Understanding and negotiating turnkey and EPC contracts

UNDERSTANDING AND NEGOTIATING TURNKEY CONTRACTS

•

UNDERSTANDING AND NEGOTIATING TURNKEY CONTRACTS

By

JOSEPH A. HUSE Freshfields, Paris

SWEEr" MAXWELL

Published in 1997 by Thomson Reuters (Legal) Limited (Registered in England & Wales, Company No 1679046. Registered Office and address for service: 100 Avenue Road, London, NW3 3PF) trading as Sweet & Maxwell Digitally reprinted in 2009 by TJI Digital, Padstow, Cornwall

ACKNOWLEDGMENTS

The author would like to thank all the partners, managers and staff at the various offices of Freshfields for their assistance. In particular, he would like to thank Matthew Turner and Claire Skrinda for their invaluable efforts with respect to the preparation of the second edition of this book.

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© Joseph A. Huse 1997

v

FOREWORD When the first edition of "Understanding and Negotiating Turnkey Contracts" was written by Mr. Huse, the Orange Book ("Conditions of Contract for Design-Build and Turnkey"), issued in 1995, was the only FIOIC form of contract intended for use in a design and build context. FIDIC being well known for the quality of its prior documents, it was certainly only natural for him to use the Orange Book as a basis for discussing turnkey contracts and proposing negotiation points for the parties. In 1999, three new Books were issued by FIDIC, with their basic structure and wording harmonised around the previous Orange Book format. These Books were the Conditions of Contract for Construction, for Plant and Design-Build, and for EPCffurnkey Projects. The first one is intended for construction works where the employer is responsible for the design, similar to the old Red Book, and with an important role for the Engineer. The two latter ones are intended for cases when the contractor supplies the design. The Plant and Design-Build Book has the traditional Engineer while the EPCffurnkey Projects Book has a two-party only arrangement. With further development, the new (1999) "Conditions of Contract for Plant and Design/Build" retain the essential elements of the earlier Orange Book. It had been noted, however, that new trends in project financing and management, especially related to PFI and BOT, required a different set of conditions, and the "Conditions of Contract for EPCffurnkey Projects" were drafted to cater for this. They complement but do not replace the "Conditions of Contract for Plant and Design/Build", in that they are intended to be used in a rather specific context, e.g.: • • • •

when greater certainty is sought that price and time will not be exceeded; when the Contractor is required to take total responsibility for the design and construction of the infrastructure or other facility; when the Employer is willing to pay more in return for the Contractor bearing the extra risks associated with this; and when uncertain or difficult ground conditions or other largely unforeseeable risks are unlikely to be encountered.

They should rather not be used for design-build work in other circumstances. The decision which Book to use should, therefore, always be taken in full consideration of the particular characteristics of the project at hand. In a similar way, depending on the project context, the first edition of "Understanding and Negotiating Turnkey Contracts" very much retains its merits for a better understanding and appreciation of FIDIC's new "Conditions of Contract for Plant and Design/Build", while the new, second edition is equally valuable with respect to the "Conditions of Contract for EPCffurnkey Projects". vii

FOREWORD

In the very detailed discussion of the context and of the operation of the various clauses, the author pays special attention to the operation of the contract in a BOT project. This will certainly be much appreciated by the many employers and contractors who do not yet have much first-hand experience of such projects but are eager to make the best possible use of this approach to project financing and execution. Other interesting features are the tables summarising the employer's and the contractor's obligations under the various clauses of the contract, and comparisons with other standard forms of turnkey contracts. For FIDIC, its own "FIDIC Contracts Guide", with detailed guidance to the new contracts, remains the main reference work, especially since it was written by the principal drafter of the three 1999 Books. However, Mr. Huse's work is still the major commentary coming from an independent construction lawyer and will therefore certainly receive much positive attention from employers, contractors, lenders and other interested parties. Daniel Ivarsson Managing Director FIDIC

INTRODUCTION

When drafting international construction contracts, practitioners often use standard form contracts as a basis for their documents. The form contract provides a familiar starting point to ease the drafting burden and facilitate negotiation. The Federation Internationale des Ingenieurs-Conseils (FIOIC) has recently published a new form contract for use with the design and construction of works using the engineer, procure, construct or turnkey contracting method. This contract, the FIOlC Conditions of EPCffurnkey Projects (the Silver Book), is aimed at situations where bids are invited on an international basis; with some modification the contract could be used, in certain countries, for domestic contracts as well. The purpose of this book is twofold: (i) to provide a comparison of the terms of the principle design-buildlEPClturnkey contracts; and (ii) to assist contract drafters in their analysis of the Silver Book and in the modification of its provisions to meet the specific needs of the project in question. The final chapter gives drafting suggestions for selected contract provisions of the Silver Book from the perspective of both the contractor and the employer.

Turnkey contracts In a design-bid build contract, the employer supplies the design, which often includes the designation of materials and other key construction parameters. Under an EPC agreement, the contractor provides all of the engineering, procurement and construction. Under a turnkey contract, the contractor supplies the final design of the project. From the perspective of the author, these three terms are largely interchangeable and the drafting of this book reflects this position. These contracts place the design and construction duties in the same hands, providing in theory a more easily co-ordinated project with potential for increased speed of completion and decreased cost, due to tighter project organisation. They also place primary liability on the contractor for any defect in the design, construction or performance of the works. Therefore, as a general proposition, where a defect arises in the works, the employer need not prove to what extent resultant damage was caused by faulty design or by faulty construction, as may be the case under a design-bid-build contract. As the contractor is allocated design, co-ordination and construction responsibilities for the whole of the work, the employer need not provide the same level of technical expertise required under the traditional contract, e.g. he need not provide detailed design preparation capabilities. In complex EPC and turnkey contracts parties often use the lump-sum viii

IX

INTRODUCTION

pricing method. This method provides greater price certainty. Fixed pricing can also facilitate financing, as many banks and other financing institutions prefer or require increased certainty as to the final price for a project. EPC and turnkey contracts often provide for contractor training of the employer's staff, as well as provision of know-how updates, patent licences and other technological aspects of the project. Among the disadvantages of EPC and turnkey are the employer's decreased role in co-ordination of the construction and the cost of tender. The contractor, receiving a lump-sum price, will be under a certain pressure to provide less sophisticated designs in order to save on costs and increase profit. Since the employer is removed from the dominant position in the design and co-ordination of the project he will need to monitor the contractor's performance carefully. An EPC or turnkey contract can also result in an increase in the cost of tendering. The employer will need to develop a complete and clear set of requirements and criteria for the project in order to define the design and construction to be executed by the contractor. The bidders may need to provide an advanced level of design for the project at tender. Such a complete tender will often require extensive studies of the site and the needs of the employer. The following are form contracts cited throughout this book: Silver Book (Federation Internationale des Ingenieurs-Conseils, Conditions of Contract for EPCffurnkey Projects, 1999), a turnkey/engineer-procureconstruct style contract. Orange Book (Federation Internationale des Ingenieurs-Conseils, Condition of Contract for Design-Build and Turnkey, 1995), a turnkey/ design-build style contract. Red Book (Federation Internationale des Ingenieurs-Conseils, Conditions of Contract for Construction, 1999), a standard form contract using an engineer and largely employer-designed works. Yellow Book (Federation lnternationale des Ingenieurs-Conseils, Conditions of Contract for Plant and Design-build, 1999), a contract using an engineer and largely contractor-designed works. ENAA Contract (Engineering Advancement Association of Japan, Model Form International Contract for Process Plant Construction, General Conditions, 1992), a turnkey-style contract designed specifically for process plant construction. ICE Contract (Institution of Civil Engineers, Conditions of Contract Design and Construct, 2001), a design-build style contract. x

INTRODUCTION

EIC Contract (European International Contractors, Conditions of Contract for Design and Construct Projects, 1994), a turnkey-style contract. AlA Contract (American Institute of Architects, Standard Form of Agreements Between Owner and DesignlBuilder, Document A191, 1996), a two-part design-build-style contract. The first part provides for design and budgeting, while the second provides for construction. DBIA Contract (Design-Build Institute of America, Standard Form of Agreement Between Owner and Design-Builder - Lump Sum, 1998), a design-build style contract. AGC Contract (Associated General Contractors of America, Standard Form of Design-Build Agreement and General Conditions between Owner and Design-Builder, 1999), a design-build style contract. Employer-Owner Certain contracts such as the ICE Contract and FIbIC Silver Book use the term "Employer" for the person who has contracted with the contractor for the completion of the works. Others, such as the ENAA Contract, use the term "Owner". Where the discussion is general in nature, the term "employer" will be used. Where the discussion relates to a particular contract, the terms specific to that contract will be used. Notes for reading this book Starting with Chapter 5 the chapters of this book follow the Silver Book clause by clause, in an effort to folIow the logic of its construction. In each section, a comparison is made with provisions from other form contracts. These comparisons are meant, inter alia, to highlight alternatives available to drafters and other approaches to issues considered by the Silver Book. The author does do not claim to provide an intensive study of each and every form contract used. The first chapter describes the different types and elements of construction contracts, including price, payment and co-ordination. It is meant to provide a general overview of construction contracting. The second chapter defines in some detail the turnkey concept, its advantages and disadvantages. The third chapter contains a brief discussion of certain of the other model form contracts and an introduction to the Silver Book. The fourth chapter presents a discussion of BOT contracts and how the Silver Book may need to be modified for use in such projects. Chapters 5 to 24 discuss each clause of the Silver Book. The first section of each of these chapters prevents a general discussion of the topic of the relevant clause of the Silver Book. The second section considers the contract clause section by section, comparing it to other FIDIC contracts, the Orange Book, Yellow Book and Red Book, and to other form contracts. It also gives xi

INTRODUCTION

guidance as to how the clauses should be adapted to the drafter's individual needs. The last chapter provides an examination of the employer's and contractor's interests as they relate to each sub-clause of the Silver Book. This chapter is intended to assist drafters in identifying the needs and interests of the party, and gives some suggestions as to how to modify the Silver Book in relation to the drafter's interests. However, the list of items discussed is by no means exhaustive. This work is also confined to the contractual relationship between the employer and contractor. The author will not venture into the internal organisation of the contractor, by studying the relationship between the contractor and designer, nor the relationship between the contractor and other contractors. Nor will the author discuss contractual groupings of contractors (e.g. consortia or joint ventures) for the purposes of submitting a single tender. The drafting of a construction contract involves important legal consequences. Each project is unique and will require consideration of issues specific to that project and its participants. Changes to model form contracts will have legal implications, which will vary in accordance with the applicable legal system. Reference to this book should not replace reference to competent and experienced legal counsel.

Comment/request for Information The first edition of the FIDIC Conditions of Contract for EPClTurnkey Projects, otherwise known as the Silver Book, was published in December 1999 (although draft editions were available earlier). This means that the construction industry's experience of negotiating and litigating the provisions of the Silver Book has been, until now, necessarily limited. Consequently, in some respects this book is somewhat premature. However, my colleagues urged me to bring out this book as quickly as possible and given the need for a commentary of this type this seem an appropriate thing to do. With this in mind, I would welcome any material or comments that would improve any subsequent editions. In particular, I would greatly appreciate any comments from construction industry professionals regarding their experience in using the Silver Book. Such material or comments should be sent to me at the following address: Joseph A. Huse Freshfields 69, Boulevard Haussmann 75008 Paris France Fax: (33) 1.44.56.44.00 [email protected]

Xli

CONTENTS

Page Acknowledgments Foreword Introduction 1. Types of Contract

Contracting Methods Design-bid-build Single versus multiple construction contracts Management contracting Design-build, turnkey and EPC BOT (Build Operate Transfer) Pricing Methods Lump-sum method Cost-reimbursable or cost-plus Unit price or bill of quantities Bonus schemes and currency of the price Payment Methods Payment after completion Milestone payments Progress or scheduled payment 2. Turnkey and EPC Contracts Advantages and Disadvantages of Turnkey and EPC Contracts Advantages Disadvantages Issues in Connection with Lump-Sum Turnkey or EPC Contracts Standard Form Design-Build and Turnkey Contracts 3. FIDIC Design-Build, Turnkey and EPC Contracts Introduction From the Orange Book to the New Yellow Book Major drafting changes Is the new Yellow Book a good idea? From the New Yellow Book to the Silver Book Major drafting changes Is the Silver Book a good idea? FIOIC Policy on Design-build, Turnkey and EPC Conclusions

v

vii ix 1 1 2 3 4 5 7 9 10 11 12 13 14 14 15 15 17 17 17 20 23 24 29 29 30 30 34 35 35 37 38 39

CONTENTS

CONTENTS

4. The Use of the FIDIC Silver Book in the Context of a BOT Project

8. The Contractor 41

41 Introduction 41 Description of a BOT Project 46 Allocation of Risk Specific Issues raised in connection with the use of the Silver Book 48 in the context of BOT projects 48 Design 50 Construction 53 Tests on completion 54 Taking over 55 Tests after completion 56 Time for completion 59 Price 63 Liquidated damages 64 Guarantees 65 Co-ordination of construction (employer's control) 67 Payments 68 Additional lender requirements 70 Conclusion 5. The Contract General Comments Contract language Conflicts clause Confidentiality clause Definition of design Rights in the construction documents Discussion of Specific Sub-Clauses General provisions

6. The Employer General Comments Access and possession Employer assistance with permits and licences Discussion of Specific Sub-Clauses Employer Obligations in the Silver Book

7. The Employer's Administration General Comments The role of the engineer in the construction contract Turnkey contracts with an employer's representative Comparison of the role of the employer and his representative in the Silver Book with the role of engineer in the Yellow and Red Books Discussion of Specific Sub-Clauses XIV

71 71 71 72 72

73 74 74 74 107 107 107 108 108 117 123 123 124 125 128 130

General Comments The tender phase The performance phase Discussion of Specific Sub-Clauses Key Obligations of the Contractor in the Silver Book

9. Design General Comments Design standard / contractor's liability Design timing issues Discussion of Specific Sub-Clauses

10. Staff and Labour General Comments Provision of staff and labour Superintendence Discussion of Specific Sub-Clauses

1t. Plant, Materials and Workmanship General Comments Discussion of Specific Sub-Clauses

12. Commencement, Delays and Suspension General Comments Commencement and time for completion Completion delays Suspension by the employer Suspension by the contractor Discussion of Specific Sub-Clauses

13. Tests on Completion General Comments Discussion of Specific Sub-Clauses

14. Employer's Taking Over General Comments Discussion of Specific Sub-Clauses

15. Defects Liability General Comments Duration of the defects period Duties placed on the contractor Employer's right to use an outside contractor Expiration of the defects liability period and its effect Discussion of Specific Sub-Clauses

141 141 142 148 152 197 205 205 205 208 209 233 233 233 234 235 251 251 251 273 273 273 274 276 277 277 311 311 312 323 323 324 335 335 336 336 337 337 339 xv

CONTENTS

CONTENTS

16. Tests After Completion General Comments Minimum levels of performance Failure of impossibility of attaining the expected performance Discussion of Specific Sub-Clauses

17. Variations and Adjustments General Comments Variations The variation procedure Value engineering Valuation of variations Provisional sums Discussion of Specific Sub-Clauses

18. Contract Price and Payment General Comments Lump-sum price Adjustment of price for unforeseen circumstances Payment methods The interim payment procedure Retention money Advance payments Final payment and discharge Discussion of Specific Sub-Clauses

19. Termination by Employer General Comments The validity and effect of a termination clause Drafting of the termination clause Default of Contractor Procedure for termination Grounds for termination Effects of termination for default of the contractor Termination for convenience Discussion of Specific Sub-Clauses

20. Suspension and Termination by Contractor General Comments Suspension by the contractor Termination by the contractor Bases for termination Procedure for termination Valuation and payment at termination Discussion of Specific Sub-Clauses

I

xvi

357 357 359 359 360 369 369 370 371 372 372 373 373 393 393 393 394 395 395 396 397 397 397 443 443 443 444 444 445 445 446 447 447 465 465 465 466 466 468 468 469

21. Risk and Responsibility General Comments Employer's risks Contractor's responsibility for the care of the works Indemnification Environmental risks Intellectual and industrial property rights infringement indemnification Limitation of contractor liability Discussion of Specific Sub-Clauses

22. Insurance General Comments Property insurance Liability insurance Terms of insurance and the insurer Proof of insurance Failure to provide insurance Discussion of Specific Sub-Clauses

23. Force Majeure General Comments Force majeure Discussion of Specific Sub-Clauses Comparison of Force Majeure Provisions

24. Claims, Disputes and Arbitration General Comments Procedure for claims Final dispute resolution Discussion of Specific Sub-Clauses Initial claim Supporting documentation Fully detailed claim Interim and final claim measures Employer's response Payment of contractor Formation of DAB Composition of DAB Remuneration of DAB Replacement of DAB member Expiration of DAB Composition and Appointment of DAB Terms of appointment of DAB Remuneration of DAB and DAB activities Failure to pay remuneration

483 483 485 485 485 486 487 487 488 509 509 511 513 514 515 515 515 531 531 531 532 550 555 555 555 561 564 566 567 567 567 568 568 572 574 574 574 574 575 575 575 576 xvii

CONTENTS

Submission of dispute to DAB Decision rendered by DAB Effect of decision rendered by DAB Where one party protests decision rendered by DAB Effect of notice of dissatisfaction Eligibility for arbitration Proceedings before the arbitrators 25. Negotiation of the Silver Book Formulating a Negotiating Strategy: The Key Characteristics of the Silver Book Specific Negotiating Issues

584 585 585 586 586 591 591

599 601

655

2. Engineering Advancement Association of Japan Model Form International Contract for Process Plant Construction (Turnkey Lumpsum Basis) with Process Licence

757

3. European International Contractors: Conditions of Contract for Design and Construct Projects

1

TYPES OF CONTRACT

599

APPENDICES 1. Federation lnternationale des Ingenieurs-Conseils: Conditions of Contract for EPClrurnkey Projects

CHAPTER

819

4. AlA Document A191: Standard Form of Agreements Between Owner and Design/Builder 1996 Edition

843

5. Design-Build Institute of America: Standard Form of Agreement Between Owner and Design-Builder-Lump Sum

869

6. AGC Document No. 415 Standard Form of Design-Build Agreement Between Owner and Design-Builder

903

Index

935

In considering which contracting method to use the employer will need to assess his own particular institutional and technical strengths and weaknesses (including access to financing).1 Each method of contracting affects in its own way the allocation of responsibility and the demands on the employer for coordination of the project. Through the proper allocation of responsibility for the project to reflect these strengths and weaknesses, the employer can rationalise the price of the contract against his exposure to project risks. The employer's first consideration will be to identify the design source, i.e. the person who will develop the employer's requirements for the project into a practicable design. This design source can come from the employer's inhouse staff, an independent consultant or the contractor. The person providing the design will often have some oversight function in the execution of the project to ensure proper implementation of the design and provide for efficient and effective interfaces in the construction of the works. Next, the employer must consider how best to allocate co-ordination responsibility. The individual elements of the design and construction process will need to be properly co-ordinated to ensure balanced and efficient progress. This includes management of incoming and stored supplies, construction by the contractor's employees and subcontractors, and inspection and testing crews belonging to the employer, the contractor or local regulatory bodies. Co-ordination can be provided by the contractor, the employer or a third party such as a management contractor. These two aspects will be discussed under the section on contracting methods (below). Finally, the employer must also consider the pricing method to be used (considered below) and the payment conditions to be incorporated into the contract (also considered below).

1-01

1-02

Contracting Methods Although the construction contract can be broken up into the various elements necessary for construction (such as civil engineering, electrical/mechanical engineering, finishing, and so on) the two main aspects of the construction that the employer needs to consider when choosing the 1

xviii

See generally I.N.D. Wallace, "Contracts for Industrial Plant Projects" (1984) 2 I.c.L.R. 322 at 328 (hereinafter "Contracts").

1

1-03

TYPES OF CONTRACT

1-04

CONTRACTING METHODS

appropriate contracting method are the design function and co-ordination of the works. The employer can himself provide one or both of these functions, or he can allocate them to one or more third parties. Methods of contracting available to the employer can be split into two broad categories: design-bid-build, which separates the design and construction functions, and design-build, or turnkey, which places the entire project, including design and construction, in the hands of the contractor. The turnkey method is often referred to as "engineering, procurement and construction" (or "EPC"), especially in the context of project financing. With respect to the first category, a distinction should be made between a designbid-build project using a single construction contract and a design-bid-build project using several construction contracts.

Design-bid-build

1-05

1-06

The design-bid-build method is the traditional approach to construction contracts (see Figure 1.1). First the employer provides for the design of the project in accordance with his requirements. The designer chosen by the employer then provides a set of drawings sufficient for construction. How far advanced these designs are when used for the tendering process may vary Figure 1.1

The design-bid-build method

I

EMPLOYER

I I l

I 2

DESIGNER

I

ENGINEER

I

ICONSTRUCTION I ICONSTRUCTION I CONTRACT CONTRACT

in relation to the origin and experience of the employer. In France, for example, the contractor will usually be responsible for detailed design. In a design-bid-build project the employer provides the design and co-ordination of the project; thus he will be responsible for the interface between the design and construction aspects of the project. The designer often acts on behalf of the employer as the supervisor or engineer for the project, guiding the contractor in the progress of the works and supervising the interface between the design and construction. Where the project requires extensive financing, this may not be acceptable to lenders (as discussed below). There are a number of potential disadvantages associated with the designbid-build form of contracting. It tends to delay the overall completion date due to the use of distinct design and construction phases (as opposed to the turnkey method). The employer-provided designs will not necessarily correspond with the technical capacities of the contractor. There may be added delay while the contractor familiarises himself with the designs provided and the technology used in the designs.

Single versus multiple construction contracts When choosing the design-bid-build method of contracting, the employer will need to decide whether he wants a number of contractors to fulfil the various construction tasks of the project, or whether to place all of these tasks into the hands of one contractor. When using a number of contractors, the employer may also need to decide which tasks to contract out and which tasks can be provided by his own in-house staff. The employer may choose the multiple-contract approach when he wishes to establish individual construction packages in order to achieve the lowest price. If multiple construction contracts are used, the employer will need to provide co-ordination of the various contractors and, under certain circumstances, subcontractors. 2 Therefore, the employer will be responsible not only for the interfaces between the designs used and the work methods of the various contractors and suppliers, but also the co-ordination of each of the construction packages assigned to such contractors and suppliers. This necessitates either that the employer has the skills and experience to undertake such co-ordination (and understands the construction methods and technology to be used by the various contractors and suppliers), or that he contracts with a competent third party to undertake such co-ordination. The employer's first step in implementing the construction component of such an approach to design-bid-build is to define the individual construction work packages. Construction packages are sometimes defined on the basis of electrical/mechanical works and works of civil engineering. Subject to relevant procurement requirements, the employer will then be able to allocate the individual work packages to the contractor or supplier of his choosing. 2

I.N.D. Wallace, Construction Contracts: Principles and Policies in Tort and Contract (Sweet & Maxwell, London, 1986), p. 401 (hereinafter Construction Contracts).

3

1-07

1-08

CONTRACTING METHODS

TYPES OF CONTRACT

1-09

1-10

Since the employer chooses the individual contractors and suppliers for each construction package, the employer has greater control over the quality of contractors used and materials chosen. By using this contracting method, the employer may also achieve a lower price for the works. The use of several contractors may enable the employer to use local contractors, possibly under the supervision of experienced foreign contractors, particularly where it is in the employer's interest to effect a transfer of technical and managerial skills to the site country. This same goal can, however, be achieved in a single construction contract by mandating the use of local subcontractors for a certain percentage of the works. When using the multiple contract method, properly defining the interfaces among each of the work packages may be problematic. Any ambiguity, or the failure of any such definition, is the responsibility of the employer and may result in contractor claims. For the employer this constitutes one of the major risks of the multiple contractor method. Under the single or prime construction contract method, the employer places the responsibility for all of the construction of the works with one contractor. This relieves the employer of the need to co-ordinate the interfaces among the construction packages. It also reduces the risk of contractor claims in respect of such interfaces. However, it removes from the employer a certain amount of his control over the construction of the works. The use of this method may also result in a higher cost for the construction of the works (as mentioned above). In a design-bid-build project with a single construction contract, the employer will still be required to manage the design/construction interface. However, the employer will be able to pass on to the contractor the responsibility for the interfaces between the various construction packages. Design-bid-build with multiple contractors provides the employer with extensive control over the design and construction process. Not surprisingly, this method also requires the greatest degree of intervention on the part of the employer. He will be responsible for interfaces between the multiple contractors and co-ordination of their work. The design-bid-build model can prove to be disappointing. The designer employed by the employer is often removed from the actual field experience of contracting; thus his designs may be distanced from the realities of construction. This distance could result in inaccurate cost and scheduling estimates, impractical or outdated designs and failure to implement new construction methods. 3

Management contracting 1-11

Management contracting is a less traditional approach which involves hiring a contractor whose role is the co-ordination and management of the project. J

4

Brown, "Opportunities and Risks of Design Build Superconference, San Francisco, U.S., December 7-8, 1995.

Projects~,

The Construction

This management contractor organises time, cost and quality control. He engages a number of other contractors to do the actual construction work. The management contract provides the employer with the control of the project typical of a traditional design-bid-build contract, while reducing the requirements on the employer (a feature similar to the turnkey contract). The primary difference between the management contract and the turnkey model is that the management contractor generally assumes no responsibility for the work of the other contractors or for the performance of the design. 4 He acts purely as a management intermediary. The management contractor can be given any number of different mandates, with greater or lesser powers of intervention in the construction process. He can be involved from the very outset of the project, inviting tenders, negotiating for the employer and selecting contractors, through to the completion of the works. The management contractor's fee can be tied to the completion time or the overall price of the contract, or both, using a target price. The management contractor's fees will decrease where the actual price surpasses the target price, and increase where costs are less than those targeted. Under this system by using target pricing the management contractor has an incentive to control the price of the contract in the employer's favour. Similarly, the management contractor can be required to assume some of the liability for the performance of the works or the quality of construction to provide an incentive to supervise closely the quality of the workmanship and materials that go into the works.

Design-build, turnkey and EPC The "turnkey" arrangement, (also known as the "package deal", "design and build", "cle-en-main " , "design and construct" or "EPC") places the duty to design and construct solely on the contractor. There is no accepted definition for each of these terms in the construction field. The term "turnkey" tends to mean the most extreme form of placing design and construction responsibility on the contractor, such that after completion the employer need only turn the key to commence operation of the constructed facility. Notwithstanding this, the term "turnkey" will be used here to describe the more general global arrangement of placing all design, procurement and construction responsibilities on one contractor. In recent years, design-build projects have seen rapid growth in some parts of the world. For example, use of the design-build method increased from an $18 billion (in the mid-1980s) to a $69 billion (in the mid-1990s) industry and now represents roughly 25 per cent of the United States construction industry.s 4

5

For a detailed analysis of the management contracting method, see generally Freshfields' Construction & Engineering Group, Freshfields Guide to Management Contracting: Law and Practice (1994). . M.L. McAlpine, "Construction Law: Will Design·Build Contracting Really Solve All of the Problems?" (1997) 76 MI Bar Jnl. 522, online: LEXIS at 533.

5

1-12

CONTRACTING METHODS

TYPES OF CONTRACT

1-13

1-14

Where the contractor takes responsibility for the design of the works, the employer's advisers find their involvement limited primarily to the tender process and supervision of the contractor's work. The definition of supervision is likely to be the subject of extensive negotiation between the parties, as the employer will want to maintain control over the construction process. The turnkey system generally uses the lump-sum pricing method. Certain practitioners believe that it is ill-suited to interim payment based on the cost of work done, due to the difficulty of verification by outside experts of the figures submitted by the contractor. 6 The turnkey contract places the responsibility for the entire project in the hands of the contractor. Thus, there is no need to identify whether a defect has been caused by defective design or defective construction of the works. As a general rule, any defect falling within the scope of works will be the responsibility of the contractor. Contractor liability makes design-build contracts particularly attractive for employers.7 The potential liability of the employer under other construction contracts (where, for example, he provides any design specification) has led to a dramatic growth of design-build contracting. 8 The use of the turnkey method of construction results in a considerable reduction of intervention by the employer in the design and construction process, as compared with other contracting methods. The role of the employer will consist primarily of contract administration. His role may also include, depending upon the terms of the turnkey contract, review and/or approval of designs. Further, the design used ought to be consistent with the technical capacities of the contractor, resulting in a more efficient and costeffective application of the design to the construction of the works. The combination of the design and construction responsibilities should also decrease the overall time for completion. This phenomenon is known as "fast track" construction. Efficiencies in the design and construction process may potentially reduce the price of the project. However, certain construction professionals maintain that the claims of earlier completion with designbuild construction are exaggerated and that design-bid-build projects achieve similar completion times. As the responsibility for co-ordination of the project passes from the employer to the contractor, so does some of the control. The employer will experience a decrease in his day-to-day control of the construction of the works. As the contractor's control of the construction increases, so does his need to be experienced in the management of large-scale projects. This may include handling interfaces between multiple methods of construction, interfaces between different industries, and the various designs used by subcontractors and suppliers. Under the turnkey method of contracting, the tender stage takes on greater importance. Given the short time period available, it may be difficult for the

employer to analyse properly each design at tender. 9 Therefore, he will need to be extremely precise in his "request for tender" as to the performance and capacities desired from the works, (known, in the Silver Book, as the Employer's Requirements). The employer will need to spend a greater amount of resources on the tender stage to ensure the contractor and his proposed design are of the requisite quality. Similarly, the contractor may need to expend heavily on bid preparation to ensure the buildability of the project and the profitability of his bid price. to The employer may choose to use a turnkey model for only part of the project (called "part-turnkey" or "semi-turnkey"). The co-ordination responsibility for the entire project will then either fall on the employer's consultants or the turnkey contractor. The contractor will, therefore, bear design responsibility for only a part of the works. ll Thus, for example, the turnkey contractor can provide certain aspects of the works such as heavy civil facilities which require specialised design and attention, while the employer can contract on a designbid-build basis for the finishing of the works and equipment systems. This method decreases necessary interfaces, thus simplifying the co-ordination of the project. It may also separate the responsibility for differing types of work, for example equipment systems work and heavy civil work, thus reducing contact between various industries not necessarily familiar with each other's working methods. The advantages and disadvantages of the part-turnkey model are generally the same as those for the turnkey and design-bid-build models, including considerations related to the combination of the two contract models. Reference should also be made to a variant of the EPC construction methodology referred to as "EPCM" or "engineering, procurement and construction management". The essential difference between EPC and EPCM methodology is that the contractor under an EPCM contract assumes responsiblity for supervision/management of construction but does not assume responsibility for the construction itself. BOT (Build Operate Transfer)12 The typical BOT (along with its variants such as BOO (Build Own Operate), BLT (Build Lease Transfer) and others) contract encapsulates the process whereby a government grants a concession or similar right to a project development company to develop and operate what would normally be a public sector project, for a given period of time known as the concession period. The project development company obtains financing for the project, and then designs and constructs the facility; it then operates the facility during the agreed period and thereafter turns the plant over to the government. The 9

6 ?

8

6

Construction Contracts, op. cit. n. 2 above, p. 365. M.L. McAlpine, op. cit. n. 5 above, 522, online: LEXIS at 555. C.G. Hammond, "Dealing with Defects: Defective Owner· Provided Preliminary Design in Design-Build Contracting" (1998) 15 1.C.L.R. 193 at 196.

1-15

10 11

12

M.L. McAlpine, op. cit. n. 5 above, 522, online: LEX IS at 554; I.N.D. Wallace, "Designand-Build: a No-No for Owners" (1999) 4 Const. & Eng. L. 7 at 8 (hereinafter "No-No"). For an outline of how this process might look under the Silver Book, see the applicable sections of the FIDIC Guide. Construction Contracts, op. cit. n. 2 above. . For further analysis of this concept, in relation to the Silver Book, see Chap. 4.

7

1-16

TYPES OF CONTRACT

l-17

parties generally intend that the income received by the project development company during the concession period (including, in certain circumstances, subsidies) will pay for the cost of financing and running the plant with an adequate return for the investors. These investors often include the contractor. 13 Any BOT project involves a potentially complex contractual structure. However, in most cases, the BOT project will use a turnkey or EPC contract for the actual design and construction. Thus the BOT is not really a separate method of construction contracting, but rather a method of financing the project. Indeed, the lenders of the BOT projects have significant influence on the terms of the underlying construction contract, including the requirement that such a contract be turnkey and, often, in the form of an EPC contract. 14 In a BOT project, the operation period between completion and transfer also gives the transferee an opportunity to verify the quality and quantity of output of the works. The contractor can be required to provide the transferee's personnel with training prior to the transfer, thereby easing transition. The transferee will need to take care to maintain the operator's incentive to maintain properly the works, in order to avoid deterioration in the final period before transfer to the transferee (the operator, in an attempt to save on costs, may towards the end of the operating period decrease maintenance and operating expenditures resulting in accelerated deterioration of the works). In certain BOT projects, the operator is required to assume defects liability for a limited period of time subsequent to the transfer. A BOT project, in practice, is often not as simple as its definition implies. There may be a large number of parties. For example, in a recent hydroelectric project, the project development company (granted a concession by the government), entered into various contracts for the building of the facility, its operation and maintenance during the concession period and a power purchase agreement with an electrical utility. The construction of the facility was provided through a turnkey contract with a consortium of contractors. Each of the turnkey contractors was also an investor in the project development company. A subsidiary of one of these turnkey contractors also acted as the operator of the facility after completion. This complex structure is typical of power plant BOT projects in developing nations, as developing economies struggle to meet the dramatic increase in demand for energy (see Chapter 4 BOT)Y The increasing popularity of the BOT project is largely due to a shortage of public funding and the opinion that the facility will be more efficiently managed by a private entity.16 In theory, the BOT scheme provides developing countries with much-needed infrastructure at a reduced direct cost to the government. I? However, BOT projects are high-cost and high-risk ventures for private entities operating in a traditionally public domain. j. Scriven, "A Banking Perspective on Construction Risks in BOT Schemes" (1994) 11 I.C.L.R. 313 at 314. 14 C. Wade, "History and Scope of the Three Major Books" (1998) online: FIDIC http://www.fidic.comldocumentsllaunchlwade1.html(date accessed: November 19, 1999). IS D. Blumental, "Sources of Funds and Risk Management for International Energy Projects" (1998) 16 Berk. J. Int'J Law 267, online: LEXIS at 270. 16 j. Scriven, op. cit. n. 13 above, 313. 17 S.W. Stein, "Build-Own-Transfer (BOT) ARe-Evaluation" (1994) 2I.C.L.R. 101.

CONTRACTING METHODS

The cost of tender being high, the project company members should take great care to examine the risks associated with the project prior to tendering. The project company will prefer an exclusive and specific mandate from a host country interested in the project and supportive of it. 18 Project company members should have experience not only in constructing large projects but also in investing in and operating such projects. 19 Where the grantor of a concession for a project is a political entity, it takes on a further political risk in that the project is placed in the hands of an entity not necessarily affected by the political repercussions of its actions. The public may not understand that the grantor is removed from the day-to-day operations of the public service subject of a BOT project (e.g., an underground railway) and thus any mismanagement or politically unpopular decision may be imputed to the grantor. Although the contract may provide for grantor influence in the selection of personnel in order to ensure proper operation, the effectiveness of such influence may be practically minimal. The grantor will, thus, want to consider the independent status of the project development company and the potential effect the company's actions may have on the grantor's political position and the public welfare. Banks and other financing institutions will make it a condition of their financing of a project that there is implementation of a contractual scheme that provides them with some certainty as to their financial risk. By using a lump-sum price and placing much of the completion risk on the contractor, the turnkey contract can provide the lenders with a significant amount of certainty and thereby confidence in the project. (A more detailed discussion of the issues can be found in Chapter 4 BOT.) Some authors assert that the "contractor and employer are very likely to rely on the Silver Book as a good compromise approach». 20

Pricing Methods 1-19

Some of the most common methods of pricing a construction project are: (a) (b) (c)

lump-sum; cost-reimbursable; and unit price.

T.hey can be used alone or in combination. The selection of a pricing method directly affects the distribution of certain risks, such as changes in the cost of labour and materials.

IJ

8

1-18

18 19

20

Gurun, ." Build-Own-Tran.sfer Projects: The Contractor's Role in Risk Management", InternatIOnal Ba~ ASSOCIation Conference in Tokyo, japan, February 1993, at 11. S.W. Stem, op. CIt. n. 17 above, 101. C. Pedamon, "~ow is Convergence Best Achieved in International Project Finance?" (2001) 24 Fordham Int J L.}. 1272, online: LEXIS at 1300.

9

PRICING METHODS

TYPES OF CONTRACT

Lump-sum method L-20

The lump-sum method gives a price for the whole of the contract, irrespective of the contractor's as-built cost. The difference between the price and the actual cost of the works to the contractor will constitute the contractor's profit or loss. The contractor assumes substantial risk, including the risk of most changes of circumstances (for example, a change in the price of materials or labour). Although most lump-sum contracts provide for modification of the price in certain limited circumstances, such contracts usually provide that the contractor may not claim additional payment for work indispensably necessary to completion, even where omitted from the specifications of the contract. The employer is therefore given a figure representing his global exposure, although this figure may be subject to adjustment as provided by the contract. The contractor will usually be paid the lump-sum price in instalments. The instalments will be based on a schedule of payments or payable at specified stages of completion. In certain cases the lump-sum price may only be payable by the employer to the contractor upon completion, i.e. where completion is a condition precedent to payment. 21 1-21 The lump-sum is generally easier and less expensive to administer than the other pricing methods, as the price is clearly specified (although variations and other alterations to the contract and its price are still possible). Rather than having to calculate the pricing of completion based on the amount of construction units required or the extent of materials, equipment and services used (e.g. a calculation of the cost of construction), the parties need only refer to the lump-sum price. The employer will need to provide for compilation and transfer of information concerning the site in order to enable the contractor to formulate a realistic lump-sum price. Construction contracts often provide that the contractor will not be required to go through the expense of verifying employer-supplied information. However, the contractor will almost invariably be required to investigate, or be deemed to have investigated, the site and the conditions present at the site. The time and cost associated with lump-sum tendering required of both parties may exceed the cost of tendering in contracts priced in accordance with actual cost. 22 The employer may require the contractor to provide him with a breakdown of the lump-sum price into specific amounts payable for different activities or portions of the works. In a tender process, this information will enable the employer to obtain a better understanding of the basis of the contractor's price. This breakdown will facilitate adjustment or revision of the contract price where provided for in the contract. It may also be used for the pricing of variations.

The lump-sum price regime does not allow for adjustment or revision of the contract price, unless specifically provided for in the contract. There may be adjustment for incorrect data provided by the employer, unforeseeable adverse sub-surface conditions, or changes in the works required by the employer. The employer may also decide to assume the risk of inflation and exchange rate risk. The parties should specify with clarity the situations in which adjustment is available.

Cost-reimbursable or cost-plus Under cost-reimbursable conditions the employer pays the contractor for costs incurred plus a predetermined margin of profit. The margin or fee can be fixed, fluctuating or determined as a percentage of actual costs. For example, the margin for building a tunnel may be a flat fee on completion, a percentage of the actual costs incurred in building the tunnel, or a fee that will fluctuate in accordance with some external measure such as the rate of inflation or the base rate of the central bank of the country in which the tunnel is built. This form of payment may create no incentive to work economically or rapidly, since, for example, the greater the cost, the greater the profit, irrespective of progress. In order to compensate for this lack of incentive the parties can include, as part of the pricing provisions of the contract, an incentive mechanism. One example of an incentive mechanism is target cost. This mechanism may be implemented in a number of ways. One possibility is that any cost above a maximum "upset" or "target" cost will not receive any profit or "fee", and may incur a decrease in "fees" already earned. 23 To increase the incentive to finish within a given time period, the contract could also increase or decrease the fee in relation to the completion date of the project. 24 The cost-plus system is generally only used as a last resort, where it is impossible to calculate construction costs, such as tunnelling works. For example, the Eurotunnel project used a target cost mechanism for the tunnelling works. The construction contract awarded the contractor 50 per cent of the savings should the actual price be les:; than the target price. Where the actual price exceeded the target price then the contractor was liable for 30 per cent of the difference. The contractor's liability was limited to half of the fee, or 12.36 per cent of the contract price for such works. 25 Another method of reducing the employer's risk in respect of the cost reimbursement price is to apply a reasonableness standard. The contractor is then only compensated for costs reasonably expended. However, it may 23

Z4 2\ 22

A. Burns ed., Construction Disputes: Liability and the Expert Witness (Butterworths, London, 1989) p. 26 (hereinafter Construction Disputes). , P.O. Marsh, Contracting for Engineering and Construction Proiects (Institute of Purchasmg & Supply, 1988), p. 164.

10

IS

"Contracts", op. cit. n. 1 above at 345. P.O. Marsh, Contracting for Engineering and Construction Projects (Institute of Purchasing & Supply, 1988), p. 167. Huse, Kirkland and Shumway, "The Use of the Target Concept for Tunnelling Projects in Light of the Eurotunnel Experience", Options for Tunnelling Conference of the International Tunnelling Association, Amsterdam, the Netherlands, April 19-22, 1993, at 6.

11

1-22

1-23

PRICING METHODS

TYPES OF CONTRACT

be difficult to determine the reasonableness of a given cost. 26 This difficulty arises in the pricing mechanism of any cost-reimbursable contract, requiring detailed provisions regarding verification and administration of the contractor's costs, detailed schedules and care in eliminating the possibility that the contractor could make a profit at the costs level before the fee element has been calculatedP An employer becomes dependent on the reliability and efficiency of the contractor, despite protection placed in the body of the contract. 28 The contract may also provide that the employer pay to the contractor only the amount paid for materials and services actually used by the contractor (to take into account any over-ordering by the contractor and subcontractors). The definition of costs may also take into consideration any discounts offered by suppliers. The obligation of the contractor to keep extensive records will provide some measure of protection for the employer in calculating costs.

Unit price or bill of quantities

1-24

According to the unit pricing method, the price of the project is calculated in accordance with the amount of work done. The price is established per unit of quantity with reference to a bill of quantities or a schedule included in the contract which specifies the amount of materials and labour needed for a particular task. This method places the risk of the number of units used on the employer but transfers risk of change in the cost or rate of each unit to the contractor. 29 Thus, if the cost of a unit of excavation in a tunnelling contract is provided at 100, the employer will pay where more units are excavated than expected. However, in the absence of unforeseeable adverse sub-surface conditions (assuming the contract provides a changed conditions clause), the contractor is responsible for added cost where the unit of excavation costs more than 100. The unit pricing method is common in construction contracts. Employers have traditionally used this method where the quantity of construction inputs is not ascertained at the time of contracting. Thus, for example, where the amount of concrete to be used for the construction of a building is not yet ascertained, the employer can price the contract in accordance with the cost of a unit of concrete. The contractor will then be compensated for the actual amount of concrete required, while the employer will be assured a fixed price per unit of concrete. This method continues to be used extensively today, even in projects where the quantity of materials is certain. Certain publications, such as the

26

21

28 29

ibid. at 3. "Contracts", op. cit. n. 1 above at 345-346. Construction Disputes, op. cit. n. 21 above, p. 26. Huse, Kirkland and Shumway, op. cit. n. 25 above, at 3.

12

Standard Methods of Measurement in England, provide forms of schedules as a pricing method. As with the lump-sum pricing mechanism, the parties may provide for a system of adjusting the unit price. The pricing mechanism may provide for changes beyond the parties' control, such as unforeseeable sub-surface conditions, or changes in law or regulations that affect some aspect of the contract. The contract may even provide for adjustment on the basis of changes in the cost of materials or labour. The ability of the contractor to obtain an adjustment to the contract price in respect of certain defined circumstances shifts the risk in respect of such circumstances from the contractor to the employer. The parties should, of course, define carefully any such circumstances and their potential impact on the unit price. The parties will need to agree on a precise method of calculating the quantities used. Although the costs of valuation and measurement associated with a project carried out under a unit-priced contract are not as high as those of a similar project under a cost-reimbursable contract, they are still higher than those necessary under a lump-sum contract. While a good idea in theory, and often in practice, parties should be wary of the potential for the bills of quantities system to be abused. After the Second World War, widespread usage of contracts of this type "rapidly produced a whole science of upward price manipulation bearing no relation to the site realities which lasted for decades due to the apathy of clients' legal advisors and ~he collusion of architects, engineers, etc".30 Eventual disillusionment with the bill of quantities method is perhaps one of the reasons for the growing interest in, and popularity of, the turnkey (and therefore lumpsum) contracting method.

1-25

Bonus schemes and currency of the price In addition to the pricing mechanism, the parties may want to add a bonus scheme to create an incentive for early completion. Such a bonus can be calculated in a manner similar to the calculation of liquidated damages, providing for a fixed amount or percentage of the contract price for each day of early completion. The employer may wish to defer payment of the bonus to the contractor until after the works have been operational for a period of time, such as after the defects liability period, to ensure proper performance of the works. Further, it is not normally advisable to use the bonus system in a cost-reimbursable contract without including a mechanism designed to eliminate any incentive that the contractor might have to construct using more costly methods in order to achieve early completion. The parties will also need to consider the currency in which the price is paid. If the price is to be paid in the currency of the costs incurred by the contractor and such currency is different from the currency of the employer's

30

"No-No" op. cit. n. 9 above at 7.

13

1-26

1-27

PAYMENT METHODS

TYPES OF CONTRACT

country, then the employer carries the risk of a change in the exchange rate between the currency of the employer's country and the currency of the price. Where the currency of the price is the currency of the employer's country then the contractor bears the risk of a change in the exchange rates. If the currency of the contract is a third currency, not that of the employer's country and not that of the costs incurred, then both parties will bear a portion of the risk of a change in exchange rates. In certain countries, the parties may also have to consider exchange control regulations, including restrictions on the currency of payment of a contract and restrictions on indexation tied to a currency other than the currency of the locale of the project. Currency ledging may also be available to layoff part or all of the currency risk onto one or more financial institutions.

Payment Methods 1-28

1-29

When considering the payment provisions of the contract, the parties must agree upon the methods of payment. The contract may provide for a certain portion of the price to be payable upon commencement of the works, through advance payments, in order to provide the contractor with sufficient cash flow to cover the substantial expenditures which may be required at the early stages of construction. For example, in a power plant project, advance payments may be provided for the purchase of certain equipment and machinery such as the generator and the turbines. This advance payment would then be repaid through reduction of future payments. The employer may also want a security to be provided for the amount of the advance payment. An advance payment guarantee for the amount can be provided by a third party much in the same way as a performance security, with the employer giving his consent to the guarantor chosen or a guarantor being indicated in the contract itself. The cost of the guarantee will lessen the benefit of the advance payment to the contractor, but may allow the employer to provide a larger sum than he would otherwise have supplied without the protection of the guarantee. Where funds must be transferred to different locations the parties must consider risks relating to exchange rate fluctuation during transfer, and the tax regulations concerning such transfers. The form of payment may also incorporate some guarantee of payment, such as the use of a letter of credit. There exist a number of methods of payment, three of which are discussed below. The second and third methods are the most commonly used.

it is not unknown on larger projects. When used on such large projects the payment after completion provides a form of contractor financing of the project, requiring the contractor to obtain outside financing himself or to auto-finance the construction. Sometimes this method will be used to finance a portion of the construction with payments extending well beyond completion of the construction.

Milestone payments Under milestone payments the parties set up a schedule of tasks for the contractor to perform. For each milestone achieved, the contractor is paid a portion of the lump-sum price or an amount in accordance with rate schedules, bills of quantities or cost-plus pricing. Payment occurs only after completion of the tasks required. Milestone payments at specified stages of completion provide an incentive for rapid progress. 31 Milestone payments can occur either at the completion of each given milestone, or periodically, resulting in payment for all milestones completed within the period involved. Thus the greater the progress during a payment period the greater the value of the payment received. Contractors may be tempted to carry out the more expensive tasks at the early stages of construction, resulting in less of an; incentive to progress at later stages of completion. Where combined with lump-sum pricing, milestone payments can avoid such "front-loading" by the contractor. 32 This approach may be combined with the progress payment method for certain portions of the works. For example, the parties may decide that the contract will be paid in accordance with milestones except for the price of the plant or certain materials for which the contractor will be compensated once they are in the employer's possession (such as upon delivery to the site).

Progress or scheduled payments

Payment after completion

The contract can provide for payment for work completed during a given period of time, calculating the value of the work done during the period, or simply setting a percentage of the contract price to be paid at the end of each period. The former method of payment is frequently used in connection with the unit-price method of pricing. The latter method of payment is not frequently used. There is little incentive for efficient completion under this latter type of periodic payment since the contractor receives remuneration irrespective of the progress achieved by the work completed. In order to balance the need for progress and timely completion with the use of progress payments, parties may institute different pricing or incentive

The first is rare in large construction contracts, involving the payment of the contract price only after completion of the works involved. This method is more common for smaller subcontracts or simple task-oriented contracts but

J2

14

1-30

)1

Construction Contracts op. cit. n. 2 above, p. 380. "Contracts" op. cit. n. 1 above at 345-349.

15

1-31

TYPES OF CONTRACT

programmes. The use of target costs, as described under cost-reimbursable pricing, will provide the contractor with an incentive to decrease the real cost of the project, while the use of unit pricing will define the value of work completed in order to avoid the effects of increases in costs of materials and labour.

CHAPTER

2

TURNKEY AND EPC CONTRACTS Advantages and Disadvantages of Turnkey and EPC Contracts In recent years the use of turnkey and EPC contracts for construction projects, and in particular infrastructure projects, ha~ become popular with employers and financing institutions. However, · although the turnkey approach is in fashion and it provides many benefits to these entities, it also has certain disadvantages.

2-01

Advantages In traditional design-bid-build projects, responsibility for design and construction is often spread between a number of parties. Design and construction tasks are often performed by separate entities or pursuant to separate contracts. Such projects are often split into different elements, or works packages. These packages will interact with one another (their "interface"). Interfaces exist between the design and all the construction packages but also between the individual construction packages themselves. Generally, in design-bid-build projects the employer takes the responsibility for co-ordinating these various project elements and their respective interfacing. For example, in the construction of a hydroelectric project the employer will have to ensure that the design element and the civil and electrical works interface correctly as well as between the civil and electrical works elements themselves- by seeing, for example, that the foundations can sustain vibration from turbines. Each contractor or participant will only have liability for the discrete project package for which he is responsible. This may lead to a number of problems. Contractors may make claims as a result of poor co-ordination between packages. One contractor may delay the work of others. Furthermore, it may be very difficult to allocate responsibility for defects between a designer and a contractor. By contrast, the turnkey or EPC contract makes the contractor entirely responsible for both the design and construction of the works. The employer receives a completed project in accordance with his performance specifications. When he looks for accountability as to the performance and quality of the works, he need look no further than the contractor. 16

17

2-02

2-03

TURNKEY AND EPC CONTRACTS

2-04

2-05

This means that the employer does not need to worry about co-ordinating contractors effectively (and avoids claims resulting from lack of interface definition). If he wishes to make a claim concerning a defect he can look to the contractor without the need to address whether it is a design or workmanship problem. In addition, single-point responsibility can also reduce the opportunity for claims by the contractor. Under more traditional contracting arrangements, these claims are often based on directions given by the engineer. Since the engineer is no longer a central co-ordinating figure in the turnkey contract and the contractor has taken on the responsibility for the design and construction the turnkey contract may provide decreased opportunity for claims. The contractor must deliver works that are fully operational to the specifications of the employer; any defect or fault is necessarily his responsibility except where the contract provides otherwise. Everything relating to the works can, thus, be concentrated in a single point of responsibility-the contractor. This single point responsibility has two notable consequences: first, the role of performance criteria; secondly, the standard of performance expected from the contractor. The contractor must design and build the works in a manner such that the performance of the finished works satisfies the criteria set out in the contract (otherwise known as performance criteria). The employer will define these performance criteria in such a way as to ensure that the works provide at least the level of performance required for profitable production. The performance criteria may specify output, input, waste, and any other performances the employer may desire. For example, in the construction of a coal-fired power plant the employer will want to ensure that the plant produces sufficient power to satisfy his commercial needs, in particular where he has entered separately into an agreement for a third party to purchase a certain amount of the electricity produced. Thus, these criteria set out levels of performance the employer expects; it is then the responsibility of the contractor to produce works that are in conformity with them. Under a traditional design-bid-build contract the construction contractor and the designer are held to different standards of performance for the completion of the works. Designers in many jurisdictions traditionally have not been required to guarantee results, but rather method. They are held to have a superior base of knowledge, sufficient in competency and ability to complete the design with a reasonable degree of technical skill. For example, courts in the United States have held that the designer, in the preparation of designs and drawings, must exercise his skill and ability, judgment and taste reasonably and without neglect.! This standard represents a professional duty of care. The contractor, on the other hand, often may be required to construct the works

ADVANTAGES AND DISADVANTAGES OF TURNKEY AND EPC CONTRACTS

with due care and diligence. The standards are often defined by the relevant legal system and in accordance with industry practice. The standard of performance can 'vary from contract to contract, and construction contractors are required to complete the works in accordance with the contract. Therefore, the contractor will not generally be held responsible for design deficiencies. Under a turnkey or EPe contract both the designer and contractor responsibilities are placed on the contractor along with a :stricter standard of performance. The standard of performance applied will be provided by the contract, or in the absence of a specific provision, by the applicable law. Under the Silver Book the standard is "fitness for purpose".2 According to English case law, a turnkey contractor is under strict liability to deliver a structure "fit for the purpose" for which it was made. 3 The "fitness for purpose" standard goes beyond a "professional" duty of care, placing on the contractor liability for any failure of the design to perform to the standards required. This provides the employer with works constructed and operational in accordance with the intended purpose or use of the works as provided in the contract. For example, in the construction of a thermal power plant the employer can set out in the employer's requirements the size and nature of the plant desired, as well as its operational output and the consumption necessary to reach such output. Therefore, if the employer's original conception of the works lacked some element necessary for it to be fit for the purpose intended, the contractor would be responsible for ensuring that the finished works contained the missing element. 4 Lump-sum price. The lump-sum pricing method is often used for turnkey and EPe contracts and enables the use of fixed payments by stages of completion. Lump-sum pricing and fixed insta lment payments provide the employer with greater certainty in overall cost as well as in the timing of payments. s This system reduces front-loading by the contractor and encourages rapid completion. It also facilitates financing, as lenders will have greater certainty of financial exposure and the timing of draw-downs. However, even where the contract is priced on a lump-sum basis, the contractor will normally have the right, under certain limited circumstances, to claim an increase in the contract price (as discussed above).

2-07

The role and influence of project financing. Lending institutions, such as the European Bank for Reconstruction and Development, often insist on lumpsum turnkey contracts for construction projects which they finance. Project lenders believe that lump-sum pricing and single-point completion responsibility reduce the completion risk to project lenders and provide greater

2-08

2 J

I

Stated in the U.S. case of Surf Realt)' Corp. v. Standing 78 S.E.2d 901 at 907 (1953) cited in Gravel), v. Providence Partnerships 549 F2d 958 (4th Cir. 1977).

18

2-06

4

5

Silver Book sub-clause 4.1. IBA v. EMI and BICC (1980), 14 B.L.R. 1. For a more detailed discussion of the "fitness for purpose" obligation, see Chap. 8. I.N.D. Wallace, Construction Contracts: Principles and Policies in Tort and Contract (Sweet & Maxwell, London, 1986), p. 408 (hereinafter Constmction Contracts).

19

ADVANTAGES AND DISADVANTAGES OF TURNKEY AND EPC CONTRACTS

TURNKEY AND EPC CONTRACTS

certainty of overall financial exposure. This method of contracting is becoming increasingly prevalent for international infrastructure projects. This is particularly true in BOT and similar projects, where limited recourse financing makes lenders wary of taking further risks when it comes to the pricing of the construction project. 6

2-09

Speed of procurement. The traditional design-bid-build method of contracting contemplates separate and distinct design and construction phases. The turnkey or EPC method combines these two phases and allows construction to proceed along a "fast-track"; in certain cases the contractor can even commence construction prior to the completion of the design phase. Consequently, the turnkey method of contracting may result in earlier project completion.

2-10

Efficiency. Since the contractor both builds and designs the works, the contractor no longer needs to take the time to understand the employer's designs. 7 The design should also take into consideration the contractor's methods of construction, providing more efficient and timely completion. 8 The control given to the contractor should facilitate implementation of new and better approaches to design, developed through his experience and expertise. The contractor will have an incentive to implement such timesaving changes under the turnkey structure, which may not be true under more traditional contracting methods. Since the designer and the constructor work as a team, they are more likely to identify critical flaws in the design at an earlier stage, ensuring avoidance or mitigation of the flaw when such action is more effective. This team approach will help avoid many design and construction risks which a separate designer and constructor would not be able to identify.9 The joining of the design and construction task under one contractor may also reduce the number of disputes which arise between the contractor and employer.

Disadvantages

2-11

Loss of control. The overall design and construction supervision role of the engineer is absent from the turnkey contract. Under the Silver Book, the engineer's supervisory role has been replaced, but in part only, by that of the employer's representative. This new role is relatively flexible, allowing D. Blumental, "Sources of Funds and Risk Management for International Energy Projects" (1998) 16 Berk. J. /nt'/ Law 267, online: LEXIS at 271, 288-289. 7 However, contractors operating under the terms of the Silver Book would be wise to take time to understand employer designs, as the contractor is strictly liable for any designs proVIded by the employer under the Silver Book. See discussion in Chap. 9 (design) • Construction Contracts, op. cit. n. 5 above, p. 407. 9 Brown, "Opportunities and Risks of Design Build Projects", The Construction Superconference, San Francisco, U.S., December 7-8, 1995, p. 5.

input in and control of the design and construction of the works. However, the turnkey model generally contemplates less day-to-day intervention than is present under a traditional design-bid-build contract. Under the turnkey contract, it may be more difficult for the employer to exercise his variation power properly. He may be distanced from the design, reducing his understanding of the processes used and his ability to verify the need for a variation and whether the variation proposed will affect the performance of the finished works. Where the engineer designs and co-ordinates the construction, the employer knows at each stage how the works may need to be altered. In the absence of the engineer, the employer's understanding of the process of the design and construction of the works may be diminished. The contractor will want to execute the works within the parameters of the employer's requirements for the least cost possible. The contractor in a turnkey or EPC contract may be tempted to under-design the project in order to cut his costs and save on time. Therefore, under the turnkey or EPC model the employer will still need to provide supervision of the construction, to ensure that the contractor's performance satisfies the contract requirements. Indeed, where the nature of the project is such that design changes are likely to be necessary (and yet where the contractor will not be entitled to an increase in the contract price) the employer should be aware that the ultimate maintenance costs and long-term performance of the project's structure may be negatively affected. 1o Some employers try to offset this risk by requiring the successful bidder to operate and maintain the facility for a period of time after construction, thereby providing the contractor with incentive to produce an efficient, low-maintenance product. 11 Cost of tender.12 When tendering for a turnkey contract, the contractor often must have a design in the advanced stages of completion, having made sufficient tests and studies to know the costs and the level of risk involved in the project. Under such circumstances, the cost of tendering a turnkey contract can be quite high. In order to counteract the expense of bidding, the World Bank has suggested limiting the number of bids to a maximum of six, based first on technical merit and secondly on price competition. 13 The employer can also offer to make a payment to those contractors giving serious bids, but who are not chosen. This will decrease the cost of bidding to the contractor and increase the quality of the bidding pool. However, in practice, employers do not often provide for such payment.

6

20

M.L. McAlpine, "Construction Law: Will Design-Build Contracting Really Solve All of the Problems?" (1997) 76 M/ Bar Jnl. 522, online: LEXIS at 557; I.N.D. Wallace, "Design-andBuild: a No-No for Owners" (1999) 4 Canst. & Eng. L. 7 at 8. " M.L. McAlpine, op. cit. n. 10 above, online: LEXIS at 555. 12 For further discussion of issues relating to the tendering process, see Chap. 5. 13 G. Westring, "Turnkey Heavy Plant Contracts from the Owner's Point of View" (1990) 7 I.C.L.R. 234 at 235. 10

21

2-12

TURNKEY AND EPC CONTRACTS

The cost to the employer of verifying the design-if such verification is possible considering the time frame of the tender process-may prove to be quite high. As one construction expert has noted: " ... if a really detailed check of the design and specification is attempted, using consultants engaged for that purpose by the owner, the basic saving in costs by way of reduced fees of professionals is likely to prove illusory" .14 The temptation to underdesign, combined with the difficulty of verifying the quality and efficiency of the design tendered, could result in increased contract cost. Further, carrying out an effective comparison between the various tenders (due to their individual design characteristics) will likely prove costly in both time and money to the employer. IS In order to avoid the temptation to accept bids based on price rather than quality of design, the World Bank suggests a two-stage bidding process. During the first stage contractors submit unpriced technical proposals. It is only during the second stage that prices are considered. A legal counsel for the World Bank suggests five main steps: pre-feasibility, feasibility, bidding, evaluation of bids and award of contract, and negotiation. 16 Such staged bidding will allow the employer to look first to the quality of the design, then only secondly at the bid price.

2-13

ISSUES IN CONNECTION WITH LUMP-SUM TURNKEY OR EPC CONTRACTS

Issues in Connection with Lump-Sum Turnkey or EPC Contracts There are a number of key issues relating to the drafting and negotiation of lump-sum turnkey or EPe contracts which drafters will need to consider carefully, to ensure complete and effective allocation of risk. The key issues include the following: (a)

(b)

(c)

Cost of risks,l7 Under the turnkey or EPC contract the employer benefits from an increased amount of the risk of the project being placed on the contractor. However, depending upon market forces, a contractor will attempt to increase the contract price in accordance with the increase in risk. IS Where there is little competition, the employer may have to assume the cost of the increased risk placed on the contractor. Thus the employer may end up paying a higher overall price for the project due to the degree of risk that is placed on the contractor and the need for the contractor to price such risk. Indeed, this is the idea behind the risk transfer and the justification for such transfer. Whether the advantages of the turnkey contracting method will outweigh the disadvantages will depend primarily on the nature of the project in question and the identity of the parties involved. Naturally, the answer will also be influenced by the balance of power in the contracting relationship. The current employer-dominated market often results in greater risk being allocated to the contractor, without a commensurate increase in the contract price to the contractor.

(d)

(e)

(f)

(g)

(h)

(i) I~ IS 16

11 18

Construction Contracts, op. cit. n. 5 above, p. 409. I.N.D. Wallace, "Design-and-Build: a No-No for Owners" (1999) 4 Const. & Eng. L. 7 at 8. G. Westring, "Turnkey Heavy Plant Contracts from the Owner's Point of View", op. cit. n. 13 above at 236-238. For further discussion of risk allocation issues, see Chap. 21. P.O. Marsh, Contracting for Engineering and Construction Projects (Institute of Purchasing & Supply, 1988) at 252.

22

19 20 21

The definition of the scope of the works l9 : the parties will need to specify carefully the scope of the works and the employer's requirements. in order to define the contractor's liability for design, construction and performance. 20 Use of an engineer or employer's representative: the parties will need to decide how to make use of an engineer and his role (or the role of the employer's representative) in the execution of the project. Increases in the contract price: the lump-sum price is fixed, except to the extent that the contract provides for price increases for certain events or modifications. Due to the contractor control over the works, the employer may want to limit the. ability of the contractor to obtain such increases. Extensions of time for completion: the time for completion of the works, otherwise fixed, can be extended under certain circumstances. The employer may want to limit the scope of the contractor's right to obtain such extensions. Resp~nsibilit.y for employer-supplied designs: the risk of employersupplied desIgns should be specifically allocated as between the parties. 21 Employer's ris.ks: the contract will need to list the employer's risks, so as to proVIde a comprehensive allocation of such risk for the project. Performance guarantees: the parties will need to discuss the form and amount of the security provided by the contractor to the employer for performance of the contract. This security can take the form of ~ bank guarantee or other security and/or retention money. Completion: the contract should provide a definition of the extent and nature of completion required before the employer takes over the works. It should identify whether any performance tests are to be passed before or after such completion. Defects liability: the parties will need to decide the period of time

The definition of the scope of the works is found in the employer's requirements in the Silver Book. Under the Silver Book, the contractor is responsible for almost the totality of the risk assocIated WIth these phases of the process. Under the Silver Bo~k, the contractor is deemed to have scrutinised the employer's requirements and therefore IS generally responsIble for the accuracy of any designs provided in such requIrements (SIlver Book sub-clause 5.1).

23

2-14

TURNKEY AND EPC CONTRACTS

during which the contractor will be responsible for remedying any defect that may arise in the works. (j) Training of staff: to the extent training of staff is required, the parties will want to provide for a period of time during the contract period and before the employer takes possession of the works for the contractor to train the employer's staff. (k) Use of a consortium or a joint venture by the contractor: a consortium or joint venture of contractors may prove beneficial to the employer as they can provide more expertise as well as a broader base of liability for the completion of the works. However, the employer will need to ensure that the contractors agree to joint and several liability and elect a representative of the joint venture with sufficient decision-making power to facilitate interaction with the employer. (I) Regulation of labour to be used on site: including origin of staff, facilities to be supplied and the skill and experience to be required of such employees. (m) The organisation of the site: including the contractor's responsibilities for safety and protection, as well as sanitation and services such as water and electricity. (n) Effect of local law and regulations including allocation of the responsibility for obtaining permits and licences. (0) Patent and know-how rights and licences of the technology necessary for the completion of the works. The drafter of a turnkey contract will need to consider each of these points, among others. Allocation of risk for these issues should follow a reasonable assessment of the ability of the parties to bear the risk in question.

Standard Form Design-Build, Turnkey and EPC Contracts 2-15

Sectors that require a high degree of expertise and technicality, such as the construction sector, often engender the development of standard form contracts. 22 Such forms can be an important factor in reducing costs for the participants, as they represent a predictable and stable basis upon which parties can begin negotiating. 23 Indeed, some attribute the sophistication and existence of standard form contracts for design-build projects to be a measure of the popularity of this project delivery system. 24 When using standard form contracts, however, parties should always keep in mind the specificities of the project (which may make a particular contract less suitable) as well as the particularities of the governing law (which may denature, if not override, sometimes key provisions of the standard form contract). 22

C. Pedamon, "How is Convergence Best Achieved in International Project Finance?" (2001) 24 Fordham Int'/ L.}. 1272, online: LEXIS at 1294.

23

ibid. at 1298. M.L. McAlpine, op. cit. n. 10 above, online: LEXIS at 553.

2~

24

STANDARD FORM DESIGN- BUILD AND TURNKEY CONTRACTS

Over the past few years a number of standard form design, build, turnkey and EPC contracts have been published. These include: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j)

the ENAA Model Form International Contract (1992); the ICE Design and Construct Conditions of Contract 2nd Ed. (2001); , the DBIA (1998); the AlA Contract Form A191 (1996); the AGC 415 (1994); the EIC Contract (1994); the FIDIC Orange Book (1995); the FIDIC Silver Book (1999); the FIDIC Yellow Book (1999); the FIDIC Red Book (1999).25

The above list is by no means exhaustive. A brief introduction to each of the listed contracts is set forth below. The ~~AA Contract Model Form, The Engineering Advancement Assocl~tlon of Japan (ENAA) is a non-profit organisation that was established 10 August 1978 and supported by the Ministry of Economy, Trade and I~dustry.of J~~an and by various other national and local government agenCies, UniverSIties and research organisations. The Association has the support of numerous specialists from member companies as well as various experts in their respective fields. 26 ' . This book. refers .to the second edition of the ENAA model form published 10 1992, which reVised the first edition issued in October 1986. Volume 1 of the EN~A Model ~orm for Process Plant Construction is reproduced in the appendl~es of thiS book. The remaining four volumes, Samples of Appendices (Volume 2), Guide Notes (Volume 3), Work Procedures (Volume 4) and Alternative Form ~ithout Process Licence (Volume 5) are not reproduced. T~e form contract IS meant for use in connection with the design and construction .of process plants using the turnkey approach.27 In 1996 the ENAA published a standard form relating to Power Plant Turnkey Cont~a~ts. That edition consisted of three volumes: Agreement and General Condlt1ons (Volume 1), Samples of Appendices (Volume 2) and Guide Notes (Volume 3). It has not been reviewed for the purposes of this book.28 The ICE Design and Construct Conditions of Contract. This model contract :-vas drafted by the Conditions of Contract Standing Joint Committee which IS the permanent joint committee of the Institute of Civil Engineers (ICE), the l':I0te that, although not a turnkey contract, for comparison purposes this book will also con. SIder the terms of the Red Book. ~; jay~es, ".Turnkey Contracts: japan's Model Forms" (1993) 10 I.C.L.R. 251 at 253. Engmeermg Advancem~nt Association of japan, Model Form International Contract for 28 Process Plant ConstructIOn, Volume 3 Guide Notes (1992), p. 1. T~es~ fo~ms m~y ~ obtained by contacting the ENAA at GECIENAA, CYD Bldg. 1-4-6, NIshI Shmbashl,. Mmato-ku, Tokyo 105-0003, japan; telephone +81 35024441; fax +81 3502 5500; emaIl [email protected]. 25

25

2-16

2-17

STANDARD FORM DESIGN-BUILD AND TURNKEY CONTRACTS

TURNKEY AND EPC CONTRACTS

design-build method of contracting, the AGC first published a set of standardised design-build contracts in the early 1990s. 36 In 1999 the AGC published the standard form contract AGC 415 to be used as a follow-on document to the 1999 edition of AGC 400. Unlike its predecessor, AGC 415 is not intended as a stand-alone agreement, but rather assumes that schematic design documents plus a preliminary estimate and schedule (i.e. the work product of AGC 400) is part of the owner's program provided in AGC 415. The revision of AGC 415 was developed with the advice and cooperation of the AGC Private Industry Advisory Council which council is comprised of a number of Fortune 500 owners' design and construction managers who meet with AGC contractors to discuss issues of mutual concern. 37

Association of Consulting Engineers and the Federation of Civil Engineering Contractors. This drafting body has a long history in and experience of traditional forms of contract, including, most recently, the ICE Minor Works 3rd edition (2001) and the ICE Conditions of Contract, 7th edition (2001). The ICE Design and Construct Contract 2nd edition, referred to here as the ICE Contract, is based on the traditional form contracts of the ICE and adapted for use in connection with the design and construction of civil engineering works. The second edition of the ICE contract reflects certain changes made in light of "legislative change and [... 1evolution of working practice".29 2-18

2-19

2-20

The DBIA Agreement Between Owner and Design-Builder-Lump Sum. The Design-Build Institute of America (DBIA) was founded in 1993 in order to promote the design-build project delivery process throughout industry and government in the United States. 30 In 1998 the DBIA published Document No. 525, Standard Form Agreement Between Owner and Design-Builder-Lump Sum. This form is examined in this book, along with Document No. 535, a Standard Form of General Conditions of Contract Between Owner and Design-Builder, which complements this document.

The European International Contractors Turnkey Contract. The European International Contractors (EIC) is associated with the FIEC (Federation de l'Industrie Europeenne de la Construction) and the CICA (Confederation of International Contractors' Associations). Its membership includes 15 construction industry federations in 15 different European countries. 38

2-21

The FII~IC Design-Build and Turnkey (Orange Book). Created in 1913, the Federation Internationale des Ingenieurs-Conseils (FIDIC) represents national associations of consulting engineers. It maintains its seat and secretariat in Lausanne, Switzerland. The first FIDIC conditions of contract were published in 1957 with the aid of the Federation lnternationale du Batiment et des Travaux Publics (FIBTP). The (1995) Orange Book represents the fifth FIDIC form of contract. It is intended for use with international design and construct contracts.

2-22

The FIDIC Plant and Design-Build (Yellow Book). The (1999) Yellow Book (first edition) is based both on its predecessor (the (old) Yellow Book) and on the Orange Book. 39 The Yellow Book is intended "for plant and for building and engineering works designed by (or on behalf of) the Contractor where, nonetheless, the Employer may have executed some design".4o

2-23

The AGC Document 415 Standard Form of Design-Build AgreementLump Sum. The Associated General Contractors of America was formed in 1918 with the intention, amongst others, to adopt standard form construction contracts "which would equitably divide responsibilities and risks and assure fair competition for works". 35 In response to a renewed interest in the

The FIDIC Construction (Red Book). The (1999) Red Book (first edition) is based on its predecessor (the (old) Red Book) and is intended to be "suitable for building and civil or other engineering works designed by the Employer or by his representative, the Engineer" .4!

2-24

Online: The ICE http://www.ice.org.uklnavigationlindex_news.asp?page=/newsI pressarchive.asp Online: The DBIA http://www.dbia.org/aulindex.html(date accessed: August 16, 2001); online: The DBIA hrrp:/lwww.dbia.org/aulmission.html(date accessed: August 16,2001). R.J. Smith, "Risk Identification and Allocation: Saving Money by Improving Conrracts and Contracting Practices" (1995) 12 I.C.L.R. 40 at 58. M.L. McAlpine, op. cit. n. 10 above, online: LEXIS at 558. American Institute of Architects, Form A 191 Instruction Sheer at 1. J.E Butler, "Protecting Owner with Conrract Clauses" in R.E Cushman & K.S. Taub (eds), Design-Build Contracting Handbook (Wiley Law Publications, New York, 1992),253 at 255. T.J. Stipanowich, "Reconstructing Construction Law: Reality and Reform in a Transactional

System" (1998) Wis. L. Rev. 463, online: LEXIS at 485 n. 74 citing in turn Booth Mooney Builders (or Progress 6 (1965). ' , ~; M.L. McAlpine, op. cit. n. 10 above, online: LEXIS at 553. AGC Document 415 Instruction sheet. 38 Dr J.J. Goudsmit, . "The EIC (European International Contractors) Turnkey Contract 39 (Co?dltlons for DeSIgn and Construct Projects)" (1995) 12 I.C.L.R. 23. Online: FIDIC http://www.fidlc.org/resources/contracts/courses.asp (date accessed, April 4 2001. . ,

The AlA Form A191. The American Institute of Architects (AlA) is a national association of architects whose form contracts for design-build projects are a standard in the construction industry of the United States. 3! AlA contracts are particularly well suited for architectural projects. 32 The AlA A191 Standard Form of Agreement Between Owner and Design/Builder is for use where the employer contracts directly with one entity for both design and construction services. 33 The AlA A191 is a two-part agreement, developing the project and the design through two separate agreements, one for preliminary design and budgeting and one for final design and construction. 34 This structure and the guiding concepts of this form are markedly different from the approaches of the other standard forms examined in this book.

29

30 31

I

32 33 34 35

26

40

41

C. Wade, "~istory and Scope of the Three Major Books" (1998) online: FIDIC http://www.fidlc.comldocumentsllaunchlwade1.html(date accessed: November 19 1999) at 2 ibid. at 2. ' .

27

TURNKEY AND EPC CONTRACTS

2-25

Due to significant changes between the two versions of the Yellow and Red Book contracts, FIDIC issued the new contracts as first editions. CHAPTER

The FIDIC EPC and Turnkey Projects (Silver Book), The Silver Book (1999 first edition) was issued for EPC Turnkey Projects and is suitable for BOT projects as well as process plant projects (such as E&M, or electrical and mechanical, projects).42 The Silver Book provisions arguably reflect industry practice at the expense of FIDIC's traditional even-handed approach. 43 Under the Silver Book, the contractor takes a higher degree of risk and, therefore, the construction time and cost are more certain. 44

31

FIDIC DESIGN-BUILD, TURNKEY AND EPC CONTRACTS Introduction Over the past 40 years, the Federation Internationale des IngenieursConseils (FIDIC) has developed an unparalleled reputation as the leading body for the development of model standard form contracts for use in the international construction industry. In September 1998, FIDIC published four new or revised standard form contracts comprising new editions of two existing forms-the Red Book 2 and the Yellow Book 3-and two completely new forms-the Silver Book4 and the Green Book. s Definitive editions of these contracts were published in 1999. Previously, FIDIC had in place two contracts that were based on the nature of the works: broadly speaking, the Red Book (fourth edition)6 dealt with civil engineering works and the Yellow Book (third editionj7 with electrical and mechanical works (in both instances, the employer and/or the engineer either supplied the design or played a central role in producing it). FIDIC prepared the Orange Book (first edition)8 to provide a contract where the contractor supplied the design and took single-point completion responsibility. The Orange Book, unlike the old Red and Yellow Books, contemplates the use of an employer's representative and does not use the term "Engineer". The new Red and Yellow Books have shifted this perspective to contracts based on the relationship between the parties, particularly with reference to which party takes responsibility for the design. 9 The revised Red Book is now primarily focused on those situations where the employer will supply A previous version of this chapter (in anticipation of the publication of this edition) first appeared in (1999) I.C.L.R. 27 and was co-authored by Joseph A. Huse and Jonathan Kay Hoyle. 2 Conditions of Contract for Construction (for Building and Engineering Works Designed by the Employer) (1998). J Conditions of Contract for Plant and Design-Build (for Electrical and Mechanical Plant and for Building and Engineering Works Designed by the Contractor) (1998). • Conditions of Contract for EPC Turnkey Projects (1998). S The New Short Form of Contract (1998). 6 Conditions of Contract For Works of Civil Engineering Construction (1992). 7 Conditions of Contract for Electrical and Mechanical Works (1998). S Conditions of Contract for Design-Build and Turnkey (1995). • See also the comments of Christopher Wade in his paper "History and Scope of The Three Major New Books" in FIDIC's New Standard Forms of Contract, IBC U.K. Conferences Limited. 1

42

43 44

ibid. at 5. ibid. at 4; see generally C. Wade, "The Silver Book: The Reality" (2001) 18 (3) I.C.L.R. 497. Online: FIDIC www.fidic.orglresources/contracts/courses.asp (date accessed: April 4, 2001).

28

29

3-01

3-02

FROM THE ORANGE BOOK TO THE NEW YELLOW BOOK

FIDIC DESIGN-BUILD, TURNKEY AND EPC CONTRACTS

3-03

the design (and an engineer will be used) and the new Yellow Book on those situations where the contractor supplies the design (and an engineer will be used). By contrast, the Silver Book is intended to deal with something entirely new in FIOIC's scheme: an EPCIO turnkey contract where the contractor takes responsibility for design and the contract is on a strictly two-party basis (that is to say, there is no intermediary such as the engineer). The new FIOIC contracts are harmonised around the same basic format: that of the Orange Book. Therefore, the new Red, Yellow and Silver Books are now all structured in the same way: the 20 clauses of the Orange Book taking account of the particulars of each contract. This harmonisation has extended to the language of the contracts. Much of the basic Orange Book language has been retained in the three contracts. The author welcomes, for the most part, the specific drafting changes to, for example, the new Yellow Book (as compared to the Orange Book) that FlOIC has undertaken. However, he questions the rationale used in developing the new Yellow Book and Silver Book, particularly in light of their relationship to the existing Orange Book and the role they will playas design-build contracts.!! This chapter will first provide some preliminary comments on the new Yellow Book and the Silver Book. The chapter will then consider FIDIC's overall approach to design-builditurnkey/EPC contracts and attempt to reach certain tentative conclusions regarding the policy underlying the new Yellow Book and the Silver Book. This chapter is not meant to constitute a detailed analysis of the language of the new Yellow Book and the Silver Book, which may be found in subsequent chapters.

From the Orange Book to the New Yellow Book 3-04

The following analysis will first describe certain (but not all) of the major changes made to the drafting of the Orange Book in the development of the new Yellow Book. It questions whether, instead of drafting the new Yellow Book, FIDIC should simply have prepared a second edition of the Orange Book. All parenthetical clause references are references to clauses in the Yellow Book.

Major drafting changes

3-05

"Defects Notification Period" (Sub-clause 1.1.3.7). This definition is not in the Orange Book. The concept of the contract period in the Orange Book

10 II

Engineering, Procurement and Construction. For further discussion of this term see para. 3-32 below. FIDIC now has three design·build contracts: the Orange Book, the New Yellow Book and the Silver Book.

30

has been removed (something the author welcomes). The period is defined as one within which defects are notified and runs from the date on which the works are certified as being complete. Assignment (Sub-clause 1.7). Surprisingly, the Orange Book did not contain any general language concerning assignment. This omission has been corrected in the new Yellow Book. Neither party can assign any "benefit or interest" without the prior agreement of the other party. However, they can assign, as security, the right to money due under the contract to a "bank or financial institution". This is clearly a sensible addition.

3-06

Compliance with Laws (Sub-clause 1.13). Under the new Yellow Book scheme the employer has been given responsibility for obtaining "the planning, zoning or similar permission for the Permanent Works, and any other permissions described in the Employer's Requirements".

3-07

Employer's Financial Arrangements (Sub-clause 2.4). This sub-clause is not in the Orange Book. The employer must furnish "re~sonable evidence" after a request from the contractor that the financial arrangements for the project have been made and are being maintained. This seems a fair measure-the contractor should have a means of satisfying himself, if the need arises, that the employer is capable of paying. However, the sub-clause leaves open the issue of what constitutes reasonable evidence. This ambiguity is particularly important given the remedy that the contractor has if he is not satisfied by the employer's evidence.!2

3-08

Employer's Claims (Sub-clause 2.5). This sub-clause is not found in the Orange Book. It mirrors the formal requirements placed on the contractor by making the employer follow a claims procedure for certain payments he wishes to obtain from the contractor or any extension of the defects notification period. The employer must present a notice to the contractor after which the engineer determines the claim on the basis of the particulars supplied.

3-09

The Engineer (Clause 3). The employer's representative in the Orange Book is replaced, in the new Yellow Book, by an engineer; however, his powers and duties under the contract are broadly similar to those of the employer's representative (for example, the first determination of extensions of time and extra cost, certification of payments, issue of the taking-over and performance certificates). As under the Orange Book, he does not have the authority to amend the contract, he must be suitably qualified and he may delegate his duties to an assistant. There are limited differences between the role of the engineer and that of the employer's representative (for example, sub-clause 3.4); however, most

3-10

12

See Clause 16 (Default of Employer) of the Yellow Book. The contractor is entitled to termi. nate the contract if he does not receive reasonable evidence within 42 days after giving notice.

31

FROM THE ORANGE BOOK TO THE NEW YELLOW BOOK

FIDIC DESIGN-BUILD, TURNKEY AND EPC CONTRACTS

of these differences are due to the drafting and best practice changes, many of which are described in this section (paragraph 3-05 et seq.). The author also notes that under sub-clause 3.2 of the Orange Book the employer's representative shall be a suitably qualified engineer or other appropriate professional and that under sub-clause 3.1 of the new Yellow Book the engineer is deemed to act on behalf of the employer.

3-11

Training (Sub-clause 5.5). This sub-clause is not found in the Orange Book and is a welcome addition. It sets up a regime for the contractor to train the personnel for operation and maintenance of the plant. The contractor is often best placed to carry out such training.

3-12

Testing (Sub-clause 7.4). The testing regime has been modified under the new Yellow Book. The employer now has the express right to vary the location or details of the tests by means of a variation. If the varied or additional tests show that the plant, materials or workmanship are not in accordance with the contract then the contractor pays the costs of carrying out the variation. This clause also contains a provision allowing the contractor to claim extra cost and time when "complying with the Employer's instructions (to refrain from proceeding with the tests) or as a result of a delay for which the Employer is responsible".

3-13

3-14

3-15

Remedial Work (Sub-clause 7.6). This is an entirely new sub-clause in the new Yellow Book. It provides that the contractor may now be asked to carry out remedial work on any plant and materials by removal, substitution or re-execution of the work. The contractor must comply with any such instruction irrespective of whether he intends to challenge its validity. Programme (Sub-clause 8.3). The programme provisions have been restructured and modified in order, presumably to take account of what FIDIC considers to be current best practice. Broadly, the contractor now has a duty to submit revised programmes when the operative programme is inconsistent with current progress or with the contractor's obligations. The contractor must now warn the engineer of "probable future events or circumstances which may adversely affect the work".13 Extension of Time for Completion (Sub-clause 8.4). In the new Yellow Book, two grounds for claiming an extension of time have been added to the Orange Book scheme. First, the contractor is able to claim for "unforeseeable climatic conditions"; secondly, he can claim for "unforeseeable shortages in the availability of personnel or Goods caused by epidemic, changes in Law or other governmental actions".

IJ

However, the language in the Orange Book relating to precedence networking techniques has been removed.

32

Tests on Completion (Clause 9). The new Yellow Book wording now takes account of three phases:

3-16

(i)

pre-commissioning tests including appropriate inspections and functional tests; (ii) commissioning tests including specified operational tests; and (iii) trial operation (it is made clear that trial operation does not constitute taking-over).

If any of the tests on completion have been unduly delayed by the employer then the contractor may claim an extension of time for completion and extra cost. In the event that the plant fails to pass the tests on completion then the employer has the same remedies as under the Orange Book.14 However, rejection of the works is no longer an unfettered right; it has been qualified by whether such failure deprives the employer of "substantially the whole benefit of the Works". Adjustments for Changes in Cost (Sub-clause 13.8). This sub-clause provides for the possibility of price adjustment in the new Yellow Book for "cost of labour, Goods and other inputs to the Works". This provision is optional ("if this Sub-Clause applies"); see, however, the similar clause in Part II of the Orange Book.

3-17

Insurance (Clause 18). There have been a number of changes to the insurance scheme under the new Yellow Book but perhaps the most noteworthy is that the contractor is no longer required to take out insurance for his design.

3-18

Force Majeure (Clause 19). The framework for force majeure under the Orange Book contains a number of unsatisfactory features. IS Under the new Yellow Book, there has been a wholesale reworking. Important changes have been made to what constitutes force ma;eure. 16 The insistence in the Orange Book of a force majeure event having to be beyond the control of both parties has been removed. The test has now become one based on an event which:

3-19

(i) (ii)

is beyond a party's control; could not reasonably be provided against before entering into the contract; (iii) could not be reasonably avoided or overcome; and (iv) was not "substantially" attributable to the other party. I. See sub-clause 9.4 Orange Book. The remedies are: (i) further repetition of tests, (ii) rejectIon of the works or section, and (iii) issuance of a taking-over certificate plus an agreed reduction in the contract price. IS See sub-clause 19.1 of the Orange Book. Note, for example, the concept of impossibility. 16 Changes that appear to be based on model wording set out by the International Chamber of Commerce (ICC) in Paris. Brochure No 421. See also the comments of Christopher Seppala in his paper "Risks, Force Majeure, Claims, Disputes and their Resolution" FIDIC's Four New Standard Forms of Contract, !BC U.K. Conferences Limited.

33

FROM THE NEW YELLOW BOOK TO THE SILVER BOOK

FIDIC DESIGN-BUILD, TURNKEY AND Erc CONTRACTS

Two examples of force majeure have been added-the operation of forces of nature and change in law.

Is the new Yellow Book a good idea?

3-20

3-21

FIDIC states that the Orange Book is suitable for works "which may include any combination of engineering (including civil, mechanical and electrical) and building works" (emphasis added)Y By comparison, the new Yellow Book is recommended "for the provision of electrical and/or mechanical plant, and for the design and execution of building or engineering works". The basis of the contract is stated to be that the contractor "designs and provides, in accordance with the employer's requirements, plant or other works which may include any combination of civil, mechanical, electrical and/or construction works" (emphasis added).18 From this standpoint, with the exception of the use of the term "Engineer", there would seem to be little to differentiate the aims of the new Yellow Book from the Orange Book. As discussed above, the role of the "Engineer" under the new Yellow Book is broadly similar to the role of the "Employer's Representative" under the Orange Book. Aside from the confusion that may be caused by use of the term "Engineer" in this context, it is also surprising from an historical perspective. In early drafts of the Orange Book, FIDIC had included the term "Engineer" but the term was deleted before the issue of the test edition. From a design and build perspective, the changes described in paragraph 3-05 et seq. above cannot be considered as radical. In this regard, the allocation of risk has remained broadly the same as the Orange Book. In certain limited instances, additional risk has been placed on the contractor-for example, it is now the contractor's responsibility to ensure that personnel are properly trained to operate the plant and he now has an express obligation with respect to remedial work. In certain limited instances, the employer has been allocated additional risk-for example, the employer takes the risk of obtaining planning and zoning permission for the works. In some cases, changes have modified procedures but not significantly shifted risk from one party to the other-for example, the tests on completion now comprise three phases including trial operation. On the basis of this comparison of aims and the actual drafting changes in the new Yellow Book, it is arguable that there is little essential difference between the Orange Book and the new Yellow Book-both are design-build contractS-that place substantial risk on the contractor. Consequently, it would seem legitimate to pose two questions: (i) (ii)

why did FIDIC go back to the use of the term "Engineer" in the design-build context; and why did FIDIC simply not issue a second edition of the Orange Book?

I 17 18

See the introduction to the Orange Book (1st edition). See the introduction to the new Yellow Book.

34

From the New Yellow Book to the Silver Book The following analysis will first describe certain (but not all) of the major differences between the new Yellow Book and the Silver Book and then query whether similar changes should also have been made to the new Yellow Book and the Orange Book. All parenthetical clause references are references to clauses in the Silver Book. The reader should note that virtually all of the changes described in paragraph 3-05 et seq. above, with the exception of those in respect of the "Engineer", "Adjustments for Changes in Costs" and "Extension of Time for Completion", have been included in the Silver Book.

3-22

Major drafting changes Employer's Administration (Clause 3). Consistent with FIDIC's stated aim of making a strict two-party contract, the role of the engineer or employer's representative has been removed. The employer deals directly with the contractor; for example, the employer determines in the first instance claims for extra cost and/or extension of time. However, the employer has the option of having a representative if he so wishes and he may delegate any authority to such a representative.

3-23

Setting Out (Sub-clause 4.7). The contractor now takes responsibility for "the correct positioning of all parts of the Works, and shall rectify any error in the positions, levels and dimensions or alignment of the Works". The corresponding provision of the new Yellow Book-according to which the employer is responsible for any errors "in these specified or notified items of reference" and the contractor may, under certain circumstances, seek an extension of time or extra cost if extra work is necessary as a result of such errors-has been deleted.

3-24

Site Data (Sub-clause 4.10). The contractor is responsible for verifying as well as interpreting all relevant data in the employer's possession, made available to the contractor, on hydrological and sub-surface conditions at the site. The corresponding provision of the new Yellow Book does not contain any such obligation on the contractor in respect of the verification of the data.

3-25

Unforeseeable Difficulties (Sub-clause 4.12). Under the new Yellow Book, the contractor may obtain extra time or cost in the event that he encounters unforeseeable sub-surface conditions. Under the Silver Book, the contractor is deemed to have taken account of all necessary information; furthermore, the contract price is not adjusted "to take account of any unforeseen difficulties or costs" (emphasis added) except as otherwise

3-26

35

FROM THE NEW YELLOW BOOK TO THE SILVER BOOK

FlOIC DESIGN-BUILD, TURNKEY AND EPC CONTRACTS

stated in the contract. Contractors will argue that this is an unreasonable allocation of risk.

3-27

Design Obligations (Sub-clause 5.1). Under the Silver Book, the contractor has been allocated almost all of the design risk. The contractor is deemed to have taken account of the employer's requirements and he is "responsible for the design of the Works and for the accuracy and completeness of the Employer's Requirements (including design and calculations)". Thus, as under the ICE19 design-build contract, the contractor's risk with respect to design includes not only his design for the works but also the employer's requirements generally. The employer also disclaims any responsibility for information given to the contractor. The above responsibility is, however, tempered by the addition of wording identifying three parts of the employer's requirements for which the employer remains responsible: (i) the definitions of intended purposes of the works; (ii) criteria for testing and performance of the works; and (iii) any other portions of the works for which the employer is responsible under the contract.

3-28

Taking Over of Parts of the Works (Sub-clause 10.2). Under the Silver Book, there is a simple bar on early taking-over or use of parts of the works by the employer subject to the agreement of the parties.

3-29

Tests after Completion (Clause 12). The Silver Book provides that the contractor is responsible for carrying out the tests after completion.

3-30

The Contract Price (Clause 14). The payment structure of the Silver Book is different from the new Yellow Book. The concept of certification has been dropped; it has been replaced by interim payments (although both the new Yellow Book and the Silver Book have the same system of statements for showing the amounts due). This is consistent with the direct relationship between the employer and the contractor contemplated by the Silver Book.

3-31

I

Employer's Risks (Sub-clause 17.3). There are three areas of risk which the Silver Book has not retained as employer's risks from the new Yellow Book scheme. First, use or occupation by the employer of any part of the works, presumably on the basis that the employer is barred from using the works except as agreed between the parties. Second, design of any part of the works by the employer's staff and personnel, on the basis that the contractor takes all the design risk. Third, any operation of the forces of nature which is not reasonably foreseeable.

Is the Silver Book a good idea? The Silver Book, according to FIDIC, would appear to be designed for a specific role. It is described as being a contract for "EPC Turnkey Projects". It would be inappropriate to place any exaggerated emphasis on the nomenclature "EPC!Turnkey". FIDIC has, until now, placed no special emphasis on the use of the word "turnkey". As far back as 1995, in the introduction to the Orange Book, it was stated that "there are no universallyaccepted definitions of the terms 'design-build' and 'turnkey', except that both involve the Contractor's total liability for design" (emphasis added). In as much as a distinction was made it rested on turnkey contracts being the provision of a "fully-equipped facility, ready for operation and ... typically includ[ingJ design, construction, fixtures, fittings and equipment the scope of which would be defined in the contract documents" .20 Likewise with the term "EPC"; it is simply an acronym for "Engineering, Procurement and Construction" . FIDIC has set out in the introduction to the Silver Book what it believes to be the key concept of an "EPC" contract for use in a project finance context. It states that such projects require greater certainty about cost and, therefore, final price than is ordinarily the case (generally driven by the concern of lenders). Consequently, it is necessary for the contractor "to assume responsibility for a wider range of risks than under the traditional Red and Yellow Books" -all in the name of greater cost certainty. Thus, FIDIC seems to be putting forward the Silver Book as a design-build/turnkey with greater price certainty that will be acceptable to the employer (and lenders) for such a project. However, it goes on to state that the Silver Book is suitable for projects "where the government departments or private developers wish to implement their project on a fixed-price turnkey basis and with a strictly two party approach" (emphasis added). As can be seen from the previous section, the Silver Book places greater risk on the contractor than the Orange Book or the new Yellow Book. In the areas of site data, unforeseeable conditions and design, the contractor is allocated substantially all of the risk (apart from the intended purpose of the employer's requirements and the testing criteria). However, the number of such changes remains relatively small. With the exception of the role of the engineer/employer's representative and the related issue of certification of payment, the rest of the Silver Book does not appear to be fundamentally different from the Orange Book and the new Yellow Book. Furthermore, it is arguable that the scope of the changes that FIDIe has included in the Silver Book as compared to the Yellow Book are not sufficient to make the contract a "project finance" construction contract. In this regard, FIDIC states in the introduction to the test edition, that the contract "may need to be adapted to take account of the special, if not unique, 20

19

The Institution of Civil Engineers Design and Construct Conditions of Contract (1999), sub. clause 8(2)(b)_

36

See Hudson, Building and Engineering Contracts (11th ed., 1995), section 3.026 pp. 426-428, where the editor suggests that the expressions "turnkey" and "design-and-build" can now be said to be synonymous.

37

3-32

3-33

FIDIC DESIGN-BUILD, TURNKEY AND EPC CONTRACTS

characteristics of each project, as well as the requirements of lenders and others providing financing". 21

FIDIC Policy on Design-build, Turnkey and EPC 3-34

3-35

From the wider perspective of strategy and policy there appears to be some confusion over how the FIDIC "design and build" contracts (i.e. the Orange Book, the new Yellow Book and the Silver Book) will operate in practicethat is to say, how these contracts conceptually fit together and in which circumstances it would be appropriate to use each of them. FIDIC has chosen not to update the Orange Book. While the contract has been used as the basis of the drafting of the new Yellow Book and the Silver Book, the Orange Book itself has not been the subject of the new modifications. On this basis, the Orange Book would seem no longer to represent best practice and therefore should not be used unmodified. This policy of benign neglect towards the Orange Book is somewhat puzzling. The Orange Book had started to gain market acceptance and FIDIC is simply not in the habit of launching and then discarding form contracts. 22 The new Yellow Book has made a number of changes to the present Orange Book; these changes could be described as (i) minor drafting changes and (ii) incorporation of best practice. One of the few major conceptual changes is that the new Yellow Book now makes use of the term "Engineer". Yet, in fact, when the engineer's role under the new Yellow Book is examined it turns out to be quite similar to that of the employer's representative under the Orange Book. However, the use of the term "Engineer" may cause potential users to avoid adopting the contract. The Silver Book itself is largely based on the new Yellow Book. One major difference is that the engineer has been removed in order to make the contract a "two-party" contract-although in the event that the employer chooses to use a representative he presumably could have powers similar to those of the representative under the Orange Book. Another major difference is that additional risk has been placed on the contractor. However, FIDIC is also apparently keen to promote the Silver Book as a fixed-price turnkey contract on a two-party basis not limited to project financing. From this it would appear that FIDIC has not decided whether these changes regarding additional risk constitute "best practice" or constitute necessary modifications purely in a project financing context. 23 If FIDIC believes that such changes constitute best practice, it should also have made corresponding changes to the new Yellow Book and the Orange Book. However, it is 21 22

23

FIDIC POLICY ON DESIGN-BUILD, TURNKEY AND EPC

unlikely that contractors will agree that such changes should in fact be characterised as best practice, particularly when they are imposed outside of a project finance context. With these considerations in mind, the author has to wonder whether it would not have been more appropriate to update the Orange Book as FIDIC's flagship "design and build" contract and take account of its project finance applications in an expanded set of particular conditions.

Conclusions FIDIC is to be applauded for its decision to harmonise the basic structure and wording of the new Red, Yellow and Silver Books around one model. FIDIC is also to be congratulated on making a comprehensive attempt to make the new design-build contracts consonant with best practice. The author broadly welcomes the quality of the changes made to the drafting of the Orange Book in the development of the new Yellow Book and the Silver Book-although it is to be expected that employers and contractors will have differing views as to the appropriateness of certain of these modifications. However, the author queries why FIDIC went back to the use of the term "Engineer" in the design-build context and why it did not issue a revised version of the Orange Book instead of issuing the new Yellow Book. The Silver Book retains the changes made to the new Yellow Book but with a strict two-party approach. The Silver Book places completion risk on the contractor additional to that contemplated by the new Yellow Book and the Orange Book. FIDIC states that the Silver Book is suitable for all fixedprice turnkey projects (with a two-party approach). FIDIC apparently believes that the provisions regarding allocation of additional risk to the contractor constitute best practice for all such projects, and not just projects financed on a '"project finance" basis. If this is the case the author does not share FIDIC's view. Further, if indeed this is FIDIC's view then corresponding changes in the new Yellow Book and the Orange Book should have been made as well. If, however, FIDIC believes that the Silver Book is suitable for all such projects except that the allocation of additional risk provisions should be implemented only in the project finance context, then FIDIC could have prepared special conditions to the appropriare standard form design. build contract reflecting this approach.

For further discussion on this point, see Chap. 4. Wade comments that although the Orange Book has been superseded, in practice superseded FIDIC contracts continue to be used by certain parties years after a new edition has been published. C. Wade, "The Silver Book: The Reality" (2001) 18 (3) I.C.L.R. 497. For discussion and defence of the rationale behind FIDIC's introduction to the Silver Book, see ibid.

38

39

3-36

3-37

CHAPTER

4

THE USE OF THE FIDIC SILVER BOOK IN THE CONTEXT OF A BOT PROJECT1 Introduction In August of 1.999, the Federation Internationale des Ingenieurs-Conseils ("FIDIC") published the first edition of its Conditions of Contract for EPCffurnkey Projects, commonly referred to as the "Silver Book". In the Introductory Note to the Silver Book, FIDIC states that the Silver Book is intended to be suitable, in particular, for BOT and similar type projects. This chapter will identify important issues and generally discuss the suitability of the Silver Book in BOT-type projects. It will begin by providing a description of a typical BOT power project, then discuss issues of risk allocation in such projects and conclude with an examination of the relevant provisions of the Silver Book as they relate to the BOT method.

t

Description of a BOT Project

The term "build-operate-transfer" or "BOT" is used to identify a particular type of project, generally falling within the broa'der category of project financing. In project finance, as the term is now commonly used, a project is developed and financed on a non-recourse or limited recourse basis. Project lenders look primarily to the revenues generated by the completed facility for repayment of the loan and to all the project assets as security for the loan. Project finance differs from traditional loan structures in that lenders generally have recourse only to project assets or limited recourse to sponsor assets. Under the BOT model a particular country's government ("host government") identifies an infrastructure need, for example, a power generation facility. Potential sponsors organise in an effort to obtain a concession from the government through a bidding process. Under such a concession, the sponsors agree to build and own the project for a specified number of years and to then transfer ownership of the facility to the host government. The sponsors will organise into some type of special purpose vehicle ("project I

4-01

A version of this chapter (in ancticipation of the publication of this edition) first appeared in Huse, "The Use of the FIDIC Silver Book in the Context of a BOT Project" (2000) 17 I.C.L.R. 384.

J.

41

4-02

DESCRIPTION OF A BOT PROJECT

THE USE OF THE FIDIC SILVER BOOK IN THE CONTEXT OF A BOT PROJECT

4-03

company"), which will normally be a limited liability company. However, the choice of form will depend on the specific needs of the sponsors regarding taxation, risk and management requirements. It is interesting to note that the roots of project finance for government projects may be traced at least as far back as the period between the middle ages until the seventeenth century.2 The historical roots of this process indicate that it may remain a useful method of finance for times to come. The project company will be obligated under the concession agreement signed with the host country to design and construct the works, and possibly operate the works during the concession period. Once the facility is built, the project company will use the income generated by the facility'S operations to make repayments of the loans incurred for the construction process and operate the facility. Any extra revenue will be distributed to the shareholders as a return on their equity. At the end of the concession period, the project company transfers the facility back to the host country that granted the concession. Funds for the facility's construction are provided by loans from any mixture of commercial banks, export-credit agencies or multilateral agencies. Generally, one or several commercial banks will organise the loan facility as the arrangers. The loan will often then be syndicated in order to allow a number of lenders to participate in the credit facility and to distribute the risk among a greater number of lenders. The credit agreement signed between the project company and the lenders will be a key document in a BOT project because it may impose detailed requirements to be incorporated in the concession, construction and other agreements. Pledges of project assets as well as sponsor and other guarantees will be put in place as security for the loan. As indicated above, revenue from the project's operation will fund loan repayments. The reason for using project financing for the construction of large infrastructure projects is evident. The sources of direct financing available from the public sector are not presently sufficient to fund the infrastructure needs of many developing economies in regions such as Africa, Asia and Eastern Europe. In particular, certain infrastructure projects, such as electrical power generation, require a scale of investment beyond the capabilities of the governments of most emerging economies. 3 Even in developed countries, many governments are unwilling to use their scarce resources to fund projects. 4 2

C. Pedamon, "How is Convergence Best Achieved in International Project Finance?" (2001) 24 Fordham Int'J L.J. 1272, online: LEXIS at n. 3.

D. Blumental, "Sources of Funds and Risk Management for International Energy Projects" (1998) 16 Berk. J. Int'l Law 267, online: LEXIS at 296. • Perhaps an indication of the widespread or growing use of BOT financing structures, UNIDO published UNIDO, Guidelines for Infrastructure Development Through Build-OperateTransfer (BOT) Projects (UNIDO, Vienna, 1996) (IDISER.0/22); and UNCITRAL published UNCITRAL, Legislative Guide on Privately Financed Infrastructure Projects (UN, New York, 2001) (UNDOC. NCN.9/SER.B/4) online: UNCITRAL Homepage (pdf format) http://www.uncitral.org!englishltexts/procurem/pfip-index-e.htm (date accessed: July 16, 2001). For further discussion see Pedamon, op. cit., n. 2, ahove. J

I

42

Figure 4.1

4-04

The structure of a BOT project Shareholders

Shareholders' agreement

Credit agreement

Power purchase agreement

Concession agreement

O&M agreement

~--------~OPERATOR

Construction contract

Fuel supply agreement

CONTRACTOR

This shortage of such public funding and a belief that the construction and operation of the facility would be more efficiently managed by a private entity has led to the development of the BOT project finance mode!.s The BOT method of project finance is rapidly becoming the vehicle of choice for large-scale infrastructure projects. 6 The BOT concept theoretically allows .1

6

Other variants include the BOO (build-own-operate) and the BLT (build-lease-transfer). D.A. Levy, "BOT and Public Procurement: A Conceptual Framework" (1996) 7 Ind. Int'l & Camp. L. Rev. 9.1 at 96.

43

4-05

THE USE OF THE FIDIC SILVER BOOK IN THE CONTEXT OF A BOT PROJECT

governments to obtain needed infrastructure without using public funds. In addition, the government will assume much less risk as compared to the project company and the various lenders. Although critics in a number of countries have questioned whether the BOT format truly gives significant advantages in comparison with more traditional formats, it is being used on an increasing number of major infrastructure projects worldwide. This increased use of the BOT financing techniques has led to a greater awareness among infrastructure project participants of the need for careful risk analysis and allocation in structuring a successful BOT project. Figure 4.1 shows the structure of a typical BOT power project. Such projects generally require a complex contractual structure, including a construction element that reflects the numerous interlocking elements. 4-06 The shareholders' agreement (top of chart): this governs the relationship of the shareholders in the project company. The agreement will cover items such as the business of the project company, conditions precedent to its creation, the issue of shares and the management of the project company. 4-07 The credit agreement (upper left): this contains the terms and conditions pursuant to which the lenders agree to loan funds to the project company. The lenders to the project may include commercial banks, export credit agencies and multilateral lending institutions such as the World Bank. The credit agreement is of particular importance in the BOT context as the lenders will generally be responsible for financing a substantial portion of the project. A typical equity to financing ratio might be 30 per cent to 70 per cent, respectively. As a result of this funding, the lenders will usually have a substantial influence in the drafting of the other agreements involved in the BOT project with a view to limiting the risk they bear (in particular the concession agreement, the power purchase agreement and the turnkey construction contract). 4-08 The concession agreement (upper right): the government grants a concession to the project company for a fixed period, the concession period, for the operation of a project which would often otherwise belong to the public sector. The concession agreement may also provide the legal and tax regime applicable to the project and any environmental obligations of the project company. The terms of the concession will need to satisfy the requirements of all of the project participants, including the lenders. 4-09 The power purchase agreement (left): this is of primary importance in a BOT power generation project. It creates a contractual relationship between the power purchaser and the project company obligating the power purchaser to purchase a certain amount of electricity over a given time period. This obligation may be based on a take-or-pay regime, whereby the power purchaser must purchase a minimum amount of power at a certain price. If it does not purchase (or take) the minimum amount, it must nevertheless pay the price. The project company is obligated to provide a certain quantity of electricity over the given period, and the power purchaser's obligation is subject to the condition that the project company is capable of delivering the amount in question for the relevant period. 44

DESCRIPTION OF A BOT PROJECT

The power purchase agreement will provide sanctions, including liquidated damages, where the project company fails to deliver electricity as promised (in particular as a consequence of the power plant not being finished within the time for completion or not performing as required). Failure to deliver where the works are not maintained in a manner sufficient to ensure continued operation at the intended output levels may also result in liquidated damages being imposed on the project company. The duty to purchase output may also involve requirements that the power purchaser maintain transmission lines and a power grid sufficient to receive the power transmitted. One of the more significant risks in the power purchase agreement is the devaluation of the local currency. Lenders will often require loan repayments in a hard currency, such as U.S. dollars, and may require the project company to fix power purchase obligations in the currency of repayment, rather than in the local currency. This causes the power purchaser to assume the risk of changes in the exchange rate, namely devaluation of the local currency due to inflation or other events. Consequently, if the local currency is subject to significant value fluctuation it may require more local. currency for the power purchaser to purchase the fixed amount of power from the project company. Since consumer electricity rates are generally inflexible, the price charged to the consumer may be insufficient for the power purchaser to meet its power purchase obligations to the project company. This risk of default is very real, and the power purchaser's default may cause a default by the project company with regard to its loan repayments. However, it is possible for the project company and the power purchaser to share this risk. Nonetheless, default of the power purchaser is a primary risk to the success of a BOT power project. The fuel supply agreement (lower right): this obliges a fuel supplier to deliver periodically a given amount of fuel at a certain level of quality to the operator. This agreement allocates market risk involved in the price and availability of fuel to the fuel supplier. The terms of this agreement will be closely linked to those of the power purchase agreement and operation and maintenance agreement. The operation and maintenance agreement (right): the project company and other project participants will want to ensure proper operation of the works during the concession period. Thus the project company will enter into an operation and maintenance agreement with some entity (possibly one of the sponsors) to operate the facility. The maintenance obligations of the project company under the power purchase agreement will in large part be passed to the operator. The government will also want to ensure that the operator is bound to a strict maintenance programme to avoid degradation during the final phases of the concession. In some cases warranties will be given as to the state of the works at the time of transfer to the government. The construction contract (bottom): in a BOT project this is generally a turnkey construction contract, sometimes referred to as an EPC (engineering, procurement and construction) contract. The lenders, in search of security and certainty of exposure, generally require the use of turnkey contracts with a fixed lump-sum price placing the majority (and in some cases substantially all) of the completion risk on the contractor. Lenders may also require

45

4-10

4-11

4-12

ALLOCATION OF RISK

THE USE OF THE FIDIC SILVER BOOK IN THE CONTEXT OF A BOT PROJECT

4-13

that the contractor acknowledge and consent to the assignment of the employer's right under the contract to the lenders.7 Other contracts: Although not represented on the chart, the project company may also enter into certain external credit support arrangements, as required by the lenders. Some examples are direct agreements (consent agreements), collateral warranties, equity contribution agreements, subordinated loan agreements and sponsor guarantees. The project company will also need to have in place a stand-by credit facility because the costs of the project normally exceed the original contract price. This may involve primary loan facilities in an amount greater than the original contract price or some form of stand-by credit facility.

Allocation of Risk 4-14

4-15

As the focus of this work is the FlDIC Silver Book, the following discussion of risk allocation does not attempt to cover all the risks to all the parties in a BOT project. Much of the risk allocation will occur in contracts other than the construction contract, such as the concession and the power purchase agreement. However, some aspects of risk allocation can be discussed generally before moving on to a more specific discussion of the FIOIC Silver Book provisions. The assessment of which parties will be affected by a particular element of risk, and in what way, will be quite complicated and difficult to clarify since many project participants typically assume several project roles (for example, the turnkey contractor may also be one of the shareholders of the project company and/or the operator). In most projects, the following risk allocation operates: market risk will be assumed by the project company (and the power purchaser to a limited degree-for example, in a power project); design, construction and commissioning risk will be assumed by the contractor; and operation and maintenance-related risk will be assumed by the operator. The majority of political risk, such as events of war, rebellion and delays by authorities, will generally be allocated to the government through the concession agreement. It is appropriate that the government accepts such risk as they are the sole party who could control it (by direct influence) and mitigate its effects. Any residual risk will be borne, in the first instance, by the project company, which will frequently attempt to transfer this risk to the host government. The project lenders, positioned as they are behind the project company, will want to limit their assumption of any risk, but will generally be unable to displace all of it.

I 7

B. De Cazalet & R. Reece, "The New FIDIC EPC BOT Contract" (1999) Project Finance Inf/, online: FIDIC http://www.fidic.orglresourceslcontractslbot_ pfi_ nov99.asp (date accessed: July 4, 2001) at 6.

46

Provisions that deal with risk allocation may be drafted so as to mirror the language of the concession, and other agreements, (e.g. power purchase). This will generally have to take account of considerations such as identical language for force majeure and extensions of time (e.g. for the project company under the concession agreement and the turnkey contractor). Such back-to-back language reduces the scope for ambiguity and gaps between the various agreements. However, in order for it to function effectively the governing law and dispute resolution clauses need to be identical. For example, to save time and money and to avoid the risk of conflicting decisions, the employer "may wish to try to find a way of involving the contractor in dispute resolution proceedings with the grantor or otherwise to oblige the contractor to accept findings made in:such proceedings". 8 A practical solution to such difficulties is to include "if and when" language in the turnkey contract-for example, the turnkey contract may state that the contractor is entitled to extensions of time, under certain circumstances, if and when such extensions are granted to the project company under the concession agreement. Few projects appear to implement such arrangements. The project company may also wish to see an overriding provision in the turnkey contract such that the contractor is under an obligation to perform so that the project company is not in breach of its obligations in the concession and other project agreements. Completion risk, containing elements of design, construction and commissioning risk as well as other residual risk, will be a factor for all of the principal project participants. A certain number of them will typically bear the greatest level of such risk (in particular, the Contractor), but even the power purchaser may end up bearing some of the completion risk. The allocation of risk for lenders is further affected by the recourse that is open to them with regard to the financing of the project. The financing may be recourse, non-recourse or limited recourse. Recourse financing provides the lenders with full recourse to the assets of the shareholders (or other project participants) in the event of default on repayment of the loan by the project company. Non-recourse financing limits the lenders' recourse to the assets of the project at hand. Limited recourse financing provides the lenders with recourse to the assets of the shareholders up to a limited maximum amount and over a limited period of time (although such financing may be structured in a variety of ways). In a limited recourse financing, the period of recourse may be limited to the period until completion of the works (which will generally be defined in the contract and marked by the issue of a certificate or the passing of specified tests). It may be limited to the period in which certain financial ratios are achieved or to the period until the works are "up and running" (e.g. subsequent to a period of performance at a certain level and over a certain period of time). In the event of certain breaches of a covenant or representation by the project company or its shareholders (often limited to intentional breaches) such limitations may no longer operate. 8

Ibid. at 6.

47

4-16

4-17

THE USE OF THE FIDIC SILVER BOOK IN THE CONTEXT OF A BOT PROJECT

SPECIFIC ISSUES RAISED IN CONNECTION WITH THE USE OF THE SILVER BOOK

BOT projects are typically financed primarily on a limited or nonrecourse basis with the cash flow generated by the project and the project assets constituting the principal project security. Therefore, project lenders (and consequently the other participants) in such projects have become particularly sensitive to the need to identify and allocate project risks at a very early stage of the development of the project. Although the contractor assumes much of the risk, vis-a-vis the owner, during the construction phase (see discussion below) the construction phase is the "most critical stage for the lenders" as in non-recourse financing they only have recourse to the project assets and "as such, the lenders take on proportionally greater risk".9

Understanding and Negotiating Turnkey Contracts lO in 1997, has been incorporated into the FIDIC Silver Book (e.g. sub-clauses 5.1 and 5.8). 5.1

The Contractor shall be deemed to have scrutinised, prior to the Base Date, the Employer's Requirements (including design criteria and calculations, if any). The Contractor shall be responsible for the design of the Works and for the accuracy of such Employer's Requirements (including design criteria and calculations), except as stated below. The Employer shall not be responsible for any error, inaccuracy or omission of any kind in the Employer's Requirements as originally included in the Contract and shall not be deemed to have given any representation of accuracy or completeness of any data or information, except as stated below. Any data or information received by the Contractor, from the Employer or otherwise, shall not relieve the Contractor from his responsibility for the design and execution of the Works.

Specific issues raised in connection with the use of the Silver Book in the context of BOT projects 4-18

As mentioned above, the Silver Book was specifically drafted for use in BOT projects. However, it is important to note that most large contractors, sponsor groups and law firms working in the area of project finance will have their own in-house standard EPC contract. For these entities, the Silver Book may serve as a solid reference to review and update their in-house standard forms. For those who do not have an in-house standard, the Silver Book can serve as a good basis for the EPC contract in a BOT project. EPC contracts are also heavily negotiated, and in practice it is more likely to find a single set of general conditions, rather than separate general and particular conditions as contemplated by the FIDIC Silver Book. When the Silver Book is being used for the turnkey construction portion of a BOT project the financing institutions involved as lenders in the project will wish to carefully review the construction-related risks and responsibilities of the contractor and his liability to the project company. For the purposes of the turnkey contract, the project company is usually the employer or owner. Therefore, in the discussion set forth below reference will be made either to the project company or to the" Employer", both terms having the same meaning.

Design

4-19

I

Financial institutions acting as the lenders in a BOT project generally require a single point of responsibility for the design and construction of the works. They therefore require the contractor to assume the risk of any defect or error in the design, including any defect or error in the employer's requirements. This idea, expressed by the author in the first edition of this book

9

48

D. Blumental, op. cit. n. 3 above at 288.

4-20

General Design Obligatio,:,s

However, the Employer shall be responsible for the correctness of the following portions of the Employer's Requirements and of the following data and information provided by (or on behalf of) the Employer: (a) portions, data and information which are stated in the Contract as being immutable or the responsibility of the Employer, (b) definitions of intended purposes of the Works or any parts thereof, (c) criteria for the testing and performance of the completed Works, and (d) portions, data and information which cannot be verified by the Contractor, except as otherwise stated in the Contract. In summary, sub-clause 5.1 makes the contractor responsible for the design of the works and the employer's requirements, which the contractor is deemed to have examined carefully. This clause further operates as a disclaimer of the employer's liability for any "error, inaccuracy or omission of any kind" in the employer's requirements and expressly denies any representations concerning the accuracy or completeness of the data and information therein. In its final paragraph sub-clause 5.1 does provide a list of some exceptions for which the contractor does not assume responsibility, such as definitions of intended purposes of the works, testing and performance criteria and data which cannot be verified by the contractor. These exceptions reflect the idea that the contractor cannot in fairness be held responsible for errors in the employer's definition of the intended purpose of the works because those parameters are solely within the control of the employer. However, it is important to consider this exception in light of sub-clause 4.1 which req uires

10

j.A. Huse, Understanding and Negotiating Turnkey Contracts (Sweet & Maxwell, London, 1997), p. 452. In addition, the author's suggestion that the language in Clause 4.1 of the

Orange Book allowing the contractor to notify and obtain a variation from the employer for any faults in the employer's requirements discovered prior to the commencement of the design process has also been incorporated into the FIDIC Silver Book.

49

4-21

THE USE OF THE FIDIC SILVER BOOK IN THE CONTEXT OF A BOT PROJECT

SPECIFIC ISSUES RAISED IN CONNECTION WITH THE USE OF THE SILVER BOOK

~he contractor to pr?vide works "fit for the purposes for which [they] are

struction risks, must be borne jointly and severally among all members of any joint venture, consortium or group of any type that constitutes the contractor (sub-clause 1.14). The contractor will also be responsible for any acts of defaults of any of its subcontractors (sub-clause 4.4). Silver Book sub-clause 4.1 "Contractor's General Obligations" states that "[t)he Contractor shall design, execute and complete the Works in accordance with the Contract, and shall remedy any defects in the Works .... The Contractor shall be responsible for the adequacy, stability and safety of all Site operations, of all methods of construction and of all Works." Sub-clause 4.1 also sets the standard that will be applied to the completed construction: the works must be "fit for the purposes" intended by the employer. In addition to the general obligation to execute and complete the works, the contractor has a related obligation of completeness. The completeness obligation means that the contractor must supply all materials and services necessary for the execution of the contract. The result of non-compliance with these obligations is the loss of payment for work not completed, deductions for the cost of rectification and replacement (sub-clause 14.6) and possibly liquidated damages (sub-clause 8.7) or contract termination (sub-clause 15.2). This author suggested in 1997 that the FIDIC Orange Book could be adapted for use in a BOT project by adding, among other things, a clause requiring the contractor to acknowledge that it has examined all aspects of the project prior to commencement. 11 This clause would serve to avoid claims in respect of time and cost changes once the works commence. The FIDIC Silver Book incorporates such a clause. In 'addition to the general attribution of construction risks in sub-clause 4.1, sub-clause 4.12 provides for "unforseeable difficulties".

Intended as defined In the Contract". The testing and performance criteria are also solely within the control of the employer and therefore not the responsibility of the contractor. The Employer in a BOT project will wish carefully to consider the appropriateness of each of these exceptions. The last exception in sub-clause 5.1(d) is perhaps the most subject to interpretation. It states generally that "the Employer shall be responsible for the correctness of ... portions, data and information which cannot be verified by the ~ontractor, except as otherwise stated in the Contract". This exception permIts the contractor to rely on information in the employer's requirements without taking responsibility for the correctness of the information when the contractor is unable to verify that information. This language may create some ambiguity and uncertainty as to what information in the employer's requirements cannot be verified by the contractor. A modification to this sub-clause 5.1(d) may be appropriate to reference and incorporate a schedule or exhibit which specifically lists the information from the employer's requirements that cannot be verified by the contractor and on which the contractor shall be able to rely without risk of liability. Without a specification of this information the contractor could simply claim in the event of a dispute that the incorrect information that perhaps led to a defect or delay of the works could not have been verified by the contractor and is therefore not his responsibility. Sub-cl~use 5.8, entitled "Design Error", allocates some additional design~elated. rtsk .to ~he contra~tor, stating: "If errors, omissions, ambiguities, inCOnsIstencIes, inadequaCIes or other defects are found in the Contractor's Documents, they and the Works shall be corrected at the Contractor's cost ' notwithstanding any consent or approval under this Clause." Construction 4-22

I

In addition to requiring a single point of responsibility for the design of the works, financial institutions acting as the lenders in a BOT project will require such responsibility for the actual construction of the works as well. As stated earlier, the primary means for lenders to allocate constructionrelated. risks will be to require the project company to pass substantially all these nsks on to the contractor in a fixed price, lump-sum turnkey contract. Lenders may also require performance and completion guarantees from the contractor, often supported by bonds or letters of credit. ~here are numerous. identifiable construction-related risks in any major proJect. Some of the prtmary risks are unanticipated construction costs and d~lays, the risk o.f unforeseeable physical conditions, the risk that the project wtll not be ~hY~lcally completed and the risk the project will not meet perf?rmance cntena. The FIDIC Silver Book provides a relatively comprehensIve treatment of these and other risks. A basic requirement in attributing risks is ensuring that all construction parti~ipants are jointly and severally liable to the project company. Under the Stiver Book, responsibility for contract performance, including all con50

4-23

4.12 Unforeseeable Difficulties Except as otherwise stated in the Contract: (a) the Contractor shall be deemed to have obtained all necessary information as to risks, contingencies and other circumstances which may influence or affect the Works; (b) by signing the Contract, the Contractor accepts total responsibility for having foreseen all difficulties and costs of successfully completing the Works; and (c) the Contract Price shall not be adjusted to take account of any unforeseen difficulties or costs.

In a related provision, sub-clause 4.10 "Site Data" requires the employer to provide the contractor with any information in the employer's possession on subsurface and hydrological conditions at the site. It states that" [t)he Contractor shall be responsible for verifying and interpreting all such data. The Employer shall have no responsibility for the accuracy, sufficiency or II

Ibid. p. 452.

51

4-24

THE USE OF THE FIDIC SILVER BOOK IN THE CONTEXT OF A BOT PROJECT

4-25

completeness of such data, except as stated in sub-clause 5.1 [General Design Responsibilities]." This may cause the employer to assume responsibility for site data it provides to the extent that it is not verifiable by the contractor. The employer is responsible under sub-clause 5.1 for data and information it provides that cannot be verified by the contractor. To avoid this responsibility, the employer may choose (or be required by the lenders) to either provide no site data or to give the contractor a complete opportunity to verify any site data. Even in the latter case, it would still be prudent to obtain from the contractor a representation that he had full opportunity and was able to verify any and all data provided by the employer. Nonetheless, this attribution of risk to the contractor regarding site data essentially requires every bidder (assuming, for example, a project which includes works of underground construction) to conduct its own subsurface and hydrological study of the site conditions before being able to develop an appropriate tender offer. The inefficiency lies in the requirement that each bidder conduct such a survey rather than allowing them all to rely on a single site survey prepared by the employer or project company. FIDIC itself recognises this inefficiency and states in the "Introductory Note to First Edition" of the Silver Book that: These Conditions of Contract for EPCffurnkey Projects are not suitable for use in the following circumstances: • If there is insufficient time or information for tenderers to scrutinise and check the Employer's Requirements or for them to carry out their designs, risk assessment studies and estimating (taking particular account of Sub-Clauses 4.12 and 5.1). • If construction will involve substantial work underground or work in other areas which tenderers cannot inspect. ( ... )

FIDIC recommends that the Conditions of Contract for Plant and Design-Build [the "Yellow Book"] be used in the above circumstances for Works designed by (or on behalf of) the Contractor. 12

4-26

I

Yellow Book sub-clause 4.12 "Unforeseeable Physical Conditions" does not require the contractor to assume the risk of unforeseeable subsurface conditions. It provides for a potential extension of time and increase in cost in the event unforeseeable physical conditions are encountered on the site. The alternative under the Silver Book may simply be for the employer to conduct a thorough site survey, provide the information to potential bidders and assume responsibility for the accuracy of the data. Lenders might object to this. However, the assumption of risk for site data may reduce the overall contract price and allow more competitive and prudent bidding. If no site data is provided or if the employer refuses to assume responsibility for the site data it does provide, each bidder is essentially required to conduct its own 12

FIDIC, Conditions of Contract for EPCrrurnkey Projects, Introductory Note to First Edition, 1999.

52

SPECIFIC ISSUES RAISED IN CONNECTION WITH THE USE OF THE SILVER BOOK

site survey, which may be cost prohibitive and discourage bidders. However, some bidders may simply assume the risk without a proper survey and either increase the contract price to reflect the increased risk or make an imprudent bid in the hope that unfavorable site conditions will not be encountered. In either case, the employer and the project lenders may be at risk. Under the Silver Book, the contractor also must assume the risk of suitability and availability of access routes to the site (sub-clause 4.20) and is liable for any damage to the employer's equipment while being used by the contractor or its personnel (sub-clause 4.20). In the event of the contractor's faulty design, workmanship or materials the contractor risks a suspension of the works by the employer. In relation to a suspension by the employer due to these faults, the contractor will be responsible to the employer for any delays and additional costs (sub-clause 8_9) as well as any deterioration, defect or loss to the works occurring during the suspension period (subclause 8.12). \3 Despite the attribution of substantially all co~struction risks to the contractor, the Silver Book does set a limit on total liability in sub-clause 17.6. Sub-clause 17.6 "Limitation on Liability" states that: [t)he total liability of the Contractor to the Employer, under or in connection with the Contract other than under Sub-Clause 4.19 [Electricity, Water and Gas], Sub-Clause 4.20 [Employer's Equipment and Free-Issue Material], SubClause 17.1 [Indemnities] and Sub-Clause 17.5 [Intellectual and Industrial Property Rights), shall not exceed the sum stated in the Particular Conditions or (if a sum is not so stated) the Contract Price stated in the Contract Agreement.

Limitation of liability in an amount equal to the contract price should be acceptable to the project lenders, provided that the contract price is generally a good estimate of the cost of completion. However, if the contract price is deemed too low, the project lenders may require a higher limit on liability.

Tests on completion Tests on completion are those tests to be performed on the works in order to demonstrate their substantial completion. The works must pass the tests on completion before issue of a taking-over certificate. In order to review the testing procedure and its execution, the lenders may wish to have their own technical adviser present and involved in the tests, or possibly on site during the construction in general. The operator under the operation and maintenance agreement may also need to be involved in the testing in order to familiarise himself with the works and their operation. 13

Note that Clause 8.12 states generally that contractor is responsible for deterioration, defects or losses during a suspension instructed by the employer but does not indicate, as it does in Clause 8.9, that rhe contractor must be at fault for it to be responsible for these rhings.

53

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THE USE OF THE FIOIC SILVER BOOK IN THE CONTEXT OF A BOT PROJECT

SPECIFIC ISSUES RAISED IN CONNECTION WITH THE USE OF THE SILVER BOOK

The Silver Book provides that if the works, or a section, fail to pass the tests on completion when they have been repeated, the project company may choose to reduce the contract price by an amount agreed between the project company and the contractor (sub-clause 9.4). The lenders may prefer to remove this power from the project company or qualify it, since they will not want to be left with works which underperform. The lenders may require that more detailed provisions be included as to the method of calculation of any contract price reduction. Any acceptance of substandard performance for a price reduction may need to be reviewed by the lenders' technical adviser to determine the ultimate effect on the project's operation. The lenders may also want the right to approve or disapprove any performance shortcoming or insist upon rectification at the contractor's cost. They will want to consider the effect of the contractor delivering a facility which underperforms on the other agreements involved in the project, such as the concession agreement, the power purchase agreement and the fuel supply agreement (to the extent that this provides for a minimum fuel purchase).

responsibility of the contractor. The parties may also wish to implement a dispute resolution mechanism specific to the relationship of the operator and the contractor during this interim period.

Taking over

4-28

!

Under Silver Book sub-clause 10.1, the contractor finishes the works, or sections of the works, which are then transferred to the care of the employer. This transfer is called taking over and occurs after substantial completion of the works and passing of any tests required by the contract. The works may then be subject to tests after completion, performed either by the contractor or the employer under the contractor's guidance. In most BOT projects, however, the project company does not take over care of the works after substantial completion. Rather, the works pass into the care of the operator after completion. Thus the question arises as to the responsibility of the contractor and the operator for the works during this period of taking over. The lenders are interested in the organisation of the responsibility for the works during the period of transfer between the contractor and the operator. This transfer may cover an extended period of time, where taking over of sections of the works is allowed. The lenders may want the contractor to remain responsible for ensuring completion and performance of the works, notwithstanding the completion of individual sections. In the alternative, taking over in sections may be precluded by the lenders so that the operator may take over fully completed works at one point in time. However, if commercial operation of a unit is necessary (for example, to begin some power generation before final completion), the lenders will want to ensure that there is no gap in responsibility for the works and that overlapping responsibilities do not inhibit use of the portion of the works taken over. One way to fill this gap is to require the contractor to remain liable to the project company for the entire works until taking over of all the sections and to require the operator to operate the facility under the supervision and

54

Tests after completion The Silver Book also provides for tests after completion if these are specified in the contract. The tests after completion take place after the employer has taken over the works or a section thereof. Sub-clause 12.2 "Procedure for Tests after Completion" indicates that "the Contractor shall carry out the Tests after Completion ... as soon as is reasonably practicable after the Works or Section have been taken over by the Employer". If defects or damage to the works are identified by the tests or a remedy is otherwise required that may affect the performance of the works, "the Employer may require the repetition of any of the tests described in the Contract, including Tests on Completion and/or Tests after Completion" (subclause 11.6). However, the Silver Book contemplates the possibility that the particular conditions may state amounts of non-performance damages for certain defects. In that case, if the works do not pass the tests after completion the contractor may pay these non-performance (liquidated) damages to the employer to satisfy his performance obligation or propose and execute any adjustments or modifications to cause the works to pass these tests (sub-clause 12.4). Again, the lenders should carefully consider the propriety of giving the contractor the option of paying non-performance damages in lieu of remedying defects. Accepting a liquidated sum rather than specific performance generally means the project is not complete to the expected performance level. The turnkey construction contractor will assume a large share of the risk that the works will not perform to the standards and criteria specified in the contract. This allocation is generally effected by placing performance criteria in the construction contract and requiring the works to meet a fitness for purpose standard evidenced by successful completion of the tests after completion, among other things. Failure of the works to pass such tests will expose the turnkey contractor to either rejection or, assuming minimum performance levels are met, liquidated damages, in an amount and to a maximum relative to the value of proper performance which must be specified in the particular conditions. The project company will ensure that these liquidated damages cover "back-to-back" any damages that would be incurred through other agreements, such as the power purchase agreement. The project company will also seek to allocate certain performance risks to the power purchaser, the fuel supplier (where relevant) and the government (for risks such as the failure of water supply in hydroelectric projects). The Silver Book contemplates that, subsequent to taking over, the tests after completion will be carried out to ensure that the works perform to the levels required by the employer's requirements. The lenders may decide to require the contractor to carry out any such tests before taking over, to

55

4-29

4-30

THE USE OF THE FIDIC SILVER BOOK IN THE CONTEXT OF A BOT PROJECT

ensure that the works satisfy the performance criteria before transfer of the care of the works and the contractor is relieved of the sanction of liquidated damages for delay. The minimum levels of performance, if any, will need to be reviewed by the lenders. The lenders will want to maintain maximum liability on the contractor where the failure is due to reasons attributable to the contractor. The project company's remedies and damages, for breach by the contractor of its obligations under the contract, will need to be reviewed by the lenders. In this regard, the lenders will need to consider carefully any proposed cap or limitation on the contractor's liability. Sub-clause 12.4 of the Silver Book provides that if the performance criteria are not attained then the contractor shall have the option either of making changes to the works in order to attain the performance criteria or paying liquidated damages. The lenders may prefer that the project company elect whether to require the contractor to make the changes or accept liquidated damages, thus maintaining the duty to achieve the performance criteria on the contractor.

SPECIFIC ISSUES RAISED IN CONNECTION WITH THE USE OF THE SILVER BOOK

Despite the general rule that the contractor is responsible for achieving completion on a certain date, it is commonly acc~pted that the contrac~or will not be responsible for delays caused by certalO types of events outSide his control. Silver Book sub-clause 8.4 is the primary provision dealing with time extensions.

The Contractor shall be entitled subject to Sub-Clause 20.1 [Contractor's Claims) to an extension of the Time for Completion if and to the extent that completion for the purposes of Sub-Clause 10.1 [Taking Over of the Works and Sections] is or will be delayed by any of the following causes: (a) a Variation (unless an adjustment to the Time for Completion has been agreed under Sub-Clause 13.3 [Variation Procedure]), (b) a cause of delay giving an entitlement to extension of time under a SubClause of these Conditions, or (c) any delay, impediment or prevention caused by or attributable to the Employer, the Employer's Personnel, or the Employer's other contractors on the Site.

Time for completion

4-31

Under the FIDIC Silver Book and in the BOT project scheme the construction contractor bears the risk of delays in completion. This allocation of risk is based on the principle that the contractor will best be able to regulate the timing of the construction work to satisfy his work programme and meet the contractual date of completion described in Silver Book sub-clause 8.2.

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8.2 Time for Completion The Contractor shall complete the whole of the Works, and each Section (if any), within the Time for Completion for the Works or Section (as the case may be), including: (a) achieving the passing of the Tests on Completion, and (b) completing all work which is stated in the Contract as being required for the Works or Section to be considered to be completed for the purposes of taking-over under Sub-Clause 10.1 [Taking Over of the Works and Sections].

4-33

The particular conditions will set completion dates either for the works as a whole or for discrete sections or milestones, if appropriate. Respect from the contractor for the time for completion of the works will be essential to the lenders. Late completion can cause loss of production, loss of market share, damages in relation to other related agreements, such as the power purchase agreement, and can result in additional finance charges. For this reason, the Silver Book generally satisfies the lenders' requirement that each event resulting in the contractor's right to request an extension of time be specifically identified and defined in the contract.

56

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8.4 Extension of Time for Completion

H the Contractor considers himself to be entitled to an extension of the Time for Completion, the Contractor shall give notice to the Employer in accordance with Sub-Clause 20.1 [Contractor's Claims]. When determining each extension of time under Sub-Clause 20_1, the Employer shall review previous determinations and may increase, but shall not decrease, the total extension of time.

Other than the extensions granted for variations or delays attributable to the employer, subpart (b) of sub-clause 8.4 incorporates the numerous other grounds for time extensions found in the Silver Book. These other potential grounds for an extension of time are the following:

• • •

• • •

•

delays caused by the employer's failure to give the contractor access to or possession of the site within the time stated in the particular conditions (sub-clause 2.1); delays caused by the employer's instructions to the contractor regarding archaeological remains discovered on the site (sub-clause 4.24); changes in the host country's technical standards and regulations for which the contractor's compliance causes delay (sub-clause 5.4); delays caused by the employer's instructions to vary the location or details of any tests or to perform additional tests (sub-clause 7.4); unforeseeable delays or disruptions by the public authorities of the host country (sub-clause 8.5); delays caused by the contractor's compliance with the employer's instruction to suspend work to the extent the suspension was not due to the contractor's fault (sub-clause 8.9); delays caused by the employer's interference with the tests on completion (sub-clause 10.3);

57

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THE USE OF THE FlDIC SILVER BOOK IN THE CONTEXT OF A BOT PROJECT

•

delays caused by a change in the laws of the host country (sub-clause 13.7); delays resulting from the contractor's suspension of work for the employer's failure to provide evidence of its ability to payor for non-payment (sub-clause 16.1); delays caused by the occurrence of an employer's risk (sub-clause 10.3); delays caused by the occurrence of a force majeure event (sub-clause 19.4).

ordination of the various constituent contracts so that the allocation of risks in one contract corresponds to the allocation of risks in other dependent or related contracts. For example, if the contractor is entitled to an extension of time under the construction contract for a particular force majeure event, the project company should ensure that the same events of force majeure are contained in the other contracts within the overall BOT project.

Sub-clause 8.4 effectively requires any extension of time to which the contractor believes himself to be entitled to be subject to the procedure for "Contractor's Claims" under sub-clause 20.1. Under sub-clause 20.1 the contractor must give notice to the employer and later provide a fully detailed claim describing the event for which the contractor requests an extension of the time for completion. The employer will then either approve or disapprove the request with detailed comments in the event of disapproval. If an extension of time is approved, the employer then proceeds in accordance with sub-clause 3.5 "Determinations" to agree or determine the extension of time. Under this sub-clause the employer must consult with the contractor and try to reach an agreement on the extension. If no agreement is reached, the employer may make a fair determination in accordance with the contract. Note also that this procedure generally applies with regard to price increases as well, discussed below. If the contractor receives a variation order under the construction contract, responsibility for any resulting delay will frequently remain with the project company. However, where the variation order is a result of the changed requirements of the host government or the power purchaser (as, for example, in respect of connection to the power purchaser'S grid), this risk will commonly be transferred to such parties. The risk of delay caused by the failure of government authorities to issue construction, import and other permits is also frequently assumed by the host government in the concession agreement on the theory that the host government will be best able to control and minimise this risk. The project company will also attempt to transfer to the host government liability for various force majeure events that may be deemed to be within the government's control, such as political strikes, acts of war, sabotage, terrorism or changes in local law. The project company (and its insurers) will then bear any additional force majeure risk it is unable to transfer to the other parties, as well as gaps in its "back-to-back" protection, such as where the definition of force majeure in the construction contract is broader than that in the power purchase agreement. Where the- contractor may receive an extension of time under these circumstances, the project company should try to transfer as much risk as possible to the host government, the power purchaser or even the project lenders and insurers to avoid being in default. The importance of completion time and extensions in a BOT structured project lies therefore in the co-

Under the FIDIC Silver Book and in the BOT project scheme the contractor also bears the risk of contract price sufficiency. The contract price is defined in sub-clause 1.1.4.1 as "the agreed amount stated in the Contract Agreement for the design, execution and completion of the Works and the remedying of any defects, and includes adjustments (if any) in accordance with the Contract". Sub-clause 4.11 attributes the risk of contract price sufficiency to the contractor.

4-37

4.11 Sufficiency of the Contract Price

4-38

• • • 4-36

I

SPECIFIC ISSUES RAISED IN CONNECTION WITH THE USE OF THE SILVER BOOK

58

Price

The Contractor shall be deemed to have satisfied himself as to the correctness and sufficiency of the Contract Price. Unless otherwise stated in the Contract, the Contract Price covers all the Contractor's obligations under the Contract (including those under Provisional Sums, if any) and all things necessary for the proper design, execution and completion of the Works and the remedying of any defects. In short, the contractor must agree to complete the works for a fixed, lumpsum contract price (sub-clause 14.1). The contractor therefore assumes the risk that the contract price is not sufficient to cover his contract obligations and provide a reasonable profit. Price/cost exceptions in favour of the contractor. As indicated below, the Silver Book attempts to specify each situation where a price increase or decrease may occur. Lenders may wish to review and shorten this list and limit the circumstances in which a variation may be sought by the employer, and impose a cap on any resulting adjustments to the contract price. The Silver Book contains numerous exceptions allowing the contractor to request an increase in the contract price in certain circumstances, as follows:

• •

costs to the contractor caused by the employer's failure to give the contractor access to or possession of the site within the time stated in the particular conditions (sub-clause 2.1); unforeseeable work accommodations to the employer's personnel or public authorities causing the contractor to incur additional cost (sub-clause 4.6);

59

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THE USE OF THE FIOIC SILVER BOOK IN THE CONTEXT OF A BOT PROJECT

• • •

• •

• •

• •

• •

• • • •

•

• • 60

costs caused by the employer's instructions to the contractor regarding archaeological remains discovered on the site (sub-clause 4.24); changes in the host country's technical standards and regulations for which the contractor's compliance causes additional costs (subclause 5.4); additional costs caused by the employer's instructions to vary the location or details of any tests or to perform additional tests (subclause 7.4); additional costs caused by the contractor's compliance with the employer's instruction to suspend work to the extent the suspension was not due to the contractor's fault (sub-clause 8.9); additional costs caused by the employer's interference with the tests on completion (sub-clause 10.3); additional costs of tests required after the correction of any defect or damage to the works to the extent the defect or damage was not attributable to the contractor (sub-clause 11.6); additional costs incurred by the contractor when instructed by the employer to search for a defect in the works not attributable to the contractor (sub-clause 11.8); additional costs to the contractor caused by any unreasonable delay by the employer to the tests after completion (sub-clause 12.2); additional costs as a result of any unreasonable delay by the employer in permitting access to the works or plant by the contractor, either to investigate the causes of a failure to pass a test after completion or to carry out any adjustments or modifications (subclause 12.4); variations (sub-clause 13.3); additional costs caused by a change in the laws of the host country (sub-clause 13.7); price adjustments for increases or decreases in the cost of labour, goods and other inputs to the works (if so provided in the particular conditions) (sub-clause 13.8); financing charges for delayed payments (sub-clause 14.8); additional costs resulting from the contractor's suspension of work because of the employer's failure to provide evidence of its ability to pay, or for non-payment (sub-clause 16.1); cost to the contractor of rectifying any loss or damage due to an employer's risk event (sub-clause 17.4); payment by the contractor of insurance premiums for which the employer is responsible and the amount of any insurance payment that would have been received upon the occurrence of an insurable event absent employer failure to maintain insurance (sub-clause 18.1); costs resulting from the occurrence of a force majeure event (subclause 19.4); costs incurred in connection with termination of the contract after a force majeure event (sub-clause 19.6);

SPECIFIC ISSUES RAISED IN CONNECTION WITH THE USE OF THE SILVER BOOK

•

costs incurred in connection with termination of the contract due to the occurrence of an event making it impossible or unlawful for either party to fulfil its contractual obligation and which under the law of the contract entitles either party to be released from further performance (sub-clause 19.7).

As for extensions of time, contractor requests for increases in the contract price or payments are generally subject to the "Contractor's Claims" procedure under sub-clause 20.1 and the "Determinations" process under subclause 3.5. The host government can reasonably be expected to bear the increased construction costs associated with newly enacted or newly amended laws in the host country which enter into force and affect the contractor in the performance of his construction work. If construction costs increase as a result of a change in the requirements of the power purchaser (for example, where the power purchaser changes the requirements for interface with its distribution grid and the contractor receives a corresponding variation order) these costs will usually be passed on to the power purchaser. In general, the risk of an increase in construction costs will be borne by the turnkey contractor on the theory that the contractor is the best placed to control this risk by virtue of having considered all available information that would affect his tender and having provided an appropriate contract price in consideration of all labour and materials necessary for the design and execution of the works. Consequently, the contractor will generally be unable to seek a price increase in the event of changes in the cost of labour or materials. Price/cost exceptions in favour of the employer. In addition to circumstances that might allow an increase in the contract price or additional payments to the contractor, the Silver Book also provides for situations where the contractor may be required to make additional payments to the employer, effectively decreasing the contract price. The contractor may incur additional financial liability beyond the contract price in the following circumstances: •

• • •

•

changes in applicable country standards which might reduce cost to the contractor and be subject to a claim for price reduction by the employer (sub-clause 5.4); additional costs to the employer from the rejection and retesting of part of the works (sub-clause 7.5); additional costs to the employer for performing remedial work for which the contractor is responsible (sub-clause 7.6); additional costs to the employer relating to any revised programme necessary to ensure an appropriate rate of progress in the completion of the works (sub-clause 8.6); liquidated damages payable by the contractor to the employer for each day after the time for completion until the issuance of the taking-over certificate (sub-clause 8.7); 61

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THE USE OF THE FIDIC SILVER BOOK IN THE CONTEXT OF A BOT PROJECT

•

• • • • • •

• •

• • • • •

•

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additional costs to the employer for carrying out the tests on completion upon the contractor's failure to do so within the time allotted (sub-clause 9.2); reduction in contract price due to failure of works to pass the tests on completion (sub-clause 9.4); cost to the employer of remedying any defects; cost to the employer of the contractor's failure to remedy any defects (sub-clause 11.2); increase in performance security for the contractor's removal from site of defective work for repair (sub-clause 11.5); additional costs of retesting after defects are remedied for which the employer is not responsible (sub-clause 11.6); any cost to the employer of clearing the site after completion (subclause 11.11); cost of retesting upon failure of the works to pass the tests after completion where the fault is attributable to the contractor (sub-clause 12.3); non-performance damages (if provided) for failure of the works to pass the tests after completion (sub-clause 12.4); decrease in cost resulting from a change in the laws of the host country (sub-clause 13.7); adjustment of contract price for fall in the cost of labour, goods and other inputs to the works (if so provided in the particular conditions) (sub-clause 13.8); retention money for work not in accordance with the contract or other failure of the contractor to perform (sub-clause 14.6); cost to the employer of any termination for the contractor's fault (sub-clause 15.4); cost of any loss or damage to the works for which the contractor is responsible (sub-clause 17.2); payment by the employer of insurance premiums for which the contractor is responsible and the amount of any insurance payment that would have been received upon the occurrence of an insurable event absent the contractor's failure to maintain insurance (subclause 18.1).

The employer must comply with the "Employer's Claims" procedure under sub-clause 2.5 with regard to any additional payment from the contractor under the contract to which the employer believes itself to be entitled. Under sub-clause 3.5 the employer must give notice and particulars of the claim to the contractor. The employer will then proceed in accordance with sub-clause 3.5 "Determinations" to either agree or determine its own claim. This process applies to additional payments from the contractor and any payment withholding or reduction of the contract price to be undertaken by the employer, except as provided under sub-clause 14.6 "Interim Payments". Sub-clause 14.6 allows direct deduction of amounts from interim payments for work not completed by the contractor, the cost of rec62

SPECIFIC ISSUES RAISED IN CONNECTION WITH THE USE OF THE SILVER BOOK

tification or replacement of work and the value of any failure of the contractor to fulfil a contract obligation. Liquidated damages As discussed briefly above, the Silver Book contains provisions regarding liquidated damages in the case of non-performance of the contractor's obligations. Liquidated damages allow the injured party to receive the relevant amounts without having to refer to an arbitrator or a national court (although this may not be true in every jurisdiction). If properly drafted, the liquidated damages provision of a construction contract will provide the contractor with a powerful incentive to complete the project on time and will apportion clearly the financial responsibility for late completion. The Silver Book also contemplates under sub-clause 12.4 that the particular conditions may be drafted to contain liquidated damages for certain performance shortcomings in addition to the provisions for delay contained in the general conditions. Specifically, sub-clause 8.7 "Delay Damages" of the Silver Book provides for per diem liquidated damages in an amount stated in the particular conditions for every day of delay from the fixed time for completion date until the issuance of the taking-over certificate. These damages are subject to a ceiling representing the maximum amount of permissible liquidated damages for delay. These damages are generally the only damages for delay that may be extracted from the contractor. Potential liability for the liquidated damages for delay terminates on the date of issuance of the taking-over certificate. Nonetheless, the contractor will still have remaining obligations under the contract, such as performing the tests after completion and remedying any defects. Sub-clause 12.4 "Failure to Pass Tests after Completion" therefore refers to the possibility of including liquidated damages for non-performance relating to the failure of the works to pass the tests after completion. From the perspective of the project company, in the event of late completion due to contractor default, the contractor should be obligated to pay liquidated damages in an amount equal to or greater than the amount of the delay payments (including interest) the project company will be required to make. However, depending on the governing law, attention may need to be given to avoiding a potential recharacterisation of the liquidated damages as an illegal penalty. The lenders will want to review any cap on the contractor's overall liability in the context of liquidated damages. The liquidated damages and any such cap provided for in the construction contract must also take into consideration loss of debt service during the period of delay. The lenders should therefore closely scrutinise Silver Book sub-clauses 8.7 and 12.4. The limit for delay damages should be set in an appropriate amount, and language in the particular. conditions should be included to enable the liquidated damages for performance in sub-clause 12.4. 63

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I

THE USE OF THE FIDIC SILVER BOOK IN THE CONTEXT OF A BOT PROJECT

SPECIFIC ISSUES RAISED IN CONNECTION WITH THE USE OF THE SILVER BOOK

Guarantees

Parent company guarantees. The contractor will traditionally be required to provide a parent company guarantee, if applicable. In the parent company guarantee, the contractor's parent company guarantees the p~rforma.nce of the contractor's obligations under the contract and agrees to mdemmfy the .. employer in the case of the contractor's non-perfo.rmance. As mentioned earlier, the lenders may also reqUIre some additional external credit support arrangements affecting the Contractor, such as a consent agreements and collateral warranties. However, these are generally not part of the construction contract.

In order to protect against additional costs or delays, the Silver Book requires that several guarantees be put in place for different aspects of the contract. Generally, the contract will require the following guarantees from the contractor: (1) a performance security, (2) an advance payment guarantee, (3) a security in the amount of any retention (where actual retention money is not used), and (4) a parent company guarantee where a subsidiary acts as the contracting party. As discussed above, any contractors acting through a joint venture must be jointly and severally liable to the employer (as is provided under the Silver Book sub-clause 1.14). The lenders will review the form and the amount of guarantees provided by the contractor to ensure adequate protection in the case of default. The lenders will wish all guarantees to be in the form of, and/or to have the characteristics of, an on-demand guarantee. Performance security. The project company will attempt to ensure timely completion by obliging the contractor to provide a performance security. Sub-clause 4.2 "Performance Security" indicates that the contractor shall provide a performance security in the amount stated in the particular conditions which must remain valid and enforceable "until the Contractor has executed and completed the Works and remedied any defects". The amount of the performance security will vary widely from project to project anywhere from five per cent to 50 per cent of the overall contract price depending upon the type of project and the financial standing of the contractor. Ten per cent of the contract price is average for a performance security. Advance payment guarantee. Under sub-clause 14.4 "Advance Payment" the contractor must submit a guarantee to the employer before the employer is required to make its advance payment for mobilisation and design. The advance payment guarantee must cover the entire amount of the employer's advance payment and remain valid and enforceable until the advance payment has been repaid to the employer by proportional reductions in the interim payments. A similar guarantee is required under sub-clause 14.5 "Plant and Materials intended for the Works" for interim payment for plant and materials which are not yet on the site. Retention money. As an additional guarantee Silver Book sub-clause 14.3(c) "Application for Interim Payments" contemplates that a percentage of the payments from the employer to the contractor may be retained as retention money, if specified in the particular conditions. There may also be a fixed maximum amount of retention. The employer may thus retain a certain portion of each interim payment. These funds will then be returned to the contractor by virtue of sub-clause 14.9 "Payment of Retention Money": one half upon the issuance of the taking-over certificate and the other half at the end of the defects notification period.

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Co-ordination of construction (employer's control) Some commentators conclude that in design-build contracts in general, "the Contractor should be given the freedom to carry out the work in his chosen manner provided the end result meets the performance criteria specified by the Em'ployer. Consequently, the employer should only exercise limited control over and should in general not interfere with the Contractor's work."14 Although the thoughts expressed above may be the general rule for turnkey contracts, increased control of the construction by the employer may be required by lenders and may be more characteristic of the construction contract in a BOT project. FIDIC designed the Silver Book for BOT projects yet indicates that it is not appropriate for contracts where "the Employer intends to supervise closely or control the Contractor's work, or to review most of the construction drawings" .IS However, relaxing the employer's control over the project may be somewhat contrary to the requirements of a BOT project. In any event, despite FIDIC's intention and statement in its "Introductory Note" to the Silver Book that "the employer should only exercise limited control over and should in general not interfere with the contractor's work", the Silver Book is replete with opportunities for the employer to control many aspects of the project's completion. This level of employer intervention should ~e satisfactory to lenders. Examples of the employer's control can be found 10 the following sub-clauses: • •

•

1.8 "Care and Supply of Documents": right of access of the employer's personnel to all the contractor's documents at all reasonable times. 1.14 "Joint and Several Liability": prohibiting alteration of the contractor's joint venture or other association without the employer's consent. 3.4 "Instructions": ability to instruct the contractor concerning contract execution.

,< C. Wade, "History and Scope of the Three Major Bo'oks" (1998) online: FIDIC http://www.fidic.comldocumentsllaunchlwade1.html(date accessed: November 19,1999) at 9. '5 FIOIC, op. cit. n. 12. above.

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THE USE OF THE FIDIC SILVER BOOK IN THE CONTEXT OF A BOT PROJECT

• • •

• •

• • •

• • • •

• • •

• • • •

•

• • • • •

• 66

3.5 "Determinations": power to unilaterally determine disputed matters, such as price increases, decreases and time extensions. 4.1 "Contractor's General Obligations": ability to require the contractor to submit details of contractor's construction methods and arrangements. 4.3 "Contractor's Representative": power to approve or reject the contractor's representative. 4.9 "Quality Assurance": ability to audit quality assurance system put in place by the contractor. 4.21 "Progress Reports": requirement of monthly progress reports to the employer. 5.2 "Contractor's Documents": power to review and reject the contractor's documents. 6.9 "Contractor's Personnel": power to order removal of the contractor's personnel and representative. 7.2 "Samples": ability to review samples of materials. 7.3 "Inspection": power to inspect all parts of the works and progress of construction at all times. 7.4 "Testing": power to vary the details of any testing. 7.5 "Rejection": power to reject plant, materials, design or workmanship. 7.6 "Remedial Work": power to instruct remedial work. 8.3 "Programme": power to reject the contractor's programme. 8.6 "Rate of Progress": power to order acceleration of work's progress. 8.8 "Suspension of Work": power to suspend work. 9.2 "Delayed Tests": power to execute testing upon the contractor's failure. 11.4 "Failure to Remedy Defects": power to reduce contract price or terminate contract for the contractor's failure to remedy defects. 11.5 "Removal of Defective Work": power to approve removal of defect works for repair. 13.1 "Right to Vary": power to order a variation. 13.3 "Variation Procedure": power to order a variation proposal from the contractor. 13.5 "Provisional Sums": power to control expenditure of provisional sums. 14.6 "Interim Payments": power to withhold payments for nonperformance. 14.11 "Application for Final Payment": power to approve or reject the contractor's application for final payment. 15.1 "Notice to Correct": power to order the contractor to carry out any obligation under the contract. 15.2 "Termination by Employer": power to terminate contract. 15.5 "Employer's Entitlement to Termination": power to terminate for convenience.

SPECIFIC ISSUES RAISED IN CONNECTION WITH THE USE OF THE SILVER BOOK

Notwithstanding the employer's specific powers and abilities under the contract, the lenders may also wish to exercise some degree of control over the progress of the works, contract administration and the project company's decisions (where they relate to the completion and performance of the works). This control may be accomplished by the appointment of a lenders' engineer or technical adviser. The lenders' engineer or adviser will also provide technical expertise as requested by the lenders. The degree of control that he exercises varies but might include some control over extensions of time, variations, payments to the contractor, and issuance of certificates, particularly in relation to testing. The lenders will want to ensure that the engineer has wide powers relating to access and inspection in order to protect their interests in the project. However, the presence of a lenders' engineer may also result in an unacceptable level of intervention by the lenders in the execution of the works by the contractor. The contract will need to clearly specify the roles of the lenders' engineer and the employer's representative in order to avoid any friction and resultant delay (particularly as concerns the testing regime).

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Payments Starting from the point where all guarantees required from the contractor have been put into place, payment of the contractor generally occurs as follows. Under sub-clause 14.2 "Advance Payment" the employer will make an "advance payment, as an interest-free loan for mobilization and design" which is then repaid through proportional deductions from the interim payments. At the end of a period of payment stated in the contract (or monthly if not otherwise stated), the contractor makes an application for interim payment to the employer in the form of a statement under subclause 14.3, together with all supporting documents, including the progress report. The statement indicates the estimated contract value of the works executed and the contractor's documents produced (including variations) and must also specify any amounts to be added or deducted pursuant to the contract, the amount of retention (if any) and any amounts to be added or deducted for advance payment and repayments. If the contract includes a schedule of payments specifying instalments, the instalment amount will be the estimate contract value for the period (subclause 14.4). The employer shall then make the int~rim payment pursuant to and subject to any modifications under sub-clause 14.6. As indicated above, the money retained as retention money (if any) is returned in halves at the time of taking over and at the expiry of the defects notification period. Within 84 days of receiving the taking-over certificate, the contractor must prepare pursuant to sub-clause 14.10 "Statement at Completion" a statement indicating the value of the work done to date, any further sums due and any further sums the contractor believes will become due. Within 56

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THE USE OF THE FIDIC SILVER BOOK IN THE CONTEXT OF A BOT PROJECT

SPECIFIC ISSUES RAISED IN CONNECTION WITH THE USE OF THE SILVER BOOK

days after receiving the performance certificate, the contractor must submit under sub-clause 14.11 "Application for Final Payment" a draft final statement showing the value of all work done under the contract and any further sums the contractor considers it is due. With the application for final payment the contractor submits a written discharge under sub-clause 14.12 "Discharge" indicating that the final statement represents the full and final settlement of all moneys due to the contractor under the contract. Under subclause 14.13 "Final Payment", "the Employer shall pay to the Contractor the amount which is finally due, less all amounts previously paid by the Employer and any deductions in accordance with sub-clause 2.5 [Employer's Claims)". The lenders will want to control the payment regime implemented by the contract. By controlling the payment regime, the lenders can ensure timely and proper performance and regulate outflow of capital from the project company. The payment regime review will begin with the amount, timing and repayment of the advance payment. Lender control of the payment regime may include the lenders' engineer being given the right to certify interim payments. The lenders will seek to impose a contract payment method that will provide the greatest incentive for timely completion. Therefore, the lenders will often require payments of the contract price to be linked to milestone events. The language of the Silver Book is appropriate for payments linked to milestones (sub-clauses 14.3 and 14.6). The present Silver Book language, in sub-clause 15.4 "Payment after Termination" provides that in the event of termination for cause by the employer the project company will receive the difference between the cost of completion and the contract price, taking into account any limitation of the contractor's liability as provided for in the contract and the valuation of the works to date. For lenders this compensation scheme may be considered insufficient, as it does not explicitly protect their interests in the project company's loan service costs. In the event of such termination, the lenders may want to be paid all amounts that they have advanced for construction costs. Consequently, they may wish to modify the present Silver Book language to provide for payment by the contractor of all other direct or indirect damages suffered by the project company as a result of the termination. The contractor will be reluctant to accept any such provision.

to act where the contractor intends to terminate for a project company default.

Additional lender requirements 4-55

The preceding portions of this chapter discuss ways in which the specific provisions of the Silver Book address, with or without modification, the risks and requirements of the construction contract in a BOT project. However, the project company does continue to bear some risks under the Silver Book which may not satisfy the lenders. The lenders may wish to see additional financing for cost overruns. Furthermore, the lenders may want the ability

68

Financing of cost overruns. As discussed above, the financing of the project company must take into consideration potential cost overruns. This can be done either through increasing the amount of financing by an amount to account for a reasonable contingency (e.g. five to ten per cent), or by providing for a stand-by line of credit, with or without a cap, generally from the sponsors of the project. This stand-by credit can also be provided by the contractor (in the form of an additional completion guarantee), although this will generally not occur unless the contractor is also one of the sponsors.

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Step-in / step-out rights. The lenders may also want to implement step-in / step-out rights which allow the lenders to step into the turnkey contract and take the place of the project company under certain circumstances. In common-law countries, it is generally possible to establish fixed and floating charges and to permit lenders to appoint a receiver or manager over the project assets. However, in many civil-law countries it is not permitted for lenders to establish such a global package for protection; the lenders must provide a contractual security regime. Such contractual provisions give the lenders the right to step into the contractor's obligations under the contract but do not require them to do so. The lenders will also be allowed to step out of the contract, where they have stepped in but no longer want to maintain the obligations they have assumed. This regime can be included in the conditions of contract or as a separate agreement between the lenders and the contractor. The step-in / step-out rights include a regime for the contractor's co-operation with the lenders, including communication to the lenders of the contractor's intention to act in accordance with its right to terminate. Where the contractor intends to terminate, the lenders will have certain rights to intervene, including cure rights, step-in rights, substitution rights and novation. Cure rights allow the lenders to maintain the project company in its position in the contract by curing whatever defect has given the contractor the right to terminate. The regime for cure rights will vary where the termination is for non-payment or for some other default. The lenders will first give a notice of intention to cure, which will suspend the contractor's right to terminate for a certain period. This suspension will be lifted if the lenders do not act within that period. If the lenders decide to cure, they will enter into an undertaking with the contractor to remedy the breach by the project company. As mentioned above, step-in rights provide the lenders with the right to step in for the project company in the contract. The lenders will give a notice, after which the contractor's termination rights are suspended. The lenders will then appoint an additional obligor who will be bound to satisfy the project company's obligations under the contract until completion or step-out has

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THE USE OF THE FIDIC SILVER BOOK IN THE CONTEXT OF A BOT PROJECT

occurred. The contractor will then be bound to the additional obligor for the period of its presence as the step-in entity. The additional obligor or the lenders may give a step-out notice, indicating that they are removing themselves from the step-in position. During the time of step-in, the project company remains liable under the contract. Substitution leading to novation allows the lenders to provide an alternative party who will take the place of the project company and take over the obligations under the contract. This requires a complete novation of the contract, involving a transfer of the rights and obligations of the project company under the contract to a third party. The contractor must generally consent in writing to any such novation, although the contract can specify that he may not withhold such consent unreasonably. The effect of the novation is to remove the project company entirely from the contract. The substitute entity then becomes the project company for the purposes of the contract.

Conclusion

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The review of the Silver Book in this chapter evokes two general conclusions. First, the FIDIC Silver Book is clearly a document that is very well developed and drafted. Second, it can be used as a good starting point for the drafting and negotiation of the EPC contract in a BOT project. However, as discussed above, it does contain numerous areas requiring review and careful consideration to ensure its successful use in such a project.

CHAPTER

5

THE CONTRACT General Comments As with any complex construction contract, the Silver Book is a compilation of separate documents that together constitute the contract .. These documents are subject to certain rules of interpretation and definltlon. Part II of the Silve~ Book states that the employer will want to be especially careful when drafting the central documents of the contract, which include the conditions of contract, the employer's requirements, and the schedules. These documents will set forth the rights and obligations of the parties and the scope of the contract. . In order to simplify and better organise the contract, the Silver Book provides a definition section organised according to general topics that is similar to the other FIDIC contracts examined, namely the Orange, (new) Yellow and Red Books. Those working with the contract may find it easier to organise the definitions by alphabetical order, as opposed to grouping the definitions by category, in order to simplify term searches. The Silver Book is divided into two parts. P~rt I, entitled "General Conditions" sets out the general conditions of contract. Part II, "Particular Conditions", discusses certain sub-clauses and suggests modifications to the conditions of contract found in Part I. Memoranda annexed to the contract agreement complete the conditions of contract and further define certain terms.

5-01

Contract language The parties should be aware of the language used for the documents prepared in connection with the project. Where the contract documents, designs or the arbitral procedure are to be carried out in differing languages there may need to be translation of documents and proceedings, which may prove both burdensome and confusing to the parties.! The parties may want to provide for a single language for all of the project documents and contractual procedures. The employer's representative and the contractor 1

Wiwen-Nilsson «A Brief View of the 1992 Edition of the ENAA Model Form-International Contract for Pr~cess Plant Construction (Turnkey Lump sum Basis)" (1994) 111.C.L.R. 526 at 532.

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GENERAL COMMENTS

THE CONTRACT

would then need to be fluent in such language, or to provide for competent translators, in order to avoid misunderstandings during the progress of the works. The Silver Book (sub-clause 1.4) provides for a ruling language for the contract. Thus where documents are drafted in several languages, those drafted in the ruling language prevail. This will give some certainty where the parties have failed to provide for one language.

Conflicts clause

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The conflicts clause, which governs the order of priority of the contract documents, should not be used as a replacement for careful cross-comparison of the documents to ensure technical and legal consistency. Although such "c.ross-commenting" may prove time-consuming, it is invaluable as a preventative measure in avoiding disputes. The conflicts clause may not be able to remedy every inconsistency, since it could be disputed whether a given term was inconsistent with the other contract documents or merely a specific exception to a general rule. Further, the conflicts clause will not remedy gaps between the conditions and the specifications. 2 Sub-clause 1.6 of the Silver Book wisely places the expressed intention of the parties above the form of the conditions of contract. This follows the warning, given by a noted expert in the field, against placing the standard form contract in a position of priority over the less formal documents that express the true intention of the parties. 3 However, the Silver Book also places the contractor's tender at the bottom of the list. The contractor will need to be aware that his tender document will have a lower priority than the employer's requirements.

Confidentiality clause

5-04

The Silver Book provides for confidentiality concerning certain details, as specified in the tender. The parties may want to add provisions such as the following: exclusion from the site of parties not bound to similar confidentiality provisions; exemptions where the information is in the public domain or where confidentiality agreements are made with third parties (this allows confidential details to be given to third parties if such parties are in turn, bound by a confidentiality agreement).4 The ENAA and EIC use such an exception in specifying that documents or data in the public domain, to R.H. Turner, uAvoidance and Resolution of Construction Disputes-Prior to and During the Construction Process" (1994) 11 I.C.L.R. 284 at 285. J I.N.D. Wallace, Construction Contracts: Principles and Policies in Tort and Contract (Sweet & Maxwell, London, 1986), p. 376. • J.S. Roehl & J.B. Grove, uP~rformance Guarantees and Testing; Intellectual Property and Technology Transfer Issues" In R.E Cushman & K.S. Taub, eds, Design-Build Contracting Handbook (Wiley Law Publications, New York, 1992),341 at 341. 2

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which the party had lawful access at the time of disclosure or to which the party acquires lawful access through a third party, do not fall under the confidentiality clause (ENAA 16.3; EIC 21.2). There should also be exceptions to the confidentiality clause where financing and licensing is involved. Financing institutions may require that certain information be revealed either to reassure them as to concerns regarding the risks involved, or to verify the validity of the project. In some instances licensing by a local authority, particularly in the area of environmental regulation, will require disclosure of the methods and processes used. In such situations the parties will want to specify in detail the information to be disclosed in the contract. Further, the party owning the process or method to be disclosed for licensing may want to take the responsibility for such licensing in order to protect their intellectual property rights and facilitate the licensing process. The Silver Book sub-clause 1.9 provides an additional sub-clause requiring information concerning the project to be kept confidential in order to avoid publication or disclosure of such information without employer consent. This.obligation will restrict unwanted publicity for commercial or political reasons. Highly sensitive or cutting-edge projects may require such additional language.

Definition of design The Silver Book does not provide a separate definition for design: it simply places the responsibility for the entire design on the contractor (sub-clause 5.1). The contractor is limited in the form of the design by the specifications provided in the employer's requirements and elsewhere in the contract. However, the employer may want to specify more thoroughly the design obligations. The EIC does this by dividing the definition and treatment of the design into several stages. Sub-clause 1.1 (i) of the EIC gives a general definition of design. Section (ii) defines "conceptual design", which is the employer's submission to the contractor upon which the design is based. Under the Silver Book this concept would fall under the employer's requirements. Under the EIC, the "design elements" (section iii) are the contractor's response to the conceptual design and is accepted by the parties as the design to be developed for the works. The "preliminary design" (section iv) is the next step of a completed design provided by the contractor. The "final design" (section v) is the last stage of design; it consists of a fully detailed design. The "approved design" is the final design as it is approved by the employer. This detailed definition of design may be useful where substantial design development will be required during the period of the contract. If the employer has an approval power over each such stage of design development, the time necessary for the exercise of such approval rights will need to be reflected in the project programme. 73

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DISCUSSION OF SPECIFIC SUB-CLAUSES

THE CONTRACT

Rights in the construction documents 5-06

The parties will need to allocate specifically the right to use the construction documents. The allocation of these rights will depend generally on the origin of the technology reflected in the construction documents and the balance of power as between the parties. As a general proposition, where one party brings a specific skill or technology to a project, that party should maintain their proprietorship of that technology. For example, where the employer wishes to build a facility to process a given raw material, he may hire a contractor who specialises in such a process. In such a case the contractor would maintain his rights to the process, restricting the employer's use of the process to the facility constructed. On the other hand, the employer may come to the contractor with an idea, a basic design. He then hires a contractor to develop that idea into a buildable final design. In such a one-off situation, arguably the employer should obtain the rights to the design and documents developed on his behalf. Construction documents may also be relevant to the production of spare parts. The employer may want the right to use the documents to produce spare parts, decreasing his costs of operation. The contractor, particularly if he is a supplier of such spare parts, may not want to give the employer rights to such technology.

persons; dates, tests, periods and completion; money and payments; works and goods; and other definitions. As mentioned above, parties working with the Silver Book may wish to put the list in alphabetical order in order to facilitate term searches.

1.1.1.1 "Contract" means the Contract Agreement, these Conditions, the Employer's Requirements, the Tender, and the further documents (if any) which are listed in the Contract Agreement. 1.1.1.2 "Contract Agreement" means the contract agreement referred to in Sub-Clause 1.6 [Contract Agreement], including any annexed memoranda. 1.1.1.3 "Employer's Requirements" means the document entitled employer's requirements, as included in the Contract, and any additions and modifications to such document in accordance with the Contract. Such document specifies the purpose, scope, andlor design andlor other technical criteria, for the Works. 1.1.1.4 "Tender" means the Contractor's signed oHer for the Works and all other documents which the Contractor submitted therewith (other than these Conditions and the Employer's Requirements, if so submitted), as included in the Contract. 1.1.1.5 "Performance Guarantees" and "Schedule of Payments" mean the documents so named (if any), as included in the Contract.

Discussion of Specific Sub-Clauses General provisions 5-07

Clause 1 of the FIDIC Silver Book provides definitions that apply to both the general and particular conditions. In addition, clause 1 sets forth general provisions that relate to these conditions. A well-drafted general provisions section is essential for both defining terms to be used in the contract as well as providing coherence to the contract documents as a whole.

5-08

1.1 Definitions In the Conditions of Contract ("these Conditions"), which include Particular Conditions and these General Conditions, the following words and expressions shall have the meanings stated. Words indicating persons or parties include corporations and other legal entities, except where the context requires otherwise. The Silver Book sub-clause 1.1 provides lists of definitions for words or phrases used in the particular and general conditions documents. These definitions are grouped under the following categories: the contract; parties and

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1.1.1 The Contract

1.1.1.1 "Contract". The "contract" defines the legal agreement including the conditions of contract. The list of documents that make up the "contract" should be extensive enough to provide the parties with flexibility, yet restricted enough to avoid the inclusion of inappropriate documentation that might misrepresent the intent of the parties. Parties should be careful to appropriately entitle each contractual document, as many contractual documents are referred to by their title. s Due to the particularities of the negotiation of a contract under the Silver Book, the list of documents constituting the contract is more restrictive than under the other FIDIC contracts examined herein. All of the FIDIC contracts, however, provide for the addition of further contractual documents as the parties may list in the contract agreement. For example, the Red Book specifically includes drawings listed in the contract agreement. This is because, under the Red Book, the employer supplies the design and not, as under the Silver and Yellow Books, the contractor. Further, the other FIDIC contracts define such terms as "schedules", "contractor's proposal", "letter of tender" and "letter of acceptance" as such documents are included in the list of contract documents. Finally, due to the importance of defining the documents comprising the contractual .I

FIDIC, The Fidic Contracts Guide (Federation Internationale des Ingenieurs·Conseils, Lausanne, 2000), p. 44 (hereinafter HDle Guide) .

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DISCUSSION OF SPECIFIC SUB-CLAUSES

THE CONTRACT

agreement, all of the standard form contracts examined herein define the contract. 6

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1.1.1.2 "Contract Agreement". In the Silver Book, the signature of a contract agreement is specifically contemplated. In the Red and Yellow Books, the contract agreement is optional (as it is in the Orange Book). The ENAA, EIC, ICE and OBIA all provide contract agreement definitions within the sense of that of the Silver Book, although a contract agreement is optional under the ICE.

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1.1.1.3 "Employer's Requirements". This document outlines and defines the works in accordance with the employer's concept of the project. The FIDIC Guide recommends the employer's requirements include details such as "the definition and purpose of the works; quality and performance criteria; definition and location of the site; special obligations; etc. "7 The Silver Book and the Yellow Book indicate the employer is to specify "the purpose, scope, and/or design and/or other technical criteria, for the works". FIOIC suggests the employer's requirements "should describe the principle and basic design of the plant on a functional basis". 8 The Orange Book provision is slightly less detailed. Finally, the Red Book calls for "specification", instead of employer's requirements, where such document merely "specifies the works". The specifications, coupled with the drawings, are to specify "all matters not covered in the conditions of contract".9 The ICE, OBIA, AGC contain definitions of employer's requirements.

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1.1.1.4 "Tender". The tender in a turnkey contract often involves the submission by the contractor of a more complete set of documents than does the tender for a traditional design-bid-build contract. The contractor must invest greater time and resources in order to provide sufficient design for the project. The risk the contractor incurs in providing a tender for large-scale construction projects, such as BOT projects under the Silver Book, is partly offset by the tendering practices under such projects. For example, bidders may be subject to pre-qualification in order to ensure they are fully capable of performing the contract satisfactorily. to This partially eliminates the risk of bidding against unrealistically low bidders. 6

7 8

9 10

For the purposes of the definitions discussion in this chapter, the provisions of the various contracts will only be sited where such definitions are not found in the general definitions section of the relevant contract. Further, where a standard form contract, usually examined in this book, is not referenced in this discussion, there exist no equivalent provisions in the relevant contract. Fidic Guide, op. cit., n. 5 above, p. 45. C. Wade, "History and Scope of the Three Major Books" online: FIOIC http://www.fidic.com/documents/launch/wade1.html (date accessed: November 19, 1999) (hereinafter "History"). Fidic Guide, op. cit., n. 5 above, p. 45. O.A. Levy, "BOT and Public Procurement: A Conceptual Framework" (1996) 7 Ind. Int'/ & Compo L. Rev. 95 at 102 for a fuller discussion of tendering/bidding procedure under BOT projects, see same; for an outline of how FlOIC envisages the tendering process under the Silver Book, see "History" op. cit. n. 8 above; see also FIDIC Guide, op. cit. n. 5 above, for outline of tendering procedure and sample forms and instructions.

76

The Silver Book definition of tender is the same as those of the (new) Red and Yellow Books, once the definitions of "letter of tender" are included in the later. The Orange Book definition of tender does not seem to require the signature of the contractor on the priced offer of the contractor for the works. The ICE also works under a tender system and provides a form of tender as an appendix. "Appendix'to Tender". Unlike under the Silver Book, the Orange Book and (new) Red and Yellow Books include definitions for an "appendix to tender". Although an appendix to tender is not excluded from the definition of tender under the Silver Book, there may be a functional purpose to the separate definition provided under the other FIOIC contracts. In the other FlOlC contracts, the appendix to tender is referred to where the Silver Book refers to particular conditions. The appendix to tender originates from the contractor whereas the particular conditions are negotiated between the parties. Further, under the priority ranking of the contractual documents, the Silver Book places the particular conditions just below the contract agreement, where the Red and Yellow Books place the letter of tender in this position. A separate definition for an appendix to tender is indicative, therefore, of the relative importance of the tender under the Red and Yellow Books. 1I The FlOIC Guide explains the omission of the use of an appendix to tender in the Silver Book as a means to provide greater flexibility in the use of this contract. 12 Contractual references to the particular conditions, in lieu of the appendix to tender, allow parties to include the relevant information, refer to the location of the relevant information, or delete the sub-clause in the particular conditions.

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"Contractor's Proposal". Both the Orange and (new) Yellow Book define a contractor's proposal, which is to be submitted with the letter of tender regarding the preliminary design. Although this preliminary design is an important part of the contract it is subject to the specifications provided in the other contract documents such as the employer's requirements (in accordance with the priority of documents provided in 1.6 Orange Book; 1.5 (new) Yellow Book).

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1.1.1.5 "Performance Guarantees" and "Schedule ~f Payments". The Silver Book allows the employer to adjust the schedule of payments in all those cases where the contractor does not achieve the progress required by the contract (sub-clause 14.4). Thus, even when the parties choose not to base the schedule of payments on the progress of the works, the employer has the ability to amend it in respect of any delay in progress. This may be inconsistent with the needs of the contractor.

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II

12

For a comparison of FIDIC's view of the tender process under the Silver Book and the Yellow Book, see C. Wade, "The Silver Book: The Reality" (2001) 18 (3) I.C.L.R. 497. FIDIC Guide, op. cit. n. 5 above, p. 47.

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THE CONTRACT

DISCUSSION OF SPECIFIC SUB-CLAUSES

The Silver Book also contains reference to performance guarantees. Such guarantees are found under all of the FIDIC contracts examined herein (Silver, Orange and (new) Red and Yellow Books sub-clauses 4.2), although only the Silver and Yellow Book define such guarantees. Performance guarantees are important to the employer as they provide security for the contractor's financial ability to perform his obligations under the contract.

terms (such as under the insurance provisions, see Chapter 22). As a result, parties may latter assign responsibility, under a given clause, to either the contractor or employer by substituting the appropriate designation. Second, the Silver Book is the only contract where a "third party" is not intimately involved in the carrying out of the contractual pro~isions. The "employer's representative" under the Orange Book and the "engineer" under the Yellow and Red Books, however, play significant roles in the respective contracts.

1.1.2 Parties and Persons

1.1.2.2 "Employer". Whereas the "employer" is named in the contract agreement in the Silver Book, he is named in the appendix to tender under the other FIDIC contracts examined herein. The Orange Book excludes any unapproved assignees of the employer or his legal successors from the definition of "employer". The other FIDIC contracts do not specifically exclude unapproved assignees under the definition of employer, but rather in a separate sub-clause 1.7 (see discussion below). The ENAA, EIC and ICE also provide definitions for employer or, the equivalent, "owner".

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1.1.2.3 "Contractor". Where the "contractor" is named in the contract

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1.1.2.1 "Party" means the Employer or the Contractor, as the context requires. 1.1.2.2 "Employer" means the person named as employer in the Contract Agreement and the legal successors in title to this person. 1.1.2.3 "Contractor" means the person(s) named as contractor in the Contract Agreement and the legal successors in title to this person(s). 1.1.2.4 "Employer's Representative" means the person named by the Employer in the Contract or appointed from time to time by the Employer under SubClause 3.1 [The Employer's Representative], who acts on behalf of the Employer. 1.1.2.5 "Contractor's Representative" means the person named by the Contractor in the Contract or appointed from time to time by the Contractor under Sub-Clause 4.3 [Contractor's Representative], who acts on behalf of the Contractor. 1.1.2.6 "Employer's Personnel" means the Employer's Representative, the assistants referred to in Sub-Clause 3.2 [Other Employer's Personnel] and all other staff, labour and other employees of the Employer and of the Employer's Representative; and any other personnel notified to the Contractor, by the Employer or the Employer's Representative, as Employer's Personnel.

•

1.1.2.7 "Contractor's Personnel" means the Contractor's Representative and all personnel whom the Contractor utilises on Site, who may include the staff, labour and other employees of the Contractor and of each Subcontractor; and any other personnel assisting the Contractor in the execution of the Works. 1.1.2.8 "Subcontractor" means any person named in the Contract as a subcontractor, or any person appointed as a subcontractor, for a part of the Works; and the legal successors in title to each of these persons. 1.1.2.9 "DAB" means the person or three persons so named in the Contract, or other person(s) appointed under Sub-Clause 20.2 [Appointment of the Dispute Adjudication Board] or Sub-Clause 20.3 [Failure to Agree Dispute Adjudication Board]. 1.1.2.10 "FIDIC" means the Federation Internationale des IngenieursConseils, the international federation of consulting engineers.

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1.1.2.1 "Party". The Silver Book definition of party is unique to the FIDIC contracts examined herein. "Party" is defined in the Silver Book for two reasons. First, it allows provisions of the contract to be drafted in neutral 78

agreement in the Silver Book, he is named in the appendix to tender under the other FIDIC contracts examined herein. The Orange Book excludes any unapproved assignees of the employer or his legal successors from the definition of "contractor". The other FIDIC contracts do not specifically exclude unapproved assignees under the definition of employer, but rather in a separate sub-clause 1.7 (see discussion below). The ENAA, EIC and ICE all provide definitions for contractor.

1.1.2.4 "Employer's Representative". Like the Orange Book, the Silver Book has an "employer's representative" and no "engineer". The employer's representative plays a less prominent role in the Silver Book than in the Orange Book. A reflection of this fact, Silver Book sub-clause 3.1 allows that the employer "may" appoint a representative whereas Orange Book sub-clauses pertaining to the employer's representative presume his appointment. Under the Orange Book, the employer's representative "shall be a suitably qualified engineer or other appropriate professional" whereas the Silver Book makes no such specification (Silver Book sub-clause 3.1). The Yellow and Red Books still use the offices of an "engineer" rather than an employer's representative (sub-clauses 1.1.2.4). Whereas the employer's representative is to "act on behalf of the employer", the role of the employerappointed engineer in the Yellow and Red Books is less clear. For example, the engineer is to be "deemed to act for the employer" (sub-clauses 3.1(a)) but the contractor may raise reasonable objections to the appointment of a replacement engineer (sub-clauses 3.4). In addition, the engineer exercises a dispute resolution function under these contracts (sub-clauses 3.5). The removal of the engineer, in the Silver and Orange Books, is consistent with the nature of the turnkey contract in which the contractor designs the project and coordinates construction thereby reducing the need for a central figure. A detailed discussion of the role of the employer's representative is contained in (Chapter 7). 79

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THE CONTRACT

The ENAA, EIC and ICE also provide definitions for the employer's representative.

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1.1.2.5 "Contractor's Representative". Under the FIDIC contracts, a "contractor's representative" may be appointed and fills a, largely, facilitative role. Unlike the other FIDIC contracts, the Orange Book does not specify that the contractor's representative "acts on behalf of the contractor". He provides a connection between the contractor, on the one hand, and the employer's representative, on the other hand, as regards communication and notices. Despite the differences in the definitions, the contractor's representative fulfils a similar role under the FIDIC contracts examined herein. The ENAA, EIC and ICE all provide definitions for the contractor's representative.

DISCUSSION OF SPECIFIC SUB-CLAUSES

may arise in a less contentious atmosphere than would be found in arbitration or litigation. All of the FIDIC contracts examined herein contain equivalent definitions of this board. Further discussion of this dispute resolution regime may be found in Chapter 24. None of the other standard form contracts examined herein define their dispute resolution bodies, where such exist.

1.1.2.10 "FIDIC". This is a seemingly unnecessary definition that is, nonetheless, provided in all FIDIC contracts other than the Orange Book. The FIDIC Guide states this definition is provided for greater certainty, as (under sub-clause 20.3) the president of FIDIC or his appointee may act as appointing entity for the purpose of sub-clause 20.3.13

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1.1.3 Dates, Tests, Periods and Completion

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1.1.2.6 "Employer's Personnel". The Silver Book definition of "employer's personnel" is the same as that of the Yellow and Red Books, except that the latter two include the engineer and his delegates in this category. This inclusion has implications at other points in the contract and calls into question the independence of the engineer. As discussed above, however, the engineer is not truly independent. Rather, a better characterisation of the engineer is that he is relied on to be professional. The Orange Book does not designate employer's personnel, nor do the other standard form contracts examined herein.

1.1.3.1 "Base Date" means the date 28 days prior to the latest date for submission of the Tender. 1.1.3.2 "Commencement Date" means the date notified under Sub-Clause 8.1 [Commencement of Works], unless otherwise defined in the Contract Agreement. 1.1.3.3 "Time for Completion" means the time for completing the Works or a Section (as the case may be) under Sub-Clause 8.2 [Time for Completion], as stated in the Particular Conditions (with any extension under Sub-Clause 8.4 [Extension of Time for Completion]), calculated from the Commencement Date.

1.1.2.7 "Contractor's Personnel". All FIDIC contracts examined herein, with the exception of the Orange Book, define "contractor's personnel". This definition has consequences under the contracts, especially with regard to the allocation of responsibility for actions attributable to the contractor or the contractor's personnel. The other standard form contracts, however, do not provide definitions for contractor's personnel.

1.1.3.4 "Tests on Completion" means the tests which are specified in the Contract or agreed by both Parties or instructed as a Variation, and which are carried out under Clause 9 [Tests on Completion) before the Works or a Section (as the case may be) are taken over by the Employer. 1.1.3.5 "Taking-Over Certificate" means a certificate issued under Clause 10 [Employer's Taking Over).

1.1.2.8 "Subcontractor". The contractor, when performing the works contemplated by a turnkey contract, will generally use a number of subcontractors to provide various services and supply materials for construction. These subcontractors are referred to in the conditions of contract. This allows some regulation of them by the employer in the interests of ensuring, inter alia, the quality of the construction and the materials used. The Silver Book provision is identical to those of the Red and Yellow Books. The Orange Book provision differs in that it specifically includes a manufacturer or supplier for a part of the works. The Orange Book specifically excludes subcontractor status to the assignees of any subcontractor. The ENAA, AGe and DBIA all provide definitions for subcontractors. 1.1.2.9 "DAB". The dispute adjudication board provides the dispute resolution function that was traditionally part of the role of the engineer. The goal of such dispute resolution is the rapid resolution of any dispute that 80

1.1.3.6 "Tests after Completion" means the tests (if any) which are specified in the Contract and which are carried out under Clause 12 [Tests after Completion] after the Works or a Section (as the case may be) are taken over by the Employer. 1.1.3.7 "Defects Notification Period" means the period for notifying defects in the Works or a Section (as the case may be) under Sub-Clause 11.1 [Completion of Outstanding Work and Remedying Defects), as stated in the Particular Conditions (with any extension under Sub-Clause 11.3 [Extension of Defects Notification Period]), calculated from the date on which the Works or Section is completed as certified under Sub-Clause 10.1 [Taking Over of the Works and Sections). If no such period is stated in the Particular Conditions, the period shall be one year.

Il

ibid., p. 310.

81

DI SCUSSION OF SPECIFIC SUB-CLAUSES

THE CONTRACT

1.1.3.8 "Performance Certificate" means the certificate issued under SubClause 11.9 [Performance Certificate]. 1.1.3.9 "day" means a calendar day and "year" means 365 days.

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1.1.3.1 "Base Date". All of the FIDIC contracts reviewed in this book provide the same definition of the "base date". The base date allows the contractor to utilise, for pricing and programming purposes, the laws and certain circumstances that existed at the appropriate time when he finalised his tender. Thus he will not bear the risk of a change in law or circumstances occurring after the formulation of the tender. The base date could be defined as a particular calendar date. The base date is referred to in Silver Book sub-clauses 4.10 (site data); 5.1 (general design obligations); 5.4 (technical standards and regulations); 13.7 (adjustments for changes in legislation); 14.15 (e) (currencies of payment); 17.5 (b)(ii) (intellectual and industrial property rights); 18.2 (insurance for works and contractor's equipment). None of the other standard form contracts contain a definition for a mechanism similar to the base date. 1.1.3.2 "Commencement Date". The commencement date can be indicated either by the employer or his representative, by reference to events external to the parties, or can be predetermined in the contract. The definitions of the other FlDIC contracts examined herein are essentially equivalent to that of the Silver Book, although the provisions vary, regarding the commencement date, as between the contracts (sub-clauses 8.1). The FlDIC contracts do not specify what occurs if the contractor is not notified of commencement within the time specified under the various contracts. Presumably, the contractor would be allowed to terminate under sub-clauses 16.2. The parties may wish to specify the effect of such a failure. The ICE defines a commencement date. The ENAA provides a definition for an "effective date" within seven days after which commencement is to occur (ENAA Agreement 5.1). 1.1.3.3 "Time for Completion". Generally speaking, the contractor must achieve substantial completion of the works within a given time period, defined as the time for completion. Under the Silver Book, the contractor must complete the works, including passing the tests on completion, within the time for completion. This leaves the tests after completion to be performed subsequent to the time for completion. The FIDIC contracts examined herein contain similar provisions to that of the Silver Book, although the time for completion under these contracts is stated in the appendix to tender. Both the ENAA and EIC also define a time for completion. 1.1.3.4 "Tests on Completion". Tests on completion are designed to verify that the contractor has completed construction of the works to the extent 82

required within the time for completion. The works must pass these t.ests before they can be considered complete; they can then be pa~sed. back I~to the possession and care of the employer. Care should be .t aken In dlffere.n tlating between tests on completion and tests after completion, as the passmg of the former test will precede the employer's taking over of the works (or a section thereof).14 This section is identical to those definitions found in the (new) Red and Yellow Books and similar to that of the Orange Book. Rough equivalents to this definition may be found in the ENAA and EIe.

1.1.3.5 "Taking-Over Certificate". Taking over indicates the successf~1 completion of the works to the extent required by the contract .. At thiS point the works are taken over by the employer who proceeds With tests after completion to verify the functioning of the works as contracted. Although the contractor no longer has possession of the site and care of the works, he maintains the right to enter the site and have access to the works in order to fulfil his obligation to remedy defects.·The Orange Book and (new) Yellow and Red Books' definitions follow the wording of that of the Silver Book. Of the other standard form contracts examined herein, only the EIC contains a similar definition. Along a similar vein to the purpose of a taking-over certificate, the ICE, AGC and DBIA all provide definitions for "substantial completion" and for the issue of corresponding certificates.

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1.1.3.6 "Tests after Completion". Under a turnkey or EPC contract the contractor must deliver completed works satisfying certain specifications provided by the employer. These specifications may include performance standards that the finished works must meet. In such case the parties may include tests after completion to verify that the works perform to the specifications required. The FIDIC contracts examined herein contain similar definitions for tests after completion, although the Orange Book definition does not refer to Orange Book clause concerning tests after completion (clause 11) and the Red Book includes the specifications for these tests in the particular conditions. In order to provide sample wording for both instances, FlDIC requires the contractor to carry out the tests after completion in the Silver Book, whereas the employer is to do so under the Yellow BookY

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1.1.3.7 "Defects Notification Period". The defects notification period is important, as this period is effectively a warranty period on the works of the contractor. The contractor is bound to remedy any defects where the owner notifies the contractor of these defects within this time period. Both the (new) Yellow and Red Books contain equivalent provisions to that of

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14 IS

ibid., p. 51. ibid., p. 51.

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THE CONTRACT

DISCUSSION OF SPECIFIC SUB-CLAUSES

the Silver Book, although neither contract provides for a one-year period where no period is stated in the particular conditions. The Orange Book does not provide any such definition. The ENAA, EIC and ICE contain ~oughly equivalent definitions to that of the Silver Book, and the EIC Includes a 12-month fall-back where there is failure to stipulate a period otherwise.

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1.1.3.8 "Performance Certificate". The performance certificate indicates both successful passage by the works of the tests after completion and the approval of the works by the employer. The issue of the performance certificate also signals the end of the defects liability period. The other FIDIC contract provisions are virtually identical but, under these contracts, the certificate is to be issued by the engineer ((new) Yellow and Red Books) or the employer's representative (Orange Book) where such are used. Finally, while the other standard form contracts examined herein may use a similar mechanism (i.e. the final certificate) only the ENAA contains an equivalent definition of this mechanism (i.e. acceptance).

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1.1.3.9 "Day". Such a provision can be important in international contracts where projects may be constructed in countries running under other calendar systems. A year could mean a year under the Islamic calendar, for example. Another example of potential for confusion: in Israel each day begins at sunset. All of the FIDIC contracts examined herein contain equivalent provisions. In addition, and an indication of the importance of such a definition, the ENAA, EIe, AGC and DBIA all define day.

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1.1.4 Money and Payments 1.1.4.1 "Contract Price" means the agreed amount stated in the Contract Agreement for the design, execution and completion of the Works and the remedying of any defects, and includes adjustments (if any) in accordance with the Contract. 1.1.4.2 "Cost" means all expenditures reasonably incurred (or to be incurred) by the Contractor, whether on or off the Site, including overhead and similar charges, but does not include profit. 1.1.4.3 "Final Statement" means the statement defined in Sub-Clause 14.11 [Application for Final Payment]. 1.1.4.4 "Foreign Currency" means a currency in which parr (or all) of the Contract Price is payable, but not the Local Currency. 1.1.4.5 "Local Currency" means the currency of the Country.

I

1.1.4.6 "Provisional Sum" means a sum (if any) which is specified in the Contract as a provisional sum, for the execution of any part of the Works or for the supply of Plant, Materials or services under Sub-Clause 13.5 [Provisional Sums].

84

1.1.4.7 "Retention Money" means the accumulated retention moneys which the Employer retains under Sub-Clause 14.3 [Application for Interim Payments] and pays under Sub-Clause 14.9 [Payment of Retention Money]. 1.1.4.8 "Statement" means a statement submitted by the Contractor as part of an application for payment under Clause 14 [Contract Price and Payment].

1.1.4.1 "Contract Price". The Silver Book assumes that the price, for construction will be a fixed amount, rather than one based on the actual cost of the work completed or the amount of work done, i.e, a fixed, lump-sum contract. This fixed price is called a lump sum. Turnkey and EPC projects are more amenable to lump-sum pricing given the control that the contractor has over the design and construction of the project. The Silver and Orange Books speak of the "contract price" which includes adjustments of this price made in accordance with the contract. The (new) Yellow and Red Books splice their definitions such that the "accepted contract amount", found in the letter of acceptance, does not include adjustments whereas the "contract price" includes any adjustments made in accordance with the contract. The ENAA, EIC and ICE all define the contract price.

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1.1.4.2 "Cost". The definition of cost may have a significant impact on the performance of the contract when it comes to valuation of damages and reimbursement of the contractor for such events as changes in legislation. The definition specifically excludes profit. However, it does not specify the treatment of supplier discounts and other such benefits that contractors, especially on large purchase orders, might receive. It also includes overhead and similar charges that arguably render the definition favourable to the contractor. The definitions of the FIDIC contracts are almost identical. The ICE also provides a definition for cost but, unlike the FIDIC contracts, does not require the expenditures in question to be incurred by a particular party (ICE 1(5)).

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1.1.4.3 "Final Statement". Issued subsequent to the performance certificate, which is issued within 28 days of the end of the contract period, this statement indicates the work completed, its value and the amount still due to the contractor by the employer. The final payment is based on this amount. The FIDIC contracts contain similar provisions to each other as regards the final statement mechanisms.

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1.1.4.4 "Foreign Currency". This sub-clause contemplates that the contract price will be paid, at least partly in local currency. This may not be the case, however, particularly where project financing is obtained or where another currency is preferable for reasons of exchange or stability. The Silver Book definition is identical to that of the (new) Red and Yellow

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85

THE CONTRACT

Books. The Orange Book differs, however, as the definition specifies that foreign currency means a freely convertible currency. It is unclear what the result under the Orange Book will be, if a currency referred to in the appendix is not freely convertible or loses its convertibility after the contract comes into force. Although parties are unlikely to choose an unstable foreign currency, parties may, nonetheless, want to include the specifications of the Orange Book. The ENAA does not define foreign currency but does provide that the contract price may be paid in both local and foreign currency (ENAA Agreement 3.1). 5-42

1.1.4.5 "Local Currency". This definition is identical amongst the FlDIC contracts.

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1.1.4.6 "Provisional Sum". Provisional sums are used by the employer to maintain control over certain aspects of the construction-for example, the purchase of know-how, the hiring of subcontractors or the choice of the materials to be used in the works. The contract specifies the amount that is then allocated in accordance with the directions of the employer's representative. The FIDIC contracts examined herein contain virtually identical definitions.

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1.1.4.7 "Retention Money". A portion (usually a percentage) of each payment made to the contractor is retained by the employer to be paid back at specified stages of completion. This provides the contractor with a greater incentive for timely completion at later stages of construction and also gives to the employer an added guarantee against failure of performance by the contractor. The amount held back is the retention money. The parties may prefer to replace retention money with a bond or third-party guarantee in order to provide the employer with an additional performance security while maintaining the contractor's capital flow. The issue of a bond or guarantee may also prove less costly to the contractor than the use of retention money. The FlDIC contracts examined herein contain virtually identical definitions. 1.1.4.8 "Statement". The FIDIC contracts examined herein, other than that of the Orange Book, provide a general definition of "statement" under the contracts. The Orange Book contains an almost identical list of requirements for a contractor's statement (under 13.3 Orange Book), although no definition of "statement" is provided in the definitions section. The Orange Book excludes liquidated damages deduction by the employer from such a statement (sub-clause 8.6).

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"Payment certificate"; "interim payment certificate"; "final payment certificate". The Red and Yellow Book's definitions include mention of a 86

DISCUSSION OF SPECIFIC SUB-CLAUSES

"payment certificate", as an engineer is used under these contracts. For the same reason, these two contracts, as well as the Orange Book, each define a "final payment certificate" and an "interim payment certificate". Under the Silver Book, interim and final payments are made on the basis of the statements issued by the contractor and su~mitted directly to the employer. 5-47

1.1.5 Works and Goods 1.1.5.1 "Contractor's Equipment" means all apparatus, machinery, vehicles and other things required for the execution and completion of the Works and the remedying of any defects. However, Contractor's Equipment excludes Temporary Works, Employer's Equipment (if any), Plant, Materials and any other things intended to form or forming part of the Permanent Works. 1.1.5.2 "Goods" means Contractor's Equipment, Materials, Plant and Temporary Works, or any of them as appropriate. 1.1.5.3 "Materials" means things of all kinds (other than Plant) intended to form or forming part of the Permanent Works, including the supply-only materials (if any) to be supplied by the Contractor under the Contract. 1.1.5.4 "Permanent Works" means the permanent works to be designed and executed by the Contractor under the Contract. 1.1.5.5 "Plant" means the apparatus, machinery and vehicles intended to form or forming part of the Permanent Works. 1.1.5.6 "Section" means a part of the Works specified in the Particular Conditions as a Section (if any). 1.1.5.7 "Temporary Works" means all temporary works of every kind (other than Contractor's Equipment) required on Site for the execution and completion of the Permanent Works and the remedying of any defects. 1.1.5.8 "Works" mean the Permanent Works and the Temporary Works, or either of them as appropriate.

1.1.5.1 "Contractor's Equipment". The FIDIC contracts examined herein provide similar definitions of contractor's equipment. The Orange Book, however, does not specifically exclude employer's equipment from this definition, nor does it specifically include vehicles. It may be difficult to differentiate contractor's equipment from temporary works unless they are specifically defined in the contract. The ENAA and ICE also provide definitions for contractor's equipment.

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1.1.5.1 "Goods". The Silver, Red and Yellow Books provide identical definitions of "goods", while the Orange Book provides none. "Goods" are used in the FIDIC contracts to allocate responsibility to the contractor for the care of such items while in transit to the site (under 4.16 Silver, Red and Yellow Books). "Goods" include both the contractor's equipment

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87

DISCUSSION OF SPECIFIC SUB-CLAUSES

THE CONTRACT

and temporary works (which will revert back to the contractor) as well as the materials and plants (which will be incorporated into the permanent works).16 The Orange Book provisions, however, do not hold the contractor exclusively liable for such items. For example, Orange Book sub-clause 4.20 stipulates that where the employer is to provide machinery and materials, such items are, at his risk and cost, transported to the site. 5-50

5-51

5-52

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1.1.5.3 "Materials". The FlDIC contracts examined herein provide similar definitions of "materials". The Orange Book definition differs from the other FIDIC contracts as it is only prospective: the materials are "to be provided" whereas the other contracts speak of items "intended to form or forming" part of the permanent works. The ENAA also defines materials. 1.1.5.4 "Permanent Works". Permanent works are those works which are to be erected on the site and which will remain on the site for use by the employer. Under both the Silver and Orange Book such works are "designed and executed" by the contractor whereas the (new) Red and Yellow Books only mention those works "executed" by the contractor. This is in keeping with the allocation of design responsibility under the contracts. Under the Yellow and Red Book, the contractor is to design the works in accordance with the engineer's instructions or subject to his approval (5.1 Yellow Book; 4.1 Red Book). Under the Silver and Orange Book, the contractor alone is to design the works, although the employer's representative plays a role under the Orange Book (5.1 Orange Book; 5.1 Silver Book). The ICE also defines permanent works.

less valuable) taking-over certificate for the works at the end of the project. IS ., .. The FIDIC contracts examined herein provide Identical definitIOns, although the Silver Book provides such sections may be delineat~d in. the particular conditions whereas, in the other contracts, such speCificatIOns are to be found in the appendix to tender. Due to the use of the contract period, division into sections will not affect the defects liability of the contractor. The ICE also contains a definition for section. 1.1.5.7 "Temporary Works". Temporary works are those works to be erected on the site for the sole purpose of constructing the permanent works that will then be removed by the contractor by the end of the project. The FIDIC contracts examined herein contain identical provisions, although the Orange Book omits the qualification of permanent works in its definition. The ICE also contains a definition for temporary works.

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1.1.5.8 "Works". The FlDIC contracts examined herein contain identical provisions. In addition, the ENAA, EIC and ICE all contain similar definitions of works. The AlA, AGC and DBIA, on the other hand, define works differently. Due to the design-oriented nature of the contracts, "work" includes the design/construction services provided by the contractor (AlA 1.1.2-Part 2; AGe 2.4.2; DBIA 1.2.12).

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1.1.6 Other Definitions

5-56

1.1.6.1 "Contractor's Documents" means the calculations, computer pro· grams and other software, drawings, manuals, models and other documen~s of a technical nature supplied by the Contractor under the Contract; as descClbed in Sub-Clause 5.2 [Contractor's Documents]. 1.1.6.2 "Country" means the country in which the Site (or most of it) is located, where the Permanent Works are to be executed.

1.1.5.5 "Plant". Plant indicates elements to be incorporated into the construction of the permanent works that have an independent function. An example would be a generator in a power project. The FIDIC contracts contain virtually identical definitions, although the Orange Book definition adds supply-only items. The ENAA and EIC also contain definitions for plant.

1.1.6.3 "Employer's Equipment" means the apparatus, machinery and vehicles (if any) made available by the Employer for the use of the Contractor in the execution of the Works, as stated in the Employer's Requirements; but does not include Plant which has not been taken over by the Employer.

1.1.5.6 "Section". The parties may divide the completion of the works into sections that can be completed as separate units (for example, the separate generating units of a power plant). Each section can then be allocated a separate time for completion, if such sections are truly susceptible to independent completion. In addition, these sections should be given precise geographical definitions in order to clarify the extent of parties' responsibilities upon taking over.17 FIDIC also advises that the whole of the works not be divided into sections, as this would eliminate the need for the (nonethe16 17

ibid., p. 55. ibid., p. 5.5.

88

1.1.6.4 "Force Majeure" is defined in Clause 19 [Force Majeure]. 1.1.6.5 "Laws" means all national (or state) legislation, statutes, ordinances and other laws, and regulations and by-laws of any legally constituted public authority. 1.1.6.6 "Performance Security" means the security (or securities, if any) under Sub-Clause 4.2 [Performance Security].

18

ibid., p. 55.

89

DISCUSSION OF SPECIFIC SUB-CLAUSES

THE CONTRACT

1.1.6.7 "Site" means the places where the Permanent Works are to be executed and to which Plant and Materials are to be delivered, and any other places as may be specified in the Contract as forming part of the Site. 1.1.6.8 "Variation" means any change to the Employer's Requirements or the Works, which is instructed or approved as a variation under Clause 13 (Variations and Adjustments).

•

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1.1.6.1 "Contractor's Documents". The contractor's documents definitions are roughly equivalent between the FlDIC contacts examined herein. The Orange Book, however, caIls such documents "construction documents". In addition, each FIDIC contract provides further specifications for such documents (5.2 Silver Book; 5.2 Yellow Book; 5.2 Orange Book), except for the Red Book. This discrepancy may be explained by the fact that under the Red Book the employer is to provide for the design for the works. The employer's use of these documents is subject to constraint (see subclauses 1.10).

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1.1.6.2 "Country". Although defined under the FlOlC contracts, this definition does not appear in the other form contracts.

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1.1.6.3 "Employer's Equipment". Silver, YeIlow and Red Books define employer's equipment. The Orange Book does not define employer's equipment, although the possibility of employer-supplied machinery and materials is addressed under Orange Book sub-clause 4.20. The (new) Yellow Book contains an error in referring to "specification", instead of "employer's requirements", for a list of items making up the employer's equipment. Specification is relevant only under the Red Book.

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1.1.6.4 "Force Majeure". The FIDIC contracts examined herein, other than the Orange Book, contain definitions of force majeure. The Orange Book, however, provides a definition of force majeure under the clause relating to the occurrence of such an event (see 19.1 Orange Book),

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1.1.6.5 "Laws". The FIDIC contracts, other than the Orange Book, provide definitions for laws referred to under the contracts. Where such reference is made, parties should take care to specify the jurisdiction in question, as provisions such as those relating to the law governing the contract would not be sufficient. The DBIA also provides a definition for "legal requirements".

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1.1.6.6 "Performance Security". The contractor's provision of performance security to the employer is an important feature of the FIDIC contracts. Under the provisions of the FIDIC contracts, performance security is to remain valid and enforceable until the contractor has executed and completed the works and remedied any defects (see sub-clauses 4.2). Such security helps ensure the contractor wiIl have the financial means to complete the various 90

stages of the contract. The FlDIC contracts, other than the Orange Book, provide definitions for performance security referred to under the contracts. Performance security is, nonetheless, discussed under Orange Book subclause 4.2. 1.1.6.7 "Site". The site includes the locations to which the contractor will have access and over which he will have control to permit construction of the works. The site must, therefore, be carefuIly delineated in the contract, particularly in consideration of the contractor's duty to keep the site clean and secure and to avoid poIlution issuing from it. Although the contractor may, upon agreement by the employer, obtain additional working areas (under sub-clause 4.23), these areas are not included in the site definition as "such provision would be inconsistent with the employer's obligations in respect of the site" {i.e. under sub-clause 2.1 ).19 The FIOIC contracts examined herein provide virtuaIly identical provisions although the Orange Book omits the qualification of permanent works in its'definition. The ENAA, ElC, ICE and DBlA 1.2.8 also contain definitions of site.

5-62A

1.1.6.8 "Variation". Although the contractor is generaIly responsible for design and construction of the works, the employer may implement changes during the period of the contract. Such variations are performed at the cost of the employer. The FIDlC contracts examined herein contain essentially identical definitions in this regard. The Red Book, however, does not mention a change to the "employer's requirements" as such requirements do not exist under this contract. The ElC and AlA also contain definitions for variation.

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1.2 Interpretation

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In the Contract, except where the context requires otherwise: (a) words indicating one gender include all genders; (b) words indicating the singular also include the plural and words indicating the plural also include the singular; (c) provisions including the word "agree", "agreed" or "agreement" require the agreement to be recorded in writing, and (d) "written" or "in writing" means hand-written, type-written, printed or electronically made, and resulting in a permanent record. The marginal words and other headings shall not be taken into consideration in the interpretation of these Conditions. The Silver Book sub-clause 1.2 indicates general principles of interpretation for the contract documents. This clause is standard in construction con19

ibid., p. 57.

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DISCUSSION OF SPECIFIC SUB-CLAUSES

THE CONTRACT

tracts to allow sufficient flexibility in the contract language and to avoid misinterpretation. The relevant Yellow and Red Book provisions are identical to that of the Silver Book. The Orange Book provisions differ from the Silver Book, however, specifying, "words importing persons or parties shall include firms and corporations and any organisation having legal capacity" (Orange Book 1.3). The Orange Book also diverges from the other FIDIC contracts in not including clarification of terms relating to "agreement". Finally, the Orange Book, unlike the other FIDIC contracts, does not begin with the proviso that the context may require an interpretation other than as provided under the interpretation provision. Various other of the standard form contracts examined herein contain 'similar provisions to that of the Silver Book regarding headings (ENAA 3.3; ICE 1(3); EIC 1.3; AGC 13.5; DBIA 12.6.1) and the significance of words appearing in the plural or singular (ENAA 3.2; ICE 1(2); EIC 1.10). The ICE also includes a definition for "in writing" (ICE 1(6)). Similar to the Orange Book, both the ENAA and the EIC indicate that reference to persons or parties, under the contract, may include firms, organisations, and any organisation having legal capacity (ENAA 3.4; EIC 1.4).

5-65

cautions that the importance of the requirement that certain communications not be unreasonably withheld or delayed should not be under-estimated, nor should the serious consequences of non-compliance with this requirement. 2o The ENAA covers notices but with more specificity with respect to time periods, presumption of reception in a certain time and time period for confirmation. The presumption of reception under the ENAA has been criticised, suggesting that parties should instead be required to provide evidence of actual receipt. 21 The ICE, EIC and DBIA provisions relating to notices are less detailed (ICE 68; EIC 1.11; DBiA 12.7). Similar to the ENAA, the DBIA also contains a presumption of receipt clause (DBIA 12.7.1).

The Contract shall be governed by the law of the country (or other jurisdiction) stated in the Particular Conditions. If there are versions of any part of the Contract which are written in more than

one language, the version which is in the ruling language stated in the Particular Conditions shall prevail.

1.3 Communications Wherever these Conditions provide for the giving or issuing of approvals, certificates, consents, determinations, notices and requests, these communications shall be: (a) in writing and delivered by hand (against receipt), sent by mail or courier, or transmitted using any of the agreed systems of electronic transmission as stated in the Particular Conditions; and (b) delivered, sent or transmitted to the address for the recipient's communications as stated in the Contract. However: (i) if the recipient gives notice of another address, communications shall thereafter be delivered accordingly; and (ii) if the recipient has not stated otherwise when requesting an approval or consent, it may be sent to the address from which the request was issued. Approvals, certificates, consents and determinations shall not be unreasonably withheld or delayed. The Silver Book sub-clause 1.3 provides details on how communications under the contract should occur. Communication between the parties is extremely important in a construction project, not only for the proper performance of the contract but also for the resolution of any claims made by the contractor. The provisions of the various FIDIC contracts examined herein are substantially the same, although some additional language is added to ensure the employer and employer's representative/engineer each both get and give notice. The FIDIC Guide

92

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1.4 Law and Language

The language for communications shall be that stated in the Particular Conditions. If no language is stated there, the language for communications shall be the language in which the Contract (or most of it) is written. The Silver Book sub-clause 1.4 indicates the relevant law and language for both the governing of the contract and communication between the parties. The other FIDIC contracts examined herein contain equivalent provisions. Differences do appear under the Orange Book, which fails to provide a default language for communications, should none be stipulated in the appendix to tender. The Orange Book also only refers to "day-to-day" communications whereas the other FIDIC contracts address communications in general. The choice of language can be extremely important. A single day-to-day language will prevent confusion on the site caused by linguistic differences and translations. The language of the contract is similarly important. For example, a construction contract may provide for the contract language to be both French and English. Such a stipulation may be politically convenient but could result in confusion and miscommunication, particularly in the more technical aspects of the contract documents. The choice of law is equally important. It will define and regulate the terms and execution of the contract. The parties should indicate a legal system 20

2.

ibid., p. 59.

Wiwen-Nilsson," A Brief View of the 1992 Edition of the ENAA Model Form-International Contract for Process Plant Construction (Turnkey Lump sum Basis)", op. cit. n. 1 above at 532.

93

DISCUSSION OF SPECIFIC SUB-CLAUSES

THE CONTRACT

consistent with their needs and protective of their interests. The EIC Guide warns, for example, that "under certain Civil Law jurisdictions, some Silver Book conditions may be considered unfair trade terms and therefore inapplicable" .22 Furthermore, parties should inform themselves as to the rules of public order of the jurisdiction in question, as such rules may not be contracted out of. Other standard form contracts examined herein contain provisions relating to language (ENAA 3.1; EIC 25.4) and law (ENAA 5; EIC 24; AlA 7.1Part. 1; AlA 11.1-Part.2; AGC 13.2; DBIA 12.3).

5-'{)7

1.5 Priority of Documents The documents forming the Contract are to be taken as mutually explanatory of one another. For the purposes of interpretation, the priority of the documents shall be in accordance with the following sequence: (a) the Contract Agreement, (b) the Particular Conditions, (c) these General Conditions, (d) the Employer's Requirements, (e) the Tender and any other documents forming part of the Contract. The Silver Book sub-clause 1.5 sets out the priority of the various documents comprising the contract for the purposes of interpretation. This section is similar to those of the Yellow and Red Book sub-clauses 1.5, although these sub-clauses include the letter of acceptance (which is not specifically referenced or defined under the Silver Book) after the contract agreement. Further, the "schedules" referred to in the Yellow and Red Books take the place of, and are roughly equivalent to, the "tender" of the Silver Book. Finally, the Yellow Book, as does the Orange Book, places the "contractor's proposal" at the bottom of the priority list. The FIDlC Guide justifies placing the employer's requirements before the tender as this signals to the contractor the obligatory nature of the employer's requirements. Where the tender does not, or to the extent that it does not, conform to the employer's requirements; these differences may be incorporated into (and thus sanctioned) the letter of acceptance or contract agreement. 23 Further, although the general conditions are ranked above the employer's requirements and the tender, where the general conditions state they are to apply "unless otherwise stated in the contract" the provisions of these lower-ranked documents may apply in case of conflict. 24 The Orange Book does not include a catch all of the other documents forming part of the contract. The Orange Book also provides a different 22 2J 24

EIC~ The EIC Contractor's Guide to the F1DIC Conditions of Contract for EPC Turnkey ProJects (European International Contractors, Berlin, 2000), p. 8 (hereinafter EIC Guide). FIDIC Guide, op. cit. n. 5 above, p. 62. ibid., p. 62.

94

ordering from that of the Silver Book, placing both the employer's requirements and the tender before the particular and general conditions (although called by a different name). The Red and Yellow Books allow the employer to issue a clarification or instruction (under sub-clause 3.3) where an ambiguity or discrepancy is found in the contract documents. The Silver Book contains no such provision and, therefore, the FIDIC Guide suggests, "parties should endeavour to reach agreement on how [such discrepancy] should be resolved, which may result in an adjustment to the contract price".2s Other standard form contracts examined herein also contain provisions both ranking the various contract documents and specifying that these documents mutually complement each other (ENAA Agreement 1.2; EIC 1.5; AGC 2.4.1; DBIA Agreement 3.1). The EIC provision, however, only specifies that the parties may agree to a ranking but does not indicate the ranking itself. 1.6 Contract Agreement

S-'{)8

The Contract shall come into force and effect on the date stated in the Contract Agreement. The costs of stamp duties and similar charges (if any) imposed by law in connection with entry into the Contract Agreement shall be borne by the Employer. Silver Book sub-clause 1.6, unlike the other FIDIC contracts examined herein, requires a contract agreement in which the date of the entry into force and effect of the contract is stated. Under the Red and Yellow Books, the parties are to enter into a contract agreement "within 28 days after the contractor receives the letter of acceptance" unless agreed otherwise. Where no letter of acceptance exists under these contracts, however, in order to establish a binding contract parties must sign a contract agreement. 26 Under the Orange Book, a contract agreement may be entered into at the request of either party. Unlike the other FIDIC contracts examined herein, the Orange Book contains a further provision regarding the "effective date", meaning "the date on which the contract entered into legal force and effect" (sub-clause 1.1.3.2). In general, the provision for drafting of a contract agreement stems from concerns regarding legality, as in some jurisdictions a contract agreement is advisable or required. The parties should make sure their contract includes an appended form of contract agreement, as do the Orange, (new) Red and Yellow Books. Where parties do enter into a contract agreement, all of the FIDIC contracts examined herein place the cost of stamp duties and execution costs as well as the cost of drafting on the employer. 25 26

ibid., p. 62. ibid., p. 63.

95

THE CONTRACT

DISCUSSION OF SPECIFIC SUB-CLAUSES

1.7 Assignment

5-69

Neither Party shall assign the whole or any part of the Contract or any benefit or interest in or under the Contract. However, either Party: (a) may assign the whole or any part with the prior agreement of the other Party, at the sole discretion of such other Parry, and (b) may, as security in favour of a bank or financial institution, assign its right to any moneys due, or to become due, under the Contract. The Silver Book sub-clause 1.7 prohibits either party from assigning his interest or benefit under the contract unless approval is obtained from the other party or assignment is made as a security in favour of a bank or financial institution. The (new) Red and Yel10w Book sub-clauses 1.7 contain identical provisions to that of the Silver Book. The Orange Book, however, does not contain a clause relating to the assignment of benefits or interests under the contract. The other standard form contracts herein contain provisions relating to assignment of contract interests. As a general rule parties must obtain permission from each other before any assignment (ENAA43, EIC 25.1; EIC 25.2; ICE 3; AlA 7.2-Part 2; AlA 11.6.1-Part 2; AGC 13.1; DBIA 12.1.1). The contracts provide several derogations from this principle, however. For example, the ENAA al10ws the contractor to assign monies that are, or will be, due and payable to it under the contract (ENAA 43). Further, the EIC allows the contractor to both assign, to his insurers, his right to obtain relief against any other party liable (EIC 25.2(b)) and assign monies due as a charge in favour of the contractor's banker (EIC 25.2(a)). Finally, under the AlA, the owner may assign the agreement to an institutional lender providing construction financing (AlA 11.6.1Part 2).

The Silver Book sub-clause 1.8 indicates the arrangements for the allocation of the care and supply of the documents as between the parties. Taking over of the contractor's documents does not correspond with the taking over of the works, or part thereof, but rather is generally occasioned by the contractor's issuance of these documents to the employer.27 The Red and Yellow Book sub-clauses 1.8 are identical to that of the Silver Book with regard to the contractor's documents. There will, however, be fewer (if any) contractor's documents in a Red Book contract depending on the amount of the contractor's design responsibility of the contract. The Red Book differs from the other two contracts in that the specifications (the Red Book equivalent to the employer's requirements) and drawings are to be in the custody and care of the employer. The Silver and Yellow Book clauses do not address the employer's requirements. Orange Book sub-clauses 1.7 and 1.9 roughly correspond to that of the Silver Book. The Orange Book provisions, however, do not require that one party notify the other party where there is an error or defect of a technical nature in a document relating to the execution of the works. Several of the other standard form contracts examined herein contain provisions similar to those of Silver Book sub-clause 1.8. For example, the EIC requires the contractor to provide the employer with copies of both t~e drawings and, following the issue of the taking-over certificate, the as-bUilt drawings (EIC 6.14). In addition, the ICE provides for certain documents and drawings to be kept by the contractor on the site, with access for inspection and use by the employer's representatives (ICE 6(2)). Final1y, the AGC requires the owner give prompt written notice to the contractor where the owner "becomes aware of any error, omission or failure to meet the requirements of the contract documents or any fault in the work" (AGC 4.3.2).

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1.9 Confidentiality

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1.8 Care and Supply of Documents

Both Parties shall treat the details of the Contract as private and confidential, except to the extent necessary to carry out obligations under it or to comply with applicable Laws. The Contractor shall not publish, permit to be published, or disclose any particulars of the Works in any trade or technical paper or elsewhere without the previous agreement of the Employer.

Each of the Contractor's Documents shall be in the custody and care of the Contractor, unless and until taken over by the Employer. Unless otherwise stated in the Contract, the Contractor shall supply to the Employer six copies of each of the Contractor's Documents. The Contractor shall keep, on the Site, a copy of the Contract, publications named in the Employer's Requirements, the Contractor's Documents, and Variations and other communications given under the Contract. The Employer's Personnel shall have the right of access to all these documents at all reasonable times.

If a Party becomes aware of an error or defect of a technical nature in a document which was prepared for use in executing the Works, the Parry shall promptly give notice to the other Party of such error or defect.

Silver Book sub-clause 1.9 states that the parties are to treat the details of the contract as private and confidential. This confidentiality provision is unique to the STiver Book amongst the other FIDIC contracts examined herein. Such a provision may be important, particularly to the employer, where the project is of a sensitive nature, commercial1y or otherwise. Where

27

96

ibid., p. 65.

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DISCUSSION OF SPECIFIC SUB-CLAUSES

THE CONTRACT

the contractor's design includes commercially sensitive data which he does not want disclosed, the second sentence of this sub-clause might be adjusted to include reference to the employer. 28 A few of the other standard form contracts examined herein also provide confidentiality clauses. Both the ENAA and EIC impose a general obligation of confidentiality with respect to data or other information received in connection with the contract whose dissemination is not necessary for the fulfilment of contractor's obligations under the contract (ENAA 16.1; EIC 7.2; EIC 21.1). Indeed, parties may wish to provide that such particulars should no lo~ger be subject to confidentiality once they fall within the public d.omam. The EIC also provides that confidentiality obligations will not apply eIther where the information falls within the public domain or where it is obtained from outside of the confidential relationship between the parties (EIC 21.2). This provision may be superfluous, as the law of the jurisdiction of the contract may provide similar qualifications where a confidential relationship exists between parties.

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1.10 Employer's Use of Contractor's Documents As between the Parties, the Contractor shall retain the copyright and other intellectual property rights in the Contractor's Documents and other design documents made by (or on behalf of) the Contractor. The Contractor shall be deemed (by signing the Contract) to give to the Employer a non-terminable transferable non-exclusive royalty-free licence to coPy, use a~d c~mmunicate the Contractor's Documents, including making and uSing modificatIOns of them. This licence shall: (a) apply throughout the actual or intended working life (whichever is longer) of the relevant parts of the Works, (b) entitle any person in proper possession of the relevant part of the Works to copy, use and communicate the Contractor's Documents for the ~u~poses of completing, operating, maintaining, altering, adjusting, repamng and demolishing the Works, and (c) in the case of Contractor's Documents which are in the form of computer programs and other software, permit their use on any computer on the Site and other places as envisaged by the Contract including replacements of any computers supplied by th~ Contractor. The Contractor's Documents and other design documents made by (or on behalf of) the Contractor shall not, without the Contractor's consent be used copied or communicated to a third party by (or on behalf of) the Em;loyer Eo; purposes other than those permitted under this Sub-Clause.

The Silver Book sub-clause 1.10 indicates how the ownership and use of the contractor's documents are to be allocated between the parties. 29 Indeed, due to the sensitivity and value of the documents used in construction, including know-how and construction procedures that may not be licensed, the contractor will want to be protected against improper use of such documents by the employer. Thus, all of the FlDIC contracts examined herein stipulate that the contractor retains the copyright of the contractor's documents. Unlike the Orange Book, however, the other FIDIC contracts examined deem the contractor to have given the employer a "non-terminable transferable non-exclusive royalty-free licence to copy use and communicate" the contractor's documents. Such a clause gives the employer both certain rights in the use of the contractor's documents and a way of conceptualising these rights. The Orange Book provision is less comprehensive that those of the other FIDIC contracts examined, and does not provide a time period during which the employer may make certain uses of the contractor's documents, nor is the case of computer software mentioned. The employer may want to clarify the language of this clause to ensure that he has the right to use the construction documents for future additions or modifications to the site or the works. He may also wish to ensure that he has the right to make or have made any necessary spare parts. The employer's rights in the designs and construction documents will depend on his negotiating power in the transaction as well as his economic investment in the designs. Where the contractor is developing an idea provided by the employer, the employer may want to own the rights to the designs and construction documents. This is particularly appropriate where the contract involves a one-off project. The majority of the other standard form contracts examined herein contain similar provisions. For example, under the ENAA, a number of provisions create similar rights between the parties to those of the Silver Book (ENAA .15; ENAA 16). The ICE, on the other hand, claims the copyright remains with the contractor, but only provides for the grant to the employer of the use of, and not the licence to use, these documents (ICE 7(1)(b)). Under the EIC, the contractor retains the copyright in any drawings, documents, data and other information he provides to the employer (EIC 20.2). No mention is made of a licence to use the documents but rather the employer is granted a non-exclusive fight to utilise patents, know-how and other industrial property incorporated in the works (EIC 20.1). Under the AlA, the contractor retains intellectual property rights regarding drawings, specifications and other documents provided by the contractor (AlA 3.1-Part 1; AlA 1.3.1-Part 2). The employer is allowed to make copies of these documents (AlA 3.1-Part 1; AlA 1.3.1-Part 2) and may 29

28

The EIG C:uide makes this suggestion, although sub-clause 1.12 may address some of the contractor s concerns 10 thiS regard. EIC Guide, op. cit. n. 22 above, p. 8.

98

The FIDICGuide notes the e.xpression "as between the parties" was utilised in the drafting In order to mclude other parties (such as subcontractors) in the intellectual property protection prOVided under thiS sub-clause. FIDIC Guide, op. cit. no. 5 above, p. 69.

99

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THE CONTRACT

DISCUSSION OF SPECIFIC SUB-CLAUSES

request permission to use these documents (AlA 3.2-Part 1; AlA 1.3.2Part 2) but a licence to use these documents is not granted to the employer save upon the contractor's default in his obligations to the owner (AlA 3.3Part 1; AlA 1.3.3-Part 2). The DBIA allocates a limited licence to the employer, but only upon payment in full (DBIA Agreement 4.1; DBIA Agreement 4.2).

5-74

through the special expertise of the contractor, then ar~uably the contractor should own the rights to the design and constructIon doc~ments. FO.r example, where the contractor is experie~ced in t~e co~structIon of fOSSIl fuel power plants, the contractor may decide that hIS deSIgns and construction documents prepared for the construction of such a plan~ should not become the property of the employer. Further, a contractor who IS also a supplier may not want to provide the employer with the technology needed to produce needed spare parts.

1.11 Contractor's Use of Employer's Documents

The Silver Book sub-clause 1.11 allows for the contractor to copy and use employer's documents. The employer retains the intellectual property rights in these documents, however, and the contractor may not, without the employer's consent, transmit them to a third party except as necessary for purposes of the contract. 30 The FIDIC contracts examined herein contain equivalent clauses to that of the Silver Book. Only a few of the other standard form contracts examined contain similar provisions regarding the employer's documents. This is perhaps because, under turnkey contracts, the contractor will produce the majority of the drawings and documents used in the construction. The employer, however, may provide designs in the employer's requirements or he may provide know-how or techniques that need protection against improper use by the contractor. The contractor should, therefore, retain sufficient flexibility to be able to use the documents and information for the purposes of the contract. The ENAA and ICE provisions roughly mirror those of the Silver Book (ENAA 16.1; ENAA 16.2; ICE 7(1)(a)). The same caveat regarding the lack of confidentiality of information in the public domain, or accessed through third parties, applies here as in the case of contractor's documents (ENAA 16.3). As discussed above, ownership of the construction documents and designs developed under the contract may result largely from the economic investment of the parties. Where the contractor is largely responsible for the designs of the project, developed with minimal preliminary design or )0

The Contractor shall not be required to disclose, to the Employer, any information which the Contractor described in the Tender as being confidential. The Contractor shall disclose any other information which the Employer may reasonably require in order to verify the Contractor's compliance with the Contract. Silver Book sub-clause 1.12 provides the contractor with an additional protection of confidentiality, allowing the contractor not to disclose information specified as confidential in the ten?er. The employer ~ay require the contractor to disclose any other information reasonably reqUIred f?r the empl.oy~r to verify the contractor's compliance with the contract. The SIlver Book IS Silent as to what would occur where the contractor classifies as confidential any information that is needed by the employer to verify the contractor's performance of the contract. Under the o'range Book, as under the Silver Book, the contractor may stipulate, in the tender, confidential details he will not be required to disclose although, unlike the Silver Book, the Orange Book does not provi?e a~y specific disclosure requirements. Indeed, it is often important to maJOtaln confidentiality in order to protect the interests of t~e parties involved. As discussed above in relation to Silver Book sub-clause 1.9, the contract can also include a provision protecting the parties from any publication of the . details of the agreement. The Yellow and Red Book sub-clauses 1.12 differ from that of the Silver Book. First, the contractor is required to disclose all such confidential, and other information as the engineer may reasonably require to verify the contract~r's compliance with the contract. Second, there is no mention of the contractor's ability to place information off limits through classifying such information as confidential. Indeed, the wording of these provisions suggests even confidential information may be released to the employer for the purposes of certain ends. The FIDIC Guide, however, states that the contractor may not be required to make certain disclosures where such are precluded in contractual documents having priority over the general conditions. 31

The FIDIC Guide notes the expression Mas between the parties" is utilised in the drafting in order to include other parties (such as the employer's personnel) in the intellectual properry protection provided under this sub·clause. FIDIC Guide, op. cit. n. 5 above, p. 70. )1

100

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1.12 Confidential Details

As between the Parties, the Employer shall retain the copyright and other intellectual property rights · in the Employer's Requirements and other documents made by (or on behalf of) the Employer. The Contractor may, at his cost, copy, use, and obtain communication of these documents for the purposes of the Contract. They shall not, without the Employer's consent, be copied, used or communicated to a third party by the Contractor, except as necessary for the purposes of the Contract.

ibid., p. 71.

101

THE CONTRACT

5-76

DISCUSSION OF SPECIFIC SUB-CLAUSES

1.13 Compliance with Laws i ,

j

The Contractor shall, in performing the Contract, comply with applicable Laws. Unless otherwise stated in the Particular Conditions: (a) the Employer shall have obtained (or shall obtain) the planning, zoning or similar permission for the Permanent Works, and any other permissions described in the Employer's Requirements as having been (or being) obtained by the Employer; and the Employer shall indemnify and hold the Contractor harmless against and from the consequences of any failure to do so; and (b) the Contractor shall give all notices, pay all taxes, duties and fees, and obtain all permits, licences and approvals, as required by the Laws in relation to the design, execution and completion of the Works and the remedying of any defects; and the Contractor shall indemnify and hold the Employer harmless against and from the consequences of any failure to do so.

It is important for both parties to ensure that the other abides by the legal system of the site country and any other country that may have jurisdiction over performance of the contract. This is especially true for the employer, who may be liable for the contractor's failure to comply with certain regulations, obtain permits or pay fees required for the construction of the works and any of its ancillary activities. Indeed, the majority of the other standard form contracts examined herein contain provisions relating to the compliance of laws. The Silver Book sub-clause 1.13 both affirms that the contractor is to comply with applicable laws in performance of the contract and apportions the responsibility for the compliance of various laws between the parties. More speCifically, the employer is responsible for obtaining the relevant permission relating to the permanent works, in addition to any other employer responsibilities for permissions as described in the employer's requirements, and shall indemnify the contractor against any consequences of his failure to do so. The contractor's responsibilities, on the other hand, are to obtain permissions relating to the design, execution and completion of the works and the remedying of any defects. The contractor shall indemnify the employer against any consequences of his failure to do so. The exact responsibilities of the parties under this sub-clause are potentially ambiguous. For greater clarity, parties may wish to append to the contract a detailed schedule of the permits required and indicate which party is to procure these permits. 32 Parties may also include such information in the particular conditions. 33 The Red and Yellow Book sub-clauses 1.13 are essentially identical to that of the Silve.r Book. The Orange Book, on the other hand, diverges significantly from the Silver Book. Orange Book sub-clause 13.1 provides a general provision requiring both parties to comply with the laws of each country where the 32 33

EIC Guide, op. cit. n. 22, p. 8.

For ~~re guidance as to issues to consider in the preparation of this aspect of the particular conditions, reference may be had to FIDIC Guide, op. cit. n. 5, p. 72.

102

activities are performed. Further, the contractor is responsible for both assuring the compliance with the bureaucratic requirements of the jurisdiction of the works and for obtaining the relevant permissions relating to the works or their completion. The parties may, however, wish to allocate the burden of obtaining licences and permits on the basis of the identity of the parties, as under the Silver Book provision. Indeed, as the employer's requirements exist under the Orange Book, it might make sense to allocate responsibility to the employer for permissions required in relation to these requirements. Under the ENAA, the contractor has a general responsibility to comply with all laws in force in the country where the works are carried out (ENAA 9.4). The contractor is to obtain permissions required from government authorities in the country where the site is located that either relate to the performance of the contract or that the employer is not otherwise required to obtain (ENAA 9.3). The employer, on the other hand, must obtain permissions required from such authorities necessary for the execution of the works (ENAA 10.3) and shall assist the contractor in obtaining such permissions where they are not the responsibility of the employer under the contract (ENAA lOA). The ICE provides that the contractor is to act in accordance with applicable laws (ICE 26(3)). The contract also allocates to the contractor the general responsibility for obtaining permissions relating to both the design construction and completion of the permanent and temporary works (ICE 26(1)). The contractor is not responsible, however, for obtaining permissions in respect of the permanent works or any temporary works where such works were designed other than by or on behalf of the contractor (ICE 26(3)(c)). Under the AlA, the contractor is not obliged to violate any applicable law and shall notify the owner, in writing, where' implementation of any instruction received from the owner may result in such violation (AlA 1.2.5-Part 1; AlA 1.2.2-Part 2). This provision is complemented by a general stipulation that the contractor comply with the applicable laws, including the procurement of permissions, relating to the project (AlA 3.2.11-Part 2). Under the AGC, the contractor is responsible to "give all notices and comply with all laws and ordinances legally enacted at the date of the execution of the agreement which govern the performance of the work" (AGC 3.2.3). Similarly, the DBIA provides the contractor shall both perform the work and provide the legal notices necessary in connection with the work as required by the legal requirements (DBIA 2.5.1). The owner, on the other hand, is to obtain the permissions required "for the construction, use, occupancy or renovation of permanent structures" (AGC 4.1.2). Other provisions specify the contractor's responsibility to comply with applicable safety laws for the safety of its employees on the project (AGC 3.2.6; DBIA 2.8.2) and to ensure the drawings and specifications conform to the codes or laws enacted at the time of their preparation (AGC 3.1.1). Finally, under the DBIA the contractor is to ensure any design consultants used in the formulation of the design be qualified and licensed professionals, in conformity with applicable state licensing laws (DBIA 2.2.1). ln~

5-77

DISCUSSION OF SPECIFIC SUB-CLAUSES THE CONTRACT

5-78

1.14 Joint and Several Liability

If the Contractor constitutes (under applicable Laws) a joint venture, consortium or other unincorporated grouping of two or more persons: (a) these persons shall be deemed to be jointly and severally liable to the Employer for the performance of the Contract; (b) these persons shall notify the Employer of their leader who shall have authority to bind the Contractor and each of these persons; and (c) the Contractor shall not alter its composition or legal status without the prior consent of the Employer.

of these two entities varies in accordance with differences in legal culture and experience. The author identifies them as discussed below. The integrated joint venture involves the parties investing certain skills or materials in the project. The parties then receive a percentage of the profit made in the joint venture. In the example given below, the parties each place certain inputs or contributions into the joint venture. At the completion of the project they receive a set percentage of the projects made from the performance of the entire contract. A 20/% of profit or loss

A 20% of inputs -

5-79

The Silver Book sub-clause 1.14 speaks to the situation where the contractor, under the contract, is neither a single corporation nor a single physical person. Where such is the case, the entities comprising the contractor are to be held jointly and severally liable to the employer for performance of the contract, and are to indicate to the employer a designated spokesperson with the authority to bind the contractor. Finally, any change in either the legal status or composition of the contractor is subject to the prior consent of the employer. The contractor may wish the provisions of this sub-clause also to apply to the employer. 34 All of the FIDIC contracts examined herein contain similar provisions with regard to the potential nature of the contractor as a joint venture or consortium, although the Orange Book omits or other unincorporated grouping from its description of the contractor. The majority of the other standard form contracts examined herein do not contain provisions similar to that of the Silver Book. The ENAA is an exception, specifying that the contractor be "an independent contractor performing the contract" (ENAA 3.8). The ENAA places more emphasis on the contractor's position in relation to the owner, however, as the same provision also confirms that "the contract does not create an agency, partnership, joint venture or other joint relationship between the parties thereto" (ENAA 3.8). Often under construction contracts, the contractor may be a single entity or a group of entities acting collectively through a given project vehicle. The project vehicle may either be established in the form of a contractual grouping or a project company. Given the variety of legal regimes under which turnkey construction contracts are found, parties may want to include a clause, such as those found in the FIDIC contracts, specifying the responsibility of a party where that party is not a single entity. For example, although the legal construction of partnerships may be found in many jurisdictions, significant differences can occur between jurisdictions with respect to the asset base for any liability of the partnership and who may legally bind the partnership. However, although the contractor may form a company (e.g. partnership or limited liability company) for the purposes of the contract, contractual groups are more common. The two forms of contractual groupings most frequently employed by contractors are the joint venture and the consortium. The conceptualisation H

ibid., p. 9.

104

B 30% of inputs -

Joint Venture

_

C 50/% of profit or loss

C 50% of inputs Figure 5.1

B 30/% of profit or loss

5-80

An integrated joint venture

The second method involves the creation of a consortium, or a non-integrated joint venture. In this model, the parties come together to tender a bid for a project. Once the bid has been accepted, each party is responsible for a discrete portion of the works. The contract price will be allocated according to each such portion. For example, one consortium member could be responsible for the civil works and the other could be responsible for the electro-mechanical works. As among the members of the consortium, each member will be responsible for the profits or losses realised with respect to the portion of the works for which he is responsible.

100% of input-

100% of input-

Figure 5.2

A

(civil)

B

(electro-mechanical)

5-81

100% of profit - or loss

100% of profit - or loss

5-82

A non-integrated joint venture 105

THE CONTRACT

5-83

As mentioned in particular conditions of the Silver Book, the employer may want to impose other requirements on joint ventures in large turnkey contracts, such as the provision of parent company guarantees (sub-clause 1.14). There may also need to be some scrutiny of the joint venture, its make-up and operation, by the financiers of the project. Provision for the intervention of financiers involves a separate topic which will not be studied in detail in this work, but which should be considered carefully by the employer when first tendering the project (e.g. compliance with the procurement rules of the European Bank for Reconstruction and Development).

CHAPTER

6

THE EMPLOYER General Comments The first edition of the present book was based on the FIDIC Orange Book (1995), which contained a clause 2 "The Employer" similar to the current clause under discussion in this chapter. Some of the provisions contained in the Orange Book clause 2 have been moved to different sections of the Silver Book. In addition, the Silver Book clause 2 contains three new provisions concerning the obligations of the employer regarding his personnel, proof of the employer's financial capability and a separate clause setting forth a procedure for claims against the contractor by the employer. Silver Book Clause 2 contains five sub-clauses setting forth a number of the employer's express obligations: sub-clauses 2.1 "Right of Access to the Site", 2.2 "Permits, Licences or Approvals", 2.3 "Employer's Personnel", 2.4 "Employer's Financial Arrangements" and 2.5 "Employer's Claims". This chapter will begin with a brief discussion of two of the major topics contained in clause 2 and then move to an analysis of the specific clauses with comparisons to similar provisions from other industry standard form design-build/turnkey contracts.

6-01

Access and possession The employer's duty to give access to and provide the site constitutes one of the fundamental aspects of the parties' relationship under the construction contract. Whether or not it is specifical\y included as an obligation in the construction contract, the employer wil1 nonetheless have to provide the contractor access to and possession of the site. Preferably, this will be an express obligation in the contract and wil1 occur in accordance with specific provisions. The contract should careful1y define the site to be provided and the timing of giving access or possession to allow performance of the work in accordance with the programme and completion dates. In any event, the contractor should be adequately protected from the consequences of the employer's failure to provide site access and possession and to provide certain elements of the site at the appropriate time or times during the construction process. The approaches used by the various form construction contracts discussed herein differ widely. The Silver Book seems to be at one extreme containing

106

107

6-02

DISCUSSION OF SPECIFIC SUB-CLAUSES THE EMPLOYER

very specific obligations for the employer both to provide access to the site and regarding other elements of the site for which the employer is responsible. It also contains specific provisions for contractor extensions of time and payment of costs for the employer's failure in these obligations. At the other extreme would be the AlA and AGC contracts that do not contain any express obligation for the employer to provide site access and possession, and only provide general time extension and cost-payment provisions covering delays attributable to the employer. An approach similar to the provisions of Silver Book sub-clause 2.1 seems to be preferable, as discussed more fully below.

Employer assistance with permits and licences

6-03

The contract should clearly allocate the duty to obtain the permits and licences necessary for the design and construction of the works. Under traditional contracts the duty to obtain, for example, any necessary import licences, the construction permit and other licences and permits would often be allocated to the employer. However, where the contractor undertakes both the design and construction functions, the employer may prefer to place a greater burden in this regard on the contractor. Consequently, it is appropriate to impose specific obligations on the employer to assist the contractor in obtaining permits or other authorisations. These authorisations may require procedures under local law with which the contractor may not be familiar. In addition, turnkey contracts are often entered into by large private or public entities from the site country acting as the employer. In such cases, the employer may be better placed to obtain the necessary permits and licences at a lower cost, thereby potentially decreasing the contract price. The title of sub-clause 2.2, "Permits, Licences or Approvals" is somewhat misleading in that the substance of this clause concerns primarily the employer's obligation to assist the contractor in obtaining certain permits. The actual designation of responsibility for permits between the employer a?d co?tractor is contained in sub-clause 1.13 discussed in Chapter 5. The discussIOn of sub-clause 2.2 below will deal mainly with the employer's obligation to assist the contractor.

Discussion of Specific Sub-Clauses 6-04

2.1 Right of Access to the Site The Employer shall give the Contractor right of access to, and possession of, all parts of the Site within the time (or times) stated in the Particular Conditions. The right and possession may not be exclusive to the Contractor. If, under the Contrac.t, the Employer is required to give (to the Contractor) possession of any foundation, structure, plant or means of access, the Employer shall do so in the time and manner stated in the Employer's Requirements. However, the

108

Employer may withhold any such right or possession until the Performance Security has been received. If no such time is stated in the Particular Conditions, the Employer shall give the Contractor right of access to, and possession of, the Site with effect from the Commencement Date. If the Contractor suffers delay and/or incurs COSt as a result of a failure by the Employer to give any such right or possession within such time, the Contractor shall give qotice to the Employer and shall be entitled subject to Sub-Clause 20.1 [Contractor's Claims] to: (a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 8.4 [Extension of Time for Completion], and (b) payment of any such Cost plus reasonable profit, which shall be added to the Contract Price.

After receiving this notice, the Employer shall proceed in accordance with SubClause 3.5 [Determinations] to agree or determine these matters. However, if and to the extent that the Employer's failure was caused by any error or delay by the Contractor, including an error in, or delay in the submission of, any of the Contractor's Documents, the Contractor shall not be entitled to such extension of time, Cost or profit. Silver Book sub-clause 2.1 states that the employer must give the contractor access to and possession of all parts of the site within the time stated in the particular conditions, or as of the commencement date if no other time is specified. Sub-clause 2.1 indicates that this right and possession may not be exclusive to the contractor. This language may need to be clarified to indicate that the contractor's rights regarding possession of the site definitely "are not exclusive", rather than "may not be exclusive", given that certain legal systems might imply exclusive possession as a result of the contract unless otherwise stated. Silver Book sub-clause 2.1 also contains language indicating that the employer must give the contractor possession of "any foundation, structure, plan~ or means of access" in the time and manner stated in the employer's reqUirements. These terms suggest that if the employer must provide an element necessary to the overall works which must be provided prior to the cont~actor'~ co~mencement or continuation of its work, the employer has a speCific obhga.tlOn to do so in accordance with the employer's requirements. For. example, If the employer agreed to provide the cement foundation upon which the contractor would subsequently build a'nd install an electrical plant, the employer must ensure that the foundation is completed and available to the contractor at the appropriate time so as not to delay the contractor's work or affect the critical path of the overall completion timing. No~etheless, if the parties intend for this clause to clearly apply in such a situatlO~, the particular conditions and the employer's requirements should contam.a v~ry pr~c!se description of what element the employer has agreed to proVide m addition to the exact time at which it must be available and finally, a stipulation that such element is intended to be covered by the term~ of this sub-clause. .

109

THE EMPLOYER

6-05

Sub-clause 2.1 further provides that the contractor may claim an extension of the time for completion as well as cost plus profits in the event these claims result from the employer's failure to provide timely access to the site or to a particular structure or item of plant. This possibility of claims by the contractor makes it important to be precise in the contract with regard to the exact date that site possession must be given to the contractor in order better to calculate the amount of delay or cost. However, the last sentence of sub-clause 2.1 indicates that the contractor is not entitled to any extension of time or payment of costs if the employer's failure to provide access to the site or to a site element is due to any error or delay by the contractor. Silver Book sub-clause 2.1 differs in many respects from the corresponding sub-clause 2.1 contained in the Orange Book. The Orange Book provision includes the obligation to provide access or possession of the site but not a specific obligation to provide timely access to other potential site elements for which the employer may be responsible, such as plant or foundations. However, unlike the Silver Book, the Orange Book does not give the employer the right to withhold site access until the contractor's performance security is in place. Another slight difference is that under the Orange Book it is the employer's representative who would agree or determine any time extension or price increase whereas it is the employer who makes these determinations in the Silver Book. Both the Silver and Orange Books, however, are similar in that the greater part of the risks and costs associated with access are imposed on the contractor, which appreciably limits the obligations of the employer as regards access rights (OB sub-clauses 4.9, 4.12, 4.13; SB sub-clauses 4.15, 4.13, 4.10).1 The provisions in sub-clause 2.1 of the current (new) Red Book and Yellow Books (1999) are nearly identical to the provisions of Silver Book sub-clause 2.1 except that the default time for possession of the site in the absence of a specific time or times stated in the appendix to tender 2 is not the commencement date, as it is in the Silver Book. The Red and Yellow Books simply indicate that absent specification in the appendix to tender the site must be provided "within such times as may be required to enable the Contractor to proceed in accordance with the programme ... ". This language may be more effective than the default time used in the Silver Book ("access ... with effect from the Commencement Date") in the event that certain portions or elements of the site will be provided by the employer at some time after the commencement date, such as a foundation on which an electric plant would be installed. The provisions of the old Red Book (sub-clause 42.1) and old Yellow Book (sub-clause 17.1) similarly require the employer to give access to the site. In the old Red Book this must occur upon the engineer's notice and in the old

DISCUSSION OF SPECIFIC SUB-CLAUSES

"

Yellow Book within a reasonable time. Unlike the new FIDIC contracts, neither the old Red nor the old Yellow Book mentions the provision of access to or possessi
2.2 Permits, Licences or Approvals I

2

B. Cazalet & R. Reece, "Conditions applicables aux contrats de conception-construction et des en main" (1996) 3 R.D.A.l.lI.N.LJ. 279 at 288, with regard to the Orange Book. Note that the new Yellow and Red Books generally refer to the appendix to tender rather ' than the particular conditions for data or specific information that the general conditions might require.

110

6-06

6-07

The Employer shall (where he is in a position to do so) provide reasonable assistance to the Contractor at the request of the Contractor: (a) by obtaining copies of the Laws of the Country which are relevant to the Contract but are not readily available, and 111

THE EMPLOYER

(b)

6-08

for the Contractor's applications for any permits,licences or approvals required by the Laws of the Country: (i) which the Contractor is required to obtain under Sub-Clause 1.13 [Compliance with Laws], (ii) for the delivery of Goods, including clearance through customs, and (iii) for the export of Contractor's Equipment when it is removed from the Site.

Under Silver Book sub-clause 2.2 the employer must provide reasonable assistance to the contractor at its request to obtain copies of the site country's relevant laws, assist the contractor in its application for any permits, licences or approvals required of the contractor by applicable laws and regulations as well as for customs clearance of goods and for the reexport of the contractor's equipment as necessary. Although the employer is responsible for obtaining some permits and authorisation (see sub-clause 1.13(a) and its discussion in Chapter 5), the contractor is responsible for any remaining permits, licences or approvals required by law in relation to the works (sub-clause 1.13(b)). Therefore, the employer's assistance in obtaining these permits may be reques~ed by virtue of sub-clause 2.2. Subclauses 2.2 of the Red and Yellow Books are identical to the Silver Book provision. The corresponding Orange Book sub-clause 2.3 also imposes on the employer a requirement of reasonable assistance to the contractor for all of the same permits and permissions mentioned above. However, this assistance is specifically at the contractor's cost, and the employer has no specific requirement to obtain copies of relevant laws. The old Red Book and old Yellow Book do not contain provisions for employer's assistance relating to the contractor's permits because the employer bears the responsibility for all permits (sub-clauses 26.1 (ORB) and 17.4 and 17.5 (OYB)). However, the employer is specifically required to assist the contractor regarding customs clearance for goods (sub-clauses 54.3 (ORB) and 48 .2(OYB)) and re-export of contractor's equipment (sub-clauses 54.4 (ORB) and 48.2(OYB)). The employer is under no requirement to obtain copies of laws for the contractor under the old Red Book but is required to do so under sub-clause 17.2 of the old Yellow Book. None of the non-FIOIC form contracts discussed herein impose a requirement on the employer 3 to obtain copies of laws of the site country. Under the ENAA and EIC, the owner is responsible for obtaining all licences and ' permits that it must obtain in its own name (sub-clauses GClO.3 (ENAA) and 3.6 (EIC)) and require the employer to assist the contractor in obtaining other permits and licences (sub-clauses GCIO.4 (ENAA) and 5.2 (EIC)) . This obligation specifically extends to customs clearance and re-export of the

J

Note that all of the non-FIDIC contracts discussed herein use the term "Owner" instead of "Employer", with the exception of the ICE which uses the term "Employer".

112

DISCUSSION OF SPECIFIC SUB-CLAUSES

contractor's equipment (see sub-clauses GC2.2.2.3 (ENAA)4 and 5.3 and 5.4 (EIC)). The ICE form seems to impose on the employer the obligation of obtaining permissions for the works and contains no specific contractor assistance requirements with regard to any licences, permits or approvals (see sub-clause 26(3)(c) (ICE)). Similarly, the AGC indicates that the employer will obtain any relevant permits or authorisations (sub-clause 4.1.2.3) and contains no further obligation of assistance. The requirements in this regard under the AlA are somewhat ambiguous, stating in Part 1 that the owner must obtain all legal authorisations concerning the execution of the works (sub-clause 2.1.8 (AlA-Part 1)), but then indicating that "[tJhe Owner shall cooperate with the Design/Builder in securing building and other permits, licences and inspections" (sub-clause 2.3 (AlA-Part 2), suggesting that the contractor has some responsibility with regard to permits. Where the employer is given the responsibility of obtaining all permits and other authorisations required by law it may seem useless to impose upon the employer an obligation to assist the contractor in obtaining permits. However, it will be the rare occasion that the contractor will not be responsible for any permits or authorisations at all. Consequently, the requirement of employer assistance may be appropriate regardless of the repartition of permit obligations. This will be particularly true in the case of international construction projects involving foreign parties.

6-09

2.3 Employer's Personnel The Employer shall be responsible for ensuring that the Employer's Personnel and the 'Employer's other contractors on the Site: (a) co-operate with the Contractor's efforts under Sub-Clause 4.6 [Cooperation], and (b) take actions similar to those which the Contractor is required to take under sub-paragraphs (a), (b) and (c) of Sub-Clause 4.8 [Safety Procedures] and under Sub-Clause . 4.18 [Protection of the Environment). This sub-clause is a new provision in the FIDIC forms and is generally not found in any of the non-FIDIC contracts discussed herein. Silver Book sub-clause 2.3 requires the employer to be responsible for ensuring that its personnel and other contractors co-operate with the contractor's efforts, follow safety procedures and respect environmental requirements. It imposes on the employer some oversight responsibility with regard to its personnel, but does not impose any specific remedy for the contractor • Note that the ENAA contains no specific requirement for customs clearance. However, assistance in that regard seems to be included in the general obligation for permit assistance imposed under GC 10.4. Nonetheless, GC 21.5 expressly states that customs clearance is the contractor's obligation.

113

DISCUSSION Of' SPECIFIC SUB-CLAUSES

THE EMPLOYER

6-10

in the event of the employer's failure in this regard. However, the employer already agrees in sub-clause 17.1 to indemnify the contractor for any environmental liability attributable to the employer or its personnel. In addition, the contractor may obtain an extension of time for any delay caused by the employer or his personnel (sub-clause 8.4). Subclause 2.3 does favour the contractor, however, in that it provides a contractual basis on which to base any potential claim against the employer under sub-clause 20.1 "Contractor's Claims" in the event that the employer's breach of these requirements causes the contractor to incur additional costs or completion delays. Indeed, the contractor may choose merely to make an argument under sub-clause 20.1, as the provisions of sub-clause 8.4 only allow for a time extension grant and not for costs. s The FIDIC Red and Yellow Books each contain a sub-clause 2.3 identical to that of the Silver Book. . ~he O~a~ge Book and the old Red and old Yellow Books contain no provIsions Similar to the above sub-clause 2.3, with the exception of old Red Book sub-clause 19.2 requiring the employer to have regard for the safety of all persons ~n the site and keep the site in an orderly state to avoid danger. However, thiS falls well short of the requirement of oversight imposed by the Silver Book sub-clause 2.3. Like the old Red Book, the ICE imposes the requirement that the employer's workers have regard for the safety of others and keep the site free from danger (sub-clause 19(2) (ICE)). However, the ENAA, EIC and AlA contain no such provisions regarding the employer's oversight of its workers' adherence to safety requirements. With regard to co-operation of the employer's personnel with the contractor's efforts, the AlA requires the employer to be responsible for the cost of co-ordinating the construction of its workers (sub-clauses 3.3.1 and 3.3.5 (AlA)), which might imply a responsibility of co-ordination with the contra~tor's personnel. None of the other non-FIOIC contracts impose an obligation on the employer to ensure its workers' co-operation with the contractor. Neither the Orange Book, old Red 'Book, old Yellow Book nor the nonFIOIC contracts impose on the employer the responsibility to ensure that its ' workers take measures to protect the environment in the same manner required of the contractor under Silver Book sub-clause 4.18.

6-11

2.4 Employer's Financial Arrangements The Employer shall submit, within 28 days after receiving any request from the Contracto~, reasonable evidence that financial arrangements have been made and are bemg maintained which will enable the Employer to pay the Contract

s EIC~ The EIC Contractor's Guide to the FIDIC Conditions of Contract for EPC Turnkey ProJects (European International Contractors, Berlin, 2000), p. 9 (hereinafter EIC Guide).

114

Price (as estimated at that time) in accordance with' Clause 14 [Contract Price and Payment]. If the Employer intends to make any material change to his financial arrangements, the Employer shall give notice to the Contractor with detailed particulars. Sub-clause 2.4 is another new addition to the FIOIC construction contracts since the publication of the Orange Book in 1995. It allows the contractor to insist that the employer provide "reasonable evidence" of ability to pay the contract price within 28 days and requires the employer to inform the contractor of any material change in its financial arrangements. Given the uncertain nature of "reasonable evidence", the employer may wish to limit his obligation through specifying, in the particular conditions, what, if any, evidence he would provide. 6 The contractor is also empowered to suspend the contract (sub-clause 16.1) and possibly terminate the contract (sub-clause 16.2) for employer's failure under this subclause. The contractor may want to add a provision allowing the contractor to require the employer to demonstrate financial means after the issuance of any significant variation order.7 In addition, the contractor may wish to be made aware of any "terms, conditions or step-in rights that exist in any agreement between the employer and his lenders". g Although agreeing with the provisions of sub-clause 2.4 in principle, some warn that the vagueness of "reasonable evidence", coupled with the severe sanctions where such is not provided to the contractor's satisfaction, may engender much debate. 9 The Red an.d Yellow Books contain identical provisions in their respective sub-clause 2.4. The Orange, old Red and old Yellow Books contain no provision similar to the above sub-clause 2.4. The ENAA, EIC and ICE also contain no such provision. However, the AlA does allow the contractor to request proof of the employer's financial arrangements to fulfill its obligations under the contract (sub-clause 2.10 (AlA-Part 2)), but there: is no specific remedy for employer non-compliance. Termination under the AlA by the contractor is generally permitted only upon non-payment by the employer (sub-clause 12.2.1 (AlA-Part 2)). Under the AGC, the reasonable evidence of financial ability to pay must be provided by the employer prior to commencement of the work as well as during the progress of the work (sub-clause 4.L3 (AGC)). The AGC provision indicates that the contractor is not required to commence work until this reasonable proof is communicated and it is not required to continue working if this proof is not provided during the course of the work. However, none of the non-FIOIC contracts require the emplorer to notify the contractor of material changes in the employer'S finanCial arrangements.

~

P.L. Booen, "The Three Major New FIDIC Books" (2000) 17 (1) I.C.L.R. 24.

9

E. Corbett, "FIDIC's New Rainbow-An Overview of the Red Yellow Silver and Green Test Editions" (1999) 16 (1) I.C.L.R. 39 at 41. "

EIC Guide, op. cit. n. 5 above, p. 9. , ibid., p. 9.

115

THE EMPLOYER

6-12

DISCUSSION OF SPECIFIC SUB-CLAUSES

2.5 Employer's Claims

If the Employer considers himself to be entitled to any payment under any Clause of these Conditions or otherwise in connection with the Contract andlor to any extension of the Defects Notification Period, he shall give notice and particulars to the Contractor. However, notice is not required for payments due under Sub-Clause 4.19 [Electricity, Water and Gas], under Sub-Clause 4.20 [Employer's Equipment and Free-Issue Material], or for other services requested by the Contractor. The notice shall be given as soon as practicable after the Employer became aware of the event or circumstances giving rise to the claim. A notice relating to any extension of the Defects Notification Period shall be given before the expiry of such period. The particulars shall specify the Clause or other basis of the claim, and shall include substantiation of the amount andior extension to which the Employer considers himself to be entitled in connection with the Contract. The Employer shall then proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine (i) the amount (if any) which the Employer is entitled to be paid by the Contractor, andlor (ii) the extension (if any) of the Defects Notification Period in accordance with Sub-Clause 11.3 [Extension of Defects Notification Period]. The Employer may deduct this amount from any moneys due, or to become due, to the Contractor. The Employer shall only be entitled to set off against or make any deduction from an amount due to the Contractor, or to otherwise claim against the Contractor, in accordance with this Sub-Clause or with sub-paragraph (a) andior (b) of Sub-Clause 14.6 [Interim Payments).

The disparity between the employer's claims and the contractor's claims provisions has engendered some discussion, in the literature, as to the "fairness" of such an employer's claims provision. One author provides some rationale for the disparity, stating that imposing strict time constraints on the employer "could give rise to unfairness in terms of when the employer's personnel should have become aware of a defect giving rise to a claim".!! Indeed, with employers less involved in the site, this explanation makes some sense. This does not, however, justify expiry of a contractor's claim if the notification procedure is not complied with (see discussion below). Although they do not expressly preclude employer claims for additional costs or extensions of the defects notification period and all contain dispute resolution mechanisms, the Orange, old Red and old Yellow Books do not contain separate procedures for employer's claims. The same is true for all the non-FIDIC contracts discussed herein.

Employer Obligations in the Silver Book Although Silver Book clause 2 contains only a small portion of the employer's obligations, it seems appropriate in this chapter to provide a more comprehensive list of all these obligations. The chart below provides a summary description to give the reader a concise overview of the extent of the employer's obligations under the FIDIC Silver Book. The particular clauses mentioned below can be found at.other points in the book for a comparison with other industry form construction contracts.

Silver Book sub-clause 2.5 is another provision new to the FIDIe construction contracts. It provides a specific mechanism and procedure for the employer to follow in the event it considers itself to be entitled to payment of any cost by the contractor or any extension of the defects notification period. It requires notice of any claim to the contractor "as soon as practicable after the employer became aware of the event or circumstances giving rise to the claim". This differs from the corresponding obligation on the contractor for contractor's claims, which must be notified within 28 days (sub-clause 20.1) and are subject to more onerous stipulations for claims submissions. lo Under the "Employer's Claims" provisions the employer is required under sub-clause 3.5 after notice of the claim to attempt to agree on the claimed amount or extension with the contractor. However, absent agreement it is the employer who makes the final decision. Nonetheless, the contractor may appeal the determination to the Dispute Adjudication Board or eventually an arbitral panel. The Red and Yellow Books contain identical provisions in their respective sub-clause 2.5 except that the engineer undertakes the determination in these contracts.

10

6-14 Clause 1

EIe Guide, op. cit. n. 5 above, p. 10. 11

116

6-13

General Provisions

1.6

Responsibility for stamp duties and similar charges in connection with entering into contract agreement.

1. 7

Obligation to obtain consent of contractor before assigning the contract in whole or in part.

1.9

Obligation to treat contract details as private and confidential.

1.13

Obligation to obtain all planning, zoning or similar provisions for the works and other permissions as indicated in the employer's requirements.

P.L. Booen, "The Three Major New FIDIC Books", op. cit. n. 6 above, at 30 .

117

EMPLOYER OBLIGATIONS IN THE SILVER BOOK

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Clause 2 2.1

2.2

0 bligation to give contractor access to and possession of the site and to any foundation, structure, plant or means of access in the time and manner specified in the contract.

Obligation to provide assistance to the contractor in obtaining country laws and in applications for permits and other authorisations.

2.3

Ensure co-operation with contractor's efforts, safety compliance and adherence to environmental requirements by employer's personnel.

2.4

Provide reasonable evidence of financial arrangements to contractor upon request.

2.5

Obligation to give notice and details to contractor of employer's claims for payment of costs or extension of the defects notification period.

Clause 3 3.5 Clause 4

The Employer's Administration Obligation to agree or determine claims or disputes as indicated under the contract. Obligation to provide site data to the contractor prior to and subsequent to the base date.

4.20

Obligation to make employer's equipment available for use by the contractor and supply free-issue materials.

5.1 5.4

Clause 7 7.3

7.4

7.5 Clause 8

Obligation to initiate a variation if employer requires contractor's compliance with any changed or new standard, regulation or other law.

r,:

Obligation to give contractor notice of and reasons for rejection of plant, materials, design or workmanship. Commencement, Delays and Suspension Obligation to give contractor seven days' notice of the commencement date.

8.3

Obligation to give contractor 21 days' notice of a non-compliant programme.

8.4

Obligation to agree or determine c,ontractor's claims for extension of time for variations, delays or impediments caused by the employer or for other reasons stated in the contract.

8.9

Obligation to agree or determine contractor's claims for extension of time and/or costs for suspension of the works instructed by the employer (when c:ontractor is not at fault) and make certain payments for materials (sub-clause 8.10).

Clause 9 9.2

Clause 10

Tests on Completion Obligation to agree or determine contractor's claims for extension of time and/or costs for employer delays to the tests on completion. Employer's Taking Over

10.1

Obligation to take over works when works are completed and taking-over certificate issued or deemed issued.

10.3

Obligation to agree or determine contractor's claims for extension of time and/or costs for employer's interference with tests on completion.

Design Responsibility for the correctness of certain data and information provided by the employer in the employer's requirements.

.'

8.1

The Contractor

4.10

Clause 5

118

The Employer

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Clause 11

Defects Liability

11.1

Obligation to notify contractor of defects in or damage to the works.

11.6

Obligation to carry out examination, inspection, measurement or testing of the works without unreasonable delay or to give notice to contractor of intention not to do so.

Obligation to give contractor notice of employer-required repetition of tests after the remedying of any defect or damage.

11.7

Obligation to give contractor 24 hours' notice of employer's intention to attend tests and grant contractor costs and extension of time for variations in tests instructed by the employer.

Obligation to give the contractor access to all parts of the works and operation and performance records until the performance certificate is issued.

11.8

Obligation to agree or determine contractor's claim for the cost of a search for defects by the contractor requested by the employer.

Plant, Materials and Workmanship

119

EMPLOYER OBLIGATIONS IN THE SILVER BOOK

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11.9

Obligation to issue a performance certificate within 28 days of the expiry of the latest defects notification period or after contractor has supplied all contractor's documents, completed and tested all works and remedied all defects.

11.10

Responsibility to fulfill any of employer's obligations remaining after issuance of the performance certificate. Obligation to sell or dispose of any items not cleared from the site, with payment of the balance to contractor after deduction of costs.

11.11

Clause 12

14.7

Obligation to pay contractor instalments of advance payment, payments due for each statement and final amount due, as specified in the contract.

14.8

Obligation to pay financing charges for late payments to contractor.

14.9

Obligation to pay retention money to contractor: one half when taking-over certificate issued, the remainder at the expiry of the latest defects notification period.

14.10

Obligation to give contractor notice within 28 days after receiving contractor's statement at completion of any items of disagreement and make payment to contractor.

14.13

Obligation to make final payment to contractor.

Tests after Completion

12.1

Obligation to give 21 days' notice of tests after completion and provide all electricity, fuel and materials and make employer's personnel and plant available.

12.2

Obligation to agree or determine contractor's claims for costs due to unreasonable delay by employer of the tests after completion.

15.2

Obligation to give 14 days' notice of contract termination to contractor (if employer is entitled to termination upon the occurrence of certain events).

12.3

Obligation to agree or determine contractor's claims for costs due to unreasonable delay by the employer in permitting access by contractor to the works or plant to investigate the cause of any failure to pass tests after completion and to carry out adjustments or modifications.

15.3

Obligation to agree or determine the value of the works in the event of an employer termination of the contract.

15.4

Obligation to pay balance of money owed to contractor after employer termination.

