Exclusive pre-view – FIDIC Yellow Book 2nd Edition

Three of the most frequently used contracts (so-called “books”) are currently undergoing a major revision, i.e.:

• The Red Book – The Construction Contract (intended for main and principal contract works);
• The Yellow Book – Contract for Plant & Design Build (intended for contracts, where the contractor is responsible for the design and planning); and
• The Silver Book – EPC/Turnkey (intended for turnkey contracts/projects)

  

For the purpose of ensuring a continuous harmonization of all three standard contracts, FIDIC has decided to publish the three new versions of the books together. The new standard contracts are expected to be published during 2017.

 

FIDIC International User’s Conference 2016

At the annual FIDIC International Contract User’s Conference, this year held in London from 5 to 8 December, FIDIC unveiled the expected changes in the FIDIC Yellow Book 1999 Edition. The major part of these changes are expected to be general for all new editions of the three standard contracts, thus ensuring the greatest possible coherence of the three books.

 

Naturally, HjulmandKaptain Law Firm was present, having thereby gained exclusive insight into the present edition called a “pre-release version only intended for viewing by delegates”, enabling us to perhaps be among the first to unveil the major changes.

 

FIDIC Yellow Book 2017 2nd Edition

As the first of the three standard contracts, FIDIC has concentrated on the revision of the Yellow Book.

The new Yellow Book 2nd Edition will contain a wide range of changes and amendments, at the same time as the individual provisions have become more detailed and therefore also more extensive. As an example the mere number of pages has risen from 67 to 108.

 

Further formal requirements to submission of “Notices”

As an innovation, the FIDIC term “notice” has now become a defined term. As previously, the term covers any claim or demand – e.g. the traditional demands for extra time or money, but also “notices of dissatisfaction”, “consents”, “proposals”, “requests”, and all other forms of prescribed communication. There is nothing particularly new about this change.

 

The news is, however, that the word “notice” must now be used in the communication presented the other party. In addition, the relevant FIDIC clause given rise to the notice must be referred to.

 

The compliance with both these formalities has always been “best practice”, but in future the compliance with these formal conditions will be a direct contractual requirement. Otherwise, you might risk losing your claim, as the mere consequence of non-compliance with the formalities.

 

This approach is slightly unknown under Danish law (although such clauses are gaining more and more acceptance). The need for such formal requirements is e.g. relevant in relation to the overwhelming number of emails exchanged between the parties in a complicated construction or engineering process.

 

By “forcing” the parties into communicating more clearly, e.g. by using the correct phrases and references to the contract, both parties may be able to understand to a higher degree (at least theoretically) the other party’s actual message in a specific communication. Naturally, the reverse side of the medal is that you might risk losing your otherwise legitimate claim if you forget e.g. the word “notice”. In Danish legal practice, whether in civil courts or arbitral proceedings, the approach has typically been rather forgiving to such formal errors, but these errors now tend to be frequently relied upon in Danish civil courts and arbitral proceedings (probably inspired by foreign law and by the judges/arbitrators being more favourably disposed to such arguments than previously).

 

“Variations”

The new edition of the Yellow Book now focuses more on the procedure for the engineer’s instruction of “variations”. Changes in e.g. design or the technical specifications are probably one of the most important forms of variations from the contractor’s point of view.

 

According to the new terms and conditions, the contractor is required to send detailed information within 28 days upon receipt of a variation about the expected influence of the change on the time schedule, the contract sum and the performance of the work in general. Such information must be sent to the engineer.

 

Subsequently, the engineer shall decide about the contractor’s claim, if any, for extra time or money within a time-limit of 42 days.

 

If the engineer fails to make a decision within the said 42 days’ time-limit, he will be deemed to have rejected the contractor’s claim.

 

Should one of the parties be dissatisfied with the engineer’s decision, the party concerned shall give a “notice of dissatisfaction” to the other party and to the engineer within 28 days. Subsequently, the parties may bring the question before the present “Dispute Adjudication Board (DAB)”.

 

Should none of the parties give such notice of dissatisfaction within the time-limit of 28 days, the engineer’s decision will be final and binding. The same applies, if the engineer instead of making a decision fails to act, thereby rejecting the contractor’s claim.

 

So in the future, it will not be sufficient for the contractor just to forward a notice or a variation order in due time; he must also observe the engineer’s time-limits and react by means of a notice of dissatisfaction, if the engineer merely takes no action.

 

Particularly the fact that the engineer will be deemed to have rejected the contractor’s claim, if failing to act within the 42 days’ time-limit, is a new burden on the contractor. Generally, Danish and international contract law prescribes that if a party fails to respond to a claim the other party may assume under some circumstances that the claim has been accepted. Alternatively, the person making the claim may at least assume that his rights will not be forfeited, until the other party has decided to respond.

 

The FIDIC Yellow Book now changes that point of view. According to the new edition, a contractor must remember to comply with both the engineer’s and his own time-limits. The explanation to this “innovation” is probably the fact that the engineer is the employer’s representative, and the employer is basically interested in rejecting as many demands as possible. Further, part of the explanation is probably also that FIDIC is a professional association for engineers, and the potential liability involved is typically less extensive, if an engineer forgets to respond to an inquiry, the result then being “merely” a (perhaps) incorrect rejection instead of the result being a (perhaps) incorrect acceptance of an alleged justified claim on the part of the contractor.

 

Changes in the employer’s or the engineer’s permits etc.

A less important and less technical (however, in certain types of contracts extremely relevant) amendment is found in the paragraph previously called “Adjustments for Changes in Legislation” (now “Adjustments for Changes in Laws”).

