FIDIC Update

FIDIC update 2023

Sean Sullivan Gibbs BSc LLB(Hon) PGDipArb PGDipBar LLM FCInstCES FRICS FCIOB FICE AFIChemE Chief Executive Officer, Hanscomb Intercontinental 

A roundup of the latest developments and case law around FIDIC contracts

THE International Federation of Consulting Engineers has had another busy year since last year’s update in the Construction Law Review 2022.

The third Kings College FIDIC course took place at the end of June and like previous years, students from across the globe attended the five-day taught course, this ongoing initiative is building significant capacity in the international construction industry. The course is provided by leading practitioners and is designed to equip talented commercial managers, engineers and lawyers with advanced legal, commercial and practical knowledge in relation to FIDIC contracts and the legal background within which they operate.

The FIDIC 1999 suite and the new FIDIC 2017 Red, Yellow and Silver Books will be analysed in detail, with references to older FIDIC contracts such as the 1987 Red Book and 1995 Orange Book when focusing on experience drawn from particular projects.

Course topics include:

2023 is the third year in which FIDIC have been accrediting adjudicators for dispute boards and there are now 113 accredited adjudicators as of 9 June 20231.

It is the writer’s experience that a significant numbers of tenders are now coming out to the market using the 2017 and later forms of the FIDIC suite of contracts. This means that dispute boards are now dispute adjudication/avoidance boards (DAAB) replacing the older version, the dispute adjudication board (DAB). As a result, the newly accredited adjudicators will have to play a greater role in assisting the parties avoid disputes.

The World Bank and the Dispute Resolution Board Foundations DRBF have agreed a programme of training for DAAB members so that they can be appointed early on in projects to assist with the procurement sexual exploitation and abuse and sexual harassment (SEA/SH) prevention and response measures that are being implemented.

The World Bank and the Dispute Resolution Board Foundations DRBF have agreed a programme of training for DAAB members so that they can be appointed early on in projects to assist with the procurement sexual exploitation and abuse and sexual harassment (SEA/SH) prevention and response measures that are being implemented.

These new measures create an incentive for contractors and their subcontractors to strengthen their performance in preventing sexual exploitation and abuse (SEA) and sexual harassment (SH) (SEA/SH) and improving how they respond to SEA/SH incidents in the event that they occur. The measures apply to procurement of works in projects assessed as high-risk for SEA/ SH.

The new measures hold contractors and subcontractors accountable for implementing the SEA/SH prevention and response obligations in their contracts.

If the contractor/subcontractor does not comply with their SEA/SH prevention and response obligations, they are disqualified from being awarded a bank- financed contract for a period of two years. The bank believes this will create an added incentive for better performance. The contractor disqualification mechanism builds on existing good practice in current bank- financed project. It achieves this in works projects by applying the FIDIC (International Federation of Consulting Engineers) general conditions of contract, including leveraging the role of the independent

Dispute Avoidance/ Adjudication Board (DAAB). The DAAB comprises independent expert(s) which visit the site quarterly to review any contractual issues or disputes between the borrower and the contractor and to assist them in resolving issues or disagreements before being elevated to costly disputes. The mechanism leverages the DAAB role by relying, in particular, on its reviews of, and decision/s on, the contractor’s compliance with its SEA/SH prevention and response obligations.

A contracting party (borrower or contractor), on receiving an allegation, documents the relevant details, while keeping the identity of the alleged survivor and the alleged perpetrator confidential. That party then notifies the other party and the engineer. On receiving or being notified of an allegation, the contractor applies its SEA/SH response mechanism. The borrower refers the allegation to the DAAB.

Even in the absence of an allegation, the borrower and its engineer, have the obligation to monitor the contractor’s compliance with its SEA/SH prevention and response obligations on an ongoing basis.The DAAB is tasked to determine if the contractor has complied with its SEA/ SH prevention and response obligations. The DAAB focuses on compliance by the contractor with the contract. The DAAB does not consider the facts and circumstances of the alleged incident or assess the merits of the case.

Even in the absence of an allegation, the borrower and its engineer, have the obligation to monitor the contractor’s compliance with its SEA/SH prevention and response obligations on an ongoing basis.

If any non-compliance is identified, the engineer issues a notice to correct to the contractor copied to the borrower and the DAAB. This may result in the engineer’s determination that the matter is resolved, or otherwise determine non-compliance with the notice to correct.

If the latter, the engineer notifies the borrower and the contractor of the contractor’s failure to correct. On being notified of the noncompliance and failure to correct the borrower sends a SEA/SH referral to the DAAB for review, copied to the contractor and the engineer. Potential non-compliance may also be identified by the DAAB as part of their activities. The same process applies i.e., the engineer issues a notice to correct to the contractor etc. as described above.