Variations and Adjustments

15.5

Obligation to give contractor notice of employer's termination for convenience and pay contractor all amounts due.

Clause 13 13.1 13.3

Obligation to cancel, confirm or vary employer-issued instructions to which contractor objects. Obligation to approve, disapprove or comment on contractor proposals for variations requested by employer. Obligation to agree or determine contract price adjustment for variation.

13.7 Clause 14 14.2

14.6

120

'

Clause 15

Clause 16

Obligation to make an advance payment for mobilisation and design to the contractor, if specified in the particular conditions. Obligation to give contractor notice within 28 days after receiving statement of any items of disagreement.

Suspension and Termination by Contractor

16.1

Obligation to agree or determine contractor's claims for extension of time andlor costs following contractor's justified suspension of the contract.

16.4

Obligation upon justified termination of contract by contractor to return performance security, pay contractor amounts due and costs, lost profits and damages.

Obligation to agree or determine contractor's claims for extension of time and/or costs due to changes in legislation. Contract Price and Payment

Termination by Employer

Clause 17

Risk and Responsibility

17.1

Obligation to indemnify contractor against and from specified claims, damages, loss and expenses.

17.4

Obligation to agree or determine contractor's claims for extension of time andlor costs following the occurrence of an employer's risk event.

121

THE EMPLOYER ... j'; . :I. •

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17.5

Obligation to indemnify and hold harmless (and assist contractor in defending against) claims for infringement of intellectual and industrial property rights.

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Clause 18

Insurance

18.1-18.4

Obligation to effect each insurance for which employer is responsible in the manner and as provided in the contract.

Clause 19

Force Majeure

19.2

CHAPTER

THE EMPLOYER'S ADMINISTRATION I

,

General Comments

Obligation to give contractor notice of force majeure events preventing employer from performing its obligations under the contract.

19.3

Obligation to minimise delay in performance as a result of force majeure and give notice when employer ceases to be affected by force majeure.

19.4

Obligation to agree or determine contractor's claim for extension of time and/or costs resulting for the occurrence of a force majeure event.

19.6-19.7

Obligation to make payment to contractor in the event of contract termination caused by force majeure or by reason of contract illegality.

Clause 20

Claims, Disputes and Arbitration

20.1

Obligation to respond to contractor's claims with approval or disapproval with detailed comments and to agree or determine claims by contractor for extensions of time and/or costs.

20.2

Obligation to appoint a Dispute Adjudication Board (DAB) jointly with the contractor, one member nominated by employer for contractor's approval, and to pay one half of the DAB's remuneration.

20.3

Obligation to give notice and a copy to the contractor of any dispute the employer refers to the DAB and make information available and give site access to the DAB. Obligation to give timely notice of dissatisfaction to contractor regarding a DAB decision.

20.4

Obligation to attempt amicable settlement of a dispute before arbitration.

20.5

Obligation to submit remaining disputes to final and binding arbitration.

(t

The FIDIC form construction contracts traditionally contained a very well defined role for the engineer in the co-ordination of the overall project. This is particularly true in the case of its oldest form contract, the original Red Book, as well as in the later Yellow Book and in the current versions of the Red and Yellow Books. With the publication of the FIDIC Orange Book in 1995 and later the Silver Book in 1999, FIDIC removed the separate role of Engineer from these two contracts and added the possibility of using an employer's representative who could undertake many of the responsibilities traditionally within the domain of the engineer. One clear purpose of the FIDIC Silver and Orange Books was to lessen the role of an engineer and create a two-party contract between the employer and the contractor. The Orange Book shifted many of the engineer's traditional responsibilities to a mandatory employer's representative who could, nonetheless, be an engineer. Yet, the Silver Book went a step further by making the employer's representative merely an option. Nearly all of the rights and responsibilities formerly attributable to the engineer remained in the contract, but they were attributed. to the employer only with the possibility of delegation. Nonetheless, the new FIDIC Yellow and Red Books continue to use an engineer with significant responsibilities under the contract. Historically, the prominent role of the engineer'in the FIDIC forms stems in large part from the English tradition of the architect/engineer. By contrast, the French tradition prefers direct contact between the employer and the contractor. Contractors from this tradition remain sceptical about the efficiency and appropriateness of using an engineer with a significant role in the contract administration.! Largely through the use of FIDIC contractual terms in international construction agreements, "the concept of the independent engineer has been exported widely to both civil law and developing countries" .2 The Silver Book Clause 3 discussed in this present chapter deals more generally with the employer's administration. This includes the possibility of an

I

2

122

7

F. Einbinder, UThe Role of an Intermediary Between Contractor and Owner on International Construction Projects: A French Contractor's Point of View" (1994) 11 I.C.L.R. 175 at 177. J. Bowcock, "The FIDIC Contract Forms: The Present and Future" (Society of Construction Law, London, November 7,1995).

7-01

7-02

GENERAL COMMENTS

THE EMPLOYER'S ADMINISTRATION

employer's representative, assistants and other persons with delegated authority. The Silver Book's new approach to contract administration will be compared with the Orange Book's mandatory employer's representative and the Red and Yellow Books' continuing use of the engineer. A former chairman of the FIDIC Contracts Committee cites several factors relating to the diminution of the role of the engineer in FIOIC contracts: (1) (2) (3) (4) (5)

concerns, on the part of contract users, with the ability of the engineer to be impartial, as he is paid by the employer; decrease in the practice of giving full decision-making powers to the engineer, often for reasons of public accountability; increase in the use of design-build projects such that the engineer may find himself designing and supervising the same project; increase in the role of claims as a means of adjusting the contract price, which puts additional pressure on the engineer; other standard form contracts have abandoned the concept of the engineer in the decision-making process. 3

The role of the engineer in the construction contract

7-03

It is appropriate to begin the examination of the issues raised in this chapter by a discussion of the engineer, as the modern FIOIC contracts all evolved from form contracts in which the engineer played a distinct and prominent role. The engineer is generally appointed and compensated by the employer. He acts as the employer's agent and generally oversees all the main elements of the project, often including dispute resolution. Although the extent of the engineer's role may vary from contract to contract, in his traditional role the engineer's responsibilities will include the preparation of feasibility studies and design, the engagement of contractors, supervision of the construction and the general administration of the construction contract or contracts. In order properly to carry out these administrative duties under the contract, the engineer should have the power to: • • • • • • • •

approve the time schedule for performance, monitor progress, assess payment claims, evaluate delays or defects, order or decide upon variations, consent to subcontractors, deal with impediments or hardship claims, and oversee and evaluate inspections and tests. 4

The engineer may also serve an additional function as the first level of dispute resolution. His technical expertise should enable him to deal with technical questions efficiently without needing to refer to an external consultant. The engineer's intervention can often avoid time-consuming and costly arbitral or judicial proceedings. Although the e;gineer is an agent of the employer he may be specifically required in the contract to act impartially when carrying out his responsibilities and in exercising his discretion. Under these traditional contracts (such as the old and new Red and Yellow Books), the engineer must exercise a dual role, balancing between acting as the employer's representative and agent and as the neutral evaluator of costs, extensions of time, approvals or variations. Consequently, this duality also calls into question the engineer's ability to decide disputes in an unbiased manner. His decisions may be perceived as favouring the interests of the employer, particularly where the engineer comes from the employer's inhouse technical staff. s This potential partiality may not be the fault of the engineer, but rather an unavoidable conflict that follows from the ambivalent nature of being both agent and neutral decision maker. This conflict may also inconvenience the employer. If the employer does not have a representative other than the engineer, it is difficult for the engineer to act as a neutral and also represent the employer's interests. Neither the Red nor Yellow Books have a role of employer's representative defined separately from that of the engineer. Developing nations have also criticised the use of the engineer for reasons of cultural bias. As the engineer typically comes from a developed nation, this may result in a favouring of the interests and needs of the parties from developed countries.6 Nonetheless, the use of the engineer may be logical where the employer hires the contractor to provide the labour and mechanical support for the project and at the same time uses the engineer to provide technical expertise, design for the works (whether all or part) and organisational skills. Use of the engineer also makes sense where the contractor is hired to provide labour, design and contract co-ordination, but the employer bears greater liability for the project. In this case, the employer may require a high degree of supervision for the construction of the works through an engineer or project manager.7

Turnkey and EPC contracts with an employer's representative The nature of the turnkey or EPC construction project allows the parties, if they so desire, to dispense with the use of an engineer as a primary participant in the construction contract. The use of a turnkey or EPC contract S

) See generally j. Bowcock, op. cit. n. 2 above. • UNCITRAL, UNCITRAL Legal Guide on Drawing Up International Contracts for the Construction of Industrial Works (UN, New York, 1998) UNDOC. NCN.9/SER.B/2 at 121 (hereinafter UNCITRAL Guide).

124

7-04

6

?

Walser, "The ENAA Model Forms: Tentative Comments of a World Bank Lawyer", International Bar Association Conference in Tokyo, japan, February 1993, at 9. ibid., at 8; same view expressed in j. Bowcock, op. cit. n. 2 above. Wright, "A 'Fair' Setof Model Conditions of Contract-Tautology or Impossiblity?" (1994) 11 I.C.L.R. 549 at 551.

125

7-05

GENERAL COMMENTS

THE EMPLOYER'S ADMINISTRATION

7-06

7-07

generally presumes that the contractor has a certain level of sophistication, given that it is being asked to be the designer of the project and to carry out all the construction work. The engineer's co-ordination role may become superfluous in this context. 8 Any traditional role he might undertake in relation to co-ordination could lead to clashes between the engineer and the contractor in their views of the design and manner of project co-ordination. 9 The engineer's role in a turnkey contract may simply be limited to preparation of feasibility studies, preparation of contract documents and the drawing up of the employer's requirements.!O With regard to EPC or turnkey contracts where the contractor assumes most, if not all, liability under the contract, it is generally accepted that the contractor should be given a freer hand to complete the project within the terms of agreement and with less intervention or interference from the employer or an engineer. Indeed, if the employer has sufficient confidence in the contractor and assumes less risk, the importance of the engineer's role as the representative of the employer and administrator of the contract lessens significantly. The solution employed by FIDIC is the replacement of the engineer with an employer's representative in the Orange Book and the possibility of such a representative in the Silver Book. The absence of an engineer in his traditional role will require the employer to assume some increased responsibility for contract administration. However, these duties may be delegated to an employer's representative, if necessary. In addition, the parties may need to implement a first-stage dispute resolution mechanism because the engineer will not be present under the contract to fulfill that function. Failure to resolve disputes promptly can cause delay in the project and substantial losses for both parties. The reference of a dispute to arbitration will ultimately provide resolution, but only after a delay which may prove to be completely unacceptable in light of the type of commercial relationship involved. As discussed above, the engineer has often traditionally supplied this on-site dispute resolution function. The standard form contracts examined in this book deal with the employer's contract administration in different ways. First, certain contracts (the Red and Yellow Books) leave the engineer in his traditional role, accepting the inherent conflicts of interest discussed above rather than sacrificing the control and efficiency provided by the engineer. A second option is to disassociate the engineer from his quasi-judicial functions. This solution has been criticised as cumbersome!! and is not a solution presented in any of the contracts discussed herein. The notion under this second approach is to remove the engineer from his traditional dispute 8 9

10 \I

However, the Yellow Book provides a middle·ground approach where the contract is turnkey but an engineer is still used. Gould, "Comments on the ENAA Model Form International Contract for Process Plant Construction (Revised 1992)" (1994) 11 I.e.L.R. 498, generally and at 500. I.N.D. Wallace, "Contracts for Industrial Plant Projects" (1984) 2 I.C.L.R. 322 at 339. UNCITRAL Guide, op. cit. n. 4 above, at 122.

126

,, I

,

resolution functions. This approach is seen in the ICE New Engineering Contract's combination of a project manager for the supervisory functions and an adjudicator for dispute review. 12 Still another approach is explicitly to recognise the partiality of the engineer, as agent of the employer, and thereby leave it open to the contractor to have any engineer decision reviewed by an independent expert. 13 Finally, some contracts remove the role of the engineer altogether, with the possible use of an employer's representative to assist the employer in fulfilling his obligations with regard to contract administration. For example, FIDIC removed the engineer function in the Orange Book but added a mandatory employer's representative. FIDIC saw this as a potential solution to the "engineer dilemma".14 Similarly, the Silver Book contains no provisions for an engineer but contemplates the possible appointment of an employer's representative. However, this appointment is not mandatory under the Silver Book, as it seems to be under the Orange Book. Such changes may be disingenuous, however, and some authors criticise the FIDIC contracts for continuing to "tinker with the role of the engineer without, in substantive terms, addressing the continuous dichotomy between agent and certifier".1S The Silver Book offers the most flexible option for a construction contract without an engineer in that the employer may delegate as much or as little responsibility to an employer'S representative as it desires. The employer's representative under the Orange Book and the employer under the Silver Book assume the responsibility of first-tier dispute resolution and other determinations, with possible referral to a dispute' adjudication board in the event of dissatisfaction. Under the Silver Book, the use of the employer, in lieu of the engineer, still produces conceptual confusion as the employer, despite being a party to the contract, is relied on to make "fair" determinations.!6 Like the Silver Book and the Orange Book, the ENAA and the ICE contracts have opted to remove the engineer and chosen to replace him with an employer's representative. The role of the employer's representative retains flexibility. He is given the power to act in accordance with powers specified or necessarily implied by the contract. Under the ENAA and ICE contracts the dispute resolution responsibility of the engineer has been given to an independent third party, called either an expert, an adjudicator or a dispute adjudication board. The change in the title of the engineer reflects the change in his role. The employer's representative il} the Orange Book and in the Silver Book (if one is appointed) no longer straddles the line between a neutral and an employer's agent; he is now, in title and duty, overtly acting in favor of the employer. In the case of the Silver Book, there may be no employer's 12 tl 14

IS 16

Walser. op. cit. n. 5 above, at 8. J.K. Hoyle, "The Rainbow Down Under-Part 1 Some Reflections from the Antipodes on aspects of the new FIDIC Design-Build Contracts" (2001) 18 (1) I.C.L.R. 5 at 12. J. Bowcock, op. cit. n. 2 above. 1.K. Hoyle, op. cit. n. 13 above, at 11. ibid. at 12.

127

7-08

GENERAL COMMENTS

THE EMPLOYER'S ADMINISTRATION

representative at all, leaving many discretionary decisions to the employer. The FIDIC Silver, Orange, Red and Yellow Books do not impose an express duty of impartiality on the employer's representative or the engineer, as did the old Red Book in its sub-clause 2.6 in respect of the engineer. Under the newer FIDIC forms, the employer, his representative or the engineer must simply make fair determinations in accordance with the contract. The lack of any express requirement of impartiality better reflects the true role of the employer's representative and engineer and avoids the problems caused when the impartiality statement proves falseY Both represent the interests of the employer. The newer FIDIC contracts counterbalance this potential bias by inserting a more flexible interim dispute resolution mechanism, the dispute adjudication board, to allow the contractor to contest any acts or decisions of the employer, his representative or the engineer with which it is dissatisfied. Similarly, none of the non-FIDIC contracts discussed herein contain any express requirement of impartiality. To begin with, all these contracts use an employer's representative and not an engineer. In addition, the employer and/or his representative playa much more limited role in making decisions under the contract. In the event of disputes over variable elements relating to contract administration, such as extensions of time or price increases, these contracts generally indicate that the parties should reach an agreement, with formal dispute resolution being the remedy in the event of failure to agree or dissatisfaction.

Comparison of the role of the employer and his representative in the Silver Book with the role of engineer in the Yellow and Red Books }

7-09

It is important to note that under sub-clause 3.1 of the Silver Book, the

employer's appointment of an employer's representative is entirely optional. Consequently, the Silver Book contains no rights or obligations that pertain solely to the employer's representative. This differs from the Orange Book where the employer's representative is apparently mandatory. Further, the use of an appointed engineer is required under the Red and Yellow Books. In fact, the alteration of the role of the engineer/employer's representative, and the related issue of certification of payment, is perhaps the fundamental difference between the Silver Book and the Orange and (new) Yellow Books. 18 Some authors criticise the Silver Book on the grounds that, in taking a tw?-party approach the Silver Book transferred the engineer's powers to only one party: the employer. This is particularly troubling as the responsibility for the design and specification of the work lies with the contractor, 17 18

P.L. Booen, "The Three Major New FIDIC Books" (2000) 17 (1) I.C.L.R. 24 at 30. J.A. Huse & J.K. Hoyle, "FIDIC Design-Build, Turnkey and EPC Contracts" (1999) 16 (1) J.C.L.R. 27 at 36.

128

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"

:

under the Silver Book, and thus the employer need not have the powers of the engineer, which go beyond the scope of monitoring the execution of the works. 19 Indeed, as a former chairman of the FIDIC Contracts Committee recognises, "in the FIDIC Conditions 'The Engineer' is an essential factor and [therefore] if the power of the engineer is eroded much of the logical system built up in the conditions will cease to make sense".20 As this power has been transferred, rather than diminished, the logic of the system may hold, while the fairness may suffer. Most of the functions carried out by the engineer in the Yellow or Red Book are taken care of by the employer under the terms of the Silver Book. Of course, most of the employer's functions could be delegated to an employer's representative. The extent to which the employer's representative takes charge of any rights or obligations of the employer depends solely on the delegation of such authority by the employer. The employer's representative may take over nearly all the functions of the employer, very few of the employer's functions or be entirely absent from the contract altogether. As a result, a comparison of the role of the employer's representative with the role of the engineer serves little purpose due to the lack of finite parameters for the employer's representative in the Silver Book. The comparison would be more relevant when examining the Orange Book where the employer's representative is mandatory and is specifically attributed many of the rights and responsibilities that would otherwise belong to the employer. However, rather than undertake an extensive comparison of the older Orange Book with the newer Red and Yellow Books, it should simply be noted that the employer's representative is attributed certain rights and responsibilities of the employer under the Orange Book, whereas this attribution is optional under the Silver Book. In the FIDIC Silver, Red and Yellow Books the employer has a defined set of rights and responsibilities. The difference in these contracts is that many of these rights and responsibilities are specifically transferred to the engineer under the Red and Yellow Books. Regardless of whether any right or responsibility is attributed to the employer under the Silver Book or to the engineer under the Red and Yellow Books, the underlying rights and responsibilities are generally the same and are present in all three contracts. As a result, the function of the employer in the Silver Book and the function of the engineer in the Red and Yellow Books overlap in most cases. For example, under Silver Book sub-clause 4.21 it is the employer who receives the contractor's progress reports, while under the same sub-clause in the Red and Yellow Books it is the engineer that receives theses reports. Similarly, under Silver Book sub-clause 3.5 the employer has the general power to make determinations, whereas it is the engineer who does this 19

20

A. Sandberg, "A Contractor's View on FIDIC Conditions of Contract fo r EPC Turnkey Projects" (1999) 16 (1) I.C.L.R. 47 at 57. J. Bowcock, op. cit. n. 2 above.

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THE EMPLOYER'S ADMINISTRATION

7-11

under the same sub-clause in the Red and Yellow Books. In Silver Book sub-clause 7.3 the employer has the right to inspect any part of the works as does the engineer under the same sub-clause in the Red and Yellow Books: As illustrated above, in the Red and Yellow Books the engineer simply assumes many administrative functions that would otherwise be the responsibility of the employer. What is perhaps more interesting is the extent to which the use of the engineer adds an extra level of separation between the contractor and the employer in the Red and Yellow Books. For example, under the Silver Book the contractor will make applications for interim payments directly to the employer (sub-clause 14.3), while under the Red and Yellow Books the contractor's application is to the engineer who then issues a payment certificate to the employer (sub-clauses 14.3 and 14.6 (RBIYB)). The same is true for the contractor's application for final payment (sub-clause 14.13 (SBIRBIYB)). Howeve:, :~ere.are a few instances where the engineer has a unique right or responslbdlty 10 the Red or Yellow Books that is not available to the employer in the Silver Book. For example, under the Red and Yellow Books (sub-clause 14.13) the engineer has the right to issue clarifications and instructions regarding ambiguities or discrepancies in the contract documents. This right is not available to the employer under the Silver Book. The engineer's consent is required for subcontractors not named in the contract under RedlYellow Book sub-clause 4.4, whereas the employer's consent to subcontr.actors ~s not required in the Silver Book. In addition, the engineer's consent IS reqUired for each proposed designer and design subcontractor under Yellow Book sub-clause 5.1, whereas this is not a requirement or power of the employer under the Silver Book. The additional powers in the Red an~ Yellow Book illustrate the intended supervisory role of the engineer With regard to more technical matters, whereas the lack of similar powers for the employer in the Silver Book illustrates the intent to lessen the amount of supervision over the contractor in the context of an EPC/turnkey contract where the contractor assumes greater risks than in the Red or Yellow Books.

Discussion of Specific SubMClauses 7-12

•

As indicated below, the S.i1ver Book clause allows the employer to appoint an employer's representative to be responsible for certain aspects of the contract administration. However, the employer must narrowly define the role of the empl~yer's representative and assistants with delegated power. If the employer Wishes to delegate a great deal of authority and discretion to the e~ployer's rel?rese?tative, he may do so provided that these powers are suffiCiently des~nbed 10 the notice of delegation to the contractor. However, the employer wdl be unable to remove himself entirely from the process of contract administration in that the contractor may request confirmation of 130

instructions or decisions made or issued by any person delegated authority by the employer.

7-13

3.1 The Employer's Representative The Employer may appoint an Employer's Representative to act on his behalf under the Contract. In this event, he shall give notice to the Contractor of the name, address, duties and authority of the Employer's Representative. The Employer's Representative shall carry out the duties assigned to him, and shall exercise the authority delegated to him, by the Employer. Unless and until the Employer notifies the Contractor otherwise, the Employer's Representative shall be deemed to have the full authority of the fmployer under the Contract, except in respect of Clause 15 [Termination by Employer].

"

If the Employer wishes to replace any person appointed as Employer's Representative, the Employer shall give the Contractor not less than 14 days' notice of the replacement's name, address, duties, authority, and of the date of appointment. Silver Book sub-clause 3.1 simply gives the employer the option of appointing an employer's representative to act on his behalf. The definition of the role of the employer's representative is outlined very broadly, and he is deemed to have the full authority of the employer, if appointed. If an employer's representative is used, the parties may want to provide him with the power to call meetings with the contractor in order improve communication. This may improve the employer's access to information on the progress of the works and signal any difficulties as they arise. Under the corresponding Orange Book sub-clause 3.1, the use of an employer's representative is required. However, unlike the Silver Book, the Orange Book sets forth specific limits on the extent of authority of the employer's representative, such as no authority to amend the contract and no authority to relieve the contractor of his duties, obligations or responsibilities under the contract. The Orange Book also contemplates that provisions may be included in the contract requiring the employer's representative to seek the employer's approval before exercising certain powers. Nonetheless, the Silver Book and Orange Book provisions are otherwise very similar. The new Red and Yellow Books continue the tradition of the old Red and Yellow Books by requiring the use of an engineer in the contract and not an employer's representative (sub-clause 3.1 (RBIYB)). Under the new Red Book, however, the engineer's contractual impartiality has been diminished in comparison to his position in the old Red Book. 21 Sub-clause 3.1 indicates that the engineer is deemed to be acting for the employer and shall 21

D. Bateson, "FIDIC-New 1999 Edition of the Red Book Impartiality of the Engineer" (2000), online: FIDIC http://www.fidic.orglresources/contracts/bateson _augOO.asp (date accessed: July 4, 2001).

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7-15

carry out the duties assigned to him under the contract. Similar to the Orange Book's employer's representative, under sub-clause 3.1 (RBIYB) the engineer is specifically denied authority to amend the contract and denied the authority to relieve either party of any duties or obligations under the contract. The FIDIC Guide states that the contractor is not entitled to question whether communication from the engineer was approved or not, as the employer is deemed to have given approval for the purposes of the contract. Where the engineer acts without the approval of the employer, however, this will be an issue as between the employer and the engineer and may represent a breach of their consultancy agreement. 22 One new addition to the Red and Yellow Books in sub-clause 3.1 is the employer's undertaking not to impose further constraints on the engineer's authority except as agreed with the contractor. The evolution of the engineer's role under the FIDIC contracts is also reflected in the notice requirements for replacement of the engineer or employer's representative. In the old Red Book, the employer was under no obligation to give the contractor notice of replacing the engineer with a different engineer. In the old Yellow Book, the employer could replace the engineer, but not without the contractor's consent (sub-clause 2.8 (OYB)). Subsequently, in the Orange Book the engineer's role was largely replaced by that of the employer's representative for which the employer had no notice obligation with regard to the replacement of his representative. However, in the Silver Book, the employer must now give the contractor 14 days' notice of replacement of the employer's representative (sub-clause 3.1). Under the new Red and Yellow Books, not only must the employer give the contractor 42 days' notice of the engineer's replacement, the contractor has the right to object to the replacement (sub-clause 3.4 (RBIYB)). The contractor's possibility of objection is a compromise between the parties as it represents the middle ground between no input at all from the contractor and a veto power by the contractor. 23 The increased notice requirement and possibility of contractor objection in the new Red and Yellow Books indicates the more controversial role played by the engineer in the contract administration as compared to the employer's representative in the Silver and Orange Books. The increased notice requirement and possibility of objecting may dissuade the employer from abusively changing engineers during the contract execution simply in response to unfavourable determinations made by the engineer, such as for extensions of time or price increases. The ENAA, EIC, ICE, AlA and AGC all use an employer's (or owner's) representative and not an engineer (see sub-clauses 17.1 (ENAA), 5.1 (EIC), 2(1) (ICE), 2.1 (AlA-Part 2) and 4.4 (AGC)). Under the EIC, the employer's representative is an agent of the employer. The employer, therefore, is "responsible for any acts or commissions of his representative vis-a-vis the 22 2)

FIDIC, The FIDIC Contracts Guide (Federation Internationale des Ingenieurs.Conseils, Lausanne, 2000), p. 82. P.L. Booen, op. cit. n. 17 above, at 31.

132

contractor" .24 However, like the Silver Book and the .Orange Bo~k., .n?ne of the aforementioned contracts outline as many speCific responSibilities for contract administration as do the Red and Yellow Books with regard to the engineer. The function of the employer's representative in the non-FIOIC form contracts is less specifically defined in the contract and can be as broad or narrow as the employer sees fit.

7-16

3.2 Other Employer's Personnel The Employer or the Employer's Representative may from time to time as~ign duties and delegate authority to assistants, and may also revoke such assignment or delegation. These assistants may include a resident engineer, andlor independent inspectors appointed to inspect andlor test items of Plant and/o.r Materials. The assignment, delegation or revocation shall not take effect until a copy of it has been received by the Contractor. Assistants shall be suitably qualified persons, who are competent to carry out these duties and exercise this authority, and who are fluent in the language for communications defined in Sub-Clause 1.4 [Law and Language). Under Silver Book sub-clause 3.2 the employer andlor the employer's representative have the power to assign duties and delegate authority to assistants. The Silver Book specifically names the resident engineer and independent inspectors as potential assistants. The Silve.r Book ~lso requires notice to the contractor of such assignment or delegation. ThiS sub-clause imposes a standard of competence on any assistant to whom duties may be assigned by the employer. The corresponding Orange Book sub-clause 3.3 permits the employer's representative to delegate duties, but does not expr.essl~ g~ve t~is right to the employer. However, such a power of delegation IS Implied by the control the employer may assert over the employer's representative. In addition, the fact that the employer's representative is seemingly mandatory under the Orange Book and optional under the Silver Book makes th.e Silver Book's express right of delegation by the employer more appropnate. The Orange Book in sub-clause 3.2 imposes a standard of competence not only on assistants of the employer's representa~ive but al~o on th.e employer's representative himself, who must be a SUitably qualified engineer or other appropriate professional. Where the employer's representative is not sui~ably qualified, he is obliged to appoint engineers or other professionals. According to some authors, this obligation leaves the door open to those appointed by the employer's representative to "re-establish the traditional role of the engineer and thus overload the structure of the project" .25 A better approach might be to leave such appointments to the 2< B

Dr J.G. Rechtsanwalt, "The EIC Turnkey Contract" (1997) 14 I.C.L.R. 33 at 44. , B. Cazalet & R. Reece, "Conditions applicables aux contrats de conception-construction et cles en main" (1996) 3 R.D.A.l.n.N.L.J. 279 at 289.

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THE EMPLOYER'S ADMINISTRATION

discretion of the employer's representative. The provisions of sub-clause 3.2, however, may act to protect the contractor by providing assurances th~t a competent person exercises the authority of the employer's representative under the contract. Si~ilarly, ~he Red and Yellow Books allow the engineer in sub-clause 3.2 to assign ~utles and de!egate authority to assistants. However, the delegation of authonry to determine matters under the contract is specifically excluded. Both ~he employer and the contractor must receive a notice of the delegation or assignment. Although the Red and Yellow Books do not impose a specific sta~dard of competence on the engineer, a standard of competence for the ~nglneer's staff (sub-clause 3.1) and his assistants (sub-clause 3.2) is Inclu~ed. The: ?Id Re,d ~nd old Yellow Book sub-clauses 2.3 (and 2.4 (ORB)) contain provIsions similar to those of the new Red and Yellow Books with regard to delegation or assignment of duties by the engineer. However, the old ,Red an,d Yellow Books do not contain standards of competence for the engineer, hiS staff or assistants with delegated duties. 7-18 The EN~A, EIC and ICE a,lI contain provisions allowing the employer's representative to delegate duties and authorities vested in him (sub-clauses 1?1.2 (E~AA)" 5.1 (EIC) and 2(3)-(4) (lCE)). The AlA provides for a pos~I,ble on-SIte prOject representative who may be delegated certain responsibilities ~s~b-c1ause 2: 1 (AIA-P~rt 2)). However, the AGC contains no specific provIsions regarding delegatIOn of responsibility and authority to others. None of the non-FIDIC contacts discussed herein impose a standard of competence: on ~he employer's representative or other persons with delegated authOrity, ,with the exc~ption of the ,,,?-GC in sub-clause 4.4.1 that requires the o~ner s representative to be famlhar with the project. Unltke the non-FIDIC contracts and to a greater extent than in the FIDIC contracts, the IC~ places specific limitations on what powers may be delegat:~. No delegatl,on by the employer's representative is possible for certain deCISions or certificates that are his specific responsibility (sub-clause 2(3)(c) ,(ICE)? These non-delegable powers include the power to make time and price adjustments for unforeseeable physical conditions encountered by the contractor (sub-clause 12(6)), determinations of time extensions gen:rally (sub-clause 44) and the issuance of certificates of substantial completIOn (sub-clause 48) and of final account (sub-clause 60(4)) among others. '

7-19

3.3 Delegated Persons All these ~ersons, includin~ the Employer's Representative and assistants, to whom ,duties ~ave ~een ass~gned or authority has been delegated, shall only be a uthon,sed to Issue instructIons to the Contractor to the extent defined by the ?e1egatl?n. An~ approval, check, certificate, consent, examination, inspection, ~nstructlon, notl~e, proposal, request, test, or similar act by a delegated person, In accordance WIth the delegation, shall have the same effect as though the act had been an act of the Employer. However: 134

DISCUSSION OF SPECIFIC SUB-CLAUSES

(a)

(b)

(c)

unless otherwise stated in the delegated person's communication relating to such act, it shall not relieve the Contractor from any responsibility he has under the Contract, including responsibility for errors, omissions, discrepancies and non-compliances; any failure to disapprove any work, Plant or Materials shall not constitute approval, and shall therefore not prejudice the right of the Employer to reject the work, Plant or Materials; and if the Contractor questions any determination or instruction of a delegated person, the Contractor may refer the matter to the Employer, who shall promptly confirm, reverse or vary the determination or instruction,

This Silver Book sub-clause specifically limits the power of the employer's representative and assistants in their issuance of instructions to the contractor. It also describes the effect of any act or decision made by a person with delegated authority or responsibility. It confirms that the acts of the employer's representative or assistant have the same effect as though the employer himself had acted. Nonetheless, the sub-clause lists certain exceptions, namely that the contractor cannot be relieved of a contractual responsibility by the act of the employer's representative or assistant and that failure of these persons to disapprove certain aspects of the contractor's responsibilities does not constitute an implicit approval on which the contractor may rely. Finally, sub-clause 3.3 permits the contractor to seek confirmation from the employer of any determination or instruction of the employer's representative or other delegated person. The Orange, Red and Yellow Books all contain provisions similar to those of Silver Book sub-clause 3.3. The Red and Yellow Books in clause 3.2 focus on the power of the engineer's assistants and the effect of their acts, which are similar to those of the employer's representative and assistants in the Silver and Orange Books. In addition, Red and Yellow Book sub-clauses 3.1 (c), regarding the contractor's responsibilities for error, are comparable with Silver Book sub-clause 3.3(a). The old Red and old Yellow Books also contain similar provisions in their sub-clauses 2.2-2.4 (ORB) and 2.3 (OYB). However, the old Yellow Book does not expressly give delegated assistants the power to issue instructions, though this power is implied by sub-clause 2.3 (OYB). The non-FIDIC contracts coma in fewer specific provisions dealing with the powers and restrictions of delegated persons than the FIDIC contracts. The ICE is the only contract that specifically indicates that the employer's representative or his delegates may issue instructions to the contractor (subclause 2(5)(a) (ICE)). Under the ENAA, EIC, AlA and AGC, there is no specific restriction against the employer delegating his: power to instruct to his representative or assistants. However, under these contracts the employer has no general power to instruct. The employer is entitled to instruct the contractor in specific circumstances and under certain conditions, but these are generally described is some detail in each contract. Some of the nonFIDIC contracts (ENAA, EIC and AGC) do state that any acts of persons delegated power or duties by the employer or his representative have the

135

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DISCUSSION OF SPECIFIC SUB-CLAUSES THE EMPLOYER'S ADMINISTRATION

same effect as if the person who delegated the power had done such act (see sub-clauses 17.1.2 (ENAA), 5.1 (EIC) and 4.4.3 (AGC)). i '

7-21

3.4 Instructions The Employer may issue to the Contractor instructions which may be n~cessary for the Contractor to perform his obligations under the Contract. Each instruction shall be given in writing and shall state the obligations to which it relates and the Sub-Clause (or other term of the Contract) in which the obligations are specified. If any such instruction constitutes a Variation, Clause 13 [Variations and Adjustments) shall apply. The Contractor shall take instructions from the Employer, or from the Employer's Representative or an assistant to whom the appropriate authority has been delegated under this Clause. Under a traditional construction contract the employer generally has the power to define and shape the nature of the works. This may be accomplished from a practical standpoint by the issuance of instructions, such as for a change in the works. However, under an EPClturnkey contract where the contractor assumes increased risks and for a fixed, lump-sum price as in the Silver Book, the contractor may wish to negotiate restrictions on the employer's power to instruct or on the employer's power to delegate this authority. The greater the contractor's assumption of risk, the more likely it is that more restrictions on the employer's intervention may be requested. By contrast, the employer will want to retain as broad a power to instruct as possible. Silver Book sub-clause 3.4 specifically empowers the employer to issue instructions to the contractor regarding the execution of the contract and requires that the instructions be in writing. In addition, the Silver Book specifically states that the contractor is bound by the instructions from the employer, the employer's representative or any other person to whom the proper authority has been delegated. The corresponding Orange Book clause 3.4 indicates simply that the contractor must comply with the instructions given by the employer's representative in accordance with the contract. This suggests that instructions may only be given by and through the employer's representative, as opposed to from the employer directly. It appears that delegates of the employer's representative are not able to issue instructions to the contractor. Orange Book sub-clause 3.3 allows the employer's representative to delegate duties to other persons but apparently not powers. The Red and Yellow Books at sub-clause 3.3 allow the engineer to issue instructions to the contractor. They also indicate that the contractor must follow the instructions from the engineer or from the engineer's assistants to whom the appropriate authority has been given. The old Red Book contains provisions similar to those of the current Red and Yellow Books (see subclause 2.2, 2.4 and 2.5 (ORB)). The old Yellow Book is different in that it states only the contractor must comply with the instructions of the engineer

136

(sub-clause 2.5 (OYB)), but does not specifically mention assist~nts. Simil~r to the Orange Book, the old Yellow Book sub-clause 2.3 permits the engineer to delegate to the engineer's representative only its duties but does not mention delegation of the engineer's powers. Of the non-FIDIC contracts, the ICE is the most similar to the current FIDICs. Under sub-clause 2(5)(a) (ICE) the employer's representative or delegates are given the power to issue instru~tions. ~owever, a~sistants .are precluded from issuing instructions that Involve Increases In the time for completion or increases in the contract price (see sub-clauses 2(4)-(5) (ICE)). The ENAA, EIC, AlA and AGC contain no general power for the employer or his representative to issue instructions to the contractor. Howev~r, these contracts provide for certain specific cases where the employer can Instruct the contractor on a particular matter. For example, under the ENAA the owner may instruct the contractor as to how to proceed with the works in the event of a dispute over construction documents (sub-clause 20.3.5 (ENAA)), tests or inspections (23.7) or cost and time extensions ~~r change orders (39.3) when these have been referred to an expert for deCISion upon disagreement between the employer and the contractor. The EIC, AlA and AGC also contain specific instances for employer instructions but to a more limited extent. For example, both the AlA and AGC contain provisions allowing the employer to instruct a change to the works, even if the cost and necessary time extension have not been agreed (see sub-clauses 8.1.2, 8.3.1 (AlA-Part 2) and 8.2 (AGC)). These are effectively instructions as well as change directives or orders. However, the power to instruct only arises under the AlA and AGC in the context of work changes. In the limited circumstances under which instructions are possible under the ENAA, EIC, AlA and AGC, there appears to be no specific prohibition against the employer's delegation of this power to the employer's representative or assistants. Another issue in relation to the issuance of instructions is whether instructions must be issued in writing. The FIDIC Silver, Orange and Yellow Books simply indicate that instructions must be in writing (sub-clauses 3.4 (5B), 1.8 (OB) and 3.3 (YB)). Instructions regarding work changes under the AlA and AGC must also be in writing (sub-clauses 8.3.1 (AlA-Part 2) and 8.2 (AGC)). The ENAA and EIC do not specifically state that instructions must be in writing, but a writing requirement is imposed for notices and similar communications from which a writing requirement for instructions may be implied. The Red, old Red and old Yellow Books, as well as the ICE contract, indicate that instructions must be in writing but that oral instructions are possible subject to subsequent confirmation by the employer or the contractor (see sub-clauses 3.3 (RB), 2.5 (ORB), 2.6 (OYB) and 2(5)(a) (ICE)).

3.5 Determinations

7-22

7-23

Whenever these Conditions provide that the Employer shall proceed in accordance with this Sub-Clause 3.5 to agree or determine any matter, the Employer shall consult with the Contractor in an endeavour to reach agreement. If agreement is

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DISCUSSION OF SPECIFIC SUB-CLAUSES

THE EMPLOYER'S ADMINISTRATION

not achieved, the Employer shall make a fair determination in accordance with the Contract, taking due regard of all relevant circumstances. The Employer shall give notice to the Contractor of each agreement or determination, with supporting particulars. Each Party shall give effect to each agreement or determination, unless the Contractor gives notice, to the Employer, of his dissatisfaction with a determination within 14 days of receiving it. Either Parry may then refer the dispute to the DAB in accordance with Sub-Clause 2004 [Obtaining Dispute Adjudication Board's Decision).

7-24

Silver Book sub-clause 3.5 provides the general procedure for employer determinations under the Silver Book. Numerous sub-clauses in the Silver Book indicate that the employer is to proceed in accordance with sub-clause 3.5 to agree or determine certain issues under the contract. This responsibility for making a determination arises most commonly in the context of events that might entitle the contractor to claim an increase in the contract price or an extension of the time for completion. Each of the specific situations requiring agreement or determination specifically reference sub-clause 3.5 for the process to be followed. Some examples of circumstances requiring agreement or employer determination in accordance with sub-clause 3.5 are: the determination of contract price increase and/or extensions of the time for completion resulting from an employer-instructed test variation (sub-clause 7.4); a suspension of the works by the employer (sub-clause 8.9); and the cost of an employer-instructed search for defects performed by the contractor (subclause 11.8), among others. However, determinations may also arise in the context of employer claims as well. For example, sub-clause 11.4 provides for a potential employer determination of a reduction in the contract price for the contractor's failure to remedy defects in or damages to the works. When an agreement or determination is required under the contract, the first step is for the employer to consult with the contractor in an attempt to reach agreement on the matter. In the absence of agreement, the employer is then entitled to make a determination of the matter. The contractor may want to specify a time period within which the employer must issue a determination, where agreement is not reached. 26 This determination must be fair and in accordance with the contract. The parties must give effect to each agreement or determination. However, in the event of a determination by the employer, the effect of the determination may be suspended if the contractor gives a notice of dissatisfaction to the employer regarding the determination. Either party may then refer the matter to the next tier of dispute resolution-the Dispute Adjudication Board-for decision in accordance with the applicable procedures contained in the contract. Contrast the timing of this suspension with that contemplated by the similar provisions of the Red and Yellow Books as discussed below. The Orange Book at sub-clause 3.5 contains a similar provision for determinations. However, under the Orange Book it is the employer's representa-

26

EIC, The EIC Contractor's Guide to the FIDIC Conditions of Contract for EPC Turnkey Projects (European International Contractors, Berlin, 2000), p. 12. The EIC Guide suggests 28 days may be an appropriate time period.

138

\

. 1

, 1

tive who makes the determinations, rather than the employer. In addition, there is no requirement of giving a notice of dissatisfaction before contesting the determination. . It is worth noting that the conditions only refer to sub-clause 3.5 m respect of claims, but not with regard to payment and v~riations. Similarly, the effect of Red Book sub-clause 3.5 is to make the engmeer "only under a contractual duty to act fairly in circumstances where he is required by a particular clause to comply with sub-clause 3,5 (unless otherwise specified)",21 To the extent that one accepts the engineer can be impartial, some auth?~s suggest that a general fairness obligation should be imposed wherever deCISions have to be taken by the engineer or employer.28 . .. The Red and Yellow Books at sub-clause 3.5 contam a determmatlon provision nearly identical to that of the Silver Book. Howev~r, u.nder the Red and Yellow Books it is the engineer who makes the determmatlon after consulting both parties. Unlike the Silver Book, the Red and Yellow Bo~ks contain no requirement of giving notice of dissatisfaction before proceedmg to the next level of dispute resolution. Furthermore, both the Red and Yellow Book provide that each party "shall give effect to each agre~ment or .d.etermination unless and until" revised under the dispute resolution provIsions. One additional provision in the Red and Yellow Books is that the engineer's power to determine matters cannot be delegated (sub-clause 3.2 (RBIYB)) .. The old Red Book contained provisions somewhat similar to the determinations procedure under the newer FlDIC forms. Under sub-clause 53.5, the engineer was required to consult with both parties and deter~ine any clai~s by the contractor against the employer. Clause 67.1 also reqUired that all diSputes be referred to the engineer for a decision before it was possible t~ begin an arbitration. In that regard, sub-clause 2.6 of the qld Red Book specifically required the engineer to act impartially in making determi.nation~, ?iving decisions or other discretionary acts. This requirement of ImpartialIty no longer exists in the newer FIDIC contracts. By contrast, the old Yellow Book contained no general procedure for determinations by the engineer, but did require the engineer to act impartially nonetheless (sub-c1aus~ 2.4 (OYB)) .. The determinations process by the employer, his representative or the englneer as contained in the FIDIC contracts is generally foreign to the nonFIDIC contracts discussed herein. The ENAA and EIC contain no specific determinations process. No party under these contracts really has a "determination" role similar to that provided in the FIDIC forms. Issues such as time extensions and cost increases are either agreed between the parties or subject to the contract's dispute resolution process. The ICE contains no general determinations procedure like sub-clause 3.5 of the Silver Book. However, the employer's representative does have the power to determine specific matters in various clauses of the ICE contract. Rather than being a determinations process, the employer's representative 21

2i

D. Bateson, op. cit. n. 21 above. E. Corbett, "FIDIC's New Rainbow 1" Edition-An Advance?" (2000) 17 (2) I.C.L.R. 3 at 256.

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generally just makes the determination in question, subject to later reversal through dispute resolution sub-clause 66 (ICE). The AlA and AGC contain no blanket guidelines or general procedure for determinations. Most issues under the contract are stated to be determined by agreement between the employer and the contractor. In the event agreement cannot be reached, these contracts contain procedures for mediation and arbitration of disputes.

CHAPTER

8

THE CONTRACTOR General Comments

;

\

Under the traditional design-bid-build method of construction, the role of the contractor is primarily limited to construction of the works. The employer brings in one or more contractors, often under the guidance of an engineer, to accomplish specific tasks of construction. Generally, under this method of construction, the contractor does not assume the overall responsibility for the design and co-ordination of the project. Turnkey and EPC contracts place certain, if not all, design responsibilities on the contractor. The process or design in major p.cojects may be extremely advanced, making sufficiently skilled and sophisticated design consultants difficult to find. l When the turnkey contract is signed, it is presumed that the contractor already has, or has access to, the technical knowledge necessary to undertake the design. The turnkey contractor will be, by the end of the design development process, intimately familiar with the design of the project. Thus the period required for transmission of the design from the engineer to the contractor, common to the traditional contract, is removed. The turnkey contract also places the responsibility for co-ordination of the project on the contractor. The contractor is no longer simply a construction expert but also an expert on design and project resource co-ordination. Therefore, the contractor will be responsible for co-ordination of the interfaces between design and construction and the interfaces between the individual construction packages. The turnkey contractor may even be required to co-ordinate the tasks accomplished by other contractors of the employer. The contractor in a major turnkey or EPC project will typically be either a large enterprise or a joint venture or consortium of specialists in different aspects of the project. The combination of contractors often provides the financial wherewithal necessary for the successful completion of large projects typical of turnkey contracts. A simple example would be a consortium consisting of a civil works contractor and a mechanicaUelectrical works contractor. Set forth below is a discussion of some of the contractor's key obligations under a turnkey contract in respect of (a) the tender phase and (b) the performance phase of the project. Discussion of the first phase will include the topics of site data and ground conditions. Discussion of the latter phase will

I

140

I.N.D. Wallace, "Contracts for Industrial Plant Projects" (1984) 21.C.L.R. 322 at 331.

141

8-01

8-02

GENERAL COMMENTS

THE CONTRACTOR

include the topics of duty to perform, standard of performance (i.e. fitness for purpose) and duty to co-ordinate the works.

The tender phase 8-03

8-04

•

A turnkey or EPC project often differs from construction contracts let on a more traditional basis in its emphasis on the pre-tender stage. The cost and time expended by the contractor to satisfy such tender requirements can be substantial. The tender will often require not only the contractor's price, but also a specific design proposal to satisfy the employer's requirements, which may include projected performance levels. There is a belief that in turnkey projects requiring major design work during the tender phase the employer should limit the number of potential bidders and consider the possibility of remunerating contractors making serious bids, to increase the quality of the tenders received. However, in the experience of the author, this recommendation is rarely followed in practice. The development of a tender is rarely straightforward. As part of the tender preparation process, the contractor should consider the site and its surrounds. Where the site is in a foreign country, the political and economic situation, availability of resources, import requirements for necessary materials, employee visa requirements for employees, local hiring and purchase requirements, and other such aspects add to the complication of the tender. The extent of the contractor's responsibility for site conditions and unforeseeable events are additional issues that require close attention. Unexpected subsurface conditions or unforeseeable events may cause delay to the works and increase the contractor's cost to complete the construction. The contracts discussed herein vary greatly in their treatment of these issues, ranging from placing all responsibility for site conditions on the contractor, as in the Silver Book, to making the employer responsible for all site data and allowing the contractor to receive time extensions and costs for unforeseeable events and conditions, as in the AlA. Site data. There has been some controversy surrounding the Silver Book's apportionment of responsibility between the parties with respect to ground conditions. This controversy largely stems from the effect of the interplay between the Silver Book provisions relating to site data (sub-clause 4.10) and unforeseeable difficulties (sub-clause 4.12). These provisions result in the contractor assuming the risks related to unforeseeable ground conditions, as will be outlined below in the discussion relating to sub-clause 4.12 and ground conditions. In his examination and inspection of the site, the contractor will have to consider access. The contract will allocate the risk as regards the accessibility of the site, including potential damage to access roads, bridges and other such structures involved in obtaining access. This risk will also include special rights of access and permits or licences needed for transportation of materials, plant and equipment to and away from the site. 142

Risks involved in the design and construction process are generally allocated in accordance with one of three views: (i) the foreseeable risks are assumed by the contractor and the unforeseeable risks are assumed by the employer; (ii) the party best able to manage the risk will bear that risk 2; or (iii) the party with the better negotiating position will take the least risk. The risk of unforeseeable conditions is often placed on the employer. Unforeseeable conditions are particularly difficult risks to insure against because they 'are hard to quantify and often difficult to mitigate. For example, even the most comprehensive geotechnical survey may not discover certain hazards. 3 In principle, if the contractor is to assume the risk of unforeseeable conditions, the tender price should be increased accordingly. However, whether this happens in reality is subject to debate. In highly, competitive bidding, it is possible that the potential cost of unforeseeable conditions may not be covered in many of the tenders. Just as certain risks may be difficult to assess and insure against, these same risks may be impossible for the contractor to properly include as a component of the tender price. The competition among contractors is such that competitive pricing often cannot support contemplation of such contingencies in the tendered price. In turnkey contracts, particularly in the case of projects financed on a project finance basis, the contractor often assumes part or all of the risk of unforeseeable conditions. In today's market, employers are requiring contractors to assume increasingly significant risks in the context of turnkey contracting. Consequently, a turnkey construction contract may not necessarily include an unforeseeable conditions c1ause. 4 This is the case of the Silver Book. However, assuming the employer does pay a contract price that takes account of such contingencies, this results in an economic loss to the employer if the unforeseen conditions do not arise during performance. Therefore, an employer may decide to assume the risk himself in order to decrease the overall cost of the project. s Parties should be proactive in dealing with risk. For example, with respect to subsurface conditions, the employer may want to invest in more complete geotechnical studies and information. 6 This may include a full and complete site inspection with full disclosure of the results to the contractor. 7 For example, the AlA Contract contemplates such a system of developed and Rutgers. "The Essence of Construction Risk" World Conference on Construction Risk II. Singapore. October 5-6,1995. J ibid. ~ Jones. "Philosophies of Risk Allocation: The Case for Foreseeability" World Conference on Construction Risk II. Singapore, October 5-6.1995. 5 C.R. Seppala. "Les Principaux 'Claims' de l'Entrepreneur aux Termes des Conditions FIDIC (1965) R.D.A.1. 171 at 178. 6 R.J. Smith. "Risk Identification and Allocation: Saving Money by Improving Contracts and Contracting Practices" (1995) 12I.C.L.R. 40 at 54. 7 The International Tunnelling Association suggests the provision by the employer at tender of a complete ground characterisation of subsurface conditions for contracts involving tunnelling work. International Tunnelling Association Working Group. "Contractual Sharing of Risks: ITA Recommendations on contractual sharing of risks" in Tunnelling & Underground Space Technology (2nd ed •• March 1992). 2

143

8-05

8-06

GENERAL COMMENTS

THE CONTRACTOR

shared site information. Where the employer has concerns regarding the validity of any resulting information he should make a specific disclaimer to the contractor. By developing a relatively detailed geological baseline for the works, the employer will simplify the determination of the foreseeability of actual ground conditions. 8

8-07

8-08

•

Ground conditions. Under the Silver Book, sub-clause 4.12 serves several purposes. In conjunction with sub-clause 4.10, it places all responsibility on the contractor for unforeseen site conditions. The contractor carries this risk irrespective of what might otherwise be extenuating circumstances such as where the employer provided the original site conditions information or where the site conditions were in fact unforeseeable. Indeed, the effect of this clause is to hold the contractor liable even where the conditions were unforeseeable and/or are completely out of the control of the contractor. Under the Silver Book, therefore, the risk associated with unforeseen ground conditions falls solely under the responsibility of the contractor. Other standard form contracts may address the unforeseeable ground conditions in "differing conditions" clauses. Such clauses, however, allow for adjustment of the contract where differing conditions are discovered, and this is contrary to the goals of the Silver Book. Indeed, sub-clause 4.12 specifies that there shall be no adjustment of the contract price to take account of any unforeseen difficulties or costs. The controversy surrounding the Silver Book sub-clause 4.12 primarily results from the fact that this provision stands in stark contrast to the preceding standard industry practice, particularly on an international level. Indeed, in one author's study, out of 20 countries surveyed, only Hong Kong and Malaysian governmental construction contracts usually allocated risk for differing conditions exclusively to the contractor. 9 It is worth noting that a study commissioned by the Hong Kong government, which resulted in the Grove Report, recommended the government take responsibility for ground conditions in the construction contracts. IO Although not disagreeing in principle, the Hong Kong government did not adopt this recommendation as changing the longstanding practice would likely result in "more contractual disputes and a higher final total cost" .11 Many authors also disagree with the allocation of unforeseeable ground conditions risk to the contractor. 12 Several arguments are put forward as to • J.A. Huse, "Control of tunnelling contracts" (1992) 24:9 Tunntls and Tunnelling 47. 9 P. Fenn, "Review of International Practice on the Allocation of Risk of Ground Conditions" (2000) 17 (3) I.C.L.R. 439 at 449. 10 The Groue Report (J.B. Grove, "The Grove Report: Key Terms of 12 Leading Construction Contracts Are Compared and Evaluated" online: Construction Web Links (November 6, 2000) http://www.Constructionweblinks .com/Resources nndustry _Reports_N .. .Igrove_ report.ht (date accessed: June 20, 2001) (hereinafter The Grove Report) was the subject of an international conference on November 20 and 21, 2000 in Hong Kong. Certain papers resulting from this conference may be found in (2001) 18, (2) I.C.L.R. 302 et seq. 1\ H. Lloyd J. Q .C., "The Grove Report: The Background to the Conference on Whose Risk?" (2001) 18 (2) I.C.L.R. 302 at 308. 12 The allocation of risk in the Silver Book "is at variance with the traditional FIDIC position and ... is not an appropriate change" (A.H. Gaede, Jr., "The Silver Book: An Unfortunate

144

why the contractor should not be exclusively responsible for such risks. First, it is assumed the contractor will provide a contingency in the contract price to take account of possible unforeseen risks. Where the risks do not materialise, the owner has notionally paid too much. Where the risks do materialise, the contractor is unlikely to have the financial means to manage the consequences of these risks and therefore may try to cut corners on the construction or even go out of business. 13 This is particularly true in BOT projects, where the contract is usually both long-term and of high value such that even large multinational contractors may not be.able to realistically bear such risks. 14 There is some question as to whether, in fact, thecontractor will provide a contingency for such risks. Indeed, it could result that "the less responsible, and frequently less qualified, bidder is the one who will include little or no contingency for the risk and thus be awarded the project".IS One must also keep in mind the time constraints surrounding the tender process that may prevent the contractor from undertaking a survey of the ground sufficient to predict ground conditions. Indeed, one author notes a twostage tender process might relieve some of the uncertainty. In the first stage, contractors could bid on the basis of site conditions provided by the employer and in the second stage the contractors could bid on the basis of their own investigations. 16 Although employers may want to structure their bidding process in such a manner, this does not directly solve the problem at hand. Along a similar vein, the Silver Book Introductory Note recognises that, due to the extent of the risks a contractor assumes under the Silver Book, "the employer obviously must give him the time and opportunity to obtain and consider all relevant information before the contractor is asked to sign on a fixed contract price". Where there is insufficient time, the Silver Book recommends that parties use another FIDIC contract. Neither of these suggestions, however, remedies the problem at hand. That is, the problem with the risk attribution under the Silver Book clause is the unforeseeable ground conditions that, due to their nature, only extensive investigations could uncover. In addition, there exists no insurance for unforeseeable ground

13 H 1$

16

Shift from FlOle's Tradition of being Evenhanded and of Focusing on the Best Intertsts of the Project" (2000) 17 I.C.L.R. 477 at 485); "There is widespread agreement in the literatureconstruction, legal and management-that the risk of differing conditions should be borne by the owner." (P. Fenn, op. cit. n. 9 above at 441-442; the language of Silver Book subclause 4.12 "is uncompromising in the extreme" (EM. Kennedy, "EIC Contractor's Guide to the FIDIC Conditions of Contract for EPC Turnkey Projects (The Silver Book)" (2000) 17 J.C.L.R. 504 at 513); Demonstrates/Shows how in the American experience, the owner is generally responsible for unforeseen conditions and attempts to make it otherwise usually do not work (P.L. Bruner, "Force Majeure and Unforeseen Ground Conditions in the New Millennium: Unifying Principles and 'Tales of [rUn Wars'" (2000) 17I.C.L.R. 47 at 100). P. Fenn, op. cit. n. 9 above at 441. A.H. Gaede, Jr. op. cit. n. 12 above at 489. ibid. at 485. N.D.]. Henchie, "FIDIC Conditions of Contract for EPC Turnkey Projects-The Silver Book Problel11s in Store?" (2001) 18 (1) I.C.L.R. 41 at 45.

145

8-09

GENERAL COMMENTS

THE CONTRACTOR

8-10

conditions,17 so a site examination that indicated possible future risks would not, per se, help the contractor. The Silver Book also notes that it may be an inappropriate model where the construction project involves "substantial work underground or work in other areas which tenderers cannot inspect" .18 Indeed, it has been suggested that, in such a case, the parties might replace Silver Book sub-clause 4.12 with the provisions of Yellow Book sub-clause 4.12,l9 There are further examples of criticisms of the Silver Book's disclaimers. First, some authors question what construction contracts might not be characterised as involving "significant" ground work. 20 Second, if the only "projects where the risk can be properly shifted are those where the ground conditions are known and not uncertain ... then what is the risk?"21 The basic issue at the root of the debate surrounding the attribution of the risk of unforeseeable ground conditions may be reduced to a question of risk attribution. Under some legal systems, one may not be able to allocate such risk entirely to the contractor. Where such risk may be so allocated, other provisions of the Silver Book may provide an obstacle to such allocation. For example, in principle, under German law one could allocate the responsibility for unforeseeable adverse ground conditions to the contractor. 22 Other provisions of the Silver Book, however, undermine this intention. The Silver Book risk-shifting is ineffective as the "contractor is also responsible in a case where the employer has provided him with an expert's report on the ground conditions containing hidden errors which are not provable within the short tendering period". 23 Amongst others, the Grove Report offers two persuasive reasons for the employer to accept the risk for unforeseen conditions. First, as the risk is impossible to quantify and, therefore, difficult to accurately reflect in the contract price, "the winning tenderer will either be the gambler or the low guesser" with the risk that highly competent, conservative contractors will be discouraged. 24 Second, where contractors are forced to assume the risk, "excessive c1aimsmanship and adversarial conduct can be expected" such that a "breeding ground for disputation and its notorious consumption of resources" results. 25

\7 P. Fenn, op. cit. n. 9 above at 447. '" FIDIC, Conditions of Contract for EPCffurnkey Projects, Introductory Note to First Edition, 1999. \9 C. Wade, "The Silver Book: The Reality" March 2001, online: FIOIC http://www.fidic.orgl resources/contractsiwade_mar01.asp (date accessed: July 4, 2001) or C. Wade, "History and Scope of the Three Major Books" online: FIOIC http://www.lidic.comldocumentsllaunchlwade1.html (date accessed: November 19, 1999) (at 7 of internet version). 20 N.D.J. Henchie, op. cit. n. 16 above at 46. 2\ A.H. Gaede, Jr. op. cit. n. 12 above at 488. 22 Dr A. Kus, Dr J. Markus & Dr R. Steding, "FIOIC's new 'Silver Book' under the German Standard Form Contracts Act" (1999) 16 I.C.L.R. 533 at 538. 23 ibid. at 538-539. 2' The Grove Report, op. cit. n. 10 above at 12.10. 25 ibid. at 12.11.

146

Despite the disadvantageous position the contractor is placed in under the provisions of the Silver Book, other provisions might be used to exculpate the contractor from responsibility in the event of certain unforeseeable ground conditions. First, sub-clause 5.1 may provide a 100phole26 as it attributes responsibility to the employer for "portio~s, data and information which cannot be verified by the contractor, except as otherwise stated in the contract". A second possibility would be to use the provisions of the force ma;eure clause. Under this approach, the contractor could argue the unforeseeable ground conditions presented an exceptional event or circumstance that was beyond the contractor's control and could not have reasonably have been provided against. 27 Nothing in the language of the force ma;eure provisions of the Silver Book would seem to preclude such an argument, and some authors have suggested the argument has merit. 28 A final possibility might be to use sub-clause 19.7, which excuses either party from performance where an "event or circumstance outside of the control of the parties ... arises which makes it impossible or unlawful" to perform their contractualobligations. 29 To conclude, it is true that the allocation of risk for unforeseen ground conditions in international construction contracts raises many issues. FIDIC's decision to allocate such risks to the ,contractor under the terms of the Silver Book has led to, often heated, debate and protest. Reflecting on the hue and cry engendered, in some circles, by the Silver Book terms, "the [FIDIC) Task Group believes that the outcry at the risk of unforeseen ground conditions is exaggerated and misplaced" .30 This is partially because "[eJven on many BOT projects the risk of unforeseen ground conditions may be minimal compared to the other risks" .31 Indeed, the instructions contained in the Introduction to the Silver Book go a long way towards alerting employers and contractors involved in problematic projects to the potential unsuitability of the Silver Book terms. While allocation of risk for unforeseen ground conditions is interesting terrain for debate concerning the theory of risk allocation in general, one should not lose sight of the Silver Book's contribution in the domain of standard form construction contracts. The Silver Book represents a useful attempt to provide a standard form contract containing conditions increasingly found in certain international EPC contracts. To the extent that the Silver Book represents an accurate reflection of a certain reality, i.e. market practice, it may be this "reality" that should be critiqued, rather than the instrument of reflection.

26 27

n 29

30

31

Indeed, some authors recommend its removal for this very reason, see E. Corbett, "FIDIC's New Rainbow 1st Edition-An Advance?" (2000) 17 I.C.L.R. 3 at 269. Indeed, unforeseeable ground conditions may not be currently insured against (P. Fenn, op. cit. n. 9 above at 447). A.H. Gaede, Jr., up. cit. n. 12 above at 490. E. Corbett, op. cit. n. 26 above at 44. C. Wade, "The Silver Book: The Reality" March 2001, online: FIOIC http://www.fidic.orgl resources/contractsiwade_marOI.asp (date accessed: July 4, 2001). C. Wade, "The Silver Book: The Reality" (2001) 18 I.C.L.R. 497 at 514.

147

8-11

8-12

GENERAL COMMENTS

THE CONTRACTOR

The performance phase

8-13

8-14

while the contractor is generally responsible for both design and construction under a turnkey contract, the Silver Book provisions allow the employer to contribute to the design and, at the same time, hold the contractor liable for any fault in the employer's design. The fitness for purpose obligation compounds the responsibility of the contractor, in such a case, such that the effect is to make the contractor the insurer for both the technical and practical aspects of the employer's design. on Indeed , contractors may contest the fitness for purpose obligation . 35 several grounds. 34 First, fitness for purpose cannot generally be IDsured. Consultants, therefore, usually only accept an obligation of "reasonable skill and care" in their design of projects. 36 The result is that the contractor essentially insures the employer against design faults where such insurance would otherwise be unavailable to the employer. The FIDIC Guide implicitly recognises this reality, stating "fitness for purpose is required ... irrespective of the likelihood that independent professional designers may be unable to procure insurance other than up to the level of the usual professional duty of skill, care and diligence".J7 This is related to a second possible objection of contractors: they are held to a higher standard of care than the designers themselves. Professional designers are usually only held to a professional standard of care. A contractor might argue that the mere fact of contractor-supplied design should not expose the contractor to greater risk or responsibility than the employer would receive from a professional designer. A counter-argument justifies this discrepancy by claiming that a designer will design differently for an employer (e.g. might focus on longevity and quality of design) as opposed to a contractor (e.g. might focus on providing the least expensive design). As such is the case, the added safeguard of applying a fitness for purpose standard to the contractor is necessary to balance the effect of the competing interests of the employer and the contractor in the design of the project. 38 A third objection would be that a "fitness for purpose" obligation deprives the contractor of a "state of the art" defence. In other words, the contractor will be strictly liable, "even if the state of knowledge across the industry is

The contractor must perform the works in accordance with the contract. In addition, the contractor may be held to a stated standard of performance set forth in the contract. The contractor will also be required to co-ordinate the works, which includes responsibility for all interfaces involved in the design, construction and site management. All the standard form contracts discussed herein contain some provision requiring the contractor to execute the works in accordance with the contract. This is a relatively basic concept. As will be discussed below, this obligation may extend to anything necessary to complete the works or reasonably inferable from the contract requirements. In addition to the general obligation to perform, the contract may place a duty on the contractor to perform his obligations in accordance with a standard specified either by the contract or by the applicable law. Under a traditional design-bid-build project the design and construction phases are separate, and generally are undertaken by two different entities under two separate contracts. The designer in such a project is often held to a performance standard of professional negligence-that is, the work that a careful designer would provide. The contractor is often held to a "due care and diligence" standard or the equivalent. Fitness for purpose. Under the turnkey contract or EPC, the contractor is often held to a higher standard, such as "fitness for purpose". This liability extends beyond the common law concepts of warranty of merchantability or warranty of suitability. It creates liability for any inadequacy, covering not only the work done on the project but also the materials chosen and the design used.J2 Therefore, a true turnkey contract for the construction of an office building will require the contractor to provide not only a building of the dimensions specified but also one that is fit for use as office space and in accordance with any other criteria provided in the employer's requirements. Where the office electrical system is insufficient for average office use, the employer will not have to allocate responsibility, for example, for the defect amongst the designer, the supplier of the electrical equipment and the installation by the contractor. The turnkey contractor will be liable for the defect. The "fitness for purpose" obligation imposed on the contractor, in contracts such as the Silver Book, has given rise to controversy. Although the concept of holding the contractor liable for fitness for purpose is in keeping with the purpose of a turnkey contract, there is some debate as to the fairness of such an obligation. This is especially true under the Silver Book, where other contractual provisions may combine to make the fitness for purpose obligation particularly onerous for the contractor. 33 For example,

3<

JJ

J6

J7

• 12 JJ

38

I.N.D. Wallace Q.C., Hudson's Building and Engineering Contracts, (11th ed., Sweet & Maxwell, London, 1995), pp. 429 and 522. N.D.J. Henchie, op. cit. n. 16 above at 47.

148 i '

The grounds discussed are largely based on those outlined in Dr J.C. Rechtsanwalt, "The EIC Turnkey Contract" (1997) 141.C.L.R. 33. H. Fleming, "Fitness for Purpose: The Implied Design Obligation in Construction Contracts" (1997) 13 Canst. L.}. 227 at 238 citing for authority M. Levine and L. Wood Construction Insurance and UK Construction Contracts (Lloyd's of London Press Ltd, London, 1991), p. 110. EM. Kennedy, op. cit. n. 12 above at 511; H. Fleming, op. cit. n. 35 above at 229; EIC, The EIC Contractor's Guide to the FIDIC Conditions of Contract for EPC Turnkey Pro;ects (European International Contractors, Berlin, 2000), p. 13. FIOIC, The FIDIC Contracts Guide (Federation Internationale des Ingenieurs·Conseils, Lausanne, 2000), p. 96 (hereinafter FIDIC Guide) . I.N.D. Wallace, "Letter to the Editor" (1999) 16 (2) I.C.L.R. 312 at 312 (hereinafter "Letter"); H. Fleming, op. cit. n. 35 above at 239 citing I.N.D. Wallace, Construction Contracts: Principles and Policies in Tort and Contract (Sweet & Maxwell, London, 1986), p. 368 (hereinafter Construction Contracts).

149

8-15

8-16

GENERAL COMMENTS

THE CONTRACTOR

8-17

8-18

such that a particular design fault would remain undetected by other competent contractors" .39 The employer could argue, however, that neither party is the obvious choice for assuring the risk, in this case, and that such allocation is legitimately bargained for in the contract. Finally, even where the contractor's design meets the employer's requirements for the design of the project, the contractor may be liable where the employer's requirements themselves are insufficient to meet the purpose of the works. This is particularly troubling where the employer significantly contributes to the design himself. A counter-argument is that the contractor is under a general obligation, under the Silver Book, to satisfy itself as to the suitability of the employer's requirements. 4o Indeed, the employer's requirements not only include possible design contributions, but also set out the purposes of the works. In this way, the contractor is responsible both for ensuring an accurate and clear definition of the purposes, as well as for ensuring coherence between the employer's design requirements and the employer's statement of the purpose of the works. The contractor is thus in a vulnerable position should arguments arise at a later date concerning the equivocacy of such defined purposes. Owners may make several arguments in favour of applying the fitness for purpose obligation to contractors ..First, and as noted above, the fitness for purpose obligation is in keeping with the philosophy of turnkey and EPC contracts. As both the construction and design services are provided by the same party under one contract, it does not make sense to have different levels of warranty for the different aspects of the construction project. 41 Even though this argument may be persuasive, there is nothing to say the single level of responsibility should be "fitness for purpose" and not, for example, "reasonable skill and care" .42 Second, where litigation arises as a result of major design failure, the fitness for purpose obligation helps ensure the arguments of the parties will focus on the fact of the product failure, rather than on more academic questions of standard of care. 43 Even though the fitness for purpose obligation may not decrease litigation, but rather may simply shift the grounds of the parties' arguments, these arguments will be more "useful" to the employer as they will focus on less ephemeral, more concrete realities of the project. Finally, there would be little incentive to use design-build contracts if the contractors could avoid performance responsibilities as soon as there is defect in the preliminary design. 44 To widen the discussion beyond the provisions of the Silver Book, the implication of a standard of performance may also depend on whether the

contract requires contractor design. As discussed above, the independent designer may have an incentive to design in favour of the employer, whereas the contractor designing the works has an incentive to under-design in order to save costs. It is for this reason that legal systems often apply a stricter standard of performance to a turnkey contractor. In any event, local law should be examined in any project to determine the existence of any standards implied by law and the validity of any different standard set forth in the turnkey contract. Indeed, the applicable law may apply a particular standard under some circumstances for the work under a turnkey contract. For example, although English law will imply a fitness for purpose obligation in designand-build contracts, where there are no contractual provisions to the contrary,4S the standard English practice does not include such an obligation. 46 In contrast, French law contains the equivalent to a fitness for purpose obligation,47 and such an obligation is "implied under the laws of many countries" .48 Consideration should be given to local law and practice as some authors claim caution should be used in applying fitness for purpose obligations in jurisdictions where these obligations are not common practice. 49 Finally, some authors remark on the results-oriented approach of legislators in the European Union, which results in "more fitn~ss for purpose obligations rather than obligations to use due care and diligence when complying with the owner's specifications" .50 Further, it should be noted that, in general, parties may substitute another standard only to the extent that they specifically exclude the implied standard sl or that the standard imposed by the applicable law is not of public order. s2 Programme of the works. The programme developed by the parties pursuant to the contract is an important element of the turnkey regime. The programme allows the employer to gauge and verify the progress of the contractor and intervene where completion of the works has been or is likely to be delayed. However, it is also necessary in order to allocate responsibility for developing the progress of the works. When a contractor claims damages or delay due to an employer's risk, such as unforeseeable adverse ground conditions, the contractor must prove the effect of

4J

46

H. Fleming, op. cit. n. 35 above at 237. '0 Whether this requirement is realistic or achievable, under the Silver Book, is debatable, given that the contractor has only the tender stage in which to verify the employer's requirements. Other FIDIC contracts, however, as discussed below, allow a greater time period for the detection of errors in the employer's requirements. 4' H. Fleming, op. cit. n. 35 above at 239. • 2 ibid. at 241. .3 "Letter" op. cit. n. 38 above at 314. 44 V. Van Houtte, "The Role and Responsibility of the Owner" (1999) 16 J.C.L.R. 59 at 71. 3'

150

41

48 49

JO II

J2

N.D.1. Henchie, op. cit. n. 16 above at 52-53 citing Lord Scarman's judgment in Independent Broadcasting Authority v. EMI Electronics Limited and BICC Construction Limited (1980) 14 B.L.R. 1, HL.); Fleming, Const L.J. 199713 (4) 227-242 at 228. "Letter" op. cit. n. 38 above at 312. As outlined by C.R. Seppala, UFIDIC's New Standard Forms of Contract-Force Majeure, Claims, Disputes and Other Causes" (2000) 171.C.L.R. 235 at 208 citing Art. 1792 and Art. 2270 C. civ. FIDIC Guide, op. cit. n. 37 above, p. 96. EM. Kennedy, op. cit. n. 12 above at 511. V. Van Houtte, op. cit. n. 44 above at 70 . B. Eggleston, The ICE Design and Construct: A Commentary (Blackwell Scientific Publications, Australia, 1994) p. 48; N.D.1. Henchie, op. cit. n. 16 above at 52-53. Or public policy, as it is more commonly referred to in common-law jurisdictions.

151

8-19

THE CONTRACTOR

such risk on the progress of the works. The programme will provide a model of the progress that should have been achieved as compared with the progress actually achieved. 53 This will allow the contractor to develop an impacted programme of the progress of the works and thereby quantify his claim. Under a turnkey contract, the contractor tends to have greater power than the employer over the development and management of the programme. This may have a negative impact on the employer's ability to properly administer the claims process. For example, a delay or slowdown in progress may not be related solely to the occurrence of some risk but also to inefficiencies on the part of the contractor or the contractor's equipment. 54 The employer will need to understand fully the contractor's programme in order to identify such inefficiencies.

8-20

Co-ordination of the works. Under a turnkey contract the contractor is responsible for the co-ordination of all of the works. The contractor's responsibility for the site during the contract period is therefore considerable. The contractor will want to study carefully the employer's requirements to determine the number of other contractors to be employed on the site by the employer. The programme and progress reports allow the employer or his representative to verify the status of such co-ordination. Provisions for detailed progress reports help ensure that the contractor continues with the works with reasonable diligence and maintains sufficient progress. In addition to performance of the construction, the employer may want to place on the contractor the duty to train the employer's personnel. This is particularly important where the technology used is such that' the employer will not be able to receive training from other sources. The obligations of each of the parties in respect of training should be well defined.

Discussion of Specific Sub-Clauses 8-21

Clause 4 of the Silver Book, entitled "The Contractor", sets forth in great detail the bulk of the Contractor's key obligations under the contract. As in the previous chapter, the Silver Book provisions will be discussed clause by clause with an explanation of the clause itself followed by a comparison with the other standard forms.

lJ

H

J.A. Huse, "Preparation and presentation of construction claims" (1993) Tunnels and Tunnelling 31. ibid. at 29.

152

DISCUSSION OF SPECIFIC SUB-CLAUSES

4.1 Contractor's General Obligations

8-22

The Contractor shall design, execute and complete the Works in accordance with the Contract, and shall remedy any defects in the Works. When completed, the Works shall be fit for the purposes for which the Works are intended as defined in the Contract. The Contractor shall provide the Plant and Contractor's Documents specified in the Contract, and all Contractor's Personnel, Goods, consumables and other things and services, whether of a temporary or permanent nature, required in and for this design, execution, completion and remedying of defects. The Works shall include any work which is necessary to satisfy the Employer's Requitements, or is implied by the Contract, and all works which (although not mentioned in the Contract) are necessary for stability or for the completion, or safe and proper operation, of the Works. The Contractor shall be responsible for the adequacy, stability and safety of all Site op~rations, of all methods of construction and of all the Works. The Contractor shall, whenever required by the Employer, submit details of the arrangements and methods which the Contractor proposes to adopt for the execution of the Works. No significant alteration to these arrangements and methods shall be made without this having previously been notified to the Employer. Under an EPClturnkey contract, the contractor has a broad range of duties to perform and is generally responsible for the entirety of the design and construction. The general obligations of the contractor under the Silver Book are therefore very comprehensive in order to reflect his extensive role in the design and construction of the works. FlDIC Silver Book sub-clause 4.1 sets forth a list and description of the contractor's general obligations under the contract. These obligations include the design, execution and completion of the works, as well as the obligation to remedy defects. Sub-clause 4.1 gives the standard for completion requiring that the works shall be "fit for the purposes for which the Works are intended as defined in the Contract". The general obligations are then supplemented by more specific obligations regarding plant, contractor's documents and generally all "other things" required to achieve the general design, execution, completion and defect remedies. The comparable provisions in FIDIC Orange Book sub-clause 4.1 are similar to the Silver Book with regard to the general obligations, including the "fitness for purpose" completion standard. The Orange Book clause also details certain obligations, but to a lesser extent than the Silver Book. As under the Silver Book, Orange Book sub-clause 4.1 requires the contractor to be responsible for the adequacy, stability and safety of all site operations, methods of construction and the works. However, the Orange Book contains no provision under this clause for the contractor to submit details of his work arrangements to the employer and to follow them.

153

8-23

DISCUSSION OF SPECIFIC SUB-CLAUSES

THE CONTRACTOR

8-24

The FIDIC Red and Yellow Book sub-clauses 4.1 are nearly identical to the Silver Book provision. However, the Red Book contains a few differences due to the fact that it does not contemplate that the contractor will be responsible for providing all or most of the design. Under Red Book subclause 4.1, the contractor is responsible for the design only to the extent specified in the contract. When some contractor design is supplied, subclause 4.1 sets forth requirements regarding contractor's documents, as-built documents and operation and maintenance manuals relating to the contractor-supplied design. Similarly, the "fitness for purpose" standard applies under the Red Book only to works designed by the contraCtor. In other words, there is no express requirement in the Red Book that works be fit for the intended purposes when they are erected by the contractor but for which the employer supplied the design. The Red Book sub-clause also does not contain the obligation to provide any work necessary to satisfy the employer's requirements, other than work implied by the contract and any works necessary for the stability, completion and safe and proper operation of the works. This omission from the Red Book seems to illustrate the difference between the Red Book's "Specification" and the Silver Book's "Employer's Requirements". Where under the Silver Book the contractor must generally satisfy the employer's requirements whether by virtue of an express or implied obligation, the Red Book does not seem to require the contractor to go beyond the contents of the specification. The non-FIDIC form turnkey contracts also contain the general obligations to design, construct and complete the works (ENAA 7.1, EIC 2.1, ICE 8(1)(A), AlA 3.11, 3.2.6-Part 2, AGC-article 3, DBIA 1.1(ca)). However, the obligation to remedy defects is generally found in a separate clause. (ENAA 27.1, EIC 9.5, ICE 49(1), AlA 3.2.9-Part 2, DBIA 2.10.1). All of the non-FIDIC contracts take different approaches to the statement of a standard for completion of the works, ranging from something less than "fitness for purpose" to no completion standard being stated at all. The ENAA and EIC contracts expressly require the contractor to execute and complete the works with "due care and diligence" (ENAA 9.1, EIC 4.1). This is in keeping with the contractual structures where the designer has "the obligation to exercise reasonable care, skill and diligence in preparing his design" and the contractor must merely build in accordance with the design to be discharged from his obligations. 55 The AGC requires the contractor to exercise "reasonable skill and judgment" in the performance of the works (AGC article 3). The ICE does not set forth a particular standard but indicates vaguely that where no completion standard is expressly stated, the works must be completed in accordance with appropriate standards and standard codes of practice (ICE 36(1)). The

55

Dr J.G. Rechtsanwalt, op. cit. n. 34 above at 43.

154

DBIA simply states that any performance standard shall be included in an appendix to the contract (DBlA 2.3.1). The AlA contains no completion standard other than the requirement of conformity with the contract requirements. (AlA 3.2.9-Part 2). The non-FIDIC contracts contain additional specific obligations of the contractor, similar to Silver Book sub-clause 4.1. These contracts vary with regard to which obligations are specified and the level of specificity with which they are described. However, with the exception of the EIC, all the non-FIDIC contracts require the contractor to provide everything" reasonably inferable" from the contract (ENAA 7.2, ICE 8(1)(b), AlA 1.2.1-Part 2, AGC 2.4.13, DBIA 1.1(ca)). 4.2 Performance Security The Contractor shall obtain (at his cost) a Performance Security for proper performance, in the amount and currencies stated in the Particular Conditions. If an amount is not stated in the Particular Conditions, this Sub-Clause shall not apply. . The Contractor shall deliver the Performance Security to the Employer within 28 days after both Parties have signed the' Contract Agreement. The Performance Security shall be issued by an entity and from within a country (or other jurisdiction) approved by the Employer, and shall be in the form annexed to the Particular Conditions or in another form approved by the Employer. The Contractor shall ensure that the Performance Security is valid and enforceable until the Contractor has executed and completed the Works and remedied any defects. If the terms of the Performance Security specify its expiry date, and the Contractor has not become entitled to receive the Performance Certificate by the date 28 days prior to the expiry date, the Contractor shall extend the validity of the Performance Security until the Works have been completed and any defects have been remedied. i

.!

The Employer shall not make a claim under the Performance Security, except for amounts to which the Employer is entitled under the Contract in the event of: (a) failure by the Contractor to extend the validity of the Performance Security as described in the preceding paragraph, in which event the Employer may claim the full amount of the Performance Security, (b) failure by the Contractor to pay the Employer an amount due, as either agreed by the Contractor or determined under Sub-Clause 2.5 [Employer's Claims) or Clause 20 [Claims, Disputes and Arbitration), within 42 days after this agreement or determination, (c) failure by the Contractor to remedy a default within 42 days after receiving the Employer's notice requiring the default to be remedied, or (d) circumstances which entitle the Employer to termination under SubClause 15.2 [Termination by Employer), irrespective of whether notice of termination has been given.

8-25

DISCUSSION OF SPECIFIC SUB-CLAUSES

THE CONTRACTOR

sions in sub-clause 4.2 of the FIDIC Red and Yellow Books are substantially similar to the Silver Book provisions. The employer will want to closely control the nature of the guarantee and the identity of the guarantor. Under Silver Book sub-clause 4.2, the employer approves the entity providing the performance security, and the form of the guarantee is either that annexed to the contract or subject to the approval of the employer. The limits on the employer's ability to claim against the performance security may be unacceptable to an employer who, in the event of contractor default, may need immediate access to the performance guarantee to continue construction (by comparison with, for example the form of security provided by the ENAA contract which is less restrictive). Annexes to the Silver Book provide sample forms of performance security. The Silver Book and the Red and Yellow Books annex sample performance security agreements that both rely on,61 an(l incorporate, the Uniform Rules published by the International Chamber of Commerce (ICC).62 FIDIC considers that these forms are "fair as between the parties and should therefore be conducive to keen tendering".63 Under these rules, the employer may call the security by simply declaring, without providing evidence, that the preconditions have been fulfilled. Where an employer makes an illegitimate call, the contractor's recourse lies both under the law governing the agreement and under sub-clause 4.2, which requires the employer to indemnify the contractor where an illegitimate claim was made under the performance security.64 The FlDIC Orange Book also contains provisions regarding the performance security in sub-clause 4.2. The Orange Book provisions are similar to those in Silver Book sub-clause 4.2. However, under Orange Book sub-clause 4.2, the performance security is mandatory, and there is no express requirement that the contractor extend the validity of the performance security. There are also no specific limits on the employer's ability to claim against the security. Most of the non-FIDIC contracts contain some provision regarding the performance security. A performance security or bond is required under the ENAA and EIC (ENAA 13.3.1, EIC 8.1). Under the ICE and the AGC, the contractor is required to obtain a performance security if so stated in the contract (ICE 10(1), AGC 10.9). A performance security is not required under the DBIA, but if used, the details are to be set forth in the contract agreement (DBIA 5.4.1). To the extent that they are included, the time of issuance and amounts vary between these contracts. The AlA and AGC contain no provisions regarding performance securities.

The Employer shall indemnify and hold the Contractor harmless against and from all damages, losses and expenses (including legal fees and expenses) resulting from a claim under the Performance Security to the extent to which the Employer was not entitled to make the claim. The Employer shall return the Performance Security to the Contractor within 21 days after the Contractor has become entitled to receive the Performance Certifica te.

8-26

The employer may decide that a third party should assume some portion of his completion risk (i.e. the failure of the contractor to perform properly his obligations under the contract). Most contracts require the contractor to provide a performance security to the employer. This security usually comes in the form of a guarantee or bond issued by a third party against the promise of the contractor to perform his obligations under the contract. In certain countries banks are not allowed to issue guarantees, and therefore standby letters of credit are used. 56 Institutional employers may require such guarantees for projects in excess of a certain value. 57 These bonds or guarantees are merely an undertaking by a third party to be held liable to a certain extent for the contractor's non-performance of the underlying obligation. 58 The guarantee will be a separate agreement between the contractor and a third party, usually a bank, to provide an amount of compensation on the occurrence or non-occurrence of a certain event. The guarantee mayor may not require the employer to provide proof of non-performance before the sum is paid out. 59 The employer will prefer no preconditions to payment whereas the contractor will prefer the employer be required to substantiate any call on the security and will prefer the possibility to contest such substantiation. 6o Silver Book sub-clause 4.2 sets forth the very detailed requirements regarding the performance security. However, it indicates that unless the amount and currency of the performance security are stated in the particular conditions, sub-clause 4.2 does not apply. If applicable, sub-clause 4.2 requires the contractor to provide a performance security to the employer in accordance with this sub-clause, which indicates the modalities regarding its form, issuance and return. The Silver Book specifically requires that the security remain valid and enforceable until the contractor has completed the works and remedied defects and that the contractor extend the validity of the performance security, if necessary. The provisions also specifically list the events for which the employer may make a claim, thereby limiting the breadth of the employer's power in this respect. The corresponding provi-

56

57 58 59

60

UNCITRAL, UNCITRAL Legal Guide on Drawing Up International Contracts for the Construction of Industrial Works (UN, New York, 1998) UNDOC. NCN.9/SER.Bl2 at 184. I.N.D. Wallace Q.C., op. cit. n. 32 above, pp. 1535 et seq. Mr Wallace gives good coverage to the matter of guarantees and bonds for construction contracts. Construction Contracts, op. cit. n. 38 above, p. 288. ibid. p. 310. P.L. Booen, "The Three Major New FIOIC Books" (2000) 17 (1) I.C.L.R. 24 at 32.

156

61

61

.1

i

6J

"

6~

ibid. at 32. To be more specific, one form incorporates the ICC's 458 Uniform Rules for Demand Guarantees (URDG, no. 4581992) and the other incorporates the ICC's 524 Uniform Rules for Contract Bonds (URCB, no. 524 1993). FIDIC Guide, op. cit. n. 37 above, p. 100. For further discussion of performance security see ibid., pp. 97-102. P.L. Booen, op. cit. n. 60 above at 33; FIDIC Guide, op. cit. n. 37 above, p. 100.

157

8-27

8-28

DISCUSSION OF SPECIFIC SUB-CLAUSES

THE CONTRACTOR

8-29

•

With regard to the duration and validity of the security, the Etc indicates that the performance security shall be valid until the contractor has executed and completed the works and remedied any defects (EIC 8.2). The ENAA indicates that the security remains valid until 12 months after acceptance of the works by the employer (ENAA 13.3.2). It requires the return of the bond on the day of its expiry as defined in the contract. This provision has been criticised as not· taking into account the possibility of a claim being made just before expiry.65 However, of the non-FIDIC contracts, only the ENAA specifically requires the contractor to extend the validity of the performance security if the defects liability period is extended (ENAA 8.2A). By contrast, the ICE and AGC do not specify the duration of validity of the performance security. Only the EIC, like the Silver Book, specifically lists and delimits in the contract the events entitling the employer to claim against the security (EIC 8.3). However, the form of security contemplated by the EIC will probably not be acceptable to many employers, for the reason that it requires the bank to verify the basis for an eventual call. Furthermore, the limited language of the conditions for a call reduce the value of security to the employer. Although not specifically in the contract, the ENAA provides in its appendix 8-2 a form of bond that also restricts the owner's right to call in many ways. The owner must produce a copy of a written notice to the contractor warning of the breach and requesting remedy, a letter from a duly authorised officer certifying the breach and a copy of a written notice to the contractor stating his intent to claim. It also limits the amount of the bond to five per cent of the contract price. As certain authors have indicated, such requirements of proof may allow the contractor the possibility of getting an injunction or other form of relief in order to argue the validity of the call. 66 These requirements remove the bonds from the realm of on-demand guarantees. Therefore, the owner will want to examine carefully the type of guarantee that is most suitable for him. The parties will also want to consider the effects of variations and termination on the performance guarantor. The contract can provide for an increase in the amount of the performance guarantee in the case of variations, or an extension of the duration of the guarantee. The parties may also want to provide for extinction of the guarantee in the case of termination of the contract or of the contractor's employment due to the default of the employer. In the search for a balanced form of performance security, various organisations have issued sample forms. The ICC has issued Uniform Rules for Demand Guarantees (publication number 458, May 1992) that reject both the straightforward on-demand guarantee and the more complicated FIDICstyle guarantee of yore, imposing instead a duty on the employer to accompany any call on the guarantee with a detailed written statement describing

65

66

Wiwen-Nilsson, ~ A Brief View of the 1992 Edition of the ENAA Model Form-International Contract for Process Plant Construction (Turnkey Lump sum Basis)" (1994) 111.C.L.R. 526 at 536. Walser, "The ENAA Model Forms: Tentative Comments of a World Bank Lawyer", International Bar Association Conference in Tokyo, Japan, February 1993 at 13.

158

the basis for the call. These rules have been incorporated into one of FIDIC's example forms for performance security (appended to the new editions) in order to "significantly reduce ... the wording in each example form [and to] facilitate a' common international standard for securities" .67 The ICC believes that this requirement will not create a heavy burden of proof on the employer, but will protect the contractor from frivolous demands. The International Bar Association has also proposed Illustrative Forms of

Performance Guarantee and Counter Guarantee Security for International Construction Projects (May 1992) which allow q"e employer to call on the bond where one of three conditions have been met: first, where the contractor consents to the call; secondly, where the contractor does not consent but the employer refers the dispute to an ICC pre-arbitral referee and provides a counter-guarantee which can be called by the contractor to the extent that the referee disagrees with the employer's position; and thirdly, where a call is based on an opinion issued by a referee. All the contracts discussed herein take slightly different approaches to the issue of the performance security. Silver Book sub-clause 4.2 appears to be the most comprehensive. It is also more flexible in that the provisions may be activated by the statement of the security amount in the particular conditions or left inapplicable if no amount is stated.

4.3 Contractor's Representative

8-31

The Contractor shall appoint the Contractor's Representative and shall give him all authority necessary to act on the Contractor's behalf under the Contract. Unless the Contractor's Representative is named in the Contract, the Contractor shall, prior to the Commencement Date, submit to the Employer for consent the name and particulars of the person the Contractor proposes to appoint as Contractor's Representative. If consent is withheld or subsequently revoked, or if the appointed person fails to act as Contractor's Representative, the Contractor shall similarly submit the name and particulars of another suitable . person for such appointment. The Contractor shall not, without the prior consent of the Employer, revoke the appointment of the Contractor's Representative or appoint a replacement. The Contractor's Representative shall, on behalf of the Contractor, receive instructions under Su b-Cla use 3.4 [Instructions).

1! .

The Contractor's Representative may delegate any powers, functions and authority to any competent person, and may at any time revoke the delegation. Any delegation or revocation shall not take effect until the Employer has received prior notice signed by the Contractor's Representative, naming the person and specifying the powers, functions and authority being delegated or revoked. The Contractor's Representative and all these persons shall be fluent in the language for communications defined in Sub-Clause 1.4 [Law and Language). 67

8-30

FIDIC Guide, op. cit. n. 37 above, p. 101.

159

DISCUSSION OF SPECIFIC SUB-CLAUSES

THE CONTRACTOR

8-32

Silver Book sub-clause 4.3 contains provisions regarding the appointment of the contractor's representative, which is required under the Silver Book. The contractor's representative is the person who receives instructions on behalf of the contractor and must be fluent in the language for communications defined in the contract. He may delegate any of his functions or authority provided that the employer is given prior notice. The employer's consent is required for the appointment or replacement of the contractor's representative unless this representative is named in the contract. Under the terms of sub-clause 1.3, consent must not be unreasonably withheld or delayed and must be in writing. Parties using the Silver Book may wish to consider modifying this sub-clause to provide for a possible extension of time and increase in the contract price if the employer unreasonably refuses to approve the appointment of the contractor's representative. Sub-clause 4.3 of the Orange, Red and Yellow Books contains provisions that are substantially the same as those of Silver Book sub-clause 4.3. The exception under the Red and Yellow Books is that the engineer must consent to the appointment of the contractor's representative and receive notices under the clause, rather than the employer. With the exception of the AGC, all the non-FIDIC contracts discussed herein contain some mention of a contractor's representative with varying degrees of description and definition. The ENAA provisions in sub-clause 17.2.1-17.2.3 are very similar to those of the Silver Book, providing an appointment and revocation process for the contractor's representative with the employer's conseni: required. The ENAA also gives the contractor's representative the power to delegate. The ICE is the next most similar to the Silver Book, requiring approval of the contractor's representative by the employer's representative (ICE 15(3)) and allowing delegation of responsibility to a nominated deputy (ICE lS(2)(b)). The EIC, AlA and DBIA are the least detailed with regard to the use of a contractor's representative. The EIC makes reference to and defines the contractor's representative as the person appointed by the contractor to act as such for the purposes of the contract (EIC 1.1 (xiii)), but contains no further provisions. Sub-clause 3.2.2-Part 2 of the AlA expressly states that the contractor shall designate a representative to act on his behalf but contains no further provisions. The DBJA simply indicates that the contractor's representative is vested with the authority to act on behalf of the contractor and may be replaced only by mutual agreement between the employer and the contractor (DBIA 2.1.1).

8-33

4.4 Subcontractors The Contractor shall not subcontract the whole of the Works. The Contractor shall be responsible for the acts or defaults of any Subcontractor, his agents or employees, as if they were the acts or defaults of the C~ntractor. Where specified in the Particular Conditions, the Contractor shall gIve the Employer not less than 28 days' notice of:

160

(a) (b) (c)

the intended appointment of the Subcontractor, with detailed particulars which shall include his relevant experience, the intended commencement of the Subcontractor's work, and the intended commencement of the Subcontractor's work on the Site.

The contractor is generally responsible under a turnkey contract for the hiring of subcontractors and the co-ordination of their activities on the site. Silver Book sub-clause 4.4 contains certain mandatory provisions regarding subcontractors. First, it prohibits the contractor from subcontracting the whole of the works. Second, it makes the contractor responsible for his subcontractors, agents and employees. The remaining requirements of Silver Book sub-clause 4.4 regarding notices to the employer seem to be triggered only if the parties so state in the particular conditions. If activated by inclusion in the particular conditions, this clause requires 28 days' notice of the intended appointment of a subcontractor with detailed particulars, the date of intended commencement of work and the date of his intended commencement of work on the site. It is unclear what the purpose of providing such information to the employer is, as the clause does not require the approval of the employer for appointing the subcontractors. 68 Although this Silver Book clause does not require employer approval of subcontractors, the employer may want to modify this clause requiring some type of employer approval or consent procedure in order to retain some control over the selection of subcontractors. This may be necessary to ensure the quality of materials used and work done, particularly with respect to subcontractors handling major aspects or elements of the project. However, the contractor may consider such power to be an unwarranted intrusion into his conduct of the works. Clearly, the Silver Book provisions favour contractor autonomy, as opposed to the Orange, Red and Yellow Books which contain some employer consent requirements. The employer may also want to insert language clarifying the employer's relationship to the contractor's subcontractors. This clause should exclude to the extent legally permissible any contractual or professional relationship between the employer and the contractor's subcontractors as, in some jurisdictions (e.g. France and Belgium) the subcontractors may have a direct claim against the employer for payment. 69 The AlA Contract sets forth this separation of the parties into a separate sub-clause that states that construction documents shall not create an obligation between the employer and a third party (AlA 1.2.6-Part 1). It has been suggested that the employer should specify that he is an intended third-party beneficiary of the contractor/subcontractor agreement, thus protecting the employer's rights without making him liable under that subcontract.7° 68 69 70

Gaede, Jr., op. cit. n. 12 above at 483. V. Van Houtte, op. cit. n. 44 above at 65 (n. 14). J.F. Butler, "Protecting Owner with Contract Clauses" in R.F. Cushman & K.S. Taub, eds, Design-Build Contracting Handbook (Wiley Law Publications, New York, 1992) 253 at 256. A.H.

161

8-34

DISCUSSION OF SPECIFIC SUB-CLAUSES

THE CONTRACTOR

8-35

•

In addition, the employer (and possibly project lenders) may want to be able to take over the project subcontracts in certain circumstances with no additional cost or in the event of termination. The employer may want to specifically require that all subcontracts be freely assignable and entirely transferable, including guarantees, where the employer or some other entity takes over the works from the contractor or when the contract is terminated for contractor fault. The employer may under certain circumstances attempt to hold the subcontractor liable in tort, where the applicable law does not limit his liability to do so and where the damage the employer suffers is not purely contractual.7 1 The Orange, Red and Yellow Books are all similar to each other and differ slightly from Silver Book sub-clause 4.4. Like the Silver Book, ,the Orange, Red and Yellow Books all prohibit the subcontractor from subcontracting the whole of the works and make the contractor responsible for the acts or defaults of his subcontractors, agents and employees (OB 4.5, RB 4.4, YB 4.4). These three also require notice to the employer's representative or engineer, respectively, concerning each subcontractor's commencement of work on the site. This notice requirement is not conditional and does not require reference to or repetition of the notice obligation in the particular conditions to activate it. However, the Orange, Red and Yellow Books contain additional and different provisions not found in the Silver Book. Under Orange Book sub-clause 4.5, unless otherwise stated in the particular conditions, no notice or consent is required for any purchases of materials or subcontracts for which the subcontractor is named in the contract. However, prior consent by the employer's representative is required for all other subcontractors. Red and Yellow Book sub-clauses 4.4 contain similar provisions, requiring the engineer's consent for all subcontractors not named in the contract. These provisions differ in that the Silver Book does not require the employer's consent for any subcontractors. In addition, Red Book sub-clause 4.4 requires each subcontract to contain a provision by which the contractor and subcontractor agree to the assignment of the subcontract to the employer in the event of termination of the main contract by the employer by reason of contractor default. Orange Book sub-clause 4.5 also requires the contractor to give a fair and reasonable opportunity to subcontractors of the host country. This is in line with World Bank sample provisions encouraging the contractor to employ staff and labour from sources inside the site country. Note, however, that due to its potentially adverse effect on the financial viability and efficiency of the project, the World Bank does not accept restrictions on the source of staff or labour except for unskilled labour, which could be restricted to sources in the employer's own country. 72

V. Van Houtte, op. cit. n. 44 above at 65. n World Bank "Standard Bidding Documents for the Procurement of Works n (World Bank Washington, D.C., 2000) online: World Bank http://www. worldbank.orglhtmUopr/biddocsi works/w-titlpg.htm (date accessed: July 16,2001) at 109.

The ENAA takes a slightly different approach to subcontractors than the 8-36 Silver Book. The ENAA contains no specific restriction prohibiting the contractors from subcontracting the whole of the works. The contractor's responsibility for his subcontractors also seems less b.road under the ENAA sub-clause 32.1, which makes the contractor responsible for loss or damage to the works due to his subcontractors. With regard to notice and consent for subcontractors, ENAA sub-clauses 19.1.1 and 19.1.3 provide a syst~m whereby subcontractors are put on lists for major items of the constructIOn work. These are subcontractors upon which the employer and contractor have agreed. However, the contractor may propose additions or deletions to the lists, subject to the employer's approval. The EIC allows the contractor to subcontract the whole of the works but subject to the employer's approval, which must not unreasonably be withheld (EIC 25.3). However, the contractor's responsibility for his subcontractors is not expressly stated in the EIC. The EIC also contains no other notice or consent provisions regarding subcontractors. Similarly, ICE sub-clause 4(1) prohibits the contractor from subcontracting the whole of the works without the prior consent of the employer. However, the contractor is expressly liable for all subcontracted work and for any acts, defaults or neglects of any subcontractors, agents, servants or workers (ICE 4(4)). Under ICE sub-clause 4(2)(b), the contractor is allowed to freely subcontract any part of the construction, but notice must be given to the employer before the subcontractor's entry onto the site. The AlA, AGC and DBIA place no restrictions on the contractor regarding subcontracting the whole of the works. The AlA and DBIA both make the contractor expressly liable for the acts or omission of his subcontractors (AlA 3.1.3-Part 2, DBIA 2.7.4). The contractor is also liable for his subcontractors under the AGC, but indirectly by application of several differ:ent sub-clauses. 73 The AGC and DBIA contain no notice or consent provisions regarding subcontractors, while the AlA only requires that the contractor furnish the employer with a list of the subcontractors' names (AlA 11.2.1Part 2). 4.5 Nominated Subcontractors

8-37

In this Sub-Clause, "nominated Subcontractor" means a Subcontractor whom the Employer; under Clause 13 [Variations and Adjustments], instructs the Contractor to employ as a Subcontractor. The Contractor shall not be under any obligation to employ a nominated Subcontractor against whom the Contractor raises reasonable objection by notice to the Employer as soon as practicable, with supporting particulars .

11

162

7J

The contractor is generally responsible for construction of the works (AGC-art. 3); the work includes construction services (AGe 2.4.13); and construction services includes subcontracted items (AGC 3.2.2). 163

DISCUSSION OF SPECIFIC SUB-CLAUSES

THE CONTRACTOR

8-38

8-39

•

The designation of a nominated subcontractor allows the employer to choose a particular subcontractor for a given task. This may be advantageous to an employer who wants to control the quality of the work done or to secure a competitive price for the service involved. The employer may also have a preferred subcontractor for a particular item or may wish to avoid any increase in the contract price resulting from using the contractor as the intermediary to obtain the subcontracted service. One of the particularities of using a nominated subcontractor is his position in the relationship between the employer and the contractor. Traditionally subcontractors are chosen by the contractor, who is liable for any breach or defect attributable to his subcontractor. The employer may also hire contractors independently to complete certain portions of the works under the contract or other related works, but these contractors are not the responsibility of the contractor. However, the contractor will be liable for the acts and defaults of nominated subcontractors even though they are chosen by the employer. The nominated subcontractor is often chosen by the employer before the signature of the turnkey contract. If the employer and nominated subcontractor have already signed an agreement, this will be novated with the contractor. However, there may be no contract between the employer and nominated subcontractor. The employer may simply mandate that the contractor use a given subcontractor in the execution of the works. In either case, the contractor becomes liable for the work of the nominated subcontractor chosen by the employer. This differs from the situation where the employer independently employs a subcontractor for certain portions of the work. Nonetheless, the nominated subcontractor may be better suited to a turnkey project than the employer's use of independent subcontractors given that the turnkey contract, at least in theory, is designed to provide the employer with a project ready for operation "at the turn of a key". Consequently, the employer's completion of parts of the works by subcontractors independent of the main contractor defeats the purpose of the turnkey setup. The eventual replacement of a nominated subcontractor is another issue of concern. The employer may appoint and contract with the nominated subcontractor before the signing of the main contract. Where a nominated subcontractor must be replaced, the employer will generally not have nominated a second subcontractor as a replacement. There may be some loss of time or cost increase resulting from the procedure used for replacing the nominated subcontractor. 74 In order to allocate the risk of such costs and delay, the parties could either agree on a reasonable allocation or place the risk on the employer, by requiring the replacement process to be deemed a variation or change to the works. 7s 7. 75

Gould, "Comments on the ENAA Model Form International Contract for Process Plant Construction (Revised 1992)" (1994) I.C.L.R. 498 at SIt. N. Wakame, "An Overview of Major Issues on ENAA Model Form International Contract for Process Plant Construction, 1992 Edition-A Drafter's View" (1995) 12 I.C.L.R. 98 at 113.

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It is debatable whether the use of nominated subcontractors makes sense at all in a turnkey operation, and some authors recommend against their use.76 Since the turnkey contract generally uses a lump-sum price, the employer need no longer concern himself with the cost of the ~ubcontracted service. Furthermore, the contractor can often perform a proJect at a more reasonable cost by using a team of subcontractors with whom he has experience. The use of an employer-nominated subcontractor may only complicate the contractor's organisation of the works. Silver Book sub-clause 4.5 contains very simplistic provisions regarding 8-40 nominated subcontractors. The Silver Book states that a nominated subcontractor is a subcontractor that the employer instructs the contractor to employ. However, the contractor may raise a reasonable objection to the employer's nominated subcontractor. This objection must be brought "as soon as practicable" and must be accompanied by "supporting particulars". The working of this sub-clause does not, however, give the contractor the right to reject the nominated subcontractors, merely to object. The FIDIC Guide suggests reasons for objection might be su.ch as those listed in Red Book sub-clause 5.2, which clause also addresses "the possibility of overcoming objections by way of an indemnification by the employer". 77 The results of this objection are unclear and a contractor may want to adjust the wording accordingly. The sub-clause also suggests that the instruction of a nominated subcontractor is subject to procedures for variations and adjustments. ,The other FIDIC form contracts take differing approaches to the issue of nominated subcontractors. The Orange Book contains no provisions whatsoever regarding nominated subcontractors. The Yellow Book in sub-clause 4.5 is identical to the Silver Book, except that it is the engineer who may instruct the use of a nominated subcontractor, rather than the employer. The Red Book contains much more detailed provisions in its Clause 5 regarding nominated subcontractors. Red Book sub-clauses 5.1 and 5.2 contain provisions comparable to the Silver Book sub-clause 4.5. Red Book sub-clause 5.2 goes further by listing specific objections of the contractor that will be "deemed reasonable". The Red Book also contains two additional sub-clauses concerning payments to nominated subcontractors and evidence of payments. The provisions of the ENAA regarding nominated subcontractors are 8-41 more similar to those of the Red Book than the Silver Book. ENAA subclause 19.2.1 contains the general provision regarding nominated subcontractors, and sub-clause 19.2.3 indicates that the contractor is not required to employ a nominated subcontractor under certain listed circumstances. The ENAA provisions are generally much more detailed than the Silver Book. 76

77

P.L. Booen, "FIDIC's Conditions of Contract for the Next Century: 1998 Test Editions" (1999) 16 (1) I.<::.L.R. 5 at 16-17; A.H. Gaede, Jr., op. cit. n. 12 above at 482; EM. Kennedy, op. cit. n. 12 above at 511; Ele Guide, op. cit. n. 36 above, p. 14. FIDIC Guide, op. cit. n. 37 above, p. 106.

165

THE CONTRACTOR

DISCUSSION OF SPECIFIC SUB-CLAUSES

The remaining contracts contain no express clauses regarding nominated subcontractors, but some have related provisions. The AGC does not contain an express provision regarding nominated subcontractors. However, it does state sub-clause 5.1 that "[tlhe Contractor shall not be required to retain any subcontractor to whom the contractor has a reasonable objection". This provision suggests that the contractor might be under some obligation to retain other subcontractors, possibly required by the employer. The AlA also contains no provisions for nominated subcontractors but does give the employer the right to perform construction or operations with the employer's own personnel and award separate contracts (AlA 11.3.1-Part 2). The EIC, ICE and DBIA contracts contain no provisions at all regarding nominated subcontractors.

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4.6 Co-operation

The Contractor shall, as specified in the Contract or as instructed by the Employer, allow appropriate opportunities for carrying out work to: (a) the Employer's Personnel, (b) any other contractors employed by the Employer, and (c) the personnel of any legally constituted public authorities, who may be employed in the execution on or near the Site of any work not included in the Contract.

..

Any such instruction shall constitute a Variation if and to the extent that it causes the Contractor to incur Cost in an amount which was not reasonably foreseeable by an experienced contractor by the date for submission of the Tender. Services for these personnel and other contractors may include the use of Contractor's Equipment, Temporary Works or access arrangements which are the responsibility of the Contractor. The Contractor shall be responsible for his construction activities on the Site, and shall co-ordinate his own activities with those of other contractors to the extent (if any) specified in the Employer's Requirements. If, under the Contract, the Employer is required to give to the Contractor possession of any foundation, structure, plant or means of access in accordance with Contractor's Documents, the Contractor shall submit such documents to the Employer in the time and manner stated in the Employer's Requirements.

Silver Book sub-clause 4.6 imposes certain obligations on the contractor regarding co-operation. The contractor agrees to allow appropriate opportunities to the employer's personnel, employer's contractors and public authorities to carry out work on or near the site. The extent to whic~ the .contractor must "allow appropriate opportunities" may be ~escnb~d In th~ tende~ documents. 78 If this is required by employer instruction, the instructIOn will be treated as a variation to the extent it causes the contractor to incur costs that were not reasonably foreseeable. This co-operation obligation extends to the use by these persons of the

166

contractor's equipment, temporary works and access arrangements. The contractor must also co-ordinate his activities with those of these other persons carrying out work on the site, but only if and to the extent specified in the employer's requirements. The final paragraph appears slightly out of context requiring the contractor to submit contractor's documents within the time stated in the employer's requirements if the employer is required to give the contractor possession of any foundation, structure, plant or means of access. The employer will want to have the ability to use the widest range of other contractors on the site in order to maintain flexibility in his actions. However, the breadth of Silver Book sub-clause 4.6 may create potential disruptions to the contractor in his execution of the works. In order to avoid this disruption, the contractor might require a specific list of other contractors susceptible to be present on the site along with the times and nature of their intervention. It could be further stated and required that any variation from the employer's specific list was "not reasonably foreseeable" and will constitute a variation. Further, where the employer plans to hire other contractors or subcontractors, either to carry out work on the project or simply on the site, the contractor may want to include reciprocal co-operation obligations for the employer.79 Orange Book sub-clause 4.4 contains a less detailed version of these obligations. Under the Orange Book, the contractor must allow appropriate work opportunities to other personnel, but the employer is not expressly given the power to instruct this. There is no mention of this cooperation constituting a variation giving the contractor the right to additional time or money. The contractor's obligation to provide specific services is also absent from the Orange Book provision. Although Orange Book sub-clause 4.4 does require the contractor to co-ordinate his activities with those of other contractors to the extent specified in the contract, it contains no provision regarding the timely provision of contractor's documents for employer-provided foundation, structure, plant or access. Sub-clauses 4.6 of the Red and Yellow Books are identical to the Silver Book provision, with two minor exceptions. In both, it is the engineer who may instruct the work opportunities, rather than the employer. In addition, the Red Book sub-clause does not mention any obligation for the contractor to co-ordinate his activities with those of other contractors. The FIDIC Guide explains this omission as to require such co-ordination under the Red Book would be impractical. 80 The ENAA'contains provisions very similar to Silver Book sub-clause 4.6. ENAA sub-clause 22.4 requires the contractor to provide reasonable opportunities upon the employer's request for the employer's contractors to carry FIDIC Guide, op. cit. n. 37 above, p. 108. EIC Guide, op. cit. n. 36 above, p. 14. so FIDIC Guide, op. cit. n. 37 above, p. 108.

78 79

167

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8-44

DISCUSSION OF SPECIFIC SUB-CLAUSES

THE CONTRACTOR

out work on the site. There is some indication that additional ' time and money might be obtained under appropriate circumstances, but this is not entirely clear. Sub-clause 22.4 also requires the contractor to provide certain services to the employer's personnel. The ENAA does not specifically state the contractor's obligation to co-ordinate his activities with those of other contractors. With regard to providing the employer with contractor's documents prior to the execution of an employer's obligation, ENAA does not contain a comparable obligation but does indicate in sub-clause 18.2 that the contractor's programme must indicate the date by which the employer must fulfill his obligations under the contract to enable the contractor to execute the works. The EIC contains no provision similar to Silver Book sub-clause 4.6. ICE sub-clause 31(1) is nearly identical to the co-operation obligation set forth in Silver Book sub-clause 4.6. ICE sub-clause 31(2) also provides for an extension of time and increase in cost. However, the ICE does not contain an express obligation for the contractor to co-ordinate his activities with the activities of other contractors on the site, nor is there any provision regarding the provision of contractor's documents in advance of employer-provided items. The AlA requires the contractor to afford the employer's separate contractors reasonable opportunity to store materials and equipment and perform their activities (AlA 11.3.2-Part 2). Although there is no specific mention of variations for related time and costs, AlA sub-clause 11.3.3-Part 2 indicates that costs caused by delays or by improperly timed activities shall be borne by the party responsible. The AlA does not specifically mention the requirement to provide services to employer's personnel or to provide contractor's documents in advance of items to be provided by the employer, but it does require the contractor to co-ordinate his construction and operations with those of the employer's contractors (AlA 11.3.2-Part 2). The AGC contains no provisions similar to Silver Book sub-clause 4.6. The contractor is responsible for managing his own subcontractors (AGC 5.2), but has no express obligation to manage those of the employer. The DBIA does not contain any specific requirements regarding the allowance of work opportunities to other personnel and provision of services to these personnel. It simply indicates that the contractor must co-operate and co-ordinate his activities with other contractors (DBIA 2.7.5).

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tract. He must also rectify any errors relating to the positioning. Note that by virtue of sub-clause 5.1, the contractor will be responsible for any error in the positioning of the works, even if the setting out was completed in accordance with employer-provided data contained in the contract. Subclause 5.1 imposes on the contractor the responsibility for all data regarding the works, subject only to certain exceptions. Sub-clause 5.1 is discussed at greater length in Chapter 9. It is worth noting that efforts to shift risk, such as result from the operation of these clauses, may not be upheld or valid . under the applicable law. S1 The comparable provisions in Orange, Red and Yellow Book sub-clauses 4.7 are similar to the Silver Book provision. However, the Red and Yellow Books specifically add in sub-clause 4.7 that the employer is responsible for any errors in the setting out of references, but that the contractor must use reasonable efforts to verify their accuracy. The contractor may be entitled to costs and additional time for employer errors. ENAA sub-clause 22.1.1 makes the contractor responsible for the true and proper setting out of the works in relation to the references provided by the employer. The contractor must rectify any errors in the setting out, but the cost is borne by the employer if the rectification is due to errors in the data provided by the employer. Neither the EIC, ICE, AlA, AGC nor DBIA contain any specific provisions regarding the setting out of the works. However, each of these contracts contain certain general obligation to execute the works in accordance with the contract documents, which will likely contain some specifications regarding the positioning of the works.

4.8 Safety Procedures

The Contractor shall: (a) comply with all applicable safety regulations, (b) take care for the safety of all persons entitled to be on the Site, (c) use reasonable efforts to keep the Site and Works clear of unnecessary obstruction so as to avoid danger to these persons, (d) provide fencing, lighting, guarding and watching of the Works until completion and taking over under Clause 10 [Employer's Taking Over), and (e) provide any Temporary Works (including roadways, footways, guards and fences) which may be necessary, because of the execution of the Works, for the use and protection of the public and of owners and occupiers of adjacent land.

4.7 Setting Out

The Contractor shall set out the Works in relation to original points, lines and levels of reference specified in the Contract. The Contractor shall be responsible for the correct positioning of all parts of the Works, and shall rectify any error in the positions, levels, dimensions or alignment of the Works .

•

Silver Book sub-clause 4.7 requires the contractor to set out or position the works in accordance with the relative specifications contained in the con168

8-46

81

For a discussion of the potential invalidity of these sub-clauses under German law, see Dr A. Kus, Dr J. Markus & Dr R. Steding, op. cit. n. 22 above at 536-537. 169

8-47

DISCUSSION OF SPECIFIC SUB-CLAUSES

THE CONTRACTOR

8-48

8-49

In order for the employer to reduce his potential liability for injuries or accidents occurring on the site, the employer will want to ensure that the contractor implements safety precautions from the outset of construction to avoid liability for any accident that might occur. In this respect, subclause 4.8 of the Silver Book sets out a list of specific obligations regarding safety for which the contractor is responsible under the contract. The contractor will want to review this duty carefully, particularly where several contractors will be working on the site at the same time. He will also want to consider carefully the definition of the "site" in order to ascertain the scope of this obligation. The obligations contained in sub-paragraphs (a), (b) and (c) are also listed as employer's obligations in sub-clause 2.3(b), as such obligations may be obligations imposed by the applicable laws. 82 The provisions in sub-part (d) also deal with security on the site by requiring the contractor to provide fencing, lighting, guarding and watching. The contractor may want to require the employer to agree that all persons for whom he is responsible will comply with the safety regulations that the contractor has established for the site. The obligations contained in sub-paragraphs (d) and (e) may form part of what sub-clause 4.1 describes as the "arrangements and methods which the contractor proposes to adopt for the execution of the works". 83 Orange Book sub-clause 4.17 contains similar requirements, but does not contain the express obligations set forth in sub-parts (b) and (c) of Silver Book 4.8 above. Sub-clauses 4.8 of the Red and Yellow Books are identical to the Silver Book. The specific obligation that the contractor comply with all applicable safety regulations is most specifically stated in the AlA, AGC and DBIA, which require the contractor to comply with all safety laws (AlA 6.3-Part 2, AGC 3.4.4, DBIA 2.8.2). The ICE states more generally in sub-clause 26(3) that the contractor shall conform with all laws. ENAA sub-clause 22.3 requires the employer and contractor to establish site regulations for the safety of the works. The EIC contains no express requirement that the contractor comply with safety regulations. The contractor's obligation to take care for the safety of all persons on the site is expressly contained in all of the non-FIDICs, with the exception of the ENAA (see EIC 6.8(a), ICE 19(1), AlA 6.2-Part 2, AGC 3.2.6, DBIA 2.8.1). The ENAA again imposes simply the requirement that the employer and the contractor establish site regulations for the safety of the works, which will presumably include provisions regarding safety of persons on the site (ENAA 22.3). With regard to the obligation to keep the works free of unnecessary obstruction to avoid danger to persons on the site, the non-FIDICs take varied approaches. The EIC and ICE are the most similar to the Silver Book

82 8)

FIDle Guide, op. cit. n. 37, p. 110. ibid., p. 110.

170

I

t '.:

requiring the contractor to keep the works in an orderly state to avoid danger to persons on the site (EIC 6.8(a), ICE 19(1)). The ENAA requires the contractor to keep the site free of unnecessary obstruction during the course of the works but makes no specific mention of the goal of avoiding danger to persons on the site (ENAA 22.6.1). Under the DBIA, the contractor must keep the site free of debris, trash and waste to ensure safety (DBIA 2.7.6). This is more specific and less inclusive than an obligation regarding to keep the site free from unnecessary obstruction to avoid danger. The AlA and AGC only require the contractor to keep the site free of waste and rubbish but make no specific mention of safety concerns (AlA 3.2.13-Part 2, AGC 3.2.9). The ENAA, EIC and ICE all require the contractor to provide fencing, lighting, guarding and watching of the works (ENAA 22.7, EIC 6.8(b), ICE 19(1)). The AGC is much less specific indicating simply that the contractor must take resonable steps to avoid injury, loss or damage to persons or property (AGC 3.4.2). The AlA and DBIA contain no provisions regarding fencing, lighting and guarding. The obligation to provi~e any temporary works necessary for the use and protection of the public and owners and occupiers of adjacent land is similar to the specific obligation regarding fencing and guarding, yet broader. The AGC is the most similar to the FIDIC books, requiring generally that the contractor erect and maintain necessary safeguards for the protection of the works and the public (AGC 3.4). The AlA requires the contractor to take reasonable precautions to protect other or adjacent property (AlA S.2-Part 2), but this focuses only on property and not on protection of people. The ENAA, EIC, ICE and DBIA contain no all-encompassing provisions for any temporary works to protect the public and adjacent landowners and are limited to the specific items of protection enumerated in the preceding paragraph.

8-S0

4.9 Quality Assurance

The Contractor shall institute a quality assurance system to demonstrate compliance with the requirements of the Contract. The system shall be in accordance with the details stated in the Contract. The Employer shall be entitled to audit any aspect of the system. Details of all procedures and compliance documents shall be submitted to the Employer for information before each design and execution stage is commenced. When any document of a technical nature is issued to the Employer, evidence of the prior approval by the Contractor himself shall be apparent on the document itself. Compliance with . the quality assurance system shall not relieve the Contractor of any of his duties, obligations or responsibilities under the Contract.

171

DISCUSSION OF SPECIFIC SUB-CLAUSES

THE CONTRACTOR

8-51

The preparation and implementation of a quality assurance system is essential for there to be proper progress of the design and construction-of the works. Compliance with the quality assurance system is equally important to the contractor and the employer. The contractor wishes to perform each task properly the first time and also wishes to ensure that the works will conform to the employer's requirements when completed. Quality assurance is particularly important in certain industries, such as in the design and construction of industrial plants. The FIDIC Guide does recognise, however, that a quality assurance system "may be inappropriate for some Works or for work in some countries".84 This Silver Book provision is similar to the ICE sub-clause 8(3), discussed below. Neither the Silver Book nor the ICE forms provide specific sanctions for failure to apply the programme. Silver Book sub-clause 4.9 requires the contractor to use a quality assurance system whose purpose is to demonstrate to the employer the contractor's compliance with the requirements of the contract. This goes beyond the mere submission of designs and drawings for approval and confirmation of the work by as-built records. Under sub-clause 4.9, the details of the quality assurance system should be contained in the contract. The system contemplates that details of the quality assurance procedures and documents demonstrating compliance with the contract must be submitted to the employer before each design and execution stage. The Orange Book contains provisions in its sub-clause 4.8 that are nearly identical to those of the Silver Book. The Red and Yellow Book provisions in their sub-clause 4.9 are identical to the Silver Book, except that it is the engineer who intervenes in this process, rather than the employer. Of the non-FIDIC contracts, only the ICE in its sub-clause 8(3) imposes the requirement of the quality assurance system. However, it requires such a system only to the extent required by the contract. None of the other nonFIDIC contracts discussed herein contain provisions regarding a quality assurance system. The ICE Contract requires the consent of the employer's representative regarding the quality assurance programme before commencement of each stage. The Silver Book requires submission of the programme before co~mencement of each stage but only gives the employer the power to audIt the programme. The employer may wish to amend the Silver Book provision to require consent of the employer regarding the quality assurance system prior to each stage in a fashion similar to that of the ICE contract.

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4.10 Site Data

face and hydrological conditions at the Site, including environmental aspects. The Employer shall similarly make available to the Contractor all such data which come into the Employer's possession after the Base Date. The Contractor shall be responsible for verifying and interpreting all such data. The Employer shall have no responsibility for the accuracy, sufficiency or completeness of such data, except as stated in Sub-Clause 5.1 [General Design Responsibilities.] The tender phase is substantially more important in a turnkey or EPC 8-53 contract because the design must be in an advanced stage of completion in order for the contractor to determine his lump-sum price. The site information gathered and shared by the parties is of vital importanc~, as it ~iIl affect the employer's requirements, the designs tendered and WIll provIde guidance with regard to the magnitude of certain risks, such as subsurface conditions. Since the site information will determine to a significant extent the contractor's potential liability under the contract, the parties must attribute responsibility for site information and site data among themselves. Silver Book sub-clause 4.10 deals with the important issue of site data and some related responsibilities. Silver Book 4.10 requires the employer to make available to the contractor prior to the base date all relevant data in the employer's possession on subsurface and hydrological conditions at the site.85 If the employer has no such data, the sub-clause does not impose a requirement for him to obtain this information. However, it does impose an ongoing duty to make available any data that employer obtains after the base date. If the employer does make data on hydrological and subsurface conditions available, the contractor has the responsibility of verifying and interpreting the data for accuracy, sufficiency and completeness, subject to certain exceptions. The employer specifically disclaims responsibility for any data he eventually makes available. The sub-clause 5.1 exceptions to the contractor's responsibility mentioned in sub-clause 4.1 include (i) data and information stated in the contract as being immutable or the responsibility of the employer, and (ii) data and information that cannot be verified by the contracto(. This type of data is the employer's responsibility, unless otherwise stated. Note that this sub-clause does not state the contractor's general responsibility for site conditions, which is covered in sub-clause 4.12, but only his responsibility for employerprovided site data. The contractor may want to specify that the employer is responsible for the accuracy of any data provided. The effect of Silver Book 4.10 is that einployer-provided data may be useless unless easily verifiable. If the site data provided by the employer describes site conditions that may subject the contractor to substantial liability, such as for subsurface conditions, the

The Employer shall have made available to the Contractor for his information prior to the Base Date, all relevant data in the Employer's possession on subsur:

•

85 8<

FIDIC Guide, op. cit. n. 37 above, p. 111.

172

For a description of what data or information the employer might not be required to make available to the contractor under this sub-clause, see ibid., p. 113.

173

THE CONTRACTOR

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8-55

8-56

contractor will have to verify the data to be certain of his risk exposure. The process of verification will in many cases be the equivalent of obtaining the site data from scratch. Requiring the contractor to obtain or verify this site data may result in an increase in the contract price. It may also discourage tenders if the site conditions are uncertain or expensive to verify. However, the lack of employer responsibility for employer-provided data may also result in tenders which ignore to some extent the risk of subsurface conditions and which are not based on a thorough verification of the employer data. This could also have disastrous effects. To avoid these inefficiencies and risks, the employer may consider providing data for which it assumes responsibility or provide no data at all. The International Tunneling Association (ITA) comes to similar conclusions in its "Recommendations for the Contractual Sharing of Risk" .86 The ITA suggests that the employer provide all available site data to contractors at tender. This is contrary to the provisions of the Silver Book. Although this would involve some cost to the employer, it will avoid the duplication of site surveys and studies by each bidder. The ITA also suggests a defined division of responsibility for the data provided. The employer could specify the data for which he is to be held responsible and the data for which he disclaims responsibility. Orange Book sub-clause 4.9 is similar to the Silver Book provision in that the employer must make available to the contractor prior to the base date all data that he has obtained on subsurface and hydrological conditions (if any). However, the employer is under no specific obligation to provide data he obtains after the base date. The contractor's responsibility under Orange Book 4.9 is also different. He is only required to interpret this data, not verify it. Finally, the employer's responsibility or lack of responsibility for the data he would eventually provide under this sub-clause is not specifically stated. The Red and Yellow Books in sub-clause 4.10 are very similar to the Silver Book with regard to the employer's responsibility to make certain site data available whether obtained before or after the base date. However, like the Orange Book, the Red and Yellow Book provisions only impose on the contractor the responsibility for interpreting the employer-provided data, not for verifying it. Furthermore, the Red and Yellow Book do not specifically state the employer's responsibility or lack of responsibility for the site data he provides. The ENAA is unclear regarding the employer's responsibility to provide data on subsurface and hydrological conditions. Various clauses in the ENAA seem to indicate that the employer will have supplied some data to the contractor (see ENAA 9.2, 10.1, 35.1). However, these clauses simply make reference to data relating to the works provided by the employer. No

86

International Tunneling Association Working Group, op. cit. n. 7 above.

174

DISCUSSION OF SPECIFIC SUB-CLAUSES

specific ongoing responsibility regarding the supply
8-57

DISCUSSION OF SPECIFIC SUB-CLAUSES

THE CONTRACTOR

8-58

with local conditions and correlate observable conditions with the requirements of the owner's programme, schedule and budget (AlA 1.3.2-Part 1). This would seem to rule out any contractor responsibility for hydrological and subsurface conditions to the extent they were not observable. In addition, the employer's responsibility for the site data he provides is very comprehensive. The services, surveys and reports required to be provided by the employer must be furnished at the employer's expense, and the contractor shall be entitled to rely upon the accuracy and completeness of this data, except to the extent the employer advises the contractor to the contrary in writing (AlA 2.7-Part 2). Clearly, the provisions on hydrological and subsurface conditions under the AlA are favourable to the contractor. Under the AGC, the employer's obligations regarding site data are similar to those of the AlA, yet described in less detail. Under sub-clause 4.1.2.1 of the AGC, the employer has the obligation to provide site data to the contractor. This includes all necessary information describing the physical characteristics of the site, including surveys, site evaluations, legal descriptions, existing conditions, subsurface and environmental studies, reports and investigations (AGC 4.1.2.1). Like the AlA, the employer is under no specific ongoing responsibility, and no time is set on the fulfillment of the employer's obligations. The contractor does not expressly assume any responsibility for site data under the AGC, except that, if requested by the employer, the contractor might be required to provide or procure the site information and studies for which the employer would otherwise be responsible by virtue of the "additional service" clause in the AGC 3.10.3-3.10.7, subject to written agreement. With regard to the accuracy of the data, the contractor is entitled to rely upon the completeness and accuracy of the information and services regarding site data that the employer must provide (AGC 4.1.4). However, if the contractor is required to prepare this information as an "Additional Service" under the contract but subject to a separate written agreement, this written agreement should make a clear attribution of responsibility for the service and site data provided. The DBIA indicates that the employer shall provide the contractor with site surveys, geotechnical studies describing subsurface conditions and other studies describing other latent or concealed physical conditions at the site (DBIA 3.2.1). No specific time is set for fulfillment of this responsibility. The contractor is under no specific obligation regarding this site data under the contract. With regard to accuracy and completeness, the DBIA states simply that the contractor is entitled to rely upon the employer's site data in performing the work (DBIA 3.2.1). In certain countries, such as the United States, environmental laws and regulations may impose substantial clean-up obligations on the property owner where contamination of certain types is discovered. The liability involved and the cost of remediation may leave the employer unable to continue with the project. Thus, the contractor may want the right to discontinue the works if contamination is found and full indemnity from the employer if any remedial 176

work or cleanup is required. 87 The employer, on the other hand, wo~ld be able to terminate for convenience under Silver Book sub-clause 15.5 If contamination impedes his ability to continue with the pr~ject. The Ame~ican forms AlA and DBIA contain provisions regarding the discovery of environmental hazards on the site (see AlA 3.3, DBIA article 4).

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4.11 Sufficiency of the Contract Price

The Contractor shall be deemed to have satisfied himself as to the correctness and sufficiency of the Contract Price. Unless otherwise stated in the Contract, the Contract Price covers all the Contractor's obligations under the Contract (including those under Provisional Sums, if any) and all things necessary for the proper design, execution and completion of the Works and the remedying of any defects. The Silver Book assumes a fixed lump-sum price for the execution of the works. Therefore the contract price will not vary due to changes in circumstances, su~h as cost of labour or materials, except as specified in the contract. Silver Book sub-clause 4.1 accomplishes this by expressly attributing to the contractor satisfaction as to the sufficiency of the contract price. The contractor is deemed to have satisfied himself as to the correctness and sufficiency of the price, which covers all of the contractor's obligations under the contract and all things necessary for the design, execution, and completion of the works and any defe:ct remedies. The significance of this clause lies primarily in the risk associated with unknown events or circumstances which may cause delay, increase costs and for which one or the other party will be responsible. For example, if the contractor assumes all responsibility for all subsurface conditions under the Silver Book, this sub-clause 4.11 confirms that the contract price covers the contractor's contractual obligation to complete the works without any price increase for unforeseen subsurface conditions, unless otherwise stated in the contract. Orange Book sub-clause 4.10 is substantially identical to the Silver Book provision. The contractor is deemed to be satisfied as to the correctness and sufficiency of the contract price. The Orange Book states also that the contract price covers all of the contractor's obligations under the contract (OB 4.10). Like the Silver Book, the Red and Yellow Books in sub-clause 4.11 indicate that the contractor is deemed to be satisfied as to the correctness and sufficiency of the contract price. These contracts also state that the contract price is deemed to be based on all the data, interpretations, information, examination and all relevant matters that for which the contractor is .7

S.R. Brooke, "Procecting Design-Builder with Appropriate Contract Clauses" in R.F. Cushman & K.S. Taub, eds, Design-Build Contracting Handbook (Wiley Law Publications, New York, 1992) 297 at 303.

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THE CONTRACTOR

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DISCUSSION OF SPECIFIC SUB-CLAUSES

responsible under the contract. Red/Yellow Book sub-clause 4.11 states that the contract price covers all of the contractor's obligations under the contract. Under the ENAA, the contractor confirms that he entered into the contract on the basis of a reasonable examination of information relating to the works provided by the employer, information that could have been obtained by visual inspection of the site and any other data readily available (ENAA 9.2). Any failure by the contractor to acquaint himself with this information will not relieve him of his responsibility for properly estimating the difficulty or cost of executing the works (ENAA 9.2). ENAA sub-clause 11.3 states that subject to the limits of the data and information for which the contractor is deemed to have taken into account and exceptions for unforeseen conditions, the contractor is deemed to have satisfied himself as to the correctness and sufficiency of the contract price (ENAA 11.3). As in the FIDIC contracts, ENAA 11.3 states that the contract price covers all the contractor's obligations under the contract. The ErC provision is quite unlike the other provisions discussed above. EIC sub-clause 14.5 simply states the parties' acknowledgment that the contract price represents a fair and proper price. Although the contract price presumabl~ covers all of the contractor's obligations, this is not specifically stated, nor IS there any statement that the contractor is deemed to have considered certain information in agreeing to the contract price. The ICE states that the contractor shall be deemed to have satisfied himself before the contract is awarded as to the correctness and sufficiency of the rates andlor prices stated in the contract (ICE 11 (3 )(b)). The rates and/or prices cover all the contractor's obligations under the contract unless otherwise provided (ICE 11(3)(b)). ' The AlA, AGC and DBIA contain no specific provisions or representations ~egarding the sufficiency of the contract price or other presumptions regardmg the contractor. They also contain no global description of what the contract price covers. However, the contract price will cover all the contractor's obligations under the contract as a matter of law.

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4.12 Unforeseeable Difficulties

Except as otherwise stated in the Contract: (a) the Contractor shall be deemed to have obtained all necessary information as to risks, contingencies and other circumstances which may influence or affect the Works; (b) by signing the Contract, the Contractor accepts total responsibility for having foreseen all difficulties and costs of successfully completing the Works; and (c) the Contract Price shall not be adjusted to take account of any unforeseen difficulties or costs. Unfore~eeable conditions are second only to variations in their frequency as a baSIS for contract price disputes between the contractor and the

178

employer. 88 The success of any construction project will depend heavily on the site conditions and their suitability for the planned construction. The risk of unforeseeable difficulties can be reduced to some extent by proper testing and investigation prior to tender. However, some risks may simply be unforeseeable. Silver Book sub-clause 4.12 imposes general responsibility on the contractor for any unforeseeable or unforeseen difficulties. It begins with a statement that the contractor is deemed to have obtained all information as to all risks and circumstances that may affect or influence the works. The contractor then accepts total responsibility for having foreseen all difficulties and costs of successfully completing the works, except as otherwise stated in the contract. The contract price will not be adjusted for any unforeseen difficulties or costs, except as otherwise stated in the contract. In short, the contractor agrees that he has foreseen all difficulties and costs of completing the works and agrees to be responsible for any additional difficulties or costs even if they were unforeseeable. Although the clause already attributes great potential liability on the contractor, adding that no extension of time for completion will be permitted for unforeseen conditions, unless otherwise provided in the contract, could strengthen the c1au$e. It is interesting to note the use of the term "unforeseeable" in the clause title and "unforeseen" in the text. A truly unforeseeable condition would be one that a contractor of a certain skill level would not have foreseen, whereas an unforeseen condition would be one that the specific contractor, party to the contract, actually did not foresee (i.e. an unforeseen condition could be foreseeable). However, to the extent that the contractor agrees to accept responsibility for having foreseen all difficulties and costs of successfully completing the work, the terms unforeseeable and unforeseen have little importance because all conditions are deemed foreseen by the contractor. This sub-clause has been criticised for being "uncompromising in the extreme" such that "it is difficult to imagine a clause which would be more threatening to contractors and which would leave them more open to unscrupulous employers".89 Under Orange Book sub-clause 4.9, the contractor is deemed to have obtained all necessary information as to risks, contingencies and all other circumstances that may influence or affect the tender. Unlike the Silver Book, the Orange Book continues by stating that the contractor is deemed to have inspected and examined the site, the employer's data and other information and to have satisfied himself as to the form and nature of the site, including subsurface conditions, hydrological and climatic conditions, the extent and nature of the work and materials necessary and the means of access to the site (OB 4.9). Although the conditions of which the contractor is deemed to be aware are of comparable scopes in the Silver and Orange Books, the contractor is not required in the Orange Book to assume full.responsibility for having foreseen all difficulties and costs. If subsurface conditions are encountered by

80 89

P.R. Hibberd, Variations in Construction Contracts (Collins, London, 1986), p. 9. EIC Guide, op. cit. n. 36 above, p. 15.

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THE CONTRACTOR

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the contractor which, in his opinion, were not foreseeable by an experienced contractor, the contractor may give notice to the employer's representative so he can inspect the conditions (OB 4.11). If the subsurface conditions were not foreseeable by an experienced contractor as of the base date, the employer's representative will determine an extension of the time for completion and/or an increase in the contract price, to the extent these result from the condition (OB 4.11). Unlike the Silver Book, the Orange Book contains at least this one specific exception for unforeseeable subsurface conditions. The Red and Yellow Books are also more similar to the Orange Book than the Silver Book regarding unforeseeable difficulties. In fact, they are less stringent with regard to the extent of the contractor's duty to foresee difficulties and costs. Red Book sub-clause 4.10 and Yellow Book sub-clause 4.10 are nearly identical and will be discussed together. Under RedlYellow Book subclause 4.10 the contractor is deemed to have obtained all necessary information as to risks, contingencies and other circumstances which may influence the tender or the works, but only to the extent which was practicable taking account of cost and time. This creates a generous and very subjective gap in the contractor's responsibility. In the event of a claim for additional time or cost for an unforeseeable event, the contractor will likely argue that it was either too costly or that he had insufficient time to obtain adequate information regarding that risk. In any event, sub-clause 4.12 of the Red and Yellow Books allows the contractor to claim an extension of time and payment of costs if he encounters physical conditions which are unforeseeable and suffers delay or incurs cost as a result. The engineer determines foreseeability. The treatment of unforeseen or unforeseeable conditions clearly differs between the Silver Book and the Orange, Red and Yellow Books. Since all conditions are deemed "foreseen" by the contractor in the Silver Book, a determination of what conditions are unforeseeable by an experienced contractor or unforeseen by the specific contractor serves no purpose in the context of this clause. However, the Orange Book sub-clause 4.11 uses the standard of "not foreseeable by an experienced contractor" for subsurface conditions, and the Red and Yellow Book create an exception for conditions which are unforeseeable. In testing foreseeability, the employer's representative or engineer will take into consideration the contractor's duty to inspect and examine the site. The condition will be deemed unforeseeable only if it falls outside of the information that was or should have been discovered during the contractor's investigation or within the scope of the information of which the contractor is deemed to have been aware. (Despite the wording of the clause, certain legal systems limit the duty on the contractor to a reasonable site investigation by an experienced contractor. 90 ) In the event the Orange, Red or Yellow Books are used, the word "reasonable" may need to be added in front of any reference to things that are "foreseeable". 90

J.F.

Hoffar er ai. , "Differing Sire Condirions Claims" in R.E Cushman & D.A. Carpenrer eds, Proving and Pricing Construction Claims (john Wiley & Sons, New York, 1990), p. 219 .

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DISCUSSION OF SPECIFIC SUB-CLAUSES

As stated in the discussion of Silver Book sub-clause 4.11, the contractor 8-65 confirms under the ENAA that he entered into the contract on the basis of a reasonable examination of information relating to the works provided by the employer, information that could have been obtained by visual inspecti?n of the site and any other data readily available (ENAA 9.2). However, If. the contractor encounters on the site physical conditions or artificial obstructlons that could not have been reasonably foreseen at the date of the agreement by an experienced contractor on the basis of a reasonable examination of the information the contractor is deemed to have considered, the contractor may give notice to the employer (ENAA 35.1). The contractor is then entitled to related costs and expenses (ENAA 35.2) and an extension of time (ENAA 35.3) for the unforeseen physical conditions or artificial obstructions. The EIC is similar to the ENAA in that the contractor confirms that he entered into the contract on the basis of a reasonable examination of the data relating to the works provided by the employer, information obtained by visual inspection of the site and other data readily available to the contractor (EIC 4.4). Similarly, if the contractor encounters circumstances that could not reasonably be expected to have been taken into consideration by an experienced contractor, the contractor may give notice of the circumstances to the employer (EIC 4.7). The contractor is then entitled to an extension of time and adjustment of the contract price (EIC 4.8). Under the ICE, the contractor is deemed to have inspected and examined the site, its surroundings and any available information (ICE 11(2)). The contractor is also deemed to have satisfied himself so far as is practicable and reasonable prior to the award of the contract as to the form and nature of the site, including the ground and subsoil and hydrological conditions, the extent and nature of the works and materials necessary for construction and completing the works, the means of communication with and access to the site and the accommodations the contractor may require and to have obtained in general all information as to risks, contingencies and all other circumstances which may influence or affect his submission (ICE 11 (2)). Presumably "submission" refers to submission of tender. However, if the contractor encounters physical conditions or artificial obstructions which could not, in his opinion, reasonably have been foreseen by an experienced contractor, the contractor may give notice to the employer (ICE 12(1 )). If ~he opinion of the employer's representative is that the condition or obstruction could not reasonably have been foreseen by an experienced contractor, the contractor may be entitled to costs and an extension of time (ICE 12(6)). The employer's representative determines foreseeability (lCE 12(5)). The AlA is less specific with regard to site conditions or circumstances that 8-66 the contractor is deemed to know. It states that the contractor shall visit the site, become familiar with the local conditions and correlate observable conditions with the requirements of the employer's programme, schedule and budget (AlA 1.3.2-Part 1). However, the contractor does not accept full responsibility for all difficulties and costs. The contractor may give notice to the employer of adverse weather, unavoidable casualties, subsurface or concealed conditions differing materially from what is indicated in the contract documents and 181

DISCUSSION OF SPECIFIC SUB-CLAUSES

THE CONTRACTOR

8-67

unknown and unusual physical conditions (AlA 8.2.1, 8.S.1-Part 2). If the contractor is delayed at any time in the progress of the works by, among other things, adverse weather conditions not reasonably anticipatable, unavoidable casualties or other causes beyond the contractor's control, or by causes which the employer and contractor agree may justify delay, then the contract time shall be reasonably extended by a change order (AlA 4.S-Part 2). The contract sum shall also be equitably adjusted for concealed or unknown conditions by change order upon claim by either party (AlA 8.S.1-Part 2). Under the AGC, the contractor is not expressly deemed to have knowledge or to have anticipated any specific conditions or circumstances. However, if the contractor finds latent, concealed or subsurface physical conditions which differ from the conditions he reasonably anticipated, or if physical conditions are materially different from those normally encountered and generally recognised as inherent in the kind of work provided for in the agreement, then the contract price and/or time for completion shall be equitably adjusted by change order (AGC 8.5). In addition, if causes beyond the contractor's control delay the progress of the work, the contract price and/or the time for completion shall be modified by change order as appropriate (AGC 6.3.1). Such causes include, without limitation, differing site conditions, and acts or omissions of the owner or separate contractors employed by the owner (AGC 6.3.1). However, to the extent any delay in the progress of the work is caused by "adverse weather conditions [... ] not reasonably anticipated [... ] impacting the Project but not specifically related to the Worksite", the contractor is only entitled to its "actual costs without fee and an extension" of the date of substantial and/or final completion (AGC 6.3.2). The DBIA also does not indicate that the contractor is expressly deemed to have knowledge of or to have anticipated any specific conditions or circumstances. However, the contractor is not responsible for hazardous conditions (DBIA 4.1.1) or differing site conditions, including concealed or latent physical conditions at the site that materially differ from the conditions indicated in the contract documents or that are of an unusual nature, differing materially from the conditions ordinarily encountered and generally recognised as inherent in the work (DBIA 4.2.1). The contractor is entitled to a contract price adjustment and/or an extension of time due to hazardous conditions (DBIA 4.1.4) and differing site conditions (DBIA 4.2.1). It is important to note that special consideration is necessary where the contract or part of the contract involves tunnelling or underground works given the risk of unforeseeable ground conditions. Special conditions of contract or at least a special formulation of risk allocation are called for in such contracts. 91 Such risks materialised in the Eurotunnel project where ground conditions impeded progress and resulted in several settlement agreements modifying the contract. 92 Given the Silver Book attribution of nearly all risk

91

91

J.A. Huse, "Improving contractual practices for underground work" Tunnels and Tunnelling. ~use, Kirkland and Shumway, "The Use of the Target Concept for Tunneling Projects in Light of the Eurotunnel Experience", Options for Tunneling Conference of the International Tunneling Association, Amsterdam, the Netherlands, April 19-22, 1993.

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of subsurface conditions to the contractor, it will not be suitable for projects involving tunnelling or underground works. FIDIC recognises this in the Introductory Note to the Silver Book where it states that the Silver Book is not suitable for use "[i]f construction will involve substantial work underground or work in other areas which tenderers cannot inspect". 4.13 Rights of Way and Facilities

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The Contractor shall bear all costs and charges for special and/or temporary rights-of-way which he may require, including those for access to the Site. The Contractor shall also obtain, at his risk and cost, any additional facilities outside the Site which he may require for the purposes of the Works. Rights-of-way may need to be obtained for access to the site. In addition, storage or other construction-related facilities may need to be located offsite. These facilities may be located, for example, in the "additional areas which may be obtained by the Contractor" referred to in sub-clause 4.23. 93 Silver Book sub-clause 4.13 states that the contractor will be responsible for all costs and charges for special and temporary rights of way, including those for access to the site. It also requires the contractor to be responsible for obtaining any additional facilities outside the site necessary to complete the works. Sub-clause 4.13 of the Orange, Red and Yellow Books impose identical responsibilities on the contractor. This clause contains a certain degree of ambiguity by requiring the contractor to be responsible for "special and/or temporary rights-of-way". These terms are undefined in the contract and suggest that responsibility for standard or traditional rights of way, such as easements for electrical, cable or water lines, is not covered by this clause. Unfortunately, the contract does not otherwise indicate who is responsible for rights of way that are not special or temporary. Silver Book sub-clause 2.1 requires the employer to give the contractor right of access to and possession of all parts of the site. This may include utility easements, but this is not clear. If the intent of the parties is to make the contractor responsible for obtaining all necessary easements or rights of way, this should be clearly stated in the contract, possibly by simply amending the above sub-clause. In the alternative, "special and/or temporary rights-of-way" should be defined. The ENAA makes the employer responsible for acquiring and providing legal and physical possession of the site and access thereto (ENAA 10.1). This would seem to encompass any special or temporary rights of way required by the contractor. The ENAA makes no specific mention of off-site facilities but states that the contractor is responsible for all materials and services required to complete the works (ENAA 7.1). "Facilities" is specifically listed in sub-clause 7.1 as being the contractor's responsibility.

93

FIDIC Guide, op. cit. n. 37 above, p. 119.

183

8-69

DISCUSSION OF SPECIFIC SUB-CLAUSES

THE CONTRACTOR

4.15 Access Route

The EIC makes the employer responsible for obtaining all planning, zoning and other similar permission (ElC 3.6). Arguably, this could include special and temporary rights of way. The ElC makes no specific mention of off-site facilities. The ICE provides that the contractor shall bear all costs and charges for any access required by him additional to that provided by the employer (ICE 42(4)). This would seem to include special and temporary rights of way. The ICE also indicates that the contractor shall provide at his own cost any additional facilities outside the site required by him for the purposes of the works (ICE 42(4)). The AlA, AGe and DBlA all require the employer to obtain all easements, permits and legal authorisations for the contractor to carry out the works (AlA 2.1.8-Part I, AGC 4.1.2.3, DBIA 3.2.2). None of these contracts make any specific mention of off-site facilities.

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The Contractor shall indemnify and hold the Employer harmless against and from all damages, losses and expenses (including legal fees and expenses) resulting from any such unnecessary or improper interference.

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The Contractor shall be deemed to have been satisfied as to the suitability and availability of access routes to the Site. The Contractor shall use reasonable efforts to prevent any road or bridge from being damaged by the Contractor's traffic or by the Contractor's Personnel. These efforts shall include the proper use of appropriate vehicles and routes. Except as otherwise stated in these Conditions: (a) the Contractor shall (as between the Parties) be responsible for any maintenance which may be required for his use of access routes; (b) the Contractor shall provide all necessary signs or directions along access routes, and shall obtain any permission which may be required from the relevant authorities for his use of routes, signs and directions; (c) the Employer shall not be responsible for any claims which may arise from the use or otherwise of any access route, (d) the Employer does not guarantee the suitability or availability of particular access routes, and (e) Costs due to non-suitability or non-availability, for the use required by the Contractor, of access routes shall be borne by the Contractor.

4.14 Avoidance of Interference The Contractor shall not interfere unnecessarily or improperly with: (a) the convenience of the public, or (b) the access to and use and occupation of all roads and footpaths, irrespective of whether they are public or in the possession of the Employer or of others.

This Silver Book provision requires the contractor to avoid interfering with public convenience and access to and use of roads and footpaths. The contractor agrees to indemnify and hold the employer harmless against and from all damages, losses and expenses caused by the contractor's failure to comply with these requirements. The Red and Yellow Books contain identical provisions in their respective sub-clauses 4.14. The ICE contains provisions similar to the Silver Book requiring that the contractor's operations do not interfere with public convenience or the use of and access to roads (ICE 29( 1 )). The ICE also contains an indemnity provision similar to that of the Silver Book (ICE 29(1)). The AlA requires the contractor to prevent damage, injury and loss to things on the site and to adjacent property, including trees, shrubs, walks, pavements, roadways, structures and utilities (AlA 6.2-Part 2). It does not contain indemnity provisions specific to this responsibility but states generally that the contractor must indemnify the employer for bodily injury and property damage claims resulting from the contractor's negligent acts and omissions (AlA 11.5.1-Part 2). The Orange Book, ENAA, ElC, AGC and DBlA contain no provision similar to Silver Book 4.14. However, they all contain general indemnity provisions regarding contractor negligence. 184

8-72

The parties must consider not only the contractor's possession of the site but also how the contractor will access the site, along with his equipment. Roads and bridges may need to be reinforced to support the weight or size of the plant and equipment to be brought to the site. Access routes may need to be improved, extended or created, particularly where the construction calls for unorthodox methods of access. Silver Book sub-clause 4.15 lists in great detail the contractor's obligations regarding access routes. The contractor is deemed to be satisfied as to the suitability and availability of access routes to the site and agrees to protect from damage routes used by the contractor and his personnel, maintain such routes and post any necessary signs and directions. The FIDIC Guide notes that "route" does not imply a road exists, merely that "there is a route by which access would be physically practicable" .94 The employer disclaims any responsibility for access routes or any claims related thereto. Orange Book sub-clause 4.12 contains all these same provisions, except for the express obligation to prevent damage to the routes. The Red Book and Yellow Book provisions in sub-clause 4.15 are identical to the Silver Book. The ENAA states that the employer is responsible for providing access to the site (ENAA 10.2), but contains no other provisions similar to Silver Book 4.15. The ElC contains no similar provisions regarding access routes. The ICE indicates that the contractor is deemed to have satisfied himself as to access to the site (ICE 11(2)(c)), but also states that the employer shall give the contractor access to the site as may be required to enable the contractor to carry out the works with due di:spatch (lCE 42(2)(a)). 9~

FIDIC Guide, op. cit. n. 37 above, p. 121.

185

8-73

THE CONTRACTOR

DISCUSSION OF SPECIFIC SUB-CLAUSES

However, the contractor bears the cost and charges for any additional access required (ICE 42(4)). The ICE further requires that the contractor use every reasonable means to prevent highways and bridges from being subjected to extraordinary traffic and to ensure that no unnecessary damage or injury is occasioned to these roadways (ICE 20( 1)). The contractor does not have a specific maintenance obligation but is required to pay the cost of strengthening any bridges or improving any road access to the site (ICE 30(2)). However, the contractor is not specifically responsible for sign and directions on the routes. The ICE does provide that the contractor must indemnify the employer against all claims for damage to any highway or bridge (ICE 30(2)), except for damages caused by the transport of materials not attributable to any fault of the contractor (ICE 30(3)). The AlA, AGC and DBIA contain no provisions similar to Silver Book 4.15. 95

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4.16 Transport of Goods Unless otherwise stated in the Particular Conditions: (a) the Contractor shall give the Employer not less than 21 days' notice of the date on which any Plant or a major item of other Goods will be delivered to the Site; (b) the Contractor shall be responsible for packing, loading, transporting, receiving, unloading, storing and protecting all Goods and other things required for the Works; and (c) the Contractor shall indemnify and hold the Employer harmless against and from all damages, losses and expenses (including legal fees and expenses) resulting from the transport of Goods, and shall negotiate and pay all claims arising from their transport. Sub-clause 4.17 sets forth the contractor's responsibilities regarding the transport and delivery of plant and other goods required for the works. The contractor must give the employer 21 days' notice of each delivery, and the contractor is responsible for all aspects of the packing, transport, receiving and protection of all these goods. The contractor also agrees to indemnify the employer for any loss relating to the transport of goods. The FIDIC Guide notes that such indemnity may be inappropriate in certain circumstances such as where the contract stipulates the manner in which an item of plant or materials is to be transported (such as in one large piece) and this method of transportation results in damage (such as to a bridge). 96 The Orange Book contains no specific notice requirement but does require the contractor to be responsible for all aspects of the goods transport (OB 7.2). The Orange Book also contains no specific indemnification obligation. Red Book and Yellow Book sub-clause 4.16 is identical to the Silver Book, 95 96

However, certain clauses in these contracts may address the issue indirectly; see discussion under Silver Book sub·c1ause 4.13 above. FIDIC Guide, op. cit. n. 37 above, p. 122.

186

except that it is the engineer who receives the notices rather than the employer. The ENAA requires the contractor to notify the employer of the shipping details upon dispatch of each shipment of goods (ENAA 21.4.3). In addition, the contractor is generally responsible for the transport of all materials and construction equipment to the site (ENAA 21.4.1). However, the ENAA contains no specific indemnification provision. The EIC, ICE, AlA, AGC and DBIA contain no provisions regarding notice of transport of goods and materials. The EIC, ICE and AlA make the contractor generally responsible for the transport of goods and equipment (EIC 6.9, ICE 8(1), AlA 3.2.5-Part 2), while the AGC and DBIA simply make the contractor generally responsible to provide the things necessary to complete the works (AGC article 3, DBIA 2.7.1). None of these contracts contain indemnification provisions specifically referring to loss or damage relating to the transport of goods and materials, with the exception of the ICE 30(3) under which the contractor must indemnify the employer for damages to roads and highways caused by the transport of materials.

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8-76

4.17 Contractor's Equipment The Contractor shall be responsible for all Contractor's Equipment. When brought on to the Site, Contractor's Equipment shall be deemed to be exclusively intended for the execution of the Works. The contractor will require certain equipment to construct the works. This equipment is not intended to be incorporated into the works. The contractor generally provides this equipment, though the employer may prefer to provide certain equipment in order to save cost or ensure quality. This equipment is vital to the progress of the project. Its loss, damage or removal before completion could have a negative impact on the time for completion. Silver Book 'sub-c1ause 4.17 simply states the contractor's responsibility for contractor's equipment, which is defined in the Silver Book as: all apparatus, machinery, vehicles and other things required for the execution and completion of the Works and the remedying of any defects. However, Contractor's Equipment excludes Temporary Works,. Employer's Equipment (if any), Plant, Materials and any other things intended to form or forming part of the Permanent Works. (SB 1.1.5.1.) This equipment is deemed to be exclusively intended for the execution of the works once it is brought onto the site. Orange Book 4.16 is the same as the Silver Book provision, except that the consent of the employer's representative is required before any contractor's equipment is removed from the site. Sub-clause 4.17 of the Red and Yellow Books is also the same, but with a similar prohibition that such equipment may not be removed from the site without the engineer's consent. 187

THE CONTRACTOR

8-77

DISCUSSION OF SPECIFIC SUB-CLAUSES

ENAA 22.2.1 states the contractor's responsibility for the contractor's equipment and also includes a restriction against removal until it is no longer required for execution of the works. The EIC makes no specific statement regarding the contractor's equipment responsibilities. The ICE, AlA and AGC simply make the contractor responsible for providing construction equipment (ICE 8(1), AlA 3.2.5-Part 2, AGC 3.2.2). The DBIA states even more generally that the contractor must provide the elements necessary to complete the works (DBIA 2.7.1). Neither the ENAA, EIC, ICE, AlA, AGC or DBIA contain language indicating that the equipment is intended exclusively for the execution of the works. There are two issues relating to contractor's equipment that should be examined during any contract negotiation. First, if provisions are suggested relating to contractor's equipment or equipment generally, these terms should be clearly defined. Absent clear definition, it may be difficult to distinguish between goods, materials, equipment and plant. For example, the contractor will not want a provision relating to equipment to be incorporated into the works to be applicable to the contractor's equipment that is not intended to be incorporated. This situation leads to the second issue: the ~otential transfer of ownership of equipment to the employer until completIOn of the works. Some contracts may contain provisions under which the contractor agrees not only to leave his equipment on the site until the employer consents to removal or until it is no longer required, but also to transfer ownership of his equipment to the employer until the works are taken over or until some other period. The employer may attempt to use this co.nditional transfer as additional completion security. More importantly, thIS transfer .m~y occur unbeknownst to the contractor if contractor's equipment falls wlthm a transfer of ownership of goods, materials and equipment generally. If contractor's equipment is not properly distinguished from equipment to be incorporated in the works, such a provision may produce an unexpected and unwanted result.

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4.18 Protection of the Environment

The Contractor shall take all reasonable steps to protect the environment (both on and off the Site) and to limit damage and nuisance to people and property resulting from pollution, noise and other results of his operations. The Contractor shall ensure that emissions, surface discharges and effluent from the Contractor's activities shall not exceed the values indicated in the Employer's Requirements, and shall not exceed the values prescribed by applicable Laws.

completion. 97 Sub-clause 4.18 of the Orange, Red and Yellow Books is identical to the Silver Book provision. The ENAA contains no provision regarding protection of the environment. The EIC states that the contractor shall take reasonable steps to protect the environment on and off the site and to avoid damage and nuisance to other people (EIC 6.8(c)). The ICE requires that the work be carried out without unreasonable noise, disruption or pollution (ICE 29(2)). The AlA contains no specific environmental provisions but requires simply that the contractor comply with all laws (AlA 3.2.11), which would include environmental laws. The AGC and DBIA also contain no specific environmental protection provisions, other than instructions on how to proceed if hazardous conditions are encountered (AGC 3.5, DBIA 4.1). However, like the AlA, the contractor is generally required to comply with all laws in AGC 3.2.3 and DBIA 2.5.1. Environmental regulation in most jurisdictions has grown in complexity and efficiency over the past 20 years. This regulation can have serious effects on both parties to a construction contract, regardless of fault. 98 Silver Book sub-clause 4.18 attempts to cover environmental damage by the contractor both on and off site, from his operations. However, this coverage may be insufficient. There are two stages of liability for effects the works may have on the environment: (i) responsibility during design and construction and (ii) responsibility during operations. The Silver Book language attempts to cover the first stage, but imposes no obligations on the contractor with regard to environmental effects during operation of the W9rks caused by the contractor's design. In general, Silver Book sub-clause 4.18 (along with all the other industry forms discussed herein) appears largely inadequate for either party to protect their positions regarding environmental liability. The contractor should attempt to obtain full indemnity from the employer from and against any liability for environmental hazards encountered on the site. The employer will also want to insert clearer provisions regarding potential contamination of the site caused by the contractor or contamination caused by operation of the works but due to the contractor's design. Although an exhaustive discussion of environmental liability is beyond the scope of this book, the AGC and DBIA can be consulted for ideas on how to deal with environmental hazards encountered on the site. In addition, in certain projects where environmental issues are of particular concern, it may be desirable to engage an environmental consultant to provide a full analysis of potential environmental liability in all aspects of

'7

This Silver Book sub-clause simply states the general requirements placed on the contractor regarding protection of the environment and avoiding nuisance to other people and property. It anticipates that the employer's requirements will set limits on emissions and discharges, which must not be exceeded by the contractor. Such limits could also form part of the tests after 188

•8

FIDIC Guide, op. cit. n. 37 above, p. 124 . For example, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) of the United States (Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) 26 U.S.c. S 4611-4682 (1980)) may impose strict liability on the contractor for environmental clean-up not only where the subsrance comes from the contractor's activities on the site, but also due to the contractor's operation of the site, regardless of the origin of the waste involved. Comen, "Environmental Issues", in Design-Build Contracting Handbook (Cushman and Sperling Taub eds, 1992), p. 219.

189

8-79

8-80

DISCUSSION OF SPECIFIC SUB-CLAUSES

THE CONTRACTOR

8-81

The Employer shall make the Employer's Equipment (if any) available for the use of the Contractor in the execution of the Works in accordance with the details, arrangements and prices stated in the Employer's Requirements. Unless otherwise stated in the Employer's Requirements: (a) the Employer shall be responsible for the Employer's Equipment, except that (b) the Contractor shall be responsible for each item of Employer's Equipment whilst any of the Contractor's Personnel is operating it, driving it, directing it or in possession or control of it.

4.19 Electricity, Water and Gas

The Contractor shall, except as stated below, be responsible for the provision of all power, water and other services he may require. The Contractor shall be entitled to use for the purposes of the Works such supplies of electricity, water, gas and other services as may be available on the Site and of which details and prices are given in the Employer's Requirements. The Contractor shall, at his risk and cost, provide any apparatus necessary for his use of these services and for measuring the quantities consumed.

The appropriate quantities and the amounts due (at such stated prices) for the use of Employer's Equipment shall be agreed or determined in accordance with Sub-Clause 2.5 [Employer's Claims) and Sub-Clause 3.5 [Determinations). The Contractor shall pay these amounts to the Employer.

The quantities consumed and the amounts due (at these prices) for such services shall be agreed or determined in accordance with Sub-Clause 2.5 [Employer's Claims) and Sub-Clause 3.5 [Determinations). The Contractor shall pay these amounts to the Employer. 8-82

The employer will often have available on-site sources of electricity, water or other services necessary for the construction of the works. Allowing the contractor to use such supplies can decrease the contract price and facilitate the contractor's task. Silver Book sub-clause 4.19 sets forth the contractor's responsibilities and rights regarding supplies of electricity, water and gas. As stated above, except as otherwise provided, the contractor is responsible for all power, water and other services he may require. However, the contractor is entitled to use any supplies of electricity, water, gas or other services that may be available on site. If so, details of these supplies and prices should be included in the employer's requirements. If any supplies are used, the contractor is responsible for providing any measuring devices to record usage. The contractor is then obligated to pay the employer for use of these supplies and services, if any. Where "the Contractor will need to rely upon the continued availability of a service, the contract should indicate who bears the cost of a failure in the supply".99 Sub-clause 4.19 of the Red and Yellow Books is substantially identical to the Silver Book provision. The Orange Book does not state that the contractor is specifically responsible for power, water and other services, but it does indicate in its sub-clause 4.19 that he may use on-site supplies and services. The contractor must pay for these supplies and services but does not have the express obligation to provide any measuring apparatus. With the exception of the ElC, all of the non-FlOlC contracts contain some provision generally indicating the contractor's responsibility for utilities (ENAA 7.1, ICE 8(1), AlA 3.2.5-Part 2, AGC 3.2.2, DBIA 2.7.1). However, none of the non-FIDIC contracts discuss on-site provision of power, water or other services.

The Employer shall supply, free of charge, the "free-issue materials" (if any) in accordance with the details stated in the Employer's Requirements. The Employer shall, at his risk and cost, provide these materials at the time and place specified in the Contract. The Contractor shall then visually inspect them, and shall prom'pdy give notice to the Employer of any shortage, defect or default in these materials. Unless otherwise agreed by both Parties, the Employer shall immediately rectify the notified shortage, defect or default. After this visual inspection, the free-issue materials shall come under the care, custody and control of the Contractor. The Contractor's obligations of inspection, care, custody and control shall not relieve the Ejnployer of liability for any shortage, defect or default not apparent from a visual inspection. The employer may wish to provide certain equipment or materials for the construction of the works. In that regard, Silver Book sub-clause 4.20 indicates that the employer must make the employer's equipment (if any) available to the contractor in accordance with the employer's requirements. The contractor agrees to be responsible for such equipment while he is using it or in control of it. If there are stated charges for the use of employer's equipment, the amounts due will be determined in accordance with the employer's claims provisions in sub-clause 3.5, and the contractor must pay these amounts to the employer. If the employer's requirements list "free-issue materials" the employer must provide these to the contractor free of charge and must rectify any shortage or defect signaled by the contractor. Where the employer is to supply the contractor with either equipment or "free-issue materials", specifications regarding this issue should be set out in the employer's requirements.! Sub-clause 4.20 of the Orange Book contains requirements similar to those of Silver Book 4.20. The Red and Yellow Book 4.20 provisions are also identical to the Silver Book, except that any notices are given to the engineer, rather than the employer. I

99

F1DIC Guide, op. cit. n. 37 above, p. 125.

190

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4.20 Employer's Equipment and Free-Issue Material

the project in order for the parties to attribute responsibility accordingly in the turnkey contract.

FIDIC Guide, op. cit. n. 37 above, p. 126; see also for an indication of issues to consider in this setting out, p. 126.

191

8-84

THE CONTRACTOR

DISCUSSION OF SPECIFIC SUB-CLAUSES

The ENAA contains provisions that are nearly identical to the Silver Book regarding employer's equipment and free-issue materials in ENAA subclause 21.2. However, the EIC, ICE, AlA, AGC and DBIA contain no such provisions. The World Bank does not recommend the provision of materials by the employer. It suggests instead the treatment of such provision as a nominated subcontract. 2

8-85

4.21 Progress Reports

Unless otherwise stated in the Particular Conditions, monthly progress reports shall be prepared by the Contractor and submitted to the Employer in six copies. The first report shall cover the period up to the end of the first calendar month following the Commencement Date. Reports shall be submitted monthly thereafter, each within 7 days after the last day of the period to which it relates. Reporting shall continue until the Contractor has completed all work which is known to be outstanding at the completion date stated in the Taking-Over Certificate for the Works. Each report shall include: (a) charts and detailed descriptions of progress, including each stage of design, Contractor's Documents, procurement, manufacture, delivery to Site, construction, erection, testing, commissioning and trial operation; (b) photographs showing the status of manufacture and of progress on the Site; (c) for the manufacture of each main item of Plant and Materials, the name of the manufacturer, manufacture location, percentage progress, and the actual or expected dates of: (i) commencement of manufacture, (ii) Contractor's inspections, (iii) tests, and (iv) shipment and arrival at the Site; (d) the details described in Sub-Clause 6.10 [Records of Contractor's Personnel and Equipment]; (e) copies of quality assurance documents, test results and certificates of Materials; (f) list of Variations, notices given under Sub-Clause 2.5 [Employer's Claims] and notices given under Sub-Clause 20.1 [Contractor's Claims]; (g) safety statistics, including details of any hazardous incidents and activities relating to environmental aspects and public relations; and (h) comparisons of actual and planned progress, with details of any events or circumstances which may jeopardize the completion in accordance with the Contract, and the measures being (or to be) adopted to overcome delays. 1

World Bank "Standard Bidding Documents for the Procurement of Works" (Washington, D.C., World Bank, 2000) online: World Bank http://www. woridbank.orglhtmUopr/biddocsl workslw-titlpg.htm (date accessed: July 16,2001) at 118.

192

A turnkey or EPC contract must provide for methods that will enable the employer to verify the progress and quality of the work performed. Progress reports are one aspect of this system of verification. Silver Book sub-clause 4.21 enumerates the contractor's obligations regarding progress reports. The reports must be submitted monthly and continue until all outstanding work stated in the taking-over certificate is completed. The Silver Book provision gives an exhaustive list of the elements to be contained in each report, as indicated above. 3 Contractors may consider some of these requirements to be unduly burdensome, expensive or unnecessary particularly if the employer appoints a representative to be on site who can inform the employer of progress. Indeed, the provisions of this sub-clause have been criticised for being "unnecessarily detailed and over prescriptive".4 The parties will need to discuss carefully the requirements of the progress reports. The Orange Book contains provisions for progress reports in its sub-clause 4.15 similar to the Silver Book requirements. However, the Orange Book is slightly less comprehensive with regard to the details and elements to be contained in the reports. Sub-clause 4.21 of the Red and Yellow Book is nearly identical to the Silver Book, but the reports are submitted to the engineer rather than the employer. In addition, there are some minor differences in the Red and Yellow Books as to what the progress reports contain. The ENAA contains a monthly progress report in its sub-clause 18.3, but the provisions and requirements are not as detailed as in the Silver Book. The EIC also requires a monthly progress report but does not indicate exactly what the report must contain (EIC 7.1). The EIC simply requires a report on the progress of the design and the works. The ICE contains no progress report provisions. The AlA also does not have provisions for progress reports but does indicate that the contractor must keep the employer informed of the progress and quality of the work (AlA 3.2.7-Part 2). AGC sub-clause 3.2.6 requires periodic written reports to the employer on the progress of the work, as agreed between the employer and the contractor. The employer and contractor are expected to come to some agreement on the nature of the written reports. No specific requirements are stated. The DBIA requires a similar report on a monthly basis (DBIA 2.1.2). The DBIA lists the report contents in some detail, yet still to a lesser extent than the Silver Book.

8-86

4.22 Security of the Site

8-88

Unless otherwise stated in the Particular Conditions: (a) the Contractor shall be responsible for keeping unauthorised persons off the Site, and The FIDIC Guide notes, however, that less detailed reports may be inappropriate for some projects (FIDIC Guide, op. cit. n. 37 above, p. 129). • EIC Guide, op. cit. n. 36 above, p. 16. 3

193

8-87

THE CONTRACTOR

(b)

8-89

DISCUSSION OF SPECIFIC SUB-CLAUSES

authorised persons shall be limited to the Contractor's Personnel and the Employer's Personnel; and to any other personnel notified to the Contractor, by (or on behalf of) the Employer, as authorised personnel of the Employer's other contractors on the Site.

The need for security is paramount in a construction project. A comprehensive security programme will protect the parties from the costs and delays resulting fr.om theft of materials or equipment and also reduce the possibility of injury to third persons present on the site. Nonetheless, despite the title of this sub~lause, the. provisions for certain aspects of site security, such as fencing, lightIng, guardIng and watching, are contained in Silver Book sub-clause 4.8. Silver ~ook sub-clause 4.22 primarily requires the contractor to keep unauthorIsed persons off the site. It also limits the scope of which persons are authorised to be on the site. Whether these limited provisions contained in sub-clause 4.22 justify a provision separate from 4.8 is questionable. The Orange Book contains substantially similar provisions in its sub-clause 4.22. The provisions in sub-clause 4.22 of the Red and Yellow Books are also identical to the Silver Book provision. The ENAA does not contain this express obligation but does indicate that the employer and the contractor shall establish site regulations for security (ENAA 22.3). The EIC, ICE, AlA, AGC and DBIA contain no provision similar to Silver Book 4.22.

8-90

4.23 Contractor's Operations on Site The Con~ractor shall confine his operations to the Site, and to any additional areas which may be obtained by the Contractor and agreed by the Employer as working a~eas. ~he Contractor shall take all necessary precautions to keep Contractor s EqUipment and Contractor's Personnel within the Site and these additional areas, and to keep them off adjacent land. During the execution of the Works, the Contractor shall keep the Site free from all ~nnecessary obstruction, and shall store or dispose of any Contractor's EqUipment or surplus materials. The Contractor shall clear away and remove from the Site any wreckage, rubbish and Temporary Works which are no longer required. Upon the issue of the Taking-Over Certificate for the Works, the Contractor shall clear awa~ and remove all Contractor's Equipment, surplus material, wreckage, rubbish and Temporary Works. The Contractor shall leave the Site and. the Wo~ks in a. clean and safe condition. However, the Contractor may retain on Site, dUrIng the Defects Notification Period such Goods as are required for the Contractor to fulfil obligations under th; Contract.

8-91

Turnkey construction, in theory, envisions the contractor's handing over ~o the employer a completed project ready for use. This will necessarily Involve the clearance from the site of debris or temporary works or equipment not integrated into the works. The contractor should be aware that he

194

is taking on the duty to keep the entire site clear both during the construction period and upon taking over. The wording of this clause suggests that the contractor will be responsible for rubbish, wreckage and surplus materials resulting from other contractors and the employer's staff. Depending on the nature of the work to be undertaken by other contractors and the employer himself, this duty could be costly and burdensome. The parties may also need to consider treatment of hazardous materials and their disposal. Silver Book sub-clause 4.23 imposes several obligations on the contractor regarding his operations on the site. Silver Book 4.23 requires the contractor to confine his operations to the site. The contractor must also keep the site free from unnecessary obstruction, store and dispose of equipment and materials and clear away wreckage and rubbish. Upon the employer's taking over, the contractor must also clear the site. It should be noted that clearance of the site follows the taking-over certificate and thus such a certificate "cannot be withheld for the sole reason that rubbish has not yet been removed, unless it prejudices safe use".5 Red and Yellow Book sub-clause 4.23 contains substantially identical provisions. The Orange Book contains in sub-clause 4.23 an obligation for the contractor to confine his operations to the site but does not have provisions regarding keeping the site free of obstruction and unnecessary materials, the clearing of wreckage and rubbish or clearance of the site upon employer taking over. The ENAA contains no provision requiring the contractor to confine his operations to the site. However, it does require him to keep the site free of unnecessary obstructions, to store and dispose of equipment and materials and to clear away wreckage and rubbish (ENAA 22.6.1). ENAA 22.2.2 provides that upon completion the contractor shall clear the site, and sub-clause 22.6.2 adds that all wreckage, rubbish and debris must be cleared upon completion and the site left in a clean and safe condition. The EIC and ICE contain no provisions regarding the confinement of the contractor's operations to the site, keeping the site free of obstructions or clearing away wreckage and rubbish during the construction process. However, they both require the contractor to clear the site upon completion with requirements nearly identical to those in Silver Book 4.23 (see EIC 6.10 and ICE 33). The AlA, AGC and DBIA do not expressly require the contractor to confine his operations to the site or impose a general requirement to keep the site free of unnecessary obstruction or store and dispose of equipment and materials. However, all three do impose a general requirement that the contractor keep the site clear of debris, waste, materials and rubbish and to clear the site upon completion (AlA 3.2.13-Part 2, AGC 3.2.8, DBIA 2.7.6).

5

HDle Guide, op. cit. n. 37 above, p. 130.

195

8-92

THE CONTRACTOR

8-93

DlSCUSION OF SPECIFIC SUB - CLAUSES

4.24 Fossils All fossils, coins, articles of value or antiquity, and structures and other remains or items of geological or archaeological interest found on the Site shall be placed under the care and authority of the Employer. The Contractor shall take reasonable precautions to prevent Contractor's Personnel or other persons from removing or damaging any of these findings. The Contractor shall, upon discovery of any such finding, promptly give notice to the Employer, who shall issue instructions for dealing with it. If the Contractor suffers delay and/or incurs Cost from complying with the instructions, the Contractor shall give a further notice to the Employer and shall be entitled subject to Sub-Clause 20.1 [Contractor's Claims) to: (a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 8.4 [Extension of Time for Completion), and (b) payment of any such Cost, which shall be added to the Contract Price. After receiving this further notice, the Employer shall proceed in accordance with Sub-Clause 3.5 [Determinations) to agree or determine these matters.

8-94

8-95

The contractor may encounter items of value buried on the site, such as fossils or antiquities. This provision may be of particular relevance where the site is located in countries where buried antiquities are common and the domestic legal system has a sophisticated procedure for the care of such articles. Silver Book sub-clause 4.24 contains the provisions regarding the manner in which fossils and other archaeological finds must be dealt with upon discovery by the contractor. Generally, they must be turned over to the employer, and the contractor must take care to prevent damage to any finds. If the handling of these artifacts causes the contractor to incur additional costs or delays, these may be recuperated from the employer. The FIDIC Guide explains the absence of any reference to the "foreseeability" of the discovery of fossils and the like, as "the contract should specify the procedure in respect of foreseeable findings".6 The Orange Book contains nearly identical provisions in its sub-clause 4.24, although the Orange Book provisions are narrower in scope than those of the Silver Book. 7 Red and Yellow Book sub-clause 4.24 is identical to the Silver Book, except that notice of the finds is given to the engineer rather than the employer. The ICE contains provisions very similar to the Silver Book in sub-clause 32. However, the ENAA, EIC, AlA, AGC and DBJA contain no provisions regarding fossils and archaeological finds. Although Silver Book clause 4 is entitled "The Contractor" and contains many of the contractor's obligations, other obligations of the contractor can

6

7

ibid., p. 131. B. De Cazalet & R. Reece, "The New FIDIC EPC BOT Contract" (1999) Project Finance Int'l, online: FIDIC hnp:llwww.fidic.org!resources!contracts/bocpfi _nov99.asp (date accessed: July 4, 2001).

196

be found thro.ughout the contract as a whole. As the contractor's primary obligations are found in clause 4, it seems appropriate to provide a clauseby-clause summary of the contractor's key obligations under the Silver Book as a conclusion to this chapter.

Key Obligations of the Contractor in the Silver Book . Clause ~.

Clause 1 1.8

~(~,'~

Nature' of the contractor's·obligation "

.

J

8-96

~ .. '\:

General Provisions Obligation of custody and care regarding contractor's documents. Obligation to give employer notice of any technical error or defect in the contractor's documents.

1.9

Confidentiality obligation regarding contract details.

1.12

Obligation to disclose non-confidential information to employer as required to verify contractor's compliance with the contract.

1.13

Obligation to comply with applicable laws.

Clause 3 3.4 Clause 4 4.1

The Employer's Administration Obligation to receive instructions from the employer, his representative or delegated assistant. The Contractor Obligation to design, execute and complete the works in accordance with the contract and remedy any defects, such that the works are fit for their intended purpose upon completion. Obligation to provide everything specified in the contract and everything else required for the design, execution, completion and remedying of any defects. Obligation to ensure the adequacy, stability and safety of all site operations, methods of construction and of all works. Obligation to submit details of execution arrangements and methods to employer upon request and to follow these arrangements and methods.

4.2

Obligation to provide performance security if amount stated in the particular conditions.

4.3

Obligation to appoint the contractor's representative.

197

THE CONTRACTOR

•. Clause ;'

. !

KEY OBLIGATIONS OF THE CONTRACTOR IN THE SILVER BOOK

Nature of the contractor's o~ligation

4.4

Responsibility for subcontractors and to give related notices to the employer.

4.5

Obligation to employ nominated subcontractors to which contractor has no reasonable objection.

4.6

Obligation to allow appropriate work opportunities to employer's personnel, other contractors and any public authorities. Obligation to be responsible for contractor's construction activities on the site and to co-ordinate the activities of other contractors.

4.7

Obligation to properly set out the works according to the contract specifications and rectify any errors.

4.8

Obligation to follow applicable laws and safety procedures.

4.9

Obligation to institute a quality assurance system.

4.10

Obligation to verify and interpret employer-provided site data.

4.11

Obligation to be satisfied with correctness and sufficiency of the contract price.

4.12

Obligation to accept full responsibility for having foreseen all difficulties and costs of successfully completing the works.

4.13

Obligation to bear all costs of rights of way and facilities.

4.14

Obligation to avoid unnecessary or improper interference with public convenience and roads.

4.15

Obligation to prevent roads and bridges from being damaged by contractor's traffic or personnel, to provide maintenance, signs and directions, and to assume all costs of non-suitability or non-availability of access routes.

't. " 'Oause '!, lt~Jl!'~ .'f-~~ .. ~~,~

Na~ of the eont'tactor's obligation .' .

;

.". ~~.,

"

4.22

Obligation to ensure site security.

4.23

Obligation to confine operations to the site, to keep the site free of unnecessary obstructions and to clear site upon employer's taking over.

4.24

Obligation to take appropriate care of discovered fossils and archaeological finds.

Clause 5

Design

5.1

Obligation to scrutinise employer's requirements and be responsible for the design of the works and the accuracy of the employer's requirements.

5.2

Obligation to prepare all contractor's documents and submit them to the employer for review, as required.

5.3

Obligations to design, execute and complete the works in accordance with the country's laws and the contract documents.

5.4

Obligation to comply with technical standards and regulations in the design, execution and completion of the works.

5.5

Obligation to train the employer's personnel in the operation and maintenance of the works, if specified.

5.6

Obligation to prepare and maintain as-built documents.

5.7

Obligation to supply operation and maintenance manuals.

5.8

Obligation to correct errors in contractor's documents and related works.

Clause 6

Staff and Labour

6.1

Obligation to engage all staff and labour.

6.2

Obligation to pay labourers appropriate wages and observe local labour conditions.

6.3

Obligation to refrain from recruiting employer's personnel.

6.4

Obligation to comply with relevant labour laws.

6.5

Obligation to carry out work only during normal working hours.

4.16

Obligation to assume responsibility for the transport of goods and making related notifications to the employer.

4.17

Obligation to be responsible for all contractor's equipment.

4.18

Obligation to protect the environment.

4.19

Obligation to provide electricity, water and gas.

4.20

Obligation to care and pay for any employer's equipment used.

6.6

Obligation to provide necessary accommodations and welfare facilities for contractor's and employer's personnel.

4.21

Obligation to submit detailed monthly progress reports.

6.7

Obligation to take precautions regarding health and safety of workers.

198 199

KEY OBLIGATIONS OF THE CONTRACTOR IN THE SILVER BOOK

THE CONTRACTOR

Clause

6.8

.

Nature of the contractor'~ oblik.ation

.

Obligation to superintend the design and execution of the works.

Clause

9.3 Clause 11

T;"0 f . f,,"' r~'l-: ~ _. ~~ture

the contractor' .S 0 ibl'19anon .

,~,~,

"~ 'f'.

,"

.,

•

Obligation to repeat tests after test failure. Defects Liability

6.10

Obligation to submit to employer records of contractor's personnel and equipment.

11.1

Obligation to complete outstanding works and remedy defects after taking over.

6.11

Obligation to prevent disorderly conduct.

11.6

Obligation to perform further tests subsequent to a defect remedy.

11.8

Obligation to search for the cause of any defect upon employer's instruction.

11.10

Obligation to remain liable for any obligation still outstanding after issuance of the performance certificate.

11.11

Obligation to clear the site upon receiving the performance certificate.

Clause 7

7.1

Plant, Materials and Workmanship Obligation to execute the works in the manner specified in the contract, in a workmanlike and careful manner and with properly equipped facilities.

7.2

Obligation to submit samples to employer for review.

7.3

Obligation to allow employer's personnel the opportunity to inspect the works.

7.4

Obligation to carry out all testing (other than tests after completion).

7.5

Obligation to remedy defects upon employer's rejection of plant, materials, design or workmanship.

7.6

Obligation to execute remedial work instructed by the employer.

7.7

Obligation to pay all royalties, rents and other payments for materials and disposal of materials.

Clause 8

Clause 12

Tests After Completion

12.1

Obligation to provide plant, equipment and personnel to carry out the tests after completion.

12.3

Obligation to retest after failure of the tests after completion.

Clause 13

Variations and Adjustments

13.1

Obligation to execute and be bound by each variation instructed by the employer.

13.3

Obligation to respond to employer's requests for proposals, prior to instructing variations.

Commencement, Delays and Suspension

8.1

Obligation to commence design and execution as soon as reasonably practicable after commencement date and to proceed with works with due expedition.

13.5

Obligation to use provisional sums only in accordance with employer's instructions and produce related quotations, invoices, vouchers and receipts.

8.2

Obligation to complete the whole of the works (or the section) within the time for completion.

13.6

Obligation to execute employer's variations on a daywork basis.

8.3

Obligation to prepare and submit a time programme to the employer and give notice of potential delays.

Clause 14

8.6

Obligation to submit a revised programme to expedite progress upon employer's instruction.

8.7

Obligation to pay delay damages if time for completion is not met.

8.8

Obligation to suspend work upon employer's instruction.

Clause 9

9.1 200

'~-

Tests on Completion Obligation to carry out the tests on completion.

Contract Price and Payment

14.1

Obligation to pay all taxes, duties and fees required under the contract.

14.2

Obligation to submit advance payment guarantee to employer.

14.3

Obligation to submit detailed applications for interim payments.

14.10

Obligation to submit statement at completion within 84 days of receiving taking-over certificate.

201

KEY OBLIGATIONS OF THE CONTRACTOR IN THE SILVER BOOK

THE CONTRACTOR

Clause

14.11 14.2 Clause 15

15.1

15.2

15.5 Clause 16

16.3 Clause 17

;-

Nature of the contractor's obligation

Nature of the contractor's obligation

Obligation to submit application for final payment.

19.6

Obligation to submit written discharge to employer with final statement.

Obligation to cease work and remove equipment upon termination due to force majeure.

19.7

Obligation to cease work and remove equipment due to release from performance under law.

Termination by Employer Upon notice by employer, obligation to make good any failure to carry out any obligation under the contract or to remedy any default within a reasonable time.

Clause 20

Claims, Disputes and Arbitration

20.1

Obligation to submit timely notice of contractor claims to employer with appropriate description, to keep adequate records to substantiate claims and to subsequently submit a fully detailed claim.

20.2

Obligation to nominate one member of the dispute adjudication board (DAB) and to agree with employer on the third member.

Suspension and Termination by Contractor

2004

Obligation to make all information available to the DAB in relation to any claim.

Obligation to cease work and remove equipment upon contractor termination for cause.

20.5

Obligation to attempt amicable settlement after timely notice of dissatisfaction of DAB decision and prior to arbitration.

20.6

Obligation to submit to ICC arbitration.

Obligation to leave site and deliver all materials relating to the contract to employer upon employer termination for cause. Obligation to cease work and remove equipment upon employer termination for convenience.

Risk and Responsibility

17.1

Obligation to indemnify and hold employer harmless from and against all claims, damages, losses and expenses attributable to contractor.

17.2

Obligation to take full responsibility and care for the works and goods until taking over.

17.4

Obligation to give notice to employer of loss or damage due to an employer's risk event and to rectify the loss or damage to the extent required by the employer.

17.5

Obligation to indemnify and hold employer harmless against and from certain intellectual and industrial property claims.

Clause 18

Insurance

18.1-18.4

Obligation to obtain insurance and pay premia as required in the contract.

Clause 19

Force Majeure

202

Clause

19.2

Obligation to give employer notice of being prevented in the performance of an obligation under the contract due to force majeure.

19.3

Obligation to use reasonable endeavours to minimise any performance delay due to force majeure and to give notice to employer upon termination of the force majeure hindrance.

203

CHAPTER 9

DESIGN General Comments Under turnkey contracts such as the Silver Book and the Yellow Book, the contractor will be generally responsible for most, if not all of the design of the works. This represents a departure from the traditional design-bid-build method of contracting whereby the engineer or a third-party architect generated the design, as is still contemplated under the FIDIC Red Book. Before moving on to the analysis of the sub-clauses of the Silver Book, some introductory comments on design standards seem to be in order.

9-01

Design standard I contractor's liability Under a design-build contract or a design-bid-build contract, the contractor will have some responsibility regarding the design, whether it is providing the entire design outright or in merely implementing a third party's design in the construction process. For example, in the context of a design-bid-build contract, the contractor may be under a duty in some jurisdictions to warn the employer of defects in the design which are apparent to the contractor despite the fact that a third party or the employer provided and is primarily responsible for the design. Otherwise, in the design-bid-build context the designer is generally a third party not associated with the contractor who assumes a separate duty of professional care to the employer for the design it provides. The standard of care for design becomes more problematic in design-build contracts. Clearly, some standard will be applicable to the contractor who, as the design-builder, must provide a design that meets a certain level of performance. Although design responsibility will range generally from "due skill and care" to "fitness for purpose," it is very possible that under a design-build/turnkey contract the contractor may be held either expressly or implicitly to the latter standard which is standard of care more stringent than that imposed on a third-party designer. The standard will be defined by the relevant provisions of the contract and the law applicable to the contract. Under the due skill and care standard, the design must be executed to the level of skill and care of a professional designer. Thus the contractor will only be liable for fault that constitutes negligence under this professional standard. Under the "fitness for purpose" standard, the design must result in works that fulfill the purpose(s) for which they are intended. Where the

205

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9-03

contractor is held to this latter standard, he will not be able to escape liability by showing that his design satisfied accepted standards of engineering knowledge. It may also be true that the contractor cannot escape liability by simply designing and building according to detailed specifications for the works if the result is works that are not fit for the purposes intended. This last conclusion may depend, however, on the law of the jurisdiction applica ble to the contract. I At the time of tender the employer will give the contractor his specifications and performance requirements for the works. In a turnkey project, the contractor will be obliged to provide works in accordance with these specifications and criteria as set forth in the employer's requirements, which may contain varying levels of detail. The employer should strive to specify these requirements in sufficient detail, including the function of the works and the circumstances in which they will be used. 2 The employer will generally prefer that the "fitness for purpose" standard be applied to the design in a turnkey contract. Indeed, some authors recommend employers against the use of design-build contracts where lesser standards, such as "professional care only" liability, apply. This is because "in the event of a major design failure the owner will almost invariably find that he has bought himself into expensive litigation and 'state of the art' defenses in which the question of standard of care, rather than the incontrovertible fact of product failure, will be at issue" .llt is possible that the law of the contract will imply a fitness for purpose standard, when this criterion is not stated. 4 However, reliance on an implied standard of fitness for purpose is very risky in that exceptions to such an implied standard will undoubtedly arise. To avoid uncertainty, the parties should clearly specify the standard. The use of an express "fitness for purpose" requirement suggests that the intended purpose or purposes of the works should be defined in the contract, For example, it appears to be the rule under English law that where a contractor has expressly warranted the fitness of the works, he may be liable to achieve such a result. See S. Furst Q.c. & V. Ramsey Q.c. eds, Keating on Building Contracts (7th ed., Sweet & Maxwell, London, 2001), p. 11 (hereinafter Keating), citing Steel Co. of Canada Ltd v. Willard Management Ltd (1966) S.C.R. 746 (S.C.C.). 2 Mr Bunni provides a breakdown of the elements of the project that need to be determined as a precursor to efficient design. He includes a list prepared by an advisory committee to the Institution of Civil Engineers in London, which specifies in detail the requisite steps in the contracting process. It should be noted that this list was created for the ICE 5th Edition but is also applicable to the FIDIC forms. N.G. Bunni, FIDIC Form of Contract: The Fourth Edition of the Red Book (Black well Science, 1991) pp. 117-119. J I.N.D. Wallace, "Design-and-Build: a No-No for Owners" (1999) 4 Canst. & Eng. L. 7 at 7-9. • For example, under English law: I

Where the employer makes known to the contractor the particular purpose for which the work IS to be done and the work is of a kind which the contractor holds himself out as performing, and the circumstances show that the employer relied on the contractor's skill and judgment in the matter, there is an implied warranty that the work as completed will be reasonably fit for the particular purpose. Keating, op. cit. n. 1 above, p. 72; see also J. Chitty, Chitty on contracts - Vol. 2: Specific contracts (28th ed., H.G. Beale et al. eds, Sweet & Maxwell, London, 1999), pp. 518-19.

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whether in very broad terms, in very specific detail or both. In attempting to claim later that the works as designed are not fit for the purposes intended under the contract, the employer may otherwise be at a disadvantage in trying to persuade a tribunal of what the intended purpose(s) for the works might have been_ Rather than allowing a tribunal a free hand to examine the general circumstances surrounding the contract in order to determine the intended purpose(s), expressly including a statement of the intended purposes of the works is advisable. The "fitness for purpose" standard is discussed to some extent in the previous chapter since it arises in the context of, and applies to, the contractor's general obligations in Silver Book sub-clause 4.1. Sub-clause 4.1 indicates that "[t)he Contractor shall design, execute and complete the Works in accordance with the Contract, and shall remedy any defects in the Works. When completed, the Works shall be fit for the purposes for which the Works are intended as defined in the Contract." At first glance, the "fitness for purpose" standard would seem to apply simply to the works but not expressly to the design. However, Silver Book 4.1 also indicates that "[t]he Works shall include any work which is necessary to satisfy the Employer's Requirements, or is implied by the Contract". Consequently, the design is part of the works as defined under the contract and must therefore be fit for the purposes intended. The Orange and Yellow Books both contain a similar "fitness for purpose" standard which extends to the design under their respective sub-clauses 4.1.. Under the Red Book, the contractor is only responsible for the design to the extent specified in the contract, and the "fitness for purpose" standard applies only to works designed by the contractor. Therefore, under the Red Book the contractor is not responsible for erecting works fit for the purposes intended, to the extent the design is provided by the employer. The contractor generally must simply build according to the employer's specifications, though he may still be under an implied duty in some jurisdictions to inform the employer of any obvious design defects or other shortcomings. The non-FIDIC contracts take different approaches to the statement of a standard for completion of the works, ranging from something less than "fitness for purpose", to the more subjective standards of reasonable skill and judgment, to no express design standard whatsoever. The ENAA expressly requires the contractor to execute and complete the works with "due care and diligence" (ENAA 9.1.) The definition of "Works" in ENAA Clause 1 extends to "the entire works and services to be carried out by the Contractor under the Contract". Consequently, the design must be completed with due care and diligence. However, the ENAA also contains a provision relating directly to design: "The Contractor shall execute the basic and detailed design and the engineering work in compliance with the provisions of the Contract, or where not so specified, in accordance with good engineering practice." (ENAA 20.1.1). Note that this standard is somewhat less stringent than "fitness for purpose". The EIC requires that "[t]he Design and the Works shall be executed and completed by the Contractor with due care and diligence in accordance with 207

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the Contract" (EIC 4.1). The contractor must also "execute the Design ... using proper skill and care of professional designers experienced in that type of design". This places a high standard of care on the contractor in the design of the works, perhaps higher than the ENAA but still somewhat less than that of "fitness for purpose" in the Silver Book. The ICE states that "[iJn carrying out all his design obligations under the Contract ... the Contractor shall exercise all reasonable skill, care and diligence" (ICE 8(2)(a)). This standard remains somewhat vague. The AGC is also vague, simply requiring the contractor to exercise "reasonable skill and judgment" in the performance of the work (AGC-article 3). "Work" is defined to include the design services (AGC 2.4.13). Under the AlA the parties approach the design and budgeting aspect of the project together from the very beginning in the Part 1 contract. Once design has been completed, the parties may then go on to the second contract which provides for construction. The AlA indicates in sub-clauses 1.2.1-Part 1 and 3.1.1-Part 2 that design services must be performed by qualified architects and other design professionals, and that the contractor is responsible for their acts or omissions (AlA 1.2.4-Part 1, 3.1.3-Part 2). However, the AlA contains no design standard other than the requirement that construction be in conformity with the contract requirements (AlA 3.2.9-Part 2). The DBIA's design standard is very specific: "The standard of care for all design professional services performed to execute the Work shall be the care and skill ordinarily used by members of the design profession practicing under similar conditions at the same time and locality of the Project." (DBIA 2.3.1.) However, different or additional design standards may be included in an appendix to the contract (DBIA 2.3.1).

Design timing issues 9-05

Parties using a unified system where both design and construction are executed under one contract, and who wish to retain the time benefits of the turnkey contract, may want to provide for two separate times for completion: one for the design (a more flexible measure) and one for the actual construction. Of course, this will depend on the needs of the parties and the requirements of the project. The all-in-one method found in most of the contracts discussed herein (with the notable exception of the AlA) is a "fast-track" construction method, wherein the parties desire rapid results and thus combine the steps of design and construction. However, the extent of the employer's review and approval power may affect the true speed at which the design process is completed. Nonetheless, the interaction between the parties in the design phases may prove necessary or more beneficial for certain types of contracts. s For

5

This is true even amongst turnkey contracts. For example, for a comparison between the design procedures outlined in the EIC Turnkey Contract (1994) (i.e. the EIC contract exam. ined in this work) and the Orange Book, see Dr J. Goedel, "The EIC Turnkey Contract-A Comparison with the FIDIC Orange Book" (1997) 141.C.L.R. 33.

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COMMENTS

example, the concept of a close and continuous dialogue between the parties during the design phase was used in the Eurotunnel contract. Eurotunnel used a complex system developed to get both parties fully involved in the progress of the designs. However, as a contractual matter, it was the contractor who was liable for the design of the project.

Discussion of Specific Sub-Clauses Clause 5 of the Silver Book, entitled "Design", sets forth the contractor's general obligations regarding the design of the works as well as the procedure for the preparation, submission, review and correction of design-related documents by the employer. It also contains provisions regarding certain collateral responsibilities, such as the contractor's undertaking to adhere to laws and technical standards, to train the employer's personnel in the operation of the works and to provide operation and maintenan~e manuals.

9-06

5.1 General Design Obligations

9-07

The Contractor shall be deemed to have scrutinised, prior to the Base Date, the Employer's Requirements (including design criteria and calculations, if any). The Contractor shall be responsible for the design of the Works and for the accuracy of such Employer's Requirements (including design criteria and calculations), except as stated below. The Employer shall not be responsible for any error, inaccuracy or omission of any kind in the Employer's Requirements as originally included in the Contract and shall not be deemed to have given any representation of accuracy or completeness of any data or information, except as stated below. Any data or information received by the Contractor, from the Employer or otherwise, shall not relieve the Contractor from his responsibility for the design and execution of the Works. However, the Employer shall be responsible for the correctness of the following portions of the Employer's Requirements and of the following data and information provided by (or on behalf of) the Employer: (a) portions, data and information which are stated in the Contract as being immutable or the responsibility of the Employer, (b) definitions of intended purposes of the Works or any parts thereof, (c) criteria for testing and performance of completed Works, and (d) portions, data and information which cannot be verified by the Contractor, except as otherwise stated in the Contract. Silver Book sub-clause 5.1 states expressly that the contractor is deemed to have scrutinized the employer's requirements prior to the base date. 6 It • "Base date" means the date 28 days prior to the latest date for submission of the tender (sb 1.1.3.1), hence, prior to the tender or signature of the contract. 209

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DESIGN

states the contractor's general responsibility for the design of the works but also makes him responsible for the accuracy of the employer's requir~ments, subject to certain exceptions. The contractor should be aware that where the employer supplies any part, small or substantial, of the design, the terms of the Silver Book "become little less than a required guarantee from the contractor of the owner's design" for these parts. 7 Specifically, with only limited exceptions, the employer will not be responsible for any error, inaccuracy or omission of any kind in the employer's requirements. Such terms may prove too oppressive where the owner is to provide any significant part of the design. Indeed, due to these concerns the Silver Book is likely to "receive a rocky reception from some quarters and changes will no doubt be made to address the legitimate concerns being raised".8 The combination of the two provisions of the first two paragraphs of subclause 5.1 would seem, as one author points out, to hold the contractor liable for any errors in the employer's requirements, to the extent that the employer . is not responsible for errors and the contractor is not responsible for accuracy. If this interpretation is correct, the reason these terms were not stated explicitly may be because "it just looks too horrible to write that the contractor shall be responsible for the employer's errors".9 The FIDIC Guide justifies holding the contractor responsible for the employer's requirements, stating "the intention is to minimize the extent of the employer's responsibility, recognizing that [the Silver Book] will often be used in situations where the contractor's technical resources exceed those of the employer".10 Furthermore, under the terms of sub-clause 5.1, the employer is responsible for errors, inaccuracies and omissions in any data stated as being immutable, definitions of the intended purposes of the works, any testing and performance criteria and any data or information which cannot be verified by the contractor. Indeed, paragraph (d) may be used by contractors in order to avoid liability, otherwise imposed by sub-clauses 4.10 and 4.12, for unforeseen ground conditions. I I Paragraph (d) was added due to pressure from contractors. 12 In addition to possible debate as to what might be "verifiable by the Contractor", there is the added uncertainty as to the relevant time period for this verification. One author suggests it is reasonable to assume this reference is to verification at the tender stage, as the other interpretation {i.e. ver7 J. Wallace, op. cit. n. 3 above at 7-9. • E. Corbett, ~FIDIC's New Rainbow-An Overview of the Red, Yellow, Silver and Green Test Editions" (1999) 16 (1) I.C.L.R. 39 at 45; citing "rocky" A.H. Gaede, Jr., "The Silver Book: An Unfortunate Shift from FIDIC's Tradition of being Evenhanded and of Focusing on the Best Interests of the Project" (2000) 17 I.C.L.R. 477. 9 A. Sandberg, "A Contractor's View on FIDIC Conditions of Contract for EPC Turnkey Projects" (1999) 16 (1) I.C.L.R. 47 at 55. 10 FIDIC, The FIFIC Contracts Guide (Federation Internationale des Ingenieurs Conseils, Lausanne, 2000), p. 319 (hereinafter FIDrC Guide). 11 A.H. Gaede, Jr., "The Silver Book: An Unfortunate Shift from FIDIC's Tradition of being Evenhanded and of Focusing on the Best Interests of the Project" (2000) 17 I.C.L.R. 477 at 490. 12 E. Corbett, "FIDIC's New Rainbow I" Edition-An Advance?" (2000) 17 (2) I.C.L.R. 253 at 269.

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DISCUSSION OF SPECIFIC SUB-CLAUSES

ifiable by the contractor at any time before the error becomes manifest) would be unreasonable. 13 Employers may want to clarify the terms of this provision. Similar to the Silver Book, Orange Book sub-clause 4.1 requires the contractor to "satisfy himself regarding the Employer's Requirements". However, he must do this only before commencing design rather than prior to the base date. Orange Book sub-clause 5.1 makes the contractor generally responsible for the design of the works. The contractor is not under as stringent a standard under the Orange Book regarding responsibility for errors and inaccuracies in the employer's requirements. Under Orange Book sub-clause 4.1, the contractor is required to review: the employer's requirements before commencing the design and may give ·notice to the employer's representative of any errors, faults or other defects. the employer's representative must then determine whether a variation is in order and if so will notify the contractor accordingly. Variations are subject to price increases and time extensions for the contractor under the Orange Book. Consequently, the contractor assumes no liability for inaccuracies, errors or omissions in the employer's requirements provided they are discovered by the contractor prior to commencing the design. The Red Book does not expressly impose upon the contractor the responsibility for scrutinising the employer's requirements, or "Specification" which is the comparable term used in the Red Book. On the contrary, Red Book sub-clause 4.1 states that the contractor is responsible for proper execution of the contract and any design for which he is responsible, but "shall not otherwise be responsible for the design or specification of the Permanent Works". Under the Red Book the contractor is not generally responsible for the design of the works since this is provided by the employer. However, Red Book sub-clause 4.1 states that "[tJhe Contractor shall design [the Works) (to the extent specified in the Contract)", thereby making this an obligation if the contractor agrees to provide some design for part of the works. Under the Red Book, the contractor has little or no responsibility for the project specification. He must execute the contract and provide design services (if any) to the extent indicated in the contract but "shall not otherwise be responsible for the design or specification of the ~ermanent Works" (RB 4.1). In its sub-clause 5.1 the Yellow Book requires the contractor to scrutinise the employer's requirements upon receiving the engineer's notice to commence the works. Note the difference in the timing for this obligation: prior to commencement of the works, rather than prior to the base date, as in the Silver Book. As in the Silver Book, the contractor is generally responsible under the Yellow Book for the design of the works (YB 5.1). However, under the Yellow Book the contractor has a certain period of time during which he may inform the engineer of errors in the employer's requirements. The Yellow Book states that:

13

ibid. at 269.

211

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DISCUSSION OF SPECIFIC SUB-CLAUSES

DESIGN

[w)ithin the period stated in the Appendix to Tender, calculated from the Commencement Date, the Contractor shall give notice to the Engineer of any error, fault or other defect found in the Employer's Requirements or these items of reference. After receiving this notice, the Engineer shall determine whether Clause 13 [Variations and Adjustments) shall be applied, and shall give notice to the Contractor accordingly. If and to the extent that (taking account of cost and time) an experienced contractor exercising due care would have discovered the error, fault or other defect when examining the Site and the Employer's Requirements before submitting the Tender, the Time for Completion shall not be extended and the Contract Price shall not be adjusted.

9-10

(YB5.1.) This Yellow Book provision makes the contractor responsible for any errors in the employer's requirements only to the extent that these errors would have been discovered prior to tender by an experienced contractor exercising reasonable care and provided that these errors are discovered and notified to the engineer within the period stated in the appendix to tender. In addition, and contrary to the Silver Book, the employer's design is included as an employer's risk under Yellow Book sub-clause 17.3(g). Some are critical of these provisions, projecting that "this test will cause endless debate, as a similar test for ground conditions has done".14 There is no provision in ENAA that is exactly comparable to Silver Book sub-clause 5.1 regarding the contractor's scrutiny of the employer's requirements. However, "[t]he Contractor confirms that he has entered into this Contract on the basis of a reasonable examination of the data relating to the Works [... J provided by the Owner" (ENAA 9.2). Under the ENAA, the contractor has general responsibility for the "basic and detailed design and the engineering work in compliance with the provisions of the Contract" (ENAA 20.1.1). However, the employer is responsible for ensuring "the correctness and exactitude of all information and/or data to be supplied by the Owner as described in Appendix 9-3 (Scope of Works and Supply by the Owner) to the Agreement except when otherwise stated in the Contract" (ENAA 10.1). Under the ENAA, except as otherwise stated in the contract, the employer expressly assumes responsibility for the correctness and accuracy of the employer's requirements, as well as any other information he supplies (ENAA 10.1). There also is no provision in the EIC comparable to Silver Book sub-clause 5.1 regarding the contractor's scrutiny of the employer's requirements. However, "[iJn relation to the Design and execution and completion of the Works the Contractor confirms that he has entered into the Contract on the basis of reasonable examination of data relating to the Works provided by the Owner and information which he could have obtained from a visual inspection of the Site (if access thereto was available) and other data readily available to him relating to the Works" (EIC 4.4). The EIC makes the contractor generally responsible for the design of the works (EIC 4.1) but, like the ENAA, "[tJhe Owner is responsible for the specifications and

definitions set out in the Conceptual Design .... The Owner shall be responsible for such information and data, in particular for its accuracy." (EIC 3.2.) Whether the EIC provision extends fully to all of the employer's requirements is unclear. Although it is not entirely clear that the "Conceptual Design" is the full equivalent of the FlDlC employer's requirements, it would appear that the employer is responsible for this type of information. Although the term "conceptual design" is commonly used and understood in the industry, according to one commentator, absence of a precise definition of the term provides flexibility. IS The ElC system, as opposed to that of the Orange Book, differs in "the scope of design works which might have to be undertaken by the Contractor already at the tender stage" .16 The ElC requires the contractor to provide less detailed design at the early stages and according to one commentator this arguably results in a time- and cost-saving solution,17 FIDlC envisages an interactive tendering procedure by which the contractor may ascertain how best to design to meet the needs of the employer. 18 Although this facilitates the tender process under the Silver Book, it does not address the costly aspect of providing such a tender. It is worth noting that this process is also criticised from the employer's perspective, as a meaningful price comparison between very different design proposals "is quite impractical for an owner unless he enlists so much design advice as to render the whole process selfdefeating" .19 The ICE indicates that the "Employer's Representative shall provide to the Contractor such design criteria relevant to the Employer's Requirements as may be necessary to enable the Contractor to comply with" his obligation to submit details of his design and methods of construction (ICE 6(1)). However, there is no specific mention of any obligation of the contractor to scrutinise the employer's requirements. Under the ICE, the contractor is required to design the works and provide all design services (ICE 8(1)). However, the ICE does not expressly state which party is responsible for the accuracy, completeness or errors in the employer's requirements. Under the ICE, the contractor does assume some express responsibility for the employer's requirements, but only with regard to designs contained therein provided by the employer. Sub-clause 8(2)(b) of the ICE states: Where any part of the Works has been designed by or on behalf of the Employer and that design has been included in the Employer's Requirements the Contractor shall check the design and accept responsibility therefor having first obtained the approval of the Employer's Representative for any modifications thereto which the Contractor considers to be necessary.

IS 16 17

18 14

E. Corbett, "FJDIC's New Rainbow I" Edition-An Advance?" (2000) 17 (2) I.C.L.R. 253 at 268.

212

19

Dr J. Goedel, op. cit. n. 5 above at 34. ibid. at 35. ibid. at 36. C. Wade, "History and Scope of the Three Major Books" (1998) online: FIDIC http://www.fidic.comldocumentsllaunch/wade1.html( da te accessed: Novem ber 19, 1999). I.N.D. Wallace, op. cit. n. 3 above at 8.

213

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DESIGN

Albeit indirectly, the AlA seems to impose an obligation on the contractor to closely review the employer's project requirements. It states that "[t]he Design/Builder shall visit the site, become familiar with the local conditions and correlate observable conditions with the requirements of the Owner'~ programme, schedule and budget" (AlA 1.3.2-Part 1). The contractor is generally responsible for design services under the AlA, but with its two-part approach, Part 1 covers the creation of preliminary design documents, whereas Part 2 covers design services in a broader sense. Under Part 1, the contractor and employer are supposed to review alternative approaches to the design and construction of the project (AlA 1.3.4-Part 1). The contractor then submits to the employer a proposal, including completed preliminary design documents (AlA 1.3.5-Part 1). Part 2 indicates the contractor must provide or procure all (subsequent or additional) design services (AlA 3.2.5-Part 2). The AlA contains no specific mention of employer's requirements nor a designation of which party is responsible for the project requirements. Under Part 1, the employer is required to provide full information regarding the requirements for the project (AlA 2. 1. I-Part 1). This is roughly the equivalent of the FIDIC "Employer's Requirements". However, it is not stated in either part of the AlA which party assumes responsibility for any errors in the employer's project requirements. The employer is expressly responsible for the accuracy and completeness of site data he provides (see AlA 2.1.9Part 1, 2.7-Part 2), but responsibility for the general project specifications is not mentioned. 9-12 The AGC and DBIA contain no express requirement for the contractor to review or scrutinise the employer's project requirements. Under the AGC, "[t]he Design-Builder shall be responsible for procuring the design ... of the Work consistent with the Owner's Programme" (AGC 3) but there is no mentio~ of ultimate responsibility for the employer's req~ire­ ments .(re~erred to In the AGC as the "Owner's Program"). Similarly, the ~BIA Indicates that the contractor shall procure or perform all design services (~BIA 1.1 (ca), 2.2.1) but does not state which party is ultimately responsible for the employer's requirements. The AGC makes the employer responsible for the completeness and accuracy of the project requirements he provides (AGC 4.1.1,4.1.4). DBIA refers to the owner's "Pr?ject Criteria" in its sub-clause 1.2.7 definition, which is roughly the eqUivalent of the Silver Book's "Employer's Requirements". Apart from the definition, there is no obligation for the contractor to scrutinise these criteria or an express attribution of responsibility for these criteria to either party, except for site data for which DBIA 3.2.1 attributes responsibility to the employer. 9-13 An additional issue not specifically treated in the Silver Book is that of the nature of the person who, specifically, must prepare the design. For example, the Orange ~ook requires in sub-clause 5.1 that the design be prepared by q~ahfied d~slg~er~ who are engineers or other professionals and who comply With the cCiteCia (If any) stated in the employer's requirements. The current Yellow Book sub-clause 5.1 contains an identical provision. Similarly, sub214

DISCUSSION OF SPECIFIC SUB-CLAUSES

clause 1.2.1 of AlA Part 1 indicates that design services "shall be performed by qualified architects and other design professionals". Orange Book sub-clause 5.1 also requires that for each part of the works, "the prior consent of the employer's representative shall be obtained ~o the designer and design Subcontractor, if they are not named as such 10 the Contract". Yellow Book sub-clause 5.1 contains a similar consent requirement. Under sub-clause 5.1 of the Orange and Yellow Books respectively, the contractor also warrants that he, his designers and design subcontractors have the experience and capability necessary for the design. Whether the inclusion of such provisions is appropriate will depend on the identity of the contractor and the nature of the project. The importance of the design is such that the employer may want to specify standards regarding the qualifications of the designers and be involved in their selection or approval, if possible. However, where the contractor is a large and reputable company or has skilled and experienced designers in-house, employer approval and consent provisions may be unnecessary or unwanted. Although not contained in the Silver Book, some contracts, such as the Orange Book, contain provisions stating that nothing in the contract creates any contractual relationship or professional obligation between any designer or design subcontractor and the employer (see Orange Book 5.1, AlA 1.2.6-Part 1, 1.2.3-Part 2, DBIA 2.2.1). It has been suggested that the employer should perhaps specify his status as an intended third party beneficiary to any agreement between the contractor and a designer or design subcontractor, thus protecting the employer's rights without making him liable under that contract.2° Such a provision could also provide the employer with access to the warranties and guarantees provided by the designers as well as their insurance coverage. 21 9-14

5.2 Contractor's Documents The Contractor's Documents shall comprise the technical documents specified in the Employer's Requirements, documents required to satisfy all regulatory approvals, and the documents described in Sub-Clause 5.6 [As-Built Documents] and Sub-Clause 5.7 [Operation and Maintenance Manuals]. Unless otherwise stated in the Employer's Requirements, the Contractor's Documents shall be written in the language for communications defined in Sub-Clause 1.4 [Law and Language]. The Contractor shall prepare all Contractor's Documents, and shall also prepare any other documents necessary to instruct the Contractor's Personnel.

If the Employer's Requirements describe the Contractor's Documents which are to be submitced to the Employer for review, they shall be submitted accordingly,

20

2.

J.E Butler, "Protecting Owner with Contract Clauses" in R.E Cushman & K.S. Taub, eds, Design-Build Contracting Handbook (Wiley Law Publications, New York, 1992) 253 at 256. ibid. at 272.

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DESIGN

together with a notice as described below. In the following provisions of this Sub-Clause, (i) "review period" means the period required by the Employer for review, and (ii) "Contractor's Documents" exclude any documents which are not specified as being required to be submitted for review. Unless otherwise stated in the Employer's Requirements, each review period shall not exceed 21 days, calculated from the date on which the Employer receives a Contractor's Document and the Contractor's notice. This notice shall state that the Contractor's Document is considered ready, both for review in accordance with this Sub-Clause and for use. The notice shall also state that the Contractor's Document complies with the Contract, or the extent to which it does not comply. The Employer may, within the review period, give notice to the Contractor that a Contractor's Document fails (to the extent stated) to comply with the Contract. If a Contractor's Document so fails to comply, it shall be rectified, resubmitted and reviewed in accordance with this Sub-Clause, at the Contractor's cost. For each part of the Works, and except to the extent that the Parties otherwise agree: (a) execution of such part of the Works shall not commence prior to the expiry of the review periods for all the Contractor's Documents which are relevant to its design and execution; (b) execution of such part of the Works shall be in accordance with these Contractor's Documents, as submitted for review; and (c) if the Contractor wishes to modify any design or document which has previously been submitted for review, the Contractor shall immediately give notice to the Employer. Thereafter, the Contractor shall submit revised documents to the Employer in accordance with the above procedure. Any such agreement (under the preceding paragraph) or any review (under this Sub-Clause or otherwise) shall not relieve the Contractor from any obligation or responsibility.

9-15

One of the contractor's design-related obligations is to prepare the contractor's documents. Silver Book sub-clause 5.2 describes the contractor's documents as the technical documents specified in the employer's requirements, the documents required to satisfy regulatory approvals, the as-built documents and the operation and maintenance manuals. These documents provide the basis for the construction of the works. Although the employer places the responsibility for these documents on the contractor, he will still want ~o oversee their preparation to ensure that the employer's requirements are bemg followed. The contractor, in turn, will want to be assured "that the manner in which the designs are being prepared are in accordance with the employer's expectations". 22 U~der Silver Book sub-clause 5.2 a review procedure is provided but is applicable only to documents specified in the employer's requirements as

DISCUSSION OF SPECIFIC SUB-CLAUSES

being required to be submitted to the employer for review. If a document must be submitted for review, the contractor must give the employer notice that the document is ready for review and use. It must also state that the document complies with the contract or the extent to which it does not apply. The review period (21 days maximum) starts to run from the date the employer receives the document and the notice. Within the review period, the employer may give notice to the contractor that the document does not comply with the contract. In this case, the document must be rectified and resubmitted under this same review procedure. Unless the parties otherwise agree, execution of each part of the works shall not commence prior to the expiry or the review periods for all related contractor's documents, and execution must be in accordance with these documents. Any modifications will be subject to this same review procedure. Silver Book sub-clause 5.2 also indicates that any agreement or review under the clause does not relieve the contractor of any obligations or responsibility. It is important to note that the Silver Book provisions give the employer only limited rights regarding oversight of the contractor's documents. The employer has the right to review the documents only. Although the review procedure is mandatory, approval (or response) is not. Indeed, some authors recommend that design review procedures never be a condition precedent to the proceeding of the works,23 The employer may reject the documents submitted only to the extent that they do not comply with the contract. This "review only" process possibly represents FIDIC's attempt to decrease the employer's control over the construction documents, as compared with the Yellow Book, for example, which has a procedure for review and/or approval. The design review process can be important in order to identify inconsistencies between the employer's requirements and the design at a pre-construction stage where such divergences may be more easily managed or remedied. 24 The "review only" process may also serve to ensure the employer is not viewed as having taken any responsibility for the design, for which the contractor is generally exclusively liable under the Silver Book. 25 In any event, in the experience of the author, in practice there may not be a substantial difference between a simple review process and a process whereby the employer's express approval of documents is required. The FIDIC Orange Book sub-clause 5.2 refers to "Construction Documents" rather than "Contractor's Documents". However, the Orange Book's terminology has generally the same meaning as "Contractor's Documents" under the Silver Book. The Orange Book's provisions under sub-clause 5.2 are similar to those of the Silver Book, except that the employer's representative is expressly given the right to review and inspect the preparation of the construction documents (without the prerequisite of 23

24 22

O. Fox, "Design and Build-The Scope for Claims" (1998) 9 Construction Law 291 at 293.

216

25

ibid. ibid. ibid.; agreeing saying "to avoid/shift risk" Gaede, op. cit. n. 11 above at 483.

217

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9-17

DESIGN

9-18

listing in the employer's requirements). In addition, review by the employer's representative of each construction document is mandatory under the Orange Book. Otherwise, the review procedure is the same as that provided in the Silver Book. The Red Book takes a slightly different approach to contractor's documents because the contractor is generally not responsible for the design of the works. As the Red Book contains no clause 5 regarding design, most references to any contractor-provided design appear in sub-clause 4.1. The Red Book sub-clause states that the contractor shall be responsible for all contractor's documents to the extent that such documents are required, and "Contractor's Documents" has generally the same meaning as in the Silver Book. Contractor's documents are not required if the contractor provides no design. However, Red Book sub-clause 4.1 states that if the contractor designs any part of the permanent works, then the contractor must submit contractor's documents to the engineer for this part as well as "as-built" documents and operation and maintenance manuals. There are no specific review and approval procedures set forth in the Red Book. However, subclause 4.1 indicates that the documents will be submitted in accordance with the procedures specified in the contract. The Red Book contains no restriction that the works shall not commence until the contractor's documents are approved, no express requirement that the execution be in accordance with those documents nor any reaffirmation of the contractor's responsibility despite any approval by the Engineer. The Yellow Book sub-clause 5.2 is generally the same as the Silver Book. However, the Yellow Books adds that the employer's personnel have the right to inspect the preparation of the contractor's documents. There is a procedure for review but it only applies, if so indicated in the employer's requirements, for certain documents. The Yellow Book procedure for review is identical to that of the Silver Book, except that it indicates that the procedure may be for review and/or approval of the specified documents, rather than just review. Note that under the Silver Book, execution does not require approval of the document. The Yellow Book may require review and/or approval by the engineer. If approval is required, the engineer must give notice to the contractor that a contractor's document is approved or that it fails to comply with the contract. Execution may not begin until approval is obtained. However, the document is deemed approved if the engineer fails to approve or notify non-compliance within the 21-day review period. If only review by the engineer is required but no approval, execution may begin upon the expiry of the review period. As in the Silver Book, any review or approval does not relieve the contractor of responsibility, and subsequent modifications are subject to the review and/or approval procedures. A graphic comparison of the review procedures under the Silver and Yellow Books is provided at the end of this subpart. The ENAA does not use the term "Contractor's Documents", nor does it specifically impose any requirements upon their preparation. Under the ENAA, the contractor is obligated to prepare and furnish to the owner any 218

DISCUSSION OF SPECIFIC SUB-CLAUSES

documents listed (in an appendix) as being required to be submitted for approval or review by the owner (ENAA 20.3.1). The documents to be submitted for review only have no special procedure. However, there is a detailed approval procedure, similar to the review andlor approval procedure in the Silver Book. With regard to documents specified as requiring approval, within 14 days of the owner's receipt of such a document, he must either return the document with his approval or notify the contractor of his disapproval and indicate the reasons and proposed modifications (ENAA 20.3.2). If the owner fails to take action within the 14 days, the document is deemed approved (ENAA 20.3.2). The owner may only disapprove on the grounds that the document does not comply with some specific provision of the contract or that it is contrary to good engineering practice (ENAA 20.3.3). Upon disapproval, the contractor may either modify (or accept the owner's proposed modification) and resubmit the document or dispute the disapproval (ENAA 20.3.4). If the disapproval is disputed, the dispute is referred to an expert for decision (ENAA 20.3.5). Any part of the works covered by or related to the documents to be approved shall be executed only after the owner's approval thereof (ENAA 20.3.1). Under the ENAA, the contractor must follow the approved documents, unless a modification has been submitted to the owner and approved (20.3.7). Any subsequent change to an approved document constitutes a change in the works (20.3.7). The owner's approval, however, does not relieve the contractor of any responsibility or liability, except where and to the extent that an expert upholds the contractor's dispute of a modification to a document (ENAA 20.3.6). In any event, regardless of whether the document is subject to review and/or approval, the ENAA states: The Contractor shall be responsible for any discrepancies, errors or omissions in the specifications, drawings and other technical documents prepared by it, whether such specifications, drawings and other documents have been approved by the Owner or not, provided that such discrepancies, errors or omissions are not due to inaccurate information furnished in writing to the Contractor by or on behalf of the Owner. (ENAA 20.1.1.) The EIC does not contain a comprehensive listing or description of documents required of the contractor that would be similar to contractor's documents as the term is used in the Silver Book. The EIC does refer to preliminary and final design, as well as drawings and as-built drawings. The term "drawings" is defined in EIC 1.1(xvi) as "all Drawings, provided by the Contractor under the Contract". However, "drawings" under the EIC seem to be only a subset of what the Silver Book would refer to as contractor's documents. There are some £IC review and approval procedures relating to designs. Under EIC sub-clause 3.3, the employer is required to review the contractor's proposals for the preliminary design and approve the same within a particular time stated in the appendix to the contract. The employer must also 219

9-19

DESIGN

review the final design submitted by the contractor within a particular time stated in the appendix (EIC 3.4). Upon approval, the final design becomes the approved. design (EIC 3.4). T~e times for submission of the preliminary and final designs are also stated In the appendix (EIC 4.2). With regard to the approval procedure: Where approvals are required or sought from the Owner under the Contract the Owner shall give timely consideration to approval or disapproval. If th~ Owner has not approved or disapproved within 14 (fourteen) Days of submission by the Contractor to the Owner for approval, the approval shall be deemed to have been given.

(EI~ 3.7.) The contractor also assumes full responsibility for the approved deSign, unless the contractor expressly disclaims responsibility for a decision by the employer regarding the design in the context of the approval procedure (EIC 4.2). 9-20 The ICE does not use the term "Contractor's Documents" but does require the contractor to submit to the employer's representative "such designs and drawings as are necessary to show the general arrangement of the Works and that the Works will comply with the Employer's Requirements" (ICE 6(2)(~)). If the employer'~ representative considers that any design or draWing does not comply With either the employer's requirements or the contr~ct, he must give the contractor motivated, written notice (ICE 6(2)(b)). In this event, the employer's representative's consent is withheld and the c,ontractor must re-submit the design or drawing with appropriate modifications (ICE 6(2)(b)). As in the Silver Book, the contractor must re-submit designs or drawings that he wishes to modify that have already been consented to (~CE 6(2!(c))., Although there is no fixed time for the employer's represe~ta~lve to give hiS consent to, or reject, a design or drawing, if it is not "Within a reasonable period" this must be taken into account when determining the contractor's extension of time and increase in cost (ICE 6(2)(d)). The contractor is also precluded from beginning construction based on a submitted design or drawing until he has received the consent of the employer's representative (ICE 6(2)(a)). Finally: The giving ,of any cons~nt or approval by or on behalf of the Employer's ~epresentatJve shall not In any way relieve the Contractor of any of his obligatlo,ns under the Contract or his duty to ensure the correctness accuracy or suitabIlity of the matter or thing which is the subject of the consent or approval.

9-21

(ICE 1 (7)(a).) Un~e~ the AlA's two-part approach, the contractor begins under Part 1 by submitting to the employer a proposal for completion of the works: The Desig~~uilder sh~ll submit to the Owner a Proposal, including the completed PreltmInary DeSign Documents .... Preliminary Design Documents shall consist of preliminary design drawings, outline specifications or other documents sufficient to establish the size, quality and character of the entire Project,

DISCUSSION OF SPECIFIC SUB-CLAUSES

its architectural, structural, mechanical and electrical systems, and the materials and such other elements of the Project as may be appropriate. (AlA 1.3.5-Part 1.) In Part 2 of the AlA, the contractor must submit construction documents for review and approval by the owner (AlA 3.2.4-Part 2). The AlA indicates that: Construction Documents may include drawings, specifications, and other documents and electronic data setting forth in detail the requirements for construction of the Work, and shall: .1 be consistent with the intent of the Design/Builder's Proposal; ,2 provide information for the use of those in the building trades; and .3 include documents customarily required for regulatory agency approvals. (AlA 3.2.4-Part 2). However, there is no detailed procedure regarding review and approval. The contractor is also authorised to make minor changes to the construction documents and to the construction, provided that the changes are consistent with the contract documents and do not require adjustment of the contract price or time extension (AlA 8.4.1-Part 2). However, any minor changes must be promptly notified to the employer in writing (AlA 8.4.l-Part 2). The AGC requires the employer's written approval of all drawings and specifications:

9-22

Pursuant to a mutually agreeable schedule, the Design-Builder shall submit for the Owner's written approval, as applicable, Design Development Documents and/or Construction Documents, based on the Contract Documents in existence at the time of the execution of this Agreement or any further development of Contract Documents that have been approved in Writing by the Owner. (AGC 3.1.1.) A separate provision indicates that employer "shall review and approve further development of the drawings and specifications as set forth in Article 3" (AGC 4.2.1). Revisions to design documents after they have been approved by the owner when the revisions are due to causes beyond the control of the contractor are considered "additional services" under AGC 3.10.11. Causes "beyond the control" of the contractor, however, do not include "acts or omissions on the part of subcontractors, sub-subcontractors or the Architect/Engineer" (AGC 3.10.11). The DBlA contemplates that the contractor and the employer will come to an agreement upon any "interim design submissions" that the employer may wish to review (DBIA 2.4.1). "Interim design submissions" include "design criteria, drawings, diagrams and specifications setting forth the Project requirements" (DBIA 2.4.1). The contractor must also submit construction documents to the employer "setting forth in detail drawings and specifications describing the requirements for construction of the Work" (DBIA 2.4.2). Around the time these submissions are to be made, the contractor and employer are required under the contract to meet and confer

220 221

9-23

DESIGN

9-24

DISCUSSION OF SPECIFIC SUB-CLAUSES

Figure 9.1

Comparison of FIDIC review processes

about the submissions (DBIA 2.4.1, 2.4.2). After the review meeting, the employer must review and approve the interim design submissions and construction documents "in a time that is consistent with the turnaround times set forth in Design-Builder's schedule" (DBIA 2.4.1,3.1.2). The DBIA also states that "[n]either Owner's review nor approval of any interim design submissions and Construction Documents shall be deemed to transfer any design liability from Design-Builder to Owner" (DBIA 2.4.3).

A. Review only-Silver Book CONTRACTOR prepares contractor's documents Submission to employer with notice

9-25

5.3 Contractor's Undertaking r------------------------------------------------ ---------- __________________________________ _

i I

~

, 'E

Contractor rectifies document(s) and resubmits

1i

::.~

I~U-

Il~! II ~§ ' i

The Contractor undertakes that the design, the Contractor's Documents, the execution and the completed Works will be in accordance with: (a) the Laws in the Country, and (b) the documents forming the Contract, as altered or modified by Variations.

':

:

I!

~ ~ ~

I ,:

~-

I

-1

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.----------------... --------------------------- ---------------------------------- _________________ .. J

Contractor may commence works after expiry of 21-day review period

B. Review and possible approval- Yellow Book CONTRACTOR prepares contractor's documents Submission to employer with notice EMPLOYER r------------------------------------------------ ---------------------------------------__________ _ , C-l

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ontractor rectifies

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resubmits I 1

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l~_ :_ _ _ _--- - - ___ _ _ ____ _ _ __ ___ _ ________________________J Contractor may commence works after expiry of 21-day review period

222

Silver Book sub-clause 5.3 provides simply that all aspects of the works and contract execution must comply with the laws of the host country and be in accordance with the contract documents, as modified or altered by variations. As a point of precision, the FIDIC Guide asserts that "[a] variation changes the 'works', but does not amend the 'contract'" .26 It should be noted that the contract documents include the employer's requirements, the accuracy of which the contractor is responsible for. Sub-clause 5.3 appears to require the contractor to execute the works in accordance with these requirements, regardless of any inaccuracies they may contain. One author suggests this ambiguity should be resolved pre-tender.27 Orange Book sub-clause 5.3 is generally the same as the Silver Book, except that the contractor only undertakes to do these things "if legally and physically possible" (OB 5.3). The Red Book contains these same general requirements but not in a single clause. Under Red Book sub-clause 1.13 the contractor agrees to comply with all applicable laws and under sub-clause 4.1 agrees to design, execute and complete the works in accordance with the contract. Yellow Book sub-clause 5.3 is identical to the Silver Book provision. The ENAA contains no single clause comparable to Silver Book sub-clause 5.3. However, the same obligations exist in two separate clauses. Under ENAA 9.4 the contractor agrees to "comply with all laws in force in the country where the Works are carried out, whether national, provincial, municipal or otherwise". ENAA 7.1 provides that the contractor ensure the "design, procurement, construction, erection, commissioning, testing and delivery of the Plant and the completion of the Works in accordance with [the documents forming the Contract)". The EIC is similar to the ENAA in that provisions comparable to Silver

26

21

FIDIC Guide, op. cit. n. 1 above, p. 144. EIC, The EIC Contractor's Guide to the FIDIC Conditions for EPC Turnkey Projects (European International Contractors, Berlin, 2000), p. 19.

223

9-26

DESIGN

DISCUSSION OF SPECIFIC SUB-CLAUSES

Book sub-clause 5.3 are contained in two separate clauses. Under EIC 6.1 the contractor agrees to "comply with the local statutes and regulations prescribed for use of the Site and performance of the Works". EIC 4.1 further states that "[tJhe Design and the Works shall be executed and completed ... in accordance with the Contract". Similarly, under the ICE, AlA and DBIA the contractor is generally required to comply with all applicable laws (ICE 26(3), AlA 1.3.3-Part 1, AlA 3.2.11-Part 2, DBIA 2.5.1) and complete the works in accordance with contract (ICE 8(1), AlA 3.2.9-Part 2, DBIA 2.9.1). AGC 3.2.3 requires the contractor to comply with all laws, but does not contain an express provision requiring execution in accordance with the contract documents, though this obligation is generally implied (see, for example, AGC 8.3.1 and AGC 9.3.1).

9-27

S.4 Technical Standards and Regulations The design, the Contractor's Documents, the execution and the completed Works shall comply with the Country's technical standards, building, construction and environmental Laws, Laws applicable to the product being produced from the Works, and other standards specified in the Employer's Requirements, applicable to the Works, or defined by the applicable Laws. All these Laws shall, in respect of the Works and each Section, be those prevailing when the Works or Section are taken over by the Employer under Clause 10 [Employer's Taking Over). References in the Contract to published standards shall be understood to be references to the edition applicable on the Base Date, unless stated otherwise. If changed or new applicable standards come into force in the Country after the

Base Date, the Contractor shall give notice to the Employer and (if appropriate) submit proposals for compliance. In the event that: (a) the Employer determines that compliance is required, and (b) the proposals for compliance constitute a variation, then the Employer shall initiate a Variation in accordance with Clause 13 [Variations and Adjustments).

9-28

Silver Book sub-clause 5.4 requires the design, contractor's documents, execution and completion to be in compliance with the country's technical standards, building codes, environmental laws, laws applicable to the product produced and any other standards specified in the employer's requirements. The laws are those in force when the works or section is taken over by the employer. If changes in these laws or standards occur after the base date, the contractor must give notice to the employer and possibly submit proposals for compliance. If the employer determines compliance is required and compliance constitutes a variation, the employer is required to initiate a variation under the appropriate contract procedure. Orange Book 5.4 is generally identical to the Silver Book but does not contain the mention that the applicable laws are those in force at the time of 224

taking over. If there are changes in the laws or standards, the contractor is required to submit a proposal for compliance to the employer's representative who will initiate a variation if he considers compliance to constitute a variation. The Red Book does not contain a provision similar to Silver Book subclause 5.4. However, the general obligation can be found in other clauses. In Red Book 1.1.6.5, "laws" are defined as "all national (or state) legislation, statutes, ordinance and other laws, and regulations and by-laws of any legally constituted public authority". Sub-clause 1.13 indicates that the contractor shall comply with applicable laws in performing the contract. Although, there are not specific notice, proposal and variation procedures imposed comparable to those in the Silver Book, Red Book sub-clause 13.7 would give the contractor the right to request an extension of time or payment of costs to the extent these were incurred due to a change in law affecting the contractor's performance of his obligations. The Red Book generally succeeds in imposing the same general obligations as Silver Book 5.4 but indirectly and with less specificity. Yellow Book 5.4 is identical to Silver Book 5.4, except that it is the engineer who receives notice of a change in the law or standard and determines whether contractor's compliance is required. The non-FIDIC contracts do not speak in terms of "technical" standards and regulations but more generally of laws, regulations, ordinances, etc. However, most of the provisions seem broad enough to cover technical standards. Most of the non-FIDIC contracts also contain provisions for contract adjustments in the event laws or regulations are added or changed. Although in separate clauses and in a slightly different form, the ENAA provisions, for the most part, parallel those of Silver Book sub-clause 5.4. ENAA sub-clause 9.4 requires the contractor to "comply with all laws in force in the country where the Works are carried out, whether national, provincial, municipal or otherwise". ENAA 20.2 further states that when references are made in the contract to codes and standards applicable to execution of the works, the version in effect at the date of the agreement shall apply unless otherwise specified. Finally, if any law, regulation, ordinance, order or bye-law is enacted, abrogated or changed and this affects the costs and expenses of the contractor and/or the time for .completion, reasonable adjustments in price and time will be made (ENAA 36.1). ENAA 36.1 only permits price and time adjustments for changes in law and regulations occurring after the date of the agreement. Consequently, the contractor is liable for changes between the date of tender and the date of agreement. The EIC is much less detailed than the Silver Book or the ENAA and does not contain all the same obligations. Nonetheless, the contractor is expressly required to "comply with the local statutes and regulations prescribed for use of the Site and performance of the Works" (EIC 6.1). The ICE states in its sub-clause 26(3) that: [t)he Contractor shall ascertain and conform in all respects with the provisions of any general or local Act or Parliament and the Regulations and Bye-laws of 225

9-29

9-30

DISCUSSION OF SPECIFIC SUB-CLAUSES DESIGN

any local or other statutory authority which may be applicable to the Works and with such rules and regulations of public bodies and companies as aforesaid ....

9-31

The ICE refers to all rules and regulations that "may be applicable to the Works" but does not state exactly what will happen if these are changed after the contract enters into effect. However, ICE 26(3)(b) does state that "if the Employer's Requirements are at any time found to preclude conformity with any such Act Regulation or Bye-law the Employer's Representative shall issue such instructions including the ordering of a variation under Clause 51 as may be necessary to ensure conformity with such Act Regulation or Byelaw" (ICE 26(3)(b)). Under the AlA, the contractor has a responsibility in Part 1 of the contract to "review laws applicable to design and construction of the project, correlate such laws with the owner's programme requirements, and advise the owner if any programme requirement may cause a violation of such laws" (AlA 1.3.3-Part 1). Part 2 of the AlA also requires the contractor to "comply with and give notices required by laws, ordinance, rules, regulations and lawful orders of public authorities relating to the Project" (AlA 3.2.11-Part 2). Revisions to any drawings, specification or other documents necessitated by the subsequent enactment or revision of codes, laws or regulation are considered "additional services" under both Parts 1 and 2 for which the contractor may receive additional compensation (AlA 1.4.1Part 1, 3.3.2-Part 2). In addition, the contractor "shall be compensated for changes in the construction necessitated by the enactment or revision of codes, laws or regulations subsequent to the submission of the Design/Builder's Proposal" (AlA 8.6.1-Part 2). The AGC does not specifically mention technical regulations. It does, however, require the contractor to "give all notices and comply with all laws and ordinances legally enacted at the date of execution of the Agreement which govern the proper performance of the Work" (AGC 3.2.3). In addition, drawings and specifications must be based upon the codes, laws or regulations enacted at the time of their preparation (AGC 3.1.2). Similarly, under the DBIA the contractor must "perform the Work in accordance with all Legal requirements and shall provide all notices applicable to the Work as required by the Legal Requirements" (DBIA 2.5.1). The DBIA also contains provisions for adjustments of the contract price and/or time for completion caused by "changes in the Legal Requirements enacted after the date of the Agreement affecting the performance of the Work", and this includes corresponding revisions to the construction documents (DBIA 2.5.2). In the context of the Silver Book's reference to the standards stated in the employer's requirements, the parties may want to include technical standards of another country if the site country's national standards are insufficient or do not exist. The contractor would then be required to comply with the more rigorous of the local standard or the additional contractual standard. In addition, it may be prudent to indicate that the contractor's reliance

on a specified standard shall not relieve him of the gen,eral fi~ness for purpo~e requirement in completing the works. If the employer s reqUlre~ents contam incomplete specifications that could be supplemented by techmcal standards referenced in the contract, the employer may want to preclude the contractor from claiming later that his design was proper, though arguably not fit for purpose, because he relied on an approved technical standard referenced in the contract.

9-32

5.5 Training The Contractor shall carry out the training of Employer's Personnel in the operation and maintenance of the Works to the extent specified in the Employer's Requirements. If the Contract specifies training which is to be carried out before taking-over, the Works shall not be considered to be completed for the putI~oses of taking-over under Sub-Clause 10.1 [Taking Over of the Works and SectIOns] until this training has been completed. Silver Book sub-clause 5.5 requires the contractor to train the employer's personnel to operate and maintain the works, to the exte~t specifie~ in the employer's requirements. The FIDIC Guide notes the rationale ~e.hmd the inclusion of this, otherwise optional, clause in the general condlt1~>ns: th.e stipulation that sub-clause 10.1 ("Taking Over") will not. b~ effe~tlve until such training is complete. 28 Yellow Book sub-clause 5.5 IS Identical to t~e Silver Book provision. Neither the Orange Book nor the Red Book contam any provisions regarding training. . The ENAA states that the "[c]ontractor shall be responSible for conducting the training of the Owner's operating and maintenance personnel" (ENAA 7.4). However, the EIC, ICE, AlA, AGC an~ DBIA contain no provisions regarding training.

9-33

5.6 As-Built Documents

9-34

The Contractor shall prepare, and keep up-to-date, a complet~ set of ~as-bu.i1t" records of the execution of the Works, showing the exact as-bUilt locations, sizes and details of the work as executed. These records shall be kept on the Site and shall be used exclusively for the purposes of this Sub-Clause. Two copies shall be supplied to the Employer prior to the commencement of the Tests on Completion. In addition, the Contractor shall supply to the Employer as-built drawings of the Works, showing all Works as executed, and submit them to the Employer for review under Sub-Clause 5.2 [Contractor's Documents). The Contractor shall obtain the consent of the Employer as to their size, the referencing system, and other relevant details. 2.

FIDIC Guide, op. cit. n. 1 above, p. 146.

227 226

DESIGN DISCUSSION OF SPECIFIC SUB-CLAUSES

Prior to the issue of any Taking-Over Certificate, the Contractor shall supply to the Employer the specified numbers and types of copies of the relevant as-built drawings, in accordance with the Employer's Requirements. The Works shall not be considered to be completed for the purposes of taking-over under SubClause 10.1 [Taking Over of the Works and Sections] until the Employer has received these documents. As-built records and drawings allow the employer and his personnel to have a full view of the construction and give them a guide for future maintenance, repairs or modification of the works. Given their importance, the Silver Book requires that these be subject to the review process set forth in sub-clause 5.2 (apparently without separate reference in the employer's requirements as documents subject to the sub-clause 5.2 review). Silver Book sub-clause 5.6 requires the contractor to prepare and update as-built records, which must be kept on the site. Prior to the tests on completion, two copies of these as-built records must be submitted to the employer. The as-built records must also be submitted for the employer's review in the same way as contractor's documents. The Silver Book also refers to "as-built drawings" which must be submitted prior to the employer's taking over of the works. The as-built records show "the exact as-built locations, sizes and details of the work as executed". The as-built drawings must be submitted in accordance with the employer's requirements. 9-35 Orange Book sub-clause 5.6 is generally identical to the Silver Book provision. Some minor differences are that the Orange Book specifically requires the as-built documents to be cross-referenced to the relevant specifications and data sheet. In addition, the as-built drawings must be prepared as the works proceed and be submitted to the employer's representative for his inspection but not specifically under the review procedure for contractor's documents. Yellow Book sub-clause 5.6 is identical to the Silver Book provision, except that it is the engineer, rather than the employer, who receives the copies and approves their form. Under the Red Book, the contractor is only responsible for as-built documents related to any design he might provide for the works. Under subclause 4.1(d), to the extent the contractor provides some design, as-built documents must be submitted to the engineer for that part of the works prior to the commencement of the tests on completion. As in the Silver Book, submission of the as-built documents are a prerequisite to completion of the works. However, no as-built drawings are required. 9-36 The ENAA makes no specific mention of as-built documents. However, this type of document may be listed in an appendix within the list of documents to be submitted to the employer for review. The EIC simply states: "Following issue of the Taking Over Certificate, the Contractor shall supply to the Owner 2 (two) copies of as built drawings." (EIC 6.14.) The requirements for as-built documents under the ICE are the same as its provisions for operation and maintenance manuals. Prior to the issue of the defects correction certificate, the contractor must submit "as-constructed record drawings" for approval and then a set of final drawings after approval by the employer's representative (ICE 61(3)).

The AlA requires the contractor to maintain and provide the employer with one record copy of construction documents (AlA 3:2.15-Part ~). However, it is not specifically stated that these documents lOc~ud.e as-bUilt records or drawings. The AGC requires the contractor to submit elt~er final marked up as-built drawings or updated electr?nic data (as d~ter~lOe~ b.y the parties before entering into the contract) ~hlch .documentatlon IS to lOdlcate "how the various elements of the Work lOcludlOg chang~s were actu~lly constructed or installed" (AGC 3.3.9). The DBIA contams no specific requirements regarding as-built records.

5.7 Operation and Maintenance Manuals

9-37

Prior to commencement of the Tests on Completion, the Contractor ~hall supply to the Employer provisional operation and maintenance manuals m s~fficlent detail for the Employer co operate, maintain, dismantle, reassemble, adjust and repair the Plant. The Work~ shall not be considered to be completed for the purp~ses of ta~ing­ over under Sub-Clause 10.1 [Taking Over of the Works and Sections) untll the Employer has received final operation and maintenance ~anuals in such detail, and any other manuals specified in the Employer's ReqUirements for these purposes. The operation and maintenance manuals will be :the guide for the futu~e operation, maintenance and modification of the ~orks. ~he employer Will want to ensure that these contain all the information that It or the operator will need. The Silver Book indicates that they must be sufficiently .detailed for the employer "to operate, maintain, dismantle, reassemble, adjust a~d repair the Plant". The employer will need to deci~e if this lev~l of deta~l ~Ill suffice. In addition, this sub-clause could be modified to require submiSSIOn of these manuals for approval by the employer. Silver Book sub-clause 5.7 divides the contractor's obligation to provide operation and maintenance manuals into two parts. First, prior to the tests on completion, the contr~c­ tor must supply provisional manuals. However, the work~ are not con~ld­ ered to be completed for taking over by the employer untIl final operatIOn and maintenance manuals are provided. Yellow Book sub-clause 5.7 is identical to the Silver Book prOVISIOn, except that the manuals are supplied to the engineer, rather than directly to the employer. Orange Book sub-c1a~se 5.7 con.tains substantia~ly the same requirements as the Silver Book but simply requJCes the 'preparatJo~ and submission to the employer's representative of the operation and. malOtena?ce manuals prior to commencing the tests on completion. There I~ no ment~on of "provisional" manuals and then later "final" manuals pnor to taklOg over. With regard to the Red Book, to the extent the contractor sup~lies any related design, sub-clause 4.1(d) requires the cont~actor to .submlt to the engineer, prior to the commencement of the tests on completIOn, operatIOn

228

229

9-38

DISCUSSION OF SPECIFIC SUB-CLAUSES DESIGN

9-39

and maintenance manuals in accordance with the specifications and in sufficient detail for the employer to operate, maintain, dismantle, reassemble, adjust and repair this part of the works. The part designed by the contractor shall not be considered complete for taking over until these manuals have been submitted. ICE sub-clause 48(3) requires the contractor to provide operation and maintenance instructions prior to the issue of any certificate of substantial completion. In addition, the contractor must submit to the employer's representative a set of draft operation and maintenance manuals for his approval after which the contractor must supply three sets of manuals as finally approved (ICE 61(3)). The ENAA, ElC, AlA, AGC and DBlA contain no specific obligation requiring operation and maintenance manuals.

3.2.8, 9.1-Part 2, AGC 3.8.1, DBIA 2.9.1, 2.10). However, these c~ntracts do not expressly state that contractor's documents must also .be r~ctlfied n?r do they link the identification of any error or defiCiency to Its discovery In the construction documents.

5.8 Design Error

9-40

If errors, omissions, ambiguities, inconsistencies, inadequacies or other defects are found in the Contractor's Documents, they and the Works shall be corrected at the Contractor's cost, notwithstanding any consent or approval under this Clause.

9-41

Silver Book 5.8 requires the correction at the contractor's cost of any errors, omissions, ambiguities, inconsistencies, inadequacies or other defects contained in the contractor's documents. Both the documents and the works themselves must be corrected. Orange Book sub-clause 5.8, entitled "Error by Contractor", is substantially similar to the Silver Book provision, but mentions only "errors" in the documents and leaves out the language, "notwithstanding any consent or approval under this Clause". Yellow Book subclause 5.8 is identical to the Silver Book provision. The "approval" mentioned in Silver Book sub-clause 5.8 would seem inconsistent with the provisions of sub-clause 5.2, where the employer does not "approve" the contractor's documents. One author suggests that, as a practical matter, "sub-clause 5.2, coupled with sub-clause 5.8, will expose the contractor to significant interference and ultimately expose the employer to claims for that interference" .29 Red Book sub-clause 4.1 (c) does indicate that the contractor is responsible for any part of the works he designs. In addition, the contractor is not relieved of responsibility by reason of the engineer approval of the design or related documents (RB 3.1(c)). Although the contractor would be liable to remedy any defect resulting from errors in his design (RB 4.1), there is no specific requirement stating that the related contractor's document must be corrected. However, correction of the related documents seems to be implicit. The non-FlDlC contracts all contain provisions requiring the contractor to remedy any defects in the works (ENAA 27.2, EIC 9.5, ICE 49(2), AlA 29

Gaede, op. cit. n. 11 above at 483.

230

231

CHAPTER

10

STAFF AND LABOUR General Comments Under a turnkey construction contract or EPC contract, the contractor is responsible for providing and supervising the necessary staff and labour. In order to ensure the quality of the works and their efficient and timely completion, the employer will impose certain restrictions on the contractor regarding labour and labour-related issues. This chapter discusses the regulation by the employer of the contractor's hiring and use of labour for the design and construction of the works.

10-01

Provision of staff and labour Under the FIDIC Silver Book the contractor provides all staff and labour (5B 6.1). He must provide them with wages and conditions no less favourable than those established in the trade or industry of the site country (SB 6.2). The contractor should carefully consider the hiring of staff and labour during the tendering stage. He will need to evaluate the site and the site country for legal and practical limitations and assess any expenses related to the hiring and transport of labour. This will include the need to provide for managers and supervisors with appropriate language skills to ensure proper cbmmunication between the contractor, his designers and the staff and labour.! The contractor must also consider the labour laws of the site country. In some instances mandatory legal rules of the contractor's country may also apply to construction performed in the site country by its nationals. International rules or conventions may also apply to health, safety or environmental considerations. 2 The parties will need to allocate responsibility for obtaining work permits I

2

The World Bank recommends the use of clauses requiring linguistic skills, including the provision of competent translators maintained on the site at all times for proper and correct transmission of instructions. World Bank "Standard Bidding Documents for the Procurement of Works" (World Bank, Washington, D.C., 2000) online: World Bank http://www.worldbank.orglhtmllopr/biddocs/workslw-titlpg.htm (date accessed: July 16, 2001) at 109. UNCITRAL, UNCITRAL Legal Guide on Drawing Up International Contracts for the Constructiofl of Industrial Works (UN, New York, 1998) UNDOC. NCN.9/SER.B/2, p. 110.

233

10-02

DISCUSSION OF SPECIFIC SUB-CLAUSES

STAFF AND LABOUR

10-03

and residence visas for expatriate personnel. This responsibility will almost invariably be allocated to the contractor. However, the employer will often be in a position in the site country to assist the contractor in obtaining such permits and visas. The contractor has a further duty to provide all staff, including the specified staff of the employer and the employer's representative, with certain facilities (SB 6.6). The facilities specified may range from accommodation, sanitation, food and medical facilities, to possibly schools for both indige- ' nous and expatriate children. 3 The provision of such facilities could prove to be expensive in certain countries or projects depending on the state and availability of facilities already on or near the site. One question that frequently arises in this regard is whether local labour will be provided with the same level of facilities as those provided to expatriate personnel. Similar questions may arise where the construction occurs in a nation that is more developed economically than that of the contractor. The different approaches to these issues in the various form contracts is contained in the discussion of Silver Book sub-clause 6.6 below. The parties may also need to consider a number of other factors, including supply of water, transport and/or use of alcoholic beverages, drugs and firearms, epidemics, repatriation, temporary housing, standards of accommodation, hospitals, schools, power, drainage, sewage disposal, fire services, telephones, work hours and working conditions. The World Bank provides a helpful series of model clauses on these issues in their Standard Bidding Documents. 4 The turnkey or EPC contract for each project should be carefully drafted to take into account the specific needs of labour in the site country.

Superintendence

10-04

Under the Silver Book, the contractor must oversee the design and execution of the works for as long as is necessary to fulfil his obligations (SB 6.8). The duty of superintendence includes verifying the professional and personal qualifications of each individual hired. s The persons employed must be qualified and careful (SB 6.9). This obligation to superintend extends to the contractor's responsibility to take reasonable precautions against unlawful, riotous or disorderly conduct among his labour force (SB 6.11).

The provision of schools is not specified in either the Silver or the Orange Books, but has been implied by Sawyer and Gillott from the old Red Book, as discussed in their article, The FIDIC Condition: Digest of Contractual Relationships and Responsibilities (1981), p. 40. • World Bank op. cit. n. 1 above at 208-210. S The World Bank recommends various provisions concerning the qualifications of personnel including specifying the language skills of employees, particularly those with supervisory duties, ibid. at 109. 3

234

Discussion of Specific Sub-Clauses Clause 6 of the Silver Book, entitled "Staff and Labour", sets forth the specific terms regarding the labour issues discussed above, such as t~e gene~al obligation to provide labour for completion of the works, compliance With labour laws as well as health, safety and superintendence obligations. The Silver Book also contains certain provisions that are unique to the industry forms. For example, the Silver Book requires that la~~ur be paid in accordance with local rates of wages and that local conditions of labour be observed. In addition, the contractor is prohibited from recruiting staff and labour from among the employer's personnel. The Silver Book provisions will be discussed below with a comparison to the other industry forms.

10-05

6.1 Engagement of Staff and Labour

10-06

Except as otherwise stated in the Employer's Requirements, the Contractor shall make arrangements for the engagement of all staff and labour, local or otherwise, and for their payment, housing, feeding and transport.

Silver Book sub-clause 6.1 sets forth the contractor's general obligation regarding staff and labour. It requires simply that the contractor. provide all staff and labour required for the works and to arrange for their payment, housing, feeding and transport. Orange Book sub-clause 6: 1 is nearly i?entical and the Red and Yellow Book provisions are identical to the Silver Book provision. Although this sub-clause '~removes any ,!mplication of o~li­ gation on the part of the Employer to proVide personnel , the FIDIC GUIde recommends that the employer's obligation be specified where he is to make available any personnel. 6 All of the non-FIDIC contracts discussed herein require the contractor to provide all staff and labour required for the execution of the works (see ENAA 22.1.3(a), EIC 6.2, ICE 8(1)(b), AlA 3.2.5-Part 2, AGC 3.2.2, DBIA 2.7.1). What differs in the non-FIOIC contracts is the extent to which requirements are expressly imposed on the contractor regarding payme~t, housing, feeding and transport of staff and labour. Some of the contracts diScussed below do not contain an express statement that the contractor "pay" for the labour. However, this is implied by the general obligation to provide all necessary labour. The ENAA contains all of the specific requirements of Silver Book 6.1 mentioned above, stating that "the Contractor shall be responsible for the recruitment, transportation, accommodation and catering of all labour, local ~r expatriate, required for the execution of the Works and for all payments In 6

FIDIC, The FIDIC Contracts Guide (Federation Internationale des Ingenieurs·Conseils, Lausanne, 2000), p. 150 (hereinafter FIDIC Guide).

235

10-07

STAFF AND LABOUR DISCUSSION OF SPECIFIC SUB-CLAUSES

connection therewith" (ENAA 22.1.3(b)). EIC sub-clause 6.3 is nearly identical to the ENAA provision and contains these same specific requirements. ' The ICE is less comprehensive. Along with the general obligation to provide all labour, ICE 8(1)(b) also provides that the Contractor is responsible for the transport of labour "to and from and in or about the Site ... ". However, housing and feeding of staff and labour are not specifically mentioned in the ICE. The AlA expressly requires the contractor to pay for labour and ensure their transport. Housing and feeding of labour are not specifically mentioned. However, the contractor's obligations are set forth in broad terms. He is required to provide "other facilities and services necessary for proper execution and completion of the Works" (AlA 3.2.5-Part 2). This could extend to additional accommodations for staff and labour to the extent these are required for the proper execution and completion of the works. Under the AGC, the Contractor has the general obligation under its subclause 3.2.2 to provide all necessary labour to complete the work. However, housing, feeding and transport of staff and labour are not specifically mentioned. Similarly, DBIA sub-clause 2.7.1 contains the general obligation to provide labour but makes no express mention of housing, feeding or accommodation.

10-08

d 'th the market value and not on an artificial scale imposed by acco:n a?~e e;ISome authors recommend a simple referen~e to the 10c~1 law inPorder to avoid controversy that may arise under thIS sub-clause s reference to an "industry standard".8

~~;

The Contractor shall not recruit, or attempt to recruit, staff and labour from amongst the Employer's Personnel. The above provision is self-explanatory and is contained ve~batim in ~h~ Red and Yellow Books in their respective sub-clauses 6.3. Parties may.wI~ to add language to the effect that neither party shall attempt t~ recruIt t , rsonnel without first seeking that other party s approva: is substantially identical. The non-FIDIC contacts contain no prohibition ~gainst the contractor's recr~itment of t~e empl.oyer~ personnel. The importance of this provision for eIther party IS questlOna e.

10-11

6.4 Labour Laws

10-12

6.2 Rates of Wages and Conditions of Labour

Silver Book sub-clause 6.2 is a rather unique provision that is not contained in any of the non-FIDIC contracts discussed herein. It sets certain levels for labour payment and conditions using local Custom and practice as the benchmark standard. This is an interesting provision in the COntext of an international project, but perhaps of little importance in purely domestic transactions. Orange Book sub-clause 6.2 contains nearly identical terms, and the Red and Yellow Books contain a sub-clause 6.2 identical to the Silver Book provision. The purpose of Silver Book sub-clause 6.2 is unclear. It has been suggested that FIDIC has embarked on "social engineering" through its form contracts'? Both parties will want to consider carefully the effect of such a clause on the cost and efficiency of their project. The contractor may want to delete this sub-clause. He will want to have the ability to pay the rate of wages in 7

J.L. Jaynes, "The New Color in FIDre's Rainbow: The Trial Edition of the 'Orange Book'" (1995) 12 1.C.L.R. 367 at 381. The author is of a similar opinion.

I;

~;:~g~a;:o~ ~e3

The Contractor shall comply with all the relev~nt labou~ Laws applicabl~to t~e Contractor's Personnel, including ~aws. relatin t~ ~~e:f :n:h~~~~~~eire~~a; safety, welfare, immigration and emIgration, an s a a 0 rights. , The Contractor shall require his employees to obey all applicable Laws, mcluding those concerning safety at work.

J

The Contractor shall pay rates of wages, and observe conditions of labour, which are not lower than those established for the trade or industry where the work is carried out. If no established rates or conditions are applicable, the Contractor shall pay rates of wages and observe conditions which are not lower than the general level of wages and conditions observed locally by employers whose trade or industry is similar to that of the Contractor. 10-09

10-10

6.3 Persons in the Service of Others

The requirement in sub-clause 6.4 to comply with applic~ble la;ou~ la~s and re ulations is perhaps an unnecessary repetition of SII.ver 00 suclause entitled "Compliance with Laws". Nonetheless, Book subclause 6.4 specifically requires the contractor to comp!y wI~h a!l releva~t labour laws applicable to the contractor's personnel. ThIS obhgatl~n sp.eclfically includes laws relating to employment, healt~, safety, ~~Ifa/e, Imm~g,ra­ tion and emigration. In addition, the contractor IS responsl Ie or requmng that his employees comply with these laws as well. Orange Book 6.4 provides substantially identical provisions. Red and Yellow sub-clauses 6.4 are identical to the Silver Book. . . d' The non-FIDIC contracts generally contain broader ?COVISlOns regar mg compliance with laws and regulations rather than haVing a separate clau~e addressing labour laws specifically. However, some of the books contain additional labour-related provisions.

r.13

8

9

S~lver

B. Cazalet &. R. Reece, "Conditions applicables aux contrats de conception et cles en main" (1996) 3 R.D.A.I.II.N.L.J. 279 at 291. FIDIC Guide, op. cit. n. 6 above, p. 151.

construction

236 237

10-13

STAFF AND LABOUR

Th~ ENAA indicates that the contractor must comply with all laws in force m the country where the works are carried out (ENAA 9.4). He must also use best endeavours to prevent unlawful conduct by employees or subcontractors (ENAA 22.1.3(e)). ,The EIC is very similar to the ENAA. It requires the contractor to "comply With the local statutes and regulations prescribed for use of the Site and performance of the Works" (EIC 6.1). The contractor must also use all reasonable endeavours to prevent any unlawful conduct by his staff and labour (EIC 6.4). 10-14 The ICE differs slightly from the aforementioned contracts. The contractor is required to ascertain and comply with all laws and regulations (ICE 26(3)). However, there is no express obligation that the contractor require his employees to do so. -r:he AlA not only requires the contractor to comply generally with all "laws, ordmances, rules, regulations and lawful orders ... relating to the Project" (AlA 3.2.11-Part 2), it also focuses specifically on safety laws and regulati?ns, like ,the Silver Book. ,The AlA states that the contractor shall "comply With applicable laws, ordmances, rules, regulations and lawful orders of ~ublic authorities bearing on the safety of persons or property or their protection from damage, injury or loss" (AlA 6.3-Part 2). Howeve[ there is no obligation in the AlA that the contractor require his employees t~ do so. The contractor is required under the AGC to comply with all laws and ordinanc,es (~GC 3.2.3). However, there is no express obligation for him to require hiS ~ers~nnel to do so. ~he contrac~or is also to establish a safety programme which shall comply With the reqUirements of government and quasigovernmental authorities having jurisdiction over the Work" (AGC 3.4.4). The DBIA generally requires the contractor to perform all work in accordance with all legal requirements (DBIA 2.5.1). It also requires the contractor ,and "Subcontractors" to comply with any safety-related legal reqUirements (DBIA 6.4). There is no mention of the contractor's personnel or any application of these requirements to them. 10-15 FIDIC indicates in the Guidance for Preparation of Particular Conditions ~elating to the Silver Boo~ that some additional provisions may be necessary m, the event o.f use of foreign labour or other personnel or in particular co untn~s. In pa~tlcular, FIDIC gives sample language for a provision regarding reSidence visas and work permits for foreign personnel, which the contractor might be required to provide. The contractor might also be responsible for the repatriation of foreign staff. Some of the non-FIDIC contracts already contain such provisions. For e~ample, und~r. the ENAA and the EIC contracts the contractor is responSible for obtamlng all entry permits and visas for all labour and personnel (ENAA 22.1.3(c), EIC 6.6), as well as for their eventual repatriation (ENAA 22.1.3(d), EIC 6.7).10

10

This repatriation aspect follows World Bank optional measures that were not followed by the FIDIC Orange Book, World Bank op. cit, n, 1 above at 208,

238

DISCUSSION OF SPECIFIC SUB-CLAUSES

Some of the additional country-specific provisions the FIDIC also suggests include the prohibition against the use or sale of alcohol or drugs and arms or ammunition. In addition, it may be appropriate to require the contractor to respect the site country's recognised festivals and religious or other customs. The latter is similar to ENAA 22.1.3(f) which requires the contractor to "pay due regard to all recognised festivals, official holidays and religious and other customs" (see also EIC 6.5).

10-16

6.5 Working Hours No work shall be carried out on the Site on locally recognised days of rest, or outside normal working hours, unless: (a) otherwise stated in the Contract, (b) the Employer gives consent, or (c) the work is unavoidable, or necessary for the protection of life or property or for the safety of the Works, in which case the Contractor shall immediately advise the Employer.

Silver Book sub-clause 6.5 prohibits work on locally recognised days of rest or outside of normal working hours unless otherwise stated in the contract or unless the employer gives his consent. An additional exception is in the event of emergency work to protect life or property or to ensure the safety of the works. In the latter case, the employer must be informed immediately. The contractor may want to delete this sub-clause in order to allow overtime and weekend work when necessary. If the local labour laws allow such work, the contractor should be able to so proceed at his cost. Certain works, such as tunnelling, require constant progress in view of the cost of the necessary equipment and the deleterious effects of leaving the works idle for any period of time. The respective sub-clauses 6.5 of the Orange, Red and Yellow Books are only slightly different from the Silver Book. Those contracts refer to "normal working hours stated in the Appendix to Tender" rather than simply to "normal working hours" as stated in the Silver Book. These contracts contemplate therefore that "normal working hours" will be defined in the particular conditions rather than left undefined as in the Silver Book. In addition, it is the engineer in the Yellow and Red Books and the employer's representative in the Orange Book who would have to consent to work outside normal hours and who would receive notice of any emergency work. The FIDIC Guide states that the employer may define "normal working hours" in the employer's requirements or in the particular conditions, but that the Silver Book philosophy favours contractor independence in determining such hours.11 The ENAA similarly prohibits work from being "carried out during the 11

FIDIC Guide, op. cit. n, 6 above, p, 152.

239

10-17

STAFF AND LABOUR DISCUSSION OF SPECIFIC SUB-CLAUSES

night and on public holidays of the country where the Site is located" subject to the same exceptions as the Silver Book (ENAA 22.8.1). The ENAA further indicates that its provisions do not apply to any work customarily carried out by rotary or double shifts. The ENAA also provides that "when the Contractor considers it to be necessary to carry out work at night or on public holidays so as to meet the Time for Completion, and requests the Owner's consent thereto, the Owner shall not unreasonably withhold such consent" (ENAA 22.8.2). By contrast, the contractor is required under the ENAA to immediately carry out any necessary emergency work (ENAA 22.5).

10-18

The EIC contains no provision prohibiting work outside normal working hours or locally recognised days of rest (and therefore also has no exceptions to such prohibitions). However, the contractor is still required to "pay due regard to all locally recognised festivals, official holidays and religious or other recognised customs" (EIC 6.5). Presumably, that might prohibit work on days of rest to the extent these are associated with festivals, holidays or religious customs. The ICE contains provisions similar to Silver Book sub-clause 6.5 but is closer in content to the ENAA provision. The ICE states that: Subject to any provisions to the contrary contained in the Contract, none of the Permanent and Temporary Works shall be carried out during the night or on Sundays without the permission of the Employer's Representative save when the work is una voidable or absolutely necessary for the saving of life or property or for the safety of such Works in which case the Contractor shall immediately advise the Employer's Representative. Provided always that this Clause shall not be applicable in the case of any work which it is customary to carry out outside normal working hours or by rotary or double shifts. (ICE 45) The AlA, AGC and DBIA contain no provisions similar to Silver Book sub-clause 6.5.

