, 324

fluctuationsof cost, 321 for damage tobridges, 211, 219, 233, 236 global approathto, 340 headsof, 338 intention to, 143, 305, 279, 293 measurement changes,308 notice of, 63, 333 presentationof, 338 procedure, 334,387 prolongation,339 quantum, 338 quantum meruit, 63, 300 records,335 remedy, 299, 301 suspension, see suspension specifiedevents, 330 antiquities,331 boreholes,330 incorrectdata,330 payments offees, 330 interference,331 royalties,331 provisions offacilities,332 strengtheningofbridges, 331 tests, 332 uncovering ofwork,332 underperformancesecurity,137,281,282, 285, 292, 293

notice requirements,279 ICC URCB Rules, 288 ECGD,289 YellowBook,293 variations,302 varied work, 303 responsibilityfor, 304 valuation of, 304

Index

646

natureof, 302 Claims Review Board,see Alternative Dispute Resolution code, 19, 28,29 civil, 28, 192 Dutch, 193 Egyptian, 115 French,28,31,43,117,188, 192, 195,202 German,28, 193 Kuwaiti,116, Quebec,202 Swiss,32 UAE, 116,202 Hammurabi, 19 (ref.2.1) of practice,6, 81 of a consulting engineer,6, 81 FIDIC'scode of ethics,75, 76, 81 commence arbitration, 149,211, 237, 240, 377,389 undertheYellowand Orange Books, 454

failure to, 301, 324 notice to, 143, 149, 208,211, 237, 240, 305, 333, 377, 388, 389, 421, 483

commencement

date,211, 222, 229, 237, 255, 265, 332, 397, 403

dateunderYellowand Orange Books, 445, 454

meaning of, 143, 223 ofworks, 222-4 commotion,267 completion,10, 48, 57, 61, 220, 221, 223—7, 229, 250, 251, 314

certificate,10, 244 practical,55, 194 substantial,221, 222, 240, 304, see also Taking-OverCertificate tests on, 126, 237, 444, 447, 453 definition,126 time for, 144, 213, 220, 223, 228, 293, 301, 332, 346, 347, 355, 358 conciliation,see AlternativeDispute Resolution concurrentliability, 190, 192 ConditionsofParticularApplication,PartII, 5, 7, 9, 12, 15, 133, 134, 140, 142, 146, 147, 150 consideration,54, 55 consultation,133, 142,166, 218,401,406,481 due, 133

clause 6.4, 135, 169, 325, 346 clause 12.2, 173, 315 clause 14.1, 173, 331 clause30, 173, 331, 219 clause36.5,142, 170, 332 clause37.4,170, 322 clause38.2,177, 332 clause39.2,173 clause40.2 143, 170, 325 clause42,174, 328 clause44, 144, 174, 213, 345—6,358 clause46, 145, 170, 174 clause49.4,171 clause50.1,171, 323 clause52.2,306 clause 64.1, 172, clause 65, 176 clause67, 394 clause 69.4, 176 clause 70.2, 172, 321

duty to, 240 meaning,218 prior to making decisions,186 underthe YellowBook, 444,448 variation, 305,307 requirement for, 133 contingency,98, 101, 284 contract,47, 53, see also agreement applicablelaw, see applicablelaw breach of, see breach of contract build-operate-transfertype, 84 choiceof,82 consideration,54 construction contract,1, 9, 50, 53, 57, 67 international,20,23 underYellowBook, 444,445,447,448 responsibifityto complete,67 characteristics, 93

inherent characteristicof, 93, 105 contents of, 58 costreimbursable,86, 90 design andbuild,83, 450 electricaland mechanical,83, 442 general principles,53 governinglaw, see applicablelaw intent, 54, legal capacity,54, lump sum,86, 90, 91 management, 83, 85, performanceof, 57 specific performance,61

Index pre-requisitesof a contract,53 privity of, 56 proper law,see applicablelaw re-measurementcontract,87 traditional, 82, 156 schedule of rates, 89 standard forms, see agreement contractor,85 care and skill,229, 231 design by, 85, 111, 112, 135, 138 defaultby, see default determinationofengineerinfavour of,88,

647 statement ofcompletion,241 draftfinal statement,241 to strengthenand/or improve routes to site, 240, 331,332 convention EECConventionon the Law Applicable to ContractualObligations,22,33 1927Geneva Convention,33 International,21, 30, 33, 42, 329, 376, 379 1958 NewYork Convention,25, 33, 376 cost, 7, 9, 11,49,89, 90,128—32,145,146,150, 217, 225, 232, 251, 253, 255, 320, 359,

