Introduction

PREFACE This book is intended for anybody having dealings

with FIDIC's "Red Book",
the4 t h E d i t i o n o f t h e " C o n d i t i o n s o f C o n t r a c t f o r W o r k s
o f C i v i l E n g i n e e r i n g Construction" published in 1987. Employers,
engineers, contractors and
their r e s p e c t i v e a d v i s o r s s h o u l d a l l f i n d s o m e t h i n g i n t h i
s w o r k t o h e l p t h e m t o understand and make best use of these
conditions of contract. For those not familiar with the contract, the
commentary to each clause starts with a "plain English" paraphrase to
enable the reader to understand the gist of the clause as quickly as
possible. Except where the meaning of the clause is entirely obvious,
each sub-clause is given a separate paragraph. T h e v o l u m e a l s o
includes a set of some 94 "suggested forms" which may
b e found useful by engineers, employers and contractors. These do not
attempt to a n t i c i p a t e p a r t i c u l a r s i t u a t i o n s b u t r a t h e r t o u s e t h e
w o r d i n g o f t h e c l a u s e t o produce a form of notice which would, it is
hoped, leave no room for doubt or debate as to whether a notice ha d
been given, under which clause it had been given or whether the
notice was in a form which complies with the terms of the c o n t r a c t .
At the very least, the forms section will provide to the
p a r t i e s a reference against which to check that the notice that they
are giving has beengiven and copied to the correct parties. There can be few
types of disputes whichare as fruitless and frustrating as disputes over whether
the correct form of noticehas been given in particular circumstances. Whilst there
are often good reasonsfor requiring notice to be given, it is rare that justice is
done when an arbitrator isforced by the contract to rule out a claim on the
grounds that no or no adequate notice has been given. In short, it is in
everybody's interest that notices are given properly. If parties wished to do
so, they could agree at the outset that notices which conform to those set
out in this volume would not be open to challenges asto form although they
could of course be open to challenge in respect of their t i m i n g , t h e i r
appropriateness or indeed the manner in which the blanks
h a v e been filled. Although the masculine pronouns "he" and "him" have
been used from time totime as a shorthand for the Employer,
the Contractor or the Engineer, this is for convenience and is not
based on any assumption that the parties involved with civil engineering
contracts are necessarily male. The author is well aware that the contrary is
increasingly true. The usage is also consistent with the language of the
conditions. Readers may find it strange that references will be found in this work
to both
theI C E ' s 5 t h a n d 6 t h E d i t i o n . T h e I C E 5 t h E d i t i o n i s r e f e
r r e d t o b e c a u s e t h e draftsman of FIDIC's 4th Edition was
p l a i n l y h e a v i l y i n f l u e n c e d b y I C E ' s 5 t h Edition and the points of
departure are interesting in themselves as well as being
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useful to those readers familiar with the ICE Conditions. References to

ICE 6thE d i t i o n a r e i n c l u d e d b e c a u s e o f t h e h i s t o r y o f t h e
FIDIC form following in
thef o o t s t e p s o f I C E ' s d r a f t i n g : i t i s t h e r e f o r e i n t e r e s t i n
g t o s e e w h i c h o f t h e innovations introduced by FIDIC in their 4th
Edition have been adopted by theICE in their 6th. Knowledge of the
ICE conditions is by no means necessary for the user of this work,
however.A s a u s e r o f c o m m e n t a r i e s o f t h i s s o r t , I a m w e l l a w a r e
t h a t a l l t o o o f t e n t h e particular practical problem, which a reader
experiences is not, covered by the commentary. As a writer, it is impossible
to imagine all problems that might occur even if time and the patience of the
publisher would permit all problems to beaddressed. I should add that even
in cases where the problem experienced by areader appears to have been
addressed and an answer suggested, the reader s h o u l d t a k e g r e a t
care and should avoid any assumption that their
p a r t i c u l a r circumstances were being addressed. Discussion and submission
in the absenceof particular facts is necessarily limited and the reader is
urged to give careful c o n s i d e r a t i o n a n d i f n e c e s s a r y t o t a k e
i n d e p e n d e n t a d v i c e i n r e l a t i o n t o t h e i r particular circumstances.As
this work is intended not only for lawyers but for the full dramatis personae of a
civil engineering project, it was decided that footnotes would be
avoided andreferences to legal cases given a firmly subordinate role. Given the
range of legalsystems in which the FIDIC conditions are used, very often
with the local law asthe law of the contract, an over-dependence
on Commonwealth case-law wouldn o t n e c e s s a r i l y b e h e l p f u l .
R e c e n t d e c i s i o n s a n d d e c i s i o n s f r o m j u r i s d i c t i o n s other than
England have been given priority.It should be confessed at this early stage that
the references to be found in PartII, the Conditions of Particular Application, to
dredging and reclamation have notbeen the subject of any comment. Part II
is however set out in full at the end of this work.Finally, the author
wishes to thank FIDIC for permitting the reproduction of the Red Book for
the purposes of this work.ECC - LONDON1: INTRODUCTIONOrigins of FIDIC
4th
EditionF I D I C i s t h e F e d e r a t i o n I n t e r n a t i o n a l D e s I n g e n i e u
r s - C o n s e i l s a n d i s a n association of national associations of Consulting
Engineers. They have been in

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existence since 1913 and have their headquarters and secretariat in Lausanne
inSwitzerland.FIDIC have produced standard forms of contract for civil
engineering projectssince 1957. The 2nd Edition was published in
1969 and the 3rd in 1977. As the o b v i o u s c o m p a r i s o n i s b e t w e e n
t h e s e c o n d i t i o n s a n d t h o s e p r o d u c e d b y t h e Institute of Civil
Engineers in the UK, known throughout this work as "ICE", it maybe helpful to
record that the ICE 1st Edition was published in 1945 and the
4thE d i t i o n i n 1 9 5 5 . T h e 5 t h E d i t i o n w a s p u b l i s h e d i n 1 9 7 3 a n d
i t w a s u p o n t h i s Edition that the FIDIC 3rd Edition was closely
modeled. FIDIC took the initiativew i t h t h e i r 4 t h E d i t i o n a n d i t m a y
b e t h o u g h t t h a t I C E 6 t h E d i t i o n p u b l i s h e d i n January 1991 shows
that FIDIC has repaid some part of its debt to the ICE. In particular,
FIDIC's ideas in relation to an express obligation upon the Engineer tobe
impartial, the deemed obligation upon the Employer to disclose all
informationconcerning the ground conditions on site and the introduction of
conciliation intothe disputes procedure after the Engineer's decision and before
arbitration, maywell have influenced ICE's 6th Edition. To avoid
confusion with FIDI C editions,the ICE conditions are referred to in the
commentary as ICE 5th and ICE 6th.Nature of the ConditionsFor those who
are unfamiliar with FIDIC's Standard Form, it may assist if the basic
characteristics are set out:- I t i s a f o r m v e r y m u c h i n
t h e t r a d i t i o n a l E n g l i s h m o d e w i t h B i l l s
o f Quantities and a named Engineer whose functions include making
certificationand other determinations independently of the Employer
and indeed impartiallyas between the parties.- I t i s a r e measurement contract with the quantities in
t h e b i l l t r e a t e d a s approximate and the Contract Price having
little relevance save as a means bywhich the competing tenders might be
judged.- T h e E m p l o y e r m a y n o m i n a t e
s u b c o n t r a c t o r s a n d h a s t h e p o w e r t o m a k e direct
payment in the event that the Contractor fails to do so. The Employer is
notm a d e l i a b l e , a s i n s o m e E n g l i s h f o r m s , f o r d
e l a y s b y t h e n o m i n a t e d subcontractors.- R i s k i s d i v i d e d
in line with the philosophy that the Employer is
b e s t p l a c e d to take on those risks which experienced contractor s
could not reasonably beexpected to foresee, which are outside the
control of the parties and which
aren o t r e a d i l y c a p a b l e o f b e i n g c o v e r e d b y i n s u r a n c e . U
n p r e d i c t a b l e g r o u n d conditions are at the risk of the Employer.The earlier
editions of the FIDIC Conditions have been extensively used and the4 t h
Edition is rooted firmly in the tried and tested formula. The
c h a n g e s a r e generally sensible and conservative and the 4th Edition
will no doubt do equallywell.

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The changes made from the 3rd Editi on are referred to at the
beginning of thecommentary under each clause. The principal changes are as
follows:-- C l a u s e 2 . 6 ( E n g i n e e r t o A c t
impartially): an express obligation upon the
Engineer to act impartially as between the parties.T h e E n g i n e e r i s r e q u i r e d t o c o n s u l t
w i t h t h e p a r t i e s u n d e r s o m e 2 5 clauses prior
to granting extensions of time, fixing rates or making an award of costs.
This consultation obligation is discussed further below.- D e s i g n b y
t h e C o n t r a c t o r o r o n e o f h i s
s u b c o n t r a c t o r s i s c a t e r e d f o r i n clause
7.2 (Permanent works designed by Contractor), clause
8.1 (Contractor'sgeneral responsibility) and clause 59.3 (Design
requirements to be expresslystated).C l a u s e 4 4 . 1 ( E x t e n s i o n o f t i m e f o r c o m
p l e t i o n ) n o w p r o v i d e s f o r a n extension for delays
and prevention by the Employer.T h e a m o u n t o f v a r i a t i o n r e q u i r e d t o t r i
g g e r a n a d j u s t m e n t h a s b e e n increased from 10%
in clause 52.3 (Variations exceeding 15%).- A p r o c e d u r e f o r
claims has been set out in new clause 53
( P r o c e d u r e f o r claims).- C l a u s e 6 0 ( P a y m e n t )
has now been drafted in full whereas the 3rd
E d i t i o n left the matter entirely in the hands of the parties to deal with in Part
II.U n d e r c l a u s e 6 7 ( S e t t l e m e n t o f d i s p u t e
s ) a n " a m i c a b l e s e t t l e m e n t " procedure has been
interposed between the Engineer's decision and arbitration.- I f t h e
Employer fails to pay on time,
the Contractor is now given the
optionof sus pendin g wor k or redu cin g the rat e
o f w o r k a s a n a l t e r n a t i v e t o determination: clause 69.4
(Contractor's entitlement to suspend work).In addition, there are numerous
other material amendments and some changes of vocabulary. Only 4 out of
185 sub-clauses escaped change altogether.Amendment of FIDIC's 4th EditionIt
is the author's experience and impression, quite unsupported by statistics,
thatt h e F I D I C C o n d i t i o n s a r e u s e d i n a n a m e n d e d f o r m ,
perhaps in a majority of cases. Certainly, many of the major
E m p l o y e r s i n t h e M i d d l e E a s t a d o p t a n d refine their own standard
sets of amendments. These amendments are generallyaimed at adjusting the
balance of risk in favour of the Employer rather than toremedy any
ambiguities, anomalies or discrepancies in the drafting. Clauses, which
it is suggested require attention in order to remove ambiguities, anomaliesand
discrepancies and thereby to reduce the scope for conflict, are as set
out
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below. For the detailed criticism, the reader is referred to the commentary
under the particular clause referred to.- C l a u s e 2 . 1 ( E n g i n e e r ' s
duties and authority), inability to replace Engineer.Clause 2.5 (Instructions in writing), anomaly as
to date of instruction.-Clause 2.6
(Engineer to act impartially), breadth of item (d).Clause 7.1 (Supplementary drawings and
i n s t r u c t i o n s ) , c l a u s e 1 3 . 1 ( W o r k to be in accordance with
Contract) and clause 51.1 (Variations): clarify Engineer'spower to instruct.C l a u s e 3 7 . 4 ( R e j e c t i o n ) , c l a u s e 3 9 .
1 ( R e m o v a l o f i m p r o p e r w o r k , materials or
plant) and clause 63.1 (Default of Contractor) item (c):
r e m o v e inconsistencies.- C l a u s e 4 2 . 1 ( P o s s e s s i o n o f s i t e
a n d a c c e s s t h e r e t o ) : c l a r i f y r e f e r e n c e t o the clause 14
programme.- C l a u s e 4 4 . 1 ( E x t e n s i o n o f t i m e f o r
completion): clarify item (b).- Clause 4 6.1 ( Ra te
of progress) and clause 63.1 (Default of
C o n t r a c t o r ) item (b) (ii): resolve discrepancy- C l a u s e 4 9 . 2
(Completion of outstanding work and
r e m e d y i n g d e f e c t s ) : clarify Engineer's apparent discretion to
instruct remedial works.- C l a u s e 5 1 . 2 ( I n s t r u c t i o n s f o r
variations): resolve finally that an increase
o r decrease in quantities amounts to "varied work".- C l a u s e 5 2 . 3
(Variations exceeding 15%): put beyond doubt the
c a l c u l a t i o n of the 15%.R e s o l v e r e l a t i o n s h i p b e t w e e n
c l a u s e 5 3 . 1 ( N o t i c e o f C l a i m ) a n d o t h e r clau
ses with notice requirements.C l a u s e 5 9 . 1 ( D e f i n i t i o n o f " n o m i n a t e d s u b
c o n t r a c t o r " ) : t h i s d e f i n i t i o n appears to be excessively
wide.- C l a u s e 6 0 . 3 ( P a y m e n t o f r e t e n t i o n
m o n e y ) : c l a r i f y p o s i t i o n a f t e r T a k i n g - Over
Certificate.- S u b - c l a u s e s 6 0 . 5 t o 6 0 . 8 : e s t a b l i s h
c o n s i s t e n t p o l i c y i n r e l a t i o n t o b r e a c h of contract.- S u b clauses 60.7 and 60.9 and clause 62.2 (Unfulfilled
o b l i g a t i o n s ) : c l a r i f y relationship between these clauses.
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- C l a u s e 6 3 . 1 ( D e f a u l t o f
C o n t r a c t o r ) : r e s o l v e
d o u b t a s t o t i m i n g o f t h e Engineer's certificate and the
Employer's notice and termination.- C l a u s e 6 5 . 3 ( D a m a g e t o
Works by Special Risks): clarify the
C o n t r a c t o r ' s apparent right to complete the works.- C l a u s e
67.1 (Engineer's decision): resolve
r e l a t i o n s h i p w i t h c l a u s e 6 3 . 1 (Default of Contractor) and
clause 69.1 (Default of Employer).This list represents the headline items
but other amendments are suggested in the text and either party to the
contract may wish to make further amendments intheir own interest. There is
a further species of amendment, which might be of benefit to both the
parties such as amending clause 44 (Extension of time) and clause 46
(Rate of progress) to enable the Employer to order acceleration in lieuof
extension of time or in circumstances where the Contractor's
entitlement toextension of time is a matter of dispute.Generally, great care
is needed when amending any standard form of contract.These FIDIC
conditions are generally well balanced and, as with any contract, there
are a great number of links and relationships between different clauses, notall of
which are express or otherwise obvious. W ith any amendment,
therefore,t h e r e i s t h e d a n g e r o f u p s e t t i n g t h e b a l a n c
e o r o f c r e a t i n g u n i n t e n d e d consequential changes to related
provisions. It is in the interests of all parties thatchanges should be kept to a
minimum.2: THE ROLE OF THE ENGINEERClause 2.1 is entitled "Engineer's
duties and authority" but it is necessary to lookr i g h t t h r o u g h t h e
conditions to understand the full scope of his role. In
t h e absence of clause 2.6 (Engineer to act impartially) it would be
apparent that theEngineer has a number of different roles which may be
enumerated as follows:-1 . D e s i g n e r : c l a u s e s
6 , 7 a n d 5 1 2.Quality Controller: clauses 7.2,
3 6 - 3 9 , 4 9 a n d 5 0 3.Value and Certifier:
especially under clauses 48, 52, 60
and 624 . A d j u d i c a t o r :
c l a u s e
6 7 . From the
above it is reasonably clear that the Engineer is intended to act both asagent for
the Employer in the process of obtaining for the Employer the
projectrequired and as an independent person for the administration of the
contract andfor the settlement of disputes.Clause 2.6 (Engineer to act
impartially) creates doubt over this dichotomy. The clause requires the
Engineer when acting in an independent role to be impartial.This raises the
difficult question as to when the Engineer is engaged in which role. The
draftsman has sought to address the question by the use of the general
Page 8 of 264

concept "wherever...the Engineer is required to exercise his discretion... There

isno other reference in the contract to the Engineer's discretion. There follows a
listof actions, which the Engineer takes in his independent capacity.
These actionswould not, it is submitted, always be undertaken in an
independent capacity:
for e x a m p l e , c o n s e n t i n g t o s u b c o n t r a c t o r s u n d e r c l a u s e
4.1 or approving theContractor's design under clause 7.
2 w o u l d n o r m a l l y b e c o n s i d e r e d t o b e functions undertaken as
the Employer's agent.As suggested under clause 2.6, the presumed
intention of the draftsman has,very arguably, not been achieved. It is
difficult to find a function of the Engineer that does not involve
discretion or does not "affect the rights and obligations" of t h e
parties. The notice to commence under clause 41.1
( C o m m e n c e m e n t o f W orks) is to be given by the Engineer. Normally
there would be little doubt that t h e n o t i c e w o u l d b e g i v e n w h e n t h e
Employer wished within the prescribedperiod and is thus a
clear example of an "agent " function. However, there
i s discretion as to when to give the notice within the period and the
parties' rightsare affected. Accordingly, it is certainly arguable that clause 2.6
applies unless itis made clear, "under the Contract" that the Engineer is not
"required to exerciseh i s d i s c r e t i o n " . I n o r d e r t o a v o i d s u c h a n
a r g u m e n t , a s o l u t i o n s i m i l a r t o t h a t adopted by ICE 6th may be
required.Under ICE 6th the Engineer is required by clause 2(8) to act impartially
in relationto all matters other than those "req uiring the specific approval
of the Employer"under the equivalent clause to 2.1 (Engineer's duty
and authority) whereby anya c t i o n s r e q u i r i n g t h e E m p l o y e r ' s
a p p r o v a l a r e t o b e s e t o u t i n P a r t I I . I t w i l l therefore
be necessary for the parties under ICE 6th to list all those functions
of t h e E n g i n e e r w h i c h a r e t o b e u n d e r t a k e n a s t h e E m p l o y e r ' s
a g e n t a n d i n t h e Employer's interest.E x a c t l y t h e s a m e p r o v i s i o n i s
not recommended: it would be unwieldy if theEngineer were
obliged to obtain approval for every agent a ction. It would
bebetter to list in Part II to clause 2.6 those functions in
r e s p e c t o f w h i c h t h e Engineer is not to act impartially.Table 1 sets out
the functions of the Engineer and should assist the parties todecide
which decisions are to be taken as age nt and listed in Part II. The
tablea d v a n c e s a v i e w o n w h e t h e r a n y g i v e n f u n c t i o n s h o u l d b e
considered for theagency list or whether it is intended by the
d r a f t s m a n t o b e a n i n d e p e n d e n t function. The column indicating
where consultation is called for demonst ratesthat consultation
forms part of the Engineer's independent function although not all the
normal independent functions involve consultation. ENGINEER'S ROLE - AGENT
OR
INDEPENDENT?C l a u s e N o . D e s c r i p t i o n A g e n t I n d e p e n
d e n t C o n s u l t a t i o n 2 . 2 , . 4 A p p o i n t m e n t o f Representative,
assistants
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As there is no scope for an intermediate interpretation of

t h e p h r a s e , i t i s necessary to consider which of the two interpretations is
correct. For the narrowinterpretation, it might be argued that it w as intended
as a cross-reference tothose clauses which refer to the clause 44 in the
sam e m anner as clause 52.1 (Valuation of variations) refers to matters "which are
required to be determined inaccordance with clause 52". If there had been no
such item within clause 44.1,the Contractor might have been obliged both
to dem onstrate entitlem ent under,for exam ple, clause 12.2 which allows
him "any extension of time to which theContractor is entitled under clause
44" and additionally to fit the delaying event within one of the other grounds
under clause
44.1.A n a r g u m e n t i n f a v o u r o f t h e b r o a d e r i n t e r p r e t a t i o n w
o u l d n o t d i s p u t e t h e foregoing but would add that the need to cater
for clauses such as clause 17.1and other clauses shown by Table 4 not to
provide expressly for extensions of time means that 44.1(b) was intended to
sweep up these causes of delay as well.Otherwise, it is necessary to force them,
perhaps artificially, into one of the other grounds if an argument for time at large
is to be avoided. For exam ple, unlessthere was express provision in the
conditions, rem edial works due to incorrect d a t a f r o m t h e E n g i n e e r i s
p l a i n l y s o m e t h i n g f o r w h i c h t h e C o n t r a c t o r s h o u l d receive an
extension of time as the Employer could not be entitled to
liquidatedd a m a g e s i n r e s p e c t o f a d e l a y c a u s e d b y h i s E n g i n e e r ,
u n d e r E n g l i s h l a w a t least. Therefore, time would be set at large in the absence of
a right to extensiono f t i m e . A s n e i t h e r d e l a y n o r c l a u s e 4 4 a r e
r e f e r r e d t o i n c l a u s e 1 7 . 1 , t h e proponent of the narrow interpretation of
item (b) would be obliged to bring suchdelay within one of the other grounds.
Item (a) "Extra or additional work" seems i n a p p r o p r i a t e f o r w o r k t h a t
w a s m e r e l y e x e c u t e d i n c o r r e c t l y a n d t h e r e i s t h e objection to item
(d) "any delay... by the Em ployer" that se rvants or agents are n o t
included. This leaves the unsatisfactory "special circumstances"
a n d t h e objection that something catered for expressly by the contract
such as incorrectdata supplied by the Engineer does not qualify as "special". It would
therefore beargued that a broad interpretation was intended.It is submitted that as a
matter of pragmatism, the broad interpretation m ust beadopted
to prevent strained interpretations of the other grounds for extension
of time and to prevent technical and unmeritorious claims that time has been set
atlarge.( i v ) H o w d o e s c l a u s e 5 3 . 1 ( N o t i c e o f c l a i m
s ) r e l a t e t o n o t i c e p r o v i s i o n s contained in the clauses
themselves?T a b l e 4 s e t s o u t t h e n o t i c e r e q u i r e m e n t s t h a t a r e
c o n t a i n e d i n t h e v a r i o u s clauses. Thus in clause 12.2
( A d v e r s e p h y s i c a l o b s t r u c t i o n s a n d c o n d i t i o n s ) notice is required
forthwith and under clause 27.1 (Fossils) the Contractor is to give immediate
notice. Clause 53.1 requires notice within 28 days to be given toboth Engineer and
Employer if additional payment is to be claimed. It opens withthe words "notwithstanding
any other provision of the Contract...". As mentionedin the commentary under clause
53.1, this clause should probably be taken as an
Page 22 of 264

additional requirement but not a substitute for notice provisions given in a

clause.Thus, a failure to give notice forthwith under clause 12.2 to the
Engineer andEmployer will not be repaired by giving notice within 28 days under
clause 53.1.Notice under clause 12.2 would however satisfy the requirements of
clause 53.1.Clause 27.1 (Fossils) only requires notice to be given to the
Engineer so thatf u r t h e r n o t i c e u n d e r c l a u s e 5 3 . 1 c o p i e d t o t h e
Employer would be required.Clause 53.1 is also relevant to the
contents of the clause as a notice merelyindicatin g the
presence of an obstruction or an article of interest would
n o t necessarily satisfy the requirement of notice that the Contractor "intends to
claimany additional payment".W h e r e n o t i c e o f i n t e n t i o n t o c l a i m e x t r a
p a y m e n t f o r v a r i e d w o r k i s r e q u i r e d within 14 days under clause 52.2
(Power of Engineer to fix rates), a notice under clause 53.1 within 28 days would not
suffice.The importance of complying with clause 53.1 is considerably
reduced by theability of the Engineer or arbitrator to deal with the claim in the
absence of noticeunder clause 53.4 (Failure to comply).( v ) H o w d o e s t h e
Contractor recover his prolongation costs and
o t h e r l o s s and expense resulting from delays to the progress of the
works which were not his responsibility?Unlike some standard forms of building
contract, there is no single clause whichaddresses the issue of the
Contractor's loss and expense. The right to recover additional sums is
scattered through the contract as illustrated by Tables 4 and 5.Clause 44.1
(Extension of time complet ion) is not linked to any clause giving
ar i g h t t o p a y m e n t u n l i k e t h e r e l a t i o n s h i p b e t w e e n c l a u s e 5 1 ( V
a r i a t i o n s ) a n d clause 52 (Valuation of variations). As can be seen from Table 4,
all the clauses(other than clause 44) giving an entitlement to extension of time also
give a rightto payment of additional costs. It has been submitted that in
most of the caseswhere the Engineer is obliged to determine additional
costs for the Contractor,extension of time is in fact available. (The
matters listed in Table 5 wou ld notnormally be delaying events.)As to the
events set out in clause 44.1:-( a ) " t h e a m o u n t o r n a t u r e o f e x t r a o r
additional work". If the extra or additionalw o r k h a s b e e n
ordered as a variation, then the Contractor may be able
t o recover any resulting prolongation costs if he is able to demonstrate under
clause52 (Valuation of variations), either that there is no applicable rate or that the
ratehas been rendered inappropriate by reason of the nature or amount
of the extraor additional work. It is arguable, however, as commented under clause
51.2 that"extra" in clause 44.1 (a) includes "automatic" changes in quantities which
resultf r o m a n y i n a c c u r a c y i n t h e b i l l s o f q u a n t i t i e s . T o o b t a i n
a d d i t i o n a l c o s t s t h e Contractor must either demonstrate under
clause 52.3 (Variations exceeding15%) that the "Effective Contract Price" has
changed by 15%; or else must arguethat such changes in quantities fall
within the definition of "varied work" within
Page 23 of 264

clause 52.2 (Power of Engineer to fix rates) with the result that the Engineer
mayadjust the rates to take into account any additional costs incurred.
For more onthis see under clause 51.2.( b ) " a n y c a u s e o f d e l a y
r e f e r r e d t o i n t h e s e c o n d i t i o n s " . A s d i s c u s s e d a b o v e , this
effectively refers to events of delay fo r which provision is made so that
theContractor will recover his prolongation costs under the individual clauses.
Thusfor example, under clause 40.2 (Engineer's determination following
suspension)t h e C o n t r a c t o r i s g r a n t e d a n e x t e n s i o n o f t i m e a n d
" t h e a m o u n t . . . o f t h e c o s t incurred by the Contractor by reason of such
suspension".( c ) " e x c e p t i o n a l l y a d v e r s e c l i m a t i c c o n
d i t i o n s " . T h e r e i s n o p r o v i s i o n f o r payment of
prolongation costs in the event of extremely bad weather.
T h e s e conditions, in common with most sta ndard forms, cause the risk
to be sharedbetween the parties so that the Employer recovers no
liquidated damages and the Contractor recovers no prolongation
costs.( d ) " a n y d e l a y , i m p e d i m e n t
or preventio n by the Employer".
T h e r e i s n o express provision in the contract for reimbursement of
prolongation costs flowingfrom the Employer's default. Various failures by
the Engineer are catered for in c l a u s e s s u c h a s c l a u s e 6 . 4 ( D e l a y s
a n d c o s t o f d e l a y o f d r a w i n g s ) a n d 1 7 . 1 (Setting out). However as is
mentioned in the commentary under clause 44.1 (d),it is arguable that the Engineer's
defaults are not covered by the current grounds.To the extent that delays etc
by the Employer are not covered by an express t e r m , t h e C o n t r a c t o r
is left to recover his prolongation costs as damages for breach
of contract. The action of the Employer which invokes this
g r o u n d f o r extension need not be a breach. The ordering of a
substantial variation which delayed the works would be an example of a delay by
the Employer if not also animpediment and a prevention. The Contractor's
prolongation costs in this event are plainly covered by the variation
clause.( e ) " o t h e r s p e c i a l c i r c u m s t a n c e s " . G e n e r a l l y , i t i s
s u b m i t t e d , t h i s g r o u n d w i l l not refer to matters dealt with in the
contract so that recovery of prolongationcosts will depend upon the
Contractor's ability to demonstrate breach of contractby the Employer.
Page 24 of 264

CLAUSE 1 : Definition and Interpretation

This clause sets out the meanings of almost all the terms in the
contract whicha r e g i v e n
capital letters. The definitions of "Defects Liability Pe
r i o d " a n d "nominated
Subcontractor" are to be found in clause 49.1 and clause 59.
1 respectively. In addition, four terms which have not been given capital letters
arealso
defined.T h e h e a d i n g s a n d m a r g i n a l n o t e s a r e t o b e i g n o r
e d w h e n i n t e r p r e t i n g t h e Contract.T h e r e f e r e n c e s t o i n d i v i
d u a l s i n c l u d e f i r m s , c o r p o r a t i o n s a n d o t h e r l e g a l organiza
tions.Singular words and plural words may be interchangeable where
the context sorequires.Notices, consents, approvals, certificates and
determinations must be given in writing and, with the exception of notices,
must not be unreasonably withheld
or delayed.T h e f o l l o w i n g d e f i n i t i o n s a r e n e w t o t h e 4 t h E d
i t i o n : S u b c o n t r a c t o r , B i l l o f Quantities, Tender, Letter of
Acceptance, Contract Agreement, Appendix toTender, Comme
n c e m e n t D a t e , T i m e f o r C o m p l e t i o n , T e s t s o n C o m p l e t i o n , Rete
ntion Money, Plant, Section, day, foreign currency and writing. What in the3rd
Edition was referred to (but not defined as) "Certificate of Completion", is
nowdefined as the Taking-Over Certificate. "Constructional Plant" has now
becomeContractor's Equipment. The only definition that has not been repeated in
the 4thEdition is "Approved". This definition has essentially been
overtaken by clause1.5 (Notices, Consents etc) which requires approvals to
be in writing. It should benoted that all the definitions are subject to the opening
words "except where thecontext otherwise requires".Sub-clauses 1.2 and 1.4 are
taken from the 3rd Edition; sub-clauses 1.3 and 1.5are new.1.1(a)(i)"Employer"
and "Contractor" - If the Contract Agreement has(a)(ii)Been entered
into, "Employer" and "Contractor" are already defined in that Agreement
and thus in these conditions. Naturally, the parties must ensure thatthe entries in
Part II and the Agreement are identical.T h e C o n t r a c t o r ' s a b i l i t y t o
assign is restricted by clause 3.1 (Assignment of contract)
whereby no part of the contract may be assigned without the
p r i o r consent of the Employer. Under that clause, the consent "shall
be at the sole
Page 33 of 264

discretion of the Employer". Thus, the Employer has the right

to refuse anassignment on any grounds. The Contractor's
consent to an assignment
ish o w e v e r s u b j e c t t o c l a u s e 1 . 5 ( N o t i c e s , c o n s e n t s e t c ) w
h e r e b y " a n y s u c h consent ... shall not be unreasonably withheld
or delayed". Thus, the Employer'sability to assign is greater than that of a Contractor. It
is submitted that bona fideconcern over the financial standing of the
Em ployer's proposed assignee wouldbe reasonable grounds for refusing
consent. It is undoubtedly right that having carefully selected a Contractor to
execute the works, the Employer should have aright of veto over any proposed
assignment.An attempted assignm ent without the requisite co nsent would, in
English law atleast, be ineffective. Again under English law,
an assignm ent by an Em ployer with consent would not relieve that
Em ployer of a primary obligation to pay the Contractor. The Engineer's
contract of engagement would also normally need tobe assigned or novated to the new
Employer.(a)(iii)"Subcontractor" - Under clause 4.1 (Subcontracting), it
should be notedthat the Contractor is not required to obtain consent for
the provision of labour. Thus, a labour-only subcontractor does not fall within the
definition.(a)(iv)"Engineer" - By clause 1.3 (Interpretation), the Engineer
may be a firm, acorporation or other organisation having legal
capacity. The Engineer m ust be named in Part II. It is a new feature of the 4th
Edition that there is no ability in theEmployer to replace the Engineer. In the 3rd Edition
and ICE 5th and 6th, therei s d e f i n e d t h e " E n g i n e e r a p p o i n t e d f r o m
time to time by the Employer". Thepresent definition will not be a
p r o b l e m i f t h e E n g i n e e r i s n a m e d a s a f i r m ; however, the Engineer will
often be a named individual. According to the Guidei s s u e d b y F I D I C o n t h e 4 t h
E d i t i o n , t h e r e a s o n f o r t h i s c h a n g e f r o m t h e 3 r d Edition is that the
identity of the Engineer (and his reputation) has been a factor in the
calculation of the Contr actor's tender. This, it is submitted, is a
mistake.W hilst it is certainly true that a Contractor might well price work
differently if theEngineer is a respected independent professional on the one hand
rather than ag o v e r n m e n t d e p a r t m e n t ' s C h i e f E n g i n e e r o n t h e o t h e r ,
the functioning of thecontract is so dependent upon the
e x i s t e n c e o f a n E n g i n e e r t h e r e m u s t b e a substantial risk of the
project falling apart if its survival is dependent upon the p a r t i e s ' a b i l i t y
to agree a replacement Engineer in the event th at the
n a m e d Engineer died or otherwise ceased to act. If the parties were in
dispute at thetime, the prospects for agreement must be limited.I n t h e o r y , a
dispute over the replacement Engineer would be one capable
o f resolution under the arbitration clause. However, in the absence of an Engineer,i t
is difficult to see how the disputes procedure can commence. It
m a y b e possible to draw a distinction between situations where the
Engineer has died and other circumstances where he is simply failing or refusing to
act. In the latter circumstances, the Engineer is still in existence and the disputes
procedure canadvance by default. If he is dead, there does not seem to be
any way forward without agreement between the parties. The Employer is obliged to
try to replacehim and obtain the Contractor's agreem ent, it is subm itted. For
a case on the
Page 34 of 264

more traditional position, see Croudace v Lambeth (1986) 33 BLR 20, where
theCourt of Appeal held the Employer liable in damages for failing to
replace thecertifier after the retirement of the named person.A similar
distinction may be made with regard to the powers delegated to
theEngineer's Representative under clause 2.3 (Engineer's authority
to delegate). If the Engineer is alive, it is arguable that the Enginee r's
Representative's powers are unimpaired. However, the Contractor's ability to
question any communicationo f t h e E n g i n e e r ' s R e p r e s e n t a t i v e b y
r e f e r e n c e t o t h e E n g i n e e r u n d e r c l a u s e 2.3(b) could effectively bring the
Engineer's Representative's powers to an end.I f t h e E n g i n e e r d i e d o r
o t h e r w i s e c e a s e d t o a c t a n d t h e p a r t i e s a r e u n a b l e t o agree to a
replacement, the effects, it is submitted, would be as follows:-( 1 ) T h e
Employer would not be in breach of his obligation to
e n s u r e t h a t t h e Engineer exercises his functions provided that he has taken
reasonable steps topropose an alternative Engineer and has not been
unreasonable in refusing anynominee of the Contractor. Compare
clause 69.1 (Default of Employer) item (b) "interfering with or obstructing
...any such certificate".( 2 ) N o r w o u l d t h e E m p l o y e r b e i n
b r e a c h f o r f a i l i n g t o p a y t h e C o n t r a c t o r i n the absence
of interim certificates. The obligation would probably be to pay whenthe works were
complete.( 3 ) C l a u s e 6 6 . 1 ( R e l e a s e f r o m
P e r f o r m a n c e ) i s n o t a p p r o p r i a t e a s a n y impossibility
is not "outside the control of both parties". Thus, it may be arguablethat the
fundamental obligations of the parties remain intact:( i ) t h e C o n t r a c t o r ' s o b l i g a t i o n u n d e r c l a u s
e 8 . 1 ( C o n t r a c t o r ' s g e n e r a l responsibilities) to execute
and complete the works survives; and( i i ) t h e o b l i g a t i o n o f
the Employer to pay f or those works as
e x p r e s s e d i n Article 4 of the Contract Agreement or as stated in the Letter
of Acceptance or byimplication will also survive. The Employer
may, however, have no obligation tomake any payment until the works are
complete.( 4 ) I n t h e e v e n t o f a n y d e l a y w h i c h i s n o t t h e
responsibility of the
Contractor,t i m e w o u l d b e a t l a r g e b e c a u s e o f t h e a
b s e n c e o f t h e E n g i n e e r t o g r a n t extensions of time. If
all the delay was the Contractor's responsibility, it
may bea r g u a b l e t h a t c l a u s e 4 7 ( L i q u i d a t e d d a m a g e s f o r d e l a y )
w o u l d c o n t i n u e t o operate as it is not dependent upon the existence of
the Engineer, who is not m e n t i o n e d i n t h e c l a u s e . H o w e v e r ,
s u b s t a n t i a l c o m p l e t i o n i s c e r t i f i e d b y t h e Engineer. The Contractor
could be liable for breach of an obligation to completewithin a reasonable time, once
time was set at large.Thus it is just conceivable that a project could limp onwards
without an Engineer.Plainly, it is most unsatisfactory and an Employer
might be well advised,
havinge x h a u s t e d a t t e m p t s t o a g r e e a n e w E n g i n e e r
simply to appoint one and
Page 35 of 264

thereafter argue, when the Contractor accepts interim payment as certified by

theEngineer, that the Contractor has effectively consented to the new Engineer.For a
discussion on when the Engineer's role comes to an end and he is functuso f f i c i o ,
see under clause 2.1 (Engineer's duties and authority). See
a l s o t h e comments under clause 67.1 (Engineer's decision).(a)(v)"Engineer's
Representative" - The Engineer's Representative is referred toin only
three other clauses: clause 2 (Engineer and Engineer's
Representative)which deals with the delegation of powers by the Engineer to his
Representative;clause 13.1 (W ork to be in accordance with contra ct)
whereby the Contractor isobliged to take instructions from
the Engineer's Representative and clause 15.1(Contractor's
superintendence) on the same subject. In view of the delegation provision,
express mention of the Engineer's Representative
is unnecessary.( b ) ( i ) " C o n t r a c t " - T h e r e i s n o s i g n i f i c a n c e i n t h e
o r d e r o f c o n t r a c t d o c u m e n t s given here. See clause 5.2 (Priority of
contract documents). The reference in earlier editions to a "Schedule of Rates
and Prices, if any" has not been repeatedin this edition. It should be
noted that the term "Contract" includes the Drawingsand it is therefore
arguable that the term includes future drawings. In order tomake sense
of expressions such as "increase or decrease the quantity of any work
included in the Contract" in clause 51.1 (Variations), it is necessary to applythe
exception in the opening words of the current sub-clause: "except where thecontext
otherwise requires".( b ) ( i i ) " S p e c i f i c a t i o n " - A s t h e s p e c i f i c a t i o n
i n c l u d e s a n y v a r i a t i o n s a n d a s t h e specification is part of the
contract, the contract is itself variable. Thus, strictlyspeaking, the
expression "increase or decrease the quantity of any work includedin the
Contract" in clause 51.1 (Variations) is somewhat circular. Equally,
thedefinition of Works is defined by reference to the contract and thus
incorporatesvariability. It must be doubted that this point is ultimately of great
significance.( b ) ( i i i ) " D r a w i n g s " - T h e t e r m i s v e r y w i d e l y d e f i n e d .
T h e i n c l u s i o n o f s a m p l e s , patents and models is perhaps surprising
and produces curious results if takenliterally. For example, under clause
6.1 (Custody and supply of drawings and documents), the Contractor is to
provide for copies. This is one of the occasionswhen the opening words of this subclause, "except where the context
otherwiser e q u i r e s " , w i l l b e m o s t r e l e v a n t . I t i s a l s o i m p o r t
a n t t o a p p r e c i a t e t h a t t h i s definition is not limited to drawings etc in
existence at the time time the Contractis entered into but refers to all future
drawings.(b)(iv)"Bill of Quantities" - Surprisingly, the only other reference
to the prices inthe Bill of Quantities is in clause 12.1 (Sufficiency of Tender): there
is no expressindication at all that the prices are to be used for valuation other than in
relationto variations. See in particular clause 55 (Quantities) and clause 56 (Works to
bemeasured). The 4th Edition no longer contains a reference to the
Schedule of Rates.
Page 36 of 264

(b)(v)"Tender" - It is important to
n o t e t h a t t h e T e n d e r i s a d o c u m e n t " a s accepted by the

Letter of Acceptance". Thus, it is not necessarily the tender assubmitted

by the Contractor but the result of any negotiation prior to the placingo f
the order. Any programme included in the tender will become
p a r t o f t h e contract as the tender is a contract document: f or
diccussion of this see under clause 14.1 (Programme to be
submitted).( b ) ( v i ) " L e t t e r o f A c c e p t a n c e " T h e r e i s n o s p e c i f i e d f o r m f o r t h e L e t t e r o f Acceptance and
careful attention must be paid to its contents, particularly in viewof the priority given
to the Letter of Acceptance by clause 5.2 (Priority of contractdocuments). It is
second only to the Contract Agreement which is an optionaldocument. It
is important to ensure that the Letter of Acceptance matches thetender
or, if there have been subsequent n egotiations, an amended version
of t h a t t e n d e r . O t h e r w i s e , t h e L e t t e r o f A c c e p t a n c e
w o u l d b e n o m o r e t h a n a counteroffer which would require a further acceptance from the Contra
c t o r before a contract was formed. As "the Tender" is a contract
document, conf lictwould result if the tender was not amended. It is also important
to ensure that, if a Contract Agreement is used, the Letter of Acceptance and
Contract Agreementa l s o m a t c h . T h e r e a r e n o t e r m s i n t h e
c o n t r a c t w h i c h g o v e r n t h e L e t t e r o f Acceptance but it is used
extensively as a trigger for periods of time by which certain activities have to
be performed. These are as follows:-Clause 10.1 (Performance security) - 28
daysClause 14.1 (Programme to be submitted) - period prescribed in Part IIClause
14.3 (Cashflow estimate to be submitted) - period prescibed in Part IIC l a u s e 4 1 . 1
(Commencement of Works) - period stated in the Appendix
t o TenderClause 57.2 (Breakdown of lump sum item) - 28 daysThe importance of the
Letter of Acceptance as a starting point in the conditions of contract reinforces the
importance of ensuring that the Letter of Acceptance is anacceptance and not a
counter-offer. It would make a nonsense of the various time periods if they
were running before a contract had been entered into.(b)(vii)"Contract Agreement" A form of Agreement is provided and referred to atc l a u s e 9 . 1 ( C o n t r a c t
Agreement). Both the definition of Contract at
clause1 . 1 ( b ) ( i ) a n d c l a u s e 5 . 2 ( P r i o r i t y o f c o n t r a c t d o c u
m e n t s ) a l l o w f o r f u r t h e r documents to be incorporated as
contract documents. The Contract Agreementshould be amended to record such
further
documents.( b ) ( v i i i ) " A p p e n d i x t o T e n d e r " A s c o m m e n t e d u n d e r t h e d e f i n i t i o n o f
Tender above, there may be negotiations which alter the contents of the
Tender and the Appendix t o Tender before the contract is entered
into. This definitiontherefore refers to the Appendix as
amended.( c ) ( i ) " C o m m e n c e m e n t D a t e " - T h i s d e f i n i t i o n d e t e r m i n e s
t h e d a t e u p o n w h i c h time begins to run on the project. The notice to
commence is not in a specifiedform. See generally the commentary to clause
41 (Commencement of Works).
Page 37 of 264

(c)(ii)"Time for Completion" - This is the contractual completion date as

set outin the contract subject to any extensions under clause 44. Substantial
completionmust be achieved under clause 48.1 (Taking-over certificate) by this date,
failingw h i c h l i q u i d a t e d d a m a g e s w i l l b e p a y a b l e u n d e r c l a
u s e 4 7 . 1 ( L i q u i d a t e d damages for delay).(d)(i)"Tests on Completion" These tests will often include commissioning andare refe rred to in
clause 48 (Taking-Over) as being a prerequisite to substantial completion
and the issue of a Taking-over certificate for the whole or any part of the works for
which such a test is prescribed.(d)(ii)"Taking-Over Certificate" - No form is
prescribed for this certificate: clause 4 8 . 1 ( T a k i n g - O v e r C e r t i f i c a t e )
o n l y s p e c i f i e s t h a t i t s h o u l d s t a t e t h e d a t e o n which, in the Engineer's
opinion, the works were substantially completed.( e ) ( i ) " C o n t r a c t P r i c e " - I t
i s i m p o r t a n t t o a p p r e c i a t e t h a t t h e C o n t r a c t P r i c e i s a fixed sum
as stated in the Letter of Acceptance and the term does not includeany
adjustments to the contract price for variations etc. For more on this
point,s e e t h e c o m m e n t a r y u n d e r c l a u s e 6 9 . 4 ( C o n t r a c t o r ' s
e n t i t l e m e n t t o s u s p e n d work).( e ) ( i i ) " R e t e n t i o n M o n e y " - F o r
c o m m e n t a r y o n t h e u n c e r t a i n t y o f t h e r e t e n t i o n provisions, see under
clause 60.3 (Payment of Retention money).( f ) ( i ) " W o r k s " - T h i s
term is given an
a d j u s t e d m e a n i n g u n d e r c l a u s e 4 9 . 1 (Defects Liability
Period). The definition of Temporary Works is not withoutd i f f i c
ulty as set out under (f)(iii) below. As there are danger
s in includingTemporary Works in the definition of Work
s , t h e d r a f t s m a n h a s t a k e n t h e precaution of putting flexibility ahead
of certainty with the words "or either of themas appropriate". This reinforces
the opening words of the sub -clause "exceptwhere the context otherwise
requires".( f ) ( i i ) " P e r m a n e n t W o r k s " - T h i s d e f i n i t i o n n o w i n c l u d e s
express reference toPlant, a recognition of the growing amount
o f m a c h i n e r y e t c . i n c l u d e d i n c i v i l engineering
projects.( f ) ( i i i ) " T e m p o r a r y W o r k s " This definition is circular with the definition of C o n t r
actor's Equipment. As noted in the commenta
r y t o c l a u s e 4 1 (Commencement of W orks), this is unfortunate
as the failure to commence theW orks is a ground for determination
under clause 63.1 (Default of Contractor).See clause 31.2 (Facilities for
other contractors) for the obligation to make thetemporary works
available to other contractors and clause 32.1 (Contractor tokeep site
clear) and 33.1 (Clearance of site on completion) for the obligation
toremove temporary work. It should be borne in mind that temporary works
are notalways removed, for example temporary linings to tunnels or
temporary roads.By clause 54 (Contractor's Equipment, Temporary Works and
materials) there is
Page 38 of 264

an obligation upon the Contractor to provide temporary works exclusively for

theproject.(f)(iv)"Plant" - This is a new definition not found in the 3rd
Edition or ICE 5th or 6th. It might be confusing as plant is normally regarded as
meaning Contractor'smachinery. Instead, this means the plant to be installed as part
of the permanentworks. The Contractor's machinery is now defined as
Contractor's Equipment.(f)(v)"Contractor's Equipment" - In the 3rd Edition
and ICE 5th, the Contractor'smachinery is called "Constructional Plant". The
current definition is circular withthe definition of Temporary W orks. As noted
in the commentary to clause 41(Commencement of W orks), this is
unfortunate as the failure to commenc e theW orks is a ground for
determination under clause 63.1 (Default of Contractor). ICE 6th has
adopted the term Contractor's Equipment.(f)(vi)"Section" - The W orks may be
broken down into Sections and parts. Thedifference is that a Section
is specifically identified in the contract whereas a part,which is not defined, seems to
be any other sub-division including a sub-divisiono f a S e c t i o n . S e e t h i s
d i s t i n c t i o n i n o p e r a t i o n i n c l a u s e 4 7 . 2 ( R e d u c t i o n o f liquidated
damages), clause 48.2 (Taking over of section s or parts) and clause 48.3
(Substantial completion of parts).( f ) ( v i i ) " S i t e " - T h i s d e f i n i t i o n i s
a v a r i a n t u p o n t h e f o r m u s e d i n t h e 3 r d E d i t i o n and ICE 5th. This
definition falls into two parts:-( a ) P l a c e s p r o v i d e d b y t h e
Employer where the Works are to be
e x e c u t e d ; and( b ) O t h e r p l a c e s w h i c h a r e s p e c i f i c a l l y
d e s i g n a t e d i n t h e c o n t r a c t a s f o r m i n g part of the site.Compare 3rd
Edition and ICE 5th which break down as follows:-( a ) p l a c e s o n , u n d e r
in or through which works are to be executed;
and(b)places provided by the Employer or specifically
d e s i g n a t e d i n t h e c o n t r a c t as forming part of the site.The essential
difference is that (a) is qualified by the words "provided by the Employer"
in this Edition but (b) contains those words in the 3rd Edition and ICE5th. One
significance of this is that the Employer cannot be in breach of
clause42.1 (Possession of site and access thereto) by failing to give possession of
thesite if the site is itself defined as places provided by the
Employer. As the Sitew i l l n o r m a l l y b e d e f i n e d i n t h e c o n t r a c t , t h i s
s h o u l d n o t n o r m a l l y g i v e r i s e t o problems. Nor, it is submitted, should the
omission of the words "on, under, in or through" create difficulties. If the
failure to give possession is the failure of the Employer to organise the
removal, for example, of an underground pipe or cablec o n d u i t , e v e n
though the possession of the surface has been given to
the
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Contractor, the Contractor's claim under clause 42.2 (Failure to give

possession)s h o u l d n o t b e h a m p e r e d b y t h e a b s e n c e o f t
h e s e w o r d s . S e e a l s o t h e commentary under clause 42.1 (Possession
of Site and access thereto). See thecomments under clause 42.1 for further
discussion of the term "Site". ICE 6th hasadded the "other places...designated"
formula to the ICE 5th definition.(g)(i)"cost" - This definition for the
first time expressly excludes profit. Thus, theo n l y o c c a s i o n o n w h i c h
the Contractor is allowed his profit by the contract isunder
clause 69.3 (Payment on termination) where, upon the default
of theEmployer, he is entitled to claim "the amount of any loss
o r d a m a g e " . T h i s definition has been adopted with minor amendments
by ICE 6th. However ICE6th expressly permits profit on three occasions
in the contract in relation to anyadditional temporary or permanent
works.( g ) ( i i ) " d a y " - T h i s e d i t i o n h a s a d o p t e d a p o l i c y o f
g i v i n g p e r i o d s o f t i m e i n multiples of seven days whereas the 3rd Edition
used units of 30 days for longer periods. Compare, for example, clause 67
(Settlement of disputes) in the two editions.(g)(iii)"foreign currency" - It
is important to note that foreign currency does
notm e a n a c u r r e n c y o t h e r t h a n t h e c u r r e n c y i n w h i c h
t h e C o n t r a c t P r i c e i s expressed but any other currency than the
local currency. Thus, the ContractPrice could itself be expressed in a
foreign currency. Part II provides variousamendments to clause 60 and clause
72.2 in relation to currencies.(g)(iv)"writing" - This definition is of particular
relevance to clause 1.5 (Notices, consents etc) which must be in
writing.CLAUSE 1.1 (Definitions)The following definitions are new to the 1992 reprint:-(e)(iii)"Interim Payment Certificate" means any certificate of
payment issued bythe Engineer other than the Final Payment Certificate.(iv)"Final
Payment Certificate" means the certificate of payment issued by theEngineer
pursuant to Sub-Clause 60.8.W h i l s t i t i s n o d o u b t a g o o d i d e a t o h a v e
d e f i n e d t e r m s f o r i n t e r i m a n d f i n a l certificates, the definition of Interim
Payment Certificate raises the question as towhich clauses other than clause 60.2
(Monthly payments) will give rise to interimpayment certificates. The definition
could and, it is submitted, should simply have referred to certificates issued
under sub-clause
60.2.O t h e r c e r t i f i c a t e s t o b e i s s u e d b y t h e E n g i n e e r i n c l u d
e t h e T a k i n g - O v e r Certificate under clause 48 for the whole or part of the
works, a certificate of theContractor's default under clause 63.1 (Default of
Contractor) and the DefectsLiability Certificate under clause 62.1. These
all lead to payments being made
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but are not the certificates for payment

t h e m s e l v e s . U n d e r c l a u s e 5 9 . 5 (Certification of payments to
nominated Subcontractors), the Engineer certifies payment to nominated
subcontractors where the Contractor fails to supply proof that previous sums
certified in relation to nominated subcontractors' work havebeen passed
on. Such certificates fall within the definition of Interim
PaymentCertificates. The certificate under 63.2 (Valuation at date
of termination) is ac e r t i f i c a t e o f v a l u e o n l y a n d n o t a c e r t i f i c a t e
f o r p a y m e n t . I n c o n t r a s t , t h e certificate under sub-clause 63.3
(Payment after termination) is a certificate of p a y m e n t a n d f a l l s w i t h i n
t h e d e f i n i t i o n o f I n t e r i m P a y m e n t C e r t i f i c a t e d e s p i t e being final in
nature. Curiously, a certificate under Sub-Clause 63.3 could showa balance in favour
of the Employer. However, such a certificate is deemed to bea debt and is not strictly
therefore a certificate for payment.W ithin clause 60 (Certificates and
payment) there are certificates under subclause 60.3 (Payment of retention money), subc l a u s e 6 0 . 5 ( S t a t e m e n t a t completion) and under sub-clause 60.6
(Final statement) where part only of the Contractor's draft final statement is not
in dispute.Clause 60.3(a) has always raised the question whether the
release of the firsth a l f o f t h e R e t e n t i o n M o n e y f o l l o w i n g t h e i s s u e
of the taking-over certificateshould be the subject of a special
payment certificate or included in the nextmonthly
interim certificate. Practice varies but more often than not, the
f i r s t moiety of retention is relea sed in the next interim certificate. The
fact that thecertification falls within the definition of Interim Payment
Certificate, does notresolve the
issue.I n o n e r e s p e c t , C o n t r a c t o r s a r e i l l s e r v e d b y t h i s a m e n d m e n t . W h e r e t h e practice would otherwise
have been to issue a special certificate for the releaseof retention, the
Contractor was able to argue that he was entitled to immediate p a y m e n t
by the Employer. Now, such a certificate is an Interim Pa
y m e n t Certificate and the Employer is given 28 days under
Clause 60.10 (Time
f o r payment).T h e e n t r y i n t h e A p p e n d i x f o r t h e " m i n i m u
m a m o u n t o f i n t e r i m p a y m e n t certificates" applies only to
c l a u s e 6 0 . 2 a n d d o e s n o t t h e r e f o r e r e s t r i c t s m a l l payments under
other payment clauses despite the application of the definition.As is plain from the
list of the amendments contained in the 1992 re -print, andthe extracts set
out later in this supplement, the definition has not been used w h e r e v e r i t
is applicable. The term is now used in sub-clauses 60.2,
6 0 . 4 (Correction of certificates) and 60.10 (Time for payment).Perhaps surprisingly,
the result is that three interim payment certificates could bei s s u e d i n t h e s a m e
m o n t h u n d e r c l a u s e s 6 0 . 2 , 6 0 . 3 ( P a y m e n t o f R e t e n t i o n Money) and
59.5 (Certification of payments to nominated Subcontractors).Under clause 69.1
(Default of Employer), interference with the issuing of certainc e r t i f i c a t e s
is a ground for the Contractor to terminate his employment. The
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relevant certificates are those for which time-limits for payment are
given under clause 60.10 (Time for payment). The effect of the definition of Interim
PaymentCertificate and the application of that definition to a number of
certificates other than monthly certificates under clause 60.2 (Monthly
payments) has been theextention of the scope of the interference ground
for termination. For example,i n t e r f e r e n c e w i t h a c e r t i f i c a t e u n d e r
clause 59.5 (Certification of payment tonominated
Subcontractors) would not have been a ground for
d e t e r m i n a t i o n hitherto. Whilst interference with any form of certification is plainly
contrary to thes p i r i t o f t h e c o n t r a c t , i t i s u n l i k e l y t h a t t h e d r a f t s m a n
i n t e n d e d t o e n l a r g e t h e ground for termination to such an extent.1 . 2 : T h i s
rule of interpretation will on occasion be signficant. For
e x a m p l e , clause 12.2 is entitled "Adverse physical obstructions or conditions" but
the word"adverse" does not feature in the clause. Similarly, the titles of clause 63
(Defaulto f C o n t r a c t o r ) a n d c l a u s e 6 9 ( D e f a u l t o f E m p l o y e r )
b o t h i n c l u d e t h e w o r d "default" which is not found in either clause.
This may be just as well given thefact that "default" is used as an
alternative to breach of contract in clause 40.1 (Suspension of work), clause
44.1 (Extension of time for completion) and clause51.1 (Variations). It is always
questionable whether any tribunal is capable of entirely ignoring such clear
evidence of the intentions of the draftsman.1 . 3 : C l a u s e 1 . 1 ( a ) ( i v ) d e f i n e s
t h e E n g i n e e r a s " t h e p e r s o n a p p o i n t e d . . . " . T h i s sub-clause is a
reminder in relation to the Engineer that the Employer may namea f i r m o f
Engineers as distinct from an individual. In view of the lack
o f a n y provision for the replacement of an Engineer who dies or retires, this course
maybe adopted more often.1 . 4 : T h i s i s a s t a n d a r d c l a u s e a n d w a s
c o n t a i n e d i n t h e 3 r d E d i t i o n a n d I C E 5th.1 . 5 : T h i s c l a u s e i s
new and puts beyond doubt what may have been
i m p l i c i t from clause 68 (Notices) that notices, consents etc must be in
writing. Writing isalso required by the following clauses:clause 2.3 Engineer's delegation to Engineer's Representativeclause 2.5 Engineer's i
nstructionsclause 6.1 Engineer's requests for further drawingsclause 6.2 Authorisatio
n of persons to inspect drawingsclause 14.1 Contractor's general description of meth
ods etcclause 17.1 Setting outclause 31.2 Engineer's request for facilities for other
Contractors.
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clause 48.1 Undertaking to finish outstanding workclause 54.5 Requests regardin

g hire of Contractor's Equipmentclause 56.1 Request for Contractor to attendc l a
use 59.5 Contractor's statement of cause for withholding pay
ment fromn o m i n a t e d S u b c o n t r a c t o r a n d n o t i f i c a t i o n
b y C o n t r a c t o r t o n o m i n a t e d Subcontractor.clause 60.7 Contractor'
s discharge.clause 63.1 Warning to Contractor.clause 67.1 Reference of dispute t
o Engineer.There are additional references to written instructions but clause 2.5
(Instructionsin writing) makes this plain.A comparison of this clause
with clause 2.6 (Engineer to act impartially), clause6 7 . 1 ( E n g i n e e r ' s
decision), clause 67.3 (Arbitration) and clause 68
(Notices)reveals an inconsistency in the use of terms such
a s n o t i c e s , c o n s e n t s e t c . Table 6 indicates the clauses in which
the various terms appear."Any such consent, approval, certificate or
determination shall not unreasonablybe withheld or delayed." Notices are
excluded from this list. Notices are givenunder some 37 clauses by
the Employer, the Engineer and the Contractor. Mostcommonly, it is the Engineer
notifying the Contractor of a determination of costsand/or extension of
time. A determination is covered by this clause and thus
mayn o t u n r e a s o n a b l y b e w i t h h e l d o r d e l a y e d . N e i t h
e r t h e n o t i c e s n o r t h e determinations are directly covered by clause
2.6 (Engineer to act impartially) butthey are plainly actions affecting the rights of
the parties and are thus covered byclause 2.6(d). Notices by the Contractor
or the Employer are normally given in t h e i r o w n b e s t i n t e r e s t ,
and if no time frame is specified, none is
n o r m a l l y necessary. As this part of the clause refers as much to the
Employer and theC o n t r a c t o r a s t o t h e E n g i n e e r , i t i s s i g n i f i c a n t
i n r e l a t i o n t o c l a u s e s s u c h a s clause 10.1 (Performance security)
as the right of the Employer to withhold his approval is subject to the test of
reasonableness.Under clause 3.1 (Assignment of contract), the
Employer is given an absoluted iscretion to withhold his consent
"notwithstanding the provisions of sub -clause1.5".
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CLAUSE 2 : Obligations of the Engineer

This clause sets out the powers and obligations of the Engineer and
his team.The Engineer will carry out his duties and exercise
the authority given to him bythe contract but is to obtain the prior approval of
the Employer before exercisinghis authority in relation to the list of items
in Part II. The Contractor does nothave to check that the necessary
approval has been given. The Engineer has nogeneral authority to relieve the
Contractor of any of his obligations.The Engineer may appoint and delegate
duties and/or authority to the Engineer'sRepresentative.D e l e g a t i o n t o t h e
Engineer's Representative must be in writing and must
b e copied to the Employer and the Contractor before it takes effect. Instructions,
etcgiven by the Engineer's Representative after powers have been
delegated willhave the same effect as if given by the
Engineer. However, the Engineer mayre ject work despite the failure of
the Engineer's Representative to do
so. TheC o n t r a c t o r m a y q u e r y a n y a c t i o n o f t h e E n g i n e e r ' s R e p r
e s e n t a t i v e w i t h t h e Engineer who may vary or overrule it.T h e E n g i n e e r
and his representative may appoint assistants and inform
theC o n t r a c t o r o f t h e i r d u t i e s a n d a u t h o r i t i e s . T h e a s s i s t
ants may only
g i v e instructions necessarily within the scope of their duties a
n d t o r e c o r d t h e i r acceptance of work, material etc. Such
instructions are treated as having been given by the Engineer's
Representative.Instructions must be in writing unless the Engineer finds
it necessary to give aninstruction orally. Such an oral instruction will only be
treated as an instruction if either the Engineer confirms it in writing or the
Contractor confirms it in writingwithin 7 days and the Engineer does not
object within a further 7 days.The Engineer must act impartially in exercising
his discretion. His decisions maybe reviewed by an arbitrator.This clause has
been substantially re-cast and reorganised. Sub-clauses 2.4 and2.6 are wholly
new to the 4th Edition.2 . 1 : I t i s a n o v e l f e a t u r e o f t h e
4 t h E d i t i o n t h a t t h e E m p l o y e r i s u n a b l e t o replace the
Engineer should he die or for any other reason cease to carry out hisduties. For a
discussion of this, see the commentary to clause 1.1(a)(iv).( a ) A s t h e
Engineer is not a party to the contract, this
c l a u s e m u s t i m p o s e upon the Employer an obligation to
e n s u r e t h a t t h e E n g i n e e r d u l y p e r f o r m s . Under English law, this
duty is taken to be to ensure that the Engineer certifieswh ere the
contract requires a certificate or makes decisions where the
contractg i v e s t h e E n g i n e e r a c h o i c e w h e t h e r t o a c t o r n o t . T h e
E m p l o y e r i s n o t h e l d responsible for the contents of the decision i.e.
he has no obligation to ensure
Page 44 of 264

that the Engineer acts correctly. He must, however, ensure that the Engineer isfree to
act fairly and correctly. Thus there will not be a breach of contract on thepart of the
Employer on every occasion where an arbitrator reverses a decisionof the
Engineer. For a discussion of one practical consequence of this, see
thec o m m e n t a r y u n d e r c l a u s e 6 3 . 1 c o n c e r n i n g t h e c o n s e q u e n c e s i f
a n E m p l o y e r terminates on the strength of a certificate of default by the
Contractor given bythe Engineer where that certificate is found to be incorrect by an
arbitrator.The express requirement in sub-clause 2.6 that the Engineer act impartially
addst o t h e E m p l o y e r ' s d u t y i n r e l a t i o n t o p r o c u r i n g p r o p e r c
e r t i f i c a t i o n . A s t h e Engineer is not a party to the contract, the
c l a u s e m u s t i m p o s e a n o b l i g a t i o n upon the Engineer's employer. It is
therefore submitted that the Employer is giventhe additional responsibility of
ensuring that the Engineer is not only free to act impartially but that he does so.
A distinction has to be drawn between fairness or correctness and impartiality.
Because so many of the Engineer's decisions
ared i s c r e t i o n a r y , t h e r e i s o f t e n n o o b j e c t i v e l y c o r r e c t d e c i s i o n .
A decision willultimately be correct if it goes unchallenged or if
an arbitrator does not feel itnecessary to ove rturn that decision.
I m p a r t i a l i t y i s m o r e c o n c e r n e d w i t h t h e means by which the Engineer
arrives at his decision. He is obliged to approachthe matter in an even handed way, an obligation reinforced by the
requirementf o r d u e c o n s u l t a t i o n . H e m u s t w e i g h i n h i s m i n d t
h e i n t e r e s t s b o t h o f t h e Contractor and the Employer without regard
to the fact of engagement by theEmployer and leaving out of account any
pressure brought to bear either by the Employer directly or by the potential
consequences of a particular decision under his terms of engagement. It is submitted
that the Employer will be in breach of hisobligation not only if he endeavours to cause
the Engineer to favour his interestsover those of the Contractor but also if the
Engineer is obviously doing so and the Employer fails to take steps to remedy the
position. Technically, the Employer would also be in breach if he failed to take
steps if the Engineer was favouringthe Contractor. Such a state of affairs
would be very unlikely to last long and is equally unlikely to be the subject of
complaint by the Contractor.The liability of a certifier such as the Engineer directly to the
Contractor has beenthe subject of consideration by the Courts over the years. The
House of Lords inSutcliffe v Thackrah (1974) AC 727 he ld that a certifying
Architect did not havethe sort of immunity against a disgruntled contractor
that a judge or arbitrator would enjoy. More recently, the Court of Appeal in Pacific
Associates Inc v Baxter (1989) 3 WLR 1150 held that the Engineer under a muchamended form of FIDICdid not owe a duty of care to the contractor. Although
that decision may havebeen influenced by the particular wording of the
contract under consideration, a Hong Kong court in Leon Engineering and
Construction v Ka Duk Investment Co.Ltd (1989) 47 BLR 139 came to the same
conclusion on a standard form with nounusual wording. In both cases, the court
was influenced by the existence of anarbitration procedure, the purpose of which
was to enable the contractor to obtainredress in the event that the certifier made a
mistake.Leading cases relevant to the Employer's duty in relation to the Engineer
includeP e r i n i C o r p o r a t i o n v C o m m o n w e a l t h o f A u s t r a l i a ( 1 9 6 9 ) 1 2
BLR 82 when the
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Supreme Court of New South Wales found implied terms that the Employer mustnot
interfere with the proper performance by the certifier of the duties
imposedu p o n h i m b y t h e c o n t r a c t a n d t h a t t h e E m p l o y e r i s b o u n d
to ensure that thecertifier performs those duties. The English
C o u r t o f A p p e a l c a m e t o s i m i l a r decisions in Croudace v Lambeth
(1986) 33 BLR 20 and Lubenham Fidelities vSouth Pembrokeshire District
Council (1986) 33 BLR 39. In the latter case, theCourt of Appeal expressed
the opinion that a certifier acting in bad faith would probably make himself
directly liable to the contractor. The Perini and Lubenhamc a s e s a r e a l s o
authority for the view that the Employer does not warrant
t h e correctness of the certifier's decisions.( b ) I t i s
right for the Employer to make known to
t h e C o n t r a c t o r f r o m t h e outset any terms in the
E n g i n e e r ' s t e r m s o f e n g a g e m e n t w h i c h c o u l d i m p a c t upon the
Contractor. Thus, this clause provides for disclosure in Part II of anyprior
approvals that the Engineer needs in order to act. This clause should
nothowever be treated as an encouragement for such obstacles to be
placed in theE n g i n e e r ' s w a y . T h e s e c o n d i t i o n s d o n o t e n c o u r a g e
the requirement of prior a p p r o v a l a s c l a u s e 6 9 . 1 ( D e f a u l t o f
E m p l o y e r ) m a k e s a r e f u s a l o f s u c h a n approval in relation to a
certificate, a ground for termination by the
Contractor. Iti s a l s o s e n s i b l e t h a t t h e C o n t r a c t o r i s n o t o b l i g e d
t o c h e c k t h a t n e c e s s a r y approvals have been obtained for any
given action by the Engineer. If theEngineer acts without such
p r i o r a p p r o v a l , t h a t w i l l b e a m a t t e r b e t w e e n t h e Engineer and the
Employer and may well amount to a breach of the Engineer's terms of
engagement.It is an innovation of these conditions that the Engineer is obliged to consult
withthe Employer and the Contractor under some 21 clauses: such consultation
doesn o t i n a n y w a y r e l i e v e t h e E n g i n e e r o f h i s o b l i g a t i o n t o a c t
i m p a r t i a l l y u n d e r clause 2.6 (Engineer to act impartially). Part II provides
an optional clause to dealwith emergency situations allowing the Engineer to instruct
without obtaining theprior approval of the Employer. This clause is not, it is submitted,
necessary andi n d e e d r u n s c o u n t e r t o t h e i m p o r t a n t p r i n c i p l e t h a t t h e
C o n t r a c t o r n e e d n o t concern himself with whether the Engineer has in fact
obtained approval. In thiscontext, see clause 64.1 (Urgent remedial work).A q u e s t i o n
raised by this approvals procedure is whether the absence of
ar e q u i r e m e n t f o r a p p r o v a l m a y b e t a k e n a s e v i d e n c e t h a t t
h e E n g i n e e r i s authorised to act as agent for the Employer in all other respects.
The answer, it iss u b m i t t e d , i s i n t h e n e g a t i v e . T h e p u r p o s e o f t h e
inclusion in Part II of anyr e s t r a i n t s u p o n t h e E n g i n e e r i s b y
w a y o f w a r n i n g t o t h e C o n t r a c t o r a n d i s confined to limits upon
"the authority specified in or necessarily to be implied from the Contract". The
lack of any general agency is emphasised by item (c) of this sub-clause. So, for
example, the Engineer would not have authority to order acceleration by the Contractor
other than in accordance with clause 46.1 (Rate of Progress). Accordingly, the
Contractor must be careful to ensure that any actionb y t h e E n g i n e e r i s e i t h e r
w i t h i n t h e a u t h o r i t y s p e c i f i e d i n o r n e c e s s a r i l y t o b e implied from the
contract or expressly authorised by the Employer.
Page 46 of 264

This clause has been adapted by ICE 6th which has made the
l i s t o f m a t t e r s requiring approval determinative of the matters in respect of which
the
Engineer m u s t a c t i m p a r t i a l l y . C l a u s e 2 ( 8 ) o f I C E 6 t h r e q u i r
e s t h e E n g i n e e r t o a c t impartially in respect of all matters which are not so
listed.( c ) A s t h e E n g i n e e r i s n o r m a l l y c o n s i d e r e d t o h a v e a
d u a l f u n c t i o n u n d e r t h e contract, to act as the Employer's agent in
certain respects as well as certifier,potential problems may always
arise as to the extent of the Engineer's authorityas agent. For exam ple, if
the Engineer were to ask or or der the Contractor to a c c e l e r a t e o t h e r
than in accordance with clause 46.1 (Rate of progress),
theC o n t r a c t o r w o u l d b e u n w i s e t o c o m p l y w i t h s u c h o r d e r
o r r e q u e s t w i t h o u t checking with the Employer that the Engineer was duly
authorised to make suchrequest on the Employer's behalf. Thus, in this
clause, it is made clear that theEngineer has no authority to waive any
obligation of the Contractor. See alsoclause 7.3 (Responsibility unaffected
by approval), clause 14.4 (Contractor notrelieved of duties or
responsibilities), clause 17.1 (Setting -out) and clause 54.8(Approval of
materials not implied) for other exam ples. See also clause 61.1 (Approval
only by Defects Liability Certificate)."Except as expressly stated in the Contract...". If the
Engineer purports to waivestrict compliance with the letter of the specification,
for exam ple under clause 17.1 (Setting-out) or clause 49.2 (Completion of
outstanding work and
remedyingd e f e c t s ) , t h e C o n t r a c t o r h a s t o d e c i d e w h e t h e r , b y g r a t e f
u l l y a c c e p t i n g t h e offered short-cut, he rem ains exposed to a claim for
breach of contract by theEm ployer, due to a lack of authority in the
Engineer. The question is, therefore,whether any express right to waive is
granted. Under clause 7.1 (SupplementaryDrawings and Instructions) , the Engineer is
given authority to issue instructionsa s n e c e s s a r y f o r t h e " p r o p e r a n d
a d e q u a t e e x e c u t i o n a n d c o m p l e t i o n o f t h e W orks". Whilst the use of
the word "adequate" m ay lend some support to ana r g u m e n t t h a t a n
E n g i n e e r i s i n t e n d e d t o h a v e a d i s c r e t i o n t o a p p r o v e w o r k s which do
not comply strictly with the specification, it is doubtful that a Contractor could
demonstrate that any proposed short-cut was "necessary". The Contractor would, it is
submitted, require a variation to be certain that the acceptance of sub-standard work
could not be challenged later. The power to omit work is a clear example of
an express exception: the Engineer is empowered to vary the work toset a lower
standard than that set out in the specification and it is submitted thatthe Contractor may
generally rely on such an instruction. See under clause 51.1(Variations), however,
for comment on the ability of the Em ployer to challenge variations. For further
discussion on this subject, see under clause 13.1 (Work
tob e i n a c c o r d a n c e w i t h C o n t r a c t ) . S e e a l s o t h e c l a
u s e s d e a l i n g w i t h t h e rectification of defects and dam age such as
clause 17.1 (Setting-out), clause20.3 (Loss or damage due to Employer's
risks) and clause 49.2 (Completion of outstanding work and remedying
defects).Under English law, the re is a distinction to be drawn between
obligations andliabilities. There com es a point in the degree of
performance by the
Contractor w h e n h e h a s s u f f i c i e n t l y f u l f i l l e d t h e r e q u i r e m e n
t s o f t h e c o n t r a c t t h a t t h e "obligation" is replaced, in the event that 100%
compliance does not occur, with a
Page 47 of 264

secondary "liability" to pay damages for the shortfall. It may therefore be arguedby a
Contractor accused of breach of contract in respect of work approved by
theE n g i n e e r t h a t , i n a l l o w i n g a s h o r t c u t , t h e E n g i n e e r w a s n o t r e l i e v i n g t h e Contractor of any
obligation. It must be recognised that this is a lawyer's point and one that
would not necessarily find favour with arbitrators, even in England.Under all the standard
forms of construction contract, it is difficult to determine atwhat point the Engineer
or equivalent becomes "functus officio" or redundant. T h e a n s w e r s m a y
well be different for each of the Engineer's roles. As
t h e Em ployer's agent, his power to issue instructions ceases at the latest
when theDefects Liability Certificate is issued pursuant to clause 62.1
(Defect's liabilitycertificate). It is argued in the commentary under clause
13.1 (W ork to be ina c c o r d a n c e w i t h t h e c o n t r a c t ) t h a t t h e
E n g i n e e r ' s p o w e r t o o r d e r v a r i a t i o n s should come to an end at substantial
completion.As certifier, the Engineer's obligations continue through to the
Final Certificateunder clause 60.8 (Final certificate) which may not be
issued for three months after the Defects Liability Certificate.As adjudicator, giving
decisions under clause 67.1 (Engineer's decision), it seemsthat the Engineer has a role
for as long as disputes may arise under the contract.This could mean for as long as any
applicable law permits disputes to arise to thefull extent of the relevant limitation
periods. Thus, for example, a defect arising inthe works 5 years after com pletion
could cause the Employer to seek to recover d a m a g e s f o r b r e a c h
o f c o n t r a c t f r o m t h e C o n t r a c t o r . T h e C o n t r a c t o r c o u l d defend
him self on the grounds that the defect arose from an error in design
andthe dispute should, according to clause 67.1, be referred to the
Engineer for hisdecision. If the Engineer refuses to becom e involved, the
mechanism of clause 67 allows the dispute to go forward to arbitration by default.I t
is therefore submitted that there is no one moment in
t i m e a t w h i c h t h e Engineer becom es functus but three or m ore. Each
function of the Engineer must be considered
individually.2 . 2 : O n m a n y p r o j e c t s , p a r t i c u l a r l y w h e r e t h e
E m p l o y e r i s a g o v e r n m e n t departm ent, it is the Engineer's
Representative who is the real decision -m aker and the effective Engineer under
the project although he will report to and obtainsignatures from the Engineer named in
the contract, who may be a Governmentofficial or employee. The delegation
must be in writing. Apart from clause
1.1( D e f i n i t i o n s ) , t h e E n g i n e e r ' s R e p r e s e n t a t i v e i s r e f e r r e d t o i n o
nly two other c l a u s e s : c l a u s e 1 3 ( W o r k t o b e i n a c c o r d a n c e
w i t h c o n t r a c t ) w h e r e b y t h e Contractor is obliged to take instructions from
the Engineer's Representative
andc l a u s e 1 5 ( C o n t r a c t o r ' s s u p e r i n t e n d a n c e ) o n t h e s a m e
s u b j e c t . T h e s e references appear to be superfluous as the Engineer's
Representative has no power without delegated authority under clause 2.3 and
power thus delegated isnot dependent upon an express mention in the relevant clause.
Page 48 of 264

It is implicit that the duty of impartiality under sub -clause 2.6

a p p l i e s t o t h e Engineer's Representative and that the powers to open up decisions
contained inclause 67 (Disputes) apply to his decisio ns. These conclusions,
it is submitted,follow from the nature of delegation: the actions of the Engineer's
Representativeare treated as being the actions of the Engineer. See also the
right to query theEngineer's Representative's decisions under sub-clause
2.3.2 . 3 : N o r m a l l y , t h e E n g i n e e r r e t a i n s p o w e r s t o g r a n t e x t e n s i o n s
o f t i m e , o r d e r acceleration, value variations over a particular figure and
issue certificates of default. He will also retain the power to make
decisions norm ally under clause 67.1 (Engineer's decision). Other items not usually
delegated include the noticeto commence, substantial completion, the Defects Liability
Certificate, clause 60(Paym ent) and clause 65 (Special Risks). A Contractor
may be well advised torequire a list of non -delegable powers to be
included in Part II if he wishes to know that the crucial decisions will remain with
the Engineer named in the tender.FIDIC's Guide suggests that any restriction on
delegation in the Engineer's termso f e n g a g e m e n t s h o u l d b e d i s c l o s e d . I t
i s s u b m i t t e d t h a t t h e C o n t r a c t o r i s n o t entitled to assume that authority has
been delegated as notice to the Contractor is essential before a delegation takes effect.
Contractors are therefore obliged tosatisfy themselves on this point before acting on
instructions from the
Engineer'sRepresentative.I f t h e E n g i n e e r d i s a g r e e s w i t h a d e
c i s i o n d e l e g a t e d t o t h e E n g i n e e r ' s Representative, th
e r e i s n o p o w e r u n d e r t h e c o n t r a c t f o r t h e E n g i n e e r t o cou
nterm and the decision unless the decision is questioned by the
Contractor under item (b) of this sub-clause or either the Employer or Contractor
requests ad e c i s i o n u n d e r c l a u s e 6 7 . 1 i n w h i c h c a s e t h e m a t t e r m a y
b e r e v i e w e d . T h e Engineer m ay, however, disapprove work etc which his
representative did notdisapprove. The draftsman is at pains not to use the
term "approve" in clause2.3(a) and thereby raises the question of whether
an approval or expression of satisfaction by the Employer's Representative would
disentitle the Engineer frominstructing the Contractor to rectify work.I n i t e m ( b ) , i t
is not clear to whom the word "he" refers i.e. whether it is
theC o n t r a c t o r o r t h e E n g i n e e r ' s R e p r e s e n t a t i v e w h o h a s t
h e p o w e r t o r e f e r a decision of the Engineer's Representative to the
Engineer for reconsideration. T h i s i s u n f o r t u n a t e a s i t i s o n l y t h i s
s u b - c l a u s e a n d c l a u s e 6 7 ( S e t t l e m e n t o f disputes) which allow decisions
to be altered, other perhaps than by variations or with the agreement of the
Contractor. The Engineer is obliged to respond but not i m e l i m i t i s g i v e n n o r i s
such confirmation etc within the terms of clause
1.5(Notices, Consents etc) which prohibit unreasonable delay. As
discussed inclause 2.4 below, this could cause delay to the
p r o j e c t f o r w h i c h t h e r e i s n o obvious category of extension of time
under clause 44.1 (Extension of time for completion). Reference to the Engineer
under this sub-clause will not amount toa request for a decision under clause 67.1
(Engineer's Decision) because a partyrequiring such a decision must make express
reference to clause 67.1.
Page 49 of 264

Clause 61.1 (Approval only by Defects Liability Certificate) indicates that

anyapproval by the Employer's Representative is not in any event effective. Clause13.1
(Work to be in accordance with contract) requires the Contractor to
executet h e w o r k s i n s t r i c t a c c o r d a n c e w i t h t h e c o n t r a c t t o t
he satisfaction of theE n g i n e e r . I f c l a u s e 1 3 . 1 h a s
n o t b e e n d e l e g a t e d t o t h e E n g i n e e r ' s Representative,
again his expression of satisfaction will not be effective. If it hasbeen delegated, then the
position is unclear. It is submitted that if the work
wasd e m o n s t r a b l y n o t i n a c c o r d a n c e w i t h t h e c o n t r a c t
, t h e n t h e E n g i n e e r ' s Representative would have no power to express
such satisfaction as it would berelieving the Contractor of one of his obligations
under the contract contrary toclause 2.1(c) above.2 . 4 : T h e r e i s a p e r h a p s
inevitable uncertainty about the scope of the power
of a s s i s t a n t s t o i s s u e
i n s t r u c t i o n s . T h e C o n t r a c t o r h a s t o d e c i d e w h e t h e r instructio
ns given by an assistant are "necessary to enable them to carry out
their d u t i e s " , o r " n e c e s s a r y . . . t o s e c u r e t h e i r a c c e p t a n c e o
f m a t e r i a l s . . . " . T h e meaning of the second circumstance is particularly
obscure. Thus, a Contractor will be well advised if in any doubt to seek the
Engineer's confirmation pursuant t o c l a u s e 2 . 3 ( b ) . T h e E n g i n e e r
i s o b l i g e d t o r e s p o n d b u t n o t i m e l i m i t i s specified. This could
put the Contractor in the awkward position of having todecide between the
risk of delay whilst an instruction is queried against the risk t h a t t h e c o s t
of complying with the instruct ion could be irrecoverable if
t h e instruction is held to be unauthorised.An independent inspector nominated under
clause 37.5 (Independent inspection)is to be considered as an assistant under this subclause.2 . 5 : T h i s c l a u s e s u p p l e m e n t s c l a u s e 1 . 5 ( N o t i c e s ,
c o n s e n t s e t c ) b y a d d i n g instructions to the list of items which
must be in writing. There is scope for confusion however with
r e g a r d t o o r a l i n s t r u c t i o n s . T h e C o n t r a c t o r h a s a n obligation to
com ply with such oral instructions but they are not deem ed by the sub-clause
to be instructions until confirmed. Whilst it is obviously necessary tohave a regim e
which prevents unscrupulous Contractors claim ing paym ent for oral
instructions not given, this sub -clause requires the Contractor obeying
theinstructions to run t he risk that confirmation will not be forthcom ing or
that hisown confirmation will be contradicted by the Engineer. There is also
an anomalywhereby confirmation given by the Engineer results in the written
confirmationa m o u n t i n g t o t h e i n s t r u c t i o n w h e r e a s a n u n c o n t r a d i c t e
d confirmation by theC o n t r a c t o r r e s u l t s i n t h e o r i g i n a l o r a l i
n s t r u c t i o n b e i n g " d e e m e d t o b e a n instruction of the Engineer". This
could be significant, for example, in relation tot h e t i m e l i m i t s i n c l a u s e
52.2 (Power of Engineer to fix rates) or clause
5 3 (Procedure for claim s). In the former case, the failure to give notice of
a claim within 14 days of an instruction varying the work could be fatal to the
Contractor'sclaim. Under this clause, if an oral instruction is given varying
the work and
theC o n t r a c t o r w r i t e s s e e k i n g c o n f i r m a t i o n o f t h e i n s t r u c t i
on, but awaits thatconfirmation before giving notice of hi

s c l a i m , t h e E n g i n e e r c o u l d p u t t h e Contractor into difficulties by

failing to contradict the Contractor's confirmation of
oral instruction with the result that the instruction will date back to the original
oralinstruction, possibly putting the Contractor out of time.For the other provisions
dealing with instructions, see clause 7.1 (Supplementaryd r a w i n g s a n d
instructions), clause 13.1 (W o rk to be in accordance with
t h e contract) and clause 51.1 (Variations).2 . 6 : T h i s c l a u s e , w h i c h i s
e n t i r e l y n e w t o t h e 4 t h E d i t i o n , m a k e s e x p r e s s w h a t is otherwise
generally accepted as an im plied term of the contract, namely
thatt h e E n g i n e e r m u s t a c t i m p a r t i a l l y w h e n p e r f o r m i n g h i s r o l e a s
independentcertifier. The difficulty confronting
t h e d r a f t s m a n w a s d e f i n i n g t h a t r o l e a n d distinguishing it from the
Engineer's role as the Employer's agent. The table setout under clause 1.5 will
demonstrate that all of the Engineer's functions are notspecifically included in this list. In
particular, notices, certificates, determinations( o t h e r
than of value) and instructions are not mentioned although they
areu n d o u b t e d l y c o v e r e d b y ( d ) " t a k i n g a c t i o n w h i c h m a y a
ffect the rights andobligations of the Employer
o r t h e C o n t r a c t o r " . T h e k e y w o r d w h i c h t h e draftsman has
used to distinguish between the Engineer's roles is "discretion".The
draftsman appears to have assum ed that the Engineer has no
discretionwhilst acting as the Employer's agent. This assumption may be
incorrect." ( a ) g i v i n g h i s d e c i s i o n , o p i n i o n o r c o n s e n t " . T h e t e r m
" d e c i s i o n " i s r e s e r v e d exclusively for the Engineer's role in the disputes
procedure under clause 67.1(Engineer's decision). The Engineer's
opinion is used throughout the contract tod e c i d e w h e t h e r a s t a t e o f
a f f a i r s e x i s t s , s u c h a s w h e t h e r t h e C o n t r a c t o r h a s defaulted under, for
example, clause 39.1 (Removal of improper work, materialsor plant) or whether rates
and prices are no longer applicable under clause 52.2(Power of Engineer to fix rates).
The most important consents required from
theE n g i n e e r a r e r e q u i r e d u n d e r c l a u s e 4 . 1 ( S u b c o n t r a c t i n g ) , c l a u s e 1 4 . 1 (Programme to be submitted) and clause
46.1 (Rate of progress)."(b) expressing his satisfaction or approval". In relation to the
term "satisfaction",see the commentary under clause 13.1 (Work to be in accordance
with Contract).See clause 61.1 (Approval only by Defects Liability
Certificate) in relation to theterm
"approval"." ( c ) d e t e r m i n i n g v a l u e " . T h e E n g i n e e r i s r e q u i r e d t o d e t e
r m i n e v a l u e u n d e r clause 52 (Valuation of variations), clause 56.1 (Works to be
measured), clause60 (Paym ent) and clause 63.2 (Valuation at date of
term ination). In addition a n u m b e r o f c l a u s e s s u c h a s c l a u s e 6 5 . 3
( D a m a g e t o W o r k s b y s p e c i a l r i s k s ) require the Engineer to value in
accordance with clause 52." A n y s u c h d e c i s i o n . . . m a y b e o p e n e d u p ,
r e v i e w e d o r r e v i s e d a s p r o v i d e d i n clause 67." As will be seen from
the table under clause 1.5 (Notices, consentsetc) there is a mismatch
between this list and the lists given under clause
67.T h e t e r m s " o p e n u p , r e v i e w a n d r e v i s e " a r e t o b e
f o u n d i n c l a u s e 6 7 . 3 (Arbitration) but, it is submitted, the
E n g i n e e r a l s o h a s p o w e r t o r e v i e w h i s decisions when asked for a decision
under clause 67.1 (Engineer's decision). As
Page 51 of 26

decisions of assistants under clause 2.4 (Appointment of assistants) are

deemedto have been given by the Engineer's Representative and
communications by
theE n g i n e e r ' s R e p r e s e n t a t i v e a r e s t a t e d i n c l a u s e 2 . 3 ( E n g i n e
er's authority todelegate) to have the same effect as though
given by the Engineer, this sub clause applies equally to the exercise of discretio
n b y t h e E n g i n e e r ' s Representative and assistants.The existence in
the contract of an obligation that the Engineer be impartial mayg i v e r i s e t o
an argument that the Employer is thereby obliged to nominate
asE n g i n e e r s o m e o n e w h o i s c a p a b l e o f s u c h i m p a r t i a l i t y
. A c c o r d i n g l y , t h e nomination of an employee of the Employer who was
obliged to report proposeddecisions to the Employer and take instructions would
not be in accordance withthe contract. The argument may be largely academic
given that the Engineer willinvariably be named in the tender
documentation and in view of the absence of any power permitting the
Employer to renominate in the event of an Engineer ceasing to act:
see under clause 1.1 (a)(iv). If an Employer did fail to propose
areplacement candidate capable of impartiality, the Contractor might have
groundsfor complaint under clause 69.1 (Default of Employer) item (b) "interfering
with or obstructing... the issue of any such certificate". For further comment on
the effectof this clause on the duties of the Employer in relation to the Engineer,
see under sub-clause 2.1 above.FIDIC's concept of an express obligation
to be impartial has been adopted byICE 6th at clause 2(8). However,
instead of attempting a general definition of theEngineer's functions undertaken
as an independent person, ICE 6th obliges himto be impartial in respect of
all matters which are not listed as ma tters requiringt h e p r i o r
approval of the Employer under the clause equivalent to sub c l a u s e 2.1(b) above. There is, however, no equivalent in ICE 6th to clause 69.1
item (b)permitting the Contractor to terminate in the event of the
Employer "interferingwith or obstructing... any such certificate".On the
wording of this sub-clause, it is not difficult to mount an argument
thate v e r y f u n c t i o n o f t h e E n g i n e e r u n d e r t h e c o n t r a c t i n v o l v e s
a d i s c r e t i o n a n d affects the rights and obligations of the parties. Accordingly,
every function of theEngineer could be subject to the impartiality
obligation with the result that theEngineer would not be able to
function as agent for the Employer serving onlythe Employer's interest.
The Employer would therefore be obliged to speci fy int h e c o n t r a c t
that the Engineer is not "required to exercise his discretion"
i n certain instances. This might be achieved by listing certain functions
required tobe agency functions in Part II. This then becomes similar to the ICE
6th.F o r f u r t h e r c o m m e n t a r y o n t h i s s u b j e c t , s e e t h e
s e c t i o n o n t h e r o l e o f t h e Engineer.
CLAUSE 3 : Assignment
Page 52 of 264

