FIDIC – the potential pitfalls moving from onshore to offshore
There is no standard contract in use in offshore construction projects.
LOGIC contracts are sometimes used, particularly where there are perceived to be similarities between the project being constructed and the oil and gas sector. NEC forms are sometimes used, but, possibly because they are not widely known outside the UK, they have not gained much traction with international contractors. The international supply chain is however more familiar with the FIDIC form of contracts. As a result, FIDIC contracts are often used in offshore projects and the FIDIC Yellow Book (FIDIC’ “Design-Build” model) is particularly popular with offshore wind projects.
In order for the standard FIDIC form to be used effectively in offshore projects, some adjustments need to be made. In particular there are two main potential pitfalls to bear in mind. The first is that FIDIC is, historically, an onshore contract which must be adapted to suit an offshore environment; and second FIDIC is an international contract based on a traditional English style contract, but which (when used offshore) is often governed by a civil code based law – in these circumstances, care must be taken to ensure that the provisions will be enforceable under the governing law.
From Onshore to Offshore
There are two main points which must be considered when adapting the traditionally onshore FIDIC contracts for use offshore. The first are the clauses relating to weather and the second is the role of the Marine Warranty Surveyor.
The standard FIDIC approach to weather is that the Contractor will only be entitled to an extension of time if critical delay is caused by exceptionally adverse climatic conditions. This risk allocation is not always appropriate for offshore projects. The progress of offshore projects is very weather dependent and the marine spread is particularly vulnerable to factors such as wind speed and wave height, even where the conditions encountered cannot be said to be “exceptionally adverse”. Further in an offshore environment, time slots are critically important. Certain activities must be carried out in the summer in order to maintain the scheduled level of progress. If there is slippage in the programme, and some of these activities are carried out in the winter, they will take longer and will be more expensive to carry out. However the standard FIDIC provisions in relation to extensions of time will not always give the appropriate relief in these circumstances.
The solutions to the above issues can include the following:
- the “detailed time programme” required by Clause 8.3 of the standard FIDIC Conditions of Contract can be adjusted take into account realistic weather conditions so that weather constraints can be directly reflected in the planned durations of various activities;
- Clause 8.4 of the standard FIDIC Conditions of Contract can be modified in order to provide a more appropriate mechanism for extending time due to bad weather; and
- bespoke provisions can be included that provide relief where re-sequencing of activities is required as a result of poor or unpredictable weather.
Marine Warranty Surveyor
In many offshore projects, insurance providers insist upon the use of a Marine Warranty Surveyor (MWS) and provide insurance coverage subject to the approval of the MWS. These approvals relate to matters such as working methods, loading and unloading procedures, the shipment of equipment and so forth. This creates challenge when using the FIDIC conditions and in particular with regard to the question as to which party should bear the risk of complying with the MWS’s requirements. It is essential that, at the drafting stage, this matter is addressed and responsibility is clearly allocated.
Here, much will depend upon the underlying approach adopted by the contract. If, for example, the Contractor is responsible for all aspects of the design and the construction process, it might be appropriate for the Contractor to bear the additional risk of complying with any additional requirements of the MWS. On the other hand if more than one contractor is responsible for design and construction, it might be more appropriate for the Employer to bear this risk.
FIDIC and the Civil Code
FIDIC is an “international” contract, but is based on a traditional onshore English engineering contract. FIDIC still retains certain standard features found in English construction contracts, but not all these features are recognised (or enforced) by other legal systems.
An example of this Clause 20.1 of the FIDIC Conditions of Contract, where, if the Contractor wishes bring a claim for an extension of time or additional payment, the Contractor must notify the Engineer not later than 28 days after he became aware, or should have become aware, of the event or circumstance giving rise to the claim. If he fails to give this notice within the 28 day period, he will lose his rights to claim. However, many civil code jurisdictions contain “utmost good faith” provisions. Where (for example) the Employer causes delay through initiating a design change but the Contractor fails to issue a notice within the requisite time, it is sometimes deemed contrary to the provisions of utmost good faith for the Employer to benefit from the design change, but then deny the Contractor an extension of time simply because the Contractor failed to submit a notice on time.
Another example is Clause 11.1 of the FIDIC Conditions of Contract, which requires the Contractor to execute all work required to remedy defects or damage on or before the expiry date of the Defects Notification Period. The Defects Notification Period is the period for notifying defects in the Works, as stated in the Appendix to Tender and is normally a period of 2 years. Once this period expires, the Contractor is released from liability. However, some civil code jurisdictions adopt the concept of decennial liability whereby the Contractor will be liable for a period of 10 years for defects in the Works and any lesser period of time will be unenforceable.
Every project will naturally have its own idiosyncrasies which must be catered for at the drafting stage. The matters set out above give a flavour of the type of issues that must be considered when using FIDIC in offshore wind projects.