CONSTRUCTION

FIDIC CONTRACTS 2017

SECOND EDITIONS OF THE RED,
YELLOW AND SILVER BOOKS
SEMINAR
MAY 2018

NICHOLAS LONGLEY
PARTNER
T: +61 3 8601 4585
E: NICK.LONGLEY@HFW.COM
INTRODUCTION

Nicholas Longley, Partner

+852 3983 7680
+61 (0)3 8601 4585
nick.longley@hfw.com
 ABOUT HFW

• 500 Lawyers ~ across 18 Offices Globally

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3
 HFW CONSTRUCTION

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4
ABOUT HFW
 AGENDA

• Introduction
• Session 1: Overview
– What is FIDIC
– The FIDIC Rainbow of Contracts
– 2017 Editions Underlying Principles
– 2017 Editions Main Changes
– Risk Allocation
• Session 2: The Parties and their Obligations
• Session 3: Contract Administration
• Session 4: Variations
SESSION 1:
OVERVIEW OF "NEW" FIDIC RAINBOW SUITE
"NEW" RED, YELLOW AND SILVER BOOKS
FIDIC'S APPROACH TO RISK ALLOCATION
SUMMARY OF CHANGES IN THE SECOND EDITIONS
 WHAT IS FIDIC?

• Fédération International des Ingénieurs-Conseils

• ReInternational Federation of Consulting Engineer
• Founded in 1913
• Represents most private consulting engineers in the world
• Seminars, conferences – maintain ethical and professional standards
• Publications – proceedings, information and contracts
• Based in Geneva, Switzerland
• A suite of contract terms
• Produced by: Fédération Internationale des Ingénieurs-Conseils (FIDIC)
• Governs the duties and responsibilities as between the EMPLOYER (Project Owner) and
the CONTRACTOR.
 FIDIC CONTRACTS
AN INTRODUCTION

• FIDIC Contracts are all purpose standard form contracts

• Different ‘Books’ for different procurement methods

• Most widely used form of international standard form contracts:

– they are familiar to international contractors and engineers wherever used

• First published in 1957 – various editions exist:

– originally of English law origin
– now more ‘international’

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 FIDIC 2017
CONTRACT RELEASE HISTORY

1957: 1st edition of (old) Red Book

1967: 1st edition of (old) Yellow Book
1987: 4th edition of (old) Red Book
3rd edition of (old) Yellow Book
1995: Orange Book (only edition)
1999: 1st edition of (new) Red, Yellow &
Silver Books
2008: 1st edition of Gold Book (DBO)
2011: 1st edition of Red Book Subcontract
2017: 2nd edition of Red, Yellow & Silver Books
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 FIDIC 2017
THE CONTRACTS

Conditions of Contract for Conditions of Contract for Conditions of Contract for

Construction Construction for Plant & EPC / Turnkey Projects
Design-Build
“Red Book” “Yellow Book” “Silver Book”
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 FIDIC 2017
UNDERLYING PRINCIPLES BEHIND UPDATE

• Keep fair and balanced risk allocation

• Enhance project management tools / mechanisms

• Increase clarity and certainty of the wording

• Incorporate most recent developments from more recent FIDIC contracts

• Reflect current best practice

• Address user feedback on FIDIC 1999

12

• Dispute avoidance
• Improved project management:
- meetings (3.8)
- advance warning (8.4)
- detailed programme requirements (8.3)
- enhanced QA requirements (4.9)
FIDIC 2017
SOME THEMES TO THE CHANGES
• Greater equality:
- compliance with applicable laws (1.13)
- assistance to obtain permits (1.13/2.2)
- non-poaching clause (6.3)
- advance warning (8.4)
- reductions in Contract Price (13.6)
- Claims provisions (clause 20)
- more Employer entitlement to money
• Changes largely common to all three
Books throughout
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 FIDIC 2017
LAYOUT AND STRUCTURAL CHANGES

• Structure of General Conditions remains familiar but almost every clause has been
changed

• Structural changes:
- now 21 Clauses (as opposed to 20 clauses in FIDIC 1999)
- definitions alphabetically listed
- new definitions include “Cost Plus Profit”; “Notice”; “Claims” and “Disputes”
- greater use of abbreviations: NOD, IPC, EOT
- different terminology, e.g. Particular Conditions:
- Part 1: [Appendix to Tender] Contract Data
- Part 2: Special Conditions