10-19

6.6 Facilities for Staff and Labour Except as otherwise stated in the Employer's Requirements, the Contractor shall provide and maintain all necessary accommodation and welfare facilities for the Contractor's Personnel. The Contractor shall also provide facilities for the Employer's Personnel as stated in the Employer's Requirements. The Contractor shall not permit any of the Contractor's Personnel to maintain any temporary or permanent living quarters within the structures forming part of the Permanent Works. In large projects, particularly in remote areas, the parties may need to provide for the care of their staff. This often includes the provision of facil-

ities for housing and social and emergency services. Silver Book sub-c.l~~se 6.6 requires the contractor to provide accommodation and welfare faclhtl~s for his personnel. However, the terms "accommodation" and "welfare faCilities" used in the Silver Book are imprecise and undefined. He must also provide facilities for the employer's personnel. to the e~t~~t state~ in the employer's requirements. This clause also contam~ a p~ohlbltl~n. agamst permitting any of the contract.or's personnel to mamtam any l:;rmg .quarters "within the structures formmg part of the Permanent Works . ThiS would not appear to prohibit living quarters "on site" provided they are not within the structures of the permanent works. Sub-clauses 6.6 of the Red and Yellow Books are identical to the Silver Book, and Orange Book 6.6 is substantially identical. The FIDIC Guide specifies the effect of this clause, which "removes any implication of obligation on the part of the employer to arrange facilities for the Contractor's personnel" unless the contract provides otherwise. 12 Silver Book sub-clause 6.6 reflects the suggestions provided by the World Bank, although the World Bank suggestions are far more detailed as to t~e faci~­ ities provided to staff and labourY The parties may want to define m detail the facilities required. The ENAA indicates that the contractor will be responsible for the accommodation of all labour (ENAA 22.1.3(b)). This might include accommodations for the employer's personnel as well. "Welfare facilities" are not specifically mentioned. However, under ENAA 7.1 the contr.actor'~ obligations extend to all services required to complete the works, mcludmg temporary facilities. This might be construed as an obligation to pr~vide welf~re facilities if these are necessary to complete the works. There IS no speCific restriction in the ENAA against employee living quarters on site or within the structures of the works. The EIC simply states that the contractor is responsible for the accommodation of all local and expatriate staff and labour (EIC 6.3). The EIC has no other specific provisions similar to Silver Book sub-clause 6.6. The ICE Contract does not contain detailed provisions concerning the responsibility of the contractor for the provision of facilities for hi.s.l~bour. The ICE provides that the contractor will afford all reasonable facilities for any other contractors employed by the employer and the employer's personnel in accordance with the contract (ICE 31(1)). "Contractor's personnel" are not specifically mentioned, but they may fall under general obligations to provide a II services under ICE 8 (1)( b). The AlA contains the general requirement that the contractor "shall provide or cause to be provided and shall pay for ... labor ... and other facilities and services necessary for proper execution and completion of the Works" (AlA 3.2.5-Part 2). The AlA is not specific regarding the provision of accommodation and welfare facilities for the contractor's personnel, but

12

13

FIDIC Guide, op. cit. n. 6 above, p. 153. World Bank op. cit. n. 1 above at 208.

240 241

10-20

STAFF AND LABOUR

DISCUSSION OF SPECIFIC SUB-CLAUSES

the contractor does have a general responsibility for any facilities or services necessary for proper execution of the works. However, the contractor is not expre~sly required to provide facilities for the employer's personnel, and there IS no express prohibition against contractor's personnel maintaining living quarters on site. The AGC contains no specific provisions similar to Silver Book sub-clause 6.6. The DBIA only contains the general obligation to provide "other temporary facilities" necessary to complete the project (DBIA 2.7.1) but makes no specific mention of accommodation or facilities for the contractor's or employer's personnel nor any prohibition against living quarters within the works.

10-21

6.7 Health and Safety The Contractor shall at all times take all reasonable precautions to maintain the health and safety of the Contractor's Personnel. In collabouration with local health authorities, the Contractor shall ensure that medical staff first aid facilities, sick bay and ambulance service are available at all times at 'the Site and at any accommodation for Contractor's and Employer's Personnel, and that suitable arrangements are made for all necessary welfare and hygiene requirements and for the prevention of epidemics. ~he Contra~tor.s~all appoint an accident prevention officer at the Site, responSible fo~ mamtammg safety and protection against accidents. This person shall ~e qualified for this responsibility, and shall have the authority to issue instruct~ons and take protective measures to prevent accidents. Throughout the execution of the Works, the Contractor shall provide whatever is required by this person to exercise this responsibility and authority.

The ~ontractor s~all send, to the Employer, details of any accident as soon as practicable after Its occurrence. The Contractor shall maintain records and make reports concerning health, safety and welfare of persons, and damage to property, as the Employer may reasonably require.

10-22

The employer will want to place specific responsibility on the contractor to care for the health and safety of the labour force to avoid the delays and costs that could. r~s.ult from inj ury or illness. Similarly, the parties need to allocate responsibility amongst themselves for any accident or illness that may occur on the site. Silver Book sub-clause 6.7 contains very specific and detailed health and safety provisions. The contractor is generally required to take any reasonable health and safety precautions and also make health services available on site at all times. The contractor must appoint an accident prevention ~fficer and promptly send the employer the details of any accident on the site. The co~tractor is also obligated to make and maintain reports on health and safety Issues as the employer may require. Red and Yellow Book subclauses 6.7 are identical to the Silver Book, and Orange Book 6.7 is substantially identical. 242

The parties should consider detailing such requirements at the negotiation stage. Certain facilities enumerated in the Silver Book, such as provision of an ambulance service, may prove impossible or impractical to arrange in certain locations. In some countries this clause may not be necessary if there are adequate local facilities. The health and safety provisions should therefore be amended to fit the specific needs of the project. For example, in some situations it may be necessary for the contractor to provide a fully equipped hospital. 14 The ENAA general conditions contain little detail with regard to health and safety on the site. It simply states that the employer and contractor will "establish Site regulations setting out the rules to be observed in the execution of the Works at the Site and shall comply therewith", which includes safety regulations (ENAA 22.3). This is in line with the UNCITRAL Legal Guide's recommendations that the parties draw up specific guidelines as to what facilities are to be provided and who will pay for their provision, as well as their standard. IS Again, these considerations will be affected by the site country's applicable laws and regulations. The EIC's health and safety provisions are also scant. The EIC only provides that the contractor shall have full regard for the safety of all persons entitled to be upon the site and keep the site and the works in an orderly state appropriate for the avoidance of danger (EIC 6.8). The ICE provisions are similar to the ENAA and EIC in their level of detail. The ICE makes the contractor generally responsible for the safety of all site operations (ICE 8(5)) and requires him to have full regard for the safety of all persons entitled to be on the site (I CE 19( 1)). However, there are no provisions regarding on-site health services, an accident prevention officer or reporting requirements for health and safety issues. The AlA is not as detailed as the Silver Book but is slightly broader than the ENAA, EIC and ICE. Under the AlA, the contractor is responsible for "initiating, maintaining and providing supervision of all safety precautions and programs" (AlA 6.1-Part 2). The contractor must also "take reasonable precautions for the safety of, and shall provide reasonable protection to prevent damage, injury or loss to . . . employees on the work and other persons who may be affected thereby" (AlA 6.2-Part 2). The AGC contains detailed safety provisions, stipulating that the contractor has overall responsibility for safety precautions and programs in the performance of the work (AGC 3.4.1). Further, the contractor is to designate a safety representative who shall be employed at the worksite and who shall have a duty to prevent accidents (AGC 3.4.3). The DBIA is clearly the most comprehensive of the non-FIDIC contracts with regard to health and safety issues. The DBlA provides: Design-Builder recognises the importance of performing the Work in a safe manner so as to prevent damage, injury or loss to ( 1all individuals at the Site,

14 15

FIDIC Guide, p. 154. UNCITRAL, up. cit. n. 2 above at 111.

243

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STAFF AND LABOUR

whether working or visiting, .... Design-Builder assumes responsibility for implementing and monitoring all safety precautions and programs related to the performance of the Work. Design-Builder shall, prior to commencing construction, designate a Safety Representative with the necessary qualifications' and experience to supervise the implementation and monitoring of all safety precautions and programs related to the Work. Unless otherwise required by the Contract Documents, Design-Builder's Safety Representative shall be an individual stationed at the Site who may have responsibilities on the Project in addition to safety. The Safety Representative shall make routine daily inspections of the Site and shall hold weekly safety meetings with Design-Builder's personnel, Subcontractors and others as applicable. (DBIA 2.8.1.) In addition, the contractor must provide the employer with a monthly report including, among other things, a statement of whether "health and safety issues exist in connection with the Work" (DBIA 2.1.2). Finally, the contractor must promptly report in writing any "safety-related injury, loss, damage or accident arising from the work to owner's representative and, to the extent mandated by Legal Requirements, to all government or quasi-government authorities having jurisdiction over safety-related matters involving the Project or the Work" (DBIA 2.8.2).

10-25

6.8 Contractor's Superintendence Throughout the design and execution of the Works, and as long thereafter as is necessary to fulfill the Contractor's obligations, the Contractor shall provide all necessary superintendence to plan, arrange, direct, manage, inspect and test the work. Superintendence shall be given by sufficient number of persons having adequate knowledge of the language for communications (defined in Sub-Clause 1.4 [Law and Language)) and of the operations to be carried out (including the methods and techniques required, the hazards likely to be encountered and methods of preventing accidents), for the satisfactory and safe execution of the Works. The contractor must supervise the construction activities at the site as part of his responsibility for the design, co-ordination and construction of the works. The contractor must generally supervise his employees and the subcontractors' employees. However, the parties may want the contractor to exercise general supervision over everyone working on the site, including other contractors of the employer, in order to centralise administration of the project. Silver Book sub-clause 6.8 requires the contractor to provide superintendence to plan, arrange, direct, manage, inspect and test the work. It requires this supervision to be given by a sufficient number of persons with adequate knowledge of the language for communications and knowledge of the operations, project hazards and accident prevention methods. The contractor is responsible for this superintendence throughout the design and execution of the works and as long thereafter as is necessary to fulfill the contractor's obligations.

244

The Orange Book contains similar requirements u~der its sub-clause 6:8. However, it is the employer's representative who deCides how long supenntendence may be necessary after design and execution ?y th~ contrac~or. The Red and Yellow Books are identical to the Silver Book In their respective subclauses 6.8. The ENAA provides that "[t]he Contractor shall give or provide all necessary superintendence during the execution of the Works, an~ the Construction Manager or his deputy shall be constantly on the Site to provide full-time superintendence of the Works" (~NAA 22.1.2). It fu~t~er requires that the supervisory staff be competent to give adequate supervIsIOn to the work they are required to supervise (ENAA 22.1.2). The.contract.or's obligations extend to the provision and perfor~ance of all.se~vI~es reqU1~ed for design, procurement, construction, ereCtion, commlsslOmng, testing delivery and completion of the works, including supervision (ENAA 7.1). The EIC contains no specific requirements regarding superintendence for the works. The ICE is very similar to the Silver Book. It states:

10-26

The Contractor shall provide all necessary superintendence during the carrying out of the Works and for as long thereafter as the Employer's Representative may reasonably consider necessary. Such superintendence shall be given by sufficient persons having adequate knowledge of the operations to be carried out (including the methods and techniques required, the hazards likely to be encountered and methods of preventing accidents) for the satisfactory and safe carrying out of the Works. (ICE 15(1)) The ICE further requires that the contractor's representative or a competent and authorised agent approved by the employer's representative shall superintend the construction of the works and shall give his whole time to such superintendence (ICE 15(3)). The AlA does not contain a general superintendence requirement as found in the Silver Book. Yet, the contractor is generally responsible for co-ordinating "all portions of the Work" under the contract (AlA 3.2.6-Part 2). However, unless otherwise stated in the contract documents (AlA 11.3.2Part 2), co-ordination services in connection with the employer's personnel or the employer's other contractors are considered an "additional service" for which additional compensation is required (AlA 1.4.1 O-Part 1, 3.3.5Part 2). Still, "co-ordination" does not imply the same responsibilities as "superintendence". . The AGC does not specifically require "superintendence". However, It does provide that contractor will "furnish construction and administration of the Work" (AGC 2.1). The contractor must also provide "all necessary construction supervision [and] inspection" (AGC 3.2.2). This equates to at least some minimal superintendence requirement. The DBIA states that "[u]nless otherwise provided in the Contract Documents to be the responsibility of Owner or a separate contractor, Design-Builder shall provide through itself or Subcontractors the necessary

245

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STAFF AND LABOUR

supervision, labour, inspection, testing ... and other temporary facilities to permit Design-Builder to complete construction of the Project consistent with the Contract Documents" (DBIA 2.7.1). "Design-Builder shall at all times exercise complete and exclusive control over the means, methods, sequences and techniques of construction" (DBIA 2.7.2).

10-28

6.9 Contractor's Personnel The Contractor's Personnel shall be appropriately qualified, skilled and experienced in their respective trades or occupations. The Employer may require the Contractor to remove (or cause to be removed) any person employed on the Site or Works, including the Contractor's Representative if applicable, who: (a) persists in any misconduct or lack of care, (b) carries out duties incompetently or negligently, (c) fails to conform with any provisions of the Contract, or (d) persists in any conduct which is prejudicial to safety, health, or the protection of the environment. If appropriate, the Contractor shall then appoint (or cause to be appointed) a

suitable replacement person. 10-29

10-30

Although the contractor is responsible for the hiring and maintenance of the labour used in the construction of the project, the employer may want a method of removing individuals who, in his opinion, are negligent in their work or who disrupt the progress of the works. This power should allow the employer to act but also restrict him in order to avoid abuse or delay. In that regard, the contractor may want to include some form of review of the employer's decision to remove one of the contractor's employees. This review may include having the employee in question interviewed by the employer and the contractor before being removed. The contractor may also want to apply a reasonableness standard to the employer's decision. Silver Book sub-clause 6.9 sets forth the requirements regarding the contractor's personnel and the employer's ability to remove such personnel. First, the contractor's personnel must be "appropriately qualified, skilled and experienced in their respective trades or occupations". This fixes a particular level of skill, albeit somewhat subjective and undefined. The clause also empowers the employer to remove any of the contractor's personnel for misconduct, carelessness, negligence, failure to adhere to the contract or other prejudicial conduct. Sub-clauses 6.9 of the Orange, Red and Yellow Books are generally identical to the Silver Book, with the exception that it is the employer's representative who may remove contractor's personnel under the Orange Book and the engineer under the Red and Yellow Books. The ENAA contains similar provisions, but the skill requirements apply to "technical personnel" and "supervisory staff" rather than to contractor's personnel generally. Specifically, the ENAA states that the contractor 246

may employ "only such technical personnel as are skilled and experienced in their respective callings and such supervisory staff as are competent to give adequate supervision to the work they are required to supervise" (ENAA 22.1.2). However, the employer may give notice to the contractor of his objection to any person employed by the contractor in the execution of the works who, in the employer's opinion, misconducts himself, is incompetent or negligent or who commits a serious breach of site regulations (ENAA 17.2.5). "The Owner shall provide evidence of the same whereupon the Contractor shall remove such person from the Works" (ENAA 17.2.5). The skill requirements for the contractor's personnel under the EIC are more vague. The only indication of any standard of skill is the requirement that the contractor provide "such skilled staff and labour as is necessary for the execution of the Works" (EIC 6.2). There is no express power of employer to remove personnel under the EIe. The standard of skill for contractor's personnel is defined better in the ICE: "The Contractor shall employ or cause to be employed in connection with the Works and in superintendence thereof only persons who are careful, skilled and experienced in their several professions, trade and callings." (ICE 16( 1)). The employer's representative is also allowed to object to and require the removal of any person employed for the works for misconduct, incompetence, negligence, failure to adhere to safety requirements or other prejudicial conduct (ICE 16(2)). The AlA and AGC contain no provisions similar to Silver Book sub-clause 6.9. Under the DBIA, there are no specific skill requirements or qualifications for the contractor's personnel.

6.10 Records of Contractor's Personnel and Equipment

10-31

The Contractor shall submit, to the Employer, details showing the number of each class of Contractor's Personnel and of each type of Contractor's Equipment on the Site. Details shall be submitted each calendar month, in a form approved by the Employer, until the Contractor has completed all work which is known to be outstanding at the completion date stated in the Taking-Over Certificate for the Works. Silver Book sub-clause 6.10 requires the contractor to provide the employer each month with details of the number and class of his personnel as well as details of all the contractor's equipment on the site. The Orange Book does not have a separate provision containing these requirements but does require records of contractor's personnel and equipment to be provided as part of the progress reports (OB 4.1S(d)). Sub-clauses 6.10 ofthe Red and Yellow Books are identical to the Silver Book provision, with the exception that it is the engineer who receives and approves the form of the records, rather than the employer. 247

DISCUSSION OF SPECIFIC SUB-CLAUSES

STAFF AND LABOUR

10-32

The ENAA does not require monthly records regarding the contractor's personnel and equipment but does contain somewhat similar provisions in other sub-clauses. Under ENAA 18.1 the contractor must provide the employer with an organisational chart showing, among other things, the identities of the key personnel with their curricula vitae (ENAA 18.1). In addition, the contractor must communicate to the employer a description and the shipping document of the construction equipment upon its dispatch to the site (ENAA 21.4.3). The EIC requires the contractor to provide the employer with "a detailed programme for the Works ... including the identities and curricula vitae of key personnel to be employed on the Contract" (EIC 4.5). However, it contains no provisions regarding records of contractor's equipment. The ICE imposes potentially the same requirements on the contractor as Silver Book 6.10. The ICE states:

protecting other persons and property on the site is not specifically mentioned in these clauses. Apart from obligations regarding general safety on the site, the ICE, AlA, AGC and DBIA do not contain provisions similar to Silver Book sub-clause 6.11. However, the AlA does require the contractor to provide reasonable protection for persons on the site (AlA 6.2-Part 2).

If the Contract so provides the Contractor shall deliver to the Employer's

Representative a return ... showing in detail the numbers of the several classes of labour from time to time employed by the Contractor on the Site and such information in respect of Contractor's Equipment as the Employer's Representative may require. (ICE 35) Under the AlA the contractor is not required to furnish to the employer the count of all the contractor's personnel in each class, but only the names of the persons or entities the contractor will engage as contractors for the project (AlA 11.2.1-Part 2). There is no requirement in the AlA requiring the contractor to provide details of his equipment to the employer. The AGC and DBIA contain no provisions similar to Silver Book 6.10. 10-33

6.11 Disorderly Conduct The Contractor shall at all times take all reasonable precautions to prevent any unlawful, riotous or disorderly conduct by or amongst the Contractor's Personnel, and to preserve peace and protection of persons and property on and near the Site.

10-34

Silver Book sub-clause 6.11 sets forth the contractor's obligations regarding the prevention of disorderly conduct, which can be broken into two parts: (1) preventing disorderly or unlawful conduct by the contractor's personnel and (2) upholding order and protecting persons and property on the site. The contractor must take "reasonable precautions", but the standard of "reasonableness" is unclear and will vary based on industry practice and applicable law. Sub-clauses 6.11 of the Red and Yellow Books are identical to the Silver Book, and Orange Book 6.10 is substantially identical. The ENAA and EIC both contain part of the Silver Book obligations. In both, the contractor must use his best endeavours to prevent unlawful and disorderly conduct by his employees (ENAA 22.1.3(e), EIC 6.4). However, 248

249

CHAPTER

11

PLANT, MATERIALS AND WORKMANSHIP General Comments Under a turnkey or EPC contract, the contractor is responsible for providing plant and materials as well as for the quality of workmanship used in the construction. In order to control the quality of the plant and materials used in the works and to verify the contractor's workmanship, the employer will generally require and specify tests, inspections and rights of approval as to suppliers and subcontractors who are providing key materials and services. Without the implementation of appropriate safeguards the use of the turnkey method of contracting could result in a decrease in quality. By requiring inspections, tests and approvals the employer better ensures a certain level of quality in the finished product. In the context of a turnkey or EPC contract, the employer may be tempted to select a contractor solely on the basis of the lowest priced bid, which does not necessarily ensure the highest quality offer. Where contractors are pushed to provide low-priced tenders, they will seek to minimise cost wherever possible in order to maintain budget. This may result in the use of materials and subcontractors of lower quality and competence. It therefore becomes important for the employer to have a system to verify that the quality of the works and the plant and materials used therein meet the desired contract standards. Unless the employer studies carefully the designs and materials tendered and clearly specifies the level of quality he desires, he may be disappointed by the final product. I Unlike separate contracts, a consolidated turnkey or EPC contract will generally not describe in detail the materials to be provided. Notwithstanding this, the major elements of the project should be specified to ensure the quality of the completed works. The parties should also consider the source of the materials used for construction. The World Bank suggests the consideration of materials from local sources, although only as an encouragem.ent of local industry. However, it does not permit any strict limitation on the sources of plant, materials or contractor's equipment because of the potential negative affect 1

B. Eggleston, The ICE Design and Construct: A Commentary (Blackwell Scientific Publications, Australia, 1994), p. 217.

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on quality.2 However, such limitations in international construction contracts are not uncommon. In a turnkey contract, the employer should also provide for tests and inspections during construction to verify the quality and progress of the works. These tests will either be specified in detail in the contract itself,3 or the employer may be allowed to proceed with tests and inspections at his discretion. Routine testing (as opposed to the tests on completion) should not form the basis of any acceptance of the works since this may be insufficient to judge every aspect of the works involved. Excessive testing should also be avoided as it may needlessly increase the cost of construction and the time for performance by interfering with the contractor's progress. Implementation of a quality assurance programme may partially satisfy the need for routine testing. The programme should be carefully prepared if it is to be used as a replacement for some of the testing to be performed during construction. 4 The parties to a turnkey contract will also want to check the applicable law with respect to any mandatory testing. Such testing may be required to precede any acceptance of a completed facility by the employer, where the employer is a public authority. This may be true even in jurisdictions where completed works (for public services) "automatically" become public property once construction is finished. s The testing regime provided by the contract should not duplicate unnecessarily the regime imposed by the applicable law.

11-02

Discussion of Specific Sub-Clauses 11-03

Clause 7 of the Silver Book, entitled "Plant, Materials and Workmanship", sets forth the contract requirements regarding the manner of execution of the work and the submission of samples for employer review, and specifies the contractor's responsibility concerning payment for natural materials and disposal of excess material. It also enumerates specific rights and responsibilities regarding the inspection and testing of the works, the employer's power to reject parts of the construction and the contractor's responsibilities regarding remedial work. Clause 7 also includes a simplified regime concerning the transfer of ownership of plant and materials to the employer.

2

3

4

5

World Bank "Standard Bidding Documents for the Procurement of Works " (World Bank Washington, D.C., 2000) online: World Bank http://www. woridbank.orglhtmVoprlbiddocsi works/w-titlpg.htm (date accessed: July 16,2001) at 113. As is recommended by UNCITRAL, Legislative Guide on Privately Financed Infrastructure Pro/ects (UN, New York, 2001) (UNDOC AlCN.9/SER.B/4) online: UNCITRAL Homepage (PDF format) http://www.uncltral.orglenghshltexts/procuremlplip_index_e.htm (date accessed: July 16,2001) at 126- 127. ibid. at 141-42. ibid. at 127.

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The majority of the provisions in this sub-clause are straightforward, clear and relatively well balanced with regard to the parties' respective rights. Depending on the jurisdiction governing the contract, closer attention may need to be paid to sub-clause 7.7, "Ownership of Plant and Materials", which may not fulfill its intended purpose for the employer or lenders. The various contracts discussed herein all present a slightly different approach to the issue that might be better adapted to certain jurisdictions. Advice of local counsel should be sought if the issues contained in Silver Book 7.7 are important to the party at risk.

11-04

7.1 Manner of Execution The Contractor shall carry out the manufacture of Plant, the production and manufacture of Materials, and all other execution of the Works: (a) in the manner (if any) specified in the Contract, (b) in a proper workmanlike and careful manner, in accordance with recognised good practice, and (c) with properly equipped facilities and non-hazardous Materials, except as otherwise specified in the Contract.

Under the Silver Book, the employer is no longer intensively involved in the day-to-day progress of the works. In order to ensure the quality of the materials and workmanship the contract imposes standards of quality on the contractor. These standards are then verified through the testing and inspection requirements set forth in the Silver Book clauses 7, 9 and 11 and the quality assurance system referred to in sub-clause 4.9. Silver Book sub-clause 7.1 attempts to set forth a standard to be applied to the execution of the contract. The contractor is generally required to manufacture plant and materials and execute the works in the manner specified in the contract, "in a proper workmanlike and careful manner, in accordance with recognised good practice", and with properly equipped facilities and non-hazardous materials. The Red and Yellow Books each contain a sub-clause 7.1 identical to the Silver Book, and Orange Book sub-clause 7.1 is identical in content to the Silver Book provision. . The Silver Book mentions a standard of "good practice", which applies where no other standard is specified in the contract. However, the meaning of "good practice" is unclear. The parties may want to redefine this term by making specific reference to a professional standard. The reference to hazardous materials should also be considered carefully where use of such materials may be necessary for the execution or operation of the works. In its guidance notes relating to clause 7, FIDIC provides an additional provision placing restrictions on the country of origin of materials, plant and equipment used in light of limitations placed on borrowers by certain financing institutions such as the World Bank.

253

11-05

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11-06

11-07

The ENAA is far less comprehensive than the FIDlC contracts with regard to manner of execution. However, it does state that "[t]he Contractor shall execute and complete the Works with due care and diligence in accordance with the contract" (ENAA 9.1). There is no mention of a standard for equipment or facilities and no express prohibition against the use of hazardous materials. The ElC provides a standard for execution and completion similar to that of the ENAA: "The Design and the Works shall be executed and completed by the Contractor with due care and diligence in accordance with the Contract." (ElC 4.1.) The ElC extends this standard specifically to workmanship and materials, stating that the contractor "will carry out and complete the construction of the Works with due diligence and with workmanship and materials of good quality in accordance with the Approved Design to meet the requirements of the Contract." (ElC 4.3). There is no mention of non-hazardous materials in the EIC. The standard for execution set forth in the ICE is that "[t]he Works shall be designed, constructed and completed in accordance with the Contract and where not expressly provided otherwise in the Contract in accordance with appropriate standards and standard codes of practice" (ICE 36(1)). In addition, the ICE states that "[a]ll materials and workmanship shall be of the respective kinds described in the Contract or where not so described shall be appropriate in all the circumstances" (ICE 36(2)). If chosen by the parties, English law will complete this standard with its guarantees of good and merchantable quality and reasonable fitness for the purpose intended. 6 The AlA takes a slightly different approach from the above contracts. The AlA requires the contractor to warrant the quality of goods, equipment and work. Sub-clause 3.2.9 of AlA-Part 2 states that the contractor warrants to the employer "that materials and equipment furnished under the Contract will be of good quality and new unless otherwise required or permitted by the Contract Documents, that the construction will be free from faults and defects, and that the construction will conform with the requirements of.the Contract Documents" (AlA 3.2.9-Part 2). The AlA contains no specific prohibition against hazardous materials. The AGC requires the contractor to "exercise reasonable skill and judgment in the performance of the Work" (AGC-article 3). In addition, "[t]he Contractor warrants that all materials and equipment furnished under this Agreement will be new unless otherwise specified, of good quality, in conformance with the Contract Documents, and free from defective workmanship and materials" (AGC 3.8.1). The AGC does not specifically prohibit the use of hazardous materials, though this may be implied from the general terms of the contract. Under the DBIA, the contractor is required to "perform all construction activities efficiently and with the requisite expertise, skill and competence to satisfy the requirements of the Contract Documents" (DBlA 2.7.2). The • B. Eggleston, The ICE Design and Construct: A Commentary (Blackwell Scientific Publications, Australia, 1994), p. 218.

254

DISCUSSION OF SPECIFIC SUB-CLAUSES

contractor must also warrant to the employer that "the construction, including all materials and equipment furnished as part of the construction, shall be new ... of good quality, in conformance with the Contract Documents and free of defects in materials and workmanship" (DBlA 2.9.1). Although there is no prohibition against the contractor's use of hazardous materials, the contractor is obligated to indemnify and hold the employer harmless from and against all claims, losses, damages, liabilities and expenses arising out of or resulting from hazardous materials, waste, substances or chemicals introduced to the site by the contractor (DBIA 4.1.6). 7.2 Samples

11-08

The Contractor shall submit samples to the Employer, for review in accordance with the procedures for Contractor's Documents described in Sub-Clause 5.2 [Contractor's Documents], as specified in the Contract and at the Contractor's cost. Each sample shall be labelled as to origin and intended use in the Works. Testing and examination of sample materials will help the employer verify their quality. Silver Book sub-clause 7.2 provides for review of samples to be submitted to the employer. The samples are subject to the same review procedure as for the contractor's documents. The samples must be labelled as to origin and their intended use in the works. An appendix to the contract should specify exactly which samples are subject to this provision. Orange Book sub-clause 5.5 requires the contractor to submit samples to the employer's'representative for pre-construction review in accordance with the procedure for contractor's documents. The samples to be submitted are manufacturer's standard samples of materials, samples specified in the employer's requirements and additional samples instructed by the employer's representative. There is no indication as to responsibility for the cost of additional samples instructed. Red Book sub-clause 7.2 is similar to the Silver Sook provision but provides more detail. The samples are submitted, but simply for the consent of the engineer rather than the review procedure applied to contractor's documents. However, the relevant samples subject to this clause are listed in slightly more detail, specifically, samples of materials, samples specified in the contract and additional samples instructed by the engineer. The Red Book provision indicates that standard samples of materials and samples listed in the contract will be furnished at the contractor's cost. However, additional samples are subject to the procedure for variations. Yellow Book sub-clause 7.2 is nearly identical to the Red Book provision. However, the samples are subject to the contractor's documents review procedure rather than simply subject to the engineer's consent. The ICE provides that the contractor "shall supply samples of materials before incorporation in the Works for testing as may be required by the Employer's Representative" (ICE 36(4)). "All samples shall be supplied by the Contractor at his own cost if the supply thereof is clearly intended by or 255

11-09

PLANT, MATERIALS AND WORKMANSHIP

provided for in the Contract but if not then at the cost of the Employer." (ICE 36(5).) The ENAA, EIC, AlA, AGC and DBIA contain no provisions comparable to Silver Book sub-clause 7.2 regarding samples.

11-10

7.3 Inspection The Employer's Personnel shall at all reasonable times: (a) have full access to all parts of the Site and to all places from which natural Materials are being obtained, and (b) during production, manufacture and construction (at the Site and, to the extent specified in the Contract, elsewhere), be entitled to examine, inspect, measure and test the materials and workmanship, and to check the progress of manufacture of Plant and production and manufacture of Materials. The Contractor shall give the Employer's Personnel full opportunity to carry out these activities, including providing access, facilities, permissions and safety equipment. No such activity shall relieve the Contractor from any obligation or responsibility. In respect of the work which Employer's Personnel are entitled to examine, inspect, measure and/or test, the Contractor shall give notice to the Employer whenever any such work is ready and before it is covered up, put out of sight, or packaged for storage or transport. The Employer shall then either carry out the examination, inspection, measurement or testing without unreasonable delay, or promptly give notice to the Contractor that the Employer does not require to do so. If the Contractor fails to give the notice, he shall, if and when required by the Employer, uncover the work and thereafter reinstate and make good, all at the Contractor's cost.

11-11

Silver Book sub-clause 7.3 indicates that the employer's personnel shall at all reasonable times have full access to all parts of the site and be entitled to examine, inspect, test and otherwise check the progress of the manufacture of plant and materials. This will allow them to ensure quality, although it could also serve to inhibit the progress of the works. The contractor is required to give the employer's personnel full opportunity to carry out these activities as well as provide facilities and safety equipment. In addition, the contractor must give notice to the employer whenever work is ready and before it is covered up, after which the employer shall either carry out the examination or give notice to the contractor that he does not need to do so. lf the contractor fails to give this notice, he may be required by the employer to uncover the work at the contractor's cost to permit the inspection and then restore the work to its completed condition. No inspection activities of the employer's personnel shall relieve the contractor of any obligation under the contract. The Orange, Red and Yellow Books contain provisions in their respective sub-clauses 7.3 that are substantially identical to the Silver Book. However, 256

DISCUSSION OF SPECIFIC SUB-CLAUSES

under the Orange Book it is the employer's representative who is the relevant actor, and the engineer under the Red and Yellow Books, rather than the employer. The ENAA contains provisions generally similar to the FlDIC books. It 11-12 indicates that the contractor shall afford the employer at the employer's expense "access at any reasonable time to any place w~ere the M~terials are being manufactured or the Works are being executed In order to Inspect the progress and the manner of manufacture or constructio?, prov~de~ that the [Employer] shall give the Contractor a reasonable pnor notice. (ENAA 23.8). The ENAA also contains provisions regarding the covenng-up of works and related notice requirements. In its sub-clause 23.10 the ENAA states that no part of the works may be covered up before an~ required tests or inspections are carried out, and the contractor must ~Ive re~sonable notice to the employer when the part is ready for test and/or inspectIOn. !he contractor is also obligated to uncover any part of the works or foundations as required by the employer and to later re-cover the works (ENAA 23.11). However, if the employer requires the works to be uncovered after proper notice has been given or after the part has been properly tested and/or inspected, the expenses of the uncovering and rei~statement will ~e borne by the employer i( the uncovered part is found to be In accordance with the contract (ENAA 23.11). Similar to the Silver Book, under the ENAA no test or inspection of materials or the works, nor the presence of the employer's inspector nor the issue of a test certificate shall release the contractor from any other responsibilities under the contract (ENAA 23.9). The EIC indicates that at the employer's reque!it, the contractor must allow the employer or any person authorised by him :"at all reasonable ti~es to have access to the Site and to all Workshops and places where materials or Plant are being manufactured, fabricated or prepared for the Works" (EIC 6.12). However, there are no provisions regarding the covering-up of work or related notices. The ICE contains provisions similar to those of Silver Book 7.2 and the 11-13 ENAA. It states that: The Employer's Representative and any person authorized by him shall at all times have access to the Works and to the Site and to all workshops and places where work is being prepared or whence materials, manufactured articles and machinery are being obtained for the Works and the Contractor shall afford every facility for and every assistance in obtaining such access or the right to such access.

(ICE 37) In addition, the contractor must give the employer's representative full opportunity to examine and measure any work which is about to be covered up and notice of the covering-up must be given (ICE 38(1)). The contractor is also required to uncover any part of the works as the employer's representative may require and subsequently reinstate and make good the works, if necessary (ICE 38(2)). If proper notice of covering-up was given to the employer's representative as well as full opportunity for examination, the 257

DISCUSSION OF SPECIFIC SUB- CLAUSES

PLANT, MATERIALS AND WORKMANSHIP

11-14

costs of uncovering, reinstatement and making good the works shall be borne by the employer if the works are found to be in compliance with the contract (ICE 38(2)). The AlA c~ntains no blanket authorisation for the employer and his personnel re~ardmg access to the works nor any notice requirelllents relating to the covering-up or subsequent uncovering of work for inspection. However, AlA 7.3:-Part 2 does state: "The Owner may appoint an on-site project representative to observe the Work and to have such other responsibilities as the Owner and the Design/Builder agree in writing." The AGC and DBIA contain no provisions similar to Silver Book subclause 7.3.

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7.4 Testing

This Sub-Clause shall apply to all tests specified in the Contract, other than the Tests after Completion (if any). The Contractor shall provide all apparatus, assistance, documents and other information, electricity, equipment, fuel, consumables, instruments labour materials, a~d suitably qu~1ified and experienced staff, as are necessar; to carr; out the specified tests effiCiently. The Contractor shall agree, with the Employer, the time and place for the specified testing of any Plant, Materials and other parts of the Works. The Employer ~ay, und~r Clause 13 [Variations and Adjustments), vary the' I?catlon or details of specified tests, or instruct the Contractor to carry out additIOnal tests. If these varied or additional tests show that the tested Plant Materials or workmanship is not in accordance with the Contract the cost of carrying out this Variation shall be borne by the Contractor not~ithstanding other provisions of the Contract. ' The Employer shall give the Contractor not less than 24 hours' notice of the ~mployer's intention to attend the tests. If the Employer does not attend at the time and place agreed, the Contractor may proceed with the tests unless otherwise instructed by the Employer, and the tests shall then be deemed to have been made in the Employer's presence. ~f the C,ontractor suffers delay and/or incurs Cost from complying with these Instructions or as ~ resul~ of a delay for which the Employer is responsible, the Contractor shall give notice to the Employer and shall be entitled subject to SubClause 20.1 [Contractor's Claims) to: (a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 8.4 [Extension of Time for Completion), and (b) payment of any such Cost plus reasonable profit, which shall be added to the Contract Price.

After receiving this notice, the Employer shall proceed in accordance with SubClause 3.5 [Determinations) to agree or determine these matters. The Contractor shall promptly forward to the Employer duly certified reports of the tests. When the specified tests have been passed, the Employer shall 258

endorse the Contractor's test certificate, or issue a certificate to him, to that effect. If the Employer has not attended the tests, he shall be deemed to have accepted the readings as accurate. During construction of the works, the contract provides for testing of parts of the works as they are completed or as a certain stage is completed. This testing serves to verify the progress achieved on the construction of the works and the quality of the contractor's materials and workmanship. Silver Book sub-clause 7.4 sets forth the provisions for testing under the contract but does not apply to the tests after completion, if any. The contractor is required to provide all apparatus, assistance, utilities, consumables, staff and other items to carry out the tests efficiently. The contractor and the employer agree to the time and place for any specified testing. Howeyer, the employer may modify by formal variation the location or details of the tests or instruct additional tests. If the varied or additional tests show plant, materials or workmanship not in accordance with the contract, then the cost of carrying out the variation is borne by the contractor. The employer must give the contractor at least 24 hours' notice of his intention to attend the tests. If the employer does not attend, the contractor may proceed with the testing unless otherwise instructed by the employer. In that case, the test is deemed to have been made in the employer's presence, and the employer shall be deemed to have accepted the readings as accurate. If the contractor suffers delay or incurs costs from complying with the employer's instructions or as a result of a delay for which the employer is responsible, the contractor is entitled to an extension of time and/or payment of reasonable costs plus profit. The contractor is required to forward to the employer duly certified reports of the tests. When the tests have been passed, the employer must endorse the contractor's test certificate or issue a certificate to him. The employer may want to specify in this section that any failure of the employer or contractor to discover a defect during a test or inspection does not relieve the contractor of his duty to remedy any defect that subsequently arises. 7 The employer may also want to provide for certain materials or plant to be tested off-site before delivery. The parties may wish to make special provision for such tests and place a requirement on the contractor of successful performance and passage of such tests before delivery of the plant or materials to the site_ Orange Book sub-clause 7.4 is nearly identical to the Silver Book pro vision, except that it is the employer's representative who is referenced and who acts, rather than the employer. In addition, the employer's representative is not expressly entitled under this clause to vary the location or details of the testing or instruct additional tests. PresumaiJly, such additional or modified tests would be permitted under the employer's general power under

7

UNCITRAL, op, cit. n. 3 above at 141.

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PLANT, MATERIALS AND WORKMANSHIP

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the contract to issue instructions and variations. However, there is no specific provision, as is contained in the Silver Book, that the contractor is responsible for the cost of the variation if it turns up a defect or non-compliance with the contract (but see 12.8 "Contractor to Search"). The Orange Book also contains no provision in this sub-clause that the contractor may obtain an extension of time and costs for delays for which the employer is responsible, even though this is otherwise contained in Orange Book subclause 8.3. Sub-clause 7.4 of the Red and Yellow Books is nearly identical to the Silver Book provision. However, it is the engineer who is referenced and who acts, rather than the employer. The ENAA is very similar to Silver Book sub-clause 7.4. The ENAA indicates that "[t]he Contractor shall, at its own expense, carry out ... all such test and/or inspection of the Materials and any part of the Works as are specified in the Contract" (ENAA 23.1). The contractor's general obligations include the provision of all materials, all services required for testing of plant (ENAA 7.1) and all work and supply of materials reasonably inferable from the contract (ENAA 7.2). However, there is no specific requirement in the ENAA that the contractor and the employer agree to the time and place for any specified testing. The contractor must simply give the employer "a reasonable advance notice of such test and/or inspection and of the place and time thereof" (ENAA 23.3). By the same token, the employer is not required to give the contractor notice of his intention to attend. The ENAA simply states that the employer is entitled to attend tests and inspections represented by his own duly authorised inspector (ENAA 23.2). Under the ENAA, "[i]f the [Employer's] inspector fails to attend the test and/or inspection, or if it is agreed between the parties that the Owner's inspector shall not do so, then the Contractor may proceed with the test and/or inspection in the absence of the Owner's inspector and provide the Owner with a certified report of the results thereof" (ENAA 23.4). However, there is no express statement that the employer is deemed to have accepted the readings as accurate. On the contrary, the ENAA states that "[t]he Contractor agrees that neither the execution of a test and/or inspection of Materials or any part of the Works, nor the attendance by the [Employer's] inspector nor the issue of any test certificate ... shall release the Contractor from any other responsibilities under the Contract" (ENAA 23.9). Regardless, whether the employer attends or not, the contractor is still obligated to provide a certified report of the results of any test or inspection (ENAA 23.4). The employer is also permitted to order any test or inspection not described in the contract, provided that neither impedes the progress of the works or the contractor's performance of other obligations under the contract, unless the contractor is compensated for extra time and cost (ENAA 23.5). The EIC contains no specific provisions regarding testing. EIC sub-clause 9.4(a) simply makes a vague reference to "any Tests on Completion prescribed by the Contract". However, the general conditions contain no such 260

DISCUSSION OF SPECIFIC SUB-CLAUSES

provisions. Presumably, provisions regarding testing could be added as an appendix. Under the ICE Contract, the contractor must submit to the employer's representative "for his approval proposals for checking the design and setting out of the Works and testing the materials and workmanship to ensure that the Contractor's obligations under the Contract are met" (ICE 36(3)(a)). The contractor must carry out these approved checks and tests, any other tests required under' the contract and such further tests as the employer's representative may reasonably require (ICE 36(3)(b)). The contractor is responsible for providing "such assistance and such instruments, machines, labour and materials as are normally required for examining, measuring and testing any work and the quality, weight or quantity of any materials used" (ICE 36(4)). Unless otherwise stated in the contract, the costs of making any test are borne by the contractor if the test is provided for br intended by the contract or if the test is otherwise ordered by the employer and shows workmanship or materials not to be in accordance with the provisions of the contract (ICE 36(7)). The AGC's provisions are vague and few regarding testing. It states that "[t]he Contractor shall secure required certificates of inspection, testing and approval and deliver them to the Owner" (AGC 3.8.3). "With the assistance of the [Employer's] maintenance personnel, the Design-Builder shall direct the checkout of utilities and start up operations, and adjusting and balancing of systems and equipment readiness." (AGC 3.8.5.) However, the AGC indicates that the employer shall provide "inspection and testing services during construction as required by law or as mutually agreed" (AGC 4.1.2.2). The AlA and DBIA contain no specific provisions regarding testing. They only require notice of substantial completion by the contractor to the employer (AlA 3.2.14-Part 2, DBIA 6.6.1). If the employer agrees under the AlA that the works are substantially complete, a certificate of substantial completion is issued by the contractor establishing the date and a list of items to be completed or corrected. Under the DBIA, the employer and the contractor must jointly inspect the work to verify that it is substantially complete in accordance with the requirements of the contract documents. If it is substantially complete, then the employer shall prepare and issue a certificate of substantial completion (DBIA 6.6.1).

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7.5 Rejection

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If, as a result of an examination, inspection, measurement or testing, any Plant, Materials, design or workmanship is found to be defective or otherwise not in accordance with the Contract, the Employer may reject the Plant, Materials, design or workmanship by giving notice to the Contractor, with reasons. The Contractor shall then promptly make good the defect and ensure that the rejected item complies with the Contract. If the Employer requires this Plant, Materials, design or workmanship to be retested, the tests shall be repeated under the same terms and conditions. If the

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PLANT, MATERIALS AND WORKMANSHIP

rejection and retesting cause the Employer to incur additional costs, the Contractor shall subject to Sub-Clause 2.5 [Employer's Claims) pay these costs to the Employer.

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11-23

The employer's power to inspect and test would be ineffective without the power to reject materials or workmanship that do not satisfy the standards imposed by the contract. Silver Book sub-clause 7.5 gives the employer the power to reject defective or non-compliant plant, materials, design or workmanship. The rejection must be made by notice to the contractor stating the reasons for the rejection. The contractor is then under an obligation to remedy the defect or shortcoming. The employer may require retesting of the defective portion or material, and any related costs incurred by the employer must be paid by the contractor. Orange Book sub-clause 7.5 is essentially the same as the Silver Book provision. However, it is the employer's representative who may give notice of the rejection rather than the employer. In addition, the Orange Book further specifies that any retesting will be done under the same terms and conditions (presumably as those of a prior test that identified the defect). Under the Orange Book, the employer's related claim for costs, if any, may simply be deducted from monies owed to the contractor rather than being subject to the employer's claims procedure referenced in the Silver Book. The respective sub-clauses 7.5 of the Red and Yellow Books are essentially identical to the Silver Book. However, it is the engineer rather than the employer who may give notice of the rejection and require retesting. Further, under these contracts failure to comply with this sub-clause entitles the employer to terminate the contract (under sub-clause 15.2(c)(ii)). In addition, under the Red Book, defective design is not a ground for rejection. The ENAA does not expressly give the employer the power to reject defective or non-compliant plant, materials, design or work. However, if such things turn up as a result of a test or inspection, the contractor will be required to remedy the defect. This obligation is contained in ENAA subclause 23.6, which states that "[i]f any Materials or any part of the Works fails to pass any test and/or inspection, the Contractor shall either rectify or replace such Materials or part of the Works and shall repeat the test andlor inspection upon giving notice under GC 23.3 above". The parties can refer any related dispute to an expert (ENAA 23.7) or to arbitration (ENAA 6.1.2). During the interval between the reference to the expert and his actual ruling on the matter, the employer dictates the direction the contractor shall take in the execution of the works. The EIC contains no specific provisions regarding the eventual rejection by the employer of any work or materials. However, the employer must notify the contractor within 21 days of the contractor's notice of substantial completion of any defects in the works that have to be rectified before the issuance of the taking-over certificate (EIC 9.4(b)). The contractor is responsible for remedying any defects (EIC 9.5). 262

DISCUSSION OF SPECIFIC SUB-CLAUSES

The ICE's approach differs from that of Silver Book sub~c1ause 7.5 but should place the same obligations on the contractor and provide comparable rights to the employer. The ICE states:

11-24

The Employer's Representative shall during the progress of the Works have the power to instruct in writing ., . (a) the removal from the Site within such time or tlmes specified tn the instruction of any materials which in the opinion of the Employer's Representative do not comply with the Contract (b) substitution with materials in accordance with the contract and (c) the removal and proper replacement (notwithstanding any previous test thereof or interim payment therefor) of any work which in respect of (i) materials or workmanship or (ii) design by the Contractor or for which he is responsible does not in the opinion of the Employer's Representative comply with the Contract. (ICE 39.) However, there is no specific obligation regarding retesting. Note that the rejection is based on the employer's representative's opinion. The AlA generally contains all the same obligations as Silver Book subclause 7.5, except for the notice requirement with reasons regarding the rejection of work. Sub-clause 9.1 of AlA-Part 2 states: The Design-Builder shall promptly correct Work rejected by the Owner. or known by the Design/Builder to be defective or failing to conform to the reqUirements of the Contract Documents, whether observed before or after Substantial Completion and whether or not fabricated, installed or completed. The DesignlBuilder shall bear costs of correcting such rejected Work, including additional testing and inspections. (AlA 9.1-Part 2.) This provision comes in addition to the contractor's general responsibility for correcting work which does not conform to the contract documents set forth in AlA 3.2.8-Part 2. The employer's right to reject defective or non-compliant work is stated differently in the AGe. The employer is under an affirmative obligation to give prompt written notice to the contractor if he becomes aware of "any error, omission or failure to meet the requirements of the Contract Documents or any fault or defect in the Work" (AGC 4.3.2). The consequences of this notice are less clear. The employer may give the contractor notice of a failure to perform his obligations, and the failure must be corrected within five days or the employer may perform the correction at the contractor's cost (AGC 11.2.1). The AGC contains no specific provisions regarding subsequent retesting. Under the DBIA, the owner's representative is required to give the contractor prompt notice of any failure of his contractual obligation, including any errors, omissions or defects in the performance of the work (DBIA 3.4.1). Within seven days of such a written notice, the contractor must take steps to correct the work (DBIA 2.10.2). The DBIA contains no specific provisions regarding subsequent retesting. 263

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DISCUSSION OF SPECIFIC SUB-CLAUSES PLANT, MATERIALS AND WORKMANSHIP

11-26

7.6 Remedial Work Notwithstanding any previous test or certification, the Employer may instruct the Contractor to: (a) remove from the Site and replace any Plant or Materials which is not in accordance with the Contract, (b) remove and re-execute any other work which is not in accordance with the Contract, and (c) execute any work which is urgently required for the safety of the Works, whether because of an accident, unforeseeable event or otherwise.

If the Contractor fails to comply with any such instruction, which complies with Sub-Clause 3.4 [Instructions), the Employer shall be entitled to employ and pay other persons to carry out the work. Except to the extent that the Contractor would have been entitled to payment for the work, the Contractor shall subject to Sub-Clause 2.5 [Employer's Claims) pay to the Employer all costs arising from this failure.

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Silver Book sub-clause 7.6 indicates that the employer may instruct the contractor to remove and replace any plant or materials not in accordance with the contract, remove and re-execute any other non-compliant work or execute any urgent work required for the safety of the works. The employer may employ and pay others to carry out this work if the contractor fails to do so. In that case, the contractor must pay the employer's costs due to this failure unless the contractor would h\lve been entitled to payment for such work. The logic of this last point is that if the contractor would have been entitled to additional payment for the work instructed by the employer, the employer suffers no loss by performing the work himself at his own cost. However, if the contractor would have been obligated to perform this work without an increase in the contract price, the employer may recover his costs from the contractor for performing the work himself. Notably absent from this sub-clause is a provision allowing the contractor to effect repairs where any works prove insufficient. The EIC Guide criticises this aspect of the Silver Book and recommends the employer bear any additional cost where he insists on replacement where repair would have sufficed. 8 The Orange Book does not contain a sub-clause similar to Silver Book 7.6. Nonetheless, the contractor is under the same obligations and the employer possesses generally the same power by virtue of other Orange Book provisions. Under Orange Book sub-clause 4.1, the contractor is generally responsible to remedy any defects. In addition, under Orange Book 12.1 the contractor is required to "execute all work of amendment, reconstruction, and remedying defects or damage, as may be instructed by the Employer or the Employer's Representative during the Contract Period". This would seem to cover all the specific situations listed in Silver Book sub-clause 7.6. 8

EIC, The EIC Contractor's Guide to the FIDIC Conditions of Contract for EPC Turnkey Contracts (European International Contractors, Berlin, 2000), p. 19.

264

To the extent that the contractor fails to follow the instruction, the employer may execute the work himself under Orange Book:14.4(a) and recover the cost from the contractor. The Red and Yellow Books are nearly identical to the Silver Book in their respective sub-clauses 7.6, with a few of exceptions. First, it is the engineer who may instruct the remedial or urgent work. Secondly, there is additional language in the Red and Yellow Books that "[t]he Contractor shall comply with the instruction within a reasonable time". Finally, sub-clauses 15.2(c)(ii) of these contracts entitle the employer to terminate the contract where the contractor fails to comply with subclause 7.6. The ENAA does not expressly give the employer the power to instruct the removal and replacement of defective or non-compliant work or materials. However, "[i]f the Owner notifies the Contractor of any defects and/or deficiencies, the Contractor shall then correct such defects and/or deficiencies" (ENAA 24.5). The ENAA does not also specifically mention a power of the employer to instruct emergency work but does indicate that the contractor must immediately carry out any protective or remedial work necessary as a matter of urgency to prevent damage to the works (ENAA 22.5). The ENAA contains an express provision indicating that the employer may recover his costs for emergency work necessary to prevent damage if it is work that the contractor was liable to do at its expense under the contract (ENAA 22.5). With regard to the employer's ability to remedy defects or deficiencies himself at the contractor's cost, this power seems to arise only within the defects liability period subsequent to the date of acceptance under the ENAA. However, if during that time and after proper notice the contractor fails to do the work necessary to remedy a notified defect, the employer may proceed to do such work, and the reasonable costs incurred by the employer shall be paid by the contractor (ENAA 27.7). The EIC contains no specific provision regarding the employer's power to instruct the removal and replacement of defective or non-compliant work. However, the employer does have the obligation to notify the contractor within 21 days of the contractor's notice of substantial completion of any defects in the works that have to be rectified before the issuance of the taking-over certificate (EIC 9.4(b)). The contractor is then responsible for remedying defects (EIC 9.5). The EIC does not contain, however, a provision indicating that the employer may correct the defect or any non-compliant work at the contractor's cost. The EIC does contain a provision that if any remedial or other work is urgently necessary for the safety of the works and the contractor is unable or unwilling to do such work, the employer shall be entitled to carry out such work (EIC 18.5). If the contractor would have been responsible for such work under the contract, the employer may recover his costs from the contractor (EIC 18.5). The ICE contains provisions nearly identical to Silver Book sub-clause 7.6. The ICE gives the employer's representative the power to instruct in writing: 265

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DISCUSSION OF SPECIFIC SUB-CLAUSES

PLANT, MATERIALS AND WORKMANSHIP

(a) (b) (c)

11-30

•

the removal from the Site within such time or times specified in the instruction of any materials which in the opinion of the Employer's Representative do not comply with the Contract substitution with materials in accordace with the Contract and the removal and proper replacement (notwithstanding any previous test thereof or interim payment therefor) of any work which in respect of (i) materials or workmanship or (ii) design by the Contractor or for which he is responsible does not in the opinion of the Employer's Representative comply with the Contract.

(ICE 39.) In addition, "Ii)f in the opinion of the Employer's Representative any remedial or other work or repair is urgently necessary ... the Employer's Representative shall so inform the Contractor with confirmation in writing" (ICE 62). If the contractor is unable or unwilling to carry out such work or repair, the employer may do this work himself and recover the cost from the contractor by deduction from any monies due or to become due if the contractor was liable under the contract to carry out the work at his own expense (ICE 62). Although the contractor has a general obligation to correct non-compliant work (AlA 9.1-Part 2), the AlA contains no express power for the employer to instruct the removal and replacement of defective or noncompliant work or material. There are also no specific provisions regarding work urgently required for the safety of the works, though the employer could always issue a change order or construction change directive under article 8 of AlA-Part 2. However, if the contractor fails after due notice to correct the non-compliant or defective work, the employer may carry out the work himself, deduct the cost from the contract price and recover any additional amounts from the contractor (AlA 9.S-Part 2). The AGC also contains no express power for the employer to instruct the removal and replacement of defective or non-compliant work or material. However, the contractor is generally liable to remedy defects, and if he fails to perform his obligations under the contract: "the Owner may, after five (5) days' written notice ... undertake to perform such obligations. The Contract Price shall be reduced by the cost to the Owner of performing such obligations." (AGC 11.2.1.) Furthermore, the owner has the power to issue work change directives by which the owner may direct a change in the work prior to reaching an agreement with the contract with respect to either costs or an extension of time (AGC 8.2). The AGC does indicate that in any emergency affecting the safety of persons and/or property, "the Design-Builder shall act, at its discretion, to prevent threatened damage, injury or loss. Any change in the Contract Price and/or extension of the Date of Substantial Completion on account of emergency work shall be determined as provided in this Article [regarding change orders)." (AGC 8.7). Although this obligation to act is discretionary for the contractor, article 8 of the 266

AGC does contain prOVISIOns regarding change orders to assist the employer. The DBIA does not expressly give the employer the power to instruct the removal and replacement of defective or non-compliant work or materials or work urgently required for the safety of the works. Nonetheless, the contractor is under a general obligation to correct any non-compliant work (DBIA 2.10.2, 7.5), and work change directives are possible under DBIA 9.2. In addition, the contractor is under an obligation upon proper written notice to "take meaningful steps to commence correction of such nonconforming Work, including the correction, removal or replacement of the non-conforming Work and any damage caused to other parts of the Work affected by the nonconforming Work" (DBIA 2.10.2). If the contractor fails to do so, the employer may correct the shortcoming himself, and the contractor shall be responsible for all reasonable costs incurred by the employer in performing such work (DBIA 2.10.2). Finally, "[i)n any emergency affecting the safety of persons and/or property, Design-Builder shall act, at its discretion, to prevent threatened damage, injury or loss. Any change in the Contract Price and/or Contract Time(s) on account of emergency work shall be determined as provided in this article 9 [Changes to Contract Pdce and Time)." (DBIA 9.5.1.) 7.7 Ownership of Plant and Materials

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11-32

Each item of Plant and Materials shall, to the extent consistent with the Laws of the Country, become the property of the Employer at whichever is the earlier of the following times, free from liens and other encumbrances: (a) when it is delivered to the Site; (b) when the Contractor is entitled to payment of the value of the Plant and Materials under Sub-Clause 8.10 [Payment for Plant and Materials in Event of Suspension]. This section deals with the transfer of ownership of the materials and plant from the contractor to the employer. It does not affect the transfer of risk, which does not occur until the issuance of the taking-over certificate according to sub-clause 17.2, nor does it affect the contractor's right to possess the materials and plant. It merely specifies the point at which legal title to the materials and plant used for the works will be transferred to the employer. As the FIDIC Guide points out, "as a legal matter, it may be important to establish the ownership of Plant and Materials, particularly in cases of bankruptcy/liquidation of the person who is in possession of them" .9 Silver Book sub-clause 7.7 indicates that all plant and materials become the property of the employer when they are delivered to the site or when the

9

FIDIC, The FIDIC Contracts Guide (Federation Internationale des Ingenieurs-Conseils, Lausanne, 2000), p. 165.

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contractor is entitled to payment of their value, whichever is earlier. This provision also indicates that this manner of vesting or transfer of ownership occurs "to the extent consistent with the Laws of the Country" and is free from liens and other encumbrances. Sub-clause 7.7 of the Red and Yellow Books is identical to the Silver Book provision. 11-34 In principle, this clause is not inappropriate. However, the caveat indicating that the clause works only "to the extent consistent with the Laws of the Country" is important. The law of a particular jurisdiction applicable to the contract will likely contain rules regarding construction materials, what liens or encumbrances may attach to these materials and how and when ownership may pass to the employer. For example, to the extent that a supplier of materials has not yet been paid for materials he supplies to the contractor the supplier may retain some type of security interest against the material: he provides to the contractor. Depending on the law of the jurisdiction, the purported transfer of ownership of the materials to the employer may theref~r.e be subject to some type of encumbrance, regardless of the contract provIsion between the contractor and the employer~ The situation may become even more problematic once the materials are incorporated into a structure and lose their separate identity. The supplier may still have an enforceable interest but now potentially enforceable against the improved real estate rather than just specific materials. . Each country will have its own laws and regulations regarding the validIty of the aforementioned security interests. The caveat contained in Silver Book sub-clause 7.7 may leave the employer with title to construction ma~erials. and possibly against improved real estate that is subject to vanous hens or other encumbrances by third parties. To the extent that this situatio~ presents unwanted risks for the employer, he may wish to seek the adVice of local counsel regarding the law applicable to the contract on these issues to determine the likelihood of an unwanted outcome. In addition, in certain jurisdictions, the employer may wish to obtain on a'p.eriodic basis appropriate waivers of liens and encumbrances. The proVISIOn by the contractor of such waivers could be established as a condition to payment. 11-35 Although the Silver Book perhaps better recognises the potential diffic~l.ties with t?is t~pe of c~ause, the Orange Book leaves out certain proVISIOns contamed 10 the Silver Book that materially affect the meaning of the clause. Orange Book sub-clause 7.6 is identical to the Silver Book except that it does not include the caveat "to the extent consistent wit1~ the Laws of the Country". The Orange Book also purports to transfer ownership of plant and materials to the employer at the same stated times but does not indicate that the transfer is "free from liens and other encumbrances" . Although.no~ sp~cifically a problem in the FIDIC contracts, another point wort? mentIOnIng 10 the context of this type of clause is the importance of defin10g the scope of what is being transferred to the employer. Often this type of clause states that plant, materials and equipment become the property of the employer at a given time. To the extent that the "equipment" is 268

DISCUSSION OF SPECIFIC SUB-CLAUSES

defined as equipment to be incorporated into the works, there is no problem. However, if "equipment" is left undefined, the term may extend to the contractor's own equipment, in respect of which he likely does not intend to transfer ownership to the employer. The transfer of ownership of materials varies under the ENAA depending on whether the materials are imported or procured in the country where the site is located. If they are to be imported, ownership of the materials "shall be transferred to the Owner upon loading on to the mode of transport to be used to convey the Materials from the country of origin to that country" (ENAA 31.1). If the materials are procured domestically, ownership "shall be transferred to the Owner when the Materials are brought on to the Site" (ENAA 31.2). The ENAA goes further to indicate clearly that the "[o)wnership of Construction Equipment used by the Contrac~or and its Sub-contractors in connection with the Works shall remain with the Contractor or its Sub-contractors" (ENAA 31.3). The ENAA does not expressly require that ownership transfer free and clear of any liens and does not specifically mention "plant". The EIC contains no provisions regarding the transfer of ownership of construction materials. The ICE's provisions are more complicated. To secure payment, the contractor may, and must if so directed by the employer's representative, transfer ownership to the employer of goods and materials specified in an appendix to the tender or as agreed between the employer and contractor (ICE 54(4)). Ownership is transferred before the goods and materials are delivered to the site, provided that they are owned by the contractor at the time of transfer (ICE 54(4)). The contractor must take certain steps to symbolise the transfer of ownership, such as providing documentation of the contractor's ownership, marking or identifying goods as the property of the employer and providing an inventory of goods for which the ownership is transferred with item values (ICE 54(5)). Ownership of the goods and materials vests in the employer once approved by the employer's representative (ICE 54(6). However, the contractor may remain in possession of, use and incorporate these goods and materials in the works (ICE 54(6)). The contractor remains responsible for the goods and materials during this time (ICE 54(6)). In addition, the employer's representative may reject any goods or materials, at which time these items revert immediately to the contractor's ownership (ICE 54(6)). The ICE provides that neither the contractor nor any subcontractor shall have a lien on any goods or materials which have vested in the employer (ICE 54(7)). However, this provision alone may not be effective absent additional steps by the parties and a close examination of the applicable law. For example, the employer's representative may need to require from the contractor not only proof of ownership but confirmation (such as a lien waiver) that the goods and materials are being transferred to the employer free and clear of any liens, encumbrances or other potential claims by third parties and that no such claims may arise later. This problem is ameliorated to some degree by the requirement in ICE 54(9) that all these transfer of 269

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PLANT, MATERIALS AND WORKMANSHIP

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ownership provisions be incorporated into every subcontract made by the contractor. Under the AlA, the Design-Builder warrants that: title to all construction covered by an Application for Payment will pass to the Owner no later than the time for payment. The Design/Builder further warrants that upon submittal of an Application for Payment all construction for which payments have been received from the Owners shall be free and clear of liens, claims, security interests or encumbrances in favour of the Design/Builder of any other person or entity performing construction at the site or furnishing materials or equipment relating to the construction. (AlA S.2.7-Part 2.) In addition, final payment and restitution of any retainage do not become due until the design-builder submits to the owner, as required: data establishing payment or satisfaction of obligations, such as receipts, releases and waivers of liens, claims, security interests or encumbrances arising out of the Contract, tothe extent and in such form as may be designated by the Owner. If a contractor or other person or entity entitled to assert a lien against the Owner's property refuses to furnish a release or waiver required by the Owner, the Design/Builder may furnish a bond satisfactory to the Owner to indemnify the Owner against such lien. If such lien remains unsatisfied after payments are made, the Design/Builder shall indemnify the Owner for all loss and cost, including reasonable attorneys' fees incurred as a result of such lien.

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(AlA S.2.1-Part 2.) Although slightly more complicated, the AlA offers perhaps the most secure method of protecting the employer against potential liens against construction materials or improved real estate: either the supplier/creditor furnishes a release or lien waiver or the contractor furnishes to the employer a bond to indemnify the employer against any such lien and related costs. The AGC provides a very simple provision regarding the transfer of ownership of plant and materials. It states that "[t)he Design-Builder warrants and guarantees that title to all Work, materials and equipment covered by an application for payment, whether incorporated in the Project or not, will pass to the Owner upon receipt of such payment by the Design-Builder free and clear of all liens, claims, security interests or encumbrances, hereinafter referred to as 'liens'" (AGC 9.2.5). Under the DBIA, the contractor may make requests for payment for equipment and materials, provided that "upon payment, owner will receive the equipment and materials free and clear of all liens and encumbrances" (DBIA 6.2.2). "The Application for Payment shall constitute DesignBuilder's representation that ... title to all Work will pass to Owner free and clear of all claims, liens, encumbrances, and security interests upon the incorporation of the Work into the Project, or upon Design-Builder's receipt of payment, whichever occurs earlier." (DBIA 6.2.3.) In addition, the contractor must indemnify and defend the employer against any claims for payment 270

DISCUSSION OF SPECIFIC SUB-CLAUSES

and mechanics' liens in connection with services, materials, labour, equipment, taxes or other items or obligations furnished in connection with the work (DBIA 6.5.1). Finally, at the time of submission of its final application for payment, the contractor shall provide an affidavit that there are no claims, obligations or liens outstanding or unsatisfied for labour, services, material, equipment, taxes or other items performed, furnished or incurred for or in connection with the work which will. in any way affect the employer's interests (DBIA 6.7.2.1).

7.8 Royalties

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Unless otherwise stated in the Employer's Requirements, the Contractor shall pay all royalties, rents and other payments for: (a) natural Materials obtained from outside the Site, and (b) the disposal of material from demolitions and excavations and of other surplus material (whether natural or man-made), except to the extent that disposal areas within the Site are specified in the Contract. Silver Book sub-clause 7.8 requires the contractor to be responsible for the payment of any royalties, rents or other payments in connection with natural materials obtained from outside the site. In addition, the contractor is responsible for such payments for the disposal of material from demolitions, excavations and other surplus material to the extent that there are not disposal areas on site specified in the contract. Sub-clause 7.8 of the Red and Yellow Books is identical to the Silver Book provision. The Orange Book does not contain a specific clause regarding royalties, rents and payment for natural materials or disposal of material. However, under Orange Book 7.2 the contractor is responsible for procurement of the materials required for the works. In addition, Orange Book 4.21 requires the contractor to dispose of any surplus materials. Without the detailed terms of Silver Book 7.8, the Orange Book provisions should accomplish the same attribution of responsibility to the contractor for these costs. Although stated less specifically than Silver Book sub-clause 7.8, the contractor is under the same obligations in the ENAA. The contractor's obligations include the provision of all materials (ENAA 7.1). In addition, the contractor is also responsible for clearing away "debris of any kind" (ENAA 22.6.2). The EIC is similar to the ENAA. The contractor is responsible for all procurement under EIC 2.1. In addition, upon taking over, the contractor must clear away and remove from the site all surplus material (EIC 6.10). Under the ICE, "[t)he 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." (lCE 28(3)). "On completion of the Works the Contractor shall clear away and remove from the Site all Contractor's Equipment, surplus material, rubbish and Temporary Works of any kind .... " (ICE 33(1).) 271

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PLANT, MATERIALS AND WORKMANSHIP

The AlA provides that "[t]he Design/Builder shall pay royalties and license fees for patented designs, processes or products" (AlA 3.2. 12-Part 2). "At the completion of the Work, the Design/Builder shall remove from the site waste materials, rubbish, the Design/Builder's tools, construction equipment, machinery, and surplus materials." (AlA 3.2.13-Part 2.) Similarly, the AGC requires the contractor to provide all necessary materials (AGC 3.2.2). At the completion of the work, the contractor shall remove from the premises all construction equipment, tools, surplus materials, waste materials and debris" (AGC 3.2.8). Under the DBIA, the contractor must provide everything necessary to complete the construction of the works, including all materials (DBIA 2.7.1). "Upon Substantial Completion of the Work, or a portion of the Work, Design-Builder shall remove all debris, trash, construction wastes [and] materials [... J" (DBIA 2.7.6.)

CHAPTER

12

COMMENCEMENT, DELAYS AND SUSPENSION General Comments This chapter covers the issues relating to the time for the completion of the construction, including commencement, time for completion, delays, suspensions and liquidated damages. Time for completion is in most cases a crucial aspect of any turnkey or EPC project. Consequently, a clear definition of this time and of the events or circumstances that may affect or change this time must be included in the contract. This serves to better avoid the negative consequences that result from completion delays. Delays in completion will be contrary to the employer's expectations and may also be in conflict with his obligations to third parties, such as lenders, product purchasers and suppliers of raw materials.

12-01

Commencement and time for completion The contract can specify a fixed date for commencement and completion, or it can refer to a period of time for completion. Such a period will run from a commencement date that is either calculated by a method provided in the contract or determined by one of the parties. Where licences or permits need to be obtained after signing of the contract but before commencement, or where certain materials or other preliminary work must first be completed, the date of commencement can be adjusted to provide for such conditions precedent. Use of a fixed date for completion does not take into consideration steps such as these which must immediately precede construction. l The contract should specify if early completion is desired or permitted, in accordance with the employer's needs. 2 The employer can provide a bonus for early completion as an incentive, if so desired. Although no such provision is contained in the Silver Book as written, other contracts do allow for bonuses. For example, the EIC Contract provides for a bonus for early I

1

272

UNCITRAL, UNCITRAL Legal Guide on Drawing Up International Contracts for the Construction of Industrial Works (UN, New York, 1998) UN DOC. NCN.9/SER.B/2 at 113. ibid.

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GENERAL COMMENTS

COMMENCEMENT, DELAYS AND SUSPENSION

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completion calculated in a fashion similar to liquidated damages for each day substantial completion is achieved before the time for completion up to a maximum limit (EIC 10.2). However, in certain circumstances the employer may not be concerned with early completion. If early completion will not benefit the employer, he has no reason to provide a bonus incentive. In fact, the employer may in some cases wish to prohibit early completion to avoid responsibility for the works during a gap period between taking over upon completion and commencement of commercial operations. Nonetheless, the concept of a bonus for early completion combined with the control granted to the contractor in a design-build contract has had some notable success. After the earthquake of 1994 in Northridge, California, United States, the California Department of Transport contracted with a private contractor for the rebuilding of the Santa Monica Freeway on a design-build basis with a bonus for early completion. The construction was scheduled to take five months. The contractor finished the work in only two months and received approximately U.S.$1S million as a bonus. 3

Completion delays 12-04

The parties to a construction contract will want to create a performance programme both to evaluate the progress of the project and to deal with any request by the contractor for any extension of the time for completion. The use of a programme allows the employer to regulate the completion time of the works during the course of the performance of the contract. 4 The programme will break the project down into individual construction steps. It shows the planned progress of the construction, including the interrelationships of each of the major construction activities. It allows the employer to oversee the construction and to ensure that the contractor progresses at the rate desired. In the event of delay, it can be used to analyse the effect on the time of completion with respect to a given activity. The employer may require the programme to be subject to his approval at first submission and when the contractor makes any amendments to the programme. The employer may also require the contractor to revise the programme with some frequency, particularly where the project is long-term. For example, on the Eurotunnel project, because of the long-term nature of the project and its technical complexity, the contractor was required to

provide a revision of the programme at regular intervals, not exceeding three months (sub-clause 14(2)). The employer could also request a revision at any point in time. The contract must also provide for extensions of the time for performance when the progress of the works is delayed for certain causes not attributable to the contractor or his subcontractors. This change in the time for completion will require a revision to the programme. The extension of time benefits the contractor in that he avoids liquidated damages from accruing when faced with certain causes of delay.s The parties may wish to include the option for the employer to request an increase in the contractor's rate of construction (acceleration) in exchange for an increase in the contract price, when the project is delayed or behind schedule. The employer can require the contractor to give a proposal as to the cost of accelerating progress in order to complete on or near the original date for completion. The employer can then decide if he would rather extend the time for completion, or receive the works within the time frame originally agreed at a higher price. This same acceleration can occur where the delay in completion is the fault of the contractor with no consequent increase in the contract price. In an effort to secure performance and define in advance the eventual consequences of breach by the contractor, contracts often contain liquidated damages clauses. These clauses specify the damages for certain breaches, the most common being liquidated damages for failure to attain the time for completion and liquidated damages for failure to meet pre-determined performance levels. Parties should carefully examine the effects of the applicable law on any liquidated damages clause. Some legal systems do not allow such clauses in certain circumstances, while others allow their judges to reduce the agreed damages if they are grossly excessive. 6 Under English law, a liquidated damages clause must not be a penalty, in terrorem, i.e. it must be a "genuinely covenanted pre-estimate of damage".7 A common method to assess and impose liquidated damages for delay is by use of a daily rate for specific failure, such as failure to complete on time, subject to some maximum limit. By using a daily rate, logically related to the continuing loss to the employer, the liquidated damages clause is less vulnerable to recharacterisation as an illegal penalty under the English 8 and American legal systems.

5 6

7 1 4

Goldenhersh and Elder, "Design/Build Conrracting for Caltrans", The Construction Superconference, San Francisco, U.S., December 7-8, 1995. UNCITRAL, op. cit. n. 1 above at 114. 8

274

I.N.D. Wallace Q.C., Hudson's Building and Engineering Contracts (1lth ed., Sweet & Maxwell, London, 1995), p. 1172. UNCITRAL, op. cit. n. 1 above at 220. Dunlop Pneumatic Tyre Co. Ltd. v. New Garage & Motor Co. Ltd., [1915] A.C. 79 at 86, in Wallace, op. cit. n. 5 above, p. 1134 n. 6, or in N.D.]. Henchie, "FIDIC Conditions of Contract for EPC Turnkey Projects-The Silver Book Problems in Store?" (2001) 18 I.C.L.R. 41 at 54. Wallace, op. cit. n. 5 above, p. 1144.

12-05

GENERAL COMMENTS

COMMENCEMENT, DELAYS AND SUSPENSION

Suspension by the employer

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12-07

12-08

Many contracts, such as the Silver Book, allow the employer to suspend progress on the works at his discretion. The contract may enable the employer to suspend for any reason or may limit this power of suspension to certain grounds. The contract may also require the employer to specify the duration of any suspension for convenience. This time frame should remain very flexible to permit recommencement at the earliest possible date. If a suspension for the employer's convenience is limited to certain grounds, these grounds should be clearly set out in the contract. If the employer is unable to state a reason for the suspension for which the contractor is responsible, it follows that the contractor should be entitled to an extension of the time for completion as well as the payment of any costs incurred due to the suspension. However, the contractor is not compensated for every case of suspension for which he is not directly responsible. The contract may provide that if the cause of the suspension was foreseeable by an experienced contractor as of the base date, then the contractor receives neither an extension of time nor an increase in the contract price. When the suspension is due to a cause attributable to the contractor, naturally he is not justified in receiving either compensation or an extension of time for the suspension. In either case, the contractor may also be required to preserve and protect the works from harm or damage during the period of suspension. Suspensions by the employer should also be limited to a certain maximum number of consecutive days for each individual suspension and also to an overall total combined number of days of suspension. The contractor should also be able to request permission to proceed after some period of suspension prior to exercising his remedies for prolonged suspensions. For example, if permission to proceed is requested after a certain period of suspension and not granted or the request ignored, the contractor should enjoy certain remedies, such as contract termination. The exact procedures for this situation should be outlined in detail. It may also be the case that only a portion of the works is suspended. If the portion remains suspended for an extended period, the parties may wish to have such a suspension treated as an omission ordered by the employer. This would be similar to a variation or change order instructed by the employer. However, it is important that the omitted part does not have a material detrimental effect on the whole of the works. Nonetheless, the employer will still want the works to satisfy as much of the original purpose of the project as possible. Therefore, the contractor will need to ensure that the contract is properly amended by a variation to take into consideration the effect this omission will have on his performance obligations under the contract. This may include modification of any tests specified in the contract as well as the results required. During an employer-ordered suspension there may be other issues involving transfer of risk. For example, provisions may be necessary to attribute responsibility for materials or plant that were scheduled to arrive but which

276

are being held up or still arriving despite the suspensi?n. The contractor may be under an obligation towards a third party supplier ~r subco~tractor to receive shipment of these materials. Provisions s~ould be mcluded. 10 the contract that deal with this situation in order to aVOId the accumulation of costs on the contractor during a period where no interim payment occurs due to the suspension of the works. . Finally, the provisions relating to employer-orde~ed ~uspenslOns sho~ld include a description of any requirements or obligatIons of the partIes relating to resumption of work after the suspension. The contractor may be required to make good any deterioration, defect or loss that occurred during the suspension. He should therefore be compensated for these costs and expenses to the extent that he was not the cause of the suspension nor negligent in his duties to protect and preserve the suspended works. Suspension by the contractor Although not contained in the Silver Book, there h~s b~en some discussion among industry commentators regarding a potential nght to susp~nd the works by the contractor for convenience, similar to the employer's ngh~. In a turnkey situation it is arguably unfair not to give.t~~ contractor some right of suspension given his greater design respons~bllity: F~r example, the contractor may want to suspend work for a certam period 10 ~r~er to r~as­ sess his design without breaching the contract. 9 ~owever, thIS. IS a radl~al position given the potential impact on the completion date and IS somethmg

12-09

with which the author disagrees.

Discussion of Specific Sub-Clauses Clause 8 of the Silver Book, entitled "Commencement, Delays ~nd Suspension", sets forth various clauses all relating in some wa! to the time for completing the works. The time requirements for commencmg and completing the works are set forth in sub-clause 8.1 a~~ 8.2. Sub-clause 8.3 contains the Silver Book's extensive programme provIsIons. Sub-clauses 8,4 and 8.5 both deal with potential extensions of the time for completion. The chapter also sets forth the parties' rights and privileges on matters relating to the rate of progress (SB 8.6), liquidated damages for delay (SB 8.7) and suspension of the work by the employer (SB 8.8-8.12).

9

B. Eggleston, The ICE Design and Construct: A Commentary (Blackwell Scientific Publications, Australia, 1994), p. 235. Mr. Eggleston suggests that the way co deal With thiS under the ICE Contract is to persuade the employer's representative that he should order a suspension "for the proper construction and completion" of the works. ")77

12-10

COMMENCEMENT, DElAYS AND SUSPENSION

12-11

8.1 Commencement of Works Unless otherwise stated in the Contract Agreement: (a) the Employer shall give the Contractor not less than 7 days' notice of the Commencement Date; and (b) the Commencement Date shall be within 42 days after the date on which the Contract comes into full force and effect under Sub-Clause 1.6 [Contract Agreement). The Contractor shall commence the design and execution of the Works as soon as is reasonably practicable after the Commencement Date, and shall then proceed with the Works with due expedition and without delay.

12-12

12-13

Silver Book sub-clause 8.1 requires the employer to give the contractor seven days' notice of the commencement date, which must be within 42 days of the contract's entry into force. Under the Silver Book, the contract enters into full force and effect on the date stated in the contract (SB 1.6). The contractor is then under an obligation to commence design and execution as soon as is reasonably practicable after the commencement date. The Silver Book imposes a further obligation that the contractor proceed with due expedition and without delay. The utility of this provision in the FIDIC contracts is somewhat limited. The specific commencement date does not directly affect the time for completion, which is a specific date under the FIDIC contract. Indeed, the FIDIC Guide recognises that "the date on which the works are completed is typically more important than the date on which they appear to be commenced".lo The Guide also indicates the difficulty in determining what constitutes commencement. The commencement date notified by the employer primarily serves as a benchmark reference for other provisions in the contract. For example, it marks the date by which the employer must provide the contractor access to the site (SB 2.1). The contractor's representative must also be appointed and the time programme submitted prior to this date (SB 4.3, 8.3). The contractor's provision of insurance coverage must also begin on the commencement date (SB 18.1). However, it does not serve as a reference for project milestones or for the time for completion. Orange Book sub-clause 8.1 is very similar to the Silver Book provision in content but is less specific with regard to the exact number of days for notice and the time period within which the commencement date must fall. Under the Orange Book, the notice of the commencement date is given by the employer's representative to the contractor within the time stated in the appendix for tender. Sub-clause 8.1 of the Red and Yellow Book are identical to each other, with one small exception. Since the Red Book generally does not contemplate design of the works by the contractor, the contractor's obligation is 10

FIDIC, The FIDIC Contracts Guide (Federation Internationale des Ingenieurs-Conseils, Lausanne, 2000), p. 168 (hereinafter FIDIC Guide).

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DISCUSSION OF SPECIFIC SUB-CLAUSES

only to commence execution as soon as reasonably practicable after the commencement date, while under the Yellow Book both execution and design must be commenced. The Red and Yellow Book provisions are also nearly identical to the Silver Book, except that it is the engineer who gives the notice of commencement and the 42-day window for the commencement date runs from the contractor's receipt of the letter of acceptance rather than from the effective date of the contract. The ENAA states that "[t)he Contractor shall commence the Works within the period specified in Article 5.1 (Time for Commencement) of the Agreement and ... the Contractor shall thereafter proceed with the Works in accordance with the time schedule specified in Appendix 9-7 (Time Schedule) to the Agreement" (ENAA 8.1). Article 5.1 of the ENAA contract agreement indicates that "[t)he Contractor shall commence the Works within seven (7) days after the Effective Date" (ENAA ca 5.1). Similarly, the EIC requires that the contractor "commence the Design and the Works at the Commencement Date" (EIC 9.1). The commencement date is to be stated in the appendix to the contract (EIC 9.2). The EIC differs from the contracts discussed above in that it requires the contractor to proceed with the works with due expedition and without delay "[u)pon approval of the Final Design by the Owner", though the parties may agree that certain work be performed before that time (EIC 9.1). The ICE takes a more comprehensive approach to the commencement date, stating that it shall be "(a) the date specified in the Appendix to the Form of Tender or if no date is specified, (b) a date between 14 and 28 days of the award of the Contract to be notified to the Contractor by the Employer's Representative in writing or, (c) such other date as may be agreed between the parties" (ICE 41(1)). Similar to the Silver Book, the ICE indicates that the contractor "shall start the Works on or as soon as is reasonably practicable after the Commencement Date. Thereafter the Contractor shall proceed therewith with due expedition and without delay in accordance with the Contract." (ICE 41(2).) The AlA does not contemplate that a specific commencement date will be contained in the contract nor does it place any specific time limits on when commencement of the works must occur. It states simply that "[t]he Work to be performed under this Part 2 Agreement shall commence upon receipt of a notice to proceed unless otherwise agreed" (AlA 4.2-Part 2). However, it does require that the works proceed expeditiously. Furthermore, this obligation applies not only to the contractor but also to the employer: "Unless otherwise indicated, the Owner and the DesignlBuilder shall perform their respective obligations as expeditiously as is consistent with reasonable skill and care and the orderly progress of the Project." (AlA 4.1-Part 2). The AGC provides a fixed commencement date, which is to be the effective date of the agreement unless otherwise stipulated, for "the work" but contemplates in addition a notice to proceed from the employer prior to commencement of construction. In addition, "The Work shall proceed in general accordance with the Schedule of Work as such schedule may be

12-14

12-15

DISCUSSION OF SPECIFIC SUB -CLAUSES

COMMENCEMENT, DELAYS AND SUSPENSION

amended from time to time" (AGC 6.1). "Construction will commence upon the issuance by the Owner of a written notice to proceed." (AGC 3.2.1.) The DBIA states that "[t]he Works shall commence within five (5) days of Design-Builder's receipt of Owner's Notice to Proceed ("Date of Commencement") unless the parties mutually agree otherwise in writing" (DBIA ca S.l-see also DBIA 8.1.1). 12-16

8.2 Time for Completion The Contractor shall complete the whole of the Works, and each Section (if any), within the Time for Completion for the Works or Section (as the case may be), including: (a) achieving the passing of the Tests on Completion, and (b) completing all work which is stated in the Contract as being required for the Works or Section to be considered to be completed for the purposes of taking-over under Sub-Clause 10.1 [Taking Over of the Works and Sections).

12-17

12-18

Silver Book sub-clause 8.2 requires the contractor to complete the works or section within the time for completion stated for the works or particular section. This provision states not only when completion must occur but also what completion entails. Under the Silver Book, completion includes passing the tests on completion and completing all work required prior to the employer's taking over. However, this clause should be modified to state that the works or part will not be considered complete for the purposes of this clause until the taking-over certificate has been issued by the employer or is deemed to have been issued under the contract. Orange Book sub-clause 8.2 is substantially the same as the Silver Book provision. However, it does not specifically state that all work required for the works to be taken over by the employer must be completed prior to the time for completion, though this may be implied. Sub-clause 8.2 of the Red and Yellow Books is identical to the Silver Book provision. The ENAA requires the contractor to attain "Mechanical Completion" of the works with a specified number of months after the contract's effective date (ENAA ca 5.2, 8.2). The time requirements may also be fixed for the different sections if the project is so divided (ENAA ca 5.2, 8.2). In addition, the time for completion is subject to a specific guarantee by the contractor that he shall attain Mechanical Completion of the Plant (or a part for which a separate time for completion is specified in the Agreement) within the Time for Completion specified in Article 5.2 (Time for Completion) of the Agreement, or within such extended time to which the Contractor shall be entitled under GC 40 (Extension of Time for Completion ) hereof.

(ENAA 26.1.) "Mechanical Completion" is defined under the ENAA as 'when the plant or specific part(s) have been completed "mechanically and structurally and put in a tight and clean condition and that work in respect of Precommissioning of the Plant or such specific part thereof has been completed, that it to say, that the Plant or the specific part thereof is ready for Commissioning" (ENAA 1). The EIC's provisions regarding the time for completion are more simplistic. It states that "[t]he whole of the Works shall be completed in accordance with the provisions of the Contract within the Time for Completion" (EIC 9.2). It defines "Time for Completion" as completion of the works up to the issue of the taking-over certificate (EIC 1.1 (xxiii) ).11 The ICE defines the time for completion in terms of "substantial completion". It requires that: [t)he whole of the Works and any Section required to be completed within a particular time as stated in the Appendix to the Form of Tender shall be substantially completed within the time so stated (or such extended time as may be allowed under Clause 44 or revised time agreed under clause 46(3)) calculated from the Commencement Date. (ICE 43.) "Substantial completion" is not specifically defined under the ICE but involves rather a notification by the contractor of substantial completion and the acceptance or non-acceptance of such by the employer's representative under clause 48 in relation to the issuance of a certificate of substantial completion. The AlA states that the "[t]ime limits stated in the Contract Documents are of the essence . . . and, subject to authorised Modifications, Substantial Completion shall be achieved on or before the date established in Article 14" (AlA 4.2-Part 2). Article 14 is simply a section of the contract where the commencement date and time for completion are stated. The AlA defines substantial completion as "the stage in the progress of the Work when the Work or designated portion thereof is sufficiently complete in accordance with the Contract Documents so the Owner can occupy or utilize the Work for its intended use" (AlA 4.3Part 2). The AGC contemplates that a specific date for substantial completion will be stated in the contract and also states that time shall be of the essence (AGC 6.2). As in the AlA, under the AGC substantial completion of the works or of a designated portion is defined as "when construction is sufficiently complete in accordance with the Contract Documents so that the Owner can occupy or utilize the Project, or a designated portion, for the use for which it is intended" (AGC 2.4.11). The DBIA contemplates that substantial completion of the works shall be achieved within a certain number of calendar days, as specified by the parties, after the date of commencement (DBIA ca 5.2.1). It also contains 11

280

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See Chap. 14 for the EIC requirements for taking over.

281

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COMMENCEMENT, DELAYS AND SUSPENSION

a section where interim milestones or substantial completion of identified portions can be set forth (DBIA ca 5.2.2). Under the DBIA: "Substantial' Completion is the date on which the Work, or an agreed upon portion of the Work, is sufficiently complete so that Owner can occupy and use the Project or a portion thereof for its intended purposes." (DBIA 1.2.11.) Finally, the contractor agrees that it will achieve the contract times in accordance with the Article 5 provisions discussed above (DBIA 8.1.1).

12-21

8.3 Programme The Contractor shall submit a time programme to the Employer within 28 days after the Commencement Date. The Contractor shall also submit a revised programme whenever the previous programme is inconsistent with actual progress or with the Contractor's obligations. Unless otherwise stated in the Contract, each programme shall include: (a) the order in which the Contractor intends to carry out the Works, including the anticipated timing of each major stage of the Works, (b) the periods for reviews under Sub-Clause 5.2 [Contractor's Documents], (c) the sequence and timing of inspections and tests specified in the Contract, and (d) a supporting report which includes: (i) a general description of the methods which the Contractor intends to adopt for the execution of each major stage of the Works, and (ii) the approximate number of each class of Contractor's Personnel and of each type of Contractor's Equipment for each major stage. Unless the Employer, within 21 days after receiving a programme, gives notice to the Contractor stating the extent to which it does not comply with the Contract, the Contractor shall proceed in accordance with the programme, subject to his other obligations under the Contract. The Employer's Personnel shall be entitled to rely upon the programme when planning their activities. The Contractor shall promptly give notice to the Employer of specific probable future events or circumstances which may adversely affect or delay the execution of the Works. In this event, or if the Employer gives notice to the Contractor that a programme fails (to the extent stated) to comply with the Contract or to be consistent with actual progress and the Contractor's stated intentions, the Contractor shall submit a revised programme to the Employer in accordance with this Sub-Clause.

12-22

Silver Book sub-clause 8.3 requires the contractor to submit a performance programme to the employer within 28 days of the commencement date. The contractor remains under an obligation to revise the programme whenever the current programme becomes inconsistent with the actual progress of the works or the contractor's obligations. The employer may also

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DISCUSSION OF SPECIFIC SUB-CLAUSES

require by notice a revision to the programme in the event of future events or circumstances that may adversely affect or delay the execution of the works. The contractor is under an ongoing obligation under this sub-clause to notify the employer of such events. Contractors may want to consider the possible impact of this notification requirement "on the starting point for calculating the notice periods under sub-clause 20.1 [Contractor's Claims]" and, in the interests of fairness, contractors may want employers to be under a similar notification obligation,u Sub-clause 8.3 also lists various things that must be included in the programme, such as the order and timing of the works' execution, review periods, a report of the contractor's work methods and personnel and equipment for each major stage of the project. The contractor proceeds with the submitted programme unless the employer gives him notice of non-compliance within 21 days of its receipt. The employer may also require a revision if the programme becomes inconsistent with actual progress. The Orange Book provisions regarding the work programme are found in its sub-clause 4.14. Under this sub-clause, the contractor must submit a programme to the employer's representative within the time stated in the appendix to tender, not necessarily within 28 days of the commencement date, as in the Silver Book. The content of the programme is less comprehensive under Orange Book 4.14 than under the Silver Book provision. For example, under the Orange Book a description of the contractor's work methods is required only upon request of the employer's representative. The Orange Book also states that the programme must be "developed using networking techniques, showing early start, late start, early finish and late finish dates" (OB 4.14). This has been eliminated from the corresponding Silver, Red and Yellow Book provisions whose origin is the Orange Book. Orange Book 4.14 also does not contain the affirmative obligation for the contractor to inform the employer or his representative of specific future events or circumstances which may adversely affect or delay the work. In short, the Orange Book's programme requirements are similar to the Silver Book but considerably less comprehensive. Sub-clauses 8.3 of the Red and Yellow Books are nearly identical to the Silver Book provision. Both contain the obligation to submit a programme and to submit revisions when the current programme is inconsistent with actual progress or the contractor's obligations. They also provide for the possibility of rejection of the programme within 21 days of submission, though the rejection is by the engineer under the Red and Yellow Books rather than by the employer. Like the Silver Book, these contracts also require the contractor to give prompt notice to the engineer of specific future eyents that may affect or delay execution. The Red and Yellow Books add that in this case the engineer may require an estimate of the anticipated effect and/or variation proposal. This would also be possible under the Silver Book's variation procedure in clause 13, but it is not specifically mentioned in Silver Book sub-clause 8.3. 12

EIC, The EIC Contractor's Guide to the FIDIC Conditions of Contract for EPC Turnkey Projects (European International Contractors, Berlin, 2000), p. 20 (hereinafter EIC Guide).

283

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The Red and Yellow Book sub-clauses 8.3 further differ from the Silver Book in that the content requirements for the programme are slightly more detailed. The Red and Yellow Book also differ slightly between each other regarding the content of the programme. However, the substance of the programme for all three contracts is still very similar. The ENAA contains programme requirements similar to the Silver Book, yet less comprehensive. Within a mutually agreed time period, the contractor must: prepare and submit to the Owner a programme of the Works showing the sequence in which it proposes to carry out the Works and the date by which the Contractor reasonably requires that the Owner shall have fulfilled its obligations under the Contract so as to enable the Contractor to execute the Works in accordance with the programme and to achieve Mechanical Completion, Commissioning and Acceptance of the Plant in accordance with the Contract.

12-25

(ENAA 18.2.) The contractor remains under an obligation to revise the programme when appropriate and to submit all such revisions to the employer (ENAA 18.2). However, the ENAA contains no specific obligation that the contractor notify the employer of specific future events that may affect or delay execution of the works. The employer also does not have the unilateral power to require programme revisions, making this largely dependent upon the contractor's good faith. The ENAA programme provision has been criticised as allowing the contractor too much freedom regarding the schedule for performance. 13 The EIC requires the contractor to provide the employer with a detailed work programme at the time of submission of the final design (EIC 4.5). The programme must show, inter alia, "the sequence and methods in which the Works are to be carried out" (EIC 4.5). Unlike the ENAA, the EIC does impose upon the contractor the obligation "to inform the Owner of any circumstances or conditions adversely affecting or which may adversely affect the execution of the Contract and ... any circumstances and conditions which cause or which may be likely to cause significant alteration to the programme" (EIC 4.6). In this case, the contractor must promptly submit a revised programme to the employer taking account of such circumstances and conditions (EIC 4.6). The ICE indicates that the contractor must submit a programme within 21 days of the award of the contract to the employer's representative for his acceptance (ICE 14(1)(a)). The programme must show the order in which the contractor proposes to carry out the works (ICE 14(1)(a)), and the contr~~tor must also provide at the same time his proposal generally descnbtng the arrangements and methods of construction for carrying out the works (ICE 14(1)(b)). Within 14 days of receipt, the employer's repre-

13

Wiwen-Nilsson, "A Brief View of the 1992 Edition of the ENAA Model Form-International Contract for Process Plant Construction (Turnkey Lump sum Basis)" (1994) 11 I.C.L.R. 526.

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sentative must either accept the programme, reject the programme with reasons or request additional information (ICE 14(2)). If the employer's representative rejects any programme, the contractor must submit a revised programme within 14 days of the rejection (ICE 14(1)(c)). The employer's representative is also empowered to request a revised programme when it appears that "the actual progress of the work does not conform with the programme", and the contractor has 14 days to comply (ICE 14(4)). Submissions of programme revisions are also subject to the acceptance or rejection provisions for the initial program (ICE 14(4)). The AlA contains no detailed requirement regarding a work programme. It requires only that a construction schedule be provided based on the contractor's initial proposal (AlA 4.4-Part 2). The contractor's proposal for the works includes preliminary design documents, the proposed contract sum and a proposed schedule for completion of the project (AlA 1.3.5Part 1). Similarly, the AGC does not require a detailed programme but only a schedule of work. It states that the contractor "shall maintain the Schedule of Work. This schedule shall indicate the dates for the state and completion of the various stages of the construction including the dates when information and approvals are required from the Owner. It shall be revised as required by the conditions of the Work." (AGC 3.2.4.) The DBIA also requires a schedule for completion of the works. However it contains requirements more analogous to those contained in the Silver Book:

12-26

Design-Builder shall prepare and submit, at least three (3) days prior to the meeting contemplated by Section 2.1.4 hereof,14 a schedule for the execution of the Work for Owner's review and response. The schedule shall indicate the dates for the start and completion of the various stages of Work, including the dates when Owner information and approvals are required to enable Design-Builder to achieve the Contract Time(s). The schedule shall be revised as required by conditions and progress of the Work, but such revisions shall not relieve DesignBuilder of its obligations to complete the Work within the Contract Time(s), as such dates may be adjusted in accordance with the Contract Documents. Owner's review of and response to the schedule shall not be construed as relieving Design-Builder of its complete and exclusive :control over the means, methods, sequences and techniques for executing the:Work. (DBIA 2.1.3.)

8.4 Extension of Time for Completion

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The Contractor shall be entitled subject to Sub-Clause 20.1 [Contractor's Claims] to an extension of the Time for Completion if and to the extent that 14

Meeting under the DBIA held within 7 days after agreement becomes effective to discuss contract administration. 285

DISCUSSlON OF SPECIFIC SUB-CLAUSES

COMMENCEMENT, DELAYS AND SUSPENSION

cornpletion for the purposes of Sub-Clause 10.1 [Taking Over of the Works and Sections] is or will be delayed by any of the following causes: (a) a Variation (unless an adjustrnent to the Tirne for Cornpletion has been agreed under Sub-Clause 13.3 [Variation Procedure)), (b) a cause of delay giving an entitlernent to extension of tirne under a SubClause of these Conditions, or (c) any delay, irnpedirnent or prevention caused by or attributable to the Ernployer, the Ernployer's Personnel, or the Ernployer's other contractors on the Si te. If the Contractor considers hirnself to be entitled to an extension of the Tirne

for Cornpletion, the Contractor shall give notice to the Ernployer in accordance with Sub-Clause 20.1 [Contractor's Clairns). When deterrnining each extension of tirne under Sub-Clause 20.1, the Ernployer shall review previous deterrninations and rnay increase, but shall not decrease, the total extension of tirne. 12-28

12-29

Silver Book sub-clause 8.4 sets forth the general provisions regarding extensions of the time for completion in favour of the contractor. It states that the contractor shall be entitled to an extension of the time for completion if taking-over is delayed for certain listed causes, namely variations, delays caused by or attributable to the employer and generally any other cause of delay mentioned elsewhere in the contract as entitling the contractor to an extension of time. Any extension of time is subject to compliance with the procedure for contractor's claims under sub-clause 20.1. Subpart (b) of Silver Book 8.4 references other causes of delay for which the contractor is entitled to an extension of time for completion appearing at other points in the contract. A listing of these other causes is included in Figure 12.3 at the end of this chapter. To avoid unnecessary time extensions, the employer may wish to make entitlement to an extension conditional on proof that the delay will affect the "critical path" of the construction work. Contractors may be wise to consider the situations in which remedies such as time alone, time and cost, and time, cost and profit are available under the Silver Book. In the EIC Guide's view, the logic of the Silver Book in this respect is difficult to follow. IS Orange Book 'Sub-clause 8.3 is similar to the Silver Book provision. It indicates that the contractor is entitled to an extension of the time for completion in the event delay is caused by a variation, any delay attributable to the employer and any other cause referenced elsewhere in the contract as entitling the contractor to an extension of time. The Orange Book also specifies that an extension of time may be possible for delays caused by force majeure events and "physical conditions or circumstances on the Site, which are exceptionally adverse and were not (by the Base Date) foreseeable by an experienced contractor" (OB 8.3(d)). Whereas the Silver Book also allows an extension for force majeure events in its force majeure clauses, the latter Orange Book exception for exceptionally adverse physical conditions is not a ground for extension of time under the Silver Book. In addition, the

15

EIG

286

Guid~,

op. cit. n. 12 above, p. 20.

Orange Book does not make reference to a contractor's claims clause for the procedure. Orange Book 8.3 itself contains the applicable procedure for the contractor to follow when claiming an extension of time. Red and Yellow Book sub-clauses 8.4 are identical in most respects to Silver Book 8.4. In addition to a permissible extension for variations, the Red Book also indicates that the extension applies to variations as well as "other substantial change in the quantity of any item of work included in the Contract" (RB 8.4(a)). The Red and Yellow Books also contain two additional grounds for extensions of time not contained in the Silver Book. They allow an extension for "exceptionally adverse climatic conditions" and for "[uJnforeseeable shortages in the availability of personnel or Goods caused by epidemic or other governmental actions" (RBIYB 8.4 (c), (d)). The Silver Book does not allow for time extensions due to climactic conditions unless these conditions represent a force majeure under cla use 19. 16 The EI C Guide is critical of this possibility and emphasises the qualitative difference between a contractual right to an extension of time versus a (more onerous) . claim under a force majeure clauseP Notice of any claim for extension is given to the engineer under the Red and Yellow Books, rather than the employer as under the Silver Book. All the non-FIDIC contracts discussed herein contain, like the FIDIC con- 12-30 tracts, a primary clause regarding extensions of time. Due to their length the entire clause for each contract will not be restated herein but can be found in the appendi.ces to this book. Furthermore, some of the non-FIDIC contracts provide an exhaustive list of potential extensions directly in their extensions clause, whereas the Silver Book incorporates into its general time extension provisions numerous other grounds found elsewhere in the contract by having its sub-clause 8.4(b) cover any "cause of delay giving an entitlement to extension of time" found elsewhere in the Silver Book. As a result, many of these other Silver Book clauses giving an entitlement to an extension are discussed more thoroughly in other chapters of this book. Therefore, each individual ground for extension will not be discussed at length to the extent it is not specifically included in Silver Book sub-clause 8.4. However, to provide the reader with a concise overview and comparison of which grounds for extension of time might be available in each different book, a chart is included at the end of this section (Figure 12.4) listing all the possible grounds for all the extensions of time in all the contracts discussed herein, with a citation to the relevant provision and an indication of which contracts contain the same or similar extensions. ENAA sub-clause 40.1 and EIC sub-clause 9.3 both provide a list of 12-31 grounds for potential time extensions and incorporate any other extensions found elsewhere in their respective contracts. Like the Silver Book, the ENAA also provides a specific procedure for time extension claims (ENAA 40.2). The ICE contains an extension of time provision very similar to the Silver Book, listing specific grounds for extension and also incorporating any other 16 17

FIDIC Guide, op. cit. n. 10 above, p. 174. EIC Guide, op. cit. n. 12 above, p. 21.

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COMMENCEMENT, DELAYS AND SUSPENSION

grounds set forth elsewhere in the contract (ICE 44(1)). ICE 44(1) further provides the procedure for the contractor to make his claims. Under the ICE, it is the employer's representative who assesses any delay (ICE 44(2)) and then either grants the extension or denies the claim (ICE 44(3), (4)). The AlA, AGC and DBIA differ slightly from the above contracts in that in addition to the listing of specific events justifying an extension of time, they broadly extend the potential grounds for extension to any other causes beyond the contractor's control." (AlA 4.5-Part 2, AGC 6.3.1, DBIA 8.2.1). These are very generous time extension formulae. These contracts do not use the foreseeability concept found in certain other contracts but rather one of contractor's control over the event.

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8.5 Delays Caused by Authorities If the following conditions apply, namely: (a) the Contractor has diligently followed the procedures laid down by the relevant legally constituted public authorities in the Country, (b) these authorities delay or disrupt the Contractor's work, and (c) the delay or disruption was not reasonably foreseeable by an experienced contractor by the date for submission of the Tender, then this delay or disruption will be considered as a cause of delay under subparagraph (b) of Sub-Clause 8.4 (Extension of Time for Completion].

12-33

Silver Book sub-clause 8.5 adds an additional ground for an extension of time. If the contractor has diligently followed the required procedures of the host country's public authorities and these authorities delay or disrupt the contractor's work, the contractor will be entitled to an extension of time if the delay or disruption was not reasonably foreseeable by an experienced contractor by the date for submission of the tender. Orange Book sub-clause 8.4 is substantially identical to the Silver Book provision except that the delay must not have been foreseeable by the base date, 18 rather than the date of tender. The Orange Book also does not impose a standard of reasonableness relating to whether or not the delay was foreseeable. The Red and Yellow Book sub-clauses 8.5 are identical to the Silver Book, except that these contracts state that "the delay or disruption was Unforeseeable" (RBIYB 8.5). Nonetheless, the effect is the same as under the Silver Book because the Red and Yellow Book define "Unforeseeable" in the definitions section as "not reasonably foreseeable by an experienced contractor by the date for submission of the Tender" (RB/YB 1.1.6.8). The FIDIC Guide explains, perhaps unconvincingly, the absence of provisions for the financial consequences of such delay, as these consequences "would depend on the particular circumstances".19

18 19

28 days prior to the latest date for submission of the tender (OB 1.1.3.1). FIDIC Guide, op. cit. n. 10 above, p. 175 .

288

DISCUSSION OF SPECIFIC SUB-CLAUSES

Under the ENAA, delays caused by public authorities are not specifically mentioned as grounds for an extension of time for completion. However, such a cause might be a case of force majeure under ENAA 37.1, which includes "any event beyond the reasonable control of the Owner or the Contractor ... , and which is unavoidable notwithstanding the reasonable care of the party affected" (ENAA 37.1). Force majeure includes specifically, without limitation "any other act or failure to act of any local state or national government authority" ENAA 37.1(c). In the event of a properly notified force majeure event, performance is excused for the duration of the event, and the "Time for Completion shall be extended in accordance with GC 40 (Extension of Time for Completion) hereof" (ENAA 37.3). Although not expressly stated, delays caused by public authorities might also be grounds for an extension of time under the Ele. In its general extension of time provision, the EIC allows an extension for "force majeure or any operation of the force of nature or other circumstances (if not force majeure) beyond the reasonable control of either of the parties hereto which the Contractor could not have reasonably foreseen" (EIC 9.3). There is no specific provision in the ICE regarding delays due to public authorities. However, such a delay might fall under the potential grounds for extension of time in ICE 44(I)(e) in the category of "other special circumstances of any kind whatsoever which may occur". Similarly, there are no specific provisions regardil1g delays attributable to public authorities under the AlA, AGC or DBIA. However, the contractor might get an extension of time under all three of these contracts to the extent that these are causes beyond his control (AlA 4.5-Part 2, AGC 6.3.1, DBIA

12-34

8.2.1).

8.6 Rate of Progress

12-35

If, at any time: (a) actual progress is too slow to complete within the Time for Completion, and/or (b) progress has fallen (or will fall) behind the current programme under Sub-Clause 8.3 [Programme], other than as a result of a cause listed in Sub-Clause 8.4 [Extension of Time for Completion], then the Employer may instruct the Contractor to submit, under Sub-Clause 8.3 [Programme], a revised programme and supporting report describing the revised methods which the Contractor proposes to adopt in order to expedite progress and complete within the Time for Completion.

Unless the Employer notifies otherwise, the Contractor shall adopt these revised methods, which may require increases in the working hours and/or in the numbers of Contractor's Personnel and/or Goods, at the risk and cost of the Contractor. If these revised methods cause the Employer to incur additional costs, the Contractor shall subject to Sub-Clause 2.5 [Employer's Claims] pay these costs to the Employer, in addition to delay damages (if any) under SubClause 8.7 below. 289

COMMENCEMENT, DELAYS AND SUSPENSION

12-36

12-37

12-38

Silver Book sub-clause 8.6 indicates that if the actual progress of the works is too slow to complete within the time for completion or if progress has or will fall behind the current programme, the employer may require the contractor to submit a revised programme, provided that the cause of delay does not entitle the contractor to an extension of time under the contract. The revised programme must be accompanied by a supporting report describing the revised methods the contractor will adopt to expedite the progress and complete the works within the time for completion. The expedited work methods will be undertaken at the contractor's cost even if it requires increased work hours, personnel or goods. Finally, if the employer incurs any costs as a result of these revised work methods, the contractor shall pay these costs to the employer in addition to any applicable liquidated damages. The Red and Yellow Book sub-clauses 8.6 are identical to the Silver Book, except that it is the engineer who instructs the contractor to submit the revised programme and report of expedited work methods, rather than the employer. The FIDIC Guide notes the interaction of various sub-clauses may be such that the employer may anticipate approving a delay under sub-clause 8.4 but nonetheless proceed under sub-clause 8.6. Such actions may be appropriate where the potential delay to be granted will not be sufficient to cover the expected real delay.20 It could be, however, that the increased responsibility of the contractor under the Silver Book would be commensurate with more freedom for the contractor to "execute works at his own pace as long as he complies with the time for completion or other contractually agreed dates".2I The corresponding Orange Book provision is found in its sub-clause 8.5. The Orange Book provision is similar to the Silver Book but less comprehensive. It states that if actual progress falls behind the programme or if it becomes apparent that it will, the contractor shall submit a revised programme and notify the employer's representative of any steps to be taken to achieve the time for completion. If the employer incurs any additional costs, these are recoverable from the contractor and may be deducted from any monies due. However, the Orange Book does not empower the employer or his representative to instruct this revised programme. It would appear that it is the contractor's responsibility to determine when a revised programme and expedited work programme would be necessary. The Orange Book subclause also does not specifically indicate that any increased work, personnel or goods will be at the contractor's cost. The ENAA contains provisions very similar to Silver Book 8.6. Under the ~NAA, if the contractor's actual progress falls behind the programme, or if It becomes apparent that it will fall behind, upon the employer's request the contractor must prepare and submit a revised programme and notify the employer of the steps being taken to expedite progress so as to attain mechanical completion within the time for completion (ENAA 18.4). There is no specific indication under the ENAA clause as to whether the contractor is liable for any increased costs to the employer. 20

2.

FIDIC Guide, op. cit. n. 10 above, p. 176. EIC Guide, op. cit. n. 12 above, p. 21.

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DISCUSSION OF SPECIFIC SUB-CLAUSES

The EIC takes a slightly different approach. The contractor is under an obligation to inform the employer of "any circumstances or conditions adversely affecting or which may adversely affect the execution of the Contract and shall further inform the Owner without delay of any circumstances and conditions which cause or which may be likely to cause significant alteration to the programme and without delay submit a revised programme to the Owner taking account of such circumstances and conditions" (EIC 4.6). The ICE states that "Iilf 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 any time in the opinion of the Employer's Representative too slow to ensure substantial completion by the time . . . the Employer's Representative shall notify the Contractor in writing" (ICE 46(1)). The contractor must then take any steps necessary and to which the employer's representative consents to expedite the progress and complete the works or section by the time for completion (ICE 46(1)). The ICE states that "[t]he Contractor shall not be entitled to any additional payment for taking such steps" (ICE 46(1)). . The AlA, AGC and DBIA contain no specific provisions regarding the rate of progress. 12-39

8.7 Delay Damages If the Contractor fails to comply with Sub-Clause 8.2 [Time for Completion], the Contractor shall subject to Sub-Clause 2.5 [Employer's Claims] pay delay damages to the Employer for this default. These delay damages shall be the sum stated in the Particular Conditions, which shall be paid for every day which shall elapse between the relevant Time for Completion and the date stated in the Taking-Over Certificate. However, the total amount due under this Sub-Clause shall not exceed the maximum amount of delay damages (if any) stated in the Particular Conditions. These delay damages shall be the only damages due from the Contractor for such default, other than in the event of termination under Sub-Clause 15.2 [Termination by Employer] prior to completion of the Works. These damages shall not relieve the Contractor from his obligation to complete the Works, or from any other duties, obligations or responsibilities which may have under the Contract.

In order to motivate the contractor to achieve timely completion of the project, the employer will require that liquidated damages be paid for each day the contractor is late in completion. These damages will give the contractor a clear measure of the cost involved in late completion. They should also allow the employer to collect damages without legal action against the contractor, thus saving time and expense. Silver Book sub-clause 8.7 sets forth the contract's provisions regarding delay damages, also referred to as liquidated damages for delay. Delay damages are imposable if the contractor fails to meet the requirements for the

291

12-40

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12-41

12-42

time for completion. The damages payable are stated in the particular conditions and are assessed on a per diem basis for each day elapsing from the time for completion until the date stated in the taking-over certificate. The Silver Book contemplates that there may be a maximum total amount of delay damages stated in the particular conditions. In any event, delay damages are limited by the limitation of liability provision of Silver Book sub-clause 17.6. 22 These delay damages shall be the only damages due from the contractor for failure to meet the time for completion, except for additional damages associated with a termination for cause by the employer. Despite the contractor's payment of these damages, he is still obligated to complete the works and is not relieved of any other duties or obligations under the contract. Users of the Silver Book should be aware of the status of delay damages (or liquidated damages) under the relevant legal system. For example, under the English system, often such damages will only be acceptable where they represent "a genuine pre-estimate of the loss which the employer will suffer due to delayed completion" .23 The fact that the damages are payable on a periodic basis, under the Silver Book, may be helpful in establishing their compensatory character but may not be sufficient. The German Federal Supreme Court also insists "damages for delayed performance may not be unreasonably high and may not exceed the probable loss of the employer in the event of delay".24 Finally, there may be other obstacles to Silver Book sub-clause 8.7 as, for example, under German law a clause where damages are unrelated to the contractor's responsibility for such delay will be unenforceable. 2S Employers should be aware that a decreased rate of progress is often related to the contractor suffering a shortage of cash flow. Employers in such a situation may be better advised to deduct such damages from any retention monies or performance security held, rather than from the interim payments, which would only serve to decrease the contractor's cash flow further and potentially aggravate the slowed rate of progress. 26 However, under certain circumstances the net effect may be the same. Although organised in a slightly different manner, the provisions of Orange Book 8.6 are substantially identical to Silver Book 8.7 regarding delay damages. Red and Yellow Book sub-clauses 8.7 are identical to the Silver Book, with the exception that the per diem amount of damages and the possible maximum total amount are to be stated in the appendix to tender rather than the particular conditions. The ENAA's provisions regarding liquidated damages are contained in its contract agreement and the general conditions. The contract agreement indi-

22 23 24

2S 26

FIDIC Guide, op. cit. n. 10 above, p. 177. N.D.J. Henchie, "FIDIC Conditions of Contract for EPC Turnkey Projects-The Silver Book Problems in Store?" (2001) 18 (1) I.C.L.R. 41 at 54. Dr A. Kus, Dr J. Markus & Dr R. Steding, "FIDIC's new 'Silver Book' under the German Standard Form Contracts Act" (1999) 16 (4) I.C.L.R. 533 at 543. ibid. at 542. G.L. Jaynes, "The New Colour in FIDIC's Rainbow: The Trial Edition of the 'Orange Book'" (1995) 12 (3) I.C.L.R. 367 at 383.

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DISCUSSION OF SPECIFIC SUB-CLAUSES

cates that its provision regarding liquidated damages may be deleted if it ~s not applicable, if the parties do not wish to have liquidated d~mages provIsions. Otherwise the ENAA Contract Agreement states that If the contractor fails to attain'mechanical completion of the works or any part within the time for completion specified in the general conditions, the contractor m.ust pay the employer a particular amount (which is to be i~s.erted by the partles) for each day o'r week of delay (ENAA 5.4). The proVISIOn states that th~se are liquidated damages and not a penalty and provides a blank for the partles to enter a total aggregate amount or percentage which may not be exceeded (ENAA 5.4). Sub-clause 5.5 of the ENAA Contract Agreement and 26.3 of the General Conditions also contain provisions regarding bonuses for early completion. : ENAA 26.2 in the General Conditions relates and refers to sub-clause 5.4 of the ENAA Contract Agreement. It states that if payment of liquidated damages is provided for in the Contract Agreement, the contract~r s~al1 pay these damages to the employer in the event of the contractor s fatlure to attain mechanical completion. It further states that "[s]uch payment shall be in complete satisfaction of the Contractor's obligation to .at~ain Mec~anical Completion of the Plant or the relevant part thereof w.lth~~ the TIme for Completion ... and the Contractor shall have no further hablhty whatsoe~er to the Owner in respect thereof" (ENAA 26.2). However, the payment of hquidated damages does not relieve the contractor of any of his obligations to complete the works or of any other obligations under the contract. ENAA 26.2 further states that, aside from liquidated damages, the failure by the Contractor to attain any milestone or other act, matter or thing by any date specified in Appendix 9-7 (Time Schedule) to the Agreement and/or other programme of work prepared pursuant to GC 18 (Work Program) hereof shall not render the Contractor liable for any loss or damage thereby suffered by the Owner. (ENAA 26.2.) This last provision seems to protect the contra.c tor against consequential damages arising from a failure to complete on tlme, such as costs to the employer for delays to his other contractors. ENAA 30.1 also provides a limitation on the contractor's total maxi~um liability under the contract. The EIC contains similar provisions for liquidated damages:

If the Contractor fails to complete the Works within the Time for Completion in accordance with the Contract, then the Contractor shall pay to the Owner the relevant sum stated in the Appendix hereto as liquidated damages for such default and not as a penalty (which sum shall be the only monies due from the Contractor for such default) for every day which shall elapse between the Time for Completion and the date specified in the Taking-Over Certificate, subject to the limit stated in the Appendix hereto. The payment 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 but shall be in fuJI discharge of the Contractor's liability for delay in completion.

293

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COMMENCEMENT, DELAYS AND SUSPENSION

(EIC 10.1.) In addition, "[iJf the Contractor achieves completion of the Works prior to the Time for Completion, the Owner shall pay to the Contractor a sum as a bonus" (EIC 10.2). 12-44 ,!,he ICE indicates that the appendix to tender shall include a genuine preestimate of da~ages, expressed per week or per day, likely to be suffered by the employer If the works are not substantially completed by the time for completion (ICE 47(1)(a)). The contractor shall pay these damages to the employer for the time elapsing between time for completion and actual substanti~1 co~pletion if the contractor fails to substantially complete within the prescnbed time (ICE 47(1 )(b)). If part of the works is substantially complete, the sum of damages shall be reduced proportionally by the proportional value of th~ ~ompleted part (ICE 47(1 )(b)). The ICE contains a separate, but similar prOVISIOn for when the work is divided into sections (ICE 47(2)). The ICE further states that the damages are imposed as liquidated damages for delay and not as a penalty (ICE 47(3)). The liquidated damages are subject to a maximum limit if so stated in the appendix to tender; otherwise, there is no limit on the liquidated damages (ICE 47(4)(a)). The employer may either deduct and retain the liquidated damages from any sums otherwise due to the contractor or require the contractor to pay these damages (ICE 47(5)). The DBIA Contract Agreement states that the contractor understands that if substanti.al completion is not attained by the completion date, the emp~oyer will suffer damages which are difficult to determine and accurately specify (DBIA ca 5.4). The DBIA provides a blank to insert a designated time after the substantial completion date, thereafter referred to as the liquidated damages date or "LD date" after which liquidated damages begin to accrue (DBIA ca 5.4). The per diem dollar amount for these damages is also stated (DBIA ca 5.4). It indicates that "[tJhe liquidated damages provided herein shall be in lieu of all liability for any and all extra costs losses expenses I . I' , , , calms, pena ties and any <:>ther damages, whether special or consequential, and o~ what.so~ver nature Incurred by Owner which are occasioned by any delay In achieving Substantial Completion" (DBIA ca 5.4). There is also the possibility of an early completion bonus (DBIA ca 5.5). The AlA and AGC contain no provisions regarding liquidated damages for delay. Under the AGC, however, the owner is permitted to adjust or reject a contractor's application for payment where, inter alia, there is "reasonable evidence of delay in performance of the Work such that the Work will not be c<:>mpleted by the Date of Substantial Completion" and where "the unpaid balance of the Contract Price is not sufficient to offset any direct damages that may be sustained by the Owner as a result of the anticipated delay caused by the Design-Builder" (AGC 9.3.5) 12-45

8.8 Suspension of Work The Employer may at any time instruct the Contractor to suspend progress of part or all of the Works. During such suspension, the Contractor shall protect, store and secure such part or the Works against any deterioration, loss or damage. 294

DISCUSSION OF SPECIFIC SUB-CLAUSES

The Employer may also notify the cause for the suspension. If and to the extent that the cause is notified and is the responsibility of the Contractor, the following Sub-Clauses 8.9, 8.10 and 8.11 shall not apply. The employer is allowed to suspend work during \=onstruction at any time and for any reason. Suspension has many uses for ·the employer, including completion of other construction that may need to precede the contractor's work, or for reasons related to the project's financing. Silver Book sub-clause 8.8 empowers the employer to suspend progress on part or all of the works at any time. In the event of such a suspension, the contractor is obligated to protect, store and secure the works against any deterioration, loss or damage. The sub-clause further indicates that the employer may notify the contractor of the cause of the suspension. If the cause is the responsibility of the contractor, certain additional sub-clauses do not apply, namely 8.9, 8.10 and 8.11, which give the contractor certain rights and remedies in the event of an employer-instructed suspension that is not the contractor's fault. Orange Book sub-clause 8.7 is identical to the Silver Book provision except that it does not contain the second paragraph regarding the employer's notification of the cause and the disabling of the additional sub-clauses in the event the suspension is attributable to some fault of the contractor. The corresponding Red and Yellow Book provisions in their respective sub-clauses 8.8 are identical to the Silver Book, except that it is the engineer, rather than the employer, who has the power to suspend the works and notify the cause of the suspension. The ENAA contains provisions nearly identical in substance to those of Silver Book sub-clause 8.8:

12-46

12-47

The Owner may by notice to the Contractor order the Contractor to suspend performance of all or any of its obligations under the Contract. Such notice shall specify the obligation of which performance is to be suspended, the effective date of the suspension and the reasons therefor. The Contractor shall thereupon suspend performance of such obligation (except those obligations which are necessary for the care or preservation of the Works) until ordered in writing to resume such performance by the Owner. (ENAA 41.1.) The only difference from the Silver Book is that the employer is required under the ENAA to state the reasons for the suspension. There is no specific power for the employer to suspend under the EIC. An employer suspension would probably require compliance with the contract's variation procedures. The employer might propose a change or omission by written notice to the contractor (EIC 11.1). The contractor informs the employer within 28 days of the cost of the proposed variation and the extension of time required, subject to the employer's approval (EIC 11.1.2). However, there is no unilateral power to order suspensions or variation without the contractor's agreement and prior agreement regarding price and time. The ICE contains a provision for employer suspensions similar to Silver Book sub-clause 8.8. It states: 295

12-48

COMMENCEMENT, DELAYS AND SUSPENSION

The Contractor shall on the written order of the Employer's Representative suspend the progress of the Works or any part thereof for such time or times and in such manner as the Employer's Representative may consider necessary and shall during such suspension properly protect and secure any work so far as is necessary in the opinion of the Employer's Representative. (ICE 40(1)) The AGC provides that "[tJhe Owner may order the Design-Builder in writing to suspend, delay or interrupt all or any part of the Work without cause for such period of time as the Owner may determine to be appropriate for its convenience" (AGC 11.1.1). The DBIA grants the employer a similar power but restricts the duration: "Owner may, without cause and for its convenience, order Design-Builder in writing to stop and suspend the Work. Such suspension shall not exceed sixty (60) consecutive days or aggregate more than ninety (90) days during the duration of the Project." (DBIA 11.1.1.) The AlA contains no provisions for employer suspensions.

12-49

8.9 Consequences of Suspension If the Contractor suffers delay and/or incurs Cost from complying with the Employer's instructions under Sub-Clause 8.8 [Suspension of Work] and/or from resuming the work, the Contractor shall give notice to the Employer and shall be entitled subject to Sub-Clause 20.1 [Contractor's Claims] to: (a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 8.4 [Extension of Time for Completion], and (b) payment of any such Cost, which shall be added to the Contract Price.

After receiving this notice, the Employer shall proceed in accordance with SubClause 3.5 [Determinations] to agree or determine these matters. The Contractor shall not be entitled to an extension of time for, or to payment of the Cost incurred in, making good the consequences of the Contractor's faulty design, workmanship or materials, or of the Contractor's failure to protect, store or secure in accordance with Sub-Clause 8.8 [Suspension of Work].

12-50

Although the employer has the power to suspend at his discretion, he must compensate the contractor for any cost incurred and any time lost toward completion (although he does not have to reimburse the contractor for lost profit)P The employer does not have to compensate the contractor

21

Although speaking in relation to variations, in respect of which the contractor is entitled to profits under Silver Book sub-clause 13.3, the Grove Report advocates for the elimination of the dichotomy between cost compensation and priced compensation. In other words, "if the Contractor is entitled to compensation, one wonders why he is not entitled to a profit as well. ... Elimination of the dichotomy would allow simplification in that a single set of pricing principles would apply to all compensation events." U.B. Grove, The Grove Report: Key Terms of 12 Leading Construction Contracts Are Compared and Evaluated online: Construction Web Links (November 6, 2000) http://www.Constructionweblinks.coml Resourceslindustry_Reports_N .. .1 grove_report.ht (date accessed: June 20, 2001) at para. 19.5). Grove's observation could apply to the Silver Book provisions.

296

DISCUSSION OF SPECIFIC SUB-CLAUSES

when the suspension is due to a cause for which the contractor is responsible. Silver Book 8.9 comes into effect when the employer has suspended the works and the suspension is not due to a cause for which the contractor is responsible. If the contractor suffers delay or incurs additional cost as a result of such a suspension, the contractor is entitled to an extension of the time for completion and the payment of his additional costs by the employer through an increase to the contract price. Any such claim by the contractor is subject to the contractor's claims procedure set forth in Silver Book subclause 20.1. However, no extension of time or payment of contractor's costs shall be allowed in connection with making good the consequences of the contractor's faulty design, workmanship or material or for the contractor's failure to protect, store or secure the works as required under Silver Book sub-clause 8.8. Sub-clauses 8.9 of the Red and Yellow Books are identical to the Silver Book provision, with the exception that the engineer is referenced rather than the employer. The corresponding provision in Orange Book sub-clause 8.8 is substantially identical to the Silver Book provision, with one minor exception. The Orange Book also requires that any delay or cost incurred by the contractor in connection with a suspension by the employer's representative must not have been foreseeable by an experienced contractor by the contract's base date. Under the ENAA, if the contractor's performance is suspended by the employer or the rate of progress reduced, the contractor is entitled to an extension of the time for completion and all additional costs or expenses incurred by the contractor as a result must be paid by the employer to the contractor (ENAA 41.3). However, this is not the case if the suspension order or reduction in the rate of progress is by reason of the contractor's default or breach of the contract. Under the EIC, although not specifically in the context of an employer suspension of the work, time and cost would likely be granted to the contractor if the employer used the EIC clause 11 variation procedure to suspend the works. The ICE states that any delay or extra cost incurred by the contractor as a result of compliance with a written suspension order shall be taken into account in determining any awards of cost or time: except to the extent that such suspension is (a) otherwise provided for in the Contract or (b) necessary by reason of weather conditions or by some default on the part of the Contractor or (c) necessary for the proper construction and completion or for the safety of the Works or any part thereof in as much as such necessity does not arise from any act or default of the Employer's Representative or the employer or from any of the Excepted Risks defined in Clause 20(2). (ICE 40(1).) Similarly, under the AGC "[aJdjustments caused by suspension, delay or interruption shall be made for increases in the Contract Price and/or the date

297

12-51

12-52

COMMENCEMENT, DELAYS AND SUSPENSION

of Substantial Completion" (AGC 11.4.2). However, "[n]o adjustment shall be made if the Design-Builder is or otherwise would have been responsible for th~ suspension, delay or interruption of the Work, or if another provision of thIs Agreement is applied to render an equitable adjustment" (AGC 11.1.2). Under the DBIA, the contractor "is entitled to seek an adjustment of the Contract Price and/or Contract Time(s) if its cost or time to perform the Work has been adversely impacted by any suspension of [sic] stoppage of work by Owner" (DBIA 11.1.2). The AlA contains no provisions regarding employer suspensions.

12-53

8.10 Payment for Plant and Materials in Event of Suspension

The Contractor shall be entitled to payment of the value (as at the date of suspension) of Plant andlor Materials which have not been delivered to Site, if: (a) the work on Plant or delivery of Plant andlor Materials has been suspended for more than 28 days, and (b) the Contractor has marked the Plant and/or Materials as the Employer's property in accordance with the Employer's instructions.

12-54

As for the previous sub-clause, Silver Book 8.10 comes into effect when the employer has suspended the works and the suspension is not due to a cause for which the contractor is responsible. This sub-clause states that despite the suspension of the work and/or deliveries, the contractor is enti~ tied to payment of the value of any plant or materials which have not been delivered to the site when the employer's suspension has lasted more than 28 ~ays and the co?tractor has marked these items as the employer's property In accordance with the employer's instructions. Such items become the property of the employer, subject to the procedural or formal requirements of the relevant jurisdiction, by virtue of sub-clause 7.7. Orange Book sub-clause 8.9 contains provisions substantially identical to those of the Silver Book. However, the Orange Book also adds that to the extent that this sub-clause applies, the employer shall take over the responsibility for the protection, storage, security and insurance of these suspended plant and materials upon the contractor's request, and the risk of loss or damage is passed to the employer. Sub-clause 8.10 of the Red and Yellow Books is identical to the Silver B.o~k provision ~it~ the exc.eption that the engineer is referenced as the party glvmg the marking instructions for the plant or materials. The ENAA, EIC, ICE, AlA, AGC and DBIA contain no provisions comparable to Silver Book sub-clause 8.10.

12-55

8.11 Prolonged Suspension If the suspension under Sub-Clause 8.8 [Suspension of Work) has continued for more than 84 days, the Contractor may request the Employer's permission to

298

DISCUSSION OF SPECIFIC SUB-CLAUSES

proceed. If the Employer does not give permission within 28 days after being requested to do so, the Contractor may, by giving notice to the Employer, treat the suspension as an omission under Clause 13 [Variations and Adjustments] of the affected part of the Works. If the suspension affects the whole of the Works, the Contractor may give notice of termination under Sub-Clause 16.2 [Termination by Contractor). Silver Book sub-clause 8.11 provides a remedy for the contractor in the event of a prolonged suspension by the employer when the cause of the suspension is not the responsibility of the contractor. If the suspension has continued for more than 84 days, the contractor may request the employer's permission to proceed with the execution of the works. If the employer does not grant this permission within 28 days of this request, the contractor may give notice to the employer and treat the suspension as an omission under the contract's clause 13 provisions for variations and adjustments. Presumably, this last provision means that if all or a portion of the works have been suspended by the employer, the contractor may treat the prolonged suspension as a variation order by which the employer intends to eliminate the suspended portion of the work from the sphere of the contractor's responsibilities. However, this conclusion is unclear because the referenced clause 13 does not specifically mention this type of "omission". Nonetheless, the most likely interpretation is that the work affected by the suspension would be treated as an employer-instructed variation for the contractor to not execute this work, and the deemed variation would be dealt with according the procedures of clause 13 (see Chapter 16). Finally, if the suspension affects the whole of the works, the contractor may give notice of termination under the contract's termination proVISIOns. The contractor may want to suggest the addition of language indicating that the 84 days of suspension are in the aggregate. In other words, the employer could technically order an 84-day suspension, give notice to proceed within 28 days of the contractor's request, and then institute another suspension. It is not clear that the contractor would have a termination remedy in this case. The FIDIC Guide provides no clarification with respect to these concerns. 28 Orange Book sub-clause 8.10 is substantially identical to the Silver Book provision, with the exception that the relevant actor for notice and permission is the employer's representative rather than the employer. Red and Yellow Book sub-clauses 8.11 are identical to the Silver Book sub-clause, except that the contractor must give the relevant notices to the engineer whose response or inaction then determines the availability of the contractor's remedies under this sub-clause. The ENAA provides that if, other than by reason of contractor's default or breach, the works are suspended by the owner for an aggregate period of lS

FIDIC Guide, op. cit. n. 10 above, p. 181.

299

12-56

12-57

12-58

DISCUSSION OF SPECIFIC SUB-CLAUSES

COMMENCEMENT, DELAYS AND SUSPENSION

90 days, then the contractor may give notice to the employer requiring him within 28 days either to order the resumption of such performance or request and subsequently order a change to the works excluding the performance of the suspended obligations from the contract (ENAA 41.1). If the employer fails so to do within the given period, the contractor may by further notice elect to treat the suspension, where it affects a part only of the works, as a deletion from the contract or, where it affects the whole of the works, as termination of the contract (ENAA 41.1). The ICE also provides a relatively clear outcome in the case of a prolonged suspension by the employer. It indicates that: lilf the progress of the Works or any part thereof is suspended on the written order of the Employer's Representative and if permission to resume work is not given by the Employer's Representative within a period of 3 months from the date of suspension then the Contractor may unless such suspension is otherwise provided for in the Contract or continues to be necessary by reason of some default on the part of the Contractor serve a written notice on the Employer's Representative requiring permission within 28 days from the receipt of such notice to proceed with the Works or that part thereof in regard to which progress is suspended. If within the said 28 days the Employer's Representative does not grant such permission the Contractor by a further written notice so served may elect to treat the suspension where it affects part only of the Works as an omission of such part under Clause 51 or where it affects the whole of the Works as an abandonment of the Contract by the Employer.

12-59

(ICE 40(2)) The AGC's provision is much less intricate. The contractor may terminate upon seven days' notice to the employer if the work is suspended by the employer for 60 days (AGC 11.4.2). The DBIA states that a suspension by the employer "shall not exceed sixty (60) consecutive days or aggregate more than ninety (90) days during the duration of the Project" (DBIA 11.1.1). The contractor may terminate the agreement if the work has been stopped for 60 consecutive days or more than 90 days during the duration of the project due to a suspension by the employer provided that the stoppages are not due to the acts or omissions of the contractor or anyone else for whose acts the contractor is responsible (DBIA 11.4.1.1). The EIC and AlA contain no provisions regarding prolonged employer suspensions.

12-60

After a period of suspension there may be loss of materials, particularly fungible materials, and deterioration to the works. Resuming work will necessarily involve a period of returning the works to a proper state before restarting construction. The parties should provide for attribution of costs for the deterioration of the works and loss of materials as well as the time required to recommence construction of the works. Silver Book sub-clause 8.12 indicates that if the employer gives permission or an instruction to resume the work after a suspension, the contractor and the employer must jointly examine the works, plant and materials affected by the suspension. The contractor is requ(red to make good any deterioration, defect or loss to the works, plant or materials that occurred during the suspension. This sub-clause applies regardless of whether the suspension was due to a cause that was the responsibility of the contractor or not. In other words, regardless of the cause, upon the resumption of the work after an employer suspension, the contractor must remedy any loss or defect to the works, plant or materials that occurred during the period of suspension. This accords with sub-clause 8.8, and the contractor may be compensated by an extension of time or payment of cost under sub-clause 8.9. 29 The corresponding provisions in Orange Book sub-clause 8.11 are nearly identical to the Silver Book, with the exception that it is the employer's representative acting for the employer. In addition, if the employer had taken over risk and responsibility for plant or materials not delivered to the site pursuant to Orange Book 8.9, this risk and responsibility reverts back to the contractor 14 days after receipt of the permission or instruction to proceed. Sub-clauses 8.12 of the Red and Yellow Books are identical to the Silver Book, except that the contractor examines the works with the engineer rather than the employer. The ENAA, EIC, ICE, AlA, AGC and DBIA all contain no specific provisions regarding the resumption of work after a suspension by the employer.

8.12 Resumption of Work After the permission or instruction to proceed is given, the Parties shall jointly examine the Works and the Plant and Materials affected by the suspension. The Contractor shall make good any deterioration or defect in or loss of the Works or Plant or Materials, which has occurred during the suspension. 300

29

FIDIC Guide, op. cit. n. 10 above, p. 182.

301

12-61

COMMENCEMENT, DELAYS AND SUSPENSION

12-62

Figure 12.1

DISCUSSION OF SPECIFIC SUB-CLAUSES

Completion process under the FIDIC Silver Book

Figure 12.2

12-63

Employer suspension under the FIDIC Silver Book E instructs C to suspent progress of parr or all of the works.

Commencement of works as soon as reasonably practicable after notice by E. 8.1

C protects, stores and secures such part or works against deteri<;>ration, loss or damage. 8.8

YES

NO NO YES

NO

Sub-clauses 8.9, 8.10 and 8.11 do not apply. 8.8

Have the works or section been completed and passed the tests on completion by the time for completion? 8.2

NO

. . . ._--------1 C is entitled to extension of time and payment of costs. 8.9

YES

YES NO

E proceeds in accordance with sub-clause 3.5 to agree or determine extension. 20.1

C is entitled to payment of value of plant and materials if: a. work is suspended for more than 28 days; and b. plant and materials marked as employer's by his instructions. 8.10

NO

YES

>--Y-E-S---t-l C may request E's permission to proceed. 8.11

NO

NO

C may treat NO suspended part as 1+---,.----< omission. 8.11

C may terminate if suspension affects whole of works. 8.11, 16.2

YES

YES Upon resuming work, parties jointly examine works. C makes good any deterioration, defect or loss to works, plant or materials. 8.12

302

303

COMMENCEMENT, DELAYS AND SUSPENSION

12-64

Figure 12.3 Book Clause

Reason for extension

., of time ~ ..

,

Figure 12.4

Extension of time comparison33

Delays caused by the employer's instructions to contractor regarding archaeological remains discovered on the site.

5.4

Changes in the host country's technical standards and regulations for which contractor's compliance causes delay.

Errors in employer's requirements not resonably discoverable

5(I)(c) (ii)

only)

Delays caused by employer's instructions to vary the location or details of any tests or to perform additional tests or any delay for which the employer is responsible.

8.4(a)

Variations. 3O

Delayed drawings or

8.4(c)

Any delay, impediment or prevention caused by or attributable to the employer, his personnel or his contractors.

attributable to E

8.5

Unforeseeable delays or disruptions by the public authorities of the host country.

8.9

Delays caused by contractor's compliance with employer's instruction to suspend work to the extent the suspension was not due to contractor's fault.

9.2

Tests on completion being unduly delayed by the employer.

10.3

Prevention of the tests on completion due to a cause for which the employer is responsible.

13.7

Delays caused by a change in the laws of the host country.

16.1

Delays resulting from contractor's suspension of work for non-payment by the employer or employer's failure to provide evidence of his ability to pay.

6(1)(c)

only)

Failure by employer (representative) to give timely consents or disapprovals

Employer's failure to give contractor timely access to or

8(3)

2. 1

2.2

42(3)

2.1

possession of site

Errors in original points, lines or levels of reference not reasonably discoverable by C

Delays caused by the occurrence of an employer's risk. 3! Delays caused by the occurrence of a force majeure

1.9 (RB

instructions

event. 32

Aside from the general variation provisions in clause 13, the Silver Book specifically men· tions other acts as potential variations: employer instructions (SB 3.4); instructions to cooperate with employer's personnel (SB 4.6); instructions to comply with changed laws or regulations (SB 5.4); employer changes to tests (SB 7.4); and daywork (SB 13.6). For a list of employer's risks, see SB 17.3. For a list of specific force majeure events, see SB 19.1.

304

12-65

,

4.24

19.4

31

..

...

Delays caused by employer's failure to give contractor access to or possession of the site within the time stated in the particular conditions.

17.4

31

Extensions of the time for completion under the FIDIC Silver

2.1

7.4

30

DISCUSSION OF SPECIFIC SUB-CLAUSES

JJ

4.7

The terms used have been modified from the original contract language in order to provide a measurable comparison. It should also be noted that the shaded boxes signal a contract's lack of a comparable specific provision but does not necessarily mean that the event might not qualify for an extension under a more general extension provision of the particular contract. For example, the ICE does not specifically provide for an extension of time when the contractor is required to perform emergency work but does offer a general extension under its sub-clause 44(I)(e) for "other special circumstances of any kind" .

305

DISCUSSION OF SPECIFIC SUB-CLAUSES

COMMENCEMENT, DELAYS AND SUSPENSION

Employer's instructions regarding archaeological remains discovered Changes in the host country's technical standards and regulations Employer's instructions to vary the location or details of any tests or to perform additional tests

4.24

4.24

4.24

5.4 5.4

5.4

(YB

only)

7.4

7.4

Unforeseeable conditions or

Exceptionally adverse climatic conditions

8.4(c)

37.1 (e)

Unforeseeable shortages of personnel or goods caused by epidemic or governmental actions

8.4(d)

37.1 (f)

9.3 (c)

44(1) (c)

4.5

6.3.2

8.2.1

8.2. 1

Unforeseeable delays or disruptions by public authorities

8.5

8.4

8.5

Employer's instruction to suspend work (C not at fault)

8.9

8.8

8.9

Undue delay to tests on completion by the employer

9.2

9.2

Prevention of the tests on completion due to a cause attributable toE

10.3

10.3

Change in the laws of the host country

13.7

13.16

13.7

36.1, 40.1 (d)

12. 14

Contractor's suspension of work for by the employer or other justified suspension

16.1

16.1

16.1

41 .3

19.4

Occurrence of an employer's risk

17.4

17.4

17.4

war, hostilities, invasion, act of foreign enemies

17.3

17.3

17.3

40.1

40(1)

(c)

11.1.2 11.1.2

circumstances

(may be physical, subsurface and/or events generally beyond C's control, depending on the contract)

4.11, 8.3(d)

4.12

35 .3, 40.1 (b)

4.8 9.3(f)

12(2)

4.5

Hazardous conditions/materials

3.5.5, 6.3.1

Special circumstances of any kind (not attributable to C)

Variations/change orders or directives

9.3(e)

8.4(a) 8.3(a) 8.4(a)

306

8.4(c)

8.3(e)

8.4(e)

39.6, 9.3(a), 44(1) 40.1 11.1.2 (a) (a) 11.2

40.1 (e)

9.3(d)

4.1.4, 8.2.1

44(1) (e)

4.5, 8.2.1, 8.3.1

Emergency work Any delay, impediment or prevention caused by or attributable to the employer, his personnel or his contractor

6.3.1, 4.2.1, 8.5 8.2.1

44(1) (d)

4.5

6.3.1, 8.1

8.2.1, 9.1.1, 9.2.1

8.7

8.2.1

6.3.1

8.2.1

37.1 (a)

2.5.2

64(3)

8.2.1

307

COMMENCEMENT, DELAYS AND SUSPENSION

rebellion, terrorism, revolution

17.3

17.3

17.3

insurrection, civil war

37.1 (b)

rebellion, terrorism, revolution, civil war

19.1

19.1

19.1

19.1

19.1

19.1

37.1 (b)

19.1

19.1

19.1

40.1 (b)

19.1

19.1

19.1

37.1 (e)

riot, commotion or disorder

17.3

17.3

17.3

37.1 (b)

riot, commotion or disorder

munitions of war, explosives, ionising radiation

17.3

17.3

17.3

40.1 (b)

explosives, ionising

17.3

40.1 (b)

natural catastrophes

17.3

40.1 (b)

confiscation, nationalisation, requisition by government

17.3

40.1 (bJ

Labour disputes

17.3

17.3

37.1 (eJ

pressure waves

from aircraft

17.3

loss or damage due to use of works by employer

17.3

17.3

design of any part of the works attributable to E

forces of nature

Delays caused by force majeure event

19.4

8.3(b)

19.4

37.3, 40.1 (b)

force majeure generallyJ.4

19.1

19.1

19.1

37.3

war, hostilities,

invasion, act of foreign enemies

3.

DISCUSSION OF SPECIFIC SUB-CLAUSES

19.1

19.1

19.1

37.1 (aJ

munitions of war, radiation

(b)

8.2.1

37.1 (c)

37.1 (d)

4.5

6.3.2

8.2.1

Unusual delays in tra nsport/de liveries

4.5

6.3.2

8.2.1

(f)

E's delay/prevention of C continuing work pending dispute resolution

4.5

6.3.1

9.3 (f)

Fire

4.5

6.3.2

9.3 (f)

8.2.1

9.3

8.2.1

Under the Silver Book general definition, force majeure is an exceptional event or circumstance, beyond a party's control, which the party could not reasonably have provided against before entering into contract, which, having arisen, the party could not reasonably have avoided or overcome, and which is not substantially attributable to the other party (SB 19.1). Definitions of force majeure may vary among the different contracts. See Chapter 23 for a more thorough comparison.

308

37.1

Affording facilities to other contractors/ employees of E

31(2)

Employer's instructions in context of dispute referred to expert that C ultimately wins

20.3.5

Uncovering of works ordered by E showing no fault of C

23.11

309

CHAPTER

13

TESTS ON COMPLETION General Comments The construction process under the Silver Book is divided into two major periods. During the first, the contractor constructs the body of the works, commissions the works and trial operation of the works. During the second, the contractor remains responsible for completing any outstanding work and remedying defects that are identified. The tests on completion confirm that the contractor has successfully completed the first stage and that the works are in proper operating order. They mark the shifting of responsibility for care of the works from the contractor to the employer, who will carry out subsequent testing after issue of the completion certificate. Before taking over, the employer will want to verify completion of the works in accordance with the contract. The tests on completion provide evidence of the quality and state of the works for this purpose. These tests are performed by the contractor after he considers that the works are substantially completed. The tests give the employer an objective set of standards against which to measure completion. The testing regime for a construction contract will usually include a requirement concerning certain documentation intended to assist the employer in operation of the plant, such as operation manuals and as-built plans.! According to the UNCITRAL Legislative Guide, a construction agreement for a project should detail: 1) the nature of the completion tests or the inspection of the completed facility; 2) the timetable for the tests; 3) the consequences of failure to pass a test; and 4) the allocation of the responsibility for organising the resources for, and paying the costs of, the tests. 2 In the interest of rapid completion, the contract may specify that even in the event of minor faults the completion tests may be considered successful. The minor faults may be treated as defects to be remedied separately. These items are generally tracked by means of a document known as a "punch list". It lists those items which the parties consider to be sufficiently minor that they can be rectified without delaying taking over by the employer. The time for rectiI

2

UNCITRAL, UNCITRAL Legal Guide on Drawing Up International Contracts for the Construction of Industrial Works (UN, New York, 1998) UNDOC. AlCN.9/SER.Bl2 at 49. UNCITRAL, Legislative Guide on Privately Financed Infrastructure Projects (UN, New York, 2001) (UNDOC. AlCN.9/SER.B/4) online: UNCITRAL Homepage (pdf format) http://www.uncitral.orglenglishltextslprocurernlpfip·index·e.htm (date accessed: July 16, 2001) at 127.

311

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TESTS ON COMPLETION

fying the minor omissions and defects contained in the punch list may vary. The contract documents or the punch list itself may indicate that minor omissions and/or defects be completed or corrected as soon as possible, during the defects liability period, at some specific time stated or as required by the contract.

Discussion of Specific Sub-Clauses 13-02

13-03

Clause 9 of the Silver Book, entitled "Tests on Completion", sets forth the contractor's obligations regarding the tests to be performed prior to the employer's taking over of the works (SB 9.1). It also delimits the parties' respective rights when faced with test delays caused by the other party (SB 9.2). It provides a specific regime applicable when the tests on completion are failed and retesting is required (SB 9.3) as well as the ultimate choice of outcomes for the employer in the event that the works or a part fail absolutely to pass these tests (SB 9.4). A flowchart diagram of the tests on completion process is included at the end of this chapter (Figure 13.1). The other standard forms discussed herein differ greatly from the Silver Book requirements and procedures regarding tests on completion. The different approaches may bear some similarities to the Silver Book, as in the case of the ENAA . However, many of the other contracts, such as the EIC, AlA, AGC and DBIA make little mention, if any, of tests to be performed by the contractor upon substantial completion of the works. Each construction project must be evaluated to determine what level of testing, if any, should be required to ensure successful completion and operation. Where tests are important and required for the project, the contract should contain clear provisions not only to identify the relevant tests and parameters but also a clear statement of the parties' rights and options in the event the works fail to pass such tests or attain the performances required. The Silver Book provides a sound example of general provisions. However, the contractor may object to certain of the employer's broad remedy options in the event the tests on completion fail repeatedly.

13-04

9.1 Contractor's Obligations The Contractor shall carry out the Tests on Completion in accordance with this Clause and Sub-Clause 7.4, [Testing) after providing the documents in accordance with Sub-Clause 5.6 [As-Built Documents) and Sub-Clause 5.7 [Operation and Maintenance Manuals). The Contractor shall give to the Employer not less than 21 days' notice of the date after which the Contractor will be ready to carry out each of the Tests on Completion. Unless otherwise agreed, Tests on Completion shall be carried out Within 14 days after this date, on such day or days as the Employer shall instruct.

312

Unless otherwise stated in the Particular Conditions, the Tests on Completion shall be carried out in the following sequence: (a) pre-commissioning tests, which shall include the appropriate inspections and ("dry" or "cold") functional tests to demonstrate that each item of Plant can safely under-take the next stage, (b); (b) commissioning tests, which shall include the specified operational tests to demonstrate that the Works or Section can be operated safely and as specified, under all available operating conditions; and (c) trial operation, which shall demonstrate that the Works or Section perform reliably and in accordance with the Contract. During trial operation, when the Works are operating under stable conditions, the Contractor shall give notice to the Employer that the Works are ready for any other Tests on Completion, including performance tests to demonstrate whether the Works conform with criteria specified in the Employer's Requirements and with the Performance Guarantees. Trial operation shall not constitute a taking-over under Clause 10 [Employer's Taking Over). Unless otherwise stated in the Particular Conditions, any product produced by the Works during trial operation shall be the property of the Employer. In considering the results of the Tests on Completion, appropriate allowances shall be made for the effect of any use of the Works by the Employer on the performance or other characteristics of the Works. As soon as the Works, or a Section, ~ave passed each of the Tests on Completion described in subparagraph (a), (b) or (c), the Contractor shall submit a certified report of the results of these Tests to the Employer. Under Silver Book sub-clause 9.1 the contractor must carry out the tests on completion after providing the as-built documents and operation and maintenance manuals required under the contract. Twenty-one days' notice is given to the employer, and the tests must be carried out within 14 days thereof and on such days as the employer may instruct. The Silver Book provides for a specific sequence of tests: pre-commissioning, commissioning and trial operation. During the trial operation the contractor must give notice to the employer when the works are ready for any other tests on completion, including performance tests. Once the tests on completion are passed, the contractor submits a certified report of the test results to the employer. In order to facilitate the testing process, the parties may want to provide that the contractor develop a "tests on completion programme" before performance of the tests on completion. In this way the employer will be better able to oversee the tests and consent to their progress. Orange Book sub-clause 9.1 is similar to the Silvl;r Book, except that the employer's representative, rather than the employer, is the relevant party regarding notices, instructions and receipt of the test:results. In addition, the specific requirements and listing of the pre-commissioning, commissioning and trial operation are not included in the Orange Book. Red Book sub-clause 9.1 is also similar to the Silver Book but closer in substance to the Orange Book sub-clause. The Red Book's engineer is the relevant actor under this contract. Like the Orange Book, Red Book 9.1 does

313

13-05

TESTS ON COMPLETION

13-06

13-07

not specifically list the tests or requirements regarding pre-commissioning, commissioning and trial operation. Yellow Book sub-clause 9.1 is substantially identical to the Silver Book provision, except that the engineer acts rather than the employer. It is the engineer who receives notices, issues instructions regarding the test days and receives the certified report of the test results from the contractor. The ENAA provides for a somewhat different testing and commissioning procedure than the Silver Book. Under the ENAA the contractor begins by giving notice to the employer of mechanical and structural completion (ENAA 24.1). Within seven days of the employer's receipt of this notice the employer must supply operation and maintenance personnel, raw materials and other services required of the employer under the contract for precommissioning (ENAA 24.2). As soon as reasonably practicable after the employer supplies these items, the contractor must commence precommissioning of the works or part (ENAA 24.3). As soon as pre-commissioning is complete, the contractor gives the employer notice that the works are ready for commissioning (ENAA 24.4). If the employer is satisfied, he will issue a mechanical completion certificate (ENAA 24.5). If not, he must notify the contractor of any defects or deficiencies, and the contractor must correct these (ENAA 24.5). The procedure is repeated as necessary (ENAA 24.5). Commissioning of the works is then commenced by the contractor immediately after the issue by the employer of the mechanical completion certificate (ENAA 25.1.1). After successful commissioning (operation under stable conditions), the contractor must give the employer notice that the works are ready for the performance tests (ENAA 25.1.3), which are carried out during commissioning (ENAA 25.2.1). The contractor must provide the employer with a certified report of the results of any test or inspection (ENAA 23.4). The EIC contains no specific provisions regarding tests on completion. It merely defines "Tests on Completion" as "the tests specified in the Contract or which are to be made by the Contractor before the issue of the Taking Over Certificate" (EIC 1.1(xxii)). In addition, EIC 9.4(a) mentions tests on completion, indicating that the contractor must give notice to the employer when the works are substantially complete and have passed any tests on completion prescribed by the contract. However, the EIC offers no specifics regarding such tests. The testing regime under the ICE is not well-defined and is much less comprehensive than the FIOIC books and the ENAA. Under the ICE, the contractor is required to submit to the employer's representative for approval proposals for testing the workmanship and materials (ICE 36(3)(a)). The contractor has an obligation to carry out these tests and any further tests the employer's representative may require (ICE 36(3)(b)). The contractor is also under a general obligation to notify the employer's representative when work is ready for examination (ICE 38(1)). However, there is no specific mention of what tests, notice or reporting might be required for any tests on the works. With regard more specifically to tests on completion, the closest reference to this concept in the ICE is the requirement that the contractor 314

DISCUSSION OF SPECIFIC SUB -CLAUSES

give notice to the employer's representative when he considers the works or a section to be substantially complete and has satisfactorily passed "any final test that may be prescribed by the Contract or Statute" (ICE 48(1)). The ICE seems to contemplate the possibility of tests on completion but contains no specific provisions. The AlA makes no reference whatsoever to any tests on completion. Under AlA 3.2.14, the contractor must give the employer notice when he believes the work or a part to be substantially complete. If the employer concurs, the contractor issues a certificate of substantial completion. However, no testing requirements are mentioned. The AGC also contains little detail regarding tests on completion. It states simply that "the Contractor shall direct the checkout of utilities and start up operations, and adjusting and balancing of systems and equipment for readiness" (AGC 3.8.5). The contractor must also "secure required certificates of inspection, testing and approval and deliver them to the Owner" (AGC 3.8.3). Apart from these few provisions, the AGC does not really contain any specific requirements for tests on completion. The DBIA similarly contains few provisions regarding tests on completion. It states generally that the contractor shall provide all necessary inspection, testing and start-up (DBIA 2.7.1) but gives no further specifics. Under DBIA 6.6.1, the contractor must notify the employer when he believes that the works or a part is substantially complete. Within five days of the employer's receipt of this notice, the employer and contractor must jointly inspect the works to verify that they are substantially complete. No other specifics regarding tests on completion are provided in the DBIA. 9.2 Delayed Tests

13-08

13-09

If the Tests' on Completion are being unduly delayed by the Employer, SubClause 7.4 [Testing) (fifth paragraph) and/or Sub-Clause 10.3 [Interference with Tests on Completion) shall be applicable. If the Tests on Completion are being unduly delayed by the Contractor, the Employer may by notice require the Contractor to carry out the Tests within 21 days after receiving the notice. The Contractor shall c;arry out the Tests on such day or days within that period as the Contractor may fix and of which he shall · give notice to the Employer. . If the Contractor fails to carry out the Tests on Completion within the period of 21 days, the Employer's Personnel may proceed with the Tests at the risk and cost of the Contractor. These Tests on Completion shall then be deemed to have been carried out in the presence of the Contractor and the results of the Tests shall be accepted as accurate.

Where the works are ready for tests on completion, and therefore taking over by the employer as well, and the employer is delaying the performance of such tests, the contractor should be entitled to an extension of time and any potential cost incurred due to the delay. By the same token, if the 315

13-10

TESTS ON COMPLETION

13-11

Contractor is delaying the tests, the employer may want to force performance of the tests to accelerate completion of the contract and enable him to have timely use of the works. Silver Book sub-clause 9.2 attempts to deal with these problems. Silver Book sub-clause 9.2 indicates that if the tests on completion are unduly delayed by the employer, sub-clauses 7.4 "Testing" and 10.3 "Interference with Tests on Completion" shall be applicable. Under these provisions the contractor may give notice to the employer to obtain an extension of time and/or costs plus reasonable profit due to the employer's delay. If the tests on completion are prevented for more than 14 days, the contractor may carry out the tests on completion as soon as practicable and obtain a time extension and costs. Note, however, that incorporation and reference to sub-clauses 7.4 and 10.3 is not entirely necessary in this provision because ~hese ?ro~isio~s are operative standing alone and do not actually require IOcluslon 10 thIs sub-clause. Indeed, the EIC Guide finds the reference to these sub-clauses in sub-clause 9.2 confusing, as they "provide relief to the Contractor for the circumstances set out in those sub-clauses and not specifically for those set out in sub-clause 9.2".3 Sub-clause 9.2 also contains provisions regarding test delays caused by the contracto,r. If the tests are unduly delayed by the contractor, the employer may reqUIre the contractor by notice to carry out the tests within 21 days. If the contractor fails to do so within this period, the employer's personnel may carry out the tests at the risk and cost of the contractor. In this case, the tests are deemed to have been carried out in the presence of the contractor and the results are deemed to be accurate. Sub-clause 9.2 of the Yellow and Red Books is identical to the Silver Book provision, except that the engineer is the relevant actor rather than the employer. Orange Book sub-clause 9.2 is identical to the Silver Book with two exceptions. First, the employer's representative acts on behalf of the employer and is the relevant party for the purposes of this provision. Second there is no specific indication or cross-reference to the contract provision~ regarding test delays caused by the employer, although the Orange Book does contains such provisions similar to the Silver Book. The cons~quences of test delays caused by the employer are not specifically stated 10 the ENAA. However, the contractor is entitled to an extension of time under ENAA 40.1 for any default or breach of the contract by the employer or any act or omission of his personnel. In addition the contractor might request a price increase as a "change" under ENAA 39. The ENAA does indicate that if the employer's inspector fails to attend the tests, the contractor may proceed with the testing and provide the employer with a report of t~e results (ENAA 23.4). Although there is no remedy stated regarding sp.eclfically the contractor's failure to execute the tests, the employer may termmate the contract under certain conditions subsequent to the contractor's default in his obligations (ENAA 42). 3

EIC~ The EIC Contractor's Guide to the FIDIC Conditions of Contract for EPC Turnkey Protects (European International Contractors, Berlin, 2000), p. 22 (hereinafter EIC Guide),

316

DISCUSSION OF SPECIFIC SUB-CLAUSES

The EIC contains no provisions regarding employer or contractor delays to any tests on completion. However, it does contain certain general provisions that might be applicable if such tests were specified as a contract requirement. For example, in the event of "any delay, impediment or prevention by the Owner", the contractor is entitled to an extension of time (EIC 9.3). In the context of a delay by the contractor, if he fails, following previous warning from the employer, to carry out his obligations under the contract (such as any specified tests), the employer may be entitled to terminate the contract (EIC 18.1). The ICE contains no specific provisions regarding the effect of delays to the tests on completion caused by the contractor or the employer, primarily because the ICE has no specific regime for such tests. However, assuming tests on completion were specified as an appendix or otherwise within the contract documents, the contractor does have the right to an extension of time for "any delay, impediment, prevention or default by the Employer" (ICE 44( 1)( d)). In addition, if the contractor had some specific testing obligation that he did not execute, the employer would be entitled to carry out this work at the contractor's cost (ICE 49(4)). Although the AlA contains a provision entitling the contractor to an extension of time for delays caused by the employer (AlA 4.5-Part 2), there are no tests on completion in the AlA to which this might be applicable. For lack of any such testing requirements, there are no provisions in the AlA comparable to ,Silver Book sub-clause 9.2. Similar to the AlA, the AGC contains a provision entitling the contractor to an extension of time for delays caused by the employer and also the possibility of potential price increases (AGC 6.3.1). However, there are no specific tests on completion to which these provisions might attach. The DBIA indicates that if the employer causes a delay to the contractor in performing his obligations under the contract, the:contractor may receive an extension of time for completion (DBIA 8.2.1) and possibly an increase in the contract price (DBIA 9.4). However, these provisions are not linked to any tests on completion.

9.3 Retesting

13-12

13-13

If the Works, or a Section, fail to pass the Tests on Completion, Sub-Clause 7.5 [Rejection) shall apply, and the Employer or the Contractor may require the failed Tests, and Tests on Completion on any related work, to be repeated under the same terms and conditions.

Where the works fail the tests on completion, one of the parties will generally wish to have the affected work retested, either immediately or once modifications or alterations have been made. The employer and contractor both have an interest in the works passing the tests on completion; the former in order to take possession of the completed works as early as 317

DISCUSSION OF SPECIFIC SUB-CLAUSES

TESTS ON COMPLETION

13-14

possible and the latter to avoid liquidated damages and in order to provide for the transfer of risk to the employer at the earliest date. Silver Book sub-clause 9.3 indicates that if the tests on completion are failed, the employer may reject the work and require rectification under sub-clause 7.5. The employer and contractor may also require failed tests to be repeated under the same terms and conditions. The corresponding provisions in sub-clause 9.3,of the Orange, Red and Yellow Books are identical to the Silver Book, with the exception that these contracts refer to the engineer and employer's representative, respectively, rather than the employer. The ENAA states that "[ilf any Materials or any part of the Works fails to pass any test and/or inspection, the Contractor shall rectify or replace such Materials or part of the Works and shall repeat the test and/or inspection upon giving notice" (ENAA 23.6). This is essentially the equivalent of Silver Book sub-clause 9.3. Although not specifically referenced in connection with tests on completion, the employer's representative has the general power under the ICE to instruct the removal and replacement of non-compliant work or materials, whether discovered as a result of testing or otherwise (ICE 39). In addition, the employer's representative has the power to order any additional tests at his discretion (ICE 36(3)(b)). If these tests are ordered due to non-compliant workmanship or materials, these tests are at the contractor's cost (ICE 36(7)). The AlA contains no specific provisions for tests on completion and thus no provisions regarding retesting. However, if the works are defective or non-compliant, the employer has the right to reject them and the contractor is responsible for correcting the defect (AlA 9.1-Part 2). The AGC and DBIA contain no provisions for tests on completion and therefore no provisions regarding retesting.

13-15

9.4 Failure to Pass Tests on Completion If the Works, or a Section, fail to pass the Tests on Completion repeated under Sub-Clause 9.3 [Retesting), the Employer shall be entitled to: (a) order further repetition of Tests on Completion under Sub-Clause 9.3;

(b)

if the failure deprives the Employer of substantially the whole benefit of the Works or Section, reject the Works or Section (as the case may be), in which event the Employer shall have the same remedies as are provided in sub-paragraph (c) of Sub-Clause 11.4 [Failure to Remedy Defects); or (c) issue a Taking-Over Certificate. In the event of sub-paragraph (c), the Contractor shall proceed in accordance with all other obligations under the Contract, and the Contract Price shall be reduced by such amount as shall be appropriate to cover the reduced value to the Employer as a result of this failure. Unless the relevant reduction for this failure is stated (or its method of calculation is defined) in the Contract, the Employer may require the reduction to be (i) agreed by both Parties (in full sat318

isfaction of this failure only) and paid before this Taking-Over Certificate is issued, or (ii) determined and paid under Sub-Clause 2.5 [Employer's Claims) and Sub-Clause 3.5 [Determinations). Where the works do not pass the tests on completion the employer needs a method to either force the contractor to continue with modifications in order that the works conform with the employer's requirements, or to negotiate some other resolution. The difficult aspect of this provision is balancing the interests of the parties, and protecting them both, while at the same time allowing flexibility with regard to the various possible resolutions. Silver Book sub-clause 9.4 gives extensive power to the employer, which may be appropriate in that it relates to the failure of successive tests on completion. It provides that if the tests on completion are still failed after retesting, the employer may choose between several options. He may order further repetition of the tests on completion. Alternatively, if the failure deprives the employer of substantially the whole benefit of the works or section, he may reject and terminate the contract (or the applicable part) under sub-clause 11.4(c) and recover from the contractor all sums paid for the works or for such part, plus, financing costs and the costs of dismantling and returning the plant and materials to the contractor. Finally, the employer may choose to issue a taking-over certificate and reduce the contract price to cover the reduced value to the employer of the failed works. Sub-clauses 9.4 of the Yellow and Red Books are substantially identical to the Silver Book provision. The contractor will not want the employer to enjoy such a broad remedy power. Technically, the employer has the right under :Silver Book 9.4 to exercise the extreme remedy under sub-clause 11.4(c) of termination after only one repetition of the failed tests on completion. The contractor may want to qualify that option and will want the right to remedy and test until the end of the time for completion and the exhaustion of the liquidated damages. This may be a point of contention in contract negotiation, particularly since the contractor may be liable for the entire cost of removing the entire constructed works and for all the employer's financing costs. The EIC Guide notes that the provisions of sub-clause 9.4 may be justifiable where the contractor is to provide "a unique know-how for a complete production process and it fails to perform as guaranteed and no other [Clontractor is capable of purting it into satisfactory working order".4 Where such is not the case, however, it is currently standard practice that the contractor be entitled to payment for the value of the works completed to date upon termination. s Orange Book sub-clause 9.4 is similar to the Silver Book provision but with certain exceptions. The Orange Book contains no requirement that the failure to pass the tests must deprive the employer of substantially the whole benefit of the works or section in order for the employer's representative to 4

5

EIC Guide, op. cit. n. 3 above, p. 22. ibid., p. 22.

319

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DISCUSSION OF SPECIFIC SUB-CLAUSES

TESTS ON COMPLETION

13-17

13-18

reject the works. In addition, Orange Book 9.4 references clause 15 "Default of Contractor" in the event of rejection rather than the Orange Book's specific sub-clause regarding "Failure to Remedy Defects" (OB 12.4). This results in a slightly different range of remedies for the employer. Finally, the provisions for determining a contract price adjustment in the event of the employer's taking over despite the failed tests is less comprehensive than those contained in the Silver Book. As indicated in the preceding section, under the ENAA if the tests are failed they must be repeated until passed (ENAA 27.6). However, if the contractor fails to attain mechanical completion after repeated testing, the employer may be entitled to terminate the contract (ENAA 42.2.2). The consequences to the contractor of this termination will be discussed in this book's Chapter 19 entitled "Termination by Employer". It is important to note that the ENAA has different remedies for failure to attain mechanical completion and failure to achieve the performance guarantees after the issuance of the mechanical completion certificate. Under ENAA 28.1, the contractor guarantees a certain level of process performance, measured by the performance tests after commissioning and mechanical completion. If the contractor's process performance guarantees are not attained, it is the contractor who has the option of either correcting the problem or paying liquidated damages to the employer (ENAA 28.3), which is the sole remedy for this default (ENAA 28.4). The ElC contains no specific provision comparable to Silver Book 9.4. The ICE contains no specific provisions regarding the repeated or absolute failure by the contractor to pass any tests on completion that might be included in the contract. However, the failure to pass any final tests basically prevents the contractor from achieving substantial completion. Under the ICE, liquidated damages are the remedy for delays in substantial completion, subject to offset for the value of any parts of the works that are substantially complete (ICE 47(1)(b)). These liquidated damages may also be limited (ICE 47(4)(a)). The AlA, AGC and DBIA contain no requirements regarding tests on completion and therefore no specific remedies for failure to achieve such tests. However, the contractor is obligated to correct any defective work (AlA 9.1-Part 2, ACG 3.6.1, DBlA 2.10.1). If the defects are not corrected, the employer may correct the work himself at the contractor's cost (AlA 9.4Part 2, AGC 11.2.1, DBIA 2.10.2) or possibly terminate the contract (AlA 12.1.2-Part 2, AGC 11.2.2, DBIA 11.2.1).

Figure 13.1

Tests on completion under the FIDIC Silver Book START

C provides "as·built" drawings and operation and maintenance manuals. 5.6, 5.7, ~ 9.1 C gives 21 days notice of the date after which he will be ready to carry out the tests. 9.1 The tests are carried out within 14 days of such date, on days instructed by the employer. 9.1 (The employer gives not less than 24 hours notice of his intention to attend the tests.) 7.4

C may obtain

E gives notice to

C carries out tests as soon as practicable and may obtain extension of ti me andlor cost plus profit. 10.3

tests are deemed accurate. 9.2

YES

E may reject. 9.3, 7.5 C shall make good the defect. 7.5 E or C may require repetition of tests. 9.3 C pays E's costs related to retesting (if any). 7.5

Reject the Works and invoke sub-clause 11.4(e) remedy (termination) if E deprived of substantially the whole benefit of the works or parr. 9.4

320

13-19

Issue a taking-over certificate with a

reduction of the contract price. 9.4

321

CHAPTER

14

EMPLOYER'S TAKING OVER General Comments After completion of the whole of the work or of a specified section, a process should exist to enable the employer to acknowledge completion and assume possession of the site and care of the works. This process of "taking over" is generally accompanied by the issue of a certificate to that effect. As a general rule, at taking over the responsibility for the works passes from the contractor to the employer.! The employer will want to verify that the works or section has been completed in accordance with the contract, by tests on completion or otherwise, before issuing a taking-over certificate. The parties to a construction contract for facilities built for provision of certain public services should be aware that upon the completion of construction, some legal systems deem such facilities to be public property.2 Formal acceptance is nonetheless frequently required under such systems and often is accompanied by testing or approval requirements. 3 The employer will generally retain the right to require the contractor to remedy defects that arise after taking over has occurred. The contract should specify the legal consequences of taking over, such as transfer of risk, payment of price and commencement of the defects liability or notification period. 4 Nonetheless, unlike the FIDIC contracts, many of the industry form contracts discussed herein do not use the concept of taking over or the issuance of a taking-over certificate. The equivalent in these types of contracts may simply be "substantial completion" accompanied by a certificate of substantial completion. The examination of each contract's provisions in this regard will shed more light on these issues in the discussion of Silver Book sub-clause 10.1. The extent of completion required before taking over may also vary from contract to contract. Complete performance, denying the contractor B. Eggleston, The ICE Design and Construct: A Commentary (Blackwell Scientific Publications, Australia, 1994), p. 273. 2 UNCITRAL, Legislative Guide on Privately Financed Infrastructure Pro;ects (UN, New York, 2001) (UN DOC. AlCN.9/SER.Bl4) online: UNCITRAL Homepage (pdf format) http://www.uncitral.orglenglishltextslprocurernlpfip·index-e.htm (date accessed: July 16, 2001) at 127. J ibid. at 127. • ibid. at 152. I

323

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14-02

EMPLOYER'S TAKING OVER

payment and relief from the payment of liquidated damages for delay where there are minor defects or omissions, is not always a practical requirement in a construction project. Courts have created the concept of substantial completion or performance to balance the needs of both parties, providing the employer with a workable product while not denying completion to the contractor for failure to complete some minor element. 5 On the other hand, in the case of a process project for example, a more complete performance may be extremely important. Parties will want to specify the level of performance required under the contract to avoid distortion of the intended purpose of the contract by the applicable law. Although the FIDIC contracts do not employ the term "substantial completion", this does arise in other contracts, such as the ICE. Although the ICE defines substantial completion, the vagueness of the definition (intended to create flexibility) may result in increased conflict between the parties. The contractor may consider the works to be substantially complete whereas the employer or his representative may require more work to be carried out before issue of the certificate. 6 In any event, for lack of clear provisions regarding "taking over", the standard forms will still contain the requirements for completion and an indication of when responsibility for the works passes to the employer.

Discussion of Specific Sub-Clauses 14-03

Clause 10 of the Silver Book, entitled "Employer's Taking Over", sets forth provisions regarding the requirements and process for the employer's taking over of the works as well as a restriction on the employer's taking over of parts of the works. The last sub-clause of the chapter restates the employer's accountability in terms of time extensions and contract price increases for hindering the contractor in carrying out the tests on completion prior to taking over.

14-04

10.1 Taking Over of the Works and Sections Except as stated in Sub-Clause 9.4 [Failure to Pass Tests on Completion], the Works shall be taken over by the Employer when (i) the Works have been completed in accordance with the Contract, including the matters described in Sub-

s I.N.D. Wallace Q.c., Hudson's Building and Engineering Contracts, (11th ed., Sweet & Maxwell, London, 1995), p. 476; S. Furst Q.c. & V. Ramsey Q.c. eds, Keating on Building Contracts, (7th ed., Sweet & Maxwell, London, 2001), at 4-09 to 4-12. 6 B. Eggleston, op. cit. n. 1 above, p. 276.

324

DISCUSSION OF SPECIFIC SUB-CLAUSES

Clause 8.2 [Time for Completion] and except as allowed in sub-paragraph (a) below, and (ii) a Taking-Over Certificate for the Works has been issued, or is deemed to have been issued in accordance with this Sub- Clause. The Contractor may apply by notice to the Employer for a Taking-Over Certificate not earlier than 14 days before the Works will, in the Contractor's opinion, be complete and ready for taking over. If the Works are divided into Sections, the Contractor may similarly apply for a Taking-Over Ce~tificate for each Section. The Employer shall, within 28 days after receiving the Contractor's application: (a) issue the Taking-Over Certificate to the Contractor, stating the date on which the Works or Section were completed in accordance with the Contract, except for any minor outstanding work and defects which will not substantially affect the use of the Works or Section for their intended purpose (either until or whilst this work is completed and these defects are remedied); or (b) reject the application, giving reasons and specifying the work required to be done by the Contractor to enable the Taking-Over Certificate to be issued. The Contractor shall then complete this work before issuing a further notice under this Sub-Clause. If the Employer fails either to issue the Taking-Over Certificate or to reject the Contractor's application within the period of 28 days, and if the Works or Section (as the case may be) are substantially in accordance with the Contract, the Taking-Over Certificate shall be deemed to have been issued on the last day of that period. After the contractor has completed the works, or a specified section, the employer will take over the works and their care. This taking over occurs after verification of completion by passage of the tests on completion. This sub-clause is intended to ensure that the works are complete before taking over and that the employer does not delay taking over. With the exception of any of the alternative remedies available to the employer in connection with a failure of the works or a part to pass the test on completion (see SB 9.4), Silver Book sub-clause·lO.t indicates that the works must be taken over by the employer when they have been completed in accordance with the contract and the taking-over certificate has been issued or is deemed issued. The contractor applies for a taking-over certificate within 14 days of the time at which the works will be complete and ready for taking over. This application process and issuance of taking-over certificates may apply to sections if the works are so divided. Where the works are divided, however, it is important that the contract contain a description delimiting and describing the section divisions, preferably with separate times for completion for each section. The Silver Book refers to both "sections" of the works and "parts" of the works. Although not clearly explained, "sections" are intended to be clearly defined segments, whereas "parts" are simply parts or portions of the work not characterised as a section for the purposes of completion. Within 28 days of the contractor's application, the employer has three options under Silver Book 10.1: issue a taking-over certificate, reject the contractor's application or do nothing. If the employer issues a taking-over

325

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certificate it must state the date of completion, except for any minor outstanding work or defects that will not substantially affect the use of the works or section for its intended purpose. If the employer rejects the contractor's application, he must give reasons and specify the work remaining to be done in order to obtain the certificate. The contractor is then under an obligation to complete this work before issuing a subsequent notice of completion. If the employer fails to accept or reject within the 28-day period, the taking-over certificate is deemed to have been issued on the last day of the period if the works or section are substantially in accordance with the contract. Sub-clause 10.1 of the Orange Book is identical in substance to the Silver Book provision, except that the employer's representative is the relevant actor for notice, response and the decision regarding taking over. Sub-clauses 10.1 of the Red and Yellow Books are exactly identical to the Silver Book provisions, with the exception that it is the engineer who is the relevant actor, rather than the employer. However, it should be noted that the Red and Yellow Books also contain a sub-clause 10.4 which is not present in the Silver and Orange Book contracts. It states that "(e]xcept as otherwise stated in a Taking-Over Certificate, a certificate for a Section or part of the Work shall not be deemed to certify completion of any ground or other surfaces requiring reinstatement" (RBIYB 10.4). The meaning of this extra provision is unclear. Presumably, it imposes on the contractor the obligation to reinstate any ground or surfaces that so require it, despite the issuance of a taking-over certificate and to the extent that such work does not qualify as minor outstanding work and defects or work that would not otherwise be covered under the contractor's general fitness for purpose or other completion obligations. The value of this provision is uncertain, particularly if such reinstatement work were described in the "punch list" of remaining work that would normally accompany the issuance of a taking-over certificate. Under the ENAA, the tests and inspection (ENAA 23), mechanical completion (ENAA 24), pre-commissioning (ENAA 24.3), commissioning (ENAA 25.1) and performance tests (ENAA 25.2) precede taking-over by the employer, referred to in the ENAA as "Acceptance". The ENAA refers to acceptance of the "Plant" or "parts" which are terms roughly equivalent to the FIDIC contracts' "Works" and "sections." However, the ENAA would appear to use the term "parts" in referring not only to "sections" that are discrete parts of the entire project subject to separate completion dates but also in referring to individual parts of the works not necessarily subject to separate completion dates, such as buildings. Subject to any partial acceptance or use by the employer, acceptance of the plant or any part occurs under the ENAA when: (a) (b)

(c)

326

the Performance Test has been successfully completed and the Process Performance Guarantees and Consumption Guarantees are met; or the Performance Test has not been successfully completed or has not been carried out for reasons not attributable to the Contractor within six (6) months from the date of Mechanical Completion or any other agreed upon period ... ; or the Contractor has paid the liquidated damages specified in GC 28.3 hereof;

DISCUSSION OF SPECIFIC SUB-CLAUSES

and any minor items mentioned in GC 24.7 hereof r~levant to the Plant or that part thereof have been completed.

(ENAA 25.3.1.) Upon occurrence of any of the events above, the contractor may give notice to the employer requesting an acceptance certificate for the plant or parr (ENAA 25.3.2). The employer must issue the certificate within seven days of receipt of the contractor's notice (ENAA 25.3.3). If, within the sevenday period, the employer fails to issue the acceptance certificate or fails to inform the contractor in writing of "justifiable reasons" for not issuing the certificate, the plant or relevant part is deemed accepted as of the date of the contractor's notice (ENAA 25.3.4). The ENAA further states that mechanical completion, commissioning and performance tests may apply to individual parts of the plant, and an acceptance certificate may be issued for each such part (ENAA 25.4.1). However, if the part comprises facilities, such as buildings, not requiring commissioning or performance tests, such facilities are to be accepted by the employer when it becomes "Ready for Use" (ENAA 25.4.2). Although the entire process of completion, testing and acceptance differs in complexity and procedure from the Silver Book, the substance of the acceptance process under the ENAA remains very similar to the Silver Book. A significant difference exists between the Silver Book and the ENAA, however, with respect to liquidated damages for delay. Under the ENAA, the contractor gets relief from liquidated damages for delay at mechanical completion whereas under the Silver Book, such relief only comes following taking over. One minor difference in the ENAA is that the punch list of minor outstanding work would be developed at the time of mechanical completion and must be completed prior to acceptance. Under the Silver Book, taking over may occur despite the outstanding work on the punch list. Under the EIC, when the works have been completed and have passed any tests on completion the contractor must give notice to the employer, which is considered as a request for a taking-over certificate (EIC 9.4(a)). Within 21 days of this notice, the employer must either issue a taking-over certificate confirming the date of substantial completion or identify in writing the works and services required to be done as well as any defects to be rectified before the issuance of a certificate (EIC 9.4(b)). The contractor is then entitled to receive within seven days of the completion of the notified work or defect remedies a taking-over certificate dated as of the completion of that work (EIC 9.4(c)). Within 14 days of the employer's notice of remaining work or defects to be remedied, the contractor must notify the employer in respect of any work or services the contractor considers as not part of the contract or that does not require completion before the issuance of the taking-over certificate (EIC 9.4(e)). The contractor is nonetheless obligated to complete any work outstanding at the time the taking-over certificate is issued as soon as reasonably practicable thereafter, including any defect remedies (EIC 9.5). Rather than using the terms "Taking-Over" or "Acceptance", the ICE contains a section describing the requirements for the employer's represen-

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EMPLOYER'S TAKING OVER

14-09

tative to issue a certificate of substantial completion to the contractor. When the contractor considers that the works or a section has been substantially completed and passed any final test provided in the contract or by statute, he may give notice to the employer's representative (ICE 48(1)). The notice must contain the contractor's undertaking to complete any outstanding work by the time agreed between the parties or, if no time is stated, as soon as reasonably practicable during the defects correction period (ICE 48(1), 49(1 )). Within 21 days of receipt of the notice, the employer's representative must either issue a certificate of substantial completion stating the date of completion or instruct the contractor in writing specifying all the work that must be done before issuance of the certificate (ICE 48(2)). If the employer's representative gives this instruction, the contractor is entitled to receive a certificate of substantial completion within 21 days of completion of the work specified to the satisfaction of the employer's representative (ICE 48(2)). However, there is no provision in the ICE regarding "deemed" taking over. Where the Silver Book states requirements for the employer to issue a taking-over certificate, the ICE uses a certificate of substantial completion. Like the ICE, the AlA uses a certificate of substantial completion rather than describing the employer's "taking over." With regard to the issuance of a certificate of substantial completion, the AlA provides: The DesignlBuilder shall notify the Owner when the DesignlBuilder believes that the Work or an agreed upon portion thereof is substantially completed. If the Owner concurs, the DesignlBuilder shall issue a Certificate of Substantial Completion which shall establish the Date of Substantial Completion, shall state the responsibility of each party for security, maintenance, heat, utilities, damage to the Work and insurance, shall include a list of items to be completed or corrected and shall fix the time within which the DesignlBuilder shall complete items listed therein.

(AlA 3.2. 14-Part 2). The AlA does not indicate whether a certificate of substantial completion may be deemed issued if the employer does not act. The AGC also describes substantial completion rather than taking over. Specifically, it states:

portion is substantially complete. Within five days thereafter, the employer and the contractor jointly inspect the works or portion to verify that it is substantially complete in accordance with the contract documents. If so, the employer issues a certificate of substantial completion. This certificate must set forth the date of substantial completion of the works or portion, the remaining items to be completed before final payment, provisions establishing the parties' relative responsibilities regarding se.curity, maintenance, utilities and insurance pending final payment and an acknowledgment that the warranties begin to run on the date of substantial completion or as otherwise indicated in the certificate. There is no mention in the DBJA of a deemed issuance of the certificate of substantial completion. 14-11 Figure 14.1

Taking over under Silver Book 10.1

START Contractor applies by notice (up to 14 days in advance) to employer that works or section are complete and ready for taking over.

Contractor must complete the work specified before issuing a further notice.

YES

Substantial Completion of the Work, or of a designated portion, occurs on the date when construction is sufficiently complete in accordance with the Contract Documents so that the Owner can occupy or utilize the Project, or a designated portion, for the use for which it is intended. This date shall be confirmed by a certificate of Substantial Completion signed by the Owner and the Contractor. The certificate shall state the respective responsibilities of the Owner and the Contractor for security, maintenance, heat, utilities, damage to the Work, and insurance. The certificate shall also list the items to be completed or corrected, and establish the time for their completion and correction.

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(AGC 2.4.6.) There is no mention of a deemed issuance of the certificate of substantial completion. Like the three preceding contracts, the DBIA contains a regime for "substantial completion" rather than "taking over". Under DBIA sub-clause 6.6 the contractor must notify the employer when he believes the work or a 328

YES

329

EMPLOYER'S TAKING OVER

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10.2 Taking over of Parts of the Works Parts of the Works (other than Sections) shall not be taken over or used by the Employer, except as may be stated in the Contract or as may be agreed by both Parties.

14-13

Silver Book 10.2 departs from the Orange Book and differs from the Red and Yellow Books by disallowing the taking over of parts of the works by the employer, except as otherwise agreed between the parties. It should be noted that the Silver Book does not provide for the eventuality that the employer may take over the works, or a part thereof, without the accord of the contractor. The EIC Guide seems to recommend the re-wording of subclause 10.2 such that the works would be deemed taken over in such a situation. 7 The FIDIC Guide, however, notes that the contractor would be entitled to relief due to breach should the employer take over part of the works in such a manner, so such a change may not be necessary.8 When the Silver Book prohibits taking over of parts of the works, "parts" does not mean the taking over of identified sections of the works when they are so divided for completion. Orange Book sub-clause 10.2 permits the taking over of parts of the works. However, the employer is prohibited from using any part of the works unless the employer's representative has issued a taking-over certificate for that part. If the employer has taken over a part, this reduces any potential liquidated damages claim for any section of which it forms part or for the entire works, by the value of the part taken over. Orange Book 10.2 also states that if the employer uses any part of the works before a takingover certificate is issued relating to that part, the part is deemed to have been taken over on the date of its use. In addition, at the contractor's request, the employer's representative must issue a taking over certificate if the employer uses a part of the works. In either or both cases, responsibility for the part used shall pass to the employer, terminating any liability on the contractor for the care of such part. Nonetheless, after the employer's representative issues a taking-over certificate for a part of the works, the contractor must be given the opportunity and must carry out any outstanding tests on completion as soon as practicable before the expiry of the contract period. 9 Sub-clauses 10.2 of the Red and Yellow Books are identical to each other and closely resemble the Orange Book provision. As in the Orange Book, the employer may only use a part of the works if the engineer has issued a takingover certificate for that part. The part is also deemed taken over upon any use by the employer prior to issuance of a taking-over certificate, and the 7

8 9

EIC, The EIC Contractor's Guide to the FlDIC Conditions of Contract for EPC Turnkey Proiects (European International Contractors, Berlin, 2000), p. 23. FIDIC, The FIDIC Contracts Guide (Federation Internationale des Ingenieurs-Conseils, Lausanne, 2000), p. 192. "Contract Period" is defined in the Orange Book as "the period from the Commencement Date to the date 365 days after the date on which the whole of the Works shall have been completed as certified by the Employer's Representative" (OB 1.1.3.5).

330

DISCUSSION OF SPECIFIC SUB-CLAUSES

contractor may request this certificate of the engineer upon the employer's use of such part. Responsibility for the part also passes to the employer as of the date of use. Potential delay damages are also reduced for the relevant section of the works by the proportional value of the taken-over part. Finally, the contractor is also liable to carry out any outstanding tests on completion within the defects notification period. The Red and Yellow Books also contain provisions in addition to those found in Orange Book 10.2. If the contractor incurs cost as a result of the employer's taking over of a part of the works, other than by agreement or as provided in the contract, the contractor is entitled to payment of his costs plus reasonable profit. The ENAA seems to permit the taking over of parts of the works by the employer. It states that the employer may use any par·t of the plant which has reached mechanical completion prior to the acceptance of the plant as a whole (ENAA 25.4.3). In that case, the employer must give notice to the contractor of his intended use, the part is deemed accepted as of the date of such notice and an acceptance certificate must be immediately issued by the employer for the part (ENAA 25.4.3). The EIC does not expressly prohibit the taking over of parts of the works by the employer. However, EIC 9.4(d) states that if the employer has occupied or uses the works "the Contractor shall be entitled to a Taking-Over Certificate for such Works or part thereof effective as at the date of occupancy or use thereof" . Although the ICE does not use the term or concept of "partial taking over" by the employer, the employer is effectively permitted to do so under ICE sub-clause 48(5). It states that if the employer's representative considers that any part of the works has been substantially completed and passed any final test prescribed, he may issue a certificate of substantial completion for that part before completion of the whole works (ICE 48(5)). In addition, the contractor is deemed to have undertaken to complete any outstanding work on that part during the defects correction period. The ICE further states:

14-14

If any substantial part of the Works has been occupied or used by the Employer

other than as provided in the Contract the Contractor may request in writing and the Employer's Representative shall issue a Certificate of Substantial Completion in respect thereof. Such certificate shall take effect from the date of delivery of the Contractor's request and upon the issue of such certificate the Contractor shall be deemed to have undertaken to complete any outstanding work in that part of the Works during the Defects Correction Period. (ICE 48(4)). There is no restriction in the AlA concerning the employer's use or taking over of parts of the works. However, it does state that partial or entire use or occupancy of the project by the employer does not constitute acceptance of work not in accordance with the contract documents (AlA 5.1.6-Part 2). The AGC also does not use the concept of partial taking over in its provisions. However, it does state that "[ilf the Owner occupies or uses a portion 331

14-15

EMPLOYER'S TAKING OVER

of the Project prior to its Substantial Completion, such occupancy or use shall not commence prior to a time mutually agreed to by the Owner and the Design-Builder" (AGC 10.5.2). The DBIA does not contain a prohibition against the employer taking over or using a part of the works. Specifically, it states that: Owner, at its option, may use a portion of the Work which has been determined to be substantially complete, provided, however, that (i) a Certificate of Substantial Completion has been issued for the portion of Work ... , (ii) DesignBuilder and Owner have obtained the consent of their sureties and insurers, and to the extent applicable, the appropriate government authorities having jurisdiction over the Project, and (iii) Owner and Design-Builder agree that Owner's use or occupancy will not interfere with Design-Builder's completion of the remaining Work. (DBIA 6.6.3.)

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10.3 Interference with Tests on Completion If the Contractor is prevented, for more than 14 days, from carrying out the Tests on Completion by a cause for which the Employer is responsible, the Contractor shall carry out the Tests on Completion as soon as practicable. If the Contractor suffers delay andlor incurs Cost as a result of this delay in car-

rying out the Tests on Completion, the Contractor shall give notice to the Employer and shall be entitled subject to Sub-Clause 20.1 [Contractor's Claims) to: (a)

an extension of time for any such delay, if completion is or will be

delayed, under Sub-Clause 8.4 [Extension of Time for Completion); and (b) payment of any such Cost plus reasonable profit, which shall be added to the Contract Price. After receiving this notice, the Employer shall proceed in accordance with SubClause 3.5 [Determinations) to agree or determine these matters.

14-17

Silver Book sub-clause 10.3 is contained in this chapter because prevention of the tests on completion by the employer may delay taking over. This sub-clause indicates that if the contractor is prevented for more than 14 days from carrying out the tests on completion for a cause for which the employer is responsible, the contractor shall carry out these tests as soon as practicable thereafter. The contractor is also entitled to an extension of time and his reasonable costs plus profit in the event he suffers delay or incurs cost as result of this employer delay. The Orange, Red and Yellow Books take a different approach to dealing with employer's interference with tests on completion. Orange Book 10.3 states that if the contractor is prevented from carrying out the tests on completion by a cause for which the employer is responsible, the works or section shall be deemed taken over on the date when the 332

DISCUSSION OF SPECIFIC SUB-CLAUSES

tests on completion would otherwise have been completed. The employer's representative is then required to issue a taking-over certificate, and the contractor must still carry out the tests as soon as practicable, and before the expiration of the contract period. The employer's representative may also require the tests on completion to be carried out by 14 days' notice and in accordance with the relevant provisions of the contract. Similar to the Silver Book, the contractor is entitled to claim and receive an extension of time due to the delay as well as payment of any costs incurred plus reasonable profit. Sub-clauses 10.3 of the Red and Yellow Books are identical to each other, similar to the Orange Book and different from the Silver Book. Like the Orange Book, if the employer delays the tests on completion for more than 14 days, the works or section are deemed to be taken over and the engineer must issue a taking-over certificate for the date when the tests on completion would otherwise have been completed. The 14-day delay period is not contained in the Orange Book. The contractor must carry out the tests as soon as practicable before the expiration of the defects notification period, or the tests may be required by the engineer upon 14 days' notice. As in the Orange Book, the contractor is entitled to any related costs plus profits and an extension of time caused by the employer-caused test delay. The FIDIC Guide justifies the differing approach of the Silver Book by asserting it is "less likely" under this contract that the employer would delay tests for completion and, should the employer nonetheless do so, "a deemed taking over may be in neither party's interest" .10 As stated in Chapter 13 in the discussion of Silver Book sub-clause 9.2, the consequences of test delays caused by the employer are not specifically stated in the ENAA. However, in the event of a prevention of these tests caused by the employer, the contractor could obtain a price increase and extension of time (ENAA 40.1, 39). Such a result may also be obtainable under the applicable law. ll The EIC contains no specific provision dealing with the employer's prevention of any tests on completion. However, the contractor would be entitled to an extension of time for any delay or prevention attributable to the employer (EIC 9.3(d)). The EIC does not appear to provide for the payment of the contractor's costs in such a case. However, the contractor could request an adjustment to the contract price as a variation (EIC 11.2). Although the ICE contains no specific provisions regarding tests on completion or delays thereto, assuming such tests were specified in an appendix to the contract the contractor would have the right to an extension of time for "any delay, impediment, prevention or default by the Employer" (ICE 44(1)(d)). However, there is no clear provision for payment of the contractor's costs in this situation. The AlA contains a provision entitling the contractor to an extension of time for delays caused by the employer generally (AlA 4.S-Part 2), but there .0 FIDIC Guide, op. cit. n. 8 above, p. 193. " S. Furst Q.c. & V. Ramsey Q.C. eds, Keating on Building Contracts (7th ed., Sweet & Maxwell, London, 2001), at 5-03.

333

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EMPLOYER'S TAKING OVER

are no tests on completion in the AlA for the employer to prevent or delay to make this provision applicable. There is also no clear entitlement to an increase of the contract price under the AlA in this case. The AGC contains a provision entitling the contractor to an extension of time for delays caused by the employer and also the possibility of potential price increases (AGC 6.3.1). However, there are no specific tests on completion to which these provisions might apply. The DBIA indicates that if the employer causes a delay to the contractor in performing his obligations under the contract, the contractor may receive an extension of the time for completion (DBIA 8.2.1) and possibly an increase in the contract price (DBIA 9.4). However, these provisions do not specifically reference an employer prevention of any tests on completion.

CHAPTER

15

DEFECTS LIABILITY General Comments It is common for construction contracts to require the contractor to remedy

any defects which may arise in the works during a fixed period after completion. The contractor will usually only receive additional compensation for the repair of those defects that are not attributable to his fault. The employer will often wish to maintain some security in order to ensure the contractor's compliance with his obligations in respect of defects. He often does this by retaining a portion of the performance guarantee (e.g. a portion of the retention monies) until the end of such period.! This period is commonly called the defects liability period. Since the employer has taken possession of the works the contract may require the contractor to be notified of any defect before the duty to repair arises. 2 The wording of the defects liability clause should be considered carefully by the contractor. It could create liability to repair any and all damage occurring to the works for any cause whatsoever (a maintenance clause), or it may limit the contractor's liability to the repair of damage related to the defects in the works attributable to the contractor (a defect clause). The clause may also confer on the contractor the right to remedy defects in the works. The Silver Book has slightly modified the traditional concept of a defects liability period and renamed its creation the defects notification period. This change is also reflected in the definitions section. Some applaud this change and maintain that the previous definition of "defects liability period" was "actively misleading". The previous wording appeared "to have left a large number of users with the impression that the contractor's liability ends a year after taking over".3 The main difference between the two is that arguably a defects liability period represents a period during which time the contractor is liable to remedy defects, whereas the defects correction period represents the time period during which the employer must notify the contractor of any defect in order for it to be the contractor's responsibility. Under the Silver Book defects correction period, it is possible that the defect remedy by the contractor could occur after the expiration of the defects notification period, 1 2

J

334

May, Keating on Building Contracts (6th ed., Sweet & Maxwell, London, 1995), p. 266. See also Silver Book sub-clause 14.9. ibid., p. 247. E. Corbett, "FIDIC's New Rainbow 1" Edition-An Advance?" (2000) 17 (2) J.C.L.R. 253 at 254.

335

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for example, if the defect was notified on the last day of the period. Regardless of the terminology used, important factors to consider in connection with defects period provisions are: (a) the period's duration; (b) the duties placed on the contractor; (c) the exclusivity of those duties; and (d) the effect of the period's expiration. Duration of the defects period

15-02

15-03

The. defects liability period generally corresponds to the time from taking over of the works by the employer until some future time by which the works should be entirely completed by the contractor and any defects remedied. The expiration of the period will sometimes precede final payment and may be marked by the issuance of some type of performance certificate indicating the completion of the contractor's obligations under the contract. Although the beginning of the defects liability period is of less substantive importance than its date of expiration, a clear starting point is necessary when the period is expressed as a set length of time. Whether the period begins to run upon the employer's taking over or at some other milestone, the expiration date of the period should be clear and unambiguous. It is equally important that a construction contract contain the possibility of extending the defects liability or notification period in certain circumstances. In practice, the identification and notice of a defect or damage in the works should toll the running of the defects liability period, thus extending the period by the time necessary to remedy the defect and verify the subsequent performance of the works. The contractor may wish that the defects liability period not be extended in the event any identified defect or damage is not attributable to the contractor. It will also be desirable to place a limit on the aggregate time of such extensions of the period. Some commentators also suggest that where machinery or a significant part of the works must be replaced, the employer may want to require the start of a new defects liability period as concerns such machinery or part and any works it could directly affect. 4 Again, the period should only be lengthened where the defect or damage is a result of the contractor's fault to avoid overly extending the responsibility of the contractor. Duties placed on the contractor

15-04

Under defect liability provisions the contractor may have a duty during the relevant defects liability or notification period to remedy all defects irrespective of fault or merely defects resulting from the contractor's failure to comply with his obligations under the contract. The former constitutes a • Corbett, FID/C 4th-A Practical Legal Guide: A Commentary on the International Construction Contract (1991), p. 289; World Bank "Standard Bidding Documents for the Procurement of Works" (World Bank, Washington, D.C., 2000) online: World Bank http://www.worldbank.orglhtmllopr/biddocslworks/w-titlpg.htm (date accessed: July 16, 2001) at 115.

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GENERAL COMMENTS

maintenance clause, whereby the contractor must provide all repairs required by the employer regardless of the party at fault. However, the con~ractor should be compensated for those defects or damage for which he is not responsible. The latter, a defect clause, only requires the contractor to repair damage related to a default in his obligations. The Silver Book uses a maintenance clause, requiring the contractor to repair any defect or damage that arises. One pitfall of a maintenance clause is that the duty to repair all defects could prove to be onerous for the contractor. The contractor would have to repair damages resulting from negligence attributable to the employer or his staff. Although he would be compensated for work done, the contractor is seemingly liable for unlimited repairs as long as they are within the defects period. The contractor might also be compensated by reference to rates fixed in the contract for similar work, which by the time the works have been completed may well be outdated. The contractor may want to limit the extent of variations that can be required without the contractor's consent.

Employer's right to use an outside contractor The FIOIC contracts discussed herein generally limit the employer's ability to use outside contractors to remedy defects to when the contractor has failed to remedy the defect after a certain period. This effectively gives the contractor a right of first refusal to make the repairs. This right protects the contractor from having the responsibility for expenses incurred as a result of having an outside contractor repair defects, possibly at a higher cost than that at which the contractor could perform the repair himself. This will differ somewhat if the contract only requires the contractor to make good defects for which he is responsible. In that case, the employer should be free to bring in outside contractors to make other repairs.

15-05

Expiration of the defects liability period and its effect The employer will not want to release the contractor from any and alliiability simply after completion of the works and the expiry of the defects liability or notification period. He will want to maintain his legal remedies against the contractor for the duration of the period provided by law. Conversely, the contractor will want to limit his liability both under the contract and at law to the greatest extent possible. Although the expiry of the defects period absolves the contractor of an obligation to remedy further defects identified by the employer, this expiration should not be the equivalent of a waiver by the parties of any future claims under the contract and at law. For example, under Silver Book sub-clause 17.1 the contractor will remain liable to indemnify the employer against claims and losses caused by defects in the design of the works attributable to the contractor. The extent of the contractor's liability to the employer or third parties after the expiration of

337

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DEFECTS LIABILITY

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the defects liability period may also be regulated by the applicable law and any agreement of the parties. If the parties wish to limit the contractor's liability to a greater extent than that provided by the applicable law, they should specify this in the contract. There is admittedly some grey area regarding the significance of the expiration of the defects liability period in a construction contract. To the extent that it is not clearly stated, this expiration may not entirely end the contractor's potential liability. In almost every case, it should end the employer's right to benefit from contractual rights permitting him to order the contractor to remedy additional defects found and any related remedies. However, the contractor will likely continue to have some liability risk both under the contract and at law. One source of protection contained in many contracts is a release of liability provision that would at least be effective against the employer. The issuing by the employer of the performance certificate (or final certificate) contemplated by the Silver Book may terminate a portion of the contractor's liability under the contract. In one English decision, the court found that the language used by the Joint Contracts Tribunal conditions of contract concerning the architect's issuance of a final certificate expressed his "approval" that the works were in compliance with the contract, thus relieving the contractor of liability.s Consequently, parties using a form of final certificate where the employer gives his approval may want to clearly specify the extent of the contractor's liability after issue of such certificate. EIC sub-clause 17.3 indicates that the contractor's entire liability to the employer ends at the expiry of the defects liability period, with no provision for latent defects. Similarly, under ENAA sub-clause 27.9, the contractor is no longer liable for defects in the works after the acceptance of the works, or any part thereof, regardless of the nature of the defect. Considering the liability periods applied by various legal systems for certain construction defects, up to 10 years after delivery,6 employers may believe that it is inappropriate to apply a complete extinction of liability after the defects liability period to a turnkey contract.7 The parties should also be aware of mandatory liability periods for defects in buildings that cannot be set aside by the contract. s The extent and duration of the contractor's liability for patent or latent defects in the works will depend on the relative bargaining positions of the parties and the nature of the project. The parties should use this liability issue Crown Estates Commissioners 11. John Mow/em & Co. Ltd (1994) Const. L. J. 4; for a detailed discussion of this case and its implications for the English construction industry, see J. Jenkins, "The Effect of Final Certificates in the Light of Crown Estate Commissioners 11. John Mow/em" in Justice A. Thorton Q.C. & W. Godwin eds, Construction Law: Themes and Practice (Sweet & Maxwell, London, 1998) 307 at 307 et seq. 6 Limitations Act of 1980 of the United Kingdom; Latent Damage Act 1986 of the United Kingdom; Garantie decennial-art. 1792 and 2270 of the French Civil Code. 1 Dr J.J. Goudsmit, "The EIC (European International Contractors) Turnkey Contract (Conditions for Design and Construct Projects)" (1995) 121.C.L.R. 23 at 38. M Dr J.J. Goudsmit, "Exclusion or limitation of liability in a turnkey contract" (1990) 7 I.C.L.R. 314 at 317. S

338

GENERAL COMMENTS

to allocate risk as efficiently and clearly as possible. In some cases it may be appropriate to provide for an extended liability period. For example, the Eurotunnel project used a 10-year liability period. If a certain type of defect appears during that period the contractor is liable to remedy such defect, unless the part of the works involved had a design life of less than 10 years.

Discussion of Specific Sub-Clauses Clause 11 of the Silver Book, entitled "Defects Liability", sets forth the Silver Book's general provisions regarding the contractor's liability for remedying defects and damage, responsibility for the related costs, additional testing requirements and potential extensions of the defects notification period. It further provides a regime applicable in the event the contractor fails to remedy defects as required by the contract and delimits other powers of the employer, such as the power to order a defect search by the contractor. Clause 11 concludes by setting forth provisions and the requirements for the issuance of the performance certificate and the obligations of the contractor thereafter.

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11.1 Completion of Outstanding Work and Remedying Defects

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In order that the Works and Contractor's Documents, and each Section shall be in t~e condition required by the Contract (fair wear and tear except;d) by the expIry date of the relevant Defects Notification Period or as soon as practicable thereafter, the Contractor shall: (a) complete any work which is outstanding on the date stated in a TakingOver Certificate, within such reasonable time as is instructed by the Employer, and (b) execute all work required to remedy defects or damage, as may be notified by the Employer on or before the expiry date of the Defects Notification Period for the Works or Section (as the case may be). If a defect appears or damage occurs, the Employer shall notify the Contractor accordingly. For the dura.tion of a .specified period after taking over by the employer the ~ontractor IS responsIble for completing any outstanding work and remedymg any defects that may arise. This is referred to in the Silver Book as the defects notification period. The defects notification period under the Silver Book is the .time during which the employer may notify defects or damage to be remedIed by the contractor. Referring to this sub-clause 11.1, the Silver Book d~fines the "Defects Notification Period" as "the period for notifying defects In the Works or a Section (as the case may be) under Sub-Clause 11.1 [... J, as stated in the Particular Conditions (with any extension under SubClause 11.3 [... J, calculated from the date on which the Works or Section is completed as certified under Sub-Clause 10.1 [... 1. If no such period is stated m the Particular Conditions, the period shall be one year." 339

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DEFECTS LIABILITY

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Silver Book sub-clause 11.1 deals with the contractor's obligations in this regard. It begins with a statement of the contractor's obligation to complete any work which is outstanding as of the date of the taking-over certificate. The contractor must also execute all work to remedy defects or damage notified by the employer on or before the expiry of the defects notification period. This clause also places an obligation on the employer to notify the contractor if any defect appears or any damage occurs. Although the intent of this provision is that the works be in accordance with the contract at the expiry of the defects notification period, it is possible that defects might be notified to the contractor on or shortly prior to the expiry date, thus requiring completion as soon as practicable thereafter. Sub-clauses 11.1 of the Red and Yellow Book are identical to the Silver Book, with the exception that the engineer acts for the employer. The contractor may want to limit his liability to remedying only those defects that are attributable to him. This would force the employer to go through the variations clause in order to require the remedying by the contractor of defects not attributable to the contractor. The contractor may also want to limit the variation power of the employer in this respect. The Orange Book is identical in substance to the Silver Book, except that it uses a "Contract Period" rather than a defects notification period. The contract period is defined under the Orange Book as "the period from the Commencement Date to the date 365 days after the date on which the 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)". The main difference under the Orange Book is that the contract period refers to the time by which all defects and other work must be finally completed, whereas the Silver Book's defects notification period is the time during which defects or other work required may be notified by the employer, but it is not a time limit for completion of this work. Like the Silver Book sub-clause, the ENAA expressly states that "[als soon as possible after Mechanical Completion, the Contractor shall complete such minor items as finishing of insulation and painting, and other items not materially affecting the operation or safety of the Plant" (ENAA 24.7). The ENAA also requires the contractor to execute all work required to remedy defects. To begin with, "[tJhe Contractor guarantees that the Plant or any part thereof shall be free from defects in design and engineering, the Materials supplied and work executed" (ENAA 27.1). The ENAA states further that: If, during the Defect Liability Period, any defect should be found in the design and engineering, the Materials supplied or work executed by the Contractor, the Contractor shall promptly and at its cost repair, replace or otherwise make good (as the Contractor shall at its discretion determine) such defect as well as any damage to the Plant caused by such defect, subject to the provisions of GC 30 (Limitation of Liability) hereof.

(ENAA 27.2.) The ENAA has a defects liability period which lasts for 12 months from the date of acceptance of the works or any section (ENAA

340

DISCUSSION OF SPECIFIC SUB-CLAUSES

27.2). The employer is also obligated to give the contractor prompt notice stating the nature of any defect to be remedied (ENAA 27.4). The ENAA uses a defect clause. The contractor need only repair those defects in design, materials, engineering or works that are not attributable to improper operation by the owner, erosion, corrosion, normal wear and tear, normal consumption or life span or any work done by or on behalf of the owner (ENAA 27.2, 27.3). The EIC states that the contractor must "complete any work outstanding on the date stated in the taking-over certificate as soon as reasonably practicable after such date including remedying any defect until the end of the Defects Liability Period" (EIC 9.5). "During the Defects Liability Period or as soon thereafter as is reasonably practical the Contractor shall carry out and complete all outstanding work and services pursuant to the Contract." (EIC 4.10.) Under the EIC, the defects liability period is either a period agreed between the parties or a period of 12 months as a default, calculated from the date of completion as certified in the taking-over certificate (EIC 1.1(xv)). With regard to completion of outstanding work identified at the time of taking over, the ICE indicates that it must be completed within the time agreed between the employer's representative and the contractor, or if no time is specified, then "as soon as practicable during the Defects Correction Period" (ICE 49(1)). The ICE also contains defect remedy provisions. It states:

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The Contractor shall deliver up to the Employer the Works and each Section and part thereof at or as soon as practicable after the end of the relevant Defects Correction Period in the conditions required by the Contract (fair wear and tear excepted) to the satisfaction of the Employer's Representative. To this end the Contractor shall repair amend rectify and make good defects of whatever nature notified to him in writing by the Employer's Representative during the relevant Defects Correction Period or within 14 days after its expiry as a result of an inspection made by or on behalf of the Employer's Representative prior to its expiry. (ICE 49(2).) The defects correction period is to be stated in the appendix to tender, and it is calculated from the date on which the contractor becomes entitled to a certificate of substantial completion for the works or any section or part thereof (ICE l(l)(p)). The ICE Contract places a maintenance obligation on the contractor, as does the Silver Book. The ICE Contract requires the contractor to repair "defects of whatever nature" except fair wear and tear (ICE 49(2)). Therefore, the obligation to remedy defects is not limited to the defects for which the contractor is responsible. Under the AlA, the certificate of substantial completion will include, inter alia, "a list of items to be completed or corrected and shall fix the time within which the Design/Builder shall complete items listed therein" (ALA 3.2.14Part 2). The contractor must also "promptly correct Work rejected by the Owner or known by the Design/Builder to be defective or failing to conform to the requirements of the Contract Documents, whether observed before or 341

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DISCUSSION OF SPECIFIC SUB-CLAUSES

DEFECTS LIABILITY

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after Substantial Completion and whether or not fabricated, installed or completed" (AlA 9.1-Part 2, and see also AlA 3.2.8-3.2.9-Part 2). The time for notification of defects by the employer is one year under the AlA, running from the date of substantial completion (AlA 9.2-Part 2). If, during that time, "any of the Work is found to be not in accordance with the requirements of the Contract Documents, the Design/Builder shall correct it promptly after receipt of a written notice from the Owner to do so unless the Owner has previously given the Design/Builder a written acceptance of such condition" (AlA 9.2-Part 2). The employer is also under an obligation to give prompt written notice to the contractor of his knowledge of any fault, defect or nonconformity of the works (AlA 2.9-Part 2). Under the AGC, the contractor "warrants that all materials and equipment furnished under this Agreement will be [... J in conformance with the Contract Documents, and free from defective workmanship and materials" (AGC 3.8.1-Part 2). This warranty commences on the date of substantial completion of the work or portion, and the contractor must correct all work shown to be defective within a period of one year from the date of substantial completion (AGC 3.8.1-Part 2). The AGC also includes the requirement that the employer give prompt written notice to the contractor of any error, omission or failure to meet the requirements of the contract documents or any fault or defect in the work (AGC 4.3.2). Similarly, under the DBIA the contractor warrants to the employer that the construction will be "in conformance with the contract documents and free of defects in materials and workmanship"(DBIA 2.9.1). The contractor's warranty excludes "defects caused by abuse, alterations, or failure to maintain the Work by persons other than Design-Builder or anyone for whose acts Design-Builder may be liable" (DBIA 2.9.1). The contractor also agrees to "correct any Work that is found to not be in conformance with the Contract Documents [... J within a period of one year from the date of Substantial Completion of the Work or any portion of the Work, or within such longer period to the extent required by the Contract Documents" (DBIA 2.10).

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Silver Book sub-clause 11.2 attributes between the parties the responsibility for the cost of outstanding work to be completed after taking over and all work notified by the employer as being required to remedy any defect or damage in the context of sub-clause 11.1. The contractor bears the risk and costs relating to such work if it is attributable to the design of the works or any plant, materials or workmanship not being in accordance with the contract. This responsibility further extends to work required due to the improper operation or maintenance of the works for which the contractor is responsible, or the contractor's failure to comply with any other obligation. If the contractor is not responsible for the cost of this work according to this clause, the employer must give the contractor notice and the procedures for contract variations apply, making it possible for the contractor to receive his costs in executing this work. It has been noted that this sub-clause does not specifically address the situation where part of the design is provided by the employer and subsequently proves defective. The EIe Guide recommends, therefore, that parties clarify this matter in the particular conditions. 9 Orange Book sub-clause 12.2 is substantially identical to the Silver Book provision, except that there is no specific mention of the contractor being responsible for any work to remedy defects or damage linked to the contractor's improper operation or maintenance of the works. As in the Orange Book, Red Book 11.2 makes no mention of the contractor being responsible for work required due to improper operation or maintenance by the contractor. Otherwise, sub-clauses 11.2 of the Red and Yellow Books are generally identical to the Silver Book provision, with the small difference that Yellow Book 11.2 specifically excludes from the contractor's scope of responsibility any work attributable to parts of the design for which the employer is responsible, if any. Rather than listing all the defects which the contractor must bear the cost of remedying, the ENAA states the general obligation for the contractor and lists exceptions for which the contractor will not be liable. The ENAA states that the cost of remedying defects or damage will borne by contractor: [p]rovided that the Contractor shall not be responsible for the repair, replacement or making good of any defect or of any damage to the Plant arising out of or resulting from any of the following causes: (a) Improper operation or maintenance of the Plant by the Owner (b) Operation of the Plant outside the specification provided in the Contract (c) Erosion or corrosion (d) N~rmal wear and tear.

11.2 Cost of Remedying Defects All work referred to in sub-paragraph (b) of Sub-Clause 11.1 [Completion of Outstanding Work and Remedying Defects) shall be executed at the risk and cost of the Contractor, if and to the extent that the work is attributable to: (a) the design of the Works, (b) Plant, Materials or workmanship not being in accordance with the Contract, (c) improper operation or maintenance which was attributable to matters for which the Contractor is responsible (under Sub-Clauses 5.5 to 5.7 or otherwise), or (d) failure by the Contractor to comply with any other obligation. If and to the extent that such work is attributable to any other cause, the Employer shall give notice to the Contractor accordingly, and Sub-Clause 13.3 (Variation Procedure] shall apply. 342

(ENAA 27.2.) In addition, the contractor's defect remedy obligation does not apply to (1) any materials supplied by the employer under the contract, (2) any materials normally consumed during operations or which have a normal life shorter than the defect liability period, (3) any designs, specifications or 9

EIC, The EIC Contractor's Guide to the FIDIC Conditions 'of Contract for EPC Turnkey Projects (European International Contractors, Berlin, 2000) (hereinafter EIC Guide), pp. 23-24.

343

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DISCUSSION OF SPECIFIC SUB-CLAUSES

DEFECTS LIABILITY

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other data supplied by or on behalf of the employer, (4) any matters for which the contractor has disclaimed responsibility under the contract and (5) any other materials supplied or any work executed by or on behalf of the employer, with the exception of defect remedies executed by the employer upon the contractor's failure to do so (ENAA 27.3). The EIC does not provide much detail regarding which party bears the cost of any particular defect or damage remedy. However, the contractor is clearly under an obligation to remedy defects, presumably at his cost (see EIC 9.5,17.1). Nonetheless, it seems clear under the EIC that the contractor would not be liable for the cost of rectifying defects or damage attributable to an "Owner's Risk" (EIC 12.3), such as: (a) (b)

loss or damage due to the use or occupation by the Owner of any Section or part of the Works ... , loss or damage due to the design of the Works to the extent that such loss or damage is due to the Owner's decision as to the design in respect of which the Contractor has expressly disclaimed responsibility in writing within a reasonable time.

(EIC 12.4.2.) The ICE's provision is more direct. It states simply that all work required to remedy defects will be: carried out by the Contractor at his own expense if in the Employer's Representative's opinion it is necessary due to the failure by the Contractor to comply with any of his obligations under the Contract. In any other event the value of such work shall be ascertained and paid for as if it were additional work. (ICE 49(3).) This places a great deal of discretion and control in the hands of the employer's representative. The AlA clearly states that the contractor must bear the costs of correcting work rejected by the employer, works not in conformity with the contract and any defective work, including additional testing and inspections (AlA 9.1-Part 2). The AGC and DBIA do not contain clear statements as to which party bears the cost of remedying defects. However, given the underlying responsibility of the contractor to remedy such defects in both contracts, the cost of such work is presumably included in the contract price.

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11.3 Extension of Defects Notification Period The Employer shall be entitled subject to Sub-Clause 2.5 [Employer's Claims) to an extension of the Defects Notification Period for the Works or a Section if and to the extent that the Works, Section or a major item of Plant (as the case ma~ be, and after taking over) cannot be used for the purposes for which they are Intended by reason of a defect or damage. However, a Defects Notification Period shall not be extended by more than two years. 344

If delivery and/or erection of Plant and/or Materials was suspended under SubClause 8.8 [Suspension of Work] or Sub-Clause 16.1 [Contractor's Entitlement to Suspend Work], the Contractor's obligations under this Clause shall not apply to any defects or damage occurring more than two years after the Defects Notification Period for the Plant and/or Materials would otherwise have expired.

Certain events may arise justifying an extension of the defects notification period in favour of the employer. Under Silver Book sub-clause 11.3, the employer is entitled to an extension of this period for the works or for a section if such work, section or major item of Plant cannot be used for the purposes intended by reason of defect or damage. However, there is a maximum two-year limit for extensions of the defects notification period. According to one commentator, contractors should be wary lest an unscrupulous employer attempts to use this clause as an opportunity to obtain two additional years of free maintenance though arguments surrounding "what is a 'major item of plant' and what are the purposes for which the works are intended" .10 The final portion of Silver Book 11.3 indicates that the two-year extension limit relates back to the time originally planned for delivery or erection of plant or materials in the event such delivery or erection was delayed due to an employer suspension or a justified suspension by the contractor. Sub-clauses 11.3 of the Red and Yellow Books are identical to Silver Book 11.3. The corresponding provision in Orange Book 12.3 is similar to the Silver book, but more specific about the time of extension. It states that the "Contract Period shall be extended by a period equal to the sum of any periods, after the Works are taken-over, during which the Works or any Section or item of Plant cannot be used, for the purposes for which they are intended, by reason of a defect or damage". The Silver Book arguably does not specifically delimit the period of the extension. The Orange Book also does not contain special provisions in the event of a justified suspension by the contractor. It also sets a two-year maximum extension. In the event of any employer suspensions, Orange Book 12.3 further states that the contractor's obligations under this sub-clause will not apply to defects or damage occurring more than three years after the plant or materials would otherwise have been delivered, erected or taken over were it not for the employer suspension. The ENAA contains a provision for extending its defect liability period, similar to the Silver Book provision. It states that jf the plant or any part cannot be used due to a defect, "the Defect Liabiliry Period of the Plant or such part, as the case may be, shall be extended by a period equal to the period during which the Plant or such part cannot be used by the Owner due to any of the aforesaid reasons" (ENAA 27.8). The ENAA does not include special provisions addressing extensions after contract suspensions.

10

E. Corbett, "FIDIC's New Rainbow 1" Edition-An Advance?" (2000) 17 (2) I.C.L.R. 253 at 263.

345

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DISCUSSION OF SPECIFIC SUB-CLAUSES

DEFECTS LIABILITY

The EIC and ICE contain no specific provisions regarding potential extensions of their respective defects liability period and defects correction period. The AlA, AGC and DBIA also contain no provisions comparable to Silver Book sub-clause 11.3.

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11.4 Failure to Remedy Defects

If the Contractor fails to remedy any defect or damage within a reasonable time, a date may be fixed by (or on behalf of) the Employer, on or by which the defect or damage is to be remedied. The Contractor shall be given reasonable notice of this date. If the Contractor fails to remedy the defect or damage by this notified date and this remedial work was to be executed at the cost of the Contractor under SubClause 11.2 [Cost of Remedying Defects), the Employer may (at his option): (a) carry out the work himself or by others, in a reasonable manner and at the Contractor's cost, but the Contractor shall have no responsibility for this work; and the Contractor shall subject to Sub-Clause 2.5 [Employer's Claims] pay to the Employer the costs reasonably incurred by the Employer in remedying the defect or damage; (b) agree or determine a reasonable reduction in the Contract Price in accordance with Sub-Clause 3.5 [Determinations); or (c) if the defect or damage deprives the Employer of substantially the whole benefit of the Works or any major part of the Works, terminate the Contract as a whole, or in respect of such major part which cannot be put to the intended use. Without prejudice to any other rights, under the Contract or otherwise, the Employer shall then be entitled to recover all sums paid for the Works or for such part (as the case may be), plus financing costs and the cost of dismantling the same, clearing the Site and returning Plant and Materials to the Contractor.

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If the contractor fails to satisfy his obligations in respect of defects during the defects notification period the employer must have a method of making sure that defects are remedied at the contractor's cost. Under Silver Book subclause 11.4, if the contractor fails to remedy notified defects or damage within a reasonable time,lI the employer may give the contractor notice of a fixed date for this work to be executed. If the contractor was responsible for the work and fails to remedy these defects by the fixed date, the employer has several options. He may carry out the work himself and recover the cost from the contractor. In the alternative, he may simply agree or determine a reasonable reduction to the contract price for the incomplete work. Finally, if the defect or damage deprives the employer of substantially the whole benefit of the works or of a major part, the employer may terminate the contract or II

The FIDIC Guide provides a list of factors to aid in the determination of a "reasonable" time including: "the proximity of the Site to the Contractor's Equipment and Personnel (who have left the Country), the delivery periods for replacement Plant, and the operational status of the Works". FIDIC, The FIDIC Contracts Guide (Federation Internationle des Ingenieurs, Lausanne, 2000) (hereinafter FIDIC Guide), p. 199.

346

do so in respect of the useless part. In this case, the employer may recover from the contractor all sums paid for the works or for the part, plus financing costs and the cost of dismantling the works or part, clearing the site and returning the materials to the contractor. As discussed in relation to subclause 9.4, according to the EIC Guide, this is a punitive provision for the contractor who "must consider whether the risks they carry under the Silver Book are commensurate with the likely award for performing the contract". 12 This last possibility is a powerful remedy for the employer. It effectively permits him to eliminate all progress on the works completed by the contractor and to recover from the contractor all the costs of putting himself back in the position he would have been in had the contract with the contractor never been executed and no work done. The employer recovers all sums paid to the contractor, plus financing costs, as well as the costs of returning the site to its pre-construction state. Certain commentators believe that the law in certain jurisdictions might invalidate or override various aspects of sub-clause 11.4.13 The corresponding provision in Orange Book sub-clause 12.4 is substantially identical to Silver Book 11.4, except that the employer's financing costs are not specifically stated as being recoverable from the contractor in the event of an employer termination of the contract under this clause. Sub-clauses 11.4 of the Red and Yellow Books are identical to the Silver Book provision. The ENAA contains a more simplistic provision, yet similar to part of Silver Book 11.4. It states:

If the Contractor fails to commence the work necessary to remedy such defect or any damage to the Plant caused by such defect within a reasonable time, the Owner may proceed to do such work, and the reasonable costs incurred by the Owner in connection therewith shall be paid to the Owner by the Contractor. (ENAA 27.7.) There is no termination remedy stated in this clause in the event the defect deprives the employer of substantially the whole benefit of the works. Nonetheless, the employer does have a general right to terminate the contract for contractor defaults (ENAA 42.2.2). However, the employer's remedy in the event of termination for contractor default is not as comprehensive as the remedy provided in Silver Book 11.4 (see ENAA 42.2.3). If the contractor fails to remedy defects under the EIC, the only remedy for the employer would appear to be contract termination. Sub-clause 18.1 of the EIC indicates that if the contractor neglects to carry out his obligations under the contract, the employer may terminate upon 28 days' notice, releasing the contractor from any of his obligations and liabilities under the contract. The employer himself may then complete the works. The respective costs are then dealt with and determined in the context of the contract's employer termination provisions (see EIC 18). 12 IJ

EIC Guide, op. cit. n. 9 above, p. 24. For a discussion of problematic aspects of Silver Book sub-clause 11.4 under German law, see Dr A. Kus, Dr J. Markus & Dr R. Steding, "FIOIC's new 'Silver Book' under the German Standard Form Contracts Act" (1999) 16 (4) I.C.L.R. 533 at 544-546.

347

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DISCUSSION OF SPECIFIC SUB-CLAUSES

DEFECTS LIABILITY

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Under the ICE, if the contractor fails to carry out any work required to remedy defects, the employer is entitled to have that work carried out by his own personnel or by other contractors (ICE 49(4)). If this is work that the contractor was responsible for carrying out at his own expense, the employer is entitled to recover the cost thereof from the contractor and may deduct the same from any monies that are or may become due to the contractor (ICE 49(4)). The AlA provides that if the contractor fails to correct nonconforming work or carry out work in accordance with the contract, the employer may by written notice order the contractor to suspend work (AlA 9.4-Part 2). If the contractor defaults or neglects to carry out the work in accordance with the contract documents and fails within seven days after receipt of written notice from the owner to commence and continue correction of a default or neglect with diligence and promptness, the owner may give a second written notice to the design/builder (AlA 9.S-Part 2). After seven days following receipt by the contractor of the second written notice the employer may correct such deficiencies himself and by change order deduct the cost from payments due to the contractor and recover any remaining costs to the extent not covered by deduction from the payments to the contractor (AlA 9.S-Part 2). The AGC contains no provision specifically addressing the contractor's failure to remedy defects. However, the employer does have a general contract termination remedy for contractor's breach of obligations under AGC sub-clause 11.2. The DBIA provides that the contractor shall, within seven days of a written notice from the employer, take meaningful steps to correct, remove or replace any nonconforming work or related damage (DBIA 2.10.2). If the contractor fails to do so within the seven-day period, the employer may give the contractor notice that he will correct such nonconforming work with his own forces (DBIA 2.10.2). If the employer does perform such corrective work, the contractor is responsible for all reasonable costs incurred (DBIA 2.10.2). The provision does not limit the employer with regard to his other remedies under the contract, such as termination of the contract under DBIA article 11 for contractor's failure to perform material obligations under the contract.

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11.5 Removal of Defective Work If the defect or damage cannot be remedied expeditiously on the Site and the Employer gives consent, the Contractor may remove from the Site for the purposes of repair such items of Plant as are defective or damaged. This consent may require the Contractor to increase the amount of the Performance Security by the full replacement cost of these items, or to provide other appropriate security.

The employer will want to maintain control of the works, including every discrete part of it. Therefore, he will not want the contractor to remove parts 348

or components of the works from the site without his consent. Silver Book sub-clause 11.5 applies in the event the contractor needs to remove items of plant from the works to repair defects or damage more expeditiously. The employer must consent to this removal of plant, and additional security covering the replacement cost of the removed plant may be required of the contractor by means of an increase in the amount of the performance security or by some other means. Sub-clauses 11.5 of the Red and Yellow Books are identical to the Silver Book provision. The corresponding provision in Orange Book sub-clause 12.5 is substantially identical to the Silver Book, with the exception that the Orange Book sub-clause does not include the requirement of additional security covering the removed plant. Similar to the Silver Book, under the ENAA the contractor must obtain the employer's consent to "remove from the Site any Materials or any part of the Plant which are defective if the nature of the defect and/or any damage to the Plant caused by the defect is such that repairs cannot be expeditiously carried out at the Site" (ENAA 27.5). However, there is no indication that additional security would be required of the contractor covering the item of plant removed. Under the ICE, there is no indication that the contractor needs the employer's consent to remove plant from the site in order to repair it. 14 There are no provisions in the EIC, AlA, AGC and DBIA comparable to Silver Book sub-c1aus.e 11.5.

11.6 Further Tests

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If the work of remedying of any defect or damage may affect the performance of the Works, the Employer may require the repetition of any of the tests described in the Contract, including Tests on Completion and/or Tests after Completion. The requirement shall be made by notice within 28 days after the defect or damage is remedied.

These tests shall be carried out in accordance with the terms applicable to the previous tests, except that they shall be carried out at the risk and cost of the Party liable, under Sub-Clause 11.2 [Cost of Remedying Defectsl, for the cost of the remedial work. During the defects notification period, defects may be identified that call into question whether the works conform to the standards imposed by the contract. Since the tests on completion and tests after completion form the basis for verifying the standards specified in the employer's requirements, the employer may desire that the works be retested after the remedy of certain defects, particularly if a defect remedy may affect other parts of the works. In the event the remedying of any defect or damage might affect the work's performance, the employer may require under Silver Book sub-clause 11.6 1~

However, consent of the employer's representative is required for removal of contractor's equipment (ICE 54(1)). 349

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DEFECTS LIABILITY

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DISCUSSION OF SPECIFIC SUB-CLAUSES

repetition of any tests described in the contract. Such retesting requires notice by the employer within 28 days after completion of the remedying of the defect. The tests are then carried out in accordance with the terms applicable to the previous tests, except that the cost is borne by the party responsible for the cost of the remedial work. Orange Book sub-clause 12.6 is very similar to Silver Book 11.6. However, the employer is limited to requiring repetition of tests on completion or tests after completion, specifically. The Silver Book is more general, stating that the employer may require the repetition of any tests described in the contract. Sub-clauses 11.6 of the Red and Yellow Books are generally identical to the Silver Book provision, with the exception that it is the engineer who may require the repetition of tests, rather than the employer. The ENAA states that if the repair or replacement may affect the efficiency of the works or part, the employer may by notice require the contractor to perform tests on the defective part immediately on completion of such remedial work (ENAA 27.6). There is no indication of which tests are required, but the ENAA states that "[t]he tests shall be agreed by the Owner and the Contractor" (ENAA 27.6). In addition, "[i]f such part fails the tests, the Contractor shall carry out further repair, replacement or making good (as the case may be) until that part of the Plant passes such tests" (ENAA 27.6). The EIC contains few provisions regarding testing of the works and nothing specifically regarding retesting after a defect remedy by the contractor. Under the ICE the contractor is under a general obligation to carry out any approved tests as well as any further tests as the employer's representative may reasonably require (ICE 36(3)(b)). The contractor is generally responsible for the cost of testing (ICE 36(7)). However, there is no clear statement that tests must be repeated subsequent to remedying defects in the works. Nonetheless, the ICE does state that, aside from the tests approved and agreed between the parties, if any other test is clearly intended by or provided for in the contract "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 but otherwise by the Employer" (ICE 36(7)). The AlA is not entirely clear on the obligation of retesting after a defect remedy. However, it does state that the contractor "shall bear costs of correcting ... rejected Work, including additional testing and inspections (AlA 9.1-Part 2). The AGC and DBIA contain no specific provisions regarding obligatory retesting after defect remedies.

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11.7 Right of Access

Until the Performance Certificate has been issued, the Contractor shall have the right of access to all parts of the Works and to records of the operation and performance of the Works, except as may be inconsistent with the Employer's reasonable security restrictions. 350

The employer has possession and control of the site during the defects notification period. The contractor must therefore reaffirm his right to enter onto the site after the issue of the taking-over certificate, and he must have access to the works in order to fulfil his repair obligations under the contract without impediment. Silver Book sub-clause 11.7 indicates that until issuance of the performance certificate, the contractor has the right of access to all parts of the works and all operation and performance records. This right is limited only to the extent that it is inconsistent with reasonable security restrictions of the employer. The Red and Yellow Books each contain identical sub-clauses 11.7. Orange Book sub-clause 12.7 is also substantially identical to the Silver Book provision. Similar to the Silver Book, the ENAA states that "[tJhe Owner shall afford the Contractor all necessary access to the Plant and the Site to enable the Contractor to perform its obligations under this GC 27" (ENAA 27.5). GC 27 is the clause regarding defect remedies. Under the ICE the employer is generally obligated under sub-clause 42 to give the contractor access to such parts of the site after the commencement date as is necessary for the contractor to proceed with the works with due dispatch. This would seem to cover the contractor's right of access to remedy defects. There are no provisions in the EIC, AlA, AGC or DBIA comparable to Silver Book sub-clause 11. 7.

11.8 Contractor to Search

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15-35

The Contractor shall, if required by the Employer, search for the cause of any defect, under the direction of the Employer. Unless the defect is to be remedied at the cost of the Contractor under Sub-Clause 11.2 [Cost of Remedying Defects], the Cost of the search plus reasonable profit shall be agreed or determined in accordance with Sub-Clause 3.5 [Determinations] and shall be added to the Contract Price. Silver Book sub-clause 11.8 gives the employer the specific power to order the contractor to search for the cause of any defects in the works. Unless the defect is one for which the contractor is responsible, the cost of the search plus reasonable profit shall be added to the contract price in favour of the contractor. The corresponding provision in Orange Book sub-clause 12.8 is substantially identical to Silver Book 11.8, except that the search would be requested by the employer's representative, rather than the employer. Sub-clauses 11.8 of the Red and Yellow Books are identical to the Silver Book provision, with the exception that it is the engineer rather than the employer who has the power to request such a defects search. The ENAA contains no provision comparable to Silver Book sub-clause 11.8. However, an instruction by the employer to search for defects might 351

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DISCUSSION OF SPECIFIC SUB-CLAUSES

be ordered as a change in the works (ENAA 39.1). The ENAA's change provisions indicate that "no change made necessary due to any default of the Contractor [... J shall be deemed to be a Change and such change shall not result in any adjustment of the Contract Price or the Time for Completion" (ENAA 39.2). The ICE contains a provision very similar to Silver Book 11.8. Upon written request of the employer's representative, the contractor must carry out any searches, tests or trials necessary to determine the cause of any defect, imperfection or fault (ICE 50). With regard to responsibility, the ICE states: Unless the defect, imperfection, or fault is one for which the Contractor is liable under the Contract the cost of the work carried out by the Contractor as aforesaid shall be borne by the Employer. If the defect, imperfection, or fault is one for which the Contractor is liable the cost of the work carried out as aforesaid shall be borne by the Contractor and he shall in such case repair rectify and make good the defect, imperfection, or fault at his own expense in accordance with Clause 49. (ICE 50.) The EIC, AlA, AGC and DBIA contain no provisions comparable to Silver Book sub-clause 11.8. However, in each of these contracts the employer might be able to obtain the same search for defects from the contractor by means of a change order or directive (see EIC 11, AlA 8-Part 2, AGC 8, DBIA 9).

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11.9 Performance Certificate

Performance of the Contractor's obligations shall not be considered to have been completed until the Employer has issued the Performance Certificate to the Contractor, stating the date on which the Contractor completed his obligations under the Contract. The Employer shall issue the Performance Certificate within 28 days after the latest of the expiry dates of the Defects Notification Periods, or as soon thereafter as the Contractor has supplied all the Contractor's Documents and completed and tested all the Works, including remedying any defects. If the Employer fails to issue the Performance Certificate accordingly: (a) the Performance Certificate shall be deemed to have been issued on the date 28 days after the date on which it should have been issued, as required by this Sub-Clause, and (b) Sub-Clause 11.11 [Clearance of Site] and sub-paragraph (a) of SubClause 14.14 [Cessation of Employer's Liability] shall be inapplicable. Only the Performance Certificate shall be deemed to constitute acceptance of the Works. 15-38

The issuance of the performance certificate represents the completion of all the contractor's work responsibilities under the contract. Silver Book sub352

clause 11.9 states that the contractor's obligations shall not be considered completed until the employer has issued the performance certificate stating the date these obligations were completed. The employer must issue the performance certificate within 28 days after the expiry of the latest expiry date of the defects notification period, or as soon thereafter as the contractor has supplied all documents, completed and tested all works and remedied any defects. If the employer fails to issue the performance certificate in accordance with this clause, the certificate is deemed to have been issued on the date 28 days after the date on which it should have been issued. In this case, sub-clauses 11.1 "Clearance of Site" and sub-part (a) of 14.14 "Cessation of Employer's Liability" are inapplicable. Sub-clause 11.11 generally requires the contractor to clear the site upon receiving the performance certificate and permits the employer to sell or dispose of any items not so removed within 28 days. Silver Book 11.9 seemingly negates these rights and responsibilities in the !!vent the employer fails to issue a performance certificate as required under Silver Book 11.9. The purpose of negating the application of sub-clause 11.11 in this case is unclear. The FlDIC Guide is unhelpful on this point, merely stating that where the employer fails to issue the performance certificate within the specified period, sub-clause 11.11 is inapplicable. IS The contractor should still be required to clear the site, even in the event of the deemed issuance of the performance certificate. Neither of these rights or obligations affect the result under the contract that the performance certificate might be deemed issued rather than actually issued. Negating the application of sub-clause 14.10 under these circumstances seems more logical, effectively allowing the contractor to claim additional expenses from the employer despite prior submission of his final statement, to the extent such costs result from the employer's failure to issue the performance certificate. The final statement in Silver Book sub-clause 11.9 that only the performance certificate shall be deemed to constitute acceptance of the works is confusing. Under this sub-clause, the performance certificate can be issued by the employer but may also be deemed issued if the employer fails to issue the certificate. In the latter case there is no actual performance certificate. The last sentence of Silver Book 11.9 should perhaps be revised to state that only the performance certificate "or its deemed issuance under this subclause" shall constitute acceptance of the works. The corresponding provisions in Orange Book sub-clause 12.9 are substantially identical to the Silver Book. However, there are no provisions in the Orange Book sub-clause concerning deemed issuance of the performance certificate in the event the employer's representative fails to issue the certificate as required under the sub-clause. Sub-clauses 11.9 of the Red and Yellow Books are more like the Orange Book provision in that they do not contain any provisions for deemed issuance of the performance certificate. The engineer is obligated to issue the performance certificate within 28 days of the defects notification period's IS

FIDIC Guide, op. cit. n. 11 above, p. 204.

353

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DEFECTS LIABILITY

15-40

DISCUSSION OF SPECIFIC SUB-CLAUSES

expiry or once the contractor has fulfilled his obligations as required. The Red and Yellow Books also require the engineer to issue a copy of the performance certificate to the employer. The ENAA does not contemplate the issuance of a performance certificate. A certificate of acceptance is issued under the ENAA when all work is completed by the contractor (ENAA 25.3.1). A defects liability period then runs for 12 months after this acceptance, during which time the contractor must remedy any defects or damages notified (ENAA 27.2). However, there is no certificate issued under the ENAA after the defects liability period signifying that the contractor has completed all of his contractual obligations. The ENAA's certificate of acceptance corresponds more closely to the Silver Book's taking-over certificate than to its performance certificate. The ICE uses a defects correction certificate. The ICE contract states: At the end of the Defects Correction Period or where there is more than one such period at the end of the last of such periods and when all outstanding work referred to under Clause 48 and all work of repair amendment reconstruction rectification and making good of defects imperfections shrinkages and other faults referred to under Clauses 49 and SO had been completed the Employer's Representative shall issue to the Employer (with a copy to the Contractor) a Defects Correction Certificate stating the date on which the Contractor has completed his obligations to construct and complete the Works to the Employer's Representative's satisfaction. (ICE 61(1).) However, there are no provisions for deemed issuance of this certificate under the ICE. The EIC, AlA, AGC and DBIA contain no provisions comparable to Silver Book 11.9 regarding performance certificates.

15-41

11.10 Unfulfilled Obligations After the Performance Certificate has been issued, each Party shall remain liable for the fulfilment of any obligation which remains unperformed at that time. For the purposes of determining the nature and extent of unperformed obligations, the Contract shall be deemed to remain in force.

15-42

Silver Book sub-clause 11.10 is simply a statement that despite issuance of the performance certificate, any remaining obligations between the parties must still be fulfilled. For example, the contractor is still under an obligation to clear the site after the issuance of the performance certificate. Similarly, the employer will still be under an obligation to make final payment, if any, to the contractor after the performance certificate. Orange Book sub-clause 12.10 and Red and Yellow Book sub-clauses 11.11 are identical to the Silver Book provision. There is no express statement in the ENAA that the contractor would have any further responsibilities or obligations under the contract after the expiration of the defects liability period.

354

The EIC takes the opposite approach stating that once the contractor has completed all work outstanding after taking over and fulfilled his obligations to complete the contract and remedy defects during the defects liability period, "the Contractor shall be under no further liability to the Owner pursuant to the O:>ntract" (EIC 17.3). The ICE 61 (2) more closely resembles Silver Book sub-clause 11.10. It states that "[tJhe issue of the Defects Correction Certificate shall not be taken as relieving either the Contractor or the Employer from any liability the one towards the other arising out of or in any way connected with the performance of their respective obligations under the Contract" (ICE 61(2)). . The AlA, AGC and DBIA contain no provisions comparable to Silver Book 11.10.

11.11 Clearance of Site

15-43

Upon receiving the Performance Certificate, the Contractor shall remove any remaining Contractor's Equipment, surplus material, wreckage, rubbish and Temporary Works from the Site. If all these items have not been removed within 28 days after the Employer

issues the Performance Certificate, the Employer may sell or otherwise dispose of any remaining items. The Employer shall be entitled to be paid the costs incurred in connection with, or attributable to, such sale or disposal and restoring the Site. Any balance of the moneys from the sale shall be paid to the Contractor. If these moneys are less than the Employer's costs, the Contractor shall pay the outstanding balance to the Employer. Silver Book sub-clause 11.11 requires the contractor to remove any remaining contractor's equipment, surplus materials, wreckage, rubbish or temporary works from the site upon his receipt of the performance certificate. As discussed in relation to sub-clause 11.9, where such a certificate is not issued sub-clause 11.11 will not apply. If the cQntractor fails to do so within 28 days of this certificate's issuance, the employer may sell or dispose of these items and is entitled to payment of any related costs. Any sales proceeds remaining after deduction of the employer's costs must be paid to the contractor. Orange Book sub-clause 4.21 and Red and Yellow Book subclauses 11.11 contain substantially identical provisions. The contractor's obligation to clear the site arises under the ENAA after acceptance rather than at the end of the defects liability period. The ENAA states that "[aJfter Acceptance of all parts of the Plant by the Owner, the Contractor shall clear away and remove from the Site any wreckage, rubbish and debris of any kind, and leave the Site and the Plant in a clean and safe condition" (ENAA 22.6.2). Under the EIC, clearance of the site is required after taking over. The EIC states:

355

15-44

DEFECTS LIABILITY

Upon Taking-Over the Contractor shall clear away and remove from the Site all Contractor's Equipment, surplus material and rubbish, and leave the Site and Works clean and in a workmanlike condition. Provided that the Contractor shall be entitled to retain on Site, until the end of the Defects Liability Period, such materials and Contractor's Equipment as are required by him for the purpose of fulfilling his obligations during the Defects Liability Period.

(EIC 6.10.) Neither the ENAA nor the EIC contain specific provisions regarding the possibility and consequences of the employer clearing the site in the event of the contractor's failure to do so. The corresponding ICE provision resembles more closely Silver Book subclause 11.11. Upon completion of the works the contractor must clear the site to the satisfaction of the employer's representative (ICE 33). The AlA, AGe and DBIA each also contain a provision simply requiring the contractor to clear the site upon completion of the work (AlA 3.2.13Part 2, AGC 3.2.9, DBIA 2.7.6).

CHAPTER

16

TESTS AFTER COMPLETION General Comments Under a turnkey contract, the contractor is required to undertake and be responsible for the design and construction of the works in accordance with the employer's requirements. These requirements will often include performance standards. For example, where the project involves a process plant or a power generation facility the parties will want to specify with care the output and consumption parameters of the plant to be guaranteed under the agreement.! Tests after completion are generally used where any part of the works must meet some operational standard. They are used to verify quantity and quality of output, consumption of energy or raw materials or any other aspect of performance important to the project's purpose in any variety of operating conditions. They can also be used to verify the waste output of the works. Tests after completion are particularly useful in process plant projects where the contractor must guarantee output and consumption levels. A performance guarantee may be defined in any number of ways. It might measure production, consumption, output of waste or complexity of operation. It might also measure a comparative ratio of the' qualities. For example, in order to define the guarantee for the ratio of consumption versus output, parties often develop a formula or production quotient which calculates actual performance relative to consumption. 2 The guarantee of performance extends to all defects of planning and design as related to the intended purpose for the works laid out in the employer's requirements and expanded upon in the other contract documents. 3 The demonstration of the sufficiency or insufficiency of performance may prove to be a difficult task, particularly where the technology used is complex and progressive. 4 The parties should set out clearly any performance tests or tests after completion and the levels of performance that

I.N.D. Wallace Q.C., Hudson's Building and Engineering Contracts (11th ed., Sweet & Maxwell, London, 1995), pp. 517 et seq. 2 J.-A. Boon & R. Goffin, Les Contrats "Cte en Main" (2nd ed., Masson, Paris, 1987), p. 77. J Wallace, op. cit. n. 1 above, pp. 517 et seq. • T. Richelo, "Application of Design-Build to Age of Technological Advancement" in R.E Cushman & K.S. Taub, eds, Design-Build Contracting Handbook (Wiley Law Publications, New York, 1992) 31 at 48. 1

356

357

16-01

16-02

TESTS AFTER COMPLETION

16-03

16-04

16-05

the works must achieve. This simplifies the burden of proof in the event of disagreement since the party disputing the tests can only dispute their validity but cannot require a different form of test to be performed. This may not be possible in certain areas of developing technology or where the form of testing desired has not been decided upon by the date of contracting. The contract should specify in detail the nature of the tests, the length of the tests, the point in time at which measurements should be taken, reference to applicable codes and all other elements that will eliminate misunderstanding as to the tests to be performed. The parties may also want to designate the laboratories acceptable for the examination of production or off-site testing and by whom the tests should be monitored. s It is crucial with regard to these tests that the party who is to carry out the required tests be designated. Since failure of these tests may result in liquidated damages for non-performance or rejection of the works or a section, the contractor may want to carry out the tests himself to ensure that they take place under optimal conditions, especially where the employer's staff are new to the technology and not experienced in the running of the works. 6 However, the employer may want control over such crucial testing in light of his stake in the proper operation and performance of the works (particularly by seeing that the contractor does not run the tests in a manner favourable to himself). This interest should be balanced against the risk of faulty operation of the plant by inexperienced personnel of the employer. It may well be that the contractor, as designer and constructor, will be the only one capable of training new personnel on the use of the plant. The employer should determine whether the contract should provide for the contractor to train the employer's personnel before taking over. As a prelude to the tests after completion, parties may want to begin normal operation of the plant after taking over of the works by the employer. The operation of the plant gives the contractor an opportunity to train the employer's personnel and prepare the plant for eventual testing.? The contract may also provide for post-completion tests immediately on completion. In either case, the contract will need to specify which party provides materials necessary for the trial performance and when or how training of the employer's personnel will occur. 8 The parties may want to provide in the appendices a detailed breakdown of any training programme. Environmental regulation has become increasingly strict over the past two decades and the impact of such regulation on the parties can be significant.

5

6

7

8

J.S. Roehl & J.B. Grove, "Performance Guarantees and Testing; Intellectual Property and Technology Transfer Issues" in R.E Cushman & K.S. Taub, eds, Design-Build Contracting Handbook (Wiley Law Publications, New York, 1992) 341 at 359. G.L. Jaynes, "The New Colour in FIDlC's Rainbow: The Trial Edition of the 'Orange Book'· (1995) 12 (3) I.C.L.R. 367 at 369. UNCITRAL, UNCITRAL Legal Guide on Drawing Up International Contracts for the Construction of Industrial Works (UN, New York, 1998) UNDOC. NCN.9/SER.B/2 at 151. ibid. at 152.

358

GENERAL COMMENTS

The parties may wish to include in the performance tests any requirements relating to the nature and any maximum amount of waste resulting from operations. The employer may decide that it is appropriate to include tests to verify the level of discharge (liquid, gas or solid) resulting from operation of the plant and to define their maximum acceptable level (providing for liquidated damages and other sanctions in a manner similar to performance tests for consumption or output). The Silver Book does not provide specific requirements for performance tests themselves in the general conditions. The details of any performance tests or requirements would need to be included in an appendix. However, the Silver Book's clause 12 provides the general conditions applicable to such tests and a clear procedure to be followed.

Minimum levels of performance The employer should monitor closely the power of the contractor to avoid complete performance by paying liquidated damages. The employer has contracted for a plant providing a certain performance. Thus, he may decide that the contractor should not have the right to reduce the performance provided and opt to pay the liquidated damages, which will generally not compensate for the losses incurred nor pay for the technical assistance necessary to improve the plant performance. Similarly, the employer may wish to provide a bonus for performance achieved above the specified leve\.9

16-06

Failure or impossibility of attaining the expected performance The parties will also want to allocate carefully the risk associated with the impossibility of attaining the expected perforriIance or even the minimum performance. The allocation of this risk will depend in part on the technical sophistication of the parties and the nature of the contract. If one of the parties has acted as the promoter of the technology used, or provided the technical advice that convinced the other to use the technology in question, then that party should be held responsible for impossibility to perform. to Termination of the contract will usually be possible in the event of failure of the contractor to fulfil materials obligations, such as successful completion of performance tests. However, the termination provisions should be closely examined with test failure in mind in that the general termination remedy may be insufficient to protect the employer or the contractor.

9

10

Wiwen-Nilsson, "A Brief View of the 1992 Edition of the ENAA Model Form-International Contract for Process Plant Construction (Turnkey Lump sum Basis)" (1994) 11 I.C.L.R. 526 at 547. Richelo, op. cit. n. 4 above at 51.

359

16-07

TESTS AFTER COMPLETION

Discussion of Specific Sub-Clauses 16-08

Clause 12 of the Silver Book, entitled "Tests after Completion" provides the regime applicable in the event tests after completion are specified by the parties in the contract documents. Sub-clauses 12.1 to 12.4 provide the procedure for the tests and establish the parties' relative obligations in the event of delays, necessary retesting and failure of these tests after completion.

16-09

12.1 Procedure for Tests after Completion

If Tests after Completion are specified in the Contract, this Clause shall apply. Unless otherwise stated in the Particular Conditions: (a) the Employer shall provide all electricity, fuel and materials, and make the Employer's Personnel and Plant available, (b) the Contractor shall provide any other plant, equipment and suitably qualified and experienced staff, as are necessary to carry out the Tests after Completion efficiently; and (c) the Contractor shall carry out the Tests after Completion in the presence of such Employer's andlor Contractor's Personnel as either Party may reasonably request. The Tests after Completion shall be carried out as soon as is reasonably practicable after the Works or Section have been taken over by the Employer. The Employer shall give to the Contractor 21 days' notice of the date after which the Tests after Completion will be carried out. Unless otherwise agreed, these Tests shall be carried out within 14 days after this date, on the day or days determined by the Employer. The results of the Tests after Completion shall he compiled and evaluated by the Contractor, who shall prepare a detailed report. Appropriate account shall be taken of the effect of the Employer's prior use of the Works.

16-10

A turnkey contract places a duty on the contractor to design and construct the project in accordance with the employer's requirements. These requirements may include tests to be performed after the employer's taking over of the works. These will generally be performance tests to verify the attainment of certain performance standards that the works must meet, for example, output and consumption levels for a power plant project. Where the works must meet a performance standard the contract will include tests after completion or a similar regime. The Silver Book refers to "Tests after Completion" since the tests need not necessarily be limited to performance tests but extend also to tests to verify any aspect of the works the parties deem important. Clause 12 of the Silver Book is only applicable if tests after completion are specified in the contract. It does not specify the nature or requirements of any tests that might be required after taking over, but it does provide a general procedure for carrying out these tests and delimits the responsibilities of the parties.

360

DISCUSSION OF SPECIFIC SUB-CLAUSES

Acc~rding to the FIDIC Guide, specifications of the performance tests may be difficult to accurately provide in the employer's requirements due to the unce~tai,n nature of the eventual works (at the time of their specification) and the Significant amount of time that may elapse between the formulation of the employer's requirements and the tests. The Guide recognises the importance of specification for the tests in order to avoid disputes and "because the Tests have a major role in determining the acceptability of the Works". I I Ac~o,rding to sub-cl,ause 12.1, the employer is responsible for providing electnclty, fuel, matenals, personnel and plant available for the tests after completion. The contractor provides all other plant, equipment and staff necessary. However, it is the contractor who carries out the tests after completion. Silver Book sub-clause 12.1 states that the tests will be carried out a~ soon ~s reaso~ably pra,c~icable after taking over but also give more speCific notice and time prOVISIOns. The employer must give the contractor 21 days' notice of the date after which the tests after completion will be carried o~t. The tests must then be carried out within 14 days of the notified date as directed by the employer, unless otherwise agreed. For example, it may be necessa~y to carry out some tests at particular seasons of the year. 12 The contractor IS t~en. responsible for compiling a report and evaluating the test results, taking Into account any prior use of the works by the employer_ Orange Book sub-clause 11.1 is nearly identical in substance to the Silver 16-11 B,ook provision. However, there is no mention of any items that must be proVided by the contractor, and it is the employer who carries out the tests after c?mpletion, only with the contractor's guidance, as required. Another minor difference is that the test results are to be evaluated by both parties, rather than by the contractor alone. In addition, Orange Book 11.1 contains terms indicating that if the contractor does not attend the tests at the time and place agreed, the employer may proceed with the tests, which shall be deemed to have been conducted in the contractor's presence. In this case, the contractor must accept the readings as accurate. Ye,ll?w Book s,ub-clause 12.1 is identical in substance to the Orange Book proVISion, yet ~tlll very similar to the Silver Book provision. However, the Yellow Book differs from the Silver Book in that the employer carries out the tests, a~d there is a provi,sion, for deemed acceptance of the results by the contractor In the event of hiS failure to attend. A principle drafter of these contracts explains the discrepancy between the Silver and Yellow Books:

"There d,id not seem to be clear views as to who typically carries out Tests after Completion. I~ order to publish terms for either option, it is assumed that the employer carnes out the Tests after Completion under the [Yellow Book] and that the contractor carries out these Tests under the [Silver Book]." 13 '

II

12

1J

FLIDIC, The F1D1C Contracts Guide (Federation Internationale des Ingenieurs-Conseils ,ausanne, 2000) (hereinafter FlDIC Guide), p, 212, '

,b,d., p, 212,

P.L. Booen, "FIDIC's Conditions of Contract for the Next Century: 1998 Test Editions" (1999) 16 (1) I.C.L.R. 5 at 18 n. 51.

361

TESTS AFTER COMPLETION

The Red Book contains no provisions regarding tests after completion. It simply provides a definition: " 'Tests after Completion' means the tests

16-12

16-13

(if any) which are specified in the Contract and which are carried out in accordance with the provisions of the Particular Conditions after the Works or a Section (as the case may be) are taken over by the Employer." (RB 1.1.3.6.) The sequence of events under the ENAA does correspond exactly to the sequence under the Silver Book. The progression under the ENAA is generally: notice of mechanical completion, pre-commissioning, issuance of the mechanical completion certificate, commissioning, performance tests and then acceptance (see ENAA 24 and 25). ENAA's "Acceptance" corresponds more closely to the Silver Book's "Taking Over" in that acceptance marks the beginning of the defects liability period and the transfer of responsibility for care of the works to the employer, just as taking over marks the beginning of the same period in the Silver Book. In this regard, the FIOIe's "Tests after Completion" is perhaps a misnomer in that the tests are actually tests after taking over. The ENAA does have tests that occur after completion, namely the commissioning and performance tests. However, these occur before the employer's taking over or acceptance. As a result, the ENAA essentially does not have provisions for tests after acceptance. The ENAA testing regime is described more fully in Chapter 13 of this book. Nonetheless, the ENAA does contain a section dealing with performance tests which will be discussed in this chapter although they do not occur before the employer's taking over or" Acceptance" as the term is used in the ENAA. The ENAA contract requires the employer to provide the materials and labour necessary for performance tests (ENAA 25.1.2), but the contractor must carry out the testing (ENAA 25.2.1). The performance tests take place during commissioning of the works (ENAA 25.2.1). The contractor must provide the employer with a certified report of the results of the performance tests (ENAA 23.4). As discussed in Chapter 13, the testing regime under the ICE is not welldefined and much less comprehensive than that contained in the FIOlC contracts. Under the ICE, the contractor is required to submit to the employer's representative for his approval proposals for testing the workmanship and materials (ICE 36(3)(a)). The contractor is obligated to carry out these tests and any further tests the employer's representative may require. However, the ICE contains no specific mention of what tests, procedure, notice or reporting might be required for any tests on the works. In short, the ICE contains no specific provisions for tests after completion. Like the Red Book, the EIC, AlA, AGC and OBIA contain no provisions for tests after completion. The ENAA and ICE also do not effectively contain any such provisions, as discussed above.

362

DISCUSSION OF SPECIFIC SUB-CLAUSES

12.2 Delayed Tests

16-14

If the Contractor incurs Cost as a result of any unreasonable delay by the Employer to the Tests after Completion, the Contractor shall (i) give notice to the Employer and (ii) be entitled subject to Sub-Clause 20.1 [Contractor's Claims] to payment of any such Cost plus reasonable profit, which shall be added to the Contract Price.

After receiving this notice, the Employer shall proceed in accordance with SubClause 3.5 [Determinations] to agree or determine this Cost and profit. If, for reasons not attributable to the Contractor, a Test after Completion on the Works or any Section cannot be completed during the Defects Notification Peri?d (or any other period agreed upon by both Parties), then the Works or SectIon shall be deemed to have passed this Test after Completion.

The contract must also provide for delays in the performance of tests after completion. Silver Book sub-clause 12.2 deals with potential delays to the tests after completion due to the employer. If the employer unreasonably delays th~ tests after completion, the contractor is entitled to the payment of any ~ost I.ncu.rred ~Ius reasonable profit. Silver Book 12.2 also provides for the SItuatIOn In which the tests cannot be completed before the expiration of the def~cts notification period by no fault of the contractor. If, for reasons not attnbutable to the contractor, the tests after completion cannot be completed during the defects notification period, the works or section shall be deemed to have passed these tests. Yellow Book sub-clause 12.2 and Orange Book. sub-c1au~e 11.2 are identical to the Silver Book provision. ThiS pro~lsIOn sho~ld be considered carefully by the employer. Any number of nsks could Intervene to delay such tests and relieve the contractor of performance liability. The Red Boo~, EIC, ICE, AlA, AGC and DBIA contain no provisions compar~ble to Stiver Book sub-clause 12.2 regarding delays to tests after comple~lOn ..To the extent that the ENAA's performance tests are being discussed In thiS chapter, ENAA sub-clause 25.2.2 indicates that if the performance tests cannot be completed within six months of mechanical completion for reasons not attributable to the contractor, the contractor is deemed to have fulfilled his performance requirement obligations.

12.3 Retesting

16-15

16-16

16-17

If the Works, or a Section, fail to pass the Tests after Completion: (a) sub-paragraph (b) of Sub-Clause 11.1 [Completion of Outstanding '7'0rk and Remedying of Defects] shall apply, and (b) eIther Party may then require the failed Tests, and the Tests after Completion on any related work, to be repeated under the same terms and conditions. If and to the extent that this failure and retesting are attributable to any of the matters listed in sub-paragraphs (a) to (d) of Sub-Clause 11.2 [Cost of 363

TESTS AFTER COMPLETION

Remedying Defects] and cause the Employer to incur additional costs, the Contractor shall subject to Sub-Clause 2.5 [Employer's Claims] pay these costs to the Employer.

16-18

16-19

Under Silver Book 12.3, if the works or section fail to pass the tests after completion, the contractor is under the obligation to remedy any defects causing this failure. Either party may then require the failed tests to be repeated under the same terms and conditions. If the failure and retesting are due to an item for which the contractor would be responsible for remedying any defects, the contractor must pay the employer any costs incurred due to this failure and retesting. Items for which the contractor would be responsible include plant, the design of the works, material and work not in accordance with the contract, improper operation and maintenance activities attributable to the contractor and the contractor's failure regarding any other contractual obligation (see SB 11.2). Yellow Book sub-clause 12.3 and Orange Book sub-clause 11.3 are essentially identical in substance to the Silver Book provision. However, the Orange Book does not specifically mention that the contractor's defect remedy obligation arises upon the failure of the tests. In addition, the contractor's responsibility to remedy defects is slightly less broad under the Yellow and Orange Books than in the Silver Book. Under the Silver Book 11.2, the contractor must remedy any design defects, whereas under Yellow Book 11.2 he is responsible for design defects not attributable to the employer. Similarly, Orange Book 11.3 makes the payment of the employer's costs relating to a failure of the tests contingent upon the defect causing the failure being the responsibility of the contractor. The Red Book, EIC, ICE, AlA, AGC and DBIA contain no provisions comparable to Silver Book sub-clause 12.2 regarding retesting subsequent to failed tests after completion. To the extent that the ENAA's performance tests are being discussed in this chapter, ENAA 23.6 requires tests to be repeated if failed.

16-20

12.4 Failure to Pass Tests after Completion

If the following conditions apply, namely: (a) the Works, or a Section, fail to pass any or all of the Tests after Completion, (b) the relevant sum payable as non-performance damages for this failure is stated (or its method of calculation is defined) in the Contract, and (c) the Contractor pays this relevant sum to the Employer during the Defects Notification Period, then the Works or Section shall be deemed to have passed these Tests after Completion. If the Works, or a Section, fail to pass a Test after Completion and the Contractor proposes to make adjustments or modifications to the Works or

364

DISCUSSION OF SPECIFIC SUB-CLAUSES

such Section, the Contractor may be instructed by (or on behalf of) the Employer that right of access to the Works or Section cannot be given until a time that is convenient to the Employer. The Contractor shall then remain liable to carry out the adjustments or modifications and to satisfy this Test, within a reasonable period of receiving notice by (or on behalf of) the Employer of the time that is convenient to the Employer. However, if the Contractor does not receive this notice during the relevant Defects Notification Period, the Contractor shall be relieved of this obligation and the Works or Section (as the case may be) shall be deemed to have passed this Tes't after Completion. If the Contractor incurs additional Cost as a result of any unreasonable delay by the Employer in permitting access to the Works or Plant by the Contractor, either to investigate the causes of a failure to pass a Test after Completion or to carry out any adjustments or modifications, the Contractor shall (i) give notice to the Employer and (ii) be entitled subject to Sub-Clause 20.1 [Contractor's Claims] to payment of any such Cost plus reasonable profit, which shall be added to the Contract Price. After receiving this notice, the Employer shall proceed in accordance with SubClause 3.5 [Determinations] to agree or determine this Cost and profit. Silver Book sub-clause 12.4 provides additional guidance in the event the works fail to pass the tests on completion. If the works or section fail the tests and the contract states an amount or measure of non-performance damages that are paid by the contractor during the defects notification period, the works or section are deemed to have passed the tests after completion. In the alternative, the contractor may propose adjustments or modifications to the works. However, in this case the employer may instruct the contractor that the right of access to do so may not be given until a time convenient for the employer. The contractor then remains liable to carry out the modification and pass the tests within a reasonable period after the employer's notification of a time given to access to the works. However, if the employer's notice granting access is not given to the contractor during the relevant defects notification period, the works or section are deemed to have passed the tests after completion. In addition, if the employer unreasonably delays the contractor's access to modify or investigate the cause of the test failure, the contractor is entitled to payment of his costs thereby incurred plus reasonable profit. Orange Book sub-clause 11.4 and Yellow Book sub-clause 12.4 are identical to the Silver Book provision. The second paragraph of this Silver Book sub-clause touches on an important concern. Where the works are not performing to the level of quantity or quality promised the employer may nevertheless need or want to begin operations as soon as possible, for financial or other reasons. This secti~n gives the employer the opportunity to continue operating the works even If they a~e not performing up to the required standard. The employer can then conSIder whether and when to require the contractor to adjust the works to the performance desired or leave them as they are and continue production. The employer has the duration of the defects correction period to decide.

365

16-21

TESTS AFTER COMPLETION

16-22

16-23

The contractor should recognise that the Silver Book does not contain favourable provisions in the event the tests after completion cannot be passed. He should be particularly careful to include comprehensive provisions for non-performance damages covering the possibility that the tests after completion cannot be passed. Without such provisions the contractor is left with little choice but to continue to remedy the works, repeat the tests after completion and attempt to pass the tests. If not, the contractor will have committed a breach entitling the employer to terminate the contract which termination could potentially cause the contractor to incur significant costs. Continuation of the remedy and retesting process may also be cost prohibitive or futile if it is clear that the performance standard will not be attained. Non-performance damages may be structured as a more favourable solution than employer termination. By the same token, provisions for non-performance damages may benefit the employer as well. In theory, as long as the contractor is attempting to remedy the works and repeating the tests after completion, he has not breached any obligation under the contract. Consequently, the employer's termination remedy may be not be possible or may be delayed for a long period. The employer might rather collect non-performance damages, particularly if the performance shortcoming is not significant. Of possible concern for the employer, the employer should be careful to define minimum acceptable criteria that may differ from, and be more onerous than, the limit to the non-performance damages. In other words, the limitation on non-performance damages "would only provide a limitation on the payment by the contractor and may not impose any restriction on what is acceptable" which, the FIDIC Guide cautions, may result in the employer having "taken over non-compliant works, paid the Contract Price and only been able to deduct these non-performance damages".14 With regard to the ENAA's performance tests, sub-clause 25.3.1(c) indicates that the works may still be accepted despite failure of the performance tests if liquidated damages are paid. The ENAA differs from the Silver Book in that it contains specific provisions regarding non-performance damages. ENAA 28.3 contains these liquidated damages provisions in the event of non-attainment of the performance guarantees. The Red Book, EIC, ICE, AlA, AGC and DBIA contain no provisions comparable to Silver Book sub-clause 12.4.

DISCUSSION OF SPECIFIC SUB-CLAUSES

Figure 16.1

Tests after completion under the FIDIC Silver Book

16-24

C carries out tests after completion as soon as reasonably practi~able after taking over: - upon 21 days' notice from E of date after which tests maybe carried out, and - within 14 days of the notified date, unless otherwise agreed (12.1).

C entitled to payment of COStS incurred plus reasonable profit (12.2) .

Arc the tests carried out during the defects notification period?

NO

YES

.-r-----,

Cstill obligated to carry

NO

Works or section ' - - - o - l deemed to have passed

tests after completion (12.2). C obligated to remedy defects in order to pass tests (12.3).

YES

NO C pays E's costs if C responsible under contract for cost of

remedying defect causing test failure (12.3).

14

FIDIC Guide, op. cit. n. 11 above, p. 216.

366

Results of the tests after completion compiled and evaluated by C, who prepares a detailed report, t-------------~ taking into account the effect of any prior use of the works by E (12.1).