128, 129, 137

duties of, 221, 223 equipment, 127, 142, 146, 233,398-411 excused from completion,226, 227 further information,241 obligationsof, 67, 220-29 administrative,237 after substantial completion,240 care ofworks, 239 implied,226, 229 underapplicablelaw, 220 underthe contract,220 risk sharing, 97, 98 to acquire patentright, 227 to commence,143 to complete,105, 223 to 229, 238,240, 244 to give notice,123, 126, 137,161, 220, 233, 236, 304, 309, 315, 323, 325, 330, 333, 334

to limit interference,331 to make payments,240, 331 to proceed, 229 toprovideindemnities,220,222, 223,233, 236, 262

to provide insurance,220, 222, 223, 232, 233, 236, 253, 254, 263, 264

to provide securities,220, 222, 223, 232, 233, 236, 290, 291, 296

to remedy defects,221, 225, 232, 240, 246, 247, 315, 321

to satisfy himselfas to correctnessand sufficiencyof tender, 221, 222, 314

to supply information,138, 222, 223, 233—5,334—5,338

thesite, 220 cash flow, 233 design, 233 nominated sub-contractors,235 payment, 235

360

definition,8, 13, 128 increasedor decreased,6,7, 220 extra, 9, 10, 254, 385 prime, 11 Courts hierarchyundercommonlaw,39 InternationalCourt of the ICC, 25, 378, 407—12,438, 476 London Court ofInternational Arbitration,25, 476 PermanentCourt of Arbitration,The Hague, 476 critical

activity,349, 352, 358 delay, 356, 358 event, 352, 355 path, 352, 355, 359 crime, 53 currency, 217, 301, 320 payment in foreign,261, 294 proportions,469, 470 restrictions,212 custom, 19, 26, 30, 32, 38, 42, 45, 58, 380 damages, 9, 37, 61, 64, 66, 263, 264, 270, 330 liquidated, 4, 40, 66, 113, 131, 290, 299 definition,360 undersub-contract,460 underYellowBook,448 meaning, 61 damage to works, 244 duty ofcontractor,246, 247,258 rectify, 244, 250 damage to thirdparty property, 262 daywork, 128, 129, 131, 234, 307, 365 decision judicial,26, 29, 31, 32, 203, 382 of employer,205, 219, 262

648

Index extensionoftimefor, 352 in arbitration,415, 416, 420 underClause 67,176,178,237,387,388, in completion,352 391 liquidated damagesfor,see liquidated underYellowBook 445, 449 damages of Dispute AdjudicationBoard,394-6, non-critical,338, 356, 359 notice of, 144,236, 325 401—3,406, 419, 437, 454 of Dispute Review Board,475 network analysis for, 352, 355 deductibles 104, 261, 320 risks, 98 defaultby contractor,131,145,227,229,275, non-performance,290, 292 underOrange Book, 451,458 325, 480, 301 328 underYellowBook,445,448 274, consequence, definition,329 design, 156, 162, 214 incarryingout aninstructionofengineer, by contractor,122,135, 220, 233, 239,290 323 by engineer,139, 155, 157, 207 rate ofprogress, 228 and The RedBook, 108 re Dispute Boards,400,480 function,111 securities,136, 291, 211,470 defective,139,140, 259, 260, 266 notice by contractor,123, 135 suspension,236, 357 of temporaryworks, 157, 163 termination,209,211, 228, 328 risk, 139,248, 249 payment under clause65.8,330 defaultby employer,6, 228, 264, 324 underOrange Book,450, 451, 453, 456 underYellowBook,443,446,447 notice,221, 228 365 direct 150, non-payment, negotiation,423-5 payment ontermination, 330, 369 dispute, 14—16,108, 111 re. Dispute Boards,400,480 adjudication,132, 383, 397, 436, 437 underOrange Book, 454 suspension, 143,236, 325 underWorld BankDocuments,467, termination,211, 328, 330 underthe YellowBook, 126 472, 473 alternativedispute resolution,see defects,195, 198, 199, 231, 240, 301, 260 cost of remedying,129, 198,260, 323 AlternativeDispute Resolution amicablesettlementof, 219, 240, 383 definition,321 latent,57, 116, 276, 279, 292 procedure underClause 67, 389 notice of, 135 definition,385 existenceof, 376,384, 385 obligationto remedy, 322 see rectification or difference, 386 rectifying, remedying,48, 162, 169,170,215,221,225, procedure when a dispute arises,387 240, 262, 314,322, 323 creating a dispute whenonedoes not

