Content of the pre-2017 FIDIC forms

Clauses 1, 2 and 3

Clause 1

Clause 1.3 sets out the requirements for notices sent in accordance with the contract.

In the English decision Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar [2014] EWHC 1018 (TCC) the court emphasised the importance of adopting a commercially realistic interpretation of subclause 1.3 (the notice clause) of the Yellow Book.

Clause 1.5 relates to the priority of documents and is worth noting. The order of priority set out is consistent across the forms. The last category in each of the forms contains ‘(and any other documents forming part of the contract)’. Parties may need to amend the particular conditions to expressly deal with documents which are not intended to form part of the contract or to ensure that it achieves the level of priority that is intended and should be wary about incorporating other documents into the contract.

Another provision which should be considered is subclause 1.13 which provides that the contractor must comply with applicable laws. The contract may be subject to the jurisdiction in which the project is located. The local laws of the country may be such as to render the employer liable for the acts or omissions of the contractor. Subclause 1.13 seeks to address this point.

Clause 2

Clause 2 addresses the role of the employer. There are 2 particularly interesting subclauses. First subclause 2.4 renders it mandatory upon the employer following request from the contractor to submit:

'... reasonable evidence that financial arrangements have been made and are being maintained which will enable the employer to pay the contract price punctually...; [and]

if the employer intends to make any material change to his or her financial arrangements, the employer shall give notice to the contractor with detailed particulars.'

Failure to submit such evidence provides the contractor with the entitlement to suspend work, 'or reduce the rate of work', unless and until the contractor has received the reasonable evidence. This was an entirely new provision to the 1999 FIDIC form and provides a mechanism whereby the contractor can obtain confirmation that sufficient funding arrangements are in place to enable him to be paid, including if there is a significant change in the size of the project during construction. Most employers will look to delete this provision by way of amendment in the particular conditions.

Second, subclause 2.5 requires the employer to give notice and particulars 'as soon as practicable' to a contractor:

'... if the employer considers himself to be entitled to any payment under any clause of these conditions or otherwise in connection with the Contract.'

The UK Privy Council in NH International (Caribbean) Ltd v National Insurance Property Development Company Ltd (Trinidad and Tobago) [2015] UKPC 37 held that the contractor was entitled to suspend and terminate its employment when the employer failed to provide sufficient detail in response to the contractor’s request for financial information under subclause 2.4. This highlights why many employers like to delete subclause 2.4.

In the same case the Privy Council also held that the employer’s failure to notify the contractor 'as soon as practicable' under subclause 2.5, where the employer believed it was entitled to payment from the contractor, restricted the employer’s right to make a set-off or cross-claim against the contractor. However, the restriction did not apply to the employer’s right to make an abatement (which is the common law right to reduce the price or value of work on the grounds that the work is defective or incomplete).

Clause 3

Clause 3 deals with the position of the engineer or employer's representative and provides that, unless otherwise stated:

'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 conditions provide that the engineer shall proceed in accordance with subclause 3.5 to agree or determine any matter in the following way:

'... 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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