50

FIDIC Yellow Book Training
Training to VSMC 2014
CONTENTS
1.
Presentation slides
2.
FIDIC Notes part one
180
3.
FIDIC Notes part two
214
Driver Trett 2013
www.drivertrett.com/europe
Managing FIDIC Contracts

Training to VSMC 2 day workshop 2014
Mark Castell Regional Managing Director
mark.castell@drivertrett.com
www.drivertrett.com
Managing FIDIC contracts

Introduction
Contract management - some general principles
The FIDIC standard forms overview & differences
Management of a FIDIC Yellow Book Contract throughout a project
The Tender Phase
Award of Contracts
Setting up the project
Procurement and sub-contracting
The execution phase
Completion & handover
Resolution of financial matters (and disputes if any)
Conclusions

What we do
Our dispute and advisory team, delivering high-level
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planning and programming services.
Our project controls team, delivering commercial
management, quantity surveying, and planning services
throughout the project lifecycle.
Provision of a range of specialised services based around

investigative and forensic skills. Working with clients
within the financial sector including banks, funders,
investors, accountants, and lawyers
Provision of project management alongside transaction
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projects using PFI, PPP and DBFO procurement options..
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litigation and provision of internationally experienced
adjudicators, arbitrators, and mediators.
GROUP OVERVIEW
Driver Group is a global construction consultancy, providing

construction and engineering focused services since 1978
Stock exchange listed plc. AIM (2005)
Driver Trett established in 2012 when Trett Consulting became
part of the Driver Group.
Market leader in expert witness, planning, commercial and
disputes.
Over 330 global staff.
Network of offices across Europe, Africa,
Americas, Asia Pacific, and the Middle East.
Global reach with projects undertaken
worldwide.
DRIVER GLOBAL PRESENCE
Contract
management some general
principles
Some questions
Q: What is common to every project?

A: A Contract.
Q: What is a Contract?
A: Simply speaking, it is an agreement.
Q: What is the objective of a contract?
A: To define the relationship and how the
parties act the rules of the game.
8
Q: What is contract management and

what does it cover?
A: Management of:
Risks & opportunities
Change
Entitlement
Claims
The Client
It should include the avoidance of Disputes
Or is it simply, good management
Q: When should the management of

contracts begin?
A: At the conception of a contract.
Q: When should the management of

contracts end?
A: At the finalisation of all matters.
10
Contracts involve a process conception to grave

Receipt of an enquiry
Tender or bid phase
Negotiation and award
Design or engineering phase
Procurement phase
Construction phase
Defects liability phase
Finalisation of all matters
11
Q: Who is involved in managing a contract?

Revised Q: Who should be involved in
managing a contract?
A: Everyone within the business...
Does this happen?
12
Introduction to FIDIC
13
FIDIC
(Fdration Internationale des
Ingnieurs-Conseils)
Federation of national associations of consulting engineers
Based in Geneva
Founded in 1913 with original founding members from France,
Belgium and Switzerland
UK joined 1949, USA joined 1958
Seen as international from 1970s and members from about 70
counties
FIDIC aims
High ethical standards
High professional standards
Development of engineering profession in developing countries
FIDIC documents
Standard Forms of Contracts
Guides to Standard Forms of Contracts
Tendering procedures
Model Agreements
Standard Forms of Contract
17
History of FIDIC Standard Forms of Contract

In 1957 the original Red book for works of civil engineering
construction was published. Further editions and supplements
were published up to 1996.
Modelled on ACE form of contract which was based on ICE
conditions of contract.
The original Yellow book for electrical and mechanical work
reached third edition in 1987.
The original Orange book was first published in 1995 for design
and build turnkey works.
General principles of FIDIC Standard Forms

of Contract
Historically based on Anglo Saxon type contracts.
Drafted for general use on an international basis.
Modifications may be required in some jurisdictions.
FIDIC standard forms are generally accepted to be well-written
and capable of being understood by users.
They recognise there will be problems and potential for conflict
and dispute on projects but set out processes to resolve them
including:
Placing a significant administrative burden on the parties
and;
requiring the parties to deal with issues at the time.
The Current FIDIC

Standard Forms of Contract
20
Current FIDIC Main Standard Forms of Contract
Blue (2006)
Yellow (1999)
Green (1999)
Red (1999)
Silver (1999)
Pink (2010)
Gold (2008)

Blue book.
Dredgers
Contract
Green book.
Short Form
Red book.
Construction
Contract
Pink book.
MDB
Construction
Contract
Yellow book.
Plant and
Design-Build
Contract
Gold book.
DBO Contract
Silver book.
EPC/Turnkey
Contract
When do you use which standard form?

For dredging & reclamation works, the Blue book
Otherwise, which contract should be used?

STRAIGHTFORWARD
PROJECT ?
no
< $500K or < 6 months
EMPLOYER
DESIGN ?
yes
no
yes
CONTRACTOR DESIGN
no
plant and/or high

unforeseen risks
yes
little employer involvement

no major unforeseen risks
Maintenance
yes
yes
no
Silver book - EPC Turnkey concept

Contractor provides a complete facility that is ready to
operate when the Employer turns the key
Employer steps back
Only appropriate in certain situations
Consequences
Greater risk transfer to Contractor
Increased tender prices
Opportunity for extensions of time and financial claims reduced
More certain final price for Employer
Overview of Current
FIDIC
Standard Forms of
Contract
27
Generally Red, Yellow & Silver Books

FIDIC produces the General Conditions (20 clauses) and
anticipates separate Particular Conditions to be used for
project-specific changes and / or revisions due to applicable
law.
Appendix to Tender also used to contain project-specific
information.
Definitions set out in clause 1.
Importance of Letter of Acceptance binds Parties to Contract.
Contract Agreement only confirms binding Contract is in place
(if Letter of Acceptance is used).
Communications shall be in writing, transmitted using specific
methods and issued to stated addresses (clause 1.3).
Applicable law and ruling language needs to be stated (clause
1.4).
Priority of documents provisions (clause 1.5).
General concepts Red Book
Adopts the role of an Engineer who can vary Works

Responsibility of design with the Engineer acting on behalf of the
Employer
Tenderers issued with Specification, Drawings and Schedules
(includes BoQ)
Payment on a re-measurable basis (but option for lump sum)
Responsibility for unforeseen conditions with Employer
DAB appointed at outset of project to resolve disputes
General concepts Yellow Book
Adopts the role of an Engineer who can vary Works

Responsibility of design (fitness for purpose) with the Contractor
Tenderers issued with Employers Requirements
Payment on a lump sum basis (but option for re-measurable )
Responsibility for unforeseen conditions with Employer
DAB appointed at outset of project to resolve disputes, or ad-hoc
General concepts Silver Book
Employers Representative instead of Engineer.

Prime duties restricted to monitoring progress, quality and
testing
Responsibility of design (fitness for purpose) with the Contractor
Tenderers issued with Employers Requirements
Payment on a lump sum basis
Responsibility for nearly all risk with the Contractor
DAB appointed at outset of project to resolve disputes, or ad-hoc
Format of the FIDIC

books
32
Standard Format for the Red, Yellow and Silver books

1. General Conditions 20 Clauses
2. Guidance for the preparation of Particular Conditions
3. Forms of letter of Tender, Contract Agreement (including

Appendix to Tender), Dispute Adjudication Agreement and
Forms of Securities
33
Red Book General Conditions
Clause 1 - Definitions, General Provisions

Clauses 2 to 4 - Duties of the Employer, the Engineer and the
Contractor
Clauses 5 to 7 - Resources (staff, labour, materials)
Clauses 8 to 10 - Time
Clause 11 - Defects Liability
Clauses 12 to 14 - Payments
Clauses 15 to 16 - Termination
Clauses 17 to 19 - Risk and Insurance
Clause 20 - Claims and Disputes
34
Yellow Book General Conditions
Differs as:
Clause 5 - Design
Clauses 12 Tests after Completion
35
Silver Book General Conditions
Differs as:
Clause 3 - Duties of the Employers Representative
36
Exercise
Low
High
Employer design
Re-measurable
Contractor design
Lump Sum
1. Match each book with a description of design

responsibility.
2. Match each book with a description of valuation.
3. Arrange in the order of risk to Contractor (low to
high).
Answer
Low
High
Employer design
Contractor design
Re-measurable
Lump Sum
The management of
a FIDIC Yellow Book
contract
39
A FIDIC YB contract entails management of:
A tendering process or period

Preparation of enquiry documents
Contractors sets its commercial strategy and issues its offer
Discussion / negotiation
Award of the contract

Agreement reflects a common understanding
How is the offer accepted?
Setting up the project

Internal knowledge transfer and project specific systems
External submittals and kick-off meeting
Procurement and sub-contracting

Step down / flow down principles versus practice
The use of the phrase Back to back

40
A FIDIC contract entails management of:
The execution phase

Progress control / updates
Financial matters & payment
Change / claims
Suspension
Force Majeure
Completion and Handover

Takeover
Tests
Defect liability
Resolution of financial matters (and disputes, if any)

Dispute resolution
41
The tender stage
Photograph credits to FreeDigitalPhoto.net & Grant Cochrane
Typical Sequence of Events
Issue of Tender
Documents
Submission of the
Tender
Yellow book
Cl. 1.1.3.1
Base Date
28 days
Preparation of
Tender Documents
Tender Period
43
An Employer has to:

Draft the Particular Conditions (see guidance notes)
44
Risk allocation:
Risk should be allocated to the party best able to manage it.
Standard Forms of Contract (such as one of the FIDIC forms)

generally allocate risk reasonably and fairly.
Major revisions to Standard Forms of Contract should be

considered carefully.
45
An example VSMC contract

Installation of export & array cables - London Array project
One document called Conditions of Contract
States these are based on FIDIC Conditions of Contract for Plant and
Design-Build First Edition 1999
No separate General and Particular Conditions of Contract
22 Clauses
Do you consider this:

1. Is an advantage to the contractor?
2. Adds or reduces work at tender stage?
3. Adds or reduces risk to the contractor?
Some Contracting Risks

1.
Clear scope of work
2.
Provision of bonds, guarantees
3.
Security for payment
4.
Physical conditions and access
5.
Practicality of schedule dates
6.
Use of specialist suppliers/sub contractors/ third parties
7.
Extension of time provisions
8.
Safety provisions
These risks have to be provided for in the contract
More Contracting Risks

1.
Clarity of the contract wording and provisions (no

discrepancies)
2.
Wording and provisions that can be easily understand

by all concerned
3.
Document submittals at, or just after commencement
4.
Conditions precedent clauses
5.
Notice requirements
6.
Requirement for record keeping
7.
Change process
8.
Claims process
These risks also have to be provided for in the contract
An Employer has to:

Draft the Employers Requirements
49
Employers Requirements
According to Clause 1.1.1.5, ERs must specify (cannot imply) for
each part of the works
The purpose
The scope
The design
Other technical criteria
Satisfying the Employers Requirements shown by successful Tests

on Completion
Responsibility for errors in the Employers documents

Yellow book Clause 5.1 provides for a period for the Contractor to identify errors
If any found within period, corrected and treated as Variation if it is
deemed that an experienced contractor exercising due care would
not have found it pre-tender.
Under Clause 1.9, if any found outside of period, becomes a claim if it
is deemed that an experienced contractor would not have found it
pre-tender.
Fitness for purpose
Yellow book Clause 4.1 provides an obligation that the Works be fit for
the purposes for which the Works are intended as defined in the Contract
The obligation for fitness for purpose is more onerous that designing
with due skill and care
i.e. Suitability of end product versus design process
London Array project has amended wording.

Works shall conform to the Employers Requirements as defined in or
reasonably inferred from the Contract.
Fitness for purpose continued

Responsibility for fitness for purpose cannot be passed to anyone else or
insured
Yellow book Clause 4.1 also provides an obligation to provide all Works
necessary for stability or for completion, or safe and proper operation of the
Works
Satisfying Fitness for Purpose shown by successful Tests on

Completion
An Employer has to:

Complete the Appendix to Tender
54
An Employer has to:

Provide a Letter of Tender
55
An Employer has to:

Provide Site Data (Clause 4.10)
56
An Employer has to:

Provide Site Data (Clause 4.10)
Draft the Instructions to Tenderers (if required)
See also the Notes on the Preparation of Tender Documents
57
Clarity is important as a Contractor must understand

what will be expected of him in order to:
Recognise the responsibilities and risks
Quantify the responsibilities and risks
Evaluate the responsibilities and risks
Plus identify the opportunities.
This sets the basis for a Contractors commercial strategy for the
project
58
Are these opportunities that exist at

tender stage?
To understand the employer needs
To see whether the proposed contract describes the same

thing
To influence the clients way of thinking
To influence the provisions of the contract (terms and

conditions)
To influence the allocation of risk
To agree the duration for undertaking the works
To agree the price for undertaking the works
To agree security of payment
etc
59
Exercise
8 days prior to tender submission the Employer provides
further sub-surface data which contradicts data issued
previously. The Contractor however, ignores the new data
in his tender.
The tender is successful and the Contractor is awarded the
project. It then subsequently claims on the basis of
unforeseeable physical conditions.
a) Consider the relevant clauses and issues.
b) Consider the various ways in which the Employer could
have acted prior to Tender when issuing the revised
data.
c) Consider the various ways in which the Contractor
could have acted when the revised data was received.
d) Consider what the Contractors position might be.
60
Yellow Book relevant clauses
Clauses 1.3, 3.1 & 4.3 why?
Clause 4.10 Employer to make available all relevant site data.

Contractor responsible for interpretation and inspecting site.
Clause 4.11 Sufficiency of tender.
Clause 4.12 unforeseeable and adverse physical obstructions by an

experienced Contractor.
Clause 1.1.6.8 definition of unforeseeable
See also Clause 20 Claims
61
A Contractor will then submit its tender or offer
Yellow book Under cover of a Letter of Tender
62
Period leading up to
Contract Award
63
Issue of Tender
Documents
Submission of the
Tender
Contract award
Yellow book
Cl. 1.1.3.1
Base Date
28 days
Preparation of
Tender Documents
Tender Period
Discussion &
negotiation
64
Prior to contract award

Employer has to undertake comparisons of tenders
Both parties have to negotiate their best position
Agreement should reflect a common or mutual understanding
The agreement should be explained in the Contract
65
Contract award
66
A Contract is an agreement, which

should be based upon the mutual
understanding that was built up in
the tender stage.
67
Employer Letter of Acceptance signifies the contract

coming into full force
Refer definition at Clause 1.1.1.3 includes annexed memoranda
Contract Agreement either follows, or used instead of a Letter of

Acceptance
68
The inital period after

award
69
Exercise
Under a Yellow Book project, consider...
What is / should be the internal process for transferring the

knowledge already gained by the business?
How / when do you assess the specific contract management
requirements of your projects?
How should kick-off meetings with the client be used?
70
Exercise
Under a Yellow Book project, consider...
The documents that the Contractor should expect to submit

after receiving the Letter of Acceptance
The documents and other things that the Contractor should
expect to receive from the Employer and/or his representative
after receiving the Letter of Acceptance
71
Some other issues

to consider
72
Some particular concepts
1. Evidence of ability to pay

2. Value Engineering
3. Impartiality of the Engineer
4. Contractor design submittals
Evidence of Ability to Pay

Clause 2.4 states
the Employer shall submit, within 28 days after receiving any request
from the Contractor, reasonable evidence that financial arrangements
have been made and are being maintained which will enable the Employer
to pay the Contract Price (as estimated at that time) in accordance with
Clause 14. ...
74
Evidence of Ability to Pay - issues
Requires a request by the Contractor
What constitutes reasonable evidence ?

A letter of confirmation from the Employer
A letter from the source of funding
The relevant amount includes changes made under the

contract
i.e. it is not just the tender sum
Evidence of Ability to Pay

Clause 2.4 continues
If the Employer intends to make any material change to his financial
arrangements, the Employer shall give notice to the Contractor with
detailed particulars.
76
Evidence of Ability to Pay further

issues
The obligation to give notice of change does not seem to

require a request from the Contractor
Options available for non compliance

Contractor may slow or suspend work or even
terminate the contract (Clause 16 refers)
London Array Project has amended provisions.

Employer to provide a Parent Company Guarantee.
Value Engineering
Clause 13.2
Clause 13.2 seeks to encourage the Contractor to propose

changes to nature or construction of the works that will be
beneficial to the Employer
Red book savings to be shared and any subsequent

design is to be by Contractor and fit for purpose at
Contractors risk
Yellow & Silver Books- financial benefits to be proposed by

Contractor
78
Impartiality of the Engineer

Clause 3.1 states
(red and yellow books)
Except as otherwise stated in these conditions:

Whenever carrying out duties or exercising authority, specified in or
implied by the Contract, the Engineer shall be deemed to act for the
Employer.
79

Clause 3.1 states
(red and yellow books)
Except as otherwise stated in these conditions:

(a) Whenever carrying out duties or exercising authority, specified in or
implied by the Contract, the Engineer shall be deemed to act for the
Employer.
(b)
80

Clause 3.5 gives the exception
Whenever these Conditions provide that the Engineer shall proceed in

accordance with this Sub-Clause 3.5 to agree or determine any matter,
the Engineer shall consult with each Party in an endeavour to reach
agreement. If agreement is not achieved, the Engineer shall make a fair
determination in accordance with the Contract, taking due regard of all
relevant circumstances.
81

Clause 3.5 gives the exception
Whenever these Conditions provide that the Engineer shall proceed in

accordance with this Sub-Clause 3.5 to agree or determine any matter,
the Engineer shall consult with each Party in an endeavour to reach
agreement. If agreement is not achieved, the Engineer shall make a
fair determination in accordance with the Contract, taking due
regard of all relevant circumstances.
82
Impartiality of the Engineer - Issues

1.
Impartiality versus fairness
2.
Fair determination in accordance with the Contract

i.e. interpretation of the Contractbut the Contract may
not be fair
3.
Partiality is only whenever carrying out duties or exercising

authority, specified in or implied by the Contract
i.e. does not include negotiation on behalf of Employer
4.
Silver book there is no Engineer and the Employer makes

the (fair) determination
83
Contractor design submittals
Yellow book
Clauses 5.2 deals with submission of documents
Yellow book provides for submission for review and/or for
approval
Exercise
Yellow book
The Contractor submits design documents for approval. Two
weeks later the Engineer responds pointing out that the designer
had not been submitted for his approval, and that the Contractor
has provided insufficient details of a particular component. The
Contractor (i) immediately starts the production of working
drawings, (ii) 3 days later commences manufacture.
What action should the Engineer take?
85
Procurement and sub

contracting
Sub-contracting issues
Obtaining consent to sub-contract works

When?
From whom?
87
Clause 4.4 states the Contractor:

shall not subcontract the whole of the Works.
shall be responsible for the acts and defaults of any
Subcontractors as if they were the acts and defaults of Contractor.
shall not be required to obtain consent for suppliers of Materials, or
a subcontract named in the Contract.
The prior consent of the Engineer shall be obtained to other proposed
Subcontractors.
shall give the Engineer not less than 28 days notice of the intended
date of commencement of each Subcontractors work
Which terms and conditions are to be used?
Are the FIDIC Standard Forms of Contract to be used?
If so, how will the main contract and sub-contracts be aligned?
Back to back what is it?
89
Example use of the phrase back to back

Please accept this telefax as your letter of intent for the [X] Scope of Work for the
[Y] project.
Total price ..excluding pipe supports, which will, be calculated at a rate of /kg
(delivery and installation).
The contractual terms shall be on a back-to-back basis in accordance with the
terms of the Main Contract. Currently, parts of the Main Contract are under
discussion with the Client. The results eventually be incorporated in the Main
Contract, which will be issued to you when available.
This Letter of Intent is based on the mutual understanding that:
4. Shift working/overtime/weekend work shall be carried out as and when
required and is included in the above mentioned price.
5. The order is based on the Back to Back principle.
You are requested to return a signed copy of this telefax, thereby unconditionally
agreeing to the above outlined conditions.
90
Back to Back
Do not rely on the phrase but actively align relevant parts of
main and sub-contracts.
Alignment is particularly required on:
1. Technical requirements
Performance criteria
Materials and Workmanship standards
2. Contractual requirements
HSQE / Business ethics
Termination / suspension
Warranty
Insurance
3. Procedural requirements
Completion, testing and commissioning protocols
Compliance regimes
Which terms and conditions are to be used?
Are the FIDIC Standard Forms of Contract to be used?
If so, how will the main contract and sub-contracts be aligned?
Back to back what is it?
Changing names does it work?
Are VSMC standard forms of sub-contract to be used?
If so, how will it align to the main contract?
Is the FIDIC Standard Form of Sub-contract be used?
If so, how will it align to the main contract?
92
Execution phase
Typical execution phase issues

Time - monitoring or reporting progress
Valuation and payment
Change / variations
Claims for time and money
Suspension of the works
Claims
Suspension
Force Majeure
94
Time Issues
95
Clause 8 programmes
Clause 8.1 notice of Commencement Date
Clause 8.2 Time for Completion
Clause 8.3 Programme to be provided within 28 days of Notice to
Commence detailed
Clause 8.3 Engineer has 21 days to reject
Clause 8.3 Contractor to proceed in accordance with it
Clause 8.3 revised programmes to be submitted in various situations
London Array project has amended provisions
Clause 8.2 concerns rate of progress and notice of delay
96
Exercise Yellow book

The Contractor has submitted its programme under Sub clause 8.3 and
receives a response from the Engineer within 21 days. The reply says that
the programme is not approved since the Engineer does not agree with
the duration allowed for some of the activities.
What should the Contractor do?
97
Critical path
The Critical Path - Why it is important?

Determines the earliest completion date for the project.
Determines the earliest and latest completion dates for
individual activities.
Calculates float.
Identifies which activities are important to the completion of
the project.
Identifies areas of risk.
Identifies areas where action should be taken to reduce the
project duration or recover from delays.
The Critical Path - Shortest route between work and the pub
Critical path analysis
New Wall
No Activity
Time (days) 1
10 11 12 13 14 15 16 17 18 19 20 21 22 23
1 Excavate the trench

2 Pour the foundation
3 Raise the brickwork
4 Place the coping
5 Complete
6
7
8
Link
Activity
New Wall
No Activity
Time (days) 1
10 11 12 13 14 15 16 17 18 19 20 21 22 23

4 Place the coping
5 Complete
6
7
8
Critical Critical Activity

Link
New Wall
No Activity
Time (days) 1
10 11 12 13 14 15 16 17 18 19 20 21 22 23

4 Place the coping
5 Complete
6 Design
7 Order concrete
8 Order bricks
Critical Critical Activity

Link
New Wall
No Activity
4 Place the coping
5 Complete
6 Design
7 Order concrete
8 Order bricks
Time (days) 1
10 11 12 13 14 15 16 17 18 19 20 21 22 23
New Wall
No Activity
4 Place the coping
5 Complete
6 Design
7 Order concrete
8 Order bricks
Time (days) 1
10 11 12 13 14 15 16 17 18 19 20 21 22 23
New Wall
No Activity
4 Place the coping
5 Complete
6 Design
7 Order concrete
8 Order bricks
Time (days) 1
10 11 12 13 14 15 16 17 18 19 20 21 22 23
New Wall
No Activity
Time (days) 1

4 Place the coping
5 Complete
6 Design
7 Order concrete
8 Order bricks
Total Float
10 11 12 13 14 15 16 17 18 19 20 21 22 23
Clause 4.21 progress reports

Clause 8.1 notice of Commencement Date
To be submitted monthly until completion of all work
Comprehensive - shall include:

a) Charts & descriptions of progress for each stage
b) Photographs
c) Manufacture report
d) Contractors personnel & equipment
e) QA documents, test results etc
f)
Notices of claims
g) Safety statistics
h) Comparisons planned versus actual progress, risks and
mitigation measures
106
Clause 8.6 rate of progress

If, at any time:
a) Actual progress is too slow to complete within the Time for
Completion, and / or
b) Progress has fallen (or will fall) behind the current programme under
Sub-Clause 8.3
other than as a result of a cause listed in Sub-Clause 8.4 [Extension of

Time]
107
Clause 8.6 rate of progress continued
then the Engineer may instruct the Contractor to submita revised

programme
Unless the Engineer notifies otherwise, the Contractor shall adopt these
revised methods, which may require increases in the working hours and /
or in the numbers of Contractors Personnel or Goods, at the risk and cost
of the Contractor
108
Clause 8.6 rate of progress continued
If these revised methods cause the Employer to incur additional costs,

the Contractor shall subject to Sub-Clause 2.5 [Employers Claims] pay
these costs to the Employer, in addition to delay damages (if any) under
Sub-Clause 8.7 below.