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 FIDIC 2017
LAYOUT AND STRUCTURAL CHANGES

– limitation of liability clause now at clause 1.15, rather than clause 17.6
– clause 17 concerning care of the Works has been re-named, and re-ordered
– clause 18 [Force Majeure Exceptional Events] and Clause 19 [Insurance] reversed
– clauses broken down into numbered sub-paragraphs and lists

• New, expanded Guidance Notes, with more example alternative clauses for use in
Special Conditions

• Procedural Rules for DAAB proceedings expanded

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1. General Provisions
2. The Employer
3. The Engineer / The Engineer
The Employer’s Administration
4. The Contractor
5. Subcontracting / Design / Design
6. Staff and Labour
7. Plant, Materials and Workmanship
8. Commencement, Delays and
Suspension
9. Tests on Completion
10. Employer’s Taking Over
11. Defects After Taking Over
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FIDIC 2017
CLAUSE OUTLINE
12. Measurement and Valuation /
Tests After Completion /
Tests After Completion
13. Variations and Adjustments
14. Contract Price and Payment
15. Termination by Employer
16. Suspension and Termination by
Contractor
17. Care of the Works and Indemnities
18. Exceptional Events
19. Insurance
20. Employer’s and Contractor’s Claims
21. Disputes and Arbitration
 FIDIC 2017
CHANGES TO INTERPRETATION CLAUSE

• FIDIC 1999 written in plain English

• FIDIC 2017 has sought to follow this approach

• Interpretation – clause 1.2:

– “may” = person has a choice
– “shall” = person has an obligation
– “include” = not limited only to the stated items New
– “execute the Works” = [design,] construction and completion
of the Works and the remedying of any defects

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DOCUMENTS AND PRIORITY – CLAUSE 1.5
Red Book Yellow Book
Contract Agreement (if any) Contract Agreement (if any)
Letter of Acceptance Letter of Acceptance
Letter of Tender Letter of Tender
Particular Conditions: Particular Conditions:
- Part A: Contract Data - Part A: Contract Data
- Part B: Special Provisions - Part B: Special Provisions
General Conditions General Conditions
Specification Employer’s Requirements
Drawings
Schedules Schedules
Contractor’s
18 Proposal
FIDIC CONTRACTS
Silver Book
Contract Agreement
Particular Conditions:
- Part A: Contract Data
- Part B: Special Provisions
General Conditions
Employer’s Requirements
Schedules
Tender
 FIDIC 2017
GOLDEN PRINCIPLES

• New 5 FIDIC Golden Principles

“FIDIC strongly recommends that the Employer, the Contractor and all drafters... take all
due regard of the five FIDIC Golden Principles”

• GP1: duties / responsibilities of Contract Participants must generally be as implied in the

General Conditions
• GP2: Particular Conditions must be drafted clearly and unambiguously
• GP3: Particular Conditions must not change the balance of the risk / reward allocation
• GP4: all time periods in the Contract must be of reasonable duration
• GP5: all formal disputes must be referred to DAAB for a provisionally binding decision as a
condition precedent to arbitration

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 FIDIC CONTRACTS
ALLOCATION OF RISK

FAIR AND BALANCED RISK ALLOCATION

• Risk allocated to the party that is best able to:

– control the risk
– manage the risk
– bear the consequences

• Exception is the Silver Book:

– greater risk allocated to Contractor
– driven by requirements of private funding

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 ALLOCATION OF RISKS
HOW IS IT DONE IN THE FIDIC CONTRACTS?

• Contractual allocation of risk:

– obligation / responsibility expressly placed on a party
– relief for a party in the event a risk eventuates

• Starting point: Contractor bears all risks for completing Works in accordance with the
Contract within the Time for Completion
unless
– risk is expressly allocated to Employer or
– contract provides that the Contractor is entitled to more money and/or more time as a
result of the risk (subject to governing law)
‒ EOT, Cost and/or Cost Plus Profit

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 FIDIC CONTRACTS
ALLOCATION OF RISK

Employer Contractor
Risk Risk

Risk Transfer

Construct Only Design-Build EPC/Turnkey

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 FIDIC CONTRACTS
ALLOCATION OF RISK

Contractor’s Risk Employer’s Risk

Construction / completion Payment

Sufficiency of tender price

Specification of Works
Construction delays

Damage to Works before Availability / access to Site

Taking-Over

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 ALLOCATION OF KEY RISKS
DIFFERENCES BETWEEN FIDIC BOOKS

CONTRACTOR’S RISK?

