Legally Bound

Jordan ...  the 2017 forms will take a while to bed in.

Jordan ... the 2017 forms will take a while to bed in.

New Red Book, a lengthy read

STUART JORDAN* analyses the newly released Red Book and indicates that he does not anticipate immediate adoption of the new forms in the Gulf.

February 2018

I have previously mentioned the slow-paced rewriting of the Fidic (International Federation of Consulting Engineers) main contract suite, which was last updated in 1999. This exercise has been trailed for years and many of us thought it would never happen.

Well, last month Fidic released three new contracts: the 2017 Second Edition, comprising the Conditions of Contract for Construction (Red Book); the Conditions of Contract for Plant and Design-Build (Yellow Book); and the Conditions of Contract for EPC/Turnkey Projects (Silver Book).

This is big news, given the dominance of Fidic forms in the Middle East – especially the main contracts. In this article, we’ll look just at the Red Book, which is subtitled “For Building and Engineering Works Designed by the Employer”. This is the simplest of the suite and the best from which to assess the general approach taken by the writers.

So, are the new forms an improvement, and will they be used any time soon in the Gulf region? On the first question, we should consider why the publishers thought the rewrite was necessary. What were the obvious deficiencies? Which contract terms were routinely deleted, changed or inserted by users, or required by funders?

In terms of both market share and market perception, we might conclude that there wasn’t a lot to fix. Compared to other international published contracts, the 1999 First Edition forms are short, simple and user-friendly. Yes, in many ways too simple; lacking in some essential detail needed for modern complex projects and to achieve bankability. This necessitates some lengthy amendments but I have not noted any perception that the forms are inadequate as a starting point. Anyway, it is fair to say that a very different approach has been taken with the new forms.

For a start, the conditions are much longer, covering some 106 pages instead of 60. Much of this increase is due to more prescriptive contract administration, on everything from early warning and variations to time/money claims and disputes. The highlights include:

• An obligation on the contractor to price and programme in full detail any proposed variation.

• An indemnity from the contractor, should defects in contractor design cause the works not to be fit for purpose. As with the earlier Red Book, the contract can call for contractor design. Whilst fitness for purpose is a normal Fidic feature, the indemnity is new and the reason for making this even tougher on contractors, is not immediately obvious.

• Programmes are required to be more detailed – to show activity float, to be logic-linked and to show critical path. The contractor’s programmes must be updated and shall be accepted by the engineer if they comply with contract requirements.

• Also on time management, the parties are directed to agree a position on how to deal with concurrent delay. There is no prescription on how to deal with it – to allow or to disallow an extension of time in that situation – but it has to be addressed.

• There are more detailed requirements on devising and operating quality management and verification systems.

• Contractual claims for time and money have been separated from the disputes provisions, and the time bar is softened with a route of appeal for late claims.

• There is to be a standing Dispute Avoidance/Adjudication Board (DAAB) which can give both informal non-binding views on an issue and interim-binding decisions.

Overall, the basic risk profile has not changed. Contract administration, however, has changed almost completely. Much of this is welcome and follows modern practice. The provisions on programmes and extensions of time will drive clarity and certainty of outcome, so reducing the scope for disputes. Other changes appear to be unnecessarily intrusive and will add to overall cost. We can expect users in the Gulf to delete the new provisions on DAABs, just as the existing equivalent provisions are now.

This makes the second question easier to answer. There will be no immediate adoption of these new forms in the Gulf region. The first reason is this new process-driven approach to contract administration. There is responsibility on both parties for proactive engagement and there are consequences on both sides in default of meeting those obligations. This is the opposite of the more reactive Middle Eastern approach to contract administration, in which the engineer’s main job is simply to hold the contractor to account.

The bigger reason though is habit: the Fidic 1995 Orange Book is still popular in this region; even some 1987 forms are still used. In this environment, where even the 1999 editions are a little bit too new for some users, the 2017 forms will take a while to bed in!

We’ll look at the new Yellow and Silver books separately.


* Stuart Jordan is a partner in the Global Projects group of Baker Botts, a leading international law firm. Jordan’s practice focuses on the oil, gas, power, transport, petrochemical, nuclear and construction industries. He has extensive experience in the Middle East, Russia and the UK.

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