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FIDIC contracts: To change or not to change?

A recent case involving J Murphy and Sons has shown the need to tread carefully when making amendments to standard form FIDIC contracts.

The age-old debate on whether to amend FIDIC standard form construction contracts gained fresh momentum earlier this year in a high-profile case that many construction industry participants will want to be aware of.

Both sides of the argument are no doubt familiar.

No change

Using an unamended version of a construction contract from the International Federation of Consulting Engineers (FIDIC) as it is, without amendment, offers parties the advantages of a standard form that is tried and tested, and well understood by the construction industry.

Familiar wording reduces the time and cost of negotiation and the risk of future disputes.

FIDIC contracts (other than arguably the FIDIC Silver Book) generally reflect a fair and reasonable market position. They have been carefully drafted by industry professionals who have significant experience and understanding of the common problems that arise in construction projects.

FIDIC Conditions of Contract enshrine lessons learned and best practice from projects that have succeeded and those that have failed, projects that have resulted in disputes and projects in which sound drafting has provided clarity and effective solutions to problems.

Making a change

However, like any other standard form, FIDIC conditions cannot provide for the idiosyncrasies of every project and its parties, or for every possible eventuality that might occur.

For example, different types of energy project require different testing provisions, while leaps in technology, as well as changes in the law since the last iteration of a form, may render some conditions obsolete and require new ones to be introduced.

Indeed, amendments to FIDIC conditions are nearly always necessary to accurately reflect a project’s requirements, particularly when project financing is involved.

“FIDIC conditions cannot provide for the idiosyncrasies of every project and its parties or for every possible eventuality that might occur”

In addition, FIDIC conditions are not a perfect template; they have their own inconsistencies, as highlighted by J Murphy & Sons v Beckton Energy Ltd [2016] EWHC 607 (TCC).

This recent case in the Technology and Construction Court concerned the Conditions of Contract for Plant and Design-Build for Electrical and Mechanical Plant and for Building and Engineering Works designed by the Contractor, First Edition 1999 (better known as the FIDIC Yellow Book).

One of Yellow Book’s conditions requires the engineer to determine the amount that the employer is entitled to be paid by the contractor in liquidated delay damages when the nature of such damages is that they are a pre-agreed, fixed sum.

As such, the conditions seem to require determination of an already pre-determined amount. Parties might wish to amend the FIDIC conditions to clarify these sorts of issues.

When to change

The lesson from J Murphy & Sons v Beckton Energy is that, if you do decide to make amendments to standard form FIDIC conditions, make your changes carefully.

Extra care should be exercised when modifying the FIDIC conditions to ensure the clause’s operation in the context of the contract as a whole is fully understood, taking account of – and making appropriate arrangements for – any overlaps or interactions between clauses.

So what sorts of changes might sensibly be made?

With regard to the liquidated delay damages provisions in the FIDIC Yellow Book, which were the ones in dispute in J Murphy & Sons v Beckton Energy, parties could remove some of the cross-references between clauses so that the determination mechanism does not apply to liquidated damages claims.

They could also make clear that delay damages are a liquidated sum based on the number of days of delay and the per diem amounts for such delay, to be determined and notified without any role for the engineer.

“The lesson from J Murphy & Sons v Beckton Energy Ltd is that, if you do decide to make amendments to standard form FIDIC conditions, make your changes carefully”

An alternative approach, which would perhaps be more palatable to contractors, would be to clarify the wording such that the engineer’s role does not require it to “agree” liquidated damages for delay nor determine the amount of liquidated damages payable.

Rather, the engineer’s role would be limited to making a determination of the relevant number of days to which delay liquidated damages would apply (which may also involve determination of extension of time claims).

Parties could also introduce timescales for the engineer to make such determinations.

The foregoing changes are in the spirit of the certainty sought by parties including liquidated damages clauses in construction contracts, and would represent worthwhile and justifiable amendments to the standard FIDIC conditions.

Jessica Trevellick is a trainee solicitor and Alex Blomfield is counsel at King & Spalding

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