The DAAB’s role is to review and decide on the contractor’s compliance with its SEA/SH prevention and response obligations. Following receipt of a referral, the DAAB requests the contractor to provide a statement demonstrating its compliance with its SEA/SH contractual obligations and, where there has been an allegation of actual SEA/SH, that the contractor’s actions, in response to the allegation, are compliant with the contract.

The borrower or the contractor may appeal the DAAB decision if they are dissatisfied with the determination.The DAAB reviews the contractor’s compliance and the contractor’s statement. It issues its decision within 42 days of receiving the referral. The decision will state that the contractor is either in compliance or not with its SEA/SH prevention and response obligations.

The DAAB sends the decision to the borrower and the contractor and copies the engineer. The DAAB’s decision is binding on the contractor and the borrower. The borrower notifies the bank of the decision. The DAAB’s dispute monitoring role is outlined in the FIDIC general conditions of contract, and in the project specific terms of reference set by the borrower.

The borrower or the contractor may appeal the DAAB decision if they are dissatisfied with the determination. This is done through formal ICC arbitration procedures initiated by a party requesting the appointment of an emergency arbitrator. An appeal must be initiated within 28 days of receiving the DAAB determination. Such arbitration is in addition to the ongoing compliance review and informal role in helping parties to resolve SEA/SH issues in a preventative way.

The FIDIC contract manager certification commenced in 2022 and as of the 9 June 2023, there are now 79 certified contract managers listed2. The FIDIC contracts committee now comprises:

The FIDIC contracts committee’s task group 17 (TG 17) is working on a new collaborative form of contract(s) to add to the FIDIC suite by 2023.

New contracts, guides and sub-contracts still being drafted and reviewed include the:

The work to have multilateral development banks and other lending institutions use unamended FIDIC forms of contract has continued and FIDIC has in place agreements with a number of banks.Of note was the release in 2022 of the hard and soft copies of the FIDIC Contracts Guide to the Construction, Plant and Design-Build and EPC/Turnkey Contracts (2nd nd edition 2022). The guide is an extremely useful tool to understand the contract provisions and how clauses differ between the contracts.

At the end of 2022 reprints in English were launched of the 2017 forms of contract which include:

The World Bank and FIDIC are cooperating on translating these into French, Spanish and Portuguese. The latest FIDIC guidance memorandum – FIDIC contracts guidance on the effects of inflation and the unavailability of goods and labour following the global COVID-19 pandemic and the war in Ukraine has been made availabl3.

The work to have multilateral development banks and other lending institutions use unamended FIDIC forms of contract has continued and FIDIC has in place agreements with the:

The 2023 FIDIC Africa Conference took place in Zambia in May and the focus was on green infrastructure. Many case studies from the UK were used to show how design standards can be upgraded to tackle the threats of weather and prevent flooding to communities.

The 2023 FIDIC Africa Conference took place in Zambia in May and the focus was on green infrastructure. Many case studies from the UK were used to show how design standards can be upgraded to tackle the threats of weather and prevent flooding to communities. The flagship FIDIC annual Global Infrastructure Conference returns to take place from the 10-12 September in Singapore4. This is followed by the annual ICC FIDIC Conference on International Construction Contracts and Dispute Resolution from the 12 to 13 October 2023 at the Le Westin Paris – Vendôme, 3 Rue de Castiglione, 75001 Paris5. The Official FIDIC International Contract Users’ Conference and Awards takes place on 28-29 November 2023 at the Leonardo Royal Hotel London City in London6.

Chris Miers was posthumously awarded the Dispute Resolution Board Foundation’s prestigious Al Mathews award for dispute board excellence at the DRBF International Conference held in Sao Paulo in May 2023. Chris has been instrumental in assisting the South American use of dispute boards and also training and supporting newer users and dispute board members.

FIDIC case law

FIDIC contract disputes rarely make the courts in the UK primarily as the dispute board process and usual ICC arbitration clause lead to a final conclusion of the dispute, so we look overseas for some cases that have been decided in 2022 and 2023.

Kenya

Haraf Traders Limited v Narok County Government (2022) eKLR (Civil Suit 1 of 2019)

This dispute concerned a fourth edition of the FIDIC Red Book contract which although published in 1987 is still in use in many countries around the globe.

Following completion of the works, the plaintiff issued a claim for payment of outstanding payment certificates, interest, and cost. The defendant disputed the claim on grounds of breach of contract by the plaintiff, including substandard work and a unilateral extension of performance of the contract.