Red Book Yellow Book Silver Book

Design ✓ ✓
Unforeseeable ground conditions ✓
Quantities / lump sum price ✓ ✓
Employer as contract administrator ✓

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 ALLOCATION OF SPECIFIC RISKS
CONTRACTOR’S ENTITLEMENTS

Sub- Silver
EOT Cost Profit
Clause Book?
Delayed drawings or instructions 1.9 (R) ✓ ✓ ✓
Errors in Employer’s Requirements 1.9 (Y) ✓ ✓ ✓
Employer’s delay or failure to obtain permits New 1.13 ✓ ✓ ✓ ✓ 1.12
Delay in access to Site 2.1 ✓ ✓ ✓ ✓
Unforeseeable co-operation 4.6 ✓ ✓ ✓ ✓
Errors in setting-out data 4.7 ✓ ✓ ✓
Unforeseeable physical conditions 4.12.4 ✓ ✓
Changes to access route New 4.15 ✓ ✓ ✓
Discovery of archaeological findings 4.23 ✓ ✓ ✓

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 ALLOCATION OF SPECIFIC RISKS
CONTRACTOR’S ENTITLEMENTS

Sub- Silver
EOT Cost Profit
Clause Book?
Instructions / delay in testing 7.4 ✓ ✓ ✓ ✓
Remedial work attributable to Employer New 7.6 ✓ ✓ ✓ ✓
Delays caused by Authorities 8.6 ✓ ✓
Suspension by Engineer / Engineer 8.10 ✓ ✓ ✓ ✓
Employer taking over Part of Works 10.2 ✓ ✓
Interference with Tests on Completion 10.3 ✓ ✓ ✓ ✓
Delay in access for remedial work in DNP New 11.7 ✓ ✓ ✓
Costs of searches in DNP 11.8 ✓ ✓ ✓
Delayed Tests after Completion 12.2 (Y) ✓ ✓ ✓

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 ALLOCATION OF SPECIFIC RISKS
CONTRACTOR’S ENTITLEMENTS

Sub- Silver
EOT Cost Profit
Clause Book?
Delay in access for remedial work 12.4 (Y) ✓ ✓ ✓
Changes in Laws* 13.6 ✓ ✓ ✓
Contractor suspension 16.1 ✓ ✓ ✓ ✓
Damage to Works due to an Employer’s risk 17.2 ✓ ✓ ✓ ✓
Exceptional Events 18.4 ✓ ✓† ✓

* Employer entitled to reduction if costs reduced

† Cost only in relation to some events

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SESSION 2:
THE PARTIES AND THEIR OBLIGATIONS
THE CONTRACTOR'S KEY OBLIGATIONS, INCLUDING DESIGN AND COMPLETION
THE EMPLOYER'S KEY OBLIGATIONS
KEY CHANGES IN THE SECOND EDITIONS
 FIDIC 2017
OVERVIEW OF CONTRACT STAGES

Date of Performance
Completion Certificate
remedying
Commencement
defects
Date
Tests on notifying
Completion defects

Tests after
Completion
Delay Performance
Damages Damages

Time for Completion Contractor Defects

(including EOT) delay Notification Period
(including any
extension)
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 FIDIC 2017
CONTRACTOR’S KEY OBLIGATIONS

• Contractor to execute the Works in accordance with the Contract (4.1):

– Works = Permanent and Temporary Works, defined by Specification / Employer’s
Requirements
– Yellow & Silver Books: Works shall be fit for purpose (4.1)

• Completion – defined in clause 10.1

– Tests on Completion (clause 9)
– Tests after Completion (clause 12 – YB/SB) → Performance Damages

• Works to be completed within Time for Completion (8.2) → Delay Damages

• Permits (1.13)
• Performance Security (4.2)
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 FITNESS FOR PURPOSE
CHANGES IN FIDIC 2017

• Fitness for Purpose – clause 4.1 of Yellow Book:

“When completed, the Works (or Section or Part or major item of Plant, if any)
shall be fit for the purpose(s) for which they are intended, as defined and
described in the Contract Employer’s Requirements (or, where no purpose(s) are
so defined and described, fit for their ordinary purpose(s))”

FIDIC 1999 FIDIC 2017

• Narrow fitness for purpose requirement • Purpose to be defined expressly in ER
• Purpose to be defined expressly in the • Applies not only to the Works, but also
Contract Parts, Sections and major items of Plant
• Wider fitness for purpose requirement?