of engineer,134,149, 158—60,387, 391

inrelation to Clause60.6,147

Defects Liability Certificate, see certificate

DefectsLiabifityPeriod, 215, 237, 240, 244, to324,330, 247,255,258,276,297,323 368, 456 delay, 129, 255, 301, 324,345, 347, 348 antecedent,214 by employer,143, 217, 339,340, 346 contributed tobycontractor,347 cost of, 135, 324, 325,328, 333, 334, 349 critical,95,338, 358 definition,355, 356

due tolate issueof drawings or instruction,111, 324, 346

exist, 386

referred to arbitration,211, 237, 376, 377 underYellowBook, 449 under Orange Book, 454 under sub-contract,463 underWorld BankDocuments,476 referred to Dispute Board,401 referred to engineer,383 settlementof by arbitration,374 by methods of, 421 underYellowBook,447,449 underOrange Book, 453, 454

Index

underWorld Bank Documents,467 undersub-contract,463 disruption, 9, 160, 338, 356, 359 costof, 9,339

evaluation ofclaim for, 359, 574 definition,359 drafting principles,68, 109, 442 drawings delayin supplying, 135, 217 failure by Contractorto submit,211, 169 failure by Engineerto submit, 123, 169, 236

returnof, 368 supply, 155, 158, 160, 161, 196, due consultation,see consultation duty of care, 52, 192 engineer's, 196,197,199to 202, requirements,197 standard of, 193 ECGD,461 employer defaultby, 5, 228, 236, 264, 323, 400 obligationsof, 205, 206, definitionofrequirements,206 appointmentof engineer,207 notto interfere,212, possessionof and access to site, 208, 209, 210

to appoint nominated sub-contractors, 215

to consult, 218 to comply withinsurance conditions, 219, 266

to resolve disputes through amicable settlement,219

to givenotice, 206, 210, 211 to nominate,215 to make payment, 216, 219 to permit constructionof the whole of theworks, 216

to provide all availabledata,209, 212 to provide instructions,210 to provide permissions,216 to supplymaterialandworkmen, 214

rescissionby, 328 risksof, 130,139,244,246,247—9,261,346, 448, 458, 469, 471 role of, 122, 123, 135, 136, 144 terminationof contractby, 324, 328—30

649

engineer,73, 82 appointment of, 207 assistantof, 167—9,208 appointment of, 133 authority of, 133, 167, 209 instruction givenby, 168 authority of, 133, 160, 164, 168, 172, 176, 303, 323, 325, 333, see also duties delegation of, 138, 167, 170 decisionof, 134,149,158 to 160,387, 391 inrelation to Clause 60.6, 147 underClause67,176,178,237,387,388, 391

underYellowBook, 445,449

conditionprecedent toarbitration, 183, 387

failure to complywith, 391 failure to give notice of, 386, 389 underclause 67, 387 reasons for, 185 re-opened, reviewed and revised, 185, 186,450 definitionof, 73, 125, 164 underthe YellowBook, 445 underthe World BankStandard Bidding Documents,469 dispute referred to, 183, 185 disclosureby Employerofterms of engagementof, duty or duties, 81, 155, 157, 164, 168, 172, 176, 182 of care, 76, 158, 180 of design, 197 passive duties, 165, 176—8 proactiveduties, 165, 168 reactive duties, 165, 172, 241 standard of, 193 to consult, see due consultation underthe Yellowbook, 446 toresolve disputes until end of limitationperiod, 364 identity, 125 impartiality of, 76, 134, 185, 186, 196 underthe Yellowbook, 445, independenceof, 74, 80, 186,472 liabilityof, 158, 185, 188 concurrent,190, 200 decennial,195 innegligenceundercommonlaw,197 innegligenceunderRomano-Germanic law, 202

