FIDIC

FIDIC update 2024

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 2023 Construction Law Review. It is with much sadness that we report that Dr Nelson Ogunshakin is to step down as FIDIC CEO after six years in the role. Nelson has driven the organisation to modernise as well as driving agreement with the Multilateral Development Banks and the World Bank to agree to use updated forms of the FIDIC contract.

The fourth Kings College FIDIC course took place from the 2-6 July this year and like previous years, students from across the globe attended the five-day taught course.

This ongoing initiative continues to build significant capacity in the international construction industry. The course was 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 International Federation of Consulting Engineers has had another busy year since last year’s update in the 2023 Construction Law Review.

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.

The course is offered to senior executives and is designed to equip talented commercial managers, engineers and lawyers with advanced legal, commercial and practical knowledge about FIDIC contracts and the legal background within which they operate. The course is run by leading practitioners and focuses on the common and civil law legal frameworks within which the contracts are used.

The course has consistently sold out each year upon release, so if you are interested in joining in 2025 do register your interest now.

Course topics this year included:

At the second annual Global Leadership Forum Summit, in Geneva, Switzerland, there was a strong statement delivered by the organisation’s president Catherine Karakatsanis. She spoke about the vital role of engineers in addressing key issues like the climate crisis, decarbonisation and how to use AI to build better and more efficient infrastructure.

The FIDIC Climate Change Charter now has over 150 signatories and the FIDIC contracts drafting committee are also working on environmental, social, and governance (ESG) and climate related contracts. In addition it is working on particular conditions that can be used to achieve the demands of global users.

2024 is the fourth year in which FIDIC have been accrediting adjudicators for dispute boards and as of May there are 120 accredited adjudicators. There is now also a list of people whose accreditation has lapsed and this currently stands at nine people. In total 129 people have successfully passed the accreditation training. A full list of the accredited adjudicators can be found on the FIDIC website.

The numbers of tenders a coming out to the market using the 2017 and later forms of the FIDIC suite of contracts has dramatically increased over the last 12 months. The dispute boards in the newer forms use dispute adjudication/avoidance boards (DAABs) replacing the dispute adjudication board (DAB). There is a great demand for the newly accredited adjudicators to assist parties in avoiding disputes and most boards are now stipulated as being standing boards as opposed to ad hoc boards.

The World Bank and the Dispute Resolution Board Foundations (DRBF) have 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 has been successful and the dispute board members are now applying these skills on projects globally.

The 1st ed of the FIDIC dispute avoidance practice note was published at the end of 2023. The note, ‘Dispute avoidance – focusing on dispute boards’, was launched during the Official FIDIC International Contract Users’ Conference held in London and highlights awareness of the dispute avoidance function. UK adjudicators who had input into the document included Taner Dedezade, Barry Manie, Brian Barr, Derek Ross, James Dow, John Papworth, Mark Entwistle, Metehan Caglar Sonbahar, Nigel Davies and Sean Gibbs.

Key questions answered in the note are:

  1.  How/when does the dispute board make the parties aware of its dispute avoidance role?
  2.  When should dispute avoidance ideally take place?
  3.  Where should dispute avoidance take place?
  4.  What matters most lend themselves to dispute avoidance?
  5.  What are the most effective techniques for dispute avoidance?

The FIDIC contract manager certification commenced in 2022 and as of May 2024 there are 133 certified contract managers and five lapsed managers. The FIDIC trainer certification commenced in 2023 and as of May 2024 and there are 159 certified trainers and 12 lapsed trainers.

FIDIC has renewed and expanded a major agreement with the Caribbean Development Bank (CDB) that will now see the international funding organisation adopt the use of 12 FIDIC standard contracts for the next five years. Under the terms of the agreement, FIDIC has granted the CDB a non-exclusive licence to refer to 12 major FIDIC contracts for projects they finance, and the documents will be used as part of the bank’s standard bidding documents.

The list of contracts now includes the reprints of the 2022 FIDIC Rainbow Suite, the latest FIDIC Green Book 2021 and the Emerald Book contract for underground works and the dredgers contract.

The composition of the FIDIC contracts committee has changed from last year and now comprises:

The numbers of tenders a coming out to the market using the 2017 and later forms of the FIDIC suite of contracts has dramatically increased over the last 12 months. The dispute boards in the newer forms use dispute adjudication/avoidance boards (DAABs) replacing the dispute adjudication board (DAB).

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 2024. This group is currently chaired by Andrea Chao of Bird & Bird law firm, with:

The current forecasted date for release will be in the fourth quarter of 2025. The model contract will be more than a legal tool, it will actively support procurement and contract management. Key to its success will be flexibility and adaptability as well as being short and simple and the FIDIC Green Book 2021 has inspired this.

