This is the first in a new series of bi-monthly blog posts on FIDIC contracts. With the eagerly awaited second editions of the Yellow, Red and Silver Books expected to be published by the end of 2017 or in early 2018, there is likely to be a lot to talk about. Before then, I will be posting on some general FIDIC topics, starting with this introduction, exploring the updating of the FIDIC forms with a nod towards the recently-published NEC4 suite.
FIDIC: The market leaders for international standard forms?
In the interests of transparency, I should disclose upfront that I like the 1999 FIDIC Rainbow Suite. I think that, as international standard form contracts, the first editions of the Red and the Yellow Books are good contracts. Can they be improved? Definitely. Are they suitable for all projects and all parties? No. But as a starting point – as generic standard conditions that can be adapted for a wide range of projects under different governing laws in jurisdictions across the globe, and which create widespread familiarity with a common set of contracting rules – they are pretty good.
The Silver Book is more open for discussion. This, in large part, is because FIDIC sought to adopt a common approach with common drafting across all three of the Red, Yellow and Silver Books. In effect, the EPC/turnkey principles had to be achieved by amending the Yellow Book, as opposed to having bespoke EPC drafting. The Silver Book also departs from the traditional FIDIC philosophy that the contracts should be fair and balanced. This prompted much debate, particularly on behalf of contractors, when the Silver Book was first published. (I will be commenting on the use and approach of the Silver Book in a later blog post.)
I should also stress that FIDIC are not the only publishers of international standard form contracts. There are other equally reputable contracts out there, for example those published by the UK’s IChemE, the ENAA and NEC (see further below). Many countries also have their own standard forms for use in the domestic market and so FIDIC contracts are rarely used in, for example, the UK, Australia, USA and Germany. The FIDIC forms are, however, almost certainly the most widely used international standard forms, at least in terms of global use.
Updating the FIDIC forms: comparisons with NEC4
But I digress. Turning to the updates of the FIDIC Rainbow Suite… some might say a thankless task. From memory, this was first mooted in 2010 and we are now very close; a pre-release edition of the Yellow Book was published at the FIDIC International Contract Users’ Conference in London in December 2016, to much comment. I’ve wanted to avoid rolling up my sleeves and delving into the detailed drafting changes found in the pre-release version as it is still subject to change. That’s for a later date. Still, the pre-release version gives us a good idea of what to expect. The second editions of the FIDIC Rainbow Suite also coincide with another significant launch of an updated suite of contracts, NEC4. A comparison between the two provides, at least for me, an interesting case study.
There are a number of similarities between the updates to the FIDIC contracts and the NEC4 suite. They are both:
- Published by engineering organisations: FIDIC is the International Federation of Consulting Engineers and NEC is published by the commercial arm of the UK’s Institution of Civil Engineers.
- The first major update for a while: NEC for 12 years; FIDIC for 18 years.
- Intended for international use – with changes made to NEC4 specifically targeted to encourage wider international use.
The approach of the two organisations to the updates is also broadly similar, with both:
- Responding to feedback from the industry on the previous editions.
- Seeking to reflect good industry practice.
- Taking into account more recent developments on the forms.
For FIDIC, this includes the:
- Gold Book published in 2008.
- 2010 MDB form.
- 2011 Construction Sub-Contract.
- 2013 Guidance Memorandum on enforcing binding, but not final, DAB decisions.
For NEC, this includes the:
- ECC amendments published in 2009 and 2011.
- April 2013 update to NEC3.
- Early contractor involvement clauses in 2015/2016.
However, the results have been markedly different. The pre-release version of the second edition of the Yellow Book is 50% longer than the first edition, 108 pages versus 63 pages. Leaving aside some more cosmetic alterations (defined terms now in alphabetical order, 21 clauses with a clear distinction between claims and disputes, and re-ordering clauses 17 to 19), the majority of clauses have been amended in one way or another. In contrast, a “light touch” approach has been taken with NEC4. In NEC’s own words, “evolution, not revolution”, leaving many clauses completely unchanged.
Changes in the FIDIC second editions: evolution or revolution?
What about the changes to the second editions? Let’s wait until they are published. The changes seen in the pre-release version of the Yellow Book, however, suggest that they won’t be particularly radical in nature, seeking to address real life, practical issues that have arisen on FIDIC projects and emphasising pro-active project management and dispute avoidance (following NEC’s lead with early warning provisions). There are some exceptions, for example in relation to the indemnity provisions and the obligation to commence arbitration, that prompted a lot of discussion at the conference last December. We will have to see if these make the final cut. In addition, many of the changes in the pre-release version can be traced directly back to the changes introduced in the Gold Book and one cannot help but wonder how much those provisions were tested in practice given that this is a relatively unused form.
But it is the extent of some of the changes (with a 50% increase in words) that may result in something radical if followed through. A large proportion of this increase comes down to the introduction of new time bars, a number of new time limits and “deeming” provisions if time limits are not met. This will require all parties to understand carefully what is expected of them and it may take some time to achieve the level of acceptance and familiarity that currently exists for the first editions.
In my next blog, I will be looking at amending FIDIC contracts, the issues that arise in practice and the new “Golden Principles” that FIDIC is intending to publish.