650

Index joint and several,115, 116, 202 knock-on,195 notice by, 169-77, remuneration of, 74, 76 replacementof, 164 underYellow Book,446 underthe World Bank Standard Bidding Documents,470 representativeof, 132, 159, 160, 167, 169 appointment of, 133 responsibilityof, 133 responsibilityof, 133, 158, 160, 185, 189 towards contractor,196 towards employer,190 towards society,204 towards thirdparties, 203 role of, 80, 81, 122, 132, 149, 155, 158 as agent, 81, 156, 163, 164, 183 as certifier,81, 156, 163, 172, 175, 178, 182

as designer, 157 as adjudicator, 81, 156, 183, 472 as quasi-arbitrator,183, 384, 472 as supervisor, 176 as witness, 178, 391 criticismof, 149, 186, 383, 387, 388 services providedby, 77 supervisionby, 78, 115, 176, 197 trust, 73, 80, 110 underthe Yellow book, 445 equity, 36, 37,38, 40, 50 Rules of, 41 exclusionclauses,67 expense,141 extensionoftime, 144, 160, 229, 236, 332, 345-7 claimfor, 300, 301, 338,358 calculationof, 338, 346—7, 358 clause6.4, 169,325 clause 12, 137, 172, 315 clause27, 141, 173 clause36.5,142, 170 clause40, 143, 170 clause42, 174 clause44, 144, 174, 208, 213, 236, 332, 345—7,358

clause46, 347 clause48, 174, 347 clause 69, 176 duty to consultrelating to, 218,325, 219 employerto be keptinformed of, 123, 135

notice for,234 relevant clauses, 347 under Orange Book, 453 underYellowBook,448 extensionof the timefor completion,144, 346. 348

failure by contractor to carry outinstructions, 131, 322 commence,301, 324 complete,227, 290, 360 complywith clause, 335 complywith AdjudicationBoard's decision,396 complywith engineer's decision,323, 391

complywith insurance conditions,141 complywith ReviewBoard's recommendation,475 insure, 131, 141

pay,400

perform his obligations,173, 231, 233, 400

proceed with work, 357 submit drawings, 135, 169 by employer to complywith AdjudicationBoard's decision,396 complywith Review Board's recommendation,475 complywith engineer's decision,391 give possession,129, 208, 217, 328 other obligations,141, 331 pay, 183, 216, 369, 372, 400 by engineerto givenotice of decision,149 issue drawings ororders, 8,11, 123,161, 169 FIDIC, 6, 73, 76, 122, 465

Codes ofPractice,7 code of ethics,75, 76, 81 contractsCommittee,441 ProfessionalLiabffity Committee, 116 definitionof, 6 FourthEdition, see Red Book Guide to the use ofindependent consultants,75 IGRA, 441

Publications,83, 116,441, 451, 458, 463, 464

Index notes, 11, 388 statutes, 73—75, 77 Final certificate,see certificate Final Statement,147, 172, 217, 241, 335, 369, 399

draft, 147, 241, 369 fitnessfor purpose, 193,231, 455 fluctuations,301, 320 calculationof,321 claim in respect of, 301 cost, 321 currency, 321 labour and material, 321 foreign currency,see currency force majeure,203, 449, 457 forces ofnature,5, 139, 140, 248, 249, 471 fossils,331 frustration,57, 114, 116, 117, 328 guarantee, see securitiesand guarantees

651

physical or legal,227, 228, 322 indemnity, 132, 232, 242, 262 against claims, 10, 232, 331 andinsurance, 105, 242,460 limitof, 263, 265 by contractor,10, 141,219, 232, 263, 266, 331, 457

by employer,6, 141, 212, 219, 263, 266 definition,270 for damage to persons and property, 262, 262

for infringementofpatentrights, 142,232 to Dispute Adjudicationand Review Board Members,393, 397, 487 injunctions,61 inspection,168, 170, 181 as an advantage to arbitration,376 delegate,168, 170 of insurance policies,424 of material,plant, etc., 129, 177, 231, 239, 322

hazard, 94 classification,96 analysis,98 consequences, 95, 97 definition,95, 267 meaning,95 identificationof, 103, 309 hostilities,248, 267 definition,250 ICC RulesofConciliationandArbitration,7, 285, 378, 390, 407, 409 advantages,412 articles,411 award under, 285, 408, 410, 413 criticism, 414 conciliation,428

party autonomy,413 terms ofreference,409,410 advantages,410 ICE Form of Contract,4, 7, 10, 73, 81, 100 changesmadein devisingtheRedBook, 113

role of the Engineer,156, 159 impartiality definition,166 requirementfor, 177, 182, 185, 186 implied terms, 58 impossibility,303, 330, 340,342,453 frustration,see frustration

of records,175,221, 334 of site, 209, 221, 314 by Dispute AdjudicationorReview Board Member,398, 479

of work, 155, 160, 170, 332 underthe Orange Book, 457 instructions,156, 160, 262 by employer,205 as andwhenrequired, 210 by engineer,78, 79, 80, 81, 150, 165, 169—79,196, 214

disputed underYellowBook,446, 449—50

during DefectsLiabilityPeriod, 323 relating to materialorplant, 214, 219 not in accordancewith contract,323 failure to carry out,128 for variations,128, 132, 134, 145, 303—5 for dealing with fossils,etc., 331 late, 324 leading to clause 67, 184, 393, 401 on records,335 relating to certificates, 366 relating to programme, 212 reviewed by AdjudicationBoard,395, 401, 402

reviewed by Arbitrator,391, 392 to delegate,168 to search,323 inwriting, 133, 143, 167, 168

