ESCL Conference August 25th 2006

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ESCL Conference August 25th 2006 Risk in
Construction and how to deal with them.

• Duty for the contractor to inspect the site and
  other physical conditions according to FIDIC.
• Presented by
• Mikael Wahlgren
• Former Senior Legal Counsel
• NCC Construction Sweden AB

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FIDICs old standard forms

• Conditions of Contract for Works of Civil
  Engineering Construction, Fourth Edition, 1987
  (reprinted in 1988 with editorial amendments and
  reprinted in 1992 with further amendments) (the
  old Red Book)
• Conditions of Subcontract for Works of Civil
  Engineering, Construction, First Edition, 1994
  (to function with the old Red Book)
• Conditions of Contract for Electrical and
  Mechanical Works, Third Edition, 1987 (reprinted
  in 1988 with editorial amendments) (the old
  Yellow Book) and
• Conditions of Contract for Design-Build and
  Turnkey, First Edition, 1995 (the Orange Book).
• Client-Consultant Model Services Agreement (3rd
  Ed., 1998, ) ("White Book")

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FIDICs (the International Federation of
Consulting Engineers) new standard forms

• Conditions of Contract for Construction (1999
  for building and engineering works designed by
  the employer) (the new Red Book)
• Conditions of Contract for Plant and Design-Build
  (1999 for electrical and mechanical plant and
  for building and engineering works designed by
  the contractor) (the new Yellow Book)
• Conditions of Contract for EPC Turnkey Projects
  (1999 EPC being the abbreviation for
  Engineer-Procure-Construct) (the Silver Book)
  and
• Short Form of Contract (1999 for projects of
  relatively small value) (the Green Book).

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Clause 4.10 (new Red Book Yellow Book) Site
Data

• The Employer shall have made available to the
  Contractor for his information, prior to the Base
  Date, all relevant data in the Employers
  possession on sub-surface and hydrological
  conditions at the Site, including environmental
  aspects. The Employer shall similarly make
  available to the Contractor all such data which
  come into the Employers possession after the
  Base Date. The Contractor shall be responsible
  for interpreting all such data.

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Clause 4.10 (new Red Book Yellow Book) Site
Data (cont.)

• To the extent which was practicable (taking
  account of cost and time), the Contractor shall
  be deemed to have obtained all necessary
  information as to risks, contingencies and other
  circumstances which may influence or affect the
  Tender or Works. To the same extent, the
  Contractor shall be deemed to have inspected and
  examined the Site, its surroundings, the above
  data and other available information, and to have
  been satisfied before submitting the Tender as to
  all relevant matters including (without
  limitation)
• (a) the form and nature of the Site, including
  sub-surface conditions,
• (b) the hydrological and climatically conditions,
• (c) the extent and nature of the work and Goods
  necessary for the execution and completion of the
  Works and the remedying of any defects,
• (d) the laws, procedures and labour practices of
  the Country (means the country in which the Site
  (or most of it) is located, where the Permanent
  Works are to be executed), and
• (e) the Contractors requirement for access,
  accommodation, facilities, personnel, power,
  transport, water and other services.

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Clause 4.10 (Silver Book) Site Data

• The last sentence of paragraph 1 have been
  deleted and replaced the 2nd paragraph with the
  following wording
• The Contractor shall be responsible for
  verifying and interpreting all such data. The
  Employer shall have no responsibility for the
  accuracy, sufficiency or completeness of such
  data, except as stated in Sub-Clause 5.1 General
  Design Responsibilities.

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Comments to Clause 4.10 Site Data

• In the new Red Book and new Yellow Book
• Constitutes a step backwards for the Contractor
  by inserting the words relevant data in the
  Employers possession.
• Reference to relevant data limits the
  information to be provided by the Employer.
• Contractors are advised to amend this requirement
  so that the Employer is required to supply all
  available data on hydrological and sub-surface
  conditions.
• In the new Yellow Book should be expanded to
  include all information relevant to the
  Contractors design.

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Comments to Clause 4.10 Site Data (cont.)

• In the Silver Book
• The Contractor is responsible for verifying data
  - particularly, verifying and interpreting all
  data on subsurface and hydrological conditions,
  including environmental aspects.
• Carefully scrutinise the precise extent to which
  the exceptions offered under Sub-Clause 5.1.
• The disclaimer covers any information provided
  during the performance of the Works - the
  Contractor cannot rely on information provided by
  the Employer during the execution of the
  Contract.
• FIDIC recognise that, the Silver Book is not
  suitable for use where there is insufficient
  time or information for tenderers to scrutinise
  and check the Employer's Requirements or for them
  to carry out their designs, risk assessment
  studies and estimating - FIDIC's alternative is
  the Yellow Book.

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Clause 4.12 (new Red Book Yellow Book)
Unforeseeable Physical Conditions

• In this Sub-Clause, physical conditions means
  natural physical conditions and man-made and
  other physical obstructions and pollutants, which
  the Contractor encounters at Site when executing
  the Works, including sub-surface and hydrological
  conditions but excluding climatic conditions.
• If the contractor encounters adverse physical
  conditions which he considers to have been
  Unforeseeable, the Contractor shall give notice
  to the Engineer as soon as possible.
• This notice shall describe the physical
  conditions, so they can be inspected by the
  Engineer, and shall set out the reasons why the
  Contractor considers them to be Unforeseeable
  (means not reasonably foreseeable by an
  experienced contractor by the date for submission
  of the Tender). The Contractor shall continue
  executing the Works, using such proper and
  reasonable measures as are appropriate for the
  physical conditions, and shall comply with any
  instructions which the Engineer may give. If an
  instruction constitutes a Variation (means any
  change to the Works, which is instructed or
  approved as a variation), under Clause 13
  Variations and Adjustments shall apply.

