6/15/16. FIDIC ContractingAdvantages and Pitfalls. INTRODUCTON: Who are We? Akin M. Alcitepe Partner, Sedgwick LLP

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1 6/15/16 FIDIC ContractingAdvantages and Pitfalls AKIN M. ALCITEPE, ESQ. PARTNER WASHINGTON D.C. MEREDITH R PHILIPP, ESQ. ASSOCIATE WASHINGTON D.C. INTRODUCTON: Who are We? Akin M. Alcitepe Partner, Sedgwick LLP Juris Doctorate, George Washington University Admitted in Washington, D.C., Virginia International Construction Lawyer Negotiates and advises on construction contracts Litigates and arbitrates construction disputes. Advises on investor-state treaty matters Writes and Speaks about Construction Contract Matters. 1

2 INTRODUCTON: Who are We? Meredith R. Philipp Associate, Sedgwick LLP Juris Doctorate, Catholic University Columbus School of Law Admitted in Washington, D.C., Maryland Negotiates and advises on construction contracts. Litigates and arbitrates construction disputes. Writes and Speaks about Construction Contract Matters. FIDIC Contracts- Generally What does FIDIC mean? What do they do? FIDIC stands for Fédération Internationale des Ingénieurs - Conseils, which is best translated from French as The International Federation of Consulting Engineers. FIDIC represents the c onsulting engineering industry both globally and domestically. What are the FIDIC forms of contract? FIDIC s Contracts Committee produces standard forms of contract for civil engineering projects, which are used globally. The purpose of these standard forms is to define the c ontrac tual relations hip between the parties and to apportion risks between the contractor and the employer. FIDIC states that their c ontrac ts alloc ate ris k s fairly to the party that is bes t able to bear and control that risk. It is important to remember that the FIDIC forms repres ent a s tarting point for the preparation of a c ons truc tion c ontrac t. Howev er, they are routinely amended to reflect the particular characteristics of each project and the requirements of the parties. Types of FIDIC Contracts What are the types of FIDIC forms of contract? The forms of contract are drafted for use on a wide range of project types. The main forms are differentiated by the color of their covers. Key provisions we will discuss are similar across different types. In summary: Green Book: straight forward, quick or cheap project Red Book: employer design (traditional project). Pink Book: employer design (Multilateral Development Banks providing finance) Yellow Book: contractor design (traditional project). Silver Book: EPC/Turnkey project. Gold Book: design, build, operate project. 2

3 FIDIC Contracting FIDIC RED BOOK Red Book is the most utilized FIDIC form globally. Most popular FIDIC form when states contract with private entities. Red Book assigns risks and responsibilities. Red Book is Design-Bid-Build U.S. AIA documents. Form. Not design build etc., as are Even though it has a Contract Price strictly speaking, the Red Book is not a lump sum contract. It is a measure and value contract. i.e., Works are to be measured by the Engineer and those quantities and measured amounts of work are then to be paid for at the rates and prices in the Contract or on the basis of adjusted rates. FIDIC Contracting OVERVIEW Terminat ion Disputes FIDIC Contracting: Terminology Similarity Terms similar to AIA: Employer à Owner Engineer à Architect Variations à Changes Damages à Relief Similar to AIA 3

4 TERMINATION Clause 15: Clause 15 deals with termination by the Employer. This provision allows the Employer to terminate for contractor default, insolvency and for convenience (a terminating Contractor is not entitled to terminate for convenience). Sub-clause 15.1 entitles the Employer to issue a notice through the Engineer, to correct any Contractor default/failure under the Contract. Under sub-clause 15.1, the Contractor must make good or remedy the failure within a specified reasonable time. To avoid potential disputes as to whether the termination procedure was followed correctly, any notice to correct should refer specifically to sub-clause The grounds on which an Employer can terminate for cause are set out at Sub-Clause Sub-clause 15.2 (a): fails to comply with Sub-clause 4.2 [Performance Security] or with a notice under Sub-clause 15.1 [Notice to Correct]. Sub-clause 15.2(b): abandons the Works or otherwise plainly demonstrates the intention not to continue performance of his obligations under the Contract. Sub-clause 15.2 (c): fails to proceed with the Works in accordance with Clause 8 [Commencement, Delays and Suspension], or to comply with a notice issued under Sub-clause 7.5 [Rejection] or Sub- Clause 7.6 [Remedial Work], within 28 days after receiving it. Sub-clause 15.2(d): subcontracts the whole of the Works or assigns the Contract without the required agreement. Sub-clause 15.2(e): becomes bankrupt or insolvent, goes into liquidation. Sub-clause 15.2(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. 4

5 Sub-clause 15.5: Employer s termination for convenience (without cause) gives the Employer the right to terminate the Contract at any time for convenience, that is, without any default on the part of the Contractor or other justification. 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. 1. Let s say the Employer terminates for convenience can the Employer have another Contractor complete the work? How does the termination notice need to be delivered? 1. No. The Employer cannot retain another Contractor to complete the work. 2. By way of the contractual agreement of the parties. In the case of Central Provident Fund Board v. Ho Bock Kee, 17 BLR 21 (1981), the Court of appeal in Singapore found that notice was invalid on grounds that it failed to comply with the contract being sent by the wrong body (Superintendent Officer and not the Chairman of the Board) and being delivered by hand and not by registered post. The importance. read the contract on how Notice is to be served, and upon whom it should be served. 5