652

Index relating to securities,286 to tenderers, 67 to omit work,145 underthe sub-contractform, 460 with which the contractorhas not complied,214 insurance,104-6, 242,255, 320 adequacyof, 140, 254 against defectivedesign, 140,259 against defectivematerials,140, 259 against defectiveworkmanship,140, 259 against unfaircallingof securities,289 approval of, 212 arranged by employer,266 average clause, 255 claim settlement,265 conditions,141, 219, 265 failure to comply,141, 219 arranged by Employer,266 contractor's equipment,140, 255 cross liabifity, 10, 264 decennial,195 deductible,104, 261, 265 definition,270 engineer's duty relating to, 160, 174, 177 evidenceof, 177,221, 223, 264, 265 notice,236, 265 exclusions, 140, 259, 260, 261, 265 failure to provide, 266 failureto keep, 266 indemnity and, 105, 219, 242, 244 inherentcharacteristicsof construction and, 105 injury to workmen, 264 joint, 5, 10, 140, 219, 258, 263 liniit of indemnity,263, 265 notice of change,140 ofworks, 140, 219, 253 period of, 255, 264 policies,106, 253, 264 contractor's all risk, 248, 258 employer's liability,264 production of, 212 223, 265 professionalindemnity, 132, 259, 455 by employer,132 thirdparty,10, 141, 219,263 purpose of, 254 requirements,146, 254 scope ofcover,259, 367 sum insured, 140, 255, 254, 265 fullreplacementcost, 141

definition,140 terms of insurance policies,210, 218, 219, 265

agreement on, 219,221

to beprovided, 223, 232, 255

under-insured, 255 underthe Orange Book,457 underthe sub-contractform, 459 underthe World Bank SBDW, 469, 471 undertheYellowBook,448,449 insurrection,270 items of interest discoveredonsite, 331 intent, 54 interest, 182, 395, 400, 401 underthe sub-contractform, 462 international arbitration,20, see also arbitration contracts,see contract constructioncontracts, see contract InternationalCourt, 497, 409 appointmentof arbitrator,409 functions,408 independence,409, 412 procedure,409 publications,411, 413 scrutiny of awards, 410 joint and several,116, 202 joint insurance,see insurance knock-onliabffity, 195 language, 70—71 law administrativelaw, 29 applicablelaw of contract,see applicable law areas oflaws affectingconstruction,34, 35, 43, 44 common,25—7,34—43, 47, 50, 60, 67, 197, 202

The Red Book andthe, 53 conflict, 49

express choiceofapplicablelaw, 21 Islamic, 25, 26, 43—6 inferred choiceofapplicablelaw, 22—4 governing procedure, 24 governing enforcementof awards, 25 procedural, 50 Romano-Cermanic,25—34,196, 202 Roman,26

653

Index socialist, 26, 27, 43

sources,20, 30, 38, 44 substantive,50 legal systems absenceof, 113 commonlaw, 25, 38, 50, 197, 202 contemporary,25 diversityof, 18 IslamicLaw, 25, 26, 43 Romano-Germanic, 25, 26, 29, 196, 202 sodalistlaws, 25, 27,43 legal capacity,53 legal impossibffity, 227 legalityofobjectives, 55 legislation,30, 38 primary and subordinate,38 letter of credit, 274, 281 standby, 275 Letter ofAcceptance,164, 171, 221, 222, 330 contractor'sobligationsand, 222,223,232 employer's obligations,217 insurance and, 222, 223, 265 meaning,222 securitiesand, 222,232, 292, 297 liability,104,105, 242,251, 253 concurrent,51, 190, 192, 197 contractOr's, 227

for fitness for purpose, 331 statutory, 232 decennial,116, 195, 196, 202 defects,198 period, see DefectsLiabilityPeriod design, 111, 197 difference as towhether in tort or contract,193 engineer's, 157, 188, 190, 192 criminal,203 skill and care, 157, 193 in commonlaw, 197 in Romano-Germanic system, 202 statutory, 203 towards contractor,196 towards employer,190 towards thirdparties, 203 employer's, 160, 247 joint and several,115, 202 knock-onliabifity,195 limitationof, 67, 116 retained, 133 tort, 51, 53, 80—82,190,192,198 to thirdparties, 140, 202, 419, 420