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 FITNESS FOR PURPOSE
CHANGES IN FIDIC 2017 – INDEMNITY & INSURANCE

• Fitness for purpose obligation now backed by new indemnity at clause 17.4 (YB):
“The Contractor shall also indemnify and hold harmless the Employer against all acts, errors or
omissions by the Contractor in carrying out the Contractor’s design obligations that result in the
Works (or Section of Part or major item of Plant, if any), when completed, not being fit for the
purpose(s) for which they are intended under Sub-Clause 4.1”

• Indemnity is capped by:

- exclusion of liability for indirect and consequential losses (1.15)
- the overall cap on liability (1.15)

• Design obligations now expressly backed by insurance (19.2.3):

- Contractor expected to take out professional indemnity (PI) insurance
- optional: PI insurance also to indemnify Contractor against its liabilities for failure
in carrying out design to achieve FFP requirements
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 DESIGN (1)
CHANGES IN FIDIC 2017

• Design provisions significantly updated in FIDIC 2017

• Yellow Book / Silver Book:

– clause 5.1: enhanced requirements for qualifications of designers
– clause 5.2: more detailed procedures for Review of Contractor’s Documents
Employer entitled to costs if documents have to be resubmitted

• Red Book: clause 4.1 contains more detailed design provisions

• Guidance notes include an ‘Advisory Note’ on BIM (including which clauses would need to
be amended if BIM used)

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 DESIGN (2)
ERRORS IN EMPLOYER’S REQUIREMENTS

• Responsibility for errors in Employer’s Requirements different between Yellow Book and
Silver Book:
– Silver Book: Contractor is responsible for errors
– Yellow Book: FIDIC 2017 (1.9) follows similar principles to FIDIC 1999:
‒ if error would not have been discovered by an experienced contractor exercising due
care, Variation mechanism applies for measures to deal with error
‒ Contractor entitled to Cost Plus Profit
‒ But silent if error should have been discovered

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 LIMITATION OF LIABILITY
CHANGES IN FIDIC 2017

FIDIC 1999 FIDIC 2017

– clause 17.6
– exclusion of liability for loss of profit and
indirect loss
– cap on Contractor’s total liability to
Employer subject to exceptions
– clause 1.15 (1.14 – Silver Book)
– more clearly set out
– loss of profit / indirect loss now
subject to exceptions
– general fraud exception expanded to
include gross negligence
– Delay Damages cap at clause 8.8 now
does not apply if fraud / gross
negligence

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 LIMITATION OF LIABILITY
CHANGES IN FIDIC 2017

• Carve-outs from exclusion of liability for indirect losses and loss of profit now include:
– Employer:
‒ Delay Damages
‒ Claims under intellectual property indemnities
– Contractor:
‒ Variations
‒ losses in respect of omission of work to give it to third parties
‒ losses following a termination for convenience under clause 15.7

• No corresponding carve out for Employer’s termination losses following termination

for Contractor’s default

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SESSION 3:
CONTRACT ADMINISTRATION
THE ROLE OF THE ENGINEER
REPORTING REQUIREMENTS
THE ENHANCED ENGINEER'S DETERMINATION PROVISIONS IN THE SECOND EDITIONS
 CONTRACT ADMINISTRATION
ROLE OF THE ENGINEER IN FIDIC CONTRACTS (1)

• Engineer plays a central role in the FIDIC Contracts

– Employer’s Representative in Silver Book

• Engineer:
– deemed to act for the Employer
– shall act as skilled professional New
– authority and role defined by Contract
– not a Party to the Contract
– no authority to amend Contract
– no authority to relieve Party of duty or responsibility except as stated
‒ if Employer’s approval required, then deemed given
– constraints on authority to be specified
‒ no constraint under clause 3.7 New
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 CONTRACT ADMINISTRATION
ROLE OF THE ENGINEER IN FIDIC CONTRACTS (2)

• Engineer has two roles:

– agent of the Employer, e.g.:
‒ instructions
‒ Variations
‒ supervising / monitoring work
– decision-maker or certifier:
‒ completion
‒ Payment Certificates
‒ Taking-Over Certificate
‒ Performance Certificate
‒ determinations and claims

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 CONTRACT ADMINISTRATION
WHO IS THE ENGINEER?

