FIDIC Amendments and The Golden Principles
We have all seen it. We receive what we assume is a FIDIC form of contract. But when we examine its contents or the Particular Conditions, we find it has been subject to amendments and changed considerably. FIDIC amendments we often see include:
- Clauses struck out, usually those that give the contractor rights and remedies.
- New clauses appear which are often punitive toward the contractor.
- The remeasurable Red Book changes to a lump-sum contract.
- Time-frames may have been reduced for the Contractor’s actions and extended. Alternatively, time-frames vanish altogether for the Engineer and Employer’s obligations.
Added to this, the changes and amendments are often poorly drafted and the final version contains ambiguities and conflicts.
So what we end up with is not what FIDIC intended. In short, it does not do what it says on the tin.
Employers and Engineer’s make these changes in an attempt to absolve themselves of as much responsibility as possible and put as much risk onto the contractor as possible in the mistaken belief that this will bring about a lower contract price and give higher certainty of the final cost.
It doesn’t.
A Breeding Ground for Disputes
Contractors will price the risk allocated to them under the contract. This drives up the tender price and here, we have a breeding ground for claims and disputes.
In FIDIC’s words ‘The brand of FIDIC, amongst other things, represents fair, balanced and well-recognised forms of construction and engineering contract and agreement forms. FIDIC GCs [General Conditions] are based on fair and balanced risk/reward allocation between the Employer and the Contractor and are widely recognised as striking an appropriate balance between the reasonable expectations of these contracting parties. Accordingly, a contract recognised as a FIDIC Contract has real commercial value to both the Employer and the Contractor, both at the tendering stage, and during execution of the Contract.’
Changing contract conditions which comply with this has long been a thorn in FIDIC’s side. FIDIC consider that if the contract does not adhere to the principles adopted when drafted by FIDIC, the contract may no longer be regarded as a FIDIC contract.
The Golden Principles
In an attempt to control the situation, FIDIC have recently published The FIDIC Golden Principles. FIDIC says these are ‘to identify which contractual principles of each form of FIDIC contract FIDIC considers to be inviolable and sacrosanct’. The principles are as follows:
- ‘GP1: The duties, rights, obligations, roles and responsibilities of all the Contract Participants must be generally as implied in the General Conditions, and appropriate to the requirements of the project.
- GP2: The Particular Conditions must be drafted clearly and unambiguously.
- GP3: The Particular Conditions must not change the balance of risk/reward allocation provided for in the General Conditions.
- GP4: All time periods specified in the Contract for Contract Participants to perform their obligations must be of reasonable duration.
- GP5: Unless there is a conflict with the governing law of the Contract, all formal disputes must be referred to a Dispute Avoidance/Adjudication Board (or a Dispute Adjudication Board, if applicable) for a provisionally binding decision as a condition precedent to arbitration.’
Further guidance and the reasoning behind each principle is in The FIDIC Golden Principles.
The Law Won’t Help
FIDIC stops short of identifying action that could be taken against parties that ignore these principles. Indeed, it is hard to think of any form of control that could be asserted. The law typically supports ‘freedom of contract’. This means that you may sign a contract that is unfair or unclear. However, it’s no use trying to seek compensation later because things didn’t go your way. Nor because the contents of the contract did not match what was intended by the drafters of the original version.
I applaud the fact that FIDIC have seen fit to clarify and publish these principles. But I cannot see this affecting employers and engineers who don’t wish to act fairly or provide a balance of risk when drafting their contracts.
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The difficulty that FIDIC faces is how to police these Golden Principles. Can FIDIC – legally or practically – restrict the use of FIDIC contracts that offend the Golden Principles? Is there a risk that some current users may be reluctant to adopt a FIDIC contract if they feel that their freedom to negotiate and amend the contract terms is constrained in this way?
I think “the principle of freedom of contract means that parties are free to agree on the terms of their contract, provided it complies with the law and public policy.”
FIDIC only has IP rights on their General Conditions and not on what an employer or contract drafter makes in terms of particular conditions so the FIDIC Golden Principles are not in any way enforceable on any particular conditions. As you say ‘freedom of contract’ reigns and the construction market is cutthroat with contractors desperate for work sometimes, no matter what the risk.
All that prospective tenderers can do in their tender queries is flag the departures from the GP’s and hope that this will in some way change the employer’s mind in the tender phase or at least alert other tenderers to issues that all tenderers may have with the proposed contract.
It may help with government and development bank tenders to refer to the GP’s and point out when they have not been adhered to, but in the general construction market this advice is likely to fall on deaf ears.