Clause 8.6 in entitled expediting but covers similar matters AND
Employer instructed acceleration
109
Exercise Yellow Book

The Contractor falls behind programme with certain non-critical activities.
The Engineer instructs the Contractor to revise his methods of working to
recover the delays and both the Employer and Contractor incur additional
costs as a result.
Who pays?
110
Valuation &
Payments
Valuation 1999 editions
Payment on a re-measurable basis (but option for lump sum)
Payment on a lump sum basis (but option for remeasurable)
Payment on a lump sum basis
Yellow Book Contract Price and Payments
Clauses 14.1 and 14.2 refer
Contract Price is lump sum (option for remeasurement)
Any quantities are estimated but may not be measurable (see

particular conditions)
Any advance payment is subject to a guarantee and is progressively

reduced as works proceeds
First interim payment also subject to issue of Performance Security
113
Yellow Book Payment Procedure

Clause 14.3 Contractor submits Statement at end of stated period 6

copies in approved form and including supporting details (including
progress report)
Clause 14.4 - Schedule of payments may apply. Payments may be

adjusted for actual progress.
Clause 14.5 - Payment for plant and materials may apply certain
conditions attached
Clause 14.6 Engineer issues Interim Payment Certificate within 28

days of receipt of Statement
Certificate does not indicate acceptance or approval

London Array project has amended provisions.
Clause 14.3 is not used, 14.4 is.
Clause 14.5 is also not used.
Clause 14.7 states invoice to be issued and that Employer reviews.
114

Clause 14.7 Employer pays within 56 days of receipt of Statement

(different for advance payment)
Clause 14.8 - Contractor entitled to interest for late payments without

giving notice
Clause 14.9 half retention release at issue of Taking Over certificate

and passing Tests on Completion (plus success in the Tests after
Completion if appropriate)
Clause 14.9 remainder of retention release at expiry of Defects

Notification Period unless still works to be done

Clause 14.7 states 45 days payment period after issue.
Clause 14.9 is not used.
115
Clause 14.10 Contractor issues Statement at Completion within 84

days of Taking Over certificate. Engineer certifies as Interim Payment
Certificate
Clause 14.11 Contractor submits draft final statement within 56 days

of receipt of Performance Certificate (issued under Clause 11.9 and
confirms Contractor has met all obligations and works accepted)
When agreed, Contractor issues Final Statement

Clause 14.10 revised and 14.11 is not used.
116
Clause 14.12 At same time Contractor also issues discharge that

amount is in full and final settlement
Clause 14.13 Engineer issues Final Payment Certificate within 28

days of receipt of above
Clause 14.7 Employer pays within further 56 days

Clauses 14.12 & 14.13 are not used
117

The Contractor issues its fifth statement for interim payment in the
required format. Progress is behind what is expected and there is
disagreement to the value of some varied works. The Engineer enters into
discussion with the Contractor to agree adjustments to the applied
amount and agreement is finally reached some 4 weeks later. The
Engineer duly certifies an amount to be paid, 34 days after the receipt of
the statement. The Employer pays the Contractor 2 days later.
118
Variations
Variations
Clause 13
1. Can no longer be instructed after issue of the Taking Over Certificate
2. New procedure whereby Contractor may be requested to indicate effect
on programme and value of works of a proposed change
3. Contractor has limited rights to object to a variation, but can be over
ruled
4. Timely notice to claim additional payment is condition precedent to
payment
120
Variations
Clause 13.1 does not set out the types of changes that can be made
i.e. authority for variations
A variation is defined (Clause 1) as a change to the Employers

Requirements
121
Procedure
Clause 3.3 states that the Contractor must comply with all instructions
from the Engineer
Clause 13.1 says Contractor shall execute and be bound by Variation

unless certain specific situations exist. If so, Contractor to give
prompt notice.
Clause 13.3 also provides for a Contractors proposal to be requested

prior to an variation being instructed
122
Contractors proposal covers

a. The extent of the work (including design) to be performed and the
timetable for completion.
Consider:
A comprehensive description
Direct effect on other parts of the works (time and cost)
Effect on ability to achieve Time for Completion
123

b. Proposed modifications to programme and Time for Completion
Consider:
Requirements of Clause 8.3 to notify possible delays to the

execution of the works i.e. delay Take Over by the Employer
Can only be shown using CPA (critical path analysis)
Prolongation costs
124

c. Proposed adjustment to Contract Price
Consider:
Shall include reasonable profit
125
Valuation of variations
Adjustments to the Contract Price are to be agreed or determined by

the Engineer
Reasonable profit is to be included
126

The Engineer requests a proposal under 13.1 prior to instructing a
Variation. The Contractor responds claiming that the Variation will require
the mobilisation of additional equipment in order to complete within the
existing Contract time schedule, but alternatively, could be undertaken
using the existing equipment but with the varied work being completed
after the Contract completion date. Prices for both options were provided.
The Engineer instructs the Contractor to undertake the work.
127
Claims
Clause 2.5 Employers claims
Employer or Engineer to give notice and particulars to the Contractor

To be given as soon as possible after being aware of the event or
circumstance that gives rise to claim
Engineer to agree / fairly determine (clause 3.5)
Can deduct monies due
129
Employers claims
Clause 2.5 provides for and sets out procedure
Claims include:
Electricity, water & gas consumption clause 4.19
Equipment & free issue materials clause 4.20
Rejection / retesting clause 7.5
Failure to do remedial work clause 7.6
Revised methods cause additional costs clause 8.6
Delay damages clause 8.7
Failure to pass tests on completion clause 9.4
Extension to Defects Notification Period clause 11.3
Failure to insure clauses 18.1 / 18.2
130
Clause 20.1 Contractors claims
Notice is mandatory and to be submitted within 28 days of any event

or circumstance that gives rise to entitlement
Notice is condition precedent to additional payment / extension of time
131

Records shall be kept, Engineer permitted to view
Fully detailed claim to be submitted within 42 days of any event or

circumstance that gives rise to entitlement including full supporting
particulars
Further claims to be submitted on a monthly basis if on-going
Final submission within 28 days of end of effects

Clause 20.1 says fully detailed claim to be submitted within 30
days
132

Engineer to respond with 42 days of submission
May request further particulars but must respond on principles of

claim
Interim payments allowed for amounts substantiated

Clause 20.1 says Engineer to respond within 30 days
133
Contractors claims
Clause 20.1 provides for and sets out procedure
Claims include:
Delayed drawings or instruction clause 1.9
Late access or possession clause 2.1
Setting out reference point errors clause 4.7
Adverse unforeseeable conditions clause 4.12
Extension of Time clause 8.4
Interference with tests clause 10.3
Variations clause 13.3
Change in law clause 13.7
Force Majeure clause 19.4
134
Ground condition
claims
135
Yellow Book
Clause 4.10 Employer to make available all relevant site data.
Clause 4.10 Contractor responsible for interpretation.
Clause 4.10 Contractor deemed to the extent that it was possible

to have identified all risks etc.
Clause 4.11 sufficiency of tender

Clause 4.10 says Contractor accepts responsibility for information
provided by the Employer
136
Yellow Book
Clause 4.12 Unforeseeable (refer clause 1.1.6.8) physical conditions

and obstructions.
Notice to be given if adverse conditions met that are considered to be

Unforeseeable
Continue with Works and comply with instructions
Submit claim in accordance with clause 20.1
Money adjustment is Cost and Engineer to take account of more

favourable conditions elsewhere

Physical conditions are defined within clause 4.12.
Revision to 4.10 taken account of.
137

On 1st June, the Contractor discovers what it considers to be an
unforeseen physical obstruction when it is laying a submarine cable. The
Contractors site manager sends an email to his counterpart giving notice.
On 1st July, the Contractor submits an Application for Interim Payment
and includes within it an amount of 200,000 and description of the
additional works it has undertaken as a result. On 4th July, the Contractor
submits its Progress Report for the preceding month and includes within
the list of notices submitted, a reference to the unforeseen physical
obstruction and the aforementioned email.
Is the Contractor entitled to be paid anything in the next Interim

Payment?
138
Extension of Time claims
Extension of Time
An Extension of Time does not mean an entitlement to additional

money
An Extension of Time relieves Contractor liability to pay delay damages
An Extension of Time establishes a new completion date
An Extension of Time allows the Employer to impose delay damages

after the new completion date
140
Extensions of Time - considerations

Contract provisions define the basis of entitlement
Delay to be on the critical path
Ownership of Float
Effect of Concurrency
141
Clause 8.4 Extension of Time

Clause 8.4 - Lists grounds for entitlement

Yellow Book (a) to (e)

Clause 8.4 - Refers to clause 20.1 i.e. notice, submissions of details
Clause 8.4 entitlement if completion for Taking Over is delayed
No provision for Engineer to unilaterally award Extension of Time
142
Delay analysis techniques
Time extensions after completion of project (retrospective):

Collapsed As-built
As-planned v- As-built
(plus Windows Analysis)
Retrospective or Actual Based Analysis
Activity
10 11
ACTIVITY A
ACTIVITY B
Original
Completion
ACTIVITY C
Why Delay?
144
Delay analysis techniques
Time extensions after completion of project (retrospective):

Collapsed As-built
As-planned v- As-built
(plus Windows Analysis)
Time extensions during currency of project (prospective)
Impacted As-Planned
Time Impact Analysis
Prospective or Model Based Analysis
Activity
ACTIVITY A
ACTIVITY B
10 11
Event
Original
Completion
ACTIVITY C
Estimate of Delay
146
Suspension
147
Suspension
Clause 8.8
Engineer may instruct at any time
Contractor to protect, store, secure the work
If cause of suspension the responsibility of Contractor, no entitlement

to time and / or money
148
Suspension
Clause 8.9
Provides entitlement for Contractor to claim additional time and / or

money
Notice must be given
Failure to protect, store or secure means no entitlement to time and /

or money
149
Suspension
Clause 8.10
Payment for Plant and Materials delivered to site
If:
Suspension > 28 days
And;
Plant and Materials marked as Employers property
150
Suspension
Clause 8.11
If suspension > 84 days, Contractor may request Engineer permission to
proceed.
If no response within 28 days:

i.
Treat as an omission (cl. 13) if part of work, or
ii. Give notice of termination (cl. 16.2) if whole of work
151
Suspension
Clause 8.12
Joint examination before work restarts
Contractor to make good any deterioration, defects or losses
152
Force Majeure
153
Force Majeure
Clause 19
Clause 19.1 definition
Clause 19.2 notice to be given by either party within 14 days of

event
Clause 19.2 shall not apply to making payments
Clause 19.3 reasonable endeavours to minimise resulting delay
Clause 19.4 entitlement for Contractor to claim time and / or money
Clause 19.5 treatment when differing terms in sub-contracts
154
Force Majeure
Clause 19
Clause 19.6 if period > 84 days for substantially all works, OR multiple
periods > 140 days
Either party can give notice of termination.
Then proceed in accordance with cl. 16.3
Payment provisions described
Clause 19.7 release from performance under Law
155
Completion &
Handover
156
Taking over Certificate
Commencement Date
Contractor Delay
Time for Completion
Completion
Clause 8.1 Notice of Commencement Date
Clause 8.2 Time for Completion
Clause 9.1 Contractors Obligations for Tests on Completion including

provision of As builts and O & M manuals
Clause 10.1 - Taking Over Certificate for the Works and Sections
Clause 10.2 - Taking Over Certificate for Parts of the Works
Clause 12.1 Contractors Obligations for Tests After Completion
158
Exercise
What does the issue of the Taking Over certificate signify?
What are the consequences of the issue of the Taking Over Certificate?
159
Clause 8.7 delay damages

Amount as agreed between the parties
Not subject to reduction for partial completion
Whether Employer has suffered damage is not relevant
Refers to sub-clause 2.5 (procedure)
Comprises Contractors entire liability for delay
160
Exercise
The Contractor gives the Engineer 14 days notice for issue of a Taking
Over Certificate, undertaking to complete subsequently certain minor
Works. The Engineer responds 21 days later by requiring that certain
minor outstanding works (which effects maintenance of the Plant) be
complete first. The Contractor claims EOT and costs.
161
Defects
Notification
Period
162
Defects Liability
Clause 11.1 Completion of outstanding work and remedying defects
Period stated in Appendix
Clause 11.9 Performance Certificate
163
What does the issue of the Performance certificate signify?
What are the consequences of the issue of the Performance Certificate?
164
Dispute resolution
Resolution of Disputes under Yellow Book

If not agreed, Engineer to fairly determination (cl. 3.5).
Any dispute can be referred to the procedure in cl. 20:
Adjudication by a Dispute Adjudication Board (DAB) in accordance with

the rules in the standard form
If any Party dissatisfied or decision not made when it should, Notice of

Dissatisfaction issued within 28 days
Arbitration in accordance with the Rules of Arbitration of the

International Chamber of Commerce (ICC)
166
Yellow Book typical sequence of dispute

events envisaged in clause 20
Parties present submissions to DAB
<28d
<84d
Amicable settlement
<28d
>56d
Adjudication
Any dispute or difference can be referred in writing
DAB of 1 or 3 impartial members to be agreed
Members act as impartial experts not arbitrators
Contractor and Employer jointly liable for fees
DAB has very wide powers
168
DAB Powers
Can visit site
Conduct a hearing
Request written statements
Decide own jurisdiction
Open up, review and revise any opinion, instruction, determination,

certificate or valuation relating to dispute
Adopt an inquisitorial approach
Decide on payment of interest
169
Decision
Within 84 days of referral or last Adjudicators Agreement (if later)
Majority decision allowed
Decision to be in writing with reasons
If any Party dissatisfied or decision not made when it should, Notice of

Dissatisfaction issued within 28 days
Arbitration in accordance with the Rules of Arbitration of the

International Chamber of Commerce (ICC)
170
Arbitration
171
Arbitration procedure and practice

Reference to Arbitration
Rules of Arbitration
Number of Arbitrators
Choosing Arbitrators
Replacement of Arbitrators
172

Place of Arbitration
Language of the Arbitration
Rules of law
173

Procedural timetable
Claim / Defence / Reply / Witness and Expert Evidence / Disclosure
and Discovery
Hearing
Award
Costs
174
Proof & Evidence

Proof
Documentary evidence
Witnesses of fact
Expert opinion
Oral or written
175
Arbitration
Advantages
Disadvantages
Confidential
Expensive
Flexible?
Administration fees
Cheaper?
Can be slow
176
Mark Castell
Regional Managing Director
mark.castell@drivertrett.com
177
Photograph credits to FreeDigitalPhoto.net & David Castilo Dominici
s-Heer Hendrikskinderendijk 105, 4461 EA Goes, Nederland

Tel +31 (0)113 246 400
Fax +31 (0)113 246 409
Web
www.drivertrett.com
WORKSHOP FOR VSMC

MANAGING CONTRACTS UNDER THE FIDIC CONDITIONS
INTRODUCTION
Each of us is employed solely because our employer considers it profitable to do so. The
company exists to make a profit. If it doesnt make a profit it will cease to exist and we are all
employed to contribute to that profit. If we do not contribute as we employed to do, then we are
failing in our obligations and become a burden on the business.
So how exactly can this be achieved?
Well as you know, the profits of your business come from projects. Profit is the difference
between income and expenditure; so increased profitability on projects arises from:

Contracting at the right price.

Executing the works efficiently.
Getting paid what you are properly due.
This workshop will look at what is one of the ways of improving the prospects of profitability. All
projects are subject to contracts. This workshop will therefore show you how a basic
understanding of the contract (FIDIC in particular) and adoption of simple procedures can
improve the prospects of profitability for your business.
It must be stressed that this will apply to everyone in the project team as everything we do in
construction is subject to the contract we make. It is not restricted to the lawyers, financial
people or senior management but includes the tendering personnel, engineers, supervisors and
line management.
The basis of the material I will share with you is what Trett would describe as good practice in
the management of contracts. It is not just theory taken from a book. It is based on real
projects and many years of experience of what really does go wrong. I hope this will give you all
something to think about and take away with you.
You will note that weve called this a workshop rather than a seminar or training session. This is
for two particular reasons:
Best results from our time together will come from three-way dialogue, me to you, you to
me and also between yourselves, but not all at the same time. It is therefore very important
that you raise any issues or ask any questions at the time so please feel free to interrupt
me.
We will be introducing exercises and case studies along the way to help give context.
THE MANAGEMENT OF CONTRACTS PROCESS

Contracts can be very complex documents that are often the domain of lawyers. So how do
technical people effectively deal with these contracts?
Driver Trett is the trading name of Trett Consulting B.V.

BTW-nr: 808209814B01 | Rabobank 389383791 | KvK Middelburg 22044617
www.drivertrett.com
Many contracting organisations have a contracts management manual, basically a document

that sets out the standardised manner in which it undertakes its management of contracts. It
should cover everything from receiving tender documents to issuing a bid, planning the works,
record keeping, filing systems and correspondence registers, project close out and archiving
files. Its purpose is to spread the knowledge of the organisation through the organisation and
the main problem is enforcing its use.
The management of contracts has therefore been viewed as a process, but can this process be
explained more simply?
The process of Managing a Contract cannot clearly start without a contract.

The first stage is therefore the formation of a legal agreement. This element covers the bid
or tender stage, any negotiations and/or clarifications of what is required and what is offered
and of course the execution of the actual contract itself.
Every contract sets out responsibilities, liabilities and obligations. These are fundamental to
the future management of the agreement and must clearly be understood.
It is important to constantly monitor these obligations in order to see whether there are any
changes. The management of change within a contract is an important part of the overall
process and fundamental to maximising commercial returns. To do this, it is necessary to
appreciate what change is and the different types of changes that can arise.
Procedures and processes can be used to aid the identification of change at the earliest
opportunity. This again assists in maximising commercial returns.
Once change is identified, something must be done. This is normally set out in the contract
but the exact procedure depends on the type of change. Of course, there are circumstances
that are not specifically catered for in contracts, what are these and what should then be
done?
Another crucial part of this overall process is claiming for payment from others, whether of
the contract works or extras / changes and claiming for extra time, in other words an
extension of time. What processes are involved? How can you be more successful with any
claims that need to be made?
Of course, when employing subcontractors or suppliers, the whole process is repeated but
from the other side. As a contractor employing others, you receive requests for payments
and probably additional money and time. What processes are available to assist this
eventuality?
Finally, all matters whether financial, technical or contractual need to be agreed and any
disagreements settled.
As I have already indicated, the process of managing contracts covers the whole period from the
contracts inception (i.e. conception) to its conclusion (i.e. its death). It is important for you all
to appreciate that profitability is affected at all stages of a projects life.
THE TENDERING PROCESS
This is the conception of a contract. It is important at tendering stage to understand exactly
what the employer expects and for the employer to understand exactly what he is being offered;
equally, for the contractor to appreciate the responsibilities and obligations that the proposed
contract places on him.
The contracting business also carries with it certain risks. There is therefore a need for risk
analysis during the tendering stage; in other words, identification, quantification and evaluation
of the commercial risks.
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In addition however, contractors should look to identify opportunity.

The details of the employers requirements, the proposed contractual obligations and
responsibilities are all, or should all be contained in the tender documents. These documents are
also the basis of the tender risk analysis. As we all know, tender documents are often revised
following the initial submission, so is the element of managing contracts during this period not
just a matter of managing data?
Clearly it is not the whole picture, but there are some processes that should be used that would
assist the overall management of the contract should it be subsequently awarded:
Pre-tender

Before an employer issues tender documents, a list of the exact documents enclosed should
be made and documents actually sent checked off against the list.

When tender documents are issued to a contractor, they should be checked off against the
contents list to ensure that everything has been received. If any are missing, they should be
immediately formally requested.

A clean set of the tender documents should be kept in a master file available for future
reference and retained by the estimating manager.

The file should also include a copy of all correspondence requesting clarifications or further
information. Nowadays, as much communication is by e mail, hard copies can be printed and
filed or a soft copy sent to an electronic storage folder accessible to all working on the
project.
Pre-contract

A schedule should be maintained that summarises all the changes resulting from
negotiations. The schedule should state the date, the document (i.e. letter date and
reference, or meeting date) and what the change was.

Minutes of meetings should be issued, preferably in the form of a schedule of agreed
changes at the end of any meetings. This should be signed by both parties at the time.
The same procedures are equally applicable for a sub-contract order, in which case the
contractor acts as employer and the sub-contractor as contractor. We will be looking at sub
contracting in more detail later.
CONTRACT AWARD
Earlier we were looking at the importance of the management of data during the tender phase.
So having been successfully awarded a contract, the processes should be continued:
Contract Signature

Both employers and contractors should ensure that all the agreed changes are clearly noted
within the documents comprising the agreement.