367

CHAPTER

17

VARIATIONS AND ADJUSTMENTS General Comments The construction contract should accommodate change as part of the design and construction process. t Such changes often occur in practice, regardless of the qualifications of the design team or the employer's desire to avoid them and maintain a strict budget, because no project is perfect. 2 Therefore, the parties should not only prepare for changes in the works, but may under certain circumstances wish to embrace them as a method of avoiding disputes. Under standard construction contracts, the employer gives himself the ability to respond to or direct such change by having the power to vary the works from the specifications of the contract. The reasons for including a variations clause are markedly reduced in a turnkey or EPe situation. The design of the works is no longer an area under the employer's strict control. The contractor takes complete responsibility for ensuring that the completed works fulfil the employer's requirements. The employer, at least in theory, does not need to be able to change aspects of the works as long as his requirements are clear. However, even in a turnkey situation, the employer needs to maintain the variation power. Although it has been estimated that some 90 per cent of variations involve the design and construction documents, which are within the contractor's responsibility under a turnkey project, at least two factors dictate the inclusion of a variations clause in a turnkey contract: employer choice and unforeseen conditions or circumstances." The employer should be allowed (within certain limits) the opportunity to adjust the works where he finds that their present form does not fit his changing needs (i.e. requirements) in the same way as an alternative form. In addition, where the parties encounter unforeseen conditions or circumstances (which are not the responsibility of the contractor under the contract), the employer should have the option of modifying the works to take account of such conditions or circumstances. The contractor should, of course, be compensated with extra time and an increase in the contract price for the cost and delay caused by any variation. During the course of a construction project, there is often a debate as to 1 2

3

P.R. Hibberd, Variations in Construction Contracts (Collins, London, 1986), p. 3. O.A. Currie, N.J. Sweeney & K.P. Kurtz, "Winning Strategies for Proving and Pricing Claims" in R.F. Cushman & D.A. Carpenter eds, Proving and Pricing Construction Claims (john Wiley & Sons, New York, 1990), p. 5. See the table of actual causes of variation in Hibberd, op. cit. n. 1 above, p. 6.

369

17-01

17-02

GENERAL COMMENTS

VARIATIONS AND ADJUSTMENTS

17-03

whether a communication from the employer to the contractor constitutes an instruction or a variation. Variations, as compared to instructions, should be easier to identify and define in a turnkey situation. Since the contractor is responsible for the design and construction of the works, the amount of instruction received from the employer should be markedly reduced as compared to a traditional construction contract. When giving instructions to the contractor, the employer will need to specify the basis for his instructions under the contract. At this point the question of the nature of the work requested will come to bear. With a reduced number of instructions passing between the employer and the contractor, the confusion between an instruction and a variation should occur less often. In order to consider this power to vary, certain issues will be examined: the variation itself, the variation procedure, the concept of value engineering, the valuation of the variation made and provisional sums.

The contractor may be reluctant to accept a variation clause that gives the employer the power to completely alter the nature and shape of the project. He may wish to argue that by ordering a change so fundamental the employer is breaching the contract. A leading judgment under United States law came to such a conclusion when it stated that the contractor was entitled to the cost of the additional work because such work amounted to "a cardinal alteration falling outside the scope of the contract".9 The contractor will want to maintain some control over variations as he will be responsible for the proper incorporation of the variation into the works. If the employer makes a change in the designs, not suggested by the contractor, the contractor could be held liable for the employer's design. The contractor may wish to have control of the form the variation takes, or to specify that any changes made by the employer, unless accepted by the contractor, are at the risk of the employer.

Variations

The variation procedure

Variations are work that is not expressly or impliedly included in the work for which the contract price is payable. 4 Variations are not price changes for unforeseen circumstances or changes in legislation or even renegotiation of the contract (which are generally dealt with in specific contract clauses). Rather they are the power given to the employer to unilaterally change what is required of the contractor from what is expressed under the contract. 5 This means generally that the contractor has no say in the matter, although in some cases the applicable law will limit the variation power, requiring the contractor's consent to the variation regardless of the contract language. 6 The employer will usually be given the power to vary the works during construction. This can be done either by altering the criteria specified in the employer's requirements or by directly altering the designs. In consideration of the employer's ownership of the works, the contractor is generally not permitted to alter the works without the employer's consent. One reason for this is, perhaps the fact that "experience shows that in design-and-build owners can expect to encounter constant Contractor pressures offering 'just as good' alternatives or the pretext of supply or other difficulties, for example".7 The power to vary can be limited by the parties. They may require certain criteria to be fulfilled before permitting variation, allow the contractor to object to variation orders on reasonable grounds or require written consent by the contractor. A combination of these three methods may also be used. s

The procedure for variations may vary from contract to contract. Variations may be proposed only by the employer or by either the employer or the contractor. The variation may also be subject to a proposal by the contractor. For example, the Silver Book provides that the employer may simply order a variation, for which the contractor prepares a detailed proposal for execution and price and time modifications. Where such is the case, one author recommends the full consequences of any change be agreed to with the contractor before the variation is instructed. to The same author cautions the variation process, however, should not be unnecessarily delayed by the agreement process. Delay in this area can pose a problem, in design-build contracts, as "it is likely that the design will be proceeding only slightly ahead of the construction" .11 In the alternative, the employer may simply request the proposal to decide afterwards whether or not to order the variation. An important aspect of variation procedure is whether the contractor must agree to the variation. A turnkey contract may condition any variation upon the contractor's agreement thereto in advance, particularly with regard to related price and time changes. Nonetheless, some specific mechanism must be used to evaluate and measure necessary changes in the contract price and extensions of the time for completion resulting from variations. Most contracts also impose a writing requirement for the ordering of variations. 12 Lack of a writing requirement would cause difficulty where the contractor wishes to prove the variation; in order to obtain payment he may

• S. Furst Q.c. & V. Ramsey Q.c. eds, Keating on Building Contracts (7th ed., Sweet & Maxwell, London, 2001), p. 87. S UNCITRAL, UNCITRAL Legal Guide an Drawing Up International Contracts (or the Construction o( Industrial Works (UN, New York, 1998) UNDOC. A/CN.9/SER.B/2 (here· inafter UNCITRAL Legal Guide) at 249. 6 ibid. at 250. 7 I.N.D. Wallace, "Design-and·Build: a No-No for Owners" (1999) 4 Canst. & Eng. L. 7 at

8. • UNCITRAL Legal Guide at 250.

370

• Sadler v. United States, 287 E 2d 411 (ct. CI. 1961) as cited in L.R. Pepe & G. Haese, "Changes in Scope Claims" in R.E Cushman & D.A. Carpenter eds, Proving and Pricing Construction Claims Uohn Wiley & Sons, New York, 1990), p. 249. 10 O. Fox, "Design and Build-The Scope for Claims" (1998) 9 Construction Law 291 at 293. II ibid. at 293. 12 I.N.D. Wallace Q.c:., Hudson's Building and Engineering Contracts (11th ed., Sweet & Maxwell, London, 1995), p. 913.

371

17-04

17-05

17-06

GENERAL COMMENTS

VARIATIONS AND ADJUSTMENTS

have to prove a constructive change. \3 The enforceability of this will depend on the applicable law. 14 The contractor should in all cases obtain the variation order in writing before proceeding. The time during which the employer's power to vary should also be delimited. This power will generally last throughout the duration of the contract. However, the "duration of the contract" should be well-defined. A reasonable and more precise time limit would be up until the expiration of the defects liability period.

Value engineering 17-07

The parties may want to provide the contractor with some power to vary the works. The contractor's power to suggest variations may be open-ended, or it may be limited to specific circumstances. For example, the contractor may be permitted to suggest variations only to improve the quality, efficiency or safety of the works. In any case, the employer will always have the right to accept or reject any contractor-proposed variation. The FIDIC contracts permit contract variations but in the form of "value engineering" . The contractor's opportunity to propose changes to the works is limited to proposals that reduce cost, increase efficiency or otherwise benefit the employer. However, since the value engineering proposals generally result in a contract price decrease, there may be no strong incentive for the contractor to actively pursue variations that reduce cost. Another problem, value engineering may result in misunderstandings that lead to lawsuits, where parties fail to sufficiently identify the results of the value engineering process. IS The parties may want to provide some form of financial incentive such as the sharing between the parties of the value to the employer of any such variation.

unit rates for adjustment of price during contract negotiations. IS Often contracts use schedules of quantities included in their appendices for valuation of the contract price or payments to value a variation. The measurement and valuation of variations is often problematic, particularly if not done prior to execution of the varied work. However, if the contract requires the parties to agree on a price prior to commencement of the work contemplated by the variation the contractor may be in a position to dictate his price to a certain extent. The employer will want to include provisions requiring attempts at agreement and to be able to proceed under some default mechanism of valuation in the event the parties cannot agree. Employers may also want to be wary of imposing an expensive variation on the contractor with insufficient compensation, even where such is within its contractual right. This is because "the owner's interest in the long-term performance of the structure as well as in maintenance costs may be effected by poor design decisions".i9

Provisional sums The term "provisional sums" has been used in varying ways in different contracts and by different authors. 20 A reasonable definition would be those expenditures whose cost is not known at the time of contracting. These may be materials or items of plant to be purchased or subcontractors to be hired after the signing of the contract. A sum is generally allocated for these purchases or expenses. Where the actual cost exceeds the sum provided, the contract price is increased. 21 It is debatable how useful such sums are in a turnkey contract. As with the idea of the nominated subcontractor, the provisional sum gives the employer a role in a system organised by the contractor and gives him influence over a project whose responsibility rests almost entirely on the contractor.

17-09

Valuation of variations 17-08

Variations can often prove to be expensive, resulting in both increased cost and delay in progress of the works. In an overall analysis of the construction project, according to one estimate, more than one-third of the bases for claims by contractors emanate from variations. 16 The general rule in the United Kingdom is that work done outside the auspices of the contract must be compensated by a reasonable sumY The parties may agree on a set of M.W. Abrahamson, Engineering Law and the l.C.E. Contracts (Applied Science Publishers Ltd, London, 1979), p. 168. 1< For a general discussion and application to U.S. law, see R.E Cushman & D.A. Carpenter eds, Proving and Pricing Construction Claims (John Wiley & Sons, New York, 1990). IS M.L. McAlpine, "Construction Law: Will Design·Build Contracting Really Solve All of the Problems?" (1997) 76 MI Bar Jnl. 522, online: LEXIS at 555. 16 Hibberd, op. cit. n. 1 above p. 9. 17 Furst, Keating, op. cit. n. 4 above, p. 102.

Discussion of Specific Sub-clauses Clause 13 of the Silver Book entitled "Variations and Adjustments" sets forth FIDIC's proposed terms to be used in EPC/turnkey projects. Clause 13 covers the general variation power, value engineering and the variation procedure.

Il

372

18 19

20

21

Westring, "Turnkey Heavy Plant Contracts from the Owner's Point of View" (1990) J.C.LR. 234 at 241. McAlpine, op. cit. n. 15 above at 557. Wallace, op. cit: n. 12 above, p. 1352. ibid., p. 1352 et seq.

373

17-10

DISCUSSION OF SPECIFIC SUB-CLAUSES

VARIATIONS AND ADJUSTMENTS

It also contains provisions on related issues, such as provisional sums, daywork and other adjustments to the contract price.

17-11

13.1 Right to Vary Variations may be initiated by the Employer at any time prior to issuing the Taking-Over Certificate for the Works, either by an instruction or by a request for the Contractor to submit a proposal. A Variation shall not comprise the omission of any work which is to be carried out by others. The Contractor shall execute and be bound by each Variation, unless the Contractor promptly gives notice to the Employer stating (with supporting par· ticulars) that (i) the Contractor cannot readily obtain the Goods required for the Variation, (ii) it will reduce the safety or suitability of the Works, or (iii) it will have an adverse impact on the achievement of the Performance Guarantees. Upon receiving this notice, the Employer shall cancel, confirm or vary the instruction.

17-12

Silver Book sub-clause 13.1 indicates that variations may be initiated by the employer at any time prior to taking over. However, variations are not possible to compromise the omission of work which is to be carried out by others. The variation may be undertaken by an instruction or a request to the contractor to submit a proposal. As the FIDIC Guide points out, due to sub-clause 3.4 the instruction should state explicitly that it is a variation. 22 In addition, in order for the employer to avoid any potential design liability, variations "should be in the form of instructed changes to the employer's requirements, with which the Contractor's design must comply" .23 The contractor must execute and is bound by each variation unless the contractor gives the employer prompt notice of his objection. The contractor may object on the grounds that the goods required for the variation are not readily obtainable, the variation will reduce the safety or suitability of the works or that the variation will have an adverse impact on the achievement of the performance guarantees. Faced with a notice of the contractor's objection, the employer must cancel, confirm or vary the instruction. Yellow Book sub-clause 13.1 is identical to the Silver Book sub-clause, with the exception that it is the engineer who is the relevant actor rather than the employer. This sub-clause gives the employer a great deal of power and discretion in ordering variations. The EIC criticises the Silver Book provisions for being incongruous with the concept of an EPC contract and claims the grounds on which a contractor may contest a variation are too restrictive. 24 The contractor is limited to a certain number of specific objections that the employer l2 2J 24

FIDIC, The FIDIC Contracts Guide (Federation Internationale des Ingenieurs-Conscils, Lausanne, 2000) (hereinafter FIDIC Guide), p. 218. ibid., p. 219. EIC, The EIC Contractor's Guide to the FIDIC Conditions of Contract for EPC Turnkey Projects (European International Contractors, Berlin, 2000) (hereinafter EIG Guide), p. 24.

374

may simply discount by confirming the variation despite the notice or nature of the contractor's objection. The contractor's only recourse would then be by means of the contract's dispute resolution provisions. The variation provisions in Orange Book sub-clause 14.1 are similar to the Silver Book only in that the Orange Book permits variations to be initiated by the employer's representative during the contract period, by instruction or request for a proposal from the contractor. There is no indication in the Orange Book that a variation cannot constitute an omission of work to be performed by others. There is also no specific provision by which the contractor may object to the variation, and he may only claim time or costs after fulfilling the requirements of such a variation. 25 In addition, Orange Book 14.1 contains other conditions not found in the Silver Book sub-clause. For example, it states that the contractor may not make any alteration or modification to the work until the employer's representative instructs or approves a variation. In addition, if the employer's representative requests a variation proposal from the contractor and does not proceed with the proposed change, the contractor is reimbursed for the cost of making such proposal, including any design costs. Red Book sub-clause 13.1 contains essentially the same elements as the Silver Book provision, with the engineer empowered to instruct variations or request variation proposals. However, the contractor may only object to the variation request on the grounds that he cannot readily obtain the goods required for the variation. He may not object on the grounds that the safety or suitability of the works will be reduced or that the variation will adversely affect the schedule of guarantees. The Red Book also contains a specific list of what each variation may include, namely: (a) changes to the quality, quantities or other characteristics of work or any item thereof, (b) changes to the levels, positions and/or dimensions of any part of the works, (c) any additional work, plant, materials or services or (d) changes to the sequence or timing of the works' execution. This listing is not found in Silver Book 13.1. Under the ENAA, the employer has the right to request and subsequently to order the Contractor from time to time during the performance of the Contract to make any change, modification, addition or deletion to, in or from the Works (hereinafter called "Change"), provided that such Change falls within the general scope of the Works and does not constitute unrelated work and that it is technically practicable, taking into account both the state of advancement of the Works and the technical compatibility of the Change envisaged with the nature of the Works as specified in the Contract. (ENAA 39.1.) The contractor's express power to object under the ENAA covers only one specific grounds: The Contractor may object to any Change requested by the Owner where the aggregate effect of compliance therewith and with .all other Change Orders 2S

Dr J. Goedel, "The EIC Turnkey Contract-A Comparison with the FIDIC Orange Book" (1997) 14 I.C.L.R. 33 at 42.

375

17-13

17-14

DISCUSSION OF SPECIFIC SUB-CLAUSES

VARIATIONS AND ADJUSTMENTS

which have already become binding upon the Contractor ... would be to increase or decrease the Contract Price as originally set forth ... by more than fifteen per cenr (15%) .... (ENAA 39.7.) The contractor must give notice of such objection in writing (ENAA 39.7).1£ the owner accepts the objection, he must withdraw his proposed change and notify the contractor in writing (ENAA 39.7) ..Alth.ough not specifically stated, the contractor presumably could also obJect ~f the proposed variation was outside the general scope of the work or tec~mcally impracticable. These provisions provide a practical way of protectmg the contractor without unreasonably limiting the power attributed to the employer's representative. Although the time limitation is not entirely clear, change orders are possible under the ENAA at any time "during the performance of the Contract" (ENAA 39.1), though this period is not specifically defined. 17-15 The EIC also provides for changes to the work or variations. "The Owner has the right, at any time, by giving a written notice to the Contractor, to propose any changes, modifications, additions or omissions to, in or from the Works (hereinafter referred to as 'Variation')" (EIC 11.1.) However, there are no specific provisions regarding potential objections to the variations that may be asserted by the contractor. The EIC also does not appear to set any specific time limitation on when variations may be requested. The EIC uses a broad variation power, without any specific limit as to the nature of proposed changes. However, this broad right to vary is balanced by the fact that no variation may be implemented unless the contractor agrees as to the form of the variation, the extension of time necessary, the resultant increase in the contract price and any modification of the design that needs to be effected (EIC 11.3). The ICE provides that "{t)he Employer's Representative shall have power after consultation with the Contractor's Representative to alter the Employer's Requirements. Such alterations may include additions andlor omissions and may be ordered at any time up to the end of the Defects Correction Period for the whole of the Works" (ICE 51(1 ).) The ICE does not list any possible grounds for objection by the contractor. In addition, the actual effect of the consultation requirement on the variation is probably limited. 26 17-16 Under the AlA, changes in the work can be effected by change order, construction change directive or by order for a minor change in the contract documents (AlA 8.1.1-Part 2). A change order is based upon agreement between the employer and the contractor, whereas a construction change directive may be issued by the employer without the agreement of the contractor (AlA 8.1.2-Part 2). Orders for minor changes in the work may be issued by the contractor alone (AlA 8.1.2-Part 2). The contractor must proceed promptly

26

Mr Eggleston argues that there is an implication of a practicality and s~fety requirement by specifying consultation with the contractor. B. Eggleston, The ICE DeSIgn and Construct: A Commentary (Blackwell Scientific Publications, Australia, 1994), p. 297.

376

with the change, unless otherwise stated or agreed (AlA 8.1.3-Part 2). The AlA does not appear to place a time limit on these changes. The AGC provides that changes in the work within the general scope of the agreement may be accomplished by change order (AGC article 8). The employer may order or the contractor may request a charge order, in which event both parties are to negotiate in good faith in order to determine an appropriate adjustment to the contract price or to the dates of either substantial or final completion (AGC 8.1.2). Such negotiations are to be concluded as expeditiously as possible and neither party is to unreasonably withhold consent (AGC 8.1.2). The DBIA provides for change orders under its sub-clause 9.1 and work change directives under sub-clause 9.2. However, it also places no specific time limit on when change orders or directives may be used.

13.2 Value Engineering

17-17

The Contractor may, at any time, submit to the Employer a written proposal which (in the Contractor's opinion) will, if adopted, (i) accelerate completion, (ii) reduce the cost to the Employer of executing, maintaining or operating the Works, (iii) improve the efficiency or value to the Employer of the completed Works, or (iv) otherwise be of benefit to the Employer. The proposal shall be prepared at the cost of the Contractor and shall include the items listed in Sub-Clause 13.3 [Variation Procedure]. Silver Book sub-clause 13.2 provides the contractor with the opportunity to make proposals to the employer that may accelerate completion, reduce the employer's costs, improve the efficiency of the works or otherwise benefit the employer. The contractor bears the costs of such proposals and must submit these in accordance with the procedures for variation proposals. In order to defray the cost of fully detailed proposals, the contractor may prefer to put forward any proposal in discrete (and therefore less costly) stagesP As the contractor designs and controls the construction of the works, he may discover Qr develop more effective or inexpensive means of construction. The employer will want to try and benefit from such discoveries. He may also want to provide an incentive for the contractor to search for alternative methods and share those discovered. The Silver Book's value engineering provisions in their present state do not really provide the contractor with any incentive to make such proposals. Although the last sentence of Silver Book sub-clause 13.3 does allude to some compensation where contractor proposals under the value engineering provision are incorporated in variations, the extent and nature of this compensation is unclear. Parties, therefore, may wish to alter the provisions of this sub-clause in order to provide such incentive. 28

27

28

FIDIC Guide, op. cit. n. 22 above, p. 220. EIC Guide, op. cit. n. 24 above, p. 25.

377

17-18

VARIATIONS AND ADJUSTMENTS

17-19

17-20

Orange Book sub-clause 14.2 contains provisions substantially similar to Silver Book 13.2, with the exception that the proposals are submitted to the employer's representative. Red and Yellow Book sub-clauses 13.2 are identical to Silver Book 13.2, with the exception of the submission being made to the engineer. Red Book sub-clause 13.2 contains additional provisions for when such a proposal might include a change to the design of the works. In this case, under the Red Book the contractor must design this part and be responsible therefore as provided in the contract. _Red Book sub-clause 13.2(c) also provides a system for adding to the contract price a fee concerning this design modification. Such a fee represents "how any savings in the part's 'contract value' is to be shared"29 or, alternatively, may be considered a "profit sharing arrangement" .30 The Red Book mechanism of paragraph (c) rewards the contractor with 50 per cent of the net benefit to the employer. In this way the fact that, for example, "a cheaper turbine may mean increased maintenance so the net benefit of the alternative may be less than the saving in capital cost" is taken into account. 31 The equivalent Silver and Yellow Book provisions can be found in the last sentence of sub-clauses 13.3,32 but only allot the contractor reasonable profit. The ENAA contains a provision similar to Silver Book sub-clause 13.2: The Contractor may from time to time during its performance of the Contract propose to the Owner any Change which the Contractor considers necessary or desirable to improve the quality, efficiency or safety of the Works. The Owner may at its discretion approve or reject any Change proposed by the Contractor, provided that the Owner shall approve any Change proposed by the Contractor to ensure the safety of the Works. (ENAA 39.2.) The ElC also contains a contractor variation provision, but with more procedural detail than the ENAA: The Contractor may suggest any Variation(s) it considers necessary or desirable during the execution of the Contract. Any such Variation(s) shall be submitted for the approval of the Owner together with an explanation of the ground therefore, the cost of such Variation(s), any required extension of the Time for Completion and/or any changes of the Design. The Owner shall approve and/or comment in writing to the Contractor within 28 (twenty-eight) days of the receipt of the proposal. The proposed Variation(s) shall be considered valid only if approved by the Owner. (EIC 11.2.)

29

30

FlDIC Guide, op. cit. n. 22 above, p. 221.

P.L. Booen, "FIDIC's Conditions of Conrract for the Next Cenrury: 1998 Test Editions" (1999) 16 (1) I.C.L.R. 5 at 18.

31

J2

E. Corbert, "FIDIC's New Rainbow-An Overview of the Red, Yellow, Silver and Green Test Editions" (1999) 16 (1) I.C.L.R. 39 at 43 . FIDIC Guide, op. cit. n. 22 above, p. 221.

378

DISCUSSION OF SPECIFIC SUB-CLAUSES

The AlA indicates that an order for a minor change in the work may be issued by the contractor alone (AlA 8.1.2-Part 2). This is similar to the above contractor variation proposal provisions, yet less broad in that it applies only to minor changes. The procedure for these minor changes is contained in the following section. The ICE, AGC and DBIA contain no value engineering provisions similar to Silver Book sub-clause 13.2.

13.3 Variation Procedure

17-21

If the Employer requests a proposal, prior to instructing a Variation, the Contractor shall respond in writing as soon as practicable, either by giving reasons why he cannot comply (if this is the case) or by submitting: (a) a description of the proposed design and/or work to be performed and a programme for its execution, (b) the Contractor's proposal for any necessary modifications to the programme according to Sub-Clause 8.3 [Programme] and to the Time for Completion, and (c) the Contractor's proposal for adjustment to the Contract Price.

The Employer shall, as soon as practicable after receiving such proposal (under Sub-Clause 13.2 [Value Engineering] or otherwise), respond with approval, disapproval or comments. The Contractor shall not delay any work whilst awaiting a response. Each instruction to execute a Variation, with any requirements for the recording of Costs, shall be issued by the Employer to the Contractor, who shall acknowledge receipt. Upon instrllcting or approving a Variation, the Employer shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine adjustments to the Contract Price and the Schedule of Payments. These adjustments shall include reasonable profit, and shall take account of the Contractor's submissions under Sub-Clause 13.2 [Value Engineering] if applicable. Silver Book sub-clause 13.3 provides the proced~e regarding variations under the contract. If the employer requests a variation proposal from the contractor prior to instructing the variation, the contractor must as soon as practicable either give notice of his objection with reasons or submit his variation proposal. The variation proposal must include a description of the proposed design and/or work, a programme for its execution and any necessary modifications to the current programme, time for completion and contract price. As soon as practicable, the employer must respond to the contractor's proposal with approval, disapproval or comments. In any event, the contract may not delay any work while awaiting the employer's response. Due to the costs associated with the contractor's obligation to prepare a work plan corresponding to the variation (a plan which, ultimately, may not be accepted) the contractor may want the employer to be "made aware at the time of 379

17-22

VARIATIONS AND ADJUSTMENTS

17-23

17-24

Tender that the Contractor will expect to recover such additional expenditure" .33 Each instruction to execute a variation will be issued by the employer to the contractor who must acknowledge its receipt. Upon instructing or approving a variation, the employer must proceed in accordance with subclause 3.5 "Determinations" to agree or determine the contract price adjustment which shall include reasonable profit. Although any extension of time proposed by the contractor would be accepted by the employer in the case of a contractor variation proposal approved by the employer, this sub-clause does not explicitly cover an extension of time for an employer-instructed variation. However, Silver Book subclause 8.4 "Extension of Time for Completion" fills the gap, indicating clearly that the contractor is entitled to an extension of the time for completion in the case of an employer-instructed variation. Orange Book sub-clause 14.3 contains identical provisions to Silver Book sub-clause 13.3, with a couple of minor exceptions. First, it is the employer's representative who is the relevant actor for requesting variation proposals, approving or disapproving them or instructing variations without proposals. In addition, there is no specific indication in the Orange Book sub-clause that the contractor must not delay any work while awaiting a response regarding his proposal nor any requirement that the contractor acknowledge receipt of the instruction from the employer's representative. Otherwise, the Orange Book is identical in content to the Silver Book regarding variation procedures. Red and Yellow Book sub-clauses 13.3 are identical to the Silver Book provision, with the exception that the engineer is the relevant actor empowered to instruct variations rather than the employer. The Red Book contains one additional difference from the other three contracts discussed above. Rather than having the engineer proceed with a determination of the contract price adjustment, the variation is valued in accordance with clause 12 "Measurement and Evaluation". This Red Book clause is not contained in the Silver, Orange and Yellow Books and will be discussed in more detail in Chapter 18. Under the ENAA, if either party proposes a variation/change: the Contractor shall prepare and furnish to the Owner as soon as reasonably practicable a written statement setting out full details of any such Change, the reasons therefor if proposed by the Contractor, the work and/or Materials required or no longer required, an estimate of the increase or decrease in the Contract Price, any requisite adjustment to the Time for Completion, and any proposed modifications to the Contract and/or any effect such Change would have on the Works andlor on any other provisions of the Contract if the contemplated Change is effected, as the case may be. (ENAA 39.4.) To the extent possible, the amount to be added or deducted from the contract price for the change is calculated in accordance with an appendix to the ENAA specifying unit rates for changes (ENAA 39.5). If the

33

EIe Guide, op. cit. n. 24

380

above,

p. 25 .

DISCUSSION OF SPECIFIC SUB-CLAUSES

unit rates are unavailable or inequitable, the parties must agree upon specific rates for the valuation of the change (ENAA 39.5). If the parties come to an agreement on all the terms of the variation, the employer must issue a change order giving effect to the change (ENAA 39.6). The change order must contain full particulars of the change, any adjustment of the contract price and/or time for completion and all other modifications to the contract (ENAA 39.6). Both parties must also sign the change order (ENAA 39.6). If the contractor fails to furnish the required statement detailing his proposal for the change or if the parties cannot come to agreement on the terms, the employer may decide whether or not to effect the change (ENAA 39.8). The employer "may issue a written instruction to the Contractor to carry out the change pending agreement on such matters with the Contractor" (39.8). If the parties do not reach an agreement on the terms within 60 days of the employer's change instruction concerning the contract price adjustment or other matters, either party may refer the dispute to an expert for resolution in accordance with the contract terms (ENAA 39.8). The contractor will also be entitled to reimbursement for all costs incurred to prepare a statement for a change proposal if the employer requests the change but does not subsequently order the change, provided that the contractor gives the employer prior notice of his intention to claim such costs (ENAA 39.9). Finally, under the ENAA, "no change made necessary due to any default of the Contractor in the performance of its obligations under the Contract shall be deemed to be a Change and such change shall not result in any adjustment of the Contract Price or the Time for Completion" (ENAA 39.3). Under the EIC, whenever the employer wishes to make a variation in the 17-25 work, he must notify the contractor in writing, describing the variation desired in sufficient detail so as to enable the contractor to appraise its nature and extent (EIC 11.1.1). Within 28 days of this notice of proposed variation, the contractor must inform the employer of the cost, incl(Jding a reasonable cost breakdown, in a form mutually agreed indicating adjustment of the contract price, any required extension of the time for completion and/or changes of the design (EIC 11.1.2). Within 28 days of the employer's receipt of this information, the employer shall approve the execution of the variation in accordance with the terms set out by the contractor or on such other terms as the employer and the contractor may agree in writing (EIC 11.1.2). The contractor cannot execute any variation until the approval for the variation is given and the terms of the execution and the payment agreed in writing (EIC 11.3). After the em~loy'er's approval, the contract price, the time for completion and any other oblIgatIons under the contract are modified to the extent agreed, and the contractor promptly executes the variation and must revise the contract documents as necessary (EIC 11.4). Any contract price adjustment for a variation shall take into account the contractor's overhead and profit (EIC 14.4). .AIl variations under the ICE must be ordered in writing (ICE 51(2)). "[TJhe 17-26 fair and reasonable value (if any) of all such variations shall be taken into account in ascertaining the amount of the Contract Price except to the extent 381

DISCUSSION OF SPECIFIC SUB-CLAUSES VARIATIONS AND ADJUSTMENTS

that such alteration is necessitated by the Contractor's default" (ICE 51(4).) "If requested by the Employer's Representative the Contractor shall submit his quotation for the work as altered and his estimate of any dela~. Wherever possible the value and delay consequences (if any) of each alteration shall be agreed before the order is issued or before work starts" (I~E 52(1).) .U~der the ICE, absent agreement and in all other cases, the valuation of varIations ordered by the employer's representative are ascertained as follows: As soon as possible after receipt of the alteration order the Contractor shall submit to the Employer's Representative (i) his quotation for any extra or substituted works necessitated by the alteration having due regard to any rates or prices included in the Contract (ii) his estimate of the cost of any such delay occasioned thereby and (iii) his estimate of the cost of any such delay. Within 14 days of receiving the said submissions the Employer's (b) Representative shall (i) accept the same or (ii) negotiate with the Contractor thereon. Upon reaching agreement with the Contractor the Contract Price shall (c) be amended accordingly. Failing agreement the Employer's Representative shall notify the (d) Contractor of what in his opinion is a fair and reasonable valuation and thereafter shall make such interim valuations for the purposes of Clause 60 as may be appropriate.

(a)

17-27

(ICE 52(3).) As stated earlier, the AlA provides both for change orders and construction change directives. A change order is a written instrument prepared by the contractor and signed by both parties stating their agreement upon the change in the work and the adjustments, if any, to t~e contract pri.ce a~d t~me for completion (AlA 8.2.1-Part 2). "A constructIOn change dIrective IS a written order prepared and signed by the owner, directing a change in the work prior to agreement on adjustment, if any, in the contract sum or contract time, or both" (AlA 8.3.1-Part 2.) With regard to valuation of changes under the AlA: Except as otherwise agreed by the Owner and the Design/Builder, the adjustment to the Contract Sum shall be determined on the basis of reasonable expenditures and savings of those performing the Work attributable to the change, including the expenditures for design services and revisions to the Contract Documents. In case of an increase in the Contract Sum, the cost shall include a reasonable allowance for overhead and profit .... (AlA 8.3.2-Part 2.) In the case of a change order, "[wJhen Owner and the Design/Builder agree upon the adjustments in the Contract Sum and Contract Time, such agreement shall be effective immediately and shall be recorded by preparation and execution of an appropriate Change Order" (AlA 8.3.4-Part 2). However, if the 382

employer requests a proposal for a change from the contractor and decides not to proceed with the change, a change order is issued to reimburse the contractor for any costs incurred for estimating services, design services or preparation of proposed revisions to the contract documents (AlA 8.2.2-Part 2). , The contract~r also has the authority under the AlA to make minor changes 10 the construction documents and construction consistent with the intent of the contract documents when such minor changes do not involve adjustment in the contract price or extension of the time for completion (AlA 8A.1-Part 2). The contractor shall promptly inform the owner of this in writing (AlA 8A.I-Part 2). The AlA also contains provisions regarding "additional services" in relation to the Part 1 preliminary design and budgeting services (AlA lA-Part 1) and the Part 2 final design and construction services (AlA 3.3Part 2), which are paid for separately by the owner if requested. Under ~he AGC, increases or decreases in the contract price resulting from a change 10 the work are determined either by (I) unit prices set forth in this agreement or as subsequently agreed or (2) a mutually accepted, itemised ~ump, sum (AGC 8.4.1). However, if an increase or decrease cannot be agreed 10 thIS manner and the owner issues a written order for the contractor to pr,oceed with the change, the adjustment in the contract price shall be determmed by the reasonable expense and savings of the performance of the work resulting from the change (AGC 8.4.1.3). If there is a net increase in the contract price, a reasonable adjustment shall be made in the contractor's overhead and profit, but not for a net decrease in cost (AGC 8.4.1.3). Where the contractor and owner disagree as to whether work required by the own~r is wit?in the scope of the work, the contractor shall provide the owner WIth a WrItten order from the owner, shall un'dertake such work. The contractor is to be paid 50 per cent of his estimated cost for such work and both parties reserve their respective rights as to whether the work was w'ithin the scope of work (AGC 8.4.3). Under the DBIA, a "change order" is a written instrument signed by owner ~nd design-builder, stating their agreement upon (1) the scope of the change 10 the work, (2) the a,?ount of the adjustment to the contract price ~nd (3) the exte~t of t~e adJustment to the contract time (DBlA 9.1.1). ,Owner and ~eslgn-BUllder shall negotiate in good faith and as expeditiously as pOSSIble the appropriate adjustments for such changes" (DBlA 9.1.2.) If ~he owner requests a change and subsequently decides not to pro~eed w,lth the change, "a Change Order shall be issued to reimburse Des~gn-Bullder f?r r~asonable, costs incurred for estimating services, design servIces and servIces IOvolved 10 the preparation of proposed revisions to the Contract Documents" (DBIA 9.1.3). ~he DBIA also uses "work change directives", A work change directive is "a w~ltten order prepared and signed by Owner, directing a change in the Work p~lOr to agreement on an adjustment in the Contract Price and/or the Contract T~~e(s)" (DBIA 9',2.1). The parties must "negotiate in good faith and as expedl~lOu~ly as pOSSIble, the appropriate adjustments for the Work Change Dlrectlv~. Upon reachmg an agreement, the parties shall prepare and execute an approprIate Change Order reflecting the terms of the agreement". (DBIA 9.2.2.) 383

17-28

17-29

VARIATIONS AND ADJUSTMENTS

Like the AlA, the contractor is permitted under the DBIA to execute minor changes in the work that do not involve an adjustment in the contract price or the time for completion or "materially and adversely affect the Work, including the design, quality, performance and workmanship required by the Contract Documents" (DBIA 9.3.1). However, the contractor must promptly inform the owner in writing of any such changes and record such changes on the documents maintained by the design-builder (DBIA 9.3.1). Increases or decreases in the contract price resulting from a change in the work are determined by one of the following methods under the DBIA: .1 .2 .3 .4

Unit prices set forth in the Agreement or as subsequently agreed to between the parties; A mutually accepted, lump sum, properly itemized and supported by sufficient substantiating data to permit evaluation by Owner; Costs, fees and any other markups set forth in the Agreement; and If an increase or decrease cannot be agreed to as set forth in items .1 through .3 above and Owner issues a Work Change Directive, the cost of the change of the Work shall be determined by the reasonable expense and savings in the performance of the Work resulting from the change, including a reasonable overhead and profit, as may be set forth in the Agreement.

DISCUSSION OF SPECIFIC SUB-CLAUSES

which might contain currency specifications (EIC 15.1). The EIC further provides: When the Contract Price is expressed in a particular currency then unless the parties otherwise agree payment shall be made in that currency at the place stipulated by the Contractor and where there is more than one currency the Contract Price shall be paid in such currency of the Contractor's choice at the place stipulated in the Terms of Payment. (EIC 15.2.) The ICE, AlA, AGC and DBIA contain no provisions comparable to Silver Book sub-clause 13.4.

13.5 Provisional Sums Each Provisional Sum shall only be used, in whole or in part, in accordance with the Employer's instructions, and the Contract Price shall be adjusted accordingly. The total sum paid to the Contractor shall include only such amounts, for the work, supplies or services to which the Provisional Sum relates, as the Employer shall have instructed. For each Provisional Sum, the Employer may instruct: (a) work to be executed (including Plant, Matedals or services to be supplied) by the Contractor and valued under Sub-Clause 13.3 [Variation Procedure]; and/or (b) Plant, Materials or services to be purchased by the Contractor, for which there shall be added to the Contract Price less the original Provisional Sums: (i) the actual amounts paid (or due to be paid) by the Contractor, and (ii) a sum for overhead charges and profit, calculated as a percentage of these actual amounts by applying the relevant percentage rate (if any) stated in the Contract. The Contractor shall, when required by the Employer, produce quotations, invoices, vouchers and accounts or receipts in substantiation.

(DBIA 9.4.1.) The DBIA also provides detailed dispute resolution provisions in the event of disagreement between the parties regarding changes (DBIA 9.4.3).

17-30

13.4 Payment in Applicable Currencies If the Contract provides for payment of the Contract Price in more than one currency, then whenever an adjustment is agreed, approved or determined as stated above, the amount payable in each of the applicable currencies shall be specified. For this purpose, reference shall be made to the actual or expected currency proportions of the Cost of the varied work, and to the proportions of various currencies specified for payment of the Contract Price.

17-31

Silver Book sub-clause 13.4 applies in the event the contract price is paid in more than one currency and a variation is instructed resulting in a change in the contract price. In such a case, the variation must specify the currency of payment. In doing so, the proportion of the various currencies for the varied work should be taken into consideration as well as the proportions of various currencies specified in the contract price. Red and Yellow Book subclauses 13.4 are identical to Silver Book 13.4. Orange Book sub-clause 14.4 is substantially identical. The ENAA contains no specific terms concerning currencies of payment. It contemplates, rather, an Appendix 4 to the general conditions setting forth the payment terms. Similarly, the EIC should contain an appendix entitled "Terms of Payment",

384

17-32

The contract may provide for provisional sums to be paid to the contractor by the employer during construction for use on a specified aspect of the works. The use of provisional sums will provide the employer with increased control over the aspects of the works in question, as he will have defined power over the application of provisional sums. For example, where the employer wants to maintain control over the purchase of specific equipment to be installed in a power plant, he can provide for provisional sums. Through the use of provisional sums, the employer will be able to choose the supplier and materials used. In the Silver Book "Guidance Notes", FIDIC provides a brief explanation of "provisional sums". FIDIC states that provision sllms are generally inappropriate for EPClturnkey contracts. 34 However, they may be used for parts 3'

FIOIC, Conditions of Contract for Epcrrurnkey Projects, "Guidance for the Preparation of Particular Conditions", p. 13.

385

17-33

VARIATIONS AND ADJUSTMENTS

17-34

of the works which are not required to be priced at the risk of the contractor. "For example, a provisional sum may be necessary to cover goods which the Employer wants to select. It is essential to define the scope of each Provisional Sum, since the defined scope will then be excluded from other elements of the Contractor Price. "35 Silver Book sub-clause 13.5 indicates that each provisional sum will be used only in accordance with the employer's instructions, and the contract price shall be adjusted accordingly. Presumably, the contract price would be subject to adjustment to the extent an element of the works originally included in the contract price became later subject to an employer's instruction covered by a provisional sum. The provisional sum is paid to the contractor and includes only such amounts for the works, supplies or services implicated by the sum as instructed by the employer. For each provisional sum, the employer may instruct that the work be executed and valued in one of two ways. The first method would be to value the instructed work according the sub-clause 13.3 variation procedures. The alternative valuation method is for the contractor to purchase the plant, materials and/or services. The contractor adds his overhead charges and profit determined as a percentage stated in the particular conditions multiplied by the actual amount spent by the contractor. The original provisional sum paid by the employer is subtracted from the cost plus profit calculation, and this remainder is added to the contract price. Orange Book sub-clause 14.5 and Red and Yellow Book sub-clauses 13.5 all contain provisions substantially identical to the Silver Book regarding provisional sums. Under the Red and Yellow Books, however, "if the amount stated in a Provisional Sum is exceeded, the Contractor must still comply with the Engineer's instructions which he received under sub-paragraph (a) and/or (b), but he may not be bound by the financial consequences under this Sub-Clause in respect of this excess". 36 The ENAA contains no express provisions for provisional sums. The closest concept in the ENAA would be the provisions for long lead items under ENAA 21.3. Long lead items are items ordered by the employer prior to contract signature for which the purchase contract is assigned to, or novated in, the contractor's name after the effective date of the main contract. The cost of these items generally falls outside the contract price. The ICE contains a short sub-clause for contingency and prime cost items, which bears some resemblance to provisional sums. The ICE defines a "Prime Cost Item" as "an item in the Contract which contains (either wholly or in part) a sum referred to as Prime Cost (PC) which will be used for the supply of goods, materials or services for the Works" (ICE 1(i)). Contingency sums may be included and designated as sums used to carry out work or for the supply of goods, materials or services in accordance with specific requirements stated in the contract (ICE 1(j)). The EIC, AlA, AGC and DBIA contain no provisions for provisional sums. )5 )6

ibid. FJD1C Guide, op. cit. n. 22 above, p. 225.

386

DISCUSSION OF SPECIFIC SUB-CLAUSES

13.6 Daywork

17-35

For work of a minor or incidental nature, the Employer may instruct that a Variation shall be executed on a daywork basis. The work shall then be valued in accordance with the daywork schedule included in the Contract, and the following procedure shall apply. If a daywork schedule is not included in the Contract, this Sub-Clause shall not apply. Before ordering Goods for the work, the Contractor shall submit quotations to the Employer. When applying for payment, the Contractor shall submit invoices, vouchers and accounts or receipts for any Goods. Except for any items for which the daywork schedule specifies that payment is not due, the Contractor shall deliver each day to the Employer accurate statements in duplicate which shall include the following details of the resources used in executing the previous day's work: (a) the names, occupations and time of Contractor's Personnel, (b) the identification, type and time of Contractor's Equipment and Temporary Works, and (c) the quantities and types of Plant and Materials used. One copy of each statement will, if correct, or when agreed, be signed by the Employer and returned to the Contractor. The Contractor shall then submit priced statements of these resources to the Employer, prior to their inclusion in the next Statement under Sub-Clause 14.3 [Application for Interim Payments]. Silver Book sub-clause 13.6 permits the employer to instruct a variation 17-36 for minor and incidental work on a daywork basis. The work is valued in accordance with a daywork schedule included in the contract. However, this sub-clause is only applicable if such a schedule is provided. Furthermore, the FIDIC Guide asserts that the wording "the variation shall" means such work must be both ordered through a variation and be prospective. 3' Under the daywork procedure, the contractor must submit quotations for goods required, and for payment the contractor submits invoices, vouchers and receipts for any goods. Provided that payment is due to the contractor for the work under the daywork schedule, the contractor must submit to the employer in duplicate daily details of the resources used in the previous day's work, such as names and times for contractor's personnel and equipment and the quantity and types of materials used. One copy of the details is then signed by the employer and included by the contractor in his next application for interim payment. Red and Yellow Book sub-clauses 13.6 are identical to the Silver Book provision, except for reference to the engineer as the relevant actor rather than the employer. The Orange Book contains no provision comparable to Silver Book sub-clause 13.6. T~~ ICE permits ~he employer's representative to order in writing that any 17-37 additional or substituted work be executed on a daywork basis, if in his opinion it is necessary or desirable (ICE 52(4)). The ICE further states: )7

FlD1C Guide, op. cit. n. 22 above, p. 227.

387

VARIATIONS AND ADJUSTMENTS

Where any work is carried out on a daywork basis the Contractor shall be paid for such work under the conditions and at the rates and prices set out in the daywork schedule included in the Contract or failing the inclusion of a daywork schedule he shall be paid at the rates and prices under the conditions contained in the "Schedule of Dayworks carried out incidental to Contract Work" issued by the Federation of Civil Engineering Contractors current at the date of the execution of the daywork. (ICE 56(3).) The contractor is responsible for providing the employer's representative with justification of the amounts paid or costs incurred and must also be required to submit quotations for approval prior to ordering materials (ICE 56(3)). The ENAA, EIC, AlA, AGC and DBIA contain no provisions regarding daywork.

17-38

13.7 Adjustments for Changes in Legislation

The Contract Price shall be adjusted to take account of any increase or decrease in Cost resulting from a change in the Laws of the Country (including the introduction of new Laws and the repeal or modification of existing Laws) or in the judicial or official governmental interpretation of such Laws, made after the Base Date, which affect the Contractor in the performance of obligations under the Contract. If the Contractor suffers (or will suffer) delay and/or incurs (or will incur) additional Cost as a result of these changes in the Laws or in such interpretations, made after the Base Date, the Contractor shall give notice to the Employer and shall be entitled subject to Sub-Clause 20.1 [Contractor's Claims] to: (a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 8.4 [Extension of Time for Completion), and (b) payment of any such Cost, which shall be added to the Contract Price. After receiving this notice, the Employer shall proceed in accordance with SubClause 3.5 [Determinations) to agree or determine these matters.

Silver Book sub-clause 13.7 indicates clearly that the contract price will be adjusted for increases or decreases in cost resulting from changes in local law after the base date 38 which affect the contractor's performance obligations. If the contractor suffers an increase in cost or delay, he is entitled to an extension of the time for completion and/or the payment of any such cost. Red and Yellow Book sub-clauses 13.7 and Orange Book sub-clause 13.16 are identical in content to the Silver Book provision, with the exception that the engineer and employer's representative are the relevant actors, respectively, rather than the employer.

38

"Base Date" means the date 28 days prior to the latest date for submission of the tender (5B 1.1.3.1 ).

388

DISCUSSION OF SPECIFIC SUB-CLAUSES

The ENAA contains a similar, yet perhaps more comprehensive provision:

17-39

If, after the date of the Agreement, in any country where the Plant or any part thereof is to be manufactured or in the country where the Site is located, any law, regulation, ordinance, order or by-law having the force of law is enacted, promulgated, abrogated or changed (which shall be deemed to include any change in interpretation or application by the competent authorities) which subsequently affects the costs and expenses of the Contractor and/or the Time for Completion, the Contract Price shall be correspondingly increased or decreased and/or the Time for Completion shall be reasonably adjusted to the extent that the Contractor has thereby been affected in the performance of any of its obligations under the Contract. (ENAA 36.1.) The ENAA also provides specifically for an adjustment of the contract price (increase or decrease) due to changes in tax laws affecting the contractor, subcontractors or their employees in connection with the performance of the contract (ENAA 14.4). Note also that the scope of the ENAA clause is wider in that adjustments are not limited to those due to changes in the law of the country where the site is located. The EIC also contains very comprehensive provisions regarding the effect of changes in law, similar to the ENAA: If, after 28 (twenty-eight) Days prior to the date of the submission by the Contractor of the Design Elements (Tender Design) or any time thereafter including after the signing of the Contract Agreement for the Contract 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 by-law of any local or other duly constituted authority, or the introduction of any such State Statute, Ordinance, Decree, Law, regulation or by-law which causes additional or reduced cost to the Contractor in the execution of the Contract, such additional or reduced cost shall after consultation with the Owner and the Contractor, be added to or deducted from the Contract Price and the Contractor shall be entitled to an extension of time for delay arising as a consequence to completion of the Works. (EIC 12.14.) Again similar to the ENAA, the EIC aontains a specific subclause permitting an equitable increase or decrease of the contract price in the event changes in tax law affect the contractor, sub-contractor or their employees in connection with the contract's execution (EIC 16.4). The ICE does not contain a provision indicating specifically that the contractor will be entitled to an extension of time and payment of costs in the event of a change in law delaying or increasing the cost of the contractor's performance. However, the contractor is generally allowed an extension of the time for completion for "other special circumstances of any kind whatsoever which may occur" (ICE 44(1)(e)). The contractor can also request an increase of the contract price subject to a determination by the employer's representative, although this is only a right to request the increase but not necessarily to obtain it (ICE 53). Furthermore, if a change in law rendered some aspect of the employer's requirements illegal or otherwise contrary to

389

17-40

VARIATIONS AND ADJUSTMENTS

17-41

the law, a different ICE sub-clause would become applicable under which the employer's representative must "issue such instructions including the ordering of an alteration [... J as may be necessary to ensure conformity with such Act, Regulation or Bye-law" (ICE 26(3)(b)). The ICE also contains a provision indicating that if there are changes in tax levels occurring after the date for return of tenders "the net increase or decrease shall be taken into account in arriving at the Contract Price" (ICE 69(2)). However, it is unclear under this provision whether this adjustment is continually possible throughout the duration of the contract or whether it serves only as a means to adjust the initial contract price subsequent to tender. The AlA contains a more simplistic change of law provision. It states that "[t)he Design/Builder shall be compensated for changes in the construction necessitated by the enactment or revision of codes, laws or regulations subsequent to the submission of the Design/Builder's Proposal" (AlA 8.6.1Part 2). The AGC contains no specific provision for changes in legislation. However, this would possibly be covered by AGC 6.3.1, which states that "[i)f causes beyond the Contractor's control delay the progress of the Work, then the Contract Price and/or the date of Substantial Completion shall be modified by Change Order as appropriate". The DBIA also contains a sub-clause dealing with changed laws or regulations. It states: The Contract Price andlor Co~tract Time(s) shall be adjusted to compensate Design-Builder for the effects of any changes in the Legal Requirements enacted after the date of the Agreement affecting the performance of the Work, or if a Guaranteed Maximum Price is established after the date of the Agreement, the date the parties agree upon the Guaranteed Maximum Price. Such effects may include, without limitation, revisions Design-Builder is required to make to the Construction Documents because of changes in Legal Requirements.

DISCUSSION OF SPECIFIC SUB-CLAUSES

reflect rising costs due to inflation. 39 However, such adjustments are not required under the Silver Book. The Orange Book takes the opposite approach stating that the contract price "shall not" be adjusted for these things (OB 13.1). Red and Yellow Book sub-clauses 13.8 are identical to each other but very different from the Silver Book provision. The terms ot Red and Yellow Book sub-clauses 13.8 are applicable only if the Appendix to Tender contains a "table of adjustment data". If so, amounts payable to the contractor will be adjusted for increases or decreases in the cost of labour, goods and other inputs to the works, by the addition or deduction of amounts determined by formulae prescribed in Red and Yellow Book sub-clauses 13.8. If any increase or decrease is not covered by these formulae or by other provisions in the contract, the accepted contract amount (contract price) is deemed to have included amounts to cover this contingency. Red and Yellow Book sub-clauses 13.8 then set forth formulae for the valuation of adjustments, with the proviso that such do not apply to work valued on the basis of cost or current prices. The formulae consists of a number of different factors and values, some of which must be stated in the table of adjustment data, which ultimately produce an adjustment multiplier to be applied to the estimate contract value of a particular period of work. For the complete formulae, please refer to Red or Yellow Book sub-clause 13.8. 40 If applicable and agreed between the parties, the ENAA Agreement indicates that "the Contract Price shall be adjusted in accordance with the escalation formula specified in Appendix 2 (Escalation Clause) hereto" (ENAA 3.6 cal. Presumably, this escalation clause might be drafted to cover rises or falls in the cost of labour, goods and other inputs to the work, if the parties so desired. The EIC, ICE, AlA, AGC and DBIA contain no provisions comparable to Silver Book 13.8.

(DBIA 2.5.2.) 17-42

13.8 Adjustments for Changes in Cost If the Contract Price is to be adjusted for rises or falls in the cost of labour,

Goods and other inputs to the Works, the adjustments shall be calculated in accordance with the provisions in the Particular Conditions. Silver Book sub-clause 13.8 states simply that if the contract price is to be adjusted for increases or decreases in the costs of construction inputs, the adjustments will be calculated in accordance with provisions in the particular conditions. Therefore, if the parties desire such adjustments, they must include specifications in the particular conditions on the manner in which these adjustments will be calculated. The FIDIC Guide recommends the incorporation of the provisions of Yellow Book sub-clause 13.8, should parties wish to include formulae for the adjustment of the contract values to 390

)9

40

n. 22 above, p. 231. And for a discussion of same, see ibid., p. 231.

FIDIC Guide, op. cit.

391

17-43

17-44

VARIATIONS AND ADJUSTMENTS

17-45

Figure 17.1

Variations under the FIDIC Silver Book

IEmployer or contractor feel a change ro the works may be necessary or desirable.

CHAPTER

18

CONTRACT PRICE AND PAYMENT /' Is the variation contemplated by: a) employer instruction; r+ b) employer request for proposal;

INSTRUCTION

General Comments

c) contractor's value engineering

proposal?

Pricing is a central element of any construction contract. This includes both the determination of the price itself as well as the method chosen for payment of such price. This chapter will examine the pricing and payment methods used in standard turnkey form contracts in the context of the specific provisions of the FIDIC Silver Book. Additional discussion of some of the various pricing and payment methods used in construction contracts is also included in Chapter 1. The issues to be considered include the following: the pricing method (lump-sum price), the adjustment of the price for unforeseen or unforeseeable circumstances, the payment of the price, the interim payment procedure, retention money to be withheld from payments, the use of advance payments, and final payment and discharge.

I

Contractor's proposal or

<m,[o""",,I'"' ,.0,0"[ Does the contractor give

Contractor submits: a) description of proposed design andlor work b) execution programme c) proposed modifications to current programme and time for completion d) proposed adjustment to contract price.

prompt notice of an objection permissible under the contract?

YES

NO

18-01

Lump-sum price

Employer shall cancel, confirm or vary the

instruction.

Disapproval or

Employer approves disapproves or comments.

-

comments

APPROVES

Employer shall issue instruction. Contractor shall acknowledge receipt and is bound by the instruction.

Contractor

executes variation.

1 Contract price increase plus

profit and extension of time determined or agreed.

392

VARIED

Construction contracts are priced either on the basis that the price is fixed by or ascertainable from the contract or on the basis that the contract is silent about the price and any price must be inferred. I Turnkey and EPC projects generally provide for a fixed lump-sum price. This price will not be altered by changes in circumstances, unless provided for in the contract. Variations may be priced in a number of ways, including in accordance with a negotiated amount, by a schedule of prices or by the actual cost plus profit of the variation (see Chapter 17). The contract may provide for indexation of the lump-sum price. The indexation formula may be based on the rise in the cost of construction or other cost considerations. As discussed earlier, the concept of single-point responsibility simplifies the design and construction tasks for the employer, placing most of the verification and oversight duty on the contractor, but resulting in an increase in cost commensurate with this responsibility.2 The use of lump-sum pricing 1

2

I.N.D. Wallace Q.C., Hudson's Building and Engineering Contracts (lIth ed., Sweet & Maxwell, London, 1995), p. 960. I.N.D. Wallace, Construction Contracts: Principles and Policies in Tort and Contract (Sweet & Maxwell, London, 1986), p. 399.

393

18-02

18-03

GENERAL COMMENTS

CONTRACT PRICE AND PAYMENT

18-04

places on the contractor the financial risk of the assessment of quantities. By transferring this risk to the contractor, the employer receives a more certain price. 3 The contractor bears the risk of changes in the cost of materials and labour as well as currency fluctuations during the period between contracting and completion. International lending institutions may also require that contracts follow specific pricing methods. 4 The Silver Book and the ENAA Contract specifically use a fixed lump-sum price. The ICE Contract does not specify the type of price, but is frequently used in connection with a lump-sum price. The pricing basis of these and various other contracts will be discussed at greater length later in the chapter.

tor's overall risk-relating to the fluctuation of currency values-which is on the employer. As an alternative, the parties could choose a less volatile currency as the basis for the price. The ENAA Contract provides for such an alternative in article 3.6 of the agreement. The price may also be adjusted for changes to the works required by the employer. Construction contracts usually provide the employer with the right to require the contractor to make modifications to the works. This variation power is discussed in greater detail in Chapter 17. The contract price will then be modified in accordance with either the cost of the variation or a price negotiated between the parties at the time of variation.

Adjustment of price for unforeseen circumstances

Payment methods

All of the turnkey contract forms reviewed in this book provide a system for the adjustment of the contract price under certain specified circumstances. These circumstances are normally limited to certain events or conditions not foreseen (or not foreseeable) by the parties at the time of contracting, including natural obstacles, changes in legislation or other alterations that the parties decide not to include in the contractor's risk. The Silver Book differs significantly from most of the other contracts discussed in this book in that it places almost the totality of responsibility for unforeseen conditions upon the contractor (see SB 4.12 and discussion in Chapter 8). However, the Silver Book does allow changes to the contract price in other situations (see Figure 18.2). The parties will want to specify a system of valuation of such alterations, through a schedule of prices or by reference to' those costs reasonably incurred by the contractor. s In such circumstances the contractor may wish to receive not only his additional costs, but also a reasonable profit margin on such costs. The IBRD recommends the inclusion of price adjustment procedures for change in legislation as well as change in the cost of labour and materials. Their recommendation pertains primarily to those contracts covering periods of longer than one year and where the currency of payment is subject to high rates of inflation. They suggest the use of official or proxy indices where available, rather than the traditional documentary evidence of price increase. The World Bank suggests the implementation of formulae specific to each portion of a complex contract or to each currency of payment involved. 6 The use of such provisions will remove a portion of the contrac-

It is common for construction contracts to have a system of payment that uses instalments or advances on account. By using interim payments based on the value of the work done during the interim payment periods or at the completion of specified stages of construction the parties ensure the contractor has a flow of capital during construction. Th~ use of stages or milestones for interim payments will also increase the contractor's incentive for timely or early completion of the works. The employer will pay only on the basis of demonstrable progress.' The Silver Book and the other FIDIC contracts use the interim payment method. The various other form contracts take differing positions concerning methods of payment. The efficient and effective working of the payment methods utilised in the various contracts is crucial, as cash flow is "the lifeblood of the industry". 8 These are examined in detail in the discussion of specific sub-clauses later in the chapter.

B. Eggleston, The ICE Design and Construct: A Commentary (Blackwell Scientific Publications, Australia, 1994), p. 307. • UNCITRAL, UNCITRAL Legal Guide on Drawing Up International Contracts (or the Construction o( Industrial Works (UN, New York, 1998) UNDOC. A1CN.9/SER.Bl2 at 77. 5 ibid. at 86. • World Bank "Standard Bidding Documents for the Procurement of Works" (World Bank, Washington D.C., 2000) online: World Bank http://www.worldbank.orglhtml/opr/biddocs/ works/w-titlpg.htm (date accessed: July 16,2001), p. 141-145.

The interim payment procedure The contract will need to specify the documents required for verification of stage completion, such as photographs or progress invoices, shipping documents and the results of tests and inspections. Various documents may be required to show the extent of the work completed. The parties should specify the work necessary for completion of the stage or aspect of the works in question, but also allow for the work impliedly necessary for the execution of the obligation. 9 The method used by the Silver Book includes the submission of a statement containing detailed information and supporting documents submitted

J

394

18-05

I.N.D. Wallace Q.C., Hudson's Building and Engineering Contracts (11 th ed., Sweet & Maxwell, London, 1995), pp. 488-489 and 1026. ~ J. Uff Q.c., Construction Law (7th ed., Sweet & Maxwell, London, 1999), p. 385. • I.N.D. Wallace Q.C., Hudson's Building and Engineering Contracts, (11th ed., Sweet & Maxwell, London, 1995), pp. 488-489 and 1026. 7

395

18-06

GENERAL COMMENTS

CONTRACT PRICE AND PAYMENT

in justification of the interim payment claim. The parties may want to place a strict time limit on the employer for making the interim payments. All of the contracts discussed herein provide for the payment of interest in the event of payment delays of the employer. Other remedies may also be provided such as work suspension and later termination.

Retention money

18-07

18-08

The employer may want to withhold a portion of each interim payment, an amount known as retention money, as a form of security for performance. This will increase the contractor's incentive to complete the works, particularly in the later stages of construction. This retention money is then refunded to the contractor at some specified time. Under the Silver Book, half of the retention money is returned upon successful taking over of the works by the employer and the other half upon the expiry of the defects notification period. Amounts may generally be withheld from these repayments for incomplete or defective work. Another method of performance guarantee similar to or in conjunction with retention money is the use of bonds to provide the same type of security. This method is contemplated under the ENAA Contract. Where the employer is to withhold retention money, the contractor may provide a bond in lieu of this retention or to recover money already retained. The guarantee will be a separate agreement between the contractor and the guarantor, often a bank, that provides an amount of compensation upon the occurrence of a certain event. The guarantee may require the employer to provide a form or amount of proof of the occurrence of the event (or none at all) before the sum is paid out. IO It is this latter burden of proof that causes some disagreement concerning the use of guarantees rather than actual retention. The greater the amount of proof required to call the guarantee, the less security the employer obtains since the contractor may be able to oppose a call made by the employer on the guarantee. This system has been criticised by certain commentators due to the form of guarantee provided by the ENAA in the appendix. The guarantees require a claims procedure specifying the contractor's default, that the contractor was requested to remedy the default and that the contractor has not done so. lt is arguable that this procedure may impede the employer's claim under the guarantee. I I The ENAA Contract guide notes defend the form of guarantee, stating that it is of an on-demand nature and reflects the approach adopted by the International Chamber of Commerce. 12 The employer considering using retention bonds should also realise the 10 \I

12

I.N.D. Wallace, Construction Contracts: Principles and Policies in Tort and Contract (Sweet & Maxwell, London, 1986), p. 310. Walser, "The ENAA Model Forms: Tentative Comments of a World Bank Lawyer", International Bar Association Conference in Tokyo, Japan, February 1993, at 12. Engineering Advancement Association of Japan, Model Form International Contract for Process Plant Construction, Volume 3 Guide Notes (1992), p. 4.

396

added cost of lost interest. Under standard retention money clauses, the employer withholds a certain portion of the money to be paid to the contractor for each payment period. This money is held by the employer until the end of the contract period. The interest earned by the employer on such sums can be considerable.

Advance payments The employer may want to provide the contractor with advance payments to offset substantial outlay of capital during the early stages of construction. 13 Depending on the stipulations of the contract, these advance payments can be reimbursed over the period of the. contract or not reimbursed where they are considered to be an integral part of the contract price. The Silver Book provides for such payments for design and mobilisation. The advance payment is secured by a bank guarantee, which is reduced as the advance payment is repaid. The employer then makes percentage deductions in future interim payments to repay the advance payment.

18-09

Final payment and discharge Unlike interim payments, the final payment expresses completion of the contractor's duties to design and construct the works under the contract as well as the end of the employer's payment obligations. The Silver Book procedure involves the preparation of a draft final statement followed by the parties' agreement on the actual final statement, which is the basis for final payment. The contractor is also required to provide the employer with a discharge of liability to obtain final payment.

18-10

Discussion of Specific Sub-Clauses

Clause 14 of the Silver Book, entitled "Contract Price and Payment", sets forth the contract's detailed procedures for determining, potentially modifying and paying the contract price. It contains the interim and final payment requirements, as well as the procedures for the submission of the various statements used to apply for these payments. Clause 14 also includes related provisions regarding advance payment, payment schedules, discharge, currencies of payment and other related issues.

\3

UNCITRAL Legal Guide op. cit. n. 4 above at 93.

397

18-11

CONTRACT PRICE AND PAYMENT

18-12

14.1 The Contract Price Unless otherwise stated in the Particular Conditions: (a) payment for the Works shall be made on the basis of the lump sum Contract Price, subject to adjustments in accordance with the Contract; and (b) the Contractor shall pay all taxes, duties and fees required to be paid by him under the Contract, and the Contract Price shall not be adjusted for any of these costs, except as stated in Sub-Clause 13.7 [Adjustment for Changes in Legislation).

18-13

18-14

The terms of Silver Book sub-clause 14.1 are relatively straightforward. Payment for the works is made based on the lump-sum contract price subject to adjustments permitted in the contract. The contractor is responsible for paying all taxes, duties and fees as required of him under the contract, and these shall not be the basis for any adjustment of the contract price. The employer will want the contractor's duty to provide the works for the lump-sum price to be as specific as possible, and this includes a limitation on the potential for increases in the price. However, the contractor will want the flexibility to adjust the contract price for certain unforeseen changes to reduce his risk. The potential changes in the contract price are interspersed throughout the Silver Book contract and are not reflected in a single list in a particular sub-clause. However, these price exceptions are listed in Figure 18.2 at the end of this chapter for reference. A comparison table of price exceptions in the other form contracts is also included in Figure 18.3. Orange Book sub-clause 13.1 contains the same provisions found in Silver Book 14.1 but adds some additional terms. It states that the contract price shall not be adjusted for changes in the cost of labour, materials or other matters. It also states that "any quantities which may be set out in a Schedule are only estimated quantities and 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" (OB 13.1(d)). This last provision serves to differentiate the Orange Book lump-sum contract price basis from contract pricing based mainly on a bill of quantities. Some contracts using a bill of quantities and price schedules determine an estimated global contract price, but the actual price is assessed and paid based on the actual quantities supplied at the specified rates. This is often referred to as a measured price or cost-reimbursable contract. Under Orange Book 13.1 the contractor's obligation is not to provide exactly the specific quantity of a particular item indicated in the schedule but rather to provide the employer with a finished project on a turnkey basis in accordance with the employer's requirements despite potential differences in the actual item quantities used versus the estimated quantities contained in a schedule (unless of course the employer's requirements specifically list certain amounts that must be provided). This coincides with the concept of lump-sum pricing and turnkey construction and protects both parties. For example, if the contractor produces a proper result in accordance with one 398

DISCUSSION OF SPECIFIC SUB-CLAUSES

of the employer's requirements using less than the estimated quantities of particular items contained in a schedule, the employer cannot obtain a price reduction to account for the contractor's use of less than the estimated number of inputs. By the same token, if construction requires more of certain inputs than estimated in a schedule, the contractor will not be able to claim an increase in the contract price. The contract is based on a lump-sum price and the extra provisions in the Orange Book simply serve to confirm this idea. Orange Book sub-clause 13.1(e) further provides that "any quantities, prices or rates of payment per unit quantity which may be set out in a Schedule are only to be used for the purposes stated in such Schedule". This language is problematic in that a schedule may not contain a stated purpose and may therefore have no clear meaning in the context of the overall contract. However, the provision serves to underline that a schedule is only used for its stated purpose. For example, a schedule might contain a list of construction items or materials with prices and indicate that it serves as the basis for variation valuations. Finally, Orange Book sub-clause 13.1 indicates that "[i]f any part of the Works is to be paid according to quantity supplied or work done, the provisions for measurement and valuation shall be as stated in Part II". Therefore, it seems safe to conclude that if the particular conditions contain no measurement and valuation mechanism, no part of the works is to be priced on a measured basis. Nonetheless, the parties have the option under the Orange Book to use a bill of quantities or some other measured price mechanism to determine payment for a portion of the work, if necessary. The absence of the above provisions in the Silver Book appears to be an attempt to simplify its sub-clause 14.1. Yellow Book sub-clause 14.1 contains the same provisions as the Silver Book but also includes all the extra terms of Orange Book 13.1 discussed above. Like the Orange Book, it states that schedules of quantities are not to be taken as the actual or correct quantities, that contract schedules are used only for their stated purpose and that the particular conditions must contain specific provisions if a measured price basis is to be used for a portion of the works. Yellow Book 14.1 differs from the Orange Book only in that it does not categorically state that contract price adjustments are not possible for changes in input costs, such as labour and materials. Red Book sub-clause 14.1 differs significantly from the Silver, Orange and Yellow Books, primarily because the contract price under the Red Book is a measured price rather than a fixed lump-sum amount. Red Book 14.1 indicates that the contract price will be agreed or determined under its sub-clause 12.3 and is subject to adjustments in accordance with the contract. Red Book 12.3 is part of this contract's Chapter 12 entitled "Measurement and Evaluation", which sets forth the price measurement procedures. This chapter is not found in the Silver, Orange or Yellow Books. Within Red Book Chapter 12, sub-clause 12.1 states that "[t]he Works shall be measured, and valued for payment" and provides details of how measurement by the engineer will take place. Red Book 12.2 sets forth the 399

18-15

18-16

CONTRACT PRICE AND PAYMENT

18-17

method for measurement, which is generally measurement of the net actual quantity of each item of the works and in accordance with a bill of quantities or similar schedules. Red Book 12.3 (referenced above in RB 14.1) states that the engineer will agree or determine the contract price by evaluating each item of work, applying the applicable measurement and the appropriate rate or price for the item. It states further that the appropriate rate or price shall be as specified but also provides for new rates or prices to be used in certain instances, such as when there are significant changes in the actual quantity resulting in an overall price beyond certain parameters, when changes in quantity result in changed unit prices or when there are no rates or prices specified for the particular item. In short, although an "Accepted Contract Amount" is determined by the parties under the Red Book based on price schedules, bills of quantities and the employer's specification, this amount is not a fixed lump sum, as is contemplated in the Silver, Orange and Yellow Books. The actual contract price paid is determined in the Red Book based on measurement of actual work completed and quantities used. Aside from this fundamental difference in pricing methodology, Red Book sub-clause 14.1 still indicates, like the Silver, Orange and Yellow Books, that the contractor is responsible for all taxes, duties and fees required of him under the contract. Like the Orange and Yellow Books, Red Book 14.1 states that the quantities set forth in the bill of quantities or other schedules are only estimates and not to be taken as the actual or correct quantities. Finally, although the Red Book is not based on a fixed lump-sum contract price, the contractor is still responsible under Red Book 14.1(d) to submit to the engineer a proposed breakdown of each lump-sum price (projected) in the schedules that the engineer may consider when preparing payment certificates, although he is not bound by the breakdown. The provisions under the ENAA regarding the nature of the contract price are very similar to those of the Silver Book. The ENAA states that "[t)he Contract Price shall be a firm lump sum not subject to any alteration except in the event of a Change in the Works or as otherwise provided in the Contract" (ENAA 11.2). With regard to taxes, duties and fees, "the Contractor shall bear and pay all taxes, duties, levies and charges assessed on the Contractor, its Sub-contractors or their employees by all local, state or national government authorities in connection with the Works in and outside the country where the Site is located" (ENAA 14.1). However, the employer is responsible for "all customs and import duties imposed by the law of the country where the Site is located on the Materials to be incorporated into the Plant" (ENAA 14.2). The ElC suggests a more flexible contract price basis, suggesting that it may be either a lump sum or a measured price. It states that the contract price is: the sum specified in the Contract or otherwise ascertainable pursuant to the provisions of this Contract as payable by the Owner to the Contractor for the completion of the Works and the remedying of any defects therein in accordance with the provisions of the Contract subject to such additions and adjustments 400

DISCUSSION OF SPECIFIC SUB-CLAUSES

thereto and deductions therefrom as may be made pursuant to the provisions of the Contract. (EIC 1.1(vii).) The EIC also contemplates a separate annex entitled "Contract Price Terms" (EIC 14.2), which is likely intended to provide more detail. Nonetheless, the contractor is liable to pay all taxes, duties, levies and charges assessed on the contractor, his subcontractors or their employees by all local, state or national government authorities in connection with the works (EIC 16.1). However, the owner is responsible for all customs and import duties of the country where the site is located for materials, plant and goods to be incorporated into the works and on contractor's equipment (EIC 16.2). The ICE indicates that the contract price is "the sum to be ascertained and paid for the design construction and completion of the Works in accordance with the Contract" (ICE 1(1)(h)). It does not indicate clearly whether the contract is on a lump-sum or measured price basis. Subject to some narrow exceptions, the contractor under the ICE must:

18-18

give all notices and pay all fees required to be given or paid by any Act of Parliament or any Regulation or Bye-Law of any local or other statutory authority in relation to the design construction and completion of the Permanent Works and the Temporary Works and by the rules and regulations of all public bodies and companies whose property or rights are or may be affected in any way by the Works. (ICE 26(1).) However, the employer's representative certifies to the employer all amounts properly paid by the contractor as fees or taxes in connection with the works, and these amounts are repaid to the contractor (ICE 26(2)). Like the Orange, Yellow and Red Books, the ICE contains some additional provisions relating to measurement and bills of quantities, if contained in the contract (ICE 55(1)). The AlA contains payment provisions for both Part 1 (preliminary design) and Part 2 (final design and construction) of the contract. The contract price is not necessarily a fixed lump sum. AlA Part 1 contains an article 9 which serves to describe the compensation amounts and provide related details. Categories to be filled in under article 9 of Part 1 include: compensation for basic services, initial payment amount, subsequent payments, additional services, reimbursable expenses and interest payments. Similarly, AlA Part 2 contains an article 13 which provides the amounts and related details for payment under the Part 2 agreement. Article 13 of Part 2 also contains subsections where amounts and conditions may be filled in for basic compensation, additional services, reimbursable expenses and interest payments. This arrangement under the AlA indicates that there is no specific pricing method prescribed for either Parts 1 or 2 of the overall agreement. However, as in the Silver Book, the contractor is responsible for all taxes and fees in connection with the works, at least under Part 2 of the contract (AlA 3.2.10-Part 2). The AGC contract under discussion in this book, AGC Document 415, is intended for use when the basis of payment is a lump sum. The AGC intends 401

18-19

DISCUSSION OF SPECIFIC SUB-CLAUSES

CONTRACT PRICE AND PAYMENT

guarantee in amounts and currencies equal to the advance payment. This guarantee shall be issued by an entity and from within a country (or other jurisdiction) approved by the Employer, and shall be in the form annexed to the Particular Conditions or in another form approved by the Employer. Unless and until the Employer receives this guarantee, this Sub-Clause shall not apply.

for the parties to set forth the lump-sum contract price in Article 7: "The Contract Price is , subject to adjustment in accordance with the provisions of Article 8 [Changes in the Work]." The AGC further indicates that the owner is responsible for all "fees and charges required for the construction, use, occupancy or renovation of permanent structures, including legal and other required services" (AGC 4.1.2.3). The DBIA general conditions contemplate a choice of contract agreements depending on the type of pricing desired. DBIA Document no. 525 is the contract agreement used in conjunction with DBIA Standard Form of General Conditions, Document no. 535, for the purposes of discussion in this book. The DBIA no. 525 contract agreement provides for a lump sum contract price. It states:

The Contractor shall ensure that the guarantee is valid and enforceable until the advance payment has been repaid, but its amount may be progressively reduced by the amount repaid by the Contractor. If the terms of the guarantee specify its expiry date, and the advance payment has not been repaid by the date 28 days prior to the expiry date, the Contractor shall extend the validity of the guarantee until the advance payment has been repaid. The advance payment shall be repaid through proportional deductions in interim payments. Deductions shall be made at the amortization rate stated in the Particular Conditions (or, if not so stated, as stated in sub-paragraph (d) above), which shall be applied to the amount otherwise due (excluding the advance payment and deductions and repayments of retention), until such time as the advance payment has been repaid.

Owner shall pay Design-Builder in accordance with Article 6 of the General Conditions of Contract the sum of Dollars ($ __ I ("Contract Price"), subject to adjustments made in accordance with the General Conditions of Contract. Unless otherwise provided in the Contract Documents, the Contract Price is deemed to include all sales, use, consumer and other taxes mandated by applicable Legal Requirements. (DBIA 6.1.) The DBIA general conditions also specify that the contractor is responsible for some other specific charges, including "government charges and inspection fees required for the prosecution of the Work by any government or quasi-government entity having jurisdiction over the Project" (DBIA 2.6.1). However, the owner may be responsible for some of these charges to the extent they are set forth in an appendix to the agreement entitled "Owner's Permit List", which would list any specific government charges or fees for which the owner might be responsible (DBIA 3.5.1).

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14.2 Advance Payment The Employer shall make an advance payment, as an interest-free loan for mobilization and design, when the Contractor submits a guarantee in accordance with this Sub-Clause including the details stated in the Particular Conditions. If the Particular Conditions does not state: (a) the amount of the advance payment, then this Sub-Clause shall not apply; (b) the number and timing of instalments, then there shall be only one; (c) the applicable currencies and proportions, then they shall be those in which the Contract Price is payable; and/or (d) the amortisation rate for repayments, then it shall be calculated by dividing the total amount of the advance payment by the Contract Price stated in the Contract Agreement less Provisional Sums. The Employer shall pay the first instalment after receiving (i) a Statement (under Sub-Clause 14.3 [Application for Interim Payments)), (ii) the Performance Security in accordance with Sub-Clause 4.2 [Performance Security), and (iii) a 402

If the advance payment has not been repaid prior to the issue of the Taking-Over Certificate for the Works or prior to termination under Clause 15 [Termination by Employer), Clause 16 [Suspension and Termination by Contractor) or Clause 19 [Force Majeure) (as the case may be), the whole of the balance then outstanding shall immediately become due and payable by the Contractor to the Employer. The Silver Book and the other FlDIC contracts discussed herein all contain detailed provisions regarding an advance payment by the employer to the contractor. As mentioned earlier in the chapter, the parties may want to provide for an advance on the contract price to be paid to the contractor at the commencement of the contract to improve the contractor's capital flow for mobilisation and design. The EIC Guide suggests advance payment might even be made a condition precedent to the commencement of work. 14 This payment will be deducted from future interim payments, with no interest. Under Silver Book sub-clause 14.2, the employer is required to make an advance payment to the contractor for mobilisation and design, as an interest-free loan. However, the contractor must first submit a related guarantee. Silver Book 14.2 contains detailed terms concerning the advance payment, the required guarantee and the method of repayment. To begin with, if the particular conditions do not state an amount of the advance payment, this sub-clause does not apply. The sub-clause also provides default values for the number and timing of instalments and the amortisation rate for repayments if these are not contained in the particular conditions. The employer makes the advance payment only after having first received a related application for interim payment, the performance security and the advance payment guarantee. The advance payment guarantee the

'4

£IC, The EIC Contractor's Guide to the FIDIC Conditions of Contract for EPC Turnkey Pro;ects (European International Contractors, Berlin, 2000) (hereinafter EIC Guide), p. 26.

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contractor provides to the employer must be in amounts and currencies equal to the advance payment and issued by an entity approved by the employer. The form of guarantee is either contained in the particular conditions or must be approved by the employer. The FIDIC Guide specifies that where a form guarantee is annexed, the employer "cannot insist upon 'another form approved by the Employer'. "15 The advance payment provisions do not apply until the employer has received this guarantee. The guarantee must also remain valid and enforceable until the advance payment has been repaid, subject to permissible reductions in accordance with repayments. If the guarantee specifies an expiration date and the advance payment has not been repaid by 28 days prior to that expiry date, the contractor must extend the validity of the advance payment guarantee. The advance payment is repaid by proportional deductions in interim payments at the rates stated in the contract. If the entire amount has not been repaid prior to the issue of the taking-over certificate or valid contract termination, the entire remaining balance becomes due and payable by the contractor. Red and Yellow Book sub-clauses 14.2 are substantially identical to the Silver Book provision. Orange Book sub-clause 13.2 is also similar to the Silver Book provision with a couple of minor exceptions. There is no statement in the Orange Book that the advance payment provisions do not apply unless a total amount for the advance payment is stated in the appendix to tender. The Orange Book also contains no specific provision regarding extension of an advance payment guarantee with an expiration date, though it does contain the general requirement that the guarantee remain effective until full repayment. Under the ENAA, an advance payment is contemplated, but its terms are not set forth in the General Conditions but rather are to be specified in an appendix 4 (Payment Terms). The ENAA does not indicate in the General Conditions how or when the advance payment is made. The contractor is required to deliver an advance payment bond to the employer (ENAA 8.1 ca, 13.2.1 gc). The amount of the bond:

DISCUSSION OF SPECIFIC SUB-CLAUSES

upon the execution of the Part 1 agreement. An amount of the initial payment is to be inserted in sub-clause 9.1.2 of AlA Part 1. The EIC, ICE, AGC and DBIA contain no specific provisions regarding advance payment. The World Bank has suggested that the total of advance payments not exceed 10 to 15 per cent of the contract price. It also advises full recovery of such advance payments by the time 80 per cent of the contract price has been certified for payment. 16

The Contractor shall submit a Statement in six copies to the Employer after the end of the period of payment stated in the Contract (if not stated, after the end of each month), in a form approved by the Employer, showing in detail the amounts to which the Contractor considers himself to be entitled, together with supporting documents which shall include the relevant report on progress in accordance with Sub-Clause 4.21 [Progress Reports]. The Statement shall include the following items, as applicable, which shall be expressed in the various currencies in which the Contract Price is payable, in the sequence listed: (a) the estimated contract value of the Works executed and the Contractor's Documents produced up to the end of the month (including Variations but excluding items described in sub-paragraphs (b) to (fl below); (bl any amounts to be added and deducted for changes in legislation and changes in cost, in accordance with Sub-Clause 13.7 [Adjustments for Changes in Legislation] and Sub-Clause 13.8 [Adjustments for Changes in Cost]; (c) any amount to be deducted for retention, calculated by applying the percentage of retention stated in the Particular Conditions to the total of the above amounts, until the amount so retained by the Employer reaches the limit of Retention Money (if any) stated in the Particular Conditions; (d) any amounts to be added and deducted for the advance payment and repayments in accordance with Sub-Clause 14.2 [Advance Payment]; (el any other additions or deductions which may have become due under the Contract or otherwise, including those under Clause 20 [Claims, Disputes and Arbitration]); and (E) the deduction of amounts included in previous Statements.

shall be reduced in proportion to the value of the Works executed by the Contractor from time to time and shall automatically before null and void upon the date of Acceptance of the Plant or, where it is agreed between the Owner and the Contractor that the Plant is to be accepted in parts, the date of Acceptance of the last part. (ENAA 13.2.2.) "The bond shall be returned to the Contractor immediately after its expiry." (ENAA 13.2.2.) The AlA contains provisions regarding an advance payment but in much less detail than in the Silver Book. AlA 5.1 of the Part 1 agreement regarding preliminary design services provides for an initial payment to be made

15

FIDIC, The FIDIC Contracts Guide (Federation Internationale des Ingenieurs-Conseils, Lausanne, 2000) (hereinafter FIDIC Guide), p. 236.

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14.3 Application for Interim Payments

Payment of the contract price under the Silver Book occurs through periodic payments based on the value of work performed as well as any other compensation or deductions provided for under the contract. Silver Book sub-clause 14.3 provides the procedure regarding the contractor's application for these interim payments. Under this sub-clause the 16

World Bank, op. cit. n. 6 above at 123. 405

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contractor must submit a "Statement" in six copies to the employer at the end of each payment period stated in the contract, or at the end of each month if no period is stated. The statement must be in a form approved by the employer and will show the details of the amounts to which the contractor considers himself entitled. Supporting documents must accompany the statement, including the progress report for that period. The statement must also include specific items, including the estimated contract value of the works executed, the contractor's documents produced up to the end of the month and generally any additions or deductions related to retention, advance payment repayment and amounts under dispute, among others. The parties will want to weigh carefully the benefits and burdens of the payment method and period. Frequent invoices relieve the contractor of part of the financing responsibility for the project since his capital inflow will be increased. However, short invoicing periods create a greater administrative burden. Orange Book sub-clause 13.3 is nearly identical to Silver Book subclause 14.3, with a few minor differences. The statement prepared is submitted to the employer's representative rather than the employer, and this occurs at the end of the month. There is no apparent possibility for a different period, as in the Silver Book. The form of the statement must also be approved by the employer's representative. A statement under the Orange Book will not contain additions or deductions for changes in the cost of construction inputs, as there is no provision in the Orange Book comparable to Silver Book 13.8 "Adjustments for Changes in Cost". The Orange Book specifically includes amounts to be added and deducted for plant and materials, which is not specifically included in the contents of the Silver Book statement. The final difference is simply the title of Orange Book sub-clause 13.3, "Application for Interim Payment Certificates". Under the Orange Book, as in the Red and Yellow Books discussed below, the contractor makes an application to the employer's representative for a "payment certificate" that is then transferred by the representative to the employer for payment. Under the Silver Book, there is no intermediary or certificate. The contractor applies directly to the employer for payment. Red and Yellow Book sub-clauses 14.3 are identical to each other and nearly identical to the Silver Book. They differ from the Silver Book in that the statement prepared is submitted to the engineer and is in a form approved by him, rather than the employer. The Red and Yellow Book also specifically list amounts to be added and deducted for plant and materials in accordance with their sub-clauses 14.5 "Plant and Materials intended for the Works", which differs in content from the corresponding Silver Book sub-clause (see discussion of SB 14.5 below). The Red and Yellow Book sub-clauses 14.3 also have a different title, "Application for Interim Payment Certificates", as a statement or application is made to the engineer in order for him to issue a payment certificate to the employer for ultimate payment. This use of an intermediary 406

DISCUSSION OF SPECIFIC SUB-CLAUSES

as the employer's representative is similar to the Orange Book, yet absent from the Silver Book which is strictly a two-party contract for most contract procedures. Unlike the Silver Book, the ENAA does not set forth detailed payment terms in the General Conditions. All details concerning the payment mechanism are to be set forth by the parties in an appendix 4 (Payment Terms) as part of the contract ~ENAA 4.1 ca, 12.1 gc). Like the ENAA, the EIC also does not set forth detailed provisions regarding payment in its general conditions. The EIC states that "the Contract Price shall be paid by the Owner to the Contractor in instalments at the times and in the manner provided for in the separate statement annexed hereto entitled 'Terms of Payment'" (EIC 15.1). The ICE provides a system of interim payments based on amounts provided in the contract and the system of payment agreed upon by the parties. The interim payments occur at the times agreed by the parties. Thus the ICE Contract leaves open the question of stage or value payments and the time period for their occurrence. The ICE provides a detailed procedure, similar to the Silver Book. It states:

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The Contractor shall submit to the Employer's Representative at such times and in such form as the Contract prescribes statements showing the amounts which in the Contractor's opinion are due under the Contract and where appropriate showing separately (a) each amount expended against Provisional Sum and Prime Cost Items, (b) a list of any goods or materials delivered to the Site for, but not yet incorporated in the Permanent Works and their value (c) a list of any goods or materials which have not yet been delivered to the Site but of which the property has vested in the Employer pursuant to Clause 54 and their value and (d) the estimated amounts to which the Contractor considers himself entitled in connection with all other matters for which provision is made under the Contract unless in the opinion of the Contractor such values and amounts together will not justify the issue of an interim certificate.

(ICE 60(1).) The AlA states that "[tJhe Design/Builder shall deliver to the Owner itemized Applications for Payment in such detail as indicated in Article 14" (AlA S.1.1-Part 2). Article 14 of AlA Part 2 is to be filled in by the parties and could include any specific requirements for payment applications. The applications are also to be made on a monthly basis (AlA 14.4-Part 2). The AGC requires the submission of a payment application but does not list any detailed requirements. It states that on or before a specified day of each month after commencement of the work, "the Design-Builder shall submit to the Owner an Application for Payment in accordance with the Schedule of Values based upon the Work completed and materials stored on the site or at other locations approved by the Owner" (AGC 9.1.2). 407

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Similarly, the DBIA contract agreement requires the contractor to submit to the owner on a specified day each month an application for payment in accordance with article 6 of the General Conditions of Contract (DBIA 7.1.1 cal. Article 6 states that: On or before the date established in the Agreement, Design-Builder shall submit for Owner's review and approval its Application for Payment requesting payment for all Work performed as of the date of the Application for Payment. The Application for Payment shall be accompanied by all supporting docu· mentation required by the Contract Documents and/or established at the meeting required by Section 2.1.4 hereof. (DBIA 6.2.1.)

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14.4 Schedule of Payments If the Contract includes a Schedule of Payments specifying the instalments in which the Contract Price will be paid, then unless otherwise stated in this Schedule: (a) the instalments quoted in the Schedule of Payments shall be the estimated contract values for the purposes of sub-paragraph (a) of SubClause 14.3 [Application for Interim Payments], subject to Sub-Clause 14.5 [Plant and Materials intended for the Works]; and (b) if these instalments are not defined by reference to the actual progress achieved in executing the Works, and if actual progress is found to be less than that on which the Schedule of Payments was based, then the Employer may proceed in accordance with Sub-Clause 3.5 [Determinations} to agree or determine revised instalments, which shall take account of the extent to which progress is less than that on which the instalments were previously based. If the Contract does not include a Schedule of Payments, the Contractor shall submit non-binding estimates of the payments which he expects to become due during each quarterly period. The first estimate shall be submitted within 42 days after the Commencement Date. Revised estimates shall be submitted at quarterly intervals, until the Taking-Over Certificate has been issued for the Works.

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The valuation of the work completed during the payment period may make use of a schedule of payments based either on actual progress or on some other method. Silver Book sub-clause 14.4 provides terms for when the contract includes a schedule of payments. In this case, unless otherwise stated, the instalments quoted in the schedule are the estimated contract values for the purposes of preparing the statements by the contractor in applying for interim payments. If the instalments are not defined by reference to actual progress achieved and actual progress is found to be less than that on which the schedule of payments was based, the employer may proceed to agree or determine revised instalments. If the contract does not include a schedule of payments, t he contractor must nonetheless submit non-

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DISCUSSION OF SPECIFIC SUB-CLAUSES

binding estimates of the payments he expects to become due during each quarterly period and revised estimates as necessary. The employer should remember that valuation for payment purposes under a turnkey or design-build project may be a difficult and costly procedure. The employer or his representative may not have the knowledge of the design or the construction procedure that the engineer has in a traditional construction project, and may therefore need to implement a more complex and possibly costly procedure to verify the quantities used and the valuation provided. Orange Book sub-clause 13.4 is nearly identical to the Silver Book provision, with a couple of exceptions. Firstly, if the contract contains a schedule of payments, Orange Book sub-clause 13.5 "Plant and Materials for the Permanent Works" does not apply. This latter provision concerns the inclusion of an amount in interim payment certificates for plant and materials that have been delivered to the site (see the discussion in the section below). Orange Book sub-clause 13.4 also differs from the Silver Book in that it does not require the submission of non-binding quarterly estimates and revisions by the contractor in the event there is no schedule of payments. It is also the employer's representative who may amend the schedule of payments in the event of lesser actual progress on the works, rather than the employer. Red and Yellow Book sub-clauses 14.4 are exactly identical to Silver Book 14.4, except that it is the engineer who might make revisions to the schedule of payment for lesser actual progress than that reflected in the schedule. In addition, like the Orange Book, the Red and Yellow Book sub-clauses indicate that their sub-clause 14.5 "Plant and Materials intended for the Works" does not apply if the contract includes a schedule of payments. The "Plant and Materials" sub-clauses in the Orange, Red and Yellow Books differ from that of the Silver Book and are the reason for the different treatment in these contracts (see discussion in the section below). Again, the ENAA does not set forth detailed payment terms in the General Conditions. If there were a schedule of payments it would need to be included by the parties in Appendix 4 (Payment Terms) as part of the contract (ENAA 4.1; 12.1). The EIC also does not contain specific provisions regarding a schedule of payments. However, one might be included in the annex for "Terms of Payment" mentioned in EIC sub-clause 15.1. The ICE does not contain provisions comparable to Silver Book sub-clause 14.4. However, in its payment mechanism discussed in connection with the next sub-clause, it does provide slightly different payment certification procedures for both when the contract contains a schedule of payments and when it does not. The AlA contains no provision comparable to Silver Book 14.4. However, the format in which the payment details are to be included is flexible enough for a schedule of payments to be included. The AGC requires something similar to the Silver Book's schedule of payments. It states that "[p]rior to submitting the first application for payment, the Design-Builder shall provide a Schedule of Values satisfactory to the 409

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Owner, consisting of a breakdown of the Contract Price, with a separate line item for Design Services" (AGC 9.1.1). This breakdown could feasibly include a breakdown of instalment payments. The DBIA contains a provision similar to the AGC but with more specific terms. It states: Within ten (10) days of execution of the Agreement, Design-Builder shall submit for Owner's review and approval a schedule of values for all of the Work. The Schedule of Values will (i) subdivide the Work into its respective parts, (ii) include values for all items comprising the Work and (iii) serve as the basis for monthly progress payments made to Design-Builder throughout the Work. (DBIA 6.1.1.)

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14.5 Plant and Materials intended for the Works If the Contractor is entitled, under the Contract, to an interim payment for Plant

and Materials which are not yet on the Site, the Contractor shall nevertheless not be entitled to such payment unless: (a) the relevant Plant and Materials are in the Country and have been marked as the Employer's property in accordance with the Employer's instructions; or (b) the Contractor has delivered, to the Employer, evidence of insurance and a bank guarantee in a form and issued by an entity approved by the Employer in amounts and currencies equal to such payment. This guarantee may be in a similar form to the form referred to in SubClause 14.2 [Advance Payment) and shall be valid until the Plant and Materials are properly stored on Site and protected against loss, damage or deterioration.

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Silver Book sub-clause 14.3 does not expressly state whether the contractor is entitled to payment for plant and materials not yet delivered to the site. 17 However, if the parties have agreed under the contract that this is permitted, sub-clause 14.5 imposes certain conditions. The plant or materials must be in the country and marked as the employer's property, and the contractor must have sufficient insurance and provide a bank guarantee. The Orange, Red and Yellow Books differ significantly in their provisions regarding payment for plant and materials not yet incorporated into the works. To begin with, these contracts expressly permit the inclusion of amounts for these items in their applications for interim payment, whereas the Silver Book does not expressly provide for this. Due to the contractor's ability under certain circumstances to claim payment for unincorporated plant and materials intended for the works, complex provisions regarding the addition of the value of these raw materials and subsequent deduction of

17

Note, however, that such payment is expressly permitted in connection with an employer's suspension of the works under Silver Book sub-clause 8.10.

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DISCUSSION OF SPECIFIC SUB-CLAUSES

this value are included in the Orange, Red and Yellow Books. Their subclauses that correspond to Silver Book 14.5 are therefore very different. As mentioned above, Orange Book sub-clause 13.3 allows the contractor to include amounts for plant and materials to be incorporated into the works in his applications for interim payment certificates, but only in accordance with Orange Book sub-clause 13.5. Orange Book 13.5 provides a method for the valuation of plant and materials delivered to the site to be incorporated in the works in the interim payment applications before these items are actually incorporated. It also provides the method to calculate the later deduction from subsequent interim payment applications once the items are incorporated into the works. Payment for the works with the incorporated plant and materials for which payment has already been made is reduced by a certain amount reflecting this prior paymentRed and Yellow Book sub-clauses 14.5 adopt procedures similar to the Orange Book sub-clause. Their sub-clause 14.3 also expressly permits the contractor to include amounts for unincorporated plant and materials in interim payment applications. Again, this differs from the Silver Book. The concept under the Red and Yellow Book 14.5 is nearly identical to Orange Book 13.4 described above, providing the procedure for adding amounts for unincorporated plant and materials and then later subtracting corresponding amounts from payment applications for the value of the finished works. The primary difference in the Red and Yellow Book is that they permit amounts to be included not only for unincorporated plant and materials delivered to the site but also for certain plant and materials that have been shipped but not yet delivered. Of course, the ability to include such amounts is subject to detailed requirements contained in Red and Yellow Book sub-clauses 14.5. In addition, as stated in the previous sub-clause for all three of these contracts, these provisions for the addition and subtraction of amounts for plant and materials do not apply if there is a schedule of payments (see OB 13.4(b), RBIYB 14.4(b)). The ICE contains a sub-clause with content similar to the aforementioned FIDIC contracts. It provides: With a view to securing payment under Clause 60(1)(c) the Contractor may (and shall if the Employer's Representative so directs) transfer to the Employer the property in goods and materials listed in the Appendix to the Form of Tender or as subsequently agreed between the Contractor and the Employer before the same are delivered to the Site provided that the goods and materials (a) have been manufactured or prepared and are substantially ready for incorporation in the Works and (b) are the property of the Contractor or the contract for the supply of the same expressly provides that the property therein shall pass unconditionally to the Contractor upon the Contractor taking the action referred to in sub-clause (5) of this Clause. (c) have been marked and set aside in accordance with sub-clause (5) of this Clause. (ICE 54(4).) The ICE also indicates that the contractor's intention to transfer ownership is evidenced by providing the employer's representative with

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DISCUSSION OF SPECIFIC SUB-CLAUSES

CONTRACT PRICE AND PAYMENT

documents showing ownership vested in the contractor, the marking on the goods of the site destination and ownership by the employer and the communication to the employer's representative of the value of every item of goods set aside and stored in this regard (ICE 54(5)). The DBIA also contains a comparable provision: The Application for Payment may request payment for equipment and materials not yet incorporated into the Project, provided that (i) Owner is satisfied that the equipment and materials are suitably stored at either the Site or another acceptable location, (ii) the equipment and materials are protected by suitable insurance and (iii) upon payment, Owner still receive the equipment and materials free and clear of all liens and encumbrances. (DBIA 6.2.2.) The ENAA, EIC, AlA and AGC contain no provisions comparable to Silver Book sub-clause 14.5. 18-37

14.6 Interim Payments

No amount will be paid until the Employer has received and approved the Performance Security. Thereafter, the Employer shall within 28 days after receiving a Statement and supporting documents, give to the Contractor notice of any items in the Statement with which the Employer disagrees, with supporting particulars. Payments due shall not be withheld, except that: (a) if any thing supplied or work done by the Contractor is not in accordance with the Contract, the cost of rectification or replacement may be withheld until rectification or replacement has been completed; and/or (b) if the Contractor was or is failing to perform any work or obligation in accordance with the Contract, and had been so notified by the Employer, the value of this work or obligation may be withheld until the work or obligation has been performed. The Employer may, by any payment, make any correction or modification that should properly be made to any amount previously considered due. Payment shall not be deemed to indicate the Employer's acceptance, approval, consent or satisfaction. 18-38

Silver Book sub-clause 14.6 provides the procedure for interim payments from the employer to the contractor. It begins by stating that no amount will be paid until the employer has received and approved the performance security. Assuming that has occurred, the employer must notify the contractor within 28 days of receiving his statement (application for payment) of any items in the statement with which the employer disagrees, with supporting particulars. The sub-clause further provides that payments due may not otherwise be withheld, with the exception of (1) amounts covering the costs of rectification or replacement of non-compliant work until such work is corrected and (2) the value of any work or obligation the contractor has failed to perform despite notice of this failure by the employer. In addition, the interim payment may be used to correct or modify any amount previously

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considered due. Nonetheless, payment by the employer does not signify the employer's acceptance, approval, consent or satisfaction. Presumably, any disagreements are to be resolved under the contract's dispute resolution process. It is worth noting that the FIDIC Guide specifies that under subclause 14.7(b) the employer's obligation is stated as being to pay the amount which "is due", irrespective of the employer's notice under sub-clause 14.6. 18 The Orange, Red and Yellow Books again differ slightly in their payment procedure. Under these contracts there is an additional party, the engineer or employer's representative respectively, who receives the contractor's statement and subsequently issues an interim payment certificate to the employer for payment to the contractor. Otherwise, the payment procedures and requirements are very similar to those contained in the Silver Book. Like the Silver Book, Orange Book sub-clause 13.6 states that no amount will be certified or paid until the employer has received and approved the performance security from the contractor. The Orange Book does not contain terms like Silver Book sub-clause 14.6 concerning a 28-day period to object to items contained in the contractor's statement. Or;mge Book sub-clause 13.6 states rather that the employer's representative must deliver to the employer within 28 days of receipt of the contractor's statement an interim payment certificate showing the amount the employer's representative considers to be due. In addition, the employer's representative has the power to notify the contractor if no payment is considered to be due. Unlike the Silver Book, Orange Book sub-clause 13.6 also indicates that the employer's representative is not bound to certify any net amount of payment less than the minimum amount of interim payment certificates stated in the Appendix to Tender, if any. Orange Book sub-clause 13.6 does not permit withholding of payment, except for the costs of necessary rectification or replacement of non-compliant work. The value of the contractor's failure to perform obligations notified by the employer is not expressly stated as a permissible deduction in the amount stated in the interim payment certificate. Regarding disputed amounts or items mentioned in the previous paragraph, if these constitute only part of the payment the payment certificate must still be issued for the undisputed amounts. Finally, Orange Book sub-clause 13.6 permits the employer's representative to make corrections or modifications in the current payment certificate related to previous payment certificates, like the Silver Book. However, it does not contain the express disclaimer that the issuance of the payment certificate does not constitute the employer's acceptance, approval or consent regarding its contents. . Red and Yellow Book sub-clauses 14.6 are identical to each other but combine elements of the Silver Book and Orange Book. They are identical to the Silver Book regarding the performance security requirement, the two exceptions for withholdings from payments, the ability to make corrections in the current payment certificate for prior payment modifications and the disclaimer of acceptance or consent based on the certificate's issuance. 18

FlDIC Guide, op. cit. n. 15 above, p. 245.

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However, the Red and Yellow Books differ from the Silver Book in several other respects. To begin with, it is the engineer who issues the interim payment certificate to the employer. The Red and Yellow Books also contain no express provision empowering the engineer to object to items or amounts contained in the contractor's statement. Red and Yellow Books 14.6 simply state that within 28 days of receipt of the contractor's statement, the engineer must issue to the employer an interim payment certificate stating the amount the engineer fairly determines to be due. Finally, the Red and Yellow Book sub-clauses indicate that the engineer is not bound to issue an interim payment certificate for a net amount less than the minimum amount of interim payment certificates stated in the appendix to tender, if any. In this case, the engineer must give the contractor notice. The ENAA does not set forth the details of a payment mechanism in the General Conditions but contemplates the inclusion of an appendix 4 (Payment Terms) as part of the contract (ENAA 4.1 ca, 12.1 gc). However, it does state that "(n]o payment made by the Owner hereunder shall be deemed to constitute acceptance by the Owner of the Works or any part(s) thereof" (ENAA 12.2). Other than stating that the contract price shall be paid in instalments as provided in the "Terms of Payment" to be developed by the parties and annexed to the contract (EIC 15.1), the EIC contains no specifics comparable to Silver Book sub-clause 14.6. The ICE uses a certification of payments procedure similar to the Orange, Yellow and Red Books. The ICE procedure also differs slightly depending on whether or not a schedule of payments is used. Within 25 days of the date of delivery of the Contractor's statement to the Employer's Representative in accordance with sub-clause (1) of this clause the Employer's Representative shall either (a) where a payment schedule is included in the Contract certify (i) when the progress of the Works or any part thereof has reached the state required for the payment of the relevant interim or stage payment and (ii) the amount of such payment less a retention as provided in sub· clause (5) of this Clause or (b) where no such schedule is included in the Contract certify (i) the amount which in the opinion of the Employer's Representative on the basis of the Contractor's statement is due to the Contractor other than on account of sub-clauses (l)(b) and (l)(c) of this Clause less a retention as provided in sub-clause (5) of this Clause and (ii) such amounts (if any) as the Employer's Representative may consider proper (but in no case exceeding the percentage of the value stated in the Appendix to the Form of Tender) in respect of subclauses (l)(b) and (1)(c) of this Clause, and the Employer shall pay to the Contractor such amounts as become due thereby after deducting any previous payments on account.

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(ICE 60(2).) The ICE further states that the employer's representative may omit from any certificate for payment "the value of any work done on goods or materials supplied or services rendered with which he may for the time being be dissatisfied and for that purpose or for any other reasons which to him may seem proper may by any certificate delete correct or modify any sum or statement of fact previously certified by him" (ICE 60(8)). Certain withholdings for incomplete or defective work are also possible under the ICE through the non-repayment of retention money (ICE 60(6)). However, where any payment will differ from an amount certified by the employer's representative or where any amount will be withheld "the Employer shall notify the Contractor in writing not less than one day before the final date for payment specifying the amount proposed to be withheld and the ground for withholding payment or if there is more than one ground each ground and the amount attributable to it" (ICE 60(10)). The AGC does not contain provisions similar to Silver Book sub-clause 14.6 but does state that "(t]he Owner's progress payment (... ] shall not be deemed an acceptance of any Work not conforming to the requirements of the Contract Documents" (AGC 9.1.7). The DBIA provides terms relating to the withholding of payment by the owner. It states:

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If Owner determines that Design-Builder is not entitled to all or part of an Application for Payment, it will notify Design-Builder in writing at least five (5) days prior to the date payment is due. The notice shall indicate the specific amounts Owner intends to withhold, the reasons and contractual basis for the withholding, and the specific measures Design-Builder must take to rectify Owner's concerns. Design-Builder and Owner will attempt to resolve Owner's concerns prior to the date payment is due. If the parties cannot resolve such conceens, Design-Builder may pursue its rights under the Contract Documents ' including those under Article 10 hereof.

(DBIA 6.3.1.) The AlA contains no provision comparable to Silver Book sub-clause 14.6.

18-44

14.7 Timing of Payments Except as otherwise stated in Sub-Clause 2.5 [Employer's Claims], the Employer shall pay to the Contractor: (a) the first instalment of the advance payment within 42 days after the date on which the Contract came into full force and effect or within 21 days after the Employer receives the documents in accordance with Sub-Clause 4.2 [Performance Security] and Sub-Clause 14.2 [Advance Payment], whichever is later; (b) the amount which is due in respect of each Statement, other than the Final Statement, within 56 days after receiving the Statement and supporting documents; and

415

CONTRACT PRICE AND PAYMENT

(c)

the final amount due, within 42 days after receiving the Final Statement and written discharge in accordance with Sub-Clause 14.11 (Application for Final Payment) and Sub-Clause 14.12 (.Discharge). Payment of the amount due in each currency shall be made mto the. bank account, nominated by the Contractor, in the payment country (for this currency) specified in the Contract. 18-45

18-46

18-47

Silver Book sub-clause 14.7 concerns the timing of payments under the contract. The employer's first obligation under this sub-clause is to make the first instalment of the advance payment within 42 days after the contract enters into effect or within 21 days after receiving the performance security and other documents required for the advance payment, whichever is later. Interim payments other than the final payment must be paid to the contractor within 56 days of receipt of the contractor's statement and supporting particulars. As mentioned with regard to sub-clause 14.6, the empl?yer is to pay the amount "due" which (while subject to sub-clause 2.5) IS Irrespective of the employer's notice given under sub-~l~use 14.6. 19 The final amount due must be paid within 42 days after receiVing the final statement and discharge from the contractor. Silver Book 14.7 also specifies that payments are made to the account nominated by the contractor and for each currency as specified in the contract. The Silver Book provision further states th~t these payments are subject to employer's claims under sub-clause 2.5. Although it is unclear whether this is provided in the above sub-clause, for administrative purposes it may be more practical for the contractor to have the option of nominating more than one bank. The use of a 56-day payment period for interim payments may also be unacceptably long for the contractor. Orange Book sub-clause 13.7 is similar to the Silver Book provision but does not mention a time for payment of the first instalment of the advance payment. Orange Book 13.7 requires interim payment to be made ~o the contractor within 56 days of receipt by the employer's representative of the contractor's statement and final payment also within 56 days of the issuance of the final payment certificate. The Orange Book mentions payment to the contractor's nominated account but does not refer to employer's claims. Red and Yellow Book sub-clauses 14.7 are nearly identical to Silver Book 14.7. They contain the same provision for the timing of the first instalment of the advance payment. However, the 42-day period begins to run upon the issue of the letter of acceptance rather than the date the contract enters into force. Interim payments are due within 56 days of the engineer's receipt of the contractor's statement and final payment also within 56 days of the issuance of the final payment certificate. Payments are made to the contractor's nominated account. However, employer's claims are not mentioned. The ENAA contains no provision comparable to Silver Book sub-clause 19

FlDIC Guide, op. cit. n. 15 above, p. 247.

416

DISCUSSION OF SPECIFIC SUB-CLAUSES

14.7. Payment details are not listed in the general conditions but included in an appendix to the contract to be developed by the parties. Similarly, the timing of payments is not specifically indicated in the Ele. However, the "Terms of Payment" to be prepared by the parties and annexed to the contract should provide these details (EIC 15.1). Under the ICE, "[t]he [interim] payments become due on certification with the final date for payment being 28 days after the date of delivery of the Contractor's statement" (ICE 60(2)). Final payment is due 28 days after certification of the contractor's statement of final account (ICE 60(4)). Under the AlA, the owner must make payment to the contractor within 10 days of receipt of an application for payment regarding Part 1 preliminary design services (AlA 5.3-Part 1). Advance payment under the Part 1 agreement is made upon execution of the Part 1 agreement. With regard to the AlA Part 2 final design and construction services, "[wJithin ten (10) days of Owner's receipt of a properly submitted and correct Application for Payment, the Owner shall make payment to the DesignlBuilder" (AlA 5.1.2-Part 2). Final payment is due within 30 days after receipt of the contractor's final application for payment (AlA 5.2.2-Part 2). The AGC provides: "Within ten (10) days after receipt of each monthly Application for Payment", the Owner shall accept or reject such application. "Within fifteen (15) days after accepting such Application, the Owner shall pay directly to the Design-Builder the appropriate amount for which Application for Payment is made, less amounts previously paid by the Owner." (AGe 9.1.3.) Finally payment is simply due and payable when the work is fully completed (AGC 9.5.1). Under the DBIA, the owner must make payment within 10 days after the owner's receipt of each proper application for payment in accordance with article 6 of the General Conditions of Contract (DBIA 7.1.2 cal. Article 6 states that "[oJn or before the date established in ~he Agreement, Owner shall pay Design-Builder all amounts properly due" (DBIA 6.3.1). 14.8 Delayed Payment

18-48

If the Contractor does not receive payment in accordance with Sub-Clause 14.7

[Timing of Payments], the Contractor shall be entitled to receive financing charges compounded monthly on the amount unpaid during the period of delay. Unless otherwise stated in the Particular Conditions, these financing charges shall be calculated at the annual rate of three percentage points above the discount rate of the central bank in the country of the currency of payment, and shall be paid in such currency. The Contractor shall be entitled to this payment without formal notice, and without prejudice to any other right or remedy. The timely payment of the sum due under a payment certificate may be essential to the financial wellbeing of the contractor. The employer needs to 417

18-49

CONTRACT PRICE AND PAYMENT

18-50

compensate the contractor for late payments. The payment by the employer of financing charges (also referred to as "interest" in some jurisdictions2o ) will act as an incentive for him to pay. Silver Book sub-clause 14.8 describes the effect of delayed payments by the employer. If the contractor does not receive payment as specified in the previous sub-clause and within the stated times, the contractor is entitled to receive financing charges compounded monthly on the unpaid amount during the period of delay. The sub-clause also gives the default annual rate of financing charges referenced to the discount rate of the central bank of the country. It also states that no notice by the contractor is necessary for him to be entitled to these charges in the event of delayed payments. Orange Book sub-clause 13.8 is identical in substance to Silver Book 14.8. The parties should be aware of the effect of applicable law on an interest rate provision. Some legal systems may under certain circumstances consider the use of an external rate as a usurious charge of interest. In such a situation the parties may decide to tie the interest rate charged to the employer to the actual financing rates incurred or those that would be incurred by the contractor. 21 Red and Yellow Book sub-clauses 14.8 are identical to Silver Book 14.8 but add one additional provision. They state that the date the financing charges begin to run will not be affected by the date of issuance of any interim payment certificate. Payment is due under sub-clause 14.7 within 56 days of the engineer's receipt of the contractor's statement. The financing charges for delayed payment begin to run when payment is delayed regardless of the date of the engineer's actual issuance to the employer of an interim payment certificate. In other words, the employer may not escape financing charges for his lack of knowledge of a negligent or unco-operative engineer who does not promptly communicate interim payment certificates. The ENAA contains a provision regarding delayed payments that refers to the payment terms to be included in Appendix 4. Under the ENAA, if the owner fails to make any payment on its respective due date, the owner must pay to the contractor interest on the amount of the delayed payment at the rate indicated in Appendix 4 (Payment Terms) to the agreement (ENAA 12.3). The EIC also contains a delayed payment provision. It states that "if there is delay in payment by the Owner to the Contractor of any sums payable pursuant to the Contract the Owner shall pay interest to the Contractor at the rate per annum specified in the Contract Price Terms calculated on a Day to Day basis" (EIC 14.8). The ICE contains a more detailed provision regarding interest payment for delay. It states: In the event of (a) failure by the Employer's Representative to certify or the Employer to make payment in accordance with sub-clauses (2), (4) or (6) of this Clause or 20

21

FIOIC Guide, op. cit. n. 15 above, p. 248. G.L. Jaynes, "The New Colour in FlOle's Rainbow: The Trial Edition of the 'Orange Book'» (1995) 12 (3) I.e.L.R. 367 at 387.

418

DISCUSSION OF SPECIFIC SUB - CLAUSES

(b)

any decision of an adjudicator or any finding of an arbitrator to such effect the Employer shall pay to the Contractor interests compounded monthly for each day on which any payment is overdue or which should have been certified and paid at a rate equivalent to 2% per annum above the base lending rate of the bank specified in the Appendix to the Form of Tender. (ICE 60(7).) Payments to the contractor under AlA Part 1 that are not paid when due bear interest at a rate specified in AlA 9.S-Part 1, or at the prevailing legal rate if no rate is specified (AlA 5.4-Part 1). AlA 9.5-Part 1 is intended to contain an interest rate agreed by the parties. AlA 5.3.1 and Article 13 of Part 2 contain similar provisions regarding interest on delayed payments for the Part 2 final design and construction services. The AGC provides a very simple interest provision and requires the identification of a particular bank to determine the applicable rate. It states that "[pJayments due but unpaid [... J may bear interest from the date payment is due at the prime rate prevailing at the place of the project" (AGC 9.1.5). The DBIA contract agreement states that "[pJayments due and unpaid by Own~r to Design-Builder, whether progress payments or final payment, shall bear Interest commencing five (5) days after payment is due at the rate of _._._ percent (__ %)" (DBIA 7.4 cal. This is confirmed in the general conditions by DBIA sub-clause 6.4.1, which states that "[i]f Owner fails to pay Design-Builder any amount that becomes due [... ] [a]1I payments due and unpaid shall bear interest at the rate set forth in the Agreement" (DBIA 6.4.1).

14.9 Payment of Retention Money

18-51

When the Taking-Over Certificate has been issued for the Works, and the Works have passed all specified tests (including the Tests after Completion, if any), the first half of the Retention Money shall be paid to the Contractor. If a Taking-Over Certificate is issued for a Section, the relevant percentage of the first half of the Retention Money shall be paid when the Section passes all tests. Promptly after the latest of the expiry dates of the Defects Notification Periods the outstanding balance of the Retention Money shall be paid to the Contracto:' If a Taking-Over Certificate was issued for a section, the relevant percentage of the second half of the Retention Money shall be paid promptly after the expiry date of the Defects Notification Period for the Section. ~o~e.ver, if any work remains to be executed under Clause 11 [Defects Liability] or Clause 12 [Tests after Completion], the Employer shall be entitled to withhold the estimated cost of this work until it has been executed.

The relevant percentage for each Section shall be the percentage value of the Section as stated in the Contract. If the percentage 'value of a Section is not 419

CONTRACT PRICE AND PAYMENT

stated in the Contract, no percentage of either half of the Retention Money shall be released under this Sub-Clause in respect of such Section.

18-52

During the life of the contract, retention money is subtracted from each payment as a performance security for the employer. Silver Book ~ub-c1ause 14.9 sets forth the contract requirements for the payment of retention money to the contractor. Once the taking-over certificate has been issued for the works and the works have passed all tests, the first half of the retention money must be repaid to the contractor. In order to avoid any tardy release of the first half of the retention money, some commentators suggest that the 22 contractor may wish to establish a date for the tests after completion. The author would not recommend such a practice. If a taking-over certificate is issued for a section, half of the section's proportionate value to the overall contract is used to calculate the retention money payment. Note that no retention money is released for the taking over of ~ part ~f t?e works .. ~he FIDIC Guide explains this exclusion as difficulty might arISe In determining an appropriate release amount. 23 The outstanding balance ?f the retention money is paid to the contractor after the latest of the expiry dates of ~he defects notification periods, as applied to the works generally or to a speCific section. However, the employer is entitled to withhold from this retention money repayment the estimated cost of any work remaining to be executed until it is completed. The Silver Book further indicates that the percentage value of each section must be stated in the contract in order for corresponding percentages of either half of the retention money to be released under this sub-clause. 18-53 Orange Book sub-clause 13.9 is very similar to the Silver Book provisions but slightly less comprehensive. It does not contain a prohibition a~ainst retention money repayments if the sectional percentages are not stated In the appendix to tender. It also does not specifically provide for the repayment of a portion of the second half of the retention money upon the expiry of a defects correction period relating to a particular section. Rather, the second half of the retention money is released at the end of the contract period, subject to other justified withholding under the sub-clause, such as for outstanding work. Red Book sub-clause 14.9 contains provisions similar to Silver Book 14.9, subject to several differences. Under the Red Book, a retention money repayment must be certified by the engineer, and the first half is repaid simply upon taking over. This is because the Red Book contains no tests after completion. Therefore all testing should be completed by taking over under the Red Book. The Red Book also sets forth a specific calculation to be used in the event retention money repayments are made for individual sections. It further states that adjustments for changes in legislation and changes in cost under sub-clauses 13.7 and 13.8 shall not be considered in calculating these proportional repayments. 22

2l

EIC Guide, op. cit. n. 14 above, p. 28. FIDIC Guide, op. cit. n. 15 above, p. 250.

420

DISCUSSION OF SPECIFIC SUB-CLAUSES

Yellow Book sub-clause 14.9 is the closest to Silver Book 14.9 and nearly identical. The only difference is that it is the engineer who certifies the retention money payments. The ENAA does not set forth specific provisions for retention money in the Contract Agreement or General Conditions but contemplates an Appendix 8-3 to be used by the parties for that purpose. However, the ENAA contemplates two possibilities for the recovery of retention money (ENAA 8.3 cal. Under the first, retention money may be withheld by the owner from payment of the contract price. In that case, the contractor may from time to time provide the owner with a retention bond for a sum equal to all or part of the retention money withheld or to be withheld (ENAA 13.4.1). Upon receipt of this bond, the owner must immediately pay the contractor all retention money withheld up to the sums guaranteed by the bond(s) (ENAA 13.4.1). The alternative contemplated by the ENAA is that no retention money may be withheld by the owner but instead a retention bond is delivered by the contractor to the owner prior to the first progress payment (ENAA 13.4.2). In this case, the bond becomes null and void on the date of acceptance and shall be reduced in value in proportion to the value of works accepted in parts (ENAA 13.4.3 ). ICE 60(5) sets forth a method to determine the amount of retention from payments. ICE 60(6) also provides a very detailed method for organising the repayment of this retention money: (a) Upon the issue of a Certificate of Substantial Completion in respect of any Section or part of the Works there shall become due to the Contractor one half of such proportion of the retention money deductible to date under sub·clause (5)(a) of this Clause as the value of the Section or part bears to the value of the whole of the Works completed to date as certified under sub-clause (2) of this Clause. The final date for payment shall be 14 days after the date of issue of the relevant Certificate of Substantial Completion. The total of the payments which shall become due under this sub-clause shall in no event exceed one half of the limit of retention set out in the Appendix to the Form of Tender. (b) Upon the issue of the Certificate of Substantial Completion in respect of the whole of the Works there shall become due to the Contractor one half of the retention money calculated in accordance with sub-clause (5)(a) (or the balance thereof over and above such payments already made pursuant to subclause (6)(a) of this Clause). The final date for payment shall be 14 days after the date of issue of the Certificate of Substantial Completion for the whole of the Works. (c) At the end of the Defects Correction Period or if more than one the last of such periods there shall become due to the Contractor the remainder of the retention money. Within 10 days of the date of the end of the said period the Employer's Representative shall certify the amount due. The final date for payment shall be 14 days after the end of the relevant Defects Correction Period.

421

18-54

CONTRACT PRICE AND PAYMENT

Provided that if at that time there remains to be carried out by the Contractor any outstanding work referred to under Clause 48 or any work ordered pursuant to Clauses 49 or 50 the Employer may by giving due notice under Clause 60(10) withhold payment until the completion of such work or so much of the said remainder as shall in the opinion of the Employer's Representative represent the cost of the work remaining to be carried out.

18-55

(ICE 60(6).) The AlA's retention money payment provision is less complex. It states that: "At the time of Substantial Completion, the owner shall pay the Design/Builder the retainage, if any, less the reasonable cost to correct or complete incorrect or incomplete Work. Final payment of such withheld sum shall be made upon correction or completion of such Work." (AlA 5.1.8Part 2). The DBIA states: Upon Substantial Completion of the entire Work or, if applicable, any portion of the Work, Owner shall release to Design-Builder all retained amounts relating, as applicable, to the entire Work or completed portion of the Work, less an amount equal to the reasonable value of all remaining or incomplete items of Work as noted in the Certificate of Substantial Completion. (DBIA 6.6.2. See also, DBIA 7.2.2 ca.) The EIC contains no provisions regarding retention money. Under the AGC, the owner may retain a percentage of each progress payment made prior to substantial completion (AGC 9.2). Where the owner chooses to use this retainage provision, the owner may, inter alia, pay the contractor the withheld amount at the time the work is 50 per cent complete or allow the contractor to furnish securities in lieu of retainage (AGC 9.2). The AGC provides that the owner may, in its sole discretion reduce the amount retained at any time (AGC 9.2).

18-56

DISCUSSION OF SPECIFIC SUB- CLAUSES

Silver Book sub-clause 14.10 sets forth the procedure and requirements regarding the contractor's statement at completion. This statement concerns payment due to the contractor as of taking over. However, this is not necessarily the final payment in that defects may be remedied or variations ordered after taking over and during the defects notification period. Nonetheless, Silver Book 14.10 states that within 84 days of receiving the taking-over certificate, the contractor must submit to the employer in six copies a statement showing the value of all work done up to the date of taking over, any further sums the contractor considers to be due and an estimate of any other amounts which the contractor considers will become due to him under the contract, the latter to be shown separately. The employer must then give notice to the contractor in accordance with subclause 14.6 (28 days' notice of any objections) and J;Ilake payment in accordance with sub-clause 14.7 (within 56 days of the employer's receipt of the statement). ' Orange Book sub-clause 13.10 and Red and Yellow Book sub-clauses 14.10 are substantially identical to the Silver Book provision. However, under the Orange Book the employer's representative receives the statement and issues a payment certificate to the employer, as does the engineer under the Red and Yellow Books. The AGC is the only non-FIDIC contract discussed herein containing a separate provision for a payment at completion. Although it does not contain the reporting and estimate requirements of the Silver Book, it does provide for a specific payment:

18-57

18-58

Upon Substantial Completion of the Work, the Owner shall pay the DesignBuilder the unpaid balance of the Contract Price, less a sum equal to one hundred and fifty percent (150%) of the Design-Builder's estimated cost of completing any unfinished items as agreed to between the Owner and DesignBuilder as to extent and time for completion. The Owner thereafter shall pay the Design-Builder monthly the amount retained for unfinished items as each item is completed.

14.10 Statement at Completion Within 84 days after receiving the Taking-Over Certificate for the Works, the Contractor shall submit to the Employer six copies of a Statement at completion with supporting documents, in accordance with Sub-Clause 14.3 [Application for Interim Payments), showing: (a) the value of all work done in accordance with the Contract up to the date stated in the Taking-Over Certificate for the Works, (b) any further sums which the Contractor considers to be due, and (c) an estimate of any other amounts which the Contractor 'considers will become due to him under the Contract. Estimated amounts shall be shown separately in this Statement at completion. The Employer shall then give notice to the Contractor in accordance with SubClause 14.6 [Interim Payments) and make payment in accordance with SubClause 14.7 [Timing of Payments).

422

(AGC 9.1.8.) The ENAA, EIC, ICE, AlA and DBIA contain no statement at completion terms comparable to Silver Book sub-clause 14.10.

18-59

14.11 Application for Final Payment

Within 56 days after receiving the Performance Certificate, the Contractor shall submit, to the Employer, six copies of a draft final statement with supporting documents showing in detail in a form approved by the Employer: (a) the value of all work done in accordance with the Contract, and (b) any further sums which the Contractor considers to be due to him under the Contract or otherwise.

423

CONTRACT PRICE AND PAYMENT

18-60

18-61

1£ the Employer disagrees with or cannot verify any part of the draft final statement, the Contractor shall submit such further information as the Employer may reasonably require and shall make such changes in the draft as may be agreed between them. The Contractor shall then prepare and submit to the Employer the final statement as agreed. This agreed statement is referred to in these Conditions as the "Final Statement".

certificate stating the amount which in his opinion is finally due under the Contract from the Employer to the Contractor or from the Contractor to the Employer .(as the case may be) up to the date of the Defects Correction Certificate and 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.

However if, following discussions between the Parties and any changes to the draft final statement which are agreed, it becomes evident that a dispute exists, the Employer shall pay the agreed parts of the draft final statement in accordance with Sub-Clause 14.6 [Interim Payments) and Sub-Clause 14.7 [Timing of Payments). Thereafter, if the dispute is finally resolved under Sub-Clause 2004 [Obtaining Dispute Adjudication Board's Decision) or Sub-Clause 20.5 [Amicable Settlement), the Contractor shall then prepare and submit to the Employer a Final Statement.

(ICE 60(4).) The AlA also contains a final application procedure: "When the Work has been completed and the contract fully performed, the Design/Builder shall submit a final application for payment to the Owner, who shall make final payment within 30 days of receipt" (AlA 5.2.2-Part 2.) AlA Part 2 also contains a specific list of requirements that must be satisfied before final payment or repayment of retainage is effected, including (1) the submission of an affidavit of the contractor's repayment of indebtedness relating to the works, (2) a certificate that proper insurance will remain in force, (3) consent of the surety to final payment and (4) satisfactory proof of clear title and/or lien waivers (AlA 5.2.1-Part 2). The AGC does not contain a final application procedure. However, it does state several prerequisites to final payment, like the AlA. "Before issuance of final payment, the Owner may request satisfactory evidence that all payrolls, materials bills and other indebtedness connected with the Work have been paid or otherwise satisfied" (AGC 9.5.1.) The DBIA contains a procedure regarding the final application for payment. Under the DBlA, the contractor must submit his final application for payment in accordance with section 6.7 of the general conditions (DBIA 7.3 cal. Section 6.7.1 of the DBIA states that "[a]fter receipt of a Final Application for Payment from Design-Builder, Owner shall make final pa~ment by the time required in the Agreement, provided that DesignBulider has completed all of the Work in conformance with the Contract Documents" (DBIA 6.7.1). The DBIA also sets forth a list of information to be submitted with the final application:

Silver Book sub-clause 14.11 sets forth the requirements and procedure for the contractor's application for final payment. Within 56 days of receiving the performance certificate, the contractor must submit a draft final statement to the employer in six copies with supporting documents and in a form approved by the employer. The draft final statement details the value of all work done in accordance with the contract and any further sums the contractor considers to be due. The employer may request additional information if he disagrees or cannot verify part of the statement, and the parties may agree upon modifications to the draft. The contractor must then prepare and submit to the employer the final statement as agreed, and this is considered to be the" Final Statement". If any disputed items of the draft statement cannot be resolved by agreement, the employer must pay the contractor the undisputed amounts in accordance with the procedures for interim payments. The final statement is later prepared once the dispute is resolved in accordance with the contract's dispute resolution procedures and submitted to the employer. Orange Book sub-clause 13.11 and Red and Yellow Book sub-clauses 14.11 are generally identical to the Silver Book provision, with the exception that the employer's representative and engineer respectively, are the primary actors in this process, rather than the employer. The ENAA and EIC contain no provisions comparable to Silver Book subclause 14.11 regarding an application for final payment. The ICE contains a provision very similar to the FIDIC application for final payment. It states: Not later than 3 months after the date of the Defects Correction Certificate the Contractor shall submit to the Employer's Representative a statement of the final account and supporting documentation showing in detail the value in accordance with the Contract of the Works carried out together with all further sums which the Contractor considers to be due to him under the Contract up to the date of the Defects Correction Certificate. Within 3 months after receipt of this final account and of all information reasonably required for its verification the Employer's Representative shall issue a 424

DISCUSSION OF SPECIFIC SUB-CLAUSES

At the time of submission of its Final Application for Payment, Design-Builder shall provide the following information and items: .1 an affidavit that there are no claims, obligations or liens outstanding or unsatisfied for labor, services, materials, equipment, taxes or other items performed, furnished or incurred for or in connection with the Work which will in any way affect Owner's interests; .2 a general release executed by Design-Builder waiving, upon final payment by Design-Builder, all claims, except those claims previously made in writing to Owner and remaining unsettled at the time of final payment; .3 consent of Design-Builder's surety, if any, to final payment; A all operating manuals, warranties and other deJiverables required by the Contract Documents; and .5 certificates of insurance confirming that required coverages will remain in effect consistent with the requirements of the Contract Documents. (DBIA 6.7.2.) 425

18-62

CONTRACT PRICE AND PAYMENT

18-63

14.12 Discharge When submitting the Final Statement, the Contractor shall submit a written discharge which confirms that the total of the Final Statement represents full and final settlement of all moneys due to the Contractor under or in connection with the Contract. This discharge may state that it becomes effective when the Contractor has received the Performance Security and the out-standing balance of this total, in which event the discharge shall be effective on such date.

18-64

Silver Book sub-clause 14.12 indicates that along with the final statement, the contractor must submit a written discharge confirming that the final statement represents the full and final settlement of all monies due to the contractor. The discharge may state that it becomes effective once the contractor is returned the performance security and receives payment of the amounts in the final statement. Orange Book sub-clause 13.12 and Red and Yellow Book sub-clauses 14.12 contain provisions identical to the Silver Book. Under the DBIA, "a general release executed by Design-Builder waiving, upon final payment by Design-Builder, all claims, except those claims previously made in writing to Owner and remaining unsettled at the time of final payment" must be provided to the owner at the time of final application for payment (DBIA 6.7.2.2). However, the ENAA, EIC, ICE, AlA and AGC do not require the submission of a discharge or release comparable to Silver Book sub-clause 14.12.

18-65

14.13 Final Payment In accordance with sub-paragraph (c) of Sub-Clause 14.7 [Timing of Payments], the Employer shall pay to the Contractor the amount which is finally due, less all amounts previously paid by the Employer and any deductions in accordance with Sub-Clause 2.5 [Employer's Claims].

18-66

Silver Book sub-clause 14.13 deals simply with the final payment from the employer to the contractor. The payment is effected in accordance with subclause 14.7(c), which states that the employer must pay the contractor the final amount due within 42 days after receiving the final statement and written discharge. According to sub-clause 14.13, this final amount is reduced by all amounts previously paid by the employer and any deductions for employer's claims. The corresponding sub-clauses in the Orange, Red and Yellow Books are longer and more detailed than the Silver Book provision. These contracts provide for the additional step of the engineer or employer's representative certifying a final payment certificate to the employer. Under Orange Book sub-clause 13.13, the employer's representative must issue to the employer a final payment certificate within 28 days after 426

DISCUSSION OF SPECIFIC SUB-CLAUSES

receiving the final statement and written discharge from the contractor. The final payment certificate will state the total amount remaining to be paid to the contractor, taking into account amounts already paid and other justified reductions. If the contractor fails to apply for a final payment certificate, the employer's representative:Will ask him to do so. H the contractor fails to make this application within 28 days, the engineer will issue the final payment certificate for the amount he considers to be due. There is no reference to the mechanics of the actual payment from the employer. However, this is covered under Orange Book 13.7(b), which states that "the Employer shall pay the amount certified in the Final Payment Certificate within 56 days from the date of issue of the Certificate" . Red and Yellow Book sub-clauses 14.13 differ entirely from the Silver Book but are nearly identical in content to Orange Book 13.13 described above. However, under the Red and Yellow Books it is the engineer who prepares and issues the final payment certificate to the employer, rather than the employer's representative. The ENAA and EIC contain no provisions comparable to Silver Book subclause 14.13. The ICE states simply the final amount shall, subject to liquidated damages, be paid to or by the contractor as the case may require (ICE 60 (4)). "The payment becomes due on certification. The final date for payment is 28 days later" (ICE 60 (4).) Final payment must be made under the AlA within 30 days of receipt of the contractor's final application for payment (AlA 5.2.2-Part 2). Under the AGC, "[fJinal payment, consisting of the unpaid balance of the Contract Price, shall be due and payable when the Work is fully completed" (AGC 9.5.1). . The DBIA contract agreement states that the "Owner shall make payment on Design-Builder's properly submitted and accurate Final Application for Payment within thirty (30) days after Owner's receipt of the Final Application for Payment" (DBIA 7.3 cal. The general conditions state that "[alfter receipt of a Final Application for Payment from Design-Builder, Owner shall make final payment by the time required in the Agreement, provided that Design-Builder has completed all of the Work in conformance with the Contract Documents" (DBIA 6.7.1).

18-67

18-68

14.14 Cessation of Employer's Liability The Employer shall not be liable to the Contractor for any matter or thing under or in connection with the Contract or execution of the Works, except to the extent that the Contractor shall have included an amount expressly for it: (a) in the Final Statement and also (b) (except for matters or things arising after the issue of the Taking-Over Certificate for the Works) in the Statement at completion described in Sub-Clause 14.10 [Statement at Completion]. 427

I

CONTRACT PRICE AND PAYMENT

However, this Sub-Clause shall not limit the Employer's liability under his indemnification obligations, or the Employer's liability in any case of fraud, deliberate default or reckless misconduct by the Employer. 18-69

18-70

18-71

Silver Book sub-clause 14.14 is an attempt to limit the employer's liability under the contract or in connection with the contract. It states that the employer shall not be liable for anything under or in connection with the execution of the works unless the contractor has expressly included an amount for it in the final statement. The final statement shows in detail the value of all work done in accordance with the contract and any further sums the contractor considers to be due to him under the contract or otherwise. The employer will also be liable for matters included in the contractor's statement at completion. The contractor's failure to notify any claims in either of these documents will, with minor exceptions, bar such c1aims. 14 Employers should be aware, however, that according to certain commentators the liability stipulations of this sub-clause may be invalidated or overridden under the applicable law. 25 Sub-clause 14.14 indicates that it does not limit the employer's liability regarding indemnification obligations or in the case of fraud, deliberate default or reckless misconduct. In addition, if the employer fails to issue a performance certificate, in accordance with sub-clause 11.9, then sub-clause 14.14 shall not apply.26 Red and Yellow Book sub-clauses 14.14 are identical to the Silver Book provision, although sub-clause 11.9 of these contracts does not provide for the possibility of the exclusion of the operation of sub-clause 14.14. Orange Book sub-clause 13.14 is nearly identical to the Silver Book provision. However, it does not contain the last statement regarding the employer's potential continuing liability for indemnification or intentional defaults. Under the FIDIC contracts the final statement is really the contractor's last opportunity to include items which the employer may be liable to pay for. The above sub-clause 14.14 confirms this idea. The written discharge under sub-clause 14.12 confirms the end of the employer's payment obligations, but the effective date of this discharge can and should be the date of the actual final payment. The ENAA and ICE contain no provision comparable to Silver Book subclause 14.14. The EIC indicates that once the contract price is paid it shall "be in full satisfaction of the Contractor's entitlement pursuant to the Contract" (Ele 14.2.) This suggests that the employer has no further financial obligation to the contractor once the contract price is paid. Under the AlA, "[a]cceptance of final payment shall constitute a waiver of all claims by the Design/Builder except those previously made in writing and identified by the Design/Builder as unsettled at the time of final Application for Payment" (AlA S.2A-Part 2). 2<

2S

26

EIC Guide, op. cit. n. 14 above, p. 29. Such may be the case under German law. For discussion see Dr A. Kus, Dr J. Markus & Dr R. Steding, "FIDIC's new 'Silver Book' under the German Standard Form Contracts Act" (1999) 16 (4) 1.C.L.R. 533 at 546-547. FlDIC Guide, op. cit. n. 15 above, p. 255.

428

DISCUSSION 0[;' SPECIFIC SUB-CLAUSES

The AGC states that "[i]n accepting final payment, the Contractor waives all claims except those previously made in writing and which remain unsettled" (AGC 9.5.3). The DBIA provides for a general release by the contractor whereby he waives, upon final payment, all claims, except those claims previously made in writing to the owner and remaining unsettled at the time of final payment (DBIA 6.7.2.2).

14.15 Currencies of Payment

18-72

The Contract Price shall be paid in the currency or currencies named in the Contract Agreement. Unless otherwise stated in the Particular Conditions, if more than one currency is so named, payments shall be made as follows: (a) if the Contract Price was expressed in Local Currency only: (i) the proportions or amounts of the Local and Foreign Currencies, and the fixed rates of exchange to be used for calculating the payments, shall be as stated in the Contract Agreement, except as otherwise agreed by both Parties; (ii) payments and deductions under Sub-Clause 13.5 [Provisional Sums) and Sub-Clause 13.7 [Adjustments for Changes in Legislation) shall be made in the applicable currencies and proportions; and . (iii) other payments and deductions under sub-paragraphs (a) to (d) of Sub-Clause 14.3 [Application for Interim Payments) shall be made in the currencies and proportions specified in sub-paragraph (a) (i) above; (b) payment of damages specified in the Particular Conditions shall be made in the currencies and proportions specified in the Particular Conditions; (c) other payments to the Employer by the Contractor shall be made in the currency in which the sum was expended by the Employer, or in such currency as may be agreed by both Parties; (d) if any amount payable by the Contractor to the Employer in a particular currency exceeds the sum payable by the Employer to the Contractor in that currency, the Employer may recover the balance of this amount from the sums otherwise payable to the Contractor in other currencies; and (e) if no rates of exchange are stated in the Contract, they shall be those prevailing on the Base Date and determined by the central bank of the Country. Exchange rate fluctuations can have a drastic effect on the real cost of the project and should be considered carefully by the parties. As its title indicates, Silver Book sub-clause 14.15 contains provisions regarding the currencies of payment. It begins by stating simply that the contract price shall be paid in the currency or currencies named in the contract agreement. Specifications or requirements regarding the currencies of payment shall be as stated in the particular conditions, which override this sub-clause. However, except as otherwise stated in the particular conditions or other429

18-73

CONTRACT PRICE AND PAYMENT

wise agreed between the parties, if the contract price was expressed in the local currency, the proportions or amounts of the local and foreign currencies and the fixed rates of exchanges to be used shall be as stated in the contract agreement. Payment and deductions for provisional sums and price adjustments for changes in legislation must also be made in the applicable currencies and proportions. Any other payments or deductions are also made as stated in the currencies, proportions and at the fixed rates stated in the contract agreement. Any damages payments must be made in the currencies and proportions specified in the particular conditions. Other payments to the employer by the contractor shall be made in the currency in which the sum was expended by the employer or as otherwise agreed. If no rates of exchange are stated in the contract, they shall be those prevailing on the base date and determined by the central bank of the country. Red and Yellow Book sub-clauses 14.15 are identical to the Silver Book provisIOn. This sub-clause perhaps goes into unnecessary detail regarding currencies of payment. The overriding idea in the sub-clause is that the currencies of payment and the proportions of various payments shall be made as stated in the contract agreement or particular conditions. In the event payments are being made in more than one currency, it will be important for the parties (and almost certainly required by the lenders) to include very specific provisions in the particular conditions or as an appendix to the contract to deal with currency risks. The utility of this extensive sub-clause 14.15 is therefore called into question and may need to be modified. Detailed provisions for currencies of payment, proportions and exchange rates may be better dealt with in an appendix or annex to the contract. The use of the rates of the central bank of the country in which the works are to be executed as a default may also prove artificial as a measure. It may be that both the contractor and the employer come from countries other than that of the works. The use of the central bank rate of the currency of the contract price may be more realistic. The World Bank requires language leaving the fixed rate of exchange to the parties' discretion as defined in the appendix. It also provides for renegotiation to amend foreign and local currency portions of the balance of the contract price where the engineer identifies a substantial change in the requirements of the contractor due to changes in cost of materials, plant or services in the country of origin. 27 18-74 The parties will wish to determine the provisions of the applicable law regarding the use of rates of exchange. The original provision contained in Orange Book sub-clause 13.15 states simply that if the contract price is expressed in the local currency only, but some payments are to be made in a different currency, the proportions or amounts of the local and foreign currencies and the fixed rates of exchange to be used shall be as stated in the

17

DISCUSSION OF SPECIFIC SUB-CLAUSES

appendix to tender. Orange Book sub-clause 13.15 does include, rightly, default exchange rate provisions similar to the Silver Book. If no rates of exchange are stated, they shall be those prevailing on the base date as determined by the central bank of the country. A default provision of some type is very important to include because currency risk could be very significant in certain countries. By fixing a static default rate of exchange as the rate in effect on the base date, there will be no (or fewer) surprises for the employer if actual exchange rates change dramatically after the contract is signed. This may be acceptable for the employer and the project lenders. However, a local contractor may seek modified provisions allowing rate adjustments past certain levels so that the real value of payments to him in local currency are not significantly reduced by inflationary exchange rate changes. Under the ENAA any breakdown of the contract price, in foreign currencies or otherwise, is to be included in an appendix (ENAA 3.1 cal. The ENAA contains no other specific provisions regarding payment in more than one currency. The EIC states: When the Contract Price is expressed in any particular currency then unless the parties otherwise agree payment shall be made in that currency at the place stipulated by the Contractor and where there is more than one currency the Contract Price shall be paid in such currency of the Contractor's choice at the place stipulated in the Terms of Payment. (EIC 15.2.) The ICE, AlA, AGC and DBIA contain no provisions regarding currencies of payment. In line with the more domestic focus of these contracts, they perhaps assume that all payments will be made in the domestic currency.

World Bank op. cit. n. 6 above at 146.

430

431

18-75

CONTRACT PRICE AND PAYMENT

18-76

Figure 18.1

DISCUSSION OF SPECIFIC SUB-CLAUSES

Sequence of payment events

ADVANCE PAYMENT

.

Contractor first submits statement, performance security and advance payment guarantee (14.2). Once these are submitted, employer makes first instalment of advance payment (14.2). However, no amount is due until the employer has received the performance security (14.6). First instalment of advance payment is paid by the employer within 42 days after the contract enters into force or within 21 days of receiving the performance security and advance payment guarantee, whichever is later (14.7(a)).

STATEMENT AT COMPLETION Within 84 days after receiving taking-over certificate, contractor shall submit statement at completion (14.10). Statement at completion includes: - value of work up to the date stated in the taking-over certificate, - further sums the contractor considers due, - an estimate of any other amounts contractor considers will become due (14.10). Within 28 days of receiving the statement at completion, employer may give notice of items with which he disagrees (1~.6, 14.10). Amount due from statement at completion is paid by employer within 56 days of receiving the statement and supporting documents (14.7(b), 14.10).

STATEMENTS AND INTERIM PAYMENTS Contractor applies for interim payments by submitting a statement and supporting documents (14.3). Statement includes: - estimated contract value of works executed up to the end of the month, - additions and deductions for changes in legislation, cost, retention or others, - additions and deductions for advance payment and repayment (14.3). Within 28 days of receiving a statement and supporting documents, employer may give notice of items with which he disagrees (14.6). Amount due in each statement for interim payment is paid by employer within 56 days of receiving the statement and supporting documents (14.7(b». Contractor entitled to financing charges for any delayed payments (14.8).

DEFECTS NOTIFICATION PERIOD EXPIRES Outstanding balance of the retention money paid to contractor, for entire work or for a section, subject to withholding for work remaining incomplete (14.9).

PERFORMANCE CERTIFICATE Employer shall issue performance certificate within 28 days after latest of: - expiry dates of defect notification periods; or - as soon thereafter as contractor: i) supplied all contractors documents; ji) completes and tests all the works; and jii) remedies any defects (11.9). Only the performance certificate shall be deemed to constitute acceptance of the works (11.9).

TAKING-OVER CERTIFICATE Upon taking over, the balance of the advance payment is repaid to employer if not already (14.2). First half of retention money paid to contractor after issuance of takingover certificate and passage of all specified tests, for entire works or for a section (14.9).

432

APPLICATION FOR FINAL PAYMENT Within 56 days of receiving performance certificate, contractor submits draft final statement to employer (14.11). Draft final statement shows: - value of all work done under contract, - any further sums contractor considers to be due (14.11). Parties discuss draft, modify if necessary and contractor submits agreed final statement (14.11). Contractor prepares and submits written discharge (14.12). Employer pays final amount due within 42 days after receiving the final statement and written discharge (14.7(c), 14.13). 433

DI SCU SS ION OF SPECIFIC SUB-CLAUSES

CONTRACT PRICE AND PAYMENT

18-77

Figure 18.2 Potential price increases under the FIDIC Silver Book (exceptions to the lump-sum contract price)

,
~lause

434

,

,'.'

,

"r

¥

~.

, '1

Clatise

.",

~f;j~~;~i(~~j~~~1n'bst 'iF: ' .,.. ". .~.,. "".."..-. - ' • ,::;- - . .

.. 4,' ."

.~:. ~.

2.1

Costs to contractor caused by employer's failure to give contractor access to or possession of the site within the time stated in the particular conditions.

13.8

Price adjustments for increases or decreases in the cost of labour, goods and other inputs to the works (if so provided in the particular conditions).

4.6

Unforeseeable work accommodations to employer's personnel or public authorities causing contractor to incur additional cost.

14.8

Financing charges for delayed payments.

15.5

Costs and lost profit subsequent to employer's termination for convenience.

4.24

Costs caused by employer's instructions to contractor regarding archaeological remains discovered on the site.

16.1

5.4

Changes in the host country's technical standards and regulations for which contractor's compliance causes additional costs.

Additional costs resulting from contractor's suspension of work for employer's failure to provide evidence of its ability to payor for non-payment.

16.4(b)(c)

Payment to contractor of loss of profit and other loss or damage following justified termination by contractor.

7.4

Additional costs caused by employer's instructions to vary the location or details of any tests or to perform additional tests.

17.4

Cost to contractor of rectifying any loss or damage due to an employer's risk event.

8.9

Additional costs caused by contractor's compliance with employer's instruction to suspend work to the extent the suspension was not due to contractor's fault.

18.1

9.2

Test delays caused by employer.

10.3

Additional costs caused by employer's interference with the tests on completion.

Payment by contractor of insurance premiums for which employer is responsible and the amount of any insurance payment that would have been received upon the occurrence of an insurable event absent employer failure to maintain insurance.

19.4

Costs resulting from the occurrence of a force ma;eure event.

19.6

Costs incurred in connection with termination of the contract after a force ma;eure event.

19.7

Costs incurred in connection with termination of the contract due to the occurrence of an event making it impossible or unlawful for either party to fulfil its contractual obligation and which under the law of the contract entitles either party to be released from further performance.

11.6

Additional costs of tests required after the correction of any defect or damage to the works to the extent the defect or damage was not attributable to the contractor.

11.8

Additional costs incurred by contractor when instructed by employer to search for a defect in the works not attributable to the contractor.

12.2

Additional costs to contractor caused by any unreasonable delay by the employer to the tests after completion.

12.4

Additional costs as a result of any unreasonable delay by the employer in permitting access to the works or plant by the contractor, either to investigate the causes of a failure to pass a test after completion or to carry out any adjustments or modifications.

13.3

Variations.

13.7

Additional costs caused by a change in the laws of the host country.

435

DISCUSSION OF SPECIFIC SUB-CLAUSES

CONTRACT PRICE AND PAYMENT

18-78

Figure 18.3

Price increase comparison

1.9,5.1 (VB only)

Error in employer's requirements

32.2

2.2

2.1

41.2 (b), 41.3

42.3

22.4

31(2)

Unforseeable work accommodations to

employer's personnel or public authoriries

4.6

4.6

Errors in employer-provided conrract specifications for serting our the works

Unforseeable or unforseen conditions

Hazardous material or conditions

436

4.7

4.11

4.12

4.24

4.24

(ii)

6(2) (d), 8(3)

2.1

4.24

8.7

9.5.1

6(I)(b)

Failure 10 give timely consent or disapproval of design, drawings or quality assurance plan and procedures Employer's failure 10 give contractor access to rhe site

S(lHc)

Emergency work by the contractor

1.9 (RB only)

Engineer's failure to issue necessary drawings or instructions

Employer instructions regarding archaeological remains

22.1.1

32.2, 35.2

5.4

Employer's instructions to vary test locarion or derails

7.4

Employer suspensions (contractor not at fault)

8.9

Test delays caused by the employer

9.2

5.4

12(2)

8.5

4.2.1, 6.3.1, 8.2.1, 8.5 8.2.2

3.5.5, 6.3.1

4.1.4, 8.2.1, 8.2.2

Employer's interference with rhe rests on complerion

Addirionaltests required afrer rhe correction of any defect or damage ro the works nor auriburable to the

5.4 (VB only)

7.4

8.8

8.9

23.5

40(1)

11. 1.2 11.1.2

9.2

Employer's raking over of rhe works other than as provided in the contract

32.2

4.8

Changes or new technical standards or regulations

10.2

10.3

11.6

10.3

10.3

11.6

contractor

437

CONTRACT PRICE AND PAYMENT

Cost of search for defect (contractor not at fault)

11.8

12.8

Unreasonable delay by the employer to the tests after completion

12.2

11.2

Employer's failure to give access to site to investigate test failure or modify work failing tests after completion

DISCUSSION OF SPECIFIC SUB-CLAUSES

11.8

(YB

only)

12.2 12.4

11.4

Adjustments for inc teases or decreases in the cost of labour, goods and other inputs to the works (if so provided in the contract)

438

13.8

14.8

12.3

Employer's termination for convenience

15.5

2.4

15.5

42.1.3

Works preservation by contractor and additional costs after employer termination for cause

(YB

only)

13.3

14.3

13.3

39.6

11.1.2, 52(3) 11.2

Additional services

Changes in the laws

14.8

14.8

60(7)

5.3.1

9.1.5

6.4.1

11.3

8.1, 8.2 ca

12.2

Acts or omissions of employer generally

Variations

Financing charges for delayed payments

13.7

13.8

13.16

13.7

13.8

36.1

12.14

26(4)

8.2.1

6.3.1

8.2.1, 8.2.2

6.3.1, 8.1

8.2.1, 8.2.2, 9.1.1, 9.1.3, 9.2.1

1.4 (Pt. I), 3.3 (Pt. 2)

3.10

8.6.1

8.8

Justified contractor's suspension of work for employer payment or other failures

Loss of profit and other loss or damage following justified termination by

2.5, 42.3.4

16.1

16.1

16.4 (b) (c)

16.4

17.4

17.4

16.1

41.3

16.4 42.3.4 (b) (c)

19.4

64(3)

19.3

64(6)

12.1, 12.3

63(4)

12.2.1 11.4.3

11.4

contractor

2.5.2

Cost to contractor of rectifying any loss or damage due to an employer's risk event

Employer's non-payment of insurance premiums and recovery of insurance proceeds

18.1

17.4

18.1

34.6

6.3.1

7.3.3

439

DISCUSSION OF SPECIFIC SUB-CLAUSES

CONTRACT PRICE AND PAYMENT

Costs resulting from the occrrence of a (orce majeure event

19.4

19.5

19.4

Costs incurred in connection with termination of the contract after a force majeure event

19.7

19.6

19.6

32.2, 38.3, 38.4

Contractor's costs and expenses relating to the acquisition and administration of long lead items

12.4.1

Loss or damage by employer's personnel to conrr3ctor's

21.3.5

22.4

equipment

Termination of contract due to impossibility or unlawfulness

Expenses associated with uncovering! opening works found to be in conformity with the contract

19.7

63(4)

19.7

Contractor's provision of access to employer to places where materials are

19.2.2

Employer instructions in the context of disapproval of a document or modification that contractor refers to

an expert and wins

440

14.4

23.8

manufactured or works executed

nominated su bcontractor

Change in tax regime

23.7

23.11

Conclusion of contract between contractor and

Employer's instructions in the context of a dispute over test/inspection referred to an expert that contractor wins

16.4 Loss or damage due to employer design decision

20.3.5

Use or occupation of the works by the employer

12.4.2

32.2

12.4.2

441

CHAPTER

19

TERMINATION BY EMPLOYER General Comments In the execution of a construction contract, situations may arise wherein termination of the contract before completion becomes necessary or prudent. In order to avoid the potential difficulties and inequities that may result from the termination regime provided by the applicable law, the parties to a construction contract may want to specify termination provisions in the contract.! Such provisions should include the grounds and procedure for termination as well as the remedies available to either party. This Chapter 19 will examine termination by the employer for cause and for convenience and the effects of both types of termination. Chapter 20 will examine the ability of the contractor to terminate the contract in certain situations.

19-01

The validity and effect of a termination clause The parties should exercise care in the drafting of a termination clause. In today's construction market, employers may be tempted to include harsh termination provisions requiring the contractor to forfeit retention money on termination, denying the contractor any sum owed for work completed and placing any materials or equipment found on the site in the ownership of the employer, regardless of the amount of damage incurred by the employer and moneys owed the contractor. The employer should recoup his losses from the equipment, materials and moneys owed to the contractor, but not more. 2 The employer implementing provisions providing him with remuneration greater than his losses should be aware that under certain legal systems such a clause may be considered a penalty clause and possibly void. The UNCITRAL Legal Guide points out that local law may be insufficient to deal with construction projects, particularly large turnkey projects, as considered here. The use of a termination clause will provide order in dealing with termination and allows termination in situations necessary under a turnkey contract, but not provided for under the general law. UNCITRAL, UNCITRAL Legal Guide on Drawing Up International Contracts for the Construction of Industrial Works (UN, New York, 1998) UNDOC. NCN.9/SER.Bl2 at 268. 2 S. Furst Q.c. & V. Ramsey Q.C. eds, Keating on Building Contracts (7th ed., Sweet & Maxwell, London, 2001), p. 247. I

443

19-02

DEFAULT OF CONTRACTOR

TERMINATION BY EMPLOYER

A termination clause does not necessarily limit the parties' remedies. In certain legal systems, either party may pursue its remedies under the law of the contract for breach, unless this is specifically excluded by the contract. 3 It is also thought that, for example the U.K. courts will not exercise their equitable jurisdiction to grant relief for the consequences of termination. 4 The actions of the courts or arbitrator will, of course, depend on the law applicable to the contract. Therefore, the termination clause should clearly define the parties' rights in the event of a termination.

Drafting of the termination clause

19-03

In drafting a termination clause the parties may want to require the prior written notice of the party terminating to clarify the basis for termination and to allow the other party an opportunity to cure before allowing termination. s The parties may also want to consider any mandatory legal rules applicable to the contract. In certain legal systems they may need to provide specifically for termination without judicial consent. 6 Unless the parties stipulate otherwise, the non-breaching party should be required to exercise his termination remedy within a reasonable period of time after becoming aware of the breach in question. Under certain legal systems, if he does not act within this time, he may be presumed to have waived his right to act. 7

Default of Contractor 19-04

Most construction contracts will contain an express termination clause whereby the employer may terminate the employment of the contractor (or terminate the contract), retake possession of the site and finish the project himself when the contractor is in default of his contractual obligations. The nature and extent of the employer's rights in this situation will depend on the express provisions of the clause. In some jurisdictions such termination does not generally terminate the contract; other provisions may well survive and continue to govern the parties' relationship. 8 I.N.D. Wallace Q.C., Hudson 's Building and Engineering Contracts (11th ed., Sweet & Maxwell, London, 1995), pp. 1243 et seq. • Furst & Ramsey op. cit. n. 2 above, p. 257. 5 This written notice is particularly important. In certain jurisdictions, the lack of writing may put the terminating party in the position of having repudiated the contract under the general law. I.N.D. Wallace Q.C., Hudson's Building and Engineering Contracts (11th ed., Sweet & Maxwell, London, 1995), p. 1265. • UNCITRAL, UNCITRAL Legal Guide on Drawing Up International Contracts for the Construction of Industrial Works (UN, New York, 1998) UNDOC. AlCN.9/SER.Bl2 at 268. 7 I.N.D. Wallace Q.c., Hudson 's Building and Engineering Contracts (11th ed., Sweet & Maxwell, London, 1995), p. 1277. 8 ibid. p. 1282. For further discussion of this point see Heyman v. Darwin Ltd. [19421 A.C. 356. 3

444

Procedure for termination The Silver Book allows the employer to notify the contractor if he is not executing the works in accordance with the contract or has failed to carry out any of his obligations (SB 15.1). If the contractor does not alter the performance or cure the defect in question within a reasonable, specified time then the employer may terminate the contractor's employment and expel him from the site upon 14 days' notice (SB 15.2). The other FIDIC and nonFIDIC contracts discussed herein contain similar procedures that will be discussed later in the chapter. In some cases, the requirements for termination may be different depending on the nature of the default.

19-05

Grounds for termination The grounds for termination take various forms, generally falling into the categories discussed below. However, when drafting the grounds for termination, the parties should consider the specific nature of their agreement and the project envisaged.

19-06

Failure to perform. The employer should have the power to terminate for failure of the contractor to perform his duties under the contract. Where the failure of the contractor to perform can be remedied, the parties may want to include a delay before termination during which the contractor can effect such a remedy. This notice period should not be considered an extension of the time for completion. The parties can also create a dual notice system: the first to inform of the failure to perform; the second to inform of the termination. 9 Silver Book sub-clause 15.2 includes several grounds for termination falling within the category of failure to perform.

19-07

Violation of restrictions on transfer of obligations. Turnkey construction contracts generally place certain restrictions on the contractor's ability to subcontract or assign part or all of the contract. Such restrictions often depend on the nature of the works being performed and the importance of the quality of the end product. Approval of an assignment by the employer may be required. For wrongful assignment, the parties can either use a termination clause to penalise such assignment, or specify that the transfer has no effect, and therefore does not affect the duties of the transferring party. to A similar Situation exists concerning subcontracting. Although the parties might expect the contractor to subcontract certain services, the supply of certain materials or even the completion of certain portions of the works, the employer may be relying on the expertise and standing of

19-08

9

10

UNCITRAL, UNCITRAL Legal Guide on Drawing Up International Contracts (or the Constructiotl of Industrial Works (UN, New York, 1998) UNDOC. AlCN.9/SER.B/2 at 269. ibid. at 297.

445

DEFAULT OF CONTRACTOR

TERMINATION BY EMPLOYER

the contractor to ensure a certain level of quality and security. In accordance with the capacity of the contractor and the needs of the parties, the contract may allow the contractor to subcontract all, part or none of his obligations. I I The contractor may want to deny the employer the right to terminate where the contractor has assigned the whole or part of the contract against the contract's stipulations, but the employer has accepted the assignment. 12 The Silver Book only contemplates termination in the event of unauthorised assignment or subcontracting of the entire works by the contractor. 19-09

Bankruptcy or insolvency. The parties may want to provide for termination, where the applicable law allows, to avoid the potential complications caused by bankruptcy on the contract. These effects may occur as early as the institution of bankruptcy proceedings, yet the contractor may successfully defend against such proceedings. The parties should decide carefully when the termination can take effect: at institution of the procedure or upon adjudication. This may also depend on the nature of the proceedings, e.g. voluntary or involuntary. The parties should take care to clearly define which events, such as bankruptcy, insolvency or related events, entitle the employer to terminate. The parties may also want to include in this clause the terminology used by the legal systems of the countries of both parties. The relevant legal system may provide that such clauses are unenforceable. The Silver Book allows termination in respect of a number of specific events including: when a party becomes bankrupt, insolvent, in liquidation, compounding his creditors, having an administration order made against him or carrying on business under a receiver. It adds that any event having a similar effect to those listed is also a ground for termination.

Effects of termination for default of the contractor 19-10

Once termination has occurred, the contractor should be required to cease work and vacate the site. Sometimes this is not a practicable solution, as the section of works in progress may need to be finished, secured and made safe before the work stoppage in order to mitigate damages incurred following termination. The parties will want to agree on the measures to be taken, as well as which party will bear the burden of the cost of such extra work. 13 The contractor may also need to remove all of his equipment and materials. When the termination is attributable to the fault of the contractor, the contract may provide for the use by the employer or his contractors of the II 12

tJ

ibid. at 131. ibid. at 269. ibid. at 273.

446

terminated contractor's equipment and materials as necessary for the completion of the works. The parties should also consider the rights of third parties in the materials or equipment. Under the Silver Book, upon termination, the employer enters the site and expels the contractor. The contractor must then turn over all construction documents. Notwithstanding this, he is not released from any of his obligations under the contract. However, the employer may finish the works or have them finished by a third party. The parties will need to determine and allocate to the account of the contractor the value of the works completed before termination. This calculation may occur in accordance with a price scheme used in the contract or in accordance with a valuation clause specifically inserted in the contract's termination clause. Since the termination in this instance is caused by default of the contractor, any expenses incurred by the employer due to the default, including cost of completion and possibly expectation damages for lost performance of the works, shall fall on the contractor. 14 Where the employer wants to provide for delay damages for late completion in the event of termination due to contractor default, he should consider the use of a special liquidated damages provision. Standard liquidated damages clauses cover only late completion by the contractor. As a general proposition, the employer will need to include provisions for delays in the event of termination if he wants the liquidated damages to apply where another contractor finishes the work. IS

Termination for convenience The Silver Book and many construction contracts also include specific provisions permitting the employer to terminate the contract and the contractor's services regardless of any default of the contractor and without reason. Reasons for such a termination may include supervening financial problems of the employer, changing circumstances or simply the decision not to proceed with the project. In this case, the consequences of an employer termination may.be similar, if not identical to, the consequences of a termination by the contractor for employer default. This latter situation is discussed in Chapter 20.

19-11

Discussion of Specific Sub-Cl.auses Clause 15 of the FIDIC Silver Book, as its title "Termination by Employer" suggests, sets forth the contract's provisions regarding termination by the .. ibid. at 275. I.N.D. Wallace Q.c., Hudson's Building and Engineering Contracts (11th ed., Sweet & Maxwell, London, 1995), p. 1163.

15

447

19-12

TERMINATION BY EMPLOYER

employer, both for contractor fault and for employer convenience. Clause 15 describes the grounds for termination and provides a valuation and payment procedure in the event of contractor fault. It also contains a separate clause dealing with the employer's termination for convenience.

15.1 Notice to Correct

19-13

If the Contractor fails to carry out any obligation under the Contract, the

Employer may by notice require the Contractor to make good the failure and to remedy it within a specified reasonable time.

19-14

Silver Book sub-clause 15.1 describes the initial steps the employer may take to ensure compliance with the contract by the contractor. This provision empowers the employer to issue a notice to the contractor to carry out within a reasonable time any obligation under the contract or make good any failure. Orange Book sub-clause 15.1 is substantially identical to the Silver Book provision, with the exception that it is the employer's representative who may issue a notice to correct rather than the employer. Red and Yellow Book sub-clauses 15.1 are identical to the Silver Book provision, except that the engineer may issue these notices rather than the employer. The EIC Guide cautions against the wide scope of Silver Book sub-clause 15 .1.16 The EIC would prefer to see the provisions of Silver Book sub-clause 15.1 limited to situations of material breach of the contract by the contractor, as the employer may terminate the contract where the contractor fails to remedy after a notice to correct (Silver Book sub-clause 15.2(a)). The author disagrees with the EIC's position. The ENAA contains several provisions regarding the issuance of a notice to correct by the employer. In the context of mechanical completion, ENAA sub-clause 24.5 states that" [iJf the Owner notifies the Contractor of any defects and/or deficiencies, the Contractor shall then correct such defects and/or deficiencies". During the defects liability period the employer may also give the contractor a notice stating the nature of any defect requiring correction by the contractor (ENAA 27.4). However, specifically in the context of an employer termination for a default of the contractor, the employer is required to give the contractor notice of certain grounds that may justify contract termination and require the contractor to remedy the same (ENAA 42.2.2). This notice to correct must precede a termination based on these specific defaults, which include (1) abandonment or repudiation of the contract by the contractor, (2) failure to commence or proceed with the works, (3) persistent failure to execute the works in accordance with the contract or (4) refusal or failure to provide sufficient materials, services or labour to execute and complete the Works in accordance with the work programme. Under EIC sub-clause 9.4(b) the owner must notify the contractor of any 16

EIC, The EIC Contractor's Guide to the FIDIC Conditions of Contract for EPC Turnkey Projects (European Internati onal Contractors, Berl in, 2000), p. 29.

448

DI SCUSSION OF SPECIFIC SUB -CLAUS ES

defects in the works that have to be rectified before the issue of the takingover certificate. Under EIC sub-clause 9.6 the contractor is also under an obligation to complete by the end of the defects liability period any outstanding work and remedy any defects at the request of the owner. These EIC provisions are the closest to the Silver Book's sub-clause 15.1 "Notice to Correct". The contractor is obligated under the ICE to deliver the completed works to the employer as soon as reasonably practicable after the end of the defects correction period in the condition required by the contract (ICE 49(2)). To this end the Contractor shall repair amend reconstruct rectify and make good defects of whatever nature notified to him in writing by the Employer's Repre~entati~e during the relevant Defects Correction Period or within 14 days after Its expiry as a result of an inspection made by or on behalf or the Employer's Representative prior to its expiry. (ICE 49(2).) Under the AlA, if the design/builder fails to correct nonconforming work as required or carry out work in accordance with the contract "the Owner by v.:ritten order ... may order the Design/Builder to stop the 'Work, or an; portton thereof, until the cause for such order has been eliminated" (AlA 9.4-Part 2). If the contractor defaults or neglects to carry out work in ac~ordance. with the contract and fails within seven days after receipt of a wrttten nottce from the owner to commence and continue correction of such default or neglect, the owner may give a second written notice to the contractor and after seven days correct such deficiencies himself at the contractor's cost (AlA 9.S-Part 2). l!nd~r the AGC, if the contractor persistently fails to perform any of his obltgattons under the contract, the owner may give five days' notice to cure the default, after which he may either complete the work himself at the contractor's cost (AGC 11.2.1) or terminate the contract for certain reasons (AGC 11.2.2). The DBIA states:

19-15

Design-Builder shall, within seven (7) days of receipt of written notice from Owner that the Work is not in conformance with the Contract Documents ~ake ~eaningful ~teps to commence correction of sU;ch nonconforming Work: mcludmg correctIOn, removal or replacement of the nonconforming Work and any damage caused to other parts of the Work affected by the nonconforming Work. (DBIA 2.10.2.) 15.2 Tennination by Employer

19-17

The Employer shall be entitled to terminate the Contract if the Contractor: (a) fails to comply with Sub-Clause 4.2 [Performance Security] or with a notice under Sub-Clause 15.1 [Notice to Correct], 449

DISCUSSION OF SPECIFIC SUB-CLAUSES

TERMINATION BY EMPLOYER

(b) (c)

(d) (e)

(f)

abandons the Works or otherwise plainly demonstrates the intention not to continue performance of his obligations under the Contract, without reasonable excuse fails to proceed with the Works in accordance with Clause 8 [Commencement, Delays and Suspension], subcontracts the whole of the Works or assigns the Contract without the required agreement, becomes bankrupt or insolvent, goes into liquidation, has a receiving or administration order made against him, compounds with his creditors, or carries on business under a receiver, trustee or manager for the benefit of his creditors, or if any act is done or event occurs which (under applicable Laws) has a similar effect to any of these acts or events, or gives or offers to give (directly or indirectly) to any person any bribe, gift, gratuity, commission or other thing of value, as an inducement or reward: (i) for doing or forbearing to do any action in relation to the Contract, or (ii) for showing or forbearing to show favour or disfavour to any person in relation to the Contract, or if any of the Contractor's Personnel, agents or Subcontractors gives or offers to give (directly or indirectly) to any person any such inducement or reward as is described in this sub-paragraph (f). However, lawful inducements and rewards to Contractor's Personnel shall not entitle termination.

In any of these events or circumstances, the Employer may, upon giving 14 days' notice to the Contractor, terminate the Contract and expel the Contractor from the Site. However, in the case of sub-paragraph (e) or (f), the Employer may by notice terminate the Contract immediately. The Employer's election to terminate the Contract shall not prejudice any other rights of the Employer, under the Contract or otherwise. The Contractor shall then leave the Site and deliver any required Goods, all Contractor's Documents, and other design documents made by or for him, to the Employer. However, the Contractor shall use his best efforts to comply immediately with any reasonable instructions included in the notice (i) for the assignment of any subcontract, and (ii) for the protection of life or property or for the safety of the Works. After termination, the Employer may complete the Works andlor arrange for any other entities to do so. The Employer and these entities may then use any Goods, Contractor's Documents and other design documents made by or on behalf of the Contractor. The Employer shall then give notice that the Contractor's Equipment and Temporary Works will be released to the Contractor at or near the Site. The Contractor shall promptly arrange their removal, at the risk and cost of the Contractor. However, if by this time the Contractor has failed to make a payment due to the Employer, these items may be sold by the Employer in order to recover this payment. Any balance of the proceeds shall then be paid to the Contractor.

19-18

Silver Book sub-clause 15.2 sets forth the reasons that entitle the employer to terminate the contract and the procedure to be followed in that case. These reasons include: (a) the contractor's failure to provide the performance

450

security or comply with a notice to correct, 17 (b) abandonment of the works, (c) failure to comply with the provisions of clause 8 "Commencement, Delays and Suspension", (d) subcontracting or assigning the contract without the employer's consent, (e) bankruptcy or similar financial problems or (f) bribery. If any of these events or circumstances occur, the employer may by 14 days' notice terminate the contract and expel the contractor from the site. However, no notice is required in the case of bribery.18 It is unclear under the Silver Book whether in all cases the contractor's curing of the default event cancels the termination notified to the contractor by the employer. The parties may want to include provisions covering this eventuality. Upon termination the contractor must leave the site and deliver to the employer all goods, contract documents and other design documents relating to the project. However, the contractor must still use reasonable efforts to comply immediately with any reasonable instructions included in the notice of termination regarding the assignment of any subcontracts or for the protection of life or property or for the safety of the works. After termination the employer may complete the works either by himself or by employing another party and may use any goods, contractor's documents or other design documents made by or for the contractor. However, it is not expressly stated that the employer may use the contractor's equipment to complete the works. Nonetheless, upon completion the employer must give notice to the contractor that the contractor's equipment and temporary works will be released to the contractor at or near the site. The contractor must promptly arrange for their removal at his risk and cost. However, if at this time the contractor has failed to make any payment due to the employer, the employer may sell these items to recover the payment and pay any remaining balance to the contractor. Further, where the employer terminates with cause, he may want to make provisions for the assignment of subcontracts when preparing for the termination of the contract.~9 With regard to making bribery a grounds for te'rmination, although its inclusion as a termination event is a laudable goal, and, some suggest, perhaps included in response to "the current emphasis on the subject among, inter alia, international development banks"2o the parties may not want to be overly constrained in this regard. In certain countries "grease payments" may be required in order for the contract to progress efficiently. On the other

17

18

The EIC Guide, as discussed in relation to sub-clause 15.1, cautions that the employer could use abusively the provisions of sub-clause 15.2(a), in conjunction with sub-clause 15.1, such that "any" failure by the Contractor to carry out "any obligation" could result in termination. EIC Guide, p. 29. Another potential termination event not contained in the Silver Book is the ability to terminate where an infringement of patent, copyright or trademark rights (for which the contractor must indemnify the employer) causes prevention of execution of the works or use thereof.

19

FIDIC Guide, p. 261.

20

G.L. Jaynes, "Termination, Risk and Force Majeure" ("FIDIC Global Conditions of Contract" Seminar, New Delhi, January 2001), online: FIDIC hrtp:/Iwww.fidic.org! resourceslcontractsljayunes_A.asp (date accessed: July 4, 2001).

451

19-19

DISCUSSION OF SPECIFIC SUB-CLAUSES

TERMINATION BY EMPLOYER

hand, the parties will want to avoid gratuities that affect decisions at the ministerial level or are otherwise in violation of applicable law, such as the Foreign Corrupt Practices Act of the United States ..Finally, ~he ~ide s.cope of this sub-clause could conceivably lead to "drastic scenanos In which a minor infringement which is not itself unlawful is used to justify termination" .21 There is also an argument that failure to commence within a given time is not a material breach and therefore should not subject the contractor to termination. This argument is based on the possibility that the contra.ctor ~ay be able to finish in a fraction of the time allotted, and therefore his obligation to complete within a given time will not be breached by a start that is later than expected. 22 The Silver Book further allows a reasona~le exc~se for failure to commence. The use of such subjective measures of time might be appropriate to allow flexibility, but they entail less certainty o.f application and interpretation. In short, failure to commence or proceed With the wor~s with due diligence is not clearly a fundamental breach. H?w~ver, use ~f thiS clause may be the only way to induce the contractor to give informatIOn or proceed under the programme. 23 .. . . Orange Book sub-clause 15.2 is nearly Identical to the Silver Book provI19-20 sion in format and substance, but with several minor differences. The contractor's failure to comply with the performance security requirements is not a specific ground for termination under the Orange Book, as it is unde.r the Silver Book. It is also grounds for termination under the Orange Book If the contractor fails to "demonstrate that sufficient design capacity is employed in the design of the Works to achieve completion ~ithin the Tim~ for Completion" (OB 15.2(c)(iii)), and if the contractor falls to comply.wlt~ a notice under sub-clause 7.5 "Rejection". Bribery is a ground for termination under the Orange Book, but it is contained in a separate sub-clause 15.5 "Bribes". There is also no immediate termination (without the 14 days' notice) in the event of contractor bankruptcy or a related event. The standard 14-day notice requirement applies in that case under the Orange Book. The Orange Book also contains no provision that the contractor must comply with the employer's instruction regarding the assignment of subcontracts and the protection of the works nor any ability for the employer to sell the contractor's equipment to satisfy outstanding payments. However, unlike the Silver Book, the Orange Book expressly states that the employer may use the contractor's equipment and temporary works to complete the project after termination. This is implied in the Silver Boo.k, yet not expressly stated. Finally, the Orange Book adds that the contractor IS n~t released f~om any of his obligations or liabilities under the contract, despite the termination. This is not contained in Silver Book sub-clause 15.2. Red and Yellow Book sub-clauses 15.2 are identical to Silver Book 15.2, 21 22

23

ibid. . . B. Eggleston, The ICE Design and Construct: A Commentary (Blackwell SCientific Publications, Australia, 1994), p. 376. . . ' M.W. Abrahamson, Engineering Law and the I.C.E. Contracts (Apphed SCience Pubhshers, Ltd., London, 1979), p. 279.

452

with the exception that they add a failure to comply with a notice issued under sub-clause 7.5 "Rejection" or sub-clause 7.6 "Remedial Work" within 28 days as additional grounds for termination. The reason for the omission of this provision is unclear,24 and the FIDIC Guide is unhelpful on this point. 2S The ENAA contains a clause 42.2 entitled "Termination for Contractor's Default" that sets forth the grounds and procedure for the employer's termination of the contract. The ENAA provisions are very similar to those of Silver Book sub-clause 15.2. Under ENAA sub-clauses 42.2.1 and 42.2.2, the employer may terminate the contract for the following defaults of the contractor: (1) bankruptcy or insolvency, (2) improper assignment or transfer of the contract, (3) abandonment or repudiation of the contract by the contractor, (4) failure to commence or proceed with the works, (5) persistent failure to execute the works in accordance with the contract and (6) refusal or failure to provide sufficient materials, services or labour to execute and complete the works in accordance with the work programme. For the first two default events above, the employer need only send a notice of termination to the contractor (ENAA 42.2.1). However, the latter four events require a notice from the employer and an opportunity to correct the default before. termination is possible (ENAA 42.2.2). The employer may then issue a notice of termination if the contractor fails to remedy or take steps to remedy the default within 14 days of the notice to correct (ENAA 42.2.2). The ENAA Contract is the only contract which specifies that the delay allows the contractor to remedy the default. Under the other contracts, it is unclear whether contractor action during this period will stop the termination. . Upon receipt of the notice of termination or upon a date specified in the notice, and assuming the contractor has not cured the default if allowed, the contractor must cease all further work, (except for specified protective work) terminate all subcontracts (except for those assigned to the employer) and deliver all completed works (ENAA 42.2.3). The contractor must also assign to the employer, to the extent possible, title to all works, materials and subcontracts and deliver to the employer all drawings, specifications and other documents prepared by the contractor or his subcontractors (ENAA 42.2.3). The employer may then enter the site, expel the contractor therefrom and complete the works himself or have them completed by a third party (ENAA 42.2.4). The employer may take over and use without payment any contractor's equipment on the site for a reasonable period to execute and complete the works (ENAA 42.2.4). This equipment is returned upon completion of the works by notice to the contractor, who must remove this from the site without delay (ENAA 42.2.4).

H

2l

Some suggest the omission may be the result of a printing error. G.L. Jaynes, "Termination, Risk and Force Majeure" ("FIDIC Global Conditions of Contract" Seminar, New Delhi, January 2001), online: FlDIC http://www.fidic.org!resources!contracts/jayunes_A.asp (date accessed: July 4, 2001). F1DIC Guide, p. 261.

453

19-21

TERMINATION BY EMPLOYER

19-22

19-23

The ENAA Contract also contains provIsIOns regarding process licences in the event of termination. According to ENAA sub-clause 42.6 (which refers to appendix 9-4) the process licences shall be treated in accordance with such provisions unless the contrary is specified under the termination clause. The sample appendix 9-4 provides for termination of the process licence package upon termination of the contract, unless the contractual termination is due to the fault of the contractor, in which case the owner can request that the contractor continue the process licence package, irrespective of whether the process belongs to the contractor or whether licences were procured from a third party. The owner may want to negotiate an extension of the process licence package for a fee in the event that he must proceed with termination. Without such a process licence, completion with another contractor may be difficult or even impossible. The EIC contains a clause 18 entitled "Contractor's Default" that sets forth the grounds and procedure for the employer's termination of the contract due to contractor's breach. Under EIC sub-clauses 18.1, the employer may terminate the contract for the following defaults of the contractor: (1) bankruptcy, insolvency or similar events, (2) abandonment of the contract, (3) failure to commence or proceed with the works and (4) persistent neglect to carry out contractual obligations. Upon the occurrence of these events, the owner may upon 28 days' notice terminate the contractor's employment and complete the works himself or have them completed by a third party (EIC 18.1). The owner or third party may use for completion so much of the contractor's equipment, temporary works and materials as necessary and proper (EIC 18.1). If requested by the owner, the contractor must also, within 14 days of termination, assign to the owner the benefit of any agreement for the supply of any goods or materials or services and/or for the execution of any work for the purposes of the contract, which the contractor may have entered into (EIC 18.4). Either party (thus the owner) under the EIC may also terminate upon 28 days' notice if the approved design is not established within the time provided in the contract or within the 28 days of the notice (EIC 22.6). However, the consequences of such a termination are those of EIC 22.4, discussed in connection with the employer's termination for convenience, discussed later in this chapter. The ICE also sets forth the grounds for termination by the employer in its clause 65 entitled "Default of Contractor". The employer is entitled to terminate the contract under the ICE for the following contractor defaults: (1) improper assignment of the contract without the employer's written consent, (2) subcontracting the whole of the works without the employer's written consent, (3) bankruptcy, insolvency or related events, (4) contract abandonment, (5) failure to commence the works, (6) continued improper suspension of the works after a written notice to proceed, (7) failure to remove goods or materials within 14 days of a written notice of rejection or condemnation by the employer's representative, (8) failure after written warnings to proceed with the works with 454

DISCUSSION OF SPECIFIC SUB- CLAUSES

due diligence or (9) failure after written warnings of a persistent or fundamental breach of obligations under the contract" (ICE (65(1).) Upon seven days' written notice from the employer specifying the default, the employer may enter upon the works or site, expel the contractor and thereby avoid the contract (ICE (65(1)). It appears from the ICE contract language that even if the contractor were to cure the defect during the seven-day period, the employer could still proceed with termination. 26 The employer may then complete the works himself or have them completed by a third-party and use any of the contractor's equipment, temporary works, goods and materials (ICE (65(2)). The employer is further entitled to sell at any time any contractor's equipment, temporary works or unused goods and 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 (ICE 65(2)). This power will obviously be limited by third-party rights in the contractor's equipment. The contractor is also required, upon written request of the employer's representative, to assign to the employer the benefit of any agreement for the supply or goods, materials or for the carrying out of any work under the contract (ICE 65(3)). The AlA is an agreement in two parts and has grounds for termination 19-24 for both parts. The Part 1 Agreement concerning .preliminary design and budgeting "may be terminated by either party: upon seven (7) days' written notice should the other party fail to perform substantially in accordance with its terms through no fault of the party initiating the termination" (AlA 8.l-Part 1). The Part 2 Agreement concerning final design and construction may be terminated by the owner for various reasons. It may be terminated by the owner "upon 14 days' written notice to the Design/Builder in the event that the Project is abandoned" (AlA 12.1.1-Part 2). Other events of default require more procedural steps prior to termination. For example, "[i]f the Design/Builder defaults or persistently fails or neglects to carry out the Work in accordance with the Contract Documents or fails to perform the provisions of [the] Part 2 Agreement, the Owner may give written notice that the Owner intends to terminate this Part 2 Agreement" (AlA 12.1.2-Part 2). If the design/builder then fails to correct the defaults, failure or neglect within seven days after this notice, the owner may give a second written notice (AlA 12.1.2-Part 2). After an additional seven days, "the Owner may ... terminate the employment of the Design/Builder and take possession of the site and of all materials, equipment, tools and construction equipment and machinery thereon owned by the Design/Builder and finish the Work by whatever method the Owner may deem expedient" (AlA 12.1.2-Part 2). The AGC also permits the owner to terminate the contract for specified 19-25 rea.sons. Th.e owner may terminate the agreement upon seven days' wCltten notice to the contractor for: (1) persistently using improper 26

Eggleston, op. cit. n. 22 above, p. 379.

455

TERMINATION BY EMPLOYER

19-26

materials or inadequately skilled workers, (2) failure to properly pay labourers, materials suppliers or contractors, (3) persistent failure to abide by applicable laws and regulations provided the owner is makng payments to the contractor in accordance with the terms of the contract and (4) for other material breaches of the contract (AGC 11.2.2.) After receiving this notice, the contractor has seven days to cure the default (AGC 11.2.2). If he does not, the owner may take possession of the site and complete the work by any reasonable means (AGC 11.2.2). The agreement also terminates automatically if the contractor files for bankruptcy and the contractor is unable to give adequate assurance that he will be able to perform as required by the contract, or if the contractor is otherwise unable to comply with the requirements of the contract due to the bankruptcy (AGC 11.2.3). The owner may begin the contract termination procedure under the DBIA if the design-builder persistently fails to: (i) provide a sufficient number of skilled workers, (ii) supply the materials required by the Contract Documents, (iii) comply with applicable Legal Requirements, (iv) timely pay, without cause, De.ign Consultants or Subcontractors, (v) prosecute the Work with promptness and diligence to ensure that the Work is completed by the Contract Time(s), as such times may be adjusted, or (vi) perform material obligations under the Contract Documents .... (DBIA 11.2.1.) Upon the occurrence of one of these events, the owner may give the design-builder written notice that he intends to terminate the agreement unless he cures or begins curing the problem within seven days of the notice (DBIA 11.2.2). If not, the owner may give a second seven-day written notice of his intent to terminate the contract (DBIA 11.2.2). "If DesignBuilder, within such seven (7) day period, fails to cure, or reasonably commence to cure, such problem, then Owner may declare the Agreement terminated for default by providing written notice to Design-Builder of such declaration" (DBIA 11.2.2.) Upon declaring the agreement terminated, the owner may take possession of the site and all materials, equipment and other items that have been purchased or provided for the performance of the work (DBIA 11.2.3). Under this sub-clause the contractor transfers and assigns these items to the owner, and the owner may "employ any person or persons to complete the Work and provide all of the required labor, services, materials, equipment and other items" (DBIA 11.2.3). Bankruptcy may also be a grounds for termination for either party (DBIA 11.5). However, "[ilf Owner improperly terminates the Agreement for cause, the termination for cause will be converted to a termination for convenience in accordance with the provisions of Article 8 of the Agreement" (DBIA 11.2.4).

19-27

15.3 Valuation at Date of Termination

As soon as practicable after a notice of termination under Sub-Clause 15.2 [Termination by Employer) has taken effect, the Employer shall proceed in

456

DISCUSSION OF SPECIFIC SUB-CLAUSES

accordance with Sub-Clause 3.5 [Determinations) to agree or determine the value of the Works, Goods and Contractor's Documents, and any other sums due to the Contractor for work executed in accordance with the Contract. Once the employer has proceeded with termination, the value of the works a~d the amount owed to the contractor, if any, will need to be calculated. Silver Book sub-clause 15.3 states simply that as soon as practicable after an e",lployer termination for cause, the employer must proceed to agree or determme the value of the works, goods, contractor's documents and other sums due to the contractor. Orange Book sub-clause 15.3 and Red and Yellow Book sub-clauses 15.3 contain provisions identical to the Silver Book. The contra.cto~ is entitle~ under the ENAA to certain payments in the ev.ent of termmatlOn. There IS no specific procedure prescribed for the valuatl~n of these paymen~s. The ENAA does, however, specify that the sums are subject to the calculatIOn of the cost of completion under sub-clause 42.2.6. The ENAA Contract f~rther requires that the cost of completion be reasonable and. that the parties agree on the accounting. Any disagreement could be submitted to the expert and then potentially to an arbitrator. The ENAA Contract also do~s not ta~~ into account damages for late completion. T~e E~C contams provIsions regarding the valuation of the works upon term~nat~on by the employer for cause. Under the EIC, within 56 days of the terminatIOn, the contractor must issue a statement to the owner stating:

19-28

the amount (if any) at the time of such entry and termination reasonably ea~ned by or which would reasonably accrue to the C:0ntracto~ 10 respect of work then actually done and services proVided by him under the Contract, and the value of any of the said unused or partially used materials and Plant and Contractor's Equipment.

(a)

(b)

(EIC 18.2.) The contractor is responsible for this valuation under the EIC rat.her than. the e",l~loyer as under the Silver Book. Employers will likely' object to thiS provIsion. The IC~ contains a v~luation provision similar to the EIC, except that the employer,S representa~lve undertakes the valuation. Under the ICE, the employer ~ representative must fix and determine as soon as practicable after the expulSIOn of the contractor: (a)

the amount (if any) which has been reasonably earned by or would reasonably accrue to the Contractor in respect of work actually done by him under the Contract and (b) the value o~ any u?used or partially used goods and materials and any Contractor s EqUipment and Temporary Works which had been deemed t? become .the property of the Employer under Clause 54 and shall certify accordtngly. ' ~he said ~etermination may be carried out ex parte or by or after reference to t e parties. or after. such investigation or enquiry as the Employer's Representative may thtnk fit to mayor institute. (ICE 65(4).)

457

19-29

TERMINATION BY EMPLOYER

The AGC does not provide a specific valuation procedure. However, it does entitle the contractor to have the owner provide a detailed accounting of the owner's costs in relation to the termination (AGC 11.2.4). The AlA and DBIA contain no provisions comparable to Silver Book subclause 15.3.

19-30

15.4 Payment after Termination After a notice of termination under Sub-Clause 15.2 [Termination by Employer) has taken effect, the Employer may: (a) proceed in accordance with Sub-Clause 2.5 [Employer's Claims), (b) with-hold further payments to the Contractor until the costs of design, execution, completion and remedying of any defects, damages for delay in completion (if any), and all other costs incurred by the Employer, have been established, and/or (c) recover from the Contractor any losses and damages incurred by the Employer and any extra costs of completing the Works, after allowing for any sum due to the Contractor under Sub-Clause 15.3 [Valuation at Date of Termination). After recovering any such losses, damages and extra costs, the Employer shall pay any balance to the Contractor.

19-31

19-32

Silver Book sub-clause 15.4 indicates that upon an employer termination for cause, the employer may proceed with any employer's claims he may have. The employer may also withhold any further payments from the contractor until the costs of design, execution, completion, remedying defects, delay damages and all other costs incurred by the employer have been established. The employer may also recover from the contractor any losses and damages incurred by the employer and any extra costs of completing the works, subject to offset for amounts due to the contractor. Any balance must thereafter be paid to the contractor. Orange Book sub-clause 15.4 is identical to the Silver Book provision, except that it does not make reference to sub-clause 2.5 "Employer's Claims" procedures because the Orange Book contains no such sub-clause. Red and Yellow Book sub-clauses 15.4 are identical to Silver Book 15.4, with the minor exception that the Red Book makes no reference to the costs of design. The ENAA contains comprehensive provisions regarding payments to be made after a termination of the contract by the employer for contractor default. [T)he Contractor shall be entitled to be paid the Contract Price attributable to the Works executed as at the date of termination, the value of any unused or partially used Materials on the Site and the costs, if any, incurred in protecting the Works and leaving the Site in a clean and safe condition .... (ENAA 42.2.5.) "Any sums due to the Owner from the Contractor accruing prior to the date of termination shall be deducted from the amount to be paid to the Contractor under this Contract" (ENAA 42.2.5.) In addition, if the owner completes the works, his cost of completing the works shall be determined 458

DISCUSSION OF SPECIFIC SUB-CLAUSES

(ENAA 42.2.6). "If the sum which the Contractor is entitled to be paid {... J plus the reasonable costs incurred by the Owner in completing the Works exceeds the Contract Price, the Contractor shall be liable for such excess" (ENAA 42.2.6.) The EIC also contains a provision for payment after termination by the owner for cause: If the Owner terminates the Contractor's employment [for cause), he shall not be liable to pay to the Contractor any further amounts (including any damages) in respect of the Contract until the costs of design, execution, completion and remedying of any defects, damages for delay in completion pursuant to Clause 10 (if any) and all other expenses reasonably and properly incurred by the Owner to complete the Works have been finally established. The Contractor shall be entitled to receive such sums (if any) as would have been payable to him. If such amount 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 Owner the amount of such excess and it shall be deemed a debt due by the Contractor to the Owner and shall be recoverable accordingly.

(EIC 18.3.) The ICE contains a provision very similar to the EIC: (a)

(b)

(c)

(d)

(e)

19-33

If the Employer enters and expels the Contractor under this Clause he shall not be liable to pay the Contractor any money under the Contract (whether in respect of amounts certified by the Employer's Representative or otherwise) unless or until the Employer's Representative certifies that an amount is due to the Contractor under sub-clause (b). The Employer's Representative shall certify the difference between (i) such sum as would have been due to the Contractor if he had completed the Works together with any proceeds of sale under sub-clause 2 of this Clause and (ii) the costs of completing the Works (whether or not the Works are completed under a separate contract) damages for delay (if any) and all other expenses properly incurred by the Employer. Such difference as is certified by the Employer's Representative in subclause (b) shall be a debt due to the Employer or Contractor as the case may be. If the Employer's Representative is satisfied at any time prior to the completion of the Works that such sum as calculated under sub-clause (b)(ii) exceeds such sum as calculated under sub-clause (b)(i) he may issue an interim certificate to that effect notwithstanding that the Works have not been completed and such interim certificate shall be considered a debt due from the Contractor to the Employer. Every certificate issued by the Employer's Representative pursuant to this Clause shall be sent to the Employer and at the same time copied to the Contractor with such detailed explanation as may be necessary.

(ICE 65(5).) Contrary to previous versions of the contract, ICE 65(5)) no longer specifies that payment is not made until after the end of the defects correction period and thereafter not until the employer's costs of termination have been ascertained. The result under the new clause may be the same however, as "the provision in the new clause for interim payments is started

459

DISCUSSION OF SPECIFIC SUB-CLAUSES

TERMINATION BY EMPLOYER

19-34

15.5 Employer's Entitlement to Termination

only in terms of payment due from the contractor to the employer and it m.ay be that in practice [employers' representatives] will be reluctant to certify 27 monies due to the contractor until all other accounts are finally settled. Furthermore, the purpose for the valuation at the time of termination seems 28 pointless, since it is not used in the valuation of the termination. The AlA states that if the contract is terminated due to abandonment by the contractor, "the Owner shall pay the DesignlBuilder for Works completed and for proven loss sustained upon materials, equipment, tools, and construction equipment and machinery, including reasonable profit and applicable damages" (AlA 12.1.1-Part 2). In the event of an employer termination for a cause other than abandonment, (ilf the unpaid balance of the Contract Sum exceeds the expense of finis.hing the Work and all damages incurred by the Owner, such excess shall be paid to the DesignlBuilder. If the expense of completing the W~rk an~ all damages incurr~d by the Owner exceeds the unpaid balance, the Design/Builder shall pay the difference to the Owner. . . (AlA 12.1.2-Part 2.) The AGC does not set forth detailed terms of how payments will occur In the event of an employer termination for cause. It simply states that "the Design-Builder shall not have a right to further payment until the Work is completed" (AGC 11.2.2), and that "upon the request of the Design-Builder the Owner shall provide a detailed accounting of the cost incurred by the Owner" (AGC 11.2.4). The DBIA contains comprehensive provisions in the event of an employer termination for cause: Design-Builder shall not be entitled to receive any further p~yments under the Contract Documents until the Work shall be finally completed 10 accordance With the Contract Documents. At such time, if the unpaid balance of the Contract Price exceeds the cost and expense incurred by the Owner in completing the Work, s~ch excess shall be paid by Owner to Design-Builder. Notwithstanding the precedmg sentence, if the Agreement establishes a Guaranteed Maximu~ Pric.e, DesignBuilder will only be entitled to be paid for Work performed pnor to ItS default. If Owner's cost and expense of completing the Work exceeds the unpaid balance of the Contract Price then Design-Builder shall be obligated to pay the difference to Owner. Such cost; and expense shall include not only the cost of completing the Work, but also losses, damages, costs and expense, including attorneys' fees and expenses, incurred by Owner in connection with the reprocureme~t and defense of claims arising from Design-Builder's default, subject to the waiver of consequential damages set forth in Section 10.5 hereof. (DBIA 11.2.3.)

27

B. Eggleston, The ICE Conditions of Contract (7th ed., Blackwell Science, London, 2001)

28

p. 368 ibid., p. 368.

460

19-35

The Employer shall be entitled to terminate the Contract, at any time for the Employer's convenience, by giving notice of such termination to the Contractor. The termination shall take effect 28 days after the later of the dates on which the Contractor receives this notice or the Employe~ returns the Performance Security. The Employer shall not terminate the Contract under this Sub-Clause in order to execute the Works himself or to arrange"for the Works to be executed by another contractor. After this termination, the Contractor shall proceed in accordance with SubClause 16.3 (Cessation of Work and Removal of Contractor's Equipmentl and shall be paid in accordance with Sub-Clause 19.6 (Optional Termination, Payment and Release). Silver Book sub-clause 15.5 empowers the employer to terminate the contract at any time for his convenience and without cause. It states that the employer may terminate the contract at any time by giving notice to the contractor. The termination takes effect 28 days after the contractor's receipt of the notice or the employer's return of the performance security, whichever is later. However, the employer is not permitted to terminate the contract without cause in order to execute the works himself or to arrange for another party to complete the works. This provision indicates that after this termination, the contractor may proceed in accordance with sub-clause 16.3 "Cessation of Work and Removal of Contractor's Equipment" and will be paid in accordance with sub-clause 19.6 "Optional Termination, Payment and Release". Sub-clause 16.3 generally requires the work to cease, the transfer to the employer of contractor's documents, plant, materials and other work for which the contractor has received payment and the removal of all other goods from the site. Sub-clause 19.6 stares generally that the employer must pay the contractor (1) all amounts payable for completed work, (2) the costs of plant and materials ordered for the works, (3) costs or liability incurred by the contractor in the expectation of completing the works, (4) the contractor's costs relating to clearing the site and (5) the cost of repatriating the contractor's staff and labour. In other words, "the Contractor is only entitled to be paid for work done and is not entitled to profit on the balance of the contract of which he is deprived of the right to complete".29 The specifics of these sub-clauses are discussed at greater length in Chapters 20 and 23 respectively. Red and Yellow Book sub-clauses 15.5 are identical to the Silver Book provision. The Orange Book also permits the employer to terminate the contract for convenience and without cause in its sub-clause 2.4. However, the notice requirements are different. The employer must give 56 days' prior notice to the contractor and must simply return the performance security. Instead of stating only that the employer may not terminate to complete the works himself, Orange Book 2.4 states that after this type of termination "execution of the Works shall 2'

C.R. Seppala, "FIDIC's New Standard Forms of Contract-Force Majeure, Claims, Disputes and Other Causes" (2000) 17 (2) I.C.L.R. 235 at 243-244.

461

19-36

19-37

TERMINATION BY EMPLOYER

19-38

not be recommenced within a period of six years without the Contractor's consent" . One could argue that the Silver Book offers less protection to the contractor than the Orange Book in this regard, as a six-year moratorium on the recommencement of works is likely more easily enforceable than a stipulation 30 not to terminate in order to complete works without the original contractor. Otherwise, the Orange Book provision is very similar to Silver Book 15.5. As in the Silver Book, the employer is entitled under ENAA clause 42.1 to terminate for his convenience. The employer may terminate the contract at any time and for any reason by giving notice of such to the contractor (ENAA 42.1.1). Upon receipt of this notice or upon a date specified therein the contractor must cease all further works, except for protective work, terminate all subcontracts other than those assigned to the employer, remove all construction equipment from the site, repatriate the contractor's personnel, remove any wreckage, rubbish and debris and leave the site in a clean and safe condition (ENAA 41.1.2). The contractor must also deliver the works completed to the owner, assign to the owner to the extent possible all title and benefit to the works, materials and subcontracts and deliver all drawings specifications and other documents prepared by the contractor or his subcontractors (ENAA 41.1.2). Upon employer's termination of the contract for convenience the owner must pay to the contractor (1) the contract price attributable to all completed works, (2) the reasonable costs of site clearance and repatriation of personnel, (3) any costs incurred by the contractor related to the cancellation of subcontracts, (4) the contractor's costs for protecting the works and leaving the site in a clean and safe condition, (5) reasonable profit for works not executed and (6) the contractor's cost of satisfying all other obligations, commitments or claims undertaken by the contractor with third parties (ENAA 42.1.3). However, unlike the Silver Book, there is no prohibition against the employer terminating the contract without cause and completing the works nimself or by a third party. Under the EIC, the owner is entitled "to terminate the Contract at any time for the Owner's convenience after giving 56 (fifty-six) Days prior notice to the Contractor" (EIC 22.2). If the contract is terminated for the owner's convenience, "the Contractor shall be paid by the Owner, insofar as such amounts or items have not already been covered by payments on account made to the Contractor, for all work done and services provided by the Contractor including overheads and profit prior to the date of termination" (EIC 22.4). In addition to these amounts, upon request the contractor is also entitled to be paid: (1) the cost of materials, plant, contractor's equipment or goods reasonably ordered that have been delivered to the contractor or which the contractor is legally liable to accept, (2) a sum for any expenditure reasonably incurred by the contractor in expectation of completing the whole of the works, (3) cost of removal of the contractor's equipment and transport back to contractor's main yard or other destination, (4) reasonable cost of repatriation of con)0

G.L. Jaynes, "Termination, Risk and Force Majeure" ("FIDIC Global Conditions of Contract" Seminar, New Delhi, January 2001), online: FIDIC http://www.fidic.orgl resources/contracts/jayunes_A.asp (date accessed: July 4, 2001).

462

DISCUSSION OF SPECIFIC SUB-CLAUSES

tractor's staff and workmen (EIC 22.4). The contractor must also remove all contractor's equipment (EIC 22.5). There is no prohibition against the employer terminating for convenience and then completing the works himself. The ICE contains no provision expressly allowing the employer to terminate the contract for convenience. However, the employer could simply abandon the contract and be subject to the provisions applicable to a termination by the contractor for the employer's default. The AlA contains express provisions regarding a termination for the employer's convenience of the Part 1 Agreement for preliminary design and budgeting services but contains no express provisions relating to the Part 2 Agreement for final design and construction services. AlA Part 1 states that it "may be terminated by the Owner without cause upon at least seven (7) days' written notice to the Design/Builder" (AlA 8.2-Part 1). If this termination is not the fault of the design/builders, "the Design/Builder shall be compensated for services performed to the termination date, together with Reimbursable Expenses then due and Termination Expenses [... J including a reasonable amount for overhead and profit" (AlA 8.3-Part 1). The Part 2 Agreement does not expressly discuss employer termination for convenience. The AGC contains comprehensive provisions regarding the termination of the contract for reasons other than contractor fault. In the event of an employer termination for convenience:

19-39

the Owner shall pay the Design-Builder for all Work executed and for any proven loss, cost or expense in connection with the Work, plus all demobilization costs. In addition, the Design-Builder shall be paid an amount calculated as set forth below: .1 If the Owner terminates this Agreement prior to the commencement of the construction, the Design-Builder shall be paid the unpaid balance of the Design-Builder's design costs as set forth in the Schedule of Values and a premium as set forth below: (insert here the amount agreed to by The Parties). .2 If the Owner terminates this Agreement after commencement of the construction, the Design-Builder shall be paid the unpaid balance of the Design-Builder's design costs as set forth in the Schedule of Values the Construction Services provided to date and a premium set forth below: (insert here the amount agreed to by The Parties) . .3 The Owner shall also pay to the Design-Builder fair compensation, either by purchase or rental at the election of the Owner, for any equipment retained. The Owner shall assume and become liable for obligations, commitments and unsettled claims that the Design-Builder has previously undertaken or incurred in good faith in connection with the Work or as a result of the termination of this Agreement. As a condition of receiving the payments provided under this Article 11, the Design-Builder shall cooperate with the Owner by taking all steps necessary to accomplish the legal assigment of the Design-Builder's rights and benefits to the Owner, including the execution and delivery of required papers.

(AGC 11.3.) Under the DBIA contract agreement the owner is entitled to terminate the contract for convenience and without cause upon 10 days' written notice to 463

19-40

TERMINATION BY EMPLOYER

the contractor (DBIA 8.1). In this case, the owner must pay the contractor for (1) all work executed and for proven loss, cost or expense in connection with the work, (2) the reasonable costs and expenses attributable to the termination, including demobilisation costs and amounts due in settlement of terminated contracts with subcontractors and design consultants and (3) sums for overhead and profit on the sum of items (1) and (2) (DBIA 8.1). The DBIA also provides for the payment of certain percentages of the remaining balance of the contract price to be agreed by the parties for termination at certain stages of completion (DBIA 8.2). 19-41

Figure 19.1 Book

CHAPTER

20

SUSPENSION AND TERMINATION BY CONTRACTOR

Termination for contractor default under the FIDIC Silver

General Comments

Em('lloycr

"\3y

hy nocke (('4uire contra..:tor

HI

make"ood a default within a srccificd time (15.1).

[)O<S

l.:onCnu.:tof

NO

..:orrc..:t default?

YES

Is the dcfauh notifictl (or bankrupt..:y or briMr),?

NO

The introductory comments to the previous Chapter 19, Termination by Employer, discussed generally the validity and effect of termination clauses and provided certain drafting guidelines. Those comments and guidelines are equally applicable to contractor termination provisions and should be consulted in conjunction with the discussion in the current chapter addressing, more specifically, suspension and termination by the ·contractor. During the progress of the works, situations may arise where the contractor will have reason to suspend his work performance or terminate his employment. As either situation may have serious financial and other consequences, the parties will need to include clear and specific provisions dealing with both contractor suspensions or termination. Any suspension or termination will be based upon some default of the employer.

20-01

Conu:".:tor mllst: (a) Ic:avc the sitc;

(h) Jdivcr lIli ~uoJs. comr.h.:lOr's JUI.:umcna and Jcsi~n JOi:umcnu; (..:) comply with <'"y rC:'l!Iiun:thlc in!>lructlUns to assiK" suh\,'ontracts or to protect safety of life. property or th,,' works (15.2).

Emr10ycr f'lrfM.:ceJs 10 a~n:c or JCh:rminl,.' the y31uc of the works, ftooJs anJ contflu:tor's J
Emrloyer may complclt' the works him~df or hy a thiN rarty (I.t2) .

Uron l.:omr1c:tion of the wurks. cmr10ycr shall relcllse ~ontrll~lOr's cl\uirnumt anJ temro rary works or may sdl them as ncccuary 10 ~~ovcr raym~nts Jue (1.'i.2).

Employer rf'O\."CL·Js WIth cmrloyer's claims. establishes I.:osts incurreJ to employer, recovers any I.:osts from contra~(Or suhjc~t to oErset (or sums due to C(lIltral.:tof, raym~ any halance to contra..:tor (15.") .

464

Suspension by the contractor When the employer delays payment to the contractor the result can be damaging, yet the amount in controversy may be too small to merit legal action. This difficulty has been mitigated by the provision of various sanctions available to the contractor depending upon the relevant legal system. One of these sanctions may be the right to suspend work for delayed payment.! The Silver Book includes terms under which the contractor may suspend progress on the works in the event of a failure in the employer's payment obligations and also in the event the employer fails to provide reasonable evidence of ability to pay the contract price upon request by the contractor. Such suspension is subject to 21 days' prior notice during which time the employer has the opportunity to cure the default. The inclusion of contractor suspension provisions gives the contractor a short-term means to enforce his rights under the contract. Contractor I

W.R. Buxton et a!., "Payment Delay Claims" in R.F. Cushman & D.A. Carpenter eds, Proving and Pricing Construction Claims (John Wiley & Sons, New York, 1990), p. 328.

465

20-02

SUSPENSION AND TERMINATION BY CONTRACTOR

suspension helps deal with a negligent or unco-operative employer, whereas contractor termination comes into play to handle more serious or persistent defaults.

GENERAL COMMENTS

for termination as well, such as termination for the employer's prevention of the contractor proceeding with the work (ENAA) or the termination for failure of the approved design to be established by a particular time (EIC). Some of the more standard gtounds for termination are discussed below.

Termination by the contractor

20-03

In addition to the contractor's power to suspend work, the contractor is generally provided the right under a construction contract to terminate the contract under certain conditions, such as default of the employer, prolonged event of force majeure or impossibility. This chapter deals more specifically with the contractor's power to terminate in the event of employer default. The Silver Book contains more extensive provisions addressing other types of termination such as, for example, dealing with force majeure in another clause, discussed in Chapter 23. Contractor termination for employer's default will be possible for events similar to those covered under the clause for employer termination due to contractor default. Termination will usually be allowed where the employer demonstrates an intention to no longer be bound by the contract or commits a material breach of his contractual obligations. 2 The terms of contractor termination clauses may vary greatly depending upon the needs of the parties and the nature of the project. However, there are certain standard grounds for termination that should be included in most cases, as discussed below. The provisions allowing the contractor to terminate his obligations under the contract for employer default serves at least two purposes. First, they provide the contractor with a means to compel the employer to perform his obligations correctly under the contract. Second, these provisions protect the contractor in the event the contract simply cannot continue due to employer failures, such as the inability to pay the contract price. The termination provisions will determine the parties respective rights and obligations in the event of termination. However, applicable law should still be considered in drafting.

Bases for termination

20-04

The Silver Book contains all of the standard grounds for contractor termination, such as for the employer's failure to pay, material breach and bankruptc·y or insolvency. The Silver Book contains additional grounds that are perhaps of less common usage, such as termination for the employer's failure to provide evidence of his ability to pay the contract price. Certain of the other contracts also contain less common grounds

2

I.N.D. Wallace Q.C., Hudson's Building and Engineering Contracts (lIth ed., Sweet & Maxwell, London, 1995), p. 1241 et seq.

466

Breach of contractual obligations. Many contracts, including the Silver, Orange, Red and Yellow Books as well as the ENAA, EIC and AGC, contain provisions allowing the contractor to terminate, generally, for a breach by the employer of his obligations under the contract. This termination will normally be subject to a notice period during which an opportunity to cure may be provided. Surprisingly, many of the contracts discussed in this book provide a notice period prior to termination but do not specify clearly whether or not the employer's cure of the default notified within the notice period annuls the contractor's termination. Any ambiguity in this regard should be resolved to avoid later conflict. The preferred method would be to allow the employer to cure the default during the notice period in favour of the parties continuing the contract. This may require adjustment of the notice periods in some cases in order that neither the employer is subject to an overly short period to cure nor the contractor to an overly long period when it is clear that the employer will not cure. Any termination power for a general breach by the employer should be conditioned upon the breach being material, and the term "material" should have a clear meaning under the contract. In addition to possible termination for breach in general, all the contracts discussed herein permit the contractor to terminate for failure of the employer to make payments due under the contract. This termination will necessitate some procedure for notice and an opportunity to cure. The contract may also require an initial suspension of work by the contractor for this default before termination is possible. Again, the notice and cure procedure should be carefully crafted so as not to subject the employer to overly oppressive suspension and termination possibilities nor the contractor to open-ended or lengthy delays before exercising a firm remedy for the employer's failure to pay. Bankruptcy or insolvency. The next most common ground for termination by the contractor is the case of employer bankruptcy, insolvency or similar events. Although present in each contract, the breadth of this type of provision may vary with regard to the definition and enumeration of which event of bankruptcy, insolvency or similar events will justify termination. The descripti~n of this termination ground should be precise and sufficiently broad to mclude any procedures that may be applied by a given legal system to ensure that this clause is consistent with requirements in the countries of both parties. In the case of bankruptcy, the contractor will need to consider what notice and opportunity to cure the employer should be given under the contract. Depending on the specific event and applicable law contractor notice and opportunity to cure prior to termination may be' useless. As

467

20-05

20-06

SUSPENSION AND TERMINATION BY CONTRACTOR

previously mentioned in Chapter 19, such provisions may be unenforceable under the relevant legal system.

20-07

Extended suspension. Contractor termination of the contract in the event of extended suspension is another relatively common ground contained in construction contracts. The employer's power to suspend progress on the works for convenience may only be limited, as it is in the Silver Book, to a certain length of time after which the contractor may have grounds to terminate the contract. Under the Silver Book, termination for this reason must be preceded by a request to proceed followed by refusal or inaction by the employer. The suspension may also be required to affect the whole of the works before termination by the contractor is possible. Termination for prolonged suspension may also become an issue in the case of force majeure. The difference in the case of a force majeure is that neither party is responsible for such a suspension. Consequently, contracts generally contain separate provisions for termination after a prolonged suspension due to a force majeure, or similar event, which may di,ffer fro~ t~e consequences of a termination due to a prolonged suspensIOn which IS ordered by the employer and where the contractor is not at fault. The latter case is discussed in this chapter, and the contractor's power to eventually terminate on this ground requires his lack of fault in the employer's suspension.

Procedure for termination

20-08

As discussed above, the contractor termination provisions should set forth a specific procedure to accomplish the termination. This will generally entail some form of notice, and it may be advisable to provide the employer an opportunity to cure the notified default. The notice requireme?ts ~nd procedure may also differ depending on the ground for termmatlon. For example, employer bankruptcy may not require a notice period prior to termination or an opportunity to cure. The termination procedure includes not only notice and cure opportunity provisions but also the requirements concerning disposal of. the site. ~espite his lack of fault in the termination, the contractor should still be reqUired to clear his equipment and materials off the site and leave the site in a clean and safe condition. Many of the contracts discussed herein also require the contractor to carry out instructions from the employer to make the site safe or take other measures to protect life, property or materials. The contract may contain provisions regarding the termination andlor assignment of subcontracts to the employer.

Valuation and payment at termination

20-09

Upon termination due to employer default, the employer will be responsible for certain payments to the contractor, and a regime for these payments must 468

GENERAL COMMENTS

be included in the contract. In the event of a termination by the contractor for employer default, the contractor is entitled to payment for any work carried out as of the effective date of the termination. This should be clearly expressed in the contract and a method or guidelines set forth for determining the value of such completed work, particularly where the contract is priced on a lump-sum basis. The contractor should be entitled to payment for any work completed on site, even if a particular part is only partially complete. In addition to actual work done, the contractor should receive payment from the employer for plant and materials intended for the works even if not yet incorporated. This should include plant and materials delivered to the site and any plant or materials for which the contractor is liable to receive shipment. For example, the contractor may have entered into a contract for the supply of plant or materials with a third party that he cannot rightly breach. The costs of such a contract to the contractor must be borne by the employer in the event of a termination due to his fault. While the contractor should be responsible for removing his equipment and temporary works from the site and possibly putting the site into a safe and clean condition, the employer should pay the contractor for his costs involved in doing so. Further, the employer's responsibility should cover not only removal but also transport back to the contractor's home country, headquarters or other agreed location. The contractor may also want to include provisions whereby the employer pays for the repatriation of his staff and labour as necessary. Finally, a well-drafted contractor termination provision will include catchall terms making the employer responsible for any other cost or liability reasonably incurred by the contractor in expectation of completing the works. This may include specifically any loss of profit or other loss or damage sustained by the contractor as a result of termination.

Discussion of Specific Sub-Clauses Clause 16 of the FIOIC Silver Book, entitled "Suspension and Termination by Contractor", sets forth the regime, described generally above, for the contractor's suspension of work and grounds for his termination of the contract. The specific provisions of the Silver Book will be discussed below with a comparison to the other forms contracts.

20-10

16.1 Contractor's Entitlement to Suspend Work

20-11

If the Employer fails to comply with Sub-Clause 2.4 (Employer's Financial Arrangements] or Sub-Clause 14.7 [Timing of Payments], the Contractor may, after giving not less than 21 days' notice to the Employer, suspend work (or reduce the rate of work) unless and until the Contractor has received the reasonable evidence or payment, as the case may be and as described in the notice.

469

SUSPENSION AND TERMINATION BY CONTRACTOR

The Contractor's action shall not prejudice his entitlements to financing charges under Sub-Clause 14.8 [Delayed Payment] and to termination under SubClause 16.2 [Termination by Contractor). If the Contractor subsequently receives such evidence or payment (as described in the relevant Sub-Clause and in the above notice) before giving a notice of ter· mination, the Contractor shall resume normal working as soon as is reasonably practicable. If the Contractor suffers delay and/or incurs Cost as a result of suspending work (or reducing the rate of work) in accordance with this Sub· Clause, the Contractor shall give notice to the Employer and shall be entitled subject to Sub· Clause 20.1 [Contractor's Claims)to: (a) an extension of time for any such delay, if completion is or will be delayed, under Sub·Clause 8.4 [Extension of Time for Completion), and (b) payment of any such Cost plus reasonable profit, which shall be added to the Contract Price. After receiving this notice, the Employer shall proceed in accordance with Sub· Clause 3.5 [Determinations] to agree or determine these matters.

20-12

20-13

The power to suspend provides the contractor with an effective tool to resolve late payment problems with the employer, which may be extremely prejudicial to contractors depending on their cash-flow requirements for progress in the works. Nonetheless, this power to suspend could prove to be extremely burdensome to the employer, particularly in large contracts where each day of suspension and delayed completion can impose heavy costs on him. Silver Book sub-clause 16.1 entitles the contractor to suspend or reduce the rate of work upon the occurrence of certain specific failures of the employer. The first is the employer's failure to comply with sub-clause 2.4, which requires the employer to submit reasonable evidence of his ability to pay the contract price at the contractor's request. The second ground for suspension is the employer's failure to make timely payments when due under the contract. Upon the occurrence of either of these events the contractor may after 21 days' notice to the employer suspend or reduce the rate of work unless and until the employer provides reasonable evidence of his ability to payor makes the required payment. A suspension under this subclause does not prejudice the contractor's right to receive financing charges on late payments or eventually terminate the agreement in accordance with the contract. However, the contractor must resume normal working as soon as possible once the employer cures the notified default. The contractor is also entitled to receive an extension of time and/or the addition to the contract price of costs plus reasonable profit to the extent caused by the suspension due to an employer failure. The contractor's right to suspend or reduce the work rate under this subclause first appeared in FIDIC contracts in the fourth edition of the Red Book. Such a provision is beneficial to contractors, particularly those operating in common-law jurisdictions, as under traditional common law, the employer's failure to pay only entitled the contractor to either continue work 470

DISCUSSION OF SPECIFIC SUB-CLAUSES

or to terminate the contract where the failure was sufficient. 3 Sub-clause 16.1 provides the contractor with other options in the event of the employer's failure to pay. Orange Book sub-clause 16.1 is nearly identical t~ the Silver Book provision, with a few minor exceptions. First, the failure of the employer to provide evidence of his ability to pay the contract price upon request is not a ground for suspension because the employer has no such responsibility under the Orange Book. Secondly, the notice provisions for the suspension are slightly different. The contractor must wait for 21 days after the payment from the employer becomes overdue. After that period of 21 days the contractor may give the employer seven days' notice of suspension. Under the Silver, Red and Yellow Books the contractor may send notice of suspension immediately once the time for performance of the underlying obligation becomes overdue. Red and Yellow Book sub-clauses 16.1 are also nearly identical to the Silver Book provision. They differ only in that the failure of the engineer to certify a payment in accordance with the contract is listed as an additional ground for contractor suspension of work or reduction in the rate thereof, a new addition to these contracts. 4 ENAA clause 41 entitled "Suspension" covers suspensions by the contrac- 20-14 tor. The contractor is entitled to suspend performance or reduce the rate of work under the contract for various reasons. If the owner (1) fails to pay the contractor any sum due under the contract within the specified period, (2) fails to approve any invoice or supporting documents without due cause, (3) amends the letter of credit/guarantee delivered to the contractor or (4) commits a substantial breach of the contract, the contractor may give a notice to the owner specifying the breach and requiring the owner to remedy the same (ENAA 41.2). If the owner fails to take steps to remedy the breach or sufficiently explain the action within 14 days after receipt of the contractor's notice, then the contractor may by notice to the owner suspend performance of all or any of its obligations under the contract or reduce the rate of progress (E~A~ 41.2). In addition, if the contractor is unable to carry out any of his obligatIOns under the contract for any reason attributable to the owner then the contractor may by notice to the owner suspend performance of any or all of his obligations under the contract or reduce the rate of progress (ENAA 41.2). This latter ground does not require the 14-day period for the owner to cure the default before the suspension takes effect. Under the ENAA the contractor is entitled to payment of his costs and expenses incurred as ; result of the suspension or reduction of the rate of work and an extension of time for c?mpletion (EN~A 41.3). The contractor is prohibited during such suspensIOn from removmg from the site any materials, plant or construction equipment without the prior consent of the owner (ENAA 41.4).

J

4

C.R. Seppala, "FIDIC's New Standard Forms of Contract-Force Majeure, Claims, Disputes and Other Causes" (2000) 17 (2) I.C.L.R. 235 at 244. ibid.

471

SUSPENSION AND TERMINATION BY CONTRACTOR

20-15

20-16

The EIC permits the contractor to suspend his performance of the contract in certain circumstances. If the owner fails to pay the contractor any amount due within 14 days, the contractor may suspend work, services and other activities or reduce the rate of work after giving seven days' prior notice to the owner (EIC 19.4). If the contractor suffers delay or incurs cost due to the suspension, the contractor is entitled to an extension of time for completion and an addition to the contract price for any additional cost and expense (EIC 19.4). The contractor's right to suspend under the EIC does not prejudice his right to terminate the contract on similar grounds under a different sub-clause. However, if the contractor suspends and the owner subsequently pays the amount due, the contractor must resume normal working as soon as is reasonably possible (EIC 19.5). Under the ICE, the contractor may either suspend work or reduce the rate of work after giving seven days' notice in writing if the employer's representative fails to certify an amount due or if the employer fails to pay an amount due under the contract within 21 days after the expiry of the time stated in the contract (ICE 64(1)). However, upon payment of the amount due, plus applicable interest, the contractor must resume normal working as soon as reasonably possible (ICE 64(2)). If the contractor suffers delay or additional cost as a result of suspending or reducing the rate of work, he is entitled to an extension of time and payment of such additional cost (ICE 64(3)). The AlA contains no provision allowing the contractor to suspend his performance under the contract. Under the AGC, the contractor is entitled immediately to stop work in an affected area if known or suspected hazardous material is discovered at the project site (AGC 3.5.2). The contractor must resume work only upon written agreement between the parties and after the hazardous material has been removed or rendered harmless and only after approval, if necessary, of the governmental agency or agencies with jurisdiction (AGC 3.5.4). In the event of suspension for this reason, the contractor is entitled to an equitable adjustment of the contract price and extension of the time for completion to the extent the contractor has incurred additional costs or is delayed (AGC 3.5.5). The AGC also states that if the owner does not provide reasonable evidence satisfactory to the contractor prior to and during the progress of the work that sufficient funds are available and committed for the entire cost of the project, "the Design-Builder shall not be required to commence or continue the Work. The Design-Builder may stop Work after seven (7) days' written notice to the Owner if such evidence is not presented within a reasonable time" (AGC 4.1.3.) Finally, if the owner fails to pay the contractor at the time payment of any amount becomes due, "the Design-Builder may, at any time thereafter, upon serving written notice that the Work will be stopped within seven (7) days after receipt of the notice by the Owner, and after such seven (7) day period, stop the Work until payment of the amount owing has been received" (AGC 9.1.4). The DBIA also has numerous grounds for suspension by the contractor. It states that the "Design-Builder may, in addition to any other rights afforded under the Contract Documents or at law, stop work for the following reasons: (1) Owner's failure to provide financial assurance as required under Section

472

DISCUSSION OF SPECIFIC SUB-CLAUSES

3.3. her~of; or (.2) ?wner's failure to pay amounts properly due under DesignBUilder s Appltcatlon for Payment" (DBIA 11.3.1.) If any of these events occur, the design-builder may give the owner written notice that work will sto~ unless the event is cured within seven days of the owner's receipt of the nO~lce (DBIA 11.3.2). If the owner does not cure the problem and the designbUilder stops ~ork, he may make a claim for adjustment to the contract price and contract ttme(s) to the extent they have been adversely impacted by the stopp~ge (D~IA 11.3.2). As in the AGC, the design-builder must also stop work Immediately under the DBIA upon encountering any hazardous conditions (DBIA 4.1.1). He must resume work at the affected area only once the conditions have been removed or rendered harmless and all necessary approvals have been obtained from all government and quasi-government entities having jurisdiction (DBIA 4.1.3). A work stoppage for this reason entities the. design-builder to adjustment of the contract price and time(s) to the extent Impacted by the hazardous condition and stoppage (DBIA 4.1.4).

20-17

16.2 Termination by Contractor The Contractor shall be entitled to terminate the Contract if: (a) the Co.n~ractor ~oes not receive the reasonable evidence within 42 days after glvang notice under Sub-Clause 16.1 (Contractor's Entitlement to Suspend Work) in respect of a failure to comply with Sub-Clause 2.4 (Employer's Financial Arrangements), (b) the Contractor does not receive the amount due within 42 days after th.e e.xpiry.of the time s~ated in Sub-Clause 14.7 (Timing of Payments) wlthan which payment IS to be made (except for deductions in accordance with Sub-Clause 2.5 (Employer's Claims]), (c) the Employer substantially fails to perform his obligations under the Contract, (d) the Employer fails to comply with Sub-Clause 1.7 (Assignment), (e) a prolonged suspension affects the whole of the Works as described in Sub-Clause 8.11 (Prolonged Suspension), or (f) the Employer becomes bankrupt or insolvent, goes into liquidation has a .receiv~ng or administration order made against him, compounds ~ith hiS creditors, or carries on business under a receiver, trustee or manager for the benefit of his creditors, or if any act is done or event occurs which (under applicable Laws) has a similar effect to any of these acts or events. In a~y of. these events or circumstances, the Contractor may, upon giving 14 days notice to the Employer, terminate the Contract. However, in the case of ~ub-pa~agraph (e) or (f), the Contractor may by notice terminate the Contract Immediately. The C~ntractor's election to terminate the Contract shall not prejudice any other rights of the Contractor, under the Contract or otherwise. Just as the employer is given the power to terminate the employment of the contractor for breach, so may the contractor terminate the contract because of

473

20-18

SUSPENSION AND TERMINATION BY CONTRACTOR

20-19

certain breaches by the employer. Silver Book sub-clause 16.2 sets forth the grounds for termination of the contract by the contractor for employer default. The contractor is entitled to terminate the contract for the following reasons: (1) the employer's failure to provide reasonable evidence of ability to pay the contract price upon the contractor's request within 42 days of a notice of suspension for that reason, (2) the employer's failure to pay the contractor an amount due under sub-clause 14.7 within 42 days after becoming due, (3) substantial failure of the employer to perform his obligations under the contract, (4) improper assignment of the contract by the employer, (5) prolonged suspension by the employer under sub-clause 8.11 or (6) employer bankruptcy, insolvency or similar events. Upon the occurrence of the first four of these events after the expiration of the applicable time periods, the contractor may give the employer 14 days' notice of contract termination. Some authors feel these notice periods are too long, as the contractor may be subject, in certain circumstances, to a notice period of up to 84 days.s Advance notice, however, is not required in the case of termination for prolonged suspension or employer bankruptcy. Finally, the Silver Book expressly states that the contractor's termination does not prejudice his other rights under the contract or otherwise. For some of the termination events subject to the 14-day prior notice, it is not entirely clear under the Silver Book whether a cure of the default by the employer during the notice period works to annul the termination. This should be clarified if the Silver Book is used. For example, some authors suggest the possibility for a cure should be allowed for, except where the breach is of a nature that cannot be cured within a short period of time. 6 The FIDIC Guide is silent on these matters'? Orange Book sub-clause 16.2 is very similar to the Silver Book provision. It differs in that the Orange Book does not list the employer's failure to provide evidence of ability to pay as a ground for termination. In addition, under the Orange Book, the contractor may not choose to forego the 14-day notice requirement for terminations for prolonged suspension and insolvency. Finally, Orange Book 16.2 does not expressly state that the termination does not affect other rights of the contractor under the contract or otherwise. However, this latter statement is contained in Orange Book sub-clause 16.3. Red and Yellow Book sub-clauses 16.2 are identical to the Silver Book provision with one small exception. They include as a grounds for contractor termination the failure of the engineer to issue a payment certificate within 56 days of receiving the contractor's statement. As under sub-clauses 16.1 of these contracts, such grounds are new additions. 8 Under the Silver Book there is no engineer. EIC, The EIC Contractor's Guide to the FlDIC Conditions of Contract for EPC Turnkey Projects (European International Contractors, Berlin, 2000), p. 30. • G.L. Jaynes, "Termination, Risk and Force Majeure" ("FIDIC Global Conditions of Contract" Seminar, New Delhi,January 2001), online: FIDIC http://www.fidic.orglresourcesl contracts/jayunes_A.asp (date accessed: July 4, 2001). 7 FIDIC, The FIDIC Contracts Guide (Federation Internationale des Ingenieurs-Conseils, Lausanne, 2000), pp. 266-268. 8 Seppala, op. cit. n. 3 above at 245. 5

474

DISCUSSION OF SPECIFIC SUB-CLAUSES

ENAA clause 42.3 entitled "Termination by Contractor" includes pro- 20-20 visions similar to Silver Book sub-clause 16.2. Under the ENAA the contractor is entitled to terminate the contract for a number of reasons. If the owner (1) has failed to pay the contractor any sum due under the contract within the specified period, (2) has failed to approve any invoice or supporting documents without due cause, (3) amends the letter of credit/guarantee delivered to the contractor or (4) commits a substantial breach of the contract, then the contractor may give a notice to the owner specifying the breach and requiring the owner to remedy the same (ENAA 42.3.1). If the owner fails to take steps to remedy the breach within 14 days after receipt of the contractor's first notice of this failure, the contractor may give the owner a second notice of this failure (ENAA 42.3.1). If the owner still fails to remedy the breach within 28 days of this second notice, the contractor may by a further notice terminate the contract (42.3.1). In addition, if the contractor is unable to carry out any of his obligations under the contract for any reason attributable to the owner then the contractor may give notice of this to the owner (42.3.1). If, within 28 days, the contractor is still unable to carry out any of its obligations, the contractor may by a further notice terminate the contract (42.3.1). The contractor is also entitled to terminate the contract by notice to the owner in the event of the owner's bankruptcy, insolvency or similar event (ENAA 42.3.2). Contract termination for this reason does not require an initial 14-day cure period after notice nor a subsequent 28day cure period. Like the Silver Book, the ENAA states that termination by the contractor is without prejudice to any other rights and remedies of the contractor in lieu or in addition to rights under these provisions (ENAA 42.3.5). The EIC also contains provisions regarding the contractor's potential ter- 20-21 mination of the contract. In the event of the owner: (a)

(b) (c)

failing to pay the Contractor the amount due within 28 (twenty-eight) Days after the expiry of the time within which payment is to be made, subject to any deduction that the Owner is entitled to make under the Contract, or without reasonable excuse following previous warning from the Contractor otherwise persistently neglects to carry out its obligations under the Contract, or becoming bankrupt or, being a company, if liquidation is initiated, other than for the purpose of a scheme of reconstruction or amalgamation,

the contractor is entitled to terminate his employment under the contract by giving notice to the owner (EIC 19.1). The termination takes effect 14 days after the notice is given (EIC 19.1). There would not appear to be any opportunity for the owner to cure the default and annul the termination once the notice is given. The EIC contains one additional ground under which the contractor might terminate the contract. If the approved design is not established by the time provided in the contract then either party may 475

SUSPENSION AND TERMINATION BY CONTRACTOR

20-22

20-23

give 28 days' prior notice of his intention to terminate the contract (EIC 22.6). If, at the end of the 28-day period, the approved design has not been established, either party may then give notice terminating all further obligations of the parties after seven days (EIC 22.6). Payment to the contractor is made as if the contract had been terminated for the employer's convenience. Under the ICE the contractor is entitled to terminate the contract in the event of (1) failure by the employer's representative to certify or by the failure of the employer to pay the contractor an amount due under the contract within 56 days after the expiry of the time stated for payment, (2) improper assignment of the contract by the employer without the prior written consent of the contractor or (3) employer bankruptcy, insolvency or similar events, including levies on goods (ICE 64(4)). If any of these events occur, "the Contractor may after giving 7 days notice in writing to the Employer specifying the default terminate his employment under the Contract without thereby avoiding the Contract or releasing the Employer from any of his obligations or liabilities under the Contract" (ICE 64(4)). However, "the Contractor may extend the period of notice to give the Employer an opportunity to remedy his default" (ICE 64(4)). The AlA contains provisions under which the contractor might be entitled to terminate the Part 1 Agreement for preliminary design service and budgeting and also the Part 2 Agreement for final design and construction. The Part 1 Agreement may be terminated by the contractor upon seven days' notice if the owner fails to perform substantially in accordance with the terms of Part 1, provided that the contractor is not at fault (AlA 8.1-Part 1). The Part 2 Agreement may be terminated by the contracror if the owner fails to make payment when due (AlA 12.2.1-Part 2). In this case, the design-builder may give written notice of his intention to terminate the Part 2 Agreement. "If the DesignlBuilder fails to receive payment within seven (7) days after receipt of such notice by the owner, the Design/Builder may give a second written notice by the Owner, [and] may terminate [the] Part 2 Agreement ... " (AlA 12.2.1Part 2). The AGC provides more grounds for contractor termination. It states: Upon five (5) days' written notice to the Owner, the Design-Builder may terminate this Agreement for any of the following reasons: .1 if the Work has been stopped for a sixty (60) day period; a. under court order or order of other governmental authorities having jurisdiction; or b. as a result of the declaration of a national emergency or other governmental act during which, through no act or fault of the Design-Builder, materials are not available; .2 if the Work is suspended by the Owner for sixty (60) days; or .3 if the Owner fails to furnish reasonable evidence that sufficient funds are available and committed for the entire cost of the Project in accordance with Subparagraph 4.1.3 of this Agreement.

476

DISCUSSION OF SPECIFIC SUB-CLAUSES

(AGC 11.4.1.) It is unclear under the AGC whether the five-day notice period provides an opportunity for the employer to cure the default and resolve the termination notice. The DBIA also provides for contractor termination events. It states that in addition to any other right and remedies under the contract or by law, the design-builder may terminate the contract for the following reasons: (1) work stoppage for 60 consecutive days or more than 90 days total due to court order, government authority or owner suspension, provided that the contractor is not at fault, (2) the owner's failure to provide the design-builder with any information, permits or approvals that are the owner's responsibility under the contract documents which result in the work being stopped for 60 consecutive days or more than 90 days total or (3) the owner's failure to cure the problems for which the designbuilder has suspended work (failure to provide financial assurances or failure to pay amounts due) (DBIA 11.4.1). Upon the occurrence of any of these events, the design-builder may give written notice to the owner of his intent to terminate the agreement unless the problem cited is cured, or commenced to be cured, within seven days of the owner's receipt of such notice (DBIA 11.4_2). If the owner fails to do so, the design-builder may give a second written notice to the owner of its intent to terminate within an additional seven-day period (DBIA 11.4.2). "If Owner, within such second seven (7) day period, fails to cure or reasonably commence to cure, such problem, then Design-Builder may declare the Agreement terminated for default by providing written notice to Owner of such declaration." (DBIA 11.4.2.) Bankruptcy of the owner is another circumstance under the DBIA for which the contractor may terminate the contract (DBIA 11.5.1). This type of situation is dealt with in a separate sub-clause of the DBIA.

20-24

16.3 Cessation of Work and Removal of Contractor's Equipment

After a notice of termination under Sub-Clause 15.5 [Employer's Entitlement to Termination), Sub-Clause 16.2 [Termination by Contractor) or Sub-Clause 19.6 [Optional Termination, Payment and Release) has taken effect, the Contractor shall promptly: (a) cease all further work, except for such work as may have been instructed by the Employer for the protection of life or property or for the safety of the Works, (b) hand over Contractor's Documents, Plant, Materials and other work, for which the Contractor has received payment, and (c) remove all other Goods from the Site, except as necessary for safety, and leave the Site .

In order to ensure that the relationships and property involved in the project are ~roperly disposed of between the parties upon termination, the contract prOVides the contractor with a description of his duties and obligations upon

477

SUSPENSION AND TERMINATION BY CONTRACTOR

20-25

20-26

termination. This provision should also serve to protect the works and the site from unnecessary damage due to the withdrawal of the contractor. Silver Book sub-clause 16.2 is a provision for the cessation of work by the contractor and the removal of his equipment. It is a provision applicable under three separate clauses in the contract. It applies in the case of an employer termination for convenience under Silver Book sub-clause 15.5, in the case of a contractor termination for employer default under this subclause 16.2 and also in the case of termination after prolonged force majeure prevention of performance under sub-clause 19.6. This latter event will be discussed at greater length in Chapter 23. Nonetheless, in the present context of a contractor termination for employer default under Silver Book sub-clause 16.2, the contractor must cease all further works, except as instructed by the employer to protect the safety of life, property or the works. The contractor must further hand over all contractor's documents, plant, materials and other work for which the contractor has received payment. Finally, the contractor is obligated to remove all other goods from the site, except as necessary for safety, and to leave the site. Orange Book sub-clause 16.3 is generally identical to the Silver Book provision, with a few small exceptions. First, in addition to the other responsibilities contained in the Silver Book provision, the contractor is required to perform at the instruction of the employer's representative any work required to leave the site in a clean and safe condition. It also specifically states that the contractor must remove all contractor's equipment from the site and repatriate all of his staff and labour. Red and Yellow Book sub-clauses 16.3 are identical to the Silver Book provision, with the sole exception that it is the engineer rather than the employer who may instruct protective work prior to the contractor's departure from the site. ENAA 42.3.3 is very similar to the Silver Book's provision. If the contract is terminated by the contractor, the contractor must immediately: (a)

(b) (c) (d)

478

cease all further work, except for such work as may be necessary for the purpose of protecting that part of the Works already executed or any work required to leave the Site in a clean and safe condition; and terminate all sub-contracts, except those assigned to the Owner pursuant to paragraph (d)(ii) below; and remove all Construction Equipment from the Site and repatriate the Contractor's and its Sub-Contractor's personnel from the Site; and subject to the payment [by the Owner): (i) deliver to the Owner the parts of the Works executed by the Contractor up to the date of termination; and (ii) to the extent legally possible assign to the Owner all right, title and benefit of the Contractor to the Works and in the Materials as at the date of termination, and, as may be required by the Owner, in any sub-contracts concluded between the Contractor and its Sub-contractors; and

DISCUSSION OF SPECIFIC SUB-CLAUSES

(iii)

deliver to the Owner all drawings, specifications and other documents prepared by the Contractor or its Sub-contractors as at the date of termination in connection with the Works.

(ENAA 42.3.3.) The notable addition in the ENAA provision is the requirement that all subcontracts be terminated. The EIC provisions comparable to Silver Book 16.3 are less complex. They state simply that "[u]pon the expiry of the 14 (fourteen) Days' notice referred to in Clause 19.1 [notice of termination] the Contractor shall, with all reasonabl~ despatch, remove from the Site all Contractor's Equipment brought by him thereon and shall give similar facilities to his subcontractor to do so" (EIC 19.2). The ICE states that "[u]pon expiry of the 7 days notice referred to in subclause (4) of this Clause and notwithstanding the provisions of Clause 54 the Contractor shall with all reasonable despatch remove from the site all Contractor's Equipment" (ICE 64(5)). The AlA, AGC and DBIA contain no provisions comparable to Silver Book sub-clause 16.3.

20-27

16.4 Payment on Termination After a notice of termination under Sub-Clause 16.2 [Termination by Contractor) has taken effect, the Employer shall promptly: (a) return the Performance Security to the Contractor, (b) pay the Contractor in accordance with Sub-Clause 19.6 [Optional Termination, Payment and Release), and (c) pay to the Contractor the amount of any loss of profit or other loss or damage sustained by the Contractor as a result of this termination. . The calculation of the payment due to the contractor following termina~Ion for employer breac~ is important not only for the purposes of provid109 adequate compensation to the contractor but also as an added incentive for the employer to satisfy his obligations under the contract. . Sil~er Book sub-clause 16.4 describes the employer's payment obligatIOns 10 the event of a contractor termination. It states that once the termination has taken effect, the employer must promptly return the performance security, pay the contractor in accordance with sub-clause 19.6, "Optional Termination, Payment and Release", and pay the contractor the amount of any loss of profit or other loss or damage resulting from the termination. Sub-clause 19.6 states generally that the employer must pay the contractor (1) all amounts payable for completed work (2) ~he.costs of plant and materials ordered for the works, (3) costs or li~bil­ Ity mcurred by' the contractor in the expectation of completing the works (4) th~ c~mtractor's costs relating to clearing the site and (5) the cost of repatClatmg the contractor's staff and labour. Orange, Red and Yellow Book sub-clauses 16.4 are basically identical to the Silver Book provision.

479

SUSPENSION AND TERMINATION BY CONTRACTOR

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20-29

Under the ENAA, if the contractor terminates the contract, the owner must pay the contractor in accordance with ENAA 42.1.3 ("Termination for Employer's Convenience") as well as "reasonable compensation for all loss or damage sustained by the Contractor arising out of, in connection with or in consequence of such termination" (ENAA 42.3.4). ENAA 42.1.3 requires the owner to pay the contractor (1) the contract price attributable to all completed works, (2) the reasonable costs of site clearance and repatriation of personnel, (3) any costs incurred by the contractor related to the cancellation of subcontracts, (4) the contractor's costs for protecting the works and leaving the site in a clean and safe condition, (5) reasonable profit for works not executed and (6) the contractor's cost of satisfying all other obligations, commitments or claims undertaken by the contractor with third parties (ENAA 42.1.3). The EIC states that in the event of termination by the contractor, the owner shall be under the same obligations to the contractor regarding payment as if the contract had been terminated for the owner's convenience (EIC 19.3). If the contract is terminated for the owner's convenience, "the Contractor shall be paid by the Owner, insofar as such amounts or items have not already been covered by payments on account made to the Contractor, for all work done and services provided by the Contractor including overheads and profit prior to the date of termination" (EIC 22.4). The contractor is also entitled to be paid: (1) the cost of materials, plant, contractor's equipment or goods reasonably ordered that have been delivered to the contractor or which the contractor is legally liable to accept, (2) a sum for any expenditure reasonably incurred by the contractor in expectation of completing the whole of the works, (3) cost of removal of the contractor's equipment and transport back to contractor's main yard or other destination and (4) the reasonable cost of repatriation of contractor's staff and workmen (EIC 22.4). Finally, "the Owner 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" (EIC 19.3). The ICE states that upon the contractor's termination of the contract for cause, the employer must pay the contractor as if the works had been abandoned under the provisions of clause 63 (ICE 64(6)). Clause 63 indicates that the employer must pay the contractor (1) the contract value of all work carried out prior to the date of termination, (2) amounts for preliminary items carried out or partially carried out or performed, (3) the cost of materials or goods reasonably ordered for the works which have been delivered to the contractor or of which the contractor is legally liable to accept delivery, (4) the amount of any expenditure reasonably incurred by the contractor in the expectation of completing the whole of the works and (5) reasonable removal costs (ICE 63(4)). However, in addition to these payments, the employer must also pay the contractor any additional costs for the contractor's suspension of the work under the contract and the amount of any loss or damage to the contractor arising from or as a consequence of such termination (ICE 64(6)). 480

DISCUSSION OF SPECIFIC SUB-CLAUSES

For termination by the contractor of the AlA Part 1 Agreement for cause, "the Design/Builder shall be compensated for services performed to the termination date, together with Reimbursable Expenses then due and Termination Expenses. Termination Expenses are expenses directly attributable to termination, including a reasonable amount for overhead and profit ... " (AlA 8.3-Part 1). In the event of a termination by the contractor of the AlA Part 2 Agreement, the contractor may "recover from the Owner payment for Work executed and for proven losses sustained upon materials, equipment, tools, and construction equipment and machinery, including reasonable profit and applicable damages" (AlA 12.2.1-Part 2). Under the AGC, upon termination by the contractor for cause the contractor is entitled to recover from the owner "payment for all Work executed and for any proven loss, cost or expense in connection with the Work, plus all demobilization costs and reasonable damages" (AGC 11.4.3). In addition, the contractor is paid an additional amount, similar to when the contract is terminated for the employer's convenience (AGC 11.4.3). This additional amount includes a percentage of the remaining balance of the contract price, fixed in advance by the parties, that varies depending on the state of completion of the works at the time of termination (AGC 11.3). This percentage will be fixed depending upon the time of termination; for termination prior to the commencement of the construction or after commencement of the construction (AGC 11.3). In addition, "[tJhe Owner shall assume and become liable for obligations, commitments and unsettled claims that the Design-Builder has previously undertaken or incurred in good faith in connection with the Work or as a result of the termination of this Agreement" (AGC 11.3.3). In the case of a termination by the design-builder under the DBlA: "Design-Builder shall be entitled to recover in the same manner as if the Owner had terminated the Agreement for its convenience under Article 8 of the Agreement." (DBIA 11.4.2.) Under the DBIA, when the owner terminates the contract for convenience, the owner must pay the contractor for (1) all work executed and for proven loss, cost or expense in connection with the work, (2) the reasonable costs and expenses attributable to the termination, including demobilisation costs and amounts due in settlement of terminated contracts with subcontractors and design consultants and (3) sums for overhead and profit (DBIA ca 8.1). The DBIA also provides for the payment of certain percentages of the remaining balance of the contract price to be agreed by the parties for termination at certain stages of completion (DBIA ca 8.2).

481

20-30

SUSPENSION AND TERMINATION BY CONTRACTOR

20-31

Figure 20.1 Contractor termination for employer default under the FIDIC Silver Book CHAPTER CONTRACTOR TERMINATION EVENTS The employer (a) fails to provide reasonable evidence of his ability to pay the contract price upon request and within 42 days' after the contractor's notice of suspension for this

21

RISK AND RESPONSIBILITY

reason;

(b) fails to make a payment due to the contractor within 42 days of its due date; (c) substantially fails to perform his obligations under the conttact; (d) wrongfully assigns the contract; (e) fails to resolve a prolonged suspension; or (f) becomes bankrupt, insolvent or similar event (16.2).

Contractor may terminate contract upon 14 days' notice to the employer or immediately in the case of prolonged suspension or employer insolvency (16.2).

Contractor ceases work, hands over contractor's documents, plant and materials which have been paid for, removes all other goods from the site and leaves the site (16.3).

Employer returns the performance security to the contractor. pays him in accordance with sub-cIause 19.6 along with any other amount for loss of profit or other loss or damage to the contractor as a result of the termination (16.4).

General Comments Risk, and the proper apportionment of it, should be one of the central themes of a well-drafted construction contract. In the United States, according to one author, the misallocation of risk is the leading cause of disputes under construction contracts.! Under the turnkey or EPC contracting methods, as compared to the more traditional design-bid-build method, the contractor carries a larger part of the risk concerning design, construction and performance. The parties to a construction contract may decide to allocate risk in accordance with their respective ability to manage the risk in question. The parties need to determine who can best control the circumstances that may result in the loss or damage. Placing the liability on the party in control will improve surveillance and prevention of the risk in question. It may also be proper to allocate risk, under certain circumstances, to the party for whom it is least expensive to carry (least-cost risk bearer). In the case of many risks and liabilities it may be best for the parties to share the responsibility for the risk. 2 The concept that a successful negotiation is one where one of the other parties ends up carrying the majority of the risk may not prove to be valid, since increased risk means a proportionate modification of the cost of the contract. Taken as an example is the risk of unforeseeable conditions. When the contractor carries this risk it will attempt to increase the contract price in order to compensate for its potential occurrence. The employer may pay for the event even if it does not occur. Therefore the employer under certain circumstances may prefer to take this risk upon himself. 3 However, in today's competitive market, it may not always be possible for the contractor to obtain a price that is commensurate with his risk. The parties will want to be proactive in the way they deal with risk. They can implement various preventative measures to avoid certain risks arising. Often the cost of such preventative measures wi Ii be less than the cost

I

2

J

482

R.J . Smith, "Risk Identification and Allocation: Saving Money by Improving Contracts and Contracting Practices" (1995) 12 I.C.L.R. 40; see also C.G. Hammond, "Dealing with Defects: Defective Owner-Provided Preliminary Design in Design-Build Contracting" (1998) 15 I.C.L.R. 193. R.J. Smith. "Risk Identification and Allocation: Saving Money by Improving Contracts and Contracting Practices" (1995) 12 I.C.L.R. 40 at 44. C.R. Seppala. "Les Principaux 'Claims' de l'Entrepreneur aux Termes des Conditions FIDIC (1985) R.D.A.!. 171 at 178.

483

21-01

21-02

RISK AND RESPONSIBILITY

21-03

contingency necessary to cover the potentiality of the risk. For example, the contractor may want to perform a constructability review of his design, to ensure that implementation of his drawings will not cause a delay in performance. 4 By actively preparing for the risk, rather than gambling on its nonoccurrence, parties can avoid unnecessary costs and delays. Risks in respect of third parties must also be allocated as between the parties to the contract. It may be difficult to ascertain whether damage has been caused by an accidental event or caused by a third party for which neither party to the contract is responsible. Thus, according to one source, the contract should specify liability regardless of whether the damage was caused by an accidental event or caused by a third party.s At the same time, neither party will want to assume the risk of the negligence of the other party. It is also questionable in certain jurisdictions, legally, to what extent liability for one's own negligence can be passed on to another party. Where such is the desire of the parties, a limitation should be very clearly stipulated in the contract. 6 Insurance should be considered in the context of risk analysis and allocation. According to UNCITRAL a number of factors must be balanced in any such risk analysis: (a) (b) (c) (d)

21-04

the party that can most easily and inexpensively obtain insurance for the risk should provide the insurance; which of the parties has better control over the circumstances that may result in loss or damage; whether it is desirable to have the risk passing a number of times, given that this is a potential source of confusion and dispute; which of the parties is better able to salvage and dispose of damaged property.7

The parties will need to examine the relevant legal system. For example, many legal systems provide that equipment and materials incorporated into the works become part of the works, for issues of risk as well as property. The applicable law will also need to be considered as concerns equipment not meant to be incorporated into the works, and the eventual disposal of such equipment. The parties may be able to choose the apportionment of the risk concerning such equipment. 8 The turnkey and EPC form contracts deal with the following issues: (a) (b)

employer's risks; specifying the contractor's responsibility for the care of the works;

• Smith, op. cit. n. 2 above at 57. S UNCITRAL, UNCITRAL Legal Guide on Drawing Up International Contracts for the Construction of Industrial Works (UN, New York, 1998) UNDOC. AlCN.9/SER.Bl2 at 159. 6 S. Furst Q.e. & V. Ramsey Q.c. eds, Keating on Building Contracts (7th ed., Sweet & Maxwell, London, 2001), p. 64. 7 UNCITRAL, UNCITRAL Legal Guide on Drawing Up International Contracts for the Construction of Industrial Works (UN, New York, 1998) UNDOC. AlCN .9/SER.Bl2 at 160. 8 ibid. at 163.

484

GENERAL COMMENTS

(e) (d) (e) (f)

an indemnification regime for certain risks; environmental risks; intellectual and industrial property right infringement indemnin.cation;and the limitation of contractor liability.

Each of these issues is discussed below.

Employer's risks (Figure 21.1) Certain specified events are generally excluded from the risks assumed by the contractor, thus falling on the employer. These events include war, military action, natural disasters and certain other excepted risks. The parties should specify in which countries such events must take place in order to define the employer's risks. The excepted risks are often limited to the site country, or where the effects occur in the site country.9 Where one party bears the whole of the risk for a specified event, for which he must provide insurance, some courts find that party is liable for the event indicated, even where part of the damage was caused by the negligence of the other party.IO If this is not the intent of the parties, they may want to stipulate accordingly.

Contractor's responsibility for the care of the works Under a turnkey or EPC contract, the contractor has possession of the site until either taking over by the employer, under regimes such as the Silver Book or the ICE Contract, or acceptance, under systems such as the ENAA Contract. Where the form contract provides that the employer will take over possession of the plant after mechanical completion, the employer may want to make the contractor responsible for risk of care of the works through the commissioning process. In addition, under some turnkey contracts, the contractor oversees the operation of the plant beyond this point for performance testing purposes. In this case the passing of risk with regard to the care of the works could occur after performance tests have been satisfactorily com. pleted. 11

21-05

Indemnification An indemnity clause places liability on one party for the losses incurred by another party. The clause can limit the extent of the damages covered, or the

9 10 II

ibid. at 160. Furst & Ramsey, op. cit. n. 6 above, p. 65. UNCITRAL, UNCITRAL Legal Guide on Drawing Up International Contracts for the Construction of Industrial Works (UN, New York, 1998) UNDOC. AlCN.9/SER.Bf2 at 164.

485

21-06

GENERAL COMMENTS

RISK AND RESPONSIBILITY

period of time such indemnity shall last. An indemnification clause may only cover a loss when it arises, not when the claim arises. 12 Indeed, this poses a potential benefit for the indemnitee where, for example, work was not carried out in conformity with the contract "by postponing the date of accrual of the cause of action, and so the starting date for the limitation period, until the occurrence of the damages claim loss or expense".13 The employer may want to require an indemnity (by the contractor) of any costs or liability for claims, damages or expenses arising out of the works. Thus the employer will be reimbursed for any and all expenses incurred as a result of a claim by a third person concerning the works. The contractor will want to ensure that the indemnity only covers those claims based on damages for which there is contributory fault of the contractor. Thus, if the employer is partially responsible, the indemnification obligation will only apply to that portion of the damages attributable to the contractor.

Environmental risks 21-07

Parties to construction contracts should not ignore the issue of liability for environmental risks. Contracts often require parties to comply with applicable law in performance of the contract. However, parties may want to consider requiring that the performance of the finished works also comply with applicable law, in the particular environmental regulations. Furthermore, under a turnkey or EPC contract, the employer does not necessarily completely know or understand the process to be used and whether that process may cause environmental damage. The effect of the contractor's design on the environment may have other effects on the employer. The owner, under the ENAA Contract (sub-clause 10.3), must obtain permits and licences that are required to be in his name. However, these permits may refer to a process that in certain projects only the contractor fully understands, and there is no requirement that the contractor assist the employer in obtaining such licences and permits. The parties may want to provide for indemnification specifically for environmental risks. The indemnification could cover the employer for risks occurring during performance or caused by the process. The contractor will want to exclude indemnification for environmental damages for events under his control, e.g. resulting from conditions pre-existing on the site or materials brought on to the site after completion. The employer may also want to include indemnification for damage caused or aggravated by the contractor in relation to a pre-existing condition of the site, but about which an experienced contractor should have known.

12 \J

Furst & Ramsey, op. cit. n. 6 above, p. 67. I.N.D. Wallace Q.c., Hudson's Building and Engineering Contracts (11th ed., Sweet & Maxwell, London, 1995), p. 1444.

486

Intellectual and industrial property rights infringement indemnification The efficiency and productivity of the works will often depend on the technology and know-how used in their design and construction. The parties should allocate among themselves the responsibility to provide this knowhow. In a turnkey or EPC project it is often the contractor who supplies the know-how, since he designs the works. However, the employer may already have possession of the know-how around which he intends the works to function. In either case, the protection of the integrity of the patent rights to the technology and know-how used is essential. Durations and limitations of licences should be carefully considered before execution of the contract. Licences obtained from third parties may be extremely limited in their duration and scope in order to protect the thirdparty issuer. For example, the ENAA, on the assumption that the employer obtains any such licence, provides that if he ca uses the contractor to infringe a patent or trademark, he will indemnify the contractor (ENAA 29.3). Although indemnification for intellectual property infringement will protect the employer, he should also include an affirmative duty on the contractor to provide licences and pay royalties or fees for the use of processes or methods. The employer will then be able to require the contractor to pay any applicable and unpaid fees in order to protect himself from liability and possible work stoppage due to violation of intellectual property rights, rather than having to rely on the contractor's duty of indemnification. If such a provision is added, the employer will need the power to step in and pay royalty fees or licences on the contractor's behalf, where the contractor fails to do so,

21-08

Limitation of contractor liability The contractor will want to define the limits of his own liability. In particular, he should consider carefully the effects on his liability of the regime for provision of technology under the contract and any variations ordered by the employer's representative (and possibly designed by him). Several different forms of limitation of liability clauses are available to the contractor. Amongst others, the contract can: (a) (b) (c) (d) (e)

14

limit the warranties given for the design or quality of the works; limit the contractor's liability for the actions of third parties; require that the employer provide contractor's risk insurance; exclude liability for consequential damages; limit the contractor's liability for certain defects to the cost of redesign or repair; or

Jaynes, "Turnkey Contracts: Japan's Model Forms" (1993) 10 I.e.L.R. 251 at 254.

487

21-09

DISCUSSION OF SPECIFIC SUB-CLAUSES

RISK AND RESPONSIBILITY

(f)

Examples of such clauses may be found in the discussion below.

Discussion of Specific Sub-Clauses 21-10

Clause 17 of the Silver Book, entitled "Risk and Responsibility", sets forth the regime under which risks are to be apportioned under the contract. More specifically, the respective risks of the contractor and employer, as well as their obligation to indemnify each other in respect of certain events, are outlined. Further, the apportionment of responsibility as regards infringement of intellectual and industrial property rights is laid out, and a general limitation of liability clause is provided.

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17.1 Indemnities The Contractor shall indemnify and hold harmless the Employer, the Employer's Personnel, and their respective agents, against and from all claims, damages, losses and expenses (including legal fees and expenses) in respect of: (a) bodily injury, sickness, disease or death, of any person whatsoever arising out of or in the course of or by reason of the design, execution and completion of the Works and the remedying of any defects, unless attributable to any negligence, wilful act or breach of the Contract by the Employer, the Employer's Personnel, or any of their respective agents, and (b) damage to or loss of any property, real or personal (other than the Works), to the extent that such damage or loss: (i) arises out of or in the course of or by reason of the design, execution and completion of the Works and the remedying of any defects, and (ii) is not attributable to any negligence, wilful act or breach of the Contract by the Employer, the Employer's Personnel, their respective agents, or anyone directly or indirectly employed by any of them. The Employer shall indemnify and hold harmless the Contractor, the Contractor's Personnel, and their respective agents, against and from all claims, damages, losses and expenses (including legal fees and expenses) in respect of (1) bodily injury, sickness, disease or death, which is attributable to any negligence, wilful act or breach of the Contract by the Employer, the Employer's Personnel, or any of their respective agents, and (2) the matters for which liability may be excluded from insurance cover, as described in sub-paragraphs U

(d)(i), (ii) and (iii) of Sub-Clause 18.3 [Insurance Against Injury to Persons and Damage to Property).

set a maximum liability for the contractor, possibly to a percentage of the contract price. IS

Loulakis, "Single Point Responsibility in Design-Build Contractinf i~ R.F. Cushman & K.S. Taub, eds, Design-Build Contracting Handbook (Wiley Law Publications, New York, 1992) 1 at 21.

488

Silver Book sub-clause 17.1 outlines the claims in respect of which one party shall indemnify the other party. The contractor is to indemnify and hold harmless the employer from all claims, damages, losses and expenses (including legal fees and expenses) arising out of, or in the course of, the works. Under the terms of 17.1 (a), this indemnification is limited to bodily injury, sickness, disease or death that may arise in the course of the design, execution or completion of the works where this damage is not attributable to any act of negligence, wilful act or breach of the contract by the employer or someone directly or indirectly in his employ. Some criticise the terms of the contractor's indemnity for damage arising "in the course of" the execution or design of the works as being "unnecessarily broadly drafted" such that the contractor must assume "a ridiculously wide risk" which "in its defined terms may not be insurable" .16 The contractor, therefore, may wish to exclude the words "in the course of" from the provisions of sub-clause 17.1 (a) and (b). Under the terms of 17.1 (b), the contractor is also to indemnify the employer for damage or loss to property (real or personal) other than the works to the extent that this damage arises out of, or in the course of, the works and is not attributable to any act of negligence, wilful act or breach of the contract by the employer or someone directly or indirectly in his employ. Essentially sub-clause 17.1 (b) holds the contractor liable "to indemnify the employer for property damage where the contractor has been negligent or committed a breach of contract" .17 This provision results from FIDIC's conforming to similar policies found in the major United Kingdom and other standard form contracts. 18 The exclusion of contractor liability to indemnify the employer for damage caused by the employer's negligence may be implied by the governing legal system l9 but it is wise to make such a precision nonetheless. . As a corollary, Silver Book sub-clause 17.1 specifies the employer is to indemnify and hold harmless the contractor from all claims, damages, losses and expenses (including legal fees and expenses) respecting bodily injury, sickness, disease or death where such damage is attributable to any act of negligence, wilful act or breach of the contract by the employer or someone directly or indirectly in his employ. Further, the employer is to indemnify the contractor for such claims as may result from matters for which liability may F.M. Kennedy, "EIC Contractor's Guide to the FIDIC Conditions of Contract for EPC Turnkey Projects (The Silver Book)" (2000) 17 (4) I.C.LR. 504 at 529. 17 C.R. Seppala, "FIDIC's New Standard Forms of Contract-Force Majeure, Claims, Disputes and Other Causes" (2000) 17 (2) I.C.L.R. 235 at 238. 18 C.R. Seppala, "FIDIC's New Standard Forms of Contract-Force Majeure, Claims, Disputes and Other Causes" (2000) 17 (2) I.C.L.R. 235 at 238 citing I.N.D. Wallace Q.c., Hudson's Building and Engineering Contracts (11 th ed., Sweet & Maxwell, London, 1995), p. 1437. \. I.N.D. Wallace Q.C., Hudson's Building and Engineering Contracts (11th ed., Sweet & Maxwell, London, 1995), p. 1445 (discussing the Alderslade principle and indemnity provisions in general under English law). I.

489

21-12

RISK AND RESPONSIBILITY

21-13

21-14

21-15

be excluded from insurance cover (as described in SB 18.3(d)(i), (ii) and (iii)). In order to avoid conflict as to whether or not insurance is available at "commercially reasonable terms" (sub-clause 18.3(d)(iii)) the contractor may wish to eliminate the reference to this sub-clause in 17.1.20 Orange Book sub-clause 17.1 is less comprehensive than of Silver Book sub-clause 17.1. First, under the Orange Book the amounts for which the contractor is to indemnify the employer do not include reference to "legal fees and expenses". In addition, the Orange Book only indemnifies against "injury to or destruction of physical property" other than that of the works, rather than the arguably more extensive reference to "property, real or personal" of the Silver Book. Under Orange Book sub-clause 17.1, the contractor is only responsible for that part of the damage that is related to a breach of a duty of care imposed by law on the contractor or someone directly or indirectly in his employ. Depending on the governing law, defining and interpreting the notion of the "duty of care" could be problematic Under the Silver Book, however, the contractor's liability is defined in the negative such that, upon enumerated grounds, the contractor will be responsible for indemnifying the employer for the claims where the employer, or someone directly or indirectly in his employ, did not negligently, or otherwise, give rise to the claim. Finally, as the Orange Book does define the contractor's obligation to indemnify the employer in the negative, no reference to the sub-clause 17.3 "Employer's Risks" is necessary. The Red Book sub-clause 17.1 differs from that of the Silver Book in several respects. First, under the Red Book, any reference to the design under the contract includes a reference to the "contractor's design (if any)". Second, the contractor's liability for property loss claims is limited to the extent that these claims result from negligence on the part of the contractor or his subcontractors. The (new) Yellow Book sub-clause 17.1 is identical to that of the Silver Book. The ENAA contains provisions similar to those of Silver Book subclause 17.1. Under the ENAA, however, the liability of the contractor is limited to damages resulting from the negligence of the contractor or his subcontractors and their employees (ENAA 33.1). Where the applicable law provides for strict liability, some authors feel that sub-clause 33.1 "should be extended to include also in the indemnity obligation of the contractor the situation where the contractor or his subcontractors have caused damage or loss without negligence on their part" .22 The ENAA excludes indemnification of the owner for damage or injury caused by the

20 21

22

EIC, The EIC Contractor's Guide to the FIDIC Conditions of Contract for EPC Turnkey Projects (European International Contractors, Berlin, 2000), p. 30. B. Cazalet & R. Reece, "Conditions applicables aux contrats de conception-construction et des en main" (1996) 3 R.D.A.I.II.N.L.J. 279 at 297. T. Wiwen-Nilsson, "The 1996 Edition of the ENAA Model Form-International Contract for Power Plant Construction-A Brief Review" (1997) 141.C.L.R. 273 at 285.

490

DISCUSSION OF SPECIFIC SUB-CLAUSES

negligence 'of the owner or its employees (ENAA 33.1). There is some uncertainty as to whether the contractor must indemnify where the damage is caused in part by the negligence of the contractor and in part by the negligence of the owner. The guide notes are unfortunately silent on this question. Under the EIC, the contractor is to indemnify the owner for expenses and costs as under the other contracts examined herein (EIC 12.5). The contractor is not responsible for indemnifying the owner where the losses result from "any act or neglect of the owner, his agents, servants or other contractors, not being employed by the contractor" (EIC 12.6). Unlike under the Silver Book, the EIC specifically provides for apportionment such that, where the contractor negligently contributes to the injury or damage, the contractor need not indemnify the employer for the portion of the injury or damage to which the employer contributed (EIC 12.6(d)). The EIC further stipulates that the employer shall indemnify the contractor where the employer, or someone directly or indirectly under its employ or not under the employ of the contractor, is wholly or partially responsible for causing the loss or damage (EIC 12.7). The ICE provides for indemnification of the employer for loss or damage 21-16 to any p.rop~rty (except the works), or death or injury to any person, except 10 certam circumstances (ICE 22(1)). The exceptions include damage to crops on the site, any unavoidable result of the construction of the works in accordance with the contract and damage resulting from negligence of the employer, his agents or other contractors not in the.employ of the contrac~or. (I~E 22(2)). The ~xception regarding the responsibility of the employer IS lImited to the portIOn of the damage that is attributable to the employer (ICE 22(4)). Similarly, the responsibility of the contractor to indemnify the e~ployer is reduced in proportion to the extent that the employer is responsIble for the loss or damage (ICE 22(4)). Finally, the ICE also provides for indemnification by the employer of the contractor for enumerated risks (ICE 22(3)). The AlA provides that the contractor shall indemnify the owner against claims arising out of the performance of the work, as under the other contracts examined herein (AlA 11.5.1-Part 2). The contractor is to indemnify the owner for claims "only to the extent caused in whole or in part by negligent acts or omissions" of the contractor (AlA 11.5.1Part 2). In addition, the AlA specifies that the contractor shall do so "regard.less of whether or not such claim, damage, loss or expense is caused In part by a party indemnified hereunder" (AlA 11.5.1-Part 2). In othe~ words, the AlA provides for the contractor to pay his portion of t~e claims,. an.d the contributory negligence of the owner, or anyone directly or indirectly employed by him, will only reduce, but not eliminate, the responsibility of the contractor to provide indemnification und~r this c1aus~. fl:s Part 1 of the AlA agreement is designed to cover ~ervlces for prelIminary design and budgeting, it does not contain an 1Odemnification provision. The AGC provides an indemnity clause similar to those of other stan- 21-17 491

RISK AND RESPONSIBILITY

dard form contracts discussed herein. Under the AGe, the contractor is to indemnify the owner from bodily injury or property damage claims to the extent of the negligence attributed to the contractor, or someone directly or indirectly under its employ (AGe 10.1.1). The AGe further specifies that the contractor is not to indemnify the Owner, Owner's officers, directors, members, consultants, employees, agents or separate contractors "for any acts, omissions or negligence of the Owner" (AGe 10.1.1). In other words, the contractor is only responsible for indemnifying the owner for claims resulting from, and to the extent of, the negligence of the contractor and such responsibility may be further reduced where any acts, omissions or negligence of the employer contributed to the loss. The AGe provides, as do other standard form contracts examined herein, a provision excluding the contractor from responsibility to indemnify the owner where the loss was occasioned by separate contractors not under the employ of the contractor. Unlike the other standard form contracts, however, the AGC further specifies that the owner is to indemnify the contractor, or anyone directly or indirectly under its employ, from all claims for bodily injury or property damage that may arise from "the performance of work by Others, to the extent of the negligence attributed to such acts or omissions by Others" (AGC 10.1.2). Under the DBIA, similar to the AGC, the contractor is to indemnify the owner for claims resulting from bodily injury or property loss "to the extent resulting from the negligent acts or omissions" of the contractor or anyone directly or indirectly under its employ or "for whose acts any of them may be liable" (DBIA 7.4.1). Further, and similar to the AlA, where an employee of the contractor, or anyone directly or indirectly in its employ, has a claim against the owner, the indemnity obligation of the contractor is not limited under any limitation "under any employee benefit acts, including workers' compensation or disability acts" (DBIA 7.4.2). 21-18

17.2 Contractor's Care ofthe Works The Contractor shall take full responsibility for the care of the Works and Goods from the Commencement Date until the Taking-Over Certificate is issued (or is deemed to be issued under Sub·Clause 10.1 [Taking Over of the Works and Sections)) for the Works, when responsibility for the care of the Works shall pass to the Employer. If a Taking-Over Certificate is issued (or is so deemed to be issued) for any Section of the Works, responsibility for the care of the Section shall then pass to the Employer. After responsibility has accordingly passed to the Employer, the Contractor shall take responsibility for the care of any work which is outstanding on the date stated in a Taking-Over Certificate until this outstanding work has been completed.