• Employer shall appoint the Engineer (3.1)

– no time limit specified

• Engineer can be individual or legal entity (3.1)

– if legal entity, individual must be appointed New

• Engineer (or individual) must be (3.1): New

– professional engineer with suitable qualifications, experience and competence
– fluent in the language of the Contract

• Engineer may delegate certain (but not all) duties to suitably qualified assistants (3.3/3.4)
• Engineer may appoint Engineer’s Representative to act on Engineer’s behalf on Site (3.3)
New
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 CONTRACT ADMINISTRATION
PROCEDURES – CHANGES IN FIDIC 2017

• FIDIC’s aim: increased clarity and • Examples:

certainty to reduce the risk of – Engineer’s determinations (3.7)
disagreements regarding the interpretation – Review of the Contractor’s Documents
of the contract terms (5.2 – YB/SB)
– Tests on Completion (clause 9)
• More prescriptive, step-by-step – Tests after Completion
procedures: (clause 12 – YB/SB)
– what is expected? – Variations (13.3)
– when it is expected? – payment applications (clause 14)
– what are the consequences if do not – termination (15.2 / 16.2)
comply? – Claims (clause 20)

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 CONTRACT ADMINISTRATION
TIME LIMITS, DEEMING PROVISIONS AND TIME-BARS

• Emphasis in FIDIC 2017 on dealing with issues as they arise

• Increase in time limits, deeming provisions and time-bars:

– time limits: period of time specified for a party to act
– deeming provisions: party ‘deemed’ to have acted if does not do so within time limit
‒ most deeming provisions relate to duties of Engineer
– time-bars: party loses a legal entitlement if fails to comply with time limit
‒ subject to governing law

• New provisions to encourage communication:

– advance warning (8.3)
– meetings (3.8)

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 CONTRACT ADMINISTRATION
COMMUNICATIONS – CLAUSE 1.3

• FIDIC 2017 – stricter requirements for communications:

– must be identified as type of communication it is (e.g. instruction, consent, Notice)
– must identify clause it is given under (except Notices)
– must be given by correct person
– must be given to correct person
– must be sent to correct address
– must be sent by valid method

• Communications to be sent:
– by hand, mail or courier (against receipt) → received when delivered
– by electronic transmission system stated in Contract Data → deemed to have been
received day after transmission
New
if no non-delivery notification
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 CONTRACT ADMINISTRATION
FIDIC 2017 – NOTICES (1)

• FIDIC 2017 contains significant changes to the Notice provisions

• “Notice” = new defined term

• In FIDIC 2017, more circumstances where a Notice is to be given
• Now must be identified as a Notice
• Does not need to identify clause, except:
– Employer’s Notice of intention to terminate (15.2.1)
– Employer’s Notice of termination for convenience (15.5)
– Contractor’s Notice of suspension (16.1)
– Contractor’s Notice of intention to terminate (16.2.1)
• Progress report or programme is not a Notice (8.3)

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 CONTRACT ADMINISTRATION
FIDIC 2017 – NOTICES (2)

• Special Notices to be identified:

– Notice of the Parties’ Agreement (3.7.1)
– Notice of the Engineer’s Determination (3.7.2)
– Notice of Dissatisfaction with the Engineer’s Determination (3.7.5)
– Notice of Dissatisfaction with the DAAB’s Decision (21.4.4)

• Other Notices
– Notice of Dissatisfaction (NOD)
– Notice to Correct (15.1)
– Notice of Claim (20.2.1)

45

CONTRACTOR
• Signed by Contractor’s
Representative:
– cannot be delegated (4.3)
• Receipt – only Contractor’s
Representative:
– cannot be delegated (4.3)
– includes instructions
– address as specified in
Contract Data or notified
CONTRACT ADMINISTRATION
FIDIC 2017 – COMMUNICATIONS AND PARTIES
ENGINEER EMPLOYER
• Signed by Engineer: • Signed by authorised
– can be delegated (3.4) representative
– except:
‒ acts under clause 3.7 • Receipt:
‒ Notice to Correct (15.1) – address as specified in
Contract Data or notified
• Instructions:
– can be delegated (3.5)
– must be in writing
• Receipt:
– address as specified in
Contract Data or notified
46
 ENGINEER’S DETERMINATION
FIDIC 1999 – CLAUSE 3.5 TIMELINE