A list of all the contract documents with full references should be part of the agreement and
copies of all documents within an Appendix. It is common that letters or faxes can be sent
on the same date; hence individual reference numbers are required.
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CONTRACTS
We use the phrases contractual agreement or contract a lot. Perhaps we should remind
ourselves what it actually means.
Is it simply that agreed between the parties? What form does this take? What form should it
take? What documents does it include? Of course there is not one simple answer to those
questions.
Without looking in detail at legal issues, a contract must, at a minimum be legal. To be legal,
there must be a requirement to do something, i.e. to build a road or install some ducts. There
must be willingness on the part of the parties that the work shall be done. There must also be
terms to govern the work.
These terms should set out the responsibilities of the parties and matters such as timing,
payment and the standards of work. They should describe procedures for dealing with change to
the scope, schedule or conditions, by any of the parties involved. It is these terms that we need
to concentrate on when looking at the management of the contract.
The Contract will include express conditions which are written down (i.e. expressed) and implied
conditions, which are not written anywhere, but which apply just the same. The express terms
will be written out in the Conditions of Contract, in the Specification, the drawings, and in the
other documents which are included in, and form part of, the Contract. There they are, they can
be referred to at any time to see what the requirements are.
The implied terms, though, aren't there for reference. They exist in three broad categories but
differ according to the legal jurisdiction. These categories are; Statute or Civil Code terms,
warranty terms and terms of necessity.
Any contract we make is subject to the law of the land, for a UK contract; it is Statutes and
Common Law and in the Netherlands for example, the Civil Code applies. Because the law of the
land applies anyway, there is no need to write it down to render a contract subject to it.
Warranty terms, under English law are concerned with 'unwritten undertakings' we give each
other: That we are competent and able to fulfil our obligations, that we know what our
business is, that we will provide services and materials which are fit for purpose and of
acceptable quality, that we won't obstruct each other, and so on.
The third category comprises terms which are required to make the Contract work, and which,
although not written down, must have been clearly in the intention of the parties when the
Contract was made; to be so obvious as to go without saying.
Implied terms cannot override an express term, and if they cannot be expressed simply (i.e. if
they are not obvious) and equitable they will fail.
Contracts in the Construction and Engineering Industries
There is no one common contract that is used in these industries. There is therefore, no
common baseline that can be understood and applied to all projects. The contract used will
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depend on certain variables. Each type of industry has its own specific circumstances and needs
that have to be reflected in the specific contract document. The FIDIC forms of contract are
meant for use on many types of projects, but they are not suitable for a ship conversion for
example.
There are often many contracts in use on one project. The employer will have an agreement
with the contractor; the contractor will have contracts with each of its sub-contractors. The
contents of each should be different as there are different obligations placed on the parties.
There are many different levels of responsibility for contracting for the projects you undertake.
At one extreme is turnkey, where a contractor has virtually complete responsibility for design,
manufacture, installation and commissioning the equipment and then at the end, hands the key
to the employer. Alternatively, the contractor may only be required to construct the equipment,
the installation being done by the employer or someone employed by him, with or without
supervision. Some projects have a combination of these different types within the various
contracts.
Lastly, different obligations and responsibilities arise from the method of payment. A contractor
may be paid a fixed lump sum or may be reimbursed its costs plus a fee. Again, this may not be
consistent throughout all the contracts on a project.
The important point is that the contract sets out the baseline albeit the baseline will be different
for every project and every contract.
Contractual Matters
Whatever contract is chosen, its terms must cover certain issues. It must stipulate who does
particular things, what should be done and when it should be done by. This is just not confined
to the definition of a specification and start and completion dates, but procedures to deal with
anticipated events.
A contract must define who pays who, how is the payment made, what does the payment
comprise or how shall it be calculated and also when it should be made.
The contract terms allocate risk. Ideally, risk is placed in the hands of the party who can best
manage it. This should be the aim of a good contract and standard forms are normally drafted
on this basis.
Contracts should provide for change in scope and conditions. If there is no change clause, a
employer cannot instruct a variation, it can only be undertaken with the contractors agreement.
Similarly, in a sub-contractor agreement with no change clause, a contractor cannot instruct a
variation without the sub-contractors agreement.
Contracts should provide for a period for completion and for changes in that period either due to
delays or increased work. If no period for completion or no completion date is defined, then the
works must be completed with a 'reasonable time'. If the contractor fails to complete by the
contracted date, then he is in breach and the employer is entitled to damages arising there
from. If the contractor is prevented from completing by the contracted date by matters outside
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his responsibility, then time will be 'at large' and his obligation will be to complete in a
reasonable time. Unless, that is, there is provision in the contract to change the completion date
by awarding an extension of time for completion of the works. There usually is. Such a provision
thus protects the employers entitlement to damages in the event of delayed completion.
Similarly, award of extension of time postpones the contractors liability to pay damages.
If either party fails to comply with the express or implied terms of the contract, then he is in
breach of contract. In that event the simple consequence is that the wronged party is entitled
to be compensated by payment of the costs, or damages, he has suffered as a direct result of
the breach by the other. The intention is to restore him to the position he would have been in
had the breach not occurred. However, certain limitations apply:

The damages must stem directly and reasonably from the breach;
They must be such as might have reasonably been within the contemplation of both parties
when the contract was made, and;
There is a duty (not an obligation) on both parties to mitigate the damage. This means that
they must try and avoid action which makes the damages worse.
Construction and engineering being as uncertain as it is, most contracts recognise that breaches
will occur. Though made with the best intentions, our contractual obligations are not always
met. It may at first sight seem a contradiction, but contracts can and do include terms for
dealing with specific breaches of the same contract by either party. An example might be the
failure of the employer to provide design information within the prescribed period. Subject to
certain defined procedures the contractor is effectively entitled, under the contract, to recover
the damages he suffers as a result. That is, he will be entitled to recover his consequential costs
and have his period for completion extended if appropriate.
Damages for late completion can be expressed within the contract. This means that the
damages are effectively defined and agreed from the beginning. In the event that the contractor
completes late, then he pays the employer the amount regardless of the actual damages
suffered by the employer. If stated as Liquidated Damages (under English Law), the specified
figure must represent a genuine estimate of the likely damages, it cannot be a punitive figure
chosen to frighten the contractor into due completion without reference to the actual likely
costs.
The advantage of defining damages for late completion, as opposed to damages at large, is that
the employer does not have to demonstrate his actual damages and the contractor can define
his risk with regard to late completion.
Extension of time does not in itself entitle the contractor to any additional payment. Any such
entitlement flows from the contractors entitlement to be paid the costs arising from the events
which give rise to the extension, a matter dealt with under other provisions of the contract.
So finishing our brief look at contracts, it is important, wherever possible; to obtain agreement
before the work actually starts. This is not always possible and often contractors are asked to
start work before complete agreement of all the details. In these cases, the last communication
or letter on the un-agreed points, especially if unanswered, may be taken as that binding on the
parties.
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In some cases, agreement is not finally reached and it may be held that there is no formal
contract between the parties. If this is the case, reimbursement and the time for completion will
be what is reasonable.
Lastly, a word on letters of intent (LOI), why do I say they can be dangerous?
LOIs can solve time pressures and offer the recipient protection.
LOIs can also cause problems if not worded in a correct manner so as to clearly define what is to
be carried out, when it is to be done by, who does what and what the payment provisions are.
We have encountered many problems on projects where the entire works have been undertaken
on a letter of intent and there is subsequently much confusion as to what has been agreed and
what is the basis of the contract.
I would recommend that there are four elements that a LOI should cover:

A full description of the work to be done and a direction to start work

The time period or end date that the work must be done by
The payment to be made maybe a maximum
The terms and conditions governing the work
I quote below the exact wording of the LOI issued by the main contractor on a project I was
involved in:
As you know from our meeting this morning, we have just received a letter of
intent from [X] for the [Y] project, which includes your [equipment].
In our turn, we are pleased to confirm that it is our intention to enter into a
sub contract with [you] for your [equipment], this will be generally be on the
basis of the Sub Contract document that we discussed this morning (ref)
We also agreed that we would incorporate your final comments on the draft
Sub Contract and that you would provide details of the Advance Payment
Bond, on-demand Performance Bond and insurance that you can offer.
The main contract commencement date is
Please acknowledge receipt.
It does not meet the recommendations.
OVERVIEW OF THE F1DIC FORMS OF CONTRACT
Construction as we know it developed with the building and utilisation of the railways in the
nineteenth century and as such work became more extensive the benefits of Standard Forms of
Contract became increasingly apparent. Forms drafted by independent bodies, rather than the
contracting parties, were better able to demonstrate fairness between them, and to incorporate
the wider experience of the industry and of the use of the forms themselves.
The Institution of Civil Engineers in the UK, working with a body representative of the
contractors, issued the first edition of the ICE Conditions of Contract in 1945, combining
elements from an assortment of contract forms which had been in use prior to that date. The
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document was well received and has now reached the 7th edition, published in 1999, by a
continual process of updating and revision to accord with changes in legislation and the nature
of the industry itself.
The ICE form inspired and became the basis of similar standard forms adopted in many parts of
the world, generally incorporating only minor changes to reflect particular domestic, legal, or
language requirements. It was, though, and remains very much a domestic form of contract and
not one best suited for international construction projects. In 1956 the Association of Consulting
Engineers in the UK published an amended form suitable for such projects, the ACE Form,
though still very similar to the ICE. The following year FIDIC published "Conditions of Contract
(International) for Works of Civil Engineering Construction", generally known as the Red Book.
FIDIC (Federation Internationale des Ingenieurs Conseils - The International Federation of
Consulting Engineers) is a federation of associations of Consulting Engineers representing their
respective countries and is based in Geneva.
The Red Book was modelled closely on the ACE Form, in turn modelled on the then current
fourth edition of the ICE Form, so was very similar to the ICE document. The second edition of
the Red Book was published in 1969, responding to increased take up internationally, and then
the third edition in 1977. This edition was prompted by issue of the fifth edition of the ICE
Conditions in 1973 which had incorporated significant changes from its predecessor, though all
those changes were not themselves carried forward into the Red Book. The Third edition served
very well until well into the 1980's, when increasing economic growth in developing countries,
particularly the Middle and Far East, greatly increased its use and, inevitably, the legal scrutiny
to which it was subjected in consequence.
The Fourth Edition was published in 1978, the product of comprehensive revision, and was
reprinted with further minor amendments in 1988 and 1992. In 1996 FIDIC published a
Supplement which dealt with Dispute Resolution, Lump Sum Payments and Delayed Certification
by the Engineer. To some extent these provisions reflected contemporaneous concerns being
addressed by the World Bank, in the UK and elsewhere, in an effort to reduce the
confrontational nature of the industry.
Concurrent with the evolving Red Book, FIDIC also published the Yellow Book, which reached its
3rd edition in 1987, and the Orange Book which was first published in 1995. The Yellow Book,
for electrical and mechanical works, was based on the Red Book, but it reflected the different
requirements for M and E works, providing for design and erection of plant by the Contractor.
The Orange Book was published under the title "Conditions of Contract for Design - Build and
Turnkey", and was based on the UK ICE Design and Construct form published in 1992.
In 1994 FIDIC commenced a thorough review of the current Red and Yellow Books, together
with a re-assessment of the then proposed Orange Book, and this culminated in the publication
in 1999 of a completely new set of Standard Forms, Red, Yellow, Silver and Green, which
continue in use today.
FIDIC expected that the new forms would quickly replace the previous editions in common use,
but this has not actually happened. Familiarity with the Fourth Edition of the Red Book and its
practical application, have kept it in use, such that the earlier and later editions are now in
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general use together. The 1999 forms reflect a radical change in contracting, and, in common
with similar changes being introduced in, for example, the UK, they will take some time to
become popular.
FIDIC Forms of Contract
In 1999, Federation Internationale des Ingenieurs-Conseils (FIDIC) published the following four
forms of contract:
Red Book - Conditions of Contract for Construction, which are recommended for building or
engineering works designed by the Employer or by his representative, the Engineer. Under the
usual arrangements for this type of contract, the Contractor constructs the works in accordance
with a design provided by the Employer. However, the works may include some elements of
Contractor-designed civil, mechanical, electrical and/or construction works.
Yellow Book - Conditions of Contract for Plant and Design-Build, which are recommended for the
provision of electrical and/or mechanical plant, and for the design and execution of building or
engineering works. Under the usual arrangements for this type of contract, the Contractor
designs and provides, in accordance with the Employer's requirements, plant and/or other
works; which may include any combination of civil, mechanical, electrical and/or construction
works.
Silver Book - Conditions of Contract for EPC/Turnkey Projects, which are recommended for the
provision on a turnkey basis of a process or power plant, and which may also be used where one
entity takes total responsibility for the design and execution of a privately financed
infrastructure project which involves little or no work underground. Under the usual
arrangements for this type of contract, the entity carries out all the Engineering, Procurement
and Construction ("EPC"): providing a fully-equipped facility, ready for operation (at the "turn of
the key").
Green Book - Short Form of Contract, which is recommended for relatively simple or repetitive
work, or for work of short duration or of small capital value.
In 2006, FIDIC published:
Blue Book - Dredging and Reclamation Works, which is specifically, drafted for dredging and
reclamation works.
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Comparison between the FIDIC 1999 Forms

Red Book - Conditions of Contract for
Construction
Yellow Book - Conditions of Contract

for Plant and Design-Build
Silver Book - Conditions of Contract for

EPC/Turnkey Projects
Recommended for building and

engineering works if most (or all) of the
works are to be designed by (or on behalf
of) the Employer
Recommended for the provision of

electrical and/or mechanical plant and for
building and engineering works if most
(or all) of the works are to be designed
by (or on behalf of) the Contractor.
The Contract is administered by the

Engineer who is appointed by the
Employer. If disputes arise, they are
referred to a DAB for its decisions.
The Contract is administered by the

Engineer who is appointed by the
Employer. If disputes arise, they are
referred to a DAB for its decisions.
Suitable for a process or power plant, a factory or

similar facility, or an infrastructure project or
other type of development, if (i) a higher degree
of certainty of final price and time is required, and
(ii) the Contractor takes total responsibility for the
design and execution of the project.
The Contract is administered by the Employer
(unless he appoints an Employer's Representative)
who endeavours to reach agreement with the
Contractor on each claim.
Alternatively, Particular Conditions may

specify Engineer's decisions on disputes,
in lieu of a DAB.
Alternatively, Particular Conditions may

specify Engineer's decisions on disputes,
in lieu of a DAB.
If disputes arise, they are referred to a DAB for its

decisions.
The Contractor designs (but only to the

extent specified) and executes the works
in accordance with the Contract (which
includes the Specification and Drawings)
and the Engineer's instructions.
The Contractor provides plant, and

designs (except as specified) and
executes the other works, all in
accordance with the Contract, which
includes his Proposal and the Employer's
Requirements.
The Contractor provides plant, and designs and

executes the other works, ready for operation in
accordance with the Contract, which includes his
Tender and the Employer's Requirements.
Interim and final payments are certified

by the Engineer, typically determined
by measurement of the actual
quantities of the works and applying
the rates and prices in the Bill of
Quantities or other Schedules.
Interim and final payments are certified

by the Engineer, typically determined by
reference to a Schedule of Payments.
Interim and final payments are made without any

certification: typically determined by reference to
a Schedule of Payments.
Other valuation principles can be

specified in Particular Conditions.
The alternative of measurement of the

actual quantities of the works and
applying the rates and prices in a
Schedule of Prices can be specified in
Particular Conditions.
The alternative of measurement of the actual

quantities of the works and applying the rates and
prices in a Schedule of Prices can be specified in
Particular Conditions.
The General Conditions allocate the risks

between the parties on a fair and
equitable basis: taking account of such
matters as insurability, sound principles
of project management, and each party's
ability to foresee, and mitigate the effect
of, the circumstances relevant to each
risk.
The General Conditions allocate the risks

between the parties on a fair and
equitable basis: taking account of such
matters as insurability, sound principles
of project management, and each party's
ability to foresee, and mitigate the effect
of, the circumstances relevant to each
risk.
Disproportionately more risks are allocated to the

Contractor under the General Conditions.
Tenderers will require more data on hydrological,
sub-surface and other conditions on the Site, to
the extent that this data is relevant to the
particular type of works, and more time to review
the data and evaluate such risks.
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The principle ways in which these documents differ from the pre-1999 forms (the old Red.
Yellow and Orange books) may be summarised as follows:
1. The separate Standard Forms reflect the allocation of responsibility for design. The Red Book
applies to design by the Engineer, on behalf of the Employer, the Yellow Book to design by
the Contractor with an Engineer in place, the Silver Book to design by the Contractor with no
Engineer in place.
2. Under the 1999 Red and Yellow Books (which provide for the appointment of the Engineer)
the Engineer is deemed to act in the interests of the Employer unless specifically stated
otherwise. Traditionally of course, the Engineer was deemed to act impartially under the
terms of the Contract.
3. Under the 1999 Red and Yellow Books the Contractor is entitled to evidence of the
Employer's ability to pay. If such evidence is not forthcoming the Contractor can ultimately
suspend or terminate the Contract.
4. Under the 1999 Editions the Contractor is obliged to provide work 'fit for purpose'. There is
no such requirement under the earlier editions.
5. The 1999 Red and Yellow Books provide that, in ascertaining the consequences of adverse
unforeseen physical conditions, the Engineer shall take account of any more favourable
conditions encountered on the project.
6. Time limits re interim payments have been tightened up.
7. Very strict time limits are applied to Contractors notice of claim, and time limits re notices in
general are more definite.
8. The 1999 forms introduce the concept of 'Value Engineering'.
9. The 1999 forms introduce significant changes in the provisions with regard to insurance.
10. The 1999 forms are written in a more user-friendly way, the total number of clauses reduced
to 20, and with similar clause numbering and layout applying to all the documents. The
sentences are shorter and the content is easier for the 'non- lawyer'; user to understand.
Format and Logic
Forms of Contract must fulfil four primary requirements:
i. Specify the Scope of Work. What, precisely, has the Contractor contracted to build?
ii. Allocate risk between the Employer and the Contractor. What risks are borne by each or
shared between them?
iii. Specify the procedures to be followed over the execution of the Works. How is the Contract
administered?
iv. Specify the terms of payment. Who values, how, and when is payment due?
The way in which these requirements are included in a Form of Contract will vary. The 1999
FIDIC Red Book, as an example, is arranged as follows:
Clause 1
Clause 2-4
Contractor.
Clause 5-7
Clause 8-10
Clause 11
Clause 12-14
Clause 15-16
Clause 17-19
Clause 20
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Definitions, General Provisions (communications, documents etc).

The duties of the "three" parties - The Employer, the Engineer and the
Resources (staff, labour, materials etc)
Time
Defects Liability
Payments
Termination
Risk and Insurance
Claims and Disputes
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The 1999 Yellow Book (Contractors Design) differs slightly as follows:

Clause 5
Clause 12
Provides for Design

Provides for Tests on Completion instead of measurement
The Silver Book differs further as follows:

Clause 3
With no Engineer, Clause 3 deals with the duties of the Employers
Representative
Taking the 1999 Red Book as an example, the clauses may be summarised as follows:
Clause 1
The General Provisions include a very complete set of definitions, first of the Contract itself and
the associated documents, specifications, and the like; then of the people involved, including the
Engineer, who still has a role, and the Dispute Adjudication Board.
The Definitions go on to deal with dates and times for Commencement and Completion and for
any tests, together with Taking-Over and Performance Certificates. Money terms, such as the
"Accepted Amount" and the "Contract Price" are clarified. There's a difference.
Finally, there arc two more groups of definition, one covering Works and Goods, defining,
among other things, the "Contractors Equipment" and differentiating it from the Permanent
Work. Worthy of note is that "Plant", means machinery and the like, including vehicles, intended
to form part of the Works.
In addition to the Definitions, the General Provisions have clauses to deal with interpretation,
communications and the giving of notices, with choice of law (although the actual choice should
be written in an appendix to the Tender), and with languages. They go on to deal with
Documents and the relationship between Employer's and Contractor's Documents, with
confidentiality, legality of conduct and the liability of a Contractor who is a consortium or other
grouping.
The Provisions are well thought out and set out in such a way that they give a firm base on
which the rest of the document is grounded. They are practical, clear and precise.
Clauses 2 - 4
Clause 2 sets out the duties of the Employer and his personnel, and his obligation to
demonstrate proper financial arrangements for payment to the Contractor. It ends with
provisions for Employer's claims against the Contractor.
The Engineer's role is set out in detail in Clause 3. The Red Book makes it clear that the
Engineer, when carrying out his duties, is deemed to act for the Employer. However, the clause
provides also that where there is no agreement between the Employer/Engineer and the
Contractor and the Engineer is required to make a determination, he is to make a fair
determination in accordance with the Contract, taking due regard of all relevant circumstances.
Note: a fair determination taking due regard of all relevant circumstances. If and when an
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Engineer does not act fairly in that context, then he is in breach of his duty, and the Employer is
in breach of contract.
Clause 4 deals with the Contractor and his responsibilities. Sub-contracting the whole of the
Works is prohibited, but the document does not discuss whether that means that the whole shall
not be the subject of a single subcontract, or if an arrangement would be excluded if it meant
that the whole was sub-contracted, albeit in parts. That could be of interest where a joint
venture company effectively sub-contracts the whole of its work to its members or others. The
Guidance Notes comment on variations to the sub-contracting provisions, including a clause to
encourage local suppliers and sub-contractors.
Note that 4.10, is not primarily an obligation of the Contractor but of the Employer. It requires
the Employer to have given the Contractor all relevant sub-surface, hydrological and
environmental data about the Site, or at least that which the Employer has. The Contractor, in
turn, is deemed to have obtained all necessary information as to risks and the like, but only to
the extent that was practicable at the time of tendering.
Clauses 5 - 7
Nominated sub-contractors are the subject of Clause 5. There is little to say about it, save that
the Contractor has a right to object and to be indemnified if the objection is overridden.
Clause 6 deals with Staff and Labour. This is an interesting class distinction which isn't defined
in the Definitions of Clause 1, which refer only to personnel. The clause deals with working
hours and facilities, and with rates and conditions, which must be in line with the trade norms or
no lower than the general local level.
There is no provision to protect local employers by prohibiting higher rates and better
conditions, but relevant labour laws must be followed. A requirement for a monthly report of
Contractor's Equipment, as well as his deployment of labour, is included in this section.
Plant, Materials and Workmanship are included in Clause 7. You will remember that "Plant" in
this Form of Contract means apparatus, machinery and vehicles, intended to form part of the
Permanent Works. Here it does not mean the Contractor's equipment or hired equipment.
There is provision for samples specified in the Contract and additional samples to be provided as
a Variation, for inspection and testing (though not Tests on Completion) and for remedial work.
Plant becomes the property of the Employer when the Contractor is entitled to payment for it, or
when it is delivered to site, whichever is the earlier.
Clauses 8 - 10
Clause 8 deals with Commencement Date, Time for Completion and Extensions of Time, and
provides for a detailed programme to be prepared by the Contractor within 28 days of
commencement, and for it to be updated thereafter.
It also provides for damages for delay, the amount of which will be in the appendix to the
tender. Arrangements for Suspension of the Work are set out, with corresponding arrangements
for payment and for a remedy in the event of prolonged suspension, which may be treated as an
omission or as a cause to terminate the works, depending on the extent of the Works affected.
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Clause ') discusses Tests on Completion and provides for delayed tests, retesting and the effect
of failure.
The Employer's taking over is the subject of Clause 10. It speaks of taking over Sections of the
Works and of Certificates for any part of the Permanent Works. Logically it provides (at 10.3)
that, if the Employer has prevented the Contractor from carrying out the tests, the Engineer
shall issue a Taking Over Certificate for the relevant part of the works - this is not a
discretionary power, it is a mandatory duty.
Clause 11
The Contractor's liability for defects after taking over is governed by Clause 11, which allows for
an extended Defects Notification Period to the extent that the Works or a Section cannot be
used. The clause also provides for a Performance Certificate to be issued when defects have
been remedied. This is an important document, because it is the only certificate deemed to
constitute acceptance of the Works. At the end of this clause is recorded the Contractor's
obligation to clear the site of waste and redundant material.
Clauses 12 - 14
Clause 12 deals with Measurement and Evaluation, including the valuation of omissions from the
works. Worthy of note is the Clause on Methods of Measurement, which requires measurement
of the net actual quantity of each item of the Permanent Works, according to the Bill of
Quantities or other applicable schedules, irrespective of what may be the local practice.
Variations and Adjustments are governed by Clause 13. There is a right for the Engineer to vary
works - acting for the Employer, but his authority so to do is limited in Sub Clause 13.1.
There is an express provision, under the side note "Value Engineering", for the Contractor to
make proposals to accelerate completion, to save cost (in building, maintaining or operating),
improve the efficiency or value of the works, or benefit the Employer in any way. If the proposal
includes a change in design, it is to be the Contractor's design which must be fit for purpose.
The cost benefits are shared.
Other matters covered in the Clause are procedures for introducing a Variation, use of
Provisional Sums, Day Work, adjustment for changes in legislation, and changes in cost (if
applicable).
The price and payment procedures are set out in Clause 14, which provides for advance
payment where these have been agreed. This section also deals with Interim and Final
Certificates and with Retention Money.
Clauses 15-16
Theses clauses provide for termination by the Employer and Contractor respectively, together
with arrangements for payment where appropriate. Any party seeking to invoke a right of
termination should only do so after examining the detailed provisions with care. Essentially, the
rights depend upon default by the other party, save that a right for the Contractor to suspend
works may follow upon prolonged suspension.
Clauses 17-19
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Clause 17 deals with particular risks and responsibilities and seeks to allocate them
appropriately. The Contractor is required to indemnify the Employer against the consequences
of the Contractors actions. A list of Employer's risks and of their consequences is included. This
section provides for Intellectual and Industrial Property Rights, and finally provides for limitation
of the liability of the parties one to another (and a limit lower than the Contract Amount may be
agreed in the Contract).
Clause 18 provides for insurance, and Clause 19 defines Force Majeure and its consequences.
Clause 20
Finally, Clause 20 sets out the regime for Claims, Disputes and Arbitration. The process includes
the use of a Dispute Adjudication Board and the consequences of its decisions.
Clause 5 of the Yellow and Silver Books deals with the Contractors Design, the Employer's
Requirements and responsibility for error therein. Clause 12 deals with Tests on Completion,
crucial to approval and acceptance of the Contractors obligation to design and build a project fit
for the purpose defined by the Employer in the Employer's Requirements.
The 1999 Red Book is written in plain language and means what it says. Provided Contractor,
Engineer and Employer follow precisely the provisions and record their actions and notices in
writing, it is a very effective document for our times.
The 1999 Standard forms actually provide two separate Conditions of Contract. The General
Conditions, clauses 1 to 20 outlined above, and the Particular Conditions, relevant to the actual
project in hand. The Guidance Notes included in the document deal with these latter conditions
in detail. The Scope of Work, obviously a fundamental clement of the contract, will be defined in
the Particular Conditions.
Again using the Red Book as an example, the four primary Contractual requirements (scope,
risk, procedures and payment) are distributed over the General Conditions as follows:
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FIDIC (1999) RED BOOK