If any loss or damage happens to the Works, Goods or Contractor's Documents during the period when the Contractor is responsible for their care, from any 492

DISCUSSION OF SPECIFIC SUB- CLAUSES

cause not listed in Sub-Clause 17.3 [Employer's Risks), the Contractor shall rectify the loss or damage at the Contractor's risk and cost, so that the Works, Goods and Contractor's Documents conform with the Contract. The Contractor shall be liable for any loss or damage caused by any actions performed by the Contractor after a Taking-Over Certificate has been issued. The Contractor shall also be liable for any loss or damage which occurs after a Taking-Over Certificate has been issued and which arose from a previous event for which the Contractor was liable. In Silver Book sub-clause 17.2 the principles for responsibility for the care 21-19 of the works during the contract are laid out. Full responsibility for the care of the works and goods23 lies with the contractor, until issue (or deemed issue) of the t~king-over certificate for the works, or section of the works. The contractor remains liable for any outstanding work until such work has been completed. In addition, the contractor is liable for any damage to the ~orks, goods, o.r contractor's documents, not attributable to an employer's fisk (as defined m SB 17.3), while such are under the contractor's care. The contract~r is also. liable for any damage to the works incurred after taking over whIch was eIther caused by his operations on the site after taking over or resulted from a previous event for which the corttractor was liable. The Silver Book provides for transfer of risk at taking over rather than at the passage of the tests after completion. Orange Book sub-clause 17.2 is substantially similar to that of Silver Book sub-clause 17.2. The Orange Book, however, only addresses the issue of works, and does not include reference to either "goods" or the "contractor's documents". Further, where the Silver Book speaks of the "responsibility for ~h~,care" of the ~o~~s, the Orange Book speaks of only of the "responsibilIty . The respons~blhty of the Orange Book, therefore, is potentially wider than that of the SIlver Book. In addition, the Orange Book does not specify that the.contractor s?all be liable for loss or damage occurring after the issue of a takmg-over certificate but which arises from a previous event for which the contractor was liable. A final difference, the stipulation that the contractor shall be responsible for costs arising from risks other than employer's risks is contained in a separate clause (OB 17.5). The corresponding sub-clauses 17.2 of the Yellow and Red Books are substantially identical to that of Silver Book. The ENAA uses ~cceptanc~, which may be for either the whole or part of 21-20 the .pla?t, as the pomt at whIch there is the passing of risk (ENAA 32.1). It ma~ntams the . contr~ctor's du~y to remedy any damage or loss during the penod for whIch he IS responsIble for care of the works. It also provides for cont.racto~ liability for his activities on the site after acceptance, in relation to hIS. dutIes under defects liability (ENAA 32.1). Fi.nally, the contractor is not lIable for loss or damage of the works arising from enumerated

2J

~ccording t~ the definitions provided in Silver Book sub·section 1.1.5, "goods~ means the c~nt~actor s equIpment, matenals, plant and temporary works, or any of them as is appropnate (SB 1.1.5.2).

493

DISCUSSION OF SPECIFIC SUB-CLAUSES

RISK AND RESPONSIBILITY

exceptions (see ENAA 32.2(a), (b) and (c) and ENAA 38.1). Some ~riticise these exceptions (particularly those of sub-paragraph 32.2(a)) as being too far-reaching. An alternative provision to sub-paragraph 32.2(a) could, for example make the availability of insurance "at reasonable and customary ' . 24 , opposed to the foreseeability of the event Itse . If ) t h terms" (as e soi e. cntena: The ENAA places all liability for loss or damage of construction equipment (but not temporary works) on the contractor, unless the damage is caused by use or occupation of the works by the owner or third parties authorised by the owner or by design or data provided by the owner (ENAA 32.3). . The EIC places full responsibility for the care of works, matenals and plant on the contractor until the date stated in the taking-over certificate for the whole of the works at which point responsibility for such care shall pass to the owner (EIC 12.1). Two exceptions to this principle exist: where damage occurs from enumerated risks (see EIC 12.4) for which the owner is to assume responsibility (EIC 12.3); or where the contractor is to "perform any outstanding works or to rectify any defects during the defects liability period" (EIC 12.1). . The ICE places full responsibility on the contractor until the date of substantial completion of the whole of the works (ICE 20(I)(a)). The I~E further provides for transfer of risk of part of the works where a substantial completion certificate has been issued for that part, although the contractor remains liable for damage to that part caused by his activities on other sections of the works (ICE 20(I)(b)). The contractor also remains responsible for any work to be finished during the defects correction period (EIC 20(1 )(c)). Finally, the contractor is not liable, however, for loss and damage to the extent that the same is due to enumerated excepted risks (EIC 20(2)). The remaining three standard form contracts approach the issue along 21-21 similar lines. Under both the AlA and DBIA, the contractor shall inform the owner when he believes the work, or an agreed-upon portion thereof, is substantially completed (AlA 3.2.14-Part 2; DBlA 6.6.1). Under the A?~, this substantial completion occurs where the "owner can occupy or utilize the Project, or a designated portion, for the use for which it is intended" (AGC 2.4.11). Under the AlA, AGC and DBlA, where the parties are agreed as to the substantial completion, a certificate shall be issued to that effect in whic~ the parties shall state the responsibility of each party with respect to maintenance or damage to the work and any remaining work such as may need to be done (AlA 3.2.14-Part 2; AGe 2.4.6; DBlA 6.6.1). In other words, no automatic transfer of responsibility is provided under the AlA and one must assume, therefore, that responsibility remains with the contractor until such time as the parties agree otherwise.

21-22

17.3 Employer's Risks The risks referred to in Sub-Clause 17.4 below are: (a) war, hostilities (whether war be declared or not), invasion, act of foreign enemies, (b) rebellion, terrorism, revolution, insurrection, military or usurped power, or civil war, within the Country, (c) riot, commotion or disorder within the Country by persons other than the Contractor's Personnel and other employees of the Contractor and Subcontractors, (d) munitions of war, explosive materials, ionising radiation or contamination by radio-activity, within the Country, except as may be attributable to the Contractor's use of such munitions, explosives, radiation or radio-activity, and . (e) pressure waves caused by aircraft or other :aerial devices travelling at sonic or supersonic speeds. Silver Book sub-clause 17.3 sets forth a list of events for the occurrence of which the employer is allocated the risk. It is interesting to note how this provision contrasts with the provisions of the force majeure clause (SB 19), as sub-clause 17.3 repeats a number of force majeure events specifically listed in clause 19. Under sub-clause 17.3, in contrast to clause 19, several of the risks are limited to when such risks occur "within the country" of the site of the works. Another difference, the force majeure clause includes natural catastrophes, which are excluded from the employer's responsibility under subclause 17.3. This discrepancy may be explained by the fact that any damage resulting from the occurrence of force majeure events, be it costs or delay, is for the account of the employer (S8 17.4, see discussion below). Under the force majeure provisions this includes all damage, whereas if a force majeure event occurs under the employer's risk provisions the employer's obligation to remunerate the contractor is limited to the cost of the repair of the damaged works to the extent that the employer instructs such repair. In addition, the contractor may be able to insure against "the forces of nature" risk,25 making the exclusion of such from employer's risks less potentially onerous. Whether the possibility of obtaining insurance is a sufficient reason to exclude liability is not clear, however. Finally, the Contractor may wish to see included in the employer's risks the employer's requirements, data and information (for which the employer is responsible under to sub-clause 5.1, "General Design Obligations") such that the employer is liable for any damage resulting from such incorrect information. 26

25

A.H. Gaede, Jr, "The Silver Book: An Unfortunate Shift from FIOIe's Tradition of being Evenhanded and of Focusing on the Best Interests of the Project" (2000) 17 1.C.L.R. 477 at 500.

2<

Wiwen.Nilsson, op. cit. n. 22 above at 285.

494

26

EIC Guide, p. 31.

495

21-23

RISK AND RESPONSIBILITY

21-24

21-25

A notable difference from the other FIDIC contracts, the Silver Book does not exclude contractor liability from use or occupation of the works by the employer. This may be because "[o]n a BOT project, the risk of damage from occupancy by the employer appears slight".27 Further, the Silver Book requires the employer to obtain contractor permission before use or occupation of the works, unless otherwise stated in the contract (sub-clause 1 0.2). In this manner, the contractor may control such use by either 1) ensuring a taking-over certificate is issued in respect of any parts the employer uses or occupies or 2) including a contractual provision deeming taking over where the employer uses any part of the works before taking over without permission. 28 Orange Book sub-clause 17.3 differs slightly from the corresponding Silver Book provisions. First, the Orange Book provides that the employer is responsible for any loss or damage due to his own use or occupation "of any section or part of the works except as may be provided for in the contract". Second, the employer is responsible for "any operation of the forces of nature against which an experienced contractor could not reasonably have taken precautions". Similar to the Silver Book, the discrepancy between the force majeure provisions of Orange Book sub-clause 19.1 and sub-clause 17.3 are such that "it may be in the Contractor's interest to invoke clause 17.3 which does not require the same strict notification procedure as force majeure".29 Sub-clauses 17.3 of the Yellow and Red Books also differ on several points from the provisions of Silver Book sub-clause 17.3. First, both contracts place on the employer the responsibility for any design provided by the employer or by those for whom the employer is responsible. A second difference, the employer is responsible for his own use or occupation "of any part of the permanent works except as may be specified in the contract". The FIDIC Guide justifies the exclusion of this exception in the Silver Book as the owner's use or occupation "would be a deliberate breach by the Employer" and "not a 'risk'" .30 Finally, the employer is responsible for forces of nature for which are either unforeseeable or against which an experienced contractor could not reasonably have taken "adequate preventative precautions". The difference between the Silver Book and the Yellow and Red Books may be a reflection of FIDIC's "decision to allocate increased risk to the Contractor on EPC Turnkey projects" .31 In addition, the FIDIC Guide mentions the caveat that such forces

27

2Y

29 30 31

Gaede, op. cit. n. 25 above at 500. Such a solution is found in Yellow Book sub-clause 10.2 and is advocated for the Silver Book by EM. Kennedy, "EIC Contractor's Guide to the FIDIC Conditions of Contract for EPC Turnkey Projects (The Silver Book)" (2000) 17 (4) I.C.L.R. 504 at 529. Cazalet & Reece, op. cit. n. 21 above at 297. FIDIC, The FI DIC Contracts Guide (Federation Internationale des Ingenieurs-Conseils, Lausanne, 2000), p. 275. G.L. Jaynes, "Termination, Risk and Force Majeure" ("FIDIC Global Conditions of Contract" Seminar, New Delhi, January 2001), online: FIDIC http://www.fidic.org! resources/contracts/jayunes_A.asp (date accessed: July 4, 2001).

496

DISCUSSION OF SPECIFIC SUB-CLAUSES

"may be so adverse and exceptional as to constitute force majeure as defined in clause 19".32 The ENAA does not specify the risks excepted, but does contain a variety of provisions which correspond to that of Silver Book sub-clause 17.3. The contractor is not responsible for any loss or damage to the works caused by reason of any matters referred to in specific sub-clauses (ENAA 32.1). These matters are more extensive than the Silver Book and correspond more closely to those covered under Orange Book 17.3. Unlike the Orange Book, however, the contractor is not responsible for loss or damage due to use or reliance upon any "design, data or specification provided or designated by the owner or any matter for which the contractor has disclaimed liability hereunder" (ENAA 32.2(c)). The EIC delineates the owner's risks in two separate sub-clauses (EIC 12.4.1; EIC 12.4.2) and is the most extensive provision, in this respect, of all of the standard form contracts examined herein. For example, the EIC is the only contract to specifically accord risks due to force majeure to the employer. Under the ICE, with regard to the care of the works, the contractor is excluded from liability for loss and damage to the extent that they are due to enumerated excepted risks (ICE 20(2)). Further, where damage occurs to person or property, the employer is held responsible in enumerated cases (ICE 22(2)). The combination of these two sub-clauses results in allocations of risks similar to those achieved under Silver Book sub-clause 17.4. . The AlA, AGC and DBIA do not contain explicit allocation of employer's nsks. Nonetheless, these contracts do contain provisions relating to the responsibility for hazardous conditions found on the site. Indeed, parties may want to include in the employer's risks any potentially hazardous mater!als uncovered on the site. As a general rule, the employer should be responSible for damage caused by such materials and exposure to it. 33 Under the AlA, hazardous conditions are excluded from the responsibility of the contractor (AlA 7.3-Part 1) whereas under the AGC and DBIA, the employer holds the risk arising out of hazardous conditions or materials being found on the site (AGC 3.3.6; DBIA 4.1.5).

21-27

17.4 Consequences of Employer's Risks

If and to the extent that any of the risks listed in Sub-Clause 17.3 above results in loss or damage to the Works, Goods or Contractor's Documents, the Contractor shall promptly give notice to the Employer and shall rectify this loss or damage to the extent required by the Employer. 32 33

21-26

FIDIC Guide, p. 275. Broo~e, "Protecting Design-Builder with Appropriate Contract Clauses" in Cushman and ' Sperlmg Taub, eds, Design-Build Contracting Handbook (1992), p. 317.

497

RISK AND RESPONSIBILITY

If the Contractor suffers delay and/or incurs Cost from rectifying this loss or

damage, the Contractor shall give a further notice to the Employer and shall be entitled subject to Sub-Clause 20.1 [Contractor's Claims) to: (a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 8.4 [Extension of Time for Completion), and (b) payment of any such Cost, which shall be added to the Contract Price. After receiving this further notice, the Employer shall proceed in accordance with Sub-Clause 3.5 [Determinations) to agree or determine these matters.

21-28

21-29

Silver Book sub-clause 17.4 sets out the consequences of the occurrence of an event enumerated under the employer's risk provision (17.3). The contractor is to promptly give notice to the employer where, and to the extent that, any of these risks result in loss or damage to the works, goods or contractor's documents. To the extent required by the employer, the contractor is then to rectify this loss or damage. Further, where the rectification of the loss or damage due to the employer's risks causes the contractor to suffer delay or incur cost, the contractor is entitled to an extension of time or payment of cost. Finally, the Silver Book specifies the contractual mechanisms to be used in the determination of such cost payment or time extension. It is worth noting that sub-clause 17.4 does not limit the contractor's entitlements under sub-clause 19.4, "Consequences of Force Majeure" ,34 under which the contractor may obtain additional relief. Under Orange Book sub-clause 17.4 the contractor is to notify the employer in the event of foresight or knowledge of one of the employer's risks. Similar to the Silver Book, where an employer's risk results in loss or damage, the contractor is to rectify such loss or damage to the extent required by the employer's representative. Unlike the Silver Book, the Orange Book does not specify the items to which this loss or damage may have occurred. Further, where the contractor suffers delay or incurs cost as a result of an employer's risk, the contractor is to notify the employer's representative. Finally, it is the employer's representative who shall then follow the procedure under the contract in order to agree or determine such time extension or payment of cost. Under the wording of Orange Book sub-clause 17.4, it would seem the contractor may claim additional cost or time delay resulting from an employer's risk, independent of any cost or time delay associated with the employer's demand that the contractor rectify any resulting loss or damage. Under the Silver Book, however, the contractor may only claim cost or time delay incurred from rectifying the loss or damage at the employer's request. The corresponding sub-clauses 17.4 of the Yellow and Red Books are substantially identical to that of Silver Book. Unlike the Silver Book, however, the engineer takes the place of the employer for the determination of any cost

34

FIDIC Guide, p. 276.

498

DISCUSSION OF SPECIFIC SUB-CLAUSES

payment or time extension related to the employer's risks resulting under this section. . Another difference, unlike the other FIDIC cont;acts is that the Yellow a.nd Red Boo.ks provide the contractor with entitle~en; to profits, in additIOn to cost, 10 the case of the occurrence of certain events listed under the e~ployer's risks. These events, not included under employer's risk in the Silver Book, relate to the fault of the employer, namely: damage resulting from use or occupation of the works by the employer and cost incurred due to faulty designs provided by the employer. The contractor's entitlement to profit represents an intermediate position between the provisions of the (old) Red Book sub-clause 20.3 (where the contractor was always entitled to pro.fits) and Orange Book sub-clause 17.4 (where the contractor was always entitled to costs). Some claim that the "purpose of this restriction on profit I'S not " 35 Th . a Ie given . by one aut hor for t he new compromise . . c1ear. . e ratIOn pOSitIOn found tn the Red (and Yellow) Book is that costs incurred under paragraphs (f) or (g) result from a situation of contract breach by the employer, whereas the other paragraphs denote situations in which the employer is not at fault. 36 The ENAA treats the repair by the contractor of any damage caused by 21-30 an employer's risk as a change in works. The owner must make a written request for such repair (ENAA 32.2). Where the damage affects a substantial part of the works, and the employer does not request the contractor to undertake the repair, he must exclude the section so damaged from the contractor's responsibility or terminate the works, in accordance with the owner's termination for convenience (ENAA 32.2). In the case of termination, the contractor w!" not receive remuneration fo~ lost profit for the part of t?e ~orks not fimshed (ENAA 32.2). This clause provides a regime lackmg tn the ICE, where the damage (that the employer's representative doe~ not request the contractor to repair) affects the completion of the project. The ENAA places all liability for loss or damage of construction equipment (but not temporary works) on the contractor, unless the damage is caused. by use or occupation of the works by the owner or third parties authonsed by the owner or by design or data provided by the owner (ENAA 32.3). The ENAA also excludes from the responsibility of the contractor any damage to the works or equipment attributable to war risks (ENAA 32.4). The ENAA Contract (sub-clause 32.2) provides the contractor with a larger safety net than the other two form contracts. The owner is responsible for the conseq~ences of any use or occupation of any of the works by the owner or any thud person authorised by the owner. The owner is also

JJ

36

Jaynes, op. cit. n. 3 above. Seppala, op. cit. n. 17 above at 237.

499

RISK AND RESPONSIBILITY

H-31

responsible for any design, data or specification provided or designated by the owner or any other matter for which the contractor has the right to and has disclaimed liability under the contract. Under the EIC, in principle, the contractor is responsible for any loss or damage that occurs to the works, materials, or plant, during the period for which the contractor is responsible for the care thereof, and is to rectify such loss or damage such that the works correspond with the provisions of the contract (EIC 12.2). Where loss or damage occurs as the result of the occurrence of an employer's risk, the contractor shall "if and to the extent required by the owner, rectify the loss or damage and the contractor shall be entitled to an addition to the contract price" (EIC 12.3). Where several risks contribute to the loss or damage, the EIC provides for apportionment between the contractor and employer (EIC 12.3). Where any works, materials, plant, or contractor's equipment on or near the site sustain destruction or damage as a result of special risks (a more limited category than that of employer's risks, see EIC 12.10) the contractor is entitled to payment additional to the contract price, for both rectifying any damage or destruction to same and for any permanent works duly executed (EIC 12.11). The contractor is to notify the owner as soon as he becomes aware of any cost associated with the special risks (EIC 12.13). The ICE provisions regarding rectification of loss or damage with regard to employer's risks are similar to those of the EIC. The contractor is to rectify such loss or damage if, and to the extent, required by the employer's representative at the employer's expense (ICE 20(3)(b)). As does the EIC, the ICE also provides for apportionment, where several risks contribute to the same loss or damage (ICE 20(3)(c)). The ICE does not provide for an extension of time where the contractor has been delayed by one of the employer's risks (as defined under ICE 20(2)). It only specifies that the contractor will not be liable for the loss or damage involved. The contractor must rectify any damage to the works due to an employer's risk, at the employer's representative's direction, but is then compensated for the costs of such repairs. Arguably, the right to an increase in time for completion could be based under the ICE on sub-clause 44(1), which allows for extension for any "special circumstances" of any kind. This will probably entitle the contractor to an increase in time for the occurrence of an event that can be considered "special".J7 Clause 44 also allows for an extension of time for exceptionally adverse weather conditions. The requirements of exceptional and adverse may have a similar effect as the requirement of the Orange Book conditions which the contractor could not reasonably have been expected to take precautions against, since the reasonable contractor will base his decisions on a comparative analysis of local weather records, as expected under the ICE Contract. 38 However, the ICE Contract does not provide for any 37

38

Mr Eggleston points out the importance of the clarity of this measure and thus of the term "other special circumstances". The debate continues as to the breadth of the application of this wording. B. Eggleston, The ICE Design and Construct: A Commentary (Blackwell Scientific Publications, Australia, 1994), p. 258 . ibid., p. 257.

500

DISCUSSION OF SPECIFIC SUB- CLAUSES

increase in price for damage caused by such weather conditions, as does the Orange Book sub-clause 17.4. Further, the ICE Contract sub-clause 44(1) is limited to weather conditions, whereas the Orange Book (sub-clause 17.3) refers to forces of nature. The AlA does not contain provisions similar to those of Silver Book 17.4. Under the AlA, the contractor is to promptly remedy damage and loss (other than damage or loss insured under the contract's property insurance provisions) to property at the site caused in whole, or in part, by the contractor or those directly or indirectly in his employ (AlA 6.4-Part 2). The principal provisions relating to property insurance place the responsibility for the acquisition and maintenance of such insurance on the employer (AlA 7.3.1-Part 2). Finally, unless the contract provides otherwise, the contractor is responsible for "neither the design for nor the cost of remediation of hazardous materials" (AlA 7.3-Part 1). Both the AGC and the DBIA contain similar provisions to those of the AlA in relation to property insurance. Under the AGC, the owner is to obtain and maintain '''All Risk' Builder's Risk insurance ... upon the entire project for the full cost of replacement at the time of any loss" (AGC 10.5.1). Similarly, the DBIA provides that the owner is to procure and maintain property insurance "upon the entire project to the full insurable value" thereof (DBIA 5.3.1). Further, this property insurance is to include "physical loss or damage to the work, including materials and equipment in transit" (DBIA 5.3.1). Both the AGC and the DBIA place the risk of hazardous material or hazardous conditions found on the site on the employer (AGC 3.3.6; DBIA 4.1.5), although, in the case of the DBIA, only to the extent that such materials are not introduced to the site by the contractor or by anyone for whose acts he may be liable (DBIA 4.1.6). The AGC and DBIA both provide that the contractor is entitled to an adjustment of both the contract time and contract price for delays or additional cost incurred due to the presence of said hazardous materials (AGC 3.3.5; DBIA 4.1.4). 17.5 Intellectual and Industrial Property Rights

21-32

21-33

In this Sub-Clause, "infringement" means an infringement (or alleged infringement) of any patent, registered design, copyright, trade mark, trade name, trade secret or other intellectual or industrial property right relating to the Works' and "claim" means a claim (or proceedings pursuing a claim) alleging an infringement. Whenever a Party does not give notice to the other Party of any claim within 28 days of ~eceivin~ the claim, the first Party shall be deemed to have waived any fight to mdemmty under this Sub-Clause. The Employer shall indemnify and hold the Contractor harmless against and from any claim alleging an infringement which is or was: (a) an unavoidable result of the Contractor's compliance with the Employer's Requirements, or 501

RISK AND RESPONSIBILITY

(b)

a result of any Works being used by the Employer: (i) for a purpose other than that indicated by, or reasonably to be inferred from, the Contract, or (ii) in conjunction with any thing not supplied by the Contractor, unless such use was disclosed to the Contractor prior to the Base Date or is stated in the Contract.

The Contractor shall indemnify and hold the Employer harmless against and from any other claim which arises out of or in relation to (i) the Contractor's design, manufacture, construction or execution of the Works, (ii) the use of Contractor's Equipment, or (iii) the proper use of the Works. If a Party is entitled to be indemnified under this Sub-Clause, the indemnifying Party may (at his cost) conduct negotiations for the settlement of the claim, and any litigation or arbitration which may arise from it. The other Party shall, at the request and cost of the indemnifying Party, assist in contesting the claim. This other Party (and its Personnel) shall not make any admission which might be prejudicial to the indemnifying Party unless the indemnifying Party failed to take over the conduct of any negotiations, litigation or arbitration upon being requested to do so by such other Party.

H-34

Silver Book sub-clause 17.5 sets forth the respective responsibilities of the contractor and employer with respect to any c1aims 39 brought for any infringement40 of intellectual and industrial property rights that may occur in connection with the contract. Under the terms of this sub-clause, the employer is to indemnify the contractor for any claim alleging infringement where such claim resulted from the contractor's compliance with the employer's requirement. Further, the contractor is to be indemnified for claims resulting from the employer's improper use of any works, or use of things not supplied by the contractor in conjunction with any works, where the contract did not foresee such uses or things. Silver Book sub-clause 17.5 further stipulates that the contractor is to indemnify the employer for any other claim arising out of, or in relation to: the proper use of the works; the contractor's equipment; or the contractor's design, manufacture, construction or execution of the works. The indemnity provided under this sub-clause is deemed waived where a party does not give notice to the other party within 28 days of receiving a claim. The indemnifying party may request, and pay the cost of, the assistance of the other party. Provided the indemnifying party took over the conduct of any negotiations, litigation or arbitration, upon the request of the other party, the assisting party is not to make any admission that might be prejudicial to the indemnifying party. The meaning of this last provision is unclear, "and one can only assume that the FIDIC authors did not intend to impose

39 40

This sub-clause defines "claim" as "a claim (or proceedings pursing a claim) alleging an infringement" . This sub-clause defines "infringement" as "an infringement (or alleged infringement) of any patent, registered trade mark, trade name, trade secret or other intellectual or industrial property right relating to the works".

502

DISCUSSION OF SPECIFIC SUB-CLAUSES

on the indemnified party a contractual obligation not to be forthright and truthful".41 Orange Book sub-clause 5.9, respecting patent rights, is similar to that of 21-35 Silver Book sub-clause 17.5, despite a significant difference between the phrasing and location of the sub-clauses in the contracts. The Orange Book sub-clause is drafted in terms of the contractor's indemnification of the employer only, and thus merely excludes the contractor from indemnificatio~ in respect of claims where the Silver Book would require the employer to tndemntfy the contractor for such claims. Also due to the Orange Book's drafting only i~ terms of the contractor's indemnification of the employer, the contractor IS not to make any admission that may be prejudicial to the employer until reasonable security is provided. Such security "shall be for an amount whi~h is an assessment of the compensation, damages, charges and costs for whIch the employer may become liable, and to which the indemnity under this sub-clause applies". The Red Book sub-clause 17.5 is nearly identical to that of the corresponding Silver Book sub-clause. Under the Red Book, however, the contractor is only to indemnify the owner for claims arising out of, or in relation to, ."the manufacture~ use, sale or import of any goods or any design for which the contractor IS responsible". Yellow Book sub-clause 17.5 is identical to that of the corresponding Silver Book sub-clause. .The ENAA ,?rovisions regarding indemnification as between the parties 21-36 WIth regard to tntellectual or industrial property rights violations claims are similar to those of Silver Book sub-clause 17.4. The contractor is to indemnify.the owner froI? claims due to infringement, or alleged infringement, of any tn.tellectual or tndustrial property rights existing at the date of the agreement tn respect to both the execution of the works by the contractor or use of the plant in the country where the site is located and the sale of the products produced by the plant (ENAA 29.1). Some authors criticise the Iimitati~n of the contractor's liability to intellectual property infringements "in eXI~tenc~ a~ the date ~f the a?reem~nt" .as being "unusual and unjustified" .42 A time lImit on the tndemntty oblIgation corresponds to the time limit for the contractor's liability for defects is a suggested alternative. 43 The ENAA stipulates the owner is to indemnify the contractor against claims within the meaning of this section, where such claims arise "out of or in ~onnection ~ith any design, data, drawing, specification, or other documents or materials provided or designated by or on behalf of the owner" (ENAA 29.3). Under the ENAA, the owner is to promptly inform the contractor where proceedings are brought agains~ the owner in respect of these matte;s, such that the contractor may, at hIS own expense and in the owner's name ,

., Gaede, op. cit. n. 25 above at 500. 42 Wiwen-Nilsson, op. cit. n. 22 above at 284. 43 ibid.

503

DISCUSSION OF SPECIFIC SUB-CLAUSES

RISK AND RESPONSIBILITY

21-37

21-38

attempt to resolve such claim (ENAA 29.2). The contractor has 28 days in which to notify the owner of his intention to conduct proceedings towards resolving the claim, during which time the owner is not to make any admission that may be prejudicial to the defence of such proceedings or claim (ENAA 29.2). Should the contractor fail to so notify, the owner is free to conduct the proceedings on his own behalf (ENAA 29.2). In the case of contractor-led proceedings, the owner is bound to assist the contractor, upon request, in such proceedings. The EIC provides that the contractor shall indemnify the owner from claims resulting from infringement of intellectual and industrial property rights in respect of the design, contractor's equipment, material, or plant, which are used for or in connection with or incorporation in the works except where such infringement is the consequence of compliance with any requirement by the owner (EIC 6.13). The EIC does not provide a similar clause with respect to the owner's possible indemnification of the contractor in the case of claims arising for like events. The ICE delimits the respective responsibilities of the contractor and the employer with regard to infringement of intellectual and industrial property rights, in a manner almost identical to that of the Silver Book (ICE 28). Under the AlA, the contractor is to indemnify the employer for claims of infringement of patent rights except where "a particular design, process or product is required by the owner" unless the contractor has reason to believe that such use might constitute an infringement of a patent (AlA 3.2.12-Part 2). The AGC contains a similar provision, providing that the contractor is to indemnify the owner for claims arising out of patented or copyrighted materials that the contractor chooses to incorporate into the work, save where such claims arise out of the inclusion of same due to the specification of the owner (AGe 3.6). Finally, the DBIA requires the contractor to indemnify the owner for claims arising out of an "infringement of any United States patent or copyright, now or hereafter issued" (DBIA 7.1.1) arising out of the work or the use of the work. The employer is to indemnify the contractor, however, where such claims are based upon infringement either solely arising out of a process or product specified by the employer or arising from a modification of the work after acceptance of the work (DBIA 7.1.3). For the sake of clarity, the DBIA takes the precaution to stipulate that the obligations set forth in this section shall constitute the "sole agreement between the parties relating to liability for infringement or violation of any patent or copyright" (DBIA 7.1.4). 17.6 Limitation of Liability

21-39

Contract other than under Sub-Clause 16.4 [Payment on Termination) and SubClause 17.1 [Indemnities). The total liability of the Contractor to the Employer, under or in connection with the Contract other than under Sub-Clause 4.19 [Electricity, Water and Gas), SubClause 4.20 [Employer's Equipment and Free-Issued Material), Sub-Clause 17.1 [Indemnities) and Sub-Clause 17.5 [Intellectual and Industrial Property Rights), shall not exceed the sum stated in the Particular Conditions or (if a sum is not so stated) the Contract Price stated in the Contract ~greement. This Sub-Clause shall not limit liability in any case of fraud, deliberate default or reckless misconduct by the defaulting Party.

In Silver Book sub-clause 17.6 the limitation of liability of the parties under the contract is set out. Neither party is liable to the other for loss of use of any works, loss of profit, loss of any contract or any other indirect or consequential damage the other party may suffer in connection with the contract, other than as may be provided under the provisions relating to payment upon termination (SB 16.4) and indemnities (SB 17.1). Further, the sum stated in the particular conditions or, if no sum is so stated, the contract price, represents the total liability of the contractor to the employer in connection with the contract, unless such liability arises under enumerated subclauses. These sub-clauses are those relating to: electricity, water and gas (SB 4.19); employer's equipment and free-issued material (SB 4.20); indemnities (SB 17.1); and intellectual and industrial property rights (SB 17.5). Finally, this clause does not limit liability in the case of fraud, deliberate default or reckless misconduct by the defaulting party. Parties should be aware that the meaning of "indirect or consequential loss or damage" might not be known under the governing law, particularly where this law is not the common law. 44 Indeed, the interpretation of the term "consequential" can vary as between common-law jurisdictions. 45 The governing law of the contract may further affect the provisions of subclause 17.6. For example, a liability period may not begin in some commonlaw jurisdictions until the employer "ought reasonably to have been aware of the Contractor's defective work".46 Another example, decennial liability (where "the contractor will be liable absolutely (i.e. without proof of fault) for hidden defects for 10 years from completion") may be the rule under certain civil-law jurisdictions, e.g. France. 47 Finally, some authors caution that the limitation of the contractor's liability found under sub-clause 17.6 may "only be acceptable to lenders in some sectors, for instance power and process plants" .48 This is presumably because consequential damages in such projects would never be acceptable to a contractor. 4. Jaynes, op. cit. n. 31 above. ibid. 4. FIDIC Guide, p. 279. 47 FIDIC Guide, p. 279. 48 J. Delman & J. Scriven, "A Contractor's View of BOT Projects and the FIDIC Silver Book" (2001) 18 (2) I.C.L.R. 240 at 258. 45

Neither Party shall be liable to the other Party for loss of use of any Works, loss of profit, loss of any contract or for any other indirect or consequential loss or damage which may be suffered by the other Party in connection with the

504

505

21-40

RISK AND RESPONSIBILITY

21-41

21-42

The regime implemented by the Orange Book is rather original in nature. Rather than applying a limitation of liability across the board, it restricts the nature of the limitation in certain cases. The limitation does not apply where the contract specifies otherwise or where the conduct of the contractor is contrary to the standard of a conscientious contractor. In addition to the areas specified under the Silver Book, the Orange Book also provides that the limitation does not apply in respect of liquidated damages for late completion (OB 8.6) or liability for failed tests after completion (OB 11.4). Finally, the Orange Book provides a liquidated damages amount in the general conditions (namely the contract price, sub-clause 17.6). It is not ideal for a standard form contract to stipulate such a limitation in the general conditions, as the appropriate amount for such a limitation may vary widely according to the "nature and importance of the works to be constructed, the risks involved and the extent of the Contractor's obligations" .49 Parties should, thus, be careful to stipulate another amount, where appropriate, when using the Orange Book. In any event, but depending on the governing law, where the amount of liquidated damages is incongruous with the contract, the court may not enforce the relevant clause. so The Yellow and Red Book sub-clauses 17.6 are essentially identical to that of the Silver Book. The ENAA provides rather extensive limited liability limitation for the contractor (ENAA 30). The maximum amount of damages is limited to the figure provided in the appendix to tender (ENAA 30.1). The contractor is also released from any consequential damages that might result from loss of use of plant or otherwise in connection with the contract (ENAA 30.2). The ENAA provision has been criticised as being too far-reaching, releasing the contractor from full liability for not only liquidated damages but also patent liability, defects liability 51 and liability for the rectification of defects after taking over. 52 Indeed the World Bank has suggested the deletion of this provision. s3 The ENAA, however, favours the establishment of a maximum total liability for the contract including for defects liability as it places a substantiallevel of risk on the contractor. 54 Neither the EIC nor the ICE, on the other hand, specify an overall limit to contractor or employer damages. These contracts limit liquidated damages where so provided by the parties, but do not limit the total liability that can be imposed on the contractor or owner (EIC 10; ICE 47) . •9 50

51 52

SJ

54

Seppala, op. cit. n. 17 above at 239. For a discussion of potential defences to a liquidated damages claim, under English law, see S. Furst Q.C. & V. Ramsey Q.C. eds, Keating on Building Contracts (7th ed., Sweet & Maxwell, London, 2001), pp. 281 et seq. Walser, "The ENAA Model Forms: Tentative Comments of a World Bank Lawyer" International Bar Association Conference in Tokyo, japan, February 1993 at 10. Wiwen-Nilsson, op. cit. n. 22 above at 275. justice H. Lloyd, "Some Philosophies of Risk Allocation in International Construction Contracts" in justice A. Thorton Q.c. & W. Godwin, eds, Construction Law: Themes and Practice (Sweet & Maxwell, London, 1998) 18 at 34. justice H. Lloyd, "Some Philosophies of Risk Allocation in International Construction Contracts" in justice A. Thorton Q.C. & W. Godwin, eds, Construction Law: Themes and Practice (Sweet & Maxwell, London, 1998) 18 at 35.

506

DISCUSSION OF SPECIFIC SUB-CLAUSES

Neither the AlA nor the AGC contain limitation of liability clauses. Under the DBIA there is no general limitation of liability clause. Instead, the DBIA stipulates that neither party is liable to the bther for consequential losses or damages arising "in contract, warranty, tort (including negligence), strict liability or otherwise, including but not limited to losses of use, profits, business, reputation or financing" (DBIA 10.5.1) unless such damages are included under the provision relating to liquidated damages (DBIA 10.5.2). Such a clause is very wide and provisions purporting to limit liability with respect to tort, including negligence, may not correspond to the law of the jurisdiction of the contract. On a final note, at least one author has remarked on a growing trend in which employers sue subcontractors where recourse against the contractor is limited by a contractual limitation of liability clause. As a result, it is becoming increasingly common to see protection for subcontractors included in the provisions limiting the liability of the contractor. Where a significant number of subcontractors refuse to contract unless such a clause is written, perhaps this trend will become reflected in the provisions of standard form contracts. S5

55

Wiwen-Nilsson, op. cit. n. 22 above at 284-285.

507

21-43

RISK AND RESPONSIBILITY

21-44

Figure 21.1

Comparison of Employer's Risks CHAPTER

X

X (except as attributable to

X

INSURANCE

X

X (in or

General Comments

near

country of site)

contractor's

use thereof)

x

x

x

x

x

x

X

X

X (within country of site, if not normally insurable)

X

x

X

X (within country of site. if not normally insurable)

x

X

x (within country of site, if not normally insurable)

X

X

X (within country of site)

X

X

X

X

X

X

X

X

X

The risks involved in a construction project, particularly in a turnkey project, are substantial. l The parties will want to transfer certain of this risk to a third party, through insurance. The lending institutions involved in the project may require the parties to develop a comprehensive insurance regime. 2 There may be good reasons why either the contractor or the employer will assume primary responsibility for the insurance programme. Often it is the contractor who is charged with this responsibility. An international contractor will be familiar with the insurance market. He may also have purchased insurance for his own risks and thus be well placed to avoid duplicated insurance (or insurance that is not essential). However, the employer may be a large multinational or some other such entity better placed to provide insurance, in which case arguably the employer should assume the duty to insure the project. J The employer and contractor will also need to consider insurance of subcontractors and suppliers. The considerations, already outlined, are true when insuring the activities and equipment of subcontractors and suppliers. The following discussion is relevant to such insurance as well as those provided for cover to the contractor. The parties will both want to be named in the insurance policy, in order to gain entitlement under it for both of them. 4 This will avoid problems of subrogation by the insurance company against the unnamed party. S Subrogation rights could defeat the purpose of the insurance. For example, the employer may require the contractor to insure against damage to the works. If the contractor causes damage to the works, the required

x

X

1 2

X (within country

X

X

X

J

X

of site) X

508

22

X

Engineering Advancement Association of Japan, Model Form International Contract for Process Plant Construction. Volume 3 Guide Notes (1992), p. 58. UNCITRAL. UNCITRAL Legal Guide on Drawing Up International Contracts for the Construction o(Industrial Works (UN, New York, 1998) UNDOC. AlCN.9/SER.Bl2 at 171. Engineering Advancement Association of Japan. Model Form International Contract, op. cit. n. 1 above, p. 58.

• Subrogation allows the insurer to bring legal actions against third parties in the name of the insured party for damage paid out by the insurance company. Insurance in first names prevents subrogation. B. Eggleston, The ICE Design and Construct: A Commentary (Blackwell Scientific Publications, Australia, 1994), p. 192. S UNCITRAL Legal Guide. op. cit. n. 2 above at 176.

509

22-01

22-02

INSURANCE

22-03

insurances should cover any cost of reparation of the damage. The employer will not want the insurer to file an action against the contractor for the amount of the costs, by means of a subrogation right under the insurance policy. This concern holds true for insurance covering subcontractors and suppliers. The use of joint names may also avoid any delay in receiving the insured amount. Under single-name insurance, the injured party incurs a delay while liability for the injury or damage is proved; by insuring in joint names, the loss in question is remedied regardless of blame. Therefore no provision need be made for the delay inherent in single-name insurance. 6 Due to the various forms and types of insurance available, the parties will often want to prepare, or to have prepared, a risk-management and risk-allocation programme, to avoid any duplication or gaps in their cover. However, the parties should remember that no standard formula for insurance coverage will work for every project. Insurance should be considered in accordance with the specific needs of the project and the parties involved. 7 Contractor's all-risk insurance (CAR), which meets many of the parties' insurance needs, may be available. The parties should be aware of the pitfalls of such global insurance, 8 and any resultant duplication that may result therefrom. Insurance that is described as all-risk may not cover all the risks intended (particularly in relation to design liability). Indeed, the insurance industry has proven reluctant to issue policies that cover both design and construction activities. This reticence, some opine, is perhaps due to a concern that the combining of these two activities into a single activity may represent unfamiliar risks. 9 Exceptions may be difficult to ascertain without professional advice. 10 Some common exceptions are: (a) (b) (c) (d) (e)

22-04

GENERAL COMMENTS

normal wear and tear; defective workmanship or design; war risks; commonly excepted risks such as ionising radiations, radioactive contamination or pressure waves caused by aircraft; and civil commotion. I I

Depending upon the nature of the project, the parties may want to provide for inflation and currency fluctuations. This can be accomplished by automatic increases in the amount of cover, or by means of review by the parties 6 7

8 9

10 \I

The Royal Institution of Chartered Surveyors, Introductory Guidance to Insurance under Building Contracts (2nd ed., 1995), p. 9. B. Eggleston, The ICE Design and Construct: A Commentary (Blackwell Scientific Publications, Australia, 1994), pp. 188-189. ibid., p. 192. M.L. McAlpine, "Construction Law: Will Design-Build Contracting Really Solve All of the Problems?" (1997) 76 MI Bar ]nl. 522, online: LEXIS at 556. M.W. Abrahamson, Engineering Law and the I.CE. Contracts (Applied Science Publishers, Ltd, London, 1979), p. 96. The Royal Institution of Chartered Surveyors, Introductory Guidance, op. cit. n. 8 above, ~

510

9.

.

at certain points throughout construction. 12 The insurance benefits should be payable in a freely convertible currency, that is related to the damages covered, so as to avoid the effects of fluctuation. The World Bank has advised modification of the (old) Red Book to require the insurance benefits be paid in currencies of the type and proportion needed to remedy the loss or damage. t3 There is some debate as to who should proceed with insurance claims, and to whom payments of insurance proceeds should be made. The ENAA Contract (sub-clause 34.7) specifically gives the contractor the right to act under the policy, preparing and conducting all claims. Furthermore, any money paid out by the insurance policy goes to the contractor. Under the Silver Book, the parties are generally jointly entitled to receive payments from the insurers. The parties will want to tailor a subclause such as this to the needs of their project and the insurance programme that they have developed. In some cases the parties may want the proceeds to be paid to the employer or the project tenders. The ENAA Contract guide notes defend the distribution of funds to the contractor, arguing that he carries the risk of care of the works, loss of materials, loss or damage to property and injury to workers. However, the ENAA Contract conditions provide for other arrangements, if desired by the parties. 14 The issue of insurance can be broken down into (a) (b) (c) (d) (e)

the provision of insurance for property; the provision of liability insurance; the terms of the insurance; the proof of insurance to be provided by the party responsible for procuring the insurance; and the sanctions for failure to provide insurance.

Property insurance Property insurance is used to compensate for the cost of replacing lost or damaged materials; it will not generally compensate for loss of profit or other costs related to loss or damage. Also it generally does not cover defective materials or negligent design. The World Bank, in its evaluation of the (old) Red Book, requires such insurance to cover the period from the first working day after the commencement date to the relevant transfer of risk to the employer. IS

12 Il

I.

IS

UNCITRAL Legal Guide, op. cit. n. 2 above at 173. World Bank "Standard Bidding Documents for the Procurement of Works" (World Bank, Washington D.C., 2000) online: World Bank http://www.worldbank.orglhtmlloprlbiddocsl workslw-titlpg.htm (date accessed: July 16,2001) at 111. Engineering Advancement Association of Japan, Model Form International Contract, op. cit. n. 1 above, p. 59. World Bank, op. cit. n. 13 above at 111.

511

22-05

GENERAL COMMENTS

INSURANCE

The parties will need to decide to what extent materials will be covered, what amount of deductibles will be allowed, and in what circumstances. These decisions will be linked to the price of the insurance, its availability, and the specific needs of the parties and the project.

22-06

22-07

22-08

Insurance of the works during construction. This covers the completed works, temporary works and those works ancillary to the works during construction. It may also cover the period through defects liability, depending on the agreement of the parties, the passing of risk and the role of the parties during the defects liability period. Under the turnkey or EPC contract, since the contractor cares for the works until taking over or acceptance, the parties may want to place the duty to insure on the contractor. The parties will need to agree on the extent of the cover provided by insurance. They could opt for all-risk insurance, which covers all loss or damage from most perils (though certain risks such as war and pressure waves from aircraft may not be insurable). The contractor may even be required to purchase insurance covering some of the employer's risks, or excepted risks, to avoid multiple policies and duplicated cover. 16 The parties will also need to decide to what extent the insurance will cover damages consequential to the actual injury, such as loss of profit, lawyer's fees and increased loan servicing costS. 17 Insurance of equipment and materials to be incorporated into the works. This policy will cover the materials and goods to be used in construction to the extent that they are not included in the policy covering the works. This will include cargo and shipping insurance. The parties should cross-reference the two forms of insurance in order to have cover for those situations where it is unclear whether the materials are in transit or have already been incorporated into the works. This ensures that the parties will not be left unprotected in a situation that falls between the two forms of coverage. Under the same concern, the parties may opt for a single policy to cover the materials and goods during the entirety of their use, including the period from shipment to inclusion into the works and throughout the contract period. 18 Insurance of contractor's equipment. The contract need not specify insurance by the contractor of his own equipment unless it is in the employer's interest to verify that such insurance is purchased. For example, he may want to avoid interruption of construction or the inability of the contractor to

16

17

18

However, such a requirement in the contract seems to have been excluded by the World Bank in their evaluation of the (old) Red Book. World Bank "Standard Bidding Documents for the Procurement of Works" (World Bank, Washington D.C., 2000) online: World Bank http://www.worldbank.orglhtml/opr/biddocslworks/w-titlpg.htm (date accessed: July 16, 2001) at 112. UNCITRAL Legal Guide, op. cit. n. 2 above at 176. ibid. at 177.

512

continue due to the financial burden of replacing his equipment. This insurance is often taken out as an ordinary aspect of the contractor's practice. The employer may merely need to verify that the contractor's insurance is sufficient to meet the needs of the contract. 19

Liability insurance The employer may want the contractor to be insured against his extracontractual liabilities, such as injury to a third party or damage to property not subject to the contract. Insurance can also cover the contractor's duty to indemnify the employer for certain risks, his duty of performance in compliance with the contract, or his design duty under the contract. Often the contractor will have blanket insurance that may cover all or portions of such liability to third parties. 20

22-09

Designlprofessionalliability insurance. Design insurance is one type of cover that is difficult to deal with effectively. Considering the period over which the insurance must be maintained to cover legal limitation periods, it may be impractical in certain jurisdictions to require such insurance. With the increasing importance of decennial liability in certain countries, contractors should approach the issue of design insurance and liability carefully.21 In consideration of the design liability placed on the contractor in a turnkey contract, the employer may require the contractor to provide insurance for his designs. This insurance will protect the employer where the design fails as a result of professional negligence by the contractor. Insurance of this type may be difficult to procure, particularly for larger projects. The Orange Book (sub-clause 18.1) is unique, amongst the standard form contracts examined herein, as it requires the contractor to procure professional indemnity insurance covering his professional negligence. Under the Orange Book, the contractor is responsible for any defect in the design, while the insurance for design in most cases only covers professional negligence. This standard will not provide insurance cover for the entirety of the contractor's liability, but takes into consideration the limitations of the insurance market. 22 It leaves the amount of this liability insurance to the agreement of the parties as specified in the appendix to tender. By specifying professional liability the insurance will only cover events constituting professional negligence on the part of the contractor. However, the contractor under the Orange Book is responsible for any defect in the design of the works and is held to a "fitness for purpose" standard. This

22-10

19

20 21 22

ibid. at 178. ibid. Engineering Advancement Association of Japan, Model Form International Contract, op. cit. n. 1 above, p. 5~. M. Levine & J. Wood, Construction Insurance and UK Construction Contracts (Lloyd's of London Press Ltd, London, 1991) p. 159.

513

22-11

INSURANCE

gap in coverage may be consistent with insurance market availability for such projects,23 but the employer should be aware of the insurance coverage limitations. The contractor must use his best efforts to continue the cover throughout the period of his liability under the contract and according to the law of the site country. As mentioned, this insurance is not found in most of the other standard orm contracts examined herein. The ENAA, however, provides for any Insurance that the parties may agree upon. In addition, the AGC stipulates ~inimum amounts for the professional liability insurance against "the negligent performance of professional services" by either the architect or the engineer (AGC 10.3). The DBIA similarly provides for coverage of the contractor, or other design consultant, where the owner requires such insurance (DBIA 5.1.4). 22-12 Whether it is a good idea for standard form contracts, such as the Silver Book or the EIC, not to require professional indemnity insurance is arguable. Professional designers engaged by employers are required to carry such insurance. Furthermore, the nature of the contract is such that it regulates the relationship between the contractor and the employer, not that between the contractor and his subcontractors; therefore, the contractor should be responsible for the provision of professional liability insurance by his subcontractor designers. 24 However, a designer may also not have the financial resources necessary to reassure the employer of his ability to pay in case of the failure of the design (but a contractor in a turnkey contract will often be chosen for his financial capacity as well as h~s. technical expertise).25 Nevertheless, the potential scope of design liabIlity means that a contractor may find himself overwhelmed by his professionalliability. A further argument is that professional indemnity insurance is generally on a "claims made" basis, meaning that the claim must be made during the cover of the insurance; once the insurance lapses, the design is no longer covered. 26 The Orange Book covers this concern by requiring that the contractor merely endeavour to maintain the insurance.

t

GENERAL COMMENTS

Proof of insurance The employer will want the contractor to provide proof of the insurance cover, the conditions of insurance and a method of verification that the premiums are being paid throughout the term of the policy. This may include communication directly with the insurance company, particularly where both parties are named as insured parties. 27

22-14

Failure to provide insurance The parties should include in the contract a system to ensure that insurance is either purchased or maintained where the party responsible for the insurance fails in his duties. The employer can notify the contractor where such insurance is not in place or payments have not been made. If the contractor fails to remedy the situation the employer can then purchase the insurance himself, and deduct the premiums from the amount owed to the contractor, or he can take other action where he is unable to purchase the appropriate insurance. Before any replacement insurance is purchased by the employer, there should be a process of notification of the contractor, to avoid duplication. 28 The World Bank adds a sanction for a party not complying with the conditions of the insurance policy. The defaulting party must indemnify the other party for all claims arising from such a failure. 29 A similar provision can be found in the Silver Book (SB 18.1). The parties may want to add to this the failure of provision of insurance cover in accordance with the contract, as in EIC sub-clause 13.8. Thus the non-defaulting party would be able to insure himself, but where he did not have the time or opportunity to do so, he would still be indemnified.

22-15

Discussion of Specific Sub-Clauses

Terms of insurance and the insurer

22-13

Insurance policy terms vary in accordance with the insurer and the project involved. The contract cannot specify or provide for every term. The employer may wish to play an active role in the negotiation of such terms, as well as the choice of the insurer, such as is provided for in the Silver Book.

2J 24 2S

26

Brewer, "The New ICE design and construct contract" (1993) 3 Cons. Law at 202. Eggleston, op. cit. n. 7 above, p. 189. ibid., p. 190. ibid., p. 190.

514

Clause 18 of the Silver Book, entitled "Insurance", sets forth the specific terms regarding the insurance issues discussed above. The Silver Book provisions relating to insurance are particularly suited to adjustment by the parties, in comparison to other standard form contracts examined herein. This is because the Silver Book sets out the general terms of insurance coverage which apply to'any type of insurance taken out in accordance with the terms of the contract, whether the contractor or employer is the insuring party. This structure allows parties to easily define the general responsibilities of an 27 28 29

UNCITRAL Legal Guide, op. cit. n. 2 above at 180. ibid., p. 181. World Bank, op. cit. n. 13 above at 207.

515

22-16

INSURANCE

DISCUSSION OF SPECIFIC SUB-CLAUSES

insuring party as well as to identify the specific provisions required for each category of insurance. Some authors, however, criticise this aspect of the Silver Book, stating that it is a "recipe for confusion, gaps and/or overlaps in the combined insurance package, which could cost the parties dearly", and thus, "could only be advantageous to those involved in the insurance market" .30

Each Party shall comply with the conditions stipulated in each of the insurance policies. The insuring Party shall keep the insurers informed of any relevant changes to the execution of the Works and ensure that insurance is maintained in accordance with this Clause.

18.1 General Requirements for Insurances

If the insuring Party fails to effect and keep in force any of the insurances it is required to effect and maintain under the Contract, or fails to provide satisfactory evidence and copies of policies in accordance with this Sub-Clause, the other Party may (at its option and without prejudice to any other right or remedy) effect insurance for the relevant coverage and pay the premiums due. The insuring Party shall pay the amount of these premiums to the other Party, and the Contract Price shall be adjusted accordingly.

22-17

In this Clause, "insuring Party" means, for each type of insurance, the Party responsible for effecting and maintaining the insurance specified in the relevant Sub-Clause. Whenever the Contractor is the insuring Party, each insurance shall be effected with insurers and in terms approved by the Employer. These terms shall be consistent with any terms agreed by both Parties before they signed the Contract Agreement. This agreement of terms shall take precedence over the provisions of this Clause. Whenever the Employer is the insuring Party, each insurance shall be effected with insurers and in terms consistent with the details annexed to the Particular Conditions.

If a policy is required to indemnify joint insured, the cover shall apply separately to each insured as though a separate policy had been issued for each of the joint insured. If a policy indemnifies additional joint insured, namely in addition to the insured specified in this Clause, (i) the Contractor shall act under the policy on behalf of these additional joint insured except that the Employer shall act for Employer's Personnel, (ii) additional joint insured shall not be entitled to receive payments directly from the insurer or to have any other direct dealings with the insurer, and (iii) the insuring Party shall require all additional joint insured to comply with the conditions stipulated in the policy. Each policy insuring against loss or damage shall provide for payments to be made in the currencies required to rectify the loss or damage. Payments received from insurers shall be used for the rectification of the loss or damage. The relevant insuring Party shall, within the respective periods stated in the Particular Conditions (calculated from the Commencement Date), submit to the other Party: (a) evidence that the insurances described in this Clause have been effected, and (b) copies of the policies for the insurances described in Sub-Clause 18.2 [Insurance of Works and Contractor's Equipment] and Sub-Clause 18.3 [Insurance against Injury to Persons and Damage to Property]. When each premium is paid, the insuring Party shall submit evidence of payment to the other Party.

)0

N.G. Bunni, "FIDIC's New Suite of Contracts-Clauses 17 to 19: Risk, Responsibility, Liability, Indemnity and Force Majeure" (2001) 18 (3) I.C.L.R. 523.

516

Neither Party shall make any material alteration to the terms of any insurance without the prior approval of the other Party. If an insurer makes (or attempts to make) any alteration, the Party first notified by the insurer shall promptly give notice to the other Party.

Nothing in this Clause limits the obligations, liabilities or responsibilities of the Contractor or the Employer, under the other terms of the Contract or otherwise. Any amounts not insured or not recovered from the insurers shall be borne by the Contractor and/or the Employer in accordance with these obligations, liabilities or responsibilities. However, if the insuring Party fails to effect and keep in force an insurance which is available and which it is required to effect and maintain under the Contract, and the other Party neither approves the omission nor effects insurance for the coverage relevant to this default, any moneys which should have been recoverable under this insurance shall be paid by the insuring Party. Payments by one Party to the other Party shall be subject to Sub-Clause 2.S [Employer's Claims] or Sub-Clause 20.1 [Contractor's Claims], as applicable. Silver Book sub-clause 18.1 lays out the general requirements for in surances. This sub-clause covers instances where either the contractor or the employer is required to procure insurance under the contract. Where the contractor is the insuring party, the employer is to approve the insurer and the terms of the insurance. The Silver Book stipulates that these terms are to be those agreed upon before signing the contract and are to take precedence over the provisions of this clause. This provision, however, should be deleted. The parties should integrate any previous agreements as to the terms of insurances into the contract, in order to avoid confusion and improve consistency among the contract documents. If special terms are to be used, they should be appended to the contract as a schedule. Where the employer insures, the insurer and terms of the insurance are to be in keeping with the provisions contained in the particular conditions. . Under Silver Book sub-clause 18.1, where the policy is to indemnify joint insured, each party is to be covered as a separate party as if each insured had a separate policy. If the policy indemnifies a third party, the additional joint insured: is to be required, by the insuring party, to comply with the conditions stipulated in the policy; is not to be entitled to direct

517

22-18

INSURANCE

22-19

22-20

payments or direct dealings with the insurer; and is to have the contractor act under the policy on behalf of the additional joint insured, except that the employer shall act for the employer's personnel. Such an additional joint insured would likely include subcontractors and other site occupants. 3 ! The Silver Book provides that payments received from insurers are to be used for the rectification of the loss or damage. The employer, however, may wish to have complete discretion as to the use of insurance proceeds. This will ensure proper commercial use of such proceeds, particularly where the works have been destroyed or damaged to the extent that rectification is no longer desirable. In addition, each policy is to provide for such payments to be made in the currencies required to rectify such loss or damage. This requirement notionally comes from the World Bank requirements as expressed in their Standard Bidding Documents. 32 Silver Book sub-clause 18.1 requires the insuring party to provide evidence of the insurance provided as well as copies of the policies for the insurance of the works and contractor's equipment (as described in SB 18.2), and the insurance relating to injury to persons and damage to property (as described in SB 18.3). The Silver Book allows for provision of such proof within a certain time after the commencement date specified in the particular conditions. Such proof must be followed by copies of receipts for the payment of premiums, when paid. Each party is to comply with the conditions stipulated in each of the insurance policies. The insuring party is to inform the insurers of any relevant changes to the execution of the works and to ensure valid insurance is maintained. Further, any material change to the terms of any insurance, by either party, requires the prior approval of the other party. Where an insurer attempts to make, or makes, any alteration, the party having knowledge of such attempt is to promptly notify the other party. This may not provide the other party with sufficient warning. He may want to include in the insurance policy a requirement of notification by the insurer of any alteration of the policy (as is the case under other standard form contracts discussed below). In the case of the failure of the insuring party to insure or provide the proof required, the Silver Book allows the other party to provide for the insurance cover. The other party is then to receive the amount of the premiums from the original insuring party and to adjust the contract price accordingly. Finally, Silver Book sub-clause 18.1 stipulates the contractor and the employer are to bear the amounts not insured or recovered from the insurers in accordance with the parties' respective obligations, liabilities or responsibilities under the contract. Where, however, the insuring party fails to provide and maintain insurance that is both available and required under the contract, the insuring party is responsible for paying any monies 31

32

FIDIC, The FIDIC Contracts Guide (Federation Internationale des Ingenieurs·Conseils, Lausanne, 2000), p. 283 . World Bank, op. cit. n. 13 above at 111 .

518

DISCUSSION OF SPECIFIC SUB-CLAUSES

that should have been recoverable under this insurance. The insuring party is to provide such payment where the other party neither approves this omission nor provides for insurance in the insuring party's stead. Finally, any payment between the parties is to be in accordance with the subclauses pertaining to employer's claims (SB 2.5) and contractor's claims (SB 20.1). Orange Book sub-clause 18.5 follows the general lines of Silver Book sub- 22-21 clause 18.1. The main difference between the two clauses stems from the fact that the Orange Book sub-clause, unlike the Silver Book, is written solely from the perspective of insurances to be provided by the contractor. A second difference is that the Orange Book provision does not include specifications for where a policy is required to indemnify joint insured, nor does it address the issue of where a third party is insured in conjunction with insurance under this section. Further, th~ Orange Book does not specify whether the insurance is to be adjusted to reflect any relevant changes to the execution of the works. While the Orange Book specifies the amounts either not insured or not recoverable from the insurers shall be borne by the contractor and/or employer "accordingly", it does not specify according to what. The Silver Book, on the other hand, specifies that the amounts are to be borne by the parties in accordance with their respective obligations, liabilities or responsibilities under the contract. Finally, unlike the Silver Book, the Orange Book does not stipulate the consequences of both the contractor's and the employer's failure to obtain insurance where such insurance was the responsibility of the contractor and the employer did not approve the omission. The relevant provisions of the (new) Yellow and Red Books are substantially similar to those of the Silver Book. The only difference between the contracts being that the (new) Yellow and Red Books provide for the insuring party to give notice to the engineer whenever evidence of policies is submitted. . The ENAA provisions relating to insurances are similar to those of Silver 22-22 Book sub-clause 18.1. As a general rule, where one party is responsible for obtaining the insurance, the other party is to be named as the co-insured under each of the policies (ENAA 34.2; ENAA 34.5). Exceptions exist such as where the employer is not to be named as co-insured where the contractor procures workman's compensation and employer's liability insurance (ENAA 34.2). In all cases, insurer's subrogation rights against the co-insured are to be waived (ENAA 34.2; ENAA 34.5). Both the employer and the contractor have the right to approve the form of the insurance and identity of the insurers, but may not unreasonably withhold such approval (ENAA 34.2; 34.5).

Under the ENAA, the contractor must provide certificates of insurance or copies of the actual policies to prove that the required insurance is in force for any section of the works before commencement of that section (ENAA 34.3). Where the employer is to provide insurance, no time specification is set out in which the employer is to provide the contractor with satisfactory evidence the required insurances are in effect (ENAA 34.5). In either case, 519

INSURANCE

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22-24

no requirement for proof of payments for premiums is specified, but a requirement of notice 21 days before cancellation or material modification of the policy is included (ENAA 34.3; ENAA 34.5). Thus, if non-payment occurs, the employer or contractor will be notified before the insurer takes action. Where either party fails to obtain or maintain insurances as required under the contract, the other party may do so (ENAA 34.6). In order to finance such insurances, the premiums paid constitute a debt that the other party may deduct from any amounts owing to the party that failed to take out the insurance (ENAA 34.6). The ENAA, unlike the Silver Book, does not specify the use to which insurance monies must be put. A further difference is that under the ENAA the contractor is to be paid all monies payable by any insurers and is to conduct all claims under policies made in accordance with the insurance clause (ENAA 34.7). The EIC provisions relating to insurances are more detailed than those of the ENAA. Similar to the Orange Book, the EIC only addresses insurances that the contractor is responsible for procuring (EIC 13). In general, the insurances provided under this section are to be in the joint names of the parties (EIC 13.2; EIC 13.5). In the case of insurances for injury to certain persons or damage to property (other than works), similar to the Silver Book, cross-liability clauses are to be included in the policies such that the contractor and owner are insured as separate insureds. Before commencing work on the site the contractor is to provide evidence. to the owner that the insurances required under the contract have been obtained (EIC 13.9). Further, the insurance policies themselves are to be presented to the owner within 56 days of the commencement date (EIC 13.9). The employer may, at any time, require the contractor to produce the insurance policies in force and the payment receipts for the premiums (EIC 13.10). Where a subcontractor's insurance covers what would otherwise be the responsibility of the contractor, the contractor may require the subcontractor to produce similar proofs for the employer at any time (EIC 13.8). The EIC contains similar provisions to other standard form contracts examined herein where the contractor fails to procure and maintain insurances as required under the contract (EIC 13.11). In contrast to the other contracts examined thus far, the EIC permits the contractor to select the insurers unless the parties agree otherwise upon entering into the contract (EIC 13.9). Finally, and similar to the provisions of the ICE, where either the contractor or the owner "fails to comply with conditions imposed by the insurance policies effected pursuant to the contract, each shall indemnify the other against all losses and claims arising from such failure" (EIC 13.12). The ICE general requirements for insurances vary according to the type of insurance in question. The ICE provisions address the insurances the contractor is responsible for obtaining (ICE 21; ICE 23). Such insurance shall be in the joint names of the parties (ICE 21; ICE 23). In the case of insurances for injury to certain persons or damage to property (other than works), similar to the EIC, cross-liability clauses are to be included in the policies 520

DISCUSSION OF SPECIFIC SUB-CLAUSES

such that the insurance applies to the contractor and owner as separate insured. The ICE contract requires proof of insurance before the commencement date, plus production of the policies if so required (ICE 25(1)). It is unclear if the production of the policies must be provided in the contract or whether the employer can require them prior to the commencement date. The contractor must send receipts of the paid premiums to the employer where so requested by the employer (ICE 25(1)). The employer is entitled to approve the terms of insurance and, unlike in other contracts, the contractor's choice of insurer is not subject to the employer's approval (ICE 25(1)). Under the ICE, similar provisions to those of the Silver Book apply where the contractor fails to provide the employer with satisfactory evidence of the currency of any insurance required under the contract (ICE 25(3)). Finally, as under the EIC, each party is to indemnify the other where losses and claims result from his failure to comply with the terms of any insurance policy, obtained in accordance with the contract (ICE 25(4)). The AlA, AGC and DBIA provisions with respect to insurances required under these contracts are constructed under similar lines to each other and are quite detailed. Under these contracts, both the employer and contractor have obligations to insure. Where the contractor is to purchase and maintain insurance, these policies are to run, without interruption, from the date of commencement of the work until the date of final payment, or later as required (AlA 7.1.2-Part 2; DBIA 5.1.5). Under the AlA and DBIA, where the owner is to purchase and maintain property insurance upon the work, the insurance must run until final payment (AlA 7.3.1-Part 2; DBIA 5.3.3) or until only the owner has an insurable interest in the property (AlA 7.3.1Part 2). The DBIA specifies such insurance coverage is to begin prior to the commencement of the work (DBIA 5.3.3). The AGC does not specify a general validity time requirement for insurance required under the contract. Where the contractor is to supply insurance, certificates of such insurance are to be given to the owner either immediately after the execution of the contract (AlA 7.1.2-Part 2) or prior to commencement of the work (AGC 10.4.2; DBIA 5.1.5). Where the owner is to provide boiler and machinery insurance (AlA 7.3.4-Part 2; AGC 10.5.3; DBIA 5.3.2), the insurance shall be valid during installation and until final acceptance by the owner (AlA 7.3.4-Part 2). The owner is to provide the contractor with a copy of each policy made in accordance with these sections either "before an exposure to loss may occur" (AlA 7.3.6-Part 2; AGC 10.5.5) or before commencement of the work (DBIA 5.3.3). The AlA, AGC and DBlA provide that insurance policies under the contract are to require the relevant insurance company to notify the non-insuring party, namely the owner or contractor, 30 days before the expiry or cancellation of the policy (AlA 7.1.3-Part 2; AlA 7.3.6-Part 2; AGC 10.2.4; AGC 10.5.5; DBIA 5.1.5; DBlA 5.3.3). In the case of the DBIA, this notification requirement includes cases of material change and, in the AGC, it includes renewal of the policy. Under the AlA, the contractor must notify 521

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DISCUSSION OF SPECIFIC SUB-CLAUSES

INSURANCE

22-26

the employer "with reasonable promptness" where the contractor knows or believes a reduction of coverage may occur (AlA 7.1.3-Part 2). These provisions allow the owner and contractor to protect themselves against liability without having to constantly monitor the payments made by the insuring party. Parties under the AlA could add a section to such a sub-clause requiring that notice be given within a specific time delay where the contractor occasions any material alteration of the policy. The contracts contain various methods for distribution of insurance proceeds (see AlA 7.3.5-Part 2; AGe 10.6.1; DBIA 5.3.4). In general, the owner and/or contractor are to receive and control the distribution of any insurance proceeds. In addition, each contract specifies that distribution of monies is to be subject to any mortgage clause. When considering which party is required to procure insurance (the various standard form contracts examined herein weigh heavily on the side of requiring the contractor to provide the insurance) it is worth noting that in large infrastructure projects, employers may prefer to provide some of the project's insurance. This preference stems from an interest in controlling the insurance of the project, the interest of lenders to have assurances with respect to insurance and the cost-effectiveness of employer-supplied insurance. The employer may also wish to procure business interruption insurance and delay start-up insurance, which are of great importance in projects involving project financing.

18.2 Insurance for Works and Contractor's Equipment

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The insuring Party shall insure the Works, Plant, Materials and Contractor's Documents for not less than the full reinstatement cost including the costs of demolition, removal of debris and professional fees and profit. This insurance shall be effective from the date by which the evidence is to be submitted under sub-paragraph (a) of Sub-Clause 18.1 [General Requirements for Insurances], until the date of issue of the Taking-Over Certificate for the Works. The insuring Party shall maintain this insurance to provide cover until the date of issue of the Performance Certificate, for loss or damage for which the Contractor is liable arising from a cause occurring prior to the issue of the Taking-Over Certificate, and for loss or damage caused by the Contractor or Subcontractors in the course of any other operations (including those under Clause 11 [Defects Liability] and Clause 12 [Tests after Completion]). The insuring Party shall insure the Contractor's Equipment for not less than the full replacement value, including delivery to Site. For each item of Contractor's Equipment, the insurance shall be effective while it is being transported to the Site and until it is no longer required as Contractor's Equipment. Unless otherwise stated in the Particular Conditions, insurances under this SubClause: (a) shall be effected and maintained by the Contractor as insuring Party, (b) shall be in the joint names of the Parties, who shall be jointly entitled to receive payments from the insurers, payments being held or allocated 522

(c) (d)

(e)

between the Parties for the sole purpose of rectifying of the loss or damage, shall cover all loss and damage from any cause not listed in Sub-Clause 17.3 [Employer's Risks], shall also cover loss or damage from the risks listed in sub-paragraph (c) of Sub-Clause 17.3 [Employer's Risks], with deductibles per occurrence of not more than the amount stated in the Particular Conditions (if an amount is not so stated, this sub-paragraph (d) shall not apply), and may however exclude loss of, damage to, and reinstatement of: (i) a part of the Works which is in a defective condition due to a defect in its design, materials or workmanship (but cover shall include any other parts which are lost or damaged as a direct result of this defective condition and not as described in subparagraph (ii) below), (ii) a part of the Works which is lost or damaged in order to reinstate any other part of the Works if this other part is in a defective condition due to a defect in its design, materials or workmanship, (iii) a part of the Works which has been taken over by the Employer, except to the extent that the Contractor is liable for the loss or damage, and (iv) Goods while they are not in the Country, subject to Sub-Clause 14.5 [Plant and Materials intended for the Works].

If, more than one year after the Base Date, the cover d;escribed in sub-paragraph (d) above ceases to be available at commercially reasonable terms, the Contractor shall (as insuring Party) give notice to th~ Employer, with supporting particulars. The Employer shall then (i) be entitled subject to Sub-Clause 2.5 [Employer's Claims] to payment of an amount equivalent to such commercially reasonable terms as the Contractor should have expected to have paid for such cover, and (ii) be deemed, unless he obtains the cover at commercially reasonable terms, to have approved the omission under Sub-Clause 18.1 [General Requirements for Insurances]. Silver Book sub-clause 18.2 sets out, first, the extent of the insurance required for works and contractor's equipment and, next, the general terms under which this insurance is to be obtained.

22-28

The extent of the insurance. Silver Book sub-clause 18.2 combines insurance

22-29

for the contractor's equipment, the construction documents, the plant, the materials and the works. It requires such insurance to cover the costs of replacement, demolition and removal of debris, and professional fees and profit from the date of proof of insurance to the taking-over certificate for the works. The insurer is to extend this insurance beyond the issue of the performance certificate to cover causes occurring before the taking over of the works for which the contractor is liable. The insurer must also extend cover to loss or damage caused by the contractor or his subcontractors in the course of any other operations including during the performance tests (SB 12) or during the defects liability period (5B 11).

523

DISCUSSION OF SPECIFIC SUB-CLAUSES

INSURANCE

Silver Book sub-clause 18.2 also provides that the contractor's equipment must be insured for not less than the full replacement value. Such insurance is to cover the period from the transportation of each item of the contractor's equipment to the site until it is no longer required as contractor's equipment.

22-30

22-31

The general terms under which the insurance is to be obtained. Silver Book sub-clause 18.2 then sets out the terms under which insurances under this sub-clause are to be obtained, unless the particular conditions state otherwise. The contractor is to be the insuring party and shall take out insurance in the joint names of the parties. The parties are to be jointly entitled to receive payments from the insurers and such payments are to be held or allocated between the parties for the sole purpose of rectifying the loss or damage. Insurance under this clause is to cover all risks other than employer's risks (as defined under SB 18.3). The exclusion of employer's risks notwithstanding, loss or damage from these risks relating to riot, commotion or disorder (namely, SB 18.3(c)) are to be covered with a deductible per occurrence that is not to exceed the amount stated in the particular conditions. Some authors question whether deductibles should be specified for the insurance cover for contractor's risks. 33 Where no amount is so stated, however, these additional risks will not be covered. Further, the contractor shall notify the employer where such insurance is no longer available at commercially reasonable terms 34 more than one year after the base date. In such a case, the employer is entitled to compensation for the amount not paid by the contractor (as per SB 2.5) and, unless the employer himself obtains such insurance, is deemed to have approved omission under sub-clause 18.1. Under Silver Book sub-clause 18.2, insurance under this clause is to include cover where parts of the works are damaged as a direct result of a defective condition in the works that is caused by a defect in the design, materials or workmanship. Such insurance, however, need not cover either the defective works themselves or the damage to other works so damaged in order to reinstate such defective works. In addition, any part of the works taken over by the employer, and for which the contractor is no longer liable, need not be insured under this sub-clause. Finally, goods not in the country need not be insured unless they are so insured as per subclause 14.5. Orange Book sub-clause 18.2 is similar to that of the Silver Book, although the Orange Book logic of contractor-focused insurance is maintained in this sub-clause. The Orange Book groups the terms of the insurance with the items to be insured such that any amendment of the terms may not be easily made. This is in contrast to the Silver Book that, as discussed 33 34

Bunni, op. cit. n. 3 above, 523. The meaning of "commercially reasonable terms" is certainly ambiguous. Indeed, the F1DIC Guide admits that what are "commercially reasonable terms" is a matter of opinion (F1DIC Guide, pp. 288). One must assume, therefore, that FIDIC felt the term, despite its ambigu· ity, could prove useful.

524

above, separates the terms from the items. The reason for this separation is highlighted through the Silver Book's specification that the terms may be altered in the particular conditions. The Orange Book also differs from the Silver Book in the employer's risks that the contractor is to insure against. Under the Orange Book, the contractor is to insure against the employer's risk of any operation of the forces of nature whereas such a risk falls under the force majeure provisions of the Silver Book and is not an employer's risk. Further, the Orange Book does not contain any provisos in relation to the contractor's obligation to insure against riot, commotion or disorder except to say that such insurance is to be provided insofar as it is readily obtainable. Finally, the insurance of works under the Orange Book does not include professional fee and profit. The (new) Yellow and Red Book sub-clauses 18.2 are substantially similar to Silver Book sub-clause 18.2. Under the terms of the (new) Yellow and Red Books, however, insurance is to be provided against the additional employer's risks of loss or damage due to design of any part of the works by the employer or his personnel and any operation of ~he forces of nature. In addition, the (new) Red Book does not include tests after completion as a time period during which contractor's liability shall still run. The ENAA provides for insurance during the performance of the contract; thus the cover begins on the commencement date of the contract (ENAA 34.1). The contractor is to provide insurance cover for the materials and construction equipment during transport (ENAA 34.1(a)). In addition, the contractor is to procure insurance that covers the works at the site and that includes an extension of coverage for the duration of the defects liability period. On-site insurance, however, is not required to cover materials (ENAA 34.1(b)), nor is insurance of the constructor's documents required. The ENAA leaves the insurance of the contractor's equipment to the discretion of the contractor (ENAA 34.1).35 Considering the central importance and the expense of the contractor's equipment, an employer using the ENAA form of contract may want to consider adding a requirement for such cover. As discussed above, the parties may wish to take account of insurance provided by the employer. The ENAA allows for owner insurance of certain risks, as specified by the parties (ENAA 34.5). It uses the same provisions as those used for the contractor's insurance. This may be a useful addition, since certain project risks may often be more easily, or more economically, insured against by the employer. The EIC requires the contractor to insure the works, materials and plant for the full replacement cost (EIC 13.1(a)) and an additional sum of 15 per cent to cover costs incidental to the rectification of the loss or damage (EIC 13.1 (b)). In addition, the contractor is to insure the replacement value of his equipment and other things brought onto the site (EIC 13.1(c)). Such insurances are to be in the joint names of both the parties and are to run from the commencement date to the date of the relevant taking-over certificate, unless 35

Engineering Advancement Association of Japan, Model Form International Contract, Volume 3 Guide Notes (1992) at 58.

525

22-32

22-33

DISCUSSION OF SPECIFIC SUB-CLAUSES

INSURANCE

22-34

22-35

provided for otherwise (EIC 13.2(a)). The coverage is also to include the contractor's liability during the defects liability period for causes arising either before, or in connection with, this period (ElC 13.2(b)). The ElC, as under the Silver Book, does not require the contractor to insure against certain employer's risks (ElC i3.4) although the risk of riot is to be insured against. Notably absent from exclusion, under the ElC, is the employer's risk of damage caused by force majeure and force of nature not reasonably foreseeable. Finally, any amounts either not insured or not recovered are to be borne by the parties in accordance with their responsibilities under this section (ElC 13.3). The ICE requires an insurance regime similar to that of the EIC covering similar amounts and similar periods (ICE 21). The ICE only provides for an additional 10 per cent of the full replacement cost of the insured works, however. Further, the ICE specifies both the permanent and temporary works are to be insured, whereas the EIC speaks merely of the works. Finally, the ICE sets out excepted risks against which the contractor is not required to provide insurance of the works under this section that are substantially similar to those provided in the Silver Book (ICE 21(2)). The ICE does not specifically include construction documents, unlike the Silver Book, although such documents may be included in its differentiation between temporary and permanent works. 36 Further, no provisions specify insurance for the contractor's equipment. Under the AlA, AGC and DBlA the owner is required to procure insurance for the work for the full replacement value thereof (AlA 7.3.1-Part 2; AGC 10.5.1) and the DBIA further requires that all expenses incurred to replace or repair the property be similarly insured (DBlA 5.3.1). The parties themselves, as well as their contractors and subcontractors, are to be named as insured under this insurance (AlA 7.3.1-Part 2; AGC 10.5.1; DBIA 5.3.1). Under the AlA and DBIA, the insurance must run until final payment (AlA 7.3.1-Part 2; DBlA 5.3.3) or until only the owner has an insurable interest in the property (AlA 7.3.1-Part 2). The DBIA specifies such insurance cover is to begin prior to the commencement of the work (DBlA 5.3.3). The AlA, AGC and DBIA specify the works are to be covered by all-risk insurance and, unlike other standard form contracts examined herein, do not list exemptions against which insurance need not be obtained (AlA 7.3.2Part 2; AGC 10.5.1; DBlA 7.3.2). An exemption relating to the owner's premature occupation is not needed, however, as the owner is not to occupy the works prior to demonstrating to the contractor that the insurance will remain in effect during the employer's occupation (AlA 7.3.1l-Part 2; AGC 10.5.2; DBIA 5.3.3). Finally, loss to contractor's equipment does not seem to be covered under the provisions of these contracts. Nonetheless, one might read such coverage into the terms requiring the contractor to insure against loss to tangible property other than works (AlA 7.1.1.5-Part 2; AGC 10.2.1.5; DBIA 5.1.15).

36

Eggleston, op. cit. n. 7 above,

526

p. 196.

18.3 Insurance against Injury to Persons and Damage to Property

22-36

The insuring Party shall insure against each Party's liability for any loss, damage, death or bodily injury which may occur to any physical property (except things insured under Sub-Clause 18.2 [Insurance for Works and Contractor's Equipment]) or to any person (except persons insured under SubClause 18.4 [Insurance for Contractor's Personnel)], which may arise out of the Contractor's performance of the Contract and occurring before the issue of the Performance Certificate. This insurance shall be for a limit per occurrence of not less than the amount stated in the Particular Conditions, with no limit on the number of occurrences. If an amount is not stated in the Contract, this Sub-pause shall not apply. Unless otherwise stated in the Particular Conditions, the insurances specified in this Sub-Clause: (a) shall be effected and maintained by the Contractor as insuring Party, (b) shall be in the joint names of the Parties, (c) shall be extended to cover liability for all loss and damage to Employer's property (except things insured under Sub-Clause 18.2) arising out of the Contractor's performance of the Contract, and (d) may however exclude liability to the extent that it arises from: (i) the Employer's right to have the Permanent Works executed on, over, under, in or through any land, and to occupy this land for the Permanent Works, (ii) damage which is an unavoidable result of the Contractor's obligations to execute the Works and remedy any defects, and (iii) a cause listed in Sub-Clause 17.3 [Employer's Risks], except to the extent that cover is available at commercially reasonable terms. Silver Book sub-clause 18.3 provides for insurance against each party's liability for the death or injury of any persons, other than contractor's personnel already covered, and loss or damage to property, other than the works and materials already covered. This insurance covers any injury or damage arising out of the contractor's performance of the contract, before issuance of the performance certificate. Thus, the insurance will cover in parr the period subsequent to the issue of the taking-over certificate during which the employer is in possession of the works and site. The amount of coverage depends on the agreement of the parties as expressed in the particular conditions, but shall not be limited as to the number of occurrences. Where no such amount is specified, this sub-clause is not to apply. Silver Book sub-clause 18.3, in keeping with the logic of this clause, next details the terms under which insurance under this sub-clause is to be obtained, unless the particular conditions provide otherwise. Under this subclause, the contractor is to obtain and maintain insurance under the joint names of the parties. Such insurance shall extend to cover all loss and damage to the employer's property (except as insured under SB 18.2) that arises out of the contractor's performance of the contract. Liability may be excluded, however, where it arises from: the employer's right to have the permanent works executed over or constructed on any land; unavoidable 527

22-37

DISCUSSION OF SPECIFIC SUB-CLAUSES

INSURANCE

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22-39

damage resulting from the contractor's obligation to execute the works and remedy any defects; any employer's risk to the extent that cover is not available at commercially reasonable terms. Orange Book sub-clause 18.3 is less detailed than that of the Silver Book. Unlike the Silver Book, the Orange Book does not provide that failure to specify any limit per occurrence will result in the non-application of this subclause. Further, the Orange Book does not limit the necessity to procure insurance under this sub-clause beyond those of things or persons already insured under Orange Book sub-clauses 18.2 and 18.4. The (new) Yellow and Red Book sub-clauses 18.3 are essentially identical to that of the Silver Book. The ENAA, ElC and ICE provide similar coverage to the Silver Book, although the cover is limited to the period of execution of the works (ENAA 34.1(c); EIC 13.5; ICE 23(1 )). The parties are to agree to an amount required for insurances under this section which may either be specified in an appendix to the contract (ENAA 34.1; ICE 23(3)), or, failing agreement, for an amount the contractor considers reasonable (EIC 13.6). The AlA, AGC and DBIA require the contractor to insure against loss to tangible property other than works (AlA 7.1.1.5-Part 2; AGC 10.2.1.5; DBIA 5.1.1.5). These contracts also provide coverage for bodily injury or death of persons other than the contractor's personnel ((AlA 7 .1.1.3-Part 2; AGC 10.2.1.3; DBlA 5.1.1.3). The minimum amounts for the insurance required under this section are to be indicated in the contract (AlA 7.1.2Part 2; DBlA 5.1.2). Unlike under the Silver Book, however, failure to provide such minimum amounts will not affect the applicability of these sections.

22-40

18.4 Insurance for Contractor's Personnel The Contractor shall effect and maintain insurance against liability for claims, damages, losses and expenses (including legal fees and expenses) arising from injury, sickness, disease or death of any person employed by the Contractor or any other of the Contractor's Personnel. The Employer shall also be indemnified under the policy of insurance, except that this insurance may exclude losses and claims to the extent that they arise from any act or neglect of the Employer or of the Employer's Personnel. The insurance shall be maintained in full force and effect during the whole time that these personnel are assisting in the execution of the Works. For a Subcontractor's employees, the insurance may be effected by the Subcontractor, but the Contractor shall be responsible for compliance with this Clause.

22-41

Silver Book sub-clause 18.4 requires the contractor to obtain insurance for the workers employed by the contractor or any other of the contractor's personnel. The subcontractor's employees must also be covered by insurance that may be taken out by the subcontractor; the contractor is responsible for ensuring the existence of such coverage. This sub-clause does not specify the amount of such cover, but the duration of the cover is to be for the entire period in which these personnel assist in the execution of the works. Such cover is often 528

required by law, and local laws may impose additional obligations in relation to such insurance. J7 The employer may be excluded from indemnification under the insurance to the extent that any act or neglect of the employer, or his personnel, gives rise to losses and claims under this sub-clause. Orange Book sub-clause 18.4 is, once again, less detailed than that of the Silver Book. First, the Orange Book does not specify the duration or extent of insurance cover. Second, the employer is to be: indemnified under the Orange Book regardless of whether an act or neglect of the employer or his personnel contributed to the loss or claim. Finally, the Orange Book provision requires, potentially, less comprehensive coverage as the insurance, for losses or claims, does not specifically include legal fees and expenses. The (new) Yellow and Red Book sub-clauses 18.4 are essentially identical to that of the Silver Book. The ENAA does not require the contractor to insure his personnel and subcontractors per se. Instead, the contractor is to provide employer's liability insurance, under the ENAA, to the extent of the liability imposed on the employer by local laws (ENAA 34.1(f)). The sums, deductibles and conditions of each form of insurance are specified in the appendix. Where subcontractors' employees are not covered by the contractor's insurance, the contractor is to ensure the subcontractors adequately insure their personnel (ENAA 34.4). The ENAA addresses the issue of workman's compensation, unlike certain other standard form contracts examined herein. Workman's compensation is only required under the ENAA where so required by statute in the site country (ENAA 34.1(e)). This coverage, however, may not be sufficient. Indeed, the insurance required under local statue may not be sufficient to completely cover the contractor or employer from the full amount of liability that may ensue from a worker's claim. The EIC provisions are similar to those of the Silver Book and require the contractor to insure against liability arising from "damages or compensation payable to any workman or other person in the employ of the contractor or any subcontractor" (ErC 13.8). Such insurance is to cover the entire period where the contractor employs any such persons on the works (ElC 13.8). The contractor may be excused from providing such insurance, however, where any subcontractor's insurance of personnel provides for indemnification of the owner (EIC 13.8). Although the ICE places all liability on the contractor for injury to the contractor's employees or the employees of the contractor's subcontractors, unless due to the employer's act or default of the contractor, the ICE does not require insurance for workers (ICE 24). As a general rule, an employer must provide insurance for his workers.J8 However, and as mentioned above, it would seem reasonable for the parties to include provision of insurance for workers to cover those who may not be covered under statutory regulation, or where no such law exists.

37

FlDIC Guide, p. 290.

38

Eggleston, op. cit. n. 7 above, p. 200. 529

22-42

22-43

INSURANCE

The AlA, AGC and DBlA require the contractor to insure against claims due to damages because of bodily injury to a contractor's employee (AlA 7.1.1.2-Part 2; AGC 10.2.1.2; DBlA 5.1.1.2). As does the ENAA, these contracts also provide coverage for claims arising under worker's compensation (AlA 7.1.1.1-Part 2, AGC 10.2.1.1; DBIA 5.1.1.1). The minimum amounts for the insurance required under this section are to be indicated in the contract (AlA 7.1.2-Part 2; DBlA 5.1.2). Unlike under the Silver Book, however, failure to provide such minimum amounts will not affect the applicability of these sections.

CHAPTER

23

FORCE MAJEURE General Comments

22-44

Figure 22.1 Insurance under the FIDIC Silver Book START

r---------~----,

~-W-h-<~-C-in-.u-~.-:E-.p-p-~-.~'h-<' insur~rs

Unll!S5 PC provide orhcrwisc: C insures ..:onstru..:tion dOi:umcnts, plant, matc:rials, ~ontra":for's

~

cl.juipmcnt

otherwise: C Insures for liahility to It third party for loss or Jam3~c

(0

rhyskal

work. (18.2).

Ilnd terms of insuran~e (18.1).

C is to provide for insurance for death or injury of his or his suh·..:ontractor's employees (18.4).

NO

IP mult inform Is Other parry may

there material alteration tel the terms of insurance?

other party immwilltclyof intended alterations (18.1).

Must have prior Does IP

NO

530

23-01

Force majeure

YES

dfcl,;fUarC insuran..:c at IP's..:ost (t8.1).

Events may occur during the construction of the project that delay or prevent completion. In most cases, one of the parties to the construction contract is responsible for the risk of the occurrence of the event and therefore responsible for any delay or prevention-including any damage caused to plant and materials by such events-in accordance with the risks as allocated. However, certain events, beyond the control of the parties, may prevent them from fulfilling their duties and obligations under the contract. The parties may decide that, when performance is prevented by these events, neither party shall be considered in breach of their obligations under the contract.! Certain legal doctrines have developed to deal with such prevention of performance: These include the concepts of impossibility and frustration under English and American hiw 2 and force majeure under French law. 3

Under the common-law system (at least in the United Kingdom), frustration is a concept based on the idea that an event has occurred such that if the contract were to be enforced it would involve a fundamental or radical change from the obligations originally undertaken by the parties. 4 Under civil law systems (e.g. France), force majeure involves a wider concept of an event that is unforeseeable, unavoidable and external to the parties which makes performance of the contract impossible. s Both of these concepts are attempts to deal with the influence of unforeseen external events that compromise the nature of the parties' performance and ultimately alter the nature of the original bargain struck between the

arrrovalof other parry to proceed with alteration (18.1)

Engineering Advancement Association of Japan, Model Form International Contract for Process Plant Construction, Volume 3 Guide Notes (1992), p. 34. 2 S. Furst Q.c. & V. Ramsey Q.c. eds, Keating on Building Contracts (7th ed., Sweet & Maxwell, London, 2001), p. 143. l G. Liet-Veaux & A. Thuillier, Droit de la Construction (10th ed., Litec, Paris, 1991), p. 271. • Davis Contractors Ltd v. Fareham Urban District Council (1956) A.C. 696. s Art. 1147 and Art. 1148 C. Civ.; A. Brabant, Le Contrat International de Construction (Brussels: Bruylant, 1981), p. 293. 1

531

23-02

DISCUSSION OF SPECIFIC SUB-CLAUSES

FORCE MAJEURE

In this Clause, "Force Majeure" means an exceptional event or circumstance: (a) which is beyond a Party's control, (b) which such Party could not reasonably have provided against before entering into the Contract, (c) which, having arisen, such Party could not reasonably have avoided or overcome, and (d) which is not substantially attributable to the other Party. Force Majeure may include, but is not limited to, exceptional events or circumstances of the kind listed below, so long as conditions (a) to (d) above are satisfied: (i) war, hostilities (whether war be declared or not), invasion, act of foreign enemies, (ii) rebellion, terrorism, revolution, insurrection, military or usurped power, or civil war, (iii) riot, commotion, disorder, strike or lockout by persons other than the Contractor's Personnel and other employe~s of the Contractor and Subcontractors, (iv) munitions of war, explosive materials, ionising radiation or contamination by radio-activity, except as may be attributable to the Contractor's use of such munitions, explosives, radiation or radioactivity, and (v) natural catastrophes such as earthquake, hurricane, typhoon or volcanic activity.

Discussion of Specific Sub-Clauses 23-03

Clause 19 of the Silver Book, entitled "Force Majeure", sets forth both the definition of a force majeure event and the procedure to follow upon the occurrence of such an event. The Silver Book force majeure provisions are among the most comprehensive, when compared to the similar provisions contained in other industry forms, as will be discussed below. Indeed, the FIDIC Guide recognises that the force majeure definition provided in the new contracts is broader than it would be under the laws of most countries. lo For example, the force majeure provisions of the Silver Book could be largely understood and implemented in both civil and common-law systems. 11 The Silver Book is unclear, however, as to the impact on the contract, and on the parties' obligations under it, in the event of termination. The parties may want to specify who is liable for the works, what happens to the insurance, retention monies, performance security and other duties under the contract, as well as the use of patents and licences of know-how.

6

7

8

9 10

11

I.N.D. Wallace Q.c., Hudson's Building and Engineering Contracts (11th ed., Sweet & Maxwell, London, 1995), p. 642. C.R. Seppala, "FlDle's New Standard Forms of Contract-Force Majeure, Claims, Disputes and Other Causes" (2000) 17 (2) I.C.L.R. 235 at 242, citing for authority Nicolas, The French Law of Contract (2nd ed., Clarendon Press, Oxford, 1992), p. 202. Parties may find it useful to include an extensive list of force majeure events pertinent to their agreement to avoid later disputes over definition. B. Eggleston, The ICE Design and Construct: A Commentary (Blackwell Scientific Publications, Australia, 1994), p. 364. I.N.D. Wallace Q.C., Hudson's Building and Engineering Contracts (11th ed., Sweet & Maxwell, London, 1995), pp. 657 et seq. FIDIC, The FIDIC Contracts Guide (Federation Internationale des Ingenieurs-Conseils, Lausanne, 2000), p. 291. This is not to say, however, the risk of overlap or confusion between the governing law and the contractual provision does not exist (see discussion below).

532

23-04

19.1 Definition of Force Majeure

parties. However, frustration is so narrowly defined that there are very few situations where it will apply to construction contracts6 as the parties are impliedly (or explicitly) taken to have foreseen many of the uncertainties inherent in such projects. Others, on the other hand, claim that force majeure, as provided for in the French Civil Code, "is far narrower in scope than the doctrine of frustration under English law". 7 Just as in commercial contracts generally, standard form contracts, in order to avoid the problems attendant upon such differing definitions, often provide for a specific regime which is generally entitled force majeure. Such clauses often combine generalised statements of principle with a list of types of events exemplifying the principle. 8 Thus, a force majeure clause is used in construction contracts to allow the parties to discharge their responsibility to perform obligations under the contract when they are impeded by events beyond their control, including natural or man-made events. 9

Silver Book sub-clause 19.1 sets forth the definition of force majeure to be an exceptional event that fulfils four preliminary requirements. Under subclause 19.1, a force majeure event is an event beyond a party's control where the party could not reasonably have provided against the event before entering into the contract. In addition, a force majeure event is an event the party could not reasonably have avoided or overcome and which is not substantially attributable to the other party. Providing these preliminary requirements are fulfilled, sub-clause 19.1 provides a non-exhaustive list of circumstances that may constitute a force majeure event. Such circumstances may include: military activities of foreign origin, military activities of internal origin, general social disorder, munitions of war, and natural catastrophes. As discussed in Ch. 21, unforeseeable conditions may meet the test of an event" beyond a party's control", an argument beneficial to the contractor but which may subvert the Silver Book's intent to allocate this risk to the contractor. 12 It is worth noting that such force majeure events may be difficult, or impossible, for a party to insure against. 13 For this reason, the risk

12

1)

For a discussion of this possible "loophole," see A.H. Gaede, Jr, "The Silver Book: An Unfortunate Shift from FIDIC's Tradition of being Evenhanded and of Focusing on the Best Interests of the Project" (2000) 17 I.C.L.R. 477 at 490. ).K. Sykes, Construction Claims (Sweet & Maxwell, London, 1999), p. 108.

533

23-05

DISCUSSION OF SPECIFIC SUB-CLAUSES

FORCE MAJEURE

23-06

allocation of the contract associated with such events becomes more important, as compensation for losses incurred as a result of the events may be otherwise unobtainable. Some authors, however, claim insurance is both required and available for the types of events FIDIC lists in sub-clause 19.1. 14 This discrepancy in the literature may be explained by the fact that "force majeure [... J insurance has not been widely available until the past few years" .15 Finally, FIOIC has been criticised for using a separate force majeure clause, as some would prefer to address these issues in a special risks clause, in order to avoid confusion with the applicable law and duplication with other parts of the contract. 16 FIOIC might explain the maintenance, and inclusion, of a force majeure clause in its standard form contracts as being in keeping with international practice. 17 Silver Book sub-clause 19.1 is identical to the corresponding provisions in sub-clause 19.1 of both the current (new) Yellow Book and the Red Books (1999). Silver Book sub-clause 19.1 differs in many respects from the corresponding sub-cla use 19.1 contained in the Orange Book. The Orange Book does not provide a list of preliminary requirements for an event to constitute a force majeure. Sub-clause 19.1 of the Orange Book simply specifies such an event must be "beyond the control of the Employer and the Contractor" such that it becomes "impossible or illegal for a party to perform". The inclusion of the "impossible or illegal" phraseology inserts frustration language in the definition of force majeure itself. The force majeure provisions of other FIOIC contracts reflect a drafting move away from the drafting of the Orange Book. These changes "appear to be based on model wording set out by the International Chamber of Commerce (ICC) in Paris, Brochure No. 421" .18 In addition, some criticise the inclusion of "impossible or illegal" for being both too restrictive and calling into question how the corresponding obligation under sub-clause 19.4 to continue performance might be fulfilled in such cases. 19 As will be discussed below, Silver Book sub-clause 19.7 also includes frustration language in a separate provision entitled "Release from Performance under the Law".

14

IS

N.G. Bunni, "FIOIC's New Suite of Contracts-Clauses 17 to 19: Risk, Responsibility, Liability, Indemnity and Force Majeure" (2001) 18 (3) I.C.L.R. 523. G.A. Smith, T.P. Wilson & G.E. Bundschuh, "Recent Developments in the Insurability of Force Majeure and (not completely) Unforeseen Condition Risks (2000) 18 (1) I.C.L.R. 83 at 86. Bunni, op. cit. n. 14 above, 523. C.R. Seppala, "FIOIC's New Standard Forms of Contract-Force Majeure, Claims, Disputes and Other Causes" (2000) 17 (2) I.C.L.R. 235. J.A. Huse & J.K. Hoyle, "FIDIC Design·Build, Turnkey and EPC Contracts (1999) 16 (1) I.C.L.R. 27 at 32, also citing comments of C. Seppala, "Risks, Force Majeure, Claims, Disputes, and their Resolution" FlDIC's Four New Standard Forms of Contract, !BC UK Conferences Ltd. Seppala, op. cit. n. 17 above at 241. K

16

17

18

I?

534

Orange Book sub-clause 19.1 also differs from that of Silver Book 19.1 in the formulation of the non-exhaustive list of force majeure examples. The Orange Book uses the, arguably more extensive although less determinative, expression "act of God" (19.1 (a)) to describe what Silver Book refers to as "natural catastrophes" (19.1 (v)). The concept of an act of God, Orange Book sub-clause 19.1(a), generally contemplates an exceptional and extraordinary natural occurrence such as an earthquake or flooding that the contractor would not have foreseen. 2o The event must render performance impossible or illega!.2 1 However, these definitions are provided by a specific legal system. The parties to a contract based on the Orange Book should, therefore, verify that the definition of act of God under the applicable law is consistent with their needs and intentions. The Silver Book defines force majeure in terms of impossibility of performance as a result of an event beyond the control of the parties. This definition is fairly restrictive. Under other standard form contracts, however, the parties can treat an event as force majeure simply if it was beyond their reasonable control and unavoidable. The ENAA sub-clause 37.1, entitled" Force Majeure", largely mirrors Silver Book sub-clause 19.1. An important difference, however, is that the ENAA definition does not require the force majeure event not be substantially attributable to the other party. Neither does the sub-clause require that the affected party could not reasonably have provided against the event before entering into the contract. In addition, although "war risks" are included in sub-clause 37.1(a) ENAA, clause 38 provides further specifications in the event of such risks. Under the EIC turnkey contract, the concept of force majeure is introduced in sub-clause 22.3 EIC. This provision addresses the possible existence of circumstances outside the control of a party that may render the contract impossible or unlawful for either party to perform. Further provisions relating to force majeure events are provided in sub-clause 12.4.1 under the heading of clause 12 "Allocation of Risk". The force majeure events listed in sub-clause 12.4.1 EIC are substantially similar to equivalent provisions contained in other standard form contracts. One difference, however, is that the event must be beyond the reasonable control of either party but that only the contractor could not reasonably have foreseen. This discrepancy can be explained by the fact that this provision falls under the heading of owner's risks and, therefore, whether the owner could reasonably have foreseen the event is largely moot. As does the EIC, the ICE provisions pertaining to force majeure events are contained under provisions relating to risk allocation, namely sub-clause 20(2) ICE. Under this provision, such risks are allocated to the Owner. The framework for these force majeure events is provided by clause 63 ICE entitled "Frustration". Under this clause, procedures to be followed in the event

K

20 21

Furst & Ramsey op. cit. n. 2 above, p. 148. Corbett, FlDIC 4th-A Practical Legal Guide: A Commentary on the International Construction Contract (1991), p. 122.

535

23-07

23-08

DISCUSSION OF SPECIFIC SUB-CLAUSES

FORCE MAJEURE

of "any circumstance outside the control of both parties during the currency of the Contract which renders it impossible or illegal for either party to fulfil his contractual obligations" are outlined. As with other standard form contracts, a separate provision outlines the procedure in the event of war (63(2) ICE). The ICE contract demonstrates the risk parties may run when legal terms of art are used in standard form contracts. The term "frustration" is now only a heading of ICE clause 63 and thus, under the terms of the contract, is not to be used in interpreting the contract. According to one commentator, this omission renders the Law Reform (Frustrated Contracts) Act 1943 without effect. 22 The true intention of the parties (as reflected in the terms of the contract unmodified by statute) can therefore have effect. One would imagine a different result where such a precaution was not taken. The remaining standard form contracts are much less comprehensive. The AlA, the ACG and the DBIA all address the issue of force majeure in provisions relating to time delays that arise during the currency of the contract. AlA Part 1 does not address the issue of force majeure, except to include clauses that admit the possibility of delays in the performance of services through no fault of the design/builder (4.2 AlA). AlA Part 2 speaks to the issue of force majeure to the extent that sub-clause 4.5 AlA addresses time delays caused by, amongst other things, "labour disputes ... adverse weather conditions not reasonably anticipated . . . or other causes beyond the DesignlBuilder's control" . Sub-clause 6.3.1 ACG and sub-clause 8.2.1 DBIA are substantially the same. 23-09

19.2 Notice of Force Majeure If a Party is or will be prevented from performing any of its obligations under the Contract by Force Majeure, then it shall give notice to the other Party of the event or circumstances constituting the Force Majeure and shall specify the obligations, the performance of which is or will be prevented. The notice shall be given within 14 days after the Party became aware, or should have become aware, of the relevant event or circumstance constituting Force Majeure.

The Party shall, having given notice, be excused performance of such obligations for so long as such Force Majeure prevents it from performing them. Notwithstanding any other provision of this Clause, Force Majeure shall not apply to obligations of either Party to make payments to the other Party under the Contract.

23-10

Under Silver Book sub-clause 19.2 either party to the contract who is or will be prevented from performing any of its obligations under the contract by force majeure shall notify the other party both of the nature of the force

majeure and of the specific obligations that, as a result, are or will not be performed. The wording "any" obligation admits of the possibility of a "partial" force majeure,23 Such notice must be given within 14 days after the notifying party becomes aware, or should have become aware, of the event or circumstance. The effect of giving notice excuses performance of the obligations indicated in the notice for the duration of the force majeure. The obligations of either party to make payments to the other party under the contract shall not be affected by the force majeure. The corresponding sub-clauses 19.2 of the (new) Yellow and Red Books are identical to that of the Silver Book. In contrast to sub-clause 19.2 Silver Book, the corresponding Orange Book sub-clauses 19.3 and 19.4 differentiate between the contractor's responsibility and the employer's responsibility with regard to notification of a force majeure event. The Orange Book provisions provide for a third party, i.e. the employer's representative, such that the contractor is to notify the employer's representative whereas the employer is to notify both the employer's representative and the contractor. In addition, such notice must be given even upon the occurrence of an event that may affect performance of his obligations, although, in contrast to Silver Book sub-clause 19.2, there is no provision requiring notice in the event the party should have been aware of a force majeure event. Further, the notification must be given promptly although no notification period is specified. Finally, the Orange Book provisions do not expressly state that the force majeure shall not apply to the obligations of either party to make payments to the other party under the contract. The notification periods in the other standard form contracts vary both as between themselves and in relation to the nature of the force majeure in question. Under the ENAA, either party must provide notification within 14 days of the occurrence of a force majeure event that prevents, hinders, or delays the notifying party from fulfilling its obligations under the contract (ENAA 37). ENAA sub-clause 37.8 provides that "force majeure shall not apply to any obligation of the Owner to make payments to the Contractor hereunder". Such clauses are less comprehensive than the corresponding Silver Book provision. The required notification under the EIC is not clear. For example, the contractor is to notify the owner where "circumstances ... which ... could not reasonably have been expected to be taken into account by an experienced Contractor" occur (EIC 4.7). In addition, the EIC provision relating to possible outbreak of war (EIC 22.1) provides for notification only in the event that either party chooses to terminate the contract after the outbreak of war, and not upon the occurrence of the event itself. 24 Finally, in the event of the occurrence of special risks that affect the cost of the works, the contractor is

2)

22

Furst & Ramsey op. cit. n. 2 above, p. 1186.

536

24

Seppala, op. cit. n. 17 above at 241. One assumes the presumption being the outbreak of war would be obvious to both parties such that notification of the event itself is not necessary.

23-11

FORCE MAJEURE

DISCUSSION OF SPECIFIC SUB-CLAUSES

to notify the owner "as soon as any such cost comes to his knowledge" (EIC

12.13). The ICE provisions pertaining to force majeure events that are contained under provisions relating to risk allocation (20(2) ICE, as discussed above) do not stipulate any notification requirements relating to these risks in particular. Furthermore, the ICE frustration clause 63(1) does not specify a time period within which notice under this clause must be given. This failure to specify is likely due to the fact that notice, served by either party to the other, under ICE 63( 1), is constitutive of abandonment of the works. A similar result is had under war clause 63(2) ICE where, after an initial period of 28 days in which substantial completion of the whole of the works is sought, the works are deemed abandoned unless the parties agree otherwise. 25 The provisions relating to force majeure in AlA (as discussed above) do not delineate notification requirements in the event of delays caused by such event. Similarly, both the AGC and the DBIA fail to specify notification requirements in the event of delays caused by a force majeure event (ACG 6.3.1, DBIA 8.2.1).

23-12

19.3 Duty to Minimise Delay

reasonable efforts to mitigate the effect thereof upon its or their obligations under the Contract" (ENAA 37.4). Similarly, in relation to war risks, the ENAA requires that where such risks occur that "financially or otherwise materially affects the execution of the Works by the Contractor, the Contractor shall use its reasonable efforts to execute the Works" (ENAA 38.5). The EIC general provision regarding circumstances not reasonably foreseeable by the contractor requires the contractor to "carry out and complete the Works incorporating such circumstances (if any) as are appropriate", to the extent that such is possible (EIC 4.7). Further, the contractor is to "continue to use all reasonable endeavours to complete the Works" in the event of war, providing the contract is not terminated as a result of same (EIC 22.1). The only ICE provision that could be construed to require reasonable efforts on the part of the contractor in the event of a force majeure is that of sub-clause 63(2)(a) where the contractor, in the event of war, is required to "continue so far as physically possible to execute the Works in accordance with the Contract". Due to the particularities of the AlA, AGC and DBIA contracts' provisions regarding force majeure (discussed above) there are no clauses, similar to those of the Silver Book, requiring reasonable efforts to minimise any delay in the performance of the contract as a result of force majeure.

Each Party shall at all times use all reasonable endeavours to minimise any delay in the performance of the Contract as a result of Force Majeure. A party shall give notice to the other Party when it ceases to be affected by the Force Majeure.

19.4 Consequences of Force Majeure

23-15

If the Contractor is prevented from performing any of his obligations under the

23-13

23-14

Under Silver Book sub-clause 19.3 each party shall at all times use all reasonable efforts to minimise any delay in performance of the contract resulting from a force majeure event. In addition, when it ceases to be affected by the force majeure, a party shall give notice to the other party. The corresponding sub-clauses 19.3 of the (new) Yellow and Red Books are identical to that of the Silver Book. The provisions of the Orange Book differ slightly from Silver Book subclause 19.3. Orange Book sub-clauses 19.3 and 19.4 are substantially similar to Silver Book sub-clause 19.3 in that the party affected by force majeure "shall endeavour to continue to perform his obligations as far as reasonably practicable". Unlike Silver Book sub-clause 19.3, however, the Orange Book does not specify that a party shall give notice to the other party when it ceases to be affected by the force majeure. As does the Silver Book provision discussed herein, the ENAA provides that "the party or parties affected by the event of Force Majeure shall use 25

Notification of the event of war is likely not provided for under this clause due to the narrow definition of relevant war activity. Sub-clause ICE 63(2) only relates to "the out break of war (whether war is declared or not) in which Great Britain is engaged on a scale involving general mobilization of the armed forces of the Crown K.

538

Contract by Force Majeure of which notice has been given under Sub-Clause 19.2 [Notice of Force Majeure), and suffers delay and/or incurs Cost by reason of such Force Majeure, the Contractor shall be entitled subject to Sub-Clause 20.1 [Contractor's Claims] to: (a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 8.4 [Extension of Time for Completion), and (b) if the event or circumstance is of the kind described in sub-paragraphs (i) to (iv) of Sub-Clause 19.1 [Definition of Force Majeure) and, in the case of sub-paragraphs (ii) to (iv), occurs in the Country, payment of any such Cost. After receiving this notice, the Employer shall proceed in accordance with SubClause 3.5 [Determinations) to agree or determine these matters. Silver Book sub-clause 19.4 delineates the effects of a force majeure, once notice has been given in accordance with sub-clause 19.2 (discussed above), on the contractor's rights to claim an extension of time or payment of costs. Subject to the notification procedure of sub-clause 20.1 Silver Book, the contractor is entitled to an extension of time for any delay, which has or will delay completion, caused by the force majeure (sub-clause 19.4(a)). In addition, and also subject to the notification procedure of sub-clause 20.1 Silver

23-16

FORCE MAJEURE

23-17

Book, the contractor is entitled to the payment of any cost incurred by reason of the force majeure. The award of time and cost for a force majeure event is beneficial to contractors and is "a far cry from traditional force majeure" .26 Cost compensation is limited, however, to force majeure events as described in sub-paragraphs (i) to (iv). Sub-clause 19.4(b) excludes the reimbursement of costs the contractor incurs due to force majeure events of the nature described in sub-clause 19.1(v) Silver Book (namely, natural catastrophes). The EIC Guide notes that "such limitation [of cost] is difficult to understand given the fact that the catalogue of force majeure events is not exhaustive".27 Indeed, the FIDIC Guide takes pains to point out that "they are only illustrative examples" ,28 but does specify that sub-paragraphs (i) to (iv) represent man-made events, as opposed to natural disaster. Therefore, one assumes the intention is to provide cost relief for those events that are man-made and are not the result of "a natural event or circumstance".29 Sub-clause 19.4(b) Silver Book also requires, for the purposes of constructor cost compensation, that all other forces majeures listed (see subclause 19.1(ii)-(iv) Silver Book) occur within the country, with the exception of war (see sub-clause 19.1(i) Silver Book). Finally, the employer shall follow the procedures of Silver Book sub-clause 3.5 in order to agree or determine these matters. The corresponding sub-clauses 19.4 of the (new) Yellow and Red Books are identical to that of Silver Book. The provisions of Orange Book sub-clause 19.5 provide for the contractor to be paid the cost of works, executed in accordance with the contract prior to the event of force majeure, that suffer loss or damage due to the force majeure. These costs are similar to the costs allocated under Silver Book subclause 19.4. Unlike the Silver Book, sub-clause 19.5, the Orange Book further compensates the contractor for any additional costs the contractor may incur in complying with Orange Book sub-clause 19.3. 30 Finally, the Orange Book does not limit the force majeure events for which financial compensation may be had, unlike the Silver Book. Orange Book sub-clause 19.5 does not address the issue of a possible extension of time for any delay a force majeure may cause. Instead, an extension of time for completion in the event of a force majeure is provided for by sub-clause 8.3(b) of the Orange Book. Finally, both the Silver Book and

26 27 28 29

)0

E. Corbett, "FIDIC's New Rainbow-An Overview of the Red, Yellow, Silver and Green Test Editions" (1999) 16 (1) I.C.L.R. 39 at 40. EIC, The EIC Contractor's Guide to the FIDIC Conditions of Contract for EPC Turnkey Projects (European International Contractors, Berlin, 2000), p. 32. FIDIC Guide, p. 292. FIDIC Guide, p. 295. As per sub-clause 19.3 Orange Book, such costs may include those arising from the requirement that the contractor "endeavour to continue to perform his obligations as far as reasonably practicable" in the event of a force majeure. Another potential cost, arising from the same sub-clause, is the cost associated with the formulation of any proposals, including any reasonable alternative means for performance, the contractor may render to the employer's representative.

540

DISCUSSION OF SPECIFIC SUB-CLAUSES

the Orange Book indicate that recourse should be had to their respective "agreement provisions" (that is, sub-clause 3.5 for each). Given the special nature of force majeure (i.e. an event not falling within the scope of the risks allocated to either party), the employer is liable to pay the amount due the contractor for work executed in accordance with the contract prior to the event of force majeure. Thus, the employer is not required to pay for damage to the contractor, including loss of profit or other consequential damages, unless the event is also designated as an employer's risk. A contractor may believe that, if a force majeure event occurs, his right to compensation should not be limited to circumstances where the works suffer loss or damage. Similar to Silver Book sub-clause 19.4, under the ENAA, the party who gave notice of a force majeure is excused from performance, or punctual performance, of its obligations under the contract for as long as, and to the extent that, the force majeure continues (ENAA 37.3). In addition, this subclause provides that the time of completion shall be extended in accordance with clause ENAA 40. ENAA sub-clause 37.5 restricts compensation to parties, in the event of a force majeure, to that explicitly provided for in ENAA sub-clauses 32.2, 38.3 and 38.4. Increased costs to the contractor as well as damage or loss sustained to the works as a result of war risks is to be compensated by the owner (ENAA 38.3 and 38.4). In addition, loss or damage sustained to the works or the contractor's temporary facilities by reason of a force majeure event shall by compensated by the owner (ENAA 32.2(a)). The splicing of the compensation provisions in the event of a force majeure indicate that not all costs associated with such events may be covered. In contrast, under ENAA 37.3, completion time may be extended due to delays resulting from any force majeure event (in accordance with ENAA 40.) Finally, and similar to Silver Book provisions, the general dispute resolution clause found in ENAA 6 would apply to any disputes that may arise in reference to these provisions. Under the EIC, a series of provisions provide for compensation of the contractor by the owner for costs incurred as the result of a force majeure event. First, the contractor is excluded from liability for loss or damage resulting from force majeure (EIC 12.2). Furthermore, the contractor is not liable in consequence of any destruction or damage to the works resulting from any special risks (EIC 12.9). Finally, unless the contractor is entitled to payment under any other provision, "the Owner shall repay to the Contractor any costs of the Works which are howsoever attributable or consequent on [... ] or [... ] in any way whatsoever connected with the said special risks", subject to the provisions contained in regard to the outbreak of war (EIC 12.13). Under the ICE, any loss or damage arising from excepted risks (as defined in ICE 20(2)) shall, if and to the extent required by the employer, be rectified by the contractor at the expense of the employer (ICE 20(3 )(b)). In addition, the ICE provides a general sub-clause 53(1) which allows the contractor to claim additional payment from the employer upon the

23-18

23-19

DISCUSSION OF SPECIFIC SUB-CLAUSES

FORCE MAJEURE

23-20

happening of certain (undefined) events. 3 !In the event the works are deemed abandoned (as per ICE frustration clause 63 or war sub-clause 63(2)), the contractor is entitled to payment including the value of all work carried out prior to the date of abandonment (ICE 63(4)). In contrast to the Silver Book, the ICE provisions do not directly address the issue of time extension in the event of a force majeure. Instead, the ICE sets out certain situations in which the contractor is entitled to request an extension of time for the substantial completion of the works (ICE 44(1)). Such situations include exceptional adverse weather conditions (ICE 44(1)(c)) and a special circumstance of any kind whatsoever that may occur (ICE 44(1)(e)). Under the AlA Part 2, in situations of delay in work for reasons including "adverse weather conditions not reasonably anticipatable [. . . J or other causes beyond the Design/Builder's control", the contract time shall be reasonably extended by change order (AlA 4.5-Part 1). Although change orders allow (under AlA 8.2-Part 2) for both adjustments in the contract time and the contract sum, no provisions directly link costs incurred as the result of force majeure events to the possibility of contract sum adjustment. Slightly more comprehensive, the AGC explicitly allows for the both contract price and the date of substantial completion to be modified if causes beyond the contractor's control delay the progress of work (AGC 6.3.1). Such modifications shall be accorded in the form of change orders (AGC 8). The AGC, however, fails to directly attribute costs associated with the destruction, as opposed to the delay, of contract works to one party. The DBIA provisions are clearer than those of the AGC and AlA regarding delay and cost attribution. The design-builder is entitled to a reasonable extension, under change order, of the contract times for performance (DBIA 8.2.1). The contract price, however, shall not be adjusted for the events set forth in sub-clause 8.2.1 that are beyond the control of both design-builder and owner (DBIA 8.2.2).32

force majeure on terms additional to or broader than those provided in Silver Book clause 19, the contractor will not be excused from performance or be entitled to relief under this clause. In other words, for the purposes of the agreement between the owner and the contractor, the only applicable force majeure is as defined in the agreement. FIDlC's inclusion of this provision may be explained by the fact that "where force majeure (as defined in sub-clause 19.1) affects a subcontractor of the Contractor, this would normally be interpreted as affecting the Contractor as well".33 To avoid this result, sub-clause 19.5 stipulates the failure of a subcontractor to fulfil his contractual obligations does not constitute a force majeure for the contractor. It follows that the situation may arise where a major subcontractor is excused while the contractor is notY Where such is the case, the FIDIC Guide points out that the subcontractor's default as a result of a force majeure is merely the contractor's non-performance under the contract. The corresponding sub-clauses 19.5 of the (new) Yellow and Red Books are identical to that of Silver Book. There is no similar disposition in the Orange Book. Neither does the ENAA contain such a clause. The EIC does not explicitly contain a clause limiting the contractor's relief in cases where a subcontractor is entitled to additional or broader relief from force majeure than those terms specified in the contract. Indeed, ElC subclause 12.13 might be broad enough to include such a claim by the contractor. Under the ICE and the DBIA, there are no provisions equivalent to that of Silver Book sub-clause 19.5. Similarly, neither the AlA nor the AGC contain similar provisions to Silver Book sub-clause 19.5, except to explicitly deny any contractual relationship between the owner and any subcontractor (AlA 1.2.6-Part 1, AGC 4.3.3). 19.6 Optional Termination, Payment and Release

23-21

19.5 Force Majeure Affecting Sub-contractor

23-22

either Parry may give to the other Party a notice of termination of the Contract. In this event, the termination shall take effect 7 days after the notice is given, and the Contractor shall proceed in accordance with Sub-Clause 16.3 (Cessation of Work and Removal of Contractor's Equipment].

Silver Book sub-clause 19.5 specifies that, should any subcontractor be entitled under any contract or agreement relating to the works to relief from JJ

ICE sub-clause 53(1) allows the contractor to claim "additional payment pursuant to any Clause of these Conditions other than clause 52(1) [valuation of ordered variations)". Claims for payment in respect of force majeure events, one assumes, may be possible under this sub-clause. n In other words, force majeure events. JI

542

23-24

If the execution of substantially all the Works in progress is prevented for a continuous period of 84 days by reason of Force Majeure of which notice has been given under Sub-Clause 19.2 (Notice of Force Majeure), or for multiple periods which total more than 140 days due to the same notified Force Majeure, then

If any Subcontractor is entitled under any contract or agreement relating to the Works to relief from force majeure on terms additional to or broader than those specified in this Clause, such additional or broader force majeure events or circumstances shall not excuse the Contractor's non-performance or entitle him to relief under this Clause.

J<

23-23

C.R. Seppala, "F101C's New Standard Forms of Contract-Force Majeure, Claims, Disputes and Other Causes" (2000) 17 (2) J.C.L.R. 235 at 241 n. 7 citing for authority Duncan Wallace "Const Ks: Principles and Policies in Tort and Contract" (Sweet & Maxwell, London, 1996) vol. 2, pp. 425-429. G.L. Jaynes, "Claims, Disputes and Arbitration" ("FIDIC Global Conditions of Contract" Seminar, New Delhi, January 2001), online: FIDIC http://www.fidic.orglresourceslcon· tracts/jaynes_H.asp (date accessed: July 4, 2001) at 6. 543

FORCE MAJEURE

Upon such termination, the Employer shall pay to the Contractor: (a) the amounts payable for any work carried out for which a price is stated in the Contract; (b) the Cost of Plant and Materials ordered for the Works which have been delivered to the Contractor, or of which the Contractor is liable to accept delivery; this Plant and Materials shall become the property of (and be at the risk of) the Employer when paid for by the Employer, and the Contractor shall place the same at the Employer's disposal; (c) any other Cost or liability which in the circumstances was reasonably incurred by the Contractor in the expectation of completing the Works; (d) the Cost of removal of Temporary Works and Contractor's Equipment from the Site and the return of these items to the Contractor's works in his country (or to any other destination at no greater cost); and (e) the Cost of repatriation of the Contractor's staff and labour employed wholly in connection with the Works at the date of termination.

23-25

Faced with a continuing force majeure event, the Silver Book permits the parties to be definitively released from their obligations under the contract where the effect of the event continues beyond a certain period of time. The contractor is then remunerated for work already completed, any preparations he has done for further work under the contract and the cost of removing his labour and equipment from the site. Silver Book sub-clause 19.6 provides either party with the option to terminate the contract where a force majeure (of which notice has been given under sub-clause 19.2) prevents the execution of substantially all the works in progress for a period of 84 days, or for multiple periods which total 140 days due to the same notified force majeure. This termination is effected by the notification of the other party and shall take effect seven days after the notice is given. In the event of such termination, Silver Book sub-clause 19.6 provides that the contractor shall cease work and remove his equipment in accordance with sub-clause 16.3. Silver Book sub-clause 19.6 further stipulates that upon such termination, the Employer shall pay to the contractor the amounts payable for any work carried out for which a price is stated in the contract. It should be noted that, according to one commentator, this wording does not allow for payment for work that is partially completed at the time of termination. 35 The contractor may want to provide for such proportional payments. The FIDIC Guide states, however, that the provisions of sub-paragraphs (b) and (c) are to compensate for this lack of proportional payment for any work which was carried out" for which a price is not stated". 36 In addition, the employer shall pay to the contractor the cost of plant and materials ordered for the works that have either been delivered to the con-

3S

36

G.L. Jaynes, "Claims, Disputes and Arbitration" ("FIOIC Global Conditions of Contract" Seminar, New Delhi, January 2001), online: FIDIC http://www.fidic.orglresources/contracts/ jaynes_H.asp (date accessed: July 4, 2001). FlDIC Guide, p. 297.

544

DISCUSSION OF SPECIFIC SUB -CLAUSES

tractor or of which the contractor is liable to accept delivery. Upon payment by the employer, the plant and materials become the property of, and at the risk of, the employer and shall be placed at his disposal by the contractor. Other costs the employer must compensate are those reasonably incurred by the contractor in the expectation of the completion of the works; those resulting from the removal of temporary works and contractor's equipment from the site and the return of the same to the contractor's works in his home country or other destination; and, finally, those resulting from the repatriation of the contractor's staff and labour employed wholly in connection with the works at the date of termination. The corresponding sub-clauses 19.6 of the (new) Yellow and Red Books are identical to that of Silver Book. Note, however, that the provisions, as written, do not entitle the contractor to profit. The contractor may want to provide for such payment. Orange Book sub-clause 19.6 provides more onerous conditions for the optional termination of the contract, in the case of the protracted effects of a force majeure, than does Silver Book sub-clause 19.6. Sub-clause 19.6 of the Orange Book requires that the effects of a force majeure event continue for 182 days before either party may give notice to the other of termination. In addition to this longer period, the termination shall only take effect 28 days after the giving of the notice and only if the effect of the force majeure continues. The Orange Book is less clear than the Silver Book regarding a discontinuous interruption of operations and does not specify the extent to which the force majeure must affect the completion of the contract or if, indeed, the force majeure must, per se, affect the completion of the contract. Orange Book sub-clause 19.6, either through oversight or intentionally, does not include specification that the contractor shall proceed in accordance with sub-clause 16.3, "Cessation of Work and Removal of Contractor's Equipment", even though sub-clause 19.6 does make reference to termination under sub-clause 2.4 and sub-clause 16.2, both of which provisions do specify the use of sub-clause 16.3. It is unclear what is, if any, the implication of this non-inclusion. Orange Book sub-clause 19.6 provides for substantially the same costs to be paid by the employer to the contractor. However, under the Orange Book, it is the employer's representative who is to determine the value of the work done whereas the Silver Book does not specify who is to make this determination. Finally, sub-clause 19.6 Orange Book only provides for the reasonable cost of the removal of temporary works and contractor's equipment from the site and the return of same to the contractor's works in his own country (or other destination) and the reasonable cost of repatriation of contractor's staff and labour employed wholly in connection with the works at the date of such termination. Silver Book sub-clause 19.6 does not expressly require these costs to be reasonable. The ENAA allows for a period before termination of 120 days, and provides for an aggregation of the delays caused by multiple force majeure events as part of the calculation of the delay necessary before termination 545

23-26

23-27

FORCE MAJEURE

(ENAA 37.6). Where the force majeure event is as defined under war risks, only 60 days must elapse before termination is possible (ENAA 38.5). Unlike the corresponding Silver Book provisions, the ENAA provisions do not provide for termination upon cumulative delays due to a force majeure event. The ENAA provides for payment of the contractor, in the event of termination due to a force majeure, under the same provisions applicable in the event of termination for owner's convenience, excluding profit for unfinished works (ENAA 37.7) .. This payment scheme generally covers the same costs as the Silver Book provisions, adding only any cancellation charges or other costs of cancelling contracts with subcontractors and costs incurred by the contractor in making safe and cleaning the site. The ENAA, on the other hand, places all liability on the owner for war risks, including damage to the contractor's equipment or materials (ENAA 38). As under the ENAA, the EIC divides the corresponding provisions between frustration events and the outbreak of war. Upon the outbreak of war the contract will terminate upon the service by one party to the other party of notice to that effect (EIC 22.1). No specific EIC clause mentions a notification period that must be passed in order to terminate the contract for reasons of force majeure. Instead, the EIC addresses the financial consequences of the termination of the contract for force majeure events (EIC 22.3). In both instances (EIC 22.1 and 22.3), the owner shall pay the contractor in accordance with the terms set out in EIC 22.4. These payment terms are equivalent to those of Silver Book sub-clause 19.6 in their relation to the schema of the contract. 23-28 As under the ENAA and the EIC, the ICE divides the corresponding provisions between frustration events and the outbreak of war. As discussed above, upon the occurrence of a frustration event that renders it impossible or illegal for either party to fulfil his obligations under the contract, the works shall be deemed abandoned upon the service by one party upon the other of written notice to that effect (ICE 63(1)). Similarly, upon the outbreak of war (as discussed above) after which substantial completion of the whole works is not achieved before 28 days, the works will be deemed abandoned unless the parties agree otherwise (sub-clause 63(2)(b)). Upon abandonment, under either of the two preceding clauses, the owner is to pay the contractor sums in accordance with the provisions of sub-clause ICE 62(4). These sums are substantially similar to those provided for in the Silver Book, except that the ICE does not compensate the contractor for expenses associated with the repatriation of the contractor's staff and labour. Under the AlA, the issue of force majeure is not explicitly discussed. Nonetheless, the AlA contracts contain termination provisions that might apply, upon the occurrence of a force majeure. First, either party may terminate the contract upon seven days' written notice "should the other party fail to perform substantially in accordance with its terms through no fault of the party initiating the termination" (AlA 8.1-Part 1). Under AlA Part 2, the owner may terminate the agreement upon 14 days' notice in the event that the project is abandoned (AlA 12.1.1-Part 2). 546

DISCUSSION OF SPECIFIC SUB-CLAUSES

In the event that termination is not the fault of the design/builder, the design/builder will be compensated for amounts similar to those found in the corresponding Silver Book provisions (AlA 8.3-Part 1). Likewise, under AlA Part 2, similar sums are payable by the owner to the design/builder upon abandonment ofthe project (AlA 12.1.1-Part 2). Unlike in the Silver Book, however, the AlA provisions entitle the design/builder to recover reasonable profit upon termination of the contract. Another difference is that, unlike under the Silver Book, the AlA does not explicitly compensate the design/builder for the cost of removal of temporary works and contractor's equipment, nor does it compensate for the cost of repatriation of the contractor's staff. Under the AGC, the contractor may terminate the contract, upon seven days' written notice to the owner, for reasons including where the work has been stopped for a 60-day period as a result of force majeure events (ACG 11.4.1.1 (a)). Upon such termination by the contractor, the contractor may recover from the owner amounts similar to those available under the Silver Book provisions, including (unlike the preceding standard form contracts examined) all demobilisation costs (ACG 11.4.3). Under the DBIA, there are no related provisions regarding termination of the contract in the event of a force majeure. DBIA does provide for the possibility of time extensions in the event of delays occasioned by force majeure (DBIA 8.2.1). In the event of such extensions, however, the DBIA denies compensation to the design-builder in the form of a contract-price adjustment to the extent that the delays are attributable to force majeure beyond the control of either party (DBIA 8.2.2). 19.7 Release from Performance under the Law

23-29

23-30

Notwithstanding any other provision of this Clause, if any event or circumstance outside the control of the Parties (including, but not limited to, Force Majeure) arises which makes it impossible or unlawful for either or both Parties to fulfil its or their contractual obligations or which, under the law governing the Contract, entitles the Parties to be released from further performance of the Contract, then upon notice by either Party to the other Party of such event or circumstance: (a) the Parties shall be discharged from further performance, without prejudice to the rights of either Party in respect of any previous breach of the Contract, and (b) the sum payable by the Employer to the Contractor shall be the same as would have been payable under Sub-Clause 19.6 [Optional Termination, Payment and Release) if the Contract had been terminated under Sub-Clause 19.6. The parties may find themselves in a situation where the governing law releases the parties from performance. In such a case, rather than permit the applicable law to regulate the result of such a release, the Silver Book provides for its own regime to apply. 547

23-31

FORCE MAJEURE

23-32

23-33

Silver Book sub-clause 19.7 provides for the discharge, upon notice, of both parties from further performance, without prejudice to the rights of either party in respect of any previous breach of the contract, in two situations. First, if any event or circumstance (including, but not limited to, force majeure) arises which makes it impossible 37 or unlawful for either or both parties to fulfil its or their obligations under the contract. Second, where such an event or circumstance, under the law governing the contract, entitles the parties to be released from further performance of the contract. Evidently, the interpretation of this aspect of the provision will be dependant upon the governing law's determination of what would render the performance of the contract impossible or illegal. 38 Under British law, for example, the instances where a construction contract will be considered to be frustrated may be rare. 39 Where the parties are released from performance under this sub-clause, the sum payable by the employer to the contractor shall be the same as would have been payable under Silver Book sub-clause 19.6 (see discussion above). Further, the 84-day period, that would otherwise apply in the event of a force majeure, is unnecessary under this sub-clause as "upon notice [... J the parties shall be discharged from further performance". Thus, this would seem to imply that the contract comes to an end forthwith. 40 The corresponding sub-clauses 19.7 of the (new) Yellow and Red Books are identical to that of Silver Book. Orange Book sub-clause 19.7, once again, differs from its Silver Book counterpart. Orange Book sub-clause 19.7 is a narrower provision, in some sense, as it only allows for the sum payable by the employer to the contractor under Orange Book sub-clause 19.6 to be applied to situations in which, under the law of the contract, the employer and the contractor are released from further performance. Silver Book sub-clause 19.7, however, expressly includes unlawfulness or impossibility of performance, presumably to cover instances where the law of the contract does not similarly provide. 4 ! Silver Book sub-clause 19.7 is narrower than its Orange Book counterpart, however, as the provisions regarding payment under sub-clause 19.6 are only to be applied where the event or circumstance in question is "outside the control of the Parties". Orange Book sub-clause 19.7 contains no such caveat. The ENAA does not contain an equivalent provision, except to the extent that the ENAA allows for time and cost adjustments in the event that a change in the law, in a relevant country, affects the same (ENAA 6.1). This 37

38

39 •0 41

DISCUSSION OF SPECIFIC SUB-CLAUSES

clause does not, however, address the termination of the contract as a result of these changes. Both the ElC and ICE have equivalent provisions to that of Silver Book sub-clause 19.7 (see EIC 22.3 and ICE 63(1)), and contain similar references with equivalent interactions with regard to the rest of the contract. The AlA Part 1 provisions only specify that the design/builder shall not be "obliged to perform any act which either believes will violate any applicable law" (AlA 1.2.5-Part 1). The AlA Part 2 is also not equivalent to the Silver Book, providing only that the design/builder "shall be compensated for changed in the construction necessitated by the enactment or revision of codes, laws or regulations subsequent to the submission of the DesignlBuilder's Proposal" (AlA 8.6.1-Part 2). The AGC addresses the issue in a clause that provides that the contractor may terminate the contract if the work has been stopped for a 60-day period "under court order or order of other governmental authorities having jurisdiction" (ACG 11.4.1.1(a)}. As does Silver Book sub-clause 19.7, the AGC then provides recourse to the same provisions regarding compensation of the contractor that would apply in other instances of the termination of the contract (AGC 11.4.1). The DBIA provisions are substantially similar to those of AGC (see DBIA 11.4.1).

For a discussion of the possible meaning and interpretation of "impossible" in the common law as applied to international construction contracts see D. Lewis, "Managing Risk in Construction- Who Pays? Extreme Conditions (or Physical lmpossiblity)" (2001) 18 I.C.L.R. 353 at 353 et seq. Sykes, op. cit. n. 13 above, p. 90. J. Uff Q.C., Construction Law (7th ed., Sweet & Maxwell, London, 1999), p. 167. Seppala, op. cit. n. 17 above at 242. Orange Book does address the issue of impossibiliry and unlawfulness but includes these terms in the definition of force majeure contained in Orange Book sub-clause 19.1, as discussed above.

548

549

v. v. o

'T1

Comparison of Force Majeure Provisions42

23-34

o;0 () !'1

PROVISION

FIDIC SILVER

ENAA

ICE

Basic provision

Event beyond the control of a party, not substantially attributable to the other party, which could not have been reasonably foreseen, avoided or overcome including:

Event beyond reasonable control of employer or contractor, and which is unavoidable, notwithstanding the reasonable care of party affected, including:

Circumstance outside control of both parties rendering it impossible or illegal for either party to perform.

Act of God

AlA ' AGe DaIA EIe No explicit reference except in context of extension of time and, under the AGC, costs.

_.-..,.

3::

~eo_'

.

Circumstance outside control of a party rendering it impossible or either unlawful for party to perform; or

Denial of use of public transport

Jt

I

i

! I

)C

)C

)C

)C

: )C

)C

Jt

I

I

I

ENAA

FIDIC SILVER

AlA

.!CE .

AGe DBIA EIC

Employer gives notice that due to unforeseen economic dislocation unable to meet obligations

....

!'1

The terms used have been modified from the original contract language in order to provide a measurable comparison.

PROVISION

v. v.

;0

J

- --

42

C

I

)C

Jt

2: !'1

I

)C

Confiscation, nationalisation

Earthquake, flood, fire or other natural physical disaster

<

)C

Epidemic

Jt

Government action or trade embargo

Jt

Nuclear contamination, nuclear waste, combustion of nuclear fuel, radioactive toxic explosion

)C

Rebellion, revolution, insurrection, military or usurped power or civil war

)C

)C

)C I

I

..

I

o () '" c

'"~ o z o'T1

'"tTl

o""

)C

'T1

)C

n '"c:: til

A

5:c:: ..

-~

Table cont. overleaf-

'"tTl '"

v.

V.

N

PROVISION

FIDIC Sll..VER

ENAA

AlA

ICE

1C

'm"

1C

1C

1C (by persons other than the contractor's or subcontractor's employees)

1C

1C

- - -- - - - -

PROVISION

War, hostilities, invasion, foreign enemies, mobilisation, requisition or embargo

()

2: m c

Shortage of labour, materials or utilities caused by force majeure circumstances Strike, sabotage, lock-out, import restriction, port congestion, industrial dispute, shipwreck, shortage of power supply

'"

m ~

1C

Release of parties under governing law Riot, commotion or disorder not solely restricted to employees of the contractor or his subcontractors

(3

AGC DBIA EIC

FIDIC SILVER 1C

ENAA

'-------

AlA

ICE 1C

1C

War outbreak involving Great Britain

1C

1C

- - --

AGC DBIA EIC 1C

1C

1C i ~

~

-

~

0 II>

n c

II> II>

(5 Z 0

."

..., 0." II>

m

n II>

c

to

A

r-'

V,

v, W

I~

II>

CHAPTER

24

CLAIMS, DISPUTES AND ARBITRATION General Comments Construction contracts govern long-term, contact-intensive relationships. The relationship between the employer and the contractor has a high potential for conflict. Therefore, the dispute resolution clause of a construction contract can b~ one of its most important elements. A dispute during the performance of a construction contract can destroy the continuing effectiveness and profitability of the parties' relationship. Although a well-drafted contract with a clear allocation of risk and a reasonable price will decrease the likelihood of dispute, divergent interests may still result in conflict. Where the contractor believes he is due some increase in the contract price or an extension of the time for completion, standard:form construction contracts often require him to follow a claims procedure. This procedure will provide time periods and evidentiary requirements in order to avoid dilatory claims and limit the employer's liability under the contract. Where the contractor is not satisfied with the result of the claims procedure, he may then turn to the dispute resolution mechanism. Two levels of dispute resolution are generally provided for in any construction agreement. First, a process of interim resolution responds to disputes that the parties have not been able to negotiate. By providing a temporary response, the parties can continue construction along a given path until final resolution can be achieved. Traditionally, this role has been carried out by the engineer but in recent years there has been an increase in the use of alternative methods of dispute resolution at this level. Secondly, a process of definitive resolution gives a binding and final determination of the dispute. This final determination may be left to national courts. Often, however, the parties may choose arbitration.!

24-01

Procedure for claims Under many standard form construction contracts, if the contractor wishes to make a claim for an increase in the contract price or an extension 1

Andrea Burns, ed., Construction Disputes: Liability and the Expert Witness (1989), p. 161. Arbitration may be chosen for a number of reasons including neutrality, flexibility and confidentiality.

555

24-02

CLAIMS, DISPUTES AND ARBITRATION

of time for completion he will often have to follow a claims procedure. These procedures are designed, amongst other things, to assist in producing better-defined claims that are not late or incomplete and to help the engineer or employer's representative in documenting and examining such claims. The claims procedure provisions provided in the FIDIC contracts are relatively new, with a "Procedure for Claims" provision appearing for the first time in the fourth edition of the Red Book. 2 The new FIDIC contracts of 1999 saw the introduction of yet another new claims provision, that of subclause 2.5 for employer's claims. FIDIC saw such claims provisions as important as: U[f]requently in the past claims have been made when the project has been completed and the workforce has been dispersed and then both the Employer and the Contractor are dependant upon incomplete records and inevitably regard their memories of the event as being indisputable. As their memories are rarely identical it is understandable that they were both dissatisfied with the outcome."3 The Silver Book, as will be discussed below, uses one procedure for both increases in the contract price and one for extensions of time for completion. Indeed, parties to international construction contracts would do well to carefully scrutinise the claims procedures of their contracts. According to at least one commentator, due to the often highly competitive tender process involved in certain types of projects, coupled with the paucity of work available in certain markets, some contractors are using claims procedures as a means to, essentially, realise a profit. 4 According to this same commentator, it is difficult "to think of any major project in recent years where large claims ha ve not arisen" . 5

24-03

Interim dispute resolution Construction contracts, particularly those of long duration and great complexity, require the parties to maintain a good relationship if the works are to reach completion effectively. When a dispute arises during the execution of the works, the parties will not want it to undermine this relationship. Consequently, all of the standard form turnkey contracts provide for some form of interim dispute resolution. However, prior to describing the interim dispute resolution procedures used in the Silver

G.L. Jaynes, "Termination, Risk and Force Majeure" ("FIDIC Global Conditions of Contract" Seminar, New Delhi, January 2001), online: FIDIC http://www.fidic.orgl resourceslcontractsljayunes_A.asp (date accessed: July 4, 2001) 3 ibid. quoting the FlDIC Guide to the 4th edition. • J. Bowcock, "The F1DIC Contract Forms: The Present and Future" (Society of Construction Law, London, November 7,1995) at 10. S ibid. 2

556

GENERAL COMMENTS

Book and certain other standard form contracts, two trends should be discussed: (i) the dissatisfaction with the role of the engineer in traditional construction contracts; and (ii) the increased use of alternative dispute resolution. The role of the engineer. Under the traditional construction contract responsibility for dispute resolution, in the first instance, falls to the engineer. In the Red and Yellow Books (sub-clauses 20.1) he has a dual role as both the agent of the employer and as a quasi-judicial dispute resolver. In the latter capacity he takes single-point responsibility for dispute resolution. He has close involvement with the project from the beginning and therefore, in theory, is well placed to make informed decisions. The parties must look to him for satisfaction and his decision binds the parties until a contrary decision is rendered by an arbitrator. Whilst traditional contracts put a duty of "fairness", "impartiality" or some similar idea on the engineer when carrying out his resolution role (see RB and YB clauses 3.5) the ambiguity of his position as between the employer and the contractor led to an understandable suspicion as to his neutrality and lack of bias. Even if the engineer is scrupulous in his treatment of the parties he may be perceived as unduly favouring his "employer" precisely by virtue of his dual role. This necessarily undercuts his effectiveness as a dispute resolver-not only should the person or entity filling that role act neutrally between the parties, but he should be seen to act neutrally. Even the employer, who might be thought to gain from this situation, might be disadvantaged. If the engineer genuinely acts independently the employer may have no one representing his interests. This would in effect nullify the engineer's role as agent. Alternative dispute resolution. Dissatisfaction was also felt in certain jurisdictions, from the mid-1970s onwards, about the efficacy of dispute resolution procedures in general. Academics and interested parties started to search for more responsive solutions than the ossified processes of litigation and even arbitration. In the construction context, this meant looking for procedures that protected parties' working relationship whilst retaining an appropriate level of certainty (interim or permanent) in the dispute resolution process. Non-traditional methods sought to give new impetus to dispute solving in the construction context by encouraging parties to look beyond their own short-term positions. These non-traditional methods came to have the generic title of ADR or alternative dispute resolution. ADR as it developed in the United States looks to a neutral third party to be the overseer of dispute resolution. Ultimately, this third party does not have the power to impose a solution unless the parties agree that his decisions should be binding until challenged (or reversed) at final resolution. The neutral party mayor may not suggest solutions and may playa greater or lesser role in the resolution process depending on the degree of intervention that the parties wish him to exercise. Above all, the third party attempts to get the parties communicating and to encourage them towards a wider resolution that will be mutually satisfactory. 557

24-04

24-05

CLAIMS, DISPUTES AND ARBITRATION

The parties to a construction contract, by choosing a certain system, can ask the third party to have a greater or lesser degree of control (over such matters as the procedure of meetings, and whether he will render an opinion) and for his influence to have a greater or lesser degree of permanence (he could render decisions that are binding or non-binding). The third party may be involved in the progress of the works from the beginning or step in at the moment that a dispute arises. Depending on the point at which the parties wish such involvement to occur, the third party may require a greater degree of education concerning the project and a commensurate need to learn quickly. Conversely, distance from the project may be seen as advantageous. The third party does not need to be a single individual; it may be more than one person organised as a team or panel. ADR mechanisms (i.e., methods of resolution other than those commonly in use such as arbitration or national courts)6 come in as many forms as can be thought up by the parties. It is difficult to generalise about such methods. They have widely differing meanings depending on their context of use or the judicial tradition within which they have developed. However, several standard methods have now become part of popular usage and they all have one or more of the basic features outlined above (even if it is given a different name). Three broad methods are discussed below.

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Mediation. This can be one of the least contentious forms of ADR. Whilst it escapes easy definition it does involve a third party facilitating negotiations. The mediator does not give a decision or recommendation but tries to guide the parties towards an acceptable solution (perhaps based on a level of knowledge or expertise). He may suggest ways forward that the parties would not have contemplated from their entrenched position. One of the ways he may be able to effect such compromise is by confidential caucus. The mediator meets individually with each party to obtain further information. Whilst he is not allowed to divulge such information it does give him an overall view of the problem that may enable him to suggest to the parties fruitful avenues of approach. One advantage to mediation, particularly in an international construction dispute context, is that problems of enforcement in foreign jurisdictions are rare as the parties themselves reach the agreement. 7 In Canada and the United States, standard form construction industry contracts are

6

7

It should be noted that commentators in both the U.S. and Hong Kong construction indus· tries often define arbitration as to be within the scope of ADR, although in the U.K. the common view held is that arbitration is not a form of ADR. Dr P. Brooker & Prof. A. Lavers, "Appropriate ADR-Identifying Features of Construction Disputes which Affect their Suitability for Submission to ADR" (2000) 17 (2) J.C.L.R. 276 at 276-277. Due to the often expensive and lengthy arbitration process and its similarity to litigation, the approach of U.K. authors seems more persuasive for present purposes. E. lightburn, "Mediation in International Construction Contracts" (2000) 17 (1) I.C.L.R. 202 at 205. For a discussion of factors contributing to a successful mediation, see Dr P. Brooker & Prof. A. Lavers, "Appropriate ADR-Identifying Features of Construction Disputes which Affect their Suitability for Submission to ADR" (2000) 17 (2) J.C.L.R. 276 at 287-288.

558

GENERAL COMMENTS

beginning to include mediation clauses and, in the United States and Canada today, "mediation is probably the most common form of 3,d party intervention in construction contracts" .8 Despite the potential benefits of mediation, mediation may not be effective, and therefore is not recommended, where it is not voluntary.9 Conciliation. This is often identified or confused with mediation. The two concepts often merge into one another but often conciliation may differ in the greater degree of intervention it allows the third party. This means that the conciliator will often give a recommendation as a result of his intervention that can be used as a basis for further negotiation. Where parties are interested, they may agree to adopt conciliation rules, such as those produced by the ICC and UNCITRAL.1O The parties could decide to make his decisions binding until final dispute resolution.

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Expert. The expert is a specialist in a given domain (generally technical). He gives his opinion on a factual dispute between the parties, to be used as a basis for negotiation. In theory, the competence and standing of the expert may make both sides take a more realistic view of their positions and aid settlement. The decision of such an expert can be made binding in the interim and even fully binding.

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These two trends were, therefore, developing in parallel. As discussed above, the first was a certain amount of dissatisfaction with an engineerdriven dispute procedure that always had, at the very least, the appearance of a potential conflict of interest; the second was the historical backlash against the increasing rigidity and formalism of traditional dispute procedures such as arbitration and a consequent search for, and development of, non-traditional methods of dispute resolution giving greater flexibility and scope for change. Turnkey and EPC contracts were a natural arena for these two trends to express themselves in concrete change. Such contracts usually replace the engineer with an employer's representative or, as in the case of the Silver Book, the employer. This leaves room for development of the dispute resolution aspect of the engineer's role. Furthermore, drafters of the standard form turnkey and EPC contracts wanted to be pan of the groundswell in favour of alternative dispute resolution by giving these contracts more sophisticated resolution procedures. Thus, the Silver Book, along with other standard turnkey and EPC contracts, uses ADR as the interim dispute resolution procedure.

24-09

ST.]. Stipanowich, "Reconstructing Construction Law: Reality and Reform in a Transactional System" (1998) Wis. L. Rev. 463, online: LEXIS at 502. 9 J.B. Grove, "The Grove Report: Key Terms of 12 Leading Construction Contracts Are Compared and Evaluated" online: Construction Web Links ( November 6, 2000) http://www.Constructionweblinks.comlResources/lndustry_Reports_N .. .Igrove_report.ht (date accessed: June 20,2001) at 20.7. 10 R.A. Shadbolt, "Resolution of Construction Disputes by Disputes Review Boards" (1999) 16 (1) J.C.L.R. 101 at 103.

559

GENERAL COMMENTS

CLAIMS, DISPUTES AND ARBITRATION

24-10

ORB/DAB. The method chosen in the Silver Book is a dispute adjudication board (DAB) appointed at the time where the first dispute arises between the parties. The effectiveness of the dispute review board (ORB) generally is still being debated. The system is commonly used in the United States and has met with some success there (although it should be noted that, the practice there is that the board's decision is not generally binding).l1 For the past 20 years ORBs have been used by the American construction industry to avoid and resolve "as a means of avoiding and resolving disputes in civil engineering works etc" .12 Regardless of the experience of industrialised countries, positive or not, one should not discount the benefit DRBs can have in less developed countries. 13 Despite the benefits of a ORB, parties can spend large amounts of time and effort in the composing and convening of the board. 14 They may also have to keep the board well informed for it to be effective and in order to do "justice" between the parties. The system must be properly managed otherwise it may collapse into an inappropriate degree of formalism. ls Furthermore, the board may not have the services of a technical staff, as does the engineer, for independent information. 16 Despite the potential costs involved, in both time and money, "[r]esearch has shown that the costs of DRBs are likely to be less than the costs of arbitration or litigation".17 The World Bank chose a range of options when incorporating a dispute review board into its Standard Bidding Documents: Procurement of Works. IS When modifying the dispute resolution clause of the FIDlC (old) Red Book, the World Bank offers three choices for dispute resolution. The parties can either maintain the engineer, use a dispute review expert or a dispute review board of three persons. For contracts whose estimated cost exceeds U.S.$50 million, the World Bank recommends supplanting the engineer and utilising a DRB in the first instance of a dispute. 19 The World Bank ORB system requires that each party choose a member of the board who Molineaux, "The FlDIC Orange Book: A View from North America" !BC Legal Studies International Procurement Seminar, London, June 26 and 27, 1995, at 24; also R.A. Shadbolt, "Resolution of Construction Disputes by Disputes Review Boards" (1999) 16 (1) 1.C.L.R. 101 at 105. 12 Shadbolt, op. cit. n. 10 above, at 104 \3 ibid. at 101. Where, for example, for amongst other reasons, the legal framework will more often than not evolve over the currency of a construction contract. " J. Tyrril, "Conciliation and Mediation of International Commercial Disputes-The Lawyer's Role" (1992) 91.C.L.R. 351 at 379. IS D. Lewis, "Dispute Resolution in the New Hong Kong International Airport Core Programme Projects-Part 3" (1995) 12l.C.L.R. 131. 16 Jenkins, "Contract structure and risk allocation in major infrastructure projects" (1994) 11 I.C.L.R. 489 at 489-97. 17 Shadbolt, op. cit. n. 10 above, at 104 citing G.L. Jaynes, "Avoiding Legal Pitfalls of Construction Clients in Malaysia and Abroad" (1994) 11 I.C.L.R. 353. 18 World Bank "Standard Bidding Documents for the Procurement of Works" (World Bank, Washington D.C., 2000) online: World Bank http://www.worldbank.orglhtmUopr/biddocs/ workslw-titlpg.htm (date accessed: July 16,2001) at 131 et seq and 223 et seq. 19 ibid. at 131. \I

560

must be approved by the other party. These two members then choose the third. The Bank's provisions are notionally a mixture of those used by the Orange Book and those provided by the ENAA Contract (discussed below). Under the procedures of the Bank, unlike under the Orange Book, any dispute must be referred to the dispute review board, which is appointed from the outset of the contract; as with the regime used by the ENAA Contract, the decision of the World Bank's ORB is not binding on the parties unless they do not object to it within 14 days of the .recommendation. Until a decision is rendered by the board the engineer's d~cision remains binding on the parties.

Final dispute resolution Final dispute resolution provides the parties with finality on a certain issue or dispute where the interim resolution was found not to be satisfactory. In international construction projects, the final binding resolution may be litigation but often takes the form of arbitration. The question of arbitration is complex and surpasses the scope of this work. This chapter will deal only with those questions that parties will need to consider when drafting turnkey contracts. The author recommends for further reference the following: W. Laurence Craig, William W. Park and Jan Paulsson, International Chamber of Commerce Arbitration (third edition 2000) and Redfern, Law and Practice of International Commercial Arbitration (third edition 1999). There is considerable academic debate as to the merits of arbitration, such as its efficiency, its cost and its flexibility. However, although parties may not want to opt for arbitration in domestic contracts, they will often find it essential in international transactions. This could be for a number of reasons: one or both parties may not want to be brought before the courts of a foreign jurisdiction where the language, procedure and law are unfamiliar; there may be a tendency for national courts to favour their own nationals; most importantly, international arbitration awards may be more easily executed in other countries than domestic court decisions (as a consequence of certain international treaties, in particular, the United Nations Convention for the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (the "New York Convention").2o Arbitration is a creature of contract. Therefore, only those disputes specifically submitted to arbitration in writing, whether it be a separate agreement or by means of a contract clause, can be settled by the arbitrator. The contractual basis of arbitration means that it can be structured by the parties to meet the specific needs of their relationship. The parties can set out the powers of the arbitrators, their jurisdiction, their qualifications 20

W.L. Craig, W.W. Park & J. Paulsson, International Chamber of Commerce Arbitration (3rd ed., Oceana Publications, New York, 2000), p. 441.

561

24-11

24-12

CLAIMS, DISPUTES AND ARBITRATION

24-13

24-14

and any other matters the parties feel are relevant to their contractual relationship. The parties should give the arbitrator power to hear any and all claims relating to the contract, thereby, if possible, combining claims into the same proceedings.2! This will mean verifying that the same law is applicable to all the claims and that the same procedure applies as well. 22 The parties can also limit or extend the remedies that are available to the arbitrator. The local law to the arbitration may not permit, for example, arbiters to award punitive damages in an arbitration. 23 Arbitration may provide benefits such as confidentiality, choice of language, and choice of site for the arbitration. The parties can choose a neutral site, one close to relevant or available evidence or witnesses or one merely providing a convenient location. 24 The location of the arbitration also has important legal implications, which should be verified with competent legal advice. For example, parties should take care that the country chosen is a signatory to the New York Convention, in order to help ensure enforcement of any arbitral decision. 25 Further, parties should ensure the local law of the country of the site location will permit arbitration of disputes. Such may not be the case where, for example, the project company is registered as a local company.26 The language chosen for the arbitration should mirror that used for the contract documents. This will reduce complication and confusion where the point in contention is the wording used in the document. Where the language of the arbitration and the language of the documents differ the parties may incur significant expense in translating the documents, and may have difficulty defending their translation before the arbitrator. 27 The parties may also want to consider specifying the skills required of the arbitrators to be chosen. They may want the arbitrators to be knowledgeable in a given area or proficient in certain languages, have relevant technical ability (a technically qualified arbitrator may require less evidence to prove a case thereby simplifying the resolution process) or have specific geographic experience. Such specification should be limited to the chairman of a three arbitrator panel; where the parties are limited to choosing arbitrators with the stated proficiencies, there will be an increased opportunity for

21 22 23

H

25 26 27

S. Furst Q.c. & V. Ramsey Q.C. eds, Keating on Building Contracts (7th ed., Sweet & Maxwell, London, 2001), pp. 426-427. UNCITRAL, UNCITRAL Legal Guide on Drawing Up International Contracts for the Construction of Industrial Works (UN, New York, 1998) UNDOC. NCN.9/SER.Bl2 at 308. This is true in some states of the U.S.A., according to D.M. Mix, "ADR in the Construction Industry: Continuing the Development of a More Efficient Dispute Resolution Mechanism" (1997) 12 Ohio St.}. on Disp. Resol. 463, online: LEXIS at 471. Tyreil, op. cit. n. 14 above, at 364. D. Blumental, "Sources of Funds and Risk Management foe International Energy Projects" (1998) 16 Berk.}. Int'l Law 267, online: LEXIS at 292. ibid. Shad bolt & Lemar, "Resolution of International Claims Outside of the United States" in R.E Cushman & K.S. Taub, eds, Design-Build Contracting Handbook (Wiley Law Publications, New York, 1992) 71 at 89.

562

GENERAL COMMENTS

claims that the arbitration was not conducted in accordance with the contract. 28 It is important that the parties should choose both the proper law of the contract as well as a procedure for the arbitration: Failure to make such a choice may result in the arbitrator applying an undesirable procedural system. 29 Furthermore, the parties should verify that the applicable law allows arbitrators to change or supplement contract terms and that the arbitrator may substitute his own consent for a consent improperly withheld by a party. These matters, where not allowed under the applicable law, should be provided for by contract provisions. 3o When drafting arbitration clauses a number of issues must be taken into account. Poorly or inappropriately drafted clauses may have far-reaching and unforeseen consequences. Therefore, parties should consider each with the utmost care. Most form contracts use a reference to arbitration institutions to simplify the task. These institutions provide administrative services such as assistance in choosing arbitrators, interim measures, procedures for challenging the appointment of an arbitrator and other functions that mirror those normally provided by the state court system where arbitration is not used. There are two issues, in particular, that need to be dealt with in a contract's arbitration clause: the arbitrator's jurisdiction, and the procedure to be followed in the arbitration. The arbitrator's jurisdiction. As a consequence of its contractual nature, an arbitral award may be attacked on the basis that the· arbitrator lacked jurisdiction. 3 ! The arbitrator has only as much power as the parties choose to give him. Where that power comes from a contract clause, the relevant language must include the dispute at hand. Although it is a generally recognised principle that the arbitrator has the power to rule on his own jurisdiction, he is limited in his decision to the contract clause, or the written documents that form the basis of his power. 32 National courts will usually verify the basis of jurisdiction of the arbitrator at the request of one of the parties. 33 The parties should want to give the arbitral tribunal a wide scope of jurisdiction to avoid the challenging of an eventual arbitral award for lack of jurisdiction. Contracts providing that "all disputes arising out of or in connection with the present contract" are generally considered to cover issues such as formation, termination and quasi-contractual torts. To give greater

28

29 30 31

32 33

Craig, Park & Paulsson, op. cit. n. 20 above, p. 93. I.N.D. Wallace Q.C., Hudson's Building and Engineering Contracts (11th ed., Sweet & Maxwell, London, 1995), pp. 1617-1618. UNCITRAL, op. cit. n. 22 above, at 307. K.P. Berger (ed.) International Economic Arbitration (Kluwer, Deventer, 1993), p. 321. ibid., p. 351. ibid., p. 359.

563

24-15

CLAIMS, DISPUTES AND ARBITRATION

specificity may be interpreted as restricting the arbitrator's jurisdiction (contrary to the intent of the draftsman).34

24-16

Arbitration procedure. There is an important difference between choosing an institution and choosing a set of rules. It is advisable that parties indicate the use of the rules of an arbitration institution to administer any arbitration under their contract. They are not required to use such rules/institution, and can opt for an ad hoc arbitration, but at the inception of a dispute, the parties may not be amenable to agreement on an arbitration procedure. By choosing an institution, the parties avail themselves of an established body, experienced in the field, who will take care of organisational and administrative needs and reduce the availability of dilatory tactics. 35 It also gives the process some of the rigour associated with state court procedures without the attendant disadvantages. By choosing an institution the parties also limit the possibility of intervention by state courts. State courts are generally prepared or bound to assist in the constitution of arbitral tribunals, thereby exercising a degree of contro(.36 Such control will generally not be exercised where the parties have provided a method of solving such problems, as through the assistance of an institution. The institution will provide a remedy: where there is difficulty in constituting the arbitral tribunal; where an arbitrator must be replaced; where there are questions of removal of an arbitrator for conflict of interest; where there is a failure to adhere to time limits; or where other such concerns arise during the arbitration.

Discussion of Specific Sub-Clauses 24-17

Clause 20 of the Silver Book, entitled "Claims, Disputes and Arbitration", sets forth the specific terms regarding the contractor's submission of claims for time extension and increase in contract price. In addition, the Silver Book sets forth various mechanisms for dispute resolution, as discussed above. Such mechanisms include the establishment of a dispute adjudication board, amicable settlement and arbitration.

24-18

20.1 Contractor's Claims If the Contractor considers himself to be entitled to any extension of the Time for Completion and/or any additional payment, under any Clause of these Conditions or otherwise in connection with the Contract, the Contractor shall H JS 36

Craig, Park & Paulsson, op. cit. n. 20 above, p. 87. Vigrass, "The Role of Institutions in Arbitration" in Berstein & Woods, eds, Handbook of Arbitration Practice (1993) at 469. A. Redfern & M. Hunter, Law and Practice of International Commercial Arbitration (Sweet & Maxwell, London, 1986, p. 42.

564

DISCUSSION OF SPECIFIC SUB-CLAUSES

give notice to the Employer, describing the event or circumstance giving rise to the claim. The notice shall be given as soon as practicable, and not later than 28 days after the Contractor became aware, or should have become aware, of the event or circumstance. If the Contractor fails to give notice of a claim within such period of 28 days, the Time for Completion shall not be extended, the Contractor shall not be entitled to additional payment, and the Employer shall be discharged from allliability in connection with the claim. Otherwise, the following provisions of this Sub-Clause shall apply. The Contractor shall also submit any other notices which are required by the Contract, and supporting particulars for the claim, all as relevant to such event or circumstance. The Contractor shall keep such contemporary records as may be necessary to substantiate any claim, either on the Site or at another location acceptable to the Employer. Without admitting liability, the Employer may, after receiving any notice under this Sub-Clause, monitor the record-keeping and/or instruct the Contractor to keep further contemporary records. The Contractor shall permit the Employer to inspect all these records, and shall (if instructed) submit copies to the Employer. Within 42 days after the Contractor became aware (or should have become aware) of the event or circumstance giving rise to the claim, or within such other period as may be proposed by the Contractor and approved by the Employer, the Contractor shall send to the Employer a fully detailed claim which includes full supporting particulars of the basis of the claim and of the extension of time and/or additional payment claimed. If the event or circumstance giving rise to the claim has a continuing effect: (a) this fully detailed claim shall be considered as interim; (b) the Contractor shall send further interim claims at monthly intervals, giving the accumulated delay and/or amount claimed, and such further particulars as the Employer may reasonably require; and (c) the Contractor shall send a final claim within 28 days after the end of the effects resulting from the event or circumstance, or within such other period as may be proposed by the Contractor and approved by the Employer. Within 42 days after receiving a claim or any further particulars supporting a previous claim, or within such other period as may be proposed by the Employer and approved by the Contractor, the Employer shall respond with approval, or with disapproval and detailed comments. He may also request any necessary further particulars, but shall nevertheless give his response on the principles of the claim within such time. Each interim payment shall include such amounts for any claim as have been reasonably substantiated as due under the relevant provision of the Contract. Unless and until the particulars supplied are sufficient to substantiate the whole of the claim, the Contractor shall only be entitled to payment for such part of the claim as he has been able to substantiate. The Employer shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine (i) the extension (if any) of the Time for Completion (before or after its expiry) in accordance with Sub-Clause 8.4 [Extension of

565

DISCUSSION OF SPECIFIC SUB -CLAUSES

CLAIMS, DISPUTES AND ARBITRATION

Time for Completion), and/or (ii) the additional payment (if any) to which the Contractor is entitled under the Contract. The requirements of this Sub-Clause are in addition to those of any other SubClause which may apply to a claim. If the Contractor fails to comply with this or another Sub-Clause in relation to any claim, any extension of time and/or additional payment shall take account of the extent (if any) to which the failure has prevented or prejudiced proper investigation of the claim, unless the claim is excluded under the second paragraph of this Sub-Clause.

that employers are often "more passive" regarding potential claim rights and "it is often not until some part fails that an employer begins to consider a claim against his Contractor", FIDIC felt a brief time limit was unreasonable and unrealistic in the circumstances. 4o In addition, the Silver Book notice provisions are in line with other standard form contracts and 28 days, in most situations, may be a reasonable time period. 41 Finally, the contractors of most large-scale international construction projects "are large companies having a staff that is fully capable of recognising a claim situation when it arises" .42 Therefore, the 28-day period is sufficient for most bona fide claims.

Initial claim Supporting documentation 24-19

Silver Book sub-clause 20.1 sets forth the procedural requirements for a contractor to claim either a time extension or additional payment from the employer. If the contractor intends to apply for an extension of the time for completion or additional payment, he must give notice to the employer within 28 days of the contractor's awareness of the occurrence of the event giving rise to the claim. The Silver Book specifies that in the event of noncompliance the contractor loses his right to claim under this clause, and the employer is discharged from all liability in connection with the claim. The contractor may consider this procedure is too onerous for two reasons. First, he may lose his right to claim if he fails to comply with the procedure. Given the multiplicity of events and instructions that occur or are given on a daily basis in a construction project, it may be difficult for the contractor to ensure compliance and thereby protect his claim. Secondly, since the first notice must be issued within 28 days after the start of the event, the contractor will need to identify all the events that could potentially result in claims, which may be impossible to foresee within the time period or impossible to isolate. Indeed, the Silver Book provisions have been criticised, as "the time constraints placed on the Contractor to submit an intention to claim are impractical and the sanctions for non-compliance are unreasonably punitive" .37 This is particularly striking when compared with the less stringent requirements for employer's claims (sub-clause 2.5, see discussion above). This discrepancy may be partly explained by the fact that, under sub-clause 2.5, the employer determines its own claims, so a time period provision might be artificial. 38 Further, sub-clause 2.5 does benefit the contractor, as "this is the first time that the FIDIC contracts have explicitly protected the Contractor against such unilateral actions by the employer" .39 Finally, due to the fact

37 38 39

Following the initial notification, the contractor is to submit to the employer any other notices required under the contract, and supporting particulars for the claim. The contractor is also to keep such contemporary records as may be necessary to substantiate any claim. After receiving notice, the employer may, without admitting liability, monitor the record keeping and/or instruct the contractor to keep further contemporary records and inspect all these records.

Fully detailed claim Further, within 42 days43 after the contractor became, or should have become, aware of the event or circumstance giving rise to the claim, the contractor shall send to the employer a fully detailed claim with full supporting particulars of the basis of the claim of the time extension or additional payment. The submission of a "fully detailed" claim within a 42-day period may be problematic for a contractor in a large-scale building project, or may cause the contractor to incur unreasonably high cost or effort.

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Interim and final claim measures Where the event or circumstance has a continuing effect, this fully detailed claim shall be considered as interim. In this case, the contractor is to send further interim claims at monthly intervals providing the accumulated delay or amount claimed and any other particulars the employer might reasonably

EM. Kennedy, "EIC Contractor's Guide to the FlDIC Conditions of Contract for EPC Turnkey Projects (The Silver Book)" (2000) 17 (4) I.C.L.R. 504 at 536. . . N.D.J. Henchie, "FlDIC Conditions of Contract for EPC Turnkey ProJects-The SIlver Book Problems in Store?" (2001) 18 (1) I.C.L.R. 41 at 49. C.R. Seppala, "FIDIC's New Standard Forms of Contract-Fo~ce ~ajeure, Claims, Disputes and Other Causes" (2000) 17 (2) I.C.L.R. 235 at 248. See d,scuss,on above In Ch.

40

6.

43

566

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41

42

C. Wade, "The Silver Book: The Reality" (2001) 18 (3) I.C.L.R. 497 at 521. A.H. Gaede, Jr., "The Silver Book: An Unfortunate Shift from FIDIC's Tradition of being Evenhanded and of Focusing on the Best Interests of the Project" (2000) 17 I.C.L.R. 477 at 501. C.R. Seppala, "FIDIC's New Standard Forms of Contract-Force Majeure, Claims, Disputes and Other Causes" (2000) 171.C.L.R. 235 at 247. Or within another period such as proposed by the contractor and approved by the employer.

567

24-22

DISCUSSION OF SPECIFIC SUB-CLAUSES

CLAIMS, DISPUTES AND ARBITRATION

require. Upon the termination of the effects resulting from the event or circumstance, the contractor has 28 days44 within which to submit his final claim.

Employer's response 24-23

Within 42 days of the submission of the final claim, the employer shall respond with approval, or with disapproval and detailed comments. Although he may request further particulars, the employer shall give his response on the principles of the claim within such time. This is a beneficial change to the contract conditions for the contractor, and is included in all three of the new FIDIC contracts. The (old) Red Book contained no such provision requiring the employer to respond to a contractor's claim, except in the case of dispute ((old) Red Book clause 67).45

Payment of contractor 24-24

Until the contractor's whole claim has been substantiated, the contractor shall only be entitled to payment for such part of the claim as he has been able to substantiate. The employer is to proceed in accordance with provisions relating to determination (SB 3.5) and extension of time for completion (SB 8.4) in order to agree or determine the extension of time or additional payment. Further, the requirements of sub-cause 20.1 are in addition to those of any other sub-clause in relation to any claim under this sub-clause. This provision might create some confusion as to what the procedures are to be in any given claim. The FIDIC Guide, however, provides some guidance, stating other subclauses may impose their own notice requirements "although it may be possible for one notice to satisfy the requirements of different subclauses".46 Despite this precision, it is still not clear whether, in interpreting the contract, more specific requirements override the general (as is the general rule in civil law) or not. Parties may want to clarify this point in the contract. Sub-clause 20.1 may provide an unscrupulous employer with considerable powers to abuse the manner in which he handles claims under this subclause. "Experience suggests that the position will be abused and that Contractors will be forced to turn to the DAB (or arbitration). "47 44 45 46 47

Or within another period such as proposed by the contractor and approved by the employer. Wade, op. cit. n. 40 above. FIDIC, The FIDIC Contracts Guide (Federation Internationale des Ingenieurs-Conseils, Lausanne, 2000), p. 303. Henchie, op. cit. n. 38 above at 49.

568

Finally, if the contractor fails to comply with this, or any other, sub-clause in relation to a claim, the extent to which this failure has prevented or prejudiced proper investigation of the claim shall be taken into account. This is providing, of course, the claim is not excluded ab initio for failure to provide timely initial notification. The governing legal system may find ineffective aspects of this sub-clause that seem to treat the contractor's claims inequitably, especially when compared to the provisions for employer's claims under the Silver Book. 48 Orange Book sub-clause 20.1 differs from Silver Book sub-clause 20.1 in some minor respects, to the extent that these clauses deal with the same material. First, the Orange Book creates a distinction between the regimes for claims involving cost and those involving an extension of time for completion. In this way, sub-clause 20.1 only addresses claims for additional payment under the contract. 49 Further, for the purposes of this provision, the contractor interacts with the employer's representative, instead of the employer. In addition, the Orange Book stipulates the initial fully detailed claim shall be submitted to the employer's representative 28 days following the initial notice of claim, whereas the Silver Book provides that the claim shall be submitted within 42 days following the occurrence of the event itself. The Orange Book starts the time period for notification from the occurrence of the event itself rather than, as under the Silver Book, from the time of the contractor's knowledge of the event. This may cause problems where the contractor does not know of the event until 28 days after its occurrence. A contractor using the Orange Book may want to adopt the running of the period from the date the contractor knew or should have known of the event. Finally, as does the Silver Book, Orange Book sub-clause 20.2 stipulates that if the contractor fails to comply with this sub-clause, he shall not be entitled to additional payment. Orange Book does not provide, however, that in such an instance the employer shall be discharged from all liability in connection with the claim. Orange Book sub-clause 20.1 does not address the issue of the employer's, or the employer's representative's response to the claim submitted by the contractor, nor does any other Orange Book provision. It is therefore unclear in which time period the employer or the employer's representative must respond to the claim submitted by the contractor, and what such a response might entail. The Orange Book provision relating to the payment of such part of the claims as have been substantiated is found in sub-clause 20.2.

48

49

This apparently might be the result under German law, see Dr A. Kus, Dr J. Markus & Dr R. Steding, "FIOIC's new 'Silver Book' under the German Standard Form Contracts Act~ (1999) 16 (4) I.C.L.R. 533 at 549. The Orange Book provision relating to an application for contract time for completion extension is contained in sub-clause 8.3. This provision is similar to that of Orange Book 20.1, with regard to time delays and documentation, but does not specify that in the event of non-compliance the contractor loses his right to claim (as is the case for claims for an increase in the contract price under sub-clause 20.1).

569

24-25

DISCUSSION OF SPECIFIC SUB-CLAUSES

CLAIMS, DISPUTES AND ARBITRATION

24-26

24-27

The corresponding sub-clauses 20.1 of the Yellow and Red Books are substantially similar to that of the Silver Book. Under these provisions, however, reference to the engineer takes the place of reference to the employer under the Silver Book (for more information regarding the role of the engineer, see discussion above). Other standard form turnkey contracts have similar procedures. Under the ENAA, the procedure simply states that notice of a claim must be given if a party wishes to refer any "dispute or difference" to an expert for, inter alia, additional cost (as set out in ENAA 6.2.1(a)-(g)). Under specific contract provisions relating to additional payment there are specific procedures. For example, the contractor must give to the owner "as soon as reasonably practicable" a written statement relating full details of a proposed variation (change) and give an estimate of the increase in the contract price (ENAA 39.4). In the case of additional cost incurred due to unforeseen conditions, the contractor is to "promptly notify the owner in writing" of such conditions and associated costs (ENAA 35.1). If the contractor wishes to claim an extension of time the standard is wider than under the Silver Book; particulars justifying the claim have to be submitted "as soon as reasonably practicable after the commencement of such event or circumstance" (ENAA 40.2). The EIC does not contain a consolidated claims procedure for the contractor. For example, in the event of unforeseen circumstances, the "contractor shall be entitled to an appropriate extension of time and the contract price shall be adjusted" (EIC 4.8) upon giving notice to the owner (EIC 4.7). Under the ICE, if the contractor wishes to claim additional payment he must do so within 28 days "after the happening of the events giving rise to the claim" and he must keep such contemporary records as may be "reasonably necessary" to support such a claim (ICE 53(1)). If the contractor wants to claim for extension of time he must do so within "28 days after the cause of any delay has arisen or as soon thereafter as is reasonable" by delivering full and detailed particulars so that the claim may be investigated "at the time" (ICE 44(1)). The remaining standard form contracts contain similar provisions to each other. The AlA provides for an equitable time adjustment, or reasonable time extension, where the delay is not the fault of the design/builder (AlA 4.2Part 1; AlA 4.5-Part 2). More inclusive, the AGC and DBIA provide for the possibility of a time or contract price adjustment where the circumstances necessitating these changes are not the fault of the contractor (AGC 6.3.1; DBIA 8.2.1; DBIA 8.2.2). Under these contracts, the mechanism provided for the contractor to apply to the owner for an adjustment in either contract time or contract sum is that of a change order (AlA 8.2-Part 2; AGC 8.6; DBIA 9.1.1).

570

Figure 24.1

24-28

Procedure for claims under the FIDIC Silver Book

START

Is claim made

C keeps contemporary records. E
NO

Cmust submit YES

account

within time agreed (20.1) .

NO

C must submit account within 42 days of notice of claim (20.1).

NO

YES

C provides interim accounts, at monthly intervals, and

a final account within 28 days after the end of the effects (20.1). YES

YES

E includes portion due in interim " - - - - - - - 1 certificate and claim setrled in manner set OUt in 3.5 and 8,4 (20.1) .

571

CLAIMS, DISPUTES AND ARBITRATION

24-29

20.2 Appointment of the Dispute Adjudication Board Disputes shall be adjudicated by a DAB in accordance with Sub-Clause 2004 [Obtaining Dispute Adjudication Board's Decision). The Parties shall jointly appoint a DAB by the date 28 days after a Party gives notice to the other Party of its intention to refer a dispute to a DAB in accordance with Sub-Clause 2004.

The DAB shall comprise, as stated in the Particular Conditions, either one or three suitably qualified persons ("the members"). If the number is not so stated and the Parties do not agree otherwise, the DAB shall comprise three persons.

If the DAB is to comprise three persons, each Party shall nominate one member for the approval of the other Party. The Parties shall consult both these members and shall agree upon the third member, who shall be appointed to act chairman. However, if a list of potential members is included in the Contract, the members shall be selected from those on the list, other than anyone who is unable or unwilling to accept appointment to the DAB. The agreement berween the Parties and either the sole member ("adjudicator") or each of the three members shall incorporate by reference the General Conditions of Dispute Adjudication Agreement contained in the Appendix to these General Conditions, with such amendments as are agreed between them. The terms of the remuneration of either the sole member or each of the three members, shall be mutually agreed upon by the Parties when agreeing the terms of appointment. Each Party shall be responsible for paying one-half of this remuneration. If at any time the Parties so agree, they may appoint a suitably qualified person or persons to replace anyone or more members of the DAB. Unless the Parties agree otherwise, the appointment will come into effect if a member declines to act or is unable to act as a result of death, disability, resignation or termination of appointment. The replacement shall be appointed in the same manner as the replaced person was required to have been nominated or agreed upon, as described in this Sub-Clause.

The appointment of any member may be terminated by mutual agreement of both Parties, but not by the Employer or the Contractor acting alone. Unless otherwise agreed by both parties, the appointment of the DAB (including each member) shall expire when the DAB has given its decision on the dispute referred to it under Sub-Clause 2004, unless other disputes have been referred to the DAB by that time under Sub-Clause 2004, in which event the relevant date shall be when the DAB has also given decisions on those disputes.

DISCUSSION OF SPECIFIC SUB-CLAUSES

DAB within 28 days following the giving of notice by one party to another of its intention to refer a dispute to a DAB. The default number of members for the DAB is three, providing the particular conditions do not allow for just one member. FIDIC50 justifies the use of an ad hoc DAB in the Silver Book as the nature of plant and EPe contracts is such that most of the manufacture and design of electrical or mechanical equipment takes place in a factory rather than on site. 51 Where such is the case, disputes should arise much less frequently and thus a standing DAB may be unnecessarily costly (particularly considering the length of the project). Furthermore, on smaller projects with only one DAB member, and where this member is appointed at the outset of the contract, parties may find themselves in a contractual dispute where the DAB member is an expert in matters related to technical disputes. 52 However, where a significant amount of construction work is to take place on site, the Guidance Notes of the new FlO Ie contracts state that a standing DAB may be preferable to an ad hoc DAB.53 Further, some suggest that the large and complex nature of EPe projects is more commensurate with a standing, rather than an ad hoc, DAB.54 The Silver Book provisions have been criticised for expecting parties already in dispute to agree to the appointment of a DAB whereas such appointment might be better done (and more easily accomplished) predispute (i.e. at the beginning of the contract). Another criticism of the appointment of the DAB upon dispute is the likelihood that such appointment may be less contentious if done at the outset of the project before the dispute arose. Indeed, arguably effective use of the DAB mechanism derives from the appointment of the DAB at the beginning of the contract or before construction commences.ss The appointment of the DAB at the beginning of the contract is also one feature that is said to differentiate the DRB from other forms of ADR.56 In addition, some commentators believe that care should be taken to ensure that the DAB avoid becoming an arbitral step on the way towards arbitrationY 50

51

52 53

54 55

Formation of DAB 56

24-30

Silver Book sub-clause 20.2 sets forth the procedure for the appointment of the Dispute Adjudication Board (DAB). The parties shall jointly appoint the

572

57

Or, more specifically, Mr Seppala, Legal Adviser to the FIOIC Task Group. C.R. Seppala, "FIDIC's New Standard Forms of Contract-Force Majeure, Claims, Disputes and Other Causes M(2000) 17 I.C.L.R. 235 at 235 et seq. Seppala, op. cit. n. 42 above at 249; C. Wade, "The Silver Book: The RealityM March 2001, online: FIOIC http://www.fidic.orglresourceslcontractslwade_ mar01.asp (date accessed: July 4, 2001). Wade, op. cit. n. 40 above at 516. Seppala, op. cit. n. 42 above at 249. EIC, The EIC Contractor's Guide to the FIDIC Conditions o( Contract (or EPC Turnkey Pro;ects (European International Contractors, Berlin, 2000), p. 33. P.M. Genton, "The DRB/DAB: An Attractive Procedure if One Takes Certain Precautions M (Swiss Arbitration Association (ASA) assembly, Geneva, September 3,1999), online: FIDIC http://www.fidic.orglresourceslcontractslgenton.asp (date accessed: July 4, 2001); N.D.J. Henchie, "FIOIC Conditions of Contract for EPC Turnkey Projects-The Silver Book Problems in Store?M (2001) 18 (1) I.C.L.R. 41 at 51. Shadbolt, op. cit. n. 10 above at 108. D.M. Mix, "ADR in the Construction Industry: Continuing the Development of a More Efficient Dispute Resolution Mechanism M(1997) 12 Ohio St.}. on Disp. Reso/. 463, online: LEXIS at 482 (and in general).

573

DISCUSSION OF SPECIFIC SUB-CLAUSES

CLAIMS, DISPUTES AND ARBITRATION

Composition of DAB

24-31

Where the DAB comprises three persons, the parties each appoint one member and the two appointees choose the third, who shall act as chairman. If a list of potential members is included in the contract, the members shall be selected from those on the list. Due to the difficulty that often arises for parties in a multinational consortium to appoint their candidates, it is often suggested that the DRB members should not have the same nationality as the parties. 58 Parties may want to compile the list of candidates accordingly. The parties and the DAB shall incorporate by reference to the General Conditions of Dispute Adjudication Agreement contained in the appendix to these General Conditions, with such amendments as are agreed between them.

to refer a dispute "reduces the DAB to being one more procedural step in litigation".61 This is particularly problematic where there is no initial "safety valve" to head off disputes, such as the engineer. Although more costly, some view the replacement of the engineer by the DAB as an improvement62 to the extent that investing in a DAB can resolve otherwise costly disputes. Orange Book sub-clause 20.3 corresponds to that of Silver Book subclause 20.2. As does the Red Book, Orange Book provides for the appointment of a DAB that is to exist for, approximately, the currency of the c.ontract. That is., although the DAB's appointment may be terminated at any time as the parties mutually agree, the default termination is when the discharge (referred to in Orange Book 13.12) shall have become effective.

Composition and appointment of DAB Remuneration of DAB

24-32

24-33

The parties, when agreeing the terms of appointment, shall mutually agree upon the terms of the remuneration of the DAB. Each party is responsible for paying half of the remuneration.

Under the Orange Book, the DAB is to comprise one or three members. Unlike the Silver Book, however, where the DAB comprises three members the parties are to mutually agree upon and appoint the third member wh~ shall act as chairman, without consultation of the initial two selected members.

Replacement of DAB member

Terms of appointment of DAB

The parties may agree to replace one or more members of the DAB at any time. Replacement will be required if a member of the DAB declines, or is unable, to act, 59 unless the parties agree otherwise. The replacement will be appointed in the same manner as was the replaced person under this subclause. Only through mutual agreement may the parties terminate the appointment of a member of the DAB.

Orange Book sub-clause 20.3 is more detailed than the Silver Book with respect to the terms of appointment of the DAB. First, the DAB is to incorporate the model terms published by FIDIC. In addition, each member of the DAB . is to be, and remain, independent of the parties throughout the appolOtment. The DAB is to act impartially and in accordance with the contract. F~n.ally, the DAB.shall not be responsible for any breach of duty or contract arlSlOg out of their appointment and shall be indemnified by the parties against any such claims.

Expiration of the DAB

24-34

The appointment of the DAB shall expire when it has given its decision in all disputes referred to it under Silver Book sub-clause 2004, unless the parties agree otherwise. Some view the Silver Book's DAB provision as a "large step backwards"60 as (for among other reasons) the joint appointment of the DAB only 28 days after one party gives notice of its intention

58

59 60

P.M. Genton, "The DRBlDAB: An Attractive Procedure if One Takes Certain Precautions" (Swiss Arbitration Association (ASA) assembly, Geneva, September 3, 1999), online: FIDIC http://www.fidic.org!resourceslcontractslgenton.asp (date accessed: July 4. 2001); FlDIC GUIde, p. 304. Due to death, disability, resignation or termination of appointment. Gaede, op. cit. n. 41 above at 493.

574

24-35

24-36

Remuneration of DAB and DAB activities As does the Red Book, Orange Book sub-clause 20.3 addresses the issue of the remuneration of any specialist the DAB may require. Unlike the Silver Book, Orange Book sub-clause 20.3 specifies the remuneration of the DAB and any specialist, is to be decided through the agreement of each membe; of the DAB and each party when agreeing to the terms of appointment.

61

ibid.

62

Shadbolt, op. cit. n. 10 above at 108.

575

24-37

CLAIMS, DISPUTES AND ARBITRATION

Where there is disagreement as to remuneration, Orange Book provides for a minimum that includes: reimbursement for reasonable expenses, a daily fee,63 and a retainer fee per calendar month equivalent to three times such daily fee.

Failure to pay remuneration

24-38

24-39

Under Orange Book sub-clause 20.3, where one party fails to pay its due portion of remuneration, the other party may make payment on his behalf and recover it from the party in default. This provision is potentially beneficial as it helps to remedy a situation in which one party may seek to frustrate, or prevent, the proceedings of the DAB through withholding remuneration. Both the Silver and the Orange Book provide for removal by consensus of the dispute adjudication board. Under these contracts, the provision requiring agreement on the compensation of the DAB could allow the parties to avoid or delay the expert process by not agreeing on how much to pay the DAB or their outside specialists. Under the Silver and the Orange Book, the parties may wish to delete the provision requiring approval of one party's appointee for the board, by the other party. Although this approval procedure has been adopted by the World Bank,64 it may result in conflict and delay in appointment of the board members. Where such approval power is not removed, then in the event that one party does not succeed in finding a board member that meets with the approval of the other party, the appointing authority should choose all three board members. The Yellow Book sub-clause 20.2 is substantially equivalent to that of the Silver Book. The Red Book sub-clause 20.2 differs slightly from that of the Silver Book, however. First, the Red Book stipulates that the DAB shall be jointly appointed by the parties by the date stated in the appendix to tender and shall expire when the discharge (referred to in Red Book 14.12) shall have become effective. In other words, the DAB is to be in existence for the currency of the contract and not constituted, as in the Silver and Yellow Books, solely when a dispute arises between the parties. The Red Book also explicitly addresses the issue of the remuneration of any expert the DAB consults, providing each party shall be responsible for one-half of this remuneration. Due to the semi-permanent nature of the DAB, the Red Book provides that the parties may agree, at any time, to jointly refer a matter to the DAB for it

DISCUSSION OF SPECIFIC SUB-CLAUSES

to give its opinion. Neither party, however, shall consult the DAB without

the agreement of the other party. In other words, a dispute, as such, need not arise for the parties to consult the DAB. A semi-permanent DAB may be advantageous in this respect as it may help resolve issues between the parties before these issues become disputes proper. Recent evidence of the use of DABs and DRBs in large-scale projects "indicates that this informal, advisory role of the DAB is of increasing importance" .65 Some authors describe this aspect of DRBs as "a vital ingredient" in the success of such projects. 66 Indeed, there is evidence that favourable results have been had "where the board is appointed at the outset of the project and had regular communication with the parties" P The Red Book DAB provisions are "in keeping with the original philosophy behind DRBs" as they "can be used to facilitate/mediate as events and disputes occur" rather than simply being "another tier of the decision making/resolving process" _68 It should be noted that FIDIC agrees with most arguments putting forward the benefits of a standing DAB.69 The Silver Book merely provides alternative clauses where the overall costs of the project do not merit the additional expense of a standing DAB.7o Whether parties choose to constitute a DAB at the beginning of the contract or upon the arisal of a dispute, the replacement of the engineer by the DAB "may be the most favourable of the innovations of the New Books from the Contractor's point of view".71 Having said this, as an alternative to the DAB, the Red and Yellow Book Particular Conditions provide sample clauses allowing for the engineer to make pre-arbitral decisions. When undertaking his duty under the terms of these provisions, the engineer is to act "fairly, impartially and at the cost of the employer".72 Despite potential questions regarding the true "neutrality" of the engineer,73 parties may wish to use the engineer in place of the DAB in order to benefit from time and cost savings. The ENAA does not contain provisions corresponding to the appointment of a DAB. Instead, in the event of any dispute arising between the parties in connection with or arising out of the contract, the parties are to seek to resolve such dispute by mutual consultation (ENAA 6.1.1). Under the

65 66 67

68

69 70 71

63

6<

The daily fee is to be in accordance with that "as established from time to time for arbitra. tors under the administrative and financial regulations of the International Centre for Settlement of Investment Disputes" (Orange Book 20.3). World Bank "Standard Bidding Documents for the Procurement of Works" (World Bank, Washington D.C., 2000) online: World Bank http://www.worldbank.orglhtmUopr/biddocsl works/w-titlpg.htm (dace accessed: July 16,2001) at 132.

576

72

73

Seppala, op. cit. n. 42 above at 252. Shadbolt, op. cit. n. 10 above at 101. Gaede, op. cit. n. 41 above at 492. Henchie, ope. cit. n. 38 above at 50. C. Wade, "The Silver Book: The Reality" March 2001, online: FIDIC http://www.fidic.orgl resources/contractslwade_mar01.asp (date accessed: July 4, 2001). ibid. ibid. FIDIC, Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer, Guidance for the Preparation of Particular Conditions (1999) at sub-clause 20.4; FIDIC, Conditions of Contract for Plant and Design-Build for Electrical and Mechanical Works and for Building and Engineering Works Designed by the Contractor, Guidance for the Preparation of Particular Conditions (1999) at sub-clause 2004. See discussion above Chap. 7.

577

24-40

24-41

DISCUSSION OF SPECIFIC SUB-CLAUSES

CLAIMS, DISPUTES AND ARBITRATION

.4-42

ENAA, this consultation is the interim measure, instead of the DAB of Silver Book, between an initial dispute between the parties and eventual reference of this dispute to arbitration. Further, under the ENAA, either party may give notice to the other party of its desire to refer to an expert any dispute or difference within one or more specified categories (ENAA 6.2.1). This expert represents an optional interim measure, similar to that of the DAB, after which the parties may resort to arbitration (ENAA 6.2.3). The parties have 14 days,74 following such notice, in which to mutually agree to appoint, or have the ICC appoint, an expert to which to refer the dispute (ENAA 6.2.1 (i) and (ii)). Unless the parties agree otherwise, the parties shall share the proper fees and costs of the expert equally (ENAA 6.2.4). If the parties cannot agree as to the appointment of this expert, the dispute shall not be referred to the expert. In such an event, recourse may then be had to arbitration (ENAA 6.2.1). The ENAA Contract provides for an expert to be appointed at the time the conflict arises (within 14 days of notice being given of such a request; see ENAA 6.2.1). The ENAA Contract Guide Notes justify the appointment of the expert at the time of the dispute by stating that it is in the interests of the parties to appoint someone with experience in the particular area of the dispute. 75 The parties using the ENAA Contract, however, may want to provide for the appointment of the expert from the outset, as provided in the Orange Book, to avoid delays. Indeed, although the World Bank has adopted the ENAA Contract model for its Standard Bidding Documents: Supply and Installation of Plant and Equipment, it is not satisfied with the ENAA Contract's expert system. It considers that appointment on a case-by-case basis could result in delays and inefficiency.76 In its Standard Bidding Documents, sub-clause 6.1.2, the Bank has implemented an adjudicator, in place of the expert, who is appointed at the outset by the parties and who intervenes in each dispute before reference to arbitration. Under the ENAA Contract, where the parties cannot agree on the identity of the expert, they may request the expert be chosen by the International Chamber of Commerce (ICC) acting through its International Centre for Technical Expertise (ICTE) (sub-clause 6.2.1). The expert must give a decision within 60 days of his appointment (sub-clause 6.2.2). The parties then have 14 days to give notice that they will not abide by the decision of the expert (6.2.3). Problems have been identified concerning the use of the ICTE. According to the ICC rules, a different regime is used for an expert provided through a

contract provision and one provided by mutual assent of the parties. On a strict interpretation, the ENAA provision seems to fall outside these two types as laid down in the ICC Rules. 77 The rules also withhold the expert's decision until full payment of the appropriate fees by the parties. Since the parties split the costs this may be a method of avoiding an unfavourable decision (although the ICC requires a sizeable deposit before appointment of the expert).78 The parties under the ENAA Contract are not bound to use the expert. Unless one of the parties refers to the expert, disputes go directly to arbitration. Although this system requires a longer delay before resolution than that of the Orange Book-since the expert is not appointed until a dispute is referred to him by one of the parties-the ENAA Contract model provides greater consistency by leaving the owner's decision as binding on the contractor until an intervening agreement or arbitral decision. The fact that the expert's decision is not binding unless accepted by the parties may avoid inconsistent decisions. However, the expert's lack of teeth brings into question his purpose and presence. The Guide Notes acknowledge this problem and respond that the expert is meant to fill a more conciliatory role between the owner and the contractor. 79 Furthermore, in the absence of agreement between the parties, this process allows the owner to impose his decisions on the contractor until a contrary decision by the arbitrator. Given the duration of arbitral proceedings, this may constitute an unfair advantage to the owner in the dispute resolution process. 80 For this reason, the parties may want to make the expert's recommendations binding. However, even with a mandatory expert's decision, the time needed for effective intervention of the neutral under the ENAA C:0ntract, including selection, procedure and learning curve, could be extensive. Finally, the ENAA Contract does not provide for removal of an expert. However, this is less vital in a discretionary system, where the expert will only have the right to rule on one topic. Under the EIC, there is no interim dispute mechanism similar to that of the Silver Book DAB. Instead, as under the ENAA, the parties are required to attempt to settle any dispute amicably before commencing arbitration (EIC 23.2), where notice has been given (under EIC 23.1) of the intention to commence arbitration. The interim measure of amicable settlement is not obligatory, however, as arbitration may commence as early as 28 days following the notice of intention to commence arbitration, whether or not the any attempt at amicable settlement has been made (EIC 23.3). The ICE provides three interim measures for resolving disagreements that arise under the contract. 77

74 7S

76

Or a longer period, should the parties so agree. Engineering Advancement Association of Japan, Model Form International Contract for Process Plant Construction, Volume 3 Guide Notes (1992), p. 85. See generally, Walser, "The ENAA Model Forms: Tentative Comments of a World Bank Lawyer", International Bar Association Conference in Tokyo, Japan, February 1993.

578

78

7. 80

Gould, "Comments on the ENAA Model Form International Contract for Process Plant Construction (Revised 1992)" (1994) 11 I.C.L.R. 498 at 500, 519. ibid. at 521. . Engineering Advancement Association of Japan, Model Form International Contract, op. cit. n. 10 above, p. 3. Gould, op. cit. n. 77 above at 500.

579

24-43

24-44

CLAIMS, DISPUTES AND ARBITRATION

Employer's representative

24-45

First, the contractor and employer are to refer certain matters of dissatisfaction to the employer's representative (ICE 66(2)). The employer's representative then has one month in which to notify both the employer and the contractor of his decision in the matter (ICE 66(2)).

Conciliation

24-46

Second, the employer or the contractor may, at any time before the service of a notice to refer the matter to arbitration, seek the agreement of the other party to have the dispute considered under the Institution of Civil Engineers' Conciliation Procedure (1999). Should both parties agree to conciliation, unless the decision of the conciliator is contested within one month of the receipt of the decision (through one party giving notice of either adjudication or arbitration), the recommendation of the conciliator shall be deemed to have been accepted as finally determining the dispute by agreement (ICE 66(5)(b)). The ICE Contract has chosen an ADR method involving use of a conciliator appointed at the outset of the contract. Conciliation under the ICE Contract Conciliation Procedure (1999), according to one commentator, "is what many would describe and recognise as mediation. »81 For example, under the ICE Contract conciliation procedure the conciliator may meet separately with the parties without subsequently revealing to the other party any information the conciliator thereby obtained.82

Adjudication 24-47

Third, either party may refer any dispute for adjudication and may notify the other party, at any time, of his intention to do so (ICE 66(6)(a)). This interim measure is the most similar to that of the Silver Book DAB. The ICE provisions are much less extensive than those of the Silver Book, however, and provide only a vague skeleton of the adjudication procedure. For example, the adjudicator is to be appointed, and the dispute referred to him, within seven days of the adjudication notice (ICE 66(6)(b)). In addition, the adjudication is to be conducted under the Institution of Civil Engineers' Adjudication Procedure (1997) (ICE 66(6)(a)). The ICE further specifies, as does the Orange Book, that the adjudicator shall act impartially (ICE

DISCUSSION OF SPECIFIC SUB-CLAUSES

66(6)(e)) and further provides he may take the initiative in ascertaining the facts and the law (ICE 66(6)(f)). Similar to the Orange Book, the ICE absolves the adjudicator from liability "for anything done or omitted in the discharge or purported discharge of his functions as adjudicator" unless such act or omission was in bad faith (ICE 66(6)(8)). The decision of the adjudicator also binds the parties until its revision by the arbitrator (ICE 66(7)), One of the risks of this system is that it may end up being a pointless rehearsal of the arbitration process. Under the AlA, the interim measure for dispute resolution is mediation, after which the parties may resort to arbitration (AlA 6.2-Part 1; AlA 10.2-Part 2)). A party shall file a demand for mediation, in writing, both with the other party and with the American Arbitration Association (AlA 6.2-Part 1; AlA 10.2-Part 2). Such demand for mediation may not be made after the date in which such a claim would be barred by the statute of repose or limitations (AlA 6.2-Part 1; AlA 10.2-Part 2) Under the AGC, there exist two interim measures for dispute resolution. First, parties are to endeavour to settle the dispute through direct discussions (AGC 12.2). If this fails, parties may then resort to mediation. Mediation is an obligatory step before parties may proceed to the dispute resolution process, as selected by the parties and set forth in Exhibit No.1, to settle their disputes (AGC 12.2). As under the AlA, mediation under the AGC is governed by the AAA, and the AAA Construction and Mediation Rules shall apply. The DBIA provides several levels of interim measure for dispute resolution, before parties reach the ultimate stage of arbitration. First, parties are to attempt to resolve disagreements through direct discussions, at field level, between the design-builder's representative and the owner's representative (DBIA 10.2.2). Should these discussions fail, the senior representatives of each party shall meet to attempt to reach a resolution, before which they shall exchange relevant information as necessary (DBIA 10.2.3). If the senior representatives are unsuccessful, the parties shall submit the matter to non-binding mediation. As under the AlA and the AGC, this mediation shall be conducted in accordance with the AAA Construction and Mediation Rules (DBIA 10.2.4). 20.3 Failure to Agree Dispute Adjudication Board

(b) (c) (d)

81

82

B. Eggleston, The ICE Conditions of Contract (7th ed., Blackwell Science, London, 2001) p.389. ibid.

580

24-49

If any of the following conditions apply, namely:

(a)

24-48

the Parties fail to agree upon the appointment of the sole member of the DAB by the date stated in the first paragraph of Sub-Clause 20.2 [Appointment of the Dispute Adjudication Board], either Party fails to nominate a member (for approval by the other Party) of a DAB of three persons by such date, the Parties fail to agree upon the appointment of the third member (ro act as chairman) of the DAB by such date; or the Parties fail to agree upon the appointment of a replacement person within 42 days after the date on which the sole member or one of the three members declines to act or is unable to act as a result of death, disability, resignation or termination of appointment, 581

DISCUSSION OF SPECIFIC SUB-CLAUSES

CLAIMS, DISPUTES AND ARBITRATION

then the appointing entity or official named in the Particular Conditions shall, upon the request of either or both of the Parties and after due consultation with both Parties, appoint this member of the DAB. This appointment shall be final and conclusive. Each Party shall be responsible for paying one·half of the remu· neration of the appointing entity or official. 24-50

24-51

Silver Book sub-clause 20.3 sets out the procedure to follow upon failure of the parties to agree in relation to the formation of the DAB. Such failure may result from the parties' failure to agree on, or to appoint, either: the sole member of the DAB of one; one of the initial two members of the DAB of three; or the third member of the DAB of three (Silver Book 20.3 (a)(b) and (c) respectively) by the date stated in the first paragraph of sub-clause 20.2.83 Such failure may also result from the failure of the parties' to agree upon the appointment of a replacement person within 42 days following the date on which the member of the DAB declines, or is unable, to act. 84 Should a DAB member fail to be appointed, due to one of the above-mentioned failures, either party may request the appointing entity or official, named in the Particular Conditions, to appoint the missing member of the DAB. This appointment shall be made after due consultation with both parties and is final and conclusive. Finally, each party is responsible for one-half of the remuneration of the appointing entity official. Silver Book sub-clause 20.3 attempts to foresee all instances in which a failure to appoint members of a DAB may arise. By providing for these instances, sub-clause 20.3 hopes to prevent non-appointment, and thus nonuse, of the DAB. Such a clause is important, as parties already in dispute may not be co-operative. In addition, such a clause seeks to avoid frustration of the proceedings resulting from the action or inaction of one party. Under the Particular Conditions, sub-clause 20.3 states the appointing entity "shall be the President of FIDIC or a person appointed by the President". According to the FIDIC Guide, however, FIDIC will only undertake this task where both the Particular Conditions so provide and the contract defines English as the language for communications. 85 The final paragraphs of Orange Book sub·clause 20.3 correspond with the provisions of Silver Book sub-clause 20.2 and are substantially identical. Under Orange Book sub-clause 20.3, however, the DAB is to be appointed within 28 days of the effective date 86 instead of, as in the Silver Book, 28 days from the notification of reference of the dispute to a DAB. Further, the appointing official may appoint a member of the DAB within only 28 days of the parties' failure to do so, in contrast to the 42 days provided for under the Silver Book. Finally, the Orange Book provision does not specify which party is responsible for the remuneration of the appointing official or entity. 83 84 8S

86

Such date being 28 days after a parry gives notice to the other party of its intention to refer a dispute to a DAB. The failure of the DAB member to act may be as a result of death, disability, resignation or termination of appointment. FIDIC Guide, p. 30. For information on the procedure to follow to request FIDIC to act as appointee, see FIDIC Guide, p. 310. i.e. the date the contract entered into legal force and effect.

582

The corresponding sub-clauses 20.3 of the Yellow and Red Books are identical to that of the Silver Book. Under the ENAA, the interim dispute measures are less extensive than those of the Silver Book (see discussion above). The parties must mutually agree to the appointment of an expert to which to refer the dispute, or must mutually agree to request the ICC to appoint such an expert (ENAA 6.2.1(i) and (ii)). If the parties cannot so agree, the dispute shall not be referred to an expert but may, eventually, be referred to arbitration. Under the EIC, there exists no equivalent provision, as the interim dispute resolution mechanism does not involve third parties. The third ICE procedure, adjudication, involves the appointment of a third party: the adjudicator. Unless the adjudicator has already been appointed, however, the ICE does not specify in what manner the adjudicator is to be appointed should the parties fail to agree to his appointment under ICE 66(6)(b). Rather, provisions in this respect are found in the rules of the adjudication procedure. 87 Neither the AlA nor the AGC contain provisions equivalent to those of Silver Book sub-clause 20.3. Under these contracts, however, the Construction Industry Mediation or Arbitration Rules of the American Arbitration Association govern mediation or arbitration. The rules of the AAA do contain mechanisms such as that of Silver Book sub-clause 20.3. The DBIA provides for mediation to be conducted by an impartial mediator the parties mutually agree upon (DBIA 10.2.4). If the parties are unable to agree, the AAA shall designate a mediator pursuant to its Construction Industry Mediation Rules (DBIA 10.2.4).

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20.4 Obtaining Dispute Adjudication Board's Decision

If a dispute (of any kind whatsoever) arises between the Parties in connection with, or arising out of, the Contract or the execution of the Works, including any dispute as to any certificate, determination, instruction, opinion or valua· tion of the. Employer, then after a DAB has been appointed pursuant to Sub· Clause 20.2 [Appointment of the DAB] and 20.3 [Failure to Agree DAB], either Parry may refer the dispute in writing to the DAB for its decision, with a copy to the other Party. Such reference shall state that it is given under this Sub· Clause. For a DAB of three persons, the DAB shall be deemed to have received such ref· erence on the date when it is received by the chairman of the DAB. Both Parties shall promptly make available to the DAB all information, access to the Site, and appropriate facilities, as the DAB may require for the purposes of making a decision on such dispute. The DAB shall be deemed to be not acting as arbitrator(s). 87

The Institution of Civil Engineers' Adjudication Procedure (1997), under which the adjudication shall be conducted (ICE 66(6)(a)), provides for how an adjudicator might be appointed where the parties are unable to agree on his appointment. 583

24-53

CLAIMS, DISPUTES AND ARBITRATION

Within 84 days after receiving such reference, or the advanced payment referred to in Clause 6 of the Appendix - General Conditions of the Dispute Adjudication Agreement, whichever date is later, or within such other period as may be proposed by the DAB and approved by both Parties, the DAB shall give its decision, which shall be reasoned and shall state that it is given under this Sub-Clause_ However, if neither of the Parties has paid in full the invoices submitted by each Member pursuant to Clause 6 of the Appendix, the DAB shall not be obliged to give its decision until such invoices have been paid in full. The decision shall be binding on both Parties, who shall promptly give effect to it unless and until it shall be revised in an amicable settlement or an arbitral award as described below. Unless the Contract has already been abandoned, repudiated or terminated, the Contractor shall continue to proceed with the Works in accordance with the Contract. If either Party is dissatisfied with the DAB's decision, then either Party may, within 28 days after receiving the decision, give notice to the other Party of its dissatisfaction. If the DAB fails to give its decision within the period of 84 days (or as otherwise approved) after receiving such reference or such payment, then either Party may, within 28 days after this period has expired, give notice to the other Party of its dissatisfaction.

In either event, this notice of dissatisfaction shall state that it is given under this Sub-Clause, and shall set out the matter in dispute and the reason(s) for dissatisfaction. Except as stated in Sub-Clause 20.7 [Failure to Comply with Dispute Adjudication Board's Decision) and Sub-Clause 20.8 [Expiry of Dispute Adjudication Board's Appointment), neither Party shall be entitled to commence arbitration of a dispute unless a notice of dissatisfaction has been given in accordance with this Sub-Clause. If the DAB has given its decision as to a matter in dispute to both Parties, and no notice of dissatisfaction has been given by either Party within 28 days after it received the DAB's decision, then the decision shall become final and binding upon both Parties.

Silver Book sub-clause 20.4 sets out the procedure for obtaining the DAB's decision on a contentious matter. Once a dispute has reached the stage of reference to a formal body, the parties must begin with the dispute adjudication board. The decision of the board is then binding on the parties unless and until arbitration results in a contrary decision.

Submission of dispute to DAB

24-54

Where any dispute arises between the parties during the currency of the contract, following the appointment of a DAB (as per Silver Book 20.2), either party may refer the dispute in writing to the DAB with a copy to the other party. This reference shall state that it is given under sub-clause 20.4. The reference is be deemed to have been received by the DAB on the date on which, for a DAB of three members, the chairman receives the reference. Both parties are to promptly provide the DAB with all information required for the purposes of making a decision on such dispute. The DAB shall be deemed not to be acting as arbitrator(s).

584

DISCUSSION OF SPECIFIC SUB-CLAUSES

Decision rendered by DAB The DAB is to render a reasoned decision, stating such decision is made under sub-clause 2004. The FIDIC Guide notes the importance of a "reasoned" decision, as such reasons" are an essential part of the decision: properly written, they may persuade both parties (particularly the losing Party) that the DAB has fully studied all relevant matters and reached a similar conclusion as that which might be expected of arbitrator(s)" .88 This decision is to be given by 84 days after receiving such a reference or after receiving the advanced payment (referred to in clause 6 of the appendix), whichever date is later. Another possibility is that the DAB may propose a date for rendering its decision such as is agreeable to the parties. Parties may wish to consider reducing the period of 84 days to 56 or even 28 days.89 With regard to payment, Silver Book further stipulates that if neither party has paid in full the invoices submitted by each member, pursuant to clause 6 of the appendix, the DAB may withhold rendering its decision until such amounts are paid. 9o The sharing the DAB's fees avoids a perception of bias 91 and is ultimately to the benefit of both parties_

24-55

Effect of decision rendered by DAB The decision of the DAB is binding on both parties and shall be promptly executed unless and until either an amicable settlement or an arbitral award revises the decision. Silver Book further provides that the contractor shall continue to proceed with the works in keeping with the contract unless the contract has already been abandoned, repudiated or terminated. In other

FIDIC Guide, p. 313. Henchie, op. cit. n. 38 above at 51 who points out, in support of his suggestion, that apparently: "Statutory Adjudication in the UK has demonstrated that detailed and complex disputes can be disposed of within 28 days by one adjudicator who has no prior knowledge of the dispute." 90 The reference to "neither" party paying the DAB-issued invoice~ seems reasonable as, in such a case, both parties to the dispute would be hindering the resolution of the dispute. It is worth noting that Silver Book uses the word "neither" instead of "either". In this way, one party alone is presumed unable to prevent the DAB from proceeding to a decision, as one party's abstention from payment is not sufficient to delay the decision-making process of the DAB. Indeed, clause 6 of the Appendix "General Conditions of Dispute Adjudication Agreement" provides, in essence, that in the case of non-payment of the DAB fees by one party, the other party may pay the amount owing in full and subsequently be entitled to reimbursement from the other party. Clause 6, in the interest of facilitating the payment process, however, begins with the presumption that all payments are to be made by one party (namely, the contractor), who will then later be reimbursed by the other party. Clause 6 contains provisions, in the event of non-payment by the contractor, for the employer to pay the fees and then recuperate both the contractor's share and associated expenses resulting from the contractor's initial non-payment. There are no such provisions, however, for additional expenses incurred where the employer fails to pay the contractor for his portion of the cost. 91 E. Corbett, "FIDIC's New Rainbow 1Sf Edition-An Advance?" (2000) 17 (2) I.C.L.R. 253 at 274; P. Gerber, "Dispute Avoidance Procedures ("DAPs")- The Changing Face of Construction Dispute Management" (2001) 18 (1) I.C.L.R. 122 at 126. 88

89

585

24-56

DISCUSSION OF SPECIFIC SUB-CLAUSES

CLAIMS, DISPUTES AND ARBITRATION

words, the DAB's decision is of "interim binding effect and must be complied with pending further steps in the dispute resolution mechanism".92 It is true the final and binding nature of the DAB's decisions in the Silver Book differ from those of DRBs. Some caution, however, that the binding nature of a DAB's decision under Silver Book may create a situation where parties will "be more inclined to formalise their attitudes, engage counsel and develop adversarial approaches aimed solely at winning" .93 Further, the Silver Book is criticised for perhaps emphasising this difference while not improving the efficacy of the DAB provisions in other respects. 94

Where one party protests decision rendered by DAB 24-57

Either party may give notice to the other party of its dissatisfaction with the DAB's decision. Such a party must do so within 28 days after either receiving the decision or the manifestation of the DAB's failure to render a timely decision. In either event, this notice shall set out the matter in dispute, the reasons for dissatisfaction, and shall state that it is given under this subclause. Effect of notice of dissatisfaction

24-58

Notice of dissatisfaction under this sub-clause is a pre-requisite for either party to commence arbitration of a dispute (with the exception of Silver Book sub-clause 20.7). In addition, the DAB's decision is final and binding on both parties if neither party gives a notice of dissatisfaction within 28 days after receiving the DAB's decision. To facilitate enforcement of a DAB decision, contractors may want a stipulation that payments due under a DAB be considered as payments under clause 14 such that failure to pay would entitle the contractor to terminate under sub-clause 16. 95 Under Orange Book sub-clause 20.4, the procedure for obtaining a DAB's decision is roughly equivalent to that of Silver Book sub-clause 20.4. The Orange Book provisions differ from those of the Silver Book, however, in two respects. First, the DAB has only 58 days within which to render its decision after receiving the reference. Under the Orange Book, therefore, the timeline for registering dissatisfaction with a DAB decision is similarly adjusted. A party must notify the other party, in the event of dissatisfaction regarding a decision of the DAB, within 28 days of the receipt of the deci-

92 93 9<

9J

E. Corbett, "FIDIC's New Rainbow I" Edition-An Advance?" (2000) 17 (2) I.C.L.R. 253 at 274. Shadbolt, op. cit. n. 10 above at 106. See comments of A.H. Gaede, Jr, "The Silver Book: An Unfortunate Shift from FIDIC's Tradition of being Evenhanded and of Focusing on the Best Interests of the Project" (2000) 17 I.C.L.R. 477 at 492-493. Ele Guide, p. 34.

586

sion or, in the event the DAB fails to render a timely decision, within 28 days of the expiry of the 58-day period in which the DAB is to render its decision. A second difference is that Orange Book sub-clause 20.4 is silent as to the DAB's ability to abstain from rendering a decision where neither party has paid in full any invoices submitted by the DAB members. The corresponding sub-clauses 20.4 of the Yellow and Red Books are identical to that of the Silver Book. Under the ENAA, as an interim measure for dispute resolution either party may, at their discretion, refer their dispute to an expert (ENAA 6.2.1). The ENAA provisions are structurally similar to those of Silver Book sub-clause 20.4. Under the ENAA, the expert has 30 days from the closing of submissions made to him by the parties and, in any event, 60 days from the date of his appointment in which to render a decision (ENAA 6.2.2). The ENAA Contract does not specify the powers of the expert as regards access to the site or information and facilities. Such power, however, may not be necessary under the ENAA Contract system, where the expert is intended as more of a conciliator or mediator, contrary to the decision-making role of the DAB contemplated by the Silver Book. In the event that either party is dissatisfied with the decision of the expert, such party has 14 days within which to give notice to the other party of this dissatisfaction (ENAA 6.2.3). Where no such notice is given, the decision of the expert shall become final and binding on the parties (ENAA 6.2.3). Unless an agreement is made to the contrary, "the proper fees and costs of the expert shall be shared equally by the parties". (ENAA 6.2.4) Where a dispute has been referred to an expert under these provisions, neither party may proceed to arbitration unless either the expert fails to produce a determination within the relevant time period or a party gives notice to the other party of dissatisfaction regarding the expert's decis(on (ENAA 6.2.5).96 In addition, as in almost all of the standard form contracts examined herein, the parties are, despite the reference of a dispute to either an expert or arbitration, to continue performing their obligations under the contract (ENAA 6.3). Finally, under the Silver Book, the DAB's decision takes immediate effect. Under the ENAA, the expert's decision takes effect only where the parties do not give notice of their discontent with his decision (ENAA 6.2.3). The EIC contains no provisions similar to those of Silver Book sub-clause 20.4, as the EIC does not provide for an interim dispute resolution mechanism. Similar to the majority of the standard form contracts examined herein, however, the EIC does specify that where a dispute arises between the parties, subject to certain qualifications/provisos, the parties shall "in every case, continue to comply with their obligations under the contract" (EIC 23.1). The ICE, as elucidated above, provides three interim measures for resolving disagreements that arise under the contract. The two measures that roughly correspond to those of Silver Book sub-clause 20.4 are conciliation and adjudication. 96

It is worth noting, however, as discussed above, that reference to an expert is not a necessary step in order for the parties to proceed to arbitration.

587

24-59

24-60

CLAIMS, DISPUTES AND ARBITRATION

24-61

Under conciliation, the ICE specifies neither the mechanisms nor time periods within which the conciliator must reach a decision. 97 Either party may protest the conciliation decision, through either a notice of adjudication (under ICE 66(6)) or notice to refer to arbitration (under ICE 66(9)), within one month of the receipt of such decision. Failing such notice, the recommendation of the conciliator "shall be deemed to have been accepted as finally determining the dispute by agreement so that the matter is no longer in dispute" (ICE 66(5)(b)). Under adjudication, the ICE specifies that the adjudicator will reach a decision within 28 days of referral of the dispute, or a longer period should the parties so agree (ICE 66(6)(c)). The 28-day period may be extended by up to 14 days with the consent of the party by whom the dispute was referred (ICE 66(6)(d)). The decision of the adjudicator is binding until the dispute is finally determined by: legal proceedings, arbitration, or agreement (ICE 66(7)).98 As with the majority of the other standard form contracts examined herein, the ICE provides that parties are to continue to perform their contractual obligations notwithstanding the existence of any dispute (ICE 66(4)). Finally, where neither party gives notice to refer the dispute to arbitration within three months from the rendering of the adjudicator's decision, the decision is both binding and final (ICE 66(9)(b)). Under the AlA, the interim measure for dispute resolution is mediation. The AlA provisions, however, do not correspond to those of Silver Book 2004, as neither the framework nor the time delays within which the mediators must reach a decision are discussed. In addition, the AlA is the only standard form contract examined herein that does not specify that, in the event of a dispute, the parties are to continue to perform their contractual obligations. The AGC, as discussed above, provides two interim measures for resolving disagreements that arise under the contract. The measure that roughly corresponds to that of Silver Book sub-clause 2004 is mediation. In the event of mediation, "the parties agree to conclude such mediation within sixty (60) days of filing of the request" (AGC 12.2). The AGC does not discuss procedures for the registering of a party's discontent with the outcome of mediation. As discussed above, mediation is an obligatory step before parties may proceed to the dispute resolution process set forth in Exhibit No. 1 of the agreement (AGC 12.2; AGC 12.3). The dispute resolution process provision, however, merely refers to any controversy or claim "not resolved by mediation" without specifying what this lack of resolution might entail (AGC 12.3). Similar to the other standard form contracts examined herein, in the event of arbitration proceedings and unless the parties agree otherwise, the parties are to continue to perform their obligations under the contract (AGC 12.5). 97

98

The ICE does specify, however, that the dispute should be considered under the Institution of Civil Engineers' Conciliation Procedure (t 999), which does set out such parameters (ICE 66(5)). The use of the word "until" in ICE sub-clause 66(7) suggests that the adjudicator's decision will not be suspended by the commencement of arbitration, judicial proceedings, or negotiations.

588

DISCUSSION OF SPECIFIC SUB-CLAUSES

Similar to the ICE, the DBIA provides three interim measures for resolving disagreements that arise under the contract. The measures that roughly correspond to those of Silver Book sub-clause 2004 are those of the meeting of the senior representatives of each party and non-binding mediation. The senior representatives of each party have 30 days, upon the request of either party, within which to meet and attempt to resolve a dispute or disagreement (DBIA 10.2.3). If the senior representatives are unable to resolve the dispute on terms satisfactory to both parties, the parties are to submit the dispute to non-binding mediation (DBIA 10.204). Unlike the Silver Book, the DBIA does not discuss the mechanisms or time delays for such non-binding mediation. As with most of the other standard form contracts herein examined, the DBIA provides that, in the event of a dispute, each party is to continue to perform their obligations under the contract (DBIA 1004.1).

24-62

20.5 Amicable Settlement

24-63

Where notice of dissatisfaction has been given under Sub-Clause 20.4 above, both Parties shall attempt to settle the dispute amicably before the commencement of arbitration. However, unless both Parties agree otherwise, arbitration may be commenced on or after the fifty-sixth day after the day on which notice of dissatisfaction was given, even if no attempt at amicable settlement has been made.

Under Silver Book sub-clause 20.5, arbitration may be commenced, unless both parties agree otherwise, on or after 56 days following the day on which notice of dissatisfaction is given (under Silver Book 2004). The Silver Book also provides that, upon such notice of dissatisfaction, both parties shall attempt to settle the dispute amicably before the commencement of arbitration. Resolution of any dispute by direct negotiation between the parties is always best. By mentioning the use of amicable settlement the contract attempts to induce such settlement, but does not require it. Indeed, subclause 20.5 specifies that arbitration may be commenced even where no attempt at amicable settlement has been made. It is questionable whether delaying final resolution of a given problem by a further 56 days is advisable. Parties may want to shorten or eliminate this period. Nonetheless, a certain time period for amicable settlement may be advisa~le as parties having the DAB decision in hand and contemplating a potentIally lengthy and costly arbitration may be disposed to make a "serious last-ditch attempt at settlement" which, under this sub-clause they may do "without any inhibition or 'loss of face'" .99 T~is s.ection demonstrates the difficulty in requiring amicable dispute resolutJ~n In contract. The parties want flexibility without facilitating dilatory practIce. Thus, the contract provides for amicable dispute resolution, but 99

Wade, op. cit. n. 40 above at 518.

589

DISCUSSION OF SPECIFIC SUB-CLAUSES

CLAIMS, DISPUTES AND ARBITRATION

24-64

24-65

still allows for arbitration if settlement is not reached within a certain period; there is no sanction imposed for failure to pursue such resolution. There is also no procedure for such resolution. Unlike under the Orange Book, Part II of the Silver Book does not suggest the parties agree on such a procedure at the beginning of the contract. Neither, and perhaps more surprisingly, 1 does the Silver Book suggest the parties could also wait until a dispute arises to agree on a procedure in order to ensure that the nature of the procedure suits the dispute at hand. The corresponding sub-clauses 20.5 of the Yellow and Red Books and of the Orange book are identical to that of the Silver Book. For the purposes of comparison with other standard form contracts, one may characterise Silver Book sub-clause 20.5 as a second, or penultimate, step in dispute resolution before a dispute is, or may be, referred to arbitration. Alternatively, and this is the approach taken in the following analysis, one may characterise sub-clause 20.5 as an interim step in dispute resolution in which the parties themselves attempt to reach an agreement. The unique characteristic of Silver Book sub-clause 20.5 is that parties are asked to reach an agreement following the more formal procedure of reference to a DAB. In the other standard form contracts examined herein, in contrast, interparty discussions are generally a preliminary measure in dispute resolution. The ENAA provides two instances in which parties themselves are to seek to resolve any dispute that may arise between them. First, in the event of a dispute, parties are to begin by seeking to "resolve any such dispute or difference by mutual consultation" (ENAA 6.1.1). Where mutual consultation does not resolve the issue, either party may notify the other of the existence of the dispute and its intention to refer the dispute to arbitration (ENAA 6.1.2). In such an event, the second inter-party negotiation takes place whereby the parties have 30 days within which to resolve the dispute before the dispute is referred to arbitration (ENAA 6.2.1). The EIC provides for the parties to attempt to settle any dispute between them amicably, before arbitration may commence, although this attempt is not obligatory (EIC 23.2). The ICE does not address the possibility of inter-party dispute resolution, per se. The procedure by which the employer's representative is to attempt to resolve any issues of dissatisfaction arising between the parties is the procedure with the most inter-party character provided by the ICE (ICE 66(2)). The AlA does not address the possibility of inter-party dispute resolution. Under the AGC, in the event of a dispute, parties are to endeavour to settle the dispute first through direct discussions (AGC 12.1). The DBIA provides two instances in which inter-party dispute resolution is to occur. First, direct discussions are to occur between the parties at field level in order to resolve disagreements (DBIA 10.2.2). In the second instance, inter-party discussions are to occur at the senior representative level in order to reach a resolution (DBIA 10.2.3).

I

As such would be in keeping with Silver Book's "wait and see" approach as regards the DAB.

590

24-66

20.6 Arbitration Unless settled amicably, any dispute in respect of which the DAB's decision (if any) has not become final and binding shall be finally settled by international arbitration. Unless otherwise agreed by both Parties: (a) the dispute shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce, (b) the dispute shall be settled by three arbitrators appointed in accordance with these Rules, and (c) the arbitration shall be conducted in the language for communications defined in Sub-Clause 1.4 [Law and Language). The arbitrator(s) shall have full power to open up, review and revise any certificate, determination, instruction, opinion or valuation of (or on behalf of) the Employer, and any decision of the DAB, relevant to ~he dispute. Neither Party shall be limited in the proceedings bef~re the arbitrator(s) to the evidence or arguments previously put before the DAB to obtain its decision, or to the reasons for dissatisfaction given in its notice of dissatisfaction. Any decision of the DAB shall be admissible in evidence in the arbitration. Arbitration may be commenced prior to or after completion of the Works. The obligations of the Parties, the Employer and the DAB shall not be altered by reason of any arbitration being conducted during the progress of the Works.

Eligibility for arbitration Silver Book sub-clause 20.6 sets out the procedure for resolving a dispute between the contracting parties through arbitration. Any dispute between the parties is to be finally settled by international arbitration, unless the dispute has been settled amicably or the DAB's decision (if any) has become final. In the Silver Book, the reference to "international" is unnecessary. The default provisions with regard to arbitration are that the dispute shall be finally settled both under the Rules of Arbitration of the International Chamber of Commerce and by three arbitrators appointed in accordance with these rules.

24-67

Proceedings before the arbitrators The arbitration is to be conducted in the language for communications (as defined in Silver Book sub-clause 1.4). The arbitrators may revisit any decision of the DAB or valuation of the employer relevant to the dispute. In addition, neither party is limited to either the evidence or arguments previously put before the DAB, nor are they limited to the reasons for dissatisfaction given in its notice of dissatisfaction. Further, any decision of the DAB is admissible in evidence in the arbitration. A party attempting to challenge a DAB's decision in arbitration may have difficulty, particularly considering that party's input in the make-up of the

591

24-68

CLAIMS, DISPUTES AND ARBITRATION

24-69

DAB (as per sub-clause 20.2).2 This may be particularly true where there has been a unanimous decision of the DRB members and where (as they would seem to be able to under the Silver Book) these members may give evidence in further arbitral proceedings. 3 The FIDIC Guide adds that a well-reasoned decision of a DAB (under sub-clause 20.4) may be very persuasive to the arbitrator(s).4 Finally, arbitration may be commenced even after completion of the works. The Silver Book sub-clause 20.5 provides that the obligations of the parties, the employer and the DAB shall not be altered by reason of any arbitration conducted during the progress of the works. Orange Book sub-clause 20.6 follows the general outline of the provisions of Silver Book sub-clause 20.6. Under the Orange Book, however, the appendix to tender is to set out: the arbitration rules, the language of arbitration, the place of arbitration, the number of arbitrators, the institution to nominate the arbitrators and administer the arbitration rules. Unlike under the Silver Book, the Orange Book allows for the arbitrators to review and revise any decision of the DAB but does not add to this mention of any valuation of the employer. In addition, the Orange Book does not specify that any decision of the DAB shall be admissible in evidence in the arbitration. Finally, the Orange Book does not include the employer as a separate category of those whose obligations shall not be altered by reason of the arbitration being conducted during the course of the works. The Orange Book does not indicate an arbitration institution or set of rules; instead it allows the parties to choose their own system from the scheme laid out in the appendix to tender (sub-clause 20.6). Specifically, the Orange Book provisions do not mandate use of the Rules of Arbitration of the International Chamber of Commerce. This gives the parties flexibility. This flexibility may not, however, be in the parties' interests where they have failed to indicate an institution. By not indicating the applicable rules the Orange Book may create another point of contention between the parties at the time of negotiation of the contract. Furthermore, the dispute settlement clause tends to be a "midnight clause", negotiated at the last moment without sufficient thought. By including a set of rules or institution a form contract can save parties from this lack of attention at the time of contracting. The corresponding sub-clauses 20.6 of the Yellow and Red Books are substantially similar to that of the Silver Book. Under these provisions, however, reference to the engineer takes the place of reference to the employer under the Silver Book (for more information regarding the role of the engineer, see discussion above). Part II of the Silver Book specifies that the parties need to indicate the arbitration institution to be used where such a body does not apply the rules chosen. For example, UNCITRAL has created a body of rules to be used in 2 J

4

Seppala, op. cit. n. 42 above at 252. Shadbolt, op. cit. n. 10 above at 105. FIDIC Guide, p. 313.

592

DISCUSSION OF SPECIFIC SUB-CLAUSES

international arbitrations but it does not act as an appointing authority. Bodies such as' the ICC or the London Court of International Arbitration (LCIA) will act as the appointing authority under the UNCITRAL rules where so requested by the parties. The ENAA provisions in relation to arbitration are similar to those of the Silver Book. First, the ENAA provides for a 30-day cooling-off period, after notice of dispute, before arbitration (ENAA 6.1.2). Once arbitration has begun, and subject to an agreement to the contrary,: the arbitration is to be governed by the Rules of Conciliation and Arbitration of the International Chamber of Commerce and the arbitrators shall be appointed under these rules (ENAA 6.1.2). The ICC is an international body with broad international acceptance. Its rules give wide powers to the arbitrator as regards the proceedings, where the parties have not agreed on procedure. Under the ENAA, arbitration may take place either during the progress of the works or after their completion (ENAA 6.1.1). The ENAA does not make clear whether the expert, referred to previously, can be called as a witness. This is particularly important as the Guide Notes conceive of the expert as a conciliator/mediator. The ENAA Contract also does not address whether the parties are limited to the claim made in the notice of dispute. Unlike under the Silver Book, the arbitration panel may consist of one, two or three members (ENAA 6.1.2) who shall be chosen in a manner similar to the selection of DAB members under the Silver Book (ENAA 6.1.3). Finally, both the place and the language of the arbitration are to be specified in articles 13.3 and 13.4 of the agreement (for which the ENAA provisions represent the general conditions) respectively (ENAA 6.1.4 and ENAA 6.1.5 respectively). The EIC contains general provisions relating to the arbitration process in disputes arising under the contract. Arbitration is to finally settle any dispute for which amicable settlement has not been reached within 28 days following the day on which notice of intention to commence arbitration was given (EIC 23.3). Although an attempt at amicable settlement is requested under the EIC, the EIC does not make the lack of such an attempt a bar to the submission of the dispute to arbitration (EIC 23.2). In other words, and unlike many of the other standard form contracts examined herein, there is no mandatory step that must be taken before parties may proceed to arbitration under the EIC. The rules of arbitration and the number of arbitrators are contained in the appendix of the EIC (EIC 23.3). The arbitration provisions of the ICE are substantially similar to those of Silver Book sub-clause 20.6. Under the ICE, all disputes that may arise under the contract, except for a failure to give effect to a decision of an adjudicator, may be finally determined by reference to arbitration (ICE 66(6)). Where an adjudicator has rendered a decision under ICE 66(9), this decision shall be final and binding unless the notice to refer the matter to arbitration has been given within three months of the rendering of the decision (ICE 66(9)(b)). As under the Silver Book, the arbitrator is empowered to review and revise both any valuation of the employer's representative or any decision of an adjudicator (ICE 66(11)(a)). 593

24-70

24-71

CLAIMS, DISPUTES AND ARBITRATION

The ICE refers to both the Institution of Civil Engineers Arbitration Procedure and the Construction Industry Model Arbitration Rules, and requires the parties indicate, in the Appendix to the Form of Tenders, which rules shall apply (sub-clause 66(11)(a)). According to one commentator, there is not a great deal of procedural difference between the two sets of rules. s Unlike the Silver Book, however, the ICE provides for only one arbitrator (ICE 66(10)(a). As the parties are, ideally, to appoint the arbitrator, the mechanisms for the appointment are similar to those provided under the Silver Book for the appointment of the DAB (see ICE 66(10)(a)(b)(c) and (d)).

24-72

The AlA, AGC and DBIA contain similar provisions with respect to arbitration or dispute resolution proceedings. Under the AlA, AGC and DBIA, following the failure of the parties to resolve their dispute via mediation, the parties may refer the dispute to arbitration or, in the case of the AGC, the selected dispute resolution procedure (AlA 6.3-Part 1; AlA 10.3-Part 2; AGC 12.2; DBIA 10.3.1)). As under the AlA and DBIA provisions relating to mediation, a party shall file a demand for arbitration, in writing, both with the other party and with the American Arbitration Association (AlA 6.3-Part 1; AlA 10.3-Part 2; DBIA 10.3.1). The AlA does not provide a time limit for the submission of a dispute to arbitration except to specify that such demand must be made within a reasonable time and may not be made after the date on which such a claim would be barred by the statute of repose or limitations (AlA 6.3-Part 1; AlA 10.3-Part 2). Under the AGC, "if the dispute cannot be settled by mediation within sixty (60) days" the parties are to submit such disputes to the dispute resolution process (AGC 12.5). The DBIA provides no time limit at all. Unlike the Silver Book, the AlA, AGC, and DBIA all fail to provide further specifications as to how this arbitration shall take place or as to the nature of the arbitral process. Similar to the Silver Book, the AlA and DBIA conclude that the award rendered by the arbitrator or arbitrators is final and that judgment upon the award may be confirmed in any court having jurisdiction (AlA 6.S-Part 1; AlA 10.S-Part 2; DBIA 10.3.2). Unlike the Silver Book, the AlA, AGC and DBIA contain provisions allowing for the consolidation, or joinder, of arbitration or dispute resolution proceedings (AlA 6.4-Part 1; AlA 10.4-Part 2; AGC 12.4; DBIA 10.3.3). Such provisions allow for the inclusion of what would otherwise be third parties to the proceedings. Both the AGG and DBIA contain provisions allowing the prevailing party in any arbitration, or other final, binding dispute proceeding agreed upon by the parties, to recover fees and expenses, from the other party, incurred by the prevailing party (AGC 12.5; DBIA 10.3.4). Part II of the Silver Book allows that parties may consider it desirable, in some cases, for other parties to be joined into any arbitration between the parties. The Silver Book cautions, however, that such clauses require careful drafting, usually on a case-by-case basis. The Silver Book concludes that "no 5

B. Eggleston, The ICE Conditions of Contract (7th ed., Blackwell Science, London, 2001) p.394.

594

DISCUSSION OF SPECIFIC SUB-CLAUSES

satisfactory form of multi-party arbitration clause for interna~ional use has yet been developed". The author shares this view. Clauses found In sta?dard f?rm contracts permitting such joinder, therefore, should thus be used With cautIOn. 20.7 Failure to Comply with Dispute Adjudication Board's Decision

24-73

In the event that: (a) neither Party has given notice of dissatisfacti~n wit~in the pe~iod. sta~ed in Sub-Clause 20.4 [Procedure for Obtaimng Dispute AdJudicatIOn Board's Decision), (b) the DAB's related decision (if any) has become final and binding, and (c) a Party fails to comply with this decision, then the other Party may, without prejudice to any other rights it may have, refer the failure itself to arbitration under Sub-Clause 20.6 [Arbitration). Sub-Clause 20.4 [Obtaining Dispute Adjudication Board's Decision) and Sub-Clause 20.5 [Amicable Settlement) shall not apply to this reference. Silver Book sub-clause 20.7 sets out the circumstances under which a party may refer a final decision of the DAB to arbitration. The ~AB's d~cision,. if any, becomes final and binding where neither party has given notice of diSsatisfaction within the period stated in sub-clause 20.4. A party may refer the matter to arbitration, nonetheless, where the other party fails to comply with this decision. In such a case, the provisions relating ~o obtaining the DAB's decision (Silver Book 20.4) and amicable settlement (Silver Book 20.5) do not apply. In order to avoid the situation where a dispute related to a party's failure to comply with a board decision might go back to the board for yet another decision, this clause sends such disputes directly to arbitration. Orange Book sub-clause 20.7 is substantially similar to that of Silver Book sub-clause 20.7. The corresponding sub-clauses 20.7 of the Yellow and Red Books are identical to that of the Silver Book. Silver Book sub-clause 20.7 may be characterised as a clause referring to a failure, on the part of one party, to enact the supposedly binding decision of a previous dispute resolution mechanism. It is in this light that the Silver Book provision shall be compared with those of other standard form contracts below. Under the ENAA, should the parties choose the interim measure of reference to an expert, the expert's decision becomes final and binding on the parties within 14 days of receipt of such decision unless either party gives notice to the other party of discontent within the prescribed period (ENAA 6.2.3, see discussion above). ENAA further provides that, where any dispute has been referred to an expert, such dispute shall not be referred to arbitration unless either the expert fails to give a timely determination (as under ENAA 6.2.2) or one party gives timely notice to the other party of discontentment with the expert's decision (as under ENAA 6.2.3). An expert's decision, which has become final and binding, may be nonetheless be referred to arbitration where one party fails to comply with such decision. 595

24-74

24-75

24-76

CLAIMS, DISPUTES AND ARBITRATION

Neither the EIC nor the AlA contain provisions similar to that of Silver Book sub-clause 20.7. Under the ICE, any decision resulting from either conciliation (ICE 66(5)(b)) or adjudication (lCE 66(9)(b)) shall be final and binding upon the parties where the relevant periods in which such decisions may be protested have been passed. Otherwise final and binding decision may, nonetheless, be referred to arbitration where one party fails to comply with such decision. Under the AGC, any matter under dispute may be referred to the selected dispute resolution procedure, even where an interim dispute resolution mechanism has been utilised, providing that the first mediation session has taken place (AGC 12.2). The DBIA contains a similar provision, allowing any dispute not resolved to the satisfaction of the parties to be referred to arbitration for final settlement (DBIA 10.3.1; DBIA 10.3.2). 24-77

20.8 Expiry of Dispute Adjudication Board's Appointment

If a dispute arises between the Parties in connection with, or arising out of, the Contract or the execution of the Works and there is no DAB in place whether by reason of the expiry of the DAB's appointment or otherwise: (a) Sub-Clause 2004 [Obtaining Dispute Adjudication Board's Decision] and Sub-Clause 20.5 [Amicable Settlement] shall not apply; and (b) the dispute may be referred directly to arbitration under Sub-Clause 20.6 [Arbitration].

24-78

Silver Book sub-clause 20.8 sets out the circumstances under which parties may avoid the interim step of using a DAB in order to settle their disputes. Where a dispute arises and there is no DAB in place, by reason of the expiry of the DAB's appointment or otherwise, the sub-clauses referring to the DAB and to amicable settlement (Silver Book sub-clauses 2004 and 20.5 respectively) are not to apply. In such a case, the dispute may be referred directly to arbitration. Upon initial inspection, Silver Book sub-clause 20.8 is puzzling in its reference to the event of no DAB being in place (due to expiry of DAB's mandate or otherwise) in that the DAB, at least initially, is only to be created upon the occurrence of a dispute. This clause is perhaps intended to cover instances where the 28-day period in which the parties are to appoint the DAB (under sub-clause 2004) has passed. 6 The provisions relating to the failure to appoint a DAB, however, attempt to foresee most eventualities that might lead to the failure to constitute a DAB (SB 20.3). Sub-clause 20.8 ensures, nonetheless, that parties may resort to arbitration where, for whatever reason, the DAB fails to be constituted. 7 Alternatively, this clause might allow parties to skip the interim dispute 6 7

DISCUSSION OF SPECIFIC SUB-CLAUSES

resolution mechanisms, in situations where they feel the issue is particularly contentious and may require arbitration in the end anyway. Orange Book sub-clause 20.8, unlike that of the Silver Book, begins from the presumption that the DAB was in place and has expired. This is in keeping with the fact that the DAB, under the Orange Book is to be established independent of any dispute arising. Other than this difference, the two clauses are substantially the same. The corresponding sub-clauses 20.8 of the Yellow and Red Books are identical to that of the Silver Book. One might interpret the Silver Book provision as giving direct access to arbitration in the event an interim measure fails or fails to be applied. It is with this interpretation that we will examine the other standard form contracts, in order to determine if arbitration may be a "first resort" under any of their provisions. The ENAA provisions do not allow for arbitration as a first resort in dispute settlement (ENAA 6.1.2). Under the ElC, there is no mandatory step that' must be taken before parties may proceed to arbitration (EIC 23.2). The ICE provides optional, but not arbitrary, measures that may be pursued before a dispute is sent to arbitration. Indeed, arbitration may be a first resort under the ICE as only the consultation of the employer's representative is necessary before a matter may be considered a "dispute" and thereafter referred to arbitration (ICE 66(3)). Under the AlA, AGC and DBlA, mediation is the mandatory step before resort may be had to arbitration or, in the case of AGC, the pre-selected dispute resolution procedure (AlA 6.2-Part 1; AlA 10.2-Part 2; AGC 12.1; DBIA 10.3.1).

Indeed, the FIDIC Guide supports this interpretation. See FIDIC Guide, p. 317. Henchie also makes this observation regarding the curious working of Silver Book sub·c1ause 20.8. N.D.]. Henchie, "FIDIC Conditions of Contract for EPC Turnkey Projects- The Silver Book Problems in Store?" (2001) 18 (1) I.C.L.R. 41 at 52.

596

24-79

24-80

24-81 597

CLAIMS, DISPUTES AND ARBITRATION

Figure 24.2

Dispute resolution under the FIOIC Silver Book CHAPTER

START Dispute arises bet,,",en the E and C in connection with or arising out of the contract or

execution of the works

C continues with works until amicable decision or arbitral award

25

NEGOTIATION OF THE SILVER BOOK

Reference to the DAB (2004).

(2004) .

(2004).

Formulating a Negotiating Strategy: The Key Characteristics of the Silver Book NO

YES

NO

The DAB's decision becomes final and binding (2004).

YES

Arbitration may begin 56 days after notice of dissatisfaction.

Parties attempt to settle the dispute amicably.

Arbitration may begin after the delay agreed upon by the parties (20.5).

598

settlement? (20.5) .

The negotiation and drafting of a construction contract generally start from some basis. Although each construction project is unique (and the drafting of its contract is, in a limited but necessary sense, bespoke) the parties will often use some type of standard form as a starting point. This may be a standard form developed by the employer himself but usually the drafting party will use an institutional model contract as the basis of its initial negotiating position. Standard forms are rarely completely neutral in how they allocate risk between the parties; most will tend to favour to a lesser or greater degree the contractor or the employer. The contractor or the employer will pick as their starting point a turnkey model form that is broadly in keeping with their respective interests and which will enable them to shift the theoretical risk and complexity of the turnkey relationship to a position consistent with those interests. The Silver Book is no exception in this regard. It is broadly favourable to the employer and its scheme of rights and obligations is one with which (in most cases) the employer can feel comfortable. For this reason, although there are a number of standard form contracts from which the employer could choose, a reasonable choice-for an internationally based turnkey project at least-will be the Silver Book. Likewise, the contractor will often, in the same international context, use as his basis the ENAA Contract (which is drafted with a scheme broadly favourable to the contractor). Since the appearance of the Silver Book in 1999, the author has, on many occasions when representing employers, used the Silver Book as the basis for the drafting of the turnkey contract. Invariably, the contractor has proposed substantial modifications. Often these modifications have been based on the provisions of the ENAA Contract. In these projects where the Silver Book was used, the contractor generally sought to amend its broadly favourable stance towards the employer and the employer sought to retain, or improve upon, the wording of the Silver Book. The commentary that follows reflects this experience and the author's general experience in negotiating turnkey and EPC contracts. Every turnkey contract, as exemplified by these various standard form contracts, contains key theoretical characteristics that form such a backdrop to the parties' concerns about particular contractual clauses (the reader should refer to the discussion in Chapter 2). 599

25-01

25-02

NEGOTIATION OF THE SILVER BOOK

25-03

25-04

Generally, these key characteristics will include the following: first, issues relating to any changes in, or determinations of cost (lump-sum pricing); secondly, issues relating to any extensions of, or determinations of extensions of, time (fixed completion date); thirdly, issues relating to the scope of the single-point nature of the contractor's completion responsibility; and fourthly, issues relating to how the contract is administered (in particular, the roles of the employer and the employer's representative). These key characteristics, and the allocation of risk associated with them, will form the basis of the parties' negotiating strategies. The employer and the contractor will attempt to shift the theoretical basis of risk allocation under the standard form in order to have a contract that supports their respective interests as much as possible (consistent with agreement between the parties). The parties will attempt this shifting of risk by negotiating contractual language that formulates the key characteristics in favour of their respective aims under the project-for the employer a functioning works completed on time and within budget; for the contractor a profitable project without extra cost where his degree of control over the progress of the works is not compromised (and is thereby commensurate with the single point completion responsibility he has undertaken). Thus, the employer will be asking the contractor to take all the risks commensurate with a fixed price and fixed completion date (i.e. accomplish all the tasks, actual or potential, on the project within the agreed time and cost parameters); the contractor will want to retain as much scope as possible to increase that fixed price and extend that fixed time for completion (particularly for unforeseen conditions) because he will not wish to be penalised by being forced to carry out unforeseen work within the original price and time for completion. Likewise, the employer will wish to retain control over the project either directly, or through the decision-making powers of his representative; the contractor will try to keep complete control consistent with his obligation to carry out all aspects of the construction (for example, he will not wish to take any responsibility for employer-supplied design). Therefore, each negotiation will be a discussion between the employer and the contractor to try and close off areas of risk (by moving them to the other party) and to retain areas of control. This chapter is intended to assist those parties who find themselves in a situation where the Silver Book is used as one of the bases for drafting. It will identify how the particular clauses of the Silver Book have an impact on the interests of the parties and how they might consider changing the wording or the structure of a particular clause to reflect the unique circumstances of their project. The general conditions of the contract will be dealt with clause by clause and in each case the concerns of the employer and the contractor (if any) will be addressed. These clauses should also be considered in light of the overarching structure of rights and obligations that have been discussed above; in many cases, they represent individual applications of the broad principles that the parties will be trying to formulate in their own favour.

600

FORMULATING A NEGOTIATING STRATEGY

This commentary does not purport to be in any sense exhaustive in its treatment of negotiation (which, in any case, has an infinite number of possibilities); it merely seeks to indicate a number of ways in which the Silver Book might be adapted for the needs of the parties. Furthermore, it will not deal with questions relating to the use of a separate 'Contract agreement and whether there should be both general and specific conditions of the contract. Nor will it consider situations where there is more than one contract (for example, an "onshore contract" and an "offshore contract"). The author's comments will be restricted to the general conditions and ways in which they can be modified. In order to maintain a manageable length, references made in this chapter will not be described in detail; the reader should refer to the relevant chapter of the book for more detailed discussion. The author passes no judgment concerning the merits of any particular modification.

Specific Negotiating Issues CLAUSE

1.1

1

Definitions

The parties may find that organising the definitions by simple alphabetical order provides a more efficient and simple arrangement. It is sometimes difficult to find terms when they are organised by topic, as is done in the Silver Book. 1.1.1.1

"Contract"

Each party may want to include in the definition of the contract the documents that protect its interests and represent its understanding of the agreement.

1.1.1.2

25-05

25-06

"Contract Agreement"

The parties should be aware that certain legal systems may require the existence of a contract agreement in order for the contract to be valid. The parties should verify the requirements of applicable law in this regard. More generally, a letter of acceptance often does not reflect the consequences of continuing negotiations between the parties. The contract agreement may serve to take account of this. A contract agreement may also be executed based on the desire of one or both of the parties.

601

25-07

SPECIFIC NEGOTIATING ISSUES

NEGOTIATION OF THE SILVER BOOK

1.1.1.3

"Employer's Requirements"

25-08

Issues for the contractor. The contractor will want to consider carefully the scope and content of the employer's requirements, preferring criteria that are well defined and limited in scope in order to avoid responsibility for wide interpretation of such requirements.

25-09

Issues for the employer. The employer will want to include a scope of the works that is sufficiently wide to provide him with works that are consistent with his needs.

1.1.1.4 25-10

25-11

Issues for the contractor. Due to the nature of the turnkey contract and the fitness for purpose standard imposed by the Silver Book the contractor should take care in the calculation of the lump-sum price he proposes to tender. Particular attention should be given to the site data requirement placed on the contractor as he is deemed to have inspected and examined the site before tender; and the contractor will be unable to subsequently seek an increase in price for conditions unforeseen at the time of tender. This is particularly important if the contractor has limited time or resources to proceed with the testing and inspections that should be performed before tender and execution of the contract. Issues for the employer. The tender process should be used to identify not simply the lowest priced bid but rather the most competitive and technically appropriate bid, taking into account the experience and ability of the bidders, their financial strength, their design and construction skills and experience, and the price they bid for the design and construction of the works. This is particularly true under the Silver Book, as a more responsible contractor may proffer a higher bid, as he may be including a price for a number of risks allocated to him under the Silver Book, e.g. the increased risk the contractor must assume for unforeseeable ground conditions.

1.1.1.5 25-12

25-13

"Tender"

"Performance Guarantees" and "Schedules of Payments"

Issues for the contractor, Schedule of Payments. The contractor, when using a schedule of payments, should bear in mind that the employer's representative will be able to amend it in accordance with the progress of the works (sub-clause 14 .4) and that this may not be in the contractor's interests. Issues for the employer, Schedule of Payments. Given the fact that the schedules will be used, in the first instance, for pricing of variations and other changes, the employer should ensure that reasonable rates and prices are provided by the schedules.

602

Issues for the contractor, Performance Guarantees. The model guarantees annexed to the Silver Book are constructed according to terms that somewhat favour the employer. The contractor may wish to negotiate the guarantees such that they may not be called without prior notice and the employer's furnishing a specified proof of the contractor's default under the contract.

1.1.2.3

"Contractor"

Issues for the contractor. The contractor may want to provide for the possibility of reorganisation without violating this provision. Where the contractor is a consortium or a joint venture, he may want the right to modify the consortium make-up in some reasonable manner.

1.1.2.4

25-17

"Employer's Personnel"

Issues for the contractor. The contractor may want to specify that any nominated subcontractors be included under this definition such that the contractor does not incur responsibility on their behalf under clause 17, "Risk and Responsibility" .

1.1.2.7

25-16

"Contractor's Representative"

Issues for the contractor. The contractor may not want the employer to have any power over the identity and appointment of the contractor's representative. The contractor may take the view that his representative should not be treated differently from the representative of the employer.

1.1.2.6

25-15

"Employer's Representative"

Issues for the contractor. The contractor has no right of comment over any replacement of the employer's representative. As the employer has such approval power over any change of the contractor's representative the contractor may wish to see parity in this regard (or, at least, have the ability to ensure that any replacement has the appropriate qualifications and experience).

1.1.2.5

25-14

25-18

" Contact or's Personnel"

Issues for the contractor. As the contractor's personnel are, arguably, those persons associated with the project who are not the employer's personnel, the contractor may wish to ensure that the employer's personnel provision is sufficiently inclusive in order to exclude unwanted persons from the contractor's

603

25-19

NEGOTIATION OF THE SILVER BOOK

personnel. This is particularly important as the respective baskets of personnel between the parties have consequences under the provisions relating to the apportionment of risks.

1.1.2.9

SPECIFIC NEGOTIATING ISSUES

The FIDIC contracts do not specify what occurs if the contractor is not notified of commencement within the time specified under the various contracts. Presumably, the contractor would be allowed to terminate under subclauses 16.2. The parties may wish to specify the effect of such a failure.

"DAB"

1.1.3.3 25-20

edgeable in the area of construction in question. The parties should also consider the availability of each member appointed.

1.1.3.1 25-21

25-22

"Base Date"

Issues for the contractor. Taking the base date as a measure of time is beneficial to the contractor as it enables him not to bear the risk of certain changes. It would be in his interests to maintain this measure throughout the contract, and even apply it to yet further portions of the contract such as the effect of force majeure (Clause 19). Issues for the employer. The use of the base date as a measurement of time may be inconsistent with the employer's interests. He may wish to replace this date with the effective date (the date on which the contract comes into legal force and effect) thereby putting responsibility for certain changes on to the contractor for a longer period. Under the Silver Book scheme the base date is referred to in sub-clauses 4.10 (site data), 4.24 (fossils), 5.1 (general design obligations), 5.4 (technical standards and regulations), 13.7 (adjustment for changes in legislation), 14.15 (currencies of payment), 17.5 (intellectual and industrial property rights) and 18.2 (insurance for works and contractor's equipment).

1.1.3.2 25-23

"Time for Completion"

It is in each party's interest to ensure that each member of the DAB is knowl-

"Commencement Date"

Issues for the contractor. The contractor may want to include conditions precedent to commencement (or the effective date) in order not to compromise, by way of delay, the time he has to complete the project. Likewise, the employer may not want certain necessary items to affect the contractual time period (with attendant cost implications). Such conditions might include the granting of certain licences or permits. For example, in a relatively recent nuclear power project, the contractor had to obtain a nuclear export licence before being able to commence the works; thus the obtaining of such a licence was added as a condition precedent to the commencement date. The contractor may also find it in his interest to require that the employer's financing be in place before commencement (this consideration may be included in the relevant financing terms). In this regard, see subclause 2.4.

604

The time for completion should be defined with reference to the issue of the taking-over certificate, rather than the passing of the tests.on completion (in respect of the circumstances in which the tests on completIOn can be deemed passed). This modification will also render the definition of the ti~e for completion consistent with other contract language that uses the issue of the taking-over certificate as the end of the time for completion, such as subclause 8.7 (delay damages).

25-24

1.1.3.4

25-25

"Tests on Completion"

Issues for the contractor. The contractor should define the tests on completion carefully in order to specify his responsibility for completion of the works. In order to avoid any disagreement as to interpretation of the test results, the required results of such tests that the contractor has to achieve should be set out in the annexes to the contract and based on objective criteria. On innumerable occasions the author has heard the contractor complain during the tests on completion period that the tests are "too strict" and that the employer is interpreting the testing criteria "too restrictively". Issues for the employer. Likewise, the employer will also want to ensure that the completion criteria are sufficient to verify the suitability of the works with reference to his requirements. This process may involve a trial running period; therefore employer ownership of any resultant output of the works (e.g. electricity) should be specified. The employer may also want the right of partial possession and use during this period. Where extensive financing is involved the technical advisers to the lenders may become involved in the definition of the tests on completion and verification of the passing of such tests.

1.1.3.5

25-26

"Taking-Over Certificate"

Issues for the contractor. The issue of the taking-over certificate defines the extent of the contractor's liability for several aspects of the contract, such as liability for liquidated damages for delay. The contractor may want to ensure that the taking-over certificate cannot be unreasonably delayed by the employer, and will want to define carefully the preconditions to the issue of such a certificate. If the contractor believes that the employer is unreasonably delaying the issue of such certificate, he may wish to have recourse to an expert. 605

25-27

SPECIFIC NEGOTIATING ISSUES

NEGOTIATION OF THE SILVER BOOK

25-28

25-29

25-30

Issues for the employer. The issue of the taking-over certificate defines the responsibility of the contractor in respect of important aspects of his design and construction responsibilities. Therefore, it is in the employer's interest to ensure proper control over the issue of such a certificate, and compliance with its preconditions.

financing charges as a result of payment being received after expenditure (and that in some countries such financing costs may be due, even though the contractor had sufficient funds). The contractor may also want to include a margin for profit in this definition. All references to profit in the relevant clauses could then be deleted. The consequences would be that in all cases the contractor would obtain profit.

1.1.3.6

Issues for the employer. The employer may want to restrict the width of this definition. In particular, he may want to define much more specifically overhead and similar charges for those purposes.

"Tests after Completion"

Issues for the contractor. The contractor may want to carry out the tests after completion himself, in order to ensure that the works are properly operated during such tests and to ensure that the tests are properly performed (particularly given that the reason for such tests is that the specifications include performance standards that must be met). Issues for the employer. The employer may want to have these tests carried out prior to the issue of the taking-over certificate, in order to receive at taking-over a completed and operational facility. This will enable the employer to impose liquidated damages for late completion where failed performance tests result in extensive modification of the works and delays in delivery of works that perform to the level set out in the contractual criteria. 1.1.3.7

1.1.4.4

25-32

25-35

Issues for the employer. The employer may want to maintain any exchange risk on the contractor by paying in the currency of his financing or of his capital.

25-36

"Defects Notification Period"

Issues for the contractor. The defects notification period is the period running from the date of the completion of the works or section (as indicated by the employer's taking over in accordance with clause 10) and for a period of one year, unless otherwise stated in the particular conditions. As presently drafted, the defects liability period begins upon completion of the whole or part of the works. This may be a difficult proposition for the employer to accept, however, where the sections are interconnected. Issues for the employer. The employer may want to provide for longer defects liability periods for all or specific aspects of the works, such as certain electricaVmechanical installations, civil works, or plant. The employer may also want to ensure that the defects liability period be extended where sections, completed at different times, are interconnected. In France, for example, contractors must by law give a 10-year warranty on civil works and in respect of structural defects.

1.1.4.2 25-33

"Cost"

Issues for the contractor. The definition of cost is widely drafted and includes overhead charges on and off the site, which arguably makes it beneficial to the contractor. The FIDIC Guide speculates that the overhead would include 606

"Foreign Currency"

Issues for the contractor. The contractor may want the power to specify that he be paid in the currency of his costs, thus avoiding the exchange risk involved in changing the currency of payment into the currency of costs. This will also be the case for any adjustment in contract price such as variations.

1.1.4.6 25-31

25-34

"Provisional Sum"

Issues for the contractor. The use of provisional sums allows the employer's representative to exercise substantial powers over the execution of the relevant parts of the works (assuming their use is specified under the contract (sub-clause 13.5)). Therefore, the contractor should carefully restrict the scope of provisional sums in order to define the employer's representative's power of intervention in this regard, particularly as the contractor is taking all of the design and construction risk. 1.1.4.7

25-37

"Retention Money"

Issues for the contractor. The Silver Book only provides for retention of money from the payment certificates. The contractor should negotiate a reasonable balance of securities, as between the performance security, the advance payment guarantee and the retention money. He may also want to use a bond or guarantee as security rather than retention money in order to improve his cash flow.

25-38

Issues for the employer. The employer may want to use retention money rather than a security in lieu of retention money (a bond or guarantee), since where retention money is used the employer will benefit from increased

25-39

607

NEGOTIATION OF THE SILVER BOOK

liquidity and from any interest earned on such money. The employer also avoids any potential problems with a third-party guarantee. 1.1.5.2 25-40

Issues for the contractor. The contractor should be aware that this definition of goods is used to allocate responsibility to the contractor for the care and use of such items while in transit to the site. The contractor may wish to specify that where the employer is to provide machinery and materials, such items should be transported to the site at his risk and cost. 1.1.5.5

25-41

"Goods"

"Plant"

There is no consistent definition of plant in the standard forms reviewed in this book. Therefore the parties may want to specify which portion of the works is plant (and how it is defined-for example, whether plant has an independent function). Failure to specify may result in plant not being covered as regards other clauses of the contract. Relevant peripheral aspects of plant should be specifically included in the definition. 1.1.5.6

"Section"

SPECIFIC NEGOTIATING ISSUES

1.1.6.1

"Contractor's Documents"

Issues for the contractor. The contractor may want to limit the scope of construction documents involved in this definition, in order to limit the employer's review power under sub-clause 5.2. Given the allocation of risk contained in a turnkey contract, the contractor can argue that the intervention of the employer in the design process should be strictly limited.

25-45

Issues for the employer. The employer may wish to keep this definition as broad as possible in order to retain review powers over as much of the design and construction of the works as he believes appropriate. This review power should not in any way limit the obligations of the contractor for the design and construction of the works.

25-46

1.1.6.3

"Employer's Equipment"

Issues for the contractor. The contractor may wish to specify, as does Orange Book sub-clause 4.20, that the employer is responsible for any risks or costs associated with the transport of the employer's equipment to the site. 1.1.6.7

25-47

"Site"

25-42

Issues for the contractor. The contractor will want to define carefully any separate sections in the works. It is in the contractor's interests to ensure that the completion of a section will decrease the rate of, and maximum amount of, liquidated damages for late completion. He may also want to ensure that the employer's use of completed sections and its effects on the other sections be considered in tests on completion and tests after completion. Although parties may choose to draft their contract otherwise, generally the Silver Book does not contemplate sectional completion.

Issues for the contractor. Although the issue of access and possession may motivate the contractor to use a broad definition, he is also responsible for such aspects as the security and the environmental impact of activities on the site. Thus, this definition should be precise and take into consideration the contractor's need for certainty in the execution of the works. The reference in this sub-clause to the delivery of materials and plant should be carefully examined. It may result in an over-broad definition of the site.

25-48

25-43

Issues for the employer. The employer will wish to define carefully the sections specified in the contract and to ensure they are capable of independent completion. Use of sectional completion may allow the employer to use certain parts of the completed works early. It may also allow him to take advantage of the definition of defects notification period to have a longer defects liability period for certain parts of the works.

Issues for the employer. Where access and possession do not pose a problem, the employer may want to expand the definition to require the contractor to provide for clearance, security and environmental protection of areas other than those used exclusively by the contractor (particularly given the fact that the contractor may use other site areas for certain aspects of the construction process-such as housing of his personnel and storage of his equipment that may not be considered part of the execution of the works).

25-49

1.1.5.7

"Temporary Works" 1.1.6.8

25-44

In view of the close relationship between contractor's equipment and temporary works and the difference in regime applied to each by the Silver Book (such as insurance requirements), the parties may want to define more clearly the temporary works and the contractor's equipment. 608

"Variation"

Issues for the contractor. The contractor may not wish the employer to have the power to order a variation in the absence of agreement of the contractor, in particular in respect of the impact of a variation on the contract price

609

25-50

SPECIFIC NEGOTIATING ISSUES

NEGOTIATION OF THE SILVER BOOK

and the time for completion. The contractor should require that any variation first be the subject of a contractor's proposal in a manner similar to the system used in the ENAA Contract (clause 39)-thereby keeping responsibility for design change firmly with the contractor. Clearly, the employer will wish to retain such a power so as to control any changes in his requirements without having to seek the approval of the contractor.

1.3 25-51

Communications

Issues for the employer. The employer may want to remove the language requiring that approvals, certificates or determinations not be unreasonably withheld or delayed. This, however, is likely to be unacceptable to the contractor.

1.6

Contract Agreement

Provision of such an agreement may be advisable or required depending on the context. In some jurisdictions, a contract agreement is an essential part of a valid contract and may affect the duration of the parties' various liabilities. Such an agreement may be desired by one of the parties in order to finalise the contract. An example, the Guide to the Orange Book states that it may be advisable to have a contract agreement in order to record what constitutes the contract-so as to avoid disputes as to the nature of communication between tender and the letter of acceptance. For these reasons, the parties should carefully examine the effects of applicable law on this provision. The employer may not want to bear all the costs of such an agreement as presently set down in the sub-clause. 1. 7

1.4 25-52

25-53

Law and Language

Each party will wish to choose a legal system that is not only beneficial to his position under the contract, but also that is familiar to him, his staff and his legal advisers. According to the EIC, under certain civil-law jurisdictions, some Silver Book provisions may be considered inapplicable as unfair trade terms. 1 Parties should also inform themselves as to how the provisions of the Silver Book will function under the relevant governing law. The language chosen for the ruling version of the contract and the dayto-day communications should, if possible, also be that with which the contractor, his staff and his advisers, and the employer's representative and staff are familiar. Use of another language may result in substantial translation costs, in particular as concerns the language for day-to-day communications. Issues for the employer. The employer will need to verify the effect of the applicable law on the financing structure used for the project. Lenders will often impose English or New York law for these purposes.

1.5

Priority of Documents

25-54

Issues for the contractor. The contractor may want to put the tender higher on the list of priority, in order to protect his interests.

25-55

Issues for the employer. The employer will, in most cases, want his requirements to be placed above the tender in case there is a dispute.

I

EIC, The EIC Contractor's Guide to the FIDIC Conditions of Contract for EPC Turnkey Projects (European International Contractors, Berlin, 2000), p. 8.

610

25-56

Assignment

Both parties may want to ensure that they are kept informed where one party assigns any interest under this clause.

25-57

Issues for the employer. The inability of the employer to assign his rights under the contract would not be satisfactory for a lender in a project-financing context. The lender would wish the employer to have the ability to assign rights and obligations to the lender without the consent of the contractor. In a project finance context, a direct agreement between the lenders and the contractor would likely be required by the lenders.

25-58

1.9

Confidentiality

This provision may be important, particularly to the employer, where the project is of a sensitive nature. Such a clause may also be useful in commercially sensitive situations. The Silver Book provisions are not particularly comprehensive and should be expanded.

25-59

Issues for the contractor. The contractor may wish to include a similar restriction for the employer with regard to publishing where, for example, certain data contained in the contactor's designs are of a commercially sensitive nature. 2 .

25-60

1.10

Employer's Use of Contractor's Documents

Issues for the employer. The employer may wish to, revise this sub-clause, taking the position that he has paid for the constrUction documents and

2

EIG Guide, p. 8.