The contract will work through aligned bilateral contracts to ensure the aligned involvement of employer and contractor, and subcontractors, supply chain, engineer, designer, and other advisors, for example. Involvement will relate to integration of workstreams, flow of information, projectwide understanding and management of issues and risks, communication, and a duty to warn and inform. A key part of the contract is how disputes are avoided, so it will focus on early identification and resolution of issues and potential disputes, as well as ensuring that there is a collaborative team to support dispute prevention and resolution.

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

In November 2023 FIDIC published a reprint of its Emerald Book form of contract for underground works and launched a new guide to its use. The Emerald Book 2023 reprint and new guide have been published to take on board a number of comments and queries raised by users, which have given rise to further amendments to improve the use of the contract in practice to help keep the contract relevant and easy to use in a changing industry landscape.

The International Federation of Consulting Engineers has had another busy year since last year’s update in the 2023 Construction Law Review.The new guide offers a comprehensive and practical overview of the FIDIC Emerald Book relevant positions and outlines key differences from the FIDIC Yellow Book, on which it is based.

The Emerald Book is a joint initiative with ITA-AITES (the International Tunnelling and Underground Space Association). FIDIC is recommending that all users of its Emerald Book contract should take note of the new amendments and improvements contained in the reprint and the guide. Licence organisations and institutions are also advised to reflect on the amendments and take the necessary steps to update their documentation as needed.

FIDIC has signed a five-year strategic cooperation agreement with the Ministry for Communities, Territories and Infrastructure Development of Ukraine to assist with the reconstruction of the country and the reform of procurement and project implementation. A memorandum of understanding was signed by FIDIC and the ministry on the 19 January.

The parties will explore use of FIDIC contracts and the FIDIC golden principles for the contractual management of infrastructure projects within the framework of projects in Ukraine.

Key areas are on: 

The 2024 FIDIC Asia Pacific Conference took place as a virtual event in May. The flagship FIDIC annual Global Infrastructure Conference also returns taking place in Geneva from the 8-10 September. This is followed by the annual ICC FIDIC Conference on International Construction Contracts and Dispute Resolution from the 17-18 October in Korea. The Official FIDIC International Contract Users’ Conference and awards will take place at the end of the year, 2-5 December. Attendees can register for these events via the FIDIC website.

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 2023 and 2024.

South Africa

WBHO-Lubocon JV v Eskom Holdings SOC Limited and another (2023)

ZAGPJHC 1008 (8 September 2023) – 1999 Red Book 1st ed

This case concerns whether the court should review and set aside a tender awarded by the first respondent Eskom Holdings SOC Ltd because of a disqualification criterion to which bidders for the tender were subject. The applicant, a joint venture known as the WBHO-Lubocon joint venture, was amongst other bidders, disqualified for not meeting this criteria. The tender was awarded to the only bidder that qualified; the second respondent, a joint venture known as Grinaker LTA-Ezra Construction Joint Venture.

On 5 November 2020 Eskom put out a tender to eight construction firms to bid on a tender to build a combustion waste terrace at the Kusile power station in Mpumalanga. In layperson’s terms this is a structure to house the ash that is a byproduct of the coal that is burnt at the power station. Kusile already has an existing waste terrace which was built at the power station by WBHO and is known as phase one. However, this structure will soon be filled up, so a new structure is required. This is described in the tender as phase two. The form of contract that was stated in the bid documents was the 1999 Red Book 1st st ed.

Eskom officials met with WBHA staff who explained that WBHO had failed to submit what is referred to as the FIDIC contract data. This was later confirmed in a letter to WBHOs attorneys where Eskom wrote that the tenderer had been deemed non-compliant with the basic compliance requirements due to the contractors failure to submit the required FIDIC contract data.

Eskom explained to the court that the requirement to provide ‘FIDIC contract data’ meant filling in a form called the appendix to the tender. This document required the bidder to fill in certain information in conjunction with the rest of the bid documents submitted. It is now known that WBHO never submitted the appendix with its other bid documents hence this was the basis for its disqualification.

It was held that WBHO knew that the provision of certain information was compulsory for a bid to qualify as the bid document stated:

‘Mandatory tender returnables a) should the supplier fail to provide any mandatory tender returnables as clearly specified in the tender enquiry, the tender submission will be deemed non-responsive’.

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.

Amongst the items referenced for completion were:

a. The stipulated profit percentage.

b. The termination profit percentage.

c. The percentage for adjustment of provisional sums.