SPECIFY THE WORKS
Defined in the Contract Agreement, para, 2. defined in Appendix to Tender
ALLOCATE RISK
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1.9
Delayed Information
1.5
Ambiguity
1.13
Compliance with law
2.1, 4.13 4.15
Site Access
4.1
Site Safety
4.1
Design
4.4, 5.2
Sub-Contractors
4.6
Site Co-operation
4.7
Setting Out
4.10
Site Data
4.12
Physical Conditions
4.19
Provisions of Services
6.
Site Labour
7.4, 9.2
Testing
8.4, 8.7, 8.8
Delay
10.2, 10.3
Take Over
1 1.2
Defects
13.3
Scope Changes (Variations)
14.8
Delayed Payment
17.18
Damage, Death, Injury, Insurance
19
Force Majeure
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SPECIFY PROCEDURES
1.3
Communications
1.9
Information Delay
2.1
Delayed Access
2.4
Employer Financial Arrangements
2.5
Employer Claims
3.3
Instructions
3.5
Determinations
4.1
Contractors Design
4.3
Contractors Representative
4.4, 5.2
Sub-Contractors
4.7
Setting out errors
4.9
QA
4.13
Physical Conditions
4.16
Delivery to Site
4.21
Progress Reports
6.7
Accident Notification
6.10
Site Records
7.2
Submission of samples
7.3, 7.4,
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9.1, 9.2 Inspection/Testing
8.1
Commencement
8.3
Programme
8.4
Delay
8.9, 8.11
Suspension
10.1, 10.5
Take Over
1 1.4 - 1 1.7
Defects
12
Evaluation
13
Variations
17.4
Employers Risks
18.1
Insurance
19.2, 19.4 19.6
Force Majeure
20.1
Claims
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SPECIFY PAYMENT TERMS

14.1
Contract Price
14.3
Interim Applications
- procedures by Contractor
14.6
Interim Certificates
- when, evaluation
14.7
Payment
- when, by Employer
14.9
Retention
- procedure by Engineer/Employer
14.10
Completion
- Contractor's procedure
Final Application
- Contractor's procedure
Final Certificate
- Engineers procedure
14.11,
14.1 3
14.12
FIDIC WHICH FORM TO USE

The Form of Contract is chosen by the Employer and imposed by him on the Contractor, who
tenders on that basis. The Employer can either choose a Standard Form, or compose his own
bespoke conditions to suite his particular requirements.
The job of a contract draughtsman is highly skilled and specialised. Composing contract
documents is very difficult and 'home made' conditions are generally less satisfactory than those
set out in standard forms for a number of reasons.

Standard Forms are drafted "at leisure" and with care, since they are not subject to the
urgent provisions of an imminent project.
Standard Forms are drafted by contract draughtsmen who know what they are doing and
whose business it is.
Standard Forms are subject to input from all elements of the contracting community - the
Employer, the Contractor, the Engineer and Surveyor, the specialist supplier and so forth.
They thus represent a reasonable compromise between the different aspirations of all those
factions, and in consequence apportion risk fairly between them,
Standard Forms are reviewed and updated to reflect the current requirements of the
industry, and the experiences gained from use of the forms themselves.
Standard Forms have been around for some time. We are familiar with them. Uncertainties
of meaning are likely to have been ironed out, either by court decisions or revisions to the
text.
Standard Forms contain no surprises. Parties contracting on the basis of a standard form
know where they stand and what is required of them.
Recognising the advantages of using standard forms, it is important to guard against the
temptation to tinker with particular terms and conditions to secure some perceived contractual
or commercial advantage. Amending clauses, supposedly in the interest of the Employer,
immediately nullifies al] the advantages of the Standard form listed above, and almost
invariably introduces conflicting or ambiguous requirements on the parties, and often mistrust
between them.
The Employer can either respond to the commercial provisions upon him by drafting a contract
which deals with each issue as he prefers (bespoke conditions), or he can choose the most
attractive Standard Form and tailor his aspirations to suit.
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The choice before the Employer is first, whether to adopt a Standard Form or bespoke
conditions, and if he decides on the former, which Standard Form should he use.
Our advice and recommendation, particularly in the context of this seminar, must be that he
adopts the former course. Assuming he does so, how do the Red, Yellow and Silver books
compare in terms of his exposure to risk? What are the principle factors which should determine
his choice between them?
The Red Book retains the Engineer as acting generally in the interests of the Employer, provides
for design by the Engineer, payment against measurement, responsibility for unforeseen
conditions on the Employer.
The Yellow Book also retains the Engineer as acting generally in the interests of the Employer,
provides for design (fit for purpose) by the Contractor, payment on a lump sum basis,
responsibility for unforeseen conditions on the Employer.
The Silver Book effectively puts all risk on the Contractor, there is no Engineer, but rather the
Employers Representative. Design (fit for purpose) is by the Contractor, payment on a lump
sum basis.
The Silver Book
The Silver Book is intended to meet the requirements inherent in the private (as opposed to
public or Government) funding of construction/engineering projects. These are increasingly in
Build, Own and Transfer (BOT), Build, Own, Operate and Transfer (BOOT), arrangements, both
for private and public infrastructure projects. The overriding requirement in these cases is for
certainty (or as much certainty as possibly) of price. This is achieved by imposing nearly all the
risk of cost and time overrun onto the Contractor, such that claims for addition to the Contract
Price or for extensions of time arc unlikely to arise. It is accepted that the additional risk carried
by the Contractor will be reflected in his higher Contract Price, but that may be considered
acceptable to the Employer in return for the benefits of increased confidence in the outturn.
Risks which are traditionally borne by the Employer (as, for example, under the Red and yellow
Books) but which are transferred to the Contractor under the Silver Book include:

In the absence of the 'Engineer', who is replaced by the Employers Representative,

"determination" of any dispute between the Employer and the Contractor is made by the
Employer, though subject to the more formal dispute procedure if the decision is
unacceptable to the Contractor.
The Contractor is wholly responsible for any and all unforeseen conditions, difficulties or
costs. Ground conditions, for example, are at the Contractors risk.
The Contractor is wholly responsible for any error in the Employer's Requirements or any
data provided by the Employer.
Any error found in the Contractor's documents (which will be based upon the conceptual
design data provided by the Employer) shall be the Contractors risk. This includes any
omissions from the Employer's Requirements - no variation would apply to including the
omitted requirement.
Reduced scope for granting Extension of Time - excluded are delays from setting out data,
physical conditions, information errors.
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Reduction in Employers Risks - excluded are occupation of the Permanent Works by the
Employer, design by the Employer, and unforeseen conditions re "forces of nature".
Despite the intentions inherent in the Silver Book, the Employer is still at risk in a number of
areas - Force Majeure, delays by 'Authorities', Employer Variations, and in the provision of the
Employer's Requirements. Under Clause 5.1 the Employer cannot escape responsibility for
certain crucial data he provides to the Contractor, in particular for data "which cannot be
verified by the Contractor". This issue is considered in more detail elsewhere, but obviously
raises doubt with respect to, say, the Employer's ability to transfer risk for unforeseen ground
conditions to the Contractor.
In essence, the particular provisions of the Silver Book are:
i. that the Contractor is responsible for errors in the Employer's design
and
ii. that the Contractor is responsible for unforeseen conditions.
Otherwise the Silver Book is not greatly different to the Yellow Book. The Employer must weigh
up the price he is prepared to pay for those provisions.
The Red and Yellow Books
Both adopt the "Engineer" in his traditional role, both provide that payment may be by
measurement or by a lump sum, though the Red Book is drafted on the basis of the former, the
Yellow Book on the latter. Both, though, include provisions for the alternative. The essential
difference between the books is in allocation of responsibility for design, which under the Red
Book lies with the Engineer acting on behalf of the Employer, under the Yellow Book with the
Contractor.
Preference for contractors design stems from the design of electrical and mechanical plant or
other manufactured materials (e.g. wall cladding, flooring etc.), when the Employer is effectively
dependent upon the contractors design insofar as it is inevitably inherent in his particular
product.
Under the Yellow Book FIDIC has extended the scope of the Contract to include for any and/or
all design by the Contractor, to include that for Building and Civil Works. Responsibility for
design of the Permanent Works under the Yellow Book is similar to that under the Silver Book,
though under the Yellow Book the design is subject to approval or review by the Engineer,
whereas under the Silver Book it is not. The contractual significance or risk inherent in "Engineer
approval" is questionable.
The Yellow and Silver Books require the Contractor to employ suitably qualified designers, and
to provide an end product, which they will have designed, that is fit for purpose. The
ramifications of this requirement are discussed elsewhere, but it should be emphasised that it
imposes a substantial burden of risk on the Contractor. It is extremely unlikely that the designer
will be retained other than on the basis of a duty of care, or that either they or the Contractor
himself will be able to insure other than on that basis - i.e. that they will not be negligent in
their duties. The Contractor cannot insure against failure to design fit for purpose, so will carry
that risk himself. It follows that the purpose of the Works must be very clearly defined by the
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Employer, and there may be doubts as to how far along the design process the definition of
purpose should apply. In this context, FIDIC identifies three stages in the design process:
i. Conceptual design by the Employer sufficient to define the Employers Requirements.
ii. Preliminary design by the tenderer to substantiate his bid.
iii. Final design for the working drawings by the Contractor.
The Employers Requirements are crucial to the transfer of design responsibility to the
Contractor, especially under the Yellow Book where the Employer remains liable for any errors,
omissions or ambiguities therein.
It is likely that the Employer will retain Consulting Engineers to provide the conceptual design
and to formulate the Employer's Requirements (which will include, for example, quality
standards, tests etc), and he will be appointing "the Engineer" to act under either the Red or
Yellow Books. Then extending the Engineer's brief to include 'non-manufacture' design (i.e. for
building and civil works) would seem the logical step. If such design is imposed on the
Contractor he is likely to employ specialist designers from outside his Company, just as the
Employer would. The benefit to the Employer of a 'fit for purpose' design, which he could not
enjoy if the design was carried out by his Engineer, must be balanced against increased
Contract Price, reflecting the Contractor's increased, uninsurable risk, his own increased design
costs and his reduced control of the design.
Insofar as electrical and mechanical plant and manufactured goods are concerned it is hard to
sec how such design responsibility could be borne other than by the manufacturer. 'Fitness for
purpose' is an acceptable risk in those cases, provided the purpose is suitably defined - the
manufacturer will know the capabilities of his product. However, the Red Book also provides for
design by the Contractor when it is specifically defined in the Particulars (see Clause 4.1), again
requiring that any such design is 'fit for purpose'. Whilst the 1999 Yellow Book has obvious
advantages for M&E Works, the 1999 Red Book would seem a more logical choice for a multi
discipline contract - as has traditionally been the case.
The ultimate choices facing the Employer in his selection of a suitable Form of Contract are:

Increased (but not absolute) certainty of outturn price for a significant premium payment.
Works 'lit for purpose' for increased design costs and reduced control of the design.
NEW CONCEPTS IN THE FIDIC 1999 RED, YELLOW AND SILVER BOOKS
The 1999 suite of FIDIC Standard Forms share a new manner of presentation in the division of
the Conditions into only 20 clauses, the adoption of simplified language, and the use of the
same clause format (with only one or two exceptions) for all the books. The way the Conditions
are grouped together has been discussed elsewhere. There is no doubt the 1999 books are
much easier to read and refer to than were their predecessors. Apart form the presentation,
though, the books include a number of significant changes to the terms and conditions, some of
which are discussed below:
1.
Evidence of ability to Pay

Clause 2.4, in all three books, provides:
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"the Employer shall submit, within 28 days after receiving any request from the
Contractor, reasonable evidence that financial arrangements have been made and are
being maintained which will enable the Employer to pay the Contract Price (as estimated
at that time) in accordance with Clause 14. If the Employer intends to make any material
change to his financial arrangements, the Employer shall give notice to the Contractor
with detailed particulars".
Good news for Contractors, particularly when the Employer is not himself providing the
funding. But what comprises "reasonable evidence"? A letter from the Employer which
simply confirms that suitable arrangements have been made is not evidence, though it
may well be the Employer's response to the Contractor's request. The Contractor should
be looking for written confirmation from the source of the funding - the bank, insurance
company or similar, which deals with the specific contract in question. The funder should
be of good repute. In fact the Contractor is in a strong position, under the provisions of
Clause 16, whereby, if the Employer has not complied with his obligation to provide
"reasonable evidence", he can slow or suspend work or, ultimately, Terminate the
Contract.
The 'Contract Price' is a defined term (Sub clause 1.1.4.2). It is not the sum named in
the letter of Tender, but the amount adjusted to account for changes made under the
Contract - by Variations, for example. So the assurances required by the Contractor will
be relevant to the estimated amounts due in accordance with the payment timescale per
Clause 14.
The obligation on the Employer to give notice of any change to his arrangements appears
to apply irrespective of any request from the Contractor under Clause 2.4. Note, though,
that there is no requirement for the Employer to give particulars of his initial funding
arrangements unless so requested under 2.4. The evidence that his arrangements are
being maintained is possibly redundant in light of the requirement to give notice,
unasked, of any change.
2.
Fair Determination
A fundamental change incorporated in the 1999 Red and Yellow Books is that the
Engineer is no longer required or expected to be impartial. Clause 3.1 states:
"Except as otherwise stated in these conditions: (a) Whenever carrying out duties or
exercising authority, specified in or implied by the Contract, the Engineer shall be
deemed to act for the Employer".
The only exception "otherwise stated" is in Clause 3.5 (Determinations):
"Whenever these Conditions provide that the Engineer shall proceed in accordance with
this Sub clause 3.5 to agree or determine any matter, the Engineer shall consult with
each Party in an endeavour to reach agreement. If agreement is not achieved, the
Engineer shall make a fair determination in accordance with the Contract, taking due
regard of all relevant circumstances".
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The corresponding provision in the fourth edition of the Red Book required the Engineer
always to "exercise such discretion impartially... ". He is now required to "make a fair
determination". There are 25 sub-clauses which can prompt a determination complying
with Clause 3.5. In most, but not all, cases the Engineer's determination follows a notice
of a claim from the Contractor. Clause 20 sets out the procedure leading to a
determination.
Is there any significant difference between impartiality and fairness? It has been
suggested that impartiality is a matter of approach - assessing the counter arguments
without prejudice or favour, whilst fairness refers to the actual decision itself. It is the
decision which matters, so the change would seem to be a sensible one. However the
concept of fairness can raise difficulties in a contractual context. It suggests that, in the
relevant circumstances, a fair or equitable decision could be outside the precise
provisions of the contract - we know what the contract says, but in the circumstances it
doesn't provide a fair result. A fair decision implies some sort of overview, or
broadminded approach. Clause 3.5, however, provides for a fair decision "in accordance
with the Contract". The Engineer has in fact, little or no room to manoeuvre or be 'fair',
other than by interpreting the Contract objectively. The Contract itself may not be 'fair'.
Another difficulty arises from the provision in Clause 3.1 that the Engineer shall only be
deemed to act for the Employer "whenever carrying out duties or exercising authority
specified or implied by the Contract". He has no authority to amend the Contract or
relieve either party of any duties, obligations or responsibilities under the Contract. He
has no authority to negotiate on the part of the Employer- negotiation is not a duty
specified or implied in the Contract. The determination procedure requires the Engineer
to consult with each Party in an endeavour to reach agreement. In his consultation with
the Employer, the Engineer may be given specific authority to negotiate or compromise
on some issue, but it might be argued that the Contractor should be advised of any such
change to the Engineer's authority in the first instance - a move that could itself
prejudice the negotiation.
Note that under Clause 20 there is now a timetable relevant to the pursuance of claims
for time and money, and that the Engineer must respond to a claim not only within a
specified time, but in detail, and bland dismissal or repeated requests for more
particulars are no longer acceptable. In responding to the claim the Engineer "shall
proceed in accordance with Sub-clause 3.5 (Determination) to agree or determine".
When doing so he is not deemed or due to act for the Employer. Finally, note that under
the Silver Book the Employer makes the determination (there is no Engineer). But he
"shall make a fair determination in accordance with the Contract".
3.
Turnkey Concepts
The move towards turnkey contracts began in the late 1980's, inspired by increasing
dissatisfaction with the increasingly dispute ridden, confrontational nature of contracts
made under the standard forms. The I.C.E. in the UK published a 'Design and Construct'
form in 1992, followed by the FIDIC, Orange Book "Design, Build and Turnkey" in 1995.
The intention was to reduce the scope for disputes by reducing the number of interfaces
between the various parties involved. The advantages of complete package deals,
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whether limited design and build (Engineer, Procure, Construct EPC) or more
comprehensive Build - Operate - Transfer, (BOT) or Build-Own-Operate-Transfer
(BOOT), were expected to be reduced design and supervision costs, reduced interfaces,
and to result in a more predictable out turn lump sum cost.
The Silver Book replaced the Orange Book in 1999 and was designed to apply to
Turnkey Projects (provision by the Contractor of a complete facility ready to operate
when the owner turns the key), and to meet increasing demand for a more certain final
price. The latter was to be achieved by transferring as much risk as possible to the
Contractor, such that opportunity for post contract extensions of time and increased
costs were minimised.
Apart from an obvious increase in the tender prices to reflect the Contractors
substantially increased risk, most particularly on unforeseen conditions and design fit
for purpose, and the fact that the Employer still carries significant risk, a number of
other disadvantages have become apparent:

The designer's allegiance is primarily to the Contractor, not to the Employer. The
Employer's influence on the design is strictly limited.
The more detailed and specific are the Employer's Requirements (i.e. what he
wants), then the more onerous becomes the tendering process. The tenderer
requires time to assess the requirements and to prepare an outline design upon
which to tender. Tendering costs are high, most tenders are unsuccessful (only
one tenderer secures the Contract), so significant provision must be included
in the bid to cover both successful and unsuccessful tendering costs.
Design and construction will be conservative, to reduce the Contractor's risk. The
Contractor is unlikely to risk new materials or innovative design.
And interference with the Contractor's design by the Employer risks diluting the
Contractors responsibility for design. Similarly any interference with the
construction process increases the risk of changes to the Contract Price.
The Silver Book recognises that the Employers involvement in the ECP package be kept
to a minimum, and the replacement by an Employers Representative (ER) for the
traditional Engineer reflects that requirement. The prime duties of the ER are thus
restricted to monitoring progress, quality and testing. Emphasis is placed on the Tests
on Completion (Section 9), whereby the Contractor is finally taken to account to show
that the work is 'fit for purpose' and meets the parameters set out in the Employer's
Requirements. The ER may instruct Variations under the Contract, but care must be
taken by the Employer to ensure they do not compromise the Contractor's fitness for
purpose obligation.
DESIGN RESPONSIBILITIES UNDER THE FIDIC 1999 FORMS
The Plant and Design - Build Conditions (The Yellow Book) and the EPC Turnkey Conditions (The
Silver Book) are both intended to be used as design - build forms valued as lump sum price. The
difference between them lies in the allocation of risks for the design and for physical conditions.
The Silver Book seeks to allocate the entire risk in each case onto the contractor. Both books
adopt the same clause titles and sequence (similar to the Red Book except for Clauses 5 and
12), but the 'Engineer' in the yellow book becomes the "Employer's Representative" in the Silver
Book.
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Responsibility for physical conditions is discussed elsewhere. Responsibility for design raises a
number of issues which are discussed below; fitness for purpose, the Employer's Requirements,
interference or control of the design by the Employer and the effect of Variations on the
Contractor's design responsibility.
Fitness for Purpose
Sub clause 4.1 of both Yellow and Silver Books provides:
"The Contractor shall design, execute and complete the Works in accordance with the
Contract, and shall remedy any defects in the Works. When completed, the Works shall
be fit for the purposes for which the Works are intended as defined in the Contract. "
Such an obligation to provide a design which is "fit for purpose" is very much more onerous that
the alternative of carrying out the design with "due skill and care". The former deals with the
suitability of the end product, the latter with the design process.
A classic example illustrating the difference is that a doctor's advice, given with due skill and
care, does not guarantee to cure the patient, but a set of false teeth, to be fit for purpose, must
enable the patient to eat. A Contractor carrying responsibility for fitness for purpose cannot rely
on his using top designers, or state of the art components, or familiar methods; if it doesn't
work, then he is in breach and liable for the consequences. The difficulty faced by the Contractor
under the Yellow and Silver Books is that he cannot pass on liability for fitness for purpose to
anyone else. Neither Professional Designers nor he himself can insure against that risk,
insurance cover is only available with regard to due skill and care.
Sub clause 4.1 also provides "the Works shall include all works which (although not mentioned
in this Contract) are necessary for stability or for completion, or safe and proper operation of
the Works ". Thus the Contractor contracts to provide plant the need for which might only be
implied from the Contract Documents, and to include for it in his price. Such provision by the
Contractor demands very careful tendering procedures, and significant pre-tender design upon
which to base his price. The ability of the Contractor to produce a design (and the end product)
fit for purpose depends on that purpose being sufficiently described in the Contract. This
fundamental information is set out in the Employer's Requirements.
The Employers Requirements
The Employer's Requirements are defined in Sub clause 1.1.1.5
"Employer's Requirements means the document entitled "Employer's Requirements" as
included in the Contract, and additions and modifications to such document in
accordance with the Contract. Such document specifies the purpose, scope, and/or
design and/or other technical criteria, for the Works).
The document is crucial to the understanding and use of the Yellow and Silver Books; it is
expressly referred to 24 Sub clauses. In addition, there are references to 'the Contract' which
effectively refer directly to the Employer's Requirements, in a further 8 Sub clauses Guidance
Notes for the Particular Conditions provide a useful checklist for compiling the Employer's
Requirements.
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The Employer's Requirements must 'define' the purposes for which the Works are intended (Sub
clause 4.1 above), so to imply the purpose is insufficient. The difficulty faced by the Employer is
finding a balance between sufficiently clarifying the intended purpose and undue involvement in
the design. The Employer's Requirements need to take account of:

