An international outcry

On international projects, the problems for a contractor are much the same as in the UK, except they are bigger and worse. The jobs are usually relatively large and the international contractor will tend to have less familiarity with the foreign country and its practices. For many years, the FIDIC (International Federation of Consulting Engineers) contracts used on international projects were familiar to British contractors, based as they were on the British ICE forms. Although imperfect, the old forms held a reasonable balance between contractors and employers.

In September 1999, FIDIC produced new forms, which are known by their colours as the Silver, Red and Orange books. To many international contractors, in particular European contractors, they are a serious disappointment. The view, widely held, is that the balance is now firmly in favour of the employer, with the contractor having either to price for all the new risks and not obtain the job, or to ignore the new risks, get the job and pay the penalty.

The Silver Book is a case in point. It is for use on turnkey (design-and-build) and engineer-procure-construct projects. Because it is drafted with process plant-type jobs in mind (tests on/after completion, performance certificates and so on), it would need substantial amendment for ordinary turnkey projects.

It not only imposes a fitness for purpose obligation, it makes the contractor liable for the employer’s requirements. This is the document by which the employer will spell out what is required and how the requirements are to be achieved. One cannot expect tenderers to design the work before the contract is awarded. If the successful contractor, by dint of detailed design investigation, discovers that the employer’s requirements are defective, that discovery establishes that the contractor is in breach. As if that was not enough, clause 5.3 requires the contractor, notwithstanding, to design and carry out the works in accordance with the requirement.

This is not only an unholy mess, it also imposes unfair and in some way ridiculous obligations and liabilities. The old FIDIC and ICE lifeline, clause 12 (unforeseeable physical conditions), has been abandoned. The tenderers must therefore price for the unforeseeable. The tender playing field is therefore uneven because some tenderers will not risk pricing for the unforeseeable.

•  FIDIC new forms disadvantage the contractor
•  The forms impose unfair obligations and liabilities
•  Contractors’ claims are limited by non-reciprocal conditions

The Silver Book imposes on the contractor liability for damage to any property no matter where that property is – even when the property is not damaged by act or omission, let alone default on the part of the contractor. If the contractor is employed on the Silver Book to design and construct a harbour wall and gates on one side of a dock, and a wall on that side coincidentally collapses during the course of the works, the contractor has to pay. It is frankly absurd to place such a liability on the contractor. Even if it can obtain insurance, the additional premium will hurt.

Swingeing and non-reciprocal conditions bar contractors’ legitimate claims:

• if notice is not given within 28 days of the date when the contractor became or should have become aware of the circumstances giving rise to the claim

• if and to the extent that the contractor does not initially include an amount for the claim within a “statement of completion”, 14 days after completion. Apart from the fact that these types of clauses provoke confrontation, because the contractor has to notify simply to reserve its position, these provisions simply create an artificial obstacle, to the detriment of the contractor.