The court therefore held that the tender was not unfair nor was it irrational for Eskom to have acted in the way it did to disqualify WBHO. Once it had specified that completion was mandatory it was obliged to disqualify a bidder which did not submit the completed appendix.

This case should act as a warning to those bidding under FIDIC contracts to make sure they return information fully completed and in accordance with the tender instructions.

Lonerock Construction v South African National Roads Agency (SOC Limited) (2023) ZAGPPHC 527 – 1999 Red Book 1st st ed

This is a summary of a contractual dispute between Lonerock (Pty) Ltd (Lonerock) and the South African National Roads Agency Limited (SANRAL) concerning a road upgrade. The contract consisted of three documents: FIDIC conditions of contract for construction for building and engineering works designed by the employer (1999) (FIDIC conditions), COLTO standard specifications for road and bridge works 1998 (Colto), and the project document. Lonerock was responsible for the principal works but also outsourced 30% of the contract value to local community contractors (SMMEs). The contract allowed the engineer (Henderson) to issue interim payment certificates (IPCs) to Lonerock.

The key facts of the dispute are:

This case should act as a warning to those bidding under FIDIC contracts to make sure they return information fully completed and in accordance with the tender instructions.Lonerock argued that SANRAL had treated it unfairly by not paying P&Gs while paying the SMMEs. Lonerock also argued that it was entitled to payment based on the IPC certified by Henderson.

SANRAL argued that Lonerock was not entitled to P&Gs because it did not apply for an extension of time, it was not bound by the IPC because it contained errors and that it had already paid Lonerock everything it owed.

The court ruled that Lonerock was not entitled to P&Gs because: 

SANRAL was ordered to pay Lonerock the difference between what was paid and the amount certified in the IPC.

Kenya

Strabag International GMBH v National Irrigation Authority (Formerly the National Irrigation Board) (2024) KEHC 3744 (KLR)

The plaintiff’s case was that the parties had referred their dispute to a dispute board pursuant to their contract. The board rendered five decisions which were binding on the defendant and ought to have been effected immediately. That the claim was liquidated and the defendant had no reasonable or triable defence against the claim thus summary judgment ought to be entered.

If the defendant intended to invoke the arbitration clause in the FIDIC conditions, it ought to have done so no later than the time of entering appearance pursuant to section six of the Arbitration Act. The defendant pleaded that under clause 20.4 of the FIDIC conditions, upon a decision of the dispute board, any party dissatisfied with the decision was required to issue a notice of dissatisfaction and where such notice is issued, both parties have a mandatory obligation to attempt to settle the dispute amicably before commencement of an arbitration. That all disputes that are not resolved through the dispute board or amicable settlement are to be referred to arbitration as per clause 20.4 of FIDIC conditions.

If the defendant intended to invoke the arbitration clause in the FIDIC conditions, it ought to have done so no later than the time of entering appearance pursuant to section six of the Arbitration Act which provides:

“A court before which proceedings are brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than the time when that party enters appearance or otherwise acknowledges the claim against which the stay of proceedings is sought, stay the proceedings and refer the parties to arbitration unless it finds:

a. That the arbitration agreement is null and void, inoperative or incapable of being performed; or

b. That there is not in fact any dispute between the parties with regard to the matters agreed to be referred to arbitration.”

Having failed to invoke the arbitration agreement at the time of entering the appearance, it was futile for the defendant to purely ground its defence on the issue of referral to arbitration which was already stale. It would serve no purpose for this court to entertain the entire claim only to find that the issue of arbitration was already out of time. This would only expose the parties to unnecessary expenses and would be a waste of judicial time.

None of the decisions have been revised under any of the two available options and though the defendant begun the process by issuing dissatisfaction notices, there was no effort to complete the dispute resolution mechanisms under the FIDIC conditions despite that clause 20.4, 20.5 and 20.6 of the conditions clearly provided for an elaborate system of dispute resolution including obtaining of a dispute board’s decision, issuance of dissatisfaction notice and intention to commence arbitration, invitation to submit to amicable settlement and commencement of arbitral proceedings within 56 days of the notice of dissatisfaction even where no attempt of amicable settlement had been made.

The court held that the plaintiff’s claim was clear and obvious in light of the liquidated decisions by a properly constituted dispute board. Decisions that are final and binding and have not been reviewed by either amicable settlement or arbitral award. There was no justification for denying the plaintiff the orders sought.

Machiri Limited v Kenya Airport Authority (2024) KEHC 3303 (KLR)

The parties entered into an agreement for the demolition of the then existing airport halls, baggage area and multi-storey office block at the Jomo Kenyatta International Airport for a consideration of 388,210,597.70 Kenyan shillings plus VAT.

