New FIDIC Yellow Book

In December 2017, FIDIC launched the second editions of its Red, Yellow and Silver Books to reflect legal and practical developments since the first editions were issued in 1999. In this article we will look at the key changes introduced to the FIDIC Yellow Book, which is widely used in offshore projects.

The second edition of the Yellow Book is nearly twice as long as the first edition. This is largely because the second edition is now a prescriptive document, with a focus on project management, reciprocity and dispute avoidance. There are a number of detailed processes and procedures which set out (amongst other things) precisely what is expected of each of the parties and the consequences if they fail to comply. There are also changes in terminology and formatting to ensure greater consistency across the suite.

Contract management

The 2017 edition aims to improve project management with amendments to the provisions for, amongst other things:

  • Notices – "Notice" is now a defined term as opposed to other communications
  • Time bars – particularly in relation to claims
  • The Engineer's role – is increased and the Engineer is required to act impartially
  • The programme – clause 8.3 provides detailed provisions in relation to the programme, its content and format
  • Payment – these provisions are more detailed and there is a new provision for a Partially Agreed Final Statement although there remains much to be clarified with regards to the administration of this and the Final Statement
  • Variations – there are new grounds for a contractor to object to variations and work can now be omitted by variation to be carried out by others
  • Advance warnings – there is now an obligation on both parties to advise the other in advance of known or probable events or circumstances that might increase costs, delay the Works or adversely affect the Works once complete
Contractor's obligations and liability

The provisions on the contractor's obligations and liability are updated:

  • Contractor's design – clause 4.1 has been amended so that when the Works are completed they will be fit for the intended purpose, as defined in the Employer's Requirements (or, if not specified, fit for their ordinary purpose1)
    (1 It will be important for a contractor to ensure the Employer's Requirements clearly set out the performance warranties particularly so in light of the recent decision in MT Hojgaard A/S v E. On Climate and Renewables UK Robin Rigg East Ltd [2017] UKSC 59)
  • Limit on liability – the exclusion of liability for loss of profit and indirect and consequential loss is now subject to wider exceptions (clause 1.15) but the employer's termination losses are not excluded and so an amendment to account for these would be necessary
Concurrent delay

Clause 8.5 of the new FIDIC Contract provides as follows:

"If a delay caused by a matter which is the Employer's responsibility is concurrent with a delay caused by a matter which is the Contractor's responsibility, the Contractor's entitlement to EOT (extension of time) shall be assessed in accordance with the rules and procedures stated in the Special Provisions (if not stated, as appropriate taking due regard of all relevant circumstances)."

The 2017 edition aims to improve project management

The intention appears to be that the Special Provisions (previously Particular Conditions) will set out how concurrent delay is treated. This follows the English courts' recent decision in North Midland Building Ltd v Cyden Homes Ltd [2017] EWHC 2414 (TCC) to uphold contractual provisions dealing with concurrent delay, on which we reported on in our SO Update 2017/2. Leave to appeal has been granted and will be heard in June 2018.

Claims

Changes have been made to the provisions dealing with dispute avoidance and resolution which reflect a change in approach recognising that a claim is not a dispute.

Not surprisingly, the changes to the claims process make it more prescriptive and provide strict time limits as conditions precedent (The Engineer is able to waive some time limits where extenuating circumstances justify late submission of a claim).

Dispute avoidance

 

The Dispute Advisory Board (DAB) is replaced by a Dispute Avoidance/Adjudication Board (DAAB). The DAAB's role is slightly different and, as a standing DAAB, is seen as a necessary part of the contract management process. The DAAB is required to provide the parties with assistance at their request and can invite the parties to make such a request.

The Yellow Book provides a welcome increase in clarity

Clause 21.7 resolves the difficulties of enforcing the old DAB decisions which were binding but not final. Now, if a party does not comply with a DAAB decision, then that failure can be referred to arbitration.
There are some other helpful changes. For example, if, following a DAAB decision, a payment is to be made by one party to the other that payment is due immediately and no further notice or certificate is required. In addition, a dispute may be referred to a sole arbitrator and the arbitrators may take into account a party's failure to cooperate in constituting the DAAB in a costs award.

Termination

There are new grounds for termination:

  • Bribery and corruption
  • A failure to comply with a clause 3.7 binding agreement or binding determination and a failure to comply with a DAAB decision where that failure constitutes a material breach of that party's obligations. The inclusion of failures to comply with DAAB decisions does help but the test of materiality may give rise to some uncertainty
  • For the employer, if the contractor:
  • Fails to comply with a notice to correct
  • Reaches the cap on liability for Delay Damages
  • For the contractor, if the employer:
  • Fails to perform its obligations under the contract
  • Fails to give a Notice of the Commencement Date within 84 days of the Letter of Acceptance
Final comments

The second edition of the Yellow Book provides a welcome increase in clarity. However, this increased clarity comes at the expense of increasing the administrative burden on the parties thereto (which inexperienced users of the FIDIC forms may struggle with) as well as a corresponding increase in the contract management costs incurred by the parties during the lifetime of the contract. It therefore remains to be seen how enthusiastically the new form will be embraced by the market.

Those active in the offshore sector must also remember that FIDIC is historically an onshore contract which must be adapted for use in a marine environment.

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