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Clause 4.12 (new Red Book Yellow Book)
Unforeseeable Physical Conditions (cont.)

• If and to the extent that the Contractor
  encounters physical conditions which are
  Unforeseeable, gives such a notice, and suffers
  delay and/or incurs Cost by the Contractor,
  whether on or off the Site, including overhead
  and similar charges, but does not include profit)
  due to these conditions, the Contractor shall be
  entitled subject to Sub-Clause 20.1 Contractors
  Claim to
• an extension of time for any such delay, if
  completion is or will be delayed, under
  Sub-Clause 8.4 Extension of Time for
  Completion, and
• (b) Payment of any such Cost, which shall be
  included in the Contract Price.
• After receiving such notice and inspecting and/or
  investigating these physical conditions, the
  Engineer shall proceed in accordance with
  Sub-Clause 3.5 Determination to agree or
  determine (i) whether and (if so) to what extent
  these physical conditions were Unforeseeable, and
  (ii) the matter described in sub-paragraphs (a)
  and (b) above related to this extent.

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Clause 4.12 (new Red Book Yellow Book)
Unforeseeable Physical Conditions (cont.)

• However, before additional Cost is finally agreed
  or determined under sub-paragraph (ii), the
  Engineer may also review whether other physical
  conditions in similar parts of the Works (if any)
  were more favourable than could reasonably have
  been foreseen when the Contractor submitted the
  Tender. If and to the extent that these more
  favourable conditions were encountered, the
  Engineer may proceed in accordance with
  Sub-Clause 3.5 Determination to agree or
  determine the reductions in Cost which were due
  to these conditions, which may be included (as
  deductions) in the Contract Price and Payment
  Certificates. However, the net effect of all
  adjustments under sub-paragraph (b) and all these
  reductions, for all the physical conditions
  encountered in similar parts of the Works, shall
  not result in a net reduction in the Contract
  Price.
• The Engineer may take account of any evidence of
  the physical conditions foreseen by the
  Contractor when submitting the Tender, which may
  be made available by the Contractor, but shall
  not be bound, by any such evidence.

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Clause 4.12 (Silver Book) Unforeseeable
Difficulties

• Except as otherwise stated in the Contract
• (a) the Contractor shall be deemed to have
  obtained all necessary information as to risks,
  contingencies and other circumstances which may
  influence or affect the Works
• (b) by signing the Contract, the Contractor
  accepts total responsibility for having foreseen
  all difficulties and costs of successfully
  completing the Works and
• (c) the Contract Price shall not be adjusted to
  take account of any unforeseen difficulties or
  costs.

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Clause 4.12 (new Red Book Yellow Book)
Unforeseeable Physical Conditions

• Unforeseeable is a defined term not
  reasonably foreseeable by an experienced
  Contractor by the date of submission of the
  Tender.
• Entitlement to recover additional costs will not
  include profit.
• Relief for cost and time due to unforeseeable
  natural physical conditions and man made and
  other physical obstructions or pollutants and
  including subsurface and hydrological
  conditions.
• No relief due to impediments encountered off the
  site.
• Excludes climatic events.
• Engineer may take into account whether other
  Physical Conditions in similar parts of the Works
  (if any) were more favourable than could
  reasonably have been foreseen when the Contractor
  submitted its Tender.
• New concept that allows for the Contractor to
  provide evidence of the physical conditions
  foreseen in his tender calculation.
• An alternative is to agree the foreseeable
  conditions beforehand.

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Clause 4.12 (Silver Book) Unforeseeable
Difficulties

• The language is uncompromising in the extreme and
  its scope and application are much more
  wide-ranging.
• The consequential effects of all unforeseen
  difficulties are passed to the Contractor,
  Except as otherwise stated in the Contract.
• The Contractor is to foresee and allow in the
  price for every eventuality however
  unforeseeable!
• It is difficult to imagine a clause which would
  be more threatening to contractors - Contractors
  should beware!

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Conclusion final notes

• The main reason for the diminishing use of the
  FIDIC standard forms
• need quite substantive amendments
• many law firms have produced and promote their
  own bespoke contract forms and
• the number of competing standard forms.

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Conclusion final notes (cont.)

• Regions where FIDIC standard forms are used
• projects in Africa and Asia.
• projects financed by the World Bank.
• Under US law, where the contractor has a duty to
  inspect, that duty does not include taking its
  own soil borings. A contractor is entitled to
  rely on the borings provided by the Employer.
• The new Red and Yellow Book (clause 4.12) can
  give time and money for unforeseen site
  conditions whereas Silver Book says largely the
  reverse the Contract Price should not be
  adjusted for unforeseen difficulties or cost.
• If the Silver clauses remain unchanged,
  contractors may try (if the facts justify it) to
  claim for
• site conditions on the basis that the Employer
  did not make relevant data available (clause
  4.10)
• ground conditions on the basis of inability to
  verify (clause 5.1(d)) and
• Force Majeure in extreme cases (clause 19.1).