FIDIC contract disputes rarely make the courts in the UK primarily as the dispute board process and usual ICC arbitration clause lead to a final conclusion of the dispute.The parties reached settlement of the principle sum outside of court. The only issue left for determination, therefore, was whether costs and interest on the principal sum were awardable and chargeable, respectively, in light of the parties’ settlement and the lawful steps taken in pursuit of remedy.

Notwithstanding the allegations of breach of contract against the plaintiff, and in exercise of its discretion ‘in order to meet the interests of justice for both parties’, the court found no reason to deny the plaintiff costs. The court, however, declined to award interest on the principal sum, the denial of the interest was on the basis that there had been a full and final settlement of the sums due. Turning to costs the court confirmed that:

From the jurisprudence in this area of law, the exercise of discretion on costs depends on the facts of each case, and is guided by the principle that costs should follow the event unless the court orders otherwise. Such circumstances as are relevant include (i) the conduct of the parties, (ii) the subject of litigation, (iii) the circumstances which led to the institution of the proceedings, (iv) the events which eventually led to their termination,(v) the stage at which the proceedings were terminated, (vi) the manner in which they were terminated, (vii) the relationship between the parties and (viii) the need to promote reconciliation amongst the disputing parties pursuant to article 159 (2) (c) of the Constitution; (ix) public interest.

Canada

Tower-EBC G.P./S.E.N.C. v. Baffinland Iron Mines LP and Baffinland Iron Mines Corporation ONSC 1900 (11 April 2022)

The Ontario Superior Court of Justice decided the case on a bespoke FIDIC form based on the construction form. This project experienced lengthy and unanticipated delays in obtaining necessary permits, the absence of which led BIM to send notices of termination to TEBC pursuant to the contracts. TEBC challenged BIM’s right to terminate the contracts and claimed damages arising from the termination, including recovery of outstanding standby charges, the cost of spare parts and the loss of profit.

The arbitral tribunal awarded TEBC damages for breach of contract and costs against BIM.

The Ontario Superior Court of Justice decided the case on a bespoke FIDIC form based on the construction form. This project experienced lengthy and unanticipated delays in obtaining necessary permits, the absence of which led BIM to send notices of termination to TEBC pursuant to the contracts.BIM brought an application for an order: 

The application was dismissed on the basis that there were no grounds upon which to set aside the award pursuant to s. 46 of the Arbitration Act 1991, S.O. 1991, c.17, either with respect to lack of jurisdiction or failure to be treated equally and fairly. The court further confirmed that BIM could not rely on s.45(1) of the act to obtain leave to appeal as the arbitration agreement between the parties precluded an appeal from any decision of the Tribunal.

In particular, the dispute resolution provisions of the contracts are set out in clause 20 of the general conditions of the contracts which was not modified by the parties from the FIDIC form, entitled: ‘Claims, disputes and arbitration.’

Clause 20.6 incorporates the ICC rules which include article 35(6) which provides, among other things that the award is binding and the parties are deemed to have waived their right to ‘any form of recourse’. The court said that the meaning of article 35(6) is clear from its wording. There is no further recourse from an arbitration award pursuant the ICC rules.

Dubai

Panther Real Estate Development LLC v Modern Executive Systems Contracting LLC (2022) DIFC CA 016

FIDIC Conditions of Contract for Construction for Building and Engineering works Designed by the Employer (1st st edition, 1999). Subclause 21.1 – when time begins to run for the purpose of the 28-day notice requirement (ground 4).

Of interest is that the court had to consider the question of when time begins to run under subclause 20.1 for the purpose of the 28-day notice requirement (and, as indicated earlier, the 42day detailed claim requirement).Of interest is that the court had to consider the question of when time begins to run under subclause 20.1 for the purpose of the 28-day notice requirement (and, as indicated earlier, the 42-day detailed claim requirement). The judge, differing from Akenhead J at paras. 312-313 of his judgment in Obrascon (supra), said this (judgment para. 53):

“In my opinion, the effect of the first paragraph of subclause 20.1 is that, if a contractor is aware or ought to have been aware of an event or circumstance that could give rise to an EOT claim, he must give notice of that event or circumstance within 28 days after he became so aware or ought to have been so aware.”

