STUART JORDAN* looks at ground conditions risk as dealt with in Fidic’s Yellow Book, and a recent dispute which went to court.

We cannot help but talk often about Fidic (Fédération Internationale des Ingénieurs-Conseils) main contracts since they dominate the contracting landscape in the Gulf. We do have to take notice when there are developments in the understanding of Fidic conditions.

There was a recent court decision (in England) on some important aspects of the 1999 Conditions of Contract for Plant and Design-Build (Yellow Book) which we need to note – if only for the rarity value. Since Fidic disputes tend to be resolved in arbitration, we hardly ever get to see a court’s deliberation on these contract terms, still less an Appeal Court decision. We must always, of course, consider the extent to which it might be impacted by Middle Eastern legal principles (as we have looked at before) but it is worth looking at because it covers the important issue of site conditions risk.

The position on site conditions risk in Yellow Book is frankly a mess, which we always clear up with amendments. The standard provisions are contradictory:

Clause 4.10 provides that the employer shall have given (pre-contract) to the contractor all site information the employer has, but there is no requirement that the employer’s warrants the completeness or accuracy of this data. The contractor is deemed “to the extent which was practicable (taking account of cost and time)” to have obtained all information about site conditions, to have inspected and examined the site itself, the Employer’s data (if any) and all other available information about site conditions. This presumably is also to have happened pre-contract.

Then, under clause 4.11, the contractor is deemed to have priced on the basis of the above data and “any further data relevant to the contractor’s design”. The gathering and interpretation of this further data is not qualified by what is “practicable”.

Then in clause 4.12, the contractor will be entitled to an extension of time and a price adjustment if this progress is delayed or disrupted through site conditions which are “unforeseeable”, meaning “not reasonably foreseeable by an experienced contractor by the date of submission of the tender”. This is odd. Of the many questions raised here, the most obvious is: will these site conditions be accepted automatically as unforeseeable if the contractor has complied with clauses 4.10 and 4.11 or is something more required? Alternatively, can actions which are not compliant with the above provisions still be held to be within the range of actions of an experienced contractor? Is this just about the contractor’s ability to interpret data as opposed to an obligation to gather more of it?

The other argument waiting to happen is about how much research and examination of the site is “practicable” under clause 4.10 taking account of cost and time. Yes, time in the tender process might be limited but cost is not. How much expenditure is practicable, to investigate the site? It surely depends on whether the investigation is to manage the contractor’s own risk (that is, he doesn’t have time or money claims) or the employer’s risk (that is, claims may be made) so we end up in with circular reasoning.

The dispute

The case is Obrascon Huarte Lain SA v HM Attorney General for Gibraltar. In this case, Obrascon (OHL) was awarded the contract to design and construct a road and tunnel under the runway at Gibraltar airport. It ran into delay and claimed a time extension for unforeseeable site conditions, specifically for encountering contaminated materials. OHL had been given an environmental statement, which in its view did not reflect the amount of contamination it encountered.

The Appeal Court (agreeing with the first instance judge) gave, at least, some guidance in answering the above questions, saying that the above conditions “require the contractor, at tender stage, to make its own independent assessment of the available information. The contractor must draw upon its own expertise and its previous experience of similar civil engineering projects. The contractor must make a reasonable assessment of the physical conditions which it may encounter. The contractor cannot simply accept someone else’s interpretation of the data and say that is all that was foreseeable”.

The decision answers some questions although not the difficult ones. It confirms that data handed over (such as the environmental statement) does not come with any warranties as to accuracy or completeness. It also confirms that contractors are required to interpret data using their own experience and expertise. The bigger question is the extent of the obligation to make independent investigations, that is, to get more data. There is mention here of this obligation and OHL is criticised for not making further investigations but the courts at both levels did not try to put down general guidance on the question of how much investigation is “practicable”. It is mentioned that OHL had local knowledge of contamination in the area and this would support the idea, both that it should have interpreted the given data differently and gone to collect more. It remains, however, a decision which turns on the particular facts.

The best approach is to avoid disputes such as these by not allowing material gaps, inconsistencies and unclear drafting into the contracts. In my view, the whole idea of “unforeseeable” conditions is asking for trouble, quite apart from the disconnect between that concept and the obligations to investigate and interpret data, themselves not very clear.

I don’t advocate that site risk should sit with either the contractor or the employer simply as a question of principle. It is a practical question. Sometimes the employer has excellent site data, expensively bought, and on which it can rely, that is, sue the reporting engineers if it’s wrong. This employer can maybe handle site risk. Either way, it should sit firmly with one party.

*Stuart Jordan is partner and co-head construction for the international law firm King & Wood Mallesons (KWM). Based largely in Dubai, UAE, he specialises in engineering and construction matters, cross border, both front end and disputes.