.
The Contractor may not assign any part of its contract unless
t h e E m p l o y e r agrees. The Contractor may however, give his bankers
a charge over moniesd u e u n d e r t h e c o n t r a c t . T h e c l a u s e
d o e s n o t a f f e c t a n i n s u r e r ' s r i g h t o f subrogation whereby
the insurer seeks to recover from another party sums paidout to the
Contractor.Item (b) is new to this edition, as is the reference to clause
1.5 (Notices, consentsetc). The main thrust of the clause remains,
however.O w i n g t o t h e g e n e r a l r e q u i r e m e n t i n c l a u s e 1 . 5 t h
a t c o n s e n t s h a l l n o t b e unreasonably withheld or delayed, it
i s n e c e s s a r y i n t h i s c l a u s e t o g i v e t h e Employer an unfettered
right to withhold his consent f rom an assignment. Anypurported
assignment would be invalid under English law and give the purportedassignee
no rights without the prior consent of the Employer. The two exceptionsrecognise
the realities of the Contractor's financing and insurance arrangements.F o r
further commentary in relation to assignment by the
C o n t r a c t o r , s e e t h e commentary under clause 1.1(a)(ii).
CLAUSE 4 : Sub-Contracting
This clause prohibits the sub -contracting of the whole or any part of
the W orksunless the contract expressly permits it or specifies the name of a
subcontractor or the Engineer gives his consent. The Contractor does
not require consent for labour and the purchase of specified
materials. Regardless of any consent, the Contractor will be fully liable for
the defaults of the subcontractor as if they werethe defaults of the Contractor
himself.T h e E m p l o y e r m a y r e q u i r e a n d p a y f o r t h e a s s i g n
ment to himself of anyg u a r a n t e e o r w a r r a n t y o r o t h e
r c o n t i n u i n g o b l i g a t i o n u n d e r t a k e n b y a subcontractor to
the Contractor which lasts beyond the Defects Liability Period.Sub-clause 4.1 is
largely taken from the 3rd Edition but items (b) and (c) are new.Sub-clause 4.2 is
derived from clause 59(6) of the 3rd Edition.4 . 1 : T h i s s u b - c l a u s e i s
given considerable importance by the fact that
c l a u s e 63.1(e) (Default of Contractor) makes
contravention a ground for termination byt h e E m p l o y e r . I n
contrast with the 3rd Edition and ICE 5th, there is
n o requirement in clause 63.1 that unauthorised subl e t t i n g s h o u l d b e " t o t h e detriment of good workmanship or in
defiance of Engineer's instructions to thecontrary" before the Employer
may terminate. Thus, any technical breach of clause 4.1 could be
disastrous.The consent of the Engineer is subject to clause 1.5 (Notices,
consents etc) andmay not be unreasonably withheld or delayed. Under clause
2.6 (Engineer to act
Page 53 of 264

impartially), the Engineer must make his decision impartially having regard to allthe
circumstances." A n y s u c h c o n s e n t s h a l l n o t r e l i e v e t h e C o n t r a c t o r
from any liability ...".
Thisp r o v i s i o n i s i n t e n d e d t o m a k e i t p l a i n t h a t t h e E n g i n e e r
' s a g r e e m e n t t o a particular subcontractor will be given without any
responsibility being taken for t h e s u b c o n t r a c t o r ' s c o m p e t e n c e a n d
a b i l i t y t o p e r f o r m . I t i s m a d e p l a i n t h a t subcontractors will be treated as if
they were part of the Contractor's organisationfor the purposes of responsibility.
No distinction with regard to responsiblity
ism a d e b e t w e e n s u b c o n t r a c t o r s n o m i n a t e d p u r s u a n t t o c l a u s e 5 9 (
N o m i n a t e d Subcontractors) and the Contractor's own subco ntractors.
Unlike some Englishs t a n d a r d f o r m s , t h e r e i s n o e x t e n s i o n o f t i m e
a v a i l a b l e f o r t h e d e f a u l t s o f t h e nominated subcontractors unless the
selection of the nominated subcontractor was so bad as to amount to
"delay, impediment or prevention by the Emp loyer"within clause 44.1
(Extension of time for completion) item (d). Similarly, if thenominated
subcontractor has any design obligations under clause 59.3
(Designrequirements to be expressly stated), the Contractor is to be given
an indemnityu n d e r t h e n o m i n a t e d s u b c o n t r a c t b u t r e m a i n s l i a b l e t o t h e E m p l o y e r . T h e position in contract is to
be contrasted with the position in tort under English
laww h e r e b y a c o n t r a c t o r i s o n l y l i a b l e f o r t h e d e f a u l t s
o f h i s i n d e p e n d e n t subcontractors if the contractor was negli gent in
their appointment or, possibly, t h e i r s u p e r v i s i o n : s e e t h e d e c i s i o n o f
t h e H o u s e o f L o r d s i n D & F E s t a t e s v Church Commissioners (1988) 3
WLR
368.B e c a u s e o f t h e d a n g e r i m p o s e d b y c l a u s e 6 3 . 1 ( D e f a u l t
of Contractor), aC o n t r a c t o r s h o u l d b e s u r e o f h i s g r o u
n d b e f o r e r e l y i n g u p o n o n e o f t h e exceptions (a) to (c) for which no
consent is needed. These exceptions are newto the 4th Edition save that "the provision
of labour on a piecework basis" was anexception contained both in the 3rd
Edition and ICE 5th. It is submitted that
as u b c o n t r a c t o r w h o p r o v i d e s n o t h i n g b u t l a b o u r f a l l s w i t h i n
e x c e p t i o n ( a ) . Arguably, a subcontractor who provides labour and
purchases materials whichaccord with the specification is also an
exception. However, this would seem togo beyond the intention of the draftsman and it
would be extremely dangerous for a Contractor to proceed on that basis. Equally
dangerous would be to proceed w i t h t h e p u r c h a s e o f m a t e r i a l s w i t h o u t
t h e s p e c i f i c c o n s e n t o f t h e E n g i n e e r because if, through no fault of the
Contractor or any subcontractor, the materialsdelivered did not comply with the
specification, the exception would no longer apply and the Contractor would be in
default.Exception (b) could apply equally to the purchase of materials
directly from them anufacturer by the Contractor or to the purchase through
a supplier. In theformer case, the element of sub -contracting would be in
the manufacture itself.Presumably, (a) should be read restrictively so that
consent would be required
for a s u b c o n t r a c t o r w h o s u p p l i e d m a t e r i a l s a n d p r o v i d e d l a b o u r t o i
n s t a l l s u c h materials.As to (c), the naming of such a subcontractor within the contract
would entitle theC o n t r a c t o r t o u s e t h a t s u b c o n t r a c t o r . I t i s n o t
apparently necessary for the
Page 54 of 264

subcontractor to be a "nominated Subcontractor" as clause 59.1 (Definition

of " n o m i n a t e d S u b c o n t r a c t o r s " ) d o e s n o t i n c l u d e t h e w o r d "
n a m e d " . T h u s , exception (c) may apply equally to the nominated
S u b c o n t r a c t o r s a n d o t h e r subcontractors named in the contract.
Contractors are often required to list intheir tender their proposed
subcontractors. If the Contractor receives no adversecomment and his tender is
accepted, it is obviously sensible that
the Contractor s h o u l d h a v e t o s e e k n o f u r t h e r c o n s e n
t . T h e d e f i n i t i o n o f n o m i n a t e d Subcontractor is itself very wide:
see the commentary under clause 59.1.In general, the Contractor will be well
advised to obtain consent for his every action in connection with subcontracting.4 . 2 : T h i s s u b - c l a u s e i s i n t e n d e d t o
s e c u r e t h e t r a n s f e r t o t h e E m p l o y e r o f guarantees given to the
Contractor by subcontractors. Thus, if there is a need toc l a i m o n t h e g u a r a n t e e ,
t h e E m p l o y e r c a n d e a l d i r e c t l y a n d i s n o t d e p e n d e n t upon the survival
or willing co-operation of the Contractor. The difficulty with thiss u b - c l a u s e i s t h a t
v i r t u a l l y e v e r y s u b c o n t r a c t o r h a s , b y e n t e r i n g i n t o h i s s u b - contract
"undertaken ... [a] continuing obligation extending for a period exceedingthat of
the Defects Liability Period". Whilst the subcontractor's right or obligationto remedy
defects in his works expires with the Defects Liability Period, he has ac o n t i n u i n g
obligation to pay damages for breach of contract for defects in
hisworks until the expiry of the limitation period. Thus, if the
c l a u s e w a s t a k e n literally, the Employer would be entitled to the assignment of all
sub-contracts.Accordingly, a Contractor would be well advised to seek to amend this
clause tolimit the obligations to be assigned to guarantees and obligations
other than thebasic contractual obligations and/or to prohi bit the Employer
from pursuing theContractor in relation to any defects emerging from the
subcontractors' works.It may be important to appreciate the distinction, in English law at
least, betweenassignment and other transfers of rights such as novations. A n
assignment willnot give the Employer the same rights as if the contract was directly
between theEmployer and the subcontractor. The Employer will only have the
same rightsa g a i n s t t h e s u b c o n t r a c t o r a s t h e C o n t r a c t o r w o u l d h a v e
h a d . T h u s , i f f o r a n y reason the Contractor has suffered no loss as a
result of some breach by
thes u b c o n t r a c t o r , t h e E m p l o y e r w o u l d b e u n a b l e
t o r e c o v e r a g a i n s t t h e subcontractor regardless of the loss which he
had incurred. Assignments are alsos u b j e c t t o a n y r i g h t s t h e C o n t r a c t o r
m a y h a v e a g a i n s t t h e s u b c o n t r a c t o r , f o r example, a defence of set-off. By
contrast, under a novation, the original
contractc o m e s t o a n e n d a n d a n e w c o n t r a c t i s f o r m e d b
e t w e e n E m p l o y e r a n d subcontractor. Novations can be implied
b u t n o r m a l l y a r e a g r e e d e x p r e s s l y between Employer, Contractor and
subcontractor. This is necessary as, under atrue novation, the Contractor
is released by the subcontractor from any liability.Assignments can only
transfer the benefit of the contract and not the burden. Novation can transfer the
burden but this requires careful drafting.This clause should be read with clause
54.5 (Conditions of hire of Contractor'sEquipment), clause 54.7
(Incorporation of clause in subcontracts) and clause 63.4 (Assignment of benefit
of agreement) which seek to secure for the Employer
Page 55 of 264

the proceedings. Parties would therefore be well advised to sp

e l l o u t t h e i r intentions. For example, they could agree that all
communications between the p a r t i e s a n d w i t h t h e E n g i n e e r s h o u l d
b e i n t h e s p e c i f i e d l a n g u a g e a s s h o u l d certain categories of records
which are likely to be scrutinised for purposes suchas for valuation or in a
dispute.Similarly, although the law of the contract is to be nominated in Part II, the
law of the procedure of an arbitration is not specified. Thus, if an ICC arbitration
takesp l a c e i n P a r i s , i t w i l l b e F r e n c h p r o c e d u r a l l a w t h a t w i l l
a p p l y a n d w o u l d b e enforced, if necessary, by the French courts. The
parties may wish to make aconscious decision and agree where
arbitrations should ta ke place and/or the procedural law to apply with an
amendment either to this sub-clause or to clause67 (Settlement of disputes).The
nominated law of the contract does not exclude the local or other
countries'laws entirely. The following lists are not exhaustive:-(a) Local laws may
impinge in the following areas:-Working days and hoursEmployment rulesImport and
export of plant, materials etcTaxes and dutiesPlanningClause 26 (Compliance with
statutes, regulations)(b) The laws of other countries may impinge in these areas:Insurance, for example, decennial liabilityPerformance securityArbitration procedural
lawOff-site manufactureGoods in transitIn addition, rules adopted such as a
Standard Method of Measurement or theICC rules of arbitration will
govern areas of the contract. In clause
63.1 (Defaulto f C o n t r a c t o r ) , t h e e x p r e s s i o n " d e e m
e d b y l a w " a p p e a r s . T h e a b o v e demonstrates that such an
expression is imprecise.Difficulties may be encountered if the specified law is not
recognised by a countrywhose courts are being asked to enforce
a contractual remedy or an arbitrator'saward. In DST v Raknoc (1988) 2 AllER
833, the English Court of Appeal refusedto recognise the existence of lex mercatoria.
A party had sought to persuade thec o u r t t h a t t h e r e e x i s t e d a
transnational body of commercial law but the
c o u r t remained sceptical. Nevertheless, the English courts
will normally enforce suchan award."...the law of which shall apply to the
Contract...". The boundary between the lawo f t h e c o n t r a c t a n d o t h e r l a w s
is made no easie r to draw by these words. It
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appears to be intended that the influence of the named law should reach beyondthe
construction and interpretation of the contract.I n c o u n t r i e s w i t h c i v i l l a w
s y s t e m s s u c h a s F r a n c e a n d a n u m b e r o f M i d d l e Eastern countries
which have modelled their systems on France, the civil code, apart of private law,
will apply to m any projects undertaken in those countries.
If t h e p r o j e c t i s a p u b l i c w o r k s p r o j e c t , h o w e v e r , t h
e c o n t r a c t w i l l b e a n adm inistrative contrac t and certain specific
public law rules apply in the public interest, in many cases regardless of the terms
of the contract. If the contract is aprivate law contract certain terms are also imposed or
implied.In such a civil law country, a choice of the law of the contract other
than the lawof the country would be impracticable, even if legal. In many cases an
arbitrationaward based on a foreign law might not be enforceable in the civil law country
for reasons of public policy. In any event considerable difficulties
would result fromthe application of two relevant laws to the whole of a single contract.
All countriesr e q u i r e t h a t t h e l o c a l l a w o r l e x s i t u s g o v e r n s
r i g h t s o f p r o p e r t y a n d m a n y countries have extended this to
m a t t e r s s u c h a s e m p l o y m e n t l a w . S o m e c i v i l code countries have
extended this to personal obligations relating to property sot h a t t h e r e w o u l d
be virtually no scope for a different nominated law of
t h e contract. Points of similarity and dissimilarity with civil code principles common
tomany countries are noted in the comments under the following clauses:- c l a u s e
1 2 . 2 ( A d ve r s e p h ys i c a l o b s t r u c t i o n s o r
c o n d i t i o n s ) - T h e o r i e d e s sujetions imprevues;clause 20.4 (Employer's risks) Theorie de l'imprevision;- c l a u s e 4 7 . 1
( L i q u i d a t e d d a m a g e s f o r d e l a y) - c i v i l a n d
a d m i n i s t r a t i v e l a w treatment of penalties;- c l a u s e 5 1 . 1
(Variations) - Power of Administration to vary
c o n t r a c t o r Fait du Prince;- c l a u s e 5 2 . 1 ( V a l u a t i o n o f
v a r i a t i o n s ) - P o we r o f A d m i n i s t r a t i o n t o
v a r y contract or Fait du Prince;- c l a u s e 6 5 ( S p e c i a l r i s k s ) T h e o r i e d e l ' i m p r e vi s i o n ; -clause 70.1
(Increase or decrease of cost) - Theorie de
l'imprevision;- c l a u s e 7 0 . 2
( S u b s e q u e n t l e g i s l a t i o n ) - F a i t d u P r i n c e ; c l a u s e 7 1 . 1 ( C u r r e n c y r e s t r i c t i o n s ) F a i t d u P r i n c e ; - c l a u s e 7 2 . 1
( R a t e s o f E xc h a n g e ) - T h e o r i e d e
l ' i m p r e v i s i o n . Briefly, Theorie des sujetions imprevues (liter
ally the theory of unforeseenc o n s t r a i n t s ) p e r m i t s c o m p e n
s a t i o n o f a C o n t r a c t o r w h o e n c o u n t e r s a n exceptional
physical constraint which is not due to any act of the
adm inistrationa n d w a s n o t f o r e s e e n a t t h e t i m e o f t h e c o n t r a
c t . T h e o r i e d e l ' i m p r e v i s i o n (literally, theory of want of foresight)
compensates the Contractor in the event of unforeseeable financial, econom ic
and political circumstances. Fait du Prince,m eaning act of state, provides
an opportunity for the Contractor to obtain fullreimbursement where the
adm inistration has som ehow intervened by changing the law or acting in a way
that alters the economic balance of the contract. In thiscontext, it is worthy of note
that normally for the pur poses of Fait du Prince, the
Page 58 of 264

governm ent is regarded as one and indivisible so that an action of one

ministrywhich affected a Contractor in contract with another m inistry would
be a groundupon which the Contractor would be entitled to rely to obtain
compensation.
Seet h e c o m m e n t u n d e r c l a u s e 2 6 . 1 ( C o m p l i a n c e w i t h s t a t u t e s , r e g
ulations). Ane x t r e m e e x p r e s s i o n o f F a i t d u P r i n c e i s t h e p o
w e r o f t h e a d m i n i s t r a t i o n t o terminate the contract
unilaterally.T h i s c l a u s e s h o u l d b e r e a d w i t h c l a u s e 2 6 (
Compliance with statutes,regulations) and clause 7
0 . 2 ( S u b s e q u e n t l e g i s l a t i o n ) . T h e d i f f i c u l t y o f disting
uishing the roles of arbitration and
the adm inistrative courts is mentionedunder clause 67.3
(Arbitration).5 . 2 : U n d e r t h e 3 r d E d i t i o n , t h e c o n d i t i o n s P a r t I a n d I I
were given priority over the remainder of the contract documents
which were to be taken as
mutuallye x p l a n a t o r y . R e a s o n a b l y u n f o r e s e e n c o s t s f l o w i n g
f r o m t h e E n g i n e e r ' s instructions were recoverable but no time. In this edition,
all the documents areinitially to be taken as mutually explanatory but the Engineer is
given a full order o f p r i o r i t y t o a s s i s t h i m i n t h e r e s o l u t i o n o f
d i s c r e p a n c i e s . P a r t s I a n d I I a r e substantially dem oted in the
order. There is no provision for time or costs and t h e C o n t r a c t o r w o u l d
have to endeavour to bring any consequences of
theEngineer's instruction within clause 44.1 (Extension of time fo
r c o m p l e t i o n ) and/or clause 51.1 (Variations). The ICE, in their 5th and 6th Editions,
decline togive a list of priority of the documents, requiring all the contract documents to
beread as mutually explanatory.Although the prescribed order is consistent with
the principle of giving particular clauses precedence over general
Standard Form clauses, there is a danger for t h e p a r t i e s t h a t t h e
f a m i l i a r a n d d e s i r e d t e r m s o f t h e s e c o n d i t i o n s c o u l d b e overridden
by one or other of the four preceding docum ents. Thus, the partiesm ust
check the preceding docum ents very carefully for anything which could
beinconsistent with the conditions that they require. In particular, there is a danger that
documents intended to be subordinate to the conditions will be incorporatedby
reference into the docum ents having priority. For exam ple, clause 2 of
theContract Agreement incorporates all of the particular docum ents listed
in thissub-clause as well as the Specification, the Drawings and the bill of
quantities.That incorporation is a necessary part of the Agreem ent which
may be the
onlyd o c u m e n t s i g n e d b y t h e p a r t i e s a n d m u s t t h e r e f o
r e b e c o m p r e h e n s i v e . Nevertheless, if it is used, it does not assist in the
interpretation of clause 5.2. Itis submitted that the correct approach is to disregard that
particular incorporationas it brings in all contract documents and does not advance the
priority issue. If however, the Letter of Acceptance, for example, was to incorporate by
referencethe Specification, then the Specification would have to be studied
with extrem ecare to ensure that the conditions were not accidentally overruled.I n
the event of an ambiguity or discrepancy i n the contract
d o c u m e n t s , t h e Engineer is obliged to issue an instruction. The clause does not
specify who maytrigger this action nor, unusually for this edition, is there any notice
provision. It issubmitted that either the Contractor or the Employer m ust have
pointed out an
Page 59 of 264

alleged ambiguity or discrepancy and that the Engineer s

h o u l d n o t i s s u e instructions under this clause uninvited. The existence
or otherwise of ambiguityor discrepancy will be of considerable significance
as, in the absence of such aproblem, the docum ents are to be taken
as m utually explanatory. For
exam ple,t h e C o n t r a c t o r m a y c o n s i d e r t h a t w o r d i n g i n c l u d e d
in his tender is moreadvantageous to him than a
c o n d i t i o n i n P a r t I : i f h e c a n d e m o n s t r a t e a n ambiguity or
discrepancy between the clauses, his tender would take priority.It seems clear that the
Engineer is to instruct on matters of interpretation as wellas discrepancies in
relation to the physical work. This is plainly sensible as acontract could
otherwise run into difficulties in the absence of a decision on a point of
interpretation. This is reinforced by the fact that the Engineer is obligedby clause 67.1
(Engineer's decision) to settle matters of interpretation which arethe subject of dispute
between the parties.It is subm itted that the Engineer is to instruct on
am biguities and discrepancies n o t o n l y b e t w e e n t h e v a r i o u s c o n t r a c t
d o c u m e n t s b u t a l s o w i t h i n d o c u m e n t s . Thus, it would be possible to ask the
Engineer to instruct, for example, to resolvethe discrepancy between the time
lim its for claim s set out in clause 52.2 (Power of Engineer to fix rates) and
clause 53.1 (Notice of claims). To achieve maximumc l a r i t y , a n y o f t h e
a m b i g u i t i e s r e f e r r e d t o i n t h i s c o m m e n t a r y w h i c h a r e n o t resolved
by am endment to the contract, shou ld be resolved by instruction of
theEngineer at the outset. Often, however, the parties may decide it to be
in their respective interests to maintain an elem ent of ambiguity in the
hope that it
willg i v e t h e m e i t h e r f l e x i b i l i t y d u r i n g t h e w o r k o r r o o m f o r
n e g o t i a t i o n a t t h e conclusion of the works.The Engineer's instruction would
not normally entitle the Contractor to additionalpaym ent directly as it is merely
interpreting the existing contractual obligations between the parties and thus
cannot itself amount to a variation. The instructionmay however mean that work
executed or to be executed by the Contractor wasnot part of the original contract works
and thus must be paid for as a variation.P a r t I I p r o v i d e s a l t e r n a t i v e
clauses, either prescribing an alternativ e order
of p r i o r i t y o r s t a t i n g t h a t t h e v a r i o u s d o c u m e n t s a r e t o b e
t a k e n a s m u t u a l l y explanatory.
CLAUSE 6 : Drawings to the Contractor
The Engineer is to provide two free copies of the drawings to the
Contractor. TheContractor will have to m ake any further copies himself. The
Contractor must keep the drawings and specification confidential and use them or
show them to at h i r d p a r t y o n l y w h e n s t r i c t l y n e c e s s a r y f o r t h e
p r o j e c t . W h e n t h e p r o j e c t i s com plete, the Contractor must return all
such docum ents to the
Engineer. TheC o n t r a c t o r s h o u l d p r o v i d e t h e E n g i n e e r w i t h f o
u r c o p i e s o f a l l d r a w i n g s , specifications etc prepared by him and approved
by the Engineer. Further copiesshould be supplied at the request of the Engineer at the
Employer's cost.
Page 60 of 264

The Contractor should keep one copy of the drawings on site and
available for inspection and for use at any reasonable time by the Engineer or
anyone with theEngineer's written authorisation.If the Works are likely to be delayed
or disrupted unless a drawing or instructionis issued by the Engineer within a
reasonable time, the Contractor must give a notice to the Engineer and a
copy to the Employer, giving the details.If, despite the notice, the drawing or
instruction is late and the Contractor suffersdelay or incurs costs, the Engineer
must consult the parties and grant time and costs.In considering a grant of
time and costs to the Contractor, the Engineer must
takei n t o a c c o u n t a n y c o n t r i b u t o r y d e l a y b y t h e C o n t r a c t o
r i n h i s p r o d u c t i o n o f drawings.The principles and much of the wording of
the 3rd Edition have been retained for t h e 4 t h E d i t i o n b u t s u b - c l a u s e 6 . 1
h a s b e e n c o n s i d e r a b l y e x p a n d e d a n d s u b - clause 6.5 is entirely
new.6 . 1 : W h e n r e a d i n g t h i s c l a u s e i t i s t o b e b o r n e i n
mind that the definition
of Drawings at 1.1(b)(iii) is very broad and includes not
only the Engineer'sdrawings, calculations and technica
l i n f o r m a t i o n b u t a l s o " a l l d r a w i n g s , calculations, samples,
patterns, models, operation and maintenance manuals and other technical
information" submitted by the Contractor and approved by theEngineer. The
definition covers not only the documents in existence at the timeof the contract
but also documents brought into being during the course of
thecontract. In addition, it covers items other than documents s uch as
samples,p a t t e r n s a n d m o d e l s w h i c h a r e o b v i o u s l y n o
t c a p a b l e o f b e i n g r e a d i l y reproduced.The first sentence
seems to apply only to drawings supplied by the Engineer:where
drawings are to be provided by the Contractor, it is the Contractor
thatprovides copies. The obligation to keep the Drawings confidential is
especiallylimited to those provided by the Employer or Engineer. As to
the documents tobe returned, it is submitted that this obligation is also limited to
those provided bythe Engineer as this clause uses the term "provided" for
documents supplied bythe Engineer to the Contractor and "supplied" for those
from the Contractor to theEngineer. Contractors should have in mind that the
confidentiality duty seems toinclude subcontractors by the reference to "a third
party". Although the Employer would normally have difficulty demonstrating
loss from a breach of the clause,subcontractors should not be given
more than they need without the
Engineer'sapproval." . . . f o u r c o p i e s o f a l l D r a w i n g s , S p e c i f i c a
t i o n a n d o t h e r d o c u m e n t s " . I t i s submitted that a reasonable reading
of this obligation will be that the words "other
Page 61 of 264

docum ents" limit the obligation to provide four copies to those items within
thed e f i n i t i o n o f D r a w i n g s w h i c h a r e t h e m s e l v e s
d o c u m e n t s . T h u s , i t i s n o t necessary to produce four copies of the models,
samples etc.6 . 2 : I n v i e w o f t h e b r o a d d e f i n i t i o n o f t h e t e r m
"Drawings" at clause 1.1(b)(iii),this obligation is apparently not
l i m i t e d t o d o c u m e n t s b u t i n c l u d e s s a m p l e s , patterns and
models.6 . 3 T h e f a i l u r e
by the Engineer to give drawings or instructions on and
t i m e is generally regarded as being a breach of contract by the6 . 4 E m p l o y e r
who has an implied duty to ensure that the Engineer
p r o v i d e s such documents without causing delay. It is further generally accepted that
in
thea b s e n c e o f p r o v i s i o n f o r s u c h d e l a y s i n t h e e x t e n s i o n o
f t i m e c l a u s e , l a t e drawings would set time at large. These subclauses provide for extension of t i m e a n d c o s t s t o b e g i v e n w h e r e a
d r a w i n g o r i n s t r u c t i o n i s l a t e d e s p i t e t h e Contractor having given
notice of the potential delay. In the event that no such n o t i c e w a s g i v e n ,
it would, it is submitted, be possible for the Contractor
toc o m p l y w i t h t h e n o t i c e p r o v i s i o n u n d e r c l a u s e 4 4 . 2 ( C o
n t r a c t o r t o p r o v i d e notification and detailed particulars) and claim an extension
of time under clause44.1(d) for "any delay, impediment or prevention by the Employer",
at least wherethe need for the drawing or instruction by a particular time was obvious.It
is submitted that the Contractor's notice need not have specified the delay thatin fact
occurs. Sub-clause 6.4 does not refer the "delay and/or...costs" back tothe
"delay or disruption" in sub -clause 6.3, so the Engineer would be wrong
tor e f u s e a n e x t e n s i o n o n t h e g r o u n d t h a t t h e f o r e c a s t
c o n s e q u e n c e h a d n o t materialised.There is scope for debate as to whether the
requirements of clause 6.3 would besatisfied by a programm e marked up with
the critical dates for inform ation andannotated to provide the details
required by the sub-clause. The programmeu n d e r c l a u s e 1 4 . 1
( P r o g r a m m e t o b e s u b m i t t e d ) i s n o t n o r m a l l y s e n t t o t h e Employer,
but to comply with this sub-clause it must be copied to the Employer incom pliance
with clause 68 (Notices). W hilst it is reasonably clear that this was not the
intention of the draftsman, it is submitted that such a programme could bec a p a b l e
of complying with the sub-clause's requirements. See L B Merton
v Leach (1985) 32 BLR 51 for the position on an English standard form of contract."...
within a tim e reasonable in all the circumstances". The draftsman has
notcreated a direct tie between the reasonable tim e specified by the
Contractor insub-clause 6.3 and the definition of a failure in sub -clause
6.4. The function of "within a reasonable time" in sub -clause 6.3 is
presum ably to ensure that theContractor's notice is given a reasonable
tim e in advance of the critical
date.H o w e v e r , t h e E n g i n e e r o r a r b i t r a t o r i s e n t i t l e d
t o t a k e i n t o a c c o u n t a l l circumstances in deciding whether or not
a failure has occurred. The mere factthat the Engineer has not com plied
with the Contractor's notice is not enough togive the Contractor an entitlement
to time and costs.
Page 62 of 264

These sub-clauses refer only to "any further drawing or instruction". Thus,

thisdoes not refer to al l the other items contained in the definition of
Drawings butdoes refer to instructions which are not contained within that
definition.6 . 5 : T h i s s u b c l a u s e h a s b e e n i n c l u d e d t o f o r e s t a l l a n a
r g u m e n t b y a Contractor that clause 6.4 gives the Contractor
an entitlem ent to time and costsas a consequence of the late issue of
drawings or instructions regardless of the cause of that late issue. The delay, the
Contractor would argue, would otherwisebe caused by the "failure or inability" of the
Engineer to issue the drawing and theclause does not enquire into the reasons
for that failure or inability. Faced withsuch an argument, the Engineer would
otherwise have to fall back on clause
44.1( E x t e n s i o n o f t i m e f o r c o m p l e t i o n ) a n d t h e r e q u i r e m e n t
t o g r a n t o n l y s u c h extensions as the Contractor is "fairly" entitled
to. As to the costs, the Engineer would be in more difficulty. It is in the interests of
avoiding such arguments thatclause 6.5 puts the matter beyond doubt.
CLAUSE 7 : Drawings and Instructions
The Engineer may is sue further drawings and instructions
n e c e s s a r y f o r t h e project. The Contractor is to comply with them.Where any part of
the Works is to be designed by the Contractor, he shall submithis proposed design
and back-up information for the Engineer's approval an dafter the Works have
been constructed, all necessary operation and maintenancem anuals, drawings
etc. Substantial completion will not be achieved until such manuals and
drawings have been submitted and approved by the Engineer.The Engineer's
approval does not relieve the Contractor of his design or
other responsibilities.S u b clause 7.1 is taken from the 3rd Edition with amendments
m a i n l y o f vocabulary but sub-clauses 7.2 and 7.3 are entirely new and have been
adoptedin principle by ICE 6th as sub-clauses 7(6) and 7(7).7 . 1 T h i s c l a u s e
i s , wi t h c l a u s e 1 3 . 1 (W o rk t o
b e i n a c c o r d a n c e wi t h
t h e contract) and clause 51.1 (Variations), one of the mo
s t i m p o r t a n t c l a u s e s authorising the Engineer to issue
i n s t r u c t i o n s . T h e r e a r e s o m e 1 9 c l a u s e s overall giving the Engineer power
to instruct but the remainder are specific, suchas the power to instruct in regard to
ambiguities at clause 5.2 (Priority of contractdocuments). The power under this clause is
limited to such instructions "as
shallb e n e c e s s a r y f o r t h e p u r p o s e o f t h e p r o p e r a n d a d e q u
a t e e x e c u t i o n a n d completion of the Works". Thus, there is no power to order
variations unless theyare necessary. Clause 51.1 (Variations) provides the power to
instruct changesthat are only "appropriate". For a discussion of the Engineer's power to
instructvariations, see under clause 51.1

.Page 63 of 264

"The Contractor shall carry out and be bound by the same." This is
subject toreview by the Engineer under clause 67.1 (Engineer's decision) and an
arbitrator under clause 67.3 (Arbitration).If instructions are issued late, the
provisions of clause 6.4 (Delays and cost of delay of drawings) may apply.
For discussion on whether the Engineer may issuevariation instructions after
substantial completion, see the commentary under clause 13.1 (Work to be
in accordance with the contract).T h e b r o a d d e f i n i t i o n o f D r a w i n g s i n
clause 1.1(b)(iii) should be noted as
thisi n c l u d e s m a t t e r s o t h e r t h a n d r a w i n g s a n d i n d e e d o t h
e r t h a n d o c u m e n t s . Patterns, samples and models are
included.7 . 2 : T h i s i s n o t a d e s i g n a n d b u i l d f o r m o f
c o n t r a c t a n d , i n d e e d , F I D I C d o n o t publish such a form for
general civil engineering, (although the "Yellow Book", FIDIC's Conditions
of Contract for Electrical and Mechanical Works assumes thatt h e c o n t r a c t o r
will usually accept design responsibility) . Nevertheless it
isrecognised that a part of the Works may be designed by the
Contractor or as u b c o n t r a c t o r o n h i s b e h a l f i n w h i c h c a s e
p r o v i s i o n m u s t b e m a d e f o r t h e submission of the design for the
Engineer's approval.A Contractor will be well advised to scrutinise all the contract
documents carefullyto identify the exact extent of any design obligation
imposed upon him. W hilstt h e r e i s a g e n e r a l s t a t e m e n t i n c l a u s e
8.2 (Site operations and methods of construction) that "the
Contractor shall not be responsible...for the design
o r specification of Permanent W orks", a note on a drawing or a
paragraph in ano b s c u r e c o r n e r o f t h e s p e c i f i c a t i o n c o u l d
n e v e r t h e l e s s " e x p r e s s l y p r o v i d e " a design obligation.A Contractor
wishing to protect the copyright or confidentiality in his drawingsmust
make special provision. In this connection, see clause 28.1 (Patent
rights)w h i c h p l a c e s r e s p o n s i b i l i t y f o r a n y i n f r i n g e m e n t o f
p a t e n t r i g h t s , d e s i g n trademarks etc upon the Contractor regardless of
whether infringement occurredby reason of the Contractor's design or that of the
Engineer.T h e o b l i g a t i o n t o p r o v i d e o p e r a t i o n a n d m a i n t e n a n c e
m a n u a l s a p p e a r s t o b e limited to circumstances in which the
Contractor has a design responsibility. Itwill often be necessary, wherever the
contract includes plant and machinery, for the Contractor to be obliged
to provide the operation and maintenance manualsfor that plant and
machinery regardless of who designed it. Whilst it is recognisedthat the obtaining of
operation and maintenance manuals and as-built drawings isoften difficult at the end
of a project, the practicality of making the submission of s u c h m a n u a l s a n d
drawings a condition precedent to the grant of
s u b s t a n t i a l completion is to be doubted. The Employer will be keen to
take over the worksa n d t h e C o n t r a c t o r w i l l b e f a c i n g t h e
p o s s i b i l i t y o f l i q u i d a t e d d a m a g e s . O n e questions whether the
handing over of the entire project will really depend on t h e s e
manuals and drawings. It is submitted that
the powers given to the
Page 64 of 264

Engineer and the Employer during the Defects Liability Period and with regard tot h e
retention monies would prove sufficient to ensure that these
m a t t e r s a r e resolved.The Engineer is apparently given no discretion to
dispense with this obligation a n d i n d e e d c l a u s e 2 . 1 ( c ) ( E n g i n e e r ' s
d u t i e s a n d / o r a u t h o r i t y ) , s t a t e s t h a t t h e Engineer has no authority
to relieve the Contractor of any obligation. Only the Employer could do
so.The requirement for manuals and drawings to be submitted prior to
substantialcompletion a ppears to be referrable to the whole of the
W orks and is not limitedto the Section or part which contains the
Contractor's design. Thus, it may beargued that there is no prohibition against
the granting of taking-over certificatesin respect of Sections or parts, only
against certifying in respect of the whole
of t h e W o r k s . I f t h i s i s c o r r e c t , i t i s s o m e w h a t i l l o
g i c a l b u t m i t i g a t e s t h e impracticality referred to above.7 . 3 T h i s
sub-clause makes it clear that, where the design
o b l i g a t i o n i s p l a c e d upon the Contractor, responsibility will not be affected
by the procedure wherebythe Engineer considers and approves such design. Whilst
it is no doubt arguablethat this clause is unnecessary, it helpfully removes
a source of dispute. Thistheme is found throughout the co ntract, from
clause 2.1 (Engineer's duties and responsibilities), which prohibits the Engineer
from relieving the Contractor of
anyo f h i s r e s p o n s i b i l i t i e s , t o c l a u s e 6 1 . 1 ( A p p r o v a l o n l y
b y D e f e c t s L i a b i l i t y Certificate), which attempts to say that no action of the
Engineer, or indeed of theEmployer, will relieve the Contractor of any part
of his full contractual burden. See also clause 14.4 (Contractor not relieved of
duties or responsibilities), clause17 (Setting-out), clause 37.2 (Inspection
and testing) and clause 54.8 (Approvalof materials not implied) for
examples. The powers to order the opening up
of w o r k a n d t h e r e m o v a l o f a n y t h i n g s u b s t a n d a r d c o n t a i n e d i n c l a u s e 3 8 . 2 (Uncovering and making
openings) and clause 39 (Removal of improper work,materials and
plant) are very wide and a Contractor wishing to argue that the Engineer
is not entitled to exercise them will need compelling evidence. A writteninstruction
might suffice but, as discussed under clause 13, the Employer
couldc h a l l e n g e i t s v a l i d i t y i n t h e l i g h t o f c l a u s e 2 . 1 . T h e
w r i t t e n s a n c t i o n o f t h e Employer, amounting in effect to a
v a r i a t i o n o f t h e c o n t r a c t , w o u l d g i v e t h e Contractor the necessary
security.The responsibility of the Contractor under the contract for design
executed byhim, it is submitted, is to be limited to a duty to carry out the design
with due careand diligence. There are three relevant sub-clauses:-- s u b c l a u s e
7 . 2
w h i c h
r e q u i r e s
t h e
s u b c o
n t r a c t o r
t o
s u b m i t
" s u c h drawings... as shall be
necessary to satisfy the Engineer as to the suitability andadequacy of that design";c l a u s e 8 . 1 ( C o n t r a c t o r ' s g e n e r a l r e s p o
n s i b i l i t y ) w h i c h r e q u i r e s t h e Contractor to design etc
"with due care and diligence"; and
Page 65 of 264

clause 8.2 (Site operations and

m e t h o d s o f c o n s t r u c t i o n ) w h i c h m a k e s t h e Contractor
"fully responsible" where the contract expressly provides that part of the
works are to be designed by him.It is submitted that references in sub -clause
7.2 to "suitability and adequacy"relate to the obligation to satisfy
the Engineer and do not amount to an absoluteo b l i g a t i o n t o p r o v i d e
a s u i t a b l e a n d a d e q u a t e d e s i g n . A s t o c l a u s e 8 . 2 , t h e responsibility
must be read in the context of "the adequacy, stability and safety of all Site operations
and methods of construction". A normal reading of that clausewould not suggest that the
responsibility was intended to go further. Accordingly,one is left with clause 8.1
and a due care and diligence obligation. Thus, if an element of design failed but
the Contractor was able to demonstrate that he
hadu s e d d u e c a r e a n d d i l i g e n c e , f o r e x a m p l e b y h a v i n g s t a t e - o f theart designt e c h n i q u e s o r s p e c i f i c a t i o n s , h e w o u l d n o t b e l i a
b l e . I n t h i s c o n t e x t , s e e Eckersley v Binnie and Partners
(1988) CILL 388 and the Court of Appeal's judgement in relation
t o t h e A b b e y s t e a d d i s a s t e r . T h i s l e v e l o f r e s p o n s i b i l i t y conforms to
the norm al responsibility im posed on the Engineer by his terms
of e n g a g e m e n t . I t m i g h t b e t h o u g h t p e c u l i a r i f t h e C o n t r a c t o r ' s
d e s i g n d u t y w a s more onerous than that of the Engineer. In this context,
it should be noted that the Contractor's liability for the selection of materials, which
itself might properlybe considered a design function, is an absolute one:
see clause 36.1 (Quality of materials, Plant and workmanship).Two English
cases in which the designer's lia bility was held to be an absoluteone,
nam ely to ensure that the works were fit for their purpose were IBA v
EMIa n d B I C C ( 1 9 8 0 ) 1 4 B L R 1 , a d e c i s i o n o f t h e H o u s e o f L o r d s ,
a n d G r e a v e s v Baynham Meikle (1975) 2 Ll R 325. For a case on the
Contractor's liabili ty for design carried out by subcontractors, see Cable
(1956) Lim ited v HutchersonBros (1969) 43 ALJR 321. For a recent
consideration, by the Suprem e Court of Queensland, of the standard of
responsibility taken by a contractor, see Doug Rea Enterprises v Hymix Australia
(1988) B&CL67.
CLAUSE 8 : General Obligations of the Contractor
This clause sets out the Contractor's general obligation to carry out his
dutiescarefully and in accordance with the contract. The Contractor is also
obliged toprovide all labour, supervision materials etc necessary to carry out and
completethe
project.T h e C o n t r a c t o r i s f u l l y r e s p o n s i b l e f o r s i t e o p
e r a t i o n s a n d m e t h o d s o f construction but is not respon
s i b l e f o r t h e d e s i g n o r s p e c i f i c a t i o n o f t h e permanent works
or for temporary wo rk not designed by him. If the
contractr e q u i r e s t h e C o n t r a c t o r t o u n d e r t a k e a n y o f t h e d e
s i g n , h e s h a l l b e f u l l y responsible for that design even if the Engineer
approves it.
Page 66 of 264

The principle and much of the wording of clause 8 of the 3rd Ed ition has
beenretained but rearrangem ents and additions have occurred. The
reference todesign in sub-clause 8.1 is new as is the final sentence of sub-clause
8.2.8 . 1 : T h i s c l a u s e a d d s d e t a i l t o t h e b a s i c
o b l i g a t i o n s e t o u t i n t h e C o n t r a c t Agreement clause 3 whereby
"the Contractor ... covenants with the Employer toexecute and complete the Works and
remedy any defect therein ...".In common with the 3rd Edition but unlike the ICE 5th or
6th, the words "with duecare and diligence" are used. It would, however, be no defence
to an allegation
of b r e a c h o f a c o n t r a c t w h i c h p r o v i d e s s t r i c t l i a b i l i t
y , f o r t h e C o n t r a c t o r t o dem onstrate that he used due care and
diligence, for exam ple in the selection a n d o r d e r i n g o f a m a t e r i a l
which proved to be defective. The purpose of thew o r d s m a y b e
to make it clear to the Contractor that the Employer is
n o t concerned solely with the result but with the means whereby
the
Contractor a c h i e v e s t h a t r e s u l t . U n d e r c l a u s e 4 1 . 1 ( C o m m
e n c e m e n t o f W o r k s ) t h e Contractor is obliged to proceed after the
commencement of the works "with dueexpedition and without delay". Thus, a Contractor
is obliged not only to completethe works on time but to work diligently throughout. Some
U.K. contracts expresst h i s a s a n o b l i g a t i o n t o p r o c e e d " r e g u l a r l y a n d
d i l i g e n t l y " . T h i s o b l i g a t i o n i s reflected in clause 46 (Rate of progress) which
gives the Engineer power to order the Contractor to expedite the works.T h e
reference to design poses a danger to the Contractor. As the
c o n t r a c t includes the specification, drawings and bills of quantities, the
Contractor wouldbe well advised to check carefully that there is no design obligation
hidden awayin any of these docum ents. There is som e comfort in clause 8.2
with its generalstatement that the Contractor is not responsible for design
and the requirem entfor express provision of the Contractor's design obligation. For a
comment on thelevel of design responsibility imposed, see clause 7.3 (Responsibility
unaffectedby approval).The second sentence of clause 8.1 should be read in
conjunction with clause11.1 (Inspection of Site) and clause 12.1
(Sufficiency of Tender). Naturally, it isimpossible for a specification or the
Bills of Quantities to specify every nut, boltand screw -driver that may be
required. See, however, clause 51.1 (Varia tions)item (e) "execute additional
work of any kind necessary for the completion of theWorks".CLAUSE 8.1 (Contractor's
general responsibilities)The following additional paragraph has been added:-" T h e
Contractor shall give prompt notice to the Engineer, wit h a copy
to
theE m p l o y e r , o f a n y e r r o r , o m i s s i o n , f a u l t o r o t h e r d e f e c t
i n t h e d e s i g n o f o r Specification for the W orks which he discovers
when reviewing the Contract or executing the Works."The wording closely
follows a recomm endation contained in the W orl d Bank'sSample Bidding
Documents published in December 1991.
Page 67 of 264

The first question raised by this addition is whether a Contractor will be liable for breach
of this clause if he should, and any reasonably diligent Contractor
wouldhave discovered the error. In other words, is the test purely subjective?It would
normally be very difficult to prove that a Contractor knew of but failed toreport a
design error. The Employer will therefore no doubt turn to the
openingwords of the clause which require the Contractor "with due care and diligence
(to).... execute and com plete the W orks". The Employer will argue that this
duty of care applies to the new obligation imposed by the additional paragraph.I t i s
submitted that such an argument should not succeed. As stated
in thec o m m e n t a r y t o C l a u s e 8 i n t h e m a i n w o r k , t h e
E n g l i s h c o u r t s h a v e n o t established a policy in relation to an implied
obligation to warn the Employer of adefect actually found. The English courts have
therefore been unwilling even toentertain an argum ent that a Contractor without
design responsibility should be required by implication to perform a check of the
design.The wording of the additional paragraph supports the view that it is
only designerrors actually discovered that give rise to the duty, particularly because it
wouldbe difficult to argue that the discovery of faults is embraced within the meaning
of t h e " W o r k s " w h i c h h a v e t o b e e x e c u t e d a n d c o m p l e t e d
w i t h d u e c a r e a n d diligence.The second question raised by the wording
is whether there is any obligation u p o n a t e n d e r e r w h o d i s c o v e r s
design errors during his review of the tender documentation
either to disclose the error at that stage or immediately
upons i g n a t u r e o f
the contract. The inclusion of the conditions in the tende
r documents does not of itself impose obligations upon the
t e n d e r e r w h o o n l y submits to those conditions and the obligations contained
therein when he signst h e c o n t r a c t . I f a n E m p l o y e r w i s h e s
t o i m p o s e s u c h a n o b l i g a t i o n u p o n a tenderer, he must require
tenderers expressly to disclose any errors found and toinclude within the tender form a
declaration that no such errors have been found.It will of course be appreciated
that the identification of errors is a part of the estimator's art as it enables the
tenderer to reduce his overall price in anticipationof additional payment for the variations
that are necessitated by the errors.If the error has been discovered during the
tender process, it was no doubt the intention of the draftsman that such errors
should be disclosed immediately after the signature of the contract if not before. If this
was indeed the intention, it mustbe doubted whether it is reflected in the wording which
is more consistent with adiscovery after the date when the contract is entered
into.Clause 1.5 (Notices, consents etc) requires that notices such as the
one to begiven under this paragraph be in writing.".... any error , omission, fault
or other defect in the design ...". This wording iswide enough to cover
conceptual defects as well as errors in d etailed design.
Page 68 of 264

Thus, a Contractor may be obliged to give notice if, for example, he

considerst h a t t h e d e s i g n o f a s t r u c t u r a l e l e m e n t g i v e s a n
inadequate factor of safety.Equally, he could be obliged to notify
i f h e c o n s i d e r e d t h a t t h e d e s i g n o f t h e works did not make proper
allowance for the integration of a subsequent phase of the project. The
damages that could flow from breach of such a wide-rangingo b l i g a t i o n c o u l d b e
c o n s i d e r a b l e a n d w o u l d c o m e a s a g r e a t s u r p r i s e t o a n y Contractor
from whom they were claimed.Although it is by no m eans beyond dispute, it is
subm itted that the Contractor must not only discover the error but also
recognise it as such. It m ay very wellbe the case that design error is
a m atter of opinion in which case it is subm ittedthat the Contractor must form
the requisite opinion. This places an even greater burden upon any Employer seeking to
claim from a Contractor under this clause.Notification under this paragraph will generally
lead to a review of the element of design in question and, where appropriate, a
variation would be ordered under clause 51.1 (Variations). However, this wording
is not limited to design executedb y t h e E n g i n e e r b u t a l s o c a l l s u p o n a
Contractor to notify defects in his owndesign. In these cases,
notification will lead to the submission of
revisedd r a w i n g s f o r a p p r o v a l u n d e r c l a u s e 7 . 2 ( P e r m
a n e n t w o r k s d e s i g n e d b y Contractor).8 . 2 : T h e C o n t r a c t o
r ' s r e s p o n s i b i l i t y f o r s i t e o p e r a t i o n s a n d m e t h
o d s o f construction is reflected in clause 12.2 (Adverse
p h y s i c a l o b s t r u c t i o n s o r conditions) where the Engineer m ay
choose to leave the Contractor to
suggestm e a n s o f o v e r c o m i n g t h e o b s t a c l e s . U n d e r c l a u s e 1
4 . 1 ( P r o g r a m m e t o b e subm itted) the Engineer m ay require
the Contractor to provide a written generaldescription of the arrangem ents
and m ethods which the Contractor proposes to use for the execution of the
works. Clause 14.4 (Contractor not relieved of dutiesor responsibilities) m akes
plain that showing the Engineer does not relieve theContractor of his
responsibility for his m ethods. An exception to the principle of leaving
method to the Contractor is found in clause 46 (Rate of progress)
whichgives the Engineer the right to withhold consent to the Contractor's
proposedacceleration
measures.T h e C o n t r a c t o r ' s r e s p o n s i b i l i t y u n d e r t h i s c l a u s e i s q u a l i f
i e d b y c l a u s e 2 0 . 4 (Em ployer's risks) which gives to the Employer
responsibility for a num ber of circumstances causing loss or dam age
including item (g) which m akes "loss or damage to the extent that it is due to the
design of the Works" by the Engineer arisk upon the Employer.FIDIC does not produce
a design and build form of contract. However, design bythe Contractor is referred to in
four other clauses namely:-c l a u s e 7 . 2 . P e r m a n e n t W o r k s d e s i g n e d b y
Contractor c l a u s e 2 0 . 4 E m p l o y e r s R i s k s clause 39.1Removal of
improper work, materials or plant c l a u s e 4 9 . 3 C o s t o f
remedying defects
Page 69 of 264

A Contractor concerned at the number of references to design by the

Contractor contained in the conditions will find some reassurance in the
statement in thiss u b clause that he is not responsible for the design and the
r e f e r e n c e s t o express provision in the final sentence of this
clause, clause 7.2
(Permanentwork designed by Contractor) and, in relation to n
o m i n a t e d s u b c o n t r a c t o r s , clause 59.3 (Design requirements to be
expressly stated). For a comment on thelevel of design responsibility imposed,
see clause 7.3 (Responsibility unaffectedby approval). A difficult question
arises as to the responsibilities of a contractor without design
responsibility. In McQuade v Solchek Pty Limited (1989) B&CL 1 3 1 , i t
was held by the Supreme Court of South Australia that there
w a s n o implied warranty by the contractor that a steeply sloping driveway, the
design andlocation of which was specified by the owne r, would be fit for
its intended use.H o w e v e r t h e S u p r e m e C o u r t o f C a n a d a i n
B r u n s w i c k C o n s t r u c t i o n v N o w l a n (1974) 49 DLR(3d) 93 held that where
the Employer had obtained a design froma professional but had not retained the
designer to supervise, the contractor wasliable where the design was found to be
defective as he should have warned theEmployer of the design defects. The
duty to warn principle is not settled or well established in the English
courts. One Official Referee in Edac v Moss (1984) 30BLR 141 expressed the
view that a contractor who finds a defect in the designgiven to him is
under an implied obligation to warn the Employer of the defect, whilst
another, in University of Glasgow v Whitfield (1988) 42 BLR 66, considereda
duty to warn would only exist if the contractor had voluntarily assumed
such aduty. See also Investors in Industry Commercial Properties v South
Bedfordshire(1986) 1 QB 1034 where the Court of Appeal held that an architect
has a duty towarn in relation to structural design defects even where an
engineer had beenappointed.
CLAUSE 9 : Formal Contract Agreement
This clause provides for the preparation and signing of the
f o r m a l C o n t r a c t Agreement which is to be prepared, modified as necessary
and completed at theEmployer's cost.This clause is virtually unchanged from the
3rd Edition.The parties will have concluded a contract as soon as the
offer comprised in theTender, which may have been adjusted during
negotiations, is unequivocallya c c e p t e d b y t h e E m p l o y e r i n h i s
L e t t e r o f A c c e p t a n c e . A f t e r a n e g o t i a t i o n , however, the existence
and terms of the contract may not be beyond doubt and t h e E m p l o y e r
is given the option of requiring the Contractor to enter into
t h e Agreement. In some countries, however, a formal agreement is required by
lawor highly advisable politically. As pointed out by FIDIC in their Guide, the
partiess h o u l d a l s o b e a r i n m i n d t h e n e e d f o r c o u n t e r s i g n a t u r e o r r a t i f i c a t i o n , t h e obligation to pay stamp duty and other
respects in which local law or practice may impinge upon the signing of the
Agreement.
Page 70 of 264

It should also be borne in mind that the Letter of Acceptance is used

extensivelyas the starting point for various periods of time under the
contract. For a list of the relevant clauses, see under clause 1.1(b)(vi).
Conflict and confusion could therefore be created if the law or practice applicable
to the project dictated that acontract would only come into existence once the
Contract Agreement had beensigned if that Contract Agreement was not
signed simultaneously with o r verysoon after the Letter of Acceptance
had been sent. In those cases, the relevantclauses should perhaps be
amended to make the periods of time run from the signature of the Contract
Agreement.If any modification to the Agreement is required other than the
completion of theblanks, which should not be controversial, there may be scope for
disputes. For example, if the Employer adds a number of documents to the
list of
documentsw h i c h a r e t o c o m p r i s e t h e c o n t r a c t , t h i s
m a y g i v e r i s e t o o b j e c t i o n s . Furthermore, under English
law, an agreement imposing an obligation upon
ap a r t y t o s i g n a d o c u m e n t , t h e t e r m s o f w h i
c h a r e n o t y e t a g r e e d , i s unenforceable: this is because
the English courts do not consider it their role to create agreements between
the parties.I f t h e E n g l i s h c o u r t s ' d i s l i k e o f " a n a g r e e m e n t t o
a g r e e " d i d n o t n u l l i f y t h e existence of a contract, a dispute over
the necessity for proposed modifications w o u l d f a l l w i t h i n t h e
scope of clause 67 (Settlement of disputes). Thus,
then e c e s s i t y f o r s u c h m o d i f i c a t i o n s c o u l d b e t h e s u b j e c t
o f a d e c i s i o n b y t h e Engineer and possibly by an arbitrator. The result of
such procedure could be anaward specifying the necessary modifications and a
direction to the Contractor toexecute the
document.I f t h e C o n t r a c t o r r e f u s e d t o e x e c u t e a m o d i f i e d d o
c u m e n t p r o v i d e d b y a n Employer, and the court or arbitrator
decided that the refusal was a breach of clause 9, it is not immediately
obvious what loss or damage the Employer wouldhave suffered as a
consequence.A s t h e A g r e e m e n t i s g i v e n t h e h i g h e s t p r i o r i t y u n d e r
c l a u s e 5 . 2 ( P r i o r i t y o f contract documents) its terms and
any modifications thereto are very important.I t i s e n v i s a g e d b y c l a u s e
1 . 1 ( b ) ( i ) , i n t h e d e f i n i t i o n o f " C o n t r a c t " , t h a t f u r t h e r documents
may be expressly incorporated into the Agreement. For clarity, it maywell be
advantageous to list all contract documents under Article 2 but it is
notstrictly necessary as such further documents that are expressly
incorporated
int h e L e t t e r o f A c c e p t a n c e w i l l f a l l w i t h i n t h e d e f i n i
t i o n o f C o n t r a c t . T h e incorporation into the Agreement of all
the contract documents could potentiallydisrupt the intended order
of priority of the contract documents: for a discussionof this point, see the
commentary under clause 5.2.As "the Employer" and "the Contractor" are defined
both in the Agreement and inclause 1.1 (Definitions), the parties should ensure there
is no mismatch betweenthe two.The Agreement is in very similar form to the 3rd
Edition and ICE 5th.
Page 71 of 26

CLAUSE 10 : Performance Security

If a bond is called for by the contract, the Contractor
must supply it to
theE m p l o ye r a t h i s o wn c o s t wi t h i n 2 8 d a ys o f h i s
r e c e i p t o f t h e L e t t e r o f Acceptance, simultaneously informing
the Engineer. The amount must be ass t a t e d i n t h e A p p e n d i x a n d
the form and bondsman must be agreed by
t h e Employer.T h e b o n d m u s t b e v a l i d u n t i l t h e i s s u e o f t h e
D e f e c t s L i a b i l i t y C e r t i f i c a t e whereupon it must be returned to the
Contractor within 14 days.Before claiming on the bond, the Employer must
inform the Contractor of the grounds for the claim.Sub-clause 10.1 is a re worded version of clause 10 of the 3rd Edition. Sub-clauses 10.2 and 10.3
are entirely new.Part II provides two example forms of performance security and
provides optionaladditional wording to specify the curre ncy or source of
the security. The type of performance guarantee suggested by FIDIC
was the subject of scrutiny by theHong Kong Court of Appeal in Tins
Industrial v Kono Insurance (1987) 42 BLR 1 1 0 , w h o h e l d t h a t t h e
bond is indeed conditional on proof of breach
a n d damage.1 0 . 1 I t w o u l d n o r m a l l y b e p r e f e r a b l e f o r b o t h t h e
f o r m a n d i n s t i t u t i o n p r o v i d i n g security to be agreed prior to the issue of
a Letter of Acceptance. Otherwise, theContractor is given a period of 28 days
in which to agree these matters and to n e g o t i a t e w i t h t h e i n s t i t u t i o n
a n d p r o v i d e t h e b o n d . F o u r w e e k s w i l l o f t e n b e insufficient for this
exercise. More fundamentally, if the Contractor is informedafter the
contract has been entered into that the Employer requires the form
of b o n d t o b e , f o r e x a m p l e , " o n - d e m a n d " , a g r e e m e n t o n t h e
form may never beachieved. As commented in relation to
c l a u s e 9 . 1 ( C o n t r a c t A g r e e m e n t ) , a n agreement to agree something in
the future is not readily enforceable in Englishcourts and difficult to enforce under
any circumstances. Therefore the Employer runs the risk that if the form is not
agreed in advance of the Letter of Acceptance,h e w i l l l o s e h i s r i g h t t o
s e c u r i t y a l t o g e t h e r . I t m a y e v e n b e a r g u a b l e t h a t , a s agreement on
an important term has not been achieved, no contract exists at all.As to the
Employer's approval of the institution, clause 1.5 (Notices, consentsetc)
states that such approval "shall not unreasonably be withheld or
delayed".Again, a protracted dispute could arise out of whether
a refusal of approval wasunreasonable which would once again
endanger the Employer's security. Thesensible course is for the
Employer's requirements and indeed the Contractor's proposed institution,
to be defined as far as possible in the tender documents.
Page 72 of 264

An effective sanction is provided by clause 60.2 (Monthly paym

ents) whichprohibits interim certification until the performance
s e c u r i t y h a s b e e n d u l y provided. The effectiveness of the sanction is negated,
however, if the form of theb o n d i s s t i l l t h e s u b j e c t o f d e b a t e w h e n t h e
f i r s t i n t e r i m p a y m e n t i s d u e . T h e Engineer may have no power to certify
but the Contractor may have no obligationt o p e r f o r m d u e t o t h e a b s e n c e
o f a c o n c l u d e d c o n t r a c t . I n E n g l i s h l a w , t h e Contractor would be
entitled to be paid a reasonable s um for the work done inthe absence of a
contract.T h e f o r m s o f s e c u r i t y s e t o u t i n P a r t I I a r e a
p e r f o r m a n c e a n d a s u r e t y b o n d . FIDIC do not encourage the use of
on-demand bonds because of the premium that tenderers add to their bids on
account of the risk of abuse of such bonds. Asthe English Court of Appeal pointed
out in Edward Owen Engineering v BarclaysB a n k ( 1 9 7 7 ) 3 W L R 7 6 4 ; 6
B L R 5 8 , a p r o p e r l y d o c u m e n t e d c a l l o n a n o n - demand
bond must be honoured unless there is clear evidence of fraud.
Other forms of bond that the Employer may seek include:-- tender or bid bondadvance payment bond- retention money bond- maintenance bond, to ensure
compliance with Defects Liability Periodobligations.Other security provided to
the Employer under the contract includes: r etention,whereby up to 10%
of the value of the work is not paid for by the Employer untilthe project is
successfully completed; payment in arrears, whereby the Employer pays for works
at least two months after they have been executed; the ability of the
Employer to make use of the Contractor's equipment, temporary works
andmaterials following the termination of the Contractor's employment under
clause63.1 (Default of Contractor); the right to deduct damages for delay
under clause47.1 (Liquidated damages for delay); and the insurance provisions to
be found inclauses 21, 23 and 24.1 0 . 2 T h i s c l a u s e c a n n o t o f i t s e l f
influence the terms of an existing bond but isintended to be
part of the form to be agreed between the Employer and
t h e Contractor.In the event of a default by the Contractor such that he
does not complete theworks, this sub -clause would theoretically require
the performance security toremain valid indefinitely. If a performance
bond is paid, then it is defunct and,similarly, if the surety either completes the
work itself, or by another contractor or pays the amount of the bond, the surety bond
will also be
defunct.P e r f o r m a n c e s e c u r i t y i s n o t a v a i l a b l e t o a n E m p l o y e r i n r
e s p e c t o f d e f e c t s emerging after the issue of the Defects Liability
Certificate.T h e r e t u r n o f t h e b o n d w i t h i n 2 w e e k s o f t h e
i s s u e o f t h e D e f e c t s L i a b i l i t y Certificate is particularly
i m p o r t a n t i n r e l a t i o n t o o n - d e m a n d b o n d s . I t i s n o t unknown for
institutions to consider it necessary for the sake of their reputations
Page 73 of 264

to honour ondemand bonds if they remain in the hands of an E

m p l o y e r regardless of a claim by the Contractor that its validity has expired or
that it is toolate under the contract to make a claim under it. The attitude
may be that theywill not become party to such disputes but will treat the bond as
the equivalent toa b a n k e r ' s d r a f t . T h u s , i t i s o n l y b y s e c u r i n g
t h e r e t u r n o f t h e b o n d t o t h e institution itself that a Contractor can be
sure that no claim will be honoured.1 0 . 3 A g a i n , t h e r e a l s i g n i f i c a n c e
o f t h i s c l a u s e i s i n r e l a t i o n t o o n - d e m a n d bonds. Given prior
notification, the Contractor will be better placed to attempt toremedy the default, to
dissuade the Employer from proceeding or to dissuade theinstitution from
honouring the demand by demonstrating, for example, that the b o n d
was invalid or had expired or that any claim against the bond
w o u l d b e fraudulent. Alternatively, the Contractor could attempt to obtain an
injunction toprevent the payment under the bond on such grounds. However, as no
period isspecified or of necessity to be implied, the Employer is entitled
to call the bondimmediately upon giving the notice in accordance with clause 68
(Notices).T h e f a i l u r e o f t h e E m p l o y e r t o g i v e t h e r e q u i s i t e n o t i c e
would not
normallyp r e v e n t p a y m e n t u n d e r t h e b o n d . U n l e s s t h e t e r m s
o f t h e b o n d e x p r e s s l y required the Employer to provide proof of
notif ication, the payer would not beconcerned with the terms of this sub clause. Such a failure would amount to abreach of contract on the part of the
Employer for which he wo uld be liable
ind a m a g e s . I n t h e c a s e o f a t y p i c a l o n d e m a n d b o n d , t h e C o n t r a c t o r w o u l d probably be unable to show any
loss as he would not have been able to preventpayment unless one of the
exceptional grounds ref erred to above existed. W ith other forms of security, the
bondsman or insurer would consult the Contractor inany event before paying.T h i s s u b clause raises the issue of the respective rights and liabilities of
theContractor and Employer after the Employer has successfully
c a l l e d a n o n - demand bond where either the call was unjustified or the sum thereby
recoveredexceeded any loss or damage incurred by the Employer. There is no
expressterm dealing with the matter nor does this sub-clause address the matter
directly.Its relevance may be in the support th at it gives to the argument that
there is animplied term that the Employer will only call the bond where there
has been
ag e n u i n e d e f a u l t a n d w i l l r e p a y t o t h e C o n t r a c t o r a n y s u m
r e c e i v e d b y t h e Employer which exceeds the amount of his loss and
damage f lowin g from thedef ault. An argument for such an implied term rests
on the assumption that the Contractor is bound by agreement with the institution to
indemnify the institutionin respect of the sums paid out, as is normally the case.The terms
of clause 67 (Settl ement of Disputes) are wide enough in principle tocover a
dispute over a bond and the financial consequences of a call upon it. Inthe
absence of such an implied term, it would be a very difficult question whether t h e
arbitrator would have power to make an award directing the
E m p l o y e r t o repay to the Contractor all or part of the sums paid out by the institution
under thebond. See on this the discussion under clause 67.3 (Arbitration).
Page 74 of 264

The use of the term "default" in this sub-clause reflects the use of that term in thetwo
sample bonds in Part II. In this context, the term means any material breachof
contract and it is therefore submitted that the use of the term in this
clause isnot limited to the defaults listed in clause 63.1 (Default of Contractor).
CLAUSE 11 : Information regarding Contract
The Employer is to hand over to the Contractor at tender stage all information inhis
possession relevant to the site. The Contractor is responsible for interpretingt h e
information. The Contractor will be taken to have inspected the
s i t e a n d examined available information relating to the ground
conditions, weather, thenecessary work and materials and the access
and accommodation that he will need. Generally, he will have considered all
the risks which may affect his tender.The Contractor will be taken to have
based his tender on such information
andinspections.C l a u s e 1 1 i s e s s e n t i a l l y s i m i l a r t o t h e 3 r d
E d i t i o n a l t h o u g h " s o f a r a s i s practicable" is now qualifi
e d b y c o s t a n d t i m e c o n s i d e r a t i o n s a n d , m o r e importantly, the
addition of the final sentence means that the Tender is deemed tobe based both on the data
and upon the Contractor's inspection and examinationwhereas, under the 3rd Edition, the
deeming referred only to the
data.T h i s c l a u s e p r o v i d e s f o r t h e E m p l o y e r t o p r o v i d e " d a t a "
a s d i s t i n c t f r o m interpretation. Thus an Employer may be well advised to
remove the opinionsa n d c o n c l u s i o n s e x p r e s s e d i n t h e r e p o r t s
a n d s u r v e y s t h a t h e o b t a i n s . I f a n incorrect or negligent opinion was passed to
the Contractor and he relied upon
it,h e c o u l d w e l l a r g u e u n d e r c l a u s e 1 2 . 2 ( A d v e r s e p h y s i c a l
o b s t r u c t i o n s o r conditions) that any experienced Contractor woul
d a c c e p t t h e v i e w s o f t h e specialist who prepared the report and that therefore the
actual conditions couldnot reasonab ly have been foreseen. The Employer should,
however, err on thes i d e o f i n c l u s i o n w h e r e t h e l i n e b e t w e e n d a t a a n d
opinion cannot clearly bedrawn. If an Employer is found to have
w i t h h e l d d a t a , h e w i l l h a v e b e e n i n breach of contract and the damages
would, in principle, be the difference if anythat the inf ormation would have
made to the contract price. Alternatively,
them i s s i n g i n f o r m a t i o n c o u l d a f f e c t w h a t a n e x p e r i e n
c e d C o n t r a c t o r c o u l d reasonably have f oreseen within clause 12.2.
In this context, see the Fed eralC o u r t o f A u s t r a l i a ' s d e c i s i o n i n P h i l l i p &
A n t o n H o m e s v C o m m o n w e a l t h o f Australia (1988) 7 ACLR 39 in which
the court held the Employer liable for
them i s l e a d i n g i m p r e s s i o n c r e a t e d b y t h e d o c u m e n t s a b o u t t
h e s u b - s u r f a c e conditions and discounted a general disclaimer of responsibility.This
clause clearly shows the difficulty of reconciling the commercial realities
of t e n d e r i n g w i t h a d e s i r e t o p l a c e r i s k s u p o n t h e C o n t r a c t o r . I t
w o u l d m a k e tendering prohibitively expensive if each tenderer was obliged to conduct his
owng r o u n d i n v e s t i g a t i o n s o t h e E m p l o y e r c a r r i e s o u t t h e s u r
v e y a n d m a k e s i t available to the tenderers. On the other hand, the tenderers are
deemed to haves a t i s f i e d t h e m s e l v e s a s t o t h e f o r m a n d n a t u r e o f t h e
site including the subPage 75 of 264

surface conditions. Nevertheless, commercial reality is reflected in that

suchinspections and examinations are limited to what is practicable in
terms of costand time. This limit of practicability seems to qualify only
the obligation for the C o n t r a c t o r t o s a t i s f y h i m s e l f a n d n o t t h e
deemed obligation to inspect andexamine: this may not be
m a t e r i a l a s t h e l i m i t a t i o n i s r e p e a t e d , s o m e w h a t ambiguously, by the
words "subject as above mentioned" in the general
deemedo b l i g a t i o n t o m a k e d u e a l l o w a n c e f o r a l l i n f o
r m a t i o n g l e a n e d f r o m s u c h inspections and examinations.The
third deeming provision that the tender is based on the Employer's data
aswell as on the Contractor's own inspection and examination could give
rise tocurious results as the Contractor's inspecti on and examination may
lead him toc o n c l u s i o n s q u i t e d i f f e r e n t t o t h o s e s u g g e s t e d b y t h e
E m p l o y e r ' s d a t a . F o r example, if the data showed the water table to be at
a sufficient depth so that
itw o u l d n o t i n t e r f e r e w i t h t h e w o r k s i n a n y w a y , b u t t
h e C o n t r a c t o r ' s o w n inf ormation was that the water table was
normally much higher with the resultthat either the data was incorrect
or readings were taken at a moment when the water table was unusually low, what is
the effect of this provision? If there is anitem for pum ping in the bills, the Contractor
is quite possibly going to make afortune! However, he will get no recovery
under clause 12.2 as the conditions c o u l d h a v e
been "reasonably foreseen by an experienced
C o n t r a c t o r " . T h e difficulty comes with his entitlement to extension of time. The answer
may lie inthe difference between data and interpretation. Any conclusion drawn
that thewater table was not a problem could be held be interpretation and
thus theresponsibility of the Contractor. In this way, it is possible to reconcile the
tender b e i n g b a s e d b o t h o n t h e d a t a a n d o n t h e C o
n t r a c t o r ' s i n s p e c t i o n a n d examination. A further cons
equence of this deeming provision is that theEmployer will
not be able to argue that the Contractor did not rely on
a n y incorrect information supplied under this clause by the Employer.In the absence of an
express obligation to provide the data, the common law hasconsiderable difficulty in deciding
whether the Employer has any duty in relationto the provision of information and, if so, the
extent of that duty. In the SupremeCourt of New South Wales, the matter arose in Dillingham
Construction v Downs(1972) 2 NSWLR 49. It was held that a duty of care might exist in precontractualnegotiations depending on whether the Employer assumes the task
of providingfull and accurate information on site conditions and whether the Contractor
reliedupon the Employer providing such accurate inf ormation. It was held that
therew a s n o g e n e r a l d u t y t o p r o v i d e i n f o r m a t i o n . T h e H i g h C o u r t o f
Australia alsodiscussed this issue in MorrisonK n u d s e n I n t e r n a t i o n a l v C o m m o n w e a l t h o f Australia (1972) 46ALJR265;
13 BLR 114.This clause should be read with clause 12.1 (Sufficiency of tender)
which
alsos e e k s t o d e e m m a t t e r s t o b e i n c l u d e d i n t h e C o n t r a c t o r '
s t e n d e r . S e e t h e commentary under that clause for discussion of the
extent of the Contractor's obligation to overcome difficulties and complete the works.
Page 76 of 264

to
In the 3rd Edition, the tender was deemed to be based only on the
Employer'sdata and not expressly the Contractor's inspection and
examination. ICE
5thm a k e s t h e s u p p l y o f i n f o r m a t i o n b y t h e E m p l o y e r o p t i
o n a l ; w h i l e I C E 6 t h , unbelievably, deems that the Employer has made
available all his information onthe site." ( a ) t h e f o r m a n d n a t u r e t h e r e o f ,
i n c l u d i n g t h e s u b - s u r f a c e c o n d i t i o n s " . S e e clause 12.2 (Adverse
physical obstructions or conditions) which places the risk of unforeseeable
ground conditions on the Employer. As commented above
andu n d e r c l a u s e 1 2 . 2 , t h e d a t a p r o v i d e d a n d a v a i l a b l e t
o t h e C o n t r a c t o r w i l l influence whether the conditions found are held to be
unforeseeable."(b) the hydrological and climatic conditions". See clause 44.1
(Extension of timefor completion) where "exceptionally adverse climatic conditions"
are grounds for an extension of time. Whilst there is an apparent mismatch in that
weather mayb e e x c e p t i o n a l l y a d v e r s e d e s p i t e t h e f a c t t h a t t h e
i n f o r m a t i o n i n d i c a t i n g t h e probability of such weather was available
to the Contractor at tender stage, this c l a u s e m a y h a v e t h e e f f e c t o f
i m p o s i n g a n a d d i t i o n a l r e q u i r e m e n t b e f o r e a n extension of time is
granted. For circumstances "fairly to entitle the Contractor toan extension", he
must presumably demonstrate that such conditions were not a l l o w e d f o r n o r
deemed to have been allowed for in his tender and t hus
h i s programme. See also clause 12.2 (Adverse physical obstructions or
conditions) and clause 40.1 (Suspension of work) for other references to climatic
conditionsand clause 20.4 (Employer's risks) for the phrase "any operation of the forces
of nature"."(c) the extent and nature of work and materials...". The purpose of
this sub-clause is to forestall claims f or variations under clause 51.1
(Variations) on thegrounds that the Contractor did not know that such work was
necessary. This isto be read in conjun ction with clause 8.1 (Contractor's general
responsibilities)which requires that "the Contractor shall provide...all other
things...required...sofar as the necessity for providing the same is specif ied
in or is reasonably to be i n f e r r e d f r o m t h e C o n t r a c t " a n d c l a u s e 1 2 . 1
(Sufficiency of tender). See alsoclauses 55 to 57
( M e a s u r e m e n t ) . T h e s e c l a u s e i n c o m b i n a t i o n m a k e i t v e r y diff icult to
argue that if a type of work is not covered by the bill of quantities, a variation
should be granted to the Contractor."(d) the means of access to the Site and the
accommodation he may require".This item is to be read in conjunction with
clause 42.1 (Possession of site
anda c c e s s t h e r e t o ) a n d c l a u s e 4 2 . 3 ( W a y l e a v e s a n d f
a c i l i t i e s ) . T h e t e r m "accommodation" occurs only here: clause 42.3 was
amended for the 4th Editionand "accommodation" was replaced with "facilities". It
is necessary to distinguishbetween access which the contract requires the Employer to
make available andthe residual obligation upon the Contractor to make his
own arrangements.Part II provides an optional additional clause for
circumstances where the data c a n n o t b e p r o v i d e d w i t h t h e T e n d e r
documents. The clause is not
strictlyn e c e s s a r y a s t h e p r e s e n t w o r d i n g " m a d e a v a i l a b l e " c
overs data open for
Page 77 of 264

iInsp e c t i o n a t s p e c i f i e d p l a c e s a s w e l l a s i n f o r m a t i o n p r o v i d e d w
i t h T e n d e r documentation.
CLAUSE 12 : Tender and Rates
This clause states that the Contractor will be taken to have satisfied himself thathis
tender and the rates and prices stated in the Bill of Quantities are correct
ands u f f i c i e n t a n d t h a t t h e y c o v e r e v e r y t h i n g t h a t t h e C o
n t r a c t o r h a s t o d o t o complete the contract.If the Contractor
encounters physical obstructions or conditions (other than bad weather)
which an experienced Contractor could not have foreseen, he may givenotice to the
Engineer. If after consultation with the Employer and the Contractor,t h e E n g i n e e r
agrees, he grants an extension of time and costs including
i n respect of any instruction or other action taken by the Contractor to
overcome theobstacle.In the 4th Edition, clause 12 is divided into two subclauses. Sub-clause 12.1 isvery similar to the first sentence of the 3rd
Edition but the words in parenthesesare additional. Sub-clause 12.2
retains the same basic structure as the sec ondpart of clause 12 of the 3rd
Edition but refers to "physical obstructions or physicalconditions" instead of "physical
conditions ... or artificial obstructions".1 2 . 1 T h i s s u b clause, which logic and, indeed, the ICE would pl
ace in theprevious clause, has to be read in c
o n j u n c t i o n w i t h c l a u s e s 5 5 t o 5 7 (Measurement).
This clause does not deem the Contractor to have
s a t i s f i e d himself as to the quantities in the Bill which clause 55.1
(Quantities) states are estimated and "not to be taken as the actual and correct
quantities". This
clausep r o v i d e s a d e f e n c e t o t h e E m p l o y e r a g a i n s t a c l a i m
b y t h e C o n t r a c t o r f o r variations and extra payment on the grounds that
items of work were not coveredwithin the Bills of Quantities. The Employer
will say that the Contractor ha s tosatisfy himself that the tender covers
all his obligations under the contract andthat if the work the subject of
the claim was reasonably to be inferred from the drawings, specification etc
the Contractor is entitled to no further payments. For more on this area, see the
commentary to clauses 55 to 57.It may be relevant to note that the Tender is
defined at clause 1.1(b)(v) as the Contractor's offer "as accepted by the Letter
of Acceptance". Thus the Tender willoften be the result of a course of
negotiation and changed from the document originally submitted.U n d e r
clause 5.2 (Priority of contract documents), it is stated that
whilst thecontract documents, of which the Tender is one, are
t o b e t a k e n a s m u t u a l l y explanatory, "in case of ambiguities or discrepancies
the same shall be explainedor adjusted by the Engineer". Thus it may be
possible for an error in the tender which amounts to a discrepancy or
causes an ambiguity, to be rectified. It is not
Page 78 of 264

necessary for the ambiguity or discrepancy to be between the various

contractdocuments but may be limited to the Tender. Errors in carrying forward the
ratesa n d p r i c e s i n o r d e r t o a c h i e v e t h e C o n t r a c t P r i c e s h o u l d b e
i r r e l e v a n t t o t h e Contractor's recovery which will be based on the
remeasured quantities and therates only. Thus, the
unscrupulous Contractor may try to increase his prospectsof succeeding
in the competitive tender by introducing such errors in order to reduce his
tender price. Thus, the first task of the Employer's Quantity Surveyorswill be to check
the mathematics of the Bill of Quantities."...except insofar as it is otherwise provided
in the Contract...". Taken in
isolation,c l a u s e 1 1 . 1 ( I n s p e c t i o n o f S i t e ) a n d t h i s c l a u s e s
e e m t o s u g g e s t t h a t t h e Contractor must allow for whatever steps are
necessary in order to complete theproject. This position would be in
accordance with English common law which,subject to numerous
qualifications, imposes the same obligation. This contracthas a number
of provisions which produce a fairer result with t he benefit to
theEmployer that the Contractor will not have to include large
contingency sums in his tender to cover a wide range of largely unpredictable
risks:-clause 12.2 (Adverse physical obstructions or condition
s) releases theContractor from responsibility for physic
a l o b s t r u c t i o n s o r c o n d i t i o n s n o t reasonably foreseen;-clause 13.1
(Work to be in accordance with contract) releases the Contractor inthe event of legal
or physical impossibility;-clause 20.4 passes responsibility to the Employer for a list
of "Employer's Risks"including design and "any operation of the forces of nature";clauses 55 to 57 (Measurement), which make this
f o r m o f c o n t r a c t a remeasurement contract, give the
Contractor a right to be paid for additionalquantities of work
e x e c u t e d b y r e a s o n , f o r e x a m p l e , o f a n u n e x p e c t e d l y h i g h degree
of unsuitable material found in excavations unless the contract expresslyplaces
responsibility on the Contractor's shoulders;-clause 65 (Special risks) further protects
the Contractor from liability in the eventof war and certain of the Employer's risks
under clause 20.4;clause 66 (Release from performance) releases th
e C o n t r a c t o r f r o m performance in the event that any
c i r c u m s t a n c e o u t s i d e t h e c o n t r o l o f b o t h parties renders performance
impossible or unlawful; and- c l a u s e 7 0 ( C h a n g e s i n c o s t
a n d l e g i s l a t i o n ) r e i m b u r s e s t h e C o n t r a c t o r f o r additional costs
arising from price fluctuations or changes in the law.The foregoing clauses
represent a distribution of risk within the contract in line with the philosophy
that it is better for the Employer to take on those risks whichcannot readily be
ascertained or priced. To do otherwise means that the lowest tenderer is
likely to be the Contractor who has most severely under-estimated the
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possible problems with the project or who has taken the

g r e a t e s t r i s k s . T h e Employer will not be well served if his Contractor is forced
out of business shouldthe risk eventuate. Nevertheless, an Employer on a
large project which wouldattract major international contracto rs and
large performance bonds could well decide that risks should be re-aligned in
the Employer's favour.In addition to the clauses listed above, the Engineer
is empowered to order theContractor to "execute additional work of any
kind necessary for the completionof the Works" under clause 51.1 (Variations)
item (e).1 2 . 2 T h i s e d i t i o n d e p a r t s f r o m t h e 3 r d E d i t i o n a n d I C E
5th by dispensing withthe word "artificial" to describe the
obstructions which now need only to
be"physical". This plainly widens the scope beyond manmade obstructions toa n y t h i n g m a t e r i a l . T h e q u e s t i o n o
f w h a t i s r e a s o n a b l y f o r s e e a b l e b y a n experienced
Contractor is a difficult question of fact which has and will continue to
occupy the attention of arbitrators worldwide.Contractors bidding for a contract
containing this clause have to decide which of the most common risks to price
for: the fewer allowed for, the lower their price and the better their chance of
winning the contract. Rock is a common example:an everyday risk in civil
engineering but slow and expensive to remove. If the c o n t r a c t i s
silent, is the Contractor entitled to assume that no rock
w i l l b e encountered? Clause 11.1 (Inspection of site) would require the
Contractor toi n c l u d e i n h i s t e n d e r f o r a n y t h i n g t h a t p r a c t i c a b l e
i n v e s t i g a t i o n s s h o u l d h a v e disclosed. Disputes are perhaps
inevitable when the contractor to win the jobmay be the contractor who
has made the least allowance and thus is the most dependant on a claim
under this clause.Notice must be given in writing in accordance with clause 1.5
(Notices, consentsetc) and must be correctly addressed in accordance with
clause 68
(Notices).S u c h n o t i c e m u s t b e g i v e n " f o r t h w i t h " , t h a t i s i m m e d i a t
ely. The only other circumstances requiring such an instant
r e a c t i o n a r e c l a u s e 2 7 ( F o s s i l s ) a n d clause 65.5 (Increased costs
arising from Special Risks). However a failure to give such notice is not
expressed to be a condition precedent to the Contractor'srecovery and the notice
requirement may be contrasted with clause 52.2 (Power of Engineer to fix rates)
and with clause 44.2 (Contractor to provide notification and detailed
particulars).T h e l a c k o f p r o c e d u r e f o l l o w i n g t h e d i s c o v e r y o f
a p h y s i c a l o b s t r u c t i o n o r condition may give rise to difficulties.
The question as to who is to decide what steps should be taken to
overcome the obstruction or condition is not answered.The Contractor may ask
for instructions of the designer of the project who willdoubtless reply
that it is not for him to dictate to the Contractor his method of working.
In view of the like ly critical nature of the problem, this impasse
shouldp e r h a p s h a v e b e e n a v o i d e d b y t h e d r a f t s m a n , d e s p
i t e t h e w i d e v a r i e t y o f possible circumstances giving rise to a claim
under this clause. It is argued in thecommentary under clause 51.1 (Variations) that,
although the Engineer is given a
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broad discretion, when excercising that discretion as to whether or not to instruct,he

is subject to clause 2.6 (Engineer to act impartially), particularly when
theinstruction would amount to a variation."...during the execution of the Works...": A
Contractor who has received his Letter of Acceptance but has not yet
received his notice to commence under clause 41.1 (Commencement of
works) would be well advised to avoid carrying out anydigging of trial pits or drilling
of boreholes. If the unforeseen physical condition or o b s t r u c t i o n i s
discovered prior to the commencement of the execution of
theW orks, the Employer may well be entitled to argue that
c l a u s e 1 2 . 2 d o e s n o t apply. The Contractor would have to fall b ack
upon clause 44.1 (Extension
of t i m e f o r c o m p l e t i o n ) a n d c l a i m t h a t t h e p r o b l e m
a m o u n t e d t o " s p e c i a l circumstances". W hilst the
Contractor would probably have the sympathy of thearbitrator, his argument
may well not succeed." . . . o t h e r t h a n c l i m a t i c c o n d i t i o n s o n t h e S i t e " .
F o r t h e o t h e r r e f e r e n c e s t o t h e weather, see clause 11.1 (Inspection
of Site), clause 40.1 (Suspension of work)a n d
clause 44.1 (Extension of time for completion); and see
c l a u s e 2 0 . 4 (Employer's risks) for the phrase "any operation of the forces of
nature". Clauses20.4 and 44.1 are not limited to climatic conditions "on Site".This is
another example of a clause where the marginal note, "Adverse
physicalo b s t r u c t i o n s . . . " i s n o t r e f l e c t e d i n t h e c l a u s e . T h e w o r d
" a d v e r s e " d o e s n o t feature in the clause and the obligation to
give notice is not confined to adversec o n d i t i o n s : t h e d i s c o v e r y o f
s o i l w h e r e r o c k w a s e x p e c t e d w o u l d t e c h n i c a l l y require notification.
The Engineer may be reluctant to grant time or costs for suchg o o d f o r t u n e b u t
if the Contractor had to bring to site different equipment
t o replace the rock-blasting arrangements he had prepared, there may
neverthelessb e a c l a i m . C l a u s e 1 . 2 ( H e a d i n g s a n d m a r g i n a l
n o t e s ) m a k e s i t c l e a r t h a t marginal notes are not to be considered when
construing the contract.In civil law countries, with systems based on the
French model, administrativecontracts including public works contracts
would incorporate the Theorie dessujetions imprevues.By this doctrine,
a Contractor encountering an exceptionaland unforese en physical
obstruction which had not been caused by the relevantAdministration,
might be entitled to compensation under administrative law. In such a
contract, therefore, clause 12.2 may not be strictly necessary. A question-mark
remains, however, as to whether compensation will be reduced or refused if clause
11.1 (Inspection of site) is interpreted to mean that the Contractor
hasa g r e e d t o t a k e o n t h e r i s k o f g r o u n d c o n d i t i o n s . F o r a n
o u t l i n e o f t h e m a j o r administrative law provisions, see under clause 5.1
(Languages and law).CLAUSE 12.2 (Not foreseeable physical obstructions or
conditions)In the title of this sub -clause, the word "adverse" has been
replaced with "notforeseeable". It was a peculiarity of both the 3rd and
4th Editions that the word"adverse" appeared in the title but not in the
text of the sub-clause. It is only ap e c u l i a r i t y a s c l a u s e 1 . 2
(Headings and marginal notes) makes it plain that
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headings and marginal notes shall not be taken into con

s i d e r a t i o n i n t h e interpretation of the contract.
CLAUSE 13 : Instructions from the Engineer
The Contractor shall complete the project in strict accordance with the contract tothe
satisfaction of the Engineer unless it is legally or physically impossible
to doso. The Contractor is to obey E ngineer's instructions on any matter
relevant tothe works but shall only take instructions from the Engineer
or the Engineer'sRepresentative.This clause is effectively the same as the 3rd
Edition.In relation to impossibility, this clause should be read in
conjunction with clause65 (Special risks) and clause 66 (Release from
performance). Under clause 65,the Contractor is released from performing, at the
Employer's option, in the evento f w a r b u t o t h e r w i s e i s o b l i g e d t o
c o n t i n u e t o u s e h i s b e s t e n d e a v o u r s t o complete the works. If
the works are damaged by one of the special risks such as a bomb, the
Contractor may be obliged to repair and replace the works at thecost of the
Employer. Thus, it is only where war or special risks render it legallyor physically
impossible to carry on that the Contractor is released without
theEmployer's consent. Clause 66 deals with any circumstance outside the controlof
both parties "which renders it impossible or unlawful for either party to fulfil
hiscontractual obligations".Legal impossibility would include an injunction or a
change in the local legislationwhich prevented the Contractor working at all or
otherwise prevented the projectfrom proceeding. In this context, see clause
26.1 (Compliance with statutes, r e g u l a t i o n s ) a n d c l a u s e 7 0 . 2
( S u b s e q u e n t l e g i s l a t i o n ) w h i c h d e a l s w i t h l o c a l legislation causing
changes to the cost of the works.There is a spectrum of physical impossibility: at one
extreme, there is somethinga k i n t o f r u s t r a t i o n w h e r e b y c i r c u m s t a n c e s
b e y o n d t h e c o n t r o l o f e i t h e r p a r t y prevent further performance such
as the permanent flooding of the site due to some natural phenomenon. In
the middle of the spectrum there would be projectswhich are physically
impossible to build: for example, ground conditions might render the
bridging of a river physically impossible so that the project would haveto be aborted
in favour of a tunnel. At the other end of the spectrum, a part of theparticular
design may be physically impossible to build. For example, it may
beimpossible to fit the specified reinforcement within a column of the size required.It
is submitted that all these types of physical impossibility to some degree relievethe
Contractor of his underlying obligation. In the third example, he is
relievedfrom complying strictly with the drawings and specifications and the
Engineer willbe obliged to instruct pursuant to clause 51.1 (Variations) as
a variation would"in his opinion, be necessary". Unless the element of
works had been designed by the Contractor, the variation would be valued under
clause 52.1 (Valuation of variations).
Page 82 of 264

Physical impossibility could also include circumstances where the site

was
toos m a l l f o r t h e w o r k s d e s i g n e d o r w h e r e c l a u s e 1
2 . 2 ( A d v e r s e p h y s i c a l obstructions or conditions) circumstances were
encountered that were so severeas to prevent the completion of the works. It
is submitted that this clause does n o t c o v e r c i r c u m s t a n c e s w h e r e
the completion of the works is simply
moredifficult or expensive than anticipated; nor circumstances
w h e r e m e t h o d s o r machinery which the Contractor did not allow for in
his tender are found to benecessary. This situation is to be contrasted
with the circumstances where therelevant method or machinery
is specified in the contract with the result that theContractor wo uld be
entitled to a variation if the relevant method or
machineryp r o v e d p h y s i c a l l y i m p o s s i b l e . S e e t h e c o m
m e n t a r y u n d e r c l a u s e 1 4 . 1 (Programme to be submitted) in relation
to specified methods of
working.I f t h e E n g i n e e r ' s d e s i g n i s i n c a p a b l e o f b e i n g b u i l
t , f o r e x a m p l e , b e c a u s e structural elements as designed would be
incapable of withstanding the loads tob e i m p o s e d u p o n t h e m b y o t h e r
elements of the works, this could amount
tophysical impossibility. The Contractor would be entitled to
s e e k a n d o b t a i n instructions from the Engineer which would amount to
variations under clause 51.1 (Variations). This situation is to be contrasted with a case
such as Sharpe vS a n P a u l o R a i l w a y ( 1 8 7 3 ) 8 C h . A p p . 5 9 7 w h e r e a
C o n t r a c t o r u n d e r t o o k t o construct a railway for a lump sum. When it turned out that
the quantities statedin the contract were substantially underestimated, it was held that, in the
absenceof fraud, the contractor had taken that risk when tendering a lump sum."...in strict
accordance with the Contract to the satisfaction of the Engineer". InNational
Coal Board v William Neill & Sons (1985) QB 300; (1984) 26 BLR 81, anEnglish Court
considered a similar phrase, "executed in the manner set out in thespecification, if any,
and to the reasonable satisf action of the Engi neer". It wasconcluded that these
words imposed a two-fold obligation upon the Contractor
toa c h i e v e c o m p l i a n c e w i t h t h e s p e c i f i c a t i o n a n d t o o b
t a i n t h e r e a s o n a b l e satisfaction of the Engineer. Both the ICE and FIDIC have
removed the "and" but,it is submitted, the obligation remains two -fold. The two
requirements containedin this phrase are not always easy to reconcile. If the
Contractor has complied with the letter of the contract but has not satisfied the Engineer,
is he in breach or is he entitled to a variation to cover the additional work required by the
Engineer?I f t h e C o n t r a c t o r h a s n o t f u l f i l l e d t h e l e t t e r o f t h e c o n t r a c t
b u t t h e E n g i n e e r indicates that he is satisf ied with a lesser standard, is the
Contractor open to criticism? It must be borne in mind that the decisions of the Engineer
are open toreview by an arbitrator under clause 67.3 (Arbitration) at the
instance of both Employer and Contractor. As the Engineer is to give or withhold his
satisfactioni m p a r t i a l l y i n a c c o r d a n c e w i t h c l a u s e 2 . 6 ( E n g i n e e r t o a c t i
m p a r t i a l l y ) , i t i s submitted that the Engineer is not acting as agent f or the
Employer in the eventthat he expresses satisfaction in relation to works not strictly in
accordance withthe contract. The Contractor is theref ore not able to argue that
the Employer h a s , t h r o u g h h i s a g e n t , w a i v e d o r v a r i e d t h e c o n t r a c t .
S e e a l s o c l a u s e 2 . 1 (Engineer's duties and authority) at item (c) which states that the
Engineer does

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not have authority to relieve the Contractor of any of his contractual

obligations,"except as expressly stated in the contract".The practical working
interpretation should be that the Engineer is to be taken asthe arbiter of what amounts to
"strict accordance with the Contract". Compare therole of the Engineer as arbiter
under clause 5.2 (Priority of contract docum ents)in relation to ambiguities
and discrepancies. How ever there is little support for s u c h a n a p p r o a c h
in the contract. The Contractor appears to be entitled to e x e c u t e
the works to the letter of the contract and dispute at
a r b i t r a t i o n i f necessary the Engineer's decision to withhold
h i s s a t i s f a c t i o n . S i m i l a r l y , a Contractor would be unwise to act upon an
Engineer's expression of satisfactionwhere the works fall short of strict compliance with
the contract as the Employer would be equally entitled to challenge the
expression of satisfaction before anarbitrator and recover from the
Contractor for breach of contract. It is
thereforen e c e s s a r y f o r a C o n t r a c t o r w i s h i n g t o b e s e c u r e t o
o b t a i n a n i n s t r u c t i o n amounting to a variation or an indication
that the Engineer, in waiving strictcompliance, is doing so as
a u t h o r i s e d a g e n t f o r t h e E m p l o y e r d e s p i t e c l a u s e 2.1(c).Elsewhere in
the contract, the Engineer's satisfaction recurs most frequently in relation to
the rectification of defects and damage and in relation to the readinesso f t h e w o r k s
or any part of the works for a Taking-Over Certificate. See
f o r exam ple, clause 17.1 (Setting out) and clause 49.2 (Completion of
outstanding work and remedying defects).The Engineer's power to instruct is very,
perhaps absurdly, broad, limited only bythe requirem ent that such instructions
must touch or concern the works. Thep r o v i s i o n s i n t h e c o n t r a c t
c o v e r i n g i n s t r u c t i o n s a r e w i d e l y d i s p e r s e d a n d t h i s clause should
be read in conjunction with clau se 2.5 (Instructions in
writing),c l a u s e 7 . 1 ( S u p p l e m e n t a r y d r a w i n g s a n d i n s t r
u c t i o n s ) a n d c l a u s e 5 1 . 1 (Variations). For a discussion of the
Engineer's power to instruct variations, seeunder clause 51.1.The question arises as
to the power of the Engineer to issue instructions after substantial completion.
There is no express limitation under clauses 2.5 or 7.1 or u n d e r t h i s c l a u s e o r
clause 51.1. On the contrary, clause 7.1 refers to
t h e remedying of defects and clause 49.2 (Completion of
outstanding work
andremedying defects) and clause 50.1 (Contractor to search) co
n t a i n e x p r e s s references to instructions during the Defects Liability
Period. Nevertheless, it would come as a surprise to most people involved in a civil
engineering project
if t h e E n g i n e e r s o u g h t t o i s s u e a n i n s t r u c t i o n a m o u n t i n g t
o a v a r i a t i o n a f t e r substantial completion. This is because the project will
generally be occupied bythe Employer and in use and the Contractor will have been
permitted pursuant toclause 54.1 (Contractor's equipm ent, tempo rary works
and m aterials; exclusiveuse for the works) to demobilise all his equipm ent
and labour save to the extentnecessary to complete outstanding works and
rem edy defects. Finding supportfor this commonly held and common -sense
view in the term s of the c ontract
isd i f f i c u l t . P e r h a p s t h e b e s t a r g u m e n t i s t h a t c l a u s
es 7.1 and 51.1 refer
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respectively to instructions and variations that are "necessary".