611

25-61

SPECIFIC NEGOTIATING ISSUES

NEGOTIATION OF THE SILVER BOOK

should not be limited in their use. Whether this is possible will be influenced by the negotiating strengths of the parties and the nature of the technology on which the construction documents are based. Where the basic concept, the research and the development are provided by the employer, he will be in a stronger position for maintaining ownership of the construction documents. The employer may also wish to have access to the project technology for use in production of spare parts. The present language is not entirely clear on this point.

suggest a detailed schedule of the permits required and the party responsible for their attainment. 3 Where the employer is the government of the country in question then the duty to provide permits and licences may, in whole or in part, be better managed by the employer. For example, the Guide to the Orange Book suggests that essential licences should be procured by the employer before the invitation to tender. 1.14

1.11 25-62

Issues for the contractor. The contractor may want to revise this provision to obtain the right to use such documents for future similar projects but this would be based on the negotiating strengths of the parties and the nature of the technology used for the project. Where the contractor has provided the bulk of the technology used for the design, or the designs are based on the contractor's past experience, then he should maintain his rights to such technology. Furthermore, where the contractor is a supplier of the technology used, he may not want to allow the employer to have sufficient use of the technology to enable him, for example, to produce spare parts (thereby allowing the employer to benefit unfairly from the contractor's expertise). 1.13

25-63

Compliance with Laws

Issues for the contractor. The contractor may not want or be able to provide all permits and licences with the exception of planning, zoning or similar permission for the permanent works. Therefore, placing the entire burden on him to obtain such licences (as this sub-clause does, albeit with the assistance of the employer under sub-clause 2.2) may be unacceptable. This sub-clause could be modified to provide for a sharing of the duty to provide permits and licences, perhaps on the basis of the allocation under the ENAA Contract. Under that contract the responsibility for obtaining licences and permits is split between the contractor and the employer. This split is on the basis of each party getting the permits and licences that "such authorities or [public service] undertakings (of the host country) require the contractor [employer] to obtain" (clauses 9.3, 10.3 and lOA). The only difference is that in the case of the contractor these permits are defined as being necessary for the performance of the contract whereas for the employer they are defined as being necessary for the execution of the works. Another possible method of allocation is to draw up a list of responsibilities for both parties. Lists could be made of the permits and licences required, allocating each to one of the parties. Indeed, in order to avoid any ambiguity that may arise under the Silver Book wording, some authors 612

Joint and Several Liability

Contractor's Use of Employer's Documents Issues for the contractor. If the contractor is a consortium or a joint venture, the contractor may not want to provide joint and severalliability~ of all of its members. Although the employer will generally require such joint and several liability, the contractor may be able to negotiate certain exceptions to such liability. For example, the consortium may be able to negotiate that a certain number of the smaller members will not be jointly and severally liable for the larger members, or separate liability limits for individual members. The consortium may also want the freedom to make certain alterations to its composition. Furthermore, the contractor may wish to add a similar obligation for the employer, where the employer is a joint venture, consortium or other unincorporated group.s

25-64

Issues for the employer. The employer will want the greatest amount of security possible as to completion of the project and liability for any defects in the works. The employer will want to maintain this provision. He may also want to require parent company guarantees (preferably also on a joint and several basis) to ensure the financial viability of the entity liable for the contract.

25-65

CLAUSE 2

2.1

THE EMPLOYER

Right of Access to the Site

Issues for the contractor. The contractor may wish to require the employer to provide continuous and peaceful access to the Site in order to protect himself from any adverse consequences of failure to do so. The contract should also specify whether this access is exclusive, so that the contractor knows whether to provide for the presence of third parties.

J

~ 5

Ele Guide, p. 8. Or "solidarite" in the civil law. Ele Guide, p. 9.

613

25-66

NEGOTIATION OF THE SILVER BOOK

Issu~s. for the employer. Where the project is environmentally or politically sensitive, the employer may want the contractor to share the risk of impeded access or possession.

25-67

2.2 25-68

25-69

Permits, Licences or Approvals

Issues for the employer. The employer may wish to maintain a defined role in provision of permits and licences in order to assist the contractor in efficient management of this risk. The employer may incur an increase in the contract price in response to the contractor assuming the complete risk of obtaining the permits and licences. In certain situations it may not be practical for the employer to place this risk entirely on the contractor, particularly where local regulations require the employer to obtain certain permits and licences.

Employer's Personnel

~ssues for the contractor. The contractor may wish to provide for a remedy the event that the employer fails to ensure that his personnel cooperate with the contractor's efforts.

10

2.4

25-71

Issues for the employer. The employer will wish to retain as much flexibility as possible under this clause, including ensuring the contractor ?eed not approve any changes in the employer's financing. ~iven t~e ~nc~rtam.nat~re of "reasonable evidence", the employer may wish to limit hiS obligation through specifying, in the particular conditions, what, if any, evidence he would provide.' Frankly, most employers will be tempted simply to delete this provision.

Issues for the contractor. The contractor may want to require the employer to playa larger role in the obtaining of permits and licences. For further discussion, see sub-clause 1.13, above.

2.3 25-70

SPECIFIC NEGOTIATING ISSUES

25-73

Issues for the employer. The employer may want to retain the current, more favourable, wording that provides that the employer notify the contractor in relation to the employer's awareness of the event giving rise to the claim as opposed to a specific period. This is particularly important for the employer, who presumably has less interaction with the site and is therefore less likely to be immediately aware of any problems that may arise. Alternatively, the employer may .decide to delete this provision.

25-74

CLAUSE 3

3.1

THE EMPLOYER'S ADMINISTRATION The Employer's Representative

Issues for the contractor. The contractor may want the employer's representative's decisions to bind the employer. This may follow logically from the employer's representative's role 'which has no neutral element; he represents purely the employer's interests. Given the employer's representative's role in valuation and issuing certain certificates, the contractor may want to ensure that some recourse to a neutral expert is available, and that the employer's representative is required to have the knowledge and experience necessary for such deliberation. The contractor may want to remove this part of the role of the employer's representative, and give it to an independent expert. Such a mechanism is set out in the ENAA Contract under sub-clause 6.2.1. Under this sub-clause, if there

EIC Guide, p. 9. 7

614

Employer's Claims

Issues for the contractor. In the interests of parity, the contractor may wish to see the time period for notification by the employer be set at 28 days (as it is for the contractor under sub-clause 20.1) or vice versa. Failing this, the contractor may want to specify what amount of time limit would constitute "as soon as practicable". The contractor should also note that the employer may make the final determination, in case of dispute, (as per sub-clause 3.5) after which the contractor's first recourse is the DAB.

Employer's Financial Arrangements

Issues for the contractor. This sub-clause gives the contractor important new assurances, regarding the employer's ability to pay the contract price. The contractor may wish to specify what might be "reasonable" evidence of the employer's financial arrangements. The contractor may also want to reserve the right to approve any changes the employer may make to his financial arrangements which would have a material impact on the employer's ability to pay. Finally, the contractor may want to add wording such that this clause ensures the contractor has the ability to verify the employer's ability to pay for any varied work. . T?e c~?t.ractor should be, made aware of "any terms, conditions and stepIn rIghts In the employer s agreements with the lenders and where such a~reeme.nts "are with regard to the project, the contractor should be proVided with the terms and conditions of such agreements prior to the signature of the contract". 6

6

2.5

25-72

P.L. Booen, "The Three Major New FIDIC Books" (2000) 17 (1) I.C.L.R. 24.

615

25-75

SPECIFIC NEGOTIATING ISSUES

NEGOTIATION OF THE SILVER BOOK

is a dispute over such things as variations (clause 39), valuation of additional cost (clause 4.13) and design approval (clause 20)-as listed in the clausethen, as long as both parties agree, either party may refer the matter to an independent expert for determination. If the parties cannot agree about the procedure for appointment of the expert then either of them may still refer the dispute to arbitration.

the issue of instructions. In addition, for the same reason, the employer may want to retain the system whereby each assistant's powers to issue instructions varies according to the terms of each assistant's individual delegation agreement.

3.5 3.2

Other Employer's Personnel

25-76

Issues for the contractor. Particularly as the employer's representative is not required to be a "suitably qualified person", the contractor may want to ret~in this wording regarding any assistants of the employer or his representative. Further, as with the employer's representative, the contractor may also want the assistants' decisions to bind the employer. This may follow logically from the assistants' roles that have no neutral element; they represent purely the employer's interests.

25-77

Issues for the employer. The employer may want to delete this sub-clause as being pointless and intrusive upon his choice of assistants.

3.3 25-78

Delegated Persons

Issues for the contractor. The employer's representative's decisions, and those of his and the employer's assistants, should bind the employer. Where the contractor receives notice of the delegation, he should ensure that such notice is clear such that no confusion results regarding what binding decisions the employer's representative or assistants are authorised to make on the employer's behalf.

3.4 25-79

25-80

Issues for the contractor. The contractor may not wish to allow the employer to determine value, cost or extension of time in the execution of the contract. He may prefer to rely on mutual agreement or prefer to use, in the absence of agreement between the parties, an independent expert or some other independent mechanism for such valuation before resorting to the DAB. The language "fair determination" may protect him to some extent from the bias of the employer. The efficient issuance of determinations under the contract may, however, be best handled, at least in the first instance, by the employer. The contractor should be aware, however, that the employer is not obliged, under this sub-clause, to label his decisions as determinations. The absence of such label may interfere with the contractor's obligation, under the same subclause, to give notice of dissatisfaction with a determination within 14 days of receipt. 9 Finally, the contractor may want to specify a time period within which the employer must issue a determination, where agreement is not reached. 10

25-81

Issues for the employer. The employer may want to remove the language requiring the employer's determination be fair. This:language is reminiscent of the engineer's duty to be independent, but is arguably inappropriate in a turnkey contract, where the employer is a party to the contract and thus is assumed to be acting solely in his own interests. This concern, however, may be irrelevant where the applicable legal system imposes a duty of good faith or reasonableness.

25-82

Instructions

Issues for the contractor. The contractor may wish to alter the wording such that he need not take instructions from any person not generally authorised to issue instructions under the contract. This will avoid problems for the contractor in determining whether, for example, the assistant has the appropriate authority to issue a given instruction. Finally, the contractor should note that "verbal instructions would appear to have no validity under the Contract".8 Issues for the employer. The employer may want to remove the requirement that the employer's representative's instruction be in accordance with the contract, in order to give him the greatest amount of flexibility in respect of

CLAUSE

4.1

EIC Guide, p. 11.

616

4

THE CONTRACTOR

Contractor's General Obligations

Issues for the contractor. It is in the contractor's interest to replace the fitness for purpose language with a standard similar to due care and diligence in order to limit his potential liability. However, in some jurisdictions the law may imply such a standard. In certain jurisdictions, a fitness for purpose warranty in respect of design may not be insurable. He may also wish to delete 9

8

Determinations

10

EIC Guide, p. 12. EIC Guide, p. 12. The EIC Guide suggests 28 days may be an appropriate time period.

617

25-83

SPECIFIC NEGOTIATING ISSUES

NEGOTIATION OF THE SILVER BOOK

any reference to any work that is implied by the contract, arguing that any work to be executed should be contained within the scope of the works. Under certain jurisdictions, the law may imply this duty. The employer will be likely to reject both of these suggested modifications: the provisions at issue go to the heart of turnkey responsibility. The contractor may wish to specify that he is only responsible for designs that he specifically provides. Consequently, the employer will remain responsible for the designs provided in the employer's requirements and through any variations. The employer is unlikely to agree and this is contrary to the provisions and concept of the Silver Book. The fifth paragraph requires the contractor to provide, upon the employer's request, details of the construction arrangements and methods for the execution of the works. Under the current wording, the contractor seemingly must only provide the employer with notice of change once plans were already requested and submitted. The contractor may wish to minimise the need to either inform the employer of construction plans or to update the employer regarding changes to these plans. Due to the constant need to adjust construction plans due to changes in innumerable variables, providing such notice may prove a time-consuming process for the contractor.

conditions required for any call on the security in order not. to give the contractor the ability to delay or avoid the call. The employer ~Ill, however, prefer no preconditions to payment whereas the contrac~or Will p~efer the employer be required to substantiate any call on the secunty and will prefer the possibility to contest such substantiation. l l 4.3

Contractor's Representative

Issues for the contractor. The contract requires the contractor to obtain the employer's approval before removing the contractor's ~epresentative and appointing another. The contractor may seek to delete thiS approval power, as the employer is not required to do the same for the employ~r's representative (or he might try to ensure he has the same approval right over the employer's representative). In the alternative the contractor should ~t least specify that the employer's representative may not unreasonably withhold his consent. 4.4

25-84

Issues for the employer. Under the Silver Book the employer requires the contractor specifically to assume responsibility for the designs of the employer contained in the employer's requirements in a manner similar to that set out in the ICE Contract. Whether the contractor is willing to assume responsibility of this sort will depend on the negotiating positions of the parties-such a complete responsibility, may, depending on the circumstances, be problematic for the contractor (although arguably it may be consistent with his turnkey obligations). The employer may require the contractor to provide all proprietary rights for technology to be used in the construction. This should be a continuing duty, throughout the reasonable life of the process plant, in order to ensure that royalties or licensing fees are paid to the extent required. The employer should be able to intervene where the contractor has failed to pay the relevant fees . The cost of such intervention should fall on the contractor.

4.2

Performance Security

25-85

Issues for the contractor. The contractor may not wish the performance security to be in the form annexed to the Silver Book. The contractor may want to avoid giving the employer any "on demand" right over the security, in order to prevent improper or abusive calls of the guarantee. The author would refer to United States practice in this regard.

25-86

Issues for the employer. The employer should require the use of such an ondemand guarantee such as that attached to the Silver Book; if the security is not of the "on demand" type the employer will want to specify clearly the

618

25-87

Subcontractors

Issues for the contractor. The contractor may want to include an exception to his duty to give 28 days' notice to the employer's representative before any subcontractor commences work. This consent would allow for cases of emergency, such as where a new subcontractor must be found on short notice and substituted for another who is no longer able to perform.

25-88

Issues for the employer. The employer may wish to require the contractor to maintain warranties on all key subcontracts until the expiry of the defects notification period and possibly beyond the expiry of such period. The employer may require that certain provisions be included in any subcontract, including restrictions on assignment, provisions requiring assignment to the employer at its nomination, and the provision of relevant information to the employer. The employer may want to be able to take over the project subcontracts in certain circumstances with no additional cost or in the event of termination. The employer may want to specifically require that all subcontracts be freely assignable and entirely transferable, including guarantees, where the employer or some other entity takes over the works from the contractor or when the contract is terminated for contractor fault. Finally, the employer may wish to have approval rights for any subcontractor, similar to those contained in the Yellow and Red Books.

25-89

II

P.L. Booen, "The Three Major New FIDIC Books" (2000) 17 (1) I.C.L.R. 24, p. 32.

619

SPECIFIC NEGOTIATING ISSUES

NEGOTIATION OF THE SILVER BOOK

4.5 25-90

25-91

Nominated Subcontractors

Issues for the contractor. The contractor may wish to dispose altogether with any provisions relating to nominated subcontractors. Failing this, the contractor may wish to include wording that allows him to reject a nominated subcontractor. Further, the contractor may wish to specify that he is not responsible for the acts and defaults of any nominated subcontractors. For example, the employer could be required to contract directly with any nominated subcontractor. Issues for the employer. Although approval of subcontractors may provide some protection, this may not give the appropriate level of control where the employer wants to choose subcontractors and the terms of the subcontract, himself. Thus, the employer may want to provide for nominated subcontractors, in order to control the quality (and cost) of workmanship on discrete and essential portions of the works (but care should be taken over the possible adverse consequences of nomination in some jurisdictions). The employer may want to restrict the contractor's ability to refuse to use a nominated subcontractor.

4.6 25-92

Co-operation

Issues for the contractor. It is in the interests of the contractor to want to limit the intervention of other contractors to that specifically provided for in the contract or where such intervention will not interfere with the contractor's progress of the works (particularly as, generally, a significant role for other contractors is inconsistent with the contractor's responsibilities under a turnkey contract). The contractor may want to expand the provision allowing for co-ordination to constitute a variation to provide for the right also to obtain an extension of time. The contractor will also want to limit his responsibility for co-ordination where other contractors are involved; unless specified in the contract, the contractor should not be responsible for co-ordinating the activities of other contractors. The Silver Book limits such co-ordination to that specified in the employer's requirements. If the contractor is to be responsible for the activities of other contractors he will want the activities of such contractors to be defined to the greatest extent possible. For example, the contractor might require a specific list of other contractors likely to be present on the site along with the times and nature of their intervention. He will also require some power over the other contractors in order to carry out his co-ordination obligation-for example, whether he is in a position to instruct other contractors concerning relevant work without compromising the power of the employer's representative. He may also want the other contractors to be held to the same safety and environmental standards to which, under the contract, he is held. Where the contractor does not so specify he may be held responsible, under the Silver

620

Book, for the safety of the works involving other contractors, clearance of the site irrespective of the source of the waste materials, and any discharge or effluent issuing from the site regardless of its origin. Further, where the employer plans to hire other contractors or subcontractors, to either carry out work on the project or simply on the site, the contractor may want to include reciprocal co-operation obligations for the employer.12 Issues for the employer. The employer will want to keep this language as broad as possible in order to maintain the whole of the co-ordination responsibility on the contractor. The effectiveness and rationale of the single-point responsibility of the turnkey model necessitates, from the employer's perspective, that the contractor be liable for such activities. The employer may also wish to further limit the contractor's right to obtain a variation. 4.7

Setting Out

Issues for the contractor. The contractor may want the ability to request a variation (see sub-clause 13.1) where he discovers errors in the setting-out data provided in the contract. As the contractor is responsible for the accuracy of any data relating to the works (sub-clause 5.1), however, this change would be contrary to the Silver Book attempt to place all risk on the contractor. It is worth noting that efforts to shift risk, such as result from the operation of this clause, according to certain authors, may not be upheld or valid under the applicable law.13 4.8

25-93

25-94

Safety Procedures

Issues for the contractor. The contractor will want to ensure that this obligation does not cover activities by other contractors or the employer. If such other activities are included, the contractor should carefully and exhaustively define the activities for which he will be held responsible. The contractor may also wish to require the employer to agree that all persons for whom he is responsible will comply with the safety regulations that the contractor has established for the site. Finally, the contractor may wish to consider carefully the definition of "site" in order to ascertain the scope of his obligation.

25-95

Issues for the employer. The employer may require implementation of a safety programme which complies with applicable . laws and regulations and which is sufficient to protect owners and occupiers of adjacent property as well as the public in general. The employer can retain an approval

25-96

12

13

EIC Guide, p. 14. For a discussion of the potential invalidity of these sub-clauses under German law, see Dr A. Kus, Dr J. Markus & Dr R. Steding, "FIDIC's new 'Silver Book' under the German Standard Form Contracts Act" (1999) 16 (4) I.C.L.R. 533, pp. 536-537.

621

SPECIFIC NEGOTIATING ISSUES

NEGOTIATION OF THE SILVER BOOK

or review power to ensure that the programme implemented is sufficient. The parties may wish to deal specifically with any safety arrangements, instead of imposing a general duty of information regarding execution of the works. 4.9

Quality Assurance

25-97

Issues for the contractor. The contractor may wish to obtain the employer's approval of his quality assurance programme at the time of contract. This is particularly so given that quality assurance will be one element ensuring that the works conform to the employer's requirements. The contractor may want to specify these very clearly (and any attendant responsibilities) where the project is of a hazardous nature and perhaps highly regulated-for example, toxic waste treatment plants.

25-98

Issues for the employer. The employer may wish to have the same powers of review for the quality assurance system, as he has for the contract documents in sub-clause 5.2, in order to ensure compliance with the contract and his own requirements. He may also wish to ensure that the "details stated in the contract" are sufficiently comprehensive to provide the desired quality assurance system. 4.10

25-99

25-100

Site Data

Issues for the contractor. The contractor will want to shift the responsibility for site data on to the employer, since he will generally not have sufficient time to perform adequate testing and inspections prior to tender. Where sufficient site data is not available at tender, the contractor may want to provide for a reassessment of the contract price and completion date of the tender, when sufficient site data has been obtained. The Silver Book requires the employer to provide to the contractor all relevant data in the employer's possession, both before and after the base date, although the employer is not responsible for the accuracy of such data. The contractor may regard this as an unreasonable allocation of risk and therefore seek to have this provision deleted. Accurate initial data is important both to allow for an accurate tender and to allow the contractor to ensure that he will be excluded from any liability for pre-existing contamination (at any point up to the time the contractor has access to the site). Thus, the contractor may prefer wording such as contained in sub-clauses 1.10 Red and Yellow Books. Issues for the employer. The employer will want to maintain the risk of site data on the contractor. He may do this by means of a disclaimer regarding the site data he supplies to the contractor or by making the contractor's responsibilities for such data absolute. 622

4.11

Sufficiency of the Contract Price

This provision is repetitive of other provisions of the contract, except for the language including provisional sums in the contract price.

4.12

25-101

Unforeseeable Difficulties

Issues for the contractor. The Silver Book provides an unforeseen difficulties provision that places substantially all of the risk for the occurrence of such difficulties on the contractor. The contractor will ~ish to modify substantially this provision. The contractor may prefer a -scheme whereby he is responsible only for what was, in fact, foreseeable, as opposed to being deemed to have foreseen the event. Further, the contractor may wish to limit the scope of this article to certain areas of responsibility such that, for example, he is only responsible for unforeseeable ground conditions. FIDIC has taken the view that this clause is inappropriate where, for example, there are substantial works of underground construction.

25-102

Issues for the employer. The employer may want to place on the contractor the maximum possible responsibility for unforeseen difficulties. This clause, as it stands, is an effective tool for shifting substantially all of the risk on to the contractor while, at the same time, helping ensure the contract price and contract completion date remain unchanged. Employers should know that, in the absence of a changed conditions clause, contractors may attempt to argue entitlement to relief for changed conditions on the basis of the force majeure clause.

25-103

4.13

Rights of Way and Facilities

Issues for the contractor. Although the contractor may be the only party able to foresee any special or temporary right of way required due to his methods of construction, there may be situations in which the employer should provide such temporary rights of way.

4.14

25-104

Avoidance ofInterference

Issues for the contractor. The contractor might want to eliminate the word "improper" as what is an "improper" interference is contentious at best. As long as the interference is necessary for the project, the contractor should not have to indemnify the employer for damages, losses or expenses arising from such interference.

623

25-105

NEGOTIATION OF THE SILVER BOOK

4.15

Issues for the contractor. The contractor may prefer to place on the employer the duty to provide certain access routes to the site. This is particularly true where the employer is the government of the site country. For the same reasons, the sub-paragraph (c), which refers to the employer not being responsible for any claim involving access to the site, should be removed by the contractor. Some warn that an inconsistency could arise, in some projects, between the provisions of this sub-clause and those of 2.1, "Right of Access to Site".14 Any potential confusion should be clarified precontract.

25-107

Issues for the employer. The employer will want to maintain this risk on the contractor, in particular as concerns the provision of the sub-paragraph (c), in order to maintain the single-point responsibility of the turnkey contract.

25-108

25-109

25-110

Transport of Goods

Issues for the contractor. The contractor might not want to be required to provide notice to the employer when any major item of the plant or other goods will be delivered to the site. Where the employer requires a certain item be used in the construction, the contractor may wish to specify that transportation of such item shall be at the risk, and possibly also the expense, of the employer.

4.17

4.18

Access Route

25-106

4.16

SPECIFIC NEGOTIATING ISSUES

Issues for the contractor. The contractor will wish to ensure that it is not responsible for any contamination at the site not caused by its activities. The author has reviewed and negotiated contracts where the employer has placed responsibility for existing contaminations on the contractor. The contractor may also not wish to be responsibl~ for emissions from the site during the contract period while the employer has care of the works. The provisions of this sub-clause will likely be unsufficient in the context of an environmentally sensitive project.

4.19

Electricity, Water and Gas

Issues for the contractor. The contractor may want to require the employer to provide such services for the duration of the contract period. The contractor will not want to find himself at a point of partial completion being deprived of electricity or water and unable to find or use alternative available sources.

25-112

Issues for the employer. The employer will wish to ensure that he is paid at the appropriate levels for these services (by specifying this in his requirements or under this sub-clause). Alternatively, he may in certain circumstances wish to leave the contractor to make his own arrangements with suppliers. Specific projects may require specific arrangements. For example, in respect of power projects, detailed provisions regarding access to the electricity grid will be required.

25-113

4.20

Is~ues for the employer. The employer may want to include the ability to seize and sell the contractor's equipment in the case of contractor default, in order to satisfy any outstanding obligation to the employer or to enable him to carry out certain tasks on site without the need for new equipment (with attendant time and cost implications).

Employer's Equipment and Free-Issue Material

Issues for the contractor. The contractor may want to expand this provision to include any buildings, storage facilities or other such items provided by the employer. The contractor would then want a warranty of their suitability and an agreement as to access and availability. The contractor's singlepoint responsibility should be qualified by the employer's fulfillment of this obligation.

25-114

Issues for the employer. The employer should consider carefully the desirability of providing materials and machinery to the contractor. Unless the contractor is required to take responsibility for all the materials and machinery supplied, the employer may be weakening the single-point responsibility of the contractor for the construction of the works. For this reason, certain specialists as well as the World Bank advise against the practice of the employer supplying materials or machinery to the contractor.

25-115

EIC Guide, p. 16.

624

25-111

Contractor's Equipment

Issues for the contractor. The contractor will want to maintain the right to remove his equipment at any time, in order to facilitate his coordination with other projects. This is especially true where equipment is used on the site for a short period and will then be needed on another site for use on another project. As this is the case, the contractor will want to include language stipulating that he may remove his equipment at any time.

14

Protection of the Environment

625

SPECIFIC NEGOTIATING ISSUES

NEGOTIATION OF THE SILVER BOOK

4.21

4.24

Progress Reports

Fossils

25-116

As these reports are one of the employer's methods of verification of the project, the necessary level of detail will need to be determined in accordance with the specific requirements of the project.

Issues for the contractor. The contractor will want to maintain the provisions allowing for contract time and price adjustment in the event of the discovery of fossils and the like.

25-121

25-117

Issues for the contractor. The contractor will want to minimise his duty under this provision, in view of the other sources of information that the employer has, such as the construction documents, information provided with applications for interim payments and the inspection and testing by the employer. Further, certain contractors consider this clause to be "unnecessarily detailed and over-prescriptive" and, therefore, the contractor might wish to negotiate an alternative method of reporting. IS

Issues for the employer. The employer may wish to include the risk of the potential cost and time delay involved in the discovery of such items on the contractor, perhaps as an unforeseen difficulty. One could argue that in an archeologically rich area, the likelihood of a project being delayed by the discovery of such items is fairly high. The author believes that this would not constitute reasonable behaviour on the part of the employer. Parties are not always eager to discover the site may pose an archaeological interest, due to legislation protecting such areas in certain countries. Such a clause might result in a party destroying such finds, as opposed to incurring the cost associated with their discovery.

25-122

4.22 25-118

Issues for the contractor. The contractor should only be responsible for security of the site as concerns his own activities, and not those of other contractors or the employer. If the contractor is to be responsible for security regarding other activities, such activities should be clearly defined in the contract.

4.23 25-119

25-120

Security of the Site

Contractor's Operations on Site

Issues for the contractor. The contractor will want to change the wording of "all necessary precautions" to keep his personnel and equipment within the site, to "all reasonable precautions" (similar to that used in Silver Book subclause 4.24). The contractor may wish to clarify that he is not responsible for any rubbish, wreckage and surplus materials resulting from other contractors and the employer's staff. Any responsibility he may have for activities of others on the site should be carefully and exhaustively defined in the contract. Issues for the employer. He may want to ensure that he has some power (such as withholding the taking-over certificate) if rubbish or other debris makes taking over of the site impractical (given that, as presently drafted, the sub-clause allows for the issuance of the taking-over certificate before clearance of the site).

CLAUSE

5.1

EIe Guide, p. 16.

626

DESIGN

General Design Obligations

Issues for the contractor. The contractor may not wish to be responsible for errors in the employer's design and particularly' not for errors in the employer's requirements. The contractor's responsibility in this regard, however, is in keeping with the Silver Book philosophy of EPC contracts.

25-123

Issues for the employer. The employer may be tempted to reduce or eliminate some or all of the exceptions contained in the second paragraph of this sub-clause. The employer may also wish to have the right to proceed directly against the designer for any defect in the designs. This may be effected by including the employer as a third-party beneficiary of the contract (if any) between the contractor and his designer. As the contractor's responsibility for the design extends to a fitness for purpose obligation, which is more extensive than the usual standards imposed on designers, however, the employer may not want to pursue this option. A final consideration is that, in certain circumstances, the employer may wish to retain substantial oversight powers over the design process-in particular, it may wish to verify that the qualifications of the proposed designers have sufficient qualifications.

25-124

5.2

15

5

Contractor's Documents

Issues for the contractor. The contractor may want to define the number and type of construction documents that he must provide to the employer's representative for review. The contractor may require the employer to include

627

25-125

NEGOTIATION OF THE SILVER BOOK

25-126

in the employer's requirements an exhaustive list of such documents to be provided. Further, the contractor may object to the necessity of close scrutiny of the contractor's documents; considering he has "total responsibility for achieving the performance criteria" he may believe he "must therefore have total freedom to achieve this objective" .16 The author's view is that such a provision would be somewhat extreme.

selves, as well as their size and referencing system. Due to the importance of these documents, the employer may want to keep the reference to the system of review provided for under sub-clause 5.2.

Issues for the employer. The employer may not be content with a simple review of the construction documents, and may desire to impose an approval process. He will want to do this without derogating from the contractor's liability for the application of the fitness for purpose standard and the performance of the works.

Issues for the employer. The employer may want to maintain the reference to the system of review for these documents, as provided under sub-clause 5.2. His ability to operate the works successfully may depend on the detail and information provided by these manuals.

5.3

25-127

Arguably, this provision is redundant, in view of sub-clauses 1.13,4.1,5.1 and 5.4, and could be removed. Further, there exists a potential ambiguity between the provisions of this sub-clause and those of 5.1. The effect of this ambiguity would be to oblige the contractor to execute the works in accordance with the employer's requirements, even where such requirements contain errors. One author suggests that this issue should be resolved pre-tenderY

25-129

25-130

Training

Issues for the employer. In many projects, the employer will want to impose training obligations on the contractor. Such training obligations should be specified in detail in the employer's requirements. As noted in the FIDIC Guide, the qualities and abilities the employer requires the trainees to attain should also be specifed. 18 Successful completion of training should be kept as a condition precedent to taking over.

5.6

5.7

As-Built Documents

Issues for the contractor. In certain cases, the contractor may require a significant period of time to prepare the as-built drawings. Consequently, the contractor may want to remove the submission of as-built drawings as a condition of taking over.

5.8

CLAUSE

6.1

17

18

EIC Guide, p. 19. EIC Guide, p. 19. . FIDIC, The FIDIC Contracts Guide (Federation Internationale des Ingenieurs-Conseils Lausanne, 2000), p. 147. '

628

6

25-132

STAFF AND LABOUR

Engagement of Staff and Labour

Issues for the contractor. This clause should apply only to the staff and labour required for the execution of the contractor's obligations under the contract.

6.2

25-131

Design Error by Contractor

Issues for the contractor. This sub-clause should be subject to the exceptions described in sub-clause 5.1.

25-133

Rates of Wages and Conditions of Labour

Issues for the contractor. The first sentence of this sub-clause is unnecessary as the contractor is required to comply with applicable laws and regulations, which would include labour laws. The contractor may also object to the second sentence of this sub-clause. The contractor's obligation in respect of wages should be limited to compliance with local law.

25-134

Issues for the employer. The employer may consider it reasonable to require the contractor to be a good employer of his labour force. 19

25-135

Issues for the employer. The employer may want to provide for a review or approval power on the part of the employer for the as-built drawings them16

Operation and Maintenance Manuals

Contractor's Undertaking

5.5

25-128

SPECIFIC NEGOTIATING ISSUES

6.3

Persons in Service of Employer

Issues for the contractor. The contractor may want to ensure a reciprocal obligation on the part of the employer or add wording to the effect that 19

FIDIC Guide, p. 150.

629

25-136

SPECIFIC NEGOTIATING ISSUES

NEGOTIATION OF THE SILVER BOOK

6.8

"each party should seek the other party's prior agreement to the recruitment of personnel" .20

Contractor's Superintendence

Issues for the contractor. The contractor may wish to delete this sub-clause as redundant. 6.4

25-137

This sub-clause deleted.

IS

25-138

Facilities for Staff and Labour

Issues for the employer. The contract should specify the facilities the employer wants the contractor to provide for staff and labour, particularly where the facilities desired are unusual in nature. Thus, site-specific considerations should be defined in the contract in order to avoid misunderstanding. This also avoids any ambiguity in the use of the word "necessary" under this sub-clause. The employer may want to refer to the Orange Book Part II or the World Bank Standard Bidding Documents for a list of sample clauses relating to considerations such as supply of water, alcoholic liquor, drugs and firearms, epidemics, hospitals, schools, sewage disposal and their related items.

6.7 25-140

Working Hours

Issues for the contractor. The contractor may want to remove this subclause. He should be free to negotiate the working hours relevant to the project with his staff. The contractor should only be limited by local law in the working hours he imposes on his staff. The FIDIC Guide states this sub-clause may be omitted and seems to suggest the clause is intended to be more facilitative rather than to impose obligations. 21 This clause, however, may be of particular interest when considering the type of work to be carried out (for example in mechanised tunnelling operations, the work may have to be executed in a continuous fashion). 6.6

25-139

Labour Laws

Health and Safety

Issues for the contractor. The contractor should be aware of the potentially onerous nature of the obligations under this sub-clause. For example, as the FIDIC Guide points out, "in certain circumstances, it may even be necessary for [the contractor] to provide a fully-equipped hospital" .22 20

21

22

FID1C Guide, p. 151. FIDIC Guide, p. 152. FID1C Guide, p. 154.

630

6.9

redundant in view of sub-clause 1.13 and should be

6.5

25-141

Contractor's Personnel

Issues for the contractor. The contractor may wish to delete this provision. In the alternative, the contractor may want to add some power of review before the employer can remove an employee (and to make such a review process subject to a standard of reasonableness).

6.10

25-142

Records of Contractor's Personnel and Equipment

Issues for the contractor. The contractor may wish to minimise his duty under this provision, in view of the other sources of information that the employer has at his disposal under the contract.

6.11

Disorderly Conduct

Issues for the contractor. The contractor may not agree to be liable for the activities of its employees outside the scope of their employment. He may want to define "reasonable precautions".

CLAUSE

7

25-143

25-144

PLANT, MATERIALS AND WORKMANSHIP

7.3

Inspection

Issues for the contractor. The contractor may wish to limit the ability of the employer to inspect and test the works, where such inspection or testing is not specified in the contract, to those instances where such testing and inspection do not impede the performance of the works. Such a provision is found in the ENAA Contract (sub-clause 23.5). Furthermore, the contractor may not want to be responsible for notifying the employer every time a part of the works is covered up. This duty may prove overly burdensome. The parties could establish specific witness points. This clause does not deal with any potential cost implications arising from these tests (apart from making good after failing to give notice that work is ready before packaging or covering up). According to the FIDIC Guide this is because there is an assumption that no significant cost will be incurred in relation to this sub-clause. Depending upon the nature of the project, this assumption may or may not be appropriate.

631

25-145

SPECIFIC NEGOTIATING ISSUES

NEGOTIATION OF THE SILVER BOOK

7.4

25-146

Issues for the contractor. The contractor may want an independent expert to examine the test results and decide as to their compliance, rather than leaving that task of approval entirely to the employer.

25-147

Issues for the employer. The employer may want to specify in this section that any failure of the employer or contractor to discover a defect during a test or inspection does not relieve the contractor of his duty to remedy any defect that subsequently arises. 23 The employer may also want to provide for certain materials or plant to be tested off-site before delivery.

7.5 25-.148

7.7

Testing

Ownership of Plant and Materials

Issues for the contractor. The contractor may decide that plant or materials should become the property of the employer only when the contractor has received payment. Supply subcontracts should be drafted consistently with the wording of the sub-clause. In addition, the contractor should be aware that where appropriate changes to the provisions are not made, the contractor would be in breach of contract where he is unable to transfer ownership.25

25-150

Issues for the employer. The employer should be aware that local law may prevent ownership of the materials from transferring to the employer "free from liens and other encumbrances" at the relevant date stipulated in the contract.

25-151

Rejection

Issues for the contractor. The employer should not have a rejection power over designs already reviewed under sub-clause 5.2. The contractor may want to implement review by an expert who will rule on the compliance of materials and workmanship with the contract, where a dispute exists. In the absence of such an expert, under the Silver Book, the employer has discretionary power to reject materials or workmanship and to require the contractor to remedy the supposed defect (until a contrary decision by the dispute adjudication board). Although the role of the board and the independent expert may have certain similarities, the use of an independent expert may provide a more rapid response. In certain cases, the contractor may want to further restrict the rejection power to where the works have failed specified tests. The contractor may also wish to remove the last sentence of this subclause.

7.8

Royalties

Issues for the contractor. The contractor may wish to clarify that he is not responsible for the disposal of any material from demolitions and other surplus materials such as result from the actions of other contractors and the employer's staff. Any responsibility he may have for activities of others on the site should be carefully and exhaustively defined in the contract.

CLAUSE

8

COMMENCEMENT, DELAYS AND SUSPENSION

8.1

Commencement of Works

The parties may wish to provide for certain conditions precedent to commencement, such as key permits and licences, financing, etc.

7.6 25-149

24

UNCITRAL, Legislative Guide on Privately Financed Infrastructure Projects (UN, New York, 2001) (l!NDOC. AlCN.9/SER.Bl4) online: UNCITRAL Homepage (PDF format) hnp:llwww.unCltral.org/engilsh/texts/procuremlpfip·index·e.htm (date accessed: July 16, 2001), p. 141. EIC Guide, p. 19.

632

25-153

Remedial Work

Issues for the contractor. The contractor will wish to have the opportunity to repair the plant and materials the employer might otherwise instruct to be removed, replaced or re-executed under the provisions of this sub-clause. Further, where the employer insists on replacement where repair would otherwise be possible, the employer should bear the additional costs associated with this replacement. 24

23

25-152

8.3

Programme

Issues for the contractor. This programme provision should, as a general proposition, be acceptable to contractors. The contractor should carefully review the contents required for the programme. Further, contractors may want to consider the possible impact of the notification requirement of sub-clause 8.3 26 "on the starting point for calculating the notice periods under sub-clause 20.1 [Contractor's Claims]" and, in the interests of fairness, contractors may want employers to be under a similar notification obligation.2' 2S 26

27

FIDIC Guide, pp. 165-166. Which requires the contractor to notify the employer of "specific probably future events or circumstances "which may adversely affect or delay the execution of the Works". EIC, The EIC Contractor's Guide to the FIDIC Conditions of Contract for EPC Turnkey Projects (European International Contractors, Berlin, 2000), p. 20.

633

25-154

NEGOTIATION OF THE SILVER BOOK

25-155

Issues for the employer. The employer may want to modify this programme provision such that the first programme is attached to the contract, at least, in outline form. Furthermore, the employer may not want to allow the contractor to modify the programme without the employer's approval. Where financing institutions are involved, this review power may correspond with lender requirements. Lenders often require regular programme updates, with periodic progress reports. Lenders may also require verification by an independent engineer. As the provision stands, however, the periodic revisions of the programme may happen as a matter of course. The employer may wish to require that the programme describes the "critical path" to completion

8.4

Extension of Time for Completion

25-156

Issues for the contractor. The contractor may prefer to start the 28-day period for notice of intention to claim an extension of time from the date of knowledge of the event and not from its occurrence, as presently specified.

25-157

Issues for the employer. It would be in the employer's interests to specify that an extension of time for completion will only be issued to the extent that any delay constitutes a delay on the critical path and could not have been elimi-' nated or reduced through appropriate mitigation measures. In lieu of granting the contractor an extension of time, the employer may want to have the right to require the contractor to accelerate progress. The employer would compensate the contractor for the cost of such acceleration except where the delay in progress was attributable to the contractor.

8.5

Delays Caused by Authorities

25-158

Issues for the contractor. The contractor should also have the right to receive an increase in contract price for costs incurred due to such delays.

25-159

Issues for the employer. Under the Silver Book the contractor is allocated the risk of obtaining permits and licences. However, under sub-clause 2.2 the employer is required to provide assistance in the matter of obtaining of permits and licences. Along with the provisions of this present sub-clause, this risk has been attenuated to a degree that the employer may find unacceptable.

8.6 25-160

Rate of Progress

Issues for the contractor. The contractor may want control over any decision to accelerate the works. This is particularly true under the Silver Book, where the employer will presumably have less familiarity with the design and

634

SPECIFIC NEGOTIATING ISSUES

therefore will be less able to follow the works closely in order either to recognise delay or approve acceleration methods. 28

8.7

Delay Damages

Issues for the contractor. The contractor may wish to propose bonus payments for early completion. The contractor may wish to negotiate a grace period or the payment of liquidated damage on a basis other than "every day". In the event of a project financing, the contractor may wish to split the liquidated damages for delay into two categories. The first category of liquidated damages would consist of amounts in respect of damages to the project company. The second category of liquidated damages would consist of amounts in respect of damages by the project company to the off-taker or government in the event of delay. The second category would be payable by the contractor to the project company only if the project company was required to pay liquidated damages for delay to the off-taker or the government.

25-161

Issues for the employer. The employer may wish to impose interim liquidated damages prior to the time for completion based on key milestones.

25-162

8.9

Consequences of Suspension

Issues for the contractor. The contractor should not be responsible for any costs incurred (and should be entitled to an extension of time) resulting from any suspension whose cause is not attributable to the contractor. The contractor may also want to be entitled to lost profit resulting from a suspension whose cause was not attributable, in whole or in part, to the contractor.

25-163

Issues for the employer. It may be that under certain projects, short-term suspensions are likely. Under those circumstances the employer may argue that the contractor should not be compensated for delays and costs involved in short-term suspensions, as these are a matter of course and foreseeable. The compensation should therefore begin only after the suspension has lasted longer than a certain period in accordance with the nature of the project.

25-164

8.10

Payment for Plant and Materials in Event of Suspension

Issues for the employer. The contractor should not be entitled to payment for plant and materials due to suspension, unless he would otherwise have been entitled to such payment.

28

EIC Guide, p. 21.

635

25-165

SPECIFIC NEGOTIATING ISSUES

NEGOTIATION OF THE SILVER BOOK

8.11

Prolonged Suspension

25-166

Issues for the contractor. The period of 84 days may be too long for certain projects. The contractor may also want to add language indicating that the 84 days of suspension are in the aggregate. In other words, the contractor may want to prevent the possibility for the owner to first order an 84-day suspension, then give notice to proceed within 28 days of a contractor's request, and then institute another suspension. 29

25-167

Issues for the employer. The period of 84 days may be too short for certain projects.

sum of available liquidated damages set down for late completion. He should not be limited to one repeat of failed tests before the employer has the right to reject or reduce the contract price. . . The contractor may want to implement some form of mdependent thlrdparty review before allowing rejection of the works. . Where the "failure deprives the employer of substantially the whole benefit of the works or section", the employer's entitlements under the provisions of sub-clause 11.4 are very onerous. Thus, the contractor may only agree to this sub-clause where the contractor provides unique know-how that either (i) fails to work or (ii) is incapable of being taken over and successfully completed by another contractor. 3 ! See also comments in respect of sub-clause 11.4.

Resumption of Work

8.12

CLAUSE

25-168

Issues for the contractor. The contractor should note that under the first sentence of sub-clause 8.9, the contractor is entitled to both an extension of time and payment for these aspects of resumption of the work. 3o

CLAUSE

25-169

Failure to Pass Tests on Completion

Issues for the contractor. The contractor should have the right to continue remedying defects and attempting to pass the tests until he has exhausted the 29 30

See Ch. 12 (Commencement, Delay and Suspension). FIDIC Guide, pp. 181-182.

636

EMPLOYER'S TAKING-OVER

Taking Over of the Works and Sections

Issues for the contractor. The taking-over certificate should be deemed to be issued on the date of completion of the prerequisites to taking over and not on the last day of the 28-day decision period.

25-172

Issues for the employer. The parties should prepare a "punch list" of the minor items that must be completed subsequent to taking over. The contractor should be required to complete the items on the punch list as soon as possible or as otherwise instructed by the employer's representative.

25-173

10.2

Contractor's Obligations

Issues for the employer. The employer may require the contractor to provide a detailed tests-on-completion programme, such as provided under the current language of this sub-clause, in order to have a framework for the proper supervision of the conduct of the tests. The employer should ensure that all the tests that he needs in relation to his requirements are properly specified-given their role in defining whether the works are in proper operating order (for the purposes of employer taking over of the works). 9.4

25-171

TESTS ON COMPLETION

Where tests on completion will result in the production of a usable product, the ownership of that product should be specified. For example, in a power project, the ownership of any power generated by the facility should be allocated. Obviously, in such a case, the employer will wish to be able to generate and sell power as soon as possible. 9.1

25-170

9

10.1

10

Taking Over of Parts of the Works

Issues for the contractor. The contractor may not want the employer to be able to occupy or use parts of the.works without the issue of a taking-over certificate, or other assurances that the contractor will not be liable for any negative consequences that may arise due to the employer's occupation or use. Further, the contractor may want provisions to be made for situations in which the employer uses works before taking over without the prior agreement of the contractor. The EIC suggests wording such as found in Yellow Book sub-clause 10.2 (which deems taking over in such situations) may be appropriate. 32

25-174

Issues for the employer. The employer may want the right to use sections of the works before taking over has occurred (e.g. offices, storage areas, etc.). This could even include, for example, the early generation of power in the

25-175

31 J2

EIC Guide, pp. 22-23. EIC Guide, p. 23.

637

NEGOTIATION OF THE SILVER BOOK

construction of a power plant. He will not want such use to result in a deemed taking over. The works used should also be substantially in accordance with the contract before they are deemed to be taken over-in a manner similar to the requirement for deemed taking over where the employer fails to respond to the contractor's application for a taking-over certificate in sub-clause 10.1.

10.3 25-176

Interference with Tests on Completion

Issues for the contractor. The contractor may wish the works to be deemed to be taken over where he is prevented from carrying out the tests on completion for any reason either not attributable to his own fault or attributable to ~he employer. The FIDIC Guide however, suggests the employer is unlIkely to delay tests on completion under a Silver Book contract and in the event the employer does do so, "a deemed taking over may be in neither . " 33 Even I'f t he c?ntractor IS ' persuaded by this argument, he par t y's Interest. may, nevertheless, want the optIOn to choose a deemed taking over. CLAUSE

11.1 25-177

25-178

11

DEFECTS LIABILITY

Completion of Outstanding Work and Remedying Defects

Issues for the contr~ctor. The co?tractor may wish to limit his liability to defects that are attnbutable to him. The contractor may also believe that other limitations are appropriate. Issues for the employer. The employer may wish to provide further definition for t.he term "fair wear and tear excepted". The employer may also wish to negotiate a defects liability period in excess of one year. The employer should be allowe~ to. ~ive ins,tructions for remedy of defects for up to 14 days after the defects lIabilIty penod. In this WilY defects discovered at the end of the defects notification period can still be notified, even where the defects notification period has terminated. Arguably? the employer should also be entitled to rely on any provisions of the applIcable law more generous than those of clause 11 in respect of defects. The employer may want to add a latent defects liability period to cove~ defects not discoverable during the defects liability period which then manifest themselves during the defined period afterwards. . The empl~:er may also want a provision allowing him to remedy defects In the event he prefers to remedy [the defect) himself and then recover the reasonable cost of doing so from the contractor".34

33 34

FlDIC Guide, p. 193, FlDIC Guide, p. 196.

SPECIFIC NEGOTIATING ISSUES

11.2

Issues for the contractor. The contractor may want this clause to specifically address the situation where part of th~ design is provid.ed by the employer and is subsequently proven defectlve. The, El~ GUIde, ~herefore, recommends that this matter be clarified by parties In the particular conditions. 3s

25-179

Issues for the employer. The employer may want to leave the clause "as is", as such clause is commensurate with the high degree of contractor responsibility under the Silver Book.

25-180

11.3

Extension of Defects Notification Period

Issues for the employer. The employer may not want to be limited in the amount of time by which he can extend the defects notification period; a two-year limit may be inappropriate for certain works. Furthermo~e, any extension will be as a result of contractor defects. Therefore extensions of the period should not be limited. . The last paragraph of this sub-clause should be carefully considered. There may be situations in which it would be reasonable for the contractor to be liable for defects which occur more than two years after the defects notification period for the plant or materials would have expired.

11.4

11.5

25-182

Removal of Defective Work

Issues for the contractor. The contractor should be able to remove materials or plant from the site if off-site repairs could be made more efficiently or effectively. In any event, the employer's consent should not be unreasonably withheld in this regard.

35

25-181

Failure to Remedy Defects

Issues for the contractor. The contractor may want to define more particularly what is meant by "in a reasonable manner" under provision (a). The contractor may want to eliminate, or limit, the possibility for the employer to recover its financing cost under provision (c). Where provision (c) remains, contractors "must carefully consider whether the risks they carry under the Silver Book are commensurate with the likely reward for performing the contract" .36

36

638

Cost of Remedying Defects

FIDIC Guide, pp. 23-24. EIC Guide, p. 24.

639

25-183

NEGOTIATION OF THE SILVER BOOK

The contractor may not want the employer to have complete discretion as to whether or not to require the contractor provide additional performance security in the event of such removal.

11. 7 25-184

25-185

25-186

25-187

11.11

Issues for the employer. The contractor's access should be limited to the scope necessary for carrying out the remedial work in question and should require some reasonable prior notice.

Issues for the employer. The employer may wish this sub-clause to apply, even where he fails to issue a performance certificate in accordance with subclause 11.9.

Performance Certificate

CLAUSE

Issues for the employer. The employer may want specifically to provide that his approval of the works does not constitute an end to the contractor's liability under the contract or in law. For example, applicable law could provide for defects liability after such date. Where the employer fails to issue a performance certificate, he may nonetheless wish to retain the ability, as per sub-clause 11.11, to clear the site of the contractor's equipment and to do so, if necessary, at the contractor's cost.

FIDIC Guide, p. 201.

640

TESTS AFTER COMPLETION

Issues for the employer. The regime under the Silver Book for tests after completion is such that the employer will no longer have the sanction of delay damages (Silver Book sub-clause 8.7) against the contractor for delay. Consequently, an employer should carefully consider whether it would be more appropriate for the contractor to carry out these tests prior to completion. Where the employer wishes to carry out the tests after completion, the language provided in the Yellow Book may be used. 38

25-191

12.2

Delayed Tests

This provision should be considered carefully by the employer. Any number of risks could intervene to delay such tests and relieve the contractor of performance liability. 12.3

25-192

Retesting

Issues for the contractor. The scope of the costs for which the employer will be compensated should be limited.

25-193

Unfulfilled Obligations

Issues for the contractor. Where the contractor has succeeded in obtaining a discharge of his liability after the issue of the performance certificate, he may wish to delete this sub-clause. The contractor may want to provide that the employer's remedies for defects are limited to those specified in the contract. Contractors often wish to include a general exclusive remedies clause.

37

12

25-190

12.4 25-188

25-189

Issues for the contractor. The contractor will want to retain the current wording that allows it to perform the tests after completion in order to ensure that they are carried out in optimal circumstances by a staff experienced in the technology in question.

Issues for the contractor. The contractor may want to include a discharge of his liability under the contract at the issue of the performance certificate in order to avoid any uncertainty. This would include liability under the contract and in law.

11.10

Clearance of Site

Right of Access

Issues for the contractor. Where the contractor is unable to perform remedial work due to the security restrictions of the employer, he should be absolved of the duty to perform such remedial work. The FIDIC Guide notes that for certain types of plant, technological development may only be maintained by feedback from operational records. In such a case, the contractor should have a right of access to these records. 37

11.9

SPECIFIC NEGOTIATING ISSUES

Failure to Pass Tests after Completion

Issues for the contractor. The employer should pay the contractor a bonus for achieving a level of production above that specified in the performance criteria, where such extra production would be beneficial to him. The second paragraph of this sub-clause potentially leaves the contractor liable for endless cycles of testing and readjustment. The contractor may 38

P.L. Booen, "FIDIC's Conditions of Contract for the Next Century: 1998 Test Editions" (1999) 16 (1) J.C.L.R. 518/19 at n. 51.

641

25-194

NEGOTIATION OF THE SILVER BOOK

SPECIFIC NEGOTIATING ISSUES

13.2

want to specify a maximum period for such retesting and readjustment or alternatively renegotiation of the contract price within defined limits. '

Issu~s for the employer. The employer should have the option either to require the contractor to pay liquidated damages for a lower level of performance or to require the contractor to remedy the defect. If the present wording of the sub-clause is retained then the employer should pay attention to the assessment provisions for non-performance damages. Part II of the Silver Book states that minimum performance criteria should also be specified in the particular conditions or in the employer's requirements. In addition, the Guide to the Orange Book notes that the employer may find that he has non-compliant works, paid the contract price but can only deduct an inadequate (for these purposes) monetary sum by way of non-performance damages.

25-195

CLAUSE

13

VARIATIONS AND ADJUSTMENTS

13.1

Issues for the contractor. The contractor should be provided with some form of compensation for any value engineering proposed (such as a percentage of the cost saved). The contractor may want the power to vary the works, where the safety of the works is at risk, or in case of an emergency.

13.3

EIC Guide, p. 24.

642

25-198

Right to Vary

Issues for the contractor. The contractor may want to limit the employer's power to vary the works. For example, he may want variations to be limited to a certain percentage of the contract price. He may also want to restrict variations to work that would be technically practicable or within his area of experience and competence. Th~ contractor should be allowed to object to any variation on legitimate techmcal grounds. Where the contractor has objected, he should be allowed t? qualify his warranties concerning the works in accordance with his objectIOns. The EIC Guide considers that the contractor should have sole discretion t~ refuse any varia~io.n: (i) where the price offered is "wholly inadequate"; (II) where the vanatlOn may adversely effect the contractor's ability to perform other contractual obligations; or (iii) where the employer does not demonstrate (as per sub-clause 2.4) that adequate financial arrangements are in place. 39 The employer should only be allowed to vary the works by requiring a propo.sal from the contractor. The procedure allowing an instruction of a vanatlon should be deleted. The contractor may argue that this would be beneficial to the e~ployer in that he can ascertain the effects of any proposed changes before gOIng ahead. Nevertheless, the employer will not wish to relinquish his right to instruct (particularly where he has a clear idea of how his requirements are to be amended).

J9

25-197

Variation Procedure

Issues for the contractor. Before the contractor is required to proceed with the variation, the employer and the contractor should agree on any increase in the contract price, any extension of the time for completion and any other necessary modification to the contract. In the event of disagreement, the contractor may wish to consider recourse to an expert. Further, the contractor may want to ensure reimbursement for costs incurred producing variation proposals where, ultimately, the employer does not proceed with them.

13.5

25-196

Value Engineering

Provisional Sums

Issues for the contractor. Where provisional sums are used, the contractor may want to consider carefully his responsibility for the works. The EIC Guide warns the contractor may be held liable for such works under subclause 5.1, in the absence of any express provisions to the contrary.40 Part II of the Silver Book states that provisional sums are generally inappropriate for contractor-designed works but may, nonetheless, be required "for parts of the works which are not required to be priced at the risk of the contractor" . 13.7

Adjustments for Changes in Legislation

Issues for the contractor. The contractor may want to have the right to renegotiate the contract price where a change in legislation will increase the contract price by more than a certain percentage (or where the additional work required is not of a kind familiar to the contractor). Alternatively, the contractor may want the contract to limit the amount of cost he will incur and to have the right to be released from the contract where such changes make completion impractical. The contractor will wish to be compensated for any change in law that adversely affects the works, not limited to a change in law in the "Coumry".

'0

25-199

EIC Guide, p. 25.

643

25-200

SPECIFIC NEGOTIATING ISSUES

NEGOTIATION OF THE SILVER BOOK

25-201

Issues for the employer. Changes in legislation should not be considered from the base date, but some later date, such as the date of signature of the contract. The employer should not be responsible for all changes in the site country's tax regime, certain of which should be considered part of the contractor's commercial risk. Changes in legislation may occur before the cut-off date but then only come into force after that date. The employer should not be responsible for changes of this type. Any such changes in legislation should have been taken into consideration in the calculation of the contract price. The employer may wish further to limit the scope of the laws a change in which will give rise to compensation. Both parties may want to specify more exactly which types of events are classified as changes-for example, whether judicial decisions effecting a change in the law (particularly in common-law jurisdictions) will be defined as changes or merely interpretations. 13.8

25-202

14

CONTRACT PRICE AND PAYMENT

14.1

25-203

Application for Interim Payments

Issues for the contractor. The contractor will be compensated during the contract period in accordance with the payment method defined in the contract. This method (in particular, where milestone payments are used) should provide for periodic payments at reasonab.ly sho~t. intervals, providing the contractor with an appropriate cash flow (t.e. positive).

25-205

Issues for the employer. The employer should implement a payment. programme that will allow payment only after discrete tasks have been fiOished (and these tasks are completed to the satisfaction of the e~ployer's repres:ntative). For certain milestones, the employer may require comprehens.lve testing to ensure successful completion of the milestone task before allowmg payment. . . . Project lenders may require independent venficatlOn of the completion of such construction tasks before allowing payment.

25-206

Adjustments for Changes in Cost

Issues for the employer. The employer will want the majority, if not all, of the risk associated with changes in the costs of labour, goods and other inputs into the works to have been taken into consideration in the calculation of the original contract price.

CLAUSE

14.3

The Contract Price

Issues for the contractor. The contractor will want to have as much flexibility as possible in his ability to obtain an increase in the contract price for unforeseen changes. In addition, the contractor may wish to place some of the tax burden on the employer. Part II of the Orange Book provides sample language in this regard.

14.4

Issues for the contractor. The employer should not have the power unilaterally to modify a schedule of payments that has been agreed between the parties.

25-207

Issues for the employer. The employer should generally provide for a schedule of payments defined by reference to the progress of the. works. 'The absence of such a reference may not provide the contractor With suffiCIent incentive to ensure timely completion. The employer may wish to make use of the alternative language for interim valuation in Part II of the Silver Book (particularly where he does not have the knowledge of design or construction that otherwise an engineer would have in a traditional project).

25-208 -210

14.6 14.2 25-204

Advance Payment

Issues for the contractor. The contractor, and, indeed, the employer, may want to provide for an advance on the contract price to be paid to the contractor at the commencement of the contract to improve the contractor's capital flow for mobilisation and design. The EIC Guide suggests advance payment might be made a condition precedent to the commencement of work. 41 4t

E1C, The EIC Contractor's Guide to the FIDIC Conditions of Contract for EPC Turnkey Projects (European International Contractors, Berlin, 2000), p. 26.

644

Schedule of Payments

Interim Payments

Issues for the contractor. The contractor may have concerns about the un ilateral right of the employer to make modifications or corrections as set out in the second-to-last sentence of this sub-clause. Further, the EIC Guide cautions that the present wording of this sub-clause could enable the employer to withhold the entire value of any works the employer considers delayed due to the contractor's failure to proceed with "due ~xpedition" as required under sub-clause 8.1. 42

42

EIC Guide, p. 27.

645

25-211

NEGOTIATION OF THE SILVER BOOK

14.7 25-212

Payment of Retention Money

Issues for the contractor. The contractor should be allowed to replace retention money with a retention guarantee (presumably in substantially the same form as for the performance guarantee).

14.12 25-215

25-216

Discharge

Issues for the contractor. The contractor may want to ensure the language of such discharge provides for such discharge "to become effective when the final payment has been received and all bonds and guarantees returned" .44

14.14

CLAUSE

Cessation of Employer's Liability

Issues for the contractor. This sub-clause should also provide for the cessation of the contractor's liability. The contractor should also be aware the effect of this sub-clause bars any claims which the contractor fails to notify in the final statement and the statement at completion. The contractor may also wish to delete the fraud, default or misconduct expectation.

4J

EIC Guide, p. 28. EIC Guide, p. 28.

646

TERMINATION BY EMPLOYER

Notice to Correct

Issues for the contractor. This sub-clause should differentiate between a substantive and a minor breach, in order to avoid termination of the contract for a minor breach. See sub-clause 15.2(a). The contractor may also have concerns regarding the term "specified reasonable time". 15.2

46 47

25-217

Termination by Employer

Issues for the contractor. The 14-day period of notice before termination is too short. This sub-clause should specify that a cure within the 14-day notice period deprives the employer of his right to terminate the contractor's employment under the contract for the cause in question. The contractor should note that provision (a) provides a powerful tool to an unscrupulous employer, as notice under sub-clause 15.1 may refer to "any" failure of the contractor with regard to "any obligation" .45 Arguably, provision (c) could be deleted. The employer, pursuant to subcia use 15.1, already has the right to give a notice to correct if the contractor fails to carry out any of his obligations or is not executing the works in accordance with the contract. With respect to provision (e), the contractor may wish to provide that where one member of the consortium goes into bankruptcy, the contractor's employment under the contract will not be terminated as long as the other members of the consortium are able to perform. In any case, the contractor will not want the employer to be able to immediately terminate the contract in the event of either bankruptcy or certain bribes. This provision may not be enforceable in certain jurisdictions. This provision should specify that the contractor will not incur liquidated damages after termination. The utility of provision (f) is questionable given that most jurisdictions will have a legal mechanism for dealing with such matters (for example, the Foreign Corrupt Practices Act under United States law 46 ). Furthermore, the contractor may wish to narrow the scope of the provision as, under the current language, the contract may be terminated for an act of corruption carried out under a subcontract. 47 This provision would also appear to prohibit minor "grease" payments.

45

44

15

15.1

Delayed Payment

Issues for the employer. The employer may believe that the interest rate used in this sub-clause is excessive.

14.9 25-214

Timing of Payments

Issues for the contractor. The contractor may consider that the period of 56 days before payment is too long and, as the EIC Guide notes, "excessive in comparison with well-established norms" .43 Where the contractor is a consortium, the members may want to be paid directly and individually. For his own administrative purposes, the contractor may want the option of nominating more than one bank.

14.8 25-213

SPECIFIC NEGOTIATING ISSUES

EIC Guide, p. 29. Foreign Corrupt Practices Act, 15 USCA SS78dd-l et seq. 1977, as amended in 1988 (Pub. L. 100-418, Title V, Subtitle A, Pt. I, Aug. 23, 1988, 102 Stat. 1415). EIC Guide, p. 29.

647

25-218

SPECIFIC NEGOTIATING ISSUES

NEGOTIATION OF THE SILVER BOOK

25-219 -220

Issues for the employer. The reasonable excuse language of provision (c) should be removed. In addition, the employer may want to add as a basis for termination, the occurrence of a breach of a patent right for which the contractor is responsible.

15.4 25-221

Payment after Termination

Issues for the employer. The employer may want the right to seize and sell the contractor's equipment in order to satisfy the sums due from the contractor. 15.5

Employer's Entitlement to Termination

25-222

Issues for the contractor. The contractor may wish to reduce or eliminate this right. He may want to receive lost profit as regards the valuation of the works in the event of termination for the employer's convenience. He may also wish to change the vague wording requiring the employer not terminate the contract in order to have the works executed by himself or another contractor. For example, a specific period might be provided during which the works may not be recommenced.

25-223

Issues for the employer. The employer may want to reduce or eliminate the period of notice required (currently 28 days) particularly if his termination is urgent. The employer should also be aware that certain financing institutions do not allow clauses giving him the power to terminate at will.

CLAUSE

25-224

16

SUSPENSION AND TERMINATION BY CONTRACTOR

default and the contractor's right to terminate. The contractor may want to shorten this period. Issues for the employer. The employer may wish to delete all references to employer's financial arrangements. Provision (c) should retain the differentiation between substantive and minor breaches, in order to avoid termination for a minor breach. Provision (f) may be unenforceable under applicable law. This sub-clause should specify that cure within the 14 days' notice period removes the contractor's right to terminate in relation to the deficiency cured. 16.3

Cessation of Work and Removal of Contractor's Equipment

Issues for the contractor. The contractor should not be bound to complete such work (as may have been instructed by the employer for the protection of life or property or for the safety of the works) where the employer is bankrupt or otherwise unable to pay and where the amount due to the employer (such as repayment of advance payments and any lien the contractor may have on the plant and equipment), is not sufficient to compensate the contractor for the work to be performed. The FIDIC Guide notes, however, that the works mentioned in this sub-clause may be required under the relevant country's safety laws. 48

25-228

Issues for the employer. The employer may wish to limit his responsibility for the payment of loss of profit or other loss or damage.

25-229

16.4

Payment on Termination

Issues for the contractor. This sub-clause should specifically include the cost of implementing the work required by sub-clause 16.3.

Certain employers do not include in the construction contract a clause for termination for default of the employer. This practice is not recommended.

CLAUSE

17

25-225

Issues for the employer. The contractor should not have the power to suspend the works. Interest charges on late payments are available to penalise any failure to pay by the employer. Termination by Contractor

Issues for the contractor. The contractor should note that the effect of subclause 16.2 provisions could result in an 84-day period between initial 648

Indemnities

Contractor's Entitlement to Suspend Work

16.2 25-226

25-229

RISK AND RESPONSIBILITY

17.1 16.1

25-227

Issues for the contractor. The language of this sub-clause relating to "all claims, damages, losses" and arising "in the course of" the design or execution of the works may be too wide for the contractor and may, in the present form, be uninsurable. 49

25-230

Issues for the employer. The language of this sub-clause relating to "all claims, damages, losses" may be too wide for the employer.

25-231

'8 •9

FIDIC Guide, p. 268 . EIC Guide, p. 30.

649

NEGOTIATION OF THE SILVER BOOK

17.2 25-232

Contractor's Care of the Works

Issues for the contractor. The contract should include a reasonable definition of "care of the works". The duties associated with this term may not be obvious under certain legal systems. The contractor's duties in respect of care of the works should not begin prior to the date on which the employer has provided access and possession of the site as specified in the contract. The care of the works should revert to the employer on the issue, or deemed issue, of the taking-over certificate. The second paragraph of this sub-clause should be deleted. The contractor should not be responsible for the care of outstanding work.

SPECIFIC NEGOTIATING ISSUES

The employer should always ensure that the responsibility for any process licence rests with the contractor. 17.6

Limitation of Liability

Issues for the contractor. The contractor will argue that his maximum liability should be equal to a percentage of the contract price. See also ENAA Clause 30.

CLAUSE

17.3 25-233

25-234

25-235

25-236

Consequences of Employer's Risks

Issues for the contractor. The contractor should receive profit for any costs incurred due to an employer's risk. 17.5

The issue of who takes responsibility for insurance between the parties is often difficult to resolve. The parties may want to include marine cargo insurance and other such insurance to cover the transportation of plant and equipment to the site.

25-238

Issues for the contractor. The contractor may want the employer to provide some or all of the required insurance.

25-239

Issues for the employer. Where the works are varied under clause 14, the contractor should have to modify the insurance cover accordingly. The employer may prefer, in certain circumstances, to provide insurance to improve his control and decrease cost. .

25-240

Intellectual and Industrial Property Rights

Issues for the contractor. On the assumption that the contractor is responsible for a process licence he will want to ensure that his obligations in the main contract are back to back with his obligations to the licence holder under the licence agreement. The contractor may also want to remove reference in this sub-clause to an exception to his indemnification by the employer where the breach of an intellectual property right arises due to any thing not supplied by the contractor" unless such use was disclosed to the contractor prior to the base date or is stated in the contract". Issues for the employer. The employer may wish to place on the contractor the affirmative duty to provide all technology and know-how necessary for the completion and operation of the works. Any licence fees should be included in the contract price. He may also want to institute a system for monitoring any licence fees or royalties to be paid in the future by the contractor, including a method of stepping in and paying the fees where the contractor fails to do so. 650

INSURANCE

Employer's Risks

Issues for the contractor. Language should be added to include: any breach of duty, either contractual or legal, and any use or occupation by the employer. The list may also be extended based on the specificities of the project. See, for example, Orange Book sub-clause 17.3. 17.4

18

25-237

18.1

General Requirements for Insurances

Issues for the contractor. The contractor may wish to have employersupplied insurance. Part II of the Silver Book gives sample language for such a consideration. The employer should not have approval power over the terms of any contractor-supplied insurance. Any necessary terms should be described in detail in the employer's requirements, rather than be as agreed between the parties before they signed the contract. Indeed, the parties should integrate any previous agreements as to the terms of insurances into the contract, in order to avoid confusion and improve consistency among the contract documents. If special terms are to be used, they should be appended to the contract as a schedule.

25-241

Issues for the employer. The employer may wish to have wide discretion as to the use of insurance proceeds. This will ensure proper commercial use of such proceeds, particularly where the works have been destroyed or damaged to the extent that rectification is no longer desirable. In project financings, lenders will usually require such control.

25-242

651

NEGOTIATION OF THE SILVER BOOK

18.2 25-243

Insurance for Works and Contractor's Equipment

Issues for the contractor. The contractor should be required to obtain insurance for the contractor's equipment only where such insurance is readily available on reasonable commercial terms.

CLAUSE

19.1 25-244

25-246

19

and the contractor's staff and labour (to the extent that these costs are already included in provision (a)).

CLAUSE

FORCE MAJEURE

Definition of Force Majeure

Issues for the contractor. The contractor may prefer to remove the language of provision (c) which excludes from the category of force majeure an event substantially attributable to the other party as such an event may, nonetheless, ~onstitute a force majeure for the effected party. This may be of particular Importance to a contractor as the situation may arise, for example, where the owner is a government whose actions would constitute a force majeure if not for the language of provision (c). The contractor may prefer the wording of the ENAA Contract. Under subclause 37.1 of that contract, force majeure is defined very widely. Such events are merely those that are beyond the reasonable control of the owner or the contractor and which are unavoidable. The contractor may want to add other specific events such as strikes industrial action and frustration by the government of the site country (fo; example, as set out in sub-clause 37.1(d) of the ENAA Contract).

19.4 25-245

SPECIFIC NEGOTIATING ISSUES

Consequences of Force Majeure

Issues for the contractor. The contractor will want the payment of cost and extension of time allowances to apply to all force majeure events and not simply those enumerated.

Iss~es for the employer. The employer may wish to decide that if a force maleure event occurs, the contractor would have the right to seek an extension of time but no right to seek an increase in the contract price.

20

CLAIMS, DISPUTES AND ARBITRATION

20.1

Contractor's Claims

Issues for the contractor. In the interests of equity, the employer should be subject to an identical procedure for his claims against the contractor. The contractor should not be barred from making a claim solely on the basis of failure to notify a claim within the 28-day period. Where this bar is maintained, the 28-day period should be significantly extended. The contractor may also wa~t the 42-day period (in which to substantiate his claim) extended.

20.2

Appointment of the Dispute Adjudication Board

Query whether one party should have an approva( power over the board member chosen by the other party. Where the DAB is constituted before a dispute arises and, in any case, once a DAB is constituted, the board should be kept informed of developments at the site in order to improve its efficiency in the event of a dispute. This may be effected through periodic site visits and access to the progress reports, the programme and other relevant information. FIDIC provides model terms of appointment for the dispute adjudication board that the parties may want to use as a starting point in drafting their own terms.

20.5

The parties may wish to attempt this type of settlement process before the matter is referred to the dispute adjudication board.

25-252

Arbitration

Optional Termination, Payment and Release

25-247

Issues for the contractor. The 84-day period may need to be shortened. This sub-clause should include a catch-all provision covering all other costs incurred by the contractor as a result of termination.

25-248

Issues for the employer. The contractor should not be paid for the costs of removal and repatriation of temporary works, the contractor's equipment 652

25-250 -251

Amicable Settlement

20.6 19.6

25-249

The Silver Book indicates that the International Chamber of Commerce would be an appropriate arbitration institution to use. The author agrees with this suggestion. The ICC may be regarded as the safest choice for parties. In the event that they choose another ins~itution it should, at a minimum, have well-established procedures for, inter alia, removal of arbitrators and scrutiny of the award. Ad hoc arbitration is not recommended.

653

25-253

ApPENDIX I

FEDERATION INTERNATIONALE DES INGENIEURS-CONSEILS: CONDITIONS OF CONTRACT FOR EPC/TURNKEY PROJECTSl CONTENTS

1.6 1.7 1.8 1.9 1.10 1.11 1.12 1.13 1.14

GENERAL PROVISIONS Definitions Interpretation Communications Law and Language Priority of Documents Contract Agreement Assignment Care and Supply of Documents Confidentiality Employer's Use of Contractor's Documents Contractor's Use of Employer's Documents Confidential Details Compliance with Laws Joint and Several Liability

659 659 662 662 663 663 663 663 664 664 664 664 665 665 665

2 2.1 2.2 2.3 2.4 2.5

THE EMPLOYER Right of Access to the Site Permits, Licences or Approvals Employer's Personnel Employer's Financial Arrangements Employer's Claims

665 665 666 666 666 667

3 3.1 3.2 3.3 3.4 3.5

THE EMPLOYER'S ADMINISTRATION The Employer's Representative Other Employer's Personnel Delegated Persons Instructions Determinations

667 667 667 668 668 668

4 4.1 4.2 4.3

THE CONTRACTOR Contractor's General Obligations Performance Security Contractor's Representative

669 669 669 670

1 1.1 1.2 1.3

1.4 1.5

I

Reproduced by kind permission of FIDIC. Original documents are obtainable from FIDIC, BP86, CH·1000 Lausanne 12; Internet: http://www.fidic.orglbookshop/.

655

APPENDIX I

FIDIC: CONDITIONS OF CONTRACT

4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 4.12 4.13 4.14 4.15 4.16 4.17 4.18 4.19 4.20 4.21 4.22 4.23 4.24

Subcontractors Nominated Subcontractors Co-operation Setting Out Safety Procedures Quality Assurance Site Data Sufficiency of the Contract Price Unforeseeable Difficulties Rights of Way and Facilities Avoidance of Interference Access Route Transport of Goods Contractor's Equipment Protection of the Environment Electricity, Water and Gas Employer's Equipment and Free-Issue Material Progress Reports Security of the Site Contractor's Operations on Site Fossils

670 670 671 671 671 671 672 672 672 672 672 673 673 673 673 674 674 674 675 675 676

5 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8

DESIGN General Design Obligations Contractor's Documents Contractor's Undertaking Technical Standards and Regulations Training As-Built Documents Operation and Maintenance Manuals Design Error

676 676 676 677 677 678 678 678 679

6 6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.8 6.9 6.10 6.11

STAFF AND LABOUR Engagement of Staff and Labour Rates of Wages and Conditions of Labour Persons in the Service of Employer Labour Laws Working Hours Facilities for Staff and Labour Health and Safety Contractor's Superintendence Contractor's Personnel Records of Contractor's Personnel and Equipment Disorderly Conduct

679 679 679 679 679 679 679 680 680 680 681 681

7 7.1 7.2 7.3 7.4 7.5

PLANT, MATERIALS AND WORKMANSHIP Manner of Execution Samples Inspection Testing Rejection

681 681 681 681 682 682

656

7.6 7.7 7.8

Remedial Work Ownership of Plant and Materials Royalties

683 683 683

8 8.1 8.2 8.3 8.4 8.5 8.6 8.7 8.8 8.9 8.10 8.11 8.12

COMMENCEMENT, DELAYS AND SUSPENSION Commencement of Works Time for ·Completion Programme Extension of Time for Completion Delays Caused by Authorities Rate of Progress Delay Damages Suspension of Work Consequences of Suspension Payment for Plant and Materials in Event of Suspension Prolonged Suspension Resumption of Work

683 683 684 684 684 685 685 685 686 686 686 686 687

9 9.1 9.2 9.3 9.4

TESTS ON COMPLETION Contractor's Obligations Delayed Tests Retesting Failure to Pass Tests on Completion

687 687 687 688 688

10 10.1 10.2 10.3

EMPLOYER'S TAKING OVER Taking Over of the Works and Sections Taking Over of Parts of the Works Interference with Tests on Completion

688 688 689 689

11

11.1 11.2 11.3 11.4 11.5 11.6 11.7 11.8 11.9 11.10 11.11

DEFECTS LIABILITY Completion of Outstanding Work and Remedying Defects Cost of Remedying Defects Extension of Defects Notification Period Failure to Remedy Defects Removal of Defective Work Further Tests Right of Access Contractor to Search Performance Certificate Unfulfilled Obligations Clearance of Site

689 689 690 690 690 691 691 691 691 691 692 692

12 12.1 12.2 12.3 12.4

TESTS AFTER COMPLETION Procedure for Tests after Completion Delayed Tests Retesting Failure to Pass Tests after Completion

692 692 693 693 693

13 13.1 13.2 13.3

VARIATIONS AND ADJUSTMENTS Right to Vary Value Engineering Variation Procedure

694 694 694 694 657

APPENDIX I

FIDIC: CONDITIONS OF CONTRACT

13.4 13.5 13.6 13.7 13.8

Payment in Applicable Currencies Provisional Sums Daywork Adjustments for Changes in Legislation Adjustments for Changes in Cost

695 695 695 696 696

14 14.1 14.2 14.3 14.4 14.5 14.6 14.7 14.8 14.9 14.10 14.11 14.12 14.13 14.14 14.15

CONTRACT PRICE AND PAYMENT The Contract Price Advance Payment Application for Interim Payments Schedule for Payments Plant and Materials intended for the Works Interim Payments Timing of Payments Delayed Payment Payment of Retention Money Statement at Completion Application for Final Payment Discharge Final Payment Cessation of Employer's Liability Currencies of Payment

696 696 696 697 698 698 698 699 699 699 700 700 700 701 701 701

15 15.1 15.2 15.3 15.4 15.5

TERMINATION BY EMPLOYER Notice to Correct Termination by Employer Valuation at Date of Termination Payment after Termination Employer's Entitlement to Termination

702 702 702 703 703 703

16

16.1 16.2 16.3 16.4

SUSPENSION AND TERMINATION BY CONTRACTOR Contractor's Entitlement to Suspend Work Termination by Contractor Cessation of Work and Removal of Contractor's Equipment Payment on Termination

703 703 704 704 705

17 17.1 17.2 17.3 17.4 17.5 17.6

RISK AND RESPONSIBILITY Indemnities Contractor's Care of the Works Employer's Risks Consequences of Employer's Risks Intellectual and Industrial Property Rights Limitation of Liability

705 705 705 706 706 706 707

18 18.1 18.2 18.3 18.4

INSURANCE General Requirements for Insurances Insurance for Works and Contractor's Equipment Insurance against Injury to Persons and Damage to Property Insurance for Contractor's Personnel

707 707 709 710 710

19 19.1

FORCE MAJEURE Definition of Force Majeure

710 710

658

19.2 19.3 19.4 19.5 19.6 19.7

Notice of Force Majeure Duty to Minimise Delay Consequences of Force Majeure Force Majeure Affecting Subcontractor Optional Termination, Payment and Release Release from Performance under the Law

711 711 711 712 712 712

20 20.1 20.2 20.3 20.4 20.5 20.6 20.7 20.8

CLAIMS, DISPUTES AND ARBITRATION Contractor's Claims Appointment of the Dispute Adjudication Board Failure to Agree Dispute Adjudication Board Obtaining Dispute Adjudication Board's Decision Amicable Settlement Arbitration Failure to Comply with Dispute Adjudication Board's Decision Expiry of Dispute Adjudication Board's Appointment

713 713 714 715 715 716 716 716 717

APPENDIX GENERAL CONDITIONS OF DISPUTE ADJUDICATION AGREEMENT

717

GENERAL CONDITIONS AI-0l

General Provisions 1.1

Definitions

In the Conditions of Contract ("these Conditions"), which include Particular Conditions and these General Conditions, the following words and expressions shall have the meanings stated. Words indicating persons or parties include corporations and other legal entities, except where the context requires otherwise.

1.1.1 The Contract 1.1.1.1 "Contract" means the Contract Agreement, these Conditions, the Employer's Requirements, the Tender, and the further documents (if any) which are listed in the Contract Agreement. 1.1.1.2 "Contract Agreement" means the contract agreement referred to in SubClause 1.6 [Contract Agreement), including any annexed memoranda. 1.1.1.3 "Employer's Requirements" means the document entitled employer's requirements, as included in the Contract, and any additions and modifications to such document in accordance with the Contract. Such document specifies the purpose, scope, and/or design and/or other technical criteria, for the Works. 1.1.1.4 "Tender" means the Contractor's signed offer for the Works and all other documents which the Contractor submitted therewith (other than these Conditions and the Employer's Requirements, if so submitted), as included in the Contract. 1.1.1.5 "Performance Guarantees" and "Schedule of Payments" mean the documents so named (if any), as included in the Contract.

659

FIDlC: CONDITIONS OF CONTRACT

APPENDIX I

1.1.2 Parties and Persons 1.1.2.1 "Party" means the Employer or the Contractor, as the context requires. 1.1.2.2 "Employer" means the person named as employer in the Contract Agreement and the legal successors in title to this person. 1.1.2.3 "Contractor" means the person(s) named as contractor in the Contract Agreement and the legal successors in title to this person(s). 1.1.2.4 "Employer's Representative" means the person named by the Employer in the Contract or appointed from time to time by the Employer under Sub-Clause 3.1 [The Employer's Representative), who acts on behalf of the Employer. 1.1.2.5 "Contractor's Representative" means the person named by the Contractor in the Contract or appointed from time to time by the Contractor under Sub-Clause 4.3 [Contractor's Representative), who acts on behalf of the Contractor. 1.1.2.6 "Employer's Personnel" means the Employer's Representative, the assistants referred to in Sub-Clause 3.2 [Other Employer's Personnel) and all other staff, labour and other employees of the Employer and of the Employer's Representative; and any other personnel notified to the Contractor, by the Employer or the Employer's Representative, as Employer's Personnel. 1.1.2.7 "Contractor's Personnel" means the Contractor's Representative and all personnel whom the Contractor utilises on Site, who may include the staff, labour and other employees of the Contractor and of each Subcontractor; and any other personnel assisting the Contractor in the execution of the Works. 1.1.2.8 "Subcontractor" means any person named in the Contract as a subcontractor, or any person appointed as a subcontractor, for a part of the Works; and the legal successor in title to each of these persons. 1.1.2.9 "DAB" means the person or three persons so named in the Contract, or other person(s) appointed under Sub-Clause 20.2 [Appointment of the Dispute Adjudication Board) or Sub-Clause 20.3 [Failure to Agree Dispute Adjudication Board]. 1.1.2.10 "FIDIC" means the Federation Internationale des Ingenieurs-Conseils, the international federation of consulting engineers. 1.1.3 Dates, Tests, Periods and Completion 1.1.3.1 "Base Date" means the date 28 days prior to the latest date for submission of the Tender. 1.1.3.2 "Commencement Date" means the date notified under Sub-Clause 8.1 [Commencement of Works), unless otherwise defined in the Contract Agreement. 1.1.3.3 "Time for Completion" means the time for completing the Works or a Section (as the case may be) under Sub-Clause 8.2 [Time for Completion], as stated in the Particular Conditions (with any extension under SubClause 8.4 [Extension of Time for Completion)), calculated from the Commencement Date. 1.1.3.4 "Tests on Completion" means the tests which are specified in the Contract or agreed by both Parties or instructed as a Variation, and which are carried out under Clause 9 [Tests on Completion) before the Works or a Section (as the case may be) are taken over by the Employer. 1.1.3.5 "Taking-Over Certificate" means a certificate issued under Clause 10 [Employer's Taking Over). 1.1.3.6 "Tests after Completion" means the tests (if any) which are specified in the Contract and which are carried out under Clause 12 [Tests after

660

1.1.3.7

1.1.3.8 1.1.3.9

Completion) after the Works or a Section (as t~e case may be) are taken over by the Employer. "Defects Notification Period" means the period for notifying defects in the Works or a Section (as the case may be) under Sub-Clause 11.1 [Completion of Outstanding Work and Remedying Defects), as stated in the Particular Conditions (with any extension under Sub-Clause 11.3 [Extension of Defects Notification Period]), calculated from the date on which the Works or Section is completed as certified under Sub-Clause 10.1 [Taking Over of the Works and Sections]. If no such period is stated in the Particular Conditions, the period shall be one year. "Performance Certificate" means the certificate issued under Sub-Clause 11.9 [Performance Certificate]. "day" means a calendar day and "year" means 365 days.

1.1.4 Money and Payments 1.1.4.1 "Contract Price" means the agreed amount stated in the Contract Agreement for the design, execution and completion of the Works and the remedying of any defects, and includes adjustments (if any) in accordance with the Contract. 1.1.4.2 "Cost" means all expenditure reasonably incurred (or to be incurred) by the Contractor, whether on or off the Site, including overhead and similar charges, but does not include profit. 1.1.4.3 "Final Statement" means the statement defined in Sub-Clause 14.11 [Application for Final Payment]. 1.1.4.4 "Foreign Currency" means a currency in which part (or all) ofthe Contract Price is payable, but not the Local Currency. 1.1.4.5 "Local Currency" means the currency of the Country. 1.1.4.6 "Provisional Sum" means a sum (if any) which is specified in the Contract as a provisional sum, for the execution of any part of the Works or for the supply of Plant, Materials or services under Sub-Clauses 13.5 [Provisional Sums]. 1.1.4.7 "Retention Money" means the accumulated retention moneys which the Employer retains under Sub-Clause 14.3 [Application for Interim Payments] and pays under Sub-Clause 14.9 [Payment of Retention Money). 1.1.4.8 "Statement" means a statement submitted by the Contractor as part of an application for payment under Clause 14 [Contract Price and Payment). 1.1.5 Works and Goods 1.1.5.1 "Contractor's Equipment" means all apparatus, machinery, vehicles and other things required for the execution and completion of the Works and the remedying of any defects. However, Contractor's Equipment excludes Temporary Works, Employer's Equipment (if any), Plant, Materials and any other things intended to form or forming part of the Permanent Works. 1.1.5.2 "Goods" means Contractor's Equipment, Materials, Plant and Temporary Works, or any of them as appropriate. 1.1.5.3 "Materials" means things of all kinds (other than Plant) intended to form or forming part of the Permanent Works, including the supply-only materials (if any) to be supplied by the Contractor under the Contract. 1.1.5.4 "Permanent Works" means the permanent works to be designed and executed by the Contractor under the Contract.

661

APPENDIX I

1.1.5.5 1.1.5.6 1.1.5.7

1.1.5.8

"Plant" means the apparatus, machinery and vehicles intended to form or forming part of the Permanent Works. "Section" means a part of the Works specified in the Particular Conditions as a Section (if any). "Temporary Works" means all temporary works of every kind (other than Contractor's Equipment) required on Site for the execution and completion of the Permanent Works and the remedying of any defects. "Works" mean the Permanent Works and the Temporary Works, or either of them as appropriate.

1.1.6 Other Definitions 1.1.6.1 "Contractor's Documents" means the calculations, computer programs and other software, drawings, manuals, models and other documents of a technical nature supplied by the Contractor under the Contract; as described in Sub-Clause 5.2 [Contractor's Documents). 1.1.6.2 "Country" means the country in which the Site (or most of it) is located, where the Permanent Works are to be executed. 1.1.6.3 "Employer's Equipment" means the apparatus, machinery and vehicles (if any) made available by the Employer for the use of the Contractor in the execution of the Works, as stated in the Employer's Requirements; but does not include Plant which has not been taken over by the Employer. 1.1.6.4 "Force Majeure" is defined in Clause 19 [Force Ma;eure). 1.1.6.5 "Laws" means all national (or state) legislation, statutes, ordinances and other laws, and regulations and by-laws of any legally constituted public authority. 1.1.6.6 "Performance Security" means the security (or securities, if any) under SubClause 4.2 [Performance Security). 1.1.6.7 "Site" means the places where the Permanent Works are to be executed and to which Plant and Materials are to be delivered, and any other places as may be specified in the Contract as forming part of the Site. 1.1.6.8 "Variation" means any change to the Employer's Requirements or the Works, which is instructed or approved as a variation under Clause 13 [Variations and Ad;ustments). 1.2

Interpretation

In the Contract, except where the context requires otherwise: (a) words indicating one gender include all genders; (b) words indicating the singular also include the plural and words indicating the plural also include the singular; (c) provisions including the word "agree", "agreed" or "agreement" require the agreement to be recorded in writing, and (d) "written" or "writing" means hand-written, type-written, printed or electronically made, and resulting in a permanent record. The marginal words and other headings shall not be taken into consideration in the interpretation of these Conditions. 1.3

Communications

Wherever these Conditions provide for the giving or issuing of approvals, certificates, consents, determinations, notices and requests, these communications shall be:

662

FIDIC: CONDITIONS OF CONTRACT

(a)

in writing and delivered by hand (against receipt), sent by mail or courier, or transmitted using any of the agreed systems of electronic transmission as stated in the Particular Conditions; and (b) delivered, sent or transmitted to the address for the recipient's communications as stated in the Contract. However: (i) if the recipient gives notice of another address, communications shall thereafter be delivered accordingly; and (ii) if the recipient has not stated otherwise when requesting an approval or consent, it may be sent to the address from which the request was issued. Approvals, certificates, consents and determinations shall not be unreasonably withheld or delayed. 1.4

Law and Language

The Contract shall be governed by the law of the country (or other jurisdiction) stated in the Particular Conditions. If there are versions of any part of the Contract which are written in more than one language, the version which is in the ruling language stated in the Particular Conditions shall prevail. The language for communications shall be that stated in.the Particular Conditions. If no language is stated there, the language for communications shall be the language in which the Contract (or most of it) is written. 1.5

Priority of Documents

The documents forming the Contract are to be taken as mutually explanatory of one another. For the purposes of interpretation, the priority of the documents shall be in accordance with the following sequence: (a) the Contract Agreement, (b) the Particular Conditions, (c) these General Conditions, (d) the Employer's Requirements, (e) the Tender and any other documents forming part of the Contract. 1.6

Contract Agreement

The Contract shall come into full force and effect on the date stated in the Contract Agreement. The costs of stamp duties and similar charges (if any) imposed by law in connection with entry into the Contract Agreement shall be borne by the Employer. 1.7

Assignment

Neither Party shall assign the whole or any part of the Contract or any benefit or interest in or under the Contract. However, either Party: (a) may assign the whole or any part with the prior agreement of the other Party, at the sole discretion of such other Party, and (b) may, as security in favour of a bank or financial institution, assign its right to any moneys due, or to become due, under the Contract.

663

APPENDIX I

1.8

Care and Supply of Documents

FIDrc: CONDITIONS OF CONTRACT

They shall not, without the Employer's consent, be copied, used or communicated to a third party by the Contractor, except as necessary for the purposes of the

Each of the Contractor's Documents shall be in the custody and care of the Contractor, unless and until taken over by the Employer. Unless otherwise stated in the Contract, the Contractor shall supply to the Employer six copies of each of the Contractor's Documents. The Contractor shall keep, on the Site, a copy of the Contract, publications named in the Employer's Requirements, the Contractor's Documents, and Variations and other communications given under the Contract. The Employer's Personnel shall have the right of access to all these documents at all reasonable times. If a Party becomes aware of an error or defect of a technical nature in a document whi.ch was prepared for use in executing the Works, the Party shall promptly give notice to the other Party of such error or defect. 1.9

Confidentiality

Both Parties shall treat the details of the Contract as private and confidential, except to the extent necessary to carry out obligations under it or to comply with applicable Laws. The Contractor shall not publish, permit to be published, or disclose any particulars of the Works in any trade or technical paper or elsewhere without the previ. ous agreement of the Employer. 1.10

Employer's Use of Contractor's Documents

As between the Parties, the Contractor shall retain the copyright and other intellectual property rights in the Contractor's Documents and other design documents made by (or on behalf of) the Contractor. The Con~ractor shall be deemed (by signing the Contract) to give to the Employer a non-te~mmable transferable non-exclusive royalty-free licence to copy, use and communicate the Contractor's Documents, including making and using modifications of them. This licence shall: (a) apply throughout the actual or intended working life (whichever is longer) of the relevant parts of the Works, (b) entitle any person in proper possession of the relevant part of the Works to copy, use and communicate the Contractor's Documents for the purposes of completing, operating, maintaining, altering, adjusting, repairing and demolishing the Works, and (c) in the case of Contractor's Documents which are in the form of computer programs and other software, permit their use on any computer on the Site and other places as envisaged by the Contract, including replacements of any computers supplied by the Contractor. The Contractor's Documents and other design documents made by (or on behalf of) the Contractor shall not, without the Contractor's consent, be used, copied or communicated to a third party by (or on behalf of) the Employer for purposes other than those permitted under this Sub·Clause. 1.11

Contractor's Use of Employer's Documents

As between the Parties, the Employer shall retain the copyright and other intellectual property rights in the Employer's Requirements and other documents made by (or on behalf of) the Employer. The Contractor may, at his cost, copy, use, and obtain communication of these documents for the purposes of the Contract.

664

Contract. 1.12

Confidential Details

The Contractor shall not be required to disclose, to the Employer, any information which the Contractor described in the Tender as being confidential. The Contractor shall disclose any other information which the Employer may reasonably require in order to verify the Contractor's compliance with the Contract. 1.13

Compliance with Laws

The Contractor shall, in performing the Contract, comply with applicable Laws. Unless otherwise stated in the Particular Conditions: (a) the Employer shall have obtained (or shall obtain) the planning, zoning or similar permission for the Permanent Works, and any other permissions described in the Employer's Requirements as having been (or being) obtained by the Employer; and the Employer shall indemnify and hold the Contractor harmless against and from the consequences of any failure to do so; and (b) the Contractor shall give all notices, pay all taxes, duties and fees, and obtain all permits, licences and approvals, as required by the Laws in relation to the design, execution and completion of the Works and the remedying of any defects; and the Contractor shall indemnify and hold the Employer harmless against and from the consequences of any failure to do so. 1.14

Joint and Several Liability

If the Contractor constitutes (under applicable Laws) a joint venture, consortium or other unincorporated grouping of two or more persons: (a) these persons shall be deemed to be jointly and severally liable to the Employer for the performance of the Contract; (b) these persons shall notify the Employer of their leader who shall have authority to bind the Contractor and each of these persons; and (c) the Contractor shall not alter its composition or legal status without the prior consent of the Employer. 2

2.1

Al-02

The Employer

Right of Access to the Site

The Employer shall give the Contractor right of access to, and possession of, all parts of the Site within the time (or times) stated in the Particular Conditions. The right and possession may not be exclusive to the Contractor. If, under the contract, the Employer is required to give (to the Contractor) possession of any foundation, structure, plant or means of access, the Employer shall do so in the time and manner stated in the Employer's Requirements. However, the Employer may withhold any such right or possession until the Performance Security has been received.

665

FIDIC: CONDITIONS OF CONTRACT

APPENDIX I

If no such time is stated in the Particular Conditions, the Employer shall give the Contractor right of access to, and possession of, the Site with effect from the Commencement Date. If the Contractor suffers delay and/or incurs Cost as a result of a failure by the Employer to give any such right or possession within such time, the Contractor shall give notice to the Employer and shall be entitled subject to Sub-Clause 20.1 [Contractor's Claims] to: (a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 8,4 [Extension of Time for Completion], and (b) payment of any such Cost plus reasonable profit, which shall be added to the Contract Price. After receiving this notice, the Employer shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine these matters. However, if and to the extent that the Employer's failure was caused by any error or delay by the Contractor, including an error in, or delay in the submission of, any of the Contractor's Documents, the Contractor shall not be entitled to such extension of time, Cost or profit. 2.2

Permits, Licences or Approvals

The Employer shall (where he is in a position to do so) provide reasonable assistance to the Contractor at the request of the Contractor: (a) by obtaining copies of the Laws of the Country which are relevant to the Contract but are not readily available, and (b) for the Contractor's applications for any permits, licences or approvals required by the Laws of the Country: (i) which the Contractor is required to obtain under Sub-Clause 1.13 [Compliance with Laws], (ii) for the delivery of Goods, including clearance through customs, and (iii) for the export of Contractor's Equipment when it is removed from the Site. 2.3

Employer's Personnel

The Employer shall be responsible for ensuring that the Employer's Personnel and the Employer's other contractors on the Site: (a) co-operate with the Contractor's efforts under Sub-Clause 4.6 [Co-operation], and (b) take actions similar to those which the Contractor is required to take under sub-paragraphs (a), (b) and (c) of Sub-Clause 4.8 [Safety Procedures] and under Sub-Clause 4.18 [Protection of the Environment]. 2.4

2.5

If the Employer considers himself to be entitled to any payment under any Clause of these Conditions or otherwise in connection with the Contract, andlor to any extension of the Defects Notification Period, he shall give notice and particulars to the Contractor. However, notice is not required for payments due under Sub-Clause 4.19 [Electricity, Water and Gas], under Sub-Clause 4.20 [Employer's Equipment and Free-Issue Material], or for other services requested by the Contractor. The notice shall be given as soon as practicable after the Employer became aware of the event or circumstances giving rise to the claim. A notice relating to any extension of the Defects Notification Period shall be given before the expiry of such period. The particulars shall specify the Clause or other basis of the claim, and shall include substantiation of the amount and/or extension to which the Employer considers himself to be entitled in connection with the Contract. The Employer shall then proceed in accordance with Sub-Clause 3.5 [Determinations) to agree or determine (i) the amount (if any) which the Employer is entitled to be paid by the Contractor, and/or (ii) the extension (if any) of the Defects Notification Period in accordance with Sub-Clause 11.3 [Extension of Defects Notification Period). The Employer may deduct this amount from any moneys due, or to become due, to the Contractor. The Employer shalt only be entitled to set off against or make any deduction from an amount due to the Contractor, or to otherwise claim against the Contractor, in accordance with this Sub-Clause or with sub-paragraph (a) and/or (b) of Sub-Clause 14.6 [Interim Payments). 3

3.1

A1-03

The Employer'S Administration

The Employer's Representative

The Employer may appoint an Employer's Representative to act on his behalf under the Contract. In this event, he shall give notice to the Contractor of the name, address, duties and authority of the Employer's Representative. The Employer's Representative shall carry out the duties assigned to him, and shall exercise the authority delegated to him, by the Employer. Unless and until the Employer notifies the Contractor otherwise, the Employer's Representative shall be deemed to have the full authority of the Employer under the Contract, except in respect of Clause 15 [Termination by Employer). If the Employer wishes to replace any person appointed as Employer's Representative, the Employer shall give the Contractor not less than 14 days' notice of the replacement's name, address, duties and authority, and of the date of appointment.

Employer's Financial Arrangements 3.2

The Employer shall submit, within 28 days after receiving any request from the Contractor, reasonable evidence that financial arrangements have been made and are being maintained which will enable the Employer to pay the Contract Price (as estimated at that time) in accordance with Clause 14 [Contract Price and Payment]. If the Employer intends to make any material change to his financial arrangements, the Employer shall give notice to the Contractor with detailed particulars.

666

Employer's Claims

Other Employer's Personnel

The Employer or the Employer's Representative may from time to time assign duties and delegate authority to assistants, and may also revoke such assignment or delegation. These assistants may include a resident engineer, and/or independent inspectors appointed to inspect and/or test items of Plant and/or Materials. The assignment, delegation or revocation shall not take effect until a copy of it has been received by the Contractor.

667

APPENDIX I

~ssistants shal.1 be s~itably qualified persons, who are competent to carry out these duties and exercise this authority, and who are fluent in the language for communications defined in Sub-Clause 1.4 [Law and Language]. 3.3

Delegated Persons

All these persons, including the Employer's Representative and assistants to whom duties have been assigned or authority has been delegated, shall only be ~uthorised to issue instructions to the Contractor to the extent defined by the delegation. Any approval, check, certificate, consent, examination, inspection, instruction, notice, proposal, request, test, or similar act by a delegated person, in accordance with the delegation, shall have the same effect as though the act had been an act of the Employer. However: (a) unless otherwise stated in the delegated person's communication relating to such act, it shall not relieve the Contractor from any responsibility he has under the Contract, including responsibility for errors, omissions, discrepancies and non-compliances; any failure to disapprove any work, Plant or Materials shall not constitute (b) approval, and shall therefore not prejudice the right of the Employer to reject the work, Plant or Materials; and (c) if the Contractor questions any determination or instruction of a delegated person, the Contractor may refer the matter to the Employer, who shall promptly confirm, reverse or vary the determination or instruction. 3.4

Instructions

The Employer may issue to the Contractor instructions which may be necessary for the Contractor to perform his obligations under the Contract. Each instruction shall be given in writing and shall state the obligations to which it relates and the SubClaus.e (or other term of the Contract) in which the obligations are specified. If any such Instruction constitutes a Variation, Clause 13 [Variations and Adjustments) shall apply. The Cont~actor shall ~ake instructions from the Employer, or from the Employer's Representative or an assistant to whom the apptopriate authority has been delegated under this Clause. 3.S

Determinations

W:hene~er these Conditions provide that the Employer shall proceed in accordance w~th thiS Sub-Clause 3.5 to agree or determine any matter, the Employer shall consult Wlt~ the Contractor in an endeavour to reach agreement. If agreement is not achieved, the Employer shall make a fair determination in accordance with the Contract, taking due regard of all relevant circumstances. The Employer shall give notice to the Contractor of each agreement or determination, w.ith ~upporting particulars. Each Party shall give effect to each agreement or ~eter~matlon, unless the Contractor gives notice, to the Employer, of his dissatisfaction ~Ith a determination within 14 days of receiving it. Either Party may then refer the. dl~put.e to the J?AB in .accordance with Sub-Clause 20.4 [Obtaining Dispute Ad,udlcatlon Board s DeciSIon).

668

FIDIC: CONDITIONS OF CONTRACT

4 4.1

AI-04

The Contractor

Contractor's General Obligations

The Contractor shall design, execute and complete the Works in accordance with the Contract and shall remedy any defects in the Works. When completed, the Works shall be fit for the purposes for which the Works are intended as defined in the Contract. The Contractor shall provide the Plant and Contractor's Documents specified in the Contract, and all Contractor's Personnel, Goods, consumables and other things and services, whether of a temporary or permanent nature, required in and for this design, execution, completion and remedying of defects. The Works shall include any work which is necessary to satisfy the Employer's Requirements, or is implied by the Contract, and all works which (although not mentioned in the Contract) are necessary for stability or for the completion, or safe and .. . proper operation, of the Works. The Contractor shall be responsible for the adequacy, stability and safety of all Site operations, of all methods of construction and of all the Works. The Contractor shall, whenever required by the Employer, submit details of the arrangements and methods which the Contractor proposes to adopt for the execution of the Works. No significant alteration to these arrangements and methods shall be made without this having previously been notified to the Employer.

4.2

Performance Security

The Contractor shall obtain (at his cost) a Performance Security for proper performance, in the amount and currencies stated in the Particular Conditions. If an amount is not stated in the Particular Conditions, this Sub-Clause shall not apply. The Contractor shall deliver the Performance Security to the Employer within 28 days after both Parties have signed the Contract Agreement. The Performance Security shall be issued by an entity and from within a country (or other jurisdiction) approved by the Employer, and shall be in the form annexed to the Particular Conditions or in another form approved by the Employer. The Contractor shall ensure that the Performance Security is valid and enforceable until the Contractor has executed and completed the Works and remedied any defects. If the terms of the Performance Security specify its expiry date, an'd the Contractor has not become entitled to receive the Performance Certificate by the date 28 days prior to the expiry date, the Contractor shall extend the validity of the Performance Security until the Works have been completed and any defects have been remedied. The Employer shall not make a claim under the Performance Security, except for amounts to which the Employer is entitled under the Contract in the event of: (a) failure by the Contractor to extend the validity of the Performance Security as described in the preceding paragraph, in which event the Employer may claim the full amount of the Performance Security, (b) failure by the Contractor to pay the Employer an amount due, as either agreed by the Contractor or determined under Sub-Clause 2.5 [Employer's Claims) or Clause 20 [Claims, Disputes and Arbitration), within 42 days after this agreement or determination, (c) failure by the Contractor to remedy a default within 42 days after receiving the Employer's notice requiring the default to be remedied, or

669

FIDIC: CONDITIONS OF CONTRACT

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(d)

circumstances which entitle the Employer to termination under Sub-Clause 15.2 [Termination by Employer], irrespective of whether notice of termination has been given. The Employer shall indemnify and hold the Contractor harmless against and from all damages, losses and expenses (including legal fees and expenses) resulting from a claim under the Performance Security to the extent to which the Employer was not entitled to make the claim. The Employer shall return the Performance Security to the Contractor within 21 days after the Contractor has become entitled to receive the Performance Certificate. 4.3

Contractor's Representative

The Contractor shall appoint the Contractor's Representative and shall give him all authority necessary to act on the Contractor's behalf under the Contract. Unless the Contractor's Representative is named in the Contract, the Contractor shall, prior to the Commencement Date, submit to the Employer for consent the name and particulars of the person the Contractor proposes to appoint as Contractor's Representative. If consent is withheld or subsequently revoked, or if the appointed person fails to act as Contractor's Representative, the Contractor shall similarly submit the name and particulars of another suitable person for such appointment. The Contractor shall not, without the prior consent of the Employer, revoke the appointment of the Contractor's Representative or appoint a replacement. The Contractor's Representative shall, on behalf of the Contractor, receive instructions under Sub-Clause 3.4 [Instructions). The Contractor's Representative may delegate any powers, functions and authority to any competent person, and may at any time revoke the delegation. Any delegation or revocation shall not take effect until the Employer has received prior notice signed by the Contractor's Representative, naming the person and specifying the powers, functions and authority being delegated or revoked. The Contractor's Representative and all these persons shall be fluent in the language for communications defined in Sub-Clause 1.4 [Law and Language). 4.4

Subcontractors

4.6

Co-operation

The Contractor shall, as specified in the Contract or as instructed by the Employer, allow appropriate opportunities for carrying out work to: (a) the Employer's Personnel, (b) any other contractors employed by the Employer, and (c) the personnel of any legally constituted public authorities, who may be employed in the execution on or near the Site of any work not included in the Contract. Any such instruction shall constitute a Variation if and to the extent that it causes the Contractor to incur Cost in an amount which was not reasonably foreseeable by an experienced contractor by the date for submission of the Tender. Services for these personnel and other contractors may include the use of Contractor's Equipment, Temporary Works or access arrangements which are the responsibility of the Contractor. The Contractor shall be responsible for his construction activities on the Site, and shall co-ordinate his own activities with those of other contractors to the extent (if any) specified in the Employer's Requirements. If, under the Contract, the Employer is required to give to the Contractor possession of any foundation, structure, plant or means of access in accordance with Contractor's Documents, the Contractor shall submit such documents to the Employer in the time and manner stated in the Employer's Requirements. 4.7

Setting Out

The Contractor shall set out the Works in relation to original points, lines and levels of reference specified in the Contract. The Contractor shall be responsible for the correct positioning of all parts of the Works, and shall rectify any error in the positions, levels, dimensions or alignment of the Works. 4.8

Safety Procedures

The Contractor shall not subcontract the whole of the Works. The Contractor shall be responsible for the acts of defaults of any Subcontractor, his agents or employees, as if they were the acts or defaults of the Contractor. Where specified in the Particular Conditions, the Contractor shall give the Employer not less than 28 days' notice of: (a) the intended appointment of the Subcontractor, with detailed particulars which shall include his relevant experience, (b) the intended commencement of the Subcontractor's work, and (c) the intended commencement of the Subcontractor's work on the Site.

The Contractor shall: (a) comply with all applicable safety regulations, (b) take care for the safety of all persons entitled to be on the Site, (c) use reasonable efforts to keep the Site and Works clear of unnecessary obstruction so as to avoid danger to these persons, (d) provide fencing, lighting, guarding and watching of the Works until completion and taking over under Clause 10 [Employer's Taking Over), and (e) provide any Temporary Works (including roadways, footways, guards and fences) which may be necessary, because of the execution of the Works, for the use and protection of the public and of owners and occupiers of adjacent land.

4.5

4.9

Nominated Subcontractors

In this Sub-Clause, "nominated Subcontractor" means a Subcontractor whom the Employer, under Clause 13 [Variations and Ad;ustments), instructs the Contractor to employ as a Subcontractor. The Contractor shall not be under any obligation to employ a nominated Subcontractor against whom the Contractor raises reasonable objection by notice to the Employer as soon as practicable, with supporting particulars.

670

Quality Assurance

The Contractor shall institute a quality assurance system to demonstrate compliance with the requirements of the Contract. The system shall be in accordance with the details stated in the Contract. The Employer shall be entitled to audit any aspect of the system. Details of all procedures and compliance documents shall be submitted to the

671

FIDIC: CONDITIONS OF CONTRACT

APPENDIX I

Employer for information before each design and execution stage is commenced. When any document of a technical nature is issued to the Employer, evidence of the prior approval by the Contractor himself shall be apparent on the document itself. Compliance with the quality assurance system shall not relieve the Contractor of any of his duties, obligations or responsibilities under the Contract.

tive of whether they are public or in the possession of the Employer or of others. The Contractor shall indemnify and hold the Employer harmless against and from all damages, losses and expenses (including legal fees and expenses) resulting from any such unnecessary or improper interference.

4.10

4.15

Site Data

The Employer shall have made available to the Contractor for his information, prior to the Base Date, all relevant data in the Employer's possession on subsurface and hydrological conditions at the Site, including environmental aspects. The Employer shall similarly make available to the Contractor all such data which come into the Employer's possession after the Base Date. The Contractor shall be responsible for verifying and interpreting all such data. The Employer shall have no responsibility for the accuracy, sufficiency or completeness of such data, except as stated in Sub-Clause 5.1 [General Design Responsibilities). 4.11

Sufficiency of the Contract Price

The Contractor shall be deemed to have satisfied himself as to the correctness and sufficiency of the Contract Price. Unless otherwise stated in the Contract, the Contract Price covers all the Contractor's obligations under the Contract (including those under Provisional Sums, if any) and all things necessary for the proper design, execution and completion of the Works and the remedying of any defects.

The Contractor shall be deemed to have been satisfied as to the suitability and availability of access routes to the Site. The Contractor shall use reasonable efforts to prevent any road or bridge from being damaged by the Contractor's traffic or by the Contractor's Personnel. These efforts shall include the proper use of appropriate vehicles and routes. Except as otherwise stated in these Conditions: (a) the Contractor shall (as between the Parties) be responsible for any maintenance which may be required for his use of access routes; (b) the Contractor shall provide all necessary signs or directions along access routes, and shall obtain any permission which may be required from the relevant authorities for his use of routes, signs and directions; (c) the Employer shall not be responsible for any claims which may arise from the use or otherwise of any access route, (d) the Employer does not guarantee the suitability or availability of particular access routes, and (e) Costs due to non-suitability or non-availability, for the use required by the Contractor, of access routes shall be borne by the Contractor. 4.16

4.12

Transport of Goods

Unforeseeable Difficulties

Except as otherwise stated in the Contract: (a) the Contractor shall be deemed to have obtained all necessary information as to risks, contingencies and other circumstances which may influence or affect the Works; (b) by signing the Contract, the Contractor accepts total responsibility for having foreseen all difficulties and costs of successfully completing the Works; and (c) the Contract Price shall not be adjusted to take account of any unforeseen difficulties or costs. 4.13

Access Route

Unless otherwise stated in the Particular Conditions: (a) the Contractor shall give the Employer not less than 21 days' notice of the date on which any Plant or a major item of other Goods will be delivered to the Site; (b) the Contractor shall be responsible for packing, loading, transporting, receiving, unloading, storing and protecting all Goods and other things required for the Works; and (c) the Contractor shall indemnify and hold the Employer harmless against and from all damages, losses and expenses (including legal fees and expenses) resulting from the transport of Goods, and shall negotiate and pay all claims arising from their transport.

Rights of Way and Facilities 4.17

Contractor's Equipment

The Contractor shall bear all costs and charges for special andlor temporary rightsof-way which he may require, including those for access to the Site. The Contractor shall also obtain, at his risk and cost, any additional facilities outside the Site which he may require for the purposes of the Works.

The Contractor shall be responsible for all Contractor's Equipment. When brought on to the Site, Contractor's Equipment shall be deemed to be exclusively intended for the execution of the Works.

4.14

4.18

Avoidance of Interference

The Contractor shall not interfere unnecessarily or improperly with: (a) the convenience of the public, or (b) the access to and use and occupation of all roads and footpaths, irrespec-

672

Protection of the Environment

The Contractor shall take all reasonable steps to protect the environment (both on and off the Site) and to limit damage and nuisance to people and property resulting from pollution, noise and other results of his operations.

673

FIDIC: CONDITIONS OF CONTRACT

APPENDIX I

The Contractor shall ensure that emissions, surface discharges and effluent from the Contractor's activities shall not exceed the values indicated in the Employer's Requirements, and shall not exceed the values prescribed by applicable Laws. 4.19

Electricity, Water and Gas

The Contractor shall, except as stated below, be responsible for the provision of all power, water and other services he may require. The Contractor shall be entitled to use for the purposes of the Works such supplies of electricity, water, gas and other services as may be available on the Site and of which details and prices are given in the Employer's Requirements. The Contractor shall, at his risk and cost, provide any apparatus necessary for his use of these services and for measuring the quantities consumed. The quantities consumed and the amounts due (at these prices) for such services shall be agreed or determined in accordance with Sub-Clause 2.5 [Employer's Claims) and Sub-Clause 3.5 [Determinations). The Contractor shall pay these ~mounts to the Employer. 4.20

Employer's Equipment and Free-Issue Material

The Employer shall make the Employer's Equipment (if any) available for the use of the Contractor in the execution of the Works in accordance with the details, arrangements and prices stated in the Employer's Requirements. Unless otherwise stated in the Employer's Requirements: (a) the Employer shall be responsible for the Employer's Equipment, except that (b) the Contractor shall be responsible for each item of Employer's Equipment whilst any of the Contractor's Personnel is operating it, driving it, directing it or in possession or control of it. The appropriate quantities and the amounts due (at such stated prices) for the use of Employer's Equipment shall be agreed or determined in accordance with Sub-Clause 2.5 [Employer's Claims) and Sub-Clause 3.5 [Determinations). The Contractor shall pay these amounts to the Employer. The Employer shall supply, free of charge, the "free-issue materials" (if any) in accordance with the details stated in the Employer's Requirements. The Employer shall, at his risk and cost, provide these materials at the time and place specified in the Contract. The Contractor shall then visually inspect them, and shall promptly give notice to the Employer of any shortage, defect or default in these materials. Unless otherwise agreed by both Parties, the Employer shall immediately rectify the notified shortage, defect or default. After this visual inspection, the free-issue materials shall come under the care, custody and control of the Contractor. The Contractor's obligations of inspection, care, custody and control shall not relieve the Employer of liability for any shortage, defect or default not apparent from a visual inspection. 4.21

Progress Reports

Unless otherwise stated in the Particular Conditions, monthly progress reports shall be prepared by the Contractor and submitted to the Employer in six copies. The first report shall cover the period up to the end of the first calendar month following the Commencement Date. Reports shall be submitted monthly thereafter, each within 7 days after the last day of the period to which it relates.

674

Reporting shall continue until the Contractor has completed all work which is known to be outstanding at the completion date stated in the Taking-Over Certificate for the Works. Each report shall include: (a) charts and detailed descriptions of progress, including each state of design, Contractor's Documents, procurement, manufacture, delivery to Site, construction, erection, testing, commissioning and trial operation; (b) photographs showing the status of manufacture and of progress on the Site; (c) for the manufacture of each main item of Plant and Materials, the name of the manufacturer, manufacture location, percentage progress, and the actual or expected dates of: (i) commencement of manufacture, (ii) Contractor's inspections, (iii) tests, and (iv) shipment and arrival at the Site; (d) the details described in Sub-Clause 6.10 [Records of Contractor's Personnel and Equipment); (e) copies of quality assurance document.s, test results and certificates of Materials; (f) list of Variations, notices given under Sub-Clause 2.5 [Employer's Claims) and notices given under Sub-Clause 20.1 [Contractor's Claims); (g) safety statistics, including details of any hazardous incidents and activities relating to environmental aspects and public relations; and (h) comparisons of actual and planned progress, with details of any events or circumstances which may jeopardize the completion in accordance with the Contract, and the measures being (or to be) adopted to overcome delays. 4.22

Security of the Site

Unless otherwise stated in the Particular Conditions: (a) the Contractor shall be responsible for keeping unauthorised persons off the Site, and (b) authorised persons shall be limited to the Contractor's Personnel and the Employer's Personnel; and to any other personnel notified to the Contractor, by (or on behalf of) the Employer, as authorised personnel of the Employer's other contractors on the Site. 4.23

Contractor's Operations on Site

The Contractor shall confine his operations to the Site, and to any additional areas which may be obtained by the Contractor and agreed by the Employer as working areas. The Contractor shall take all necessary precautions to keep Contractor's Equipment and Contractor's Personnel within the Site and these additional areas, and to keep them off adjacent land. During the execution of the Works, the Contractor shall keep the Site free from all unnecessary obstruction, and shall store or dispose of any Contractor's Equipment or surplus materials. The Contractor shall clear away and remove from the Site any wreckage, rubbish and Temporary Works which are no longer required. Upon the issue of the Taking-Over Certificate for the Works, the Contractor shall clear away and remove all Contractor's Equipment, surplus material, wreckage, rubbish and Temporary Works. The Contractor shall leave the Site and the Works in

675

FIOIC: CONDITIONS OF CONTRACT

APPENDIX I

a clean and safe condition. However, the Contractor may retain on Site, during the Defects Notification Period, such Goods as are required for the Contractor to fulfil obligations under the Contract. 4.24

Fossils

All fossils, coins, articles of value or antiquity, and structures and other remains or items of geological or archaeological interest found on the Site shall be placed under the care and authority of the Employer. The Contractor shall take reasonable precautions to prevent Contractor's Personnel or other persons from removing or damaging any of these findings. The Contractor shall, upon discovery of any such finding, promptly give notice to the Employer, who shall issue instructions for dealing with it. If the Contractor suffers delay and/or incurs Cost from complying with the instructions, the Contractor shall give a further notice to the Employer and shall be entitled to SubClause 20.1 [Contractor's Claims) to: (a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 8.4 [Extension of Time for Completion), and (b) payment of any such COSt, which shall be added to the Contract Price. After receiving this further notice, the Employer shall proceed in accordance with Sub-Clause 3.5 [Determinations) to agree to determine these matters. A1-0S

5

5.1

Design

General Design Obligations

The Contractor shall be deemed to have scrutinised, prior to the Base Date, the Employer's Requirements (including design criteria and calculations, if any). The Contractor shall be responsible for the design of the Works and for the accuracy of such Employer's Requirements (including design criteria and calculations), except as stated below. The Employer shall not be responsible for any error, inaccuracy or omission of any kind in the Employer's Requirements as originally included in the Contract and shall not be deemed to have given any representation of accuracy or completeness of any data or information, except as stated below. Any data or information received by the Contractor, from the Employer or otherwise, shall not relieve the Contractor from his responsibility for the design and execution of the Works. However, the Employer shall be responsible for the correctness of the following portions of the Employer's Requirements and of the following data and information provided by (or on behalf of) the Employer: (a) portions, data and information which are stated in the Contract as being immutable or the responsibility of the Employer, (b) definitions of intended purposes of the Works or any parts thereof, (c) criteria for the testing and performance of the completed Works, and (d) portions, data and information which cannot be verified by the Contractor, except as otherwise stated in the Contract. 5.2

Contractor's Documents

The Contractor's Documents shall comprise the technical documents specified in the Employer's Requirements, documents required to satisfy all regulatory approvals,

676

and the documents described in Sub-Clause 5.6 [As-Built Documents] and SubClause 5.7 [Operation and Maintenance Manuals]. Unless otherwise stated in the Employer's Requirements, the Contractor's Documents shall be written in the language for communications defined in Sub-Clause 1.4 [Law and Language]. The Contractor shall prepare all Contractor's Documents, and shall also prepare any other documents necessary to instruct the Contractor's Personnel. . If the Employer's Requirements describe the Contractor's Docu~ents which ~re to be submitted to the Employer for review, they shall be submitted accordmgly, together with a notice as described below. In the following provisions of this SubClause, (i) "review period" means the period required by the employer for rev.iew, and (ii) "Contractor's Documents" exclude any documents which are not speCified as being required to be submitted for review. Unless otherwise stated in the Employer's Requirements, each review period shall not exceed 21 days, calculated from the date on which the Employer receives a Contractor's Document and the Contractor's notice. This notice shall state that the Contractor's Document is considered ready, both for review in accordance with this Sub-Clause and for use. The notice shall also state that the Contractor's Document complies with the Contract, or the extent to which it does not comply. The Employer may, within the review period, give notice to the Contractor that a Contractor's Document fails (to the extent stated) to comply with the Contract. If a Contractor's Document so fails to comply, it shall be rectified, resubmitted and reviewed in accordance with this Sub-Clause, at the Contractor's cost. For each part of the Works, and except to the extent that the Parties otherwise agree: (a) execution of such part of the Works shall not commence prior to the expiry of the review periods for all the Contractor's Documents which are relevant to its design and execution; (b) execution of such part of the Works shall be in accordance with these Contractor's Documents, as submitted for review; and (c) if the Contractor wishes to modify any design or document which has previously been submitted for review, the Contractor shall immediately give notice to the Employer. Thereafter, the Contractor shall submit revised documents to the Employer in accordance with the above procedure. Any such agreement (under the preceding paragraph) or any review (under this SubClause or otherwise) shall not relieve the Contractor from any obligation or responsibility. 5.3

Contractor's Undertaking

The Contractor undertakes that the design, the Contractor's Documents, the execution and the completed Works will be in accordance with: (a) the Laws in the Country, and (b) the documents forming the Contract, as altered or modified by Variations. 5.4

Technical Standards and Regulations

The design, the Contractor's Documents, the execution and the completed Works shall comply with the Country's technical standards, building, construction and environmental Laws, Laws applicable to the product being produced from the Works, and other standards specified in the Employer's Requirements, applicable to the Works, or defined by the applicable Laws.

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All these Laws shall, in respect of the Works and each Section, be those prevailing when the Works or Section are taken over by the Employer under Clause 10 [Employer's Taking Over]. References in the Contract to published standards shall be understood to be references to the edition applicable on the Base Date, unless stated otherwise. If changed or new applicable standards come into force in the Country after the Base Date, the Contractor shall give notice to the Employer and (if appropriate) submit proposals for compliance. In the event that: (a) the Employer determines that compliance is required, and (b) the proposals for compliance constitute a variation, then the Employer shall initiate a Variation in accordance with Clause 13 [Variations and Adjustments]. 5.5

Training

The Contractor shall carry out the training of Employer's Personnel in the operation and maintenance of the Works to the extent specified in the Employer's Requirements. If the Contract specifies training which is to be carried out before taking-over, the Works shall not be considered to be completed for the purposes of taking-over under Sub-Clause 10.1 [Taking Over of the Works and Sections] until this training has been completed. 5.6

As-Built Documents

The Contractor shall prepare, and keep up-to-date, a complete set of "as-built" records of the execution of the Works, showing the exact as-built locations, sizes and details of the work as executed. These records shall be kept on the Site and shall be used exclusively for the purposes of this Sub-Clause. Two copies shall be supplied to the Employer prior to the commencement of the Tests on Completion. In addition, the Contractor shall supply to the Employer as-built drawings of the Works, showing all Works as executed, and submit them to the Employer for review under Sub-Clause 5.2 [Contractor's Documents]. The Contractor shall obtain the consent of the Employer as to their size, the referencing system, and other relevant details. Prior to the issue of the Taking-Over Certificate, the Contractor shall supply to the Employer the specified numbers and types of copies of the relevant as-built drawings, in accordance with the Employer's Requirements. The Works shall not be considered to be completed for the purposes of taking-over under Sub-Clause 10.1 [Taking Over of the Works and Sections] until the Employer has received these documents. 5.7

Operation and Maintenance Manuals

Prior to commencement of the Tests on Completion, the Contractor shall supply to the Employer provisional operation and maintenance manuals in sufficient detail for the Employer to operate, maintain, dismantle, reassemble, adjust and repair the Plant. The Works shall not be considered to be completed for the purposes of taking-over under Sub-Clause 10.1 [Taking Over of the Works and Sections] until the Employer has received final operation and maintenance manuals in such detail, and any other manuals specified in the Employer's Requirements for these purposes.

678

5.8

Design Error

If errors, omissions, ambiguities, inconsistencies, inadequacies or other defects are found in the Contractor's Documents, they and the Works shall be corrected at the Contractor's cost, notwithstanding any consent or approval under this Clause. 6

6.1

A1-06

Staff and Labour

Engagement of Staff and Labour

Except as otherwise stated in the Employer's Requirements, the Contractor shall make arrangements for the engagement of all staff and labour, local or otherwise, and for their payment, housing, feeding and transport. 6.2

Rates of Wages and Conditions of Labour

The Contractor shall pay rates of wages, and observe conditions of labour, which are not lower than those established for the trade or industry where the work is carried out. If no established rates or conditions are applicable, the Contractor shall pay rates of wages and observe conditions which are not lower than the general level of wages and conditions observed locally by employers whose trade or industry is similar to that of the Contractor. 6.3

Persons in the Service of Others

The Contractor shall not recruit, or attempt to recruit, staff and labour from amongst the Employer's Personnel. 6.4

Labour Laws

The Contractor shall comply with all the relevant labour Laws applicable to the Contractor's Personnel, including Laws relating to their employment, health, safety, welfare, immigration and emigration, and shall allow them all their legal rights. The Contractor shall require his employees to obey all applicable Laws, including those concerning safety at work. 6.5

Working Hours

No work shall be carried out on the Site on locally recognised days of rest, or outside normal working hours, unless: (a) otherwise stated in the Contract, (b) the Employer gives consent, or (c) the work is unavoidable, or necessary for the protection of life or property or for the safety of the Works, in which case the Contractor shall immediately advise the Employer. 6.6

Facilities for Staff and Labour

Except as otherwise stated in the Employer's Requirements, the Contractor shall provide and maintain all necessary accommodation and welfare facilities for the

679

FIDIC: CONDITIONS OF CONTRACT

APPENDIX I

Contractor's Personnel. The Contractor shall also provide facilities for the Employer's Personnel as stated in the Employer's Requirements. The Contractor shall not permit any of the Contractor's Personnel to maintain any temporary or permanent living quarters within the structures forming part of the Permanent Works. 6.7

Health and Safety

The Contractor shall at all times take all reasonable precautions to maintain the health and safety of the Contractor's Personnel. In collaboration with local health authorities, the Contractor shall ensure that medical staff, first aid facilities, sick bay and ambulance service are available at all times at the Site and at any accommodation for Contractor's and Employer's Personnel, and that suitable arrangements are made for all necessary welfare and hygiene requirements and for the prevention of epidemics. The Contractor shall appoint an accident prevention officer at the Site, responsible for maintaining safety and protection against accidents. This person shall be qualified for this responsibility, and shall have the authority to issue instructions and take protective measures to prevent accidents. Throughout the execution of the Works, the Contractor shall provide whatever is required by this person to exercise this responsibility and authority. The Contractor shall send, to the Employer, details of any accident as soon as practicable after its occurrence. The Contractor shall maintain records and make reports concerning health, safety and welfare of persons, and damage to property, as the Employer may reasonably require. 6.8

6.10

The Contractor shall submit, to the Employer, details showing the number of each class of Contractor's Personnel and of each type of Contractor's Equipment on the Site. Details shall be submitted each calendar month, in a form approved by the Employer, until the Contractor has completed all work which is known to be outstanding at the completion date stated in the Taking-Over Certificate for the Works. 6.11

The Contractor shall at all times take all reasonable precautions to prevent any unlawful, riotous or disorderly conduct by or amongst the Contractor's Personnel, and to preserve peace and protection of persons and property on and near the Site.

7 7.1

Plant, Materials and Workmanship

A1-07

Manner of Execution

The Contractor shall carry out the manufacture of Plant, the production and manufacture of Materials, and all other execution of the Works: (a) in the manner (if any) specified in the Contract, (b) in a proper workmanlike and careful manner, in accordance with recognised good practice, and (c) with properly equipped facilities and non-hazardous Materials, except as otherwise specified in the Contract. 7.2

Contractor's Personnel

The Contractor's Personnel shall be appropriately qualified, skilled and experienced in their respective trades or occupations. The Employer may require the Contractor to remove (or cause to be removed) any person employed on the Site or Works including the Contractor's Representative if applicable, who: ' (a) persists in any misconduct or lack of care, (b) carries out duties incompletely or negligently, (c) fails to conform with any provisions of the Contract, or (d) persists in any conduct which is prejudicial to safety, health, or the protection of the environment. If appropriate, the Contractor shall then appoint (or cause to be appointed) a suitable replacement person. 680

Discorderly Conduct

Contractor's Superintendence

Throughout the design and execution of the Works, and as long thereafter as is necessary to fulfil the Contractor's obligations, the Contractor shall provide all necessary superintendence to plan, arrange, direct, manage, inspect and test the work. Superintendence shall be given by a sufficient number of persons having adequate knowledge of the language for communications (defined in Sub-Clause 1.4 [Law and Language)) and of the operations to be carried out (including the methods and techniques required, the hazards likely to be encountered and methods of preventing accidents), for the satisfactory and safe execution of the Works. 6.9

Records of Contractor's Personnel and Equipment

Samples

The Contractor shall submit samples to the Employer, for review in accordance with the procedures for Contractor's Documents described in Sub-Clause 5.2 [Contractor's Documents), as specified in the Contract and at the Contractor's cost. Each sample shall be labelled as to origin and intended use in the Works. 7.3

Inspection

The Employer's Personnel shall at all reasonable times: (a) have full access to all parts of the Site and to all places from which natural Materials are being obtained, and (b) during production, manufacture and construction (at the Site and, to the extent specified in the Contract, elsewhere), be en,titled to examine, inspect, measure and test the materials and workmanship; and to check the progress of manufacture of Plant and production and manufacture of Materials, The Contractor shall give the Employer's Personnel full opportunity to carry out these activities, including providing access, facilities, permissions and safety equipment, No such activity shall relieve the Contractor from any obligation or responsibility. In respect of the work which Employer's Personnel are entitled to examine, inspect, measure and/or test, the Contractor shall give notice to the Employer whenever any such work is ready and before it is covered up, put out of sight, or packaged for storage or transport. The Employer shall then either carry out the examination, 681

FIDIC: CONDITIONS OF CONTRACT

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inspection, measurement or testing without unreasonable delay, or promptly give notice to the Contractor that the Employer does not require to do so. If the Contractor fails to give the notice, he shall, if and when required by the Employer, uncover the work and thereafter reinstate and make good, all at the Contractor's cost.

retested, the tests shall be repeated under the same terms and conditions. If the rejection and retesting cause the Employer to incur additional costs, the Contractor shall subject to Sub-Clause 2.5 [Employer's Claims) pay these costs to the Employer.

7.4

Notwithstanding any previous test or certification, the Employer may instruct the Contractor to: (a) remove from the Site and replace any Plant or Materials which is not in accordance with the Contract, (b) remove and re-execute any other work which is not in accordance with the Contract, and (c) execute any work which is urgently required for the safety of the Works, whether because of an accident, unforeseeable event or otherwise. If the Contractor fails to comply with any such instruction, which complies with SubClause 3.4 [Instructions), the Employer shall be entitled to employ and pay other persons to carry out the work. Except to the extent that the Contractor would have been entitled to payment for the work, the Contractor shall subject to Sub-Clause 2.5 [Employer's Claims) pay to the Employer all costs arising from this failure.

Testing

This Sub-Clause shall apply to all tests specified in the Contract, other than the Tests after Completion (if any). The Contractor shall provide all apparatus, assistance, documents and other information, electricity, equipment, fuel, consumables, instruments, labour, materials, and suitably qualified and experienced staff, as are necessary to carry out the specified tests efficiently. The Contractor shall agree, with the Employer, the time and place for the specified testing of any Plant, Materials and other parts of the Works. The Employer may, under Clause 13 [Variations and Adjustments), vary the location or details of specified tests, or instruct the Contractor to carry out additional tests. Il these varied or additional tests show that the tested Plant, Materials or workmanship is not in accordance with the Contract, the cost of carrying out this Variation shall be borne by the Contractor, notwithstanding other provisions of the Contract. The Employer shall give the Contractor not less than 24 hours' notice of the Employer's intention to attend the tests. If the Employer does not attend at the time and place agreed, the Contractor may proceed with the tests, unless otherwise instructed by the Employer, and the tests shall then be deemed to have been made in the Employer's presence. If the Contractor suffers and/or incurs Cost from complying with these instructions or as a result of a delay for which the Employer is responsible, the Contractor shall give notice to the Employer and shall be entitled subject to Sub-Clause 20.1 [Contractor's Claims I to: (a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 8.4 [Extension o( Time (or Completion), and (b) payment of any such Cost plus reasonable profit, which shall be added to the Contract Price. After receiving this notice, the Employer shall proceed in accordance with Sub-Clause 3.5 [Determinations) to agree or determine these matters. The Contractor shall promptly forward to the Employer duly certified reports of the tests. When the specified tests have been passed, the Employer shall endorse the Contractor's test certificate, or issue a certificate to him, to that effect. If the Employer has not attended the tests, he shall be deemed to have accepted the readings as accurate. 7.5

Rejection

If, as a result of an examination, inspection, measurement or testing, any Plant, Materials, design or workmanship is found to be defective or otherwise not in accordance with the Contract, the Employer may reject the Plant, Materials, design or workmanship by giving notice to the Contractor, with reasons. The Contractor shall then promptly make good the defect and ensure that the rejected item complies with the Contract. If the Employer requires this Plant, Materials, design or workmanship to be

682

7.6

7.7

Remedial Work

Ownership of Plant and Materials

Each item of Plant and Materials shall, to the extent consistent with the Laws of the Country, become the property of the Employer at whichever is the earlier of the following times, free from liens and other encumbrances: (a) when it is delivered to the Site; (b) when the Contractor is entitled to payment of the value of the Plant and Materials under Sub-Clause 8.10 [Payment (or Plant and Materials in Event o( Suspension). 7.8

Royalties

Unless otherwise stated in the Employer's Requirements, the Contractor's shall pay all royalties, rents and other payments for: (a) natural Materials obtained from outside the Site, and (b) the disposal of material from demolitions and excavations and of other surplus material (whether natural or man-made),: except to the extent that disposal areas within the Site are specified in the Contract.

8 8.1

At-OS

Commencement, Delays and Suspension

Commencement of Works

Unless otherwise stated in the Contract Agreement: (a) the Employer shall give the Contractor not less than 7 days' notice of the Commencement Date; and (b) the Commencement Date shall be within 42 days after the date on which the Contract comes into full force and effect under Sub-Clause 1.6 [Contract Agreement). The Contractor shall commence the design and execution of the Works as soon as is

683

FIDIC: CONDITIONS OF CONTRACT

APPENDIX I

reasonably practicable after the Commencement Date, and shall then proceed with the Works with due expedition and without delay. 8.2

Time for Completion

The Contractor shall complete the whole of the Works, and each Section (if any), within the Time for Completion for the Works or Section (as the case may be), including: (a) achieving the passing of the Tests on Completion, and (b) completing all work which is stated in the Contract as being required for the Works or Section to be considered to be completed for the purposes of taking-over under Sub-Clause 10.1 [Taking Over of the Works and Sections). 8.3

Programme

The Contractor shall submit a time programme to the Employer within 28 days after the Commencement Date. The Contractor shall also submit a revised programme whenever the previous programme is inconsistent with actual progress or with the Contractor's obligations. Unless otherwise stated in the Contract, each programme shall include: (a) the order in which the Contractor intends to carry out the Works, including the anticipated timing of each major stage of the Works, (b) the periods for reviews under Sub-Clause 5.2 [Contractor's Documents), (c) the sequence and timing of inspections and tests specified in the Contract, and (d) a supporting report which includes: (i) a general description of the methods which the Contractor intends to adopt for the execution of each major stage of the Works, and (ii) the approximate number of each class of Contractor's Personnel and of each type of Contractor's Equipment for each major stage. Unless the Employer, within 21 days after receiving a programme, gives notice to the Contractor stating the extent to which it does not comply with the Contract, the Contractor shall proceed in accordance with the programme, subject to his other obligations under the Contract. The Employer's Personnel shall be entitled to rely upon the programme when planning their activities. The Contractor shall promptly give notice to the Employer of specific probable future events or circumstances which may adversely affect or delay the execution of the Works. In this event, or if the Employer gives notice to the Contractor that a programme fails (to the extent stated) to comply with the Contract or to be consistent with actual progress and the Contractor's stated intentions, the Contractor shall submit a revised programme to the Employer in accordance with this Sub-Clause. 8.4

Extension of Time for Completion

The Contractor shall be entitled subject to Sub-Clause 20.1 [Contractor's Claims) to an extension of the Time for Completion if and to the extent that completion for the purposes of Sub-Clause 10.1 [Taking Over of the Works and Sections) is or will be delayed by any of the following causes: (a) a Va riation (unless an adjustment to the Time for Completion has been agreed under Sub-Clause 13.3 [Variation Procedure)),

684

(b)

a cause of delay giving an entitlement to extension of time under a SubClause of these Conditions, or (c) any delay, impediment or prevention caused by or attributable to the Employer, the Employer's Personnel, or the Employer's other contractors on the Site. If the Contractor considers himself to be entitled to an extension of the Time for Completion, the Contractor shall give notice to the Employer in accordance with Sub-Clause 20.1 [Contractor's Claims). When determining each extension of time under Sub-Clause 20.1, the Employer shall review previous determinations and may increase, but shall not decrease, the total extension of time. 8.5

Delays Caused by Authorities

If the following conditions apply, namely: (a) the Contractor has diligently followed the procedures laid down by the relevant legally constituted public authorities in the Country, (b) these authorities delay or disrupt the Contractor's work, and (c) the delay or disruption was not reasonably foreseeable by an experienced contractor by the date for submission of the Tender, then this delay or disruption will be considered as a cause of delay under subparagraph (b) of Sub-Clause 8.4 [Extension of Time for Completion). 8.6

Rate of Progress

If, at any time: . (a) actual progress is too slow to complete within the Time for Completion, and/or (b) progress has fallen (or will fall) behind the current programme under SubClause 8.3 [Programme), other than as a result of a cause listed in Sub-Clause 804 [Extension of Time for Completion), then the Employer may instruct the Contractor to submit, under SubClause 8.3 [Programme), a revised programme and supporting report describing the revised methods which the Contractor proposes to adopt in order to expedite progress and complete within the Time for Completion. Unless the Employer notifies otherwise, the Contractor shall adopt these revised methods, which may require increases in the working hours and/or in the numbers of Contractor's Personnel and/or Goods, at the risk and cost of the Contractor. If these revised methods cause the Employer to incur additional costs, the Contractor shall subject to Sub-Clause 2.5 [Employer's Claims) pay these costs to the Employer, in addition to delay damages (if any) under Sub-Clause 8.7 below. 8.7

Delay Damages

If the Contractor fails to comply with Sub-Clause 8.2 [Time for Completion), the Contractor shall subject to Sub-Clause 2.5 [Employer's Claims) pay delay damages to the Employer for this default. These delay damages shall be the sum stated in the Particular Conditions, which shall be paid for every day which shall elapse between the relevant Time for Completion and the date stated in the Taking-Over Certificate. However, the total amount due under this Sub-Clause shall not exceed the maximum amount of delay damages (if any) stated in the Particular Conditions. 685

FIDIC: CONDITIONS OF CONTRACT

APPENDIX I

These delay damages shall be the only damages due from the Contractor for such default, other than in the event of termination under Sub-Clause 15.2 [Termination by Employer) prior to completion of the Works. These damages shall not relieve the Contractor from his obligation to complete the Works, or from any other duties, obli· gations or responsibilities which he may have under the Contract. 8.8

Consequences of Suspension

If the Contractor suffers delay and/or incurs Cost from complying with the Employer's instructions under Sub-Clause 8.8 [Suspension of Work) and/or from resuming the work, the Contractor shall give notice to the Employer and shall be enti· tled subject to Sub-Clause 20.1 [Contractor's Claims) to: (a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 8.4 [Extension of Time for Completion), and (b) payment of any such Cost, which shall be added to the Contract Price. After receiving this notice, the Employer shall proceed in accordance with Sub-Clause 3.5 [Determinations) to agree or determine these matters. The Contractor shall not be entitled to an extension of time for, or to payment of the Cost incurred in, making good the consequences of the Contractor's faulty design, workmanship or materials, or of the Contractor's failure to protect, store or secure in accordance with Sub·Clause 8.8 [Suspension of Work). 8.10

Payment for Plant and Materials in Event of Suspension

The Contractor shall be entitled to payment of the value (as at the date of suspension) of Plant and/or Materials which have not been delivered to Site, if: (a) the work on Plant or delivery of Plant and/or Materials has been suspended for more than 28 days, and (b) the Contractor has marked the Plant and/or Materials as the Employer's property in accordance with the Employer's instructions. 8.11

Prolonged Suspension

If the suspension under Sub-Clause 8.8 [Suspension of Work) has continued for more than 84 days, the Contractor may request the Employer's permission to proceed. If the Employer does not give permission within 28 days after being requested to do so, the Contractor may, by giving notice to the Employer, treat the suspension as an omission under Clause 13 [Variations and Adjustments) of the affected part of the Works. If the suspension affects the whole of the Works, the Contractor may give notice of termination under Sub-Clause 16.2 [Termination by Contractor).

686

Resumption of Work

After the permission or instruction to proceed is given, the Parties sha~1 jointly examine the Works and the Plant and Materials affected by the suspension. The Contractor shall make good any deterioration or defect in or loss of the Works or Plant or Materials, which has occurred during the suspension.

Suspension of Work

The Employer may at any time instruct the. Contractor to suspend progress of part or all of the Works. During such suspension, the Contractor shall protect, store and secure such part or the Works against any deterioration, loss or damage. The Employer may also notify the cause for the suspension. If and to the extent that the cause is notified and is the responsibility of the Contractor, the following Sub-Clauses 8.9, 8.10 and 8.11 shall not apply. 8.9

8.12

9

9.1

AI-09

Tests on Completion

Contractor's Obligations

The Contractor shall carry out the Tests on Completion in accordance with this Clause and Sub-Clause 7.4, [Testing] after providing the documents in accordance with Sub-Clause 5.6 [As-Built Documents) and Sub-Clause 5.7 [Operation and Maintenance Manuals). The Contractor shall give to the Employer not less than 21 days' notice of the ~ate after which the Contractor will be ready to carry out each of the Tests on Completion. Unless otherwise agreed, Tests on Completion shall be carried out within 14 days after this date, on such day or days as the Employer shall instruct. . Unless otherwise stated in the Particular Conditions, the Tests on Completion shall be carried out in the following sequence: (a) pre-commissioning tests, which shall include the appropriate ins~ctions and ("dry" or "cold") functional tests to demonstrate that each Item of Plant can safely under-take the next stage, (b); . (b) commissioning tests, which shall include the specified operational tests to demonstrate that the Works or Section can be operated safely and as specified under all available operating conditions; arid (c) trial'operation, which shall demonstrate that the Works or Section perform reliably and in accordance with the Contract. During trial operation, when the Works are operating under stable conditions, the Contractor shall give notice to the Employer that the Works are ready for any other Tests on Completion, including performance tests to demonstrate whether the.Works conform with criteria specified in the Employer's Requirements and with the Performance Guarantees. Trial operation shall not constitute a taking-over under Clause 10 [Employer's Taking Over). Unless otherwise stated in the Particular Conditions, any product produced by the Works during trial operation shall be the property of the Employer. In considering the results of the Tests on Completion, appropriate allowances shall be made for the effect of any use of the Works by the Employer on the performance or other characteristics of the Works. As soon as the Works, or a Section, have passed each of the Tests on Completion described in sub-paragraph (a), (b) or (c), the Contractor shall submit a certified report of the results of these Tests to the Employer. 9.2

Delayed Tests

If the Tests on Completion are being unduly delayed by the Employer, Sub-Clause 7.4 [Testing) (fifth paragraph) and/or Sub-Clause 10.3 [Interference with Tests on Completion) shall be applicable. If the Tests on Completion are being unduly delayed by the Contractor, the Employer may by notice require the Contractor to carry out the Tests within 21 days

687

APPENDIX I

FIDIC: CONDITIONS OF CONTRACT

after receiving the notice. The Contractor shall carry out the Tests on such day or days within that period as the Contractor may fix and of which he shall give notice to the Employer. If the Contractor fails to carry out the Tests on Completion within the period of 21 days, the Employer's Personnel may proceed with the Tests at the risk and cost of the Contractor. These Tests on Completion shall then be deemed to have been carried out in the presence of the Contractor and the results of the Tests shall be accepted as accurate. 9.3

Retesting

If the Works, or a Section, fail to pass the Tests on Completion, Sub-Clause 7.5 [Rejection] shall apply, and the Employer or the Contractor may require the failed Tests, and Tests on Completion on any related work, to be repeated under the same terms and conditions.

(a)

issue the Taking-Over Certificate to the Contractor, stating the date on which the Works or Section were completed in accordance with the Contract, except for any minor outstanding work and defects which will not substantially affect the use of the Works or Section for their intended purpose (either until or whilst this work is completed and these defects are remedied); or (b) reject the application, giving reasons and specifying the work required to be done by the Contractor to enable the Taking-Over Certificate to be issued. The Contractor shall then complete this work before issuing a further notice under this Sub-Clause. If the Employer fails either to issue the Taking-Over Certificate or to reject the Contractor's application within the period of 28 days, and if the Works or Section (as the case may be) are substantially in accordance with the Contract, the TakingOver Certificate shall be deemed to have been issued on the last day of that period. 10.2

9.4

If the Works, or a Section, fail to pass the Tests on Completion repeated under SubClause 9.3 [Retesting], the Employer shall be entitled to: order further repetition of Tests on Completion under Sub-Clause 9.3; (a) (b) if the failure deprives the Employer of substantially the whole benefit of the Works or Section, reject the Works or Section (as the case may be), in which event the Employer shall have the same remedies as are provided in subparagraph (c) of Sub-Clause 11,4 [Pailure to Remedy Defects); or (c) issue a Taking-Over Certificate. In the event of sub-paragraph (c), the Contractor shall proceed in accordance with all other obligations under the Contract, and the Contract Price shall be reduced by such amount as shall be appropriate to cover the reduced value to the Employer as a result of this failure. Unless the relevant reduction for this failure is stated (or its method of calculation is defined) in the Contract, the Employer may require the reduction to be (i) agreed by both Parties (in full satisfaction of this failure only) and paid before this Taking-Over Certificate is issued, or (ii) determined and paid under Sub-Clause 2.5 [Employer's Claims] and Sub-Clause 3.5 [Determinations]. AI-tO

10

10.1

Parts of the Works (other than Sections) shall not be taken over or used by the Employer, except as may be stated in the Contract or as may be agreed by both Parties. 10.3

Interference with Tests on Completion

If the Contractor is prevented, for more than 14 days, from carrying out the Tests on Completion by a cause for which the Employer is responsible, the Contractor shall carry out the Tests on Completion as soon as practicable. If the ·Contractor suffers delay and/or incurs Cost as a result of this delay in carrying out the Tests on Completion, the Contractor shall give notice to the Employer and shall be entitled subject to Sub-Clause 20.1 [Contractor's Claims] to: (a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 8,4 [Extension of Time for Completion], and (b) payment of any such Cost plus reasonable profit, which shall be added to the Contract Price. After receiving this notice, the Employer shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine these matters.

Employer's Taking Over 11

Taking Over of the Works and Sections l1.t

Except as stated in Sub-Clause 9,4 [Failure to Pass Tests on Completion], the Works shall be taken over by the Employer when (i) the Works have been completed in accordance with the Contract, including the matters described in Sub-Clause 8.2 [Time for Completion] and except as allowed in sub-paragraph (a) below, and (ii) a Taking-Over Certificate for the Works has been issued, or is deemed to have been issued in accordance with this Sub-Clause. The Contractor may apply by notice to the Employer for a Taking-Over Certificate not earlier than 14 days before the Works will, in the Contractor's opinion, be complete and ready for taking over. If the Works are divided into Sections, the Contractor may similarly apply for a Taking-Over Certificate for each Section. The Employer shall, within 28 days after receiving the Contractor's application:

688

Taking Over of Parts of the Works

Failure to Pass Tests on Completion

Defects Liability

At-II

Completion of Outstanding Work and Remedying Defects

In order that the Works and Contractor's Documents, and each Section, shall be in the condition required by the Contract (fair wear and tear excepted) by the expiry date of the relevant Defects Notification Period or as soon as practicable thereafter, the Contractor shall: (a) complete any work which is outstanding on the. date stated in a TakingOver Certificate, within such reasonable time as is instructed by the Employer, and (b) execute all work required to remedy defects or damage, as may be notified by the Employer on or before the expiry date of the Defects Notification Period for the Works or Section (as the case may be).

689

APPENDIX I

FIDIC: CONDITIONS OF CONTRACT

If a defect appears or damage occurs, the Employer shall notify the Contractor accordingly. 11.2

Cost of Remedying Defects

All work referred to in sub-paragraph (b) of Sub-Clause 11.1 [Completion of Outstanding Work and Remedying Defects] shall be executed at the risk and cost of the Contractor, if and to the extent that the work is attributable to: (a) the design of the Works, Plant, Materials or workmanship not being in accordance with the (b) Contract, (c) improper operation or maintenance which was attributable to matters for which the Contractor is responsible (under Sub-Clauses 5.5 to 5.7 or otherwise), or (d) failure by the Contractor to comply with any other obligation. If and to the extent that such work is attributable to any other cause, the Employer ~hall give notice to the Contractor accordingly, and Sub-Clause 13.3 [Variation Procedure] shall apply. 11.3

Extension of Defects Notification Period

The Employer shall be entitled subject to Sub-Clause 2.5 [Employer's Claims] to an extension of the Defects Notification Period for the Works or a Section if and to the extent that the Works, Section or a major item of Plant (as the case may be, and after taking over) cannot be used for the purposes for which they are intended by reason of a defect or damage. However, a Defects Notification Period shall not be extended by more than two years. If delivery and/or erection of Plant and/or Materials was suspended under SubClause 8.8 [Suspension of Work] or Sub-Clause 16.1 [Contractor's Entitlement to Suspend Work], the Contractor's obligations under this Clause shall not apply to any defects or damage occurring more than two years after the Defects Notification Period for the Plant and/or Materials would otherwise have expired. 11.4

Failure to Remedy Defects

If the Contractor fails to remedy any defect or damage within a reasonable time a date may be fixed by (or on behalf of) the Employer, on or by which the defect 'or damage is to be remedied. The Contractor shall be given reasonable notice of this date. If the Contractor fails to remedy the defect or damage by this notified date and this remedial work was to be executed at the cost of the Contractor under Sub-Clause 11.2 [Cost of Remedying Defects], the Employer may (at his option): (a) carry out the work himself or by others, in a reasonable manner and at the Contractor's cost, but the Contractor shall have no responsibility for this work; and the Contractor shall subject to Sub-Clause 2.5 [Employer's Claims] pay to the Employer the costs reasonably incurred by the Employer in remedying the defect or damage; (b) agree or determine a reasonable reduction in the Contract Price in accordance with Sub-Clause 3.5 [Determinations]; or (c) if the defect or damage deprives the Employer of substantially the whole benefit of the Works or any major part of the Works, terminate the Contract as a whole, or in respect of such major part which cannot be put to the

690

intended use. Without prejudice to any other rights, under the Contract or otherwise, the Employer shall then be entitled to recover all sums paid for the Works or for such part (as the case may be), plus financing costs and the costs of dismantling the same, clearing the Site and returning Plant and Materials to the Contractor. 11.5

Removal of Defective Work

If the defect or. damage cannot be remedied expeditiously on the Site and the Employer gives consent, the Contractor may remove from the Site for the purposes of repair such items of Plant as are defective or damaged. This consent may require the Contractor to increase the amount of the Performance Security by the full replacement cost of these items, or to provide other appropriate security. 11.6 Further Tests

If the work of remedying of any defect or damage may aff~ct the performance of the Works, the Employer may require the repetition of any of the tests described in the Contract, including Tests on Completion and/or Tests after Completion. The requirement shall be made by notice within 28 days after the defect or damage is remedied. These tests shall be carried out in accordance with the terms applicable to the previous tests, except that they shall be carried out at the risk and cost of the Party liable, under Sub-Clause 11.2 [Cost of Remedying Defects], for the cost of the remedial work. 11. 7

Right of Access

Until the Performance Certificate has been issued, the Contractor shall have the right of access to all parts of the Works and to records of the operation and performance of the Works, except as may be inconsistent with the Employer's reasonable security restrictions. 11.8

Contractor to Search

The Contractor shall, if required by the Employer, search for the cause of any defect, under the direction of the Employer. Unless the defect is to be remedied at the cost of the Contractor under Sub-Clause 11.2 [Cost of Remedying Defects], the Cost of the search plus reasonable profit shall be agreed or determined in accordance with SubClause 3.5 [Determinations) and shall be added to the Contract Price. 11.9

Performance Certificate

Performance of the Contractor's obligations shall not be considered to have been completed until the Employer has issued the Performance Certificate to the Contractor, stating the date on which the Contractor completed his obligations under the Contract. The Employer shall issue the Performance Certificate within 28 days after the latest of the expiry dates of the Defects Notification Periods, or as soon thereafter as the Contractor has supplied all the Contractor's Documents and completed and tested all the Works, including remedying any defects. If the Employer fails to issue the Performance Certificate accordingly:

691

APPENDIX I

FIDIC: CONDITIONS OF CONTRACT

(a)

the Performance Certificate shall be deemed to have been issued on the date 28 days after the date on which it should have been issued, as required by this Sub-Clause, and (b) Sub-Clause 11.11 [Clearance of Site) and sub-paragraph (a) of Sub-Clause 14.14 [Cessation of Employer's Liability) shall be inapplicable. Only the Performance Certificate shall be deemed to constitute acceptance of the Works. 11.10

Unfulfilled Obligations

After the Performance Certificate has been issued, each Party shall remain liable for the fulfillment of any obligation which remains unperformed at that time. For the purposes of determining the nature and extent of unperformed obligations, the Contract shall be deemed to remain in force. 11.11

Clearance of Site

Upon receiving the Performance Certificate, the Contractor shall remove any remaining Contractor's Equipment, surplus material, wreckage, rubbish and Temporary Works from the Site. If all these items have not been removed within 28 days after the Employer issues the Performance Certificate, the Employer may sell or otherwise dispose of any remaining items. The Employer shall be entitled to be paid the costs incurred in connection with, or attributable to, such sale or disposal and restoring the Site. Any balance of the moneys from the sale shall be paid to the Contractor. If these moneys are less than the Employer's costs, the Contractor shall pay the outstanding balance to the Employer.

A1-12

12 12.1

Tests after Completion

Procedure for Tests after Completion

If Tests after Completion are specified in the Contract, this Clause shall apply. Unless otherwise stated in the Particular Conditions: (a) the Employer shall provide all electricity, fuel and materials, and make the Employer's Personnel and Plant available; (b) the Contractor shall provide any other plant, equipment and suitably qualified and experienced staff, as are necessary to carry out the Tests after Completion efficiently; and (c) the Contractor shall carry out the Tests after Completion in the presence of such Employer's and/or Contractor's Personnel as either Party may reasonably request. The Tests after Completion shall be carried out as soon as is reasonably practicable after the Works or Section have been taken over by the Employer. The Employer shall give to the Contractor 21 days' notice of the date after which the Tests after Completion will be carried out. Unless otherwise agreed, these Tests shall be carried out within 14 days after this date, on the day or days determined by the Employer. The results of the Tests after Completion shall be compiled and evaluated by the Contractor, who shall prepare a detailed report. Appropriate account shall be taken of the effect of the Employer's prior use of the Works.

692

12.2

Delayed Tests

If the Contractor incurs Cost as a result of any unreasonable delay by the Employer to the Tests after Completion, the Contractor shall (i) give notice to the Employer and (ii) be entitled subject to Sub-Clause 20.1 [Contractor's Claims) to payment of any such Cost plus reasonable profit, which shall be added to the Contract Price. After receiving this notice, the Employer shall proceed in accordance with SubClause 3.5 [Determinations) to agree or determine this Cost and profit. If, for reasons not attributable to the Contractor, a Test after Completion on the Works or any Section cannot be completed during the Defei:ts Notification Period (or any other period agreed upon by both Parties), then the Works or Section shall be deemed to have passed this Test after Completion. 12.3

Retesting

If the Works, or a Section, fail to pass the Tests after Completion: (a) sub-paragraph (b) of Sub-Clause 11.1 [Completion of Outstanding Work and Remedying of Defects) shall apply, and (b) either Party may then require the failed Tests, and the Tests after Completion on any related work, to be repeated under the same terms and conditions. If and to the extent that this failure and retesting are attributable to any of the matters listed in sub-paragraphs (a) to (d) of Sub-Clause 11.2 [Cost of Remedying Defects) and cause the Employer to incur additional costs, the Contractor shall subject to SubClause 2.5 [Employer's Claims) pay these costs to the Employer. 12.4

Failure to Pass Tests after Completion

If the following conditions apply, namely: (a) the Works, or a Section, fail to pass any or all of the Tests after Completion, (b) the relevant sum payable as non-performance damages for this failure is stated (or its method of calculation is defined) in the Contract, and (c) the Contractor pays this relevant sum to the Employer during the Defects Notification Period, then the Works or Section shall be deemed to have passed these Tests after Completion. If the Works, or a Section, fail to pass a Test after Completion and the Contractor proposes to make adjustments or modifications to the Works or such Section, the Contractor may be instructed by (or on behalf of) the Employer that right of access to the Works or Section cannot be given until a time that is convenient to the Employer. The Contractor shall then remain liable to carry out the adjustments or modifications and to satisfy this Test, within a reasonable period of receiving notice by (or on behalf of) the Employer of the time that is convenient to the Employer. However, if the Contractor does not receive this notice during the relevant Defects Notification Period, the Contractor shall be relieved of this obligation and the Works or Section (as the case may be) shall be deemed to have passed this Test after Completion. If the Contractor incurs additional Cost as a result of any unreasonable delay by the Employer in permitting access to the Works or Plant by the Contractor, either to investigate the causes of a failure to pass a Test after Completion or to carry out any adjustments or modifications, the Contractor shall (i) give notice to the Employer and

693

APPENDIX I

FIDIC: CONDITIONS OF CONTRACT

(ii) be entitled subject to Sub-Clause 20.1 [Contractor's Claims) to payment of any such Cost plus reasonable profit, which shall be added to the Contract Price. After receiving this notice, the Employer shall proceed in accordance with SubClause 3.5 [Determinations) to agree or determine this Cost and profit.

reasonable profit, and shall take account of the Contractor's submissions under SubClause 13.2 [Value Engineering) if applicable. 13.4

Payment in Applicable Currencies

If the Contract provides for payment of the Contract Price'i n more than one currency, 13

Al-13 13.1

Variations and Ad;ustments

Right to Vary

Variations may be initiated by the Employer at any time prior to issuing the TakingOver Certificate for the Works, either by an instruction or by a request for the Contractor to submit a proposal. A Variation shall not comprise the omission of any work which is to be carried out by others. The Contractor shall execute and be bound by each Variation, unless the Contractor promptly gives notice to the Employer stating (with supporting particulars) that (i) the Contractor cannot readily obtain the Goods required for the Variation, (ii) it will reduce the safety or suitability of the Works, or (iii) it will have an adverse impact on the achievement of the Performance Guarantees. Upon receiving this notice, the Employer shall cancel, confirm or vary the instruction. 13.2

Value Engineering

The Contractor may, at any time, submit to the Employer a written proposal which (in the Contractor's opinion) will, if adopted, (i) accelerate completion (ii) reduce the cost to the Employer of executing, maintaining or operating the Works, (iii) improve the efficiency or value to the Employer of the completed Works, or (iv) otherwise be of benefit to the Employer. The proposal shall be prepared at the cost of the Contractor and shall include the items listed in Sub-Clause 13.3 [Variation Procedure). 13.3

Variation Procedure

If the Employer requests a proposal, prior to instructing a Variation, the Contractor shall respond in writing as soon as practicable, either by giving reasons why he cannot comply (if this is the case) or by submitting: (a) a description of the proposed design andlor work to be performed and a programme for its execution, (b) the Contractor's proposal for any necessary modifications to the programme according to Sub-Clause 8.3 [Programme) and to the Time for Completion, and (c) the Contractor's proposal for adjustment to the Contract Price. The Employer shall, as soon as practicable after receiving such proposal (under SubClause 13.2 [Value Engineering) or otherwise), respond with approval, disapproval or comments. The Contractor shall not delay any work whilst awaiting a response. Each instruction to execute a Variation, with any requirements for the recording of Costs, shall be issued by the Employer to the Contractor, who shall acknowledge receipt. Upon instructing or approving a Variation, the Employer shall proceed in accordance with Sub-Clause 3.5 [Determinations) to agree or determine adjustments to the Contract Price and the Schedule of Payments. These adjustments shall include

694

then whenever an adjustment is agreed, approved or determined as stated above, the amount payable in each of the applicable currencies shall be specified. For this purpose, reference shall be made to the actual or expected currency proportions of the Cost of the varied work, and to the proportions of various currencies specified for payment of the Contract Price. 13.5

Provisional Sums

Each Provisional Sum shall only be used, in whole or in part, in accordance with the Employer's instructions, and the Contract Price shall be adjusted accordingly. The total sum paid to the Contractor shall include only such amounts, for the work, supplies or services to which the Provisional Sum relates, as the Employer shall have instructed. For each Provisional Sum, the Employer may instruct: (a) work to be executed (including Plant, Materials or services to be supplied) by the Contractor and valued under Sub-Clause 13.3 [Variation Procedure);andlor (b) Plant, Materials or services to be purchased by the Contractor, for which there shall be added to the Contract Price less the original Provisional Sums: (i) the actual amounts paid (or due to be paid) by the Contractor, and (ii) a sum for overhead charges and profit, calculated as a percentage of these actual amounts by applying the relevant percentage rate (if any) stated in the Contract. The Contractor shall, when required by the Employer, produce quotations, invoices, vouchers and accounts or receipts in substantiation. 13.6

Daywork

For work of a minor or incidental nature, the Employer may instruct that a Variation shall be executed on a daywork basis. The work shall then be valued in accordance with the daywork schedule included in the Contract, and the following procedure shall apply. If a daywork schedule is not included in the Contract, this Sub-Clause shall not apply. Before ordering Goods for the work, the Contractor shall submit quotations to the Employer. When applying for payment, the Contractor shall submit invoices, vouchers and accounts or receipts for any Goods. Except for any items for which the daywork schedule specifies that payment is not due, the Contractor shall deliver each day to the Employer accurate statements in duplicate which shall include the following details of the resources used in executing the previous day's work: (a) the names, occupations and time of Contractor's Personnel, (b) the identification, type and time of Contractor's Equipment and Temporary Works, and (c) the quantities and types of Plant and Materials used. One copy of each statement will, if correct, or when agreed, be signed by the Employer and returned to the Contractor. The Contractor shall then submit priced

695

APPENDIX I

FIDIC: CONDITIONS OF CONTRACT

statements of these resources to the Employer, prior to their inclusion in the next Statement under Sub-Clause 14.3 [Application for Interim Payments]. 13.7

Adjustments for Changes in Legislation

The Contract Price shall be adjusted to take account of any increase or decrease in Cost resulting from a change in the Laws of the Country (including the introduction of new Laws and the repeal or modification of existing Laws) or in the judicial or official government interpretation of such Laws, made after the Base Date, which affect the Contractor in the performance of obligations under the Contract. If the Contractor suffers (or will suffer) delay and/or incurs (or will incur) additional Cost as a result of these changes in the Laws or in such interpretations, made after the Base Date, the Contractor shall give notice co the Employer and shall be entitled subject to Sub-Clause 20.1 [Contractor's Claims) to: an extension of time for any such delay, if completion is or will be delayed, (a) under Sub-Clause 8.4 [Extension of Time for Completion), and (b) payment of any such Cost, which shall be added to the Contract Price. After receiving this notice, the Employer shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine these matters. 13.8

Adjustments for Changes in Costs

If the Contract Price is to be adjusted for rises or falls in the cost of labout Goods and other inputs to the Works, the adjustments shall be calculated in accorda~ce with the provisions in the Particular Conditions. A1-14

14

14.1

Contract Price and Payment

Advance Payment

The Employer shall make an advance payment, as an interest-free loan for mobilization and design, when the Contractor submits a guarantee in accordance with this Sub-Clause including the details stated in the Particular Conditions. If the Particular Conditions does not state: (a) the amount of th~ a?vance payment, then this Sub-Clause shall not apply; (b) the number and tlmmg of instalments, then there shall be only one; (c) the applicable currencies and proportions, then they shall be those in which the Contract Price is payable; and/or (d) the amortisation rate for repayments, then it shall be calculated by dividing the total amount of the advance payment by the Contract Price stated in the Contract Agreement less Provisional Sums.

696

14.3

Application for Interim Payments

The Contract Price

Unless otherwise stated in the Particular Conditions: (a) payment for the Works shall be made on the basis of the lump sum Contract Price, subject to adjustments in accordance with the Contract; and (b) the Contractor shall pay all taxes, duties and fees required to be paid by him under the Contract, and the Contract Price shall not be adjusted for any of these costs, except as stated in Sub-Clause 13.7 [Adjustments for Changes in Legislation). 14.2

The Employer shall pay the first instalment after receiving (i) a Statement (under SubClause 14.3 [Application for Interim Payments)), (ii) the Performance Security in accordance with Sub-Clause 4.2 [Performance Security), and (iii) a guarantee in amounts and currencies equal to the advance payment. This guarantee shall be issued by an entity and from within a country (or other jurisdiction) approved by the Employer, and shall be in the form annexed to the Particular Conditions or in another form approved by the Employer. Unless and until the Employer receives this guarantee, this Sub-Clause shall not apply. The Contractor shall ensure that the guarantee is valid and enforceable until the advance payment has been repaid, but its amount may be progressively reduced by the amount repaid by the Contractor. If the terms of the guarantee specify its expiry date, and the advance payment has not been repaid by the date 28 days prior to the expiry date, the Contractor shall extend the validity of the guarantee until the advance payment has been repaid. The advance payment shall be repaid through proportional deductions in interim payments. Deductions shall be made at the amortization rate stated in the Particular Conditions (or, if not so stated, as stated in sub-paragraph (d) above), which shall be applied to the amount otherwise due (excluding the advance payment and deductions and repayments of retention), until such time as the advance payment has been repaid. If the advance payment has not been repaid prior to the issue of the TakingOver Certificate for the Works or prior to termination under Clause 15 [Termination by Employer), Clause 16 [Suspension and Termination by Contractor) or Clause 19 [Force Majeure) (as the case may be), the whole of the balance then outstanding shall immediately become ~ue and payable by the Contractor to the Employer.

The Contractor shall submit a Statement in six copies to the Employer after the end of the period of payment stated in the Contract (if not stated, after the end of each month), in a form approved by the Employer, showing in detail the amounts to which the Contractor considers himself to be entitled, together with supporting documents which shall include the relevant report on progress in accordance with Sub-Clause 4.21 [Progress Reports). The Statement shall include the following items, as applicable, which shall be expressed in the various currencies in which the Contract Price is payable, in the sequence listed: (a) the estimated contract value of the Works executed and the Contractor's Documents produced up to the end of the month (including Variations but excluding items described in sub-paragraphs (b) to (f) below); (b) any amounts to be added and deducted for changes in legislation and changes in cost, in accordance with Sub-Clause 13.7 [Adjustments for Changes in Legislation) and Sub-Clause 13.8 [Adjustments for Changes in Cost); (c) any amount to be deducted for retention, calculated by applying the percentage of retention stated in the Particular Conditions to the total of the above amounts, until the amount so retained by the Employer reaches the limit of Retention Money (if any) stated in the Particular Conditions; (d) any amounts to be added and deducted for the advance payment and repayments in accordance with Sub-Clause 14.2 [Advance Payment);

697

FIDIC: CONDITIONS O F CONTRACT

APPENDIX I

(e) (f) 14.4

any other additions or deductions which may have become due under the Contract or otherwise, including those under Clause 20 [Claims, Disputes and Arbitration); and the deduction of amounts included in previous Statements. Schedule of Payments

If the Contract includes a Schedule of Payments specifying the instalments in which the Contract Price will be paid, then unless otherwise stated in this Schedule: (a) the instalments quoted in the Schedule of Payments shall be the estimated contract values for the purposes of sub-paragraph (a) of Sub-Clause 14.3 [Application for Interim Payments), subject to Sub-Clause 14.5 [Plant and Materials intended for the Works); and (b) if these instalments are not defined by reference to the actual progress achieved in executing the Works, and if actual progress is found to be less than that on which the Schedule of Payments was based, then the Employer may proceed in accordance with Sub-Clause 3.5 [Determinations) to agree or determine revised instalments, which shall take account of the extent to which progress is less than that on which the instalments were previously based. If the Contract does not include a Schedule of Payments, the Contractor shall submit non-binding estimates of the payments which he expects to become due during each quarterly period. The first estimate shall be submitted within 42 days after the Commencement Date. Revised estimates shall be submitted at quarterly intervals, until the Taking-Over Certificate has been issued for the Works. 14.5

(b)

if the Contractor was or is failing to perform any work or obligation in accordance with the Contract, and had been so notified by the Employer, the value of this work or obligation may be withheld until the work or obligation has been performed. The Employer may, by any payment, make any correction or modification that should properly be made to any amount previously considered due. Payment shall not be deemed to indicate the Employer's acceptance, approval, consent or satisfaction. 14.7

Except as otherwise stated in Sub-Clause 2.5 [Employer's Claims), the Employer shall pay to the Contractor: (a) the first instalment of the advance payment within 42 days after the date on which the Contract came into full force and effect or within 21 days after the Employer receives the documents in accordance with Sub-Clause 4.2 [Performance Security) and Sub-Clause 14.2 [Advance Payment), whichever is later; (b) the amount which is due in respect of each Statement, other than the Final Statement, within 56 days after receiving the Statement and supporting documents; and . (c) the final amount due, within 42 days after receiving the Final Statement and written discharge in accordance with Sub-Clause 14.11 [Application for Final Payment) and Sub-Clause 14.12 [Discharge). Payment of the amount due in each currency shall be made into the bank account, nominated by the Contractor, in the payment country (for this currency) specified in the Contract.

Plant and Materials intended for the Works 14.8

If the Contractor is entitled, under the Contract, to an interim payment for Plant and Materials which are not yet on the Site, the Contractor shall nevertheless not be entitled to such payment unless: (a) the relevant Plant and Materials are in the Country and have been marked as the Employer's property in accordance with the Employer's instructions; or (b) the Contractor has delivered, to the Employer, evidence of insurance and a bank guarantee in a form and issued by an entity approved by the Employer in amounts and currencies equal to such payment. This guarantee may be in a similar form to the form referred to in Sub-Clause 14.2 [Advance Payment) and shall be valid until the Plant and Materials are properly stored on Site and protected against loss, damage or deterioration.

14.6

Interim Payments

No amount will be paid until the Employer has received and approved the Performance Security. Thereafter, the Employer shall within 28 days after receiving a Statement and supporting documents, give to the Contractor notice of any items in the Statement with which the Employer disagrees, with supporting particulars. Payments due shall not be withheld, except that: (a) if any thing supplied or work done by the Contractor is not in accordance with the Contract, the cost of rectification or replacement may be withheld until rectification or replacement has been completed; and/or

698

Timing of Payments

Delayed Payment

If the Contractor does not receive payment in accordance with Sub-Clause 14.7 [Timing of Payments), the Contractor shall be entitled to receive financing charges compounded monthly on the amount unpaid during the period of delay. Unless otherwise stated in the Particular Conditions, these financing charges shall be calculated at the annual rate of three percentage points above the discount rate of the central bank in the country of the currency of payment, and shall be paid in such currency. The Contractor shall be entitled to this payment without formal notice, and without prejudice to any other right or remedy.

14.9

Payment of Retention Money

When the Taking-Over Certificate has been issued for the Works, and the Works have passed all specified tests (including the Tests after Completion, if any), the first half of the Retention Money shall be paid to the Contractor. If a Taking-Over Certificate is issued for a Section, the relevant percentage of the first half of the Retention Money shall be paid when the Section passes all tests. Promptly after the latest of the expiry dates of the Defects Notification Periods, the outstanding balance of the Retention Money shall be paid to the Contractor. If a Taking-Over Certificate was issued for a Section, the relevant percentage of the second half of the Retention Money shall be paid promptly after the expiry date of the Defects Notification Period for the Section.

699

FIDIC: CONDITIONS OF CONTRACT

APPENDIX I

However, if any work remains to be executed under Clause 11 [Defects Liability) or Clause 12 (Tests after Completion), the Employer shall be entitled to withhold the estimated cost of this work until it has been executed. The relevant percentage of each Section shall be the percentage value of the Section as stated in the Contract. If the percentage value of a Section is not stated in the Contract, no percentage of either half of the Retention Money shall be released under this Sub-Clause in respect of such Section. 14.10

Statement at Completion

Within 84 days after receiving the Taking-Over Certificate for the Works, the Contractor shall submit to the Employer six copies of a Statement at completion with supporting documents, in accordance with Sub-Clause 14.3 [Application for Interim Payments), showing: (a) the value of all work done in accordance with the Contract up to the date stated in the Taking-Over Certificate for the Works, (b) any further sums which the Contractor considers to be due, and (c) an estimate of any other amounts which the Contractor considers will become due to him under the Contract. Estimated amounts shall be shown separately in this Statement at completion. The Employer shall then give notice to the Contractor in accordance with Sub-Clause 14.6 [Interim Payments) and make payment in accordance with Sub-Clause 14.7 (Timing of Payments). 14.11

Application for Final Payment

Within 56 days after receiving the Performance Certificate, the Contractor shall submit, to the Employer, six copies of a draft final statement with supporting documents showing in detail in a form approved by the Employer: (a) the value of all work done in accordance with the Contract, and (b) any further sums which the Contractor considers to be due to him under the Contract or otherwise. If the Employer disagrees with or cannot verify any part of the draft final statement, the Contractor shall submit such further information as the Employer may reasonably require and shall make such changes in the draft as may be agreed between them. The Contractor shall then prepare and submit to the Employer the final statement as agreed. This agreed statement is referred to in these Conditions as the "Final Statement". However if, following discussions between the Parties and any changes to the draft final statement which are agreed, it becomes evident that a dispute exists, the Employer shall pay the agreed parts of the draft final statement in accordance with Sub-Clause 14.6 [Interim Payments) and Sub-Clause 14.7 (Timing of Payments). Thereafter, if the dispute is finally resolved under Sub-Clause 20.4 [Obtaining Dispute Adjudication Board's Decision) or Sub-Clause 20.5 [Amicable Settlement). the Contractor shall then prepare and submit to the Employer a Final Statement. 14.12

Discharge

When submitting the Final Statement, the Contractor shall submit a written discharge which confirms that the total of the Final Statement represents full and final settlement of all moneys due to the Contractor under or in connection with the

700

Contract. This discharge may state that it becomes effective when th~ Contr~ctor ~as received the Performance Security and the out-standing balance of thiS total, In which event the discharge shall be effective on such date. 14.13

Final Payment

In accordance with sub-paragraph (c) of Sub-Clause 14.7 [Timing of Payments), the Employer shall pay to the Contractor the amount whic~ is ~nally due, less ~ll amounts previously paid by the Employer and any deductions In accordance With Sub-Clause 2.5 [Emp/oyer's Claims]. 14.14

Cessation of Employer's Liability

The Employer shall not be liable to the Contractor for an)' matter or thing under or in connection with the Contract or execution of the Works, except to the extent that the Contractor shall have included an amount expressly for it: (a) in the Final Statement and also . (b) (except for matters or things arising after the issue. of the ~akln~-Over Certificate for the Works) in the Statement at completion descnbed In SubClause 14.10 [Statement at Completion). However this Sub-Clause shall not limit the Employer's liability under his indemnification obligations, or the Employer's liability in any case of fraud, deliberate default or reckless misconduct by the Employer. 14.15

Currencies of Payment

The Contract Price shall be paid in the currency or currencies named in the Contract Agreement. Unless otherwise stated in the Particular Conditions, if more than one currency is so named, payments shall be made as follows: (a) if the Contract Price was expressed in Local Currency ~nly: . (i) the proportions or amounts of the Local and Foreign CurrenCies, and the fixed rates of exchange to be used for calculating the payments, shall be as stated in the Contract Agreement, except as otherwise agreed by both Parties; (ii) payments and deductions under Sub-Clause 13.5 [Provisional Sums) and Sub-Clause 13.7 [Adjustments for Changes in Legislation) shall be made in the applicable currencies and proportions; and (iii) other payments and deductions under sub-paragraphs (a) to (d) o~ SubClause 14.3 (Application for Interim Payments) shall be made In the currencies and proportions specified in sub-paragraph (a)(i) above; (b) payment of the damages specified in the Particular Conditions shall be made in the currencies and proportions specified in the Particular Conditions; (c) other payments to the Employer by the Contractor shall be made in the currency in which the sum was expended by the Employer, or in such currency as may be agreed by both Parties; (d) if any amount payable by the Contractor to the Employer in a particular currency exceeds the sum payable by the Employer to the Contractor in that currency, the Employer may recover the balance of this amount from the sums otherwise payable to the Contractor in other currencies; and (e) if no rates of exchange are stated in the Contract, they shall be those prevailing on the Base Date and determined by the central bank of the Country.

701

APPENDIX I

AI-15

FIDIC: CONDITIONS OF CONTRACT

15 15.1

Termination by Employer

Notice to Correct

If the Contractor fails to carry out any obligation under the Contract, the Employer may by notice require the Contractor to make good the failure and to remedy it within a specified reasonable time. 15.2

Termination by Employer

The Employer shall be entitled to terminate the Contract if the Contractor: (a) fails to comply with Sub-Clause 4.2 (Performance Security] or with a notice under Sub-Clause 15.1 (Notice to Correct], (h) abandons the Works or otherwise plainly demonstrates the intention not to continue performance of his obligations under the Contract, (c) without reasonable excuse fails to proceed with the Works in accordance with Clause 8 (Commencement, Delays and Suspension], (d) subcontracts the whole of the Works or assigns the Contract without the required agreement, (e) becomes bankrupt or insolvent, goes into liquidation, has a receiving or administration order made against him, compounds with his creditors, or carries on business under a receiver, trustee or manager for the benefit of his creditors, or if any act is done or event occurs which (under applicable Laws) has a similar effect to any of these acts or events, or (f) gives or offers to give (directly or indirectly) to any person any bribe, gift, gratuity, commission or other thing of value, as an inducement or reward: (i) for doing or forbearing to do any action in relation to the Contract, or (ii) for showing or forbearing to show favour or disfavour to any person in relation to the Contract, or if any of the Contractor's Personnel, agents or Subcontractors gives or offers to give (directly or indirectly) to any person any such inducement or reward as is described in this sub-paragraph (f). However, lawful inducements and rewards to Contractor's Personnel shall not entitle termination. In any of these events or circumstances, the Employer may, upon giving 14 days' notice to the Contractor, terminate the Contract and expel the Contractor from the Site. However, in the case of sub-paragraph (e) or (f), the Employer may by notice terminate the Contract immediately. . The Employer's election to terminate the Contract shall not prejudice any other rtghts of the Employer, under the Contract or otherwise. The Contractor shall then leave the Site and deliver any required Goods, all Contractor's Documents, and other design documents made by or for him, to the E~ployer. However, the Contractor shall use his best efforts to comply immediately WIth any reasonable instructions included in the notice (i) for the assignment of any sub-contract, and (ii) for the protection of life or property or for the safety of the Works. After t~r.mination, the Employer may complete the Works and/or arrange for any other entltJes to do so. The Employer and these entities may then use any Goods Contractor's Documents and other design documents made by or on behalf of th; Contractor. The Employer shall then give notice that the Contractor's Equipment and

702

Temporary Works will be released to the Contractor at or near the Site. The Contractor shall promptly arrange their removal, at the risk and cost of the Contractor. However, if by this time the Contractor has failed to make a payment due to the Employer, these items may be sold by the Employer in order to recover this payment. Any balance of the proceeds shall then be paid to the Contractor. 15.3

Valuation at Date of Termination

As soon as practicable after a notice of termination under Sub-Clause 15.2 [Termination by Employer] has taken effect, the Employer shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine the value of the Works, Goods and Contractor's Documents, and any other sums due to the Contractor for work executed in accordance with the Contract. 15.4

Payment after Termination

After a notice of termination under Sub-Clause 15.2 [Termination by Employer] has taken effect, the Employer may: (a) proceed in accordance with Sub-Clause 2.5 [Employer'S Claims], (b) with-hold further payments to the Contractor until the costs of design, execution, completion and remedying of any defects, damages for delay in completion (if any), and all other costs incurred by the Employer, have been established, and/or (c) recover from the Contractor any losses and damages incurred by the Employer and any extra costs of completing the Works, after allowing for any sum due to the Contractor under Sub-Clause 15.3 [Valuation at Date of Termination]. After recovering any such losses, damages and extra costs, the Employer shall pay any balance to the Contractor. 15.5

Employer's Entitlement to Termination

The Employer shall be entitled to terminate the Contract, at any time for the Employer's convenience, by giving notice of such termination to the Contractor. The termination shall take effect 28 days after the later of the dates on which the Contractor receives this notice or the Employer returns the Performance Security. The Employer shall not terminate the Contract under this Sub-Clause in order to execute the Works himself or to arrange for the Works to be executed by another contractor. After this termination, the Contractor shall proceed in accordance with Sub-Clause 16.3 [Cessation of Work and Removal of Contractor's Equipment] and shall be paid in accordance with Sub-Clause 19.6 [Optional Termination, Payment and Release).

16 16.1

A1-16

Suspension and Termination by Contractor

Contractor's Entitlement to Suspend Work

If the Employer fails to comply with Sub-Clause 2.4 (Employer's Financial Arrangements] or Sub-Clause 14.7 [Timing of Payments], the Contractor may, after giving not less than 21 days' notice to the Employer, suspend work (or reduce the rate of work) unless and until the Contractor has received the reasonable evidence or payment, as the case may be and as described in the notice.

703

APPENDIX I

The Contractor's action shall not prejudice his entitlements to financing charges under Sub-Clause 14.8 [Delayed Payment] and to termination under Sub-Clause 16.2 [Termination by Contractor). lf the Contractor subsequently receives such evidence or payment (as described in the relevant Sub-Clause and in the above notice) before giving a notice of termination, the Contractor shall resume normal working as soon as is reasonably practicable. lf the Contractor suffers delay and/or incurs Cost as a result of suspending work (or reducing the rate of work) in accordance with this Sub-Clause, the Contractor shall give notice to the Employer and shall be entitled subject to Sub-Clause 20.1 [Contractor's Claims] to: (a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 8.4 [Extension of Time for Completion), and (b) payment of any such Cost plus reasonable profit, which shall be added to the Contract Price. After receiving this notice, the Employer shall proceed in accordance with Sub-Clause 3.5 [Determinations) to agree or determine these matters. 16.2

(a) (b) (c)

16.4

Payment on Termination

After a notice of termination under Sub-Clause 16.2 [Termination by Contractor] has taken effect, the Employer shall promptly: (a) return the Performance Security to the Contractor, (b) pay the Contractor in accordance with Sub-Clause 19.6 [Optional Termination, Payment and Release), and (c) pay to the Contractor the amount of any loss of profit or other loss or damage sustained by the Contractor as a result of this termination.

17 17.1

A1-17

Risk and Responsibility

Indemnities

The Contractor shall indemnify and hold harmless the Employer, the Employer's Personnel, and their respective agents, against and from all claims, damages, losses and expenses (including legal fees and expenses) in respect of: (a) bodily injury, sickness, disease or death, of any person whatsoever arising out of or in the course of or by reason of the design, execution and completion of the Works and the remedying of any defects, unless attributable to any negligence, wilful act or breach of the Contract by the Employer, the Employer's Personnel, or any of their respective agents, and (b) damage to or loss of any property, real or personal (other than the Works), to the extent that such damage or loss: (i) arises out of or in the course of or by reason of the design, execution and completion of the Works and the remedying of any defects, and (ii) is not attributable to any negligence, wilful act or breach of the Contract by the Employer, the Employer's Personnel, their respective agents, or anyone directly or indirectly employed by any of them. The Employer shall indemnify and hold harmless the Contractor, the Contractor's Personnel, and their respective agents, against and from all claims, damages, losses and expenses (including legal fees and expenses) in respect of (1) bodily injury, sickness, disease or death, which is attributable to any negligence, wilful act or breach of the Contract by the Employer, the Employer's Personnel, or any of their respective agents, and (2) the matters for which liability may be excluded from insurance cover, as described in sub-paragraphs (d)(i), (ii) and (iii) of Sub-Clause 18.3 [Insurance Against In;ury to Persons and Damage to Property).

Cessation of Work and Removal of Contractor's Equipment 17.2

After a notice of termination under Sub-Clause 15.5 [Employer's Entitlement to Termination), Sub-Clause 16.2 [Termination by Contractor) or Sub-Clause 19.6 [Optional Termination, Payment and Release] has taken effect, the Contractor shall promptly:

704

cease all further work, except for such work as may have been instructed by the Employer for the protection of life or property or for the safety of the Works, hand over Contractor's Documents, Plant, Materials and other work, for which the Contractor has received payment, and remove all other Goods from the Site, except as necessary for safety, and leave the Site.

Termination by Contractor

The Contractor shall be entitled to terminate the Contract if: (a) the Contractor does not receive the reasonable evidence within 42 days after giving notice under Sub-Clause 16.1 [Contractor's Entitlement to Suspend Work) in respect of a failure to comply with Sub-Clause 2.4 [Employer's Financial Arrangements), . (b) the Contractor does not receive the amount due within 42 days after the expiry of the time stated in Sub-Clause 14.7 [Timing of Payments) within which payment is to be made (except for deductions in accordance with Sub-Clause 2.5 [Employer's Claims)), (c) the Employer substantially fails to perform his obligations under the Contract, (d) the Employer fails to comply with Sub-Clause 1.7 [Assignment), (e) a prolonged suspension affects the whole of the Works as described in SubClause 8.11 [Prolonged Suspension), or (f) the Employer becomes bankrupt or insolvent, goes into liquidation, has a receiving or administration order made against him, compounds with his creditors, or carries on business under a receiver, trustee or manager for the benefit of his creditors, or if any act is done or event occurs which (under applicable Laws) has a similar effect to any of these acts or events. In any of these events or circumstances, the Contractor may, upon giving 14 days' notice to the Employer, terminate the Contract. However, in the case of sub-paragraph (e) or (f), the Contractor may by notice terminate the Contract immediately. The Contractor's election to terminate the Contract shall not prejudice any other rights of the Contractor, under the Contract or otherwise. 16.3

FIOIC: CONDITIONS OF CONTRACT

Contractor's Care of the Works

The Contractor shall take full responsibility for the care of the Works and Goods from the Commencement Date until the Taking-Over Certificate is issued (or is deemed to be issued under Sub-Clause 10.1 [Taking Over of the Works and Sections)) for the

705

APPENDIX I

Wo~ks, when responsibility for the care of the Works shall pass to the Employer. If a TakIng-Over Certificate is issued (or is so deemed to be issued) for any Section of the Works, responsibility for the care of the Section shall then pass to the Employer. After responsibility has accordingly passed to the Employer, the Contractor shall t~ke resp?nsibility for the care of any work which is outstanding on the date stated In a TakIng-Over Certificate, until this outstanding work has been completed. If any loss or damage happens to the Works, Goods or Contractor's Documents duri~g th~ period when the Contractor is responsible for their care, from any cause not Itsted In Sub-Clause 17.3 [Employer's Risks], the Contractor shall rectify the loss or damage at the Contractor's risk and cost, so that the Works, Goods and Contractor's Documents conform with the Contract. The Contractor shall be liable for any loss or damage caused by any actions performed by the Contractor after a Taking-Over Certificate has been issued. The Contractor shall also be liable for any loss or damage which occurs after a TakingOver Certificate has been issued and which arose from a previous event for which the Contractor was liable. 17.3

Employer's Risks

The risks referred to in Sub-Clause 17.4 below are: (a) war, ~ostilities (whether war be declared or not), invasion, a"ct of foreign enemIes, (b) rebellion, terrorism, revolution, insurrection, military or usurped power or civil war, within the Country, ' (c) riot, commotion or disorder within the Country by persons other than the Contractor's Personnel and other employees of the Contractor and Subcontractors, (d) munitions of war, explosive materials, ionising radiation or contamination by radio-activity, within the Country, except as may be attributable to the Contractor's use of such munitions, explosives, radiation or radio-activity, and (e) pressure waves caused by aircraft or other aerial devices travelling at sonic or supersonic speeds. 17.4

Consequences of Employer's Risks

If and to the extent that any of the risks listed in Sub-Clause 17.3 above results in loss or damage to the Works, Goods or Contractor's Documents the Contractor shall promptly give notice to the Employer and shall rectify this I~ss or damage to the extent required by the Employer. If the Contractor suffers delay and/or incurs Cost from rectifying this loss or damage~ the Contractor shall give a further notice to the Employer and shall be entitled subject to Sub-Clause 20.1 [Contractors Claims] to: an extension of time for any such delay, if completion is or will be delayed, (a) under Sub-Clause 8.4 [Extension of Time for Completion], and (b) payment of any such Cost, which shall be added to the Contract Price. After receiving this further notice, the Employer shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine these matters. 17.5

Intellectual and Industrial Property Rights

In this Sub-Clause, "infringement" means an infringement (or alleged infringement) of any patent, registered design, copyright, trade mark, trade name, trade secret or

706

FIDIC: CONDITIONS OF CONTRACT

other intellectual or industrial property right relating to the Works; and "claim" means a claim (or proceedings pursuing a claim), alleging an infringement. Whenever a Party does not give notice to the other Party of any claim within 28 days of receiving the claim, the first Party shall be deemed to have waived any right to indemnity under this Sub-Clause. The Employer shall indemnify and hold the Contractor harmless against and from any claim alleging an infringement which is or was: (a) an unavoidable result of the Contractor's compliance with the Employer's Requirements, or (b) a result of any Works being used by the Employer: (i) for a purpose other than that indicated by, or reasonably to be inferred from, the Contract, or (ii) in conjunction with any thing not supplied by the Contractor, unless such use was disclosed to the Contractor prior to the Base Date or is stated in the Contract. The Contractor shall indemnify and hold the Employer harmless against and from any other claim which arises out of or in relation to (i) the Contractor's design, manufacture, construction or execution of the Works, (ii) the use of Contractor's Equipment, or (iii) the proper use of the Works. If a Party is entitled to be indemnified under this Sub-Clause, the indemnifying Party may (at its cost) conduct negotiations for the settlement of the claim, and any litigation or arbitration which may arise from it. The other Party shall, at the request and cost of the indemnifying Party, assist in contesting the claim. This other Party (and its Personnel) shall not make any admission which might be prejudicial to the indemnifying Party, unless the indemnifying Party failed to take over the conduct of any negotiations, litigation or arbitration upon being requested to do so by such other Party. 17.6

Limitation of Liability

Neither Party shall be liable to the other Party for loss of use of any Works, loss of profit, loss of any contract or for any indirect or consequential loss or damage which may be suffered by the other Party in connection with the Contract, other than under Sub-Clause 16.4 [Payment on Termination] and Sub-Clause 17.1 [Indemnities]. The total liability of the Contractor to the Employer, under or in connection with the Contract other than under Sub-Clause 4.19 [Electricity, Water and Gas], SubClause 4.20 [Employers Equipment and Free-Issue Materia/] , Sub-Clause 17.1 [Indemnities] and Sub-Clause 17.5 [Intellectual and Industrial Property Rights], shall not exceed the sum stated in the Particular Conditions or (if a sum is not so stated) the Contract Price stated in the Contract Agreement. This Sub-Clause shall not limit liability in any case of fraud, deliberate default or reckless misconduct by the defaulting Party.

18

18.1

AI-18

Insurance

General Requirements for Insurances

In this Clause, "insuring Party" means, for each type of insurance, the Party responsible for effecting and maintaining the insurance specified in the relevant Sub-Clause. Wherever the Contractor is the insuring Party, each insurance shall be effected with insurers and in terms approved by the Employer. These terms shall be consistent with

707

FIDIC: CONDITIONS OF CONTRACT

APPENDIX I

any terms agreed by both Parries before they signed the Contract Agreement. This agreement of terms shall take precedence over the provisions of this Clause. Wherever the Employer is the insuring Party, each insurance shall be effected with insurers and in terms consistent with the details annexed to the Particular Conditions. If a policy is required to indemnify joint insured, the cover shall apply separately to each insured as though a separate policy had been issued for each of the joint insured. If a policy indemnifies additional joint insured, namely in addition to the insured specified in this Clause, (i) the Contractor shall act under the policy on behalf of these additional joint insured except that the Employer shall act for Employer's Personnel, (ii) additional joint insured shall not be entitled to receive payments directly from the insurer or to have any other direct dealings with the insurer, and (iii) the insuring Party shall require all additional joint insured to comply with the conditions stipulated in the policy. Each policy insuring against loss or damage shall provide for payments to be made in the currencies required to rectify the loss or damage. Payments received from insurers shall be used for the rectification of the loss or damage. The relevant insuring Party shall, within the respective periods stated in the Particular Conditions (calculated from the Commencement Date), submit to the other Party: (a) evidences that the insurances described in this Clause have been effected, and (b) copies of the policies for the insurances described in Sub-Clause 18.2 [Insurance of Works and Contractor's Equipment) and Sub-Clause 18.3 [Insurance against Injury to Persons and Damage to Property). When each premium is paid, the insuring Party shall submit evidence of payment to the other Party. Each Party shall comply with the conditions stipulated in each of the insurance policies. The insuring Party shall keep the insurers informed of any relevant changes to the execution of the Works and ensure that insurance is maintained in accordance with this Clause. Neither Party shall make any material alteration to the terms of any insurance without the prior approval of the other Party. If an insurer makes (or attempts to make) any alteration, the Party first notified by the insurer shall promptly give notice to the other Party. If the insuring Party fails to effect and keep in force any of the insurances it is required to effect and maintain under the Contract, or fails to provide satisfactory evidence and copies of policies in accordance with this Sub-Clause, the other Party may (at its option and without prejudice to any other right or remedy) effect insurance for the relevant coverage and pay the premiums due. The insuring Party shall pay the amount of these premiums to the other Party, and the Contract Price shall be adjusted accordingly. Nothing in this Clause limits the obligations, liabilities or responsibilities of the Contractor or the Employer, under the other terms of the Contract or otherwise. Any amounts not insured or not recovered from the insurers shall be borne by the Contractor and/or the Employer in accordance with these obligations, liabilities or responsibilities. However, if the insuring Party fails to effect and keep in force an insurance which is available and which it is required to effect and maintain under the Contract, and the other Party neither approves the omission nor effects insurance for the coverage relevant to this default, any moneys which should have been recoverable under this insurance shall be paid by the insuring Party.

708

Payments by one Party to the other Party shall ,be s~bject to Su~-Clause 2.5 [Employer's Claims) or Sub-Clause 20.1 [Contractors Clatms), as applicable. 18.2

Insurance for Works and Contractor's Equipment

The insuring Party shall insure the Works, Plant, Materials and Contractor's Documents for not less than the full reinstatement cost including the costs of demolition, removal of debris and professional fees and profit. This insurance shall be effective from the date by which the evidence is to be submitted under sub-paragraph (a) of Sub-Clause 18.1 [General Requirements for Insurances), until the date of issue of the Taking-Over Certificate for the Works. . . The insuring Party shall maintain this insurance to provide c~ver until the date ~f issue of the Performance Certificate, for loss or damage for which the Contractor IS liable arising from a cause occurring prior to the issue of the Taking-Over Certificate, and for loss or damage caused by the Contractor or Subcontractors in the course of any other operations (including those under Clause 11 [Defects Liability) and Clause 12 [Tests after Completion)). The insuring Party shall insure the Contractor's Equipment for not less than the full replacement value, including delivery to Site. For each item of Contracto~'s Equipment, the insurance shall be effective while it is being transported to the Site and until it is no longer required as Contractor's Equipment. Unless otherwise stated in the Particular Conditions, insurances under this SubClause: shall be effected and maintained by the Contractor as insuring Party, (a) shall be in the joint names of the Parties, who shall be jointly entitled to (b) receive payments from the insurers, payments being held or allocated between the Parties for the sole purpose of rectifying the loss or damage, (c) shall cover all loss and damage from any cause not listed in Sub-Clause 17.3 [Employer's Risks), (d) shall also cover loss or damage from the risks listed in sub-paragraph (c) of Sub-Clause 17.3 [Employer's Risks], with deductibles per occurrence of not more than the amount stated in the Particular Conditions (if an amount is not so stated, this sub-paragraph (d) shall not apply), and (e) may however exclude loss of, damage to, and reinstatement of: (i) a part of the Works which is in a defective condition due to a defect in its design, materials or workmanship (but cover shall include any other parts which are lost or damaged as a direct result of this defective condition and not as described in sub-paragraph (ii) below), (ii) a part of the Works which is lost or damaged in order to reinstate any other part of the Works if this other part is in a defective condition due to a defect in its design, materials or workmanship, (iii) a part of the Works which has been taken over by the Employer, except to the extent that the Contractor is liable for the loss or damage, and (iv) Goods while they are not in the Country, subject to Sub-Clause 14.5 [Plant and Materials intended for the Works). If, more than one year after the Base Date, the cover described in sub-paragraph (d) above ceases to be available at commercially reasonable terms, the Contractor shall (as insuring Party) give notice to the Employer, with supporting particulars. The Employer shall then (i) be entitled subject to Sub-Clause 2.5 [Employer's Claims] to payment of an amount equivalent to such commercially reasonable terms as the Contractor should have expected to have paid for such cover, and (ii) be deemed,

709

FIDIC: CONDITIONS OF CONTRACT

APPENDIX I

unl~ss. he obtains the cover at commercially reasonable terms, to have approved the omISSIOn under Sub-Clause 18.1 [General Requirements for Insurances]. 18.3

Insurance against Injury to Persons and Damage to Property

The insuring ~ar~y. shall in.sure against each Party's liability for any loss, damage, ~eath or bodIly injury whIch may occur to any physical property (except things Insured under Sub-Clause 18.2 (Insurance for Works and Contractor's Equipment]) or to any person (except persons insured under Sub-Clause 18.4 [Insurance for Contractor's Personnem, which may arise out of the Contractor's performance of the Contract and occurring before the issue of the Performance Certificate. This insurance shall be for a limit per occurrence of not less than the amount stated in the Particular Conditions, with no limit on the number of occurrences. If an amount is not stated in the Contract, this Sub-Clause shall not apply. Unless otherwise stated in the Particular Conditions, the insurances specified in this Sub-Clause: (a) shall be effected and maintained by the Contractor as insuring Party, (b) shall be in the joint names of the Parties, (c) shall be extended to cover liability for all loss and damage to the Employer's property (except things insured under Sub-Clause 18.2) arising out of the Contractor's performance of the Contract, and (d) may however exclude liability to the extent that it arises from: (i) the Employer's right to have the Permanent Works executed on ovet under, in or through any land, and to occupy this land f~r th; Permanent Works, ~amage which is an unavoidable result of the Contractor's obliga(ii) tIons to execute the Works and remedy any defects, and (iii) a cause listed in Sub-Clause 17.3 [Employer's Risks], except to the extent that cover is available at commercially reasonable terms. 18.4

Insurance for Contractor's Personnel

The Contractor shall effect and maintain insurance against liability for claims, damages, losses and expenses (including legal fees and expenses) arising from injury sickness, disease or death of any person employed by the Contractor or any other of the Contractor's Personnel. !~e Employer shall also be indemnified under the policy of insurance, except that thIS Insurance may exclude losses and claims to the extent that they arise from any act or neglect of the Employer or of the Employer's Personnel. The insurance shall be maintained in full force and effect during the whole time that these personnel are assisting in the execution of the Works. For a Subcontractor's employees, the i.nsurance may be effected by the Subcontractor, but the Contractor shall be responsIble for compliance with this Clause.

(b)

which such Party could not reasonably have provided against before entering into the Contract, (c) which, having arisen, such Party could not reasonably have avoided or overcome, and (d) which is not substantially attributable to the other Party. . Force Majeure may include, but is not limited to, exceptional events or. cIrcumstances of the kind listed below, so long as conditions (a) to (d) above are s~t1sfie~: (i) war, hostilities (whether war be declared or not), inVaSIOn, act of foreign enemies, (ii) rebellion, terrorism, revolution, insurrection, military or usurped power, or civil war, (iii) riot, commotion, disorder, strike or lockout by persons other than the Contractor's Personnel and other employees of the Contractor and Sub-contractors, (iv) munitions of war, explosive materials, ionising radiation or contamination by radio-activity, except as may be attributable to the Contractor's use of such munitions, explosives, radiation or radioactivity, and natural catastrophes such as earthquake, hurricane, typhoon or vol(v) canic activity. 19.2

Notice of Force Majeure

If a Party is or will be prevented from performing any of its obligations under the

Contract by Force Majeure, then it shall give notice to the ot~er Party ?f t~e event or circumstances constituting the Force Majeure and shall SpeCIfy the obhgatlons, the performance of which is or will be prevented. The notice shall be given within 14 days after the Party became aware, or should have become aware, of the relevant event or circumstance constituting Force Majeure. The Party shall, having given notice, be excused performance of such obligations for so long as such Force Majeure prevents it from performing t~em. Notwithstanding any other provision of this Clause, Force Majeure shall not apply to obligations of either Party to make payments to the other Party under the Contract. 19.3

Duty to Minimise Delay

Each Party shall at all times use all reasonable endeavours to minimise any delay in the performance of the Contract as a result of Force Majeure. A Party shall give notice to the other Party when it ceases to be affected by the Force Majeure. 19.4

Consequences of Force Majeure

If the Contractor is prevented from performing any of his obligations under the

AI-19

19 19.1

Force Majeure

Definition of Force Majeure

In this Clause, "Force Majeure" means an exceptional event or circumstance: (a) which is beyond a Party's control,

710

Contract by Force Majeure of which notice has been given under Sub-Clause 19.2 [Notice of Force Majeure], and suffers delay andlor incurs Cost by reason of such Force Majeure, the Contractor shall be entitled subject to Sub-Clause 20.1 [Contractor's Claims] to: (a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 8.4 [Extension of Time for Completion], and

711

FlDIC: CONDITIONS OF CONTRACT

APPENDIX I

(b)

if the event or circumstances is of the kind described in sub-paragraphs (i) to (iv) of Sub-Clause 19.1 [Definition of Force Majeure] and, in the case of sub-paragraphs (ii) to (iv), occurs in the Country, payment of any such Cost. After receiving this notice, the Employer shall proceed in accordance with Sub-Clause 3.5 [Determinations) to agree or determine these matters. 19.5

Optional Termination, Payment and Release

If the execution of substantially all the Works in progress is prevented for a continuous period of 84 days by reason of Force Majeure of which notice has been given under Sub-Clause 19.2 [Notice of Force Majeure), or for multiple periods which total more than 140 days due to the same notified Force Majeure, then either Party may give to the other Party a notice of termination of the Contract. In this event, the termination shall take effect 7 days after the notice is given, and the Contractor shall proceed in accordance with Sub-Clause 16.3 [Cessation of Work and Removal of Contractor's Equipment). Upon such termination, the Employer shall pay to the Contractor: (a) the amounts payable for any work carried out for which a price is stated in the Contract; (b) the Cost of Plant and Materials ordered for the Works which have been delivered to the Contractor, or of which the Contractor is liable to accept delivery: this Plant and Materials shall become the property of (and be at the risk of) the Employer when paid for by the Employer, and the Contractor shall place the same at the Employer's disposal; (c) any other Cost or liability which in the circumstances was reasonably incurred by the Contractor in the expectation of completing the Works; (d) the Cost of removal of Temporary Works and Contractor's Equipment from the Site and the return of these items to the Contractor's works in his country (or to any other destination at no greater cost); and (e) the Cost of repatriation of the Contractor's staff and labour employed wholly in connection with the Works at the date of termination. 19.7

Release from Performance under the Law

Notwithstanding any other provision of this Clause, if any event or circumstance outside the control of the Parties (including, but not limited to, Force Majeure) arises which makes it impossible or unlawful for either or both Parties to fulfil its or their contractual obligations or which, under the law governing the Contract, entitles the Parties to be released from further performance of the Contract, then upon notice by either Party to the other Party of such event or circumstance: (a) the Parties shall be discharged from further performance, without prejudice to the rights of either Party in respect of any previous breach of the Contract, and

712

the sum payable by the Employer to the Contractor shall be the same as would have been payable under Sub-Clause 19.6 [Optional Termination, Payment and Release) if the Contract had been terminated under SubClause 19.6.

20

Force Majeure Affecting Subcontractor

If any Subcontractor is entitled under any contract or agreement relating to the Works to relief from force majeure on terms additional to or broader than those specified in this Clause, such additional or broader force majeure events or circumstances shall not excuse the Contractor's non-performance or entitle him to relief under this Clause. 19.6

(b)

20.1

A1-20

Claims, Disputes and Arbitration

Contractor's Claims

If the Contractor considers himself to be entitled to any extension of the Time for Completion and/or any additional payment, under any Clause of these Conditions or otherwise in connection with the Contract, the Contractor shall give notice to the Employer, describing the event or circumstance giving rise to the claim. The notice shall be given as soon as practicable, and not later than 28 days after the Contractor became aware, or should have become aware, of the event or circumstance. If the Contractor fails to give notice of a claim within such period of 28 days, the Time for Completion shall not be extended, the Contractor shall not be entitled to additional payment, and the Employer shall be discharged from all liability in connection with the claim. Otherwise, the following provisions of this Sub-Clause shall apply. The Contractor shall also submit any other notices which are required by the Contract, and supporting particulars for the claim, all as relevant to such event or circumstance. The Contractor shall keep such contemporary records as may be necessary to substantiate any claim, either on the Site or at another location acceptable to the Employer. Without admitting liability, the Employer may, after receiving any notice under this Sub-Clause, monitor the record-keeping and/or instruct the Contractor to keep further contemporary records. The Contractor shall permit the Employer to inspect all these records, and shall (if instructed) submit copies to the Employer. Within 42 days after the Contractor became aware (or should have become aware) of the event or circumstance giving rise to the claim, or within such other period as may be proposed by the Contractor and approved by the Employer, the Contractor shall send to the Employer a fully detailed claim which includes full supporting particulars of the basis of the claim and of the extension of time and/or additional payment claimed. If the event or circumstance giving rise to the claim has a continuing effect: (a) this fully detailed claim shall be considered as interim; (b) the Contractor shall send further interim claims at monthly intervals, giving the accumulated delay and/or amount claimed, and such further particulars as the Employer may reasonably require; and (c) the Contractor shall send a final claim within 28 days after the end of the effects resulting from the event or circumstance, or within such other period as maY,be proposed by the Contractor and approved by the Employer. Within 42 days after receiving a claim or any further particulars supporting a previous claim, or within such other period as may be proposed by the Employer and approved by the Contractor, the Employer shall respond with approval, or with disapproval and detailed comments, He may also request any necessary further particulars, but shall nevertheless give his response on the principles of the claim within such time. Each interim payment shall include such amounts for any claim as have been

713

FIOIC: CONDITIONS OF CONTRACT

APPENDIX I

reasonably substantiated as due under the relevant provision of the Contract. Unless and until the particulars supplied are sufficient to substantiate the whole of the claim, the Contractor shall only be entitled to payment for such part of the claim as he has been able to substantiate. The Employer shall proceed in accordance with Sub-Clause 3.5 [Determinations) to agree or determine (i) the extension (if any) of the Time for Completion (before or after its expiry) in accordance with Sub-Clause 8.4 [Extension of Time for Completion), and/or (ii) the additional payment (if any) to which the Contractor is entitled under the Contract. The requirements of this Sub-Clause are in addition to those of any other SubClause which may apply to a claim. If the Contractor fails to comply with this or another Sub-Clause in relation to any claim, any extension of time and/or additional payment shall take account of the extent (if any) to which the failure has prevented or prejudiced proper investigation of the claim, unless the claim is excluded under the second paragraph of this Sub-Clause. 20.2

Appointment of the Dispute Adjudication Board

Disputes shall be adjudicated by a DAB in accordance with Sub-Clause 20.4 [Obtaining Dispute Adjudication Board's Decision). The Parties shall jointly appoint a DAB by the date 28 days after a Party gives notice to the other Party of its intention to refer a dispute to a DAB in accordance with Sub-Clause 20.4. The DAB shall comprise, as stated in the Particular Conditions, either one or three suitably qualified persons ("the members"). If the number is not so stated and the Parties do not agree otherwise, the DAB shall comprise three persons. If the DAB is to comprise three persons, each Party shall nominate one member for the approval of the other Party. The Parties shall consult both these members and shall agree upon the third member, who shall be appointed to act as chairman. However, if a list of potential members is included in the Contract, the members shall be selected from those on the list, other than anyone who is unable or unwilling to accept appointment to the DAB. The agreement between the Parties and either the sole member ("adjudicator") or each of the three members shall incorporate by reference the General Conditions of Dispute Adjudication Agreement contained in the Appendix to these General Conditions, with such amendments as are agreed between them. The terms of the remuneration of either the sole member or each of the three members, shall be mutually agreed upon by the Parties when agreeing the terms of appointment. Each Party shall be responsible for paying one-half of this remuneration. If at any time the Parties so agree, they may appoint a suitably qualified person or persons to replace anyone or more members of the DAB. Unless the Parties agree otherwise, the appointment will come into effect if a member declines to act or is unable to act as a result of death, disability, resignation or termination of appointment. The replacement shall be appointed in the same manner as the replaced person was required to have been nominated or agreed upon, as described in this SubClause. The appointment of any member may be terminated by mutual agreement of both Parties, but not by the Employer or the Contractor acting alone. Unless otherwise agreed by both Parties, the appointment of the DAB (including each member) shall expire when the DAB has given its decision on the dispute referred to it under SubClause 20.4, unless other disputes have been referred to the DAB by that time under

714

Sub-Clause 20.4, in which event the relevant date shall be when the DAB has also given decisions on those disputes. 20.3

Failure to Agree Dispute Adjudication Board

If any of the following conditions apply, namely: (a) the Parties fail to agree upon the appointment of the sole member of the DAB by the date stated in the first paragraph of Sub-Clause 20.2 [Appointment of the Dispute Adjudication Board), (b) either Party fails to nominate a member (for approval by the other Party) of a DAB of three persons by such date, (c) the Parties fail to agree upon the appointment of the third member (to act as chairman) of the DAB by such date, or (d) the Parties fail to agree upon the appointment of a replacement person within 42 days after the date on which the sole member or one of the three members declines to act or is unable to act as a result of death, disability, resignation or termination of appointment, then the appointing entity or official named in the Particular Conditions shall, upon the request of either or both of the Parties and after due consultation with both Parties, appoint this member of the DAB. This appointment shall be final and conclusive. Each Party shall be responsible for paying one-half of the remuneration of the appointing entity or official. 20.4

Obtaining Dispute Adjudication Board's Decision

If a dispute (of any kind whatsoever) arises between the Parties in connection with, or arising out of, the Contract or the execution of the Works, including any dispute as to any certificate, determination, instruction, opinion or valuation of the Employer, then after a DAB has been appointed pursuant to Sub-Clauses 20.2 [Appointment of the DAB) and 20.3 [Failure to Agree DAB), either Party may refer the dispute in writing to the DAB for its decision, with a copy to the other Party. Such reference shall state that it is given under this Sub-Clause. For a DAB of three persons, the DAB shall be deemed to have received such reference on the date when it is received by the chairman of the DAB. Both Parties shall promptly make available to the DAB all information, access to the Site, and appropriate facilities, as the DAB may require for the purposes of making a decision on such dispute. The DAB shall be deemed to be not acting as arbitrator{s). Within 84 day~ after receiving such reference, or the advance payment referred to in Clause 6 of the Appendix-General Conditions of the Dispute Adjudication Agreement, whichever date is later, or within such other period as may be proposed by the DAB and approved by both Parties, the DAB shall give its decision, which shall be reasoned and shall state that it is given under this Sub-Clause. However, if neither of the Parties has paid in full the invoices submitted by each Member pursuant to Clause 6 of the Appendix, the DAB shall not be obliged to give its decision until such invoices have been paid in full. The decision shall be bindIng on both Parties, who shall promptly give effect to it unless and until it shall be revised in an amicable settlement or an arbitral award as described below. Unless the Contract has already been abandoned, repudiated or terminated, the Contractor shall continue to proceed with the Works in accordance with the Contract. If either Party is dissatisfied with the DAB's decision, then either Party may, within 28 days after receiving the decision, give notice to the other Party of its

715

FIDIC: CONDITIONS OF CONTRACT

APPENDIX I

dissatisfaction. If the DAB fails to give its decision within the period of 84 days (or as otherwise approved) after receiving such reference or such payment, then either Party may, within 28 days after this period has expired, give notice to the other Party of its dissatisfaction. In either event, this notice of dissatisfaction shall state that it is given under this Sub-Clause, and shall set out the matter in dispute and the reason(s) for dissatisfaction. Except as stated in Sub-Clause 20.7 [Failure to Comply with Dispute Adjudication Board's Decision) and Sub-Clause 20.8 [Expiry of Dispute Adjudication Board's Appointment), neither Party shall be entitled to commence arbitration of a dispute unless a notice of dissatisfaction has been given in accordance with this Sub-Clause. If the DAB has given its decision as to a matter in dispute to both Parties, and no notice of dissatisfaction has been given by either Party within 28 days after it received the DAB's decision, then the decision shall become final and binding upon both Parties.

20.5

Arbitration

Unless settled amicably, any dispute in respect of which the DAB's decision (if any) has not become final and binding shall be finally settled by international arbitration. Unless otherwise agreed by both Parties: (a) the dispute shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce, (b) the dispute shall be settled by three arbitrators appointed in accordance with these Rules, and (c) the arbitration shall be conducted in the language for communications defined in Sub-Clause 104 [Law and Language). The arbitrator(s) shall have full power to open up, review and revise any certificate, determination, instruction, opinion or valuation of (or on behalf of) the Employer, and any decision of the DAB, relevant to the dispute. Neither Party shall be limited in the proceedings before the arbitrator(s) to the evidence or arguments previously put before the DAB to obtain its decision, or to the reasons for dissatisfaction given in its notice of dissatisfaction. Any decision of the DAB shall be admissible in evidence in the arbitration. Arbitration may be commenced prior to or after completion of the Works. The obligations of the Parties and the DAB shall not be altered by reason of any arbitration being conducted during the progress of the Works.

20.7

Failure to Comply with Dispute Adjudication Board's Decision

In the event that: (a) neither Party has given notice of dissatisfaction within the period stated in Sub-Clause 2004 [Obtaining Dispute Adjudication Board's Decision),

716

20.8

Expiry of Dispute Adjudication Board's Appointment

If a dispute arises between the Parties in connection with, or arising out of, the Contract or the execution of the Works and there is no DAB in place, whether by reason of the expiry of the DAB's appointment or otherwise: (a) Sub-Clause 2004 [Obtaining Dispute Adjudication Board's Decision) and Sub-Clause 20.5 [Amicable Settlement) shall not apply, and (b) the dispute may be referred directly to arbitration under Sub-Clause 20.6 [Arbitration).

Amicable Settlement

Where notice of dissatisfaction has been given under Sub-Clause 2004 above, both Parties shall attempt to settle the dispute amicably before the commencement of arbitration. However, unless both Parties agree otherwise, arbitration may be commenced on or after the fifty-sixth day after the day on which notice of dissatisfaction was given, even if no attempt at amicable settlement has been made.

20.6

(b) the DAB's related decision (if any) has become final and binding, and (c) a Party fails to comply with this decision, then the other Party may, without prejudice to any other rights it may have, refer the failure itself to arbitration under Sub-Clause 20.6 [Arbitration). Sub-Clause 2004 [Obtaining Dispute Adjudication Board's Decision) and Sub-Clause 20.5 [Amicable Settlement) shall not apply to this reference.

APPENDIX Al-21

General Conditions of Dispute Adjudication Agreement 1

Definitions

Each "Dispute Adjudication Agreement" is a tripartite agreement by and between: (a) the "Employer"; (b) the "Contractor"; and (c) the "Member" who is defined in the Dispute Adjudication Agreement as being: (i) the sole member of the "DAB" (or "adjudicator") and, where this is the case, all references to the "Other Members" do not apply, or (ii) ~ne of the three persons who are jointly called the "DAB" (or "dispute adjudication board") and, where this is the case, the other two persons are called the "Other Members". The Employer and the Contractor have entered (or intend to enter) into a contract, which is called the "Contract" and is defined in the Dispute Adjudication Agreement, which incorporates this Appendix. In the Dispute Adjudication Agreement, words and expressions which are not otherwise defined shall hav/! the meanings assigned to them in the Contract. 2

General Provisions

The Dispute Adjudication Agreement shall take effect when the Employer, the Contractor and each of the Members (or Member) have respectively each signed a dispute adjudication agreement. When the Dispute Adjudication Agreement has taken effect, the Employer and the Contractor shall each give notice to the Member accordingly. If the Member does not receive either notice within six months after entering into the Dispute Adjudication Agreement, it shall be void and ineffective. This employment of the Member is a personal appointment. No assignment or

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sub-contracting of the Dispute Adjudication Agreement is permitted without the prior written agreement of all the parties to it and of the Other Members (if any). 3

Warranties

The Member warrants and agrees that he/she is and shall be impartial and independent of the Employer, the Contractor and the Employer's Representative. The Member shall promptly disclose, to each of them and to the Other Members (if any), any fact or circumstance which might appear inconsistent with his/her warranty and agreement of impartiality and independence. When appointing the Member, the Employer and the Contractor relied upon the Member's representations that he/she is: (a) experienced in the work which the Contractor is to carry out under the Contract, (b) experienced in the interpretation of contract documentation, and (c) fluent in the language for communications defined in the Contract. 4

General Obligations of the Member

The Member shall: (a) have no interest financial or otherwise in the Employer or the Contractor, nor any financial interest in the Contract except for payment under the Dispute Adjudication Agreement; (b) not previously have been employed as a consultant or otherwise by the Employer or the Contractor, except in such circumstances as were disclosed in writing to the Employer and the Contractor before they signed the Dispute Adjudication Agreement; (c) have disclosed in writing to the Employer, the Contractor and the Other Members (if any), before entering into the Dispute Adjudication Agreement and to his/her best knowledge and recollection, any professional or personal relationships with any director, officer or employee of the Employer or the Contractor, and any previous involvement in the overall project of which the Contract forms part; (d) not, for the duration of the Dispute Adjudication Agreement, be employed as a consultant or otherwise by the Employer or the Contractor, except as may be agreed in writing by the Employer, the Contractor and the Other Members (if any); (e) comply with the annexed procedural rules and with Sub-Clause 2004 of the Conditions of Contract; (f) not give advice to the Employer, the Contractor, the Employer's Personnel or the Contractor's Personnel concerning the conduct of the Contract, other than in accordance with the annexed procedural rules; (g) not while a Member enter into discussions or make any agreement with the Employer or the Contractor regarding employment by any of them, whether as a consultant or otherwise, after ceasing to act under the Dispute Adjudication Agreement; (h) ensure his/her availability for any site visit and hearings as are necessary; and (i) treat the details of the Contract and all the DAB's activities and hearings as private and confidential, and not publish or disclose them without the prior written consent of the Employer, the Contractor and the Other Members (if any).

718

5

General Obligations of the Employer and the Contractor

The Employer, the Contractor, the Employer's Personnel and the Contractor's Personnel shall not request advice from or consultation with the Member regarding the Contract, otherwise than in the normal course of the DAB's activities under the Contract and the Dispute Adjudication Agreement, and except to the extent that prior agreement is given by the Employer, the Contractor and the Other Members (if any). The Employer and the Contractor shall be responsible for compliance with this provision, by the Employer's Personnel and the Contractor's Personnel respectively. The Employer and the Contractor undertake to each other and to the Member that the Member shall not, except as otherwise agreed in writing by the Employer, the Contractor, the Member and the Other Members (if any): (a) be appointed as an arbitrator in any arbitration under the Contract; (b) be called as a witness to give evidence concerning any dispute before arbitrator(s) appointed for any arbitration under the Contract; or (c) be liable for any claims for anything done or omitted in the discharge or purported discharge of the Member's functions, unless the act or omission is shown to have been in bad faith. The Employer and the Contractor hereby jointly and severally indemnify and hold the Member harmless against and from claims from which he/she is relieved from liability under the preceding paragraph. 6

Payment

The Member shall be paid as follows, in the currency named in the Dispute Adjudication Agreement: (a) a daily -fee which shall be considered as payment in full for: (i) each working day spent reading submissions, attending hearings (if any), preparing decisions, or making site visits (if any); and (ii) each day or part of a day up to maximum of two day's travel time in each direction for the journey (if any) between the Member's home and site or another location of a meeting with Other Members (if any) and/or the Employer and the Contractor; : (b) all reasonable expenses incurred in connection with the Member's duties, including the cost of secretarial services, telephone calls, courier charges, faxes and telexes, travel expenses, hotel and subsistence costs; a receipt shall be required for each item in excess of five percent of the daily fee referred to in sub-paragraph (a) of this Clause; and (c) any taxes properly levied in the Country on payments made to the Member (unless a national or permanent resident of the Country) under this Clause 6. The daily fee shall be as specified in the Dispute Adjudication Agreement. Immediately after the Dispute Adjudication Agreement takes effect, the Member shall, before engaging in any activities under the Dispute Adjudication Agreement, submit to the Contractor, with a copy to the Employer, an invoice for (a) an advance of twenty-five (25) percent of the estimated total amount of daily fees to which he/she will be entitled and (b) an advance equal to the estimated total expenses that he/she shall incur in connection with his/her duties. Payment of such invoice shall be made by the Contractor upon his receipt of the invoice. The Member shall not be obliged to engage in activities under the Dispute Adjudication Agreement until each Member has been paid in full for invoices submitted under this paragraph.

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I

Thereafter the Member shall submit to the Contractor, with a copy to the Employer, invoices for the balance of his/her daily fees and expenses, less the amounts advanced. The DAB shall not be obliged to render its decision until invoices for all daily fees and expenses of each Member for making a decision shall have paid in full. Unless paid earlier in accordance with the above, the Contractor shall pay each of the Member's invoices in full within 28 calendar days after receiving each invoice and shall apply to the Employer (in the Statements under the Contract) for reimbursement of one-half of the amounts of these invoices. The Employer shall then pay the Contractor in accordance with the Contract. If the Contractor fails to pay to the Member the amount to which he/she is entitled under the Dispute Adjudication Agreement, the Employer shall pay the amount due to the Member and any other amount which may be required to maintain the operation of the DAB; and without prejudice to the Employer's rights or remedies. In addition to all other rights arising from this default, the Employer shall be entitled to reimbursement of all sums paid in excess of one-half of these payments, plus all costs of recovering these sums and financing charges calculated at the rate specified in Sub-Clause 14.8 of the Conditions of Contract. If the Member does not receive payment of the amount due within 28 days after submitting a valid invoice, the Member may (i) suspend his/her services (without notice) until the payment is received, and/or (ii) resign his/her appointment by giving notice to the Employer and the Contractor. The notice shall take effect when received by them both. Any such notice, shall be final and binding on the Employer, the Contractor and the Member. 7

Default of the Member

If the Member fails to comply with any obligation under Clause 4, he/she shall not be entitled to any fees or expenses hereunder and shall, without prejudice to their other rights, reimburse each of the Employer and the Contractor for any fees and expenses received by the Member and the Other Members (if any), for proceedings or decisions (if any) of the DAB which are rendered void or ineffective. 8

Default of the Member

Any dispute or claim arising out of or in connection with this Dispute Adjudication Agreement, or the breach, termination or invalidity thereof, shall be finally settled un~er the Rules of Arbitration of the International Chamber of Commerce by one arbItrator appointed in accordance with these Rules of Arbitration.

ANNEX PROCEDURAL RULES A1-22

1 The Employer and the Contractor shall furnish to the DAB one copy of all documents which the DAB may request, including Contract documents, progress reports, variation instructions, certificates and other documents pertinent to the matter in dispute. All communications between the DAB and the Employer or the Contractor shall be copied to the other Party. If the DAB comprises three persons, the Employer and the Contractor shall send copies of these requested documents and these communications to each of these persons.

720

2 The DAB shall proceed in accordance with Sub-Clause 20.4 and these Rules. Subject to the time allowed to give notice of a decision and other relevant factors, the DAB shall: (a) act fairly and impartially as between the E~ployer an~ the ~ontractor, giving each of them a reasonable opportunIty of puttIng hIs case and responding to the other's case, and (b) adopt procedures suitable to the dispute, avoiding unnecessary delay or expense. . . ., 3 The DAB may conduct a hearing on the dispute, in whIch event It WIll deCIde on the date and place for the hearing and may request that written documentation and arguments from the Employer and the Contractor be presented to it prior to or at the hearing. 4 Except as otherwise agreed in writing by the Employer and the Contra.ct~r, the DAB shall have power to adopt an inquisitorial procedure, to refuse admISSIon to hearings or audience at hearings to any persons other than representatives of the Employer and the Contractor, and to proceed in the absence of ~ny p~rty who ~he DAB is satisfied received notice of the hearing; but shall have dIscretIon to deCIde whether and to what extent this power may be exercised. 5 The Employer and the Contractor empower the DAB, among other things, to: establish the procedure to be applied in deciding a dispute, (a) decide ~pon the DAB's own jurisdiction, and as to the scope of any dispute (b) referred to it, conduct any hearing as it thinks fit, not being bound by any rules or proce(c) dures other than those contained in the Contract and these Rules, take the initiative in ascertaining the fact and matters required for a deci(d) sion, (e) make use of its own specialist knowledge, if any,: (f) decide upon the payment of financing charges in accordance with the Contract, (g) decide upon any provisional relief such as interim or conservatory measures, and (h) open up, review and revise any certificate, decision, determination, instruction, opinion or valuation of the Employer, relevant to the dispute. 6 The DAB shall not express any opinions during any hearing concerning the merits of any arguments advanced by the Parties. Thereafter, the DAB shall make and give notice to its decision in accordance with Sub-Clause 20.4, or as ~therwise agreed by the Employer and the Contractor in writing. If the DAB compnses three persons: (a) it shall convene in private after a hearing, if any, in order to have discussions and prepare its decision; (b) it shall endeavour to reach a unanimous decision: if this proves impossible, the applicable decision shall be made by a majority of the Members, who may require the minority Member to prepare a written report for submission to the Employer and the Contractor; and (c) if a Member fails to attend a meeting or hearing, or to fulfil any required function, the other two Members may nevertheless proceed to make a decision, unless: (i) either the Employer or Contractor does not agree that they do so, or (ii) the absent Member is the chairman, and he/she instructs the other Members to not make a decision.

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FIDIC: CONDITIONS OF CONTRACT

GUIDANCE FOR THE PREPARATION OF PARTICULAR CONDITIONS Introduction Al-23

The Terms of the Conditions of Contract for EPClTurnkey Projects have been prepared by the Federation Internationale des Ingenieurs-Conseils (FIOIC) and are rec~mme~ded ~here one entity takes total responsibility for an engineering project, Includl,ng deslg~, ~anufactu~e, d~livery and installation of plant, and the design and executIOn of bUilding or engineering works, tenders having been invited on an intern~ti~nal basi~, Modi~cations to the Conditions may be required in some legal jurisdictIOns, particularly If they are to be used on domestic contracts. M,ajor turnk~y projects ~ay require some negotiation between the panies. Having studied the variety of optIOns offered by tenderers, the Employer may consider it esse~tial to meet and discuss with them the technical options which the Employer considers preferable. Under the usual arrangements for this type of contract, the Contractor carries out the Engineering, Procurement and Construction and provides a fully-equipped facility, ready for operation (at the "turn of the key"). , ~he gui?ance herea,frer is intended to assist writers of the Particular Conditions by g1V1n~ op~l~ns for varIOUS sub-clauses where appropriate. As far as possible, example ~ordlng IS Included, between lines. In some cases, however, only an aide-memoire is given. Before incorporating any example wording, it must be checked to ensure that it is wholly suitable for the particular circumstances. Unless it is considered suitable example wording should be amended before use. ' Where example wording is amended, and in all cases where other amendments or a~ditions are made, car.e.must be taken to ensure that no ambiguity is created, either With the General Condltlons or between the clauses in the Particular Conditions. In the preparation of the Conditions of Contract to be included in the tender documents for a contract, the following text can be used: The C~nditio,n,s of Contract comprise the "General Conditions", which form part ~f the Condlt1?n~ of.Contract for EPClTurnkey Projects" First Edition 1999 published by the Federation Internationale des Ingenieurs-Conseils (FIOIC) and the following "Particular Conditions", which include amendments and additions to such General Conditions. The following Sub-Clauses of the General Conditions require data to be included in the Particular Conditions: 1.1.3.3 & 8.2 1.1.3.7 & 11.1 1.1.5.6 1.3 1.4 2.1 4.2 4.4 8.7112.4 & 14.15(d) 13.8 14.2

722

Time for Completion Defects Notification Period Definition of each Section, if any Electronic systems for communications Laws and languages Time for possession of the Site Performance Security Notice of Subcontractors Delay/performance damages Adjustments for changes in Cost Advance payment(s)

14.3(c)

17.6 18.1 18.2(d) 18.3 20.2 20.3

Retention Limitation of liability Employer's insurance (if any). Evidence of insurances Insurance of Employer's risks Insurance against injury to persons and damage to property Number of members of the dispute adjudication board Appointing entity for the dispute adjudication board

Notes on the Preparation of Tender Documents

The tender documents should be prepared by suitably-qualified engineers who are familiar with the technical aspects of the required works, and a review of suitably-qualified lawyers may be advisable. The tender documents issued to tenderers will consist of the Conditions of Contract and the Employer's Requirements, and (possibly) the preferred form for the Letter of Tender. In addition, each of the Tenderers should receive the data referred to in Sub-Clause 4.10, and the Instructions to Tenderers to advise them of any matters which the Employer wishes them to include in their Tender but which do not form part of the Employer's Requirements for the Works. When the Contract Agreement is signed by the Employer and the Contractor, the Contract (which then comes into full force and effect) includes the Tender and any memoranda annexed to the Contract Agreement. : The Employer's Requirements should specify the particular requirements for the completed Works on a functional basis, including detailed requirements on quality and scope, and may require the Contractor to supply items such as consumables. The matters referred to in some or all of the following Sub-Clauses might be included: 1.8 Number of copies of Contractor's Documents 1.13 Permissions obtained by the Employer 2.1 Phased possession of foundations, structures, plant or means of access 4.1 Intended purposes for which the Works are required Other contractors (and others) on the Site 4.6 4.7 Setting-out points, lines and levels of reference 4.18 Environmental constraints 4.19 Electricity, water, gas and other services available on the Site 4.20 Employer's Equipment and free-issue material 5.1 Requirements, data and information for which the Employer is responsible 5.2 Contractor's Documents required for review 5.4 Technical standards and building regulations 5.5 Operational training for the Employer's Personnel 5.6 As-built drawings and other records of the Works 5.7 Operation and maintenance manuals 6.6 Facilities for Personnel 7.2 Samples Off-Site inspection requirements 7.3 7.4 Testing during manufacture and/or construction 9.1 Tests on Completion 9.4 Damages for failure to pass Tests on Completion' 12.1 Tests afrer Completion 12.4 Damages for failure to pass Tests after Completion

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APPENDIX I

Many Sub-Clauses in the General Conditions make reference to the Particular Conditions for such data as would typically be specified by the Employer, or to the Tender for such data as would typically be specified by the tenderer. The Instructions to Tenderers may need to specify any constraints on the data proposed in the Tender, and/or specify the extent of other information which each Tenderer is to include with his Tender. If each Tenderer is to produce a parent company guarantee and/or a tender security, these requirements (which apply prior to the Contract becoming effective) should be included in the Instructions to Tenderers: example forms are annexed to this document as Annexes A and B. The Instructions may include matters referred to in some or all of the following SubClauses: 4.3 4.9 9.1 12.1

18 20

Contractor's Representative (name and curriculum vitae) Quality Assurance system Tests on Completion Tests after Completion Insurances Resolution of disputes

Turnkey contracts typically include design, construction, fixtures, fittings and equipment (f.f.e.), the scope of which should be defined in the Employer's Requirements. Full consideration should be given to detailed requirements, such as the extent to which the Works are to be fully equipped, ready for operation, with spare parts and consumables provided for operation for a specified period. In addition, the Contractor may be required to operate the Works, either for a few months' trial operation period under Sub-Clause 9.1(c), or for some years' operation. Understandably, tenderers are often reluctant, in the face of intense competition, to incur great expense in the preparation of tender designs. When preparing the Instructions to Tenderers, thought should be given as to the extent of detail which tenderers can realistically be expected to prepare and include in their Tenders. The extent of detail required should be described in the Instructions to Tenderers. Note that there can be no description in the documents which will constitute the Contract, which only comes into full force and effect when the Agreement is signed. Consideration may be given to offering some remuneration to tenderers if, in order to provide a responsive Tender, they have to undertake studies or carry out design work of a conceptual nature.

Al-24 Sub-Clause 1.1

Clause 1 Definitions

Interpretation

If the references to "profit" are to be more precisely specified, this Sub-Clause may be varied: EXAMPLE

At the end of Sub-Clause 1.2, insert: In these Conditions, provisions including the expres.sion "~ost pl~s reasonable profit" require this profit to be one-twentieth (5 Yo) of thIS Cost.

Sub-Clause 1.3 . Communications The Particular Conditions should specify the systems of electronic,com~unications (if any), and may also specify the address for the Contractor s notIces to the Employer. Sub-Clause 1.4

Laws and Language

The Particular Conditions should specify: (a) the law which will govern the Contract, (b) (if any part of the Contract has been written in one language and then translated) the ruling language, and . (c) (if communications are not to be written in the same la.ngu.age as that m which the Contract is written) the language for commUnications. Sub-Clause 1.5

Priority of Documents

An order of precedence is usually necessary, in case a conflict is subsequen~ly foun~ among the contract documents. If no order of precedence is to be preSCribed, thIS Sub-Clause may be varied: EXAMPLE

Delete Sub-Clause 1.5 and substitute: The documents forming the Contract are to be taken as mutually explanatory of one another. If an ambiguity or discrepancy ~s found, the priority shall be such as may be accorded by the governmg law.

General Provisions

The Particular Conditions should specify the Time for Completion for the Works, and the Defects Notification Period. If the Works are to be taken-over in stages, which is unusual under a turnkey contract, the Particular Conditions should specify each stage as a Section, and should define its scope, geographical extent and Time for Completion. It may be necessary to amend some of the definitions. For example: 1.1.3.1 the Base Date could be defined as a particular calendar date 1.1.4.4 one particular Foreign Currency may be required by the financing institution 1.1.4.5 a different currency may be required to be the contract Local Currency 1.1.6.2 the references to "Country' may be inappropriate for a cross-border Site

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Sub-Clause 1.2

Sub-Clause 1.6

Contract Agreement

The Contract Agreement is the document which brings the Contract into effect, and is usually preceded by negotiation. The Contract Agr~ement s~ould therefore be drawn up with care. The form of Agreement should be mcluded m. t~e tender documents as an annex to the Particular Conditions: an example form IS mcluded at the end of this publication. The Contract Agreement must state the name of each Party, the Contract Pric~~ the currencies of payment, the amount due in each currency, and any pre-condItIOns which are to be satisfied before the Contract comes into full force and effect: all as agreed by the Parties. If lengthy tender negotiations were necessary, it may be considered advisable for the Contract Agreement to record the Base Date and/or Commencement Date also.

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FIDIC: CONDITIONS OF CONTRACT

APPENDIX I

If the Employer wished to anticipate the possibility of issuing a letter of acceptance, the Sub-Clause may be amended by deleting the first sentence, which states that the Contract comes into full force and effect when the Parties sign the Contract Agreement. The Letter of Tender should then include the following paragraph: "Unless and until a formal Agreement is prepared and executed this Letter of Tender, together with your written acceptance thereof, shall constitute a binding contract between us."

Employer's Requirements. Sub-Clause 2.3

Employer's Personnel

These provisions should be reflected in the Employer's contracts with any other contractors on the Site.

Clause 3 Sub-Clause 1.10

Employer's Use of Contractor's Documents Sub-Clause 3.1

Additional provisions may be required, if all rights to particular items of computer software (for example) are to be assigned to the Employer. The provisions should take account of the applicable Laws. Sub-Clause 1.13

Compliance with Laws

The Employer's Representative

Although the Employer is not required to appoint a representative, such an appointment may assist the Employer's administration. If the Employer wishes to appoint an independent consulting engineer as the Employer's Representative, he may be named in the Particular Conditions.

If the Employer is to arrange import permits and the like, alternative provisions may be appropriate: EXAMPLE SUB-CLAUSE FOR A PLANT CONTRACT Insert at the end of Sub-Clause 1.13: However, the Contractor shall submit, in good time, the details of Goods to the Employer, who shall then promptly obtain all import permits or licences required for these Goods. The Employer shall also obtain or grant all consents including permits-to-work, wayleaves and approvals required for the Works. Sub-Clause 1.14

Clause 2 Sub-Clause 2.1

Sub-Clause 4.2

A1-27

The Contractor

Perfonnance Security

The Particular Conditions should specify the amount and currencies of the Performance Security, unless it is not required. EXAMPLE

The amount of the Performance Security shall be ten percent (10%) of the Contract Price stated in the Contract Agreement, and shall be expressed in the currencies and proportions in which the Contract Price is payable.

The acceptable form(s) of Performance Security should be included in the tender documents, annexed to the Particular Conditions. Example forms are annexed to this document as Annex C and Annex D. They incorporate two sets of Uniform Rules published by the International Chamber of Commerce (the "ICC", which is based at 38 Cours Albert ler, 75008 Paris, France), which also publishes guides to these Uniform Rules. These example forms and the wording of'the Sub-Clause may have to be amended to comply with applicable law. EXAMPLE

The Employer

Right of Access to the Site

The Particular Conditions should specify the time(s) by which the Employer will give the Contractor right of access to the Site, if after the Commencement Date. It may be essential for the Contractor to have early access to the Site for the purposes of survey and sub-surface investigations. If the Employer is arranging for work to be carried out on the Site before right of access is granted, details should be given in the

726

Clause 4

Joint and Several Liability

For a major contract, detailed requirements for the joint venture may need to be specified. For example, it may be desirable for each member to produce a parent company guarantee: an example form is annexed to this document as Annex A. These requirements, which apply prior to the Contract becoming effective, should be included in the Instructions to Tenderers. The Employer will wish the leader of the joint venture to be appointed at an early stage, providing a single point of contact thereafter, and will not wish to be involved in a dispute between the members of a joint venture. The Employer should scrutinise the joint venture agreement carefully, and it may have to be approved by the project's financing institutions.

A1-25

A1-26

The Employer's Administration

Sub-Clause 4.3

At the end of the second paragraph of Sub-Clause 4.2, insert: If the Performance Security is in the form of a bank guarantee, it shall be issued either (a) by a bank located in the Country, or (b) directly by a foreign bank acceptable to the Employer. If the Performance Security is not in the form of a bank guarantee, it shall be furnished by a financial entity registered, or licensed to do business, in the Country. Contractor's Representative

If the Representative is known at the time of submission of the Tender, the Tenderer may propose the Representative. The Tenderer may wish to propose alternatives,

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APPENDIX I

FIDIC: CONDITIONS OF CONTRACT

especially if the contract award seems likely to be delayed. If the ruling language is not the same as the langu~g~ for day to day communications (under Sub-Clause 1.4), or if for any other ~eason It,lS necessary to stipulate that the Contractor's Representative shall be fluent In a particular language, one of the following sentences may be added. EXAMPLE

At the end of Sub-Clause 4.3, add: The Contractor's Representative and all these persons shall also be (insert name of language) fluent in At the end of Sub-Clause 4.3, add: If the Contractor's Representative, or these persons, is not fluent in (insert name of language), the Contractor shall make a competent interpreter available during all working hours.

EXAMPLE

Sub-Clause 4.4

Subcontractor

If the Employe~ wis~es to recei,ve the notices under this Sub-Clause, his requirements should be specified In the Particular Conditions: EXAMPLE

The Contractor shall give the notices described in sub-paragraphs (a), (b) and (c) of Sub-Clauses 4.4 in respect of the following Subcontractors: (list the relevant activities and/or parts of the Works)

Sub-Clause 4.12

Unforeseeable Difficulties

If the Works include tunnelling or other substantial sub-surface construction it is usually preferable for the risk of unforeseen ground conditions to be allocated the Employer. Responsible contractors will be reluctant to take the risks of unknown groun,d, conditions which are difficult or impossible to estimate in advance. The Conditions of Contract for Plant and Design-Build should be used in these circumstances for works designed by (or on behalf of) the Contract.

Clause 5 Sub-Clause 5.1

Electricity, Water and Gas

If service,S are to ~e ~vailab,le for th~ Contractor to use, the Employer's Requirements should give details, including locations and prices. Sub-Clause 4.20

Employer's Equipment and Free-Issue Material

Fo~ this Sub-Clause to apply, the Employer's Requirements should describe each item whl~h the, Employer will pro~i~~ and/or operate and should specify all necessary det~.ts. With some type~ o~ ~aclllt1es, further provisions may be necessary, in order to clarify aspects such as liability and insurance.

Sub-Clause 4.22

Security of the Site

If the Contractor is sharing occupation of the Site with others, Sub-Clauses 4.8 ~nd/or 4.22 may require amendment, and the Employer's obligations should be specIfied.

728

General Design Obligations

If the Employer's Requirements include an outline design; in order (for example) to establish the feasibility of the project, tenderers should be advised of the extent to which the outline design is a suggestion or a requirement. If this Sub-Clause is considered inappropriate, the provisions in FIDIC's Conditions of Contract for Plant and Design-Build may be preferred. Sub-Clause 5.2

Contractor's Documents

The "Contractor's Documents" are defined as the documents which the Contractor must submit to the Employer, as specified elsewhere in the Contract, which typically may not include all the technical documents which the Contractor's Personnel will need in order to execute the Works. For example, it may be appropriate for the Employer's Requirements for a plant contract to specify that the Contractor's Documents shall include drawings showing how the Plant is to be affixed and any other information required for: (a) preparing suitable foundations or other means of support, (b) providing suitable access on the Site, for the Plant and any necessary equipment, to the place where the Plant is to be erected, and/or (c) making necessary connections to the Plant. Different "review periods" may be specified, taking account of the time necessary to review the different rypes of drawing, and/or of the possibility of substantial submissions at particular stages of the design process.

;0

Sub-Clause 4.19

Al-28

Design

Clause 6 Sub-Clause 6.6

Al-29

Staff and Labour

Facilities for Staff and Labour

If the Employer will make some accommodation available, his obligations to do so should be specified.

Sub-Clause 6.8

Contractor's Superintendence

If the ruling language is not the same as the language for day to day communications (under Sub-Clause 1.4), or if for any other reason it is necessary to stipulate that the Contractor's superintending staff shall be fluent in a particular language, the following sentence may be added. EXAMPLE

Insert at the end of Sub-Clause 6.8: A reasonable proportion of the Contractor's superintending staff shall have a working knowledge of (insert name of language) or the Contractor shall have a sufficient number of competent interpreters available on Site during all working hours.

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APPENDIX I

Additional Sub-Clauses It may be necessary to add a few sub-clauses to take account of the circumstances and locality of the Site: EXAMPLE SUB-CLAUSE Foreign Staff and Labour The Contractor may import any personnel who are necessary for the execution of the Works. The Contractor must ensure that these personnel are provided with the required residence visas and work permits. The Contractor shall be responsible for the return to the place where they were recruited or to their domicile of imported Contractor's Personnel. In the event of the death in the Country of any of these personnel or members of their families, the Contractor shall similarly be responsible for making the appropriate arrangements for their return or burial. EXAMPLE SUB-CLAUSE Alcoholic Liquor or Drugs The Contractor shall not, otherwise than in accordance with the Laws of the Country, import, sell, give, barter or otherwise dispose o~ any alcoholic liquor or drugs, or permit or allow importation, sale, gift, barter or disposal by Contractor's Personnel. EXAMPLE SUB-CLAUSE Arms and Ammunition The Contractor shall not give, barter or otherwise dispose of to any person, any arms or ammunition of any kind, or allow Contractor's Personnel to do so. EXAMPLE SUB-CLAUSE Festivals and Religious Customs The Contractor shall respect the Country's recognised festivals, days of rest and religious or other customs. A1-30

Clause 7 Plant, Materials and Workmanship Additional Sub-Clause If the Contract is being financed by an institution whose rules or policies require a restriction on the use of its funds, a further sub-clause may be added:

FIDIC: CONDITIONS OF CONTRACT

Clause 8

Sub-Clause 8.7

Delay Damages

Under many legal systems, the amount of these pre-defined damages must represent a reasonable pre-estimate of the Employer's probable loss in the event of delay. The Particular Conditions should specify the daily sum, for the Works and for each Section, expressed either as an amount or as a percentage: see also Sub-Clause 14.1S(b). EXAMPLE

In Sub-Clause 8.7, the sum referred to in the second sentence shall be 0.02% of the Contract Price as delay damages in respect of the Works, payable (per day) in the proportions of currencies in which the Contract Price is payable. For each Section, such daily sum shall be 0.02 % of the final contract value of such Section, payable (per day) in such currencies. The maximum amount of delay damages shall be ten percent (10%) of the Contract Price stated in the Contract Agreement.

Additional Sub-Clause Incentives for early completion may be included in the tender documents (although Sub-Clause 13.2 refers to accelerated completion): EXAMPLE SUB-CLAUSE Sections are required to be completed by the dates given in the Employer's Requirements in order that these Sections may be occupied and used by the Employer in advance of the completion of the whole of the Works. Details of the work required to be executed to entitle the Contractor to bonus payments and the amount of the bonuses are stated in the Employer's Requirements. For the purposes of calculating bonus payments, these dates for completion of Sections are fixed. No adjustments of the dates by reason of granting an extension of the Time for Completion will be allowed. Clause 9

EXAMPLE SUB-CLAUSE All Goods shall have their origin in eligible source countries as defined in (insert name of published guidelines for procurement). Goods shall be transported by carriers from these eligible source countries, unless exempted by the Employer in writing on the basis of potential excessive costs or delays. Surety, insurance and banking services shall ~e provided by insurers and bankers from the eligible source countrtes.

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Commencement, Delays and Suspension

Sub-Clause 9.1

Tests on Completion

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Contractor's Obligations

The Employer's Requirements should describe the tests which the Contractor is to carry out before being entitled to a Taking-Over Certificate. It may also be appropriate for the Tender to include detailed arrangements, instrumentation, etc. If the Works are to be tested and taken-over in stages, the tests requirements may have to take account of the effect of some parts of the Works being incomplete. The wording in the sub-paragraphs includes the conditions which are typically applicable for a plant contract, but otherwise may require amendment. In particular, sub-paragraph (c) refers to trial operation, during which any product produced by the Works becomes the property of the Employer. He thus becomes responsible for disposing of it, and entitled to retain the proceeds from selling it. If the product is to be retained by the Contractor, the Sub-Clause should be amended accordingly.

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FIDIC: CONDITIONS OF CONTRACT

APPENDIX I

Sub-Clause 9.4

Failure to Pass Tests on Completion

If the reduction referred to in the final paragraph, based on the extent of the failure, is to be defined in the Particular Conditions or in the Employer's Requirements, minimum acceptable performance criteria should also be specified.

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Clause 10 Sub-Clause 10.1

Employer's Taking Over

Taking-Over Certificate

If the Works are to be taken-over in stages, which is unusual under a turnkey contract, these stages should be defined as Sections, in Clause 1 of the Particular Conditions. Precise geographical definitions are advisable.

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Clause 11 Sub-Clause 11.10

Defects Liability

Unfulfilled Obligations

It may be necessary to review this Sub-Clause in relation to the period of liability under the applicable law.

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Clause 12 Sub-Clause 12.1

Tests after Completion

Procedure for Tests after Completion

In an EPC turnkey project. the Contractor is typically required to prove the reliability and performance of the Plant during the Tests on Completion, and the Works are only taken over after successful completion of these tests. Exceptionally, it may be considered necessary for Tests after Completion to be carried out, after the Employer has taken over and operated the Works. so that the guaranteed performance can be demonstrated under normal operating conditions: for example, after operational fouling of the plant. The Employer's Requirements should describe the tests he requires, after takingover, to verify that the Works fulfil the Performance Guarantees promised in the Tender. For some types of Works, these Tests may be the most difficult to specify well, although they are critical to a successful outcome. It may be appropriate for the Tender to include detailed arrangements, and/or to define any instrumentation required, in addition to that included in the Plant. The provisions in the General Conditions are based upon the Tests after Completion being carried out by the Contractor, with the assistance of the Employer as regards personnel, consumables, etc. These details may need to be specified in the Employer's Requirements. If other arrangements are envisaged, they should be specified in the Employer's Requirements, and the Sub-Clause should be amended accordingly. For example. the provisions in FIDIC's Conditions of Contract for Plant and Design-Build are based upon these Tests being carried out by the Employer and his operating personnel, with guidance from the Contractor's staff.

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Sub-Clause 12.4

Failure to Pass Tests after Completion

If the first part of this Sub-Clause is to apply, the method of calculating the nonperformance damages (based on the extent of t~e failure) should b~ ~efined in the Particular Conditions or in the Employer's ReqUirements, and the minimum acceptable performance criteria should also be specified. Clause 13 Variations and Adjustments Variations can be initiated by any of three ways: (a) the Employer may instruct the variation under Sub-Clause 13.1, without prior agreement as to feasibility or price; (b) the Contractor may initiate his own proposals under Sub-Clause 13.2, which are intended to benefit both Parties; or (c) the Employer may request a proposal under Sub-Clause 13.3, seeking prior agreement so as to minimise dispute. Sub-Clause 13.5

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Provisional Sums

Although generally inappropriate for this type of contract, a Provisional Sum may be required for parts of the Works which are not required to be priced at the risk of ~he Contractor. For example, a Provisional Sum may be necessary to cover goods which the Employer wants to select. It is essential to define the scope of each Provisional Sum, since the defined scope will then be excluded from the other elements of the Contract Price. If a Provisional Sum is to be valued under Sub-Clause 13.S(b), the percentage should be quoted in the Tender. Sub-Clause 13.8

Adjustments for Changes in Cost

Provisions for adjustments may be required if it would be unreasonable for the Contractor to bear the risk of escalating costs due to inflation. Wording for provisions based on cost indices have been published in FIOIC's Conditions of Contract for Plant and Design-Build, which may be considered appropriate. Particular care should be taken in the calculation of weightingslcoefficients ("a ". "b". "c" ..... the total of which must not exceed unity) and in the selection and verification of cost indices. Expert advice may be appropriate.

Clause 14 Sub-Clause 14.1

Contract Price and Payment

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The Contract Price

When writing the Particular Conditions, consideration should be given to the amount and timing of payment(s) to the Contractor. A positive cash flow is clearly of benefit to the Contractor, and tenderers will take account of the interim payment procedures when preparing their tenders. Normally. this type of contract is based on a lump sum price. The Contractor thus takes the risk of changes in cost arising from his design. The lump sum price may consist of two or more amounts, quoted in the currencies of payment (which may, but need not. include the Local Currency). In order to value Variations, Tenders may be required to be accompanied by

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APPENDIX I

FIDIC: CONDITIONS OF CONTRACT

deta,iled pri,ce, breakdowns, including quantities, unit rates and other pricing informatIOn. This I~formati~n can also be useful for the assessment of interim payments, However, the information may not have been priced competitively. When the tender documen~s are being prepared, the Employer must therefore decide whether he will a~cept bemg b~und by the tenderer's breakdowns. If not, he should have ensured that his r~presentatlve has the necessary expertise to value any Variations which may be reqUired. A~ditional Sub-Clauses may be required to cover any exceptions to the options set out In Sub-Clause 14.1, and any other matters relating to payment, If Sub-Clause 14.1(b) is not to apply, additional Sub-Clause(s) should be added. EXAMPLE SUB-CLAUSE ON EXEMPTION FROM DUTIES All Goods imported by the Contractor into the Country shall be ex~mpt from customs and other import duties, if the Employer's prior wCltten approval is obtained for import. The Employer shall endorse the necessary exemption documents prepared by the Contractor for presentat~on in order to clear the Goods through Customs, and shall also provide the following exemption documents: (describe the necessary documents, which the Contractor will be unable to prepare). if exemption is not then granted, the customs duties payable and paid shall be reimbursed by the Employer. All i~porte,d Goods, which are not incorporated in or expended in connectIOn with the Works, shall be exported on completion of the Contract. If not exported, the Goods will be assessed for duties as applicable to the Goods involved in accordance with the Laws of the Country. However, exemption may not be available for: (a) Goods whi~h are, similar to those locally produced, unless they are not available In sufficient quantities or are of a different standard to that which is necessary for the Works; and (b) any element of duty or tax inherent in the price of goods or services procured in the Country, which shall be deemed to be included in the Contract Price. Port du~s, quay d,ues and, ,except as set out above, any element of tax or duty Inherent In the pnce of goods or services shall be deemed to be included in the Contract Price. EXAMPLE SUB-CLAUSE ON EXEMPTION FROM TAXES Expatriate (foreign) personnel shall not be liable for income tax ~evied in the C~untry on earnings paid in any foreign currency, or for Income tax levied on subsistence, rentals and similar services directly furnis~ed ,by the Contractor to Contractor's Personnel, or for allow~nces I? I~eu. If any Contractor's Personnel have part of their earnmgs paid In,the Country in a foreign currency, they may export (after the c?~c1uslon their term of service on the Works) any balance remaining of their earnings paid in foreign currencies. The Em,pl,oyer shall seek exemption for the purposes of this SubClause. If It IS not granted, the relevant taxes paid shall be reimbursed by the Employer.

0/

Sub-Clause 14.2

Advance Payment

When writing the Particular Conditions, consideration should be given to the benefits of advance payment(s). Unless this Sub-Clause is not to apply, the matters described in sub-paragraphs (a) to (d) of this Sub-Clause should be specified in the Particular Conditions, and the acceptable form(s) of guarantee should be included in the tender documents, annexed to the Particular Conditions: an example form is annexed to this document, as Annex E. If the Contractor is to provide major items of Plant, consideration should be given to the benefits of stage payments during manufacture. The Employer may consider it advisable to have some form of security, since these payments would not relate to anything in his possession. If the Contractor is to be entitled to stage payments prior to shipment, the tender documents may include: (a) provisions in the Particular Conditions linking the timing of advance payment instalments (under this Sub-Clause) to the stages of manufacture; or (b) in the Schedule of Payments or other document to be used to determine the contract value under Sub-Clause 14.3(a), a price for each of these stages (the Schedule should refer to the Contractor providing the security specified in Sub-Clause 14.5). Sub-Clause 14.3

Application for Interim Payments

The Particular Conditions should specify the percentage of retention for subparagraph (c), and may also specify a limit of Retention Money. Sub-Clause 14.4

Schedule of Payments

The General Conditions contains provisions for interim payments to the Contractor, which may be based on a Schedule of Payments. If another basis is to be used for determining interim valuations, details should be added in the Particular Conditions. If payments are to be specified in a Schedule of Payments, it could be in one of the following forms: (a) an amount (or percentage of the estimated final Contract Price) could be entered for each three-month (or other) period during the Time for Completion, which can prove unreasonable if the Contractor's progress differs significantly from the expectation on which the Schedule was based; or (b) the Schedule could be based on actual progress achieved in executing the Works, which necessitates careful definition of the payment milestones. Disagreements may arise when the work required for a payment milestone is nearly achieved but the balance cannot be completed until some months later. Sub-Clause 14.7

Timing of Payments

If a different period for payment is to apply, the Sub-Clause may be amended: EXAMPLE

In sub-paragraph (b) of Sub-Clause 14.7, delete "56" and substitute "42".

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APPENDIX I

FIOIC: CONDITIONS OF CONTRACT

If the country/countries of payment need the Tender.

Sub-Clause 14.8

to

be specified, details may be included in

Delayed Payment

If the discount rate of the central bank in the country of the currency of payment is not a reasonable basis for assessing the Contractor's financing costs, a new rate may have to be defined. Alternatively, the actual financing Costs could be paid, taking account of local financing arrangements. Sub-Clause 14.9

Payment of Retention Money

If part of the Retention Money is to be released and substituted by an appropriate guarantee, an additional Sub·Clause may be added. The acceptable form(s} of guarantee should be included in the tender documents, annexed to the Particular Conditions: an example form is annexed to this document, as Annex F. EXAMPLE SUB-CLAUSE FOR RELEASE OF RETENTION When the Retention Money has reached _ _ _, the Employer shall make payment of _ _ _ % of the Retention Money to the Contractor if he obtains a guarantee, in a form and provided by an entity approved by the Employer, in amounts and currencies equal to the payment. The Contractor shall ensure that the guarantee is valid and enforceable until the Contractor has executed and completed the Works and remedied any defects, as specified for the Performance Security in Sub-Clause 4.2, and shall be returned to the Contractor accordingly. This release of retention shall be in lieu of the release of the second half of the Retention Money under the second paragraph of SubClause 14.9. Sub-Clause 14.15

Currencies of Payment

If all payments are to be made in Local Currency, it must be named in the Contract Agreement, and only the first sentence of this Sub-Clause will apply. Alternatively, the Sub-Clause may then be replaced: EXAMPLE SUB-CLAUSE FOR A SINGLE-CURRENCY CONTRACf The currency of account shall be the Local Currency and all payments made in accordance with the Contract shall be in Local Currency. The Local Currency payments shall be fully convertible, except those for local costs. The percentage attributed to local costs shall be as stated in the Tender. Financing Arrangements For major contracts in some markets, there may be a need to secure finance from entities such as aid agencies, development banks, export credit agencies, or other international financing institutions. If financing is to be procured from any of these

736

sources, the Particular Conditions may need to incorporate its special requirements. The exact wording will depend on the relevant institution, so reference will need to be made to them to ascertain their requirements, and to seek approval of the draft tender documents. These requirements may include tendering procedures which need to be adopted in order to render the eventual contract eligible for financing, andlor special SubClauses which may need to be incorporated into the Particular Conditions. The following examples indicate some of the topics which the institution's requirements may cover: (a) prohibition from discrimination against the shipping companies of anyone country; (b) ensuring that the Contract is subject to a widely-accepted neutral law; (c) provision for arbitration under recognised international rules and at a neutral location; (d) giving the Contractor the right to suspend/terminate in the event of default under the financing arrangements; (e) restricting the right to reject Plant; (f) specifying the payments due in the event of termination; (g) specifying that the Contract does not become effective until certain conditions precedent have been satisfied, including pre-disbursement conditions for the financing arrangements; and (h) obliging the Employer to make payments from his own resources if, for any reason, the funds under the financing arrangements are insufficient to meet the payments due to the Contractor, whether due to a default under the financing arrangements or otherwise. In addition, the financing institution or bank may wish the Contract to include references to the financing arrangements, especially if funding from more than one source is to be arranged to finance different elements of supply. It is not unusual for the Particular Conditions to include special provisions identifying different categories of Plant and specifying the documents to be presented to the relevant financing institution to obtain payment. If the financing institution's requirements are not met, it may be difficult (or even impossible) to secure suitable financing for the project, andlor the institution may decline to provide finance for part or all of the Contract. However, where the financing is not tied to the export of goods and services from any particular country but is simply provided by commercial banks lending to the Employer, those banks may be concerned to ensure that the Contractor's rights are very restricted. These banks may wish the Contract to exclude any reference to the financing arrangements, andlor to restrict the Contractor's rights under Clause 16.

FORM OF SUB-CLAUSE WHICH A FINANCING INSTITUTION MAY REQUIRE The Contract Price is made up as follows: (breakdown into items and/or into supply/delivery/etc) and shall be payable by the Employer to the Contractor as set out below. (a) _% of the Contract Price shall be payable by a direct payment from the Employer to the Contractor within 28 days of receipt by the Employer of the following documents: (i) commercial invoice addressed to the Employer specifying the amount of the payment now due,

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FIDIC: CONDITIONS OF CONTRACT

APPENDIX I

(ii) advance payment security guarantee issued by __ Bank in the form annexed, (iii) performance security guarantee issued by __ Bank in the form annexed, and (iv) an interim payment certificate confirming the payment due and specifying the amount. (b) _% of the contract price for the supply of Plant shall be payable as follows: (i) _% of the estimated contract value of the Plant supplied, by direct payment from the Employer to the Contractor on shipment of each item, against the following documents: (original) commercial invoice, (original) shipping documents, (original) certificate of origin, (original) insurance certificate, and (original) interim payment certificate confirming the payment due and specifying the amount. (ii) _% of the estimated contract value of the Plant supplied, by disbursement from the Loan Agreement to the Contractor on shipment of each item, on presentation of a Qualifying Certificate in the form annexed and copies of the documents listed in sub-paragraph (b)(i) above. (c) the balance of the Contract Price shall be payable as follows: (i) _% of the estimated contract value of the services rendered, by direct payment from the Employer to the Contractor on execution of the relevant service, against the following documents: (original) commercial invoice, and (original) interim payment certificate confirming the payment due and specifying the amount. (ii) _% of the estimated contract value of the services rendered, by disbursement from the Loan Agreement to the Contractor, on presentation of a Qualifying Certificate in the form annexed and copies of the documents listed in subparagraph (cHi) above. (d) The direct payments by the Employer specified in sub-paragraph (b) shall be made by an irrevocable letter of credit established by the Employer in favour of the Contractor and confirmed by a bank acceptable to the Contractor. The above arrangements (involving financing institution(s), Employer and Contractor) may be initiated by the Employer; or by the Contractor, before submitting the Tender. Alternatively, the Contractor may be prepared to initiate financing arrangements and retain responsibility for them, although he would probably be unable or unwilling to provide finance from his own resources. His financing bank's requirements would then affect his attitude in contract negotiations. They might well require the Employer to make interim payments, although a large proportion of the Contract Price might be withheld until the Works are complete. This Payment arrangement can be achieved either by a high Percentage of

738

Retention; or by a suitably completed Schedule .of Payments, with the Instructions to Tenderers specifying the criteria with which the Tenderer should comply. Since the Contractor would then have to arrange his own financing to cover the shortfall between the payments and his outgoings, he (and his financing bank) would probably require some form of security, guaranteeing payment when due. It may be appropriate for the Employer, when preparing the tender documents, to anticipate the latter requirement by undertaking to provide a guarantee for the element of payment which the Contractor is to receive when the Works are complete. The acceptable form(s) of guarantee should be included in the tender documents, annexed to the Particular Conditions: an example form is annexed to this document, as Annex G. The following Sub-Clause may be added. EXAMPLE PROVISIONS FOR CONTRACTOR FINANCE The Employer shall obtain (at his cost) a payment guarantee in the amount and currencies, and provided by an entity, as stated in ____ . The Employer shaH deliver the guarantee to the Contractor within 28 days after both Parties have signed the Contract Agreement. The guarantee shall be in the form annexed to these Particular Conditions, or in another form acceptable to the Contractor. Unless and until the Contractor receives the guarantee, the Employer shall not give the notice under Sub-Clause 8.1. The guarantee shall be returned to the Employer at the earliest of the following dates: (a) when the Contractor has been paid the Contract Price stated in the Contract Agreement; (b) when obligations under the guarantee expire or have been discharged; or (c) when the Employer has performed all obligations under the Contract.

Clause 15 Sub-Clause 15.2

Termination by Employer

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Termination by Employer

Before inviting tenders, the Employer should verify that the wording of this SubClause, and each anticipated ground for termination, is consistent with the law governing the Contract. Sub-Clause 15.5

Employer's Entitlement to Termination

Unless inconsistent with the requirements of the Employer and/or financing institutions, a further sentence may be added. EXAMPLE

Insert at the end of Sub-Clause 15.5: The Employer shall also pay to the Contractor the amount of any other loss or damage resulting from this termination.

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APPENDIX I FIDIC: CONDITIONS OF CONTRACT

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Clause 16 Sub-Clause 16.2

Suspension and Termination by Contractor

Termination by Contractor

Before i.nvitin~ tenders., the Employer should verify that the wording of this SubCla.use IS conslsten~ ~lth the law governing the Contract. The Contractor should venfy that each anticipated ground for termination is consistent with such law. A1-40

Clause 17 Sub-Clause 17.6

EXAMPLE

Risk and Responsibility

Limitation of Liability

rances described in the third paragraph of Sub-Clause 18.2 (for Contractor's Equipment, which includes Sub-contractor's equipment), because the Employer may not know the amount or value of these items of equipment. The following sentence may be included in the Particular Conditions: EXAMPLE

Delete the final paragraph of Sub-Clause 18.2 and substitute: However, the insurances described in the first two paragraphs of Sub-Clause 18.2 shall be effected and maintained by the Employer as insuring Party, and not by the Contractor.