Engineer’s
determination

Start

No agreement

Engineer
proceeds with
Consultation determination

? days ? days

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 ENGINEER’S DETERMINATION
FIDIC 2017 – CLAUSE 3.7 TIMELINE

Notice of the
Engineer’s Notice of
Notice of
Determination Dissatisfaction
corrected
Start determination with the
Engineer’s
No agreement Determination
Notice
of error
Engineer
proceeds with
Consultations determination

≤ 42 days ≤ 42 days ≤ 14 days ≤ 28 days

≤ 7days

48
 ENGINEER’S DETERMINATION
CHANGES IN FIDIC 2017 (1)

FIDIC 1999 FIDIC 2017

• Simple clause
• Engineer to consult with each Party in an
endeavour to reach agreement
• If no agreement, Engineer to make fair
determination
• No time limits specified
• More detailed procedure with time
limits
• Engineer to consult jointly and/or
separately in an endeavour to reach
agreement
• If no agreement, Engineer to make fair
determination

• New procedure for correction of errors

in agreement or determination

49
 ENGINEER’S DETERMINATION
CHANGES IN FIDIC 2017 (2)

• If agreement → Notice of the Parties’ Agreement, signed by Parties = final and binding
New
• If no agreement within 42 days → Engineer to make determination within 42 days

• If Engineer issues Notice of the Engineer’s Determination:

– binding on both Parties
– if Party is dissatisfied with determination, it must give a Notice of Dissatisfaction
with the Engineer’s Determination within 28 days or otherwise determination
becomes final and binding New
→ enforcement by arbitration

• If Engineer does not issue Notice of the Engineer’s Determination within 42 days:
→ Claim deemed rejected
→ “matter” deemed to be a Dispute and may be referred to DAAB without Notice of New
Dissatisfaction
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 ENGINEER’S DETERMINATION
DUTY TO ACT NEUTRALLY

• FIDIC 1999 (3.5) and FIDIC 2017 (3.7)

– Engineer must make fair determination
‒ in accordance with the Contract
‒ taking due regard of all relevant circumstances

• FIDIC 2017 (3.7)

– Engineer “shall act neutrally between the Parties” and “shall not be deemed to act for
the Employer”
‒ neutrally is not defined but more than the requirement of fairness
‒ Employer is prohibited from constraining Engineer’s authority under clause 3.7 (3.2)

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SESSION 4:
VARIATIONS AND PAYMENT
WHAT IS A VARIATION?
THE REVISED VARIATION PROCEDURE AND VALUATION
PAYMENT PROCEDURES
 VARIATIONS
INTRODUCTION

• Variation provisions give the Employer (through the Engineer) the unilateral right to vary
or change the Works

• If there were no variation provisions, the Parties would need to agree on:
– scope
– payment (money)
– time consequences

• Variations under FIDIC contracts found in clause 13

53
 VARIATIONS
CHANGES IN FIDIC 2017

• FIDIC 2017 – Variations provisions have been extensively updated

• Greater clarity as to procedures that apply

– Variation must be instructed by way of formal, written Variation Instruction

• New grounds for Contractor to object to instruction of Variations

• New valuation of Variations provisions in Yellow Book

• Changes in relation to omissions

• New provisions: Performance Security (4.2) and Employer’s financing arrangements (2.4)

54
 VARIATIONS
WHAT IS A VARIATION?

• “Variation” means:
– any change to the Works
– which is instructed as a variation under Clause 13 [Variations and Adjustments]

• Red Book – each Variation may include:

– changes to quantities
– changes to quality
– changes to levels, positions and/or dimensions
No equivalent list in
– omission of work Yellow or Silver Books
– additional work, Plant, Materials or services
necessary for the Permanent Works
– changes to the sequence or timing of the
execution of the Works
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 VARIATIONS
FIDIC 2017 – INITIATION OF VARIATIONS

• Under FIDIC 2017, Variations can be initiated in two ways (clause 13.3):
– greater clarity and detail as to procedures that apply: Variation Instruction required

1. Engineer’s instruction:
‒ Variation instruction by giving a Notice
‒ Contractor to proceed with execution of Variation
‒ Contractor to submit detailed particulars for varied work, time and money within 28 days
‒ Engineer to proceed under clause 3.7 to agree or determine time and money

