This Practice Note is an introduction to the FIDIC Green Book 2021 (the Short Form of Contract). It is not a fully detailed clause-by-clause commentary. This article was first published by LexisPSL
Unfortunately, under the FIDIC Red and Yellow Books 1999, the right of an Employer to set off from an amount already certified in a Payment Certificate but unpaid is inexplicit. Once the Employer has a Sub-Clause 3.5 determination, it may ask the Engineer to deduct the amount determined from the next Payment Certificate. This is clear. But rather than rely on the Engineer, can the Employer instead, itself, deduct by way of set off from an amount already certified in a Payment Certificate but unpaid? This is not clear.
Airports Authority of Trinidad and Tobago v Jusamco Pavers Ltd[1]
Clause 8 contains all the fundamental provisions relating to the start of the Works, the Time for Completion, delays and the entitlement of the Contractor to an extension of time and of the Employer to delay damages, and finally the circumstances in which a suspension of the Works can occur and the implications for the Parties.
Much has been said about the new Red, Yellow and Silver Books 2nd Editions launched by FIDIC in December last year. The most obvious comment has been about their size, almost 50,000 words, which is some 60% longer than the 1999 forms. Although the 1999 forms were not perfect, most regular users seem to be agreed that they did not need 20,000 words to fix the issues. This consensus led this author to attempt to cherry-pick the good bits from the 2017 forms and to propose amendments to add the good ideas to the 1999 forms. The amendments apply to all three forms unless it is indicated otherwise.
Much has already been written concerning the new FIDIC forms of contract published in December 2017. They are approximately 50 % longer and sought to set out the various procedure in much greater detail with the object of both encouraging good practice and reducing the scope for disputes. Numerous minor amendments have also been made. The purpose of this article is to look in more detail at the provisions dealing with Variations, these being amongst the most frequently scrutinised in practice.
Clause 14 deals with all aspects of payment. It also deals with the Statement at Completion, the Final Payment Certificate, Discharge and Cessation of the Employer’s Liability. The Clause provides that this is a re-measurement contract and that the quantities stated in the Bill of Quantities are estimated. There is provision for an advance payment to be made to the Contract. Applications for Interim Payment Certificates are made monthly and these must be supported by documents and a report on progress. Unless the amount assessed is less than the minimum amount set out in the Appendix to Tender, the Engineer has 28 days to issue an Interim Payment Certificate, which states the amount the Engineer fairly determines to be due. The Employer thereafter has an obligation to pay the amount certified, in the currencies named in the Appendix to Tender. In the event that payment is not received the Contractor can claim financing charges compounded monthly. Fifty per cent of the retention monies are paid when the Taking-Over Certificate is issued. Where there are Sections then a proportion is paid. The balance of retention is paid on the expiry of the latest Defects Notification Period or, where there are Sections, a proportion at the expiry of the Defects Notification Period for that Section. Within 84 days of receiving the Taking-Over Certificate the Contractor submits a Statement at Completion. This must include an estimate of all sums which the Contractor considers due. Within 56 days of receiving a Performance Certificate, the Contractor submits a Final Statement. The Contractor must also submit with the Final Statement a written discharge which confirms that the total of the Final Statement represents full and final settlement of all moneys due. The Engineer then issues to the Employer a Final Payment Certificate. The Contract states that the Employer shall have no liability to the Contractor except to the extent that the Contractor has included an amount expressly for that matter in the Final Statement and also the Statement at Completion.