•

undercontract,190, 191, 197 libel,51 limitation Act, 55—7, 192 periods, 55, 57, 116, 192, 364 Statutes of, 324 liquidated damages, 66, 360 definition,66, 106,575 for delay, 114,131 limitof, 290, 291 penalty and, 40, 283, 360—61 reduction of, 363 rightto deduct, 362, 363,366 underthe YellowBook,448 lump sum, 86, 451 contract,86, 90, 451 items, 235 breakdown of, 133, 171, 223 Orange Book,451, 456 Supplementof November1996, 15, 91 basis ofpayment, 91 measurement,87, 301,307, 308 duty ofengineer,160 give notice,308 of risk, 96 particulars of, 235 principles of, 308 re-,16, 82, 86, 87 standard method, 5, 158 valuation by, 306, 308 undertheRedBook,82, 86, 109, 364 undertheYellowBook,86 with bifiof quantifies,89 maintenance bond, 276, 288, 297 certificate,8, 160, manuals, 135, 161, 173, 456 methods ofconstruction,159 responsibffity of contractor,213 mediation, 425, 483 advantages,426 rules, 427 whereunsuitable,426 mediator,426 as negotiator,427 role,426,427 mini-trial,434, 435 negligence,

claim in, 196 criminal,50

Index

654

definition,52 in certifying,198 onus ofproof, 232 pre-requisites,197 NewYork Conventionof 1958, see convention nominated sub-contractor,60, 63, 130, 131, 160, 182, 217 by contractor,see contractor by engineer,see engineer by employer,see employer intention to claim,143, 305,279, 293 intention to commencearbitration,149, 211, 237, 240,388 of claim,63, 333 of defects,135 relating to securities,103, 279, 292, 293 to commence, see commence

failure to givenotice ofintention to commence, 389

novation, 238 nuisance, 51 obligations

of contractor,see contractor of employer,see employer of enginee,rsee engineer

unfulfilled,321 obstruction,309 unforeseen,310 operationand maintenancemanuals,see maintenance Orange Book, 450 background,452 employer's requirements,454 fitnessforpurpose, 455 risk, 457 Ouzel Galley,373

patentright, 142, 227,232 infringementof, 232 payment, 13, 16, 129, 146, 159, 160, 163, 175, 364

contractorto make, 169, 240 of royalties,235 employerto make, 206, 208, 216, 217 failing to make, 150, 325, 369 guarantees,277, 297 if contractisterminated, 130, 131,217,252 if performanceis released,130, 131 ifiegal,472

in foreigncurrency, 254, 261

of certificates,see undercertificates of claims, 129, 216, 300, 305, 237 basis, 86, 91, 251, 305, 335

to dispute board members,399,479 to nominated sub-contractors,129, 183, 216, 235

undertheOrange Book, 455,456 undertheSub-contractform, 459, 461—3 undertheYellowBook,443, 450 penalties,38, 61, 114, 331 and liquidated damages, 114, 283 performance bond, see securities securitiesand guarantees,see securities of administrativefunctions,220, 235 of sub-contractor,238 proper, 222, 232, 276, 291, 295 releasefrom, 114,217, 301, 324, 329, 330 payment in the eventof, 129,130 physicaland legal impossibffity, 227,322 meaning,227 physicalobstructionsor conditions,115, 137, 216,309, 318, 347 meaning, 137 notice of, 173, 236 Pacific Associatescase, 200 recoveryas only costs, 128 plant, 122, 127, 131, 135, 142 definition,127 Portia, 71 pre-arbitralrefereeprocedure, 438 priority of contractdocuments,134 procedure applicablearbitration rules of, 390 arbitration,375, 378, 415, 417 underthe Orange Book, 454 undertheYellowBook,446,449 undertheSub-contractForm,463 for amicablesettlement,389,422,428,463 concifiation, 428, 431

for arbitration underclause 67, 386, 388, 390, 404

for claims, 334 charts, 336, 337 for decision ofdispute boards FIDICConditions,393, 436, 437, 454 World BankSBDW, 472, 476, 481, 483 law governing,24 mini-trial,434 pre-arbitralreference,438