I t m i g h t b e argued that once the project is substantially completed,
variations could not benecessary unless to overcome a fault not caused by the
Contractor in which caseclause 49.2 applies. The problem with such an
argument is that "necessary" in clause 51.1 is entirely unqualified. If it appears
during the Defects Liability Periodthat some part of the design is inadequate and needs
to be amended in order toachieve the purpose of the project, it would be
difficult to resist the variation on grounds of necessity.It is submitted that this issue
needs to be resolved: this could be achieved either b y m a k i n g i t c l e a r t h a t
v a r i a t i o n s m a y n o t b e i n s t r u c t e d a f t e r t h e i s s u e o f t h e taking-over
certificate or by way of a provision that instructions may not be issuedafter substantial
completion where the Contractor has removed from the site, withthe consent of the
Engineer pursuant to clause 54.1, the equipment, temporary works or materials
which would have been necessary to carry out the variations.Although a Contractor who
had removed equipment could no doubt claim for thecost of remobilising in order to
execute such a variation, this would often
means e r i o u s d i s r u p t i o n t o t h e C o n t r a c t o r ' s p l a n s a n d o t h e r
p r o j e c t s a n d i s t h u s undesirable. If the Engineer does not have
p o w e r t o o r d e r v a r i a t i o n s , t h e Employer is still at liberty to negotiate with the
Contractor for the execution of theadditional works.Clause 2.3 (Engineer's authority to
delegate) makes provision for the delegationo f p o w e r s t o t h e
E n g i n e e r ' s R e p r e s e n t a t i v e a n d e n a b l e s t h e C o n t r a c t o r t o question a
ny communication from the Engineer's Representative and to receivethe
Engineer's confirmation or otherwise. Clause 2.5 (Instructions in writing)
alsog o v e r n s t h e E n g i n e e r ' s o w n i n s t r u c t i o n s , f o r e x a m
p l e i n r e q u i r i n g s u c h instructions to be in writing or, if oral,
confirmed within the time limit specified.Claus e 2.4 (Appointment of
assistants) permits assistants to issue instructions under limited circumstances.
In conformity with this clause, such instructions aredeemed to have been given
by the Engineer's Representative. The reference in t h e c u r r e n t c l a u s e t o
t h e E n g i n e e r ' s R e p r e s e n t a t i v e i s s u p e r f l u o u s a n d a f t e r clause 15.1
(Contractor's superintendence), no more is heard about him.If the instructions are
given late, the Contractor may have a claim under clause 6.4 (Delays and cost
of delay of drawings).CLAUSE 13.1 (Work to be in accordance with Contract)The final
sentence of this clause has been changed from :-"The Contractor shall take
instructions only from the Engineer or, subject to theprovisions of clause 2, from
the Engineer's Representative."to:-"The Contractor shall take instructions only from the
Engineer (or his
delegate)."I n t h e m a i n w o r k , i t w a s c o m m e n t e d t h a t t h e r e f e r e
n c e s t o t h e E n g i n e e r ' s Representative in clauses 13.1 and 15.1
(Contractor's superintendence) wereunnecessary given that the Engineer
has power under clause 2.3 (Engineer'sauthority to delegate) to delegate to
the Engineer's Representative any of his
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duties and authorities. Those responsible for the 1992 amendments

obviouslydid not consider that they could simply de lete the superfluous
words. No doubtt h e y f e a r e d t h a t h e e m p h a t i c l a n g u a g e , " s h a l l t a k e
instructions only from theEngineer", could be taken to override
t h e e f f e c t o f a n E n g i n e e r ' s d e l e g a t i o n under clause 2.3 of his authority
to issue instructions. As this sentence is theo n l y o c c a s i o n t h a t p u r p o r t s
s p e c i f i c a l l y t o r e s t r i c t a n a c t i o n t o t h e E n g i n e e r himself, the
draftsman's caution is perhaps not inappropriate. Contrast clause15.1
(Contractor's superintendence), where a simple deletion of the reference tothe
Engineer's Representative was considered sufficient.
CLAUSE 14 : Work Programme
W ithin a set time of the Letter of Acceptance the Contractor is to
submit for approval his programme in the form required by the
E n g i n e e r . H e i s a l s o t o provide a written method statement as and when required
by the
Engineer.I f t h e E n g i n e e r c o n s i d e r s t h a t p r o g r e s s d o e s n
o t m a t c h t h e a p p r o v e d programme, he may require the
C o n t r a c t o r t o p r o d u c e a r e v i s e d p r o g r a m m e showing how the works are to
be completed on time.W i t h i n a s e t t i m e o f t h e L e t t e r o f A c c e p t a n c e , t h e
C o n t r a c t o r i s t o s u b m i t a detailed cash flow estimate of payments due to the
Contractor and will revise theestimate quarterly if the Engineer so
requires.T h e E n g i n e e r ' s c o n s e n t t o p r o g r a m m e s , m e t h o d s t a t e
m e n t s o r c a s h f l o w estimates will not relieve the Contractor of any of his
contractual responsibilities.Sub-clauses 14.1, 14.2 and 14.4 are taken, with
changes mainly of vocabulary, from the 3rd Edition. Sub-clause 14.3 is entirely
new.1 4 . 1 I t i s a f e a t u r e o f t h i s c o n t r a c t t h a t t h e E m p l o y e r a n d t h e
E n g i n e e r t a k e a close interest in the intentions of the Contractor. Compare for
example a turn-keyc o n t r a c t w h e r e t h e E m p l o y e r m a y h a v e n o
r e p r e s e n t a t i v e a n d i s n o t o v e r l y interested in how the Contractor achieves the
desired result provided that on thed u e d a t e t h e r e q u i r e d p r o d u c t i s
s u p p l i e d . S u c h a n a p p r o a c h i s n o t a l w a y s appropriate in civil
engineering where ongoing quality control is often necessarydue, at least in
part, to the high proportion of the works which are covered up bysubsequent operations.
This clause requires the Contractor to tell the Engineer inwhat order and, if
so requested, by what methods the works are to be executed.F r o m a
practical point of view, this enables the Engineer to programme
hisdetailed design and the Employe r will need information to plan
t h e g i v i n g o f possession of the various parts of the site to the Contractor.
The
programmes u p p l i e d p u r s u a n t t o t h i s c l a u s e w i l l d e f i n e t
h e E m p l o y e r ' s d u t y t o g i v e possession pursuant to clause
4 2 . 1 ( P o s s e s s i o n o f s i t e a n d a c c e s s t h e r e t o ) . Failure to give possession
in accordance with the programme could result in theContractor being entitled to an
extension of time and costs. In contrast, under
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clause 6.4 (Delays and cost of delay of drawings), a

f u r t h e r n o t i c e t o t h e Engineer making a specific request for a
particular drawing or instruction
isa l m o s t c e r t a i n l y r e q u i r e d b e f o r e t i m e a n d c o s t s m a y b e o
btained. See thec o m m e n t a r y u n d e r s u b clauses 6.3 and 6.4 as to whether a markedu p programme could amount to sufficient notice. The degree of detail to be providedis to be
determined by the Engineer: this could be important. For the Employer adetailed programme
will define closely his duties in relation to giving possessionof the site and in relation to
the provision of drawings by the Engineer. It will be more obvious when a breach of
those duties has occurred. For the Contractor, itm u s t b e a p p r e c i a t e d t h a t h e n o t
is bound by his programme: he may call
for d r a w i n g s u n d e r c l a u s e 6 . 3 ( D i s r u p t i o n o f p r o g r e s s ) a s h e
w i s h e s a n d m a y proceed with any part of the site of which he has
possession. The constraint is that the Employer's obligation to give possession is
governed by the programme(or 'reasonable proposals'). He will have no claim for
late possession if he has not signalled his change of plan with a revised programme
under sub-clause 14.2or revised proposals under clause 42.1.If the Contractor's
programme or method statement is a contractual document, any inability to execute
the works in accordance with that programme or methodc o u l d g i v e r i s e t o a c l a i m
b y t h e C o n t r a c t o r f o r a v a r i a t i o n a n d c o s t s . S e e f o r example the case
of Yorkshire W ater Authority v Sir Alfred McAlpine (1985) 32 B L R 5 w h e r e
the contract incorporated the Contractor's proposed method
o f upstream working whic h proved impossible: it was held that the Contractor
wase n t i t l e d t o a v a r i a t i o n a n d p a y m e n t f o r t h e c h a n g e t o d o w n s t r e a m
w o r k i n g . Tenderers will invariably be asked for an outline programme to be submitted
withtheir tenders. Clause 42.1 (Possession of site and access thereto) reflects
theEmployer's ability to specify the parts of the site of which the Contractor
is to begiven possession and the order in which such parts are to be given to
him. TheE m p l o y e r w o u l d b e u n w i s e t o i m p o s e s u c h l i m i t a t i o n s
u n l e s s a b s o l u t e l y necessary as the order of the release of parts of
t h e s i t e m a y a m o u n t t o t h e Employer dictating the programme of the works which
will cause the Employer tobe responsible in the event that the Contractor, through
no fault of his own, is unable to work to that programme.If the Contractor submitted
a programme with his tender, that programme may well form part of the contract as
"the Tender" is one of the documents containedin the definition of Contract. This
could give rise to the argument that the tender programme is a contract
programme with the consequences set out above. As t h i s i s c l e a r l y n o t t h e
purpose or intention behind a tender programme, theparties,
particularly the Employer, would be well advised to ensure that
t h e version of the tender that is a ccepted by the Letter of Acceptance is one
whichexcludes the tender programme.I n r e l a t i o n t o m e t h o d s , a n E m p l o y e r
may well choose his Contractor on thestrength of the types of
m a c h i n e r y a n d m e t h o d s p r o p o s e d b y t h e i n d i v i d u a l tenderers. Having
selected a tenderer on that basis, an Employer may well wisht o e n s u r e t h a t t h e
t e n d e r e d m e t h o d s a n d m a c h i n e s a r e u s e d o n s i t e a n d w i l l therefore
include the tender method statement in the contract document. Again,
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the result is that the Employer takes the risk if, through no fault of the Contractor,t h e
method or those machines are not capable of executing the
w o r k s . I t i s submitted that clause 8.2 (Site operations and methods of
construction), whichseeks to place full responsibility for methods of
construction on the Contractor, does not affect this situation where the method
is part of the contract.For commentary on the effect of the submission of an
optimistic programme, seeunder clause 47 (Liquidated damages for delay).Under
clause 51.1 (Variations), the Engineer is entitled to order a change to "anyspecified
sequence or timing of construction". Thus, if the programme was part of
the contract, it would represent a specified sequence or timing and any changeto
that could entitle the Contractor to a variation and payment. As to a change
of method, clause 51.1(c) deals with changes to "the character or quality or kind
of a n y s u c h w o r k " . A l t e r n a t i v e l y , a c h a n g e i n m e t h o d c o u l d b e
covered by
ano m i s s i o n a n d a n a d d i t i o n o f a l t e r n a t i v e w o r k u n d e r i t
e m s ( b ) a n d ( e ) . T h e Contractor is unlikely to object, provided
he is paid, as the greater responsibilitytaken on by the Employer for method,
the less the risk remaining on
him.T h e u l t i m a t e s a n c t i o n e n s u r i n g c o m p l i a n c e w i t h t h i s c l a u s e
i s d e t e r m i n a t i o n under clause 63.1 (Default of Contractor) item (d) for a flagrant
neglect to
complyw i t h a n o b l i g a t i o n . M o r e i m m e d i a t e l y , w h e r e t
h e c o n t r a c t i s s i l e n t a s t o possession of the site, the
E m p l o y e r w i l l n o t b e u n d e r a n o b l i g a t i o n t o g i v e possession under
clause 42.1 (Possession of Sit e and access thereto) without s u c h a
programme, or the 'reasonable proposals' referred to in that
c l a u s e . Compare the sanction provided in relation to clause 10.1 (Performance
security)by clause 60.2 (Monthly payment) whereby no interim payment
may be madeuntil the security has been supplied.I t i s a s e r i o u s c r i t i c i s m
o f t h i s c l a u s e t h a t t h e r e i s n o p r o v i s i o n a d d r e s s i n g a refusal of
consent by the Engineer to the Contractor's programme. In view of theimportance of
the programme under clause 42 (Possession of Site) and implicitlyunder clause 46.1
(Rate of Progress) and generally, there should be a procedureor timetable or, as
a minimum, recognition of the possibility of consent beingrefused.
Clause 42.1 should refer to the programme as approved.
Overmuchr e l i a n c e s h o u l d n o t b e p l a c e d o n t h e ' h o n e y m o o n '
p e r i o d a t t h e s t a r t o f t h e project. For a provision dealing with rejection by the
Engineer, see ICE 6th clause14(1)(c).The time for submission of the programme is
to be inserted in Part II.1 4 . 2 T h i s c l a u s e s h o u l d b e r e a d t o g e t h e r w i t h
c l a u s e 4 6 . 1 ( R a t e o f p r o g r e s s ) whereby the Engineer may require a
Contractor in culpable delay to accelerate inorder to complete on time. Under
the current sub-clause, the fact that progress does not conform to the
programme could be due to any reason whether or not ite n t i t l e s t h e
Contractor to an extension of time. If the Contractor had
b e e n granted an extension of time, the Engineer would require a programme
showingthe new completion date. If the Contractor is in culpable delay,
the Engineer
Page 88 of 264

would require a programme showing what steps the Contractor would

have totake in order to complete on time. In order to oblige the Contractor to work
to theaccelerated programme, notification under clause 46.1 would be
necessary.T h e w o r d i n g o f t h i s c l a u s e w o u l d a l l o w a n
E n g i n e e r t o c a l l f o r a r e v i s e d programme in the event
t h a t t h e C o n t r a c t o r w a s s u b s t a n t i a l l y a h e a d o f t h e approved
programme. As discussed under clause 47.1 (Liquidated damages
for delay), in English law, a Contractor is not entitled to impose greater
obligationsupon the Employer by way of the granting of possession of
the site or upon
thed e s i g n t e a m i n t h e i r p r o d u c t i o n o f d r a w i n g s b y a c c e l e
r a t i n g t h e w o r k , f o r example, in order to obtain a bonus. Thus, an
Engineer could call for a revisedprogramme where a Contractor was
substantially ahead and threatening to makec l a i m s u n d e r c l a u s e 6 . 4
(Delays and cost of delay of drawings) in order
t o ascertain what would amount to a reasonable time -table for the
production of drawings.1 4 . 3 C a s h - f l o w e s t i m a t e s a r e n o r m a l l y
e s s e n t i a l t o t h e E m p l o y e r t o e n a b l e h i m to plan the funding of the
works. The Contractor is best placed to carry out thisexercise as the
programme of works is within his control. There is no obvious s a n c t i o n
if the estimate is inaccurate, even if the estimate was designed
t o mislead the Employer. The time for submission of the estimate is to be inserted
inPart
II1 4 . 4 T h i s c l a u s e i s c o n s i s t e n t w i t h c l a u s e 2 . 1 ( c )
( E n g i n e e r ' s d u t i e s a n d authority) whereby the Engineer "shall have no
authority to relieve the Contractor of any of his obligations". It is also
consistent with the scheme of the
contractw h e r e b y t h e E m p l o y e r t a k e s n o r e s p o n s i b i l i t y f o r
the practicability of theC o n t r a c t o r ' s p r o g r a m m e a
n d m e t h o d s o f w o r k . S e e a l s o c l a u s e 7 . 3 (Respons
ibility unaffected by approval), clause 17 (Setting-out) and clause 54.8(Approval of
materials not implied) for other examples. See also clause 61.1 (Approval
only by Defects Liability Certificate).
CLAUSE 15 : Contractors Superintendence
The Contractor shall provide all necessary management
a n d s u p e r v i s i o n throughout the project and for as long as the
Engineer may consider necessaryincluding a full time competent and
authorised representative approved by the Engineer. The representative
will receive instructions from the Engineer and
theE n g i n e e r ' s R e p r e s e n t a t i v e . I f t h e E n g i n e e r w i t h d r a w s
h i s a p p r o v a l , t h e Contractor is to remove the representative
f r o m t h e w o r k s p e r m a n e n t l y a n d replace him with a representative
approved by the Engineer.This clause, although somewhat re-arranged, is
essentially the same as the 3rdEdition.T h i s c l a u s e i s d e s i g n e d t o
t a c k l e t h e p r o b l e m o f e n s u r i n g t h a t t h e C o n t r a c t o r maintains on
site good quality management right to the end of the project and
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throughout the defects liability period. Indeed, the clause may provide
additionali n c e n t i v e f o r t h e C o n t r a c t o r t o a c h i e v e a s p e e d y
s u b m i s s i o n o f f i n a l a c c o u n t documentation. However, the Engineer's view of
the superintendence necessarycould be challenged and there is little
obvious sanction should the Contractor wish to remove his most experienced
management to more rewarding work thanthe remedying of defects.The
withdrawal of approval of a manager during the course of the works
could,however, be very disruptive to the Contractor. The Engineer must
exercise hisdiscretion in relation to the approval of the Contractor's authorised
representativein accordance with clause 1.5 (Notices, consents etc) and
clause 2.6 (Engineer to act impartially). Thus, approval shall not be
unreasonably withheld and theEngineer must exercise his discretion
impartially. FIDIC, in their Guide, seek to discourage delegation of the
Engineer's power under this clause.The Contractor's ability to challenge the
withdrawal of the Engineer's approval isof little practical assistance as the
representative must be replaced "as soon as ispracticable". An arbitrator could
in due course rule that the withdrawal of
thea p p r o v a l w a s u n r e a s o n a b l e w h e r e u p o n t h e C o n t r a c t o r
m a y b e e n t i t l e d t o whatever damages he could
d e m o n s t r a t e . I t m u s t b e d o u b t e d w h e t h e r t h e arbitrator has
power to order the reinstatement of such a representative, even if an
arbitration could be completed in time.As clause 62.2 (Unfulfilled obligations)
contemplates the existence of obligationsbeyond the Defects Liability
Certificate, the Engineer could seek to require the Contractor to maintain
superintendence well beyond the defects liability period if he considered it
necessary."... which approval may at any time be withdrawn ...". This expression
does not,it is submitted, free the Engineer from the constraints placed upon him by
clause1 . 5 ( N o t i c e s , c o n s e n t s e t c . ) a n d c l a u s e 2 . 6 ( E n g i n e
e r t o a c t i m p a r t i a l l y ) . Compare the words used in clause 3.1
( A s s i g n m e n t o f c o n t r a c t ) w h e r e t h e draftsman sought to give the
Employer an unfettered right to withhold his consentto the assignment of the
contract. In contrast with assignments, it is plainly rightthat the Contractor's top
management on site should be left undisturbed unless the Engineer has
good reason to withdraw his approval.There is a conflict between this clause and
clause 68 (Notices) which requires allcertificates, notices or instructions to be sent to
the Contractor's principal place of business or other nominated address by post,
telex, etc. Here, instructions mayb e h a n d e d t o t h e C o n t r a c t o r ' s
authorised representative on site. W hilst
it iso b v i o u s l y s e n s i b l e t h a t d a y t o d a y i n s t r u c t i o n s s h o u l
d n o t b e s e n t t o t h e Contractor's head office alone, this conflict should be
resolved, preferably by therequirement that copies of all instructions which
are handed over on site shouldb e s e n t t o t h e h e a d o f f i c e o r
n o m i n a t e d a d d r e s s . T h a t w o u l d r e m o v e a n y possibility of debate
as to whether an instruction had in fact been given.
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The reference in the current clause to the Engineer's Re

p r e s e n t a t i v e i s superfluous given clause 2 (Engineer and Engineer's
Representative). After thisclause, no more is heard about him.Part II provides an
optional clause requiring the Contractor's representative to befluent in a particular
language and/or for the Contractor to provide a
competenti n t e r p r e t e r . I C E 5 t h a n d 6 t h r e q u i r e
the contractor's superintendents
to beknowledgeable in safety matters and makes the authorised
r e p r e s e n t a t i v e expressly responsible for safety on site. FIDIC's 4th Edition
leaves these matterst o c l a u s e 8 . 2 ( S i t e o p e r a t i o n s a n d m e t h o d s o f
c o n s t r u c t i o n ) a n d c l a u s e 1 9 . 1 (Safety, security and protection of the
environment).CLAUSE 15.1 (Contractor's superintendence)The final sentence of the
first paragraph in this clause read as follows:"Such authorised representative shall receive, on behalf of the
Contractor,instructions from the Engineer or subject to the
p r o v i s i o n s o f c l a u s e 2 , t h e Engineer's representative"T h e w o r d s
in italics have now been deleted. In view of the broad
d e l e g a t i o n powers given to the Engineer by clause 2.3 (Engineer's authority to
delegate) thewords were unnecessary.Contrast clause 13.1 (Work to be in
accordance with the Contract), referred to above, where it was not felt safe
simply to amend these words.
CLAUSE 16 : Contractors Employees
The Contractor shall bring to site for the project skilled and experienced
technicalassistants, competent foremen and leading hands to supervise the works
and allnecessary labour for the proper execution of the project.The Engineer shall be
entitled to object to anybody he considers has misbehavedor is incompetent or
negligent or otherwise undesirable. The Contractor shallremove any such
person permanently and shall replace him as soon as possible.T h i s c l a u s e i s
essentially similar to the 3rd Edition subject to a number
o f changes in the vocabulary.T h i s c l a u s e i m p o s e s u p o n t h e C o n t r a c t o r
o b l i g a t i o n s a n d g i v e s t h e E n g i n e e r powers with a view to ensuring the
quality of the works. The general obligation isset out at clause 8.1 (Contractor's
general responsibilities) where "the Contractor shall provide all
superintendence, labour...". The Engineer's power must be e x e r c i s e d
impartially as the removal of assistants and labour is action
which" m a y a f f e c t t h e r i g h t s a n d o b l i g a t i o n s " o f t h e C o n t r a
c t o r u n d e r c l a u s e 2 . 6 (Engineer to act impartially).
Page 91 of 264

The Engineer's entitlement to object is not necessarily limited to the categories

of person set out at 16.1 (a) and (b) as he can require the removal of
"any personprovided by the Contractor". Thus, management, consultants and
subcontractorsc o u l d f a l l w i t h i n t h i s c l a u s e . C l a u s e 1 . 3
( I n t e r p r e t a t i o n ) s t a t e s t h a t t h e t e r m 'person' includes firms, corporations
and other organisations."...otherwise considered by the En gineer to be
undesirable...". The duty to actimpartially is an important qualification of
an otherwise extremely broad
term.F r o m t h e E m p l o y e r ' s p o i n t o f v i e w , t h e C o n t r a c t o r ' s c
l a i m s t e a m c o u l d b e considered undesirable as could experts
b r o u g h t o n t o s i t e t o l o o k i n t o , f o r example, deficiencies in the Engineer's
design. As "undesirable" does not cover misbehaviour, incompetence or negligence,
which are specifically referred to, theterm is presumably aimed at trouble-makers or
people who disregard site safety.As with clause 15.1 (Contractor's
superintendence), Part II provides an optionalclause whereby the
Contractor's superintending staff should have a
reasonablep r o p o r t i o n o f p e o p l e w i t h a w o r k i n g k n o
w l e d g e o f a g i v e n l a n g u a g e . Alternatively, competent
interpreters are to be provided.Part II also provides a clause encouraging the
Contractor to employ local staff and labour. FIDIC, in their Guide, seek to
discourage delegation of the Engineer'spower under this clause and clause 15.1.
CLAUSE 17 : Setting out
Once the Engineer has stated in writing the original points, lines and
levels of reference, the Contractor is responsible for the accurate setting-out of all
parts of t h e w o r k a n d p r o v i d i n g l a b o u r a n d e q u i p m e n t f o r t h e
p u r p o s e s o f s e t t i n g o u t . The Contractor shall rectify any setting-out error that
appears, if required to do soby the Engineer, at his own cost unless the error
is based on incorrect writtendata supplied by the Engineer, in which
case the Contractor will be reimbursed.The Contractor will not be relieved of
his responsibility if the Engineer checks anysetting-out. The Contractor must protect
all bench-marks, site-rails, pegs etc.This clause uses the vocabulary of the 4th
Edition but the principles of the 3rd Edition are retained.This clause, like
clause 39.1 (Removal of improper work, materials or
plant),g i v e s t h e E n g i n e e r w i d e p o w e r t o c a u s e t h e C o n t r a c
t o r t o r e c t i f y e r r o r s regardless of their significance. In practice,
parties would normally agree to
ar e d u c t i o n i n t h e v a l u a t i o n o f t h e w o r k i
f a m i n o r d e f e c t w o u l d b e disproportionately expensive to
remedy. At common law, the Employer would beunder an obligation to mitigate
his loss, but the terms of this clause and clause 3 9 s e e m t o n e g a t e
a n y s u c h d u t y . F o r d i s c u s s i o n o f t h e E n g i n e e r ' s p o w e r t o waive
strict compliance with the specification, see the commentary under clause2.1
(Engineer's duties and authority) and clause 13 (W ork to be in
accordancewith contract).
Page 92 of 264

This clause envisages the Engineer giving reference points and data in
writingwhich is obviously sensible for the avoidance of disputes. However, it is easy
toimagine site conditions in which writing would not assist and the Engineer wouldb e
obliged to provide a physical datum point. In
these circumstances,
theC o n t r a c t o r w o u l d b e w e l l a d v i s e d t o r e q u e s t t h e E n g i n
e e r t o c o n f i r m w i t h whatever description was appropriate the nature
and location of the marker. Inany situation where there is a physical
datum point, there is risk that it would
bem o v e d o r d a m a g e d b y h e a v y m a c h i n e r y h e n c e t h e
o b l i g a t i o n u p o n t h e Contractor to protect and preserve it. As the
physical datum point would be the best evidence of the setting out error upon
which the Contractor may be seekingto rely, it is plainly in his interests to do so.I f
the Engineer supplies incorrect data, and admits the error, he is
g i v e n t h e choice of requiring the Contractor to rectify the error, whereupon the
Contractor isentitled to be paid in accordance with clause 52 (Valuation of
variations); or of disregarding the error. However as clause 2.1(c) (Engineer's
duties and authority)makes it clear that the Engineer has "no authority to relieve the
Contractor of anyof his obligations", the Contractor must obtain evidence
that the Employer hasapproved the Engineer's decision. As commented
under clause 2.1, it is unlikelythat a written instruction is sufficient
evidence.The use by the draftsman of the expression "subject as above
mentioned" hereand in clause 11.1 (Inspection of site) is an unhelpful practice as
in both cases itf a r f r o m o b v i o u s w h a t i s b e i n g r e f e r r e d t o . H e r e i t
p r e s u m a b l y r e f e r s t o " i n relation to original points, lines ... given by
the Engineer..."." T h e c h e c k i n g o f a n y s e t t i n g - o u t . . . s h a l l n o t . . .
relieve the Contractor of hisresponsibility ...". W hilst the
C o n t r a c t o r s h o u l d n o t b e e n t i t l e d t o e s c a p e h i s liability for
inaccurate setting out due to the fact that one of the Engineer's teamwas
on hand when the setting out was done, it would be equally wrong if
somecrucial element of setting out, which the Contractor specifically
arranged for theEngineer to check and verify, could then be held to be inaccurate
with the resultthat the Contractor is obliged to rectify all work carried out at
his own cost. TheContractor could endeavour to protect himself by
requesting that the Engineer confirm in writing that the setting out is
accurate and correct or alternatively he c o u l d t r e a t t h e a p p r o v a l o f t h e
setting out as an oral instruction and
writepursuant to clause 2.5 (Instructions in writing) confirmi
n g t h e i n s t r u c t i o n . However, neither of these steps overcome the express
words of the clause, it
iss u b m i t t e d . A s a l a s t r e s o r t , t h e C o n t r a c t o r c o u l d c h a l l e n g e
t h e E n g i n e e r ' s decision to require rectification as being unreasonable and contrary to
clause 2.6(Engineer to act impartially). This clause con tinues a theme in the
contract
of m a i n t a i n i n g t h e C o n t r a c t o r ' s r e s p o n s i b i l i t y , r e g a r d l e s s o f t h e a c t i
o n s o f t h e Engineer. See also clause 7.3 (Responsibility unaffected by
approval), clause14.4 (Contractor not relieved of duties or responsibilities), clause 37.2
(Inspectiona n d t e s t i n g ) , a n d c l a u s e 5 4 . 8 ( A p p r o v a l o f m a t e r i a l s n o t
i m p l i e d ) f o r o t h e r examples. See also clause 61.1 (Approval only by Defects Liability
Certificate).
Page 93 of 264

Although this clause provides for additional money, extension of time is not
dealtwith. Delay caused by an error by the Engineer must be capable of an
extensiono f t i m e o r e l s e t i m e w o u l d b e s e t a t l a r g e . C l a u s e 4 4 . 1
i t e m ( d ) , " a n y d e l a y , impediment or prevention by the Employer" could
apply, failing which the error could amount to "special circumstances"
under item (e).Clause 53.1 (Notice of claims) applies to claims under this sub-clause
so that theC o n t r a c t o r h a s 2 8 d a y s o f t h e e v e n t t o n o t i f y t h e
E n g i n e e r o f a n i n t e n t i o n t o claim. The notice requirement of clause
52.2 (Power of Engineer to fix rates)does not, it is submitted, apply for the
reasons set out under that sub-clause.
CLAUSE 18 : Boreholes and Exploratory Excavation
The Engineer may instruct the Contractor to make boreholes or
to carry outexploratory excavation at any time during the
e x e c u t i o n o f t h e w o r k s . S u c h instructions will be dealt with under clause 51
unless an item or a provisional sumis included in the Bill of Quantities.This clause is
not significantly different from the 3rd Edition although it caters for the possibility that
items will be included in the Bill of Quantities for boreholes or excavation and are not
just dealt with as provisional sums.The Engineer's right to instruct boreholes or carry
out exploratory excavation onlystarts, it is submitted, when the Contractor chooses to
start on site. Under clause41.1 (Commencement of works) the Contractor is obliged
to start "as soon as isr e a s o n a b l y p o s s i b l e " a f t e r t h e n o t i c e t o
c o m m e n c e . T h u s i s m a y b e t h a t t h e Contractor is entitled to refuse such
an instruction during his mobilisation. As theE n g i n e e r m a y w e l l r e q u i r e
s u c h e x c a v a t i o n a t a v e r y e a r l y s t a g e , i t m a y b e preferable to give the
Engineer the right to give such instructions at any time fromthe notice to
commence until the end of the Defects Liability Period. See alsoclause
50.1 (Contractor to search) for a right to require the Contractor to explorethe cause
of defects.I f a n i t e m f o r b o r e h o l e s o r e x p l o r a t o r y e x c a v a t i o n
i s i n c l u d e d i n t h e B i l l o f Quantities, clause 58 (Provisional sums) will
apply and the work will be valued ina c c o r d a n c e
with clause 52 (Valuation of variations). Thus the
C o n t r a c t o r ' s recovery will be the same whether an instruction is issued
in accordance withclause 51 (Variations) or clause 58.
CLAUSE 19 : Employers Responsibilities
Throughout the project, the Contractor is it be careful to keep the site
safe andorderly including by providing guards, fencing etc., and will take
reasonable stepsto protect the environment and avoid nuisance and pollution.

Page 94 of 264

The Employer will have corresponding duties if he employs his own workmen
or other contractors.In the 4th Edition, clause 19 has been much
expanded. Clause 19 of the 3rd E d i t i o n w a s e n t i t l e d " W a t c h i n g a n d
L i g h t i n g " a n d i s n o w c o n t a i n e d i n c l a u s e 19.1(b) with some
amendments. The rest of sub -clause 19.1 and the whole of sub-clause
19.2
are new.1 9 . 1 T h e p a r t o f t h i s c l a u s e r e q u i r i n g r e a
s o n a b l e s t e p s t o p r o t e c t t h e environment is a new and
welcome addition to the 4th Edition. The question itr a i s e s i s w h e t h e r
the Engineer is e mpowered to instruct the Contractor,
for example, to modify his machinery in order to render it more
e n v i r o n m e n t a l l y friendly or in order to avoid damage or nuisance and,
if the Engineer has
suchp o w e r s , w h e t h e r s u c h i n s t r u c t i o n s w o u l d e n t i t l
e t h e C o n t r a c t o r t o a n y compensation. The Engineer
i s e n t i t l e d t o i s s u e i n s t r u c t i o n s w h i c h t o u c h o r concern the works
under clause 13.1 (Work to be in accordance with contract). Itwould seem to be clear
that an instruction in relation to machinery to be used onthe site would fall within the
Engineer's powers, but if the instruction requires theContractor to remedy a
breach of this clause of the contract, then there can beno question of
payment. Otherwise, the instruction would be a variation within clause
51 (Variations)"Site" is defined to include areas where works are to be carried out
but which arenot yet in the possession of the Contractor. For comment on the
definition of Sites e e u n d e r c l a u s e 1 . 1 ( f ) ( v i i ) a n d u n d e r c l a u s e 4 2 . 1
( P o s s e s s i o n o f S i t e a n d access thereto). Similarly, "W orks" covers
the entirety of the works whether handed over or not.Damage to persons or
property of third parties is also dealt with under clause 22.1 (Damage to
persons and property), whereby the Contractor indemnifies theEmployer against
losses and claims resulting from such damage.1 9 . 2 A s a l w a y s w h e n a n
E m p l o y e r i n s i s t s u p o n u s i n g h i s r i g h t u n d e r c l a u s e s such
as clause 31 (Opportunities for other contractors), there is ample scope
for difficulty and a clash of duties and responsibilities in practice. The
concurrentobligations of the Employer, his other contractors and the
Contractor for safetya n d t h e m a i n t e n a n c e o f t h e s i t e i n a n
o r d e r l y s t a t e i s a p o t e n t i a l s o u r c e o f difficulty. Other clauses
permitting the Employer to use other contractors areclause 39.2
(Default of Contractor in compliance) and clause 49.4
(Contractor'sfailure to carry out instructions).
CLAUSE 20 : Contractors Responsibilities
The Contractor is fully responsible for the care of
t h e w o r k s , f r o m t h e commencement date until the works or any
section or part is taken over by the
Page 95 of 264

Employer. The Contractor will also take responsibility for any outstanding
workswhich he undertakes to finish during the Defects Liability Period.The
Contractor is to rectify at his own cost any damage to the works before theyare taken
over unless caused by one of the Employer's risks. He will also rectifyany damage
done by him during the Defects Liability Period including damage done
during a search.If the damage is due to one of the Employer's risks, the Engineer will
decide whatrectification should take place and will determine the
Contractor's costs. If thedamage was only partly due to an Employer's
risk, the Contractor will be paid a proportion only.The list of Employer's risks is
set out.Although reorganised, re -worded and clarified, this clause is not
fundamentallychanged in principle from the 3rd Edition but note the significant
changes to sub-clause 20.4, particularly items (g) and (h).This clause contains an
allocation of risk between Contractor and Employer
andc l a u s e 2 1 ( I n s u r a n c e o f W o r k s a n d C o n t r a c t o r ' s E q u i
p m e n t ) c o n t a i n s t h e obligation to insure those risks. Similarly
clause 22 (Damage to persons andproperty) deals with the risk and
clause 23 (Third party insurance) covers the obligation to insure.C l a u s e s
20 to 25 and clause 65 (Special risks) impose risk and
i n s u r a n c e liabilities in layers as follows:-( a ) r e s p o n s i b i l i t y i s
allocated to the Contractor by clauses 20, 22 and
2 4 , subject to exceptions in subc l a u s e 2 0 . 4 ( E m p l o y e r ' s r i s k s ) a n d c l a u s e 6 5 (Special
risks);( b ) l i a b i l i t y t o i n s u r e i s i m p o s e d b y c l a u s e s 2 1 , 2 3
and 24;(c)if full recovery is not achieved from insurers,
l i a b i l i t y r e v e r t s t o ( a ) a b o v e pursuant to clause 21.3 (Responsibility for
amounts not recovered); and( d ) i f e i t h e r p a r t y i s i n b r e a c h
of its insurance obligations under the contract or its
obligations under the contracts of insurance, they become
l i a b l e f o r a n y consequential loss pursuant to clause 25.3 (Remedy on
Contractor's failure to insure) and clause 25.4 (Compliance with policy
conditions).2 0 . 1 G r e a t e r c l a r i t y w o u l d b e a c h i e v e d i n s u b - c l a u s e
( b ) i f t h e r e f e r e n c e w a s t o outstanding "work" rather than
"W orks". This would conform with the usage in clause 48 (Taking-over
certificate) and clause 49 (Defects liability). There shouldbe no outstanding
W orks as the entirety of the W orks would have been takenover by the
Employer. The use of the term "W orks" is a change from the 3rd
Page 96 of 264

Edition where "work" was used. It is presumed that the draftsman had in
mindthe final phrase of sub-clause 49.1 whereby "the Works" are obliquely
redefined.I t s h o u l d b e n o t e d t h a t i t i s t h e i s s u e o f t h e T a k i n g o v e r c e r t i f i c a t e t h a t i s significant for insurance purposes and not any
date stated in it. The Contractor must maintain his policies regardless of
any agreement on site that substantial completion has been achieved.There
will be an overlap of responsibility when the Contractor is returning to parto f t h e
Works taken over by the Employer in order to complete some
p e r h a p s minor element of outstanding works. It is submitted that the formula used
in sub-c l a u s e 2 0 . 2 r e n d e r i n g t h e C o n t r a c t o r l i a b l e " f o r a n y l o s s
o r d a m a g e t o W o r k s occasioned by him in the course of any
operations ... under clauses 49 and 50" would be more
satisfactory.C o n t r a c t o r s s h o u l d b e a r i n m i n d t h a t t h e d u t y t o c a r e
f o r t h e w o r k s i n c l u d e s Plant. This may mean a duty to insure
machinery that is to be obtained by
theE m p l o y e r , p e r h a p s f r o m i t s o w n f a c t o r i e s , t h a t m a y b
e t r a n s p o r t e d b y t h e Employer, and that may be subject to testing off-site
by technicians employed bythe Employer.
Altogether, the Contractor's responsibility may extend far beyondmatters
within his control, a factor to be taken into account in arranging insurancefor the
project.2 0 . 2 / 2 0 . 3 I f t h e W o r k s a r e d a m a g e d b y
, f o r e x a m p l e , a n e x p l o s i o n o f materials stored
by the Contractor, then the Contractor is obliged to rectify andrebuild
the works. If however, the explosion was due to war or insurrection
or one of the other Employer's risks, the Employer through the Engineer is
given thechoice as to whether to rebuild or not. Thus, the Employer's use of the
insurancemoney and the Contractor's right to execute the works depends
on whether anevent falls within clause 20.4 (Employer's risks) or not."...from any
cause whatsoever...". The breadth of this phrase has the curious r e s u l t
that if the damage is done by the Employer other than
b y h i s u s e o r occupation or if it is done by the Engineer other than
by his design of the works, the Contractor is liable for the cost of any rectification
work instructed. The sameapplies for damage by "other contractors" of the
Employer. This allocation of
riski s n o t t o o o b j e c t i o n a b l e i n t h e c o n t e x t o f i n s u r a
n c e b u t , a s c l a u s e 2 1 . 3 (Responsibility for amounts not
recovered) makes clear, the Contra ctor wouldbear these losses if for any
reason the insurance did not cover them.A n i n n o v a t i o n i n t h e 4 t h
Edition is the way in which clause 20.3 deals
withcircumstances where the loss or damage derives fro
m a c o m b i n a t i o n o f Employer's risks and other
risks.T h e u n d e r l y i n g o b l i g a t i o n o f t h e C o n t r a c t o r i s t o c o
m p l e t e t h e w o r k s . T h i s obligation is subject to any applicable law
of frustration or force majeure as wellas to a number of clauses such as
clause 13 (Work to be in accordance with thecontract) and clause 66.1 (Payment in
event of release from performance). If the
Page 97 of 264

works are damaged by the Contractor or by a cause for which he is responsible,the

Contractor's obligation to complete is unaffected. If the event of damage for which
the Employer is responsible, the Contractor's obligation and, indeed, rightt o
complete the works is qualified by the right of the Engineer to
dictate theextent of the rectification required. The remedial
w o r k s w o u l d e f f e c t i v e l y b e treated as a variation entitling the
Contractor to the valuation of his work under c l a u s e 5 2 . T h e d e l a y
c o n s e q u e n t u p o n t h e d a m a g e w o u l d q u a l i f y e i t h e r a s "delay,
impediment or prevention by the Employer" under clause 44.1 (Extensiono f t i m e
for completion), as (a) additional work or (e) special
c i r c u m s t a n c e s . Conversely, it follows from the "full responsibility" taken by the
Contractor for thecare of the works other than in relation to Employer's
risks, that no extension of t i m e w i l l b e g r a n t e d f o r l o s s o r
d a m a g e t o t h e W o r k s f r o m r i s k s o t h e r t h a n Employer's
risks. Thus the Contractor will be well advised to ensure that
therelevant insurance cover includes his liability for liquidated
d a m a g e s , i f s u c h cover is available.Clause 53.1 (Notice of claims) applies to
claims under this sub-clause so that theC o n t r a c t o r h a s 2 8 d a y s o f t h e
e v e n t t o n o t i f y t h e E n g i n e e r o f a n i n t e n t i o n t o claim. The notice
requirement of clause 52.2 (Power of Engineer to fix rates) does not, it is
submitted, apply for the reasons set out under that subclause." . . . d u r i n g t h e p e r i o d f o r w h i c h t h e C o n t r a c t o r i s r e
s p o n s i b l e f o r t h e c a r e thereof...". The Contractor's obligation to rectify loss
and damage is limited to theperiod prior to the issue of the Taking -Over
Certificate. It would obviously be u n s a t i s f a c t o r y i f t h e C o n t r a c t o r
was obliged to re-mobilise in order to repair damage caused by
the Employer's risks. However, "the period" is less
thanp r e c i s e d u e t o c l a u s e 2 0 . 1 ( b ) w h i c h p l a c e s r e s p o n s i
b i l i t y f o r c a r e o n t h e Contractor during the Defects Liability Period for the work
which he is completingor remedying. The effect of clause 20.2 seems to be that if
the loss or damage h a p p e n s t o a p a r t o f t h e w o r k s f o r w h i c h t h e
C o n t r a c t o r h a s a c o n t i n u i n g responsibility, then he is obliged to rectify it
but not otherwise. In this context, itshould be borne in mind that if a def ect emerges
in any part of the works, the C o n t r a c t o r w o u l d b e o b l i g e d t o r e m o b i l i s e a l l n e c e s s a r y e q u i p m e n t a n d manpower to search for the cause
of the defect under clause 50.1 (Contractor
tos e a r c h ) a n d c l a u s e 4 9 . 2 ( C o m p l e t i o n o f o u t s t a n d i n g w o r k
a n d r e m e d y i n g defects). This re-mobilisation obligation is so even if the costs are not
ultimatelyp a y a b l e b y t h e C o n t r a c t o r b e c a u s e , f o r e x a m p l e , t h e d e f e c t
i s f o u n d t o b e a design problem.F o r d i s c u s s i o n o f t h e
Engineer's power to waive strict compliance
with thespecification, see the commentary under clause 2.1 (Engin
e e r ' s d u t i e s a n d authority) and clause 13.1 (Work to be in accordance with the
contract).2 0 . 4 T h i s c l a u s e s h o u l d b e r e a d i n c o n j u n c t i o n w i t h c l a u s e
6 5 ( S p e c i a l r i s k s ) , which are defined as Employer's risks (a), (c), (d) and (e) as well as
(b) providedt h a t t h e r e b e l l i o n e t c r e l a t e s t o t h e c o u n t r y i n
w h i c h t h e W o r k s a r e t o b e executed. Clause 65 makes it clear
t h a t t h e C o n t r a c t o r i s n o t l i a b l e f o r t h e consequences of special
risks upon the W orks or other property nor for injury or
Page 98 of 264

loss of life. However, there is a conflict between sub-clause 20.3 and clause
65.3(Damage to W orks by special risks). Under 20.3, the Contractor is
obliged torectify the damage caused by t he Employer's risks at the
Employer's expenseonly if required by the Engineer to do so. Similarly,
clause 49.2 (Completion of outstanding work and remedying defects)
requires the Contractor to carry outsuch remedial works as the Engineer
instructs. Clause 65.3 on the other hand,expressly entitles the Contractor to
payment for rectifying the damage "so far asmay be required by the Engineer
or as may be necessary for the completion of t h e W o r k s "
(underlining added). Thus, despite the fact that four of the
f i v e special risks may well be uninsured, the Employer is obliged to pay
for such of the Contractor's repair works as are necessary for
the completion of the W orks.An exception to this is if the risk concerned
is the outbreak of war which wouldentitle the Empl oyer to determine the
contract under clause 65.6 (Outbreak of war). Alternatively, either party could
seek to rely upon clause 66.1 (Release fromperformance) in the event that
they thought the contract to be frustrated; or the Employer could give an
"economic dislocation" notice under clause 69.1 (Defaultof Employer) bringing
about the termination of the contract by the Contractor.It is submitted that the
conflict should be resolved in favour of the Contractor's right and obligation
to complete the works and that the Engineer's role is confinedto instructing the
Contractor which portions of the damaged work he requires to be rectified
in order to achieve the completion of the works to his satisfaction. Inthe 3rd
Edition, the equivalent words to those in 20.3 we re "if and to the
extentr e q u i r e d b y t h e E n g i n e e r a n d s u b j e c t a l w a y s t o t h e
p r o v i s i o n s o f c l a u s e 6 5 hereof ...". Such conflict only arises where
the works have been damaged in such a way or to such extent that completion
would be impossible without repair.If the damage is to a peripheral part of the works,
it is right that the Employer andEngineer should have the option to omit the work."(e)
riot...". Insurance for riot is not readily available but the Contractor is obligedby
clause 21 (Insurance of Works) and possibly clause 23 (Third party insurance)to
cover this risk."(f)...due to the use or occupation by the Employer...". As
the risk passes to the Employer on the issue of a Taking-Over Certificate, which
the Engineer is obligedby clause 48.2 (Taking over of Sections or parts) to issue
upon the occupation or use by the Employer, this clause only covers limited
circumstances. However, clause 48 is far from straightforward and needs careful
reading."(g) loss or damage to the extent that it is due to the design...". In the 3rd
Edition,loss or damage had to be "solely" due to design so that if it could
be shown that,for example, poor workmanship contributed to any extent to the
loss or damage,the risk would remain upon the Contractor. As amended,
the clause will relievet h e C o n t r a c t o r o f r e s p o n s i b i l i t y t o t h e
e x t e n t t h a t t h e E n g i n e e r ' s d e s i g n w a s causative."(h) any operation of
the forces of nature...". W hereas the 3rd Edition required t h e f o r c e s o f
nature to be such that "an experienced Contractor could not
Page 99 of 264

foresee... or insure against", this edition refers to forces "agai

nst which ane x p e r i e n c e d C o n t r a c t o r c o u l d n o t r e a s o n a b l y
h a v e b e e n e x p e c t e d t o t a k e precautions". Foreseeability has
been shown by clause12.2 (Adverse physicalobstructions or conditions )
to be a source of much dispute; and insurability is adifficult test
as cover is sometimes available but only at an exorbitant price.
Thepresent wording may represent an improvement. For example, the
Contractor'sinformation concerning a particular site could show that flooding
occurs from timeto time for two reasons: firstly, because of a local river
breaching its banks at aparticular point and,
secondly, due to occasional flash floods following torrentialrain in the
region. It may be that an experienced C ontractor would build up
andreinforce the bank of the river but that nothing could realistically be done to
avoidthe damage that a flash flood would cause. The Employer takes the
risk of thelatter. Inevitably, there will be many borderline cases and it is submitted
that thep r e s e n t t e s t w i l l h a v e m u c h i n c o m m o n w i t h t h e
f o r e s e e a b i l i t y t e s t o f t h e 3 r d Edition.I n c i v i l l a w c o u n t r i e s , w h e r e
a d m i n i s t r a t i v e l a w b a s e d o n t h e F r e n c h m o d e l applies, this clause
reflects the Theorie de l'imprevision whereby if exception aland
unforeseen events render the Contractor's obligation excessively
onerousthreatening him with exorbitant loss, then the Contractor's excessive losses
mayb e r e d u c e d t o r e a s o n a b l e l i m i t s b y w a y o f c o m p e n s a t i o n b y
t h e E m p l o y e r . I n certain countries, notab ly Egypt, this doctrine has
been extended to private lawcontracts as well. This clause is in fact
more generous than the
administrativel a w d o c t r i n e a s i t p r o v i d e s f o r t h e C o n t r a c t o r
to be completely relieved of responsibility, whereas th
e T h e o r i e o n l y p r o v i d e s f o r t h e r e d u c t i o n o f t h e Contracto
r's losses. For a brief overview of administrative law based on
t h e French model, see clause 5.1 (Languages and law).
CLAUSE 21 : Insurance of Works
The Contractor is to insure 115% of the full replacement value of the
works tocover reinstatement as well as professional fees, demolition etc
and will alsoinsure the replacement value of his own equipment.The insurance is
to be in the joint names of the Contractor and the Employer andis to cover all
risks other than Employe r's risks (a) - (d) from the start of work onsite
until taking-over of the works. It must also cover the Contractor's operationsin the
Defects Liability Period and when searching.The Contractor and the Employer will
bear losses in relation to their own risks tothe extent that their losses are not paid for
by the insurer.This clause has been fundamentally reorganised for the 4th
Edition including atsub-clause 21.4 a wholly unnecessary repetition of items (a)
to (d) of clause 20.4(Employer's Risks).
Page 100 of 264

21.1"(a)...full replacement cost". This may not be necessary

w h e r e t h e s i t e i s spread out making total destruction very unlikely. In
these circumstances, the c l a u s e s h o u l d b e a m e n d e d t o r e q u i r e
i n s u r a n c e t o b e o b t a i n e d f o r a l e s s e r amount."(c) the Contractor's
Equipment...". This equipment is not referred to in clause 20but clause 54.2
(Employer not liable for damage) makes it clear that
damagec a u s e d o t h e r t h a n b y E m p l o y e r ' s o r S p e
c i a l r i s k s i s t h e C o n t r a c t o r ' s responsibility.P a r t I I
provides optional additional wording for sub -clause 21.1 if
i n s u r a n c e payments are to be in a certain currency or if the Employer
wishes to specify aceiling upon the deductible limits or excess provided for by the
policy.T h e r e i s a s y e t n o r e c o g n i t i o n i n F I D I C o f t h e
i n c r e a s e d u s e o f d e c e n n i a l insurance. Decennial liability is imposed by
many civil law countries and
rendersa r c h i t e c t s , e n g i n e e r s a n d c o n t r a c t o r s l i a b l e f o r t h
e s a f e t y a n d s t a b i l i t y o f structures. Any defect threatening the
safety or stability of the structure or itsfitness for its purpose appearing within
10 years would render the designers andbuilders liable to the Employer
without proof of fault. Insurance of this liability is n o w c o m p u l s o r y i n
F r a n c e f o l l o w i n g t h e S p i n e t t a L a w o f 1 9 7 8 a n d t h e r e a r e signs,
certainly in the UK, that it will become more widespread.CLAUSE 21.1 (Insurance of
Works)Sub-clause 21.1 (Insurance of Works and Contractor's Equipment)" T h e
Contractor shall, without limiting his or the Employer's
o b l i g a t i o n s a n d responsibilities under clause 20, ensure that:-( a ) T h e
Works together with materials and Plant for
i n c o r p o r a t i o n t h e r e i n , t h e full replacement cost (the term "cost" in this
context shall include profit), ..."The additional words are needed because the
definition at clause 1.1(g)(i) statesthat""cost" means all expenditure properly
incurred or to be incurred, whether on or off the Site, including overhead and
other charges properly allocable thereto, butdoes not include any allowance for
profit."I f p r o f i t w a s e x c l u d e d f r o m t h e a m o u n t i n s u r e d , t h e
E m p l o y e r c o u l d n o t b e confident that there would be sufficient cover
in the event of the total loss of theproject. Even with an additional sum of 15%
which might well be absorbed withdemolition costs and professional fees, the
obligation upon a Contr actor to re-build with no profit recovery could be
sufficient to drive a Contractor at least to aconsideration of abandoning the
project if not into financial difficulties. It
wouldc e r t a i n l y b e d i f f i c u l t t o a t t r a c t a n a l t e r n a t i v e c o n t r a c t o r t o
u n d e r t a k e t h e r e - building.
Page 101 of 264

It should be recalled that the insurance of the works is in respect of all risks
other than those risks set out at clause 20.4 (Employer's risks) items (a)
to (d). TheEmployer may try to insure those risks himself if such
insurance is available onthe market. Under clause 20.2 (Responsibility
to rectify loss or damage), in theevent that there is loss or damage to
the works, the Contractor is obliged, at hisown cost, to re -build. He is
dependent upon the insurance to pa y him to do so.Whether the insurance
policy will pay out any element of profit to the Contractor undertaking such remedial
works, [ is to be doubted].If for any reason, the Contractor is not prepared to
undertake the remedial works,the Employer will be the claimant under the insurance
policy whose claim wouldcomprise primarily the cost of obtaining an
alternative contractor to undertaken the re-building works. That cost
would include paying the alternative Contractor an amount in respect of profit.S u b clause 21.1 is not the only provision requiring amendment in
r e l a t i o n t o profit. The main source of the difficulty is that the bar on profit is not
limited in thedefinition to profit recovery by the Contractor. In arriving at the global
definition, ita p p e a r s t h a t t h e d r a f t s m e n d i d n o t c o n s i d e r e a c h a n d
e v e r y u s e o f t h e t e r m "cost" to see whether the definition given was
actually appropriate. Too muchreliance has been placed on the opening words
of clause 1.1 which gives
wordsa n d e x p r e s s i o n s c e r t a i n m e a n i n g s " e x c e p t w h e r e t h
e c o n t e x t o t h e r w i s e requires". One only has to look at clause 21.1(b) to see
the term "costs" referringt o p r o f e s s i o n a l f e e s a n d d e m o l i t i o n . I t
c a n n o t h a v e b e e n t h e i n t e n t i o n o f t h e draftsman to exclude the
professionals' profit element nor that of the demolitioncontractor. Nor is
the exclusion of profit appropriate in the indemnity clauses some of which
are listed in the commentary to clause 60.9 in the main work. For example, in clause
22.2 (Exceptions), a Contractor is not responsible for damageto persons and
property arising from any act or neglect of the Employer "or inrespect of
any claims, proceedings, damages, costs, charges and expenses
inrespect thereof". This context obviously requires the definition not to
apply.Perhaps the most striking exa mples of the inappropriateness of the
definition
of " c o s t s " a r e i n c l a u s e s 3 9 . 2 ( D e f a u l t o f C o n t r a c t o r i n c o m p l i a
nce) and 49.4(Contractor's failure to carry out instructions). In
b o t h c a s e s , f a i l u r e o f t h e Contractor to carry out certain instructions
entitles the Employer to employ andpay another contractor to execute
the works concerned. "All costs consequent thereon or incidential thereto" are
recoverable from the Contractor. Clearly it
isi n t e n d e d t h a t t h e E m p l o y e r s h o u l d r e c o v e r t h e e l e m e n t
o f p r o f i t w h i c h t h e alternative Contractor has charged. Again, in clause
46.1 (Rate of progress), it isthe Employer's additional supervision costs incurred as a
result of the Contractor h a v i n g t o a c c e l e r a t e t h a t a r e t o b e d e d u c t e d
f r o m s u m s o t h e r w i s e d u e t o t h e Contractor. W ithout doubt, it is
not intended that the supervisor's profit should not be recoverable.The
purpose of the definition is to resolve a recurrent problem, namely whether
aContractor entitled to loss and expense under the Contract is entitled
to claim aloss of profit as part of that loss and expense claim. Arbitrators both in
England (Page 102 of 264)

and internationally have differed on this point. Has it been resolved in

the 4thEdition? It is submitted that a Contractor would find it almost impossible to
arguethat a loss of profit on the turn-over If an attempt is made to reconcile the
definition of cost and the clear intention of the draftsmen in clauses such as 39.2
(Default of Contractor in compliance) and49.4 (Contractor's failure to carry out
instructions), a distinction must be drawnbetween profit in the hands of
the Contractor or the Employer on the one hand and their professionals,
alternative contractors and sub-contractors on the other.I f t h a t i s t h e c a s e ,
t h e n t h o s e e l e m e n t s o f t h e C o n t r a c t o r ' s l o s s a n d e x p e n s e claims
which relate to subcontractors could probably include elements by way
of profit. This may indeed be the intention of the draftsman. If so, the
definitionshould be clarified.Sub-clause 21.4 (Exclusions)The first category of
causes of loss or damage for which the Contractor has no obligation to
ensure is now :"war, hostilities (whether war be declared or not), invas
i o n , a c t o f f o r e i g n enemies..."T h e p r e v i o u s w o r d i n g " ( w h e r e
w a r b e d e c l a r e d o r n o t ) " w a s p r e s u m a b l y a typographical
error. Recent events have demonstrated the importance of
thesew o r d s a n d t h e e x t e n t t o w h i c h h o s t i l i t i e s c a n
e s c a l a t e w i t h o u t a f o r m a l declaration of war. The words in
parentheses could usefully qualify all four of theitems and not just
hostilities.2 1 . 2 T h e r e i s a m i s match between the requirement in clause 21.2 for
t h e insurance to run from "the start of work at the site" and the date
from which theC o n t r a c t o r t a k e s f u l l r e s p o n s i b i l i t y f o r t h e w o r k s
under clause 20.1 (Care of Works) which is from the
C o m m e n c e m e n t D a t e . T h e r e m a y b e a p e r i o d o f several months
between the date upon which the Employer gives notice under clause
41.1 (Commencement of Works) and the date that the Contractor actuallymobilises
and commences. The Contractor's obligation is to commence "as soonas it is
reasonably possible" after the notice to commence. There may be a
veryconsiderable procurement and mobilisation period. It may be
preferable to havet h e i n s u r a n c e r u n " f r o m t h e C o m m e n c e m e n t
D a t e o r a s s o o n t h e r e a f t e r a s i s practicable". A simple obligatio n to
insure from the Commencement Date mightnot be practicable as the
Contractor could receive the Engineer's notice
under c l a u s e 4 1 . 1 ( C o m m e n c e m e n t o f W o r k s ) a t a n y
t i m e a f t e r t h e L e t t e r o f Acceptance, within the period
specified.The Contractor would normally be present on site after taking-over for one
of four reasons:-i . i n p u r s u a n c e o f h i s u n d e r t a k i n g t o
f inish outstanding work pursuant
toclause 48.1 (Takingover certificate), clause 48.4 (Surfaces requiring
Page 103 of 264

reinstatement) and clause 49.2 (Completion of outstanding work and

remedyingdefects);i i . r e m e d y i n g d e f e c t s d u r i n g t h e
D e f e c t s L i a b i l i t y P e r i o d u n d e r c l a u s e 4 9 (Defects
Liability);i i i . s e a r c h i n g f o r t h e c a u s e o f d e f e c t s
p u r s u a n t t o c l a u s e 5 0 ( C o n t r a c t o r t o search);
or i v . d e m o b i l i s i n g a n d c o m p l y i n g w i t h c
l a u s e 3 3 ( C l e a r a n c e o f s i t e o n completion).The
insurance obligation covers (i) to (iii) but not (iv).T h e b e n e f i t s t o t h e
Employer of requiring the insurance to be in joint
namesinclude a greater control over the maintenance of the
i n s u r a n c e i n r e l a t i o n t o clause 25 (Evidence and terms of
insurances), control over the claims process and, importantly, a right to be
paid directly by the insurance company in respectof the Employer's losses. If
the insurance was in the name of the Contractor alone, the Contractor's
insurers could pursue the Employer in relation to loss anddamage for example
resulting from the Engineer's design.2 1 . 3 I t i s i n t h e i n t e r e s t s o f b o t h
p a r t i e s t o t h e c o n t r a c t t o m a k e s u r e t h a t t h e r e is adequate insurance
in place. It is little comfort to an Employer to know that aContractor takes
responsibility for a risk if, should that risk occur, the Contractor would be driven
out of business by the cost of rectifying the consequent loss. T h e
priority for both parties is to ensure that in the event that the
works ared a m a g e d o r d e s t r o y e d , f u n d s w i l l b e a v a i l a b l e
t o e n a b l e t h e p r o j e c t t o b e completed. As such risks will
invariably cause delay to the works, it is also
of i m p o r t a n c e t h a t t h e i n s u r a n c e w i l l c o v e r o n t h e o n e h
a n d t h e C o n t r a c t o r ' s prolongation costs and, on the other,
t h e E m p l o y e r ' s l o s s e s f l o w i n g f r o m t h e delay. Although clause 21.3
may state no more than is clear from the precedingclauses, it serves as a
reminder to the parties to ensure that the insurance cover is adequate. As this clause
is equally applicable to the insurances under clauses23 and 24, it could usefully
have been placed in clause 25 (Evidence and termsof insurances) which
applies to all the insurance provisions.T h e E m p l o y e r m a y o b t a i n s o m e
m e a s u r e o f p r o t e c t i o n f r o m t h e C o n t r a c t o r ' s financial vulnerability
to uninsured losses from a bond obtained under clause 10(Performance
security). However, these rarely exceed 10% of the contract valueand it will be a
question for interpretation of the wording of each bond whether the loss
itself or the lack of relevant insurance cover amounts to a failure of
dueperformance allowing the Employer to claim on the bond.Any lack of recovery
from insurers could result from one of the following causes:(i) no obligation to insure;(ii) breach of obligation to insure or procure insurance;
Page 104 of 264

(iii) non-disclosure or breach of term of insurance policy;(iv)

excess;(v) loss exceeds maximum cover; or (vi) reduced payment due to scalingdown
or negotiation.U n d e r i t e m ( i i i ) , b r e a c h i s c o v e r e d b y c l a u s e 2 5 . 4 ( C
o m p l i a n c e w i t h p o l i c y conditions): whoever breaches the policy is
liable for any non-recovery. Under E n g l i s h l a w , n o n d i s c l o s u r e o f a n y i n f o r m a t i o n r e l e v a n t t o t h e r i s k t o b e un
dertaken by the insurer is treated as rendering the policy void and as if
never e f f e c t e d . I n s o m e E u r o p e a n j u r i s d i c t i o n s , t h e s a m e i
s t r u e i f t h e f a i l u r e o f disclosure was in bad faith. A difficult
question arises as to whether an avoided p o l i c y s h o u l d b e t r e a t e d a s
a f a i l u r e t o i n s u r e u n d e r c l a u s e 2 5 . 3 ( R e m e d y o n Contractor's failure
to insure) or a failure to comply under clause 25.4. In view of t h e
ineffectiveness of the prescribed remedy under clause 25.3 in
s i t u a t i o n s where a claim has arisen and the insurer has refused liability
on the ground of non-disclosure, the practical solution must be to treat the case as
one of breach.I f t h e u n i n s u r e d l o s s i s t h e r e s u l t o f a b r e a c h b y t h e
Contractor of the duty
toi n s u r e , a n d f a l l s w i t h i n c l a u s e 2 0 . 4 ( E m p l o y e r ' s r i s k s ) i
t e m s ( e ) t o ( g ) , t h e question arises whether this sub-clause means that the
Employer must bear theloss or whether he can pursue the Contractor for the
breach. It is submitted thatthe Employer's remedy for the failure of the
Contractor is set out in clause 25.3 ( R e m e d y o n C o n t r a c t o r ' s f a i l u r e
t o i n s u r e ) a n d t h a t i t i s i n t e n d e d t o b e t h e exclusive remedy. If it
had been intended that the Employer could sue for the breach, the draftsman
would, it is submitted, have so indicated in this sub-clauseor in clause 25.4
(Compliance with policy conditions).T h e 4 t h E d i t i o n f o r t h e f i r s t t i m e
d i v i d e s t h e E m p l o y e r ' s r i s k s i n t o t h o s e t o b e insured and those which
need not be insured. Employer's risks (a) to (d) cannotnormally be insured against
and thus are excluded from the insurance obligationsupon the Contractor. If the
Employer is able to obtain insurance for some or all of these risks, he is free to do
so.Obligations in relation to insurance are also imposed by clause 23
(Third partyinsurance), clause 24.2 (Insurance against accidents to workmen) and
clause 25(Evidence and terms of insurances).As with clause 23.1 (Third Party
Insurance) and clause 25 (Evidence and termsof insurances), Part II
provides for this clause alternative wording in the event that the Employer
decides to insure the works and the third party risks himself.
CLAUSE 22 : Indemnity
The Contractor is to indemnify the Employer in respect of the death or
injury of a n y p e r s o n o r d a m a g e t o t h e p r o p e r t y o f a n y t h i r d
p a r t y r e s u l t i n g f r o m t h e execution of the project subject to certain
exceptions.The exceptions are listed in clause 22.2.
Page 105 of 264

The Employer shall indemnify the Contractor against claims in

r e s p e c t o f t h e exceptions.This edition is similar to the 3rd Edition although there
have been changes to thevocabulary and the exceptions are now set out in a
separate sub-clause.2 2 . 1 T h e d r a f t i n g o f t h i s c l a u s e o b s c u r e s t h e
meaning of this clause. Why it
isn e c e s s a r y t o h a v e t w o l i s t s o f i t e m s a g a i n s t w h i c h t h e
C o n t r a c t o r s h o u l d indemnify the Employer i.e., "losses and claims" as well as
"claims, proceedingsetc" is a mystery and raises the suspicion that the
exception qualifies only the second list and not the first. This, however, cannot
be right." . . . e x c e p t i f a n d s o f a r a s t h e C o n t r a c t p r o v i d e s
o t h e r w i s e . . . " T h e p r i n c i p a l provision which the contract ma kes in
relation to the indemnity is the insurance required by clause 23.1 (Third party
insurance) which is in the joint names of theContractor and the Employer in
respect of these risks. Thus, the Employer will recover directly from the
insurer and neither the Employer nor the insurers will beentitled to seek to recover
from the Contractor in respect of sums paid out under the insurance policy.Clause
65 (Special risks) provides further exceptions, protecting the
Contractor from liability for items (a) to (e) of clause 20.4 (Employer's risks),
provided in thecase of item (b) that the rebellion etc occurs in the country where the
Works aretaking place." ( b ) l o s s o f o r d a m a g e t o a n y p r o p e r t y ( o t h e r
that the Works)". This
coversp r o p e r t y o f t h e E m p l o y e r o t h e r t h a n t h e p r o j e c t i t s e
l f . T h e c o r r e s p o n d i n g insurance obligation puts the matter beyond
doubt as clause 23.1 (Third partyinsurance - including Employer's property)
expressly covers such
property.A n e q u i v a l e n t v e r s i o n o f t h i s i n d e m n i t y w a s c o n s i d
e r e d i n R i c h a r d s o n v Buckinghamshire County Council (1971) 1 Ll R 533; 6
BLR 58 when the Court of Appeal considered the ICE 4th Edition clause
22(1). There the Employer had incurred legal and other costs in successfully
defending a personal injury action .He sought to recover those costs from the
Contractor who had been joined intothe action as a co -defendant. The
Court of Appeal decided that the Employer's costs did not fall within the terms
of the indemnity.2 2 . 2 I t e m s ( a ) , ( b ) a n d ( c ) c o u l d a r i s e , f o r e x a m p l e ,
in the claims that might bemade by an adjoining owner who
c o n s i d e r e d t h e v a l u e o f h i s p r o p e r t y t o b e adversely affected by the
construction activity and the presence of the completedproject close to his land or if
there was a disputed boundary between his propertyand the site. In particular, an
injunction or other order of court could be obtainedbringing all or part of the works to
a halt.
Page 106 of 264

Item (d) injury or damage caused or contributed to by the

Employer or
thosee m p l o y e d b y h i m i s t h e m o s t i m p o r t a n t e x c e p t i o n . I
t i s s u b m i t t e d t h a t t h e Engineer would be the servant or agent of the
Employer for these purposes witht h e r e s u l t t h a t i n j u r y o r d a m a g e
c a u s e d b y t h e E n g i n e e r ' s d e s i g n w o u l d b e covered. Compare the
wording of clause 44.1 (Extension of time for completion)item (d) and the
commentary
thereunder." . . . o t h e r c o n t r a c t o r s n o t b e i n g e m p l o y e d b y t h e C o n t r a
c t o r . . . " c o u l d c r e a t e difficulties in relation to contractors employed
by subcontractors. The intention
isc l e a r h o w e v e r , e v e n w i t h o u t a n e x p r e s s r e f e r e n c
e t o c l a u s e 3 1 ( O t h e r contractors).2 2 . 3 I t m a y b e w o r t h y
of note that where damage to the works results
f r o m risks which are the Employer's responsibility, the
E n g i n e e r i s e m p o w e r e d t o ascertain the cost of rectification under clause 52
(Valuation of variations). Withrisks that may be termed "off -site", the
Engineer and the contractual paymentmachinery have no part to
play. Nevertheless, a dispute as to the contractor's entitlement to indemnity
would have to be referred to the Engineer for a decisionand to an arbitrator pursuant
to clause 67 (Settlement of disputes).
CLAUSE 23. : Insurance Liabilities
The Contractor is to obtain joint insurance for death or injury to persons
other than workmen and loss or damage to property other than the
W orks subject tocertain exceptions.The minimum amount of insurance is stated in
the
Appendix.T h e i n s u r a n c e p o l i c y s h a l l t r e a t t h e C o n t r a c t o r a
n d E m p l o y e r a s s e p a r a t e insureds.This clause has been changed for the
4th Edition and introduces insurance in the joint names of the Employer and the
Contractor, whereas the Contractor took outthe insurance in his sole name in the 3rd
Edition.The exceptions relevant to the requirement for third party insurance are items
(a),(b) and (c) in clause 22.2 (Exceptions) which refer to claims and
damage whicharise from the mere fact of the existence and execution of the
project. It must bedoubtful whether insurance is available to cover those matters.
Insurance for item(d) should be readily obtainable.This insurance only excludes
the works so that othe r property belonging to theEmployer is intended to
be covered as the clause title of sub -clause 23.1 (Thirdparty insurance including Employer's property) indicates. This insurance is tobe in joint
names, but is to include a cross -liability clause. The effect of
theseprovisions is that the Employer and the Contractor may act individually in
respectof a claim, despite the insurance being in joint names.
Page 107 of 264

Other obligations in relation to insurance are imposed by clause 21 (Insurance

of works and
Contractors Equipment). Clause 24.2 (Insurance against accident toworkmen) and
clause 25 (Evidence and terms of insurances).Part II provides alternative wording in
the event that the Employer decides to takeout the insurance himself. See a lso
Part II for clause 21 (Insurance of W orks) and clause 25 (Evidence and Terms
of Insurances).
CLAUSE 24 : Accident or Injury
The Contractor is to indemnif y the Employer
a g a i n s t a l l d a m a g e s o r compensation payable to any
workman employed by the Contractor or anysubcontractor
unless his death or injury results from an act or default of
t h e Employer.The Contractor shall maintain insurance against accident or injury to
workmen or shall procure that subcontractors maintain insurance indemnifying the
Employer and that the subcontractors produce to the Employer on
demand proof that the insurance is current.The rather strange wording of this
clause is taken, with minor amendments, fromt h e 3 r d E d i t i o n . A s w i t h a l l
t h e i n s u r a n c e c l a u s e s , t h e r e q u i r e m e n t s f o r t h e insurance to be
approved by and produced to the Employer have been removedto clause
25 (Evidence and Terms of Insurance).2 4 . 1 T h i s c o n t r a c t c a n n o t r e g u l a t e
t h e E m p l o y e r ' s l i a b i l i t y t o t h i r d p a r t i e s w h i c h are likely to be governed
by local laws. The ineffectiveness of the first sentencei s r e c o g n i s e d b y t h e
s e c o n d i n w h i c h t h e C o n t r a c t o r a g r e e s t o i n d e m n i f y t h e Employer
in respect of the same liability. This indemnity is qualified by clause 65(Special
risks) which protects the Contractor from liability for damage, inj ury
or loss of life arising from items (a) to (d) of clause 20.4 (Employer's risks),
providedthat the rebellion etc. referred in in item (b) takes place in the country where
theworks are taking place.It is important to note that, despite the clause
title, the terms of the clause gobeyond accidents or injuries and cover
any damages or compensation payable. T h u s a n y p a y m e n t u p o n t h e
d i s m i s s a l o f a n e m p l o y e e w o u l d b e c o v e r e d , f o r example where the
Engineer required the removal of a person under clause 15.1(Contractor's
superintendence) or clause 16.2 (Engineer at liberty to object). Equally
the clause title is misleading in its reference to workmen as the provisioncovers all
employees."...the Employer, his agents or servants". As in clause 22.2
(Exceptions), it issubmitted that the Engineer, and thus his design, is covered by
this phrase. See

Page 108 of 264

the commentary under clause 44.1 (Extension of time for completion) item (d) onthis
point.2 4 . 2 T h e i m m e d i a t e d i f f i c u l t y w i t h t h i s c l a u s e i s t o
a s c e r t a i n e x a c t l y w h a t " s u c h liability" refers to. At first sight it seems to refer
only to the Employer's liability for its acts or defaults as that is the only context in
which the word "liable" is used inclause 24.1. Whilst that interpretation would satisfy
the immediate concern of theEmployer, the draftsman probably intended to oblige
the Contractor to go further.If so, two options remain: either that the
insurance is to cover the
Contractor'sl i a b i l i t y ; o r t h a t a l l a c c i d e n t s a n d i n j u r i e s t o
w o r k m e n a r e t o b e i n s u r e d . Presumably, as the Employer is
concerned to see evidence of the existence of such insurance, it is intended
that the Employer's liability for its acts and defaultsis intended to be covered as
well. It is further presumed that "such liability" doesnot infer an obligation to insure
against liability to pay damages or compensationto employees due to their dismissal
from the site or otherwise in relation to their c o n t r a c t s o f e m p l o y m e n t . I t
m u s t b e d o u b t e d t h a t s u c h i n s u r a n c e w o u l d b e available on the
market.There is no express minimum or limit to the amount of insurance required
under t h i s c l a u s e . L o c a l l a w s c o u l d i m p o s e a d d i t i o n a l
o b l i g a t i o n s i n r e l a t i o n t o t h e insurance of the workforce, however.For the
subcontractors' insurance to indemnify the Employer i t would
normallymean that the Employer would have to be named in the policy.Other
obligations are imposed in respect of insurance by clause 21 (Insurance
of W o r k s a n d C o n t r a c t o r ' s E q u i p m e n t ) , c l a u s e 2 3 ( T h i r d p a r t y i n
s u r a n c e ) a n d clause 25 (Evidence and terms of insurances)."... any persons are
employed by him on the Works". If the last workmen on sitea r e e m p l o y e d b y a
s u b c o n t r a c t o r , t h e C o n t r a c t o r ' s i n s u r a n c e i s p e r m i t t e d t o lapse. If
the workmen are not covered by a subcontractor's insurance, this couldrepresent a
gap in the insurance protection given to the Employer. Problems
aref r e q u e n t l y g e n e r a t e d b y t h e d e f i n i t i o n o f e m p l o y m e n t
w h i c h m a y w e l l b e governed by local law. For example, employees
of the Employer will often be in training with the Contractor in relation to the
operation of the project. This trainingmay be full-time and the trainees may be under
the control and supervision of theContractor: the question of who is their
employer for the purposes of this clausewill not necessarily be straightforward.
CLAUSE 25 : Terms of Insurance
The Contractor shall prove to the Employer before starting work that the
requiredpolicies of insurance have been taken out. He will also supply the policies to
theEmployer within 3 months of the Commencement Date. The Engineer should
bek e p t i n f o r m e d . T h e C o n t r a c t o r ' s p o l i c i e s m u s t b e w i t h
i n s u r e r s a n d i n t e r m s approved by the Employer.

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The Contractor will keep the insurers informed and maintain adequate
insurancethroughout, producing policies and proof of payment of premiums on
demand bythe Employer.If the Contractor fails to provide or maintain the policies, the
Employer may do soand deduct the premiums from sums due to the Contractor.The
Contractor and the Employer will indemnify each other against any breach of the
terms of any policy.Sub-clauses 25.2 and 25.4 are new to the 4th
Edition. In the 3rd Edition, the obligation now contained in sub-clause 25.1, to
obtain approved insurance and toproduce it on request, was repeated in
clauses 21, 23 and 24. Sub-clause 25.3contains the additional sanction that if
the Contractor fails to provide proof of
thep o l i c i e s , t h e E m p l o y e r m a y t a k e o u t h i s o w n i n s u r a n c
e a t t h e C o n t r a c t o r ' s expense.25.1The obligation to "provide the
insurance policies to the Employer" does not apparently mean that the
Contractor is to leave the policies with the Employer ashe is required to produce
them again upon demand under sub-clause 25.2."Such insurance policies
shall be consistent with the general terms
agreed prior t o t h e i s s u e o f t h e L e t t e r o f
A c c e p t a n c e " . T h e i n t e n t i o n a n d e f f e c t o f t h i s sentence is
obscure. There are three specific clauses detailing the nature of thei n s u r a n c e
policies and an overriding requirement that both the terms and
t h e insurers must be approved by the Employer. The insurance ist o c o m e i n t o
effect when the Contractor starts on site which will normally
besome months after the Letter of Acceptance. Thus the
r e f e r e n c e t o " g e n e r a l terms agreed prior to the issue of the Letter of
Acceptance" is baffling, particularlya s i t i s t h e L e t t e r o f A c c e p t a n c e t h a t
s i g n i f i e s t h e e x i s t e n c e o f a n a g r e e m e n t between the parties. The
draftsman is perhaps intending to indicate that the terms of the policies and
the identity of the insurers should be discussed and theapproval of the Engineer
obtained during the negotiations leading up to the Letter of Acceptance.The approval
of the Employer to the terms and supplier of insurance is subject toclause 1.5
(Notices, consents etc.) and must not "unreasonably be withheld
or delayed".2 5 . 3 T h e p r i n c i p l e t h a t t h e E m p l o y e r s h o u l d t a k e o u t
i n s u r a n c e h i m s e l f i n t h e event that the Contractor does not do so is obviously
sound as is the Employer'sright to deduct the premiums from monies otherwise due
to the Contractor. Thedetailed working of this clause could give rise to considerable
argument however.If a Contractor effects insurance but fails through an
oversight to provide the p o l i c y t o t h e E m p l o y e r w i t h i n 3
m o n t h s o f t h e c o m m e n c e m e n t d a t e , i s t h e Employer
entitled to take out insurance and maintain it for the ent irety of
the

Page 110 of 264

remainder of the contract? If so, does the Contractor's

o b l i g a t i o n t o i n s u r e lapse? What if the Contractor is able to obtain the
insurance much more cheaplyt h a n t h e E m p l o y e r ? I s t h e E m p l o y e r
under any duty to
m i t i g a t e h i s l o s s ? Happily, these questions should arise only
r a r e l y i n p r a c t i c e a s c o n t r a c t o r s generally recognise the importance of
insurance.For a comment on whether non-disclosure leading to the avoidance of a
policy of i n s u r a n c e i s a f a i l u r e t o i n s u r e o r a f a i l u r e t o c o m p l y ,
s e e u n d e r c l a u s e 2 1 . 3 (Responsibility for amounts not
recovered).2 5 . 4 T h i s s u b clause has to be read with clause 21.3 (Responsi
b i l i t y f o r amounts not recovered) and clause 23.1 (Third party
insurance). Clause 21.3m a k e s i t c l e a r t h a t t h e E m p l o y e r a n d t h e
C o n t r a c t o r b e a r a n y l o s s e s t h r o u g h damage to the works which are not
insured or not recovered from the insurers, inaccordance with the division of risks set
out in clause 20 (Care of Works). If thefailure of insurance or recovery is due
to a breach of condition by, for example,the Employer when the risk was
otherwise upon the Contractor, this sub -clausewill, it is submitted, overrule
the effect of clause 21.3 and the Employer will bear the loss. For a comment on
whether non-disclosure leading to the avoidance of apolicy of insurance is a
failure to insure or a failure to comply, see under clause21.3
(Responsibility for amounts not recovered).Similarly, this clause would appear to
overrule the preservation of the indemnitiesgiven under clause 22 (Damage to
persons and property).Loss caused to the Contractor by the Employer's failure to
comply with conditionso f a n i n s u r a n c e p o l i c y t a k e n o u t b y a
s u b c o n t r a c t o r i n j o i n t n a m e s w i t h t h e Employer would be
recoverable from the Employer if the policy could be said tohave been
"effected pursuant to the Contract". Clause 24.2 (Insurance
againsta c c i d e n t s t o w o r k m e n ) e n v i s a g e s t h e C o n t r a c t o r p r o c u r i n
g t h e i n s u r a n c e b y subcontractors so that such policies could, it is submitted,
be regarded as fallingwithin the terms of this sub-clause.Part II to this clause, as
to clause 21 (Insurance of W orks) and clause 23 (Third P a r t y
Insurance) provides alternative wording in the event that the
E m p l o y e r decides to take out those insurance policies himself.
CLAUSE 26 : legislations and Regulations
The Contractor should comply with all local legislation and regulations
and therules of all public bodies and companies affected by the
works. The Contractor w i l l i n d e m n i f y t h e E m p l o y e r a g a i n s t a n y
b r e a c h e s , b u t t h e E m p l o y e r w i l l b e responsible for and will
indemnify the Contractor in respect of matters such as planning
permission.This clause represents a welcome simplification when
compared with the 3rdEdition. The final sentence is new and forms a
necessary link with clause 22.2

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(Exceptions) and clause 22.3 (Indemnity by Employer) which

m a k e d a m a g e resulting from the very existence of the project the responsibility of
the Employer.Missing from the 4th Edition is any provision whereby the
Employer repays feesproperly incurred b y the Contractor. There is no
other mention of such fees
int h e c o n t r a c t s o t h a t n o r m a l p r a c t i c e w o u l d b e t o i n c l u
d e a p r o v i s i o n a l o r contingency sum or a lump sum item in the Bill of
Quantities.Difficulties can arise when part of the Engineer's design is found to conflict
with alocal law. If the discrepancy is found before the work is executed, the
Contractor can seek a variation of the works. The Employer would not, it
is submitted, bee n t i t l e d t o d e n y t h e C o n t r a c t o r p a y m e n t o f a n y
c o s t s c o n s e q u e n t u p o n t h e variation on the grounds that the Contractor had
undertaken to conform with localregulations and therefore should not
be entitled to further payment for doing so.T h e C o n t r a c t o r h a s
undertaken that he will conform with the local law in
theexecution of the works. He is not undertaking that the
w o r k s a s d e s i g n e d s o conforms. It would, it is submitted, place
intolerable burdens upon tenderers if they had to check the design for
compliance.Another area of difficulty that frequently occurs is when delays and
costs arei n c u r r e d a s a r e s u l t o f t h e r u l e s a n d r e g u l a t i o n s o f t h e
v a r i o u s u t i l i t i e s w h o s e pipes and cables pass under or are connected to
the works. The design of the works is normally the Engineer's concern, but liaison with
the utility companies isthe Contractor's responsibility. In many countries, the
procedure f or re-routing,f or example, a telephone cable may be a long and
bureaucratic process. It issubmitted that the Contractor would be obliged
to show severe delay of this sortto qualif y as "special circumsta nces" entitling
the Contractor to an extension of time under clause 44.1 (Extension of time for
completion).A v e r y i n t e r e s t i n g q u e s t i o n a r i s e s w h e n t h e E
m p l o y e r i s a n a r m o f t h e government of the country in which the project is
sited and the utility concerned isalso government-owned. Thus, the Contractor could
be dealing with the Ministryof Public Works as Employer and the Ministry of
Telecommunications in relationto the relocation of a cable. A Contractor will seek
to argue that delays caused by the Ministry of Telecommunications fall within the ambit
of "delay, impedimentor prevention by the Employer" under clause 44.1(d). The answer
lies within thea d m i n i s t r a t i v e l a w o f t h e c o u n t r y
i n w h i c h t h e p r o j e c t t a k e s p l a c e . I f t h e government can be said to be
"one and indivisable" so that the two Ministries
arem e r e l y m a n i f e s t a t i o n s o f t h e s a m e l e g a l p e r s o n , t h e C o n t
r a c t o r m a y w e l l succeed. In civil code countries, with legal systems
based on the French model,a contract with a ministry would normally be an
administrative contract and the d o c t r i n e o f F a i t d u P r i n c e c o u l d a p p l y :
t h i s w o u l d m a k e a n a c t o f o n e a r m o f government a potential ground f or
claim under a contract with another as the state is not regarded as comprising
separate entities but as a single whole.The boundary between the Contractor's duty
of conf ormity with local rules and r e g u l a t i o n s o n t h e o n e h a n d a n d t h e
E m p l o y e r ' s r e s p o n s i b i l i t y f o r " p l a n n i n g , zoning or other similar
permission required" on the other hand is likely to causedifficulty. The
ref erence in the sentence to clause 22 (Damage to persons and
Page 112 of 264

property) and in particular the indemnity in respect of the exceptions set

out inclause 22.2 may be intended to give guidance to the scope of the
words "other similar permission".This clause should be read with clause 70.2
(Subsequent legislation) which doesnot detract in any way from the duty to
comply but reimburses the Contractor in r e s p e c t o f c o s t s c a u s e d b y
c h a n g e s i n r e l e v a n t l a w s a f t e r a c e r t a i n d a t e . I t should also be
read with clause 5.1 (Language/s and law) and the commentarythereto,
clause 13 (W ork to be in accordance with the contract) which
requiresthe Contractor to execute the works "unless it is legally...impossible" and
clause66.1 (Release from Performance).Government Employers may wish
to exempt Contractors from certain taxes andduties in order to ensure,
for example, that all the funding available is spent on the project and not on
taxes. A clause to that effect should be inserted in Part II.
CLAUSE 27 : Fossils
Items of value or interest discovered on the site belong to the
Employer. TheContractor shall take steps to preserve such articles and
will tell the Engineer immediately and follow his instructions. The
Contractor will be entitled to an extension of time and reimbursement of his
costs in relation to such instructions.The only change of principle in the 4th
Edition is the power of the Engineer togrant an extension of time for
delays caused by instructions. The standard 4thEdition wording for the
Engineer's determination of exten sion of time and cost has been
introduced.The purpose of this clause is to endeavour to ensure that
items of interest arehanded over to the Employer. Apart from the
potential value of such items, the C o n t r a c t o r w o u l d h a v e g o o d
r e a s o n t o s e e k t o h i d e s u c h d i s c o v e r i e s i f t h e Contractor would
suffer financially as a consequence of the discovery. For thisreason,
almost every standard form of contract has a fossils or antiquities clauseplacing the
financial risk of such discoveries on the Employer."...as between the Contractor and
the Employer...". Local legislation may requireall finds to be handed over to the
state and third parties may have claims over the articles uncovered. The
contract of course can only govern relations betweenthe two parties.The Contractor's
entitlement to extension of time and costs is only "by reason of such
instructions". Thus, if critical work stops whilst the Engineer is
acquaintedwith the discovery and whilst decisions are made, possibly
by the importation of experts, and the result is only an instruction by the Engineer
to proceed becausef o r e x a m p l e , t h e d i s c o v e r y i s o f n o v a l u e , t h e
C o n t r a c t o r w i l l a p p a r e n t l y b e entitled to no extension of time. This may be
unfortunate in that it contradicts thep u r p o s e o f t h e c l a u s e a n d t h e
Contractor will have to make decisions as to

Page 113 of 264

whether the discovery is of value and interest and will be taking a risk if he stopsthe
work and informs the Engineer. This will tempt contractors to take the
safecourse and say nothing. To achieve its objective, the clause should
allow theContractor an extension of time at least whenever a genuine
discovery causescritical work to come to a halt.This clause is the only occasion in
the contract where the Contractor is requiredto "acquaint" the Engineer o f
something, as normally a written notice of somedescription is
required. W ritten confirmation of the fact that the Engineer has been
informed would be a sensible precaution for the Contractor.
CLAUSE 28 : Patent Rights
The Contractor will indemnify the Emp loyer from all claims for
infringement of patent rights etc. in relation to Contractor's Equipment, materials
or plant exceptwhere the infringement results from the Engineer's design or the
Specification.The Contractor is to pay all costs for obtaining materials for the
Works.In the 4th Edition, this clause has been divided into two sub clauses and usessomewhat different vocabulary. The phrase "or for incorporation
in" in sub-clause28.1 is new. The exception in relation to the Engineer's design
or specification
isa l s o n e w a n d h a s b e e n i n t r o d u c e d t o a l l o w f o r t h e f a c t
t h a t n o r m a l l y t h e Contractor has little control over the materials
and plant to be incorporated and t h u s s h o u l d n o t b e l i a b l e f o r
i n f r i n g e m e n t s a s a c o n s e q u e n c e . N o w i t i s o n l y where the Contractor
or a subcontractor selects the equipment, material or plantthat the Contractor is
liable for infringements.This clause raises the queation as to who is liable to pay
royalties or licence feeso t h e r t h a n i n r e s p e c t o f m a t t e r s d e a l t
w i t h i n s u b - c l a u s e 2 8 . 2 . T h e p h r a s e "damages...and
expenses...in relation thereto" appears to be broad enough to c o v e r
payments made in order to avoid the infringement, but the
e x c e p t i o n assumes that the infringement has already occurred. This
clause could usefullybe clarified. Meanw hile, as it would perhaps
impose an excessive burden upontenderers to require them to
investigate the potential liability for royalties etc., a provisional sum would,
it is submitted, produce a sensible result, particularly as itis the Engineer's design
and he is best placed to make the necessary enquiries.
CLAUSE 29 : Interference at work site
The Contractor shall complete the project causing a minimum of
interference tothe convenience of the public or the access to adjacent
properties and roads.The Contrac tor shall indemnify the Employer
against claims arising from such interference if the Contractor is
responsible.This clause is virtually unchanged from the 3rd Edition.

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This clause should be read in conjunction with clause 19.1 (Safety, security
andprotection of the environment) whereby the Contractor is to "avoid
damage or n u i s a n c e t o p e r s o n s o r t o p r o p e r t y o f t h e
p u b l i c o r o t h e r s " a n d c l a u s e 2 2 (Damage to persons and
property). The latter clause at 22.2(a) to (c) makes
theE m p l o y e r r e s p o n s i b l e f o r t h e d a m a g e a n d c l a i m s w h i c
h a r e t h e i n e v i t a b l e consequence of the execution and existence of
the project. This clause, which could easily have been combined with clause 22,
is the corollary, namely that theContractor is liable for the avoidable claims etc.
arising from the works.Altogether in the contract, some 13 indemnities are
given or are to be given byn o m i n a t e d s u b c o n t r a c t o r s o r i n s u r a n c e
policies of which 7 are given to theEmployer by the
Contractor and 4 to the Contractor by the
Employer. Thisproliferation of indemnities must be borne in
mind when the parties consider w h e t h e r t h e i r l i a b i l i t i e s i n
r e l a t i o n t o t h e p r o j e c t a r e a t a n e n d . W h e n t h e Contractor
is giving his written discharge under clause 60.7 (Discharge),
h e should be aware that his right to indemnity is compromised in respect of
liabilitiesincurred at the date of the discharge, but not, it is submitted, in respect of
futureliabilities. See also clause 60.9 (Cessation of Employer's liability)
and clause62.2 (Unfulfilled obligations) and the comments under those clauses.
CLAUSE 30 : Damage at work site
The Contractor shall take all reasonable steps to avoid damage
t o r o a d s a n d bridges including by the careful selection of routes and distribution
of
loads.U n l e s s t h e c o n t r a c t s a y s o t h e r w i s e , t h e C o n t r a c t o r
i s r e s p o n s i b l e f o r a n y alterations to roads and bridges neces
s a r y f o r t h e t r a n s p o r t a t i o n t o s i t e o f Contractor's Equipment or
Temporary W orks and shall indemnify the Employer against any claim
arising from
damage.I f a n y d a m a g e a r i s e s d u e t o t h e t r a n s p o r t a t i o n o f
m a t e r i a l s o r P l a n t , t h e Contractor shall inform the Engineer and
Employer. If the local law so provides,the haulier and not the Employer shall be
liable for such damage. Otherwise, theEmployer shall pay for the damage and
indemnify the Contractor except to theextent that the Engineer
considers the damage was due to lack of care by theContractor. The
Employer may deduct the Contractor's share of the damage f r o m
sums otherwise due to the Contractor. The Employer is
t o i n f o r m a n d consult with the Contractor in relation to settlement
negotiations.The same principles apply to any necessary waterborne transport.Subclause 30.1 and 30.4 are virtually unchanged from the 3rd Edition save as
tov o c a b u l a r y . S u b - c l a u s e s 3 0 . 2 a n d 3 0 . 3 h a v e
h o w e v e r b e e n f u n d a m e n t a l l y altered.