2. Request for proposal:

‒ Contractor to submit proposal
‒ Engineer’s consent → Variation instruction
‒ if consent not given, Contractor is entitled to Cost of preparing proposal
56
 VARIATIONS
GROUNDS TO OBJECT

• In FIDIC 2017, Contractor retains right to object to Variation and grounds for objection
expanded (13.1):
– Contractor cannot readily obtain Goods required for Variation
– adverse impact on achievement of performance guarantees (Yellow & Silver Books)
– if Variation was Unforeseeable having regard to the nature of the Works included in the
Specification / Employer’s Requirements
– adverse impact on Contractor’s ability to comply with HS&E New
– adverse impact on Contractor’s ability to comply with fitness for purpose obligations
(Yellow & Silver Books)

• Engineer to cancel, confirm or vary instruction

– instruction confirmed or varied is itself a Variation Instruction New
– What if Contractor has valid grounds? Can Engineer still confirm instruction?
57
 VARIATIONS
VARIATION INSTRUCTIONS (1)

• FIDIC 2017: clauses 3.5 and 13.3

• For Variation instruction to be valid, it must be called a “Variation Instruction” New
- if Contractor considers instruction constitutes a Variation, but it is not stated as
such, Contractor to give Notice
- Contractor is bound by Engineer’s response
- in absence of Engineer’s response within 7 days, instruction is deemed to have been
revoked

• Contrast with FIDIC 1999: instruction was Variation by nature and not by title
• Advantages and disadvantages: greater certainty v. impasse problem

58
 VARIATIONS
VARIATION INSTRUCTIONS (2)

FIDIC RED BOOK 1999 FIDIC RED BOOK 2017

• Variation may be initiated by instruction
(13.1)
• Instructions to be in writing wherever
possible (3.3)
• If an instruction constitutes a Variation,
Clause 13 applies (clause 3.3)
59
• Variation may be initiated by instruction
(13.1)
• Instructions must be in writing (1.3)
• If an instruction states that it constitutes a
Variation, clause 13.3.1 shall apply (3.5)
• If Contractor considers instruction
constitutes a Variation, but it is not stated
as such, Contractor to give Notice and is
bound by Engineer’s response
– in the absence of which the instruction is
deemed to have been revoked (3.5)
 VARIATIONS
CONTRACTOR’S ENTITLEMENTS

• Valuation of Variations
– Red Book: rates and prices in Bill of Quantities
– Yellow & Silver Books:
‒ Schedule of Rates and Prices
New
‒ if no schedule, Cost Plus Profit

• Extension of Time (8.5)

• Omissions: if work omitted, Parties may agree to others carrying out the work, and
Contractor is entitled to loss of profit and other losses / damages

New

60
 SPEAKER’S PROFILE
Nick Longley
Partner
Melbourne
T: +61 (0)3 8691 4585
E: Nick.longley@hfw.com

Introduction
Nick advises his clients on matters relating to construction and construction insurance law with a focus on arbitration relating to major
infrastructure and energy-related projects. He advises governments, employers, main contractors, specialist subcontractors, construction
professionals and insurers on all aspects of construction law. He also advises insurers and insureds on policy interpretation and claims.
What the market says about Nick
Nick Longley is highly recommended by Legal 500 Asia Pacific 2017 for Construction.
Nick Longley is listed in International Who's Who within their list of the World's leading construction lawyers 2007 - 2017.
"With his involvement we have confidence that our interests are protected." (Chambers Asia Pacific 2016)
Construction – FIDIC Experience
• Advising a Korean contractor on a dispute under a FIDIC Yellow Book contract for a paper mill in Vietnam. The main issues included claims for
variations and liability for defects Advising Korean Contractors on issues in connection with a FIDIC White Book project for a stay cable bridge
in India.
• Advising Korean contractors on issues arising under a FIDIC Red Book contract for a road project in Kazakhstan. The primary issue concerned
the application of Clause 13.8
• Advising Korean contractors on a road project in Vietnam under a FIDIC Red Book.
• Advising contractors on a Pink Book project issued by the Asia Development Bank for the construction of a University in the Solomon Islands.
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© 2018 Holman Fenwick Willan LLP. All rights reserved
Whilst every care has been taken to ensure the accuracy of this information
at the time of publication, the information is intended as guidance only.
It should not be considered as legal advice.

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