We agree with this analysis for the reasons set out below:

43. Subclause 20.1 is concerned with two things, extension of time and additional payment. Those two things may be inter-related or they may be quite separate. We are here concerned only with a claim for extension of time. In terms of subclause 8.4 – and other subclauses similarly link with subclause 20.1 – the contractor is entitled, subject to subclause 20.1, to an extension of time if and to the extent that completion of the works is or will be delayed by one or more of a number of factors listed therein, such as variations, adverse weather or delays etc caused by the employer. The relevant delay is not delay to any particular activity but delay to completion. The use of the future tense (see the underlining above) is also instructive; the particular factor relied upon may cause some immediate delay to a particular activity, but whether it will in fact delay completion of the works will often depend on a whole range of factors. Hence the contractor is expected to put in a claim for an extension of time for completion if he considers that the particular factor or factors relied upon has/ have caused or will cause completion to be delayed.

Notice of the claim must 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 circumstances relied on as giving rise to the actual or likely delay.44. In Obrascon, Akenhead J referred to subclause 8.4 which sets out the basis, in that case as in this, for claiming an extension of time. Subclause 1.9 is also relevant – in turn it refers to both subclauses 8.4 and 20.1. But as those other provisions make clear, the claim for an extension itself is made under subclause 20.1 – see e.g. the last paragraph of subclause 8.4. Consistently with subclause 8.4, the claim is for an extension of the time for completion, on the basis that time for completion either is or will be delayed by one or more of the events or circumstances giving rise to the claim, i.e. one of the causes listed in subclause 8.4. Notice of the claim must 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 circumstances relied on as giving rise to the actual or likely delay. The focus is not so much on the delay but on the event or circumstance giving rise to the delay; and the 28 days for giving notice of the claim runs from the time the contractor becomes aware, or ought reasonably to have become aware, of that event or circumstance and its potential to delay completion.

45. At the beginning of para. 312 of his judgment in Obrascon (supra), Akenhead J says this:

“Properly construed and in practice, the ‘event or circumstance giving rise to the claim’ for extension must first occur and there must have been either awareness by the contractor or the means of  knowledge or awareness of that event or circumstance before the condition precedent bites.”

In fact delay to the contractual time for completion only occurs when the works are not completed by the contractual completion date.We have no difficulty with that part of his analysis which correctly focuses on when the contractor becomes aware (or should have become aware) of the relevant event or circumstance giving rise to the claim so as to start time running. But later in his judgment Akenhead J appears to say that time can start to run from the moment, usually later in time, that delay to completion of the works in fact occurred or started to occur. We see difficulties with this analysis. In fact delay to the contractual time for completion only occurs when the works are not completed by the contractual completion date. The construction advanced by Akenhead J would mean that in, say, a three year project, if an event occurred during the first year which resulted ultimately in the works overrunning by a month or two after the time for completion in year three – and there would be no actual delay to the time for completion until then – then the 28-day notice under subclause 20.1 would only have to be given within 28 days of the moment in year three when time for completion passed without the works being completed. That would render subclause 20.1 – which is designed to ensure that claims are notified and dealt with swiftly – entirely ineffective for its purpose.

It is clear that the DIFC court has diverted from the English position and imposed a more rigorous notification regime46. For these reasons, we agree with the judge’s analysis of this part of subclause 20.1. The 28-day notice requirement is triggered when the contractor becomes aware (or ought to have become aware) not of the delay or likely delay but of the event or circumstance giving rise to the claim for an extension of the time for completion. We would only add this. We were referred in the course of argument to the contra proferentem rule. It was suggested that any ambiguities should be resolved in favour of the contractor. We need not go into this – in our view there is no ambiguity in the provision and the rule does not come into play. The proper interpretation of that part of the clause is quite clear. It is clear that the DIFC court has diverted from the English position and imposed a more rigorous notification regime. Contractors and subcontractors operating in the MENA region should take note and make sure that they give notices in a timely fashion as soon as a potential event occurs so as not to be time barred. 

Sean Sullivan Gibbs BSc LLB(Hon) PGDipArb PGDipBar LLM FCInstCES FRICS FCIOB FICE AFIChemE Chief Executive Officer, Hanscomb Intercontinental

sean.gibbs@hanscombintercontinental.co.uk

@SGibbs121

Sean Gibbs is vice chair of the CICES Contracts and Dispute Resolution Panel and is a committee member of CICES South West and South Wales.

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1 A full listing of those accredited can be accessed via https://fcl.fidic.org/ourprogrammes/adjudicators/ 

2 See https://fcl.fidic.org/our-programmes/contractmanagers/

3 https://www.fidic.org/sites/default/files/Guidance%20 Memo%20-%20War%20memorandum_170323_final.pdf 

4 Attendees can register now for this in-person event via the FIDIC events platform at https://events.fidic.org/fidicgic23/begin

5 https://2go.iccwbo.org/icc-fidic-internationalconstruction-contracts-conference.html

6 https://events.fidic.org/cucinternational2023

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