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This clause should be read in conjunction of clause 19.1 (Safety,

security andprotection of the environment), clause 22 (Damage to persons and
property) andclause 29.1 (Interference with traffic and adjoining properties). Damage
to roadsand bridges should be insured pursuant to clause 23.1 (Third
party insurance)save to the extent that the damage "is the unavoidable
result of the execution and completion of the Work": see clause 22.2
(Exceptions). However, in respectof Contractor's Equipment or Temporary Works,
the Contractor is responsible for damage regardless of its avoidability. The
Contractor is therefore liable for suchdamage as insurance will not be available in
respect of the unavoidable.In respect of damage due to the transportation of
materials or plant under sub -clause 30.3, the Contractor is only liable if he has
failed to use every reasonablemeans to prevent damage.In arriving at their prices,
tenderers will be obliged to obtain information about thebearing capacity
of roads and bridges which will be used in the transportation
of materials etc. to the site. Under clause 11.1 (Inspection of Site) the
Contractor w i l l b e d e e m e d t o h a v e i n s p e c t e d t h e s u r r o u n d i n g s o f
t h e s i t e b o t h a s t o t h e "extent and nature of work and materials necessary"
and "the means of access tothe site". In relation to their equipment and proposed
Temporary Works, they
willb e o b l i g e d t o i n c l u d e f o r t h e c o s t o f a n y n e c e
s s a r y s t r e n g t h e n i n g o r improvements and for the cost of repairs.In
relation to any strengthening of bridges etc. needed for movement of materialsand plant,
the Contractor is apparently not responsible f or or obliged to pay thecost of
such strengthening, but must "use every reasonable means" to
preventdamage. The interpretati on of such "reasonable means" should
presumably
bel i m i t e d t o m a t t e r s o f t h e s o r t p a r t i c u l a r i s e d i n c l a u s e 3 0 .
1. It
is therefores u b m i t t e d t h a t a C o n t r a c t o r i s e n t i t l e d t o
a v a r i a t i o n i n r e s p e c t o f a n y strengthening etc. which is necessitated
only by the transportation of materials or Plant. It is not immediately obvious why
the Contractor should not be asked to price for all strengthening necessitated by the
works with additional payment onlyin the event of additional strengthening being required for
the execution of somevaried or additional work. In the 3rd Edition, the Contractor was
obliged to notifyt h e E n g i n e e r o f a n y e x c e p t i o n a l l o a d w h i c h w a s l i k e l y
t o c a u s e d a m a g e a n d make proposals for the necessary strengthening. Unless
the Engineer served ac o u n t e r notice denying the necessity for strengthening or modifyin
g t h e proposals, the Contractor would be paid. If the foregoing commentary
is correctand the Contractor has no duty to strengthen roads and bridges
which may bedamaged by the transport of materials or Plant and as the obligation
contained inthe 3rd Edition to notif y the Engineer of loads likely to cause
damage has been d e l e t e d f r o m t h e 4 t h E d i t i o n , t h e E m p l o y e r i s l e f t
e x p o s e d t o d a m a g e c l a i m s which could have been avoided. It would normally be
much cheaper temporarilyto strengthen a bridge than to repair it. This is an
oversight that must surely be rectified.A n a d d i t i o n t o s u b - c l a u s e 3 0 . 3 i s
t h e r e q u i r e m e n t t h a t t h e E m p l o y e r s h o u l d inf orm the Contractor about
the negotiation of any settlement and consult with
Page 116 of 264

him if liability is to be shared. In the 3rd Edition, the Employer

w o u l d s i m p l y negotiate the settlement and the Engineer would certify
the amount payable bythe Contractor. The Contractor's only defence to
excessive settlements would bethe difficult task of persuading the Engineer or an
arbitrator that the amount paidout was due to poor negotiation rather than
the Contractor's lack of care for the bridges etc.This clause proceeds
almost on the assumption that the Employer is part of the government in
the Country in which the works are taking place and the Engineer is employed by
the Ministry of Public W orks or equivalent. The absence of anyreference
to liaising with local authorities and the assumption that a
Contractor may set about strengthening bridges and "improving any road" will often
be
quiteu n r e a l i s t i c . I n t h i s r e g a r d , t h i s c l a u s e s h o u l d
b e r e a d w i t h c l a u s e 2 6 . 1 (Compliance with statutes, regulations) as
the local law will often have provisionfor the movement of exceptionally heavy loads
around the country.The liability of both Employer and Contractor should be covered
by the insuranceunder clause 23 (Third party insurance).
CLAUSE 31 : Opportunities for other Contractors
The Contractor is to allow the Employer's workmen, other contract ors
and localauthority workmen working on or near the site on work not
forming part of the contract all reasonable opportunities for carrying out their
work.If the other contractors request that the Engineer makes roads
available
whicht h e C o n t r a c t o r i s o b l i g e d t o m a i n t a i n o r i f t h e C o n t
r a c t o r p e r m i t s u s e o f Temporary Works or Contractor's Equipment or
provides any other services, theContractor is to be paid.This clause is effectively
unchanged from the 3rd Edition but, in common with thepolicy of the 4th Edi tion
has been divided into items to make the clause
morer e a d a b l e . I t i s s u b m i t t e d , h o w e v e r , t h a t t h e w
o r d s f r o m " w h o m a y b e employed..." onward are intended to qualify (a)
and (b) as well as (c) and shouldtherefore commence on the following line.T h e
presence on or adjacent to the site of other contractors can
o f t e n b e a source of contention due to the obligation upon the Contractor to liaise
and affordthem access, but without the powers that he has in relation to
subcontractors toprogramme, control and monitor their work. Although the
Contractor may obtainextra payment for the facilities provided to other contractors,
there is no expressprovision for extension of time for any delay that results from their
work. This is inc o n t r a s t t o t h e I C E 5 t h a n d 6 t h E d i t i o n s w h i c h
p r o v i d e f o r a n e x t e n s i o n " i f compliance...shall involve the Contractor
in delay...beyond that to be foreseen byan experienced contractor". The Contractor
under the FIDIC conditions is left withthe task of trying to demonstrate that
such delays fall within one or other of the items in clause 44.1 (Extension
of time for completion). Where the delay derives

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from workmen or other contractors employed by the Employer, there

should beno difficulty in demonstrating entitlement under claus e 44.1
item (d) "any delay,i m p e d i m e n t o r p r e v e n t i o n b y
t h e E m p l o y e r " . D e l a y b y t h e w o r k o f d u l y constituted
authorities may be more difficult, particularly if it has to qualify as "other
special circumstances" under clause 44.1 item (e).A n e x t e n s i o n o f t i m e m a y
b e a v a i l a b l e t o t h e C o n t r a c t o r u n d e r c l a u s e 4 2 . 2 (Failure to give
possession) if the work of the other contractors on site or relatingto the access
to the site amounts to the retaking by the Employer of possessionof that
part of the site. Although clause 42.2 addresses only the "failure on
thep a r t o f t h e E m p l o y e r t o g i v e p o s s e s s i o n " , i t i s s u b m i t t e d
t h a t b y n e c e s s a r y implication, it also covers delays caused by the Employer
subsequently deprivingt h e C o n t r a c t o r o f s u c h p o s s e s s i o n . C o m p a r e
t h e C a n a d i a n F e d e r a l C o u r t o f Appeal decision of Queen v W alter
Cabott Construction (1975) 69 DLR(3d) 542 w h e r e a n E m p l o y e r w a s
held to be in breach of his obligation to provide anunimpeded
site when work on an adjoining phase of the site hampered
t h e contractor in the execution of his work.Clause 53.1 (Notice of claims) applies to
claims under this sub-clause so that theC o n t r a c t o r h a s 2 8 d a y s o f t h e
e v e n t t o n o t i f y t h e E n g i n e e r o f a n i n t e n t i o n t o claim. The notice
requirement of clause 52.2 (Power of Engineer to fix rates) does not, it is
submitted, apply for the reasons set out under that sub-clause.This clause should be
read in conjunction with clause 19.1 (Safety, security andprotection of the
environment) whereby the Contractor is to "have full regard for the safety
of all persons entitled to be upon the site" and clause 19.2
(Employer'sresponsibilities) whereby the Employer takes on responsibilities in
relation to sitesafety where he employs workmen or other contractors on
site. The Contractor retains the safety responsibil ity in relation to the
workmen of duly constituted authorities.The use of the term "written
request" in sub-clause 31.2 and not "instruction" suggests that the
Contractor has some right to decline the request, regardless of its
reasonableness. However, on this occasion and the three other occasions inthe
contract when the Engineer makes a request, the Contractor is obliged
by thew o r d " s h a l l " t o c o m p l y w i t h t h a t r e q u e s t . H e r e , t h e
r e l e v a n t " s h a l l " i s i n s u b - clause 31.1. The other clauses are clause
6.1 (Custody and supply of drawings and documents), clause 14.2 (Revised
programme) and clause 37.4 (Rejection).In these three clauses, it seems that
"request" is intended to be
interchangeablew i t h " i n s t r u c t i o n " . A n i n s t r u c t i o n t o p r o v i d e f
acilities in relation to other contractors working off site
c o u l d b e c h a l l e n g e d o n t h e g r o u n d s t h a t t h e instruction was
not on a matter "touching or concerning the Works" within clause1 3 . 1 ( W o r k t o
be in accordance with contract). Clause 2.5 (Instructions
i n writing) does not cover req uests or "requirements" in sub -clause 31.1:
only therequests are expressly to be written. This is no doubt because it
is the requeststhat may entitle the Contractor to recover costs.
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Provision is made for the employment of other contracto rs in case of

default bythe Contractor in the following clauses:-- clause 39.2 (Default of
Contractor in compliance)- clause 49.4 (Contractors failure to carry out instructions)clause 63.1 (Default of Contractor)- clause 64.1 (Urgent remedial work)These
contractors seem to fall within sub -clause 31.1 item (a) which yields
thecurious result that the Contractor, having defaulted on an obligation
under thecontract thereby causing the employment
of another contractor, may be entitledto payment for "allowing" the new
contractor onto site.P a r t I I u r g e s t h e E m p l o y e r t o i n c l u d e i n t h e
t e n d e r d o c u m e n t d e t a i l s o f a n y anticipated works to be done by other
contractors. The degree of notice given tothe Contractor at the outset, or
indeed after the works have commenced, andthus his ability to programme or
allow for the other works, may well influence theContractor's entitlement to extension
of time.
CLAUSE 32 : Keep site Clear of Obstructions
This clause, which is virtually unchanged from the 3rd Edition,
r e q u i r e s t h e contractor to keep the site clear of obstructions, rubbish
and surplus equipmentand materials."Obstruction" is to be distinguished from the
"physical obstructions" referred to
inc l a u s e 1 2 . 2 ( A d v e r s e p h y s i c a l o b s t r u c t i o n s o r c o n d i t i o
n s ) a n d i s n o d o u b t intended to refer to obstructions of the
s o r t t h a t t h e C o n t r a c t o r i s t o s t o r e o r dispose of.This clause is to be
read in conjunction with clause 54.1 (Contractor's Equipmentetc.) which prohibits
a Contractor from removing any Contractor's Equipment or materials from
site without the consent of the Engineer.This clause should also be read in
conjunction with clause 33 (Clearance of site on completion) which
addresses the position after the taking-over of the Works.
CLAUSE 33 : Clearance of Site on Completion
The Contractor shall remove from any part of the site taken over all
Contractor'sE q u i p m e n t , s u r p l u s m a t e r i a l , r u b b i s h a n d t e m p o
r a r y w o r k s w h i c h a r e n o t required during the Defects Liability Period. The
part of the site taken over mustbe left clean and in a workmanlike condition to the
Engineer's satisfaction.This clause, which has been substantially revised for this
edition, is to be read
inc o n j u n c t i o n w i t h c l a u s e 3 2 . 1 ( C o n t r a c t o r t o k e e p s i t e c l e a r ) w
hich imposes
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obligations upon the Contract or to dispose of surplus equipment and

materialsduring the course of the works; and in contrast with clause
54.1
(Contractor'sE q u i p m e n t e t c . ) w h i c h p r o h i b i t s t h e r e m o v a l o f C o n t
r a c t o r ' s E q u i p m e n t a n d materials without the consent of the
Engineer. Reading this clause and clause 54.1 together, it may be that the
consent of the Engineer is only required for suchr e m o v a l s d u r i n g t h e c o u r s e
o f t h e w o r k s a n d n o t w h e n t h e w o r k s h a v e b e e n handed
over. Other provisions relevant to the removal of equipment etc. are
tobe found in clause 63.1 (Default of Contractor) which entitles the Employer to
usethe Contractors Equipment etc. after termination by the Employer
and clause6 9 . 2 ( R e m o v a l o f C o n t r a c t o r ' s E q u i p m e n t ) i n t h e c a s e
o f t e r m i n a t i o n b y t h e Contractor.The proviso allowing the Contractor to
retain on site materials, equipment etc. that are necessary during the Defects
Liability Period is new to the 4th Edition. Itis necessary because the obligation
is tied in the 4th Edition to the taking -over certificate whereas it is "the
completion of the Works", almost certainly meaningt h e e n d o f t h e
maintenance period, that is the key in the 3rd Edition. It is
a n obvious improvement that the obligation to clear the site as far as
practicableshould start upon taking-over.
CLAUSE 34 : Engagement of Staff and Labour
This clause imposes the basic obligation upon the Contractor
t o o b t a i n a n d provide for his own staff and labour.The clause is the equivalent to
clause 34(1) of the 3rd Edition: sub-clauses 34(2)to (9) have been relegated to Part
II, which provides a menu of some 15 optionalclauses dealing with everything
from wage rates to burying the dead. It may bethat a degree of
coordination between the additions to this clause and those toclause 54
(Contactor's Equipment, Temporary Works an d materials) would
beappropriate.T h i s c l a u s e i s t o b e r e a d i n c o n j u n c t i o n
w i t h c l a u s e 1 6 . 1 ( C o n t r a c t o r ' s employees) which refers to the
provision by the Contractor of "such skilled, semi-skilled and unskilled labour as is
necessary", and clause 16.2 (Engineer at libertyto object), which entitles the
Engineer to ban any person from the site. Insuranceobligations in relation
to staff and labour are imposed by clause 24.2 (Insurance against
accidents to workmen).
CLAUSE 35 : Returns of Labour and Equipment
This clause, which is taken with minor amendments from the 3rd Edition
requirest h e C o n t r a c t o r t o m a i n t a i n a r e c o r d i n a
p r e s c r i b e d f o r m o f h i s l a b o u r a n d equipment.
Page 120 of 264

This is the first of a number of clauses requiring the

C o n t r a c t o r t o m a i n t a i n records. The others are:-- c l a u s e 4 4 . 3
(Interim determination of extension): interim
p a r t i c u l a r s o f delays having continuing effect;clause 52.4 (Daywork): lists of workmen and
r e c e i p t s a n d v o u c h e r s proving payment;- c l a u s e 5 3 . 2
(Temporary records): in support of claims; clause 58.3 (Vouchers): all documentation
s h o w i n g e x p e n d i t u r e i n relation to provisional sums;- c l a u s e
59.5 (Certification of payment to nominated
Subcontractors);-clause 60.1 (Monthly statement):
showing monthly valuation; andclause 60.6 (Final statement): to
include supporting documents.Apart from the Engi
neer's general involvement in and control over th
e Contractor's operations, the relevance of this information is primarily in relation
tof l u c t u a t i o n s i n t h e e v e n t t h a t c l a u s e 7 0 . 1 ( I n c r e a s e o r
decrease of costs) isoperating. This clause also provides
a method of policing the prohibition
inc l a u s e 5 4 . 1 ( C o n t r a c t o r ' s E q u i p m e n t ) w h i c h p r e v e n t s t
h e C o n t r a c t o r f r o m removing equipment from the site without the consent of
the Engineer.Part II provides optional additional clauses for record-keeping in
relation to healthand safety and the reporting of accidents.
CLAUSE 36 : Facilities for Testing
All materials, plant and workmanship must be strictly in
a c c o r d a n c e w i t h t h e contract and any Engineer's instructions and tested as the
Engineer may requirei n a c c o r d a n c e w i t h t h e c o n t r a c t . T h e
Contractor will provide all facilities for testing and shall supply
s a m p l e s f o r m a t e r i a l s f o r t e s t i n g a s r e q u i r e d b y t h e Engineer.The
Contractor will supply samples at his own cost if such supply is envisaged bythe
contract.The Contractor will bear the cost of all tests envisaged by the contract and,
in thecase of load tests and tests on executed work, where such tests are described
insufficient detail to allow a price in the tender.The Contractor will bear the cost
of all other tests if the work or materials fail to satisfy the Engineer.

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Otherwise, the Engineer will award the Contractor an extension

o f t i m e a n d costs.This clause is virtually unchanged from the 3rd Edition save that
sub-clause 36.5has been added to provide machinery for the payment of
the Contractor's costsof the extra tests and also to provide expressly for
extension of time. Previously,the Contractor would have been obliged to
demonstrate that the extra tests were"extra or additional work" within clause 44.1
(Extension of time for completion).The broad scheme of the contract is that the
Contractor will be paid for any testsfor which he has allowed or should have allowed
in his contract price but the costof any other tests will be allocated according to the
result of the test. This "loser pays" formula is to be found in clause 38.2
(Uncovering and making openings), clause 49.3 (Cost of remedying defects)
and clause 50.1 (Contractor to search).This arrangement is bound to raise the
suspicion that materials etc. will be ruledas having failed their tests in
circumstances where another result would mean additional cost to the
Employer and the inference of a mistake by the member of t h e E n g i n e e r ' s
team who ordered the test. This suspicion will
be particularlyreinforced where the Engineer susbequently agre
e s t o a c c e p t t h e m a t e r i a l s tested despite such failure. For a comment
comparing the treatment of the aboveclauses, see under sub-clause 36.5
below.3 6 . 1 " ( a ) . . . d e s c r i b e d i n t h e C o n t r a c t a n d i n
a c c o r d a n c e w i t h t h e E n g i n e e r ' s instructions". If the Engineer's
instructions are inconsistent with the contract,then, to the extent that
they impose a higher standard than that specified, the Contractor should be
entitled to a variation under clause 51.1 (Variations). If theinstruction suggests a
lower standard than that prescribed, a problem arises in relation to clause
2.1 (Engineer's duties and authority) item (c) which states thatt h e E n g i n e e r
"shall have no authority to relieve the Contractor of any of
h i s obligations under the Contract". The Contractor will be in the difficulty that
clause7 . 1 ( S u p p l e m e n t a r y d r a w i n g s a n d i n s t r u c t i o n s ) a n d c l a u s e
1 3 ( W o r k t o b e i n accordance with the contract) both insist that th e
Contractor strictly obeys the E n g i n e e r ' s i n s t r u c t i o n s . T h e a n s w e r
m a y b e t h a t t h e E n g i n e e r ' s a u t h o r i t y t o instruct a change in the quality of
work is expressed in clause 51.1(c) so that thiswould override the limitation
within clause 2.1. Thus, clause 36.1(a) may bereconciled as the
description in the contract would effectively be altered by the instructions.In
English law, there will be implied into a construction contract a strict duty
tosupply good and proper materials, irrespective of fault on the
Contractor's part:see for example Young & Marten v McManus Childs (1969) 1
AC 454.3 6 . 2 T h e o b l i g a t i o n t o s u p p l y s a m p l e s i s
l i m i t e d t o m a t e r i a l s : p l a n t a n d workmanship are tested in other
ways.

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36.3"(a) clearly intended by or provided for in th e

C o n t r a c t " . T h i s p h r a s e , which occurs in clauses 36.2 and 36.3 and
nowhere else in the contract, could give rise to some difficulty. As "provided for"
deals with express requirements for t e s t s o r s a m p l e s , " c l e a r l y i n t e n d e d
b y " a p p e a r s t o d e a l w i t h i m p l i c i t t e s t s o r samples. In clause 36.1,
there is a clear requirement for samples of materials tobe supplied as selected
and required by the Engineer. Presumably this is not aclear intention or
provision or else clause 36.2 would make reference to clause 3 6 . 1 . I t
appears that the draftsman has tried to relieve
t h e E m p l o y e r a n d Engineer of setting out a requirement for every
single sample and test and has l e f t i t t o b e i m p l i e d w h e r e s u c h
s a m p l e s a n d t e s t s w i l l b e n e e d e d . I t s e e m s inevitable that this short-cut
will create
arguments.S i m i l a r l y , c l a u s e 3 6 . 3 ( b ) s e e m s d e s i g n e d t o r a i s e
t h e i s s u e w h e t h e r t h e description of a test was sufficiently detailed to
enable a Contractor to allow for iti n h i s t e n d e r . I t m a y w e l l n o t
b e o b v i o u s f r o m t h e t e n d e r i t s e l f w h e t h e r a particular test was
allowed for and thus an unscrupulous Contractor or Employer would be free to
debate the sufficiency of detail.Materials etc. are to be subjected to testing
"from time to time". This raises thequestion whether such tests may
occur after the taking-over of the part of thew o r k s c o n c e r n e d . T h e
testing and inspection in clause 37.2 (Inspection
andtesting) only takes place "during manufacture, fabrication or
p r e p a r a t i o n " o f materials etc. Under clause 50.1 (Contractor to search), it
is only when a defecthas appeared in the works that a search may be
undertaken during the defects liability period. Under clause 38.2 (Uncovering
and making openings), the words"from time to time" recur and raise the same
question. It is submitted that, oncethe works are taken over, the Engineer's powers
under this clause are at an endsave in respect of any outstanding work
completed during the defects liabilityperiod pursuant to clause 49.2
(Completion of outstanding work and remedyingdefects).Although the word
"measuring" features in the list of items in respect of which theContractor is to
provide assistance, labour etc. it is submitted that this is not an intentional
reference to the measurement referred to in clause 56.1 (Works to bemeasured)
whereby the Contractor is to provide only "a qualified representative"and certain
particulars.36.4"In accordance with the provisions of the Contract to the
satisfaction of theEngineer". See the commentary under clause 13.1
(W ork to be in accordance with contract) in relation to a very similar phrase. For
other provisions permittingthe Engineer to test work, see clause 38.2
(Uncovering and making openings) and, where a defect has emerged, clause
50 (Contractor to search).3 6 . 5 A s c o m m e n t e d a b o v e , t h e r e a r e
f o u r " l o s e r p a y s " p r o v i s i o n s w h e r e t h e Contractor is paid for
work only if no fault is found for which he is responsible.There is a
strange inconsistency between these clauses. Under this clause,
theC o n t r a c t o r r e c e i v e s t i m e a n d h i s c o s t s ; u n d e r c l a u s e 3 8 . 2
( U n c o v e r i n g a n d making openings) and clause 50 (Contractor to
search), he receives costs only;
Page 123 of 264

and under clause 49.3 (Cost of remedying defects), he receives

a v a l u a t i o n under clause 52 (Valuation of variations). Although the
Contractor is probablyable to claim an extension for w ork executed
pursuant to clauses 38.2 and 50, where appropriate, under clause 44.1
(Extension of time for completion) item (a)"the amount or nature of extra or
additional work", the contract should make thematter clear.
An Employer could well argue, albeit wrongly, that
the comparisons h o w s t h a t t h e i n t e n t i o n w a s t o g i v e t i m e o n l
y f o r e x t r a t e s t s . T h e r e i s a difference between the valuation for
remedials under clause 49.3 and "costs" under the other clauses. The definition
of "cost" at clause 1.1(g)(i) makes it clear that profit is excluded. A valuation has no
such exclusion.There is no discernablepolicy distinguishing these clauses and
the answer may be that there is none.
CLAUSE 37 : Inspection and Testing
The Engineer is to have access to the site and off-site
f a c t o r i e s e t c . T h e Contractor is to help to obtain such access.The Engineer
may inspect and test materials and Plant and the Contractor shallobtain
permission for such inspections and testing where it is to take place off site. Inspection and testing will not relieve the Contractor of his responsibilities.The
Contractor and the Engineer are to agree times and places for
inspectionand testing and the Engineer should give at least one day's notice of his
intentionto inspect or test. If the Engineer does not attend, the Contractor
may carry outt h e t e s t a n d f o r w a r d t h e r e s u l t s t o t h e
E n g i n e e r w h o m u s t a c c e p t t h e m a s accurate. If the test is a failure, or
is not ready at the agreed time and place, theE n g i n e e r m a y i s s u e a
r e j e c t i o n , s t a t i n g h i s r e a s o n s a n d t h e C o n t r a c t o r m u s t remedy the
failure. If the Engineer requires a repeat test, the Contractor must pay any
costs incurred by the Employer.Inspection and testing may be delegated to
independent inspectors acting as assistants under clause 2.4, provided 14 days'
notice is given to the Contractor.This clause has been very considerably
extended: the 3rd Edition comprisedonly sub -clause 37.1; sub-clauses
37.2 to 37.5 are entirely new. They
expanda n d c l a r i f y t h e p o w e r s i n c l a u s e 3 6 . 1 ( Q u a
l i t y o f m a t e r i a l s , p l a n t a n d workmanship) and clause 39.1
(Removal of improper work, materials or plant).The principal effect is to
give the Engineer an express power to reject materials prior to their
arrival on site. Whilst in practice an Engineer who indicated that hewould instruct the
removal of materials which he had inspected or tested off-site,would not normally
be ignored, these express powers reinforce the Engineer's role as quality
controller. In addition, provision is now made for the Employer tor e c o v e r t h e
costs of repeated tests which may well provide an incentive
toC o n t r a c t o r s a n d t h e i r s u p p l i e r s t o e n s u r e a s a t i s f a c t o r y
r e s u l t o n t h e f i r s t occasion.

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37.1"Persons authorised" could include the Engineer's

R e p r e s e n t a t i v e u n d e r clause 2.2 (Engineer's Representative) , one of
his assistants under clause 2.4 (Appointment of assistants), an independent
inspector under sub-clause 37.5 or,presumably, a representative of the Employer. In
addition, as these clauses dealwith delegation, it is submitted that the Engineer may
give written authority to anyother person who he wishes to be present at the
inspection or testing.The clause stops short of requiring the Contractor to
procure access which isperhaps strangely reticent, particularly given that in
clause 37.2, "the
Contractor s h a l l o b t a i n p e r m i s s i o n " f o r t h e E n g i n e e r ' s i n s p e c
t i o n a n d t e s t i n g . T h e Contractor will no doubt be able to make it a term of
the sub-contracts and supplycontracts that the Contractor, the Engineer and
others should have access for inspection and testing. The present
position is that the Contractor would be in b r e a c h o f c o n t r a c t f o r
f a i l u r e t o s e c u r e p e r m i s s i o n f o r t h e E n g i n e e r t o v i s i t a supplier's
factory to inspect and test but not if the affording of every facility
andassistance failed to gain access for the Engineer. In practice, the two are so
near to being inseparable that the necessity for separate sub -clauses and
separatedegrees of obligation must be questionable.3 7 . 2 " . . . s h a l l n o t
release the Contractor from any obligation". The
C o n t r a c t o r ' s principal obligations in relation to materials and plant are
set out in clause
36.1( Q u a l i t y o f m a t e r i a l s , P l a n t a n d w o r k m a n s h i p ) b u
t s e e a l s o c l a u s e 8 . 1 (Contractor's general responsibilities) and clause
13.1 (Work to be in accordancewith contract).3 7 . 3 T h e p u r p o s e o f t h e
w o r d s " a s p r o v i d e d i n t h e C o n t r a c t " i s o b s c u r e . T h e Engineer's
powers to test appears in clause 36.1 (Quality of materials, Plant andworkmanship)
and is repeated in sub-clause 37.2 in relation to "the materials andPlant to be
supplied under the Contra ct". The use of the phrase "as provided
int h e C o n t r a c t " r a t h e r t h a n " a s r e f e r r e d t o i n c l a u s e 3 7 . 2
a b o v e " , r a i s e s t h e question as least of whether this clause refers to any subdivision of the materialsand plant. Compare, for example, the phrase "clearly
intended by or providedfor" in clause 36.2 (Cost of samples) and clause 36.3
(Cost of tests).A t f i r s t s i g h t , t h e f i r s t t w o s e n t e n c e s o f t h i s s u b clause seem incompatible.P r e s u m a b l y , t h e i n t e n t i o n o f t h e
draftsman is that the Contractor and theE n g i n e e r a g r e e
a time when inspection or testing will take place b
y t h e Contractor alone or, if the Engineer so chooses, by or witnessed by
the Engineer.Thus, if he chooses to attend, the Engineer must give the
requisite notice. Thatnotice must be in writing in accordance with clause
1.5 (Notices, consents etc.).If the Engineer is unable to attend on one
occasion, his right to have access "atall reasonable times" under sub clause 37.1, will mean that his opportunity to inspect is not lost, even though
he will have missed the test.If the Engineer is not represented at the test, he
does not lose all possibility of rejecting the material as, firstly, he may
instruct the test not to proceed with the risk that the instruction will entitle the
Contractor to further payment under clause
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52 (Valuation of Variations), or secondly, he could reject the materials

or plantunder sub-clause 37.4 if the certified results did not comply with the
contract.3 7 . 4 C o s t s w i l l b e i n c u r r e d b y t h e E m p l o y e r b y t h e
r e p e t i t i o n o f t e s t s i f h e i s obliged to pay the Engineer or his
delegates and authorised persons additionalsums and expenses for
attending the repeated tests. The cost of the test itself will be borne by the
Contractor under clause 36.3 (Cost of tests) and clause 36.4(Costs of tests not
provided for) unless the repeated tests fall under the
latter c l a u s e a n d d e m o n s t r a t e t h a t t h e m a t e r i a l s e t c a r e i
n a c c o r d a n c e w i t h t h e contract. This would produce the
r e s u l t t h a t t h e a m o u n t d e t e r m i n e d b y t h e Engineer under clause
36.5 (Engineer's determination where tests not providedfor) could be
deducted again or reduced by the Engineer under this sub -clause.One
answer to this curious situation would be if a repeated test falls within clause36.3
being a test "clearly intended by or provided for in t he contract". For
thereasons why this tempting solution may not be sustainable, see the
commentaryunder clause 36.In the event of a rejection notice, the
Contractor is to "make good the defect or ensure that rejected materials or
Plant comply". In practise this means
replacing,a m e n d i n g o r t r e a t i n g t h e m a t e r i a l s , p l a n t e t c . t o
o v e r c o m e t h e E n g i n e e r ' s objection. However, it is only
" r e j e c t e d m a t e r i a l s o r p l a n s " t h a t m a y b e t h e subject of repeated
tests. Thus, if the tested item has been replaced, it may be o p e n t o a
Contractor to argue that the Employer is not entitled to his
costs inrespect of that repetition and, if clause 36.4 (Costs of
t e s t s n o t p r o v i d e d f o r ) applies, then he is entitled to be paid for the
repeated test and even obtain an extension of time.Under clause 63.1
(Default of Contractor), a failure by the Contractor to complywith a
notice issued pursuant to this clause within 28 days is an act of
defaultw h i c h e n t i t l e s t h e E m p l o y e r t o d e t e r m i n e . A s m e n t i o n e d
i n t h e c o m m e n t a r y under clause 63, the choice of clauses to receive specific
mention as grounds for termination seem bizarre. In this case, the inspection of
materials off-site may betaking place months before their intended
incorporation into the works with the r e s u l t t h a t t h e r e m a y b e n o
p a r t i c u l a r u r g e n c y . M o r e o v e r , t h e r e s u l t o f t h e rejection may be that
alternative materials have to be located and ordered from adistant source. The
required compliance is that the Contractor should promptlymake good
the defect or ensure that rejected material or plant comply with
thecontract. Read without reference to clause 63, a reasonable interpretation of
thatc l a u s e w o u l d b e t h a t u n l e s s t h e E n g i n e e r r e q u i r e d a r e p e a t
of the tests,
thes u p p l i e r ' s o n l y o b l i g a t i o n w a s t o e n s u r e t h a t w h e n t h
e m a t e r i a l s e t c w e r e delivered to site, they conformed with the
contract and the Engineer's objectionhad been overcome. In the event
that the rejection was caused by the fact that the test was not ready at the
time and place agreed, it is altogether more difficultto see what it is that the
Contractor is to do within 28 days. Any Engineer askedt o c e r t i f y p u r s u a n t t o
c l a u s e 6 3 . 1 t h a t t h e r e h a s b e e n a f a i l u r e o f c o m p l i a n c e under this
sub-clause may have an unenviable task.
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3 7 . 5 S e e t h e c o m m e n t a r y u n d e r c l a u s e 2 (
E n g i n e e r a n d E n g i n e e r ' s Representative) and the
apparent breadth of the phrase "any person authorised by him" commented
upon under sub-clause 37.1.
CLAUSE 38 : Inspection of part of works
The Contractor is to give the Engineer an opportunity to check any foundations
or o t h e r p a r t s o f t h e W o r k s w h i c h a r e a b o u t t o b e c o v e r e d
u p . T h e C o n t r a c t o r should notify the Engineer who should either attend or
decline to do so.T h e C o n t r a c t o r i s t o o p e n u p a n d m a k e g o o d
a n y p a r t o f t h e W o r k s a s t h e Engineer instructs. If clause 38.1
has been complied with and the part inspectedis found to be in accordance with the
contract, the Contractor will be paid for theopening-up and making good.The
principal alteration to sub-clause 38.1 in this edition is the reference to "partof the
Works" rather than "work" as in the 3rd Edition. Sub-clause 38.2 has beentranslated
into the phraseology of the 4th Edition but the principles of the clauseremain
unaltered.3 8 . 1 T h e d r a f t s m a n h a s d e c i d e d n o t t o i m p o s e
t i m e l i m i t s o n t h e n o t i c e a n d inspection procedure, r elying
instead on the co-operation between Contractor and Engineer. W hilst
this faith, which is not generally reflected in the contract,may often be
justified, the fact that the Engineer is entitled to cause reasonable delay
to a Contractor who is ready to proceed with the covering of foundations, islikely to
cause difficulty, particularly if the covering up is repeated many
timeso v e r a p e r i o d o f s e v e r a l w e e k s . T h e p a r t i e s t o t h i s
c o n t r a c t m a y w e l l f e e l i t sensible to agree a more formal procedure, including
a right for the Contractor toproceed if the Engineer does not attend at the
appointed hour, in order to avoid delays.A "part of the Works" is not defined so
that there will always be scope for debateas to when this sub -clause
applies. In clause 48.2 (Taking-over of Sections or parts), "any
substantial part" is referred to. Here, no guidance is given and, inview
of the fact that the recovery of costs under clause 38.2 depends upon
thiss u b - c l a u s e h a v i n g b e e n c o m p l i e d w i t h , t h e C o n t r a c t o r w i l l
b e w e l l a d v i s e d t o achieve agreement with the Engineer on what amounts to a
relevant part.This sub-clause should be read in conjunction with clause
37.1 (Inspection of operations) which gives the Engineer access to the
site as well as clauses likeclause 36.1 (Quality of mat erials, plant and
work) and clause 8.1 (Contractor's general responsibilities).3 8 . 2 T h i s
clause should be read in conjunction with clause 50
(Contractor
tosearch) whereby the cause of defects, shrinkage or ot
h e r f a u l t s m a y b e investigated. From the Employer's point of view, it would
be beneficial if this sub-

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clause and clause 50 could be linked so that if defective

w o r k m a n s h i p i n o n e area gave rise to a problem, a reasonable amount
of opening-up in other areaslikely to be similarly affecte d could be
undertaken at the Contractor's expense.Thus, for example, if one pile
under a bridge was found to be unstable, due to af a u l t y c o n c r e t e m i x
the cost of opening up nearby piles in order to check
theconcrete mix used there could properly, it is sub mitted, be
c h a r g e a b l e t o t h e Contractor. As it is, no matter how justified the
opening up and no matter howgreat the risk of a repeat of the defect, the
Contractor is to be paid if no defect isin fact found.For a comment comparing the
treatment of this clause with the other "loser
pays"c l a u s e s , c l a u s e 3 6 . 4 ( C o s t o f t e s t s n o t p r o v i d e d f o r
) , c l a u s e 4 9 . 3 ( C o s t o f remedying defects) and clause 50 (Contractor to
search), see under clause 36.5(Engineer's determination where tests not provided
for). This clause should alsobe read with clause 39.1 (Removal of improper
work, materials or Plant) which provides an express power to have remedied
any defects discovered ."... the Engineer may from time to time instruct ..." For
comment on the ability of the Engineer to instruct variations and tests after taking
over, see the commentsunder clause 13.1 (W ork to be in accordance with
the contract) and clause 36.1(Quality of materials, plant and workmanship).It
should be noted that to recover his costs, the Contractor must show that
boths u b clause 38.1 has been complied with and that the works
w e r e p r o p e r l y executed. He does not recover his costs of the
opening-up, even if the workswere perfect, if the Engineer was not
invited to inspect. It should also be noted t h a t a n e x a m i n a t i o n b y t h e
E n g i n e e r u n d e r s u b - c l a u s e 3 8 . 1 w i l l p r o v i d e t h e Contractor with
no defence in the event that the works are found on opening upto be
defective. See for example clause 37.2 (Inspection and testing)
where"such inspection or testing shall not release th e Contractor from
any
obligationu n d e r t h e C o n t r a c t " . I f , u p o n s u c h e x a m i n a t i o n ,
t h e E n g i n e e r i n d i c a t e s willingness to accept work that is not
fully up to specification, the
Contractor s h o u l d o b t a i n a v a r i a t i o n i n w r i t i n g t o t h a t e f f
e c t o r f o l l o w t h e c l a u s e 2 . 5 (Instructions in writing) procedure in
relation to oral instructions although neither of these would rule out all
possibility of challenge by the Employer: see under clause
51.1 (Variations).
CLAUSE 39 : Removal / Replacement of material / plant
The Engineer may order the removal and replacement of any materials,
plant,work or design by the Contractor which are not in accordance with the
contract.If the Contractor fails to comply with the Engineer's instructions
within the times t a t e d o r a r e a s o n a b l e t i m e , t h e E m p l o y e r m a y
e m p l o y o t h e r s t o e x e c u t e t h e work at the Contractor's expense.
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Sub-clause 39.1 is similar to the 3rd Edition although the reference to

design initem (c)(ii) is new. Sub-clause 39.2 has been substantially amended not
least bygiving the Contractor "a reasonable time" to comply with
the instruction.3 9 . 1 T h i s c l a u s e i s t h e o r e t i c a l l y u n n e c e s s a r y
a s t h e C o n t r a c t o r i s o b l i g e d t o produce a result in
accordance with the contract and would not be entitled
t o payment for defective work, nor substantial completion if the defect was
seriousnor a Defects Liability Certificate. The role of the clause is
therefore to give theEngineer a more proactive quality control
capability, forcing the Contractor to remove defective work at once rather than
at a time convenient to the Contractor.I n t h i s s u b - c l a u s e , t h e
instructions may be issued if "in the opinion of
theEngineer" work or materials are not in
a c c o r d a n c e w i t h t h e c o n t r a c t . T h e Engineer's opinion does not
feature in clause 37.4 (Rejection) or clause 38.2(Uncovering and
making openings). The significance of the opinion may be thatif the Engineer is
shown to be wrong and that the works in fact conformed withthe
contract, the Contractor will be entitled to treat the instruction as a
variationand claim payment under clause 52 (Valuation of variations). If
the clause hadsaid that the Engineer was only entitled to issue instructions where
the works andmaterials did not comply with the contract, an Employer could argue in
the aboveinstance that the ins truction was unauthorised and invalid and
deny liability for t h e c o s t o f t h e w o r k s e x e c u t e d . F o r a d i s c u s s i o n
of the significance of
theE n g i n e e r s o p i n i o n i n a n o t h e r c o n t e x t , s e e t h e c o m m e
n t a r y t o c l a u s e 6 3 . 1 (Default of Contractor).W hilst this clause gives
the Engineer wide powers, which seem to remove anyduty upon the
Employer to mitigate the loss flowing from what may be a minor breach of
the specification, in practice it is more likely that, where possible, minor faults will
be left or allowed for and a d eduction will be made in the valuation
of the work.A failure to comply with an instruction under this sub-clause within 28
days of itsreceipt is a ground for termination by the Employer under clause 63.1
(Default of C o n t r a c t o r ) . A s c o m m e n t e d u n d e r
clause 37.4 (Rejection) the selection of clauses to be
specifically mentioned in clause 63.1 seems to owe nothing
t o logic. Here, the time for compliance with an instruction may be
specified in theinstruction and could well be longer than the 28 days
referred to in clause 63.1.Furthermore, the Employer's remedy in the
case of a failure to respond by the Contractor is carefully set out in sub-clause
39.2 where the Contractor is given "areasonable time" where no time is specified by
the Engineer. In some instances,where items are not critical, six months may
be a reasonable time. Yet, if 28days go past, the Contractor is at risk of
termination. See also the commentaryunder clause 63.1.This clause
should be read in conjunction with clause 17 (Setting -out) wherebythe
Contractor has power to order the re-execution of works due to
dimensionalor alignment errors.
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A new feature of the 4th Edition is the reference to design at item (c)(ii); this fills
agap because an element of the works may be wrong despite the materials,
plantand workmanship being in accordance with the contract. Before this edition,
theEmployer would have had to base his rejection of badly designed work on
breacho f t h e r e s p o n s i b i l i t y g i v e n t o t h e C o n t r a c t o r f o r d e s i g n
under clause 8.2 (Siteoperations and methods
o f c o n s t r u c t i o n ) . S e e a l s o c l a u s e 7 . 2 ( P e r m a n e n t Works designed by
Contractor). The inclusion of work or materials in an interimc e r t i f i c a t e d o e s
not mean that those works and materials are in any
s e n s e approved. See clause 61.1 (Approva l only by Defects Liability
Certificate) andthe commentary
thereunder.3 9 . 2 T h e s a n c t i o n p r o v i d e d b y t h i s s u b c l a u s e i s f a r m o r e i m m e d i a t e a n d effective than the threat
of termination which is unlikely to be in the interests of either party. The
threat of the disruption and expense of alternative contractorse n t e r i n g t h e s i t e
and executing a part of the works would provide a very
r e a l incentive to the
Contractor.F o r o t h e r c l a u s e s i n v o l v i n g w o r k b y o t h
e r c o n t r a c t o r s , s e e c l a u s e 3 1 (Opportunities for other
contractors), clause 49.4 (Contractors failure to carry outinstructions) and clause
63.1 (Default of Contractor).If the work or materials had been paid for in
interim certificates, the Employer'sdeduction would amount to the entire
cost of the other contractor; if not paid for the deduction would be
limited to any additional cost to the Employer of having an alternative
contractor carry out the works.
CLAUSE 40 : Suspension of Works
If the Engineer so instructs, the Contractor is to suspend all or any part
of
thew o r k s a n d p r o p e r l y p r o t e c t a n d s e c u r e t h e w o r k s a s t
h e E n g i n e e r t h i n k s necessary for the duration of such
suspension. Unless the suspension is either provided for in the
contract, or is the Contractor's responsibility, or is necessary due to the
weather, the proper execution or safety of the works (for a reason notbeing the
Employer's responsibility), the Contractor will be reimbursed.The Engineer will
determine the extension of time and costs to be granted to theContractor.If a
suspension of all or any part of the works for which the Contractor is to
bec o m p e n s a t e d l a s t s f o r 1 2 w e e k s , t h e C o n t r a c t o r c a n g
i v e n o t i c e r e q u i r i n g permission to proceed within 4 weeks. If permission is
not given, the Contractor may give notice and treat the part of the works as omitted
or, where all the workswere suspended, terminate under clause 69.1 (Default of
Employer).There have been a number of changes of vocabulary and arrangement in
the 4thE d i t i o n b u t t h e p r i n c i p l e s o f t h e 3 r d E d i t i o n
remain intact. In particular, the

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provision for extension of time and additional cost has been put into a
separatesub-clause 40.2.40.1Other express provision for suspension
is found in these conditions only atclause 69.4 (Contractor's entitlement
to suspend work), whereby the Contractor i s e n t i t l e d t o s u s p e n d i f
he is not paid within 4 weeks after the due date for payment of
a certificate and after 4 weeks of giving notice to the
Employer.Clause 45.1 (Restriction on working hours) also
imposes restraints and
thec o n t r a c t m a y e x p r e s s l y p r o v i d e f o r p e r i o d s o f s u s p e n
s i o n d u r i n g r e l i g i o u s festivals, sod-cutting ceremonies etc."...default of
or breach of Contract by the Contractor". The draftsman of the 4thEdition
has added the words "or breach of contract" to the word "default" on
threeoccasions in this contract, the others being clause 44.1 (Extension
of time for completion) and clause 51.1 (Variations). On each occasion the words
relate tomisdemeanours by the Contractor: the same "belt and braces" approach has
notbeen thought necessary in relation to the Employer's failings. The rationale
maybe that as the term "default" has been used, albeit in the clause
titles only, inclause 63.1 (Default of Contractor) and clause 69.1
(Default of Employer), thedraftsman may have considered it necessary
to make clear that a default
in thisc o n t e x t d o e s n o t n e c e s s a r i l y n e e d t o b e a d e f a u l t
w h i c h w o u l d e n t i t l e t h e Employer to terminate."(c) necessary by reason
of climatic conditions on the Site". This contract
placest h e r i s k o f d e l a y s c a u s e d b y w e a t h e r u p o n t h e C o n t
r a c t o r u n l e s s h e c a n demonstrate that he has suffered "exce
p t i o n a l l y a d v e r s e c l i m a t i c c o n d i t i o n s " under clause 44.1 (Extension
of time for completion) item (c). If the climaticconditions that give rise to
the suspension can be shown to be "exception allyadverse", it is submitted
that the Contractor will still be entitled to an extension of time under clause 44.1 but
no reimbursement under clause 40.2. It would defeatt h e o b j e c t o f t h e
allocation of risk if an Engineer could keep the
Employer'sentitlement to liquidated damages alive by suspendi
ng the works whenever exceptionally
adverse climatic conditions occurred. See also clause
1 1 . 1 (Inspection of Site) and clause 12.2 (Adverse physical obstructions or
conditions)for other references to climatic conditions and clause 20.4 (Employer's
risks) for the phrase "any operation of the forces of nature"."(d) necessary for
the proper execution of the Works...". In circumstances werethe Employer is having
difficulty in funding the works, it is possible on the presentwording to see an
argument that where the suspension occurs in order to give t h e
Employer time to re -organise his funding and in circumstances
w h e r e a l l certificates have been and will continue to be paid, exception
(d) will apply and the Contractor will not be entitled to time and money. The
Employer would arguethat the suspension is necessary for the proper execution of
the works and doesn o t a r i s e f r o m a n y a c t o r d e f a u l t o n t h e
E m p l o y e r ' s p a r t . S u c h a n a r g u m e n t certainly runs counter to the
intention of the clause and should be defeated on
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the grounds that "proper execution" relates to conformity with the

contract andnot whether the contract can be executed at
all.S u s p e n s i o n m a y b e n e c e s s a r y " f o r t h e p r o p e r e x e c u t i o n
o f t h e w o r k s " i n circumstances where a Contractor is, through
p o o r o r g a n i s a t i o n , i n s u f f i c i e n t labour etc., failing to cope to the
detriment of the works. In those circumstances,t h e E n g i n e e r c o u l d p r o b a b l y
c a l l a h a l t t o t h e w o r k t o a l l o w a n d r e q u i r e t h e Contractor to put in
place a proper organisation and level of manpower before proceeding.The
risks defined in clause 20.4 (Employer's risks) range from war and hostilitiesthrough
loss or damage due to design, to "any operation of the forces of nature".If a
suspension was caused by, for example, the flooding of the works, such thatit fell
within clause 20.4(h) "any operation of the forces of nature", there could beconflict
with items (c) and (d) of this sub -clause. It is noteworthy that item
(c)refers to climatic conditions only "on the Site" so that if the flood occurred due
toheavy rainfall elsewhere, there would be no difficulty. This overlap
should it issubmitted be dealt with so that damage to the works resulting from such
an eventi s r e c o v e r a b l e b y t h e C o n t r a c t o r b u t c o s t s a n d t i m e
f l o w i n g f r o m a r e l a t e d suspension would not be
granted.T h e E n g i n e e r i s e n t i t l e d t o i n s t r u c t s u s p e n s i o n w h e
n e v e r h e c o n s i d e r s i t necessary. No guidance is given as to the
circumstances in which the power m a y b e e x e r c i s e d s o t h e q u e s t i o n i s
w h e t h e r t h e E n g i n e e r m a y u s e i t a t t h e Employer's request, for instance in
circumstances where the Employer is havingfunding difficulties. Clause 2.6 (Engineer
to act impartially) does not apply toinstructions although the ordering of a
suspension could certainly amount to thee x e r c i s e o f a d i s c r e t i o n " w h i c h
m a y a f f e c t t h e r i g h t s a n d o b l i g a t i o n s " o f t h e parties. Thus, it may well be
arguable that the Engineer is obliged to exercise hisright to order suspension
impartially. In circumstances where the Employer isasking the Engi neer to
order suspension to enable the Employer to overcomefunding difficulties, the
Engineer may well consider his power to grant time and money and the Contractor's
power under clause 40.3 to bring about the omissionof a suspended part or the
termination of the contract as a whole results in
nou n f a i r n e s s t o e i t h e r p a r t y w i t h t h e r e s u l t t h a t h e c o u l d i m p
a r t i a l l y a g r e e t o suspend at the Employer's request.4 0 . 2 T h i s s u b clause is new to the 4th Edition and is consistent with
t h e draftsman's policy of spelling ou t in some detail the Engineer's obligations
toconsult and determine time and money. The cost incurred by the Contractor
byr e a s o n o f t h e s u s p e n s i o n w o u l d n o d o u b t i n c l u d e t h e c o s t s o f
p r o t e c t i n g a n d securing the suspended works.4 0 . 3 I f i t e m s ( b ) t o ( d ) o f
clause 40.1 apply, the Employer's entitlement to have t h e w o r k
suspended is limited only by the Engineer's view of how long
t h e suspension is necessary. If the ground for suspension is the outbreak of war,
theE m p l o y e r m a y t e r m i n a t e t h e c o n t r a c t u n d e r c l a u s e 6 5 . 6 ( O u t b r e a k
of war).Similarly, if the cause of the suspension is a frustrating
event, clause 66.1
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(Release from performance) may apply, releasing both parties fr

o m f u r t h e r performance.If the suspension is due to the Employer's funding
difficulties, the Employer maygive notice under clause 69.1 (Default of Employer)
that "for unforeseen reasons,d u e t o e c o n o m i c d i s l o c a t i o n , i t i s
i m p o s s i b l e f o r h i m t o c o n t i n u e " . T h i s s u b - clause adds a new
ground for termination by the Contractor under clause 69.1:see the
commentary under that clause.The Contractor is given the option whether to
bring the suspension to a head or not and may be content with an extension of
time and reimbursement of his costsindefinitely. In some circumstances the
Employer, through the Engineer, will alsobe given a choice of whether to
suspend the work, thereby potentially giving theContractor a right to
terminate, or whether to grant the Contractor extensions of time as
necessary. For example, the Employer may find himself unabl e to
givepossession of part of the site to the Contractor. He could suspend all
or part of the works or simply allow the Engineer to grant extensions of
time pursuant toclause 42.2 (Failure to give possession). There may be
no difference in costspayable to the Contractor as the Contractor's ability to
demobilise any part of hisl a b o u r f o r c e o r e q u i p m e n t w o u l d d e p e n d i n
e i t h e r c a s e u p o n t h e E n g i n e e r ' s instructions and the parties' views as to
how long the delay would be likely to lasta n d h o w q u i c k l y
t h e C o n t r a c t o r w o u l d b e r e q u i r e d t o r e s u m e w o r k i n g . T h e Employer
could therefore prevent the Contractor having the option to terminate.CLAUSE 40.3
(Suspension lasting more than 84 days)" I f t h e p r o g r e s s o f t h e W o r k s o r
a n y p a r t t h e r e o f i s s u s p e n d e d o n t h e w r i t t e n instructions of the
Engineer
..."T h e w o r d i n i t a l i c s h a s b e e n r e m o v e d , n o d o u b t b
e c a u s e o f c l a u s e 2 . 5 (Instructions in writing) which states that
"instructions given by the Engineer
shallb e i n w r i t i n g " . U n f o r t u n a t e l y , t h e r e m a i n d e r o f c l a u s e
2 . 5 d e a l s w i t h o r a l instructions. The effect of the deletion therefore is to
permit an oral instruction
tos u s p e n d , p r o v i d e d i t i s f o l l o w e d b y c o n f i r m a t i o n o f t h e i
n s t r u c t i o n b y t h e Contractor to the Engineer. As this could lead to
the termination of the contract,the wisdom of the deletion is
questionable.Nevertheless, the deletion of the reference to writing removes
an anomaly assub-clause 40.1 (Suspension of work) has no express reference to
the instructionto suspend being in writing. However, this was not the last
reference to writteninstructions as clause 48.1 (Taking-Over Certificate) still refers
to "instructions inwriting" regarding outstanding defects. Either clause 2.5 needs to
be tightened upo r t h e c o n d i t i o n s s h o u l d s p e c i f y w h e r e i t i s
e s s e n t i a l t h a t a n i n s t r u c t i o n b e written.There are numerous other
references throughout the conditions to
delegations,r e q u e s t s a n d o t h e r c o m m u n i c a t i o n s b e i n g i n w r i
ting. See also clause 1.5
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(Notices, consents etc)

which requires notices, consents, approvals, certificatesand determinations
to be in writing.
CLAUSE 41 : Commencement of Works
This clause defines the start of the construction of the project. Once the
tender has been accepted, the Employer has a period, set out in the tender, to give
thego-ahead via a notice from the Engineer. When the Contractor has received
thenotice, time is running and the Contractor is obliged to start work and
proceed"with due expedition".T h i s c l a u s e i s d i f f e r e n t f r o m t h e 3 r d
Edition in that the Appendix to
Tender s p e c i f i e s t h e t i m e w i t h i n w h i c h t h e E n g i n e e r
m u s t g i v e a n o t i c e a n d t h e Contractor must start "as soon as is
reasonably possible" thereafter. Under the3rd Edition, the period named in the
appendix governed the Contractor's start onsite and there were no time limits for
the Engineer's order.The procedure for commencement of the construction
phase of the project is asfollows:( i ) T h e E m p l o y e r d e c i d e s h o w m u c h t i m e
h e n e e d s a f t e r c h o o s i n g a Contractor to do
everything necessary to enable the project to begin i.e.
securepossession of the site, obtain necessary planning and other
approval, organiseimport licences etc. The required time is inserted in the
Appendix to Tender.( i i ) T h e L e t t e r o f A c c e p t a n c e i s i s s u e d b y
the Employer to the Contractor.( i i i )W i t h i n t h e t i m e
period inserted in the Appendix to
T e n d e r t h e E n g i n e e r issues a notice to
commence.( i v ) R e c e i p t o f t h e n o t i c e b y t h e
C o n t r a c t o r i s t h e d a t e d e f i n e d a t c l a u s e 1.1(c)(i) as
the Commencement Date from which time runs.Upon receipt of the Engineer's
notice, the Contractor is obliged to commence theworks as soon as reasonably
possible. "Works" is defined narrowly and does nots e e m t o c o v e r
mobilisation. The Contractor should therefore be aware that
a client may be entitled to object to a programme involving a mobilisation
periodlonger than is strictly necessary. It is work on Permanent or
Temporary W orksthat is to be commenced as soon as reasonably
possible. As the definitions of Temporary W orks and Contractor's
Equipment are circular and unhelpful, it is u n c l e a r w h e t h e r , f o r
example, setting up site huts and compounds counts as"W orks".
This lack of clarity is particularly unfortunate in view of clause
63.1(Default of Contractor) item (b)(i) which makes a failure
w i t h o u t r e a s o n a b l e excuse to commence the works in accordance with
the current clause a groundfor termination.
Page 134 of 264

The clause also imposes upon the Contractor an obligation to proceed

with theworks "with due expedition and without delay". Breach of this
obligation is not aspecific ground for termination under clause 63.1,
unlike ICE 5th and 6th whichrefer to "failing to proceed... with due
diligence". The Employer would have to show a repudiation for clause 63.1
item (a), a failure to proceed for item (b)(ii) or persistent breach for item (d). It
could, however, form the basis of a claim by theEmployer for general damages if
some loss could be shown to flow from the slowp r o g r e s s . T h i s c l a i m i s ,
o f c o u r s e , q u i t e d i s t i n c t f r o m a c l a i m f o r d e l a y t o t h e completion
of the W orks as a whole for which liquidated damages represent
the( n o r m a l l y ) e x c l u s i v e r e m e d y . I f , f o r e x a m p l e , t h e E m p l o y e r
l o s t f u n d i n g a s a result of the poor progress and was obliged to
refinance part of the project at greater cost, he could have a claim. Poor
progress should result in a notice under c l a u s e 4 6 . 1 w h i c h t h e E n g i n e e r
i s o b l i g e d t o g i v e i f h e f o r m s t h e o p i n i o n t h a t progress is too
slow to complete on time. A failure to comply with such notice could lead
to termination under clause 63.1."Without delay" presumably means without
delay other than a delay for which
ane x t e n s i o n o f t i m e i s a v a i l a b l e u n d e r c l a u s e 4 4 . 1
( E x t e n s i o n o f t i m e f o r completion). These words seems to add little
to "with due expedition".T h e f o r m o f t h e n o t i c e t o b e i s s u e d b y t h e
E n g i n e e r i s n o t s p e c i f i e d a l t h o u g h clause 68.1 (Notices) requires it to
be in writing. If the notice to commence is notgiven within the time set out in the
Appendix to Tender, the contract is silent. TheEmployer would be in breach and
the parties would have to negotiate a variationo f t h e c o n t r a c t . A n y c l a i m
b y t h e C o n t r a c t o r w o u l d b e s u b j e c t t o h i s d u t y t o mitigate his
loss.The Commencement Date defined by this clause is relevant under
clause 20.1(Care of works), clause 25.1 (Evidence and terms of insurances)
and clause 43.1(Time for Completion).
CLAUSE 42 : Handing over possession
Unless the contract contains specific provisions, the Employer is to
hand over possession of as much of the site and the agreed means of access
as necessaryt o e n a b l e t h e C o n t r a c t o r t o p r o c e e d w i t h h i s
p r o g r a m m e o r p r o p o s a l s f o r t h e project.If the Contractor is delayed
or incurs costs due to a failure by the Employer togive necessary
possession, the Engineer is to grant an extension of time and costs.The
Contractor is to pay for any special wayleaves or additional facilities requiredoffsite.T h i s c l a u s e i s e s s e n t i a l l y t h e s a m e a s t h e 3 r d
E d i t i o n w i t h c h a n g e s t o t h e vocabulary consistent with the
policy of the 4th Edition. Item (d) of sub-clause
Page 135 of 264

42.1 is however new. In sub-clause 42.3, the term "facilities" has been
used inplace of "accommodation" although the latter term has been
retained in clause11.1 (Inspection of Site) at item (d).4 2 . 1 I n t h e U K , a t
least, the common law would imply a term that if you
e n t e r into a contract whereby the Contractor is to carry out certain work, the
Employer will provide him with the site on which that work is to be
executed. It would beunsafe to assume that all jurisdictions make the same
implication.W ith civil engineering projects, particularly roads, it is quite
unnecessary for theContractor to be given possession of the entirety of the
site, some parts of whichm i g h t n o t b e t o u c h e d f o r a y e a r o r
m o r e . T h u s , i f t h e c o n t r a c t i s s i l e n t , t h e Employer's obligation is
simply to feed the Contractor with sufficient of the site toenable him to pursue
his intended sequence of operations, whether set out in a clause 14
programme or set out in written proposals.An Employer who is unable to
provide any part of the site at short notice would b e u n w i s e n o t
to deal with the matter in the contract. Under clause
1 4 . 1 (Programme to be submitted), the programme is to be submitted
after the letter o f a c c e p t a n c e a n d t h i s m a y n o t g i v e t h e
E m p l o y e r a g r e a t d e a l o f t i m e . T h e reference to "the programme
referred to in clause 14, if any," is ambiguous asclause 14.1 refers to
a programme to be submitted for the Engineer's consent. This clause
should make it clear that it is the programme as consented to that
willg o v e r n t h e E m p l o y e r ' s o b l i g a t i o n a n d n o t a n y p r o g r a
m m e n o m a t t e r h o w unrealistic which the Contractor may choose to
submit, possibly as a foundationf o r a c l a i m . A s t h e r e f e r e n c e i s t o
clause 14 as a whole rather than just sub clause 14.1, it is submitted that the draftsman's presumed int
e n t i o n s h o u l d prevail. It may be considered relevant to a
consideration of what is reasonablethat t he Contractor has an
obligation under clause 11.1 (Inspection of site) to have obtained all
necessary information in connection with the site.As for the alternative
"reasonable proposals" no time is given for these proposalsand indeed it is not
clear that the right to submit reasonable proposals ends at the
commencement of the job. A Contractor seeking to generate a claim and
ane x t e n s i o n o f t i m e c o u l d p r o p o s e t o c o m m e n c e w o r k s o n a
p o r t i o n o f t h e s i t e which he knew to be unavailable to the
Employer. The question would then bewhat amounts to "reasonable". It
is to be presumed that "reasonable" will be judged primarily in terms of the
logical progression of the Works. If two areas of the site were equally logical but
the Contractor deliberately chose the unavailableportion, the Engineer, and
probably an arbitrator, would conclude that this
wasunreasonable.Clause 14.2 (Revised programme) provides for the
revision of the programmea n d t h e r e c a n b e l i t t l e d o u b t t h a t t h e
E m p l o y e r ' s o b l i g a t i o n t o p r o v i d e f u r t h e r portions of the site will be
revised accordingly.
Page 136 of 264

The definition of "Site" at clause 1.1(f)(vii) is new to the 4th Edition and is plainlyone
that has caused draftsmen of civil engineering contracts difficulty. On
itsown, the first half of the definition - "the places provided by the Employer
wherethe W orks are to be executed" - would defeat the current clause as
portions notp r o v i d e d w o u l d n o t b e p a r t o f
t h e S i t e . T h e e s s e n c e o f t h e d e f i n i t i o n i s presumably the second
half, "any other places as may be specifically designatedin the contract as forming
part of the Site". It is assumed that the purpose of thefirst half is in case either the
contract does not define the Site with precision or if additional land is found to
be necessary during the course of the Works. See alsothe commentary
under clause 1.1(f)(vii). The Canadian Federal Court of Appealdecided in
Queen v W alter Cabott Construction (1975) 69DLR(3d) 542 that
theE m p l o y e r ' s u n d e r l y i n g o b l i g a t i o n t o p r o v i d e t h e s i t e m e a n t
m o r e t h a n s i m p l y providing the actual site upon which the structure was to stand
but also sufficientworking space. In that case the Employer was held to be
in breach when he letan adjacent contract which interfered with the Contractor's
working space.This clause is silent as to the duration of the possession to which the
Contractor i s e n t i t l e d . U n d e r c l a u s e 4 8 . 2 ( T a k i n g - o v e r o f s e c t i o n s
or parts), provision ismade for the occupation or use of parts of
t h e w o r k s b y t h e E m p l o y e r i n t h e absence of provision in the contract and,
indeed in the absence of agreement byt h e C o n t r a c t o r . C l a u s e 4 8 . 2 i s
p r e s u m a b l y p r o v i d i n g a r e m e d y f o r a p o s s i b l e breach of contract,
although normally a Contractor will welcome the opportunityt o p a s s
responsibility for a section of the site to the Employer and t o
b e n e f i t under clause 47.1 (Liquidated damages) from the early hand over. If a
bonusc l a u s e i s a v a i l a b l e , a n a d d i t i o n a l i n c e n t i v e w i l l b e p
r o v i d e d . I f t h e u s e o r occupation causes delay to the progress of
the works, the Contractor may
bee n t i t l e d t o a n e x t e n s i o n o f t i m e u n d e r c l a u s e 4 4 . 1 ( E x t
ension of time for completion) under item (d) "any delay,
i m p e d i m e n t , o r p r e v e n t i o n b y t h e Employer".For a comment on the
effective re-taking of possession by the Employer's use of other Contractors, see
under clause 31.1 (Opportunities for other
contractors).4 2 . 2 F o r t h e C o n t r a c t o r t o b e e n t i t l e d t o
a n e x t e n s i o n u n d e r c l a u s e 4 4 . 1 (Extension of time for
completion), he must first have given notice of the
delayp u r s u a n t t o c l a u s e 4 4 . 2 ( C o n t r a c t o r t o p r o v i d e n o t i f i
c a t i o n a n d d e t a i l e d particulars). This at least is the likely construction of the
contract although it is byno means beyond argument that the entitlement referred to
is as set out in clause44.1 and that the obligation upon the Engineer to
determine an extension is not s u b j e c t t o c l a u s e 4 4 . 2 . I n t h e a b s e n c e
o f a r i g h t t o a n e x t e n s i o n o f t i m e , t h e English courts would treat a
failure to give possession on time as being fatal tothe Employer's
entitlement to liquidated damages: see for example the Court of Appeal in
Rapid Building v Ealing Family Housing (1984) 29 BLR 5.Similarly, it is unclear
whether the Contractor's entitlement to costs under sub -clause 42.2 item
(b) is subject to the procedure for claims set out in clause 53 (Procedure for
claims). A Contractor would be unwise to assume that notificationis not required.

Page 137 of 264"Consultation": this requirement for consultation is new to

the 4th Edition andadds an element of natural justice to the Engineer's
deliberations. It is subject toclause 2.6 (Engineer to act impa rtially) and
the Engineer must make up his ownmind
impartially.A c u r i o u s f e a t u r e o f t h e d r a f t i n g o f t h i s c l a u s
e i s t h a t t h e f a i l u r e t o g i v e possession for which extension of
time and costs may be granted is a failure to give possession in accordance
with the clause 14 programme or the Contractor'sr e a s o n a b l e p r o p o s a l s a n d
d o e s n o t d e a l w i t h a f a i l u r e t o g r a n t p o s s e s s i o n a s specifically
prescribed by the contract. This is because this sub-clause refers
to"failure on the part of the Employer to give possession in accordance
with theterms of sub-clause 42.1" which only imposes an obligation to
give possessionwhere the contract is otherwise silent. This point is
unlikely to be significant
ast h e c l a u s e 1 4 p r o g r a m m e w i l l n o d o u b t t a k e a n y p
r e s c r i b e d p o s s e s s i o n sequence into account. The Contractor will
be entitled to an extension of time under clause 44.1(d) "any delay, impediment
or prevention by the Employer" andwill be entitled to his costs as damages for
breach of contract. Damages would,however, be less satisfactory to the
Contractor as the Engineer would not be entitled to determine such damages
and include them in certificates. It would bein the interests of both parties to
resolve this discrepancy.4 2 . 3 I t a p p e a r s t h a t t h e p e r m a n e n t a c c e s s t o
t h e s i t e i s t o b e p r o v i d e d b y t h e Employer only if the contract so
provides. Otherwise, clause 11.1 (Inspection of S i t e ) r e q u i r e s t h e
C o n t r a c t o r t o h a v e m a d e d u e a l l o w a n c e i n h i s t e n d e r f o r access.
Any temporary rights of way or special permissions are to be obtained byt h e
Contractor. In practice, the distinction between permanent
a c c e s s a n d temporary rights of way will often be far from clear. Short of
making one partyresponsible for all such matters, there is little that can be done in
the contract toresolve the potential uncertainty.If special or temporary wayleaves or
additional facilities are only required in order to enable the Contractor to
execute a variation instructed by the Engineer, theContractor should be
reimbursed for costs incurred which he could not
possiblyh a v e a l l o w e d f o r . T h e d r a f t s m a n h a s n o t c o n s i d e r e
d t h i s s i t u a t i o n a n d a Contractor must rely on the words "required by him"
to argue that variations andthe associated wayleaves etc are required by the
Employer. Alternatively, theContractor must bear the costs and se ek to
recover the outlay in the rates fixed under clause 52 (Valuation of
variations).CLAUSE 42.3 (Rights of way and facilities)The Contractor shall bear all
costs and charges for "special or temporary rights of w a y r e q u i r e d b y h i m i n
c o n n e c t i o n w i t h t h e a c c e s s t o t h e S i t e s . " T h e w o r d "wayleaves"
has been removed from the clause and its title. It is presumed thatt h e
reason for the change was to do away with a somewhat
o b s c u r e t e r m . English property lawyers might seek to argue
h o w e v e r t h a t r i g h t o f w a y i s a narrower concept than wayleave but the
difference is unlikely to be significant inpractice.
Page 138 of 264

CLAUSE 43 : Completion of work on time

This clause provides the basic obligation upon the Contractor to
complete theworks on time. He must substantially complete the whole of the works
within thegiven period subject to any extensions granted. If the project has been
divided upinto Sections, then he must complete each Section within the
specified period,again subject to any extensions.T h e w o r d i n g o f t h i s
clause is materially different from the 3rd Edition but
t h e principle has been retained. If it is preferred to express this clause in
terms of dates rather than periods, Part II provides alternative wording.The
obligation upon the Contractor is not, in reality, to complete by the specifieddate or
any current extended date but to complete on or before the date
finallysettled upon as the extended date. Clause 44 (Extension of time for
completion)envisages a delay of at least 8 weeks (28 days for the
Contractor's notice; 28days for the detailed claim) before the Engineer begins his
own investigation andthat must be followed by consultation before a determination is
made. There willt h e r e f o r e v e r y o f t e n b e a p e r i o d o f
u n c e r t a i n t y a s t o t h e d a t e b y w h i c h t h e Contractor must
complete. If the delay is a continuing one, clause 44.3
(Interimd e t e r m i n a t i o n o f e x t e n s i o n ) a p p l i e s a n d t h e u n c e r t
a i n t y w i l l b e e v e n m o r e prolonged. For the position on the
deduction of liquidated damages during
thisp e r i o d , s e e c l a u s e 4 7 . 1 ( L i q u i d a t e d d a m a g e s ) . F o r a c
o m m e n t o n i m p l i e d acceleration orders see clause 46.1 (Rate of
progress)." . . . a n y S e c t i o n r e q u i r e d t o b e c o m p l e t e d . . . " . T h i s c l a u s e
s h o u l d b e r e a d w i t h clause 20 (Care of Works),clause 44, clause 47 and clause
48.2 (Taking-over of Sections or parts) to follow through the principal provisions
dealing with Sections,a new defined term in this edition.As the Time for Completion
is defined at clause 1.1 (c)(ii) in terms that are similar but not identical to those
contained in this clause, it is perhaps surprising that thisclause does not simply
oblige the Contractor to complete the works by the Timefor Completion. In
any event and in view of the clause title, it would be sensible toensure that this
clause and the definition accurately reflect one another.
CLAUSE 44 : Extension of Time
This clause provides the mechanism for extension of time to be
granted. If theContractor is fairly entitled to an extension, the Engineer must grant
one, havingfirst consulted with the parties. The qualifying grounds are as follows:-extra work-other grounds "referred to in these Conditions"-exceptionally bad
weather

Page 139 of 264

-Employers' delays-special circumstancesThe Contractor is to give notice of

the delay within four weeks and is to submit detailed particulars four
weeks later.I f t h e d e l a y i n g e v e n t i s c o n t i n u o u s , p r o v i s i o n i s
made for interim and finalparticulars and the determinati
o n o f i n t e r i m a n d , a f t e r c o n s u l t a t i o n , f i n a l extensions. The final
extension may not reduce the interim extensions granted.Clause 44 contains
some major changes as compared with the 3rd Edition. Inp a r t i c u l a r
item (d) of sub-clause 44.1 is new as is the two -stage
n o t i f i c a t i o n process in sub-clause 44.2. Sub-clause 44.3 is entirely
new.44.1" ( a ) T h e a m o u n t o f o r n a t u r e o f e x t r a
o r a d d i t i o n a l w o r k . " C l a u s e 5 1 (Variations) permits the Engineer to
order:-- increased work- decreased work- omissions- changes to the
character/quality of the work,its position, its sequence- additional workAlthough
the word "extra" is not used elsewhere in this context in the contract,
itmay be that "extra or additional" reflects the distinction between the
increase inquantities at clause 51.1(a) and the addition of new work at
clause 51.1(e). Onthis assumption, this ground for extension of time
covers the first and last itemsin the above list only. A decrease in
quantities or an omission could have timeconsequences and it is obvious
that any one of the changes listed could cause delay to the works. Unless one
treats a change as an omission and an addition,which is artificial, changes are not
obviously covered and one may have to resortto trying to push them into (b)
"any cause of delay referred to", (d) "any delay, impediment or prevention by
the Employer" or (e) "other special circumstances".For an alternative
interpretation of the word "extra", see the discussion under clause 51.2
(Instructions for variations) in relation to the granting of extensions of time for
"automatic" changes in quantities.In the UK, at least, if a change was ordered by the
Engineer which caused delayb u t f o r w h i c h t h e e x t e n s i o n o f t i m e
c l a u s e m a d e n o p r o v i s i o n , i t w o u l d b e arguable that time was
at large and the Employer's ability to recover
liquidatedd a m a g e w a s l o s t . S e e o n t i m e a t l a r g e P e a k
C o n s t r u c t i o n v M c K i n n e y Foundations (1970) 1 BLR 114.

Page 140 of 264

For comment on the Contractor's right to extensions of time in relation to

workw h i c h i s t h e s u b j e c t o f p r o v i s i o n a l s u m s , s e e u n d e r c l
a u s e 5 8 . 2 ( U s e o f Provisional Sums)."(b) any cause of delay referred
to in these Conditions". This wording, which isshared with ICE 5th and
ICE 6th, is not without ambiguity. Does it only refer toclauses where there is
express reference to delay, extensions of time and clause44 or could it also refer to
clauses which deal with events which would frequentlycause delay but have no
express reference to extensions of time, such as clause1 7 . 1 ( S e t t i n g - o u t ) o r
c l a u s e 2 0 . 3 ( L o s s o r d a m a g e d u e t o E m p l o y e r ' s r i s k s ) ? Express
references to clause 44 can be found in the following clauses:-- clause 6.4 (Delays
and cost of delay of drawings)- clause 12.2 (Adverse physical obstructions or
conditions)- clause 27 (Fossils)- clause 36.5 (Engineer's determination where tests
not provided for)- clause 40.2 (Engineer's determination following suspension)clause 42.2 (Failure to give possession)- clause 69.4 (Contractor's entitlement to
suspension of works).Express reference to the word "delay" is to be found only in
clauses 6.4, 27, 42.2and 69.4, all of which are in the above list.It may also be
possible to argue for a construction of these words as
meaninganything referred to in the conditions which causes delay. However, as
such aninterpretation would probably include the Contractor's delays, success
is unlikely." ( c ) e x c e p t i o n a l l y a d v e r s e c l i m a t i c c o n d i t i o n s . " T h
e i n t e n t i o n i s t h a t t h e Contractor should allow for all the usual vagaries of
the weather. The use of theterm "climatic" as opposed to the more usual
"weather" may have a broadeningeffect on this ground for extension. For
example, a flood which does not resultf r o m e x c e p t i o n a l l y h e a v y
r a i n f a l l i n t h e a r e a o f t h e s i t e m i g h t b e c o v e r e d b y "climatic" but not
by "weather".Comparing "exceptionally adverse" with "exceptional adverse" as used
in the 3rdE d i t i o n a n d I C E 5 t h a n d I C E 6 t h , o n e s e e s a s u b t l e b u t
important change of emphasis. Under those forms, the weather
h a s t o b e b o t h e x c e p t i o n a l a n d adverse. In these conditions, the
weather need not be unusual, it must only beexceptionally adverse. This
raises the possibility that it could be conditions onsite that ma ke the
weather exceptionally adverse rather than anything unusualabout the
weather. Equally, if the weather was very unusual but did not
causeexceptional difficulty, an extension could legitimately be declined.This item
should be read with clause 11.1 (Ins pection of Site) which
requirestenderers to take note of the "hydrological and climatic
conditions", clause 12.2(Adverse physical obstructions or conditions) which
excludes climatic
conditionsf r o m t h e e f f e c t o f t h e c l a u s e , c l a u s e 2 0 . 4 ( E m p l o y
e r ' s r i s k s ) i t e m ( h ) " a n y operation of the forces of nature" and clause 40.1
(Suspension of work).

Page 141 of 264

(d) "any delay, impediment or prevention by the Employer". In the UK at

least,there needs to be clear words that allow an extension to be granted for a
breachof contract by the Employer. See, for example, Peak Construction v
McKinneyF o u n d a t i o n s ( 1 9 7 0 ) 1 B L R 1 1 4 . I t s e e m s l i k e
l y t h a t t h e w o r d s u s e d a r e sufficiently clear to cover s
u c h b r e a c h e s a l t h o u g h t h e a b s e n c e o f e x p r e s s reference to
breach invites an argument to the contrary. It is submitted that
asd e l a y s , i m p e d i m e n t s a n d p r e v e n t i o n s a r e c l e a r e x a m p l e
s o f b r e a c h , i f n o t authorised in the conditions by provisions such as
clause 38.2 (Uncovering andmaking openings) or clause 51.1
(Variations), the quoted words are sufficientlyclear to cover breach.Delays
by the Engineer should also be covered by the words, at least
in respectof those actions of the Engineer which are performed as agent for the
Employer.However, the contrary is arguable: there is no referenc e to
"servants or agents"either here or in the definition of the Employer at
clause 1.1(a)(i). Agents are r e f e r r e d t o i n c l a u s e 2 2 . 2 ( E x c e p t i o n s )
and clause 24.1 (Accident or injury toworkmen) so, it would be
argued, the draftsman has used the term where
hei n t e n d e d i t t o a p p l y . T h e f a c t t h a t a g e n t s a r e n o t m e n t i
o n e d h e r e i s t h u s deliberate. Further, the Engineer's defaults
h a v e b e e n c o v e r e d e l s e w h e r e i n clauses such as clause 6.4 (Delays
and cost of delay of drawings) and clause17.1 (Setting -out). It is
submitted that this argument, which is unlikely to haveimpact outside
common law jurisdictions, is essentially unmeritorious
however s u s t a i n a b l e b y t h e r i g o r o u s a p p l i c a t i o n o f t h e c a n o n s o f
t h e c o n s t r u c t i o n o f contracts. The intentions of the parties are clear:
time should not be set at largedue to some failure of the Employer or his
team when an extension of time isperfectly capable of
doing justice between the parties. Arbitrators are unlikely tofrustrate this purpose
on such narrow grounds.There is no provision under this contract for extensions of
time due to delay bysubcontractors nominated by the Employer. This is in
contrast to some Englishforms which balance the Employer's right to choose a
subcontractor by placingpart of the risk of that subcontractor's d efault upon the
Employer. A Contractor m i g h t n e v e r t h e l e s s b e e n t i t l e d t o a n e x t e n s i o n
of time if the selection of
thed e f a u l t i n g s u b c o n t r a c t o r w a s s u f f i c i e n t l y n e g l i g e n t a s t o
a m o u n t t o d e l a y , impediment or prevention by the Employer. It must be
noted however that theC o n t r a c t o r i s g i v e n t h e r i g h t t o r a i s e r e a s o n a b l e
o b j e c t i o n u n d e r c l a u s e 5 9 . 2 (Nominated Subcontractor; objection to
nomination). If the Contractor failed to raise an objection, he may have no grounds for
extension.(e) "other special circumstances which may occur other than through a fault of
or breach of contract by the Contractor or for which he is responsible".
"Special" inthe Concise Oxford Dictionary means "of a particular kind, peculiar, not
general;exceptional in amount, degree, intensity etc ". Thus, it is clearly not a
catch-allclause as merely routine delays would seem to fall outside these words. There
ishowever little authority on the meaning of these words leaving the Engineer andarbitrator
with virtually unfettered discretion.
Page 142 of 264

It is not immediately obvious why this item alone has been qualified by referenceto
the Contractor's default. It must apply equally to items (a) and (b). The
word"fairly" would seem to achieve the necessary result. The inclusion of the
specifice x c e p t i o n c o u l d i n d e e d h a v e t h e e f f e c t o f u n d e r m i n i n g t h e
interpretation of " f a i r l y " : w h y , i t w o u l d b e a r g u e d , w o u l d t
h e d r a f t s m a n h a v e i n c l u d e d t h e exception in item (e) if "fairly" is
intended to mean the same?"Fairly to entitle ..." This sub-clause is phrased
in such a way as to define theContractor's entitlement to an extension of
time and then make it mandatory for the Engineer to determine and grant
the Contractor his entitlement. Comparethis with ICE 5th where the
Engineer is obliged only to "make an assessment of the extension of time (if
any) to which he considers the contractor
entitled." Inp r a c t i c e , t h e d i f f e r e n c e m a y n o t b e s i g n i f i c a n t b u t t
h e d i s t i n c t i o n c o u l d b e sufficient to encourage an argument that
t h e E n g i n e e r i s o b l i g e d t o g r a n t t h e Contractor's fair entitlement. Thus it could
be said that the Employer's obligationin relation to certification is to procure that the
Engineer certified fairly. Thiswould be going considerably further than the
obligation recognised by English law at present, which only places an obligation upon
the Employer to ensure thatthe Engineer makes the determination and that he is
free to do so fairly under clause 2.6 (Engineer to act impartially). For further discussion
on the Employer'sduty, see under sub-clauses 2.1 (Engineer's duties and authority) and
2.6.T h e r e i s n o e x p r e s s o b l i g a t i o n u p o n t h e C o n t r a c t o r i n t h i s c l a u s e
to take allreasonable steps to mitigate the effect of delays, such as
would be found
inm a n y E n g l i s h s t a n d a r d f o r m s . T h e r e i s a n o b l i g
a t i o n i n c l a u s e 4 1 . 1 (Commencement of W orks) to proceed "with
due expedition and without delay"but, it is submitted, it is the phrase "such as
fairly to entitle" which ensures that the Contractor will not receive extensions of time for
reasonably avoidable delay."Any Section or part thereof ...". A section is defined
as a portion of the Worksspecifically identified in the contract as a Section. A part is
therefore a part of theW o r k s w h i c h i s n o t s o i d e n t i f i e d . U n d e r c l a u s e 4 7 . 2
( R e d u c t i o n o f l i q u i d a t e d damages), provision is made for the reduction of
liquidated damages where a p a r t o f t h e w o r k s h a s b e e n t a k e n e a r l i e r
t h a n t h e w h o l e o f t h e w o r k s o r t h e section of the works of which it
forms part. However, it is not necessary for thatpart to be the subject of a separate award of
extension of time. The effect could,however, be to allow the Engineer to grant an
extension of time to a
narrowlyd e f i n e d p a r t o f t h e s i t e a n d t h e r e b y i n c r e a s e t h e C o n t
r a c t o r ' s l i a b i l i t y f o r liquidated
damages." . . . a f t e r d u e c o n s u l t a t i o n w i t h t h e E m p l o y e r a n d t h e C
o n t r a c t o r " . T h i s requirement upon the Engineer to consult with the
Employer and Contractor isnew to these conditions. Indeed, in sub-clause
44.3, the requirement to consult was only added with the Editorial Amendments made
in 1988. The objective is toadd an element of natural justice to the decision -making
process and to ensure t h a n E n g i n e e r s d o n o t s p e a k e x c l u s i v e l y t o t h e i r
paymasters prior to
makingi m p o r t a n t d e c i s i o n s . C o n s u l t a t i o n i s n o t i n t e n d e d t o a l
t e r i n a n y w a y t h e Engineer's obligation to make an independent decision and
clause 2.6 (Engineer
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to act impartially) is intended to override. Presumably, a determination of the

sortp r o v i d e d f o r i n t h i s c l a u s e w o u l d b e c o v e r e d b y c l a u s e 2 . 6
( E n g i n e e r t o a c t impartially) item (d) "action which may affect the rights",
although determinationsother than of value are not expressly referred to.The timing
of the grant of the extension is not catered for in the clause which onlysays it must
be after consultation with the parties. Clause 1.5 (Notices, consentse t c . ) h a s
removed the need to imply a term: the determination
m a y n o t b e unreasonably withheld or delayed. It is submitted that this imposes a
duty on theEmployer to ensure that his Engineer performs: see the
English case of LondonB o r o u g h o f M e r t o n v L e a c h ( 1 9 8 5 ) 3 2
B L R 5 1 . A s t o w h e t h e r a f a i l u r e t o determine could ever
c a u s e t h e e x t e n s i o n o f t i m e m a c h i n e r y t o b r e a k d o w n , leaving time
and damages "at large".Concurrent delays: a perennial problem in relation to
extension of time provisionsis how to deal with circumstances where two
causes of delay overlap. There isno problem if the two causes of delay
are the responsibility of the same partywith the same financial
consequences but there is difficulty if the overlapping delays fall into two of
the following categories:( i ) d e l a y s o n l y t h e r e s p o n s i b i l i t y o f
t h e C o n t r a c t o r : n o e x t e n s i o n o f t i m e o r reimbursement of
costs, liquidated damages deducted;( i i ) n e u t r a l d e l a y s , w h e r e t h e
Contractor receives extension of time but
n o reimbursement of costs; and( i i i ) d e l a y s
wholly the responsibility of the Employer
w h e r e t h e C o n t r a c t o r receives extensions of time and reimbursement
of costs.This problem. which has been the subject of much comment and debate,
has notbeen addressed, let alone resolved by the current clause. There is
consensus, inthe UK at least and in the absence of conclusive authority,
that if overlappingd e l a y s f a l l i n t o c a t e g o r i e s ( i i ) a n d ( i i i ) a b o v e
i . e . a n e u t r a l d e l a y s u c h a s t h e weather and a delay which is wholly
the responsibility of the Employer such
asl a t e p o s s e s s i o n o f t h e s i t e , t h e n t h e s e d e l a y s s
hould be treated as theresponsibilit y of the Em
ployer and t he Contractor should receive hisr
eimbursement. It is the combination of categories (i) and (ii) and
categories (i)and (iii) that cause the greatest dif ficulty. These questions
will be addressed in broad principle first followed by an examination of the
contract conditions:-Overlap between (i) and (ii): Contractor's default and neutral
delay.I f i t i s a c c e p t e d t h a t t h e E m p l o y e r ' s r e s p o n s i b i l i t y s h o u l d
p r e d o m i n a t e o v e r a neutral delay, it may well be arguable that the Contractor's
default should likewisep r e d o m i n a t e o v e r s u c h n e u t r a l d e l a y s . T o t a k e
an example: if the
Contractor c l a i m s t h a t b a d w e a t h e r p r e v e n t e d h i m f r o m c
o m p l e t i n g c e r t a i n c o n c r e t e foundations, the Employer's response might
be that the Contractor was not readyt o p r o c e e d i n a n y e v e n t d u e t o t h e
failure of the Contractor's reinforcement
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subcontractor to have the necessary reinforcement on s

i t e a n d r e a d y f o r installation. The Cont ractor says that he could
not have finished earlier than hedid because of the intervention of the
weather. The Employer replies that theweather did not cause him to be
delayed as the subcontractor's default wouldhave prevented earlier
execution of the foun dations in any event. At this
point,t h e p a r t i e s w o u l d p r o b a b l y i m m e r s e t h e m s e l v e s i n c
omplex critical pathexercises in order to attempt to dem
o n s t r a t e t h a t o n e o f t h e d e l a y s w a s "dominant" or "effective". If the
bad weather lasted a day beyond the time that thesubcontractor was able to start or
if the subcontractor had not delivered the steelto the relevant part of the works
for a day after the weather permitted work tostart, one party would then
claim that the other delaying event was irrelevant. Inreality, of course, both
events prevented the works from proceeding although oneof the events might have
been solely responsible for some part of the delay.As there is no question of
the Contractor being compensated, the sole questionis whether
the Employer should receive liquidated damages to compensate himf o r
the late receipt of the project. The Employer had accepted the
r i s k i n t h e contract that if exceptionally bad weather should occur then he would
receive
nos u c h c o m p e n s a t i o n . T h e r e c e i p t o f l i q u i d a t e d d a m a g e s w o u l d t h e r
e f o r e b e something of a windfall for the Employer. The Contractor, on the other hand,
willhave to pay for his own prolongation costs in any event. On broad
principles of fairness, it is therefore submitted that the Contractor should receive an
extensionof time relieving him of liability f or liquidated damages. W hilst this
produces theresult that the Contractor "gets away with" his subcontractor's
def ault, he hasnevertheless incurred irrecoverable prolongation costs.
Better, in short, that thelosses should lie where they fall than that the
Contractor should be penalised twice, by liquidated damages as well as by
prolongation costs.-Overlap between (i) and (iii): Contractor's default and Employer's
Default.The problem is at its most acute when the Empl oyer and the Contractor
havec a u s e d c o n c u r r e n t d e l a y s . T o a d a p t t h e e a r l i e r e x a m p l e
, t h e C o n t r a c t o r complains that the Engineer has not provided him with
necessary details anddrawings to execute the foundations;
the Employer replies that the Contractor'ssteelwork subcontractor has not supplied
the necessary reinforcement to the siteor otherwise prepared himself to execute the
works. The Contractor argues for e x t e n s i o n o f t i m e a n d r e i m b u r s e m e n t
o f c o s t s a n d t h e E m p l o y e r i s s e e k i n g liquidated damages. In these
circumstances, it is submitted that the just result issimilar to that set out above. The
Contractor should receive an extension of timerelieving him from liquidated damages
but should not receive reimbursement of c o s t s f o r p r o l o n g a t i o n w h i c h
w o u l d h a v e b e e n e x p e r i e n c e d i n a n y e v e n t . T h e Employer should not
be compensated for his inability to take possession of the project on time when,
due to his Engineer's default, such possession would not inany event have been
possible.T h e q u e s t i o n t h e n a r i s e s w h e t h e r t h e c o n d i t i o n s s t e e
r t h e E n g i n e e r o r a n arbitrator to particular conclusions or whether the
conditions leave the Engineer o r a r b i t r a t o r f r e e t o a t t e m p t t o d o j u s t i c e
on a case by case basis. Under the
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current sub-clause, the governing criterion is that the event is "such as

fairly toentitle the Contractor to an extension". The formula used
elsewhere in clausessuch as clause 6.4 (Delays and cost of delay of
drawings), clause 27 (Fossils)and clause 42.2 (Failure to give
possession) is "if the Cont ractor suffers delayand/or incurs costs from
failure on the part of the Employer..." or "by reason of"the failure or
instructions. As far as time is concerned, these clauses invariably refer to the
"extension of time to which the Contractor is entitled under clause 44"thereby invoking
the Engineer's or arbitrator's opinion as to f airness. As to thecosts, the
Contractor has an entitlement and the Engineer has an obligation to determine if
costs have been incurred from or by reason of the event. Therefore,the Engineer is not being
asked to consider fairness but merely to confine himself to causation. Thus, in the second
example given above where late drawings
anda d e f a u l t i n g s u b c o n t r a c t o r c o i n c i d e d , t h e p r i n c i p a l c o s t s
i n c u r r e d b y t h e Contractor would be prolongation costs. The
Engineer would have to decidewhether those costs were incurred
" b y r e a s o n o f " t h e l a t e d r a w i n g s . T h e j u s t result, it has been submitted, is for
the Contractor to receive an extension of timebut no money in this situation. On the
wording of t he clauses granting time and costs, it is difficult to see that the Engineer
is empowered to grant an extension of time without granting the consequential prolongation
costs. It may be possible for h i m t o r e f u s e e x t e n s i o n o f t i m e w h i l e g r a n t i n g
c o s t s b e c a u s e o f t h e f a i r n e s s qualif ication under clause 44 which applies
only to time but it seems he cannot g r a n t t i m e a l o n e . O n c e t h e E n g i n e e r
h a s d e c i d e d t h a t t h e e v e n t h a s c a u s e d delay and thus cost, he is obliged
to determine the costs even though he may stilla p p l y t h e f a i r n e s s t e s t t o
t h e e x t e n s i o n o f t i m e . S o i n t h e c a s e o f t h e l a t e drawings and
subcontractor's default example, the Engineer would be obliged tomake an all-or-nothing
decision: either the "failure or inability of the Engineer"
top r o v i d e t h e d r a w i n g s c a u s e d t h e d e l a y a n d c o s t s o r
it did not. In thosecircumstances, the Engineer is,
r e g r e t t a b l y , n o t e n t i t l e d t o p r o d u c e a n intermediate, possibly
more just, result.W ith clauses such as clause 17 (Setting out) and clause 38.2
(Uncovering and making openings) where cost but not extension of time is provided for,
the resultis effectively the same. If, for example, certain foundations were
delayed either by amendments due to incorrect setting out data or by an
instruction to reopenproperly executed work, at the same time as the Contractor's
subcontractor wasin default or not ready to proceed with the next activity, the question again
arisesa s t o w h e t h e r t h e E n g i n e e r i s f r e e t o a w a r d a n
e x t e n s i o n o f t i m e b u t n o t prolongation costs. In either case, an extension of
time is available under clause44. As to costs, both clauses oblige the Engineer to
determine the Contractor's costs, by express reference to clause 52 (Valuation of
Variations) in the case of c l a u s e 1 7 . I t i s s u b m i t t e d t h a t t h i s f r a m e w o r k
does not allow the Engineer tog r a n t a n e x t e n s i o n o f t i m e a n d
d e t e r m i n e t h e a c t u a l c o s t o f e x e c u t i n g t h e additional work but to
stop short of determining the consequential prolongationcosts. This is
unf ortunate as the Engineer must decide between unsatisf actory alternatives.If
the Engineer refuses an extension of time, the payment of liquidated damagesis automatic
under clause 47.1 (Liquidated damages f or delay) and there is no

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further exercise of discretion by the Engineer as

i s t o b e f o u n d i n s o m e conditions. Of course, the Employer is at liberty
to waive damages.In summary, these conditions oblige Engineers and arbitrators to
choose which of the defaulting parties to reward and which to penalise. The middle
road, by whichit is submitted a more just result may be achieved, seems
to be closed to them. A s c o n c u r r e n t d e l a y s a r e a c o m m o n
o c c u r e n c e a n d a s t h e l a c k o f p r o v i s i o n exposes both parties to
considerable risk, express terms addressing the problemare highly to be
recommended.In the United States, the courts have been striving for what has been
submitted isthe just result. Where the responsibility for delay is concurrent, each
party is leftto absorb its own loss and an extension of time alone would be granted.
See, for e x a m p l e , C o m m e r c e I n t e r n a t i o n a l C o m p a n y v U n i t e d
S t a t e s 3 3 8 F 2 d 8 1 , 9 0 (1964) and United States v United Engineering and
Construction Co. 234 US 236(1913). "The rule is well settled that where
both parties are responsible for thedelay and completion of the contract
and it is impossible to ascertain the truebalance by setting off one
against the other, no... damages can be assessed":Sun Ship Building
Co. v United States 76 Ct. Cl.154, 188 (1932). "W here twoparties are
delayed in the accomplishment of the construction objective,
neither party should be allowed to profit from the delays of the other": Blackhawk
Heating& Plumbing GSBCA No. 2432, 17-1 BCA 76-1 BCA No. 11, 649 at
55,577.4 4 . 2 T h i s c l a u s e r a i s e s t h e q u e s t i o n
w h e t h e r a f a i l u r e t o g i v e t h e r e q u i s i t e notice would be fatal to
a Contractor's application for extension of time. Theclause says that the
Engineer "is not bound to make any determination" so it is still open for
him to do so if he so wishes. How the Engineer should exercise hisd i s c r e t i o n i n
these circumstances is debatable. Clause 2.6 (Engineer to
a c t impartially) presumably applies so the Engineer has to act impartially to
reconcilet h e c o n f l i c t i n g i n t e r e s t s o f E m p l o y e r a n d C o n t r a c t o r . I f h
e s h o u l d g r a n t t h e extension if deserved, the notice procedure is
rendered redundant. If not, thepreservation of the Engineer's power
might be thought pointless. It is submittedt h a t t h e E n g i n e e r s h o u l d
e x e r c i s e h i s d i s c r e t i o n i n t h e m a n n e r s u g g e s t e d b y clause 53
(Procedure for claims), namely to allow extensions which are verifiedon
contemporary records but disallo w very late claims of which his team
had noknowledge and which the Contractor seeks to support by new or
oral
evidenceo n l y . I n s h o r t , t h e E n g i n e e r s h o u l d h a v e r e g a r d t
o t h e p u r p o s e o f n o t i c e provisions, namely to avoid surprises and
"claims-by-ambush", and should notallow valid claims to be ruled out on
technicalities.If the delay was caused by the Employer, or the Engineer on his behalf,
a refusalof an extension of time on the grounds of lack of notice raises
the issue of theEmployer benefitting in liquidat ed damages from his own
breach. The answer may be that it is the Contractor's breach of the notice
provision from which he isbenefitting and not his own. If so, the damages bear no
relationship to the gravityof the Contractor's, perhaps immaterial, default and may be
vulnerable to attackas a penalty. It may also be possible to ask an arbitrator to grant
an extension of
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time by reviewing the Engineer's decision not to exercise his discretion under
thisclause.U n d e r I C E 5 t h , a n E n g i n e e r m a y e x t e n d " i f h e t h i n k s f i t
i n t h e a b s e n c e o f a n y such claim". A similar discretion exists under ICE 6th.It
is unclear exactly when the Contractor's time for notifying the Engineer beginsto
run. The first notice must be given "within 28 days after such event h as
firsta r i s e n " . " S u c h e v e n t " a p p e a r s t o b e o n e o f t h e l i s t e d
m a t t e r s " b e i n g s u c h a s fairly to entitle the Contractor to an extension
of time". Thus in a case whereadditional work was ordered, then designed,
supplied and installed over a periodof time, it may only be realised during the
installation period that delay wouldresult. In such circumstances, it is
not at all easy to identify the beginning of the 28-day period.There is no
specified form for the notice to be given by the Contractor and it maybe sufficient to
point to correspondence or other documentation provided that theformalities of
sub-clause 44.2(a) and clause 68 (Notices) have been complied with. As
to the details to be provided, it would have been clearer to say "detailedparticulars
in support of any extension of time" as the present wording indicatesonly
details of the extension of time required."In order that such submission may
be investigated at the time". The statementof the purpose of the sub clause may well allow arbitrators to make common -sense decisions as to
whether to treat the clause as a condition precedent to anextension of time. If
the Engineer has been taken by surprise at the end of a project by a claim
for an extension of time and his ability to investigate the claimis undermined, the
arbitrator could rightly rely upon the condition precedent."Such other reasonable time
as may be agreed by the Engineer". This
agreementn e e d n o t t a k e p l a c e b e f o r e o r d u r i n g t h
e 2 8 - d a y p e r i o d b u t c o u l d b e retrospective.The
application of this notice requirement to other clauses giving
an entitlementto extension of time is a difficult question. For example,
clause 27.1 (Fossils)provides for extension of time "under Clause 44" but also
requires the Contractor to acquaint the Engineer immediately. Is the
present sub-clause redundant or does it replace or supplement the
terms of clause 27? It is submitted that this clause is best interpreted as
imposing a time limit where no other limit applies.4 4 . 3 " W h e r e a n e v e n t
has a continuing effect". This does not mean that
t h e event has to be continuous. If an event, which may itself be
shortlived, causesk n o c k - o n c o n s e q u e n c e s t h a t c o n t i n u e o v e r a
p e r i o d o f t i m e , i t i s o f t e n v e r y difficult to assess those
consequences until the job is complete. A critical delay w i l l h a v e a
continuous effect in the sense that all dependant activities will
b e delayed. This is not intended to be covered. In any event, it may be
"practicable"for the Contractor to submit particulars of such an event within four
weeks.

