Presentation to the Danish Society
for Construction and Consulting Law
Mark Roe
29 September 2011
Topics covered
• The latest developments on the FIDIC form of contract
• Partnering and Framework contracts using the NEC form
• PPP opportunities globally
FIDIC Latest Developments
• Latest Contracts
– Gold Book
– Sub Contract Form
– MDB Form
The Gold Book
• FIDIC published a Guide to the Gold Book this summer
• Contrary to expectation, the Gold Book was not extended
to brownfield sites
• The Gold Book therefore still applies only to greenfield
• FIDIC has stated its intention to publish a separate
document for the brownfield scenario
The Gold Book - Notices
• Amendment to Clause 20.1
– A dilution of the notice provisions
– Allows the contractor to refer a notice to the DAB if it has given
notice out of time
• “if the Contractor considers there are circumstances which justify the
late submission, he may submit the details to the DAB for a ruling. If
the DAB considers that, in all the circumstances, it is fair and
reasonable that the late submission be accepted, the DAB shall
have the authority to overrule the relevant 28-day limit and, if it so
decides, it shall advise the Parties accordingly.” (extract from Clause
New Yellow Book
• FIDIC are due to publish a new version of the Yellow
Book sometime in 2012
• So far there are no hints about what form the
amendments might take; however
– It is likely that the Yellow Book 2012 will include the
recent change made to the Gold Book; namely the
dilution of the notice provisions in Clause 20.1
– It might seek to address criticisms that certain
provisions do not work in a civil law environment
The Sub Contract Form - 2009
A new form with amendments is to be published in the near future (FIDIC
say 2 October 2011 at FIDIC Davos conference)
Overall Philosophy is a pass through of risk from Contractor to Sub
– Cl 1.1. Definitions in main Contract adopted in Sub Contract
– Cl 1.3. Where Main Contract Provisions apply to Sub Contract , Sub
Contract Clauses are to be interpreted as if amended appropriately
– Cl 1.8 Sub Contract adopts Law and Language of Main Contract
The Sub Contract Form - 2009
• Cl 2.1 Sub Contractor deemed to have knowledge of
Main Contract
• Cl 2.2 Sub Contractor assumes all liabilities of Main
Contractor, subject to exceptions for matters such as
– Security
– Access
– Services
The Sub Contract Form - 2009
• Pass Through Continued
No provision that Sub Contractor will not place Main
Contractor in breach in performing its Sub Contract
The Sub Contract Form - 2009
• Clause 2.4 Contractor will take all reasonable steps to
secure for Sub Contractor like
– Benefits
– Rights
– Entitlements
That Contractor has under Main Contract
• But, Pay when Paid Provisions of Cl 14.6 limit its effect
The Sub Contract Form - 2009
Co ordination and Co operation
Cl. 3.5 Contractor to co ordinate other Sub Contractor
Cl. 6.1Sub contractor has duty to co operate and allow
access to others
Cl. 8.4 If Sub Contractor is late Contractor can order
acceleration at Sub Contractor’s Cost.
The Sub Contract Form - 2009
• Termination
– Cl 15.1 Optional Termination if Main Contract
– Sub Contractor entitled to:
• Contract Value
• Termination Costs
• Lost Profit
– Subcontractor entitled to immediate payment if
Contractor terminated for cause
• unless Sub Contractor caused termination.
The Sub Contract Form - 2009
• If Main Contract terminated
– for Force Majeure, or
– Continued Suspension
• Pay when Paid
• Cl 15.6 Contractor may also terminate on any of Main
Contract Grounds
The Sub Contract Form - 2009
• Clause 20 - Claims Regime
– Cl. 20.2 - 21 day notice of claim is a precondition
– Clause 20.1 Sub Contractor must give notice to
Contractor and keep records where Contractor
required to do so under Main Contract.
– Cl. 20.3 Failure to comply with cl.20.1 entitles
Contractor to set off from sums otherwise due to the
Sub Contractor.
The Sub Contract Form - 2009
• Claims Regime Contd
– Cl. 20.4 If Sub Contractor gives notice of dispute Main
Contractor may suspend reference to DAB for 112
– Main Contractor may refer related disputes to Main
Contract DAB.
– Sub Contract Arbitration not linked to Main Contract
New MDB Form
• Very Similar to First Edition so a very brief reminder of
the differences to the Red Book
Cl. 2.4Funding Information
Cl 6.4 &4.4 Local Labour and Sub Contractors
Cl 6.7 Aids
Owner risk for riot and insurrection limited to
Jurisdiction of the Works
– Cl 17.6 Employer entitled to indemnity for damage to
property unless Contractor can prove Employer fault
What FIDIC Has not done
• No Partnering Form
• No Target Cost Contract
• New Engineering Contract is becoming a serious
Partnering and framework contracts
using the NEC form
• Partnering as part of the ethos of the NEC generally
• Partnering as an optional sub-clause
• NEC framework contracts
NEC Overview
• A clear division of functions and responsibility helps
accountability and motivates people to play their part
• Foresight applied collaboratively mitigates problems
and risks
Stimulus to good management – a
“Partnering” approach
• Modern approach
• Mutual trust and co-operation
• The role of the Project Manager
• Notices and communications
• Compensation events
NEC’s modern approach
Traditional forms of contract:
– discourage communication and can lead to claims
– create uncertainty re the final cost until the Final Account process
– no early resolution of claims – payments are often on an interim basis
– cynicism and suspicion surrounding notices and records
NEC approach is very different:
– encourages early communication
– entitlements based on forecasts
– no final account process in NEC
But this requires a very different approach and mindset
Core clause 1
“10.1 The Employer, the Contractor, the Project Manager
and the Supervisor shall act as stated in this contract in
a spirit of mutual trust and co-operation”
• What does this mean?
