REUTERS | Heinz-Peter Bader

Going for gold – FIDIC publishes its golden principles

Another blog, another new FIDIC publication. This time it’s the FIDIC Golden Principles, first edition, 2019 which was officially launched at the FIDIC Asia Pacific Contract Users’ Conference in Hong Kong on 25 June 2019. I touched on FIDIC’s development of the “Golden Principles” (GPs) in a previous blog post, Amending FIDIC contracts: practical issues. In this blog, I look at them in a little more detail.

To start, I should clarify that this is not the first time that we have seen the GPs. They made their first appearance in the guidance notes to the Second Editions of the Rainbow Suite in December 2017 and were also included with the FIDIC Emerald Book published in May this year. However, they were limited to the principles themselves (discussed below). The new stand-alone guide provides context by explaining what the GPs are and the reasons behind them, as well as offering additional guidance on how to draft amendments to FIDIC contracts. The FIDIC GPs document is freely available to download from FIDIC’s online bookshop. 

What are the Golden Principles?

Put simply, the GPs are FIDIC’s view of what makes a contract a “FIDIC Contract”.

More precisely, the GPs are aimed at amendments – through particular conditions – to the general conditions of the FIDIC Red, Yellow and Silver Books published in 1999 (First Editions) and 2017 (Second Editions), and the last edition of the MDB form (2010). Not all amendments though. FIDIC recognises that, as standard form contracts, they will need to be adapted to comply with the requirements of the specific project, mandatory laws and the governing law of the contract. What it is seeking to regulate are those amendments that go beyond this. For a discussion on the common categories of amendment, see my earlier blog.

With this in mind, the GPs encapsulate what FIDIC considers to be the core or “essential” contractual principles at the heart of its contracts that should be respected when drafting particular conditions. They are described as “inviolable and sacrosanct” and have been distilled down to five “conceptual” principles:

  1. The roles, duties, rights and obligations of the parties must remain generally as implied in the general conditions, and appropriate to the requirements of the project.
  2. All amendments to the contract must be clear and unambiguous.
  3. No amendment must alter the original balance of risk/reward allocation in the general conditions.
  4. All specified time periods must be reasonable.
  5. Unless there is a conflict with the governing law of the contract, disputes must be referred to the Dispute Avoidance/Adjudication Board(DAAB) (Dispute Adjudication Board (DAB) under the First Editions) for an interim binding decision before being referred to arbitration. This is intended to operate as a condition precedent.

Is all that glitters gold?

The first four of the GPs could be said to apply equally to any standard form construction contract. Each “brand”, such as FIDIC, NEC, IChemE and LOGIC, has its own underlying philosophy, directed towards its target usage and industry sector. In FIDIC’s case, it’s the ubiquitous fair and balanced risk allocation. These philosophies or risk allocations are achieved through a complex set of conditions, often developed and refined over many years, with multiple interrelated provisions and concepts that run through their core. Amendments, even seemingly minor ones, can upset their carefully crafted balance, leaving parties with something quite different to what they started with.

The fifth GP – seeking to enshrine the DAB/DAAB concept in FIDIC contracts – is less obvious. This is no doubt a reaction to the practice, particularly in some parts of the world, simply to delete the DAB/DAAB provisions. There are a number of reasons for this, some justifiable, others perhaps less so. Either way, experience has shown the benefits of there being an effective, interim dispute resolution process available to the parties in reducing the disputes that are referred to arbitration (or court) for final determination.

The GPs in practice

There has been much talk about how, and if, FIDIC might police compliance with the GPs in practice. The principles themselves are just that: principles. On their own, they do not have any contractual effect and are non-binding. There is also a debate as to whether it is FIDIC’s role to regulate parties’ use of the FIDIC general conditions. The language used in the press releases for the launch of the GPs is interesting. It’s framed in terms of securing the integrity of FIDIC contracts and the FIDIC “brand” and ensuring that users are not being misled.

This leads us back to the philosophical question as to what is a FIDIC contract. Is it a contract that is based on the FIDIC conditions, using them as a starting point, but evolving from there? Or is it only a contract based on FIDIC conditions with minimal amendments that strictly adhere to the GPs? As many involved in international construction and engineering projects will know, the wording of the contract is one thing, how it is managed in practice is often quite another.

If a standard form needs to be amended to meet the competing interests of the parties involved in that transaction (including funders) which fundamentally alters the originally intended risk/reward balance, is that standard form the appropriate starting point? Having said this, in the case of the broad, global target market for FIDIC contracts, what are the other options?

One consequence of the GPs may be a shift by previous users of the FIDIC forms towards bespoke contracts that give the parties more flexibility to address the particular requirements of the project and the interests of the various project participants. Alternatively, as long as parties are free to agree the terms on which they contract (subject to compliance with the applicable laws and public policy), they may simply carry on as before.

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