The form, quality, safety, whole life performance and durability, tests prior to and on
completion, operation and maintenance provisions but must not tend towards a particular
design, discouraging innovative design by the Contractor.
Sufficient precision to ensure his requirements are clear but be flexible enough to allow
Contractor design input.
Sufficient to generate competitive and competent tenders but not too demanding on tender
design by the Contractor.
Be clear as to the purpose of the Works but recognise Contractor's difficulty in obtaining
'fitness for purpose' undertakings from subcontractors and suppliers, as well as themselves.
The Works may consist of many parts - a power station may include coal handling plant, boilers,
turbines, generators and so forth. An overall generalisation that the station is to send out 50MW
is hardly sufficient. Each part will need a defined purpose, with defined parameters thereto. The
Employer's requirements for testing the Works is particularly important, since it is only by those
tests that fitness for purpose may be established. Whilst tests on and after completion are
relevant thereto, interim testing over the period of construction will give the Employer comfort
that his stage payments are buying suitable plant.
Both the Yellow and Silver Books require the tenderer to confirm that he has ascertained that
the Employer's Requirements contain no errors, implying that any errors found have been
corrected pre-tender. However, the Books then diverge on to the allocation of responsibility for
any errors found subsequently.
The Yellow Book
Sub clause 5.1 provides "within the period stated in the Appendix to Tender, calculated from the
Commencement Date, the Contractor shall give notice to the Engineer of any error, fault or
other defect found in the Employer's Requirements".
The period of weeks or months, as specified in the Appendix, is deemed sufficient for the
Contractor to give detailed attention to the Requirements and his ensuing design such that any
error will be found. If an error is found, and is deemed such that an experienced contractor
would not have discovered it pre-tender, then it shall be corrected by the Engineer and treated
as a Variation for delay and costing purposes. If an error is discovered after the period stated in
the Appendix has expired, then, providing it is an error "an experienced Contractor exercising
due care would not have discovered" it becomes a Contractor's claim (subject to notice under
20.1) and he is entitled to EOT and/or cost plus profit as set out in Sub clause 1.9.
Thus under the Yellow Book the risk of error in the Employer's Requirements is on the
Contractor subject to the "experienced contractor" test. The "experienced contractor" is a
familiar figure from clauses dealing with unforeseen physical conditions a source of endless
debate and argument.
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Under the Yellow book, of course, the error is likely to be in a document produced by the
Engineer himself, and under 5.1 he shall determine whether or not the error exists and/or
should have been discovered. He is expected to act fairly.
The Silver Book
Sub clause 5.1 provides "the Contractor shall be deemed to have scrutinised, prior to Base Date,
the Employer's Requirements The Contractor shall be responsible for the accuracy of such
Employer's Requirements (including design criteria and calculations) except as stated below
(a)
(b)
(c)
(d)
portions, data and information which are stated in the Contract as being immutable or the
responsibility of the Employer
definitions of intended purposes of the Works
criteria for testing and performance of the Completed Works
portions, data and information which cannot be verified by the Contractor, except as
otherwise stated in the Contract".
(a), (b) and (c) are fairly straightforward, but (d) is difficult. Just what does "cannot be verified
by the Contractor" mean? Does it mean data which it is impossible for the Contractor to verify,
or just impractical? Docs it apply pre-contract during the tendering period, or after work has
begun? If pre-contract, to what extent might the Contractor be expected to seek to verify the
data? Presumably all data can be verified by some means and at some time, so perhaps
ultimately there is no data which would be the Employer's responsibility. If the data cannot be
verified because it is wrong, then is the Contractor off the hook?
The provision should be read in conjunction with Sub clause 4.10, which provides "the Employer
shall have no responsibility for the accuracy, sufficiency or completeness of such data, except as
stated in Sub clause 5.1", and Sub clause 4.12 which provides "(b) the Contractor accepts total
responsibility for having foreseen all difficulties and costs of completing the Works". It
remains to be seen how the Sub clause 5.1 (d) will work in practise.
Employer Interference with the Contractor's Design
Sub clause 5.2 deals with the submission of documents to the Engineer (Yellow Book) or
Employer's Representative (Silver Book) as is specified in the Employer's Requirements. The
Yellow Book provides they may be submitted for review and/or approval, the Silver Book only
for review. Other than approval being a prerequisite to the Contractor commencing such part of
the Works, it is not immediately obvious why or how 'approval' differs from 'review'. In both
cases the Engineer's (or ER) response has no effect on the Contractor's obligations or
responsibilities. Approval suggests a more active involvement by the Engineer, but does not
appear to relieve the Contractor of risk. Approval empowers the Engineer to comment on the
document (5.2 (a) (ii)) but otherwise his response in either case is restricted to advising the
Contractor that it fails to comply with the Contract. In practise this might prove difficult if the
Employer's Requirements are in the form of a performance specification. Until the Works have
been tested, such a failure would be hard to substantiate. The authority to approve implies
similar authority to disapprove. It is not clear how disapproval by the Engineer, compared with
his right to issue Variations, might affect the Contractor's responsibility to design fit for purpose.
The Contractor is entitled to object to a Variation instructed by the Engineer on the grounds that
it will reduce the suitability of the Works (Sub clause 13.1). The Engineer can, however,
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override the objection and the Contractor then has to comply. If the Variation prevents the
performance specification from being achieved, would the Contractor thereby be in breach of his
fundamental obligations? Sub clause 3.4 provides that the Engineer may (is permitted to) issue
instructions necessary for the Contractor to perform his obligation under execution of the Works
and the Contract. He may also instruct Variations - changes to the Employer's Requirements.
The Contractor might challenge disapproval or Variations which he thinks prejudicial to his
design obligations on cither basis.
Design Provisions in the 1999 Red Book
Sub clause 4.1 provides for design which the Contract specifies shall be done by the Contractor.
The Red Book is based on overall design by the Engineer, so design by the Contractor would be
a minor element.
Any design by the Contractor is to be fit for purpose, and shall be submitted to the Engineer in
accordance with the procedures specified in the Contract". Thus whether the design is subject to
review or approval will be set out in the Particular Conditions, no reference is made thereto in
the General Conditions.
As in the Yellow and Silver Books, the Engineer must 'define' the purpose to the achieved by the
design, together with the Tests on Completion required to demonstrate fitness for purpose. Sub
clause 4.1 (d) makes it clear that Take Over shall not occur until all relevant (and specified)
documents have been handed over to the Engineer. Delay in providing such documents
(operation manuals, maintenance manuals etc) is a common cause of delay to completion.
Any design carried out by the Contractor under the provisions of Sub clause 13.2, Value
Engineering, shall be 'Contractor's design' subject to the provision of Sub-clause 4.1 discussed
above. In this case it is, of course, subject to approval by the Engineer.
Summary
Whilst the intention inherent in the Documents, to allocate design responsibility to the
Contractor, is clear, the provisions introduce an element of uncertainty. Fitness for Purpose is
subject to the Employer's Requirements. Responsibility for errors therein depends on the
'experienced contractor' test in the Yellow Book, and in the Silver Book reference to 'unverifiable
data' clouds responsibility for data provided by the Employer.
The involvement of the Engineer in the Contractor's Design, by disapproval, instructions or
Variations can prejudice the Contractor's overall responsibility for design.
PROCUREMENT AND SUBCONTRACTING
Lets now turn to the use of subcontractors or suppliers.
The considerations to be addressed in the decision to subcontract or not include:

Is there a skill or resource availability problem?

Is it speed or cost driven?
Is it a transfer of commercial risk?
Does it encourage a relationship for mutual benefit?
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What are the results of the risk analysis since as a contractor, you must protect yourself
both in the short and long term.
The enquiry is a key document and the basis of the sub-contract. It will therefore include the
terms of contract, specifications, drawings, attendances etc. As I outlined earlier, it is important
to give complete references of all the documents attached.
In the selection process, checks must be made. These should include:

References, clients and suppliers

Annual reports if public companies
CVs of key staff
Litigation history
A tender appraisal comprises further checks such as arithmetical correctness, whether all
particulars are given and are all documents included. It is not just a price comparison but must
include adjustments to compare like for like. It should reveal whether the proposal is what we
want to receive or what the sub-contractor wants to give us, whether it is fully compliant with
the specification, whether the rates are realistic or loaded and so on.
Ive already covered some of the procedures and contractual during negotiations and contract
award that I said were equally relevant to sub-contracts. Other issues that arise however,
include it is the last opportunity to get price or time reductions, to undertake final checks and of
course, to set out the agreed baseline.
Obtaining consent to sub-contract works is often a requirement (i.e. Clause 4.4 of the FIDIC
forms). The document should set out the procedure to be followed and detail when a request
should be made and to whom should it be addressed.
The term back to back sub-contracts is an interesting one as it people are unsure of its exact
meaning. What does it mean?
It cannot mean that all the terms and conditions of the main contract apply equally to the subcontract as this cannot be correct. If therefore, only some apply, then these should be clearly
stated and not left open ended and open to probably future disagreement.
SETTING UP A PROJECT
Having now tendered for a contract and been successful, we now have a signed document and
want to start the project.
There are many issues to consider which impact at an organisational and project level. These
include:

Who will be in the project team?

How will different parts of your company inter-relate?
What role is required of the Project Manager?
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Contractors should have formal handover meetings from estimating to the project manager in
which the previously agreed terms and details of the contract are explained. All the estimating
files should also be available to the project team.
The resourcing of the project needs consideration; perhaps it involves a balancing act to satisfy
various parts of your business. There are also of course, typical contractual issues.
Let us consider these:
The documents that the Contractor should expect to submit after receiving a Letter of
Acceptance under the FIDIC forms.
This includes:
1) A signed Contract Agreement (Clause 1.6 refers) within 28 days.
2) Performance Security (Clause 4.2 refers) within 28 days.
3) The name of his representative (Clause 4.3 refers) prior to Commencement Date.
4) A programme (Clause 8.3 refers) 28 days after notice of the Commencement Date.
5) A guarantee and application for the Advance Payment (if appropriate; Clause 14.2
refers).
6) Evidence of insurance (Clause 18.1 refers).
The documents or things that the Contractor should expect to receive from the Employer
and/or his representative after issuing the Letter of Acceptance.
This includes:
1) A completed Contract Agreement (Clause 1.6 refers) within 28 days.
2) Access to site (Clause 2.2 refers) at the times stated in the Appendix to Tender.
3) Notification of the Engineer (Clause 3.1 refers) if not already known.
4) Minimum of 7 days notice of Commencement Date (Clause 8.1 refers) within 42 days
unless stated in Particular Conditions.
Clause 8 of the 1999 Forms deals with commencement, delay and damages. The 1999 Red Book
provides:
Sub Clause 8.2
The Contractor shall complete the whole of the Works within the Time for Completionfor the
purposes of taking over under Sub clause 10.1"
Thus the Works must be completed by not later than the end of the Time for Completion. They
don't have to be completed on that date, and they may be completed any time prior to that
date. Completion is signified by the issue of the Taking Over Certificate.
Sub clause 8.3
The Contractor is required to submit a programme to the Engineer showing how he intends the
carry out the Works to meet his obligations under the Contract. This programme is not a
Contract Document - the Contractor has not expressly contracted to comply with it, whereby he
would be in breach if he failed to do so. His contractual obligation is to provide the programme
within 28 days of Notice to Commence. However, should he fail to comply with it, then it might
be argued that he has failed to proceed with "due expedition and without delay" per Sub clause
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8.1. Alternatively the Engineer might invoke the provisions of Sub clause 8.6 - Rate of Progress.
The Engineer may object to the programme only on the grounds that it does not comply with
the Contract. This might appear to limit his scope for objection to compliance with any specified
timing or sequencing of the Works, and to the Time for Completion, but note that the activities
which must be shown on the programme are extensive. If any such activities are not shown,
then the programme does not comply with the contract and may be rejected. If the Engineer
rejects the programme, then the Contractor is required to submit a revised version which does
comply with the Contract.
Provided the programme is not rejected by the Engineer within 21 days of submission, then the
Contractor must work in accordance with it, though if he fails to do so the sanction is simply to
issue a corresponding revision. Note that the Engineer is entitled to rely on the programme,
arranging for drawings, inspections etc. to be provided in accordance with it, see Sub clause 8.3
(c). Should the Engineer's activities be disrupted by failure of the Contractor to keep to
programme due to his own default, then the Employer would be entitled to claim consequential
damages from the Contractor. Sub clause 2.5 refers.
The programme is required to show the order and timing of each stage of the Works, but does
not specify a critical path programme. In the event, such a network will be necessary to
establish any entitlement to Extension of Time, and it is very much in the interests of both
Engineer and Contractor that the programme be compiled on that basis.
Liquidated Damages for Delay
Liquidated Damages for Delay' are not recognised in the 1999 Forms. The wording avoids
reference to 'liquidated damages' and 'penalty', as were used in the Fourth Edition, to
circumvent the argument as to which might apply. Under the common law system a penalty
may not be imposed, and a provision for liquidated damages which was held to be a penalty
would not be effective. Jurisdictions outside the common law system recognise penalty clauses,
and the wording in the 1999 Forms provides accordingly.
Sub clause 8.7 (Delay Damages) provides as follows:
"If the Contractor fails to comply with Sub-clause 8.2 [Time for Completion], the Contractor
shall subject to Sub-clause 2.5 [Employer's Claims] pay delay damages to the Employer for this
default. These delay damages shall be the sum stated in the Appendix to Tender, which shall be
paid for every day which shall elapse between the relevant Time for Completion and the date
stated in the Taking-Over Certificate. However, the total amount due under this Sub-clause shall
not exceed the maximum amount of delay damages (if any) stated in the Appendix to Tender.
These delay damages shall be the only damages due from the Contractor for such default, other
than in the event of termination under Sub-clause 15.2 [Termination by Employer] prior to
completion of the Works. These damages shall not relieve the Contractor from his obligation to
complete the Works, or from any other duties, obligations or responsibilities which he may have
under the Contract. "
The Delay Damages are the sum stated. They are agreed between the Parties. They are not.
apparently, subject to being a reasonable assessment of the damages envisaged when the
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Contract was made, as is required under the common law system, and, as was provided in the
Fourth edition are subject to a reduction in value commensurate with partial completion of the
Works under the provisions of Sub clause 10.2. They are not subject to whether the Employer
has actually suffered any damage at all.
The Sub clause provides that the prescribed amount "shall" be paid. Unlike other forms, the
payment is not an option available to the Employer, though should the Employer choose to
forego his claim, doubtless the Contractor would not object! The procedure is set out in Sub
clause 2.5, Employer Claims, whereby the Contractor shall be given notice and particulars "as
soon as practical" by either the Employer or the Engineer, the latter of whom may certify
accordingly.
A number of issues arise from these provisions:

Sub clause 2.5 provides that "If the Employer considers himself to be entitled to any
payment the Employer or the Engineer shall give notice and particulars to the Contractor".
It goes on to provide that "the notice shall be given as soon as practical after the Employer
became aware of the event or circumstances giving rise to the claim". Note that this later
provision deals only with the notice, not with the particulars. The particulars are not,
apparently, subject to the same time restraints as the notice, and are dealt with under the
later provision "The particulars shall specify the Clause or other basis of the Claim...." It is
submitted that the time taken to provide the particulars is not an excuse to delay issue of
the notice.

The Engineer is likely to be aware of the event or circumstances giving rise to the claim
before the Employer, who will most probably be advised by the Engineer. Does the notice
become due when the Engineer, who is being deemed to act for the Employer per Sub clause
3.1, becomes aware of the event?

Claims by the Contractor are subject to the stringent and onerous provisions of Sub clause
20.1, notice within 28 days or no entitlement. The corresponding obligations on the
Employer are less precisely defined, but it will be of major interest to both Parties that the
Employer's claims can be time barred if these obligations are not met. When is the
Employer's notice of an entitlement to delay damages due?

The delay damages are payable for the period between the relevant Time for Completion and
the dates stated on the Taking Over Certificate. A difficulty arises because whilst the Works
may be incomplete at the current Time for Completion, further EOT may be under
consideration or due.

Again, it might be obvious sometime beforehand that the Contractor will not meet the due
completion date, and that delay damages will become due. In that event, should the
Employer's notice be issued then, prior to the completion date itself?

The Employer's entitlement doesn't arise until the event has arisen which gives rise to the
claim. It is submitted that the event is the failure of the Contractor to complete by the due
date. This is and remains the Contractors obligation under Sub clause 8.2 unless and until
the Time for Completion is extended by the Engineer under Sub clause 8.4.

If the Works are incomplete on the due date, then the Employer must give notice under Sub
clause 2.5 that, under the provision of Sub Clause 8.7, he is entitled to payment of damages
for delay. The notice is due "as soon as practical" - there can be no excuse for delay. The
Employer will know the due date for completion and the state of Completion.

The amount of delay damages due cannot be particularised until (i) the final award of EOT
has been determined and (ii) the Taking Over Certificate has been issued. It is submitted
that no payment of delay damages is due from the Contractor until the amount has thus
been determined.
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Sub Clause 8.7 confirms that the delay damages comprise the Contractor's entire liability for
delay. This reflects a well known provision under English Law, but clarifies doubt experienced in
other jurisdictions. Liquidated Damages for delay, or Delay Damages, is an alternative to
damages at large. If the Contract provides for Delay Damages, as FIDIC does, then no other
damages can become due for late completion. The Contractor is not, of course, relieved of any
of his other liabilities under the Contract.
Of course, the Parties can agree to forego payment of the damages by mutual agreement -any
such proposal from the Employer would doubtless be welcomed by the Contractor.
The reference to Termination is probably an attempt to resolve the argument as to whether
delay damages are applicable if termination occurs after the Time for Completion. The Employer
is not limited in his recovery, but whether delay damages would be appropriate in that case
remains debatable.
If the Contractor fails to give due notice, then we have concluded that no EOT may be awarded
under the terms of the Contract. (The Parties can, of course, come to an extra-contract
agreement otherwise if they wish). If the Employer has caused a delay to completion but no
notice was given by the Contractor, so that no EOT is awarded, is the Employer still able to
claim delay damages? A fundamental implied provision in a contract is that a Party cannot
benefit from his own breach. If the Employer prevents the Contractor from completing within
the Time for Completion, then the Time for Completion is no longer applicable or enforceable time is at large - and delay damages cannot be claimed because there is no Completion Date
applicable thereto. In that event neither can the Employer resort to damages at large for
reasons discussed above. It might be thought that these provisions appear contradictory, since
the purpose of EOT is to set back the Completion Date from which delay damages are payable,
but if no EOT is awarded because the Contractor has not submitted the due notice, then the
Employer cannot claim delay damages anyway, insofar as he caused the delay. Does it actually
matter if the Contractor fails to claim EOT in light of Employer delay? Yes, it does, because the
notice provision in the FIDIC forms also refer to additional payment. Whilst EOT in itself does
not entitle the Contractor to any additional payment, the notice of delay includes notice of claim
for additional payment due on account of the reason for delay. Of course, the Contractor can be
delayed by causes not directly attributed to the Employer (Force Majeure, for example). In such
cases the Employer would be able to claim Delay Damages if no request for EOT had been made
or EOT awarded in consequence.
PLANNING AND PROGRAMMING
Planning is also very important to the management of a contractual relationship, especially at
the start of a project. We could easily spend all day just talking about planning, but we do not
have the time. Briefly; planning is an overall process, which starts with a clean sheet of paper
and involves consideration of what to do, how to do it, when to do it and what resources to use.
It should be remembered that planning is the overall process, whereas a programme is perhaps
the end result.
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Programming is complex; it involves linking activities and/or defined milestones to achieve

completion in the shortest possible time, often including resource constraints. A programme
used correctly is just not a picture, but something that should be used for communication.
There are a number of general issues commonly encountered with respect to planning, these
include:
1)
2)
3)
4)
Should
Should
Should
Should
the
the
the
the
contractor issue a programme even if it is not requested? Yes.

contractor have two versions, the submitted one and the real one? No.
contractor attempt to get its programme agreed? Yes.
submitted programme include resources, major material deliveries? Yes.
With respect to the specific requirements of the FIDIC forms, Clause 8.3 refers.
But it is not just about a plan or a programme that looks nice when pinned up on the wall.
Progress against the programme needs to monitored and recorded, not just for current project
management purposes, but for potential use in the future to determine what was done when.
Mark Castell
Driver Trett
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Tel +31 (0)113 246 400
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WORKSHOP FOR VSMC

MANAGING CONTRACTS UNDER THE FIDIC CONDITIONS
PROGRESS REPORTING
Progress reporting needs to be done regularly, whether by a string or perhaps in a more modern
fashion, electronically. It is important however, to retain the previous version and not overwrite
it. We have witnessed projects where this has not happened and all that has remained at the
end is a programme showing 100% progress, no good as a record of what actually happened.
How should progress be measured? Percentage complete is difficult to ascertain, remaining
duration is perhaps better. How should variations be treated? I would suggest by adding in new
activities.
As I have said, the value of reporting progress is two-fold; one for control of the present and
future, and secondly to assist in investigations of problems, what was the cause, what was the
effect.
How do you measure progress? Does it vary during engineering, manufacturing and installation?
Our experience shows that records of progress especially during engineering are not often kept.
The following general issues will need to be considered:
1) The items the Contractor should include in its progress reports. These would include matters
such as progress against activities and overall, areas where information/materials are
awaited, possible delays to the works, financial matters etc.
2) Should the Contractor prepare different progress reports for internal circulation to that
submitted to the Engineer? The progress reports should be the same however; companies
may require additional information for internal reports.
With respect to the specific requirements of the FIDIC forms, Clause 4.21 refers.
FINANCIAL MATTERS - CONTRACT VALUATION AND VALUE ENGINEERING
Valuation of the Works
The three FIDIC forms value the works in different ways:

The Red Book on a re-measurable basis.

