Simon Hughes QC Keating Chambers Jeremy Glover Partner, Fenwick Elliott LLP

Transcription

1 Out with the old, in with the new: opportunities offered by changes to the FIDIC Form Contracts: Part 1 21 st Annual Lecture King s College Construction Law Association Sweet & Maxwell 13 June 2018 Simon Hughes QC Keating Chambers Jeremy Glover Partner, Fenwick Elliott LLP

2 The 2017 revisions to the FIDIC Rainbow Suite are long-anticipated and substantial. They are, perhaps, the occasion for some wider reflections on the use of standard form contracts in the construction and engineering industry

3 The particular challenges of long-term or relational contracts: Changes in requirements (eg, variations) Changes in objective circumstances (eg, strikes or hyperinflation). Need for a framework, or set of rules, governing future conditions which can be assessed (and priced ) at time of contracting (see Scheldebouw BV v St James as an example).

4 Standard forms have certain attractions and functional advantages: Reflecting (or seek to reflect) consensus or balance of industry interests (not always: cf. FIDIC Cl 20 and the new 2017 revisions). Avoiding total bespoke negotiation & its costs (though of course the largest projects will have substantially bespoke arrangements). Assisting project/professional staff on projects by providing set-piece mechanisms (change, EOT, suspension, valuation). Offering contracting terms which might be regarded as a known quantity in terms of meaning & effect.

5 The undoubted attractions of standard forms have to be kept in perspective, however: Parties cannot assume that a standard form will simply take care of things : active choices about use of standard forms are vital. Bespoke amendments create significant challenges. During the course of a project, project/professional staff need a solid understanding of how the contractual mechanisms are to operate, and then have systems in place to allow that to happen. The known quantity aspect of standard forms can be over-stated (especially in international contracting): see for example Sub-Cl 2.5 and NH International (Caribbean) Limited v NIPDEC [2015] UKPC 37.

6 Revisions to standard forms can comprise a complex mix of good and not so good. I highlight three aspects for present purposes: Good: An opportunity to reflect, in a systematic way, market feedback and experience: in this respect, the 2017 revisions are timely and welcome (examples: Cl. 20 now becomes Cl. 20 and 21 and notice provisions are more balanced; and the termination for corrupt payments [etc] is now a right which the Contractor has as well as the Employer: see Sub-cl (j)). Possibly not so good: The growing tendency of standard forms and FIDIC 2017 amendments no exception to over-legislate and micro-manage, with longer and more complex provisions. Sub-Cl 3.7 is arguably an example of detail taken too far: it also potentially revives the question posed [unsuccessfully] by the appellant contractor in AMEC v Secretary of State for Transport as to whether the Engineer acts in a quasi-judicial capacity and hence must observe the rules of natural justice.

7 Change which is arguably counter-productive: (1) Example: Cl 19 of the 1999 suite (force majeure) no becomes Cl 18 in the 2017 amendments exceptional event); and yet the words exceptional event are not clear. (2) Example: in making a determination under Clause 3.7, the Engineer is now required to act neutrally whereas the language of independently and impartially featured in previous FIDIC forms. Is there a difference?

8 Closer examination of two areas where the 2017 revisions will be of particular interest to practitioners, and where opportunities for interesting debate are likely to arise

9 Clause 15: Termination by Employer.

10 New grounds: Where non-compliance with a determination by the Engineer (Sub-cl. 3.7) or decision of a DAAB (Cl. 21) is a material breach (phrase not defined). Exceeding the limit on Delay Damages: Sub-cl (c) (failure by the Contractor to comply with completion obligations are such that the Employer would be entitled to Delay Damages that exceed this maximum amount ).

11 The language of material breach within Sub-cl where there is a failure by the Contractor to comply with a Notice to Correct; a determination under Sub-cl. 3.7 or a DAAB decision under Sub-cl This might be intended to more clearly reflect the common law position: see Obrascon Huarte Lain v A-G for Gibraltar.

12 Sub-cl. 15.5: Termination for Employer s Convenience: An important contractual out for the Employer. The phrase for the Employer s convenience is not developed or defined by drafting. Perhaps surprising, in a now lengthy standard form, that there is little explanation of the constraints on this power. Sub-cl deals with valuation once there has been a termination under Sub-cl and this comprises the value of work done (15.6(a)) and the amount of any loss of profit (15.6(b)) and then the words or other losses and damages

13 Clause 16: Suspension and Termination by the Contractor.

14 Again, there are new grounds: Non-compliance with a determination under Sub-cl. 3.7 or the decision of a DAAB under Sub-cl Non-receipt by the Contractor of a Notice of the Commencement Date under Sub-Cl. 8.1 within 84 days after receipt of the Letter of Acceptance. As above, termination for corrupt payments [etc] is now a right which the Contractor has as well as the Employer: see Sub-cl (j)).