Clause 19 Force Majeure Before inviting tenders, the Employer should verify that the wording of this Clause is compatible with the law governing the Contract.

In Sub-Clause 17.6, the sum referred to in the penultimate sentence shall be

Clause 20 Additional Sub-Clause Use of Employer's AccommodationlFacilities If the Contractor is to occupy the Employer's facilities temporarily, an additional sub-clause may be added: EXAMPLE SUB-CLAUSE The .Contractor shall take full responsibility for the care of the items detailed below, from the respective dates of use or occupation by the Contractor, up to the respective dates of hand-over or cessation of occupation (where hand-over or cessation of occupation may take place after the date stated in the Taking-Over Certificate for the Works): (insert details) If any loss or damage happens to any of the above items while the Contractor is responsible for their care, arising from any cause whatsoever other than those for which the Employer is liable the Contractor shall, at his own cost, rectify the loss or damage t~ the satisfaction of the Employer. A1-41

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Clause 18 Insurance The wording in the General Conditions describes the insurances which are to be ~rranged ~y the "insur.i~g Party", who is to be the Contractor unless otherwise stated In the Par~lcular Condmons. Insurances so provided by the Contractor are to be con. slstent With the general terms agreed with the Employer. The Instructions to Tenderer~ may theref~~e require tenderers to provide details of the proposed terms. The Partlcular Condmons should specify the minimum amount of deductibles for sub-paragraph (d) of Sub-Clause 18.2 and the minimum amount of third party insurance for Sub-Clause 18.3. If the Employer is to arrange any of the insurances under this Clause the tender documents shou~d include details as an annex to the Particular Condition (so that t~nder~rs ca~ estimate w~at othe~ i~surances they wish to have for their own protec. tlOn), including the conditIOns, limitS, exceptions and deductibles· preferably in the form of a copy of each policy. The Employer may find it difficult'to effect the insu-

Sub-Clause 20.2

Claims, Disputes and Arbitration

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Appointment of the Dispute Adjudication Board

The Contract should include provisions which, whilst not discouraging the Parties from reaching agreement on disputes as the works proceed, allow them to refer con· tentious matters to an impartial dispute adjudication board ("DAB"). The adjudication procedure depends for its success on, amongst other things, the Parties' confidence in the agreed individual(s) who will serve on the DAB. Therefore, it is essential that candidates for this position are not imposed by either Party on the other Party; and that, if the individual is selected under Sub-Clause 20.3, the selection is made by a wholly impartial entity. FIDIC is prepared to perform this role, if this authority has been delegated in accordance with the example wording suggested below, for Sub-Clause 20.3. Sub-Clause 20.2 envisages appointment of the DAB after a Party gives notice of its intention to refer a dispute to a DAB. However, for certain types of project, particularly those involving extensive work on Site, where it would be appropriate for the DAB to visit the Site on a regular basis, it may be decided to retain the services of a permanent DAB. In this case, Sub-Clause 20.2 and 2004 together with the Appendix and Annex to the General Conditions, and the Dispute Adjudication Agreement, should be amended to comply with the corresponding wording contained in FIDIC's Conditions of Contract for Construction. Sub-Clause 20.2 provides for two alternative arrangements for the DAB: (a) one person, who acts as the sole member of the DAB, having entered into a tripartite agreement with both Parties; or (b) a DAB of three persons, each of whom has entered into a tripartite agreement with both Parties. The form of this tripartite agreement could be one of the two alternatives shown at the end of this publication, as appropriate to the arrangement adopted. Both of these forms incorporate (by reference) the General Conditions of Dispute Adjudication Agreement, which are included as the Appendix to the General Conditions because they are also referred to in Sub-Clause 20.2. Under either of these alternative forms of Dispute Adjudication Agreement, each individual person is referred to as a Member. Before the Contract is entered into, consideration should be given as to whether a

740

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FIDIC: CONDITIONS OF CONTRACT

APPENDIX I

one-person or three-person DAB is preferable for a particular project, taking account of its size, duration and the fields of expertise which will be involved. The appointment of the DAB may be facilitated by including an agreed list of potential members in the Contract. Sub-Clause 20.3 EXAMPLE

Failure to Agree Dispute Adjudication Board

The appointing entity or official shall be the President of FIOIC or a person appointed by its President.

Sub-Clause 20.5

ANNEXES

FORMS OF SECURITIES

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Acceptable form(s) of security should be included in the tender documents: for Annex A and/or B in the Instructions to Tenderers; and for Annexes C to G, annexed to the Particular Conditions. The following example forms, which (except for Annex A) incorporate Uniform Rules published by the International Chamber of Commerce (the "ICC", which is based at 38 Cours Albert ler, 75008 Paris, France~, may ~ave to be amended to comply with the applicable law. Although the ICC ~~bhshes g~ldes to these Uniform Rules, legal advice should be taken before the secunt.les are wCl~ten. Note that the guaranteed amounts should be quoted in a~1 the currenCies, as speCified in the Contract, in which the guarantor pays the benefiCiary.

Amicable Settlement

The provisions of this Sub-Clause are intended to encourage the parties to settle a dispute amicably, without the need for arbitration: for example, by direct negotiation, conciliation, mediation or other forms of alternative dispute resolution. Amicable settlement procedures often depend, for their success, on confidentiality and on both Parties' acceptance of the procedure. Therefore, neither Party should seek to impose the procedure on the other Party. Sub-Clause 20.6

Arbitration

The Contract should include provisions for the resolution by international arbitration of any disputes which are not resolved amicably. In international construction contracts, international commercial arbitration has numerous advantages over litigation in national courts, and may be more acceptable to the Parties. Careful consideration should be given to ensuring that the international arbitration rules chosen are compatible with the provisions of Clause 20 and with the other elements to be specified in the Contract. The Rules of Arbitration of the International Chamber of Commerce (the "ICC", which is based at 38 Cours Albert ler, 75008 Paris, France) are frequently included in international contracts. In the absence of specific stipulations as to the number of arbitrators and the place of arbitration, the International Court of Arbitration of the ICC will decide on the number of arbitrators (typically three in any substantial construction dispute) and on the place of arbitration. If the UNCITRAL (or other non-ICC) arbitration rules are preferred, it may be necessary to designate, in the Particular Conditions, an institution to appoint the arbitrators or to administer the arbitration, unless the institution is named (and their role specified) in the arbitration rules. It may also be necessary to ensure, before so designating an institution, that it is prepared to appoint or administer. For major projects tendered internationally, it is desirable that the place of arbitration be situated in a country other than that of the Employer or Contractor. This country should have a modern and liberal arbitration law and should have ratified a bilateral or multilateral convention (such as the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards), or both, that would facilitate the enforcement of an arbitral award in the states of the Parties. It may be considered desirable in some cases for other Parties to be joined into any arbitration between the Parties, thereby creating a multi-party arbitration. While this may be feasible, multi-party arbitration clauses require skilful drafting, and usually need to be prepared on a case-by-case basis. No satisfactory standard form of multiparty arbitration clause for international use has yet been developed.

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FIDIC: CONDITIONS OF CONTRACT

APPENDIX I

ANNEX A

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EXAMPLE FORM OF PARENT COMPANY GUARANTEE [See the comments on Sub-Clause 1.14)

Brief description of Contract

ANNEX B

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EXAMPLE FORM OF TENDER SECURITY

Brief description of Contract Name and address of Beneficiary _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __

Name and address of Employer _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __

_ _ _ _ _ _ _ _ _ _ _ (whom the tender documents define as the Employer)

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ (together with successors and assigns).

We have been informed that (hereinafter called the "Principal") is submitting an offer for such Contract in response to your invitation, and that the conditions of your invitation (the "conditions of invitation", which are set out in a document entitled Instructions to Tenderers) require his offer to be suppO£ted by a tender security. At the request of the Principal, we (name of bank) hereby irrevocably undertake to pay you, the BeneficiarylEmployer, any sum or sums not exceeding in total the amount of (say: ) upon receipt by us of your demand in writing and your written statement (in the demand) stating that: (a) the Principal has, without your agreement, withdrawn his offer after the latest time specified for its submission and before the expiry of its period of validity, or (b) the Principal has refused to accept the correction of errors in his offer in accordance with such conditions of invitation, or (c) you entered into the Contract with the Principal and he has failed to deliver a performance security complying with sub-clause 4.2 of the conditions of the Contract. Any demand for payment must contain your signature(s) which must be authenticated by your bankers or by a notary public. The authenticated demand and statement must be received by us at this office on or before (the date 35 days after the expiry of the validity of the Letter of Tender) , when this guarantee shall expire and shall be returned to us. This guarantee is subject to the Uniform Rules for Demand Guarantees, published as number 458 by the International Chamber of Commerce, except as stated above.

We have been informed that (hereinafter called the "Contractor") is submitting an offer for such Contract in response to your invitation, and that the conditions of your invitation require his offer to be supported by a parent company guarantee. In consideration of you, the Employer, awarding the Contract to the Contractor, we (name of parent company) irrevocably and unconditionally guarantee to you, as a primary obligation, the due performance of all the Contractor's obligations and liabilities under the Contract, including the Contractor's compliance with all its terms and conditions according to their true intent and meaning. If the Contractor fails to so perform his obligations and liabilities and comply with the Contract, we will indemnify the Employer against and from all damages, losses and expenses (including legal fees and expenses) which arise from any such failure for which the Contractor is liable to the Employer under the Contract. This guarantee shall come into full force and effect when the Contract comes into full force and effect. If the Contract does not come into full force and effect within a year of the date of this guarantee, or if you demonstrate that you do not intend to enter into the Contract with the Contractor, this guarantee shall be void and ineffective. This guarantee shall continue in full force and effect until all the Contractor's obligations and liabilities under the Contract have been discharged, when this guarantee shall expire and shall be returned to us, and our liability hereunder shall be discharged absolutely. This guarantee shall apply and be supplemented to the Contract as amended or varied by the Employer and the Contractor from time to time. We hereby authorise them to agree any such amendment or variation, the due performance of which and compliance with which by the Contractor are likewise guaranteed hereunder. Our obligations and liabilities under this guarantee shall not be discharged by any allowance of time or other indulgence whatsoever by the Employer to the Contractor, or by any variation or suspension of the works to be executed under the Contract, or by any amendments to the Contract or to the constitution of the Contractor or the Employer, or by any other matters, whether with or without our knowledge or consent. This guarantee shall be governed by the law of the same country (or other jurisdiction) as that which governs the Contract and any dispute under this guarantee shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with such Rules. We confirm that the benefit of this guarantee may be assigned subject only to the provisions for assignment of the Contract.

Date _ _ _ _ _ Signature(s) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __

Date _ _ _ _ _ Signature(s) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __

744

745

APPENDIX I

Al-47

ANNEX C

FIDIC: CONDITIONS OF CONTRACT

EXAMPLE FORM OF PERFORMANCE SECURITY - DEMAND GUARANTEE

ANNEX D

EXAMPLE FORM OF PERFORMANCE SECURITY - SURETY BOND

[See comments on Sub-Clause 4.2)

[See comments on Sub-Clause 4.2)

Brief description of Contract _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __

Brief description of Contract

Name and address of Beneficiary _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __

Name and address of Beneficiary _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __

_ _ _ _ _ _ _ _ _ _ _ _ _ _ (whom the Contract defines as the Employer)

______ (together with successors and assigns, all as defined in the Contract as the Employer)

We have been informed that (hereinafter called the "Principal") is your contractor under such .Contract, which requires him to obtain a performance security. hereby irrevocably At the request of the Principal, we (name of bank) undertake to pay you, the BeneficiarylEmployer, any sum or sums not exceeding in total the amount of (the "guaranteed amount", say: ) upon receipt by us of your demand in writing and your written statement stating: (a) that the Principal is a breach of his obligation(s) under the Contract, and (b) the respect in which the Principal is in breach. [Following the receipt by us of an authenticated copy of the taking-over certificate for the whole of the works under clause 10 of the conditions of the Contract, such guaranteed amount shall be reduced by __ % and we shall promptly notify you that we have received such certificate and have reduced the guaranteed amount accordingly.)t l ) Any demand for payment must contain your [minister's1directors') (1) signature(s) which must be authenticated by your bankers or by a notary public. The authenticated demand and statement must be received by us at this office on or before (the date 70 days after the expected expiry of the Defects Notification Period for the (the "expiry date"), when this guarantee shall expire and shall Works) be returned to us. We have been informed that the Beneficiary may require the Principal to extend this guarantee if the performance certificate under the Contract has not been issued by the date 28 days prior to such expiry date. We undertake to pay you such guaranteed amount upon receipt by us, within such period of 28 days, of your demand in writing and your written statement that the performance certificate has not been issued, for reasons attributable to the Principal, and that this guarantee has not been extended. This guarantee shall be governed by the laws of and shall be subject to the Uniform Rules for Demand Guarantees, published as number 458 by the International Chamber of Commerce, except as stated above. Date _ _ _ _ _ Signature(s) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __

(I)

When writing the tender documents, the writer should ascertain whether to include the optional text, shown in parentheses [ J

By this Bond, (name and address of contractor) (who is the contractor under such Contract) as Principal and (name and address of guarantor) as Guarantor are irrevocably held and firmly bound to the Beneficiary in the total amount of (the "Bond Amount", say: _ _ _ I for the due performance of all such Principal's obligations and liabilities under the Contract. [Such Bond Amount shall be reduced by _ _ % upon the issue of the taking-over certificate for the whole of the works under clause 10 of the conditions of the Contract.)(I} This Bond shall become effective on the Commencement Date defined in the Contract. Upon Default by the Principal to perform any Contractual Obligation, or upon the occurrence of any of the events and circumstances listed in sub-clause 15.2 of the conditions of the Contract, the Guarantor shall satisfy and discharge the damages sustained by the Beneficiary due to such Default, event or circumstances,m However, the total liability of the Guarantor shall not exceed the Bond Amount. The obligations and liabilities of the Guarantor shall not be discharged by any allowance of time or other indulgence whatsoever by the Beneficiary to the Principal, or by any variation or suspension of the works to be executed under the Contract, or by any amendments to the Contract or to the constitution of the Principal or the Beneficiary, or by any other matters, whether with or without the knowledge or consent of the Guarantor. Any claim under this Bond must be received by the Guarantor on or before (the date six months after the expected expiry of the Defects Notification Period for the (the "Expiry Date"), when this Bond shall expire and shall be Works) returned to the Guarantor. The benefit of this Bond may be assigned subject to the provisions for assignment of the Contract, and subject to the receipt by the Guarantor of evidence of full compliance with such provisions. This Bond shall be governed by the law of the same country (or other jurisdiction) as that which governs the Contract. This Bond incorporates and shall be subject to the Uniform Rules for Contract Bonds, published as number 524 by the International Chamber of Commerce, and words used in this Bond shall bear the meanings set out in such Rules. Wherefore this Bond has been issued by the Principal and the Guarantor on (date)

Signature(s) for and on behalf of the Principal Signature(s) for and on behalf of the Guarantor _ _ _ _ _ _ _ _ _ _ _ __

746

747

Al-48

APPENDIX I

( I)

When writing the tender documents, the writer should ascertain whether to include the optional text, shown in parentheses [ ] [and shall .not be entitled to perform the Principal's obligations under the Contract.] Or: [o~ at the ?p~lon of the Guarantor (to be exercised in writing within 42 days of receiving

21 { Insert:

FIDIC: CONDITIONS OF CONTRACT

ANNEX E

EXAMPLE FORM OF ADVANCE PAYMENT GUARANTEE [See comments on Sub-Clause 14.2)

the claIm speclfymg such Default) perform the Principal's obligations under the Contract.) Brief description of Contract

Name and address of Beneficiary _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ (whom the Contract defines as the Employer). We have been informed that (hereinafter called the "Principal") is your contractor under such Contract and wishes to receive an advance payment, for which the Contract requires him to obtain a guarantee. At the request of the Principal, we (name of bank) hereby irrevocably undertake to pay you, the BeneficiarylEmployer, any sum or sums not exceeding in total the amount of (the "guaranteed amount", say: ) upon receipt by us of your demand in writing and your written statement stating: that the Principal has failed to repay the advance payment in accordance (a) with the conditions of the Contract, and (b) the amount which the Principal has failed to repay. This guarantee shall become effective upon receipt [of the first instalment) of the advance payment by the Principal. Such guaranteed amount shall be reduced by the amounts of the advance payment repaid to you, as evidenced by your notices issued under sub-clause 14.6 of the conditions of the Contract. Following receipt (from the Principal) of a copy of each purported notice, we shall promptly notify you of the revised guaranteed amount accordingly. Any demand for payment must contain your signature(s) which must be authenticated by your bankers or by a notary public. The authenticated demand and statement must be received by us at this office on or before (the date 70 days after the expected expiry of the Time for Completion) (the "expiry date"), when this guarantee shall expire and shall be returned to us. We have been informed that the Beneficiary may require the Principal to extend this guarantee if the advance payment has not been repaid by the date 28 days prior to such expiry date. We undertake to pay you such guaranteed amount upon receipt by us, within such period of 28 days, of your demand in writing and your written statement that the advance payment has not been repaid and that this guarantee has not been extended. This guarantee'shall be governed by the laws of and shall be subject to the Uniform Rules for Demand Guarantees, published as number 458 by the International Chamber of Commerce, except as stated above. Date _ _ _ _ _ Signature(s) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __

748

749

Al-49

FIDIC: CONDITIONS OF CONTRACT

APPENDIX I

ANNEX F

AI-50

EXAMPLE FORM OF RETENTION MONEY GUARANTEE [See comments on Sub-Clause 14.9]

ANNEX G

EXAMPLE FORM OF PAYMENT GUARANTEE BY EMPLOYER [See Contractor Finance]

Brief description of Contract

Brief description of Contract _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __

Name and address of Beneficiary _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __

Name and address of Beneficiary _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __

_ _ _ _ _ _ _ _ _ _ _ _ _ (whom the Contract defines as the Employer).

_ _ _ _ _ _ _ _ _ _ _ _ _ (whom the Contract defines as the Contractor).

We have been informed that (hereinafter called the "Principal") is your contractor under such Contract and wishes to receive early payment of [part of] the retention money, for which the Contract requires him to obtain a guarantee. At the request of the Principal, we (name of bank) hereby irrevocably undertake to pay you, the BeneficiarylEmployer, any sum or sums not exceeding in total the amount of (the "guaranteed amount", say: ) upon receipt by us of your demand in writing and your written statement stating: (a) that the Principal has failed to carry out his obligation(s) to rectify certain defect(s) for which he is responsible under the Contract, and (b) the nature of such defect(s). At any time, our liability under this guarantee shall not exceed the total amount of retention money released to the Principal by you, as evidenced by your notices issued under sub-clause 14.6 of the conditions of the Contract with a copy being passed to us. Any demand for payment must contain your signature(s) which must be authenticated by your bankers or by a notary public. The authenticated demand and statement must be received by us at this office on or before (the date 70 days after the expected expiry of the Defects Notification Period for the Works) (the "expiry date"), when this guarantee shall expire and shall be returned to us. We have been informed that the Beneficiary may require the Principal to extend this guarantee if the performance certificate under the Contract has not been issued by the date 28 days prior to such expiry date. We undertake to pay you such guaranteed amount upon receipt by us, within such period of 28 days, of your demand in writing and your written statement that the performance certificate has not been issued, for reasons attributable to the Principal, and that this guarantee has not been extended. This guarantee shall be governed by the laws of and shall be subject to the Uniform Rules for Demand Guarantees, published as number 458 by the International Chamber of Commerce, except as stated above.

We have been informed that (whom the Contract defines as the Employer and who is hereinafter called the" Principal") is required to obtain a bank guarantee. hereby irrevocably At the request of the Principal, we (name of bank) undertake to pay you, the Beneficiary/Contractor, any sum or sums not exceeding in total the amount of (say: ) upon receipt by us of your demand in writing and your written statement stating: (a) that, in respect of a payment due under the Contract, the Principal has failed to make payment in full by the date fourteen days after the expiry of the period specified in the Contract as that within which such payment should have been made, and (b) the amount(s) which the Principal has failed to pay. Any demand for payment must be accompanied by a copy of [list of documents evidencing entitlement to payment] , in respect of which the Principal has failed to make payment in full. Any demand for payment must contain your signature(s) which must be authenticated by your bankers or by a notary public. The authenticated demand and statement must be received by us at this office on or before (the date six months after the expected expiry of the Defects Notification Period for the Works) _____ when this guarantee shall expire and shall be returned to us. This guarantee shall be governed by the laws of and shall be subject to the Uniform Rules for Demand Guarantees, published as number 458 by the International Ch~mber of Commerce, except as stated above. Date _ _ _ _ _ Signature(s) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __

Date _ _ _ _ _ Signature(s) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __

750

751

A1-S1

APPENDIX I

FlO Ie: CONDITIONS OF CONTRACT

LEITER OF TENDER

At-52

CONTRACT AGREEMENT

At-53

NAME OF CONTRACT:

This Agreement made the _ _ _ _ _ day of _ _ _ _ _ 20

TO:

Between _ _ _ _ of _ _ _ _ (hereinafter called "the Employer") of the one part, and _ _ _ _ of _ _ _ _ (hereinafter called "the Contractor") of the other part

We have examined the Conditions of Contract, Employer's Requirements and Addenda Nos __ for the above-named Works. We have examined, understood and checked these documents and have ascertained that they contain no errors or other defects. We accordingly offer to design, execute and complete the Works and remedy any defects therein, in conformity with such documents and our enclosed Tender (including this letter) for the prices set out in our Tender. We accept your suggestions for the appointment of the DAB, as set out in

[We have included our suggestions for the other Member of the DAB in part - -___ of our Tender, entitled List of Potential Members of the DAB.].' We agree to abide by this Tender until and it shall remain binding upon us and may be accepted at any time before that date. If this offer is accepted, we will provide the specified Performance Security, commence the Works as soon as is reasonably practicable after the Commencement Date, and complete the Works in accordance with the above-named documents within the Time for Completion. We guarantee that the Works will then conform with the Performance Guarantees included in this Tender. We understand that you are not bound to accept the lowest or any tender you may receive. Signature in the capacity of -:---:--:-:---:-_ _ _ _ _ _ _ _ _ _ __ duly authorised to sign tenders for and on behalf of Address: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ Date: _ _ _ _ _ _ __

• If the Tenderer does not accept, this paragraph may be deleted and replaced by: We do not accept your suggestions for the appointment of the DAB. We have included our suggestions in our Tender, in the list of potential members of the DAB. If these suggestions are not acceptable to you, we propose that the DAB be jointly appointed in accordance with Sub-Clause 20.2 of the Conditions of Contract, [after a Party gives notice of its intention to refer a dispute to the DAB]

Whereas the Employer desires that the Works known as should be executed by the Contractor, and has accepted a Tender by the Contractor for the execution and completion of these Works and the remedying of any defects therein, The Employer and the Contractor agree as follows: 1. In this Agreement words and expressions shall have the same meanings as are respectively assigned to them in the Conditions of Contract hereinafter referred to. 2. The following documents shall be deemed to form and be read and construed as part of this Agreement: (a) The memoranda annexed hereto (which includes a breakdown of the Contract Price) (b) The Addenda nos _ _ __ (c) The Conditions of Contract (d) The Employer's Requirements, and (e) The Contractor's Tender. 3. In consideration of the payments to be made by the Employer to the Contractor as hereinafter mentioned, the Contractor hereby covenants with the Employer to design, execute and complete the Works and remedy any defects therein in conformity with the provisions of the Contract. 4. The Employer hereby covenants to pay the Contractor, in consideration of the design, execution and completion of the Works and the remedying of defects therein, the final Contract Price at the times and in the manner prescribed by the Contract. [5. The Contract shall come into full force and effect on the date when the following conditions are satisfied: [List of pre-conditions] The Employer shall promptly confirm to the Contractor the date on which all these conditions have been satisfied. If any of these conditions has not been satisfied within _____ days of the above-mentioned date on which this Agreement is made, this Agreement shall be void and ineffective and any securities issued in relation to the above Works shall be returned. optional] [5. The Commencement Date shall be _ _ _ _ _ optional]

In Witness whereof the parties hereto have caused this Agreement to be executed the day and year first before written in accordance with their respective laws. SIGNED by: _ _ _ _ _ SIGNED by: _ _ _ __ for and on behalf of the Employer in the presence of Witness: _ _ _ _ _ _ _ _ _ _ __ Name: _ _ _ _ _ _ _ _ _ _ __ Address: _ _ _ _ _ _ _ _ _ __ Date: _ _ _ _ _ _ _ _ _ _ _ __

752

for and on behalf of the Contractor in the presence of Witness: _ _ _ _ _ _ _ _ _ _ __ Name: _ _ _ _ _ _ _ _ _ _ __ Address: _ _ _ _ _ _ _ _ _ __ Date: _ _ _ _ _ _ _ _ _ _ __

753

FIDIC: CONDITIONS OF CONTRACT

APPENDIX I

DISPUTE ADJUDICAtiON AGREEMENT

At-54

[for a one-person DAB] Name and details of Contract Name and address of Employer _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ Name and address of Contractor _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ Name and address of Member _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ Whereas the Employer and the Contractor have entered into the Contract and desire jointly to appoint the Member to act as sole adjudicator who is also called the "DAB" to adjudicate a dispute which has arisen in relation to • The Employer, Contractor and Member jointly agree as follows: 1. The conditions of this Dispute Adjudication Agreement comprise the "General Conditions of Dispute Adjudication Agreement", which is appended to the General Conditions of the "Conditions of Contract for EPCfTurnkey Projects" First Edition t999 published by the Federation Internationale des Ingenieurs-Conseils (FlDIC), and the following provisions. In these provisions, which include amendments and additions to the General Conditions of Dispute Adjudication Agreement, words and expressions shall have the same meanings as are assigned to them in the General Conditions of Dispute Adjudication Agreement. 2. [Details of amendments to the General Conditions of Dispute Adjudication Agreement, if any.] 3. In accordance with Clause 6 of the General Conditions of Dispute Adjudication Agreement, the Member shall be paid a daily fee of per day. 4. In consideration of these fees and other payments to be made by the Employer and the Contractor in accordance with Clause 6 of the General Conditions of Dispute Adjudication Agreement, the Member undertakes to act as the DAB (as adjudicator) in accordance with this Dispute Adjudication Agreement. 5. The Employer and the Contractor jointly and severally undertake to pay the Member, in consideration of the carrying out of these services, in accordance with Clause 6 of the General Conditions of Dispute Adjudication Agreement. 6. This Dispute Adjudication Agreement shall be governed by the law of

SIGNED by:

SIGNED by:

SIGNED by:

for and on behalf of the Employer in the presence of

for and on behalf of the Contractor in the presence of

the Member in the presence of:

Witness: Name: Address: Date:

Witness: Name: Address: Date:

Witness: Name: Address: Date:

At-55

DISPUTE ADJUDICATION AGREEMENT [for each member of a three-person DAB] Name and details of Contract _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ Name and address of Employer _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ Name and address of Contractor _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ __ Name and address of Member _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ Whereas the Employer and the Contractor have entered into the Contract and desire jointly to appoint the Member to act as one of the three persons who are joi~tly.called the "DAB" [and desire the Member to act as chairman of the DAB] to adjudicate a dispute which has arisen in relation to • The Employer, Contractor and Member jointly agree as follows: 1. The conditions of this Dispute Adjudication Agreement comprise the "General Conditions of Dispute Adjudication Agreement", which is appended to the General Conditions of the "Conditions of Contract for EPCfTurnkey Projects" First Edition 1999 published by the Federation Internationale des Ingenieurs-Conseils (FIDIC), and the following provisions. In these provisions, which include amendments and additions to the General Conditions of Dispute Adjudication Agreement, words and expressions shall have the same meanings as are assigned to them in the General Conditions of Dispute Adjudication Agreement. 2. [Details of amendments to the General Conditions of Dispute Adjudication Agreement, if any.) 3. In accordance with Clause 6 of the General Conditions of Dispute Adjudication ; per day. Agreement, the Member shall be paid a daily fee of 4. In consideration of these fees and other payments to be made by the Employer and the Contractor in accordance with Clause 6 of the General Conditions of Dispute Adjudication Agreement, the Member undertakes to serve, as described in this Dispute Adjudication Agreement, as one of the three persons who are jointly to act as the DAB. 5. The Employer and the Contractor jointly and severally undertake to pay the Member, in consideration of the carrying out of these services, in accordance with Clause 6 of the General Conditions of Dispute Adjudication Agreement. 6. This Dispute Adjudication Agreement shall be governed by the law of _ _ __

SIGNED by: _ _ __

SIGNED by: _ _ __

SIGNED by: _ _ __

for and on behalf of the Employer in the presence of

for and on behalf of the Contractor in the presence of

the Member in the presence of

Witness: _ _ _ _ _ __ Name: _ _ _ _ _ __ Address: _ _ _ _ __ Date:_ _ __ _ _ __

Witness: _ _ _ _ __ Name: _ _ _ _ _ __ Address: _ _ _ _ __ Date: _ _ _ _ _ __

Witness: _ _ _ _ _ __ Name: _ _ _ _ _ __ Address: _ _ _ _ __ Date: _ _ _ _ _ _ __

[ . A brief description or name of dispute to be added) [. A brief description or name of dispute to be added.)

754

755

ApPENDIX 2

ENGINEERING ADVANCEMENT ASSOCIATION OF JAPAN MODEL FORM INTERNATIONAL CONTRACT FOR PROCESS PLANT CONSTRUCTION (TURNKEY LUMPSUM BASIS) WITH PROCESS LICENCEl CONTENTS Article 1 Article 2 Article 3 Article 4 Article 5 Article 6 Article 7 Article 8 Article 9 Article 10 Article 11 Article 12 Article 13

Agreement Contract Documents Scope of Works Contract Price Terms of Payment Time for Commencement, Completion and Possession Insurance Process Performance and Consumption Guarantees Bonds Contractor's Total Maximum Liability Notices Effective Date Governing Law and Language Arbitration General Conditions

Part I

CONTRACT AND INTERPRETATION

767

GCl. GC2. GC3. 3.1 3.2 3.3 3.4

Definitions Contract Documents Interpretation Language Singular and Plural Headings Persons Incoterms

767 769 769 769 769 769

3.5 1

770 770

Reproduced by kind permission of the ENAA. Original documents are obtainable from GEC/ENAA, CYD Bldg. 1-4-6, Nishi Shinbashi, Minato-ku, Tokyo 105-0003, Japan.

757

APPENDIX 2

ENGINEERING ADVANCEMENT ASSOCIATION OF JAPAN MODEL FORM

3.6 3.7 3.8 3.9 3.10 GC4. GC5. GC6. 6.1 6.2

Entire Agreement Amendment Independent Contractor Non-Waiver Severability Notices Governing Law Sertlement of Disputes Arbitration Reference to Expert

770 770 770 770 771 771 771 771 771 772

Part II

SUBJECT MATTER OF CONTRACT

773

GC7. GC8. GC9. GC 10.

Scope of Works Time for Commencement and Completion Contractor's Responsibilities Owner's Responsibilities

773 774 775 775

Part III

PAYMENT

776

GC11. GC 12. GC 13. 13.1 13.2 13.3 13.4 13.5 GC 14.

Contract Price Terms of Payment Bonds Issuance of Bonds Advance Payment Bond Performance Bond Retention Bond Claim under Bond Taxes and Duties

776 776 777 777 777 777 777 778 778

Part IV

INTELLECTUAL PROPERTY

778

GC 15. GC 16.

LicencelUse of Technical Information Confidential Information

778 779

Part V

WORK EXECUTION

780

GC 17. 17.1 17.2 GC 18. 18.1 18.2 18.3 18.4 18.5 GC 19. 19.1 19.2 GC20. 20.1 20.2

Representatives Owner's Representative Contractor's Representative and Construction Manager Work Program Contractor's Organization Program of Works Progress Report Progress of Works Work Procedures Sub-contractingINominated Sub-contractor(s) Sub-contracting Nominated Sub-contractor(s) Design and Engineering Specifications and Drawings Codes and Standards

780 780 780 782 782 782 782 782 783 783 783 783 785 785 785

758

20.3 GC21. 21.1 21.2 21.3 21.4 21.5 GC22. 22.1 22.1.1 22.1.2 22.1.3 22.2 22.3 22.4 22.5 22.6 22.6.1 22.6.2 22.7 22.8 GC23. GC24. GC25. 25.1 25.2 25.3 25.4

ApprovaVReview of Technical Documents by Owner Procurement Materials Owner-supplied Equipment and Materials Long Lead Items Transportation Customs Clearance Construction Setting Out/Supervision/La bor Bench Mark Contractor's Supervision Labor Construction Equipment Site Regulations and Safety Opportunities for Other Contractors Emergency Work Site Clearance Site Clearance in Course of Works Clearance of Site after Acceptance Watching and Lighting Work at Night and on Holidays Test and Inspection Mechanical Completion Commissioning and Acceptance Commissioning Performance Test Acceptance Partial Acceptance and Partial Use

785 787 787 787 787 788 789 789 789 789 789 790 790 790 791 791 791 791 792 792 792 792 794 795 795 795 795 796

Part VI

GUARANTEES AND LIABILITIES

796

GC26. GC27. GC28. GC29. GC30.

Completion Time Guarantee Defect Liability Process Performance and Consumption Guarantees Patent Indemnity Limitation of Liability

796 797 798 799 800

Part VII

RISK DISTRIBUTION

801

GC 31. GC32. GC 33.

801 801

GC 34. GC 35. GC 36. GC37. GC 38.

Transfer of Ownership Care of Works Loss or Damage to Property/Accident or Injury to Workmenllndemnification Insurance Unforeseen Conditions Change in Laws and Regulations Force Majeure War Risks

802 803 805 806 806 807

Part VIII

CHANGE IN CONTRACT ELEMENTS

808

GC39. GC40.

Change in the Works Extension of Time for Completion

808 810 759

APPENDIX 2.

GC41. GC42. 42.1 42.2 42.3 GC43. Schedule 1. Schedule 2.

ENGINEERING ADVANCEMENT ASSOCIATION OF JAPAN MODEL FORM

Suspension Termination Termination for Owner's Convenience Termination for Contractor's Default Termination by Contractor Assignment Form of Mechanical Completion Certificate Form of Acceptance Certificate

A2-01

811 812 812 813 815

816 816 817

Definitions 1.3

2.1

AGREEMENT THIS AGREEMENT is made the ........................ day of.......................................... . BETWEEN

2.2

(1) ................................................. a corporation incorporated under the laws of ................... and having its principal place of business at ...........................•.•............. ................................................. ("the Owner") and

(2) ................................................ a corporation incorporated under the laws of ................... and having its principal place of business at ....................................... .. ................................................. ("the Contractor")

3.1

WHEREAS the Owner desires to engage the Contractor to design, execute and complete a .......................................... plant to be built at ............................................. .. .................................. ("the Plant") and to execute the Works and the Contractor has agreed to such engagement upon and subject to the terms and conditions hereinafter appearing. NOW IT IS HEREBY AGREED as follows: A2-02

Article 1.

Contract Documents

3.2

3.3

Contract Documents 1.1

The following documents shall constitute the Contract between the Owner and the Contractor, and each shall be read and construed as an integral part of the Contract: (1) This Agreement (2) Special Conditions (if any) (3) The Appendices hereto (4) General Conditions (including the Schedules thereto) (5) Work Procedures

Order of Precedence 1.2

760

In the event of any ambiguiry or conflict between the Contract Documents listed above, the order of precedence shall be the order in which the Contract Documents are listed in Article 1.1 (Contract Documents) above.

3.4

Capitalized words and phrases used herein shall have the same meanings as are ascribed to them in the General Conditions.

Article 2. Scope of Works The Contractor shall provide all Materials and perform all work and services of whatsoever nature or description, as set forth in Appendix 9-2 (Scope of Works and Supply by the Contractor) hereto and as required under the Contract, except the materials and equipment and work and services to be provided and performed by the Owner, as set forth in Appendix 9-3 (Scope of Works and Supply by the Owner) hereto and as required . under the Contract. The licence granted by the Contractor to the Owner under GC 15 (Licence/Use of Technical Information) of the General Conditions shall be subject to the conditions set out in Appendix 9-4 (Licence Conditions) hereto.

A2-03

Article 3. Contract Price The Owner hereby agrees to pay to the Contractor the Contract Price in consideration of the performance by the Contractor of its obligations hereunder. The Contract Price shall be the aggregate of: (1) Foreign Currency Portion (amount of foreign currency) and (2) Local Currency Portion (amount of local currency) Any breakdown of the Contract Price is given in Appendix 1 (Breakdown of the Contract Price) hereto. Unless Article 3.6 below applies, the Contract Price shall be a firm lumpsum not subject to any alteration except in the event of a Change in the Works or as otherwise provided in the Contract. The Contract Price includes the supply of spare parts required up to Acceptance of the Plant as described in Appendix 9-2 (Scope of Works and Supply by the Contractor) hereto. However, the Contract Price does not cover the supply of any other spare parts, including those recommended by the Contractor as required for the period of .................. years' operation of the Plant from the date of Acceptance as described in Appendix 92 (Scope of Works and Supply by the Contractor~ hereto. The Owner shall pay to the Contractor the price of such spare parts, including the purchase price therefor and other costs and expenses relating to the supply of the same, in addition to the Contract Price specified in Article 3.1 above. Such price and other terms and conditions for the supply of such spare parts shall be separately agreed in writing between the Owner and the Contractor when the identiry, specifications and quantities of the said spare parts have been determined in accordance with GC 7.3 of the General Conditions. The Contract Price specified in Article 3.1 above does not include the price of the sub-contract and the reasonable expenses and fee required by the Contractor relating to the employment by the Contractor of any Nominated Sub-contractor appointed pursuant to GC 19.2 (Nominated

A2-04

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ENGINEERING ADVANCEMENT ASSOCIATION OF JAPAN MODEL FORM

APPENDIX 2.

3.5

Sub-Contractor(s)) of the General Conditions and/or the purchase price of the Long Lead Items and other costs and expenses relating to the purchase of the same under GC 21.3 (Long Lead Items) of the General Conditions. Such prices, costs, expenses and fee shall be added to the Contract Price upon conclusion of the sub-contract between the Contractor and the Nominated Sub-contractor and/or upon conclusion of the agreement between the Owner and the Contractor for assignment or novation of the purchase order or contract, as the case may be, in accordance with GC 19.2.2 and GC 21.3.5 of the General Conditions. The amount, if any, to be added to or deducted from the Contract Price in respect of any Change in the Works specified in GC 39 (Change in the Works) of the General Conditions shall be calculated in accordance with GC 39.5 of the General Conditions. It is hereby agreed that the Contract Price shall be adjusted in accordance with the escalation formula specified in Appendix 2 (Escalation Clause) hereto. -Delete if not applicable.

(1) (2)

(3)

.

1

subject in each case to such extension of time to which the Contractor shall be entitled under GC40 (Extension of Time for Completion) of the General Conditions. . Time for Possession 5.3

The Owner shall give full possession of and accord all rights of access to the Site and rights to all other areas required pursuant to GC 10.2 of the General Conditions on or before the date(s) specified in Appendix 9-3 (Scope of Works and Supply by the Owner) hereto.

Liquidated Damages for Delay Al-OS

4.1

-4.2

Article 4. Terms of Payment The Contract Price shall be paid by the Owner to the Contractor at the times, in the manner, and in accordance with the provisions of Appendix 4 (Payment Terms) hereto. The Owner shall, not later than ................ days after the date of this Agreement, deliver to the Contractor a letter of credit/guarantee in an amount equal to [portion e.g. foreign currency portion] as at the date of this Agreement issued by (........... bank), in the form of Appendix 5 (Form of Letter of Credit/Guarantee) hereto and shall maintain such letter of credit/guarantee throughout the Contract. In the event that the [portion e.g. foreign currency portion] of the Contract Price or any other term of the Contract changes after the issue of the letter of credit/guarantee, the Owner shall arrange for such letter to be amended to reflect such change as soon as possible thereafter. -Delete if not applicable.

- 5,4

part thereof within the Time for Completion specified in Article 5.2 (Time for Completion) above or within such extended time to which the Contractor shall be entitled under GC 40 (Extension of Time for Completion) of the General Conditions, the Contractor shall pay to the Owner (amount; in case of "part", a separate rate or amount therefor) for each day (or week, etc.) of delay pursuant to GC 26.2 of the General Conditions. Such monies shall be paid as liquidated damages and not as a penalty. The total aggregate amount of such liquidated damages shall in no event exceed ............. per cent ( ..... %) of the Contract Price or the Contract Price properly attributable to that part. -Delete if not applicable. Bonus for Early Completion - 5.5

Article 5.

Al-06

The Contractor shall commence the Works within seven (7) days after the Effective Date.

Time for Completion 5.2

762

Without prejudice to GC 26.2 of the General Conditions, the Contractor shall proceed with the Works in accordance with the time schedule specified in Appendix 9-7 (Time Schedule) hereto and shall attain Mechanical Completion of the Plant within .................... months of the Effective Date [or shall attain Mechanical Completion of parts of the Plant within the following periods from the Effective Date:

If the Contractor attains Mechanical Completion of the Plant or any part thereof within the Time for Completion specified in Article 5.2 (Time for Completion) above, or within such extended time to which the Contractor shall be entitled under GC 40 (Extension of Time for Completion) of the General Conditions, the Owner shall pay to the Contractor (amount; in case of "part", a separate rate or amount therefor) for each day (or week, etc.) of early completion as a bonus pursuant to GC 26.3 of the General Conditions, provided that the total aggregate amount of such bonus shall in no event exceed ............... per cent ( ..... %) of the Contract Price or the Contract Price properly attributable to that part. -Delete if not applicable.

Time for Commencement, Completion and Possession

Time for Commencement 5.1

If the Contractor fails to attain Mechanical Completion of the Plant or any

6.1

Article 6. Insurance The insurances to be taken out and maintained by the Contractor pursuant to GC 34 (Insurance) of the General Conditions shall be as specified in Part I of Appendix 6 (Insurance Requirements) hereto.

763

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ENGINEERING ADVANCEMENT ASSOCIATION OF JAPAN MODEL FORM

APPENDIX 2.

·6.2

A2-08

The insurances to be taken out and maintained by the Owner pursuant to GC 34 (Insurance) of the General Conditions shall be as specified in Part II of Appendix 6 (Insurance Requirements) hereto. ·Delete if not applicable.

Retention Bond • 8.3

Article 7. Process Performance and Consumption Guarantees The Contractor guarantees the attainment of the Process Performance Guarantees and Consumption Guarantees specified in Appendix 7 (Process Performance and Consumption Guarantees) hereto in accordance with GC 28 (Process Performance and Consumption Guarantees) of the General Conditions subject to and upon the conditions specified in Appendix 7 (Process Performance and Consumption Guarantees) hereto. Article 8. Bonds

A2-09

Advance Payment Bond 8.1

Pursuant to GC 13.2 (Advance Payment Bond) of the General Conditions, the Contractor shall deliver to the Owner not later than .............. days after the Effective Date, a bond in the form of Appendix 8-1 (Advance Payment Bond) hereto issued by a bank acceptable to the Owner for a sum equal to the amount of the advance payment calculated in accordance with Appendix 4 (Payment Terms) hereto.

Performance Bond 8.2

Pursuant to GC 13.3 (Performance Bond) of the General Conditions, the Contractor shall deliver to the Owner not later than ................ days after the Effective Date, a bond in the form of Appendix 8-2 (Performance Bond) hereto issued by a bank acceptable to the Owner for a sum equal to five per cent (5%) of the Contract Price. The bond shall be reduced to two point five per cent (2.5%) of the Contract Price on the date of Acceptance of the Plant and shall automatically become null and void twelve (12) months after the date of Acceptance of the Plant. Where it is agreed between the Owner and the Contractor that the Plant is to be accepted in parts, the above provisions shall apply to each part so accepted, and the amount of the bond shall be reduced as follows:

In such event the bond shall automatically become null and void twelve (12) months after the date of Acceptance of the last part. Notwithstanding the foregoing, if the Defect Liability Period is extended with respect to any part of the Plant in accordance with GC 27.8 of the General Conditions, the Contractor shall arrange for the bond to remain valid until the expiration of the Defect Liability Period with respect to such part in an amount equal to two point five per cent (2.5%) of the Contract Price of that part.

764

11.1

[Case I - In case retention money is withheld by.the Owner (in case of the bond form Sample 1 of Appendix 8-3)] : Pursuant to GC 13.4 (Retention Bond) of the General Conditions, the Contractor may from time to time provide to the Owner a bond(s) in the form of Appendix 8-3 (Retention Bond) hereto issued by a bank acceptable to the Owner for a sum equal to or part of the retention money withheld or to be withheld by the Owner. Upon receipt of the bond(s), the Owner shall immediately pay to the Contractor all the retention money withheld up to the sums guaranteed by such bond(s). [Case I l - In case no retention money will be withheld by the Owner but instead a bond shall be delivered by the Contractor to the Owner (in case of the bond form Sample 2 of Appendix 8-3)) Pursuant to GC 13.4 (Retention Bond) of the General Conditions, the Contractor shall provide to the Owner prior to the first progress payment by the Owner, a bond in the form of Appendix 8-3 (Retention Bond) for an initial value of five per cent (5%) of the invoiced sum of the first progress payment. Thereafter, the amount of the bond shall be increased by the sum equal to five per cent (5%) of the approved invoices for Licence, Design and Engineering, Construction and Training plus five per cent (5%) of the invoiced amounts for each shipment of Materials, concurrently with the payment of the same and in the same currencies of such payment, in accordance with the provisions of Appendix 4 (Payment Terms) hereto until such time as the total amount of the bond reaches five per cent (5%) of the Contract Price. ·Delete if not applicable.

Article 9. Contractor's Total Maximum Liability The Contractor's total maximum liability pursuant to GC 30.1 of the General Conditions shall be ............. per cent ( ..... %) of the Contract Price.

A2-10

Article 10. Notices All notices to be given under the Contract shall be sent to the Owner or the Contractor, as the case may be, at the address set forth below: To the Owner: Attention: To the Contractor: Attention: or such other address as is notified pursuant to GC 4 (Notices) of the General Conditions.

A2-11

Article 11. Effective Date The Contract shall enter into full force and effect on the date when all of the following conditions have been fulfilled: (1) this Agreement has been duly executed for and on behalf of the Owner and the Contractor; and

Al-12

765

APPENDIX 2

ENGINEERING ADVANCEMENT ASSOCIATION 6F JAPAN MODEL FORM

(2)

PART I

(3) (4)

11.2

Al-13 12.1 12.2

Al-14 ·13.1

13.2 13.3 13.4

CONTRACT AND INTERPRETATION

Each party shall use its best efforts to fulfill the above conditions for which it is responsible as soon as practicable. If the Contract has not become effective pursuant to Article 11.1 above within ....................... months from the date of this Agreement due to reasons not attributable to the Contractor, the parties shall discuss and agree on an equitable adjustment to the Contract Price and the Time for Completion and/or other relevant conditions of the Contract.

"Contractor" means the person(s) named as such in the Agreement and includes the legal successors or permitted assigns of the Contractor.

Article 13. Arbitration In place of the Rules of the International Chamber of Commerce specified in GC 6.1 (Arbitration) of the General Conditions, .................................. . shall apply to any arbitration under the said GC 6.1. ·Delete if not applicable. The tribunal of arbitration shall consist of ............................... arbitrators, unless otherwise agreed between the Owner and the Contractor. The place of any arbitration pursuant to GC 6.1 (Arbitration) of the General Conditions shall be .......................... . The language of the arbitration shall be English.

IN WITNESS WHEREOF the Owner and the Contractor have caused this Agreement to be duly executed by their duly authorized representatives the day and year first above written.

in the presence of: Signed by for and on behalf of the Contractor:

"Owner" means the person named as such in the Agreement and includes the legal successors or permitted assigns of the Owner. "Owner's Representative" means any person appointed by the Owner in the manner provided in GC 17.1 (Owner's Representative) hereof to perform the duties delegated by the Owner.

Article 12. Governing Law and Language The governing law of the Contract shall be the law of ............ . The governing language of the Contract shall be English.

Signed by for and on behalf of the Owner:

GC 1. Definitions The following words and expressions shall have the meanings hereby assigned to them:

"Contractor's Representative" means any person nominated by the Contractor and approved by the Owner in the manner provided in GC 17.2 (Contractor's Representative and Construction Manager) hereof to perform the duties delegated by the Contractor. "Sub-contractor" means any person to whom execution of any part of the Works, including preparation of any design or supply of any Materials, is sub-contracted directly or indirectly by the Contractor, and includes its legal successors or permitted assigns. "Expert" means any person who may be appointed from time to time by agreement between the Owner and the Contractor to make a decision on or to settle any dispute or difference between the Owner and the Contractor referred to him by the parties pursuant to GC 6.2 (Reference to Expert) hereof. "Contract" means the Agreement entered into between the Owner and the Contractor, and the Contract Documents shall together constitute the Contract, and the term "the Contract" shall in all such documents be construed accordingly.

................ .............. ... ..

Title

"Contract Documents" means the documents listed in Article 1.1 (Contract Documents) of the Agreement (including any amendments thereto).

... ..... .... .. ..... .. .. ...... ......

Title

"Contract Price" means the sum specified in Article 3 (Contract Price) of the Agreement, subject to such additions and adjustments thereto or deductions therefrom as may be made pursuant to the Contract. "Plant" means the plant named in the Agreement and more particularly described in the Appendices thereto to be constructed on the Site by the Contractor under the Contract.

..... .......... ....... .............

Title

............. ... .... ....... .... .. ..

Title

in the presence of:

"Works" means the Plant and Materials to be supplied, and the entire works and services to be carried out by the Contractor under the Contract. "Materials" means equipment, machinery, apparatus, materials, articles and things of all kinds to be provided and incorporated in the Plant by the Contractor under the Contract (including the spare parts to be supplied by the Contractor under GC 7.3 hereof), but does not include Construction Equipment. "Construction Equipment" means all plant, facilities, equipment, machinery, tools, apparatus, appliances or things of every kind required in or for the construction,

766

767

Al-15

ENGINEERING ADVANCEMENT ASSOCIATION OF JAPAN MODEL FORM

APPENDIX 2.

completion and maintenance of the Works and which are to be provided by the Contractor, but does not include Materials, or other things intended to form or forming part of the Plant. "Site" means the land and other places upon which the Plant is to be constructed, and such other land or places as may be specified in the Contract as forming part of the Site. "Effective Date" means the date that the Contract enters into full force and effect upon fulfillment of all the conditions stated in Article 11 (Effective Date) of the Agreement. "Time for Completion" means the time within which Mechanical Completion of the Plant as a whole (or of a part of the Plant where a separate time for Mechanical Completion of such part is set forth in Article 5.2 (Time for Completion) of the Agreement) is to be attained in accordance with Article 5.2 (Time for Completion) of the Agreement and the relevant provisions of the Contract. "Mechanical Completion" means that the Plant (or a specific part thereof where specific parts are specified in Appendix 9-1 (Description of the Plant) to the Agreement) has been completed mechanically and structurally and put in a tight and clean condition and that all work in respect of Precommissioning of the Plant or such specific part thereof has been completed, that is to say, that the Plant or the specific part thereof is ready for Commissioning as provided in GC 24 (Mechanical Completion) hereof.

(Commissioning and Acceptance) hereof and acceptance of facilities which have become Ready for Use in accordance with GC 25.4.2 hereof. "Defect Liability Period" means the period of validity of the guarantees given by the Contractor commencing from the date of Acceptance of the Plant (or any part of the Plant where the Contract provides for acceptance of the Plant in parts) during which the Contractor is responsible for defects with respect to the Plant (or the relevant part thereof) as provided in GC 27 (Defect Liability) hereof. "Work Procedures" means those procedures agreed or to be agreed between the Owner and the Contractor from time to time specifying the administrative and procedural requirements to which the Owner and the Contractor shall adhere in the execution of the Works in accordance with GC 18.5 (Work Procedures) hereof. "GC" means the General Conditions hereof. "day" means calendar day of the Gregorian Calendar. "month" means calendar month of the Gregorian Calend~r. GC 2. Contract Documents Subject to Article 1.2 (Order of Precedence) of the Agreement, all documents forming part of the Contract (and all parts thereof) are intended to be correlative, complementary and mutually explanatory of one another. The Contract shall be read as a whole.

"Ready for Use" means that a part of the Plant (or any facility comprised therein) which is not subject to Commissioning or a Performance Test has been substantially completed in accordance with the Contract and is ready for occupation and use apart from minor items not affecting such occupation or use. "Precommissioning" means the testing, checking and other works specified in the Work Procedures (WPI0 - Commissioning and Performance Test Procedure) which are to be carried out by the Contractor in preparation for Commissioning as provided in GC 24 (Mechanical Completion) hereof. "Commissioning" means the operation of the Plant or any part thereof by the Contractor following Mechanical Completion in accordance with the Work Procedures (WPI0 - Commissioning and Performance Test Procedure), which operation is to be carried out by the Contractor as provided in GC 25.1 (Commissioning) hereof, for the purpose of carrying out the Performance Test(s). "Performance Test(s)" means the testIs) specified in the Work Procedures (WPI0Commissioning and Performance Test Procedure), to be carried out to ascertain whether the Plant or a specified part thereof is able to attain the Process Performance Guarantees and Consumption Guarantees specified in Appendix 7 (Process Performance and Consumption Guarantees) to the Agreement in accordance with the provisions of GC 25.2 (Performance Test) hereof. "Acceptance" means the acceptance by the Owner of the Plant (or any part of the Plant where the Contract provides for acceptance of the Plant in parts) which certifies the Contractor's fulfillment of the Contract in respect of Commissioning of the Plant (or the relevant part thereof) and of any Performance Test(s) required thereunder and of the Plant (or the relevant part thereof) having been taken over by the Owner and shall include deemed acceptance in accordance with GC 25

768

GC 3.

Al·17

Interpretation

Language 3.1 3.1.1

3.1.2

All Contract Documents and all correspondence and communications to be given and all other documentation to be prepared and supplied under the Contract shall be written in the governing language specified in Article 12 (Governing Law and Language) of the Agreement and the Contract shall be construed and interpreted in accordance with that language. If any of the Contract Documents is prepared in any language in addition to the governing language, the Contract Documents in the governing language shall prevail, unless otherwise specified in Article 12 (Governing Law and Language) of the Agreement.

Singular and Plural 3.2

The singular shall include the plural and the plural the singular except where the context otherwise requires.

Headings 3.3

Al·16

The headings and marginal notes in the Contract Documents are included for ease of reference, and shall not constitute a part of the Contract, nor affect its interpretation.

769

APPENDIX 2

Persons 3.4

ENGINEERING ADVANCEMENT ASSOCIATION OF JAPAN MODEL FORM

3.9.2 Words importing persons or parties shall include firms, corporations and government entities.

Any waiver of a party's rights, powers or remedies under the Contract must be in writing, dated and signed by an authorized representative of the party granting such waiver, and must specify the right and the extent to which it is being waived.

Incoterms

Severability

3.5

3.10

Unless inconsistent with any provision of the Contract, the meaning of any shipping term and the rights and obligations of the parties thereunder shall be as ascribed by "Incoterms". "Incoterms" means the international rules for the interpretation of trade terms published by the International Chamber of Commerce (1990 edition).

Entire Agreement 3.6

Subject to GC 16.4 hereof, the Contract constitutes the entire agreement between the Owner and the Contractor with respect to the subject matter of the Contract and supersedes all communications, negotiations and agreements (whether written or oral) of the parties with respect thereto made prior to the date of the Agreement.

Amendment

3.7

4.1

4.1.1

4.1.2

No amendment or other variation of the Contract shall be effective unless it is in writing, is dated, expressly refers to the Contract, and is signed by a duly authorized representative of each party hereto.

Independent Contractor

4.1.3

3.8

4.1.4

The Contractor shall be an independent contractor performing the Contract. The Contract does not create any agency, partnership, joint venture or other joint relationship between the parties hereto. Subject to the provisions of the Contract, the Contractor shall be solely responsible for the manner in which the Works are performed. All employees, representatives or Sub-contractors engaged by the Contractor in connection with the performance of the Contract shall be under the complete control of the Contractor and shall not be deemed to be employees of the Owner, and nothing contained in the Contract or in any sub-contract awarded by the Contractor shall be construed to create any contractual relationship between any such employees, representatives or Subcontractors and the Owner.

4.2

If any provision or condition of the Contract is prohibited or rendered invalid or unenforceable, such prohibition, invalidity or unenforceability shall not affect the validity or enforceability of any other provisions and conditions of the Contract. GC 4. Notices Unless otherwise stated in the Contract, all notices to be given under the Contract shall be in writing, and sent by personal delivery, airmail post, special courier, cable, telegraph, telex, facsimile or Electronic Data Interchange (EOI) to the address of the relevant party set out in Article 10 (Notices) of the Agreement, provided that: Any notice sent by cable, telegraph, telex, facsimile or EDI shall be confirmed within two (2) days after dispatch by notice sent by airmail post or special courier, except as otherwise specified in the Contract. Any notice sent by airmail post or special courier shall be deemed (in the absence of evidence of earlier receipt) to have been delivered ten (10) days after dispatch and in proving the fact of dispatch it shall be sufficient to show that the envelope containing such notice was properly addressed, stamped and conveyed to the postal authorities or courier service for transmission by airmail or special courier. Any notice delivered personally or sent by cable, telegraph, telex, facsimile or EDI shall be deemed to have been delivered on the date of its dispatch. Either party may by ten (10) days' notice to the other party in writing change its postal, cable, telex, facsimile or EDI address or addressee for receipt of such notices. In this GC 4 and Article 10 (Notices) of the Agreement, notices shall include any approvals, consents, instructions, orders and certificates to be given under the Contract.

A2-18

GC 5. Governing Law The Contract shall be interpreted under and governed by the laws of the country or state specified in Article 12 (Governing Law and Language) of the Agreement.

A2-19

Settlement of Disputes

A2-20

Non-Waiver 3.9 GC 6. 3.9.1

770

Subject to GC 3.9.2 below, no relaxation, forbearance, delay or indulgence by either party in enforcing any of the terms and conditions of the Contract or the granting of time by either party to the other shall prejudice, affect or restrict the rights of that party under the Contract, nor shall any waiver by either party of any breach of the Contract operate as a waiver of any subsequent or continuing breach of the Contract.

Arbitration 6.1 6.1.1

If any dispute or difference of any kind whatsoever shall arise between the Owner and the Contractor in connection with or arising out of the Contract including without prejudice to the generality of the foregoing any question

771

ENGINEERING ADVANCEMENT ASSOCIATION OF JAPAN MODEL FORM

APPENDIX 2

6.1.2

6.1.3

6.1.4 6.1.5

regarding its existence, validity or termination or the execution of the Works, whether during the progress of the Works or after their completion and whether before or after the termination, abandonment or breach of the Contract, the parties shall seek to resolve any such dispute or difference by mutual consultation. If the parties fail to solve such dispute or difference by mutual consultation, then either party may give to the other party a notice that a dispute or difference exists, specifying its nature, the point(s) in issue and its intention to refer the dispute to arbitration. If the parties fail to resolve such dispute or difference by further consultation within a period of thirty (30) days from the date upon which such notice of dispute has been given, the dispute or difference shall be referred to and finally settled by arbitration under the Rules of Conciliation and Arbitration of the International Chamber of Commerce (ICC) or any other rules as may be agreed by the Owner and the Contractor and specified in Article 13.1 of the Agreement, by one or more arbitrators (not to exceed three) as specified in Article 13.2 of the Agreement who shall be appointed under such rules. The award of the arbitrator(s) shall be final and binding on the parties. If the tribunal shall consist of three arbitrators, one of them shall be nominated by each party and the third shall be chosen by mutual agreement by the parties within thirty (30) days of the nomination of the last of the two arbitrators nominated by the parties. If the parties fail to agree upon the third arbitrator within such period, the said third arbitrator shall be nominated in accordance with the rules agreed by the Owner and the Contractor under GC 6.1.2 above. The place of the arbitration shall be the place specified in Article 13.3 of the Agreement or any other place agreed between the parties. The language of the arbitration shall be the language specified in Article 13.4 of the Agreement.

(a)

6.2.2 6.2.3

Reference to Expert 6.2 6.2.4 6.2.1

772

Notwithstanding the provisions of GC 6.1 (Arbitration) above save insofar as they relate to mutual consultation, either party may give a notice to the other of its desire to refer to an Expert any dispute or difference falling within any one or more of the categories set out at (a) to (g) (inclusive) below. On each such occasion and within fourteen (14) days of such notice being given or such longer period as the parties may agree, the parties may by mutual agreement: (i) appoint an Expert to which the dispute or difference shall be referred; or (ii) request the International Chamber of Commerce (ICC) acting through its International Centre for Technical Expertise (ICTE) to appoint an Expert to which the dispute or difference shall be referred, which appointment will be made within twenty one (21) days of the request being made to the ICTE. If the parties fail to reach agreement on either of paragraphs (i) or (ii) above within the above specified period, the dispute or difference shall not be referred to an Expert, without prejudice to the right of either party to refer such dispute or difference to arbitration forthwith in accordance with GC 6.1 (Arbitration) above. The relevant disputes or differences which may be referred to such Expert shall include a dispute or difference:

6.2.5

6.3

that may arise concerning approval of design provided in GC 20 (Design and Engineering) hereof; or (b) that may arise concerning a change in the Works provided in GC 39 (Change in the Works) hereof, including the grant of an extension of time, extra payment to the Contractor and any amendment or modification to the Contract; or (c) that may arise concerning the valuation of any additional cost or expense incurred by the Contractor and/or any additional time required as a result of the suspension provided in GC 41.3 hereof; or (d) that may arise concerning the certification of sums allegedly due to the Contractor; or (e) that may arise concerning the results of test and/or inspection provided in GC 23 (Test and Inspection) hereof; or (f) that may arise as to whether Mechanical Completion under GC 24 (Mechanical Completion) hereof is attained, whether minor items have been completed under GC 25.3.1 hereof, whether the Owner's failure to issue an Acceptance Certificate under GC 25.3.4 hereof is justified, or what extensions of time under GC 40.2 hereof should be given; or (g) any other dispute or difference which the parties specifically agree from time to time to refer to the Expert. The Expert shall inform the parties of his decision in writing within thirty (30) days of the closing of submissions made to him by the parties and in any event within sixty (60) days of the date of his appointment. If either party is not satisfied with a decision by the Expert as provided in the preceding paragraph, such party may within fourteen (14) days after receipt of such decision give a notice to the other party stating that it will not abide by such decision. In this case, such dispute or difference may be referred to and finally settled by arbitration pursuant to GC 6.1 (Arbitration) hereof. If neither party gives such notice to the other party within fourteen (14) days after receipt of such decision, such decision shall become final and binding on the parties. Unless the parties agree otherwise, the proper fees and costs of the Expert shall be shared equally by the parties. If any dispute or difference is referred to an Expert hereunder, neither party shall refer such dispute or difference to arbitration until either (a) the Expert fails to produce a determination within the period stipulated at GC 6.2.2 above or (b) one party gives a notice to the other party pursuant to GC 6.2.3 above. Notwithstanding any reference to an Expert or arbitration hereunder, (a) the parties shall continue to perform their respective obligations under the Contract unless the parties otherwise agree; and (b) the Owner shall pay to the Contractor any monies due and owing to the Contractor.

PART II SUBJECT MATTER OF CONTRACT 7.1

GC 7. Scope of Works The Contractor's obligations cover the provision of all Materials and the performance of all works and services required for the design, procurement,

773

A2-21

APPENDIX 2.

7.2

7.3

7.4

construction, erection, commissioning, testing and delivery of the Plant and the completion of the Works in accordance with the plans, procedures, spec· ifications, drawings, codes and any other documents as specified in Appendix 9·5 (Technical Specifications) to the Agreement including, but not limited to, the grant of licences, the provision of supervision and engi· neering services, supply of labor, materials, equipment, spare parts (as specified in GC 7.3 below) and accessories, Construction Equipment, construction utilities and supplies, temporary materials, structures and facilities, transportation (including, without limitation, unloading and hauling to, from and at the Site) storing and training, all as specified in Appendix 9-2 (Scope of Works and Supply by the Contractor) to the Agreement and the Work Procedures, except for those supplies, works and services which will be provided or performed by the 'Owner, as set forth in Appendix 9-3 (Scope of Works and Supply by the Owner) to the Agreement. The Contractor shall perform all such work and/or supply all such materials not specifically mentioned in the Contract but which can be reasonably inferred from the Contract as being required for the proper performance of the Plant as if such work and/or materials were expressly mentioned in the Contract. The Contractor agrees to supply the spare parts required up to Acceptance of the Plant as described in Appendix 9-2 (Scope of Works and Supply by the Contractor) to the Agreement in accordance with the terms of the Contract. The Contractor also agrees to supply spare parts required for the operation and maintenance of the Plant for the period specified in Appendix 9-2 (Scope of Works and Supply by the Contractor) to the Agreement; however, the identity, specifications and quantities of such spare parts and the terms and conditions relating to the supply thereof are to be agreed between the Owner and the Contractor and the price of such spare parts shall be added to the Contract Price in accordance with Article 3.3 of the Agreement. The price of such spare parts shall include the purchase price therefor and other costs and expenses (including the Contractor's fees) relating to the supply of the same. The Contractor shall be responsible for conducting the training of the Owner's operating and maintenance personnel. The maximum number of man-months, places and periods of training and the responsibility for associated costs and expenses are specified in Appendix 9-2 (Scope of Works and Supply by the Contractor) to the Agreement. All other conditions including the program for and nature of the training shall be agreed between the Owner and the Contractor.

ENGINEERING ADVANCEMENT ASSOCIATION OF JAPAN MODEL FORM

Contractor shall be entitled under GC 40 (Extension of Time for Completion) hereof.

9.1

9.2

9.3

9.4

10.1

10.2 Al·22 8.1

8.2

774

GC 8. Time for Commencement and Completion The Contractor shall commence the Works within the period specified in Article 5.1 (Time for Commencement) of the Agreement and, without prejudice to GC 26.2 hereof, the Contractor shall thereafter proceed with the Works in accordance with the time schedule specified in Appendix 9-7 (Time Schedule) to the Agreement. The Contractor shall attain Mechanical Completion of the Plant (or of a part where a separate time for Maintenance Completion of such part is specified in the Agreement) within the time stated in Article 5.2 (Time for Completion) of the Agreement or within such extended time to which the

10.3

GC 9. Contractor's Responsibilities The Contractor shall execute and complete the Works with due care and diligence in accordance with the Contract. The Contractor confirms that it has entered into this Contract on the basis of reasonable examination of the data relating to the Works (including any data as to boring tests) provided by the Owner and of information which it could have obtained from a visual inspection of the Site (if access thereto was available) and other data readily available to it relating to the Works as at the date of the Agreement and acknowledges that any failure by it to acquaint itself with all such data and information shall not relieve it of its responsibility for estimating properly the difficulty or cost of successfully performing the Works. The Contractor shall acquire all permits, approvals and/or licences from all local, state or national government authorities or public service undertakings in the country where the Site is located, which such authorities or undertakings require the Contractor to obtain in its name and which are necessary for the performance of the Contract, including, without limitation, visas for the Contractor's and Sub-contractor's personnel, and entry permits for all imported Construction Equipment, and shall acquire all other permits, approvals and/or licences which are not the responsibility of the Owner under GC 10.3 hereof and which are necessary for the performance of the Contract. The Contractor shall comply with all laws in force in the country where the Works are carried out, whether national, provincial, municipal or otherwise, affecting the performance of the Contract and binding upon the Contractor. The Contractor shall indemnify and hold harmless the Owner from and against any and all liabilities, damages, claims, fines, penalties and expenses of whatever nature arising out of or resulting from the violation of such laws by the Contractor or its personnel, including the Subcontractors and their personnel but without prejudice to GC 10.1 hereof.

Al·23

GC 10. Owner's Responsibilities The Owner shall ensure the correctness and exactitude of all informa tion and/or data to be supplied by the Owner as described in Appendix 9-3 (Scope of Works and Supply by the Owner) to the Agreement except when otherwise expressly stated in the Contract. The Owner shall be responsible for acquiring and providing legal and physical possession of the Site and access thereto, and providing possession and use of and access to all other areas reasonably required for the proper execution of the Works including all requisite rights of way, as specified in Appendix 9-3 (Scope of Works and Supply by the Owner) to the Agreement, and shall give full possession of and accord all rights of access thereto on or before the date(s) specified in Appendix 9-3 (Scope of Works and Supply by the Owner) to the Agreement. The Owner shall acquire all permits, approvals and/or licences from all local, state or national government authorities or public service undertakings in the country where the Site is located, which such authorities or

Al·24

775

ENGINEERING ADVANCEMENT ASSOCIATION OF JAPAN MODEL FORM

APPENDIX 2.

10.4

10.5

10.6

undertakings require the Owner to obtain in its name and which are necessary for the execution of the Works (including those which are required for the performance by both the Contractor and the Owner of their respective obligations under the Contract) and which are specified in Appendix 9-3 (Scope of Works and Supply by the Owner) to the Agreement. If requested by the Contractor, the Owner shall use its best endeavors to assist the Contractor in obtaining in a timely and expeditious manner all necessary permits, approvals and/or licences necessary for the execution of the Works from all local, state or national government authorities or public service undertakings which such authorities or undertakings require the Contractor or Sub-contractors or the personnel of the Contractor or Subcontractors, as the case may be, to obtain. The Owner shall provide sufficient properly qualified operating and maintenance personnel and supply and make available all raw materials, utilities, lubricants, chemicals, catalysts, other materials and facilities and perform all work and services of whatsoever nature, including those required by the Contractor to properly carry out Precommissioning, Commissioning and Performance Test(s), all in accordance with the provisions of Appendix 9-3 (Scope of Works and Supply by the Owner) to the Agreement, at or before the time specified in the program furnished by the Contractor under GC 18.2 (Program of Work) hereof and in the manner thereupon specified or as otherwise agreed upon by the Owner and the Contractor. All costs and expenses involved in the performance of the obligations under this GC 10 shall be the responsibility of the Owner.

GC 13. Issuance of Bonds 13.1

13.2.1

13.2.2

13.3.1

PAYMENT

11.2 11.3

A2-26

12.1 12.2

12.3

776

GC 11. Contract Price The Contract Price shall be as specified in Article 3 (Contract Price) of the Agreement. The Contract Price shall be a firm lumpsum not subject to any alteration except in the event of a Change in the Works or as otherwise provided in the Contract. Subject to GCs 9.2 and 35 (Unforeseen Conditions) hereof, the Contractor shall be deemed to have satisfied itself as to the correctness and sufficiency of the Contract Price which shall, except as otherwise provided for in the Contract, cover all its obligations under the Contract.

GC 12. Terms of Payment The Contract Price shall be paid as specified in Article 4 (Terms of Payment) of the Agreement and Appendix 4 (Payment Terms) to the Agreement. No payment made by the Owner hereunder shall be deemed to constitute acceptance by the Owner of the Works or any part(s) thereof. In the event that the Owner fails to make any payment on its respective due date or within the period set forth in the Contract, the Owner shall pay to the Contractor interest on the amount of such delayed payment at the rate(s) shown in Appendix 4 (Payment Terms) to the Agreement for the period of delay until payment in full, whether before or after judgment or arbitral award.

The Contractor shall, within the period specified in Article 8.1 (Advance Payment Bond) of the Agreement, provide a bond in an amount equal to the advance payment calculated in accordance with Appendix 4 (Payment Terms) to the Agreement. The amount of the bond shall be reduced in proportion to the value of the Works executed by the Contractor from time to time and shall automatically become null and void upon the date of Acceptance of the Plant or, where it is agreed between the Owner and the Contractor that the Plant is to be accepted in parts, the date of Acceptance of the last part. The bond shall be returned to the Contractor immediately after its expiry.

Perfonnance Bond 13.3

13.3.2

11.1

The Contractor shall provide the bonds specified below in favor of the Owner at the times, and in the amount, manner and form specified below.

Advance Payment Bond 13.2

PART III

A2-25

A2-27

Bonds

The Contractor shall provide a bond for the due performance of the Contract within the period and in the amount specified in Article 8.2 (Performance Bond) of the Agreement. The bond shall automatically become null and void twelve (12) months after the date of Acceptance of the Plant, or, where it is agreed between the Owner and the Contractor that the Plant is to be accepted in parts, twelve (12) months after the date of Acceptance of the last part. The bond shall be returned to the Contractor immediately after its expiry.

Retention Bond 13.4 13.4.1

13.4.2

13.4.3

If the Contract provides for retention money to be withheld by the Owner from the payments of the Contract Price, the Contractor may from time to time provide to the Owner a retention bond(s) as specified in Article 8.3 (Retention Bond) of the Agreement for a sum equal to all or part of the retention money withheld or to be withheld by the Owner. Upon receipt of a bond(s) in the form of (Sample 1) of Appendix 8-3 (Retention Bond) to the Agreement), the Owner shall immediately pay to the Contractor all the retention money withheld up to the sums guaranteed by the bond(s). If the Contract provides that no retention money will be withheld by the Owner but instead a bond in the form (Sample 2) of Appendix 8-3 (Retention Bond) to the Agreement shall be delivered to the Owner prior to the first progress payment, then the Contractor shall provide to the Owner prior to the first progress payment by the Owner, a bond in the said form as specified in Article 8.3 (Retention Bond) of the Agreement. The bond shall automatically become null and void on the date of Acceptance of the Plant. Where it is agreed between the Owner and the .Contractor that the Plant is to be accepted in parts, the above provisions

777

APPENDIX 2

ENGINEERING ADVANCEMENT ASSOCIATION OF JAPAN MODEL FORM

shall apply to each part so accepted and upon Acceptance of each such part, the amount of the bond shall be reduced in proportion to the value of the part so accepted and the bond shall become null and void on the date of Acceptance of the last part. The bond shall be returned to the Contractor immediately after its expiry. Claim under Bond 13.5

A2-28 14.1

14.2

14.3

14.4

If the Owner considers itself entitled to any claim under any bond, it shall so notify the Contractor specifying the default of the Contractor upon which it bases its claim. Subject to full compliance with the requirements and procedures stated in the applicable bond, the Owner may claim under the bond to the extent of the loss or damage incurred by the Owner by reason of such default. GC 14. Taxes and Duties Except as otherwise specifically provided in the Contract, the Contractor shall bear and pay all taxes, duties, levies and charges assessed on the Contractor, its Sub·contractors or their employees by all local, state or national government authorities in connection with the Works in and outside the country where the Site is located. Notwithstanding GC 14.1 above, the Owner shall bear and promptly pay all customs and import duties imposed by the law of the country where the Site is located on the Materials to be incorporated into the Plant. If any tax exemptions, reductions, allowances or privileges may be avail· able to the Contractor in the country where the Site is located, the Owner shall use its best endeavors to enable the Contractor to benefit from any such tax savings to the maximum allowable extent. For the purpose of the Contract, it is agreed that the Contract Price specified in Article 3 (Contract Price) of the Agreement is based on the taxes, duties, levies and charges prevailing at the date of the Agreement in the country where the Site is located (hereinafter called "Tax" in this GC 14.4). If any of the rates of Tax is increased or decreased or a new Tax is introduced or an existing Tax abolished or any change in interpretation or application of any Tax occurs in the course of the performance of the Contract, which was or is to be assessed on the Contractor, Sub-contractors or their employees in connection with the performance of the Contract, an equitable adjustment of the Contract Price shall be made to reflect any such change by addition to the Contract Price or deduction therefrom, as the case may be, in accor· dance with GC 36 (Change in Laws and Regulations) hereof.

15.2

15.3

16.1

16.2

PART IV 16.3

INTELLECTUAL PROPERTY A2-29 15.1

778

GC 15. Licence/Use of Technical Information For the operation and maintenance of the Plant incorporating the process(es) specified in Appendix 9-4 (Licence Conditions) to the Agreement, and subject to the conditions therein contained, the Contractor

shall grant a non-exclusive and non-transferable licence (without the right to sub-license) to the Owner under the patents, utility models or other industrial property rights owned by the Contractor or by a third party from whom the Contractor has received the right to grant licences thereunder, and shall also grant to the Owner a non-exclusive and non-transferable right (without the right to sub-license) to use the know-how and other technical information disclosed to the Owner under the Contract. Nothing contained herein shall be construed as transferring ownership of any patent, utility model, trademark, design, copyright, know-how or other intellectual property right from the Contractor or any third party to the Owner. The fully paid-up licence fee for the grant of the licence and rights under GC 15.1 above is included in the Contract Price for the operation and maintenance by the Owner of the Plant at its specified design capacity. The operation of the Plant by the Owner in excess of such design capacity or any extension or modification by the Owner of the Plant which results in an increase in such design capacity of the Plant shall be subject to the conditions specified in Appendix 9-4 (Licence Conditions) to the Agreement. The copyright in all drawings, documents and other materials containing data and information furnished to the Owner by the Contractor hereunder shall remain vested in the Contractor or, if they are furnished to the Owner directly through the Contractor by any third party including process licensorts) or suppliers of Materials, the copyright in such materials shall remain vested in such third party.

GC 16. Confidential Information The Owner and the Contractor shall keep confidential and shall not, without the written consent of the other party hereto, divulge to any third party any documents, data or other information furnished directly or indirectly by the other party hereto in connection with the Contract whether such information has been furnished prior to, during or following termination of the Contract. Notwithstanding the above, the Contractor may furnish to its Sub-contractor(s) such documents, data and other information it receives from the Owner to the extent required for the Subcontractor(s) to perform its works under the Contract, in which event the Contractor shall obtain from such Sub-contractor(s) an undertaking of confidentiality similar to that imposed on the Contractor under this GC 16. The Owner shall not use such documents, data and other information received from the Contractor for any purpose other than the operation and maintenance of the Plant. Similarly, the Contractor shall not use such documents, data and other information received from the Owner for any purpose other than the design, procurement of Materials, construction or such other work and services as are required for the performance of the Contract. The obligation of a party under GCs 16.1 and 16.2 above, however, shall not apply to that information which: (a) now or hereafter enters the public domain through no fault of that party; or (b) can be proved to have been in the possession of that party at the time of disclosure and which was not previously obtained, directly or indirectly, from the other party hereto; or

779

A2-30

ENGINEERING ADVANCEMENT ASSOCIATION OF JAPAN MODEL FORM

APPENDIX 2.

(c)

16.4

16.5

otherwise lawfully becomes available to that party from a third party under no obligation of confidentiality. The above provisions of this GC 16 shall not in any way modify any undertaking of confidentiality given by either of the parties hereto prior to the date of the Agreement in respect of process(es) or equipment. The provisions of this GC 16 shall survive termination for whatever reason of the Contract.

17.2.2

PART V

WORK EXECUTION A2-31

G C 17.

Representatives

Owner's Representative 17.1 17.1.1

17.1.2

If the Owner's Representative is not named in the Contract, then within fourteen (14) days ofthe Effective Date, the Owner shall appoint and notify the Contractor in writing of the name of the Owner's Representative. The Owner may from time to time appoint some other person as the Owner's Representative in place of the person previously so appointed and shall give a notice of the name of such other person to the Contractor without delay. No such appointment shall be made at such a time or in such a manner as may impede the progress of the Works. Such appointment shall only take effect upon receipt of such notice by the Contractor. The Owner's Representative shall represent and act for the Owner at all times during the currency of the Contract. All notices, instructions, orders, certificates, approvals and all other communications under the Contract shall be given by the Owner's Representative, except as herein otherwise provided. All notices, instructions, information and other communications given by the Contractor to the Owner under the Contract shall be given to the Owner's Representative, except as herein otherwise provided. The Owner's Representative may at any time delegate to any person any of the powers and duties vested in him. Any such delegation may be revoked at any time. Any such delegation or revocation shall be subject to a prior notice signed by the Owner's Representative and any notice of delegation or revocation shall specify the powers and duties thereby delegated or revoked. Such delegation or revocation shall become valid when a copy thereof has been delivered to the Contractor. Any act or exercise by any person of powers and duties delegated to him in accordance with this GC 17.1.2 shall be deemed to be an act or exercise by the Owner's Representative.

17.2.3

17.2.4

17.2.5

Contractor's Representative and Construction Manager 17.2 17.2.1

780

If the Contractor's Representative is not named in the Contract, then within fourteen (14) days of the Effective Date, the Contractor shall appoint the Contractor's Representative and shall request the Owner in writing to approve the person so appointed. If the Owner makes no objection to the appointment within fourteen (14) days, the Contractor's Representative

17.2.6

shall be deemed to have been approved. If the Owner objects to the appointment within fourteen (14) days giving the reason therefor, then the Contractor shall appoint a replacement within fourteen (14) days of such objection and the foregoing provisions of this GC 17.2.1 shall apply thereto. The Contractor's Representative shall represent and act for the Contractor at all times during the currency of the Contract and shall give to the Owner all the Contractor's notices, instructions, information and all other communications under the Contract. All notices, instructions, information and all other communications given by the Owner to the Contractor under the Contract shall be given to the Contractor's Representative, except as herein otherwise provided. The Contractor shall not revoke the appointment of the Contractor's Representative without the Owner's prior written consent, which shall not be unreasonably withheld. If the Owner consents thereto, the Contractor shall appoint some other person as the Contractor's Representative pursuant to the procedure set out in GC 17.2.1 above. The Contractor's Representative may at any time delegate to any person any of the powers, functions and authorities vested in him. Any such delegation may be revoked at any time. Any such delegation or revocation shall be subject to a prior notice signed by the Contractor's Representative and any notice of delegation or revocation shall specify the powers, functions and authorities thereby delegated or revoked. No such delegation or revocation shall take effect unless and until a copy thereof has been delivered to the Owner. Any act or exercise by any person of powers, functions and authorities so delegated to him in accordance with this GC 17.2.3 shall be deemed to be an act or exercise by the Contractor's Representative. From the commencement of the Works at the Site until Acceptance, the Contractor's Representative shall appoint a suitable person as the construction manager (hereinafter referred to as "the Construction Manager"). The Construction Manager shall supervise all work done at the Site by the Contractor and shall be present at the Site throughout normal working hours except when on leave, sick or absent for reasons connected with the proper performance of the Contract. Whenever the Construction Manager is absent from the Site, a suitable person shall be appointed to act as his deputy. The Owner or the Owner's Representative shall give all notices, instructions, information and other communications appertaining to the execution of the Works at the Site to the Construction Manager, or, in his absence, his deputy. The Owner may by notice to the Contractor object to any representative or person employed by the Contractor in the execution of the Works who shall, in the reasonable opinion of the Owner, misconduct himself or be incompetent or negligent or commit a serious breach of the Site regulations provided under GC 22.3 hereof. The Owner shall provide evidence of the same whereupon the Contractor shall remove such person from the Works. If any representative or person employed by the Contractor is removed in accordance with GC 17.2.5 above, the Contractor shall where required promptly appoint a replacement in his stead.

781

APPENDIX 2.

A2-32

ENGINEERING ADVANCEMENT ASSOCIATION OF JAPAN MODEL FORM

GC 18.

Work Program

Contractor's Organization 18.1

Work Procedures 18.5

The Contractor shall supply to the Owner an organization chart showing the proposed organization to be established by the Contractor for carrying out the Works including the identities of the key personnel together with the curricula vitae of such key personnel to be employed in the Works within twenty-one (21) days of the Effective Date. The Contractor shall promptly inform the Owner in writing of any revision or alteration of such organization chart.

The Works shall be executed in accordance with the Contract Documents including the Work Procedures. In addition to the Work Procedures attached to the Agreement, the Owner and the Contractor shall discuss and agree upon such other Work Procedures as may be necessary for the proper and efficient execution of the Works. The Contractor may execute the Works in accordance with its own standard project execution plans and procedures to the extent that they do not conflict with the provisions contained in the Work Procedures.

Program of Works GC 19 18.2

Within a time mutually agreed upon between the Owner and the Contractor after the date of the Agreement, the Contractor shall prepare and submit to the Owner a program of the Works showing the sequence in which it proposes to carry out the Works and the date by which the Contractor reasonably requires that the Owner shall have fulfilled its obligations under the Contract so as to enable the Contractor to execute the Works in accordance with the program and to achieve Mechanical Completion, Commissioning and Acceptance of the Plant in accordance with the Contract. The program so submitted by the Contractor shall accord with any dates and periods specified in the Contract. The Contractor shall revise the program as and when appropriate and shall submit all such revisions to the Owner.

Sub-contracting 19.1 19.1.1

19.1.2 Progress Report 18.3

The Contractor shall monitor progress of all the activities specified in the program referred to in GC 18.2 (Program of Works) above, and supply a progress report to the Owner every month. The progress report shall be in a form acceptable to the Owner and shall indicate: percentage completion achieved compared with the planned percentage completion for each activity; and where any activity is behind the program giving comments and likely consequences and stating the corrective action being taken.

19.1.3

19.1.4 Progress of Works 18.4

782

If at any time the Contractor's actual progress falls behind the program referred to in GC 18.2 (Program of Works) above, or it becomes apparent that it will so fall behind, the Contractor shall, at the request of the Owner, prepare and submit to the Owner a revised program taking into account the prevailing circumstances and notify the Owner of the steps being taken to expedite progress so as to attain Mechanical Completion within the Time for Completion under GC 8.2 (Time for Completion) hereof or any extension thereof entitled under GC 40.1 hereof or any extended period as may otherwise be agreed upon between the Owner and the Contractor. The Owner and the Contractor shall discuss and agree on the steps which are necessary to attain Commissioning and Acceptance of the Plant in accordance with the revised program.

A2-33

Sub-contracting/Nominated Sub-contractor(s)

Appendix 9-9 (List of Sub-contractors for Major Construction Work) to the Agreement specifies major items of construction work and against each item a list of approved Sub-contractors. Insofar as no Sub-contractors are listed against any such item, the Contractor shall prepare a list of Sub-contractors for such item for inclusion in such list. The Contractor may from time to time propose any addition to or deletion from any such list. The Contractor shall submit any such list or any modification thereto to the Owner for its approval in sufficient time so as not to impede the progress of the Works. Appendix 9-8 (List of Vendors for Major Equipment and Materials) to the Agreement specifies major items of Materials and against each item a list of approved vendors. Insofar as no vendors are listed against any such item, the Contractor shall prepare a list of vendors for such item for inclusion in such list. The Contractor may from time to time propose any addition to or deletion from any such list. The Contractor shall submit any such list or any modification thereto to the Owner for its approval in sufficient time so as not to impede the progress of the Works. The Contractor shall select and employ its Sub-contractors and vendors for such major items from those listed in the lists referred to in GCs 19.1.1 and 19.1.2 above respectively. For items of construction work and Materials not specified in Appendix 9-9 (List of Sub-contractors for Major Construction Work) and Appendix 9-8 (List of Vendors for Major Equipment and Materials) to the Agreement, the Contractor may employ such sub-contractors and vendors as it may at its own discretion select.

Nominated Sub-contractor(s) 19.2 19.2.1

If Appe~dix 9-9 (List of Sub-contractors for Major Construction Work) to the Agreement provides that certain work shall be executed by a specific sub-contractor nominated by the Owner (such sub-contractor being hereinafter referred to as "Nominated Sub-contractor"); and where the price and all the terms and conditions of the sub-contract therefor have been agreed between the Owner and such Neminated Sub-contractor prior to the signing of the Agreement on the condition that such Nominated

783

ENGINEERING ADVANCEMENT ASSOCIATION OF JAPAN MODEL FORM

APPENDIX 2

19.2.2

19.2.3

19.2.4

784

Sub-contractor will enter into a sub-contract with the Contractor incorporating such price, terms and conditions; then subject to this GC 19.2, the Contractor shall enter into a sub-contract in accordance with such nomination within twenty-one (21) days of the Effective Date or within such other period as may be agreed between the Owner and the Contractor and the Nominated Sub-Contractor shall thereupon be included within the definition of the term "Sub-contractor" set out in GC 1 (Definitions) hereof. Upon conclusion of such sub-contract between the Contractor and the Nominated Sub-contractor pursuant to GC 19.2.1 above, the price of the sub-contract and the reasonable expenses and fee required by the Contractor in connection therewith shall be added to the Contract Price as if the conlcusion of the sub-contract were the result of a Change Order issued by the Owner in accordance with GC 39 (Change in the Works) hereof. Such sub-contract work shall thereupon be included in the deifnition of the term "Works" set out in GC 1 (Definitions) hereof. Notwithstanding GC 19.2.1 above, the Contractor shall not be required by the Owner or be under any obligation to employ any Nominated Subcontractor in the following circumstances: (a) if the price and all the terms and conditions of the sub-contract have not been agreed between the Owner and such Nominated Subcontractor prior to signing the Agreement; or (b) if the Nominated Sub-contractor declines to enter into a sub-contract with the Contractor whereby the Nominated Sub-contractor undertakes towards the Contractor the like obligations and liabilities as the Contractor has to the Owner in respect of the subject matter of the sub-contract and whereby the Nominated Sub-contractor will save harmless and indemnify the Contractor from and against any breach by the Nominated Sub-contractor of the sub-contract and similarly indemnify the Contractor from and against any negligence by the Nominated Sub-contractor or any misuse by it of the Construction Equipment; or (c) if the Contractor shall object to employing the Nominated Subcontractor for any of the following reasons: (i) the Contractor considers that it would be prevented or prejudiced from carrying out any of its obligations under the Contract in specified respects if it employed the Nominated Sub-contractor; or (ii) the Contractor considers that the Nominated Sub-contractor would be incompetent or unreliable in its performance of the work to be sub-contracted for specified reasons. If the Contractor shall decline to enter into a sub-contract for any of the reasons set out in GC 19.2.3 above, the owner shall do one of the following. (a) withdraw the nomination and forthwith nominate an alternative subcontractor whereupon this GC 19.2 shall apply to the new nomination; or (b) the Owner may enter into a direct contract with such sub-contractor for such work whereupon such work shall not be included in the definition of the term "Works" specified in GC 1 (Definitions) hereof but shall be included within Appendix 9-3 (Scope of Works and Supply by the Owner) to the Agreement; or

(c)

19.2.5

19.2.6

confirm the nomination, whereupon the Contractor shall negotiate with the Nominated Sub-contractor terms which most closely conform with the Contract and, subject to GC 19.2.5 below, the Contractor shall enter into a sub-contract on such terms. If the Owner confirms a nomination pursuant to GC 19.2.4(c) above, the Contractor may within fourteen (14) days of such confirmation propose such amendments to the Contract including exclusions from or relaxations of the specific obligations and liabilities assumed by the Contractor under the Contract with respect to the work to be performed by the Nominated Sub-contractor. If agreement is not reached between the Owner and the Contractors upon such changes to the Contract within thirty (30) days of the Contractor's proposal, the Owner shall operate either paragraphs (a) or (b) of GC 19.2.4 above. Subject to such variations of the Contract as have been agreed pursuant to GC 19.2.5 above, the Contractor shall, upon entering into the subcontract with the Nominated Sub-contractor, be responsible to the Owner for the full performance of the sub-contract by the Nominated Subcontractor. GC 20.

Al-34

Design and Engineering

Specifications and Drawings 20.1 20.1.1

20.1.2

The Contractor shall execute the basic and detailed design and the engineering work in compliance with the provisions of the Contract, or where not so specified, in accordance with good engineering practice. The Contractor shall be responsible for any discrepancies, errors or omissions in the specifications, drawings and other technical documents prepared by it, whether such specifications, drawings and other documents have been approved by the Owner or not, provided that such discrepancies, errors or omissions are not due to inaccurate information furnished in writing to the Contractor by or on behalf of the Owner. The Contractor shall be entitled to disclaim responsibility for any design, data, drawing, specification or other document, or any modification thereof provided or designated by or on behalf of the Owner by giving a notice of such disclaimer to the Owner.

Codes and Standards 20.2

Wherever references are made in the Contract to codes and standards in accordance with which the Works shall be executed, the edition or the revised version of such codes and standards current at the date of the Agreement shall apply unless otherwise specified.

Approval/Review of Technical Documents by Owner 20.3 20.3.1

The Contractor shall prepare (or cause its Sub-contractors to prepare) and furnish to the Owner the documents listed in Appendix 9-6 (Documents for Approval or Review by the Owner) to the Agreement for its approval or review as specified.

785

ENGINEERING ADVANCEM ENT ASSOCIATION OF JAPAN MODEL FORM

APPENDIX 2

20.3.2

20.3.3

20.3.4

20.3.5

20.3.6

20.3.7

786

Any part of the Works covered by or related to the documents to be approved by the Owner shall be executed only after the Owner's approval thereof. The following GCs 20.3.2 to 20.3 .7 (inclusive) shall apply to those documents requiring the Owner's approval but not to those furnished to the Owner for its review only. Within fourteen (14) days after receipt by the Owner of any document requiring the Owner's approval in accordance with GC 20.3.1 above, the Owner shall either return one copy thereof to the Contractor with its approval endorsed thereon or shall notify the Contractor in writing of its disapproval thereof and the reasons therefor and the modifications which the Owner proposes. If the Owner fails to take such action within the said fourteen (14) days, then the said document shall be deemed to have been approved by the Owner. The Owner shall not disapprove any document except on the ground that the document does not comply with some specified provision of the Contract or that it is contrary to good engineering practice. If the Owner disapproves the document, the Contractor may either modify the document and re-submit it for the Owner's approval in accordance with GC 20.3.2 above, or may dispute the disapproval in accordance with GC 20.3.5 below. If the Owner approves the document subject to modification(s), the Contractor may either accept the modification(s), whereupon the document shall be deemed to have been approved, modify the document and re-submit it for the Owner's approval in accordance with GC 20.3.2 above or dispute the modification(s) in accordance with GC 20.3.5 below. If any dispute or difference shall arise between the Owner and the Contractor in connection with or arising out of the disapproval by the Owner of any document and/or any modification(s) thereto which cannot be settled between the parties within a reasonable period, then such dispute or difference may be referred to an Expert for determination in accordance with GC 6.2 (Reference to Expert) hereof. If such dispute or difference is referred to an Expert, the Owner shall give instructions as to whether or not and, if so, how the Works are to proceed. The Contractor shall proceed with the Works in accordance with the Owner's instructions, provided that if the Expert upholds the Contractor's dispute of the disapproval and if no notice has been given by the Owner under GC 6.2.3 hereof, then the Contractor shall be reimbursed by the Owner for any additional costs incurred by reason of such instructions and shall be relieved of such responsibility or liability in connection with the dispute and the execution of the instructions as the Expert shall decide and the Time for Completion shall be extended accordingly. The Owner's approval, either with or without modification(s), of the document furnished by the Contractor shall not relieve the Contractor of any responsibility or liability imposed upon it by any provisions of the Contract except where and to the extent that the Expert upholds the Contractor's dispute of the modification(s). The Contractor shall not depart from any approved document unless the Contractor has first submitted to the Owner an amended document and obtained the Owner's approval thereof pursuant to the provisions of this GC 20.3 If the Owner requests any change in any already approved document

andlor in any document based thereon, the provisions of GC 39 (Change in the Works) hereof shall apply to such request.

GC 21.

A2-35

Procurement

Materials 21.1

Subject to GC 14.2 hereof, the Contractor shall procure and transport to the Site all the Materials in an expeditious and orderly manner.

Owner-supplied Equipment and Materials 21.2

21.2.1

21.2.2

21.2.3

If Appendix 9-3 (Scope of Works and Supply by the Owner) to the Agreement provides that the Owner shall in connection with the Plant andlor the Works furnish to the Contractor any specific items of machinery, equipment or materials, the following provisions shall apply: The Owner shall at its own risk and expense transport each item to the place on or near the Site as agreed upon by the parties and make available to the Contractor such item at the time specified in the program furnished by the Contractor pursuant to GC 18.2 (Program of Works) hereof unless otherwise mutually agreed. Upon receipt of such item, the Contractor shall inspect the same visually and shall notify the Owner of any shortage, defect or default, if detected. The Owner shall immediately remedy any shortage, defect or default, or the Contractor shall, if such be practicable and possible, at the request of the Owner, remedy such shortage, defect or default at the Owner's cost and expense. After inspection such item shall fall under the care, custody and control of the Contractor. The provision of this GC 21.2.2 shall apply to any item supplied to remedy any such shortage or default or in substitution for any defective item or to defective items which have been repaired. The foregoing responsibilities of the Contractor and its obligations of care, custody and control shall not relieve the Owner of liability for any undetected shortage, defect or default, nor place the Contractor under any liability for any such shortage, defect or default whether under GC 27 (Defect Liability) hereof or any other provision of the Contract.

Long Lead Items 21.3 21.3.1

If Appendix 9-8 (List of Vendors for Major Equipment and Materials) to the Agreement provides that a purchase order or contract for any specific item of machinery, equipment or materials which has been placed or entered into by the Owner before the date of the Agreement is to be assigned to the Contractor by the Owner or novated in favor of the Contractor, then, subject to this GC 21.3, the Owner, the Contractor and, where appropriate, the vendor shall enter into an agreement for assignment or novation whereby the rights and obligations of the Owner under such purchase order or contract shall be assigned to the Contractor or the Contractor shall by novation assume such rights and obligations within twenty one (21) days after the Effective Date or within such other period as may be agreed between the Owner, the Contractor and, where appropriate, the vendor.

787

APPENDIX 2

21.3.2

21.3.3

21.3.4

21.3.5

Such items are herein referred to as "Long Lead Items" and after assignment or novation of the purchase order or contract shall be included within the definition of "Materials" set out in GC 1 (Definitions) hereof. At the time of signing of the Agreement, the Owner shall supply to the Contractor for its review all documents relating to such purchase order or contract (including quotations, terms and conditions and specifications) and if the Contractor wishes to make any modifications to the terms and conditions of the purchase order or contract, the Owner shall use its best efforts to obtain such modifications. Within twenty one (21) days of the receipt of all documents relating to such purchase order or contract from the Owner or within such other period as may be agreed between the Owner and the Contractor, the Contractor may propose such amendments to the Contract including exclusions from or relaxations of the specific obligations and liabilities assumed by the Contractor under the Contract with respect to such Long Lead Items, on the grounds that the vendor's performance warranties are not acceptable to the Contractor or the proposed terms of the purchase order or contract are not compatible with the Contract. In the event that the Owner and the Contractor fail to agree upon such amendments within thirty (30) days of the Contractor's proposal, then (notwithstanding any contrary provisions in the Contract) such assignment or variation shall not take place and the Long Lead Items in question shall be treated as Owner-supplied equipment and materials in accordance with GC 21.2 (Owner-supplied Equipment and Materials) above. Subject to such amendments to the Contract as have been agreed pursuant to GC 21.3.3 above, the Contractor shall, after assignment or novation of the relevant purchase order or contract, assume responsibiliry to the Owner for such Long Lead Items. All necessary costs for transportation, erection and commissioning of the Long Lead Items to be incurred subsequent to their delivery by the vendor are included in the Contract Price. Except for these, upon assignment or novation as provided in GC 21.3.1 above, all costs and expenses incurred by the Contractor relating to the acquisition of the Long Lead Items including the purchase price therefor and all costs relating to the administration, review of vendor drawings, expediting and inspection of the Long Lead Items shall be added to the Contract Price as if the assignment or novation were the result of a Change Order issued by the Owner in accordance with GC 39 (Change in the Works) hereof. Provided that if the Owner has made any advance payment to the vendors of the Long Lead Items prior to the assignment or novation, then such advance payment shall be deemed to have been made by the Owner to the vendors on behalf of the Contractor and shall be deemed to have been paid by the Owner to the Contractor.

ENGINEERING ADVANCEMENT ASSOCIATION OF JAPAN MODEL FORM

21.4.3

21.4.4

Upon dispatch of each shipment of the Materials and the Construction Equipment, the Contractor shall notify the Owner by telex, cable, facsimile or Electronic Data Interchange (EOI) of the description of the Materials and the Construction Equipment, the point and means of dispatch and the estimated time and point of arrival in the country where the Site is located, if applicable, and at the Site. The Contractor shall furnish the Owner with relevant shipping documents to be agreed upon between the parties. The Contractor shall be responsible for obtaining, if necessary, approvals from the competent authorities for transportation of the Materials and the Construction Equipment to the Site. The Owner shall use its best endeavors in a timely and expeditious manner to assist the Contractor in obtaining such approvals, if requested by the Contractor. The Contractor shall indemnify and hold harmless the Owner from and against any claim for damage to roads, bridges or any other traffic facilities which may be caused by the transport of the Materials and the Construction Equipment to the Site.

Customs Clearance 21.5

The Contractor shall, at its own expense, handle all imported Materials and the Construction Equipment at the point(s) of import and any formalities for customs clearance, subject to the Owner's obligations under GC 14.2 hereof, and provided that if applicable laws or regulations require any application or act to be made by or in the name of the Owner, the Owner shall take all necessary steps to comply with such laws or regulations.

GC 22.

A2-36

Construction

Setting Out/Supervision/Labor 22.1 Bench Mark 22.1.1

The Contractor shall be responsible for the true and proper setting-out of the Works in relation to bench marks, reference marks and lines provided to it in writing by the Owner. If, at any time during the progress of the Works, any error shall appear in the position, level or alignment of the Works, the Contractor shall forthwith notify the Owner of such error and, at its own expense, immediately rectify such error to the reasonable satisfaction of the Owner, unless such error is based on incorrect data provided in writing by or on behalf of the Owner, in which case the expense of rectifying the same shall be borne by the Owner.

Contractor's Supervision Transportation 21.4 22.1.2 21.4.1

21.4.2

788

The Contractor shall at its own risk and expense transport all the Materials and the Construction Equipment to the Site by the mode of transport which the Contractor judges most suitable under all the circumstances. Unless otherwise provided in the Contract, the Contractor shall be entitled to select any mode of transport operated by any person to carry the Materials and the Construction Equipment.

The Contractor shall give or provide all necessary superintendence during the execution of the Works, and the Construction Manager or his deputy shall be constantly on the Site to provide full-time superintendence of the Works. The Contractor shall provide and employ only such technical personnel as are skilled and experienced in their respective callings and such supervisory staff as are competent to give adequate supervision to the work they are required to supervise.

789

I APPENDIX 2

ENGINEERING ADVANCEMENT ASSOCIATION OF JAPAN MODEL FORM

Labor 22.1.3

comply therewith. The Contractor shall prepare and submit to the Owner proposed Site regulations for the Owner's approval which approval shall not be unreasonably withheld. Such Site regulations shall include, but not be limited to, rules in respect of: (a) Security (b) Safety of Works Gate control (c) (d) Sanitation (e) Medical care (f) Fire prevention

(a)

(b)

(c)

(d)

(e)

(f)

The Contractor shall provide and employ on the Site in the execution of the Works such skilled, semi-skilled and unskilled l;Jbor as is necessary for the proper and timely execution of the Works. Unless otherwise provided in the Contract, the Contractor shall be responsible for the recruitment, transportation, accommodation and catering of all labor, local or expatriate, required for the execution of the Works and for all payments in connection therewith. The Contractor shall be responsible for obtaining all necessary permit(s) or visa(s) from the appropriate authorities for the entry of all labor and personnel to be employed on the Site into the country where the Site is located. The Contractor shall at its own expense be responsible for the repatriation of all its and its Sub-contractor's personnel employed upon the Works at the Site to the countries from which they were recruited. The Contractor shall be responsible for the suitable maintenance of all such persons from the cessation of their employment on the Works to their departure from the country and in default the Owner may repatriate and maintain such persons and recover the cost of doing so from the Contractor. The Contractor shall at all times during the progress of the Works use its best endeavors to prevent any unlawful, riotous or disorderly conduct or behavior by or amongst its employees and the labor of its Sub-contractors. The Contractor shall, in all dealings with its labor and the labor of its Sub-contractors for the time being employed on or in connection with the Works, pay due regard to all recognized festivals, official holidays and religious or other customs.

Construction Equipment 22.2 22.2.1

22.2.2

22.2.3

All Construction Equipment brought by the Contractor on to the Site shall be deemed to be intended to be used exclusively for the execution of the Works and the Contractor shall not remove the same from the Site until such Construction Equipment is no longer required for the execution of the Works. Unless otherwise specified in the Contract, upon completion of the Works, the Contractor shall remove from the Site all Construction Equipment brought by the Contractor on to the Site and any surplus materials remaining thereon The Owner will, if requested, use its best endeavors to assist the Contractor in obtaining any local, state or national government permission required by the Contractor for the export of Construction Equipment imported by the Contractor for use in the execution of the Works which is no longer required for the execution of the Works.

Opportunities for Other Contractors 22.4

The Contractor shall, upon written request from the Owner, give all reasonable opportunities for carrying out their work to any other contractors employed by the Owner on or near the Site, except where and to the extent that any such work may cause any delay in the Works. If the Contractor shall, upon written request from the Owner, make available to any such other contractors any roads or ways for the maintenance of which the Contractor is responsible, or permit the use by such other contractors of the Construction Equipment, or provide any other service of whatsoever nature for such other contractors, the Owner shall fully compensate the Contractor for any loss or damage caused or occasioned by such other contractors in respect of any such use or service and shall pay to the Contractor reasonable remuneration for the use of such equipment or the provision of such services.

Emergency Work 22.5

If, by reason of an emergency arising in connection with and during the execution of the Works, any protective or remedial work shall be necessary as a matter of urgency to prevent damage to the Works, the Contractor shall immediately carry out such work. If the Contractor is unable or unwilling to do such work immediately, the Owner may do or cause to be done such work as the Owner may determine is necessary in order to prevent damage to the Works. In such event the Owner shall, as soon as practicable after the occurrence of any such emergency, notify the Contractor in writing of such emergency, the work done and the reasons therefor. If the work done or caused to be done by the Owner is work which the Contractor was liable to do at its own expense under the Contract, the reasonable costs incurred by the Owner in connection therewith shall be paid by the Contractor to the Owner.

Site Clearance 22.6 Site Clearance in Course of Works

Site Regulations and Safety 22.6.1 22.3

790

The Owner and the Contractor shall establish Site regulations setting out the rules to be observed in the execution of the Works at the Site and shall

In the course of carrying out the Works, the Contractor shall keep the Site reasonably free from all unnecessary obstruction, and shall store or remove any surplus materials, clear away from the Site any wreckage, rubbish or

791

APPENDIX 2.

ENGINEERING ADVANCEMENT ASSOCIATION OF JAPAN MODEL FORM

temporary works and remove any Construction Equipment no longer required for the execution of the Works. Clearance of Site after Acceptance 23.5 22.6.2

After Acceptance of all parts of the Plant by the Owner, the Contractor shall clear away and remove from the Site any wreckage, rubbish and debris of any kind, and leave the Site and the Plant in a clean and safe condition.

Watching and Lighting 22.7

The Contractor shall provide and maintain at its own expense all lighting, fencing and watching when and where necessary for the proper execution and the protection of the Works, or for the safety of the owners and occupiers of adjacent properry and the public.

23.6

23.7 Work at Night and on Holidays 22.8 22.8.1

22.8.2

Al-37

23.1 23.2

23.3

23.4

792

Unless otherwise provided in the Contract, none of the work shall be carried out during the night and on public holidays of the country where the Site is located without the prior written consent of the Owner, except where the work is necessary or required to ensure the safety of the Works or for the protection of life or to prevent loss of or damage to property, when the Contractor shall immediately advise the Owner. Provided that the provision of this GC 22.8.1 shall not apply to any work which is customarily carried out by rotary or double-shifts. Notwithstanding GC 22.8.1 or GC 22.1.3 above, if and when the Contractor considers it to be necessary to carry out work at night or on public holidays so as to meet the Time for Completion, and requests the Owner's consent thereto, the Owner shall not unreasonably withhold such consent.

GC 23. Test and Inspection The Contractor shall, at its own expense, carry out at the place of manufacture anellor on the Site all such test and/or inspection of the Materials and any part of the Works as are specified in the Contract. The Owner shall be entitled to attend the aforesaid test and/or inspection by its own duly authorized and designated inspector, provided that the Owner shall bear all costs and expenses incurred in connection with such attendance including, but not limited to, all travelling and board and lodging expenses. Whenever the Contractor is ready to carry out any such test and/or inspection, the Contractor shall give a reasonable advance notice of such test and/or inspection and of the place and time thereof. The Contractor shall obtain from any relevant third party or manufacturer any necessary permission or consent to enable the Owner's inspector to attend the test and/or inspection. The Contractor shall provide the Owner with a certified report of the results of any such test and/or inspection. If the Owner's inspector fails to attend the test and/or inspection, or if it

23.8

23.9

23.10

23.11

is agreed between the parties that the Owner's inspector shall not do so, then the Contractor may proceed with the test anellor inspection in the absence of the Owner's inspector and provide the Owner with a certified report of the results thereof. The Owner may require the Contractor to carry out any test anellor inspection not described in the Contract, provided that no such test and/or inspection impedes the progress of the Works and/or the Contractor's performance of its other obligations under the Contract, and provided further that the Contractor's reasonable costs and expense incurred in the carrying out of such test anellor inspection shall be added to the Contract Price. If any Materials or any part of the Works fails to pass any test and/or inspection, the Contractor shall either rectify or replace such Materials or part of the Works and shall repeat the test and/or inspection upon giving a notice under GC 23.3 above. If any disputes or difference of opinion shall arise between the parties in connection with or arising out of the test and/or inspection of the Materials or part of the Works which cannot be settled between the parities within a reasonable period of time, it may be referred to an Expert for determination in accordance with GC 6.2 (Reference to Expert) hereof. If such dispute or difference is referred to an Expert, the Owner shall give instructions as to whether or not and, if so, how the Works are to proceed. The Contractor shall proceed with the Works in accordance with the Owner's instructions, provided that if the Expert upholds the Contractor's argument and if no notice has been given by the Owner under GC 6.2.3 hereof, then the Contractor shall be reimbursed by the Owner for any additional costs incurred by reason of such instructions and shall be relieved of such responsibility or liability in connection with the dispute and the execution of the instructions as the Expert shall decide and the Time for Completion shall be extended accordingly. The Contractor shall afford the Owner, at the latter's expense, access at any reasonable time to any place where the Materials are being manufactured or the Works are being executed in order to inspect the progress and the manner of manufacture or construction, provided that the Owner shall give the Contractor a reasonable prior notice. The Contractor agrees that neither the execution of a test anellor inspection of Materials or any part of the Works, nor the attendance by the Owner's inspector nor the issue of any test certificate pursuant to GC 23.4 above shall release the Contractor from any other responsibilities under the Contract. No part of the Works or foundations shall be covered up on the Site without carrying out any test anellor inspection required under the Contract and the Contractor shall give a reasonable notice to the Owner whenever any such part of the Works or foundations are ready or about to be ready for test and/or inspection; such test and/or inspection and notice thereof shall be subject to the requirements of the Contract. The Contractor shall uncover any part of the Works or foundations or make openings in or through the same as the Owner may from time to time require at the Site and shall reinstate and make good such part or parts. If any part of the Works or foundations have been covered up at the Site after compliance with the requirement of GC 23.10 above and are found to

793

•

APPENDIX 2

ENGINEERING ADVANCEMENT ASSOCIATION OF JAPAN MODEL FORM

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 Owner, and the Time for Completion shall be reasonably adjusted to the extent that the Contractor has thereby been delayed or impeded in the performance of any of its obligations under the Contract. 24.7 A2-38

24.1

24.2

24.3

24.4 24.5

24.6

794

GC 24. Mechanical Completion As soon as the Plant or any part thereof has, in the opInion of the Contractor, been completed mechanically and structurally and put in a tight and clean condition, as specified in Appendix 9-5 (Technical Specifications) to the Agreement, excluding such minor items as finishing of insulation and painting, and other items not materially affecting the operation or safety of the Plant, the Contractor shall so notify the Owner in writing. Within seven (7) days after receipt of the notice from the Contractor under GC 24.1 above, the Owner shall supply the operating and maintenance personnel specified in Appendix 9-3 (Scope of Works and Supply by the Owner) to the Agreement for Precommissioning of the Plant or any part thereof. Pursuant to Appendix 9-3 (Scope of Works and Supply by the Owner) to the Agreement, the Owner shall also provide, within the said seven (7) day period, the raw materials, utilities, lubricants, chemicals, catalysts, facilities, services and other matters required for Precommissioning of the Plant or any part thereof. As soon as is reasonably practicable after the operating and maintenance personnel have been supplied by the Owner and the raw materials, utilities, lubricants, chemicals, catalysts, facilities, and services and other matters have been provided by the Owner in accordance with GC 24.2 above, the Contractor shall commence Precommissioning of the Plant or the relevant part thereof in preparation for Commissioning. As soon as all works in respect of Precommissioning are completed and, in the opinion of the Contractor, the Plant or any part thereof is ready for Commissioning, the Contractor shall so notify the Owner in writing. The Owner shall, within fourteen (14) days after receipt of the Contractor's notice under GC 24.4 above, either issue a Mechanical Completion Certificate in the form specified in Schedule 1 hereto stating that the Plant or that part thereof has reached Mechanical Completion as at the date of the Contractor's notice under GC 24.4 above, or notify the Contractor in writing of any defects and/or deficiencies. If the Owner notifies the Contractor of any defects and/or deficiencies, the Contractor shall then correct such defects and/or deficiencies and shall repeat the procedure described in GC 24.4 above. If the Owner is satisfied that the Plant or that part thereof has reached Mechanical Completion, the Owner shall, within seven (7) days after receipt of the Contractor's repeated notice, issue a Mechanical Completion Certificate stating that the Plant or that part thereof has reached Mechanical Completion as at the date of the Contractor's repeated notice. If the Owner is not so satisfied, then it shall notify the Contractor in writing of any defects and/or deficiencies within seven (7) days after receipt of the Contractor's repeated notice and the above procedure shall be repeated. If the Owner fails to issue the Mechanical Completion Certificate and fails to inform the Contractor of any defects and/or deficiencies within fourteen

(14) days after receipt of the Contractor's notice under GC 24.4 above or within seven (7) days after receipt of the Contractor's repeated notice under GC 24.5 above, then the Plant or that part thereof shall be deemed to have reached Mechanical Completion as at the date of the Contractor's notice or repeated notice, as the case may be. As soon as possible after Mechanical Completion, the Contractor shall complete such minor items as finishing of insulation and painting, and other items not materially affecting the operation or safety of the Plant.

GC 25.

A2-39

Commissioning and Acceptance

Commissioning 25.1 25.1.1

25.1.2

25.1.3

Commissioning of the Plant or any part thereof shall be commenced by the Contractor immediately after issue by the Owner of the Mechanical Completion Certificate pursuant to GC 24.5 hereof or deemed Mechanical Completion under GC 24.6 hereof. Commissioning consists of the Works specified in the Work Procedures (WP 10 - Commissioning and Performance Test Procedure). During Commissioning, the Owner shall supply, for use by the Contractor, the operating and maintenance personnel, raw materials, utilities, lubricants, chemicals, catalysts, facilities, services and other matters required for the operation of the Plant or any part thereof as specified in Appendix 9-3 (Scope of Works and Supply by the Owner) to the Agreement. When the Contractor considers that the Plant or any part thereof has been operated under stable conditions, the Contractor shall give the Owner written notification that the Plant or tha t part thereof is ready for the Performance Test.

Performance Test 25.2 25.2.1

25.2.2

Immediately after glvmg the notice specified in GC 25.1.3 above, the Performance Test (and repeats thereof) shall be conducted by the Contractor during Commissioning of the Plant or that part thereof to ascertain whether the Plant or that part can attain the Process Performance Guarantees and Consumption Guarantees specified in Appendix 7 (Process Performance and Consumption Guarantees) to the Agreement in accordance with GC 28 (Process' Performance and Consumption Guarantees) hereof. If, for reasons not attributable to the Contractor, the Performance Test of the Plant or that part thereof cannot be successfully completed within six (6) months from the date of Mechanical Completion or any other period agreed upon by the Owner and the Contractor, the Contractor shall be deemed to have fulfilled its obligations with. respect to the Process Performance Guarantees and Consumption Guarantees specified in Appendix 7 (Process Performance and Consumption Guarantees) to the Agreement and GCs 28.2 and 28.3 hereof shall not apply.

Acceptance 25.3 25.3.1

Subject to GC 25.4 (Partial Acceptance and Partial Use) below, Acceptance shall occur in respect of the Plant or any part thereof when:

795

APPENDIX 2

ENGINEERING ADVANCEMENT ASSOCIATION OF JAPAN MODEL FORM

(a)

25.3.2

25.3.3 25.3.4

the Performance Test has been successfully completed and the Process Performance Guarantees and Consumption Guarantees are met; or (b) the Performance Test has not been successfully completed or has not been carried out for reasons not attributable to the Contractor within six (6) months from the date of Mechanical Completion or any other agreed upon period as specified in GC 25.2.2 above; or (c) the Contractor has paid the liquidated damages specified in GC 28.3 hereof; and any minor items mentioned in GC 24.7 hereof relevant to the Plant or that part thereof have been completed. At any time after any of the events set out in GC 25.3.1 above has occurred, the Contractor may give a notice to the Owner requesting the issue of an Acceptance Certificate in the form specified in Schedule 2 hereto in respect of the Plant or the part thereof specified in such notice as at the date of such notice. The Owner shall within seven (7) days after receipt of the Contractor's notice issue such Acceptance Certificate. If, within seven (7) days after receipt of the Contractor's notice, the Owner fails to issue the Acceptance Certificate or fails to inform the Contractor in writing of the justifiable reasons why the Owner has not issued the Acceptance Certificate, the Plant or the relevant part thereof shall be deemed to have been accepted as at the date of the Contractor's said notice.

26.2

Partial Acceptance and Partial Use 25.4 25.4.1

25.4.2

25.4.3

If the Contract specifies that Mechanical Completion and Commissioning shall be carried out in respect of parts of the Plant, the provisions relating to Mechanical Completion and Commissioning including the Performance Test shall apply to each such part of the Plant individually and the Acceptance Certificate shall be issued accordingly for each such part of the Plant. If a part of the Plant which is the subject of Acceptance as specified in GC 25.4.1 above comprises facilities such as buildings, for which no Commissioning or Performance Test is required, then any such facility shall be accepted by the Owner when it becomes Ready for Use. When any part of the Plant has reached Mechanical Completion, the Owner may use such part of the Plant prior to Acceptance of the Plant as a whole. In that case, the Owner shall first give the Contractor a notice that it wishes to use such part of the Plant. Any part of the Plant which the Owner wishes to use shall be deemed accepted by the Owner as at the date of the Owner's notice and the Owner shall immediately issue the Acceptance Certificate for such part of the Plant to the Contractor.

PART VI GUARANTEES AND LIABILITIES A2-40 26.1

796

GC 26. Completion Time Guarantee The Contractor guarantees that it shall attain Mechanical Completion of the Plant (or a part for which a separate time for completion is specified in

26.3

27.1 27.2

the Agreement) within the Time for Completion specified in Article 5.2 (Time for Completion) of the Agreement, or within such extended time to which the Contractor shall be entitled under GC 40 (Extension of Time for Completion) hereof. If the Agreement provides for the payment of liquidated damages in the event of the Contractor's failure to attain Mechanical Completion of the Plant or any part thereof within the Time for Completion or any extension thereof under GC 40 (Extension of Time for Completion) hereof, the Contractor shall pay to the Owner such liquidated damages in the amount specified in Article 5.4 (Liquidated Damages for Delay) of the Agreement. Such payment shall be in complete satisfaction of the Contractor's obligation to attain Mechanical Completion of the Plant or the relevant part thereof within the Time for Completion or any extension thereof under GC 40 (Extension of Time for Completion) hereof and the Contractor shall have no further liability whatsoever to the Owner in respect thereof. However, the payment of liquidated damages shall not in any way relieve the Contractor from any of its obligations to complete the Works or from any other obligations and liabilities of the Contractor under the Contract. Save for liquidated damages payable under Article 5.4 (Liquidated Damages for Delay) of the Agreement and this GC 26.2, the failure by the Contractor to attain any milestone or other act, matter or thing by any date specified in Appendix 9-7 (Time Schedule) to the Agreement and/or other program of work prepared pursuant to GC 18 (Work Program) hereof shall not render the Contractor liable for any loss or damage thereby suffered by the Owner. If the Agreement provides for the payment of a bonus in the event that the Contractor attains Mechanical Completion of the Plant or any part thereof within the TIme for Completion or any extension thereof under GC 40 (Extension of TIme for Completion) hereof, the Owner shall pay to the Contractor such bonus in the amount specified in Article 5.5 (Bonus for Early Completion) of the Agreement.

GC 27 Defect Liability The Contractor guarantees that the Plant or any part thereof shall be free from defects in design and engineering, the Materials supplied and work executed. The Defect Liability Period shall be twelve (12) ~onths from the date of Acceptance of the Plant or any part thereof. If, during the Defect Liability Period, any defect should be found in the design and engineering, the Materials supplied or work executed by the Contractor, the Contractor shall promptly and at its cost repair, replace or otherwise make good (as the Contractor shall at its discretion determine) such defect as well as any damage to the Plant caused by such defect, subject to the provisions of GC 30 (Limitation of Liability) hereof. Provided that the Contractor shall not be responsible for the repair, replacement or making good of any defect or of any damage to the Plant arising out of or resulting from any of the following causes: (a) Improper operation or maintenance of the Plant by the Owner (b) Operation of the Plant outside the specifications provided in the Contract

797

A2-41

APPENDIX 2

27.3

27.4

27.5

27.6

27.7

27.8

27.9

Al-42 28 .1

798

(c) Erosion or corrosion (d) Normal wear and tear The Contractor's obligations under this GC 27 shall not apply to (1) any materials which are supplied by the Owner under GC 21.2 (Owner supplied Equipment and Materials) hereof; (2) any Materials which are normally consumed in operation or which have a normal life shorrer than the Defect Liability Period stated herein; (3) any designs, specifications or other data designated, supplied or specified by or on behalf of the Owner or any matters for which the Contractor has disclaimed responsibility hereunder; or (4) any other materials supplied or any work executed by or on behalf of the Owner, except for the work executed by the Owner under GC 27.7 below. The Owner shall give the Contractor a notice stating the nature of any such defect together with all available evidence thereof promptly following the discovery thereof. The Owner shall afford all reasonable opportunity for the Contractor to inspect any such defect. The Owner shall afford the Contractor all necessary access to the Plant and the Site to enable the Contractor to perform its obligations under this GC 27. The Contractor may with the consent of the Owner remove from the Site any Materials or any part of the Plant which are defective if the nature of the defect and/or any damage to the Plant caused by the defect is such that repairs cannot be expeditiously carried out at the Site. If the repair or replacement or making good is of such a character that it may affect the efficiency of the Plant or any parr thereof, the Owner may give to the Contractor a notice requiring that tests shall be made by the Contractor of the defective part of the Plant immediately on completion of such remedial work whereupon the Contractor shall carry out such tests. If such part fails the tests, the Contractor shall carry out furrher repair, replacement or making good (as the case may be) until that part of the Plant passes such tests. The tests shall be agreed by the Owner and the Contractor. If the Contractor fails to commence the work necessary to remedy such defect or any damage to the Plant caused by such defect within a reasonable time, the Owner may proceed to do such work, and the reasonable costs incurred by the Owner in connection therewith shall be paid to the Owner by the Contractor. If the Plant or any part thereof cannot be used by reason of such defect and/or making good of such defect, the Defect Liability Period of the Plant or such part, as the case may be, shall be extended by a period equal to the period during which the Plant or such part cannot be used by the Owner due to any of the aforesaid reasons. Except as provided in this GC 27 and GC 33 (Loss or Damage to Property/Accident or Injury to WorkmenlIndemnification) hereof, the Contractor shall be under no liability whatsoever and howsoever arising, and whether under the Contract or at law, in respect of defects in the Works, the Plant or any part thereof, the Materials design or engineering or work executed which appear after Acceptance of the Plant or any part thereof.

GC 28. Process Performance and Consumption Guarantees The Contractor guarantees that, during the Performance Tests, the Plant and all parrs thereof shall attain the Process Performance Guarantees and Consumption Guarantees specified in Appendix 7 (Process Performance

ENGINEERING ADVANCEMENT ASSOCIATION OF JAPAN MODEL FORM

28.2

28.3

28.4

29.1

and Consumption Guarantees) to the Agreement subject to and upon the conditions therein specified. If, for reasons attributable to the Contractor, the minimum level of the Process Performance Guarantees and Consumption Guarantees specified in Appendix 7 (Process Performance and Consumption Guarantees) to the Agreement are not met either in whole or in part, the Contractor shall at its cost and expense make such changes, modifications and/or additions to the Plant or any part thereof as may be necessary so as to meet at least the minimum level of such guarantees. The Contractor shall notify the Owner upon completion of the necessary changes, modifications and/or additions and shall repeat the Performance Test until the minimum level of the Guarantees has been met. If, for reasons attributable to the Contractor, the Process Performance Guarantees and Consumption Guarantees specified in Appendix 7 (Process Performance and Consumption Guarantees) to the Agreement are not attained either in whole or in part, but the minimum level of the Process Performance Guarantees and Consumption Guarantees is met, the Contractor shall, at its option, either (a) make such changes, modifications and/or additions to the Plant or any part thereof as may be necessary in order to attain the Process Performance Guarantees and Consumption Guarantees at its cost and expense and carry out a further Performance Test; or (b) pay liquidated damages to the Owner in respect of the failure to meet the Process Performance Guarantees and Consumption Guarantees in accordance with Appendix 7 (Process Performance and Consumption Guarantees) to the Agreement. The Payment of liquidated damages under GC 28.3 above up to the limitation of liability specified in Appendix 7 (Process Performance and Consumption Guarantees) shall be in complete satisfaction of the Contractor's guarantees under GC 28.1 above and any other corresponding or equivalent provision set out in the Contract (whether in Appendix 9 or otherwise) and the Contractor shall have no furrher liability whatsoever to the Owner in respect thereof. Upon the payment of such liquidated damages by the Contractor, the Owner shall issue the Acceptance Certificate for the Plant or any part thereof in respect of which the liquidated damages have been so paid. GC 29. Patent Indemnity The Contractor shall, subject to the conditions set out in Appendix 9-4 (Licence Conditions) to the Agreement and the Owner's compliance with GC 29.2 below, indemnify and hold harmless the Owner and its employees and officers from and against any and all suits, actions or administrative proceedings, claims, demands, losses, damages and costs and expenses of whatsoever nature, including attorney's fees and expenses, which the Owner may suffer as a result of any infringement or alleged infringement of any patent, utility model, registered design, trademark, copyright or other intellectual property right registered or otherwise existing at the date of the Agreement by reason of: (a) the execution of the Works by the Contractor or the use of the Plant in the country where the Site is located; and 799

Al-43

APPENDIX

2.

(b)

29.2

29.3

A2-44 30.1

30.2

800

the sale of the products produced by the Plant in any country except those countries which are excluded or where restrictions are placed on the Owner as set out in Appendix 9-4 (Licence Conditions) to the Agreement. Provided that such indemnity shall not cover any use of the Plant or any part thereof otherwise than for the purpose indicated by or reasonably to be inferred from the Contractor or any infringement which is due to the use of the Plant or any part thereof or any products produced thereby in association or combination with any other equipment, plant, materials or process not supplied or licensed by the Contractor pursuant to the Contract. If any proceedings are brought or any claim is made against the Owner arising out of the matters referred to in GC 29.1 above, the Owner shall promptly give the Contractor a notice thereof and the Contractor may at its own expense and in the Owner's name conduct such proceedings or claim any negotiations for the settlement of any such proceedings or claim. If the Contractor fails to notify the Owner within twenty·eight (28) days after receipt of such notive that it intends to conduct any such proceedings or claim, then the Owner shall be free to conduct the same on its own behalf. Unless the Contractor has so failed to notify the Owner within the twenty-eight (28) day period, the Owner shall make no admission which may be prejudicial to the defense of any such proceedings or claim. The Owner shall, at the Contractor's request, afford all available assistance to the Contractor in conducting such proceedings or claim, and shall be reimbursed by the Contractor for all reasonable expenses incurred in so doing. The Owner shall indemnify and hold harmless the Contractor and its employees, officers and Sub-contractors from and against any and all suits, actions or administrative proceedings, claims, demands, losses, damages and costs and expenses of whatsoever nature, including attorney's fees and expenses, which the Contractor may suffer as a result of any infringement or alleged infringement of any patent, utility model, registered design, trademark, copyright or other intellectual property right registered or otherwise existing at the date of the Agreement arising out of or in connection with any design, data, drawing, specification, or other documents or materials provided or designated by or on behalf of the Owner.

ENGINEERING ADVANCEMENT ASSOCIATION OF JAPAN MODEL FORM

GC 30. Limitation of Liability Notwithstanding anything to the contrary provided in the Contract, the aggregate liability of the Contractor to the Owner under GC 27 (Defect Liability) and GC 29 (Patent Indemnity) hereof and liquidated damages payable to the Owner under GCs 26.2 and 28.3 hereof shall not exceed the amount or the rate stated in Article 9 (Contractor's Total Maximum Liability) of the Agreement. The Contractor shall in no event be liable to the Owner by way of indemnity or by reason of any breach of the Contract or in tort or otherwise for loss of use of the Plant or any part thereof or for loss of production, loss of profit or loss of any contract, or for any indirect, special or consequential loss or damage that may be suffered by the Owner in connection with the Contract.

PART VII RISK DISTRIBUTION 31.1

31.2

31.3

31.4

31.5

32.1

32.2

GC 31. Transfer of Ownership Ownership of the Materials to be imported into the country where the Site is located shall be transferred to the Owner upon loading on to the mode of transport to be used to convey the Materials from the country of origin to that country. Ownership of the Materials procured in the country where the Site is located shall be transferred to the Owner when the Materials are brought on to the Site. Ownership of the Construction Equipment used by the Contractor and its Sub-contractors in connection with the Works shall remain with the Contractor or its Sub-contractors. Ownership of any Materials in excess of the requirements for the Works shall revert to the Contractor upon Acceptance of the Plant or at such earlier time when the Owner and the Contractor agree that the Materials in question are no longer required for the Works. Notwithstanding the transfer of ownership of the Materials, the responsibility for care and custody thereof together with the risk of loss or damage thereto' shall remain with the Contractor pursuant to GC 32 (Care of Works) hereof until Acceptance of the Plant or the part thereof in which such Materials are Incorporated pursuant to GC 25 (Commissioning and Acceptance) hereof.

A2-45

GC 32. Care of Works . The Contractor shall be responsible for the care and custody of the Works or any part thereof until the date of Acceptance of the Plant pursuant to GC 25 (Commissioning and Acceptance) hereof or, where the Contract provides for Acceptance of the Plant in pans, the date of Acceptance of the relevant pan, and shall make good at its own cost any loss or damage that may occur to the Works or the relevant part thereof from any cause whatsoever during such period. The Contractor shall also be responsible for any loss or damage to the Works caused by the Contractor or its Sub· contractors in the course of any work carried out pursuant to GC 27 (Defect Liability) hereof. Notwithstanding the foregoing, the Contractor shall not be liable for any loss or damage to the Works or that part thereof caused by reason of any of the matters specified or referred to in paragraphs (a), (b) and (c) of GC 32.2 below and GC 38.1 hereof. If any loss or damage occurs to the Works or any part thereof or to the Contractor's temporary facilities by reason of: (a) (insofar as they relate to the country where the Site is located) nuclear reaction, nuclear radiation, radioactive contamination, pressure wave caused by aircraft or other aerial objects or any other occurrences that an experienced contractor could not reasonably foresee or if reasonably foreseeable could not reasonably make provision for or insure against, insofar as such risks are not not normally insurable on the insurance market and are mentioned in the general exclusions of the policy of insurance taken out under GC 34 (Insurance) hereof; or

A2-46

801

ENGINEERING ADVANCEMENT ASSOCIATION OF JAPAN MODEL FORM

APPENDIX 2

(b)

32.3

32.4

A2-47

any use or occupation by the Owner or any third party (other than a Sub-contractor) authorized by the Owner of any part of the Works; or (c) any use of or reliance upon any design, data or specification provided or designated by the Owner or any matter for which the Contractor has disclaimed responsibility hereunder, the Owner shall pay to the Contractor all sums payable in respect of the Works executed notwithstanding that the same be lost, destroyed or damaged, and will pay to the Contractor the replacement value of all temporary facilities and all parts thereof lost, destroyed or damaged. If the Owner requests the Contractor in writing to make good any loss or damage to the Works thereby occasioned, the Contractor shall make good the same at the cost of the Owner in accordance with GC 39 (Change in the Works) hereof. If the Owner does not request the Contractor in writing to make good any loss or damage to the Works thereby occasioned, the Owner shall either request a change in accordance with GC 39 (Change in the Works) hereof excluding the performance of that part of the Works thereby lost, destroyed or damaged or, where the loss or damage affects a substantial part of the Works, terminate the Contract pursuant to GC 42.1 (Termination for Owner's Convenience) hereof, except that the Contractor shall have no entitlement to profit under paragraph (e) of GC 42.13 hereof in respect of any unexecuted Works as at the date of termination. The Contractor shall be liable for any loss of or damage to any Construction Equipment, or any other property of the Contractor used or intended to be used for the purposes of the Works, save (1) as mentioned in GC 32.2 above (with respect to the Contractor's temporary facilities) and (2) where such loss or damage arises by reason of any of the matters specified in GC 32.2(b) and (c) above and GC 38.1 hereof. With respect to any loss or damage caused to the Works or any part thereof or to the Construction Equipment by reason of any of the matters specified in GC 38.1 hereof, the provisions of GC 38.3 hereof shall apply.

Loss or Damage to Property/Accident or In;ury to Workmen/Indemnification Subject to GC 33.3 below, the Contractor shall indemnify and hold harmless the Owner and its employees and officers from and against any and all suits, actions or administrative proceedings, claims, demands, losses, damages and costs and expenses of whatsoever nature, including attorney's fees and expenses, in respect of the death or injury of any person or loss or damage to any property (other than the Works whether accepted or not), arising in connection with the execution of the Works and by reason of the negligence of the Contractor or its Sub-contractors, or their employees, officers or agents, except any injury, death or property damage caused by the negligence of the Owner, its contractors, employees, officers or agents. If any proceedings are brought or any claim is made against the Owner which might subject the Contractor to liability under GC 33.1 above, the Owner shall promptly give the Contractor a notice thereof and the Contractor may at its own expense and in the Owner's name conduct such proceedings or claim and any negotiations for the settlement of any such proceedings or claim. GC 33.

33.1

33.2

802

33.3

33.4

34,1

If the Contractor fails to notify the Owner within twenty-eight (28) days after receipt of such notice that it intends to conduct any such proceedings or claim, then the Owner shall be free to conduct the same on its own behalf. Unless the Contractor has so failed to notify the Owner within the twenty-eight (28) day period, the Owner shall make no admission which may be prejudicial to the defense of any such proceedings or claim. The Owner shall, at the Contractor's request, afford all available assistance to the Contractor in conducting such proceedings or claim, and shall be reimbursed by the Contractor for all reasonable expenses incurred in so doing. The Owner shall indemnify and hold harmless the Contractor and its employees, officers and Sub-contractors in respect of any legal liability (including legal liability arising by reason of the negligence of the Contractor andlor Sub-contractors) for loss of or damage to property of the Owner, other than the Works not yet accepted, caused by fire, explosion or any other perils in excess of the amount recoverable from insurances procured u'nder GC 34 (Insurance) hereof. The party entitled to the benefit of an indemnity under this GC 33 shall take all reasonable measures to mitigate any loss or damage which has occurred. If the party fails to take such measures, the other party's liabilities shall be correspondingly reduced. GC 34. Insurance Unless otherwise specified in Appendix 6 (Insurance Requirements) to the Agreement, the Contractor shall at its expense take out and maintain in effect, or cause to be taken out and maintained in effect, during the performance of the Contract, the insurances set forth below in the sums and with the deductibles and other conditions specified in Part I of the said Appendix. The identity of the insurers and the form of the policies shall be subject to the approval of the Owner, such approval not be unreasonably withheld. (a) Marine Cargo Insurance covering loss or damage occurring, whilst in transit from the supplier's or manufacturer's works or stores until arrival at the Site, to the Materials (including spare parts therefor) and to the Construction Equipment to be provided by the Contractor or its Sub-contractors. (b) Erection All Risks Insurance covering physical loss or damage to the Works at the Site, occurring prior to Acceptance of the Plant, with an extended maintenance coverage for the Contractor's liability in respect of any loss or damage occurring during the Defect Liability Period while the Contractor is on the Site for the purpose of performing its obligations during the Defect Liability Period. (c) Third Party Liability Insurance covering bodily injury or death suffered by third parties (including the Owner's personnel) and loss of or damage to property (including the Owner's property and any parts of the Plant which have been accepted by the Owner) occurring in connection with the execution of the Works. (d) Automobile Liability Insurance covering use of all vehicles used by the Contractor or its

803

A2-48

APPENDIX 2

34.2

34.3

34.4

34.5

34.6

804

Sub-contractors (whether or not owned by them) in connection with the execution of the Works. (e) Workmen's Compensation in accordance with the statutory requirements applicable in any country where the Works or any part thereof is executed. (f) Employer's Liability in accordance with the statutory requirements applicable in any country where the Works or any part thereof is executed. (g) Such other insurances as may be specifically agreed upon by the parties hereto. The Owner shall be named as co-insured under all insurance policies taken out by the Contractor pursuant to GC 34.1 above except for the Workmen's Compensation and Employer's Liability Insurances and the Contractor's Sub-contractors shall be named as co-insureds under all insurance policies taken out by the Contractor pursuant to GC 34.1 above except for the Marine Cargo, Workmen's Compensation and Employer's Liability Insurances, and all insurer's rights of subrogation against such coinsureds for losses or claims arising out of the performance of the Contract shall be waived under such policies. The Contractor shall, prior to commencing any relevant part of the Works, deliver to the Owner certificates of insurance (or copies of the insurance policies) as evidence that the required policies are in full force and effect. The policies shall provide that not less than twenty-one (21) days' notice shall be given to the Owner by all insurers prior to any cancellation or material modification of the policies. The Contractor shall ensure that, where applicable, its Sub-contractor(s) shall take out and maintain in effect adequate insurance policies for their personnel and vehicles and for work executed by them under the Contract unless such Sub-contractors are covered by the policies taken out by the Contractor. The Owner shall at its expense take out and maintain in effect during the performance of the Contract those insurances specified in Part II of Appendix 6 (Insurance Requirements) to the Agreement, in the sums and with the deductibles and other conditions specified in Part II of the said Appendix. The identity of the insurers and the form of the policies shall be subject to the approval of the Contractor, such approval not to be unreasonably withheld. The Contractor and the Contractor's Sub-contractors shall be named as co-insureds under all such policies. All insurers' rights of subrogation against such co-insureds for losses or claims arising out of the performance of the Contract shall be waived under such policies. The Owner shall deliver to the Contractor satisfactory evidence that the required insurances are in full force and effect. The policies shall provide that not less than twenty-one (21) days' notice shall be given to the Contractor by all insurers prior to any cancellation or material modification of the policies. If the Contractor fails to take out and/or maintain in effect the insurances referred to in GC 34.1 above, the Owner may take out and maintain in effect any such insurances and may from time to time deduct from any amount due to the Contractor under the Contract any premium which the Owner shall have paid to the insurer or otherwise recover such amount as a debt due from the Contractor.

ENGINEERING ADVANCEMENT ASSOCIATION OF JAPAN MODEL FORM

34.7

35.1

35.2

35.3

If the Owner fails to take out and/or maintain in effect the insurances referred to in GC 34.5 above, the Contractor may take out and maintain in effect any such insurances and may from time to time deduct from any amount due to the Owner under the Contract any premium which the Contractor shall have paid to the insurer or otherwise recover such amount as a debt due from the Owner. Unless otherwise provided in the Contract, the Contractor shall prepare an,d conduct all and any claims made under the policies effected pursuant to thIS GC 34 and all monies payable by any insurers shall be paid to the Contractor. The Owner shall give to the Contractor all such reasonable assistance as may be required by the Contractor. With respect to insurance claims in which the Owner's interest is involved, the Contractor shall not give any release or make any compromise with the insurer without the prior written consent of the Owner. With respect to insurance claims in which the Contractor's interest is involved, the Owner shall not give any release or make any compromise with the insurer without ,the prior written consent of the Contractor. GC 35. Unforeseen Conditions If, during the execution of the Works, the Contractor shall encounter on the Site any physical conditions (other than climatic conditions) or artificial obstructions that could not have been reasonably foreseen at the date of the Agreement by an experienced contractor on the basis of reasonable examination of the data relating to the Works (including any data as to boring tests) provided by the Owner and of information which it could have obtained from a visual inspection of the Site (if access thereto was availa ble) or other data readily available to it relating to the Works, and if the Contractor determines that it will in consequence of such conditions or obstructions incur additional cost and expense or require additional time to perform its obligations under the Contract which would not have been required if such physical conditions or artificial obstructions had not been encountered, the Contractor shall promptly, and before performing additional work or using additional Materials or Construction Equipment, notify the Owner in writing of: (a) the physical conditions or artificial obstructions on the Site that could not have been reasonably foreseen; and (b) the additional work and/or Materials and/or Construction Equipment required including the steps which the Contractor will or proposes to take to overcome such conditions or obstructions; and (c) the extent of the anticipated delay; and (d) the additional cost and expense which the Contractor is likely to incur. Any additional cost and expense incurred by the Contractor to overcome such physical conditions or artificial obstructions referred to in GC 35.1 above shall be paid by the Owner to the Contractor as an addition to the Contract Price. If the Contractor shall be delayed or impeded in the performance of the Contract due to any such physical conditions or artificial obstructions referred to in GC 35.1 above, the Time for Completion shall be extended in accordance with GC 40 (Extension of Time for Completion) hereof.

805

A2-49

APPENDIX 2

A2-S0 36.1

A2-51 37.1

37.2

37.3

37.4

806

ENGINEERING ADVANCEMENT ASSOCIATION OF JAPAN MODEL FORM

GC 36. Change in Laws and Regulations If, after the date of the Agreement, in any country where the Plant or any part thereof is to be manufactured or in the country where the Site is located, any law, regulation, ordinance, order or by-law having the force of law is enacted, promulgated, abrogated or changed (which shall be deemed to include any change in interpretation or application by the competent authorities) which subsequently affects the costs and expenses of the Contractor and/or the Time for Completion, the Contract Price shall be correspondingly increased or decreased and/or the Time for Completion shall be reasonably adjusted to the extent that the Contractor has thereby been affected in the performance of any of its obligations under the Contract.

37.5

GC 37. Force Majeure "Force Majeure" shall mean any event beyond the reasonable control of the Owner or the Contractor, as the case may be, and which is unavoidable notwithstanding the reasonable care of the party affected, and shall include, without limitation, the following: (a) war, hostilities or warlike operations (whether a state of war be declared or not), invasion, act of foreign enemy, civil war; or (b) rebellion, revolution, insurrection, mutiny, usurpation of civil or military government, conspiracy, riot, civil commotion, terrorist acts; or (c) confiscation, nationalization, mobilization, commandeering or requisition by or under the order of any government or de jure or de facto authority or ruler or any other act or failure to act of any local state or national government authority; or (d) strike, sabotage, lock-out, embargo, import restriction, port congestion, lack of usual means of public transportation and communication, industrial dispute, shipwreck, shortage or restriction of power supply, epidemics, quarantine, plague; or (e) earthquake, landslide, volcanic activity, fire, floor or inundation, tidal wave, typhoon or cyclone, hurricane, storm, lightning, or other inclement weather condition, nuclear and pressure waves, or other natural or physical disaster; or (f) shortage of labor, materials or utilities where caused by circumstances that are themselves Force Majeure. If either party is prevented, hindered or delayed from or in performing any of its obligations under the Contract by an event of Force Majeure, then it shall notify the other in writing of the occurrence of such event and the circumstances thereof within fourteen (14) days after the occurrence of such event. The party who has given such notice shall be excused from the performance or punctual performance of its obligations under the Contract for so long as the relevant event of Force Majeure continues and to the extend that such parry's performance is prevented, hindered or delayed. The Time for Completion shall be extended in accordance with GC 40 (Extension of Time for Completion) hereof. The party or parties affected by the event of Force Majeure shall use reasonable efforts to mitigate the effect thereof upon its or their performance of the Contract and to fulfill its or their obligations under the Contract, but without prejudice to either party's right to terminate the Contract under GC 37.6 below and GC 38.5 hereof.

37.7

37.6

37.8

38.1

38.2

38.3

No delay or non-performance by either party hereto caused by the occurrence of any event of Force Majeure shall: (a) constitute a default or breach of the Contract; or (b) (subject to GCs 32.2, 38.3 and 38.4 hereof) give rise to any claim for damages or additional cost or expense occasioned thereby, if and .to the extent that such delay or non-performance is caused by the occurrence of an event of Force Majeure. If the performance of the Works is substantially prevented, hindered or delayed for an aggregate period of more than one hundred and twenty (120) days on account of one or more events of Force Majeure during the currency of the Contract, either party may terminate the Contract by giving a notice to the other, but without prejudice to either party's right to terminate . the Contract under GC 38.5 hereof. In the event of termination pursuant to GC 37.6 above, the rights and obligations of the Owner and the Contractor shall be as specified in GCs 42.1.2 and 42.1.3 hereof, except that the Contractor shall have no entitlement to profit under paragraph (e) of the said GC 42.1.3 in respect of any unexecuted Works as at the date of termination. Notwithstanding GC 37.5 above, Force Majeure shall not apply to any obligation of the Owner to make payments to the Contractor hereunder.

GC 38. War Risks "War Risks" shall mean any event specified in paragraphs (a) and (b) of GC 37.1 hereof and any explosion or impact of any mine, bomb, shell, grenade or other projectile, missile, munition or explosive of war, occurring or existing in or near the country where the Site is located. Notwithstanding anything contained in the Contract, the Contractor shall have no liability whatsoever for or with respect to: (a) the destruction of or damage to the Works or the Materials or any part thereof; or (b) the destruction of or damage to the property of the Owner or any third party; or (c) injury or loss of life; if such destruction, damage, injury or loss of life is caused by any War Risks, and the Owner shall indemnify and hold the Contractor harmless from and against any and all claims, liabilities, actions, lawsuits, damages, costs, charges or expenses arising in consequence of or in connection with the same. If the Works or any Materials or Construction Equipment 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 War Risks, the Owner shall pay the Contractor for: (a) any part of the Works or the Materials so destroyed or damaged (to the extent not already paid for by the Owner); and (b) replacing or making good any Construction Equipment or other property of the Contractor so destroyed or damaged; and so far as may be required by the Owner, and as may be necessary for the completion of the Works, (c) replacing or making good any such destruction or damage to the Works or the Materials or any part thereof.

807

A2-S2

ENGINEERING ADVANCEMENT ASSOCIATION OF JAPAN MODEL FORM

APPENDIX 2.

38.4

38.5

38.6

If the Owner does not require the Contractor to replace or make good any such destruction or damage to the Works, the Owner shall either request a change in accordance with GC 39 (Change in the Works) hereof excluding the performance of that part of the Works thereby destroyed or damaged or, where the loss, destruction or damage affects a substantial part of the Works, terminate the Contract pursuant to GC 42.1 (Termination for Owner's Convenience) hereof. Notwithstanding anything contained in the Contract, the Owner shall pay the Contractor for any increased costs of or incidental to the execution of the Works which are in any way attributable to, consequent on, the result of or in any way connected with any War Risks, provided that the Contractor shall as soon as practicable notify the Owner in writing of any such increased cost. If, during the performance of the Contract, any War Risks shall occur which financially or otherwise materially affects the execution of the Works by the Contractor, the Contractor shall use its reasonable efforts to execute the Works with due and proper consideration given to the safety of its and its Sub-contractors' personnel engaged in the Works, provided, however, that if the execution of the Works becomes impossible or is substantially prevented for an aggregate period of more than sixty (60) days on account of any War Risks, either party may terminate the Contract by giving a notice to the other. In the event of termination pursuant to GC 38.3 or GC 38.5 above, the rights and obligations of the Owner and the Contractor shall be specified in GCs 42.1.2 and 42.1.3 hereof, except that the Contractor shall have no entitlement to profit under paragraph (e) of the said GC 42.1.3 in respect of any unexecuted Works as at the date of termination.

39.4

39.5

39.6

39.7

PART VIII CHANGE IN CONTRACT ELEMENTS A2-53

39.1

39.2

39.3

808

GC 39. Change in the Works Subject to GCs 39.7 and 39.8 below, the Owner shall have the right to request and subsequently to order the Contractor from time to time during the performance of the Contract to make any change, modification, addition or deletion to, in or from the Works (hereinafter called "Change"), provided that such Change falls within the general scope of the Works and does not constitute unrelated work and that it is technically practicable, taking into account both the state of advancement of the Works and the technical compatibility of the Change envisaged with the nature of the Works as specified in the Contract. The Contractor may from time to time during its performance of the Contract propose to the Owner any Change which the Contractor considers necessary or desirable to improve the quality, efficiency or safety of the Works. The Owner may at its discretion approve or reject any Change proposed by the Contractor, provided that the Owner shall approve any Change proposed by the Contractor to ensure the safety of the Works. Norwithstanding GCs 39.1 and 39.2 above, no change made necessary due to any default of the Contractor in the performance of its obligations under

39.8

the C~ntract shall be deemed to be a Change and such change shall not result in any adjustment of the Contract Price or the Time for Completion. If either party proposes a Change pursuant to GCs 39.1 and 39.2 above, the Contractor shall prepare and furnish to the Owner as soon as reasonably practicable a written statement setting out full details of any such Change, the reasons therefor if proposed by the Contractor, the work and/or Materials required or no longer required,.an estimate of the increase or decrease in the Contract Price, any requisite otdjustment CO the Time for Completion, and any proposed modifications to the Contract and/or any effect such Change would have on the Works and/or on any other provisions of the Contract if the contemplated Change is effected, as the case may be. The amount, if any, to be added to or deducted from the Contract Price in respect of any Change shall as far as practicable be calculated in accordance with Appendix 3 (Unit Rates for Changes) to the Agreement. If, in the above Appendix 3, the unit rates are unavailable or inequitable, the parties hereto shall agree specific rates for the valuation of the Change. If, in the case of a Change proposed by either the Owner or the Contractor, the Owner and the Contractor reach agreement on all matters identified in the written statement furnished by the Contractor pursuant to GC 39.4 above within a reasonable time thereafter, then the Owner shall issue a Change order giving effect thereto (hereinafter called "Change Order"). Such Change Order shall contain full particulars of the Change, any adjustment of the Contract Price and/or Time for Completion and all other modifications to the Contract Price and/or Time for Completion and all other modifications to the Contract and shall be signed by the Owner and the Contractor. Such Change shall thereupon be deemed to form patt of the Works. The Contractor may object to any Change requested by the Owner where the aggregate effect of compliance therewith and with all other Change Orders which have already become binding upon the Contractor under this GC 39 would be to increase or decrease the Contract Price as originally set forth in Article 3 (Contract Price) of the Agreement by more than fifteen per cent (15%), provided, however, that the addition to the Contract Price of the price for any Nominated Sub-contractor under GC 19.2 hereof and for any Long Lead Items under GC 21.3 hereof shall not be counted for this purpose. The Contractor may give a notice of objection thereto prior to furnishing the written statement pursuant to GC 39.4 above. If the Owner accepts the Contractor's objection, the Owner shall withdraw the proposed Change and notify the Contractor in writing thereof. The Contractor's failure so to object shall neither affect its right to object to any subsequent requested Changes or Change Orders hereunder, nor affect its right to take into account, when making such subsequent objection, the percentage increase or decrease in the Contract Price which any Change not objected to by the Contractor represents. If the Contractor fails to furnish the statement referred to in GC 39.4 above within a reasonable period or, if the Owner, after negotiation with the Contractor, does not agree within a reasonable period to the amount of the increase or decrease in the Contract Price, the adjustment of the Time for Completion, and/or any other modification to the Contract proposed by the Contractor or to the Contractor's entitlement to object to the Change under GC 39.7 above, the Owner shall have the right to decide whether or not to

809

APPENDIX 2

39.9

A2-54 40.1

40.2

40.3

810

effect such Change, whether such Change has been proposed under GC 39.1 or GC 39.2 above. The Owner may issue a written instruction to the Contractor to carry out the Change pending agreement on such matters with the Contractor. If an agreement is not reached between the Owner and the Contractor within sixty (60) days after the Owner's instruction to carry out the Change, concerning the increase or decrease in the Contract Price and all of the other matters described above, either party may refer the dispute to an Expert pursuant to GC 6.2 (Reference to Expert) hereof. If the Owner requests a Change and subsequently decides not to order such Change, the Contractor shall be entitled to reimbursement of all costs incurred by it for the work involved in preparing the statement referred to in GC 39.4 above, provided that the Contractor has given a prior notice to the Owner of the approximate costs it will incur and its intention to claim reimbursement thereof, and the Owner has agreed that the Contractor should proceed with the preparation of the statement on this basis.

GC 40. Extension of Time for Completion The Time for Completion specified in Article 5.2 (Time for Completion) of the Agreement shall be extended if the Contractor shall be delayed or impeded in the performance of any of its obligations under the Contract by reason of any of the following: (a) any Change in the Works as provided in GC 39 (Change in the Works) hereof; or (b) any occurrence of Force Majeure as provided in GC 37 (Force Majeure) hereof, unforeseen conditions as provided in GC 35 (Unforeseen Conditions) hereof or other occurrence of any of the matters specified or referred to in paragraphs (a), (b) and (c) of GC 32.2 hereof; or (c) any suspension order given by the Owner under GC 41 (Suspension) hereof or reduction in the rate of progress pursuant to GC 41.2 hereof; or (d) any changes in laws and regulations as provided in GC 36 (Change in Laws and Regulations) hereof; or (e) any default or breach of the Contract by the Owner or any activity, act or omission of any other contractors employed by the Owner; or (f) any other matter specifically mentioned in the Contract; by such period as shall be fair and reasonable in all the circumstances and as shall fairly reflect the delay or impediment sustained by the Contractor. Except where otherwise specifically provided elsewhere in the Contract, the Contractor shall submit to the Owner a notice of a claim for an extension of the Time for Completion, together with particulars of the event or circumstance justifying such extension as soon as reasonably practicable after the commencement of such event or circumstance. As soon as reasonably practicable after receipt of such notice and supporting particulars of the claim, the Owner and the Contractor shall agree upon the period of such extension, failing which either party may refer the dispute to an Expert pursuant to GC 6.2 (Reference to Expert) hereof. The Contractor shall at all times use its reasonable efforts to minimize any delay in the performance of its obligations under the Contract.

ENGINEERING ADVANCEMENT ASSOCIATION OF JAPAN MODEL FORM

41.1

41.2

41.3

GC 41. Suspension The Owner may by notice to the Contractor :order the Contractor to suspend performance of all or any of its obligations under the Contract. Such notice shall specify the obligation of which performance is to be suspended, the effective date of the suspension and the reasons therefor. The Contractor shall thereupon suspend performance of such obligation (except those obligations which are necessary for the care or preservation of the Works) until ordered in writing to resume such performance by the Owner. If, by virtue of a suspension order given by the Owner, otherwise than by reason of the Contractor's default or breach of the Contract, the Contractor's performance of any of its obligations is suspended for an aggregate period of more than ninety (90) days, then at any time thereafter and provided that at that time such performance is still suspended, the Contractor may give a notice to the Owner requiring that the Owner shall, within twenty-eight (28) days of receipt of the notice, either order the resumption of such performance or request and subsequently order a change in accordance with GC 39 (Change in the Works) hereof excluding the performance of the suspended obligations from the Contract. If the Owner fails so to do within such period, the Contractor may, by a further notice to the Owner, elect to treat the suspension, where it affects a part only of the Works, as a deletion of such part in accordance with GC 39 (Change in the Works) hereof or, where it affects the whole of the Works, as termination of the Contract under GC 42.1 (Termination for Owner's Convenience) hereof. If: (a) the Owner has failed to pay the Contractor any sum due under the Contract within the specified period or has failed to approve any invoice or supporting documents without due cause or amend the letter of credit/guarantee delivered to the Contractor pursuant to Article 4 (Terms of Payment) of the Agreement; or commits a substantial breach of the Contract, the Contractor may give a notice to the Owner requiring payment of such sum, with interest thereon as stipulated in GC 12.3 hereof, or requiring approval of such invoice or supporting documents or the amendment of such letter of credit/guarantee or specifying the breach and requiring the Owner to remedy the same, as the case may be. If the Owner fails to pay such sum together with such interest or fails to approve such invoice or supporting documents or give its reasons for withholding such approval or amend such letter of credit/guarantee or fails to remedy the breach or take steps to remedy the breach within fourteen (14) days after receipt of the Contractor's notice; or (b) the Contractor is unable to carry out any of its obligations under the Contract for any reason attributable to the Owner, including but not limited to the Owner's failure to provide possession of or access to the Site or other areas of failure to obtain any governmental permit necessary for the execution and/or completion of the Works; then the Contractor may by notice to the Owner suspend performance of all or any of its obligations under the Contract, or reduce the rate of progress. If the Contractor's performance of its obligations is suspended or the rate of progress reduced pursuant to this GC 41, then the Time for Completion

811

Al-55

ENGINEERING ADVANCEMENT ASSOCIATION OF JAPAN MODEL FORM

APPENDIX 2

41.4

(d)

shall be extended in accordance with GC 40.1 hereof and any and all additional costs or expenses incurred by the Contractor as a result of such suspension or reduction shall be paid by the Owner to the Contractor in addition to the Contract Price, except in the case of suspension order or reduction in the rate of progress by reason of the Contractor's default or breach of the Contract. During the period of suspension, the Contractor shall not remove from the Site any Materials, any part of the Plant or any Construction Equipment, without the prior written consent of the Owner.

(e) (f)

the costs incurred by the Contractor in protecting the Works and leaving the Site in a clean and safe condition pursuant to paragraph (a) of GC 42.1.2 above; and the reasonable amount of profit for the parts of the Works not executed by the Contractor as at the date of termination: and the cost of satisfying all other obligations, commitments and claims which the Contractor may in good faith have undertaken with third parties in connection with the Contract and which are not covered by paragraphs (a) through (d) above.

Termination for Contractor's Default 42.2 A2-S6

GC 42.

Termination 42.2.1

Termination for Owner's Convenience 42.1 42.1.1 42.1.2

42.1.3

812

The Owner may at any time terminate the Contract for any reason by giving the Contractor a notice of termination which refers to this GC 42.1 Upon receipt of the notice of termination under GC 42.1.1 above, the Contractor shall either immediately or upon the date specified in the notice of termination: (a) cease all further work, except for such work as the Owner may specify in the notice of termination for the sole purpose of protecting that part of the Works already executed or any work required to leave the Site in a clean and safe condition; and (b) terminate all sub-contracts, except those to be assigned to the Owner pursuant to paragraph (d)(ii) below; and (c) remove all Construction Equipment from the Site and repatriate the Contractor's and its Sub-contractors' personnel from the Site, remove from the Site any wreckage, rubbish and debris of any kind, and leave the whole of the Site in a clean and safe condition; and (d) subject to the payment specified in GC 42.1.3 below: (i) deliver to the Owner the parts of the Works executed by the Contractor up to the date of termination; and (ii) to the extent legally possible assign to the Owner all right, title and benefit of the Contractor to the Works and in the Materials as at the date of termination, and, as may be required by the Owner, in any sub-contracts concluded between the Contractor and its Sub-contractors; and (iii) deliver to the Owner all drawings, specifications and other documents prepared by the Contractor or its Sub-contractors as at the date of termination in connection with the Works. In the event of termination of the Contract under GC 42.1.1 above, the Owner shall pay to the Contractor the following amounts: (a) the Contract Price properly attributable to the parts of the Works executed by the Contractor as at the date of termination; and (b) the costs reasonably incurred by the Contractor in the removal of the Construction Equipment from the Site and in the repatriation of the Contractor's and its Sub-contractors' personnel: and (c) any amounts to be paid by the Contractor to its Sub-contractors in connection with the termination of any sub-contracts, including any cancellation charges; and

42.2.2

42.2.3

The Owner, without prejudice to any other rights or remedies it may possess, may terminate the Contract forthwith in the following circumstances by giving a notice of termination to the Contractor referring to this GC 42.2 and its reasons for termination: (a) if the Contractor becomes bankrupt or insolvent, or has a receiving order issued against it, or compounds with its creditors, or, being a corporation, a resolution is passed or order is made for its winding up (other than a voluntary liquidation for the purposes of amalgamation or reconstruction) or a receiver is appointed over any part of its undertaking or assets, or if the Contractor takes or suffers any other analogous action in consequence of debt.; or (b) if the Contractor shall assign or transfer the Contract or any right or interest therein in violation of the provision of GC 43 (Assignment) hereof. If the Contractor: (a) has abandoned or repudiated the Contract; or (b) has without valid reason failed to commence the Works promptly or has suspended (other than pursuant to GC 41.2 hereof) the progress of the Works for more than twenty-eight (28) days after receiving a written instruction from the Owner to proceed; or (c) shall persistently fail to execute the Works in accordance with the Contract or persistently neglect to carry out its obligations under the Contract without due cause; or (d) shall refuse or be unable to provide sufficient materials, services or labor to execute and complete the Works in the manner specified in the program furnished under GC 18 (Work Program) hereof at rates of progress that give reasonable assurance to the Owner that the Contractor can attain Mechanical Completion by the Time for Completion as extended; then the Owner may, without prejudice to any other rights it may possess under the Contract, give a notice to the Contractor stating the nature of the default, and requiring the Contractor to remedy the same. If the Contractor fails to remedy or to take steps to remedy the same within fourteen (14) days of its receipt of such notice, then the Owner may terminate the Contract forthwith by giving a notice of termination to the Contractor which refers to this GC 42.2. Upon receipt of the notice of termination under GC 42.2.1 or GC 42.2.2 above, the Contractor shall either immediately or upon such date as is specified in the notice of termination:

813

APPENDIX 2.

(a)

42.2.4

42.2.5

42.2.6

814

cease all further work, except for such work as the Owner may specify in the notice of termination for the sole purpose of protecting that part of the Works already executed or any work required to leave the Site in a clean and safe condition; and (b) terminate all sub-contracts, except those to be assigned to the Owner pursuant to paragraph (d) below; and (c) deliver to the Owner the parts of the Works executed by the Contractor up to the date of termination; and (d) to the extent legally possible assign to the Owner all right, title and benefit of the Contractor to the Works and in the Materials as at the date of termination, and, as may be required by the Owner, in any sub-contracts concluded between the Contractor and its Subcontractors; and (e) deliver to the Owner all drawings, specifications and other documents prepared by the Contractor or its Sub-contractors as at the date of termination in connection with the Works. The Owner may enter upon the Site and expel the Contractor therefrom and the Owner may complete the Works itself or by employing any third party. The Owner may, to the exclusion of any right of the Contractor over the same, take over and use without payment to the Contractor any Construction Equipment which is owned by the Contractor and which is on the Site in connection with the Works for such reasonable period as the Owner considers expedient for the execution and completion of the Works. Upon completion of the Works or at such earlier date as the Owner thinks appropriate, the Owner shall give a notice to the Contractor that such Construction Equipment will be returned to the Contractor at or near the Site and shall return such Construction Equipment to the Contractor in accordance with such notice. The Contractor shall thereafter without delay and at its cost remove or arrange removal of the same from the Site. Subject to GC 42.2.6 below, the Contractor shall be entitled to be paid the Contract Price attributable to the Works executed as at the date of termination, the value of any unused or partially used Materials on the Site and the costs, if any, incurred in protecting the Works and leaving the Site in a clean and safe condition pursuant to paragraph (a) of GC 42.2.3 above. Any sums due to the Owner from the Contractor accruing prior to the date of termination shall be deducted from the amount to be paid to the Contractor under this Contract. If the Owner completes the Works, the cost of completing the Works by the Owner shall be determined. If the sum which the Contractor is entitled to be paid pursuant to GC 42.2.5 above, plus the reasonable costs incurred by the Owner in completing the Works exceeds the Contract Price, the Contractor shall be liable for such excess. If such excess is greater than the sums due to the Contractor under GC 42.2.5 above, the Contractor shall pay the balance to the Owner, and if such excess is less than the sums due to the Contractor under the said GC 42.2.5, the Owner shall pay the balance to the Contractor. The Owner and the Contractor shall agree in writing the computation described above and the manner in which any sums shall be paid.

ENGINEERING ADVANCEMENT ASSOCIATION OF JAPAN MODEL FORM

Termination by Contractor 42.3 42.3.1

42.3.2

42.3.3

If: (a)

the Owner has failed to pay the Contractor any sum due under the Contract within the specified period; or has failed to approve any invoice or supporting documents without due cause or amend the letter of credit/guarantee delivered to the Contractor pursuant to Article 4 (Terms of Payment) of the Agreement; or commits a substantial breach of the Contract, the Contractor may give a notice to the Owner requiring payment of such sum, with interest thereon as stipulated in GC 12.3 hereof, or requiring approval of such invoice or supporting documents or the amendment of such letter of credit/guarantee or specifying the breach and requiring the Owner to remedy the same, as the case may be. If the Owner fails to pay such sum together with such interest or fails to approve such invoice or supporting documents or give its reasons for withholding such approval or amend such letter of credit/guarantee or fails to remedy the breach or take steps to remedy the breach within fourteen (14) days after receipt of the Contractor's notice; or (b) the Contractor is unable to carry out any of its obligations under the Contract for any reason attributable to the Owner, including but not limited to the Owner's failure to provide possession of or access to the Site or other areas or failure to obtain any governmental permit necessary for the execution and/or completion of the Works; then the Contractor may give a notice to the Owner thereof and if the Owner has failed to pay the outstanding sum or to approve the invoice or supporting documents or amend the letter of credit/guarantee, or to give its reasons for withholding such approval or to remedy the breach within twenty-eight (28) days of such notice or if the Contractor is still unable to carry out any of its obligations under the Contract for any reason attributable to the Owner within twenty-eight (28) days of the said notice, the Contractor may by a further notice to the Owner which refers to this GC 42.3.1 forthwith terminate the Contract. The Contractor may terminate the Contract forthwith by giving a notice to the Owner to that effect and which refers to this GC 42.3.2 if the Owner becomes bankrupt or insolvent, or has a receiving order issued against it, or compounds with its creditors, or, being a corporation, a resolution is passed or order is made for its winding up (other than a voluntary liquidation for the purposes of amalgamation or reconstruction), or a receiver is appointed over any part of its undertaking or assets or if the Owner takes or suffers any other analogous action in consequence of debt. If the Contract is terminated under GC 42.3.1 or GC 42.3.2 above, then the Contractor shall immediately: (a) cease all further work, except for such work as may be necessary for the purpose of protecting that part of the Works already executed or any work required to leave the Site in a clean and safe condition; and (b) terminate all sub-contracts, except those to be assigned to the Owner pursuant to paragraph (d)(ii) below; and (c) remove all Construction Equipment from the Site and repatriate the Contractor's and its Sub- contractor's personnel from the Site; and (d) subject to the payment specified in GC 42.3.4 below:

815

APPENDIX 2

ENGINEERING ADVANCEMENT ASSOCIATION OF JAPAN MODEL FORM

(i)

42.3.4

42.3.5

42.4

42.5

42.6

deliver to the Owner the parts of the Works executed by the Contractor up to the date of termination; and (ii) to the extent legally possible assign to the Owner all right, title and benefit of the Contractor to the Works and in the Materials as at the date of termination, and, as may be required by the Owner, in any sub-contracts concluded between the Contractor and its Sub-contractors; and (iii) deliver to the Owner all drawings, specifications and other documents prepared by the Contractor or its Sub-contractors as at the date of termination in connection with the Works. If the Contract is terminated under GC 42.3.1 or GC 42.3.2 above, the Owner shall pay to the Contractor all payments specified in GC 42.1.3 above and reasonable compensation for all loss or damage sustained by the Contractor arising out of, in connection with or in consequence of such termination. Termination by the Contractor pursuant to this GC 42.3 is without prejudice to any other rights or remedies of the Contractor which may be exercised in lieu of or in addition to the rights conferred by this GC 42.3. In this GC 42, the expression "Works executed" shall include all work executed, services provided and all Materials acquired (or subject to a legally binding obligation to purchase) by the Contractor and used or intended to be used for the purpose of the Works, up to and including the date of termination. In this GC 42, in calculating any monies due from the Owner to the Contractor, due account shall be taken of any sum previously paid by the Owner to the Contractor under the Contract including any advance payment paid pursuant to Appendix 4 (Payment Terms) to the Agreement. If the Contract is terminated by either party, then notwithstanding anything to the contrary provided in this GC 42, the rights and obligations of the Owner and the Contractor in respect of the process licence granted under GC 15.1 hereof shall be subject to the conditions specified in Appendix 9-4 (Licence Conditions) to the Agreement. GC 43. Assignment Neither the Owner nor the Contractor shall without the express prior written consent of the other (which consent shall not be unreasonably withheld) assign to any third party the Contract or any part thereof, or any right, benefit, obligation or interest therein or thereunder, except that the Contractor shall be entitled to assign either absolutely or by way of charge any monies due and payable to it or which may become due and payable to it under the Contract.

A2-S7

relating to the ..................................................... _.................... Plant, we hereby notify you that the following unitlfacility of the Plant was mechanically complete on the date specified below. 1. PlantlUnitlFacility

2. Date of Mechanical Completion However, you are required to complete the outstanding items listed in the attachment as soon as practica hie. . This letter does not relieve you of your obligation to execute the Works in accordance with the Contract. Very truly yours, Title (the Owner)

ACCEPTANCE CERTIFICATE To: Contractor Gentlemen: Pursuant to GC 25.3 (Acceptance) of the General Conditions of the Contract entered into between our respective companies dated . ................................ relating to the .......................................................................... Plant, we hereby notify you that the Process Performance Guarantees/Consumption Guarantees of the following unit/facility of the Plant were satisfactorily attained and we accept the unit/facility, together with the responsibility for care and custody thereof, on the date specified below. 1. PlantlUnitlFacility

. ................................................................

2. Date of Acceptance

. ................................................................

This letter does not relieve you of your obligations for defect liability and other outstanding obligations under the Contract. Very truly yours,

MECHANICAL COMPLETION CERTIFICATE To: Contractor

Title (the Owner)

Gentlemen: Pursuant to GC 24 (Mechanical Completion) of the General Conditions of the Contract entered into between our respective companies dated ................................ .

816

817

ApPENDIX

3

EUROPEAN INTERNATIONAL CONTRACTORS: CONDITIONS OF CONTRACT FOR DESIGN AND CONSTRUCT PROJECTSl INDEX 1 2 3 4

5 6 7 8 9 10

11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 I

Clause Definitions and Interpretation Scope of Services and Works Owner's Principal Obligations in relation to the Design and execution of the Works Contractor's Principal Obligations in relation to the Design and execution of the Works Owner's General Obligations in relation to the Design and execution of the Works Contractor's General Obligations in relation to the Design and execution of the Works Common Obligations of the Owner and Contractor in relation to the Design and the Works Performance Security Commencement Completion and Acceptance of the Design and the Works Liquidated Damages and Bonuses Variations Allocation of Risk Insurance Contract Price Payment Taxes and Duties Discharge of Obligations Warranties Contractor's Default Owner's Default Intellectual Property/Copyright Confidentiality Termination including Termination at Owner's Convenience Settlement of Disputes Law General

820 822 822 823 824 824 826 826 827 828 829 830 832 834 835 835 835 836 837 838 838 839 840 841 841

Reproduced by kind permission of EIC.

819

I EUROPEAN INTERNATIONAL CONTRACTORS: CONDITIONS OF CONTRACT

APPENDIX 3

GENERAL CONDITIONS A3-01

1.1

820

Clause 1 - Definitions and Interpretation 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: (i) "Design" means the design for the Works. (ii) "Conceptual Design" is the Owner's submission in wrltmg or other recorded material to the Contractor upon which the Design Elements (Tender Design) is based. (iii) "Design Elements" (Tender Design) is the outline design for the Works submitted to the Owner by the Contractor in response to the Conceptual Design prior to the Contract and accepted by the parties as the design to be developed for the Works. (iv) "Preliminary Design" means the Design prepared by the Contractor which after approval by the Owner will form the basis of the Final Design. (v) "Final Design" means the fully detailed Design prepared by the Contractor. (vi) "Approved Design" means the Final Design prepared by the Contractor and approved by the Owner. (vii) "Contract Price" means the sum specified in the Contract or otherwise ascertainable pursuant to the provisions of this Contract as payable by the Owner to the Contractor for the completion of the Works and the remedying of any defect therein in accordance with the provisions of the Contract subject to such additions and adjustments thereto and deductions therefrom as may be made pursuant to the provisions of the Contract. (viii) "Commencement Date" means the date upon which the Design and execution of the Works under the Contract are to commence. (ix) "Contract" means the Contract Agreement and all documents incorporated therein. (x) "Contract Agreement" means the agreement incorporating these Conditions for the Design and the Works entered into by the Owner and the Contractor. (xi) "Contractor" means the entity identified as such in the Appendix. (xii) "Contractor's Equipment' means all appliances and things of whatsoever nature 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 Works. (xiii) "Contractor's Representative" means the person appointed by the Contractor to act as Contractor's Representative for the purposes of the Contract. (xiv) "Day" means calendar Day. "Defects Liability Period" shall mean the Defects Liability Period (xv) agreed by the parties hereto but otherwise 12 (twelve) months calculated from the date of completion as certified in the Taking Over Certificate. (xvi) "Drawings" means all Drawings, provided by the Contractor under the Contract.

(xvii)

1.2 1.3

1.4 1.5

1.6

1.7

1.8

1.9

1.10 1.11

"Owner" means the entity identified as such in the Appendix hereto. (xviii) "Owner's Representative" means the person appointed by the Owner to act as the Owner's Representative for the purposes of the Contract. (xix) "Plant" means machinery, apparatus and the like intended to form or forming part of the Works. (xx) "Site" means the places provided by the Owner where the Works are to be executed and any other places as may be specifically designated in the Contract as forming part of the Site. (xxi) "Taking-Over Certificate" means a certificate of completion of the Works pursuant to Clause 9.4. (xxii) "Tests on Completion" means the tests specified in the Contract or which are to be made by the Contractor before the issue of the Taking Over Certificate. (xxiii) "Time for Completion" means the time for completing the execution of the Works up to the issue of the Taking Over Certificate from the Commencement Date or the time otherwise fixed pursuant to the Contract and such extended time (if any) as provided for pursuant to the provisions of the Contract. (xxiv) "Variation" has the meaning ascribed to it pursuant to Clause 11. (xxv) "Works" means the Permanent Works and the Temporary Works or either of them as appropriate. The Appendix hereto forms part of these Conditions and shall be read and construed accordingly. The headings and marginal notes in these Conditions shall not be deemed part thereof or be taken into consideration in the interpretation or construction thereof or of the Contract. Words importing persons or parties shall include firms and corporations and any organisation having legal capacity. The Contract Documents are those listed in the Contract Agreement. They are considered to be mutually complementary in case of discrepancies the priority shall be in conformity with any order of priority agreed between the parties. Measurements which are given in figures or words and which are not obviously incorrect shall take precedence over scaled measurements. The Contract constitutes the entire agreement between the Owner and the Contractor with respect to the subject matter of the Contract and supersedes all communications, negotiations and agreements (whether written or oral) of the parties with respect thereto made prior to the date of the Agreement. No amendment or other modification of the Contract shall be effective unless it is in writing, is dated, expressly refers to the Contract, and is signed by a duly authorised representative of each party hereto. If any provision or condition of the Contract is prohibited or rendered invalid or unenforceable such prohibition, invalidity or unenforceability shall not affect the other provisions of the Contract. Words importing the singular only also include the plural and vice versa where the context requires. Wherever in the Contract provision is made for the giving or issue of any notice, approval, certificate or determination, unless otherwise specified

821

APPENDIX 3

such notice, approval, certificate or determination shall be in writing and the words "notify", "certify" or "determine" shall be construed accordingly. Any such approval, certificate or determination shall not unreasonably be withheld or delayed.

A3-02

Clause 2 Scope of Services and Works The Contractor shall perform all works and services required for the Design, procurement, construction and completion of the Works in accordance with the Contract except for those works and services which will be provided or performed by the Owner.

2.1

3.8

3.1

3.2

3.3

3.4

3.5

3.6

3.7

822

Days of submission by the Contractor to the Owner for approval, the approval shall be deemed to have been given. The Owner shall promptly take over the Works in accordance with the Contract.

Clause 4 4.1 4.2

Clause 3 A3-03

Owner's Principal Obligations in Relation to the Design and Execution of the Works Unless expressly otherwise agreed in the Contract as regards the choice of the Site the Owner shall be responsible for such choice and he shall deliver the Site to the Contractor free from encumbrances and provide access to the Site upon the date fixed or provided for in the Contract and including provision of facilities as required in the Contract for the period of the Contract. The Owner is responsible for the specifications and definitions set out in the Conceptual Design. The Owner shall transmit to the Contractor the information and data required from him under the Contract in due time in order to enable the Contractor to carry out the Contract in accordance with the programme. The Owner shall be responsible for such information and data, in particular for its accuracy. The Owner shall consider proposals for the Preliminary Design submitted by the Contractor pursuant to Clause 4.2 hereof with a view to approving the same (as the same may be modified) within the time stated in the Appendix hereto from submission by the Contractor. Upon approval the design shall be the approved Preliminary Design, on the basis of which the Contractor shall prepare the Final Design. The Owner shall also review the Final Design submitted by the Contractor pursuant to Clause 4.2 hereof and shall approve the same within the time stated in the Appendix. Upon approval (whether or not with any disclaimer by the Contractor as referred to in Clause 4.2) the Final Design shall then be the Approved Design. The consequences of any Variation in the Preliminary Design or the Final Design requested by the Owner shall be dealt with in accordance with the provisions of Clause 9 and 11 respectively. Any permits, approvals andlor licences, which must be obtained by the Owner in his name pursuant to the laws and the regulations applicable to the Design and the Works, shall be obtained by the Owner at his own expense. The Owner shall at his own expense obtain all planning, zoning or other similar permission required for the Design and the Works. All such permits, approvals, licences andlor permissions shall be obtained by the Owner within such time as to allow the Contractor to proceed in accordance with the programme of the Works. Where approvals are required or sought from the Owner under the Contract, the Owner shall give timely consideration to approval or disapproval. If the Owner has not approved or disapproved within 14 (fourteen)

EUROPEAN INTERNATIONAL CONTRACTORS: CONDITIONS OF CONTRACT

4.3

4.4

4.5

4.6

4.7

Contractor's Principal Obligations in Relation to the Design and Execution of the Works The Design and the Works shall be executed and completed by the Contractor with due care and diligence in accordance with the Contract. The Contractor will execute the Design based on the Conceptual Design and the Design Elements (Tender Design) accepted by the Owner using proper skill and care of professional designers experienced in that type of design. During the preparation of the Preliminary and the Final Design the Contractor will refer as appropriate to the Owner and submit his proposals within the time stated in the Appendix hereto to the Owner for approval. The Contractor will be fully responsible for the Approved Design except for those matters in respect of which the Owner has made a decision for which the Contractor expressly disclaims responsibility at the time of approval. The Contractor will carry out and complete the construction of the Works with due diligence and with workmanship and materials of a good quality in accordance with the Approved Design to meet the requirements of the Contract. In relation to the Design and execution and completion of the Works the Contractor confirms that he has entered into the Contract on the basis of reasonable examination of data relating to the Works provided by the Owner and information which he could have obtained from a visual inspection of the Site (if access thereto was available) and other data readily available to him relating to the Works. With the Final Design the Contractor shall provide the Owner with a detailed programme for the Works showing the organisation to be established by the Contractor for carrying out the Works including the identities and curricula vitae of key personnel to be employed on the Contract and showing the sequence and methods in which the Works are to be carried out. The Contractor shall transmit to the Owner any further information and data required from him under the Contract in accordance with the programme. The Contractor shall have the obligation to inform the Owner of any circumstances and conditions adversely affecting or which may adversely affect the execution of the Contract and shall further inform the Owner without delay of any circumstances and conditions which cause or which may be likely to cause significant alteration to the programme and without delay submit a revised programme to the Owner taking account of such circumstances and conditions. If the Contractor shall, in connection with the Design and the execution of the Works, encounter circumstances which, having due regard to the obligations of the Contractor, could not reasonably be expected to have been taken into account by an experienced Contractor undertaking the responsibilities of the Contractor, then the Contractor shall give notice thereof to the Owner referring to this Sub-Clause with his initial appraisal of the consequences and, unless the same renders the Contract physically or legally

823

A3-04

APPENDIX

4.8

4.9

4.10

3

impossible to complete, nevertheless carry out and complete the Works incorporating such circumstances (if any) as are appropriate. In the event of such circumstances and conditions as is referred to in Clause 4.7 above the Contractor shall be entitled to an appropriate extension of time and the Contract Price shall be adjusted to take account of the circumstances and conditions by an increase or decrease as may be appropriate. The Contractor shall deliver the Works to the Owner within the time specified in the programme in accordance with the Contract save and except such work and services as are of no material significance and save and except such work and services as are the Contractor's responsibility during the Defects Liability Period. During the Defects Liability Period or as soon thereafter as is reasonably practical the Contractor shall carry out and complete all outstanding work and services pursuant to the Contract.

EUROPEAN INTERNATIONAL CONTRACTORS: CONDITIONS OF CONTRACT

6.4

6.5

6.6

6.7

6.8 Clause 5 A3-05

5.1

5.2

5.3 5.4

Owner's General Obligations in Relation to the Design and Execution of the Works The Owner shall appoint the Owner's Representative who shall be responsible to the Owner and shall carry out such duties and exercise such authority as may be provided for in the Contract or additionally delegated to him by the Owner. Any such additional delegation shall be in writing and shall not take effect until a copy thereof has been delivered to the Contractor. Any communication given by the Owner's Representative to the Contractor in accordance with such additional delegation shall have the same effect as though it had been given by the Owner. The Owner shall assist the Contractor to obtain in due time any permits, approvals and/or licences, which must be obtained by the Contractor, subcontractors and/or their employees pursuant to the laws and regulations applicable to the Works. The Owner will use all reasonable endeavours by assisting the Contractor to obtain in due time clearance through the customs of Plant Contractor's Equipment, materials and other things required for the Works. In respect of any Contractor's Equipment which the Contractor has imported for the purposes of the Works, the Owner will use all reasonable endeavours to 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 the terms of the Contract.

6.10

Clause 6 A3-06

6.1 6.2

6.3

824

Contractor's General Obligations in Relation to the Design and the Execution of the Works The Contractor shall comply with the local statutes and regulations prescribed for use of the Site and performance of the Works. The Contractor shall provide on the Site in connection with the execution and completion of the Works such skilled staff and labour as is necessary for the execution of the Works. Unless otherwise provided in the Contract, the Contractor shall be responsible for the recruitment, transportation, accommodation and catering of

6.9

6.11

all staff and labour local or expatriate, as required for the execution of the Works and for all costs in connection therewith. The Contractor shall at all times during the progress of the Works use all reasonable endeavours to prevent any unlawful conduct or misbehaviour by or amongst staff and labour. The Contractor shall, in all dealings with staff and labour, pay due regard to all locally recognized festivals, official holidays and religious or other recognized customs. The Contractor shall be responsible for applying for and handling all administrative measures in order to obtain, with the assistance of the Owner, all necessary permit(s) or visa(s) from the appropriate authorities for the entry of all labour and personnel to be employed on Site. The Contractor shall be responsible at his own expense for the repatriation to the countries from which they were recruited of all his personnel employed on Site. The Contractor shall throughout the execution and completion of the Works: (a) have full regard for the safety of all persons entitled to be upon the Site and keep the Site and the Works (so far as the same is under his control) in an orderly state appropriate for the avoidance of danger (b) provide and maintain at his own cost all lights, guards, fencing, warning signs and watching, when and where necessary or required by any duly constituted authority, for the protection of the Works or for the safety and convenience of the public or others (c) take all reasonable steps to protect the environment on and off the Site and to avoid damage or nuisance to persons or to property of the public or others resulting from pollution, noise or other causes arising as a consequence of his methods of operation. The Contractor will at his own expense, but with the assistance of the Owner, handle the import of all Plant, Contractor's Equipment, and other things required for use on or incorporation in the Works at the place of import and any formalities for customs clearance except where the applicable laws or regulations require that the Owner be responsible for the same, subject to the obligation of the Owner to bear all customs and import duties imposed by the law of the country in which the Works are situated on such Plant, Contractor's Equipment, materials and other things in accordance with Clause 16.2. Upon the Taking-Over the Contractor shall clear away and remove from the Site all Contractor's Equipment, surplus material and rubbish, and leave the Site and Works clean and in a workmanlike condition. Provided that the Contractor shall be entitled to retain on Site, until the end of the Defects Liability Period, such materials and Contractor's Equipment as are required by him for the purpose of fulfilling his obligations during the Defects Liability Period. In the event of a subcontractor having undertaken towards the Contractor in respect of the work executed, or the goods, materials, Plant or services supplied by such subcontractor, any continuing guarantee or warranty extending for a period exceeding that of the Defects Liability Period under the Contract, the Contractor shall at any time, after the expiration of such period, assign to the Owner, at the Owner's request and cost, the benefit of such gu~rantee or warranty for the unexpired duration thereof.

825

APPENDIX

6.12

6.13

6.14

3

EUROPEAN INTERNATIONAL CONTRACTORS: CONDITIONS OF CONTRACT

At the request of the Owner the Contractor shall allow the Owner, and any person authorised by him at all reasonable times to have access to the Site and to all Workshops and places where materials or Plant are being manufactured, fabricated or prepared for the Works. The Contractor shall save harmless and indemnify the Owner from and against all claims and proceedings for or an account of infringement of any patent rights, design trademark or name or other protected rights in respect of the Design or any Contractor's Equipment, materials or Plant used for or in connection with or for incorporation in the Works and from and against all damages, costs, charges and expenses whatsoever in respect thereof or in relation thereto, except where such infringement is the consequence of compliance with any requirement of the Owner. Two copies of the Drawings shall be provided by the Contractor to the Owner free of charge. The Contractor shall at the Owner's expense supply any further copies required from him by the Owner. Following issue of the Taking Over Certificate, the Contractor shall supply to the Owner 2 (two) copies of as built drawings.

Clause 7 A3-07

7.1

7.2

A3-0S

8.1

8.2

8.3

826

Common Obligations of the Owner and Contractor in Relation to the Design and the Works Both the Owner and the Contractor shall exchange with each other any and all information which reasonably can be considered to be of importance for the satisfactory and correct Design and execution and completion of the Works. The Contractor shall within 14 (fourteen) Days after the end of the last Day of each month submit a report to the Owner of the progress of the Design and the Works. In accordance with Clause 21 the parties undertake to maintain, during and after the implementation of the Contract, the confidential nature of any manufacturing or business information and know-how received, and not to disclose to third parties except so far as necessary for the furtherance of the Contract any information or experience which they obtain as a result of their collaboration.

on the demand of the Owner, the Owner shall not make a claim under the security unless one of the following conditions is satisfied: (a) the Contractor is in breach of the Contract and fails to remedy the breach within 42 (forty-two) days after receiving notice from the Owner requiring him so to do, which notice shall state the intention to claim under the security, the amount claimed and the breach relied upon, or (b) the Owner and the Contractor have agreed in writing that the amount demanded is payable to the Owner, and the amount has not been paid within 42 (forty-two) days thereafter, or (c) the Owner has been awarded damages in arbitration under Clause 23 and the amount awarded has not been paid within 42 (forty-two) days after the award, or (d) the Contractor has gone into liquidation, receivership or is bankrupt and the liquidator or receiver has not, within 42 (forty-two) days, signified his intention of fulfilling the Contractor's obligations under the Contract. In every case the Owner shall, when making the claim, send a copy to the Contractor.

Clause 8 Performance Security The Contractor shall obtain and provide to the Owner security for the proper performance of this Contract upon signature of the Contract Agreement by the parties in the sum stated in the Appendix to these Conditions and in the form agreed by the parties hereto. The institution providing such security shall be acceptable to the Owner. The cost of complying with the requirements of this Clause shall be borne by the Contractor, unless the Contract provides otherwise. The performance security shall be valid until the Contractor has executed and completed the Works and remedied any defects therein in accordance with the Contract. No claim shall be made against such security after the expiry of the Defects Liability Period and such security shall be returned to the Contractor within 14 (fourteen) Days of the expiry of the said Defects Liability Period. Whether or not the performance security is stated by its terms to be payable

Clause 9 9.1

9.2

9.3

Commencement Completion and Acceptance of the Design and the Works The Contractor shall commence the Design and the Works at the Commencement Date. Upon approval of the Final Design by the Owner the Contractor shall proceed with the Works with due expedition and without delay. The parties may nevertheless agree that specific work be carried out prior to the establishment of the Approved Design. The Commencement Date shall be the date stated in the Appendix hereto as the Commencement Date unless otherwise agreed in the Contract Agreement. The whole of the Works shall be completed in accordance with the provisions of the Contract within the Time for Completion. In the event of (a) the amount or nature of extra or additional work, or (b) any cause of delay referred to in these Conditions expressly or implicitly whether or not expressly stating that the Contractor is entitled to an extension of time, or (c) exceptionally adverse climatic conditions, or (d) any delay, impediment or prevention by the Owner, or (e) other special circumstances which may occur, other than through a default of or breach of Contract by the Contractor or for which he is responsible, or (f) without limiting the foregoing or being limited thereby force majeure or any operation of the forces of nature or other circumstances (if not force majeure) beyond the reasonable control of either of the parties hereto which if the Contractor could not reasonably have foreseen, being such as fairly to entitle the Contractor to an extension of the Time for Completion of the Design and the Works, the Contractor shall without prejudice to any other right or remedy be entitled to such extension of time overall for completion of the Works as is reasonable taking account of all the circumstapces and shall give notice

827

A3-09

APPENDIX

904

9.5

9.6

A3-tO

10.1

828

3

of the extension to the Owner without delay. The Contractor shall be entitled to revision of the length of extension if the cause continues or if the effects have consequences which were not or not fully taken into account. (a) When the whole of the Works have been substantially completed and have satisfactorily passed any Tests on Completion prescribed by the Contract, the Contractor shall give notice to that effect to the Owner. Such notice and undertaking shall be deemed to be a request by the Contractor for the Owner to issue a Taking-Over Certificate in respect of the Works. (b) The Owner shall, within 21 (twenty-one) Days of the date of such notice either issue to the Contractor a Taking-Over Certificate confirming the date of such notice as the date when the Works were substantially completed in accordance with the Contract, or identify in writing to the Contractor the work and services which the Owner considers is required to be done pursuant to the Contract before the issue of such Certificate. The Owner shall also notify the Contractor of any such defects in the Works that have to be rectified before issue of the Taking Over Certificate. The Owner's notice hereunder is without prejudice to Clause 9.5. (c) The Contractor shall be entitled to receive a Taking-Over Certificate within 7 (seven) Days of completion of the whole or part of the works and services so specified and remedying any defects so notified at (b) above effective as at the date of completion thereof. (d) In case of occupancy or use of the Works by the Owner the Contractor shall be entitled to a Taking-Over Certificate for such Works or part thereof effective as at the date of occupancy or use thereof. (e) The Contractor shall notify the Owner within 14 (fourteen) Days of the notice at (b) above of any such work and services which the Contractor either (i) considers do not form part of the Contract or (ii) considers do not require to be done before the issue of the Taking-Over Certificate and specifying which. The Contractor shall complete any work outstanding on the date stated in the Taking-Over Certificate as soon as reasonably practicable after such date including remedying any defect until the end of the Defects Liability Period. The Contractor shall at the request of the Owner made during the Defects Liability Period execute all such other Works in relation to the Contract as requested by the Owner so that at the end of the Defects Liability Period or as soon as possible thereafter the Works shall be in the condition required by the Contract and the Contractor shall be entitled to an addition to the Contract Price for the same.

Clause 10 Liquidated Damages and Bonuses If the Contractor fails to complete the Works within the Time for Completion in accordance with the Contract, then the Contractor shall pay to the Owner the relevant sum stated in the Appendix hereto as liquidated damages for such default and not as a penalty (which sum shall be the only monies due from the Contractor for such default) for every day which shall

EUROPEAN INTERNATIONAL CONTRACTORS: CONDITIONS OF CONTRACT

10.2

10.3 IDA

11.1

11.1.1

11.1.2

11.2

11.3

elapse between the Time for Completion and the date specified in the Taking-Over Certificate, subject to the limit stated in the Appendix hereto. The payment 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 but shall be in full discharge of the Contractor's liability for delay in completion. If the Contractor achieves completion of the Works prior to the Time for Completion, the Owner shall pay to the Contractor a sum as a bonus in addition to the Contract Price as stated in the Appendix hereto for every Day which shall elapse between the date specified in the Taking-Over Certificate and the Time for Completion up to the limit stated in the Appendix. . For the purpose of Clause 10 date of completion of the Works shall be the date of substantial completion thereof in accordance with Clause 904. If prior to the Time for Completion the Contractor in its absolute discretion following the request of the Owner agrees to allow the Owner to use or occupy the Works in whole or part then liquidated damages shall be reduced in the proportion which the value of the part so used or occupied bears to the value of the whole of the works, as applicable. The provisions of this Sub-Clause shall only apply to the rate of liquidated damages and shall not affect the limit thereof.

Clause 11 Variations The Owner has the right, at any time, by giving a written notice to the Contractor, to propose any changes, modifications, additions or omissions to in or from the Works (hereinafter referred to as "Variation"). Whenever the Owner shall desire to make such Variation(s) in work, the Owner shall so notify the Contractor in writing, describing the Variation(s) desired in sufficient detail so as to enable the Contractor to appraise its nature and extent. Within 28 (twenty-eight) days of receipt of the notice of proposed Variation(s) from the Owner the Contractor shall inform the Owner of the cost of such Variation(s) including a reasonable cost break down in a form mutually agreed indicating adjustment of the Contract Price, any required extension of the Time for Completion and/or changes of the Design. Within 28 (twenty-eight) days after receipt of said information from the Contractor the Owner shall approve the execution of such Variation(s) in accordance with the terms set out by the Contractor or on such other terms as the Owner and the Contractor may agree in writing prior to the execution of such Variation(s). The Contractor may suggest any Variation(s) it considers necessary or desirable during the execution of the Contract. Any such Variation(s) shall be submitted for the approval of the Owner together with an explanation of the ground therefore, the cost of such Variation(s), any required extension of the Time for Completion and/or any changes d,f the Design. The Owner shall approve and/or comment in writing to the Contractor within 28 (twenty-eight) days of the receipt of the proposal. The proposed Variation(s) shall be considered valid only if approved by the Owner. Until the approval for the Variation(s) is given in accordance with this Clause and the terms of the execution and the payment therefore have been

829

A3-11

APPENDIX 3

11.4

A3-12

12.1

12.2

12.3

12.4 12.4.1

12.4.2

830

agreed in writing, the Contractor shall not execute any Variation(s) to the Works and/or to the Design nor shall any change be made to the Time for Completion. After such approval, the Contract Price, the Time for Completion and any other obligations under the Contract shall be modified to the extent so agreed by the Owner and the Contractor and the Contractor shall promptly execute such Variation(s) and shall make any revision in the Contract documents as may be necessary.

Clause 12 Allocation of Risk The Contractor shall take full responsibility for the care of the Works and materials and Plant from the Commencement Date until the date stated in the Taking-Over Certificate for the whole of the Works, when the responsibility for such care shall pass to the Owner, norwithstanding the Contractor's obligation to perform any outstanding Works or to rectify any defects during the Defects Liability Period. If any loss or damage happens to the Works, or any part thereof, or materials or Plant during the period for which the Contractor is responsible for the care thereof, from any cause whatsoever, other than the risks defined in Sub-Clause 12.4, the Contractor shall, at his own cost, rectify such loss or damage so that the Works conform in every respect with the provisions of the Contract. In the event of such loss or damage happening from any of the risks defined in Clause 12.4 or in combination with other risks, the Contractor shall, if and to the extent required by the Owner, rectify the loss or damage and the Contractor shall be entitled to an addition to the Contract Price. In the case of a combination of risks causing loss or damage any such entitlement shall take into account the proportional responsibility of the Contractor and the Owner. The Owner's risks are: (a) war, hostilities (whether war be declared or not), invasion act of foreign enemies (bl rebellion, revolution, insurrection, sabotage or military or usurped power, or civil war (cl 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 (e) riot, commotion or disorder, unless solely restricted to employees of the Contractor or of his subcontractors and arising from the conduct of the Works (fl without limiting the foregoing or being limited thereby force majeure or any operation of the forces of nature or other circumstances (if not force majeure) beyond the reasonable control of either of the parties hereto which the Contractor could not reasonably have foreseen. In addition to the Owner's risks as in Clause 12.4.1 the following shall be at the risk of the Owner:

EUROPEAN INTERNATIONAL CONTRACTORS: CONDITIONS OF CONTRACT

loss or damage due to the use or occupation by the Owner of any Section or part of the Works, except as may be provided for in the Contract (b) loss or damage due to the design of the Works to the extent that such loss or damage is due to the Owner's decision as to the design in respect of which the Contractor has expressly disclaimed responsibility in writing within a reasonable time. The Contractor shall, except if and so far as the Contract provides otherwise, indemnify the Owner against all losses and claims in respect of: (a) death of or injury to any person, or (b) loss of or damage to any property (other than the Works), which may arise out of or in consequence of 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 exceptions defined in Clause 12.6. The "exceptions" referred to in Clause 12.5 are: (a) the use or occupation of land by the Works, or any part thereof or access thereto (b) the right of the Owner to execute the Works, or any part thereof, on, over, under, in or through any land (c) damage to property which is the unavoidable result of the execution and completion of the Works, or the remedying of any defects therein, in accordance with the Contract (d) death of or injury to persons or loss of or damage to property resulting from any act or neglect of the Owner, his agents, servants or other Contractors, not being employed by the Contractor, or in respect of any claims, proceedings, damages, costs, charges and expenses in respect thereof or in relation thereto or, where the injury or damage was contributed to by the Contractor, his servants or agents, such part of the said injury or damage as may be just and equitable ha ving regard to the extent of the responsibility of the Owner, his servants or agents or other Contractors for the injury or damage. The Owner shall indemnify the Contractor against all claims, proceedings, damages, costs, charges and expenses in respect of the matters referred to in the exceptions defined in Clause 12.6. The Owner shall not be liable for or in respect of any damages or compensation payable to any workman or other person in the employment of the Contractor or any subcontractor, other than death or injury resulting from any act or default of the Owner, his agents or servants. The Contractor shall indemnify and keep indemnified the Owner against all such damages and compensation, other than those for which the O~ner is liable as aforesaid , and against all claims, proceedings, damages, CO$ts, charges, and expenses whatsoever in respect thereof or in relation thereto. The Contractor shall be under no liability whatsoever in consequence of any of the special risks referred to in Clause 12.10, whether by way of indemnity or otherwise, for or in respect of: (a) destruction of or damage to the Works, or (b) destruction of or damage to property, whether of the Owner or third parties, or (c) injury or loss of life (a)

12.5

12.6

12.7 12.8

12.9

831

APPENDIX

12.10

12.11

12.12

12.13

12.14

3

The special risks are: (a) the risks defined under paragraphs (a), (c), (d) and (e) of Clause 12.4.1 and (b) the risks defined under paragraph (b) of Clause 12.4.1 insofar as they affect the performance of this Contract. 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 of any of the 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 or Plant or Contractor's Equipment so destroyed or damaged and, or as may be necessary for the completion of the Works, to payment as an addition to the Contract Price for: (a) rectifying any such destruction or damage to the Works, and (b) replacing or rectifying such materials Plant or Contractor's Equipment which shall include in the case of replacement of materials or Plant and Contractor's Equipment the fair market value thereof. 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. Save to the extent that the Contractor is entitled to payment under any other provision of the Contract, the Owner shall repay to the Contractor any costs of the Works 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 cost comes to his knowledge, forthwith notify the Owner thereof. If, after the date 28 (twenty-eight) Days prior to the date of the submission by the Contractor of the Design Elements (Tender Design) or any time thereafter including after the signing of the Contract Agreement for the Contract 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 by-law of any local or other duly constituted authority, or the introduction of any such State Statute, Ordinance, Decree, Law, regulation or by-law which causes additional or reduced cost to the Contractor in the execution of the Contract, such additional or reduced cost shall after consultation with the Owner and the Contractor, be added to or deducted from the Contract Price and the Contractor shall be entitled to an extension of time for delay arising as a consequence to completion of the Works.

EUROPEAN INTERNATIONAL CONTRACTORS: CONDITIONS OF CONTRACT

(c)

13.2

13.3

13.4

13.5

13.6 13.7

A3-13

13.1

832

Clause 13 Insurance The Contractor shall, without limiting his or the Owner's obligations and responsibilities under Clause 12, insure: (a) the Works, together with materials and Plant for incorporation therein, to the full replacement cost (b) an additional sum of 15 per cent of such replacement cost, or as may be otherwise agreed, to cover any additional costs of and incidental to the rectification of loss or damage, and

13.8

the Contractor's Equipment and other things brought onto the Site by the Contractor, for a sum sufficient to provide for their replacement at the Site. The insurance in paragraphs (a) and (b) of Clause 13.1 shall be in the joint names of the Contractor and the Owner and shall cover: (a) the Owner and the Contractor against all loss or damage from whatsoever cause arising, other than as provided in Clause 13.4 from the Commencement Date or such other date as may be mutually agreed by the Owner and the Contractor until the date stated in 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: (i) 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 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 9.4, 9.5 and 9.6. Any amounts not insured or not recovered from the insurers shall be borne by the Owner or the Contractor in accordance with their responsibilities under Clause 12. There shall be no obligation for the insurances in Sub-Clause 13.1 to include loss or damage caused by (a) war, hostilities (where war be declared or not), invasion, act of foreign enemies (b) rebellion, revolution, insurrection, sabotage or military or usurped power, or civil war (c) ionising radiations, or contamination by radio-activity from any ~uclear 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. The Contractor shall, without limiting his or the Owner's obligations and responsibilities under Clause 12 insure, in the joint names of the Contractor and the Owner, against liabilities for: death of or injury to any person (other than as provided in Clause 12.8) or loss of or damage to any property (other than the Works) arising out of the performance of the Contract, other than the exceptions defined in paragraphs (a), (b) and (c) of Clause 12.6. Such insurance shall be for at least the amount agreed between the parties or failing such agreement as the Contractor considers reasonable. The insurance policy shall include a cross liability clause such that the insurance shall apply to the Contractor and to the Owner as separate insureds. The Contractor shall insure against liability as described in Clause 12.8 and shall continue such insurance during the whole of the time that any persons are employed by him on the Works. Provided that, in respect of any persons employed by any subcontractor, the Contractor's obligations to insure as aforesaid under this Sub-Clause shall be satisfied if the subcontractor shall have insured against the liability in respect of such persons in such manner that the Owner is indemnified under the policy, but such subcontractor shall

833

APPENDIX

13.9

13.10

13.11

13.12

A3-14

14.1 14.2

14.3

14.4

14.5

834

EUROPEAN INTERNATIONAL CONTRACTORS: CONDITIONS OF CONTRACT

3

produce to the Owner, when required by the Contractor, such policy of insurance and the receipt for the payment of the current premium. The Contractor shall provide evidence to the Owner prior to the start of work at the Site that the insurances required under the Contract have been effected and shall, within 56 (fifty-six) Days of the Commencement Date, provide the insurance policies to the Owner. The Contractor shall effect all insurances for which he is responsible with insurers selected by him unless agreed upon by the parties upon entering into the Contract. The Contractor shall maintain the insurances at all times in accordance with the terms of the Contract and shall, when required, produce to the Owner the insurance policies in force and the receipts for payment of the current premiums. If the Contractor fails to effect and keep in force any of the insurances required under the Contract, or fails to provide the policies to the Owner within the period required by Clause 13.9, then and in any such case the Owner may effect and keep in force any such insurances and pay any premium as may be necessary for that purpose and from time to time deduct the amount so paid from any monies due or to become due to the Contractor, or recover the same as a debt due from the Contractor. In the event that the Contractor or the Owner fails to comply with conditions imposed by the insurance policies effected pursuant to the Contract, each shall indemnify the other against all losses and claims arising from such failure.

Clause 14 Contract Price The Owner shall pay to the Contractor the Contract Price in consideration of the Contractor's obligations pursuant to the Contract. The Contract Price shall be as stated in the separate statement annexed hereto and entitled "Contract Price Terms", The Contract Price Terms shall form part of and be construed with these conditions subject to the provisions hereof and shall when paid be in full satisfaction of the Contractor's entitlement pursuant to the Contract. Without prejudice to any other right or remedy under the Contract if there is delay in payment by the Owner to the Contractor of any sums payable pursuant to the Contract the Owner shall pay interest to the Contractor at the rate per annum specified in the Contract Price Terms calculated on a Day to Day basis. Where there is any adjustment to the Contract Price pursuant to the provisions hereof the sum to be ascertained by way of addition or deduction shall make due allowance for overhead and profit of the Contractor and the Contractor shall provide to the Owner such supporting information as is reasonable. The parties acknowledge that the Contract Price represents the fair and proper price and that the Contract provisions to adjust the Contract Price including (without limiting the scope of such provisions) for Variations, escalation formulae, currency exchange clause as applicable are to maintain the Contract Price as a fair and proper price for the carrying out and completion of the Contract in accordance with actual trends of costs and/or currencies to avoid undue loss or profits to either party as a consequence of circumstances affecting the carrying out and completion of the Contract.

15.1

15.2

16.1

16.2

16.3

16.4

17.1

17.2

Clause 15 Payment The Contract Price shall be paid by the Owner to the Contractor in instalments at the times and in the manner provided for in the separate statement annexed hereto entitled "Terms of Payment". The terms of payment shall form part of and be construed with these conditions. When the Contract Price is expressed in any particular currency then unless the parties otherwise agree payment shall be made in that currency at the place stipulated by the Contractor and where there is more than one currency the Contract Price shall be paid in such currency of the Contractor's choice at the place stipulated in the Terms of Payment. Clause 16 Taxes and Duties Except as in Clause 12.14 and as otherwise specifically provided in the Contract, the Contractor shall bear and pay all taxes, duties, levies and charges assessed on the Contractor, its subcontractors or their employees by all local, sate or national government authorities in connection with the Works in and outside the country where the Site is located. Notwithstanding Clause 16.1 above, the Owner shall bear and promptly payor reimburse all customs and import duties imposed by the law of the country where the Site is located on materials, Plant and goods to be incorporated into the Works and on Contractor's Equipment. If any tax exemptions, reductions, allowances or privileges are available in the country where the Site is located, the Owner shall use its best endeavours t6 enable the Contractor to benefit from any such tax savings to the maximum allowable extent. For the purpose of the Contract it is agreed that the Contract Price is based on the taxes, duties, levies and charges (hereinafter called "tax" in this Clause 16) prevailing 28 (twenty-eight) Days prior to the date of the submission by the Contractor of the Design Elemen~s (Tender Design). If any of the rates of tax is increased or decreased or a·new tax is introduced or an existing tax abolished or any change in interpretation or application of any tax occurs in the course of the performance of the Contract, which was or is to be assessed on the Contractor, subcontractors of their employees in connection with the execution of the Contract, an equitable adjustment of the Contract Price shall be made to reflect any such change by addition to the Contract Price or deduction therefrom as the case may be. Clause 17 Discharge of Obligations Warranties The Contractor undertakes that upon the date stated in the Taking Over Certificate the Works will have been completed in accordance with the Contract and that during the Defects Liability Period the Contractor will remedy any defects which are the responsibility of the Contractor pursuant to its obligations hereunder and otherwise fulfil its obligations. The Contractor further undertakes that insofar as the Contractor is able, wh~re th~ Contractor has a benefit of any warranty in respect of any Plant, which Will continue after completion of the Works, the Contractor will at the end of the Defects Liability Period (and when no work or services remain outstanding which the Contractor requires to be carried out or performed) transfer the benefit thereof to the Owner.

835

A3-15

A3-16

A3-17

APPENDIX

17.3

A3-18

18.1

18.2

836

3

When the Contractor has completed all Works and services pursuant to Clause 9.5 then apart from the obligation to transfer pursuant to Clause 17.2 above and the liability of the Contractor pursuant to Clause 17.1 above and matters involving third parties arising during the execution of the Works, the Contractor shall be under no further liability to the Owner pursuant to the Contract.

Clause 18 Contractor's Default If the Contractor is deemed by law unable to pay his debts as they fall due, or enters into voluntary or involuntary bankruptcy, liquidation or dissolution (other than a voluntary liquidation for the purposes of amalgamation or reconstruction) or becomes insolvent, or makes an arrangement with, or assignment in favour of, his creditors, or agrees to carry out the Contract under a committee of inspection of his creditors, or if a receiver, administrator, trustee or liquidator is appointed over any substantial part of his assets, or if, under any law or regulation relating to reorganization, arrangement or readjustment of debts, proceedings are commenced against the Contractor or resolutions passed in connection with dissolution or liquidation or if any steps are taken to enforce any security interest over a substantial part of the assets of the Contractor, or if any act is 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 has an execution levied on his goods (not remedied within 28 Days) or if the Contractor (a) has without lawful justification abandoned the Contract, or (b) without reasonable excuse fails to commence the Works in accordance with Clause 9 or to proceed with the Works, with due diligence, within 28 (twenty-eight) Days after receiving notice to that effect from the Owner, or (c) following previous warning from the Owner, in writing, otherwise persistently neglects without reasonable excuse to carry out its obligations under the Contract, then the Owner may, after giving 28 (twenty-eight) Days' notice to the Contractor, enter upon the Site and the Works and terminate the employment of the Contractor without thereby releasing the Contractor from any of his obligations or liabilities under the Contract, or affecting the rights and authorities conferred on the Owner by the Contract, and may himself complete the Works or may employ any other Contractor to complete the Works. The Owner or such other Contractor may use for such completion so much of the Contractor's Equipment, temporary works and materials as he or they may think proper. The Contractor shall, within 56 (fifty-six) Days after any such entry and insofar as is practicable after such investigation or enquiries as is proper to make or institute shall issue a statement to the Owner stating (a) the amount (if any) at the time of such entry and termination, reasonably earned by or which would reasonably accrue to the Contractor in respect of work then actually done and services provided by him under the Contract, and (b) the value of any of the said unused or partially used materials and Plant and Contractor's Equipment.

EUROPEAN INTERNATIONAL CONTRACTORS: CONDITIONS OF CONTRACT

18 .3

18.4

18.5

19.1

If the Owner terminates the Contractor's employment under this Clause, he shall not be liable to pay to the Contractor any further amounts (including any damages) in respect of the Contract until the costs of design, execution, completion and remedying of any defects, damages for delay in completion pursuant to Clause 10 (if any) and all other expenses reasonably and properly incurred by the Owner to complete the Works have been finally established. The Contractor shall be entitled to receive such sums (if any) as would have been payable to him. 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 Owner the amount of such excess and it shall be deemed a debt due by the Contractor to the Owner and shall be recoverable accordingly. Unless prohibited by law, the Contractor shall, if requested by the Owner, within 14 (fourteen) Days of such entry and termination referred to in Clause 18.1 assign to the Owner the benefit of any agreement for the supply of any goods or materials or services and/or for the execution of any work for the purposes of the Contract, which the Contractor may have entered into upon due credit being given by the Owner to the Contractor for the cost thereof with such indemnity amI/or security to the Contractor as may be reasonable. 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 is urgently necessary for the safety of the Works and the Contractor is unable or unwilling within the time necessary having regard to circumstances to do such work, the Owner shall be entitled to carry out such work. If the work or repair so done by the Owner is work which the Contractor was liable to do at his own cost under the Contract, then the cost thereof or so much as is reasonable shall, after consultation between the Owner and the Contractor, be recoverable from the Contractor by the Owner, and may be deducted by the Owner from any monies due or to become due to the Contractor. Provided that the Owner shall, as soon after the occurrence of any such emergency as may be reasonably practicable, notify the Contractor thereof. Clause 19 Owner's Default In the event of the Owner (a) failing to pay to the Contractor the amount due within 28 (twentyeight) Days after the expiry of the time within which payment is to be made, subject to any deduction that the Owner is entitled to make under the Contract, or (b) without reasonable excuse following previous warning from the Contractor otherwise persistently neglects to carry out its obligations under the Contract, or (c) becoming bankrupt or, being a company, if liquidation is initiated, other than for the purpose of a scheme of reconstruction or amalgamation, the Contractor shall notwithstanding the provisions of Clause 19.4 be entitled to terminate his employment under the Contract by giving notice to the Owner. Such termination shall take effect 14 (fourteen) Days after the giving of the notice.

837

A3-19

APPENDIX

19.2

19.3

19.4

19.5

A3-20

20.1

20.2

3

Upon the expiry of the 14 (fourteen) Days' notice referred to in Clause 19.1 the Contractor shall, with all reasonable despatch, remove from the Site all Contractor's Equipment brought by him thereon and shall give similar facilities to his subcontractor to do so. In the event of such termination the Owner shall be under the same obligations to the Contractor in regard to payment as if the Contract had been terminated under the provisions of Clause 22, but, in addition to the payments specified in Clause 22.4, the Owner 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. Without prejudice to the Contractor's entitlement to any interest and to terminate under Clause 19.1, the Contractor may, if the Owner fails to pay the Contractor any amount due within 14 (fourteen) Days, subject to any deduction that the Owner is entitled to make under the Contract, after giving 7 (seven) Days' prior notice to the Owner, suspend work, services and other activities or reduce the rate of work, services and other activities. If the Contractor suspends work, services or other activities or reduces the rate of work, services or other activities in accordance with the provisions of this Clause and thereby suffers delay or incurs cost the Contractor shall be entitled to an extension of time for delay to the completion of the Works arising as a consequence thereof and the Owner shall be liable to the Contractor for an addition to the Contract Price in respect thereof for additional cost and expense. Where the Contractor suspends work, services or other activities or reduces the rate of work services or other activities, having given notice in accordance with Clause 19.4 and the Owner subsequently pays the amount due, including any interest the Contractor's entitlement under Clause 19.1 shall, if notice of termination has not been given, lapse and the Contractor shall resume normal working as soon as is reasonably possible but without prejudice to the Contractor's rights in respect of any future breach.

Clause 20 Intellectual Property/Copyright On the date stated in the Taking Over Certificate the Contractor will be deemed to grant to the Owner and his successors in title to the Works without further fee a non-exclusive right to utilise patents knowhow and other industrial property incorporated or utilised in the Works for the purposes envisaged by the Contract provided or procured by the Contractor provided that when the incorporated patents knowhow or other intellectual property have been derived from or procured by the Owner (other than pursuant to the Contract) the same shall as between the Owner and the Contractor be the property of the Owner to the extent so derived or procured. Copyright in all Drawings, documents and data and other information, provided to the Owner by or on behalf of the Contractor hereunder shall, as between the Owner and the Contractor be vested in the Contractor.

EUROPEAN INTERNATIONAL CONTRACTORS: CONDITIONS OF CONTRACT

21.2

Clause 22 Termination including Termination at Owner's Convenience 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 ~hich, whether financially or otherwise, materially affects the Works, the Contractor shall, unless and until the Contract is terminated under the provisions of this Clause, continue to use all reasonable endeavours to complete the Works. Provided that either party shall be entitled, at any time after such outbreak of war, to terminate the Contract by giving notice to the other party and, upon such notice being given, the Contract shall, except as to the rights of the parties under this Clause and to the operation of Clause 19, terminate, but without prejudice to the rights of either party in respect of any antecedent breach thereof. 22.2 The Owner shall be entitled to terminate the Contract at any time for the Owner's convenience after giving 56 (fifty-six) Days prior notice to the Contractor and the provisions of Clause 22.4 shall apply.

22.1

22.3

A3-21

21.1

838

If

(a)

22.4

Clause 21 Confidentiality The Owner and the Contractor shall keep confidential and shall not, without the written consent of the other party hereto, divulge to any third

party or use any Drawings, documents, data or other information furnished directly or indirectly by the other party hereto in connection with the Contract whether such information has been furnished prior to, during or following termination of the Contract. Notwithstanding the above, the parties may each utilise and disclose such documents, data and other information it receives from the other to the extent required for the purposes of the Contract and to make use of the Works. The obligation of a party under 21.1 above shall not apply to Drawings, documents, data or other information which: (a) now or hereafter enters the public domain through no fault of that party, (b) can be proved to have been in the possession of that party at the time of disclosure and which was not previously obtained, directly or indirectly, from the other party hereto, or (c) otherwise lawfully becomes available to that party from a third party under no obligation of confidentiality.

the Contract terminates or is terminated as a consequence of any circumstance outside the control of a party or which arises after the Contract Agreement has been entered into which renders it impossible or unlawful for either party to fulfil its contractual obligations, or (b) under the law governing the Contract the parties are released from further performance, or (c) the Owner gives notice to the Contractor that for unforeseen reasons, due to economic dislocation, it is impossible for the Owner to continue to meet his contractual obligations then the sum(s) payable by the Owner to the Contractor in respect of services provided and work executed shall be in accordance with Clause 22.4 below. If the Contract terminates or is terminated as under any of the provisions of Clause 22.1 to 22.3 inclusive, the Contractor shall be paid by the Owner, insofar as such amounts or items have not already been covered by payments on account made to the Contractor, for all work done and services

839

A3-22

APPENDIX

22.5

22.6

A3-23

23.1

840

EUROPEAN INTERNATIONAL CONTRACTORS: CONDITIONS OF CONTRACT

3

provided by the Contractor including overheads and profit prior to the date of termination and upon request by the Contractor in addition, without limiting the foregoing: (a) the cost of materials, Plant, Contractor's Equipment or goods reasonably ordered for the Works which have been delivered to the Contractor or of which the Contractor is legally liable to accept delivery, such materials, Plant, Contractor's Equipment or goods becoming the property of the Owner upon such payments being made by him (b) A sum 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 has not been covered by any other payments referred to in this Clause (c) Any additional sum payable under the provisions of Clauses 12.11 and 12.13 (d) Such proportion of the cost as may be reasonable, taking into account payments made or to be made for services provided and work executed, of removal of Contractor's Equipment under Clause 22.2 and, if required by the Contractor, return thereof to the Contractor's main yard in his country of registration or to other destination, at no grea ter cost (e) 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 that against any payment due from the Owner under this Clause, the Owner 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 Owner from the Contractor under the terms of the Contract. Any sums payable under this Clause shall, after consultation by the Contractor with the Owner as far as practicable, be determined by the Contractor who shall notify the Owner accordingly. If the Contract is terminated under the provisions of Clause 22.1, the Contractor shall so far as he is reasonably able, with all reasonable dispatch, remove from the Site all Contractor's Equipment and shall give similar facilities to his subcontractors to do so. If the Approved Design is not established by the time provided for herein then one party may give to the other 28 (twenty-eight) Days prior notice of intention to give notice to terminate the obligations of the parties under the provisions of the Contract in relation to the Works and if at the end of the said 28 (twenty-eight) Days the Approved Design has not been established either party may thereupon give notice to the other under this Clause bringing to an end within 7 (seven) Days all further obligations of the parties in relation to the Works and the provisions of Clause 22.4 shall apply.

Clause 23 Settlement of Disputes If a dispute of any kind whatsoever arises between the Owner and the Contractor in connection with, or arising out of, the Contract or the

23.2

23.3

24

25.1

25.2

25.3

Works and whether before or after repudiation or other termination of the Contract, including without limiting the foregoing any dispute as to any matter or thing in relation to the Contract, then either the Owner or the Contractor may give notice to the other party of his intention to commence arbitration, as hereinafter provided as to the matter in dispute and no arbitration in respect thereof may be commenced unless such notice is given. Unless the Contract has already been abandoned or terminated, the parties subject to the operation of Clause 19.4 shall, in every case, continue to comply with their obligations under the Contract. Where notice of intention to commence arbitration has been given in accordance with Clause 23.1 arbitration of such dispute shall not be commenced unless an attempt has first been made by the parties to settle such dispute amicably. Provided that, unless the parties otherwise agree, arbitration may be commenced on or after the 28th (twenty-eig~th) Day after the Day on which notice of intention to commence arbitration of such dispute was given, whether or not any attempt at amicable settlement thereof has been made. Any dispute in respect of which amicable settlement has not been reached within the period stated in Clause 23.2 shall be finally settled by arbitration by one or more arbitrators appointed under the Rules referred to in the Appendix. Arbitration may be commenced prior to or after completion of the Works, provided that the obligations of the Owner and the Contractor shall not be altered by reason of the arbitration being conducted during the progress of the Works.

Clause 24 Law The law which shall apply to the Contract and according to which the Contract shall be construed is as specified in the Appendix hereto.

Clause 25 General The Owner shall not without the prior consent of the Contractor assign the Contract or any part thereof, or any benefit or interest therein or thereunder The Contractor shall not, without the prior consent of the Owner assign the Contract or any part thereof, or any benefit or interest therein or thereunder, otherwise than by: (a) a charge in favour of the Contractor's bankers of any monies due or to become due under the Contract, or . (b) assignment to the Contractor's insurers including credit insurers (in cases where the insurers have discharged the Contractor's loss or liability) of the Contractor's right to obtain relief against any other party liable. Subject to the Owner's approval which shall not be unreasonably withheld the Contractor may subcontract the whole or any part or parts of the design and execution of the Works.

25.4 (a)

The language or languages in which the Contract documents shall be drawn up, shall be as stated in the Appendix hereto.

841

A3-24

A3-25

APPENDIX

3

If the said documents are written in more than one language, the language according to which the Contract shall be construed and interpreted will be as stated in the Appendix. Notwithstanding termination of the Contract and without prejudice to the continuation of any other provision of the Contract which in the context of the Contract is intended to or does survive termination of the Contract, Clause 18 to 25 hereof shall survive termination. (b)

25.5

ApPENDIX

4

STANDARD FORM OF AGREEMENTS BETWEEN OWNER AND DESIGNIBUILDER 1996 EDITION1 TABLE OF

ARTlCLES~

';:{t~~o~~no'

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2. 3.

OWNER OWNERSHIP AN DOCUMENTS AN

4. 5.

TIME PAYMENTS

F ,~ IC ...T...

7. 8.

MISCEllANEOUS PROVISIONS TERMIN...TION OF THE AGREEMENT

9.. 10.

BASIS OF COMPENSATION ornER CONDITIONS AND SERVICES

PART 2 AGREEMENT

I.

2. 3. 4. 5. 6. 7.

GENERAL PROVISIONS OWNER DESIGN/BUILDER TIME PAYMENTS PROTECTION OF PERSONS AND PROPER1Y INSURANCE AND BONDS ...,.,......... ................. T ... " - k _ ....... fOUIIlntt:ftlltf~.,.,...~D .

8.

9. 10.

II. 12.

13. 14.

CHANGES IN THE WORK CORRECTION OF WORK DISPUTE RESOumONMEDIATION AND ARBITRATION MISCEllANEOUS PROVISIONS TERMINATION OF THE AGREEMENT BASIS OF COMPENSATION OTHER CONDITIONS AND SERVICES

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842

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"Reproduced with permission of The American Institute of Architects under license number 22008. This license expires August 31, 2003. FURTHER REPRODUcrlON IS PROHIBITED. Because AlA documents are revised from time to time, users should ascertain from the AlA the current edition of this document. Copies of the current edition of this AlA document may be purchased from the American Institute of Architects or its local distributors. The text of this document is not" Model Language and is not intended for use in other documents without the permission of the AlA". This license is not transferable and shall not extend beyond the use specifically approved in this license. "The American Institute of Architects" "AlA" and the AlA emblem are registered trademarks of The American Institute of Architects".

843

M-01

APPENDlX

4

STANDARD FO·RM OF AGREEMENTS BETWEEN OWNER AND DESIGN/BUILDER fo< the following Projeet,

AlA DocUmenI A191

~,.,..,_.Ioc4IIIbIt~.-:1~

Standard Form of Agreement Between Owner and Design/Builder THIS DOCUMENT HAS IMPORTANT I£GAL CONSEQUEJI/CES; COIVSlIl.71J7ON WT17l lIN ATTORNEYIS ENCOURAGED VI1TTH RESPECT10 ITS USE, COMPIETlON OR MODIFICATlON.

AGREEMENT In the year of

_

...........,

BETWEEN the OWner.

-. .--.cI ...

~ ..,.OI"'1htAMc1tcW'llNl.lNUoIAn:Nl«U.171S,.....'IbrtI~,

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~MIhouIIhe...nner.~oIIheALo\rioWaIdIe~

AI91-1996 P""I_agel

844

~

The Owner and che DeslgrVIIulidcr asree as set tanh below. AM 00CtMENT At.w, PIIt 1 ·owtEI-oI:SIOtWUI.DUK;I£DIEH'J"- 1996 1EDf'I1()N. AJAe. 01'" THE AMfltICAH ft\"T1TtM 0. AIICKITBC1'S. 17), .." YC:IM .wI.NUI. N.• , WAStCI«:iroH, D.C. ~S29l • WAMMCI: ......... ~ ...... u.a. ............................... ~

AI81-1996 P.rt l-P.ge 2

845

APPENDIX

4

STANDARD FORM OF AGREEMENTS BETWEEN OWNEJ;l. AND DESIGN/BUILDER

TERMS AND CONDmONS-PART 1 AGREEMENT 1.3.3 The!lesignllluildec shaJI _ _ laws appIiabIe 10 consuuctlon ol the Project, cocrebce such Ia.... Mth theOwne<'s prosram ~ts, a n d _ the Owne< il any prosram n:qul<ement may cause a vIo· latlon ol such Ia.... N~ changes to the Owne<', program shaJI be occompIlshed by appropriate wrillen modification CK dIscJosed as dcsaibed in Pa.ragr.aph 1.3.5.

AR11CLE 1

desisn and

DESIGNIBUIlDER 1.1

IlElMClES

1.1.1 PrdImltwy dealsn, budget, and _ule com· ptIIe the services ~ 10 accomplish the pt'CpIl'OtIon and subm.IssIon olthe Desi8n/Builde<', PropooaIas ..ell IS the prepamIon and submission ol any modifica· tlonI 10 the PropooaI price 10 execution ol the Part 2

1.3.4 The DesJgnlBuilde< ,hall _ _ with the Owner altematiYe approaches to design and construction ol the Project.

~.

1.2

1.3.5 The Proposal. Documents, and

AI!SPOHSIIIIUT1

1.2.1 DesIgn senIca required by this Part I ~t

perbmed

ahalI be by quaIiIIed an:hitects and other dealsn professionals. The contr.ICtWI obIlpOOns ol such

proleasIonaJ penona CK entitles are U~and funned in the Interesl ol the DesljpVIIulIder.

1.2.2 The

~ments

between t h e ·

... ~~."-.~ Ap\oement. and ...y subsequenr In writIns. These ~ts. ments with respect 10 this foUy disclosed 10 the Owner

•

.

and

.

1.2.3 CocuIrucIfon budgets by quaIi_ lied professionals.
1.2.4 If lhe DesignlBuilder believes or is advised by the

1.2.. Nothing contained in this Part I Agreement shall create a contt:ICtuai relationship between the Owner and CK entity other than the DesJgNBuilder. 1.3

person

1IASIC 1lElMClE8

1.3.1 The DesignlBuilder shaJI provide a pceUmlnary

~,~~~~ot"!.'!.projea

budget

1.2.2 The DesignIBuiIde< shaJI visit the site, become familiar Mth the focal c:ondWons, and correlate observ· able conditions with the requl<ements ol the Owner's program, _ u l e and bucJset.

".w.

i'roYIcIOw IkwK:IaJ IeasIJUity oe other spocial studies.

2.1.4 The Owne< shaU furnish sUrYeYS describing physical cIlaraaeristks, legal UmitMions and udUty locations b- the ske ol the Project, and a _en legal descripdon ol the site. The SUrYeYS and IeaaI iMxmadon shaJI Include, .. and lines o l _ , alleys, paYemet\ts, and propeny and structures; adj• • cenr dralnage; -way. restrictions, easernerus, encroachments, teSUictions, boundaries

1.4.4

1.4.. ProvIdirt8

planning SUrYe)'S, site evofuadons or compar-aIIYe ..udies ol proopectiYe sites.

1.4.. I'nMdinS special SUrYeYS, em1rortmental ..udies, and su1>ml&oloos required for app«MIs ol govenunerttaJ a u _ or others having JurISdiction OYer the Project.

and

~

ol

, dimensions and nee·

:2!lx~~pel'.:2~

ClIfsting other ; 0and I nbuildings, _ ooncemin8 and lines, both public and pdbe10w grade, Including in...... and . All the lnfornwJon on the SUrYey shaJI be \\I~tdced 10 • Project benchmark.

---'~-'-~-

.5 The Owner shall furnish the services ol geoteChnical eng/oeels ..tw:n such semces are stipulated in this

Pan I Agreement, or deemed

~y

ncx:es.sary by

In the

the DesignlBuilder. Such semces may include but are not Umlted 10 test bot1ngs, test plts, determlnalions of

1.4.1 The Additional Services described under thls Paragraph 1.4 shall be provided by the DesignlBuilder and paid foe by the Owner II authorized or conllrmed in writing by (he Owner.

soil bearing values, percolation tests, evofuations of hazardous macerlais, ground cocrosIon and resfstivfty tests, and necessary operations fa< antldpa
~t".!ClanDoc~:n~'d~ ~ .::.=~~ AOOITlONAL 8EAVlCE8

1.4.2 Making revisions In the Preliminary Design

Documents, budget or adler documents .men such revi· ously giYen by the Owner, InciudinS revisions made necessary by adjusunents in the Owner's progt2m or Project bucJset; .2 required by the enactment or revision ol codes, Ia .... CK regulations subsequent 10 the preparation of such documen~; or .3 due 10 changes required as a result of the Owner's bilure 10 renrler dedsions in .a timely manner.

1.4.3 Providing mOf'C extensive programnudc crtletta than that furnished by the Owner as described In Paragraph 2.1. When authorl2ed, the DesJgnlBuilder shall provide professional services to assist the Owner In the p<eparatlon ol the prosram. Prosrammlng services may consist ol, .1 consulting with the Owner and other persons 01' entitles not designated In this Pan 1 Agreement to define ,he Jl'OIVOln requirements ol the ProJect and to _ _ the undefSlandfng ol ,uch requirements Mth the Owner; .

...... u..s..,.,...... ....................... .............

1A.13 Pn:wid!ng.services foc planning

tClWlt 01"

remal

spaces.

.1 Inconsistent with approvals CK Instructions p<eVI-

AlAOOCUMIWI' At." .... ,.~AIGMDII!HT. ",,~.NA•• ~1"'11tI ANDJCAH IHS1J1VTI Of MCHI'nCTS. 17)S .... 'YOM AYIMJI, WASJW«mJrH, o.c. JDOO6.UtJ • .~~.......,...

Project. The Owner CK such ...thori2>od represenWlYe shaIJ m>dec decisions in a timdy nww:r perta/nIn8 to documents .ubmlaed by the Dcs/gn/IIufIder In ocdec to a\'Old u _ delay In the O<derly and sequential prosress ol the Designl8uilder's seMces. The Owner may ob
disclooed in the Proposal. If the Proposal is accepced by the Owner. the parties shaJI then eaecute the Part 2 Agreement. A modlIIcalion to the Proposal befCKe eaecution olthe Part 2 Asreement shaJI be recorded In wriI·

sions are:

An:hitee! CK by """,her design professional rera/ned to provide services on the Project thaI impIementMion ol any insIruaJon received from the Owne< """Id cause a violation ol any applicable law, the DesJgnlBuilder shaJI noIify the Owne< In writlns. NeIther the DesJgnlBuilder nor the An:hileCt shaJI be obIig;ated to perform any act _ either believes wtlf _ e any applicable law.

any

ikIer shall ,ubml< to the Owne< a completed Prdiminary DesIgn 01 the proposed contract sum, b- coinpIetlon ol the Project. ments shaJI consist ol prdlmJ. • OUtlIne ,PedJICatJOnS or other to estabIlsh the siZe, quality and er the entJ<e Project, Its atdllteCIural, &U\JCtUr. • and dectrical systems, and the ......eriaIs such other elements ol the Project as may be appro-

.2 documeruatIon ol the applicable requfrements neo:s&aIl' b- the ....... Project functions or opendons; .3 p
A191-1996 P..t1-Pege3

1.4.14 Naldng investigatfons,inYentones of macetials or equipcnent, CK valualfons and detIiIed appraisals of existIng f.odfides.

2.1,7 The Owner shall furnish aU legal, accounting and Insurance counseling servloes as may be ncx:es.sary It any time b- the Project, including such auditing seMces as ,he Owner may require 10 Yerify the DesignlBuilder's Appllcotlons fa< Payment.

AAT1CLE2 OWNER 2.1

RESPOHSIBIUT1ES

2.1.1 TheOwnershaU provide full Information In a time·

~~ =I~~ts~ ~r.!.t.~

Owner'" obiecdYCS, 8che(Iule, constt'I.Ints and criteria.

2.1.2 The Owner shaJI establish and update an 0Yeral1 budget for the Project, including reasonable contingen· Cies. 'Dlis budget shall not constitute the conuxt sum.

desl8n..e •

2.1.1 The Owner shall disclose, 10 the _nt known to the Owner, the results and repons ol prior lCSlS, inspections or invest/gallons conducted for the Project inwolvlng, structural or mechanical systems; chemical, air and water pollution; hazardous materials; or other enYitonmental and subsurface condItiotU. The Owner shaJI disciose aU information known 10 the Owner regarding the presence ol poIlUrant5 at the project's site .

2.1.lI The Owner shaU "'pcesentulw: authorized co act on the Owner', behalf with respect to .he

2.1.' The Owner shall promptly ob
:3';'~redtheby~~~~;!i~~~~~~ ~ Owner's expense, and the Designlllufldec shall be endtied to rely upon the aocurxy and CCKnpleteness there· except to the extent the Owner advises the Design/Builder 10 the con.""Y in writing.

0(,

""JD(I1QH-

AlA. DOCUMI!NT A1.1 ...... t .. OWND~AOUIM!HI'· AJA... 01996 THf: AMBIICAH tHSTn1In: Of" o\ICIUY1!IC'T1, 1715 HIW' KlItK A\I'!NUE,. ,ur, w.sHtHGroH, D.C. l'OOO6-Sl9Z •

w~~~ ........ u.a.~""MI"~"""'''''''''''''

846

847

APPENDIX

4

STANDARD FORM OF AGREEMENTS BETWEEN OWNER AND DESIGN/BUILDER

2.1.10 Iflhe Ownec ~ Ihe Dcs;anIBuIldcc 10 aWn· uIn ony apedallnsunnce ~. policy. amendment. or rider. Ihe Ownec shaJI pay Ihe oddiclooal COOl thereof cocepc as 0Ihetwbe sdpulated In this ...... 1 Agreemcn<. 2.1.11 The Ownec shaJI c:omtnunlca,e with pctsOnS or entldes empIortd or retained by the OcsJsniIIuiIder

throush

Ihe OoIgniIlulkk:r. unless other'We directed by ,he Dcs;anIBuUder.

OWNERSHIP AND USE OF DOCUMEHTS AND ELECTlIONIC DATA

Dr.IwInss. specl/lcatloru.

7.2 The Ownec and Ihe DesIgnIIIuIIder. respecd¥dy. bind _ . their portnen. suocesscn........ ond legal represenud_ 10 me _ party to this Pan I A8fecmen' and to Ihe portnen. sua:esoono ond ....... ol such other pony with rospect to" CXJWeNnIS ol cNo l'Irt 1 AgreemenL NeIther Ihe Ownec nor Ihe DcsipIIIullder shall asslgn this Pan 1 ~t without Ihe Mitten

l1ME 4.1 Upon Ihe ~ ollhe Ownec. Ihe Deslan/llullder shaD DeriOnnance the 8asic and _prepare • acheduIe Senices _foe Ihe,hall not _ t h e time limits contained In ~ 10.1 and shall 1ncl00., aIlowonc:es lor periods ol time requin:d lor the Owne<'s review and for app
or

consen, ollhe other.

U Unless 0Ihetwbe proYIded. neIthefo Ihe design foe nor Ihe COS( ol remcdladon ol hazardous rrweriab shaD be Ihe r<SpOOSlblUty ollhe Deslgnlllulldcc.

4.2 If Ihe Deslgni8uilder Is delayed In Ihe perlonnance ol SCfV\ces uode< this ...... 1 A&rcement through no fault ollhe Deslgni8u1ldcc. any oppIIcabIe schedule shall be equitably adjw,

ARTlCLE 3

:1.1

ARTIClE ..

and other documents and

="~~~~~hi1~

~

~

7.41bls ...... 1 ~t rep<eSent$ Ihe endre and Inregra,ed '8reement between Ihe Owner and the DesIg1\IIIuIlder and au aU prior negodatIons. representadOns or • either written or onl. 1bls ...... 1 y be amended only by WIkten instrument sl Ihe Ownec and Ihe DesIjJn/ Builder.

TICLE 5

AYaolENTS

and other proYIders ol proCesaionaI setvIces shaD retain aU common law. aututoty and other resened~ payment proYkIed In Article 9 shaU be Including ~, In _ /n5UUmerlU o l _ upon exccutJon ol this ...... 1 ~ and nlshed by them. DrawIngs. &pedIIcadons. and ,ed ,he Owner's account as proYkIed In umenu and electronic data are furnished lor gnph 9.1.2. with respect 10 this ...... 1 A6reemen,. Ow 5.2 Subsequen, paymenu for 8asic Setvices. Addltlotul be permitted to ret2ln copies. 1nc1~rt-~l(O~~~ Services. and Reimbursable Expenses ptOvided for In this coples. ol,he dnlwIJl85~S • ...... 1 ~,shaD be msdc mon,hly on the basis set ments and electronic data Ign! forth In Aniele 9. BuUder lor InformatJon and . with Ihe project excep
'0

ARTICLES

TERMINATION OF THE AGREEMENT

3.2 If Ihe Pan 2 A6reemen, Is not executed. ,he Ow~

shaD not use Ihe dnlwings. specl/lcatJons. and other documents and eleclronk data furnished by 'he Deslgni8u1ldcc without Ihe written permission ol the Deslgni8u11der. Drawings. speclI\catJons. and other doc· umenu and electronic data ,hall not be used by Ihe Ownec or others on other projecu. for addltJons '0 this Project or foe compic'ion ol this Project by others. except by _""'"' In writing and with app
'0

3.3 If the DesIgniIluUder defaults In 'he DeslgniBullder's obIip,1ons to the Owner. Ihe AtchlU'CI shaD gran, a license 10 the Ownec '0 use Ihe drawings. spedlicatlons. and oIher documenu and eJcctronlc data fumlshed by ,he Atchlte<:t '0 the Deslgnllluildcr foe the completion ol (he Protect. condiUoned upon the Owner's executkNl of an agreement to cure the DesJgnlBuiJdcr's delault in paymen, '0 the Archlt"'" foe semccs previously perfonned and indemnify the Architect wI,h regard claims ari5ing from such reuse wI,hou, the Archl,ea's prolessIonaJ involvement.

'0

'0

3" SubmIssion or dis,ribu,1on ol Ihe Dcsignillullder's documents 10 mee' offidaI regula,ory requilemcms or for simUar pwpooes In connecUon with ,he Project is not to be construed as publlcatJon In deroptJon ol,he rights reset...t In Pa'"l!taPh 3.1 .

'.1 This ...... 1 A6reemen, may be 'ennlnated by either party upon 5CYal (7) days' written notice should the other party taU '0 pcrfonn subs
5.4 Payments due the Deslgn/Bulkk:r under this Pan 1 Agreemen, which are not paid when due shaD bear interest from (he date due at the rate specil'1ed in Paragraph 9,S. 01' in the absence of a spedlied race, at the legal rat:e prevailing where ,he Projec, Is loca'ed.

'15

renninadon.

1.2 This ...... J A8rccmcn, may be 'ennlnated by the Owner "",hou, cause upon at leas. 5CYal (7) days' wri,tcn nocke to the DeslgnlBuilder.

ARTICLES

DISPUTE RESOLUTIONMEDIATION AND ARBITRAnON 6.1 Claims, disputes or other manecs in question be"'''''n the parties to this ...... 1 Agreemen' arIsinB ou,

~~:!:'!!r~~=~~ 'ion. Such medlatJon or atbUllUlon shaD be conducted In accordance with Ihe Consuuctlon ltidu."y Mediation 0<

ARTICLE 7 .

MISCELLANEOUS PROVISIONS 7.1 Unless otherwise ptOYIded. this ...... 1 ~n' shaD be goyemed by the law ol ,he place where the project Is Iocat
'.3 In Ihe event 0( terminatJon not the fault ol Ihe DesigrVlluildtt. Ihe DesljpVBuilder shall be compensated foe seMces perfunned 10 Ihe tennInatIon ....e. together with Reimbursable Ilxpemes then due and 1trmInatJon Expenses. 1trminaIion Expenses are _ _ _ dRcdy

_ totermlnsdon. indudinga_amoun, foe 0Yet!>ead and profi~ for which Ihe ~ Is not

otherwise compensa,ed uode< this Pan 1 Agrei!InenL

AtbI....tJon Rules ol Ihe American AtbIuatJon Msod.don currently in effect.

1.2 In addition '0 and prior to atbItration. Ihe parties shail endeavor '0 setde dispu,es by mediation. Demand for mediation shall be filed In wriUng wI,h the other party '0 this Pan 1 A6reemen, and wI,h the American Arbi'ra'ion Assod2t1on. A demand foe mediation shaU be made within a reasonable tJmc after the claim, cUspute: or ocher matter in questJon has arisen. In no eYent shall 'he demand for mediation be made after ,he da'e when

AlA DOCUIIENr A1~. Pert t -()WNQ-DlSlGN.tWUDUAGaaMf.HT" " " 1Df'll()foI. AJAe .. 01'" tH! ANUICAN N'1TTtIn: Of oUIDtna:r5. 1m NlW 'IOU AVEHUE. " ._, WASHIHGTON. D.C. lOQ06.~ • WANINQ: ......... ~ . . . . u.s...",.,.. ......................... ~

. A191-19M

PIWt l--ve 6

AlA DOCUMENT Ai." P. . t .OWND.~NlIIDCDtI'. "".,.,.."" .AJ/&.•• ettMnta ANEItJCAH IHSTtnITI CW MCH7T1CTS, 17)' HEW lOU A1I"!HUf. M.W, ~ nc. JOCI05.,m •

WARNNl:~~"""U"'''''''''''''''''''''''~'''''''~

848 849

APPENDIX

4

STANDARD FORM OF AGREEMENTS BETWEEN OWNER AND DESIGN/BUILDER ARTIClE II BASIS OF COMPENSATION

The Own« shall cxxnpet\SlIIe !he Desi8nlBuilder In accordance with AnlcIe S, hyments, and the 0
'.4 DIRECT PERSONNEL EXPENSI! Is defined as the diIect salatIes of personnel ~ on the Proj
IHTBIEST PAVIIEHTS

1.1. f The nI.e ofln.erest rOC' past due payments shall be as

COIIPEHSA11OH FOR BASIC SEfIYICES

Col"""',

'.1.1 !'OR BASIC SERVICES, compens2t1on shall be .. Col"""',

) shall

1.2

COIo1I'£NSA11OH FOR ADOIT1OfIAI. SERVICES

1.2.1 FOR ADOmONAL SERVICES, compensation shall be .. (oIIows,

u

_URSAIIU! EXPENSES

• .3.t RdmbutsabIe Expenses are In addition to Compensation rOC' Basic and Additional SeMces, and Include actual ~ made by !he DcslgniIIuIlder and the DcslgniIIuUdet-'s employees and oontncton In the Inteta. of the Project, .. 1bIIows,

AlA DOCt.-.II' A1., ..... t .0000000~AG«IfJ,(fH'f.I996!Dn'k)H. AJA• • OJ9961lU! . AM8NCAH ItC51mIn M AIICHITIICTS. 17" ,.... 'I"OM AVIHUI" H.W, WASHIHGTOH, D.C. 1OQ06.5m •

w-.....ca: ......... ............,.. ....... u... ~ ......... ~I0 ..... ~

850

A191-1996 Partl-pag.,7

"*'

AM DOCUIIIINT At ••, t • OWNU~AGMBaNT.I"'1!DI11Ot4 .IJA•• OttM 1Hl Na!aJCAH HnnI1'I ()It AJOtIT'IICn. NEW' 'I'OU AY!r'fU!. M.... YASHIHCiTOH, D.c. ~swz WAllHMCl! ........... .......,.... . . . . . u................................ ..........

u»

•

AJII1-1996 Pllrtl-Page8

851

APPENDIX

4 STANDARD FORM OF AGREEMENTS BETWEEN OWNER AND DESIGN/BUILDER

AlA Document A/91

Tode

Dale

Standard Form of Agreement Between Owner and Design/Builder 'THIS DOCUMI!NT HAS lMPOIUANl' UIGItI. CONSIIQlIENCES; CONSUlIATlON wrm AN . A7TOIINEYISIJNCOlJRAGED wrm RESPECI'1O m USE, COMPIET1ON OR MODlF1CIJ7ON.

----

BETWEEN !he Owner,

This ABrcemenl en~ inlO as o(!he day and ~ 8... wtluen aboYe.

----

and !he DeslsnlBuUdcr:

OWNER

DESIGNiBUllDER

""" IiIIiI

CAUTION: 'tbu -

NADOCUIIIEJn' Att1. AMIWCAN INSITJ\n"I

........ _

~

_ _ CIIUIIon ptInt.d In Nd. .. _ - _ - - . ......................

.... an 0fIgI .... AlA - - . . .

AnCHtglnlll _ _ _ _ -

"-t, ·OWN~ AOI::I:DdN1'- 1M EDnIOtI- /I,jA-. 0,,,, 1ld

...... u.a...,..... .... ...............o.c.

or AJOtm!C1S,

~""""~

11» " " YOM ~ K.W, ~.

~

JOOO6..S2J2 •

~

A191-1996 P... 1-. . . . .

A1I1-1998 PMt2-Page 1

852 853

APPENDIX

4

STANDARD FORM OF AGREEMENTS BETWEEN OWNER AND DESIGN/BUILDER

TERMS AND CONOmONS-pAR'f 2 AGREEMENT

roc

Ocslgn/Bulldcc InforINtion and rdccence In connec· tIon with the Profect except as pnMdcd In Subpan· graphs 1.3.2 and 1.3.3.

ARTICLE I GENERAL PROVISIONS

1.3.2 Drowlngs. specl/lcatlons. and othcc documenta and electronic data furnished by the DeslgnlBuIldcc shall not

IIASIC DEfINIT10NS

1.1

1.1.1 The ConIraCl Documents a>nsIst ol the Pan 1 ~ 10 the "",en, not modIIIcd by this Pan 2 ~'. this Pan 2 Agreement. the Deslgn/llullde..•• PropouI and wrillen 8ddcnda 10 the PropooaI identified In AnIdc 1•• the Consuucdon Documents ~ by the Owner In accon:Iance with Subparlsraph 3.23 and Modlftcadons Issued ar.ce exerutlon ol .his Pan 2 ~ •. A Modilication Is a Ow>se Order oc a writ· .en amcndmcn••o !hIS Pan 2 AgtecmcnI .Igned by both partJcs. oc. Construction CIw>gc DftcIIye Issued by the Owner In aa:onbnc:e with Paragraph 83. 1.1.2 The Icnn "1IIbfi<" means the construcdon and vk:cs pnMdcd by the OcsIjpVBuIldc< DcsIgn/BuIIdcc's obligations.

'0

=.%~=.:r!'".,:.,on:J".r~

oth....

by exttpI by agreement In wri.lng and with appropriate com tIon 10 the DesIgnI8uIIder. unless the DesIgniBu Is adjudged be In debuk under

'0

• ex undcc any OIhcc suboequendy

this Pan 2 c
Ider defaults In .he Desltlnl 10 the Owner. the AcdIltea shall the Owner use the drawings. spedIiOther documents and decuonIc da.. fur· bY the ArchI.ea '0 the DesIgnIIIuIIdcc roc the pIetJon olthe Project. c:ondItIoncd upon the Owner', tIon ol an .0 cure the Deslgn/llulldcc·. debul~ In payment to the Archkea roc _ _ pccvIoUSIy pectOrmed ond indemnify the Architect with regord 10 claims arising from such reuse withou••he Architect's

_nt '0

1.2

1.2.1 I. Is the In.en. olthe

professIonaIlnvolvemen•.

~~Con~~~~~~~~~ Concna Documents are com • and what Is requiccd by one shall be .. If ~ by all; perfonnonoe by .he DesIgn/IIu shaU be requIccd only the "",en. consis.ent with and ~ Infec· able from the ContrlC. Documents as being n«:essaty 10 pcoduc:c the Intended resuJu. _ tIw ....., weli·

'0

1.3.4 Submlsslon or distrlbu.1on ol.he OcsIjpVBuIldc<'s documents meet official resula.Oty requl<ements or slmllac purposes In oonnectlon with the Profect Is not .0 be cons.rued as publication In derogation olthe rlshts ~ In Subparagraph 1.3.1.

roc

'0

known .echnlcal ex consttuctIon industry meanings .... used In the ConIraCl Documents In accon:Iance wI.h such cccosnlzcd meanings.

Normal suuctut2l. meclunlcal and ele<:trical engineering services will be provided contractually .hrough the An:hi.ca .

exttpI .. Indlclted below, tN-. ..... -w~)

~",...,,)

~..,DMrtI..",.,)

1.2.2 lithe Ocslgn/Bulldcc bei_ oc Is advtscd by the AcdIltea 0< by anoIhcc ~. pcolesslonal retained '0 provide services on the Profect 1M! implementation ol any Instructlon ccce/Ycd from the Owner would cause • violation ol any appIk:abIc law, the Deslgn/llulldcc shall notify the Owner In writing. Nckhcc the OcsI8n/BUlfdcc nor the An::hl.ect shall be obIlgatcd 10 pcrfcxm any act which clthec bei_ will violate any applk:ablc Ia~. 1.2.3 Nothing contained In this Pan 2~. shall crea.e a conll2Cluai cclatlonshlp becwccn the Owncc and

any penon oc entity othcc .han .he Deslgn/llulldcr. 1.3

OWN.ERSHJP AND USE OF DOCUMENrS

AIA~.m."*,,J·~ItGNEMDlT·J"'EDrnOH'·IIJA··Ol"'tHE ANIIIICAN Df:S1"mIn Of' AIOOTIICTS, I7)S NEW 'tOM AVD«JI. N.... WAStWtGTOH, D.C. ~ • WAftletQ:.,..,....~ . . . . u.a.~ .... Md ......... ~,.....,.......

854

ARTlCL£ 2 OWNER 2.1 The Owner shall .desIgn..e • rep<esenWlve authoc· Izcd 10 act on the Owner's behalf with respect 10 the Project. The Owner oc such authorized repracntIIlYe shall examine documents submIt.ed by the DesIgn! Bulldcc and shall render decisions In a timely IIWUlCC and In aa:onbnc:e with the schedule accepted by the Owner. The Owner INy obWn Independen. review ol the ConIl2CI Documents by a scpante archkect. C!n(IIneer; conlnctOC or COSt eslJmalOt' under' contt:act to or employed by the Owner. Such Independent review ahaII be Wldertattn .. the Owner', expcnoe In a tImdy man· n« and shall not delay the orderly progress olthe _ _

U.l Drowtngs:specl/lca'lons, _ othcc documents and electronic data furnished by the DeslgniBuIldcc 2CC Instruments ol service. The DesIjpV8ulIdcr', An:hi1CCt and other- prori
agree in writing.

~~ts~",%=n.f' ~~~~':!:'..z;

:!.~~~~=~ tIonS. The Owner shall be requIccd '0 ~ the fees for

all common law, statucory and other ~ rights, including copyright In .hooe IMtrumcnts ol service fur·

.. with rcapect 10 this Pan 2 ~t. The Owner shall be pe.rmlncd 10 reWn copies, Including reproducible copies, of the drawJngs, specifications, and other documents and electronic data furnished by the

The Owner .net .he Ocslgnlllulldc< agree as SCI ronh below.

'0

2.2 The Owner may appoint an on·slte project represen· tative 10 ob5erve the "Mxk and to have such other responslbllitks as .he Owner and the OcsIgrVlluIldc<

not

:~~~r.::! ~~iIdcr·~ 2.4 The Owner shall fumlsh services olland au....,..,..,.

AI91-1996

AlA DOCC.IIIEHT At", P"I·~AIOUIIWB'fr.I'" IDI110H ·1iJA•• OJ* THI!

PMt2-P_2

~ I'CST1'1U1l: Of' MOU'r8C1"S, 1m tmr "tOM AYIHUI, 'IMSH»IGIOf'I. 2CJ006.)2Jl • WANtNl:..".....~ ....... u.&.."....,.. .................... ".........

".w,

o.c.

AII1-1996 PMt2-~3

855

APPENDIX

4

STANDARD FORM OF AGREEMENTS BETWEEN OWNER AND DESIGN/BUILDER

8",,,r.edulical ~ and _ consulanu foe subsoil, air and wale< oondklons, In addidon to """'" pro¥kIed under the Pan 1 ~~ when such oeMces are deemed """"'""'" by the Oesigtv1Iuildec to properly aery out the dt:slBn oeMces required by chis PIn 2 Agreement. 2.S The Qwne< sIWt dlsdose, to the extent known to the 0..-, the ","ults and I'q>O
the pcnons ex _ _ lied In thJs Pan 2 Agreement.

not inclUded In BasIc SctvIces· unless so IdentUled In Anldc and they shall be paid Owner as pmvIded In thJs Pan 2 ~ In to the com· pensaIlon foe BasIc SctvIces. The services desc:rt>ed In thJs ParasraPh 33 shall be pro¥kIed only If authorized or oonIInned In Midng by the 0..-.

1"

~~~~~~-:;,;

....pea to this Project, shaD be promptly and fuDy disdoocd to the Owner upon ~. 3.1.3 The DesignIBuI1det shall be _ _ to the Owner foe """ and _ 01 the 1.lcsigrit1IulI'. employees, subconcnaors and _ Ij!Cnts and em· pIoyees, and _ persons, IndudIns the AtchIt
3.3.2 M2k1ng CC\'Islons In drawtnss, sped/icatIons, and other documents or electronic data when sud> _ arc requ/n!d by the enactment or rnIsion 01 codes, b .... or regulations ~t '0 the preparadon 01 such

documen.. or electronic d2ta.

BASIC SERVICES

3.3.3 Ptov;dill(l consulcadon concerning tq>Iacemen, 01 \\brk
n.c

2.S Owner shall furnish all legal, aooountlng and Insurance counseling scn'Ioes as maybe ~ at any tJmc £or the Project, Including such audldng SCMce! as the Owner may tequIre to \'erify the Dcslgn/Buildec's AppIlcations foe PaymenL

In connection ...tth a public ItdtIC'llVlio6ceeding or IepI proceeding. gnlBullder Is a party thereto. .-

Ilder shall submit Constru<:tlon _ and appronl by the 0..-. .'\<~!~~ Documents may Include dnwlngs, sper:lfi. , and _ documen.. and electronic d2ta scttIns In detail the requlremen.. £or construction 01 the , and shall, .1 be consistent ...till the Intent 01 the DcsignIIIuIld· er's Proposal;

coon:llnadon 01 constroctlon performed 's own Of' sep;u:are contractoca by the 0..-, and coordlna,1on 01 scn'Ioes In connca.Ion ...tth constroctlon perfonnc:d equlpmen< supplied by the Owner.

rorces

3.3A Preparing a set 01 reproducible record documents or electronic data showing slgnillcant chanses In the made during constructlon .

_

.2 Cu~ ~ £or the use of those In the

3.3.7 Providing asslswlce In the ut1llzadon

.3 Include documents customarily reqUired (or

3.2.4 The Designllluilder, ...tth the assistance 01 the Owner, shall Ole documents required to obtalrt neoes· sary approvals of governmental authorities having jurisdiction over the Project.

2.10 The Owner shall, at the request 01 the Design! Builder, prioc to execution of this Pan 2 Aj!reemcnt and promptly upon requeSt .hcn:after, furnish to the DcslgnlBuilder reasQMble evidence that financial :unngetnents ha.., been made to fuIfiU the o..-'s obligations under the ContraCt.

3.2..5 Unless otherwise proVided In the Contract Documents, che DeslgnlBuilder shall provide or ClUSC to be provided and shall pay £or design oeMces, labor, materials, equlpmen<, tools, constru<:tlon equipment and machinery, wacer, hat, ucJJldes, transpOrtation and other bdJIdes and servIoes necessary foe propc< execu· tlon and completion 01 the - . whether temponry or

ARllCLE 3 ---

3.1

SERVICES AND RESPOHSIIIIUT1£S

3.1.1 DesIgn seMces required by thJs Pan 2 ~t shall be performed by qualified atchIceqs and other prOksslonals. The .oontractual obligations 01 such . IonaI pcnons or entl1les are undetuken and per. In the 1ntet<St 01 the DcsqpVIluilder.

t=

3.1.2 The

~nts

TIME 4.1 Unless ()(her,..;oe Indicated, the Owner and the DcsIgnlBulldet shall perform their respectI>e obligations as expeditiously as Is consIsten< wllIl reasonable skill and care and the ocderIy prosrcss 01 the Project. 4.2 nme 1Im1... stared In the Contna Documen .. arc of the essence. The _ to be perfonned under this Pan 2 ~t shall <X>InIrICtlC" upon receipt 01. notice to proceed unIeas otherwise agreed and, subjea to .u~ nud ModIIlcadonS, Substantial Complcdon shall be _ on or bdon: the date established In Anldc 14.

peclTWlenl and whether or not Incorporated or 10 be Incorpo
3.2..8 The Deslgl\lBUllder shall be responsible £or all

~=~~~~::n~ Wcx'k under this Pan 2 Agn::ernenL

4.3 Sub$tmtial Comp!etlon Is !he suge In the prosress 01 the _ when the_or~ portion there. of Is suffiClencly complete In ' accordance "11Il the Conttact Documents 50 rhe Owner can occupy or ut.Wze the _for Its In,ended usc. .

between the Designllluilder and

3.2..8 The Deslgl\lBUllder shaU be responsible for correaIng _ _ does not con£orm to the Contract

OocumenlS.

..... Based on the DeslgnlBuUde,.'s Proposal, • tonstrue-

tion schedule shall be graph 4.2 .00..:.

3.2.9 The DcsignIIIuilder .......... to the Owner' t/W materlals and cqulpmen< furnished undcc the ConttllCt ...tIl be 01 good quality and new unless otherwise ~ or permitted by the Conuact Documen.. , IIlat the ron· structlon will be free from auks and defeas, and t/W the oonsuuctlon ...tIl oon£orm ...tth the requirements 01 the

AlADOCUIIENT At.I, .... 2 .OWNER~AGUlMI'J'rt1'. '9KIDnlON-NAe .OI",nit AMQICAH ..mntIn Of ~. i7JS H£W 'to«k .wu«JE, " .• , 'ftSHIHaI'OH. D.C. 10006-S2f1 • WARHItQ:~~""'U.a.~ ................. to""~

856

ARllCLE4

3.2.7 The DeslgrVlluilder shall keep the 0..- Infor· med of che prosrcss and quality 01 the __

PESlGNfBUlLOER

01 equip-

=~ ~ ~~"Z:"a::'a~ and maintenance, and consultation durin, operation.

regulacory "8<'OCY a~.

2.. If the Owner _ _ or _ becomes aW2rC 01 a ault ex defect In the _ ex nonmn£ormity ...tch the DcslgnlBuilder's Proposal or the Conscrucdon Documents, the 0..- shall give promp< Mitten notice thereof to the DcsignlBullder.

2.11 The 0..- shall communicate ...till pcnons or entltles employed or retained by the Designilluilder ~':'.:'to.:.~~IIder, unless otherwise dIrccIed

foe!:IJf:t1on

~

consistent ...t!h Para..

.

4.5 If the Deslgo!BuUder Is delayed at any time In the prosress 01 the _ by an act or DqIIea 01 the Owner Owner's anplo)'ecs, or scpanue contractors em~ by the Owner, or by changes ordered In the - . or by Al4DOC:UMBfJ Att1..... a·~IIGaDGHf.I"'1IDr11ON -AlA•• el_nIl

1m ....

N."

AM!I:ICAH I'C5'IT'nnB Of' AIIC:IIIDC'I'Ii 'tOIl: A'IIHUII. WA5HING'I'ON. D.c. ~ • WAMItCI:~ ...................... ~ ..................... .............

AI91-1996 Part 2"':"P808 5

857

APPENDIX 4

STANDARD FORM OF AGREEMENTS BETWEEN OWNER AND DESIGN/BUILDER shaD become due WlIIl the ~submltS to the Owne<: (1) an _and _ that payrolls, bills fix mareriaIs and equipmenl. _ mnneaed with

~ PAYUEHTS 1.1

PIIOGIIESS PA~

5.1.1 The DesIgnIIIullde< shall deliver 10 the Owner IIemiz>ed Applications fix Pa}ment '" such deWl as

Indlattd In AnIde \4.

5.1.2 WidUn ten (10) days 01 the Owner 's receipt oIa properly submlued and conect Application foe Payment, the Owner ahaIl maIce payment 10 the OcolgnlBullder.

the IMxI< fix whk:h the Owner or Owner's property mlah. be resDOOSible or encumbered (less amountS wlihheId by the Owne<) haye been paid 01' 0Ihe<wIse satlslled; (2) • oeni/lcale e¥ldenclng !hat Insurance required by the Cor>troct Documents 10 remain '" for<e after ftnal payment Is cunently In etIect and will not be canoeIed or aUowed 10 eopUe untJI at least 30 days' prior written notice has been I!iYen 10 the Ownec; (3) a wrIt.en statement that the DesIgn/IIuIIdec knows 01 no suboun· tiaI reason that the InsuranCe will not be renewable to coYer the period ..,quIn:Id by the Conuact DocumentS; (4) consent of sure
,,~r.;30..."'. "k.o

appUcadon 15 In Documents, and the .DesIS payment In the amount req

•

is

to

5.1.4 Upon i..:eIpt 01 payment Owner, the 0c0IgnIBuIlder ahaIl promptly pay .ect, other design professionals and each contractor the amOWl' to whk:h each Is entlded In aa:ordance with the terms of their respectWe conUXtS.

1.1.1 The Ownec ,haD have no obligation under this Pan 2 ~. 10 pay or 10 be raponsible In any .,.y lor payment to the Archirect, anon lor Payment all cons
PCWd:

=

'cheru:=~

=~~~O:';70<'!lft:.!!:c'l

1.1.3 The AppIk:atIon fix Payment shaD CON

~~~lOthe aCCOrd2n~ '

's

y h a bond satisfactory to the Owner to " .........,,~,'- the Owner ogaInst such lien. 'If such lien

, Indud1n8 reasonable: ."arneys' fees inaJrred as a result oIsudlllen.

5.2.3 The maklng 01 ftnal paymen. shaD constilUte a waiver of claims by the Owner except thooe arlslna!'rom: .1 liens, claims, security Interests or encumbrances arisIn8 ow 01 the Conuaa and unsettled; .2 failure 01 the '«10<1< 10 comply with the require· ments of me Contract Documents; or •3 terms 01 ,pecIal .....-rantlcs reqUired by the Con· traCt Documents.

5.2.4 Acccpt2nCC of f\naI payment. shall conslitute a waive< 01 aU claims by the DeslBn/BU1lder except thooe

~:~~u:,~de lnu':~~~ ~ tl:!"nt~~~ ,,'? fl~~

.. Application for Payment. 5.3

INTEREST PAYMENTS

5.3.1 Paymen .. due the ~Ilder under this Pan 2 Agreement whk:h are no< " " - due shall bear In.c<, est !'rom the date due at rate spedl\ed In AnIde 13, or '" .he aboence of a spedlled "'te, at the legal ....e prevoUing ",here the project Is located.

6.1 The DeslgnlBullder shall be responsible for Inltlat·

5.2 f1NAL PAYMENT 5.2.; Nellhcrftnal payment nor amountS retained, II any,

lng, malntalnina and proYk\irIg supervision 01 all safety precautions and pcogtamS in connecUon with the performance 01 this Pan 2 A8f'ce1nent.

ARTICLES PROTECTION OF PERSONS ANO PROPERTY

NA 00CUIIEN1' At.1, Pwt 2. 0Wtt. .~AGUbUJr(f· , ' " IDITION .1IJA•• 0,,", TtCI ~ M'1T11n'I 0# AaCHC1YCn. I1n .... WU AVEHUI.. N.• , W5HIN01'OfrC. o .c. ~S29Z •

WARHN1:~~""'u.s..~ ......... ~Io""',......cuIIoA

toafter the Owne< b~=~~~~~nooe:::"accep
1.4 The DcsIjjnIIIulkler ahaIl promptly remedy damase and loss (other than darna&e or loss Insured under propeny Insuranc:'e provided 01' roqujred by ~ Documents) 10 property at !he lite caused In In part by the Design/IIuIIder•• contra<:t Designlllulkle< or anyone dlrecdyor IndItectIy

by any of them, orbyan,one fix~ liable.