The Yellow Book on a lump sum basis but with an option for re-measurement.
The Silver Book on a lump sum basis.
Re-measurement concerns the actual measurement of quantities of work undertaken. The

contractor therefore gets paid for what it has undertaken (as long as it is has been carried out in
accordance with the contract). Under the Red Book, the design is undertaken by, or on behalf
of, the Employer.
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Lump sum however, requires the contractor to state a fixed amount of money that it wants to
undertake the specified works. Under the Yellow and Silver Books, the design is also undertaken
by the contractor.
These different concepts lead to different degrees of certainty of final price. The three FIDIC
forms offer varied opportunities for the agreed contract price to be changed; the Silver Book
offering the least possibilities, the Yellow Book a few more and the Red Book offers the most
potential for change.
This therefore translates into differing degrees of risk for the contractors. The Silver Book
carries the most risk and the Red Book the least.
The 1999 Red Book
The General Conditions, Section 12, provide for measurement of the Works as the basis for
Valuation, using rates and/or prices scheduled in the Particular Conditions. The Contractor is
required to assist the Engineer in the physical measurement of the Permanent Works, but note
that the Engineer alone is responsible for compiling and measuring recorded quantities, though
the Contractor may "attend", and may disagree with the records. When making his valuations
the Engineer is acting under Clause 3.5 (Determination), whereby he is not acting as the
Employer's Agent, but is bound to "make a fair determination in accordance with the Contract".
The Red Book provides for adjustment of scheduled Rates and Prices if there is significant
difference between the actual measure and that stated in the Bill of Quantities. Any such revised
rate is to be based on the scheduled rates, but varied to reflect the circumstances. In the last
analysis, if no existing rates are relevant, then the work is to be valued at cost plus reasonable
profit.
The Guidance Notes to the Red Book show that the Works may be valued on a lump sum basis
as an alternative to measurement, or on the basis of cost plus. The notes indicate how those
provisions should be incorporated into the Contract by omission or substitution of certain Sub
clauses. FIDIC suggest that Lump Sum is only appropriate where the design is finalised,
rendering variations unlikely.
The 1999 Yellow Book
The Yellow Book is based on a Lump Sum Price which is not subject to measurement, but which
may be changed by Employer Variations. Having said that, the Conditions also provide for
payment based on measurement, such as may be provided for and defined in the Particular
Conditions. The Guidance Notes show how such provisions might be incorporated, borrowing
text from the measurement provisions in the Red Book. Changes in form or quantity resulting
from changes to the Contractor's design will not, of course, affect the Contract Price, unless
specific provision has been included in the Particular Conditions.
The Silver Book
Generally as the Yellow Book, but includes no alternative provision for measurement. The
Contractor carries the entire risk on quantities and design.
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Value Engineering
The concept of Value Engineering is new to the 1999 suite of contracts. The provision is included
in the Red Book and slightly differently in the Yellow and Silver Books. (It is not included at all in
the Green Book, the short form).
The concept seeks to encourage the Contractor to propose changes to the nature or construction
of the Works which will be of benefit to the Employer. Under the Red Book this is done by
sharing any financial benefit between the Parties. The Yellow Book is subject to a Contractors
proposal and under the Silver Book, the Employer shall 'take account' of any such proposal in
determining the value, but there are no specific arrangements for benefit sharing.
The calculation of the fee payable to the Contractor as his share of the benefit is based on an
assumed reduction in the Contract Price - that is, that the Contractor's proposal will reduce the
cost of the Works, either by shortening the construction time or simplifying the Plant. However,
the Contractor could propose an increase in Plant cost which would result in post-contract
savings to the Employer arising from extended life or reduced maintenance and/or operating
costs. How this would be dealt with is not explained.
Any design necessary to implement the proposal is to be done by the Contractor, under the Red
Book as well as the Yellow and Silver, and would be fit for purpose at the Contractor's risk.
The Employer must consider how the 'Value Engineering' provision could affect the Contractor's
Tender. A Contractor might be better concealing any bright ideas until a contract has been
signed and he can recover the 50% fee, rather than offering the benefit in his tender.
The Employer may also have reservations with regard to the services of his Engineer. Had the
Engineer carried out the Value Engineering when the initial design, or design concept, was being
prepared, then the Employer would have received 100% of the benefit, not just 50%. Such a
potential threat against the Engineer may encourage him (the Engineer) to tighten down the
design and compromise factors of safety, for example.
CONDITIONS FOR PAYMENT
Contract Price and Payment is dealt with under clause 14 in all three books, though the
provisions differ between them. One of the main reasons for the increasingly dispute ridden
nature of the Construction Industry, certainly as experienced in the UK, has been a fundamental
reluctance to pay promptly payments properly due. An attempt (generally successful) to remedy
this legislation was introduced in the UK in the 1990's to ensure prompt payment under
construction contracts, and to clarify determination of the amount which could be withheld at
any time. Further legislation provided for substantial interest charges to become due in the
event of a failure to pay on time. All standard forms of contract now published in the UK include
payment terms which comply with this legislation, as they are bound to do.
The 1999 FIDIC forms go some way to recognising this concern, principally by providing for
evidence of the Employer's ability to pay, and by providing for finance charges at a prescribed
high rate of interest in the event of late payment - in the earlier Fourth Edition the rate of
interest was defined by the Employer in the Particular Conditions, now special provision for any
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other rate has to be made. The Contractor retains the sanctions of either suspending or
terminating the Contract in the event of protracted payment default by the Employer.
All three books contain a diagrammatic explanation of the sequence of payment events
prescribed in Sub clause 14, to which the reader is referred.
The Red Book
The Contract Price is subject to measurement.
The billed quantities are not to be taken as actual or correct
The Contractor provides a breakdown of any lump sum price which the Engineer may use for
determining interim payments.
Any prescribed advance payment (as a lump sum or in instalments) is subject to receipt by
the Employer of an approved guarantee from the Contractor in the amount of the payment.
The advance payment shall be repaid by deductions from certified payments due, either per
particular conditions or per Sub clause 14.2. The guarantee is usually issued by a bank on
the basis of an unconditional or on-demand call. The amount secured by the guarantee may
be progressively reduced as the work is executed.
The Contractor submits a Statement each month end showing his considered entitlement,
per 14.3. It takes account of everything - retention, advance payments, work done, previous
payments, acquired plant and materials etc. Provisions for payment of acquired plant and
materials are dealt with under Sub Clause 14.5.
Subject to prior issue of a Performance Security (per Sub clause 4.2) the Engineer issues an
Interim Payment Certificate setting out the Payment due, though subject to any prescribed
minimum value stated in the Appendix to Tender. Note that a Payment Certificate does not
comprise formal acceptance of the work. Such acceptance is only made by the Performance
Certificate.
The Employer pays the Contractor within 56 days of the submission of the Contractor's
statement to the Engineer. Note, payment is tied to submission of the Statement, not the
date of certification.
Delayed payments entitle the Contractor to compound interest on the amount due at the
prescribed rates unless particular provisions have been made otherwise under the Contract.
Note, no notice is necessary from the Contractor under Sub clause 20.1. Continuing default
by the Employer entitles the Contractor to suspend or terminate the Contract under Sub
clauses 16.1, 16.2.
Within 84 days of receipt of the Taking Over Certificate the Contractor submits a statement
of completion, setting out his considered entitlement under the Contract. The Engineer
certifies as for any Interim Statement.
Within 56 days of receipt of the Performance Certificate (issued under Sub clause 11.9 and
confirming that the Contractor has met all his obligations (including remedying defects), and
deemed to constitute acceptance of the Works, the Contractor submits a draft final
statement to the Engineer for agreement. When agreed, a Final Statement shall be issued,
in which the Contractor confirms full and final settlement, and the Engineer shall issue a final
Payment Certificate which shall be paid within 56 days of issue.
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The Employer has no liability to the Contractor unless the Contractor has provided for it in
the Final Statement and the Statement of Completion. Thus any further claims raised by the
Contractor not provided for in that statement would be time barred.
The Yellow Book

The differences to the Red Book are minor:
The Contract Price is a Lump Sum.
Any Scheduled quantities or price may only be used for the designated purpose, and any
measurement will be subject to the relevant provisions in the Particular Conditions.
Application for Interim Payment Certificates shall be at the end of each payment period if
stated, otherwise monthly as the Red Book.
Release of the first half of the Retention money depends on both the issue of the Taking
Over Certificate, as per the Red Book, and also passing specified tests after Completion.
Release of Retention in the event of a Taking Over Certificate being issued for a Section or
part of the Works differs between the Yellow and Red Books, as set out in detail in Sub
clause 14.9.
The Silver Book
The differences to the Red Book include:
The Contract Price is the Lump Sum.
There is no reference to Schedules - any requirement to pay on a measurement basis would
require particular provision.
Any advance payment is subject either to particular provisions or to Sub clauses 14.2 (c) to
(d). Provision of guarantees and Performance Security are unchanged from the Red Book.
Application for the Interim Payment Certificates as per Yellow Book but submitted to the
Employer.
Interim Payments for plant and materials not yet on site differ from Red and Yellow Books,
and are set out in Sub clause 14.5. Payment is subject to vesting the goods in the Employer,
insurance cover and bank guarantees for the amounts paid.
The Employer shall pay the Contractor within 56 days of his receiving the interim Statement
from the Contractor.
CHANGE OR VARIATIONS
I now want to look at changes or variations, a very important part of the overall process and
one which contributes greatly to maximisation of commercial returns.
What types of change occur on construction and engineering projects? What are we concerned
with?
When we are talking about change, perhaps those areas which come readily to mind are
additional, omitted, varied, modified or substituted work. These tend to mean a change to the
scope of work to be undertaken and include such matters as:

Some additional spare parts for a mechanical installation. Additional works.

The provision of furniture not being required within the refurbishment of an office block.
Omitted work.
A different paint specification for certain parts of the ship. Varied work.
A modification is made to pipework that has already been installed due to a clash with a
cable tray. Modified work.
Other changes to the scope of work can arise from:
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New or revised drawings. For example, a sub-contractor responsible for prefabrication and
installation of pipework on an offshore module may receive a further 50 isometric drawings
from the main contractor, which detail additional spools to be made.
The requirements for the standard of work may be altered. A shipyard may be required to
adhere to revised classification rules.
Changes can also be categorised as affecting schedule, in other words the programme, timing or
sequence of undertaking the works. Examples include:

Time of year work is carried out. The seeding of the football pitches for a new sports park is
not undertaken at the planned time due to the amount of unseasonable heavy rain that has
waterlogged the ground.
Holds placed on drawings affect the time that a pipework prefabrication and installation subcontractor can actually carry out the work.
Late access to site for the contractor prevents him from excavating the foundations for an
extension to a hospital when he envisaged.
Late issue of material. For example the delayed installation of air conditioning units by
another supplier engaged by a shipyard means that the electrical sub-contractor cannot
complete the cable terminations at the same time as those for other equipment in the same
compartment.
There is a third category of change, it is conditions i.e. the location the work is carried out; or
the physical or geological or marine conditions encountered. By this I mean rock being found
when excavating for a new tunnel under a canal. Other examples include:

The identity of the employers representative or consultants being changed.

Different sub-contractors or vendors being used by other parties involved in the project.
The contractor using a different project manager to the one it said it would use in contract
negotiations with the employer.
It is not as clear-cut as this though. Some of the examples may also be capable of being placed
into all three categories. An example would be an employer changing the type of equipment it
wanted as part of the mechanical installation of a new industrial building or factory. The
contractor responsible for the mechanical and electrical installation may view this as a scope of
work change as it has to provide additional or varied equipment. However, as the new
equipment has a longer procurement period, in other words it takes longer to purchase and
therefore is installed later; the contractor must undertake the cable connections at a different
time, i.e. a schedule change. Furthermore, as the revised equipment is bigger, there is less
space available for the contractor to undertaken his work, a change in the conditions that he
operates under.
What relevance is this however to the Management of Change? Well, its importance to
contractual issues will become clear a bit later, but it is perhaps also helpful to use this
categorisation approach to aid the understanding of the effects of change.
In addition to categorisation by subject, changes can be made by the different parties involved
in a project. The employer can clearly make certain of the changes I have already described:
The extent of spare parts for a mechanical installation.
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Late access to site for the contractor, which prevents him from excavating the foundations
for the extension to the hospital when he envisaged.
Prolonged drawing review or approval periods that inhibit the start of pipework
prefabrication.
The identity of the employers representative or consultants.
A contractor is in a different position of course; it is on the receiving end of changes made by

the employer, but can also initiate changes that affect the employer. I can demonstrate this by
reference to example of changes that Ive used earlier:

Using a different project manager to the one it said it would use in contract negotiations.
This may be an important issue for the employer.
The standard and quality of the finished works is not as required by the specification.
From the employers perspective, he/she should be interested in where the contractor makes
any change to its responsibilities under the contract. Take an example that I have referred to
earlier:
The pipework, electrical and finishing sub-contractors are all brought in so that they are all
working at the same time rather than in a sequential fashion resulting in overlapping of
trades.
As the work was done by sub-contractors, it may not matter why the contractor did this; the
sub-contractors would address their requests for additional reimbursement to the contractor.
The question for the contractor however, should be, why? Was there an original cause that
would give the contractor entitlement to claim additional monies from someone else, i.e. the
employer?
In the same way as contractors, sub-contractors are on the receiving end to changes made by
the employer and / or the contractor, but can also initiate changes that affect the employer and
/ or the contractor.
The other parties are more likely to be interested in changes that the sub-contractor makes to
its contractual responsibilities, but as discussed earlier, these may illustrate the effect of a
change originated by others or be the cause of something that affects others.
So pulling the discussion about change together, what we are talking about is something
different from the contractual agreement that can be caused by any of the parties involved, that
affects the scope and/or schedule and/or conditions and has an impact on any of the parties
involved. The change is likely to be a revision to a parties obligations under the contract
affecting others.
The management of change
As I said at the start of this workshop, the management of contracts involves a process. A part
of this process is the management of change, and the management of change brings together
many elements of the overall management of contract process. The management of change
process is in 5 steps.
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Step 1 - Understand the Baseline

The first step is to read the contract to understand the parties obligations. In other words, it is
to understand the baseline i.e. that which changes are measured against. To understand what
are the obligations or responsibilities the parties have under the contract? What can be
changed? How does the change process work? Is it limited in any way?
As with the effective management of contracts, the process of managing change does not start
when the client wants to issue a variation order, or when the contractor receives a change
order, but at tender stage. It involves the good practice that I talked about last time that should
also be included in the company contract management manual:
Pre tender
A tender document check list
A clean set of the tender documents kept in a master file available for future reference and
retained by the estimating manager.
The file of all correspondence requesting clarifications or further information.
An electronic storage folder for all the emails and accessible to all working on the project.
Pre-contract
A schedule summarising all the changes resulting from negotiations.
Signed minutes of meetings.
Contract Signature
Checks that all the agreed changes are clearly noted within the documents comprising the
agreement.
A list of all the contract documents with full references should be part of the agreement and
copies of all documents within an Appendix.
Contract Commencement
Contractors should have formal handover meetings from estimating to the project manager.
All the estimating files should be available to the project team.
Of course, compliance with such a system will not prevent all problems. It is not until detailed
design or planning work, for example, is undertaken, that some obligations are found to be
unclear. Some contracts provide for anomalies between different contract documents to be
dealt with i.e. FIDIC clause 1.5. The typical process is for the contractor to notify the client and
for the client to clarify the matter in writing. If the clarification is considered to be a variation,
then it is deemed to be so.
If such a clause does not exist, I would still recommend the same process. Raise the matter and
request clarification. If the response is considered to be a variation, then request a formal
change order or whatever it is named.
In cases where there is disagreement, the contract may have a procedure that must be
followed. If there is not a specific one, then there is probably a dispute resolution process that
can be referred to.
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Step 2 - Monitor the Obligations of the Parties

Having understood what the parties obligations are, the second step is to ensure that they are
constantly monitored to ascertain whether there have been any changes.
This process can be achieved by using existing documents that should be part of the standard
company procedure and described within a manual. Some examples of the documents are:

Design programmes and updates

Construction programmes and updates
Progress reports - internal and external
Material / equipment delivery schedules
Drawings received, holds and approvals
Payments
Notices / requests for change
Cost / value reconciliations
An important point to consider is that the various documents will show different things. The
programmes, progress reports and materials and equipment schedules give information relative
to time and sequence and thus can only be used to monitor changes in time and sequence.
What I mean by this is that progress reports and programmes showing progress will indicate
when activities are done at different time or in a different order. They will not indicate any
changed scope of work however.
The drawings, payments, notices or requests for change however, are in relation to the scope of
work, and therefore are useful in determining changes to scope. These do not show schedule
and condition changes though.
Cost/value reconciliations are different again. They compare the tender allowance (or value)
with the forecast and then the actual cost of an item or section of work. It therefore shows
where money is made and where money is lost on a project. This may either be a signal that a
change may have occurred and that further investigation is required to be undertaken, or it may
show the financial effect of a change.
The organisations management manual should set out what documents are to be maintained
and why. The issue is not about keeping records for the sake of it, but defining the records to
satisfy the needs.
Step 3 - Document the Change and Give Notice
The systems and procedures that your organisation has in place have now enabled you to
understand what the parties obligations are and to monitor these obligations and ascertain
whether there have been any changes. The next step is to document the change; in other
words, invoke the contract and conform to the procedures and constraints contained within.
I mentioned earlier that change can be categorised into scope of work, schedule and condition
effects. I now want to take this further and show the connection to the contract or the baseline
for the purpose of documenting the change.
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These three categories of change; scope of work, schedule and condition also comprise the
types of changes that are generally allowable or foreseeable within most construction and
engineering contracts. By this I mean that contracts set out what changes can be made, who
can make the changes and the process that must be followed in the event of a change.
There are also changes that do not fit into this category and therefore, require different
treatment. These are changes that are beyond the expectation of the contract and depending on
the exact conditions of contract, may include:

The frequency of payments

The period between issue of invoice and actual payment
Acceleration
There are some main issues surrounding what I have termed the allowable or foreseeable
changes under a contract, that dictate how change is documented. The first issue is that
concerning the right to make a change. Most contracts do make this provision, but does your
contract include a changes clause? In other words, are changes allowable under your specific
contract?
Assuming there is a changes clause, let us consider the contents of it. Is there a limitation on
the type of changes that can be made by a certain party?
Contracts also limit the timing of instructed changes. For example, it may be restricted to the
point at which completion is certified.
What should the parties do if they want to implement a change that falls outside of the changes
clause? Well, the change would not be compulsory and there would have to be agreement for it
to be undertaken.
A further cause for debate is the question of whether the correct contractual procedures have
been followed. A good example of this surrounds the use of verbal instructions. Change clauses
often state that instructions should be in writing and that only under exceptional conditions
given verbally. In these exceptional circumstances, the verbal instruction should then be
confirmed in writing by the recipient. The clauses then go on to typically say that if the written
confirmation of the verbal instruction is not contradicted within a certain period, the verbal
instruction shall be deemed to be the equal of a written one.
There are clearly some very good reasons why instructions need to given verbally; safety and
security being two. However, in my experience, constant use of verbal instructions potentially
creates unfair risk for the recipients since the onus is on the recipient to follow the written
confirmation procedure. There is also potential risk on the client however, as misunderstandings
may occur in the exact content of the instruction and goodwill on the part of the other party
would surely diminish if any verbal instructions were later contradicted.
FIDIC Variations
Clause 13 of the 1999 Suite of Contracts deals with Variations and Adjustments. A number of
new concepts were introduced with the 1999 Editions, including:
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Variations can no longer be instructed after issue of the Taking Over Certificate.
The Contracts provide a procedure whereby the Contractor may be required to indicate the
likely consequences of a Variation being considered by the Employer/Engineer. The
Contractor advises the extent of the work, its effect on programme, and his proposal for
evaluation.
The Contractor has limited rights to object to a Variation, but can nevertheless be overruled.
Timely notice of intention to claim additional payment for a Variation is a Condition
Precedent thereto.
Omissions (Variations to omit) may be valued with regard to their effect on other Work.
Procedure for Variations

The Contractor may be instructed to carry out a Variation at any time and must comply
therewith, subject to his grounds for objection discussed above. Alternatively the 1999 Forms
provide that the Contractor may be asked to submit a "proposal" setting out the extent, effect
on programme and his proposal for pricing the work, inherent in a proposed Variation. This
procedure gives the Employer an opportunity to consider the effect of a Variation prior to
confirming its instruction. The Contractor's proposal must deal with three issues:
(i) A description of the proposed work and a timetable for its execution. Since the proposal will
be taken into account in the determination of the Price, the description needs to be
comprehensive, and the direct effect of the proposed work on any other part of the Works
must be clarified. Thus the Variation might delay other work and result in an increase in cost
thereto. Delay to completion of the Works would result in increased establishment costs. The
timing of the additional work itself must be submitted when and over what period will it
be done.
(ii)
Proposal for any necessary modifications to the Project Programme and the Time for
Completion. This requirement reflects the provisions under Sub clause 8.3 to warn the
Employer of possible delay to the execution of the Works. That is, that it will delay actual
Take-Over by the Employer under Sub clause 10.1. The Time for Completion, the contracted
period for latest completion of the Works, shall be extended accordingly. The Contractor
does not need to show that the Variation will cause him to overrun the Time for Completion,
but only to take longer than would otherwise be the case to achieve Take Over. He can only
do this by showing the Variation is a critical activity on his critical path programme. The cost
of any such prolongation will be an element of the cost of the Variation.
(iii)
The Contractor's proposal for evaluation of the Variation. Under the Yellow and Silver
Books this becomes "the Contractor's proposal for adjustment to the Contract Price". The
Contractor is not required, apparently, to provide his proposed value of the Variation, but
only his proposal for it's evaluation. Neither is this proposal bound to comply with the
Method of Evaluation set out in Clause 12 which applies "unless otherwise stated", since sub
clause 13.3 allows that a Variation may be valued otherwise if the Engineer so instructs or
approves. Thus the Contractor might comply with the requirement by proposing that the
Variation be valued on the basis of cost plus, or by negotiating a Lump Sum in advance. He
is not bound to reflect Contract rates and prices in his proposal. The value is determined by
the Engineer, wither in accordance with Clause 12 or as he otherwise thinks fit. Note that
under the Yellow and Silver Books the evaluation shall include reasonable profit -the work
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shall not be done at a loss, whilst under the Red Book if the work is valued on a reasonable
cost basis, then reasonable profit must also be included.
The second issue I want to raise concerning allowable changes concerns the authority to make a
change. Assuming a changes clause exists, to whom does it give authority to make changes? Is
it the client or his representative? Are specific individuals stated? On a major project, the client
may have a number of supervisors acting on his behalf. Do they all have the power to order
changes? The answer, of course, lies in the contract wording and the contractual
correspondence. Have powers been delegated?
What if an order is received from someone without the authority to give it? Well, it would have
no meaning and there would be no duty for the receiving party to adhere to it. A common
example of this situation occurs when a sub-contractor receives an instruction direct from the
clients representative. Whilst the giver of the order is likely to have the power to instruct
changes to the contractor under the main contract, it is unlikely that he has the same power
under the sub-contract. It is the contractor who is likely to have the power to order changes
under the sub-contract.
Many forms of contract stipulate financial limits for the value of changes instructed by certain
people. Changes above this limit have to be authorised by other more senior individuals in the
organisation. In the scenario where a change is instructed, but it later transpires that its value
exceeds the maximum allowable for the person who gave the order; what should the parties do?
As a contractor, I would formally notify the individual who gave the instruction as soon as
possible and request that he/she obtain the relevant authority forthwith. As the person who
gave the order, I would also want to obtain approval for the change as soon as possible as I
would not want to be in the position of its legitimacy being questioned at a later date.
The earlier Fourth Edition of the Red Book authorises the Engineer to order any Variations in his
opinion "necessary" or "appropriate", and for that purpose he shall have authority to instruct
any of the following:
(a) Increase or decrease the quantity of work
(b) Omit work
(c) Change the character, quality or kind of work
(d) Change levels, lines, position and dimensions
(e) Execute additional work of any kind necessary for the completion of the Works.
(f) Change any specified sequence or timing of construction of any part of the Works.
Thus the Engineer is only authorised to instruct Variations which in his opinion are necessary or
appropriate and which fall into categories (a) to (f). Note that, under (e), he can only instruct
additional work necessary for completion of the Works. If the Works can be completed without
the additional work, then that additional work cannot be instructed as a Variation. The fourth
Edition is very clear as to what authority the Engineer has.
However, the 1999 Red Book provides, differently, as follows: the Engineer may initiate a
Variation at any time prior to issue of the Taking Over Certificate, and each Variation may
include:
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(a) changes to the quantities