A dispute ensued when the respondent failed to make the necessary payments and subsequently the dispute was referred to arbitration.A dispute ensued during the contract period and the same was referred to arbitration and the award was published in favour of the claimant. The respondent faulted the tribunal for holding that the project contract was governed only by the FIDIC Conditions of Contract for Design – Building and Turnkey 1st st ed 1995.

It was contended that the tribunal failed to consider the hierarchy of the contract documents and failed to consider the effect of the agreements and the tender provisions on the FIDIC Conditions of Contract for Design – Building and Turnkey 1st st ed 1995. In addition, the respondent was a public body and was required to adhere to the law and use of public finances and in this relation, the tender was awarded in compliance with the Public Procurement and Asset Disposal Act.

It was further contended that the tender superseded the FIDIC Conditions of Contract for Design – Building and Turnkey 1st st ed 1995 and the claimant accepted the modifications to the clauses that the award was manifestly excessive and punitive contrary to the law, the principles of public finance and public policy.

The claimant accepted the modifications to the clauses that the award was manifestly excessive and punitive contrary to the law, the principles of public finance, and public policy. It was the claimant’s contention that the work it was contracted for was completed and handed over on 15 July 2016 and the respondent issued a certificate of completion. A dispute ensued when the respondent failed to make the necessary payments and subsequently the dispute was referred to arbitration. The grounds upon which the present application was founded were that the tribunal considered matters that were not before it, that the tribunal re-wrote the contract between the parties and the award was against the public policy of Kenya.

The court were not sufficient grounds to warrant setting aside of the arbitral award. The application did not meet the threshold for the conditions provided for under section 35 of the act.

Consequently, the final award published on 6 April 2023 by Hon. Mr Nyagah Boore Kithinji, the sole arbitrator, was recognised and adopted as a decree of the court.

Singapore

CZQ and CZR v CZS (2023) SGHC(I) 16 – 1999 FIDIC Yellow Book

The court reached its conclusion based on the interpretation of the language of the contract, which was based on the dispute resolution provisions in the 1999 FIDIC Yellow Book, with bespoke amendments. 

In CZQ and CZR v CZS, the Singapore International Commercial Court held that the amicable settlement procedure contained in the contract was not a condition precedent to the commencement of arbitration. The court reached its conclusion based on the interpretation of the language of the contract, which was based on the dispute resolution provisions in the 1999 FIDIC Yellow Book, with bespoke amendments. In doing so, the court also gave its guidance on the dispute resolution provisions in the 1999 FIDIC Yellow Book.

The respondents in an arbitration applied to the court for a determination that the arbitral tribunal had no jurisdiction because the procedure for amicable settlement prescribed in the contract had not been followed. The tribunal ruled, as a preliminary issue, that it did have jurisdiction. The respondents applied to the court for a determination to the contrary.

The relevant extracts of the contract, which was based on sub-clause 20 of the 1999 FIDIC Yellow Book as amended by the particular conditions are as follows:

Clause 20 claims, dispute and arbitration

20.2 – Appointment of dispute adjudication board – (FIDIC sub-clause 20.2 was deleted and replaced with the following): All references to the dispute adjudication board will not apply and all disputes will be dealt with under sub-clause 20.5.

20.5 – Amicable settlement (FIDIC sub-clause 20.5 was deleted and replaced with the following): If any dispute arises out of or in connection with the contract, or the execution of works, including any dispute as to certification, determination, instruction, opinion or valuation of the engineer, then either party shall notify the other party that a formal dispute exists. Representatives of the parties shall, in good faith, meet within seven days of the date of the notice to attempt to amicably resolve the dispute.

Analysing the wording of sub-clause 20 there were no clear words establishing a condition precedent to the commencement of arbitration.If the representatives of the parties cannot resolve a dispute within seven days from the first meeting, one or more senior officer(s) from each party shall meet in person within 14 days from the first meeting of the representatives in an effort to resolve the dispute. If the senior officers of the parties are unable to resolve the dispute within seven days from their first meeting, then either party shall notify the other party that the dispute will be submitted to arbitration in accordance with sub-clause 20.6.

20.6 – Arbitration – (FIDIC sub-clause 20.6 was amended to the following): Unless settled amicably, any dispute shall be finally settled by international arbitration...” The court agreed with the tribunal’s findings that the amicable settlement procedure in sub-clause 20.5 was not a condition precedent to the commencement of arbitration under clause 20.6.

The court held that as a matter of general principle, clear words are necessary to create a condition precedent to the commencement of arbitration. Analysing the wording of sub-clause 20 there were no clear words establishing a condition precedent to the commencement of arbitration. 

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

 

 

 

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