• How does it work in practice?
The Project Manager
• The role of the PM
– Pro-active
– Involved in early warnings, risk reduction,
compensation events, ambiguities, subcontractors,
accepting programme, programme revisions
• Costain v Bechtel (2005)
“When the project manager comes to exercise his discretion... It would
be a most unusual basis for any building contract to postulate that every
doubt shall be resolved in favour of the employer and every discretion
shall be exercised against the contractor.
…Upon examining these provisions, I am unable to find anything which
militates against the existence of a duty upon the project manager to act
impartially in matters of assessment and certification.”
Structure - flexibility
• Modular
– Nine Core Clauses
– Six main options (pricing)
– Two dispute resolution secondary options
– Sixteen secondary options
• Total design flexibility
• Separate contracts for consultancy services (PSC), term
maintenance (TSC), framework agreement, subcontracting
Structure – modular form
Core Clauses
Main Option
Main Option
Main Option
Dispute Resolution
Main Option
Main Option
Main Option
Must chose
1 Dispute
Dispute Resolution
Contract Data Parts 1 & 2
Must select
one main
All secondary
options are
Structure – the Core Clauses
The Contractor’s Main Responsibilities
Testing and Defects
Compensation Events
Risks and Insurance
Secondary Option Clauses
Bonds and
Retentions Inflation
and Currencies
Construction Act
Incentives –
Bonus, PLAD
Changes in
Third Party
Rights Act
Limitations of
Additional conditions
Secondary Option Clauses
• X1 – price adjustment for
• X2 – changes in law
• X4 – PCG
• X5 – sectional completion
• X6 – bonus for early
• X7- delay damages
• X12 - partnering
X13 – performance bond
X14 – advance payment
X15 – design liability
X16 – retention
X17 – low performance
X18 – limitation of liability
X20 – KPIs
Y(UK)2&3 – legislation
Z – additional conditions
Option Clause X12 - Partnering
• Option X12 puts the NEC partnering option into a
• It is used for partnering between more than two parties
working on the same project or programme of projects
• Enables the composition of the partnering team to be
changed from time to time as projects evolve
• Brief set of clauses (4 clauses)
• Includes agreements for joint pursuit of objectives, &
working towards key performance indicators
Framework contract
• Introduced in 2005 when the NEC3 contract was
• Can be used in conjunction with any of the contracts
from the NEC suite
• Designed to allow the Employer to invite tenders from
suppliers to carry out work on an ‘as instructed’ basis
over a set term.
• Normally, the Employer will appoint a number of
framework suppliers to carry out work within the defined
Framework Contract
• The Employer provides data:
– the framework information
– Scope
– Selection procedure
– Quotation procedure
• The Employer selects a supplier for a ‘work package’
under the framework contract
• The supplier submits a quotation
• If the quotation is accepted the Employer issues a
package order
NEC in general - points to bear in mind
• NEC3 is in many ways more ‘contractor friendly’ than
other forms
– As the main and subcontract clauses are the same, you need to
amend the standard subcontract form if you are subcontracting
on NEC3
• Emphasis on project management, and successful
project outcome, e.g. early warning, programming,
– You must watch Cl. 13 when giving notices
• Time bar provisions in the Comp. Event process
– Is it practicable to comply with the CE process in reality?
– Assessment is based on forecasts which are not revisited if
NEC in general - points to bear in mind
• Complete the contract properly!
– Watch the Works Information. NB: the Contract Data.
– Take care with the secondary option clauses
• main and subcontract choices do not need to be the same
• The ‘generosity’ (to the Contractor) of the CE regime
– Gear your internal processes so that you take advantage of the
‘deeming’ provisions in 61.4, 62.6 and 64.4 – and watch
subcontractors who will try to do the same
• Programming obligations - onerous!
• Read the contract carefully. Its different! Do not make
assumptions about what it says! It wording is not always
clear and is not tested in the Courts.
Accessing global PPP opportunities to build
Why does a country need infrastructure?
 A sign of economic growth
 A sign of ability to compete
 A sign of ‘development’
 Demands of population increase
 Demands of increasing urbanisation
• Global expenditure on infrastructure:
 Currently US$1 trillion = 2% global GDP per annum
 Anticipated increase by 2030 to US$41 trillion
Accessing global PPP opportunities to build
Opportunities (cont’d)
• What types of projects are/will be available?