(b) changes to quality
(c) changes to levels, positions and/or dimensions
(d) omission of any work
(e) any additional work necessary for the Permanent Works
(f) changes to the sequence or timing of the execution of the Works.
Thus under the 1999 Red Book the Variations do not have to be "necessary" or "appropriate",
except in category (e) where they do not now have to be necessary for the completion of the
Works. The Engineer's authority is less clear under the 1999 Red Book, particularly with regard
to the provision that "each Variation may include" It is not clear whether the word "may" is
permissive or illustrative - are any other categories than (a) to (f) excluded, or are categories
(a) to (f) just examples of the sort of changes he is empowered to instruct? It is suggested that
the former interpretation is the correct one, that the Engineer does not have authority to issue
Variations which fall outside categories (a) to (f). Reference to Clause 19.1 is helpful. It
provides that Force Majeure "may include, but is not limited to If the categories (a) to (f) in
Clause 13.1 were illustrative, then the phrase "but is not limited to" would have been used.
Under Clause 3.3 of the 1999 Red Book, the Contractor is bound to comply with any instruction
given by the Engineer on any matter related to the Contract. If such an instruction is outside the
scope of clause 13.1 (a) to (f), then it would not be a Variation under the Contract and the
Variation provisions would not apply. Nevertheless, the Contractor would still have to comply
with it. It is suggested that in such cases any reimbursement due to the Contractor should be
assessed on a Quantum Meruit basis.
The 1999 Yellow and Silver Books do not prescribe the authority of the Engineer or the
Employer to instruct Variations other than to issue them at any time prior to issue of the Taking
Over Certificate and subject to their comprising "a change to the Employer's Requirements".
Note that under the Yellow and Silver Books the Contractor has contracted to carry out any work
necessary to satisfy the Employers Requirement's, so any Variation necessary to complete the
Works would be a nonsense - it is already inherent in the contracted scope.
The 1999 Forms give the Contractor grounds for objecting to Variations on the basis of the
restricted availability of materials, safety or their effect on his design responsibilities. However,
the Engineer, acting as agent for the Employer, can overrule any such objection and instruct the
Contractor to proceed. The effect of this provision appears to be that the Contractor is given an
opportunity to advise the adverse consequences of a Variation when he has not been requested
to do so under 13.3, and the programming and cost effects arising from his concerns and his
obligations under the Contract will be taken into account when the Variation is valued.
Whilst the Contractor can object to a Variation, either on the grounds discussed above or on the
basis of the Engineer's authority, so can the Employer. In determining the value (if any) of any
Variation which might be disputed the Engineer is bound to consult fairly with both Parties, he
shall not then act for the Employer. If the Employer should challenge the Engineer's authority to
issue a Variation, and the work has been done, is the Contractor entitled to be paid for it? The
issue would, of course, be subject to determination by the Engineer, but if the Employer knew
the Variation had been issued, but had made no objection to it, then that would be taken into
account. When the Engineer issues a Variation instruction, then under 31.1 (a), he is deemed to
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act for the Employer. If he has acted beyond his authority from the Employer, then he may be
answerable under his contract with the Employer on that count. It is hard to see how the
Variation could be denied to the Contractor.
Under the 1999 Red Book, Clause 13.1 category (f) the Engineer may instruct as a Variation
"changes to the sequence or timing", whereas under the Fourth Edition he was restricted to
"changes to the specified sequence or timing.... The authority of the Engineer has thus been
considerably extended in the 1999 Form, since he can now order any programme changes to
any part of the construction process at any time. Sub-clause 8.3, Programme, specifies the
activities for which sequence and timing must be included in the programme. It is an extensive
list. Is he thereby empowered to order acceleration of the Works, or to bring forward the
Completion Date?
Under Sub clause 3.1 the Engineer has no power to amend the Contract. The Contract contains
no provision of shortening the Time for Completion, nor can any Extension of Time be
subsequently reduced (sub clause 8.4). Further, the Time for Completion cannot be reduced by
definition (sub-clause 1.1.2.2), unless by an extra contractual agreement between the Parties to
the Contract. Since the engineer can only act in accordance with the Contract, Category (f) does
not, it is submitted, allow the Engineer to bring forward the Completion Date.
However, there seems to be no reason why the Engineer cannot instruct acceleration within the
Time for Completion, but only insofar as changes to sequence or timing will allow. He has no
authority to order the Contractor to increase his resources, work premium time or pay
incentives to his labour force, other than under Sub clause 8.6 when the Contractor is in default.
Unlike many other Standard forms, the FIDIC Forms include no provision for Variations to be
proposed by the Contractor, other than under the Value Engineering sub-clause 13.2. The
Engineer's authority to instruct Variations, listed in 13.1 (a) to (e) applies to changes to the
Permanent Works. The Contractor may not make any such change without a Variation Order.
Changes to the sequence or timing, however, are changes to the manner in which the
Contractor executes the Works, not to the Permanent Works themselves, and the prohibition
does not apply in that case. No Variation is needed for the Contractor to alter his programme,
though under Sub clause 8.3 he is obliged to work in accordance with the programme submitted
to the Engineer.
The authority of the Engineer to omit work is changed in the 1999 Red Book, such that it cannot
be omitted to be carried out by "others" as opposed to by "the Employer or another Contractor"
in the earlier Fourth Edition. The Employer cannot cherry-pick from the contracted scope
omitting work he might be able to have done more cheaply or more quickly by others, or which
might become the responsibility of someone else altogether. Does this provision apply to the
work being done by others within the contract period, within the period of Limitation, or forever?
Is refusal by the Contractor to omit work to be done by others a practical or legal option open to
the Contractor? If he continued with it would he be trespassing, would he be paid for it? What if
the Contractor would welcome the omission of unprofitable work? A more practical arrangement
would be for the Contractor to be compensated for loss of profit or overhead recovery arising
from any such omission. This is, in fact, a measure of his entitlement to damages in the event of
the Employer breaching the present Condition.
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The 1999 Red Book assumes measurement based upon a Bill of Quantities, whilst Sub clause
14, provides that "any quantities which may be set out in the Bill of Quantities or other schedule
are estimated quantities and are not to be taken as the actual or correct quantities". Sub clause
13.1 (a) provides that a Variation may include "changes to the quantities of any item of work
included in the Contract (however, such changes do not necessarily constitute a Variation)". A
traditional bone of contention has been whether changes to the billed quantities arising from
inaccuracies therein comprises Variations and attract a revised rate. The 1999 Red Book avoids
this issue by sub clause 12.3 (a) which provides for departures from in the billed quantities.
Note, though, that for a new rate or price to become "appropriate" all the conditions listed in
12.3(a) (i) to (iv) must be met. A near miss is insufficient. The Sub clause effectively renders
changes greater than a defined extent to be treated as Variations. The proviso in 13.1 (a) that
''such changes do not necessarily constitute a Variation'' must apply, therefore, to change below
the limits set out in 12.3. A variation would be consequent upon quantities changing due to a
change in design. Whether such changes in quantity entitle the Contractor to an Extension of
Time is discussed elsewhere.
Types of allowable changes
Ive already explained about different categories of change and that allowable or foreseeable
changes can concern scope, schedule or conditions. I now want to introduce two further terms,
actual and constructive changes, that fit above the scope, schedule or conditions level of
categorisation. In other words, an actual change may affect the scope, schedule or conditions,
or a combination. Likewise, a constructive change can have similarly affects.
There is a need to recognise both types as it will determine the contractual procedure that
needs to be followed once the change has been identified. Actual changes are more easily
identified, perhaps arising from a piece of paper with variation order or change order on top.
It is constructive changes however, that potentially create the most problems for all the parties
as the change is not so easily identified. As a consequence, it is not acknowledged that a change
has occurred and it becomes more difficult for the parties to manage the change process.
So, what are constructive changes? They are often a consequential effect of an actual change
and may cause additional work or prevent work from being undertaken as planned. Some
examples include:

Untimely or defective client furnished specifications or drawings

Failure of the client to disclose technical information
Directive from the client to others that affects contractors work
Orders from a government or other authority requiring work to conform to different
standards than that in the contract
Unreasonably strict contract interpretation by the client
The first two examples can occur on projects requiring design or engineering input from the
contractor or sub-contractor. It may not be immediately apparent that information is lacking or
that it is incomplete as the design staff are just getting on with the design process. They or
someone in the project management team may mention something to the employer but will
probably receive the response that it is normal practice. This situation may continue for some
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time until the cost / value reconciliation or other commercial report shows that the forecast final
number of manhours will be significantly more than envisaged.
So what should be done in these situations? Well firstly by following the steps Ive outlined so
far, it should be easier to recognise a change. Then the contract should then be invoked, in
other words follow the correct procedure for the given circumstances. If there is no specific
procedure stipulated in the contract, the first objective should always be to notify the other
party, i.e. to submit a notice.
Give the Required Notice
Notices are often misunderstood. They are a requirement of, I think, every contract clause that I
have seen that concerns a potential claim for additional time and money. They are to be
submitted for a good reason, that is, to inform the other party so that they can address the
issue, pay appropriate attention to certain activities being carried out and maintain relevant
records. Please remember, notices are submitted for the benefit of the recipient and not the
issuer.
Under FIDIC, notices are condition precedent to additional time or money, clause 20.1 refers.
So a notice has been issued but the recipient responds saying he disagrees that there has been
a change. What should you do? Firstly, consider the response and determine whether the
recipient is correct or whether you maintain your view. The contract must then be reviewed to
ascertain the procedure should be followed. If there is none stipulated and it is still believed that
there has been a change, a further letter needs to be written setting out the reasons why and
providing the appropriate arguments.
Step 4 - Maintain Records
In the meantime however, and notwithstanding that there may not be agreement as to whether
a change has taken place, records must be maintained. Im sure that this is not the first time
that you have heard someone inform you about the importance of records.
Why should they be kept?
Well, they show what actually happened and the effects of something occurring
They provide the main source of evidence in the case of disputes
Many contract clauses require them to be kept and / or submitted
It is good practice to do so and,
They have many uses.
Records are not only for claims, although preparing claims without records is difficult to say the
least. Records can also be used to report back actual outputs to the estimating department and
to aid the identification of change.
What type of records should be kept?
Well, lets think about what should be maintained as good practice and included in your
organisations contract management manual. These include:

The contract and correspondence between parties

E mails
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Site diaries - a daily record of the job in progress

Design or engineering changes including superseded drawings and the reasons why changes
were made
Programme and progress reports - the original basecase programme, preferably agreed with
the client / contractor, along with reports showing progress against this programme. It is
important that programmes showing progress at a certain time should be saved rather than
overwritten with the following periods progress.
Budgeted and actual costs / manhours
Should records be agreed?

It is more important to record what happens and why and to note the reasons for actions. With
the passage of time, what is obvious at the time may not be so clear later. If possible, get
signed agreement at the time but it is not mandatory or necessary.
How should records be maintained for the future?
Different methods should be used for different types of records, but generally electronic copies
should be retained wherever possible. Analysis and interrogation is much easier with current
computer software. Records should not be thrown away at the end of a project without very
careful examination and then only if they are unmarked duplicates. Once all the final accounts
have been finalised, a further review can be made.
With respect to the specific issue of notified changes, a file should be set up containing copies of
all the relevant correspondence and records. These are always easier to locate at the time
rather than at some point in the future. These files should be accompanied by a schedule listing
all the notified changes with brief details of the date raised, issue and their status.
Under clause 20.1 of FIDIC, the contractor must keep records and allow the Engineer access to
them.
Step 5 - Isolate the Time and Cost Effects
The final step in the process is to isolate the time and cost effects of the notified changes from
the records that have been maintained.
Let me introduce a framework of the effects of change. This shows the different effects of
change that have to be considered in the valuation process. Broadly speaking, the effects can be
split into three elements:
Time or schedule. In other words, change can cause revisions to the timing and sequence in
which work is carried out. The effect however, may be direct, that is to say that the changed
activities themselves suffer from revised timing, or indirect where a change to one activity
causes revisions to the timing and/or sequence of other activities.
Cost. Change can cause revisions to the actual cost of carrying out the works; it may be
increased, or decreased as a result of change. Once again, the effect may be direct, that is
to say that the cost of the changed activities themselves are revised, or indirect where a
change to one activity causes revisions to the cost of undertaking other activities.
Value. This means the amount of monies actually allowed for undertaking the works. In most
forms of contract, this is quite different to the cost and indeed, needs to be higher in order
to contribute profit to the business.
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Using Value rather than Costs

So why should we consider value when evaluating change, why shouldnt we just look to recover
our costs then add a percentage for overhead and profit?
I have suggested four reasons:

It may be a contract requirement to do so. Many forms of contract stipulate that variations
in particular, are to be valued using rates derived from a build up to the contract sum.
It is sometimes easier to value works using rates from a schedule rather than the time
consuming requirement to make and agree records and then ensure the costs claimed
actually include all the costs actually incurred. By this I mean all the various issues I raised
earlier when looking at labour, materials, plant, equipment and subcontractor costs.
Using value as the basis of evaluating change is often perceived to be fairer. It implies that
the Contractor has taken some risk on board when doing the changed work and that the
Contractor has a reason to work efficiently in undertaking the changed works.
Interestingly and this is certainly backed up by my personal experience, a Contractor can
also sometimes recover a greater amount when using value as the basis of evaluating
change. The method allows the Contractor to retain any efficiency or other advantages in the
rates.
Valuation of Variations under the Red Book

Variations are to be valued in accordance with Clause 12 unless the Engineer directs otherwise.
Clause 12 provides:
"for each item of work, the appropriate rate or price shall be the rate or price specified, or if
there is no such item, specified for similar work"
and
Each new rate or price shall be derived from any relevant rates or prices, with reasonable
adjustment to take account of the matters described in sub-paragraph (a) and/or (b) as
applicable. If no rates or prices are relevant it shall he derived from the reasonable Cost
together with reasonable Profit".
These provisions have changed significantly from the Fourth Edition which, if rates could not be
agreed between the Engineer and the Contractor, required the Engineer to fix such rates and
prices as he considered "appropriate". Sub paragraph 12.3 (a) deals with changes in billed
quantities; (b) with Variations for which no rate or price is specified and no rate or price is
appropriate. Precisely what deems a rate or price 'relevant' is not defined. Sub clause 12.3
seems to follow a circular argument - a new rate shall be appropriate for any work instructed as
a Variation, and the new rate shall be derived from any relevant rates with adjustment to take
account of it being a Variation.
The essence of a variation is that it comprises a post-contract change to the Works requested by
the Employer. The Contractor's tender/contract price is not required to include provision against
such eventuality; such changes must be at the Employers risk. He has decided, late on, to make
the change for his own benefit. It follows that it is unreasonable for the Contractor to be bound
to execute such work at his contract rate, when that rate may have been found to be
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inadequate. The Contractor may have taken a risk on his tender rate in the context of the work
then specified, but there is no reason why his risk should be increased by Post-Contract
Variations which are the Employers risk. It is becoming increasingly recognised that applying
contract rates to Variations does not reflect the due allocation of risk between the Parties, and
that Variations should be valued by other means. The ECC Forms, recently introduced in the UK,
provides that Variations be valued on the basis of cost estimated in the light of the Contractor's
experience to date. It is submitted that the 1999 Red Book reflects this change, providing that
the Variations be valued on the basis of reasonable cost plus reasonable profit. So the
Contractor's Proposal, submitted under Sub clause 13.3, might advise that he proposes to value
the Variation on the basis of the anticipated or recorded cost.
Note that the Notice required under Sub clause 20.1 applies to the circumstances which have
arisen. A proposed Variation is not, yet, a Variation, and no notice of intention to claim
additional payment is relevant until the Variation has been instructed. Whether Clause 20.1
applies to a reduction in payment, following omission or Value Engineering is debatable.
If the Engineer orders a Variation but does not invite the Contractor to submit a prior proposal
under 13.3, then the work is to be valued by the Engineer by agreement or determination. In
either case the Contractor has opportunity to advance his preferred or proposed method of
Evaluation.
The Red Book follows three established steps, which form the basis of good quantity surveying
practice:

If the work arising from a change is of similar character and undertaken under similar
conditions as the contract work, then the contract rates can be used without adjustment.
If the work arising from a change is not of similar character or undertaken under dissimilar
conditions as the contract work, then the contract rates can be used with adjustment. In
other words, they can used as a basis for valuing the work arising from a change.
If the work arising from a change is of different character or undertaken under different
conditions as the contract work, then the contract rates should not be used and a fair
valuation perhaps based on cost should be considered.
There are various ways in which adjustments can be made to contract rates, some are more
accurate than others and some potentially give a better return for the Contractor. Let us look at
two ways:
The simplest way but perhaps least accurate, is by pro rata for the same work of different
sizes. For example, a rate per metre for 25mm diameter copper pipework in the plumbing to
the airport terminal can be amended for a 50mm diameter by multiplying the rate by two.
A more accurate yet more complex way, is to adjust the labour and/or material and/or plant
and/or subcontractor elements of the rate as required. For changing the 25mm diameter
copper pipework in the plumbing to the airport terminal to 50mm; this would entail
increasing the material and labour elements for the extra cost of purchasing and fitting the
larger pipe.
Using this pipework example, you can see that the pro rata method is likely to give a higher rate
as neither the material nor labour cost per metre of a 50mm diameter copper pipe is twice that
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of a 25mm diameter. Furthermore however, the pro rata method would also double any
overhead and profit included in the unit rates.
Notwithstanding the obvious inaccuracies in the pro rata, you may be surprised to learn that I
was able to use it extensively when I was working for a Contractor. Of course, I disagreed when
subcontractors proposed using the same method.
CLAIMS UNDER FIDIC 1999 FORMS
The FIDIC Forms provide for claims by the Contractor against the Employer (Sub clause 20.1)
and by the Employer against the Contractor (Sub clause 2.5). The former can be for an
extension to the Time for Completion (EOT) or for additional payment, based on either Contract
Rates and prices or incurred Cost, the latter with or without profit. The Employer's claims can be
for recovery of damages for delay, recovery of costs incurred in consequence of default by the
Contractor, provision of services and extension to the Defects Notification Period.
Contractor's Claims
Sub-Clause 20.1 provides that the Contract MUST give written notice to the Engineer within 28
days of any event or circumstance which he considers entitles him to any additional payment or
extension of time. If he fails to do so, any entitlement thereto is lost. This provision even applies
to Variations instructed and agreed in value by the Engineer. The only exception appears to be
with regard to interest payments due if the Employer delays payment of certified sums.
The notice is due within 28 days of when the Contractor "became aware, or should have become
aware, of the event or circumstance". The severity of this section is extreme, in that that failure
to give the notice within the prescribed period denies the Contractor his entitlement to be paid
damages arising from any breach by the Employer, or to be paid for additional work carried out
to the Employer's instruction. It may be that, under some jurisdictions, such provisions might
not be allowed.
Just when the Contractor should have been aware will be subject of argument. The advice must
be for the Contractor to submit a notice whenever and as soon as a claim seems possible, and
to withdraw it if the situation changes. The actual substance of the claim is not due for 42 days
from the event, time for the matter to resolve itself.
Note that the 20.1 notice applies to an entitlement to extension of the Time for Completion, that
is, to a critical delay. Other delays may occur which are not critical, for example delayed
drawings or instructions under Sub Clause 1.9. In this event the Sub clause requires the
Contractor to give notice "whenever the Works are likely to be delayed or disrupted", a notice
which is distinct from that provided under 20.1. If in the event he does suffer delay to
completion or additional cost, then the notice due under 20.1 must be issued within the 28 day
period. Whilst the 20.1 notice is a condition precedent to any consequent entitlement, the other
notices are not. Sub clause 20.1 provides that if the Contractor fails to comply in those cases,
then the assessment of his entitlement shall "take account" of the effect. In the event, if notice
provision has been properly met under 20.1, it is unlikely that the Engineer would be prejudiced
by lack of substantiation.
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Employer's Claims
Sub-Clause 2.5 sets out the procedures relevant to claims by the Employer. The provisions of
the sub clauses have been discussed in the context of delay damages, to which the reader is
referred.
Following the Employer's submission of the particulars to the Engineer, the Engineer tries to
agree the claim in discussion with both the Employer and the Contractor in accordance with Sub
clause 3.5, Determination. Note that the claims have to be discussed with the Contractor, they
cannot be applied unilaterally by the Employer and/or the Engineer acting on his behalf.
What happens when the amount due has been determined is less clear. The Employer appears
to have three options:
(i) to ask the Engineer to deduct the amount in his calculation for the next payment certificates,
(ii) to deduct the amount from a sum payable under a payment certificate, or
(iii) to make a separate claim against the Contractor.
Note that Sub clause 14.3 provides that an application for payment by the Contractor should
include "any other additions or deductions which may have become due and that the
Employer is obliged to pay under Sub clause 14.7, against sanction for non-payment under
14.5.
The last paragraph of Sub clause 2.5 restricts the Employer's common law right to set off to his
claim made under this sub clause. There is some doubt as to whether the wording is adequate in
this respect.
Table 1 - Employer's claims/deductions
Clause Clause Title
Event
No
2.5
Employer's Claims
Various
4.2
4.19
4.20
7.5
7.6
8.6
Procedure
Comments
Notice + particulars
as soon as practicable
Performance Security Specified failures (a) None
to (d)
Electricity, Water and Amounts consumed 2.5/3.5
Notice not required
Gas
(2.5)
Employer's
Amounts due for use 2.5/3.5
Notice not required
Equipment and Free
(2.5)
Issue Material
Rejection
Additional costs due 2.5
to rejection and
retesting
Remedial Work
Contractor fails to
2.5
comply with
remedial instruction
Rate of Progress
Revised methods
2.5
cause Employer to
incur costs
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8.7
Delay Damages
2.5
May be reduced
under 10.2
Failure to Pass Tests

on Completion
Contractor fails to
comply with Time
for Completion
Part of works
useless
9.4
Termination
ditto
ditto
Value reduced
11.3
Extension of Defects
Notification Period
11.5
Failure to Remedy
Defects
Part of works
useless due to
defect
Failure to remedy
within reasonable
time
Agreement + TOC or
TOC/3.5
2.5
All sums paid for

Part, financing,
clearing
Reduced value
11.11
Clearance of site
15.4
Payment: after
Termination
18.1
General Requirements
for Insurances
Insurance for Works
and Contractor's
Equipment
18.2
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Non-clearance by
Contractor
Termination by
Employer
Prior reasonable
notice of reasonable
time
2.5
Contractor fails to
2.5
insure
Contractor unable to 2.5
insure
Max extension: +2
years
Cost of works by
others or reasonable
reduction or, for
useless works, all
sums paid, financing,
clearing
Cost of sale
Extra cost to
complete, losses and
damages
Premiums
Amount equivalent
to commercially
reasonably premium
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TABLE 2 - CONTRACTOR'S CLAIMS

Red
Clause
Clause Title
No
1.9
Delayed
drawings
instruction
Silver
Cost/Prof Yellow
it
or Late drawing or Reasonable Cost
+
N/a
N/a
instruction
prior notice + profit
(Errors in (Confidentiality)
20.0
ER's)
Event
Notice
2.1
Right of Access to the Site
Late access or 20.1

possession
Cost
profit
4.7
Setting-Out
Error
in 20.1
specified
reference points
(not reasonably
discoverable by
experienced
Contractor
Cost
profit
(not weather
or shortages)
Employer may
not take early
possession
without consent
4.12
Unforeseeable
Conditions
4.24
Fossils
Compliance with Promptly

instructions
+20.1
Cost
7.4
Testing
Instructions for 20.1

additional
passed test, or
delay for which
Employer
responsible
Cost
profit
8.4
Extension
Completion
8.5
Delays caused by Authorities
8.9
Consequences of Suspension Suspension
10.2
of
Physical Adverse
unforeseeable
condition
time
for Various
As soon as Cost
practicable
+20.1
20.1
Delays
caused 20.1
by Authorities
8.4)
20.1
Taking over of Parts of the Employer's use 20.1

Works
of part of Works
without
Contractor's
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n/a
(via X
Cost
Cost
profit
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Red
Clause
No
Clause Title
Event
Notice
Cost/Prof
it
Yellow
Silver
agreement
10.3
11.2
11.8
12.4
13.2
13.3
13.7
15.5
16.1
16.4
Interference with Tests on Prevention

of
Completion
tests
Cost of Remedying Defects
Defects
not
Contractor's
responsibility
Contractor to Search
No
Contractor
defect found
Omissions
Omission
of
work
Value Engineering
Approved
proposal
changes design
Variation Procedure
Re-rating
justified
Adjustments or Changes in Change in law
Legislation
Employer's Entitlement to Employer
Termination
terminates
at
will
Contractor's Entitlement to Contractor
Suspend Work
suspends due to
Employers
default
Payment on Termination
Contractor
terminates due
to
Employer's
default
17.4
Consequences
of Employer's Risk
19.4
Consequences
Majeure
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of
20.1
Notice
Employer
+20.1?
20.1?
Cost
profit
by V.O.

