FIDIC Red Book
The New 2017 FIDIC Red Book
FIDIC Red Book
Introduction and FIDIC Core Principles
- Second Edition 2017 (first Ed 1999):
- Red Book – Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer;
- Yellow Book 1999 – Conditions of Contract for Plant and Design Build, for Electrical and Mechanical Plant, and for Building and Engineering Works Designed by the Contractor; and
- Silver Book 1999 – Conditions of Contract for EPC/Turn Key Projects.
- 1999 Pre-Release Version Yellow Book unveiled 6-7 December 2016 at the International Contract Users Conference in London.
- Before this there was only the FIDIC Guidance Memorandum to Users of the 1999 Conditions of Contract (1 April 2013).
The FIDIC Red Book refers to a standard form of contract commonly used in construction projects. The latest edition of the Red Book was published in 2017, and is often referred to as the “New 2017 FIDIC Red Book”.
The New 2017 FIDIC Red Book is designed to be a comprehensive contract document that establishes the legal relationship between the employer and the contractor. It provides a standard framework for managing construction projects, and helps to ensure that both parties are aware of their rights and responsibilities.
One of the key features of the New 2017 FIDIC Red Book is the use of a “Dispute Adjudication Board” or DAB. The DAB is a neutral third party that is appointed at the beginning of the project, and is responsible for resolving disputes that may arise between the employer and the contractor. The DAB’s decisions are binding, but can be appealed to arbitration or litigation if necessary.
Another important aspect of the New 2017 FIDIC Red Book is the use of a “Time for Completion” clause. This clause establishes a fixed timeline for the completion of the project, and provides incentives for the contractor to complete the work on time. If the project is completed early, the contractor may be entitled to a bonus. However, if the project is completed late, the contractor may be subject to penalties.
The New 2017 FIDIC Red Book also includes provisions for variations, which are changes to the scope of work or other aspects of the project. The contract provides a standard framework for managing variations, and ensures that any changes are documented and agreed upon by both parties.
In terms of formulas, the New 2017 FIDIC Red Book does not contain any specific mathematical equations. However, it does provide a standard framework for managing construction projects, which can be expressed using a variety of project management formulas and techniques.
For example, the “Time for Completion” clause can be expressed using the following formula:
Time for Completion = Baseline Completion Date + Time Extensions – Time for Delay
- Baseline Completion Date is the date on which the project is expected to be completed according to the original schedule
- Time Extensions are granted by the employer to the contractor for valid reasons such as unexpected events or changes in the scope of work
- Time for Delay is the amount of time for which the project is delayed due to the contractor’s actions or other factors outside of the contractor’s control
To illustrate this formula, consider the following example:
A construction project has a Baseline Completion Date of January 1, 2023. The contract provides for Time Extensions of up to 60 days, and includes a penalty of $10,000 per day for any delays beyond the Time for Completion.
If the project is delayed by 30 days due to unforeseen circumstances, the Time for Completion would be calculated as follows:
Time for Completion = January 1, 2023 + 60 days – 30 days Time for Completion = March 2, 2023
In this case, the contractor would be able to complete the project by March 2, 2023 without incurring any penalties. However, if the project were delayed beyond this date, the contractor would be subject to penalties of $10,000 per day.
The Red Book is divided into three sections, namely:
- The General Conditions, including the General Conditions of Dispute
Adjudication Agreement and Procedural Rules
- Guidance for the Preparation of Particular Conditions, including example Forms
of Parent Company Guarantee, Tender Security, Performance Security Guarantee
(both ‘on demand’ and ‘upon default’) and Advance Payment Guarantee
- Forms of Letter of Tender, Appendix to Tender, Contract Agreement and Dispute Adjudication Agreement (for both one-person and three-person Dispute Adjudication Board)
CLAIM SUBMISSION PROVISIONS (CLAUSE 20)
Perhaps the most noticeable change with respect to claim submissions is that employer’s claims are now addressed alongside contractor’s claims in Clause 20, with the same procedure and requirements applicable to both. What was previously Clause 20 (“Claim, Disputes and Arbitration”) under the 1999 Conditions of Contract has now been significantly expanded and separated into two separate clauses, Clause 20 (“Employer’s and Contractor’s Claims) and Clause 21 (“Disputes and Arbitration”).
Both the employer and contractor are now subject to the same time limits and time-bars for claims, including the familiar 28-day “Notice of Claim” time limit (Sub-Clause 20.2.1) and an increased 84-day time limit for submission of the “fully detailed Claim” (Sub-Clause 20.2.4).
The new Sub-Clause 20.2.4 describes the required content of the “fully detailed Claim”, which the parties now have twice as long to prepare, and which must include “a statement of the contractual and/or other legal basis of the Claim” (Sub-Clause 20.2.4(b)). If the claiming party fails to state the contractual or legal basis for its claim, the claim may be deemed to have lapsed, unless the claiming party is able to justify the late submission.
Subjecting employer and contractor claims to the same requirements under the Revised Conditions seems to have been intended to increase fairness. However, this may create a less fair situation for the employer, which may not have the necessary organisational structure to handle claim management, especially where the employer is carrying out a one-off project.
Clause 20 also includes a new requirement for the engineer to notify the claiming party within 14 days of receipt of the Notice of Claim if the engineer considers the claim time-barred (Sub-Clause 20.2.2, “Engineer’s initial response”).