 Major developments
• E.g. Bahrain Pilot Social Housing PPP – scheme to build
5,000 housing units
 Maintenance and improvement
• E.g. Belmarsh Prison PPP – new correctional facility at
existing prison in London
 Replacement
• E.g. Hounslow Highways PPP – repair and replacement
of roads and pavements in west London
Accessing global PPP opportunities to build
An Example of the Current Situation - Western Europe
• In first half of 2010,138 projects reached financial close
 Spain had 46 projects, total value of US$9.87 billion
– leading sectors for value: Transport (US$3.5 billion), Oil &
Gas (US$3.1 billion)
 France had 18 projects, total value of US$7.5 billion
– Includes Exeltium Power Purchase Financing agreement
 Portugal had 5 projects, total value of US$5.06 billion
– Includes High Speed Rail (value: US$2.3 billion)
 UK had 25 projects, total value of US$3.35 billion
– Leading sector for number of projects: Social Infrastructure
Accessing global PPP opportunities to build
The Future:
• Ongoing pipeline of European projects
• Impact of emerging markets?
 Population increase
 Demands for higher living standards
 Need to replace/maintain existing infrastructure
 Lack of budgetary constraints that will affect developed countries
= opportunities for construction sector!
PPP: the basics – important considerations
when starting out in PPP
Conventional Public Procurement vs PPP
Public Procurement
• Short term contract
• Funded by public sector
• Risk shared between public
and private sectors
• Delivery of infrastructure asset
= end of contract
• Payment – by public sector for
duration of construction period
• Long term contract (20+years)
• Funded wholly or largely by
private sector
• Risk allocated to party ‘best
suited to manage the risk’
• Delivery of infrastructure asset is
usually integrated with ongoing
maintenance/operating services
• Payment – by public sector when
asset is delivered and
operational (‘unitary charge’)
PPP: the basics – important considerations when
starting out in PPP
Conventional Procurement vs PPP
PPP: the basics – important considerations
when starting out in PPP
• Procuring Authority runs pre-contract Competition Competitive dialogue / Negotiated Procedure
• Preferred Bidder selected – Project Company contracts with
Procuring Authority
• Project Company contracts with Construction Contractor
• Financial Close – funding secured by Project Company Construction Period begins
PPP: the basics – important considerations when
starting out in PPP
PPP Project Structure
Facility and
PPP: the basics – important considerations
when starting out in PPP
• Differences between non-PPP and PPP Construction
– PPP Construction Agreement
• Will seek to “step down” (or pass-through) Project Company’s
construction related obligations to Contractor
• Therefore will often not be in the form of a FIDIC or NEC contract
but will have bespoke clauses
• Will contain new provisions which are Project Agreement (PA)
– Termination (with compensation) if PA terminates
– Procuring Authority’s independent certifier/engineer likely to
have influence
– Project equivalent relief (time/cost)
Lessons learned from recent PPP projects –
international best practice
Country Analysis:
 Country Risk Perception
• Consider: domestic legal system, financial stability of the
country, level of government support offered, query if awards
are made at national or state level
 Government flexibility and willingness
• Consider: government’s willingness to see that the project is
completed – will it recognise that events may not run
according to plan and that some compromise may be needed
between the parties?
Lessons learned from recent PPP projects –
international best practice
Project Selection:
• ‘Pipeline of projects’ – to encourage investment by private
• Clear and transparent procurement process – candidates
have confidence that the competition is run fairly
• Projects need to be well-structured – to be attractive to
private sector and to satisfy private sector investors that PPP
is the right approach for this project
Impact of role of international funding institutions
Remit of IFIs is consistent with implementation of PPP
 International Finance Corporation (part of 'World Bank Group'):
"[to] further economic development by encouraging the growth
of productive private enterprise in member countries,
particularly in the less developed areas"
 European Bank for Reconstruction and Development (EBRD):
"[to] foster the transition toward open market oriented
economies and to promote private and entrepreneurial initiative
in the Central and Eastern European countries...“
 European Investment Bank (EIB):
"[to] the balanced and steady development of the
common market in the interest of the Community"
Impact of role of international funding
IFIs: investing in PPP projects (cont’d):
 Investment is largely in the form of direct loans to Project
Companies (but some grant funding is available too)
 Examples of current PPP investment:
• Metro de Barcelona Estaciones (Spain) – rail – loan value
EUR400 million
• Douro Litoral (Portugal) – motorway toll concession – loan value
EUR600 million
• A2A Servizi Idrici Brescia – water/waste – loan value EUR70
Opportunities in Global PPP
• Conclusions:
– Countries will continue to need infrastructure
– Rise of emerging markets will be crucial
• Population growth
• Replace / build new infrastructure
• Lack of budgetary constraints
– Support of IFIs
• Already active (e.g. Structural Fund )
Working hard to make it easier
International: T 44 (0)20 7418 7000 UK: T 0845 300 32 32
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