ESG and sustainability
Law for a sustainable future
Last year, we commented on the new agreements that FIDIC published at the end of 2019. It seems as if FIDIC is now on a roll with a whole host of new contracts and guidance planned for later this year and beyond. These include new publications (a combination of standard forms and practical guides) on EPCM, PPP, collaborative working arrangements and a BIM protocol tailored to fit with the FIDIC forms, as well as a comprehensive guide to FIDIC’s 2017 Red, Yellow and Silver Books. Given that the 2017 contracts are almost double the length of their original 1999 counterparts, there will be a lot of ground for the new guide to cover.
When we wrote about the launch of FIDIC’s 2017 suite, we commented on the perceived gap between the main forms and FIDIC’s Green Book, its short form contract. Last year, FIDIC announced that an updated version of the short form agreement was in the pipeline and we anticipate the new edition being published in September.
As mentioned above, the Green Book is FIDIC’s short form construction contract. It was launched in 1999, along with the other main forms of contract, which were, at the time, collectively referred to as the Rainbow Suite. In the 1st edition, FIDIC states that the Green Book is recommended for works of relatively small capital value and is, therefore, suitable for works that are simple and/or repetitive in nature or of a short duration. The 1st edition is, indeed, a short contract – 15 clauses over 10 pages. It makes no reference to an independent engineer but the guidance states that it can be used in connection with all types of building and engineering developments including contractor-designed civil, mechanical and/or electrical works.
The Green Book can, therefore, be used for more than just straightforward employer-designed work. The simple nature of the form (which can be amended by the inclusion of bespoke ‘Particular Conditions’) lends itself to a wide range of projects that extend to asset and lifecycle management including maintenance work and repair contracts. The agreement can be used alongside more detailed administrative arrangements. It is also interesting to note that it makes provision for disputes to be resolved by adjudication, an unusual feature in FIDIC forms.
In terms of scope and value, FIDIC recommends that the Green Book be used for works packages that are 500,000 or less. However, in our experience, we have seen the 1st edition used frequently on projects that are well in excess of that value, up to as much as $10 million across a number of sectors that include retail office, accommodation and hospitality and leisure.
Even before its publication, we know that the 2nd edition of the Green Book will be a Green Book Plus – namely that it will be a more sophisticated incarnation of the original contract intended to take its rightful place in between the 1st edition and the Red, Yellow, Silver and Pink Books. Looking ahead, beyond COVID-19, as corporates focus on their Responsible Business goals and reducing their carbon footprint, the new Green Book may be an additional tool that is available to procurers and their contractors to help recalibrate the built environment, in particular in relation to real estate refurbishment, redevelopment and retrofitting work.
As expected, FIDIC’s annual conference was a virtual event (and was extremely well organised). We were privileged to be given access to the pre-release version of the 2nd edition. The pre-release version is substantially longer than the 1st edition, but, given the revamp the Red, Yellow and Silver Books had in 2017, this comes as no surprise. In producing its new forms, FIDIC’s stated aim is to increase clarity and give more certainty and the provisions of the pre-release version are more prescriptive. At just over 25 pages, it is more than two and a half times as long as the 1st edition and, apart from the table of contents and a broadly similar number of clauses, the drafting is quite different. The Appendix in the 1st edition has also been developed into a more detailed list of Particular Conditions in the pre-release version.
At a glance, the pre-release version appears to feature some similarities with the NEC. FIDIC 2017 introduced an ‘early warning system’ and it appears to have borrowed from the approach taken in the NEC suite. In the draft 2nd edition of the Green Book, Part A of the Particular Conditions sets out the ‘Contract Data’, this section also provides a number of options for valuing the works (A-E, reminiscent of the NEC ECC options – a lump sum price with single payment, a lump sum price with stage payments, a lump sum price with bill of quantities, remeasurement with a bill of quantities and cost plus) and the insurances and risk tables are new too.
The new version also reflects some of FIDIC’s 2017 themes. As an example, 'Claims' and 'Disputes' have been split into two separate clauses, emphasising the FIDIC distinction between the two; a Claim is an assertion of an entitlement under the terms of the contract and a Dispute arises when a Claim is rejected. There is also reciprocity in each party’s Claims. Claims and Variations are also separated, as in the 2017 contracts.
Another key feature of the new version is the inclusion of the Engineer (who is to “act neutrally between the Parties and shall not be deemed to act for the Employer”), a new and central tenet to the administration of the contract. A number of the Engineer provisions mirror the drafting of the equivalent provisions in the Red and Yellow Books and the clauses bring into the Green Book the contract administration machinery that comes with having an Engineer.
The pre-release edition contains familiar FIDIC clauses and mechanisms that are completely new to the Green Book. These include more standard ‘boilerplate’ provisions (in relation to matters such as assignment, intellectual property rights, professional indemnity insurance, confidentiality and the limitation of liability), as well as new terms that make specific provision in relation to issues, such as the employer’s financial arrangements, site data, responsibility for sub-contractors, testing and commissioning, take over, defects and indemnities.
A particularly noteworthy inclusion, in the pre-release edition, is the incorporation of an altogether new provision which entitles the contractor to payment of the “Prolongation Cost” (or “PGC”) in circumstances where an event occurs that entitles the contractor to an extension of time (an “EOT”). The PGC is defined as the “on-Site and off-Site overheads associated with a compensable EOT, as stated in the Contract Data” and is payable by the employer to the contractor for the duration of the EOT at a daily rate which is calculated in accordance with a formula that takes into consideration the average “weight” of both daily on-site as well as off-site overheads per day.
Part A (the Contract Data) of Particular Conditions states that the PGC “shall be the only compensation due from the Employer to the Contractor for an EOT resulting from a compensable delay” but the same section goes on to say that this does “not affect the Contractor’s compensation rights for other Costs (if any), such as disruption Costs (if any)”.
The new PGC regime is certainly innovative but it is likely to give rise to disputes that include the causes of and responsibility for the delay as well as the contractual formula for calculating the PGC, and indeed the whole mechanism for granting the contractor a contractual entitlement to compensation for employer delay needs to accord with the governing law of the contract. It remains to be seen what is finally included in the 2nd edition of the Green Book.
A recent FIDIC State of the World report highlighted that at least $7 trillion a year is needed to meet global infrastructure needs if the world is to address the growing climate emergency and recover from the effects of the pandemic. FIDIC has long been renowned for its standard form contract for use on international construction projects and it is due to publish the new edition in the next quarter.
In the next Construction webinar, that forms part of our Projects Academy series, we will look back at some relatively recent developments, including the launch of FIDIC’s 2017 suite, its Golden Principles and the anticipated changes to the Green Book. You can register for the session here.
On March 9, 2023, the European Commission (EC) adopted changes to its State aid framework to support its “Green Deal Industrial Plan for the Net-Zero Age” (the Net Zero Plan) presented in February 2023. The Net Zero Plan is part of the European Green Deal, which aims to make Europe the world’s first climate-neutral continent by 2050.
© Norton Rose Fulbright LLP 2023