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It is doubtful whether it is practical to require a Contractor to

provide
interimp a r t i c u l a r s e v e r y f o u r w e e k s a n d f o r t h e E n g
i n e e r t o m a k e a n i n t e r i m determination on each occas
ion. The subc l a u s e m i g h t b e n e f i t f r o m t h e Engineer and the Contractor b
e i n g g i v e n t h e a b i l i t y t o a g r e e a n a l t e r n a t i v e period.The ability to
review determinations of extensions of time under this clause islimited
to continuing events in respect of which interim extensions have
beengranted. Therefore, the prohibition on decreasing extensions of time is limited
tosuch continuing events. Strictly speaking, an Engineer may only
reconsider adetermination under sub -clause 44.1 if he is asked for a
decision under clause67.1 (Engineer's decision). In reality, of course,
engineers tend to be
cautiousa n d c o n s e r v a t i v e i n g r a n t i n g e x t e n s i o n s a n d c o n t r a c t o r s
w i l l e n d e a v o u r t o persuade them to increase an extension of time
granted. Such an increase, it issubmitted, is technically beyond the power of an
Engineer except under this sub-clause or clause 67.1. A decrease in extensions of
time may always be
achievedb y t h e E m p l o y e r s e e k i n g t h e E n g i n e e r ' s d e c i s i o n
o n t h e g r o u n d s t h a t a n excessive extension of time has been granted.It
is submitted that the prohibition in the final sentence of the sub -clause
upondecreases in extension of time does not bind either the Engineer when making
adecision under clause 67.1 or an arbitrator under clause 67.3
(Arbitration). Theprohibition applies only to the final review.
CLAUSE 45 : Working Hours
The Contractor is not entitled to work at night, at weekends or
b a n k h o l i d a y s unless the contract or the Engineer allows him to do so
or in an emergency of which the Contractor immediately informs the
Engineer or where it is customaryto carry out the work 24 hours per day.This
clause is not fundamentally changed from the 3rd Edition.W h e r e t h e
circumstances of the project are such that day and night
workingand/or working seven days a week is desired, Part II
p r o v i d e s a n a l t e r n a t i v e clause.In order to work extra hours, the Engineer's
consent may be obtained under thisc l a u s e o r , a f t e r a n o t i c e t o
a c c e l e r a t e , u n d e r c l a u s e 4 6 . 1 ( R a t e o f p r o g r e s s ) . Alternatively,
the Contractor must demonstrate a danger to life or property or,less
dramatically, that it is customary to execute the work day and night. It
isarguable that this clause is altogether unnecessary as any restrictions on
workinghours seem invariably to be included in the contract details.This clause
should be read with clause 19.1 (Safety, security and protection of the
environment) which requires the Contractor to "take all reasonable steps... to
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avoid nuisance to persons... resulting from pollution, noise or

o t h e r c a u s e s arising as a consequence of his methods of
operation"."...unavoidable or absolutely necessary for the saving of life...". If
"unavoidable" isnot qualified by "for the saving...", the clause gives more latitude
than at first
sighta p p e a r s . F o r e x a m p l e , t h e n e e d t o p o u r c o n c r e t e c o n
t i n u o u s l y c o u l d b e unavoidable and thus entitle the Contractor to work after
hours.Under clause 46 of the 2nd Edition, an inability to work extra hours gave rise
to ac l a i m o n t h e p a r t o f t h e C o n t r a c t o r f o r a n e x t e n s i o n o f t i m e .
T h i s s o m e w h a t extraordinary means of rewarding a defaulting
Contractor has, sensibly, been discarded.
CLAUSE 46 : Rate of Progress
Clause 46 enables an Engineer to require a Contractor
w h o i s i n d e l a y f o r reasons which are the Contractor's
responsibility, to accelerate to complete ontime. The Contractor may be
allowed to work day and night. The Employer isentitled to recover any extra
supervision costs which result.The principal change to this clause as compared with
the 3rd Edition is the abilityo f t h e E m p l o y e r t o r e c o v e r a n y a d d i t i o n a l
s u p e r v i s i o n c o s t s c a u s e d b y t h e acceleration. Otherwise the alterations
are mainly of vocabulary.Clause 46 is problematic. Its intent is to remove
from a Contractor in culpable delay the choice of whether to accelerate or
whether to incur liquidated
damages.S o m e t i m e s t h e l a t t e r c o u r s e m a y b e c h e a p e r d u e
t o t h e i n e f f i c i e n c i e s o f acceleration.The difficulty is that there will often
be a dispute as to whether the cause of delayfalls within clause 44.1 (Extension of
time for completion) ; further there will
oftenb e o t h e r c l a i m s f o r e x t e n s i o n o f t i m e i n t h e p r
o c e s s o f n o t i f i c a t i o n a n d consideration, which proces
s is likely to be at least 10 weeks long. If
theEngineer is only entitled to use the clause when he
h a s c o n s i d e r e d a n d determined all extensions of time claimed, its
use could be severely restricted. The Contractor could effectively prevent its
use by a regular stream of extensionof time notices.If the Contractor disagrees with
the rejection of an application for an extension
of t i m e , h e c o u l d r e f u s e t o a c t u p o n t h e E n g i n e e r ' s n o t i f i
c a t i o n a n d s e e k t o persuade the Engineer or arbitrator that the
delay fell within clause 44. If theContractor acts upon the notification and
subsequently proves that the delay fellwithin clause 44, the Employer may
argue that the Contractor should not have complied.Wherever the Contractor
has accelerated in order to overcome delays for whichhe is not responsible, he will
seek to recover from the Employer the costs of the

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acceleration. These costs will often substantially exceed the

costs
of thep r o l o n g a t i o n o f t h e c o n t r a c t w h i c h w o u l d o t h e r w i s e
h a v e r e s u l t e d . T h e acceleration will often have been brought
about by a notice under this clause, a refusal to grant an extension of time or
both. As a failure to comply with a noticeunder clause 46.1 is a ground for the
termination of the contract under clause 63.1 (Default of Contractor),
Contractors are likely to comply first and argue later.When the entitlement to an
extension of time has been established, the Employer may deny the validity of the
Engineer's notice. The Contractor's options are thene i t h e r t o s e e k t o
recover his acceleration costs as damages for breach
o f contract by the Employer (by reason of the wrong notification by the Engineer)
or else to argue for an implied agreement to accelerate. For comment on the
former argument, see under clause 2.1 (Engineer's duties and authority).It is
important to appreciate that there is no power given to the Engineer
under t h e c o n t r a c t t o o r d e r a c c e l e r a t i o n a t t h e E m p l o y e r ' s e x p e
n s e . C l a u s e 5 1 . 1 (Variations) item (f) includes a power in the Engineer to
instruct the Contractor to" c h a n g e a n y s p e c i f i e d s e q u e n c e o r t i m i n g o f
c o n s t r u c t i o n o f a n y p a r t o f t h e W orks" but, even if "sequence and
timing" could be interpreted as included the Contractor's rate of progress, the
word "specified" must refer to a sequence andtiming as specified by the contract. It is
submitted that a programme consented tounder clause 14.1 (Programme to be
submitted) does not amount to a specifiedsequence, particularly in the light of
clause 14.4 (Contractor not relieved of dutiesand responsibilities).It should also be
appreciated that an Engineer, as agent of the Employer, will notnecessarily have
the Employer's authority to order such an
acceleration. Somec i r c u m s t a n c e , p e r h a p s o n l y t h e c o p y i n g o f r e l e v a n
t c o r r e s p o n d e n c e t o t h e Employer, is needed to demonstrate the necessary
authority or ratification for theEngineer's actions.I t i s t h e r e f o r e n e c e s s a r y f o r a
C o n t r a c t o r t o d e m o n s t r a t e a v a r i a t i o n o f t h e contract as distinct from a
variation pursuant to the contract. He must show thatthe Employer and Contractor have
agreed that the Contractor should accelerateand that the Employer would pay him so
to do. One must therefore find words or conduct on the part of the Employer or the
Engineer on his behalf amounting toan offer to vary the contract and thereby
to pay f or the acceleration. The actualacceleration by the Contractor would
be sufficient acceptance to produce thebinding variation. Alternatively, in UK
and certain other jurisdictions, it may bes u f f i c i e n t t o s h o w a r e q u e s t t o
a c c e l e r a t e , a n a c c e l e r a t i o n i n t h e p r o g r e s s o f works and some benef it
f lowing to the Employer in order to establish a quantumm e r u i t ,
a right to a reasonable payment for the work performed. A
t h i r d alternative and perhaps even further restricted in the
j u r i s d i c t i o n s i n w h i c h i t would apply would be conduct on the part of the
Employer which the Employer i n t e n d e d t h e C o n t r a c t o r t o r e l y u p o n a n d
which was relied upon such that
itw o u l d b e i n e q u i t a b l e f o r t h e E m p l o y e r t o d e n y a n y o b l i g a t
i o n t o p a y t h e Contractor.

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Thus, where the Engineer has required the Contractor by purported notice
under c l a u s e 4 6 t o a c c e l e r a t e a n d / o r h a s r e f u s e d h i m a n
e x t e n s i o n , a n d p e r h a p s reminding him of his duty to complete by the time for
completion, the Contractor m a y r e s p o n d t h a t h e i s e n t i t l e d t o a n
extension and that there are no
delaysw h i c h a r e h i s r e s p o n s i b i l i t y . I f t h e E n g i n e e r i n s i s t
s , t h e C o n t r a c t o r m a y accelerate warning the Engineer of his
intention to claim additional payment in d u e c o u r s e . T h i s ,
not atypical, scenario will present
a n a r b i t r a t o r w i t h s o m e difficulties. An argument that a mere refusal of an
extension of time, which turnsout to have been incorrect, amounts to an implied
acceleration request is unlikelyto succeed. An arbitrator may well decide, however,
that where acceleration hasbeen insisted upon in the face of the
Contractor's denial of responsibility, theContractor could not
realistically have refused to comply given the possibility
of termination. The Employer has benefitted by early possession (and would in
anyevent have been compensated for any lateness by liquidated
damages) and theContractor has incurred significant additional costs. In
such circumstances, an award in favour of the Contractor is unlikely to do grave
injustice.T h e a b i l i t y o f t h e E n g i n e e r t o r e f u s e c o n s e n t t o t h e
C o n t r a c t o r ' s p r o p o s e d acceleration measures could give rise to problems. If
the Contractor had
alreadyi m p l e m e n t e d m e a s u r e s w h e n t h e E n g i n e e r i s s
u e d h i s n o t i c e a n d t h o s e measures were then rejected by the
Engineer, the Contractor is left exposed
tol i q u i d a t e d d a m a g e s a n d m u s t u n d o t h e c u r r e n t m
e a s u r e s a n d p r o p o s e alternatives. A dispute would then be
inevitable. This right to interfere with theContractor's methods is
contrary to the policy of the contract as expressed
inc l a u s e 8 . 2 ( S i t e o p e r a t i o n s a n d m e t h o d s o f c o n s t r u c t i
o n ) a n d c l a u s e 1 4 . 1 (Programme to be submitted) which leave method
strictly to
the Contractor.T h i s c l a u s e s h o u l d b e r e a d w i t h a n d c o m
p a r e d t o c l a u s e 1 4 . 2 ( R e v i s e d programme). There, if
actual progress and the approved programme do
notc o n f o r m , t h e E n g i n e e r m a y r e q u e s t t h e C o n t r a c t o r t o p r o
d u c e a r e v i s e d programme showing completion on time. Normally,
a r e q u e s t f o r a r e v i s e d programme would accompany a notice under the current
clause.Given the diff iculties of this clause, it is perhaps unf ortunate th at the
Engineer, h a v i n g f o r m e d t h e o p i n i o n t h a t t h e C o n t r a c t o r i s i n d e l a y ,
i s o b l i g e d t o n o t i f y under this clause. Employers would be well advised to
approach this means of spurring apparently slow contractors with considerable
caution.For cases on acceleration, see Morrison-Knudsen v British Columbia Hydro
andPower (1978) 85 DLR (3d) 186 and the decision of the English Court of Appeal inLester
Williams v Roffey Brothers (1989) 48 BLR 69.
CLAUSE 47 : Liquidated Damages
If the Contractor fails to complete the whole or any specified
S e c t i o n o f t h e Works by the due date, the Employer may deduct or recover from the
Contractor the daily amount specified in the contract up to a given maximum amount.
Page 152 of 264

If the works are handed over on a piecemeal basis, the amount

o f l i q u i d a t e d damages is reduced proportionately.I f a p p r o p r i a t e , a b o n u s
c l a u s e m a y b e a d d e d f o r e a r l y c o m p l e t i o n , o f w h i c h examples are
given in Part II.This clause has been substantially altered from the 3rd Edition. Not
least by
thei n c l u s i o n o f r e f e r e n c e t o a m a x i m u m a m o u n t o f l i q u i d
a t e d d a m a g e s t o b e specified in the Appendix.4 7 . 1 I n v i e w o f t h e
international nature of the contract conditions, it has
n o doubt surprised many people that the concept of liquidated damages
has beenretained in the 4th Edition. There are now relatively few jurisdictions in
which thec o n c e p t o f a p e n a l t y b e i n g a n u n e n f o r c e a b l e t e r m
survives. Even in those jurisdictions which retain the venerable
d o c t r i n e , t h e u s e o f t h e t e r m p e n a l t y would have been acceptable. The
House of Lords in Dunlop Tyre v. New Garage(1915) AC 1979 accepted that the
name given was not conclusive.T h e l i m i t s p e c i f i e d i n t h e a p p e n d i x
would, in the U.K. and other
jurisdictionsmaintaining the penalty doctrine, provide an argum
e n t t h a t t h e p r e s c r i b e d damages were not a genuine pre estimate. See the comment on clause 47.2below. The limit is not
expressly optional but leaving the relevant section of the appendix blank
would doubtless remove the limit. In the U.K. at least, the use of the term "nil" in the
appendix either in respect of the daily rate or the overall limit,could result in
no recovery for delay: see Temloc Ltd v. Errill Properties Ltd (1987)39 BLR 30.T h e
changes
made from the 3rd Edition do not assist the working of t
h e liquidated damages provision. It is not clear why the simplicity of the 3rd
Editiono r I C E 5 t h h a s n o t b e e n p u r s u e d . T h e e s s e n c e o f
a n e f f e c t i v e l i q u i d a t e d damages clause is one with a very
s i m p l e t r i g g e r m e c h a n i s m . T w o s i m p l e questions should be
asked: Has the date for completion passed? If so, is thework complete? If
not, then liquidated damages are deductible. Here, the trigger is complicated
with reference to "Time for Completion", clause 48 (TakingOver Certificate) and clause 43 (Time for Completion). The reference to
failure "tocomply with the Time for Completion" is unfortunate as the "Time for
Completion"does not impose any obligation with which to comply. Clause
43 is relegated tothe source of the "time prescribed" whereas it is in
clause 43 that one finds the obligation to complete by any given time. The
position is worsened by a conflictb e t w e e n t h e d e f i n i t i o n o f T i m e f o r
C o m p l e t i o n w h i c h r e f e r s t o " t h e t i m e . . . a s extended under clause 44"
whereas clause 43 refers to "the time stated...or suchextended time as may be
allowed under claus e 44". In short, one refers to astate of affairs
existing at any given time whereas the other includes any
futureextensions that may be allowed by the Engineer or even an
arbitrator. Thus, inthe typical situation where a Contractor is in delay but disputes
that it is his faulta n d w h e r e a p p l i c a t i o n s f o r e x t e n s i o n o f t i m e h a v e
been submitted, it may be
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arguable that there is no entitlement to deduct. The Employer would argue

thatw h e n t h e c o n t r a c t i s r e a d a s a w h o l e , t h e r i g h t t o d e d u c t i s
c l e a r e n o u g h t o succeed. Nevertheless, to be sure of the matter, an
Employer would be well advised to clarify this clause.Further, as the amount that
may be deducted is def ined as the number of
daysb e t w e e n t h e t i m e f o r c o m p l e t i o n " a n d t h e d a t e s t
a t e d i n a T a k i n g - O v e r Certificate", it must be arguable that
n o d e d u c t i o n m a y b e m a d e u n t i l a f t e r substantial completion has been
certif ied. Indeed, the Time for Completion is v a r i a b l e u n t i l t h e l a s t
e x t e n s i o n o f t i m e h a s b e e n a w a r d e d . F u r t h e r , t h e Employer
is permitted to deduct "the amount of such damages": this
p h r a s e suggests that the total amount of the damages needs to have been
establishedb e f o r e d e d u c t i o n m a y t a k e p l a c e . A n E m p l o y e r w o u l d
c o u n t e r t h a t t h e f i n a l sentence refers to the Contractor's obligation to
complete the W orks which, hewould say, demonstrates the intention that
deduction should take place bef ore completion. The Contractor would be obliged to
answer that the Works includest h e D e f e c t s L i a b i l i t y P e r i o d : s e e
c l a u s e 4 9 . 1 ( D e f e c t s L i a b i l i t y P e r i o d ) . I t i s submitted that the construction
contended for by the Contractor, although plainlynot intended by the draftsman is
sustainable. It would be a brave Contractor, however, that suspended or terminated
under clause 69 (Default of Employer) ont h e s t r e n g t h o f d e d u c t i o n o f
l i q u i d a t e d d a m a g e s a n d a r o b u s t a r b i t r a t o r w h o upheld the Contractor's
decision."(which sum shall be the only monies due from the Contractor for such

default)".T h i s s t a t e m e n t t h a t l i q u i d a t e d d a m a g e s r e p r e s e n t s a n e
xclusive remedy isprobably unnecessa ry in English law but is a
welcome clarification in other jurisdictions where this is far
f r o m c l e a r . A n E m p l o y e r w i s h i n g t o m o u n t a n argument for
recovery for delay beyond the liquidated damages will be assistedby the
words "monies due from the Contractor " and by the final sentence
whichs a y s t h a t t h e " d a m a g e s s h a l l n o t r e l i e v e t h e C o n t r a c t o r . . . f
r o m a n y o t h e r o f his...liabilities under the contract". One problem that could
result is a conflict withclause 63.3 (Payment after termination) in the event
that the delay leads to the termination of the contract either by clause 63.1 item
(a) repudiation, item (b)(ii)non-compliance with a notice under clause 46.1
(Rate of Progress) or item (d)persistent breach of contract. A Contractor whose
contract is terminated after thecontractual completion date, would argue that the
Employer's recovery is limitedto liquidated damages and seek to avoid the
costs of the execution, completion and remedying of any defects etc provided
for under clause 63.3. This argumentmight turn on the actual ground for termination
and the precise meaning of "suchdefault" in clause
47.1.I n t h i s c o n t r a c t , t h e d e d u c t i o n o f l i q u i d a t e d d a m a g e
s i s l e f t s t r i c t l y t o t h e Employer. In clauses 60.2, 60.8 and
60.10, the Engineer's sometimes widepowers to deduct from
t h e f a c e o f t h e c e r t i f i c a t e a r e c a r e f u l l y r e s t r a i n e d i n relation to
liquidated damages.The Employer is entitled to deduct liquidated damages
"from any monies due or t o b e c o m e d u e t o
the Contractor". There is no express limitation to sums

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becoming due under this contract. Thus the Contractor has arguably
agreed toallow the deduction to take place from sums due under, for
example, another contract with the same Employer.Bonus clauses such as
the one suggested by Part II can give rise to difficulties.For example, as the
calculation of the bonus will normally be based on the periodof time
between substantial completion and the contractual completion date
ase x t e n d e d , t h e C o n t r a c t o r m a y r e q u i r e t h e E n g i n e e r t o c o n s i d e
r a n d a w a r d extensions of time which may be entirely theoretical because the
Contractor
hasi n f a c t c o m p l e t e d e a r l y . T h e w o r d i n g o f c l a u s e 4 4 . 1 ( E
x t e n s i o n o f t i m e f o r completion) does not prevent the Engineer
from granting such an extension ast h e t e s t i s w h e t h e r a n e v e n t i s
" s u c h a s f a i r l y t o e n t i t l e t h e C o n t r a c t o r t o a n extension". Difficulty
arises when the Contractor puts forward an acceleratedprogramme in
order to obtain his bonus and then seeks to claim extensions of time
when the Engineer, the Employer and others fail to match the
programme.This problem was considered in the case of Glenlion v. Guiness Trust (1987)
39BLR 1989, when the Official Referee decided that whilst the Contractor was
atliberty to put forward a programme which achieved early completion, he could notthereby
impose obligations upon the designer to require the design to be ready earlier
than would have been necessary to complete on time. This is the positionin English law at
present but it must be questionable whether it will be followed elsewhere,
particularly where a bonus clause has been inserted into the contractprecisely in order to
encourage the Contractor to achieve the earliest possiblecompletion date. If
the Contractor's programme had been consented to by
theE n g i n e e r u n d e r c l a u s e 1 4 . 1 ( P r o g r a m m e t o b e s u b m i
t t e d ) , i t w o u l d b e extraordinary if the Engineer could then argue under clause 6.4
(Delays and costof delay on drawings) that "a time reasonable in all the circumstances"
should be j u d g e d n o t b y r e f e r e n c e t o t h e a p p r o v e d p r o g r a m m e
b u t b y r e f e r e n c e t o a programme that would achieve completion on time.In the
civil law countries referred to under clause 5.1 (Languages and law), the English
concern about liquidated damages does not exist. However, under
somea d m i n i s t r a t i v e c o n t r a c t s , t h e A d m i n i s t r a t i o n m a y h a v e a d d i t i o n a l
p o w e r s t o impose penalties; this clause may be adapted to make it plain that the
deductionsm a d e a r e p e n a l t i e s a n d t h e r e b y t h e A d m i n i s t r a t i o n m
a y b e l i m i t e d t o t h e specified amount. W ith private law contracts, a
Contractor is sometimes free toargue before the courts that the damages
deducted exceed the Employer's lossin order to obtain a refund. For a brief
overview of administrative law based on the French model, see clause
5.1.T h e l i m i t t o l i q u i d a t e d d a m a g e s p r e s c r i b e d i n t h e A p p e n d i
x w i l l a d d t o t h e arguments of a Contractor seeking to demonstrate
that the provision representsa penalty. They will argue, pursuant to Dunlop
Tyre v. New Garage (1915) AC 1 9 7 9 t h a t a s t h e s a m e a m o u n t o f
damages could be recoverable whether asubstantial proportion of
t h e w o r k s h a d b e e n h a n d e d o v e r o n t i m e o r n o t , t h e provision cannot
represent a genuine pre-estimate of loss as the losses would bev e r y d i f f e r e n t i n
the two cases. It is submitted that an arbitrator should
b e reluctant to overturn the liquidated damages provision on this ground as
parties
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should be at liberty to prescribe limits to the damages recoverable.

Of course, if the provision was overturned the question would then arise
as to the damagesr e c o v e r a b l e a t c o m m o n l a w . W o u l d t h e y b e
u n l i m i t e d o r w o u l d t h e d a i l y a n d overall figures be imposed as limits
to general damages? In the absence of abreach of contract by the
Employer (which would give rise to the argument that t h e E m p l o y e r
should not benefit from his own breach), it is very difficult
t o support any such limitation. Thus, an Employer wishing to escape from the
limitso n l i q u i d a t e d d a m a g e s i n t h e A p p e n d i x , c o u l d b e f o u n
d a r g u i n g t h a t t h e liquidated damages scheme amounts to a penalty
clause.Two Hong Kong cases in which a minimum amount of liquid ated
damages wasprescribed are Arnhold & Co. v Attorney -General of Hong
Kong (1989) 47 BLR129 and Philips (Hong Kong) v Attorney -General of
Hong Kong (1990) 50 BLR122. In both cases, the liquidated damages
provision, which also had a slidingscale proportio nate to the value of
the works taken over, was held to be void for u n c e r t a i n t y . S e e a l s o
the English decision in Bramall and Ogden referred
t o above.English courts will generally interpret a liquidated damages clause strictly
againstthe Employer seeking to rely upon it. However, if, on the one hand, the
Employer is endeavouring to avoid the clause in order to claim his actual damages
or if, onthe other hand, the Contractor is advancing the clause as a
limitation upon hisliability, the courts' approach might well
change.4 7 . 2 C l a u s e s s u c h a s t h i s h a v e c a u s e d d i f f i c u l t y i n
t h e p a s t b e c a u s e o f t h e difficulty of ascertaining the value of
t h e p a r t h a n d e d o v e r : s e e f o r e x a m p l e Bramall and Ogden v Sheffield
City Council (1983) 29 BLR 73. One solution thathas been adopted is for the
certifier to specify the value of the part taken over,which specified value
is deemed to be the value for the purposes of the clause.Such arguments
are unlikely to make much impact in jurisdictions without the sensitivity of
the English courts to penalties.Under clause 60.3(a), the Engineer is given the power
to determine the relevantproportion of work handed over in relation to the
release of retention monies. Asimilar provision here would have reduced
the scope for dispute as to the value of the part.For a comment on
extensions of time for "part of the W orks" see Clause 44.1 (Extension of
time for completion).
CLAUSE 48 : Taking over / Substantial Completion
This clause provides for the Engineer to issue a certifica
t e o f s u b s t a n t i a l completion, known as a Taking-Over Certificate. The
Contractor notifies theE n g i n e e r w h e n h e b e l i e v e s t h e w o r k t o b e
c o m p l e t e a n d t h e E n g i n e e r e i t h e r agrees and so certifies or specifies the
works necessary to be completed before

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substantial completion. In the latter case, the Contractor receives his certificatewithin
21 days of completing the listed work.Taking-Over Certificates may be issued in
respect of specified Sections or partsof the Works, which are either complete
or are incomplete but have b een takenover by the Employer.The Engineer is
given a discretion to issue an early Taking -over certificate inrespect of
completed but unoccupied parts.Early Taking-Over Certificates do not cover
ground or surfaces which require reinstatement unless the Certificate expressly
says so.A l t h o u g h t h e c h a n g e s t o t h i s c l a u s e f o r t h e 4 t h E d i t i o n
a r e m a i n l y m a t t e r s o f vocabulary, item (c) of sub -clause 48.2 is
entirely new. The obligation in subclause 48.3 to complete outstanding work "with due expe
d i t i o n " i s a l s o a n innovation.4 8 . 1 F o r g u i d a n c e o n t h e m e a n i n g o f
" s u b s t a n t i a l l y c o m p l e t e d " a n d " p r a c t i c a l l y completed", see Hoenig v
Isaacs (1952) 2 All ER 176. Substantial completion isg e n e r a l l y t a k e n t o
refer to a sufficient degree of completion to enable
theE m p l o y e r t o t a k e b e n e f i c i a l u s e o f t h e w o r k s c o n
c e r n e d . " S u b s t a n t i a l completion" or "completion pursuant to
Clause 48" must be kept distinct fromcompletion of "the Works" or of "the
Contract". Clause 62.1 (Defects LiabilityCertificate) makes it clear that
"the Contract" will only be considered complete when a Defects Liability
Certificate has been issued by the Engineer. The title
of c l a u s e 3 3 . 1 ( C l e a r a n c e o f S i t e o n c o m p l e t i o n ) a n d t h e t
e r m " S t a t e m e n t a t Completion" in clause 60.5 do not maintain the
distinction. There is, however,little scope for confusion.In contracts where
the Contractor is given the task of designing any part of the Works, clause
7.2 (Permanent Works designed by Contractor) adds an additionalrequirement
to those set out in the current clause before substantial completionis
certified, namely, to submit and have approved by the Engineer operation
andmaintenance manuals and as-built drawings.I n t h e o r y , t h e C o n t r a c t o r i s
o n l y e n t i t l e d t o n o t i f y t h e E n g i n e e r o f s u b s t a n t i a l completion once
the works have achieved such completion. Thus, an Engineer may
decline to produce a list of outstanding works. In practice however,
theC o n t r a c t o r w i l l w a n t t o k n o w w h e r e h e s t a n d s i n r
e l a t i o n t o s u b s t a n t i a l completion; but if the Contractor gives
notice too early, the Engineer ma y wellrefuse to act.The somewhat
complex provisions concerning defects are no doubt intended toensure
that the Engineer's list is considered definitive and may only be added toin respect of
new problems that emerge. Otherwise, the Contractor is entitled toh i s c e r t i f i c a t e
once the listed works have been completed. A Contractor is at

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liberty to argue, when an Engineer seeks to add a defect to the list of work to
bed o n e p r i o r t o s u b s t a n t i a l c o m p l e t i o n , t h a t t h e d e f e c t " a p p e a r
e d " b e f o r e t h e Engineer's list and thus may not now be added to the work to be
completed prior to issue of the certificate.I n t h e p e n u l t i m a t e s e n t e n c e , t h e
second occurrence of "W orks" should, it
i s suggested, read "works".The Taking-over certificate is significant. First ly,
in relation to the date of itsissue: under clause 20.1 (Care of W orks),
responsibility for care of the workspasses to the Employer; under clause
21.2 (Scope of cover), the Contractor'sobligation to insure the whole of
the works ends; under clause 60.3 (Payment of retention money), one
half of the retention is released; and under clause 60.5(Statement at
Completion), time begins to run for the statement at
completion.Secondly, in relation to the date of substantial completion stated in the
certificate:under clause 47.1 (Liquidated damages for delay) liquidated
damages cease;and under clause 49 (Defects Liability Period), the Defects
Liability Period startsto run;There is no mechanism for listing the
outstanding work. It is submitted that a general undertaking is sufficient under
this clause, without any attempt to definethe work to be done after substantial
completion. Under clause 49.2 (Completiono f o u t s t a n d i n g w o r k a n d
remedying defects), there is a general obligation tocomplete
the work but no instructio n is required. In reality, the Engineer
or amember of his team will issue snag lists and no distinction
i s n o r m a l l y d r a w n between defects and work to be
completed.4 8 . 2 A l t e r n a t i v e ( c ) i s n e w t o t h i s
e d i t i o n a n d c o v e r s t h e ( p r e s u m a b l y r a r e ) situation where the
Employer takes permanent occupation of an area which isincomplete
beyond merely requiring reinstatement of surfaces. It does not
fitconveniently into clause 48.2 because of the reference to "the procedure set outin
Sub-clause 48.1" which deals with completion and satisfaction.This clause seems to
proceed on the assumption that the Employer has a right totake over any part of
the works whether complete or incomplete. W hereas insome contracts,
early possession must be with the agreement of the Contractor,there is no
corresponding requirement here. Clause 42.1 (Possession of Site andaccess
thereto) deals with the giving of possession to the Contractor but
doesn o t d e a l w i t h t h e E m p l o y e r ' s r e - e n t r y . C l a u s e
4 7 . 2 ( R e t e n t i o n o f l i q u i d a t e d dmages), which deals with the
reduction in liquidated damages where parts are taken over by the Employer,
is also silent. The only reference to the Contractor'sa g r e e m e n t i s i n s u b c l a u s e 4 8 . 2 ( c ) w h i c h e n v i s a g e s a g r e e m e n t b e t w e e n t h e Employer
and Contractor of use by the Employer "as a temporary measure".W hilst a
Contractor in delay or one seeking to take advantage of a bonus
wouldgenerally be content for the Employer to take early possession, a Contractor
whois on time or is somehow in dispute with the Employer may well wish
to excludehim until the time for completion. As discussed under clause 42.1
(Possession of
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Site and access thereto), unless the contrary is stated, construction

contractsa s s u m e t h a t p o s s e s s i o n i s g i v e n t o t h e C o n
t r a c t o r u n t i l t h e w o r k s a r e substantially completed where
u p o n p o s s e s s i o n i s r e t u r n e d t o t h e E m p l o y e r . Clause 51.1 (Variations)
item (b) makes it clear that the Employer is not entitledt o o m i t e l e m e n t s o f
the works in order to do the work himself or by
another contractor. The Contractor might have a case for
alleging repudiation if theEmployer retakes possession of an
i n c o m p l e t e p a r t o f t h e s i t e w i t h o u t t h e Contractor's consent. (If the
Employer through the Engineer issues a variationlawfully omitting the
balance of the work to the relevant part of the site, then thepart is
not incomplete and item (c) does not apply). The Employer's answer willbe to point to
item (c) and argue that it shows the intention of the contract to
bet h a t t h e E m p l o y e r m a y r e t a k e i n c o m p l e t e p a r t s o f t h e
w o r k s a n d t h a t t h e Contractor is compensated by a right to early
substantial completion of the part and early release of the
corresponding retention money. Even if this is right, thereremains the anomaly in
relation to the omission of the incomplete work. Thus it w o u l d h a v e
been helpful if this point had been made clear. ICE 6th also
n o w addresses premature use by the Employer in a similar fashion.If the Employer
causes delay by his occupation, clause 44.1 (Extension of timef or
completion) item (d) "any delay, impediment or prevention by the
Employer"m a y a p p l y b u t i f t h e c o n t r a c t a l l o w s s u c h o c c u p a t i o n o r
t h e C o n t r a c t o r h a s agreed to it, the Engineer may refuse.A Taking-Over Certificate for
a Section or part triggers the release under
clause6 0 . 3 ( P a y m e n t o f r e t e n t i o n m o n e y ) o f a p r o p o r t i o n a t e a m o u n t
o f r e t e n t i o n . However, it has no relevance to the f inal release of retention or
the grant of aDefects Liability Certificate under clause 62.1 as these both refer to the
expiry of the last Defects Liability
Period.4 8 . 3 T h i s c l a u s e g i v e s t h e E n g i n e e r a d i s c r e t i o n
t o i s s u e a T a k i n g - O v e r Certificate where a part is complete but not
occupied by the Employer. Contrastthe obligation to certify under the preceding subclause.T h i s c l a u s e d o e s n o t r e l a t e b a c k t o t h e p r o c e d u r e a t c l a u s e
4 8 . 1 a n d i s n o t initiated by a notice or request by the Contractor. Thus the Engineer
has power t o t a k e o v e r p a r t o f t h e w o r k s w h e t h e r o r n o t t h e
C o n t r a c t o r w i s h e s t o l o s e possession of it and whether or not the Employer
wishes to take occupation. It isdifficult to see that the Engineer would exercise his discretion
under this clause ina n y o t h e r f a s h i o n t h a n a t t h e r e q u e s t o f a n d
pursuant to the interest of theEmployer but this would seem to run
c o u n t e r t o c l a u s e 2 . 6 ( E n g i n e e r t o a c t impartially).It is not difficult to envisage
circumstances in which the Contractor might wish topostpone the issue of a Taking Over Certif icate. For example, if the Contractor believes that a defect existed in the
work which would disrupt the Employer's usea n d o c c u p a t i o n o f t h e w o r k s , t h e
C o n t r a c t o r m a y w e l l r e g a r d t h e l i q u i d a t e d damages as a welcome
ceiling to his liability. After substantial completion, the Employer would be entitled
to unlimited general damages to the full extent of his

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loss. In a project which had already experienced considerable delay, for

example,t h e l i m i t o f l i q u i d a t e d d a m a g e s m i g h t h a v e b e e n
r e a c h e d i n w h i c h c a s e a n y additional delay prior to substantial completion
would involve the Contractor in nofurther damages. The question therefore
arises as to whether the Contractor is able to prevent the issue of a TakingOver Certificat.U n d e r s u b clause 48.1, the machinery is triggered by a notic
e f r o m t h e Contractor. Under sub -clause 48.2, the matter is not
beyond argument: there is t h e r e f e r e n c e t o t h e p r o c e d u r e i n
s u b - c l a u s e 4 8 . 1 b u t i t w o u l d b e h a r d t o construe the
Contractor's request as a condition precedent. Under sub -clause48.3,
the Contractor is not involved and apparently the Engineer may act
uponhis own initiative. This however does not apply to the whole of the
works. TheC o n t r a c t o r h a s a n a d d i t i o n a l c o n t r o l i n r e l a t i o n t o t h e
w h o l e o f t h e w o r k s i n projects where the Contractor was obliged to
provide part of the design. Under clause 7.2 (Permanent works designed by
Contractor), the provision of operationand maintenance manuals is expressed as a
condition precedent.I t i s s u b m i t t e d t h a t a C o n t r a c t o r w i s h i n g t o t a k e
a d v a n t a g e o f t h e l i q u i d a t e d damages provision as a limitation of his liability
is in some difficulty: the Engineer might well consider it consistent wi th his
duty of impartiality to grant substantial completion of the great majority of the
works that was complete regardless of
theC o n t r a c t o r ' s w i s h e s . I f t h e C o n t r a c t o r e n d e a v o u r e d t o
d e l a y s u b s t a n t i a l completion by stopping or slowing down the
works, the Employer would have anumber of remedies including clause
46.1 (Rate of progress) and clause 63.1 (Default of
Contractor).4 8 . 4 R e i n s t a t e m e n t h a s p r e s u m a b l y t o b e d i s t i
n g u i s h e d f r o m r e p a i r a n d maintenance, particularly in circumstances
where the Employer has moved ontoa n d i s m a k i n g u s e o f t h e s u r f a c e
c o n c e r n e d . O n r o a d p r o j e c t s , t h e w e a r i n g course is sometimes left off
when the Employer first takes occupation so that, s h o r t l y b e f o r e t h e w o r k s
a r e c o m p l e t e a s a w h o l e , t h e e n t i r e p r o j e c t c a n b e brought up to the same
standard with the wearing course being laid for the wholeproject. Although it is not clear, the
natural meaning of the sub-clause is that therequirement f or reinstatement is to be
judged as at the date of the Taking -Over Certificate.4 8 . 5 P a r t I I p r o v i d e s
an optional clause for the situation where the Tests
o n Completion cannot be carried out prior to taking -over. It introduces a
deemedtaking over on the date established by the Engineer's taking -over
certif icate
ast h e d a t e o n w h i c h t h e T e s t s o n C o m p l e t i o n w o u l d h a v e b e
e n c o m p l e t e d . Compared with the normal taking-over certificate, which states the
date on whichin the Engineer's opinion the W orks were substantially complete,
this formulas e e m s e v e n m o r e l i k e l y t o g i v e r i s e t o d i s p u t e . F o r
e x a m p l e , i f t h e t e s t o n completion is carried out during the Defects Liability Period
and the work fails thetest, is the taking over certif icate open to challenge on the
grounds that the testwould not have been "completed" until the works had
been remedied and hadpassed the test? Th ere is also an unnecessary
proviso which could simply
sayt h a t t h e W o r k s s h o u l d o t h e r w i s e b e s u b s t a n t i a l l y
complete. The phrase
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"...substantially in accordance with the contract" might merely mean

that suchworks as have been performed are not defective.The tests are to be
carried out in the Defects Liability Period. It may have beensensible to
give the Employer the option to dispense with that, particularly as
theC o n t r a c t o r c a n c l a i m a d d i t i o n a l c o s t s f o r c a r r y i n g t h e
t e s t s o u t l a t e r . T h i s proposed sub-clause is ambiguous as to whether the
Employer is being grantedan option to dispense with the requirement that
the tests are carried out prior to the taking over certificate. This could be
important as, for example, an Employer whose actual losses were greater than the
liquidated damages provided for delayto the works could increase his
recovery by taking over the works as soon as possible. This sub-clause is, it
is submitted, ill thought-out and parties would beunwise to use it without substantial
amendments.
CLAUSE 49 : Defects Liability Period
This clause defines the Defects Liability Period as an agreed period,
usually sixor twelve months running from the date or dates of the Taking-Over
Certificate(s).T h e C o n t r a c t o r i s o b l i g e d t o c o m p l e t e a n y
o u t s t a n d i n g w o r k a n d r e m e d y a n y defects during or shortly after this
period.U n l e s s a n y r e m e d i a l w o r k u n d e r t a k e n b y t h e C o n t r a c t o r
w a s d u e t o a c a u s e which was not the Contractor's responsibility, he
receives no extra payment for works executed during this pe riod. If the
Contractor remedies defects not of his making, he is paid as if the work was a
variation.If the Contractor fails to carry out the remedial works within a
reasonable time,t h e E m p l o y e r c a n t a k e o n a l t e r n a t i v e c o n t r a c t o r s
t o e x e c u t e t h e w o r k s a n d charge the Contractor the cost of remedying the
Contractor's defects.In the 4th Edition, the "Period of Maintenance"
has become the Defects LiabilityPeriod. This change in name appears to have
occurred to avoid any suggestionthat the Contractor is obliged to carry out
maintenance as distinct from remedialworks after substantial completion. Clause 49
has retained the structure and thebroad principles of the 3rd Edition but the
vocabulary has changed extensively. T h e r e f e r e n c e t o d e s i g n i n
item (b) of sub-clause 49.3 is the most
m a t e r i a l addition.4 9 . 1 T h e r e i s a s c h o o l o f t h o u g h t t h a t i f y o u h a v e
a c l a u s e s u c h a s c l a u s e 1 . 1 entitled "Definitions", then all definitions
should be contained there. That view isr e i n f o r c e d b y t h e f a c t t h a t
t h e D e f e c t s L i a b i l i t y P e r i o d i s r e f e r r e d t o i n s o m e thirteen clauses
throughout the contract."...the expression "the Works" shall be construed
accordingly". It is far from clear what effect these words are intended to have
or indeed have. The definition of

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Works at clause 1.1(f)(i) includes the Permanent Works. It is also qualified by

thep h r a s e i n t h e o p e n i n g s e n t e n c e o f c l a u s e 1 . 1 " e x c e p t
w h e r e t h e c o n t e x t otherwise requires". The draftsman is no
d o u b t a d d r e s s i n g h e r e t h e c o n f l i c t arising at first sight from the
definition of the Defects Liability Period as starting on "the date of
completion of the
Works".T h e D e f e c t s L i a b i l i t y P e r i o d m o s t f r e q u e n t l y s e e n i
n t h e A p p e n d i x t o c i v i l engineering contracts is one year.4 9 . 2 T h e r e i s
no provision for the outstanding works to be listed or
o t h e r w i s e identified. In practice, however, this may not cause particular
difficulty. Thestatement of intent in relation to the state of the works at
the end of the
DefectsL i a b i l i t y P e r i o d i s o f l i t t l e a p p a r e n t r e l e v a n c e t o t h e o b l i
gation to completeo u t s t a n d i n g w o r k a s s o o n a s p r a c t i c a b l
e a f t e r t h e d a t e i n t h e T a k i n g - O v e r Certificate consistent with the
undertaking given under clause 48.1 (Taking-Over Certificate).S u b - c l a u s e ( b )
contains no time limit upon the Contractor for executing
t h e remedial works save by implication from the statement of
intent. Nevertheless,f a i l u r e t o c a r r y o u t w o r k s i n s t r u c t e
d w i t h i n a r e a s o n a b l e t i m e h a s t h e consequence that t
h e E m p l o y e r m a y e m p l o y o t h e r s u n d e r s u b - c l a u s e 4 9 . 4 below.It is
a question of construction whether t he terms "amendment,
reconstruction"a r e g o v e r n e d b y t h e w o r d s " o t h e r f a
u l t s " o r w h e t h e r a m e n d m e n t s o r reconstructions
which do not derive from defective design, materials or
wokmanship and amount to variations may be instructed by the Engineer duringt h e
Defects Liability Period. The right to order variations under
c l a u s e 5 1 . 1 (Variations) is not expressly limited in time and therefore
the Contractor mayhave no right to object to variations being ordered during
the Defects LiabilityPeriod. The obligation upon the Contractor to carry out
variations may only endupon the granting of the Def ects Liability Certif icate
under clause 62.1. Thismight come as a considerable surprise to a Contractor
who demobilises in the u s u a l w a y a f t e r t h e T a k i n g Over Certificate has been issued. For further discussion o
n whether the Engineer may issue variation instructions aft
e r substantial completion, see the commentary under clause 13.1 (W ork to
be inaccordance with the contract).It is obviously in the Employer's interests to have a right
to take advantage of thep r e s e n c e a n d k n o w l e d g e o f t h e C o n t r a c t o r t o
remedy faults arising throughdesign, the Employer's own direct
w o r k s o r o t h e r c a u s e s w h i c h a r e n o t t h e responsibility of the Contractor.
Perhaps surprisingly, the Engineer is given a d i s c r e t i o n a s t o w h e t h e r o r
n o t t o o r d e r r e m e d i a l s w h i c h s e e m s t o e x t e n d t o defects which are
the Contractor's responsibility. As instructions are not expresslyref erred to in clause 2.6
(Engineer to act impartially), the Engineer will of ten berequired to fol low the
wishes of the Employer. (See however the commentary u n d e r c l a u s e 2 . 6
a n d t h e a r g u m e n t t h a t a l l o f t h e E n g i n e e r ' s f u n c t i o n s a r e covered by
the impartiality obligation.) This raises issues of mitigation: is the
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Employer entitled to employ another contractor to execute the

remedials? If so,has he any right to recover damages from the Contractor? It is
submitted that theEngineer's discretion is limited to whether the remedials
are necessary and themeans of carrying out the work. As the work is part of
the contract, the Contractor has the right to do it. Compare the right to omit
work, now expressly limited by clause 51.1 (Variations) item (b). If remedial
work was given to another contractor and the Employer sought to recover the cost
from the Contractor as damages for breach, the Contractor's response would be that
the Employer was also in breachw i t h t h e r e s u l t t h a t t h e E m p l o y e r m a y
r e c o v e r n o m o r e t h a n t h e c o s t t o t h e Contractor would have been if
he had executed the work. It is arguable that theEmployer should
recover none of the costs incurred in breach of contract but as the
Contractor was himself in breach by executing work defectively, this positioni s
more difficult to sustain. If the Contractor is able to
demonstrate that theremedial work would have cost him
n o t h i n g a s s u b c o n t r a c t o r s w o u l d h a v e executed it as part of their remedial
obligations, it is submitted that the Employer is in greater difficulty.S e e c l a u s e 2 0 . 3 ( L o s s
o r d a m a g e d u e t o E m p l o y e r ' s r i s k s ) w h e r e a s i m i l a r discretion is
given and clause 65.3 (Damage to W orks by Special Risks)
wheret h e C o n t r a c t o r a p p e a r s t o h a v e b e e n g i v e n t h e r i
g h t t o r e c t i f y , p e r h a p s inadvertantly. See also the commentary under those
clauses. This clause shoulda l s o b e r e a d w i t h c l a u s e 6 4 . 1 ( U r g e n t r e m e d i a l
work). For discussion of
theEngineer's power to waive strict compliance with the specificati
o n , s e e t h e commentary under clause 2.1 (Engineer's duties and authority)
and clause 13.1(Work to be in accordance with the contract).4 9 . 3 T h e r e f e r e n c e t o
i m p l i e d o b l i g a t i o n i s o n e o f t h e a r e a s i n t h e c o n t r a c t i n which the
parties are exposed to the vagaries of the law of the contract, usually the law of
the country in which the works are being executed. The opportunity of the overhaul of the
conditions leading to t he publication of the 4th Edition was unfortunately not used
to make express some of the commonly accepted impliedterms of the contract in order to
reduce the necessity to research and apply locallaws.If the Contractor is instructed to carry
out remedial work which he believes to bed u e t o a c a u s e f o r w h i c h h e i s n o t
r e s p o n s i b l e , i t i s s u b m i t t e d t h a t h e h a s n o obligation to say so other than in
accordance with clause 53.1 (Notice of claims),that is within 28 days of the event, here the
instruction. The notice requirement inclause 52.2 (Power of Engineer to fix rates) relates to
"work instructed to be doneby the Engineer pursuant to Clause 51". W hilst
remedial work additional to thatdue to the Contractor's faulty work, design
etc. may fall within clause 51.1, th ei n s t r u c t i o n i s p u r s u a n t t o s u b c l a u s e 4 9 . 2 a n d n o t c l a u s e 5 1 . T h i s m a y b e something that
Employers would wish to change as a very different attitude maybe taken to the repair of
defects if they are not to be at the cost of the Contractor but rather the subject of a claim.
There will be defects the cause of which cannotb e e s t a b l i s h e d u n t i l o p e n e d u p ,
s u c h a s t h o s e a d d r e s s e d u n d e r c l a u s e 5 0 . 1 (Contractor to search): the
Employer will have to make an informed guess in thecase of non-essential remedials as to
whether he will have to pay for the work. In

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practice, defects are most likely to be due to workmanship or materials problems.It

is comparatively rare that a problem is obviously and exclusively due to
faultydesign: as a consequence, many disputes derive from the grey area
betweendesign and workmanship.I f t h e C o n t r a c t o r i s i n s t r u c t e d t o d o
w o r k t h a t d o e s n o t f a l l w i t h i n s u b - c l a u s e 49.2(b), such as dealing
with "fair wear and tear", he is unable to recover under this sub-clause.
Clarification should be sought as to the basis for the instruction.I n v i e w o f t h e
doubt over the ability of the Engineer to order variations
a f t e r substantial completion, the Contractor should seek to ensure that the
Engineer isauthorised by the Employer to require the work: thus, under English law
at least,t h e C o n t r a c t o r w o u l d b e e n t i t l e d t o b e p a i d f o r t h e w o r k .
T o b e c e r t a i n , t h e Contractor should obtain written agreements from
the Employer in relation to work of this sort falling outside the contract.For a
comment comparing the treatment of this clause with the other "loser pays"clauses,
clause 36.4 (Cost of tests not provided for), clause 38.2 (Uncovering and
making openings) and clause 50.1 (Contractor to search), see under clause36.5
(Engineer's determination where tests not provided for).4 9 . 4 T h i s
clause relates to the failure of the Contractor
t o c a r r y o u t " s u c h instruction". This can only refer to
s u b - c l a u s e 4 9 . 2 ( b ) a s t h a t i s t h e o n l y reference to an
instruction. Clause 48.1 (Taking-Over Certificate) imposes thedeem ed
obligation to complete outstanding work "with due expedition" and sub-clause
49.2(a) requires the work to be done "as soon as practicable".T h e i n s e r t i o n o f
"within a reasonable time" is new to the 4th
Edition. Whenc o n s t r u i n g w h a t i s a r e a s o n a b l e t i m e , o n e s h o u l
d a r g u a b l y c o n s i d e r t h e statement of intent at the outset of sub -clause
49.2. Thus it could be said
thata n y t i m e w i t h i n t h e D e f e c t s L i a b i l i t y P e r i o d w o u l d b e r e a s
o n a b l e e v e n f o r repairing faults instructed at the beginning of the period.
It is submitted that the j u d g e m e n t o f w h a t i s r e a s o n a b l e m u s t a l s o t a k e
i n t o a c c o u n t t h e E m p l o y e r ' s need for a fully complete project as soon as possible
and the Contractor's abilityto execute the remedial work.In view of the fact that an
alternative contractor will a lmost invariably cost theEmployer more than having
works executed by the Contractor, it is strange thatthe Employer's entitlement
to reimbursement under this sub -clause is limited
toc i r c u m s t a n c e s w h e r e t h e d e f e c t i s f o u n d t o b e t h e r e
s p o n s i b i l i t y o f t h e Contractor. As the Employer is entitled by
sub-clause 49.2 (b) to require
theC o n t r a c t o r t o e x e c u t e r e m e d i a l w o r k s w h i c h a r e n o t
t h e C o n t r a c t o r ' s responsibilty, the Employer would wish to be
reimbursed the additional costs
of e m p l o y i n g a n a l t e r n a t i v e c o n t r a c t o r t o e x e c u t e s u c h w o r k s .
T h e q u e s t i o n i s therefore whether it is intended that this sub-clause provides all of the
Employer'sr e m e d i e s o r w h e t h e r t h e E m p l o y e r i s f r e e t o p u r s u e t h e
e x t r a c o s t b y w a y o f damages for breach of sub-clause 49.2(b). Although
this sub-clause sets out toprescribe the consequences of the Contractor's
failure, it is submitted that theEmployer may pursue damages. This is because
the draftsman used very clear

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words when in clause 47.1 (Liquidation damages for delay) he wished to indicatethat
the provision was intended to be exhaustive. There are no equivalent wordshere but
the matter is certainly not beyond argument.Part II provides an optional sub-clause
49.5 for projects which incorporate a highproportion of machinery. If
machinery is replaced, the Defects Liability Period s t a r t s r u n n i n g
again. The period will cease to run during any period that
t h e works are out of action due to a defect. The provisions are subject
to a two year maximum for the Defects Liability Period.
CLAUSE 50 : Search for Cause of Defect
This clause permits the Engineer to instruct the Contractor to
s e a r c h f o r t h e cause of a defect emerging during the Defects Liability
Period. Depending onwhose responsibility the fault turns out to be, the Contractor
either bears the costhimself or receives additional payment.Although reorganised
and translated into the language of the 4th Edition, the clause remains
similar to the 3rd Edition. "Shrinkage" has been introduced in theplace of
"imperfection".T h e c l a u s e g i v e s t h e E n g i n e e r p o w e r t o i n s t r u c t t h e
C o n t r a c t o r t o u n d e r t a k e searches both before and after substantial
completion. The phrase "at any time"replaces the more specific provision
contained in the 3rd Edition. In any event,the power to give instructions
is more than adequate to enable the Engineer tocause the Contractor to
investigate problems prior to substantial
completion,e v e n w i t h o u t t h e e x p r e s s p o w e r s i n c l a u s e 3 8 .
2 ( U n c o v e r i n g a n d m a k i n g openings) and clause 39.1 (Removal of
improper work, materials or Plant).T h i s c l a u s e i s p r o b a b l y u n n e c e s s a r y
i n r e l a t i o n t o s e a r c h e s i n t h e D e f e c t s Liability Period given the
provisions in clause 49 (Defects Liability) for obliging the Contractor to
remedy defects which are not of his making. However, withoutthis clause, the
Contractor could decline to search or carry out any extra work inthe absence of
proof that a defect for which he was responsible existed on
theg r o u n d t h a t t h e r e i s n o e x p r e s s p o w e r t o i s s u e i n s t r u
c t i o n s a m o u n t i n g t o variations after substantial completion.
W hether this argument is right or wrong,this clause serves to put the matter
beyond doubt. For a discussion of this issue,s e e t h e c o m m e n t a r y u n d e r
c l a u s e 1 3 . 1 ( W o r k t o b e i n a c c o r d a n c e w i t h t h e contract).If the
Defects Liability Period expires while a sear ch is under way, clause
62.1( D e f e c t s L i a b i l i t y C e r t i f i c a t e ) p r o v i d e s f o r t h e p o s t p o n e m e n
t of the DefectsL i a b i l i t y C e r t i f i c a t e u n t i l t h e w o r k h a s b e e
n c o m p l e t e d t o t h e E n g i n e e r ' s satisfaction. By clause 60.3
(Payment of retention money), the Engineer maywith hold
enough retention to cover the cost of the search and rectification
work.As it is only the "costs of such search" that are recoverable, the
financing costsrelating to the retention appear to be irrecoverable.

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This clause provides for the Contractor remedying the cause of the defect only if it is
his responsibility. In any other case, an instruction could be issued prior
tosubstantial completion or clause 49.2(b) could be invoked during the
DefectsLiability Period.S i m i l a r p r o v i s i o n s a p p e a r a t c l a u s e 3 6 . 4
(Cost of tests not provided for) and c l a u s e 3 8 . 2
(Uncovering and making openings). In both cases,
t e s t s o r uncovering are undertaken on the basis that if the work revealed is
defective, theContractor pays for such test or uncovering, otherwise the Engineer
determinesan appropriate extra payment. Under clause 38, it is not
necessary to have a d e f e c t i n o r d e r f o r t h e E n g i n e e r t o b e
a b l e t o o r d e r a c t i o n , a s h e r e . F o r a comment comparing
t h e t r e a t m e n t o f t h i s c l a u s e w i t h t h e o t h e r " l o s e r p a y s " clauses,
clause 36.4, clause 38.2 and clause 49.3 (Cost of remedying
defects),see under clause 36.5 (Engineer's determination where tests not provided
for).
CLAUSE 51 : Variation / Additions / Omissions
This clause empowers the Engineer to order additions,
o m i s s i o n s a n d / o r changes to the Works. Such variations are
t o b e v a l u e d i n a c c o r d a n c e w i t h clause 52 unless the need for the
variation arose through some default of the Contractor.The Contractor
should obtain a written instruction from the Engineer unless thevariation
is simply an increase or decrease in the quantities stated in the bill
of quantities.The 4th Edition contains some important amendments, particularly to
sub-clause51.1, including protection in sub-clause 51.1(b) for the Contractor from
abuse of the right to omit work, a new item (f) allowing variations to the specified
sequenceor timing of construction and a proviso making it plain that variations
necessitatedby the Contractor's breaches will not be paid for by the
Employer.5 1 . 1 U n l e s s t h e E n g i n e e r ' s a u t h o r i t y i s l i m i t e d i n P a r t I I
in relation to clause
2.1( E n g i n e e r ' s d u t i e s a n d a u t h o r i t y ) , t h i s c l a u s e a u t h o r i
s e s h i m t o m a k e a n y variation which in his opinion is necessary or
appropriate. If a Contractor doesnot believe the work to be either necessary or
appropriate, he may challenge theEngineer's opinion under clause 67
(Disputes). If a Contractor is confident that the variation called for is beyond
the power of the Engineer and thus beyond theE m p l o y e r ' s r i g h t t o
require variations, he will be free to refuse the work
o r negotiate a fresh price for the work. This route may be one alternative open to
aC o n t r a c t o r w i s h i n g t o e s c a p e f r o m t h e r a t e s i n t h e c o n t r a c t . I f
a n a r b i t r a t o r reviewing the Engineer's opinion agreed with the
Contractor, the work executedwould no longer be varied work within the
contract and the arbitrator would be free, under English law at least, to award a
quantum meruit or reasonable sum inr e s p e c t o f t h e w o r k
performed. Doubtless the rate quoted by the Contractor

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would be one factor which the arbitrator would consider in selecting a

reasonablerate.However, the Employer might be able to disown the variation as
unauthorised asthe Engineer's authority under this sub -clause is limited to
ordering necessaryand appropri ate variations. As the Employer has the
benefit of the work and anability to recover from the Engineer for any
breach of his terms of engagement a n d a s t h e C o n t r a c t o r h a s
i n c u r r e d t h e c o s t o f e x e c u t i n g t h e v a r i a t i o n , t h e Employer's
argument will generally be unattractive. If the Employer had notice of the variation
order before the work was executed and did nothing to prevent it, hewill doubtless
be taken to have ratified the Engineer's action. Ratification couldalso
be found in the subsequent conduct of the Employer. Although he does
notreceive a copy of the Contractor's notice under clause 52.2 (Power of Engineer
tof i x r a t e s ) , h e w o u l d n o r m a l l y r e c e i v e o n e o f t h e c o p i e s
o f t h e C o n t r a c t o r ' s monthly statement under clause 60.1. A lack of
response to knowledge of thevariation could be taken as ratification
even if the knowledge came too late to prevent the work being executed.Is the
Employer entitled to challenge a variation issued by the Engineer other than
on the ground that it was not necessary or appropriate? If the Engineer
isobliged by his terms of engagement to obtain the approval of the Employer
for v a r i a t i o n s a n d t h a t o b l i g a t i o n i s r e c o r d e d i n P a r t I I t o c l a u s e 2 . 1
( E n g i n e e r ' s duties and authority), it is made clear in clause 2.1 that the
Employer may notsubsequently challenge the variation on the ground of lack
of approval. Rather, the matter should be resolved between the Employer and the
Engineer. If Part IIis silent, this sub-clause expressly authorises the Engineer to issue
necessary or appropriate variations. Variations are not specifically referred to in either
clause1.5 (Notices, consents etc.) or clause 2.6 (Engineer to act impartially),
so that itcould be argued that the variation has been made by the Employer's
agent andtherefore has in effect been issued by the Employer who should not be entitled
toseek to escape his own action. However, under both clause 67.1
(Engineer'sdecision) and clause 67.3 (Arbitration), the Engineer's instructions
are open tochallenge by the Employer as much as by the Contra ctor. The
Employer maytheref ore argue, for example, that the work the subject of the
variation was partof the original contract works and thus not a variation at all.
It is submitted
thatt h e E m p l o y e r ' s r i g h t t o c h a l l e n g e i s l i m i t e d t o q u e s t i o n s
o f t h e E n g i n e e r ' s authority, that is where the Employer disputes the
necessity or appropriatenessof the variation or claims that the work was already part of
the contract.In view of the breadth of the Contractor's obligation to comply with the
Engineer'sinstructions "on any matter, whether mentioned in the Contract or not, touching
or c o n c e r n i n g t h e W o r k s " u n d e r c l a u s e 1 3 . 1 , i t i s p e r h a p s
remarkable that theEmployer's whim is so poorly catered for under
the present sub-clause. Theopinion of the Engineer is expressly
c o v e r e d b y c l a u s e 2 . 6 ( E n g i n e e r t o a c t impartially) and is also
challengeable under clause 67.1 (Engineer's decision)and clause 67.3
(Arbitration). The position is therefore arrived at whereby
theC o n t r a c t o r i s e n t i t l e d t o c h a l l e n g e t h e E n g i n
e e r ' s o p i n i o n a s t o t h e appropriateness of a variation arising
from the Employer's whim. To pursue an
Page 167 of 264

earlier example, the Contractor could challenge the Employer's desire

to haveyellow rather than white road markings.This extraordinary conclusion
survives even when clauses 7.1 and 13.1 and thissub-clause are read
together. The wide terms of clause 13.1 could arguably bel i m i t e d t o m a t t e r s
touching or concerning the existing "Works" as built or
a s designed and not extend to variations of those W orks. If the cla use
was to beinterpreted otherwise, the use in clause 7.1 and this sub-clause of terms
such as"necessary" and "appropriate" would be otiose. This matter,
which appears tohave received no consideration by the draftsman of the
4th Edition, needs to be resolved.In administrative contracts under civil
law systems of the sort referred to under clause 5.1 (Languages and
law), the Employer and Engineer are limited in thevariations they may
instruct by the public interest and the scope of the contract, in a manner
similar to the English common law: wholly new work, as distinct froma d d i t i o n a l
work, may not be ordered. The distinction between new work
a n d additional work will depend upon the nature of the project and the capacity of
theContractor. Administrative law prov ides for the compensation of the
Contractor for variations imposed, independantly of the terms of the contract. The
law of thecountry may impose limits on the value of variations that may
be ordered: for example, Kuwait's Tender Law requires variations of more than
5% to be referredback to the Central Tenders Board for
approval." . . a n y v a r i a t i o n . . . t h a t m a y , i n h i s o p i n i o n , b e n e c e s s a r y .
. . " . A q u e s t i o n t h a t frequently arises in practice is whether the Engineer
is obliged to instruct in anygiven circumstances. There are some 19 clauses in the
contract which empower t h e E n g i n e e r t o i s s u e i n s t r u c t i o n s o f w h i c h
o n l y t h i s c l a u s e a n d t h r e e o t h e r s arguably impose an obligation to
instruct. The other clauses are:-- c l a u s e 5 . 2
(Priority of contract documents) where
t h e E n g i n e e r i s obliged to instruct in respect of ambiguities;c l a u s e 2 7 ( F o s s i l s ) w h e r e t h e E n g i n e e r s
e e m s o b l i g e d t o i n s t r u c t t h e Contractor upon the find;
and- c l a u s e 4 8 . 1 ( T a k i n g - O v e r C e r t i f i c a t e )
w h e r e t h e E n g i n e e r i s e i t h e r t o grant the certificate
or instruct the Contractor as to the work to becompleted prior to substantial
completion.Apart from the particular situations addressed by the above
three clauses, the Engineer's general discretion is fettered, if at all, by the terms of
this sub-clause.A s c o m m e n t e d u n d e r c l a u s e 2 . 6 ( E n g i n e e r t o a c t
i m p a r t i a l l y ) , i t i s c e r t a i n l y arguable that the Engineer's discretion under the
current sub-clause is governedby 2.6 item (d) "taking action which may
affect the rights and obligations" of theparties. However, unless one is
to draw a distinction between those variationswhich are simply
additional requirements of the Employer and variations fromany other
source, one has to conclude that variations were not intended to fall

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within clause 2.6. (See however the commentary under clause

2.6 and theargument that all of the Engineer's functions are
c o v e r e d b y t h e i m p a r t i a l i t y obligation.) If one struggles through the
syntax of the opening sentence of thissub -clause there is some support
for such a distinction. On th e one hand, theEngineer is to make
variations that may in his view be necessary; on the
other,h e m a y m a k e v a r i a t i o n s w h i c h f o r a n y o t h e r r e
a s o n s a r e a p p r o p r i a t e . Presumably, the Employer's whim, for
example, to have yellow rather than whitelines on his new stretch of road is intended
to fall within this latter category.For discussion on whether the Engineer may
issue variation instructions after substantial completion, see the
commentary under clause 13.1 (W ork to be in accordance with the contract).
This matter has sensibly been put beyond doubt inICE 6th by the simple
statement that "such variations ...may be ordered duringthe Defects
Correction Period". A similar clarif ication is recommended for the current
clause." ( a ) i n c r e a s e o r d e c r e a s e t h e q u a n t i t y o f a n y w o r k . " T a k e n i n
i s o l a t i o n , t h i s phrase includes a simple increase in the quantities over those set out in
the billsof quantities. But the Engineer would not normally instruct a change in quantitiesin a
remeasurement contract. See sub-clause 51.2, which makes it clear that nosuch
instruction is required; and the commentary under that sub -clause for
theargument as to whether a simple change in quantities amounts to a variation."(b) omit
any such work (but not if the omitted work is to be carried out by
theE m p l o y e r o r a n o t h e r c o n t r a c t o r ) . " A w e l c o m e a d d i t i o n t o t h e 4 t h
Edition ismaking express what has been established in Australia at
l e a s t , n a m e l y t h a t omissions must be genuine. Otherwise, an Employer
could remove part of theworks from the Contractor if he fou nd an alternative
contractor able to do
thatp a r t o f t h e w o r k m o r e c h e a p l y . I n t h e A u s t r a l i a n H
i g h C o u r t d e c i s i o n o f Commissioner for Main Roads v Reid
( 1 9 7 4 ) 1 2 B L R 5 5 , i t w a s h e l d t h a t t h e Contractor had a right to do the entirety
of the works subject to the entitlement of the Employer to make proper variations. It

will undoubtedly be a difficult line todraw: does a financing problem

make the omission of works that the Employer can no longer afford
proper? Does the fact that the Employer has had the workdon e after the
completion of the contract works necessarily mean that he is in breach? It
is submitted that the question will have to be judged by the perceivedintention of the
Employer at the time the instruction omitting the work was given.Certainly,
this clause has not removed the difficulty entirely.An alternative view to
that expressed by the Australian High Court is to say thatthe Employer should be
entitled to omit what he wishes providing the Contractor is duly compensated.
This has the merit of avoidin g strained interpretations of c l a u s e s
which do not have express exceptions such as that in
t h e p r e s e n t clause. In valuing the variation, the Engineer would
compensate the Contractor for the loss of overhead and profit recovery by, for
example, deducting 90% onlyo f t h e p r i c e o f t h e o m i t t e d w o r k . W i t h a
r e m e a s u r e m e n t c o n t r a c t , t h i s i s n o t normally possible so that either
the 10% must be added or some element of the remaining work must be rerated.
Page 169 of 264

This clause should be read with clause 40.3 (Sus pension lasting more
than 84days) whereby the Contractor may, after giving notice, treat a
part of the workssuspended for 12 weeks as having been omitted."(e) execute
additional work...necessary for the completion of the Works". It couldbe objected
that the Contractor has already agreed to do everything necessary. See,
for example, clause 8.1 (Contractor's general responsibilities) or clause
12.1( S u f f i c i e n c y o f t e n d e r ) . I n r e a l i t y , t h i s o b l i g a t i
o n i s m u c h d i l u t e d b y t h e remeasurement mechanism of the
contract and clauses such as clause 13 (Workto be in accordance with the contract)
and clause 20 (Care of Works)."(f) change any specified sequence or timing": This
addition to the 4th Edition ismore limited than may at first appear. The word
"specified" means tha t this isdealing only with variations to requirements set
out in the contract document. Itdoes not, it is submitted, permit the Engineer to order
acceleration. For more onthis point, see the commentary under clause 46 (Rate of
progress)."No such variation shall...vitiate...". At common law in the U.K. and
elsewhere, av a r i a t i o n w h i c h c h a n g e d t h e w h o l e c h a r a c t e r o f t h e
works, would so alter thefundamental basis of the contract that
the courts would not enforce such a v a r i a t i o n . A c o n t r a c t f o r
a t u n n e l m a y n o t b e v a r i e d t o a n a i r p o r t . S e e f o r examples
the cases of Suisse Atlantique v N.V. Rotterdamsche (1967) 1 AC 361and Chadmax
Plastics v Hansen and Yuncken (1985) B&CL 52. The word "such"r e f e r s b a c k t o
(a) to (f) so the Contractor is protected. The requirement
t h a t variations should be necessary or appropriate also provides a safeguard. It will
of course be borne in mind that the Engineer has power to vary under
the contractand not the contract itself, which can only be varied with the
agreement of theE m p l o y e r a n d t h e C o n t r a c t o r . A n y c h a n g e w h i c h
i s o u t s i d e t h e p o w e r o f t h e Engineer must therefore be negotiated.A n
apparent omission from the proviso is the situation where a
v a r i a t i o n i s requested or suggested by the Contractor in order to improve the
design, reducecosts or save
time.5 1 . 2 T h e E n g i n e e r ' s i n s t r u c t i o n n e e d n o t i n i t i a l l
y b e w r i t t e n a s c l a u s e 2 . 5 (Instructions in writing) allows for oral
instructions. Written confirmation may beobtained at any time after the
instruction has been given and indeed may even be obtainable from
an arbitrator.No instruction is required for simple changes in quantities
from those stated in the bill of quantities. As this is a remeasurement contract,
changes in quantitiesdo not need special treatment. It is arguable that
changes in quantities due tothe inevitable inaccuracy of some items in the bills,
sometimes called "automatic"changes in quantities, are variations.The importance
of this argument relates to whether a Contractor is entitled toattempt to
escape from the rates contained in the contract and claim additional

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payment under clause 52.2 (Power of Engineer to fix rates)

w h e r e t h e a c t u a l quantities found on site have exceeded those set out
in the Bill of Quantities. It will be recalled that, under clause 55.1 (Quantities),
the quantities in the Bill "arenot to be taken as the actual and correct quantities". The
actual quantities are tobe measured under clause 56.1 (W orks to be
measured) which also states that t h e v a l u e o f t h e W o r k s w i l l b e
a r r i v e d a t i n t h a t f a s h i o n . T h e C o n t r a c t o r i s therefore paid
under clause 60.2 (Monthly payments) for the actual
quantitiesexecuted.Under clause 52.1 (Valuation of variations), variations
are to be valued at the rates in the Bill if "applicable". Under 52.2 (Power of
Engineer to fix rates), if theContractor can show that "the nature or amount
of any varied work" makes the B i l l r a t e " i n a p p r o p r i a t e o r
inapplicable", he is entitled to a new rate. The firsthurdle for
the Contractor is therefore to show that the change in
q u a n t i t i e s amounts to "varied work".An Employer would argue that the purpose of
clause 52.3 (Variations
exceeding1 5 % ) a n d t h e e x p r e s s r e f e r e n c e t o a d j u s t m e n t s o f t h e e
s t i m a t e d q u a n t i t i e s contained there is to compensate the Contractor, if
appropriate, in the event of aserious difference between the estimated and actual
quantities. This purpose, itwould be said, would be defeated if the
Contractor was entitled to claim a new rate whenever the actual and estimated
quantities differed. The Employer wouldinterpret the present sub -clause as
the draftsman's indication that changes andquantities are not variations
as instructions are not required in relation to such changes.I t i s
submitted that the Employer's arguments are ill -founded. An
i n c r e a s e o r decrease in the quantities of work is included at sub-clause 51.1(a)
as being thesubject matter of a variation. The inclusion of "automatic" changes in
quantities int h e c u r r e n t s u b - c l a u s e a n d i n c l a u s e 5 2 . 3 , b o t h o f
w h i c h a r e c o n c e r n e d w i t h variations indicates the draftsman's
thinking. (W hen referring to the
draftman'st h i n k i n g , i t c a n n o t g o u n r e m a r k e d t h a t t h e d r a f t s m a n
o f t h e c u r r e n t e d i t i o n appears to have done very little in this respect. This
particular problem has
beenn o t o r i o u s s i n c e a t l e a s t t h e s e c o n d e d i t i o
n o f t h i s f o r m a n d i t i s q u i t e extraordinary that the
opportunity has not been taken to resolve this matter onceand for all and thus bring
to an end the inevitable disputes that are generated bythis uncertainty.)For cases
which address this issue and which come to different conclusions, seeArcos
Industries v Electricity Commission of New South Wales (1973) 2 NSWLR1 8 6 1 2
BLR 65, where the New South Wales Court of Appeal decided
t h a t a shortfall in quantities in a Schedule of Rates Quantities with estimated
quantitiesand what was described as a "total price" did not amount to a variation; the
PrivyC o u n c i l i n M i t s u i v A t t o r n e y - G e n e r a l o f H o n g K o n g ( 1 9 8 6 )
33 BLR 1, whichdecided that quantities in excess of those
a n t i c i p a t e d w e r e v a r i a t i o n s ; a n d J . Crosby & Sons v Portland UDC (1967)
5 BLR 121 in which an English High Court judge decided that an increase in
quantities under ICE 4th Edition amounted to avariation.
Page 171 of 264

A further relevance of the issue as to whether automatic changes in

quantitiesamount to variations may be in relation to extensions of time. Under
clause 44.1(Extension of time for completion), "the amount or nature of
extra or additionalwork" is the first ground for extension. It may be arguable on
the Employer's sidet h a t a l t h o u g h n o e x p r e s s m e n t i o n o f
v a r i a t i o n i s m a d e i n c l a u s e 4 4 . 1 , t h e correlation between the
wording of clause 44.1(a) and clause 51.1(a) and (e) issufficient to
make it plain that it is only variations for which extensions of time should
be
granted.I t h a s b e e n s u b m i t t e d t h a t a u t o m a t i c c h a n g e s i n q
uantities fall within thedefinition of varied work. If that
i s n o t c o r r e c t , t h e q u e s t i o n i s w h e t h e r a n automatic change
in quantities could nevertheless entitle the Contractor to anextension of
time in appropriate circumstances. The term "additional" is to be found in
clause 51.1 (e) but the term "extra" is used only in clause 52.2 (Power
of E n g i n e e r t o f i x r a t e s ) i n r e l a t i o n t o e x t r a p a y m e
n t . T o w h a t t h e n d o e s "extra...work" refer? Extra to what? The answer
may be extra to that work
whicht h e C o n t r a c t o r c o n t r a c t e d t o p e r f o r m . I f t h e C o n t r a c
t o r a g r e e d t o p e r f o r m whatever quantities are necessary to complete the
works, (hence the lack of anyneed for an instruction under the current sub clause), that would rule out anye x t e n s i o n o f t i m e . I f t h e a n s w e r i s
e x t r a t o t h e q u a n t i t i e s o f w o r k w h i c h t h e Contractor was obliged
to price for in the Bills of Quantities, then an increase in quantities could
give rise to an extension of time.It is submitted that justice would be done if
an extension of time could only begranted in relation to provisional
quantities. For example, if the parties were notsure of the amount of rock
that would be found in excavations, and a
provisionalq u a n t i t y w a s i n c l u d e d f o r e x c a v a t i n g r o c k , t h e C o n t r a c t
or, in deciding whata l l o w a n c e t o m a k e i n h i s p r o g r a m m e
f o r e x c a v a t i o n o f r o c k , w o u l d n o t b e unreasonable in
alighting on the provisional quantity given. Thus, when
thequantity increased, it would be just to grant an extension of
time. In normalcircumstances were the works have not changed
i n a n y w a y f r o m w h a t w a s anticipated but the quantities simply
happen to be different, it is difficult to seethat an extension of time can
be justified. The answer, it is submitted, thereforelies in an
interpretation which includes automatic changes of quantities
withinclause 44.1, regardless of whether it is varied work within clauses 51 and 52.
TheEngineer has ample discretion within clause 44.1 to grant or refuse extensions
of time as justice demands. For a discussion of the allowance the
Contractor is tomake in his programme for works which are the subject of
provisional sums, seeunder clause 58.1 (Definition of "Provisional Sum").Just as
the adjustment that might be made under clause 52.3 might be
adverseto the Contractor where the increase in the work has meant an
over-recovery inrelation to his plant and overhead costs, so the Engineer under
clause 52.2 couldd e c i d e t h a t t h e r a t e i n t h e b i l l s s h o u l d b e
a d j u s t e d d o w n w a r d s o w i n g t o t h e increase in quantity.
Page 172 of 264

In their Guide, FIDIC suggest that the parties include in Part II

a v a r i a t i o n s procedure which would cover authorisation by the
Employer and agreement of cost by the Engineer and the Contractor, in
advance of the final decision to issuethe variation and prior to the execution of the
works, where circumstances permit.
CLAUSE 52 : Value of Variations
The value of variations is ascertained by this clause. The starting point
is thatthe rates and prices set out in the contract should be used as far
as possible,failing which suitable alternative rates are either agreed or fixed by the
Engineer.W h i l e t h e d i s c u s s i o n s p r o c e e d , t h e E n g i n e e r i s r e q u i r e d
t o m a k e o n a c c o u n t payments to the contract for the varied works.If it would
be unfair to continue to use the rates contained in the contract for
agiven variation because of its nature or amount, a new rate is agreed or fixed
byt h e E n g i n e e r . A g a i n , h e i s
t o m a k e o n a c c o u n t p a y m e n t s . H o w e v e r , t h e Contractor must
give notice within 14 days of the instruction and before he startsthe work if he
intends to claim extra payment for th e variation. Similarly, theEngineer
must give notice in the case of an omission.If at the end of the project, it is
found that the variations amount to more than15% of the contract price
(as adjusted), an addition or omission to the contract sum may be agreed or
determined by the Engineer in respect of the Contractor'soverheads.The Engineer
is empowered to issue instructions that variations
be executed ondaywork, at the rates and prices set out in the
contract. Detailed provision is made for the proving of the amount of labour and
materials involved.This clause has been extensively altered and re arranged. In particular, clause 52(5) of the 3rd Edition has become clause 53
(Procedure for claims). Whilst thechanges to sub-clause 52.4 are mainly matters of
vocabulary, the first three sub-clauses are more fundamentally altered.5 2 . 1 I f t h e
rates are "applicable", they should be used. If not, they should
b e used as far as "reasonable" to agree a "suitable" rate. Failing
agreement, theEngineer fixes an "appropriate" rate. It is not clear what
"applicable" means
nor w h a t " s u i t a b l e " a n d " a p p r o p r i a t e " m e a n o r w h e t h e r t h e r e i s
a n y d i f f e r e n c e between them. In the 4th Edition, "appropriate" has
replaced "reasonable andproper" which appeared in the 3rd Edition. In
ICE 5th and 6th, the test is notapplicability but whether the work is of a
similar character and executed under similar conditions. The term
"applicable" suggests a purely mechanical judgmenta s t o w h e t h e r t h e r a t e
i n t h e b i l l i s c a p a b l e o f b e i n g a p p l i e d . I t s u g g e s t s n o judgment
as to fairness. "Suitable" and "appropriate" are presumably synonymsa n d i m p o r t
a judgment as to what is reasonable. This clause must be read
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alongside subclause 52.2 which deals with occasions when the nature or
amount of the varied work renders the rates "inappropriate or inapplicable"."...
additions to the Contract Price required to be determined in accordance withclause
52". Clauses with such reference to clause 52 are as follows: clause 17(Setting out),
clause 20.3 (Loss or damage due to Employers Risks), clause 31.2(Facilities for
other Contractors), clause 49.3 (Cost of remedying defects) andclause
65.3 (Damage to works by special risks). Other references to clause 52are
to be found in clause 51.1 (Variations), clause 58.2 (Provisional sums)
andclause 59.4 (Payment to nominated Subcontractors).Where the Engineer
fixes a rate, there can be little doubt that that the rate may b e c h a l l e n g e d
by either party. Although fixing is not referred to in clause
6 7 (Disputes), it is clearly a decision of the Engineer and thus not intended
to befinal. An Official Referee so held in Mears Construction v Samuel Williams
(1977)16 BLR 49. A more difficult question arises in relation to a rate or
price "agreedupon between the Engineer and the Cont ractor". Is such an
agreement open tochallenge by either the Employer or the Contractor? If
the Engineer is acting ast h e a g e n t o f t h e E m p l o y e r f o r t h e
p u r p o s e s o f s u c h a g r e e m e n t , t h e n s u c h agreement would be
b i n d i n g a s t h e r e c a n p r e s u m a b l y b e n o d i s p u t e o v e r a matter that has
been agreed between the parties. One would feel more confidenta b o u t c o m i n g
to that conclusion if it were not for the requirement for
p r i o r consultation by the Engineer with both parties. Such consultation is
associatedthroughout the contract with those functions of the Engineer which he
performs inhis capacity as an independent certifier. The Engineer has six
functions under this clause:-( i ) t h e v a l u a t i o n o f v a r i a t i o n s a t t h e
rates and prices set out in the contract;( i i ) v a l u a t i o n
b a s e d u p o n t h e r a t e s a n d p r i c e s ; (iii)forming an
opinion as to the applicability of rates and prices; ( i v ) a g r e e m e n t
of suitable rates and prices;(v)fixing of appropriate
r a t e s a n d p r i c e s ; a n d (vi)the determination of
t h e p r o v i s i o n a l v a l u a t i o n . Of the above functions, there can be little
doubt that (i), (ii), (iii), (v) and (vi) areperformed as independent certifier
and there is no reason in principle why
theE n g i n e e r a s c e r t i f i e r c o u l d n o t b e a t t e m p t i n g t o a g r
e e a m a t t e r w i t h t h e Contractor. It is submitted, on balance, t hat the
Employer is entitled to seek ad e c i s i o n a n d a r b i t r a t i o n i n o r d e r t o
r e o p e n s u c h a d e c i s i o n . I n a n y e v e n t , t h e matter is debatable and a
Contractor would be well advised to ensure that
anya g r e e m e n t s m a d e w i t h t h e E n g i n e e r u n d e r t h i s c l a u s e o r
e l s e w h e r e i n t h e contract have the approval of the Employer or are
subsequently ratified by him.5 2 . 2 I t i s n o t c l e a r w h e t h e r , a s i n I C E 5 t h
and 6th, the conditions under which t h e v a r i e d w o r k i s e x e c u t e d
i s r e l e v a n t t o a n a l t e r a t i o n o f t h e r a t e s . " T h e nature...of any
varied work" leaves the matter arguable. It is submitted that thebetter view
is that all the circumstances of the variation and, indeed, other work directly
or indirectly affected are relevant for consideration under this sub-clause.
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This sub-clause appears to address not only the rate applicable to the
variedw o r k b u t t h e a l t e r a t i o n o f a n e x i s t i n g r a t e o r p r i c e . I t t a l k s
of a "rate or pricecontained in the Contract" which is "by reason of
such varied work, renderedinappropriate or inapplicable". Thus,
i f t h e v a r i a t i o n c o m p r i s e d , s a y a 5 0 % increase in quantities in an item, this
clause addresses the question whether therate for that item should be adjusted, and
not just the rate for the additional work.Compare sub-clause 52.3 where the whole of
the value of the contract has
beeni n c r e a s e d o r d e c r e a s e d b y m o r e t h a n 1 5 % . T h e q u e
s t i o n r a i s e d b y t h e comparison is quite how the two clauses
interrelate. If this sub-clause allowsrates to be departed from, with
adjustments limited only by what is appropr iate,what is the purpose
of sub-clause 52.3? The answer is that there may be an accumulation of
variations and changes in quantities, none of which qualify under sub-clause 52.2
for re-rating. In that case, sub-clause 52.3 applies. Where the15%
includes variations that have been re-rated, the exception in subclause52.3 operates: "(subject to any action already taken under any other SubClauseof this Clause)". Dayworks under sub-clause 52.4 are ruled out by item
(b).The works may be varied by the omission of work. In a remeasurement
contract,the effect is that the work is not done and therefore is
not measured or paid for.Yet, this sub-clause indicates that the omission may not
be valued unless noticei s g i v e n b y t h e E n g i n e e r o r b y . t h e C o n t r a c t o r .
A s t h i s c a n n o t m e a n t h a t t h e Contractor is to be paid for work not
performed in the absence of notice, it ispresumably envisaged that the
Contractor may wish to claim in respect of the overhead and profit elements of
the price for the omitted work. It is submitted thatthis is the correct interpretation and
one that produces a fair result.The Engineer's functions under this sub-clause are as
follows:( i ) f o r m i n g a n o p i n i o n w h e t h e r r a t e s o r p r i c
e s a r e " i n a p p r o p r i a t e o r inapplicable";( i i ) t h e
agreement of suitable rates or prices;(iii)the fixing of
a p p r o p r i a t e r a t e s a n d p r i c e s ; (iv)the
determination of provisional valuations;(v)giving notice
o f h i s i n t e n t i o n t o v a r y t h e r a t e o r p r i c e . For a discussion of the
capacity in which the Engineer reaches agreement with the Contractor, and
the Employer's ability to reopen such agreements, see under sub-clause 52.1
above.The proviso to sub-clause 52.2 imposes the tightest notice
requirements of theentire contract. Notice has to be given within 14 days of the
instruction or earlier if the work is to commence earlier. This can often mean that
notice must be givenimmediately. Whilst this can cut both ways because the
Employer's right to adjusta r a t e f o r a n o m i s s i o n i s a l s o s u b j e c t t o t h i s
p r o v i s o , i t s e e m s u n n e c e s s a r i l y severe. No doubt the objective is partly to
warn the Engineer of the pending claimto enable him to reconsider the
necessity for the variations. However, he will beassisted little by the
notice which merely has to indicate an intention to make a
Page 175 of 264

claim. This proviso relates to "work instructed to be done b

y t h e E n g i n e e r pursuant to Clause 51" and therefore does not
c o v e r t h o s e c l a u s e s , s u c h a s clause 17.1 (Setting-out) and clause 49.3
(Cost of remedying defects),
whichr e q u i r e t h e E n g i n e e r t o a s c e r t a i n a n e x t r a p a y m e n t t o t
h e C o n t r a c t o r i n accordance with this clause, it is submitted.
T h o s e c l a u s e s a r e g o v e r n e d b y clause 53.1 (Notice of claims). This is
because of the careful distinction drawn inthe first sentence of sub-clause 52.1
between variations and "additions to theContract Price which are to
be determined in accordance with Clause 52". All
of t h e c l a u s e s w i t h s u c h r e f e r e n c e s t o c l a u s e 5 2 r e q u i r
e e x t r a w o r k o r t h e expenditure of provisional sums and so could be
considered variations. However,t h e c u r r e n t s u b c l a u s e r e f e r s t o " v a r i e d w o r k i n s t r u c t e d t o b e d o n e b y t h e En
gineer pursuant to Clause 51": in each of the clauses with such references
tothis clause, there is either a request, a requirement or an instruction causing
thework to be done or the costs incurred. In n o case is an instruction
under clause51 called for."... before the commencement of the varied work...". The
meaning of this phrasei s d i f f i c u l t t o a s c e r t a i n . I f t h e o b j e c t i s t o g i v e
the Employer an opportunity
toc h a n g e h i s m i n d w h e n h e d i s c o v e r s t h a t t h e C o n t r a c t o r i n t
e n d s t o c l a i m increased rates, it must mean before the Contractor has
committed himself toexpenditure. Otherwise, it could simply be an arbitrary, and
somewhat pointlessdeadline additional to the 14-day limit.The severity of the
notice requirement of this clause is not relieved by clause 5 3 . 4 ( F a i l u r e
to comply) because that deals only with a failure to give
n o t i c e under clause 53. The only, probably vain, argument to the contrary, based on
theo p e n i n g w o r d s o f c l a u s e 5 3 . 1 ( N o t i c e o f c l a i m s ) ,
" n o t w i t h s t a n d i n g a n y o t h e r provision of the Contract...", is discussed under
clause 53.1.It is open to argument whether, in the event of an oral instruction, time
runs fromthe oral instruction or the written confirmation. For more on this,
see clause 2.5(Instructions in writing). It is not clear how the current
clause interrelates
withc l a u s e 5 3 ( P r o c e d u r e f o r c l a i m s ) w h i c h i m p o s e s a 2
8 - d a y n o t i c e p e r i o d "notwithstanding any other provisions of the
contract ...". It is doubtful that theproviso can be circumvented by reference to
clause 53.This provision is considerably harsher than the 3rd Edition version which
requirednotice "as soon after the date of the order as is practicable" and it would
appear that failure to give such notice would be fatal to a claim. This
seems somewhatdraconian, particularly compared with the notice
provisions of clauses such asclause 44 (Extension of time for Completion)
when an event which is possiblyunknown to the Engineer has only to be notified
within 28 days. Here, of course,the Engineer is fully aware of the variation having
instructed
it.O n e p o s s i b l e d i f f i c u l t y i s w h e r e a C o n t r a c t o r h a s , w i t
h i n 1 4 d a y s o f t h e instruction, formed no "intention to claim extra payment".
It may only be later thatit becomes apparent to anybody that the varied work is such
as to make the ratesinappropriate. In these circumstances, it is highly
debatable whether notice is
Page 176 of 264

required or not. An arbitrator seeking to avoid the injustice that will

undoubtedlybe worked by the strict application of the provison may well resort to
this route.As the contract contains no express loss and expense clause to
compensate theContractor for the cost of prolongation caused by the
ordering of variations, thissub-clause is normally relied upon. It is said that the
fact that the extra work hascaused delay to the completion of the works and
additional costs renders the rates inappropriate. This argument seems rightly to
be accepted by arbitrators soit is perhaps surprising that the conditions continue to
leave the matter to be dealtwith in so oblique a fashion.52.3It is not
entirely clear whether the figure to be compared with the
"EffectiveContract Price" is the net result of the additions and deductions or
whether "takentogether" means the total of the additions plus the total of
the deductions. Thisissue will often be important. As it would have been
simple to make it clear that the net result was intended, it is submitted that the
two figures should be added,e v e n i f t h i s m e a n s a n a d j u s t m e n t i n
c i r c u m s t a n c e s w h e r e t h e a d d i t i o n s a n d omissions in fact cancel each
other
out.W h i l s t i t i s s o m e t i m e s a s s u m e d t h a t t h i s c l a u s e i
s f o r t h e b e n e f i t o f t h e Contractor, it can also be the case that
the increase in the work has resulted in an over-recovery of overheads which
the Engineer is able to nullify. The return to15%, last seen in the 2nd Edition, from
the 10% used in the 3rd Edition is also tothe benefit of the Employer. The extent of
the benefit depends on the right of theContractor to demand the same
adjustment in respect of all varied work under sub-clause 52.2 by showing
the rate to be "inappropriate or inapplicable".Exactly what adjustment the Engineer
can make is not spelt out: it is a sum to be" d e t e r m i n e d . . . h a v i n g r e g a r d t o
t h e C o n t r a c t o r ' s s i t e a n d g e n e r a l o v e r h e a d costs" but "such sum
shall be based only on the amount by which the
additionso r d e d u c t i o n s s h a l l b e i n e x c e s s o f 1 5 % o f t h e E f f
e c t i v e C o n t r a c t P r i c e . " Presumably, this means that where, for example,
the Contractor put in his price alump sum for overheads and the contract price
increased by 20%, the Contractor may only be allowed an increase in his
overheads of 5% (being the excess over 15%) rather than the full 20%. It
is considerably more difficult to see how theclause works where a
Contractor has put some or all of his overheads into therates. Despite
the details to be provided under clause 57.2 (Breakdown of lump sum
items), it will frequently be very difficult to establish with any certainty how
aContractor's prices are made up in the absence of his co-operation.For a note on
the relationship between this sub-clause and re-rating in respect of variations, see
the commentary under sub-clause 52.2. For discussion on thepossibility
of re-rating where quantities vary from those in the bills of quantities,see
under clause 51.2(Instructions for
variations).5 2 . 4 C o n t r a c t o r s a r e g e n e r a l l y p l e a s e d t o
b e a b l e t o e x e c u t e w o r k s o n a dayworks basis. This is
because of the high level of profit which it is normal toinclude in the
daywork schedule of rates and prices. The Engine er can require
Page 177 of 264