Index

underICCrules, for arbitration,390, 409 for concffiation, 407, 411 programme, 213,223, 348, 357 by contractor,233 duties, 222 charts, 350, 351 network, 349, 355 programming,348 progress oftheworks, 163, 181, 206, 335, 347, 357,364 accelerationof, 360 charts, 350, 351 disruption of, see disruption not to interferewith, 212 supervision of, 160, 170 suspend, see suspension prolongation,358, 359 definition,358 projectnetwork analysis,355 provisionalitems, 158 provisionalsum,162, 171,178,218, 235,308, 318,331 meaning, 218 valuation of variedwork,306 to308, 318, 331

655

RedBook,24, 73, 81, 82, 87, 121, 156, 242, 299,345, 364, 378, 411,421, 441

basedon a domesticcontract,18 basisfor the World Bank SBDW, 465 concepts,16, 19,47, 69, 73, 82, 93 conceptsinpractice, 108 employer's and contractor'srisks, 244, 248, 250, 319 First Edition,6 changes tothe ACEform, 7 Fourth Edition,12, 121, 155, 206, 208, 217, 242, 290, 364, 373,467 amendment to, 12, 148 Guide, 124, 139, 167, 259, 284, 292 ona lump sumbasis, 91 origins, 6, 8, 121 principal changes from Third Edition, 8, 124, 421, 491 supplement, 15, 86, 91, 148, 372, 436, 478—81

text of, 493—570 insurance requirements,264, 265,383, 391, 454

performancesecurities,290 SecondEdition,7 Third Edition,7, 11,121,122, 125, 489, 493—570

quality ofmaterials,229, 230 ofplant, 229,250 ofworkmanship,229, 230 quantities, 87—90, 229, 230, 303, 308, 456 adjustmentof estimated,307 bifi of, see bill of quantities increaseor decrease,303, 307 in excessof 15%,306, 307 measurementof, 160, 308 re-measurementcontract,87, 308 variations and, 306 quantum and claims,338, 338, 416 quantum meruit, 64, 300 Qur'an, 27,44

Sub-contractform, 458 removal ofcontractor'sequipment,252,253 reinsurance, 104 remedies inlaw chart, 62 damages, 61, 63 action for, 51, 55, equitable,63 for breach of contract,61, 62 injunctions,61, 63 punitive, 67 specificperformance,61 repudiation,328 rescission,328 responsibility

rebeffion,248, 250, 270 definition,271 rectificationof contract,64 damage orloss, 227, 244, 246, 247, 250 defects,see defects design, 162 errors, 169

definition,271 delegation of, 133 forvariations,304 ofcontractor,135—8,244,245,255,309,359 of engineer,132, 161, 162, 317 of employer,212,217, 249, 255, 264, 321,

and liabffity, 104, 108, 242

358

passing of, 104, 111, 246, 318, 367

656

Index

to complete,67

shared, 136 retention bond, 288, 297 monies, 285, 290, 297, 359, 365, 368 underSub-contractform, 463 riot, 271 risk, 82, 94,227, 319 allocation,82, 86, 99, 100, 111 underthe Red Book,100, 103, 243 assessment,98 assumption of, 52 avoidance of, 111, 202 balance,124 carrying outthe works, 90 concepts of, 94, 101 criteria,99 example,95 contractor's,161, 170, 247 consequences,227, 317 charts, 243, 245, 246, 256, 257 cultivation,94 definition,95 design, 112, 161, 249 supervisionand, 194 employer's,139, 170,212,227,246—50,319 consequences, 227

definitions,139,271 evaluation,86, 98 financial,84, 158 forces of nature, 319 insurance of, 244,254, 259, 266 charts, 245, 246, 268, 269 management, 82, 96, 98 definition,98 meaning of, 95, 96 non-performance,290 loss ordamage orinjury,100,129,177,246 origin, 94 pressure waves, 248 quantification,98 sharing,86, 93, 108, 358 significance of, 98, 101 special, 130, 176, 217, 237, 250 damage to works by, 247 definitionsand meaning,250 financialconsequencesof termination, 330

increasedcostsfrom, 251 underthe Orange Book, 453,457 underthe Sub-contract form, 460, 461

undertheWorld BankSBDW, 468, 471 specialrisks, 469

underthe Yellow Book,448 uriinsurable,259 variations in quantities, 87, 88 war, see underwar role of engineer,seeunder engineer ofjudge, 31, 381 royalties, liabilityto pay, 235 safety, 94, 139, 202, 209, 218, 234 securitiesand guarantees forms of, 274 accessorysuretyship, 275, 286 conditionalguarantee,275 demandguarantee, 275 documentarycredit, 275 suretyship guarantee, 275 notice,279, 292, 293 periodofvalidity, 276, 279, 291, 292