Cost
+
profit
Notice
with 'Cost'
N/a Claim
particulars
incurred
for delayed
anyway
Tests after
Completion
20.1?
50% of net
X
saving

N/a Claim for
delayed Tests
after
Completion
X
12+20.1
V.O.
20.1
Cost
of
+
14 days prior Release of

(or
bond,
immediate) value
+
Cost,
profit, loss
and
damage
Loss or damage Promptly/20 Cost
(+
to Works etc. .1
profit
in
due
to
two
Employer's risk
instances)
16.3/19.6
Value
work
Cost
21
days Cost
prior+ 20.1 profit
Force Prevented from Within

14 Cost
performing any days/20.1
(except
obligation
natural
catastroph
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Red
Clause
No
Clause Title
Event
Cost/Prof
it
es)
Yellow
Silver
days' Value
Cost
Performance Impossible,
'Upon notice' Value
unlawful
or
Cost
released by law
19.6
Optional
Termination, Prolonged
payment and Release
prevention
19.7
Release from
under the Law
20.1
Contractor's claim
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Notice
Contractor
considers
himself entitled
to EOT or extra
payment
7
notice
28 days (42
days for fully
detailed
claim)
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CLAIMS FOR GROUND CONDITIONS UNDER 1999 FIDIC RED AND YELLOW BOOKS
Unforeseen ground conditions are a major element of risk in most construction projects. A
borehole is only a true indication of what's out of sight underground over the area of the hole
itself- not very large and not very reassuring. However many boreholes are analysed, actual
ground conditions will only be known when the ground has been excavated by the Contractor.
The effect of unforeseen conditions can be huge, both in time and cost, and generally that risk is
borne by the Employer. Sub clause 12.2 of the fourth Edition of the FIDIC Red Book, and 4.12 of
the 1999 FIDIC Red Book so refer. And it is sensible that the Employer does bear that risk, since
he has the initial choice of the site for the works, and has the opportunity for investigation prior
to making his choice and carrying out the design. It would be impractical to require all the
individual tendering contractors to carry out 'pre tender' investigations, and expensive to do so.
So the Contract provides that, if unforeseen conditions are encountered, there is a procedure for
compensating the Contractor with time and money
Although the risk is borne by the Employer, there is an obligation on the Contractor to make a
proper assessment of the conditions, insofar as is considered 'practical' in the circumstances of
tendering (1999 Red Book Sub clauses 4.10, 4.11). This includes giving due attention to, and
interpretation of, the information provided by the Employer. But the precise obligations on the
Employer in this respect can vary. Under the fourth Edition the Employer only has to provide all
the information he has obtained from investigations relevant to the works. Under the 1999 Red
Book, however, the Employer has to provide all the information he has both before tender and
at any time subsequently, and from any source. Such information could come from his
knowledge of other contracts, published papers etc. The courts have stated that all information
means all information.
The Contractor is responsible for his own interpretation of the information he obtains, whether
from the Employer or elsewhere. In some cases the Contractor is required to advise his
interpretation to the Employer as part of the tendering procedure. This may be because the
Employer wants to be satisfied the tender is based on sensible assumptions, or to forestall or
curtail the Contractor's opportunity to make a claim.
Sub clause 4.10 provides that "to the extent which was practical (taking account of cost and
time)... The Contractor shall be deemed to have inspected and examined the Site, its
surroundings, the data and other available information, and to have been satisfied as to the
form and nature of the Site, including sub-surface conditions, the hydrological and climatic
conditions"
Whilst the Sub clause leaves the Contractor room to manoeuvre under the "extent which was
practical" provision the onus on the Contractor is more than just a cursory site visit - he is
deemed to have examined the site - that is, investigated, scrutinized, inquired into - and to
have been satisfied as to the sub surface conditions. That is, from his deliberate examination of
the site and the data he reached an informed, sensible, logical and confident conclusion as to
the sub surface conditions.
Sub clause 4.12. Unforeseeable Physical Conditions, provides for natural or man made physical
obstructions which the Contractor considers to be Unforeseeable, (a defined term of the
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Contract). This replaces the provision in the Fourth Edition which referred to conditions the
Contractor considered were not foreseeable by an experienced contractor.
It is submitted that 'obstruction' implies prevention or hindrance to the execution of the works.
Thus discovery of soft ground, when rock had been anticipated, could require replacement plant,
the acquisition of which could cause a hindrance, or delay, to the Works, even though the soft
ground is easier to dig than the rock. "Physical obstruction and conditions' is not just bumping
into something unexpected underground. The blockade of a port by fishing boats, which delayed
delivery of plant, comprised with an unforeseen physical obstruction, and an unexplained ground
failure in known ground under the leg of an offshore platform was similarly defined because it
couldn't have been foreseen and could not be explained. But administrative obstruction doesn't
count!
Unforeseeable is defined (Sub clause 1.1.6.8) as not reasonably foreseeable by an experienced
contractor by the date for submission of the tender. The definition is unlikely to prevent the
inevitable argument as to what an experienced contractor might have foreseen With a little
effort a contractor can foresee just about anything - the failure under the offshore platform leg
mentioned above is perhaps a rare exception. In practice the test is: should the Contractor have
reasonably provided for the contingency in his price. How remote does the possibility of the
conditions have to be? It is submitted that if they were considered 'likely', then a claim would
not bite. That is, the Contractor could and should have foreseen a significant or substantial risk.
He should not be expected to provide for a mere possibility.
The precise wording needs watching. In the UK ICE Conditions the corresponding clause is
against a margin heading "adverse physical conditions", but there is no reference to "adverse" in
the clause itself, so, because margin notes don't count, the clause applies to any unforeseen
conditions. Sub clause 4.12 in the 1999 Red Book is titled (in the margin) "Unforeseen Physical
Conditions". The Sub-clause, in paragraph 2, refers to "adverse" physical conditions as the
reason for the notice to the Engineer - benign conditions apparently do not warrant a notice. It
is not entirely clear whether the Contractor's entitlement to EOT and/or additional payment is
restricted to adverse conditions only; the example of encountering soft ground given above is
pertinent.
This uncertainty is compounded by the novel provision now included in Sub clause 4.12,
whereby the Engineer's assessment of the effect of adverse conditions may be offset against
more benign physical conditions encountered "in similar parts of the Works".
Exactly what 'similar parts of the Works' means or implies is not clear. Does it mean similar
parts of the Site? Possibly not, since Works includes both Permanent and Temporary Works, and
the latter could be off site. Any more favourable conditions are subject to different criteria to the
adverse conditions, there is no reference to the opinion of an experienced contractor, nor are
they referred to as "unforeseeable". The Sub clause allows the Engineer to take account of any
evidence of the conditions which were foreseen by the Contractor, but the Contractor is under
no obligation to provide such evidence. It can hardly be in his interest to do so.
Note that the Engineer can only offset the effect of benign conditions against adverse
conditions, he cannot reduce the Contract Value.
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Suppose the tendering Contractor has special knowledge of the site (he may have worked there
before) and that knowledge is not that which other contractors would have. Should he tender on
the basis that he need not provide for the circumstances? If he does take it into account, or if as
an experienced contractor he provides for a risk which less experienced contractors don't
recognise, then he risks pricing himself out of the Contract. In that event the Employer might
suffer also, by awarding the Contract to the naive contractor who was caught unawares by the
conditions and who then pursues substantial claims on account of the circumstances.
Other difficulties which should be recognised include the argument:
'If in all the time he had investigating the site and preparing his design the Engineer
could not (did not) foresee the risk, how should the Contractor have done so? If the
Engineer did, why did he not expose the risk to both the Employer and the tenderer?'
Encountering the unforeseen circumstances drives both the Contractor and the Engineer
towards arguing whether it was foreseeable, diverting attention from solving the problem of
what to do, and one of the difficulties with the clause is that it doesn't, in any of the contracts
under consideration, actually say what is to be done in the event. The Contractor may look to
the Engineer for instructions, which he will doubtless argue are variations, whilst the Engineer
will be reluctant to tell the Contractor how to carry out the works. It would be better if the
Engineer should give instructions, after consultation, with his 'acting impartially' hat on. This is
the procedure envisaged in the Engineering Construction Contract recently introduced in the UK.
The 1999 Red Book only requires that the Contractor "shall continue executing the Works" in a
manner deemed "appropriate for the physical conditions". Does this mean he must continue
with that particular part of the Works?
The new Book requires the Contractor to explain with his notice why he considers particular
adverse conditions to be unforeseeable. He will generally do so by referring to the information
provided by the Employer, and by raising some of the matters discussed above. The argument:
"I am an experienced contractor - I would not have been awarded the Contract otherwise - and
I did not foresee the conditions, therefore they were demonstrably not foreseeable by an
experienced contractor" is untenable. Why? One reason is that the Contractor may have made a
mistake. Another, that he may have gambled on pursuing a claim.
Provided the conditions have been shown to be unforeseen and due notice has been given by
the Contractor, then he is entitled to payment of such cost as he incurs.
Note that he is not entitled to profit on the work, which under the common law system would be
the case. But note also the cost means cost. That there may be a billed rate for precisely the
additional work he now has to doe, excavating rock for example, which might have been
anticipated and billed elsewhere on the site, is irrelevant - he is entitled to be paid his actual
cost. If the work causes prolongation of his site establishment, then that additional cost will be
included.
A final point. On occasions employers delete Sub clause 4.12 from the Conditions, seeking to
transfer the risk entirely onto the Contractor. Both parties need to consider the implications of
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that change very carefully. The additional risk to the Contractor is obvious, but the Employer
should recognise that the Contract Price will almost certainly be inflated in recognition of that
risk (which might not eventuate), and the Contractor will place increased emphasis on the
quality of the information provided by the Employer. In the last analysis, the conditions
encountered could be such as to be wholly beyond what was contemplated by the parties,
invalidating the Contract in the absence of a Sub clause 4.12 provision to deal with them.
EXTENSION OF TIME
Most standard forms of contract contain provisions for the Employer to grant an extension of
time, or EOT. The provisions generally include obligations on the part of the Contractor to give
notice to the Employers Representative as soon as an Employer risk event occurs that the
Contractor considers entitles it to an EOT. Some require notice of the occurrence of an Employer
risk event irrespective of whether it is likely to affect the contract completion date and some
require notice of all events that adversely affect progress irrespective of liability or consequence.
In some standard forms these notices are expressed to be conditions precedents (i.e. preconditions) to entitlement. Whatever the contract says, the Contractor should give notice to the
Employers Representative of any Employer delays as soon as possible. In addition, the
Employers Representative should notify the Contractor as early as possible of any Employer
delays of which it is aware.
It is often incorrectly thought that an entitlement to an EOT automatically carries with it an
entitlement to compensation for prolongation costs during the period of the EOT.
The main effects of an EOT are merely that the Contractor is compensated for the damage
suffered as a consequence of an Employer risk event and is relieved of its liability for liquidated
damages during the period of extension. Its entitlement to compensation is usually to be found
in other provisions of the contract. The benefit of an EOT for the Employer is that it establishes
a new contract completion date and resets liquidated damages after this revised completion
date.
Standard forms of contract often provide that some kinds of delay events which are the risk of
the Employer so far as time for completion is concerned carry no entitlement for compensation
for prolongation; delay resulting from adverse weather conditions being the most common
example. They are somewhat misleadingly called neutral events; in fact they are only neutral
in the sense that one party bears the time risk and the other party bears the cost risk.
The goal of the EOT procedure is the ascertainment of the appropriate contractual entitlement to
an EOT; the procedure is not to be based on whether or not the Contractor needs an EOT in
order not to be liable for liquidated damages. The Contractor will potentially be entitled to an
EOT only for the so-called Employer risk events.
Dependant on the exact contract provisions, an EOT should be granted to the extent that an
Employer risk event is predicted to prevent the works being completed by the then prevailing
contract completion date. This is one of the principles contained within the Society of
Construction Law (SCL) Delay and Disruption Protocol; a guidance note on how to deal with
matters of planning, time, delay, disruption and prolongation, which is very informative. The
protocol also stipulates that wherever possible, EOT assessment should be carried out as close
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to possible to the timing of the delay event that caused the application for an EOT and certainly
as the work proceeds and not left to after the work has finished. It suggests that interim
assessments be made when the full impact is not known and reviewed as the actual impact
unfolds.
For a delay to affect the contract completion date it must be on the critical path and issues
concerning float and concurrency must be considered.
FIDIC Sub clause 8.4
This deals with the Contractor's entitlement to extension of Time for Completion -Extension of
Time, EOT. The following causes are grounds for entitlement to EOT:
(a) A Variation or other substantial change in quantity
(b) A cause of delay entitling EOT under any Sub-clause
(c) Exceptionally adverse climate conditions
(d) Unforeseeable shortage of personnel or goods due to epidemic or government action
(e) Delay caused by the Employer, his Personnel or other contractors on the site.
(a)
(b)
(c)
Variations
Note that Clause 13 does not provide for any award of EOT in the Variation evaluation
process, though a Contractor's Proposal under Sub clause 13.3 may propose an EOT to
which the Engineer might respond by approval thereto. Such an EOT appears to be
excluded from the entitlement set out in 8.4 (a). Perhaps the intention is that the EOT will
not be counted twice. Changes in quantity are dealt with under Sub clause 12.3 (a).
Sub clauses giving an entitlement to EOT are:
1.9
Delayed Drawings
2.1
Delayed Access
4.7
Setting Out Data Error
4.12
Unforeseen Conditions
4.24
Fossils
7.1, 10.3
Testing Delays caused by the Employer
8.5
Delays by Authorities
8.9, 16.1
Suspension
13
Variations
13.7
Change in Legislation
17.4
Employers Risks
19.4
Force Majeure
Exceptional Climatic Conditions

Unlike the UK ECC Form, there is no definition of "exceptionally adverse" in the Red Book,
though the FIDIC Contract Guide discusses the intent behind the provision and how it
might be assessed. In normal usage, exceptional means "not following the rule". Severe
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weather which occurs predictably, at the same time every year, would not be considered
exceptional in this context. The Contractor would need to show that completion had been
delayed by climatic conditions which could not have been reasonably expected. Note that
Sub clause 4.12 Unforeseen Physical Conditions excludes climatic conditions, and Sub
clause 19.1, Force Majeure, includes typhoons and hurricanes.
(d)
Unforeseeable shortages
This provision replaces (e) in the Fourth Edition: "Other special circumstances which may
occur", and reduces the scope for EOT accordingly. Category (d) is likely to be of limited
application.
(e)
Delays caused by the Employer

Does the 'Engineer' fall into the category of the "Employer's Personnel"? Yes, under Sub
clauses 1.1 and 2.6. Are delays caused by other contractors under contract to the
Employer limited to other contractors on the site? Do the delays herein refer only to delays
on the site?
Note that there are no grounds for EOT on the bases of discrepancies or ambiguities in the
drawings, or arising from errors in the technical information provided by the Employer, other
than for setting out. Perhaps these could be pursued under Sub clauses 1.9 or 8.4(c)?
EOT is due if the completion of the Works for Taking Over is delayed. A contractor may
programme to complete the Works before the end of the Time for Completion - to finish early.
EOT is due if his (earlier) completion is delayed for any of the reasons set out in Sub clause 8.4.
The EOT will, of course, be added to the Time for Completion, so that the latest date for
completion will be postponed accordingly.
The period between the earlier Completion Date programmed by the Contractor and the end of
the Time for Completion is the programme float. The programme, submitted under Sub clause
8.3, represents the Contractor's intentions, it is not a contractual obligation for reasons
discussed above. The float is in effect a contingency provision adopted by the Contractor,
against his own risk of culpable delay (e.g. equipment breakdown). Delays imposed by the
Employer in consequence of an Employer's risk should not increase the Contractor's risk by
reducing his contingency provision. Further, the Contractor is entitled to the Period for
Completion to complete the contracted Works. 1 f the Employer imposes delay on the
Contractor or instructs an increase in the scope of work, then the Period for Completion must
reasonably be extended accordingly. Note also, that by not rejecting the Contractor's
Programme the Engineer adopts the timing of his own involvement in it.
EOT is subject to Notice by the contractor under Sub clause 20.1 - a Condition Precedent to any
entitlement to time and/or money - and to any particular notices specified under the relevant
Sub-clauses.
The Engineer determines the EOT due in response to the notice and particulars from the
Contractor. Unlike, for example, the ICE Form, the 1999 Red Book does not provide for any EOT
to be awarded unilaterally by the Engineer. The Fourth Edition of the Red Book provided that in
the event of the specified causes, the Engineer shall determine the EOT due, provided he is not
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bound to do so if the Contractor has not complied with the notice provisions. In contrast, the
1999 Red Book includes no provision for an award of EOT other than in response to a notice
from the Contractor. This reinforces the provisions of Sub clause 20.1, no notice within 28 days
- no entitlement to EOT.
Under Sub-clause 20.1 the Engineer is bound to respond to the Contractor's claim for EOT within
42 days of receipt, giving either his approval or detailed reasons for its rejection. The Engineer
cannot delay such a response by asking for further information and re-setting the 42 day clock
from such a request. Of course, his response might be that he has not had sufficient information
to substantiate the claims or form a considered view, but even that response must be detailed.
He is also required to recognise and certify on an interim basis any element of the claim that
has been substantiated.
The provisions for EOT under the Yellow and Silver Books differ from the Red Book as follows:
The Yellow Book
The 'Works' includes design by the Contractor.
The Contractors programme under Sub clause 8.3 must include reference to his design: to
the review periods specified under Sub clause 5.2, and to any other approvals specified in
the Employer's Requirements.
A Variation is defined as a change in the Employers Requirements.
No substantial change in the quantity of work included in the Contract which is not a
Variation gives rise to an entitlement to EOT.
Sub clause 1.9. Errors in the Employers Requirements, entitles the Contractor to EOT if
completion is delayed thereby.
Sub clause 5.1, General Design Objections, requires the Contractor to have identified any
errors in the Employer's Requirements within a stated period from the Commencement Date.
EOT would be due provided the Contractor might not reasonably have discovered the errors
pre-contract. Entitlement to EOT under Sub clause 1.9 is subject to the same proviso.
The Silver Book
The Engineer is replaced by the Employers Representative, who shall "determine" matters
which cannot be agreed.
Programme requirements (Sub clause 8.3) generally as for the Yellow Book.
Causes entitling the Contractor to EOT are limited to Variations, any specific Sub clause and
delay attributable to the Employer. Thus weather and shortages are excluded.
Specific Sub clauses including entitlement to EOT are:
2.1
Access
2.5
Employers Claims
7.4, 9.2, 10.3
Testing
8.4, 8.5
EOT
8.11,8.9, 16.1 Suspension

13.3
Value Engineering
13.7
Legislation
17.4
Employers Risks
19.4
Force Majeure
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Types of Delay Analysis

There are two types of delay analysis techniques; the model and actual methods.
Model based Methods
These methods are characterised by the fact that they focus on a model of the
project, in scheduling terms, and applying events to see it they affect the model,
by causing slippage.
Actual-based Methods
These methods are characterised by the fact that they focus on determining the
delay periods and then assessing which event(s) caused that delay.
There are a number of model based methods:

Global Impact
Net Impact
As-Planned Impact
As-Planned But For
As-Built But For
There are also a number of actual based methods:

As-Planned vs As-Built
Windows / Snap-Shot
Impact / Update
Payment arising from Delay

Additional payment is due on account of the consequences resulting from the cause of the delay.
It is not dependent upon an award of EOT, though such an award confirms that the Employer
caused a delay. It has been argued that if the Employer delays completion and no EOT is
awarded, then the Contractor is not entitled to any prolongation costs incurred over the period
of the delay. It is submitted that, provided the Contractor has given due notice of his claim for
additional payment, then the Engineer is obliged to determine the payment due in valuing those
aspects of the Works, irrespective of any EOT. Thus a late Variation could delay completion. If
the Contractor fails to give due notice, no EOT would be due. But the Employer could not claim
delay damages and the Contractor would be entitled to recover his prolongation costs insofar as
they were a consequence of the Variation.
The various Sub clauses which provide an entitlement to EOT also provide entitlement to
additional payment. On the common law system one would expect that where the entitlement to
additional payment is caused by breach of contract by the Employer, failing to provide access
for example under Sub clause 2.1, then the payment would be considered as damages and
would be due at actual cost without profit. Where the additional payment is due to extra work
ordered by the Engineer, then the payment would be expected to include profit. However, the
FIDIC Forms provide that profit is payable when the entitlement to additional payment is due to
the actions of the Employer (whether breach or not), cost only when neither party is responsible
- unforeseen physical conditions, for example.
Pagina 33 van 34
www.drivertrett.com
An event causing delay to completion, for which the Contractor is entitled to additional payment,
will cause prolongation of the Contractor's period on site. The prolongation shows up as an
extension to his site programme, but the actual delay occurs at the time of the event. The
prolongation costs will not necessarily be the cost of the site establishment over the period after
Completion was due, but the cost of the establishment at the time of the delay.
Mark Castell
Driver Trett
Pagina 34 van 34
www.drivertrett.com

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FIDIC Yellow Book Training

Training to VSMC 2014

FIDIC Notes part one

FIDIC Notes part two

Driver Trett 2013

Managing FIDIC Contracts

Managing FIDIC contracts

Provision of a range of specialised services based around

World-class quantum, delay, and technical experts for

Driver Group is a global construction consultancy, providing

DRIVER GLOBAL PRESENCE

Q: What is common to every project?

Q: What is contract management and

Or is it simply, good management

Q: When should the management of

Q: When should the management of

Contracts involve a process conception to grave

Q: Who is involved in managing a contract?

Does this happen?

Standard Forms of Contract

History of FIDIC Standard Forms of Contract

General principles of FIDIC Standard Forms

The Current FIDIC

Current FIDIC Main Standard Forms of Contract

Current FIDIC Main Standard Forms of Contract

Current FIDIC Main Standard Forms of Contract

When do you use which standard form?

Otherwise, which contract should be used?

< $500K or < 6 months

plant and/or high

little employer involvement

Silver book - EPC Turnkey concept

Generally Red, Yellow & Silver Books

General concepts Red Book

Adopts the role of an Engineer who can vary Works

General concepts Yellow Book

Adopts the role of an Engineer who can vary Works

General concepts Silver Book

Employers Representative instead of Engineer.

Format of the FIDIC

Standard Format for the Red, Yellow and Silver books

2. Guidance for the preparation of Particular Conditions

3. Forms of letter of Tender, Contract Agreement (including

Red Book General Conditions

Clause 1 - Definitions, General Provisions

Yellow Book General Conditions

Silver Book General Conditions

1. Match each book with a description of design

A FIDIC YB contract entails management of:

A tendering process or period

Preparation of enquiry documents

Contractors sets its commercial strategy and issues its offer

Award of the contract

Agreement reflects a common understanding

How is the offer accepted?

Setting up the project

Internal knowledge transfer and project specific systems

External submittals and kick-off meeting

Procurement and sub-contracting

Step down / flow down principles versus practice

The use of the phrase Back to back

A FIDIC contract entails management of:

The execution phase

Progress control / updates