Dangerous liaisons

There is, potentially, a larger-than-usual profit to be earned from international contracts, as well as a larger-than-usual loss. Consideration has to be given to the standard forms of international contract likely to be used – and the FIDIC forms issued in late 1999 will be the most commonly used, for better or for worse.

I recently criticised the Silver Book for Engineering Procurement and Construction in Building (3 March). This time I will look at the Red Book, which is intended for building and engineering works where the employer provides the design. It is in much the same form as the Silver Book, contains many of the same provisions – and attracts many of the same concerns.

The Red Book contains provisions that make claims not only inevitable but also more likely to be pressed. This arises because there are at least three major provisions that say that, unless claims are put in at an early stage, they will be barred. Clause 20.1 lays down a clear requirement for the contractor wishing to claim for extensions of time, or for additional payment, to give notice within only 28 days of becoming aware, or of when it should have become aware, of the grounds for such claims.

Failing this, no extension of time and no additional payment is due. Clause 20.1 goes on to require the contractor within 42 days to provide a fully detailed claim. Inevitably, a contractor that does not want to abandon the possibility of claiming has to put one in. Positions will tend to become entrenched, ill-feeling will ensue and dispute resolution procedures will be initiated.

As if clause 20 were not enough, a payment provision, clause 14.14, lays down additionally that unless two further notifications are made (after taking over and in the final account statement), the contractor is also barred from any entitlement. These repeated requirements are not only overkill, they are designed to aggravate.

… additionally, unless two further express notifications are made, the contractor is barred from entitlement. This requirement is not only overkill, it is designed to aggravate

The old FIDIC forms allowed the contractor extensions and compensation for unforeseeable physical conditions. Clause 4.12 of the Red Book retains this entitlement, but goes on to say that any benefit is to be reduced to the extent that more favourable conditions than could have been foreseen are encountered. So, the contractor on a road project who encounters unforeseeable rock at one chainage and sand at another may well lose its clause 4.12 entitlement. This will reduce the contractor’s opportunity to make profit where conditions are easier than anticipated.

FIDIC might seek to justify this by suggesting that it is simply trying to strike a fair balance between contractor and employer. However some might say that the contract overall is neither fair nor balanced. Apart from claim notification, termination provisions are not equal. For the contractor to terminate for non-payment, it must wait three-and-a-half months after its application for payment and 42 days after the last day when payment is due. The employer can terminate if there is a mere one day’s culpable delay, or, if an earlier notification was given, for the most trivial of faults.

Unnecessary and onerous obligations are placed on the contractor. Clause 4.21 contains a long list of requirements for monthly reports, an unnecessary six copies of which are called for. Every month, the contractor, for instance, has to send in programme and progress charts, progress photographs, quality assurance documents and safety statistics, all of which cannot be essential every month.