Transcript Slide 1
ESCL Conference August 25th 2006 –
Risk in Construction and how to deal
with them.
Duty for the contractor to inspect the site and
other physical conditions according to FIDIC.
Presented by
Mikael Wahlgren
Former Senior Legal Counsel
NCC Construction Sweden AB
Mikael Wahlgren
NCC Construction Sverige AB
FIDIC’s old standard
forms
Conditions of Contract for Works of Civil Engineering
Construction, Fourth Edition, 1987 (reprinted in 1988 with editorial
amendments and reprinted in 1992 with further amendments) (the “old
Red Book”);
Conditions of Subcontract for Works of Civil Engineering,
Construction, First Edition, 1994 (to function with the old Red Book);
Conditions of Contract for Electrical and Mechanical Works, Third
Edition, 1987 (reprinted in 1988 with editorial amendments) (the “old
Yellow Book”); and
Conditions of Contract for Design-Build and Turnkey, First Edition,
1995 (the “Orange Book”).
Client-Consultant Model Services Agreement (3rd Ed., 1998, )
("White Book")
Mikael Wahlgren
NCC Construction Sverige AB
FIDIC’s (the International
Federation of Consulting Engineers)
new standard forms
Conditions of Contract for Construction (1999; for building
and engineering works designed by the employer) (the “new Red
Book”);
Conditions of Contract for Plant and Design-Build (1999; for
electrical and mechanical plant and for building and engineering
works designed by the contractor) (the “new Yellow Book”);
Conditions of Contract for EPC Turnkey Projects (1999; EPC
being the abbreviation for Engineer-Procure-Construct) (the “Silver
Book”); and
Short Form of Contract (1999; for projects of relatively small
value) (the “Green Book”).
Mikael Wahlgren
NCC Construction Sverige AB
Clause 4.10 (new Red Book
& Yellow Book) – Site Data
“The Employer shall have made available to
the Contractor for his information, prior to the
Base Date, all relevant data in the Employer’s
possession on sub-surface and hydrological
conditions at the Site, including environmental
aspects. The Employer shall similarly make
available to the Contractor all such data which
come into the Employer’s possession after the
Base Date. The Contractor shall be responsible
for interpreting all such data.
Mikael Wahlgren
NCC Construction Sverige AB
Clause 4.10 (new Red Book &
Yellow Book) – Site Data
(cont.)
To the extent which was practicable (taking account of cost and time), the Contractor shall be
deemed to have obtained all necessary information as to risks, contingencies and other
circumstances which may influence or affect the Tender or Works. To the same extent, the
Contractor shall be deemed to have inspected and examined the Site, its surroundings, the
above data and other available information, and to have been satisfied before submitting the
Tender as to all relevant matters including (without limitation):
(a) the form and nature of the Site, including sub-surface conditions,
(b) the hydrological and climatically conditions,
(c) the extent and nature of the work and Goods necessary for the execution and
completion of the Works and the remedying of any defects,
(d) the laws, procedures and labour practices of the Country (means the country in which
the Site (or most of it) is located, where the Permanent Works are to be executed), and
(e) the Contractor’s requirement for access, accommodation, facilities, personnel, power,
transport, water and other services.”
Mikael Wahlgren
NCC Construction Sverige AB
Clause 4.10 (Silver Book) –
Site Data
The last sentence of paragraph 1 have been
deleted and replaced the 2nd paragraph with
the following wording:
“The Contractor shall be responsible for
verifying and interpreting all such data. The
Employer shall have no responsibility for the
accuracy, sufficiency or completeness of such
data, except as stated in Sub-Clause 5.1
[General Design Responsibilities].”
Mikael Wahlgren
NCC Construction Sverige AB
Comments to Clause 4.10
– Site Data
In the new Red Book and new Yellow Book:
Constitutes a step backwards for the Contractor by inserting
the words “relevant data in the Employer’s possession”.
Reference to “relevant data” limits the information to be
provided by the Employer.
Contractors are advised to amend this requirement so that the
Employer is required to supply all available data on
hydrological and sub-surface conditions.
In the new Yellow Book should be expanded to include all
information relevant to the Contractor’s design.
Mikael Wahlgren
NCC Construction Sverige AB
Comments to Clause 4.10
– Site Data (cont.)
In the Silver Book:
The Contractor is responsible for verifying data - particularly, verifying and
interpreting all data on subsurface and hydrological conditions, including
environmental aspects.
Carefully scrutinise the precise extent to which the exceptions offered under
Sub-Clause 5.1.
The disclaimer covers any information provided during the performance of the
Works - the Contractor cannot rely on information provided by the Employer
during the execution of the Contract.
FIDIC recognise that, the Silver Book is not suitable for use where “there is
insufficient time or information for tenderers to scrutinise and
check the Employer's Requirements or for them to carry out their
designs, risk assessment studies and estimating” - FIDIC's alternative
is the Yellow Book.
Mikael Wahlgren
NCC Construction Sverige AB
Clause 4.12 (new Red Book &
Yellow Book) – Unforeseeable
Physical Conditions
“In this Sub-Clause, “physical conditions” means natural physical conditions and
man-made and other physical obstructions and pollutants, which the Contractor
encounters at Site when executing the Works, including sub-surface and
hydrological conditions but excluding climatic conditions.
If the contractor encounters adverse physical conditions which he considers to
have been Unforeseeable, the Contractor shall give notice to the Engineer as
soon as possible.