6 Consequences of Termination for Convenience 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]. As can be seen from the provisions of Sub-Clause 19.6, quoted in paragraph 6.1 below, the payment is based on the Cost of a number of elements. Cost is a defined term of the Contract, in sub-paragraph of the Conditions: 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. This termination for convenience Clause is basically the same as in the Orange Book, except that instead of barring the Employer from engaging another contractor from doing the work for six years, it simply states that the Employer shall not terminate the contract: in order to execute the Works himself or to arrange for the Works to be executed by another Contractor." There is no time limit in the Red Book. However, if an Employer did terminate and have another Contractor finish the work, it could be liable for breach of Contract. DISPUTES Clause 20: Claims, Disputes and Arbitration. Clause 20.1 allows Contractors their basic right to claim additional compensation (money or time) in the event that they (the Contractors) feel they have an entitlement under the Contract to such compensation. And it goes on to provide a mechanism for handling those claims and any disputes which may arise as a result. The first step is for the Contractor to give Notice. Contractor must do within 28 days of becoming aware of the event, or it loses entitlement to that claim. 6

7 This Notice provided by the Contractor is important because: everyone involved becomes aware that here is an event or circumstance where extra time or payment may be due to the Contractor proper records can then be kept and agreed, to avoid future argument alternative measures may also be possible to reduce the effects the matter can be resolved at an early date if the event or circumstance turns out to be of insignificant effect, then it is not necessary to follow up the Notice with a formal claim. ALL claims from the Contractor have to follow the procedure set out in Cl It is a procedural clause. For example. If a Contractor submits a claim to the Engineer for an extension of time/and or additional payment, gives notice, and takes witness statements after the event occurred, will this meet the requirement of maintaining contemporaneous records? 7

8 NO In the case of Attorney General for the Falkland Islands v. Gordon Forbes Construction (Falklands) Ltd. 6 BLR 280 (2003), the acting Judge ruled that this was not the equivalent of statements taken that the relevant time. He defined contemporaneous records as original or primary documents, or copies thereof, produced or prepared at or about the time giving rise to a claim, whether by or for the contractor or employer. The Notice given by the Contractor starts the claims procedureimportant factors to be considered: Contemporary records must be kept which can be inspected by Engineer Fully detailed claim to be submitted within 42 days after Contractor became aware of the event (or should have become aware), or unless another time is agreed to by the Parties. Provision for on-going claims and submittal of their details must be included (if the claim is only an interim claim, and other claims may be made continuously throughout the work). Engineer s Responsibilities During Claim Process: There is a time limit imposed on the Engineer to reply to a claim - within 42 days of receiving the claim with details the Engineer shall respond with approval, or with disapproval and detailed comments. Clause 3.5: 1."...the Engineer shall consult with each Party in an endeavor to reach agreement. If agreement is not achieved, the Engineer shall make a fair determination in accordance with the Contract, taking due regard of all relevant circumstances." 2. Thus before making a determination the Engineer must consult, and his determination must be fair. 8

9 What happens if the Engineer does not respond within the 42 days defined in this Clause? What if a Party does not agree with the determination of the Engineer? Sub-clause 20.2 Appointment of the Dispute Adjudication Board All disputes are adjudicated by the Dispute Adjudication Board (DAB) that is jointly appointed by the Parties. (to be appointed 28 days after one party gives notice of intention to refer dispute to DAB) The DAB shall consist of 1 or 3 people who must be suitably qualified. The composition of the DAB shall be by nomination and then joint selection. DAB members are to be remunerated jointly by parties and each pay half of the fees. DAB members can only be replaced by mutual agreement. Sub-clause 20.3, if can t appoint by mutual agreement, then appointing official in Appendix to Tender will make the appointment. Obtaining a DAB Decision If any dispute arises between parties, then either can refer that dispute to DAB. DAB is NOT an arbitral panel. DAB will reach decision within 84 days, unless otherwise agreed upon by all parties. The decision is binding, unless overturned by agreement of decision of an arbitral panel. If a party disagrees with a decision issued by DAB, then it will serve a Notice of Dissatisfaction in accordance with Sub-clause 20.7 and If this Notice is not served, the DAB decision becomes final and binding. 9

10 The last resort Arbitration (Sub-clause 20.6) International Arbitration is a long, complicated and expensive process! The parties are free to agree on rules and procedures, however, if they accept the provisions of Clause 20.6, then: Arbitration shall be according to the ICC (International Chamber of Commerce) rules and procedures. There will be 3 arbitrators appointed according to ICC Rules. The arbitration will be conducted in the language for communications (Clause 1.4). Arbitrators have power to open up, review and revise any certificates, decisions, etc. Engineer may be called as a witness. Neither Party is limited to evidence or arguments put before DAB. Arbitration may be commenced before or after completion of the Works. Thanks. If there is anything we can assist you with, please do not hesitate to contact us. FIDIC Resources On-Line