"any varied work" to be done on dayworks. Normally, this means

o c c a s i o n s where there are no rates and where the amount of work is
small. If the variedwork was substantial, the Engineer would normally fix a
rate.A s d a y w o r k s a l s o p r o v i d e u n s c r u p u l o u s C o n t r a c t o r s w i t h t h e
t e m p t a t i o n t o exaggerate their claims, heavy emphasis is wisely put on the proof
of the amountof labour and materials used. Nevertheless, it is remarkable that
impracticality isan excuse for failing to provide lists and statements in relation to
dayworks whent h e c o n d i t i o n p r e c e d e n t o f p r o m p t n o t i c e u n d e r s u b c l a u s e 5 2 . 2 a d m i t s o f n o exception.Part II offers additional wording for
contracts providing for payment in foreign c u r r e n c y . T h e r e
i s a l s o a d d i t i o n a l w o r d i n g f o r s u b - c l a u s e 5 2 . 2 w h i c h w o u l d greatly
limit the circumstances under which the Engineer would be empowered todepart
from contract rates: the suggested provision is that the item would
haveto amount to more than 2% of the contract price and the actual
quantity of workexecuted would have to vary by more than 25%.
CLAUSE 53 : Notice for Claim
A Contractor intending to make a claim for additional payment must give
noticethat he will do so within 28 days of the event.Thereafter he must keep records
including any records required by the Engineer,who will be entitled to inspect such
records.Within 28 or an agreed number of days of the Contractor's notice, he should
senda detailed claim to the Engineer. If the claim has a continuing effect,
he shouldsend regular interim claims followed by a final claim once the effects
cease.I f t h e C o n t r a c t o r f a i l s t o g i v e n o t i c e , k e e p r e c o r d s o
r p r o v i d e d e t a i l s , h i s entitlement will be limited by what can be proved from
the records that do exist.The Engineer is obliged to include an Interim Certificate in
respect of such claimsor parts of claims for which the Contractor has supplied
sufficient particulars.This clause is an expansion of clause 52 (5) of the 3rd Edition. It
is an attempt toregulate the claims procedure. Only time will tell whether an
improvement hasbeen achieved in practice. ICE 6th has adopted a very similar
procedure.53.1"Notwithstanding any other provision of the Contract...". It
is difficult to seehow this clause will relate to clauses with their own
internal notice
procedures:c l a u s e 1 2 . 2 ( A d v e r s e p h y s i c a l o b s t r u c t i o n s a n d c o n d i
tions) requires notice" f o r t h w i t h " ; c l a u s e 2 7 . 1 ( F o s s i l s ) r e q u
i r e s t h e E n g i n e e r t o b e a c q u a i n t e d "immediately"; and clause
52.2 (Variations) requires notice within 14 days. It issubmitted that
where the notice given makes express the Contractor's intention

Page 178 of 264

to claim and has been copied to the Employer, then that is sufficient notice and
isgiven "within 28 days". No further notice is necessary. If notice is not
given, for example within the 14 days required under clause 52.2, it may
be arguable thatthis clause overrides, allowing the Contractor to give
notice within 28 days or to b e n e f i t u n d e r s u b - c l a u s e 5 3 . 4 . I t s e e m s
unlikely that such an argument
wills u c c e e d a s t h i s c l a u s e d o e s n o t c r e a t e r i g h t s t o p a y m
e n t b u t i m p o s e s a machinery to deal with the rights created by other
clauses. If such other clauseprevents the right arising in certain
circumstances, this clause could not, it is submitted, intervene. Accordingly,
the "notwithstanding" appears to be addressedt o c l a u s e s s u c h a s t h o s e
q u o t e d a b o v e w h i c h s e e m t o g r a n t r i g h t s t o t h e Contractor
unequivocally: notice must apparently be given regardless, althoughthe
penalty for failure to do so is much reduced by sub-clause 53.4.As the words "claim"
and "additional payment" are not defined terms, the preciseapplication of the
clause is uncertain. Is it necessary for a Contractor to "claim"in
circumstances where the entitlement is beyond dispute or triggered by,
for example, the Engineer's
opinion?" A d d i t i o n a l p a y m e n t p u r s u a n t t o a n y
c l a u s e " : c l a u s e s p u r s u a n t t o w h i c h additional payment may be
sought are as follows:-- clause 4.2 Assignment of subcontractors' obligationsclause 6 Drawings- clause 9.1 Contract Agreementclause 12.2 Physical obstructions- clause 17.1 Errors in setting out- clause
20.3 Loss or damage due to Employer's risks- clause 22.3 Indemnityclause 27.1 Fossils- clause 30.3 Transport damage indemnityclause 31.2 Other contractors- clause 36.5 Tests- clause 38.2 Uncoveringclause 40.2 Suspension- clause 42.2 Late possession of the siteclause 49.3 Remedying defects not the responsibility of the Contractor clause 50.1 Searching for defects- clause 52 Valuation of variationsclause 58 Provisional sums- clause 65 Special risksclause 69.4 Termination by Contractor clause 70 Fluctuations and legislationM o s t o f t h e a b o v e c l a u s e s s t a t
e t h a t t h e E n g i n e e r " s h a l l d e t e r m i n e " t h e Contractor's entitlem
ent. Under
clause 40.2 (Engineer's determination followingsuspension), "the Engine
er shall...determine...the amount". Similarly, under clause 49.3 (Cost of
remedying defects) and clause 50.1 (Contractor to search),if the work has been
caused by defects which, in the Engineer's opinion, are not

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the Contractor's responsibility, the Engineer "shall" determine the extra payment.In
these instances, the only question is the quantum of the Contractor's costs."... or
otherwise...": this appears to be a reference to breach of
contract. Thisinclusion of breach of contract within the workings of the
contract is reflected inclause 67 (Settlement of Disputes) where it is
made clear that even disputes asto breach of contract must be referred
to the Engineer for his decision prior to any arbitration. There is no similar
provision in clause 52(5) of the 3rd Edition nor in clause 52(4) of ICE 5th or 6th. It is
generally accepted that without words suchas those to be found in clauses 53 and
67 of the 4th Edition, the Engineer wouldhave no jurisdiction in relation
to breaches of contract. Any claims deriving from c o n t r a c t d o c u m e n t s
o t h e r t h a n " t h e s e C o n d i t i o n s " o r g e n e r a t e d b y l o c a l l a w s would
also be covered by the phrase."...if the Contractor intends to claim...": the force of
this clause is mitigated by thisphrase. If the Contractor can demonstrate that
at the relevant time he did not i n t e n d t o c l a i m , p e r h a p s b e c a u s e h e
w a s u n a w a r e o f t h e p o t e n t i a l f o r s u c h a claim, then the notice
requirement is inapplicable. However, it should be notedt h a t t h e 2 8 day period does not run from the date o n which the intention
w a s formed, nor from the date on which the effect first manifested itself, but the
dateon which the event giving rise to the claim occurred.An additional
requirement is placed on a Contractor pursuing a claim by clause 60.9
(Cessation of Employer's liability). Under this clause, the Employer's liabilityfor such
claims ceases unless the Contractor has included the claim in his
FinalStatement and, if the claim arose prior to substantial completion, in his
Statementat Completion.U n d e r c l a u s e 6 0 . 1 ( M o n t h l y s t a t e m e n t s ) , t h e
C o n t r a c t o r i s t o i n c l u d e i n h i s statement "any other sums to which
the Contractor may be entitled under the Contract". The form of that statement
is to be prescribed by the Engineer who willinevitably require that the grounds
for the claim be identified. A Contractor maywell wish to point to his
monthly statement by way of a notice under this sub -clause. A difficulty in
the Contractor's way is that clause 60.1 does not require themonthly statement
to be copied to the Employer whereas the Employer must
bes e n t a c o p y u n d e r t h e c u r r e n t s u b - c l a u s e .
A p a r t f r o m t h i s o b j e c t i o n , i t i s submitted that the monthly
statement could well suffice. Under the 3rd Edition,regular monthly
reports were called for, a system which has certain apparen tadvantages
over the present clause. In ICE 6th, notices are called for "as soon as
may be reasonable and in any event within 28 days".5 3 . 2 T h e o b l i g a t i o n
imposed upon the Engineer to study the records may
b e found in practice to be inconvenient to the Contra ctor and Engineer
alike. Thisclause may be honoured more in the breach. See comments under 53.5
below.5 3 . 3 T h i s c l a u s e b e a r s s i m i l a r i t i e s w i t h c l a u s e 4 4 . 3
( I n t e r i m d e t e r m i n a t i o n o f extension of time) where delays having
a continuing effect cause the Contractor to give regular
interim notices which are intended to result in interim extensions
Page 180 of 264

of time being granted. Here, the regular notices are to

b e g i v e n a n d t h e r e i s provision, albeit ambiguous, for interim payment under
sub-clause 53.5.The requirement to submit "a final account within 28 days of the end
of the effectresulting from the event", will often prove difficult to enforce in practice. It
is veryoften highly debatable when the effects of any given event come
to an
end. For e x a m p l e , t h e e f f e c t s o f a c r i t i c a l d e l a y w i l l
, o n o n e v i e w , e n d o n l y u p o n substantial completion as every
critical activity subsequent to the delay will havebeen postponed.5 3 . 4 I n c o n t r a s t
to clauses 44.2 (Contractor to provide notification and
d e t a i l e d particulars) and 52.2 (Power of Engineer to fix rates), there is no attempt
here tocreate a condition precedent to entitlement. The incentive offered for
complianceis that the Contractor's entitlement would be limited to such
amounts as he isable to prove from such contemporary records as he
maintained. The severity
of t h i s c l a u s e w o u l d d e p e n d v e r y m u c h o n t h e E n g i
n e e r ' s o r a r b i t r a t o r ' s interpretation of the clause. Arbitrators reading
the clause at its narrowest wouldpermit no oral evidence and would require
the claim to be "verified", i.e. proved by contemporary records. This
requirement may lead to a far higher standard of proof than the traditional balance of
probabilities. Similarly, they could decline
tom a k e a s s u m p t i o n s i n o r d e r t o b r i d g e g a p s i n d o c u m e n t
a t i o n . M o r e l i k e l y however, arbitrators will take the same view as
they would if this clause did notexist, namely that the Contractor will
only recover those sums to which he can prove his
entitlement.5 3 . 5 T h e E n g i n e e r i s o b l i g e d t o c e r t i f y
i n i n t e r i m c e r t i f i c a t e s t h o s e c l a i m s i n respect of which he has
sufficient particulars. If clause 53.2 has been followedand the Engineer
has indicated what records he requires to be kept, it will be d i f f i c u l t f o r
him to plead an insufficiency of particulars. The Engineer is
notentitled to hold out for the claim to be fully particularised
b e f o r e m a k i n g a n y payment but must make such payment as the
particulars justify. In the common situation where liability is agreed but the
amount of costs is disputed, this clausewill be invoked in support of an interim
payment.Whilst this may have been the intention, the Employer could argue that
paymentshould only be made where the Engineer is fully satisfied as to a particular
part of the claim. If it is clear that the claim is worth, for example, between $20,000
and$ 3 0 , 0 0 0 b u t a g r e e m e n t h a d n o t b e e n a c h i e v e d o n a n y
d i s t i n c t p a r t o f t h e $20,000, the Employer could resist payment.
This seems unfortunate and theclause could usefully be clarified. This
provision should be compared with theprovision for on -account
payments in clause 52.1 (Valuation of variations) and c l a u s e 5 2 . 2
(Power of Engineer to fix rates). Under those clauses, it is
m a d e clear that payment is to be made in the absence of agreement or the fixing by
theEngineer of a rate or price. This comparis on assists the Employer to
argue thatthe draftsman did not intend such on -account payments to be
made under thecurrent sub-clause.
Page 181 of 264

CLAUSE 54 : Contractors Equipment

All equipment, temporary works and materials that the Contractor brings onto siteare
to be for the exclusive use of the works and may only be removed with
theconsent of the Engineer.The Employer will not generally be liable for
loss or damage to the equipment, temporary works or
materials.T h e E m p l o y e r w i l l u s e h i s b e s t e n d e a v o u r s t o h e l
p t h e C o n t r a c t o r o b t a i n clearance of his equipment etc.
through customs and, where equipment hasbeen imported for
t h e w o r k s , t o h e l p t h e C o n t r a c t o r o b t a i n p e r m i s s i o n t o r e - export
the equipment etc. when finished with.All equipment hire agreements must permit
the Employer to take over the hiringo f t h e e q u i p m e n t i n t h e e v e n t o f
a t e r m i n a t i o n u n d e r c l a u s e 6 3 ( D e f a u l t o f Contractor).A l l
costs incurred by an Employer in taking over and hiring
e q u i p m e n t w i l l b e recoverable from sums otherwise due to the Contractor under
clause 63.All sub-contracts are to include an equivalent clause permitting
the Employer totake over the equipment and materials of
subcontractors.N o t h i n g i n t h i s c l a u s e a m o u n t s t o a p p r o v a l b y t h e
E n g i n e e r o f t h e m a t e r i a l s , equipment etc.Clause 54 has been
substantially altered. Sub -clauses 54.5. 54.6 and 54.7 arenew to the 4th
Edition although clauses of this sort were suggested in Part II of the 3rd
Edition.5 4 . 1 T h e o b j e c t o f t h i s s u b - c l a u s e i s t o e n s u r e
t h a t e q u i p m e n t , m a t e r i a l s e t c intended for use on the Site
are not diverted to other projects on which theContractor may
be working. The Engineer's consent is subject to clause
1 . 5 (Notices, consents etc.) and must not "unreasonably be withheld or
delayed".Moreover, under clause 2.6 (Engineer to act impartially), he
must exercise hisdiscretion in relation to granting such consent impartially. Thus,
if a suspensionu n d e r c l a u s e 4 0 . 1 ( S u s p e n s i o n ) , f o r
example, is likely to be prolonged, anEngineer might well be
a c t i n g u n r e a s o n a b l y i f h e w i t h h e l d h i s c o n s e n t t o t h e Contractor
using his equipment on a nearby project.The Engineer, it is submitted, may not
withhold his consent once the execution of the works, subject to any necessary
remedial works in the defects liability period,h a s b e e n s u b s t a n t i a l l y
c o m p l e t e d . T h i s c o n c l u s i o n d e r i v e s b o t h f r o m t h e deemed
intention in this sub-clause as well as the impartiality obligation
under clause 2.6 (Engineer to act impartially). This view is reinforced by
the terms of clause 33.1 (Clearance of site on completion) which imposes an
obligation upon

Page 182 of 264

the Contractor to remove from parts of the site taken over

a l l C o n t r a c t o r ' s Equipment which is not required for remedying defects.
See also clause 69.2(Removal of Contractor's Equipment) which requires the
Contractor to remove
allh i s e q u i p m e n t f r o m s i t e w i t h r e a s o n a b l e d e s p a t c h a f t e r t e r
m i n a t i o n o f h i s employment under the contract due to a default by the
Employer.The proviso in relation to transport vehicles is new to the 4th
Edition, althoughsuggested in Part II to the 3rd
Edition.5 4 . 2 : C l a u s e 2 0 ( C a r e o f W o r k s ) m a k e s t h e E m p l o
y e r l i a b l e f o r d a m a g e resulting from causes listed in clause 20.4
(Employer's risks) which range from war and hostilities through damage due to
use or occupation by the Employer toany operation of the forces of nature. Clause
65 (Special risks) again makes theContractor liable in respect of five of the
Employer's Risks set out in clause 20.4.In the event of termination by the
Employer pursuant to clause 63.1 (Default of Contractor), the Employer or
his replacement contractor is entitled to use theContractor's equipment,
temporary works and materials. As drafted, this clauseprotects the
Employer from loss or damage to such equipment etc even if
thel o s s a n d d a m a g e i s c a u s e d b y t h e E m p l o y e r o r t h e E m p l o
y e r ' s a l t e r n a t i v e contractor. If this clause is left unamended, the matter must
be taken into accountb y t h e C o n t r a c t o r i n a r r a n g i n g h i s i n s u r a n c e
u n d e r c l a u s e 2 1 . 1 ( I n s u r a n c e o f Works and Contractor's
Equipment).5 4 . 3 / 5 4 . 4 : T h e d u t y i m p o s e d b y a n o b l i g a t i o n t o u s e
" b e s t e n d e a v o u r s " h a s been the subject of a good deal of judicial
consideration. In summary, the phrasehas been held to impose a heavy
burden, namely to leave no stone unturned. However, modern decisions have
taken a less rigid approach and ask, as did theAustralian court in Transfield v
Arlo International (1980) 30 ALR 201, "what
isr e a s o n a b l e i n t h e c i r c u m s t a n c e s , h a v i n g r e g a r d t o t h e n a t
u r e , c a p a c i t y , qualifications and responsibilities of the [Employer]
v i e w e d i n t h e l i g h t o f t h e particular contract". The reference to best
endeavours is new to the 4th Editionand might well be said to impose a
greater obligation than that contained in the 3rd Edition which was "to assist". It
seems unlikely that it was the intention of thedraftsman to add to the Employer's
obligations in this regard.The Employer is only obliged to assist with re-export
in the case of Contractor'sEquipment. Surplus materials, temporary
works, rejected plant etc. would needto be the subject of special
arrangements. Clause 32.1 (Contractor to keep
thes i t e c l e a r ) a n d c l a u s e 3 3 . 1 ( C l e a r a n c e o f s i t e o n c o m p l e t
i o n ) r e q u i r e t h e Contractor to remove such materials from site and should be
read in conjunctionwith this clause.54.5.By no means all hirers of equipment
would be willing to proceed on termsw h e r e b y t h e E m p l o y e r u n d e r t a k e s
o n l y t o p a y h i r e c h a r g e s f r o m t h e d a t e o f termination onwards
although such terms are included in the standard terms
of t h e E n g l i s h C o n s t r u c t i o n P l a n t H i r e
A s s o c i a t i o n . A s t h e E m p l o y e r h a s n o obligation under clause 63.3
(Payment after termination) to pay the Contractor any further sum until the
end of the Defects Liability Period, the Contractor may
Page 183 of 264

not have money to pay the hirer, leaving the hirer exposed. The Employer mightbe
better served by a term whereby he agrees to pay all hire charges outstandingand
thereafter deducts such charges from sums otherwise due to the
Contractor.T h i s c l a u s e s h o u l d b e r e a d w i t h c l a u s e 4 . 2 ( A s s i g n m e n t o
f s u b c o n t r a c t o r s ' obligations) and clause 63.4 (Assignment of ben efit of
agreement). The
latter c l a u s e a l s o s e e k s t o p r o t e c t t h e E m p l o y e r ' s p o s i t i
o n i n t h e e v e n t o f t h e termination of the Contractor's
employment.5 4 . 6 . U n d e r c l a u s e 6 3 . 3 ( P a y m e n t a f t e r t e r m i n a t i o n ) ,
t h e E m p l o y e r , a f t e r t h e expiry of the Defects Liability Period, pays to the
Contractor the total sum whichthe Engineer determines would have been
payable had the Contractor completedless the total cost to the Employer of
completing the works, remedying defects and any other damages or expenses
incurred.5 4 . 7 T h i s s u b clause should be read with clause 4 (Subcontracti
n g ) i n particular subc l a u s e 4 . 2 ( A s s i g n m e n t o f s u b c o n t r a c t o r ' s o b l i g a t i o n s ) w h i c h require
s the Contractor to assign guarantees and other continuing obligations tot h e
Employer. This may mean that a term has to be included
into the subcontract to that effect. See also clause 63.4 (Assignm
e n t o f b e n e f i t o f agreement). Terms for inclusion in sub -contracts
are also set out in clause 59.2(Nominated Subcontractors; objection to
nomination). In the current sub-clause,the incorporation of terms is particularly
important for the preservation of
theE m p l o y e r ' s r i g h t s i n t h e e v e n t o f t e r m i n a t i o n u n d e r c l a u s e 6 3 . 1
( D e f a u l t o f Contractor). As always, when seeking to incorporate the main contract
provisionsi n t o s u b - c o n t r a c t s , c o n s i d e r a b l e c a r e i s n e c e s s a r y . F o r
e x a m p l e , i s t h e s u b - contract clause to indicate that it is the Engineer's
consent or the Contractor'sconsent that is required prior to the removal of
materials? Is it the Employer
or t h e C o n t r a c t o r w h o i s t o u s e h i s b e s t e n d e a v o u r s t o a s s i s t w i
t h c u s t o m s clearance as referred to in sub-clauses 54.3 and 54.4? A provision
in the subcontract imposing obligations upon the Employer is worth
l i t t l e t o t h e subcontractor as the Employer is not a party to the sub-contract.
Presumably, theintention is that sub-clauses 54.1 and 54.5 should be incorporated
so that theEngineer's consent is necessary to removal and so that the Employer
is able tot a k e o v e r t h e s u b c o n t r a c t o r ' s h i r e a g r e e m e n t . T h e c u r r e n t s u b c l a u s e w o u l d benefit from clarification.5 4 . 8 . T h i s c l a u s e i s c o n s i s t e n t w i t h t h e
p o l i c y o f t h e c o n t r a c t a s s t a t e d u n d e r clause 61.1 (Approval only by
defects liabilities certificate) that no other actionshould amount to approval. See
also clause 7.3 (Responsibility unaffected
bya p p r o v a l ) , c l a u s e 1 4 . 4 ( C o n t r a c t o r n o t r e l i e v e d o f d u t i e s o r r e s p o n s i
bilities),clause 17 (Setting-out) and clause 37.2 (Inspection and
t e s t i n g ) f o r o t h e r examples.Part II provides two optional additional clauses whereby
Contractor's equipment,temporary works etc. vest in the Employer on delivery to
site and revest in theContractor upon their removal with the Engineer's consent. This
would not affecth i r e d e q u i p m e n t o r e q u i p m e n t t h e p r o p e r t y o f
subcontractors unless the subPage 184 of 264

contract is 'back-tob a c k ' w i t h t h e s e c o n d i t i o n s a n d v e s t s s u b c o n t r a c t o r s ' equipme

nt in the Contractor on delivery to siteOn international projects, the role of the
Contractor's Equipment is often
critical.A s m e n t i o n e d i n t h e c o m m e n t a r y u n d e r c l a u s e 1 4 .
1 ( P r o g r a m m e t o b e submitted) a factor in the evaluation of tenders
will often be the equipment thatthe competing tenderers propose to
employ on the project. Thus it is importantthat the passage of the equipment
through customs and its arrival on site shouldgo smoothly and that, once on site and very often paid for - it cannot thereafter b e r e m o v e d u n t i l i t s w o r k i s
c o m p l e t e . O p t i o n a l c l a u s e s 5 4 . 2 a n d 5 4 . 5 a r e intended to give
the Employer security over the Contractor's equipment etc for the
performance of the contract. They also protect
the Employer against delaysor increased costs which would arise following
termination, especially where theequipment is substantial or specially
designed for the works. It is submitted
thatt h e s e o p t i o n a l c l a u s e s c o n f e r o n t h e E m p l o y e r a s e c u r i t y
i n t e r e s t i n t h e Contractor's equipment etc. Advice should be obtained in each
case whether thesecurity interest requires registration in order to take priority over
the Contractor'screditors or its liquidator.By contrast, it is submitted that the
current Part I clause may not be sufficient toconfer a security interest or
proprietary right in the Contractor's equipment.
Itf o l l o w s t h a t u n d e r E n g l i s h l a w , t h e E m p l o y e r ' s r i g h t t o u s e t h e C
o n t r a c t o r ' s equipment after termination may be invalidated by the
insolvency laws. For thisr e a s o n , E m p l o y e r s m a y p r e f e r t o a d o p t
t h e o p t i o n a l c l a u s e s o n a l l b u t t h e smallest projects.FIDIC'S Guide
also suggests that Part II be used to deal with other issues suchas
limitations on the selection of Contractor's equipment and temporary
works,preference for local products etc.. FIDIC also suggest that additions to this
clauseshould be drafted bearing in mind any additions to clause 34
(Engagement of staff and labour).
CLAUSE 55 : Bill of Quantities
This clause, which is virtually unchanged fr om the 3rd Edition, makes
clear thatthe quantities in the bill of quantities are estimates only.Together with
clause 56.1 (Works to be measured), clause 55 determines thecharacter
of this contract as a remeasurement contract. Apart from clause 56.1,t h i s
clause should be read in conjunction with clause 51.1 (Variations)
w h i c h makes the increase or decrease in the quantity of any work a variation which
theE n g i n e e r h a s p o w e r t o i n s t r u c t ; a n d c l a u s e 5 1 . 2 ( I n s t r u c t i o n s
f o r v a r i a t i o n s ) which states that an instruction is not necessary where the
increase or decreasei n q u a n t i t i e s i s d u e s i m p l y t o t h e i n a c c u r a c y
o f t h e q u a n t i t i e s i n t h e B i l l o f Quantities. These variations arise
"automatically" due to the fact that the physicalwork executed comprises quantities
different from the theoretical work describedin the Bill of Quantities. It has been
submitted under clause 51.2 (Instructions for
Page 185 of 264

variations) that automatic changes in quantities fall within the definition of

"variedwork". If this submission is correct, it is perhaps anomalous that
under clause52.1 (Valuation of variations) and clause 52.2 (Power of
Engineer to fix rates), t h e E n g i n e e r i s g i v e n t h e p o w e r t o f i x a r a t e
for the work the subject of
sucha u t o m a t i c v a r i a t i o n s w h i c h i s d i f f e r e n t f r o m t h e r a t
e s e t o u t i n t h e B i l l o f Quantities. The Engineer may exercise his
discretion where he considers the rates not to be "applicable" or where it is
"rendered inappropriate or inapplicable"by "the nature or amount of any varied
work relative to the nature o f amount of the whole of the Works". Thus,
although in practice a Contractor will fix his rate inaccordance with the
quantities that he believes will actually be required by the design of the
Works rather than the quantities set out in the Bill of Quantities, hew i l l
nevertheless be entitled to argue for a new rate when,
p e r h a p s a s h e predicted, the Bill of Quantities turns out to be inaccurate.Of
course, this may work in the Employer's favour: if, for example, a very
smallq u a n t i t y w a s i n c l u d e d f o r p u m p i n g w a t e r o u t o f
e x c a v a t i o n s o n t h e m i s t a k e n belief on the part of the Engineer that
the water-table was below the level of the deepest excavation and the
Contractor, possibly suspecting differently, placed alarge figure against that item, the
Employer would, but for clause 52.2, be obligedto pay to the Contractor an
enormous windfall when, in the event, a great deal of pumping was in fact
required.One effect of a remeasurement contract is that errors made by the
Contractor incarrying forward the rates and quantities into total figures which are
summariseda s t h e C o n t r a c t P r i c e a r e a u t o m a t i c a l l y
corrected in the measurement andvaluation process. This is
b e c a u s e e a c h v a l u a t i o n w i l l b e m a d e o n t h e a c t u a l quantities
executed, multiplied by the bill rates. The Contractor is in no way heldto the total
that is contained in the right -hand column of the Bill of
Quantities.Unscrupulous contractors may therefore allow "errors" to
creep in to their Bill of Quantities in order to produce a more
competitive tender price. For this re ason,o n e o f t h e f i r s t a c t i o n s
t a k e n b y t h e E m p l o y e r u p o n r e c e i p t o f t e n d e r s i s t o perform a
mathematical check of the prices in the Bill of Quantities.A different and difficult
problem is created where tenderers make last minute adjustments to their
tender in order to achieve a competitive price by inserting inthe summary page
of the Bill of Quantities, for example, "Less 1 1/2%" or "Less100,000".
Employer's should make it plain to tenderers that such a practice is not
acceptable or specify the way in which such an adjustment is to be dealt
with.F o r e x a m p l e , a l l r a t e s c o u l d b e t r e a t e d a s h a v i
n g b e e n r e d u c e d b y t h e percentage or, in the case of a lump sum, the
reduction could be confined to thepreliminary section of the bill. Otherwise, there is
room for debate over what arethe rates. The Contractor will argue that, for
example, the adjustment should bedisregarded when considering the
appropriateness of a rate or when fixing anew rate. It may be said that
the adjustment was intended only for the originalcontract work and not
for whatever variations the Employer may require in the future. This
uncertainty needs to be eliminated.
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CLAUSE 56 : Measurement of works

The Engineer shall valu e the W orks in accord
a n c e w i t h c l a u s e 6 0 b y measurement. W hen any
measurement is to take place, the Engineer is to givenotice to the
Contractor who will attend to assist the measurement and
provideparticulars. If the Contractor fails to attend, the Engineer's
measurement will betaken as correct. W here measurement is by rec ords
and drawings prepared bythe Engineer, the Contractor will attend within two
weeks of being called upon todo so and shall examine, agree and sign the
records and drawings. If he fails toattend, the records and drawings will
be taken to be correct. If h e attends
butd o e s n o t s i g n , t h e C o n t r a c t o r m u s t s e r v e n o t i c e w i t h i
n t w o w e e k s o f h i s objections, otherwise they will again be taken to
be correct. The Engineer, on r e c e i p t o f s u c h o b j e c t i o n s , s h a l l
r e v i e w a n d c o n f i r m o r v a r y h i s r e c o r d s a n d drawings.T h e r e a r e a
number of changes to this clause in the 4th Edition,
m a i n l y o f vocabulary. The final sentence of the clause is new.V a l u a t i o n b y
measurement is central to the character of this contract.
S u c h valuation will occur in relation both to interim certificates and,
most importantly,the Final Certificate under clause 60.8 (Final
Certificate). It may be consideredodd that there is no reference in
clause 60 (Payment) either to measurement or to this clause, although the
link is formed by the opening sentence of this
clause.N o t i m e t a b l e f o r t h e m e a s u r e m e n t i s g i v e n , s o t h e
r e g i m e o f c l a u s e 6 0 . 2 (Monthly payments) will effectively govern the
procedure.The questions raised by this clause are, firstly, whether measurements
"taken
tob e c o r r e c t o r a g r e e d " f o r t h e p u r p o s e s o f o n e i n t e r i m
c e r t i f i c a t e m a y b e challenged for the purposes of the next interim certificate
and, secondly, whether they may be opened up by arbitration. In theory,
each interim certificate should r e p r e s e n t a s e p a r a t e v a l u a t i o n
e x e r c i s e b u t i t i s n e v e r t h e l e s s d i f f i c u l t t o f i n d support within the
contract for the proposition that the Contractor should be ablet o c a l l f o r t h e
remeasurement of an area of work untouched between
o n e valuation and the next. As to arbitration, an ascertainment or
determination bythe Engineer may be opened-up, reviewed or revised by an
arbitrator pursuant
toc l a u s e 6 7 ( S e t t l e m e n t o f d i s p u t e s ) b u t w h e r e t h e p
a r t i e s h a v e a g r e e d a measurement or by the contract have
a g r e e d t h a t i t s h o u l d b e d e e m e d t o b e correct, there would appear to be no
dispute and thus no room for an arbitration.It is therefore submitted that if the
Contractor agrees a measurement or fails to attend with the result that the
Engineer's measurement is deemed to be correct,the Contractor will be held to his
agreement or the dee ming effect of the clauseunless the particular works
have subsequently to be remeasured. This result
isl o g i c a l i n v i e w o f t h e h i g h p r o p o r t i o n o f w o r k t h a t i
s c o v e r e d u p i n c i v i l engineering contracts. The arbitrator, it is submitted,
may look at the facts leadingto the conclusiveness to ensure that the terms of
the clause have been f ollowed but may not open up the measurement if the specified
steps have been taken.
Page 187 of 264

If the Contractor attends a measurement but disagrees the result, there

is noexpress provision within this clause such as that dealing with disagreements
over records and drawings. However, it is for the Engineer to ascertain and
determineso that he is not inhibited by such disagreements. Under those
circumstances,the Contractor would be free to refer the dispute to
arbitration."...except as otherwise stated...". Matters which are not to
be measured includethe preliminary and lump sum items and variations and any
other additions whicha r e t o b e d e t e r m i n e d i n a c c o r d a n c e w i t h c l a u s e
5 2 ( V a l u a t i o n o f v a r i a t i o n s ) where there are no appropriate or applicable
rates. Works relating
to provisionals u m s o r n o m i n a t e d s u b c o n t r a c t o r s m a y
a l s o b e v a l u e d o t h e r t h a n b y measurement. In a
contract where the parties have agreed to stage payments, measurement
would be relevant to the amount of the Final Certificate only.There is an apparent
conflict within this clause between the "reasonable notice" to be given to
the Contractor's agent and the obligation upon the agent who shall"forthwith attend".
This wording is presumably intended to mean that the agent isto attend promptly
at the time and place specified in the notice. If so, "promptly"could
usefully replace "forthwith". The requirement of "reasonable" notice is newto the 4th
Edition."...the Contractor's a uthorised agent...". This is presumably
intended to be
the" a u t h o r i s e d r e p r e s e n t a t i v e " r e f e r r e d t o i n c
l a u s e 1 5 . 1 ( C o n t r a c t o r ' s superintendence). In the 3rd
Edition, both clauses 15 and 56 refer to "theContractor's
authorised agent or representative". If the draftsman of the
4 t h Edition intended the agent in this clause to be the representative in
clause 15, itw o u l d b e a s w e l l t o a c h i e v e c o n s i s t e n c y
b e t w e e n t h e s e t w o c l a u s e s i n t h e current edition.The new final
sentence serves to remind the parties that after a ll the machineryo f t h e
clause, it is for the Engineer ultimately to ascertain and
d e t e r m i n e t h e measurements, subject only to arbitration.
CLAUSE 57 : Net measurement of works
This clause provides for the W orks to be measured net unless
the contract sayso t h e r w i s e . T h e C o n t r a c t o r i s r e q u i r e d
t o g i v e a b r e a k d o w n o f t h e l u m p s u m items in his tender within four
weeks of the letter of acceptance.Sub-clause 57.1 is taken with minor
amendments from the 3rd Edition but sub -clause 57.2
is new.5 7 . 1 P a r t i e s w i l l o f t e n r e q u i r e a S t a n d a r d M e t
h o d o f M e a s u r e m e n t t o b e referred to in the contract. An
SMM guides the parties as to the meaning and c o n t e n t s o f t h e
Bill of Quantities as well as the measurement of the
w o r k executed. In theory, it should reduce both the length of the Bill and the scope
for

Page 188 of 264

disputes. In fact, many disputes have been founded on the wording of

an SMM,o f t e n i n r e l a t i o n t o o m i s s i o n s f r o m t h e B i l l . I n t h i s
context, see clause
12.1( S u f f i c i e n c y o f t e n d e r ) w h i c h r e q u i r e s a C o n t r a c t o r
t o a l l o w f o r a l l t h a t i s necessary for the completion of the works.The
meaning of "measured net" is far from settled, particularly in the absence of an
SMM.5 7 . 2 T h i s s u b - c l a u s e i s n e w t o t h e 4 t h E d i t i o n . I t s
p u r p o s e a n d , n o d o u b t , i t s effect is to reduce the scope for
argument as to the proportion of items includedin the Bill of Quantities or
tender as lump sums which should be included in eachvaluation. Naturally, the
Contractor will wish to be paid in full for the item at the e a r l i e s t
possible moment. The breakdown i s also needed for the
p u r p o s e o f valuing variations pursuant to clause 52 (Valuation of variations).
CLAUSE 58 : Provisional Sum
"Provisional sum" is defined. The Contractor will
b e e n t i t l e d t o t h e s u m determined by the Engineer in respect of work
covered by the provisional sums.The Engineer may issue instructions in
relation to provisional sums for work or the supply of materials etc either by
the Contractor who is to be paid pursuant toclause 52 (Valuation of variations) or by
a nominated Subcontractor who is to bepaid pursuant to clause 59.4 (Payments to
nominated
Subcontractors).U n l e s s t h e w o r k i s v a l u e d i n a c c o r d a n c e w i t h
e x i s t i n g r a t e s o r p r i c e s , t h e Contractor shall produce all
documentation relevant to provisional sums.This clause has changed little in
principle from the 3rd Edition although the lastsentence in sub -clause
58.1 is new and the exception at the end of sub -clause5 8 . 3 i s a l s o
new. Sub-clause 58.2 has been reorganised but without
m a j o r alterations to its effect. Goods and materials to be purchased by the
Contractor are now valued under clause 52 (Valuation of Variations) and not by
reference toclause 59.4 (Payment to nominated Subcontractors) as in the 3rd
Edition.58.1/58.2 As commented under clause 49.1 (Defects Liability Period), it woul
dbe helpful and good practice to collect all definitions into clause 1.1
(Definitions)particularly as the term "Provisional sum" is referred to on eight other
occasionsoutside this clause.FIDIC has abandoned the distinction between
provisional and prime costs sumswhich is maintained in ICE 5th and 6th: neither the
3rd Edition nor the 4th Editionrefers to prime cost sums. In ICE 5th,
provisional sums were optional sums
butp r i m e c o s t s u m s h a d t o b e e x p e n d e d . T h u s ,
v e r y o f t e n , n o m i n a t e d subcontractors were the subject of
prime cost sums. Here and in ICE 6th, the E n g i n e e r m a y i n s t r u c t o r
not. This raises the perennial question as to what

Page 189 of 264

allowance if any the Contractor is obliged to make in his programme for

workscovered by provisional sums. Where there was a distinction between
provisionals u m s a n d p r i m e c o s t s u m s , t h e r e w a s a n o b v i o u s
l i n e t o d r a w . U n d e r t h e present regime, a Contractor may be justified in
including in his programme noneof the matters the subject of provisional sums, even
though some of the works
tob e p e r f o r m e d b y n o m i n a t e d S u b c o n t r a c t o r s m a y b e c e n
t r a l t o t h e p r o j e c t . Alternatively, the line could be drawn
between those matters which must
beundertaken to complete the project and those matters which
are genuinelyoptional extras. Unde r clause 44.1 (Extension of
T i m e f o r C o m p l e t i o n ) , " t h e amount of or nature of extra or additional work" is
the first ground for extension of t i m e . T h i s a r e a i s f r a u g h t w i t h
u n c e r t a i n t y a n d s h o u l d b e a d d r e s s e d b y t h e parties. For an
argument that changes to t he actual amount of work necessaryfor
elements of the work given provisional quantities should be the subject
of extensions of time, see under clause 51.2 (Instructions for variations).The
question arises as to whether provisional sums fall within the defi nition
of " v a r i e d w o r k " w i t h i n c l a u s e 5 2 . 1 ( V a l u a t i o n o f V a r i a t i o n s ) . T
h e q u e s t i o n i s relevant under clause 52.3 (Variations exceeding 15%) and
whether the value of work executed in relation to provisional sums is to
form part of the calculation bearing in mind that the provisional sum entered into
the Bill of Quantities will beexcluded from the calculations. "Varied work" includes "all
variations referred toin clause 51". Instructions relating to the
expenditure of provisional sums do notfit happily into any of the categories of
variation listed in that clause. Alternatively,varied work may be "any additions to the
Contract Price which are required to bedetermined in accordance with clause 52".
Whilst the current sub-clause refers toclause 52, the reference is not in the context of
an addition to the Contract Price.This is because the provisional sum forms
part of the Contract Price and is thenreplaced by the actual value of any work
ordered. As that replacement is done byway of the omission of provisional sum and
the addition of the actual value, thereis an argument that provisional sums fall within
clause 51.1 (Variations) item (e)"execute additional work".H o w e v e r , i t i s
submitted that it was not the intention of the draftsman
t h a t provisional sum work should fall within "varied work". The matters covered by
thesecond part of the definition of varied work are those to be found in clauses
suchas clause 17.1 (Setting out) and clause 65.3 (Damage to Works by special
risks)where the words "addition to the Contract Price in accordance with
clause 52"are to be found. This view is supported by the separate treatment that
provisionalsums receive under clause 52.3 in item (b), whereas varied
work is dealt withunder item (a). If the above submission is correct,
notice is not required under clause 52.2 (Power of Engineer to fix
rates). W hether payment for provisional s u m w o r k i s " a d d i t i o n a l
p a y m e n t " f o r t h e p u r p o s e o f c l a u s e 5 3 . 1 ( N o t i c e o f Claims), so
that notice within 28 days is required, is debatable. It is
submittedt h a t s u c h n o t i c e i s n o t n e c e s s a r y , p a r t i c u l a r l y i
n t h e l i g h t o f c l a u s e 5 8 . 3 (Production of vouchers).
Page 190 of 264

Altogether, contractors would be well advised to make it clear in their

tenderswhat allowance, if any, has been made in their programme and
preliminaries for the provisional sums.5 8 . 3 T h e a d d i t i o n o f t h e
exception to the 4th Edition reflects the fact that
t h e provisional sum is to be valued under clause 52.1 (Valuation of variations) "at
therates and prices set out in the contract if, in the opinion of the Engineer, the
sames h a l l b e a p p l i c a b l e " . W h e r e s u c h r a t e s a n d p r i c
e s a r e a p p l i c a b l e , t h e Contractor's actual expenditure becomes less
relevant. However, under clause59.5 (Certification of payments to nominated
Subcontractors), the Contractor isoblig ed to produce proof that payments
due to nominated Subcontractors have been made.It has been submitted
above that the Contractor is not obliged to serve noticeunder clause 52.2
(Power of Engineer to fix rates) in order to obtain a valuationof work
done in relation to a provisional sum. The proviso to clause 52.2 refers to
"work instructed to be done by the Engineer pursuant to clause 51". It must
bedoubtful that a notice under clause 53.1 (Notice of claims) is required
in view of t h i s s u b - c l a u s e . T h e u n c e r t a i n t y
g e n e r a t e d b y c l a u s e 5 3 i s n o t e d i n t h e commentary under that
clause.The Engineer's ability to instruct in relation to provisional sums may be one of
thematters for which the Employer requires the Engineer to seek approval
as listedin Part II under clause 2.1 (Engineer's duties and authority).
CLAUSE 59 : Nominated Sub-Contractor
The term "nominated Subcontractors" is defined.The Contractor need not employ
any nominated Subcontractor against whom hehas reasonable objection or who
refuses to enter into a sub-contract which isb a c k t o b a c k w i t h t h e
m a i n c o n t r a c t a n d w h i c h i n d e m n i f i e s t h e C o n t r a c t o r i n respect of the
nominated Subcontractor's breaches and against the negligence of his workmen
and misuse of any Temporary Works.If any nominated sub-contract includes
a design obligation, the contract and thenominated sub-contract must say
so. A subcontractor must agree to indemnify the Contractor in respect of such
design obligations.In respect of nominated Subcontractor's work, the
Contractor will be entitled to the price due to the subcontractor, payment under
clause 52 for any attendanceand the profit percentage specified in the Bill of
Quantities or Appendix to Tender.The Engineer is entitled to proof that certified sums
have been paid to
nominatedS u b c o n t r a c t o r s b e f o r e i s s u i n g a n y f u r t h e r c e r t i f i c a t e . U
nless the Contractor shows he has reasonable grounds for
refusing to make such a payment and

Page 191 of 264

proves that he has so notified the nominated Subcontractor, the

Employer maymake direct payments and deduct the equivalent sum from the
Contractor. TheEngineer is to show the deduction on the next certificate
which should not bedelayed.Clause 59 is essentially the same as in
the 3rd Edition save that clause 59(6)
of t h e 3 r d E d i t i o n c o n c e r n i n g t h e a s s i g n m e n t o f n o m i n a t e
d S u b c o n t r a c t o r ' s obligations has become clause 4.2 (Assignment of
subcontractor's obligations) inthe current edition.5 9 . 1 T h e d e f i n i t i o n o f
n o m i n a t e d S u b c o n t r a c t o r s i n c l u d e s p e r s o n s w i t h w h o m the
Contractor is obliged to enter into sub -contract by the terms of the
contract.Under clause 4.1 (Sub -contracting), there is reference at item
(c) to "the sub-contracting of any part of theW orks for which the
Subcontractor is named in the Contract". It is possible toenvisage
circumstances where only one subcontractor or supplier is
possiblebecause, for example, a specified product is available from only
one supplier
or b e c a u s e t h e C o n t r a c t o r ' s l i s t o f p r o p o s e d s u b c o n t r a c t o
r s w a s a g r e e d a n d incorporated within the contract. Under these
circumstances, it would surpriseb o t h p a r t i e s t o r e a l i s e t h a t t h e
subcontractors or suppliers were "nominatedSubcontractors" in
r e s p e c t o f w h o s e w o r k s a n d s u p p l i e s t h e C o n t r a c t o r w a s entitled to
the addition of the percentage set out in the Appendix to Tender under clause
59.4(c)." . . . s h a l l . . . b e d e e m e d t o b e s u b c o n t r a c t o r s t o t h e
Contractor...". This clausemakes it clear that the Contractor re
m a i n s f u l l y r e s p o n s i b l e f o r n o m i n a t e d subcontractors' acts and
defaults as if they were domestic subcontractors. Byclause 4.1 (Subcontracting), the Contractor "shall be responsible for the acts,defaults
and neglects of any Subcontractor". There is no extension of time
for delays by nominated Subcontractors nor would such delay normally be
acceptedas "special circumstances" within clause 44.1 (Extension of time for
completion).The Contractor is left to his remedies under the nominated
sub-contract whichshould include the indemnities set out at sub-clause 59.2(a)
and (b).Under English common law, the Engineer is obliged to renominate in the
event of a nominated subcontractor's default. Under these conditions, it is submitted
thatthe Engineer must be entitled to specify a replacement by issuing
an instructionand that he also has an obligation to do so. This is despite
the fact that clause4.1 (Subcontracting) places responsibility for
"any Subcontractor" squarely ontothe Contractor, with no extension of time
available, unlike some English forms.The significance of the issue is as follows:(i)if the matter is entirely at the Contractor's risk, then
i t s h o u l d f o l l o w t h a t h e is entitled to execute the works himself; and

Page 192 of 264

(ii)if there is an obligation to instruct, a failure to

d o s o o r a f a i l u r e t o d o s o reasonably promptly, could either
bring the contract to a stand-still or entitle theContractor to an extension
of time. If it proves very difficult to find a
replacements u b c o n t r a c t o r , d o e s r e s p o n s i b i l i t y f o r t h e e
n s u i n g d e l a y p a s s f r o m t h e Contractor?This question, it is
submitted, may be limited to those circumstances where theEngineer h as
nominated or selected the original Contractor or they have beenspecified
by the Employer in the contract. The Contractor may argue that
thesubcontractors, where specified in the contract or named by the
Engineer, areeffectively part of the Works. He is not entitled to use any
other subcontractor a n d s o t h e E m p l o y e r s h o u l d b e r e q u i r e d t o
i s s u e a v a r i a t i o n i n t h e e v e n t t h a t some alternative subcontractor is
required. Under clause 13.1 (W ork to be inaccordance with contract),
the Contractor is spared performance of the contractwhere it is legally or
physically impossible to do it. When a subcontractor hasdefaulted, for
example, by going into liquidation and if the Contractor has no rightto execute the
works himself, it must be legally and/or physically imposs ible for him to
proceed. Further, the payment regime set out in sub -clauses 59.4
and5 9 . 5 s u g g e s t t h a t t h e E n g i n e e r h a s a c o n t i n u e d r
e l a t i o n s h i p w i t h a n d responsibility for the nominated su
b c o n t r a c t o r s . W h e r e t h e n o m i n a t e d subcontractor is the
subject of a provisional sum, clause 58.1 (Definition
o f "Provisional Sum") makes it plain that the expenditure of the
Provisional Sum ist o b e d o n e o n t h e i n s t r u c t i o n s o f t h e
Engineer. Under clause 58.2 (Use
of Provisional Sums), the Engineer may instruct either th
e Contractor or thenominated subcontractor to execute th
e w o r k s : s u c h a n i n s t r u c t i o n , i t i s submitted, is needed before the
Contractor can himself execute the works.In summary, it is submitted that the
Contractor's argument for an entitlement toan instruction upo n the
default of a subcontractor nominated by the Employer
or t h e E n g i n e e r i s s t r o n g a n d t h a t , a l t h o u g h t h e r i
s k o f t h e n o m i n a t e d subcontractor's default itself remains on the Contractor,
any delays created by af a i l u r e p r o m p t l y t o r e n o m i n a t e o r i n s t r u c t w o u l d
e n t i t l e t h e C o n t r a c t o r t o a n extension. The Employer's preferred solution in
these circumstances will often b e i m m e d i a t e l y t o i n s t r u c t t h e C o n t r a c t o r
t o e x e c u t e t h e w o r k s h i m s e l f o r b y subcontractors selected by him subject
to the approval of the Engineer under clause 4.1 (Subcontracting).If the Contractor
obtains his own replacement subcontractor, the work is still thesubject of a provisional
sum and clause 58 (Provisional Sums) still applies. Aprovisional sum would be
valued in accordance with clause 52 and it follows fromthe conclusion that an
instruction must be issued that the Contractor should
ber e i m b u r s e d f o r t h e c o s t o f e x e c u t i n g t h e w o r k h i m s e l f o r o
b t a i n i n g a n e w subcontractor to do that work even if the costs exceed those
payable in respect o f t h e n o m i n a t e d s u b c o n t r a c t o r i n d e f a u l t . T h i s i s
also consistent with theEnglish common law position: the Engineer
i s o b l i g e d t o r e n o m i n a t e a n d t h e Employer to pay the sub-contract price
of the replacement subcontractor. Subclauses 59.4 and 59.5 will no longer apply as the Cont
r a c t o r o r h i s n e w subcontractor will not be "nominated Subcontractors".
Page 193 of 264

59.2A dispute over whether a Contractor's objection to

a p r o p o s e d n o m i n a t e d Subcontractor was "reasonable" or not is one
that could theoretically bring th ec o n t r a c t t o a s t a n d s t i l l
w h i l s t t h e m a t t e r w a s r e f e r r e d t h r o u g h t h e d i s p u t e s procedure
under clause 67 (Settlement of disputes) to arbitration. As FIDIC'so w n
Guide points out, it is obviously important to give the
C o n t r a c t o r e v e r y opportunity to object at t he earliest possible
stage. There is no provision as tothe time at which such objections must
be raised unless it can be said that the term "reasonable" refers both to the
timing of the objection as well as its content.It is submitted that an Employer
could properly reject an objection which was unreasonably
delayed.W h e r e n o m i n a t e d s u b c o n t r a c t o r s h a v e b e e n a p p o i n t
e d i n a d v a n c e o f t h e Contract due, for example, to long lead times
on certain materials, the right to make objection should not exist provided that
the appointment was notified to theContractor before the contract was entered
into. No doubt the objection would have to be exceptional to pass the
reasonableness test.If the Contractor raises a reasonable objection or the
nominated Subcontractor d e c l i n e s t o s u b - c o n t r a c t o n t h e s p e c i f i e d
t e r m s , t h e E m p l o y e r m a y e i t h e r r e - nominate, a course which could
involve serious delay to the contract, or attemptto re-negotiate with the Contractor
and nominated Subcontractor to overcome theo b j e c t i o n . T h i s c o u r s e m a y
p r o v e e x p e n s i v e . A t h i r d p o s s i b i l i t y c o u l d b e t o instruct the Contractor
to execute the work himself. As the Contractor may havebid for the work the subject
of the proposed nominated sub-contract himself, thismay be a desirable result. If
the work is specialised, possibly incorporating anelement of design, this
will be less welcome although under clause 59.3, theContractor will have
had notice of a design element in his contract. Generally,however, the
Contractor would be unlikely to lose by the arrangement.Under clause 4.2
(Assignment of subcontractors' obligations) and clause 63.4 (Assignment of
benefit of agreement), the Contractor should provide in any subcontract for the right to make such assignments. Se
e a l s o c l a u s e 5 4 . 7 (Incorporation of clause in subcontrac ts) which
specifies a term for inclusion in sub-contracts concerning equipment and
materials.59.3Just as the Contractor is fully responsible for the defaults
of the nominatedSubcontractor, so the nominated Subcontractor must
look to the Contractor inrespect of any claims that the subcontractor
wishes to advance. In view of thefact that it is the Engineer who instructs
in the first instance what sum is to be paid to the Subcontractor, it will often be
with the Engineer that the subcontractor is aggrieved. The difficult question then
arises as to how that dispute should ber e s o l v e d . E x p e r i m e n t s i n t h e U K
w i t h p r o c e e d i n g s w h e r e b y t h e n o m i n a t e d Subcontractor "borrows"
the name of the main contractor in order to pursue the Employer have
produced horribly complicated and unsatisfactory results: see for e x a m p l e L o r n e
Stewart v W illiam Sindall (1986) 35 BLR 109. An
alternativewhich appears in English domestic subc o n t r a c t s i s a n o b l i g a t i o n u p o n t h e contractor to obtain and pass on
to the nominated Subcontractor the benefits of
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the main contract and generally to advance the interests of the

n o m i n a t e d Subcontractor in dealings with the Employer. This has also proved
unsatisfactorydue to the lack of incentive for the Contractor and the variety of other
commercialconsiderations. If the nominated Subcontractor attempts
to start an arbitrationagainst the Contractor, he may be met with the rejoinder
that there is no dispute,that the subcontractor's claim is agreed in principle and has
been forwarded on
tot h e E m p l o y e r f o r c o n s i d e r a t i o n a n d p a y m e n t . T h i s w o u l d
only defuse thearbitration however if, under the terms of
the nominated subcontract, theContractor was only obliged to pay to the no
m i n a t e d S u b c o n t r a c t o r s u m s instructed to be paid by the Engineer.This
sub-clause is to be read in conjunction with clause 7.2 (Permanent
Worksdesigned by Contractor) which also requires express provision of
any designobligation and clause 8.2 (Site operations and methods of
construction) which states "where the Contract expressly provides that part of the
Permanent Worksshall be designed by the Contractor, he shall be fully
responsible...".FIDIC offers no guidance to the parties as to the form of any
sub-contract other than indicating the obligatory terms under clause 59.2. The
wide-spread practiceof using an ICE form of sub -contract becomes
increasingly dangerous as
thesec o n d i t i o n s a n d t h e I C E c o n d i t i o n s g r o w f u r t h e r a p a r t . C a r e f
u l c o n s i d e r a t i o n needs to be given, not least to the respective provision for
design liability.5 9 . 4 I t e m ( a ) . I t i s s u b m i t t e d t h a t t h e
C o n t r a c t o r i s n o t o b l i g e d t o o b t a i n a n instruction on each
occasion that payment is to be made to the
nominatedSubcontractor. It will be sufficient to point to an
instruction that required theContractor to enter the sub -contract
g i v i n g r i s e t o t h e o b l i g a t i o n t o p a y . T h i s interpretation is founded
on the use of the words "paid or due to be paid": whilstthe alternative may
be explained as dealing with the Contractor's rights of set-off or with payments
authorised but not payable under the sub-contract, the phrase,it is submitted, fits the
contractual liability concept more easily. Furthermore, it isnot immediately obvious
why instructions would be needed for each payment ast h e E n g i n e e r a l r e a d y
h a s t h e t a s k u n d e r c l a u s e 6 0 . 2 ( M o n t h l y p a y m e n t s ) o f ruling on
the Contractor's monthly application for payment which will include
astatement of the nominated Subcontractor's work and the Contractor's
proposedpayment. "Instructions" refers back to those referred to in clause
58.2 (Use of Provisional Sums), therefore.If the above argument is incorrect, the
question arises as to whether a paymentmust have been "on the instructions
of the Engineer" as well as "in accordancewith the sub -contract". If the
Contractor had been obliged to make a paymentunde r the sub-contract
but has obtained no instructions from the Engineer, theContractor has no
entitlement. If the subcontractor's entitlement was due to
ad e f a u l t o f t h e C o n t r a c t o r , t h e n t h e E n g i n e e r ' s i n s t r u c t i o
n i s a n i m p o r t a n t safeguard for the Employer. If, however, the
E n g i n e e r h a s s i m p l y f a i l e d t o instruct or has instructed for a smaller sum,
the Contractor will be obliged to takethe matter to arbitration. An Engineer may not
necessarily feel obliged to instruct
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even upon receipt of an arbitrator's award as between Contractor and

nominatedSubcontractor.Item (b). The Contractor's attendance and
superintendence may be the subjectof a separate item in the bill of quantities,
either as a lump sum or percentage, or may be left to be valued in accordance with
clause 52 (Valuation of variations).Item (c) represents the attraction to
contractors of nominated sub -contracts asthis percentage
for profit is comparatively risk-free, particularly if the nominatedsubcontract is reinforced by security such as a performance bond.5 9 . 5 T h i s c l a u s e
is designed to ensure that nominated Subcontractors are
p a i d promptly and so perform their often crucial roles in the project without
disruption.Without this provision, the Employer would have to pay the Contractor
regardlessof whether or not the subcontractor had also been paid directly. The
Employer,
ino t h e r w o r d s , w o u l d p a y t w i c e . P e r h a p s i n e v i t a b l y , t h i s s u b c l a u s e d o e s n o t prevent the Employer paying twice but arranges
recovery from the Contractor.This is not ideal if the cause of the non-payment of
the nominated Subcontractor is the insolvency of the Contractor, as will
usually be the case. However, the Employer will at the very least have retention
in hand from which to deduct.The sanction upon the defaulting Contractor
does not seem to be very onerous.The indication upon reading the clause
as a whole is that certificates under themain contract should not be
delayed but should merely exclude the amount duet o t h e n o m i n a t e d
subcontractor. The Contractor would lose the use
of thatm o n e y f o r w h a t e v e r n u m b e r o f d a y s t h e c o n t r a c t s a
l l o w e d h i m b u t s e e m s otherwise to be untroubled. He is apparently
still entitled to his attendance and his profit under items (b) and (c) under clause
59.4.It should be noted that the amount deducted from subsequent certificates will
bethe amount actually paid directly by the Employer so that the
Contractor shouldreceive the subcontractor's retention money less the
Contractor's own retentionpercentage. This is in fact an improvement on
the Contractor's normal positionwhereby, if the main contract and nominated
sub-contract retention percentageswere equal, the Contractor would receive
no actual payment in respect of the subcontractor's retention.There would be a
sanction against the Contractor if the Engineer certified nothingin respect of the
nominated Subcontractor and simultaneously certified that the Employer
was entitled to make direct payments. The Employer, having made thedirect
payment, would then be entitled to deduct from the current certificate
thesum paid direct so that the deduction would be made from sums actually
payablet o t h e C o n t r a c t o r a n d h i s o t h e r
s u b c o n t r a c t o r s . H o w e v e r , t h i s w o u l d h a r d l y achieve the objective of
the clause as the nominated Subcontractor would have received the previous
payment which had not been passed on but would have towait at least a further
month until any further payment could be made by either Contractor or
Employer. The most likely scenario is that the Engineer would c e r t i f y t h e
sums due to the nominated Subcontract or as normal and give
the
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Employer a direct payment certificate at the same

t i m e . U n d e r t h o s e circumstances, it is difficult to see that the
Contractor suffers in any substantial way."...paid or discharged...". The
sub-clause recognises that the Contractor mayhave a set-off against the
nominated Subcontractor which extinguishes any rightto payment. It is the
reasonableness of the set-off of which the Contractor mustsatisfy the Engineer. If the
Contractor demonstrated to an arbitrator that this set-off was reasonable when the
Engineer took the opposite view and issued a directpayment certificate, the risk, as
first sight, is that the Employer may be obliged topay the Contractor as
well. Generally, the loss incurred by the Contractor will beminor, but if the Engineer's
attitude prevented the Contractor recovering from thenominated Subcontractor a setoff to which the Contractor was entitled, the losswould be equivalent to that setoff.T h e s i g n i f i c a n c e o f t h e r e q u i r e m e n t i n i t e m ( b ) f o r p r o o f t h a t
t h e n o m i n a t e d subcontractor has been informed in writing of the cause for
withholding paymentw o u l d a p p a r e n t l y b e t o e n s u r e t h a t t h e
nominated Subcontractor has had anopportunity to respond to
the Contractor's claims, the assumption apparentlybeing that
such response would either be made directly to the Employer
or E n g i n e e r o r t h a t t h e r e s p o n s e w o u l d b e c o p i
e d b y t h e Co n t ra c t o r o r subcontractor to the Engi
n e e r , t o e n a b l e h i m t o m a k e h i s j u d g m e n t o n reasonablen
ess.I n p r a c t i c e , t h e d e s i r e t o m a k e d i r e c t p a y m e n t s o c c u r s
m o s t f r e q u e n t l y i n circumstances where the employment of the
Contractor has been terminated.This sub-clause does not address this issue
and the obligation under clause 63.4(Assignment of benefit of agreement)
requires only that the benefit of such sub-c o n t r a c t s b e a s s i g n e d t o
t h e E m p l o y e r a n d t h u s n o t t h e o b l i g a t i o n t o m a k e payments.
CLAUSE 60 : Certificates & Payments of the Contractor
This clause provides a mechanism for payment of the Contractor. Each
month,t h e C o n t r a c t o r s u b m i t s s i x c o p i e s o f h i s m o n t h l y v a l u a t i o n
i n c l u d i n g o n - s i t e materials, fluctuations and claims.The Engineer has 28 days in
which to certify the sum due less retention and anysums other than liquidated
damages which the Contractor owes the Employer. T h e E n g i n e e r w i l l
not certify unless the net amount of the certificate wouldexceed
the minimum amount set out in the Appendix and the Contractor
h a s submitted his performance security.Half of the retention money will be
certified upon the issue of the Taking -Over Certificate or a proportion of
the retention money if the Taking-Over Certificaterelates to a Section or part
only.

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The other half will be certified at the end of the last Defects
Liability Period.However, if there is any outstanding defect or
s e a r c h t o b e u n d e r t a k e n , t h e Engineer may continue to retain enough of the
retention money to cover the costof the work to be executed.The Engineer is entitled
to correct or modify interim certificates, including by theomission or reduction in the
value of items.W ithin 12 weeks of the Taking-Over Certificate , the
Contractor is to submit a s t a t e m e n t , w h i c h i s a v a l u a t i o n o f a l l t h e
w o r k s a n d c l a i m s u p t o s u b s t a n t i a l completion. In addition, the
Contractor should provide an estimate of his futureentitlement. The Engineer
is to produce a further interim certificate.Within 9 weeks of the Defect Liability
Certificate, the Contractor is to produce hisdraft final statement showing his
final valuation and accompanied by supportingdocumentation. If the draft can
be agreed, or after the production of any further information that
the Engineer calls for, the Contractor re-submits it in its agreedform as the
Final Statement.At the same time, the Contractor must produce a written
discharge stating that,once the sum set out in the Final Statement has been paid
and the performancesecurity returned, he will have been paid in full and final
settlement.W i t h i n 4 w e e k s o f t h e s u b m i s s i o n o f t h e F i n a l
S t a t e m e n t a n d d i s c h a r g e , t h e Engineer issues a Final Certificate
stating the total contract valuat ion and
anyb a l a n c e o u t s t a n d i n g b e t w e e n t h e C o n t r a c t o r a n d t h e E
m p l o y e r o t h e r t h a n liquidated damages.The Employer will not be liable
to the Contractor for any claim which was notreferred to in the Final
Statement and, unless the claim arose after the date o f substantial
completion, the Statement at Completion.Interim certificates shall be paid
within 28 days of their delivery to the Employer and the Final Certificate
within 8 weeks. Interest will accumulate on late paymentat the rate stated in the
Appendix.This clause represents FIDIC's first attempt to draft in detail the payment
clause.In the 3rd and preceding editions, clause 60 merely suggested that
the detailedprovision should be drafted by the parties to the contract
following a menu of s u b j e c t s s e t o u t i n P a r t I I . T h e i n f l u e n c e o f
I C E 5 t h , t h e p a y m e n t c l a u s e s o f which were often used to fill the void in
earlier editions, is clearly visible.6 0 . 1 A l t h o u g h n o t i m e i s g i v e n
w i t h i n w h i c h t h e C o n t r a c t o r i s t o s u b m i t h i s monthly statement,
the Contractor will normally submit it as soon as he can.( a ) I t m i g h t h a v e
been expected to see the words "properly
e x e c u t e d " o r "executed in accordance with the contract". This would
have put it beyond doubt

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that permanent works executed but in a defective fashion or otherwise not to

thesatisfaction of the Engineer, would not be paid for. However, "Permanent
Works"are defined as "works to be executed ... in accordance with the Contract", so
theEngineer will not be without support in declining to pay. Contrast clause
60.5(a)where the Contractor submits "the final value of all work done in accordance
withthe Contract". For a case on payment for work not properly executed, see
Acsimv Dancon (1989) 47 BLR 55. Payment does not imply approval: see
sub-clause6 0 . 4 ( C o r r e c t i o n o f c e r t i f i c a t e s ) w h i c h a l l o w s t h e
E n g i n e e r t o a m e n d i n t e r i m certificates and clause 61.1 (Approval only by
Defects Liability Certificate)."(e) any other sum to which the Contractor may
be entitled under the contract."T h i s a p p e a r s t o b e i n t e n d e d t o
i n c l u d e c l a i m s a n d t h u s r a i s e s t h e q u e s t i o n whether the monthly
statement would be a sufficient notice to satisfy clause 53.1(Notice of
claims). Under this clause, a statement is required only to show
thea m o u n t t o w h i c h t h e C o n t r a c t o r c o n s i d e r s h i m s e l f e n t i t
l e d , b u t " t h e f o r m prescribed by the Engineer" is bound to require the
Contractor at least to indicatet h e h e a d o f c l a i m c o n c e r n e d . A b r i e f h e a d
o f c l a i m , w i t h a n a m o u n t q u o t e d would, it is submitted, be sufficient to
satisfy clause 53.1. However, claims thatare not quantified within the month
may be excluded from the statement. Goodpractice may be to include all
heads of claim in the monthly statement whether quantified or not. In the
latter case, the entries could be marked "to follow" or equivalent. Clause
53.1 requires notices of claim to be copied to the Employer, w h e r e a s a l l
six copies of the monthly statement to go to the Engineer.
T h e Contractor should therefore send an extra copy to the Employer.CLAUSE 60
(Certificates and payment)60.1 Monthly StatementsT h e C o n t r a c t o r s h a l l
s u b m i t t o t h e E n g i n e e r a f t e r t h e e n d o f e a c h m o n t h s i x copies, each
signed by the Contractor's representative approved by the
Engineer i n a c c o r d a n c e w i t h S u b C l a u s e 1 5 . 1 , o f a s t a t e m e n t , i n s u c h f o r m a s t h e Engineer
may from time to time prescribe, showing the amounts to which
theContractor considers himself to be entitled up to the end of the month in
respectof (a) the value of the Permanent Works executed(b) any other items
in the Bill of Quantities including those for Contractor'sEquipment,
Temporary Works, dayworks and the
like(c) the percentage of the invoice value of listed materials, all as stated in theA p p
endix to Tender, and Plant delivered by the Contractor o
n t h e S i t e f o r incorporation in the Permanent Works but not incorporated in
such Works(d) adjustments under Clause 70

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(e) any other sum to which the Contractor may be entitled under the Contractor
otherwise.60.2 Monthly PaymentsClick on the [*] button to see omitted text.The
Engineer shall, within 28 days of receiving such statement, [*] deliver to
theEmployer an Interim Payment Certificate stating the amount of
payment to theContractor which [*] the Engineer considers due and
payable in respect [*] of such statement,
subject:( a ) f i r s t l y , t o t h e r e t e n t i o n o f t h e a m o u n t c a l c u
l a t e d b y a p p l y i n g t h e Percentage of Retention stated in the Appendix to
Tender, to the amount to whichthe Contractor is entitled under paragraphs
(a), (b), (c) and (e) of Sub -Clause60.1 until the amount so retained
reaches the limit of Retention Money stated inthe Appendix to Tender,
and(b) secondly, to the deduction, other than pursuant to Clause 47, of any sumswhi
ch may have become due and payable by the Contractor to the
Employer.P r o v i d e d t h a t t h e E n g i n e e r s h a l l n o t b e b o u n d t o c e r t i f y
any paymentu n d e r t h i s S u b Clause if the net amount thereof, after all retentions and
deductions, would be less than the Minimum Amount of In
t e r i m P a y m e n t Certificates stated in the Appendix to Tender. Notwithstanding
the terms of thisC l a u s e o r a n y o t h e r C l a u s e o f t h e C o n t r a c t n o
amount will be certified by
theEngineer for payment until the performance security, if requi
r e d u n d e r t h e Contract, has been provided by the Contractor and approved by
the Employer.60.3 Payment of Retention MoneyClick on the [*]button to see omitted
text.( a ) U p o n t h e i s s u e o f t h e T a k i n g - O v e r
C e r t i f i c a t e w i t h r e s p e c t t o t h e whole of the Works, one
h a l f o f t h e R e t e n t i o n M o n e y , o r u p o n t h e i s s u e o f a Taking-Over
Certificate with respect to a Section or part of the Permanent Worksonly such
proportion thereof as the Engineer determines having regard to
therelative value of such Section or part of the Permanent Works, shall
be certifiedby the Engineer for payment to the Contractor.( b ) U p o n t h e
expiration of the Defects Liability Period for the Works
t h e o t h e r half of the Retention Money shall be certified by the Engineer for
payment to theContractor. Provided that, in the event of different Defects Liability
Periods
havingb e c o m e a p p l i c a b l e t o d i f f e r e n t S e c t i o n s o r p a r t s o f t
h e P e r m a n e n t W o r k s pursuant to Clause 48, the expression "expiration of
the Defects Liability Period"shall, for the purposes of this Sub-Clause, be
deemed to mean the expiration of the latest of such periods. Provided also that
if at such time, there shall remain tobe executed by the Contractor any
work [*] instructed, pursuant to Clauses 49 a n d 5 0 , i n r e s p e c t o f
the Works, the Engineer shall be entitled to
w i t h h o l d certification until completion of such work of so much
of the balance of the

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Retention Money as shall, in the opinion of the Engineer, represent the

cost of the work remaining to be executed.60.4 Correction of CertificatesThe
Engineer may by any Interim Payment Certificate make any correction
or modification in any previous Interim Payment Certifica te which shall
have beenissued by him and shall have authority, if any work is not being carried
out to hiss a t i s f a c t i o n , t o o m i t o r r e d u c e t h e v a l u e o f s u c h w o r k i n
a n y I n t e r i m P a y m e n t Certificate.60.5 Statement at CompletionNot later than 84
days after the issue of the Taking-Over Certificate in respect of the whole of the
Works, the Contractor shall submit to the Engineer six copies of a Statement at
Completion with supporting documents showing in detail, in the form
approved by the
Engineer,(a) the final value of all work done in accordance with the Contra
ct up to thedate stated in such Taking-Over Certificate( b ) a n y f u r t h e r s u m s
which the Contractor considers to be due
a n d (c) an estimate of amounts which the Contractor considers will become due tohi
m under the
Contract.T h e e s t i m a t e d a m o u n t s s h a l l b e s h o w n s e p a r a t e l y i
n s u c h S t a t e m e n t a t Completion. The Engineer shall certify payment
in accordance with Sub-Clause60.2.60.6 Final StatementNot later than 56 days
after the issue of the Defects Liability Certificate pursuantto Sub-Clause 62.1, the
Contractor shall submit to the Engineer for considerationsix copies of a draft final
statement with supporting documents showing in detail,in the form approved by the
Engineer,(a) the value of all work done in accordance with the Contract and (b) any
further sums which the Contractor considers to be due to him under the
Contract or
otherwise.I f t h e E n g i n e e r d i s a g r e e s w i t h o r c a n n o t v e r i f y a n
y p a r t o f t h e d r a f t f i n a l statement, the Contractor shall submit such
further information as the Engineer m a y r e a s o n a b l y r e q u i r e a n d
shall make such changes in the draft as may beagreed between
them. The Contractor shall then prepare and submit
t o t h e Engineer the final statement as agreed (for the purposes of these
Conditionsreferred to as the "Final Statement").

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If, following discussions between the Engineer and the Contract

or and anychanges to the draft final statement which may be
a g r e e d b e t w e e n t h e m , i t becomes evident that a dispute exists, the Engineer
shall deliver to the Employer an Interim Payment Certificate for those parts of the
draft final statement, if any,which are not in dispute. The dispute may then be
settled in accordance with Clause 67.60.7
DischargeU p o n s u b m i s s i o n o f t h e F i n a l S t a t e m e n t , t h e C o n t r
a c t o r s h a l l g i v e t o t h e Employer, with a copy to the Engineer, a
written discharge confirming that the total of the Final Statement represents full
and final settlement of all monies dueto the Contractor arising out of or in respect
of the Contract. Provided that
suchd i s c h a r g e s h a l l b e c o m e e f f e c t i v e o n l y a f t e r p a y m e n t d
u e u n d e r t h e F i n a l Payment Certificate issued pursuant to Sub-Clause 60.8
has been made and theperformance security referred to in Sub-Clause 10.1, if any,
has been returned tothe Contractor.60.8 Final Payment CertificateClick on the [*]
button to see omitted text.Within 28 days after receipt of the Final Statement, and the
written discharge, theE n g i n e e r s h a l l i s s u e t o t h e E m p l o y e r ( w i t h a
c o p y t o t h e C o n t r a c t o r ) a F i n a l Payment Certificate
stating(a) the amount which, in the opinion of the Engineer, is finally due
under theContract or otherwise, and(b) after giving credit
to the Employer for all amounts previously paid by theEmployer and for all
sums to which the Employer is entitled [*] , other than under Clause 47,
the balance, if any, due from the Employer to the Contractor or fromthe
Contractor to the Employer as the case may
be.60.9 Cessation of Employer's LiabilityThe Employer shall not be liable to the
Contractor for any matter or thing arisingout of or in connection with the
Contract or execution of the W orks, unless theContractor shall have
included a claim in respect thereof in his Final Statementand (except in
respect of matters or things arising after the issue of the Taking O v e r
Certificate in respect of the whole of the Works) in the
S t a t e m e n t a t Completion referred to in Sub-Clause
60.5.60.10 Time for PaymentThe amount due to the Contractor under
any Interim Payment Certificate issuedby the Engineer pursuant to this
Clause, or to any other term of the Contract,shall, subject to Clause 47,
be paid by the Employer to the Contractor within 28

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days after such Interim Payment Certificate has been delivered to the Employer,or,
in the case of the Final Payment Certifica te referred to in Sub-Clause
60.8,within 56 days, after such Final Payment Certificate has been
delivered to theEmployer. In the event of the failure of the Employer to make
payment within thetimes stated, the Employer shall pay to the Contractor
interest at the rate statedin the Appendix to Tender upon all sums unpaid from
the date by which the sameshould have been paid. The provisions of this
Sub-Clause are without prejudiceto the Contractor's entitlement under Clause
69 or
otherwise.A s i s s h o w n a b o v e , t h e a m e n d m e n t s t o c l a u s e
6 0 f a l l i n t o t h e f o l l o w i n g categories:-( i ) A m e n d m e n t s
addressing the certification of
breach of contract;( i i ) A m e n d m e n t s f o l l o w i n g t h e
d e f i n i t i o n o f i n t e r i m p a y m e n t c e r t i f i c a t e a n d final
payment certificate;( i i i ) T h e p r o v i s i o n f o r i n t e r i m p a y m e n t s
where the final statement cannot
b e agreed;( i v ) M i n o r a m e n d m e n t s . (i) Breach Of ContractAs
was pointed out in the main work, the 4th Edition lacked any clear policy as
tow h e t h e r d a m a g e s f o r b r e a c h o f c o n t r a c t s h o u l d f o r m p a r
t o f t h e p a y m e n t mechanism under clause 60. This has
now been resolved in favour of theinclusion of damages for
b r e a c h o f c o n t r a c t w i t h i n t h e s c o p e o f t h e c e r t i f y i n g function of the
Engineer.The addition of the words "or otherwise" in sub -clauses 60.1,
60.6 and 60.8(a)and the removal of the words "under the Contract" in sub-clause
60.8(b) has hadthis effect. The decision of those responsible for the
amendments to make theE n g i n e e r r e s p o n s i b l e f o r t h e c e r t i f i c a t i o n
o f d a m a g e s f o r b r e a c h o f c o n t r a c t removes an area of debate. Whilst it is
clear that the Engineer had power to ruleo n q u e s t i o n s o f d a m a g e s w h e n
m a k i n g a d e c i s i o n p u r s u a n t t o c l a u s e 6 7 . 1 (Engineer's decision), it is far
from clear that such power extended to the normalcertifying functions.Under clause
53.1 (Notice of claims), claims for additional payment "pursuant toany Clause of
these Conditions or otherwise" must be notified to the Engineer. Under
clause 53.5 (Payment of claims):-"The Contractor shall be entitled to have included
in any interim payment certifiedby the Engineer pursuant to Clause 60 such
amount in respect of any claim asthe Engineer...may consider due to the
Contractor provided that the
Contractor h a s s u p p l i e d s u f f i c i e n t p a r t i c u l a r s t o e n a b l e t h e E n g i n
e e r t o d e t e r m i n e t h e amount due."Prior to this reprint, it was arguable by an
Employer that, notwithstanding clause5 3 , t h e r e w a s n o r i g h t t o i n t e r i m
p a y m e n t s o f d a m a g e s b e c a u s e c e r t i f i c a t e s under clause 60.2 could
only include the sums listed in items (a) to (e) in clause

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60.1. Item (e) referred only to sums to which the Contractor was entitled "under the
Contract." The counter-argument was that the entitlement under clause 53.5to have
damages claims included in interim certificates had the effect of creatinga n
entitlement "under the contract". Such an argument could only
e x t e n d t o claims for damages where the Contractor had followed the
clause 53 proceduresufficiently to enable the Engineer to make a
determination. For an old case inwhich these arguments were aired in the
English courts, see Blackford & Sons
vC h r i s t c h u r c h ( 1 9 6 2 ) 1 L L R 3 4 9 . T h i s a r g u m e n t h a s b e e n
r e s o l v e d b y t h e addition of the words "or otherwise" to item (e).C l a u s e 5 3
refers only to claims
of the Contractor. There are no noticerequirements upon
t h e E m p l o y e r s o t h a t t h e E n g i n e e r m a y c e r t i f y a n d t h e Empl
oyer may deduct without any notice other than the certificate itself. This
hasa l w a y s b e e n t r u e u n d e r c l a u s e 6 0 . 2 ( b ) o f
t h e 4 t h E d i t i o n . O f c o u r s e , t h e Employer may have rights of
s e t - o f f u n d e r t h e l a w g o v e r n i n g t h e c o n t r a c t i n which case the
Contractor could be given no notice at all.The inclusion of damages in certificates
makes the careful exclusion of clause 47(Liquidated damages for delay) from interim
and final certificates look redundant.If the Engineer is to certify the Employer's
entitlement to unliquidated damages,w i t h a l l t h e d i f f i c u l t i e s o f
a s c e r t a i n m e n t i m p l i c i t i n s u c h a p r o c e s s , i t i s v e r y difficult to see
why he should not certify a sum that has been agreed as part of the
contract and is capable of precise calculation. If the Employer does not wisht o
claim liquidated damages he may say so as with any other
h e a d s o f c l a i m which he may have.An Engineer certifying damages may
wish to introduce additional lines on the form of certificate: firstly, representing
additional sums owed to the Contractor for the Employer's breaches; and
secondly, showing deductions resulting from the Contractor's breaches.(ii)
Definition of "Interim Payment Certificate" and "Final Payment Certificate"See
generally the comments under clause 1.1 (Definitions) ab ove. As
statedthere, the new definition of Interim Payment Certificate has been
used in sub-clauses 60.2 (Monthly payment), 60.4 (Correction of certificates) and
60.10 (Timef o r p a y m e n t ) . A s d i s c u s s e d i n t h e c o m m e n t a r y u n d e r
clause 1.1 above,
thed e f i n e d t e r m c o u l d h a v e b e e n u s e d i n s u b c l a u s e s 5 9 . 5 ( C e r t i f i c a t i o n o f payments to nominated
Subcontractors), 60.3 (Payment of Retention
Money)a n d 6 0 . 5 ( S t a t e m e n t a t c o m p l e t i o n ) a s t h e c e r t i f i c a t e s r e f
erred to in theseclauses fall within the definition of Interim
P a y m e n t C e r t i f i c a t e . I t h a s b e e n submitted that the definition of Interim
Payment Certificate has been more widelydrawn than intended.(iii) Interim Payment
following disputed Final StatementIn clause 60.6 (Final Statement), a
paragraph has been added. This pa ragraphclosely follows the World
Bank's recommendation in their suggested paragraph

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60.11. One important difference, however, is that

the World Bank adds ana d d i t i o n a l s e n t e n c e n a m e l y : " T h e F i
n a l S t a t e m e n t s h a l l b e a g r e e d u p o n settlement of the dispute". The
desirability of the sentence is considered below.The additional wording also
deals with one of the criticisms of sub -clause 60.6e x p r e s s e d
in the main work. In the absence of these words,
i t r e m a i n e d arguable whether the Engineer was oblig ed to certify any
payment pending theagreement of the Final Statement. Good practice would
call for such a certificatebut an Employer would previously have had grounds
for denying the Engineer'sauthority to so certify.I t i s s e e n t h r o u g h o u t t h e
conditions that interim payment should be made for those parts
of claims for additional payment which are not disputed by
theEngineer. In clause 52.2 (Power of Engineer to fix rates) the
E n g i n e e r i s t o determine provisional rates or prices pending the agreement or
fixing of rates or p r i c e s f o r v a r i a t i o n s . S i m i l a r l y , u n d e r c l a u s e 5 3 . 5
(Payment of claims) theContractor is entitled to payment for
t h o s e p a r t s o f a n y c l a i m f o r a d d i t i o n a l payment for which he has
provided sufficient particulars.Disputed parts of the Contractor's final statement are
to be settled in accordancewith clause 67 (Settlement of disputes). This procedure
may lead to one of threeresults:(a)a binding Engineer's decision;( b ) a n a r b i t r
a t o r ' s a w a r d ; (c)an agreement between the
E m p l o y e r a n d t h e C o n t r a c t o r , w h e t h e r under Clause 67.2
(Amicable settlement) or otherwise.The question then arises as to whether subclauses 60.7 (Discharge), 60.8
(FinalP a y m e n t C e r t i f i c a t e ) a n d 6 0 . 9 ( C e s s a t i o n o f E m p l o y e r ' s l i a b
ility) have anyf u n c t i o n w h e n t h e d i s p u t e h a s b e e n r e s o l v e d
u n d e r C l a u s e 6 7 . T h e F i n a l Statement is defined as an agreement
between the Engineer and the Contractor.U n l e s s t h e E n g i n e e r ' s d e c i s i o n
is wholly in agreement with the Contractor'sclaim, none of the
possible results of the disputes procedure leads to a
F i n a l Statement. A settlement or an award would generally specify when any
balanced u e t o t h e C o n t r a c t o r i s t o b e p a i d s o t h a t t h e p a r t o f
clause 60.10 (Time for payment) that deals with the final
p a y m e n t t o t h e C o n t r a c t o r w o u l d a l s o b e redundant.An Engineer's
decision, however, would not generally deal with time for payment.In these
circumstances, it would no doubt be expressed as the overall
balanced u e t o t h e C o n t r a c t o r a n d a m o u n t i n e f f e c t t o a
F i n a l P a y m e n t C e r t i f i c a t e . However, there would be no
a g r e e d F i n a l S t a t e m e n t a n d n o d i s c h a r g e u n d e r Clause 60.7
(Discharge) which are the necessary pre-cursors to a Final PaymentCertificate. As
the Employer's obligation to make final payment is tied to theFinal
Payment Certificate, the conditions have no mechanism for such a
finalpayment. Doubtless, the draftsman would rely upon the common
sense of theparties to overcome this hurdle.
Page 205 of 264

The W orld Bank, by its use of the additional sentence, evidently does not
sharethe draftsman's optimism and has provided th at "the Final
Statement shall beagreed upon settlement of the dispute". This could be
treated as a direction tothe Engineer or arbitrator to make their decision
or award in terms that the sumarrived at shall be treated as the amount
of the Final Statement. It is perhapsunfortunate that the World Bank's
wording calls for further agreement
betweenthe parties. One party might well take issue with the arbitrator's award. If FI
DICdecide to adopt the World Bank's general approach, it might be
preferable tointroduce a deeming provision whereby the gross sum arrived at in
the dispute istaken to be the amount of the Final Statement. It is accepted that this
solution
isn o t f r e e f r o m d i f f i c u l t y a s s u c h a d i s p u t e c o u l d w e
l l a d d r e s s t h e o v e r a l l entitlement of the Contractor i n e f f e c t t h e a m o u n t o f t h e F i n a l P a y m e n t Certificate - and
not just the gross entitlement of the Contractor which is
t h e subject of the Final Statement.The lack of a discharge under clause 60.7
(Discharge) does not matter greatly if the dispute which is taken through to an
Engineer's decision, a settlement or anaward address the overall
entitlement of the Contractor. The result will veryoften be a full and final
settlement of the Contractor's claims. More difficultya r i s e s i f t h e
dispute relates purely t o the Final Statement, permitting
further scope for conflict if the Employer through the Engineer
d e d u c t s c l a i m s a n d contra-charges on the face of the Final Payment
Certificate. Nevertheless, thed r a f t f i n a l s t a t e m e n t i s s u p p o s e d t o
i n c l u d e r e f e r e n c e t o a l l t h e C o n t r a c t o r ' s claims so that a resolution of a
dispute over the Final Statement should also be aresolution of those claims. Clause
60.9 (Cessation of Employer's liability) seeksto bar any claim from the
Contractor that is not included in the Final Statem ent.As commented in
the main work, the Final Statement referred to in clause 60.9must be the
Contractor's draft final statement as it would no longer be a claim once it
formed part of an agreed Final
Statement.I t i s r e a s o n a b l e t o a n t i c i p a t e t h a t c l a u s e 6 0 w i l l b
e t h e s u b j e c t o f f u r t h e r substantial change in the future.(iv) Minor
AmendmentsIn clause 60.3 (Payment of Retention Money) at item (b), the word
"ordered"
hasb e e n r e p l a c e d w i t h " i n s t r u c t e d " b r i n g i n g t h e v o c a b u l a r
y i n t o l i n e w i t h t h e remainder of the contract. The term "ordered" is left
over from previous editionsand shows the conditions' ICE
origins.I n c l a u s e s 6 0 . 5 ( S t a t e m e n t a t C o m p l e t i o n ) a n d 6 0 . 6 ( F i n a l
S t a t e m e n t ) t h e Contractor is now required to produce six copies of each
of those documents.This ame ndment is consistent with clause
60.1 (Monthly Statements) which hasalways required the Contractor to supply
six copies of his monthly
statements.6 0 . 2 " . . . c o n s i d e r s d u e a n d p a y a b l e i n r e s
p e c t t h e r e o f . . . " . T h e q u e s t i o n frequently
recurs as to whether the Engineer is entitled to certify damages
payable by the Employer to the Contractor. It is submitte
d that he cannot
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because the words "in respect thereof" relate to the