Clause 3 deals with the duties and obligations of the Engineer and his assistants. Sub-Clause 3.1 deals with the role and duties of the Engineer. The Engineer is deemed to act for the Employer. The Engineer has no authority to relieve the Contractor of his duties, obligations or responsibilities under the Contract; nor can the Engineer amend the Contract. Under Sub-Clause 3.2 the Engineer can delegate authority to any assistants; however, the Engineer cannot delegate the responsibility to make Determinations. Under Sub-Clause 3.3 the Engineer may issue instructions or modified Drawings at any time, which are necessary for the execution of the Works. If the instruction constitutes a Variation, then it is dealt with under Clause 13 [Variations and Adjustments]. The Contractor is required to comply with any instruction given by the Engineer or delegated assistant. Sub-Clause 3.4 deals with the replacement of the Engineer. The Employer must not replace the Engineer with someone against whom the Contractor raises reasonable objection. Sub-Clause 3.5 deals with Determinations. When making a Determination the Engineer should consult with each of the Parties and, if agreement cannot be reached, make a fair determination in accordance with the Contract, taking due regard of all relevant circumstances. Both Parties are required to give effect to any Determination unless, or until, it is revised under Sub-Clause 20.1 [Claims, Disputes and Arbitration].
Corbett & Co. has published its selection of the best bits of the FIDIC 2017 2nd Editions adapted for use with the 1999 forms. With many people put off by the 50,000+ words of the new editions, the FIDIC 1999 Upgrade will permit users to benefit from FIDIC’s new ideas and improvements.
The main changes: Employer’s consent and neutrality The main changes in Clause 3 are the express provisions in Sub-Clause 3.2 [Engineer’s Duties and Authority] that the Engineer is not required to obtain the Employer’s consent before the Engineer exercises its authority under Sub-Clause 3.7 [Agreement or Determination], and that the Engineer must act “neutrally” when exercising its duties under Sub-Clause 3.7 [Agreement or Determination]. Dictionary definitions suggest that “neutrally” is similar in meaning to the words “independently” or “impartially” found in the FIDIC Red Book 4th edition and the FIDIC Yellow Book 3rd edition. However, the drafting committee believe that by using a different word it will avoid the difficulties raised in the interpretation of independently or impartially in the earlier editions. This remains to be seen. The intention is that “the Engineer treats both Parties even-handedly, in a fair minded and unbiased manner”.
In London last week, FIDIC launched its Second Editions of the Red, Yellow and Silver Books. They are big, weighing in at almost a kilo each. The general conditions cover 106 pages with more than 50,000 words, over 50% longer than the 1999 forms. Many improvements have been made, addressing issues that have emerged since 1999. Fans of Dispute Boards will be pleased to see that all three books now have standing boards with more emphasis on dispute avoidance; and that appointment of DB members and enforcement of their decisions have been made easier. Disputes and Arbitration are now dealt with in a separate chapter 21. Here are the most interesting changes to the Yellow Book.
The Engineer is deemed to act for the Employer and is essentially the Employer’s agent under the FIDIC Red Book 1999. He is not a wholly impartial intermediary, unless such a role is specified in the Particular Conditions, and there is no general obligation under the FIDIC Red Book 1999 for the Engineer to act independently or impartially. However, when he is required to make a determination under Sub-Clause 3.5, he is obliged to make it a fair determination and when he is obliged to issue an Interim Payment Certificate under Sub-Clause 14.6, or a Final Payment Certificate under Sub-Clause 14.13, he must fairly determine the amount due.
Earlier this year, the English High Court considered a heavily amended FIDIC Yellow Book 1999. Whilst the case is specific to the particular contractual amendments it is worth review. The case is J Murphy & Sons Ltd v Beckton Energy Ltd. It proceeded in court and on an expedited basis as a matter of some urgency because a bond was about to be called for non-payment of delay damages. The Contractor claimed the call would affect his commercial reputation, standing and creditworthiness, and may well need to be disclosed in future tenders. He had not paid the delay damages because there had been no agreement or determination of the entitlement to such by the Engineer under Sub-Clauses 2.5 and 3.5.
Rumour reaches us that the Multilateral Development Banks (MDBs) behind the Pink Book, FIDIC’s harmonised version of the 1999 Red Book, will discontinue the experiment. Should we be sorry to see the back of the Pink Book? We think not.
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