15 THANK YOU FOR LISTENING

16 Out with the old, in with the new: Opportunities offered by changes to the FIDIC Form Contracts: Part 2 Jeremy Glover Partner, Fenwick Elliott LLP Simon Hughes QC Keating Chambers 13 June st Annual Lecture King s College Construction Law Association Sweet & Maxwell

17 The 2017 Revisions to the Rainbow Suite: the FIDIC Approach Clarity, transparency and certainty. Enhanced project management tools and mechanisms. Drafted by engineers experienced in design and construction: to reinforce the role of the Engineer. Increased importance of dispute avoidance and real-time dispute resolution. To achieve a balance risk allocation. The aim here is more reciprocity between the parties. To reflect current international best practice and address issues raised by users over the past 17 years arising out of the use of the 1999 suite.

18 The 2017 Rainbow Suite: Will it actually be used? The 63 page 1999 Yellow Book is now 132 pages (including Appendices and the DAAB rules). More prescriptive contract provisions setting out exactly what is expected from the Parties during the performance of the Contract. Increased burden on parties to follow new administrative requirements. An increased likelihood that if you fail to follow the rules, you lose the right to make a claim. Isn t the current international trend is for shorter clearer, more collaborative contracts? Who benefits: surely not the lawyers

19 Advantages of the DAAB well known Primary focus of the DAAB dispute avoidance, the prevention of disputes; To rationalise behaviour; To instil (gradually but firmly) professionalism; As a sounding board; A shield and a sword; Accountability; To guide the project?

20 A typical Employer's view? Special Provisions: Sub-clauses are deleted. Sub-clause 21.1:Disputes shall be decided by a DAAB in accordance with Sub-Clause 21.4 [Obtaining DAAB s Decision]. The Parties shall jointly appoint the member(s) of the DAAB within the time stated in the Contract Data (if not stated, 28 days) after the date the Contractor receives the Letter of Acceptance.

21 Perceived Disadvantages of the DAAB Does the 2017 Form really have sufficient teeth to summarily enforce DAAB Decisions? Will the Employer pay? 13 DAB Decisions and then an international arbitration? Cost. Attitude of JICA: the Employer s share for DB cost is eligible for JICA s financing under its ODA Loan.

22 The 5 FIDIC Golden Principles All those drafting Special Provisions should take note that: GP1: Duties, rights, obligations, roles and responsibilities must be generally as implied in the General Conditions. GP2: Use clear and unambiguous drafting. GP3: FIDIC s fair and balanced risk allocation must remain. GP4: All time periods for parties to perform their obligations and exercise their rights must be of reasonable duration. GP5: Disputes must be referred to a DA/AB for a provisionally binding determination as a condition precedent to arbitration or litigation.

23 The FIDIC Condition Precedent GP4: All time periods for parties to perform their obligations and exercise their rights must be of reasonable duration. Recommendation 84: The legislation should void a contractual term that purports to make a right to claim or receive payment, or a right to claim an extension of time, conditional upon giving notice where compliance with the notice requirements would: a) not be reasonably possible; or b) be unreasonably onerous; or c) serve no commercial purpose. Review of Security of Payment Laws- Building Trust and Confidence John Murray

24 What about BIM? The BIM system is building information modelling. It comprises a software system which is intended to assist the design, preparation and integration of differing designs and different disciplines for the purposes of adequate and efficient planning and management of the design and construction process. Mrs Justice O Farrell Trant Engineering Ltd v Mott MacDonald Ltd

25 The FIDIC BIM Advisory Note According to FIDIC, BIM is: founded on a team approach and successful projects utilising BIM encourage collaboration. There is no FIDIC BIM Protocol. Note the Second Edition of the CIC Protocol came out in April FIDIC has indicated that it is currently preparing two documents: Technology Guideline Definition of Scope Guideline Specific to BIM

26 The FIDIC Advisory Note FIDIC has identified the key risk areas on any BIM-enabled project: Misunderstanding of scope of services. Use of data for an inappropriate purpose and reliance on inappropriate data. Ineffective information, document or data management. Cyber security and responsibility for holding the models or data. Definition of deliverables, approval and delivery. The Winfield Rock Report

27 The FIDIC Approach to Time Notices: Sub-Clause 1.3, must be in writing and identified as a Notice. Notices: the Sub-Clause 4.20 Progress Report and the Sub-Clause 8.3 Programme cannot be Notices. Claims for time and/or delay damages must be made in accordance with Sub-Clause The Programme: enhanced (and detailed) requirements set out in Sub- Clause 8.3. Advance warning, Sub-Clause 8.4: key part of the road to dispute avoidance.

28 The Enhanced Programme Requirements The Contractor shall submit a revised programme accurately reflecting progress whenever the current one no longer does. Increased programme requirements of new Sub-Clause 8.3: Use software identified in the ERs or acceptable to the Engineer. Detailed, all activities, sequence and timing of inspections and tests, all key dates, logic linked, float, rest days and holidays, delivery of materials What are the key delivery dates? Have they been met? Supporting report, method and execution, labour resource. Initial programme within 28 days after receiving the Notice stating the Commencement Date. New Sub-Clause 14.3(c): every payment application must include the monthly Progress Report including a detailed description of progress.

