Beyond COVID-19: Crisis response or road to recovery?
Crisis response or road to recovery?
The engineering and construction contracts published by FIDIC, the International Federation of Consulting Engineers, continue to serve as the preeminent standard form agreements used on international projects. This applies to the mining sector and new editions and new forms of contract will therefore be of interest.
A couple of years ago, FIDIC launched a new suite of contracts to much fanfare; we commented, at the time, on the Red, Yellow and Silver Books 2017. When FIDIC issued the new editions, its core aims were to increase transparency, clarity and certainty and achieve more effective and proactive contract management and collaboration between the parties. To this end, in the 2017 editions, the parties’ duties and responsibilities were set out more prescriptively. A significant consequence of this, however, is the length of the 2017 contracts, which are almost twice as long as the previous agreements. This may, in part, explain why take up in the market of the 2017 Books has been disappointing for FIDIC.
Last year, FIDIC released first editions of two new contracts:
At the International Contract Users' Conference, which took place in London just before Christmas, FIDIC launched the first edition of this new subcontract, which is intended for use where the main construction contract is based on the FIDIC Conditions of Contract for Plant and Design-Build, 1999 Edition (and not, incidentally, the 2017 version).
The new Yellow Book Subcontract is based on the Conditions of Subcontract for Construction for Building and Engineering Works Designed by the Employer, First Edition 2011 (commonly referred to as the “Red Book (1999) Subcontract”) but it incorporates changes from that form to reflect the differences between FIDIC’s 1999 Red and Yellow Books. FIDIC’s new subcontract is to be used where the subcontractor is both designing and building part of the main works and not when it is only designing or only building/supplying part of the works.
Key features include:
Last year, in addition to publishing its new subcontract, FIDIC also launched a much anticipated new form of contract. Given that FIDIC has been around for more than 100 years, what was the impetus behind the new form?
Both engineering underground and sub-surface construction works are highly dependent on the hydrogeological, geological and geotechnical properties of the ground itself. The difficulty in predicting ground behavior and foreseeable conditions means that there is an inherent uncertainty in underground construction which naturally gives rise to unique contractual risks. In addition (and in short), carrying out construction work underground is dangerous.
FIDIC’s new main form contract represents its first attempt at tackling the specific characteristics of underground works.
The new contract is designed for use in connection with all sub-surface works; it can be applied to all common excavation methods, including blasting and mechanised tunneling using special tunnel boring machines (TBMs) and may be appropriate for other types of work that include significant geotechnical uncertainty, for example for caverns used in the energy sector.
FIDIC launched its new ‘Emerald Book’ at the World Tunnel Congress in Naples in May.
Known formally as the Conditions of Contract for Underground Works, the first edition of the Emerald Book represents the result of a joint endeavor between FIDIC and the International Tunneling and Underground Space Association (ITA-AITES). In gestation for more than 5 years, the Emerald Book is based on FIDIC’s Yellow Book 2017 (the inherent level of uncertainty and high risk means the Silver Book was never going to be appropriate starting point) – but it is a standalone contract in its own right.
Prior to its launch, there was no FIDIC book suitable for tunneling projects. Instead, parties would use other FIDIC or standard form contracts, modified with reference to the recommendations, guidelines and checklists published by the ITA.
We know (from FIDIC 2017) that achieving balanced risk allocation is important to FIDIC. This is more important than ever with the new Emerald Book as tunneling and underground works represent high risk territory for contractors. When looking to address the golden triangle of cost, time and quality, FIDIC’s new book will provide valuable guidance for agreeing on a bespoke contract tailored to the specific project.
Specific features of the new Emerald Book include:
The single most important part of the Emerald Book (and a new document in the world of FIDIC contracts) is the Geotechnical Baseline Report (the ‘GBR’). The GBR should set out both cost- and time-based assumptions and any deviation from these assumptions (statements or analysis) will lead to an adjustment in the contract price and/or (as the case may be) the time for completion.
In the second half of the Emerald Book (Appendix A to the Guidance for the Preparation of Particular Conditions, the fourth para on p86), FIDIC asserts that:
“Each risk of foreseeable subsurface physical conditions shall be allocated in the [GBR] to the Party that is best positioned to control it, which leads to more effective risk control. Transparent and equitable allocation of ground related risks leads to more competitive Tenders and lower outturn costs of the Works. The Employer should avoid establishing an overly conservative GBR, as this will render it less effective. Instead, the Employer is advised to provide realistic statements in the GBR to give tenderers confidence in the fairness of the Schedule of Baselines as the basis for the Tender.”
Just as the Works Information document forms an integral part of the NEC ECC, the GBR is of fundamental importance to the Emerald Book. It is a contract document and is listed as the sixth most important document out of the 12 listed in Clause 1.5 (Priority of Documents). The GBR is to describe the subsurface physical conditions and serve as the basis for the execution of the excavation and lining works, including design and construction methods, and the reaction of the ground to such methods. The precise rights and obligations expressly set out in and implied from the GBR are of fundamental importance to the construction of the Emerald Book as a whole. It is, therefore, the starting point – and the parties need to be clear and confident that it fully and accurately reflects the agreed risk allocation.
The introduction of the Emerald Book is timely given the increasing number of infrastructure and energy projects with underground elements. The new contract also fits in with a steady increase in the use of FIDIC forms globally. Next on FIDIC’s agenda is a new edition of its ‘Green Book’ (the short form of contract) and a new ‘Bronze Book,’ an Operate-Design-Build-Operate contract for upgrading existing facilities. The message from FIDIC is clear: “Watch this space!”
The energy storage industry is not a completely new industry and there have been short lived booms before.
© Norton Rose Fulbright LLP 2020