C o n t r a c t o r ' s s t a t e m e n t submitted under sub-clause 60.1. The contents
of this statement are specifiedand item (e) includes the words "under the
contract" thereby excluding damagesfor breach of contract.At item (b), the
Engineer is empowered to deduct from certificates "sums whichmay have
become due and payable by the Contractor to t he Employer". Thewords
"under the contract" are missing which must raise the argument that
theE n g i n e e r i s e n t i t l e d t o d e d u c t o n t h e f a c e o f c e r t i f i c a t e s
damages other thanliquidated damages for any breach of the
c o n t r a c t b y t h e C o n t r a c t o r o r e v e n sums which are due and payable
outside of the contract, for example, on other p r o j e c t s . I t m u s t b e
doubtful that this was intended by the draftsman. Theexpression
"which may have become due and payable" seems
u n n e c e s s a r i l y vague and would allow an Employer to seek to persuade the
Engineer to deducton the face of the certificates sums which the Employer
has merely claimed asdue from the Contractor. The Engineer is not
asked to consider the Employer'sclaim. Whilst in some jurisdictions it may be
that the Employer would be entitledto set off from certificates sums in respect of such
claims, it is again doubted thatthis was the intention of the draftsman.The careful
exclusion of clause 47 (Liquidated damages) from this clause and subclauses 60.8 and 60.10 becomes somewhat ironic in the light of the latitudeg i v e n
to the Employer and Engineer by 60.2(b). As
the Employer's ability tod e d u c t l i q u i d a t e d d a m a g e s i s r e
a l l y l a r g e l y d e p e n d a n t u p o n E n g i n e e r ' s decisions, the
value of this careful exclusion must be doubtful. One effect
of thee x c l u s i o n o f l i q u i d a t e d d a m a g e s i s t h a t t h e C o n t r a c t
o r w i l l b e e n t i t l e d t o a certificate if the monthly total due to him
would have been reduced below
theM i n i m u m A m o u n t o f I n t e r i m C e r t i f i c a t e s h a d t h e l i q u i d a
t e d d a m a g e s b e e n deducted.It has not been made clear whether the
Contractor is entitled to apply for interimcertificates other than under sub clause 60.5 after substantial completion. Inreality, the period between
the statement at completion and the final statementand certificate could
be a long one and sums may fall due as, for example, the valuation of
variations is agreed with the Engineer. It is submitted that the normalpractice of
certifying as and when significant sums are agreed is intended here.Clauses which
entitle the Employer to make deductions are as follows:-- clause 25.3(Remedy on
Contractor's failure to insure- clause 30.3(Transport of materials or plant): where the
Contractor has failed toprevent damage to roads.- clause 37.4(Rejection)clause 39.2(Default of Contractor in compliance)- c l a u s e 4 6 ( R a t e o f
p r o g r e s s ) : e x t r a c o s t s o f s u p e r v i s i o n . - clause 47.1(Liquidated
damages)- clause 49.4(Contractor's failure to carry out instructions):
regardingremedying of defects

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- clause 59.5(Certification of payments to nominated Subcontractors)- c l a u s e

6 4 ( U r g e n t r e m e d i a l w o r k ) - clause 70.1(Increase or decrease of
cost)- clause 70.2(Subsequent legislation) If the Employer is late in making
payment of a certificate, provision is made under sub-clause 60.10 for the payment
of interest. If, however, the Engineer is late incertifying under this sub -clause,
there is no express remedy for the Contractor although the result in
terms of cash-flow is exactly the same. The Contractor isobliged to seek
compensation from the Employer by way of damages for breachb y t h e
Employer of an implied term that the Employer will
e n s u r e t h a t t h e Engineer certifies in accordance with the
contract. Given that the existence of such implied terms will depend on
the law of the contract, it might have been preferable for this obligation to have
been spelt out, for example as part of clause2 (Engineer and Engineer's
Representative).T h i s c l a u s e m u s t b e r e a d w i t h c l a u s e 5 6 . 1
( W o r k s t o b e m e a s u r e d ) w h i c h requires the Engineer to
a s c e r t a i n t h e v a l u e o f t h e w o r k s b y m e a s u r e m e n t . Strangely, there is
no reference to clause 56 or measurement anywhere in clause60.Under clause 10.1
(Performance security), the Contractor is supposed to submithis performance
security within 28 days of the Letter of Acceptance. This willnormally be
before the date for commencement and inevitably before the
firstI n t e r i m C e r t i f i c a t e i s d u e . T h e r e a r e l i m i t e d p o s s i b i l i t i e s f o r
t h e E m p l o y e r t o interfere with this process as the form is
prescribed. However, the Employer isentitled under clause 10.1 to withhol d
his approval of the institution providingsuch security. Clause 1.5
(Notices, consents etc.) prohibits the Employer fromwithholding or delaying
consent unreasonably.60.3( a ) A f t e r a T a k i n g - O v e r C e r t i f i c a t e w i t h
r e s p e c t t o a S e c t i o n o r p a r t o n l y , t h e Engineer determines the
proportion having regard to the relative value of theSection or part. This
clause is to be contrasted with clause 47.2 (Reduction of liquidated
damages) where a similar determination by the Engineer would reducethe
considerable scope for dispute as to the value of the part handed over.( b ) T h e
same exercise of releasing a proportion of the retention
i s n o t a p p l i e d in respect of the second moiety of the retention money
which is to be withhelduntil the last Defect Liability Period has
expired. This could be galling if a very m i n o r m a t t e r w a s d e l a y e d
through no fault of the Contractor and received itsTaking -Over
Certificate later. The arrangement certainly has the merit
o f simplicity but could be open to abuse. It is perhaps misleading to talk
of "theother half of the Retention Money" as this indicates that retention
released after substantial completion and that to be released after the
Defects Liability Period

Page 208 of 264

will be the same amount. This is unlikely to be so as the

E n g i n e e r w i l l h a v e certified one or more further payments under sub-clauses
60.2 and 60.5.As the release is determined by the effluxion of time rather than the
completion of the remedying of the defects, it is obviously sensible to give
the Engineer power to withhold monies to cover outstanding
work. However, the Engineer is onlye n t i t l e d t o w i t h h o l d h i s e s t i m a t e
of the cost of work remaining to be executed w h i c h h a s b e e n
o r d e r e d . U n d e r c l a u s e 5 0 . 1 ( C o n t r a c t o r t o s e a r c h ) , t h e Co
ntractor may have been ordered to search for a defect but, until such
time
ast h e s e a r c h h a s r e v e a l e d t h e s o u r c e o f t h e d e f e c t a n d t h
e r e m e d i a l w o r k necessary to overcome it, the Engineer would not be
in a position to order the r e m e d i a l w o r k . T h u s , t h e E n g i n e e r w o u l d
n o t b e e n t i t l e d b y t h i s p r o v i s i o n t o retain money against the works
which may potentially have to be ordered. Thiscould leave the Employer
exposed. The answer is perhaps for the Engineer toorder the Contractor
to search and also to remedy, with details of the remedial work to follow.It
should be noted that the trigger for the release of retention is the expiry
of thelast Defects Liability Period and not the issue of the Defects Liability
Certificate.6 0 . 4 A l t h o u g h t h e a b i l i t y t o m a k e c o r r e c t i o n s m a y b e
i m p l i c i t i n t h e c o n c e p t o f an "interim" certificate, it is as well to make
the power express. The Engineer would have been assisted in omitting or
reducing the value of work not carried out properly if the words "in accordance
with the Contract" which are used in sub-clause 60.5(a) had been used in sub-clause
60.1(a).It may be arguable that the Engineer's dissatisfaction could apply
to the rate of p r o g r e s s a s w e l l a s t o t h e q u a l i t y o f t h e w o r k . T h i s
r a i s e s t h e p o s s i b i l i t y o f reductions in certificates being an additional weapon
whereby the Engineer
mighti n d u c e t h e C o n t r a c t o r t o m a k e p r o g r e s s . S e e a l s
o c l a u s e 4 6 . 1 ( R a t e o f progress). It is doubtful that this possibility was
intended by the draftsman.Clauses which require the Contractor to carry out
work to the satisfaction of the Engineer are as follows:-- clause 13.1(Work to be
in accordance with contract)- clause 17.1(Setting out)clause 20.2 (Responsibility to rectify loss or damage)clause 33.1 (Clearance of site on completion)- clause 36.4 (Testing)clause 48 (Taking-Over)- clause 49 (Defects liability)"...correction or modification in
any previous certificate..." This wording could giverise to an argument that
certificates other than interim payment certificates mightbe modified pursuant to this
clause. Thus, a Taking-Over Certificate under clause48.1, a certificate entitling
the Employer to make direct payment to a nominatedSubcontractor under
clause 59.5 or a certificate of the Contractor's default under

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clause 63.1 could all be capable of modificiation. As the contents of the

interimcertificate is specified under sub-clause 60.2, where it is confined to amounts
of payment, it seems plain that the power to modify was intended to be
limited tointerim certificates. Accordingly, and for the avoidance of doubt, this subclauseshould be amended to read "any previous interim certificate".This clause
must be read with clause 67.1 (Engineer's decision) which permits the
Engineer to reconsider "any opinion, instruction, determination, certificate
or valuation". However, before the Eng ineer may exercise this power, one
of thep a r t i e s m u s t h a v e r e f e r r e d a d i s p u t e t o h i m w i t h e x p r e s s
r e f e r e n c e t o c l a u s e 67.1.6 0 . 5 I n t h i s c l a u s e a n d i n c l a u s e 6 0 . 6 ,
there is reference to "the form approvedby the
Engineer". Contractors will thus be obliged to submit draft
f o r m s i n advance of the latest date in order to ensure that their
submission is going to beacceptable to the Engineer. The submission is
due 12 weeks from the issue of t h e T a k i n g - O v e r C e r t i f i c a t e a n d n o t
f r o m t h e d a t e s t a t e d i n t h e T a k i n g - O v e r Certificate. The approval is
subject to clause 1.5 (Notices, consents etc.) and may not be unreasonably
delayed or withheld.( a ) T h e e f f e c t o f t h e w o r d " f i n a l " i n
t h i s c l a u s e i s n o t e n t i r e l y c l e a r . I t i s perhaps
surprising that it appears here and not in clause 60.6(a) which deals withthe "Final
Statement".( b ) T h i s a p p e a r s t o b e b r o a d e n o u g h
t o i n c l u d e d a m a g e s f o r b r e a c h o f contract. It may
be that the words "under the contract" in (c) should have been added to (b)
as well.( c ) I t i s t o b e p r e s u m e d t h a t i t i s n o t i n t e n d e d t h a t
t h e E n g i n e e r s h o u l d c e r t i f y payment of the amounts estimated by the
Contractor. The requirement that theEngineer should certify "in accordance with subclause 60.2" would seem to rulethis out as he is only to certify sums that he
considers due and payable.It is essential that all the Contractor's claims are
recorded in the Statement atCompletion: see sub -clause 60.9 which
terminates the Employer's liability for c l a i m s t h a t a r e n o t r e c o r d e d i n
b o t h t h i s S t a t e m e n t a n d t h e F i n a l S t a t e m e n t under sub-clause 60.6. No
indication is given of the degree of detail required: thismay be a matter of the
form to be approved by the Engineer and will no doubtdepend on
the extent of the notification made and records kept under clause
53(Procedure for claims). Normally, no more than a reference to the claim and
theamount claimed would be necessary.Unfortunately, strict adherance to the letter
of sub-clause 60.2 could result in theentirety of the retention being deducted
again having been released under sub clause 60.3(a). This is because subc l a u s e 6 0 . 2 r e q u i r e s t h e r e t e n t i o n percentage stated in
t h e A p p e n d i x , a s i n g l e f i g u r e , t o b e d e d u c t e d f r o m a l l certificates.
Even if it can clearly be implied that sums repaid under sub clause60.3(a) should not be re -deducted under sub-clause 60.5, it is
certainly unclear

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whether the full retention percentage should be deducted

o r h a l f o f t h a t percentage from the balance now certified. It is submitted that
no departure fromstandard practice is intended.It is not clear what the effect of
a failure by the Contractor under sub -clauses60.5 or 60.6 to comply with the
time limits would be. Generally, clear words arerequired to make a time limit a
condition precedent and such words are not usedhere. It is submitted that t hese
time limits should be treated as directory rather t h a n m a n d a t o r y . I t i s
v e r y m u c h i n t h e C o n t r a c t o r ' s i n t e r e s t t o m a k e t h e s e submissions as
early as possible whereas the Employer will not generally suffer detriment by
the delay.6 0 . 6 A c o m p a r i s o n o f s u b - c l a u s e 6 0 . 6 ( a ) a n d ( b ) w i t h
s u b - c l a u s e 6 0 . 5 ( a ) a n d (b) and, indeed, with sub-clause 60.1(a) and (e)
reveals a certain inconsistency.The word "final" would have a place in sub-clause
60.6 (a). Sub-clause 60.6 (b)i n c l u d e s c l a i m s b u t p l a i n l y d o e s n o t
i n c l u d e d a m a g e s f o r b r e a c h o f c o n t r a c t because of the words "under
the contract". Thus, it is inconsistent in sub-clause60.7 for the Final Statement to
amount to a "full and final settlement of all moniesdue ... arising out of or in
respect of the contract" as thes e words would includebreach of
contract.T a k e n l i t e r a l l y , i n t h e a b s e n c e o f a g r e e m e n t o n t h e d r a f t
f i n a l s t a t e m e n t , t h e clause would be powerless. No provision is made for such
an eventuality so theparties would have to resort to clause 67 (Settlement of
disputes). Meanwhile,the question arises whether, pursuant to subclauses 60.2 or 60.5, there can beany certification in respect of those parts
of the statement that are agreed. Whilstt h e s u b clause 60.2 interim certificate procedure is not expressly halted
a t substantial completion, the clause, together with sub-clause 60.1, does not
seemto be drafted with the period after substantial completion in mind. One
possibilityis that the agreement is directed to form only: otherwise the
Engineer would bereopening an agreement in determining the amount of the Final
Certificate under sub-clause 60.8. This ambiguity should be resolved.It is essential
that all the Contractor's claims are recorded in the Final Statement:see sub-clause
60.9 which terminates the Employer's liability for claims that arenot recorded in both
this Statement and the Statement at Completion under sub-clause 60.5.6 0 . 7 T h e
discharge called for is to the effect that the final statement
r e p r e s e n t s the Contractor's entire entitlement. Yet the wording of subclause 60.6 (a) and(b) makes it plain that damages for breach of contract are not
to form part of theFinal Statement. Compare the words "under the contract"
in 60.6 with "arisingout of or in respect of the contract" in this
clause.T h i s i s p l a i n l y a s o m e w h a t o n e s i d e d p r o c e d u r e a s t h e E n g i n e e r m a y subsequently de
duct from the agreed value sums which he considers theE
mployer to be entitled to. Indeed, the Employer seems to be at
l i b e r t y t o continue to present claims.

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"...payment due under the Final Certificate...". As this certificate takes no accountof
any entitlement of the Employer to liquidated damages, it is quite possible
thatpayment of the sum stated in the certificate will not take place. As
drafted, it issubmitted that the discharge would not become effective in those
circumstances.In order to take liquidated damages into account, words
such as those in clause60.10 (Time for payment), "subject to Clause 47", would
be required.T h i s c l a u s e s h o u l d b e r e a d w i t h s u b - c l a u s e 6 0 . 9 a n d
c l a u s e 6 2 . 2 ( U n f u l f i l l e d obligations) and the comments under those
clauses. It should also be borne inmind that the Employer gives to the
Contractor indemnities under the following clauses:-- clause 22.3 (Indemnity
by Employer)- clause 25.4 (Compliance with policy conditions)- clause 26.1
(Compliance with statutes, regulations)- clause 30.3 (Transport of materials or
Plant)I t i s s u b m i t t e d t h a t t h e d i s c h a r g e d o e s n o t i n h i b i t f u t u r e
c l a i m s u n d e r t h e s e indemnities as it is "all monies due" that are settled
and not, for example, "allmonies due or to become due".6 0 . 8 " ( a ) t h e
amount which, in the opinion of the Engineer ...". In view
o f t h e agreement which is required before a final statement can exist, it
is somewhatsurprising in this clause to see the Engineer being
empowered to exercise hisdiscretion once again as to the amount which
is finally due. One explanationwould be if the agreement of the draft final
statement in sub-clause 60.6 was tob e a s t o f o r m o n l y . T h i s s e e m s
u n l i k e l y i n v i e w o f t h e w o r d s w i t h w h i c h t h e second part of the subclause begins: "if the Engineer disagrees with or cannotverify any part of
the draft final statement ...". If the agreement was as to form, c o n t e n t
and final figure, then (a) should read "the amount of the agreed
f i n a l statement". As drafted, the Engineer is apparently entitled to state
in the FinalCertificate a sum different to the sum agreed under sub-clause 60.6.
This
throwsi n t o q u e s t i o n t h e p u r p o s e o f t h e a g r e e m e n t a n d t h e
c a p a c i t y i n w h i c h t h e Engineer is reaching such agreement. Regrettably,
the only explanation seems tobe an oversight on the part of the draftsman:
this clause therefore needs to be amended.In sub-clause 60.8, the
draftsman has reverted to "under the contract" therebyonce again
excluding damages for breach of contract. Compare the wording of subclauses 60.1 (e), 60.5(b), 60.6(b) and 60.7. There does not seem to be
aclear policy on damages.Similarly, the Engineer gives credit for "all sums to which
the Employer is entitledu n d e r t h e C o n t r a c t " w h i c h i s t o b e c o n t r a s t e d
w i t h s u b - c l a u s e 6 0 . 2 ( b ) w h i c h lacks the words "under the contract".As in
sub-clauses 60.2 and 60.10, the contract is careful to leave the
deductiono f l i q u i d a t e d d a m a g e s t o t h e E m p l o y e r . S e e t h e
c o m m e n t a r y o n t h i s u n d e r clause 60.2.

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Whereas in some, particularly construction, contracts the final c

e r t i f i c a t e i s expressed to be conclusive in relation to certain matters contained in
it which
aren o t i m m e d i a t e l y c h a l l e n g e d a t a r b i t r a t i o n , h e r e i t i s t h e c o m b i
n a t i o n o f t h e discharge under clause 60 .7 and the cessation of the
Employer's liability under 60.9 that limits the potential for future disputes. One
must look to clause 61.1 for a n y l i m i t a t i o n t o b e i m p o s e d u p o n
t h e E m p l o y e r . T h e r e , i t i s s a i d s o m e w h a t obliquely, that the Defects
Liability Certificate constitutes approval of the Works.E x c e p t i o n s a r e n o t
spelt out, but it is doubtful that this recognition that
t h e Contractor has executed the works and remedied the defects to
the satisfactionof the Engineer would provide a defence to a claim in respect of
latent defects.6 0 . 9 I n o r d e r f o r t h e C o n t r a c t o r t o m a i n t a i n a n y c l a i m ,
he must include it in hisStatement at Completion, if it has
a r i s e n b y t h e n , a n d i n h i s F i n a l S t a t e m e n t . There would be a
discrepancy with clause 60.6 (Final Statement) if that cla useenvisages the
agreement of the draft Final Statement. If this agreement extendsto agreement of the
Contractor's entitlement, it is difficult to see that a "claim", asdistinct from sums
agreed as either being due or not due, would still exist after t h e F i n a l
Statement. It is submitted under sub -clause 60.6 however that
t h e required agreement is as to form only.This clause was at clause 62(2) in
the 3rd Edition. Despite its new position, it should still be read with the current
clause 62.2 (Unfulfilled obligations) which atfirst sight looks contradictory but
which, as is submitted thereunder, is in fact close to meaningless. The fact
that clause 62.2 (Unfulfilled obligations) seeks topreserve certain liabilities of the
Employer, militates in favour of the interpretationthat the agreement is as to
form only. If those liabilities are preserved but
theC o n t r a c t o r i s u n a b l e t o e n f o r c e t h e m , c l a u s e 6 2 . 2
w o u l d b e e v e n m o r e redundant. See also sub-clause 60.7 above.There
are a number of incidences under the contract when the Employer gives tothe
Contractor indemnities or is otherwise responsible to the Contractor. Clausesi n
which this occurs and where the Contractor's resulting claims
a g a i n s t t h e Employer could arise for the first time after the Statement at
Completion or FinalStatement have been submitted by the Contractor include the
following:-- clause 19.2 (Employer's responsibilities) in relation to safety;clause 21.3 (Responsibility for amounts not recovered);clause 22.3 (Indemnity by Employer);- clause 24.1 (Accident or injury to workmen);clause 25.4 (Compliance with policy conditions);clause 26.1 (Compliance with statutes, regulations);clause 70.2 (Subsequent legislation); and- clause 71.1 (Currency restrictions).In
each of the above cases, it is conceivab le that the Contractor would wish
tomake a claim against the Employer after the date of the Final Statement.

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Further, if the Contractor was made liable under the applicable

law to a thirdparty in respect of design which had been carrie d
out by the Engineer, theContractor would wish to bring a claim
a g a i n s t t h e E m p l o y e r t o r e c o v e r a n y damages paid out.The question
therefore arises whether sub-clause 60.9 in fact bars these claims.The purpose of
the sub-clause is sensible, nam ely to enable the Em ployer
toa c h i e v e a r e a s o n a b l e d e g r e e o f c e r t a i n t y a s
t o h i s u l t i m a t e l i a b i l i t y . Nevertheless, it is submitted that this subclause cannot be intended to contradictt h e i n d e m n i t i e s a n d o t h e r
r i g h t s c o n t a i n e d i n t h e c l a u s e s l i s t e d a b o v e . I f a change in
legislation occurs or currency restrictions are imposed at the time of the
final certificate, it is subm itted that the Contractor is entitled to claim for
anylosses under clauses 70.2 and 71.1. Therefore "claim" in the current subclausem ust be interpreted as meaning a claim which the Contractor intends
to make.This is consistent with clause 53 (Procedure for claim s) which, it
is subm itted,addresses only claim s which the Contractor intends to
make. No such intentionc a n e x i s t w h e r e t h e c i r c u m s t a n c e s h a v e n o t
a r i s e n o r a r e n o t k n o w n t o t h e Contractor. A difficulty in the way of
such an interpretation is the fact that theexception in brackets refers only
to the Statement at Com pletion. It would beargued for the Em ployer that if
the draftsm an had intended an excep tion to bemade for subsequent
events, the exception would have been extended to cover both
Statements. If this is correct, then Contractors would be well advised
toi n c l u d e i n t h e i r F i n a l S t a t e m e n t a g e n e r a l l y - w o r d e d c l a i m i n
r e s p e c t o f a n y potential liabilities of the Employer to the Contractor including those
arising out of the clauses listed above.I t i s s u b m i t t e d t h a t t h i s s u b - c l a u s e
s h o u l d b e a m e n d e d t o m a k e i t c l e a r t h a t claims that are known, or which
should have been known to the Contractor at thedate of the Final Statem ent
must be included in that statement or lost. The sub-clause should have
no effect on latent or future claims.60.10As clause 60 is the only clause under
which interim certificates are issued,it is uncertain to what the words "or to
any other term of the contract" refer. Onepossibility is that the draftsm an
had in m ind a decision of the Engineer under clause 67.1 (Engineer's decision)
to increase an interim certificate. Alternatively,a n a r b i t r a t o r ' s a w a r d t o t h e
s a m e e f f e c t c o u l d b e r e f e r r e d t o , a l t h o u g h m o s t jurisdictions will
have their own provisions for the time for paym ent and interest on awards.
Another possibility is that the words refer back to "the amount due
tot h e C o n t r a c t o r " b u t t h i s r e q u i r e s a s o m e w h a t s t r a i n e d c
o n s t r u c t i o n w h i c h replaces "or to any other term" with "or under any
other term". The Employer'sliability for interest is plainly tied to
certificates. This position is to be contrasted w i t h t h e s c h e m e o f t h e
I C E 5 t h c l a u s e 6 0 ( 6 ) w h e r e t h e E n g i n e e r ' s f a i l u r e t o certify also
gives rise to an entitlem ent to interest. To achieve the same result under this
contract, it would be necessary to obtain an award including damagesfor the failure
of the Em ployer to procure proper certification by the Engineer in b r e a c h
of an implied term. The damages would be the interest lost or
c o s t o f finance incurred by the Contractor. In English law, it is difficult to
im ply a termm a k i n g t h e E m p l o y e r l i a b l e i n d a m a g e s o n e a c h
occasion that an arbitrator
Page 214 of 264

disagrees with the Engineer. Rather, the obligation found in

cases such asLondon Borough of Merton v Leach (1985) 32
B L R 5 1 i s t o e n s u r e t h a t t h e Engineer is free to certify fairly and that when
the contract calls for a certificate or other action on the part of the Engineer,
he duly performs. The presence in thecontract of clause 2.6 (Engineer
to act impartially) provides an argument for a wider obligation in that, as the
duty to be impartial is now express in the contractto which the Engineer is not
party, the clause must impose an addi tional dutyupon the Employer. It is
submitted that a distinction has to be drawn between
thed u t y t o b e i m p a r t i a l a n d a n y d u t y t o b e r i g h t . J u s t b e
c a u s e t h e a r b i t r a t o r disagrees, it does not, it is submitted, mean that the
Engineer has been partial. Itis therefore difficult to find that the Employer is
automatically in breach and thusautomatically liable for damages by way of
interest.F o r a d i s c u s s i o n o f t h e e x t e n t t o w h i c h t h e E m p l o y e r i s
a b l e t o r e l y u p o n t h e Engineer's certificates by way of defiance to
allegations of breach of contract, see under clause 63.1 (Default of
Contractor).The payment of interest is without prejudice to the Contractor's
entitlement under c l a u s e 6 9 ( D e f a u l t o f E m p l o y e r ) t o s u s p e n d o r
terminate but the question
isw h e t h e r i t i s a n e x h a u s t i v e r e m e d y o t h e r w i s e . I f
l a t e p a y m e n t a n d t h e consequential cash flow difficulties
caused a Contractor, for example, to beunable to place an
order or secure a shipment of materials, the
C o n t r a c t o r arguably has no recourse to the Employer who has a
further four weeks' grace before either suspension or termination is
enforceable. Under ICE 5th, there is asimilar provision but the Contractor's
entitlement to interest is not stated to bewithout prejudice to any other
remedy. The contract's silence might be mo rebeneficial to the Contractor
than the express preservation of particular remediesas in this clause. The contract
could be interpreted here as intending to excludeother remedies. It is
submitted, however, that although certain remedies areprescribed by
the contract for late or non -payment, these are not exhaustive.
InE n g l i s h l a w a t l e a s t , c l e a r w o r d s a r e n e e d e d t o e x c l u d e
p a r a l l e l c o m m o n l a w rights; the words used here would probably not satisfy an
English court, with ther e s u l t t h a t d a m a g e s a t c o m m o n l a w c o u l d b e
r e c o v e r e d f o r t h e E m p l o y e r ' s breach.The Contractor will be well
advised to endeavour to agree a high percentage to e n s u r e t h a t t h e
interest rate would never be attractive to an Employer
w h e n compared with the Employer's other financing arrangements.A Contractor's
ability to recover compound interest either for late payment of certificates
or as part of the costs to be determined by the Engineer will vary from jurisdiction
to jurisdiction. In England, the courts are still hampered by a
longestablished rule against compound interest and have therefore tended to
addressthe question as one of "financing charges" being part of the
Contractor's directcosts or damages: see Minter v W HTSO (1980) 13
BLR 7 and Rees & Kirby vS w a n s e a ( 1 9 8 5 ) 3 0 B L R 1 . I C E 6 t h
n o w p r o v i d e s e x p r e s s l y f o r c o m p o u n d interest: a contractor in
a sufficiently strong negotiating position would be well advised to seek the
inclusion of a provision based on the ICE 6th clause.
Page 215 of 264

In Middle Eastern countries where the Shariaah influe nces the

law, interestclauses have to be carefully checked for legality
a n d e n f o r c e a b i l i t y . I n t e r e s t provisions may be regarded as tainted
with riba or usury. This difficulty applies e q u a l l y t o t h e r e c o v e r y o f
i n t e r e s t o n d a m a g e s . E x p e n s e s s u c h a s f i n a n c i n g charges may be
acceptable if clearly demonstrated but each country enforces the Sha'aria
with its own interpretation and severity.Part II provides optional additional
sub-clauses dealing with situations wherepayments have been made in
fixed proportions of va rious currencies, where allpayments are to be
made in one currency, where it is necessary to define the p l a c e o f
payment and where an advance payment is contemplated.
A d v a n c e payments are common, particularly where a contractor
is obliged to incur a highp r o p o r t i o n o f h i s c o s t s o n t h e p u r c h a s e
a n d t r a n s p o r t a t i o n o f e q u i p m e n t a n d other mobilization before
any of the permanent works can be executed and thusb e f o r e a n y
payment would normally become due. Detailed provision for
t h e amortization of such payment and for the securing of it by means of
an advancep a y m e n t b o n d i s a l s o n o r m a l . T h e c l a u s e
p r o p o s e d i n P a r t I I w o u l d n o t b e adequate for large advances.
CLAUSE 61: Defects Liability Certificate
This clause makes it clear that no certificate or determination or other
action bythe Engineer amounts to approval of the works other than the
Defects LiabilityCertificate.This clause is taken from the 3rd Edition but the
"Maintenance Certificate" is nowknown as the Defects Liability Certificate in order,
FIDIC say, to avoid confusionas to the role of the Contractor during the period.The
term "Defects Liability Certificate" is not defined. However, under
clause62.1 (Defects Liability Certificate), it is to be given by the Engineer within 28
daysafter the end of the last Defects Liability Period or when all works instructed
havebeen completed, whichever is later. The significance of the Certificate is that it
isa n a c k n o w l e d g e m e n t t h a t t h e C o n t r a c t o r h a s c o m p l i e d w i t h
the obligation toexecute the works and remedy such defects as
have been instructed by theEngineer. The Certificate would
n o t , i t i s s u b m i t t e d , a m o u n t t o a n y s o r t o f release in relation to
latent defects in respect of which the Employer would beentitled to
recover damages for breach of contract; nor, more arguably, is it
arelease in respect of patent defects which were not the subject of instructions bythe
Engineer.The Certificate, like any certificate, may be opened up,
reviewed and revised bythe arbitrator if he disagrees either that the
Defects Liability Period has expired or that remedial works, which have been
instructed by the Engineer, have beensatisfactorily completed. This is
on the assumption that "the satisfaction of theEngineer" falls within his
"opinion" or is a "decision" and thus falls within clause

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67.3 (Arbitration) and amongst those things that the arbitrator has power to
openup. There is no clear suggestion that the Defects Liability
Certificate is in anyway conclusive or in any way inhibits the Employer's
subsequent right of action.If, for example, the Engineer believed that all
remedial works instructed had beenexecuted but subsequently found this not
to be the case, the Employer
would, iti s s u b m i t t e d , r e m a i n e n t i t l e d t o r e c o v e r f o r
t h e b r e a c h t h a t t h e d e f e c t represented, particularl y if there
had been any deliberate concealment by theContractor. Moreover, the
Employer could seek the Engineer's decision under clause 67.1 (Engineer's
decision) in order to have the Defects Liability Certificatewithdrawn. For a discussion
of the Engineer's power to do so, see clause 67.1."...approval of the W orks".
The Engineer is called upon to give his approval innumerous clauses
and such approval is essential for the running of the
project.F o r e x a m p l e , t h e E n g i n e e r m u s t a p p r o v e t h e C o n t r a c t o r '
s s u p e r v i s o r u n d e r clause 15.1 (Contractor's superintendence) and
must give his approval before work is covered up under clause 38.1
(Examination of work before covering up).It is thus only approval of the
"W orks" that is confined to the Defects LiabilityCertificate . If this means
the whole of the works, then it would be arguable that a p p r o v a l o f a
particular part could be valid. Indeed, it could also mean that
a certificate other than the Defects Liability Certificate signifies approval
for a partof the works. The def inition of "W orks" covers the whole
project but the term is given an adjusted meaning in clause 49.1 (Defects Liability
Period). It is arguablethat if this clause is intended to refer to the W orks or
any part thereof, then itwould not have been necessary, in so
many clauses throughout the contract, tosay that approval is not implied or
that responsibility is not removed. However,this contract does repeat itself
and m ore often than not the cause of clarity is served as a consequence.
Further, when the contract is read as a whole and thewide powers in clauses such
as clause 38.2 (Uncovering and m aking openings)and clause 39.1
(Rem oval of improper work, m aterials or Plant) are noted, it is submitted that
the correct interpretation becomes clear: the Employer through hisEngineer is
entitled to disapprove of any defective work at any tim e before the Defects
Liability Certificate is issued and is not bound by any earlier action.T h e t h e m e t h a t
the Engineer's approval and other actions will not relieve
theContractor of his contractual obligations runs right through
t h e c o n t r a c t . S e e clause 7.3 (Responsibility unaffected by approval),
clause 14.4 (Contractor
notr e l i e v e d o f d u t i e s o r r e s p o n s i b i l i t i e s ) , c l a u s e 1 7 ( S e t t i n g o u t ) , c l a u s e 3 7 . 2 (Inspection and testing) and clause 5 4.8 (Approval of
materials not implied) for exam ples. Under clause 2.1 (Engineer's duties
and authority), the Engineer's a u t h o r i t y i s e x p r e s s l y l i m i t e d t o
p r e v e n t a n a r g u m e n t t h a t t h e E n g i n e e r h a d approved a breach of contract
or sub-standard work.A s t h e E n g i n e e r i s n o t m e n t i o n e d i n t h i s c l a u s e ,
i t c o u l d b e s a i d t o a p p l y t o approvals of the Employer also. It would
therefore be advisable for a Contractor seeking a relaxation of an element
of the specification, for exam ple, to obtain f r o m t h e E m p l o y e r
a g r e e m e n t t o a v a r i a t i o n o f t h e c o n t r a c t ( a s o p p o s e d t o a variation
under the contract).
Page 217 of 264

All approvals of the Engineer or the Employer are subject to clause 1.5
(Notices,consents etc.) and must not be unreasonably withheld or delayed. The
Engineer must also comply with clause 2.6 (Engineer to act impartially).
CLAUSE 62 Defects Liability Certificate
This clause provides for the issuing of the Defects Liability Certificate,
whichsignals the completion of the contract. The Certificate is to
be issued within 28days of the end of the Defects Liability Period (or if the Works
have been handedover in sections, the last of the periods) or after all remedial and
searching workshave been completed, whichever is the later. The second
portion of retentionmoney is released under clause 60.3 regardless of
whether or not the Defects Liability Certificate is issued.The Defects Liability
Certificate does not affect the Contractor and Employer's obligations to one
another.This clause is essentially the same as sub -clauses 62(1) and
62(3) of the 3rdEdition although the vocabulary has changed. In
particular, "Maintenance" has b e c o m e " D e f e c t s L i a b i l i t y " . S u b c l a u s e 6 2 ( 2 ) o f t h e 3 r d E d i t i o n h a s , w i t h amendments, become
clause 60.9 (Cessation of Employer's liability).6 2 . 1 " T h e C o n t r a c t s h a l l n o t
be considered as completed...". The "Contract" isd e f i n e d a s
a series of pieces of paper and not, as intended
h e r e , a s t h e Contractor's obligation to carry out and complete the
Works. What is intended isreference to the physical construction
obligations: it is not intended that other outstanding obligations and rights are
affected. For example, there is a string of rights and obligations, which flows from the
Defects Liability Certificate: within 56days the draft final statement is due to
be issued and subsequently discussed prior to the issue of the Final
Statement. That statement leads within four
weekst o a F i n a l C e r t i f i c a t e , w h i c h l e a d s w i t h i n e i g h t w e e
k s t o p a y m e n t b y t h e Employer. This common-sense interpretation of the
clause is not assisted by thelast phrases of sub-clause 62.2, which deems the
contract to remain in force for certain limited purposes.T h e p r o v i s o t h a t
payment of retention is not dependent upon the issue of
aDefects Liability Certificate is probably unnecessary in this e
d i t i o n b e c a u s e clause 60.3 (Payment of retention money) makes the
expiry of the last Defects L i a b i l i t y P e r i o d a n d n o t t h e c e r t i f i c a t e
t h e o c c a s i o n f o r t h e s e c o n d r e l e a s e o f retention. This appears to
be left over from the 3rd Edition when the payment clause was left to the
parties to complete in Part
II.T h e D e f e c t s L i a b i l i t y C e r t i f i c a t e m a y b e d e l a y e d w h i l s t r e m e d
i a l w o r k s a n d searches are undertaken so that responsibility for the
defect which gives rise tothe search under clause 50 (Contractor to
search) can be identified prior to the triggering of the final payment machinery.

Page 218 of 264

The granting of the Defects Liability Certificate brings to an end the

Employer'sa b i l i t y t o c l a i m o n t h e P e r f o r m a n c e S e c u r i t y u n d e r c l
ause 10 (Performancesecurity). The security must be returned
w i t h i n 2 w e e k s o f t h e i s s u e o f t h e certificate.The Contractor's right to
remedy defects is also brought to an end. It is arguablethat the Contractor is not
given the right to repair all the defects, only those
whichh e i s i n s t r u c t e d t o r e m e d y . T h i s i s i n c o n s i s t e n t , h o w e v e r ,
with the openings e n t e n c e o f c l a u s e 4 9 . 2 ( C o m p l e t i o n o f o
u t s t a n d i n g w o r k a n d r e m e d y i n g defects), which shows that the
draftsman plainly intended that the Contractor should remedy all defects
in order to produce the works in the desired condition at the end of the
Defect Liability Period. Instructing the Contractor to remedy alldefects is also
consistent with the Employer's duty to mitigate his loss if, as wouldnormally be the
case, an alternative contractor would be more expensive. It ispossible
to reconcile the internal inconsistency of clause 49.2 if the
Engineer'sinstruction power is treated as confined to the identification
of the defects and,where appropriate, a statement of the required remedial
action.For a discussion on when the Engineer's role comes to an end and he is
functusofficio, see under clause 2.1 (Engineer's duties and authority).6 2 . 2 I f t h e
commentary under clause 61.1 (Approval only by Defects
L i a b i l i t y Certificate) and clause 62.1 is correct, this clause is necessary
only in order top u t c e r t a i n m a t t e r s b e y o n d d o u b t . T h u s ,
t h e o b l i g a t i o n t o p a y d a m a g e s f o r breach of contract for latent defects
would clearly remain unaffected. It is a mootpoint whether the Employer's
obligation to pay the Final Certificate has been" i n c u r r e d " p r i o r t o t h e
issue of the Defects Liability Certificate. As
the FinalC e r t i f i c a t e i s o n l y i s s u e d t h r e e o r m o r e m o n t h s
after the Defects LiabilityCertificate, it could well be
arguable that this clause does not bite on
t h a t obligation. That argument is reinforced by the deeming provision at
the end of this sub-clause, which suggests that, for the purpose of establishing
obligationsa r i s i n g a f t e r t h e D e f e c t s L i a b i l i t y C e r t i f i c a t e , t h e
c o n t r a c t i s n o t i n f o r c e . I t i s submitted that the ICE model is to be preferred
without any deeming provisions.I n o r d e r t o m a k e s e n s e o f t h i s c l a u s e
a n d t o a v o i d t h e a b s u r d r e s u l t t h a t t h e contract is not in force for the
purpose of obligations arising after the date of theDefects Liability Certificate, such
as the obligation to pay the final certificate, it isnecessary to interpret the sub clause as a simple qualification of the opening s e n t e n c e o f s u b clause 62.1. That sub-clause suggests that the
c o n t r a c t i s complete when a certificate is issued. Sub-clause 62.2 is therefore
simply sayingthat "completed" does not mean "completed and all obligations
fulfilled".This clause should be compared to clause 60.9 (Cessation of Employer's
liability)which seeks to curtail the Employer's liability to the
Contractor. As submittedthereunder, that clause should only bite on claims
which the Contractor knew or should have known about at the time of the
final statement. It would seem to beeffective to bar the Contractor's
claims which are not set out in the Contractor's
Page 219 of 264

statements under clause 60.5 (Statement at completion) and clause

60.6 (Finalstatement). This clause should also be read with clause 60.7
(Discharge).
CLAUSE 63 : Termination
This clause deals with the Employer's ability to terminate the employment of
theC o n t r a c t o r a n d t h e c o n s e q u e n c e s o f h i s s o d o i n g . T h e p o w e r
a r i s e s i f t h e Contractor has become insolvent, has either seriously or
repeatedly breached the contract, has failed to obey instructions in relation to his
progress or defectivework or is in breach of the prohibition against subcontracting
without consent. Int h e e v e n t t h a t i n s o l v e n c y o c c u r s i n o n e o f t h e
listed forms or if the Engineer certifies one of the other heads
o f d e f a u l t , t h e E m p l o y e r c a n g i v e t w o w e e k s notice before terminating
the contract and taking over the site. The Employer isthen free to complete the
works himself or with another contractor and use the Contractors plant,
materials etc. to do so.After termination, the Engineer certifies the value of the works
executed and thevalue of any materials equipment and temporary works.After
termination, the Employer is not obliged to pay the Contractor any
further sum until after the Defects Liability Period and only then when
all his costs of completion have been ascertained. The balance is
calculated by the deductionof all the Employers' costs from the sum
which would have been payable to the Contractor had he completed.F o r t w o
weeks after termination, the Engineer may require the
C o n t r a c t o r t o assign sub-contracts and supply agreements to the
Employer.Although the structure of clause 63 of the 3rd Edition has been
retained, thereh a v e b e e n e x t e n s i v e c h a n g e s a n d s u b c l a u s e 6 3 . 4 h a s b e e n a d d e d i n t h e current edition. "Forfeiture"
has become "termination" throughout and sub-clause63.1(a) refers to "repudiation"
rather than "abandonment".6 3 . 1 J u s t a s u n d e r t h e I C E 5 t h a n d 6 t h a n d
clause 69.1 (Default of Employer),there is no general provision
in this clause for any warning shot. Item (d)however is the one
ground which provides for a prior written warning. If
theE n g i n e e r c e r t i f i e s t h a t o n e o f t h e l i s t e d d e f a u l t s h a s
t a k e n p l a c e , t h e n t h e Employer has an absolute right to
t e r m i n a t e a f t e r o n l y 1 4 d a y s n o t i c e ( s e v e n days under ICE). No
conduct by the Contractor in remedying the default affectsthe Employer's rights in
any way. FIDIC, in their Guide, indicate that the intentionbehind the Engineer's
certificate, which is copied to the Contractor, was to givethe Contractor
a written warning. This overlooks the important fact that such
acertificate would in practice only be given at the instigation of the
Employer whomay immediately act upon it. Furthermore, it overlooks the
additional point that,once the Engineer has certified, the Employer's right to
terminate is not qualifiedeither by a time-limit or by an opportunity for the Contractor
to remedy the default

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and thereby prevent termination. Because of the way the contract sets
out theentitlements of the parties following termination, there is not
even any effective d u t y t o m i t i g a t e r e s t r a i n i n g t h e E m p l o y e r . O n l y
t h e d e l a y a n d d i s r u p t i o n o f changing contractors acts as a deterrent
to an Employer and only then if he hasa genuine desire to complete the
project.The Employer's powers are further extended by the absence of time limits for
theexercise of this power. Once the Engineer has certified, there is
nothing in theclause which seems to prevent the Employer holding the
threat of termination over the Contractor indefinitely thereafter. A tribunal
sympathetic to a Contractor could however imply a requireme nt that the
Employer act at once or not at all u n l e s s t h e C o n t r a c t o r ' s d e f a u l t
w a s a c o n t i n u i n g o n e . I n t h i s c o n n e c t i o n , s e e Mvita Construction
Co. Ltd. v Tanzania Harbours Authority (1988) 46 BLR 19 andthe decision of the
Tanzanian Court of Appeal that although the words "then theE m p l o y e r
may...terminate" do not mean "at that time" but "in that event",
t h e Employer must terminate within a reasonable time of the Engineer's
notice "toavoid a change of the circumstances certified by the Engineer".F u r t h e r ,
the Engineer could be asked substantially after the event to
certify:under items (c) and (e), it would be possible for the
E m p l o y e r t o i n v i t e t h e Engineer to certify that the Contractor had
defaulted at some point in the past.Used in this way, a petty failure of
compliance with clause 4.1 (Subcontracting) would effectively give the
Employer a right to terminate at will with all
the financialc o n s e q u e n c e s a t a n y t i m e t h e r e a f t e r . O n l y
u n d e r i t e m s ( b ) a n d ( d ) i s i t reasonably clear that the failing
must be current. As to item (a), under Englishcommon law the right to
accept a repudiation of a contract and rescind is lost toan Employer if
he "affirms" the contract. This means any act or omission which might be
interpreted as the expression of an intention on the part of the Employer t o
continue with the contract despite the repudiatory act. The
o r d e r i n g o f a variation, making an interim payment, indeed almost any
action by Engineer or Employer under the contract could amount to
affirmation. Thus, at common law,the right to rescind must be used promptly or
lost. Here, the question is whether in item (a) the words "repudiated the Contract"
might be interpreted differently toa l l o w t h e E n g i n e e r t o c e r t i f y a n d t h e
E m p l o y e r t o n o t i f y a t a n y t i m e a f t e r t h e repudiation regardless
of whether the default has been remedied. It is
submittedt h a t t h e w o r d s p e r m i t o f t h i s h a r s h i n t e r p r e t a t i o n a n d r e
q u i r e a m e n d m e n t . Meanwhile arbitrators should strive to imply a term
to bring the clause into line with English common law.ICE 6th has addressed
the problems discussed above and, firstly, permits the Employer to extend
the notice period to allow the contractor to rectify his
defaulta n d , s e c o n d l y , r e q u i r e s a n o t i c e o f t e r m i n a t i o n t o b
e g i v e n a s s o o n a s i s reasonably possible after the Engineer has certified.
These provisions representa significant improvement.This clause is
very comprehensive ranging from informal insolvency ("unable to p a y
his debts as they fall due") to formal insolvency (liquidation
etc). Thus inEngland it includes any failure to pay an
undisputed debt within 21 days of
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service of a Statutory Demand and may also include a Contractor whose

balancesheet discloses an excess of liabilities over assets (Section 123 of the
InsolvencyAct 1986). The clause is probably wide enou gh to cover any
kind of insolvencyunder English law.Most countries have insolvency legislation
although some have only provided
for i n s o l v e n c y r e c e n t l y a n d t h e i r l a w i s i n a n e a r l y s t a g e o
f d e v e l o p m e n t ( f o r example, People's Republic of China and USSR). It
should be noted that civil law jurisdictions tend not to recognise liquidators or
receivers unless they have
beena p p o i n t e d b y a c o u r t o f t h e c o u n t r y w h e r e t h e c o m p a n
y was incorporated.English law is unusual in that most
r e c e i v e r s a n d a s i g n i f i c a n t n u m b e r o f liquidators are appointed out
of court."...deemed by law...". It would always be advisable for parties to these
conditionsto obtain local advice as to the meaning of this clause in the law
of the contractas defined by clause 5.1 (Language/s and law). However it is by no
means clear t h a t t h e r e f e r e n c e t o " l a w " i n t h i s c l a u s e i s t o t h e l a w
o f t h e c o n t r a c t o n l y . A n Employer wishing to terminate the contract of
a financially troubled Contractor will argue that the references in this clause to
"any law" and "any applicable law"give a clear indication that the reference is
not intended to be confined to
thel o c a l l a w o r t h e l a w o f t h e c o n t r a c t . I t i s a r g u a b l
e t h a t t h e r e f e r e n c e s t o bankruptcy, liquidation or dissolution
are applicable no matter in which country they take place. In this context, see
sub-clause 63.4 "unless prohibited by law"." . . . i f t h e C o n t r a c t o r
has contravened Sub-clause 3.1". The inclusion
of ther e f e r e n c e t o a b r e a c h o f t h e n o n a s s i g n m e n t c l a u s e i n t h e l i s t o f a c t s o f insolvency, appears to
indicate an assumption that such an assignment wouldcome about primarily
in the event that the Contractor was in financial difficulty.This is not, of
course, necessarily so and the law of assignment is by no means s o c l e a r
as to make it a safe proposition for an Employer to terminate on
t h i s ground without the clearest evidence. Such evidence in some
circumstancesm a y
not always be forthcoming. Compare this position with the
relativereassurance given to an Employer in relation to the
o t h e r g r o u n d s b y t h e certificate of the Engineer.T h e o n l y p r e r e q u i s i t e
for a notice of termination by the Employer on one of grounds (a)
or (e) is the certificate of the Engineer. It is a difficult issue
todetermine what is the consequence if the Engineer proves to be
w r o n g . A certificate under this clause is as open to challenge at arbitration
as any other certificate so that an arbitrator could and will often in these
circumstances beasked to decide that the ground upon which the
termination was based did not exist. If the arbitrator so awards, what is
the result? The Employer is entitled togive notice of termination if he has the Engineer's
certificate. Under English lawat least, the Employer's duty is not to ensure that the
Engineer certifies correctlybut to ensure that he certifies when the contract calls for a
certificate and that heis free to exercise his discretion in accordance with
clause 2.6 (Engineer to actimpartially). Thus, the Employer is not
automatically in breach of contract if an arbitrator overturns a certificate upon
which a termination was based.
Page 222 of 264

The consequence of the termination will have been that the Contractor
will havelost whatever profit he would have made on the balance of the work, has
had hisequipment, materials etc. effectively confiscated, will have received no
paymentuntil the works have been completed and the defects liability
period has
expireda n d a t t h a t t i m e w i l l h a v e h a d d e d u c t e d a l l t h e
E m p l o y e r ' s e x p e n s e s o f completing the works by another contractor
and any costs of delay. If there is nob r e a c h o f c o n t r a c t , t h e q u e s t i o n i s
o n w h a t b a s i s t h e a r b i t r a t o r i s a b l e t o d o justice between the parties.If
termination was brought about by an incorrect certificate by the Engineer, this,it is
submitted, is a risk which both parties take when entering in to the
contract.The risk should however fall somewhat more heavily upon the
Employer as hehas the opportunity to decide whether or not to act upon the
Engineer's certificatebefore issuing his notice of termination. Thus, a fair result would
be achieved bythe application of the measure of reimbursement given by clause 65.8
(Paymentif contract terminated) so that the Employer has to bear the
additional costs of completing the work by alternative means and the
Contractor is reimbursed but recovers no loss of profit.This result, whilst fair, is
not obviously open to the arbitrator. Unless it is said thathe has some
general inherent jurisdiction to produce a just result, he is obliged toconsider the
rights of the parties under the contract or, in the event of breach, atcommon law.
Here there is no breach so that the arbitrator may be confined to o p e n i n g
up, reviewing and revising the certificates and other actions of
t h e Engineer. Having reviewed and cancelled the certificate of default, it follows
thatthe arbitrator must review and cancel the certificates under clause
63.3 whichentitle the Employer to make the deductions from the
Contractor's
valuations. If t h e a r b i t r a t o r t h e n i s s u e d a f u r t h e r i n t e r i m c e r t i f i c a t
e, the Contractor woulda c h i e v e p a y m e n t f o r t h e w o r k s
e x e c u t e d . T h a t s e e m s t o b e a s f a r a s t h e arbitrator can go to
remedy the position and it has the result that the Contractor ispaid for the works
executed but does not receive profit nor compensation for latep a y m e n t n o r
compensation for the use by the Employer of the
Contractor'se q u i p m e n t a n d m a t e r i a l s , s a v e t o t h e e x t e n t t h
a t t h e y a r e i n c l u d e d i n t h e arbitrator's interim certificate. Meanwhile, the
Employer bears the additional costsof obtaining an alternative contractor and
receives no reimbursement for anydela ys that occurred. No doubt the
Employer will consider what remedies are available to him under the
Engineer's terms of engagement.For the Contractor to achieve full
reimbursement including recovery of the
lostp r o f i t , h e w o u l d h a v e t o d e m o n s t r a t e t h a t t h e c e r t i f i c a t e o r t
h e E m p l o y e r ' s reliance upon it amounted to breach of contract which, it
is submitted above, isnot easily possible if the Engineer acted in good faith and
the arbitrator's contrarydecision is simply a matter of opinion. Alternatively, the
Contractor would have toargue that, once the arbitrator had overturned the
certificate of default, the re -entry by the Employer amounted to a breach
of contract either under clause 42(Possession of Site) or as a repudiation
or even as an unlawful omission under clause 51.1 (Variations). However
these arguments will be met with the defence
Page 223 of 264

that the Employer merely relied upon a certificate as he was entitled to do

under c l a u s e 6 3 . 1 . T h i s a r g u m e n t s e e m s t o b e c o r r e c t . F o r
a c a s e i n w h i c h t h i s situation was considered, albeit on a dissimilar
contract, see the Privy Council'sa d v i c e i n L o k e H o n g K e e v U n i t e d
O v e r s e a s L a n d ( 1 9 8 2 ) 2 3 B L R 3 5 . O n t h e facts, the arbitrator was held
to be limited to considering whether the Engineer'sc e r t i f i c a t e w a s g i v e n i n
good faith. Nevertheless, it was pointed out that theEmployer is
not obliged to act upon the Engineer's certificate, may judge
i t s correctness for himself and therefore should not complain if it is
subsequentlyoverturned.The contract may be brought to an end prematurely under
the following clauses:-- clause 40 (Suspension)- clause 63 (Default of Contractor)clause 65 (Special risks)- clause 66 (Release from performance)- clause 69 (Default
of Employer)In addition, a repudiation by either party could be accepted by the other
party. Ina s c e n d i n g o r d e r o f w o r t h t o t h e C o n t r a c t o r , t h e f i n a n c i a l
c o n s e q u e n c e s a r e broadly as follows:-- clause 63.1 (Default of
Contractor): Contractor receives the contract sum
hew o u l d h a v e o b t a i n e d l e s s t h e E m p l o y e r ' s c o s t o f e x e c u t i o n / c o
m p l e t i o n a n d remedying of defects less damages for delay and all other
Employer's expenses.clause 65 (Special Risks) and clause 66 (Release from p
e r f o r m a n c e ) : Contractor receives value of works to date together with
preliminaries, materials,committed expenditure plus the costs of demobilisation of
plant and staff less anyunspent advances paid by the Employer.clause 40 (Suspension) and 69 (Default of Employer): as clauses 65 and
66together with damages including the Contractor's loss of profit.r e p u d i a t i o n :
e f f e c t i v e l y
t h e
s a m e
a s
c l a u s e
6 9
b u t
e x p r e s s e d
a s
t h e C
ontractor's entitlements under the contract up to the date the repudiation
wasaccepted and damages for breach of contract." ( a ) h a s r e p u d i a t e d
t h e c o n t r a c t " . T h i s i s n e w t o t h e 4 t h E d i t i o n a n d , u n d e r English
law at least, requires the Engineer to make a difficult legal judgment asto whether
the Contractor has, by his words or conduct, expressed an intentionno
longer to be bound by the contract. Under the 3rd Edition and ICE 5th
and6th the term is that the Contractor "has abandoned the contract". If
there is
ar e p u d i a t i o n , t h e E m p l o y e r w o u l d b e e n t i t l e d u n d e r E n g l i
s h c o m m o n l a w t o terminate at once. It is submitted that this right
survives although the
Employer w o u l d l o s e t h e p r o t e c t i o n o f t h e E n g i n e e r ' s c e r t i f
i c a t e w e r e t h e r i g h t t o b e exercised. Generally, clear words are required
under English law if common lawrights are to be excluded. It must be doubtful
that these words, which do not even purport to exclude co-existent rights,
qualify. Unless the Employer wishes to

Page 224 of 264

authorise the Engineer to take legal advice prior to certifying whether or

not arepudiation of the contract has taken place, it is suggested that the
interests of both parties would be served by restoring "abandonment", an
altogether simpler concept." ( b ) w i t h o u t r e a s o n a b l e e x c u s e . . . " : o n e c a n
b u t s p e c u l a t e a s t o w h a t w o u l d amount to a reasonable excuse for
failing to commence or to proceed; plainlythis gives the Engineer and thus
the arbitrator considerable discretion.A s d i s c u s s e d i n t h e c o m m e n t a r y t o
c l a u s e 4 1 . 1 , t h e r e i s a m b i g u i t y a s t o t h e meaning of these words."(i) to
commence the W orks". As discussed in the commentary to clause
41.1,these words are ambiguous. In particular, the distinction between
TemporaryWorks and Contractor's Equipment is ill-defined. The Contractor must be
awaret h a t h i s r i g h t t o p r o g r a m m e a l o n g m o b i l i s a t i o n p e r i o d w i l l
b e s u b j e c t t o t h i s obligation to commence Permanent or Temporary Works, on
pain of termination."(ii) to proceed with the W orks ... pursuant to Sub-clause
46.1": The obligationunder clause 46.1 (Rate of progress) is not "to
proceed", rather to "take suchsteps as are necessary...to expedite". The
clause assumes that the works are p r o c e e d i n g b u t a t a r a t e w h i c h i s
n o t s u f f i c i e n t i n t h e E n g i n e e r ' s o p i n i o n t o achieve completion by the
due date. It would require a strained interpretation
of t h e c o n t r a c t t o m a k e t h i s g r o u n d f o r t e r m i n a t i o n a p p l y
t o a f a i l u r e o f t h e Contractor to take steps to expedite progress
despite the knowledge that thismust have been the draftsman's intention.
This is an important provision as it isthe only means of obliging a
Contractor in delay to accelerate rather than takethe often cheaper
option of liquidated damages. It therefore needs amendment, t o g e t h e r
with clause 46.1 to provide a more precise obligation than to
" t a k e steps" and an effective sanction.Under clause 46.1, the Contractor's
obligation is to react "thereupon" which is taken to mean immediately. This
clause, if it were not misconceived, would givethe Contractor four weeks before any
sanction is
imposed.( c ) U n d e r c l a u s e 3 7 . 4 ( R e j e c t i o n ) , t h e E n g
i n e e r i s e n t i t l e d t o n o t i f y t h e Contractor of his rejection of
plant and materials whereupon the Contractor "shallthen promptly make good the
defect". The Engineer does not necessarily specifythe means whereby the
defect will be remedied and "promptly" may have to be r e a d i n t h e
context of ordering replacement plant or materials from a
d i s t a n t source.Under clause 39.1 (Removal of improper work, materials or Plant),
the Engineer is empowered to instruct the removal and replacement of plant,
materials or workwhich he considers not to be in accordance with the contract. It
should be notedthat there is provision for the Engineer to specify a time
limit for the removal of such plant or materials. If that time limit should be longer
than 28 days, there is atheoretical conflict with sub -clause 63.1(c) which
requires the instruction to be

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carried out within 28 days of receipt. Under clause 39.1(b) and (c),
there is not i m e l i m i t i m p o s e d s a v e b y s u b - c l a u s e 6 3 . 1 w h i c h
could well trap an unwaryContractor on a project where the
r e m o v a l a n d r e p l a c e m e n t a r e n o t c r i t i c a l operations.See the comments
under clauses 37.4 and 39.1 criticising the selection of theseclauses as grounds for
termination.( d ) T h e 4 t h E d i t i o n i s i n l i n e w i t h I C E 5 t h i n
making "warning" singular rather than plural as in
the 3rd Edition. Warnings are not covered
b y c l a u s e 1 . 5 (Notices, consents etc.) which deals with the necessity for
notices to be in
writingh e n c e t h e e x p r e s s r e q u i r e m e n t f o r w r i t i n g h e r e . I C E
6 t h h a s r e v e r t e d t o "warnings"."Persistent" is defined in the Concise
English Dictionary as "continue firmly or o b s t i n a t e l y e s p . a g a i n s t
r e m o n s t r a n c e " . " F l a g r a n t " i s d e f i n e d a s " g l a r i n g , notorious,
scandalous". It may perhaps be unavoidable that a clause which
hasconsequences as grave as this one includes terms as debatable as
these. ICE5 t h a n d 6 t h a l s o u s e " p e r s i s t e n t l y " b u t t h e a l t e r n
a t i v e i s " f u n d a m e n t a l l y i n breach". It is a safeguard for both
t h e C o n t r a c t o r a n d t h e E m p l o y e r t h a t t h e Engineer's certificate is
required before action may be taken. In English law, a forfeiture clause will
be construed strictly, giving the Contractor the benefit of
anydoubt.( e ) C l a u s e 4 . 1 r e l a t e s t o s u b c o n t r a c t i n g a n d r e p r e s e n t s a c o n s i d e r a b l e danger
to the Contractor. No part of the works may be sub -contracted withoutt h e
prior consent of the Engineer save in respect of the provision of
l a b o u r , subcontractors named in the contract and "the purchase of materials which
are inaccordance with the standards specified in the contract". In the
context of sub-clause 63.1, the quoted words represent a considerable
trap. A Contractor wouldbe most unwise to organise the purchasing of
materials in any fashion withoutthe Engineer's express
approval. Otherwise, if any materials are shown to be s u b - s t a n d a r d , t h e
Engineer may certify and the Employer may give notice
t o terminate without the Contractor having defaulted in any culpable
way. Comparethe 3rd Edition and ICE 5th which requires that unauthori sed
sub-letting be "tothe detriment of good workmanship or in defiance of the
Engineer's instructionsto the contrary". ICE 6th has adopted the course to be
preferred and has droppedunauthorised subcontracting as a ground for termination
altogether. A breach of clause 3.1 (Assignment of Contract) entitles the Employer to
determine without acertificate from
the Engineer." W i t h o u t t h e r e b y r e l e a s i n g t h e C o n t r a c t o r f r o m
a n y o f h i s o b l i g a t i o n s o r liabilities". This wording, shared with the
ICE, is obviously not intended to betaken literally. Plainly, the Contractor is
relieved of his obligation to execute andcomplete the works. Equivalent words were
considered in the case of E.R. Dyer v Simon Built/Peter Lind Partnership
(1982) 23 BLR 23 where it was held that these words prevented the contract
being "determined" for the purpose of a sub-contract which was automatically
to come to an end upon the "determination" of
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the main contract. Only termination at common law by the

a c c e p t a n c e o f a repudiation would bring about the automatic ending of
the sub-contract, it washeld." A s h e o r t h e y m a y t h i n k p r o p e r " : i t i s
difficult to see by what standards thispropriety is to
be judged. If the Contractor requires the materials, etc.,
f o r another project, is this a factor? It is submitted that the draftsman
intended theE m p l o y e r a n d n e w c o n t r a c t o r t o u s e a s m u c h o f t h e
m a t e r i a l s , e t c . , a s t h e y wished. To that end, the word "proper" could
usefully be replaced by the word "fit".The definition
of "Contractor's Equipment" at clause 1.1(f)(v), is wide enough toi n c l u d e
the machinery of subcontractors. It seems that the Employer is
a l s o entitled to make use of any materials left on site. Clause 54.7
(Incorporation of c l a u s e i n s u b c o n t r a c t s ) r e q u i r e s t h a t t e r m s
e q u i v a l e n t t o t h o s e i n c l a u s e 5 4 (Contractor's Equipment, Temporary
Works and materials) be included in "any sub-contract for the execution of any
part of the Works". Therefore suppliers arenot intended to be covered. No doubt, the
use of machinery and materials wouldbe part of the negotiations with
suppliers which would follow the termination asmentioned in the
commentary to sub-clause 63.4 below. By way of example, asupply
agreement could include a retention of title clause whereby title to
thegoods or materials is not transferred until such time as they have
been paid for.Difficult questions of law would undoubtedly arise if the
Employer sought to usethis power in respect of the machinery or materials of
unpaid suppliers.It is submitted that the provisions of this clause are not exhaustive
and that thereis a parallel right to terminate at common law. This question could be
important incircumstances where the assumptions made in sub-clause 63.3 do not
apply.
For e x a m p l e , t h e E m p l o y e r m a y h i m s e l f a b a n d o n t h e p r o j e
c t o r m a y t a k e t h e opportunity to revise the project so that the
payment mechanism of sub-clause63.3 becomes inoperative.
The question would also be relevant if, after conductby the Contractor
amounting to the repudiation of the contract, the Employer re-entered immediately
and without giving the required 14 days notice. There are two factors which
suggest that the common law is intended to be excluded: firstly,the inclusion of
repudiation at item (a), replacing the term "abandonment" used int h e 3 r d
Edition; and secondly, the absence of any express words
s u c h a s "without prejudice to the rights of either party" as in clause 65.6
(Outbreak of w a r ) . I t i s s u b m i t t e d t h a t t h e r e a s o n f o r i n c l u d i n g
repudiation is to give to
theEmployer the protection afforded by the certification of the E
n g i n e e r w h e n terminating the contract for repudiation. As to the lack of
words making it clear that this clause is "without prejudice" to common
law rights, this is not essentialunder English law. Indeed, it may be
argued that express words are requ ired toexclude common law.Of the
grounds for termination under this sub-clause, items (b), (c) and (e) wouldnot
normally amount to repudiatory conduct by the Contractor. Thus, a failure bythe
Employer to follow the letter of the clause in terminating the
Contractor'semployment could leave the Employer in repudiatory breach of the
contract. With
Page 227 of 264

items (a) and (d), provided that in the latter case the neglect to comply with
anobligation was sufficiently serious, the Employer could still terminate the
contractw i t h o u t s t r i c t l y f o l l o w i n g t h e t e r m s o f t h e c l a u s e . H o w e v e r , i t
i s i m p o r t a n t t o appreciate that the question of the relevance of common law
must be judged inaccordance with the law of the contract. The comments made
relate to Englishl a w a l o n e a n d t h u s a r e r e l e v a n t t o c o n t r a c t s a d o p t i n g
E n g l i s h o r s i m i l a r l a w pursuant to clause 5.1 (Languages and law).The wording of
clause 67.1 (Engineer's decision) gives rise to an argument thatif the
Contractor requests an Engineer's decision within the 14 -day period
after receipt of a notice under this sub -clause, the termination is suspended
until theEngineer has made a decision on the validity of the notice or the
grounds uponwhich it was based. This is because clause 67.1 says that
"unless the Contracthas already been repudiated or terminated, the Contractor
shall, in every case,continue to proceed with the works". Under this clause, the
termination may not o c c u r u n t i l t h e 1 4 - d a y p e r i o d h a s e x p i r e d .
H o w e v e r , i f t h e n o t i c e s t a t e s t h a t ground (a) applies becaus e the
Contractor has repudiated the contract or if
theC o n t r a c t o r ' s c o n d u c t i n r e l a t i o n t o o n e o f t h e o t h e r g r o u n
d s a m o u n t s t o repudiation, the argument may fail. The Contractor could seek a
decision on thenotice alleging repudiation. Of course, if the Emplo yer has the
courage of
theE n g i n e e r ' s c o n v i c t i o n s , h e c o u l d t e r m i n a t e t h e c o n t r
a c t a t c o m m o n l a w immediately, if the law of the contract p
e r m i t s . T h e p h r a s e " r e p u d i a t e d o r terminated" and the fact that
" r e p u d i a t e d " r e p l a c e d " a b a n d o n e d " i n t h e 4 t h Edition gives rise to the
suspicion that the draftsman intended the Contractor tocontinue in all cases
where the works had not already come to a halt. In
other w o r d s , i t w a s t h e C o n t r a c t o r l e a v i n g s i t e o r t h e E m p l o y e r r e e n t e r i n g a f t e r repudiation by the Contractor that was intended. If so, clarification of
clause
67.1i s c a l l e d f o r , p e r h a p s b y s a y i n g " u n l e s s t h e C o n t r a c
t h a s a l r e a d y b e e n terminated, the Contractor has withdrawn or the
Employer has already enteredupon the Site...". Meanwhile, it is submitted that
the present wording allows theintentions of the draftsman to be respected and
the Employer should await the Engineer's decision before acting upon his notice.It is
therefore submitted that the argument is good and the Contractor may
delayt e r m i n a t i o n b y r e q u e s t i n g a d e c i s i o n i n t h e a b s e n c e
of a clear repudiation.However, it may not gain the Contractor much
respite as the Engineer
couldm a k e h i s d e c i s i o n b y r e t u r n o f p o s t . T h e r e i s n o e x p r e s
s r e q u i r e m e n t f o r consultation and the Engineer's only restraint is
c l a u s e 2 . 6 ( E n g i n e e r t o a c t impartially). In the commentary under clause
69.1 (Default of Employer), it is suggested that the same argument applies
to termination by the Contractor.I n s o m e c o u n t r i e s , p a r t i c u l a r l y t h o s e w i t h
c i v i l l a w s y s t e m s , t e r m i n a t i o n o f a contract is only permissable with the
leave of the court. However, in countries w i t h a d m i n i s t r a t i v e l a w s b a s e d
o n t h e F r e n c h m o d e l , t h e a d m i n i s t r a t i o n m a y have a superimposed power to
terminate at will if the public interest so demands,irrespective of the terms or la w of
the contract. This power is the most extremeexpression of the doctrine of Fait
du Prince briefly described under clause 5.1 (Languages and law) above. The
Contractor may have a right to compensation.
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In relation to the Employer's continued use of the Contractor's machinery where

ithas been hired, see clause 54.5 (Conditions of hire of Contractor's
Equipment)and clause 54.6 (Costs for the purpose of clause 63).Courts are faced
with difficult decisions when asked to intervene in the event of adisputed termination.
In Tara Civil Engineering v Moorfield Developments (1989)46 BLR 72, an English
Official Referee decided that an injunction would not
begranted preventing termination if the clause 63 notice appeared
valid on its faceand in the absence of clear proof of bad faith or
unreasonableness. In Attorney-General of Hong Kong v Ko Hon Mau
(1988) 44 BLR 144, where the
Contractor h a d i s s u e d a n o t i c e o f t e r m i n a t i o n a n d t h e
E m p l o y e r h a d a l s o n o t i f i e d termination, the question of
t h e E m p l o y e r ' s r i g h t t o u s e t h e C o n t r a c t o r ' s equipment
arose. The Hong Kong Court of Appeal decided that both
n o t i c e s would be treated as provisionally valid pending arbitration. The
Contractor
wasa l l o w e d t o r e m o v e h i s e q u i p m e n t . F o r s o m e c a s e s o n t
h e n e e d f o r s t r i c t compliance with the notice provisions, see under clause 68
(Notices).I n t h e N e w Z e a l a n d c a s e o f B r o w n a n d D o h e r t y v
W h a n g a r e i C o u n t y C o u n c i l (1988) 1 NZLR 33, the Court held that termination
clauses must be complied withto the letter if they were to be relied
upon.6 3 . 2 A l t h o u g h l a t i n i s a n i n t e r n a t i o n a l l a n g u a g e , i t i s s t i l l t o
b e d o u b t e d w h e t h e r legalistic latin should be employed in a civil
engineering contract. In fact,
givenc l a u s e 2 . 6 ( E n g i n e e r t o a c t i m p a r t i a l l y ) , i t i s d o u b t f u
l w h e t h e r m e n t i o n o f reference to the parties, investigation and enquiries is
necessary.I t e m ( a ) p r o v o k e s t h e q u e s t i o n w h y a q u a n t u m m e r u i t
("reasonably
earned"," r e a s o n a b l y a c c r u e " ) h a s b e e n i n t r o d u c e d . T h e r e
c a n b e l i t t l e d o u b t i n a termination under the contract, as distinct from a
common law termination after arepudiation, that the payment provisions of
clause 60 (Payment) are capable
of b e i n g o p e r a t e d . C o m p a r e f o r e x a m p l e c l a u s e 6 5 . 8 ( P a y m
e n t i f c o n t r a c t terminated) which deals with termination caused
b y o n e o f t h e s p e c i a l r i s k s , where the Contractor is paid "for all work... at the
rates and prices provided in theContract". The answer may be that this valuation and
certification does not leadto payment. Sub-clause 63.3 provides an altogether
different basis for the actualpayment. The purpose of this clause is no doubt to
provide for some form of valuation to take place as soon after the
termination as possible so that worksexecuted by the Employer or
alternative contractors is not confused with workexecuted by the
Contractor. This logic is however undermined by the fact thatt h e
valuation is likely to be of little use to the Engineer in
p e r f o r m i n g h i s calculation under sub-clause 63.3.I t e m ( b ) : w h i l s t i t i s
p e r f e c t l y s e n s i b l e f o r t h e v a l u e t o b e e s t a b l i s h e d o f t h e Contractor's
materials, equipment and temporary works, the valuation does not distinguish
between those which the Employer intends to use and the remainder w h i c h ,
presumably, the Contractor is at liberty to remove from the
s i t e . ( I n contrast with clauses 65.7 and 69.2, there is no provisi on in clause
63 for the
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removal of the Contractor's material and plant). Unhappily, the valuation arrivedat
is, once again, not to be utilised save perhaps by an arbitrator who
overturnsthe Engineer's certificate which gave rise to the
termination.6 3 . 3 T h e E m p l o y e r i s n o t o b l i g e d t o m a k e
a n y f u r t h e r p a y m e n t u n t i l t h e expiration of the defects
liability period. This gives rise to the obvious problem that after termination,
there will be no defects liability period as that period starts,p u r s u a n t t o c l a u s e
49, from the date specified in the Engineer's Taking O v e r Certificate, which will not now be given. How then is this clause to
operate? Onepossibility is to take the defects liability period as starting
from the contractualcompletion date as extended. This may be sensible although
perhaps somewhatdifficult to sustain if part of the background of the termination was
culpable delayon the part of the Contractor which meant that he would not
have completed ontime. An alternative is the defects liability period of
the alternative contractor.This assumes that a new contractor is taken on
to complete the same works onvery similar terms. It is of course perfectly
possible that an Employer who has terminated will take the opportunity to revise
the project or the contract conditionsupon which the contract is let. Equally,
it is quite possible that the Employer willdecide to abandon the project.
This possibility is not catered for by the terms of the contract at all. The
Employer would have to rely upon his g eneral rights todamages for the
Contractor's breach of contract.T h e r e i s n o t i m e l i m i t i m p o s e d f o r t h e
a s c e r t a i n m e n t a n d c e r t i f i c a t i o n b y t h e Engineer of the Employer's
costs and expenses. The Employer would only beconcerned to ensure
prompt certification if a balance is due to him. From theContractor's
viewpoint, a time limit could usefully be added.The Engineer is required to
certify what sum "would have been payable to the Contractor upon due
completion by him". This exercise raises questions such aswhether variations to
the work introduced after termination should be taken into account. A similar
exercise would have to be undertaken by a court or arbitrator endeavouring to
establish a Contractor's loss of profit and other damages under clause 69 (Default
of Employer) or after the acceptance of a repudiation by
theE m p l o y e r . A n a l t e r n a t i v e a p p r o a c h i s t o d e d u c t f r o m t h e
v a l u e o f t h e w o r k s executed by the Contractor the additional cost to the
Employer of executing the works by an alternative contractor. This would also
have required a comparisono f t h e c o s t h a d t h e C o n t r a c t o r e x e c u t e d
t h e w o r k s a n d t h e E m p l o y e r ' s a c t u a l costs and thus amounts to the same
speculative exercise. Variations introducedafter the termination must either be
included in the Contractor's costs or excludedfrom the Employer's costs.See
the commentary under sub-clause 63.2 for a comment on the failure of
thissub-clause to make any use of the valuation carried out by the
Engineer under sub-clause 63.2.Included in the assessment to be
undertaken by the Engineer are "damages for delay in completion (if
any)". In the commentary under clause 47.1 (Liquidateddamages for
delay), it has been remarked that it is arguable that damages only
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become payable under that clause after a Taking -Over

C e r t i f i c a t e h a s b e e n issued. If that is correct and as termination is
unlikely to take place after the T a k i n g Over Certificate has been issued, then there will be no
l i q u i d a t e d damages for delay. If that is correct, it must be arguable for an
Employer that, inthe absence of an effective liquidated
damages remedy, common law damagesfor delay should be available. If
the termination takes place prior to the Time for C o m p l e t i o n , i t i s
plain that clause 47.1 does not come into operation and
n o liquidated damages are payable. Again, it may be arguable that if the
Employer can demonstrate loss, for example because an alternative
contractor requiressubstantial additional payment in order to complete
by the Time for Completion,this may be recoverable.C o s t s i n c u r r e d b y
the Employer in taking over the hire of machinery from
theC o n t r a c t o r a s p r o v i d e d i n c l a u s e 5 4 . 5 ( C o n d i t i o n s o f
h i r e o f C o n t r a c t o r ' s Equipment) are deemed part of the cost of
completing: see clause 54.6 (Costs for the purpose of clause 63).63.4"Unless
prohibited by law": what is prohibited by law will depend less uponthe
law of the contract pursuant to clause 5.1 (Languages and law) but
rather upon the laws which govern the agreements concerned.
Contracts for personal services are not capable of assignment under English law
nor may assignmentsbe effected which infringe the insolvency laws. The
expression "prohibited bylaw" seems to exclude a mere inability to
assign owing to, for example, some limitation upon assignment in the supply
agreements or sub-contracts. Thus, for the purposes of this clause and for
clause 4.2 (Assignment of subcontractors'obligations) the Contractor
must beware of agreeing to any such limitation. If
aC o n t r a c t o r , i n a n e n d e a v o u r t o c o m p l y w i t h t h i s s u b c l a u s e o r c l a u s e 4 . 2 , purports to assign a contract containing such a
limitation, the assignment will beineffective and he will be in breach of this sub-clause.
For clarity, clause 4 couldu s e f u l l y i m p o s e a n o b l i g a t i o n u p o n t h e
C o n t r a c t o r t o e n s u r e t h a t a l l s u p p l y agreements and sub-contracts entered
into are capable of assignment insofar asthe relevant law allows. See also clause
54.5 (Conditions of hire of Contractor'sEquipment) which seeks to allow the
Employer to take over the hire agreementsafter the departure of the
Contractor.I n c o n t r a s t w i t h c l a u s e 5 9 . 5 ( C e r t i f i c a t i
o n o f p a y m e n t s t o n o m i n a t e d Subcontractors), there is no
provision in this clause perm itting the Employer topay the subcontractors
and suppliers directly in the event of termination. Many c o n s t r u c t i o n
contracts provide for direct payment and set-off in the event
o f termination. The draftsman may be relying either on the Em ployer's
rights asassignee of sub-contracts or on sub-clause 63.3 which relieves
the Employer of liability to m ake further paym ents until completion.
However, in neither case is the Employer entitled to pay the subcontractors directly
for work executed prior totermination and thereafter to set off the direct payment from
sums otherwise dueto the Contractor. The draftsman may have considered that clause
59.5 could beoperated after termination. Even if this is the case, it only entitles the
Employer topay nominated subcontractors. The Contractor may have ordered a major
item of
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machinery for installation by direct contract with a manufacturer which would notfall
within this clause. An express power of direct payment on termination
wouldp l a c e t h e E m p l o y e r i n a b e t t e r p o s i t i o n t o n e g o t i a t e w i t h
s u b c o n t r a c t o r s a n d suppliers. W ithout it, the Employer would have no
power of set-off if it chose tomake the direct payment and, subject to other
provisions in the contract, may beat risk of paying the same sum to a
liquidator appointed over the Contractor. Inthese circumstances, it is
surprising that Part II gives no optional clauses which might cover the
situation.It should be noted that if the general conditions are amended to
provide for ad i r e c t p a y m e n t a n d s e t - o f f , t h e p r o v i s i o n m a y b e
ineffective if the
Contractor b e c o m e s b a n k r u p t o r g o e s i n t o l i q u i d a t i o n . T h
i s i s b e c a u s e o f t h e g e n e r a l principle of insolvency law that the
property of an insolvent must be distributedrateably amongst all the
creditors. See for example British Eagle v Air France ( 1 9 7 5 ) 1 W L R
785. It would be argued that the debt owed to the
Contractor constituted property and that it is not open t o the
Employer to distribute
thatproperty to any particular creditors of the Contractor. Such
p r o v i s i o n s a r e invalidated in some jurisdictions (e.g. Singapore, New Zealand
and South Africa)but are upheld in others (England and Australia). Cases which
have upheld suchclauses in England may, however, no longer be good law.
CLAUSE 64 : Remedies
If the Engineer considers that urgent work is necessary for the
safety of theW orks and the Contractor is unable or unwilling to
c a r r y o u t s u c h w o r k , t h e Employer may use other contractors. If the
Contractor was responsible for the w o r k , t h e E m p l o y e r m a y
deduct his costs from sums otherwise due to
t h e Contractor. The Engineer is to notify the Contractor of the emergency as soon
aspracticable.This clause is not fundamentally changed from the 3rd
Edition.T h e i s s u e w h e t h e r t h e C o n t r a c t o r " w a s l i a b l e
t o d o a t h i s o w n c o s t " t h e emergency works, will depend
largely on whether the work was done during theexecution of the works
or during the Defects Liability Period and partly on thete rms of clause
20 (Care of W orks). Clause 20 makes responsibility for care of the works
the Contractor's until they have been taken over by the Employer. TheC o n t r a c t o r
is not liable for damage caused by the Employer's risks listed
a t clause 20.4 (Employer's risks) although he is obliged to rectify the
damage if itoccurred before taking-over. After the works are taken over, the
Contractor hasn e i t h e r a n o b l i g a t i o n t o e x e c u t e t h e w o r k s n o r
t o p a y f o r t h e m u n l e s s t h e emergency was caused by the
C o n t r a c t o r e i t h e r b y d e f e c t i v e w o r k o r w h i l e completing outstanding
work or remedying defects.In view of the Engineer's power of instruction, and the fact
that emergency workby another Contractor is likely to be more expensive than such
work done by theContractor, it is perhaps surprising that this clause is not expressed
in mandatory
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terms and that the Contractor is not obliged to pay the Employer the
additionalc o s t s o f o b t a i n i n g a n a l t e r n a t i v e c o n t r a c t o r i n c i
r c u m s t a n c e s w h e r e t h e Contractor has an obligatio n to rectify but
is not liable to pay. This apparento m i s s i o n i n t h e c l a u s e m a y b e
rectified by the Engineer using his power of instruction so that
if the Contractor failed to comply with that instruction,
t h e Employer would be entitled to damages. In that way, this clause may be read
asa clause that gives the Employer a power to employ alternative contractors at
theC o n t r a c t o r ' s e x p e n s e r a t h e r t h a n a c l a u s e w h i c h p e r m i t s t h e
C o n t r a c t o r t o decline to take necessary emergency action. It will also
provide the Contractor with the necessary incentive to act.O t h e r
contractors may also be used by the Employer pursuant to
clause
31(Opportunities for other contractors), clause 39.2 (Default of
Contractor incompliance), clause 49.4 (Contractor's failure to
c a r r y o u t i n s t r u c t i o n s ) a n d clause 63.1 (Default of Contractor).
CLAUSE 65 : Special Risks
A Contractor shall have no liability for damage to the W
o r k s ( o t h e r t h a n condemned work under clause 39), other property
or injury or loss of life arisingfrom the special risks.The special risks are
defined.If the W orks, materials, plant or equipment are damaged by one
of the
specialr i s k s , t h e C o n t r a c t o r i s t o b e p a i d f o r w o r k e x e c u t
e d , m a t e r i a l s a n d p l a n t damaged and any rectification work
o r r e p l a c e m e n t o r r e p a i r o f m a t e r i a l s o r equipment as required by
the Engineer or necessary for the completion of theW orks. Damage
caused by bombs etc shall be deemed the consequence of the special
risks.The Contractor is to be paid any costs of completing the Works which result
fromthe special risks and which would not otherwise be recoverable. The
Contractor is to notify the Engineer of such costs forthwith.If war breaks out
and materially affects the W orks, the Contractor is to continueto use his
best endeavours to complete the Works but the Employer is entitled toterminate the
contract by notice.Upon a termination on account of war, the Contractor is to remove
his equipmentand assist his subcontractors to do the same as soon as possible.After
such termination the Contractor will be paid for all work executed, for
costsi n c u r r e d i n c l u d i n g d e m o b i l i s a t i o n c o s t s l e s s t h e b a l
a n c e o f a n y a d v a n c e payments.

Page 233 of 264

This clause has certain significant alterations from the 3rd Edition, and has beenr e organised. The indemnity given by the Employe r to the
C o n t r a c t o r u n d e r clause 65(1) has been deleted. Payment for rectification and
replacement work isnow to be made in accordance with clause 52 (Valuation of
variations) and not onthe basis of cost plus profit. The opening words of
sub-clause 65.5 and of 65.8,item (e) are new, as is the final sentence of
65.8.Clause 65 could usefully be divided, with sub-clauses 65.1 to 65.5 being
includedwith the risk and insurance clauses 20 to 25 and with sub -clauses
65.6 to 65.8remaining in their current position amongst the termination clauses.
Such a movew o u l d e m p h a s i z e t h e o d d w a y i n w h i c h t h e c l a u s e
d u p l i c a t e s a n d s o m e t i m e s clashes with clause 20 (Care of Works).6 5 . 1 T h e
careful exclusion of works condemned under clause 39
( R e m o v a l o f improper work, materials or plant) in this sub-clause and
sub-clause 65.5 mustmake it easier for the Contractor to recover
payment for work, no matter howimperfectly executed which had not been the
subject of an instruction pursuant toclause 39. It is worthy of note that, with
the exception of the reference to non -compliance with clause 39 as a ground
for termination under clause 63.1 (Defaulto f C o n t r a c t o r ) , c l a u s e 3 9 i s n o t
referred to anywhere else in the contract. Inparticular, clause
3 9 i s n o t a n e x c e p t i o n t o t h e C o n t r a c t o r ' s r i g h t o f r e c o v e r y under
clause 20.3 (Loss or damage due to Employer's risks). The answer may bethat
under clause 20.3 the Engineer would not require the Contractor to
rectifyc o n d e m n e d w o r k b e c a u s e h e w o u l d a l r e a d y h a v e i n s t r u c t e
d t h e C o n t r a c t o r under clause 39 to replace it. Nevertheless, it seems
somewhat strange that if the damage serves to demonstrate that an element of
the works was constructedw h o l l y d e f e c t i v e l y , t h e C o n t r a c t o r i s
e n t i t l e d b o t h t o p a y m e n t f o r t h e o r i g i n a l defective execution and for the
cost of rebuilding.T h e e s s e n t i a l d i f f e r e n c e b e t w e e n t h i s s u b clause and clause 20.3 (Loss or d a m a g e d u e t o E m p l o y e r ' s r
i s k s ) i s t h a t t h e E m p l o y e r ' s r i s k s e x e m p t t h e Contractor from
the cost of repairing damage to the Works whereas the specialrisks
exclude the Contractor from liability not only for damage to the W orks
buta l s o f r o m d a m a g e t o o t h e r p r o p e r t y a n d d e a t h o r p e r s o n a l
i n j u r y . T h i s m u s t include death or personal injury to workmen as referred to
clause 24.1 (Accidentor injury to workmen).I n c i v i l c o d e c o u n t r i e s , w h e r e
a d m i n i s t r a t i v e l a w b a s e d o n t h e F r e n c h m o d e l applies, this clause
reflects the Theorie de l'imprevision whereby if exceptionaland
unforeseen events render the Contractor's obligation excessively
onerousthreatening him with excessive loss, then th e Contractor's loss
may be
reducedt o r e a s o n a b l e l i m i t s b y w a y o f c o m p e n s a t i o n b y t h e
E m p l o y e r . I n c e r t a i n countries, notably
E y g p t t h i s d o c t r i n e h a s b e e n e x t e n d e d t o c i v i l o r p r i v a t e contracts
as well. This clause is in fact more generous than the
administrativel a w d o c t r i n e a s i t p r o v i d e s f o r t h e C o n t r a c t o r
to be completely relieved of responsibility, whereas the
Theorie only provides for the reduction of the
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Contractor's losses. For a brief overview of administrative law

b a s e d o n t h e French model, see clause 5.1 (Languages and law).6 5 . 3 I f d a m a g e
t o t h e w o r k s i s c a u s e d b y t h e s p e c i a l r i s k s , t h a t i s E m p l o y e r ' s risks
under clause 20.4 (a),(c),(d) and (e) or (b) in the event that the
rebellionrelates to the country in which the Works are being executed, the question
ariseswhether there is any material difference between "no liability" under
clause 65and the Contractor's right to payment under clause 20.3. For
example, if delayresults from the event, is the Contractor exposed to liquidated
damages? If he isunder no liability whatsoever, presumably not. If, however,
he is to receive anadditional payment "in accordance with Clause 52", has
he agreed to take ther i s k o f d e l a y u p o n h i m s e l f ? I t i s s u b m i t t e d t h a t
h e h a s n o t b e c a u s e , i n e i t h e r event, an extension of time should be due
under clause 44.1 (Extension of timefor completion) items (a) or (e).
Liability to a third party might not produce sosimple an answer: could such
liability be brought within the "rates and prices" context of clause 52? If the
scheme of the contract requires prolongation costs tobe covered by the terms of the
clause, inappropriate as the wording may be for that function, the answer
may be that even liability to a third party is covered. Insummary, this clause
and clause 20.3 should not on their respective wording have the same effect but
in practical terms they probably do.As pointed out in the commentary under clause
20.3, there is a conflict betweenthis sub -clause and clause 20.3 as to the
Contractor's right to carry out and
bep a i d f o r t h e r e p a i r a n d c o m p l e t i o n o f t h e W o r k s a n d
t h e r e p l a c e m e n t o f equipment etc. Here, "the Contractor
s h a l l b e e n t i t l e d . . . s o f a r a s m a y b e required by the Engineer
or as may be necessary for the completion of
thew o r k s , t o p a y m e n t f o r ( a ) r e c t i f y i n g . . . a n d ( b ) r e p l a c i n g " .
W o r k w h i c h i s necessary for the completion of the Works the Contractor is
therefore entitled toundertake. On the other hand, clause 20.3 requires the
Contractor to rectify thed a m a g e " i f a n d t o t h e e x t e n t r e q u i r e d b y t h e
Engineer". It should be borne inmind that the Contractor's
u n d e r l y i n g r i g h t a n d o b l i g a t i o n i s t o c a r r y o u t a n d complete the works
unless and until the contract or his employment under it isterminated. Neither
clause 20.3 nor this sub-clause give a right to terminate nor d o t h e y a d d r e s s
the issue of termination. Once an element of work has
b e e n satisfactorily completed, does a Contractor have a right or obligation to return tot h a t
part of the works in the event that it is damaged? If the damage is
ther e s p o n s i b i l i t y o f t h e C o n t r a c t o r , t h e r e i s n o d i f f i c u l
t y a n d c l a u s e 2 0 . 2 (Responsibility to rectify loss or damage)
i m p o s e s a c l e a r o b l i g a t i o n o n t h e Contractor to rectify such damage. If the
damage is not his responsibility, it issubmitted that the Contractor has no
underlying right or obligation to repair thedamage. Clause 20.3 (Loss or
damage due to Employer's risks) is consistentwith this position and it is worthy
of note that under clause 49.2 (Completion
of o u t s t a n d i n g w o r k a n d r e m e d y i n g d e f e c t s ) t h e C o n t r a c t o r i s o n l y
obliged toremedy such defects as the Engineer may instruct. This
s u b - c l a u s e m a y b e interpreted in two ways to achieve consistency: firstly, it may
regarded as dealingonly with the right to payment as distinct from the right or
obligation to
executet h e r e p a i r w o r k s ; o r s e c o n d l y , t h e p h r a s e " a s m a
y b e n e c e s s a r y f o r t h e completion of the Works" may be taken to mean the
completion of those parts of
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the work which had not, at the time of the incident, been
c o m p l e t e d . I t i s submitted that this interpretation produces a sensible result.
After all, there is noobligation upon the Contractor to insure four of the five special
risks so the fundsmay not be available to execute repairs in any event.Clause 53.1
(Notice of claims) applies to claims under this sub-clause so that theC o n t r a c t o r
has 28 days of the event to notify the Engineer of an intention
t o claim. The notice requirement of clause 52.2 (Power of Engineer to fix
rates)does not, it is submitted, apply for the reasons set out under that subclause." P l a n t " h a s b e e n o m i t t e d f r o m i t e m s ( a ) a n d ( b ) i n t h i s
s u b - c l a u s e w h i c h , i t i s presumed, is an oversight.6 5 . 4 / 6 5 . 5 T h e v e r y
wide wording of this clause, especially the "whenever
a n d wherever" in combination with the very loose causative link required under
clause65.5 seems bound to give rise to some curious claims. Thus, the
explosion of agrenade in Mecca, for example, leading to Moslem members of the
Contractor'sworkforce on a project in Sweden taking a day off work by way
of protest wouldseem to entitle the Contractor to claim additional costs under subclause 65.5.The Contractor is obliged to give notice forthwith upon such
costs coming to hisknowledge. The only explanation for the forthwith
requirement as distinct from,f o r e x a m p l e , t h e 2 8 d a y s r e q u i r e d
b y c l a u s e 5 3 . 1 ( N o t i c e o f c l a i m s ) i s t h e apparent generosity of the
clause. The only other occasion on which notice
mustb e g i v e n f o r t h w i t h i s u n d e r c l a u s e 1 2 . 2 ( A d v e r s e p h y s i c a l o b
s t r u c t i o n s a n d conditions), although clause 27 (Fossils) requires the Engineer to
be acquaintedwith the find "immediately".Sub-clause 65.5 should be read with clause
70.1 (Increase or decrease of cost).6 5 . 6 A f t e r t h e g e n e r o s i t y t o t h e
Contractor of the previous two sub -clauses thisclause seems
intended as some partial compensation to the Employe r. If
h e wishes to terminate the contract without being obliged to pay the Contractor
anys u m i n r e s p e c t o f l o s s o f p r o f i t , h e m a y d o s o i f h e i s a b l e t o
demonstate amaterial effect upon the execution of the works by
a n y w a r a n y w h e r e i n t h e world. W hat amounts to a material effect will
always be a difficult question but a war which affected the price of oil, for
excample, may arguably suffice. However,it is "the execution of the Works"
which must be effected and there may well be scope for argument than an
increase in price as distinct from the non-availabilityof material or labour needed
for the works, would not affect the execution. Such a n a r g u m e n t w o u l d
b e s u p p o r t e d b y t h e w o r d i n g o f c l a u s e 7 0 . 1 ( I n c r e a s e o r decrease
of cost) where matters affecting the "cost of the execution of the works"are referred
to.The clause does not specify that the material effect must be adverse
and, it iss u b m i t t e d o n t h e w o r d i n g o f t h e c l a u s e , a n E m p l o y e r i s
g i v e n t h e o p t i o n t o terminate in the event of some benefit being
conferred on the project by reasonof the outbreak of war. For example, if
a shortage of labour was converted to a

Page 236 of 264

plentiful supply on account of a war in a neighbouring region, the Employer mightwell

be able to claim a material effect.In the event of termination, the parties'
rights under this clause and clause 67 (Settlement of disputes) are expressly
preserved as it is the contract that is beingterminated and not the Contractor's
employment as under clause 63.1 (Default of Contractor) or clause 69.1
(Default of Employer). Curiously, the Engineer, in making his decision under
clause 67.1 (Engineer's decision) would not be boundby clause 2.6 (Engineer to act
impartially) as that clause has not been preserved.The parties' rights in respect of
breaches of contract occurring prior to terminationare also preserved. This
could rise to difficulty if such antecedent breaches giverise to a right in
either party to terminate, yielding a different financial result to that set out
in sub-clause 65.8. For example, if the Employer had interfered withthe issue of a
certificate and the Contractor was about to issue or had issued anotice of
termination under clause 69.1(b) which would only take effect 14
daysthereafter, the Employer might well seek to avoid the Contractor's profit claim
byterminating under this clause.On the assumption that the Employer can show the
requisite material effect, it issubmitted that sub-clause 65.8 will prevail and the
Contractor will not receive hisl o s s o f p r o f i t . T h i s i s b e c a u s e i t i s t h e
manner in which the contract or theemployment of the
C o n t r a c t o r c o m e s t o a n e n d t h a t i s c r i t i c a l i n d e t e r m i n i n g which of
clauses 63.3, 65.8 or 69.3 applies.CLAUSE 65.6 (Outbreak of War)Click on the [*]
button to see omitted text.The proviso has been amended as follows:-" P r o v i d e d
that the Employer shall be entitled, at any time after
s u c h outbreak of war, to determine the Contract by giving notice to the Contractor
and,upon such notice being given, the Contract shall, except as to the
rights of theparties under this Clause and [*] Clause 67, terminate, but
without prejudice tothe rights of either party in respect of any antecedent
breach thereof."In this sub-clause and in clause 66.1 (Release from
performance), thought hasbeen given to the termination of the Cont ract
as distinct from the termination of t h e e m p l o y m e n t u n d e r t h e
C o n t r a c t . U n d e r E n g l i s h l a w , a w i d e l y - w o r d e d disputes clause,
including the provisions for Engineer's decisions and
amicables e t t l e m e n t , w o u l d s u r v i v e t h e e n d i n g o f a c o n t r a c t .
A c c r u e d e n t i t l e m e n t s t o damages for breach of contract would also
generally survive. The words arenecessary, however, even in English law to
ensure the survival of the applicableprovisions dealing with payment following
termination of a contract. W hatever t h e l a w g o v e r n i n g t h e c o n t r a c t ,
i t i s o b v i o u s l y w i s e t o d e a l w i t h t h i s m a t t e r expressly.