29 Concurrent Delay Sub-Clause 8.5: If a delay caused by a matter which is the Employer s responsibility is concurrent with a delay caused by a matter which is the Contractor s responsibility, the Contractor s entitlement to EOT shall be assessed in accordance with the rules and procedures stated in the Special Provisions (if not stated, as appropriate taking due regard of all relevant circumstances).

30 Concurrent Delay In any event, I am clearly of the view that, where there is an extension of time clause such as that agreed upon in this case and where delay is caused by two or more effective causes, one of which entitles the Contractor to an extension of time as being a Relevant Event, the Contractor is entitled to a full extension of time. Mr Justice Akenhead Walter Lily v MacKay & Others, [2012] EWHC 1173 (TCC) The acting law recognizes situation when the loss suffered by one party was caused by both parties reasons and so called composed fault exists. In such case, the court is obliged to determine which party is liable for the loss to what extent and to determine its amount proportionally to such extent. (ას , 21 April 2017, Supreme Court of Georgia).

31 Sub-Clause 4.1 Design Red Book 1999 to 2017, first paragraph:- 1999: The Contractor shall design (to the extent specified in the Contract), execute and complete the Works in accordance with the Contract and with the Engineer s instructions and shall remedy any defects in the Works. 2017: The Contractor shall execute the Works in accordance with the Contract. The Contractor undertakes the execution of the Works and the completed Works will be in accordance with the documents forming the Contract, as altered and modified by Variations.

32 Sub-Clause 4.1 Design Yellow Book 1999 to 2017, first paragraph:- 1999: 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. 2017: The Contractor shall execute the Works in accordance with the Contract. When completed, the Works (or Section or Part of major item of Plant, if any) shall be fit for the purpose(s) for which they are intended, as defined and described in the Employer s Requirements (or, where no purpose(s) are so defined and described, fit for their ordinary purpose(s)).

33 Contractor s and Employer s General Obligations [ ] s error is perhaps a sad reflection of the fact that modern day contracts of this kind are so complicated that nobody (not even the consultants) bothers to check the actual documentation being signed. Mr Justice Coulson Borough of Milton Keynes v Viridor (Community Recycling MK) Ltd [2017] EWHC 239

34 Other Fitness for Purpose Points The fitness for purpose obligation is now backed by an indemnity (Sub- Clause 17.4). Although all indirect and consequential losses for this indemnity are excluded and liability shall fall within the overall cap, this is likely to be a major concern for Contractors. Now, if stated in the Contract Data, the Contractor s PI policy must indemnify against a failure to achieve fitness for purpose (Sub-Clause ).

35 Clause 17.4: Indemnities by Contractor The Contractor shall also indemnify and hold harmless the Employer against all acts, errors or omissions by the Contractor in carrying out the Contractor s design obligations that result in the Works (or Section or Part or major item of Plant, if any), when completed, not being fit for the purpose(s) for which they are intended under Sub-Clause 4.1 [Contractor s General Obligations]. Note however from an Employer s point of view: Sub-clause 4.1: fitness for purpose obligation; Sub-clause 5.3: undertaking the design is in accordance with the documents forming the Contract; Sub-clause 7.6: remedial work; Sub-clause 11: defects after Taking-Over.

36 The Enhanced Role of the Engineer (1) A new requirement that the Engineer : may be a legal entity rather than an individual; is a professional engineer, suitably qualified and experienced; and fluent in the language of the Contract. If the Engineer exercises any authority for which the Employer s approval is required then deemed approval has been given. May require parties to attend management meetings and shall keep a record of those meetings.

37 The Enhanced Role of the Engineer (2) Now Sub-Clause 3.7 (was 3.5): When making a determination, the Engineer shall act neutrally and shall not be deemed to act for the Employer. Neutrally is not defined, but FIDIC did not mean independent or impartial but rather non-partisan. Consultation (Sub-Clause 3.7.1): consult promptly/jointly and/or separately to endeavour to encourage the Parties to reach an agreement; and write it down and ask the Parties to sign. Within 42 days, or proceed to make a determination.

38 FIDIC White Book: 5th Edition 2017 Introduction of the concept of good faith and mutual trust in all dealings. Enhanced anti-corruption provisions. Not entirely complementary to the 2017 Rainbow Suite. Sub-clause 3.3.1: Consultant shall have no other responsibility than to exercise the reasonable skill, care and diligence to be expected from a consultant experienced in the provision of such services for projects of similar size, nature and complexity. Sub-Clause gives the Consultant the ability to revoke any licence on 7 days notice if the Employer is in payment default. Sub-Clause 3.9: contract administration, the Consultant shall act fairly when exercising judgment or determining any matter under the works contract. Clause 4: Programming Obligations. Needs to tie in with any BIM Protocol. FIDIC is a contract written by Engineers for Engineers.

39 Some Feedback on the new FIDIC Form: FIDIC Regional Infrastructure Conference, Georgia 2018 Positive reaction, welcoming the new Form. Some confusion over the enhanced roles of the Engineer and DA/AB: who does what. Overwhelming view in favour of the new detailed step by step processes. Brought clarity to what was needed from all parties. All parties, including Employer Reps supportive of DA/ABs. Should result in less formal disputes.

40 Thank you Simon Hughes QC Jeremy Glover