~

5.2.2 When the Work has been. completed and the con· tract fuUy performed, the Dcolgn/IIulkler shaD submit • final awUcatlon for payment 10 the Owner, who Shall make Ai>al payment WIthIn 30 days 01 recelpL

5.1.. At the dme of Subs
858

U The DesIp1luIlder shall pe "'!Il
INSURANCE 7.1

DESIOHIBUIlDER'S IJAlIIUJY IIISIIRAHcE

7.1.1 The DesignlBullder shall ",,
the ~ or by • contra<:tor of !he Desi&rV Builder. or by anyone dirtttIy or indirectly errtPk>red by any of them, or by anyone for ....t.o.e acts any 01 them maybe liable, .1 claims under wori<ers' compensation, disability benefit and other sImlIar anp/oree beneIk laws !hat are applicable to the 'IftxIr be peOOnned; .2 claims for dama8es I>eat.e of bodily Injury, OCC\I~ sIckneas or . - . or dea.h 01 the OesignIIIuIkler's ~, .3 dalms for dama8es beause of bodily Injury, sick· ness or disease, or death 01 persons other than the 0c0i8n!Bu11der'. employees; A claims fix damages cooeted by usual personal "'. jury liability coverage whk:h are suswned (\) by. I'<""" as a resuk 01 an oIfense directly or ind~ rectly empIoymcnr of such I'<""" by 'he DcsIjjnIIIuilder or (2) by another 1'<"""; .s dalms lor dama8es. other than to the Work Itself, beause of Injury .0 or destrucIion 01 tangjbIe property, Indudlngloos of use resulting therefrom; .. cIaJms for damages beause of bodily "'jury, death oIa I'<""" or propeny damaae arising out

to

-'ed '0

tion

7.2

Pan

OWNER'S UA8IUTY lNSUIIAHCE

~~t~n~~ '=~~.':"i~t\';':::,nJ:c~

Opt1onalIy, the Owne< may purchase and maintain other Insurance for self-protection asai"" dalms which ,""y arise !'rom oper.atlons under .hIs Pan 2 Agreement. The 0esignIIIu1kle< shall nor be responsible ror purchasing and malntalr!l"I!. this Optional Owner's liability Insurance unless spcdllcally required by the ConIr.lCt Documents . 7.3

PROPERTY IIISURAHCE

7.3.1 Unless otherwise proYkIed under this Part 2

~i':"~:~~~t~%==:~

the jurisdiction In which the ~paIl~ are to be located, property Insu,""", upon the 'IIbItr to

the full Insurable ... Iue thereol on • re"Iacemen( root basis without optional deductlbles. Such propeny Insurance shall be maintained, unless otherwise provided In .he ConIr.lCt DocumentS or otherwise asreed In writing by aU penlOl1S and enlltlcs who are bendIda.rtes of such Insurance, untU Rnal payment has been made 01' until no person or entity other than the Owner has an

~~~h ~;e:::,.,~~~~~:;:~ ~

Insurance shall include "'terestS 01 the Owner. the

OeslgnlBuildec. and thelt respective contractors and subcontractOf'S in the 'Mlcit.

7.3.2 Property Insurmce ahaIl be on an aII·risk policy form and shaD Insure against the perils 01 fire and ....ended coverage and physlcal loos or damage including. without duplication 01 cover.age, theft, vandalism, maUdous mischief, ooUapse, faIseworIr. temporary buildinjp and

AlADOCIaIII!NT Atfl. ,.,. t.~/IGUDIDt1'.I", IDR10N _/lJAe. OtfM tHE c:w .uIOCn'1K:1S. . 7JS "'"' lOU AVItIUI. H .... YA.SfQHIGI'()H, nc. ~!Jt2 • ~ .......... ,..........,... ........ u..s..."...,.. ...................... ,......,.....,

ANUICNt IG'TT11m

859

APPENDIX

4

STANDARD FORM OF AGREEMENTS BETWEEN OWNER AND DESIGN/BUILDER

ART1Cl£1 CHANGES IN THE WORK 1.1

CHANGES

a..nses in the _

may be acoornpIished alter e>r.ecutIon ol
Documen<s.

based upon _ between the Owner and the Desl/PV8uilder; • Cotisuuc· tlon Change DirecdYe may be _ by the Owner ..th· out the agn:ement ol the DesignIIIulIde< an order for • minor change In the _ may be Issued by the Desl/PV8uIlder alone. 1.1.2 A CIw>Ae Order shall be

MIdng by • pony In Int<:resc, the IhII, upon oa:urrenc:e.ol an insuftxI bond fbr _ perbmanoe ol the Owner's The 00IIt ol . . . . - bonds shaI be c:har!IOtIIe.coouna Jl
.ruu

shall be perfonned under applicable p«WisIons olthe C<>nttact DocumenlS, the DesIgniBulIdet shall ~ promptI)I unless • ~ ~ In the Change 0nIer, ~~~~ ~ Directlve, 01' order fbr • mlnor 1.1.3 CIw1ges In the -

IPIlIiabIe ~ clause and ol Subpar2sraph 73.10. 1be Oes/jp:IIBuilder _ pay CX>ntJkIOr5 their sIura ol instnnoe Jl
by oppropriat.e ~ _ where IepUy «qUiroonIraao<s In _ mann«. 7.3A lIefore an apooun: 10 loss DUly OCCU<, the Owner the Desi8nIIIWIder a copy ol each polley that includes Insunnce ~ n:qulred by this I'anI8nPh 7.3. Bach policy alWl almaln all aenerally applicable oondidons, deRnliJons, eu:!uslons and endone· menlS '" the Design/lluilder. shall No _

haYe power '" adjUSt and se<de • loss .. til insu..,.. unless one olthe patties in intet<Sl shall object In WritIng, within 1M! (5) days alter oocurrence olloss '" the Owner', eoerdoe ol tilis - . If such objection be made, the patties shall enter In", dispute resolution under pn:>eedw'es provided in AnIcIe 10. If distrtbution ollnsurance proceeds by atbitration is n:quir
AI91-1996 hf12-hge8

860

CHAHOI! 0fI0ERS

1.2.1 A Otange Order is • written Instrument prepared by the OesignI8ullder and signed by the Owner and the OesignI8uIlder, swing their agn:ement upon ail ol the following,

.1 • ciw>8e in the \I:lbr1<;

trxt Sumj and .2 the ""'ent ol the adjUSlment, It any, In the Con· trxtnme.

7.3.11 PanlaI occupancy or use prior to Subotantlal Completion shall no< commenoe until the Insuronce

7.3.1 The Owner and the OesignIBuilde< W21..., ail rlghlS apInsC each <>
ol premiums for ail bonds and insurance emit fees, and sales, use or similar t:ue5; .s additional COSIS ol supenotslon and 8eId oIIIoe penonnd directly attributable to the cIwtge; and tees paid 10 the Atchltect, engineers and <>
profeaalonals.

.2 the amount ol the adjustment, Ii any, in the Con-

7.17 If the Design,llluiJder reques<s In Wridng dw Insur· anoe fbr risb other than thooe deoaibcd herein or fbr ",her spedal hazards be Included In the propeny Insurance policy, the Owner .hall, It poss.lbIe, obtain such Insurance, and the COSt ""'->l shall be dw-gcd to the DesignIBulIder by appropriate CIw1ge Order.

0

1.3.3 Pending Rnal determination ol COSt '" the Owner, amounlS no< in dispute may be Incf~ In Applications

7.3.10 The Owner IS trustee alWl

company or componiel ptOYIdlng propeny Insuronce haw: consented '" such pottIaI oocupancy or use by endonement or orherMoe. The Owner and the DesIgn! Builder shall taIce reasonable IIepo to obtain consent ol the Insuranoe company or oompanIes and _ not, without mutua) written C'OnSen(. take any action wtth respect [0 panla1 oocupancy or use that would cause cancellation, lapoe or redualon of~.

and eqUipment adu· tools, whether rented Crom the

_""'-<"'"

ment as the panleIln Interest may - . or in acoor· danoe with an _ _ In """'" ase the proce. dure _ be as prootded In AnIcIe 10. If alter such loss no <>Iacanent ol dam· aged \I:lbr1< _ be t:OI'er
7.3.S A laos insuted under the Owner's propeny insur· ance _ be odjusled by the Owner aslldudory and made po,..bIe 10may the Owner the Insureds, as _ _ ,aslldudaly subject '"fbrr
ntJI~Il":1"'"-l~KJtlnery

'{ksJaol(edl1det or ot.het$;

1.2.2 If the Owner n:queatS a proposal fbr • ctw.ae In the _ Crom the DesIjpIIIItriId and suhsequendy deas no< to ~ ..th the ctw.ae, • Change Order sIWI be Issued '" the DesIgniBulIdet fbr any COOlS incu
_rae

DocumenIS.

1.3

CONSTRUCTION CHAHOI! DlREC11VES

A Consuualon ~ DirecdYe is. written order prepared and signed by the Owner, ~ • chanae In

1.3.1

g:,=e:~n.:,":i:h',liany, in the 1.3.2 I!lroept IS otherwise qreed by the o..r- and the DesIgniBulIdet, the Idjustment to the ContDct Sum _be determined on the _ ol reasonable expendi. tures and savings ol thooe performing the _ attribut· able to the change, Incfudlng the expenditures fbr

fbr "'yment. The lImOUot ol cn.dit to be allowed by the Deslgn,lllullder to the o..r- fbr deletion or chanae whldt resullS in • net danase In the ContDct Sum wW be actual net coot. When both additions and aedka cov· ering related \I:lbr1< or substitutions are i n _ In a change, the allowance for ow:
11me, such agn:ement _ be effective imtnediaIdy and shaJI be recorded by preparation and execution ol appropriate CIw1ge Order.

an

1.4

MNOR CHANGES III THE WORK

1.4.1 The OesignIBuilder sI\aIl haw: 0 _ 1 ) ' to make minot changes In the Consuualon DocumenlS and con·

structlon conaistenc with the intent ol the ConIt'aCt 00cumen1S when such minor changes do no< InYOiw: adjUStment in the ContraCt Sum or extension of the Contrxt nme. The Deslgnillullder shall promptly Inform the Owner, In Mitlng, ol minor changes in the Constructlon DocumenlS and coostructlon. 1.5

CONCEALED COHIIITlOHS

1.s.1 If oonditIons .... enoountered at the site which are

(I) suboutface or otherwise concealed physlaI oondI· tIons which _ materially from thooe indicated In _ Conttact DocumenIS, or (2) unknown physlaI condI· tIons ol.., unusual nature which cWrer ..-IaIIy from those: otdinarily bind to exist and aeneraIIr """'IP'Ized as inherent In constructJon aaMtICs ol the dwacter provided for In the ContlllCt DocumenlS, then notlce by

;!:.,.~~oreparty ~~ ~..:~ ":::d' .Fnl:

___-u.a._--.._. __

MA~A1"."'I·~AGa!Df:1I!NI'·1_DnOH·AIA··OI"'1HI AIGIICNI IN5lTJ1/n 0# AIKH'I"IC1S. 1m .... lo.at AVIHUI, N.... WASIWfG1'OtI. o.c. ~S291 •

A"'-I996 Pllrt2-P8118 •

861

APPENDIX

4

STANDARD FORM OF AGREEMENTS BETWEEN OWNER AND DESIGN/BUILDER spedIIc reference 10 chis Part 2 Ajjreement si3ned by !he Owner. !he DesignlBuIlder and any ocher penon oc entlties ooughc '0 be joined. Conaent 10 _ . - kwoIvina an addicJonal person oc entity shaD not CONtItuIe con"""tlO lIIbIrntion of any _ , dispute oc ocher mailer

even. Iart:t chan 21 days after fltsl obsen'ance of !he condirIons. The Contnoa Sum shall be equlW>ly adjusl' ed for such conccaIed CK unknown condllions by aw.ee 0nIer upon claim by elcher party made wI.hln 21 days aCte< the dalmanl becomes • ....., of !he conditions.

...

In ~ no< described In !he written consent or wlch

• penon CK ea
ReGULATORY ctIAHOI!8

....1 The DcslgniBullder shall be cornpensaced for dwlseo In the c:onsuualon necesslcated by the enaccment or revision ofaxles, laws CK reguIadons .subsequenl to the submission of the DeslgnlBuildcr's Proposal.

.pecIIIcaIIy enfon:eable In accordanc:e wlch applicable law In any coon h.vlng jurisdiction lheuo£ 10.5 The award rende<ed by!he·:ubltntor CK artJI....on shaD be 8naI, and judgment may be enlere
10.2 In addition to and prior 10 arbilrulon, .he pattIeS shall endeavor to seIde disputes by medlatlon. Demand for mediation shaD be filed In writing with the o
SOU8'"

1.4 If !he DesignlBuilde< falls to CCKrecl nonconforming Wor1c ".""Iulre
=i::=s.:r~~':J'..,~IO~~

righl foc benefit of !he DeslgniBulider or ocher penons

orenddes.

1.5 If the DesignlBuilder defaults or

negtects 10 carry

=:~~~~n~t!~:'-~-:~~n~~~e~

demand for medla.1on be made after the date when insll· tudon of legal or eqW
'0

no event shall the demand for adlItntlon be made after che date """'" instiludon of legal or cqulbble proceed.

::.~":IdS:"~.~I~~s=~~::; repose or- limitadons.

10.4 An arbitration PUl3uatlt to thls Article may be

~wlchan~rntIonln~~Iss_of

law 0< bee between !he Deslgn!Builder and any penon or entity wllh whom the Deslgnl8ullder has a contractu· .1 obligation to arblcme disputes. No ocher ~I"'don

~::t.,:",~ ~:~"': ~~I::!~

ner, an additional penon or entity not a party 10 thls .Part 2 Agreemenl oc no< • party 10 an agreement wIch the DeslgnIBuildcr, except by written consent conl2ln1nS a

' ' !Dn1OH. AJA.· O""1HII

A&A DOC:fJMDfT 1.1.1, ...... • a.N!I~IIOIIDUHT· AMDICAN MTmIR: or AIICIU'lYCTS, 17)S HIW' mu AYIMA H•• , tMSHI.NGTOH. D.C.

~19l:

•

• ........o: ........... ..........,.. ..... u... ."..... ...................... ..........

862

o
11.3

reserves !he rlghl

fc:!,~";"~~~~8~~~

Work, provided lhal such claim, damage, loss or 10 bodlIy In/wr, skkness, disease 10 oc descructlon oflall8lble pr0perty ( Wor1c kseI/) including loss of use ng I only 10 che caused in . OC In I ICIS oc omissions of che yone dlreccIy oc Indirecdy employ claim, damage, loss CK c::xpense Is caused In by • party indcmnl6cd heceuO!lec. Such obIAgadon haD no< be oonsuued 10 negate, abridge. or reduce o
ezpense Is at oc
=.

~:::~tsonpa;n::orcrro.c:r~:~u.= 10

perfocm con-

~ o':n~~odr:~~ ~~=:~

connealon wlch o
~~t:J..,or~~~--==~

such dalms as provided 1n'Subpar2&raph ll.~.

11.3.2 The DesigniBuilder shall afford Ihe Owner's sep:u2le contraCtorS reasonable opportunity for inlrO-

ductlon and SlCKage of their materiab and equipmen. and perfonnance of their accMcIes and shaD connect and coordlnale !he DeslgnlBullder's conscructlon and opentIons wlch Ihei.. as required by the Conlracr Documencs. . 11.303 Costs caused by delays oc by Improperly cImed actMcIes CK ddectJve construction shall be bCKne by che party responsible therefor.

workers' cornpensallon

disability beneftl aces or

11.&

SUCCESSORS AND ASSKlHS

11.6.1 The Owner and Design/8uilder. respectiW:Iy, bind IhemsdYes, cheir partne.. , successors, assigns and legal repraencatlves 10 lhe ocher pony 10 this Pan 2 Ajjreemenl and 10 the partner$, successors and assJans of such o
CLAIMS ~OR 0 _

11.4.1 II either pa.ny to this Pan 2 Agreement suffers injury or damage 10 penon or property because of an acl or omission of the o
actS,

ocher employee bene61 acts.

11.7

11.4

~T1ON

U.5.1 'R> the fullest extent permined by law, the DesignIIIuIIder shall indcmnlfy and hold ~ che Owner, Owner's consulWltS, and agents and empIoyoees of any of chem from and aplnsC claims, .........,.. Ioues

11.5.2 in claims againsl any peroon ocenlily indemnlllcd under chis Pangraph 11.5 by an employee of lhe Design/BuiJder, anyone dlreccIy or lndI=:rIy employ
WORK BY OWNER OR OWNEfrS CONTRACTORS

11.3.1 The Owner

11.5

~T1ON OF PROFESSIONAL DESIClH SERVICES

11.7.1 Prior to termination of the servicea of the ArcIU'ect or any o
the Owner in writing another arelUtect oc o
:-~~X':~""'me~

AlADOC:WIBffA1.1. . . . I·OWHU·~AGaaMBHT·ItMIDtrJOtj·lIJA··O""11CI AM!JUCo\H Nnn.tn: or AK:HI'nCTS, 1m ...... \"OU. A'f'INUI. H.., WAStWtGTOH, D.C. ~2'N • WMNMD: .......... ..........,.. ...... ~.................................. . . - - - .

863

APPENDIX

11.1

4

STANDARD FORM OF AGREEMENTS BETWEEN OWNER AND DESIGN/BUILDER

EXTENT OF AGREEMENT

11.1.1 ThIs Pan 2 Asreemen, represents the en,lre ~ between the Owner and the DesignlBuUder ond supcrs<:des priot nqadadons, representatloos oc elthccwritten aeonl. This Pan 2 ~n' may be amended only by written Instrument and signed by both the Owner ond the DealgnIBulldee.

_ta.

unpaid balance, ena: the

~TIOH BY THJE 0WtEA

\live termlrUlion

12.1.1 This ..... 2 ~ may be tennInat.od by !he Owner upon 14dafS' nocIoe to the ~ In the - . . !hat the Project Is IIbondonod. If such tcnnI· rwlon oocua. the Owner shall pay the ~!Ide<

12.2

12.1.2 If !he ........... "-' __ ""'1'"_ "-~u ~ ~ ~

or negIcas 10 CIte)' ou' the 'IIbrIc ConIBct Documents ae Calls 10 . this Pan 2 Ajjreement, the Owner

shall pay the diIfec· b' payment shall sue· L

DI!SIOIIIIWILDE

..~~~!t~~~ 10 . . . . paymen< wilen due, the ~ Y 1M _ _ notIoe ol "'" Design! IntenIlon 10 termlnate this ..... 2 ApeemeN. If

afte< receipt such notIoe by thewithin Owner. the ~~~~~~~l~e~::~ fallsolto"""'" paymen< seoen !Ide< ....Y 1M • -..nd written notIoe ond,

~, -mareriaIs, oompIeced ondtools, b' _and oonstructIon ~~ Ind\ldlna rcasonobIe pro6t

_.__

11.1.2 Foe AddItJonoI ServIces, as cbajbed In ~ 3.3 and Ind\ldlna any O
~...::.";! '0

ARTICLE 12 'TERMlHATlOH OF THE AGREEMENT 12.1

_ that the Owner Intends 10 tennlrwe this Part 2 Asn:ement. If the ~ fails to oonea the defaults, 1211"", OC nesIe the _ by ~ method the Owner may deem expedIenI. If the unpaid balance ol the Conuaa Sum _ the expense ol finIsIIIl18 the _ ond all darn:Iaes Incurred by the Owner, .uch ucess shall be paid 10 the

11.2

~EXPEN8E8 ' ~~

U.2.1 ReimbunabIe actual

..., In _

to

Ie ond AddItional ServIces. ond Include 's employees and contDCton In ,he intereSt

.

~ures ~ DesIgnIIlu~~

~'V

ol the Project. as follows,

~~

(7) days afte< rea:Ip< olsuch -..nd _ _ notIoe

by !he Owner,!he may thisb' Pan recOYeC!rom Owner paymen' _ 2 Asrecment executed and ond b' I't'O""" losses sustained upon mareriaIs, equipment, ,ools, ond construction equipment ond n\achlnery, Including reasonable pro/It ond appUcobIe darn:Iaes.

ARTICLE 13 BASIS OF COMPEHSATlOH

13.1

COMPENSATION

13.1.1 Foe the DeoJslVlluUder'. performance ol 'he 1Ibt1c, as described In l'anIgr.Iph 3.2 and lncIudins any other ~ listed In Article 14 as part olilasle Services, the Owner slull pay !he DealgnIBu!lde< In current funds the ConIBct Sum as follows,

·1:1.2.2 FOR REIMBURSABLE IlXPI!NSES, mmpensstlon shall be • mUltiple ol ( ) times the amounts etpen
INTEREST I'AY1IIENT1I

13.2.1 The ..te ollmeres, b' post due payments shall be as rolknvs,

....,.II/..

-..,o..r.

If'-'7A....,.,j,.,,........... ........ ,,,,,.,.,.... .. ~_ . . . . . . . . . -.tIIot:JIII....-.~'-'M1I ............. ..,,~ . . . . ,.. ,.",...,.",.,. . . . . . . . . .................... . . . . . . . fJ(.~.,."......". . . IIfI-d • ~ ...,..ac~ .... -..M .. ...-..,I . . . ,.....,. ........ ___ ........ ~_

AI91-1898 P~rt 2-Page 12

864

AaADOrCUIItNJ A't1.l'Wta.0Wf(U.~~· tfH IDtrIOH·J,IA• • 01'" 11tI ANDICAH acsnn.tT£ cw o\IICHn1!IC1S,. 17]S HN \'OIIK ,.,.,... H.• , WA5HIHOTON, DC JOOOM2tJ • WAIWeIQ: ...................................................... ~

..-..ce .......

fI/T~)

NA~A......... 2.~AGMDIDII'·""I!I:It1lO'f·AIA·.O""nt1

ANDICNII'innvn: Of' AM:Hr1WC"rS, 1m"" 'WOIIIX~ N."

~

o.c. ~~.

.~ ............................. tI... .",....,.. ........ ~ ....... ~

All'-1898 Pert 2-Page 13

865

APPENDIX

4

STANDARD FORM OF AGREEMENTS BETWEEN OWNER AND DESIGN/BUILDER 14.5

ARTICLE 14

14.1

'0

The ~" Proposallncludes the followin& documents,

( u . " _ _ "'~"' __ """'...,.,."..".~atI/".."..,.bWr.)

OllfER COHOmONS AND SERVICES

1ltJe

Date

The Basic SerW:es be petfonned slWl be commenced on and, subi
14.3

.0

'0

The Basic Servtces beyond those described in Article 3 are as follows,

AildI.ionaI SerW:es beyond those described

In Article

3 are as folk,..""

This Agreement en'erM Into .. ·of the day and year firs. Minen above. OWNER

DHSIGNIBUDDER

14.4

(

A&AOOCW8CT A..... hrtl·~AoGIOHIM"I'.I9"!IJn1Otf.NIt.•• OI"'". ANI!aIC'.AM NTITtI1'I Of AIIOfn1ICTS. I-r,S NIW' 'IOU. AY!tftJB, ft.., W'AStRtGIOH. D.C. )OOI)5.Rn •

w~""""'""""""""",u"'''''''''''''''''''.uIIfId''''''''-''-'

866

IiUiI I!IIlI

The Des/gnIIlullder shall lubmll an ApplIcation lor Payment on the ) diyoteach month.

A,.,-,996

PMt2-hge14

AnCNtgIMI "'" _.......... __ _ Il0l ...AlA _ __ _.... ...... _ ........-. CAUTION: 8Ign ... .... arIgIMI document .....;.,. this _ __ prInIecI In .....

AIA~At....... Z·~AGaI!MIHl.I"'IDITION·ItJA·.Olf"nt!

AM!UCAH 8'C51t1\In 011 AICHn1ICI"S. 17), . . . tioMc AVINUIf" ft.., W'ASftJHG'I'ON. D.c. ~2 • W~ ......... ~ ....... WL..,...,.. .................... ~ ,

867

ApPENDIX

5

DESIGN-BUILD INSTITUTE OF AMERICA: STANDARD FORM OF AGREEMENT BETWEEN OWNER AND DESIGN-BUILDER -LUMPSUMI CONTENTS Article 1 Article 2 Article 3 Article 4 Article 5 Article 6 Article 7 Article 8 Article 9 Article 10 Article 11

Scope of Work Contract Documents Interpretation and Intent Ownership of Work Product Contract Time Contract Price Procedure for Payment Termination for Convenience Representatives of the Parties Bonds and Insurance Other Provisions

870 870 870 871 872 872 873 874 874 875 875

This document has important legal consequences. Consultation with an attorney is recommended with respect to its completion or modification. day of in the This AGREEMENT is made as of the , by and between the following parties, for services in connecyear of tion with the Project identified below. OWNER: (Name and address)

DESIGNIBUILDER: (Name and address)

PROJECT: (Include Project name and location as it will appear in the Contract Documents) 1

Reproduced by kind permission of DBIA.

869

AS-01

APPENDIX

DESIGN-BUILD INSTITUTE OF AMERICA: STANDARD FORM OF AGREEMENT

5

Design-Builder and by incorporation herein are as fully binding on the parties as if repeated herein. No oral representations or other agreements have been made by the parties except as specifically stated in the Contract Documents.

In consideration of the mutual covenants and obligations contained herein, Owner and Design-Builder agree as set forth herein.

A5-02

1.1

AS·03

2.1

Article 1 Scope of Work Design-Builder shall perform all design and construction services, and provide all material, equipment, tools and labor, necessary to complete the Work described in and reasonably inferable from the Contract Documents. Article 2 Contract Documents The Contract Documents are comprised of the following: .1 All written modifications, amendments and change orders to this Agreement issued in accordance with DBIA Document No. S35, Standard Form of General Conditions of Contract Between Owner and Design-Builder (1998 Edition) ("General Conditions of Contract"); .2 This Agreement, including all exhibits and attachments, executed by Owner and Design-Builder; .3 Written Supplementary Conditions, if any, to the General Conditions of Contract; .4 The General Conditions of Contract; .5 Construction Documents prepared and approved in accordance with Section 2.4 of the General Conditions of Contract; .6 Design-Builder's Deviation List, if any, contained in Design-Builder's Proposal, which shall specifically identify any and all deviations from Owner's Project Criteria; .7 Owner's Project Criteria; .8 Design-Builder's Proposal, except for the Deviation List, submitted in response to Owner's Project Criteria; and .9 The following other documents, if any: (Identify, for example, Unit Price Schedules, Design-Builder's allowances, Performance Standard Requirements, Owner's Permit List and any other document Owner and Design-Builder elect to make a Contract Document).

4.1

4.2

4.3

4.4 AS·04

3.1

3.2

3.3

870

Article 3 Interpretation and Intent The Contract Documents are intended to permit the parties to complete the Work and all obligations required by the Contract Documents within the Contract Time(s) for the Contract Price. The Contract Documents are intended to be complementary and interpreted in harmony so as to avoid conflict, with words and phrases interpreted in a manner consistent with construction and design industry standards. In the event of any inconsistency, conflict, or ambiguity between or among the Contract Documents, the Contract Documents shall take precedence in the order in which they are listed in Section 2.1 hereof. Terms, words and phrases used in the Contract Documents, including this Agreement, shall have the meanings given them in the General Conditions of Contract. The Contract Documents form the entire agreement between Owner and

4.5

Article 4 Ownership of Work Product Work Product. All drawings, specifications and other documents and electronic data furnished by Design-Builder to Owner under this Agreement ("Work Product") are deemed to be instruments of service and Design· Builder shall retain the ownership and property interests therein, including the copyrights thereto. Owner's Limited License Upon Payment in Full. Upon Owner's payment in full for all Work performed under the Contract Documents, Design-Builder shall grant Owner a limited license to use the Work Product in connection with Owner's occupancy of the Project, conditioned on Owner's express understanding that its use of the Work Product is at Owner's sole risk and without liability or legal exposure to Design-Builder or anyone working by or through Design-Builder, including Design Consultants of any tier (collectively the "Indemnified Parties"). Owner's Limited License Upon Owner's Termination for Convenience or Design-Builder's Election to Terminate. If Owner terminates the Project for its convenience as set forth in Article 8 hereof, or if Design-Builder 'elects to terminate this Agreement in accordance with Section 11.4 of the General Conditions of Contract, Design-Builder shall, upon Owner's payment in full of the amounts due Design-Builder under the Contract Documents, grant Owner a limited license to use the Work Product to complete the Project and subsequently occupy the Project, conditioned on the following: .1 Use of the Work Product is at Owner's sole risk without liability or legal exposure to any Indemnified Party; and .2 Owner agrees to pay Design-Builder the additional sum of _ _ _ _ _ Dollars ($ ___ ) as compensation for the right to use the Work Product in accordance with this Article 4 if Owner resumes the Project through its employees, agents, or third parties. Owner's Limited License Upon Design-Builder's Default. If this Agreement is terminated due to Design-Builder's default pursuant to Section 11.2 of the General Conditions of Contract and (i) it is determined that Design-Builder was in default and (ii) Owner has fully satisfied all of its obligations under the Contract Documents, Design-Builder shall grant Owner a limited license to use the Work Product in connection with Owner's completion and occupancy of the Project. This limited license is conditioned on Owner's express understanding that its use of the Work Product is at Owner's sole risk and without liability or legal exposure to any Indemnified Party. Owner's Indemnification for Use of Work Product. If Owner uses the Work Product under any of the circumstances identified in this Article 4, Owner shall defend, indemnify and hold harmless the Indemnified Parties from and against any and all claims, damages, liabilities, losses and expenses, including attorneys' fees, arising out of or resulting from the use of the Work Product.

871

AS·OS

APPENDIX

A5-06

5.1

5.2 5.2.1

5.2.2

5.2.3 5.2.4

5.3

5.4

5.5

A5-07 6.1

872

DESIGN-BUILD INSTITUTE OF AMERICA: STANDARD FORM OF AGREEMENT

5

Article 5 Contract Time Date of Commencement. The Work shall commence within five (5) days of Design-Builder's receipt of Owner's Notice to Proceed ("Date of Commencement") unless the parties mutually agree otherwise in writing. Substantial Completion and Final Completion Substantial Completion of the entire Work shall be achieved no later than (__ ) calendar days after the Date of Commencement ("Scheduled Substantial Completion Date"). Interim milestones and/or Substantial Completion of identified portions of the Work shall be achieved as follows: (Insert any interim milestones for portions of the Work with different scheduled dates for Substantial Completion)

Final Completion of the Work or identified portions of the Work shall be achieved as expeditiously as reasonably practicable. All of the dates set forth in this Article 5 ("Contract Time(s)") shall be subject to adjustment in accordance with the General Conditions of Contract. Time is of the Essence. Owner and Design-Builder mutually agree that time is of the essence with respect to the dates and times set forth in the Contract Documents. Liquidated Damages. Design-Builder understands that if Substantial Completion is not attained by the Scheduled Substantial Completion Date, Owner will suffer damages which are difficult to determine and accurately specify. Design-Builder agrees that if Substantial Completion is not attained by (__ ) days after the Scheduled Substantial Completion Date (the "LD Date"), Designer-Builder shall pay Owner _ _ _ __ Dollars ($ _ _ ) as liquidated damages for each day that Substantial Completion extends beyond the LD Date. The liquidated damages provided herein shall be in lieu of all liability for any and all extra costs, losses, expenses, claims, penalties and any other damages, whether special or consequential, and of whatsoever nature incurred by Owner which are occasioned by any delay in achieving Substantial Completion. (If liquidated damages are applicable to any dates set forth in Section 5.2.2 hereof, this Section 5.4 will need to be modified accordingly) Early Completion Bonus. If Substantial Completion is attained on or before _ _ _ _ (__ ) days before the Scheduled Substantial Completion Date (the "Bonus Date"), Owner shall pay Design-Builder at the time of Final Payment under Section 7.3 hereof an early completion bonus of _ _ __ Dollars ($__ ) for each day that Substantial Completion is attained earlier than the Bonus Date. (If an early completion bonus is applicable to any dates set forth in Section 5.2.2 hereof, this Section 5.5 will need to be modified accordingly)

Article 6 Contract Price Contract Price. Owner shall pay Design-Builder in accordance with Article Dollars 6 of the General Conditions of Contract the sum of ($ __ ) ("Contract Price"), subject to adjustments made in accordance with

6.2

7.1 7.1.1

7.1.2

7.2 7.2.1

7.2.2

7.3

7.4

7.5

the General Conditions of Contract. Unless otherwise provided in the Contract Documents, the Contract Price is deemed to include all sales, use, consumer and other taxes mandated by applicable Legal Requirements. Markups for Changes. If the Contract Price requires an adjustment due to changes in the Work, and the cost of such changes is determined under Sections 9.4.1.3 or 9.4.1.4 of the General Conditions of Contract, the following markups shall be allowed on such changes: (Insert applicable markups)

Article 7 Procedure for Payment Progress Payments (__ ) day of each Design-Builder shall submit to Owner on the month, beginning with the first month after the Date of Commencement, Design-Builder'S Application for Payment in accordance with Article 6 of the General Conditions of Contract. Owner shall make payment within ten (10) days after Owner's receipt of each properly submitted and accurate Application for Payment in accordance with Article 6 of the General Conditions of Contract, but in each case less the total of payments previously made, and less amounts properly withheld under Section 6.3 of the General Conditions of Contract. Retainage on Progress Payments Owner will retain percent (__ %) of each Application for Payment provided, however, that when fifty (50%) of the Work has been completed by Design-Builder, Owner will not retain any additional amounts from Design-Builder'S subsequent Applications for Payment. Owner will also reasonably consider reducing retainage for Subcontractors completing their work early in the Project. Upon Substantial Completion of the entire Work or, if applicable, any portion of the Work, pursuant to Section 6.6 of the General Conditions of Contract, Owner shall release to Design-Builder all retained amounts relating, as applicable, to the entire Work or completed portion of the Work, less ~n amount equal to th~ reasonable value of all remaining or incomplete Items of Work as noted In the Certificate of Substantial Completion. Final Payment. Design-Builder shall submit its Final Application for Payment to Owner in accordance with Section 6.7 of the General Conditions of Contract. Owner shall make payment on Design-Builder'S pr~perly submitted and accurate Final Application for Payment within thirty (30) days after Owner's receipt of the Final Application for Payment, provided that Design-Builder has satisfied the requirements for final payment set forth in Section 6.7.2 of the General Conditions of Contract. Interest. Payments due and unpaid by Owner to Design-Builder, whether progress payments or final payment, shall bear interest commencing five (5) days after payment is due at the rate of percent (__ %). Record Keeping and Finance Controls. With respect to changes in the Work performed on a cost basis by Design-Builder pursuant to the Contract Documents, Design-Builder shall keep full and detailed accounts and exercis.e such con~rols as may be necessary for proper financial management, uSing ac~ount~ng .and control systems in accordance with generally accepted accountmg prinCiples and as may be provided in the Contract Documents.

873

AS-OS

APPENDIX

5

During the performance of the Work and for a period of three (3) years after Final Payment, Owner and Owner's accountants shall be afforded access from time to time, upon reasonable notice, to Design-Builder's records, books, correspondence, receipts, subcontracts, purchase orders, vouchers, memoranda and other data relating to changes in the Work performed on a cost basis in accordance with the Contract Documents, all of which Design-Builder shall preserve for a period of three (3) years after Final Payment.

AS-09 8.1

8.2

8.3

Article 8 Termination for Convenience Upon ten (10) days' written notice to Design-Builder, Owner may, for its convenience and without cause, elect to terminate this Agreement. In such event, Owner shall pay Design-Builder for the following: .1 All Work executed and for proven loss, cost or expense in connection with the Work; .2 The reasonable costs and expenses attributable to such termination, including demobilization costs and amounts due in settlement of terminated contracts with Subcontractors and Design Consultants; and .3 (Choose one of the following:) The fair and reasonable sums for overhead and profit on the sum of items .1 and .2 above. or Overhead and profit in the amount percent (--%) on the sum of items .1 and .2 above. In addition to the amounts set forth in Section 8.1 above, Design-Builder shall be entitled to receive one of the following as applicable: .1 If Owner terminates this Agreement prior to commencement of construction, Design-Builder shall be paid percent (__ %) of the remaining balance of the Contract Price. .2 If Owner terminates this Agreement after commencement of construction, Design-Builder shall be paid percent (__ %) of the remaining balance of the Contract Price. If Owner terminates this Agreement pursuant to Section 8.1 above and proceeds to design and construct the Project through its employees, agents or third parties, Owner's rights to use the Work Product shall be as set forth in Section 4.3 hereof.

DESIGN-BUILD INSTITUTE OF AMERICA: STANDARD FORM OF AGREEMENT

9.1.2

Owner designates the individual listed below as its Owner's Representative, which individual has the authority and responsibility set forth in Section 3.4 of the General Conditions of Contract: (Identify individual's name, title, address and telephone numbers)

9.2 9.2.1

Design-Builder's Representatives Design-Builder designates the individual listed below as its Senior Representative ("Design-Builder's Senior Representative"), which individual has the authority and responsibility for avoiding and resolving disputes under Section 10.2.3 of the General Conditions of Contract: (Identify individual's name, title, address and telephone numbers)

9.2.2

Design-Builder designates the individual listed below as its Design-Builder's Representative, which individual has the authority and responsibility set forth in Section 2.1.1 of the General Conditions of Contract: (Identify individual's name, title, address and telephone numbers)

10.1

10.2

(The following Article 9 should be used only if the Owner and DesignBuilder agree to establish their respective representatives at the time the Agreement is executed rather than during the performance of the Project.) 11.1

AS-tO 9.1 9.1.1

874

Article 9 Representatives of the Parties Owner's Representatives Owner designates the individual listed below as its Senior Representative ("Owner's Senior Representative"), which individual has the authority and responsibility for avoiding and resolving disputes under Section 10.2.3 of the General Conditions of Contract: (Identify individual's name, title, address and telephone numbers)

Article 10 Bonds and Insurance Insurance. Design-Builder shall procure in accordance with Article 5 of the General Conditions of Contract the following insurance coverages: (Attach Insurance Schedule indicating the required coverage, amount of required coverage, duration of coverage, required rating of insurance carriers and any other insurance requirements required of the parties) Bonds and Other Performance Security. Design-Builder shall provide the following performance bond and labor and material payment bond or other performance security: (Insert the amount of bonds and any other conditions of the bonds or other security)

AS-ll

Article 11 Other Provisions Other provisions, if any, are as follows: (Insert any additional provisions)

AS-12

In executing this Agreement, Owner and Design-Builder each individually represents that it has the necessary financial resources to fulfill its obligations under this Agreement, and each has the necessary corporate approvals to execute this Agreement, and perform the services described herein.

875

APPENDIX

5

OWNER:

DESIGN-BUILDER:

(Name of Owner)

(Name of Design-Builder)

(Signature)

(Signature)

(Printed Name)

(Printed Name)

(Title)

(Title)

Date: ________________________

Date: ________________________

DESIGN-BUILD INSTITUTE OF AMERICA: STANDARD FORM OF GENERAL CONDITIONS OF CONTRACT BETWEEN OWNER AND DESIGN-BUILDER

Caution: You should sign an original DBIA document which has this caution printed in blue. An original assures that changes will not be obscured as may occur when documents are reproduced.

TABLE OF CONTENTS Article 1: Article 2: Article 3: Article 4: Article 5: Article 6: Article 7: Article 8: Article 9: Article 10: Article 11: Article 12:

General Design-Builder's Services and Responsibilities Owner's Services and Responsibilities Hazardous Conditions and Differing Site Conditions Insurance and Bonds Payment Indemnification Time Changes to the Contract Price and Time Contract Adjustments and Disputes Stop Work and Termination for Cause Miscellaneous

877 878 883

885 886

888 891 893 893 895

897 900

This document has important legal consequences. Consultation with an attorney is recommended with respect to its completion or modification.

Article 1 1.1

1.1.1

1.2

1.2.1

876

General

A5-13

Mutual Obligations Owner and Design-Builder commit at all times to cooperate fully with each other, and proceed on the basis of trust and good faith, to permit each party to realize the benefits afforded under the Contract Documents. Basic Definitions

Agreement refers to the executed contract between Owner and DesignBuilder . under either DBIA Document No. 525, Standard Form of Agreement Between Owner and Design-Builder-Lump Sum (1998 Edition) or DBIA Document No. 530, Standard Form of Agreement Between Owner and Design-Bui/der- Cost Plus Fee with an Option for a Guaranteed Maximum Price (1998 Edition).

877

APPENDIX

1.2.2 1.2.3

1.2.4

1.2.5 1.2.6

1.2.7

1.2.8 1.2.9

1.2.10 1.2.11 1.2.12

DESIGN-BUILD INSTITUTE OF AMERICA: STANDARD FORM OF CONDITIONS

5

Day or Days shall mean calendar days unless otherwise specifically noted in the Contract Documents. Design Consultant is a qualified, licensed design professional who is not an employee of Design-Builder, but is retained by Design-Builder, or employed or retained by anyone under contract with Design-Builder or Subcontractor, to furnish design services required under the Contract Documents. Hazardous Conditions are any materials, wastes, substances and chemicals deemed to be hazardous under applicable Legal Requirements, or the handling, storage, remediation, or disposal of which are regulated by applicable Legal Requirements. General Conditions of Contract refer to this DBIA Document No. 535, Standard Form of General Conditions of Contract Between Owner and Design-Builder (1998 Edition). Legal Requirements are all applicable federal, state and local laws, codes, ordinances, rules, regulations, orders and decrees of any government or quasi-government entity having jurisdiction over the Project or Site, the practices involved in the Project or Site, or any Work. Owner's Project Criteria are developed by or for Owner to describe Owner's program requirements and objectives for the Project, including use, space, price, time, site and expandability requirements, as well as submittal requirements and other requirements governing Design-Builder's performance of the Work. Owner's Project Criteria may include conceptual documents, design criteria, performance requirements and other Projectspecific technical materials and requirements. Site is the land or premises on which the Project is located. Subcontractor is any person or entity retained by Design-Builder as an independent contractor to perform a portion of the Work and shall include materialmen and suppliers. Sub-Subcontractor is any person or entity retained by a Subcontractor as an independent contractor to perform any portion of a Subcontractor's Work and shall include materialmen and suppliers. Substantial Completion is the date on which the Work, or an agreed upon portion of the Work, is sufficiently complete so that Owner can occupy and use the Project or a portion thereof for its intended purposes. Work is comprised of all Design-Builder's design, construction and other services required by the Contract Documents, including procuring and furnishing all materials, equipment, services and labor reasonably inferable from the Contract Documents.

2.1.2

2.1.3

2.1.4

2.2 2.2.1

2.3 Article 2

AS-14

Design Professional Services Design-Builder shall, consistent with applicable state licensing laws, provide through qualified, licensed design professionals employed by Design-Builder, or procured from qualified, independent licensed Design Consultants, the necessary design services, including architectural, engineering and other design professional services, for the preparation of the required drawings, specifications and other design submittals to permit Design-Builder to complete the Work consistent with the Contract Documents. Nothing in the Contract Documents is intended or deemed to create any legal or contractual relationship between Owner and any Design Consultant. Standard of Care for Design Professional Services

Design-Builder's Services and Responsibilities 2.3.1

2.1

General Services

2.1.1

Design-Builder's Representative shall be reasonably available to Owner and shall have the necessary expertise and experience required to supervise the Work. Design-Builder's Representative shall communicate regularly with Owner and shall be vested with the authority to act on behalf of DesignBuilder. Design-Builder's Representative may be replaced only with the mutual agreement of Owner and Design-Builder.

878

Design-Builder shall provide Owner with a monthly status report detailing the progress of the Work, including whether (i) the Work is proceeding according to schedule, (ii) discrepancies, conflicts, or ambiguities exist in the Contract Documents that require resolution, (iii) health and safety issues exist in connection with the Work, and (iv) other items require resolution so as not to jeopardize Design-Builder's ability to complete the Work for the Contract Price and within the Contract Time(s). Design-Builder shall prepare and submit, at least three (3) days prior to the meeting contemplated by Section 2.1.4 hereof, a schedule for the execution of the Work for Owner's review and response. The schedule shall indicate the dates for the start and completion of the various stages of Work, including the dates when Owner information and approvals are required to enable Design-Builder to achieve the Contract Time(s). The schedule shall be revised as required by conditions and progress of the Work, but such revisions shall not relieve Design-Builder of its obli gations to complete the Work within the Contract Time(s), as such dates may be adjusted in accordance with the Contract Documents. Owner's review of and response to the schedule shall not be construed as relieving Design-Builder of its complete and exclusive control over the means, methods, sequences and techniques for executing the Work. The parties will meet within seven (7) days after execution of the Agreement to discuss issues affecting the administration of the Work and to implement the necessary procedures, including those relating to submittals and payment, to facilitate the ability of the parties to perform their obligations under the Contract Documents.

The standard of care for all design professional services performed to execute the Work shall be the care and skill ordinarily used by members of the design profession practicing under similar conditions at the same time and locality of the Project. Notwithstanding the preceding sentence, if the parties agree upon specific performance standards for any aspect of the Work, which standards are to be set forth in an exhibit to the Agreement entitled "Performance Standard Requirements," the design professional services shall be performed to achieve such standards.

879

APPENDIX

2.4

5

DESIGN-BUILD INSTITUTE OF AMERICA: STANDARD FORM OF CONDITIONS

is required to make to the Construction Documents because of changes in Legal Requirements.

Design Development Services

2.4.1

2.4.2

2.4.3

2.4.4

Design-Builder and Owner shall, consistent with any applicable provision of the Contract Documents, agree upon any interim design submissions that Owner may wish to review, which interim design submissions may include design criteria, drawings, diagrams and specifications setting forth the Project requirements. On or about the time of the scheduled submissions, Design-Builder and Owner shall meet and confer about the submissions, with Design-Builder identifying during such meetings, among other things, the evolution of the design and any significant changes or deviations from the Contract Documents, or, if applicable, previously submitted design submissions. Minutes of the meetings will be maintained by Design-Builder and provided to all attendees for review. Following the design review meeting, Owner shall review and approve the interim design submissions in a time that is consistent with the turnaround times set forth in DesignBuilder's schedule. Design-Builder shall submit to Owner Construction Documents setting forth in detail drawings and specifications describing the requirements for construction of the Work. The Construction Documents shall be consistent with the latest set of interim design submissions, as such submissions may have been modified in a design review meeting. The parties shall have a design review meeting to discuss, and Owner shall review and approve, the Construction Documents in accordance with the procedures set forth Section 2.4.1 above. Design-Builder shall proceed with construction in accordance with the approved Construction Documents and shall submit one set of approved Construction Documents to Owner prior to commencement of construction. Owner's review and approval of interim design submissions and the Construction Documents is for the purpose of mutually establishing a conformed set of Contract Documents compatible with the requirements of the Work. Neither Owner's review nor approval of any interim design submissions and Construction Documents shall be deemed to transfer any design liability from Design-Builder to Owner. To the extent not prohibited by the Contract Documents or Legal Requirements, Design-Builder may prepare interim design submissions and Construction Documents for a portion of the Work to permit construction to proceed on that portion of the Work prior to completion of the Construction Documents for the entire Work.

2.6 2.6.1

2.6.2

2.7 2.7.1

2.7.2

2.7.3

2.7.4

2.7.5 2.5 2.5.1

2.5.2

880

Legal Requirements Design-Builder shall perform the Work in accordance with all Legal Requirements and shall provide all notices applicable to the Work as required by the Legal Requirements. The Contract Price and/or Contract Time(s) shall be adjusted to compensate Design-Builder for the effects of any changes in the Legal Requirements enacted after the date of the Agreement affecting the performance of the Work, or if a Guaranteed Maximum Price is established after the date of the Agreement, the date the parties agree upon the Guaranteed Maximum Price. Such effects may include, without limitation, revisions Design-Builder

2.7.6

Government Approvals and Permits Except as identified in an Owner's Permit List attached as an exhibit to the Agreement, Design-Builder shall obtain and pay for all necessary permits, approvals, licenses, government charges and inspection fees required for the prosecution of the Work by any government or quasi-government entity having jurisdiction over the Project. Design-Builder shall provide reasonable assistance to Owner in obtaining those permits, approvals and licenses that are Owner's responsibility. Design-Builder's Construction Phase Services Unless otherwise provided in the Contract Documents to be the responsibility of Owner or a separate contractor, Design-Builder shall provide through itself or Subcontractors the necessary supervision, labor, inspection, testing, start-up, material, equipment, machinery, temporary utilities and other temporary facilities to permit Design-Builder to complete construction of the Project consistent with the Contract Documents. Design-Builder shall perform all construction activities efficiently and with the requisite expertise, skill and competence to satisfy the requirements of the Contract Documents. Design-Builder shall at all times exercise complete and exclusive control over the means, methods, sequences and techniques of construction. Design-Builder shall employ only Subcontractors who are duly licensed and qualified to perform the Work consistent with the Contract Documents. Owner may reasonably object to Design-Builder'S selection of any Subcontractor, provided that the Contract Price and/or Contract Time(s) shall be adjusted to the extent that Owner's decision impacts DesignBuilder's cost and/or time of performance. Design-Builder assumes responsibility to Owner for the proper performance of the Work of Subcontractors and any acts and omissions in connection .with such performance. Nothing in the Contract Documents is intended or deemed to create any legal or contractual relationship between Owner and any Subcontractor or Sub-Subcontractor, including but not limited to any third-party beneficiary rights. Design-Builder shall coordinate the activities of all Subcontractors. If Owner performs other work on the Project or at the Site with separate contractors under Owner's control, Design-Builaer agrees to reasonably cooperate and coordinate its activities with those of such separate contractors so that the Project can be completed in an 'orderly and coordinated manner without unreasonable disruption. Design-Builder shall keep the Site reasonably free from debris, trash and construction wastes to permit Design-Builder to perform its construction services efficiently, safely and without interfering with the use of adjacent land areas. Upon Substantial Completion of the Work, or a portion of the Work, Design-Builder shall remove all debris, trash, construction wastes, materials, equipment, machinery and tools arising from the Work

881

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5

or applicable portions thereof to permit Owner to occupy the Project or a portion of the Project for its intended use. 2.8 2.8.1

2.8.2

2.8.3

2.9 2.9.1

882

DESIGN-BUILD INSTITUTE OF AMERICA: STANDARD FORM OF CONDITIONS

2.10

Correction of Defective Work

2.10.1

Design-Builder's Responsibility for Project Safety Design-Builder recognizes the importance of performing the Work in a safe manner so as to prevent damage, injury or loss to (i) all individuals at the Site, whether working or visiting, (ii) the Work, including materials and equipment incorporated into the Work or stored on-Site or off-Site, and (iii) all other property at the Site or adjacent thereto. Design-Builder assumes responsibility for implementing and monitoring all safety precautions and programs related to the performance of the Work. Design-Builder shall, prior to commencing construction, designate a Safety Representative with the necessary qualifications and experience to supervise the implementation and monitoring of all safety precautions and programs related to the Work. Unless otherwise required by the Contract Documents, Design-Builder's Safety Representative shall be an individual stationed at the Site who may have responsibilities on the Project in addition to safety. The Safety Representative shall make routine daily inspections of the Site and shall hold weekly safety meetings with Design-Builder's personnel, Subcontractors and others as applicable. Design-Builder and Subcontractors shall comply with all Legal Requirements relating to safety, as well as any Owner-specific safety requirements set forth in the Contract Documents, provided that such Owner-specific requirements do not violate any applicable Legal Requirement. Design-Builder will immediately report in writing any safetyrelated injury, loss, damage or accident arising from the Work to Owner's Representative and, to the extent mandated by Legal Requirements, to all government or quasi-government authorities having jurisdiction over safety-related matters involving the Project or the Work. Design-Builder'S responsibility for safety under this Section 2.8 is not intended in any way to relieve Subcontractors and Sub-Subcontractors of their own contractual and legal obligations and responsibility for (i) complying with all Legal Requirements, including those related to health and safety matters, and (ii) taking all necessary measures to implement and monitor all safety precautions and programs to guard against injury, losses, damages or accidents resulting from their performance of the Work. Design-Builder'S Warranty Design-Builder warrants to Owner that the construction, including all materials and equipment furnished as part of the construction, shall be new unless otherwise specified in the Contract Documents, of good quality, in conformance with the Contract Documents and free of defects in materials and workmanship. Design-Builder's warranty obligation excludes defects caused by abuse, alterations, or failure to maintain the Work by persons other than Design-Builder or anyone for whose acts Design-Builder may be liable. Nothing in this warranty is intended to limit any manufacturer's warranty which provides Owner with greater warranty rights than set forth in this Section 2.9 or the Contract Documents. Design-Builder will provide Owner with all manufacturer's warranties upon Substantial Completion.

2.10.2

2.10.3

Design-Builder agrees to correct any Work that is found to not be in conformance with the Contract Documents, including that part of the Work subject to Section 2.9 hereof, within a period of one year from the date of Substantial Completion of the Work or any portion of the Work, or within such longer period to the extent required by the Contract Documents. Design-Builder shall, within seven (7) days of receipt of written notice from Owner that the Work is not in conformance with the Contract Documents, take meaningful steps to commence correction of such nonconforming Work, including the correction, removal or replacement of the nonconforming Work and any damage caused to other parts of the Work affected by the nonconforming Work. If Design-Builder fails to commence the necessary steps within such seven (7) day period, Owner, in addition to any other remedies provided under the Contract Documents, may provide Design-Builder with written notice that Owner will commence correction of such nonconforming Work with its own forces. If Owner does perform such corrective Work, Design-Builder shall be responsible for all reasonable costs incurred by Owner in performing such correction. If the nonconforming Work creates an emergency requiring an immediate response, the seven (7) day periods identified herein shall be deemed inapplicable. The one year period referenced in Section 2.10.1 above applies only to Design-Builder's obligation to correct nonconforming Work and is not intended to constitute a period of limitations for any other rights or remedies Owner may have regarding Design-Builder's other obligations under the Contract Documents.

Article 3 3.1 3.1.1

3.1.2

3.2 3.2.1

Owner's Services and Responsibilities

AS-15

Duty to Cooperate Owner shall, throughout the performance of the Work, cooperate with De'sign-Builder and perform its responsibilities, obligations and services in a timely manner to facilitate Design-Builder's timely and efficient performance of the Work and so as not to delay or interfere with Design-Builder'S performance of its obligations under the Contract Documents. Owner shall provide timely reviews and approvals of interim design submissions and Construction Documents consistent with the turnaround times set forth in Design-Builder's schedule. Furnishing of Services and Information Unless expressly stated to the contrary in the Contract Documents, Owner shall provide, at its own cost and expense, for Design-Builder's information and use the following, all of which Design-Builder is entitled to rely upon in performing the Work: .1 Surveys describing the property, boundaries, topography and reference points for use during construction, including existing service and utility lines; 883

APPENDIX

5

.2

3.2.2

3.3 3.3.1

3.3.2

3.4 3.4.1

3.5 3.5.1

884

Geotechnical studies describing subsurface conditions, and other surveys describing other latent or concealed physical conditions at the Site; .3 Temporary and permanent easements, zoning and other requirements and encumbrances affecting land use, or necessary to permit the proper design and construction of the Project and enable DesignBuilder to perform the Work; .4 A legal description of the Site; .5 To the extent available, as-built and record drawings of any existing structures at the Site; and .6 To the extent available, environmental studies, reports and impact statements describing the environmental conditions, including Hazardous Conditions, in existence at the Site. Owner is responsible for securing and executing all necessary agreements with adjacent land or property owners that are necessary to enable Design-Builder to perform the Work. Owner is further responsible for all costs, including attorneys' fees, incurred in securing these necessary agreements. Financial Information At Design-Builder's request, Owner shall promptly furnish reasonable evidence satisfactory to Design-Builder that Owner has adequate funds available and committed to fulfill all of Owner's contractual obligations under the Contract Documents. If Owner fails to furnish such financial information in a timely manner, Design-Builder may stop Work under Section 11.3 hereof or exercise any other right permitted under the Contract Documents. Design-Builder shall cooperate with the reasonable requirements of Owner's lenders or other financial sources. Notwithstanding the preceding sentence, after execution of the Agreement Design-Builder shall have no obligation to execute for Owner or Owner's lenders or other financial sources any documents or agreements that require Design-Builder to assume obligations or responsibilities greater than those existing obligations Design-Builder has under the Contract Documents.

DESIGN-BUILD INSTITUTE OF AMERICA: STANDARD FORM OF CONDITIONS

3.5.2

3.6 3.6.1

4.1

4.1.1

4.1.2

4.1.3

4.1.4

4.1.5

Government Approvals and Permits Owner shall obtain and pay for all necessary permits, approvals, licenses, government charges and inspection fees set forth in the Owner's Permit List attached as an exhibit to the Agreement.

Owner's Separate Contractors Owner is responsible for all work performed on the Project or at the Site by separate contractors under Owner's control. Owner shall contractually require its separate contractors to cooperate with, and coordinate their activities so as not to interfere with, Design-Builder in order to enable Design-Builder to timely complete the Work consistent with the Contract Documents.

Article 4

Owner's Representative Owner's Representative shall be responsible for providing Owner-supplied information and approvals in a timely manner to permit Design-Builder to fulfill its obligations under the Contract Documents. Owner's Representative shall also provide Design-Builder with prompt notice if it observes any failure on the part of Design-Builder to fulfill its contractual obligations, including any errors, omissions or defects in the performance of the Work.

Owner shall provide reasonable assistance to Design-Builder in obtaining those permits, approvals and licenses that are Design-Builder's responsibility.

4.1.6

Hazardous Conditions and Differing Site Conditions

AS-16

Hazardous Conditions Unless otherwise expressly provided in the Contract Documents to be part of the Work, Design-Builder is not responsible for any Hazardous Conditions encountered at the Site. Upon encountering any Hazardous Conditions, Design-Builder will stop Work immediately in the affected area and duly notify Owner and, if required by Legal Requirements, all government or quasi·government entities with jurisdiction over the Project or Site. Upon receiving notice of the presence of suspected Hazardous Conditions, Owner' shall take the necessary measures required to ensure that the Hazardous Conditions are remediated or rendered harmless. Such necessary measures shall include Owner retaining qualified independent experts to (i) ascertain whether Hazardous Conditions have actually been encountered, and, if they have been encountered, (ii) prescribe the remedial measures that Owner must take either to remove the tiazardous Conditions or render the Hazardous Conditions harmless. Design-Builder shall be obligated to resume Work at the affected area of the Project only after Owner's expert provides it with written certification that (i) the Hazardous Conditions have been removed or rendered harmless and (ii) all necessary approvals have been obtained from all government and quasi-government entities having jurisdiction over the Project or Site. Design-Builder will be entitled, in accordance with these General Conditions of Contract, to an adjustment in its Contract Price and/or Contract Time(s) to the extent Design-Builder's cost and/or time of performance have been adversely impacted by the presence of Hazardous Conditions. To the fullest extent permitted by law, Owner shall indemnify, defend and hold harmless Design-Builder, Design Consultants, Subcontractors, anyone employed directly or indirectly for any of them, and their officers, directors, employees and agents, from and against any and all claims, losses, damages, liabilities and expenses, including attorneys' fees and expenses, arising out of or resulting from the presence, removal or remediation of Hazardous Conditions at the Site. Notwithstanding the preceding provisions of this Section 4.1, Owner is not responsible for Hazardous Conditions introduced to the Site by Design-

885

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5

DESIGN-BUILD INSTITUTE OF AMERICA: STANDARD FORM OF CONDITIONS

Builder, Subcontractors or anyone for whose acts they may be liable. Design-Builder shall indemnify, defend and hold harmless Owner and Owner's officers, directors, employees and agents from and against all claims, losses, damages, liabilities and expenses, including attorneys' fees and expenses, arising out of or resulting from those Hazardous Conditions introduced to the Site by Design-Builder, Subcontractors or anyone for whose acts they may be liable. 4.2 4.2.1

4.2.2

5.1.2

5.1.3

Differing Site Conditions Concealed or latent physical conditions or subsurface conditions at the Site that (i) materially differ from the conditions indicated in the Contract Documents or (ii) are of an unusual nature, differing materially from the conditions ordinarily encountered and generally recognized as inherent in the Work are collectively referred to herein as "Differing Site Conditions." If Design-Builder will be entitled to an adjustment in the Contract Price and/or Contract Time(s) to the extent Design-Builder's cost and/or time of performance are adversely impacted by the Differing Site Condition. Upon encountering a Differing Site Condition, Design-Builder shall provide prompt written notice to Owner of such condition, which notice shall not be later than fourteen (14) days after such condition has been encountered. Design-Builder shall, to the extent reasonably possible, provide such notice before the Differing Site Condition has been substantially disturbed or altered.

5.1.4

5.1.5

5.2 Article 5

A5-17

5.1.1

886

Owner's Liability Insurance

Insurance and Bonds 5.2.1

5.1

Coverage for contractual liability claims arising out of DesignBuilder's obligations under Section 7.4.1 hereof. Design-Builder's liability insurance required by Section 5.1.1 above shall be written for the coverage amounts set forth in the Agreement and shall include completed operations insurance for the period of time set forth in the Agreement. Design-Builder's liability insurance set forth in Sections 5.1.1.1 through 5.1.1.7 above shall specifically delete any design-build or similar exclusions that could compromise coverages because of the design-build delivery of the Project. To the extent Owner requires Design-Builder or any Design Consultant to provide professional liability insurance for claims arising from the negligent performance of design services by Design-Builder or the Design Consultant, the coverage limits, duration and other specifics of such insurance shall be as set forth in the Agreement. Any professional liability shall specifically delete any design-build or similar exclusions that could compromise coverages because of the design-build delivery of the Project. Such policies shall be provided prior to the commencement of any design services hereunder. Prior to commencing any construction services hereunder, Design-Builder shall provide Owner with certificates evidencing that (i) all insurance obligations required by the Contract Documents are in full force and in effect and will remain in effect for the duration required by the Contract Documents and (ii) no insurance coverage will be canceled, renewal refused, or materially changed unless at least thirty (30) days prior written notice is given to Owner. .7

Design-Builder's Insurance Requirements Design-Builder is responsible for procuring and maintaining from insurance companies authorized to do business in the state in which the Project is located, and with a minimum rating set forth in the Agreement, the following insurance coverages for certain claims which may arise from or out of the performance of the Work and obligations under the Contract Documents: .1 Coverage for claims arising under workers' compensation, disability and other similar employee benefit laws applicable to the Work; .2 Coverage for claims for Design-Builder's employees for bodily injury, sickness, disease, or death; .3 Coverage for claims by any person other than Design-Builder's employees for bodily injury, sickness, disease, or death; .4 Coverage for usual personal injury liability claims for damages sustained by a person as a direct or indirect result of Design-Builder's employment of the person, or sustained by any other person; .5 Coverage for claims for damages (other than to the Work) because of injury to or destruction of tangible property, including loss of use; .6 Coverage for claims of damages because of personal injury or death, or property damage resulting from ownership, use and maintenance of any motor vehicle; and

5.3 5.3.1

Owner shall procure and maintain from insurance companies authorized to do business in the state in which the Project is located such liability insurance to protect Owner from claims which may arise from the performance of Owner's obligations under the Contract Documents or Owner's conduct during the course of the Project. Owner's Property Insurance Unless otherwise provided in the Contract Documents, Owner shall procure and maintain from insurance companies authorized to do business in the state in which the Project is located property insurance upon the entire Project to the full insurable value of the Project, including professional fees, overtime premiums and all other expenses incurred to replace or repair the insured property. The property insurance obtained by Owner shall include as additional insureds the interests of Owner, Design-Builder, Design Consultants, Subcontractors and Sub-Subcontractors, and shall insure against the perils of fire and extended coverage, theft, vandalism, malicious mischief, collapse, flood, earthquake, debris removal and other perils or causes of loss as called for in the Contract Documents. The property insurance shall include physical loss or damage to the Work, including materials and equipment in transit, at the Site or at another location as may be indicated in Design-Builder's Application for Payment and approved by Owner.

887

APPENDIX

5.3.2

5.3.3

5.3.4

5.3.5

5.4

5.4.1

5

DESIGN-BUILD INSTITUTE OF AMERICA: STANDARD FORM OF CONDITIONS

Unless the Contract Documents provide otherwise, Owner shall procure and maintain boiler and machinery insurance that will include the interests of Owner, Design-Builder, Design Consultants, Subcontractors and SubSubcontractors. Prior to Design-Builder commencing any Work, Owner shall provide Design-Builder with certificates evidencing that (i) all Owner's insurance obligations required by the Contract Documents are in full force and in effect and will remain in effect until Design-Builder has completed all of the Work and has received final payment from Owner and (ii) no insurance coverage will be canceled, renewal refused, or materially changed unless at least thirty (30) days prior written notice is given to Design-Builder. Owner's property insurance shall not lapse or be canceled if Owner occupies a portion of the Work pursuant to Section 6.6.3 hereof. Owner shall provide Design-Builder with the necessary endorsements from the insurance company prior to occupying a portion of the Work. Any. loss covered under Owner's property insurance shall be adjusted with Owner and Design-Builder and made payable to both of them as trustees for the insureds as their interests may appear, subject to any applicable mortgage clause. All insurance proceeds received as a result of any loss will be placed in a separate account and distributed in accordance with such agreement as the interested parties may reach. Any disagreement concerning the distribution of any proceeds will be resolved in accordance with Article 10 hereof. Owner and Design-Builder waive against each other and Owner's separate contractors, Design Consultants, Subcontractors, agents and employees of each and all of them, all damages covered by property insurance provided herein, except such rights as they may have to the proceeds of such insurance. Design-Builder and Owner shall, where appropriate, require similar waivers of subrogation from Owner's separate contractors, Design Consultants and Subcontractors and shall require each of them to include similar waivers in their contracts.

6.2 6.2.1

6.2.2

6.2.3

6.3 6.3.1

Bonds and Other Performance Security

If Owner requires Design-Builder to obtain performance and labor and material payment bonds, or other forms of performance security, the amount, form and other conditions of such security shall be as set forth in the Agreement.

6.3.2

6.4 AS-IS

Article 6

6.1 6.1.1

888

Payment

6.4.1

Schedule of Values Within ten (10) days of execution of the Agreement, Design-Builder shall submit for Owner's review and approval a schedule of values for all of the Work. The Schedule of Values will (i) subdivide the Work into its respective parts, (ii) include values for all items comprising the Work and (iii) serve as the basis for monthly progress payments made to Design-Builder throughout the Work.

Monthly Progress Payments

6.5 6.5.1

On or before the date established in the Agreement, Design-Builder shall submit for Owner's review and approval its Application for Payment requesting payment for all Work performed as of the date of the Application for Payment. The Application for Payment shall be accompanied by all supporting documentation required by the Contract Documents and/or established at the meeting required by Section 2.1.4 hereof. The Application for Payment may request payment for equipment and materials not yet incorporated into the Project, provided that (i) Owner is satisfied that the equipment and materials are suitably stored at either the Site or another acceptable location, (ii) the equipment and materials are protected by suitable insurance and (iii) upon payment, Owner will receive the equipment and materials free and clear of all liens and encumbrances. The Application for Payment shall constitute Design-Builder's representation that the Work has been performed consistent with the Contract Documents, has progressed to the point indicated in the Application for Payment, and that title to all Work will pass to Owner free and clear of all claims, liens, encumbrances, and security interests upon the incorporation of the Work into the Project, or upon Design-Builder's receipt of payment, whichever occurs earlier. Withholding of Payments On or before the date established in the Agreement, Owner shall pay Design-Builder all amounts properly due. If Owner determines that DesignBuilder is not entitled to all or part of an Application for Payment, it will notify Design-Builder in writing at least five (5) days prior to the date payment is due. The notice shall indicate the specific amounts Owner intends to withhold, the reasons and contractual basis for the withholding, and the specific measures Design-Builder must take to rectify Owner's concerns. Design-Builder and Owner will attempt to resolve Owner's concerns prior to the date payment is due. If the parties cannot resolve such concerns, Design-Builder may pursue its rights under the Contract Documents, including those under Article 10 hereof. Notwithstanding anything to the contrary in the Contract Documents, Owner shall pay Design-Builder all undisputed amounts in an Application for Payment within the times required by the Agreement. Right to Stop Work and Interest

If Owner fails to pay Design-Builder any amount that becomes due, DesignBuilder, in addition to all other remedies provided in the Contract Documents, may stop Work pursuant to Section 11.3 hereof. All payments due and unpaid shall bear interest at the rate set forth in the Agreement. Design-Builder's Payment Obligations Design-Builder will pay Design Consultants and Subcontractors, in accordance with its contractual obligations to such parties, all the amounts Design-Builder has received from Owner on account of their work. Design-

889

APPENDIX

5

DESIGN- BUILD INSTITUTE OF AMERICA: STANDARD FORM OF CONDITIONS

Builder will impose similar requirements on Design Consultants and Subcontractors to pay those parties with whom they have contracted. Design-Builder will indemnify and defend Owner against any claims for payment and mechanic's liens as set forth in Section 7.3 hereof. 6.6 6.6.1

6.6.2

6.6.3

6.7 6.7.1

6.7.2

890

Substantial Completion Design-Builder shall notify Owner when it believes the Work, or to the extent permitted in the Contract Documents, a portion of the Work, is substantially complete. Within five (5) days of Owner's receipt of DesignBuilder's notice, Owner and Design-Builder will jointly inspect such Work to verify that it is substantially complete in accordance with the requirements of the Contract Documents. If such Work is substantially complete, Owner shall prepare and issue a Certificate of Substantial Completion that will set forth (i) the date of Substantial Completion of the Work or portion thereof, (ii) the remaining items of Work that have to be completed before final payment, (iii) provisions (to the extent not already provided in the Contract Documents) establishing Owner's and Design-Builder's responsibility for the Project's security, maintenance, utilities and insurance pending final payment and (iv) an acknowledgment that warranties commence to run on the date of Substantial Completion, except as may otherwise be noted in the Certificate of Substantial Completion. Upon Substantial Completion of the entire Work or, if applicable, any portion of the Work, Owner shall release to Design-Builder all retained amounts relating, as applicable, to the entire Work or completed portion of the Work, less an amount equal to the reasonable value of all remaining or incomplete items of Work as noted in the Certificate of Substantial Completion. Owner, at its option, may use a portion of the Work which has been determined to be substantially complete, provided, however, that (i) a Certificate of Substantial Completion has been issued for the portion of Work addressing the items set forth in Section 6.6.1 above, (ii) Design-Builder and Owner have obtained the consent of their sureties and insurers, and to the extent applicable, the appropriate government authorities having jurisdiction over the Project, and (iii) Owner and Design-Builder agree that Owner's use or occupancy will not interfere with Design-Builder's completion of the remaining Work.

6.7.3

Article 7 7.1 7.1.1

7.1.2

Final Payment After receipt of a Final Application for Payment from Design-Builder, Owner shall make final payment by the time required in the Agreement, provided that Design-Builder has completed all of the Work in conformance with the Contract Documents. At the time of submission of its Final Application for Payment, DesignBuilder shall provide the following information: .1 an affidavit that there are no claims, obligations or liens outstanding or unsatisfied for labor, services, material, equipment, taxes or other items performed, furnished or incurred for or in connection with the Work which will in any way affect Owner's interests; .2 a general release executed by Design-Builder waiving, upon receipt of final payment by Design-Builder, all claims, except those claims pre-

viously made in writing to Owner and remaining unsettled at the time of final payment; consent of Design-Builder's surety, if any, to final payment; .3 all operating manuals, warranties and other deliverables required by .4 the Contract Documents; and certificates of insurance confirming that required coverages will .5 remain in effect consistent with the requirements of the Contract Documents. Upon making final payment, Owner waives all claims against ~esig.n­ Builder. except claims relating to (i) Design-Builder's failure to satisfy ItS payment obligations, if such failure affects Owner's interests, (ii) DesignBuilder's failure to complete the Work consistent with the Contract Documents, including defects appearing after Substantial Completion and (iii) the terms of any special warranties required by the Contract Documents.

7.1.3

Indemnification

A5-19

Patent and Copyright Infringement Design-Builder shall defend any action or proceeding brought against Owner based on any claim that the Work, or any part thereof, or the operation or use of the Work or any part thereof, constitutes infringement of any United States patent or copyright, now or hereafter issued. Owner shall give prompt written notice to Design-Builder of any such action or proceeding and will reasonably provide authority, information and assistance in the defense of same. Design-Builder shall indemnify and hold harmless Owner from and against all damages and costs, including but not limited to attorneys' fees and expenses awarded against Owner or Design-Builder in any such action or proceeding. Design-Builder agrees to keep Owner informed of all developments in the defense of such actions. If Owner is enjoined from the operation or use of the Work, or any part thereof, as the result of any patent or copyright suit, claim, or proceeding, Design-Builder shall at its sole expense take reasonable steps to procure the right to operate or use the Work. If Design-Builder cannot so procure such right wirhin a reasonable time, Design-Builder shall promptly, at DesignBuilder's option and at Design-Builder's expense, (i) modify the Work so as to avoid infringement of any such patent or copyright or (ii) replace said Work with Work that does not infringe or violate any such patent or copyright. Sections 7.1.1 and 7.1.2 above shall not be applicable to any suit, claim or proceeding based on infringement or violation of a patent or copyright (i) relating solely to a particular process or product of a particular manufacturer specified by Owner and not offered or recommended by DesignBuilder to Owner Or (ii) arising from modifications to the Work by Owner or its agents after acceptance of the Work. If the suit, claim or proceeding is based upon events set forth in the preceding sentence, Owner shall defend, indemnify and hold harmless Design-Builder to the same extent Design-Builder is obligated to defend, indemnify and hold harmless Owner in Section 7.1.1 above.

891

APPENDIX

7.1.4

7.2 7.2.1

7.3

5

DESIGN-BUILD INSTITUTE OF AMERICA: STANDARD FORM OF CONDITIONS

tors, employees, or agents from and against claims, losses, damages, liabilities, including attorneys' fees and expenses, for bodily injury, sickness or death, and property damage or destruction (other than to the Work itself) to the extent resulting from the negligent acts or omissions of Owner's separate contractors or anyone for whose acts any of them may be liable.

The obligations set forth in this Section 7.1 shall constitute the sole agreement between the parties relating to liability for infringement of violation of any patent or copyright. Tax Claim Indemnification

If, in accordance with Owner's direction, an exemption for all or part of the Work is claimed for taxes, Owner shall indemnify, defend and hold harmless Design-Builder from and against any liability, penalty, interest, fine, tax assessment, attorneys' fees or other expenses or costs incurred by DesignBuilder as a result of any action taken by Design-Builder in accordance with Owner's directive.

Article 8 8.1 8.1.1

Providing that Owner is not in breach of its contractual obligation to make payments to Design-Builder for the Work, Design-Builde( shall indemnify, defend and hold harmless Owner from any claims or mechanic's liens brought against Owner or against the Project as a result of the failure of Design-Builder, or those for whose acts it is responsible, to pay for any services, materials, labor, equipment, taxes or other items or obligations furnished or incurred for or in connection with the Work. Within three (3) days of receiving written notice from Owner that such a claim or mechanic's lien has been filed, Design-Builder shall commence to take the steps necessary to discharge said claim or lien, including, if necessary, the furnishing of a mechanic's lien bond. If Design-Builder fails to do so, Owner will have the right to discharge the claim or lien and hold DesignBuilder liable for costs and expenses incurred, including attorneys' fees.

8.2.1

8.2.2 7.4 7.4.1

7.4.2

7.5 7.5.1

892

A5-20

Obligation to Achieve the Contract Times Design-Builder agrees that it will commence performance of the Work and achieve the Contract Time(s) in accordance with Article 5 of the Agreement.

Payment Claim Indemnification 8.2

7.3.1

Time

Design-Builder's General Indemnification Design-Builder, to the fullest extent permitted by law, shall indemnify, hold harmless and defend Owner, its officers, directors, employees and agents from and against claims, losses, damages, liabilities, including attorneys' fees and expenses, for bodily injury, sickness or death, and property damage or destruction (other than to the Work itself) to the extent resulting from the negligent acts or omissions of Design-Builder, Design Consultants, Subcontractors, anyone employed directly or indirectly by any of them or anyone for whose acts any of them may be liable. If an employee of Design-Builder, Design Consultants, Subcontractors, anyone employed directly or indirectly by any of them or anyone for whose acts any of them may be liable has a claim against Owner, its officers, directors, employees, or agents, Design-Builder's indemnity obligation set forth in Section 7.4.1 above shall not be limited by any limitation on the amount of damages, compensation or benefits payable by or for Design-Builder, Design Consultants, Subcontractors, or other entity under any employee benefit acts, including workers' compensation or disability acts. Owner's General Indemnification Owner, to the fullest extent permitted by law, shall indemnify, hold harmless and defend Design-Builder and any of Design-Builder's officers, direc-

Delays to the Work

If Design-Builder is delayed in the performance of the Work due to acts, omissions, conditions, events, or circumstances beyond its control and due to no fault of its own or those for whom Design-Builder is responsible, the Contract Time(s) for performance shall be reasonably extended by Change Order. By way of example, events that will entitle Design-Builder to an extension of the Contract Time(s) include acts or omissions of Owner or anyone under Owner's control (including separate contractors), changes in the Work, Differing Site Conditions, Hazardous Conditions, wars, floods, labor disputes, unusual delay in transportation, epidemics abroad, earthquakes, adverse weather conditions not reasonably anticipated, and other acts of God. In addition to Design-Builder's right to a time extension for those events set forth in Section 8.2.1 above, Design-Builder shall also be entitled to an appropriate adjustment of the Contract Price provided, however, that the Contract Price shall not be adjusted for those events set forth in Section 8.2.1 above that are beyond the control of both Design-Builder and Owner, including the events of war, floods, labor disputes, earthquakes, epidemics, adverse weather conditions not reasonably anticipated, and other acts of God.

Article 9 9.1 9.1.1

9.1.2

Changes to the Contract Price and Time

AS-21

Change Orders A Change Order is a written instrument issued after execution of the Agreement signed by Owner and Design-Builder, stating their agreement upon all of the following: .1 The scope of the change in the Work; .2 The amount of the adjustment to the Contract Price; and .3 The extent of the adjustment to the Contract Time(s). All changes in the Work authorized by applicable Change Order shall be performed under the applicable conditions of the Contract Documents. Owner and Design-Builder shall negotiate in good faith and as expeditiously as possible the appropriate adjustments for such changes.

893

APPENDIX

9.1.3

9.2 9.2.1

9.2.2

9.3 9.3.1

9.4 9.4.1

9.4.2

894

5

If Owner requests a proposal for a change in the Work from Design-Builder and subsequently elects not to proceed with the change, a Change Order shall be issued to reimburse Design-Builder for reasonable costs incurred for estimating services, design services and services involved in the preparation of proposed revisions to the Contract Documents.

DESIGN-BUILD INSTITUTE OF AMERICA: STANDARD FORM OF CONDITIONS

stantial- inequity to Owner or Design-Builder because of differences in the character or quantity of such unit items as originally contemplated, such unit prices shall be equitably adjusted. If Owner and Design-Builder disagree upon whether Design-Builder is entitled to be paid for any services required by Owner, or if there are any other disagreements over the scope of Work or proposed changes to the Work, Owner and Design-Builder shall resolve the 4isagreement pursuant to Article 10 hereof. As part of the negotiation process, Design-Builder shall furnish Owner with a good faith estimate of the costs to perform the disputed services in accordance with Owner's interpretations. If the parties are unable to agree and Owner expects Design-Builder to perform the services in accordance with Owner's interpretations, Design-Builder shall proceed to perform the disputed services, conditioned upon Owner issuing a written order to Design-Builder (i) directing Design-Builder to proceed and (ii) specifying Owner's interpretation of the services that are to be performed. If this occurs, Design-Builder shall be entitled to submit in its Applications for Payment an amount equal to fifty percent (50%) of its reasonable estimated direct cost to perform the services, and Owner agrees to pay such amounts, with the express understanding that (i) such payment by Owner does not prejudice Owner's right to argue that it has no responsibility to pay for such services and (ii) receipt of such payment by DesignBuilder does not prejudice Design-Builder's right to seek full payment of the disputed services if Owner's order is deemed to be a change to the Work.

9.4.3

Work Change Directives A Work Change Directive is a written order prepared and signed by Owner, directing a change in the Work prior to agreement on an adjustment in the Contract Price and/or the Contract Time(s). Owner and Design-Builder shall negotiate in good faith and as expeditiously as possible the appropriate adjustments for the Work Change Directive. Upon reaching an agreement, the parties shall prepare and execute an appropriate Change Order reflecting the terms of the agreement. Minor Changes in the Work Minor changes in the Work do not involve an adjustment in the Contract Price and/or Contract Time(s) and do not materially and adversely affect the Work, including the design, quality, performance and workmanship required by the Contract Documents. Design-Builder may make minor changes in the Work consistent with the intent of the Contract Documents, provided, however that Design-Builder shall promptly inform Owner, in writing, of any such changes and record such changes on the documents maintained by Design-Builder. Contract Price Adjustments The increase or decrease in Contract Price resulting from a change in the Work shall be determined by one or more of the following methods: .1 Unit prices set forth in the Agreement or as subsequently agreed to berween the parties; .2 A mutually accepted, lump sum, properly itemized and supported by sufficient substantiating data to permit evaluation by Owner; .3 Costs, fees and any other markups set forth in the Agreement; and .4 If an increase or decrease cannot be agreed to as set forth in items .1 through .3 above and Owner issues a Work Change Directive, the cost of the change of the Work shall be determined by the reasonable expense and savings in the performance of the Work resulting from the change, including a reasonable overhead and profit, as may be set forth in the Agreement. If the net result of both additions and deletions to the Work is an increase in the Contract Price, overhead and profit shall be calculated on the basis of the net increase to the Contract Price. If the net result of both additions and deletions to the Work is a decrease in the Contract Price, there shall be no overhead or profit adjustment to the Contract Price. Design-Builder shall maintain a documented, itemized accounting evidencing the expenses and savings associated with such changes. If unit prices are set forth in the Contract Documents or are subsequently agreed to by the parties, but application of such unit prices will cause sub-

9.5

Emergencies

9.5.1

In any emergencies affecting the safety of persons and/or property, DesignBuilder shall act, at its discretion, to prevent threatened damage, injury or loss. Any change in the Contract Price and/or Contract Time(s) on account of emergency work shall be determined as provided in this Article 9.

Article 10

10.1 10.1.1

AS-22

Contract Adjustments and Disputes

Requests for Contract Adjustments and Relief

If either Design-Builder or Owner believes that it is entitled to relief against the other for any event arising out of or related to the Work or Project, such party shall provide written notice to the other party of the basis for its claim for relief. Such notice shall, if possible, be made prior to incurring any cost or expense and in accordance with any specific notice requirements contained in applicable sections of these General Conditions of Contract. In the absence of any specific notice requirement, written notice shall be given within a reasonable time, not to exceed twenty-one (21) days, after the occurrence giving rise to the claim for relief or after the claiming party reasonably should have recognized the event or condition giving rise to the request, whichever is later. Such notice shall include sufficient information to advise the other party of the circumstances giving rise to the claim for relief, the specific contractual adjustment or relief requested and the basis of such request. 895

APPENDIX

10.2 10.2.1

10.2.2

10.2.3

10.204

5

Dispute Avoidance and Resolution The parties are fully committed to working with each other throughout the Project and agree to communicate regularly with each other at all times so as to avoid or minimize disputes or disagreements. If disputes or disagreements do arise, Design-Builder and Owner each commit to resolving such disputes or disagreements in an amicable, professional and expeditious manner so as to avoid unnecessary losses, delays and disruptions to the Work. Design-Builder and Owner will first attempt to resolve disputes or disagreements at the field level through discussions between Design-Builder's Representative and Owner's Representative. If a dispute or disagreement cannot be resolved through Design-Builder's Representative and Owner's Representative, Design-Builder's Senior Representative and Owner's Senior Representative, upon the request of either party, shall meet as soon as conveniently possible, but in no case later than thirty (30) days after such a request is made, to attempt to resolve such dispute or disagreement. Prior to any meetings between the Senior Representatives, the parties will exchange relevant information that will assist the parties in resolving their dispute or disagreement. If after meeting the Senior Representatives determine that the dispute or disagreement cannot be resolved on terms satisfactory to both parties, the parties shall submit the dispute or disagreement to non-binding mediation. The mediation shall be conducted by a mutually agreeable impartial mediator, or if the parties cannot so agree, a mediator designated by the American Arbitration Association ("AAA") pursuant to its Construction Industry Mediation Rules. The mediation will be governed by and conducted pursuant to a mediation agreement negotiated by the parties or, if the parties cannot so agree, by procedures established by the mediator.

DESIGN-BUILD INSTITUTE OF AMERICA: STANDARD FORM OF CONDITIONS

lOA 1004.1

10.5 10.5.1

10.5.2

10.3.1

11.1

10.3.2

10.3.3

10.304

896

Arbitration Any claims, disputes or controversies between the parties arising out of or relating to the Agreement, or the breach thereof, which have not been resolved in accordance with the procedures set forth in Section 10.2 above shall be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the AAA then in effect, unless the parties mutually agree otherwise. The award of the arbitrator(s) shall be final and binding upon the parties without the right of appeal to the courts. Judgment may be entered upon it in accordance with applicable law by any court having jurisdiction thereof. Design-Builder and Owner expressly agree that any arbitration pursuant to this Section 10.3 may be joined or consolidated with any arbitration involving any other person or entity (i) necessary to resolve the claim, dispute or controversy, or (ii) substantially involved in or affected by such claim, dispute or controversy. Both Design-Builder and Owner will include appropriate provisions in all contracts they execute with other parties in connection with the Project to require such joinder or consolidation. The prevailing party in any arbitration, or any other final, binding dispute proceeding upon which the parties may agree, shall be entitled to recover from the other party reasonable attorneys' fees and expenses incurred by the prevailing party.

Unless provided to the contrary in the Contract D~uments, Design-Builder shall continue to perform the Work and Owner shall continue to satisfy its payment obligations to Design-Builder, pending the final resolution of any dispute or disagreement between Design-Builder and Owner. Consequential Damages NOTWITHSTANDING ANYTIUNG HEREIN TO THE CONTRARY (EXCEPT AS SET FORTH IN SECTION 10.5.2 BELOW), NEITHER DESIGN-BUILDER NOR OWNER SHALL BE LIABLE TO THE OTHER FOR ANY CONSEQUENTIAL LOSSES OR DAMAGES, WHETHER ARISING IN CONTRACT, WARRANTY, TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY OR OTHERWISE, INCLUDING BUT NOT LIMITED TO LOSSES OF USE, PROFITS, BUSINESS, REPUTATION OR FINANCING. The consequential damages limitation set forth in Section 10.5.1 above is not intended to affect the payment of liquidated damages, if any, set forth in Article 5 of the Agreement, which both parties recognize has been established, in part, to reimburse Owner for some damages that might otherwise be deemed to be consequential. Article 11

11.1.1 10.3

Duty to Continue Performance

11.1.2

11.2 11.2.

11.2.2

A5-23

Stop Work and Termination (or Cause

Owner's Right to Stop Work Owner may, without cause and for its convenience, order Design-Builder in writing to stop and suspend the Work. Such suspension shall not exceed sixty (60) consecutive days or aggregate more than ninety (90) days during the duration of the Project. Design-Builder is entitled to seek an adjustment of the Contract Price and/or Contract Time(s) if its cost or time to perform the Work has been adversely impacted by any suspension of stoppage of work by Owner. Owner's Right to Perform and Terminate for Cause

If Design-Builder persistently fails to (i) provide a sufficient number of skilled workers, (ii) supply the materials required by the Contract Documents, (iii) comply with applicable Legal Requirements, (iv) timely pay, without cause, Design Consultants or Subcontractors, (v) prosecute the Work with promptness and diligence to ensure that the Work is completed by the Contract Time(s), as such times may be adjusted, or (vi) perform material obligations under the Contract Documents, then Owner, in addition to any other rights and remedies provided in the Contract Documents or by law, shall have the rights set forth in Sections 11.2.2 and 11.2.3 below. Upon the occurrence of an event set forth in Section 11.2.1 above, Owner may provide written notice to Design-Builder that it intends to terminate the Agreement unless the problem cited is cured, or commenced to be cured, within seven (7) days of Design-Builder's receipt of such notice. If Design897

APPENDIX

11.2.3

11.2.4

11.3 11.3.1

11.3.2

898

5

Builder fails to cure, or reasonably commence to cure, such problem, then Owner may give a second written notice to Design-Builder of its intent to terminate within an additional seven (7) day period. If Design-Builder, within such second seven (7) day period, fails to cure, or reasonably commence to cure, such problem, then Owner may declare the Agreement terminated for default by providing written notice to Design-Builder of such declaration. Upon declaring the Agreement terminated pursuant to Section 11.2.2 above, Owner may enter upon the premises and take possession, for the purpose of completing the Work, of all materials, equipment, scaffolds, tools, appliances and other items thereon, which have been purchased or provided for the performance of the Work, all of which Design-Builder hereby transfers, assigns and sets over to Owner for such purpose, and to employ any person or persons to complete the Work and provide all of the required labor, services, materials, equipment and other items. In the event of such termination, Design-Builder shall not be entitled to receive any further payments under the Contract Documents until the Work shall be finally completed in accordance with the Contract Documents. At such time, if the unpaid balance of the Contract Price exceeds the cost and expense incurred by Owner in completing the Work, such excess shall be paid by Owner to Design-Builder. Notwithstanding the preceding sentence, if the Agreement establishes a Guaranteed Maximum Price, Design-Builder will only be entitled to be paid for Work performed prior to its default. If Owner's cost and expense of completing the Work exceeds the unpaid balance of the Contract Price, then Design-Builder shall be obligated to pay the difference to Owner. Such costs and expense shall include not only the cost of completing the Work, but also losses, damages, costs and expense, including attorneys' fees and expenses, incurred by Owner in connection with the reprocurement and defense of claims arising from Design-Builder's default, subject to the waiver of consequential damages set forth in Section 10.5 hereof. If Owner improperly terminates the Agreement for cause, the termination for cause will be converted to a termination for convenience in accordance with the provisions of Article 8 of the Agreement. Design-Builder's Right to Stop Work Design-Builder may, in addition to any other rights afforded under the Contract Documents or at law, stop work for the following reasons: Owner's failure to provide financial assurances as required under .1 Section 3.3 hereof; or .2 Owner's failure to pay amounts properly due under Design-Builder's Application for Payment. Should any of the events set forth in Section 11.3.1 above occur, DesignBuilder has the right to provide Owner with written notice that DesignBuilder will stop work unless said event is cured within seven (7) days from Owner's receipt of Design-Builder's notice. If Owner does not cure the problem within such seven (7) day period, Design-Builder may stop work. In such case, Design-Builder shall be entitled to make a claim for adjustment to the Contract Price and Contract Time(s) to the extent it has been adversely impacted by such stoppage.

DESIGN-BUILD INSTITUTE OF AMERICA: STANDARD FORM OF CONDITIONS

11.4 11.4.1

11.4.2

11.5 11.5.1

Design-Builder's Right to Terminate for Cause Design-Builder, in addition to any other rights and remedies provided in the Contract Documents or by law, may terminate the Agreement for cause for the following reasons: .1 The Work has been stopped for sixty (60) consecutive days, or more than ninety (90) days during the duration of the Project, because of court order, any government authority having jurisdiction over the Work, or orders by Owner under Section 11.1.1 hereof, provided that such stoppages are not due to the acts or omissions of Design-Builder or anyone for whose acts Design-Builder may be responsible. .2 Owner's failure to provide Design-Builder with any information, permits or approvals that are Owner's responsibility under the Contract Documents which result in the Work being stopped for sixty (60) consecutive days, or more than ninety (90) days during the duration of the Project, even though Owner has not ordered DesignBuilder in writing to stop and suspend the Work pursuant to Section 11.1.1 hereof. .3 Owner's failure to cure the problems set forth in Section 11.3.1 above after Design-Builder has stopped the Work. Upon the occurrence of an event set forth in Section 11.4.1 above, DesignBuilder may provide written notice to Owner that it intends to terminate the Agreement unless the problem cited is cured, or commenced to be cured, within seven (7) days of Owner's receipt of such notice. If Owner fails to cure, or reasonably commence to cure, such problem, then Design-Builder may give a second written notice to Owner of its intent to terminate within an additional seven (7) day period. If Owner, within such second seven (7) day period, fails to cure, or reasonably commence to cure, such problem, then Design-Builder may declare the Agreement terminated for default by providing written notice to Owner of such declaration. In such case, Design-Builder shall be entitled to recover in the same manner as if Owner had terminated the Agreement for its convenience under Article 8 of the Agreement. Bankruptcy of Owner or Design-Builder If either Owner or Design-Builder institutes or has instituted against it a case under the United States Bankruptcy Code (such party being referred to as the "Bankrupt Party"), such event may impair or frus't rate the Bankrupt Party's ability to perform its obligations under the Contract Documents . Accordingly, should such event occur: .1 The Bankrupt Party, its trustee or other successor, shall furnish, upon request of the non-Bankrupt Party, adequate assurance of the ability of the Bankrupt Party to perform all future material obligations under the Contract Documents, which assurances shall be provided within ten (10) days after receiving notice of the request; and .2 The Bankrupt Party shall file an appropriate action within the bankruptcy court to seek assumption or rejection of the Agreement within sixty (60) days of the institution of the bankruptcy filing and shall diligently prosecute such action. If the Bankrupt Party fails to comply with its foregoing obligations, the nonBankrupt Party shall be entitled to request the bankruptcy court to reject

899

APPENDIX

11.5.2

5

DESIGN-BUILD INSTITUTE OF AMERICA: STANDARD FORM OF CONDITIONS

the Agreement, declare the Agreement terminated and pursue any other recourse available to the non-Bankrupt Party under this Article 11. The rights and remedies under Section 11.5.1 above shall not be deemed to limit the ability of the non-Bankrupt Party to seek any other rights and remedies provided by the Contract Documents or by law, including its ability to seek relief from any automatic stays under the United States Bankruptcy Code or the right of Design-Builder to stop Work under any applicable provision of these General Conditions of Contract.

AS-24

Article 12

12.1 12.1.1

12.2 12.2.1

12.3 12.3.1 12.4 12.4.1

12.5

12.5.1

12.6 12.6.1

900

Miscellaneous

Assignment Neither Design-Builder nor Owner shall, without the written consent of the other assign, transfer or sublet any portion or part of the Work or the obligations required by the Contract Documents.

12.7 12.7.1

12.8 12.8.1

Notice Whenever the Contract Documents require that notice be provided to the other party, notice will be deemed to have been validly given (i) if delivered in person to the individual intended to receive such notice, (ii) four (4) days after being sent by registered or certified mail, postage prepaid to the address indicated in the Agreement or (iii) if transmitted by facsimile, by the time stated in a machine generated confirmation that notice was received at the facsimile number of the intended recipient. Amendments The Contract Documents may not be changed, altered, or amended in any way except in writing signed by a duly authorized representative of each party.

Successorship Design-Builder and Owner intend that the provISIons of the Contract Documents are binding upon the parties, their employees, agents, heirs, successors and assigns. Governing Law The Agreement and all Contract Documents shall be governed by the laws of the place of the Project, without giving effect to its conflict of law principles. Severability If any provision or any part of a provision of the Contract Documents shall be finally determined to be superseded, invalid, illegal, or otherwise unenforceable pursuant to any applicable Legal Requirements, such determination shall not impair or otherwise affect the validity, legality, or enforceability of the remaining provision or parts of the provision of the Contract Documents, which shall remain in full force and effect as if the unenforceable provision or part were deleted.

No Waiver The failure of either Design-Builder or Owner to insist, in anyone or more instances, on the performance of any of the obligations required by the other under the Contract Documents shall not be construed as a waiver or relinquishment of such obligation or right with respect to future performance. Headings The headings used in these General Conditions of Contract, or any other Contract Document, are for ease of reference only and shall not in any way be construed to limit or alter the meaning of any provision.

901

APPENDIX

6

AGC DOCUMENT NO. 415 STANDARD FORM OF DESIGN-BUILD AGREEMENT AND GENERAL CONDITIONS BETWEEN OWNER AND DESIGN-BUILDER! (Where the Basis of Payment is a Lump Sum Based on an Owner's Program Including Schematic Design Documents) This standard form agreement was developed with the advice and cooperation of the AGC Private Industry Advisory Council, a number of Fortune 500 owners' design and construction managers who have been meeting with AGC contractors to discuss issues of mutual concern. AGC gratefully acknowledges the contributions of these owners' staff who participated in this effort to produce a basic agreement for construction.

CONTENTS 1 2 3 4 5 6 7 8 9 10 11 12 13 14

Agreement General Provisions Design-Builder's Responsibilities Owner's Responsibilities Subcontracts Contract Time Contract Price Changes in the Work Payment Indemnity, Insurance, Bonds, and Waiver of Subrogation Suspension and Termination of the Agreement and Owner's Right to Perform Design-Builder's Responsibilities Dispute Resolution Miscellaneous Provisions Existing Contract Documents

904 904 906 913 914 915 916 916 919 922 926 928 929 930

This Agreement has important legal and insurance consequences. Consultation with an attorney and insurance consultant is encouraged with respect to its completion or modification. I

Reproduced with the express written permission of the Associated General Contractors of America under Licence No. 0067. To order AGC Contract documents, phone 1-800-AGC1767 or fax your request to 703-837-5406, or visit the AGC website at www.agc.org.

903

AGC DOCUMENT NO. 415 STANDARD FORM OF DESIGN-BUILD AGREEMENT

APPENDIX 6

A6-01

Article 1: Agreement This Agreement is made this day of _______ in the year _______ , by and between the OWNER (Name and Address)

sentations or agreements, either written or oral. The Owner and the Design-Builder agree to look solely to each other with respect to the performance of the Agreement. The Agreement and each and every provision is for the exclusive benefit of the Owner and the Design-Builder and not for the benefit of any third party nor any third party beneficiary, except to the extent expressly provided in the Agreement. 2.4

Definitions

The Contract Documents consist of: a. Change Orders and written amendments to this Agreement including exhibits and appendices, signed by both the Owner and DesignBuilder; b. this Agreement, except for the existing Contract Documents set forth in item e below; c. the most current Documents approved by the Owner pursuant to Paragraph 3.1; d. the information provided by this Owner pursuant to Clause 4.1.2.1; e. the Contract Documents in existence at the time of this Agreement which are set forth in Article 14; f. the Owner's Program provided pursuant to Subparagraph 4.1.1. In case of any inconsistency, conflict or ambiguity among the Contract Documents, the Documents shall govern in the order in which they are listed above. .2 The term day shall mean calendar day unless otherwise specifically defined . .3 Defective Work is any portion of the Work not in conformance with the Contract Documents as more fully described in Paragraph 3.8 . .4 Final Completion occurs on the date when the Design-Builder's obligations under this Agreement are complete and accepted by the Owner and final payment becomes due and payable. .5 A Material Supplier is a party or entity retained by the Design-Builder to provide material and equipment for the Work. .6 Others means other contractors and all persons at the Worksite who are not employed by Design-Builder, its Subcontractors or Material Suppliers . .7 The Owner is the person or entity identified as such in this Agreement and includes the Owner's Representative . .8 The Owner's Program is a description of the Owner's objectives, budgetary and time criteria, space requirements and relationships, flexibility and expandability requirements, special equipment and systems, and site requirements, together with Schematic Design Documents which shall include drawings, out/ine specifications and other conceptual documents illustrating the Project's basic elements, scale and their relationship to the Worksite. .9 The Project, as identified in Article 1, is the building, facility and/or other improvements for which the Design-Builder is to perform the Work under this Agreement. It may also include improvements to be undertaken by the Owner or Others. .10 A Subcontractor is a party or entity retained by the Design-Builder as an independent contractor to provide the on site labor, materials, equipment and/or services necessary to complete a specific portion of the Work. The term Subcontractor does noc include the Architect/Engineer or any separate contractor employed by the Owner or any separate contractor's subcontractors . . 11 Substantial Completion of the Work, or of a designated portion, occurs on the date when construction is sufficiently complete in accordance with the .1

and the DESIGN-BUILDER (Name and Address)

for services in connection with the following PROJECT (Name, location and brief description)

Notice to the parties shall be given at the above addresses.

\6-02

Article 2: General Provisions 2.1

Team Relationship

The Owner and the Design-Builder agree to proceed with the Project on the basis of trust, good faith ,=,nd fair dealing. The Design-Builder agrees to procure the architectural and engineering services set forth below, and to furnish construction and administration of the Work. 2.2

ArchitectlEngineer

Architectural and engineering services shall be procured from licensed, independent design professionals retained by the Design-Builder or furnished by licensed employees of the Design-Builder, or as permitted by the law of the state where the Project is located. The standard of care for architectural and engineering services performed under this Agreement shall be the care and skill ordinarily used by members of the architectural and engineering professions practicing under similar conditions at the same time and locality. The person or entity providing architectural and engineering services shall be referred to as the ArchitectlEngineer. If the ArchitectlEngineer is an independent design professional, the architectural and engineering services shall be procured and payments shall be made pursuant to a separate agreement between the Design-Builder and the ArchitectlEngineer. The ArchitectlEngineer for the Project is

2.3

Extent of Agreement

This Agreement is solely for the benefit of the parties, represents the entire and integrated agreement between the parties, and supersedes all prior negotiations, repre-

904

905

APPENDIX

.12 .13

.14

A6-03

6

Contract Documents so that the Owner can occupy or utilize the Project, or a designated portion, for the use for which it is intended, in accordance with Paragraph 9.4. The issuance of a Certificate of Occupancy is not a prerequisite for Substantial Completion if the Certificate of Occupancy cannot be obtained due to factors beyond the Design-Builder's control. This date shall be confirmed by a certificate of Substantial Completion signed by the Owner and Design-Builder. The certificate shall state the respective responsibilities of the Owner and Design-Builder for security, maintenance, heat, utilities, damage to the Work, and insurance. The certificate shall also list the items to be completed or corrected, and establish the time for their completion and correction within the time-frame, if any, established in Subparagraph 6.2.1 for the Date of Final Completion. A Subsubcontractor is a party or entity who has an agreement with a Subcontractor to perform any portion of the Subcontractor's work. The Work is the Design Services procured in accordance with Paragraph 3.1, the Construction Services provided in accordance with Paragraph 3.2, Additional Services in accordance with Paragraph 3.10, and other services which are necessary to complete the Project in accordance with and reasonably inferable from the Contract Documents. Worksite means the geographical area at the location mentioned in Article 1 where the Work is to be performed.

Article 3: Design-Builder's Responsibilities The Design-Builder shall be responsible for procuring or furnishing the design and for the construction of the Work consistent with the Owner's Program. The DesignBuilder shall exercise reasonable skill and judgment in the performance of the Work. 3.1

Design Services

Pursuant to a mutually agreeable schedule, the Design-Builder shall submit for the Owner's written approval, as applicable, Design Development Documents and/or Construction Documents, based on the Contract Documents in existence at the time of the execution of this Agreement or any further development of Contract Documents that have been approved in writing by the Owner. 3.1.1 If required, the Design Development Documents shall further define the Project including drawings and outline specifications fixing and describing the Project size and character as to site utilization, and other appropriate elements incorporating the structural, architectural, mechanical and electrical systems. When the Design-Builder submits the Design Development Documents, the Design-Builder shall identify in writing all material changes and deviations that have taken place from the Contract Documents in existence at the time of the execution of this Agreement. Any changes in the Work contained in the Design Development Documents approved by the Owner shall result in a Change Order pursuant to Article 8 adjusting the Contract Price and/or the Date of Substantial Completion and/or the Date of Final Completion. 3.1.2 The Construction Documents shall set forth in detail the requirements for construction of the Work, and shall be based upon codes, laws or regulations enacted at the time of their preparation. When the Design-Builder submits the Construction Documents, the Design-Builder shall identify in writing all material changes and deviations that have taken place from the

906

AGC DOCUMENT NO.

415

STANDARD FORM OF DESIGN-BUILD AGREEMENT

Design Development Documents or the Contract Documents in existence at the time of the execution of this Agreement. Any changes in the Work contained in the Construction Documents approved by the Owner shall result in a Change Order pursuant to Article 8 adjusting the Contract Price and/or the Date of Substantial Completion and/or the Date of Final Completion. Construction shall be in accordance with the approved Construction Documents. One set of these documents shall be furnished to the Owner prior to commencement of construction. 3.1.3

Ownership of Documents

Upon the making of payment pursuant to Paragraph 9.5, the Owner shall receive ownership of the property rights, except for copyrights, of all documents, drawings, specifications, electronic data and information prepared, provided or procured by the Design-Builder, its ArchitectlEngineer, Subcontractors and consultants and distributed to the Owner of this Project. ("Design-Build Documents") .1 If this Agreement is terminated pursuant to Paragraph 11.2, the Owner shall receive ownership of the property rights, except for copyrights, of the Design-Build Documents upon payment for all Work performed in accordance with this Agreement, at which time the Owner shall have the right to use, reproduce and make derivative works from the Design-Build Documents to complete the Work . If this Agreement is terminated pursuant to Paragraph 11.3, the Owner shall .2 receive ownership of the property rights, except for copyrights, of the DesignBuild Documents, upon payment of all sums provided in Paragraph 11.3, at which time the Owner shall have the right to use, reproduce and make derivative works from the Design-Build Documents to complete the Work. .3 The Owner may use, reproduce and make derivative works from the Design-Build Documents for subsequent renovation and remodeling of the Work, but shall not use, reproduce and make derivative works from the Design-Build Documents for other Projects without the written authorization of the Design-Builder, who shall not unreasonably withhold consent. .4 The Owner's use of the Design-Build Documents without the DesignBuilder's involvement or on other projects is at the Owner's sole risk, except for the Design-Builder's indemnification obligation pursuant to Paragraph 3.6, and the Owner shall defend, indemnify and hold harmless the DesignBuilder, its Architect/Engineer, Subcontractors and consultants, and the agents, officers, directors and employees of each of them from and against any and all claims, damages, losses, costs and expenses, including but not limited to attorney's fees, costs and expenses incurred in connection with any dispute resolution process, arising out of or resulting from the Owner's use of the Design-Build Documents. .5 The Design-Builder shall obtain from its ArchitectlEngineer, Subcontractors and consultants property rights and rights of use that correspond to the rights given by the Design-Builder to the Owner in this Agreement. 3.2 3.2.1 3.2.2

Construction Services Construction will commence upon the issuance by the Owner of a written notice to proceed. In order to complete the Work, the Design-Builder shall provide all

907

APPENDIX

3.2.3

3.2.4

3.2.5 3.2.6

3.2.8

3.2.9

3.3

6

necessary construction supervIsIOn, inspection, construction equipment, construction labor, materials, tools and subcontracted items. The Design-Builder shall give all notices and comply with all laws and ordinances legally enacted at the date of execution of the Agreement which govern the proper performance of the Work. The Design-Builder shall maintain the Schedule of Work. This schedule shall indicate the dates for the start and completion of the various stages of the construction, including the dates when information and approvals are required from the Owner. It shall be revised as required by the conditions of the Work. The Design-Builder shall obtain and the Owner shall pay, in addition to the Contract Price, for the building permits necessary for the construction of the Project. The Design-Builder shall keep such full and detailed accounts as may be necessary for proper financial management under this Agreement. The Owner shall be afforded access to all the Design-Builder's records, books, correspondence, instructions, drawings, receipts, vouchers, memoranda and similar data relating to Change Order work performed on the basis of actual cost. The Design-Builder shall preserve all such records for a period of three years after the final payment or longer where required by law. The Design-Builder shall provide periodic written reports to the Owner on the progress of the Work in such detail as is required by the Owner and as agreed to by the Owner and Design-Builder. The Design-Builder shall regularly remove debris and waste materials at the Worksite resulting from the Work. Prior to discontinuing Work in an area, the Design-Builder shall clean the area and remove all rubbish and its construction equipment, tools, machinery, waste and surplus materials. The Design-Builder shall minimize and confine dust and debris resulting from construction activities. At the completion of the Work, the Design-Builder shall remove from the Work site all construction equipment, tools, surplus materials, waste materials and debris. The Design-Builder shall prepare and submit to the Owner final marked up as-built drawings updated electronic data (cross-out one of the above) in general documenting how the various elements of the Work including changes were actually constructed or installed, or as defined by the parties by attachment to this Agreement. Schedule of the Work

AGC DOCUMENT NO. 415 STANDARD FORM OF DESIGN-BUILD AGREEMENT

lish the responsibility for safety between the Owner and the Design-Builder, they do not relieve Subcontractors of their responsibility for the safety of persons or property in the performance of their work, nor for compliance with the provisions of applicable laws and regulations. 3.4.2 The Design-Builder shall seek to avoid injury, loss or damage to persons or property by taking reasonable steps to protect: .1 its employees and other persons at the Worksite; .2 materials, supplies and equipment stored at the Worksite for use in performance of the Work; and .3 the Project and all property located at the Worksite and adjacent to work areas, whether or not said property or structures are part of the Project or involved in the Work. 3.4.3

The Design-Builder shall designate an individual at the Worksite in the employ of the Design-Builder who shall act as the Design-Builder's designated safety representative with a duty to prevent accidents. Unless otherwise identified by the Design-Builder in writing to the Owner, the designated safety representative shall be the DesignBuilder's project superintendent. The Design-Builder will report immediately in writing all accidents and injuries occurring at the Worksite to the Owner. When the Design-Builder is required to file an accident report with a public authority, the Design-Builder shall furnish a copy of the report to the Owner. 3.4.4 The Design-Builder shall provide the Owner with copies of all notices required of the Design-Builder by law or regulation. The Design-Builder's safety program shall comply with the requirements of governmental and quasi-governmental authorities having jurisdiction over the Work. 3.4.5 Damage or loss not insured under property insurance which may arise from the performance of the Work, to the extent of the negligence attributed to such acts or omissions of the Design-Builder, or anyone for whose acts the DesignBuilder may be liable, shall be promptly remedied by the Design-Builder. Damage or loss attributable to the acts or omissions of the Owner or Others and not to the Design-Builder shall be promptly remedied by the Owner. 3.4.6 . If the Owner deems any part of the Work or Worksite unsafe, the Owner, without assuming responsibility for the Design-Builder's safety program, may require the Design-Builder to stop performance of the Work or take corrective measures satisfactory to the Owner, or both. If the DesignBuilder does not adopt corrective measures, the Owner may perform them and reduce the amount of the Contract Price by the costs of the corrective measures. The Design-Builder agrees to make no claim for damages, for an adjustment in the Contract Price and/or the Date of Substantial Completion and/or the Date of Final Completion based on the Design-Builder's compliance with the Owner's reasonable request.

The Design-Builder shall prepare and submit a Schedule of Work for the Owner's acceptance and written approval as to milestone dates. This schedule shall indicate the dates for the start and completion of the various stages of the Work, including the dates when information and approvals are required from the Owner. The Schedule shall be revised as required by the conditions of the Work.

3.5

3.4

3.5.1

3.4.1

Safety of Persons and Property Safety Precautions and Programs

The Design-Builder shall have overall responsibility for safety precautions and programs in the performance of the Work . While the provisions of this Paragraph estab-

908

Design-Builder's Safety Representative

Hazardous Material A Hazardous Material is any substances or material identified now or in the future as hazardous under any federal, state or local law or regulation, or any other substance or material which may be considered hazardous or otherwise subject to statutory or regulatory requirements governing handling, disposal and/or clean-up. The Design-Builder shall not be obligated to

909

APPENDIX

3.5.2

3.5.3 3.5.4

3.5.5

3.5.6

3.5.7

3.5.8

910

6

commence or continue Work until all known or suspected Hazardous Material discovered at the Project site has been removed, rendered or determined to be harmless by the Owner as certified by an independent testing laboratory and approved by the appropriate government agency. If after the commencement of the Work, known or suspected Hazardous Material is discovered at the Project, the Design-Builder shall be entitled to immediately stop Work in the affected area. The Design-Builder shall report the condition to the Owner and, if required, the government agency with jurisdiction. The Design-Builder shall not be required to perform any Work relating to or in the area of Hazardous Material without written mutual agreement. The Owner shall be responsible for retaining an independent testing laboratory to determine the nature of the material encountered and whether it is a Hazardous Material requiring corrective measures and/or remedial action. Such measures shall be the sole responsibility of the Owner, and shall be performed in a manner minimizing any adverse effect upon the Work of the Design-Builder. The Design-Builder shall resume Work in the area affected by any Hazardous Material only upon written agreement between the parties after the Hazardous Material has been removed or rendered harmless and only after approval, if necessary, of the governmental agency or agencies with jurisdiction. If the Design-Builder incurs additional costs and/or is delayed due to the presence or remediation of Hazardous Material, the Design-Builder shall be entitled to an equitable adjustment in the Contract Price and/or the date of Substantial Completion. Provided the Design-Builder, its Subcontractors and Sub-subcontractors, and the agents, officers, directors and employees of each of them, have not, acting under their own authoriry, knowingly entered upon any portion of the Work containing Hazardous Materials, and to the extent not caused by the negligent acts or omissions of the Design-Builder, its Subcontractors and Sub-subcontractors, and the agents, officers, directors and employees of each of them, the Owner shall defend, indemnify and hold harmless the Design-Builder, its Subcontractors and Sub-subcontractors, and the agents, officers, directors and employees of each of them, from and against any and all direct claims, damages, losses, costs and expenses, including but not limited to attorney's fees, costs and expenses incurred in connection with any dispute resolution process, arising out of or relating to the performance of the Work in any area affected by Hazardous Material. To the fullest extent permitted by law, such indemnification shall apply regardless of the fault, negligence, breach of warranty or contract, or strict liability of the Owner. Material Safety Date (MSD) sheets as required by law and pertaining to materials or substances used or consumed in the performance of the Work, whether obtained by the Design-Builder, Subcontractors, the Owner or Others, shall be maintained at the Project by the Design-Builder and made available to the Owner and Subcontractors. During the Design-Builder's performance of the Work, the Design-Builder shall be responsible for the proper handling of all materials brought to the Worksite by the Design-Builder. Upon the issuance of the Certificate of Substantial Completion, the Owner shall be responsible under this Paragraph for materials and substances brought to the site by the Design-Builder if such materials or substances are required by the Contract Documents.

AGC DOCUMENT NO. 415 STANDARD FORM OF DESIGN-BUILD AGREEMENT

3.5.9

3.6

The terms of this Paragraph 3.5 shall survive the completion of the Work under this Agreement and/or any termination of this Agreement. Royalties, Patents and Copyrights

The Design-Builder shall pay all royalties and license fees which may be due on the inclusion of any patented of copyrighted materials, methods or systems selected by the Design-Builder and incorporated in the Work. The Design-Builder shall defend, indemnify and hold the Owner harmless from all suits or claims for infringement of any patent rights or copyrights arising out of such selection. The Owner agrees to defend, indemnify and hold the Design-Builder harmless from all suits or claims or infringement of any patent rights or copyrights arising out of any patented or copyrighted materials, methods or systems specified by the Owner. 3.7

Tax Exemption

If in accordance with the Owner's direction the Design-Builde( claims an exemption for taxes, the Owner shall defend, indemnify and hold the Design-Builder harmless from all liability, penalty, interest, fine, tax assessment, attorneys fees or other expense or cost incurred by the Design-Builder as a result of any action taken by the Design-Builder in accordance with the Owner's direction. 3.8 3.8.1

3.8.2

3.8.3 3.8.4

Warranties and Completion The Design-Builder warrants that all materials and equipment furnished under this Agreement will be new unless otherwise specified, of good quality, in conformance with the Contract Documents, and free from defective workmanship and materials. Warranties shall commence on the date of Substantial Completion of the Work or of a designated portion. The Design-Builder agrees to correct all construction performed under this Agreement which proves to be defective in workmanship or materials within a period of one year from the date of Substantial Completion as set forth in Paragraph 6.2 or for such longer periods of time as may be set forth with respect to specific warranties required by the Contract Documents. To the extent products, equipment, systems or materials incorporated in the Work are specified and purchased by the Owner, they shall be covered exclusively by the warranty of the manufacturer. There are no warranties which extend beyond the description on the face thereof. To the extent products, equipment, systems or materials incorporated in the Work are specified by the Owner but purchased by the Design-Builder and are inconsistent with selection criteria that otherwise would have been followed by the Design-Builder, the Design-Builder shall assist the Owner in pursuing warranty claims. ALL OTHER WARRANTIES EXPRESSED OR IMPLIED INCLUDING THE WARRANTY OF MERCHANTABILITY AND THE WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE ARE EXPRESSLY DISCLAIMED. The Design-Builder shall secure required certificates of inspection, testing or approval and deliver them to the Owner. The Design-Builder shall collect all written warranties and equipment manuals and deliver them to the Owner in a format directed by the Owner.

911

APPENDIX

3.8 .5

3.9

6

AGC DOCUMENT NO.

With the assistance of the Owner's maintenance personnel, the DesignBuilder shall direct the checkout of utilities and start up operations, and adjusting and balancing of systems and equipment for readiness.

.12

Confidentiality . 13

The Design-Builder shall treat as confidential and not disclose to third persons, except Sub-contractors, Sub-subcontractors and the ArchitectlEngineer as is necessary for the performance of the Work, or use for its own benefit any of the Owner's developments, confidential information, know-how, discoveries, production methods and the like that may be disclosed to the Design-Builder or which the Design-Builder may acquire in connection with the Work. The Owner shall treat as confidential information all of the Design-Builder's estimating systems and historical and parameter cost data that may be disclosed to the Owner in connection with the performance of this Agreement. 3.10

.15

.16

Additional Services

The Design-Builder shall provide or procure the following Additional Services upon the request of the Owner. A written agreement between the Owner and DesignBuilder shall define the extent of such Additional Services. Such Additional Services shall be considered a Change in the Work, unless they are specifically included in Article 14. .1 Development of the Owner's Program, establishing the Project budget, investigating sources of financing, general business planning and other information and documentation as may be required to establish the feasibility of the Project. .2 Consultations, negotiations, and documentation supporting the procurement of Project financing. .3 Surveys, site evaluations, legal descriptions and aerial photographs . .4 Appraisals of existing equipment, existing properties, new equipment and developed properties. .5 Soils, subsurface and environmental studies, reports and investigations required for submission to governmental authorities or others having jurisdiction over the Project . .6 Consultations and representations before governmental authorities or others having jurisdiction over the Project other than normal assistance in securing building permits. .7 Investigation or making measured drawings of existing conditions or the verification of Owner-provided drawings and information. .8 Artistic renderings, models and mockups of the Project or any part of the Project or the Work. .9 Inventories of existing furniture, fixtures, furnishings and equipment which might be under consideration for incorporation into the Work. .10 Interior design and related services including procurement and placement of furniture, furnishings, artwork and decorations. .11 Making revisions to design documents after they have been approved by the Owner when revisions are due to causes beyond the control of the DesignBuilder. Causes beyond the control of the Design-Builder do not include acts or omissions on the part of Subcontractors, Sub-subcontractors or the Architect/Engineer.

912

.14

.17 .18

.19 .20

3.11

4I5 STANDARD FORM OF DESIGN- BUILD AGREEMENT

Design, coordination, management, expediting and other services supporting the procurement of materials to be obtained, or work to be performed, by the Owner, including but not limited to telephone systems, computer wiring networks, sound systems, alarms, security systems and other speciality systems which are not a part of this Agreement . Estimates, proposals, appraisals, consultations, negotiations and services in connection with the repair or replacement of an insured loss, provided such repair or replacement did not result from the negligence of the Design-Builder. The premium portion of overtime work ordered by the Owner including productivity impact costs, other than that required by the Design-Builder to maintain the Schedule of Work. Out-of-town travel by the ArchitectlEngineer in connection with the Work, except between the ArchitectlEngineer's office, Design-Builder's office, Owner's office and the Project site. Obtaining service contractors and training maintenance personnel; assisting and consulting in the use of systems and equipment after the initial start up . Services for tenant or rental spaces not a part of this Agreement. Services requested by the Owner or required by the Work which are not specified in the Contract Documents and which are not normally part of generally accepted design and construction practice. Serving or preparing to serve as an expert witness in connection with any proceeding, legal or otherwise, regarding the Project. Document reproduction exceeding the limits provided for in this Agreement. Design-Builder's Representative

The Design-Builder shall designate a person who shall be the Design-Builder's authorized representative. The Design-Builder's Representative is _______

Article 4: Owner's Responsibilities 4.1 4.1.1

4.1.2

4.1.3

A6-04

Information and Services Provided by Owner The Owner shall provide full information in a timely manner regarding requirements for the Project, including the Owner's Program and other relevant information . The Owner shall provide: .1 all available information describing the physical characteristics of the site, including surveys, site evaluations, legal descriptions, existing conditions, subsurface and environmental srudies, reports and investigations; .2 inspection and testing services during construction as required by law or as mutually agreed; and .3 unless otherwise provided in the Contract Documents, necessary approvals, site plan review, rezoning, easements and assessments, fees and charges required for the construction, use, occupancy or renovation of permanent structures, including legal and other required services. The Owner shall provide reasonable evidence satisfactory to the DesignBuilder, prior to commencing the Work and during the progress of the Work, that sufficient funds are available and committed for the entire cost of the

913

AGC DOCUMENT NO. 415 STANDARD FORM OF DESIGN-BUILD AGREEMENT

APPENDIX 6

4.1.4

4.2 4.2.1

4.3

4.3.1 4.3.2

4.3.3

4.3.4 4.4

Project, including an allowance for changes in the Work as may be approved in the course of the Work. Unless such reasonable evidence is provided, the Design-Builder shall not be required to commence or continue the Work. The Design-Builder may stop Work after seven (7) days' written notice to the Owner if such evidence is not presented within a reasonable time. The failure of the Design-Builder to insist upon the providing of this evidence at anyone time shall not be a waiver of the Owner's obligation to make payments pursuant to this Agreement, nor shall it be a waiver of the Design-Builder's right to request or insist that such evidence be provided at a later date. The Design-Builder shall be entitled to rely on the completeness and accuracy of the information and services required by this Paragraph 4.1. Responsibilities During Design The Owner shall review and approve further development of the drawings and specifications as set forth in Article 3. Responsibilities During Construction The Owner shall review the Schedule of Work as set forth in Paragraph 3.3, timely approve milestone dates set forth and timely respond to its obligations. If the Owner becomes aware of any error, omission or failure to meet the requirements of the Contract Documents or any fault or defect in the Work, the Owner shall give prompt written notice to the Design-Builder. The Owner shall communicate with the Design-Builder's Subcontractors, suppliers and Architect/Engineer only through or in the presence of the Design-Builder. The Owner shall have no contractual obligations to Subcontractors, suppliers, or the Architect/Engineer. The Owner shall provide insurance for the Project as provided in Article 10.

5.2

Article 5: Subcontracts Work not performed by the Design-Builder with its own forces shall be performed by Subcontractors or the Architect/Engineer.

5.3

Retaining Subcontractors

The Design-Builder shall not retain any Subcontractor to whom the Owner has a reasonable and timely objection, provided that the Owner agrees to increase the

914

Assignment of Subcontract Agreements

The Design-Builder shall provide for assignment of subcontract agreements in the event that the Owner terminates this Agreement for cause as provided in Paragraph 11.2. Following such termination, the Owner shall notify in writing those subcontractors whose assignments will be accepted, subject to the rights of sureties. 5.4

Binding of Subcontractors and Material Suppliers

The Design-Builder agrees to bind every Subcontractor and Material Supplier (and require every Subcontractor to so bind its Sub-subcontractors and Material Suppliers) to all the provisions of this Agreement and the Contract Documents as they apply to the Subcontractor's and Material Supplier's portions of the Work. 5.5

Labor Relations

(Insert here or attach as exhibit as necessary any conditions, obligations or requirements relative to labor relations and their effect on the Project. Legal counsel is recommended.)

Article 6: Contract Time 6.1

A6-06

Date of Commencement

The Date of Commencement is the effective date of this Agreement as first written in Article 1 unless otherwise set forth below: (Insert here any special provisions concerning Notices to Proceed and the Date of Commencement.)

The Work shall proceed in general accordance with the Schedule of Work as such schedule may be amended from time to time, subject, however, to other provisions of this Agreement. 6.2 6.2.1

5.1

Management of Subcontractors

The Design-Builder shall be responsible for the management of the Subcontractors in the performance of their work.

Owner's Representative

The Owner's representative is _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ The representative: .1 shall be fully acquainted with the Project; .2 agrees to furnish the information and services required of the Owner pursuant to Paragraph 4.1 so as not to delay the Design-Builder's Work; and .3 shall have authority to bind the Owner in all matters requiring the Owner's approval, authorization or written notice. If the Owner changes its representative or the representative's authority as listed above, the Owner shall notify the Design-Builder in writing in advance.

1\.6-05

Contract Price for any additional costs incurred by the Design-Builder as a result of such objection. The Owner may propose subcontractors to be considered by the Design-Builder. The Design-Builder shall not be required to retain any subcontractor to whom the Design-Builder has a reasonable objection.

Substantial.Completion/Final Completion Substantial Completion of the Work shall be achieved in days from the Date of Commencement. Unless otherwise-s-p-ec-i-fi-ed-,-th-e Work shall be finally complete within days after the date of Substantial Completion, subject to adjustments as provided for in the Contract Documents.

915

APPENDIX

6.2.2 6.2.3

6.2.4

6.3

6

Time limits stated in the Contract Documents are of the essence. The Date of Final Completion of the Work is or within ______ ( ) days after the Date of Substantial Completion, subject to adjustments as provided for in the Contract Documents. Unless instructed by the Owner in writing, the Design-Builder shall not knowingly commence the Work before the effective date of insurance that is required to be provided by the Design-Builder or the Owner.

AGe DOCUMENT NO. 415 STANDARD FORM OF DESIGN-BUILD AGREEMENT

8.1.2

Delays in the Work 8.2

6.3.1

6.3.2

6.3.3

A6-07

A6-08

If causes beyond the Design-Builder's control delay the commencement or progress of the Work, then the Contract Price andlor the date of Substantial Completion shall be modified by Change Order as appropriate. Such causes shall include but not be limited to: changes ordered in the Work, acts or omissions of the Owner or separate contractors employed by the Owner, the Owner preventing the Design-Builder from performing the Work pending dispute resolution, Hazardous Materials, differing site conditions. Causes beyond the control of the Design-Builder do not include acts or omissions on the part of the Design-Builder, Subcontractors, Sub-subcontractors, Material Suppliers or the Architect/Engineer. To the extent a delay in the progress of the Work is caused by adverse weather conditions not reasonably anticipated, fire, unusual transportation delays, general labor disputes impacting the Project but not specifically related to the Worksite, governmental agencies, or unavoidable accidents or circumstances, the Design-Builder shall not only be entitled to its actual costs without fee and an extension of the Date of Substantial Completion andlor the Date of Final Completion. In the event delays to the project are encountered for any reason, the parties agree to undertake reasonable steps to mitigate the effect of such delays.

Article 7: Contract Price The Contract Price is ______ , subject to adjustment in accordance with the provisions of Article 8.

Article 8: Changes in the Work Changes in the Work which are within the general scope of this Agreement may be accomplished without invalidating this Agreement by Change Order, Work Change Directive, or a minor change in the Work, subject to the limitations stated in the Contract Documents. 8.1

8.2.1

8.2.2

8.2.3

8.3 8.3.1

Change Orders 8.3.2

8.1.1

916

from a Change Order shall clearly separate the amount attributable to Design Services. The Owner and the Design-Builder shall negotiate in good faith an appropriate adjustment to Contract Price andlor the Date of Substantial Completion and/or the Date of Final Completion and shall conclude these negotiations as expeditiously as possible. Acceptance of the Change Order and any adjustment in the Contract Price andlor the Date of Substantial Completion andlor the Date of Final Completion shall not be unreasonably withheld.

The Design-Builder may request andlor the Owner, without invalidating this Agreement, may order changes in the Work within the general scope of the Contract Documents consisting of adjustment to the Contract Price and/or the Date of Substantial Completion andlor the Date of Final Completion. All such changes in the Work shall be authorized by applicable Change Order, and shall be performed under the applicable conditions of the Contract Documents. Each adjustment in the Contract Price resulting

8.4 8.4.1

Work Change Directives The Owner may issue a written Work Change Directive directing a change in the Work prior to reaching agreement with the Design-Builder on the adjustment, if any, in the Contract Price andlor the Date of Substantial Completion andlor the Date of Final Completion, and if appropriate, the compensation for Design Services. The Owner and the Design-Builder shall negotiate expeditiously and in good faith for appropriate adjustments, as applicable, to the Contract Price and/or the Date of Substantial Completion and/or the Date of Final Completion, and if appropriate the compensation for Design Services, arising out of Work Change Directives. As the changed work is completed, the Design-Builder shall submit its costs for such work with its Application for Payment beginning with the next Application for Payment within thirty (30) days of the issuance of the Work Change Directive. Pending final determination of cost to the Owner, amounts not in dispute may be included in Applications for Payment and shall be paid by Owner. If the Owner and the Design-Builder agree upon the adjustments in the Contract Price and/or the Date of Substantial Completion and/or the Date of Final Completion, and if appropriate the compensation for Design Services, for a change in the Work directed by a Work Change Directive, such agreement shall be the subject of an appropriate Change Order. The Change Order shall include all outstanding Change Directives issued since the last Change Order. Minor Changes in the Work Design-Builder may make minor changes in the design and construction of the Project consistent with the intent of the Contract Documents which do not involve an adjustment in the Contract Price andlor the Date of Substantial Completion andlor the Date of Final Completion; and do not materially and adversely affect the design of the Project, the quality of any of the materials or equipment specified in the Contract Documents, the performance of any materials, equipment or systems specified in the Contract Documents, or the quality of workmanship required by the Contract Documents. Design-Builder shall promptly inform the Owner in writing of any such changes and shall record such changes on the Design-Build Documents maintained by the Design-Builder. Determination of Cost An increase or decrease in the Contract Price resulting from a change in the Work shall be determined by one or more of the following methods:

917

APPENDIX

6

.1 .2 .3

8.4.2

8.4.3

8.5

unit prices set forth in this Agreement or as subsequently agreed; a mutually accepted, itemized lump sum; or if an increase or decrease cannot be agreed to as set forth in Clause 8.4.1.1 or 8.4.1.2 and the Owner issues a written order for the Design-Builder to proceed with the change, the adjustment in the Contract Price shall be determined by the reasonable expense and savings of the performance of the Work resulting from the change. If there is a net increase in the Contract Price, a reasonable adjustment shall be made in the Design-Builder's overhead and profit. In the case of a net decrease in cost, the amount of decrease in the Contract Price will not include a reduction in overhead and profit. The DesignBuilder shall maintain a documented, itemized accounting evidencing the expenses and savings. If unit prices are indicated in the Contract Documents or are subsequently agreed to by the Parties, but the character or quantity of such unit items as originally contemplated is so different in a proposed Change Order that the original unit prices will cause substantial inequity to the Owner or the Design-Builder, such unit prices shall be equitably adjusted. If the Owner and the Design-Builder disagree as to whether work required by the Owner is within the scope of the Work, the Design-Builder shall furnish the Owner with an estimate of the costs to perform the disputed work in accordance with the Owner's interpretations. If the Owner issues a written order for the Design-Builder to proceed, the Design-Builder shall perform the disputed work and the Owner shall pay the Design-Builder fifty percent (50%) of its estimated cost to perform the work. In such event, both parties reserve their rights as to whether the work was within the scope of the Work. The Owner's payment does not prejudice its right to be reimbursed should it be determined that the disputed work was within the scope of Work. The Design-Builder's receipt of payment for the disputed work does not prejudice its right to receive full payment for the disputed work should it be determined that the disputed work is not within the scope of the "Work.

Claims for Additional Cost or Time

For any claim for an increase in the Contract Price and/or an extension in the Date of Substantial Completion and/or the Date of Final Completion, the Design-Builder shall give the Owner written notice of the claim within twenty-one (21) days after the occurrence giving rise to the claim or within twenty-one (21) days after the Design-Builder first recognizes the condition giving rise to the claim, whichever is

918

later. Except in an emergency, notice shall be given before proceeding with the Work . Claims for design and estimating costs incurred in connection with possible changes requested by the Owner, but which do not proceed, shall be made within twenty-one (21) days after the decision is made not to proceed. Any change in Contract Price and/or the Date of Substantial Completion and/or the Date of Final Completion resulting from such claim shall be authorized by Change Order. 8.7

Emergencies

In any emergency affecting the safety of persons and/or property, the Design-Builder shall act, at its discretion, to prevent threatened damage, injury or loss. Any change in the Contract Price and/or extension of the Date of Substantial Completion and/or the Date of Final Completion on account of emergency work shall be determined as provided in this Article. 8.8

Changes in Law

In the event any changes in laws or regulations affecting the performance of the Work are enacted after the date of this Agreement, the Contract Price and the Date of Substantial Completion and/or the Date of Final Completion, and if appropriate the compensation for Design Services, shall be equitably adjusted by Change Order.

Article 9:

9.1 9.1.1

9.1.2

Unknown Conditions

If in the performance of the Work the Design-Builder finds latent, concealed or subsurface physical conditions which materially differ from the conditions the DesignBuilder reasonably anticipated, or if physical conditions are materially different from those normally encountered and generally recognized as inherent in the kind of work provided for in this Agreement, then the Contract Price and/or the Date of Substantial Completion shall be equitably adjusted by Change Order within a reasonable time after the Conditions are first observed. Design-Builder shall provide Owner with written notice within the time period set forth in Paragraph 8.6.

8.6

AGC DOCUMENT NO. 415 STANDARD FORM OF DESIGN-BUILD AGREEMENT

9.1.3

Payment

A6-09

Progress Payments Prior to submitting the first application for payment, the Design-Builder shall provide a Schedule of Values satisfactory to the Owner, consisting of a breakdown of the Contract Price, with a separate line item for Design Services. On or before the day of each month after the Work has commenced, the Design-Builder shall submit to the Owner an application for paymen.t in accordance with the Schedule of Values based upon the Work completed and materials suitably stored on the Worksite or at other locations approved by the Owner. Approval of payment applications for such stored materials shall be conditioned upon submission by the Design-Builder of bills of sale and applicable insurance or such other procedures satisfactory to the Owner to establish the Owner's title to such materials, or otherwise to protect the Owner's interest including transportation to the site. Within ten (10) days after receipt of each monthly: application for payment, the Owner shall give written notice to the Design-Builder of the Owner's acceptance or rejection, in whole or in part, of such application for payment. Within fifteen (15) days after accepting such Application, the Owner shall pay directly to the Design·Builder the appropriate amount for which application for payment is made, less amounts previously paid by the Owner. If such application is rejected in whole or in part, the Owner shall indicate the reasons for its rejection. If the Owner and the Design-Builder cannot agree on a revised amount then, within fifteen (15) days after its initial rejection in part of such application, the Owner shall pay directly to the Design-Builder the appropriate amount for those items not rejected by

919

APPENDIX

9.1.4

9.1.5 9.1.6

9.1.7

9.1.8

9.2

6

the Owner for which application for payment is made, less amounts previously paid by the Owner. Those items rejected by the Owner shall be due and payable when the reasons for the rejection have been removed. If the Owner fails to pay the Design-Builder at the time payment of any amount becomes due, then the Design-Builder may, at any time thereafter, upon serving written notice that the Work will be stopped within seven (7) days after receipt of the notice by the Owner, and after such seven (7) day period, stop the Work until payment of the amount owing has been received. Payments due but unpaid pursuant to Subparagraph 9.1.3, less any amount retained pursuant to Paragraph 9.2 or 9.3, may bear interest from the date payment is due at the prime rate prevailing at the place of the Project. The Design-Builder warrants and guarantees that title to all Work, materials and equipment covered by an application for payment, whether incorporated in the Project or not, will pass to the Owner upon receipt of such payment by the Design-Builder free and clear of all liens, claims, security interests or encumbrances, hereinafter referred to as "liens." The Owner's progress payment, occupancy or use of the Project, whether in whole or in part, shall not be deemed an acceptance of any Work not conforming to the requirements of the Contract Documents. Upon Substantial Completion of the Work, the Owner shall pay the DesignBuilder the unpaid balance of the Contract Price, less a sum equal to one hundred fifty percent (150%) of the Design-Builder's estimated cost of completing any unfinished items as agreed to between the Owner and DesignBuilder as to extent and time for completion. The Owner thereafter shall pay the Design-Builder monthly the amount retained for unfinished items as each item is completed.

AGC DOCUMENT NO. 415 STANDARD FORM OF DESIGN-BUILD AGREEMENT

sary to protect the Owner from loss or damage based upon the following, to the extent that the Design-Builder is responsible under this Agreement: .1 the Design-Builder's repeated failure to perform the Work as required by the Contract Documents; .2 loss or damage arising out of or relating to this Agreement and caused by the Design-Builder to the Owner, or Others to whom the Owner may be liable; .3 the Design-Builder's failure to pay the Architect/Engineer, Subcontractors for labor, materials, equipment or supplies properly furnished in connection with the Work, provided that the Owner is making payments to the DesignBuilder in accordance with the terms of this Agreement; .4 Defective Work not corrected in a timely fashion; .5 reasonable evidence of delay in performance of the Work such that the Work will not be completed by the Date of Substantial Completion and/or the Date of Final Completion, and that the unpaid balance of the Contract Price is not sufficient to offset any direct damages that may be sustained by the Owner as a result of the anticipated delay caused by the Design-Builder; and .6 reasonable evidence demonstrating that the unpaid balance of the Contract Price is insufficient to fund the cost to complete the Work. When the above reasons for disapproving or nullifying an application for payment are removed, payment will be made for the amounts previously withheld. 9.4 9.4.1

Retainage

From each progress payment made prior to the time Substantial Completion of the has been reached, the Owner shall retain percent (_ _ %), if required, of the amount otherwise due after deduction of any amounts as provided i~ ~aragraph 9.3 of this Agreement. If the Owner chooses to use this retainage provIsion: .1 at the time the Work is fifty percent (50%) complete and thereafter, the Owner may choose to withhold no more retainage and pay the DesignBuilder the full amount of what is due on account of subsequent progress payments; .2 once each early finishing trade Subcontractor has completed its work and that work had been accepted by the Owner, the Owner may release final retention on such work; .3 in lieu of retainage, the Design-Builder may furnish securities, acceptable to the Owner, to be held by the Owner. The interest on such securities shall accrue to the Design-Builder; .4 the Owner may, in its sole discretion, reduce the amount to be retained at any time. Wor~

9.3

9.5.1

9.5.2

Adjustment of Design-Builder's Application for Payment

The Owner may adjust or reject an application for payment or nullify a previously approved application for payment, in whole or in part, as may reasonably be neces-

920

9.5

9.5.3

Owner Occupancy or Use of Completed or Panially Completed Work Portions of the Work that are completed or partially completed may be used or occupied by the Owner when (a) the ponion of the Work is designated in a Cenificate of Substantial Completion, (b) appropriate insurer(s) and/or sureties consent to the occupancy or use, and (c) appropriate public authorities authorize the occupancy or use. Such partial occupancy or use shall constitute Substantial Completion of that portion of the Work. The Design-Builder shall not unreasonably withhold consent to partial occupancy or use. The Owner shall not unreasonably refuse to accept partial occupancy or use, provided such partial occupancy or use is of value to the Owner. Final Payment Final payment, consisting of the unpaid balance of the Contract Price, shall be due and payable when the Work is fully completed. Before issuance of final payment, the Owner may request satisfactory evidence that all payrolls, materials bills and other indebtedness connected with the Work have been paid or otherwise satisfied. In making final payment the Owner waives all claims except for: .1 outstanding liens; .2 improper workmanship or defective materials appearing within one year after the date of Substantial Completion; .3 Work not in conformance with the Contract Documents' and .4 terms of any special warranties required by the Contract Documents. In accepting final payment, the Design-Builder waives all claims except those previously made in writing and which remain unsettled.

921

APPENDIX

A6-10

6

Article 10: 10.1 10.1.1

10.1.2

10.2

AGC DOCUMENT NO. 415 STANDARD FORM OF DESIGN-BUILD AGREEMENT

Indemnity, Insurance, Bonds, and Waiver of Subrogation

10.2.2

Indemnity To the fullest extent permitted by law, the Design-Builder shall defend, indemnify and hold harmless the Owner, Owner's officers, directors, members, consultants, agents and employees from all claims for bodily injury and property damage (other than to the Work itself and other property required to be insured under Paragraph 10.5 owned by or in the custody of the owner), that may arise from the performance of the Work, to the extent of the negligence attributed to such acts or omissions by the Design-Builder, Subcontractors or anyone employed directly or indirectly by any of them or by anyone for whose acts any of them may be liable. The Design-Builder shall not be required to defend, indemnify or hold harmless the Owner, the Owner's officers, directors, members, consultants, agents and employees for any acts, omissions or negligence of the Owner, Owner's officers, directors, members, consultants, employees, agents or separate contractors. To the fullest extent permitted by law, the Owner shall defend, indemnify and hold harmless the Design-Builder, its officers, directors or members, Subcontractors or anyone employed directly or indirectly by any of them or anyone for whose acts any of them may be liable from all claims for bodily injury and property damage, other than property insured Paragraph 10.5, that may arise from the performance of work by Others, to the extent of the negligence attributed to such acts or omissions by Others.

b.

.2

922

$,----------------$,----------------d. Personal and Advertising Injury Limit $,----------------Comprehensive Automobile Liability Insurance c.

Products/Completed Operations Aggregate

a.

Combined Single Limit Bodily Injury and Property Damage

b.

Bodily Injury

$,--------Each Person

$-------------Each Occurrence c.

Property Damage

$,---------------

10.2.3

Design-Builder's Liability Insurance The Design-Builder shall obtain and maintain insurance coverage for the following claims which may arise out of the performance of this Agreement, whether resulting from the Design-Builder'S operations or from the operations of any Subcontractor, anyone in the employ of any of them, or by an individual or entity for whose acts they may be liable: .1 Workers' compensation, disability benefit and other employee benefit claims under acts applicable to the Work; .2 under applicable employers' liability law, bodily injury, occupational sickness, disease or death claims of the Design-Builder's employees; .3 bodily injury, sickness, disease or death claims for damages to persons not employed by the Design-Builder; .4 personal injury liability claims for damages directly or indirectly related to the person's employment by the Design-Builder or for damages to any other person; .5 damage to or destruction of tangible property, including resulting loss of use, claims for property other than the work itself and other property insured under Paragraph 10.5; .6 bodily injury, death or property damage claims resulting from motor vehicle liability in the use, maintenance or ownership of any motor vehicle; and .7 contractual liability claims involving the Design-Builder's obligations under Subparagraph 10.1.1.

$,---------------General Aggregate

$,----------------Each Occurrence

10.2.4 10.2.1

The Design-Builder's Commercial General and Automobile Liability Insurance as required by Subparagraph 10.2.1 shall be written for not less than the following limits of liability: .1 Commercial General Liability Insurance a. Each Occurrence Limit

10.2.5

10.3

Each Occurrence Commercial General Liability Insurance may be arranged under a single policy for the full limits required or by a combination of underlying policies and an Excess or Umbrella Liability policy. The policies shall contain a provision that covera~e will not be canceled or not renewed until at least thirty (30) days' priof written notice has been given to the Owner. Certificates of insurance shOWing required coverage to be in force shall be filed with the Owner prior to commencement of the Work. Products and Completed Operations insurance shall be maintained for a minimum period of year(s) after either ninety (90) days following the Date of Substantial Completion or final payment, whichever is earlier. Professional Liability Insurance

The Design-Builder shall obtain, either itself or through the ArchitectlEngineer, professionalliability insurance for claims arising from the negligent performance of professional services under this Agreement, which shall be either: General Office Coverage Project Specific Professional Liability Insurance (Cross-out one of the above) written for not less than $ per claim and in the aggregate with a deductible not to exceed $ . The Professional Liability Insurance shall include prior acts coverage sufficient to cover all services rendered by the ArchitectlEngineer and by its consultants. This coverage shall be continued in effect for year(s) after the Date of Substantial Completion.

923

APPENDIX 6

10.4

Owner's Liability Insurance

The Owner shall be responsible for obtaining and maintaining its own liability insurance. Insurance for claims arising out of the performance of this Agreement may be purchased and maintained at the Owner's discretion. The Owner shall provide the Design-Builder with a certificate of Insurance at the request of the Design-Builder. 10.5 10.5.1

10.5.2

10.5.3

10.5.4

10.5.5

924

AGC DOCUMENT NO. 415 STANDARD FORM OF DESIGN-BUILD AGREEMENT

10.5.6

Insurance to Protect Project The Owner shall obtain and maintain "All Risk" Builder's Risk insurance in a form acceptable to the Design-Builder upon the entire Project for the full cost of replacement at the time of any loss. This insurance shall include as named insureds the Owner, Design-Builder, ArchitectlEngineer, Subcontractors and Sub-subcontractors. This insurance shall include "all risk" insurance for physical loss or damage including without duplication of coverage, at least; theft, vandalism, malicious mischief, transit, materials stored off site, collapse, falsework, temporary buildings, debris removal, flood, earthquake, testing, and damage resulting from defective design, workmanship or material. The Owner shall increase limits of coverage, if necessary, to reflect estimated replacement cost. The insurance policy shall be written without a co-insurance clause. The Owner shall be solely responsible for any deductible amounts. If the Owner occupies or uses a portion of the Project prior to its Substantial Completion, such occupancy or use shall not commence prior to a time mutually agreed to by the Owner and the Design-Builder. Permission for partial occupancy from the insurance company shall be included as standard in the property insurance policy, to ensure that this insurance shall not be canceled or lapsed on account of partial occupancy. Consent of the Design-Builder to such early occupancy or use shall not be unreasonably withheld. The Owner shall obtain and maintain boiler and machinery insurance as necessary. The interests of the Owner, Design-Builder, ArchitectlEngineer, Subcontractors and Sub-subcontractors shall be protected under this coverage. The Owner will purchase and maintain insurance to protect the Owner, Design-Builder, Architect/Engineer, Subcontractors and Sub-subcontractors against loss of use of Owner's property due to those perils insured pursuant to Paragraph 10.5. Such policy will provide coverage for expediting expenses of materials, continuing overhead of the Owner and the Design-Builder, Architect/Engineer, Subcontractors and Sub-subcontractors, necessary labor expense including overtime, loss of income by the Owner and other determined exposures. Exposures of the Owner, Design-Builder, Architect/ Engineer, Subcontractors and Sub-subcontractors shall be determined by mutual agreement with separate limits of coverage fixed for each item. The Owner shall provide the Design-Builder with a copy of all property insurance policies before an exposure to loss may occur. Copies of any subsequent endorsements shall be furnished to the Design-Builder. The DesignBuilder shall be given thirty (30) days notice of cancellation, non-renewal, or any endorsements restricting or reducing coverage. The Owner shall give written notice to the Design-Builder before commencement of the Work if the Owner will not be obtaining property insurance. In that case, the Design-Builder may obtain insurance in order to protect its interest in the

10.6 10.6.1 10.6.2

10.7 10.7.1

10.7.2

10.7.3

10.8

Work, as well as the interest of the Architect/Engineer, Subcontractors and Sub-subcontractors in the Work. The Contract Price shall be increased by the cost of this insurance through Change Order. If the Design-Builder is damaged by the failure of the Owner to purchase or maintain property insurance or to so notify the Design-Builder, the Owner shall bear all reasonable costs incurred by the Design-Builder arising from the damage. The Owner shall have the right to self-insure against the risks covered in Subparagraphs 10.5.1 and 10.5.4 upon providing evidence satisfactory to the Design-Builder of the ability to so self-insure. Property Insurance Loss Adjustment Any insured loss shall be adjusted with the Owner and the Design-Builder and made payable to the Owner and Design-Builder as trustees for the insureds, as their interests may appear, subject to any applicable mortgagee clause. Upon the occurrence of an insured loss, monies received will be deposited in a separate account and the trustees shall make distribution in accordance with the agreement of the parties in interest, or in the absence of such agreement, in accordance with a dispute resolution award pursuant to Article 12. If the trustees are unable to agree between themselves on the settlement of the loss, such dispute shall also be submitted for resolution pursuant to Article 12. Waiver of Subrogation The Owner and Design-Builder waive all rights against each other the ArchitectlEngineer, and any of their respective employees, agents, co~sul­ tants, Subcontractors, Material Suppliers and Sub-subcontractors, for damages covered by the insurance provided pursuant to Paragraph 10.5 to the extent they are covered by that insurance, except such rights as they may have to the proceeds of such insurance held by the Owner and Design-Builder as trustees. The Design-Builder shall require similar waivers from the ArchitectlEngineer and all Subcontractors, and shall require each of them to include similar waivers in their sub-subcontracts and consulting agreements. The Owner waives subrogation against the Design-Builder Architect/ Engineer, Subcontractors, Material Suppliers and Sub-subcontr~ctors on all proper~ and consequential loss policies carried by the Owner on adjacent propertIes and under property and consequential loss policies purchased for the Project after its completion. The policies shall also be endorsed to state that the carrier waives any right of Subrogation against the Design-Builder, the ArchitectlEngineer, Subcontractors, Material Suppliers, or Sub-subcontractors.

Mutual Waiver of Consequential Damages

The Owner and the Design-Builder agree to waive all claims against the other for all consequential damages that may arise out of or relate to this Agreement. The Owner agrees to waive damages including but not limited to the Owner's loss of use of the Pr~perty, all re~tal ex~enses incurred, loss of services of em'ployees, or loss of reputatIon. Th~ DeSIgn-BUIlder agrees to waive damages including but not limited to the loss of busmess, loss of financing, principal office overhead and profits, loss of profits

925

APPENDIX

6

AGC DOCUMENT NO.

not related to this Project, or loss of reputation. This Paragraph shall not be construed to preclude contractual provisions for liquidated damages when such provisions relate to direct damages only. The provisions of this Paragraph shall govern the termination of this Agreement and shall survive such termination. 10.9 10.9.1

10.9.2

10.9.3

A6-11

Bonding Performance and Payment Bonds are are not (Cross out one of the above) required of the Design-Builder. Such bonds shall be issued by a surety licensed in the state of the location of the Project and must be acceptable to the Owner. Such Performance Bond shall be issued in the penal sum equal to onehundred percent (100%) of the Contract price, including design and construction. Agreed estimated construction cost of the Project as reflected in the Schedule of Values. (Cross-out one of the above) Such Performance Bond shall cover the cost to complete the Work, but shall not cover any damages of the type specified to be covered by the insurance pursuant to Paragraphs 10.2 and 10.3, whether or not such insurance is provided or in an amount sufficient to cover such damages. The penal sum of the Payment Bond shall equal the penal sum of the Performance Bond.

Article 11: 11.1 11.1.1 11.1.2

11.2.2

Suspension, Termination of the Agreement and Owner's Right to Perform Design-Builder's Responsibilities

Suspension by the Owner for Convenience The Owner may order the Design-Builder in writing to suspend, delay or interrupt all or any part of the Work without cause for such period of time as the Owner may determine to be appropriate for its convenience. Adjustments caused by suspension, delay or interruption shall be made for increases in the Contract Price and/or the Date of Substantial Completion and/or the Date of Final Completion. No adjustment shall be made if the Design-Builder is or otherwise would have been responsible for the suspension, delay or interruption of the Work or if another provision of this Agreement is applied to render an equitable adjustment.

11.2.3

11.2.4

11.3

926

If the Design-Builder persistently fails to perform any of its obligations under this Agreement, the Owner may, after five (5) days' written notice, during which period the Design-Builder fails to perform such obligation, undertake to perform such obligations. The Contract Price shall be reduced by the cost to the Owner of performing such obligations.

STANDARD FORM OF DESIGN-BUILD AGREEMENT

Upon five (5) days' written notice to the Design-Builder and the DesignBuilder's surety, if any, the Owner may terminate this Agreement for any of the following reasons: .1 if the Design-Builder persistently utilizes improper materials and/or inadequately skilled workers; .2 if the Design-Builder does not make proper payment to laborers, material suppliers or contractors provided that the Owner is making payments to the Design-Builder in accordance with the terms of this Agreement; .3 if the Design-Builder persistently fails to abide by the orders, regulations, rules, ordinances or laws of governmental authorities having jurisdiction; or .4 if the Design-Builder otherwise materially breaches this Agreement. If the Design-Builder fails to cure or commence and continue to cure within the five (5) days, the Owner, without prejudice to any other right or remedy, may take possession of the Worksite and complete the Work utilizing any reasonable means. In this event, the Design-Builder shall not have a right to further payment until the Work is completed. : If the Design-Builder files a petition under the Bankruptcy Code, this Agreement shall terminate if the Design-Builder or the Design-Builder's trustee rejects the Agreement or, if there has been a default, the DesignBuilder is unable to give adequate assurance that the Design-Builder will perform as required by this Agreement or otherwise is unable to comply with the requirements for assuming this Agreement under the applicable provisions of the Bankruptcy Code. In the event the Owner exercises its rights under Subparagraph 11.2.1 or 11.2.2, upon the request of the Design-Builder the Owner shall provide a detailed accounting of the cost incurred by the Owner. Termination by Owner without Cause

If the Owner terminates this Agreement other than as set forth in Paragraph 11.2, the Owner shall pay the Design-Builder for all Work executed and for all proven loss, cost or expense in connection with the Work, plus all demobilization costs. In addi. tion, the Design-Builder shall be paid an amount calculated as set forth below: .1 If the Owner terminates this Agreement prior to commencement of the con. struction, the Design-Builder shall be paid the unpaid balance of the DesignBuilder's design costs as set forth in the Schedule of Values and a premium as set forth below: (Insert here the amount agreed to by the Parties) .2

If the Owner terminates this Agreement after commencement of the construction, the Design-Builder shall be paid the unp;id balance of the DesignBuilder's design costs as set forth in the Schedule of Values, the Construction Services provided to date and a premium as set forth below: (Insert here the amount agreed to by the Parties)

.3

The Owner shall also pay to the Design-Builder fair compensation, either by purchase or rental at the election of the Owner, for all equipment

11.2 Owner's Right to Perform Design-Builder's Obligations and Termination by the Owner for Cause 11.2.1

415

927

APPENDIX

6

AGC DOCUMENT NO. 415 STANDARD FORM OF DESIGN-BUILD AGREEMENT

retained. The Owner shall assume and become liable for obligations, commitments and unsettled claims that the Design-Builder has previously undertaken or incurred in good faith in connection with the Work or as a result of the termination of this Agreement. As a condition of receiving the payments provided under this Article 11. The Design-Builder shall cooperate with the Owner by taking all steps necessary to accomplish the legal assignment of the Design-Builder's rights and benefits to the Owner, including the execution and delivery of required papers. 11.4 11.4.1

11.4.2

11.4.3

Termination by the Design-Builder Upon five (5) days' written notice to the Owner, the Design-Builder may terminate this Agreement for any of the following reasons: .1 if the Work has been stopped for a sixty (60) day period; a. under court order or order of other governmental authorities having jurisdiction; or b. as a result of the declaration of a national emergency or other governmental act emergency during which, through no act or fault of the Design-Builder, materials are not available; .2 if the Work is suspended by the Owner for sixty (60) days; or .3 if the Owner fails to furnish reasonable evidence that sufficient funds are available and committed for the entire cost of the Project in accordance with Subparagraph 4.1.3 of this Agreement. If the Owner had for thirty (30) days failed to pay the Design-Builder pursuant to Subparagraph 9.1.3, the Design-Builder may give written notice of its intent to terminate this Agreement. If the Design-Builder does not receive payment within five (5) days of giving written notice to the Owner, then upon five (5) days additional written notice to the Owner, the DesignBuilder may terminate this Agreement. Upon termination by the Design-Builder in accordance with Subparagraph 11.4.1, the Design-Builder shall be entitled to recover from the Owner payment for all Work executed and for all proven loss, cost or expense in connection with the Work, plus all demobilization costs and reasonable damages. In addition, the Design-Builder shall be paid an amount calculated as set forth either in Subparagraph 11.3.1 or 11.3.2, depending on when the termination occurs, and Subparagraph 11.3.3.

be settled through direct discussions, the parties shall endeavor to settle the dispute by mediation under the Construction Industry Mediation Rules of the American Arbitration Association before recourse to the dispute resolution procedures contained in this Agreement. The location of the mediation shall be the location of the Project. Once one party files a request for mediation with the other contracting party and with the A111erican Arbitration Association, the parties agree to conclude such mediation within sixty (60) days of filing of the request. Either party may terminate the mediation at any time after the first session, but the decision to terminate must be delivered in person by the party's representative to the other party's representative and the mediator. 12.3

Exhibit No.1

If the dispute cannot be settled by mediation within sixty (60) days, the parties shall submit the dispute to any dispute resolution process set forth in Exhibit No. 1. 12.4

Multiparty Proceeding

The parties agree that all parties necessary to resolve a claim shall be parties to the same dispute resolution proceeding. Appropriate provisions shall be included in all other contracts relating to the Work to provide for the consolidation of such dispute resolution proceedings. 12.5

Cost of Dispute Resolution

The prevailing party in any dispute arising out of or relating to this Agreement or its breach that is resolved by the dispute resolution process set forth in Exhibit No. 1 shall be entitled to recover from the other party reasonable attorney's fees, costs and expenses incurred by the prevailing party in connection with such dispute resolution process after direct discussions and mediation. 12.6

Lien Rights

Nothing in this Article shall limit any rights or remedies not expressly waived by the Design-Builder that the Design-Builder may have under lien laws.

Article 13:

A6-12

Article 12:

13.1 12.1

Initial Dispute Resolution

If a dispute arises out of or relates to this Agreement or its breach, the parties shall endeavor to settle the dispute first through direct discussions. If the dispute cannot

928

A6-13

Assignment

Work Continuance and Payment

Unless otherwise agreed in writing, the Design-Builder shall continue the Work and maintain the approved schedules during all dispute resolution proceedings. If the Design-Builder continues to perform, the Owner shall continue to make payments in accordance with the Agreement. 12.2

Miscellaneous Provisions

Dispute Resolution

Neither the Owner nor the Design-Builder shall assign its interest in this Agreement without the written consent of the other except as to the assignment of proceeds. The terms and conditions of this Agreement shall be binding upon both parties, their partners, successors, assigns and legal representatives. Neither party to this Agreement shall assign the Agreement as a whole without written consent of the other except that the Owner may assign the Agreement to a wholly-owned subsidiary of the Owner when the Owner has fully indemnified the Design-Builder or to an institutional. lender providing construction financing for the Project as long as the assignment IS no less favorable to the Design-Builder than this Agreement. In the event of such assignment, the Design-Builder shall execute all consents reasonably required.

929

APPENDIX

6

In such event, the wholly-owned subsidiary or lender shall assume the Owner's rights and obligations under the Contract Documents. If either party attempts to make such an assignment, that party shall nevertheless remain legally responsible for all obligations under the Agreement, unless otherwise agreed by the other party. 13.2

AGC DOCUMENT NO. 415 STANDARD FORM OF DESIGN-BUILD AGREEMENT

The following Exhibits are a part of this Agreement: EXHIBIT NO.1 Dispute Resolution Menu, one page. EXHIBIT NO.2 Labor Relations provisions, ___ pages. This Agreement is entered into as of the date entered in Article 1.

Governing Law ATTES~

This Agreement shall be governed by the law in effect at the location of the Project. 13.3

No Waiver of Performance

The failure of either party to insist, in anyone or more instances, on the performance of any of the terms, covenants or conditions of this Agreement, or to exercise any of its rights, shall not be construed as a waiver or relinquishment of such term, covenant, condition or right with respect to further performance. 13.5

Titles and Groupings

The title given to the articles of this Agreement are for ease of reference only and shall not be relied upon or cited for any other purpose. The grouping of the articles in this Agreement and of the Owner's specifications under the various headings is solely for the purpose of convenient organization and in no event shall the grouping of provisions, the use of paragraphs or the use of headings be construed to limit or alter the meaning of any provisions. 13.6

Joint Drafting

The parties to this Agreement expressly agree that this Agreement was jointly drafted, and that both had opportunity to negotiate its terms and to obtain the assistance of counsel in reviewing its terms prior to execution. Therefore, this Agreement shall be construed neither against nor in favor of either party, but shall be construed in a neutral manner. 13.7

Rights and Remedies

The parties' rights, liabilities, responsibilities and remedies with respect to this Agreement, whether in contract, tort, negligence or otherwise, shall be exclusively those expressly set forth in this Agreement. 13.8

A6-14

Other Provisions

Article 14: Existing Contract Documents The Contract Documents in existence at the time of execution of this Agreement are as follows:

930

OWNER: _______________________ B~

PRINT NAME: _____________ PRINT TITLE;

Severability

The partial or complete invalidity of anyone or more provisions of this Agreement shall not affect the validity or continuing force and effect of any other provision. 13.4

___________________

ATTEST: _______________

DESIGN-BUILDER: ________ _______________________ B~

PRINT NAME: ___________ PRINT TITLE:

DISPUTE RESOLUTION MENU

A6-1S

Pursuant to Paragraph 12.3, if neither direct discussions nor mediation successfully resolve the dispute, the parties agree that the following shall be used to resolve the dispute. (Check the appropriate selection(s). These procedures can be used singularly, or progressively as agreed to by the parties.) Dispute Review Board The Dispute Review Board is composed of one member selected by the Owner, one selected by the Design-Builder, and a third member selected by the Owner and Design-Builder selected members. This Board shall be selected by the time construction commences, shall meet periodically, and shall make advisory decisions which may be introduced into evidence at any subsequent dispute resolution process. If a Dispute Review Board is selected, it is understood its review will precede mediation. Advisory Arbitration Advisory Arbitration shall be pursuant to the Construction Industry Rules of the American Arbitration Association. Mini Trial Each party, in the presence of senior management, shall submit its position to a mutually selected individual who shall make a non-binding recommendation to the parties. Such advisory decision may be introduced into evidence at any subsequent dispute resolution process. Binding Arbitration Binding Arbitration shall be pursuant to the Construction Industry Rules of the American Arbitration Association unless the parties mutually agree otherwise. A written demand for arbitration shall be filed with the American Arbitration Association and the other party to the Agreement within a reasonable time after the dispute or claim has arisen but in no event after the applicable statute of limitations for a legal or equi~ ~able proceeding would have run. The location of the arbitration proceedlOgS shall be at the office of the American Arbitration Association nearest the Project, unless the parties agree otherwise. The arbitration award shall be final. Notwithstanding Paragraph 13.2, this agreement to arbitrate shall be governed by the Federal Arbitration Act and judgment upon the award may be confirmed in any court having jurisdiction. Litigation Action may be filed in the appropriate state or federal court located in the jurisdiction in which the Project is located.

931

APPENDIX 6

AGC DOCUMENT NO_ Responsibility

Paragraph

DesignOwner Builder

8.3.2

X

8.4.1.3

X

8.50

X

8.6

X X

9.1.1 9.1.2 9.1.3

X X X X X

9.1.4

X

9.3

X

9.4.1 9.5.1 10.2.1 10.2.4

X X

10.4

X

10.5.1 10.5.5

X

X X X

X X

10.7.1 11.1.1 11.2.1 11.2.2 11.4.1 11.4.2 12.2 12.4 Exhibit 1

X

X X X

either either

X X either X either

Task (asterisk indicates task is optional)

Completed Task

Promptly give written notice of minor changes made Maintain itemized account of expenses & savings Within 21 days of occurrence, give notice of unknown conditions Within 21 days of occurrence, make claim for add'i cost or time Within 21 days, make claim for design costs of work not pursued Provide Schedule of Values Application for Progress Payments Submit bills of sale and applicable insurance Within 10 days, accept or reject App. for Payment (w/reasons) Pay accepted amount within 15 days of acceptance of App. for Pymt. Notice to Stop Work if Owner doesn't pay when due" Written reasons for disapproving Application for Payment Certificate of Substantial Completion Before final payment, request proof bills paid' Obtain and maintain required insurance File Certificates of Insurance with Owner before Commencement Obtain Liability Insurance and provide Certificate of Insurance Obtain and maintain Property Insurance Require Owner to provide copy of property insurance policies" Give written notice before work if Owner will not have prop. insurance In subcontracts, require subrogation waivers Order suspension for convenience' Undertake work upon 5 days notice if nonperformance" Terminate contract on 5 additional days notice' Terminate for cause on 5 days notice' Give 5 day notice and terminate for nonpayment' File mediation request' In subcontracts, require consolidation of cases File arbitration demand within reasonable time, if an option'

Article 2 In Paragraph 2.2, the parties identify the ArchitectlEngineer for the Project. Subparagraph 2.4.1 details the Contract Documents and provides an order of priority in case of conflicts.

932

4r5

STANDARD FORM OF DESIGN-BUILD AGREEMENT

Article 3 The Design-Builder's responsibilities for Design Se~vices (Paragraph 3.1), Construction Services (Paragraph 3.2), Safety of Persons and Property (Paragraph 3.4), Hazardous Material (Paragraph 3.5), Warranty and Completion (Paragraph 3.8) and Additional Services (Paragraph 3.10) are detailed. In Subparagraph 3.1.3, the rights of the Owner and Design-Builder relative to the ownership of design documents are given. Paragraph 3.11 provides a blank space for the Design-Builder to name the DesignBuilder's Representative.

Article 4 The Owner's Representative is named in Paragraph 4.4.

Article 5 Paragraph 5.3 provides for the contingent assignment of subcontracts to the Owner should the Design-Builder default. In Paragraph 5.5, a blank space is provided to delineate any requirements relative to labor relations.

Article 6 Important project dates are established in this Article. The Date of Commencement is established in Paragraph 6.1. The Date of Substantial Completion is established in Paragraph 6.2.1; the Date of Final completion of the work is established in Paragraph 6.2.3. Paragraph 6.3 addresses delays in the Work.

Article 7 The Contract Price is stated in Article 7.

Article 8 Methods by which changes in the Work maybe effected are delineated in Paragraph 8.1 (Change Order), Paragraph 8.2 (Work Change Directives), and Paragraph 8.3 (Minor Changes in the Work). Unknown conditions are addressed in Paragraph 8.5.

Article 9 Paragraph 9.1 provides the procedures for Progress Payments. In Paragraph 9.2, the parties shall indicate the amount of retainage, if any, to be withheld for each Progress Payment prior to Substantial Completion of the Work.

Article 10 Contractual indemnification is governed by state law and states differ as to the types of indemnification agreements that they will enforce. Consultation with insurance and legal counsel with knowledge of the jurisdiction is recommended.

933

APPENDIX

6

Paragraph 10.3 requires the statement of the Architect/Engineer's Professional Liability Insurance Coverage. The parties are to choose whether General Office Coverage or Project Specific Professional Liability Insurance Coverage will be applicable for the professional design services, including the limits and deductibles of such coverage. Paragraph 10.5 requires the Owner to obtain" All Risk" Builder's Risk insurance for the Project. In Paragraph 10.8, the Owner and the Design-Builder waive all claims against each other for consequential damages that arise out of the Agreement. The Owner will indicate whether performance and payment bonds are required for the Project in Paragraph 10.9.

Article 11 These provisions provide the terms with which the Owner and the Design-Builder may terminate the Agreement.

Article 12 Dispute resolution provisions require that the parties attempt direct discussions and then mediation prior to attempting another dispute resolution method. Paragraph 12.4 provides for the concept of the multiparty dispute resolution procedure in which all parties necessary to resolve a claim will be parties to the same dispute resolution proceeding. In addition, Paragraph 12.5 provides that the cost of dispute resolution is recoverable by the prevailing party from the other party. Exhibit No. I-Dispute Resolution Menu This Exhibit provides that if neither direct discussions nor mediation successfully resolve the dispute, the parties agree that the option(s) they select from this menu shall be used to resolve the dispute. Post Agreement Submittals and Administrative Obligations Matrix As part of the instructions for AGC 415, a matrix is provided (as an insert on opposing pages) detailing the submittals and administrative obligations placed on the Owner and Design-Builder in the Agreement. The matrix provides a quick reference of specific paragraphs which require either the Owner or Design-Builder or both to perform important project tasks throughout the course of the Project. The parties can track and indicate on the matrix the completion of each task.

934

INDEX Acceptance, EIC Contract, A3-09 ENAA Contract Model Form, A2-39 Access route, contractor, 8-72, 8-73,25-106, 25-107, A1-04 Silver Book, 25-106, 25-107, A1-04 Access to site, employer, 6-02, 6-04-6-06, A1-02 Orange Book, 6-05 Silver Book, 6-04-6-06, 25-66, 25-67,25-184,25-185, Al-02 Adjustment, See also Variations contract price, bill of quantities method, 1-25 lump-sum pricing method, 1-21 unit-price method, 1-25 Yellow Book, 3-17 Advance payment, 18-09, 18-20-18-23,A1-14 Silver Book, 4-53, 25-204, Al-14 Advance payment guarantee, Silver Book, 4-47 AGC Document 415, 2-15, 2-20, A6-01-A6-15 agreement, A6-01 assignment, A6-13 bonds, A6-10 changes in the work, A6-08 contract price, A6-07 design-builder responsibilities, A6-03 disputes, A6-12, A6-15 existing contract documents, A6-14 general provisions, A6-02 governing law, A6-13

indemnification, A6-10 insurance, A6-10 joint drafting, A6-13 no waiver of performance, A6-13 owner's responsibilities, A6-04 owner's r"ight to perform designbuilder's responsibilities, A6-11 payment, A6-09 rights and remedies, A6-13 severability, A6-13 subcontractors, A6-05 subrogation, A6-10 suspension, A6-11 termination of the agreement, A6-11 titles, A6-13 waiver of subrogation, A6-10 AlA Form A191, 2-15, 2-19 agreement, A4-01 arbitration, A4-01 basis of compensation, A4-01 bonds, A4-01 changes in the work, A4-01 compensation, A4-01 correction of work, A4-01 definitions, A4-01 design/builder, A4-01 dispute resolution, A4-01 documents, ownership of, A4-01 use, A4-01 electronic data, A4-01 final payment, A4-01 general provisions, A4-01 insurance, A4-01 interest, A4-01 mediation, A4-01 owner, A4-01 Part 1 Agreement, A4-01 Part 2 Agreement, A4-01 payment, A4-01 progress payments, A4-01

INDEX

AlA Form A191-cont. protection of persons and property, A4-01 termination of agreement, A4-01 time, A4-01 use of documents, A4-01 Allocation of responsibility, contract, 1-01 Allocation of risk, BOT,4-14-4-17 Yellow Book, 3-21 Alternative dispute resolution, See also Disputes conciliation, 24-07 development, 24-05, 24-09 expert determination, 24-08 growth, 24-01, 24-05 mechanisms, 24-05 mediation, 24-06 methods, 24-05 conciliation, 24-07 expert determination, 24-08 mediation, 24-06 United States, 24-05 American Institute of Architects: Standard form of Agreement between Owner and DesignlBuilder Document A191. See AlA Form A191 Appendix to tender, Orange Book, 5-14 Red Book, 5-14 Silver Book, 5-14 Yellow Book, 5-14 Applicable law, arbitration, 24-14 EIC Contract, A3-24 liquidated damages, 12-05 Appointment, employer's representative, 7-12, 7-1318 Approvals, employer, 6-07, 6-08, A1-02 Silver Book, 6-07, 6-08, 25-67, 25-69, AI-02 Arbitration, 24-01, 24-11-24-16, 24-66-24-76 advantages, 24-11, 24-13 agreement, 24-12 AlA Form A191, A4-07, A4-22 applicable law, 24-14 936

INDEX

arbitrator, appointment, 24-14 jurisdiction, 24-15 powers, 24-12 remedies available to, 24-12 skills, 24-14 awards, 24-11 complexity, 24-11 confidentiality, 24-13 contractual nature, 24-12 damages, 24-12 drafting clauses, 24-14 eligibility, 24-67 ENAA Contract Model Form, A2-14 execution of awards, 24-11 institutions, 24-14 language, 24-13 local law, 24-12 location, 24-13 New York Convention, 24-13 procedure, 24-16 proceedings, 24-68-24-72 proper law, 24-14 Silver Book, 25-253, A1-20 site for, 24-13 Arbitrator, See also Arbitration appointment, 24-14 available remedies, 24-12 jurisdiction, 24-15 powers, 24-12 skills, 24-14 As-built documents, design, 9-34-9-36,25-128, 25-129, AI-OS Assignment, AGC Document 415, A6-13 contract, 5-69, AI-01 DBIA General Conditions, A5-24 ENAA Contract Model Form, A2-57 Orange Book, 5-69 Red Book, 5-69 Silver Book, 5-69, 25-57, 25-58, AI-0l Yellow Book, 3-06, 5-69 Assistants, employer's administration, 7-19

Bankruptcy, contractor, 19-09 employer, 20-06 termination, 19-09,20-06 Base date, definition, 5-28, 25-21, 25-22, AI-01 Silver Book, 5-28, 25-21, 25-22, AI-0l Bill of quantities, abuse of system, 1-25 adjustment of unit price, 1-25 pricing method, 1-24, 1-25 BLT,I-16 Bonds, AGC Document 415, A6-10 AlA Form A191, A4-19 DBIA Agreement, AS-II DBIA General Conditions, A5-17 ENAA Contract Model Form, A2-9,A2-27 Bonus schemes, 1-26 BOO, 1-16 BOT, advantages, 4-04 advantages for infrastructure projects, 4-04 allocation of risk, 4-14-4-17 co-ordination of works, 4-50-4-52 complexity, 1-17 concession agreement, 4-05, 4-08 construction, 4-22-4-26 construction contract, 4-05, 4-12 credit agreement, 4-03, 4-05, 4-07 credit support arrangements, 4-13 defects liability, 1-16 definition, 1-16 design, 4-19-4-21 development of model, 4-04 financing, 1-16, 1-18 fuel supply agreement, 4-05, 4-10 historical development, 4-02 host government, 4-02 loan facility, 4-03

meaning, 1-16,4-02 operation, 4-02, 4-03 operation and maintenance agreement, 4-05, 4-11 parties, 1-17 pledges, 4-03 political entities, 1-18 power purchase agreement, 4-05, 4-09 project company, 4-02 obligations, 4-03 project financing, 4-02 reasons for using, 4-03 risk,4-14-4-17 shareholders agreement, 4-05, 4-06 Silver Book. See Silver Book structure of contract, 1-16, 1-17 structure of project, 4-04, 4-05-4-13 taking over, 4-28 tender, 1-17 tests after completion, 4-29, 4-30 tests on completion, 4-27 unforeseeable sub-surface conditions, 3-26, 4-23-4-26 use, 4-04 Breach of contract, employer, by, 20-05 Build lease transfer (BLT), 1-16 Build operate transfer (BOT). See BOT

Build own operate (BOO), 1-16 Care and supply of documents, contract, 5-70, AI-01 Silver Book, 5-70, AI-01 Care of the works, contractor,21-18-21-21 Al-17 Certificate, , performance. See Performance certificate Claims, arbitration. See Arbitration contractor's, 24-17 - 24-2 7 employer's response, 24-23 fully detailed claim, 24-21 initial claim, 24-19 937

INDEX

INDEX

Claims-cont. interim measures, 24-22 payment of contractor, 24-24-24-27 Silver Book, 25-249, AI-20 supporting documents, 24-20 disputes. See Disputes engineer's role, 24-04 procedure, 24-02, 24-24-24-28 purpose of procedure, 24-01 requirement to follow, 24-01 Cle-en-main contract, 1-12 Clearance of site, 15-43, 15-44, 25-189, AI-II Co-operation, contractor, 8-42-8-44, 25-92, 25-93, AI-04 Silver Book, 25-92, 25-93, AI-04 Co-ordination of works, BOT,4-50-4-52 contract, 1-02, 1-03 contractor, 8-01, 8-20 Silver Book, 4-50-4-52 turnkey contract, 2-02 Commencement date, adjustment, 12-02 calculation, 12-02 DBIA Agreement, A5-06 definition, 5-29, 25-23, AI-01 EIC Contract, A3-9 ICE Design and Construct Condition of Contract, 5-29 notice, 12-11, 12-12 programme, 12-21-12-26, AI-08 purpose, 12-12 setting, 12-11-12-15, AI-08 Silver Book, 5-29, 25-23, 25-153,AI-0l,AI-08 time for completion and, 12-02, AI-08 Communications, contract, 5-65 Silver Book, 5-65,25-51, AI-01 Compensation, AlA Form A191, A4-10, A4-25 Completion, delays in. See Delay design-bid-build, 1-05 early, 12-03 938

EIC Contract, A3-9 ENAA Contract Model Form, A2-40 extension of time. See Extension of time for completion payment after, 1-29 rate of progress, 12-35 -12-38, AI-08 Silver Book, 12-62 statement at, 18-56-18-58, AI-14 substantial, 14-02 suspension of works, 12-06-12-08 tests after. See Tests after completion tests on. See Tests on completion time for. See Time for completion Compliance with laws, contract, 5-76 ICE Design and Construct Condition of Contract, 5-77 Orange Book, 5-76 Red Book, 5-76 Silver Book, 5-76, 25-62, AI-01 Yellow Book, 3-07, 5-76 Concession agreement, BOT, 4-05, 4-08 Conciliation, 24-46 Confidentiality, arbitration, 24-13 contract, 5-04, 5-71 EIC Contract, A3-21 Orange Book, 5-75 Red Book, 5-75 Silver Book, 5-04, 5-71, 5-75, 25-59,25-60,AI-01 tender, 5-75 Yellow Book, 5-75 Conflicts clause, contract, 5-03 Silver Book, 5-03 Consortiums, contractor, 8-02 Construction contract, BOT, 4-05, 4-12 Construction documents, contract, 5-06 definition, 5-57 Orange Book, 5-57 spare parts, 5-06

Contract, 5-01-5-83 agreement. See Contract agreement allocation of responsibility, 1-01 assignment, 5-69 BLT,I-16 BOO, 1-16 BOT 1-16. See also BOT build lease transfer (BLT), 1-16 build operate transfer (BOT) 1-16. See also BOT build own operate (BOO), 1-16 care and supply of documents, 5-70 choice of method, 1-01 de-en-main, 1-12 co-ordination of works, 1-02, 1-04 communications, 5-65 compliance with laws, 5-76 confidentiality, 5-04, 5-71, 5-75 conflicts clause, 5-03 construction documents, 5-06 definition, 5-09, 5-10, 25-06 design, definition, 5-05 design and construct 1-12. See also Turnkey contracts design function, 1-03 design-bid-build. See Design-bidbuild design-build 1-04. See also Turnkey contracts elements, 1-03 employer's documents, 5-74 generally, 5-01 governing law, 5-66 identification of design source, 1-02 interpretation, 5-64 joint and several liability, 5-78-5-83 language, 5-02,5-66 management contracting, 1-11 methods of contracting, 1-03, 1-04 package deal, 1-12 part-turnkey method, 1-15 price. See Contract price; Price priority of documents, 5-67 semi-turnkey method, 1-15

Silver Book, 5-01, 25-06, AI-0l steps in making choice, 1-02 turnkey method, 1-04 types, 1-01-1-18 Contract agreement, 5-68, AI-01 definition, 5-11, 25-07 Red Book, 5-68 Silver Book, 5-11, 5-68, 25-07, 25-55,A1-01,A1-53 Yellow Book, 5-68 Contract price, See also Price AGC Document 415, A6-07 basis, 18-12-18-19 contract adjustments, A5-22 DBIA Agreement, A5-07 DBIA General Conditions, A5-21 definition, 5-38, AI-Ol delay, 12-05 EIC Contract, A3-14 ENAA Contract Model Form, A2-4, A2-25 generally, 18-01 ICE Design and Construct Condition of Contract, 5-38 Orange Book, 5-38 Red Book, 5-38 Silver Book, 5-38, 25-203-25-216,AI-14 advance payment, 25-203, AI-14 definition, AI-0l sufficiency, contractor, 8-59-8-61, 25-100, AI-04 Yellow Book, 5-38 Contractor, 8-01- 8-96 access route, 8-72, 8-73, 25-106,25-107,AI-04 bankruptcy, 19-09 care of the works, 21-18-21-21, 25-232,Al-17 co-operation, 8-42-8-44, 25-92, 25-93,AI-04 co-ordination of works, 8-01, 8-20 consortiums, 8-02 contract price sufficiency, 8-59-8-61,25-101,AI-04 939

INDEX

Contractor-cont. defects liability, 15-04, AI-II definition, 5-19, AI-01 design responsibility, 1-12,8-01 documents. See Contractor's documents electricity, 8-81, 8-82,25-112, 25-113, AI-04 employer's equipment, 8-83, 8-84 environmental protection, 8-78-8-80,25-111,AI-04 equipment, 8-76, 8-77 removal on termination, 20-24-20-26, 25-228, Al-16 failure to perform, 19-07 fitness for purpose, performance, 8-14-8-19 fossils, 8-93, 8-94,25-121, 25-122, AI-04 free-issue material, 8-83, 8-84, 25-114,25-115,AI-04 gas, 8-81, 8-82,25-112, 25-113, AI-04 generally, 8-01 goods, transport of, 8-74, 8-75, 25-108, AI-04 insolvency, 19-09 inspection of site, 8-04 interference, avoidance of, 8-70, 8-71,25-105,AI-04 limitation of liability, 21-09, 21-39-21-43,A1-17 nature, 8-02 nominated subcontractors, 8-37-8-41 obligations, 4-22, 25-83, 25-84 co-ordination of works, 8-20 general obligations, 8-22-8-24 performance, 8-13 - 8-19 Silver Book, 4-22, 25-82, 25-83 summary, 8-95, 8-96 tender phase, 8-03-8-12 tests on completion, 13-04-13-08,A1-09 operations on site, 8-90-8-92, 25-119,25-120,AI-04 performance bond, 8-25 940

INDEX

performance phase, 8-13-8-19 fitness for purpose, 8-14-8-19 generally, 8-13 performance security, 8-25-8-30,25-85,25-86, AI-04 progress reports, 8-85-8-87, 25-116, 25-117, A1-04 protection of the environment, 8-78-8-80,25-111,AI-04 quality assurance, 8-50, 8-51, 25-97,25-98,AI-04 records, 10-31, 10-32,25-143, A1-06 records of personnel and equipment, 10-31, 10-32, AI-06 representative. See Contractor's representative responsibilities, 8-01 rights of way, 8-68, 8-69, 25-104, AI-04 role, 8-01 safety procedures, 8-47-8-49, 25-94, 25-96, A1-04 security of site, 8-88, 8-89, AI-04 setting out, 8-45, 8-46,25-94, AI-04 Silver Book, 25-15, 25-83, A1-04 contractor's representative, A1-04 definition, 5-19, 25-15, AI-01 obligations, 4-22, 25-83, 25-84, AI-04 performance security, A 1-04 time for completion, 4-32-4-36, AI-08 site data, 8-04, 8-52-8-58, 25-99,25-100 importance, 8-53 interpretation, 8-55 tender phase, 8-53 verification, 8-54 staff and labour, duties, 10-02, 10-03 personnel,10-28-10-30 records of personnel and equipment, 10-31, 10-32, AI-06

superintendence, Orange Book, 5-48 10-25-10-27,A1-06 removal on termination, subcontractor, 8-33-8-36 20-24-20-26,25-228, nominated,8-37-8-41 AI-16 summary of obligations, 8-95, responsibility, 8-76, 8-77, A1-04 8-96 Silver Book, 5-48, 25-109, suspension of works, 12-09, 25-110,A1-04,Al-17 20-02, At-08 Contractor's personnel, tender phase, 8-03-8-12 definition, 5-23,25-19, AI-01 development of a tender, 8-03 insurance, Al-18-Al-19 examination of site, 8-04 Silver Book, 5-23, 25-19, ground conditions, 8-04, 8-07 AI-0l, AI-06 inspection of site, 8-04 Contractor's proposal, quality of bids, 8-03 Orange Book, 5-15 site data, 8-04, 8-53 Yellow Book, 5-15 unforeseeable sub-surface Contractor's representative, 8-31, conditions, 8-05 8-32 termination by. See under definition, 5-21 Termination ICE Design and Construct tests on completion, Condition of Contract, 5-21 13-04-13-08,25-170, Orange Book, 5-21 AI-09 Silver Book, 5-21, 25-87, AI-04 transport of goods, 8-74, 8-75, Contractor's undertaking, 25-108, A1-04 design, 9-25, 9-26,25-127, unforeseeable sub-surface AI-OS conditions 8-05, Copyright, 8-62-8-67. See also EIC Contract, A3-20 Unforeseeable sub-surface Correction of work, conditions AlA Form A191, A4-01 water, 8-81, 8-82, 25-112, notice, 19-13-19-16,25-217, 25-113, AI-04 AI-IS Contractor's documents, Cost, definition, 5-57, 25-45, 25-46, definition, 5-39, 25-33, 25-34, AI-01 At-Ot design, 25-125, 25-126, AI-05 ICE Design and Construct employer's use, 5-72, 5-73, Condition of Contract, 5-39 25-46 overruns, ICE Design and Construct Silver Book, 4-56 Condition of Contract, 5-73 Silver Book, 5-39, 25-33, 25-34, Orange Book, 5-72 AI-0l Red Book, 5-57 Cost-plus pricing method, 1-23 Silver Book, 5-57, 25-45, 25-46 Cost-reimbursable pricing method, definition, AI-01 1-22 design, 25-125, 25-126 Country, employer's use, 5-72, 5-73, definition, AI-0l 25-61, AI-01 Credit agreement, Yellow Book, 5-57 BOT, 4-03,4-05,4-07 Contractor's equipment, Currency, definition, 5-48, AI-01 foreign, 5-41 insurance, 22-08, 25-243, insurance, 22-04 AI-18-Al-19 local,5-42 941

INDEX

INDEX

Currency-cont. payment, 1-27, 18-72-18-75, AI-14 variation payment in applicable, 17-30,17-31, AI-13 DAB. See Dispute Adjudication Board Damages, delay, 12-39-12-44, AI-08 Silver Book, 4-44, 25-160, 25-162, A1-08 liquidated. See Liquidated damages Silver Book, 4-43, 4-44, AI-08 delay, 4-44, 25-161, 25-162, AI-08 Day, definition, 5-36, AI-01 international projects, 5-36 Silver Book, 5-36, A1-01 Daywork, variations, 17-35-17-37, Al-13 DBIA Agreement, 2-15, 2-18, A5-01-A5-20 agreement, A5-01 bonds, AS-II commencement, A5-06 contract documents, A5-03 contract price, A5-07 contract time, A5-06 insurance, A5-11 interpretation and intent, A5-04 other provisions, A5-12 ownership, AS-OS payment, A5-08 representatives of the parties, A5-10 scope of work, A5-02 termination for convenience, A5-09 DBIA General Conditions, A5-13-A5-21 amendments, A5-24 assignment, A5-24 bonds, A5-17 changes to the contract price and time, A5-21 contract price, A5-21 definitions, A5-13 942

design-builder's services and responsibilities, A5-14 disputes, A5-22 governing law, A5-2 hazardous conditions, A5-16 headings, A5-24 indemnification, A5-19 insurance, A5-17 mutual obligations, A5-13 notice, A5-24 owner's services and responsibilities, A5-15 payment, A5-18 performance security, A5-17 severability, A5-24 site conditions, A5-16 stop work, A5-23 successorship, A5-24 termination for cause, A5-23 time, A5-20 waiver, no, A5-24 Default of contractor, bankruptcy, 19-09 entitlement to termination, termination, 19-17-19-26, AI-15 failure to perform, 19-07 insolvency, 19-09 payment after, 19-30-19-34, AI-IS termination, bankruptcy, 19-09 effect, 19-10 failure to perform, 19-07 generally, 19-04 grounds, 19-06-19-09 insolvency, 19-09 procedure, 19-05 Silver Book, 19-41 transfer of obligations, violation of restrictions on, 19-07 transfer of obligations, violation of restrictions on, 19-07 valuation at date of termination, 19-27-19-29,25-219, A1-15 Defects liability, 15-01-15-44, A1-11 access right, 15-33, 15-34, 25-184,25-185,Al-l1

BOT,1-16 clearance of site, 15-43, 15-44, 25-189, Al-11 completion of outstanding work, 15-10-15-16,25-177, 25-178, AI-II contractor to search, 15-35, 15-36, AI-II contractor's duties, 15-04, Al-11 cost of remedying defect, 15-17-15-20,25-179, 25-180, Al-11 defect clause, 15-01 defective work, removal of, 15-28,15-29,Al-11 duration of period, 15-02, 15-03, Al-11 employer's right to use outside contractor, 15-05, AI-II ENAA Contract Model Form, A2-41 expiration of period, 15-06-15-08,Al-11 extension of period, 15-21-15-23,Al-11 failure to remedy defects, 15-24-15-27,25-182, Al-11 further tests, 15-30-15-32, Al-11 generally, 15-01 maintenance clause, 15-01 notification period, 15-01 outside contractor, employer's right to use, 15-05 outstanding work, completion of, 15-10-15-16, AI-II performance certificate, 15-37-15-40,25-186, 25-187 period, 15-01, AI-II duration, 15-02, 15-03 expiration, 15-06-15-08 extension, 15-21-15-23 remedying defect, cost of, 15-17-15-20,25-179, 25-180, AI-II removal of defective work, 15-28,15-29,25-183, AI-II

right of access, 15-33, 15-34, AI-II search, contractor to, 15-35, 15-36, Al-11 Silver Book, 25-177-25-189, Al-11 access right, 25-184, 25-185, A1-11 clearance of site, 25-189, Al-11 completion of outstanding works, 25-177, 25-178, A1-11 cost of remedying defect, 25-179, 25-180,A1-11 failure to remedy defects, 25-185, AI-II performance certificate, 25-186, 25-187,Al-11 removal of defective work, 25-183, A1-11 unfulfilled obligations, 25-188, Al-11 terminology, 15-01 unfulfilled obligations, 15-41, 15-42,25-188,Al-11 wording of clause, 15-01 Defects notification period, definition, 5-34, 25-31, 25-32, A1-01 extension, A1-11 Red Book, 5-34 Silver Book, 5-34, 25-31, 25-32, 25-181, A1-01 Yellow Book, 3-05, 5-34 Delay, authorities causing, 12-32-12-34,25-158, 25-159, AI-08 completion, 12-04, 12-05 contract price, 12-05 damages, 12-39-12-44, AI-08 Silver Book, 4-44, 25-161, 25-161, AI-08 design-bid-build, 1-05 duty to minimise, 12-34, 23-12-23-21 effect, 12-01 extension of time for completion. See Extension of time for completion 943

INDEX

INDEX

Delay-cont. force majeure, 12-34, 23-12-23-21 increase in contract price, 12-05 liquidated damages, 12-05, 12-39-12-44 payment, 18-48-18-50,25-213, Al-14 performance programme, 12-04, A1-08 rate of progress, 12-35 -12-38, 25-160,AI-08 Silver Book, damages, 4-44, A1-08 payment, Al-14 suspension of works, 12-49-12-52,A1-08 tests after completion, 16-14-16-16,25-192, Al-12 tests on completion, 13-09-13-12,AI-09 Delegated persons, employer's administration, 7-20, 25-77, A1-03 Design, 9-01-9-41 as-built documents, 9-34-9-36, 25-129, 25-130, A1-05 BOT, 4-19-4-21 contract, definition, 5-05 contractor, documents, 9-14-9-23, 25-125,25-126 liability, 9-02-9-04 responsibility, 1-12 contractor's documents, 25-125, 25-126, A1-05 contractor's undertaking, 9-25, 9-26, 25-127, A1-05 definition, 5-05 design-build contract, 9-02 documents, 9-14-9-23 as-built, 9-35, 9-36,25-129, 25-130, A1-05 contractor's, 25-125, 25-126 ENAA Contract Model Form, A2-34 error, 9-40-9-41, AI-05 fitness for purpose, 9-02, 9-03 generally, 9-01

944

insurance, 22-10-22-12 maintenance manuals, 9-37-9-39, AI-05 non-FIDIC contracts, 9-04 obligations, 9-07 - 9-13 Silver Book, 3-27, 9-07, 9-08, 25-123,25-124 operation manuals, 9-37-9-39, 25-131, AI-05 peformance requirements, 9-03 review processes, review only, 9-24 review and possible approval, 9-24 Silver Book, 9-24 Yellow Book, 9-24 Silver Book, 3-27,4-19-4-21, 25-123-25-131,A1-05 contractor's documents, 25-125, 25-126, A1-05 contractor's undertaking, 25-127 definition, 5-05 errors, 25-132, A1-05 obligations, 3-27, 4-20, 4-21, 9-07,9-08,25-123, 25-134, AI-05 operation and maintenance manuals, 25-131, 25-132, A1-05 technical standards and regulations, A1-05 training, 25-128, A1-05 undertaking, contractor's, AI-05 specifications, 9-03 standard, 9-02-9-04 subcontractor, 8-34 technical standards and regulations, 9-27- 9-31, AI-05 timing issues, 9-05 training, 9-32, 9-33, 25-128, A1-05 verification, 2-12 Design and construct contract, 1-12. See also Turnkey contracts Design-bid-build, completion date, 1-05 construction work packages, 1-08 contract, 1-04

delay, 1-05 disadvantages, 1-05 financing, 1-05 France, 1-05 meaning, 1-04, 1-05 method, 1-05, 1-06 multiple contract method, 1-04, 1-07, 1-08, 1-10 operation, 1-05 several construction contracts, 1-04, 1-07, 1-08, 1-10 single construction contract, 1-04, 1-07, 1-09 traditional method, 1-05 Design-build, See also Turnkey contracts contract, 1-04 growth in use, 1-12 meaning, 1-04, 1-12 Orange Book. See Orange Book standard of design, 9-02 United States, 1-12 Designer, United States, 2-05 Determinations, employer's administration, 7-23-7-25,25-81,25-82, AI-03 Silver Book, 7-23, 25-81, 25-82, AI-03 Discharge, payment, 18-10, 18-63, 18-64, 25-215, Al-14 Silver Book, 25-215, Al-14 Disorderly conduct, staff and labour, 10-33, 10-34, 25-144, AI-06 Dispute adjudication board, adjudication, 24-47, 24-48 appointment, 24-29-24-48, 25-250,Al-20 composition, 24-31, 24-35 conciliation, 24-46 decision, effect, 24-56 notice of dissatisfaction, 24-57,24-58-24-62 obtaining, 24-53-24-62, Al-20 one party protesting decision, 24-57

rendered by DAB, 24-55 definition, 5-25, 25-19 employer's representative, 24-45 expiration, 24-34 expiry of appointment, 24-77-24-80,A1-20 failure to agree, 24-49-24-52, 25-251, AI-20 failure to pay remuneration, 24-37-24-44 formation, 24-30 general conditions, Al-21 non-compliance with decision, 24-73-24-76,A1-20 notice of dissatisfaction, 24-57, 24-58-24-62 obtaining decision, 24-53-24-62,AI-20 remuneration, 24-32, 24-37 failure to pay, 24-38-24-44 replacement, 24-33 Silver Book, 5-25, 25-20 amicable settlement, 25-252, Al-20 appointment, 25-250, AI-20 failure to agree, 25-251, Al-20 submission of dispute, 24-54 terms of appointment, 24-36 Dispute Review Board (DRB), 24-10 procedural rules, A1-22 Disputes, AGC Document 415, A6-12, A6-15 AlA Form A191, A4-07, A4-22 alternative methods. See Alternative dispute resolution amicable settlement, 24-63-24-65,Al-20 DBIA General Conditions, A5-22 Dispute Review Board (DRB), 24-10 EIC Contract, A3-23 ENAA Contract Model Form, A2-20 engineer's role, 24-04 final resolution, 24-11-24-16 importance of resolution, 24-01 945

INDEX

Disputes-cont. interim resolution, 24-01, 24-03 levels of resolution, 24-01 litigation, 24-11 resolution, 24-01 temporary resolution, 24-01 Documents, care and supply of, 5-70 contract, 5-70 ICE Design and Construct Condition of Contract, 5-70 ownership under AlA contract, A4-01 priority, 5-67 priority. See Priority of documents Silver Book, A1-01 use under AlA contract, A4-01 Early completion, 12-03 Efficiency, turnkey contracts, 2-10 EIC Contract, 2-21, 2-158 acceptance, A3-9 allocation of risk, A3-12 applicable law, A3-24 commencement, A3-9 common obligations of owner and contractor, A3-7 completion, A3-9 confidentiality, A3-21 contract price, A3-14 contractor's default, A3-18 contractor's general obligations, A3-6 contractor's principal obligations in relation to design and extension of works, A3-4 copyright, A3-20 definitions, A3-1 discharge of obligations, A3-17 duties, A3-16 insurance, A3-I3 intellectual property, A3-20 interpretation, A3-1 liquidated damages, A3-10 owner's default, A3-19 owner's general obligations, A3-5 owner's principal obligations in 946

INDEX

relation to design and execution of works, A3-3 payment, A3-I5 performance security, A3-8 scope of services and work, A3-2 settlement of disputes, A3-23 taxes, A3-16 termination, A3-22 variations, A3-11 warranties, A3-17 Electricity, contractor, 8-81, 8-82,25-112, 25-113, AI-04 Silver Book, 8-81, 8-82,25-112, 25-113, AI-04 Electronic data, AlA Form A191, A4-01 Employees, insurance, 22-40-22-43 Employer, 6-01- 6-13 access to site, 6-02, 6-04-6-06, AI-02 administration, Silver Book, 3-23 approvals, 6-07, 6-08, AI-02 bankruptcy, 20-06 claims, Silver Book, 6-12,25-73, 25-74 Yellow Book, 3-09 contract administration, 1-13 definition, 5-18, AI-0l documents. See Employer's documents financial arrangements, 6-11 Yellow Book, 3-08 generally, 6-01 ICE Design and Construct Condition of Contract, 5-18 insolvency, 20-06 licences, 6-03, 6-07, 6-08, AI-02 obligations, Silver Book, 6-13, 6-14 Orange Book, 5-18, 6-01 permits, 6-03, 6-07, 6-08, AI-02 personnel, 5-22, 6-09, 6-10, 25-18,25-70 possession, 6-02 risks, 21-04, 21-05, 21-22-21-26

consequences, 21-27-21-32 Silver Book, 3-31, A1-17 Yellow Book, 3-31 Silver Book, 6-01 administration, 3-23 definition, 5-18, A1-01 requirements, 1-14 risks, 3-31, AI-17 suspension of works, 12-06-12-08,AI-08 taking over. See Taking over termination by. See under Termination turnkey contracts, role in, 1-13 Yellow Book, claims, 3-09 financial arrangements, 3-08 risks, 3-31 Employer's administration, See also Employer's representative; Engineer assistants, 7-19 delegated persons, 7-20,25-78, AI-03 determinations, 7-23-7-25, 25-81,25-82,AI-03 generally, 7-02 instructions, 7-21, 7-22, 25-79, 25-79, AI-03 Orange Book, 7-02 personnel, 25-76,25-77 Silver Book, 25-75-25-82, AI-03 Employer's claims, Silver Book, 6-12, 25-73, 25-74, AI-02 Employer's documents, contract, 5-74 contractor's use, 25-62, AI-0l ICE Design and Construct Condition of Contract, 5-74 Silver Book, 5-74, 25-62 Employer's equipment, availability, 8-83, 8-84 contractor, 8-83, 8-84 definition, 5-59, 25-47, AI-01 Red Book, 5-59 responsibility, 8-83, 8-84 Silver Book, 5-59, 25-47, 25-114, 25-115,AI-01 Yellow Book, 5-59

Employer's financial arrangements, Silver Book, 6-11,25-71,25-72, A1-02 Employer's personnel, 6-09, 6-10 definition, 5-22, AI-Ol Silver Book, 5-22, 6-09, AI-01, A1-02, AI-03 Employer's representative, appointment, 7-12, 7-1318 assignment of duties, 7-16-7-18 assistants, 7-16-7-18 definition, 5-20, 25-16, AI-01 delegated persons, 7-19, 7-20, 25-78 duties, 7-13-7-18 engineer compared, 7-09-7-12 ICE Design and Construct Condition of Contract, 5-20 Orange Book, 5-20, 7-09 replacement, 7-13 role, 7-01 Silver Book, 5-20, 7-01-7-25, 25-75 appointment, 7-13-7-18, AI-03 definition, 25-16, AI-0l duties, AI-03 replacement, A1-03 turnkey contract with, 7-05-7-08 Employer's requirements, definition, 5-12, 25-08, 25-09, AI-01 Silver Book, 5-12, 25-08, 25-09, AI-0l ENAA Contract Model Form, 2-15,2-16,25-01 acceptance, A2-39 Acceptance Certificate, A2-59 accident or injury to workmen, A2-47 arbitration, A2-14 assignment, A2-57 bonds, A2-9, A2-27 care of works, A2-46 change in laws and regulations, A2-50 change in works, A2-53 commissioning, A2-39 completion time guarantee, A2-40 947

INDEX

INDEX

ENAA Contract Model Form-cont. construction, A2-36 consumption guarantee, A2-40 contract documents, A2-2, A2-16 contract price, A2-4, A2-25 contractor's responsibilities, A2-23 contractor's total maximum liability, A2-10 defects liability, A2-41 definitions, A2-15 design, A2-34 duties, A2-28 effective date, A2-12 engineering, A2-34 extension of time for completion, A2~54

force majeure, A2-51 governing law, A2-19 indemnification, A2-47 inspection, A2-37 insurance, A2-7, A2-48 intellectual property, A2-29, A2-30 interpretation, A2-17 language A2-13 limitation of liability, A2-44 loss or damage to property, A2-47 mechanical completion, A2-38 Mechanical Completion Certificate, A2-58 notices, A2-11, A2-18 owner's responsibilities, A2-24 patent indemnity, A2-43 process performance, A2-8 completion guarantees, A2-42 procurement, A2-35 representatives, A2-31 risk distribution, A2-45 - A2-52 scope of works, A2-3, A2-21 settlement of disputes, A2-20 subcontracting, A2-33 suspension, A2-55 taxes, A2-28 termination, A2-56 terms of payment, A2-5, A2-26 test, A2-37 text, A2-1-A2-59 time for commencement and completion, A2-22

948

time for commencement, completion and possession, A2-6 Engineer, disputes, role in, 24-04 employer's representative compared, 7-09-7-12 France, 7-01 functions, 7-10 meaning, 3-20, 3-34 Orange Book, 7-01 Red Book, 7-02, 7-09-7-12 role, 7-01-7-04, 24-04 Yellow Book, 3-10, 3-20, 3-34, 7-01,7-02,7-09-7-12 Engineering, ENAA Contract Model Form, A2-34 Engineering, procurement and construction contract (EPC), See also Turnkey contracts meaning, 1-04, 1-12 Environment, protection by contractor, 8-78-8-80, 25-111,AI-04 risks, 21-07 Silver Book, 25-111 EPC contract, meaning, 1-04, 1-12 Equipment, contractor. See Contractor's equipment insurance, 22-07 Error, design, 9-40-9-41, AI-OS European Bank for Reconstruction and Development, 2-08, 5-83 Examination of site, contractor, by, 8-04 tender, 8-04 Expert determination, 24-08 Extension of time for completion, comparison, 12-65 delay, 12-04, AI-08 delay requiring, 12-27-12-31 ENAA Contract Model Form, A2-54 entitlement, 12-27-12-31 force majeure, 12-29 reasons, 12-27-12-31

Silver Book, 4-34-4-36, 12-64, 25-156,25-157,AI-08 Yellow Book, 3-15 Facilities, Silver Book, 25-104, AI-06 staff and labour, 10-03, 10-19, 10-20, 25-139,A1-06 Fast track construction, meaning, 1-13 Federation Intemationale des Ingenieurs-Conseils. See FIDIC Fees, management contracting, 1-11 FIDIC, best practice, 3-36 Conditions of Contract for EPC([urnkey Projects. See Silver Book Construction 2-24. See also Red Book definition, 5-26 Design-Build and Turnkey 2-22. See also Orange Book EPC and Turnkey Projects 2-25. See also Silver Book format of contracts, 3-03 Green Book. See Green Book harmonisation of contracts, 303 language, 3-03 new standard form contracts, 3-01 Orange Book. See Orange Book Plant and Design-Build 2-23. See also Yellow Book policy, 3-34, 3-35 publications, 3-01, 3-02 Red Book. See Red Book revised standard form contracts, 3-01 role, 3-01 Silver Book. See Silver Book Yellow Book. See Yellow Book Final payment, 18-10, Al-14 AlA Form A191, A4-01 application, 18-59-18-62, Al-14 effecting, 18-65 -18-67 Silver Book, Al-14

Final statement, definition, 5-40, A1-0l Silver Book, 5-40, A1-0l Financial arrangements, employer, 6-11 Financing, BOT, 1-16, 1-18 completion, 1-16 design-bid-build, 1-05 Fitness for purpose, contractor's performance, 8-14-8-19 design, 9-02, 9-03 Force majeure, 23-01-23-34 comparison of provisions, 23-34 concept, 23-02 consequences, 25-246, AI-19 definition, 5-60, 23-03, 23-04-23-08,25-244, At-Ol, AI-19 delay, 12-34 duty to minimise, 23-12-23-21, Al-19 duty to minimise delay, 23-12-23-21 ENAA Contract Model Form, A2-51 events, 23-02, 23-04-23-08 extension of time for completion, 12-29 generally, 23-01 meaning, 3-19,23-02 notice, 23-09-23-11, Al-19 optional termination, 23-24-23-29,Al-19 Orange Book, 5-60 partial,23-10 payment, 23-24-23-29 release, 23-24-23-29, Al-19 performance under the law, from, 23-30-23-33, Al-19 Silver Book, 5-60, 25-244- 25-248 consequences,25-245, 25-246, Al-19 definition, 25-244, AI-01, Al-19 minimising delay, A1-19 notice, Al-19 949

INDEX

Force majeure-cont. optional termination, 25-247, 25-248, Al-19 payment, 25-247, 25-248 release, 25-247, 25-248, Al-19 subcontractor, AI-19 standard form contracts, 23-02 subcontractor, affecting, 23-21-23-23,AI-19 unforeseeable sub-surface conditions, 8-11 use of clause, 23-02 Yellow Book, 3-19 Foreign currency, definition, 5-41, 25-35, 25-36, At-Ol Orange Book, 5-41 Red Book, 5-41 Silver Book, 5-41, 25-35, 25-36, At-Ol Yellow Book, 5-41 Fossils, contractor, 8-93, 8-94,25-121, 25-122, AI-04 Silver Book, AI-04 France, design-bid-build, 1-05 engineer, 7-01 force majeure, 23-01 Free-issue material, contractor, 8-83, 8-84, 25-114, 25-115, AI-04 Silver Book, 8-83, 8-84,25-114, 25-115, AI-04 Frustration, See also Force majeure United States, 23-01 Fuel supply agreement, BOT, 4-05, 4-10

Gas, contractor, 8-81, 8-82, 25-112, 25-113, AI-04 Silver Book, 25-112, 25-113, AI-04 Goods, definition, 5-49, 25-40, AI-0l Red Book, 5-49 Silver Book, 5-49, 25-40, AI-0l 950

INDEX

Yellow Book, 5-49 Governing law, contract, 5-66 DBIA General Conditions, A5-2 ENAA Contract Model Form, A2-19 Silver Book, 5-66, AI-0l Green Book, publication, 3-01 Grove report, 8-10 Guarantees, advance payment guarantee, Silver Book, 4-47 performance security, Silver Book, 4-46 retention money, Silver Book, 4-48 Silver Book, 4-45-4-49 advance payment guarantee, 4-47 generally, 4-45 parent company guarantees, 4-49 performance security, 4-46 retention money, 4-48 Health and safety, Silver Book, 25-140, AI-06 staff and labour, 10-21-10-24, 25-139, A1-06 ICE Design and Construct Condition of Contract, 2-15, 2-17 commencement date, 5-29 compliance with laws, 5-77 contract price, 5-38 contractor, 5-19 contractor's documents, 5-73 contractor's representative, 5-21 cost, 5-39 defects notification period, 5-34 documents, 5-70 employer, 5-18 employer's documents, 5-74 employer's representative, 5-20 permanent works, 5-51 section, 5-53 site, 5-62

substantial completion, 5-32 works, 5-55 Impossibility, United States, 23-01 Indemnification, AGC Document 415, A6-10 contractor's, 21-06, 21-11-21-17,25-230, 25-231 DBIA General Conditions, A5-19 ENAA Contract Model Form, A2-47 intellectual property right infringement, 21-08, 21-33-21-38,AI-17 obligation, 21-06, 21-11-21-17 purpose of clause, 21-06 requirement, 21-06, 21-11-21-17 scope of clause, 21-06 Silver Book, 25-230, 25-231 Inflation, insurance, 22-04 Information, lump-sum pricing method, 1-21 Insolvency, contractor, 19-09 employer, 20-06 Inspection, ENAA Contract Model Form, A2-37 materials, 11-10-11-14, 25-145, AI-07 plant, 11-10-11-14,25-145, AI-07 site, contractor, 8-04 tender, 8-04 unforeseeable sub-surface conditions, 8-63 workmanship, 11-10-11-14, 25-145, AI-07 Instructions, employer's administration, 7-21, 7-22,25-79,25-80,A1-03 Silver Book, 7-21,25-79,25-80, AI-03 variations compared, 17-02 Insurance, 22-01-22-43 AGC Document 415, A6-10

AlA Form A191, A4-01 all-risks, 22-03 assumption of responsibility for, 22-01 construction, insurance of works during, 22-06 contractor's all-risk insurance (CAR), 22-03 contractor's equipment, 22-08, 22-27-22-35,AI-18 contractor's personnel, 22-40-22-43,AI-18 currency, 22-04 DBIA Agreement, AS-II DBIA General Conditions, A5-17 design, 22-10-22-12 duplicated, 22-01, 22-03 EIC Contract, A3-13 employees, 22-40-22-43 ENAA Contract Model Form, A2-7, A2-48 entitlement under policy, 22-02 equipment, contractor's, 22-08, 22-27-22-35,25-243, Al-18 incorporated into the works, 22-07 failure to provide, 22-15 forms, 22-03 general requirements, 22-17-22-26,AI-18 generally, 22-01-22-04 inflation, 22-04 insurer, 22-13 issues, 22-04 joint names, 22-02 liability, 22-09-22-12 design, 22-10-22-12 employees, 22-40-22-43 generally, 22-09 personal injury, 22-36-22-39, AI-18 professional liability, 22-10-22-12 property damage, 22-36-22-39 materials, 22-07 money paid under, 22-04 names on policy, 22-02 951

INDEX

Insurance-cont. personal injury, 22-36-22-39, AI-18 personnel, contractor's, 22-40-22-43,AI-18 proceeding with claims, 22-04 professional liability, 22-10-22-12 proof of insurance, 22-14 property,22-05-22-08 construction, insurance of works during, 22-06 damage, 22-36-22-39, A1-18 equipment incorporated into the works, 22-07 generally, 22-05 materials incorporated into the works, 22-07 requirements, 22-17-22-26, 24-240,25-239 risk, 21-03, 21-44 potential,22-01 Silver Book, 21-44, 25-237-25-241,A1-18 contractor's equipment, 25-241, A1-18 requirements, 25-239, 25-240, A1-18 responsibility, 25-237, 25-238 works, 25-241, A1-18 single-name, 22-02 subcontractor, 22-01 subrogation, 22-02 suppliers, 22-01 terms, 22-13 terms under which obtained, 22-30-22-35 types, 22-03 workman's compensation, 22-42 works, 22-27-22-35, 25-241 Yellow Book, 3-18 Intellectual property right, EIC Contract, A3-20 ENAA Contract Model Form, A2-29,A2-30 indemnification, 21-08, 21-33-21-38,25-234, 25-235, A1-17 infringement risk, 21-08, A1-17 Silver Book, 25-234, A1-17 952

INDEX

Interest, AlA Form A191, A4-17 Interference, avoidance of, contractor, 8-70, 8-71,25-104, A1-04 Silver Book, 25-104, A1-04 Interim payment, application, 18-24-18-29, 18-37-18-43,25-204, 25-205, A1-14 procedure, 18-06, 18-37-18-43 Silver Book, 25-204, 25-205, 25-210, AI-14 Joint and several liability, contract, 5-78-5-83 integrated joint venture, 5-79 methods, 5-80, 5-81 non-integrated joint venture, 5-82 Orange Book, 5-79 Silver Book, 5-78, 5-79, 25-63, 25-64, A1-01 Labour. See Staff and labour Language, arbitration, 24-13 choice, 5-66 contract, 5-02, 5-66 FIDlC contracts, 303 Orange Book, 3-03 Silver Book, 5-02, 5-66, 25-51, 25-52, A1-01 Laws, definition, 5-61, AI-01 Silver Book, 5-61, AI-01 Licences, employer, 6-03, 6-07, 6-08, AI-02 Silver Book, 6-07, 6-08, 25-67, 25-68, AI-02 Limitation of liability, contractor's liability, 21-09, 21-39-21-43,AI-17 ENAA Contract Model Form, A2-44 forms of clause, 21-09 Silver Book, 25-236 Liquidated damages, applicable law, 12-05

assessment, 12-05 delay, 12-05, 12-39-12-44, AI-08 Silver Book, 4-43, 4-44 Local currency, definition, 5-42, AI-01 Silver Book, 5-42, AI-0l Lump-sum pricing method, 1-20, 1-21, 18-02, 18-03 adjustment of contract price, 1-21 advantages, 1-21 formulation of price, 1-21 information, 1-21 instalments, payment in, 1-20 modification of price, 1-20 operation, 1-20 revision of contract price, 1-21 turnkey contracts, 1-12,2-07, 2-14 Maintenance manuals, design, 9-37-9-39 Management contracting, 1-11 Materials, 11-01-11-41 definition, 5-50, AI-01 inspection, 11-10-11-14, 25-144, AI-07 insurance, 22-07 intended for works, 18-34-18-36,AI-14 manner of execution, 11-04-11-07,AI-07 Orange Book, 5-50 ownership, 11-32-11-38, 25-149,25-150,AI-07 permanent works, intended for, 25-208,25-209 price, 18-34-18-36 rejection, 11-21-11-25,24-147, AI-07 remedial work, 11-26-11-31, 25-148, AI-07 royalties, 11-39, 11-40,25-151, AI-07 samples, 11-08, 11-09, AI-07 Silver Book, 5-50, A1-01 suspension, payment during, 12-53,25-164 tests, 11-03, 11-15-11-20, 25-145,25-146

Mediation, 24-06 AlA Form A191, A4-07, A4-22 Milestone payments, 1-30 Minimum levels of performance, tests after completion, 16-06 Nominated subcontractors, 8-37-8-41 advantages, 8-38 choosing, 8-38 meaning, 8-37, 8-40 objections to, 8-40 replacement, 8-39 Silver Book, 25-89, 25-90, AI-04 turnkey contract, use in, 8-38, 8-39 Notice, commencement date, 12-11, 12-12 correct, to, 19-13-19-16, 25-216, AI-IS DBIA General Conditions, A5-24 ENAA Contract Model Form, A2-11, A2-18 force majeure, 23-09-23-11 subcontractor, 8-34, 8-35 Operation and maintenance agreement, BOT, 4-05,4-11 Operation manuals, design, 9-37-9-39, 25-130, 25-131, AI-OS Orange Book, access to site, 6-05 appendix to tender, 5-14 assignment, 5-69 compliance with laws, 5-76 confidentiality, 5-75 construction documents, 5-57 contract price, 5-38 contractor's documents, 5-72 contractor's equipment, 5-48 contractor's proposal, 5-15 contractor's representative, 5-21 employer, 5-18, 6-01 employer's administration, 7-02 953

INDEX

INDEX

Orange Book-cant. employer's representative, 5-20, 7-09 engineer, 7-01 FIDIC policy towards, 3-34 force majeure, 5-60 foreign currency, 5-41 format for all FlDlC contracts, as, 3-03 generally, 2-22 interpretation, 5-64 joint and several liability, 5-79 language, 3-03 materials, 5-50 operation, 3-34 payment certificate, 5-46 performance certificate, 5-35 performance guarantees, 5-16 performance security, 5-62 permanent works, 5-51 priority of documents, 5-67 purpose, 2-22,3-02 statement, 5-45 tender, 5-13 tests after completion, 5-33 updated, not, 3-34 use,2-22,3-20,3-34 Yellow Book and, 3-04-3-21, 3-34 Ownership, AlA Form A191, A4-03, A4-14 DBIA Agreement, AS-OS materials, 11-32-11-38, 25-149,25-150,AI-07 plant, 11-32-11-38,25-149, 25-150, A1-07 Package deal, 1-12 Parent company guarantees, Silver Book, 4-49 Part-turnkey method, 1-15 Parties, BOT,1-17 Silver Book, contractor, 5-19, AI-0l contractor's personnel, 5-23, A1-01 DAB, 5-25, AI-01 definitions, 5-17-5-26, A1-01 954

employer, 5-19, AI-01 employer's personnel, 5-22, A1-01 employer's representative, 5-20, AI-01 FIDIC, 5-26, At-Ol party, 5-18, AI-0l Party, Silver Book, 5-18, AI-01 Payment, See also Price advance, 18-09, 18-20-18-23, AI-14 Silver Book, 4-53 after completion, payment, 1-29 AGC Document 415, A6-09 AlA Form A191, A4-06, A4-17 cessation of employer's liability, 18-68-18-71,25-215, Al-14 currency, 18-72-18-75, Al-14 DBlA Agreement, A5-08 DBlA General Conditions, A5-18 delayed, 18-48-18-50,25-212 discharge, 18-10, 18-63, 18-64, 25-214, AI-14 ENAA Contract Model Form, A2-5, A2-26 final, 18-10, AI-14 application, 18-59-18-62, Al-14 effecting, 18-65 -18-67 force majeure, 23-24-23-29 instalments, 18-44 -18-47 interim payment, application, 18-24-18-29, 18-37-18-43,Al-14 procedure, 18-06, 18-37 -18-43 Silver Book, 25-204, 25-205, AI-14 methods, 1-28-1-31, 18-05 after completion, payment, 1-29 choice, 1-28 generally, 1-28 milestone payments, 1-30 progress payments, 1-31 scheduled payments, 1-31 milestone payments, 1-30

penalties of late payment, definition, 5-35, A1-01 18-48-18-50 Orange Book, 5-35 progress, Red Book, 5-35 AlA Form A191, A4-17 Silver Book, 5-35, A1-01, AI-II payments, 1-31, A4-17 Yellow Book, 5-35 retention money, 18-07, 18-08, Performance guarantees, 18-51-18-55, AI-14 definition, 5-16, 16-02, scheduled payments, 1-31, 25-11-25-13,A1-01 18-30-18-33,25-206, insufficiency of performance, 25-207, Al-14 16-02 sequence of events, 18-76 Orange Book, 5-16 Silver Book, 4-53, 4-54 Red Book, 5-16 advance, 4-53 Silver Book, 4-46, 5-16, after termination, 4-54, AI-16 25-11-25-13,AI-01 delayed payment, 25-212 sufficiency of performance, interim payments, 25-210, 16-02 AI-14 tests after completion, 16-02 retention money, 25-213, tests for, 16-02, 16-03 Al-14 Yellow Book, 5-16 timing of payments, 25-211, Performance security, Al-14 contractor, 8-25-8-30,25-84, statement at completion, 25-85, AI-04 18-56-18-58, AI-14 DBlA General Conditions, suspension, payment for plant A5-17 and materials during, 12-53, definition, 5-62, AI-01 12-54,25-164,AI-08 Orange Book, 5-62 termination, ZO-27 - 20-30, Silver Book, 4-46, 5-62, 25-84, 25-220 25-85, AI-01, A1-04 after, 19-30-19-34, Permanent works, 20-27-20-30,AI-16 definition, 5-51, AI-01 timing, 18-44-18-47,25-211, ICE Design and Construct AI-14 Condition of Contract, 5-51 Payment certificate, Orange Book, 5-51 definition, 5-46 Red Book, 5-51 Orange Book, 5-46 Silver Book, 5-51, 25-208, Red Book, 5-46 25-209, AI-0l Silver Book, 5-46 Yellow Book, 5-51 Yellow Book, 5-46 Permits, Performance, employer, 6-03, 6-07, 6-08, certificate. See Performance AI-02 certificate Silver Book, 6-03, 6-07, 6-08, contractor, 8-13-8-19 25-67, 25-68,AI-02 fitness for purpose, 8-14 - 8-19 Personnel, fitness for purpose, 8-14-8-19 contractor's. See Contractor's guarantee. See Performance personnel guarantees employer. See Employer's programme, 12-04, personnel 12-21-12-26,AI-08 Plant, 11-01-11-40 security. See Performance security definition, 5-52, 25-40, AI-01 Performance certificate, inspection, 11-10-11-14, defects liability, 15-37-15-40 25-144, AI-07 955

INDEX

Plant-cont. intended for works, 18-34-18-36,A1-14 manner of execution, 11-04-11-07,A1-07 ownership, 11-32-11-38, 25-149,25-150,AI-07 permanent works, intended for, 25-208,25-209,A1-14 price, 18-34-18-36 rejection, 11-21-11-25,24-147, A1-07 remedial work, 11-26 -11-31, 25-148, A1-07 royalties, 11-39, 11-40,25-151, A1-07 Silver Book, 5-52, 25-40, A1-01 suspension, payment during, 12-53,25-164,AI-08 tests, 11-03, 11-15-11-20, 25-145,25-146 Pledges, BOT,4-03 Political entities, BOT,1-18 unit price method, 1-25 Possession, employer, 6-02 Power purchase agreement, BOT, 4-05, 4-09 Price, See also Contract price; Payment adjustment, bill of quantities method, 1-25 lump-sum method, 1-21 unforeseen circumstances, 18-04 advance payments, 18-09, 18-20-18-23,25-203, A1-14 bill of quantities method, 1-24, 1-25 bonus schemes, 1-26 cost-plus method, 1-23 cost-reimbursable method, 1-22 currency of payment, 1-27, 18-72-18-75 increases, comparison, 18-78 Silver Book, 18-77 956

INDEX

lump-sum method, 1-20, 1-21, 18-02, 18-03 See also Lump-sum method advantages, 1-21 turnkey contracts, 1-12 methods, 1-19-1-27 bill of quantities, 1-24, 1-25 cost-plus, 1-23 cost-reimbursable method, 1-22 generally, 1-19 lump-sum method, 1-20, 1-21 unit price, 1-24, 1-25 plant, 18-34-18-36 retention money, 18-07, 18-08 revision, lump-sum pricing method, 1-21 Silver Book, 3-30 contractor, price/cost exceptions in favour of, 4-39,4-40 employer, price/cost exceptions in favour of, 4-41, 4-42 sufficiency, 4-37-4-42, AI-04 statement at completion, 18-56-18-58,A1-14 sufficiency, Silver Book, 4-37-4-42, AI-04 unforeseen circumstances, adjustment for, 18-04 unit price method, 1-24, 1-25 Priority of documents, contract, 5-67 Orange Book, 5-67 Red Book, 5-67 Silver Book, 5-67, 25-53, 25-54, AI-01 Yellow Book, 5-67 Procurement, ENAA Contract Model Form, A2-35 Professional liability insurance, 22-10-22-12 Programme, commencement date, 25-154, 12-21-12-26,25-153, AI-08 performance, 12-04, 12-21-12-26,AI-08

Silver Book, 25-153, 25-154, AI-08 Yellow Book, 3-14 Progress, payments, 1-31, A4-17 rate, 12-35-12-38,25-159 reports, contractor, 8-85-8-87, 25-115,25-116,AI-04 Silver Book, 25-115, 25-116, AI-04 Silver Book, 25-159, AI-04 Project financing, BOT. See BOT European Bank for Reconstruction and Development, 2-08 Silver Book, 3-32, 3-37 turnkey contracts, 2-08 Proper law, arbitration, 24-14 Provisional sum, definition, 5-43, 25-36, AI-Ol Silver Book, 5-43, 25-36, AI-Ol variations, 17-09, 17-32-17-34 Provisional sums, variations, 17-09, 17-32-17-34, 25-198 Public service facilities, taking over, 14-01, AI-06 Punch list, 13-01

contract agreement, 5-68 contract price, 5-38 contractor's documents, 5-57 defects notification period, 5-34 employer's equipment, 5-59 engineer, 7-02, 7-09-7-12 foreign currency, 5-41 generally, 2-24 goods, 5-49 payment certificate, 5-46 performance certificate, 5-35 performance guarantees, 5-16 permanent works, 5-51 previous editions, 3-02 priority of documents, 5-67 publication, 3-01 structure, 3-03 subcontractor, 5-24 tests after completion, 5-33 tests on completion, 5-31 use, 2-24 variation, 5-63 Rejection, materials, 11-21-11-25, 24-147, AI-07 plant, 11-21-11-25,24-147, AI-07 Remedial wor~, materials, 1-1-26-11-31, 25-148, AI-07 plant, 11-26-11-31,25-148, AI-07 workmanship, 11-26-11-31, Quality assurance, 25-148, AI-07 contractor, 8-50, 8-51,25-96, Yellow Book, 3-13 25-97, AI-04 Remuneration, Silver Book, 25-96, 25-97, AI-04 dispute adjudication board, 24-32 Representative, Rate of progress, 12-35 -12-3 8, contractor, 8-31, 8-32 AI-08 DBIA Agreement, AS-tO Records, employer's. See Employer's contractor, 10-31, 10-32, representative 25-142, AI-06 ENAA Contract Model Form, staff and labour, 10-31, 10-32, A2-31 25-142, AI-06 Resumption of work, Red Book, suspension of works, 12-08, appendix to tender, 5-14 12-60,12-61,25-167, assignment, 5-69 Al-08 compliance with laws, 5-76 Retention money, 18-07, 18-08, confidentiality, 5-75 AI-14 957

INDEX

Retention money-cont. definition, 5-44, 25-37, 25-38, A1-01 payment of, 18-51-18-54, 25-213, Al-14 Silver Book, 5-44, 25-37, 25-38,25-213, A1-01, Al-14 Retesting, tests after completion, 16-17-16-19,Al-12 Rights of way, contractor, 8-68, 8-69,25-103, AI-04 Silver Book, 25-103, A1-04 Risk,21-01-21-44 ability to manage, 21-01 allocation, 21-01 apportionment, 21-01 BOT,4-14-4-17 care of the works, 21-05, 21-18-21-21,25-231, AI-17 contractor's responsibility for the care of the works, 21-05, 21-18-21-21,25-231, AI-17 cost of bearing, 21-01 employer's, 21-05, 21-22-21-26,25-232 consequences, 21-27-21-32, 25-233, A1-17 ENAA Contract Model Form, A2-45-A2-52 environmental,21-07 factors in balancing, 21-03 generally, 21-01-21-04 indemnification, 21-06 insurance, 21-03, 21-44 intellectual property right infringements, 21-08, 21-33-21-38,25-234, 25-235, AI-17 issues, 21-04 least-cost risk bearer, 21-01 legal system, 21-03 limitation of liability. See Limitation of liability negotiations, 21-01 proactive dealings, 21-01 Silver Book, 3-32, 3-33, 25-02, 958

INDEX

25-03,25-229-25-236, A1-17 third parries, 21-01 UNCITRAL,21-03 United States, 21-01 Yellow Book, 3-21 Royalties, materials, 11-39, 11-40, 25-151, AI-07 plant, 11-39, 11-40,25-151, AI-07 Safety procedures, contractor, 8-47-8-49,25-94, 25-95, AI-04 Silver Book, 25-94, 25-95, AI-04 Samples, materials, 11-08, 11-09, A1-07 Silver Book, AI-07 Scheduled payments, 1-31, 18-30 -18-33 Silver Book, 5-16, 25-11, 25-13, 25-206,25-207,Al-14 Section, definition, 5-53, 25-41, 25-42, AI-01 ICE Design and Construct Condition of Contract, 5-53 Silver Book, 6-53,25-41,25-42, AI-01 Security of site, contractor, 8-88, 8-89, 25-117, A1-04 Silver Book, 25-117, AI-04 Setting out, contractor, 8-45, 8-46,25-93, A1-04 Silver Book, 3-24,25-93, AI-04 Settlement of disputes, ENAA Contract Model Form, A2-20 Shareholders agreement, BOT, 4-05, 4-06 Silver Book, 4-01-4-58, AI-01-A1-55 See also BOT access route, 25-105, 25-106, AI-04 access to site, 6-04-6-06,

25-65,25-66,25-183, 25-184, AI-02 additional lender requirements, financing of cost overruns, 4-56 generally, 4-55 step-in, step-out rights, 4-57 advance payment, 4-53, 25-203, Al-14 guarantee, 4-47 appendix to tender, 5-14 approvals, 6-07, 6-08, 25-67, 25-68, AI-02 arbitration, 25-251, AI-20 as-built documents, 9-34-9-36, 25-128,25-129,AI-05 assessment, 3-32, 3-33, 4-58 assignment, 5-69, 25-56, 25-57, A1-01 base date, 5-28, 25-20, 25-21, AI-01 basis, 3-35 care and supply of documents, 5-70, A1-01 cessation of employer's liability, 25-215, AI-14 claims, contractor's, 25-247, AI-20 co-operation, 25-91, 25-92, AI-04 co-ordination of works, 4-50-4-52 commencement date, 5-29, 25-22, AI-01, AI-08 commencement of works, 25-152, A1-08 communications, 5-65, 25-50, AI-0l completion, 12-62 compliance with laws, 5-76, 25-62, AI-Ol confidentiality, 5-04, 5-71, 5-75, 25-58, 25-59,AI-01 conflicts clause, 5-03 construction, 4-22-4-26 contract, 5-01, 25-06, AI-Ol contract agreement, 5-11, 5-68, 25-07,25-55,AI-53 definition, 5-11, 25-07, AI-01 contract price, 5-38, 25-202-25-215,AI-14

advance payment, 25-203, AI-14 definition, AI-01 sufficiency, 25-100, AI-04 contractor, 25-14, 25-82, AI-01 contractor's representative, AI-04 definition, 5-19,25-14, AI-01 obligations, 4-22, 25-82, 25-83,AI-04 performance security, AI-04 time for completion, 4-32-4-36, A1-08 contractor's documents, 5-57, 25-44,25-45 definition, AI-01 design, AI-05 employer's use, 5-72, 5-73, 25-60, AI-0l contractor's equipment, 5-48, 25-108,25-109,AI-04, AI-17 . contractor's personnel, 5-23, 25-18,AI-01,AI-06 contractor's representative, 5-21, 25-86 cost, 5-39, 25-32, 25-33, AI-0l cost overruns, financing, 4-56 country, AI-01 DAB, 5-25, 25-19, A1-01 damages, delay, 4-44, 25-160, 25-161, At-OB liquidated, 4-43, 4-44 day, 5-36, AI-01 defects liability, 25-176-25-188, Al-11 access right, 25-183,25-184, AI-II clearance of site, 25-188, AI-II completion of outstanding works, 25-176, 25-177, Al-l1 cost of remedying defect, 25-178, 25-179,Al-11 failure to remedy defects, 25-184, A1-11 performance certificate, 25-185,25-186,Al-l1 959

INDEX

Silver Book-cont. removal of defective work, 25-183, A1-11 unfulfilled obligations, 25-188, A1-11 defects notification period, 5-34, 25-31,25-32,25-181, A1-01, A1-11 definitions, 5-01, 25-05-25-50 base date, 5-28, 25-21,25-22, A1-01 categories, 5-08 commencement date, 5-29, 25-23, A1-01 contract, 5-09, 5-10, 25-06, AI-0l contract agreement, 5-11, 25-07, AI-01 contract price, 5-38, A1-01 contractor, 25-15, A1-01 contractor's documents, 5-57, 25-45,25-46,AI-0l contractor's equipment, 5-48, AI-01 contractor's personnel, 5-23, 25-19, A1-01 contractor's representative, 5-21, At-Ol cost, 5-39, 25-32, 25-34, A1-01 country, A1-01 DAB, 5-25, 25-19, AI-0l day, 5-36, AI-0l defects notification period, 5-34,25-30,25-32, A1-01 design, 5-05 employer, 5-18, AI-0l employer's equipment, 5-59, 25-47, A1-01 employer's personnel, 5-22, 25-18, At-01 employer's representative, 5-20,25-16, AI-Ol employer's requirements, 5-12,25-08-25-09, A1-01 FIDIC, 5-26, At-01 final statement, 5-40, A1-01, A1-14 force majeure, 5-60, A1-01 960

INDEX

foreign currency, 5-41, 25-35, 25-36, A1-01 general provisions, 5-07, 5-08, A1-01 goods, 5-47-5-55, 5-49, 25-40, A1-01 interpretation, 5-64, AI-0l laws, 5-61, AI-01 local currency, 5-42, AI-01 materials, 5-50, A1-01 money and payments, 5-37-5-46 parties, 5-17 - 5-26 contractor, 5-19, A1-01 contractor's personnel, 5-23, A1-01 contractor's representative, 5-21, AI-01 DAB, 5-25, AI-Ol employer, 5-18, A1-01 employer's personnel, 5-22, At-Ol FIDIC, 5-26, At-01 party, 5-18, A1-01 subcontractor, 5-24, AI-01 party, 5-18, AI-01 payment certificate, 5-46 performance certificate, 5-35, AI-0l performance guarantees, 5-16, 25-12-25-14,A1-01 performance security, 5-62, At-01 permanent works, 5-51, AI-01 plant, 5-52, 25-41, A1-01 provisional sum, 5-43, 25-37, A1-0, A1-01 retention money, 5-44, 25-38, 25-39, A1-01 schedule of payments, 5-16, 25-12, 25-13, AI-14 section, 6-53, 25-42, 25-43, A1-01 site, 5-63, 25-48, 25-49, A1-01 statement, 5-45, A1-01 subcontractor, 5-24, A1-01 taking-over certificate, 5-32,25-25,25-28, A1-01

temporary works, 25-44, A1-01 tender, 5-13, 25-10, 25-11, AI-01 tests after completion, 5-33, 25-29, 25-30, A1-01 tests on completion, 5-31, 25-25,25-26, A1-01, A1-09 time for completion, 5-30, 25-24, A1-01 variation, 5-63, A1-01 works, 5-55, A1-01 delay, caused by authorities, 25-157, 25-159, AI-08 payment, 25-213, A1-14 delegated persons, A1-03 design, 3-27,4-19-4-21, 25-123-25-131, AI-OS as-built documents, 9-34-9-36,25-129, 25-130, A1-05 contractor's documents, 25-125,25-126,A1-05 contractor's undertaking, 25-127 definition, 5-05 errors, 25-132, A1-05 obligations, 3-27, 4-20, 4-21, 9-07,9-08,25-123, 25-134, AI-05 operation and maintenance manuals, 25-131, 25-132, AI-OS technical standards and regulations, AI-OS training, 25-128, AI-05 undertaking, contractor's, AI-05 determinations, 7-23, 25-80, 25-82, A1-03 discharge, 25-215, Al-14 dispute adjudication agreement, AI-54, AI-55 dispute adjudication board, 5-25,25-20 agreement, A1-54, AI-55 amicable settlement, 25-252, AI-20 appointment, 25-250, Al-20

failure to agree, 25-251, Al-20 documents, 5070, AI-01 drafting changes, 3-22-3-31 electricity, 8-81, 8-82, 25-111, 25-113, A1-04 employer, 6-01, AI-02 access to site, A1-02 administration, 3-23 approvals, A1-02 definition, AI-0l documents, 5-74 financial arrangements, 6-11 obligations, 6-13, 6-14 permits, A1-02 personnel, 5-22., 6-09, 25-17, 25-70 representative, 5-20 requirements, 1-14,5-12, 25-08,25-09 risks,-3-31, Al-17 employer's administration, 25-75-25-82,AI-03 employer's claims, 6-12, 25-73, 25-74, At-02 employer's documents, 25-62 employer's equipment, 5-59, 25-47,25-114,25-115, AI-01 employer's financial arrangements, 6-11, 25-71, 25-72,At-02 employer's personnel, 5-22, 6-09,AI-Ol,AI-02,AI-03 employer's representative, 5-20, 7-01-7-25,25-75 See also Employer's representative appointment, 7-13-7-18, AI-03 definition, 25-15, At-Ol duties, Al-03 licences, AI-02 replacement, A1-03 employer's requirements, 5-12, 25-08,25-09,AI-01 environmental protection, 25-111, A1-04 extension of time for completion, 4-34-4-36,12-64,25-156, 25-157,A1-08 961

INDEX

Silver Book-cont. facilities, 25-103, AI-06 FIDIC, Al-Ol final payment, AI-14 final statement, 5-40, AI-0l, AI-14 financing of cost overruns, 4-56 first edition, 4-01 force majeure, 5-60, 25-244-25-248 consequences, 25-245, 25-246, AI-19 definition, 25-244, AI-0l minimising delay, AI-19 notice, AI-19 optional termination, 25-247, 25-248, AI-19 payment, 25-247, 25-248 release, 25-247, 25-248, AI-19 subcontractor, AI-19 foreign currency, 5-41, 25-35, 25-36, AI-01 fossils, A1-04 free-issue material, 8-83, 8-84, 25-114,25-115,AI-04 gas, 25-111, 25-112, A1-04 general provisions, AI-01 generally, 2-25 goods,5-49,25-39,A1-01 governing law, 5-66, AI-0l guarantees, 4-45 -4-49 advance payment guarantee, 4-47,4-471 generally, 4-45 parent company guarantees, 4-49 performance security, 4-46, 25-12 retention money, 4-48 guidance for preparation of conditions, AI-23-AI-43 adjudication, AI-43 adjustments, AI-36 advance payment guarantee, AI-49 claims, AI-43 commencement, AI-31 contract price, A 1-3 7 contractor, AI-27 defects liability, AI-34 962

INDEX

delays, AI-31 demand guarantee, AI-47 design, AI-28 disputes, AI-43 employer, AI-25 employer's administration, AI-26 employer's taking over, AI-33 force majeure, AI-42 general provisions, A1-24 insurance, AI-41 parent guarantee, example form of, AI-45 payment, AI-37 payment guarantee, AI-51 plant, materials and workmanship, AI-30 retention money guarantee, AI-50 risk and responsibility, A1-40 securities, forms of, AI-44 staff and labour, AI-29 surety bond, A1-48 suspension, AI-31, AI-39 tender security, example form of, AI-46 termination by contractor, AI-39 termination by employer, AI-38 tests after completion, AI-35 tests on completion, AI-32 variations, AI-36 health and safety, 25-140, AI-06 indemnification, 25-230, 25-231 inspection, AI-07 instructions, 7-21, 25-79, 25-80 insurance, 21-44, 25-238-25-243 contractor's equipment, 25-243, AI-18 requirements, 25-241, 25-242 responsibility, 25-237-25-238 works, 25-243, AI-18 intellectual property right, 25-235, AI-17 interference, avoidance of, 25-105,AI-04 interim payment, 25-205, 25-206,25-211,AI-14

joint and several liability, 5-78, 5-79,25-64,25-65,AI-01 key characteristics, 25-01-25-04 language, 5-02,5-66,25-51, 25-53, AI-0l laws, 5-61, AI-0l letters, tender, AI-52 licences, 6-07, 6-08, 25-68, 25-69, AI-02 limitation of liability, 25-237, AI-17 liquidated damages, 4-43, 4-44 local currency, 5-42, AI-0l materials, 5-50, AI-01 inspection, 25-145, AI-07 ownership, 25-150, 25-151, AI-07 payment where works suspended,25-165 rejection, 25-148, AI-07 remedial work, 25-149, AI-07 royalties, 25-152, AI-07 testing, 25-146, 25-147, AI-07 negotiation, 25-01-25-254 strategy, 25-01-25-04 nominated subcontractors, 25-90,25-91,AI-04 obligations of employer, 6-13, 6-14 operation, 3-34 operations on site, 8-90-8-92, 25-1I9,25-120,AI-04 origins, 25-254, 25-255 parent company guarantees, 4-49 parties, contractor, 5-19, AI-Ol contractor's personnel, 5-23, Al-Ol contractor's representative, 5-21, AI-01 DAB, 5-25, AI-01 definitions, 5-17-5-26, AI-01 employer, 5-19, AI-01 employer's personnel, 5-22, AI-01 employer's representative, 5-20, Al-Ol

FIDIC, 5-26, Al-01 party, 5-18, AI-Ol subcontractor, 5-24, AI-01 party, 5-18, AI-01 payment, 4-53, 4-54 advance,4-53,25-204,AI-14 after termination, 4-54, AI-16 payment certificate, 5-46 performance certificate, 5-35, AI-0l, AI-II performance guarantees, 4-46, 25-1~-25-14,AI-01

performance security, 4-46, 5-62,25-85,25-86, AI-0l, AI-04 permanent works, 5-51, 25-209, 25-210, Al-Ol permits, 6-03, 6-07, 6-08, 25-68, 25-69,AI-02 plant, 5-52,25-41, AI-0l inspection, 25-145, AI-07 ownership, 25-150, AI-07 payment where works suspended, 25-165 rejection, 25-148, AI-07 remedial work, 25-149, AI-07 royalties, 25-152, AI-07 testing, 25-146, 25-147, AI-07 policy, 3-37 price, 3-30 contractor, price/cost exceptions in favour of, 4-39,4-40 employer, price/cost exceptions in favour of, 4-41, 4-42 sufficiency, 4-37-4-42, AI-04 priority of documents, 5-67, 25-54,25-55,AI-0l programme, 25-153, 25-155, AI-08 progress reports, 25-116, 25-117, AI-04 project company, 4-18 project financing, 3-32, 3-37 provisional sum, 5-43, 25-37, AI-0l publication, 3-01 publicity, unwanted, 5-04 quality assurance, 25-97, 25-98, AI-04 963

INDEX

INDEX

Silver Book-cont. rate of progress, 25-160, A1-08 reference aid, as, 4-18 rejection, A1-07 retention money, 5-44, 25-38, 25-39,25-214, AI-01, A1-14 rights of way, 25-104, A1-04 risk, 3-32, 3-33, 25-02, 25-03, 25-230-25-237,A1-17 care of the works, 25-232, A1-17 employer's risks, 25-233, 25-233, AI-17 indemnities, 25-230, 25-231, A1-17 intellectual property right, 25-235, 25-236,A1-17 limitation of liability, 25-237, A1-17 safety procedures, 25-95, 25-96, A1-04 samples, A1-07 schedule of payments, 5-16, 25-207, 25-208, A1-14 scheduled payments, 5-16, 25-12, 25-14,A1-14 section, 6-53, 25-42, 25-43, A1-01 security of site, 25-118, AI-04 setting out, 3-24,25-94, AI-04 site, 5-62, 5-63,25-47, 25-49 site data, 3-25, 25-99, 25-100, A1-04 staff and labour, 25-133-25-144 conditions of labour, 25-134, 25-135 disorderly conduct, 25-144, AI-06 engagement, 25-133, A1-06 facilities, 25-139, AI-06 health and safety, 25-140, AI-06 hours of work, 25-138 labour laws, 25-137, AI-06 personnel, contractor's, 25-142 persons in service of employer, 25-136, AI-06 964

records of contractor's personnel and equipment, 25-143, AI-06 superintendence, contractor's, 25-141, AI-06 wages, 25-134, 25-135, AI-06 statement, 5-45, AI-01, AI-14 Statement at Completion, 4-53, AI-14 step-in, step-out rights, 4-57 structure, 3-03 subcontractor, 5-24, 25-88, 25-89, AI-01, AI-04 suspension of works, 12-63, 25-224-25-229,AI-08 consequences, 25-163, 25-164, AI-08 entitlement, 25-225 payment for plant and materials, 25-165, AI-08 prolonged, 25-166, 25-167 resumption of work, 25-168, AI-08 termination by contractor, 25-226,25-227 taking over, 3-28, 4-28, 14-11, 25-172, 25-173, AI-10 interference, 25-176, AI-10 parts of the works, 25-174, 25-175, AI-I0 taking-over certificate, 5-32, 25-27, 25-28, AI-0l technical standards and regulations, AI-05 temporary works, 25-43 tender, 5-13, 25-10, 25-11, AI-01, AI-23 termination by contractor, 25-224-25-229,AI-16 cessation of work, 25-228, AI-16 entitlement, 25-225, AI-16 payment, 25-229, AI-16 termination by employer, 21-217-21-223 entitlement, 25-222, 25-223, A1-15 notice to correct, 25-217, AI-IS

payment a'fter termination, 25-221, AI-IS valuation at date of termination, 25-220, AI-IS testing, AI-07 tests, after completion, 4-29, 4-30, 5-33,16-24,25-29, 25-30 on completion, 25-169-25-171,3-29, 4-27,5-31, 13-19, 25-25, 25-26,AI-01 tests after completion, 4-29, 4-30,5-33,16-24,25-29, 25-30,25-190-25-195, AI-01 delayed tests, 25-192, AI-12 failure to pass tests, 25-194, 25-195, AI-12 procedure, AI-12 time for completion, 4-31-4-36, AI-08 definition, 5-30, 25-24, AI-0l extension, 4-34-4-36 timing of payments, 25-212, AI-14 training, 25-128, AI-05 transport of goods, 25-108, AI-04 two-party approach, 3-35, 3-37 unforeseeable sub-surface conditions, 3-26, 4-23-4-26,8-09,25-102, 25-103, AI-04 use,2-25,3-02,3-32,3-37,4-01 BOT projects, 4-18-4-58 variation, 5-63 variations, 5-63, 17-45, 25-50 cost changes, adjustments for, 25-202, AI-13 daywork, AI-13 definition, AI-01 legislative changes, adjustments for, 25-200, 25-201, AI-13 procedure, 25-198, At-13 right to vary, 25-196, AI-13 value engineering, 25-197, AI-13

water, 25-112, 25-113, A1-04 working hours, AI-06 works, 5-55, AI-Ol, At-17 Single-point responsibility, 2-03, 2-04 Site, access, 6-02, 6-04-6-06 clearance, 15-43, 15-44, 25-189 contractor, operations on site, 8-90-8-92, 25-119,25-120,AI-04 security, 8-88, 8-89,25-118, AI-04 data. See Site data definition, 5-62, 25-48,25-49, AI-01 ICE Design and Construct Condition of Contract, 5-62 inspection, contractor, by, 8-04. tender phase, 8-04 operations on, 8-90-8-92, 25-119, 25-120,AI-04 security, contractor's responsibility, 8-88,8-89,25-118, AI-04 Silver Book, 25-118, AI-04 Silver Book, 1, 5-62, 5-63, 25-48,25-49 workmanship, inspection, 25-145, AI-07 rejection, 25-148, AI-07 remedial work, 25-149, AI-07 testing, 25-146, 25-147, AI-07 Site data, contractor, 8-04, 8-52-8-58, 25-99,25-100,A1-04 importance, 8-53 interpretation, 8-55 tender phase, 8-53 verification, 8-54 importance, 8-53 interpretation, 8-55 Silver Book, 3-25, 25-99, 25-100, AI-04 tender, 8-04, 8-53 unforeseeable sub-surface conditions, 5-63 965

INDEX

Spare parts, construction documents, 5-06 Staff and labour, 10-01-10-34 conditions, 10-08, 10-09, 25-134,25-135 contractor, duties, 10-02, 10-03 personnel, 10-28 -1 0-30, 25-142 records of contractor's personnel and equipment, 10-31,10-32,25-143, A1-06 superintendence, 10-25-10-27,A1-06 disorderly conduct, 10-33, 10-34,25-143,A1-06 duties of contractor, 10-02, 10-03 engagement, 10-06, 10-07, 25-133, A1-06 facilities, 10-03, 10-19', 10-20, 25-139, A1-06 generally, 10-01 health and safety, 10-21-10-24, 25-139, A1-06 hours of work, 10-16-10-18, 25-138 international rules/conventions, 10-02 laws, 10-12-10-15,25-137 local laws, 10-02 persons in service of others, 10-10,10-11,25-136, A1-06 provision, 10-02, 10-03 rates of wages, 10-08, 10-09, A1-06 records of contractor's personnel and equipment, 10-31, 10-32, A1-06 Silver Book, 25-133-25-144 conditions of labour, 25-134, 25-135 disorderly conduct, 25-144, A1-06 engagement, 25-133, A1-06 facilities, 25-139, A1-06 hours of work, 25-138 labour laws, 25-137, A1-06 personnel, contractor's, 25-142 966

INDEX

persons in service of employer, 25-136, A1-06 records of contractor's personnel and equipment, 25-143, A1-06 superintendence, contractor's, 25-141, A1-06 wages, 25-134, 25-135, A1-06 superintendence, 10-04, 10-25-10-27,25-141, A1-06 visas, 10-02 wages, 10-08, 10-09,25-134, 25-135, A1-06 work permits, 10-02 working hours, 10-16-10-18, A1-06 Standard form contracts, AGC 415,2-15,2-20 AlA Form A191, 2-15, 2-19 FIDlC Contracts. See FIDIC ICE Design and Construct Condition of Contract, 2-15,2-17 importance, 2-15 project considerations, 2-15 turnkey contracts, 2-15 use, 2-15 Standards of performance, turnkey contracts, 2-05, 2-06 United States, 2-05 Statement, definition, 5-45 Orange Book, 5-45 Silver Book, 5-45, Al-14 Statement at completion, payment, 18-56-18-58, Al-14 Step-in, step-out rights, Silver Book, 4-57 Subcontractor, AGC Document 415, A6-05 approval, 8-34 contractor, 8-33-8-36 definition, 5-24, A1-01 design, 8-34 force majeure affecting, 23-21-23-23,Al-19 hiring, 8-34 insurance, 22-01 liability, 8-34

nominated. See Nominated resumption of work, 12-08, subcontractor 12-60,12-61,25-168, notices to employer, 8-34, 8-35 A1-08 quality, 8-34 Silver Book, 12-63, Red Book, 5-24 25-224-25-229,A1-08 Silver Book, 5-24, 25-88, 25-89, time for completion, 12-06 At-01, A1-04 transfer of risk, 12-08 whole of works, 8-33, 8-35, 8-36 Yellow Book, 5-24 Taking over, 14-01-14-19 Subrogation, BOT,4-28 AGC Document 415, A6-10 certificate. See Taking-over insurance, 22-02 certificate Substantial completion, 14-02 completion of works before, ICE Design and Construct 14-04-14-10 Condition of Contract, 5-32 divided works, 14-05 Superintendence, extent of completion required, staff and labour, 10-04, 14-02 10-25-10-27,25-141, general rule, 14-02-14-10 A1-06 generally, 14-01 Supervision, interference with tests on turnkey contracts, 1-12 completion, 14-16-14-19, Suppliers, 25-176, A1-10 insurance, 22-01 legal consequences, 14-01 Suspension of works, options, 14-05 12-06-12-08,A1-08 part of works, 14-12-14-15, AGC Document 415, A6-11 25-174,25-175 consequences, 12-49-12-52, public service facilities, 14-01 25-163,25-164,A1-08 Silver Book, 3-28,4-28, 14-11, contractor, by, 12-09,20-02, 25-172,25-173,A1-10 20-11-20-16, interference, 25-176, A1-1 0 25-224-25-229 parts of the works, 25-174, delay, 12-49-12-52 25-175, A1-10 discretion of employer, 12-06, substantial completion, 14-02 12-49, 12-50 tests on completion, 14-05 employer, by, 12-06-12-08, interference, 14-16-14-19 12-45-12-48 Taking-over certificate, ENAA Contract Model Form, definition, 5-32, 25-27, 25-28, A2-55 A1-01 extended, 20-07 issue, 14-01, 14-05 instructions, 12-45-12-48 Silver Book, 5-32,25-27,25-28, materials, payment for, 12-53, A1-01 12-54, A1-08 Temporary works, maximum period, 12-07 definition, 25-44, At-01 plant, payment for, 12-53, Silver Book, 25-44, A1-01 12-54,25-165,A1-08 Tender, portion of works, 12-07 bids, 2-12 prolonged, 12-55 -12-59, BOT,1-17 25-166, A1-08 confidentiality, 5-75 reasons, 12-06 contractors, 8-03-8-12 responsibility, 12-06 cost in EPC contract, 2-12

967

INDEX

Tender-cont. costs, 8-03 definition, 5-13, 25-10, 25-11, AI-0l development, 8-03 examination of site, 8-04 ground conditions, 8-07, 8-08-8-12 inspection of site, 8-04 Orange Book, 5-13 quality of bids, 8-03 request, 1-14 risks, 8-05, 8-06-8-12 Silver Book, 5-13, 25-10, 25-11, AI-0l, AI-23 site data, 8-04, 8-53 turnkey contracts, 1-14 unforeseeable sub-surface conditions, 8-05 - 8-12 Yellow Book, 5-13 Termination, 19-01-19-41 bankruptcy, contractor, 19-09 employer, 20-06 contractor, by, 20-01-20-31, AI-16 bankruptcy, 20-06 bases, 20-04-20-07, 20-31 breach of contractual obligations, 20-05 cessation of work, 20-24-20-26,25-228, AI-16 entitlement, 20-03, 20-17-20-23,25-225 equipment, removal of, 20-24-20-26, 25-229, AI-16 extended suspension, 20-07 generally, 20-01 grounds, 20-04-20-07, 20-31 insolvency, 20-06 pa yment, 20-27- 20-30, 25-229, AI-I6 procedure, 20-08 Silver Book, 25-224-25-229 suspension, 20-02, 20-11-20-16 valuation and payment, 20-09 convenience, for, 19-11, I9-35-19-40,A5-09 968

INDEX

default of contractor, 19-04-19-11 bankruptcy, 19-09 effect, 19-10 entitlement to termination, 19-17-19-26,AI-15 failure to perform, 19-07 generally, 19-04 grounds, 19-06 -19-09 insolvency, 19-09 notice to correct, 19-13-19-16,25-217, AI-IS procedure, 19-05 Silver Book, 19-41 transfer of obligations, violation of restrictions on, 19-07 drafting, 19-02 effect of clause, 19-02 employer, by, 19-01-19-41, AI-IS bankruptcy of contractor, 19-09 convenience, termination for, 19-11,19-35-19-40 default of contractor, 19-04-19-11 drafting, 19-02, 19-03 effect of clause, 19-02 entitlement, 19-17 -19-26, 25-222,25-223,A1-15 failure to perform, contractor's, 19-07 generally, 19-01 grounds, 19-06-19-09 insolvency of contractor, 19-09 notice to correct, 19-13-19-16, 25-217, AI-IS payment, 25-221 procedure, 19-05 Silver Book, 25-217 - 25-223 transfer of obligations, violation of restrictions on, 19-07 validity of clause, 19-02 ENAA Contract Model Form, A2-56 entitlement, contractor's, 20-17 - 20-23, AI-16

employer's, 19-17-19-26, Tests after completion, 25-222,25-223,AI-15 16-01-16-24 equipment, removal of, applicable codes, 16-03 20-24-20-26,25-229, BOT, 4-29, 4-30 A1-16 control over, 16-03 failure to perform, contractor's, definition, 5-33, 25-29, 25-30, 19-07 AI-01 generally, 19-01 delay, 16-14-16-16,25-192, grounds, A1-12 bankruptcy, 19-09,20-06 designated party, 16-03 breach of contractual environmental regulation, 16-05 obligations, 20-05 failure to attain expected contractor's default, performance, 16-07 19-06 -19-09 failure to pass tests, employer's default, 16-20-16-23,25-194, 20-04-20-07,20-31 25-195, AI-12 extended suspension, 20-07 generally, 16-01-16-05 failure to perform, impossibility of performance, contractor's, 19-07 16-07 insolvency, 19-09,20-06 laboratories, 16-03 transfer of obligations, length,-16-03 violation of restrictions minimum levels of performance, on, 19-07 16-06 insolvency, nature of tests, 16-03 contractor, 19-09 normal operation of plant before, employer, 20-06 16-04 notice to correct, 19-13 -19-16, Orange Book, 5-33 25-217, AI-IS performance guarantee, 16-02 payment, 20-27-20-30, 25-221, prelude to, 16-04 AI-16 procedure, 16-09-16-13, procedure, 19-05,20-08 A1-12 tests after completion, 16-07 purpose, 16-01 transfer of obligations, violation Red Book, 5-33 of restrictions on, 19-07 retesting, 16-17-16-19,25-193, validity of clause, 19-02 AI-12 valuation and payment, 20-09, Silver Book, 4-29, 4-30, 5-33, 25-220 16-24,25-29,25-30, Tests, 25-190-25-195 after completion. See Tests after definition, AI-01 completion delayed tests, 25-192 on completion. See Tests on failure to pass tests, 25-194, completion 25-195, A1-12 excessive, 11-02 retesting, 25-193 mandatory, 11-02 termination, 16-07 materials, 11-15 -11-20, training, 16-04 25-146,25-147 use, 16-01 plant, 11-03, 11-15 -11-20, Yellow Book, 3-16, 5-33 25-146,25-147 Tests on completion, 13-01-13-19 workmanship, 11-02, BOT,4-27 11-15-11-20 contractor, 13-04-13-08, Yellow Book, 3-12 25-170 969

INDEX

INDEX

Tests on completion-cant. definition, 5-31, 25-25, 25-26, AI-0l delayed tests, 13-09-13-12, AI-09 fail ure to pass, 13-15 - 13-18, 25-170, AI-09, A1-12 generally, 13-01 interference, 14-16 -14-19, 25-175 minor faults, 13-01 obligations of contractor, 13-04-13-08,25-170 performance, 13-01 punch list, 13-01 purpose, 13-01 rectification, 13-01 Red Book, 5-31 regime, 13-01 retesting, 13-13, 13-14, AI-09, A1-12 Silver Book, 3-29, 4-27, 5-31, 13-19,25-25,25-26, 25-169-25-171,A1~01,

AI-09 taking over, 14-05 Yellow Book, 3-16, 5-31 Third parties, risk,21-01 Time, AlA Form A191, A4-05, A4-16 Time for completion, commencement and, 12-02, 12-03, AI-0B definition, 5-30, 12-01,25-24, AI-0l early completion, 12-03 extension. See Extension of time for completion importance, 12-01 requirement to complete within, 12-16-12-20 Silver Book, 4-31-4-36, AI-08 definition, 5-30, 25-24, AI-0l suspension of works, 12-06 Training, design, 9-32, 9-33, AI-OS Silver Book, 25-128, AI-OS Yellow Book, 3-11 970

Transport of goods, contractor, 8-74, 8-75,25-11, 25-108, AI-04 Silver Book, 25-108, AI-04 Turnkey contracts, advantages, 2-02-2-10, 2-13 accountability, 2-03 co-ordination, 2-02 efficiency, 2-10 lump-sum price, 2-07 project financing, 2-08 responsibility, 2-03 single-point responsibility, 2-03,2-04 speed of procurement, 2-09 spread of design and construction responsibility, 2-02 standard of performance, 2-05,2-06 AGC Document 415, 2-15, 2-20 AlA Form A191, 2-15 allocation of risk, 2-14 co-ordination of works, 1-14, 2-02 contractor's duties, 1-12 DBIA Agreement Between Owner and Design-Builder, 2-15, 2-18 disadvantages, 2-11-2-13 loss of control, 2-11 risks, cost of, 2-13 tender, cost of, 2-12 duty of contractor, 1-12 efficiency, 2-10 EIC Contract, 2-15, 2-21 employer's role, 1-13 ENAA Contract Model Form, 2-15,2-16 EPC 1-04, 1-12. See also Turnkey contracts fast track construction, 1-13 FIDIC Contracts. See FIDIC growth in use, 1-12 ICE Design and Construct Condition of Contract, 2-15,2-17 issues, 2-14 loss of control, 2-11 lump-sum price, 1-12,2-07,

2-14

meaning, 1-04 names for, 1-12 project financing, 2-08 risks, cost of, 2-13 single-point responsibility, 2-03, 2-04, 18-03 speed of procurement, 2-09 standard form contracts, 2-15 AGC Document 415,2-15, 2-20 AlA Form A191, 2-15, 2-19 DBIA Agreement, 2-15 EIC Contract, 2-15, 2-21 ENAA Contract Model Form, 2-15,2-16 FIDIC Contracts. See FIDIC ICE Design and Construct Condition of Contract, 2-15,2-17 standard of performance, 2-05, 2-06 supervision, 1-12 standards of performance, 2-05 tender, 1-14 tender, cost of, 2-12 terminology, 1-12 "turnkey", 1-12 Types of contract, 1-01-1-18 Unforeseeable sub-surface conditions, 8-62-8-67 basis of dispute, 8-62 BOT, 3-26, 4-23-4-26 contractor, 8-05, 8-62-8-67, AI-4 costs, 8-64 force majeure, 8-11 Grove report, 8-10 inspection of site, 8-63 reasonable examination of information, 8-65 responsibility, 8-62-8-67 risks of, 8-05, 8-06-8-12 Silver Book, 3-26, 4-23-4-26, 8-09,25-102,25-103, AI-04 site data, 5-63 tender, 8-05 - 8-12 tender phase, 8-05, 8-06 test for foreseeability, 8-64

unforeseen conditions, 8-62 Yellow Book, 3-26 Unit price method, 1-24, 1-25 United States, alternative dispute resolution, 24-05 designer, 2-05 Dispute Review Board (DRB), 24-10 frustration, 23-01 impossibility, 23-01 risk, 21-01 standards of performance, 2-05 Value engineering, variations, 17-07, 17-17-17-20, 25-197, AI-13 Variations, 17-01-17-45 agreement to, 17-05 control over, 17-04 cost changes, adjustments for, 17-42-17-44,25-202, AI-13 currencies, payment in applicable, 17-30, 17-31, AI-13 daywork,17-35-17-37,AI-13 definition, 5-63,25-49, AI-01 duration of the contract, 17-06 EIC Contract, A3-11 generally, 17-01, 17-02 , employer choice, 17-01 instructions compared, 17-02 legislative changes, adjustments for, 17-38-17-41,25-200, 25-201, AI-13 meaning, 17-02, 17-03, 17-04 methods, 17-03 payment in applicable currencies, 17-30,17-31, AI-13, AI-14 procedure, 17-05, 17-06, 17-21-17-29,25-198, AI-13 provisional sums, 17-09, 17-32-17-34,25-199 reasons for clause, 17-01 Red Book, 5-63 right to vary, 17-11-17-16, 25-196, AI-13 971

INDEX

Variations-cont. Silver Book, 5-63, 17-45,25-50 cost changes, adjustments for, 25-202, AI-13 daywork, AI-13 definition, AI-Ol legislative changes, adjustments for, 25-200, 25-201, A1-13 procedure, 25-198, AI-13 provisional sums, 25-199 right to vary, 25-196, Al-13 value engineering, 25-197, Al-13 unforeseen conditions, 17-01 valuation of, 17-08 value engineering, 17-07, 17-17-17-20,25-197, Al-13 written requirement, 17-06 Visas, staff and labour, 10-02 Wages, staff and labour, 10-08, 10-09, 25-134, 25-135,A1-06 Warranties, EIC Contract, A3-17 Water, contractor, 8-81, 8-82,25-112, 25-113, A1-04 Silver Book, 25-112, 25-113, A1-04 Work permits, staff and labour, 10-02 Working hours, Silver Book, A1-06 staff and labour, 10-16-10-18, A1-06 Workman's compensation, 22-42 Workmanship, 11-01-11-41 contractor's duty, 11-01 inspection, 11-10-11-14 manner of execution, 11-04-11-07,A1-07 rejection, 11-21-11-25, A1-07 remedial work, 11-26-11-31, 25-149, A1-07 testing, 11-15 -11-20 tests, 11-02 972

INDEX

Works, DBIA Agreement, 5-55 definition, 5-55, A1-01 ICE Design and Construct Condition of Contract, 5-55 insurance, 22-27-22-35, 25-243, Al-18 permanent, 5-51 Silver Book, 5-55, A1-01

priority of documents, 5-67 programme, 3-14 publication, 3-01 remedial work, 3-13 risk,3-21 structure, 3-03 subcontractor, 5-24 tender, 5-13

testing, 3-12 tests after completion, 3-16, 5-33 tests on completion, 3-16, 5-31 training, 3-11 unforeseeable sub-surface conditions, 3-26 use, 2-23, 3-20

Yellow Book, adjustments of contract price, 3-17 allocation of risk, 3-21 appendix to tender, 5-14 assessm'e nt, 3-20, 3-21 assignment, 3-06, 5-69 basis, 3-34 changes to, 3-03 compliance with laws, 3-07, 5-76 confidentiality, 5-75 contract agreement, 5-68 contract price, 5-38 contractor's documents, 5-57 contractor's proposal, 5-15 defects notification period, 3-05, 5-34 drafting changes, 3-05-3-19 employer, claims, 3-09 financial arrangements, 3-08 risks, 3-31 employer's equipment, 5-59 engineer, 3-10, 3-20, 3-34, 7-01,7-02,7-09-7-12 extension of time for completion, 3-15 force majeure, 3-19 foreign currency, 5-41 generally, 2-23 goods, 5-49 insurance, 3-18 operation, 3-34 Orange Book and, 3-04-3-21 payment certificate, 5-46 performance certificate, 5-35 performance guarantees, 5-16 permanent works, 5-51 previous editions, 3-02 973