 

The aim of this amendment is that it is now directly stated that in case of any changes after the “Base date” in the employer’s or the contractor’s permits etc. (“permits, permissions, licences, and/or approvals), the contractor is basically entitled to claim additional payment or time.

 

Such right was probably also valid earlier, but the uncertainty thereof has often been a source of disputes. The solution/specification opted for is in line with the current Danish approach after which any new conditions (which are not due to the contractor’s own conduct or should have been forseen) shall be considered the employer’s risk.

 

Advance Warning

Another expected change is the parties’ bilateral obligation to give notice in advance during performance; i.e. an “advance warning”. This rule implies that the parties shall inform each other as well as the engineer about any future events or circumstances that may have a negative impact on the contractor’s personnel, the performance of work, the contract sum or the time schedule for the work performance.

 

As with a number of the other changes, the aim is to increase the demands to (primarily) the contractor with the consequence that the continuously increasing use of so-called Claim Managers or Contract Managers on major projects are only expected to rise.

 

The engineer’s authority to make decisions

The new edition of the Yellow Book contains a larger number of deadlines and time-limits than the former edition, and particularly the engineer is now subject to a wide range of new time-limits. However, this is a natural consequence of the 2017 edition providing the engineer with a clearly more central role than  under the 1999 edition.

 

An example of one of these new time-limits concerns the engineer’s decision-making authority. The engineer, as opposed to previously, is now obligated to make decisions within a specifically determined time-limit.

 

The engineer is subject to a time-limit of 42 days upon receipt of a claim in his attempt to reach a solution acceptable to both the employer and the contractor. If failing to reach such solution, the engineer shall make his decision within 42 days as from the time when he realised that it would be impossible to reach an amicable solution.

 

If the engineer fails to present his decision within the said time-limit, the engineer will be deemed to have rejected the claim concerned. This solution model resembles the one described above in respect of the new variation procedure, so the contractor must pay particular attention to the peremptory time-limits in the contract.

 

Waiver of time-limits

The Yellow Book 2nd Edition is expected to contain a completely new provision, authorising the members of the  DAB to waive a specific time-limit. This must be understood to mean that the party having exceeded a time-limit, because he believes it to be justified due to certain circumstances, may request an opinion thereof from the sitting DAB.

 

The issue must be brought before the DAB within two weeks, counted from the receipt of the engineer’s decision.

 

If the sitting DAB finds that an acceptance of the exceeding of the time-limit concerned is reasonable under the circumstances, the DAB is then authorised to ignore the non-compliance with the time-limit.

 

The DAB shall make its decision within 28 days. If the sitting DAB fails to present its decision within the stipulated time, DAB will be deemed to have rejected the claim concerned.

 

The employer’s and the contractor’s claim for extra time and money

According to the 1999 edition of the FIDIC Yellow Book, only the contractor is subject to a specifically determined time-limit in respect of claims, whereas the employer will only be requested to make his claim as soon as practicable.

 

The 2017 edition of the Yellow Book repeats the previous claims procedure from the 1999 edition, but as opposed to the 1999 edition, both the contractor and the employer are now subject to the strict time-limit, according to which the parties must raise their claim within 28 days from the time when they were aware or ought to have become aware of the circumstances giving rise to the claim concerned in order not to forfeit their rights.

 

This change has been long-awaited and helps balancing the contracts having otherwise been considered (too) employer-friendly; however, it will hardly change the fact that the industry will continue (rightly) to regard the FIDIC Yellow Book as terms and conditions being favourable to the employer, at least to some extent.

 

As mentioned above, the new Yellow Book 2nd Edition is expected to contain a special procedure in consideration of the contractor’s claim for extra time and money in case of a variation instructed by the engineer. According to the new Yellow Book, the claims procedure is therefore not applicable by the contractor in case of claims originating from an instructed variation.

 

Disputes and arbitration

The 1999 edition of the Yellow Book orders the parties to attempt to reach an amicable solution within a period of 56 days upon the submission of a “notice of dissatisfaction” before continuing to arbitral proceedings. According to the new edition of the Yellow Book, this period is expected to be changed from 56 days to 28 days.

 

The purpose of this change has been an attempt at securing a speedier clarification of the question, whether a claim should be listed for arbitral proceedings, thereby minimising the aggregate time from the advancement of a claim until the issuance of an arbitral award.

 

From a practitioner’s point of view, a reduction from 56 to 28 days is not worth the change and the reaction among the delegates at the conference in London was also primarily a small smile and a shrug on the shoulders (especially by the lawyers present); probably in recognition of the fact that a potential reduction by 28 days is not worth mentioning if compared to the length of “normal” case brought before an arbitral tribunal.

 

Dispute Adjudication Board (DAB)

The new Yellow Book is expected to lay down provisions on the use of a “sitting DAB”, whose purpose is not only to settle disputes smoothly and efficiently on site but also to have a “dispute avoidance” function, thereby enabling the members to settle disagreements among the parties smoothly and efficiently – hopefully before they turn into actual “disputes”.

 

The characteristic feature of the “sitting DAB” is that the members are appointed prior to the commencement of the project and therefore prior to the occurrence of the dispute. The intention is for the members of the DAB to have an almost daily role at the site thereby gaining a thorough understanding of the project. The rules applying to the DAB are expected to form a larger part of the new terms and conditions, and FIDIC has tried to integrate them in such a way that in future it will be more difficult for the contracting parties to avoid the use of the DAB as a means of dispute resolution.

 

With the above mentioned proposed changes 2017 certainly seems to become an exciting year for FIDIC practitioners.

 

At HjulmandKaptain Law Firm, we keep ourselves continuously informed about the coming editions of FIDIC’s new standard contracts, and we are at your disposal for further advice on this area.

Should you be interested in detailed information of the coming changes and amendments, please feel free to contact us directly.