Taking the fifth

An updated Yellow Book served as proxy for FIDIC to preview its 2nd edition works contracts at December’s London Users Conference. For many, the prospect of far-reaching amendments sent shivers down the spine.

We frequently lament that construction is rooted in the past. Yet few in any industry enjoy upheaval. But if the draft Yellow Book stirred the global community, this year’s White Book barely raised a murmur. There’s generally less interest in standard form consultancy agreements. Employers fear bias in those from professional bodies while alternatives are uniformly derided. Consultants don’t build so their contracts are straightforward to craft from scratch. Diversity in consultants’ roles and importance further justifies a tailor-made approach.

The kicker, of course, is that clients considered the White Book too consultant-friendly. Traditionally, publishers haven’t helped by isolating consultancy agreements from works contracts - indeed, FIDIC employed separate steering committees for years. If this had been meant to embrace those willing to mix and match, it didn’t work. Connective offerings drive sales, as Apple knows. Hence the progressive approach of IChemE, ACA and others of reflecting core principles across suites.

For iconic projects, clients often prefer to own all intellectual property as this ensures flexibility and control

FIDIC hasn’t followed suit but its changes and clarifications in the 5th edition better reflect current market expectations. We see this with the consultant’s duty of skill and care in carrying out services finally being upgraded to good industry practice. Notoriously, liability for all obligations was previously subject to a lower benchmark.

The organisation talks of innovation in incorporating fitness for purpose. In truth, the provision pays lip service to heftier commitments under the Yellow and Silver Books.

Elsewhere, one detects British influence. Perhaps aware of growing consumer awareness of NEC, FIDIC has introduced a mutual requirement to act in good faith and in a spirit of mutual trust. Endorsed by the Latham Report, this idea has momentum despite worries over legal interpretation. Similar concepts are enshrined to varying degrees within civil and mixed legal systems.

On the matter of disputes, adjudication replaces mediation. There are departures from the UK statutory regime. Ambush is difficult since an extended negotiation process must first be navigated. The adjudicator has 56 days to give a decision and, unless either party objects within 28 days, that becomes final and binding. Awards can be enforced in arbitration though the choice of governing law will affect whether arbitrators may decline to do so for breach of natural justice, lack of jurisdiction or another issue

Adjudication is a pre-condition to any arbitration. There may be claims which parties consider inapt to adjudicate, in which case this seems burdensome. Regardless, adjudication has been significant where it has been adopted and it will be interesting to see its reception in other jurisdictions.

Intellectual property remains vested in its author, with a widely-framed licence permitting the client to use and copy the consultant’s and in turn providing certain permissions for the professional’s services. Clients will note that the consultant’s licence is revocable if they are in default of payment. For iconic projects, they often prefer to own all intellectual property as this ensures flexibility and control.

The 4th edition contained a monetary limit on liability and a net contribution clause. It also included the mutual exclusion of consequential loss. This has been made more explicit in the new version and covers loss of profit. These caps are likely to form a key discussion.

If the consultant is appointed as contract administrator, the client must indemnify it against claims by the works contractor. In English law, such cases are doubtful unless fraud or bad faith can be established, with the doctrine of pure economic loss denying tortious responsibility in negligence. Clients may wonder why they should cover such risks. Contract administrators are not obliged to be impartial but that does not mean they are client stooges.

Similarly, clients will be disappointed that if they terminate the consultant for convenience, the agreement prevents them from fulfilling the outstanding services, either themselves or through others. A no fault divorce could bear mutual benefits. Clients wouldbe able to use it to smoothly replace a misfiring consultant without having to convey the suggestion of impropriety.

Thus flaws remain but the new White Book shows worthy progress.

Francis Ho is a partner at Penningtons Manches