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28 March 2018

FIDIC 2017: Fit for purpose?

A number of firms have produced articles introducing FIDIC 2017.  Most commentators mention the extended length of the new contracts as well as the repositioning (and rebranding) of the Dispute Avoidance Adjudication Board (or DAAB) as a standing board to deal with all claims that are not resolved by an Engineer’s determination.  Many have noted FIDIC’s new even-handed approach towards the requirement for notices of claim.  Some writers have noted the more detailed provisions as regards programme requirements, quality management and other areas where Particular Conditions were common. The improved 2017 formatting is intended to assist users, particularly those who are working in their second language, to easily understand the effect of the clauses.  However, many in the industry are expressing the view that FIDIC 2017 is not the contract that they were looking for.  For many, the additional language adds unwanted complexity.  Have FIDIC sacrificed some user friendliness in favour of greater legal certainty? Are the new contracts just too complex to be workable?  

In FIDIC 2017 the Notice is “king”. Notices are now defined and the requirements are much more strict than for the 1999 contract were (per Akenhead)

“there is no particular form called for in Clause 20.1 and one should construe it as permitting any claim provided that it is made by notice in writing to the Engineer, that the notice describes the event or circumstance relied on and that the notice is intended to notify a claim for extension (or for additional payment or both) under the Contract or in connection with it. It must be recognisable as a “claim”. The notice must be given as soon as practicable but the longstop is 28 days after the Contractor has become or should have become aware. The onus of proof is on the Employer or GOG here to establish that the notice was given too late”

Notices must describe themselves as such and, in some cases, must refer to the contract clause by reference to which they are given. Once a Notice has been given and a “Claim” (a defined term) has arisen FIDIC 2017 imposes a strict timeline and procedure for resolution.

For many of us who work in common law jurisdictions the decision in Obrascon Huarte Lain SA v Attorney General for Gibraltar [2014] provided confirmation of our view that clause 20.1 of FIDIC 1999 was a straightforward condition precedent notice requirement. However FIDIC 2017 departs from that simple and clear cut position by permitting both the Engineer, the DAAB and the arbitrator to accept “late claims” where there are “circumstances which justify late submission”. Accordingly, FIDIC 2017 has a stringent condition precedent notice requirement subject to an exception. FIDIC gives no guidance as to what circumstances might justify late submission of a Notice of Claim but, at clause 20.2.7 there is what will perhaps be construed as a hint.  This provision says that clause 20.2 notice requirements are “in addition” to other requirements elsewhere in the contract but if a party fails to comply with 20.2 there will be some ability to “take account of the extent (if any) to which the failure has prevented or prejudiced proper investigation of the claim by the Engineer”. Contractor’s will argue that late notices don’t impair proper investigation as long as the evidence is preserved. Applying this approach, FIDIC 2017 will allow in many more claims that FIDIC 1999 excludes.

In our view the primary motivation for including a FIDIC 1999 type condition precedent is not the difficulty of analysing “late” claims. Developers want FIDIC I999 type notice requirements because they want certainty about time and cost as the project progresses. A condition precedent notice should allow disputes and claims to be resolved promptly during the course of the works, if resolution isn’t possible; both parties are on notice as to the claim. Since FIDIC quite rightly prides itself on drafting a contract which provides mechanisms for claims and dispute resolution as projects progress, (even to the extent of placing a dispute adjudication board in a central standing role during the course of the works), it is exceedingly disappointing that the 1999 simple condition precedent requirement has not been maintained.

Of course there are problems with implementation of condition precedents under some civil law systems but there does seem to be an inherent conflict between a contract that markets itself on the basis that the DAAB as the best mechanism to resolving claims and avoiding disputes as the project progresses, whilst at the same time allowing a vague and/or uncertain provision as regards late submission of claims. 

We should also consider the role of the DAAB.  For many commercial developers the 1999 Dispute Adjudication Board was an expensive and unnecessary feature of FIDIC contracts.  Many commercial developers removed the Dispute Adjudication Board provisions from the 1999 contract and/or circumvented the appointment of an ad-hoc DAB.  FIDIC has responded by embedding the DAAB much more deeply into its 2017 contracts.  This may work very well where the client is amenable to a DAAB and the size and value of the project justifies the expense of a standing board.  However, there are many projects which do not meet these requirements for which a well drafted and internationally recognised contract is needed. Presumably FIDIC isn’t interested in this market?

Another important feature of 2017 is the amplification of sub-clause 3.7 (Agreement between the parties/determination by the Engineer) (previously sub-clause 3.5 (Determinations). The new clauses adds a lot of detail to the description of the process of consultation, agreement and determination as well as introducing a notice of dissatisfaction (NOD) with an Engineer’s determination.  Much of the new clause is eminently sensible and in accordance with good practice in any event.  However, the time limits are quite “tight”. Whilst FIDIC have incorporated a “get out of jail free” card for the Contractor’s late notices, the Engineer under 3.7 is given no such latitude unless both parties agree.  After consultation between the parties, how many contractors are going to give the Engineer more than the 42 days that FIDIC allow in connection with his determination? 

Ultimately, the new sub-clause 3.7 will probably break down where there is an issue between the Engineer and the Contractor/Employer as to whether or not there is a “fully detailed claim” to agree/determine. 

Whilst the new even handed requirements for Employer’s claim notices are to be commended, there are also some genuine technical problems with the requirement for an Employer Notice and Engineer’s determination in relation to all Employer claims.  In particular FIDIC now envisages that, before deducting delay damages, the Employer must issue a clause 20.2 Notice, produce a detailed claim, the matter must proceed to an Engineer’s determination. Presumably it is only after this process is complete that delay damages may be deducted in the next IPC.  Whilst it is right and proper that the Employer should be required to give a Notice before deduction of delay damages may be appropriate, why is it necessary or appropriate to provide full details of something that should be completely straightforward and to request an Engineer’s determination?  Will the Engineer have to consider, in the absence of an extension of time claim, whether delay damages are due?  Why? 

There are other instances where the requirement on the part of the Employer to give a “fully detailed claim” will not work. For example under clause 13.6, where there has been a decrease in cost due to a change in legislation, the Employer may not have all the information he needs to produce a detailed claim because cost information sits with the Contractor. 

Accordingly, we wait to see with some interest whether or not FIDIC 2017 is adopted, how Engineers and Contractors get along with the multiple notice requirements in the document and whether or not the expense of the DAAB is outweighed by reductions in Contractors’ tenders.

This article was written by Sarah Jane Hudson and Chris Busaileh. For more information please contact Sarah on +44 90)1242 24634 or