Page 237 of 264

65.7This subclause should be contrasted with clause 54.1 (Cont

r a c t o r ' s Equipment etc) and clause 54.4 (Re-export of Contractor's Equipment.)
See alsothe commentary under clause 54.6 5 . 8 F o r a c o m p a r i s o n o f t h e
f i n a n c i a l c o n s e q u e n c e s o f t e r m i n a t i o n u n d e r t h i s clause with
termination under clause 63.1 (Default of Contractor) and clause 69.1(Default of
Employer), see the commentary under clause 63.1.
CLAUSE 66 : Release from Performance
Where circumstances beyond the control of the parties make performance of
thec o n t r a c t i m p o s s i b l e o r u n l a w f u l , t h e p a r t i e s a r e r
e l e a s e d f r o m f u r t h e r performance and clause 65.8 (Payment if contract
terminated) applies.This clause contains significant alterations from the 3rd
Edition, not least thats p e c i f i c r e f e r e n c e t o w a r h a s b e e n
o m i t t e d . T h i s c l a u s e m u s t b e r e a d i n conjunction with clause 13.1
(Work to be in accordance with contract) which saysthat the Contractor must carry
out the works in strict accordance with the contract"unless it is legally or physically
impossible". The words "impossible or unlawful"a r e n e w t o t h e 4 t h E d i t i o n ,
the former wording being where "either party
isprevented from fulfilling his contractual obligations". See the
c o m m e n t a r y t o clause 13.1 for discussion on
"impossibility".T h i s c l a u s e a t t e m p t s t o b r i d g e b e t w e e n t h e s t r i
c t c o m m o n l a w d o c t r i n e o f frustration and the civil law concept of
force majeure. English common law, as c o d i f i e d i n t h e L a w R e f o r m
( F r u s t r a t e d C o n t r a c t s ) A c t , m a k e s i t d i f f i c u l t f o r a party to succeed
in a plea of frustration. In Davis Contractors v Fareham UDC ( 1 9 5 6 )
AC 696, the English House of Lords held that a con
t r a c t w a s n o t frustrated by a severe shortage of labour; the Court of Appeal
also refused relief in Wates v GLC (1983) 25 BLR 9 when the contractor
complained that runawayi n f l a t i o n h a d f u n d a m e n t a l l y
a l t e r e d t h e e c o n o m i c s o f t h e c o n t r a c t . I t t o o k a catastrophic
landslip which buried the site, swept away a twelve storey block of flats
and killed a number of people to persuade the Privy Council in W ong
LaiYing v Chinachem Investment Co. Ltd (1979) 13 BLR 81 that a contract had
beenfrustrated.I f a c o n t r a c t i s h e l d t o b e f r u s t r a t e d , t h e r e s u l t ,
broadly speaking, is that the c o n t r a c t o r i s t o b e p a i d f o r t h e
w o r k d o n e p r i o r t o t h e f r u s t r a t i n g e v e n t b u t otherwise both
parties are discharged from further performance. In civil
law jurisdictions, the doctrine of force majeure takes an
a l t o g e t h e r m o r e r e l a x e d approach to relieving the parties of their
obligations under the contract and it isthis more relaxed approach that
has been adopted in the current clause. This clause should be read with
clause 20.4 (Employer's risks) and clause 65 (SpecialR i s k s ) , w h i c h a l s o
r e f l e c t t h e d o c t r i n e o f f o r c e m a j e u r e , a n d t h e c o m m e n t a r y under
clause 5.1 which briefly outlines three civil law doctrines that are
impliedinto administrative contracts in certain countries.

Page 238 of 264

The project comes to an end if one party is unable to

f u l f i l l h i s c o n t r a c t u a l obligations or if both parties are released from
further performance. The latter circumstance may be relatively rare but the
ease with which a party could invokethe former depends on the interpretation
of the expression "any circumstancesoutside the control of both
parties". In theory, the financial circumstances of a Contractor could render it
impossible for him to continue and his difficulties couldderive from a change in
the construction market altogether outside his
controla n d t h a t o f t h e E m p l o y e r . A l t h o u g h s u c h a C o n
t r a c t o r w o u l d h a v e t o demonstrate the impossibility of his carrying on to
the satisfaction of an arbitrator,this clause must present both parties with
considerable scope for escaping froman unprofitable contract. As clause 65.8
(Payment if contract terminated) gives agenerous reimbursement of costs, a
Contractor who finds himself making a lossis bound to consider
taking advantage of this clause if circumstances allow.It may be relevant to a
consideration of whether a contract has been frustrated or a party is unable to
fulfil his contractual obligations that there is a power under clause 40.1
(Suspension of work) to put all or part of the project on hold for threemonths
without the consent of the Contractor. It could well be argued
thereforet h a t a m e r e l y t e m p o r a r y p r o b l e m c o u l d b e o v e r c o m e
w i t h i n t h e t e r m s o f t h e contract.CLAUSE 66.1 (Release from
performance)Click on the [*] button to see omitted text.This clause now reads as
follows:-"If any circumstance outside the control of both parties arises
after the issue of the Letter of Acceptance which renders it impossible or unlawful
for either [*] or both parties to fulfil his or their contractual obligations, or under the
law governingthe Contract the parties are released from further
performance, then the partiesshall be discharged from the Contract, except as
to their rights under this Clauseand Clause 67 and without prejudice to the rights of
either party in respect of anyantecedent breach of the contract, and the sum
payable by the Employer to the Contractor in respect of the work executed shall
be the same as that which wouldhave been payable under Clause 65 if the
Contract had been terminated under the provisions of Clause
65."T h e f i r s t t w o a m e n d m e n t s a r e p r e s u m a b l y i n t e n d e d t o
m a k e i t c l e a r t h a t impossibility or illegality affecting both the
Contractor and the Employer has
thes a m e e f f e c t o f d i s c h a r g i n g t h e c o n t r a c t a s w o u l d i m p o
s s i b i l i t y o r i l l e g a l i t y affecting one party only. Given the
conservatism of the committee responsiblefor the re -print, it is perhaps
surprising that they felt it necessary to make these amendments. Scope for
misunderstanding was very limited, it is submitted.For comment on the preservation
of certain clauses and rights, see under clause65.6 (Outbreak of war) above.

Page 239 of 264

CLAUSE 67 : Settlement of Disputes

This clause is the disputes clause and introduces a 3-stage process. Any
disputeshould be referred in writing to the Engineer who is given 12
weeks in which tog i v e h i s d e c i s i o n . U n l e s s t h e c o n t r a c t h a s c o m e
to an end, the
Contractor c o n t i n u e s t o e x e c u t e t h e W o r k s a n d b o t h p a r t i e
s m u s t g i v e e f f e c t t o t h e Engineer's decision. If either party
i s d i s s a t i s f i e d w i t h t h e d e c i s i o n o r t h e Engineer fails to make a
decision, they have 10 weeks in which to give notice of t h e i r i n t e n t i o n
to commence arbitration. If they fail to give such notice,
t h e Engineer's decision will become final and binding upon the parties.For 8 weeks
after the notice of arbitration is given, the parties try to settle
thedispute amicably.If neither the Engineer's decis ion nor the attempts at
amicable settlement havesucceeded in resolving the dispute, the matter is
referred to arbitration under therules of the ICC. The arbitrator will have
power to look into any decision of the E n g i n e e r a n d r e p l a c e a n y
c e r t i f i c a t e s e t c . t h a t t h e E n g i n e e r h a s m a d e . T h e parties may use
fresh evidence and arguments and may call the Engineer as
awitness. The arbitration may be commenced before or after the
completion of the Works. The conduct of any arbitration before completion will not
change theobligations of the parties.W here an Engineer's decision has
become final and binding, a party may refer any failure by the other party
to comply with that decision directly to arbitration w i t h o u t t h e n e e d f o r
a further Engineer's decision or any attempt at
a m i c a b l e settlement.The 4th Edition introduces fundamental changes to the
disputes procedure. Theprinciples contained in clause 67 of the 3rd Edition
have been divided betweensub -clauses 67.1 and 67.3. A more detailed
procedure has been set out for theEngineer's decisions. Sub-clause 67.2
introducing amicable settlement is new asis clause 67.4 giving either party a
right to go directly to arbitration in the event that an Engineer's decision has
neither been challenged nor complied with.6 7 . 1 " I f a d i s p u t e . . . " . I t i s
not uncommon for one party to deny that a
disputeexists and therefore to deny that an Engineer's d
e c i s i o n o r a r b i t r a t i o n i s appropriate or indeed permitted under the
terms of the contract. In England, adispute has been held to require
a claim by the Contractor and its rejection: seeM o n m o u t h s h i r e C o u n t y
C o u n c i l v C o s t e l l o e & K e m p l e ( 1 9 6 5 ) 5 B L R 8 3 . T h i s Court of
Appeal decision on ICE 4th Edition centred on whether a dispute
hadb e e n r e f e r r e d t o t h e E n g i n e e r a n d i l l u s t r a t e s t h e g o o d s e n s e
o f r e q u i r i n g t h e reference and the decision to say that they are made pursuant
to this clause.

Page 240 of 264

It is clear from the breadth of the opening phrases of this clause that the categoryof
disputes to be referred to the Engineer includes breaches of
contract. Thus,t h e E n g i n e e r w i l l b e a s k e d t o g i v e a d e c i s i o n o n ,
f o r e x a m p l e , w h e t h e r t h e Employer was in breach by failing to ensure that
the Engineer certified properly inaccordance with the contract. The Engineer
is therefore called upon to judge w h e t h e r h i s o w n a c t i o n s w e r e
correct or incorrect with possible ramificationsunder his
contract with the Employer. It is perhaps asking too much
o f a n y Engineer to be independent and disinterested in relation to such
a decision. For this reason, this procedure is sometimes regarded as little
more than a delay tothe resolution of the dispute or as a cooling-off
period. In practice, a referenceunder clause 67.1 will often be preceded by
correspondence between
Contractor a n d E n g i n e e r i n w h i c h t h e r e s p e c t i v e p o s i t i o
n s a r e s e t o u t . I n t h e s e circumstances, the Contractor could justifiably
consider a further 12-week delay,while the Engineer formalises his position, to be
time wasted.O v e r a l l , t h e p r o c e d u r e d o e s s e e m v e r y p r o t r a c t e d w i t h
a period of up to
30w e e k s f r o m t h e r e f e r e n c e t o t h e E n g i n e e r u n t i
l a n a r b i t r a t i o n m a y b e commenced. Under the ICC Rules, an
award in less than a further 6 months
isp r o b a b l y u n l i k e l y . W h i l s t t h i s m a y e n c o u r a g e t h e p a r t i e s t
o p u r s u e o n l y substantial complaints and to take the amicable settlement
procedure seriously, ay e a r i s a v e r y s u b s t a n t i a l p e r i o d , p a r t i c u l a r l y i f
t h e p r o j e c t w i l l s o m e h o w b e affected by the award. For example, a
decision as to whether an Engineer is e n t i t l e d t o i n s t r u c t a p a r t i c u l a r
v a r i a t i o n c o u l d b e o f g r e a t i m p o r t a n c e t o t h e project.W h e t h e r t h e
broad opening phrases of clause 67.1 are sufficiently broad
t o require an Engineer's decision on a demand by either party for the rectification of the
contract (i.e. the correction of the contract to reflect accurately the intentionsof the
parties) will depend on the applicable law. Under English law those wordsin an
arbitration clause would almost certainly be held to give an arbitrator power to rectify
the contract. Accordingly, it is submitted that a party could apply
for rectification in the first instance to the Engineer although, under clause
67.3, hewould be free to put his argument in a different way and seek
rectification from an arbitrator. It must be doubtful whether a decision by an Engineer
could havethe effect of rectifying a contract as distinct from resolving
the particular disputereferred to him for decision. If the Engineer's decision
became final and bindingfor lack of challenge, an arbitrator looking at a
separate dispute involving the"rectified" clause would, it is submitted, be at
liberty to ignore or reconsider the Engineer's purported rectification.T h e r e i s n o
express time limit for a reference to the Engineer. The
c l a u s e envisages such references after the completion of the works. Limits on the
abilityo f t h e C o n t r a c t o r t o c l a i m a r e c o n t a i n e d i n c l a u s e 5 3
(Procedure for
claims),clause 60.7 (Discharge) and clause 60.9 (Cessation of Em
p l o y e r ' s l i a b i l i t y ) . Nevertheless, clause 62.2 (Unfulfilled obligations) preserves
obligations on bothsides. The most likely source of dispute long aft er the
completion of the works would be the emergence of defects. Subject to the limitation
period imposed bythe law of the contract, such a dispute might arise many years after
the project is
Page 241 of 264

complete. For a discussion on when the Engineer's role comes to an end and heis
functus officio, see under clause 2.1 (Engineer's duties and
authority).A s n o a r b i t r a t i o n ( o t h e r t h a n o n e u n d e r c l a u s e 6 7 .
4 ) m a y s t a r t w i t h o u t a n Engineer's decision, the question arises as to what
happens if the Engineer is nolonger available. The Engineer is defined as a
person and Part II requires theinsertion of a name. Although the
draftsman appears to have in mind the nameof an individual, it would not
be inconsistent with the contract for the name of apractice of Engine ers
to be used. In either event, the individual could be dead, retired or in dispute
with the Employer and the practice could be disbanded. TheEngineer may
simply refuse to consider any reference. In these circumstances,i t i s s u b m i t t e d
that the party must write to the name set out in Part II and
t h e address also set out in Part II pursuant to clause 68.2 (Notice to
Employer andE n g i n e e r ) a n d t h e r e a f t e r r e l y u p o n t h e a b i l i t y 8 4
d a y s l a t e r t o g i v e n o t i c e o f intention to commence arbitration when the
Engineer has failed to give notice of his decision.T h e r e i s n o e x p r e s s p o w e r
g i v e n t o t h e E m p l o y e r t o a p p o i n t a n e w E n g i n e e r should the need
arise. This is a departure both from the 3rd Edition and ICE 5thand one which has
not been followed by ICE 6th. The reason given in FIDIC'sg u i d e i s
that FIDIC wishes the parties to agree on the identity of
t h e n e w Engineer because the identity of the Engineer would
h a v e b e e n o n e o f t h e factors which influenced the Contractor in the
calculation of his tender. For
ad i s c u s s i o n o n t h e e f f e c t o f t h i s o m i s s i o n , s e e t h e c o m m
e n t a r y t o c l a u s e 1.1(a)(iv). The effect on the current sub -clause is
that the Employer is unableunilaterally to nominate a new Engineer and
the Contractor will be entitled to serve notice of arbitration after 12 weeks. It is
submitted that knowledge on thep a r t o f t h e C o n t r a c t o r t h a t t h e p e r s o n
named is no longer alive or practicing a n d / o r t h a t t h e a d d r e s s
set out in Part II is no longer effective should
n o t disentitle the Contractor from giving notice and thereafter
f r o m c o m m e n c i n g arbitration."Whether before or after repudiation or other
termination of the contract...". It ish e l p f u l t h a t i t i s m a d e c l e a r t h a t t h e
repudiation or other termination of thecontract does not affect
t h e d i s p u t e s p r o c e d u r e . I n m a n y j u r i s d i c t i o n s , t h e survival of the
disputes procedure would not be beyond doubt. It could otherwisebe arguable that
the disputes procedure would perish along with the contractafter
repudiation. The issue of which parts of the contract remain alive and
inw h a t p a r t i c u l a r c i r c u m s t a n c e s i s n o t a s s i s t e d b y c l a u s e
6 2 . 2 ( U n f u l f i l l e d obligations) where, for certain purposes, "the contract shall
be deemed to remainin force between the parties...". For more on this point,
see the commentary toclause
62.2." . . . a n y o p i n i o n , i n s t r u c t i o n , d e t e r m i n a t i o n , c e r t i f i c a t e
o r v a l u a t i o n o f t h e Engineer". Other functions of the Engineer
listed in clauses 1.5 (Notices,consents, approvals, certificates
a n d d e t e r m i n a t i o n s ) o r 2 . 6 ( E n g i n e e r t o a c t impartially) which do not
appear in clause 67.1 are as follows:Page 242 of 264

- decisions- consents- satisfactions- approvals- noticesA t a b l e s h o w i n g w h i c h

o f t h e E n g i n e e r ' s f u n c t i o n s i s r e f e r r e d t o i n w h i c h o f clauses 1.5,
2.6, 67.1, 67.3 and 68 is contained in the commentary to clause
1.5.I n v i e w o f t h e b r e a d t h o f t h e o p e n i n g w o r d s o f t h
i s c l a u s e , i t i s p e r h a p s unfortunate that it should remain
arguable that there is any limitation on the f u n c t i o n s o f
the Engineer to which this procedure applies. Although it
i s submitted that, on a true construction, all functions of an Engineer are covered
bythe opening lines of the clause, the matter could be put beyond doubt by the useof
some broad catch-all words such as those used at clause 2.6(d)
"otherwisetaking action which may affect the rights and obligations of the
Employer or theContractor".An innovation of the 4th Edition is to require
both the reference to the Engineer and the Engineer's decision to state
that they are made pursuant to clause 67. This removes considerable scope
for argument as to whether any letter written tothe Engineer claiming, for
example, an extension of time amounted to a requestfor a decision
and whether any response from the Engineer amounted to such a decision
allowing the Contractor to move on towards arbitration."... the Contractor shall,
in every case, continue to proceed with the W orks...".Whilst it is obviously
right that the Contractor is obliged to proceed with the workswhilst the disputes
procedure is in operation, the exact definition of "Works" maywell be the subject
of the dispute. For example, if an instruction or a variationhad been
given which the Contractor contended was not within the
Engineer'spowers. Similarly, the Contractor is obliged to give effect
immediately to anydecision that the Engineer makes. Thus, if the
Engineer decides to refuse theContractor an extension of time, the Contractor
would theoretically be obliged toaccelerate in order to complete on time in
order to "give effect" to the decision. For more on acceleration, see the
commentary to clause 46.1 (Rate of progress).If the Engineer certified that one of the
grounds for termination under clause
63.1( D e f a u l t o f C o n t r a c t o r ) e x i s t e d b u t , b e f o r e t h e E
m p l o y e r g a v e n o t i c e o f termination, the Contractor referred the
dispute to the Engineer, the question would then arise as to whether the
Employer is entitled to terminate the contract.The current sub-clause states that
the Contractor should in every case continueto proceed with the works unless
the contract has already been terminated. Thiss i t u a t i o n h a s n o t b e e n
c a t e r e d f o r i n c l a u s e 6 3 . 1 . I t m u s t b e a r g u a b l e b y a Contractor
that the right to terminate is suspended until the Engineer has given h i s
decision. It is submitted in the commentary under clause 63.1
that
thisa r g u m e n t h a s m e r i t , p a r t i c u l a r l y i n t h e l i g h t o f t h e e x
p r e s s r e f e r e n c e t o termination in the clause. It is suggested under clause
69.1 (Default of Employer)

Page 243 of 264

that the same argument is available to the Employer in relation to termination

bythe Contractor.Whilst this clause makes clear that the Contractor is obliged to
proceed with theworks pending the Engineer's decision, there is no corresponding
obligation uponthe Employer to continue to make payments. If followed strictly, this
could lead tothe Contractor being obliged to continue working in
circumstances where it wast h e E m p l o y e r ' s f a i l u r e t o p a y t h a t g i v e
r i s e t o t h e d i s p u t e i n t h e f i r s t p l a c e . I n reality, it must be unlikely that an
unpaid Contractor would continue to work for anEmployer who was not complying
with his payment obligations.The form of the notice of intention to commence
arbitration is not specified. The4th Edition has made it clear that it is
not necessary at this stage in a dispute tosubmit a Request for Arbitration to
the ICC. Under earlier editions, the party had9 0 d a y s f r o m r e c e i p t o f t h e
Engineer's decision to "require that the matter or matters in
dispute be referred to arbitration". The arbitrators in ICC case
n o . 4862, reported in (1989) 6 ICLR 44, decided that these words were satisfied if
aparty had given notice of an intention to arbitrate to the other parties. The
currentedition puts the matter beyond doubt and thereby avoids the
necessity for eachdispute to be the subject of a separate Request for
Arbitration, with all the time and expense involved, during the currency of the
contract.A s t h e s t a t e m e n t o f t h e d i s p u t e i n t h e n o t i c e w i l l
establish the limits of thearbitrator's terms of reference in the
absence of agreement to the contrarybetween the parties, it is
i m p o r t a n t t h a t t h e n a t u r e o f t h e d i s p u t e i s c a r e f u l l y worded. If too
broad, the party giving the notice could be met with the argumentthat parts of the
matters set out have not been referred to the Engineer for his decision. If
too narrow, the arbitration may be too limited, despite the freedom tointroduce new
evidence and arguments as set out in clause 67.3. It is suggestedt h a t t h e
parties would be well advised to err, when referring matters to
t h e Engineer and when notifying intention to commence arbitration, on
the side of broadly-worded statements of the dispute. Two Englis h cases
on the point areMid Glamorgan County Council v Land Authorty for W ales
(1990) 49 BLR 61 inwhich the courts stressed the need for clarity in defining the
disputes as, if therehad been no reference to the Engineer, the arbitrator would not
have jurisdictionto deal with the dispute in the absence of agreement
between the parties; andWigan Metropolitan Borough Council v Sharkey Bros
(1987) 43 BLR 115 where itwas held that the words "other matters" were an
insufficient reference of disputesto arbitration: the court held that the respondent in
the arbitration was not therebygiven sufficient information as to the claim which he
had to answer.Another question which arises is whether a party is entitled
to raise a new claimo r c o u n t e r c l a i m i n a n a r b i t r a t i o n i f t h a t c l a i m
has not been the subject of anEngineer's decision and
a t t e m p t s a t a m i c a b l e s e t t l e m e n t . I n p r a c t i c e , t h e arbitration
procedure is sufficiently protracted that a party would have a more t h a n
adequate time to refer the matter to the Engineer in
o r d e r f o r i t t o b e considered by the arbitrator. If an arbitrator was
asked to consider a claim thathad not been the subject of an Engineer's
decision, (other than one under sub Page 244 of 264

clause 67.4), it is submitted that a correct course would be for the

arbitrator todisregard the claim. In the case of a counterclaim, he could
wait until after theaward whereupon he could consider an application for
any payment under theaward to be postponed until after the procedure
was followed in respect of the counterclaim. If there was no doubt about the
creditworthiness of the beneficiaryof the award, and no particular difficulties about
executing against the beneficiaryi n r e s p e c t o f a n y s u m s a w a r d e d o n t h e
c o u n t e r c l a i m , t h e a r b i t r a t o r m a y w e l l refuse any postponement of
the payment. The relevant arbitration rules would, h o w e v e r , h a v e t o b e
c o n s i d e r e d t o s e e i f a n y s u c h p o w e r w a s g i v e n t o t h e arbitrator.
Problems of this sort would be avoided by very broad terms of disputesuch as
"what sums are properly payable by x to y under or in connection with the
contract dated... between x and y in relation to the...project."The importance
of the form of notice is apparent from the final paragraph of thiss u b clause which states that in the absence of such notice, the
E n g i n e e r ' s decision shall be final and binding. It is also vital that the Engineer
clearly definest h e m a t t e r s c o v e r e d b y h i s d e c i s i o n t o m i n i m i s e r o o m
for dispute over whatdisputes may no longer be the subject of
a r b i t r a t i o n . T h e r e c a n b e n o a p p e a l from the decision becoming
final, only from an arbitration. One exception to thiscould be statutory
provisions such as section 27 of the UK's Arbitration Act 1950which permits an
application to the court for an extension of time for commencingan arbitration in
certain circumstances. Note that in the absence of a decision bythe Engineer and a
notification of arbitration the status quo ante is not then fixedbut the parties could
refer the matters to the Engineer afresh.A possible exception to the "final
and binding" effect is found in sub-clause 67.4whereby an arbitration may be
commenced in relation to a failure to comply witht h e E n g i n e e r ' s d e c i s i o n . I f
t h e f a i l u r e w a s r e f e r r e d t o a r b i t r a t i o n u n d e r t h a t clause, a party
could argue that the arbitrator should consider the decision as well as the
failure to comply. The other party would undoubtedly argue that, asthe
decision has become "final and binding", the arbitrator's terms of
referencewould not extend beyond a consideration of the consequences
of the failure tocomply. This argument, which seems correct on the interpretation of
the two subclauses, could put an arbitrator in the difficult position of
a s s e s s i n g t h e consequences of a failure to comply with a decision with
which he disagrees. Thus a Contractor must ensure that he observes the time limit
strictly.A f a i l u r e t o c o m p l y w i t h t h e d i s p u t e p r o c e d u r e s e t o u t i n
c l a u s e 6 7 . 1 h a s t h e result that "no arbitration... may be commenced". This raises
the issues whether c o u r t p r o c e e d i n g s w o u l d b e o p e n t o t h e p a r t i e s a s
an alternative. An Englishc o u r t m a y w e l l d e c i d e t h a t t h e
w o r d i n g o f t h e c l a u s e s h o u l d n o t p r e v e n t i t attempting to do
justice between the parties on the grounds only of a failure tocomply with a
particular time limit. However, a court would decline to review or revise any
certificate or other decision of the Engineer. This is because of theCourt of
Appeal's decision in NW RHA v Derek Crouch (1984) QB 644; 26 BLR 1 0 4 ,
where it was held that, in a contract where an independent person
wasempowered to make decisions binding on the part ies, a court
d o e s n o t h a v e power to substitute its own views for that of the parties
chosen decision-maker.
Page 245 of 264

The courts are reinforced in this view where there is an

arbitration clausewhereby the parties have agreed upo
n a p r o c e d u r e f o r t h e r e v i e w o f t h e decision-maker's rulings. Thus,
the courts should, it is submitted, be prepared toconsider a defects claim,
a claim for breach of contract or other claim which didnot depend for its
success upon the revision of the Engineer's decisions.An Engineer is apparently
entitled to review and revise his own certificates sothat, whereas under
clause 60.4 (Correction of certificates) a specific power isgiven to
correct interim certificates in subsequent interim certificates, under
thecurrent sub-clause, an Engineer may correct any certificate provided
that one of the parties refers the dispute over the certificate to him. Both the
Contractor andthe Employer must give effect to the revised
certificate." S u c h n o t i c e s h a l l e s t a b l i s h t h e e n t i t l e m e n t o f t h
e p a r t y . . . t o c o m m e n c e arbitration". This must be subject
t o c l a u s e 6 7 . 2 a n d t h e 5 6 - d a y a m i c a b l e settlement period provided
for there. These words may have been included to m a k e i t c l e a r t h a t
no further notice is required under clause 67.3 in order
toc o m m e n c e a r b i t r a t i o n . T h e q u e s t i o n c o u l d a r i s e w h e t h
e r t h e r u n n i n g o f a limitation period is halted by the notice of intention to
commence arbitration or thecommencement of the arbitration which may
only take place (other than under sub-clause 67.4) 8 weeks later. In
England, the Limitation Act 1980 defines the c o m m e n c e m e n t o f t h e
a r b i t r a t i o n f o r l i m i t a t i o n p u r p o s e s a s w h e n o n e p a r t y serves a
notice requiring the other party to agree an arbitrator or to submit
thedispute to the designated person. The reference to the ICC und er
sub-clause67.3 is a request for the nomination of arbitrators and so
would normally be the effective date but this will depend on the relevant law and
the terms of the noticegiven under this sub-clause.6 7 . 2 T h i s p r o v i s i o n
is new to the 4th Edition and features in
a n a d a p t e d , optional form in ICE 6th. It is obviously
desirable for the parties to
resolved i s p u t e s w i t h o u t a r b i t r a t i o n i f p o s s i b l e b u t t h i s p
r o v i s i o n w i l l o f t e n m e r e l y represent an eight-week delay to the
resolution of the dispute. Opponents of thisclause would say that no
responsible, commercial men would allow a dispute todescend into
the mire of arbitration without first having attempted to negotiate
asettlement. This may often be true but it also happens that the parties
becomeentrenched and rela tions between the parties are such that any
suggestion of discussion leading towards amicable settlement could be interpreted
as a sign of weakness. The advantage of a clause such as this is that it may allow
the partiesto meet or to engage the services of a third party such as a mediator
without lossof face. By the same criterion, this clause could be criticised for failing to
provideany guidance as to how the 56 days should be spent. Parties entering into
theseconditions may decide that they would be best served either by
adopting somec o n c i l i a t i o n r u l e s s u c h a s t h o s e o f t h e I C C
o r b y w r i t i n g t h e i r o w n i n t o t h e contract.T h e 5 6 - d a y a u t o m a t i c
l i m i t i s n e c e s s a r y a s p r o b l e m s f r e q u e n t l y a r i s e w h e r e arbitration
clauses state that arbitration may only be commenced " in the event
Page 246 of 264

that amicable settlement is not possible". Parties deter

m i n e d t o d e l a y t h e commencement of arbitration may argue that all avenues
for amicable settlementhave not been exhausted and therefore that arbitration
should not commence.A failure by a party to attempt to settle the dispute amicably
would not appear tobe a breach of contract. Where the position is hopeless the
parties are at libertyt o a g r e e a s h o r t e r p e r i o d t h a n t h e 8 w e e k s
f o r t h e c o m m e n c e m e n t o f t h e arbitration. Equally, if settlement
discussions are making progress, the parties may agree to a longer
period.CLAUSE 67.2 (Amicable Settlement)Click on the [*] button to see omitted
text.This sub-clause now reads:-" W h e r e n o t i c e o f i n t e n t i o n t o
c o m m e n c e a r b i t r a t i o n a s t o a d i s p u t e h a s b e e n given in
accordance with Sub -Clause 67.1, arbitration of such dispute shall
notb e c o m m e n c e d u n l e s s a n a t t e m p t h a s f i r s t b e e n m a d e
b y t h e p a r t i e s s h a l l attempt to settle such dispute amicably before the
commencement of arbitration.Provided that, unless the parties otherwise agree,
arbitration may be commencedo n o r a f t e r t h e f i f t y - s i x t h d a y a f t e r
t h e d a y o n w h i c h n o t i c e o f i n t e n t i o n t o commence
arbitration of such dispute was given, whether or not even if
n o attempt at amicable settlement thereof has been made."This amendment is
not strictly necessary. If it is an attempt to avoid a style of drafting that
says "the parties shall do x and y but if they do not, never mind", theeffort is to be
welcomed. It has not, however, been successful as that remain sthe
result. It is submitted that the amendment has no contractual effect.6 7 . 3 T h i s
clause does not call for any new notice, but leaves the next
s t e p s t o the rules of the ICC."Any dispute...shall be finally settled...". The
arbitrator, it is submitted, has v erywide power to resolve disputes and is
not limited to opening up, reviewing andrevising the Engineer's
decision. The reference to "any dispute" refers back to t h e v e r y b r o a d
opening words of sub-clause 67.1. A question arises
w h e t h e r there is anything that the arbitrator does not have power to reopen. For
example,under clause 56.1 (W orks to be measured), if the Contractor
does not attend to e x a m i n e a n d a g r e e c e r t a i n r e c o r d s a n d
drawings, "they shall be taken to becorrect". It is submitted
t h a t t h e e f f e c t o f s u c h w o r d s i s t h a t t h e p a r t i e s h a v e agreed that
in certain circumstances, the records and drawings are to be taken a s
final and therefore there can be no dispute. The arbitrator
c o u l d c o n s i d e r whether the circumstances have arisen which make the matter
final but could notl o o k i n t o t h e c o r r e c t n e s s o f t h e r e c o r d s a n d
drawings. This situation is to bedistinguished from the
f u n c t i o n s o f t h e E n g i n e e r s u c h a s t h a t i n c l a u s e 5 2 . 2 (Power of
Engineer to fix rates). The use of the term "fix" does not exclude
thearbitrator as the Engineer is making a decision which is open to review. Nor, it is

Page 247 of 264

submitted, is there any doubt that the Defects Liability

C e r t i f i c a t e m a y b e reviewed and revised like any other certificate.The
difficulties of defining the limits of the arbitrator's powers is illustrated by thefollowing
problem. If the contract calls for an on-demand bond to be provided bythe
Contractor, as is often the case in international contracts, and
the Employer calls the bond, does the arbitrator have p ower to deal with
the resulting disputewhen the Contractor contends that the Employer's
loss represented but a smallfraction of the amount paid out under the bond?
Whilst it is reasonably clear thatthe dispute "arises between the Employer
and Contractor in connection with or arising out of the Contract" and thus falls
within clause 67, there appears to be noexpress mechanism for bringing the money
paid to the Employer under the bondinto account. Unless it is possible to find some
implied term of the contract, therea p p e a r s t o b e n o c o n t r a c t u a l r i g h t f o r
t h e C o n t r a c t o r t o r e c l a i m t h e e x c e s s payment. The question therefore
arises whether the arbitrator has power to makeawards to do justice between the
parties or whether he is confined to consideringonly claims with a clear basis in law
or upon the terms of the contract. In reality,the answer is that the arbitrator will
be limited by the rules of arbitration and theapplicable law only insofar
as his awards are open to the Court's
supervision.S e e a l s o t h e d i s c u s s i o n u n d e r c l a u s e 6 3 . 1 ( D e
f a u l t o f C o n t r a c t o r ) o f t h e arbitrator's power to do justice
a f t e r a t e r m i n a t i o n b a s e d u p o n a n E n g i n e e r ' s certificate of default
which is held to be incorrect.I t i s s o b e r i n g t o b e a r i n m i n d t h a t a n
arbitrator is only obliged to conduct thearbitration and decide
the award in accordance with any relevant law to theextent
that any court has power to supervise his action either by
m e a n s o f a power to remove the arbitrator for misconduct or to
overturn or remit his award on appeal. In many countries, the courts will
intervene in exceptional cases onlyand many arbitration rules make the arbitrator's
award final excluding any appeal.P e r h a p s a s a r e f l e c t i o n o f t h i s r e a l i t y ,
t h e r e i s a n i n c r e a s i n g u s e o f s o - c a l l e d "equity clauses" which
expressly empower the arbitrator to decide the dispute b e t w e e n t h e
parties in accordance with the principles of common -sense
a n d commercial fair play rather than by the application of any particular
law. On theother hand, arbitration clauses are also frequently deleted in favour of
resolutionby the local court.The list of the Engineer's functions which may
be reviewed and revised omitsconsents, satisfactions, approvals and
notices but seems to be intended to
bec o m p r e h e n s i v e . I t i s s u b m i t t e d t h a t t h e o m i t t e d f u n c t i o n s c o u
l d p r o p e r l y b e treated as covered, particularly by "opinions" and
"determinations" even in theabsence of the final sentence of clause 2.6
(Engineer to act impartially) whichstates that "any such decision,
opinion, consent, expression of satisfaction, or a p p r o v a l ,
determination of value or action may be opened up, reviewed
o r revised as provided in Clause 67". See the table in the commentary under
clause1.5 (Notices, consents etc.) showing how the terms describing the
functions of the Engineer are used in the contract.
Page 248 of 264

Whilst the parties may be unrestricted in the evidence or arguments they

mayuse before the arbitrator, they would be limited as to the disputes which they
mayraise. Any dispute which has not been the subject of an Engineer's decision
andan attempted amicable settlement (apart from sub -clause 67.4
disputes) couldand probably should be rejected by the arbitrator. See under subclause 67.1 for further comment."...the Engineer being called as a
witness...". Just as a judge at first instancemay not be called as
a witness on an appeal, it is certainly possible to envisagea n a r g u m e n t
seeking to prevent an Engineer being called as a witness to
a n arbitration to be cross-examined on his decisions. Thus it is sensible
for thecontract to provide expressly for the Engineer to be called.The contract
makes express what should be clearly implicit that the obligations of the parties are
unchanged by the conduct of an arbitration during the progress of the works.
Difficulty arises when it is the n ature and extent of those obligations that is
being resolved at the arbitration.Parties may well decide to amend the contract to
ensure that arbitration does
nott a k e p l a c e p r i o r t o s u b s t a n t i a l c o m p l e t i o n . T h e d i s p u t e
c o u l d i n v o l v e t h e Engineer and other key figures being absent at
arbitration in a different countryand pre -occupied with its preparation
when their time and energies are
neededb y t h e p r o j e c t . T h e l e n g t h y
d i s p u t e s p r o c e d u r e a n d t h e i n e v i t a b l e d e l a y s involved in ICC
arbitration should usually ensure that the arbitration will take place after the
works are complete, however. If the award is published during thecurrency of the
works, that award will, it is submitted, affect the obligations of thep a r t i e s . T h u s ,
if an extension of time has been granted by the arbitrator,
t h e Contractor must be entitled to work to that time regardless of any
notice under c l a u s e 4 6 . 1 ( R a t e o f p r o g r e s s ) . I f t h e a r b i t r a t o r
m a k e s a m o n e y a w a r d , t h a t award should be included in the following
interim certificate under clause 60.2 (Monthly payments), in the absence of a
more specific direction by the arbitrator.W ith administrative contracts in civil
law jurisdictions, there may be conflict or overlap between the role of the
administrative court and arbitration. For example,a Contractor wishing to claim
under one of the doctrines briefly set out under clause 5.1 (Languages
and law) will have to decide whether an arbitrator could grant the relief
sought or whether an application to the court would be necessary.This problem is
at its most acute in situations where the administrative law isinconsistent
with the contract terms such as in relation to liquidated damages
or t e r m i n a t i o n . T h e s o l u t i o n a d o p t e d i n F r a n c e h a s b e e n t o
p r o h i b i t a r b i t r a t i o n clauses in public works contracts. No generally applicable
guidance can usefullybe given here and local advice is obviously essential.As
discussed under sub-clause 67.1 above in relation to the Engineer's power torectify
the contract, the ability of the arbitrator to make such an award will dependo n t h e
law of the contract and the rules and procedural law applicable
t o t h e arbitration. In English law, the opening words of clause 67.1 would be
sufficientlyw i d e t o a l l o w a n a r b i t r a t o r t o r e c t i f y : s e e A s h v i l l e
Investments Ltd v Elmer
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Contractors (1988) 3 WLR 867 where the Court of Appeal held the words "arisingin
connection with" the contract to be broad enough to cover rectification.Part II
provides alternative wording if the ICC procedure is not to be
followed.F I D I C r e c o m m e n d a c a r e f u l c h e c k i n g o f t h e a m e n d m e n t s
d u e t o t h e n e e d t o tailor the clause to the alternative procedure.As
commented under clause 5.1 (Languages and law), it is advisable to
specifyin the contract the place where an arbitration is to take place: this will
determinethe nature of any interference or supervision by the courts. The procedural
law
toa p p l y a n d , i m p o r t a n t l y , t h e l a n g u a g e i n w h i c h s u c
h p r o c e e d i n g s w i l l b e conducted should also be put beyond
argument.6 7 . 4 A p a r t y w h o h a s f a i l e d t o g i v e t h e r e
q u i s i t e n o t i c e o f i n t e n t i o n t o commence arbitration may
endeavour to have the matter arbitrated under thisclause, perhaps by
deliberately failing to comply with the Engineer's
decision.H e r e , a f a i l u r e t o c o m p l y w i t h t h e E n g i n e e r ' s d e c i
s i o n m a y b e a r b i t r a t e d whereupon the arbitrator may be invited to review
the Engineer's decision as wella s t h e c o n s e q u e n c e s
of the failure to comply with that decision. In
t h e commentary to sub-clause 67.1, it was submitted that the arbitrator
would bec o r r e c t t o d e c l i n e t o e x t e n d t h e s c o p e o f t h e a r b i t r a t i o n
b e y o n d t h e f a i l u r e t o comply and its consequences even if the arbitrator
disagrees with the Engineer'sdecision.
CLAUSE 68 : Notices
This clause specifies the addresses to which certificates, notices and
instructionsm u s t b e s e n t . I n t h e c a s e s o f t h e E m p l o y e r a n d t h e
E n g i n e e r , t h e a d d r e s s e s must be set out in Part II.T h e p r i n c i p a l c h a n g e
for the 3rd Edition is the introduction of "cable, telex
or f a c s i m i l e t r a n s m i s s i o n " a s a l t e r n a t i ve s t o p o s t o r d e l i v
e r y . I t i s o b v i o u s l y advantageous to the administration of the project
that notices etc. may be givenlocally as posting, for example, to the
Contractor's principal place of business, probably in another country, will make
administration more prolonged and subjectto the uncertainties of the post.T h i s
clause should be read in conjunction with clause 1.5 (Notices,
consentsetc.), which requires that all notices shall be in
w r i t i n g . T h e t e r m " w r i t i n g " i s defined at clause 1.1(g)(iv). In the
commentary to clause 1.5, there is a table setting out where terms like
certificates, notices and instructions are to be foundi n c e r t a i n o f t h e
clauses. For example, it is quickly apparent that clause
1 . 5 requires consents, approvals and determinations to be in writing. This
clause,however, does not deal with those matters. In the case of determinations,
this isno doubt because the Engineer is invariably required to notify the
parties of hisdetermination. Consents and approvals, however, need to
be dealt with. "Allcommunications in writing" might be a preferable formula.

Page 250 of 264

There is an apparent conflict between this clause, which requires

instructions
tob e g i v e n t o t h e C o n t r a c t o r b y p o s t e t c . , w i t h c l a u s e
1 5 . 1 ( C o n t r a c t o r ' s superintendence) which provides that the Contractor's
authorised representativeshould receive instructions from the Engineer on behalf of the
Contractor,. As amatter of practicality, there will inevitably be instructions which need to
be
giveni m m e d i a t e l y , i n w h i c h c a s e t h e y s h o u l d e i t h e r b e
c o n f i r m e d b y p o s t i n accordance with this clause or in accordanc e
with the procedure for confirming oral instructions under clause 2.5 (Instructions in
writing).The contract gives no indication of when notice is deemed to be given. This
couldbe of importance in relation, for example, to the timing of the
Employer's callingof a bond under clause 10.3 (Claims under performance security)
or his re-entryu n d e r c l a u s e 6 3 . 1 ( D e f a u l t o f C o n t r a c t o r ) . I t i s
p r e s u m a b l y n o t i n t e n d e d t h a t notice will only have been given once the
recipient has actual knowledge of the n o t i c e , a s s u c h a p r o v i s i o n
w o u l d i n v i t e t h e p a r t i e s t o i n d u l g e i n a v a r i e t y o f imaginative
means of avoiding receipt or knowledge of such notice. It may well be
intended that, with telex or facsimile transmissions or notices left at the officeof a
party, notice is deemed to have been given if successfully transmitted or leftd u r i n g
normal office hours or the following working day otherwise.
T h e r e i s inevitably more difficulty with notices sent by post or cable.
Unless a party is
tob e p r o v i d e d w i t h t h e d e f e n c e t h a t a p a r t i c u l a r n o t i c e w a
s n e v e r r e c e i v e d , something that will often be impossible to disprove, the
contracting parties
needt o i n t r o d u c e s o m e p r e s u m p t i o n : f o r e x a m p l e , i n E n g l a
n d , l e g a l p r o c e s s i s deemed to have been served by post on
t h e s e c o n d d a y a f t e r p o s t i n g . T h i s clause might be improved by the
addition of a provision dealing with this
issue.I f a n o t i c e i s s e r v e d i n c o r r e c t l y , p a r t i c u l a r l y i n
r e l a t i o n t o s o m e t h i n g a s fundamental as termination, a hard
decision will have to be taken as to whether to allow such a technicality to
deprive one of the parties of what would otherwisehave been his rights. Contrast the
Court of Appeal decision in J.M. Hill & Sons vLondon Borough of Camden
(1980) 18 BLR 35 where a technical failing in the m a n n e r o f s e r v i n g
a notice was held not to invalidate a termination on
t h e grounds that a common-sense, businesslike approach was
required; and theSingapore Court of Appeal in Central Provident
F u n d B o a r d v H o B o c k K e e (1981) 17 BLR 21 who came to the
opposite conclusion when they held that an incorrectly served notice was fatal
to a party's termination under the contract.
CLAUSE 69 : Defaults of Employer
This clause gives the Contractor a right to terminate his employment under
thecontract or to suspend or decelerate his works. If the Employer fails t o
pay
ac e r t i f i c a t e w i t h i n 4 w e e k s o f t h e d u e d a t e , o r i n t e r f e r e s w
i t h c e r t i f i c a t e s o r becomes insolvent or gives notice that unforeseen economic
circumstances haver e n d e r e d i t i m p o s s i b l e f o r h i m t o c o n t i n u e , t h e
C o n t r a c t o r m a y t e r m i n a t e o n giving 14 days notice.
Page 251 of 264

After the 14 days notice, the Contractor is to remove his equipment from site.After
termination, the Employer is to pay the Contractor for all work executed andall costs
and damages associated with the termination of the project.Alternatively, if the
Employer fails to pay a certificate within 28 days of the due date, the
Contractor may give 28 days notice and then suspend or decelerate hiswork. He
shall be entitled to an extension of time and costs in respect of
thesuspension or deceleration.I f t h e C o n t r a c t o r s u s p e n d s o r
decelerates and the Employer then pays thecertificate together
w i t h i n t e r e s t , t h e C o n t r a c t o r w i l l n o l o n g e r b e e n t i t l e d t o terminate
and must resume normal working.S u b - c l a u s e s 6 9 . 1 , 6 9 . 2 a n d 6 9 . 3 a r e
t a k e n f r o m t h e 3 r d E d i t i o n w i t h m i n o r amendments; for example, the
period in clause 69.1(a) has been reduced from 30 days to 28 days. Subclauses 69.4 and 69.5 are entirely new.6 9 . 1 C o n s i s t e n t w i t h m o s t
of clause 63.1 (Default of Contractor), this clausemakes
no provision for a warning shot. If one
o f t h e e v e n t s o c c u r s , t h e Contractor is entitled to give notice and
terminate. One distinction is that here the Contractor does not require a
certificate of the Engineer to the effect that oneor other of the defaults has
taken place. Whilst this removes a hurdle, it alsoremoves a
safeguard. For a discussion on this, see the commentary to
clause63.1." ( a ) f a i l i n g t o p a y t o t h e C o n t r a c t o r t h e a m o u n t
d u e . . . " . T h e 4 t h E d i t i o n h a s resolved the difficulty inherent in the 3rd Edition
as to whether payment became" d u e " i m m e d i a t e l y u p o n c e r t i f i c a t i o n o r
o n l y u p o n t h e e x p i r y o f t h e p e r i o d f o r payment. Now it is made clear that
the Contractor may give notice of terminationfour weeks after the period specified
under clause 60.10 (Time for payment). Asthe Employer is given 4 weeks grace
before any sanction may be imposed
other t h a n i n t e r e s t u n d e r c l a u s e 6 0 . 1 0 , i t w o u l d b e a d v i s a b
l e f o r C o n t r a c t o r s t o negotiate as high an interest rate as
possible." . . . s u b j e c t t o a n y d e d u c t i o n t h a t t h e E m p l o y e r i s e n t i t l e d
t o m a k e u n d e r t h e Contract...". In view of the fact that under clause
60.2 (Monthly payments) and clause 60.8 (Final certificate) the Engineer is
empowered to make deductions tow h i c h t h e E m p l o y e r i s e n t i t l e d o n
t h e f a c e o f t h e c e r t i f i c a t e , w i t h t h e s o l e exception of
liquidated damages, it is not immediately obvious what deduction the
draftsman has in mind other than liquidated damages. If the effect is to allowthe
Employer not to pay a certificate in full on the ground that he is entitled
tod e d u c t s u m s u n d e r t h e c o n t r a c t w h i c h e i t h e r h a v e a r i s e n
s u b s e q u e n t t o t h e certificate or are deductions of which the Engineer
has not been satisfied, thesewords add an unwelcome element of uncertainty in
a critical clause. A Contractor who has not received full payment could be met with
the argument that there areother sums due under the contract which the
Employer will demonstrate to the

Page 252 of 264

Engineer or arbitrator. Thus, the Contractor in exercising his rights under

thisclause may be taking the risk that the Engineer or arbitrator would be
persuadedlater that a deduction was due, and the Contractor's termination
could then betreated as a repudiatory breach of contract.It will be noted that a
failure of the Engineer to certify is not included in the list of E m p l o y e r ' s
defaults. If the reason for non -certification is interference by
t h e Employer, then the matter is dealt with under item (b) below. If the
Engineer isrefusing to certify because, for example, he has not been paid, this
could also be"obstructing ... the issue of any such certificate" under item
(b). If the Engineer h a s d i e d o r i s o t h e r w i s e i n c a p a b l e o f a c t i n g ,
the absence of any mechanismwhereby
the Employer may renominate creates a problem which has been
discussed under the definition of Engineer in the commen
t a r y t o c l a u s e 1 (Definitions and interpretations). If the Engineer,
perhaps an employee of the Employer, simply refuses or fails to certify the whole
or any part of sums due, thisclause and the contract generally does little to
assist the Contractor. He is notentitled to terminate and interest under
clause 60.10 (Time for payment) is only payable on unpaid certificates. The
Contractor is obliged to rely upon an impliedterm, namely that the Employer will
procure that the Engineer, who is not a partyto the contract, fulfils his function in
accordance with the contract. The
damagesw h i c h t h e C o n t r a c t o r w o u l d c l a i m w o u l d i n c l u d e i n t
e r e s t a n d / o r f i n a n c i n g charges. Alternatively, in an extreme case, the
Contractor might be able to arguethat the Employer's failure t o procure proper
action on the part of the Engineer amounted to a repudiation of the
contract entitling the Contractor to leave the s i t e . T o b a s e s u c h a
r a d i c a l s t e p u p o n a n i m p l i e d t e r m w o u l d b e h i g h l y r i s k y although
the threat of such a step might be sufficient to ensure some activity onthe
part of the Engineer."(b) interfering with ... any ... certificate". In Part II to clause 2.1
(Engineers dutiesand authority), a list may be inserted of those clauses in
respect of which theEngineer is to obtain the specific approval of the Employer
before carrying out hisduties. Thus, the Contractor is given notice that there is a term
in the agreementbetween the Employer and the Engineer that such
approval must be sought. Itmay seem strange that if the Employer does
not give the approval sought, theContractor is able to terminate the
contract. In effect, this clause renders the approval process a prior notification
requirement only. Clause 2.1 makes it clear that the Contractor is not concerned to
ensure that necessary approval has beenobtained.Although ambiguous, the correct
reading of (b) must relate "interfering with" and"obstructing" to "the issue of any such
certificate". At first sight it is quite possibleto read the clause as if it is the required
approval that must not be interfered withor obstructed. As it is the Employer's own
approval under clause 2.1 (Engineer'sduties and authorities) that is referred to, this is
not correct as he cannot interferew i t h o r o b s t r u c t h i m s e l f . I t s e e m s
t o b e n e c e s s a r y t h a t t h e i n t e r f e r e n c e o r obstruction is
successful in postponing or changing the certification. Giving the words
their normal meaning, an attempted interference or obstruction would notallow the
Contractor to terminate. Under clause 2.6 (Engineer to act impartially),
Page 253 of 264

it is suggested that the failure or refusal of the Employer to appoint or renominatea n

Engineer capable of impartiality could give a Contractor an
a r g u m e n t t h a t certificates were being interfered with or obstructed."... any such
certificate". As this refers back to payment certificates dealt with in(a), the
Contractor's right to terminate for interference does not extend to Taking-Over
Certificates, Defects Liability Certificates or such matters as determinationsof
extensions of time."(c) becoming bankrupt...". The list of forms that the Employer's
insolvency mighttake is very short compared with clause 63.1 (Default of Contractor)
and
appearsu n d u l y r e s t r i c t e d . T h i s m a y r e f l e c t t h e f a c t t h a t E m
p l o y e r s a r e s o m e t i m e s departments or agencies of gove rnments but
this assumption would lead to thec o n c l u s i o n t h a t t h e r e s h o u l d b e n o
r i g h t t o t e r m i n a t e o n t h e i n s o l v e n c y o f t h e Employer. In fact, of course,
the form is not restricted to use by governments butis in widespread use by public
and private employers. Bankruptcy and liquidationare unlikely to be the first formal
insolvency procedures to affect an Employer. Inthe U.K., it is more likely that an
Employer would go into receivership although l i q u i d a t i o n m a y f o l l o w
later. In civil jurisdictions, it is more likely that a courtsupervised procedure for reorganisation would com
e f i r s t . T h i s m a y b e analogous to the administration procedure in
England and Chaper 11 bankruptcyi n t h e U n i t e d S t a t e s . I n t h a t
c o n n e c t i o n , i t w o u l d a p p e a r t h a t C h a p t e r 1 1 i s excluded as, for the
purposes of item (c), "becoming bankrupt" applies only to anindividual. For these
reasons, contractors may prefer to amend this clause to mirror the
insolvency events in clause 63.1 (Default of Contractor)."(d) giving notice ... that for
unforeseen reasons, due to economic dislocation, it isimpossible for him to continue
...". It is by no means clear that the notice need bet r u e . T h e e v e n t i s t h e
giving of the notice and the economic dislocation
isexpressed more as the prescribed contents of the
n o t i c e r a t h e r t h a n a s a condition precedent. Thus, the Employer is
given the option the terminate thecontract. This is not entirely
unreasonable given that Sub-clause 69.3 (Paymenton termination) provides
for the Contractor to be paid in full including his loss or d a m a g e s o t h a t h e i s
a b l e t o r e c o v e r t h e p r o f i t t h a t h e w o u l d o t h e r w i s e h a v e made.
Having gone this far, it is but a short step for the draftsman to give to
theEmployer an option to terminate at will but at considerable expense.
This wouldremove the advantage given to the unscrupulous.Economic dislocation
in this clause is to be compared with the two other clausesin which external
events may bring the contract to an end. Under clause 65.6,(Outbreak of
war) the outbreak of war in any part of the world whic h,
"whether financially or otherwise materially effects the execution of the
Works" gives theEmployer a right to terminate by notice. Under clause
66.1 (Payment in event of release from performance), "any circumstance outside
the control of both parties... which renders it impossible or unlawful for either
party to fulfil his contractual obligations" releases the parties from further
performance. The difference
under t h e s e c l a u s e s i s t h a t t h e C o n t r a c t o r d o e s n o t r e c e i v
e his loss or damageincluding his loss of profit. For more
information on the different financial
Page 254 of 264

consequences of the various means of bringing the contract to an end,

see thecommentary under clause 63.1U n d e r e i t h e r o f c l a u s e s 6 5 . 1 o r
6 6 . 1 , i t w o u l d s e e m t h a t a n a r b i t r a t o r c o u l d review
the circumstances to decide whether the circumstances really
existed or not. Under this clause, the arbitrator would apparently only be entitled to
ensurethat the notice was in writing and addressed correctly.It should be noted that
clause 40.3 (Suspension lasting more than 84 days) addsa further ground for
termination by the Contractor in the event that the works aresuspended for 12
weeks and the Engineer does not give permission to proceed within 4
weeks of a notice from the Contractor.The Contractor's notice is in no prescribed
form but must comply with clauses 1.5(Notices, Consents, etc) and 68 (Notices). It
would probably be sufficient for theContractor simply to write saying that
his employment under the contract wouldterminate after 14 days but in
practice it would be advisable to specify which of (a) to (d) applies, not
least so that the Employer has an opportunity to respond. T h i s r e s p o n s e
might persuade the Contractor that he has made a mistake
i n which case the Contractor may be able to withdraw his notice and
thereby avoidrepudiation of the contract. Although the contract states
that termination shalltake effect 14 days after the giving of the notice, a
statement by the Employer that the notice is invalid and that the
Contractor is to continue working amountsboth to an opportunity for the
Contractor to withdraw the notice by accepting its invalidity and an affirmation
by the Employer of the contract so that Contractor'sa c t i o n o f g i v i n g t h e
n o t i c e w i l l n o l o n g e r r e p r e s e n t a r e p u d i a t i o n w h i c h t h e Employer
may act upon.It is a curious feature of this clause that, after the Employer has given
notice thatit is impossible for him to continue "to meet his contractual obligations" i.e.
to pay,it is then necessary for the Contractor himself to give notice which
only takeseffect two weeks later during which period the Contractor should,
theoretically, beworking. Impossibility under clause 66.1 (Release from
performance) producesan immediate release as does the Employer's notice of a
material affect upon theexecution of the works under clause 65.6 (Outbreak
of war).For a discussion of the duration of the Contractor's entitlement to terminate,
seethe commentary to sub-clause 69.5 below.T h e a r g u m e n t i s a d v a n c e d
i n t h e c o m m e n t s u n d e r c l a u s e 6 3 . 1 ( D e f a u l t o f Contractor)
and clause 67.1 (Engineer's decision) that the Contractor
can delaya n d p e r h a p s f o r e s t a l l t h e t e r m i n a t i o n o f h i s e m p l o y m e n t
b y r e q u e s t i n g t h e Engineer's decision within the 14-day notice period. This is
because clause 67.1says that "unless the Contrac t has already been
repudiated or terminated, the C o n t r a c t o r s h a l l , i n e v e r y c a s e ,
c o n t i n u e t o p r o c e e d w i t h t h e W o r k s " . A s t h e termination does not
take effect until the period expires, it is submitted that a r e q u e s t f o r a
decision will prevent the termination unless the conduct of
t h e Employer amounted to repudiation. Even then there may be doubt.

Page 255 of 264

If this argument is correct, the consequences are far -reaching. The

benefits tot h e E m p l o y e r c o u l d e x t e n d t o a d e l a y o f u p t o 1 2
w e e k s w h i l e t h e E n g i n e e r decides whether the notice was justified.
No doubt the Engineer's duty under clause 2.6 (Engineer to act
impartially) would cause him to act promptly. If the d e c i s i o n w a s
adverse to the Contractor, clause 67.1 requires the parties
t o proceed. Even if an arbitrator holds that the Engineer was wrong,
provided theE n g i n e e r h a d a c t e d i n g o o d f a i t h , t h e
Contractor would be in breach if
hewithdrew in defiance of the Engineer's decision: "the C
o n t r a c t o r a n d t h e Employer shall give effect forthwith to every such
decision". One exception to thism a y b e i f t h e C o n t r a c t o r i s a b l e
t o d e m o n s t r a t e t h a t t h e E m p l o y e r h a d repudiated the contract,
thereby entitling the Contractor to end the contract atcommon law under
the law of the contract. This argument has to overcome th eproblem of any
affirmation of the contract, that is, action by the Contractor whichrecognises the
continued existence of the contract, and the possible argumentraised
under clause 63.1 that "repudiation" actually means the abandonment
or common law termination of the contract, not the breach giving rise to a
right totreat the contract as at an end.The advantage to the Contractor, it is
submitted, is that if the Engineer endorseshis notice of termination, he is
protected from the grave financial consequenceseven if an
arbitrator reverses the Engineer's decision. The parties
are obliged tocomply with the decision pending the arbitration.U n d e r s o m e
civil law jurisdictions such as those referred to under clause
5.1( L a n g u a g e s a n d l a w ) , a C o n t r a c t o r m a y n o t t
e r m i n a t e o r s u s p e n d a n administrative contract without the sanction
of the court. To terminate or suspendwithout leave could result in the forfeiture of all
the Contractor's rights. Althoughan express right to terminate or suspend without a
court's decision might sufficef o r a p r i v a t e l a w c o n t r a c t , s u c h a n
e x p r e s s c l a u s e i s i n e f f e c t i v e i n s u c h a n administrative contract.For
some cases on the need for strict compliance with the notice procedure
andon the courts' approach to disputed terminations, see under clause 63.1
(Defaultof Contractor) and clause 68 (Notices).CLAUSE 69.1 (Default of
Contractor)Click on the [*] button to see omitted text.The ground
for termination of the Contractor's employment at item (d)
has beenchanged:-"In the event of the Employer:( d ) g i v i n g n o t i c e t o t h e
Contractor that for unforeseen economic reasons
duet o e c o n o m i c d i s l o c a t i o n i t i s i m p o s s i b l e f o r h i m
t o c o n t i n u e t o m e e t h i s contractual obligations ...".

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It was commented in the main work that the event giving rise to
t h e r i g h t t o terminate was the Employer's notice and that the contents of
the notice did noth a v e t o b e t r u e . N o r , i t w a s s u b m i t t e d , w o u l d a n
arbitrator have power
toc o n s i d e r t h e c o n t e n t s o f s u c h a n o t i c e p r o v i d e d i t
c l a i m e d t h e r e q u i s i t e impossibility. If these unattractive
conclusions are correct, then the amendmentsare of little significance.If the
contents of the notice may be the subject of dispute, the departure of
thet e r m " e c o n o m i c d i s l o c a t i o n " , w h i c h a p p e a r e d a l s o i n t h e 3 r d
Edition, and
theintroduction of the far more comprehensible "economic reaso
n s " w i l l b e o f benefit. After all, it is likely to be the impossibility and the lack of
foresight whichcome under close scrutiny and not the precise nature of the economic
cause. Aspointed out in the main work, the Contractor is entitled to all his
costs and hisloss of profit, as he would be if the contract had simply
been repudiated by theEmployer, so challenges to such a notice may be
unusual.6 9 . 2 C l a u s e 5 4 . 1 p r o h i b i t s t h e C o n t r a c t o r f r o m
r e m o v i n g a n y e q u i p m e n t , temporary works and materials from the site
without the consent of the Engineer.Here, the Contractor may retrieve his
equipment but the temporary works andmaterials must remain unless the
Contractor obtains the Engineer's consent. If the termination had been
brought about by the Contractor's default, all these items would remain for
the use of the Employer or an alternative contractor under clause 63.1 (Default of
Contractor).6 9 . 3 T e r m i n a t i o n u n d e r c l a u s e 6 5 i s o n l y p o s s i b l e
u n d e r c l a u s e 6 5 . 6 ( O u t b r e a k of war). Payment under clause 65.8 (Payment
if contract terminated) provides for payment for works executed, materials etc
supplied or which the Contractor is c o m m i t t e d t o p u r c h a s e , s u m s
committed for the completion of the works
andd e m o b i l i s a t i o n c o s t s . C l a u s e 6 5 . 8 ( d ) i s i r r e l e v a n
t a s i t d e a l s w i t h c o s t s attributable to special risks.For a discussion
of the financial results of termination under this clause, clause 63.1
(Default of Contractor), clause 65.6 (Outbreak of War) and after repudiationof the
contract, see the commentary under clause 63.1.Given the broad scope of
clause 65.8, "any loss or damage" will refer mainly to the Contractor's loss of
profit. This appears to be the one occasion in
the contractw h e r e t h e C o n t r a c t o r i s e n t i t l e d t o r e c o v e r h i s l o
s s o f p r o f i t . C o m p a r e t h e definition of "cost" at clause 1.1(g)(i) which
carefully excludes
profit.6 9 . 4 I n a d d i t i o n t o h i s r i g h t t o i n t e r e s t o n u
n p a i d c e r t i f i c a t e s a n d a s a n alternative to termination, the
Contractor may suspend. At first reading, it appearsthat this right only arises some
12 weeks after delivery of the Interim
Certificate.H o w e v e r , i t i s s u b m i t t e d t h a t a C o n t r a c t o r m a y g i
v e n o t i c e o f s u s p e n s i o n immediately after the initial 28 day payment period has expired with the resultthat very shortly after the
28 days of default required under this sub -clause thenotice will expire
and the Contractor will be entitled to suspend or decelerate. If
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the intention had been that the notice could only be given after the 28-day
defaultperiod, the clause would have said "the Contractor ... may give 28
days prior notice ... and thereafter suspend work or reduce the rate of
work"." S u b j e c t t o a n y d e d u c t i o n t h a t t h e E m p l o y e r i s e n t i t l
e d t o m a k e u n d e r t h e Contract". See the commentary under sub-clause
69.1 on the identical phrase."Due consultation": this requirement of consultation is
new to the 4th Edition andadds an element of natural justice to the Engineer's
deliberations. It is subject toclause 2.6 (Engineer to act
impartially).T h e r i g h t t o s u s p e n d i s a v a l u a b l e a d d i t i o n ,
n e w t o t h e 4 t h E d i t i o n . T h e alternative of deceleration is also
valuable. The ability to take action less drastict h a n t e r m i n a t i o n a g a i n s t
a n E m p l o y e r w h o i s f a i l i n g t o p a y m u s t b e i n t h e interests of
all parties of the contract. Similarly, the a bility to decelerate or go -slow
enables the Contractor to make his point without having the problem of idleplant
and labour. Such a go-slow may also be to the benefit of the Employer
ast h e c o n s e q u e n t i a l r e d u c t i o n o f t h e v a l u e o f t h e n e x t
c e r t i f i c a t e m a y e a s e a n y financial difficulties which had given rise to the
situation.E x t e n s i o n o f t i m e a n d c o s t s a r e n e c e s s a r y t o p u t t h e
C o n t r a c t o r b a c k i n t h e position he would have been in had the
Employer paid on time. There is no limiton the period for which a Contractor
can suspend or go-slow. He may continue todo so for as long as the Employer
fails to pay and a notice to terminate is not issued."(a) any extension of time":
for the Contractor to be entitled to an extension under clause 44; he must first
have given notice of the delay pursuant to clause 44.2.This at least is the
likely construction of the contract although it is be no means beyond
argument that the entitlement referred to is not subject to clause 44.2." ( b ) t h e
amount of such costs": similarly, it is probab le that the
C o n t r a c t o r ' s entitlement to costs is subject to the procedure for claims set out in
clause 53. AContractor would be unwise to assume that notification is not
required." . . . w h i c h s h a l l b e a d d e d t o t h e C o n t r a c t P r i c e " .
T h e C o n t r a c t P r i c e h a s a somewhat chequered history in this contract.
Whilst in the Agreement as signedby the parties, the Employer covenants
to pay the Contractor the Contract Price " o r s u c h o t h e r s u m s a s m a y
b e c o m e p a y a b l e " , t h e r e i s n o r e f e r e n c e t o t h e Contract Price in clause
60, the payment clause. This makes the use of the
termw h e n e v e r t h e E n g i n e e r d e t e r m i n e s c o s t s w h i c h a r e t o
b e p a y a b l e t o t h e Contractor surprising at first sight.." C o n t r a c t P r i c e " i s
defined at clause 1.1(e)(i) as being the sum stated in the L e t t e r
of Acceptance and is not itself subject to any variation.
A s t h i s i s a remeasurement contract, the Contract Price is of limited
relevance, hence thel a c k o f a n y m e n t i o n o f i t i n t h e p a y m e n t
c l a u s e . W h a t t h e n i s t h e e f f e c t o f t h e words "the amount of such costs,
which shall be added to the Contract Price"? If

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the Contract Price is relevant only as a means of comparing tenders, why does
itreceive mention in a further 17 clauses? In relation to five clauses, namely:-- clause
17.1 (Setting out)- clause 20.3 (Loss or damage due to Employer's Risks)- clause
31.2 (Facilities for other contractors)- clause 49.3 (Cost of remedying defects)clause 65.3 (Damage to works by special risks)the answer is provided by clause
52.1 (Valuation of variations). The five clausesl i s t e d h a v e e x p r e s s
reference to clause 52 and the cost to be paid to
t h e Contractor falls to be dealt with in accordance with the valuation of
variationsmachinery.For a further 11 clauses, namely:- Clause 6.4 (Delays and cost
of delay of drawings)- Clause 12.2 (Adverse physical obstructions or conditions)Clause 27.1 (Fossils)- Clause 36.5 (Engineer's determination where tests not
provided for)- Clause 38.2 (Uncovering and making openings)- Clause 40.2
(Engineer's determination following suspension)- Clause 42.2 (Failure to give
possession)- Clause 50 (Contractor to search)- Clause 65.5 (Increased costs arising
from special risks)- Clause 69.4 (Contractor's entitlement to suspend work)Clause 70 (Changes in cost and legislation)Additions are provided for without any
form of mechanism. An important
questioni s w h e t h e r t h e C o n t r a c t o r i s e n t i t l e d t o r e c e i v e s u c
h a d d i t i o n s i n i n t e r i m payments. Under clause 60.1 (Monthly Statements),
only clause 70 of the abovel i s t r e c e i v e s s p e c i f i c m e n t i o n . T h e r e s t
h a v e t o b e i n c l u d e d b y t h e C o n t r a c t o r under clause 60.1 (e) "any
other sum to which the Contractor may be
entitledu n d e r t h e C o n t r a c t " . T h e C o n t r a c t o r w i l l a r g u e t h a t o n c e t
he Engineer hasdetermined the amount of his costs, that is then
a s u m t o w h i c h h e i s e n t i t l e d under the contract. Clause 53.5 (Payment of
claims) assists in this argument, asa m o u n t s d e t e r m i n e d b y t h e
E n g i n e e r a s d u e i n r e s p e c t o f c l a i m s a r e t o b e included in
any interim payment. The difficulty with clause 53 is to know how
itrelates to other provisions of the contract. "Claim" is undefined. It is
submitted,however, that there can be no genuine doubt that the Contractor is
entitled to bepaid for claims as soon as they have been ascertained in whole or in
part.The use of the term "Contract Price" in this context does nothing for
clarity. Itp e r m i t s o f t h e a r g u m e n t t h a t " s h a l l b e a d d e d t o t h e
C o n t r a c t P r i c e " d o e s n o t amount to an immediate entitlement but that such
costs may only be brought intoaccount at the Final Certificate stage. Whilst it is
submitted that this argument isnot well founded, it illustrates the point that
frequent reference to Contract Price

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throughout the contract is unhelpful in a remeasurement

c o n t r a c t w h e r e t h e Contract Price has no part to play in the payment
machinery.6 9 . 5 T h e C o n t r a c t o r i s e n t i t l e d u n d e r t h
e c o n t r a c t t o t h r e e r e m e d i e s simultaneously: from the
due date for payment, he is entitled to interest and
28d a y s t h e r e a f t e r ( i f n o t i c e o f s u s p e n s i o n w a s g i v e n w h
e n p a y m e n t b e c a m e overdue) he may suspend or go-slow and additionally
serve notice of termination.Interest and the right to be in suspension or go-slow
working continue for the 14days of the termination notice.There is an error in this
sub-clause if it is intended to bring the Contractor's rightsunder this clause (i.e. to
serve notice of termination, to suspend or decelerate) toa n e n d i f t h e
Employer pays the overdue sum together with interest. If
theContractor has not suspended or decelerated, the
Contractor's right to
givenotice of termination appears to continue indefinitely, rega
r d l e s s o f t h e f u l l payment by the Employer of the certificate together with
interest. This seems lessextraordinary when it is appreciated that payment
by the Employer the day after a notice of termination has been given by
the Contractor does not in any wayprevent the termination taking effect at the
expiry of 14 days.Part II suggests that where the Employer is a
government, item (c) should be deleted; item (d) should be deleted where it, in
combination with sub-clause 69.3,is contrary to local law.
CLAUSE 70: Changes of costs and Legislation
The rise and fall in the cost of labour, materials etc is to be taken into account
inaccordance with a fluctuations clause as set out in Part II.Any affect upon the
cost of the works resulting f rom changes in the local law, regulations etc.,
occurring after the date four weeks before the tender date, are tobe established and
added to or deducted from the contract price.Although worded slightly
differently, this clause is fundamentally the same as inthe 3rd
Edition. Consistent with the draftsman's policy of giving time periods
inmultiples of seven, the 30 day period in sub-clause 70.2 has been reduced to
28days.7 0 . 1 P a r t I I p r o v i d e s t h r e e a l t e r n a t i v e m e t h o d s o f d e a l i n g
w i t h t h e f l u c t u a t i o n s issue: firstly, a clause allowing no adjustments;
secondly, where adjustment is based on the difference in cost between
base prices and the current price of locallabour and specified materials; and thirdly,
where adjustment is made by the useo f i n d i c e s i n a f o r m u l a . E a c h
o f t h e s e a l t e r n a t i v e s h a s i t s a d v a n t a g e s a n d problems. In
particular, parties will have in mind whether there is to be a fixed

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price element; whether local inflation alone is to be taken into account,

as someg o v e r n m e n t E m p l o y e r s w i l l o b j e c t t o " i m p o r t i n g "
i n f l a t i o n ; a n d t h e s c o p e f o r political interference with official indices.FIDIC,
through their Guide, advise that any project lasting for longer than a year should
contain a fluctuations clause, permitting adjustment. They take the
viewthat the Employer should bear the risk rather than asking tenderers to quote
firmprices which include provision for increased costs. Ultimately, this is an area
of risk that may be allocated as the parties think fit.I n c i v i l c o d e c o u n t r i e s ,
w h e r e a d m i n i s t r a t i v e l a w b a s e d o n t h e F r e n c h m o d e l applies, this
clause reflects the Theorie de l'imprevision whereby if exceptionaland
unforeseen events render the Contractor's obligation excessively
onerousthreatening him with exorbitant loss, then the Contractor's excessive losses
mayb e r e d u c e d t o r e a s o n a b l e l i m i t s b y w a y o f c o m p e n s a t i o n b y
the Employer. Incertain countries, notably Eygpt, this doctrine
has been extended to civil
or p r i v a t e c o n t r a c t s a s w e l l . T h i s c l a u s e i s i n f a c t
m o r e g e n e r o u s t h a n t h e administrative law doctrine as it
p r o v i d e s f o r t h e C o n t r a c t o r t o b e c o m p l e t e l y relieved of responsibility,
whereas the Theorie only provides for the reduction of the Contractor's losses.
The Theorie could however be relevant in cases wherethe fluctuations
clause has been deleted. For a brief overview of administrative law based
on the French model, see clause 5.1 (Languages and law).70.2The Employer is
generally better placed to predict and to allow for changest o t h e
local law which will affect the project. Thus it makes
s e n s e f o r t h e Employer to take this particular risk. If the Employer is a part of
the government,then it is obvious that a Contractor would be taking a very grave risk
by acceptingany fundamental amendment to this clause."If ... there occur ...
changes to any ... Law". Such changes are often heralded for a
considerable period before coming into effect. For example, legislation mayalready
have been enacted which specifies that a relevant provision will
comeinto effect on a date six months into the project. The Employer needs to
specifyin the tender documents if the Contractor is required to take into
account anychange which will be implemented after the given date, otherwise, it is
submitted,the Contractor may ignore the coming change and make a claim, despite
clause1 1 . 1 ( I n s p e c t i o n o f S i t e ) w h i c h d e e m s t h a t t h e C o n t r a c t o r
h a s o b t a i n e d a n d based his Tender upon all relevant information.It is a pity that
the draftsman of the current edition did not take the opportunity tot i d y u p t h e
drafting of this sub-clause. It is unnecessary to have two lists
of s t a t u t e s e t c w h e n t h e w o r d s i n t r o d u c i n g t h e f i r s t l i s t
c o u l d h a v e b e e n " t h e introduction of or changes to". Presumably
the word "such" at the beginning of the second list is intended to import
all the missing words f rom the first
list. Inw h i c h c a s e t h e i n c l u s i o n o f t h e w o r d " s t a t e " s i m p l y
a d d s c o n f u s i o n . T h e importance of clear drafting in this clause is
that it will be closely scrutinized by contractors wishing to make a claim where
additional costs have been caused by
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changes in the law of countries other than that in which the

p r o j e c t i s t a k i n g place. As commented under clause 5.1 (Language
and law), it is quite possiblethat several other countries' laws impinge
upon the project, regardless of the specified law of the contract. For example,
the country from which the insurancehas been obtained could introduce laws
increasing the cost of that insurance.Similarly, a country in which
elements of the work are being manufactured prior to delivery to site could
change its laws and have the same effect. The intentionof the clause and, it is
submitted, the correct interpretation of the clause, despiteits short-comings, is
that the Contractor will only be reimbursed for changes inthe law of the
country in which the project is taking place. Although "Works" is d e f i n e d
broadly enough to include elements of the work being
m a n u f a c t u r e d elsewhere, the phrase "in the country in which the W orks
are being or are to be executed" seems to resolve the matter.I n t h e c i v i l
code countries referred to above, this clause is the
a p p r o x i m a t e equivalent of the doctrine of Fait du Prince applicable to
administrative contracts.Under the doctrine, the Contractor will be fully
compensated if he has suffered increased costs or losses due to a change in
the law or other acts or decisions of t h e A d m i n i s t r a t i o n . F o r a b r i e f
o v e r v i e w o f a d m i n i s t r a t i v e l a w b a s e d o n t h e French model, see clause
5.1 (Languages and
law).T h i s c l a u s e s h o u l d b e r e a d w i t h c l a u s e 2 6 . 1 ( C o m p l i
a n c e w i t h s t a t u t e s , regulations) which imposes the basic
obligation to comply with the local law,clause 13.1 (W ork to be
i n a c c o r d a n c e w i t h t h e c o n t r a c t ) w h i c h r e q u i r e s t h e Contractor to
execute the works "unless it is legally...impossible" and clause 66.1(Payment in
event of release from performance).
CLAUSE 71: Compensation to Contractor
The Employer is to compensate the Contractor for any losses
a r i s i n g f r o m currency restrictions imposed in the country in which the
project is taking place after the date four weeks prior to the tender date.This
clause is not significantly changed from the 3rd Edition, although the 30 dayperiod is
reduced to 28 days.This clause could equally well have been grouped with clause
70.2 (Subsequentlegislation). The risk passes at the same date, 28 days
prior to the tender dateand relates effectively to changes to the law. In an
extreme case, where the lawchanged and required the contract price to be paid
entirely in local currency, it isdifficult to see how the Employer could
"reimburse any loss or damage to the Contractor". There could be real
difficulties in the way of a Contractor seeking topursue his rights under this clause,
particularly against a government
Employer.I n s u c h c i r c u m s t a n c e s , t h e C o n t r a c t o r c o u l d f i n d
i t i m p o s s i b l e t o f u l f i l l h i s obligations and could seek to invoke clause
66.1 (Release from performance).In the civil code countries referred to in
clause 5.1 (Languages and law), this clause is the approximate equivalent of
the doctrine of Fait du Prince applicable
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to administrative contracts. Under the doctrine, the

C o n t r a c t o r w i l l b e compensated if he has suffered increased costs or
losses due to a change in thel a w o r o t h e r a c t s o r d e c i s i o n s o f t h e
A d m i n i s t r a t i o n . F o r a b r i e f o v e r v i e w o f administrative law based on the
French model, see clause 5.1.W hether a failure to pay in the currencies
specified in Part II to clause
60 woulda m o u n t t o a f a i l u r e " t o p a y t o t h e C o n t r a c t o r
t h e a m o u n t d u e u n d e r a n y certificate" allowing the Contractor to
terminate under clause 69.1 (Default of Employer) is a difficult point. The
Employer could say that, by reference to the(theoretical) exchange rate,
he had paid the requisite amount. The value to
theC o n t r a c t o r , h o w e v e r , w o u l d f a l l v e r y f a r s h o r t o f t h e a
m o u n t t o w h i c h h e considered himself entitled. It is submitted that
the Contractor's argument is tobe preferred as "amounts" in clause 69.1
should be taken to mean "amount or amounts of the different currencies and in
the proportions set out in Part II"."Foreign currency" is defined at clause 1.1(g)(iii) to
mean "a currency of a countryother than that in which the Works are to be located".
CLAUSE 72: Currency and Exchange Rates
Where the contract provides for the Contractor to be paid in one or more
foreigncurrencies, the exchange rate will be fixed.Where the tender is to be
expressed in a single currency but the Contractor hasspecified the proportions
of the currencies in which he requires to be paid, the applicable exchange
rates will be as stated in Part II or the local central bank rateprevailing 28 days prior
to close of tenders.In respect of payment for provisional sum work, the
proportions and amounts of foreign currencies will be worked out in accordance
with the same rules.This clause has not been significantly changed from the 3rd
Edition.T h e s e c l a u s e s a r e v e r y o f t e n o f v i t a l s i g n i f i c a n c e t o
C o n t r a c t o r s w o r k i n g overseas and will frequently be supplem
e n t e d w i t h c o n d i t i o n s o f p a r t i c u l a r application. The clause should be
read with clause 71.1 (Currency restrictions) a n d a n y c l a u s e
dealing with the form of payment in Part II to
c l a u s e 6 0 (Certificates and payment). "Foreign currency" is defined at
clause 1.1(g)(iii) tom e a n " a c u r r e n c y o f a c o u n t r y o t h e r t h a n t h a t
in which the Works are to
b e located".7 2 . 1 E x c h a n g e r a t e s r e p r e s e n t a n a r e a o f
r i s k w h i c h i s e q u a l t o b o t h p a r t i e s and may be altered rather
t h a n a v o i d e d , b y b e i n g f i x e d . S i g n i f i c a n t s h i f t s i n exchange rate
could spell disaster for either party whether exchange rates are fixed in the
contract or not.

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72.2Part II provides the alternatives of a fixed rate

based on a local centralbank rate on a particular day or
a r a t e s e t o u t i n t h e A p p e n d i x t o T e n d e r . Certainty is the
key. It is therefore unhelpful that the last phase, "as has
beenn o t i f e d . . . i n t h e T e n d e r " , c o u l d r e f e r t o a t l e a s t t h r e e
a l t e r n a t i v e n o u n s i n t h e sentence. Whilst analysis seems to suggest
that the reference is to "the latestdate for the submission of tenders" the
fact that the same wording was not feltnecessary in clause 71.1
(Currency restrictions) is a misleading inconsisten cy.Certainty is as
necessary in the earlier clause as this one.7 2 . 3 I t i s n o t i m m e d i a t e l y
o b v i o u s w h y p r o v i s i o n a l s u m s n e e d t o b e t h e s u b j e c t of specific
provision or, if provision is necessary, why variations and all the other clauses
whereby extra payment is made to the Contractor are not also dealt with.
MISCELLANEOUS AMENDMENTS
- In clause 69.4 (Contractor's entitlement to suspend work), "cost" has
become"costs".- In the Reference to Part II, "5.1 part" has become "5.1 (part)".- In
the Tender, paragraph 1, "sums" in the last line has become "sum".- Appendix
entries have been changed as follows:-P e r c e n t a g e o f i n v o i c e v a l u e o f
listed materials and Plant 60.1(c) per centMinimum amount of
I n t e r i m P a y m e n t C e r t i f i c a t e s 6 0 . 2 R a t e o f i n t e r e s t u p o n unpaid
sums 60.10 per cent per annum- A number of punctuation changes havebeen
made and some additional use has been made of "and" and "or". These
changes are set out below. The only noteworthy change is to clause
42.1 where already difficult syntax has been rendered nonsensical by the
amendment.

Page 264 of 264

VARIATION IN CONSTRUCTION CONTRACTS

1. GENERAL
Almost all Construction Projects does vary from the original design, scope and
definition. Whether small or large, Construction Projects will have some kind of
change and will tend to depart from the original scope. Hardly any project is
executed as per the Original or Tender Design, specifications and drawings
prepared by Architect or Engineers. Some changes are bound to happen during
the course of work due to various reasons liketechnological advancement,
statutory enforcement, change in conditions, geographical or geological, non
availability of specified materials etc.
Variation is nothing but Alteration in the form of addition, substitution or omission
of original scope of contracted or agreed work. In large Civil Engineering projects
these variations are huge whereas in Lump sum Building Contracts they are
nominal, but depend from project to project. Architects or Engineerings order
Variation during course of project as they change layouts of work, line, level,
dimension, Material etc.
All Standard forms of Contract generally make express provisions for giving
power to Engineer to order Variations (FIDIC Clause 51.1). This Clause is
required for smooth administration of works and contracts. The Spirit in which
variations are permitted is to allow the Contract to proceed without re-drawing
another contract to cater for the changes.
Note the following legal principles of Variations
1. No power to order variation is implied.

2. The Law regards variation as an agreement supported by consideration to

alter some terms of the Contract.

Hence there should be express terms in Contracts which gives power to

Engineers or Architects to order variation. Note that Variations should be issued

in writing as it safeguards the interest of the Contractor In absent of Express

terms in the Contract. Contractor will not bind himself to accept such variation
and will not entertain the orders issued by Engineer and may ignore them without
giving rise to any legal effect. However any variation required by Architect or
Engineer or subsequently sanctioned by him shall not vitiate the Contract
1. Valuation of Variations
Variations give rise to Addition or deduction of price from contract value.
Valuations for variations are done mostly on the rates and prices provided in Bills
of Quantities (FIDIC Clause 52.1), provided by contractor if the work is of similar
nature carried out in similar conditions -- no matter in a commercial sense how
high or low those rates can be. During course of work it is often realized by
Engineer that the rates quoted by Contractor for particular items are too high, on
the other side Contractor feels that he has quoted too low for certain items .If
those Items goes under variation than Both Engineer and Contractor intends not
to adopt valuation on Contract rates and tries to figure out fair prices. But once
the Contract is signed there exist no too high or too Low rates, as a general
rule, there are only contract rates. They does not become reasonable or
unreasonable by the execution of Variation- Held by Court of Appeal in Henry
Boot Construction v Alston (2000).Also in some Contracts it is qualified by
Engineer that when BOQ rates are applied then The Contractor is not liable to
claim for Additional payments as those rates cover the Profit and Over Head
margins whether in Lump sum or re-measurable Contract.
If Similar types of works are not mentioned in Drawings or Specification or
BOQS,fair valuation should be done for the varied work which benefits the client
for the money spent and the Contractor his fair share of Cost, Over Heads and
profit. This is usually done by Contractor providing three quotations to the
Engineer from different Suppliers or Sub contractors and adding his OH & Profit.
The Engineer than chooses the agency at his own discretion.
Note that If Engineer decides to omit works from contractors scope he can do
only if the work is not required. Omissions must be genuine: that is, the work
omitted must be omitted from the contract entirely. The power to order omissions
cannot be used to take the work away from the contractor to give it to another at

low cost and realize monetary gain (FIDIC Clause 51.1).That will lead to breach
of Contract and will turn out to be a recipe for dispute. Also Power of Engineer or
Client representative to order variation does not entitle them to use it to help
Contractors if the work is proving to be too difficult or more expensive for them.
All variations ordered should be within the confines of Contract.
1. Source of Conflict
Potentional Source of Conflict arises when work is not at all mentioned in the Bills
of Quantities, Drawings or specifications. At Common Law this silence does not
mean that the Contractor has an automatic right to claim for extra Payment
because an item does not exist in any of the contract Documents.
The Client or Engineer is not bound to pay for things that a reasonable contractor
must have understood are to be done which happen to be omitted from the bills
of Quantities. Note that items not expressly mentioned but require to complete
the works the contractor has undertaken to do is implicitly included in the
Contract price. The BOQ or Specification does not include Every nail to be
punched in .For Example in fixing Aluminum or GRC faades in a Building it is
required have some steel supports which a reasonable experience contractor
must contemplate and must provide provision for same in his Contract price.
Unless expressly excluded, such supports are not paid for as an extra variation
as it forms part of Cladding Works.
Another Classic Example is when Sub-Contractor qualifies that Supply & Fixing
of Door is included but Supply & Fixing of Ironmongery is excluded. A
reasonable Contractor foresees that Door cannot be fixed without Hinges which
is a part of Ironmongery. So even if Ironmongery is excluded, the sub Contractor
cannot claim variation for any of the items required to fix Doors.
Also under the pretext of variation, the Engineer cannot change the nature of
works like if the Contract Provides for Secant Pile Shoring the Engineer cannot
ask for Diaphragm Wall shoring as it will entirely change the scope of work which
the contractor did not foresee. This change is unexpected, not similar to the
original scope and will exhaust the Original contract.

1. Limits on variation
FIDIC forms put Limit on variations to be ordered. If the Value of Contract
increases or decreases by more than 15% of the net Contract sum (Excluding
Provisional Sums and day works) than Engineer or Client can add or deduct from
the Contract Sum a determined value upon consultation with the Contractor
having due regard to their Site expenses and other general Over Heads cost.
Note that this 15% increase or decrease should not be mistaken for any particular
single item of work but on total contract sum at final completion.
However as per NEC3 (Option B) if the rate in the bill multiplied by the final total
quantity of work done is more than 0.5% of the priced total of the bill at the
contract date, than it will constitute a variation (See Clause 60.4)
1. Conclusion
Variations are often source of dispute and eat away a lot of time and money in
arguments and negotiations during course of Contract. The Contracts should be
unambiguous and inexplicit. In order to avoid Variation and subsequent claims
the Contractor should well qualify his BOQ very precisely. The Engineer on the
other hand needs to prepare concise drawings, BOQ & Specifications during
Tendering stage and avoid anything in fine print. Both Engineer and Contractor
should leave very little for contemplation of other parties. They should provide
everything which is fore-seeable and reasonable.