typesof, bid bonds, 276 concessionbonds, 277 contractbonds, 276 ICC uniformrules,286 features ofICC Uniformrules,287 customsbonds, 276 demandguarantees, 281 ICC uniform rules, 285 features ofICC Uniformrules, 286 fidelitybonds, 276 financialbonds, 276 maintenancebonds, 276 payment guarantees,277 performancebonds, 277 requirements,279 underthe Red Book, 290 improper execution,290 delayed completion,290 examplesof, 294 failure to completetheworks, 290

underthe Sub-contract, 462 underthe Yellow Book,293, 447 unfaircallingof, 289

settlementof disputes, see amicable settlement, arbitration Shari'ah,27, 45 site, 206, 208, 221

Index accepted as contractorfindsit, 209 accessto, 177,209, 210, 239 byownersofpropertiesforming partof the site, 209 clearanceof, 170,240 damage to, 262 definition,206, 210 possessionof, 174, 177, 206, 208 failure to give, 217, 328 thewhole site, 209 slander, 51 sourcesof law, 20, 27, 30,38, 44 in arbitration,379 specialrisks, see risk Statementon Completion,275,240,335,368 statute, 59 strike,271 suspension,176, 178,236, 301, 324, 347 charts, 326,327 consequencesof, 217,328 contractor's entitlementto, 130, 150, 217 engineer's determinationfollowing,129 more than84 days, 143, 227 powerofengineer,325 war, see war supervision,170, 178, 181, 194, 197,202

tender,221 acceptance,222, 357 Appendix to, details oflisteditems, 205 completionperiod, 223, 229, 332, 345 Dispute Boards,393, 397,403 insurance limit, 263 interest, 372 limitofliquidated damages, 332, 347, 360, 362

minimum amountofinterim certificate, 217, 365

percentageoftheinvoicevalue of listed materials,365 rate of interest,216 retention percentage,290, 297, 332, 365

security sum, 222,232, 292, 294 site, 331 intheOrange Book, 453,454 in theSub-contractform, 460 in the 1996Supplement,383, 391, 397 competitive,156, 215, 317 form of,91

657 YellowBook, 442 stage, 209,222, 363, 455 sufficiencyof, 314 testing, 131, 142, 170, 231, 322, 347 costsof, 331 fromtime to time, 322 on completion,181, 237, 366, 367 definition,126 underthe Orange Book,455 termination, 115, 148, 324, 301,328 arbitration and,378 assignmentafter,239 bycontractor,228, 330 byemployer, 329, 333 ofa security,279, 285, 291 payment onor after, 130,217, 330 under clause65, 252 underWorld BankSBDW, 468, 472,477 valuation at, 130, 182,329, 330, 364, 369 thirdparty insurance,see insurance Timefor Completion,170,220,223,228,229, 233, 348, 352, 360, 367 claim,301, 332, 358 definition,345 delay to the, 355, 356, 358,359 extension of, 170, 213, 346,347,444 underthe YellowBook, 447,448 tort, 51, 300 cause of action,55 damagesin, 67 liabilityin, 190 to 202 concurrency,200 meaning, 51 period oflimitation, 116 trespass, 51, 52 trust, 73, 80, 108,110, 425, 430, 376 UNCITRAL Arbitration Rules,21, 476 UNC]ThALConcifiation Rules, 428 UNC]TRAL Model Law, 20

variations,171, 174, 175,301, 302 exceeding 15 %, 306, 307, 368 instructionfor, see instructions natureof, 302 orders, 310—13 • reasons for, 303 records,335 responsibilityfor, 304 valuation of, 178, 304

658

Index

war civil, 248, 250, 270, 328 definition,267 definitionof, 271

suspensionof works and, 328 risk of, 248, 250, 52 terminationand, 252 White Book, 83, 441 Works

meaning,127, 157 care of,see care of the works progress of, 9, 160, 170 World Bank, 84, 109, 136, 465 Group, 465

Standard BiddingDocuments,249, 465 conditionsofparticniar application,467 dispute review board, 436, 454,472 mandatoryprovisions,468 overview,466 Yellow Book, 441 claim under, 293, 449 essentialfeatures, 444 format, 123, 442 origin, 441

performancesecurity,293 Zurich Chamber ofCommerce,434, 435