Red book revision

01 May 2008

Publication of the second edition of the Conditions of Contract for Construction by FIDIC marks the culmination of lengthy discussions with banks and international funding institutions.

It seems probable that the international contracting community will not be best pleased with the results of that process, and with good reason. Most of the changes reflect the onerous provisions of the Conditions of Particular Application declared in the World Bank's Standard Bidding Documents for Works.

Contractors will be concerned by the removal of their power of reasonable veto to a proposed replacement engineer. This veto is set to be replaced by a non-binding right of objection, to which the employer must give full and fair consideration.

As the saying goes, “it's all about people,”and given the traditionally wide-ranging power of the engineer, the personal traits of the nominated individual have long been of close interest to the contractor under the Red Book. A new power of the employer to appoint unilaterally any replacement engineer will therefore come as a matter of justifiable concern to contractors.

Implications

FIDIC also looks set to push back the point in time when the employer must notify the contractor of any material change to the employer's financial arrangements. Instead of being when the employer has formed the intention to make the change, the deadline for giving notice is set to slide back to just before the change to these financial arrangements takes place. This sort of last-minute timing would leave little time for a contractor to react to any substantial deterioration in the employer's financial arrangements.

It is also anticipated that the four specified circumstances in which the employer may make a call under a Performance Security will be removed; thereby snuffing out any lingering grounds for pre-emptive action by the contractor to restrain a call.

The Second Edition also appears set to embed the World Bank's stringent requirements in relation to foreign personnel, concerning: ■ provision of a sufficient supply of suitable and reasonably priced food and an adequate supply of drinking and other water; ■taking of precautions to provide protection from insects and pest nuisance and hazards; ■ keeping of complete, detailed and accurate employment records open for inspection.

Revision Benefits

But the expected changes are by no means one-way. The Second Edition is likely to bring about:■ toughening of the notification requirements for employer's claims; ■ requirement that the employer promptly inform the contractor of any change to the engineer's authority; ■obligation of best endeavours on the part of the employer to assist with permissions related to foreign personnel; ■ increases to the advance payments threshold, triggering repayments by the contractor; ■ option for a guarantee in lieu of remaining retention money following the issue of the Taking-Over Certificate; ■ additional restraints on the employer's right to terminate for convenience; ■tightening of the qualifications necessary for members of the Dispute Board and other improvements to the dispute resolution process.

Overall, the banks and international financing institutions have secured a favourable result from FIDIC.

However, the Red Book is most commonly used where any scope for negotiation on the Conditions of Contract is virtually non-existent. So is imposing provisions, which are solely applicable to the procurement of public works in the context of official development aid to developing countries, appropriate?

There is also some talk this year about the multilateral development banks publishing their own form of contract for use with forthcoming harmonised procurement documents. If the financiers do proceed in this manner, then where does this leave the FIDIC form of contract that has been altered largely for the very same, specific use.

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