This notice shall describe the physical conditions, so they can be inspected by the
Engineer, and shall set out the reasons why the Contractor considers them to be
Unforeseeable (means not reasonably foreseeable by an experienced contractor
by the date for submission of the Tender). The Contractor shall continue
executing the Works, using such proper and reasonable measures as are
appropriate for the physical conditions, and shall comply with any instructions
which the Engineer may give. If an instruction constitutes a Variation (means any
change to the Works, which is instructed or approved as a variation), under
Clause 13 [Variations and Adjustments] shall apply.
Mikael Wahlgren
NCC Construction Sverige AB
Clause 4.12 (new Red Book &
Yellow Book) – Unforeseeable
Physical Conditions (cont.)
If and to the extent that the Contractor encounters physical conditions which are
Unforeseeable, gives such a notice, and suffers delay and/or incurs Cost by the
Contractor, whether on or off the Site, including overhead and similar charges,
but does not include profit) due to these conditions, the Contractor shall be
entitled subject to Sub-Clause 20.1 [Contractor’s Claim] to:
(a) an extension of time for any such delay, if completion is or will be delayed,
under Sub-Clause 8.4 [Extension of Time for Completion], and
(b) Payment of any such Cost, which shall be included in the Contract Price.
After receiving such notice and inspecting and/or investigating these physical
conditions, the Engineer shall proceed in accordance with Sub-Clause 3.5
[Determination] to agree or determine (i) whether and (if so) to what extent
these physical conditions were Unforeseeable, and (ii) the matter described in
sub-paragraphs (a) and (b) above related to this extent.
Mikael Wahlgren
NCC Construction Sverige AB
Clause 4.12 (new Red Book &
Yellow Book) – Unforeseeable
Physical Conditions (cont.)
However, before additional Cost is finally agreed or determined under
sub-paragraph (ii), the Engineer may also review whether other physical
conditions in similar parts of the Works (if any) were more favourable
than could reasonably have been foreseen when the Contractor
submitted the Tender. If and to the extent that these more favourable
conditions were encountered, the Engineer may proceed in accordance
with Sub-Clause 3.5 [Determination] to agree or determine the
reductions in Cost which were due to these conditions, which may be
included (as deductions) in the Contract Price and Payment Certificates.
However, the net effect of all adjustments under sub-paragraph (b) and
all these reductions, for all the physical conditions encountered in similar
parts of the Works, shall not result in a net reduction in the Contract
Price.
The Engineer may take account of any evidence of the physical
conditions foreseen by the Contractor when submitting the Tender,
which may be made available by the Contractor, but shall not be bound,
by any such evidence.”
Mikael Wahlgren
NCC Construction Sverige AB
Clause 4.12 (Silver Book) –
Unforeseeable Difficulties
“Except as otherwise stated in the Contract:
(a) the Contractor shall be deemed to have obtained
all necessary information as to risks,
contingencies and other circumstances which
may influence or affect the Works;
(b) by signing the Contract, the Contractor accepts
total responsibility for having foreseen all
difficulties and costs of successfully completing
the Works; and
(c) the Contract Price shall not be adjusted to take
account of any unforeseen difficulties or costs.”
Mikael Wahlgren
NCC Construction Sverige AB
Clause 4.12 (new Red Book & Yellow
Book) – Unforeseeable Physical
Conditions
Unforeseeable” is a defined term = “not reasonably foreseeable by
an experienced Contractor by the date of submission of the Tender”.
Entitlement to recover additional costs will not include profit.
Relief for cost and time due to unforeseeable “natural physical
conditions and man made and other physical obstructions or
pollutants” and “including subsurface and hydrological conditions”.
No relief due to impediments encountered off the site.
Excludes climatic events.
Engineer may take into account whether “other Physical Conditions
in similar parts of the Works (if any) were more favourable than
could reasonably have been foreseen when the Contractor submitted
its Tender”.
New concept that allows for the Contractor to provide evidence of
the physical conditions foreseen in his tender calculation.
An alternative is to agree the foreseeable conditions beforehand.
Mikael Wahlgren
NCC Construction Sverige AB
Clause 4.12 (Silver Book) –
Unforeseeable Difficulties
The language is uncompromising in the extreme and its scope
and application are much more wide-ranging.
The consequential effects of all unforeseen difficulties are
passed to the Contractor, “Except as otherwise stated in
the Contract”.
The Contractor is to foresee and allow in the price for every
eventuality however unforeseeable!
It is difficult to imagine a clause which would be more
threatening to contractors - Contractors should beware!
Mikael Wahlgren
NCC Construction Sverige AB
Conclusion & final notes
The main reason for the diminishing use
of the FIDIC standard forms :
need quite substantive amendments;
many law firms have produced and
promote their own bespoke contract
forms; and
the number of competing standard
forms.
Mikael Wahlgren
NCC Construction Sverige AB
Conclusion & final notes
(cont.)
Regions where FIDIC standard forms are used:
projects in Africa and Asia.
projects financed by the World Bank.
Under US law, where the contractor has a duty to inspect, that duty does not
include taking its own soil borings. A contractor is entitled to rely on the
borings provided by the Employer.
The new Red and Yellow Book (clause 4.12) can give time and money for
unforeseen site conditions whereas Silver Book says largely the reverse – the
Contract Price should not be adjusted for unforeseen difficulties or cost.
If the Silver clauses remain unchanged, contractors may try (if the facts
justify it) to claim for:
– site conditions on the basis that the Employer did not make relevant data
available (clause 4.10);
– ground conditions on the basis of inability to verify (clause 5.1(d)); and
– Force Majeure in extreme cases (clause 19.1).
Mikael Wahlgren
NCC Construction Sverige AB