If the validity of the Notice of Claim is disputed by the engineer or other party, the claiming party must include “details of [its] disagreement or why such late submission is justified” in its fully detailed claim (Sub-Clause 20.2.2). The engineer’s determination must then include a decision on the issue of whether the claim is time-barred (Sub-Clause 20.2.5). In effect, the engineer must take a decision on what could be considered a largely legal matter. This reflects the trend of engineers receiving contract management education as part of their professional training, as do the more detailed provisions for engineer determinations under the Revised Conditions.
ENGINEER’S DETERMINATIONS (CLAUSE 3.7) of FIDIC Red Book
Under the Revised Conditions, the engineer is intended to be very involved in contemporaneous claim resolution. The new Sub-Clause 3.7 (“Agreement or Determination”) sets out a more detailed procedure for the engineer to determine claims and insists that the engineer must “act neutrally between the Parties” and shall not be deemed to act on the employer’s behalf when making determinations. In the same vein, the employer may not require the engineer to obtain prior consent before issuing determinations (Sub-Clause 3.2). Such neutrality was already implicit in previous editions, but has now been made explicit, most likely to counteract observed abuses.
The engineer is required to “encourage discussions between the Parties in an endeavour to reach agreement” (Sub-Clause 3.7.1). If no agreement is reached, the engineer proceeds to issue a determination.
If the engineer does not issue a determination within the time limit (i.e., 42 days or another period agreed between the parties), or if either party is dissatisfied with the engineer’s determination, the parties may proceed to the dispute resolution procedure under Clause 21, described below (see Sub-Clauses 3.7.3, 3.7.5(d), 21.4.1).
DISPUTE RESOLUTION PROVISIONS (CLAUSE 21)
All three Revised Conditions – the Red Book, Yellow Book and Silver Book – now provide for standing dispute adjudication boards, in place for the duration of the Contract (under the 1999 editions, only the Red Book provided for a standing board, with ad hoc boards under the Yellow and Silver Books).
These revisions are aimed at emphasising the importance and value of dispute avoidance. Reflecting this priority, the “Dispute Adjudication Board” or “DAB” has been renamed the “Dispute Avoidance/Adjudication Board” or “DAAB” (Sub-Clause 1.1.22). In addition, the new DAAB Procedural Rules state explicitly that the first objective of the DAAB is “to facilitate the avoidance of Disputes” (Rule 1.1(a)).
Under Sub-Clause 21.3, the parties may jointly request the DAAB to “provide assistance and/or informally discuss” in an attempt to resolve issues, i.e., exercising a mediation function. The new DAAB Procedural Rules also require the DAAB to regularly meet with the parties and/or visit the site outside the context of any formal proceedings (Rule 3). The advice given by the DAAB is, at least in principle, not binding in subsequent DAAB proceedings.
The appointment of DAAB members and the enforcement of their decisions have been made easier under the Revised Conditions. Sub-Clause 21.2 sets out a procedure enabling the establishment of the DAAB, even when one party fails to participate or objects. The “appointing entity or official”, which is to be named in the Particular Conditions (now known as the “Contract Data”) may appoint members of the DAAB. In addition, the parties are deemed to have signed the DAAB Agreement.
DAAB decisions are immediately enforceable, regardless of whether a party objects. The provisions concerning the DAAB procedure have been amended to emphasize that DAAB decisions which have not become final and binding may nonetheless be enforced by separate arbitration proceedings (Sub-Clause 21.7). Where a DAAB decision requires payment, the DAAB may now require the receiving party to provide “appropriate security” for repayment, pending arbitration proceedings (Sub-Clause 21.4.3).
Under Clauses 15 and 16, non-compliance with a DAAB decision is a ground for termination by either party or suspension by the contractor (Sub-Clauses 15.2.1(a)(iii); 16.1(d)(ii); 16.2.1(d)(ii)).
EOT under The New 2017 FIDIC Red Book
EOT, which stands for Extension of Time, is a provision under The New 2017 FIDIC Red Book that allows contractors to request an extension of the project completion date due to circumstances that are beyond their control.
The New 2017 FIDIC Red Book is a standard form contract used in the construction industry, which includes a provision for EOT. This provision allows the contractor to request an extension of time for completion of the project if certain events occur, such as:
- Unforeseeable delays caused by events such as force majeure (natural disasters, war, civil unrest, etc.) or other circumstances beyond the control of the contractor
- Delays caused by the actions or omissions of the Employer, Engineer, or other contractors on the project
- Delays caused by the late issuance of instructions, approvals, or drawings by the Engineer
- Delay caused by variations or changes to the scope of work that are instructed by the Employer
The formula for calculating EOT under The New 2017 FIDIC Red Book is as follows:
EOT = LD x (P + S) / (C x R)
Where: LD = Liquidated damages per day P = Period of delay caused by event(s) S = Any additional time required for completion of the Works C = Contract value R = Rate of delay damages per day
An example of how this formula would work in practice is as follows:
Suppose the contract value is $1,000,000, and the rate of delay damages is $1,000 per day. The liquidated damages per day are $5,000. The contractor experiences a delay of 30 days due to an event that is beyond their control.
Using the formula, we can calculate the EOT as follows:
EOT = $5,000 x (30 + 0) / ($1,000,000 x $1,000) = 0.015 days
Therefore, the contractor is entitled to an EOT of 0.015 days, which would be added to the original contract completion date to give them additional time to complete the project.
It is important to note that the specific terms and conditions related to EOT under The New 2017 FIDIC Red Book may vary depending on the specific contract and circumstances involved.